<PAGE> 1
Filed Pursuant to Rule 424(b)(1)
Registration Statement Nos. 333-28213, 333-28213-01
[REPUBLIC BANCSHARES LOGO]
$25,000,000
RBI CAPITAL TRUST I
2,500,000 SHARES OF 9.10% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED HEREIN, BY
REPUBLIC BANCSHARES, INC.
The 9.10% Cumulative Trust Preferred Securities (the "Preferred
Securities") offered hereby represent preferred undivided beneficial interests
in the assets of RBI Capital Trust I, a statutory business trust created under
the laws of the State of Delaware ("RBI Capital"). Republic Bancshares, Inc., a
Florida corporation (the "Company"), will own all the common securities
representing undivided beneficial interests in the assets of RBI Capital (the
"Common Securities" and, together with the Preferred Securities will be referred
to herein as the "Trust Securities"). (continued on next page)
The Preferred Securities have been approved for listing on The Nasdaq Stock
Market's National Market under the symbol "REPBP." See "Risk Factors -- Absence
of Market."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 HEREOF FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES.
---------------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK
AND ARE NOT INSURED BY THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND OR THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER INSURER
OR GOVERNMENT AGENCY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
============================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC COMMISSION(1) RBI CAPITAL(2)(3)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Preferred Security.......................... $10.00 (3) $10.00
- ------------------------------------------------------------------------------------------------------------
Total(4)........................................ $25,000,000 (3) $25,000,000
============================================================================================================
</TABLE>
(1) RBI Capital and the Company have each agreed to indemnify the Underwriters
against certain liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deduction of expenses payable by the Company estimated at $310,000.
(3) In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures of
the Company, the Company has agreed to pay to the Underwriters, as
compensation for arranging the investment therein of such proceeds, $.375
per Preferred Security (or $937,500 in the aggregate). See "Underwriting."
(4) RBI Capital and the Company have granted the Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to purchase up
to an additional 375,000 aggregate liquidation amount of the Preferred
Securities on the same terms as set forth above, solely to cover
over-allotments, if any. If such over-allotment option is exercised in full,
the total Price to Public and Proceeds to RBI Capital will be $28,750,000
and $28,750,000, respectively. See "Underwriting."
The Preferred Securities are offered by the Underwriters subject to receipt
and acceptance by them, prior sale and the Underwriters' right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the Preferred Securities will be made in
book-entry form through the book-entry facilities of The Depository Trust
Company on or about July 31, 1997 against payment therefor in immediately
available funds.
[WILLIAM R. HOUGH & CO. LOGO] [RYAN, BECK & CO. LOGO]
THE DATE OF THIS PROSPECTUS IS JULY 28, 1997
<PAGE> 2
(cover page continued)
Wilmington Trust Company is the Property Trustee (as defined herein) of RBI
Capital. RBI Capital exists for the sole purpose of issuing the Trust Securities
and investing the gross proceeds thereof in an equivalent amount of 9.10% Junior
Subordinated Debentures (the "Junior Subordinated Debentures") of the Company.
The Junior Subordinated Debentures will mature on June 30, 2027 (the "Stated
Maturity"), which date may be shortened to a date not earlier than June 30,
2002, if certain conditions are met (including the Company having received prior
approval by the Board of Governors of the Federal Reserve System or any
successor agency (the "Federal Reserve") if then required under applicable
Federal Reserve capital guidelines or policies). The Common Securities will
represent an aggregate liquidation amount equal to at least 3.0% of the total
capital of RBI Capital. The Preferred Securities will have a preference under
certain circumstances with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise over the Common Securities. See
"Description of the Preferred Securities -- Redemption or Exchange --
Subordination of Common Securities."
The Preferred Securities will be represented by one or more global
securities registered in the name of a nominee of The Depository Trust Company,
as depository ("DTC"). Beneficial interests in the global securities will be
shown on, and transfer thereof will be effected only through, records maintained
by DTC and its participants. Except as described under "Description of Preferred
Securities," Preferred Securities in definitive form will not be issued and
owners of beneficial interests in the global securities will not be considered
holders of the Preferred Securities. Settlement for the Preferred Securities
will be made in immediately available funds. The Preferred Securities will trade
in DTC's Same-Day Funds Settlement System, and secondary market trading activity
for the Preferred Securities will therefore settle in immediately available
funds.
Holders of Preferred Securities will be entitled to receive preferential
cumulative cash distributions, at the annual rate of 9.10% of the liquidation
amount of $10 per Preferred Security (the "Liquidation Amount"), accruing from
the date of original issuance and payable quarterly in arrears on the last day
of March, June, September and December of each year, commencing September 30,
1997 (the "Distributions"). Such Distributions are considered under current law
to be interest paid by the Company to the holders of Preferred Securities for
United States federal income tax purposes. Interest on the Junior Subordinated
Debentures will accrue at the same rate as distributions accrue on the Preferred
Securities. The Company has the right, so long as no Debenture Event of Default
(as defined herein) has occurred and is continuing, to defer payment of interest
on the Junior Subordinated Debentures at any time or from time to time for a
period not to exceed 20 consecutive quarters with respect to each deferral
period (each, an "Extended Interest Payment Period"); provided that no Extended
Interest Payment Period may extend beyond the Stated Maturity. Upon the
termination of any such Extended Interest Payment Period and the payment of all
amounts then due, the Company may elect to begin a new Extended Interest Payment
Period, subject to the requirements set forth herein. If interest payments on
the Junior Subordinated Debentures are so deferred, Distributions on the
Preferred Securities will also be deferred, and the Company will not be
permitted to declare or pay any cash distributions with respect to debt
securities that rank pari passu with or junior to the Junior Subordinated
Debentures or with respect to its capital stock. During an Extended Interest
Payment Period, interest on the Junior Subordinated Debentures will continue to
accrue (and the amount of Distributions to which holders of the Preferred
Securities are entitled will accumulate) at the rate of 9.10% per annum,
compounded quarterly, and under such circumstances holders of the Preferred
Securities will be required to include interest income (in the form of original
issue discount) in their gross income for United States Federal income tax
purposes in advance of receipt of the Distributions with respect to such
deferred interest payments. See "Description of the Junior Subordinated
Debentures -- Option to Extend Interest Payment Period," "Certain Federal Income
Tax Consequences -- Interest Income and Original Issue Discount" and "-- Sales
of Preferred Securities." The Company has no current intention of exercising its
right to defer payments of interest by extending the interest payment period on
the Junior Subordinated Debentures. The Company believes that the mere existence
of its right to defer interest payments should not cause the Preferred
Securities to be issued with original issue discount for United States federal
income tax purposes. However, it is possible that the Internal Revenue Service
could take the position that the likelihood of deferral was not a remote
contingency within the meaning of applicable Treasury Regulations. See
"Description of the Junior Subordinated Debentures -- Option to Extend Interest
Payment Period" and "Certain Federal Income Tax Consequences -- Interest Income
and Original Issue Discount."
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement (each as
defined herein), taken together, irrevocably and unconditionally guarantee, on a
subordinated basis, all of the obligations of RBI Capital under the Preferred
Securities. See
ii
<PAGE> 3
"Relationship Among the Preferred Securities, the Junior Subordinated Debentures
and the Guarantee -- Irrevocable and Unconditional Guarantee." The Guarantee of
the Company guarantees the payment of Distributions and payments on liquidation
or redemption of the Preferred Securities, but only in each case to the extent
of funds held by RBI Capital, as described herein. See "Description of the
Guarantee -- General." If the Company does not make interest payments on the
Junior Subordinated Debentures held by RBI Capital, RBI Capital will have
insufficient funds to pay Distributions on the Preferred Securities. The
Guarantee does not cover payments of Distributions when RBI Capital does not
have sufficient funds to pay such Distributions. In such event where
Distributions on the Preferred Securities are not made and a Debenture Event of
Default exists which is attributable to the failure of the Company to pay
interest on, or principal of, the Junior Subordinated Debentures when due, a
holder of Preferred Securities may institute a legal proceeding directly against
the Company pursuant to the terms of the Indenture to enforce payments of
amounts equal to such Distributions to such holder. See "Description of the
Junior Subordinated Debentures -- Enforcement of Certain Rights by Holders of
the Preferred Securities." The obligations of the Company under the Guarantee
with respect to the Preferred Securities are subordinate and junior in right of
payment to all Senior Debt and Subordinated Debt (each as defined herein) of the
Company. The Junior Subordinated Debentures are unsecured obligations of the
Company and are also subordinated to all Senior Debt and Subordinated Debt of
the Company, currently comprised of $6.0 million of the Company's 6.0%
convertible subordinated debentures, due 2011 (the "6.0% Debentures"). The
Company does not currently have any Senior Debt. See "Description of the Junior
Subordinated Debentures -- Subordination."
The Preferred Securities have no stated maturity. They are subject to
mandatory redemption, in whole or in part, upon repayment of the Junior
Subordinated Debentures at maturity or their earlier redemption. Subject to
prior approval of the Federal Reserve, if then required under applicable Federal
Reserve capital guidelines or policies, the Junior Subordinated Debentures are
redeemable prior to maturity at the option of the Company (i) on or after June
30, 2002, in whole at any time or in part from time to time, or (ii) at any
time, in whole (but not in part), within 180 days following the occurrence of a
Tax Event, an Investment Company Event, or a Capital Treatment Event (each as
defined herein), in each case at a redemption price equal to the accrued and
unpaid interest on the Junior Subordinated Debentures so redeemed to the date
fixed for redemption, plus 100% of the principal amount thereof. See
"Description of the Preferred Securities -- Redemption or Exchange."
The Company intends to take the position that the Junior Subordinated
Debentures will be classified under current law as indebtedness of the Company
for United States federal income tax purposes and, accordingly, the Company
intends to treat the interest payable by the Company on the Junior Subordinated
Debentures as deductible for United States federal income tax purposes. There is
no assurance that such position of the Company will not be challenged by the
Internal Revenue Service or, if challenged, that such a challenge will not be
successful. See "Risk Factors -- Possible Tax Legislation" and "Certain Federal
Income Tax Consequences -- Classification of the Junior Subordinated
Debentures."
The Company, as the holder of the Common Securities, has the right at any
time to dissolve, wind-up or terminate RBI Capital, subject to the Company
having received the prior approval of the Federal Reserve if then required under
applicable Federal Reserve capital guidelines or policies. In the event of the
voluntary or involuntary dissolution, winding up or termination of RBI Capital,
after satisfaction of liabilities to creditors of RBI Capital as required by
applicable law, the holders of Preferred Securities will be entitled to receive
a Liquidation Amount of $10 per Preferred Security, plus accumulated and unpaid
Distributions thereon to the date of payment, which may be in the form of a
Junior Subordinated Debenture, subject to certain exceptions. See "Description
of the Preferred Securities -- Redemption or Exchange" and "-- Liquidation
Distribution Upon Termination."
The Company will provide to the holders of the Preferred Securities
quarterly reports containing unaudited financial statements and annual reports
containing financial statements audited by the Company's independent auditors.
The Company will also furnish annual reports on Form 10-K and quarterly reports
on Form 10-Q free of charge to holders of the Preferred Securities who so
request in writing addressed to the Secretary of the Company.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS,
SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. ANY OF THE FOREGOING
TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME WITHOUT NOTICE. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
iii
<PAGE> 4
MAP
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, the information in this Prospectus
assumes that the Underwriters' over-allotment option will not be exercised.
THE COMPANY AND THE BANK
Republic Bancshares, Inc. (the "Company") is a registered bank holding
company formed in February 1996 for the primary purpose of becoming the holding
company parent of Republic Bank (the "Bank"), a Florida-chartered commercial
bank organized on December 13, 1973. The Bank provides a broad range of
traditional banking services with a particular emphasis on residential and
commercial real estate lending. Currently, the Bank's branch network consists of
35 branches in Pasco, Pinellas, Orange, Manatee, Hernando, Seminole and Sarasota
Counties. At March 31, 1997, the Company's consolidated assets totaled $912.1
million, loans totaled $748.5 million, deposits totaled $829.1 million and
stockholders' equity was $55.6 million. The Company is regulated by the Federal
Reserve, and the Bank is regulated by the Florida Department of Banking and
Finance (the "Department") and the Federal Deposit Insurance Corporation
("FDIC"). The Bank's deposits are insured by the FDIC, and the Bank is a member
of the Federal Home Loan Bank of Atlanta ("FHLB").
On May 28, 1993, William R. Hough and John W. Sapanski (together, the
"Controlling Stockholders") acquired from the prior controlling stockholder over
99% of the outstanding common stock of the Bank (the "Change in Control").
Currently, Messrs. Hough and Sapanski (and their respective affiliates and
immediate family members) own shares of the Company's capital stock representing
approximately 50.6% and 9.0%, respectively, of the total voting rights of the
Company. Mr. Hough is a member of the Company's Board of Directors and Mr.
Sapanski serves as the Company's Chairman of the Board, Chief Executive Officer
and President.
After the Change in Control, the Bank began to implement a program of
expanding its branches and lines of business. On December 17, 1993, the Bank
acquired 12 branches from CrossLand Savings FSB, a federal stock savings bank,
("CrossLand") assumed deposits of $327.7 million held at the acquired branches
and purchased from CrossLand loans secured by real estate and other real estate
("ORE") amounting to $201.6 million (the "CrossLand Purchase and Assumption").
The CrossLand Purchase and Assumption more than doubled the Bank's size,
increasing total assets to $531.3 million and total deposits to $494.3 million
at December 31, 1993. Additionally, the new branches expanded the Bank's market
area to include Manatee and Sarasota counties and more than doubled the branch
network to a total of 19 branches.
During the latter part of 1994 and throughout 1995, the Bank continued to
pursue a strategy of increasing its retail banking presence on the west coast of
Florida. The Bank opened thirteen de novo branches, increasing market presence
in existing counties and providing entry into Pasco County.
During 1996, the Company focused on enhancing its residential lending
capabilities. Through internal growth and the addition of the Bank's new
mortgage banking division, the Company added six loan production offices in
Florida and one loan production office in Boston, Massachusetts. These offices
expanded the Company's product line to include government-insured first mortgage
loans, "Title I" home improvement loans and high loan-to-value debt
consolidation loans. In the fourth quarter of 1996, the Bank also added a
wholesale lending operation that purchases loans from third-party originators
for resale. The Company sells substantially all the loan production from its
mortgage banking division as whole loans or loans pooled as securities. See
"Risk Factors -- Change in Loan Sales Strategy."
In 1997, the Company again pursued geographic expansion. In January, the
Company expanded into Hernando County by opening a de novo branch. In April, the
Company acquired Firstate Financial, F.A. ("Firstate"), a thrift institution
headquartered in Orlando, Florida, for a cash purchase price of $5.5 million
(the "Firstate Acquisition"). At March 31, 1997, Firstate had total assets of
$72.0 million, total deposits of $68.1 million and operated a branch in each of
Orange and Seminole Counties. The Firstate Acquisition
1
<PAGE> 6
increased the Company's presence in central Florida, where the Company
previously operated a loan production facility but had no branches. See "Pro
Forma Financial Data."
Also in April 1997, the Company and F.F.O. Financial Group, Inc. ("FFO"),
St. Cloud, Florida, the holding company parent of First Federal Savings and Loan
Association of Osceola County ("First Federal"), entered into an Agreement and
Plan of Merger (the "FFO Agreement") pursuant to which FFO will be merged into
the Company in a stock transaction (the "FFO Merger"). FFO has 11 branches in
Osceola, Orange and Brevard counties and, at March 31, 1997, had total assets of
$320.0 million, total loans of $226.1 million and total deposits of $285.7
million. If consummated, the FFO Merger would increase the total assets of the
Company to approximately $1.3 billion, expand its network of branches from 35 to
46, and increase the number of counties served by the Company's branches from
seven to nine. See "Pro Forma Financial Data." William R. Hough, one of the
Company's Controlling Stockholders, also owns a majority interest in FFO.
Consummation of the transaction is subject to regulatory and shareholder
approval. Either party has the right to terminate the FFO Agreement if the FFO
Merger does not occur by November 1, 1997.
The principal executive offices of the Company are located at 111 Second
Avenue N.E., Suite 300, St. Petersburg, Florida, 33701, and its telephone number
is (813) 823-7300.
BUSINESS STRATEGY
The Company's business strategy entails (i) originating and purchasing real
estate-secured loans for portfolio and sale and originating business and
consumer loans for portfolio, (ii) improving market share and expanding its
market area through acquisitions of financial institutions and de novo
branching, (iii) increasing non-interest income through expanded mortgage
banking activities and emphasizing commercial and retail checking relationships,
and (iv) increasing its range of products and services. While pursuing this
strategy, management remains committed to improving asset quality, managing
interest rate risk and enhancing profitability.
The Company's business strategy has resulted in:
- Expanded Branch Network -- Since the Change in Control, the Company has
expanded its branch network from seven branches in northern Pinellas
County to its current 35 branches in Hernando, Pasco, Pinellas, Manatee,
Sarasota, Seminole and Orange Counties. Further market expansion will
occur upon consummation of the FFO Merger later this year which will add
11 branches in the central Florida market, including five in Osceola
County, five in Brevard County, and one in Orange County, bringing the
total number of branches to 46.
- Increased Levels and Sources of Noninterest Income -- The Company has
expanded its sources and amounts of fee income by emphasizing mortgage
banking activities and new products, including a program that generates
fee income for the Company when the Company's checking account customers
utilize the travel and other services of certain third-party providers.
- Improved Asset Quality Ratios -- The assets acquired in the Change in
Control and the CrossLand Purchase and Assumption included significant
levels of nonperforming assets. As a result, the Company's nonperforming
assets-to-total assets ratio was 4.95% at year-end 1993. This ratio was
reduced to 2.58% at March 31, 1997. This reduction was achieved primarily
through the implementation of consistent loan underwriting policies and
procedures, centralization of all credit decision functions and growth in
the loan portfolio. Nonperforming assets at March 31, 1997, included $16.5
million of loans and ORE primarily originated prior to the Change in
Control, $1.4 million from assets acquired in the CrossLand Purchase and
Assumption and $5.7 million from assets originated or purchased after
December 31, 1993. However, the level of the Company's nonperforming
assets continues to be higher than that of peer group institutions. See
"Risk Factors -- Nonperforming Assets."
2
<PAGE> 7
- Management of Interest Rate Risk -- One of the Company's primary
objectives is to reduce fluctuations in net interest income caused by
changes in market interest rates. To manage interest rate risk, the
Company generally limits holding loans in its portfolio to those that have
variable interest rates tied to interest-sensitive indices and actively
manages the maturities within the investment portfolio. The Company
believes, based on its experience, that, as of March 31, 1997, the
anticipated dollar amounts of assets and liabilities which reprice or
mature within a one-year time horizon were closely matched.
RECENT DEVELOPMENTS
For the quarter ended June 30, 1997, the Company reported net income of
$629,000 or $.13 per share compared to $1.3 million or $.26 per share for the
same period of 1996. Previously, the Company had announced that net income was
expected to decline from the comparable period due to a change in its strategy
regarding high loan-to-value home equity loans. Since it began originating that
type of loan in the fourth quarter of 1996, the Company had been immediately
selling those loans following origination. The Company changed that strategy in
the second quarter of 1997, retaining a significant portion of those loans with
the intent to securitize or sell these loans in bulk at a future date. Primarily
as a result of this change, net income in the second quarter was reduced due to
recognizing the relatively high costs of originating these loans and the absence
of revenues resulting from loan sales. In the second quarter of 1997, the
Company recognized, as part of its noninterest income, $660,000 of pre-tax
income from mortgage banking activities. The Company estimates that, based on
published purchase prices from established firms that participate in the home
equity loan secondary markets, its pre-tax income from mortgage banking
activities in the second quarter of 1997 would have increased by approximately
$2.6 million, if the Company had followed its former policy of immediately
selling these loans. However, there can be no assurances that the Company will
realize income on the sale of these loans in future periods.
RBI CAPITAL TRUST I
RBI Capital is a statutory business trust formed under Delaware law
pursuant to (i) an initial trust agreement, dated as of May 29, 1997, executed
by the Company, as depositor, Wilmington Trust Company, as Property Trustee (the
"Property Trustee") and as Delaware Trustee (the "Delaware Trustee"), and the
administrative trustees (the "Administrative Trustees") named therein
(collectively, the "Trustees"), and (ii) a certificate of trust filed with the
Secretary of State of the State of Delaware on May 29, 1997. The initial trust
agreement will be amended and restated in its entirety (as so amended and
restated, the "Trust Agreement") substantially in the form filed as an exhibit
to the Registration Statement of which this Prospectus forms a part. The Trust
Agreement will be qualified as an indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). Upon issuance of the Preferred
Securities, the purchasers thereof will own all of the Preferred Securities and
the Company will acquire all of the Common Securities, which will represent an
aggregate liquidation amount equal to at least 3.0% of the total capital of RBI
Capital. The Common Securities will rank pari passu, and payments will be made
thereon pro rata with the Preferred Securities, except that upon the occurrence
and during the continuance of an Event of Default (as defined herein) under the
Trust Agreement resulting from a Debenture Event of Default, the rights of the
Company as holder of the Common Securities to payment in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated to the rights of the holders of the Preferred Securities. See
"Description of the Preferred Securities -- Subordination of Common Securities."
RBI Capital exists for the exclusive purposes of (i) issuing the Trust
Securities representing undivided beneficial interests in the assets of RBI
Capital, (ii) investing the gross proceeds of the Trust Securities in an
equivalent amount of the Junior Subordinated Debentures issued by the Company,
and (iii) engaging in only those other activities necessary thereto. The Junior
Subordinated Debentures and payments thereunder will be the only assets of RBI
Capital, and payments under the Junior Subordinated Debentures will be the only
revenue of RBI Capital. RBI Capital has a term of 31 years, but may terminate
earlier as provided in the Trust Agreement.
The principal executive offices of RBI Capital are located at 111 Second
Avenue N.E., St. Petersburg, Florida 33701, and its telephone number is (813)
823-7300.
3
<PAGE> 8
THE OFFERING
Securities Offered......... 2,500,000 Preferred Securities having no stated
maturity and a Liquidation Amount of $10 per
Preferred Security. The Preferred Securities
represent preferred undivided beneficial interests
in the assets of RBI Capital, which will consist
solely of the Junior Subordinated Debentures and
payments thereunder. RBI Capital has granted the
Underwriters an option, exercisable within 30 days
after the date of this Prospectus, to purchase up
to an additional 375,000 Preferred Securities on
the same terms and conditions as the initial
offering, solely to cover over-allotments, if any.
Offering Price............. $10 per Preferred Security (Liquidation Amount
$10).
Distributions.............. The Distributions payable on each Preferred
Security will be fixed at a rate per annum of 9.10%
of the Liquidation Amount of $10 per Preferred
Security, will be cumulative, will accrue from the
date of issuance of the Preferred Securities, and
will be payable quarterly in arrears, on March 31,
June 30, September 30 and December 31 of each year,
commencing September 30, 1997. See "Description of
the Preferred Securities -- Distributions --
Payment of Distributions."
Junior Subordinated
Debentures............... RBI Capital will invest the gross proceeds from the
issuance of the Preferred Securities and Common
Securities in an equivalent amount of 9.10% Junior
Subordinated Debentures of the Company. The Junior
Subordinated Debentures will mature on June 30,
2027. The Junior Subordinated Debentures will rank
subordinate and junior in right of payment to all
existing and future Senior Debt and Subordinated
Debt of the Company. In addition, the Company's
obligations under the Junior Subordinated
Debentures will be structurally subordinated to all
existing and future liabilities and obligations of
its subsidiaries.
Option to Extend Interest
Payment Period........... The Company has the right, at any time, so long as
no Debenture Event of Default has occurred and is
continuing, to defer payments of interest on the
Junior Subordinated Debentures for a period not
exceeding 20 consecutive quarters; provided, that
no Extended Interest Payment Period may extend
beyond the Stated Maturity of the Junior
Subordinated Debentures. During an Extended
Interest Payment Period, quarterly Distributions on
the Preferred Securities will be deferred, though
such Distributions will continue to accrue with
interest thereon compounded quarterly just as
interest will continue to accrue and compound on
the Junior Subordinated Debentures.
During an Extended Interest Payment Period, the
Company and any subsidiary will be prohibited,
subject to certain exceptions described herein,
from declaring or paying any cash distributions
with respect to its debt securities that rank pari
passu with or junior to the Junior Subordinated
Debentures or with respect to its capital stock.
Upon the termination of any Extended Interest
Payment Period and the payment of all amounts then
due, the Company may commence a new Extended
Interest Payment Period, subject to the foregoing
restrictions. See "Description of the Preferred
Securities -- Distributions -- Extended Interest
Payment Period" and "Description of the Junior
Subordinated Debentures -- Option to Extend
Interest Payment Period." Should an
4
<PAGE> 9
Extended Interest Payment Period occur, holders of
Preferred Securities will be required to include
deferred interest income in their gross income for
United States federal income tax purposes in
advance of receipt of the cash Distributions with
respect to such deferred interest payments. See
"Certain Federal Income Tax Consequences --
Interest Income and Original Issue Discount."
The Company has no current intention of
exercising its right to defer payments of interest
by extending the interest payment period on the
Junior Subordinated Debentures.
Redemption................. The Preferred Securities are subject to mandatory
redemption, in whole or in part, upon repayment of
the Junior Subordinated Debentures at the Stated
Maturity or their earlier redemption. Subject to
Federal Reserve approval, if then required under
applicable Federal Reserve capital guidelines or
policies, the Junior Subordinated Debentures are
redeemable prior to the Stated Maturity at the
option of the Company (i) on or after June 30,
2002, in whole at any time or in part from time to
time, or (ii) at any time, in whole (but not in
part), within 180 days following the occurrence of
a Tax Event, an Investment Company Event or a
Capital Treatment Event, in each case at a
redemption price equal to 100% of the principal
amount of the Junior Subordinated Debentures so
redeemed, together with any accrued but unpaid
interest to the date fixed for redemption. See
"Description of the Junior Subordinated
Debentures -- Redemption or Exchange."
Distribution of Junior
Subordinated
Debentures............... Subject to receipt of any required Federal Reserve
approvals, the Company, as the holder of the Common
Securities, also has the right at any time to
terminate RBI Capital and cause the Junior
Subordinated Debentures to be distributed to
holders of Preferred Securities in liquidation of
RBI Capital. See "Description of the Preferred
Securities -- Redemption or Exchange" and
"Description of the Preferred Securities --
Liquidation Distribution Upon Termination."
Guarantee.................. The Company has guaranteed the payment of
Distributions and payments on liquidation or
redemption of the Preferred Securities, but only in
each case to the extent of funds held by RBI
Capital, as described herein. The Company has,
through the Guarantee, the Trust Agreement, the
Junior Subordinated Debentures, the Indenture and
the Expense Agreement, taken together, irrevocably
and unconditionally guaranteed, on a subordinated
basis, all of the obligations of RBI Capital
relating to the Preferred Securities. If the
Company does not make principal or interest
payments on the Junior Subordinated Debentures,
however, RBI Capital will not have sufficient funds
to make distributions on the Preferred Securities;
in which event, the Guarantee will not apply to
such Distributions, unless and until RBI Capital
has sufficient funds available therefor. The
obligations of the Company under the Guarantee and
the Preferred Securities are subordinate and junior
in right of payment to all Senior Debt and
Subordinated Debt of the Company. See "Description
of the Guarantee."
Voting Rights.............. Except in limited circumstances, the holders of the
Preferred Securities will have no voting rights in
RBI Capital. See "Description of the Preferred
Securities -- Voting Rights; Amendment of Trust
Agreement."
5
<PAGE> 10
Use of Proceeds............ The gross proceeds received from the sale of the
Preferred Securities offered hereby will be used by
RBI Capital to purchase the Junior Subordinated
Debentures from the Company. The net proceeds from
the sale of the Junior Subordinated Debentures will
be contributed by the Company to the capital of the
Bank where they will be utilized by the Bank for
general corporate purposes, including working
capital, financing possible future acquisitions and
market expansion and for supporting growth. See
"Use of Proceeds."
Nasdaq National Market
Symbol................... The Preferred Securities have been approved for
listing on The Nasdaq Stock Market's ("Nasdaq")
National Market under the symbol REPBP.
RISK FACTORS
Before making an investment decision, prospective investors should consider
all of the information contained in this Prospectus. In particular, prospective
investors should evaluate the factors discussed under "Risk Factors."
6
<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The Summary Consolidated Financial Data presented below has been derived
from the audited Consolidated Financial Statements of the Company and, prior to
1996, the Bank, and are qualified in their entirety by reference to the more
detailed Consolidated Financial Statements and notes thereto, included elsewhere
within.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEVEN MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31, DECEMBER 31,
----------------------- ------------------------------------ -----------------------
1997 1996 1996 1995 1994 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income........ $ 18,070 $ 15,862 $ 66,947 $ 57,863 $ 37,115 $ 23,684 $ 7,331
Interest expense....... 8,969 7,927 32,926 30,001 16,871 10,711 3,110
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income.... 9,101 7,935 34,021 27,862 20,244 12,973 4,221
Loan loss provision.... 1,138 450 1,800 1,685 1,575 1,263 709
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income
after loan loss
provision............ 7,963 7,485 32,221 26,177 18,669 11,710 3,512
Other noninterest
income............... 3,124 678 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..... 8,240 5,956 27,352 22,119 14,916 9,308 3,700
SAIF special
assessment(1)........ -- -- 2,539 -- -- -- --
Provision for losses on
ORE.................. 170 180 1,611 -- 10 10 20
Other noninterest
expense.............. 110 124 319 739 1,691 1,417 600
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income before
income taxes &
goodwill accretion... 2,567 1,903 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......... 2,567 1,903 6,016 7,648 7,369 4,311 2,182
Income tax provision... 964 699 2,232 1,875 468 268 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............. $ 1,603 $ 1,204 $ 3,784 $ 5,773 $ 6,901 $ 4,043 $ 2,182
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA:
Earnings per share..... $ .32 $ .24 $ .76 $ 1.26 $ 1.67 $ .98 $ 1.12
========== ========== ========== ========== ========== ========== ==========
Weighted average shares
outstanding.......... 4,980,167 4,953,119 4,952,937 4,562,642 4,136,790 4,141,322 1,951,231
BALANCE SHEET DATA:
Total assets........... $ 912,093 $ 802,363 $ 907,868 $ 801,995 $ 626,445 $ 626,445 $ 531,312
Investment & mortgage
backed securities.... 63,198 51,481 94,989 64,801 40,271 40,271 37,382
Loans, net of unearned
income............... 748,493 676,658 742,994 669,416 516,335 516,335 316,483
Allowance for loan
losses............... 13,508 14,746 13,134 14,910 7,065 7,065 6,539
Deposits............... 829,060 742,082 827,980 743,105 583,885 583,885 494,316
Negative goodwill...... -- -- -- -- 1,578 1,578 4,283
Stockholders' equity... 55,579 52,047 54,319 50,903 36,165 36,165 29,454
</TABLE>
7
<PAGE> 12
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEVEN MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31, DECEMBER 31,
----------------------- ------------------------------------ -----------------------
1997 1996 1996 1995 1994 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL
RATIOS(2):
Return on average
assets............... .72% .60% .45% .77% 1.25% 1.20% 1.99%
Return on average
equity............... 12.10 9.57 7.31 13.47 21.34 20.68 39.17
Net interest spread.... 3.83 3.83 3.96 3.67 3.78 4.06 3.45
Net interest margin.... 4.12 4.14 4.28 3.95 3.96 4.25 4.22
G&A expense to average
assets............... 3.63 2.96 3.28 2.96 2.74 2.79 3.94
G&A efficiency ratio... 67.40 69.15 68.98 72.25 65.26 62.02 65.70
Non-accrual loans to
loans................ 2.27 2.22 2.15 2.04 2.51 2.51 5.05
Nonperforming assets to
total assets......... 2.58 3.02 2.51 2.93 3.59 3.59 4.95
Loan loss allowance to
loans(3)............. 1.91 2.18 1.86 2.24 1.37 1.37 2.07
Originated
portfolio.......... 63.76 68.05 50.73 71.43 110.61 110.61 37.95
March 1995 purchase.. 120.47 135.04 488.78 236.85 -- -- --
Crossland
portfolio.......... 104.82 63.46 126.12 41.77 23.73 23.73 39.88
Other purchased
portfolios......... 45.60 40.39 89.80 41.84 82.99 82.99 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total...........
Loan loss allowance to
nonperforming
loans(3)............. 82.81 96.47 84.93 90.47 53.36 53.36 39.12
RATIO OF EARNINGS TO
FIXED CHARGES(4):
Including interest on
deposits............. 1.29 1.25 1.19 1.26 1.45 1.42 1.70
Excluding interest on
deposits............. 37.79 206.17 78.41 298.53 235.62 156.92 756.00
OTHER DATA (AT
PERIOD-END):
Number of branches..... 33 32 32 32 21 21 19
Number of full-time
equivalent
employees............ 644 432 637 421 300 300 179
</TABLE>
- ---------------
(1) The SAIF special assessment is a one-time charge. See
"Business -- Supervision and Regulation -- Deposit Insurance."
(2) Annualized.
(3) See "Business -- Asset Quality" for a discussion of the allocation and
availability of loan loss reserves among portfolios of loans within the Bank
and "Business-Troubled Debt Restructurings" for a discussion of the portion
of the Bank's troubled debt restructurings that are considered nonperforming
loans.
(4) Represents earnings before fixed charges, income taxes and extraordinary
items and non-cumulative preferred dividends and redemptions. Fixed charges
include interest expense (inclusive or exclusive of interest on deposits as
indicated).
8
<PAGE> 13
<TABLE>
<CAPTION>
FIVE MONTHS ENDED YEAR ENDED
MAY 31, DECEMBER 31,
----------------------- ------------
1994 1993 1992
----------- -------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
OPERATING DATA:
Interest income........................................... $ 13,431 $ 4,848 $ 11,845
Interest expense.......................................... 6,160 1,970 6,054
---------- ---------- ----------
Net interest income....................................... 7,271 2,878 5,791
Loan loss provision....................................... 312 379 520
---------- ---------- ----------
Net interest income after loan loss provision............. 6,959 2,499 5,271
Other noninterest income.................................. 854 743 1,679
G&A expenses.............................................. 5,608 2,699 5,748
Provision for losses on ORE............................... -- 1,214 230
Other noninterest expense................................. 274 443 715
---------- ---------- ----------
Net income (loss) before income taxes and goodwill
accretion............................................... 1,931 (1,114) 257
Accretion of negative goodwill............................ 1,127 -- --
---------- ---------- ----------
Net income (loss) before income taxes..................... 3,058 (1,114) 257
Income tax provision (benefit)............................ 200 0 0
---------- ---------- ----------
Net income (loss)......................................... $ 2,858 $ (1,114) $ 257
========== ========== ==========
PER SHARE DATA:
Earnings (loss) per share................................. $ .69 $ (1.00) $ 0.23
========== ========== ==========
Weighted average shares outstanding....................... 4,134,420 1,117,192 1,106,459
BALANCE SHEET DATA:
Total assets.............................................. $ 508,642 $ 168,741 $ 168,810
Investment securities..................................... 52,571 27,433 24,276
Loans net of unearned income.............................. 396,144 111,292 110,715
Allowance for loan losses................................. 6,828 1,866 1,958
Deposits.................................................. 469,461 153,660 154,984
Negative goodwill......................................... 3,156 5,861 --
Stockholder's equity...................................... 32,234 8,058 12,215
SELECTED FINANCIAL RATIOS(1):
Return on average assets.................................. 1.33% (1.61)% 0.15%
Return on average equity.................................. 22.34 (21.75) 2.12
Net interest spread....................................... 3.48 4.21 3.51
Net interest margin....................................... 3.67 4.66 3.95
G&A expense to average assets............................. 2.40 6.28 4.01
G&A efficiency ratio...................................... 67.32 74.54 76.95
Non-accrual loans to loans................................ 4.36 2.27 3.20
Nonperforming assets to total assets...................... 5.64 5.89 7.55
Loan loss allowance to loans(2)........................... 1.72 1.68 1.77
Loan loss allowance to nonperforming loans(2)............. 23.58 73.03 54.98
Originated Portfolio.................................... N/A N/A 54.98%
March 1995 Purchase..................................... N/A N/A --
Crossland Portfolio..................................... N/A N/A --
Other Purchased Portfolios.............................. N/A N/A --
---------- ---------- ----------
Total.............................................. 23.58 73.03 54.98%
RATIO OF EARNINGS TO FIXED CHARGES(3):
Including interest on deposits............................ 1.51 0.43 1.04
Excluding interest on deposits............................ 928.40 171.20 332.16
OTHER DATA (AT PERIOD-END):
Number of branches........................................ 19 7 7
Number of full-time equivalent employees.................. 223 96 90
</TABLE>
- ---------------
(1) Annualized.
(2) See "Business -- Asset Quality" for a discussion of the allocation and
availability of loan loss reserves among portfolios of loans within the Bank
and "Business -- Troubled Debt Restructurings" for a discussion of the
portion of the Bank's troubled debt restructurings that are considered
nonperforming loans.
(3) Represents earnings before fixed charges, income taxes and extraordinary
items and non-cumulative preferred dividends and redemptions. Fixed charges
include interest expense (inclusive or exclusive of interest on deposits as
indicated).
N/A -- Data not available.
9
<PAGE> 14
RISK FACTORS
An investment in the Preferred Securities involves a high degree of risk.
Prospective investors should carefully consider, together with the other
information contained and incorporated by reference in this Prospectus, the
following factors in evaluating the Company, its business and RBI Capital before
purchasing the Preferred Securities offered hereby. Prospective investors should
note, in particular, that this Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that involve substantial risks and uncertainties.
When used in this Prospectus, or in the documents incorporated by reference
herein, the words "anticipate", "believe", "estimate", "may", "intend" and
"expect" and similar expressions identify certain of such forward-looking
statements. Actual results, performance or achievements could differ materially
from those contemplated, expressed or implied by the forward-looking statements
contained herein. The considerations listed below represent certain important
factors the Company believes could cause such results to differ. These
considerations are not intended to represent a complete list of the general or
specific risks that may affect the Company and RBI Capital. It should be
recognized that other risks, including general economic factors and business
strategies, may be significant, presently or in the future, and the risks set
forth below may affect the Company and RBI Capital to a greater extent than
indicated.
SOURCE OF PAYMENTS TO HOLDERS OF PREFERRED SECURITIES
The ability of RBI Capital to pay amounts due on the Preferred Securities
is entirely dependent upon the Company making payments on the Junior
Subordinated Debentures as and when required. As a holding company without
significant assets other than the capital stock of the Bank, the ability of the
Company to pay interest on the principal of the Junior Subordinated Debentures
to RBI Capital (and consequently, RBI Capital's ability to pay Distributions on
the Preferred Securities and the Company's ability to pay its obligations under
the Guarantee) will be significantly dependent on the ability of the Bank to pay
dividends to the Company in amounts sufficient to service the Company's
obligations. The Company is currently obligated to pay $360,000 in annual
interest on its 6.0% Debentures, and to make any other payments with respect to
securities issued by the Company in the future which are pari passu or have a
preference over the Junior Subordinated Debentures issued to RBI Capital with
respect to the payment of principal, interest or dividends. There is no
restriction on the ability of the Company to issue, or limitations on the amount
of securities which are pari passu or have a preference over the Junior
Subordinated Debentures issued to RBI Capital, nor is there any restriction on
the ability of the Bank to issue additional capital stock or incur additional
indebtedness.
The Bank's ability to pay dividends or make other capital distributions to
the Company is governed by both federal and Florida law and regulations
promulgated by the FDIC and the Department, and is based on the Bank's
regulatory capital levels and net income. Under the FDIC's capital regulations,
the Bank is prohibited from making a capital distribution that would cause it to
become "undercapitalized" or if it is already undercapitalized (i.e., has a
risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of
less than 4.0%, or a leverage ratio of less than 4.0%). 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. As of March 31, 1997, the Bank had $6.5 million
available for distribution as dividends to the Company. There is no assurance
that the Bank will be in a position to make dividend payments to the Company in
an amount sufficient for the Company to service the Junior Subordinated
Debentures or for RBI Capital to pay amounts due on the Preferred Securities.
See "-- Change in Loan Sales Strategy" and "Recent Developments."
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The obligations of the Company under the Guarantee issued for the benefit
of the holders of Preferred Securities and under the Junior Subordinated
Debentures issued to RBI Capital are unsecured and rank subordinate and junior
in right of payment to all existing and future Senior Debt and Subordinated Debt
of the
10
<PAGE> 15
Company. At March 31, 1997, the aggregate outstanding Subordinated Debt of the
Company was approximately $6.0 million and there was no Senior Debt outstanding.
Only the capital stock of the Company is currently junior in right of payment to
the Junior Subordinated Debentures issued to RBI Capital. Because the Company is
a holding company, the right of the Company to participate in any distribution
of assets of a subsidiary, including the Bank, upon a liquidation or
reorganization or otherwise of such subsidiary (and thus the ability of holders
of the Preferred Securities to benefit indirectly from such distribution) is
subject to the prior claims of creditors of the subsidiary (including depositors
in the Bank), except to the extent that the Company may itself be recognized as
a creditor of the subsidiary. If the Company is a creditor of a subsidiary, the
claims of the Company would be subject to any prior security interest in the
assets of the subsidiary and any indebtedness of the subsidiary senior to that
of the Company. The Junior Subordinated Debentures, therefore, will be
effectively subordinated to all existing and future liabilities of the Company's
subsidiaries, including the Bank. At March 31, 1997, the Bank had liabilities of
$856.5 million (including $829.1 million in deposits). Holders of Junior
Subordinated Debentures and the Preferred Securities should look only to the
assets of the Company for payments on the Junior Subordinated Debentures.
Neither the Indenture, the Guarantee nor the Trust Agreement places any
limitation on the amount of secured or unsecured debt, including Senior Debt and
Subordinated Debt, that may be incurred by the Company or any of its
subsidiaries. See "Description of the Guarantee -- Status of the Guarantee" and
"Description of the Junior Subordinated Debentures -- Subordination."
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES; MARKET PRICE
CONSEQUENCES
The Company has the right under the Indenture, so long as no Debenture
Event of Default has occurred and is continuing, to defer the payment of
interest on the Junior Subordinated Debentures at any time or from time to time
for a period not exceeding 20 consecutive quarters with respect to each Extended
Interest Payment Period; provided that no Extended Interest Payment Period may
extend beyond the Stated Maturity of the Junior Subordinated Debentures. In the
event of any such deferral, quarterly Distributions on the Preferred Securities
by RBI Capital will be deferred (and the amount of Distributions to which
holders of the Preferred Securities are entitled will accumulate additional
Distributions thereon at the rate of 9.10% per annum, compounded quarterly from
the relevant payment date for such Distributions) during such Extended Interest
Payment Period. During any such Extended Interest Payment Period, the Company
may and may not permit any subsidiary to (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock (other than (a) the
reclassification of any class of the Company's capital stock into another class
of capital stock, (b) dividends or distributions payable in any class of the
Company's capital stock, (c) any declaration of a dividend in connection with
the implementation of a shareholder rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto and (d) purchases of the Company's capital stock related to the
rights under any of the Company's benefit plans for its or its subsidiaries'
directors, officers or employees), (ii) make any payment of principal, interest
or premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu with or junior in interest to the Junior
Subordinated Debentures or make any guarantee payments with respect to any
guarantee by the Company of the debt securities of any subsidiary of the Company
if such guarantee ranks pari passu with, or junior in interest to the Junior
Subordinated Debentures (other than payments under the Guarantee), or (iii)
redeem, purchase or acquire less than all of the Junior Subordinated Debentures
or any of the Preferred Securities. Prior to the termination of any such
Extended Interest Payment Period, the Company may further defer the payment of
interest; provided that no Extended Interest Payment Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any Extended Interest Payment
Period and the payment of all interest then accrued and unpaid (together with
interest thereon at the annual rate of 9.10% compounded quarterly, to the extent
permitted by applicable law), the Company may elect to begin a new Extended
Interest Payment Period, subject to the above restrictions. Subject only to
compliance with the foregoing, there is no limit on the number of times that the
Company may elect to begin an Extended Interest Payment Period, so long as no
Debenture Event of Default has occurred and is continuing. See "Description of
the Preferred Securities --
11
<PAGE> 16
Distributions -- Extended Interest Payment Period" and "Description of the
Junior Subordinated Debentures -- Option to Extend Interest Payment Period."
Should an Extended Interest Payment Period occur, each holder of Preferred
Securities will be required to accrue and recognize as income (in the form of
original issue discount) in respect of its pro rata share of the interest
accruing on the Junior Subordinated Debentures held by RBI Capital for United
States federal income tax purposes. A holder of Preferred Securities would, as a
result, be required to include such income in gross income for United States
federal income tax purposes in advance of the receipt of Distributions, and will
not receive the cash related to such income from RBI Capital if the holder
disposes of the Preferred Securities prior to the record date for the payment of
the related Distributions. See "Certain Federal Income Tax Consequences --
Interest Income and Original Issue Discount." See also "-- Absence of Prior
Public Market for the Preferred Securities; Trading Price and Tax
Considerations."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Preferred Securities is likely to
be adversely affected. As a result of the existence of the Company's right to
defer interest payments, the market price of the Preferred Securities may be
more volatile than the market prices of other securities on which original issue
discount accrues that do not provide for such optional deferrals.
POSSIBLE TAX LEGISLATION
In February 1997, President Clinton proposed the enactment of tax
legislation. Included in the President's proposal was a revenue-raising
provision that would generally deny federal income tax interest deductions for
interest on a corporate debt instrument such as the Junior Subordinated
Debentures (i) that has a maximum term of more than 15 years and is not shown as
indebtedness on the issuer's balance sheet or (ii) where the instrument is
issued to a related party (other than a corporation), and the holder or some
other related party issues a related instrument that is not shown as
indebtedness on the issuer's consolidated balance sheet. Under the President's
proposal, this provision was to be effective for instruments issued on or after
the date of first action by a Congressional committee with respect to the
proposal. Such proposal did not indicate what would constitute the first
"committee action" with respect to the proposal.
On June 9, 1997, the Chairman of the Ways and Means Committee of the U.S.
House of Representatives introduced his initial version of the proposed tax
legislation, which did not contain the revenue-raising provision described
above. Tax legislation was subsequently passed by the House of Representatives
on June 26, 1997, and an amended version of the House legislation was passed by
the U.S. Senate on June 27, 1997. Again, neither the House nor the Senate bills
as passed contained any provision that, if enacted, would deny a deduction for
interest paid on certain instruments such as the Junior Subordinated Debentures.
However, due to differing provisions in the versions of this tax legislation as
passed by House and Senate, further action by both the House and the Senate is
necessary prior to the enactment of such legislation. On June 30, 1997,
President Clinton announced his alternate tax cut proposal with provisions
different from those contained in the bills passed by the House and Senate and
encouraged Congress to take into consideration and adopt his provisions as part
of any final tax legislation that is enacted. The President's alternate proposal
as released on June 30, 1997 did not make specific mention of any
revenue-raising provisions in addition to those already contained in the bills
passed by the House and the Senate.
While nothing contained at this time in the pending tax legislation will
deny the Company's deduction for interest on the Junior Subordinated Debentures
or give rise to a Tax Event, there is no assurance that the final version of the
pending tax legislation that is enacted into law or other future tax legislation
will not have such an effect. Such legislation would give rise to a Tax Event
that, in turn, would permit the Company, upon receipt of Federal Reserve
approval if then required under applicable Federal Reserve capital guidelines or
policies, to cause a redemption of the Preferred Securities before, as well as
after, June 30, 2002. See "Description of the Junior Subordinated
Debentures -- Redemption or Exchange -- Tax Event Redemption, Investment Company
Event Redemption or Capital Treatment Event Redemption" and "Certain Federal
Income Tax Consequences -- Effect of Possible Changes in Tax Laws."
12
<PAGE> 17
REDEMPTION DUE TO TAX EVENT, INVESTMENT COMPANY EVENT OR CAPITAL TREATMENT EVENT
The Company has the right to redeem the Junior Subordinated Debentures in
whole (but not in part) within 180 days following the occurrence of a Tax Event,
an Investment Company Event or a Capital Treatment Event (whether occurring
before or after June 30, 2002), and, therefore, cause a mandatory redemption of
the Preferred Securities. The exercise of such right is subject to the Company
having received prior Federal Reserve approval to do so, if then required under
applicable Federal Reserve capital guidelines or policies.
"Tax Event" means the receipt by the Company or RBI Capital of an opinion
of counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance of
the Preferred Securities, there is more than an insubstantial risk that (i) RBI
Capital is, or will be within 90 days of the date of such opinion, subject to
United States federal income tax with respect to income received or accrued on
the Junior Subordinated Debentures, (ii) interest payable by the Company on the
Junior Subordinated Debentures is not, or, within 90 days of such opinion, will
not be, deductible by the Company, in whole or in part, for United States
federal income tax purposes, or (iii) RBI Capital is, or will be within 90 days
of the date of the opinion, subject to more than a de minimis amount of other
taxes, duties or other governmental charges. The Company must request and
receive an opinion with regard to such matters within a reasonable period of
time after it becomes aware of the possible occurrence of any of the events
described in clauses (i) through (iii) above.
"Investment Company Event" means the receipt by the Company or RBI Capital
of an opinion of counsel to the Company experienced in such matters to the
effect that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
RBI Capital is or will be considered an "investment company" that is required to
be registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), which change or prospective change becomes effective
or would become effective, as the case may be, on or after the date of original
issuance of the Preferred Securities.
"Capital Treatment Event" means the reasonable determination by the Company
that, as a result of any amendment to, or change (including any proposed change)
in, the laws (or any regulations thereunder) of the United States or any
political subdivision thereof or therein, or as a result of any Federal Reserve
or other official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such proposed change, pronouncement, action or decision is
announced on or after the date of original issuance of the Preferred Securities,
there is more than an insubstantial risk that the Company will not be entitled
to treat an amount equal to the Liquidation Amount of the Preferred Securities
as "Tier 1 Capital" (as defined herein) except as otherwise restricted under the
25% Capital Limitation (as defined herein), for purposes of the risk-based
capital adequacy guidelines of the Federal Reserve as then in effect and
applicable to the Company. See "-- Possible Tax Legislation" and "-- Exchange of
Preferred Securities for Junior Subordinated Debentures; Redemption and Tax
Consequences."
POSSIBLE SHORTENING OF MATURITY OF JUNIOR SUBORDINATED DEBENTURES
The Company has the right, at any time, to shorten the Stated Maturity of
the Junior Subordinated Debentures to a date not earlier than June 30, 2002. The
exercise of such right is subject to the Company having received prior Federal
Reserve approval, if then required under applicable Federal Reserve capital
guidelines or policies. See "Description of the Junior Subordinated
Debentures -- General."
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<PAGE> 18
LIMITED RIGHTS UNDER THE GUARANTEE
The Guarantee guarantees to the holders of the Preferred Securities, to the
extent not paid by RBI Capital, (i) any accrued and unpaid Distributions
required to be paid on the Preferred Securities, to the extent that RBI Capital
has funds available therefor at such time, (ii) the Redemption Price (as defined
herein) with respect to any Preferred Securities called for redemption, to the
extent that RBI Capital has funds available therefor at such time, and (iii)
upon a voluntary or involuntary dissolution, winding-up or liquidation of RBI
Capital (other than in connection with the distribution of Junior Subordinated
Debentures to the holders of Preferred Securities or a redemption of all of the
Preferred Securities), the lesser of (a) the amount of the Liquidation
Distribution (as defined herein), to the extent RBI Capital has funds available
therefor at such time, and (b) the amount of assets of RBI Capital remaining
available for distribution to holders of the Preferred Securities upon
liquidation of RBI Capital. The holders of not less than a majority in
Liquidation Amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee in respect of the Guarantee or to direct the exercise of
any trust power conferred upon the Guarantee Trustee under the Guarantee. Any
holder of the Preferred Securities may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against RBI Capital, the Guarantee Trustee or any
other Person (as defined in the Guarantee). If the Company were to default on
its obligation to pay amounts payable under the Junior Subordinated Debentures,
RBI Capital would lack funds for the payment of Distributions or amounts payable
on redemption of the Preferred Securities or otherwise, and, in such event,
holders of Preferred Securities would not be able to rely upon the Guarantee for
such amounts. In the event, however, that a Debenture Event of Default has
occurred and is continuing and such event is attributable to the failure of the
Company to pay interest on or principal of the Junior Subordinated Debentures on
the payment date on which such payment is due and payable, then a holder of
Preferred Securities may institute a legal proceeding directly against the
Company for enforcement of payment to such holder of the principal of or
interest on such Junior Subordinated Debentures having a principal amount equal
to the aggregate Liquidation Amount of the Preferred Securities of such holder
(a "Direct Action"). The exercise by the Company of its right, as described
herein, to defer the payment of interest on the Junior Subordinated Debentures
does not constitute a Debenture Event of Default. In connection with such Direct
Action, the Company will have a right of set-off under the Indenture to the
extent of any payment made by the Company to such holder of Preferred Securities
in the Direct Action. Except as described herein, holders of Preferred
Securities will not be able to exercise directly any other remedy available to
the holders of the Junior Subordinated Debentures or assert directly any other
rights in respect of the Junior Subordinated Debentures. See "Description of the
Junior Subordinated Debentures -- Enforcement of Certain Rights by Holders of
Preferred Securities," "Description of the Junior Subordinated
Debentures -- Debenture Events of Default" and "Description of the Guarantee."
The Trust Agreement provides that each holder of Preferred Securities by
acceptance thereof agrees to the provisions of the Guarantee and the Indenture.
EXCHANGE OF PREFERRED SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES; REDEMPTION
AND TAX CONSEQUENCES
The Company, as the sole holder of the Common Securities, has the right at
any time to dissolve, wind-up or terminate RBI Capital and cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities in exchange therefor upon liquidation of RBI Capital. The exercise of
such right is subject to the Company having received prior Federal Reserve
approval if then required under applicable Federal Reserve capital guidelines or
policies. The Company will have the right, in certain circumstances, to redeem
the Junior Subordinated Debentures in whole or in part, in lieu of a
distribution of the Junior Subordinated Debentures by RBI Capital, in which
event RBI Capital will redeem the Trust Securities on a pro rata basis to the
same extent as the Junior Subordinated Debentures are redeemed by the Company.
Any such distribution or redemption prior to the Stated Maturity will be subject
to prior Federal Reserve approval if then required under applicable Federal
Reserve capital guidelines or regulatory policies. See "Description of the
Preferred Securities -- Redemption or Exchange -- Tax Event Redemption,
Investment Company Event Redemption or Capital Treatment Event Redemption."
14
<PAGE> 19
Under current United States federal income tax law, a distribution of
Junior Subordinated Debentures upon the dissolution of RBI Capital should not be
a taxable event to holders of the Preferred Securities. If, however, RBI Capital
is characterized as an association taxable as a corporation at the time of the
dissolution of RBI Capital, the distribution of the Junior Subordinated
Debentures would constitute a taxable event to holders of Preferred Securities.
Moreover, any redemption of the Preferred Securities for cash would be a taxable
event to such holders. See "Certain Federal Income Tax Consequences -- Receipt
of Junior Subordinated Debentures or Cash Upon Liquidation of RBI Capital."
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities upon a dissolution or liquidation of RBI
Capital. The Preferred Securities or the Junior Subordinated Debentures may
trade at a discount to the price that the investor paid to purchase the
Preferred Securities offered hereby. Because holders of Preferred Securities may
receive Junior Subordinated Debentures, prospective purchasers of Preferred
Securities are also making an investment decision with regard to the Junior
Subordinated Debentures and should carefully review all the information
regarding the Junior Subordinated Debentures contained herein.
While there is no assurance that listing will be achieved, if the Junior
Subordinated Debentures are distributed to the holders of Preferred Securities
upon the liquidation of RBI Capital, the Company will use all reasonable efforts
to list the Junior Subordinated Debentures on Nasdaq's National Market or
Small-Cap Market or such stock exchanges, if any, on which the Preferred
Securities are then listed.
