<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
COMMISSION FILE NUMBER 0-27652
REPUBLIC BANCSHARES, INC.
(Exact Name of Registrant As Specified In Its Charter)
FLORIDA 59-1463900
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
111 2nd Avenue N.E., St. Petersburg, FL 33701
(Address of Principal Office) Zip Code
(727) 823-7300
(Registrant's Telephone Number, Including Area Code)
N/A
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<S> <C>
COMMON STOCK PAR VALUE $2.00 PER SHARE 9,746,615 SHARES OUTSTANDING AT SEPTEMBER 30, 1998
</TABLE>
<PAGE> 2
REPUBLIC BANCSHARES, INC.
INDEX
Part I. FINANCIAL INFORMATION (all financial information for prior periods
has been restated for the merger with F.F.O. Financial Group,
Inc.)
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS PAGE
<S> <C>
Consolidated Balance Sheets - September 30, 1998 (unaudited)
and December 31, 1997............................................................................. 1
Consolidated Statements of Operations -
Three and nine month periods
ended September 30, 1998 and 1997 (all unaudited)................................................ 2
Consolidated Statements of Stockholders' Equity -
Year ended December 31, 1997 and
Nine months ended September 30, 1998 (unaudited).................................................. 3
Consolidated Statements of Cash Flows -
Three month and nine month periods
ended September 30, 1998 and 1997 (all unaudited)................................................. 4
Notes to Consolidated Financial Statements (unaudited)............................................. 5
Selected Quarterly Financial and Other Data (unaudited)............................................ 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................................................... 17
Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.................................................................................. 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................... 26
SIGNATURES ...................................................................................................... 27
</TABLE>
<PAGE> 3
REPUBLIC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS - SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
($ IN THOUSANDS, EXCEPT PAR VALUES)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks $ 45,725 $ 45,998
Interest bearing deposits in banks 1,865 671
Federal funds sold 326,000 33,000
Investment securities:
Available for sale 33,598 16,080
Mortgage-backed and mortgage-related securities:
Available for sale 12,055 55,467
Trading 65,439 36,189
FHLB stock 10,389 8,148
Loans held for sale (Note 4) 318,854 151,404
Loans, net of allowance for loan losses 1,364,473 1,128,955
Premises and equipment, net 52,787 34,168
Other real estate acquired through foreclosure, net 5,559 6,997
Accrued interest receivable` 11,683 9,611
Goodwill and premium on deposits 37,880 4,855
Other assets 43,863 20,862
---------- ----------
Total assets $2,330,170 $1,552,405
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits-
Noninterest-bearing checking $ 124,493 $ 93,843
Interest checking 153,128 137,240
Money market 121,476 30,389
Savings 353,830 291,604
Time deposits 1,272,375 808,236
---------- ----------
Total deposits 2,025,302 1,361,312
Securities sold under agreements to repurchase 44,690 19,654
Senior debt 25,000 --
FHLB advances -- 35,000
Other liabilities 29,266 12,158
---------- ----------
Total liabilities 2,124,258 1,428,124
---------- ----------
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust solely holding junior
subordinated debentures of the Company 28,750 28,750
Stockholders' equity:
Perpetual preferred convertible stock ($20.00 par, 100,000 shares authorized
75,000 shares issued and outstanding. Liquidation preference $6,600
at September 30, 1998 and December 31, 1997.) 1,500 1,500
Common stock $2.00 par, 20,000,000 shares authorized, 9,746,615 and
7,035,886 shares issued and outstanding at September 30, 1998 and
December 31, 1997, respectively.) 19,493 14,072
Capital surplus 119,051 50,322
Retained earnings 36,839 29,155
Net unrealized gain on available-for-sale securities, net of tax effect 279 482
---------- ----------
Total stockholders' equity 177,162 95,531
---------- ----------
Total liabilities and stockholders' equity $2,330,170 $1,552,405
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
1
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REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPT. 30, FOR THE NINE MONTHS ENDED SEPT. 30,
------------------------------------ -----------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 44,670 $ 26,834 $ 111,787 $ 70,320
Interest on investment securities 487 551 1,392 1,863
Interest on mortgage-backed securities 231 1,246 1,216 4,096
Interest on trading securities 1,254 -- 2,270 --
Interest on federal funds sold 1,668 661 2,751 1,870
Interest on other investments 217 173 648 538
------------ ------------ ------------ ------------
Total interest income 48,527 29,465 120,064 78,687
INTEREST EXPENSE:
Interest on deposits 21,226 13,572 52,693 37,729
Interest on FHLB advances 1,203 757 5,898 884
Interest on senior debt 26 -- 26 --
Interest on subordinated debt -- 113 -- 328
Interest on other borrowings 541 280 1,351 745
------------ ------------ ------------ ------------
Total interest expense 22,996 14,722 59,968 39,686
------------ ------------ ------------ ------------
Net interest income 25,531 14,743 60,096 39,001
PROVISIONS FOR LOAN LOSSES 4,308 495 5,833 2,134
------------ ------------ ------------ ------------
Net interest income after provision
for possible loan losses 21,223 14,248 54,263 36,867
------------ ------------ ------------ ------------
NONINTEREST INCOME:
Income from mortgage banking activities 21,100 6,338 39,513 7,879
Gain on sale of portfolio loans, net -- 42 -- 1,622
Service charges on deposit accounts 1,193 923 2,929 2,462
Loan fee income 1,037 393 2,267 1,167
Gain on securities, net 102 329 844 477
Other operating income 693 1,090 2,677 1,921
------------ ------------ ------------ ------------
Total noninterest income 24,125 9,115 48,230 15,528
NONINTEREST EXPENSES:
General and administrative
("G&A") expenses 33,106 16,114 85,934 38,765
Merger expenses 68 1,031 362 1,087
Provision for losses on ORE 120 120 160 410
Other ORE expense, net 1 90 38 170
Amortization of premium on deposits 767 57 1,086 305
------------ ------------ ------------ ------------
Total noninterest expenses 34,062 17,412 87,580 40,737
Income loss before income taxes &
minority interest 11,286 5,951 14,913 11,658
Income tax provision (4,389) (2,217) (5,766) (4,395)
Minority interest in income from subsidiary
trust (net of tax) (424) (284) (1,266) (284)
Minority interest in FFO (net of tax) -- (259) -- (674)
------------ ------------ ------------ ------------
NET INCOME 6,473 3,191 7,881 6,305
============ ============ ============ ============
PER SHARE DATA:
Net income per common and
common equivalent share - diluted $ .64 $ .45 .84 .92
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding-diluted 10,598,255 7,188,255 9,345,347 7,074,172
============ ============ ============ ============
Net income per common share-basic $ .66 $ .54 $ .93 $ 1.07
============ ============ ============ ============
Weighted average common shares
outstanding - basic 9,735,026 5,963,108 8,443,419 5,890,526
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE> 5
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Perpetual Preferred Net Unrealized
Convertible Stock Common Stock Gains (Losses)
------------------- --------------------- on Available
Shares Shares Capital Retained for Sale
Issued Amount Issued Amount Surplus Earnings Securities Total
------ ------ ------ ------ ------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 75,000 $1,500 5,854,414 $ 11,708 $ 34,225 $ 20,847 $(102) $ 68,178
Net income for the twelve
months ended December 31, 1997 -- -- -- -- -- 8,571 -- 8,571
Net unrealized gains on
Available for sale securities
net of tax effect -- -- -- -- -- -- 584 584
Exercise of stock options -- -- 21,300 43 197 -- -- 240
Net change in minority interest -- -- (2,537) (5) (487) -- -- (492)
Issuance of common stock
in merger transaction -- -- 826,709 1,654 11,211 -- -- 12,865
Conversion of subordinated
debentures -- -- 336,000 672 5,176 -- -- 5,848
Dividends on preferred
stock -- -- -- -- -- (263) -- (263)
------ ------ --------- -------- --------- -------- ----- --------
BALANCE, DECEMBER 31, 1997 75,000 1,500 7,035,886 14,072 50,322 29,155 482 95,531
Net income for the nine
months ended September 30,
1998 -- -- -- -- -- 7,881 -- 7,881
Net unrealized loss on
available-for-sale securities
net of tax -- -- -- -- -- -- (203) (203)
Issuance of common stock -- -- 2,642,150 5,284 67,598 -- -- 72,882
Exercise of stock options -- -- 68,579 137 579 -- -- 716
Additional paid-in capital from
performance stock options -- -- -- -- 551 -- -- 551
Dividends on preferred
stock -- -- -- -- -- (198) -- (198)
------ ------ --------- -------- --------- -------- ----- --------
BALANCE, SEPTEMBER 30, 1998 75,000 $1,500 9,746,615 $ 19,493 $ 119,051 $ 36,839 $ 279 $177,162
====== ====== ========= ======== ========= ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE> 6
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPT. 30, FOR THE NINE MONTHS ENDED SEPT. 30,
------------------------------------ -----------------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 6,473 $ 2,777 $ 7,881 $ 6,305
Reconciliation of net income to net cash
provided by (used in):
Provision for losses on loans and ORE (7,342) 692 (5,948) 2,621
Depreciation and amortization, net 5,731 676 10,163 1,456
Amortization of premium and accretion of fair value (104) (494) 496 (275)
(Gain) on sale of loans (21,102) (14,057) (39,513) (9,351)
(Gain) on sale of investment securities 85 2,521 (646) (476)
(Gain) on sale of ORE (143) 13 (254) (115)
Capitalization of mortgage servicing (20,234) (972) (38,442) (2,456)
Net (increase) in deferred tax benefit (86) 617 630 (1,993)
Gain on disposal of premises & equipment 119 11 117 12
Net (increase) decrease in other assets (1,889) 264 (7,379) (5,678)
Net (increase) in value of performance options -- -- 551 --
Net increase (decrease) in other liabilities (19,186) (36,168) 16,038 702
--------- --------- --------- ---------
Net cash provided by (used in) operating activities (57,678) (44,120) (56,306) (9,248)
--------- --------- --------- ---------
INVESTING ACTIVITIES:
Proceeds from excess of deposit liabilities assumed
over assets acquired, net cash acquired 206,622 -- 253,235 7,223
Proceeds from sales & maturities of:
Mortgage-backed securities available for sale (2,960) -- 38,095 --
Mortgage-backed securities in trading portfolio -- -- 8,379 --
