<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------------
REPUBLIC BANCSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
---------------------
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FLORIDA 6711 59-3347653
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
111 SECOND AVENUE, N.E., SUITE 300
ST. PETERSBURG, FL 33701
(727) 823-7300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
CHRISTOPHER M. HUNTER, ESQ.
GENERAL COUNSEL AND CORPORATE SECRETARY
111 SECOND AVENUE, N.E., SUITE 300
ST. PETERSBURG, FL 33701
(727) 823-7300
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
---------------------
COPIES TO:
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JOHN A. BUCHMAN, ESQ. JOHN L. DOUGLAS, ESQ.
HOLLAND & KNIGHT LLP ALSTON & BIRD LLP
2100 PENNSYLVANIA AVENUE, N.W., SUITE 400 ONE ATLANTIC CENTER
WASHINGTON, DC 20037-3202 1201 WEST PEACHTREE STREET
(202) 955-3000 ATLANTA, GA 30309-3424
(404) 881-7000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ---------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ---------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH AMOUNT MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARES(2) OFFERING PRICE(2) FEE
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Common Stock................................. 475,000 shares $9.23 $4,385,000 $1,293.58
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</TABLE>
(1) Based on an estimate of the maximum number of shares of the common stock,
$2.00 par value per share, of the Registrant to be issued in connection with
the merger ("Merger") of Bankers Savings Bank, FSB ("BSB") with and into
Registrant's wholly-owned subsidiary Republic Bank, which is calculated by
multiplying the maximum number of shares of common stock, par value $4.00
per share, of BSB expected to be cancelled in the Merger (705,333) by the
highest reasonably possible exchange ratio for the Merger estimated by the
Registrant to be 0.6734.
(2) Pursuant to Rule 457(f)(2), and solely for the purpose of calculating the
registration fee, the proposed maximum offering price per share and the
proposed maximum aggregate offering price are based upon the total
stockholders' equity of BSB as of June 30, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), SHALL
DETERMINE.
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<PAGE> 2
BANKERS SAVINGS BANK, FSB
2222 PONCE DE LEON BOULEVARD
CORAL GABLES, FLORIDA 33134
September , 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of the Stockholders
(the "Special Meeting") of Bankers Savings Bank, FSB ("BSB") to be held at BSB's
main office, located at 2222 Ponce de Leon Boulevard, Coral Gables, Florida
33134 on October 20, 1998, at 4:00 p.m. local time, notice of which is enclosed.
As the Special Meeting, you will be asked to consider and vote on a
proposal to approve an Agreement and Plan of Merger, dated as of March 2, 1998
(as amended and restated as of September 4, 1998, the "Agreement"), by and among
Republic Bancshares, Inc. ("Bancshares"), its wholly owned subsidiary, Republic
Bank ("Republic"), and BSB, pursuant to which, among other matters, BSB will
merge (the "Merger") with and into Republic. Upon consummation of the Merger,
each share of BSB common stock issued and outstanding at the effective time of
the Merger (except for certain shares held by BSB or Bancshares, or their
respective subsidiaries, in each case other than shares held in a fiduciary
capacity or in satisfaction of debts previously contracted, and excluding shares
held by BSB stockholders who perfect their dissenters' rights) will be exchanged
for and automatically converted into shares of Bancshares common stock as
determined in accordance with the exchange ratio formula set forth in the
Agreement, with cash being paid in lieu of issuing fractional shares, as more
fully described in the Proxy Statement/Prospectus.
Enclosed are the Notice of Meeting, the Proxy Statement/Prospectus, a form
of proxy, Bancshares' 1997 Annual Report and a pamphlet sent to stockholders
discussing Bancshares' results of operations for the first half of 1998. The
accompanying Proxy Statement/Prospectus includes a description of the proposed
Merger and provides other specific information concerning the Special Meeting.
Please read these materials carefully and consider thoughtfully the information
set forth in them.
The Agreement has been approved by your Board of Directors and is
recommended by the Board to you for approval. Your Board believes that, among
other benefits, the Merger will result in a company with greater financial
strength and increased opportunity and flexibility for profitable expansion and
diversification. Consummation of the Merger is subject to certain conditions
including approval of the Agreement and the transactions contemplated therein by
BSB stockholders.
It is important to understand that approval of the Agreement will require
the affirmative vote of two-thirds of the issued and outstanding shares of BSB
common stock. ACCORDINGLY, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING, YOU ARE URGED TO COMPLETE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY
FORM. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH,
EVEN IF YOU PREVIOUSLY HAVE RETURNED YOUR PROXY FORM. The proposed Merger is a
significant step for BSB stockholders and your vote on this matter is of great
importance.
ON BEHALF OF THE BOARD OF DIRECTORS, I URGE YOU TO VOTE FOR APPROVAL OF THE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREIN BY MARKING THE ENCLOSED
PROXY FORM "FOR" ITEM ONE.
If you have any questions about the Merger or the materials enclosed
herewith, please write or call us at: Bankers Savings Bank, FSB, 2222 Ponce de
Leon Boulevard, Coral Gables, Florida 33134; Attention: William Dolan. We look
forward to seeing you at the Special Meeting.
Sincerely,
Octavio Hernandez
President
<PAGE> 3
BANKERS SAVINGS BANK, FSB
2222 PONCE DE LEON BOULEVARD
CORAL GABLES, FLORIDA 33134
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AT 4:00 P.M. ON OCTOBER 20, 1998
September , 1998
To the Stockholders of Bankers Savings Bank, FSB:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders (the
"Special Meeting") of Bankers Savings Bank, FSB ("BSB") will be held at BSB's
main office, located at 2222 Ponce de Leon Boulevard, Coral Gables, Florida
33134, on October 20, 1998, at 4:00 p.m., local time, for the following
purposes:
1. Merger. To consider and vote upon a proposal to approve an
Agreement and Plan of Merger, dated as of March 2, 1998 (as amended and
restated as of September 4, 1998, the "Agreement"), by and among Republic
Bancshares, Inc. ("Bancshares"), its wholly-owned subsidiary, Republic Bank
("Republic"), and BSB, pursuant to which, among other matters, BSB will
merge (the "Merger") with and into Republic. Upon consummation of the
Merger, each share of BSB common stock issued and outstanding at the
effective time of the Merger will be exchanged for and automatically
converted into shares of Bancshares common stock as determined in
accordance with the exchange ratio formula set forth in the Agreement, as
more fully described in the accompanying Proxy Statement/Prospectus. A copy
of the Agreement is set forth as Appendix A to the accompanying Proxy
Statement/Prospectus.
2. Other Business. To transact such other business as may come
properly before the Special Meeting.
Only stockholders of record at the close of business on September 10, 1998,
will be entitled to receive notice of and to vote at the Special Meeting or any
adjournment or postponement thereof. Approval of the Agreement and the
transactions contemplated therein requires the affirmative vote of two-thirds of
the issued and outstanding shares of BSB common stock.
THE BOARD OF DIRECTORS OF BSB UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR APPROVAL OF THE AGREEMENT BY MARKING THE ENCLOSED PROXY FORM "FOR" ITEM 1.
BY ORDER OF THE BOARD OF DIRECTORS
William Dolan
Secretary
Coral Gables, Florida
September , 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED
FORM OF PROXY AND PROMPTLY RETURN IT IN THE ENCLOSED POSTAGE PAID RETURN
ENVELOPE IN ORDER TO
ENSURE THAT YOUR SHARES WILL BE REPRESENTED AT THE SPECIAL MEETING.
---------------------
EACH STOCKHOLDER HAS THE RIGHT TO DISSENT FROM THE AGREEMENT AND DEMAND
PAYMENT OF THE FAIR VALUE OF HIS SHARES IF THE MERGER IS CONSUMMATED. THE RIGHT
OF ANY STOCKHOLDER TO RECEIVE SUCH PAYMENT IS CONTINGENT UPON STRICT COMPLIANCE
WITH THE REQUIREMENTS OF SECTION 552.14 OF THE RULES AND REGULATIONS OF THE
OFFICE OF THRIFT SUPERVISION, THE FULL TEXT OF WHICH IS SET FORTH IN APPENDIX C
TO THE PROXY STATEMENT/PROSPECTUS. SEE "DESCRIPTION OF THE
TRANSACTION-DISSENTING STOCKHOLDERS" IN THE ACCOMPANYING PROXY STATEMENT/
PROSPECTUS.
<PAGE> 4
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BANKERS SAVINGS BANK, FSB REPUBLIC BANCSHARES, INC.
PROXY STATEMENT PROSPECTUS
475,000
SHARES OF COMMON STOCK
(PAR VALUE $2.00 PER SHARE)
</TABLE>
Republic Bancshares, Inc. ("Bancshares") has filed a registration statement
with the Securities and Exchange Commission (the "Commission"), covering up to a
maximum of 475,000 newly-issued shares of common stock of Bancshares, par value
$2.00 per share ("Bancshares Common Stock"), to be issued pursuant to the merger
(the "Merger") of Bankers Savings Bank, FSB ("BSB") with and into Republic Bank,
a wholly-owned subsidiary of Bancshares ("Republic"). At the effective time of
the Merger (the "Effective Time"), (i) Bancshares will acquire all of the issued
and outstanding common stock of BSB, par value $4.00 per share ("BSB Common
Stock"), and (ii) the outstanding shares of BSB Common Stock (except for certain
shares held by BSB or Bancshares, or their respective subsidiaries, in each case
other than shares held in a fiduciary capacity or in satisfaction of debts
previously contracted, and excluding shares held by BSB stockholders who perfect
their dissenters' rights of appraisal) will be exchanged for and automatically
converted into shares of Bancshares Common Stock in accordance with the exchange
ratio (the "Exchange Ratio") to be calculated at the Effective Time based on the
formula set forth in an Agreement and Plan of Merger, dated as of March 2, 1998,
by and among Bancshares, Republic and BSB (as amended and restated as of
September 4, 1998, the "Agreement"). The Exchange Ratio is subject to adjustment
based on, among other factors, the average market price of Bancshares Common
Stock for a 20-day period prior to the Effective Time. For a further description
of the Exchange Ratio formula and the other terms of the Merger, see
"Description of the Transaction."