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have no voting rights in RBI Capital
except in limited circumstances relating only to the modification of the
Preferred Securities and the exercise of the rights of RBI Capital as holder of
the Junior Subordinated Debentures and the Guarantee. Holders of Preferred
Securities will not be entitled to vote to appoint, remove or replace the
Property Trustee or the Delaware Trustee, as such voting rights are vested
exclusively in the holder of the Common Securities (except upon the occurrence
of certain events described herein). The Property Trustee, the Delaware Trustee,
the Administrative Trustees and the Company may amend the Trust Agreement
without the consent of holders of Preferred Securities to ensure that RBI
Capital will be classified for United States federal income tax purposes as a
grantor trust even if such action adversely affects the interests of such
holders. See "Description of the Preferred Securities -- Voting Rights;
Amendment of Trust Agreement" and "Description of the Preferred
Securities -- Removal of RBI Capital Trustee."
LIMITED COVENANTS
The covenants in the Indenture are limited and there are no covenants in
the Trust Agreement. As a result, neither the Indenture nor the Trust Agreement
protects holders of Junior Subordinated Debentures or Preferred Securities,
respectively, in the event of a material adverse change in the Company's
financial condition or results of operations or limits the ability of the
Company or any subsidiary to incur or assume additional indebtedness or other
obligations. Additionally, neither the Indenture nor the Trust Agreement
contains any financial ratios or specified levels of liquidity to which the
Company must adhere. Therefore, the provisions of these governing instruments
should not be considered a significant factor in evaluating whether the Company
will be able to comply with its obligations under the Junior Subordinated
Debentures or the Guarantee.
ABSENCE OF PRIOR PUBLIC MARKET FOR THE PREFERRED SECURITIES; TRADING PRICE AND
TAX CONSIDERATIONS
The Preferred Securities are a new issue and have been approved for listing
on Nasdaq's National Market. However, one of the requirements for listing and
continued listing is the presence of two market makers for the Preferred
Securities. The Company has been advised that the Underwriters intend to make a
market in the Preferred Securities. However, the Underwriters are not obligated
to do so, and such market making may be discontinued at any time. Therefore,
there is no assurance that the Preferred Securities will be listed or will
continue to be listed on Nasdaq's National Market, that an active and liquid
trading market will
15
<PAGE> 20
develop for the Preferred Securities or, if such a market develops, that it will
be maintained or that the market price will equal or exceed the public offering
price set forth on the cover page of this Prospectus. Accordingly, holders of
Preferred Securities may experience difficulty reselling them or may be unable
to sell them at all. The offering price and terms of the Preferred Securities
have been determined through negotiations between the Company and the
Underwriters, with Ryan, Beck & Co. Inc., acting as qualified independent
underwriter. Future prices for the Preferred Securities will be determined in
the marketplace and may be influenced by many factors, including prevailing
interest rates, the liquidity of the market for the Preferred Securities,
investor perceptions of the Company and general industry and economic
conditions. See "Underwriting."
Further, should the Company exercise its option to defer any payment of
interest on the Junior Subordinated Debentures, the Preferred Securities may
trade at prices that do not fully reflect the value of accrued but unpaid
interest with respect to the underlying Junior Subordinated Debentures. In the
event of such a deferral, a holder of Preferred Securities who disposes of
Preferred Securities between record dates for payments of Distributions (and
consequently does not receive a Distribution from RBI Capital for the period
prior to such disposition) will nevertheless be required to include accrued but
unpaid interest on the Junior Subordinated Debentures through the date of
disposition in income as ordinary income and to add such amount to the adjusted
tax basis in the holder's pro rata share of the underlying Junior Subordinated
Debentures deemed disposed of. Such holder will recognize a capital loss to the
extent the selling price (which may not fully reflect the value of accrued but
unpaid interest) is less than its adjusted tax basis (which will include all
accrued but unpaid interest). Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes. See "Certain Federal Income Tax Consequences -- Sales of
Preferred Securities."
SECURITIES ARE NOT INSURED
Neither the Preferred Securities nor the Junior Subordinated Debentures are
insured by the Bank Insurance Fund ("BIF"), the Savings Association Insurance
Fund ("SAIF") or the FDIC or by any other insurer or government agency.
CHANGE IN LOAN SALES STRATEGY
On June 27, 1997, the Company announced a change in its sales strategy for
high loan-to-value home equity loans from originating and immediately selling
such loans to temporary retention in portfolio for securitization, and/or
secondary market bulk or individual sales, or some combination of the foregoing.
This new strategy was undertaken with the objective of increasing long-term
earnings, as the terms available through securitizations and bulk sales are
generally more attractive than those available in connection with individual
sales. However, the Company's retention of a portion of its originations of high
loan-to-value home equity loans in portfolio had the effect of negatively
impacting the Company's earnings during the second quarter of 1997 due to
recognizing the relatively high costs of originating these loans and the absence
of income resulting from the decision to defer the sale of a portion of the
originated loans.
There is no assurance that the Company will be able to sell and/or
securitize these home equity loans at the times, for the prices and in the
manner(s) that it desires to do so. Should the Company be unable for any reason
to sell these loans on acceptable terms either through individual or bulk sales,
securitizations or a combination thereof, and consequently be forced to retain
these loans in portfolio for a longer-than-anticipated period of time, the
Company would be faced with the prospect of either significantly reducing its
originations of these types of loans or incurring substantial losses in
subsequent periods. Such losses, in turn, could either (i) deplete the amount of
retained earnings of the Bank available for payment of dividends to the Company,
(ii) cause the Bank to become "undercapitalized" for regulatory capital
purposes, or (iii) limit the extent to which the Bank could pay dividends to the
Company without becoming undercapitalized. In any such event, it is possible
that the Company would be unable to meet its interest payment obligations under
the Junior Subordinated Debentures to RBI Capital.
16
<PAGE> 21
ABILITY TO MANAGE GROWTH AND INTEGRATE OPERATIONS
Since the Change in Control, the Company has experienced rapid growth
through acquisitions, the opening of loan production offices and de novo
branches, the creation of the Bank's mortgage banking division and asset
purchases. There is no assurance that the Company will not encounter unforeseen
expenses, as well as difficulties and complications in integrating expanded
operations and new employees without disruption to overall operations. In
addition, such rapid growth may adversely affect the Company's operating results
because of many factors, including start-up costs, diversion of management time
and resources, asset quality and required operating adjustments. There can be no
assurance that the Company will successfully integrate or achieve the
anticipated benefits of its growth or expanded operations, and there is no
assurance that rapid growth in the loan portfolio will not result in an increase
in the Company's loan loss experience.
In addition, achieving the anticipated benefits of the FFO Merger will
depend in part upon whether the operations and organizations of the Company and
FFO can be integrated in an efficient, effective and timely manner. There can be
no assurance that this integration will occur and that cost savings in
operations will be achieved. After the FFO Merger, the Company may also
encounter unanticipated operational or organizational difficulties. The
successful combination of the two companies will require, among other things,
consolidation of certain operations, elimination of duplicative corporate and
administrative expenses and elimination of certain positions. The integration of
certain operations following the FFO Merger will require the dedication of
management resources which may temporarily distract attention from the
day-to-day business of the Company. There can be no assurance that integration
will be accomplished smoothly or successfully. Failure to accomplish effectively
the integration of operations could have a material adverse effect on the
Company's results of operations and financial condition following the FFO
Merger.
NONPERFORMING ASSETS
At the time of the Change in Control, the Bank had a relatively high ratio
of nonperforming assets-to-total assets. In addition, subsequent purchases of
loans, acquired at a discount, included loans that were placed in nonperforming
status after acquisition. Although the Company has reduced its nonperforming
assets ratio from 4.95% at year-end 1993 to 2.58% at March 31, 1997, its current
level of nonperforming assets is still significantly above .55%, which is the
average level for all commercial banks with assets between $500.0 million and
$1.0 billion at March 31, 1997, according to the Uniform Performance Banking
Report issued by federal bank regulators. The nonperforming assets ratio for the
Company and FFO combined on a pro forma basis would have been 2.59% at March 31,
1997. Moreover, there is no assurance that the Company's ratio will decline
further, particularly if general economic conditions or Florida real estate
values deteriorate.
ADEQUACY OF ALLOWANCE FOR LOAN LOSSES
Industry experience indicates that a portion of the Company's loans will
become delinquent and a portion of the loans will require partial or entire
charge-off. Regardless of the underwriting criteria utilized by the Company,
losses may be experienced as a result of various factors beyond the Company's
control, including, among other things, changes in market conditions affecting
the value of properties and problems affecting the credit of the borrower. The
Company's determination of the adequacy of its allowance for loan losses is
based on various considerations, including an analysis of the risk
characteristics of various classifications of loans, previous loan loss
experience, specific loans which would have loan loss potential, delinquency
trends, estimated fair value of the underlying collateral, current economic
conditions, the view of the Company's regulators and geographic and industry
loan concentration. However, if delinquency levels were to increase as a result
of adverse general economic conditions, especially in Florida where the
Company's exposure is greatest, the allowance for loan losses so determined by
the Company may not be adequate. A substantial portion of the Company's
allowance for loan losses is allocated to specific portfolios of loans purchased
by the Company. Such allocated allowances are not available to cover losses in
other portfolios. To the extent that losses in certain pools or portfolios
exceed the allowance for loan losses and unamortized loan discount allocated to
such pool or portfolio, or available as a general allowance, the Company's
results of operations would be adversely affected. There can be no assurance
that the Company's allowance for loan losses will be
17
<PAGE> 22
adequate to cover its loan losses or that the Company will not experience
significant losses in its loan portfolios which may require significant
increases to the allowance for loan losses in the future.
IMPACT OF CHANGES IN REAL ESTATE VALUES
A significant portion of the Company's loan portfolio consists of
residential mortgage loans and commercial real estate loans. At March 31, 1997,
55.1% of the Company's loans were secured by one-to-four family residential real
estate, 34.7% were secured by commercial real estate and multifamily
residential, 4.0% were construction loans and the Company had ORE acquired
through foreclosure with a book value of $7.3 million. Further, the properties
securing these loans are concentrated in Florida. Real estate values and real
estate markets generally are affected by, among other things, changes in
national, regional or local economic conditions, fluctuations in interest rates
and the availability of loans to potential purchasers, changes in the tax laws
and other governmental statutes, regulations and policies and acts of nature.
Any decline in real estate prices, particularly in Florida, could significantly
reduce the value of the real estate collateral securing the Company's loans,
increase the level of the Company's nonperforming loans, require write-downs in
the book value of its ORE, and have a material negative impact on the Company's
financial performance.
The Company has increased its level of commercial real estate loans, which
are generally considered to involve a higher degree of credit risk than that of
one-to-four family residential lending. Further, the Company's retention of high
loan-to-value home mortgage loans for longer periods will increase its credit
risk and vulnerability to changes in real estate values.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The Company's profitability is dependent to a large extent on its net
interest income, which is the difference between its interest income on
interest-earning assets and its interest expense on interest-bearing
liabilities. The Company, like most financial institutions, is affected by
changes in general interest rate levels, which are currently at relatively low
levels, and by other economic factors beyond its control. Interest rate risk
arises from mismatches (i.e., the interest sensitivity gap) between the dollar
amount of repricing or maturing assets and liabilities, and is measured in terms
of the ratio of the interest rate sensitivity gap to total assets. More assets
repricing or maturing than liabilities over a given time frame is considered
asset-sensitive and is reflected as a positive gap, and more liabilities
repricing or maturing than assets over a given time frame is considered
liability-sensitive and is reflected as a negative gap. An asset-sensitive
position (i.e., a positive gap) will generally enhance earnings in a rising
interest rate environment and will negatively impact earnings in a falling
interest rate environment, while a liability-sensitive position (i.e., a
negative gap) will generally enhance earnings in a falling interest rate
environment and negatively impact earnings in a rising interest rate
environment. Fluctuations in interest rates are not predictable or controllable.
The Company has attempted to structure its asset and liability management
strategies to mitigate the impact on net interest income of changes in market
interest rates. At March 31, 1997, based on management's assumptions derived
from its experience, the Company had a one year cumulative positive gap of .97%.
A positive one year gap position may, as noted above, have a negative impact on
earnings in a falling interest rate environment. However, if the Bank's
deposits, including interest checking, money market accounts and savings
accounts were (contrary to management's assumptions) considered to be fully and
immediately repriceable, the Bank would have a one year cumulative negative gap.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Asset/Liability Management."
REGULATORY OVERSIGHT
The Bank is subject to extensive regulation, supervision and examination by
the Department as its chartering authority and primary regulator, and by the
FDIC as its federal regulator and administrator of the insurance fund that
insures the Bank's deposits up to applicable limits. The Bank is a member of the
FHLB of Atlanta and is subject to certain limited regulation by the Federal
Reserve. As the holding company of the Bank, the Company is also subject to
regulation and oversight by the Federal Reserve. See "Supervision and
Regulation." Such regulation and supervision governs the activities in which an
institution may engage and is intended primarily for the protection of the FDIC
insurance funds and depositors. Regulatory authorities have
18
<PAGE> 23
been granted extensive discretion in connection with their supervisory and
enforcement activities and regulations have been implemented that have increased
capital requirements, increased insurance premiums and have resulted in
increased administrative, professional and compensation expenses. However, the
failure by either the Company or the Bank to comply with existing or future
statutory or regulatory requirements or any change in the regulatory structure
or the applicable statutes or regulations could have a material adverse impact
on the Company and the Bank and their operations. See "Supervision and
Regulation." Additional legislation and regulations may be enacted or adopted in
the future which could significantly affect the powers, authority and operations
of the Bank and the Bank's competitors, which in turn could adversely affect the
Bank and its operations. See "Supervision and Regulation."
In the course of a recent review of the Bank's operations by the FDIC,
issues arose as to the software and procedures used by the Bank to record and
calculate the charges and other information for certain types of mortgage loans,
and the amounts of interest due on one class of deposit accounts. The Bank is in
the process of taking the necessary actions to address these issues, including
the payment of refunds or additional interest as appropriate, and the Company
does not expect that any costs that it may incur to resolve these issues will
have a material adverse impact on either its operations or financial condition.
DEPENDENCE ON EXISTING MANAGEMENT
The Company's ability to operate as a profitable enterprise has depended,
and will continue to depend in large part, upon the management and banking
abilities of the Company's senior management, including John W. Sapanski, the
Chairman, Chief Executive Officer and President of the Company and the Bank. If,
for any reason, the services of Mr. Sapanski were to become unavailable to the
Company, such event would likely have an adverse impact upon the future results
of operations of the Company in light of Mr. Sapanski's experience and
reputation in the banking industry, his stature within the Company, his
extensive knowledge of and familiarity with the Company's operations, and the
critical role played by Mr. Sapanski within the Company. Mr. Sapanski is 66
years old. Neither the Company, nor the Bank, maintains a key man life insurance
policy for Mr. Sapanski.
CONTROL BY THE CONTROLLING STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
The Company's Controlling Stockholders, William R. Hough and John W.
Sapanski (and their respective affiliates and immediate family members)
currently own shares of the Company's capital stock representing approximately
50.6% and 9.0%, respectively, of the total voting rights of the Company.
Following consummation of the FFO Merger, it is anticipated that these voting
percentages will be approximately 56.8% and 6.0%, respectively. On the basis of
such ownership, the Controlling Stockholders will be able to elect the Company's
Board of Directors and, through their control of the Company's Board, will be
able to continue to direct the affairs of the Company and the Bank. The Company
and the Bank have engaged in numerous transactions with affiliates of Mr. Hough
and it is likely that the Company and the Bank will in the future continue to
engage in such transactions. Generally, transactions with affiliates can involve
conflicts of interests. However, the Company believes that its transactions with
its affiliates were on terms as favorable as those that could have been obtained
in arm's-length transactions.
CAPITAL LIMITATIONS ON FUTURE GROWTH
Since the Change in Control, one of the Company's primary business
objectives has been to increase its total asset size, expand into new market
areas and increase market share in its existing markets. The Company has sought
to accomplish this goal through a combination of internal growth, loan and other
asset purchases, deposit assumptions, the opening of new branches and
acquisitions of other financial institutions. Most recently, in April 1997, the
Company acquired Firstate, an Orlando-based federal savings association with
total assets of $72.0 million at March 31, 1997. In addition, the Company has
pending an acquisition of FFO, a thrift holding company headquartered in St.
Cloud, Florida, with total assets of $320.0 million as of March 31, 1997. The
Company intends to pursue its current growth strategy for the foreseeable future
as a means of increasing overall profitability. While the proceeds of the
Preferred Securities offering will enhance the Company's Tier 1 capital position
and thereby facilitate the Company's growth and expansion, there can
19
<PAGE> 24
be no assurance that the Company will in the future have sufficient capital to
continue to pursue its growth strategy.
COMPETITION
The Company competes with various types of financial institutions,
including other commercial banks, savings institutions, finance companies,
mortgage banking companies, money market funds and credit unions, many of which
have substantially greater financial resources than the Company and, in some
cases, operate under fewer regulatory constraints. The Company not only competes
with financial institutions headquartered in the State of Florida but also
competes with a number of financial institutions headquartered outside of
Florida that are active in the state. See "Business -- Branch Network" and
"Business -- Supervision and Regulation."
USE OF PROCEEDS
RBI Capital will use the gross proceeds received from the sale of the
Preferred Securities to purchase the Junior Subordinated Debentures from the
Company. The net proceeds to the Company from the sale of the Junior
Subordinated Debentures are estimated to be approximately $25.0 million ($28.75
million if the Underwriters' over-allotment option is exercised in full) after
deduction of the underwriting discount and estimated expenses. Because Common
Stock is the only consideration being offered for the shares of FFO, none of the
net proceeds from the sale of the Junior Subordinated Debentures are needed by
the Company to consummate the FFO merger. The net proceeds from the sale of the
Junior Subordinated Debentures will be contributed by the Company to the capital
of the Bank. A primary purpose for the Offering is to increase the regulatory
capital of the Bank. While the Bank does not currently have specific plans for
the capital contribution to it, it is expected that the proceeds will be used by
the Bank for general corporate purposes, including working capital, financing
possible future acquisitions and market expansion and for supporting growth. The
specific use of the proceeds by the Bank, as well as the timing of such uses,
will be a function of the funding needs of the Bank and the availability of
other funds to the Bank. Initially, such proceeds will be invested by the Bank
in short-term obligations.
MARKET FOR THE PREFERRED SECURITIES
The Preferred Securities have been approved for listing on Nasdaq's
National Market under the symbol REPBP. One of the requirements for listing and
continued listing is the presence of two market makers for the Preferred
Securities. Although the Underwriters have informed the Company that they
presently intend to make a market in the Preferred Securities, the Underwriters
are not obligated to do so and any such market making may be discontinued at any
time. Accordingly, there is no assurance that the Preferred Securities will be
listed on Nasdaq's National Market, that an active and liquid trading market
will develop for the Preferred Securities or, if developed, that such a market
will be maintained. The offering price and distribution rate are determined by
negotiations among representatives of the Company and the Underwriters, with
Ryan, Beck & Co., Inc. acting as qualified independent underwriter, and the
offering price of the Preferred Securities may not be indicative of the market
price following the offering. See "Underwriting."
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<PAGE> 25
ACCOUNTING TREATMENT
For financial reporting purposes, RBI Capital will be treated as a
subsidiary of the Company and, accordingly, the accounts of RBI Capital will be
included in the consolidated financial statements of the Company. The Preferred
Securities will be presented as a separate line item in the consolidated balance
sheet of the Company under the caption "Guaranteed Preferred Beneficial
Interests in Company's Junior Subordinated Debentures," and appropriate
disclosures about the Preferred Securities, the Guarantee and the Junior
Subordinated Debentures will be included in the notes to consolidated financial
statements. For financial reporting purposes, the Company will record
Distributions payable on the Preferred Securities as minority interests in the
consolidated statements of operations.
As long as any Preferred Securities remain outstanding, all future reports
of the Company filed under the Exchange Act will (i) present the Trust
Securities issued by RBI Capital on the balance sheet as a separate line-item
entitled "Guaranteed Preferred Beneficial Interests in Company's Junior
Subordinated Debentures," (ii) include in a footnote to the financial statements
disclosure that the sole assets of RBI Capital are the Junior Subordinated
Debentures (including the outstanding principal amount, interest rate and
maturity date of such Junior Subordinated Debentures), and (iii) include in an
audited footnote to the financial statements disclosure that the Company owns
all of the Common Securities of RBI Capital, the sole assets of RBI Capital are
the Junior Subordinated Debentures, and the back-up obligations, in the
aggregate, constitute an irrevocable and unconditional guarantee by the Company
of the obligations of RBI Capital under the Preferred Securities.
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<PAGE> 26
CAPITALIZATION
The following table sets forth the actual and pro forma, as adjusted,
consolidated capitalization of the Company at March 31, 1997. Pro forma
capitalization gives effect to (i) the Firstate Acquisition, (ii) the FFO
Merger, and (iii) the proceeds raised hereby. The information set forth below
should be read in conjunction with the Consolidated Financial Statements of the
Company included elsewhere in this Prospectus. See "Pro Forma Financial Data."
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
COMPANY PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Subordinated debentures..................................... $ 6,000 $ 6,000
Guaranteed preferred beneficial interests in Company's
junior subordinated debentures(1)......................... 0 25,000
Stockholders' Equity:
Perpetual preferred convertible stock, 100,000 shares
authorized, 75,000 shares issued and outstanding....... 1,500 1,500
Common stock, 20,000,000 shares authorized, 4,183,507
shares issued and outstanding.......................... 8,367 13,266
Capital surplus........................................... 26,699 45,801
Retained earnings......................................... 19,386 21,066
Net unrealized losses on debt securities available for
sale -- net of deferred income taxes................... (373) (522)
------- -------
Total stockholders' equity........................ $55,579 $81,111
======= =======
Company Capital Ratios(2):
Equity to total assets.................................... 6.09% 6.21%
Tier 1 risk-based capital ratio........................... 8.87 10.83
Total risk-based capital ratio............................ 11.12 13.14
Leverage ratio(3)......................................... 5.83 7.19
</TABLE>
- ---------------
(1) Preferred Securities representing beneficial interests in an aggregate
amount of $25.0 million of the 9.10% Junior Subordinated Debentures of the
Company. The Junior Subordinated Debentures will mature on June 30, 2027.
(2) The pro forma capital ratios, as adjusted, are computed including proceeds
from the sale of the Preferred Securities in a manner consistent with
Federal Reserve guidelines and policies. Under the Federal Reserve's
guidelines, the amount of cumulative preferred stock that can be included in
Tier 1 capital is limited to 25% of total Tier 1 capital. In view of this
limitation, on a pro forma as adjusted basis, $23.7 million of the proceeds
is included in the Company's Tier 1 capital and all $25.0 million is
included in the Company's total risk-based capital.
(3) The leverage ratio is Tier 1 capital divided by the average total assets,
less intangibles.
22
<PAGE> 27
RECENT DEVELOPMENTS
For the quarter ended June 30, 1997, the Company reported net income of
$629,000 or $.13 per share compared to $1.3 million or $.26 per share for the
same period of 1996. Previously, the Company had announced that net income was
expected to decline from the comparable period due to a change in its strategy
regarding high loan-to-value home equity loans. Since it began originating that
type of loan in the fourth quarter of 1996, the Company had been immediately
selling those loans following origination. The Company changed that strategy in
the second quarter of 1997, retaining a significant portion of those loans with
the intent to securitize or sell these loans in bulk at a future date. Primarily
as a result of this change, net income in the second quarter was reduced due to
recognizing the relatively high costs of originating these loans and the absence
of revenues resulting from loan sales. In the second quarter of 1997, the
Company recognized, as part of its noninterest income, $660,000 of pre-tax
income from mortgage banking activities. The Company estimates that, based on
published purchase prices from established firms that participate in the home
equity loan secondary markets, its pre-tax income from mortgage banking
activities in the second quarter of 1997 would have increased by approximately
$2.6 million, if the Company had followed its former policy of immediately
selling these loans. However, there can be no assurances that the Company will
realize income on the sale of these loans in future periods.
PRO FORMA FINANCIAL DATA
The pro forma balance sheet as of March 31, 1997 and statement of
operations and other data for the year ended December 31, 1996 and for the three
months ended March 31, 1997 give effect to, among other things, the Firstate
Acquisition and the FFO Merger, as if they had occurred at the beginning of the
respective periods. See "Business -- Recent and Pending Acquisitions" for a
description of the Firstate Acquisition and FFO Merger.
The Firstate Acquisition was accounted for using the purchase accounting
method. The FFO Merger will be accounted for as a corporate reorganization in
which the majority stockholder's interest in FFO will be combined at historical
cost in a manner similar to a pooling of interests, while the minority interest
in FFO will be combined using purchase accounting rules.
The pro forma adjustments are based upon available information and upon
certain assumptions that the Company believes are reasonable under the
circumstances. The pro forma financial data should be read in conjunction with
the Company's Consolidated Financial Statements and notes thereto appearing
elsewhere in this Prospectus. The pro forma and projected financial data are not
necessarily indicative of the results that would have occurred had the Firstate
Acquisition and the FFO Merger actually occurred on the dates indicated, nor are
they indicative of the Company's future results of operations.
The pro forma adjustments to the Combined Condensed Statements of
Operations are limited to amortization of goodwill from the transactions and do
not include the effect of operating cost savings or revenue enhancements that
may be realized after the Firstate Acquisition and FFO Merger are completed.
23
<PAGE> 28
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
COMBINED
COMPANY COMPANY
FIRSTATE WITH FFO WITH
COMPANY FIRSTATE ADJUSTMENTS(A) FIRSTATE FFO ADJUSTMENTS(B) FIRSTATE
-------- -------- -------------- -------- -------- -------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from
banks.................. $ 23,803 $ 513 $ 5,173 $ 29,489 $ 6,491 $ -- $ 35,980
Interest bearing
deposits............... -- 950 -- 950 7,688 -- 8,638
Investment securities and
mortgage-backed
securities............. 63,198 27,493 (247) 90,444 71,584 19 162,047
FHLB stock............... 5,081 -- -- 5,081 2,378 -- 7,459
Federal funds sold....... 41,000 380 -- 41,380 764 -- 42,144
Loans held for sale...... 40,201 -- -- 40,201 4,573 -- 44,774
Loans receivable, net.... 694,784 37,931 (6,689) 726,026 215,926 (530) 941,422
Premises and equipment... 20,015 655 -- 20,670 5,268 251 26,189
Real estate owned........ 7,250 2,526 (2,453) 7,323 1,425 -- 8,748
Goodwill................. -- -- 130 130 -- 5,862 5,992
Other assets............. 16,761 1,531 2,469 20,761 3,934 -- 24,695
-------- -------- -------- -------- -------- ------ ----------
Total assets.... $912,093 $ 71,979 $ (1,617) $982,455 $320,031 $5,602 $1,308,088
======== ======== ======== ======== ======== ====== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits --
Noninterest-bearing
checking........... $ 49,066 $ 1,416 $ -- $ 50,482 $ 16,589 $ -- $ 67,071
Interest-bearing
checking........... 89,895 1,453 -- 91,348 22,676 -- 114,024
Savings and money
market............. 283,362 3,848 -- 287,210 35,392 -- 322,602
Time deposits........ 406,737 61,349 490 468,576 211,015 149 679,740
-------- -------- -------- -------- -------- ------ ----------
Total
deposits...... 829,060 68,066 490 897,616 285,672 149 1,183,437
Securities sold under
agreement to
repurchase............. 16,160 -- -- 16,160 -- -- 16,160
Other borrowings......... 6,000 -- -- 6,000 9,000 -- 15,000
Other liabilities........ 5,294 1,027 779 7,100 4,599 (2) 11,697
-------- -------- -------- -------- -------- ------ ----------
Total
liabilities... 856,514 69,093 1,269 926,876 299,271 147 1,226,294
-------- -------- -------- -------- -------- ------ ----------
Stockholders' equity
Perpetual preferred
convertible
stock.............. 1,500 -- -- 1,500 -- -- 1,500
Common stock......... 8,367 1,500 (1,500) 8,367 845 4,054 13,266
Capital surplus...... 26,699 13,002 (13,002) 26,699 17,633 1,469 45,801
Retained earnings.... 19,386 (11,616) 11,616 19,386 2,431 (68) 21,749
Net unrealizable loss
on AFS
securities......... (373) -- -- (373) (149) -- (522)
-------- -------- -------- -------- -------- ------ ----------
Total
stockholders'
equity........ 55,579 2,886 (2,886) 55,579 20,760 5,455 81,794
-------- -------- -------- -------- -------- ------ ----------
Total
liabilities
and
stockholders'
equity........ $912,093 $ 71,979 $ (1,617) $982,455 $320,031 $5,602 $1,308,088
======== ======== ======== ======== ======== ====== ==========
</TABLE>
24
<PAGE> 29
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
COMBINED
COMPANY COMPANY
FIRSTATE WITH FFO WITH
COMPANY FIRSTATE ADJUSTMENTS(C) FIRSTATE FFO ADJUSTMENTS(D) FIRSTATE
--------- -------- -------------- --------- ------ -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
MARCH 31, 1997
Interest income............ $ 18,070 $1,141 $-- $ 19,211 $5,807 $ -- $ 25,018
Interest expense........... 8,969 879 -- 9,848 3,173 -- 13,021
--------- ------ --- --------- ------ ----- ---------
Net interest income........ 9,101 262 -- 9,363 2,634 -- 11,997
Loan loss provision........ 1,138 7 -- 1,145 -- -- 1,145
--------- ------ --- --------- ------ ----- ---------
Net interest income after
loan loss provision...... 7,963 255 -- 8,218 2,634 -- 10,852
Noninterest income......... 3,124 138 -- 3,262 601 -- 3,863
General & administrative
(G&A expenses)........... 8,240 663 -- 8,903 2,263 -- 11,166
Other noninterest
expenses................. 280 37 -- 317 34 -- 351
--------- ------ --- --------- ------ ----- ---------
Net income before taxes and
goodwill................. 2,567 (307) -- 2,260 938 -- 3,198
Income tax expense......... 964 -- -- 964 351 -- 1,315
--------- ------ --- --------- ------ ----- ---------
Net income before goodwill
amortization............. 1,603 (307) -- 1,296 587 -- 1,883
Goodwill amortization from
the FFO merger & Firstate
acquisition(a)........... -- -- 3 3 -- 147 150
--------- ------ --- --------- ------ ----- ---------
Net income........ $ 1,603 $ (307) $(3) $ 1,293 $ 587 $(147) $ 1,733
========= ====== === ========= ====== ===== =========
Earnings per share(e)...... $ .32 $ .26 $ .23
========= ========= =========
Weighted average shares
outstanding(e)........... 4,980,167 4,980,167 7,429,584
</TABLE>
<TABLE>
<CAPTION>
COMBINED
COMPANY COMPANY
FIRSTATE WITH FFO WITH
COMPANY FIRSTATE ADJUSTMENTS(C) FIRSTATE FFO ADJUSTMENTS(D) FIRSTATE
--------- -------- -------------- --------- ------- -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
TWELVE MONTHS ENDED
DECEMBER 31, 1996
Interest income............ $ 66,947 $ 5,409 $ -- $ 72,356 $21,997 $ -- $ 94,353
Interest expense........... 32,926 4,015 -- 36,941 12,023 -- 48,964
--------- ------- ---- --------- ------- ----- ---------
Net interest income........ 34,021 1,394 -- 35,415 9,974 -- 45,389
Loan loss provision........ 1,800 (289) -- 1,511 782 -- 2,293
--------- ------- ---- --------- ------- ----- ---------
Net interest income after
loan loss provision...... 32,221 1,683 -- 33,904 9,192 -- 43,096
Noninterest income......... 5,616 390 -- 6,006 2,387 -- 8,393
General & administrative
(G&A expenses)........... 27,352 2,747 -- 30,099 9,528 -- 39,627
Other noninterest
expenses................. 4,469 849 -- 5,318 (352) -- 4,966
--------- ------- ---- --------- ------- ----- ---------
Net income before taxes and
goodwill................. 6,016 (1,523) -- 4,493 2,403 -- 6,896
Income tax expense......... 2,232 -- -- 2,232 803 -- 3,035
--------- ------- ---- --------- ------- ----- ---------
Net income before goodwill
amortization............. 3,784 (1,523) -- 2,261 1,600 -- 3,861
Goodwill amortization from
the FFO merger & Firstate
acquisition(a)........... -- -- 13 13 -- 586 599
--------- ------- ---- --------- ------- ----- ---------
Net income........ $ 3,784 $(1,523) $(13) $ 2,248 $ 1,600 $(586) $ 3,262
========= ======= ==== ========= ======= ===== =========
Earnings per share(e)...... $ .76 $ .45 $ .44
========= ========= =========
Weighted average shares
outstanding(e)........... 4,952,937 4,952,937 7,402,354
</TABLE>
25
<PAGE> 30
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
ADJUSTMENTS COMBINED
COMPANY FFO INC/(DEC) COMPANY
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
TWELVE MONTHS ENDED
DECEMBER 31, 1995
Interest income.................................... $ 57,863 $ 19,730 $ -- $ 77,593
Interest expense................................... 30,001 10,111 -- 40,112
--------- --------- ----- ---------
Net interest income................................ 27,862 9,619 -- 37,481
Loan loss provision................................ 1,685 477 -- 2,162
--------- --------- ----- ---------
Net interest income after loan loss provision...... 26,177 9,142 -- 35,319
Noninterest income................................. 2,751 2,602 -- 5,353
General & administrative (G&A) expenses............ 22,119 8,844 -- 30,963
Other noninterest expenses......................... 739 613 -- 1,352
--------- --------- ----- ---------
Net income before taxes and goodwill............... 6,070 2,287 -- 8,357
Income tax expense................................. 1,875 641 -- 2,516
--------- --------- ----- ---------
Net income before goodwill amortization............ 4,195 1,646 -- 5,841
Goodwill amortization from the FFO merger &
Firstate acquisition(a).......................... (1,578) -- 586 (992)
--------- --------- ----- ---------
Net income............................... $ 5,773 $ 1,646 $(586) $ 6,833
========= ========= ===== =========
Earnings per share(e).............................. $ 1.27 $ 0.23 $ 0.98
Weighted average shares outstanding(e)............. 4,562,642 7,007,342 7,007,342
TWELVE MONTHS ENDED
DECEMBER 31, 1994
Interest income.................................... $ 37,115 $ 16,882 $ -- $ 53,997
Interest expense................................... 16,871 7,553 -- 24,424
--------- --------- ----- ---------
Net interest income................................ 20,244 9,329 -- 29,573
Loan loss provision................................ 1,575 (1,403) -- 172
--------- --------- ----- ---------
Net interest income after loan loss provision...... 18,669 10,732 -- 29,401
Noninterest income................................. 2,612 2,487 -- 5,099
General & administrative (G&A) expenses............ 14,916 8,761 -- 23,677
Other noninterest expenses......................... 1,701 3,784 -- 5,485
--------- --------- ----- ---------
Net income before taxes and goodwill............... 4,664 674 -- 5,338
Income tax expense................................. 468 234 -- 702
--------- --------- ----- ---------
Net income before goodwill amortization............ 4,196 440 -- 4,636
Goodwill amortization from the FFO merger &
Firstate acquisition(a).......................... (2,705) -- 586 (2,119)
--------- --------- ----- ---------
Net income............................... $ 6,901 $ 440 $(586) $ 6,755
========= ========= ===== =========
Earnings per share(e).............................. $ 1.67 $ 0.06 $ 0.95
Weighted average shares outstanding(e)............. 4,136,790 7,085,788 7,085,788
</TABLE>
26
<PAGE> 31
NOTES TO PRO FORMA DATA
(a) To reflect the purchase by Firstate's former controlling stockholder of
certain loans and ORE, to reflect the excess purchase price over the estimated
fair value of the net assets acquired from Firstate and to eliminate Firstate's
historical equity accounts.
(b) The FFO Merger will be accounted for as a corporate reorganization in
which the majority stockholder's interest in FFO will be combined at historical
cost in a manner similar to a pooling of interests while the minority interest
in FFO will be combined using purchase accounting rules. The excess of the
purchase price of the minority interest over the market value is first assigned
to individual assets and liabilities with the remainder considered
unidentifiable goodwill. The pro forma valuation of the minority interest, book
value and estimated amount of goodwill and market value adjustments is as
follows:
<TABLE>
<S> <C>
Exchange ratio: 0.29 shares of the Company's stock for each
share of FFO's stock
Number of Company shares to be issued -- total............. 2,449,417
Minority interest in FFO................................... 30.9%
Number of shares to be issued to minority interest......... 756,870
Fair value per share of the Company's common stock......... $ 15.50(1)
Fair value of minority interest of FFO common stock........ 11,731(2)
Fair value of FFO common stock options over the exercise
price.................................................... 139(3)
--------------
Fair value of minority interest............................ 11,870
--------------
Book value of minority interest............................ 6,415(4)
--------------
Goodwill and market value adjustments...................... $ 5,455
==============
Amount allocated to goodwill............................. $ 5,862
Amount allocated to market value adjustments............. (407)
</TABLE>
- ---------------
(1) The fair value of the Company's common stock is based on the average of the
closing bid price of the stock on Nasdaq's National Market two days before,
two days after, and on March 11, 1997, the date that the Company and FFO
announced that they had signed a letter of intent to combine the two
companies.
(2) The fair value per share of the Company's common stock times the number of
shares to be issued to the minority interest.
(3) The number of FFO options outstanding multiplied by the fair value of the
Company's common stock adjusted for the Exchange Ratio of 0.29, less the
aggregate exercise price of the FFO's common stock options, all multiplied
by the 30.9% minority interest.
(4) FFO's book value times the 30.9% minority interest.
(c) Amortization of goodwill on the Firstate Acquisition follows:
<TABLE>
<S> <C>
Goodwill recorded........................................... $ 130
Annual amortization based on 10-year period................. 13
Amortization for 3 months................................... 3
</TABLE>
(d) Amortization of goodwill on the FFO Merger is as follows:
<TABLE>
<S> <C>
Goodwill recorded........................................... $5,862
Annual amortization based on 10-year period................. 586
Amortization for 3 months................................... 147
</TABLE>
(e) The difference between earnings per common and common equivalent shares
outstanding on a primary and fully diluted basis is not material. The
number of shares of FFO common stock used in the earnings per share
calculation assumes that all shares of FFO were exchanged at the
beginning of the period presented and that all FFO common stock options
outstanding were converted into shares
27
<PAGE> 32
of FFO common stock. The following table reflects the calculation used
in determining the weighted average shares outstanding.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Number of FFO shares outstanding............. 8,446,266 8,446,266
Exchange ratio............................... 0.29 0.29
FFO proforma shares outstanding.............. 2,449,417 2,449,417
Company weighted average shares.............. 4,980,167 4,952,937
--------- ---------
Proforma weighted average shares............. 7,429,584 7,402,354
</TABLE>
(f) The goodwill from the Firstate Acquisition and FFO Merger is not
expected to be tax deductible and therefore, no tax effect is included.
The Company's statutory tax rate in effect for the periods presented
was 37.6%.
28
<PAGE> 33
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data presented below for the years
ended December 31, 1996, 1995 and 1994, the seven months ended December 31, 1993
and the five months ended May 31, 1993, has been derived from the audited
Consolidated Financial Statements of the Company and, prior to 1996, the Bank,
and are qualified in their entirety by reference to the more detailed
Consolidated Financial Statements and notes thereto, included elsewhere herein.
Financial data for interim periods include all adjustments, consisting of normal
accruals that management considers necessary for a fair presentation of the
financial conditions and results of operations for such interim periods. In
light of the significant mark-to market adjustments and other adjusting entries
to its financial statements that were made following the Change in Control,
management believes that the usefulness of comparisons between (i) the financial
statements and the financial data derived therefrom as of the dates and for the
period prior to June 1, 1993, and (ii) the financial statements and the
financial data derived therefrom as of the dates and for the periods since June
1, 1993, may be limited. In addition, subsequent to consummation of the Bank's
initial public offering in December 1993 and the CrossLand Purchase and
Assumption in that month, the Company has operated in a significantly different
manner from that which it had previously operated. Accordingly, the financial
results for periods prior to the CrossLand Purchase and Assumption differ
significantly from periods since then.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEVEN MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31, DECEMBER 31,
------------------------ ------------------------------------ -----------------------
1997 1996 1996 1995 1994 1994 1993
---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
Interest income....... $ 18,070 $ 15,862 $ 66,947 $ 57,863 $ 37,115 $ 23,684 $ 7,331
Interest expense...... 8,969 7,927 32,926 30,001 16,871 10,711 3,110
---------- ----------- ---------- ---------- ---------- ---------- ----------
Net interest income... 9,101 7,935 34,021 27,862 20,244 12,973 4,221
Loan loss provision... 1,138 450 1,800 1,685 1,575 1,263 709
---------- ----------- ---------- ---------- ---------- ---------- ----------
Net interest income
after loan loss
provision........... 7,963 7,485 32,221 26,177 18,669 11,710 3,512
Other noninterest
income.............. 3,124 678 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.... 8,240 5,956 27,352 22,119 14,916 9,308 3,700
SAIF special
assessment(1)....... -- -- 2,539 -- -- -- --
Provision for losses
on ORE.............. 170 180 1,611 -- 10 10 20
Other noninterest
expense............. 110 124 319 739 1,691 1,417 600
---------- ----------- ---------- ---------- ---------- ---------- ----------
Net income before
income taxes &
goodwill
accretion........... 2,567 1,903 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........ 2,567 1,903 6,016 7,648 7,369 4,311 2,182
Income tax
provision........... 964 699 2,232 1,875 468 268 --
---------- ----------- ---------- ---------- ---------- ---------- ----------
Net income............ $ 1,603 $ 1,204 $ 3,784 $ 5,773 $ 6,901 $ 4,043 $ 2,182
========== =========== ========== ========== ========== ========== ==========
PER SHARE DATA:
Earnings per share --
total............... $ .32 $ .24 $ .76 $ 1.26 $ 1.67 $ .98 $ 1.12
========== =========== ========== ========== ========== ========== ==========
Weighted average
shares
outstanding......... 4,980,167 4,953,119 4,952,937 4,562,642 4,136,790 4,141,322 1,951,231
</TABLE>
29
<PAGE> 34
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEVEN MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31, DECEMBER 31,
------------------------ ------------------------------------ -----------------------
1997 1996 1996 1995 1994 1994 1993
---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE SHEET DATA(5):
Total assets.......... $ 912,093 $ 802,363 $ 907,868 $ 801,995 $ 626,445 $ 626,445 $ 531,312
Investment & mortgage
backed securities... 63,198 51,481 94,989 64,801 40,271 40,271 37,382
Loans, net of unearned
income.............. 748,493 676,658 742,994 669,416 516,335 516,335 316,483
Allowance for loan
losses.............. 13,508 14,746 13,134 14,910 7,065 7,065 6,539
Deposits.............. 829,060 742,082 827,980 743,105 583,885 583,885 494,316
Negative goodwill..... -- -- -- -- 1,578 1,578 4,283
Stockholders'
equity.............. $ 55,579 $ 52,047 $ 54,319 $ 50,903 $ 36,165 $ 36,165 $ 29,454
SELECTED FINANCIAL
RATIOS(2):
Return on average
assets.............. .72% .60% .45% .77% 1.25% 1.20% 1.99%
Return on average
equity.............. 12.10 9.57 7.31 13.47 21.34 20.68 39.17
Net interest spread... 3.83 3.83 3.96 3.67 3.78 4.06 3.45
Net interest margin... 4.12 4.14 4.28 3.95 3.96 4.25 4.22
G&A expense to average
assets.............. 3.63 2.96 3.28 2.96 2.74 2.79 3.94
G&A efficiency
ratio............... 67.40 69.15 68.98 72.25 65.26 62.02 65.70
Non-accrual loans to
loans(5)............ 2.27 2.22 2.15 2.04 2.51 2.51 5.05
Nonperforming assets
to total
assets(5)........... 2.58 3.02 2.51 2.93 3.59 3.59 4.95
Loan loss allowance to
loans(3)(5) 1.91 2.18 1.86 2.24 1.37 1.37 2.07
Loan loss allowance to
nonperforming
loans(3)(5):
Originated
portfolio......... 63.76 68.05 50.73 71.43 110.61 110.61 37.95
March 1995
purchase.......... 120.47 135.04 488.78 236.85 -- -- --
Crossland
portfolio......... 104.82 63.46 126.12 41.77 23.73 23.73 39.88
Other purchased
portfolios........ 45.60 40.39 89.80 41.84 82.99 82.99 --
---------- ----------- ---------- ---------- ---------- ---------- ----------
Total.......... 82.81% 96.47% 84.93% 90.47% 53.36% 53.36 39.12
RATIO OF EARNINGS TO
FIXED CHARGES(4):
Including interest on
deposits............ 1.29 1.25 1.19 1.26 1.45 1.42 1.70
Excluding interest on
deposits............ 37.79 206.17 78.41 298.53 235.62 156.91 756.00
OTHER DATA(5):
Number of branches.... 33 32 32 32 21 21 19
Number of full-time
equivalent
employees........... 644 436 637 421 300 300 179
</TABLE>
- ---------------
(1) The SAIF special assessment is a one-time charge. See
"Business -- Supervision and Regulation -- Deposit Insurance."
(2) Annualized.
(3) See "Business -- Asset Quality" for a discussion of the allocation and
availability of loan loss reserves among portfolios of loans within the Bank
and "Business -- Troubled Debt Restructurings" for a discussion of the
portion of the Bank's troubled debt restructurings that are considered
nonperforming loans.
(4) Represents earnings before fixed charges, income taxes and extraordinary
items and non-cumulative preferred dividends and redemption. Fixed charges
include interest expense (inclusive or exclusive of interest on deposits as
indicated).
(5) At period-end.
30
<PAGE> 35
<TABLE>
<CAPTION>
FIVE MONTHS ENDED YEAR ENDED
MAY 31, DECEMBER 31,
----------------------- ------------
1994 1993 1992
---------- ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C>
OPERATING DATA:
Interest income........................................... $ 13,431 $ 4,848 $ 11,845
Interest expense.......................................... 6,160 1,970 6,054
---------- ---------- ----------
Net interest income....................................... 7,271 2,878 5,791
Loan loss provision....................................... 312 379 520
---------- ---------- ----------
Net interest income after loan loss provision............. 6,959 2,499 5,271
Other noninterest income.................................. 854 743 1,679
G&A expenses.............................................. 5,608 2,699 5,748
Provision for losses on ORE............................... -- 1,214 230
Other noninterest expense................................. 274 443 715
---------- ---------- ----------
Net income (loss) before income taxes and goodwill
accretion............................................... 1,931 (1,114) 257
Accretion of negative goodwill............................ 1,127 -- --
---------- ---------- ----------
Net income (loss) before income taxes..................... 3,058 (1,114) 257
Income tax provision (benefit)............................ 200 0 0
---------- ---------- ----------
Net income (loss)......................................... $ 2,858 $ (1,114) $ 257
========== ========== ==========
PER SHARE DATA:
Earnings (loss) per share -- total........................ $ 1.67 $ (1.00) $ 0.23
========== ========== ==========
Earnings (loss) per share -- excluding negative
goodwill................................................ $ 1.01 $ (1.00) $ 0.23
========== ========== ==========
Weighted average shares outstanding....................... 4,134,420 1,117,192 1,106,459
BALANCE SHEET DATA:(4)
Total assets.............................................. $ 508,642 $ 168,741 $ 168,810
Investment securities..................................... 52,571 27,433 24,276
Loans net of unearned income.............................. 396,144 111,292 110,715
Allowance for loan losses................................. 6,828 1,866 1,958
Negative goodwill......................................... 3,156 5,861 --
Deposits.................................................. 469,461 153,660 154,984
Stockholder's equity...................................... 32,234 8,058 12,215
SELECTED FINANCIAL RATIOS(1):
Return on average assets.................................. 1.33% (1.61)% 0.15%
Return on average equity.................................. 22.34 (21.75) 2.12
Net interest spread....................................... 3.48 4.21 3.51
Net interest margin....................................... 3.67 4.66 3.95
G&A expense to average assets............................. 2.40 6.28 4.01
G&A efficiency ratio...................................... 67.32 74.54 76.95
Non-accrual loans to loans(4)............................. 4.36 2.27 3.20
Nonperforming assets to total assets(4)................... 5.64 5.89 7.55
Loan loss allowance to loans(2)(4)........................ 1.72 1.68 1.77
Loan loss allowance to nonperforming loans(2)(4):
Originated Portfolio.................................... N/A N/A 54.98%
March 1995 Purchase..................................... N/A N/A --
Crossland Portfolio..................................... N/A N/A --
Other Purchased Portfolios.............................. N/A N/A --
---------- ---------- ----------
Total.............................................. 23.58 73.03 54.98%
RATIO OF EARNINGS TO FIXED CHARGES(3):
Including interest on deposits............................ 1.51 0.43 1.04
Excluding interest on deposits............................ 928.40 171.20 332.16
OTHER DATA (AT PERIOD-END):
Number of branches........................................ 19 7 7
Number of full-time equivalent employees.................. 223 96 90
</TABLE>
- ---------------
(1) Annualized.
(2) See "Business -- Asset Quality" for a discussion of the allocation and
availability of loan loss reserves among portfolios of loans within the Bank
and "Business -- Troubled Debt Restructuring" for a discussion of the
portion of the Bank's troubled debt restructurings that are considered
nonperforming loans.
(3) Represents earnings before fixed charges, income taxes and extraordinary
items and non-cumulative preferred dividends and redemptions. Fixed charges
include interest expense (inclusive or exclusive of interest on deposits as
indicated).
N/A -- Data not available.
31
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's balance sheets and
statements of operations should be read in conjunction with "Selected
Consolidated Financial Data" and the Consolidated Financial Statements and the
related notes included therein.
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
COMPARISON OF BALANCE SHEETS AT MARCH 31, 1997 AND DECEMBER 31, 1996
Overview
Total assets of the Company were $912.1 million at March 31, 1997 and
$907.9 million at December 31, 1996, an increase of $4.2 million. Total loans
increased by $5.5 million from $743.0 million at the end of the prior year to
$748.5 million at the end of the first quarter. Total deposits increased by $1.1
million from $828.0 million at year-end 1996 to $829.1 million.
Investment and Mortgage-Backed Securities
Investment and mortgage-backed securities, consisting primarily of U.S.
Treasury and federal agency securities, were $63.2 million at March 31, 1997
compared to $95.0 million at December 31, 1996, a decrease of $31.8 million.
During the first three months of 1997, management permitted the amount in this
category to decline by allowing maturities and sales to exceed purchases.
Concurrently, federal funds sold, all on an overnight basis, increased by $33.0
million from $8.0 million at the prior year-end to $41.0 million at March 31,
1997. At March 31, 1997, the Company had recorded all its investment and
mortgage-backed securities as "available for sale," carrying them at their
market value.
Loans and Loans Held for Sale
Total loans increased $5.5 million from $743.0 million at year-end to
$748.5 million at March 31, 1997. This increase was the result of $108.4 million
of new loan production during the first quarter, which exceeded loan repayments
of $16.9 million and $86.0 million in residential loan sales. Residential loans,
including $40.2 million in mortgage loans held for sale, declined $7.7 million
to $398.1 million, while other real estate-secured loans increased $5.2 million.
Consumer loans also increased $1.7 million while commercial (business) loans
declined $1.3 million.
Allowance for Loan Losses
The allowance for loan losses amounted to $13.5 million at March 31, 1997,
compared to $13.1 million at December 31, 1996. The loan portfolio includes
purchased loans amounting to $271.2 million (36.23% of total loans) and the
Company has allocated a portion of the discount on those purchases to the
allowance for loan losses in amounts consistent with the Company's loan loss
allowance policy guidelines. At March 31, 1997, the allowance for loan losses
included $3.7 million allocated to the Company's largest purchase made in March
1995 (the "March 1995 Purchase"), $1.0 million allocated to loans purchased from
CrossLand, $1.7 million allocated to other loan purchases, and $7.1 million
allocated to loans originated by the Bank. Activity to the allowance for loan
losses during the first quarter of 1997 included a $1.1 million provision for
loan losses and loan charge-offs (net of recoveries) of $122,000. During the
first quarter, the Company sold $6.0 million of loans from the March 1995
Purchase and subsequently reallocated $642,000 from the allowance allocated for
the March 1995 Purchase to the allowance allocated for originated loans. This
transfer was accomplished by recording a gain on sale of loans and an increase
in the loan loss provision of equivalent amounts. Discounts on loan purchases
not allocated to the allowance for loan losses, recorded as unearned discount,
amounted to $4.1 million at March 31, 1997. Such discounts are available to
absorb losses on pools of purchased loans should amounts allocated to the
allowance prove insufficient.
32
<PAGE> 37
Nonperforming Assets
Nonperforming assets amounted to $23.6 million or 2.58% of total assets at
March 31, 1997, compared to $22.8 million or 2.51% of total assets at December
31, 1996. Nonperforming assets at March 31, 1997, included a $1.1 million loan
which had matured prior to March 31, 1997, which the borrower subsequently
agreed to repay prior to June 30, 1997. Nonperforming loans totaled $16.3
million at the end of the first quarter, an increase of $1.1 million from the
year-end total of $15.4 million. This was the result of increases of $904,000 in
nonperforming residential loans, and $718,000 in nonperforming commercial
(business) loans, partially offset by decreases of $468,000 in nonperforming
commercial real estate loans and $123,000 in nonperforming consumer loans.
Nonperforming loans at March 31, 1997 and December 31, 1996 included troubled
debt restructurings of $1.1 million and $1.0 million, respectively. ORE acquired
through foreclosure declined from $7.4 million at the end of 1996 to $7.2
million at the end of the first quarter of 1997.
Deposits
Total deposits were $829.0 million at March 31, 1997, compared to $828.0
million at December 31, 1996 an increase of $1.0 million. Passbook savings
accounts offered to higher balance customers at a premium rate increased by $4.2
million and other savings accounts increased by $1.2 million. Interest bearing
and non-interest bearing checking account balances remained relatively unchanged
from the prior year-end, increasing by only $168,000, while certificates of
deposit declined by $4.9 million.
Stockholders' Equity
Stockholders' equity was $55.6 million at March 31, 1997, or 6.1% of total
assets, compared to $54.3 million or 6.0% of total assets at December 31, 1996.
At March 31, 1997, the Company's Tier 1 Capital ratio was 5.83%, its Tier 1
Risk-Based Capital ratio was 8.87%, and the Total Risk-Based Capital ratio was
11.12%, all in excess of minimum regulatory guidelines for an institution to be
considered "well-capitalized." At March 31, 1997, the Bank's regulatory capital
levels were 6.47% for its Tier 1 ratio, 9.85% for its Tier 1 Risk-Based Capital
ratio, and 11.09% for its Total Risk-Based Capital ratio.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1996
Overview
Net income for the first quarter of 1997 was $1.6 million or $.32 per
share, compared to $1.2 million or $.24 per share for the same period of 1996,
an improvement of $399,000 for the three month period. The Company's return on
average assets and return on average equity also improved to .72% and 12.10%,
respectively, for the first quarter of 1997, compared to .60% and 9.57%,
respectively, for the first quarter of 1996.
Analysis of Net Interest Income
Net interest income for the first quarter of 1997 was $9.1 million,
compared to $7.9 million for 1996. This $1.2 million or 14.7% increase was
primarily the result of additional income from balance sheet growth as total
interest-earning assets increased by approximately $101.9 million. Interest
income was $18.1 million for the three months ended March 31, 1997, an increase
of $2.2 million over 1996, while interest expense increased by $1.0 million. The
average asset yield and the average cost of interest-bearing liabilities
remained level at 8.36% and 4.53%, respectively. As a result, net interest
spread for the first quarter of 1997 and 1996 was unchanged at 3.83% and net
interest margin, which includes the benefit of noninterest bearing funds,
decreased from 4.14% for 1996 to 4.12% for 1997.