Investment securities available for sale 7,250 50,058 10,500 156,263
Purchase of investment securities held to maturity -- -- (998) --
Purchase of investment securities available for sale -- -- (27,152) (53,059)
Purchase of mortgage backed securities AFS (1,224) -- (1,224) --
Purchase of mortgage-backed securities in trading
portfolio -- -- (12,000) --
Principal repayment on revenue bonds 245 -- 245 --
Principal repayment on mortgage-backed securities 4,839 -- 11,596 1,904
Purchase of FHLB stock (142) 1 (2,242) (250)
Net increase in loans 112,384 (128,882) (251,359) (212,047)
Purchase of premises and equipment, net (3,321) (3,939) (10,201) (8,408)
Proceeds from sale of ORE 1,612 -- 3,747 --
Investments in OREO (net) 116 -- 212 --
Disposals in other real estate owned (net) -- 2,553 -- 5,907
--------- --------- --------- ---------
Net cash used in investing activities 325,421 (80,209) 20,833 (102,467)
--------- --------- --------- ---------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits 60,410 128,191 240,957 105,722
Net increase in repurchase agreements 3,945 4,800 25,036 9,430
Reduction of minority interest in FFO -- (6,421) -- (6,421)
Proceeds (repayment) from FHLB Advances, net (125,000) 12,000 (35,000) 18,000
Minority interest in trust subsidiary -- 28,750 -- 28,750
Proceeds from issuance of common stock (393) 12,400 73,598 12,463
Proceeds from senior debt 25,000 -- 25,000 --
Dividends on perpetual preferred stock (66) (66) (198) (198)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities (36,104) 179,654 329,393 167,746
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents 231,639 55,325 293,920 56,031
Cash and cash equivalents, beginning of period 141,951 54,598 79,670 53,892
--------- --------- --------- ---------
Cash and cash equivalents, end of period $ 373,590 $ 109,923 $ 373,590 $ 109,923
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for-
Interest 23,170 23,620 72,326 48,673
Income taxes (869) -- -- 4,144
</TABLE>
The accompanying notes are an integral part of these consolidated statements
4
<PAGE> 7
REPUBLIC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Organization
In the opinion of Republic Bancshares, Inc. (the "Company"), the accompanying
unaudited consolidated financial statements reflect all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the financial
position of the Company as of September 30, 1998 and the results of operations
and cash flows, for the three month and nine month periods ended September 30,
1998 and 1997. The December 31, 1997 statement of financial position was derived
from audited financial statements. The accounting and reporting policies of the
Company and its wholly-owned subsidiaries, Republic Bank (the "Bank") and
Republic Bank, FSB (the "Savings Bank") are in conformity with generally
accepted accounting principles and prevailing practices within the financial
services industry. The preparation of financial statements in conformity with
generally accepted accounting principles requires that management make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expense during the reporting
period. Such estimates are subject to change in the future as additional
information becomes available or previously existing circumstances are modified.
The consolidated financial statements of the Company include the accounts of the
Company, RBI Capital Trust I ("RBI"), the Savings Bank, the Bank, and the Bank's
wholly-owned subsidiaries, Republic Insurance Agency, Inc., RBREO, Inc., Tampa
Bay Equities, Inc. and VQH Development, Inc. The consolidated financial
statements have been restated for the acquisition of FFO Financial Group, Inc.,
as discussed below. All significant intercompany accounts and transactions have
been eliminated. The Company's primary source of income is from its banking
subsidiary, which operates 55 branches throughout west central Florida. The
Savings Bank operates two branches, one in Pinellas County, Florida and one in
Brunswick, Georgia. The Company's primary source of revenue from its
subsidiaries is derived from net interest income on loans and investments and
income from mortgage banking activities.
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, 1997, filed with the Securities and
Exchange Commission ("SEC") on Form 10-K. The results for the nine months ended
September 30, 1998, are not necessarily indicative of the results to be expected
for the fiscal year ending December 31, 1998.
Reclassifications
Certain reclassifications have been made to prior period financial statements to
conform with the September 1998 financial statement presentation.
Recent Accounting Developments
Reporting Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 130, "Reporting Comprehensive Income," which was effective for the
Company's fiscal year beginning January 1, 1998. SFAS No. 130 establishes
standards for reporting and display of comprehensive income, its components and
accumulated balances in a financial statement. Comprehensive income is defined
to include those revenues,
5
<PAGE> 8
expenses, gains and losses of a normal, recurring nature, as well as items which
are nonrecurring, unusual and infrequent.
The reconciliation of the Company's net income to comprehensive income, as
defined in SFAS No.130, for the nine months ended September 30, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
------- -------
<S> <C> <C>
Net income $ 7,881 $ 6,305
Unrealized gains on securities
Unrealized holding gains, net of tax effect during period 641 1,321
Less reclassification adjustment for gains realized in net income (844) (477)
------- -------
Net unrealized gains (losses) (203) 844
------- -------
Comprehensive income $ 7,678 $ 7,149
======= =======
</TABLE>
Disclosures About Business Segments
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which was effective for the Company's
fiscal year beginning January 1, 1998. SFAS No. 131 establishes standards for
the way the Company reports information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements. The Company's commercial
banking and mortgage banking activities constitute operating segments for which
the Company has provided additional disclosure regarding their respective
assets, revenues, profit or loss and other operating data.
Accounting for Costs of Computer Software for Internal Use
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP-98-1 provides guidance
for capitalizing and expensing the costs of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. Management believes the effect
of adopting SOP 98-1 would not have a material impact on the accompanying
consolidated financial statements.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for all fiscal quarters of all fiscal years beginning after June 15, 1999.
Management is currently assessing the financial implications of SFAS No. 133 and
has not yet determined if the adoption will have a material effect upon the
results of operations of the Company.
Accounting for Mortgage-Backed Securities Retained After the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise". SFAS No. 134 amends SFAS Nos. 65, "Accounting
for Certain Mortgage Banking Activities" and SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". SFAS No. 134 establishes
standards for the classification of securities and other beneficial interests in
accordance with SFAS No. 115. SFAS No. 134 allows an enterprise engaged in
mortgage banking activities to classify mortgage-backed securities and other
beneficial interests
6
<PAGE> 9
retained after the securitization of mortgage loans as trading, available for
sale or held to maturity, depending upon an entity's intent and ability to hold
those securities, except for those with sales commitments in place which must be
classified as trading. Previously, such securities and beneficial interests
retained after securitization of mortgage loans held for sale by an entity
engaged in mortgage banking activities were required to be classified as
trading. SFAS No. 134 is effective for periods beginning after December 15, 1998
with early application permitted. Management is currently assessing the
financial implication of SFAS No. 134 but has not yet determined if the adoption
will have a material financial effect on results of operations.
2. CONSUMMATED AND PENDING MERGERS AND ACQUISITIONS
F.F.O. Financial Group, Inc.
On September 19, 1997, F.F.O. Financial Group, Inc. ("FFO"), St. Cloud, Florida,
the parent company for First Federal Savings and Loan Association of Osceola
County, was merged into the Company in a stock transaction (the "FFO Merger").
William R. Hough, one of the Company's principal stockholders and the majority
stockholder of the Company at the time of the FFO Merger, owned a majority
interest in FFO at the time of merger.
The FFO Merger was accounted for as a corporate reorganization in which the
majority stockholder's interest in FFO was combined at historical cost in a
manner similar to a pooling of interests while the minority interest in FFO was
combined using purchase accounting rules. The excess of the purchase price of
the minority interest over the market value was first assigned to individual
assets and liabilities with the remaining $4.5 million considered unidentifiable
goodwill, which is being amortized over a 10 year period. The Company issued
1,668,370 shares of common stock to FFO's majority stockholder and 826,709
shares of common stock to the minority interest in the FFO merger.
NationsBank and Barnett Branches (consummated June 19, 1998)
In December 1997, the Company entered into two agreements with BankAmerica
Corporation ("BankAmerica", formerly NationsBank Corporation) to acquire eight
branch offices of BankAmerica's subsidiary banks, NationsBank, N.A.
("NationsBank") and Barnett Bank, N.A. ("Barnett"), including the loans and
other assets recorded at those branches, and to assume the deposits and other
liabilities assigned to the branches. The first agreement (the "Florida
Agreement"), consummated on June 19, 1998, collectively, three NationsBank
branches and four Barnett branches located throughout Florida (the "Florida
Branches"). The second agreement (the "Georgia Agreement"), was consummated
August 20, 1998, for a Barnett branch located in Brunswick, Georgia (the
"Georgia Branch"). When acquired on June 19, 1998, the Florida Branches had
deposit liabilities of $199.9 million and loans of $114.4 million, and the
Georgia Branch, at acquisition, had deposit liabilities of $16.9 million and
loans of $7.5 million. The Company paid a combined deposit and loan premium of
$24.0 million for the NationsBank and Barnett branches. These purchases were
both accounted for using purchase accounting rules, with the deposit premiums
being amortized using the straight-line method over a 10-year period.