The registration statement includes this Proxy Statement/Prospectus, which
constitutes both the prospectus for the Bancshares Common Stock to be issued
upon consummation of the Merger and the proxy statement that is being furnished
to the stockholders of BSB in connection with the solicitation by the Board of
Directors of BSB of proxies from holders of BSB Common Stock for use at the
special meeting of stockholders of BSB (the "Special Meeting"). At the Special
Meeting of BSB stockholders, only stockholders of record as of the close of
business on September 10, 1998, will be eligible to consider and vote upon a
proposal to approve the Agreement.
This Proxy Statement/Prospectus and the accompanying proxy form are first
being mailed to stockholders of BSB on or about September , 1998.
SEE "RISK FACTORS" COMMENCING ON PAGE 15 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE BANCSHARES
COMMON STOCK OFFERED HEREBY.
---------------------
THE SHARES OF BANCSHARES COMMON STOCK OFFERED HEREBY ARE NOT DEPOSITS, SAVINGS
ACCOUNTS OR OTHER OBLIGATIONS OF A DEPOSITORY INSTITUTION AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS
ASSOCIATION INSURANCE FUND OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS REFERS HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION NOR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS SEPTEMBER , 1998.
<PAGE> 5
We have not authorized anyone to give any information or make any
representation about the Merger or our companies that differs from, or adds to,
the information in this Proxy Statement/Prospectus or in the documents that are
publicly filed by Bancshares with the Commission. Therefore, if anyone does give
you different or additional information, you should not rely on it.
If you are in a jurisdiction where it is unlawful to offer to exchange or
sell, or to ask for offers to exchange or buy, the securities offered by this
Proxy Statement/Prospectus or to ask for proxies, or if you are a person to whom
it is unlawful to direct such activities, then the offer presented by this Proxy
Statement/Prospectus does not extend to you.
The information contained in this Proxy Statement/Prospectus speaks only as
of its date unless the information specifically indicates that another date
applies.
Information in this Proxy Statement/Prospectus about Bancshares and
Republic has been supplied by Bancshares, and information about BSB, except such
information described under "Description of the Transaction -- Opinion of BSB's
Financial Advisor," has been supplied by BSB.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
Bancshares and BSB make forward-looking statements in this document, and
Bancshares makes forward-looking statements in the Bancshares public documents
to which we refer, that are subject to risks and uncertainties. These
forward-looking statements include information about possible or assumed future
results of our operations or the performance of the combined company after the
Merger. Also, when we use any of the words "believes," "expects," "anticipates"
or similar expressions, we are making forward-looking statements. Many possible
events or factors could affect the future financial results and performance of
each of our companies and the combined company after the Merger. This could
cause results or performance to differ materially from those expressed in our
forward-looking statements. You should consider these risks when you vote on the
Merger. These possible events or factors include the following:
1. Our revenues after the Merger are lower than we expect, our
restructuring charges are higher than we expect, we lose more deposits,
customers or business than we expect, or our operating costs after the
Merger are greater than we expect;
2. Competition among depository and other financial institutions
increases significantly;
3. We have more trouble integrating our businesses or retaining key
personnel than we expect;
4. Our costs savings from the Merger are less than we expect, or we
are unable to obtain those cost savings as soon as we expect.
5. Changes in the interest rate environment reduce our margins;
6. Conditions in the overall real estate market and the market for
High LTV and other mortgage loans are worse than we expect;
7. General economic or business conditions are worse than we expect;
8. Legislative or regulatory changes adversely affect our business;
9. Technological changes and systems integration, including becoming
year 2000 compliant, are harder to make or more expensive than we expect;
and
10. Adverse changes occur in the securities markets.
<PAGE> 6
TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION....................................... iii
DOCUMENTS INCORPORATED BY REFERENCE......................... iv
SUMMARY..................................................... 1
The Parties............................................... 1
Special Meeting of BSB Stockholders....................... 5
The Merger; Exchange Ratio................................ 6
Dissenting Stockholders................................... 6
Reasons for the Merger; Recommendation of BSB's Board of
Directors.............................................. 6
Opinion of Financial Advisor.............................. 7
Effective Time............................................ 7
Exchange of Stock Certificates............................ 7
Regulatory Approvals...................................... 7
Waiver, Amendment and Termination of the Agreement........ 8
Interests of Certain Persons in the Merger................ 8
Certain Federal Income Tax Consequences of the Merger..... 8
Certain Differences in Stockholders' Rights............... 8
RECENT DEVELOPMENTS......................................... 9
RISK FACTORS................................................ 15
COMPARATIVE MARKET PRICES OF BANCSHARES AND BSB COMMON
STOCK..................................................... 27
COMPARATIVE PER SHARE DATA.................................. 28
SELECTED FINANCIAL AND OTHER DATA OF BANCSHARES AND BSB..... 29
THE SPECIAL MEETING OF BSB STOCKHOLDERS..................... 37
Date, Place, Time and Purpose............................. 37
Record Date, Voting Rights, Required Votes and
Revocability of Proxies................................ 37
Recommendation of the Board of Directors of BSB........... 38
DESCRIPTION OF THE TRANSACTION.............................. 39
General................................................... 39
Exchange Ratio............................................ 39
Treatment of BSB Options.................................. 40
Background of and Reasons for the Merger.................. 40
Opinion of BSB's Financial Advisor........................ 42
Effective Time of the Merger.............................. 45
Distribution of Bancshares' Stock Certificates and Payment
for Fractional Shares.................................. 45
Conditions to Consummation of the Merger.................. 46
Regulatory Approvals...................................... 47
Waiver, Amendment and Termination of the Agreement........ 47
Conduct of Business Pending the Merger.................... 48
Management of Bancshares and Republic Following the
Merger................................................. 49
Interests of Certain Persons in the Merger................ 49
Dissenting Stockholders................................... 49
Certain Federal Income Tax Consequences of the Merger..... 51
Accounting Treatment...................................... 52
Expenses and Fees......................................... 52
Resales of Bancshares Common Stock........................ 52
EFFECT OF THE MERGER ON RIGHTS OF STOCKHOLDERS.............. 54
Authorized Capital Stock.................................. 54
Amendment of Articles of Incorporation and Bylaws......... 55
Board of Directors and Absence of Cumulative Voting....... 55
Removal of Directors...................................... 56
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i
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PAGE
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Indemnification........................................... 56
Special Meetings of Stockholders.......................... 57
Actions of Stockholders Without a Meeting................. 57
Stockholder Nominations and Proposals..................... 57
Mergers, Consolidation and Sales of Assets................ 58
Dissenters' Rights of Appraisal........................... 58
Stockholders' Rights to Examine Books and Records......... 59
Dividends................................................. 59
COMPARATIVE MARKET PRICES................................... 60
UNAUDITED COMBINED FINANCIAL DATA........................... 61
CERTAIN INFORMATION CONCERNING BANCSHARES................... 69
CERTAIN INFORMATION CONCERNING BSB.......................... 73
DESCRIPTION OF BANCSHARES COMMON AND PREFERRED STOCK........ 89
LEGAL OPINIONS.............................................. 90
EXPERTS..................................................... 90
INDEX TO FINANCIAL STATEMENTS............................... F-1
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APPENDIX A -- Agreement and Plan of Merger
APPENDIX B -- Opinion of RP Financial, LC.
APPENDIX C -- Provisions of the Rules and Regulations of the Office of
Thrift Supervision Applicable to Dissenting Stockholders
</TABLE>
ii
<PAGE> 8
AVAILABLE INFORMATION
Bancshares is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information concerning
Bancshares may be inspected and copied at the Commission's Public Reference
Section, Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549, where copies may be obtained at prescribed rates, as well as at the
following regional offices: Northeast Regional Office, 7 World Trade Center,
Suite 1300, New York, New York 10048; and Midwest Regional Office, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. The Commission also
maintains an internet site that contains reports, proxy and information
statements and other information regarding Bancshares. The address of the
internet site is http://www.sec.gov. Bancshares Common Stock is listed on the
Nasdaq Stock Market's National Market (the "Nasdaq National Market"). Copies of
reports, proxy statements and other information concerning Bancshares may also
be inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
This Proxy Statement/Prospectus constitutes part of the Registration
Statement on Form S-4 of Bancshares (including any exhibits and amendments
thereto, the "Registration Statement") filed with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
securities offered hereby. This Proxy Statement/Prospectus does not include all
of the information in the Registration Statement, certain portions of which have
been omitted pursuant to the rules and regulations of the Commission. For
further information about Bancshares and the securities offered hereby,
reference is made to the Registration Statement. The Registration Statement may
be inspected and copied, at prescribed rates, at the Commission's public
reference facilities at the addresses set forth above.
[Balance of this page intentionally left blank]
iii
<PAGE> 9
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the Commission by Bancshares
pursuant to the Exchange Act are hereby incorporated by reference herein:
1. Bancshares' Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
2. Bancshares' Proxy Statement for its annual meeting of stockholders
held on April 28, 1998;
3. Bancshares' Quarterly Reports on Form 10-Q for the three-month
periods ended March 31 and June 30, 1998.
All documents filed by Bancshares pursuant to Sections 13(a), 13(c), 14, or
15(d) of the Exchange Act after the date of this Proxy Statement/Prospectus and
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference in this Proxy Statement/Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes hereof to the extent that a
statement contained herein or in any subsequently filed document that also is,
or is deemed to be, incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part hereof, except as so modified or superseded.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THOSE DOCUMENTS ARE AVAILABLE
UPON REQUEST, WITHOUT CHARGE (EXCEPT FOR THE EXHIBITS THERETO), FROM BANCSHARES
- -STAN BLAKEY, DIRECTOR OF INVESTOR RELATIONS & COMMUNICATIONS, REPUBLIC
BANCSHARES, INC., 111 SECOND AVE., N.E., ST. PETERSBURG, FLORIDA 33701
(TELEPHONE (727) 823-7300). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY OCTOBER , 1998.