33
<PAGE> 38
The following table summarizes the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities for the three months ended March 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------
1997 1996
----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans, net.............................. $745,893 $16,506 8.77% $677,439 $14,778 8.68%
Investment securities................... 33,749 486 5.83 32,275 428 5.34
Mortgage backed securities.............. 19,962 306 6.12 20,403 291 5.71
Interest bearing deposits in banks...... 118 -- 5.49 43 -- 3.67
FHLB stock.............................. 4,869 87 7.25 3,695 68 7.28
Federal funds sold...................... 52,950 685 5.17 21,743 297 5.40
-------- ------- -------- -------
Total interest-earning assets........... 857,541 18,070 8.36 755,598 15,862 8.36
Non interest-earning assets............. 49,507 46,291
-------- --------
Total assets.................. $907,048 $801,889
======== ========
Interest-bearing liabilities:
Interest checking....................... $ 88,679 240 1.10 $ 77,552 254 1.32
Savings................................. 27,082 137 2.05 29,322 159 2.17
Passbook gold........................... 221,023 2,649 4.86 70,735 766 4.36
Money market............................ 33,007 165 2.03 39,709 219 2.22
Time deposits........................... 410,499 5,471 5.40 482,125 6,481 5.41
Subordinated debt....................... 6,000 108 7.17 -- -- --
Other borrowings........................ 16,137 199 5.01 4,357 48 4.40
-------- ------- -------- -------
Total interest-bearing liabilities...... 802,427 8,969 4.53 703,800 7,927 4.53
Non interest-bearing liabilities........ 50,910 47,658
Stockholders' equity.................... 53,711 50,431
-------- --------
Total liabilities and
equity...................... $907,048 $801,889
======== ========
Net interest income and net interest
spread................................ $ 9,101 3.83% $ 7,935 3.83%
======= ==== ======= ====
Net interest margin..................... 4.12% 4.14%
==== ====
</TABLE>
34
<PAGE> 39
<TABLE>
<CAPTION>
INCREASE
(DECREASE) DUE
TO (1)
--------------
CHANGES IN NET INTEREST INCOME(1) VOLUME RATE TOTAL
- --------------------------------- ------ ----- ------
<S> <C> <C> <C>
Interest earning assets:
Loans, net.................................................. $1,428 $ 300 $1,728
Investment securities....................................... 28 30 58
Mortgage backed securities.................................. (6) 21 15
Interest bearing deposits in banks.......................... -- -- --
FHLB stock.................................................. 21 (2) 19
Federal funds sold.......................................... 401 (13) 388
------ ----- ------
Total change in interest income................... 1,872 336 2,208
Interest-bearing liabilities:
Interest checking......................................... 31 (45) (14)
Savings................................................... (14) (8) (22)
Passbook gold............................................. 1,786 97 1,883
Money market.............................................. (37) (17) (54)
Time deposits............................................. (845) (165) (1,010)
Subordinated debt......................................... 108 -- 108
Other borrowings.......................................... 138 13 151
------ ----- ------
Total change in interest expense.................. 1,167 (125) 1,042
------ ----- ------
Increase (decrease) in net interest income.................. $ 705 $ 461 $1,166
====== ===== ======
</TABLE>
- ---------------
(1) Changes in net interest income due to changes in volume and rate are based
on absolute value.
Noninterest Income
Noninterest income for the first quarter of 1997 was $3.1 million, compared
to $678,000 for the same period in 1996, an increase of $2.4 million. Of the
increase, $898,000 was the result of increased income from mortgage banking
operations, principally gains on sale of loans, net of certain capitalized costs
of production. In addition, the Company elected to sell certain portfolio loans
and recorded gains on sale of loans amounting to $1.2 million for the first
quarter of 1997. Other improvements included $93,000 from a third-party fee-
based checking account program under the name "Generations Gold" and an increase
of $62,000 in other sources of fee income on deposit accounts.
The following table reflects the components of noninterest income for the
three months ended March 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
INCREASE/
1997 1996 (DECREASE)
------ ---- ----------
<S> <C> <C> <C>
Service charges on deposit accounts......................... $ 438 $376 $ 62
Loan fee income............................................. 125 125 --
Income from mortgage banking activities..................... 898 -- 898
Gains on sales of portfolio loans........................... 1,188 (11) 1,199
Gain on sale of investments................................. 42 4 39
Generations Gold fee income................................. 100 7 93
Merchant charge card processing fees........................ 48 23 25
Other income................................................ 285 154 130
------ ---- ------
Total noninterest income.................................... $3,124 $678 $2,446
====== ==== ======
</TABLE>
35
<PAGE> 40
Noninterest Expense
General and administrative ("G&A") expenses for the first quarter of 1997
were $8.2 million compared to $6.0 million for the same period in 1996, an
increase of $2.3 million. The major factor responsible for the expense increase
was the expansion of the Company's mortgage banking activities which accounted
for substantially all of the increase in employees from 436 at March 31, 1996 to
644 at March 31, 1997. Total noninterest expenses, which include G&A expense,
provisions for losses on ORE properties, ORE income and expense, and
amortization of premiums paid on deposits, were $8.5 million for the first
quarter of 1997 compared to $6.2 million for the same period last year.
The following table reflects the components of noninterest expense for the
three months ended March 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------------
INCREASE
1997 1996 (DECREASE)
------ ------ ----------
<S> <C> <C> <C>
Salaries and benefits....................................... $4,366 $3,253 $1,113
Net occupancy expense....................................... 1,284 1,025 259
Advertising................................................. 209 80 129
Data processing fees........................................ 391 317 74
FDIC and state assessments.................................. 127 270 (143)
Telephone expense........................................... 251 125 126
Legal and professional...................................... 248 106 142
Postage and supplies........................................ 336 229 107
Other operating expense..................................... 1,028 551 477
------ ------ ------
G & A expenses.............................................. 8,240 5,956 2,284
Provision for losses on ORE................................. 170 180 (10)
ORE expense, net of ORE income.............................. (13) 1 (14)
Amortization of premium on deposits......................... 123 123 --
------ ------ ------
Total noninterest expense................................... $8,520 $6,260 $2,260
====== ====== ======
</TABLE>
YEARS ENDED DECEMBER 31, 1996 AND 1995
COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 1996 AND 1995
Overview
Total assets of the Company were $907.9 million at December 31, 1996 and
$802.0 million at December 31, 1995, an increase of $105.9 million. This growth
was primarily the result of the expansion of the Company's residential loan
production capabilities. Total loans increased by $73.6 million from $669.4
million at the end of 1995 to $743.0 million at the end of 1996. Total deposits
increased by $84.9 million from $743.1 million at year-end 1995 to $828.0
million at year-end 1996.
Investment and Mortgage-Backed Securities
The Company's investment securities consisted of U.S. Treasury Bills and
Notes and a $1.5 million revenue bond with the Northern Palm Beach County
Improvement District (the "Revenue Bond"). The Revenue Bond is not an obligation
of Palm Beach County, the State of Florida, or any political subdivision,
municipality or agency, thereof. The principal and interest are payable solely
from and are secured equally and ratably by a lien upon and pledge of the
proceeds of special assessments levied by the district. This investment is
taxable for United States federal income tax purposes.
Loans and Loans Held for Sale
Total loans at December 31, 1996 included $706.4 million of loans held for
portfolio and $36.6 million held for sale, a total of $743.0 million. At
December 31, 1995, these amounts were $664.7 million and $4.7
36
<PAGE> 41
million, respectively. The $73.6 million increase in total loans was primarily
comprised of a $25.5 million increase in residential loans to $405.9 million
(54.6% of total loans), and a $41.3 million increase in other real
estate-secured loans. At December 31, 1996, loans secured by first liens on real
estate constituted 92.0% of the total loan portfolio. Commercial (business)
loans not secured by real estate increased $4.7 million, while consumer loans
increased $3.1 million. Residential loan sales for 1996 amounted to $106.1
million and totaled $41.5 million for 1995.
Allowance for Loan Losses
The allowance for loan losses amounted to $13.1 million at December 31,
1996, compared to $14.9 million at December 31, 1995. The total amount of loans
for determining the adequacy of the allowance includes $467.5 million of loans
originated by the Company and purchased loans amounting to $275.5 million.
The Company made various loan purchases totaling $157.4 million during
1994, $102.3 million during 1995 and $8.2 million in 1996. The Company allocated
a portion of the discount on its purchased loans to the allowance in amounts
consistent with loan loss allowance policy guidelines and recorded the remainder
as an unearned discount to be accreted to income as a yield adjustment. In 1995,
such allocation included $7.2 million related solely to the March 1995 Purchase.
Subsequently, the principal balance of the March 1995 Purchase had declined to
$39.9 million and losses on certain nonperforming loans in this pool had reduced
the allowance allocated to this purchase to $5.9 million. The Company's history
of administering this loan purchase indicates that the expected loss rate on the
remaining loans in this portfolio will be less than the amount remaining in the
allowance. Consequently, the Company reallocated $1.5 million from the allowance
to unearned discount in the fourth quarter of 1996, reducing the December 31,
1996 allowance allocated to the March 1995 Purchase to $4.4 million. The overall
allowance at year-end 1996 of $13.1 million also included $1.0 million allocated
to loans purchased from CrossLand, $1.8 million allocated to other loan
purchases and $6.0 million allocated to originated loans.
Activity to the allowance during 1996 included a $1.8 million provision for
loan losses, loan charge-offs (net of recoveries) of $1.8 million, and $1.7
million allocated from the allowance to unearned discount. The net charge-off
amount for 1996 included $1.0 million assessed against the allowance for loans
acquired in the March 1995 Purchase as properties securing certain nonperforming
loans which were purchased at a substantial discount, were acquired through
foreclosure and recorded at their fair value. At December 31, 1996 the amount of
unearned discount on purchased loans not allocated to allowance totaled $4.7
million.
Nonperforming Assets
Nonperforming assets amounted to $22.8 million or 2.51% of total assets at
December 31, 1996, as compared to $23.5 million or 2.93% of total assets at
December 31, 1995. Nonperforming loans totaled $15.4 million at the end of 1996,
an increase of $34,000 from the prior year-end total of $15.4 million. The ratio
of nonperforming loans to total loans declined from 2.3% at the end of 1995 to
2.19% at year-end 1996. Nonperforming loans at December 31, 1996 and 1995
included troubled debt restructurings of $1.0 million and $.4 million,
respectively. ORE acquired through foreclosure decreased by $701,000 from $8.1
million at the end of 1995 to $7.4 million at year-end 1996.
Deposits
Total deposits were $828.0 million at December 31, 1996, compared to $743.1
million at the prior year-end, an increase of $84.9 million. Passbook savings
accounts offered to higher-balance customers at a premium rate of 5.00%
increased by $156.5 million and retail checking and noninterest-bearing account
balances increased $20.5 million or 19.18%. The Company reduced its reliance on
time deposits through a less aggressive pricing strategy which resulted in an
$83.7 million decline in certificates of deposits and a decline in other
interest-bearing balances of $9.9 million. At December 31, 1996, jumbo ($100,000
and over) deposits totaled $49.3 million or 5.96% of total deposits. There were
no brokered deposits.
37
<PAGE> 42
Convertible Subordinated Debt
In December 1996 the Company completed a private offering of $6.0 million
in the 6.0% Debentures. The proceeds were used to increase the capital of the
Bank. The 6.0% Debentures are convertible by the holder at any time prior to
maturity into shares of the Company's 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 6.0% 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 6.0% Debentures beginning in 2001 at 106% of face
value, with the premium declining 1% per year thereafter and without any premium
if the price of the Company Common Stock equals or exceed 130% of the conversion
price for not less than 20 consecutive trading days.
Stockholders' Equity
Stockholders' equity of the Company was $54.3 million at December 31, 1996,
or 6.0% of total assets compared to $50.9 million or 6.3% of total assets at
December 31, 1995. At December 31, 1996, the Company's and the Bank's capital
ratios were all in excess of minimum regulatory guidelines for an institution to
be considered "well-capitalized."
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND
1995
Overview
Consolidated net income for 1996 was $3.8 million or $.76 per share,
compared to $5.8 million or $1.26 per share for 1995. Consolidated net income
excluding the SAIF special assessment would have been $5.3 million or $1.08 per
share for 1996 as compared to $4.2 million or $.92 per share for 1995, excluding
negative goodwill accretion.
Analysis of Net Interest Income
Net interest income for 1996 was $34.0 million compared to $27.9 million
for 1995. This $6.2 million or 22.1% increase was primarily the result of $3.9
million in additional income from balance sheet growth and a more favorable mix
of earning assets. An increase in net interest spread also improved net interest
income by $2.2 million. Interest income was $66.9 million for 1996, an increase
of $9.1 million over 1995. During the same period, interest expense increased by
$2.9 million from $30.0 million for 1995 to $32.9 million for 1996. Asset yield
increased 25 basis points from 8.21% for 1995 to 8.46% for 1996 and average
earning assets increased $83.6 million. The average cost of interest-bearing
liabilities decreased 5 basis points from 4.55% to 4.50%. Net interest spread
increased 30 basis points from 3.66% for 1995 to 3.96% for 1996 and net interest
margin, which includes the benefit of noninterest bearing funds, increased from
3.94% for 1995 to 4.28% for 1996.
38
<PAGE> 43
The following table summarizes the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities for the years ended December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995
----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans, net................... $704,919 $62,244 8.78% $604,535 $52,389 8.65%
Investment securities........ 25,905 1,413 5.46 31,042 1,431 4.60
Mortgage backed securities... 20,494 1,325 6.46 13,515 827 6.12
Interest bearing deposits in
banks..................... 79 2 2.91 290 17 5.82
FHLB stock................... 4,548 330 7.26 3,126 231 7.40
Federal funds sold........... 30,188 1,633 5.32 49,978 2,968 5.86
-------- ------- -------- -------
Total interest-earning
assets.................... 786,133 66,947 8.46 702,486 57,863 8.21
Non interest-earning
assets.................... 46,343 45,556
-------- --------
Total assets......... $832,476 $748,042
======== ========
Interest-bearing liabilities:
Interest checking............ 80,442 944 1.17 $ 67,005 1,081 1.61
Savings...................... 170,100 7,281 4.28 90,904 3,281 5.57
Money market................. 37,778 809 2.14 58,862 1,735 2.94
Time deposits................ 433,860 23,392 5.39 439,824 23,777 5.41
FHLB advances................ 956 52 5.21 -- -- --
Other borrowings............. 8,884 448 4.95 3,304 127 3.85
-------- ------- -------- -------
Total interest-bearing
liabilities............... 732,020 32,926 4.50 659,899 30,001 4.55
Non interest-bearing
liabilities............... 48,821 45,285
Stockholders' equity......... 51,635 42,858
-------- --------
Total liabilities and
equity............. $832,476 $748,042
======== ========
Net interest income/net
interest spread........... $34,021 3.96% $27,862 3.66%
======= ==== ======= ====
Net interest margin.......... 4.28% 3.94%
==== ====
</TABLE>
39
<PAGE> 44
<TABLE>
<CAPTION>
INCREASE
(DECREASE) DUE
TO (1)
----------------
CHANGES IN NET INTEREST INCOME VOLUME RATE TOTAL
- ------------------------------ ------- ------ -------
<S> <C> <C> <C>
Interest earning assets:
Loans, net............................................... $ 8,108 $1,747 $ 9,855
Investment securities.................................... (91) 73 (18)
Mortgage backed securities............................... 449 49 498
Interest bearing deposits in banks....................... (9) (6) (15)
FHLB stock............................................... 103 (4) 99
Federal funds sold....................................... (1,091) (244) (1,335)
------- ------ -------
Total change in interest income.................. 7,469 1,615 9,084
Interest-bearing liabilities:
Interest checking........................................ 191 (328) (137)
Savings.................................................. 3,738 262 4,000
Money market............................................. (530) (396) (926)
Time deposits............................................ (173) (212) (385)
FHLB advances............................................ 52 -- 52
Other borrowings......................................... 248 73 321
------- ------ -------
Total change in interest expense................. 3,526 (601) 2,925
------- ------ -------
Increase (decrease) in net interest income....... $ 3,943 $2,216 $ 6,159
======= ====== =======
</TABLE>
- ---------------
(1) Changes in net interest income due to changes in volume and rate are based
on absolute values.
Noninterest Income
Noninterest income for 1996 was $5.6 million compared to $2.8 million for
1995, an increase of $2.9 million. The gain on sale of the former headquarters
building accounted for $1.2 million of the increase. Income from the Company's
expanded mortgage banking activities increased $878,000, service fees on deposit
accounts increased $211,000, loan service and other ancillary fees increased
$327,000, and net gains on sale of investments increased $343,000. Other sources
of income increased $148,000 and merchant charge card processing fees, a program
which has been discontinued, declined $249,000.
The following table reflects the components of noninterest income for the
years ended December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
INCREASE
1996 1995 (DECREASE)
------- ------- -----------
<S> <C> <C> <C>
Service charges on deposit accounts.................... $1,606 $1,395 $ 211
Loan fee income........................................ 604 277 327
Income from mortgage banking activities................ 1,002 124 878
Gain on sale of ORE held for investment................ 1,207 -- 1,207
Net gains on sale of investments....................... 370 27 343
Merchant charge card processing fees................... 1 250 (249)
Other income........................................... 826 678 148
------ ------ ------
Total noninterest income............................... $5,616 $2,751 $2,865
====== ====== ======
</TABLE>
Noninterest Expense
Total noninterest expenses for 1996 were $31.8 million compared to $22.9
million for the same period in 1995, an increase of $9.0 million. Noninterest
expenses for 1996 include a $2.5 million charge for the one-time SAIF Special
Assessment (See "Business -- Supervision and Regulation -- Deposit Insurance")
and a $1.6 million provision for losses on ORE, primarily related to two ORE
properties. See "Other Real Estate Acquired Through Foreclosure." G&A expenses
for 1996, included in the noninterest expense total, were
40
<PAGE> 45
$27.4 million compared to $22.1 million for 1995, an increase of $5.2 million.
The increase was primarily the result of expanding the Company's mortgage
banking activities and related administrative support units.
The following table reflects the components of noninterest expense for the
years ended December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
INCREASE
1996 1995 (DECREASE)
------- ------- ----------
<S> <C> <C> <C>
Salaries and benefits................................ $14,309 $11,251 $3,058
Net occupancy expense................................ 4,507 3,211 1,296
Advertising.......................................... 519 439 80
Data processing fees and services.................... 1,451 1,152 299
FDIC and state assessments........................... 949 1,566 (617)
Other operating expense.............................. 5,617 4,500 1,117
------- ------- ------
G & A expenses....................................... 27,352 22,119 5,233
SAIF Special Assessment.............................. 2,539 -- 2,539
Provision for losses on ORE.......................... 1,611 -- 1,611
Other ORE expense (income)........................... (172) 289 (461)
Amortization of premium on deposits.................. 491 450 41
------- ------- ------
Total noninterest expense............................ $31,821 $22,858 $8,963
======= ======= ======
</TABLE>
YEARS ENDED DECEMBER 31, 1995 AND 1994
COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 1995 AND 1994
Overview
Total assets were $802.0 million at December 31, 1995 compared to $626.4
million at year-end 1994, an increase of $175.6 million or 28.0%. The source of
funds for this growth included $126.6 million in deposits from the thirteen
branches opened in the latter part of 1994 and throughout 1995. These additional
funds were primarily invested in residential and commercial real estate-secured
loans. Total stockholders' equity increased by $14.7 million to $50.9 million at
year-end 1995 as a result of the 1995 stock offerings and earnings retention.
Investment and Mortgage-Backed Securities
Investment securities, consisting of U.S. Treasury and federal agency
securities, were $64.8 million at December 31, 1995 compared to $40.2 million at
December 31, 1994, an increase of $24.5 million. This increase included $19.7
million from securitizing a portion of the Company's residential loan
originations into mortgage backed securities to improve liquidity and risk based
capital ratios.
Loans and Loans Held for Sale
Total loans were $669.4 million at December 31, 1995, an increase of $153.1
million or 29.6% over the $516.3 million total at year-end 1994. One-to-four
family residential mortgages amounted to $388.2 million at year-end 1995
compared to $293.1 million at year-end 1994, an increase of $95.1 million.
Fundings of residential loans through direct lending activities and a
correspondent/broker network amounted to $119.7 million and there were $100.3
million in residential loan purchases. The next largest loan category,
commercial real estate, amounted to $153.2 million at December 31, 1995 compared
to $112.1 million at year-end 1994, an increase of $41.1 million. Multi-family
residential loans amounted to $75.1 million at year-end 1995 compared to $60.8
million at December 31, 1994. Substantially all fundings of commercial real
estate and multi-family residential loans were through direct lending
activities.
Commercial (business) loans amounted to $29.7 million at December 31, 1995
compared to $24.6 million at year-end 1994, an increase of $5.1 million.
Consumer loans, consisting primarily of loans secured by
41
<PAGE> 46
second liens on residential real estate, amounted to $6.8 million at year-end
1995 compared to $6.4 million at end of the prior year, an increase of $421,000.
Allowance for Loan Losses
The allowance for loan losses amounted to $14.9 million at December 31,
1995, an increase of $7.8 million from the $7.1 million allowance at December
31, 1994. This increase primarily resulted from the transfer of $7.7 million of
discounts from purchases of various loan pools into an allowance established for
those loans. During March 1995 the Company made the March 1995 Purchase for a
cash payment of $39.9 million with a resulting discount of $8.2 million. The
March 1995 Purchase included 941 loans amounting to $46.3 million, which were
current as to their scheduled principal and interest payments, and 34 loans
amounting to $1.8 million which were delinquent 90 days or more. Of this
discount, $7.2 million was allocated to the allowance for those loans, based
primarily on management's evaluation of collateral values, with the $982,000
remainder recorded as unearned income. At December 31, 1995, the amount included
in the allowance allocated to the March 1995 Purchase was $6.9 million and such
portion allocated to the allowance is available only to absorb losses in such
portfolio. For a discussion of the use of allocated loan loss reserves, see
"Business -- Asset Quality". Management continually monitors the status of its
purchased loans and may, at a later date, adjust the amounts allocated between
loan discount and the loan loss reserve. Other activity to the allowance
included provisions for loan losses of $1.7 million (based generally on the
growth in the loan portfolio), loan charge-offs (net of recoveries) of $1.5
million, and $503,000 in discounts allocated to allowance from other loan
purchases.
Nonperforming Assets
Nonperforming assets amounted to $23.5 million or 2.93% of total assets at
December 31, 1995, as compared to $22.5 million or 3.58% of total assets at
December 31, 1994. Nonperforming assets consisted of $15.4 million of
nonperforming loans and $8.1 million of ORE. Nonperforming loans at December 31,
1995 included troubled debt restructurings of $.4 million. The $1.0 million
increase in nonperforming assets during 1995 consisted primarily of the addition
of nonperforming commercial (business) and commercial real estate loans totaling
$4.0 million, partially offset by the removal from nonperforming status, through
repayment and/or return to performing status, of commercial (business) loans and
commercial real estate loans totaling $2.3 million. Other reductions to
nonperforming assets were in commercial (business) loans ($115,000), consumer
loans ($300,000) and ORE ($1.2 million).
Deposits
Total deposits were $743.1 million at December 31, 1995, compared to $583.9
million at December 31, 1994, an increase of $159.2 million or 27.3%. Time
deposits increased $186.0 million which was partially offset by reductions of
$21.2 million in savings accounts and $8.1 million in money market accounts. Of
the total increase in deposits, $126.6 million is attributable to deposit growth
at 13 new branch locations opened in 1994 and 1995.
Stockholders' Equity
Stockholders' equity was $50.9 million at December 31, 1995, or 6.3% of
total assets compared to $36.2 million or 5.8% of total assets at December 31,
1994. At December 31, 1995, the Tier 1 Capital ratio was 6.00%, the Tier 1
Risk-Based Capital ratio was 9.17%, and the Total Risk-Based Capital ratio was
10.30%, all in excess of minimum regulatory guidelines for an institution to be
considered "well-capitalized". On June 27, 1995, an offering of 800,000 shares
of common stock was completed to the public and the stockholders. The common
stock was offered through a combined subscription rights offering and an
underwritten public offering resulting in net proceeds of $9.1 million.
42
<PAGE> 47
COMPARISON OF RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1995 AND 1994
Overview
Net income for the year ended December 31, 1995 was $5.8 million compared
to $6.9 million for the previous year which included the non-recurring benefit
from certain income tax items and a full year's accretion of negative goodwill.
Income tax expense was $1.9 million for 1995 compared to $468,000 in 1994, an
increase of $1.4 million. This was primarily due to a $1.3 million decrease in
the deferred income tax valuation allowance in 1994 which reduced income tax
expense by that amount. Earnings per share were $1.26 for 1995 compared to $1.67
for 1994. Return on average assets for 1995 was .77% compared to 1.25% in 1994,
while return on average equity was 13.47% compared to 21.34% in 1994.
Analysis of Net Interest Income
Net interest income for 1995 was $27.9 million compared to $20.2 million
for 1994. This $7.6 million or 37.6% increase, was primarily the result of
additional income from balance sheet growth throughout 1994 and 1995 and a more
favorable asset mix as liquid assets were redeployed into higher-yielding loans.
Interest income was $57.9 million for 1995, an increase of $20.7 million over
1994. Interest expense increased by $13.1 million from $16.9 million for 1994 to
$30.0 million for 1995. Average asset yield increased 95 basis points and
average earning assets increased $192.7 million, while the average cost of
interest-bearing liabilities increased 106 basis points as a result of a more
competitive market for customer deposits during 1995. Net interest spread
decreased 11 basis points from 3.77% for 1994 to 3.66% for 1995 while net
interest margin, which includes the benefit of noninterest bearing funds, was
generally unchanged at 3.94% for 1995 compared to 3.96% for 1994.
The following table summarizes the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities for the years ended December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1994
----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans, net..................................... $604,535 $52,389 8.65% $396,238 $32,699 8.24%
Investment securities.......................... 31,042 1,431 4.60 47,631 1,939 4.06
Mortgage backed securities..................... 13,515 827 6.12 -- -- --
Interest bearing deposits in banks............. 290 17 5.82 549 16 2.98
FHLB stock..................................... 3,126 231 7.40 255 13 5.00
Federal funds sold............................. 49,978 2,968 5.86 65,080 2,448 3.71
-------- ------- -------- -------
Total interest-earning assets.................. 702,486 57,863 8.21 509,753 37,115 7.26
Non interest-earning assets.................... 45,556 40,499
-------- --------
Total assets............................ $748,042 $550,252
======== ========
Interest-bearing liabilities:
Interest checking.............................. $ 67,005 1,081 1.61 $ 63,390 1,086 1.71
Savings........................................ 90,904 3,281 5.57 66,049 2,136 3.24
Money market................................... 58,862 1,735 2.94 72,211 1,587 2.20
Time deposits.................................. 439,824 23,777 5.41 279,058 11,958 3.49
FHLB advances.................................. -- -- -- 658 36 5.52
Other borrowings............................... 3,304 127 3.85 2,259 68 2.97
-------- ------- -------- -------
Total interest-bearing liabilities............. 659,899 30,001 4.55 483,625 16,871 3.49
Non interest-bearing liabilities............... 45,285 34,411
Stockholders' equity........................... 42,858 32,216
-------- --------
Total liabilities and equity................... $748,042 $550,252
======== ========
Net interest income/net interest spread........ $27,862 3.66% $20,244 3.77%
======= ==== ======= ====
Net interest margin............................ 3.94% 3.96%
==== ====
</TABLE>
43
<PAGE> 48
<TABLE>
<CAPTION>
INCREASE
(DECREASE) DUE
TO (1)
-----------------
CHANGES IN NET INTEREST INCOME VOLUME RATE TOTAL
- ------------------------------ ------- ------ -------
<S> <C> <C> <C>
Interest earning assets:
Loans, net................................................ $18,651 $1,038 $19,689
Investment securities..................................... (741) 233 (508)
Mortgage backed securities................................ 827 -- 827
Interest bearing deposits in banks........................ (10) 11 1
FHLB stock................................................ 210 9 219
Federal funds sold........................................ (662) 1,182 520
------- ------ -------
Total change in interest income................... 18,275 2,473 20,748
Interest-bearing liabilities:
Interest checking......................................... 60 (65) (5)
Savings................................................... 1,451 (306) 1,145
Money market.............................................. (329) 477 148
Time deposits............................................. 9,533 2,286 11,819
FHLB advances............................................. (18) (18) (36)
Other borrowings.......................................... 64 (5) 59
------- ------ -------
Total change in interest expense.................. 10,761 2,369 13,130
------- ------ -------
Increase (decrease) in net interest income........ $ 7,514 $ 104 $ 7,618
======= ====== =======
</TABLE>
- ---------------
(1) Changes in net interest income due to changes in volume and rate are based
on absolute values.
Noninterest Income
Noninterest income for 1995 was $2.8 million compared to $2.6 million for
1994, an increase of $139,000. The prior year had included $315,000 from
settlement of a claim against a borrower released from bankruptcy. Included in
1995 was a $57,000 lease termination settlement from a lessee who had sublet
space in a building leased by the Company. Other improvements were due to a
$148,000 increase in service charge and fee income from higher deposit levels
and gains on sale of loans of $124,000. Income from processing charge card
deposits for merchants was $250,000 in 1995 compared to $204,000 in 1994. This
program was discontinued in August 1995.
The following table reflects the components of noninterest income for the
years ended December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
------------------------------
INCREASE
1995 1994 (DECREASE)
------ ------ ----------
<S> <C> <C> <C>
Service charges on deposit accounts.................... $1,395 $1,247 $148
Loan fee income........................................ 277 368 (91)
Merchant charge card processing fees................... 250 204 46
Gains on sales of loans................................ 124 -- 124
Other income........................................... 705 793 (88)
------ ------ ----
Total noninterest income..................... $2,751 $2,612 $139
====== ====== ====
</TABLE>
Noninterest Expense
Total noninterest expenses for 1995 were $22.9 million compared to $16.6
million for 1994, an increase of $6.3 million. G & A expenses for 1995 were
$22.1 million compared to $14.9 million, an increase of $7.2 million. The
primary reasons for these increases were the additional personnel and other
operating costs related to the thirteen new branches which accounted for $2.9
million of the increase in G & A expense, an
44
<PAGE> 49
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
ORE expense (net).................................... 289 432 (143)
Amortization of premium on deposits.................. 450 1,269 (819)
------- ------- ------
Total noninterest expense.................. $22,858 $16,617 $6,241
======= ======= ======
</TABLE>
Income Taxes
Income tax expense for 1995 was $1.9 million, which was net of a $177,000
reduction in the estimated amount of the valuation allowance for the deferred
tax asset and a $122,000 tax credit related to the prior year's income tax
return. The income tax provision for the same period in 1994 was $468,000 which
was net of a $1.3 million decrease in the valuation allowance.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Liquidity
The Asset/Liability Management Committee ("ALCO") reviews the Company's
liquidity, which is its ability to generate sufficient cash to meet the funding
needs of current loan demand, deposit withdrawals, and other cash demands. The
primary sources of funds consist of customer deposits, amortization and
prepayments of loans, sales of investments, other funds from operations and the
Company's capital. The Bank is a member of the FHLB and has the ability to
borrow to supplement its liquidity needs.
When the Company's primary sources of funds are not sufficient to meet
deposit outflows, loan originations and purchases and other cash requirements,
the Company may supplementally borrow funds from the FHLB and from other
sources. The FHLB system acts as an additional source of funding for banks and
thrift institutions that make residential mortgage loans.
FHLB borrowings, known as "advances," are secured by the Bank's mortgage
loan portfolio, and the terms and rates charged for FHLB advances vary in
response to general economic conditions. As a shareholder of the FHLB, the Bank
is authorized to apply for advances from this bank. A wide variety of borrowing
plans are offered by the FHLB, each with its own maturity and interest rate. The
FHLB will consider various factors, including an institution's regulatory
capital position, net income, quality and composition of assets, lending
policies and practices, and level of current borrowings from all sources, in
determining the amount of credit to extend to an institution. As of March 31,
1997, the Bank had no outstanding advances from the FHLB. However, the Bank has
recently obtained advances in an amount sufficient to satisfy the Bank's funding
needs as well as to maintain the Bank's current liquidity levels. In addition,
the Bank expects to obtain additional advances from the FHLB to fund all or a
portion of the purchase price for a pool of residential mortgage loans with an
aggregate principal amount outstanding of approximately $76.5 million (the "1997
Loan Purchase"). The loans will be purchased at a nominal discount. See
"Supervision and Regulation -- Federal Home Loan Bank System" and
"-- Liquidity."
45
<PAGE> 50
At March 31, 1997, the Bank's liquidity ratio, consisting of net cash and
investments of $109.5 million divided by net deposits and short-term liabilities
of $828.0 million, was 13.22% as compared to 13.42% at December 31, 1996. Net
liquid assets were $33.6 million in excess of the amount required by Florida
banking regulations. See "Supervision and Regulation -- Liquidity."
Asset/Liability Management
One of the primary objectives of the Company is to reduce fluctuations in
net interest income caused by changes in interest rates. To manage interest rate
risk, the Board of Directors has established interest-rate risk policies and
procedures which delegate to ALCO the responsibility to monitor and report on
interest-rate risk, devise strategies to manage interest-rate risk, monitor loan
originations and deposit activity, and approve all pricing strategies.
The management of interest rate risk is one of the most significant factors
affecting the ability to achieve future earnings. The measure of the mismatch of
assets maturing or repricing within certain periods, and liabilities maturing or
repricing within the same period, is commonly referred to as the "gap" for such
period. Controlling the maturity or repricing of an institution's assets and
liabilities in order to minimize interest rate risk is commonly referred to as
gap management. "Negative gap" occurs when, during a specific time period, an
institution's liabilities are scheduled to reprice more rapidly than its assets,
so that, barring other factors affecting interest income and expense, in periods
of rising interest rates the institution's interest expense would increase more
rapidly than its interest income, and in periods of falling interest rates the
institution's interest expense would decrease more rapidly than its interest
income. "Positive gap" occurs when an institution's assets are scheduled to
reprice more rapidly than its liabilities, so that, barring other factors
affecting interest income and expense, in periods of falling interest rates the
institution's interest income would decrease more rapidly than its interest
expense, and in periods of rising interest rates the institution's interest
income would increase more rapidly than its interest expense. It is common to
focus on the one-year gap, which is the difference between the dollar amount of
assets and the dollar amount of liabilities maturing or repricing within the
next twelve months.
ALCO uses an industry standard computer modeling system to analyze the
impact of financial strategies prior to their implementation. The system
attempts to simulate the asset and liability base and project future operating
results under a variety of interest rate and spread assumptions. Through this
management tool, management can also, among other things, project the effects of
changing its asset and liability mix and modifying its balance sheet, and
identify appropriate investment opportunities. The results of these simulations
are evaluated within the context of the interest-rate risk policy, which sets
out target levels for the appropriate level of interest-rate risk.
The policy is to maintain a cumulative one-year gap of no more than 15% of
total assets. Management attempts to conform to this policy primarily by
managing the maturity distribution of the investment portfolio and emphasizing
loan originations and loan purchases carrying variable interest rates tied to
interest-sensitive indices. Additionally, the Bank has joined the FHLB to
enhance its liquidity position and to provide it with the ability to utilize
long-term fixed-rate advances to improve the match between interest-earning
assets and interest-bearing liabilities in certain periods. Currently,
off-balance-sheet hedging instruments are not used to manage overall interest
rate risk but such instruments are used to limit the exposure to changes in the
value of residential loans held for resale and estimated loan commitments to
originate and close fixed rate residential and mortgage loans. However, there
continues to be a risk that such loan commitments do not close or are
renegotiated in a declining interest rate environment. Management may expand its
use of off-balance-sheet hedging instruments to manage exposure to overall
interest rate risk in the future, subject to Board approval.
The cumulative one year gap at March 31, 1997 was $8.9 million or a
positive .97% (expressed as a percentage of total assets). Management will
attempt to moderate any lengthening of the repricing structure of earning assets
by emphasizing variable-rate assets and, where appropriate, match-funding
longer-term fixed rate loans with FHLB advances. See "Business -- Sources of
Funds".
The following table presents the maturities or repricing of
interest-earning assets and interest-bearing liabilities at March 31, 1997. The
balances shown have been derived based on the financial characteristics of
46
<PAGE> 51
the various assets and liabilities. Adjustable and floating-rate assets are
included in the period in which interest rates are next scheduled to adjust
rather than their scheduled maturity dates. Fixed rate loans are shown in the
periods in which they are scheduled to be repaid according to contractual
amortization and, where appropriate, prepayment assumptions based on the coupon
rates in the portfolio have been used to adjust the repayment amounts. Repricing
of time deposits is based on their scheduled maturities. Based on management's
experience in the markets in which the Company operates, statement savings
deposits are assumed to reprice at 8.3% of the total balance in the first three
months, 25.0% in the four-to-twelve months category, and the remaining 66.7%
from one to five years. Passbook savings deposits are assumed to reprice equally
over a 24 month period. Repricing of interest checking and money market accounts
is assumed to occur at 10% of the total balance for every three month interval.
<TABLE>
<CAPTION>
INTEREST SENSITIVITY ANALYSIS
MARCH 31, 1997
0-3 MONTHS 4-12 MONTHS 1-5 YEARS OVER 5 YEARS
----------------- ----------------- ----------------- -----------------
YIELD/ YIELD/ YIELD/ YIELD/
AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ------ -------- ------ -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
U.S. Treasury securities
and government
agencies................. $ 7,715 5.24% $ 1,978 5.34% $ 31,471 5.91% $ -- --%
Revenue bonds.............. -- -- -- -- 1,545 8.60 -- --
Mortgage backed
securities............... -- -- 19,661 5.53 -- -- -- --
Federal funds sold......... 41,000 5.37 -- -- -- -- -- --
Interest bearing deposits
in banks................. -- -- -- -- -- -- -- --
FHLB stock................. -- -- -- -- -- -- 5,081 7.25
Loans...................... 163,252 9.13 218,238 8.32 245,912 8.68 121,091 8.18
-------- -------- -------- --------
Total interest-earning
assets................... 211,967 8.26 239,877 8.07 278,928 8.37 126,172 8.14
Interest-bearing
liabilities:
Deposits
Interest checking........ 8,991 1.09 26,973 1.09 53,931 1.09 -- --
Money market............. 2,667 2.08 8,001 2.08 21,349 2.08 -- --
Savings.................. 2,298 1.98 6,894 1.98 18,377 1.98 -- --
Passbook Gold............ 27,972 4.88 83,916 4.88 111,888 4.88 -- --
Time deposits............ 106,146 5.14 152,762 5.20 147,797 5.86 32 5.92
Subordinated debt........ -- -- -- -- -- -- 6,000 6.00
Obligations under capital
leases................ 45 7.49 135 7.49 263 7.49 -- --
Repurchase agreements.... 16,160 4.99 -- -- -- -- -- --
-------- -------- -------- --------
Total interest-bearing
liabilities.............. 164,279 4.76 278,681 4.54 353,605 4.39 6,032 6.00
-------- -------- -------- --------
Excess (deficiency) of
interest-earning assets
over interest-bearing
liabilities.............. $ 47,688 3.50% $(38,804) 3.53% $(74,677) 3.98% $120,140 2.14%
======== ==== ======== ==== ======== ===== ======== ====
Cumulative excess
(deficiency) of interest-
earning assets over
interest-bearing
liabilities.............. $ 47,688 3.50% $ 8,884 3.54% $(65,793) 3.72% $ 54,347 3.69%
======== ==== ======== ==== ======== ===== ======== ====
Cumulative excess
(deficiency) of interest-
earning assets over
interest-bearing
liabilities as a percent
of total assets.......... 5.23% .97% (7.21)% 5.96%
==== ==== ===== ====
</TABLE>
47
<PAGE> 52
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.
48
<PAGE> 53
BUSINESS
The Company is a bank holding company organized in March 1996 under the
laws of the State of Florida and is the parent of the Bank, a Florida-chartered,
federally-insured commercial bank. At March 31, 1997, the Company's total assets
were $912.1 million, total loans were $748.5 million, total deposits were $829.1
million and total stockholders' equity was $55.6 million. The Company is
regulated by the Federal Reserve and the Bank is regulated by the Department and
the FDIC. The Bank's deposits are insured by the FDIC up to applicable limits.
The Bank is a member of the FHLB. See "-- Supervision and Regulation."
BACKGROUND AND PRIOR OPERATING HISTORY
In May 1993, the Controlling Stockholders, William R. Hough and John W.
Sapanski, acquired from the prior controlling stockholder over 99% of the Bank's
outstanding common stock for $4.5 million and made an additional capital
infusion of $3.5 million to meet regulatory capital requirements. The
transaction was accounted for using purchase or push-down accounting treatment,
which established a new accounting basis. The assets and liabilities were
restated from historical cost to their fair market values as of May 28, 1993,
premises and equipment totaling $1.4 million were written off, and the
historical equity capital balances were not carried forward. The excess of fair
market value of assets acquired and liabilities assumed exceeded the cost of
acquisition by $5.9 million which resulted in the creation of "negative
goodwill" in that amount. That negative goodwill was 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 in Control.
Pursuant to the CrossLand Purchase and Assumption, the Bank purchased 12
branches in Pinellas, Manatee and Sarasota counties from CrossLand, a federal
stock savings bank, and assumed deposit liabilities of $327.7 million. The Bank
paid CrossLand $11.5 million for the branches and related furniture, fixtures,
equipment and other assets, plus a $1.9 million (sixty basis points) premium on
the dollar amount of the deposits assumed. Concurrently, the Bank purchased
performing and non-performing loans secured by real estate and ORE amounting to
$201.6 million from CrossLand. The CrossLand Purchase and Assumption increased
total assets to $531.3 million and total deposits to $494.3 million at December
31, 1993.
In December 1993, the Bank sold 1,398,200 shares of its common stock in an
initial public offering at a price of $8.00 per share. The net proceeds of the
offering totaled $10.3 million. In addition, the Bank sold 75,000 shares of its
Series A non-cumulative convertible perpetual preferred stock for a purchase
price of $6.6 million (or $88.00 per share). In June 1995, the Bank sold 800,000
shares of its common stock in a combined subscription rights and public offering
at $12.50 per share, with net proceeds totaling $9.1 million.
In February 1996, the Bank's shareholders approved a reorganization under
which the Bank became a wholly-owned subsidiary of the Company. All holders of
shares of the Bank's common and preferred stock received one share of the
Company's common stock for each share of the Bank's common stock held of record
and one share of the Company's $20.00 par value noncumulative convertible
perpetual preferred stock for each share of the Bank's preferred stock held of
record. Holders of outstanding options to purchase or acquire the Bank's common
stock received options to purchase an equal number of shares of the Company's
common stock.
In December 1996, the Company completed a private offering of $6.0 million
of its 6.0% Debentures.
BUSINESS STRATEGY
The Company's business strategy entails (i) originating and purchasing real
estate-secured loans for portfolio and sale and originating business and
consumer loans for portfolio; (ii) improving market share and expanding its
market area through acquisitions of financial institutions and de novo
branching; (iii) increasing non-interest income through expanded mortgage
banking activities and emphasizing commercial and retail checking relationships;
and (iv) increasing its range of products and services. While pursuing this
strategy, management remains committed to improving asset quality, managing
interest rate risk and enhancing profitability.
49
<PAGE> 54
The Company's business strategy has resulted in:
- Expanded Branch Network -- Since the Change in Control in May 1993, the
Company has expanded its branch network from seven branches in northern
Pinellas County, to its current 35 branches in Hernando, Pasco, Pinellas,
Manatee, Sarasota, Seminole and Orange Counties. Further market expansion
will occur upon consummation of the FFO Merger later this year which will
add 11 branches in the central Florida market, including five in Osceola
County, five in Brevard County, and one in Orange County, bringing the
total number of branches to 46.
- Increased Levels and Sources of Noninterest Income -- The Company has
expanded its sources and amounts of fee income by emphasizing mortgage
banking activities and new products, including a program that generates
fee income for the Company when the Company's checking account customers
utilize the travel and other services of certain third-party providers.
- Improved Asset Quality Ratios -- The assets acquired in the Change in
Control and the CrossLand Purchase and Assumption included significant
levels of nonperforming assets. As a result, the Company's nonperforming
assets-to-total assets ratio was 4.95% at year-end 1993. This ratio was
reduced to 2.58% at March 31, 1997. This reduction was achieved primarily
through the implementation of consistent loan underwriting policies and
procedures, centralization of all credit decision functions and growth in
the loan portfolio. Nonperforming assets at March 31, 1997, included $16.5
million of loans and ORE, primarily originated prior to the Change in
Control, $1.4 million from assets acquired in the Crossland Purchase and
Assumption and $5.7 million from assets originated or purchased after
December 31, 1997.
- Management of Interest Rate Risk -- One of the Company's primary
objectives is to reduce fluctuations in net interest income caused by
changes in market interest rates. To manage interest rate risk, the
Company generally limits holding loans in its portfolio to those that have
variable interest rates tied to interest-sensitive indices and actively
manages the maturities within the investment portfolio. The Company
believes, based on its experience, that, as of March 31, 1997, the
anticipated dollar amounts of assets and liabilities which reprice or
mature within a one-year time horizon were closely matched.
RECENT AND PENDING ACQUISITIONS
Management believes that acquisitions of financial institutions provide the
Company with an opportunity to enhance its market presence and size in a manner
which is generally quicker and more cost effective than de novo branching.
Management believes that its banking products and customer services will enable
it to preserve its relationships with the customers of acquired financial
institutions.
On April 18, 1997, the Company acquired Firstate, a thrift institution
headquartered in Orlando, Florida, with branches in downtown Orlando and Winter
Park, for a cash purchase price of $5.5 million. Firstate was not publicly
traded. At April 18, 1997, Firstate had total assets of $71.1 million and total
deposits of $67.9 million. The acquisition was accounted for as a purchase, and
the amount of goodwill recorded was $130,000. Because it qualified as a "weak
institution" under the SAIF recapitalization legislation enacted in September
1996, Firstate was not required to pay a $519,063 special assessment to the SAIF
that otherwise would have been due and payable. The Company recorded an accrual
for the special assessment at acquisition and has elected to pay a pro rata
portion of the special assessment ($346,734 from July 1 to December 31, 1997)
and pay quarterly assessments on the deposits assumed from Firstate at the
Company's SAIF assessment rate currently in effect. See "Pro Forma Financial
Data" and "Business -- Supervision and Regulation -- Deposit Insurance."
On April 14, 1997, the Company and FFO entered into the FFO Agreement
providing for the acquisition of FFO by the Company, pursuant to the FFO Merger.
FFO has 11 branches in Osceola, Orange and Brevard counties. At March 31, 1997,
FFO had total assets of $320.0 million and total deposits of $285.7 million. Mr.
Hough, one of the Company's Controlling Stockholders, also owns a majority
interest in FFO. Under the terms of the FFO Agreement, the Company will exchange
0.29 of a share of the Company's common stock for
50
<PAGE> 55
each of the 8.4 million outstanding shares of FFO Common Stock. If the product
of (i) the exchange ratio and (ii) the average market price of the Company's
common stock for a period ending shortly prior to closing is below $4.10, the
exchange ratio will be adjusted for decreases in the price of the Company's
common stock; however, in no event will the exchange ratio exceed 0.30.
Outstanding options for FFO common stock will be converted into options for the
Company's common stock on the same basis. FFO has the right not to consummate
the FFO Agreement if the above average market price of the Company's common
stock is less than $13.50. Either party has the right to terminate the FFO
Agreement if the FFO Merger does not occur by November 1, 1997. The FFO Merger
will be accounted for as a corporate reorganization under which Mr. Hough's
interest in FFO will be carried forward at its historical cost in a manner
similar to that of a pooling of interests accounting, while the minority
interest in FFO will be recorded using purchase accounting rules. The
transaction is subject to approval by a majority vote of the stockholders of the
Company and FFO, approval by various regulatory authorities and receipt of an
opinion that the transaction qualifies as a tax-free reorganization. The
transaction is not dependent on the successful completion of this offering of
Preferred Securities.
Management of the Company believes that the composition of FFO's assets and
liabilities is substantially similar to that of the Company. At December 31,
1996, the Company's loan portfolio was 54.6% in one-to-four family first
residential mortgages; 9.2% in other residential first mortgage loans (primarily
secured by multi-family properties); 32.9% in commercial real estate,
construction/land development, and other business loans; and 3.3% in consumer
loans, consisting of home equity loans as well as extensions of credit for other
household purposes such as automobile loans and secured personal loans. The
corresponding percentages for FFO were 60.8%, 8.8%, 20.6% and 9.8%,
respectively. In addition, both residential mortgage portfolios consist
primarily of adjustable-rate loans. The Company's ratio of nonperforming assets
to assets at March 31, 1997, was 2.6%, compared to 3.2% for FFO. On a pro forma
basis, the ratio for the Company and FFO combined would have been 2.6%. For the
Company, real estate-secured loans and ORE comprised 90.0% of total
nonperforming assets and FFO's nonperforming assets were virtually all real
estate-secured. Also at December 31, 1996, the Company's deposit base included
6.1% in demand deposits, 44.2% in savings and interest-bearing transactions
accounts, and 49.7% in time deposits. The corresponding percentages for FFO were
5.0%, 20.2%, and 74.8%, respectively.
BRANCH NETWORK
Currently, the Company has 35 branches, including three branches in Pasco
County, 20 branches in Pinellas County, seven branches in Manatee County, two
branches in Sarasota County and one branch in each of Hernando, Orange and
Seminole Counties. As a multi-branch institution, the Company's market area
encompasses all of the counties in which it operates. The Company also operates
ten loan production offices in Pinellas, Lee, Orange, Palm Beach and Polk
Counties in Florida and an office in Boston, Massachusetts.
Most of the Company's branches are in Metropolitan Statistical Areas
("MSA"). An MSA is defined by the U.S. Census Bureau as a geographic area with a
significant population nucleus, along with any adjacent communities that have a
high degree of economic and social integration with that nucleus. Of the
Company's branches, 33 are in the MSAs which anchor the west coast of Florida;
Tampa-St. Petersburg-Clearwater, which includes Hillsborough, Hernando, Pasco
and Pinellas counties, and Sarasota-Bradenton, comprised of Manatee and Sarasota
counties. As of January 1, 1996, the latest estimates available, the Tampa-St.
Petersburg MSA had a population of 2.2 million, ranking it 23rd in the nation.
Sarasota-Bradenton had a population of 539,000, ranking it 95th. Together the
two MSAs had a combined population of 2.75 million residents which would rank
approximately 12th in the United States. The other two branches are in the
Orlando MSA. The economic base of the three MSAs in which the Company has
branches are supported by a large and growing segment of retirees, tourism,
which contributes to the economic base throughout the year, and light industry.
The west coast of Florida is highly competitive with 279 branches of banks
and savings and loan institutions operating in Pinellas County, 90 in Pasco
County, 81 in Manatee County, and 132 in Sarasota County, as of September 30,
1996, the most recent date that comparative data was available. The largest
commercial banking institutions in Florida operate in each of the three
counties. As in most market areas,
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<PAGE> 56
competition for deposits also exists from money market funds and credit unions.
Competition for mortgage loans is extremely strong from specialized lenders,
other mortgage bankers and independent brokers capable of selling qualified
mortgage loans to the highest bidder. Similarly, consumers can choose from a
wide range of suppliers of personal credit, including credit card companies,
consumer finance companies and credit unions.
The Company ranked 13th among banks and 24th among all depository
institutions in the state of Florida in terms of deposits held as of September
30, 1996, the latest date for which data is available. Ranked by deposits, the
Company was the 15th largest in Pasco County, the 7th largest in Pinellas
County, the 5th largest in Manatee County and the 14th largest in Sarasota
County. As the table below indicates, market share ranges from six percent in
Manatee County to one percent in Pasco.
BRANCH DEPOSITS BY COUNTY
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMPANY TOTAL MARKET
DEPOSITS DEPOSITS SHARE
-------- -------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Pasco................................................... $ 42 $ 3,899 1.1%
Pinellas................................................ 502 12,787 3.9
Manatee................................................. 167 2,770 6.0
Sarasota................................................ 72 5,860 1.2
---- ------- ---
Total......................................... $783 $25,316 3.1%
==== ======= ===
</TABLE>
SOURCES OF FUNDS
Deposit accounts are the primary source of funds for lending, investment
and other general business purposes. In addition to deposits, funds are derived
from loan repayments and loan sales. Scheduled loan payments on the residential
loan portfolio are a relatively stable source of funds, while residential loan
prepayments, deposit in-flows and out-flows are significantly influenced by
general interest rate and money market conditions. Funding needs may be
supplemented through borrowings from the FHLB which are secured by a blanket
lien on the portfolio of residential loans. Management believes that current
funding requirements can be met through retail deposits, without reliance on
brokered deposits. To the extent there are requirements for short-term financing
beyond liquid assets, the Company intends to rely on repurchase agreements, FHLB
advances and other traditional money market sources of funding. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Asset/Liability Management."
A full range of deposit services is offered, including checking and other
transaction accounts, savings accounts and time deposits. At March 31, 1997, the
Company had no brokered deposits, and time deposits in amounts of $100,000 or
more constituted 6.0% of total deposits.
52
<PAGE> 57
The following table sets forth the principal types of deposit accounts
offered and the aggregate amounts of such accounts at March 31, 1997 (in
thousands):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE PERCENT OF
INTEREST RATE AMOUNT TOTAL DEPOSITS
------------- -------- --------------
<S> <C> <C> <C>
Noninterest bearing................................ 0.00% $ 49,066 5.9%
Interest checking.................................. 1.09 89,895 10.8
Passbook savings................................... 4.88 223,776 27.0
Statement savings.................................. 1.98 27,569 3.3
Money market....................................... 2.08 32,017 3.9
Time deposits with original maturities of:
One year or less................................. 5.07 112,509 13.6
Over 1 year through 5 years...................... 5.22 197,481 23.8
Over 5 years..................................... 6.20 96,747 11.7
-------- -----
Total time deposits(1)........................... 5.41 406,737 49.1
-------- -----
Total deposits........................... 4.24% $829,060 100.0%
======== =====
</TABLE>
- ---------------
(1) Includes time deposits in amounts of $100,000 or more of $50.0 million.
At March 31, 1997, scheduled maturities of total time deposits were as
follows:
<TABLE>
<CAPTION>
PERIOD ENDED PERCENT OF
MARCH 31, AMOUNT TIME DEPOSITS
------------ -------- -------------
<S> <C> <C>
1998...................................................... $258,908 63.7%
1999...................................................... 51,622 12.7
2000...................................................... 46,898 11.5
2001...................................................... 18,256 4.5
2002...................................................... 31,021 7.6
Thereafter................................................ 32 0.0
-------- -----
Total............................................. $406,737 100.0%
======== =====
</TABLE>
LENDING AND LOAN PORTFOLIO PURCHASE ACTIVITIES
The Company originates a full range of lending products for its portfolio
and real estate-secured loans for sale in the secondary market. Portfolio
lending efforts are focused on customers located along the west coast and in
central Florida. During 1995, the Company opened commercial loan production
offices in central and southwest Florida. The portfolio objective is to maintain
a one-to-four family, primarily adjustable-rate, residential loan portfolio of
at least 50% of its total loans and to achieve, over time, a level of
approximately 10% of its total loan portfolio in consumer loans, consisting of
home equity loans as well as extensions of credit for other household purposes
such as automobile loans and secured personal loans. The approximate 40%
remainder of the loan portfolio will consist of commercial real estate loans,
multifamily residential loans and commercial (business) loans.
In April 1996, the Company started a mortgage banking division of the Bank,
which currently has eight loan production offices in Florida and one office in
Boston, Massachusetts, as well as a wholesale lending operation. The wholesale
lending operation is engaged in acquiring whole loans from third-party
originators. Substantially all of the loans generated by the mortgage banking
division are intended for sale into the secondary market on either a whole loan
basis or by delivery into marketable securities, depending upon individual loan
characteristics. The Company's mortgage banking division has also begun to
originate home improvement and debt consolidation loans secured by junior liens
on real estate and has begun selling these loans to investors in 1997. In the
future, the Bank intends to securitize those types of loans, sell such loans on
an individual or bulk loan basis or engage in a combination thereof.
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<PAGE> 58
For 1996, originations of residential mortgage loans totaled $203.3
million, including $141.0 million in fixed rate loans and $62.3 million of
adjustable rate loans. Contributing to this increase in residential mortgage
loan originations was the employment of a commissioned sales force experienced
in loan originations and a support staff whose compensation is also
significantly incentive-based. Sales of residential loans totaled $106.1 million
for 1996. For the first quarter of 1997, originations of residential mortgage
loans totaled $67.4 million, including $50.2 million of fixed-rate loans and
$17.2 million of adjustable loans. Sales of residential loans totaled $86.0
million for the first quarter of 1997.
Originations of commercial real estate and commercial (business) loans
totaled $207.4 million for 1996 and $37.8 million for the first quarter of 1997.
To date, such loan originations have been for portfolio but the Company intends
to originate and sell into the secondary market a portion of its commercial real
estate loans originated during 1997, collecting fee income on the sale and
retaining the servicing of these loans.