Dime Savings Bank (consummated August 13, 1998)
In March 1998, the Company entered into an agreement with Dime Savings Bank,
F.S.B. ("DSB"), to acquire DSB's branch in Deerfield Beach, Florida (Broward
County) and to assume the deposit liabilities, at acquisition date, of
approximately $206.7 million and purchase the personal property and equipment of
the branch for $100,000. The transaction, which was consummated on August 13,
1998, was accounted for using purchase accounting rules, with a deposit premium
of $9.8 million to be amortized over 10 years.
7
<PAGE> 10
Bankers Savings Bank (consummated November 5, 1998)
In February 1998, the Company and Bankers Savings Bank, Inc., Coral Gables,
Florida, ("BSB") entered into a definitive agreement (the "BSB Agreement") for
the merger of BSB into the Bank (the "BSB" Acquisition") The merger was
consummated on November 5, 1998 with BSB stockholders receiving 405,496 shares
of the Company's Common Stock (an exchange ratio of 0.5749 of a share for each
share of BSB Common Stock). There were also 87,000 options outstanding for BSB
Common Stock which were exchanged for 50,016 options for Company Common Stock.
Based on unaudited data, as of September 30, 1998, BSB had total assets of $67.4
million, total loans of $48.1 million, total deposits of $59.2 million and
operated two branches in Dade County. The BSB Acquisition was accounted for as a
pooling of interests with the books and records combined at historical cost.
Lochaven Savings (consummated November 5, 1998)
On May 6, 1998, the Company entered into a definitive agreement with Lochaven
Federal Savings and Loan Association, Orlando, Florida, ("Lochaven"), providing
for the merger of Lochaven with and into Republic Bank (the "Lochaven
Acquisition"). The merger was consummated on November 5, 1998 with Lochaven
stockholders receiving 169,084 shares of the Company's Common Stock (an exchange
ratio of 0.2776 of a share for each share of Lochaven Common Stock). There were
also 35,000 options outstanding for Lochaven Common Stock which were exchanged
for 9,716 options of Company Common Stock. Based on unaudited data, as of
September 30, 1998, Lochaven had total assets of $56.2 million, total loans of
$43.6 million, total deposits of $53.1 million and operated one branch in Orange
County. The Lochaven Acquisition was accounted for as a pooling of interests
with the books and records combined at historical cost.
BankAmerica (formerly NationsBank) and Barnett Branch Lease Assumptions
(proposed)
The Company and BankAmerica have entered into a series of purchase, lease
assumption and sublease agreements providing for the Company to purchase three
former NationsBank branch offices and lease space and operate its own branch
offices at the sites of up to 22 former branches of NationsBank and Barnett Bank
that were closed in connection with the merger of NationsBank and Barnett. These
branch office sites are located throughout the State of Florida. Two of the
purchased branch offices are in Hillsborough County and the third is in Lee
County. The leased offices are in Broward, Clay, Collier, Dade, Marion, Palm
Beach, Pinellas and Volusia Counties. The Company has agreed to pay BankAmerica
$2.8 million for the three purchased offices and, in addition to assuming the
lease obligations, approximately $3.0 million (for furniture, fixtures and
equipment and certain real estate and as a premium) in connection with the lease
assumption transactions. Regulatory approval for the Bank to establish branch
offices at the 22 NationsBank and Barnett branch locations to be leased has been
received. Approval for the three purchased branches are pending.
3. MORTGAGE-BACKED AND MORTGAGE-RELATED SECURITIES
The Company has classified its mortgage-backed securities purchased in open
market transactions as "available for sale" and mortgage-backed and
mortgage-related securities resulting from securitization of its loans held for
sale as "trading" assets. As of September 30, 1998, there were $12.1 million of
such assets in the available for sale category and $65.4 million held as trading
assets. Included in the trading category were $36.4 million of mortgage-backed
securities and $29.0 million of mortgage-related securities. The market values
assigned to the mortgage-backed securities held by the Company were derived
using market quotations at September 30, 1998. However, market value quotations
for the Company's mortgage-related securities, principally retained interests in
the excess cash flows from securitizing High Loan-to-Value ("High LTV Loans"),
were generally not available due to distressed conditions in the overall market
for asset-backed securities. These retained interests, which are essentially
interest-only strips receivable, were valued based on estimates of the present
value of the future excess cash flows from the underlying pool or pools of
loans. In valuing the Company's mortgage-related securities, management has
conducted surveys and analyses of current market conditions and has engaged an
8
<PAGE> 11
independent third party to assist in this process. The assumptions made to
estimate the present value of the excess cash flows principally include the
following: (i) future rate of prepayment; ii) discount rate used to calculate
present value; and (iii) the provision for credit losses on loans sold. The
estimated life of the securitized loans depends on the assumed annual prepayment
rate which is a function of estimated voluntary (full and partial) and
involuntary (liquidations) prepayments. The prepayment rate used in the
valuation process represents management's expectations of future prepayment
rates based on prior and expected loan performance, the type of loans in the
relevant pool and industry data. The rate of prepayment may be affected by a
variety of economic and other factors, including prevailing interest rates, the
presence of prepayment penalties, the loan-to-value ratios and the credit grades
of the loans included in the securitization. Management has used prepayment
estimates resulting in an average expected life of the pool of loans of
approximately 4.2 years, cumulative lifetime default rates ranging from 10% to
14% and a discount rate of 15%. If management's estimates of prepayments or
defaults are more favorable than actual experience, the carrying value of the
interest-only strips may have to be written down through a charge to earnings in
the period of adjustment. To date, the interest-only strips receivable have
performed in a manner consistent with management's assumptions.
4. LOANS AND LOANS HELD FOR SALE:
Loans at September 30, 1998 and December 31, 1997, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Real estate mortgage loans:
One-to-four family residential $ 686,696 $ 644,235
Multifamily residential 101,773 86,835
Commercial real estate (1) 335,916 265,153
Construction/land development 104,691 50,203
High LTV loans in portfolio 9,005 --
Home equity loans 61,983 44,389
Commercial loans 56,234 36,515
Consumer loans 31,756 26,259
Other loans 68 442
----------- -----------
Total gross portfolio loans 1,388,122 1,154,031
Less allowance for loan losses (19,640) (20,776)
Less premiums and unearned discounts on loans purchased 250 (3,273)
Less unamortized loan fees (4,259) (1,027)
----------- -----------
Total loans held for portfolio 1,364,473 1,128,955
Loans held for sale:
First lien residential 285,586 101,454
High LTV loans 33,079 47,038
Title I loans 189 2,912
----------- -----------
Total loans held for sale 318,854 151,404
----------- -----------
Total loans $ 1,683,327 $ 1,280,359
=========== ===========
</TABLE>
(1) Includes $122.4 million and $86.4 million of business loans at September 30,
1998 and December 31, 1997, respectively, the primary collateral of which was
real estate.
9
<PAGE> 12
Mortgage loans serviced for others as of September 30, 1998 and December 31,
1997 were $1.3 billion and $370.1 million, respectively. Loans on which interest
was not being accrued at September 30, 1998 and December 31, 1997, totaled
approximately $25.0 million and $25.6 million, respectively. Loans past due 90
days or more and still accruing interest at September 30, 1998 and December 31,
1997 totaled $266,000 and $196,000, respectively.
5. ALLOWANCES FOR LOSSES:
Allowance for loan losses
The allowance for loan losses provides for risks of losses inherent in the
credit extension process. Losses are charged to the allowance for loan losses
and recoveries are credited to the allowance. The Company's allowance is an
amount that management believes will be adequate to absorb possible losses on
existing loans that may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, and
current economic conditions that may affect the borrower's ability to pay. The
evaluations are periodically reviewed and adjustments are recorded in the period
in which changes become known.
The allowance for loan losses as of September 30, 1998, was comprised of (i)
$16.2 million allocated to originated loans (including loans acquired through
mergers and acquisitions), (ii) $538,000 allocated to loans acquired from
CrossLand Savings, FSB in December 1993, (the "CrossLand Portfolio") (iii) $1.2
million allocated to a pool of loans purchased in March 1995 (the "March 1995
Purchase"), (iv) $548,000 allocated to a pool of loans purchased in July 1997
(the "July 1997 Purchase") and (v) $1.1 million allocated to the other pools of
purchased loans. Of the amounts allocated to the Crossland Portfolio, the March
1995 Purchase, the July 1997 Purchase and other purchased loan portfolios, $2.4
million are acquired reserves which only are available to absorb losses on the
related acquired loans. In addition to amounts allocated to the allowance at
September 30, 1998, the balance of unaccreted loan discount available to absorb
losses on pools of portfolios of purchased loans exceeding amounts transferred
to the allowance amounted to $4.0 million.
Changes in the allowance for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1998 1997
-------- --------
<S> <C> <C>
Balance, beginning of period $ 20,776 $ 18,747
Provision for possible loan losses 5,833 2,134
Allocated allowance for loan losses on
purchased loans transferred (to) from discount (4,303) 39
Allowances from acquisitions -- 131
Loans charged off (3,024) (932)
Recoveries of loans charged off 358 298
-------- --------
Net charge-offs (2,666) (634)
-------- --------
Balance, end of period $ 19,640 $ 20,417
======== ========
</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.
At September 30, 1998, the Company had one ORE property with a balance of $1.0
million or more, a tract of land carried at $2.0 million acquired through
foreclosure in 1988 that has partially been developed as a shopping center site.