[Balance of page intentionally left blank]
iv
<PAGE> 10
SUMMARY
The following is a summary of certain information relating to the Special
Meeting, the proposed Merger, and the offering of shares of Bancshares Common
Stock to be issued in connection therewith. This summary does not purport to be
complete and is qualified in its entirety by the more detailed information
appearing elsewhere or incorporated by reference in this Proxy
Statement/Prospectus. Stockholders are urged to read carefully the entire Proxy
Statement/Prospectus, including the Appendices. As used in this Proxy
Statement/Prospectus, the terms "Bancshares" and "BSB" refer to those entities,
respectively, and, where the context requires, to those entities and their
respective subsidiaries. The term "Combined Company" refers to Bancshares and
BSB after consolidation.
THE PARTIES
Bancshares
General. Bancshares is a registered bank holding company whose principal
subsidiary is Republic, a Florida-chartered commercial bank headquartered in St.
Petersburg, Florida. As a result of the sale of several Florida-based banking
organizations to out-of-state bank holding companies in January 1998, Bancshares
is now the largest independent commercial bank holding company headquartered in
Florida, based on its June 30, 1998 assets of $2.2 billion. Bancshares, through
Republic, provides a broad range of traditional commercial banking services,
emphasizing real estate and business lending. Republic is also active in
mortgage banking through its Flagship Mortgage Services ("Flagship") division,
which originates first-lien residential mortgages and high loan-to-value debt
consolidation and home improvement loans ("High LTV Loans") for sale and
securitization. Flagship's High LTV Loans are secured by junior liens on
residential real estate where the combined amount of indebtedness secured by the
residence may be up to 125% of the value of the residence and often exceeds
100%. Currently, Bancshares' branch network consists of 55 branches in Brevard,
Broward, Columbia, Hernando, Manatee, Marion, Monroe, Orange, Osceola, Pasco,
Pinellas, Sarasota, Seminole and Suwannee counties, Florida and one branch in
Glynn County, Georgia. At June 30, 1998, Bancshares' consolidated assets totaled
$2.2 billion, loans held in portfolio totaled $1.4 billion, deposits totaled
$1.7 billion and stockholders' equity was $170.3 million. Bancshares is
currently regulated by the Board of Governors of the Federal Reserve System (the
"Federal Reserve"), and Republic is regulated by the Florida Department of
Banking and Finance (the "Department") and the Federal Deposit Insurance
Corporation (the "FDIC"). Bancshares' other depository institution subsidiary,
Republic Bank, FSB (the "Savings Bank"), is a federally chartered savings bank
headquartered in St. Petersburg with an interstate branch located in Brunswick,
Georgia that commenced operations on August 21, 1998. The Savings Bank is
regulated by the Office of Thrift Supervision ("OTS") and the FDIC. Republic's
and the Savings Bank's deposits are insured by the FDIC up to applicable limits,
and both institutions are members of the Federal Home Loan Bank of Atlanta
("FHLB").
In May 1993, William R. Hough and John W. Sapanski (together, the
"Principal Stockholders") acquired from Republic's prior controlling stockholder
more than 99.0% of Republic's outstanding common stock (the "Change in
Control"). Mr. Hough is a member of Bancshares' and Republic's Boards of
Directors, and Mr. Sapanski serves as Bancshares' and Republic's Chairman of the
Board, Chief Executive Officer and President.
In May 1998, Bancshares completed a public offering of 2,642,150 shares of
Bancshares Common Stock at price to the public of $29.50 per share (the "May
1998 Offering"). The number of common equivalent shares outstanding as of that
date increased to 9,713,035. Net proceeds from the May 1998 Offering were $72.9
million after deducting underwriting discounts and commissions and expenses. Of
the net proceeds, $70.2 million were used to increase the common equity of
Republic Bank while $2.7 million were retained by Bancshares to be used for the
capitalization of the Savings Bank.
The principal executive offices of Bancshares are located at 111 Second
Avenue, N.E., Suite 300, St. Petersburg, Florida, 33701, and its telephone
number is (727) 823-7300.
1
<PAGE> 11
Acquisitions and Branch Expansion. Following the Change in Control,
Republic began to implement a program of expanding its branches and lines of
business. In December 1993, Republic acquired 12 branches from CrossLand Savings
FSB, a federal stock savings bank ("CrossLand"), and assumed deposit liabilities
of $327.7 million and purchased loans secured by real estate and other real
estate owned ("ORE") amounting to $201.6 million from CrossLand (the "CrossLand
Purchase and Assumption"). The CrossLand Purchase and Assumption almost tripled
Republic's size, increasing total assets to $531.3 million and total deposits to
$494.3 million at December 31, 1993. Additionally, the 12 CrossLand branches
expanded Republic's market coverage to include Manatee and Sarasota counties and
more than doubled Republic's branch network to a total of 19 branches.
During the latter part of 1994 and throughout 1995, Republic continued to
pursue a strategy of increasing its retail banking presence on the west central
coast of Florida. Republic opened 13 additional new branches, expanding its
market coverage in existing counties and providing entry into Pasco County.
In January 1996, Republic organized Bancshares and became its wholly-owned
subsidiary. Throughout 1997, Bancshares continued its geographic expansion
strategy. In January 1997, Bancshares opened a new branch in Hernando County. In
April 1997, Bancshares acquired Firstate Financial, F.A. ("Firstate"), a federal
savings association headquartered in Orlando, Florida, for a cash purchase price
of $5.5 million (the "Firstate Acquisition"). The Firstate Acquisition increased
Bancshares' presence in central Florida, where Bancshares previously operated a
loan production office ("LPO") but had no branches. On the date of acquisition,
Firstate had total assets of $71.1 million and total deposits of $67.9 million.
The Firstate Acquisition was accounted for using purchase accounting rules.
On September 19, 1997, F.F.O. Financial Group, Inc., St. Cloud, Florida
("FFO"), the holding company parent of First Federal Savings and Loan
Association of Osceola County, which was also majority-controlled by Mr. Hough,
was merged into Bancshares in a stock-for-stock transaction (the "FFO Merger").
The FFO Merger expanded Bancshares' presence in central Florida by adding 11
branches in Brevard, Orange and Osceola counties. On the date of the FFO Merger,
FFO had total assets of $328.4 million, total loans of $233.3 million and total
deposits of $303.4 million. The FFO Merger was accounted for as a corporate
reorganization in which Mr. Hough's interests in FFO and Bancshares were
combined at historical cost in a manner similar to a pooling of interests, while
the minority interests in FFO were combined with Bancshares at fair market value
using purchase accounting rules.
On June 19, 1998, Bancshares acquired three branch offices of NationsBank,
N.A. ("NationsBank") and four branch offices of NationsBank's affiliate, Barnett
Bank, N.A. ("Barnett"), including the loans and other assets recorded at such
offices (collectively, the "NationsBank Florida Branches"). The NationsBank
Florida Branches are located throughout the State of Florida and include three
in Monroe County (Key West, Marathon and Plantation Key), two in Marion County
(Ocala and Silver Springs) and one each in Columbia County (Lake City) and
Suwannee County (Live Oak). When acquired, the NationsBank Florida Branches had
deposit liabilities of $199.9 million and loans of $114.4 million. On August 20,
1998, Bancshares acquired an additional branch (the "Georgia Branch" and,
together with the NationsBank Florida Branches, the "NationsBank Branches") of
Barnett located in Brunswick (Glynn County), Georgia, with the office becoming
an interstate branch of Bancshares's newly-chartered Savings Bank. At the time
of acquisition, the Georgia Branch had deposit liabilities of $16.9 million and
loans of $7.5 million. Bancshares paid a combined deposit and loan premium of
$27.2 million for the NationsBank Branches. Bancshares' acquisitions of the
eight NationsBank Branches were both accounted for using purchase accounting
rules, with the deposit premiums being amortized using the straight-line method
over a 10-year period.
On August 13, 1998, Bancshares purchased a branch office (the "Dime
Branch") in Deerfield Beach (Broward County), Florida from The Dime Savings
Bank, F.S.B. Pursuant to the transaction, Bancshares assumed $209.5 million of
deposits and purchased $60,900 of loans and $100,000 of personal property and
equipment assigned to the Dime Branch. Bancshares' purchase price for the Dime
Branch was $9.8 million, and the transaction was accounted for using purchase
accounting rules and a 10-year straight-line amortization of the deposit
premium.
2
<PAGE> 12
On May 6, 1998, Bancshares and Republic entered into an Agreement and Plan
of Merger (the "Lochaven Agreement") with Lochaven Federal Savings and Loan
Association, Orlando, Florida ("Lochaven"), providing for the merger of Lochaven
with and into Republic (the "Lochaven Merger" and with the BSB Merger, the
"Proposed Mergers"). Lochaven has one branch in Orange County, Florida, and as
of June 30, 1998, had total assets of $59.3 million, total loans (including
loans held for sale) of $54.4 million and total deposits of $56.1 million. Under
the terms of the Lochaven Agreement, stockholders of Lochaven are to receive
0.2776 of a share of Bancshares Common Stock for each outstanding share of
Lochaven common stock, and options outstanding for Lochaven common stock will be
converted to options for Bancshares Common Stock at the same ratio. It is
anticipated that the Lochaven Merger will be accounted for as a pooling of
interests. The transaction may be terminated by either Lochaven or Bancshares if
it is not consummated by December 1, 1998. All required regulatory approvals for
the Lochaven Acquisition have been received. See "Certain Information Concerning
Bancshares -- Recent and Proposed Acquisitions."
If consummated, the Proposed Mergers will increase the total assets of
Bancshares to approximately $2.5 billion (based on most recent available data)
and expand Republic's branch network from 55 to 58 branches in Florida, located
in Brevard, Broward, Columbia, Dade, Hernando, Manatee, Marion, Monroe, Orange,
Osceola, Pasco, Pinellas, Sarasota, Seminole and Suwannee counties, and one
branch in Georgia, located in Glynn County. There can be no assurance that
Bancshares will be able to consummate the Proposed Mergers, or, if consummated,
successfully integrate the operations and management of the Proposed Mergers and
its other branch acquisitions this year. See "Risk Factors -- Current
Acquisitions and Ability to Manage Growth and Integrate Operations."