The Company purchased loans totaling approximately $193.5 million in
connection with the CrossLand Purchase and Assumption. Loan purchases were
$157.5 million in 1994, $102.3 million in 1995 and $8.2 million in 1996. No loan
purchases were made in the first quarter of 1997. In June 1997, the Bank entered
into an agreement with the FDIC for the 1997 Loan Purchase, with an aggregate
principal amount outstanding of approximately $76.5 million. The loans will be
purchased at a nominal discount. The transaction is expected to close in the
third quarter of 1997. Additional real estate loan purchases may be considered
if loan pools with acceptable yield, satisfactory creditworthiness and other
characteristics become available for bid. However, during 1996 and the first
quarter of 1997, loan originations were the predominant 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:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, ----------------------------------------------------
1997 1996 1995 1994 1993 1992
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans:
One-to-four family residential.... $412,700 $419,605 $388,221 $293,146 $153,587 $ 7,797
Multifamily residential........... 67,531 68,337 75,127 60,795 36,735 4,461
Commercial real estate............ 192,509 182,298 153,193 112,050 86,457 65,072
Construction/land development..... 29,812 27,050 13,974 16,095 9,561 5,256
-------- -------- -------- -------- -------- --------
Total real estate mortgage
loans................... 702,552 697,290 630,515 482,086 286,340 82,586
Commercial (business) loans......... 33,125 34,427 29,687 24,579 18,581 17,546
Consumer loans...................... 11,747 9,983 6,847 6,426 7,509 8,374
Other loans......................... 1,069 1,294 2,367 3,244 4,053 2,209
-------- -------- -------- -------- -------- --------
Total loans(1)............ 748,493 742,994 669,416 516,335 316,483 110,715
Less:
Allowance for loan losses......... 13,508 13,134 14,910 7,065 6,539 1,958
-------- -------- -------- -------- -------- --------
Loans, net of allowance........... $734,985 $729,860 $654,506 $509,270 $309,944 $108,757
======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Includes discounts, premiums and unearned fees.
At March 31, 1997 and December 31, 1996, the balance of loans purchased
included in the portfolio amounted to $271.2 million and $286.5 million,
respectively. The balance of loans held for sale included in the portfolio at
March 31, 1997 and December 31, 1996 and 1995 were $40.2 million, $36.6 million
and $4.7 million, respectively.
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<PAGE> 59
<TABLE>
<CAPTION>
AT DECEMBER 31,
MARCH 31, -------------------------------------
BASED ON PERCENT OF PORTFOLIO: 1997 1996 1995 1994 1993 1992
- ------------------------------ --------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans:
One-to-four family residential........... 55.1% 56.5% 58.0% 56.8% 48.5% 7.0%
Multifamily residential.................. 9.0 9.2 11.2 11.8 11.6 4.0
Commercial real estate................... 25.7 24.6 22.9 21.7 27.3 58.8
Construction/land development............ 4.0 3.6 2.1 3.1 3.0 4.7
----- ----- ----- ----- ----- -----
Total real estate mortgage
loans.......................... 93.8 93.9 94.2 93.4 90.4 74.5
Commercial (business) loans................ 4.4 4.6 4.4 4.8 5.9 15.8
Consumer loans............................. 1.6 1.3 1.0 1.2 2.4 7.6
Other loans................................ .2 .2 .4 .6 1.3 2.1
----- ----- ----- ----- ----- -----
Total loans...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
The following table sets forth the contractual amortization of real estate
and commercial loans at March 31, 1997 and December 31, 1996. Loans having no
stated schedule of repayments and no stated maturity are reported as due in one
year or less. The table also sets forth the dollar amount of loans scheduled to
mature after one year, according to their interest rate characteristics:
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
------------------------ ------------------------
TYPE OF LOAN: REAL ESTATE COMMERCIAL REAL ESTATE COMMERCIAL
- ------------- ----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Amounts due:
One year or less......................... $ 46,120 $16,144 $ 60,246 $15,740
After one through five years............. 161,661 15,579 151,492 16,580
More than five years..................... 494,771 1,402 485,552 2,107
-------- ------- -------- -------
Total............................ $702,552 $33,125 $697,290 $34,427
======== ======= ======== =======
Interest rate terms on amounts due after
one year:
Adjustable............................... $443,489 $11,182 $446,710 $12,053
Fixed.................................... 212,453 5,799 190,334 6,634
-------- ------- -------- -------
Total............................ $655,942 $16,981 $637,044 $18,687
======== ======= ======== =======
</TABLE>
CREDIT ADMINISTRATION
The loan approval process provides for various levels of lending authority
to loan officers, the Officers' Loan Committee and the Chairman and Chief
Executive Officer. In addition, loans in excess of $1.5 million require the
approval of the Board of Directors' Loan Committee or a majority of the full
Board prior to funding. Loan purchases are generally made subject to the same
underwriting standards as loan originations. All loan purchases must be approved
in advance of funding by the Chief Executive Officer and are reported to the
full Board following purchase. In an attempt to achieve consistency in
underwriting policies and procedures, the supervision of all credit decision
functions is centralized.
Real estate lending is defined as extensions of credit secured by liens on
interests in real estate or made for the purpose of financing the construction
of a building or other improvements to real estate, regardless of whether a lien
has been taken on the property. Applicable regulations require that
comprehensive written real estate lending policies be adopted and maintained
that are consistent with safe and sound banking practices. These lending
policies must reflect consideration of the Interagency Guidelines for Real
Estate Lending Policies adopted by the federal banking agencies in December 1992
(the "Guidelines"). Pursuant to the mandates of the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), the Guidelines set forth
regulations prescribing standards for real estate lending, which the Company has
incorporated into its lending policy.
55
<PAGE> 60
The Company's lending policy addresses certain lending considerations set
forth in the Guidelines, including loan-to-value ("LTV") limits, loan
administration procedures, underwriting standards, portfolio diversification
standards and documentation, approval and reporting requirements. The LTV ratio
framework, with an LTV ratio being the total amount of credit to be extended
divided by the appraised value or purchase price of the property at the time the
credit is originated, has been established for each category of real estate
loans. The Company's policy, subject to certain approval exceptions,
establishes, among other things, the following LTV limits: raw land (65%); land
development (75%); construction (commercial, multifamily and non-residential)
(80%); and improved property (85%). For portfolio purposes, loans on one-to-four
family residential (owner occupied) mortgages where the LTV exceeds 95% are not
made, and any LTV ratio in excess of 80% generally requires appropriate
insurance or additional security from readily marketable collateral. Loans with
an LTV higher than 95% may be made if saleable to investors at an acceptable
premium. The policy is reviewed and approved by the Board of Directors at least
annually.
The Company's commercial (business) lending is based on a strategy of
extending credit to the local business community, and the Company's policy has
been to make corporate and commercial loans to borrowers with satisfactory cash
flows.
The loan portfolio is managed on an ongoing basis pursuant to written
portfolio management strategies, guidelines for underwriting standards and risk
assessment, and procedures for ongoing identification and management of credit
deterioration. Regular portfolio reviews are undertaken to estimate loss
exposure and ascertain compliance with policies. See -- "Asset Quality".
ASSET QUALITY
Allowance/Provision for Loan Losses
The allowance for loan losses represents management's estimate of an amount
adequate to provide for potential losses inherent in the loan portfolio.
However, it is likely that there are additional risks of future losses that
cannot be quantified precisely or attributed to particular loans or classes of
loans. Because those risks include general economic trends, as well as
conditions affecting individual borrowers, management's judgment of the reserve
is necessarily approximate and imprecise. The allowance is also subject to
regulatory examinations and determinations as to adequacy, which may take into
account such factors as the methodology used to calculate the allowance and the
size of the allowance in comparison to peers identified by the regulatory
agencies.
The Company believes that its loan loss allowance policy is both consistent
with policies established by the FDIC and commensurate with historical loss
experience. Provisions for loan losses charged to expenses during each period
will be the result of management's assessment of the adequacy of the allowance
when compared to the inherent risk of the portfolio. As part of the risk
assessment for loans purchased in the CrossLand Purchase and Assumption and for
loans purchased during 1994, 1995 and 1996, management allocated a portion of
the discount on such loan purchases to the allowance in amounts that are
consistent with loan loss policy guidelines. Amounts resulting from discount
allocation are available to absorb potential losses only on those purchased
loans and are not available for losses from other loans. To the extent that
losses in certain pools or portfolios of loans exceed the loan loss allowance
and any remaining unearned loan discount, or available as a general allowance,
the Company's results of operations would be adversely affected.
Management conducts an ongoing evaluation and grading of its loan portfolio
according to an eight point rating system. The loan ratings serve as a guideline
in assessing the risk level of a particular loan and provide a basis for the
establishment of the overall allowance. The Loan Review Department independently
rates loans and, on a quarterly basis, meets with senior management and the loan
officers to discuss all loans which have been identified for potential credit
quality problems. The Loan Review Department also reports its findings to the
Directors' Audit Committee to ensure independence of the loan grading function.
Various loan purchases were made totaling $157.4 million during 1994,
$102.3 million during 1995 and $8.2 million in 1996. No loan purchases were made
in the first quarter of 1997. A portion of the discount on those purchased loans
was allocated to the allowance in amounts consistent with the Company's loan
loss
56
<PAGE> 61
allowance policy guidelines. The remainder of the discount arising from the
purchase price is recorded as unearned discount and subsequently accreted to
income as a yield adjustment over the life of the loans. In 1995, such
allocation included $7.2 million related solely to one particular portfolio
purchase, in the aggregate principal amount of $48.1 million. Subsequently, the
principal balance of the March 1995 Purchase had declined to $39.9 million and
the allowance allocated to this purchase was reduced to $5.9 million. This was
principally the result of charges to the reserve for loans which were
nonperforming when acquired and subsequently taken into foreclosure and recorded
at their fair value. The Company's history of administering this loan purchase
indicates that the expected loss rate on the remaining loans in this portfolio
will be less than the amount remaining in the allowance. Consequently, the
Company reallocated $1.5 million from the allowance to unearned discount in the
fourth quarter of 1996, reducing the December 31, 1996 allowance allocated to
the March 1995 Purchase to $4.4 million. In the first quarter of 1997, $6.0
million of loans from the March 1995 purchase were sold and $642,000 previously
allocated to the allowance for those loans was recognized as income and
concurrently transferred to the allowance for originated loans. At March 31,
1997, the allowance allocated to the March 1995 purchase was $3.7 million, $1.0
million was allocated to loans purchased from CrossLand, $1.7 million was
allocated to other loan purchases and $7.1 million was allocated to originated
loans. At March 31, 1997, the amount of unearned discount on purchased loans
that had not been allocated to the allowance totaled $4.1 million.
Activity to the allowance during the first quarter of 1997 included a $1.1
million provision for loan losses, loan charge-offs (net of recoveries) of
$122,000 and the $642,000 transferred to unearned discount as previously
discussed. Activity to the allowance during 1996 included a $1.8 million
provision for loan losses, loan charge-offs (net of recoveries) of $1.8 million,
and $1.7 million transferred to unearned discount. The net charge-off amount for
1996 included $1.0 million assessed against the allowance for loans acquired in
the March 1995 Purchase as properties securing certain nonperforming loans,
which were purchased at a substantial discount, were acquired through
foreclosure and recorded at their fair value.
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The following table sets forth information concerning the activity in the
allowance for loan losses during the periods indicated (in thousands):
<TABLE>
<CAPTION>
THREE FIVE
MONTHS SEVEN MONTHS MONTHS
ENDED YEARS ENDED DECEMBER 31, ENDED ENDED YEAR ENDED
MARCH 31, -------------------------- DECEMBER 31, MAY 31, DECEMBER 31,
1997 1996 1995 1994 1993 1993 1992
--------- ------- ------- ------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance at beginning of
period................... $13,134 $14,910 $ 7,065 $6,539 $1,866 $1,958 $2,180
Loan discount (net)
allocated to/(from) the
allowance for loans
acquired in the:
CrossLand Purchase and
Assumption............ -- (757) 4,046 N/A N/A
Loans purchased in
1994.................. -- (202) -- 1,400 -- -- --
Loans purchased in
1995.................. (642) (1,541) 7,658 -- -- -- --
Loans purchased in
1996.................. -- 11 -- -- -- -- --
------- ------- ------- ------ ------ ------ ------
Total loan
discount
allocated
to/(from) the
allowance...... (642) (1,732) 7,658 643 4,046 -- --
Charge-offs:
Residential loans (1-4
family)............... 91 1,700 275 94 -- -- 96
Commercial real
estate/multi-family... -- 51 907 1,472 115 43 356
Commercial (business).... 38 249 558 304 28 439 375
Consumer and other
loans................. 59 110 207 -- 65 50 64
------- ------- ------- ------ ------ ------ ------
Total
charge-offs.... 188 2,110 1,947 1,870 208 532 891
Recoveries:
Residential loans (1-4
family)............... 2 1 7 -- 1 1 2
Commercial real
estate/multi-family... 3 35 379 113 19 1 1
Commercial loans
(business)............ 60 168 53 64 91 44 95
Consumer and other
loans................. 1 62 10 1 15 15 51
------- ------- ------- ------ ------ ------ ------
Total
recoveries..... 66 266 449 178 126 61 149
Net charge-offs............ 122 1,844 1,498 1,692 82 471 742
Provisions for loan
losses................... $ 1,138 $ 1,800 $ 1,685 $1,575 $ 709 $ 379 $ 520
------- ------- ------- ------ ------ ------ ------
Allowance at end of
period................... $13,508 $13,134 $14,910 $7,065 $6,539 $1,866 $1,958
======= ======= ======= ====== ====== ====== ======
Charges to the allowance
representing the portion
allocated from loan
discount................. .02% .21% .13% .32% .00% .00% .00%
Other net charge-offs...... .00 .06 .12 .11 .12 .43 .69
------- ------- ------- ------ ------ ------ ------
Total net
charge-offs to
average
loans.......... .02% .27% .25% .43% .12% .43% .69%
======= ======= ======= ====== ====== ====== ======
</TABLE>
The following table sets forth the allocation of the allowance based on
management's subjective estimates and the percent of the loan portfolio for each
category presented. The amount allocated to a particular segment should not be
construed as the only amount available for future charge-offs that might occur
within that segment. In addition, the amounts allocated by segment may not be
indicative of future charge-offs. The
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<PAGE> 63
allocation of the allowance may change from year to year should management
determine that the risk characteristics of the loan portfolio and off-balance
sheet commitments have changed.
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
------------------------ ------------------------
PERCENT OF PERCENT OF
ALLOWANCE ALLOCATION AMOUNT LOAN PORTFOLIO AMOUNT LOAN PORTFOLIO
- -------------------- ------- -------------- ------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Performing/not classified:
Residential loans:
March 1995 Purchase.............. $ 3,599 5.1% $ 4,171 5.3%
All other residential............ 603 48.1 1,788 48.3
Commercial (business)................. 319 4.3 340 4.6
Commercial real estate................ 2,423 36.0 2,622 35.5
Consumer and other.................... 501 3.4 488 3.2
------- ----- ------- -----
Subtotal.................... 7,445 96.9 9,409 96.9
Non-performing/classified:
Special mention..................... 152 1.0 124 .8
Substandard and nonperforming....... 2,130 1.9 2,476 2.2
Doubtful............................ 578 .2 601 0.1
Loss................................ -- -- -- --
------- ----- ------- -----
Subtotal.................... 2,860 3.1 3,201 3.1
Off balance sheet risk................ 439 -- 434 --
Unallocated........................... 2,764 -- 90 --
------- ----- ------- -----
Total....................... $13,508 100.0% $13,134 100.0%
======= ===== ======= =====
</TABLE>
Nonperforming Assets
Nonperforming assets include (i) loans which are 90 days or more past due
and have been placed into non-accrual status, (ii) restructured loans that have
not yet demonstrated a sufficient payment history to warrant return to
performing status and therefore, are not accruing interest, (iii) accruing loans
that are 90 days or more delinquent that are deemed by management to be
adequately secured and in the process of collection, and (iv) ORE (i.e., real
estate acquired through foreclosure or deed in lieu of foreclosure). All
delinquent loans are reviewed on a regular basis and are placed on non-accrual
status when, in the opinion of management, the possibility of collecting
additional interest is deemed insufficient to warrant further accrual. As a
matter of policy, interest is not accrued on loans past due 90 days or more
unless the loan is both well secured and in process of collection. When a loan
is placed in non-accrual status, interest accruals cease and uncollected accrued
interest is reversed and charged against current income. Additional interest
income on such loans is recognized only when received.
Loans classified as non-accrual totaled $15.4 million at December 31, 1996,
compared to $16.2 million at March 31, 1997, an increase of $840,000. The
primary reason for the increase was a $745,000 loan to a single borrower which
became more than 90 days past due and was placed in non-accrual status pending
completion of renewal negotiations with the borrower. At March 31, 1997 and
December 31, 1996, the Company had nonperforming assets (including loans
classified as non-accrual) of $23.6 million or 2.58% of total assets and $22.8
million or 2.51% of total assets, respectively. The ratio of non-performing
assets to total assets was 2.93% at year-end 1995 and 3.59% at year-end 1994.
Accruing loans that were 90 days past due amounted to $121,000 at March 31, 1997
and $113,000 at December 31, 1996, and primarily consisted of loans in process
of renewal. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Comparison of Balance Sheets at March 31, 1997 and
December 31, 1996."
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<PAGE> 64
The following table sets forth information regarding the components of
nonperforming assets at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, -----------------------------------------------
1997 1996 1995 1994 1993 1992
NON-PERFORMING ASSETS: ------------ ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
1-4 family
residential(1)......... $ 8,098(1) $ 7,366(1) $ 9,540(1) $ 9,062 $ 3,707 $ 35
Multi-family
residential............ -- 55 129 1,160 10,200 0
Commercial real estate... 5,740 6,162 3,082 1,515 1,464 2,965
Commercial (business).... 2,256 1,604 308 591 620 529
Home equity and
consumer............... 97 164 495 620 0 10
------- ------- ------- ------- ------- -------
Total
non-accrual
loans........ 16,191 15,351 13,554 12,948 15,991 3,539
ORE acquired through
foreclosure............ 7,250 7,363 8,064 9,278 9,569 9,190
Accruing loans 90 days
past due............... 122 113 1,876 293 725 22
------- ------- ------- ------- ------- -------
Nonperforming assets..... $23,563 $22,827 $23,494 $22,519 $26,285 $12,751
======= ======= ======= ======= ======= =======
Nonperforming loans to
total loans............ 2.18% 2.19% 2.32% 2.56% 5.28% 3.22%
======= ======= ======= ======= ======= =======
Nonperforming assets to
total assets........... 2.58% 2.51% 2.93% 3.59% 4.95% 7.55%
======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Net of $114,000, $184,000 and $950,000 of loan loss allowances at March 31,
1997 and at December 31, 1996 and 1995, respectively, allocated to
nonaccrual loans acquired in the March 1995 Purchase.
Other Real Estate Acquired Through Foreclosure
All ORE assets are recorded at the lower of cost or estimated fair value
based on appraisal information that is updated when a property is taken into ORE
and thereafter when determined appropriate by management. As of March 31, 1997,
in no case did the book value of any ORE property exceed 90% of the most recent
appraisal. The following table sets forth information regarding the Company's
ORE balances, net of allowances, as of the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, ------------------------------------------
1997 1996 1995 1994 1993 1992
------------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Vacant undeveloped
residential land........... $1,107 $1,277 $1,717 $2,358 $2,450 $2,454
Vacant developed residential
lots....................... 254 254 265 434 600 1,644
Residential houses........... 2,517 2,541 860 1,313 795 800
Vacant commercial undeveloped
land....................... 79 79 79 248 155 155
Commercial land developed for
sale....................... 3,200 3,200 4,308 4,516 1,746 2,991
Income-producing commercial
buildings.................. 12 12 150 0 3,534 324
Vacant commercial
buildings.................. 81 -- 685 409 289 822
------ ------ ------ ------ ------ ------
Total ORE.......... $7,250 $7,363 $8,064 $9,278 $9,569 $9,190
====== ====== ====== ====== ====== ======
ORE to total assets.......... .79% .81% 1.01% 1.48% 1.80% 5.44%
====== ====== ====== ====== ====== ======
</TABLE>
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<PAGE> 65
At March 31, 1997, ORE properties with book values in excess of $1.0
million were as follows:
- A tract of land in Holiday, Florida, currently carried at $3.2 million,
that has been developed as a shopping center site. This tract was obtained
in 1988 through foreclosure in connection with a $1.8 million loan. The
tract contains wetlands, some of which were required to be filled, and the
resultant permitting process took approximately five years to complete.
During that time, over $2.0 million was spent in engineering,
environmental and legal costs (which costs were capitalized) and
approximately $500,000 was spent for the purchase of several additional
parcels of land required for environmental mitigation purposes pursuant to
the permit requirements. The Company is offering for sale the completed
shopping center sites and other commercial pad sites. One shopping center
site was sold to a developer who constructed the retail space for the
anchor tenants, Publix and Walgreens. The Company presently operates a
branch on the tract. Federal regulations had required the Bank to dispose
of the tract no later than December 31, 1996, but the FDIC has approved an
extension of the holding period to December 19, 1997. While the current
appraisal indicates that the fair market value of the tract exceeds book
value, a sale to a party other than an end-user could result in proceeds
below the current book value.
- A 41.7% undivided interest in a 973-acre parcel of undeveloped
residential land in Pasco County, Florida. This interest was acquired
through foreclosure in 1990 and is carried on the Company's books at $1.1
million. The entire parcel (which includes both the Company's undivided
interest and that of the other owners) was appraised at $4.7 million in
January 1997.
TROUBLED DEBT RESTRUCTURINGS
A troubled debt restructuring ("TDR") is a situation in which borrowers
allow the debtor certain concessions that would not normally be allowed, such as
modifying the terms of the debt to a basis more favorable than those offered to
other creditors or accepting third-party receivables to reduce the debt. At
March 31, 1997, and December 31, 1996 and 1995, total TDRs were $2.5 million,
$2.5 million and $2.8 million, respectively, and restructured, performing loans
were $1.4 million, $1.4 million, and $2.4 million, respectively. Restructured,
nonperforming loans (all in non accrual status) for those same periods were $1.1
million, $1.1 million, and $.4 million, respectively.
INVESTMENT ACTIVITIES
State law requires that a specified minimum amount of liquid assets be
maintained, based on the level of deposits, which are subject to certain
restrictions. At all times during 1996, the amount of liquid assets maintained
exceeded the regulatory minimum.
EMPLOYEES
At March 31, 1997, there were 644 full-time equivalent employees, none of
whom were represented by a union or other collective bargaining agreement. The
Company makes use of part-time and flex-time employees in connection with its
branch operations. One of the Company's primary operating principles is to
nurture its staff through, among other things, fair compensation, a good working
environment and career development and enhancement opportunities. Management
considers its relations with its employees to be good.
SUPERVISION AND REGULATION
The Company and the Bank are extensively regulated under both federal and
state law. The following is a brief summary of certain statutes, rules and
regulations affecting the Company and the Bank. This summary is qualified in its
entirety by reference to the particular statutory and regulatory provisions
referred to below and is not intended to be an exhaustive description of the
statutes or regulations applicable to the Company's business. Supervision,
regulation and examination of the Company and the Bank by the bank regulatory
agencies are intended primarily for the protection of depositors rather than
stockholders.
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<PAGE> 66
Regulation of the Company. The Company is a bank holding company,
registered with the Federal Reserve under the Bank Holding Company Act of 1956,
as amended ("BHC Act"). As such, the Company and its subsidiaries are subject to
the supervision, examination and reporting requirements of the BHC Act and the
regulations of the Federal Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than five percent (5%) of the voting shares of the bank; (ii) it or any of
its subsidiaries, other than a bank, may acquire all or substantially all of the
assets of the bank; or (iii) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community served. The Federal Reserve is also required to consider the
financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the communities
to be served. Consideration of financial resources generally focuses on capital
adequacy, and consideration of convenience and needs issues includes the
parties' performance under the Community Reinvestment Act of 1977 (the "CRA").
The BHC Act generally prohibits the Company from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. In determining whether a particular
activity is permissible, the Federal Reserve must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public, such as greater convenience, increased competition or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. For example, factoring accounts receivable, acquiring or
servicing loans, leasing personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in selling credit life insurance and certain other types of
insurance in connection with credit transactions and performing certain
insurance underwriting activities all have been determined by the Federal
Reserve to be permissible activities of bank holding companies. The BHC Act does
not place territorial limitations on permissible nonbanking activities of bank
holding companies. Despite prior approval, the Federal Reserve has the power to
order a bank holding company or its subsidiaries to terminate any activity or to
terminate its ownership or control of any subsidiary when it has reasonable
cause to believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness or stability of
any bank subsidiary of that bank holding company.
Under Federal Reserve policy, bank holding companies are expected to act as
a source of financial strength and support to their subsidiary banks. This
support may be required at times when, absent such Federal Reserve policy, the
holding company may not be inclined to provide it. In addition, any capital
loans by a bank holding company to any bank subsidiary are subordinate in right
of payment to deposits and to certain other indebtedness of such subsidiary
bank. In the event of a bank holding company's bankruptcy, any commitment by the
bank holding company to a federal bank regulatory agency to maintain the capital
of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority payment.
Regulation of the Bank. The Bank is organized as a Florida-chartered
commercial bank and is regulated and supervised by the Department. In addition,
the Bank is regulated and supervised by the FDIC, which serves as its primary
federal regulator. Accordingly, the Department and the FDIC conduct regular
examinations of the Bank, reviewing the adequacy of the loan loss reserves,
quality of loans and investments,
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<PAGE> 67
liquidity propriety of management practices, compliance with laws and
regulations and other aspects of the Bank's operations. In addition to these
regular examinations, the Bank must furnish to the FDIC quarterly reports
containing detailed financial statements and schedules.
In the course of a recent review of the Bank's operations by the FDIC,
issues arose as to the software and procedures used by the Bank to record and
calculate the charges and other information for certain types of loans, and the
amount of interest due on one class of deposit accounts. The Bank is in the
process of taking the necessary actions to address these issues, including the
payment of refunds or additional interest, as appropriate and the Company does
not expect that any costs that it may incur to resolve these issues will have a
material adverse impact on either its operations or financial condition.
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, liquidity requirements 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 BIF 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 and 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 the Bank, to assess the Bank's record in meeting the credit needs of the
community serviced by the Bank. The FDIC's assessment of the Bank's record is
made available to the public. Further, such assessment is required whenever the
Bank applies to, among other things, establish a new branch that will accept
deposits, relocate an existing office or merge or consolidate with, or acquire
the assets of, or assume the liabilities of, a federally-regulated financial
institution. In the case where the Company applies for approval to acquire a
bank or other bank holding company, the Federal Reserve will also assess the CRA
records of the Bank. The Bank received a "Satisfactory" CRA rating in its most
recent examination.
In April 1995, the federal banking agencies adopted amendments revising
their CRA regulations, with a phase-in schedule applicable to various
provisions. Among other things, the amended CRA regulations, implemented on July
1, 1997, substitute for the prior process-based assessment factors a new
evaluation system that will rate an institution based on its actual performance
in meeting community needs. In particular, the system will focus on three tests:
(i) a lending test, to evaluate the institution's record of making loans in its
service areas; (ii) an investment test, to evaluate the institution's record of
investing in community development projects; and (iii) a service test, to
evaluate the institution's delivery of services through its branches and other
offices. The amended CRA regulations also clarify how an institution's CRA
performance will be considered in the application process. The Company does not
anticipate that the revised CRA regulations will have any material impact on the
Bank's operations or that they will have any impact on the Bank's CRA rating.
The Bank is subject to FDIC deposit insurance assessments. In 1994, the
Bank became subject to a new risk-based assessment system for insured depository
institutions that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. The new system assigns
an institution to one of three capital categories: (i) well capitalized; (ii)
adequately capitalized; and (iii) undercapitalized. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information that 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
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<PAGE> 68
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 much 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 BIF.
However, as part of the CrossLand Purchase and Assumption, the Bank acquired
$327.7 million in deposits insured by the SAIF and thereby became a so-called
Oakar bank. Based on the CrossLand Purchase and Assumption and the Firstate
Acquisition, the Bank is required to pay insurance premiums to the FDIC on a
substantial portion of its deposits at the SAIF assessment rate, notwithstanding
its status as a BIF member. As of December 31, 1996, the most recent measurement
date for assessment purposes, approximately 72.5% of the Bank's deposits were
treated as SAIF-insured deposits, with the remaining 27.5% of deposits being
assessed at the BIF rate. The Bank's ratio of SAIF- and BIF-assessed deposits
will increase somewhat following the FFO Merger. FFO's deposits at March 31,
1997 were $285.7 million.
Until recently, the FDIC had established separate risk-based assessment
schedules for the BIF and the SAIF. In November 1995, the FDIC established the
current assessment schedule for BIF-assessed deposits, with assessment rates
ranging from zero percent to 0.27 percent (or 27 basis points) of deposits. The
SAIF-based deposits had much higher assessment rates. In December 1996,
following enactment of federal legislation to recapitalize the SAIF (described
below), the FDIC adopted the same zero percent to 0.27 percent assessment
schedule, effective October 1, 1996, for the Bank's 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.
As part of the omnibus budget legislation passed last fall, Congress
enacted the Deposit Insurance Funds Act of 1996 (the "Funds Act"). With certain
exceptions, the Funds Act imposed a one-time special assessment on
SAIF-assessable deposits held by all depository institutions in an aggregate
amount that would cause the SAIF to meet its designated reserves-to-deposits
ratio of 1.25 percent. Pursuant to the Funds Act, the Bank, on November 27,
1996, paid a special assessment to the SAIF of $2.5 million. This assessment was
determined by taking the Bank's SAIF-assessable deposits as of March 31, 1995
and multiplying that amount by a 0.657 percent (or 65.7 basis points) assessment
rate that the FDIC had calculated would be necessary to capitalize fully the
SAIF. (A lower assessment rate was imposed on certain Oakar banks, but the Bank
did not qualify for the reduction.)
Prior to enactment of the Funds Act, the SAIF assessments were used to pay
interest on bonds issued by the Financing Corporation (the "FICO") in the late
1980s to fund the resolution of troubled thrifts, and only insurance payments by
SAIF-member institutions were available to satisfy FICO's interest payment
obligations. A second provision of the Funds Act severs the linkage that had
existed between the SAIF and the FICO funding requirements, authorizing the FICO
to impose its own assessments separate and apart from any insurance fund
assessment. The Funds Act also shifts a portion of the FICO funding obligations
to BIF-member institutions beginning in 1997. Through the end of 1999, the FICO
assessment rate on BIF-assessable deposits is required by the statute to be
one-fifth of the SAIF rate. Thereafter, FICO assessment rates for members of
both insurance funds will presumably be equalized.
Currently, the FICO assessment rate for BIF assessable deposits is 0.013
percent (or 1.3 basis points) and the FICO assessment rate for SAIF assessable
deposits is 0.0648 percent (or 6.48 basis points). For the first half of 1997,
the Bank has been assessed a semiannual FICO payment obligation of $192,480,
$176,449 of which was attributable to the Bank's SAIF-assessable deposits, and
the balance of which was attributable to its BIF-assessable deposits.
CAPITAL REQUIREMENTS
The Company and the Bank are required to comply with the capital adequacy
standards established by the Federal Reserve (for the Company) and the FDIC (for
the Bank). There are three basic measures of capital adequacy for banks and
their holding companies that have been promulgated by the Federal Reserve;
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<PAGE> 69
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 profiles among banks and bank
holding companies, to account for off-balance-sheet exposure and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guidelines for the ratio of total capital ("Total Capital") to
risk-weighted assets (including certain off-balance-sheet items, such as standby
letters of credit) is 8%. At least half of Total Capital (i.e., 4% of
risk-weighted assets) must comprise common stock, minority interests in the
equity accounts of consolidated subsidiaries, noncumulative perpetual preferred
stock, and a limited amount of cumulative perpetual preferred stock, less
goodwill and certain other intangible assets ("Tier 1 Capital"). The remainder
may consist of subordinated debt, other preferred stock, and a limited amount of
loan loss reserves ("Tier 2 Capital"). In addition, the Federal Reserve has
established minimum leverage ratio guidelines for bank holding companies. These
guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less
goodwill and certain other intangible assets, of 3% for banks that meet certain
specified criteria, including having the highest regulatory rating. All other
bank holding companies generally are required to maintain a Leverage Ratio of at
least 3.0%, plus an additional cushion of 100 to 200 basis 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 5.5% by September 30, 1995, which it did, and the
Company will consider raising additional capital or reducing internal growth in
order to maintain the Bank's Leverage Ratio at or above that level, should the
ratio fall below that level in the future. Other than the foregoing commitment,
the Bank has not been advised by the FDIC of any specific minimum capital ratio
requirement applicable to it.
DIVIDENDS
As a Florida-chartered commercial bank, the Bank is also subject to the
laws of Florida as to the payment of dividends. Under the Florida Financial
Institutions Code, the prior approval of the Department is required if the total
of all dividends declared by a bank in any calendar year will exceed the sum of
the bank's net profits for that year and its retained net profits for the
preceding two years.
Under Federal law, if, in the opinion of the federal banking regulator, a
bank or thrift under its jurisdiction is engaged in, or is about to engage in,
an unsafe or unsound practice (which, depending on the financial condition of
the depository institution, could include the payment of dividends), such
regulation may require, after notice and hearing, that such institution cease
and desist from such practice. The federal banking agencies have indicated that
paying dividends that deplete a depository institution's capital base to an
inadequate level would be an unsafe and unsound banking practice. Under the
Prompt Corrective Action regulations adopted by the federal banking agencies in
December 1992, a depository institution may not pay any dividend to its holding
company if payment would cause it to become undercapitalized or if it already is
undercapitalized.
Due to the Bank's anticipated continued growth and management's intent to
maintain certain regulatory capital levels, dividend payments on the Company's
common stock are not expected in the foreseeable future.
FEDERAL RESERVE SYSTEM
The Federal Reserve regulations require banks to maintain
non-interest-earning reserves against their transaction accounts (primarily NOW
and regular checking accounts). The new Federal Reserve regulations,
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effective April 1, 1997, generally require that reserves be maintained against
aggregate transaction accounts as follows: (i) for accounts aggregating $49.3
million or less (subject to adjustment by the Federal Reserve), the reserve
requirement is 3.0%; and (ii) for accounts greater than $49.3 million, the
reserve requirement is $1.5 million plus 10.0% (subject to adjustment by the
Federal Reserve between 8.0% and 14.0%) against that portion of total
transaction accounts in excess of $49.3 million. The first $4.4 million of
otherwise reservable balances (subject to adjustments by the Federal Reserve)
are exempted from the reserve requirements. The Bank anticipates that it will be
in compliance with the foregoing requirements. The balances maintained to meet
the reserve requirements imposed by the Federal Reserve may be used to satisfy
liquidity requirements imposed by the Department. Because required reserves must
be maintained in the form of either vault cash, a noninterest-bearing account at
a Federal Reserve Bank or a pass-through account as defined by the Federal
Reserve, the effect of this reserve requirement is to reduce the Bank's
interest-earning assets. FHLB System members also are authorized to borrow from
the Federal Reserve "discount window", but Federal Reserve regulations require
institutions to exhaust all Federal Home Loan Bank sources before borrowing from
a Federal Reserve Bank.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB system, which consists of 12 regional
Federal Home Loan Banks governed and regulated by the Federal Housing Finance
Board. The Federal Home Loan Banks provide a central credit facility for member
institutions. The Bank, as a member of the FHLB, is required to acquire and hold
shares of capital stock in the FHLB in an amount at least equal to the greater
of 1% of the aggregate principal amount of its unpaid residential mortgage
loans, home purchase contracts and similar obligations as of the close of each
calendar year, or 5% of its borrowings from the FHLB (including advances and
letters of credit issued by the FHLB on the Bank's behalf).
The FHLB makes advances to members in accordance with policies and
procedures periodically established by the Federal Housing Finance Board and the
Board of Directors of the FHLB. Currently outstanding advances from the FHLB are
required to be secured by a member's shares of stock in the FHLB and by certain
types of mortgages and other assets. Interest rates charged for advances vary
depending on maturity, the cost of funds to the FHLB and the purpose of the
borrowing. As of March 31, 1997, the Bank had no outstanding advances from the
FHLB. However, the Company has recently obtained advances in an amount
sufficient to satisfy the Bank's funding needs as well as to maintain the Bank's
current liquidity levels. In addition, the Bank expects to obtain additional
advances from the FHLB to fund all or a portion of the purchase price for the
1997 Loan Purchase.
LIQUIDITY
Under Florida banking regulations, the Bank is required to maintain a daily
liquidity position equal to at least 15 percent of its total transaction
accounts and eight percent of its total nontransaction accounts, less those
deposits of public funds for which security has been pledged as provided by law.
The Bank may satisfy its liquidity requirements with cash on hand (including
cash items in process of collection), deposits held with the Federal Reserve,
demand deposits due from correspondent banks, Federal funds sold,
interest-bearing deposits maturing in 31 days or less and the market value of
certain unencumbered, rated, investment-grade securities and securities issued
by Florida or any county, municipality or other political subdivision within the
State. The FDIC also reviews the Bank's liquidity position as part of its
examination and imposes similar requirements on the Bank. Any Florida-chartered
commercial bank that fails to comply with its liquidity requirements generally
may not further diminish liquidity either by making any new loans (other than by
discounting or purchasing bills of exchange payable at sight) or by paying
dividends. At March 31, 1997, the Bank's net liquid assets exceeded the minimum
amount required under the applicable Florida regulations.
MONETARY POLICY AND ECONOMIC CONTROLS
The banking business is affected not only by general economic conditions,
but also by the monetary policies of the Federal Reserve. Changes in the
discount rate on member bank borrowing, availability of borrowing at the
"discount window," open market operations, the imposition of changes in reserve
require-
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ments against bank deposits and the imposition of and changes in reserve
requirements against certain borrowings by banks and their affiliates are some
of the instruments of monetary policy available to the Federal Reserve. The
monetary policies have had a significant effect on the operating results of
commercial banks and are expected to continue to do so in the future. The
monetary policies of the Federal Reserve are influenced by various factors,
including inflation, unemployment and short- and long-term changes in the
international trade balance and in the fiscal policies of the United States
Government. Future monetary policies and the effect of such policies on the
future business and earnings of the Bank cannot be predicted.
CHANGES IN ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") recently adopted or
issued proposals and guidelines that may have a significant impact on the
accounting practices of commercial enterprises in general, and financial
institutions in particular.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights," which requires that a mortgage banking enterprise recognize
as a separate asset the right to service mortgage loans for others, regardless
of the manner in which such servicing rights are acquired. Moreover, this
statement requires that the total cost of acquiring mortgage loans be allocated
to the servicing rights and the loans based on their relative fair values, if
practicable. This standard is effective for fiscal years beginning after
December 15, 1995, but earlier implementation is encouraged. Management
implemented SFAS No. 122 beginning July 1, 1995. The impact upon the results of
operations of the Bank was not material.
During 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," which is
effective for the Company's fiscal year beginning January 1, 1997. SFAS 125
provides standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The impact of the adoption of
SFAS 125 upon the results of operations of the Company was not material.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which
is effective for the Company's fourth quarter and year ended December 31, 1997.
Early application is not permitted and after the effective date, prior period
earnings per share presented must be restated. SFAS No. 128 establishes new
standards for computing and presenting earnings per share. Specifically, SFAS
No. 128 replaces the presentation of primary earnings per share with basic
earnings per share, requires dual presentation for companies with complex
capital structures of basic and diluted earnings per share and requires a
reconciliation of the numerator and denominator of the basic earnings per share
computation to those of the diluted earnings per share computation. Management
has not determined the effect of the adoption of SFAS No. 128 on the Company's
financial statements, but does not expect it to be material.
LEGAL PROCEEDINGS
The Company is party to various legal proceedings in the ordinary course of
its business. Based on information presently available, management does not
believe that the ultimate outcome of such proceedings, in the aggregate, would
have a material adverse effect on the Company's financial position or results of
operations.
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MANAGEMENT
The table below sets forth the names and ages of the directors and
executive officers of the Company and the Bank, as well as the positions and
offices held by such persons. All of the Company's directors also serve on the
Bank's Board of Directors. The Company's and the Bank's directors are elected
for a one-year term.
<TABLE>
<CAPTION>
YEAR FIRST
BECAME A
NAME AGE POSITION DIRECTOR
- ---- --- -------- ----------
<S> <C> <C> <C>
John W. Sapanski............... 66 Chairman of the Board, Chief Executive Officer and 1993
President of the Company and the Bank
Fred Hemmer.................... 42 Director of the Bank, Senior Executive Vice 1986
President of the Bank
William R. Falzone............. 49 Treasurer of the Company and Executive Vice
President and Chief Financial Officer of the Bank
John W. Fischer, Jr............ 48 Executive Vice President of the Bank
Richard G. Gleitsman........... 43 Executive Vice President and Chief Administrative
Officer of the Bank
Kathleen A. Reinagel........... 45 Executive Vice President of the Bank
Steve McWhorter................ 35 Head of Mortgage Banking Division
William R. Hough............... 70 Director 1993
Marla Hough.................... 39 Director 1997
Alfred T. May.................. 58 Director 1993
William J. Morrison............ 64 Director 1980
</TABLE>
John W. Sapanski. Mr. Sapanski has been Chairman of the Board, Chief
Executive Officer and President of the Bank since June 1993 and Chairman of the
Board, Chief Executive Officer and President of the Company since March 1996. He
has 45 years of banking experience, including service with the Dime Savings Bank
in New York, New York from 1949 to 1987, where he served as President and Chief
Operating Officer from 1981 to 1987 and with Florida Federal Savings Bank in St.
Petersburg, Florida ("Florida Federal") from 1988 to 1991 where he acted as
President and Chief Executive Officer from 1988 to 1991. Mr. Sapanski was
President and Chief Executive Officer of Florida Federal at the time the Office
of Thrift Supervision placed Florida Federal in conservatorship. Mr. Sapanski
was retained by the Resolution Trust Corporation (the "RTC"), the conservator
for Florida Federal, to assist in managing the institution in conservatorship
until it was sold by the RTC to First Union Corporation in August 1991.
Fred Hemmer. Mr. Hemmer has served as Executive Vice President of the Bank
in charge of Corporate Banking and Special Assets since joining the Bank in
1991. He previously served as Executive Vice President of Rutenberg Corporation,
a real estate development company based in Clearwater, Florida, from 1980 to
1991. Mr. Hemmer is a certified public accountant and was employed by Arthur
Andersen & Co. from 1976 to 1980. Mr. Hemmer is also a licensed real estate
broker and certified general contractor.
William R. Falzone. Mr. Falzone has served as Treasurer of the Company
since March 1996 and Executive Vice President and Chief Financial Officer of the
Bank since February 1994. He was employed at Florida Federal from 1983 through
1991 where he served as Senior Vice President and Controller and as Director of
Financial Services. Most recently, he was a Senior Consultant for Stogniew and
Associates, a nationwide consulting firm. He has over 20 years of banking
experience and is also a certified public accountant.
John W. Fischer, Jr. Mr. Fischer has served as Executive Vice President of
the Bank in charge of Consumer Banking since December 1993. He has over 20 years
of banking experience in retail branch management and consumer and residential
lending. Mr. Fischer formerly served as Regional Marketing Director for Western
Reserve Life in Clearwater, Florida, Regional Vice President of Great Western
Bank in Miami and Executive Vice President/Consumer Financial Services for
Florida Federal. Mr. Fischer holds life, health, annuity and Series 7 securities
licenses.
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Richard C. Gleitsman. Mr. Gleitsman has served as Executive Vice President
and Chief Administrative Officer of the Bank since December 1993. He previously
served as Executive Vice President and Regional Manager of CrossLand since 1986.
He has over 25 years of banking experience in retail branch management, loan
servicing, human resources, data processing, and executive administration.
Kathleen A. Reinagel. Ms. Reinagel has served as Executive Vice President
of the Bank in charge of Credit and Loan Administration since August 1993. She
has over 20 years of experience in the lending field with a concentration in
credit and underwriting, loan documentation, due diligence and loan review. Ms.
Reinagel formerly served as Vice President of WRH Mortgage, Inc. ("WRH
Mortgage"), St. Petersburg, Florida, a mortgage banking company affiliated with
William R. Hough & Co., and Vice President, Department Manager of Commercial
Real Estate of Florida Federal.
Steve McWhorter. Mr. McWhorter has served as Division Director in charge
of the Company's mortgage banking division since April 1996, having previously
served as Regional Manager of FT Mortgage Company since 1992. He has over 14
years of experience in the mortgage banking industry.
William R. Hough. Mr. Hough has served as Chairman of William R. Hough &
Co., St. Petersburg, Florida, an investment banking firm specializing in state,
county and municipal bonds, since 1962, President of WRH Mortgage, Inc., St.
Petersburg, Florida, since May 1993, Director of FFO since 1993 and President of
Royal Palm Center, II, Inc., Port Charlotte, Florida, a privately-held
retirement center, since September 1991.
Marla Hough. Mrs. Hough has served as President of Hough Engineering,
Inc., an engineering consulting firm, Bradenton, Florida, since from March 1997
and Vice President of Bishop & Associates, Bradenton, Florida, an engineering,
planning and surveying firm, since 1992. From 1984 to 1992, Mrs. Hough served as
Project Manager at Zoller, Najjar and Shroyer, Inc., an engineering, planning,
surveying and landscape architecture firm, Bradenton, Florida. Mrs. Hough is
married to a cousin of William R. Hough.
Alfred T. May. Mr. May has served as Director and Chairman of the Board of
FFO and its subsidiary, First Federal, since September 1993. From 1989 to 1992,
Mr. May served as President of Mid-State Federal Savings Bank, Ocala, Florida.
William J. Morrison. Mr. Morrison has served as Senior Partner of Morrison
& Company, P.A., Tampa, Florida, a certified public accounting firm, since 1995,
as General Partner of Best-Morrison Properties, Tampa, Florida, a real estate
investment firm since 1975 and as Managing Partner of Morrison Investments, Ltd.
Tampa, Florida, a real estate and securities investment firm, since 1991.
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the Trust
Agreement. The Trust Agreement will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee, Wilmington Trust Company, will act as
indenture trustee for the Preferred Securities under the Trust Agreement for
purposes of complying with the provisions of the Trust Indenture Act. The terms
of the Preferred Securities will include those stated in the Trust Agreement and
those made part of the Trust Agreement by the Trust Indenture Act. The following
summary of the material terms and provisions of the Preferred Securities and the
Trust Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Trust Agreement, the Delaware
Business Trust Act (the "Trust Act"), and the Trust Indenture Act. Wherever
particular defined terms of the Trust Agreement are referred to, but not defined
herein, such defined terms are incorporated herein by reference. The form of the
Trust Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
GENERAL
Pursuant to the terms of the Trust Agreement, the Trustees, on behalf of
RBI Capital, will issue the Trust Securities. All of the Common Securities will
be owned by the Company. The Preferred Securities will represent preferred
undivided beneficial interests in the assets of RBI Capital, and the holders
thereof will be entitled to a preference in certain circumstances with respect
to Distributions and amounts payable on
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redemption or liquidation over the Common Securities, as well as other benefits
as described in the Trust Agreement. The Trust Agreement does not permit the
issuance by RBI Capital of any securities other than the Trust Securities or the
incurrence of any indebtedness by RBI Capital.
The Preferred Securities will rank pari passu, and payments will be made
thereon pro rata with the Common Securities, except as described under
"-- Subordination of Common Securities." Legal title to the Junior Subordinated
Debentures will be held by the Property Trustee in trust for the benefit of the
holders of the Trust Securities. The Guarantee executed by the Company for the
benefit of the holders of the Preferred Securities will be a guarantee on a
subordinated basis with respect to the Preferred Securities, but will not
guarantee payment of Distributions or amounts payable on redemption or
liquidation of such Preferred Securities when RBI Capital does not have funds on
hand available to make such payments. Wilmington Trust Company, as Guarantee
Trustee, will hold the Guarantee for the benefit of the holders of the Preferred
Securities. See "Description of the Guarantee."
DISTRIBUTIONS
Payment of Distributions. Distributions on each Preferred Security will be
payable at the annual rate of 9.10% of the stated Liquidation Amount of $10,
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year, to the holders of the Preferred Securities on the relevant record
dates (each date on which Distributions are payable in accordance with the
foregoing, a "Distribution Date"). The record date will be the 15th day of the
month in which the relevant Distribution Date occurs. Distributions will
accumulate from the date of original issuance. The first Distribution Date for
the Preferred Securities will be September 30, 1997. The amount of Distributions
payable for any period will be computed on the basis of a 360-day year of twelve
30-day months. In the event that any date on which Distributions are payable on
the Preferred Securities is not a Business Day (as defined herein), then payment
of the Distributions payable on such date will be made on the next succeeding
day that is a Business Day (and without any additional Distributions, interest
or other payment in respect of any such delay) with the same force and effect as
if made on the date such payment was originally due and payable. "Business Day"
means any day other than a Saturday or a Sunday, a day on which banking
institutions in the City of New York are authorized or required by law or
executive order to remain closed or a day on which the corporate trust office of
the Property Trustee or the Debenture Trustee is closed for business.
Extension of Interest Payment Period. The Company has the right under the
Indenture, so long as no Debenture Event of Default has occurred and is
continuing, to defer the payment of interest on the Junior Subordinated
Debentures at any time, or from time to time (each, an "Extended Interest
Payment Period"), which, if exercised, would result in quarterly Distributions
on the Preferred Securities also being deferred during any such Extended
Interest Payment Period. Distributions to which holders of the Preferred
Securities are entitled will accumulate additional Distributions thereon at the
rate per annum of 9.10% thereof, compounded quarterly from the relevant
Distribution Date. The term "Distributions," as used herein, includes any such
additional Distributions. The right to defer the payment of interest on the
Junior Subordinated Debentures is limited, however, to a period, in each
instance, not exceeding 20 consecutive quarters, and no Extended Interest
Payment Period may extend beyond the Stated Maturity of the Junior Subordinated
Debentures. During any such Extended Interest Payment Period, the Company may
not (i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock (other than (a) the reclassification of any class of the Company's
capital stock into another class of capital stock, (b) dividends or
distributions payable in any class of the Company's common stock, (c) any
declaration of a dividend in connection with the implementation of a shareholder
rights plan, or the issuance of stock under any such plan in the future, or the
redemption or repurchase of any such rights pursuant thereto and (d) purchases
of the Company's common stock related to the rights under any of the Company's
benefit plans for its or its subsidiaries' directors, officers or employees),
(ii) make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu
with or junior in interest to the Junior Subordinated Debentures or make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari passu
with or junior in interest to the Junior Subordinated
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Debentures (other than payments under the Guarantee), or (iii) redeem, purchase
or acquire less than all of the Junior Subordinated Debentures or any of the
Preferred Securities. Prior to the termination of any such Extended Interest
Payment Period, the Company may further defer the payment of interest; provided
that such Extended Interest Payment Period may not exceed 20 consecutive
quarters or extend beyond the Stated Maturity of the Junior Subordinated
Debentures. Upon the termination of any such Extended Interest Payment Period
and the payment of all amounts then due, the Company may elect to begin a new
Extended Interest Payment Period, subject to the above requirements. Subject to
the foregoing, there is no limitation on the number of times that the Company
may elect to begin an Extended Interest Payment Period.
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
Source of Distribution. The funds of RBI Capital available for
Distributions to holders of its Preferred Securities will be limited to payments
received from the Junior Subordinated Debentures in which RBI Capital will
invest the proceeds from the issuance and sale of its Trust Securities. See
"Description of the Junior Subordinated Debentures." Distributions will be paid
through the Property Trustee who will hold amounts received in respect of the
Junior Subordinated Debentures in the Property Account for the benefit of the
holders of the Trust Securities. If the Company does not make interest payments
on the Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Preferred Securities. The payment of
Distributions (but only if and to the extent RBI Capital has funds legally
available for the payment of such Distributions and cash sufficient to make such
payments) is guaranteed by the Company. See "Description of the Guarantee."
Distributions on the Preferred Securities will be payable to the holders thereof
as they appear on the register of holders of the Preferred Securities on the
relevant record dates, which will be the 15th day of the month in which the
relevant Distribution Date occurs.
REDEMPTION OR EXCHANGE
General. The Junior Subordinated Debentures will mature on June 30, 2027,
the Stated Maturity. The Company will have the right to redeem the Junior
Subordinated Debentures (i) on or after June 30, 2002, in whole at any time or
in part from time to time, or (ii) at any time, in whole (but not in part),
within 180 days following the occurrence of a Tax Event, an Investment Company
Event or a Capital Treatment Event, in each case subject to prior Federal
Reserve approval, if then required under applicable Federal Reserve capital
guidelines or policies. Subject to the foregoing events, the Company will not
have the right to purchase the Junior Subordinated Debentures, in whole or in
part, from RBI Capital until after June 30, 2002. See "Description of the Junior
Subordinated Debentures -- General."
Mandatory Redemption. Upon the repayment or redemption, in whole or in
part, of any Junior Subordinated Debentures, whether at the Stated Maturity or
upon earlier redemption as provided in the Indenture, the proceeds from such
repayment or redemption will be applied by the Property Trustee to redeem a Like
Amount (as defined herein) of the Trust Securities, upon not less than 30 nor
more than 60 days notice, at a redemption price (the "Redemption Price") equal
to the aggregate Liquidation Amount of such Trust Securities plus accumulated
but unpaid Distributions thereon to the date of redemption (the "Redemption
Date"). See "Description of the Junior Subordinated Debentures -- Redemption or
Exchange." If less than all of the Junior Subordinated Debentures are to be
repaid or redeemed on a Redemption Date, then the proceeds from such repayment
or redemption will be allocated to the redemption of the Trust Securities pro
rata.
Distribution of Junior Subordinated Debentures. Subject to the Company
having received prior Federal Reserve approval, if then required under
applicable Federal Reserve capital guidelines or policies, the Company, as
holder of the Common Securities, will have the right at any time to dissolve,
wind-up or terminate RBI Capital and, after satisfaction of the liabilities of
creditors of RBI Capital as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of Trust Securities in
liquidation of RBI Capital. See "-- Liquidation Distribution Upon Termination."
Tax Event Redemption, Investment Company Event Redemption or Capital
Treatment Event Redemption. If a Tax Event, an Investment Company Event or a
Capital Treatment Event occurs and is continuing,
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the Company has the right to redeem the Junior Subordinated Debentures in whole
(but not in part) and thereby cause a mandatory redemption of the Trust
Securities in whole (but not in part) at the Redemption Price within 180 days
following the occurrence of such Tax Event, Investment Company Event or Capital
Treatment Event. In the event a Tax Event, an Investment Company Event or a
Capital Treatment Event in respect of the Trust Securities has occurred and the
Company does not elect to redeem the Junior Subordinated Debentures and thereby
cause a mandatory redemption of the Trust Securities or to liquidate RBI Capital
and cause the Junior Subordinated Debentures to be distributed to holders of
such Trust Securities in liquidation of RBI Capital as described below under
"-- Liquidation Distribution Upon Termination," such Preferred Securities will
remain outstanding and Additional Interest (as defined herein) may be payable on
the Junior Subordinated Debentures.
"Additional Interest" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by RBI Capital on
the outstanding Trust Securities will not be reduced as a result of any
additional taxes, duties and other governmental charges to which RBI Capital has
become subject as a result of a Tax Event.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to that portion of the
principal amount of Junior Subordinated Debentures to be contemporaneously
redeemed in accordance with the Indenture, which will be used to pay the
Redemption Price of such Trust Securities, and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities in
connection with a dissolution or liquidation of RBI Capital, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the holder to whom such Junior Subordinated Debentures are
distributed. Each Junior Subordinated Debenture distributed pursuant to clause
(ii) above will carry with it accumulated interest in an amount equal to the
accumulated and unpaid interest then due on such Junior Subordinated Debentures.
"Liquidation Amount" means the stated amount of $10 per Trust Security.
There can be no assurance as to the market prices of the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a dissolution and liquidation of RBI
Capital were to occur. The Preferred Securities that an investor may purchase,
or the Junior Subordinated Debentures that an investor may receive on
dissolution and liquidation of RBI Capital, may trade at a discount to the price
that the investor paid to purchase the Preferred Securities offered hereby.
Redemption Procedures. Preferred Securities redeemed on each Redemption
Date will be redeemed at the Redemption Price with the applicable proceeds from
the contemporaneous redemption of the Junior Subordinated Debentures.
Redemptions of the Preferred Securities will be made and the Redemption Price
will be payable on each Redemption Date only to the extent that RBI Capital has
funds on hand available for the payment of such Redemption Price. See
"-- Subordination of Common Securities."