Federal law and regulations require the Company to dispose of this tract by
December 17, 1998. The Company is currently in negotiations to sell virtually
all of this property. Management believes the
10
<PAGE> 13
carrying value of the parcel as of September 30, 1998 approximates the amount
that could be realized upon final sale to an end-user, but the proceeds from
sale to an entity other than an end-user are uncertain.
6. BUSINESS SEGMENT INFORMATION
The Company's operations are currently divided into two business segments:
commercial banking and mortgage banking. Commercial banking activities include
the Company's lending for portfolio purposes, deposit gathering through the
retail branch network, investment and liquidity management. Mortgage banking
activities, which operate through Flagship Mortgage, a separate division of the
Bank, include originating, purchasing and servicing residential mortgage loans
for sale or securitization. The Bank provides support for its mortgage banking
division in areas such as secondary marketing, data processing and financial
management. All funding for the mortgage banking division is provided through
the Bank. The following are the business segment results of operation for the
three months and the nine months ended September 30, 1998 and 1997. Intracompany
services between business segments are reflected at the Company's actual cost
for services provided. The Company has elected to report its business segments
without allocation of income taxes and minority interests.
Three Months Ended September 30, 1998
BUSINESS SEGMENT DATA
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
-------------------------------- --------------------------------
Commercial Mortgage Company Commercial Mortgage Company
Banking Banking Total Banking Banking Total
---------- -------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
TOTAL ASSETS (AT PERIOD-END) $2,011,316 $318,854 $2,330,170 $1,374,456 $ 94,896 $1,469,352
OPERATING DATA:
Interest income $ 36,453 $ 12,074 $ 48,527 $ 26,445 $ 3,020 $ 29,465
Interest expense 16,055 6,941 22,996 13,087 1,635 14,722
---------- -------- ---------- ---------- -------- ----------
Net interest income 20,398 5,133 25,531 13,358 1,385 14,743
Loan loss provision 4,308 -- 4,308 495 -- 495
---------- -------- ---------- ---------- -------- ----------
Net interest income after
loan loss provision 16,090 5,133 21,223 12,863 1,385 14,248
Noninterest income 2,448 21,677 24,125 2,754 6,361 9,115
General and administrative
(G & A expenses) 14,631 18,475 33,106 9,986 6,128 16,114
Merger expenses 68 -- 68 1,031 -- 1,031
Provision for losses on ORE 120 -- 120 120 -- 120
Other noninterest expense 1 -- 1 90 -- 90
Amortization of goodwill and
premium on deposits 767 -- 767 57 -- 57
---------- -------- ---------- ---------- -------- ----------
Net income before taxes
& minority interest $ 2,951 $ 8,335 11,286 $ 4,333 $ 1,618 5,951
========== ======== ========== ========
Income tax expense (4,389) (2,217)
Minority interest in income from
subsidiary trust (net of tax) (424) (284)
Minority interest in FFO (net of tax) -- (259)
---------- ----------
Net income $ 6,473 $ 3,191
========== ==========
MEMORANDUM (AS OF OR FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997):
Loans held for sale $ -- $318,854 $ 318,854 $ -- $ 94,896 $ 94,896
Loans closed 169,880 346,484 516,364 32,463 133,913 166,376
Loans sold -- 395,465 395,465 -- 103,191 103,191
</TABLE>
11
<PAGE> 14
Commercial Banking Activities
Income from commercial banking activities in the third quarter of 1998 was $3.0
million compared with $4.3 million for the third quarter of 1997. Net interest
income increased by $7.0 million from $13.4 million to $20.4 million while
noninterest income decreased by $306,000. G&A expenses increased by $4.6 million
to $14.6 million during the current quarter compared with $10.0 million for the
same period a year ago. The additional expenses were primarily the result of
continued expansion of the Company's loan production activities. Loans closed by
the commercial banking segment totaled $169.9 million for the current quarter
compared to $32.5 million for the same period last year.
Mortgage Banking Activities
Residential first and second lien loans closed for the quarter ended September
30, 1998 were $346.5 million compared with $133.9 million for the same period of
1997. The Company sold $395.4 million of loans during the current quarter, an
increase of $292.3 million over the amount of loans sold during the third
quarter of 1997. Consequently, income from mortgage banking activities increased
to $8.3 million for the third quarter ended September 30, 1998, an increase of
$6.7 million over that of the third quarter of 1997.
12
<PAGE> 15
Nine Months ended September 30, 1998
BUSINESS SEGMENT DATA
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
---------------------------------- ---------------------------------
Commercial Mortgage Company Commercial Mortgage Company
Banking Banking Total Banking Banking Total
---------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
TOTAL ASSETS (AT PERIOD-END) $2,011,316 $ 318,854 $2,330,170 $1,374,456 $ 94,896 $1,469,352
OPERATING DATA:
Interest income $ 90,970 $ 29,094 $ 120,064 $ 73,108 $ 5,579 $ 78,687
Interest expense 43,717 16,251 59,968 36,992 2,694 39,686
---------- ---------- ---------- ---------- --------- ----------
Net interest income 47,253 12,843 60,096 36,116 2,885 39,001
Loan loss provision 5,833 -- 5,833 2,134 -- 2,134
---------- ---------- ---------- ---------- --------- ----------
Net interest income after
loan loss provision 42,620 11,643 54,263 33,982 2,885 36,867
Noninterest income 7,007 41,223 48,230 7,667 7,861 15,528
General and administrative
(G & A expenses) 36,349 49,585 85,934 29,016 9,749 38,765
Merger expenses 362 -- 362 1,087 -- 1,087
Provision for losses on ORE 160 -- 160 410 -- 410
Other noninterest expense 38 -- 38 167 -- 167
Amortization of goodwill and
premium on deposits 1,086 -- 1,086 305 -- 305
---------- ---------- ---------- ---------- --------- ----------
Net income before taxes
& minority interest $ 10,432 $ 4,481 14,913 $ 10,661 $ 997 11,658
========== ========== ========== =========
Income tax expense (5,766) (4,395)
Minority interest in income from
subsidiary trust (net of tax) (1,266) (284)
Minority interest in FFO (net of tax) -- (674)
---------- ----------
Net income $ 7,881 $ 6,305
========== ==========
MEMORANDUM AS OF OR FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997:
Loans held for sale $ -- $ 318,854 $ 318,854 $ -- $ 94,896 $ 94,896
Loans closed 428,517 1,026,549 1,455,065 167,228 301,263 468,491
Loans sold -- 809,727 809,727 16,458 237,674 254,132
</TABLE>
Commercial Banking Activities
Income from commercial banking activities was $10.4 million for the nine months
ended September 30, 1998, compared to $10.7 million for the same period of 1997.
Management elected to increase loan loss reserves which offset the improvement
from additional income and operating efficiencies from the Company's 1997
acquisitions and growth in loan production activities. Net interest income
increased by $11.1 million while G & A expenses increased by $7.3 million.
Mortgage Banking Activities
First and second lien residential loans closed during the first nine months of
1998 totaled $1.0 billion, a $725 million increase over the same period last
year. Loans held for sale at September 30, 1998 were $318.9 million or 31.1% of
total loan production for mortgage banking during the first nine months of 1998.
G & A expenses related to mortgage banking activities for the nine months of
1998 were $49.6 million compared to noninterest income of $41.2 million.
However, this difference was more than offset by $11.6 million of net interest
income from loans held for sale. Pretax net income from the Company's High LTV
Loan production for the nine
13
<PAGE> 16
months was $11.5 million, first lien loan production activities incurred a
pretax net loss of $6.8 million and loan servicing activities incurred a
$200,000 pretax net loss.
Beginning in early October, conditions in the U.S. financial markets changed
dramatically. As interest rates decline, there is a greater likelihood that
mortgage loans will prepay at a faster rate which may impact the value of
mortgage servicing rights. These developments have combined to reduce liquidity
levels in the asset-backed securities markets significantly and, in turn, the
volume and pricing of mortgage loans in the secondary markets.
As a result of this environment, the Company has decided to forego sales of
High LTV Loans in the fourth quarter of 1998 and to reorganize its mortgage
banking business. In the fourth quarter of 1998, it is likely that the Company
will incur an operating loss because there will be insufficient revenues from
loan sales to cover the expense levels of the mortgage banking division. As the
Company reorganizes its mortgage banking operations, originations of High LTV
Loans are expected to be significantly reduced so that the Company can
concentrate more of its efforts on the profitable origination of first-lien
loans.
7. MARKET RISK
The market risk inherent in the Company's market sensitive instruments is the
potential loss arising from changes in interest rates and the changes in prices
of marketable equity securities. At September 30, 1998, the Company did not use
derivative financial instruments to manage its market risk.
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 listed options 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.
Currently, all investments in the Company's portfolio are identified as
securities available for sale or as trading assets. Securities available for
sale, which are those securities that may be sold prior to maturity as part of
managing market risk 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. Trading securities include mortgage backed securities
resulting from the securitization of High LTV and other residential mortgage
loans, the resulting residual interest in cash flows from those securitizations,
where applicable, and the excess spread on interest-only strips receivable.
Trading securities are carried at market value with any unrealized gains or
losses included in the statement of operations under "gain on securities, net".
There have been no material changes in the market risk inherent in the Company's
market sensitive instruments during the nine-month interim period ending
September 30, 1998.