Bancshares anticipates continuing its strategy of geographic expansion for
the foreseeable future through a combination of whole bank and thrift
acquisitions, branch acquisitions and de novo branching, depending upon various
factors, including whether: (i) the transaction will be accretive to Bancshares'
earnings per share no later than one year following consummation; (ii) the
transaction will provide Bancshares with a new or additional location in a
desirable market area; (iii) the transaction will close an existing gap in
Bancshares' Florida branch network; or (iv) the transaction will present
competitive opportunities, such as branches becoming available due to branch
closings, bank mergers and other consolidations.
Mortgage Banking and Lending Activities. During 1996 and 1997, Bancshares
focused on increasing its residential lending capabilities. In conjunction with
the establishment of Flagship in April 1996 and its internal growth, Bancshares
added eight residential loan production offices ("LPOs") in Florida, one
residential LPO in Boston, Massachusetts, as well as wholesale LPOs in St.
Petersburg, Florida and in Irvine, California. These offices expanded Bancshares
product line to include government-insured first mortgage loans, and, beginning
in the fourth quarter of 1996, High LTV Loans. At the same time, Bancshares also
began purchasing residential mortgage loans from mortgage brokers and other
third-party originators for resale. The strategy of Bancshares is to sell or
securitize substantially all of the loans it originates and purchases through
Flagship.
Until late 1997, Bancshares sold all of the High LTV and other mortgage
loans originated by Flagship in whole loan sales. In December 1997, however,
Bancshares consummated its first securitization, in which it securitized $60.0
million of High LTV Loans in a private placement offering. Bancshares retained
servicing rights with respect to the loans that were securitized.
In June 1998, Bancshares and SPC sold $240.0 million securities backed by
$240.0 million of its High LTV Loans in a private placement securitization (the
"June Securitization"), while retaining a $12.0 million subordinated interest in
the pool of loans that were securitized. Bancshares retained servicing rights
with respect to the loans that were securitized. Bancshares currently
anticipates further whole loan sales or securitizations with respect to the
mortgage loans originated by Flagship on a quarterly or other periodic basis,
depending on then-prevailing market conditions and other factors such as
Republic's capitalization and liquidity.
Business Strategy. Bancshares' business strategy entails: (i) originating
and purchasing real estate-secured loans for portfolio and sale; (ii)
originating business and consumer loans for portfolio; (iii) improving market
share and expanding market coverage through a combination of acquisitions of
other financial
3
<PAGE> 13
institutions, branch purchases and de novo branching; (iv) increasing
non-interest income through expanded mortgage banking activities and increased
emphasis on commercial and retail checking relationships; and (v) increasing its
range of products and services. While pursuing this strategy, management remains
committed to improving asset quality, managing interest rate risk, enhancing
profitability and maintaining its status as a well-capitalized institution for
regulatory capital purposes.
The results of the Bancshares' business strategy include:
- Expanded Branch Network. Since the Change in Control in 1993, Bancshares
has expanded its retail banking presence from seven branches in northern
Pinellas County to its current 55 branches in Brevard, Broward, Columbia,
Hernando, Manatee, Marion, Monroe, Orange, Osceola, Pasco, Pinellas,
Sarasota, Seminole and Suwanee counties and one branch in Glynn County,
Georgia. The Proposed Mergers, if consummated, will provide Bancshares
with a two branch presence in Dade County and an additional branch in
Orange County, bringing its total branch network to 58 branches in
Florida and one branch in Georgia.
- Substantial Asset Growth. Since the Change in Control, Bancshares has
increased in asset size from approximately $168.7 million to
approximately $2.2 billion at June 30, 1998. The Proposed Mergers, if all
are consummated, will increase the total asset size of Bancshares to
approximately $2.5 billion. This asset growth is largely attributable to
the opening of new branches and internally-generated deposit and loan
growth, bulk purchases of loan portfolios and deposit assumptions such as
the CrossLand Purchase and Assumption, acquisitions of other financial
institutions such as Firstate, FFO, BSB and Lochaven and branch purchases
such as the NationsBank and Dime Branch Acquisitions.
- Increased Mortgage Banking and Other Fee-Generating
Activities. Bancshares has increased its non-interest income through
improved revenue from an expanded line of deposit products, and through
the establishment of Flagship, with its emphasis on mortgage banking
activities, both in absolute terms and as a relative percentage of its
net income. In 1997, Flagship contributed approximately $15.3 million in
non-interest income (over 60% of total non-interest income) and $2.8
million in pre-tax income to Bancshares. As a result of Bancshares having
expanded its sources and amounts of fee income, total non-interest income
was 1.85% of average assets in 1997, as compared to 0.63% in 1994, the
first full year after the Change in Control.
- Improved Asset Quality Ratios. A significant portion of the assets of
Republic at the time of the Change in Control and the assets acquired in
the CrossLand Purchase and Assumption were nonperforming. As a result,
Republic's nonperforming assets were $44.2 million, or 5.66% of total
assets, at year-end 1993. At June 30, 1998, nonperforming assets of
Bancshares had been reduced to $38.5 million, or 1.79% of total assets,
primarily through the implementation of consistent loan underwriting
policies and procedures, centralization of all credit decision functions,
increasing the size of the loan portfolio, write-offs and sales of ORE.
However, the level of Bancshares' nonperforming assets continues to be
higher than that of peer group institutions. See "Risk
Factors -- Nonperforming Assets."
- Management of Financial Risks. One of Bancshares' primary objectives is
to reduce fluctuations in net interest income caused by changes in market
interest rates and changes in the value of its mortgage loans held for
sale. To manage this interest rate risk, Bancshares generally limits
holding loans in its portfolio to those that have variable interest rates
tied to interest-sensitive indices and actively manages the maturities
within its investment portfolio. Bancshares also engages in various
hedging activities to reduce its exposure to the interest rate risks
attributable to mortgage loans held pending subsequent sale or
securitization.
BSB
BSB is a federally-chartered savings and loan association headquartered in
Coral Gables, Florida, with two offices located in Dade County in the cities of
Coral Gables and Miami, Florida. As of June 30, 1998, BSB had total assets of
approximately $68.3 million, total loans and loans held for sale of
approximately $49.4
4
<PAGE> 14
million, total deposits of approximately $60.7 million, and total stockholders'
equity of approximately $4.4 million.
BSB offers a wide variety of traditional community-oriented depository and
lending services. In addition to these activities, BSB engages in a substantial
mortgage banking business, which generated approximately $56 million in loan
sales in 1997.
BSB was organized under the laws of the state of Florida and commenced
operations in 1987 as a state-chartered savings and loan association. On January
1, 1998, BSB converted to a federally-chartered savings and loan association.
BSB's principal executive office is located at 2222 Ponce de Leon Boulevard,
Coral Gables, Florida 33134, and its telephone number at such address is (305)
441-2222.
BSB is regulated by the OTS. Its deposits are insured by the FDIC up to
applicable limits, and BSB is a member of the FHLB. Additional information with
respect to BSB and its subsidiaries is included in this Proxy
Statement/Prospectus. See "Selected Financial and Other Data of Bancshares and
BSB" and "Certain Information Concerning BSB."
SPECIAL MEETING OF BSB STOCKHOLDERS
This Proxy Statement/Prospectus is being furnished to the holders of BSB
Common Stock in connection with the solicitation by the BSB Board of Directors
of proxies for use at the Special Meeting at which BSB stockholders will be
asked to vote upon a proposal to approve the Agreement and the transactions
contemplated therein. The Special Meeting will be held at BSB's main office,
located at 2222 Ponce de Leon Boulevard, Coral Gables, Florida 33134, on October
20, 1998, at 4:00 p.m. local time. See "Special Meeting of BSB
Stockholders -- Date, Place, Time and Purpose."
BSB's Board of Directors has fixed the close of business on September 10,
1998, as the record date (the "Record Date") for determination of the
stockholders entitled to notice of and to vote at the Special Meeting. Only
holders of record of shares of BSB Common Stock on the Record Date will be
entitled to notice of and to vote at the Special Meeting. Each share of BSB
Common Stock is entitled to one vote. Stockholders who execute proxies retain
the right to revoke them at any time prior to being voted at the Special
Meeting. At June 30, 1998, there were 705,333 shares of BSB Common Stock issued
and outstanding, which were held by approximately 130 stockholders of record.
See "The Special Meeting of BSB Stockholders -- Record Date, Voting Rights,
Required Votes and Revocability of Proxies."
To hold a vote on any proposal, a quorum must be present either in person
or by proxy, which is a majority of the votes entitled to be cast by the holders
of the outstanding shares of BSB Common Stock. In determining whether a quorum
exists at the Special Meeting, all votes "for" or "against," as well as all
abstentions, will be counted. Approval of the Agreement and the transactions
contemplated therein requires the affirmative vote by holders of two-thirds
(approximately 470,222 shares) of the outstanding shares of BSB Common Stock. As
a result, broker non-votes and abstentions will have the same effect as a vote
against the approval of the Agreement at the Special Meeting.
As of the Record Date, all directors and executive officers of BSB as a
group (12 persons) were entitled to vote approximately 46,400 shares of BSB
Common Stock, constituting approximately 6.6% of the total number of shares of
BSB Common Stock outstanding at the date, and are anticipated to vote their
shares of BSB Common Stock in favor of the Merger. As of the Record Date,
Bancshares and its affiliates were not entitled to vote any shares of BSB Common
Stock. See "Special Meeting of Stockholders -- Record Date, Voting Rights,
Required Votes and Revocability of Proxies."
BSB'S STOCKHOLDERS HAVE THE RIGHT TO DISSENT FROM APPROVAL OF THE AGREEMENT
AND OBTAIN PAYMENT FOR THE FAIR VALUE OF THEIR SHARES OF BSB COMMON STOCK BY
STRICTLY COMPLYING WITH THE PROCEDURES DESCRIBED IN SECTION 552.14 OF THE RULES
AND REGULATIONS OF THE OTS (THE "OTS REGULATIONS"). SEE "DESCRIPTION OF THE
TRANSACTION -- DISSENTING STOCKHOLDERS" AND APPENDIX C.