If RBI Capital gives a notice of redemption in respect of its Preferred
Securities, then, by 12:00 noon, eastern standard time, on the Redemption Date,
to the extent funds are available, the Property Trustee will irrevocably deposit
with the paying agent for the Preferred Securities funds sufficient to pay the
aggregate Redemption Price and will give the paying agent for the Preferred
Securities irrevocable instructions and authority to pay the Redemption Price to
the holders thereof upon surrender of their certificates evidencing such
Preferred Securities. Notwithstanding the foregoing, Distributions payable on or
prior to the Redemption Date for any Preferred Securities called for redemption
will be payable to the holders of such Preferred Securities on the relevant
record dates for the related Distribution Dates. If notice of redemption shall
have been given and funds deposited as required, then upon the date of such
deposit, all rights of the holders of such Preferred Securities so called for
redemption will cease, except the right of the holders of such Preferred
Securities to receive the Redemption Price, but without interest on such
Redemption Price, and such Preferred Securities will cease to be outstanding. In
the event that any date fixed for redemption of Preferred Securities is not a
Business Day, then payment of the Redemption Price payable on such date will be
made on the next succeeding day which is a Business Day (and without any
additional Distribution, interest or other payment in respect of any such delay)
with the same force and effect as if made on such date. In the event that
payment of the Redemption Price in respect of Preferred Securities called for
redemption is improperly
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withheld or refused and not paid either by RBI Capital or by the Company
pursuant to the Guarantee, Distributions on such Preferred Securities will
continue to accrue at the then applicable rate, from the Redemption Date
originally established by RBI Capital for such Preferred Securities to the date
such Redemption Price is actually paid, in which case the actual payment date
will be considered the date fixed for redemption for purposes of calculating the
Redemption Price. See "Description of the Guarantee."
Subject to applicable law (including, without limitation, United States
federal securities law) and, further provided, that the Company has not and is
not continuing to exercise its right to defer interest payments, the Company or
its subsidiaries may at any time and from time to time purchase outstanding
Preferred Securities by tender, in the open market or by private agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of Junior Subordinated Debentures to holders of Preferred
Securities will be made to the applicable recordholders thereof as they appear
on the register for the Preferred Securities on the relevant record date, which
date will be the date 15 days prior to the Redemption Date or liquidation date,
as applicable.
If less than all of the Trust Securities are to be redeemed on a Redemption
Date, then the aggregate Liquidation Amount of such Trust Securities to be
redeemed will be allocated pro rata to the Trust Securities based upon the
relative Liquidation Amounts of such classes. The particular Preferred
Securities to be redeemed will be selected by the Property Trustee from the
outstanding Preferred Securities not previously called for redemption, by such
method as the Property Trustee deems fair and appropriate and which may provide
for the selection for redemption of portions (equal to $10 or an integral
multiple of $10 in excess thereof) of the Liquidation Amount of Preferred
Securities of a denomination larger than $10. The Property Trustee will promptly
notify the registrar for the Preferred Securities in writing of the Preferred
Securities selected for redemption and, in the case of any Preferred Securities
selected for partial redemption, the Liquidation Amount thereof to be redeemed.
For all purposes of the Trust Agreement, unless the context otherwise requires,
all provisions relating to the redemption of Preferred Securities will relate to
the portion of the aggregate Liquidation Amount of Preferred Securities which
has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Trust Securities to be
redeemed at its registered address. Unless the Company defaults in payment of
the redemption price on the Junior Subordinated Debentures, on and after the
Redemption Date, interest will cease to accrue on such Junior Subordinated
Debentures or portions thereof (and Distributions will cease to accrue on the
related Preferred Securities or portions thereof) called for redemption.
Subordination of Common Securities. Payment of Distributions on, and the
Redemption Price of, the Preferred Securities and Common Securities, as
applicable, will be made pro rata based on the Liquidation Amount of the
Preferred Securities and Common Securities; provided, however, that if on any
Distribution Date or Redemption Date a Debenture Event of Default has occurred
and is continuing, no payment of any Distribution on, or Redemption Price of,
any of the Common Securities, and no other payment on account of the redemption,
liquidation or other acquisition of such Common Securities, will be made unless
payment in full in cash of all accumulated and unpaid Distributions on all of
the outstanding Preferred Securities for all Distribution periods terminating on
or prior thereto, or in the case of payment of the Redemption Price the full
amount of such Redemption Price on all of the outstanding Preferred Securities
then called for redemption, will have been made or provided for, and all funds
available to the Property Trustee will first be applied to the payment in full
in cash of all Distributions on, or Redemption Price of, the Preferred
Securities then due and payable.
In the case of any Event of Default (as defined herein) resulting from a
Debenture Event of Default, the Company, as holder of the Common Securities,
will be deemed to have waived any right to act with respect to any such Event of
Default under the Trust Agreement until the effect of all such Events of Default
with respect to the Preferred Securities have been cured, waived or otherwise
eliminated. Until any such Events of Default under the Trust Agreement with
respect to the Preferred Securities has been so cured, waived or otherwise
eliminated, the Property Trustee will act solely on behalf of the holders of the
Preferred Securities
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and not on behalf of the Company, as holder of the Common Securities, and only
the holders of the Preferred Securities will have the right to direct the
Property Trustee to act on their behalf.
Liquidation Distribution Upon Termination. The Company will have the right
at any time to dissolve, wind-up or terminate RBI Capital and cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities. Such right is subject, however, to the Company having received prior
Federal Reserve approval, if then required under applicable Federal Reserve
capital guidelines or policies.
Pursuant to the Trust Agreement, RBI Capital will automatically terminate
upon expiration of its term and will terminate earlier on the first to occur of
(i) certain events of bankruptcy, dissolution or liquidation of the Company,
(ii) the distribution of a Like Amount of the Junior Subordinated Debentures to
the holders of its Trust Securities, if the Company, as depositor, has given
written direction to the Property Trustee to terminate RBI Capital (which
direction is optional and wholly within the discretion of the Company, as
depositor), (iii) redemption of all of the Preferred Securities as described
under "Description of the Preferred Securities -- Redemption or
Exchange -- Mandatory Redemption," or (iv) the entry of an order for the
dissolution of RBI Capital by a court of competent jurisdiction.
If an early termination occurs as described in clause (i), (ii) or (iv) of
the preceding paragraph, RBI Capital will be liquidated by the Trustees as
expeditiously as the Trustees determine to be possible by distributing, after
satisfaction of liabilities to creditors of RBI Capital as provided by
applicable law, to the holders of such Trust Securities a Like Amount of the
Junior Subordinated Debentures, unless such distribution is determined by the
Property Trustee not to be practical, in which event such holders will be
entitled to receive out of the assets of RBI Capital available for distribution
to holders, after satisfaction of liabilities to creditors of RBI Capital as
provided by applicable law, an amount equal to, in the case of holders of
Preferred Securities, the aggregate of the Liquidation Amount plus accrued and
unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because RBI Capital has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by RBI
Capital on the Preferred Securities will be paid on a pro rata basis. The
Company, as the holder of the Common Securities, will be entitled to receive
distributions upon any such liquidation pro rata with the holders of the
Preferred Securities, except that, if a Debenture Event of Default has occurred
and is continuing, the Preferred Securities will have a priority over the Common
Securities. See "-- Subordination of Common Securities."
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures (i) the Preferred Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the registered holder of Preferred
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Preferred Securities held by DTC or its nominee,
and (iii) any certificates representing the Preferred Securities not held by DTC
or its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the
Preferred Securities and bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid Distributions on the Preferred Securities until
such certificates are presented to the security registrar for the Preferred
Securities for transfer or reissuance.
Under current United States federal income tax law and interpretations and
assuming, as expected, that RBI Capital is treated as a grantor trust, a
distribution of the Junior Subordinated Debentures should not be a taxable event
to holders of the Preferred Securities. Should there be a change in law, a
change in legal interpretation, a Tax Event or other circumstances, however, the
distribution could be a taxable event to holders of the Preferred Securities.
See "Certain Federal Income Tax Consequences -- Receipt of Junior Subordinated
Debentures or Cash Upon Liquidation of RBI Capital."
If the Company elects neither to redeem the Junior Subordinated Debentures
prior to maturity nor to liquidate RBI Capital and distribute the Junior
Subordinated Debentures to holders of the Preferred Securities, the Preferred
Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures. If the Company elects to liquidate RBI Capital and
thereby causes the Junior Subordinated Debentures to be distributed to holders
of the Preferred Securities in liquidation of RBI Capital, the Company
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will continue to have the right to shorten the maturity of such Junior
Subordinated Debentures, subject to certain conditions. See "Description of the
Junior Subordinated Debentures -- General."
Liquidation Value. The amount of the Liquidation Distribution payable on
the Preferred Securities in the event of any liquidation of RBI Capital is $10
per Preferred Security plus accrued and unpaid Distributions thereon to the date
of payment, which may be in the form of a distribution of such amount in Junior
Subordinated Debentures with a like amount of accrued interest, subject to
certain exceptions. See "-- Liquidation Distribution Upon Termination."
Events of Default; Notice. Any one of the following events constitutes an
event of default under the Trust Agreement (an "Event of Default") with respect
to the Preferred Securities (whatever the reason for such Event of Default and
whether voluntary or involuntary or effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description
of the Junior Subordinated Debentures -- Debenture Events of Default"); or
(ii) default by RBI Capital in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period of
30 days; or
(iii) default by RBI Capital in the payment of any Redemption Price of
any Trust Security when it becomes due and payable: or
(iv) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Trustee(s) in the Trust Agreement (other
than a covenant or warranty, a default in the performance of which or the
breach of which is dealt with in clauses (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Trustee(s) by the
holders of at least 25% in aggregate Liquidation Amount of the outstanding
Preferred Securities, a written notice specifying such default or breach
and requiring it to be remedied and stating that such notice is a "Notice
of Default" under the Trust Agreement: or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Company to appoint a
successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of the Preferred Securities, the
Administrative Trustees and the Company, as depositor, unless such Event of
Default has been cured or waived. The Company, as depositor, and the
Administrative Trustees are required to file annually with the Property Trustee
a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Preferred Securities will have a preference over the Common Securities upon
termination of RBI Capital. See "-- Liquidation Distribution Upon Termination."
The existence of an Event of Default does not entitle the holders of Preferred
Securities to accelerate the maturity thereof.
Removal of RBI Capital Trustee. Unless a Debenture Event of Default has
occurred and is continuing, any Trustee may be removed at any time by the holder
of the Common Securities. If a Debenture Event of Default has occurred and is
continuing, the Property Trustee and the Delaware Trustee may be removed by the
holders of a majority in Liquidation Amount of the outstanding Preferred
Securities. In no event, however, will the holders of the Preferred Securities
have the right to vote to appoint, remove or replace the Administrative
Trustees, which voting rights are vested exclusively in the Company as the
holder of the Common Securities. No resignation or removal of a Trustee and no
appointment of a successor trustee will be effective until the acceptance of
appointment by the successor trustee in accordance with the provisions of the
Trust Agreement.
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Co-Trustees and Separate Property Trustee. Unless an Event of Default has
occurred and is continuing, at any time or times, for the purpose of meeting the
legal requirements of the Trust Indenture Act or of any jurisdiction in which
any part of the Trust Property (as defined in the Trust Agreement) may at the
time be located, the Company, as the holder of the Common Securities, will have
power to appoint one or more Persons (as defined in the Trust Agreement) either
to act as a co-trustee, jointly with the Property Trustee, of all or any part of
such Trust Property, or to act as separate trustee of any such Trust Property,
in either case with such powers as may be provided in the instrument of
appointment, and to vest in such Person or Persons in such capacity any
property, title, right or power deemed necessary or desirable, subject to the
provisions of the Trust Agreement. In case a Debenture Event of Default has
occurred and is continuing, the Property Trustee alone will have power to make
such appointment.
Merger or Consolidation of Trustees. Any Person into which the Property
Trustee, the Delaware Trustee or any Administrative Trustee that is not a
natural person may be merged or converted or with which it may be consolidated,
or any Person resulting from any merger, conversion or consolidation to which
such Trustee is a party, or any Person succeeding to all or substantially all
the corporate trust business of such Trustee, will be the successor of such
Trustee under the Trust Agreement, provided such Person is otherwise qualified
and eligible.
Mergers, Consolidations, Amalgamations or Replacements of RBI Capital. RBI
Capital may not merge with or into, consolidate, amalgamate, or be replaced by,
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, except as described below. RBI Capital may, at the
request of the Company, with the consent of the Administrative Trustees, which
consent may not be unreasonably withheld and without the consent of the holders
of the Preferred Securities, the Property Trustee or the Delaware Trustee, merge
with or into, consolidate, amalgamate, or be replaced by or convey, transfer or
lease its properties and assets substantially as an entirety to a trust
organized as such under the laws of any State; provided, that (i) such successor
entity either (a) expressly assumes all of the obligations of RBI Capital with
respect to the Preferred Securities, or (b) substitutes for the Preferred
Securities other securities having substantially the same terms as the Preferred
Securities (the "Successor Securities") so long as the Successor Securities rank
the same as the Preferred Securities rank in priority with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) the
Company expressly appoints a trustee of such successor entity possessing the
same powers and duties as the Property Trustee in its capacity as the holder of
the Junior Subordinated Debentures, (iii) the Successor Securities are listed,
or any Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the Preferred
Securities are then listed (including, if applicable, Nasdaq's National Market),
if any, (iv) such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the Preferred Securities (including any Successor
Securities) in any material respect, (v) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Company has
received an opinion from independent counsel to the effect that (a) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders of the
Preferred Securities (including any Successor Securities) in any material
respect, and (b) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither RBI Capital nor such
successor entity will be required to register as an "investment company" under
the Investment Company Act, and (vi) the Company owns all of the common
securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee. Notwithstanding the foregoing, RBI Capital will not, except
with the consent of holders of 100% in Liquidation Amount of the Preferred
Securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to any other Person or permit any other Person to consolidate, amalgamate, merge
with or into, or replace it if such consolidation, amalgamation, merger,
replacement, conveyance, transfer or lease would cause RBI Capital or the
successor entity to be classified as other than a grantor trust for United
States federal income tax purposes.
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Voting Rights; Amendment of Trust Agreement. Except as provided below and
under "Description of the Guarantee -- Amendments and Assignment" and as
otherwise required by the Trust Act and the Trust Agreement, the holders of the
Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Preferred Securities (i) with respect to acceptance of
appointment by a successor trustee, (ii) to cure any ambiguity, correct or
supplement any provisions in such Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters or
questions arising under the Trust Agreement (provided such amendment is not
inconsistent with the other provisions of the Trust Agreement), or (iii) to
modify, eliminate or add to any provisions of the Trust Agreement to such extent
as is necessary to ensure that RBI Capital will be classified for United States
federal income tax purposes as a grantor trust at all times that any Trust
Securities are outstanding or to ensure that RBI Capital will not be required to
register as an "investment company" under the Investment Company Act; provided,
however, that in the case of clause (ii), such action may not adversely affect
in any material respect the interests of any holder of Trust Securities, and any
amendments of such Trust Agreement will become effective when notice thereof is
given to the holders of Trust Securities. The Trust Agreement may otherwise be
amended by the Trustees and the Company with (i) the consent of holders
representing not less than a majority in the aggregate Liquidation Amount of the
outstanding Trust Securities, and (ii) receipt by the Trustees of an opinion of
counsel to the effect that such amendment or the exercise of any power granted
to the Trustees in accordance with such amendment will not affect RBI Capital's
status as a grantor trust for United States federal income tax purposes or RBI
Capital's exemption from status as an "investment company" under the Investment
Company Act. Notwithstanding anything in this paragraph to the contrary, without
the consent of each holder of Trust Securities, the Trust Agreement may not be
amended to (a) change the amount or timing of any Distribution on the Trust
Securities or otherwise adversely affect the amount of any Distribution required
to be made in respect of the Trust Securities as of a specified date, or (b)
restrict the right of a holder of Trust Securities to institute suit for the
enforcement of any such payment on or after such date.
The Trustees will not, so long as any Junior Subordinated Debentures are
held by the Property Trustee, (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
executing any trust or power conferred on the Property Trustee with respect to
the Junior Subordinated Debentures, (ii) waive any past default that is waivable
under the Indenture, (iii) exercise any right to rescind or annul a declaration
that the principal of all the Junior Subordinated Debentures will be due and
payable, or (iv) consent to any amendment, modification or termination of the
Indenture or the Junior Subordinated Debentures, where such consent is required,
without, in each case, obtaining the prior approval of the holders of a majority
in aggregate Liquidation Amount of all outstanding Preferred Securities;
provided, however, that where a consent under the Indenture requires the consent
of each holder of Junior Subordinated Debentures affected thereby, no such
consent will be given by the Property Trustee without the prior consent of each
holder of the Preferred Securities. The Trustees may not revoke any action
previously authorized or approved by a vote of the holders of the Preferred
Securities except by subsequent vote of the holders of the Preferred Securities.
The Property Trustee will notify each holder of Preferred Securities of any
notice of default with respect to the Junior Subordinated Debentures. In
addition to obtaining the foregoing approvals of the holders of the Preferred
Securities, prior to taking any of the foregoing actions, the Trustees must
obtain an opinion of counsel experienced in such matters to the effect that RBI
Capital will not be classified as an association taxable as a corporation for
United States federal income tax purposes on account of such action.
Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be given
to each holder of record of Preferred Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
for RBI Capital to redeem and cancel its Preferred Securities in accordance with
the Trust Agreement.
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Notwithstanding the fact that holders of Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Company, the Trustees or any
affiliate of the Company or any Trustee, will, for purposes of such vote or
consent, be treated as if they were not outstanding.
Book Entry, Delivery and Form. The Preferred Securities will be issued in
the form of one or more fully registered global securities that will be
deposited with, or on behalf of, DTC and registered in the name of DTC's
nominee. Unless and until it is exchangeable in whole or in part for the
Preferred Securities in definitive form, a global security may not be
transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC
to DTC or another nominee of DTC or by DTC or any such nominee to a successor of
such Depository or a nominee of such successor.
Ownership of beneficial interests in a global security will be limited to
persons that have accounts with DTC or its nominee ("Participants") or persons
that may hold interests through Participants. The Company expects that, upon the
issuance of a global security, DTC will credit, on its book-entry registration
and transfer system, the Participants' accounts with their respective principal
amounts of the Preferred Securities represented by such global security.
Ownership of beneficial interests in such global security will be shown on, and
the transfer of such ownership interest will be effected only through, records
maintained by DTC (with respect to interests of Participants). Beneficial owners
will not receive written confirmation from DTC of their purchase, but are
expected to receive written confirmations from the Participants through which
the beneficial owner entered into the transaction. Transfers of ownership
interests will be accomplished by entries on the books of Participants acting on
behalf of the beneficial owners.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Preferred Securities represented by such global security
for all purposes under the Junior Subordinated Indenture. Except as provided
below, owners of beneficial interests in a global security will not be entitled
to receive physical delivery of the Preferred Securities in definitive form and
will not be considered the owners or holders thereof under the Indenture.
Accordingly, each person owning a beneficial interest in such a global security
must rely on the procedures of DTC and, if such person is not a Participant, on
the procedures of the Participant through which such person owns its interest,
to exercise any rights of a holder of Preferred Securities under the Indenture.
The Company understands that, under DTC's existing practices, in the event that
the Company requests any action of holders, or an owner of a beneficial interest
in such a global security desires to take any action which a holder is entitled
to take under the Junior Subordinated Indenture, DTC would authorize the
Participants holding the relevant beneficial interest to take such action, and
such Participants would authorize beneficial owners owning through such
Participants to take such action or would otherwise act upon the instructions of
beneficial owners owning through them. Redemption notices will also be sent to
DTC. If less than all of the Preferred Securities are being redeemed, the
Company understands that it is DTC's existing practice to determine by lot the
amount of the interest of each Participant to be redeemed.
Distributions on the Preferred Securities registered in the name of DTC or
its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the global security representing such Preferred Securities.
None of the Company, the Trustees, any Paying Agent or any other agent of the
Company or the Trustees will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interest in the global security for such Preferred Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests. Disbursements of Distributions to Participants shall be the
responsibility of DTC. DTC's practice is to credit Participants' accounts on a
payable date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payment on the payable
date. Payments by Participants to beneficial owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such Participant and not of DTC, the Company, the
Trustees, the Paying Agent or any other agent of the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
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DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving reasonable notice to
the Company or the Trustees. If DTC notifies the Company that it is unwilling to
continue as such, or if it is unable to continue or ceases to be a clearing
agency registered under the Exchange Act and a successor depository is not
appointed by the Company within ninety days after receiving such notice or
becoming aware that DTC is no longer so registered, the Company will issue the
Preferred Securities in definitive form upon registration of transfer of, or in
exchange for, such global security. In addition, the Company may at any time and
in its sole discretion determine not to have the Preferred Securities
represented by one or more global securities and, in such event, will issue
Preferred Securities in definitive form in exchange for all of the global
securities representing such Preferred Securities.
DTC has advised the Company and RBI Capital as follows: DTC is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve, a "clearing corporation" within the meaning of
the Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book entry
changes to accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Certain of such Participants (or their
representatives), together with other entities, own DTC. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through, or maintain a custodial relationship with a
Participant, either directly or indirectly.
Same-Day Settlement and Payment. Settlement for the Preferred Securities
will be made by the Underwriters in immediately available funds.
Secondary trading in Preferred Securities of corporate issuers is generally
settled in clearinghouse or next-day funds. In contrast, the Preferred
Securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in the Preferred Securities will therefore be required
by DTC to settle in immediately available funds. No assurance can be given as to
the effect, if any, of settlement in immediately available funds on trading
activity in the Preferred Securities.
Payment and Paying Agent. Payments in respect of the Preferred Securities
will be made to DTC, which will credit the relevant accounts at DTC on the
applicable Distribution Dates or, if the Preferred Securities are not held by
DTC, such payments will be made by check mailed to the address of the holder
entitled thereto as such address appears on the securities register for the
Trust Securities. The paying agent (the "Paying Agent") will initially be the
Property Trustee and any co-paying agent chosen by the Property Trustee and
acceptable to the Administrative Trustees. The Paying Agent will be permitted to
resign as Paying Agent upon 30 days' written notice to the Property Trustee and
the Administrative Trustees. If the Property Trustee is no longer the Paying
Agent, the Property Trustee will appoint a successor (which must be a bank or
trust company reasonably acceptable to the Administrative Trustees) to act as
Paying Agent.
Registrar and Transfer Agent. The Property Trustee will act as the
registrar and the transfer agent for the Preferred Securities. Registration of
transfers of Preferred Securities will be effected without charge by or on
behalf of RBI Capital, except for the payment of any tax or other governmental
charges that may be imposed in connection with any transfer or exchange. In the
event of any redemption, RBI Capital will not be required to (i) issue, register
the transfer of or exchange any Preferred Securities during a period beginning
at the opening of business 15 days before the date of mailing of a notice of
redemption of any Preferred Securities called for redemption and ending at the
close of business on the day of such mailing; or (ii) register the transfer of
or exchange any Preferred Securities so selected for redemption, in whole or in
part, except the unredeemed portion of any such Preferred Securities being
redeemed in part.
Information Concerning the Property Trustee. The Property Trustee, other
than upon the occurrence and during the continuance of an Event of Default,
undertakes to perform only such duties as are specifically set forth in the
Trust Agreement and, after such Event of Default, must exercise the same degree
of care and skill as a prudent person would exercise or use in the conduct of
his or her own affairs. Subject to this provision, the Property Trustee is under
no obligation to exercise any of the powers vested in it by the Trust
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Agreement at the request of any holder of Preferred Securities, unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby. If no Event of Default has occurred and is continuing
and the Property Trustee is required to decide between alternative causes of
action, construe ambiguous provisions in the Trust Agreement or is unsure of the
application of any provision of the Trust Agreement, and the matter is not one
on which holders of Preferred Securities are entitled under the Trust Agreement
to vote, then the Property Trustee will take such action as is directed by the
Company and if not so directed, will take such action as it deems advisable and
in the best interests of the holders of the Trust Securities and will have no
liability except for its own bad faith, negligence or willful misconduct.
Miscellaneous. The Administrative Trustees are authorized and directed to
conduct the affairs of and to operate RBI Capital in such a way that RBI Capital
will not be deemed to be an "investment company" required to be registered under
the Investment Company Act or classified as an association taxable as a
corporation for United States federal income tax purposes and so that the Junior
Subordinated Debentures will be treated as indebtedness of the Company for
United States federal income tax purposes. In this connection, the Company and
the Administrative Trustees are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of RBI Capital or the Trust
Agreement, that the Company and the Administrative Trustees determine in their
discretion to be necessary or desirable for such purposes.
Holders of the Preferred Securities have no preemptive or similar rights.
The Trust Agreement and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Concurrently with the issuance of the Preferred Securities, RBI Capital
will invest the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in the Junior Subordinated Debentures issued
by the Company. The Junior Subordinated Debentures will be issued as unsecured
debt under the Indenture, to be dated as of July 31, 1997 (the "Indenture"),
between the Company and Wilmington Trust Company, as trustee (the "Debenture
Trustee"). The Indenture will be qualified as an indenture under the Trust
Indenture Act. The following summary of the material terms and provisions of the
Junior Subordinated Debentures and the Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the
Indenture and to the Trust Indenture Act. Wherever particular defined terms of
the Indenture are referred to, but not defined herein, such defined terms are
incorporated herein by reference. The form of the Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
General. The Junior Subordinated Debentures will be limited in aggregate
principal amount to approximately $25,773,200 (or $29,639,180 if the
Underwriters' over-allotment option is exercised in full by the Underwriters),
such amount being the sum of the aggregate stated Liquidation Amount of the
Trust Securities. The Junior Subordinated Debentures will bear interest at the
annual rate of 9.10% of the principal amount thereof, payable quarterly in
arrears on March 31, June 30, September 30, and December 31 of each year (each,
an "Interest Payment Date") beginning September 30, 1997, to the Person (as
defined in the Indenture) in whose name each Junior Subordinated Debenture is
registered, subject to certain exceptions, at the close of business on the
Business Day next preceding such Interest Payment Date. It is anticipated that,
until the liquidation, if any, of RBI Capital, the Junior Subordinated
Debentures will be held in the name of the Property Trustee in trust for the
benefit of the holders of the Preferred Securities. The amount of interest
payable for any period will be computed on the basis of a 360-day year of twelve
30-day months. In the event that any date on which interest is payable on the
Junior Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay) with the same force and effect as if made on the date such payment was
originally due and payable. Accrued interest that is not paid on the applicable
Interest Payment Date will bear additional interest on the amount thereof (to
the extent permitted by law) at the rate per annum of 9.10% thereof, compounded
quarterly. The term "interest," as used herein,
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includes quarterly interest payments, interest on quarterly interest payments
not paid on the applicable Interest Payment Date and Additional Interest, as
applicable.
The Junior Subordinated Debentures will mature on June 30, 2027, the Stated
Maturity. Such date may be shortened at any time by the Company to any date not
earlier than June 30, 2002, subject to the Company having received prior
regulatory approval if then required under applicable capital guidelines or
regulatory policies. In the event that the Company elects to shorten the Stated
Maturity of the Junior Subordinated Debentures, it will give notice thereof to
the Debenture Trustee, RBI Capital and to the holders of the Junior Subordinated
Debentures no more than 180 days and no less than 90 days prior to the
effectiveness thereof.
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all existing and future Senior Debt
and Subordinated Debt of the Company. Because the Company is a holding company,
the right of the Company to participate in any distribution of assets of a
subsidiary, including the Bank, upon any liquidation or reorganization or
otherwise of such subsidiary (and thus the ability of holders of the Junior
Subordinated Debentures to benefit indirectly from such distribution), is
subject to the prior claim of creditors of the subsidiary (including depositors
in the Bank), except to the extent that the Company may itself be recognized as
a creditor of the subsidiary. The Junior Subordinated Debentures will,
therefore, be effectively subordinated to all existing and future liabilities of
the Company's subsidiaries, including the Bank, and holders of Junior
Subordinated Debentures should look only to the assets of the Company for
payments on the Junior Subordinated Debentures. The Indenture does not limit the
incurrence or issuance of other secured or unsecured debt of the Company,
including Senior Debt and Subordinated Debt, whether under the Indenture or any
existing indenture or other indenture that the Company or any of its
subsidiaries may enter into in the future or otherwise. See "-- Subordination."
The Indenture does not contain provisions that afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged
transaction or other similar transaction involving the Company that may
adversely affect such holders.
Option to Extend Interest Payment Period. The Company has the right under
the Indenture at any time during the term of the Junior Subordinated Debentures,
so long as no Debenture Event of Default has occurred and is continuing, to
defer the payment of interest at any time, or from time to time. The right to
defer the payment of interest on the Junior Subordinated Debentures is limited,
however, to a period, in each instance, not exceeding 20 consecutive quarters,
and no Extended Interest Payment Period may extend beyond the Stated Maturity of
the Junior Subordinated Debentures. At the end of each Extended Interest Payment
Period, the Company must pay all interest then accrued and unpaid (together with
interest thereon at the annual rate of 9.10%, compounded quarterly, to the
extent permitted by applicable law). During an Extended Interest Payment Period,
interest will continue to accrue and holders of Junior Subordinated Debentures
(or the holders of Preferred Securities if such securities are then outstanding)
will be required to accrue and recognize income for United States federal income
tax purposes. See "Certain Federal Income Tax Consequences -- Interest Income
and Original Issue Discount."
During any such Extended Interest Payment Period, the Company may not (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of the Company's capital
stock (other than (a) the reclassification of any class of the Company's capital
stock into another class of capital stock, (b) dividends or distributions
payable in any class of the Company's common stock, (c) any declaration of a
dividend in connection with the implementation of a shareholder rights plan, or
the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto and (d) purchases of the
Company's common stock related to the rights under any of the Company's benefit
plans for its or its subsidiaries' directors, officers or employees), (ii) make
any payment of principal, interest or premium, if any, on or repay, repurchase
or redeem any debt securities of the Company that rank pari passu with or junior
in interest to the Junior Subordinated Debentures or make any guarantee payments
with respect to any guarantee by the Company of the debt securities of any
subsidiary of the Company if such guarantee ranks pari passu or junior in
interest to the Junior Subordinated Debentures (other than payments under the
Guarantee), or (iii) redeem, purchase or acquire less than all of the Junior
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Subordinated Debentures or any of the Preferred Securities. Prior to the
termination of any such Extended Interest Payment Period, the Company may
further defer the payment of interest; provided that no Extended Interest
Payment Period may exceed 20 consecutive quarters or extend beyond the Stated
Maturity of the Junior Subordinated Debentures. Upon the termination of any such
Extended Interest Payment Period and the payment of all amounts then due on any
Interest Payment Date, the Company may elect to begin a new Extended Interest
Payment Period, subject to the above requirements. No interest will be due and
payable during an Extended Interest Payment Period, except at the end thereof.
The Company must give the Property Trustee, the Administrative Trustees and the
Debenture Trustee notice of its election of such Extended Interest Payment
Period at least two Business Days prior to the earlier of (i) the next
succeeding date on which Distributions on the Trust Securities would have been
payable except for the election to begin such Extended Interest Payment Period,
or (ii) the date the Trust is required to give notice of the record date, or the
date such Distributions are payable, to Nasdaq's National Market (or other
applicable self-regulatory organization) or to holders of the Preferred
Securities, but in any event at least one Business Day before such record date.
Subject to the foregoing, there is no limitation on the number of times that the
Company may elect to begin an Extended Interest Payment Period.
Additional Sums. If RBI Capital or the Property Trustee is required to pay
any additional taxes, duties or other governmental charges as a result of the
occurrence of a Tax Event, the Company will pay as additional amounts (referred
to herein as "Additional Interest") on the Junior Subordinated Debentures such
additional amounts as may be required so that the net amounts received and
retained by RBI Capital after paying any such additional taxes, duties or other
governmental charges will not be less than the amounts RBI Capital would have
received had such additional taxes, duties or other governmental charges not
been imposed.
Redemption or Exchange. The Company will have the right to redeem the
Junior Subordinated Debentures prior to maturity (i) on or after June 30, 2002,
in whole at any time or in part from time to time, or (ii) at any time in whole
(but not in part), within 180 days following the occurrence of a Tax Event, an
Investment Company Event or a Capital Treatment Event, in each case at a
redemption price equal to the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption, plus 100%
of the principal amount thereof. Any such redemption prior to the Stated
Maturity will be subject to prior Federal Reserve regulatory approval if then
required under applicable Federal Reserve capital guidelines or policies.
"Tax Event" means the receipt by RBI Capital of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment to,
or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) interest payable by the Company on the Junior
Subordinated Debentures is not, or within 90 days of the date of such opinion
will not be, deductible by the Company, in whole or in part, for United States
federal income tax purposes, (ii) RBI Capital is, or will be within 90 days
after the date of such opinion of counsel, subject to United States federal
income tax with respect to income received or accrued on the Junior Subordinated
Debentures, or (iii) RBI Capital is, or will be within 90 days after the date of
such opinion of counsel, subject to more than a de minimis amount of other
taxes, duties, assessments or other governmental charges. The Company must
request and receive an opinion with regard to such matters within a reasonable
period of time after it becomes aware of the possible occurrence of any of the
events described in clauses (i) through (iii) above.
"Investment Company Event" means the receipt by RBI Capital of an opinion
of counsel experienced in such matters to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, RBI Capital is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act, which change becomes effective on or after the date of original
issuance of the Preferred Securities.
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"Capital Treatment Event" means the reasonable determination by the Company
that, as a result of any amendment to, or change (including any proposed change)
in, the laws (or any regulations thereunder) of the United States or any
political subdivision thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such proposed change pronouncement, action or decision is announced on or after
the date of original issuance of the Preferred Securities, there is more than an
insubstantial risk that the Company will not be entitled to treat an amount
equal to the Liquidation Amount of the Preferred Securities as "Tier 1 Capital"
(or the then equivalent thereof) for purposes of the capital adequacy guidelines
of the Federal Reserve (or any successor regulatory authority with jurisdiction
over bank holding companies), or any capital adequacy guidelines as then in
effect and applicable to the Company.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Junior Subordinated
Debentures to be redeemed at its registered address. Unless the Company defaults
in payment of the redemption price for the Junior Subordinated Debentures, on
and after the redemption date interest ceases to accrue on such Junior
Subordinated Debentures or portions thereof called for redemption.
The Junior Subordinated Debentures will not be subject to any sinking fund.
Distribution Upon Liquidation. As described under "Description of the
Preferred Securities -- Redemption or Exchange -- Liquidation Distribution Upon
Termination," under certain circumstances involving the termination of RBI
Capital, the Junior Subordinated Debentures may be distributed to the holders of
the Preferred Securities in liquidation of RBI Capital after satisfaction of
liabilities to creditors of RBI Capital as provided by applicable law. Any such
distribution will be subject to receipt of prior Federal Reserve approval if
then required under applicable Federal Reserve capital guidelines or policies.
If the Junior Subordinated Debentures are distributed to the holders of
Preferred Securities upon the liquidation of RBI Capital, the Company will use
its best efforts to list the Junior Subordinated Debentures on Nasdaq's National
Market or such stock exchanges, if any, on which the Preferred Securities are
then listed. There can be no assurance as to the market price of any Junior
Subordinated Debentures that may be distributed to the holders of Preferred
Securities.
Restrictions on Certain Payments. If at any time (i) there has occurred a
Debenture Event of Default, (ii) the Company is in default with respect to its
obligations under the Guarantee, or (iii) the Company has given notice of its
election of an Extended Interest Payment Period as provided in the Indenture
with respect to the Junior Subordinated Debentures and has not rescinded such
notice, or such Extended Interest Payment Period, or any extension thereof, is
continuing, the Company will not (1) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock (other than (a) the
reclassification of any class of the Company's capital stock into another class
of capital stock, (b) dividends or distributions payable in any class of the
Company's common stock, (c) any declaration of a dividend in connection with the
implementation of a shareholder rights plan, or the issuance of stock under any
such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto and (d) purchases of the Company's common stock related to the
rights under any of the Company's benefit plans for its or its subsidiaries'
directors, officers or employees), (2) make any payment of principal, interest
or premium, if any, on or repay or repurchase or redeem any debt securities of
the Company that rank pari passu with or junior in interest to the Junior
Subordinated Debentures or make any guarantee payments with respect to any
guarantee by the Company of the debt securities of any subsidiary of the Company
if such guarantee ranks pari passu or junior in interest to the Junior
Subordinated Debentures (other than payments under the Guarantee), or (3)
redeem, purchase or acquire less than all of the Junior Subordinated Debentures
or any of the Preferred Securities.
Subordination. The Indenture provides that the Junior Subordinated
Debentures are subordinated and junior in right of payment to all Senior Debt
and Subordinated Debt of the Company. Upon any payment or distribution of assets
to creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors, marshaling of assets or any bankruptcy,
insolvency, debt restructuring or similar proceedings in connection with any
insolvency or bankruptcy proceedings of the Company, the holders of
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Senior Debt and Subordinated Debt of the Company will first be entitled to
receive payment in full of principal of (and premium, if any) and interest, if
any, on such Senior Debt and Subordinated Debt of the Company before the holders
of Junior Subordinated Debentures will be entitled to receive or retain any
payment in respect of the principal of or interest on the Junior Subordinated
Debentures.
In the event of the acceleration of the maturity of any Junior Subordinated
Debentures, the holders of all Senior Debt and Subordinated Debt of the Company
outstanding at the time of such acceleration will first be entitled to receive
payment in full of all amounts due thereon (including any amounts due upon
acceleration) before the holders of the Junior Subordinated Debentures will be
entitled to receive or retain any payment in respect of the principal of or
interest on the Junior Subordinated Debentures.
No payments on account of principal or interest in respect of the Junior
Subordinated Debentures may be made if there has occurred and is continuing a
default in any payment with respect to Senior Debt and Subordinated Debt of the
Company or an event of default with respect to any Senior Debt and Subordinated
Debt of the Company resulting in the acceleration of the maturity thereof, or if
any judicial proceeding is pending with respect to any such default.
"Debt" means, with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses, (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business), (v) every capital lease obligation of such Person, and (vi) every
obligation of the type referred to in clauses (i) through (v) of another Person
and all dividends of another Person the payment of which, in either case, such
Person has guaranteed or is responsible or liable, directly or indirectly, as
obligor or otherwise.
"Senior Debt" means, with respect to the Company, the principal of (and
premium, if any) and interest, if any (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Company whether or not such claim for post-petition interest is allowed in such
proceeding), on Debt, whether incurred on or prior to the date of the Indenture
or thereafter incurred, unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Junior Subordinated
Debentures or to other Debt which is pari passu with, or subordinated to, the
Junior Subordinated Debentures; provided, however, that Senior Debt will not be
deemed to include (i) any Debt of the Company which when incurred and without
respect to any election under section 1111(b) of the United States Bankruptcy
Code of 1978, as amended, was without recourse to the Company, (ii) any Debt of
the Company to any of its subsidiaries, (iii) any Debt to any employee of the
Company, (iv) any Debt which by its terms is subordinated to trade accounts
payable or accrued liabilities arising in the ordinary course of business to the
extent that payments made to the holders of such Debt by the holders of the
Junior Subordinated Debentures as a result of the subordination provisions of
the Indenture would be greater than they otherwise would have been as a result
of any obligation of such holders to pay amounts over to the obligees on such
trade accounts payable or accrued liabilities arising in the ordinary course of
business as a result of subordination provisions to which such Debt is subject,
and (v) Debt which constitutes Subordinated Debt.
"Subordinated Debt" means, with respect to the Company, the principal of
(and premium, if any) and interest, if any (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization relating to
the Company, whether or not such claim for post-petition interest is allowed in
such proceeding), on Debt, whether incurred on or prior to the date of the
Indenture or thereafter incurred, which is by its terms expressly provided to be
junior and subordinate to other Debt of the Company (other than the Junior
Subordinated Debentures).
The Indenture places no limitation on the amount of additional Senior Debt
and Subordinated Debt that may be issued or incurred by the Company. The Company
may from time to time issue or incur additional
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indebtedness constituting Senior Debt and Subordinated Debt. On March 31, 1997,
the Company had $6.0 million outstanding of Subordinated Debt in the form of its
6% convertible subordinated debentures due December 1, 2011 and had no Senior
Debt outstanding. Because the Company is a holding company, the Junior
Subordinated Debentures are effectively subordinated to all existing and future
liabilities of the Company's subsidiaries, including obligations to depositors
of the Bank.
Registration, Denomination and Transfer. The Junior Subordinated
Debentures will initially be registered in the name of RBI Capital. If the
Junior Subordinated Debentures are distributed to holders of Preferred
Securities, it is anticipated that the depositary arrangements for the Junior
Subordinated Debentures will be substantially identical to those in effect for
the Preferred Securities. See "Description of Preferred Securities -- Redemption
or Exchange -- Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depository and a successor depository is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in definitive
form.
Payments on Junior Subordinated Debentures represented by a global security
will be made to Cede & Co., the nominee for DTC, as the registered holder of the
Junior Subordinated Debentures, as described under "Description of Preferred
Securities -- Redemption or Exchange -- Book Entry, Delivery and Form." If
Junior Subordinated Debentures are issued in certificated form, principal and
interest will be payable, the transfer of the Junior Subordinated Debentures
will be registrable, and Junior Subordinated Debentures will be exchangeable for
Junior Subordinated Debentures of other authorized denominations of a like
aggregate principal amount, at the corporate trust office of the Debenture
Trustee in Wilmington, Delaware or at the offices of any Paying Agent or
transfer agent appointed by the Company, provided that payments of interest may
be made at the option of the Company by check mailed to the address of the
persons entitled thereto. However, a holder of $1 million or more in aggregate
principal amount of Junior Subordinated Debentures may receive payments of
interest (other than interest payable at the Stated Maturity) by wire transfer
of immediately available funds upon written request to the Debenture Trustee not
later than 15 calendar days prior to the date on which the interest is payable.
Any monies deposited with the Debenture Trustee or any paying agent, or then
held by the Company in trust, for the payment of the principal of (and premium,
if any) or interest on any Junior Subordinated Debenture and remaining unclaimed
for two years after such principal (and premium, if any) or interest has become
due and payable shall, at the request of the Company, be repaid to the Company
and the holder of such Junior Subordinated Debenture shall thereafter look, as a
general unsecured creditor, only to the Company for payment thereof.
Registrar and Transfer Agent. The Debenture Trustee will act as the
registrar and the transfer agent for the Junior Subordinated Debentures. Junior
Subordinated Debentures may be presented for registration of transfer (with the
form of transfer endorsed thereon, or a satisfactory written instrument of
transfer, duly executed) at the office of the registrar. The Company may at any
time rescind the designation of any such transfer agent or approve a change in
the location through which any such transfer agent acts; provided, that the
Company maintains a transfer agent in the place of payment. The Company may at
any time designate additional transfer agents with respect to the Junior
Subordinated Debentures. In the event of any redemption, neither the Company nor
the Debenture Trustee will be required to (i) issue, register the transfer of or
exchange Junior Subordinated Debentures during a period beginning at the opening
of business 15 days before the day of selection for redemption of Junior
Subordinated Debentures and ending at the close of business on the day of
mailing of the relevant notice of redemption, or (ii) transfer or exchange any
Junior Subordinated Debentures so selected for redemption, except, in the case
of any Junior Subordinated Debentures being redeemed in part, any portion
thereof not to be redeemed.
Modification of Indenture. The Company and the Debenture Trustee may, from
time to time without the consent of the holders of the Junior Subordinated
Debentures, amend, waive or supplement the Indenture for specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies
and qualifying, or maintaining the qualification of, the Indenture under the
Trust Indenture Act. The Indenture
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also contains provisions permitting the Company and the Debenture Trustee, with
the consent of the holders of not less than a majority in principal amount of
the outstanding Junior Subordinated Debentures, to modify the Indenture;
provided, that no such modification may, without the consent of the holder of
each outstanding Junior Subordinated Debenture affected by such proposed
modification, (i) extend the fixed maturity of the Junior Subordinated
Debentures, or reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest thereon, or (ii) reduce the percentage of
principal amount of Junior Subordinated Debentures, the holders of which are
required to consent to any such modification of the Indenture; provided that so
long as any of the Preferred Securities remain outstanding, no such modification
may be made that requires the consent of the holders of the Junior Subordinated
Debentures, and no termination of the Indenture may occur, and no waiver of any
Debenture Event of Default may be effective, without the prior consent of the
holders of at least a majority of the aggregate Liquidation Amount of the
Preferred Securities and that if the consent of the holder of each Junior
Subordinated Debenture is required, such modification will not be effective
until each holder of Trust Securities has consented thereto.
Debenture Events of Default. The Indenture provides that any one or more
of the following described events with respect to the Junior Subordinated
Debentures that has occurred and is continuing constitutes an event of default
(each, a "Debenture Event of Default") with respect to the Junior Subordinated
Debentures:
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures when due (subject to the deferral of any due date in the case of
an Extended Interest Payment Period); or
(ii) failure to pay any principal on the Junior Subordinated
Debentures when due, whether at Stated Maturity, upon redemption by
declaration or otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Indenture for 90 days after written notice
to the Company from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of the Junior Subordinated
Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee. The Debenture Trustee, or the holders of not less than 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures, may declare
the principal due and payable immediately upon a Debenture Event of Default. The
holders of a majority in aggregate outstanding principal amount of the Junior
Subordinated Debentures may annul such declaration and waive the default if the
default (other than the non-payment of the principal of the Junior Subordinated
Debentures which has become due solely by such acceleration) has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee.
Should the holders of the Junior Subordinated Debentures fail to annul such
declaration and waive such default, the holders of a majority in aggregate
Liquidation Amount of the Preferred Securities will have such right.
The Company is required to file annually with the Debenture Trustee a
certificate as to whether or not the Company is in compliance with all the
conditions and covenants applicable to it under the Indenture.
If a Debenture Event of Default has occurred and is continuing, the
Property Trustee will have the right to declare the principal of and the
interest on such Junior Subordinated Debentures, and any other amounts payable
under the Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to such Junior Subordinated Debentures.
Enforcement of Certain Rights by Holders of the Preferred Securities. If a
Debenture Event of Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest on or the principal
of the Junior Subordinated Debentures on the payment date on which such payment
is due and payable, then a holder of Preferred Securities may institute a legal
proceeding directly against the Company for enforcement of payment to such
holder of the principal of or interest on such Junior Subordinated Debentures
having a principal amount equal to the aggregate Liquidation Amount of the
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Preferred Securities of such holder (a "Direct Action"). In connection with such
Direct Action, the Company will have a right of set-off under the Indenture to
the extent of any payment made by the Company to such holder of Preferred
Securities in the Direct Action. The Company may not amend the Indenture to
remove the foregoing right to bring a Direct Action without the prior written
consent of the holders of all of the Preferred Securities. If the right to bring
a Direct Action is removed, RBI Capital will become subject to the reporting
obligations under the Exchange Act.
The holders of the Preferred Securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the Junior Subordinated Debentures unless there has
been an Event of Default under the Trust Agreement. See "Description of the
Preferred Securities -- Redemption or Exchange -- Events of Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions. The Company
may not consolidate with or merge into any other Person or convey or transfer
its properties and assets substantially as an entirety to any Person, and any
Person may not consolidate with or merge into the Company or sell, convey,
transfer or otherwise dispose of its properties and assets substantially as an
entirety to the Company, unless (i) in the event the Company consolidates with
or merges into another Person or conveys or transfers its properties and assets
substantially as an entirety to any Person, the successor Person is organized
under the laws of the United States or any State or the District of Columbia,
and such successor Person expressly assumes by supplemental indenture the
Company's obligations on the Junior Subordinated Debentures issued under the
Indenture, (ii) immediately after giving effect thereto, no Debenture Event of
Default, and no event which, after notice or lapse of time or both, would become
a Debenture Event of Default, has occurred and is continuing, and (iii) certain
other conditions as prescribed in the Indenture are met.
Satisfaction and Discharge. The Indenture will cease to be of further
effect (except as to the Company's obligations to pay certain sums due pursuant
to the Indenture and to provide certain officers' certificates and opinions of
counsel described therein) and the Company will be deemed to have satisfied and
discharged the Indenture when, among other things, all Junior Subordinated
Debentures not previously delivered to the Debenture Trustee for cancellation
(i) have become due and payable, or (ii) will become due and payable at their
Stated Maturity within one year or are to be called for redemption within one
year, and the Company deposits or causes to be deposited with the Debenture
Trustee funds, in trust, for the purpose and in an amount sufficient to pay and
discharge the entire indebtedness on the Junior Subordinated Debentures not
previously delivered to the Debenture Trustee for cancellation, for the
principal and interest to the date of the deposit or to the Stated Maturity or
redemption date, as the case may be.
Governing Law. The Indenture and the Junior Subordinated Debentures will
be governed by and construed in accordance with the laws of the State of
Florida.
Information Concerning the Debenture Trustee. The Debenture Trustee has
and is subject to all the duties and responsibilities specified with respect to
an indenture trustee under the Trust Indenture Act. Subject to such provisions,
the Debenture Trustee is under no obligation to exercise any of the powers
vested in it by the Indenture at the request of any holder of Junior
Subordinated Debentures, unless offered reasonable indemnity by such holder
against the costs, expenses and liabilities which might be incurred thereby. The
Debenture Trustee is not required to expend or risk its own funds or otherwise
incur personal financial liability in the performance of its duties if the
Debenture Trustee reasonably believes that repayment or adequate indemnity is
not reasonably assured to it.
Miscellaneous. The Company has agreed, pursuant to the Indenture, for so
long as Trust Securities remain outstanding, (i) to maintain directly or
indirectly 100% ownership of the Common Securities of RBI Capital (provided that
certain successor Persons with which the Company may consolidate with or merge
into or convey or transfer its properties and assets substantially as an
entirety pursuant to the Indenture (See " -- Consolidation, Merger, Sale of
Assets and Other Transactions") may succeed to the Company's ownership of the
Common Securities), (ii) not to voluntarily terminate, wind up or liquidate RBI
Capital without prior Federal Reserve approval if then so required under
applicable Federal Reserve capital guidelines or policies and use its reasonable
efforts to cause the Trust to remain a business trust, except in connection with
a distribution of Junior Subordinated Debentures to the holders of the Preferred
Securities, the
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redemption of all of the Preferred Securities or certain mergers, consolidations
or amalgamations permitted by the Trust Agreement, and (iii) to use its
reasonable efforts, consistent with the terms and provisions of the Trust
Agreement, to cause RBI Capital to remain classified as a grantor trust and not
as an association taxable as a corporation for United States federal income tax
purposes.
DESCRIPTION OF THE GUARANTEE
The Preferred Securities Guarantee Agreement (the "Guarantee") will be
executed and delivered by the Company concurrently with the issuance of the
Preferred Securities for the benefit of the holders of the Preferred Securities.
The Guarantee will be qualified as an indenture under the Trust Indenture Act.
The Guarantee Trustee will act as indenture trustee under the Guarantee for
purposes of complying with the provisions of the Trust Indenture Act. The
Guarantee Trustee, Wilmington Trust Company, will hold the Guarantee for the
benefit of the holders of the Preferred Securities. The following summary of the
material terms and provisions of the Guarantee does not purport to be complete
and is subject to, and qualified in its entirety by reference to, all of the
provisions of the Guarantee and the Trust Indenture Act. Wherever particular
defined terms of the Guarantee are referred to, but not defined herein, such
defined terms are incorporated herein by reference. The form of the Guarantee
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
General. The Guarantee will be an irrevocable guarantee on a subordinated
basis of RBI Capital's obligations under the Preferred Securities, but will
apply only to the extent that RBI Capital has funds sufficient to make such
payments. The Company will, pursuant to the Guarantee, irrevocably agree to pay
in full on a subordinated basis, to the extent set forth therein, the Guarantee
Payments (as defined below) to the holders of the Preferred Securities, as and
when due, regardless of any defense, right of set-off or counterclaim that RBI
Capital may have or assert other than the defense of payment. The following
payments with respect to the Preferred Securities, to the extent not paid by or
on behalf of RBI Capital (the "Guarantee Payments"), will be subject to the
Guarantee (i) any accrued and unpaid Distributions required to be paid on the
Preferred Securities, to the extent that RBI Capital has funds available
therefor at such time, (ii) the Redemption Price with respect to any Preferred
Securities called for redemption, to the extent that RBI Capital has funds
available therefor at such time, and (iii) upon a voluntary or involuntary
dissolution, winding up or liquidation of RBI Capital (other than in connection
with the distribution of Junior Subordinated Debentures to the holders of
Preferred Securities or a redemption of all of the Preferred Securities), the
lesser of (a) the amount of the Liquidation Distribution, to the extent RBI
Capital has funds available therefor at such time, and (b) the amount of assets
of RBI Capital remaining available for distribution to holders of Preferred
Securities in liquidation of RBI Capital. The obligation of the Company to make
a Guarantee Payment may be satisfied by direct payment of the required amounts
by the Company to the holders of the Preferred Securities or by causing RBI
Capital to pay such amounts to such holders.
The Guarantee will not apply to any payment of Distributions, except to the
extent RBI Capital has funds available therefor. If the Company does not make
interest payments on the Junior Subordinated Debentures held by RBI Capital, RBI
Capital will not pay Distributions on the Preferred Securities and will not have
funds legally available therefor.
Status of the Guarantee. The Guarantee will constitute an unsecured
obligation of the Company and will rank subordinate and junior in right of
payment to all Senior Debt and Subordinated Debt of the Company in the same
manner as the Junior Subordinated Debentures. The Guarantee does not place a
limitation on the amount of additional Senior Debt and Subordinated Debt that
may be incurred by the Company. The Company expects from time to time to incur
additional indebtedness constituting Senior Debt and Subordinated Debt. The
Guarantee will constitute a guarantee of payment and not of collection (that is,
the guaranteed party may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against any other Person). The Guarantee will not be discharged
except by payment of the Guarantee Payments in full to the extent not paid by
RBI Capital or upon distribution of the Junior Subordinated Debentures to the
holders of the Preferred Securities. Because the Company is a holding company,
the right of the Company to participate in any distribution of assets of a
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subsidiary, including the Bank, upon a liquidation or reorganization or
otherwise is subject to the prior claims of creditors of the subsidiary, except
to the extent the Company may itself be recognized as a creditor of the
subsidiary. The Company's obligations under the Guarantee, therefore, will be
effectively subordinated to all existing and future liabilities of the Company's
subsidiaries, including the Bank, and claimants should look only to the assets
of the Company for payments thereunder.
Amendments and Assignment. Except with respect to any changes which do not
materially adversely affect the rights of holders of the Preferred Securities
(in which case no vote will be required), the Guarantee may not be amended
without the prior approval of the holders of not less than a majority of the
aggregate Liquidation Amount of the outstanding Preferred Securities. See
"Description of the Preferred Securities -- Redemption or Exchange -- Voting
Rights; Amendment of Trust Agreement." All guarantees and agreements contained
in the Guarantee will bind the successors, assigns, receivers, trustees and
representatives of the Company and will inure to the benefit of the holders of
the Preferred Securities then outstanding.
Events of Default. An event of default under the Guarantee will occur upon
the failure of the Company to perform any of its payment or other obligations
thereunder. The holders of not less than a majority in aggregate Liquidation
Amount of the Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the Guarantee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under the Guarantee.
Any holder of Preferred Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against RBI Capital, the Guarantee Trustee
or any other Person.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
Information Concerning the Guarantee Trustee. The Guarantee Trustee, other
than during the occurrence and continuance of a default by the Company in
performance of the Guarantee, undertakes to perform only such duties as are
specifically set forth in the Guarantee and, after default with respect to the
Guarantee, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to such
provisions, the Guarantee Trustee is under no obligation to exercise any of the
powers vested in it by the Guarantee at the request of any holder of any
Preferred Securities, unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
Termination of the Guarantee. The Guarantee will terminate and be of no
further force and effect upon (i) full payment of the Redemption Price of the
Preferred Securities, (ii) full payment of the Distributions payable upon
liquidation of RBI Capital, or (iii) distribution of the Junior Subordinated
Debentures to the holders of the Preferred Securities. The Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of the Preferred Securities must restore payment of any sums
paid under such Preferred Securities or the Guarantee.
Governing Law. The Guarantee will be governed by and construed in
accordance with the laws of the State of Florida.
Expense Agreement. The Company will, pursuant to the Agreement as to
Expenses and Liabilities entered into by it under the Trust Agreement (the
"Expense Agreement"), irrevocably and unconditionally guarantee to each person
or entity to whom RBI Capital becomes indebted or liable, the full payment of
any costs, expenses or liabilities of RBI Capital, other than obligations of RBI
Capital to pay to the holders of the Preferred Securities or other similar
interests in RBI Capital of the amounts due such holders pursuant to the terms
of the Preferred Securities or such other similar interests, as the case may be.