14
<PAGE> 17
SELECTED QUARTERLY FINANCIAL AND OTHER DATA
EIGHT CONSECUTIVE QUARTERS (UNAUDITED)
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTERS ENDING
------------------------------------------------------------------
SEPT. 1998 JUNE 1998 MAR. 1998 DEC. 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING DATA:
Interest income $ 48,527 $ 38,115 $ 33,778 $ 29,771
Interest expense 22,996 19,857 17,115 15,239
------------ ------------ ------------ ------------
Net interest income 25,531 18,258 16,663 14,532
Loan loss provision 4,308 1,032 493 494
------------ ------------ ------------ ------------
Net interest income after loan loss provision 21,223 17,226 16,170 14,038
Other noninterest income 24,125 11,218 12,529 9,505
General and administrative ("G&A") expenses 33,106 29,896 22,923 18,720
Other noninterest expense 956 589 110 439
------------ ------------ ------------ ------------
Net income (loss) before income taxes & minority interest 11,286 (2,041) 5,666 4,384
Income tax (provision) benefit (4,389) 800 (2,175) (1,701)
Minority interest in income from subsidiary trust (424) (422) (420) (417)
Minority interest in FFO -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) $ 6,473 $ (1,663) $ 3,071 $ 2,266
============ ============ ============ ============
PER SHARE DATA:
Earnings per share - diluted $ .64 $ (.23) $ .39 $ .29
============ ============ ============ ============
Weighted average shares outstanding - diluted 10,598,255 8,522,623 7,968,984 7,953,978
============ ============ ============ ============
Earnings per share - basic $ .66 $ (.26) $ .44 $ .33
============ ============ ============ ============
Weighted average shares outstanding - basic 9,735,026 8,522,623 7,043,024 6,832,737
============ ============ ============ ============
BALANCE SHEET DATA (AT PERIOD-END):
Total assets 2,330,170 $ 2,155,025 $ 1,841,143 $ 1,552,405
Investment & mortgage backed securities 111,092 109,760 99,341 107,736
Loans held for sale 318,854 410,113 311,749 151,404
Portfolio loans, net of unearned income 1,384,113 1,374,797 1,158,251 1,149,731
Allowance for loan losses 19,640 20,296 20,557 20,776
Goodwill & premium on deposits 37,880 28,765 4,679 4,855
Deposits 2,025,302 1,741,377 1,418,555 1,361,312
Stockholders' equity 177,162 170,347 98,281 95,531
Book value per share (dollars) 16.88 16.26 12.60 12.27
SELECTED FINANCIAL RATIOS:
Return on average assets 1.17% (.35)% .75% .61%
Return on average equity 15.60 (5.29) 13.60 10.24
Equity to assets 7.60 7.90 5.34 6.15
Equity and minority interest in preferred
subsidiary to assets 8.84 9.24 6.90 8.01
Portfolio loans/deposit ratio 68.34 78.95 81.65 84.46
Net interest spread 4.57 3.85 3.85 3.71
Net interest margin 4.96 4.14 4.24 4.18
G & A expense to average assets (1) 2.63 2.55 2.43 2.95
G & A efficiency ratio (1) 64.04 71.07 65.77 74.69
Nonperforming loans to portfolio loans 1.80 2.13 2.51 2.25
Nonperforming assets to total assets 1.37 1.79 2.03 2.20
Loan loss allowance to portfolio loans (2) 1.42 1.48 1.77 1.79
Loan loss allowance to nonperforming loans (2)
Originated portfolio 84.79 90.92 75.32 102.83
July 1997 Purchase 35.22 52.11 35.35 31.74
March 1995 Purchase 111.62 263.80 459.97 373.91
CrossLand portfolio 50.80 409.57 71.39 421.88
Other purchased portfolios 45.08 17.82 24.01 18.41
Total 78.79 69.19 70.62 80.41
OTHER DATA (AT PERIOD-END):
Number of branch banking offices 55 53 46 46
Number of full-time equivalent employees 1,583 1,439 1,262 1,046
</TABLE>
(1) Commercial banking segment only.
(2) See "Note 5 - Allowance for Losses" for a discussion of the allocation and
availability of loan loss reserves among portfolio of loans within the
Bank.
15
<PAGE> 18
SELECTED QUARTERLY FINANCIAL AND OTHER DATA
EIGHT CONSECUTIVE QUARTERS (UNAUDITED)
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTERS ENDING
--------------------------------------------------------------
SEPT. 1997 JUNE 1997 MAR. 1997 DEC. 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING DATA:
Interest income $ 29,465 $ 25,344 $ 23,877 $ 24,216
Interest expense 14,722 12,822 12,142 11,839
----------- ----------- ----------- -----------
Net interest income 14,743 12,522 11,735 12,377
Loan loss provision 495 501 1,138 1,075
----------- ----------- ----------- -----------
Net interest income after loan loss provision 14,248 12,021 10,597 11,302
Noninterest income 9,115 2,749 3,703 2,604
General and administrative ("G&A") expenses 16,114 12,224 10,482 10,594
Other noninterest expense 1,298 303 314 (1,331)
----------- ----------- ----------- -----------
Net income (loss) before income taxes & minority interest 5,951 2,243 3,504 4,643
Income tax (provision) benefit (2,217) (863) (1,315) (1,651)
Minority interest in income from subsidiary trust (284) -- -- --
Minority interest in FFO (net of tax) (259) (227) (188) 467
----------- ----------- ----------- -----------
Net income (loss) $ 3,191 $ 1,153 $ 2,002 $ 2,525
=========== =========== =========== ===========
PER SHARE DATA:
Earnings per share - diluted $ .45 $ .17 $ .30 $ .38
=========== =========== =========== ===========
Weighted average shares outstanding - diluted 7,188,255 7,017,181 6,987,074 6,641,203
=========== =========== =========== ===========
Earnings per share - basic $ .54 $ .20 $ .34 $ .43
=========== =========== =========== ===========
Weighted average shares outstanding - basic 5,963,108 5,852,861 5,854,414 5,856,511
=========== =========== =========== ===========
BALANCE SHEET DATA (AT PERIOD-END):
Total assets $ 1,469,352 $ 1,321,573 $ 1,231,456 $ 1,224,357
Investment & mortgage backed securities 96,982 140,899 134,781 161,357
Loans held for sale 94,896 72,487 44,774 47,052
Portfolio loans, net of unearned income 1,106,728 995,864 928,973 920,323
Allowance for loan losses 20,417 19,328 19,088 18,747
Goodwill & premium on deposits 4,872 397 404 527
Deposits 1,289,100 1,165,042 1,118,710 1,114,907
Stockholders' equity 87,593 71,254 69,694 68,178
Book value per share (dollars) 11.77 10.79 10.55 10.32
SELECTED FINANCIAL RATIOS:
Return on average assets .89% .35% .66% .84%
Return on average equity 17.53 6.33 11.76 14.95
Equity to assets 5.96 5.39 5.57 5.66
Equity and minority interest in preferred
subsidiary to assets 7.92 -- -- --
Portfolio loans/deposit ratio 85.85 85.48 83.04 82.55
Net interest spread 4.03 3.52 3.52 4.12
Net interest margin 4.41 4.10 4.10 4.40
G & A expense to average assets (1) 2.82 3.13 2.94 3.14
G & A efficiency ratio (1) 61.98 73.79 64.93 65.34
Nonperforming loans to portfolio loans 2.01 1.99 2.19 2.10
Nonperforming assets to total assets 2.05 2.08 2.36 2.26
Loan loss allowance to loans (2) 1.84 1.94 2.05 2.02
Loan loss allowance to nonperforming loans (2)
Originated portfolio 107.98 90.96 84.74 73.15
July 1997 Purchase 36.12 -- -- --
March 1995 Purchase 504.89 441.82 551.88 488.78
CrossLand portfolio 81.57 106.60 104.82 126.12
Other purchased portfolios 44.32 46.67 45.60 89.80
Total portfolio loans 98.80 97.32 94.62 96.03
OTHER DATA (AT PERIOD-END):
Number of branches 45 45 43 42
Number of full-time equivalent employees 958 856 802 785
</TABLE>
(1) Commercial banking segment only.
(2) See "Note 5 - Allowance for Losses" for a discussion of the allocation and
availability of loan loss reserves among portfolio of loans within the
Bank.
16
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF BALANCE SHEETS AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
Overview
Total assets were $2.3 billion at September 30, 1998, compared to $1.6 billion
at December 31, 1997, an increase of $777.8 million or 50.1%. This increase
included $200.4 million in assets from the acquisition of the Florida Branches
from NationsBank in June 1998, $17.0 million in assets from the acquisition of
the Georgia Branch from NationsBank, and $207.2 million in assets from the Dime
branch acquisition. Also, during the second quarter of 1998, the Company
completed a public offering of 2,642,150 shares of its Common Stock, realizing
net proceeds of $72.9 million, which provided the capital necessary to support
the Company's 1998 acquisitions, while maintaining the Bank's status as a well
capitalized institution for regulatory capital purposes.
Federal Funds Sold and Interest Bearing Deposits
Federal funds sold, all on an overnight basis, increased by $293.0 million from
$33.0 million at the prior year-end to $326.0 million at September 30, 1998,
primarily as a result of the excess cash acquired in the Dime branch and
BankAmerica (formerly NationsBank) branch acquisitions.
Investment and Mortgage-Backed Securities
Investment and mortgage-backed securities, consisting of U.S. Treasury and
federal agency securities, were $45.7 million at September 30, 1998 compared to
$71.5 million at December 31, 1997, a decrease of $25.8 million. The Company has
classified all its purchased investment and mortgage-backed securities at
September 30, 1998 as "available-for-sale". The Company recorded $464,000 in net
gains on the sale of $37.5 million in investments and mortgage-backed securities
during the nine months ended September 30, 1998.