5
<PAGE> 15
THE MERGER; EXCHANGE RATIO
The Agreement provides for the acquisition of BSB by Bancshares pursuant to
the Merger of BSB with and into Republic. At the Effective Time set forth in the
Certificate of Merger relating to the Merger to be filed with the Department,
shares of BSB Common Stock then issued and outstanding (excluding certain shares
held by stockholders who perfect their dissenters' rights of appraisal) will be
exchanged for and automatically converted into shares of Bancshares Common Stock
in accordance with the Exchange Ratio. Under the terms of the Agreement, the
Exchange Ratio will be determined by:
(a) calculating the December 31, 1997 book value of BSB less the
dollar amount of certain change in control payments to be made to BSB's
executive officers ($4,237,000 minus $250,000 or $3,987,000);
(b) adding to (or subtracting from) $3,987,000 any profits earned (or
losses incurred) by BSB in 1998 through the month-end prior to the date on
which the Special Meeting is held;
(c) multiplying the sum in (b) by 1.7;
(d) adding to the product in (c) $2,020,000, which represents the
difference between the sales price of BSB's main office facility and its
book value as of December 31, 1997;
(e) dividing the resulting sum in (d) by the total number of shares of
BSB Common Stock outstanding at the Effective Time, yielding a fixed per
share value for each share of BSB Common Stock (the "BSB Per Share Value").
The actual Exchange Ratio utilized to convert the shares of BSB Common
Stock into shares of Bancshares Common Stock will be calculated by dividing the
BSB Per Share Value by a blended market value of a share of Bancshares Common
Stock (the "Market Value"), which is derived by taking the average of the
closing prices of Bancshares Common Stock on each of the 20 consecutive trading
days ending on the third business day immediately preceding the closing date for
the transaction (the "Closing Date") as reported on the Nasdaq National Market
(the "Average Price"). If the Average Price is within a range of $22.50 to
$27.50, the Market Value will be $25.00. If the Average Price is not within this
range, the Market Value will be the mean of the Average Price and $25.00.
For the six months ended June 30, 1998, BSB reported aggregate 1998
earnings of $73,000. Accordingly, based on the 705,333 shares of BSB Common
Stock outstanding and the Market Value of Bancshares Common Stock of $25.00 as
of June 30, 1998, it is estimated that the Exchange Ratio would have been 0.5132
and the number of shares of Bancshares Common Stock issued would have been
361,977 if the Merger had been consummated on that date. These figures are for
illustration only. The actual Exchange Ratio will vary depending upon (i) future
changes in the Market Value, (ii) BSB's subsequent earnings performance, and
(iii) the issuance of additional shares of BSB Common Stock.
No fractional shares of Bancshares Common Stock will be issued. Rather,
cash will be paid in lieu of any fractional share issued to which any BSB
stockholder would otherwise be entitled upon consummation of the Merger, based
on the Average Price. See "Description of the Transaction -- General."
DISSENTING STOCKHOLDERS
Holders of BSB Common Stock entitled to vote on the approval of the
Agreement have the right to dissent from the Merger and, upon consummation of
the Merger and the satisfaction of certain specified procedures and conditions,
to receive the fair value of such holders' shares of BSB Common Stock in cash in
accordance with the applicable provisions of the OTS Regulations. The procedures
to be followed by dissenting stockholders are summarized under "Description of
the Transaction -- Dissenting Stockholders," and the applicable provisions of
the OTS Regulations are reproduced as Appendix C.
REASONS FOR THE MERGER; RECOMMENDATION OF BSB'S BOARD OF DIRECTORS
The BSB Board believes that the Merger is in the best interest of BSB and
its stockholders, has unanimously approved the Agreement and unanimously
recommends that the stockholders vote "FOR"
6
<PAGE> 16
approval of the Agreement and the consummation of the transactions contemplated
therein. In deciding to approve the Agreement and the consummation of the
transactions contemplated therein, the BSB Board considered a number of factors,
including, among other matters, the financial terms of the proposed Merger,
alternatives to the Merger, the impact the Merger would have on the stockholders
of BSB, increased liquidity, and the preliminary opinion of RP Financial, LC.
("RP Financial") that the transaction was fair to the stockholders of BSB from a
financial point of view. Based upon all of the foregoing, the BSB Board
determined to approve the transaction with Bancshares. See "Description of the
Transaction -- Background of and Reasons for the Merger."
The Board of Directors of BSB believes that the Merger will result in a
company with expanded opportunities for profitable growth and that the combined
resources and capital of BSB and Bancshares will provide an enhanced ability to
compete in the changing and competitive financial services industry. See
"Description of the Transaction -- Background of and Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR
RP Financial has rendered an opinion to BSB that the terms of the Merger
are fair, from a financial point of view, to the stockholders of BSB. The
opinion of RP Financial is attached as Appendix B to this Proxy
Statement/Prospectus. BSB's stockholders are urged to read the opinion in its
entirety for a description of the procedures followed, assumptions made, matters
considered and limitations on the review undertaken in connection therewith. See
"Description of the Transaction -- Opinion of BSB's Financial Advisor."
EFFECTIVE TIME
Subject to the conditions to the obligations of the parties to effect the
Merger, the Effective Time will occur on the date and at the time set forth in
the Certificate of Merger to be filed by Republic and BSB with the Department.
Unless otherwise agreed upon by Bancshares and BSB, and subject to the
conditions to the obligations of the parties to effect the Merger, the parties
will use their reasonable efforts to cause the Effective Time to occur by the
tenth business day (as determined by Bancshares) following the last to occur of:
(i) the effective date (including the expiration of any applicable waiting
period) of the last federal or state regulatory approval or consent required for
the Merger (which has already occurred); or (ii) the date on which the Agreement
is approved by the requisite vote of BSB's stockholders. The parties expect that
all conditions to consummation of the Merger will be satisfied so that the
Merger can be consummated during the fourth quarter of 1998, although there can
be no assurance as to whether or when the Merger will occur. See "Description of
the Transaction -- Effective Time of the Merger," "-- Conditions to Consummation
of the Merger," and "-- Waiver, Amendment and Termination of the Agreement."
EXCHANGE OF STOCK CERTIFICATES
Promptly after the Effective Time, Bancshares will cause its exchange
agent, ChaseMellon Shareholders Services (the "Exchange Agent"), to mail to the
former stockholders of BSB appropriate transmittal materials, which will include
instructions for the exchange of such stockholders' certificates representing
shares of BSB Common Stock for certificates representing shares of Bancshares
Common Stock. BSB STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL
THEY RECEIVE THE FORM LETTER OF TRANSMITTAL AND INSTRUCTIONS FROM THE EXCHANGE
AGENT. See "Description of the Transaction -- Distribution of Bancshares Stock
Certificates."
REGULATORY APPROVALS
The Merger is subject to approval by the FDIC, the Federal Reserve and the
Department. All required regulatory approvals for the Merger have been obtained
by Bancshares. See "Description of the Transaction -- Conditions to Consummation
of the Merger" and "-- Regulatory Approvals."
7
<PAGE> 17
WAIVER, AMENDMENT AND TERMINATION OF THE AGREEMENT
The Agreement may be terminated, and the Merger abandoned, at any time
prior to the Effective Time by mutual action of the Boards of Directors of both
Bancshares and BSB, or by action of the Board of Directors of either party under
certain circumstances, including if the Merger is not consummated by December 1,
1998, unless the failure to consummate by such time is due to a willful breach
of the Agreement by the party seeking to terminate. If for any reason the Merger
is not consummated, BSB will continue to operate as a separate financial
institution under its present management. See "Description of the
Transaction -- Waiver, Amendment and Termination of the Agreement."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Bancshares' and BSB's management and Board of Directors
have interests in the Merger in addition to their interests as stockholders
generally. These interests relate to, among other things, provisions in the
Agreement regarding indemnification, eligibility for certain employee benefits,
existing employment and change of control agreements and the payments to be made
thereunder as a consequence of the Merger and the treatment of outstanding stock
options. See "Description of the Transaction -- Interests of Certain Persons in
the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger is intended to qualify as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Opinions of counsel as to the federal income tax consequences will be obtained,
but no ruling will be requested from the Internal Revenue Service. It is
anticipated that Bancshares will receive an opinion from Holland & Knight LLP,
and BSB will receive an opinion from Alston & Bird LLP, that, among other
things, a stockholder of BSB who exchanges shares of BSB Common Stock for
Bancshares Common Stock will not recognize gain, provided that stockholders of
BSB will recognize gain to the extent such stockholders receive cash in lieu of
fractional shares of Bancshares Common Stock or upon perfection of their
dissenters' rights. Holders of BSB Common Stock should consult with their own
tax advisors regarding the federal, state, local and foreign tax consequences of
the Merger to them individually. See "Description of the Transaction -- Certain
Federal Income Tax Consequences of the Merger."
CERTAIN DIFFERENCES IN STOCKHOLDERS' RIGHTS
At the Effective Time, BSB stockholders, whose rights are governed by the
Home Owners' Loan Act of 1933, as amended ("HOLA"), the OTS Regulations and
BSB's Charter and By-laws, will automatically become Bancshares stockholders,
and their rights as Bancshares stockholders will be determined by the Florida
Business Corporation Act ("FBCA") and Bancshares' Articles of Incorporation and
By-Laws.
The rights of Bancshares stockholders differ from the rights of BSB
stockholders in certain important respects. See "Effect of the Merger on Rights
of Stockholders."
8
<PAGE> 18
RECENT DEVELOPMENTS
The following table sets forth Bancshares' unaudited selected consolidated
financial and other data at the dates and for the periods indicated. The data at
June 30, 1998 and 1997, and for the six months ended June 30, 1998 and 1997, are
unaudited and, in the opinion of management, contain all adjustments (none of
which were other than normal recurring entries) necessary for a fair
presentation of the results for such unaudited periods. The selected operations
data for the three and six months ended June 30, 1998 are not necessarily
indicative of the results of operations for the entire fiscal year. This
information should be read in conjunction with "Selected Financial and Other
Data of Bancshares and BSB" and the discussion under the headings "Comparison of
Results of Operations for the Three Months Ended June 30, 1998 and 1997",
"Comparison of Results of Operations for the Six Months Ended June 30, 1998 and
1997" and "Comparison of Balance Sheets at June 30, 1998 and December 31, 1997"
included elsewhere herein.