Third party creditors of RBI Capital may proceed directly against the Company
under the Expense Agreement, regardless of whether such creditors had notice of
the Expense Agreement.
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RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
Irrevocable and Unconditional Guarantee. Payments of Distributions and
other amounts due on the Preferred Securities (to the extent RBI Capital has
funds available for the payment of such Distributions) are irrevocably
guaranteed by the Company as and to the extent set forth under "Description of
the Guarantee." The obligations of the Company under the Junior Subordinated
Debentures, the Indenture, the Trust Agreement, the Expense Agreement, and the
Guarantee, taken together, provide, in the aggregate, an irrevocable and
unconditional guarantee, on a subordinated basis, of payment of Distributions
and other amounts due on the Preferred Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these documents
that has the effect of providing an irrevocable and unconditional guarantee of
the obligations of RBI Capital under the Preferred Securities. However, if and
to the extent that the Company does not make payments on the Junior Subordinated
Debentures, RBI Capital will not pay Distributions or other amounts due on the
Preferred Securities, and the Guarantee does not cover payment of Distributions
when RBI Capital does not have sufficient funds to pay such Distributions. In
such event, the remedy of a holder of Preferred Securities is to institute a
legal proceeding directly against the Company for enforcement of payment of such
Distributions to such holder. The obligations of the Company under the Guarantee
are subordinate and junior in right of payment to all Senior Debt and
Subordinated Debt of the Company.
Sufficiency of Payments. As long as payments of interest and other
payments are made when due on the Junior Subordinated Debentures, such payments
will be sufficient to cover Distributions and other payments due on the
Preferred Securities, primarily because (i) the aggregate principal amount of
the Junior Subordinated Debentures will be equal to the sum of the aggregate
stated Liquidation Amount of the Trust Securities, (ii) the interest rate and
interest and other payment dates on the Junior Subordinated Debentures will
match the Distribution rate and Distribution and other payment dates for the
Preferred Securities, (iii) the Company will pay for all and any costs, expenses
and liabilities of RBI Capital (except the obligations of RBI Capital to the
holders of the Preferred Securities), and (iv) the Trust Agreement further
provides that RBI Capital will not engage in any activity that is not consistent
with the limited purposes of RBI Capital.
Enforcement Rights of Holders of Preferred Securities. A holder of any
Preferred Security may institute a legal proceeding directly against the Company
to enforce its rights under the Guarantee without first instituting a legal
proceeding against the Guarantee Trustee, RBI Capital or any other Person. A
default or event of default under any Senior Debt and Subordinated Debt of the
Company would not constitute a default or Event of Default. In the event,
however, of payment defaults under, or acceleration of, Senior Debt and
Subordinated Debt of the Company, the subordination provisions of the Indenture
provide that no payments may be made in respect of the Junior Subordinated
Debentures until such Senior Debt and Subordinated Debt has been paid in full or
any payment default thereunder has been cured or waived. Failure to make
required payments on the Junior Subordinated Debentures would constitute an
Event of Default.
Limited Purpose of RBI Capital. The Preferred Securities evidence
preferred undivided beneficial interests in the assets of RBI Capital. RBI
Capital exists for the sole purpose of issuing the Trust Securities and
investing the proceeds thereof in Junior Subordinated Debentures. A principal
difference between the rights of a holder of a Preferred Security and the rights
of a holder of a Junior Subordinated Debenture is that a holder of a Junior
Subordinated Debenture is entitled to receive from the Company the principal
amount of and interest accrued on Junior Subordinated Debentures held, while a
holder of Preferred Securities is entitled to receive Distributions from RBI
Capital (or from the Company under the Guarantee) if and to the extent RBI
Capital has funds available for the payment of such Distributions.
Rights Upon Termination. Upon any voluntary or involuntary termination,
winding-up or liquidation of RBI Capital involving the liquidation of the Junior
Subordinated Debentures, the holders of the Preferred Securities will be
entitled to receive, out of assets held by RBI Capital, the Liquidation
Distribution in cash. See "Description of the Preferred Securities -- Redemption
or Exchange -- Liquidation Distribution Upon Termination." Upon any voluntary or
involuntary liquidation or bankruptcy of the Company, the Property Trustee, as
holder of the Junior Subordinated Debentures, would be a subordinated creditor
of the Company,
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subordinated in right of payment to all Senior Debt and Subordinated Debt of the
Company (as set forth in the Indenture), but entitled to receive payment in full
of principal and interest before any shareholders of the Company receive
payments or distributions. Since the Company is the guarantor under the
Guarantee and has agreed to pay for all costs, expenses and liabilities of RBI
Capital (other than the obligations of RBI Capital to the holders of its
Preferred Securities), the positions of a holder of the Preferred Securities and
a holder of the Junior Subordinated Debentures relative to other creditors and
to shareholders of the Company in the event of liquidation or bankruptcy of the
Company are expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General. The following is a summary of the material United States federal
income tax considerations that may be relevant to a person that purchases
Preferred Securities on their original issue at their original offering price.
The statements of law or legal conclusions set forth in this summary constitute
the opinion of Holland & Knight LLP ("Holland & Knight"), counsel to the Company
and RBI Capital. The conclusions expressed herein are based upon current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
regulations thereunder and current administrative rulings and court decisions,
all of which are subject to change at any time, with possible retroactive
effect. Subsequent changes to these authorities may cause tax consequences to
vary substantially from the consequences described below. Furthermore, the
authorities on which the following summary is based are subject to various
interpretations, and it is therefore possible that the United States federal
income tax treatment of the purchase, ownership, and disposition of Preferred
Securities may differ from the treatment described below.
No attempt has been made in the following discussion to comment on all
United States federal income tax matters affecting purchasers of Preferred
Securities. Moreover, the discussion generally focuses on holders of Preferred
Securities who are individual citizens or residents of the United States and who
acquire Preferred Securities on their original issue at their offering price and
hold Preferred Securities as capital assets. The discussion has only limited
application to dealers in securities, corporations, estates, trusts or
nonresident aliens and does not address all the tax consequences that may be
relevant to holders who may be subject to special tax treatment, such as, for
example, banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-exempt
investors, or persons that will hold the Preferred Securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment, or as other than a
capital asset. The following summary also does not address the tax consequences
to persons that have a functional currency other than the U.S. dollar or the tax
consequences to shareholders, partners or beneficiaries of a holder of Preferred
Securities. Further, it does not include any description of any alternative
minimum tax consequences or the tax laws of any state or local government or of
any foreign government that may be applicable to the Preferred Securities.
Accordingly, each prospective investor should consult, and should rely
exclusively on, such investor's own tax advisors in analyzing the federal,
state, local and foreign tax consequences of the purchase, ownership or
disposition of Preferred Securities.
Classification of the Junior Subordinated Debentures. The Company intends
to take the position that the Junior Subordinated Debentures will be classified
for United States federal income tax purposes as indebtedness of the Company
under current law, and, by acceptance of a Preferred Security, each holder
covenants to treat the Junior Subordinated Debentures as indebtedness and the
Preferred Securities as evidence of an indirect beneficial ownership interest in
the Junior Subordinated Debentures. Counsel for the Company is of the opinion
that, under current law, and based upon the representations, facts and
assumptions set forth herein, the Junior Subordinated Debentures will be
classified as indebtedness for United States federal income tax purposes. As an
opinion of counsel is not binding upon the Internal Revenue Service or the
courts, no assurance can be given that such position of the Company will not be
challenged by the Internal Revenue Service or, if challenged, that such a
challenge will not be successful.
The remainder of this discussion assumes that the Junior Subordinated
Debentures will be classified for United States federal income tax purposes as
indebtedness of the Company.
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Classification of RBI Capital. Under current law and assuming full
compliance with the terms of the Trust Agreement and Indenture (and certain
other documents described herein), RBI Capital will be classified for United
States federal income tax purposes as a grantor trust and not as an association
taxable as a corporation. As a result, each beneficial owner of Preferred
Securities will be treated for federal income tax purposes as a holder of its
pro rata share of Junior Subordinated Debentures held by RBI Capital.
Accordingly, for United States federal income tax purposes, each holder of
Preferred Securities generally will be treated as owning an undivided beneficial
interest in the Junior Subordinated Debentures, and each holder will be required
to include in its gross income its pro rata share of interest income, including
any original issue discount ("OID"), paid or accrued with respect to its
allocable share of the Junior Subordinated Debentures.
Interest Income and Original Issue Discount. Under applicable Treasury
regulations (the "Regulations"), a "remote" contingency that stated interest
will not be timely paid will be ignored in determining whether a debt instrument
is issued with OID. The Company believes that the likelihood of its exercising
its option to defer payments of interest is remote. Based on the foregoing, the
Company intends to take the position that the Junior Subordinated Debentures are
not considered to be issued with OID at the time of their original issuance and,
accordingly, except as set forth below, a holder should include in gross income
such holder's allocable share of interest on the Junior Subordinated Debentures
at the time it is paid or accrued in accordance with such holder's method of tax
accounting.
However, under the Regulations, if the Company exercised its option to
defer any payment of interest, the Junior Subordinated Debentures would at that
time and at all times thereafter be treated as OID instruments, and all stated
interest (and de minimis OID, if any) on the Junior Subordinated Debentures
would thereafter be treated as OID as long as the Junior Subordinated Debentures
remained outstanding. In such event, the taxable interest income of all holders
with respect to the Junior Subordinated Debentures would be determined on a
daily economic accrual basis regardless of such holder's method of tax
accounting, and actual distributions of stated interest would not be reported as
taxable income.
Consequently, a holder would be required to include OID in gross income
even though the Company would not make any actual cash payments during an
Extended Interest Payment Period and even through some holders may use the cash
method of tax accounting.
The Regulations have not been addressed in any published rulings or other
published interpretations by the Internal Revenue Service, and it is possible,
however, that the Internal Revenue Service could take a position contrary to the
interpretation herein.
Because income on the Preferred Securities will constitute interest or OID,
corporate holders will not be entitled to a dividends-received deduction with
respect to any income recognized with respect to the Preferred Securities.
Subsequent uses of the term "interest" in this summary include income in
the form of OID.
Market Discount and Acquisition Premium. Holders of Preferred Securities
other than a holder who purchased the Preferred Securities upon original
issuance may be considered to have acquired their undivided interests in the
Junior Subordinated Debentures with "market discount" or "acquisition premium"
as such phrases are defined for United States federal income tax purposes. Such
holders are advised to consult their tax advisors as to the income tax
consequences of the acquisition, ownership and disposition of the Preferred
Securities.
Receipt of Junior Subordinated Debentures or Cash upon Liquidation of RBI
Capital. Under certain circumstances, as described under "Description of the
Preferred Securities -- Redemption or Exchange -- Liquidation Distribution Upon
Termination," the Junior Subordinated Debentures may be distributed to holders
of Preferred Securities upon a liquidation of RBI Capital. Under current United
States federal income tax law, such a distribution would be treated as a
nontaxable event to each such holder in which each holder is deemed to receive
directly its pro rata share of Junior Subordinated Debentures previously held
indirectly through this Trust. A holder's aggregate tax basis in the Junior
Subordinated Debentures received in the liquidation would be equal to such
holder's aggregate tax basis in the Preferred Securities immediately before
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the distribution. A holder's holding period in the Junior Subordinated
Debentures so received in liquidation of RBI Capital would include the period
for which such holder held the Preferred Securities.
If, however, a Tax Event occurs which results in RBI Capital being treated
as an association taxable as a corporation, the distribution would constitute a
taxable event to RBI Capital and the holders of the Preferred Securities, and
each holder of Preferred Securities would recognize gain or loss as if the
holder had exchanged its Preferred Securities for Junior Subordinated
Debentures, and the holder's holding period in the Junior Subordinated
Debentures would not include the period for which such holder held the Preferred
Securities. Under certain circumstances described herein, the Junior
Subordinated Debentures may be redeemed for cash and the proceeds of such
redemption distributed to holders in redemption of their Preferred Securities.
Under current law, such a redemption would, for United States federal income tax
purposes, constitute a taxable disposition of the redeemed Preferred Securities,
and a holder would recognize gain or loss as if the holder sold such Preferred
Securities for cash. See "Description of the Preferred Securities -- Redemption
or Exchange -- Liquidation Distribution Upon Termination."
Sales of Preferred Securities. A holder that sells Preferred Securities
will recognize gain or loss equal to the difference between its adjusted tax
basis in the Preferred Securities and the amount realized on the sale of such
Preferred Securities. Assuming that the Company does not exercise its option to
defer payment of interest on the Junior Subordinated Debentures, and the
Preferred Securities are not considered issued with OID, a holder's adjusted tax
basis in the Preferred Securities generally will be its initial purchase price.
If the Junior Subordinated Debentures are deemed to be issued with OID as a
result of the Company's deferral of any interest payment, or otherwise, a
holder's tax basis in the Preferred Securities generally will be its initial
purchase price, increased by OID previously includible in such holder's gross
income to the date of disposition and decreased by distributions or other
payments received on the Preferred Securities since and including the date of
commencement of the first Extended Interest Payment Period. Such gain or loss
generally will be a capital gain or loss (except to the extent of any accrued
interest with respect to such holder's pro rata share of the Junior Subordinated
Debentures required to be included in income) and generally will be a long-term
capital gain or loss if the Preferred Securities have been held for more than
one year.
Should the Company exercise its option to defer any payment of interest on
the Junior Subordinated Debentures, the Preferred Securities may trade at a
price that does not accurately reflect the value of accrued but unpaid interest
with respect to the underlying Junior Subordinated Debentures. In the event of
such a deferral, a holder that disposes of its Preferred Securities between
record dates for payments of distributions thereon will be required to include
accrued but unpaid interest on the Junior Subordinated Debentures to the date of
disposition as OID, but may not receive the cash related thereto. However, such
holder will add such amount to its adjusted tax basis in the Preferred
Securities. To the extent the selling price is less than the holder's adjusted
tax basis in the Preferred Securities, such holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes.
EFFECT OF POSSIBLE CHANGES IN TAX LAWS. In February 1997, President Clinton
proposed the enactment of tax legislation. Included in the President's proposal
was a revenue-raising provision that would generally deny interest deductions
for interest on a corporate debt instrument such as the Junior Subordinated
Debentures (i) that has a maximum term of more than 15 years and is not shown as
indebtedness on the issuer's balance sheet or (ii) where the instrument is
issued to a related party (other than a corporation), and the holder or some
other related party issues a related instrument that is not shown as
indebtedness on the issuer's consolidated balance sheet. Under the President's
proposal, this provision was to be effective for instruments issued on or after
the date of first action by a Congressional committee with respect to the
proposal. Such proposal did not indicate what would constitute the first
"committee action" with respect to the proposal.
On June 9, 1997, the Chairman of the Ways and Means Committee of the U.S.
House of Representatives introduced his initial version of the proposed tax
legislation, which did not contain the revenue-raising provision described
above. Tax legislation was subsequently passed by the House of Representatives
on June 26, 1997, and an amended version of the House legislation was passed by
the U.S. Senate on June 27, 1997. Again, neither the House nor the Senate bills
as passed contained any provision that, if enacted, would
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deny a deduction for interest paid on certain instruments such as the Junior
Subordinated Debentures. However, due to differing provisions in the versions of
this tax legislation as passed by the House and Senate, further action by both
the House and Senate is necessary prior to the enactment of such legislation. On
June 30, 1997, President Clinton announced his alternate tax cut proposal with
provisions different from those contained in the bills passed by the House and
Senate and encouraged Congress to take into consideration and adopt his
provisions as part of any final tax legislation that is enacted. The President's
alternate proposal as released on June 30, 1997 did not make specific mention of
any revenue-raising provisions in addition to those already contained in the
bills passed by the House and Senate.
While nothing contained at this time in the pending tax legislation will
deny the Company's deduction for interest on the Junior Subordinated Debentures
or give rise to a Tax Event, there is no assurance that the final version of the
pending tax legislation that is enacted into law or other future tax legislation
will not have such an effect. Such legislation would give rise to a Tax Event
that, in turn, would permit the Company, upon receipt of Federal Reserve
approval if then required under applicable Federal Reserve capital guidelines or
policies, to cause a redemption of the Preferred Securities before, as well as
after, June 30, 2002.
See "Description of the Junior Subordinated Debentures -- Redemption or
Exchange" and "Description of the Preferred Securities -- Redemption or
Exchange -- Tax Event Redemption, Investment Company Event Redemptions or
Capital Treatment Event Redemptions."
Backup Withholding and Information Reporting. The amount of OID accrued on
the Preferred Securities held of record by individual citizens or residents of
the United States, or certain trusts, estates and partnerships, will be reported
to the Internal Revenue Service on Forms 1099, which forms should be mailed to
such holders of Preferred Securities by January 31 following each calendar year.
Payments made on, and proceeds from the sale of, the Preferred Securities may be
subject to a "backup" withholding tax (currently at 31%) unless the holder
complies with certain identification and other requirements. Any amounts
withheld under the backup withholding rules will be allowed as a credit against
the holder's United States federal income tax liability, provided the required
information is provided to the Internal Revenue Service.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON THE
PARTICULAR SITUATION OF A HOLDER OF PREFERRED SECURITIES. HOLDERS OF PREFERRED
SECURITIES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER
TAX LAWS.
ERISA CONSIDERATIONS
Employee benefit plans that are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code
("Plans"), generally may purchase Preferred Securities, subject to the investing
fiduciary's determination that the investment in Preferred Securities satisfies
ERISA's fiduciary standards and other requirements applicable to investments by
the Plan.
In any case, the Company and/or any of its affiliates may be considered a
"party in interest" (within the meaning of ERISA) or a "disqualified person"
(within the meaning of Section 4975 of the Code) with respect to certain plans
(generally, Plans maintained or sponsored by, or contributed to by, any such
persons with respect to which the Company or an affiliate is a fiduciary or
Plans for which the Company or an affiliate provides services). The acquisition
and ownership of Preferred Securities by a Plan (or by an individual retirement
arrangement or other Plans described in Section 4975(e)(1) of the Code) with
respect to which the Company or any of its affiliates is considered a party in
interest or a disqualified person may constitute or result in a prohibited
transaction under ERISA or Section 4975 of the Code, unless such Preferred
Securities are acquired pursuant to and in accordance with an applicable
exemption.
94
<PAGE> 99
As a result, Plans with respect to which the Company or any of its
affiliates is a party in interest or a disqualified person should not acquire
Preferred Securities unless such Preferred Securities are acquired pursuant to
and in accordance with an applicable exemption. Any other Plans or other
entities whose assets include Plan assets subject to ERISA or Section 4975 of
the Code proposing to acquire Preferred Securities should consult with their own
counsel.
95
<PAGE> 100
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Underwriters, William R. Hough & Co. and Ryan, Beck & Co., Inc.,
have severally agreed to purchase from RBI Capital the number of Preferred
Securities set forth opposite their respective names below. The Underwriters are
committed to purchase and pay for all Preferred Securities if any Preferred
Securities are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
William R. Hough & Co. ..................................... 1,250,000
Ryan, Beck & Co., Inc. ..................................... 1,250,000
---------
Total............................................. 2,500,000
=========
</TABLE>
The Company has been advised by the Underwriters that the Underwriters
propose initially to offer the Preferred Securities to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $.20 per Preferred
Security. The Underwriters may allow and such dealers may re-allow a concession
not in excess of $.05 per Preferred Security to certain other dealers. After the
offering, the price to the public and other selling terms may be changed by the
Underwriters.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures issued by
the Company, the Underwriting Agreement provides that the Company will pay as
compensation an amount of $.375 per Preferred Security for the Underwriters'
arranging the investment therein of such proceeds.
RBI Capital has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional 375,000
Preferred Securities at the offering price set forth on the cover page hereof,
less underwriting discounts. The Underwriters may exercise such option to
purchase additional Preferred Securities solely for the purpose of covering
over-allotments, if any, incurred in the sale of the Preferred Securities.
To the extent that the Underwriters exercise their option to purchase
additional Preferred Securities, RBI Capital will issue and sell to the Company
additional Common Securities and the Company will issue and sell to RBI Capital
Junior Subordinated Debentures in an aggregate principal amount equal to the
total aggregate Liquidation Amount of the additional Preferred Securities being
purchased pursuant to the option and the additional Common Securities.
Because the National Association of Securities Dealers, Inc. ("NASD") views
the Preferred Securities as interests in a direct participation program, the
offering of the Preferred Securities is being made in compliance with the
applicable provisions of Rule 2810 of the NASD's Conduct Rules. Accordingly,
William R. Hough & Co., which as described below is deemed by the NASD Conduct
Rules to be an affiliate of the Company, has agreed not to execute any
transaction with respect to the Preferred Securities in a discretionary account
without prior written approval of the transaction by the customer.
The Company and RBI Capital have agreed to indemnify the Underwriters
against and contribute toward certain liabilities, including liabilities under
the Securities Act. The Company has agreed to reimburse the Underwriters for
certain expenses and legal fees related to the sale of the Preferred Securities.
The Preferred Securities are a new issue of securities having no trading
market. The Preferred Securities have been approved for listing on Nasdaq's
National Market. The Underwriters have advised RBI Capital that they presently
intend to make a market in the Preferred Securities after the commencement of
trading, but no assurances can be made as to the liquidity of such Preferred
Securities or that an active and liquid trading market will develop or, if
developed, that it will be sustained. The Underwriters will have no obligation
to make a market in the Preferred Securities, however, and may cease
market-making activities, if commenced, at any time.
In connection with the offering of the Preferred Securities, the
Underwriters and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the
96
<PAGE> 101
Securities and Exchange Commission's Regulation M that are intended to
stabilize, maintain or otherwise affect the market price of the Preferred
Securities. Such transactions may include over-allotment transactions in which
the Underwriters create a short position for their own account by selling more
Preferred Securities than they are committed to purchase from RBI Capital. In
such a case, to cover all or part of the short position, the Underwriters may
exercise the over-allotment option described above or may purchase Preferred
Securities in the open market following completion of the initial offering of
the Preferred Securities. The Underwriters also may engage in stabilizing
transactions in which they bid for, and purchase, shares of the Preferred
Securities at a level above that which might otherwise prevail in the open
market for the purpose of preventing or retarding a decline in the market price
of the Preferred Securities. The Underwriters also may reclaim any selling
concessions allowed to an Underwriter or dealer if the Underwriters repurchase
shares distributed by the underwriter or dealer. Any of the foregoing
transactions may result in the maintenance of a price for the Preferred
Securities at a level above that which might otherwise prevail in the open
market. Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Preferred Securities.
The Underwriters are not required to engage in any of the foregoing transactions
and, if commenced, such transactions may be discontinued at any time without
notice.
Under the Conduct Rules of the NASD, no member of the NASD or an affiliate
of such member may participate in the distribution of a public offering of
equity or debt securities issued by a company if the member and/or its
affiliates have a conflict of interest (as defined) unless the price at which
such equity securities, or the yield at which such debt securities, are to be
distributed to the public is no higher with respect to price or no less with
respect to yield than that recommended by a "qualified independent underwriter"
meeting certain standards. As defined by the NASD, a "conflict of interest"
exists when, among other things, a member and/or its affiliates in the aggregate
beneficially own 10% or more of the any class of equity of a company. William R.
Hough, a controlling stockholder of William R. Hough & Co., owns more than 10%
of the Company's common and preferred stock. Accordingly, William R. Hough & Co.
is deemed by the NASD to be an affiliate of the Company.
Since the offering of the Preferred Securities is being made in accordance
with the provisions of Rule 2810 of the NASD Conduct Rules, the provisions of
Rule 2720 of the NASD Conduct Rules, which requires the opinion of a qualified
independent underwriter with respect to the price or yield of a security, do not
apply to this Offering. However, the Company and Ryan, Beck & Co., Inc. have
agreed that Ryan, Beck & Co., Inc. will act as a qualified independent
underwriter in connection with the Offering even though a qualified independent
underwriter is not required by the NASD Conduct Rules. The price and
distribution rate of the Preferred Securities will be no more with respect to
price or no less with respect to distribution rate and yield than that
recommended by Ryan, Beck & Co., Inc., acting as qualified independent
underwriter. Ryan, Beck & Co., Inc. has participated in the preparation of this
Prospectus and the Registration Statement of which this Prospectus is part and
has exercised the appropriate standards of due diligence with respect thereto
and will receive a fee of $10,000 in connection with its services as qualified
independent underwriter, which will be paid from the underwriting discounts set
forth on the cover page of this Prospectus. The Company and RBI Capital have
agreed to indemnify Ryan, Beck & Co., Inc. as the qualified independent
underwriter against certain liabilities, including liabilities under the
Securities Act.
For a description of certain relationships between the Company and William
R. Hough and certain of his affiliates, including William R. Hough & Co., see
Note 16 to the Company's Consolidated Financial Statements included herein.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Trust Agreement and the formation of RBI
Capital will be passed upon by Richards, Layton & Finger, special Delaware
counsel to the Company and RBI Capital. Certain legal matters for the Company
and RBI Capital, including the validity of the Guarantee and the Junior
Subordinated Debentures will be passed upon for the Company and RBI Capital by
Holland & Knight, counsel to the Company and RBI Capital. Certain
97
<PAGE> 102
legal matters will be passed upon for the Underwriters by Stearns Weaver Miller
Weissler Alhadeff & Sitterson, P.A. ("Stearns Weaver"). Holland & Knight and
Stearns Weaver will rely on the opinion of Richards, Layton & Finger as to
matters of Delaware law. Certain matters relating to United States federal
income tax considerations will be passed upon for the Company by Holland &
Knight.
EXPERTS
The consolidated financial statements of Republic Bancshares, Inc. as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, included herein and in the Registration Statement have
been audited by Arthur Andersen LLP, independent certified public accountants,
as indicated in their reports with respect thereto, and are included herein in
reliance and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of F.F.O. Financial Group, Inc. as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, included herein and in the Registration Statement have
been audited by Hacker, Johnson, Cohen & Grieb, independent certified public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance and upon the authority of said firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549; and at the Commission's regional offices at Suite 1400,
500 West Madison Street, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission maintains an Internet
web site that contains reports, proxy and information statements and other
information regarding issuers who file electronically with the Commission. The
address of that site is http://www.sec.gov.
The Company and RBI Capital have filed with the Commission a Registration
Statement on Form S-2 (together with all amendments thereto, the "Registration
Statement"), of which this Prospectus is a part, under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Preferred
Securities, the Junior Subordinated Debentures and the Guarantee. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. In addition, certain documents filed by the
Company with the Commission have been incorporated in this Prospectus by
reference. See "Incorporation of Certain Documents by Reference." For further
information with respect to the Company, RBI Capital, the Preferred Securities
and the Junior Subordinated Debentures, reference is made to the Registration
Statement, including the exhibits thereto and the documents incorporated herein
by reference. Any statements contained herein concerning the provisions of any
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission or incorporated by reference herein are not necessarily
complete, and, in each instance, reference is made to the copy of such document
so filed for a more complete description of the matter involved. Each such
statement is qualified in its entirety by such reference. The Registration
Statement may be inspected without charge at the principal office of the
Commission in Washington, D.C., and copies of all or part of it may be obtained
from the Commission upon payment of the prescribed fees.
No separate financial statements of RBI Capital have been included herein.
The Company does not consider such financial statements to be material to
holders of Preferred Securities because (i) all of the voting securities of RBI
Capital will be owned by the Company, a reporting company under the Exchange
Act, (ii) RBI Capital has no independent operations and exists for the sole
purpose of issuing securities
98
<PAGE> 103
representing undivided beneficial interests in the assets of RBI Capital and
investing the proceeds thereof in Junior Subordinated Debentures issued by the
Company, and (iii) the obligations of the Company described herein to provide
certain indemnities in respect of and be responsible for certain costs,
expenses, debts and liabilities of RBI Capital under the Indenture and pursuant
to the Trust Agreement, the guarantee issued by the Company with respect to the
Preferred Securities, the Junior Subordinated Debentures purchased by RBI
Capital, the related Indenture and the Expense Agreement, taken together,
constitute an irrevocable and unconditional guarantee of payments due on the
Preferred Securities. See "Description of the Junior Subordinated Debentures"
and "Description of the Guarantee."
RBI Capital is not currently subject to the information reporting
requirements of the Exchange Act and the Company does not expect that RBI
Capital will file reports, proxy statements and other information under the
Exchange Act with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated in this Prospectus by reference and made a part hereof:
(1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1996, filed with the Commission on March 31, 1997.
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, filed with the Commission on April 15, 1997.
Any statement contained in a document incorporated by reference herein,
shall be deemed to be modified or superseded for purposes of the Registration
Statement and this Prospectus to the extent that a statement contained herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference, other than
certain exhibits to such documents. Written requests should be directed to
Republic Bancshares, Inc., 111 Second Avenue N.E., St. Petersburg, Florida
33701, Attention: Secretary, telephone: (813) 823-7300.
99
<PAGE> 104
REPUBLIC BANCSHARES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPUBLIC BANCSHARES, INC.
Report of Independent Certified Public Accountants........ F-2
Consolidated Balance Sheets at December 31, 1996 and
1995................................................... F-3
Consolidated Statements of Operations for the three years
ended December 31, 1996, 1995 and 1994................. F-4
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1994, 1995 and 1996..... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994....................... F-6
Notes to Consolidated Financial Statements................ F-7
REPUBLIC BANCSHARES, INC.
Consolidated Balance Sheets at March 31, 1997 (unaudited)
and December 31, 1996.................................. F-30
Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996 (unaudited).............. F-31
Consolidated Statements of Stockholders' Equity for the
three months ended March 31, 1997 (unaudited) and the
year ended December 31, 1996........................... F-32
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 (unaudited).............. F-33
Notes to Consolidated Financial Statements................ F-34
F.F.O. FINANCIAL GROUP, INC.
Independent Auditors' Report.............................. F-37
Consolidated Balance Sheets at December 31, 1996 and
1995................................................... F-38
Consolidated Statements of Income for the three years
ended December 31, 1996, 1995 and 1994................. F-39
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1996, 1995 and 1994..... F-40
Consolidated Statements of Cash Flows for the three years
ended December 31, 1996, 1995 and 1994................. F-41
Notes to Consolidated Financial Statements................ F-42
F.F.O. FINANCIAL GROUP, INC.
Condensed Consolidated Balance Sheets at March 31, 1997
(unaudited) and December 31, 1996...................... F-60
Condensed Consolidated Statements of Income for the three
months ended March 31, 1997 and 1996 (unaudited)....... F-61
Condensed Consolidated Statements of Stockholders' Equity
for the three months ended March 31, 1997
(unaudited)............................................ F-62
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996
(unaudited)............................................ F-63
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................ F-64
Review by Independent Certified Public Accountants........ F-66
Report on Review by Independent Certified Public
Accountants............................................ F-67
</TABLE>
F-1
<PAGE> 105
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of Republic Bancshares, Inc.:
We have audited the accompanying consolidated balance sheets of Republic
Bancshares, Inc. (a Florida corporation) and subsidiary as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Republic Bancshares, Inc.
and subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida
February 7, 1997 (except with
respect to the matter discussed
in Note 18, as to which the
date is March 10, 1997)
F-2
<PAGE> 106
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUES)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 27,810 $ 19,806
Interest bearing deposits in banks.......................... 118 2
Investment securities:
Held to maturity (Note 2)................................. -- 7,015
Available for sale........................................ 74,397 38,147
Mortgage backed securities (Note 3):
Held to maturity.......................................... -- 17,112
Available for sale........................................ 20,004 2,527
FHLB stock.................................................. 4,830 3,540
Federal funds sold.......................................... 8,000 14,621
Loans held for sale (Note 4)................................ 36,590 4,711
Loans, net (Notes 4 and 5).................................. 693,270 649,795
Premises and equipment, net (Note 6)........................ 19,715 18,991
Other real estate owned (Note 7):
Acquired through foreclosure, net......................... 7,363 8,064
Held for investment....................................... -- 2,498
Other assets (Note 8)....................................... 15,771 15,166
-------- --------
Total assets...................................... $907,868 $801,995
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing checking........................... $ 50,060 $ 45,641
Interest checking...................................... 87,639 71,592
Money market........................................... 32,665 38,535
Savings................................................ 245,951 91,935
Time deposits (includes $49,323 and $57,213,
respectively of time deposits of $100,000 or more).... 411,665 495,402
-------- --------
Total deposits.................................... 827,980 743,105
Securities sold under agreements to repurchase............ 15,372 3,072
Subordinated debt, 6% rate, matures December 1, 2011,
(Note 9)............................................... 6,000 --
Other liabilities......................................... 4,197 4,915
-------- --------
Total liabilities................................. 853,549 751,092
-------- --------
Off-balance-sheet risk, commitments and contingencies (Note
10)
Stockholders' equity (Note 13):
Perpetual preferred convertible stock ($20.00 par, 100,000
shares authorized, 75,000 shares issued and
outstanding. Liquidation preference $6,600 at December
31, 1996 and 1995.).................................... 1,500 1,500
Common stock ($2.00 par, 20,000,000 shares authorized and
4,183,507 shares issued and outstanding at December 31,
1996 and 1995)......................................... 8,367 8,367
Capital surplus........................................... 26,699 26,699
Retained earnings......................................... 17,849 14,329
Net unrealized gains (losses) on available-for-sale
securities, net of tax effect.......................... (96) 8
-------- --------
Total stockholders' equity........................ 54,319 50,903
-------- --------
Total liabilities and stockholders' equity........ $907,868 $801,995
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 107
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans............................... $ 62,244 $ 52,389 $ 32,699
Interest on investment securities........................ 1,413 1,431 1,939
Interest on mortgage-backed securities................... 1,325 827 --
Interest on federal funds sold........................... 1,633 2,968 2,448
Interest on other investments............................ 332 248 29
---------- ---------- ----------
Total interest income............................ 66,947 57,863 37,115
---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits..................................... 32,426 29,874 16,767
Interest on FHLB advances................................ 52 -- 36
Interest on other borrowings............................. 448 127 68
---------- ---------- ----------
Total interest expense........................... 32,926 30,001 16,871
---------- ---------- ----------
Net interest income.............................. 34,021 27,862 20,244
PROVISION FOR LOAN LOSSES (Note 5)......................... 1,800 1,685 1,575
---------- ---------- ----------
Net interest income after provision for possible
loan losses.................................... 32,221 26,177 18,669
---------- ---------- ----------
NONINTEREST INCOME:
Service charges and fees on deposits..................... 1,606 1,395 1,247
Income from mortgage banking activities.................. 1,002 124 --
Gain on sale of ORE -- held for investment............... 1,207 -- --
Securities gains, net.................................... 370 27 1
Other operating income................................... 1,431 1,205 1,364
---------- ---------- ----------
Total noninterest income......................... 5,616 2,751 2,612
NONINTEREST EXPENSES:
Salaries and employee benefits........................... 14,309 11,251 7,339
Net occupancy expense.................................... 4,507 3,211 1,308
Data processing fees..................................... 1,451 1,152 1,472
FDIC and state assessments............................... 949 1,566 1,187
Other operating expense.................................. 6,136 4,939 3,610
---------- ---------- ----------
Total general and administrative expenses........ 27,352 22,119 14,916
SAIF special assessment.................................. 2,539 -- --
Provisions for losses on ORE............................. 1,611 -- 10
ORE expense, net of ORE income........................... (172) 289 422
Amortization of premium on deposits...................... 491 450 1,269
---------- ---------- ----------
Total noninterest expenses....................... 31,821 22,858 16,617
---------- ---------- ----------
Income before negative goodwill accretion and income
taxes.................................................... 6,016 6,070 4,664
Negative goodwill accretion (Note 1)....................... -- 1,578 2,705
---------- ---------- ----------
Income before income taxes................................. 6,016 7,648 7,369
Income tax provision (Note 8).............................. 2,232 1,875 468
---------- ---------- ----------
NET INCOME....................................... $ 3,784 $ 5,773 $ 6,901
========== ========== ==========
PER SHARE DATA:
Net income per common and common equivalent share
(Note 14)........................................... $ .76 $ 1.26 $ 1.67
========== ========== ==========
Weighted average common and common equivalent shares
outstanding (Note 14)............................... 4,952,937 4,562,642 4,136,790
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 108
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERPETUAL NET UNREALIZED
PREFERRED GAINS
CONVERTED STOCK COMMON STOCK (LOSSES)
--------------- ------------------ ON AVAILABLE
SHARES SHARES CAPITAL RETAINED FOR SALE
ISSUED AMOUNT ISSUED AMOUNT SURPLUS EARNINGS SECURITIES TOTAL
------ ------ --------- ------ ------- -------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993....... 75,000 $1,500 3,365,387 $6,731 $19,041 $ 2,182 $ -- $29,454
Net income..................... -- -- -- -- -- 6,901 -- 6,901
Net unrealized losses on
available-for-sale
securities, net of tax
effect....................... -- -- -- -- -- -- (54) (54)
Proceeds from exercise of stock
options...................... -- -- 14,950 30 98 -- -- 128
Dividends on preferred stock... -- -- -- -- -- (264) -- (264)
------ ------ --------- ------ ------- ------- ----- -------
BALANCE, DECEMBER 31, 1994....... 75,000 1,500 3,380,337 6,761 19,139 8,819 (54) 36,165
Net income..................... -- -- -- -- -- 5,773 -- 5,773
Net unrealized gains on
available-for-sale
securities, net of tax
effect....................... -- -- -- -- -- -- 62 62
Issuance of common stock....... -- -- 800,000 1,600 7,537 -- -- 9,137
Proceeds from exercise of stock
options...................... -- -- 3,170 6 23 -- -- 29
Dividends on preferred stock... -- -- -- -- -- (263) -- (263)
------ ------ --------- ------ ------- ------- ----- -------
BALANCE, DECEMBER 31, 1995....... 75,000 1,500 4,183,507 8,367 26,699 14,329 8 50,903
Net income..................... -- -- -- -- -- 3,784 -- 3,784
Net unrealized loss on
available-for-sale
securities, net of tax
effect....................... -- -- -- -- -- -- (104) (104)
Dividends on preferred stock... -- -- -- -- -- (264) -- (264)
------ ------ --------- ------ ------- ------- ----- -------
BALANCE, DECEMBER 31, 1996....... 75,000 $1,500 4,183,507 $8,367 $26,699 $17,849 $ (96) $54,319
====== ====== ========= ====== ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 109
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.............................................. $ 3,784 $ 5,773 $ 6,901
Reconciliation of net income to net cash provided:
Provision for loan and ORE losses.................... 3,411 1,685 1,585
Depreciation and amortization, net................... (1,539) (26) 129
Amortization of premium and (accretion) of fair
value, net......................................... 553 (901) (1,162)
Gain on sale of loans................................ (1,002) (124) --
Gain on sale of investment securities................ (370) (27) --
Gain on sale of other real estate owned.............. (1,442) (4) (89)
Capitalization of mortgage servicing................. (1,741) -- --
Gain on disposal of premises and equipment........... (2) -- 75
Net increase in deferred tax benefit................. (1,574) (1,024) --
Net (increase) decrease in other assets.............. 2,222 (3,455) (1,887)
Net increase (decrease) in other liabilities......... (719) 2,179 (339)
--------- --------- ---------
Net cash provided by operating activities....... 1,581 4,076 5,213
--------- --------- ---------
INVESTING ACTIVITIES:
Net (increase) decrease in interest bearing deposits in
banks................................................ (116) 148 550
Proceeds from sale of premises and equipment............ -- -- 13
Proceeds from sales and maturities of:
Investment securities held to maturity............... 7,000 24,000 18,900
Investment securities available for sale............. 72,545 3,972 6,991
Mortgage backed securities held to maturity.......... 15,455 -- --
Mortgage backed securities available for sale........ 6,393 9,732 --
Purchase of investment securities held to maturity...... -- -- (19,669)
Purchase of investment securities available for sale.... (108,636) (33,083) (10,989)
Purchase of mortgage backed securities.................. (20,105) -- --
Principal repayment on mortgage backed securities....... 4,431 714 --
Purchase of FHLB stock.................................. (1,291) (2,248) (1,292)
Net increase in loans................................... (85,087) (178,001) (197,859)
Purchase of premises and equipment...................... (2,201) (6,282) (3,088)
Proceeds from sale of other real estate owned........... 8,270 3,234 5,260
Investments in other real estate owned (net)............ 232 358 (7,246)
--------- --------- ---------
Net cash used in investing activities........... (103,110) (177,456) (208,429)
--------- --------- ---------
FINANCING ACTIVITIES:
Net increase in deposits................................ 84,875 159,212 89,551
Net increase in repurchase agreements................... 12,301 991 916
Proceeds from issuance of subordinated debt............. 6,000 -- --
Proceeds from issuance of common stock.................. -- 9,166 128
Dividends on perpetual preferred stock.................. (264) (263) (264)
--------- --------- ---------
Net cash provided by financing activities....... 102,912 169,106 90,331
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 1,383 (4,274) (112,885)
CASH AND CASH EQUIVALENTS, beginning of period............ 34,427 38,701 151,586
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.................. $ 35,810 $ 34,427 $ 38,701
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest............................................. $ 33,031 $ 29,419 $ 16,448
Income taxes......................................... 4,144 1,516 2,222
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 110
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION AND ORGANIZATION
The consolidated financial statements of Republic Bancshares, Inc. (the
Company) include the accounts of the Company, and Republic Bank (the "Bank") and
the Bank's wholly-owned subsidiaries, RBREO, Inc., Tampa Bay Equities, Inc., VQH
Development, Inc., and Republic Insurance Agency, Inc. All significant
intercompany accounts and transactions have been eliminated. On November 21,
1995, the Bank's Board of Directors approved for shareholder consideration an
Amended and Restated Plan of Share Exchange and Reorganization (the
"Reorganization") under which the Bank became a wholly-owned subsidiary of
Company. On the effective date and time of the Reorganization, all holders of
shares of the Bank's Common and Preferred Stock at the November 30, 1995 record
date received one share of Company Common Stock for each share of the Bank's
Common Stock held of record and one share of Company Preferred Stock for each
share of the Bank's Preferred Stock held of record. Holders of outstanding
options to purchase or acquire the Bank's Common Stock received options to
purchase an equal number of shares of Company Common Stock. All necessary
governmental and shareholder approvals for the Reorganization were received. The
Company's primary source of income is from its banking subsidiary which operates
32 branches throughout west central Florida. The Bank's primary source of
revenue is derived from net interest income on loans and investments and income
from mortgage banking activities.
NEGATIVE GOODWILL
On May 28, 1993 (the "Purchase Date") over 99 percent of the Company's
outstanding common stock was acquired for $4,450,000 (the "Purchase Price").
Also, on May 28, 1993, 583,334 additional shares of common stock were issued for
$3,500,000. The acquisition was accounted for by the purchase method of
accounting. Assets and liabilities were restated based upon their fair value as
of the Purchase Date. The excess of the restated net book value over the
Purchase Price was recorded as a reduction of the non current assets, to the
extent available. The remaining difference was recorded as excess of fair value
over purchase price ("negative goodwill"), as follows (in thousands):
<TABLE>
<S> <C>
Adjustments to fair market value:
Loans..................................................... $ 596
Investment securities..................................... 161
Time deposits............................................. 36
Write-off of noncurrent assets:
Premises and equipment.................................... (1,432)
Other assets.............................................. (43)
Adjustments to equity accounts:
Retained earnings......................................... 1,320
Capital surplus........................................... 5,224
-------
Excess of fair value over purchase price.................... $ 5,862
=======
</TABLE>
The negative goodwill was accreted into income on a straight-line basis
over 26 months beginning May 28, 1993 and ending July 31, 1995, which was based
on the estimated life of the loans, investments and deposits acquired. The
premiums on loans and investment securities and the discount on demand and other
time deposits were amortized into income on a straight-line basis over periods
based on the estimated life of the related loans, securities or deposits ranging
from 12 to 30 months.
F-7
<PAGE> 111
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEPENDENCE ON ESTIMATES, APPRAISALS AND EVALUATIONS
The financial statements, in conformity with generally accepted accounting
principles, are dependent upon estimates, appraisals and evaluations of loans,
other real estate owned and other assets and liabilities, and disclosure of
contingent assets and liabilities. Changes in such estimates, appraisals and
evaluations might be required because of rapidly changing economic conditions,
changing economic prospects of borrowers and other factors. Actual results may
differ from those estimates.
INVESTMENT SECURITIES
Securities that the Company has both the positive intent and ability to
hold to maturity are classified as Held to Maturity and are carried at
historical cost, adjusted for amortization of premiums and accretion of
discounts. Securities Available for Sale, which are those securities that may be
sold prior to maturity as part of asset/liability management or in response to
other factors, are carried at fair value with any valuation adjustment reported
in a separate component of stockholders' equity, net of tax effect.
Interest and dividends on investment securities and amortization of
premiums and accretion of discounts are reported in interest on investment
securities. Gains (losses) realized on sales of investment securities are
generally determined on the specific identification method and are reported
under non-interest income.
LOANS
Interest on commercial and real estate loans and substantially all
installment loans is recognized monthly on the loan balance outstanding. The
Company's policy is to discontinue accruing interest on loans 90 days or more
delinquent and restructured loans that have not yet demonstrated a sufficient
payment history, which, in the opinion of management, may be doubtful as to the
collection of interest or principal. These loans are designated as "non-accrual"
and any accrued but unpaid interest previously recorded is reversed against
current period interest revenue.
Loan origination and commitment fees net of certain costs are deferred, and
the amount is amortized as an adjustment to the related loan's yield, generally
over the contractual life of the loan. Unearned discounts and premiums on loans
purchased are deferred and amortized as an adjustment to interest income on a
basis that approximates level rates of return over the terms of the loan.
HEDGING CONTRACTS AND LOANS HELD FOR SALE
The Company manages its interest rate market risk on the loans held for
sale and its estimated future commitments to originate and close mortgage loans
for borrowers at fixed prices ("Locked Loans") through hedging techniques which
include derivative contracts and fixed price forward delivery commitments
("Forward Commitments") to sell mortgage- backed securities or specific whole
loans to investors on a mandatory or best efforts basis. The Company records the
inventory of loans held for sale at the lower of cost or market on an aggregate
basis after considering any market value changes in the loans held for sale,
Locked Loans, and Forward Commitments.
MORTGAGE SERVICING RIGHTS
On July 1, 1995, SFAS No. 122, "Accounting for Mortgage Servicing Rights,
an amendment of FASB Statement No. 65", was adopted. SFAS No. 122 permits an
allocation of a portion of the cost of loan origination to the rights to service
mortgage loans. Approximately $1,188,000 and $117,000 was capitalized relating
to originated mortgage servicing rights ("OMSRs") during 1996 and 1995,
respectively. As of December 31, 1996 and 1995, the unamortized portion of these
OMSRs were $1,271,000 and $113,000, respectively. For purposes of measuring
impairment, OMSRs are stratified based on the loan type, interest rate and
maturity of the underlying loans.
F-8
<PAGE> 112
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF
LIABILITIES
The FASB has issued SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities", which is effective for
the Company's fiscal year beginning January 1, 1997. SFAS 125 provides standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The impact of the adoption of SFAS 125 upon the
results of operations of the Company is not expected to be material.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses provides for risks of losses inherent in the
credit extension process. Losses and recoveries are either charged or credited
to the allowance. The Company's allowance is an amount that management believes
will be adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. The evaluations are periodically
reviewed and adjustments are recorded in the period in which changes become
known.
ACCOUNTING FOR IMPAIRMENT OF LOANS
The Company's measurement of impaired loans includes those loans which are
nonperforming and have been placed on non-accrual status and those loans which
are performing according to all contractual terms of the loan agreement but may
have substantive indication of potential credit weakness. As of December 31,
1996, $19.3 million of loans were considered impaired by the Company. Of this
amount, $15.4 million were carried on a non-accrual basis. Approximately 17.68%
of these loans were measured for impairment using the fair value of collateral,
while the remaining 82.32% were measured using the present value of the expected
future cash flows discounted at the loan's effective rate. As a result of these
measurements, approximately $17.0 million of these loans required valuation
allowances, totaling $2.2 million, which are included within the overall
allowance for loan losses at December 31, 1996. Residential mortgages and
consumer loans and leases outside the scope of SFAS 114 are collectively
evaluated for impairment. Average impaired loans during 1996 were approximately
$19.8 million and the amount of cash basis interest income recognized on these
loans was $.7 million.
As of December 31, 1995, $20.2 million of loans were considered impaired by
the Company. Of this amount, $14.8 million were carried on a non-accrual basis.
Approximately 7.84% of these loans were measured for impairment using the fair
value of collateral, while the remaining 92.16% were measured using the present
value of the expected future cash flows discounted at the loan's effective rate.
As a result of these measurements, approximately $18.7 million of these loans
required valuation allowances, totaling $2.1 million, which were included within
the overall allowance for loan losses at December 31, 1995. Average impaired
loans during 1995 were approximately $20.7 million, and the amount of cash basis
interest income recognized on these loans was $.6 million.
F-9
<PAGE> 113
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the related assets,
except for leasehold improvements for which the lesser of the estimated useful
life of the asset or the term of the lease is used. The useful lives used in
computing depreciation and amortization are as follows:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Buildings and improvements.................................. 39
Furniture and equipment..................................... 7
Leasehold improvements...................................... 5 - 15
</TABLE>
Gains and losses on routine dispositions are reflected in current
operations. Maintenance, repairs and minor improvements are charged to operating
expenses, and major replacements and improvements are capitalized.
OTHER REAL ESTATE
Other real estate owned ("ORE") represents property acquired through
foreclosure proceedings held for sale and real estate held for investment. ORE
is carried at its fair value, net of a valuation allowance established to reduce
cost to fair value. Losses are charged to the valuation allowance and recoveries
are credited to the allowance. Declines in market value and gains and losses on
disposal are reflected in current operations in ORE expense. Recoverable costs
relating to the development and improvement of ORE are capitalized whereas
routine holding costs are charged to expense. The sales of these properties are
dependent upon various market conditions. Management is of the opinion that such
sales will result in net proceeds at least equal to present carrying values.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
The FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of," which was effective for the
Company's fiscal year beginning January 1, 1996. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held and used be
reviewed for impairment whenever events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable. If the sum of the expected
future cash flows from the use of the asset and its eventual disposition is less
than the carrying amount of the asset, an impairment loss is recognized. SFAS
No. 121 also requires that certain assets to be disposed of be measured at the
lower of carrying amount or the net realizable value. The impact of adopting
SFAS 121 upon the results of operations of the Company was not material.
INCOME TAXES
The Company follows the liability method which establishes deferred tax
assets and liabilities for the temporary differences between the financial
reporting bases and the tax bases of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. Net deferred tax assets, whose realization is dependent on taxable
earnings of future years, are recognized when a more-likely-than-not criterion
is met, that is, unless a greater than 50% probability exists that the tax
benefits will not actually be realized sometime in the future.
Effective April 1, 1995, federal regulations restricted the amount of
deferred tax assets that can be used to meet regulatory capital requirements to
an amount that the institution expects to realize within one year, or 10% of
Tier 1 capital, whichever is less.
F-10
<PAGE> 114
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company and its subsidiary file consolidated tax returns with the
federal and state taxing authorities. A tax sharing agreement exists between the
Company and the Bank whereby taxes for the Bank are computed as if the Bank were
a separate entity. Amounts to be paid or credited with respect to current taxes
are paid to or received from the Company.
PREMIUM ON DEPOSITS
A premium on deposits is recorded for the difference between cash received
and the carrying value of deposits acquired in purchase transactions. This
premium is being amortized on a straight-line basis over 3 to 4 years.
Approximately $527,000 and $1,017,000 was included in other assets in the
accompanying financial statements, as of December 31, 1996 and 1995.
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). Effective in 1996, the Company adopted the disclosure
option of SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
which requires that companies not electing to account for stock-based
compensation as prescribed by the statement, disclose the pro forma effects on
earnings and earnings per share as if SFAS 123 had been adopted. Additionally,
certain other disclosures are required with respect to stock compensation and
the assumptions used are to determine the pro forma effects of SFAS 123.
CASH EQUIVALENTS
For purposes of preparing the Consolidated Statements of Cash Flows, cash
equivalents are defined to include cash and due from banks and federal funds
sold.
RECLASSIFICATIONS
Certain reclassifications have been made to prior period financial
statements to conform with the 1996 financial statement presentation.
2. INVESTMENT SECURITIES:
The Company's investment securities consisted primarily of U.S. Treasury
Bills and Notes. The investment securities of the Company at December 31, 1996
and 1995 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1996:
Securities available-for-sale:
U.S. Government Treasuries................ $72,905 $-- $ (53) $72,852
Revenue bond.............................. 1,545 -- -- 1,545
------- --- ------- -------
Securities available-for-sale........ $74,450 $-- $ (53) $74,397
======= === ======= =======
AT DECEMBER 31, 1995:
U.S. Government Treasuries held to
maturity.................................. $ 7,015 $-- $ (6) $ 7,009
U.S. Government Treasuries available for
sale...................................... 38,121 27 (1) 38,147
------- --- ------- -------
Total U.S. Treasuries & Federal
Agency Notes....................... $45,136 $27 $ (7) $45,156
======= === ======= =======
</TABLE>
F-11
<PAGE> 115
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C> <C> <C>
BOOK VALUE AT DECEMBER 31:
Securities held to maturity.................. $ -- $ 7,015
Securities available-for-sale................ 74,397 38,147
------- -------
Total U.S. Treasuries................ $74,397 $45,162
======= =======
</TABLE>
The amortized cost and estimated market value of investment securities at
December 31, 1996, by contractual maturity are shown below (in thousands):
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
--------------------------------
ESTIMATED WEIGHTED
AMORTIZED MARKET AVERAGE
COST VALUE YIELD
--------- --------- --------
<S> <C> <C> <C>
Due in 1 year or less.................................... $61,367 $61,358 4.84%
Due after 1 year through 5 years......................... 13,083 13,039 6.02
------- -------
Total.................................................... $74,450 $74,397 5.05
======= =======
</TABLE>
Proceeds from sales of U.S. Treasury and Federal Agency Notes during the
years ended 1996, 1995 and 1994, were $7,545,000, $2,972,000, and $6,991,000,
respectively. Gross losses of $0, $27,891 and $0 were realized for the years
ended December 31, 1996, 1995 and 1994. Gross gains of $45,404, $0, and $1,094,
were realized during the years ended December 31, 1996, 1995 and 1994,
respectively. U.S. Treasuries and Federal Agency Notes with a par value of
$19,000,000 and $8,000,000 at December 31, 1996 and 1995, respectively, were
pledged to secure public deposits and for other purposes.
3. MORTGAGE BACKED SECURITIES:
Mortgage-backed securities ("MBS"), sometimes referred to as pass-through
certificates, represent an interest in a pool of loans. The securities are
issued by three government agencies or corporations: (i) the Government National
Mortgage Association ("GNMA"), (ii) the Federal Home Loan Mortgage Corporation
("FHLMC") and (iii) the Federal National Mortgage Association ("FNMA"). During
1996 and 1995 the Company securitized loans with a carrying value of $6,282,000
and $30,048,000, respectively, through FHLMC. The Company's MBS portfolio at
December 31, 1996 consisted solely of variable rate securities issued by GNMA,
and payments on those securities are backed by that government agency. MBS
securities held to maturity are recorded at amortized cost, while securities
available-for-sale are recorded at estimated market value. Mortgage backed
securities are summarized as follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1996:
GNMA held to maturity........................ $ -- $ -- $ -- $ --
GNMA available for sale...................... 20,105 -- (101) 20,004
------- ---- ----- -------
Total mortgage backed securities..... $20,105 $ -- $(101) $20,004
======= ==== ===== =======
AT DECEMBER 31, 1995:
FHLMC held to maturity....................... $17,112 $114 $ (20) $17,206
FHLMC available for sale..................... 2,540 -- (13) 2,527
------- ---- ----- -------
Total mortgage backed securities..... $19,652 $114 $ (33) $19,733
======= ==== ===== =======
</TABLE>
F-12
<PAGE> 116
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
BOOK VALUE AT DECEMBER 31:
Securities held to maturity............................... $ -- $17,112
Securities available-for-sale............................. 20,004 2,527
------- -------
Total MBS......................................... $20,004 $19,639
======= =======
</TABLE>
At December 31, 1996 all MBS securities available for sale were scheduled
to reprice in one year or less.
The amortized cost and estimated market value of the MBS portfolio at
December 31, 1996, by contractual maturity are shown below (in thousands).