Trading Assets
The Company records all mortgage-related securities resulting from
securitization of the Company's loans held for sale loans as trading assets. In
its securitization of $240.0 million High LTV Loans in June, 1998 (the "June
Securitization"), the Company retained a $12.0 million subordinate tranche of
the securities from the securitization at a fair value of $10.9 million and a
residual interest in cash flows valued at $17.6 million as of September 30,
1998. The fair value assigned to the residual interest from the June
Securitization was based on an evaluation of the present value of expected
future cash flows using a 15% discount rate, a cumulative default rate
equivalent to 10.7% of the face amount of the loans and a prepayment rate
resulting in a 4.2 year average expected life of the pool of loans. Management
reviews the fair value determination of its trading assets quarterly and any
valuation adjustments are reflected in current period results of operations.
Loans & Loans Held for Sale
Total loans held in portfolio increased by $234.4 million from $1.1 billion at
the prior year-end to $1.4 billion at September 30, 1998. A $121.9 million
portion of the increase was attributable to loans purchased in the Florida and
Georgia branch acquisitions. Real estate-secured loans increased during the
period by $209.2 million to $1.3 billion or 93.6% of total portfolio loans.
Loans held for sale increased by $167.5 million to $318.9 million, at September
30, 1998, with residential loans secured by first liens held for sale increasing
by $184.1 million to $285.6 million, and High LTV Loans declining $14.0 million
to $33.1 million.
17
<PAGE> 20
Allowance for Loan Losses
The allowance for loan losses amounted to $19.6 million at September 30, 1998,
(1.42% of portfolio loans) compared with $20.8 million (1.8% of portfolio loans)
at December 31, 1997. At September 30, 1998, the allowance for loan losses
included $16.2 million allocated to loans originated by the Company, $1.2
million allocated to the March 1995 Purchase, $548,000 allocated to the July
1997 Purchase, $538,000 allocated to the CrossLand Portfolio and $1.1 million
allocated to other loan purchases (for a discussion of discounts on purchased
loans and the use of amounts allocated to the allowance for loan losses, see the
notes to the consolidated financial statements). Other activity relating to the
allowance in 1998 included provisions for loan losses of $5.8 million, part of
which was a $2.1 million charge to provision, offset by the transfer of
allowances on the purchased loan portfolios to loan discount of $4.3 million.
Other charges to the provision included a $1.0 million provision for write-offs
on SBA claims receivable, and $2.7 million in additional general provisions.
Loan charge-offs (net of recoveries) were $2.7 million.
Nonperforming Assets
Nonperforming assets amounted to $31.9 million or 1.37% of total assets at
September 30, 1998, compared with $34.2 million or 2.20% of total assets at
December 31, 1997. Nonperforming loans totaled $25.2 million at September 30,
1998, a decrease of $620,000 from the prior year-end total of $25.8 million.
Nonperforming residential loans increased by $3.9 million, commercial real
estate and commercial (business) nonperforming loans declined $4.3 million,
while nonperforming residential loans increased $3.9 million. ORE balances also
decreased by $1.4 million to $5.6 million.
Deposits
Total deposits were $2.03 billion at September 30, 1998, compared to $1.36
billion at the prior year-end, an increase of $664 million. Of the increase,
$423.6 million resulted from the additional deposits acquired through the
Florida and Georgia Branches purchased from the BankAmerica and the Dime branch
acquisitions. Of the total increase, checking account balances increased by
$46.5 million, savings and money market accounts increased by $153.3 million and
certificates of deposit increased by $464.1 million.
Senior Debt
On September 24, 1998, the Company entered into a loan agreement ("Loan
Agreement") with SunTrust Bank, Central Florida, N.A. ("SunTrust"), pursuant to
which SunTrust extended a non-revolving line of credit for up to $25.0 million
to the Company. Interest on the loan made pursuant to the Senior Debt ("Senior
Debt") is payable monthly, and the maturity date for the loan is September 25,
1999. Certain terms of the loan agreement, including the interest rate to be
paid, are contingent upon the Company reducing its investment in assets related
to High LTV Loans. On September 25, 1998, the Company received the full $25.0
million balance under the line of credit. The Company contributed the proceeds
of the Senior Debt to the Bank in order to maintain the regulatory capital of
the Bank at well capitalized levels and to support the Bank's planned branch
expansion activities.
Stockholders' Equity
Stockholders' equity was $177.2 million at September 30, 1998, or 7.60% of total
assets, compared to $95.5 million or 6.15% of total assets at December 31, 1997.
At September 30, 1998, the Bank's tier 1 ("leverage") capital ratio was 7.10%,
its tier 1 risk-based capital ratio was 11.07%, and its total risk-based capital
ratio was 12.32%, all in excess of minimum FDIC capital guidelines for an
institution to be considered a "well-capitalized" bank. The Company's tier 1
("leverage") ratio, tier 1 risk-based capital ratio and total risk-based capital
ratios were 6.13%, 9.51%, and 10.75%, respectively. In May 1998, the Company
completed a public
18
<PAGE> 21
offering of 2,642,150 shares of its Common Stock at an offering price of $29.50
per share, realizing net proceeds of $72.9 million after deducting underwriters'
discounts and offering expenses.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1998 AND 1997
Overview
Net income for the third quarter of 1998 was $6.5 million, or $.64 per share (on
a diluted basis), compared with a net income of $3.2 million, or $.45 per share,
for the same period in 1997. During the third quarter of 1998, the Company
completed a whole loan sale of $221 million of High LTV Loans recognizing
revenue of $15.2 million.
Analysis of Net Interest Income (see table on page 20)
Net interest income for the three months ended September 30, 1998 was $25.5
million compared with $14.7 million for the same period last year. This $10.8
million or 73.2% increase consisted of $2.2 million from an improved net
interest spread and $8.6 million in additional income from balance sheet growth.
Interest income was $48.5 million for the third quarter of 1998, an increase of
$19.1 million over the same period in 1997. Interest expense increased by $8.3
million. Average asset yield increased by 63 basis points from 8.78% for the
same period of 1997 to 9.41% for 1998. The average cost of interest-bearing
liabilities increased by 9 basis points from 4.75% to 4.84%. As a result, net
interest spread increased 54 basis points from 4.03% for 1997 to 4.57% for 1998
and net interest margin, which includes the benefit of noninterest bearing
funds, increased by 55 basis points from 4.41% for 1997 to 4.96% for 1998.
Noninterest Income
Noninterest income for the three months ended September 30, 1998 was $24.1
million compared with $9.1 million for the same period of 1997, an increase of
$15.0 million. This increase was primarily the result of significant growth in
the Company's mortgage banking operations, with gains on sale of loans and
recognition of the value of mortgage servicing rights increasing by $14.8
million. Service charges on deposit accounts increased $270,000 and loan fee
income increased $644,000.
The following table reflects the components of noninterest income for the three
months ended September 30, 1998, and 1997 (in thousands):
<TABLE>
<CAPTION>
For the three Months
Ended September 30,
--------------------------------
Increase
1998 1997 (Decrease)
-------- -------- --------
<S> <C> <C> <C>
Income from mortgage banking operations $ 21,100 $ 6,338 $ 14,762
Service charges on deposit accounts 1,193 923 270
Generations Gold fee income 266 147 119
Loan fee income 1,037 393 644
Gains on sales of portfolio loans, net -- 42 (42)
Gain on sale of securities, net 3 252 (249)
Net trading account gains 99 77 22
Foreign exchange income 32 16 16
Other income 395 927 (532)
-------- -------- --------
Total noninterest income $ 24,125 $ 9,115 $ 15,010
======== ======== ========
</TABLE>
19
<PAGE> 22
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 September 30, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------------------------------------
1998 1997
-------------------------------- -------------------------------
Average Average Average Average
Summary of Average Rates Balance Interest Rate Balance Interest Rate
- ------------------------ ---------- ---------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net $1,797,063 $ 44,670 9.89% $1,167,800 $ 26,834 9.16%
Investment securities 35,122 487 5.50 35,363 551 6.18
Mortgage-backed securities 12,113 231 7.63 78,185 1,246 6.38
Trading securities 77,240 1,254 6.49 -- -- --
Interest bearing deposits in banks 3,986 22 2.21 3,249 22 2.72
FHLB stock 10,295 195 7.50 8,326 151 7.20
Federal funds sold 117,077 1,668 5.58 43,811 661 5.91
---------- ---------- ---------- ---------
Total interest-earning assets 2,052,896 48,527 9.41 1,336,734 29,465 8.78
Non interest-earning assets 174,689 79,144
---------- ----------
Total assets $2,227,585 $1,415,878
========== ==========
Interest-bearing liabilities:
Interest checking $ 157,609 $ 331 .83 $ 108,141 $ 118 .43%
Savings 70,870 377 2.11 56,627 253 1.77
Passbook Gold 272,939 3,395 4.94 216,846 2,683 4.91
Money market 101,407 866 3.39 33,958 159 1.85
Time deposits 1,156,085 16,257 5.58 732,666 10,359 5.60
Subordinated debt -- -- -- 6,000 113 7.47
FHLB advances 85,326 1,203 5.59 53,446 757 5.62
Senior debt 1,630 26 6.40 -- -- --
Other borrowings 40,220 541 5.34 21,206 280 5.25
---------- ---------- ---------- ---------
Total interest-bearing liabilities 1,886,086 22,996 4.84 1,228,890 14,722 4.75
---------- ---------
Non interest-bearing liabilities 174,052 115,824
Stockholders' equity 167,447 71,164
---------- ----------
Total liabilities and equity $2,227,585 $1,415,878
========== ==========
Net interest income/net interest spread $ 25,531 4.57% $ 14,743 4.03%
========== ==== ========= ====
Net interest margin 4.96% 4.41%
==== ====
</TABLE>
<TABLE>
<CAPTION>
Increase (Decrease) Due to (1)
----------------------------------
Changes in Net Interest Income Volume Rate Total
- ------------------------------ -------- -------- --------
<S> <C> <C> <C>
Interest earning assets:
Loans, net $ 14,702 $ 3,134 $ 17,836
Investment securities 21 (85) (64)
Mortgage backed securities (1,206) 191 (1,015)
Trading Securities 1,254 -- 1,254
Interest bearing deposits in banks 5 (5) --
FHLB stock 37 7 44
Federal funds sold 1,046 (39) 1,007
-------- -------- --------
Total change in interest income 15,859 3,203 19,062
Interest-bearing liabilities:
Interest checking 85 128 213
Savings 70 54 124
Passbook Gold 14 698 712
Money market 499 208 707
Time deposits 5,991 (93) 5,898
Subordinated debt (113) -- (113)
FHLB advances 432 14 446
Senior debt 26 -- 26
Other borrowings 257 4 261
-------- -------- --------
Total change in interest expense 7,261 1,013 8,274
-------- -------- --------
Increase (decrease) in net interest income $ 8,598 $ 2,190 $ 10,788
======== ======== ========
</TABLE>
20
<PAGE> 23
Noninterest Expense
General and administrative ("G & A") expenses for the third quarter of 1998 were
$33.1 million compared with $16.1 million for the same period last year, an
increase of $17.0 million. G & A expenses for the commercial banking segment
accounted for $4.6 million of the increase while expenses for the mortgage
banking segment increased $12.3 million. These increases were primarily
attributable to the operating expenses associated with the Company's
acquisitions and the growth of its mortgage banking operations. Total
noninterest expenses, which include G & A expense, were $34.1 million for the
three months ended September 30, 1998 compared with $17.4 million for the same
period last year.