UNAUDITED SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
OPERATING DATA:
Interest income............................................. $ 71,893 $ 49,221
Interest expense............................................ 36,972 24,963
---------- ----------
Net interest income......................................... 34,921 24,258
Loan loss provision......................................... 1,525 1,639
---------- ----------
Net interest income after loan loss provision............... 33,396 22,619
Other noninterest income.................................... 23,747 6,453
General and administrative ("G&A") expenses................. 52,828 22,707
Other noninterest expense................................... 690 617
---------- ----------
Net income (loss) before income taxes and minority
interest.................................................. 3,625 5,748
Income tax (provision) benefit.............................. (1,375) (2,178)
Minority interest in income from subsidiary trust........... (842) --
Minority interest in FFO (net of tax)....................... -- (415)
---------- ----------
Net income (loss)................................. $ 1,408 $ 3,155
========== ==========
PER SHARE DATA:
Earnings per share -- diluted............................... $ .16 $ .47
---------- ----------
Weighted average shares outstanding -- diluted.............. 8,712,367 7,002,356
========== ==========
Earnings per share -- basic................................. $ .18 $ .54
========== ==========
Weighted average shares outstanding -- basic................ 7,786,911 5,853,633
========== ==========
BALANCE SHEET DATA (at period end):
Total assets................................................ $2,155,025 $1,321,573
Investment and mortgage backed securities................... 109,760 140,899
Loans held for sale......................................... 410,113 72,487
Portfolio loans, net of unearned income..................... 1,374,797 995,864
Allowance for loan losses................................... 20,296 19,328
Goodwill and premium on deposits............................ 28,765 397
Deposits.................................................... 1,741,377 1,165,042
Stockholders' equity........................................ 170,347 71,254
Book value per share........................................ 16.26 10.79
</TABLE>
9
<PAGE> 19
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
SELECTED FINANCIAL RATIOS:
Return on average assets.................................... .16% .50%
Return on average equity.................................... 2.61 8.99
Equity to assets............................................ 7.90 5.39
Equity and minority interest in preferred subsidiary to
assets.................................................... 9.24 --
Portfolio loans/deposit ratio............................... 78.95 85.48
Net interest spread......................................... 3.85 3.52
Net interest margin......................................... 4.18 4.10
G&A expense to average assets(1)............................ 3.11 3.17
G&A efficiency ratio(1)..................................... 67.30 69.30
Nonperforming loans to portfolio loans...................... 2.13 1.99
Nonperforming assets to total assets........................ 1.79 2.08
Loan loss allowance to portfolio loans(2)................... 1.48 1.94
Loan loss allowance to nonperforming loans(2)
Originated portfolio...................................... 90.92 90.96
July 1997 bulk purchase of loans.......................... 27.64 --
March 1995 bulk purchase of loans......................... 263.80 441.82
CrossLand loan portfolio.................................. 409.57 106.60
Other purchased loan portfolios........................... 17.82 46.67
Total............................................. 69.19 97.32
OTHER DATA (at period end):
Number of branch banking offices............................ 53 45
Number of full-time equivalent employees.................... 1,439 856
</TABLE>
- ---------------
(1) Commercial banking segment only.
(2) See "Note 6 -- Allowance for Loan Losses" for a discussion of the allocation
and availability of loan loss allowance among portfolio of loans within
Republic.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND
1997
Overview
A net loss of $1.7 million or $0.23 per share on a diluted basis was
incurred for the three months ended June 30, 1998, compared with a gain of $1.2
million or $0.17 per share for the same period in 1997. During the second
quarter of 1998, Bancshares expensed approximately $10.8 million of indirect
loan production costs associated with loans held for sale at period-end. Also, a
$3.0 million portion of the gain on the June Securitization was required to be
deferred for recognition until the third quarter of 1998.
Business Segment Information
Bancshares' operations are divided into two business segments, commercial
banking and mortgage banking. Commercial banking activities include Bancshares'
lending for portfolio purposes, deposit gathering through the retail branch
network, investment and liquidity management. Mortgage banking activities, which
operate through Flagship, a separate division of Republic, include originating
and purchasing mortgage loans for sale or securitization. Republic 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 Republic. The following are the business segment
results of operation for the three months ended June 30, 1998 and 1997.
Bancshares has elected to report its business segments without allocation of
income taxes and minority interests.
10
<PAGE> 20
BUSINESS SEGMENT DATA
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------------------------------- ----------------------------------
COMMERCIAL MORTGAGE COMPANY COMMERCIAL MORTGAGE COMPANY
BANKING BANKING TOTAL BANKING BANKING TOTAL
---------- -------- ---------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
TOTAL ASSETS
(at period-end)............. $1,731,591 $423,434 $2,155,025 $1,249,086 $72,487 $1,321,573
Operating Data:
Interest income............... $ 28,619 $ 9,496 $ 38,115 $ 23,810 $ 1,534 $ 25,344
Interest expense.............. 14,170 5,687 19,857 12,240 582 12,822
---------- -------- ---------- ---------- ------- ----------
Net interest income........... 14,449 3,809 18,258 11,570 952 12,522
Loan loss provision........... 1,032 -- 1,032 501 -- 501
---------- -------- ---------- ---------- ------- ----------
Net interest income after loan
loss provision.............. 13,417 3,809 17,226 11,069 952 12,021
Noninterest income............ 2,531 8,687 11,218 2,024 725 2,749
General and administrative
(G & A) expenses............ 12,067 17,829 29,896 10,057 2,167 12,224
Merger expenses............... 294 -- 294 -- -- --
Provision for losses on ORE... 120 -- 120 120 -- 120
Other noninterest expense..... 15 -- 15 59 -- 59
Amortization of goodwill and
premium on deposits......... 160 -- 160 124 -- 124
---------- -------- ---------- ---------- ------- ----------
Net income (loss)
before taxes
& minority
interest.......... $ 3,292 $ (5,333) (2,041) $ 2,733 $ (490) 2,243
========== ======== ========== =======
Income tax benefit
(expense)................... 800 (863)
Minority interest in income
from subsidiary trust
(net of tax)................ (422) --
Minority interest in FFO
(net of tax)................ -- (227)
---------- ----------
Net income (loss)... $ (1,663) $ 1,153
========== ==========
</TABLE>
Commercial Banking Activities
Income from commercial banking activities in the second quarter of 1998 was
$3.3 million compared with $2.7 million for the second quarter of 1997, an
increase of $559,000 or 20.5%. Net interest income after provision for loan
losses increased from $11.1 million to $13.4 million, and noninterest income
increased by $507,000. This more than offset the $2.0 million increase in G&A
expenses, which were $12.1 million during the second quarter of 1998 compared
with $10.1 million for the same period a year ago. The improvements were
primarily the result of continued growth in Bancshares' commercial banking loan
portfolio and expense savings from Bancshares' 1997 acquisitions.
Mortgage Banking Activities
Residential first- and second-lien loans closed for the quarter ended June
30, 1998 were $357.5 million compared with $97.6 million for the same period of
1997. Bancshares sold $227.5 million of loans during the second quarter of 1998,
$130.0 million less than the amount of loans closed during the second quarter of
1998. Consequently, loans held for sale increased to $410.1 million at June 30,
1998. Bancshares expensed approximately $10.8 million in indirect loan
production costs in the second quarter of 1998 that relate to loans held for
sale.
11
<PAGE> 21
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1997
Overview
Net income for the six months ended June 30, 1998 was $1.4 million or $0.16
per share on a diluted basis compared with $3.2 million or $0.47 per share for
the second quarter of 1997. Return on average assets for the first half of 1998
was 0.16%, while return on average equity was 2.61%.
Business Segment Information
The following are the business segment results of operation for the six
months ended June 30, 1998 and 1997.
BUSINESS SEGMENT DATA
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------------------------------- ----------------------------------
COMMERCIAL MORTGAGE COMPANY COMMERCIAL MORTGAGE COMPANY
BANKING BANKING TOTAL BANKING BANKING TOTAL
---------- -------- ---------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
TOTAL ASSETS
(at period-end)............. $1,731,591 $423,434 $2,155,025 $1,249,086 $72,487 $1,321,573
Operating Data:
Interest income............... $ 54,518 17,375 $ 71,893 $ 46,662 $ 2,559 $ 49,221
Interest expense.............. 27,662 9,310 36,972 23,904 1,059 24,963
---------- -------- ---------- ---------- ------- ----------
Net interest income........... 26,856 8,065 34,921 22,758 1,500 24,258
Loan loss provision........... 1,525 -- 1,525 1,639 -- 1,639
---------- -------- ---------- ---------- ------- ----------
Net interest income after loan
loss provision.............. 25,331 8,065 33,396 21,119 1,500 22,619
Noninterest income............ 4,555 19,192 23,747 4,742 1,711 6,453
General and administrative (G
& A) expenses............... 21,718 31,110 52,828 19,086 3,621 22,707
Merger expenses............... 294 -- 294 -- -- --
Provision for losses on ORE... 40 -- 40 290 -- 290
Other noninterest expense..... 37 -- 37 80 -- 80
Amortization of goodwill and
premium on deposits......... 319 -- 319 247 -- 247
---------- -------- ---------- ---------- ------- ----------
Net income (loss)
before taxes &
minority
interest.......... $ 7,478 $ (3,853) 3,625 $ 6,158 $ (410) 5,748
========== ======== ========== =======
Income tax expense............ (1,375) (2,178)
Minority interest in income
from subsidiary trust (net
of tax)..................... (842) --
Minority interest in FFO
(net of tax)................ -- (415)
---------- ----------
Net income.......... $ 1,408 $ 3,155
========== ==========
</TABLE>
Commercial Banking Activities
Income from commercial banking activities was $7.5 million for the six
months ended June 30, 1998, compared to $6.2 million for the same period of
1997. Net interest income increased by $4.1 million while G & A expenses
increased by $2.6 million. This improvement was largely the result of the
additional income and operating efficiencies from Bancshares' 1997 acquisitions.