Actual maturities may differ from contractual maturities as a result of
prepayments of the underlying mortgages:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
--------------------------------
ESTIMATED WEIGHTED
AMORTIZED MARKET AVERAGE
COST VALUE YIELD
--------- --------- --------
<S> <C> <C> <C>
Due after 10 years....................................... $20,105 $20,004 5.53%
------- -------
Total.......................................... $20,105 $20,004 5.53%
======= =======
</TABLE>
During 1996, the Company sold FHLMC securities, with an amortized cost of
$15,455,000, which had previously been classified as "Held-to-Maturity",
recording net gains of $300,201, and purchased GNMA securities. The purpose of
this transaction was to reduce the Company's capital requirements. As a result,
and in compliance with SFAS 115 "Accounting for Certain Investments in Debt and
Equity Securities", all investment securities are classified as
"available-for-sale" as of December 31, 1996.
Proceeds from sales of MBS securities during the years ended December 31,
1996 and 1995 were $21,077,000 and $9,732,000, respectively. Gross gains of
$354,837 and $55,038 and gross losses of $31,845 and $0, respectively, were
realized on these sales. None of the MBS securities were pledged to secure
public deposits or for other purposes at December 31, 1996.
4. LOANS AND LOANS HELD FOR SALE:
Loans at December 31, 1996 and 1995, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Real estate mortgage loans:
One-to-four family residential............................ $385,701 $386,524
Multi-family residential.................................. 70,967 77,802
Commercial real estate.................................... 182,298 153,193
Construction/land development............................. 27,050 13,974
Commercial loans............................................ 34,617 29,898
Consumer loans.............................................. 9,860 6,798
Other loans................................................. 1,294 2,367
-------- --------
Total gross portfolio loans....................... 711,787 670,556
Less-allowance for loan losses (Note 5)..................... (13,134) (14,910)
Less-premiums and unearned discounts on loans purchased..... (4,731) (4,561)
Less-unamortized loan fees.................................. (652) (1,290)
-------- --------
Total loans held for portfolio.................... 693,270 649,795
Residential loans held for sale............................. 36,590 4,711
-------- --------
Total loans....................................... $729,860 $654,506
======== ========
</TABLE>
F-13
<PAGE> 117
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1996, the Company had $36,590,000 of 1-4 residential
mortgage loans available for sale with a weighted average interest rate of
8.72%. As of December 31, 1995 loans available for sale were approximately
$4,711,000, which approximated market value, with a weighted average interest
rate of 7.47%. Mortgage loans serviced for others as of December 31, 1996 and
1995 were $120,711,000 and $39,951,000, respectively.
Loans on which interest was not being accrued totaled approximately
$15,351,000, $14,813,000, and $12,948,000 at December 31, 1996, 1995 and 1994,
respectively. Had interest been accrued on these loans at their originally
contracted rates, interest income would have been increased by approximately
$1,138,000, $1,329,000, and $647,000 in the years ended December 31, 1996, 1995
and 1994, respectively. Loans past due 90 days or more and still accruing
interest at December 31, 1996 and 1995, totaled approximately $113,000 and
$1,876,000, respectively. The Company restructured loans totaling $2,516,000 and
$145,000 during 1996 and 1995, respectively.
5. ALLOWANCE FOR LOAN LOSSES:
Changes in the allowance for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Balance,
beginning of period..................................... $14,910 $ 7,065 $ 6,539
Provision for possible loan losses...................... 1,800 1,685 1,575
Discount on purchased loans allocated to (from) loan
loss reserve......................................... (1,732) 7,658 643
Loans charged off....................................... (2,110) (1,947) (1,870)
Recoveries of loans charged off......................... 266 449 178
------- ------- -------
Balance,
end of period........................................... $13,134 $14,910 $ 7,065
======= ======= =======
</TABLE>
While management believes that the allowance for loan losses is adequate at
December 31, 1996, based on currently available information, future additions to
the allowance may be necessary due to changes in economic conditions,
deterioration of creditworthiness of the borrower, the value of underlying
collateral or other factors. Additionally, the Florida Department of Banking and
Finance, the FDIC, and the Federal Reserve, as an integral part of their regular
examination process, periodically review the allowance for loan losses. These
agencies may require additions to the allowance based on their judgments about
information available to them at the time of examination.
The portion of the allowance for loan losses which arose due to the
allocation of discounts on purchased loans may only be used to absorb losses on
the related acquired loans. As of December 31, 1996 and 1995, approximately
$7,150,000 and $10,249,000 of the reserve had arisen through an allocation of
discounts on purchased loans.
F-14
<PAGE> 118
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PREMISES AND EQUIPMENT:
Premises and equipment at December 31, 1996 and 1995, included (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Land........................................................ $ 4,951 $ 4,951
Buildings and improvements.................................. 9,216 8,671
Furniture and equipment..................................... 7,371 6,120
Leasehold improvements...................................... 1,051 903
Construction in progress.................................... 268 11
------- -------
Total premises and equipment...................... 22,857 20,656
Less-accumulated depreciation and amortization.............. (3,142) (1,665)
------- -------
Premises and equipment, net............................... $19,715 $18,991
======= =======
</TABLE>
7. OTHER REAL ESTATE (ORE):
State banking regulations require the Company to dispose of all ORE
acquired through foreclosure within five years of acquisition, with a
possibility for additional extensions, each of up to five years. Failure to
receive additional extensions could result in losses on ORE. There were two ORE
properties totaling $4,477,000 at December 31, 1996, which were required to be
disposed of by year-end. The Company has been granted an extension on these
properties by the State. As of December 31, 1996, a third property, in the
amount of approximately $254,000, is required to be disposed of no later than
December 31, 1997. Management expects an extension will also be granted by the
State on this property if not sold. In addition, federal banking regulations had
required the Bank to dispose of one of these properties amounting to $3,200,000
by December 31, 1996 but the FDIC has granted an extension of the holding period
to December 19, 1997. While the current appraisal on this property indicates
that the market value of the tract exceeds its book value, a sale to a party
other than an end-user could result in proceeds below the current book value.
During 1995, the former headquarter building was vacated and that space was
leased to a third party. Since that building was no longer used for banking
purposes, approximately $2,498,000 was transferred from premises and equipment
to ORE held for investment. During 1996, this building was sold and a gain of
$1,207,000 was recorded.
Loans converted to ORE through foreclosure proceedings totaled $6,910,000,
and $2,639,000, for the years ended December 31, 1996 and 1995, respectively.
Sales of ORE that were financed by the Company totaled $3,676,000 and $1,358,000
for the years ended December 31, 1996 and 1995, respectively.
Changes in the valuation allowance for ORE were as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
BALANCE, beginning of period............................. $ 966 $1,170 $1,718
Provision.............................................. 1,611 -- 10
Charge-offs............................................ (63) (204) (558)
------ ------ ------
BALANCE, end of period................................... $2,514 $ 966 $1,170
====== ====== ======
</TABLE>
F-15
<PAGE> 119
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES:
Income taxes are comprised of the following (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current provision........................................ $3,744 $2,899 $2,612
Deferred benefit......................................... (1,512) (1,024) (2,144)
------ ------ ------
$2,232 $1,875 $ 468
====== ====== ======
</TABLE>
At December 31, 1996, the Company had approximately $670,000 of remaining
federal and $2,393,000 of state net operating loss carryforwards. These
carryforwards expire in the years 2006 through 2008.
Following the change of ownership in 1993, recognition of net operating
loss carryforwards were limited to approximately $259,000 each year. If the full
amount of the limitation is not used in any years, the amount not used increases
the allowable limit in the subsequent year.
Deferred tax assets and liabilities were comprised of the following at
December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Gross deferred tax assets:
Tax bases over financial bases for loans (loan loss
reserve & discounts)................................... $2,329 $1,230
Financial amortization of premium over tax amortization... 646 533
Interest on non-accrual loans............................. 315 250
Tax bases over financial bases for ORE.................... 1,286 634
Net operating losses and tax credit carryforward.......... 314 411
Mark-to-market-loans held for sale........................ 232 --
Other..................................................... 145 160
------ ------
Gross deferred tax asset.......................... 5,267 3,218
Gross deferred tax liabilities.................... 567 93
------ ------
Net deferred tax asset............................ $4,700 $3,125
====== ======
</TABLE>
The valuation allowance for the deferred tax asset was $1,604,000 at
December 31, 1993. The valuation allowance was subsequently eliminated during
the years ended December 31, 1995 and 1994 by decreases to tax expense of
$177,000 and $1,427,000, respectively. There were no valuation allowances
against the deferred tax asset for the years ended December 31, 1996 and 1995 as
management has determined that it is more likely than not that all of the
deferred tax asset recorded will be realized. The net deferred tax asset
increased during 1996 and 1995 by approximately $63,000 and $38,000,
respectively, relating to the unrealized gain on available for sale securities
which is recorded directly to stockholders' equity.
F-16
<PAGE> 120
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's effective tax rate varies from the statutory rate of 34
percent. The reasons for this difference are as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
Computed "expected" tax provision........................... $2,045 $2,600 $ 2,505
Increase (reduction) of taxes:
Tax-exempt interest income................................ (22) (27) (29)
Valuation allowance....................................... -- (177) (1,427)
Amortization of excess of fair value over purchase
price.................................................. -- (536) (1,017)
State taxes............................................... 217 216 265
Other..................................................... (8) (201) 171
------ ------ -------
Total............................................. $2,232 $1,875 $ 468
====== ====== =======
</TABLE>
9. SUBORDINATED DEBT:
On December 27, 1996, the Company issued $6,000,000 in convertible
subordinated debentures at a fixed interest rate of 6.00%, interest payable
semi-annually, with a maturity of December 1, 2011. The Company has the right to
redeem the debentures beginning in 2001 at 106% of face value, with the premium
declining 1% per year thereafter and without any premium if the price of the
Company's common stock equals or exceeds 130% of the conversion price for not
less than 20 consecutive trading days. The debentures are convertible by the
holder at any time prior to maturity into the Company's $2.00 par value common
stock at a conversion price of $17.85714 per share (equivalent to a conversion
rate of 56 common shares per $1,000 principal amount of debentures). The Company
incurred $213,000 in issuance costs which will be amortized over 36 months.
10. OFF-BALANCE-SHEET RISK, COMMITMENTS AND CONTINGENCIES:
CONCENTRATION OF CREDIT RISK
The Company's core customer loan origination base is located along the west
coast and in central Florida. The majority of the Company's purchased loan
portfolio is concentrated in the states of Florida, California, Texas, and in
the northeastern United States. At December 31, 1996 and 1995, approximately 94
percent of the Company's loan portfolio was secured by real estate. Mortgage
loans secured by 1-4 family properties comprised approximately 60 and 61
percent, respectively, of total mortgage loans at December 31, 1996 and 1995.
OFF-BALANCE-SHEET ITEMS
The Company enters into financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers
and to limit exposure to changes in the value of loans held for sale. These
financial instruments include commitments to extend credit, commercial and
standby letters of credit, and forward contracts for the delivery of loans.
These instruments involve, to varying degrees, elements of credit and
interest-rate risk that are not recognized in the accompanying consolidated
balance sheets.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments discussed above is represented by the
contractual amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
F-17
<PAGE> 121
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of financial instruments with off-balance-sheet risk at December
31, 1996, is as follows (in thousands):
<TABLE>
<CAPTION>
CONTRACTUAL
AMOUNT
-----------
<S> <C>
Commitments to extend credit................................ $ 51,754
Unfunded lines of credit.................................... 64,604
Commercial and standby letters of credit.................... 7,415
--------
Total............................................. $123,773
========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the agreement.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary upon extension of credit is based on management's credit
evaluation of the counterparty. Collateral held varies but may include premises
and equipment, inventory and accounts receivable. Unfunded lines of credit
represent the undisbursed portion of lines of credit which have been extended to
customers.
Commercial and standby letters of credit are conditional commitments issued
by the Company to guarantee the performance of a customer to a third party which
typically do not extend beyond one year. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Company typically holds certificates of deposit as
collateral supporting those commitments, depending on the strength of the
borrower. Outstanding unsecured standby letters of credit at December 31, 1996,
totaled approximately $1,376,000.
At December 31, 1996, in connection with managing the interest rate market
risk on its loans held for sale and Locked Loans totaling $37,416,000, the
Company had outstanding $15,000,000 (estimated fair value of $15,165,000) of
Forward Commitments which expire over the next two months, the period when the
loans are expected to be sold and Locked Loans are expected to close.
The Company reduces its risk of nonperformance under the hedging contracts
by entering into those contracts with reputable security dealers and investors
and evaluating their financial condition. However, there is a risk that certain
of the Locked Loans do not close or are renegotiated in a declining interest
rate market and close at lower prices. The Company reduces this risk by
collecting nonrefundable commitment fees on certain of the Locked Loans and
enters into Forward Commitments to deliver loans to investors primarily on a
best efforts basis.
F-18
<PAGE> 122
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMMITMENTS
The Company has entered into a number of noncancelable operating leases
primarily for branch banking locations. At December 31, 1996, minimum rental
commitments based on the remaining noncancelable lease terms were as follows (in
thousands):
<TABLE>
<S> <C>
1997........................................................ $ 2,008
1998........................................................ 1,809
1999........................................................ 1,432
2000........................................................ 1,186
2001........................................................ 1,123
Thereafter.................................................. 3,839
-------
11,397
Less-sublease rentals....................................... (1,063)
-------
$10,334
=======
</TABLE>
Total rent expense for the years ended December 31, 1996, 1995 and 1994 was
$1,653,000, $1,009,000, and $435,000, respectively. Total rental income from
subleases for the years ended December 31, 1996, 1995 and 1994 was $971,000,
$1,113,000, and $1,132,000, respectively.
During 1994 a capital lease obligation of approximately $981,000 was
incurred related to the leasing of data processing equipment with an implicit
rate of 7.49%. Minimum lease payments under this capital lease are approximately
$214,000 in each of the years 1997, 1998 and $107,000 in 1999. In addition, the
Company is obligated to make processing payments in relation to its computer
facilities of approximately $966,000 in each of the years 1997 and 1998,
$1,073,000 in 1999, $1,181,000 in 2000, and $197,000 in 2001.
CONTINGENCIES
The Company is subject to various other legal proceedings and claims which
arise in the normal course of business. In the opinion of management, the amount
of liability with respect to these other proceedings would not have a material
effect on the financial statements.
11. EMPLOYEE BENEFIT PLANS
On January 1, 1987, a retirement plan was adopted, covering substantially
all employees, which includes a 401(k) arrangement. Each employee of the Company
automatically becomes eligible to participate in the savings plan on the January
1 immediately following the date on which such employee attains the age of 18
and completes six months of service. An employee must complete 1,000 hours of
service during each subsequent plan year, and failure to complete 1,000 hours of
service in a subsequent plan year will constitute a "one year break in service"
and a forfeiture of eligibility to participate in the plan.
Employees' before-tax contributions are limited based on restrictions
established by the Internal Revenue Service. Employees also may elect to make
after-tax contributions to their account. In each plan year, the Company will
make matching contributions to each account equal to 25% of the employees
elective contributions, but only up to the amount that does not exceed 6% of
compensation. Beginning January 1, 1997, if the Company attains a return on
equity in excess of 10.0% for a quarterly period, the matching contribution will
be increased to 50% for that period, concurrently. Employees are 100% vested at
all times in their contributions and regular matching contributions. In
addition, the 401(k) arrangement plan permits the Company to contribute a
discretionary amount to all of the participants for any plan year, and that
contribution will be allocated among the participants based upon their
respective shares of the total compensation paid during the plan year to all
participants eligible. The Company's contributions were $108,900, $58,200, and
$38,500 in the years ended December 31, 1996, 1995 and 1994, respectively.
F-19
<PAGE> 123
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Generally, the Company's practice and intent is to hold its financial
instruments to maturity, unless otherwise designated. Where available, quoted
market prices are used to determine fair value. However, many of the Company's
financial instruments lack quoted market prices. Although the Company has
incorporated what it considers to be appropriate estimation methodologies for
those financial instruments which lack quoted market prices, a significant
number of assumptions must be used in determining such estimated fair values.
Such assumptions include subjective assessments of current market conditions,
perceived risks associated with these financial instruments and other factors.
Different assumptions might be considered by the user of the financial
statements to be more appropriate, and the use of alternative assumptions or
estimation methodologies could have a significant effect on the resulting
estimated fair values. The estimated fair values presented neither include nor
give effect to the values associated with the Company's business, existing
customer relationships, and branch banking network, amount other things.
The following estimates of the fair value of certain financial instruments
held by the Company include only instruments that could reasonably be evaluated.
The investment securities portfolio was evaluated using market quotes as of
December 31, 1996 and 1995. The fair value of the loan portfolio was evaluated
using market quotes for similar financial instruments, where available.
Otherwise, discounted cash flows, after adjusting for credit deterioration, were
used based upon current rates the Company would use in extending credit with
similar characteristics. These rates may not necessarily be the same as those
which might be used by other financial institutions for similar loans. Cash and
due from banks and federal funds sold were valued at cost. The fair values
disclosed for checking accounts, savings accounts, securities sold under
agreements to repurchase, and certain money market accounts are, by definition,
equal to the amount payable on demand at the reporting date, i.e., their
carrying amounts. Fair values for time deposits are estimated using a discounted
cash flow calculation that applies current interest rates to aggregated expected
maturities. Standby letters of credit and commitments to extend credit were
valued at book value as the majority of these instruments are based on variable
rates.
These evaluations may incorporate specific value to the Company in
accordance with its asset/liability strategies, interest rate projections and
business plans at a specific point in time and therefore, should not necessarily
be viewed as liquidation value. They should also not be used in determining
overall value of the Company due to undisclosed and intangible aspects such as
business and franchise value, and due to changes to assumptions of interest
rates and expected cash flows which might need to be made to reflect
expectations of returns to be earned on instruments with higher credit risks.
F-20
<PAGE> 124
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The table below illustrates the estimated fair value of the Company's
financial instruments as of December 31 using the assumptions described above
(in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash and due from banks..................................... $ 27,810 $ 19,806
======== ========
Interest bearing deposits in banks.......................... $ 118 $ 2
======== ========
Investment securities....................................... $ 94,401 $ 68,429
======== ========
Federal funds sold.......................................... $ 8,000 $ 14,621
======== ========
Loans....................................................... $754,445 $681,163
======== ========
Mortgage servicing rights................................... $ 1,690 $ 113
======== ========
Deposits.................................................... $830,562 $746,904
======== ========
Securities sold under agreements to repurchase.............. $ 15,372 $ 3,072
======== ========
Subordinated debt........................................... $ 6,000 $ --
========
Standby letters of credit................................... $ 7,415 $ 6,178
======== ========
Commitments to extend credit and unfunded lines of credit... $116,358 $103,076
======== ========
</TABLE>
13. STOCKHOLDERS' EQUITY:
PERPETUAL PREFERRED CONVERTIBLE STOCK
The Company has 75,000 outstanding shares of perpetual preferred
convertible stock. The preferred stock has a liquidation preference of $88 per
share and carries a noncumulative dividend of $3.52 per year, payable quarterly.
Dividends on the preferred stock must be paid before any dividends on common
stock can be paid. Beginning December 16, 1994 and thereafter, the preferred
stock can be converted by the holders into 10 shares of common stock for each
share of preferred stock. The preferred stock was redeemable at the option of
the Company through December 16, 1996, at a price of $96.80 per share. The
holders of the preferred stock vote with the holders of the common stock and are
entitled to 10 votes per share of preferred stock.
DIVIDENDS
Florida Statutes limit the amount of dividends the Bank can pay in any
given year to that year's net income plus retained net income from the two
preceding years. Additionally, the Bank and the Company cannot pay dividends
which would cause either to be undercapitalized as defined by federal
regulations.
1995 RIGHTS AND PUBLIC STOCK OFFERINGS
On June 27, 1995, an offering was completed to the public and to the
stockholders of 800,000 shares of the $2.00 par value Common Stock. The Common
Stock was offered through a combined subscription Rights Offering and an
underwritten Public Offering (the "Offerings"). The number of shares subscribed
for in the Rights Offering totaled 287,049 with 512,951 shares sold in the
Public Offering. The price per share was $12.50 for the Offerings and net
proceeds amounted to $9,137,000.
1993 NON-QUALIFIED STOCK OPTION PLAN
On May 28, 1993, the Company adopted a non-qualified stock option plan (the
Option Plan) which reserved 80,000 shares of common stock for future issuance
under the Option Plan to eligible employees of the Company. As of December 31,
1996, 60,000 options were granted under the Option Plan and 35,000 were
F-21
<PAGE> 125
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding. The per share exercise price of each stock option is determined by
the Board of Directors at the date of grant. The plan terminates in 2003 or at
the discretion of the Board of Directors.
1995 INCENTIVE STOCK OPTION PLAN
On April 29, 1994, the shareholders approved a qualified incentive stock
option plan to certain key employees. In connection with the Company's holding
company reorganization and share exchange in which all of the Company's
stockholders became stockholders of the Company, the Company adopted the
Republic Bancshares, Inc. 1995 Stock Option Plan (the "Plan") as a replacement
for the Company's 1994 Stock Option Plan. The Plan was approved by the
stockholders of the Bank at the Bank's Special Meeting held on February 27,
1996. On April 23, 1996, the shareholders approved certain amendments to the
Plan (the "Amendment"). Under the Amendment, the total number of shares that may
be purchased pursuant to the plan cannot exceed 525,000 over the life of the
plan and provides that the maximum number of options granted to any one
individual in any fiscal year under the plan cannot exceed 62,000. There is no
limitation on the annual aggregate number of options to be granted in any fiscal
year. Each option granted under the plan will be exercisable by the grantee
during a term, not to exceed ten years, fixed by the compensation committee of
the Board of Directors ("the Committee"). However, no more than 20% of the
shares subject to such options shall vest annually beginning at date of grant.
However, in the event of a change in control, or termination of employment
without cause, all options granted become exercisable immediately. Options under
the plan, which have been granted to the employees of the Flagship/Capital
mortgage banking division of the Company, vest at the rate of 20% at the end of
each 12 month period over five years, contingent upon that division meeting
specified net income performance goals as set by the Board of Directors. If the
performance goal for each year is not met, then the options that would have
become exercisable at the end of the 12 month period shall expire and be null
and void. In addition, options granted to employees of this division shall not
vest and become exercisable if there is a change in control or a termination of
employment without cause, until the performance goal for at least one year has
been met.
Upon the grant of an option to a key employee, the Committee will fix the
number of shares of common stock that the grantee may purchase upon exercise of
the option, and the price at which the shares may be purchased. The exercise
price for all options shall not be less than the fair market value. During 1996,
1995 and 1994, options to purchase 270,900, 59,700 and 46,450 shares,
respectively, under the incentive stock option plan were granted. Of the options
previously granted, 12,460 shares have expired through the termination of key
employees without having exercised their options, thereby making these options
available for future grants. As of December 31, 1996, 361,470 options remained
outstanding.
F-22
<PAGE> 126
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AGGREGATE STOCK OPTION ACTIVITY
The Company adopted SFAS 123 for disclosure purposes in 1996. For SFAS 123
purposes, the fair value of each option grant has been estimated as of the date
of grant using the Black-Scholes option pricing model with the following
assumptions (weighted averages): risk-free interest rate of 6.42 percent,
expected life of 7 years, dividend rate of zero percent, and expected volatility
of 23 percent. Using these assumptions, the fair value of the stock options
granted in 1996 and 1995 is $1,583,000 and $346,900, respectively, which would
be amortized as compensation expense over the vesting period of the options.
Options vest equally over five years. Had compensation cost been determined
consistent with SFAS 123, utilizing the assumptions detailed above, the
Company's net income and earnings per share as reported would have been the
following pro forma amounts (in thousands except share data):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Net Income
As reported............................................... $3,784 $5,773
Pro forma................................................. 3,588 5,730
Earnings per share
As reported............................................... 0.76 1.26
Pro forma................................................. 0.72 1.26
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that expected in future years. A summary of the status
of the Company's stock option plans at December 31, 1996, 1995 and 1994 and for
the years then ended is presented in the table and narrative below:
<TABLE>
<CAPTION>
1994 1995 1996
------------------- ------------------- -------------------
WTD. WTD. WTD.
AVG. AVG. AVG.
SHARES EX. PRICE SHARES EX. PRICE SHARES EX. PRICE
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
FIXED OPTIONS
Outstanding -- beginning of
year........................... 50,000 $ 6.44 81,500 $ 8.75 131,810 $11.00
Granted.......................... 46,450 10.50 59,700 14.00 70,900 13.63
Exercised........................ (14,950) 6.46 (3,170) 9.58 -- --
Forfeited........................ -- -- (6,220) 11.06 (6,240) 13.42
Expired.......................... -- -- -- -- -- --
------- ------- -------
Outstanding -- end of year....... 81,500 8.75 131,810 11.00 196,470 11.87
======= ======= =======
Exercisable -- end of year....... 14,340 9.41 45,112 9.07 92,530 10.29
Weighted average fair value of
options granted................ 5.81 5.84
PERFORMANCE OPTIONS
Outstanding -- beg. of year...... -- -- -- -- --
Granted.......................... -- -- -- -- 200,000 13.63
Exercised........................ -- -- -- -- -- --
Forfeited........................ -- -- -- -- -- --
Expired.......................... -- -- -- -- -- --
------- ------- -------
Outstanding -- end of year....... -- -- -- 200,000 13.63
======= ======= =======
Exercisable -- end of year....... -- -- -- -- -- --
Weighted average fair value of
options granted................ 5.84
</TABLE>
F-23
<PAGE> 127
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------- -------------------------------------------------
RANGE OF NUMBER WEIGHTED-AVERAGE NUMBER
EXERCISE OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- -------------- ----------- ---------------- ---------------- ----------- ----------------
<C> <C> <C> <C> <C> <C>
5.40-10.50 72,370 6.89 years... $ 8.57 56,630 $ 8.04
13.63-14.00 324,100 9.21 years... 13.69 35,900 13.86
</TABLE>
14. EARNINGS PER SHARE:
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share has been computed by
dividing net income by the weighted average common and common equivalent shares
outstanding during the periods. The weighted average common and common
equivalent shares outstanding has been adjusted to include the number of shares
that would have been outstanding if the stock options granted had been
exercised, with the proceeds being used to buy shares from the market (i.e., the
treasury stock method) and the perpetual preferred convertible stock had been
converted to common stock at the earlier of the beginning of the year or the
issue date (i.e., the if-converted method). Net income per common and common
equivalent shares represents both primary and fully diluted per share
information.
15. REGULATORY CAPITAL REQUIREMENTS:
The Company and the Bank are required to comply with the capital adequacy
standards established by the Federal Reserve (for the Company) and the FDIC (for
the Bank). There are three basic measures of capital adequacy for banks that
have been promulgated by the Federal Reserve; two risk-based measures and a
leverage measure. All applicable capital standards must be satisfied for a bank
holding company to be considered in compliance.
The minimum guidelines for the ratio ("Risk-Based Capital Ratio") of total
capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8.0%. At least
half of Total Capital (i.e., 4.0% of risk-weighted assets) must comprise common
stock, minority interests in the equity accounts of consolidated subsidiaries,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less goodwill and certain other intangible assets
("Tier 1 Capital"). The remainder may consist of subordinated debt, other
preferred stock, and a limited amount of loan loss reserves ("Tier 2 Capital").
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3.0% for banks that meet certain
specified criteria, including having the highest regulatory rating. All other
bank holding companies generally are required to maintain a Leverage Ratio of at
least 3.0%, plus an additional cushion of 100 to 200 basis points. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve has indicated that it
will consider a "tangible Tier I Capital leverage ratio" (deducting all
intangibles) and other indicators of capital strength in evaluating proposals
for expansion or new activities.
The Bank had previously undertaken in writing to the FDIC to achieve a
Leverage Ratio of at least 5.50% by September 30, 1995, which it did, and will
consider raising additional capital or reducing internal growth should the ratio
fall below that level in the future. The Company's leverage ratio requirement
remains at 5.00%. Other than the foregoing commitment, the Bank has not been
advised by the FDIC of any specific minimum capital ratio requirement applicable
to it.
Failure to meet capital guidelines could subject a bank or a bank holding
company to a variety of enforcement remedies, including issuance of a capital
directive, the termination of deposit insurance by the
F-24
<PAGE> 128
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FDIC, a prohibition on the taking of brokered deposits, and certain other
restrictions on its business. Substantial additional restrictions can be imposed
upon FDIC-insured depository institutions that fail to meet applicable capital
requirements under the federal prompt corrective action regulations.
As of December 31, 1996 and 1995, the Company and the Bank were considered
"well capitalized" under the federal banking agencies for prompt corrective
action regulations. The table which follows sets forth the amounts of capital
and capital ratios of the Company and the Bank as of December 31, 1996 and 1995,
and the applicable regulatory minimums (in thousands):
<TABLE>
<CAPTION>
COMPANY BANK
--------------- ---------------
AMOUNT RATIO AMOUNT RATIO
------- ----- ------- -----
<S> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
RISK-BASED CAPITAL:
Tier 1 Capital
Actual................................................. $51,325 8.82% $57,113 9.82%
Minimum required to be "Adequately Capitalized"........ 23,268 4.00 23,260 4.00
Excess over minimum to be "Adequately Capitalized"..... 28,057 4.82 33,853 5.82
To be "Well Capitalized"............................... 34,902 6.00 34,890 6.00
Excess over "Well Capitalized" requirements............ 16,423 2.82 22,223 3.82
Total Capital.....................................
Actual................................................. 64,630 11.11 64,418 11.08
Minimum required to be "Adequately Capitalized"........ 46,536 8.00 46,519 8.00
Excess over minimum to be "Adequately Capitalized"..... 18,094 3.11 17,899 3.08
To be "Well Capitalized"............................... 58,170 10.00 58,149 10.00
Excess over "Well Capitalized" requirements............ 6,460 1.11 6,269 1.08
TIER 1 CAPITAL TO TOTAL ASSETS (LEVERAGE):
Actual.................................................... 51,325 5.90 57,113 6.57
Minimum required to be "Adequately Capitalized"........... 34,807 4.00 34,798 4.00
Excess over minimum to be "Adequately Capitalized"........ 16,518 1.90 22,315 2.57
To be "Well Capitalized".................................. 43,509 5.00 47,848 5.50
Excess over "Well Capitalized" requirements............... 7,816 0.90% 9,265 1.07
AS OF DECEMBER 31, 1995:
RISK-BASED CAPITAL:
Tier 1 Capital
Actual................................................. N/A N/A 47,940 9.17
Minimum required to be "Adequately Capitalized"........ N/A N/A 20,904 4.00
Excess over minimum to be "Adequately Capitalized"..... N/A N/A 27,036 5.17
To be "Well Capitalized"............................... N/A N/A 31,356 6.00
Excess over "Well Capitalized" requirements............ N/A N/A 16,584 3.17
Total Capital Actual.............................. N/A N/A 53,833 10.30
Minimum required to be "Adequately Capitalized"........ N/A N/A 41,809 8.00
Excess over minimum to be "Adequately Capitalized"..... N/A N/A 12,024 2.30
To be "Well Capitalized"............................... N/A N/A 52,260 10.00
Excess over "Well Capitalized" requirements............ N/A N/A 1,573 0.30
TIER 1 CAPITAL TO TOTAL ASSETS (LEVERAGE):
Actual.................................................... N/A N/A 47,940 6.00
Minimum required to be "Adequately Capitalized"........... N/A N/A 31,962 4.00
Excess over minimum to be "Adequately Capitalized"........ N/A N/A 15,978 2.00
To be "Well Capitalized".................................. N/A N/A 43,948 5.50
Excess over "Well Capitalized" requirements............... N/A N/A 3,992 0.50
</TABLE>
F-25
<PAGE> 129
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. RELATED PARTY TRANSACTIONS:
William R. Hough, a director and one of the two controlling shareholders,
is President and the controlling shareholder of William R. Hough & Co., an
NASD-member investment banking firm. In December 1996, the Company offered
$6,000,000 of convertible subordinated debentures through a private placement on
a "best efforts" basis exclusively through William R. Hough & Co. as "Sales
Agent" for the Company. The sales agent agreement provided for the payment to
William R. Hough & Co. of a fee of 1.50% for each $1,000 principal amount of
debentures sold to directors of the Company or their spouses and 3% for each
$1,000 of debentures sold to all others. The total amount of fees paid to
William R. Hough & Company for the sale of the debentures was $162,000. In
addition, the Company agreed to indemnify the sales agent against and contribute
toward certain liabilities, including liabilities under the Securities Act, and
to reimburse William R. Hough & Co. for certain expenses and legal fees related
to the sale of the debentures of approximately $51,000.
In July 1996, William R. Hough & Co. began offering sales of insurance and
mutual fund products and investment advisory services on the premises of the
Company. The Company was paid a monthly fee of $300 for each banking office
participating in the program plus a fee of 15% of the gross commissions earned
from sales of non-insurance products. On January 1, 1997, this agreement was
terminated and replaced with a new agreement where the Company will be paid 50%
of the net profits earned from sales of investment products on the Company's
premises.
In June 1995, in connection with a rights offering of the Company Common
Stock conducted by the Company, William R. Hough & Co. participated as a
soliciting dealer, and as such was entitled to receive solicitation fees in an
amount equal to approximately $11,900. William R. Hough & Co. also participated
in the selling group for the public offering of the Company Common Stock that
took place in conjunction with the rights offering. In connection with the
public offering, William R. Hough & Co. received approximately $18,000 in
discounts and other fees.
In addition, WRH Mortgage, Inc., a related interest of William R. Hough,
acted as the Company's agent in the purchase of two loan pools from the
Resolution Trust Corporation on May 23, 1995 and was paid due diligence fees
totaling $39,997. The Company also entered into an agreement with William R.
Hough & Co. on August 15, 1995 to periodically purchase securities under
agreement to repurchase at a rate based on the prevailing federal funds rate
plus 1/8 of 1%.
Certain directors and executive officers of the Company and Bank, members
of their immediate families, and entities with which such persons are associated
are customers of the Bank. As such, they had transactions in the ordinary course
of business with the Bank during 1996 and will have additional transactions in
the future. All loans and commitments to lend included in those transactions
were made in the ordinary course of business, upon substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and, in the opinion of management,
have not involved more than the normal risk of collectibility or presented other
unfavorable features.
F-26
<PAGE> 130
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. BANK HOLDING COMPANY FINANCIAL STATEMENTS:
Condensed financial statements of the Company (Republic Bancshares, Inc.)
are presented below. Amounts shown as investment in the wholly-owned subsidiary
and equity in earnings of the subsidiary are eliminated in consolidation.
REPUBLIC BANCSHARES, INC.
PARENT-ONLY CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996
-------
<S> <C>
ASSETS
Cash...................................................... $ 0
Investment in wholly-owned subsidiary..................... 60,111
Prepaid issuance costs -- subordinated debt............... 212
-------
Total............................................. $60,323
=======
LIABILITIES
Subordinated debt......................................... $ 6,000
Accrued interest on subordinated debt..................... 4
-------
Total liabilities................................. 6,004
-------
STOCKHOLDERS' EQUITY
Perpetual preferred convertible stock..................... 1,500
Common stock.............................................. 8,367
Capital surplus........................................... 26,699
Retained earnings......................................... 17,849
Unrealized losses on available-for-sale securities........ (96)
-------
Total stockholders' equity........................ 54,319
-------
Total............................................. $60,323
=======
</TABLE>
PARENT-ONLY CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996
------
<S> <C>
INCOME
Dividends from bank....................................... $ 264
Interest expense on subordinated debt..................... (5)
Equity in undistributed net income of subsidiary.......... 3,525
------
Net Income........................................ $3,784
======
</TABLE>
F-27
<PAGE> 131
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PARENT-ONLY CONDENSED CASH FLOW STATEMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
OPERATING ACTIVITIES:
Net Income.................................................. $ $3,784
Reconciliation of net income to net cash provided:
Interest expense on subordinated debt..................... 5
Equity in undistributed net income of subsidiary.......... (3,525)
--------
Net cash provided by operating activities......... 264
--------
INVESTMENT ACTIVITIES:
Equity investment in banking subsidiary..................... (56,648)
--------
Net cash used in investing activities............. (56,648)
--------
FINANCING ACTIVITIES:
Issuance of stock and reorganization........................ 50,860
Proceeds from issuance of subordinated debt................. 5,788
Dividend Payments on perpetual preferred stock.............. (264)
--------
Net cash provided by investing activities......... 56,384
--------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ $ --
--------
Cash Balance Beginning...................................... $ --
--------
Cash Balance Ending......................................... $ --
========
</TABLE>
18. MERGERS AND ACQUISITIONS
On December 19, 1996, the Company announced that an agreement had been
reached for the acquisition of Firstate Financial, F.A. ("Firstate"), a thrift
institution headquartered in Orlando, Florida, for a cash purchase price of
$5,501,000. Firstate is not publicly traded. The agreement is subject to final
approval by the Department, FDIC and FRB. At December 31, 1996, Firstate had
total assets of $103,624,000 (unaudited) and total deposits of $84,842,000
(unaudited). Firstate currently maintains a branch office in downtown Orlando
and an office in Winter Park, Florida. The acquisition will be accounted for
using purchase accounting rules.
On March 10, 1997, the Company and F.F.O. Financial Group, Inc., St. Cloud,
Florida ("FFO") announced their board of directors had executed a letter of
intent for the combination of the two companies. FFO has 11 branch offices in
Osceola, Orange and Brevard counties with total assets of $316,949,000 and total
deposits of $286,927,000. Mr. William R. Hough, president of an investment
banking firm in St. Petersburg, Florida, owns a controlling interest in both
companies. Under the terms of the letter of intent, the Company will exchange
shares of Company Common Stock for all of the 8,430,000 outstanding shares of
FFO common stock at a ratio of 0.29 share of the Company for each share of FFO.
In the event that the product of the exchange ratio and the average closing
price of the Company Common Stock on each of the twenty consecutive trading days
ending on the third business day preceding the effective date of the transaction
is below $4.10, the exchange ratio will be adjusted for decreases in the price
of the Company Common Stock price; however, in no event will the exchange ratio
exceed 0.30. FFO has the right to terminate the agreement if the average of the
Company's stock price is less than $13.50. Either party has the right to
terminate the agreement if the merger does not occur by November 1, 1997.
Outstanding options for FFO common stock will be converted into options for
Company Common Stock on the same basis. The transaction will be
F-28
<PAGE> 132
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounted for as a corporate reorganization under which the controlling
shareholder's interest in FFO will be carried forward at its historical cost
while the minority interest in FFO will be recorded at fair value. The
transaction is subject to completion of a definitive agreement, shareholder
approval by the parties, approval by various regulatory authorities, receipt of
opinion that the transaction qualifies as a tax-free reorganization, and receipt
of fairness opinions by each companies' financial advisor.
The above financial information regarding Firstate and FFO was derived from
unaudited financial statements at December 31, 1996.
F-29
<PAGE> 133
REPUBLIC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS -- MARCH 31, 1997 AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUES)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 23,803 $ 27,810
Interest bearing deposits in banks.......................... -- 118
Investment securities:
Held to maturity.......................................... -- --
Available for sale........................................ 42,709 74,397
Mortgage-backed securities:
Held to maturity.......................................... -- --
Available for sale........................................ 20,489 20,592
FHLB stock.................................................. 5,081 4,830
Federal funds sold.......................................... 41,000 8,000
Loans held for sale......................................... 40,201 36,590
Loans, net of allowance for loan losses (Notes 2 and 3)..... 694,784 693,270
Premises and equipment, net................................. 20,015 19,715
Other real estate owned, acquired through foreclosure,
net....................................................... 7,250 7,363
Other assets................................................ 16,761 15,183
-------- --------
Total assets...................................... $912,093 $907,868
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest-bearing checking........................... $ 49,066 $ 50,060
Interest checking...................................... 89,895 87,639
Money market........................................... 32,017 32,665
Savings................................................ 251,345 245,951
Time deposits.......................................... 406,737 411,665
-------- --------
Total deposits.................................... 829,060 827,980
Securities sold under agreements to repurchase............ 16,160 15,372
Subordinated debt (6% rate, matures December 1, 2011)..... 6,000 6,000
Other liabilities......................................... 5,294 4,197
-------- --------
Total liabilities................................. $856,514 $853,549
-------- --------
Stockholders' equity:
Noncumulative perpetual preferred convertible stock
($20.00 par, 100,000 shares authorized, 75,000 shares
issued and outstanding. Liquidation preference $6,600
at March 31, 1997 and December 31, 1996.).............. 1,500 1,500
Common stock ($2.00 par, 20,000,000 shares authorized and
4,183,507 shares issued and outstanding at March 31,
1997 and December 31, 1996)............................ 8,367 8,367
Capital surplus........................................... 26,699 26,699
Retained earnings......................................... 19,386 17,849
Net unrealized gains (losses) on available-for-sale
securities, net of tax effect.......................... (373) (96)
-------- --------
Total stockholders' equity........................ 55,579 54,319
-------- --------
Total liabilities and stockholders' equity........ $912,093 $907,868
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-30
<PAGE> 134
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
1997 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans................................ $ 16,506 $ 14,778
Interest on investment securities......................... 486 428
Interest on mortgage-backed securities.................... 306 291
Interest on federal funds sold............................ 685 297
Interest on other investments............................. 87 68
---------- ----------
Total interest income............................. 18,070 15,862
---------- ----------
INTEREST EXPENSE:
Interest on deposits...................................... 8,662 7,879
Interest on subordinated debt............................. 108 --
Interest on other borrowings.............................. 199 48
---------- ----------
Total interest expense............................ 8,969 7,927
---------- ----------
Net interest income............................... 9,101 7,935
PROVISION FOR LOAN LOSSES................................... 1,138 450
---------- ----------
Net interest income after provision for possible
loan losses..................................... 7,963 7,485
---------- ----------
NONINTEREST INCOME:
Service charges on deposit accounts....................... 438 376
Loan fee income........................................... 125 125
Income from mortgage banking activities................... 898 --
Gain (loss) on sale of loans, net......................... 1,188 (11)
Gain on sale of securities, net........................... 42 4
Other operating income.................................... 433 184
---------- ----------
Total noninterest income.......................... 3,124 678
NONINTEREST EXPENSES:
General and administrative ("G&A") expenses............... 8,240 5,956
Provision for losses on ORE............................... 170 180
Other ORE (income) expense................................ (13) 1
Amortization of premium on deposits....................... 123 123
---------- ----------
Total noninterest expenses........................ $ 8,520 $ 6,260
---------- ----------
Income (loss) before income taxes........................... 2,567 1,903
Income tax provision........................................ 964 699
---------- ----------
NET INCOME.................................................. $ 1,603 $ 1,204
========== ==========
PER SHARE DATA:
Net income per common and common equivalent share......... $ .32 $ .24
========== ==========
Weighted average common and common equivalent shares
outstanding............................................ $4,980,167 $4,953,119
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-31
<PAGE> 135
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERPETUAL
PREFERRED NET UNREALIZED
CONVERTIBLE GAINS
STOCK COMMON STOCK (LOSSES)
--------------- ------------------ ON AVAILABLE
SHARES SHARES CAPITAL RETAINED FOR SALE
ISSUED AMOUNT ISSUED AMOUNT SURPLUS EARNINGS SECURITIES TOTAL
------ ------ --------- ------ ------- -------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995............ 75,000 $1,500 4,183,507 $8,367 $26,699 $14,329 $ 8 $50,903
Net income for the twelve months ended
December 31, 1996................... -- -- -- -- -- 3,784 -- 3,784
Net unrealized losses on
available-for-sale securities....... -- -- -- -- -- -- (104) (104)
Dividends on preferred stock.......... -- -- -- -- -- (264) -- (264)
------ ------ --------- ------ ------- ------- ----- -------
BALANCE, DECEMBER 31, 1996............ 75,000 1,500 4,183,507 8,367 26,699 17,849 (96) 54,319
Net income for the three months
ended March 31, 1997
(unaudited)....................... -- -- -- -- -- 1,603 -- 1,603
Net unrealized losses on
available-for-sale securities
(unaudited)....................... -- -- -- -- -- -- (277) (277)
Dividends on preferred stock
(unaudited)....................... -- -- -- -- -- (66) -- (66)
------ ------ --------- ------ ------- ------- ----- -------
BALANCE, MARCH 31, 1997 (unaudited)... 75,000 $1,500 4,183,507 $8,367 $26,699 $19,386 $(373) $55,579
------ ------ --------- ------ ------- ------- ----- -------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-32
<PAGE> 136
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MARCH 31,
-------------------------
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 1,603 $ 1,204
Reconciliation of net income to net cash provided by (used
in):
Provision for losses on loans and ORE..................... 1,308 450
Depreciation and amortization, net........................ (259) (66)
Amortization of premium and accretion of fair value....... 289 131
(Gain) loss on sale of loans.............................. (2,086) 11
(Gain) on sale of investment securities................... (42) (4)
(Gain) loss on sale of ORE................................ (108) 10
Capitalization of mortgage servicing...................... (839) 15
Net increase in deferred tax benefit...................... (897) (114)
Gain on disposal of premises and equipment................ (1) --
Net (increase) decrease in other assets................... (205) (4,963)
Net increase (decrease) in other liabilities.............. 1,098 (649)
-------- --------
Net cash provided by (used in) operating
activities...................................... (139) (3,975)
-------- --------
INVESTING ACTIVITIES:
Net (increase) decrease in interest bearing deposits in
banks.................................................. 118 (9)
Proceeds from sales and maturities of:
Investment securities held to maturity................. -- 7,000
Investment securities available for sale............... 68,447 25,006
Purchase of securities available for sale................. (36,815) (18,030)
Principal repayment on mortgage backed securities......... 93 749
Purchase of FHLB stock.................................... (251) (1,290)
Net increase in loans..................................... (4,431) (10,160)
Purchase of premises and equipment........................ (696) (206)
Proceeds from sale of ORE................................. 844 439
(Investments) disposals in other real estate owned
(net).................................................. 21 --
-------- --------
Net cash provided by (used in) investing activities.... 27,330 3,499
-------- --------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits....................... 1,081 (1,022)
Net increase (decrease) in repurchase agreements.......... 787 1,344
Dividends on perpetual preferred stock.................... (66) (66)
-------- --------
Net cash provided by (used in) financing
activities...................................... 1,802 256
-------- --------
Net increase (decrease) in cash and cash equivalents........ 28,993 (220)
Cash and cash equivalents, beginning of period.............. 35,810 34,427
-------- --------
Cash and cash equivalents, end of period.................... $ 64,803 $ 34,207
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for --
Interest............................................... $ 8,607 $ 6,868
Income taxes........................................... 531 865
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-33
<PAGE> 137
REPUBLIC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION AND ORGANIZATION
Republic Bancshares, Inc. (the "Company") is a bank holding company
organized in February 1996 under the laws of the State of Florida and is the
holding company for Republic Bank (the "Bank"). In connection with the
reorganization which resulted in the Company becoming the holding company for
the Bank, the Company became the owner of all of the outstanding capital stock
of the Bank. The Company does not currently conduct any activities other than
its ownership and operation of the Bank.
The Bank is a state-chartered, federally-insured commercial bank organized
in 1972 and providing a full range of retail and commercial banking products and
related financial services. The Bank's headquarters are in St. Petersburg,
Florida. Its principal business is attracting checking, savings and time
deposits from the public and general business customers and using these deposits
to originate residential mortgages, commercial real estate mortgages, business
loans, and consumer loans. The Bank opened an office in Spring Hill, Florida, in
January 1997 bringing the total to 33 branch banking offices located in
Hernando, Pasco, Pinellas, Manatee and Sarasota counties. There are also eight
residential and two commercial loan production offices in Florida and one
residential loan production office in Boston, Massachusetts. The Bank is the
largest independent financial institution headquartered on the west coast of
Florida.
The FASB has issued SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities", which is effective for
the Bank's fiscal year beginning January 1, 1997. SFAS 125 provides standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The impact of the adoption of SFAS 125 upon the
results of operations of the Company was not material.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share", which
is effective for the Company's fourth quarter and year ended December 31, 1997.
Early application is not permitted and after the effective date, prior period
earnings per share presented must be restated. SFAS No. 128 establishes new
standards for computing and presenting EPS. Specifically, SFAS No. 128 replaces
the presentation of primary earnings per share with basic earnings per share,
requires dual presentation for companies with complex capital structures of
basic and diluted earnings per share and requires a reconciliation of the
numerator and denominator of the basic earnings per share computation to those
of the diluted earnings per share computation. Management has not determined the
effect of the adoption of SFAS No. 128 on the Company's financial statements,
but does not expect it to be material.
These consolidated financial statements should be read in conjunction with
the financial statements and the notes thereto included in the Company's Annual
Report for the year ended December 31, 1996, filed with the Securities and
Exchange Commission ("SEC") on Form 10-K. The results of the three months ended
March 31, 1997 are not necessarily indicative of the results to be expected for
the fiscal year ending December 31, 1997.
F-34
<PAGE> 138
REPUBLIC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. LOANS AND LOANS HELD FOR SALE:
Loans at March 31, 1997 and December 31, 1996, are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
Real estate mortgage loans:
One-to-four family residential............................ $372,498 $383,015
Multifamily residential................................... 67,531 68,337
Commercial real estate.................................... 192,509 182,298
Construction/land development............................. 29,812 27,050
Commercial loans............................................ 33,126 34,427
Consumer loans.............................................. 11,747 9,983
Other loans................................................. 1,069 1,294
-------- --------
Total gross portfolio loans....................... 708,292 706,404
Less -- allowance for loan losses........................... 13,508 13,134
-------- --------
Total loans held for portfolio.................... 694,784 693,270
Loans held for sale......................................... 40,201 36,590
-------- --------
Total loans....................................... $734,985 $729,860
======== ========
</TABLE>
As of March 31, 1997 and December 31, 1996 loans available for sale,
primarily one-to-four family residential mortgages, had weighted average
interest rates of 9.05% and 8.72%, respectively. Mortgage loans serviced for
others as of March 31, 1997 and December 31, 1996 were $141,980,000 and
$120,711,000, respectively.
3. ALLOWANCES FOR LOSSES:
ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses provides for risks of losses inherent in the
credit extension process. Losses are charged to the allowance for loan losses
and recoveries are credited to the allowance. The Company's allowance is an
amount that management believes will be adequate to absorb possible losses on
existing loans that may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, and
current economic conditions that may affect the borrower's ability to pay. The
evaluations are periodically reviewed and adjustments are recorded in the period
in which changes become known.
As part of the risk assessment for purchased loans, management has
allocated a portion of the discount on such loan purchases to the allowance for
loan losses in amounts consistent with the Company's loan loss policy
guidelines. Amounts added to the allowance for loan losses resulting from
discount allocation are available to absorb potential losses only for those
purchased loans and are not available for losses from other loan portfolios. To
the extent that losses in certain pools or portfolios of loans exceed the
allowance for loan losses and any remaining unamortized loan discount allocated
to such pool or portfolio, or available as a general allowance, the Company
would have to recognize a loss to the extent of such shortfall in the then
current period. During the first quarter of 1997, management sold $6,005,000 of
loans purchased and transferred $642,000 of the amount originally allocated to
the allowance for purchased loans into the allocation for originated loans.
After this transfer was completed and taking into consideration loan loss
provisions, charge-offs and recoveries for the first quarter of 1997 the
allowance for loan losses was comprised of $7,089,000 allocated to originated
loans and $6,419,000 allocated to the various pools of purchased loans.
Additionally, as of March 31, 1997, the balance of loan discounts available to
absorb losses on pools or portfolios of purchased
F-35
<PAGE> 139
REPUBLIC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
loans exceeding amounts transferred to the allowance amounted to $4,119,000.
Loans on which interest was not being accrued totaled $16,191,000 and
$15,351,000 at March 31, 1997 and December 31, 1996, respectively. Loans past
due 90 days or more and still accruing interest at March 31, 1997 and December
31, 1996, totaled $122,000 and $113,000, respectively.
Changes in the allowance for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, 1997
--------------------
1997 1996
-------- --------
<S> <C> <C>
Balance, beginning of period................................ $13,134 $14,910
Provision for loan losses................................. 1,138 450
Allowance for loan losses on purchased loans transferred
to discount (includes amounts taken to income on loans
sold).................................................. (642) (30)
Loans charged off......................................... (188) (649)
Recoveries of loans charged off........................... 66 65
------- -------
Balance, end of period...................................... $13,508 $14,746
======= =======
</TABLE>
ALLOWANCE FOR LOSSES ON OTHER REAL ESTATE ("ORE"):
The Company recognizes any estimated potential decline in the value of ORE
between appraisal dates through periodic additions to the allowance for losses
on ORE. Writedowns charged against this allowance are taken if the related real
estate is sold at a loss. For the three months ended March 31, 1997, the Company
had recorded a provision expense for losses on ORE of $170,000. Included in the
ORE balance is a tract of land carried at $3,200,000 acquired through
foreclosure in 1988 that has partially been developed as a shopping center site.
Federal law and regulations require the Company to dispose of this tract by
December 31, 1997.
4. SUBSEQUENT EVENT
Effective April 21, 1997, the Company acquired all of the outstanding
common stock of EHL Holdings, Inc., the privately-held parent company of
Firstate Financial, F.A., a thrift headquartered in Orlando, Florida with total
assets at acquisition of $71,147,000. The thrift subsidiary of EHL Holdings,
Inc. was simultaneously merged into the Bank. The purchase price paid was a cash
amount of $5,501,000 and goodwill of $130,000 was recorded. That goodwill will
be amortized over a period of 120 months.
F-36
<PAGE> 140
INDEPENDENT AUDITORS' REPORT
The Board of Directors
F.F.O. Financial Group, Inc.
St. Cloud, Florida:
We have audited the accompanying consolidated balance sheets of F.F.O.