The following table reflects the components of noninterest expense for the three
months ended September 30, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
For the Quarter Ended
September 30,
--------------------------------
Increase
1998 1997 (Decrease)
-------- -------- --------
<S> <C> <C> <C>
Salaries and benefits $ 13,123 $ 7,417 $ 5,706
Net occupancy expense 3,581 2,103 1,478
Advertising 4,872 1,820 3,052
Data processing fees 908 792 116
FDIC and state assessments 242 149 93
Telephone expense 672 378 294
Legal and professional 978 487 491
Postage and supplies 6,135 1,632 4,503
Other operating expense 2,595 1,336 1,259
-------- -------- --------
Total G & A expenses 33,106 16,114 16,992
Merger expenses 68 1,031 (963)
Provision for losses on ORE 120 120 --
ORE expense, net of ORE income 1 90 (89)
Amortization of premium on deposits 767 57 710
-------- -------- --------
Total noninterest expense $ 34,062 $ 17,412 $ 16,650
======== ======== ========
</TABLE>
21
<PAGE> 24
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
AND 1997
Overview
Net income for the nine months ended September 30, 1998 was $7.9 million, or
$.84 per share on a diluted basis, compared with $6.3 million, or $.92 per
share, for the same period in 1997. Return on average assets for the first nine
months of 1998 was .55%, while return on average equity was 8.28%.
Analysis of Net Interest Income (see table on page 23)
Net interest income for the nine months ended September 30, 1998 was $60.1
million compared with $39.0 million for the same period last year. This $21.1
million increase was the result of $2.3 million in additional income from an
improved net interest spread and $18.8 million from balance sheet growth.
Average asset yield was 8.95% for the first nine months of 1998, a 39 basis
point increase from 8.56% for the same period in 1997. The average yield on
loans was 9.30%, up from 8.97% last year. The average cost of interest-bearing
liabilities has remained relatively level at 4.85%. As a result, net interest
spread increased 39 basis points to 4.10% from 3.71% for 1997 and net interest
margin, which includes the benefit of noninterest bearing funds, increased 24
basis points from 4.21% for the first nine months of 1997 to 4.45% for 1998.
Noninterest Income
Noninterest income for the first nine months of 1998 was $48.2 million compared
with $15.5 million for the same period of 1997, an increase of $32.7 million.
This increase was primarily the result of a $31.6 million increase in income
from mortgage banking operations, consisting of gains recognized from the sale
of $809.7 million of loans, which takes into account the value of mortgage
servicing rights and residual interest. Service charges on deposit accounts and
loan fee income also increased $467,000 and $1.1 million, respectively. In
addition, Generations Gold fee income increased $334,000. These improvements
were partially offset by a decline in gains on sale of portfolio loans in 1997
of $1.5 million.
The following table reflects the components of noninterest income for the nine
months ended September 30, 1998, and 1997 (in thousands):
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
---------------------------------
Increase
1998 1997 (Decrease)
-------- -------- --------
<S> <C> <C> <C>
Income from mortgage banking operations $ 39,513 $ 7,879 $ 31,634
Service charges on deposit accounts 2,929 2,462 467
Loan fee income 2,267 1,167 1,100
Gains on sales of portfolio loans, net -- 1,472 (1,472)
Unrealized gains on loans held for sale -- (150) (150)
Gain on sale of securities, net 464 466 (2)
Trading asset gains (losses), net 380 11 369
Generations Gold fee income 682 348 334
Income from SPC1 534 -- 534
Foreign exchange income 88 51 37
Other income 1,373 1,522 (149)
-------- -------- --------
Total noninterest income $ 48,230 $ 15,528 $ 32,702
======== ======== ========
</TABLE>
22
<PAGE> 25
The following table summarizes the average yields earned on interest-earning
assets and the average rates paid on interest-bearing liabilities for the nine
months ended September 30, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
Average Average Average Average
Summary of Average Rates Balance Interest Rate Balance Interest Rate
- ------------------------ ---------- ---------- ------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net $1,597,575 $ 111,787 9.30% $1,040,864 $ 70,320 8.97%
Investment securities 32,723 1,392 5.69 40,535 1,863 6.14
Mortgage-backed securities 23,466 1,216 6.91 84,524 4,096 6.46
Trading securities 49,539 2,270 6.11 -- -- --
Interest bearing deposits in banks 2,154 64 4.00 4,058 110 3.63
FHLB stock 10,652 584 7.33 7,811 428 7.31
Federal funds sold 65,913 2,751 5.50 43,201 1,870 5.71
---------- ---------- ---------- -----------
Total interest-earning assets 1,782,022 120,064 8.95 1,220,993 78,687 8.56
Non interest-earning assets 142,894 68,263
---------- ----------
Total assets $1,924,916 $1,289,256
========== ==========
Interest-bearing liabilities:
Interest checking $ 141,455 $ 993 .94 $ 95,204 $ 740 1.04%
Savings 58,887 885 2.01 37,551 791 2.82
Passbook Gold 262,831 9,701 4.94 220,121 8,040 4.88
Money market 58,805 1,248 2.84 33,005 490 1.98
Time deposits 956,736 39,866 5.57 659,627 27,668 5.61
Subordinated debt -- -- -- 6,000 328 7.31
FHLB advances 138,040 5,898 5.71 23,352 884 5.06
Senior debt 549 26 6.40 -- -- --
Other borrowings 33,675 1,351 5.36 19,159 745 5.19
---------- ---------- ---------- -----------
Total interest-bearing liabilities 1,650,978 59,968 4.85 1,094,019 39,686 4.85
---------- -----------
Non interest-bearing liabilities 145,304 126,814
Stockholders' equity 128,634 68,423
---------- ----------
Total liabilities and equity $1,924,916 $1,289,256
========== ==========
Net interest income/net interest spread $ 60,096 4.10% $ 39,001 3.71%
========== ==== =========== ====
Net interest margin 4.45% 4.21%
==== ====
</TABLE>
<TABLE>
<CAPTION>
Increase (Decrease) Due to
----------------------------------
Changes in Net Interest Income Volume Rate Total
-------- -------- --------
<S> <C> <C> <C>
Interest earning assets:
Loans, net $ 39,321 $ 2,146 $ 41,467
Investment securities (372) (99) (471)
Mortgage backed securities (3,105) 225 (2,880)
Trading Securities 2,270 -- 2,270
Interest bearing deposits in banks (56) 10 (46)
FHLB stock 156 -- 156
Federal funds sold 950 (69) 881
-------- -------- --------
Total change in interest income 39,164 2,213 41,377
Interest-bearing liabilities:
Interest checking 330 (77) 253
Savings 364 (270) 94
Passbook Gold 1,576 85 1,661
Money market 489 269 758
Time deposits 12,464 (266) 12,198
Subordinated debt (328) -- (328)
FHLB advances 4,819 195 5,014
Senior debt 26 -- 26
Other borrowings 598 8 606
-------- -------- --------
Total change in interest expense 20,338 (56) 20,282
-------- -------- --------
Increase (decrease) in net interest income $ 18,826 $ 2,269 $ 21,095
======== ======== ========
</TABLE>
23
<PAGE> 26
Noninterest Expense
G & A expenses for the first nine months of 1998 were $85.9 million compared
with $38.8 million for the same period in 1997, an increase of $47.1 million.
Total noninterest expenses, which include G & A expenses, were $87.6 million for
1998 compared with $40.7 million for the same period last year, an increase of
$46.9 million. Primarily as a result of acquisitions and growth of the Company,
noninterest expenses in the commercial banking segment increased $7.0 million
and the mortgage banking segment increased $39.8 million.