12
<PAGE> 22
Mortgage Banking Activities
First- and second-lien residential loans closed during the first six months
of 1998 totaled $680.8 million, a $513.4 million increase over the same period
last year. Loans held for sale at June 30, 1998 were $410.1 million or 60.2% of
total loan production for Flagship during the first six months of 1998. A
majority of the expenses associated with that increased loan production was
charged to operations during the first half of 1998. Any revenues associated
with loans held for sale will not be recognized until the quarters in which such
loans are sold.
COMPARISON OF BALANCE SHEETS AT JUNE 30, 1998 AND DECEMBER 31, 1997
Overview
Total assets were $2.2 billion at June 30, 1998, compared to $1.6 billion
at December 31, 1997, an increase of $602.6 million or 38.8%. This increase
included $155.6 million in assets from the acquisition of the NationsBank
Florida Branches in June 1998. Also, during the second quarter of 1998,
Bancshares completed a public offering of 2,642,150 shares of Bancshares Common
Stock, realizing net proceeds of $72.9 million, which provided the capital
necessary to support Bancshares' 1998 acquisitions. On June 25, 1998, Bancshares
completed a private placement of $240.0 million of securities backed by $240.0
million of High LTV Loans.
Trading Assets
Bancshares records all mortgage-related securities resulting from
securitization of Bancshares' loans held for sale as trading assets. In the June
Securitization, Bancshares retained a $12.0 million subordinate tranche of the
securities from the securitization and the residual interest in cash flows. All
of the assets retained from the June Securitization have been recorded as
trading assets at their fair value. 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 prepayment
rate resulting in an average expected life of the pool of loans of 4.2 years.
Management reviews the fair value determination of its trading assets quarterly
and any valuation adjustments are reflected in current period results of
operations.
Loans and Loans Held for Sale
Total loans held in portfolio increased $225.1 million from $1.1 billion at
the prior year-end to $1.4 billion at June 30, 1998. A $114.4 million portion of
the increase was attributable to loans purchased in Bancshares' acquisition of
the NationsBank Florida Branches. Real estate-secured loans increased during the
period by $203.4 million to $1.3 billion or 93.8% of total portfolio loans.
Loans held for sale increased by $258.7 million to $410.1 million, with
residential loans secured by first liens increasing by $169.2 million to $270.7
million and High LTV Loans increasing by $88.1 million to $135.2 million.
Allowance for Loan Losses
The allowance for loan losses amounted to $20.3 million (1.5% of portfolio
loans) at June 30, 1998, compared with $20.8 million (1.8% of portfolio loans)
at December 31, 1997. At June 30, 1998, the allowance for loan losses included
$14.4 million allocated to loans originated by Bancshares, $2.4 million
allocated to the loans in a March 1995 bulk purchase, $951,000 allocated to the
loans in a July 1997 bulk purchase, $942,000 allocated to the CrossLand loan
portfolio and $1.6 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 Bancshares' Consolidated Financial
Statements included elsewhere herein. Other activity relating to the allowance
in 1998 included provisions for loan losses of $1.5 million, part of which was a
$0.5 million charge to provision for the originated portfolio, offset by the
transfer of allowances from the March 1995 bulk loan purchase to loan discount
of $1.0 million. Loan charge-offs (net of recoveries) were $964,000.
13
<PAGE> 23
Nonperforming Assets
Nonperforming assets amounted to $38.5 million or 1.79% of total assets at
June 30, 1998, compared with $34.2 million or 2.20% of total assets at December
31, 1997. Nonperforming loans totaled $29.3 million at June 30, 1998, an
increase of $3.5 million from the prior year-end total of $25.8 million. This
was primarily due to a $5.2 million increase in nonperforming residential loans.
Commercial real estate loans and commercial (business) nonperforming loans
decreased by $1.5 million. ORE balances were generally unchanged.
Stockholders' Equity
Stockholders' equity was $170.3 million at June 30, 1998, or 7.90% of total
assets, compared to $95.5 million or 6.15% of total assets at December 31, 1997.
At June 30, 1998, Republic's tier 1 ("leverage") capital ratio was 7.33%, its
tier 1 risk-based capital ratio was 9.40%, and its total risk-based capital
ratio was 10.49%, all in excess of minimum FDIC capital guidelines for an
institution to be considered a "well-capitalized" bank. Bancshares' tier 1
("leverage") ratio, tier 1 risk-based capital ratio and total risk-based capital
ratios were 7.55%, 9.66%, and 10.76%, respectively. In May 1998, Bancshares
completed a public offering of 2,642,150 shares of Bancshares 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.
REPUBLIC NATIONAL BANK OF MIAMI V. REPUBLIC BANK
On August 7, 1998, Republic National Bank of Miami brought an action
against Republic in the United States District Court for the Southern District
of Florida seeking to enjoin Republic from using the term "REPUBLIC" or
"REPUBLIC BANK" in connection with any business that Republic conducts in the
State of Florida. Given Republic'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", Bancshares believes the lawsuit filed by Republic
National Bank of Miami to be entirely without merit and intends to defend itself
vigorously in any ensuing litigation.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE> 24
RISK FACTORS
BSB STOCKHOLDERS SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE OTHER
INFORMATION CONTAINED AND INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS, THE FOLLOWING FACTORS IN EVALUATING BANCSHARES BEFORE
DECIDING HOW TO VOTE ON THE PROPOSALS CONTAINED HEREIN. CERTAIN OF THESE FACTORS
ARE DISCUSSED IN MORE DETAIL ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS,
INCLUDING, WITHOUT LIMITATION, UNDER THE CAPTIONS "SUMMARY," "DESCRIPTION OF THE
TRANSACTION," "CERTAIN INFORMATION CONCERNING BANCSHARES" AND "CERTAIN
INFORMATION CONCERNING BSB." BSB STOCKHOLDERS SHOULD ALSO NOTE, IN PARTICULAR,
THAT THIS PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT, AND SECTION 21E OF THE
EXCHANGE ACT, THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. WHEN USED IN
THIS PROXY STATEMENT/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 BANCSHARES 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 BANCSHARES. 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 BANCSHARES TO A GREATER EXTENT THAN INDICATED.
THE EXCHANGE RATIO; POSSIBLE CHANGES IN STOCK PRICE
The Exchange Ratio formula set forth in the Agreement is dependent upon a
number of factors such as the price of Bancshares Common Stock and conditions in
the commercial real estate markets, that are, to a large extent, beyond the
control of Bancshares and BSB. The Average Price of Bancshares Common Stock at
the Effective Time may vary from the Average Price at the date of this Proxy
Statement/Prospectus and at the date of the Special Meeting, possibly by a
material amount. Such variations may be the result of changes in the business,
operations or prospects of Bancshares, market assessments of the likelihood that
the Merger will be consummated and the timing thereof, regulatory
considerations, general market and economic conditions, factors affecting the
banking industry in general and other factors. Because the Effective Time will
occur at a date later than the Special Meeting, there can be no assurance that
the price of Bancshares Common Stock on the date of the Special Meeting will be
indicative of its price at the Effective Time.
The value of the Bancshares Common Stock to be exchanged in the Merger will
be based primarily on a multiple of BSB's adjusted equity, but the Market Value
averaging mechanism in the Exchange Ratio formula could have a significant
impact on the total amount of consideration that BSB stockholders will receive
in the transaction. To the extent that the Average Price of Bancshares Common
Stock is higher than $27.50 a share at the Closing, the Exchange Ratio will be a
smaller factor; however, Bancshares will issue shares having a higher aggregate
fair market value than if the Market Value were to equal the average closing
price. Conversely, because there is no floor stock price below which BSB would
have the ability to terminate the Agreement, a significant decline in the
Average Price of Bancshares Common Stock below $22.50 a share could cause BSB
stockholders to receive much less total consideration.
15
<PAGE> 25
By way of illustration, if the Average Price of Bancshares Common Stock was
$25.00 per share and the BSB Per Share Value was $12.83 at the Effective Time,
the Market Value would also be $25.00 and the Exchange Ratio would be $12.83
divided by $25.00, or 0.5132. Based on the 705,333 shares of BSB Common Stock
outstanding as of June 30, 1998, BSB stockholders in that situation would
receive 361,977 shares of Bancshares Common Stock that would be worth in market
value terms 361,977 times $25.00, or $9,049,425. Lower Average Prices of
Bancshares Common Stock, while increasing the Exchange Ratio and the number of
shares of Bancshares Common Stock received by BSB stockholders in the Merger,
would reduce the aggregate value of those shares, as follows:
<TABLE>
<CAPTION>
EXCHANGE RATIO SHARES OF TOTAL
AVERAGE PRICE OF MARKET VALUE OF (ASSUMING A $12.83 BANCSHARES CONSIDERATION
BANCSHARES BANCSHARES BSB PER SHARE COMMON STOCK RECEIVED BY BSB
COMMON STOCK COMMON STOCK VALUE) ISSUED STOCKHOLDERS
- ---------------- --------------- ------------------ ------------ ---------------
<S> <C> <C> <C> <C>
$25.00 $25.00 0.5132 361,977 $9,049,425
$22.00 $23.50 0.5460 385,085 $8,471,870
$18.00 $21.50 0.5967 420,907 $7,576,326
$15.00 $20.00 0.6415 452,471 $6,787,067
</TABLE>
The Effective Time will occur as soon as practicable following the Special
Meeting and the satisfaction or waiver of the conditions set forth in the
Agreement. Stockholders of BSB are urged to obtain current market quotations for
Bancshares Common Stock. See "Comparative Market Prices of Common Stock" and
"Comparative Per Share Data."
BENEFITS ACCRUING TO MANAGEMENT OF BSB
The Agreement generally provides that Bancshares will, to the full extent
provided by Florida law and the OTS Regulations and by BSB's Charter and
By-laws, indemnify, defend and hold harmless the present and former directors,
officers, employees and agents of BSB or any of its subsidiaries against all
liabilities arising out of actions or omissions occurring at or prior to the
Effective Time.
The Agreement also provides that, after the Effective Time, Bancshares will
provide generally to officers and employees of BSB and its subsidiaries who
become officers or employees of Bancshares or its subsidiaries employee benefits
under employee benefit plans on terms and conditions that, taken as a whole, are
substantially similar to those currently provided by Bancshares and its
subsidiaries to their similarly situated officers and employees. For purposes of
participation and vesting (but not benefit accrual) under such employee benefit
plans, service with BSB or its subsidiaries prior to the Effective time will be
treated as service with Bancshares or its subsidiaries. The Agreement further
provides that Bancshares will cause BSB to honor all provisions for vested
amounts earned or accrued through the Effective Time under BSB's benefit plans.