Financial Group, Inc. and Subsidiaries (the "Company") as of December 31, 1996
and 1995 and the related consolidated statements of income, stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1996 and 1995 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
HACKER, JOHNSON, COHEN & GRIEB
Orlando, Florida
February 11, 1997, except for Note 21,
as to which the date is March 11, 1997
F-37
<PAGE> 141
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 6,300 $ 6,989
Interest-bearing deposits with banks........................ 11,665 2,768
Federal funds sold.......................................... -- 669
-------- --------
Cash and cash equivalents.............................. 17,965 10,426
Trading securities.......................................... 9,580 23,076
Securities available for sale............................... 41,445 49,832
Securities held to maturity, at cost........................ 15,343 17,636
Loans held for sale, net of unrealized losses of $150 in
1996...................................................... 10,462 22,765
Loans receivable, net of allowances for loan losses of
$5,613 in 1996 and $5,138 in 1995......................... 209,005 161,190
Accrued interest receivable................................. 1,710 1,821
Premises and equipment...................................... 5,324 5,700
Restricted securities -- Federal Home Loan Bank stock, at
cost...................................................... 2,378 2,514
Foreclosed real estate, net of allowances of $158 in 1996
and $1,124 in 1995........................................ 799 3,358
Deferred tax asset.......................................... 1,490 2,249
Other assets................................................ 1,448 918
-------- --------
Total assets...................................... $316,949 $301,485
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits........................................... 14,303 13,107
Savings and NOW deposits.................................. 57,981 63,682
Time deposits............................................. 214,643 172,147
-------- --------
Total deposits.................................... 286,927 248,936
Accrued interest on deposits................................ 256 282
Due to bank................................................. 424 1,120
Advances from Federal Home Loan Bank........................ 7,000 30,000
Advance payments by borrowers for taxes and insurance....... 608 819
Other liabilities........................................... 1,454 1,548
-------- --------
Total liabilities................................. 296,669 282,705
-------- --------
Commitments and Contingencies (Notes 6, 12, 13, 15 and 21)
Stockholders' Equity:
Preferred stock, $.10 par value, 2,500,000 shares
authorized, none outstanding........................... -- --
Common stock, $.10 par value, 20,000,000 shares
authorized, 8,430,000 shares issued and outstanding.... 843 843
Additional paid-in capital................................ 17,599 17,599
Retained earnings......................................... 1,844 244
Net unrealized (depreciation) appreciation on securities
available for sale, net of tax of $4 in 1996 and $(56)
in 1995................................................ (6) 94
-------- --------
Total stockholders' equity........................ 20,280 18,780
-------- --------
Total liabilities and stockholders' equity........ $316,949 $301,485
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-38
<PAGE> 142
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Interest income:
Loans receivable.......................................... $ 16,712 $ 15,357 $ 13,752
Securities available for sale............................. 2,524 1,218 1,963
Securities held to maturity............................... 1,179 1,297 684
Trading securities........................................ 1,214 1,267 --
Federal funds sold........................................ 80 150 125
Deposits with banks....................................... 288 441 358
--------- --------- ---------
Total interest income............................. 21,997 19,730 16,882
--------- --------- ---------
Interest expense:
Deposits.................................................. 11,710 9,948 7,142
Other borrowed funds...................................... 313 163 411
--------- --------- ---------
Total interest expense............................ 12,023 10,111 7,553
--------- --------- ---------
Net interest income......................................... 9,974 9,619 9,329
Provision (credit) for loan losses.......................... 782 477 (1,403)
--------- --------- ---------
Net interest income after provision (credit) for
loan losses..................................... 9,192 9,142 10,732
--------- --------- ---------
Noninterest income:
Service charges on deposits............................... 1,306 1,269 1,297
Loan related fees and service charges..................... 443 375 246
Loan servicing fees....................................... 279 367 409
Net trading account (losses) profit....................... (196) 229 (76)
Net realized gain on sales of available-for-sale
securities............................................. 87 66 --
Net gain on sale of loans................................. 144 86 131
Unrealized loss on loans held for sale.................... (150) -- --
Net gain on sale of premises and equipment................ -- -- 277
Other income.............................................. 474 210 203
--------- --------- ---------
Total noninterest income.......................... 2,387 2,602 2,487
--------- --------- ---------
Noninterest expenses:
Salaries and employee benefits............................ 4,192 4,043 3,802
Occupancy expense......................................... 1,925 1,814 1,755
(Gain) loss on foreclosed real estate..................... (1,818) 613 3,784
Deposit insurance premium................................. 657 646 645
SAIF recapitalization assessment.......................... 1,466 -- --
Marketing and advertising................................. 381 299 298
Data processing........................................... 668 564 563
Printing and office supplies.............................. 280 284 279
Telephone expense......................................... 255 271 272
Other expense............................................. 1,170 923 1,147
--------- --------- ---------
Total noninterest expenses........................ 9,176 9,457 12,545
--------- --------- ---------
Income before income taxes.................................. 2,403 2,287 674
Income tax expense.......................................... 803 641 234
--------- --------- ---------
Net income.................................................. $ 1,600 $ 1,646 $ 440
========= ========= =========
Net income per share of common stock........................ $ .19 $ .20 $ .06
========= ========= =========
Weighted average number of shares outstanding............... 8,430,000 8,430,000 7,354,658
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-39
<PAGE> 143
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
(DEPRECIATION)
APPRECIATION
RETAINED ON
ADDITIONAL EARNINGS SECURITIES TOTAL
COMMON PAID-IN (ACCUMULATED AVAILABLE STOCKHOLDERS'
STOCK CAPITAL DEFICIT) FOR SALE EQUITY
------ ---------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993........... $718 15,324 (1,842) 327 14,527
Proceeds from issuance of 1,250,000
shares of common stock............... 125 2,275 -- -- 2,400
Net income for 1994.................... -- -- 440 -- 440
Net change in unrealized (depreciation)
appreciation on securities available
for sale............................. -- -- -- (822) (822)
---- ------ ------ ---- ------
Balance at December 31, 1994........... 843 17,599 (1,402) (495) 16,545
Net income for 1995.................... -- -- 1,646 -- 1,646
Net change in unrealized (depreciation)
appreciation on securities available
for sale............................. -- -- -- 589 589
---- ------ ------ ---- ------
Balance at December 31, 1995........... 843 17,599 244 94 18,780
Net income for 1996.................... -- -- 1,600 -- 1,600
Net change in unrealized (depreciation)
appreciation on securities available
for sale............................. -- -- -- (100) (100)
---- ------ ------ ---- ------
Balance at December 31, 1996........... $843 17,599 1,844 (6) 20,280
==== ====== ====== ==== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-40
<PAGE> 144
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 1,600 $ 1,646 $ 440
Adjustments to reconcile net income to net cash provided
by (used in) operations:
Provision (credit) for loan losses...................... 782 477 (1,403)
(Credit) provision for losses on foreclosed real
estate................................................. (1,500) 240 3,410
Net amortization of premiums and discounts.............. 159 (210) (115)
Net gain on sale of premises and equipment.............. -- -- (277)
Net amortization of deferred loan fees.................. (180) 52 (168)
Depreciation of premises and equipment.................. 554 566 597
Net gain on sale of foreclosed real estate.............. (368) (35) (175)
Net realized gain on sales of available-for-sale
securities............................................. (87) (66) --
Net decrease (increase) in trading account securities... 13,496 (16,106) (6,970)
Provision (benefit) for deferred income taxes........... 819 1,012 (276)
Proceeds from sales of loans held for sale.............. 25,745 8,924 9,858
Originations of loans held for sale..................... (13,448) (23,673) (6,311)
Decrease (increase) in accrued interest receivable...... 111 (356) (143)
Increase in other assets................................ (530) (216) (157)
Gain on sale of loans................................... (144) (86) (131)
Unrealized loss on loans held for sale.................. 150 -- --
(Decrease) increase in accrued interest payable......... (26) 123 9
(Decrease) increase in other liabilities and due to
bank................................................... (790) (1,131) 997
-------- -------- --------
Net cash provided by (used in) operating
activities....................................... 26,343 (28,839) (815)
-------- -------- --------
Cash flows from investing activities:
Purchase of available-for-sale securities................. (47,400) (35,104) (19,868)
Purchase of held-to-maturity securities................... -- -- (47,504)
Proceeds from maturities of held-to-maturity securities... -- 12,526 47,129
Proceeds from sale of available-for-sale securities....... 26,673 7,755 --
Proceeds from maturities of available-for-sale
securities.............................................. 10,000 -- --
Principal repayments on available-for-sale securities..... 18,832 746 1,916
Principal repayments on held-to-maturity securities....... 2,343 1,613 --
Net (increase) decrease in loans receivable............... (45,860) (10,512) 1,110
Proceeds from sale of premises and equipment.............. -- -- 524
Net purchases of premises and equipment................... (178) (501) (365)
Proceeds from sale of foreclosed real estate.............. 2,001 7,389 4,123
Payments capitalized to foreclosed real estate............ (131) (43) (7)
Redemption (purchase) of Federal Home Loan Bank stock..... 136 -- (31)
-------- -------- --------
Net cash used in investing activities.............. (33,584) (16,131) (12,973)
-------- -------- --------
Cash flows from financing activities:
Net decrease in demand, savings and NOW deposits.......... (4,505) (6,180) (5,979)
Net increase in time deposits............................. 42,496 44,284 5,693
(Repayments of) proceeds from Federal Home Loan Bank
advances................................................ (23,000) 8,600 1,400
Net proceeds from issuance of common stock................ -- -- 2,400
Net (decrease) increase in advances by borrowers for taxes
and insurance........................................... (211) 126 (109)
-------- -------- --------
Net cash provided by financing activities.......... 14,780 46,830 3,405
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 7,539 1,860 (10,383)
Cash and cash equivalents at beginning of year.............. 10,426 8,566 18,949
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 17,965 $ 10,426 $ 8,566
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
(Refunds received) income tax paid...................... $ (134) $ 550 $ 311
======== ======== ========
Interest................................................ $ 12,049 $ 9,957 $ 7,544
======== ======== ========
Noncash investing and financing activities:
Transfers of loans to foreclosed real estate............ $ 339 $ 6,382 $ 1,447
======== ======== ========
Loans originated for the sale of foreclosed real
estate................................................. $ 2,896 $ 1,527 $ 1,346
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-41
<PAGE> 145
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
F.F.O. Financial Group, Inc. (the "Holding Company" or "F.F.O.") is the
holding company for First Federal Savings and Loan Association of Osceola County
(the "Association"). The Holding Company's operations are limited to ownership
of the Association. The Association is a federally chartered savings and loan
association which conducts business from its headquarters and main office in
Kissimmee, Florida and ten branch offices located in Central Florida. The
Association's deposits are insured by the Federal Deposit Insurance Corporation
("FDIC") up to applicable limits through the Savings Association Insurance Fund
("SAIF").
Principles of Consolidation. The consolidated financial statements include
the accounts of the Holding Company and its wholly-owned subsidiary, First
Federal Savings and Loan Association of Osceola County, and the Association's
wholly-owned subsidiary, Gulf American Financial Corporation. Gulf American
Financial Corporation is currently inactive. All significant intercompany
transactions and balances have been eliminated in consolidation.
General. The accounting and reporting policies of F.F.O. Financial Group,
Inc. and Subsidiaries (together, the "Company") conform to generally accepted
accounting principles and to general practices within the thrift industry. The
following summarizes the significant accounting policies of the Company:
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Trading Securities. Securities held principally for resale in the near
term are classified as trading account securities and recorded at their fair
values. Unrealized gains and losses on trading account securities are included
immediately in noninterest income.
Securities Held to Maturity. Securities for which the Company has the
positive intent and ability to hold to maturity are reported at cost, adjusted
for premiums and discounts that are recognized in interest income using the
interest method over the period to maturity.
Securities Available for Sale. Available-for-sale securities consist of
securities not classified as trading securities nor as held-to-maturity
securities. Unrealized holding gains and losses, net of tax, on available-for-
sale securities are reported as a separate component of stockholders' equity
until realized.
Gains and losses on the sale of available-for-sale securities are
determined using the specific identification method.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity.
Loans Held For Sale. Mortgage loans originated and intended for sale in
the secondary market are carried at the lower of cost or estimated market value
in the aggregate. Net unrealized losses are recognized through a valuation
allowance by charges to income.
Loans Receivable. Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off are
reported at their outstanding principal balance adjusted for any charge-offs,
the allowance for loan losses, and any deferred fees or costs on originated
loans and unamortized premiums or discounts on purchased loans.
F-42
<PAGE> 146
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Discounts and premiums on purchased real estate loans are amortized to
income using the interest method over the remaining period to contractual
maturity, adjusted for anticipated prepayments.
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield of the related loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they become
due. When interest accrual is discontinued, all unpaid accrued interest is
reversed. Interest income is subsequently recognized only to the extent cash
payments are received.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic evaluation
of the adequacy of the allowance is based on the Company's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral and current economic conditions.
Foreclosed Real Estate. Real estate properties acquired through, or in
lieu of, loan foreclosure are to be sold and are initially recorded at fair
value at the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and the real
estate is carried at the lower of carrying amount or fair value less costs to
sell. Revenue and expenses from operations and changes in the valuation
allowance are included in the consolidated statements of income.
Income Taxes. Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
Premises and Equipment. Land is carried at cost. The Company's premises,
furniture and equipment and leasehold improvements are carried at cost, less
accumulated depreciation and amortization computed principally by the
straight-line method.
Off-Balance Sheet Instruments. In the ordinary course of business the
Company has entered into off-balance-sheet financial instruments consisting of
commitments to extend credit. Such financial instruments are recorded in the
financial statements when they are funded or related fees are incurred or
received.
Fair Values of Financial Instruments. The following methods and
assumptions were used by the Company in estimating fair values of financial
instruments:
Cash and Cash Equivalents. The carrying amounts of cash and
short-term instruments approximate their fair value.
Trading Securities. Fair values for trading account securities, which
also are the amounts recognized in the consolidated balance sheets, are
based on quoted market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices of comparable
instruments.
Available-for-Sale and Held-to-Maturity Securities. Fair values for
available-for-sale and held-to-maturity securities, excluding restricted
equity securities, are based on quoted market prices.
Loans Receivable. For variable rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on
carrying values. Fair values for certain fixed-rate mortgage (e.g. one-
to-four family residential), commercial real estate and commercial loans
are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality.
F-43
<PAGE> 147
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Federal Home Loan Bank Stock. Fair value of the Company's investment
in FHLB stock is based on its redemption value, which is its cost of $100
per share.
Deposits. The fair values disclosed for demand, NOW, money market and
savings deposits are, by definition, equal to the amount payable on demand
at the reporting date (that is, their carrying amounts). Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
time deposits.
Short-Term Borrowings. The carrying amounts of borrowings maturing
within 90 days approximate their fair values. Fair values of other
borrowings are estimated using discounted cash flow analysis based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements.
Accrued Interest Receivable. The carrying amounts of accrued interest
receivable approximate their fair values.
Off-Balance-Sheet Instruments. Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
Net Income Per Share. Net income per share of common stock has been
computed on the basis of the weighted average number of shares of common
stock outstanding.
Reclassifications. Certain reclassifications have been made to the
financial statements for 1994 and 1995 to conform to the presentations used
in the financial statements for 1996.
Future Accounting Requirements. The Financial Accounting Standards
Board (the "FASB") has issued Statement of Financial Accounting Standards
No. 125 ("SFAS 125"). This Statement provides accounting and reporting
standards for transfers and servicing of financial assets as well as
extinguishments of liabilities. This Statement also provides consistent
standards for distinguishing transfers of financial assets that are sales
from transfers that are secured borrowings. SFAS 125 is effective for
transfers and servicing of financial assets as well as extinguishments of
liabilities occurring after December 31, 1996. Management does not
anticipate SFAS 125 will have a material impact on the Company.
F-44
<PAGE> 148
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SECURITIES
Securities have been classified in the consolidated balance sheets
according to management's intent. The carrying amounts of securities and their
approximate fair values at December 31, were as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
TRADING SECURITIES:
December 31, 1996:
Agency notes and debentures.................... $ 4,000 $ 32 $ -- $ 4,032
Collateralized mortgage-backed obligations..... 5,554 -- (6) 5,548
------- ---- ----- -------
$ 9,554 $ 32 $ (6) $ 9,580
======= ==== ===== =======
December 31, 1995:
Agency notes and debentures.................... $ 9,359 $ 42 $ -- $ 9,401
Collateralized mortgage-backed obligations..... 13,616 59 -- 13,675
------- ---- ----- -------
$22,975 $101 $ -- $23,076
======= ==== ===== =======
SECURITIES AVAILABLE FOR SALE:
December 31, 1996:
Mortgage-backed securities..................... $41,455 $108 $(118) $41,445
------- ---- ----- -------
December 31, 1995:
U.S. Treasury notes............................ 9,996 23 -- 10,019
Mortgage-backed securities..................... 39,686 127 -- 39,813
------- ---- ----- -------
$49,682 $150 $ -- $49,832
======= ==== ===== =======
SECURITIES HELD TO MATURITY:
December 31, 1996:
Mortgage-backed securities..................... $15,343 $218 $ (47) $15,514
======= ==== ===== =======
December 31, 1995:
Mortgage-backed securities..................... $17,636 $204 $ -- $17,840
======= ==== ===== =======
</TABLE>
Gross realized gains and gross realized losses on sales of
available-for-sale securities were $141,000 and $54,000, respectively in 1996
and $75,000 and $9,000, respectively in 1995. There were no sales of available-
for-sale securities during the year ended December 31, 1994.
Net unrealized holding gains on trading securities of $26,000, $101,000 and
$76,000 were included in income during 1996, 1995 and 1994, respectively.
The Board of Directors has authorized the Company to purchase and sell,
from time to time, securities through third parties including through William R.
Hough & Co. ("WRHC"), an investment banking firm headquartered in St.
Petersburg, Florida. Mr. Hough (a director and principal shareholder of the
Company) is Chairman and principal shareholder of WRHC. During the years ended
December 31, 1996, 1995 and 1994, the Company purchased approximately $53.3
million, $69.5 million and $30.5 million of securities through WRHC,
respectively. During the years ended December 31, 1996 and 1995, the Company
sold approximately $46.0 million and $19.7 million of securities through WRHC,
respectively. No securities were sold through WRHC in 1994. In connection with
such transactions, the Company paid WRHC an aggregate of $118,000, $92,000 and
$20,000 in commissions during the years ended December 31, 1996, 1995 and 1994,
respectively.
F-45
<PAGE> 149
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) LOANS RECEIVABLE
The components of loans in the consolidated balance sheets were as follows
(in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Mortgage Loans:
Conventional 1-4 family residential....................... $112,827 78,680
FHA and VA single family residential...................... 10,131 11,529
Multifamily residential................................... 19,778 18,576
Land...................................................... 8,279 6,476
Other nonresidential real estate.......................... 34,138 26,927
Construction residential.................................. 14,166 10,288
Construction nonresidential............................... 990 --
-------- --------
Total mortgage loans.............................. 200,309 152,476
-------- --------
Other Loans:
Deposit account loans..................................... 957 868
Credit card loans......................................... 594 2,637
Consumer loans............................................ 20,537 13,717
SBA loans................................................. 3,009 3,633
Home improvement loans.................................... 55 76
-------- --------
Total other loans................................. 25,152 20,931
-------- --------
Total loans....................................... 225,461 173,407
-------- --------
Deduct:
Undisbursed portion of loans in process................... (10,824) (6,880)
Deferred net loan origination fees and discounts.......... (19) (199)
Allowance for loan losses................................. (5,613) (5,138)
-------- --------
Total deductions.................................. (16,456) (12,217)
-------- --------
Loans receivable, net............................. $209,005 161,190
======== ========
</TABLE>
An analysis of the change in the allowance for loan losses was as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------ ------- -------
<S> <C> <C> <C>
Balance at January 1..................................... $5,138 $ 8,207 $ 9,333
Loans charged-off, net of recoveries..................... (307) (3,546) (260)
Provision (credit) for loan losses....................... 782 477 (1,403)
Reclassification due to adoption of SFAS 114 and 118..... -- -- 537
------ ------- -------
Balance at December 31................................... $5,613 $ 5,138 $ 8,207
====== ======= =======
</TABLE>
The amounts of impaired loans, all of which were collateral-dependent, were
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------- -------
<S> <C> <C>
Loans identified as impaired:
Gross loans with related allowances for losses recorded... $ 8,256 $ 6,380
Less: Allowances on these loans........................... (1,766) (1,537)
------- -------
Net investment in impaired loans............................ $ 6,490 $ 4,843
======= =======
</TABLE>
F-46
<PAGE> 150
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The average net investment in impaired loans and interest income recognized
and received on impaired loans were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Average investment in impaired loans..................... $6,175 $5,037 $7,259
====== ====== ======
Interest income recognized on impaired loans............. $ 521 $ 337 $ 307
====== ====== ======
Interest income received on impaired loans............... $ 521 $ 337 $ 307
====== ====== ======
</TABLE>
Nonaccrual and renegotiated loans for which interest has been reduced
totalled approximately $8.9 million, $7.6 million and $13.8 million at December
31, 1996, 1995 and 1994, respectively. Interest income that would have been
recorded under the original terms of such loans and the interest income actually
recognized are summarized below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Interest income that would have been recorded............... $863 742 971
Interest income recognized.................................. (340) (342) (383)
---- ---- ----
Interest income foregone.................................... $523 400 588
==== ==== ====
</TABLE>
The Company is not committed to lend additional funds to debtors whose
loans have been modified.
(4) LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of mortgage loans
serviced for others was $103.6 million, $89.6 million and $101.2 million at
December 31, 1996, 1995 and 1994, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing are included in advance payments by borrowers for taxes and insurance,
and were approximately $494,000 and $498,000 at December 31, 1996 and 1995,
respectively.
(5) FORECLOSED REAL ESTATE
Activity in the allowance for losses on foreclosed real estate was as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Balance at January 1..................................... $1,124 2,873 62
(Credit) provision charged to operations................. (1,500) 240 3,410
Recoveries (charge-offs), net............................ 534 (1,989) (62)
------ ------ ------
158 1,124 3,410
Reclassification due to adoption of SFAS 114 and 118..... -- -- (537)
------ ------ ------
Balance at December 31................................... $ 158 1,124 2,873
====== ====== ======
</TABLE>
Gain or loss on foreclosed real estate for the years ended December 31,
1996, 1995 and 1994 includes net expense of $50,000, $408,000 and $549,000,
respectively, from operation of foreclosed real estate.
F-47
<PAGE> 151
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) PREMISES AND EQUIPMENT
Components of premises and equipment were as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1996 1995
------- -------
<S> <C> <C>
Cost:
Land...................................................... $ 1,298 $ 1,298
Premises and leasehold improvements....................... 5,154 5,207
Furniture and equipment................................... 5,263 5,772
------- -------
Total cost........................................ 11,715 12,277
Less accumulated depreciation............................. (6,391) (6,577)
------- -------
Total............................................. $ 5,324 $ 5,700
======= =======
</TABLE>
At December 31, 1996, the Company was obligated under noncancelable
operating leases for office space. Certain leases contain escalation clauses
providing for increased rentals based primarily on increases in real estate
taxes or in the average consumer price index. Net rent expense under operating
leases, included in occupancy expense, was approximately $378,000, $363,000 and
$341,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996, future minimum rental commitments under
noncancellable leases were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------ ------
<S> <C>
1997...................................................... $ 364
1998...................................................... 309
1999...................................................... 229
2000...................................................... 54
2001...................................................... 54
Thereafter................................................ 126
------
Total............................................. $1,136
======
</TABLE>
(7) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996 1995
------ ------
<S> <C> <C>
Loans....................................................... $1,279 $1,164
Securities.................................................. 431 657
------ ------
Total............................................. $1,710 $1,821
====== ======
</TABLE>
(8) DEPOSITS
The aggregate amount of short-term jumbo certificates of deposit, each with
a minimum denomination of $100,000, was approximately $13.2 million and $14.2
million at December 31, 1996 and 1995, respectively.
F-48
<PAGE> 152
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, the scheduled maturities of certificates of deposit
were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------ --------
<S> <C>
1997...................................................... $132,990
1998...................................................... 53,346
1999...................................................... 13,834
2000...................................................... 11,962
2001 and thereafter....................................... 2,511
--------
Total............................................. $214,643
========
</TABLE>
(9) ADVANCES FROM FEDERAL HOME LOAN BANK
Maturities and interest rates of advances from the Federal Home Loan Bank
of Atlanta ("FHLB") were as follows (dollars in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
YEAR ENDING INTEREST ----------------
DECEMBER 31, RATE 1996 1995
- ------------ -------- ------ -------
<S> <C> <C> <C>
1996...................................................... 5.85% $ -- $30,000
1997...................................................... 6.95 7,000 --
---- ------ -------
Total............................................. % $7,000 $30,000
==== ====== =======
</TABLE>
At December 31, 1996, the Association was required by its collateral
agreement with the FHLB to maintain qualifying first mortgage loans in an amount
equal to at least 150% of the FHLB advances outstanding at December 31, 1996 as
collateral. The Association's FHLB stock is also pledged as collateral for such
advances. The FHLB advances outstanding at December 31, 1995 were collateralized
by certain securities with a book value of $32.2 million and a market value of
$32.6 million as allowed by the Association's collateral agreement with the
FHLB. The Association's FHLB stock was also pledged as collateral for those
advances while outstanding.
(10) INCOME TAXES
The provision (credit) for income taxes is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Year Ended December 31, 1996:
Federal................................................... $ (16) $ 695 $679
State..................................................... -- 124 124
----- ------ ----
Total............................................. $ (16) $ 819 $803
===== ====== ====
Year Ended December 31, 1995:
Federal................................................... $(371) $ 864 $493
State..................................................... -- 148 148
----- ------ ----
Total............................................. $(371) $1,012 $641
===== ====== ====
Year Ended December 31, 1994:
Federal................................................... $ 435 $ (236) $199
State..................................................... 75 (40) 35
----- ------ ----
Total............................................. $ 510 $ (276) $234
===== ====== ====
</TABLE>
F-49
<PAGE> 153
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective tax rate on income before income taxes differs from the U.S.
statutory rate of 34%. The following summary reconciles taxes at the U.S.
statutory rate with the effective rates (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
AMOUNT % AMOUNT % AMOUNT %
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Taxes on income at U.S. statutory rate....... $ 817 34.0% $ 777 34.0% $229 34.0%
State income taxes, net of federal tax
benefit.................................... 87 3.6 82 3.6 24 3.6
Recomputed bad-debt reserve.................. -- -- (178) (7.8) -- --
Other -- net................................. (101) (4.2) (40) (1.8) (19) (2.8)
----- ---- ----- ---- ---- ----
Taxes on income at effective rates........... $ 803 33.4% $ 641 28.0% $234 34.7%
===== ==== ===== ==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities related to the following (in
thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996 1995
------ ------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................. $1,454 $1,516
Allowance for losses on foreclosed real estate............ 59 423
Accrued pension expense................................... -- 141
Charitable contributions.................................. 4 --
Net operating loss carryforwards.......................... 1,601 2,149
Alternative minimum tax credit carryforwards.............. 121 122
Unrealized depreciation on securities available for
sale................................................... 4 --
------ ------
Total gross deferred tax assets................... 3,243 4,351
------ ------
Deferred tax liabilities:
Deferred loan fees........................................ 1,504 1,711
Federal Home Loan Bank stock.............................. 226 239
Accumulated depreciation on premises and equipment........ 23 66
Unrealized appreciation on securities available for
sale................................................... -- 56
Other..................................................... -- 30
------ ------
Total gross deferred tax liabilities.............. 1,753 2,102
------ ------
Deferred tax asset........................................ $1,490 $2,249
====== ======
</TABLE>
With respect to the net deferred tax asset of $1.5 million at December 31,
1996, management believes that it is more likely than not that the Company will
have sufficient future taxable income to recover this asset. However, for
purposes of calculating regulatory capital, Office of Thrift Supervision ("OTS")
regulations limit the amount of deferred tax assets that can be included in
regulatory capital to the lesser of (i) 10% of Tier 1 capital or (ii) the amount
the Association expects to realize within the subsequent twelve-month period.
OTS guidelines require the Association to recalculate this capital component on
a quarterly basis.
F-50
<PAGE> 154
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, the Company's net operating loss carryforwards for
federal income tax purposes which are available to offset future federal taxable
income were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR OF
EXPIRATION AMOUNT
- ---------- ------
<S> <C>
2007...................................................... $1,324
2008...................................................... 1,826
2010...................................................... 980
------
Total............................................. $4,130
======
</TABLE>
Net operating loss carryforwards of $3,150,000 included above are subject
to an annual limitation of $268,000 due to section 382 of the Internal Revenue
Code. In addition, the Company has alternative minimum tax credit carryforwards
of approximately $121,000 which are available to reduce future federal regular
income taxes over an indefinite period.
(11) PENSION AND PROFIT SHARING PLANS
Prior to 1996, the Company had a noncontributory defined benefit pension
plan ("Plan") covering all employees who meet certain eligibility requirements.
It was the Company's policy to fund the maximum amount that could be deducted
for federal income tax purposes. Prior to 1992, the Company periodically made
contributions to a profit sharing plan covering all full-time employees in
amounts determined by the Board of Directors. No contributions were made to the
Plan during any of the years in the three-year period ended December 31, 1995.
During 1994, the Company decided to terminate the pension and profit sharing
plans effective December 31, 1994 and ceased accrual of benefits as of that
date. The Company submitted plan termination documents, which were subsequently
approved, to the Internal Revenue Service ("IRS") and the Pension Benefit
Guarantee Corporation for the Plan, and to the IRS for the profit sharing plan.
Distributions from the plans were made during January and February of 1996.
The following table sets forth the Plan's status as of December 31, 1995
(in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
1995
---------------
<S> <C>
Actuarial present value of accumulated benefit obligation,
including vested benefits of $1,626....................... $ 1,626
=======
Accrued pension liability:
Projected benefit obligation for service rendered to
date................................................... $(1,626)
Plan assets at fair value................................. $ 1,264
=======
Plan assets less than projected benefit obligation........ $ (362)
Unrecognized net loss..................................... 450
Unrecognized net asset being amortized over 15 years...... (388)
-------
Accrued pension liability included in other liabilities..... $ (300)
=======
</TABLE>
F-51
<PAGE> 155
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension costs under the Plan prior to 1996 were as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1995 1994
----- ----
<S> <C> <C>
Service cost-benefits earned during the year................ $ -- $150
Interest cost of projected benefit obligation............... 75 79
Actual return on plan assets................................ 173 (82)
Net amortization and deferral adjustments................... (324) (96)
----- ----
Net periodic pension costs.................................. $ (76) $ 51
===== ====
</TABLE>
Disclosure assumptions used in accounting for the Plan as of December 31,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Weighted average discount rate.............................. 4.5% 5.0%
Rate of increase in compensation levels..................... N/A 6.0
Expected long-term rate of return on assets................. 6.0 6.0
</TABLE>
In connection with the plan terminations, the Company adopted a new defined
contribution profit sharing 401(k) plan (the "401(k) Plan") effective January 1,
1995. All employees who meet certain eligibility requirements are covered under
the 401(k) Plan. Under the 401(k) Plan, an employee may elect to contribute up
to 15% of their annual compensation. Employer contributions to the 401(k) Plan
are made at the discretion of the Board of Directors. Contributions to the
401(k) Plan for the years ended December 31, 1996 and 1995 were $78,000 and
$49,000, respectively.
(12) FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments are commitments to extend credit and may involve, to
varying degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the consolidated balance sheets. The contract amounts of
these instruments reflect the extent of involvement the Company has in these
financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained by the
Company upon extension of credit is based on management's credit evaluation of
the counterparty.
F-52
<PAGE> 156
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT DECEMBER 31, 1995
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents................. $ 17,965 17,965 10,426 10,426
Trading securities........................ 9,580 9,580 23,076 23,076
Securities available for sale............. 41,445 41,445 49,832 49,832
Securities held to maturity............... 15,343 15,514 17,636 17,840
Loans receivable.......................... 209,005 209,354 161,190 163,660
Loans held for sale....................... 10,462 10,462 22,765 22,765
Accrued interest receivable............... 1,710 1,710 1,821 1,821
Federal Home Loan Bank stock.............. 2,378 2,378 2,514 2,514
Financial Liabilities:
Deposits.................................. 286,927 289,326 248,936 251,116
Advances from Federal Home Loan Bank...... 7,000 7,000 30,000 30,000
</TABLE>
The notional amount, which approximates fair value, of the Company's
financial instruments with off-balance-sheet risk at December 31, 1996, was as
follows (in thousands):
<TABLE>
<CAPTION>
NOTIONAL
AMOUNT
--------
<S> <C>
Commitments to extend credit................................ $5,062
</TABLE>
(13) SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK
The Company grants real estate, commercial and consumer loans to customers
primarily in the State of Florida with the majority of such loans in the Central
Florida area. Therefore, the Company's exposure to credit risk is significantly
affected by changes in the economy of the Central Florida area.
The contractual amounts of credit related financial instruments such as
commitments to extend credit represent the amounts of potential accounting loss
should the contract be fully drawn upon, the customer default and the value of
any existing collateral become worthless.
(14) RELATED PARTIES
Loans to directors and officers of the Company, which were made at market
rates, were made in the ordinary course of business and did not involve more
than normal risk of collectibility or present other unfavorable features.
Activity in loans to directors and officers were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1996 1995
----- -----
<S> <C> <C>
Beginning balance........................................... $793 867
Amounts related to new officers and directors............... 15 7
Loans originated............................................ -- 7
Principal repayments........................................ (35) (88)
---- ----
Ending balance.................................... $773 793
==== ====
</TABLE>
F-53
<PAGE> 157
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Company is a
defendant in certain claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
adverse effect on the consolidated balance sheets of the Company.
(16) RESTRICTIONS ON RETAINED EARNINGS
The Association is subject to certain restrictions on the amount of
dividends that it may declare without prior regulatory approval. At December 31,
1996, the Association was a Tier 2 institution for purposes of the regulations
relating to capital distributions; as such, the Association may make capital
distributions of up to 75% of its net income over the most recent four-quarter
period (depending on its risk-based capital level) without prior regulatory
approval.
(17) REGULATORY MATTERS
The Association is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory-and possibly additional
discretionary-actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Association must meet specific capital guidelines that involve quantitative
measures of the Association's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Association's
capital amounts and classification are also subject to qualitative judgements by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts (set forth in the following
table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined). Management believes, as of December 31, 1996,
that the Association meets all capital adequacy requirements to which it is
subject.
As of December 31, 1996, the most recent notification from the OTS
categorized the Association as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized the
Association must maintain minimum Tier I (core), Tier I (risk-based) and total
risk-based capital ratios as set forth below. There are no conditions or events
since that notification that management believes have changed the Association's
category.
F-54
<PAGE> 158
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Association's actual capital amounts and ratios at December 31, 1996
were as follows (dollars in thousands):
<TABLE>
<CAPTION>
TO BE WELL
MINIMUM FOR CAPITALIZED
CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
---------------- ---------------- ------------------
RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT
----- -------- ----- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity, and ratio
to total assets................ 6.4% $ 20,167
Less -- nonincludable portion of
deferred tax asset and mortgage
servicing rights............... (1,401)
Add back -- unrealized
depreciation on
available-for-sale
securities..................... 6
--------
Tangible capital, and ratio to
adjusted total assets.......... 5.9 $ 18,772 1.5% $ 4,734
======== ========
Tier 1 (core) capital, and ratio
to adjusted total assets....... 5.9 $ 18,772 3.0 $ 9,469 5.0% $ 15,782
======== ======== ========
Tier 1 capital, and ratio to
risk-weighted assets........... 11.1 $ 18,772 4.0 $ 6,786 6.0 $ 10,179
======== ======== ========
Tier 2 capital (excess allowance
for loan losses)............... $ 2,154
--------
Total risk-based
capital, and ratio to
risk-weighted
assets............... 12.3 $ 20,926 8.0 $ 13,572 10.0 $ 16,965
======== ======== ========
Total assets........... $317,024
========
Adjusted total assets............ $315,630
========
Risk-weighted assets............. $169,647
========
</TABLE>
On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on SAIF member institutions, including the
Association, to recapitalize the SAIF and spread the obligations for payments of
Financing Corporation ("FICO") bonds across all SAIF and Bank Insurance Fund
("BIF") members. That legislation eliminated the substantial disparity between
the amount that BIF and SAIF members had been paying for deposit insurance
premiums. The FDIC special assessment levied amounted to 65.7 basis points on
SAIF assessable deposits held as of March 31, 1995. The special assessment was
recognized in the third quarter and is tax deductible. The Association recorded
a charge of $1.5 million before taxes as a result of the FDIC special
assessment.
Beginning on January 1, 1997, BIF members will pay a portion of the FICO
payment equal to 1.3 basis points on BIF-insured deposits, compared to 6.48
basis points payable by SAIF members on SAIF-insured deposits, and will pay a
pro rata share of the FICO payment on the earlier of January 1, 2000 or the date
upon which the last savings association, such as the Association, ceases to
exist. The legislation also requires BIF and SAIF to be merged by January 1,
1999 provided that subsequent legislation is adopted to eliminate the savings
association charter and no savings associations remain as of that time.
The FDIC recently lowered SAIF assessments to a range comparable to those
of BIF members, however, SAIF members will continue to pay the higher FICO
payments described above. Management cannot predict
F-55
<PAGE> 159
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the level of FDIC insurance assessments on an ongoing basis or whether the BIF
and SAIF will eventually be merged.
(18) STOCK OPTION PLAN
In 1988, the Company adopted a stock option program (the "Program") for the
benefit of its directors, officers and other selected key employees of the
Company. Four kinds of rights are contained in the program and are available for
grant: incentive stock options (options to purchase common stock, granted to
officers and key employees), compensatory stock options (options to purchase
common stock, granted to directors), stock appreciation rights and performance
share awards. A total of 241,500 shares of common stock were reserved for
issuance pursuant to the exercise of stock options under the Program. As of
December 31, 1996, the Company had granted incentive stock options and
compensatory stock options as discussed in more detail below. No stock
appreciation rights or performance share awards have been issued to date. The
Program provides that incentive stock options and compensatory stock options are
granted to purchase stock at the market value of the stock at the date of the
grant; such grants are exercisable immediately for compensatory stock options,
and ratably over a three-year period for incentive stock options. All stock
options expire at the earlier of ten years from the date of the grant, or three
months after the director, officer or employee ceases employment with the
Company.
During 1996, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). SFAS 123 applies to stock-based compensation under the Company's Program.
As allowed by SFAS 123, the Company elected to continue to measure compensation
cost for the options or shares granted under the Program using the intrinsic
value method of accounting prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Under that accounting method, the Company recorded
no compensation expense related to the Program during the years ended December
31, 1996, 1995 and 1994.
During the years ended December 31, 1996 and 1995, 47,000 and 52,100
options were granted under the Program. If compensation cost for the Program had
been determined based on the fair value of the awards at the grant date, using
the fair value method defined in SFAS 123, the Company's net income and net
income per share for 1996 and 1995 would not have been materially reduced.
The stock option transactions were as follows:
<TABLE>
<CAPTION>
INCENTIVE COMPENSATORY
STOCK OPTIONS STOCK OPTIONS
----------------------- ---------------------
OPTION PRICE OPTION PRICE
SHARES PER SHARE SHARES PER SHARE
------- ------------- ------ ------------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1993............ 133,125 $2.13 15,813 $2.13
Granted................................... 10,000 2.13 -- --
------- ------
Outstanding, December 31, 1994............ 143,125 2.13 15,813 2.13
Granted................................... 52,100 2.25 -- --
Cancelled or expired...................... (10,000) 2.13 (2,875) 2.13
------- ------
Outstanding, December 31, 1995............ 185,225 $2.13 - 2.25 12,938 2.13
Granted................................... 47,000 2.75 -- --
Cancelled or expired...................... (37,600) 2.13 - 2.25 (4,313) 2.13
------- ------
Outstanding, December 31, 1996............ 194,625 2.13 - 2.75 8,625 2.13
======= ======
</TABLE>
At December 31, 1996, the weighted-average option price per share for the
incentive stock options was $2.30 and for the compensatory stock options was
$2.13. The weighted-average option price per share of all
F-56
<PAGE> 160
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options under the Program at December 31, 1996 was $2.29. Of the total incentive
stock options outstanding at December 31, 1996, 1995 and 1994, 114,624, 82,083
and 44,375, respectively, were exercisable.
(19) PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements of the Holding Company are presented below.
Amounts shown as investment in wholly-owned subsidiaries and equity in earnings
of subsidiaries are eliminated in consolidation (in thousands):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1996 1995
------- -------
<S> <C> <C>
ASSETS
Cash, deposited with subsidiary............................. $ 113 $ 117
Investment in wholly-owned subsidiaries..................... 20,167 18,663
------- -------
Total............................................. $20,280 $18,780
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities................................................. $ -- $ --
Stockholders' equity........................................ 20,280 18,780
------- -------
Total............................................. $20,280 $18,780
======= =======
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -----
<S> <C> <C> <C>
Income:
Equity in undistributed earnings of subsidiaries.......... $1,604 $1,591 $379
Other income.............................................. 120 120 120
Expense..................................................... (124) (65) (59)
------ ------ ----
Net income.................................................. $1,600 $1,646 $440
====== ====== ====
</TABLE>
F-57
<PAGE> 161
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings............................................ $ 1,600 $ 1,646 $ 440
Adjustments to reconcile net earnings to net cash (used
in) provided by operations:
Equity in earnings of subsidiaries................... (1,604) (1,591) (379)
------- ------- -------
Net cash (used in) provided by operating
activities.................................... (4) 55 61
------- ------- -------
Cash Flows from Financing Activities:
Proceeds from sale of common stock...................... -- -- 2,400
Investment in subsidiary................................ -- -- (2,400)
------- ------- -------
Net cash provided by financing activities....... -- -- --
------- ------- -------
Net (decrease) increase in cash........................... (4) 55 61
Cash at beginning of year................................. 117 62 1
------- ------- -------
Cash at end of year....................................... $ 113 $ 117 $ 62
======= ======= =======
</TABLE>
(20) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present summarized quarterly data (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest income.............................. $5,466 $5,398 $5,340 $5,793 $21,997
Interest expense............................. 3,140 2,942 2,824 3,117 12,023
------ ------ ------ ------ -------
Net interest income.......................... 2,326 2,456 2,516 2,676 9,974
Provision for loan losses.................... 150 -- 7 625 782
------ ------ ------ ------ -------
Net interest income after provision for loan
losses..................................... 2,176 2,456 2,509 2,051 9,192
Noninterest income........................... 304 563 535 985 2,387
Noninterest expenses......................... 2,391 2,187 3,771 827 9,176
------ ------ ------ ------ -------
Income (loss) before income taxes............ 89 832 (727) 2,209 2,403
Provision (credit) for income taxes.......... 33 310 (270) 730 803
------ ------ ------ ------ -------
Net income (loss)............................ $ 56 $ 522 $ (457) $1,479 $ 1,600
====== ====== ====== ====== =======
Income (loss) per share...................... $ .01 $ .06 $ (.05) $ .17 $ .19
====== ====== ====== ====== =======
</TABLE>
F-58
<PAGE> 162
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest income.............................. $4,978 $4,780 $4,897 $5,075 $19,730
Interest expense............................. 2,259 2,477 2,616 2,759 10,111
------ ------ ------ ------ -------
Net interest income.......................... 2,719 2,303 2,281 2,316 9,619
Provision for loan losses.................... 141 30 154 152 477
------ ------ ------ ------ -------
Net interest income after provision for loan
losses..................................... 2,578 2,273 2,127 2,164 9,142
Noninterest income........................... 663 665 604 670 2,602
Noninterest expenses......................... 2,530 2,428 2,182 2,317 9,457
------ ------ ------ ------ -------
Income before income taxes................... 711 510 549 517 2,287
Provision for income taxes................... 250 174 190 27 641
------ ------ ------ ------ -------
Net income................................... 461 336 359 490 1,646
------ ------ ------ ------ -------
Income per share............................. $ .05 $ .04 $ .05 $ .06 $ .20
====== ====== ====== ====== =======
</TABLE>
(21) SUBSEQUENT EVENT -- PENDING MERGER
On March 10, 1997, the Holding Company executed a Letter of Intent to merge
with Republic Bancshares, Inc. ("Republic"). Under the terms of the Letter of
Intent, Republic will exchange shares of its common stock for all of the
outstanding shares of F.F.O.'s common stock at an exchange ratio of .29 share of
Republic common stock for each share of F.F.O. common stock. The exchange ratio
may be adjusted for decreases in Republic's stock price, but in no event will
the exchange ratio exceed .30 share of Republic common stock for each share of
F.F.O. common stock. F.F.O. has the right to terminate the transaction if
Republic's stock price is less than $13.50 shortly before closing. Outstanding
options for F.F.O.'s common stock will be converted into options for Republic
common stock on the same terms. The transaction is expected to be completed in
1997, and is to be accounted for as a corporate reorganization under which the
controlling shareholder's interest in F.F.O. will be carried forward at its
historical cost while the minority interest in F.F.O. will be recorded at fair
value. The proposed merger is subject to completion of a definitive agreement,
approval by the respective shareholders of F.F.O. and Republic, and approval by
applicable regulatory authorities. Upon completion of the proposed merger, the
then-outstanding options under the Company's stock option program (see Note 18)
will become immediately exercisable.
F-59
<PAGE> 163
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 6,491 $ 6,300
Interest-bearing deposits with banks........................ 7,688 11,665
Federal funds sold.......................................... 764 --
-------- --------
Cash and cash equivalents......................... 14,943 17,965
Trading securities.......................................... 13,169 9,580
Securities available for sale............................... 43,713 41,445
Securities held to maturity, at cost........................ 14,702 15,343
Loans held for sale, at lower of cost or market value....... 4,573 10,462
Loans receivable, net....................................... 215,926 209,005
Accrued interest receivable................................. 1,972 1,710
Premises and equipment...................................... 5,268 5,324
Restricted securities -- Federal Home Loan Bank stock, at
cost...................................................... 2,378 2,378
Foreclosed real estate, net................................. 1,425 799
Deferred tax asset.......................................... 1,576 1,490
Other assets................................................ 386 1,448
-------- --------
Total assets...................................... $320,031 316,949
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits........................................... $ 16,597 $ 14,303
Savings and NOW deposits.................................. 58,060 57,981
Time deposits............................................. 211,015 214,643
-------- --------
Total deposits.................................... 285,672 286,927
Accrued interest on deposits................................ 217 256
Due to bank................................................. 988 424
Current income tax liability................................ 351 --
Advances from Federal Home Loan Bank........................ 9,000 7,000
Advance payments by borrowers for taxes and insurance....... 1,419 608
Other liabilities........................................... 1,624 1,454
-------- --------
Total liabilities................................. 299,271 296,669
-------- --------
Stockholders' equity:
Preferred stock........................................... -- --
Common stock.............................................. 845 843
Additional paid-in capital................................ 17,633 17,599
Retained income........................................... 2,431 1,844
Net unrealized depreciation on securities available for
sale................................................... (149) (6)
-------- --------
Total stockholders' equity........................ 20,760 20,280
-------- --------
Total liabilities and stockholders' equity........ $320,031 316,949
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-60
<PAGE> 164
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
---------- ---------
(UNAUDITED)
<S> <C> <C>
Interest income:
Loans receivable.......................................... $ 4,591 4,018
Securities available for sale............................. 619 593
Securities held to maturity............................... 237 251
Trading securities........................................ 269 510
Federal funds sold........................................ 27 19
Deposits with banks....................................... 64 75
---------- ---------
Total interest income............................. 5,807 5,466
---------- ---------
Interest expense:
Deposits.................................................. 3,163 2,897
Other borrowed funds...................................... 10 243
---------- ---------
Total interest expense............................ 3,173 3,140
---------- ---------
Net interest income......................................... 2,634 2,326
Provision for loan losses................................... -- 150
---------- ---------
Net interest income after provision for loan
losses.......................................... 2,634 2,176
---------- ---------
Noninterest income:
Service charges on deposits............................... 328 323
Loan related fees and service charges..................... 122 117
Loan servicing fees....................................... 83 68
Net trading account losses................................ (138) (178)
Unrealized gain (loss) on loans held for sale............. 84 (111)
Net gain on sale of loans................................. 54 43
Other income.............................................. 68 42
---------- ---------
Total noninterest income.......................... 601 304
---------- ---------
Noninterest expenses:
Salaries and employee benefits............................ 1,021 1,016
Occupancy expense......................................... 478 467
Loss on foreclosed real estate............................ 34 33
Deposit insurance premium................................. 63 173
Marketing and advertising................................. 111 132
Data processing........................................... 179 151
Printing and office supplies.............................. 73 78
Telephone expense......................................... 66 71
Other expense............................................. 272 270
---------- ---------
Total noninterest expenses........................ 2,297 2,391
---------- ---------
Income before income taxes.................................. 938 89
Income tax expense.......................................... 351 33
---------- ---------
Net income.................................................. $ 587 $ 56
========== =========
Net income per share of common stock........................ $ .07 $ .01
========== =========
Dividends per share......................................... $ -- $ --
========== =========
Weighted average number of shares outstanding............... 8,430,181 8,430,000
========== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-61
<PAGE> 165
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
DEPRECIATION
ADDITIONAL ON SECURITIES TOTAL
COMMON PAID-IN RETAINED AVAILABLE STOCKHOLDERS'
STOCK CAPITAL INCOME FOR SALE EQUITY
------ ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996................ $843 $17,599 $1,844 $ (6) $20,280
Net proceeds from the issuance of 16,266
shares of common stock (unaudited)........ 2 34 -- -- 36
Net change in unrealized depreciation on
securities available for sale net of
income taxes of $86 (unaudited)........... -- -- -- (143) (143)
Net income for the three months ended March
31, 1997 (unaudited)...................... -- -- 587 -- 587
---- ------- ------ ----- -------
Balance at March 31, 1997 (unaudited)....... $845 $17,633 $2,431 $(149) $20,760
==== ======= ====== ===== =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-62
<PAGE> 166
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 587 $ 56
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses.............................. -- 150
Net amortization of deferred loan fees................. (3) 39
Depreciation of premises and equipment................. 137 137
Net (increase) decrease in trading securities.......... (3,589) 7,184
Provision for deferred income taxes.................... -- 16
Proceeds from sales of loans held for sale............. 6,027 7,171
Gain on sale of loans.................................. (54) (43)
Unrealized (gain) loss on loans held for sale.......... (84) 111
(Increase) decrease in accrued interest receivable..... (262) 64
Decrease (increase) in other assets.................... 1,062 (501)
Decrease in accrued interest payable................... (39) (74)
Increase in current income tax liability............... 351 --
Increase in other liabilities and due to bank.......... 734 245
------- --------
Net cash provided by operating activities......... 4,867 14,555
------- --------
Cash flows from investing activities:
Purchase of available-for-sale securities................. (2,988) --
Proceeds from maturities of available-for-sale
securities............................................. -- 2,000
Principal repayments on available-for-sale securities..... 479 899
Principal repayments on held-to-maturity securities....... 653 568
Net increase in loans receivable.......................... (7,544) (8,787)
Proceeds from sales of foreclosed real estate............. -- 112
Payments capitalized to foreclosed real estate............ -- (55)
Net purchases of premises and equipment................... (81) (101)
------- --------
Net cash used in investing activities............. (9,481) (5,364)
------- --------
Cash flows from financing activities:
Net increase in demand, savings and NOW deposits.......... 2,373 54
Net (decrease) increase in time deposits.................. (3,628) 19,732
Net proceeds from the sale of common stock................ 36 --
Net proceeds from (repayment of) Federal Home Loan Bank
advances............................................... 2,000 (16,000)
Net increase in advance payments by borrowers for taxes
and insurance.......................................... 811 613
------- --------
Net cash provided by financing activities......... 1,592 4,399
------- --------
Net (decrease) increase in cash and cash equivalents........ (3,022) 13,590
Cash and cash equivalents at beginning of period............ 17,965 10,426
------- --------
Cash and cash equivalents at end of period.................. $14,943 $ 24,016
======= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes........................................... $ -- $ 18
======= ========
Interest............................................... $ 3,212 $ 3,214
======= ========
Noncash investing and financing activities:
Transfers of loans to foreclosed real estate........... $ 626 $ 199
======= ========
Transfer of loans held for sale to loans receivable, at
market................................................ $ -- $ 10,603
======= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-63
<PAGE> 167
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL.
In the opinion of the management of F.F.O. Financial Group, Inc. (the
"Company" or "F.F.O."), the accompanying condensed consolidated financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position at March 31, 1997, and the
results of operations and cash flows for the three-month periods ended March 31,
1997 and 1996. These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996. The results of
operations for the three months ended March 31, 1997, are not necessarily
indicative of the operating results to be anticipated for the full year.
F.F.O. Financial Group, Inc. is a Florida corporation organized in 1988 as
a unitary savings and loan holding company. The accompanying unaudited condensed
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary, First Federal Savings and Loan Association of Osceola
County (the "Association"), and the Association's wholly-owned subsidiary, Gulf
American Financial Corporation, which is currently inactive. All significant
intercompany transactions and accounts have been eliminated in consolidation.
2. NET INCOME PER SHARE.
Net income per share has been computed by dividing net income by the
weighted average number of shares outstanding during the period. No adjustment
has been made to give effect to the shares that would be outstanding, assuming
the exercise of outstanding stock options, since the impact is deemed
immaterial.
3. LOAN IMPAIRMENT AND LOSSES.
The following summarizes the amounts of impaired loans, as defined by
Statements of Financial Accounting Standards No. 114 and 118 ("SFAS No. 114 and
118"), all of which were collateral-dependent, at March 31, 1997 and December
31, 1996, and the average net investment in impaired loans and interest income
recognized and received on impaired loans during the three-month periods ended
March 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(UNAUDITED)
<S> <C> <C>
Loans identified as impaired:
Gross loans with related allowance for credit losses
recorded............................................... $ 7,989 $ 8,256
Less: Allowances on these loans........................... (1,848) (1,766)
------- -------
Net investment in impaired loans............................ $ 6,141 $ 6,490
======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
------- -------
(UNAUDITED)
<S> <C> <C>
Average investment in impaired loans........................ $6,316 $4,697
====== ======
Interest income recognized on impaired loans................ $ 130 $ 118
====== ======
Interest income received on impaired loans.................. $ 130 $ 118
====== ======
</TABLE>
F-64
<PAGE> 168
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
An analysis of the change in the allowance for loan losses follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
------- -------
(UNAUDITED)
<S> <C> <C>
Balance at January 1........................................ $5,613 $5,138
Provision for loan losses................................... -- 150
Loans charged-off, net of recoveries........................ (34) (78)
------ ------
Balance at March 31......................................... $5,579 $5,210
====== ======
</TABLE>
4. FORECLOSED REAL ESTATE.
Activity in the allowance for losses on foreclosed real estate was as
follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
----- -------
(UNAUDITED)
<S> <C> <C>
Balance at January 1........................................ $158 $1,124
Recoveries, net of charge-offs.............................. 5 51
---- ------
Balance at March 31......................................... $163 $1,175
==== ======
</TABLE>
5. IMPACT OF NEW ACCOUNTING STANDARDS.
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125"). That
Statement provides accounting and reporting standards for transfers and
servicing of financial assets as well as extinguishments of liabilities. The
Statement also provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. SFAS
No. 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. The adoption
of SFAS No. 125 had no significant effect on the Company's financial position at
March 31, 1997 or results of operations for the three months then ended.
6. PENDING MERGER.
On April 14, 1997, the Company executed a definitive agreement to merge
with Republic Bancshares, Inc. ("Republic"). Under the terms of the definitive
agreement, Republic will exchange shares of its common stock for all of the
outstanding shares of F.F.O.'s common stock at an exchange ratio of .29 share of
Republic common stock for each share of F.F.O. common stock. The exchange ratio
may be adjusted for decreases in Republic's stock price, but in no event will
the exchange ratio exceed .30 share of Republic common stock for each share of
F.F.O. common stock. F.F.O. has the right to terminate the transaction if
Republic's stock price is less than $13.50 shortly before closing. Outstanding
options for F.F.O.'s common stock will be converted into options for Republic
common stock on the same terms. The transaction is expected to be completed in
1997, and is to be accounted for as a corporate reorganization under which the
controlling shareholder's interest in F.F.O. will be carried forward at its
historical cost while the minority interest in F.F.O. will be recorded at fair
value. The proposed merger is subject to approval by the respective shareholders
of F.F.O. and Republic, and approval by applicable regulatory authorities.
F-65
<PAGE> 169
F.F.O. FINANCIAL GROUP, INC.
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Hacker, Johnson, Cohen & Grieb, the Company's independent certified public
accountants, have made a limited review of the financial data as of March 31,
1997, and for the three-month periods ended March 31, 1997 and 1996 presented in
this document, in accordance with standards established by the American
Institute of Certified Public Accountants.
Their report, furnished pursuant to Article 10 of Regulation S-X, is
included herein.
F-66
<PAGE> 170
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Audit Committee of the Board of Directors
F.F.O. Financial Group, Inc.
St. Cloud, Florida:
We have reviewed the condensed consolidated balance sheet of F.F.O.
Financial Group, Inc. and Subsidiaries (the "Company") as of March 31, 1997, and
the related condensed consolidated statements of income and cash flows for the
three-month periods ended March 31, 1997 and 1996, and the condensed
consolidated statement of stockholders' equity for the three-month period ended
March 31, 1997. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for the year then ended (not presented herein), and in our report dated February
11, 1997, except for Note 21, as to which the date was March 11, 1997, expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1996 is fairly stated in all material respects,
in relation to the consolidated balance sheet from which it has been derived.
HACKER, JOHNSON, COHEN & GRIEB
Orlando, Florida
April 17, 1997
F-67
<PAGE> 171
======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, RBI OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE AS DESCRIBED HEREIN, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE PREFERRED SECURITIES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 1
Risk Factors.......................... 10
Use of Proceeds....................... 20
Market for the Preferred Securities... 20
Accounting Treatment.................. 21
Capitalization........................ 22
Recent Developments................... 23
Pro Forma Financial Data.............. 23
Selected Consolidated Financial
Data................................ 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 32
Business.............................. 49
Management............................ 68
Description of the Preferred
Securities.......................... 69
Description of the Junior Subordinated
Debentures.......................... 80
Description of the Guarantee.......... 88
Relationship Among the Preferred
Securities, the Junior Subordinated
Debentures and the Guarantee........ 90
Certain Federal Income Tax Consequences..91
ERISA Considerations.................. 94
Underwriting.......................... 96
Validity of Securities................ 97
Experts............................... 98
Available Information................. 98
Incorporation of Certain Documents by
Reference........................... 99
Index to Financial Statements and
Schedule............................ F-1
</TABLE>
======================================================
[REPUBLIC BANCSHARES LOGO]
$25,000,000
RBI CAPITAL TRUST I
2,500,000 SHARES OF
9.10% CUMULATIVE TRUST
PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER
PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED HEREIN, BY
REPUBLIC BANCSHARES, INC.
--------------------
PROSPECTUS
--------------------
[WILLIAM R. HOUGH & CO. LOGO]
[RYAN, BECK & CO. LOGO]
JULY 28, 1997
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