The following table reflects the components of noninterest expense for the nine
months ended September 30, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
--------------------------------
Increase
1998 1997 (Decrease)
-------- -------- --------
<S> <C> <C> <C>
Salaries and benefits $ 33,734 $ 18,467 $ 15,267
Net occupancy expense 8,884 5,833 3,051
Advertising 15,420 2,805 12,615
Data processing fees 2,452 2,031 421
FDIC and state assessments 683 628 55
Telephone expense 1,707 1,047 660
Legal and professional 2,383 1,221 1,162
Postage and supplies 15,083 2,983 12,100
Other operating expense 5,588 3,750 1,838
-------- -------- --------
Total G & A expense 85,934 38,765 47,169
Merger expenses 362 1,087 (725)
Provision for losses on ORE 160 410 (250)
ORE expense, net of ORE income 38 170 (132)
Amortization of premium on deposits 1,086 305 781
-------- -------- --------
Total noninterest expense $ 87,580 $ 40,737 $ 46,843
======== ======== ========
</TABLE>
YEAR 2000 READINESS DISCLOSURE
In the next two years, many companies, including financial institutions such as
the Company, will face potentially serious risks associated with the inability
of existing data processing hardware and software to appropriately recognize
calendar dates beginning in the year 2000. Many computer programs that can only
distinguish the final two digits of the year entered may read entries for the
year 2000 as the year 1900 and compute payment, interest or delinquency based on
the wrong date, or are expected to be unable to compute payment interest or
delinquency. If the Company's critical internal systems do not correctly
recognize and process data information beyond the year 1999, there could be a
material adverse impact on the Company's business and operations.
In 1997, the Company began the process of identifying the many software
applications and hardware devices expected to be impacted by this issue. The
Company formed a Year 2000 Committee, consisting of the Bank's senior management
and key data processing employees to address the year 2000 compliance project.
The Board of Directors is updated on the Company's progress towards compliance
on a monthly basis. Also, as the Bank's primary federal regulator, the FDIC
conducts periodic examinations of the Bank's readiness for year 2000 operations.
Additional staff, including a full-time project coordinator and other
technically-proficient employees, have been hired to monitor the Company's
progress towards becoming Year 2000 compliant. Non-compliant vendors have been
and continue to be contacted for project progress reports. Communication with
compliant vendors to develop testing plans is also ongoing. The Company has set
a target date of December 31, 1998 to complete testing of vendor systems other
than its main client loan and deposit application systems that are processed by
ALLTEL Information Services, Inc. ("ALLTEL"). As ALLTEL tests and certifies
applications as year 2000
24
<PAGE> 27
compliant, the test results are being forwarded to the Company for verification.
All main client applications are expected to be compliant and installed by
year-end 1998 with the Company and ALLTEL performing future date testing during
the fourth quarter of 1998 to verify system compliance. The Company's vendors
will be able to perform tests with ALLTEL during this time also. The Company
anticipates that the critical internal systems of Lochaven and BSB will be
converted to the ALLTEL loan and deposit application systems by December 31,
1998, and that the day-to-day activities of Lochaven and BSB will thereafter be
fully integrated into the Bank.
In the event that the Company and ALLTEL's efforts are unsuccessful and/or that
one or more of Republic's critical internal systems are not year 2000 compliant
by December 31, 1999, the following could occur, any of which could have a
material adverse impact on the operations of the Company and the Bank.
(a) Client service could deteriorate to the point that a substantial number
of Republic's clients move their account relationships to another
financial institution;
(b) The Company and the Bank may be unable to provide the public and the
applicable regulatory authorities with timely and accurate financial
information; or
(c) The Company and the Bank may be unable to fulfill on a timely basis their
various contractual obligations.
The Company expects to formulate a contingency plan by December 31, 1998 to
address the remote possibility that ALLTEL will not be year 2000 compliant. The
Company will continue its efforts toward year 2000 compliance with a goal of
January 1, 1999 for completion of all testing and implementation of compliant
systems. The Company estimates that the costs associated with replacing
non-compliant hardware and software will be approximately $1.4 million, the
majority of which will be incurred in the normal course of upgrading Bancshares'
computer systems.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995
Certain of the statements contained in this Quarterly Report on Form 10-Q (other
than the financial statements and statements of historical fact), including,
without limitation, statements as to management expectations and beliefs
presented under the caption, "Management's Discussion and Analysis," are
forward-looking statements. Forward-looking statements are made based upon
management's expectations and beliefs concerning future development and their
potential effect upon the Company. There can be no assurance that future
developments will be in accordance with management's expectations or that the
effect of future developments on the Company will be those anticipated by
management.
The Company wishes to caution readers that the assumptions which form the basis
for forward-looking statements with respect to or that may impact earnings for
the year ended December 31, 1998, and thereafter include many factors that are
beyond the Company's ability to control or estimate precisely. These risks and
uncertainties include, but are not limited to, the market demand and acceptance
of the Company's existing and new loan and deposit products, the impact of
competitive products, the Company's ability to achieve the desired consolidation
efficiencies from its planned acquisitions, and changes in economic conditions,
such as inflation or fluctuations in interest rates.
While the Company periodically reassesses material trends and uncertainties
affecting the Company's results of operations and financial condition in
connection with its preparation of management's discussion and analysis
contained in its Quarterly Report, the Company does not intend to review or
revise any particular forward-looking statement referenced herein in light of
future events.
25
<PAGE> 28
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 7, 1998, Republic National Bank of Miami brought an action against the
Bank in the United States District Court for the Southern District of Florida
seeking to enjoin the Bank from using the term "REPUBLIC" or "REPUBLIC BANK" in
connection with any business that the Bank conducts in the State of Florida.
Given the Bank's long-standing use of the name "REPUBLIC BANK" and the existence
of other financial institutions in the State of Florida also using the name
"Republic", the Company and the Bank believe the lawsuit filed by Republic
National Bank of Miami to be entirely without merit and intends to defend itself
vigorously in any ensuing litigation.
The Company is party to other various legal proceedings in the ordinary course
of its business. Based on information presently available, management does not
believe that the ultimate outcome in such proceedings, in the aggregate, would
have a material adverse effect on the Company's financial position or results of
operation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
15.0 Acknowledgement Letter
27.0 Financial Data Schedule
99.0 Review Report of Independent Certified Public Accountants
b. There were no reports on Form 8-K filed during the nine months
ended September 30, 1998.
26
<PAGE> 29
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
REPUBLIC BANCSHARES, INC.
Date: November 13, 1998 By: /s/John W. Sapanski
------------------ ----------------------------------------
John W. Sapanski
Chairman and Chief Executive Officer
(principal executive officer)
Date: November 13, 1998 By: /s/William R. Falzone
------------------ ----------------------------------------
William R. Falzone
Treasurer (principal financial and
accounting officer)
<PAGE> 1
EXHIBIT 15.0
REVIEW REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Republic Bancshares, Inc.:
We have reviewed the accompanying consolidated balance sheet of Republic
Bancshares, Inc. (a Florida corporation) and subsidiaries as of September 30,
1998, and the related consolidated statements of operations and cash flows for
the three-month and nine-month periods ended September 30, 1998, and the
consolidated statement of stockholders' equity for the nine-month period ended
September 30, 1998. 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 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 of Republic Bancshares, Inc. and
subsidiaries as of December 31, 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended (not
presented herein), and, in our report dated March 13, 1998, we expressed an
unqualified opinion on those statements. In our opinion, the information set
forth in the accompanying consolidated balance sheet as of December 31, 1997, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
ARTHUR ANDERSEN LLP
- --------------------------------------
Tampa, Florida,
October 26, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATION
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 45,725
<INT-BEARING-DEPOSITS> 1,865
<FED-FUNDS-SOLD> 326,000
<TRADING-ASSETS> 65,439
<INVESTMENTS-HELD-FOR-SALE> 45,653
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,702,967
<ALLOWANCE> 19,640
<TOTAL-ASSETS> 2,330,170
<DEPOSITS> 2,025,302
<SHORT-TERM> 67,690
<LIABILITIES-OTHER> 29,266
<LONG-TERM> 0
28,750
1,500
<COMMON> 19,493
<OTHER-SE> 156,169
<TOTAL-LIABILITIES-AND-EQUITY> 2,330,170
<INTEREST-LOAN> 111,787
<INTEREST-INVEST> 8,277
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 120,064
<INTEREST-DEPOSIT> 52,693
<INTEREST-EXPENSE> 59,968
<INTEREST-INCOME-NET> 60,096
<LOAN-LOSSES> 5,833
<SECURITIES-GAINS> 844
<EXPENSE-OTHER> 87,580
<INCOME-PRETAX> 14,913
<INCOME-PRE-EXTRAORDINARY> 14,913
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,881
<EPS-PRIMARY> .93
<EPS-DILUTED> .84
<YIELD-ACTUAL> 9.41
<LOANS-NON> 24,950
<LOANS-PAST> 266
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 19,640
<CHARGE-OFFS> 3,024
<RECOVERIES> 358
<ALLOWANCE-CLOSE> 19,640
<ALLOWANCE-DOMESTIC> 19,640
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 19,640
</TABLE>
<PAGE> 1
EXHIBIT 99.0
November 13, 1998
Republic Bancshares, Inc.
111 2nd Avenue NE, Suite 300
St. Petersburg, FL 33701
Republic Bancshares, Inc.:
We are aware that Republic Bancshares, Inc. has incorporated, by reference in
its Registration Statement File No. 333-32151, its Form 10-Q for the quarter
ended September 30, 1998, which includes our report dated October 26, 1998,
covering the unaudited interim financial information contained therein. Pursuant
to Regulation C of the Securities Act of 1933 (the Act), that report is not
considered a part of the registration statement prepared or certified by our
firm or a report prepared or certified by our firm within the meaning of
Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