In addition, certain directors and officers of BSB will receive
compensation upon the consummation of the Merger pursuant to several Change of
Control agreements. Octavio Hernandez, the President, Chief Executive Officer
and a director of BSB, will receive twelve months' compensation upon the
consummation of the Merger. The compensation to be received by Mr. Hernandez
under the terms of this change of control provision includes his annual salary,
car allowance, bonus paid during the previous year, unused vacation time and 12
months medical and dental insurance benefit. In addition, Mr. Hernandez will
receive a bonus equal to 10% of the after-tax profits of BSB for the current
year.
Additionally, Dennis Dill, the current Senior Vice President and Chief
Financial Officer, Abel V. Montuori, the current Vice President of Commercial
Lending, Enid B. Cline, the current Vice President of Mortgage Loan
Administration, Ron Lunger, the current Vice President and Controller, Margaret
Simpson, the current Vice President and Branch Manager and Rosa Mejia, the
current Human Resources Director will be entitled to receive a six-month salary
continuation and six months medical and dental insurance benefit in the event of
a change of control of BSB.
The Agreement also provides that all rights with respect to BSB Common
Stock pursuant to stock options granted by BSB under its stock option plans that
are outstanding at the Effective Time, whether or not
16
<PAGE> 26
then exercisable, will be converted into and will become options with respect to
Bancshares Common Stock, and Republic will assume each of such options in
accordance with its terms and the Exchange Ratio in the Agreement. See
"Description of the Transaction -- Treatment of BSB Options."
SECURITIES ARE NOT INSURED
The shares of Bancshares Common Stock to be issued to BSB stockholders upon
consummation of the Merger are not insured by the Bank Insurance Fund ("BIF"),
the Savings Association Insurance Fund ("SAIF") or the FDIC or by any other
insurer or government agency.
CURRENT ACQUISITIONS AND ABILITY TO MANAGE GROWTH AND INTEGRATE OPERATIONS
Since the Change in Control, Bancshares has rapidly expanded its operations
through acquisitions, loan purchases, the opening of LPOs and de novo branches
and the establishment of Flagship, its mortgage banking division. It is possible
that Bancshares may encounter unforeseen difficulties and complications in
integrating expanded operations and new employees, resulting in the disruption
of overall operations. In addition, such rapid growth may adversely affect
Bancshares' operating results because of many factors, including unforeseen
start-up costs, diversion of management resources, deterioration of asset
quality and required operating adjustments. There can be no assurance that
Bancshares will successfully achieve the anticipated benefits of its growth or
expanded operations.
In connection with its acquisitions of NationsBank and Dime branches, and
following consummation of the Proposed Mergers, Bancshares may encounter
unanticipated operational or organizational difficulties. The successful
integration of the recent branch acquisitions and the Proposed Mergers and
acquisitions has and/or will require, among other things, consolidation of
certain operations, elimination of duplicative corporate and administrative
expense, elimination of certain positions and the chartering by Bancshares of
the Savings Bank, which operates the Georgia Branch. There can be no assurance
that integration will be accomplished effectively or in a timely manner.
Additionally, there can be no assurance that the branches purchased in the
recent branch acquisitions and the Proposed Mergers will be able to retain
existing customers or deposits. In addition, the integration of certain
operations following the recent branch acquisitions and the Proposed Mergers
will require the dedication of management resources, which may temporarily
distract attention from the day-to-day business of Bancshares. Failure to
accomplish effectively the integration of operations could have a material
adverse effect on Bancshares' regulatory capital, business, financial condition
and results of operations following the Proposed Mergers. See "Certain
Information Concerning Bancshares -- Recent and Proposed Acquisitions."
IMPACT OF CHANGES IN REAL ESTATE VALUES
A significant portion of Bancshares' loan portfolio consists of residential
mortgage loans and commercial real estate loans. At June 30, 1998, 53.55% of
Bancshares' loans were secured by one-to-four family residential real estate,
30.67% were secured by commercial and multifamily residential real estate and
6.17% were real estate-secured construction loans, and Bancshares had ORE with a
book value of $6.9 million, or 0.32% of assets. Further, a substantial portion
of the properties securing Bancshares' loans are located 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,
demographic trends and acts of nature. Any decline in real estate prices,
particularly in Florida, could significantly reduce the value of the real estate
collateral securing Bancshares' loans, increase the level of Bancshares'
nonperforming loans, require write-downs in the book value of its ORE, and have
a material adverse effect on Bancshares' regulatory capital, business, financial
condition and results of operations.
In recent years, Bancshares has increased its level of construction and
commercial real estate loans, which are generally considered to involve a higher
degree of credit risk than that for one-to-four family residential mortgage
loans. Further, Bancshares' retention of High LTV Loans in anticipation of later
sale or securitization, increases its credit risk and vulnerability to changes
in real estate values.
17
<PAGE> 27
DEPENDENCE ON EXISTING MANAGEMENT
Bancshares' ability to operate as a profitable enterprise has depended, and
will continue to depend in large part, upon the management and banking abilities
of Bancshares' senior management, including John W. Sapanski, the Chairman,
Chief Executive Officer and President of Bancshares and Republic. Bancshares
does not currently have a Chief Operating Officer. If, for any reason, the
services of Mr. Sapanski were to become unavailable to Bancshares, such event
would likely have an adverse impact upon the future results of operations of
Bancshares in light of Mr. Sapanski's experience and reputation in the banking
industry, his stature within Bancshares, his extensive knowledge of and
familiarity with Bancshares' operations, and the critical role played by Mr.
Sapanski within Bancshares. Mr. Sapanski is 67 years old. Neither Bancshares nor
Republic maintains a key man life insurance policy for Mr. Sapanski.
Additionally, neither Mr. Sapanski nor any other member of senior management has
an employment or noncompetition agreement with Bancshares.
Bancshares believes that its results will also depend in part upon its
ability to attract and retain highly skilled and qualified management, sales and
marketing personnel. Competition for such personnel is intense, and there can be
no assurance that Bancshares will be successful in attracting and retaining such
personnel. Departures and additions of key personnel may be disruptive to
Bancshares' business and could have a material adverse effect on Bancshares'
business, financial condition and results of operations.
INCREASED EMPHASIS ON MORTGAGE BANKING ACTIVITIES AND HIGH LTV LOANS
In 1996, Bancshares began its emphasis on mortgage banking, both as the
primary focus of its residential mortgage lending activities and as the key
business strategy to increase substantially its levels of non-interest income.
As a result, Bancshares' mortgage banking operations represented approximately
9.8% of Bancshares' assets at year-end 1997 and 17.5% of its pre-tax profits in
1997. Bancshares continues to devote significant resources and to incur
significant expenses operating Flagship and expanding its mortgage loan
origination and purchase capabilities.
Mortgage banking is fundamentally different from other traditional kinds of
real estate-secured residential and commercial lending in that substantially all
of the mortgage loans directly originated or purchased from mortgage brokers are
re-sold into the secondary market instead of being held in portfolio until
maturity. Such sales may take the form of either whole loan sales or
securitizations. While indirect loan production costs are expensed in the period
when incurred, revenues other than mortgage loan servicing fees, if any, are
only recognized when and to the extent that the originated loans are
subsequently sold.
Approximately 50.0% of the dollar amount of mortgage loans originated or
purchased by Flagship in 1997 were High LTV Loans made to borrowers who may have
had historical credit problems but are now considered by Bancshares to be
acceptable credit risks. These borrowers generally have little or no equity in
their homes. Because High LTV Loans generally pose a higher credit risk to the
lender, they normally carry significantly higher interest rates and origination
fees than conventional mortgage loans. Moreover, overhead and origination costs
incurred by Flagship are substantially higher on a per loan basis than the costs
incurred in Bancshares' other lending operations due to the nationwide scope of
Flagship's mortgage banking activities and the substantial amount of
advertising, direct mail and other marketing expenses that it incurs.
In a securitization of High LTV Loans, an entity such as a trust or special
purpose corporation is typically organized to purchase directly or through an
intermediate conduit a pool of mortgage loans from the financial institution.
The entity funds its purchase of the loans by selling tiered levels or
"tranches" of debt securities that entitle the holders to receive, in order of
priority, payments at a set percentage rate until all principal is repaid.
Payments are made to the debt holders out of the entity's collection of interest
payments and principal repayments on the loans. Because there is generally no
recourse to the financial institution in a securitization transaction,
third-party investors typically require "overcollateralization" such that the
principal amount of the loans in the pool exceeds the total amount of
indebtedness issued by the entity. The selling financial institution may retain
a subordinated debt interest in the pool of securitized High LTV Loans as well
as an "interest-only," "principal-only" or other type of residual interest in
the pool. Any such interest retained by the financial institution will be valued
in accordance with SFAS No. 125.
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Certain aspects of Bancshares' mortgage banking that distinguish it from
other traditional forms of lending pose risks that are unique to this type of
business. Set forth below are certain risks to Bancshares associated with
Flagship's mortgage banking activities:
Dependence on Origination and Purchase of Mortgage Loans
The future profitability of Flagship's mortgage banking operations will
depend upon the extent to which Bancshares is able to originate and/or purchase
and sell and/or securitize High LTV Loans and other mortgage loans. Bancshares'
ability to do so is affected by a number of factors beyond its control,
including general economic conditions, conditions and values in residential real
estate markets, interest rates, competition and changes in applicable regulatory
requirements. For example, periods of economic slowdown or recession and high
interest rates may be accompanied by decreased demand for consumer credit and
declining real estate and other asset values. Any material decline in real
estate values, in turn, reduces the ability of borrowers to use home equity to
support borrowings. Moreover, the OTS recently issued regulatory guidelines in
which it warned of the risks involved in making High LTV Loans. While Flagship
is not subject to OTS regulation and the agency's guidelines arguably would not
apply in any event due to Bancshares' practice of selling or securitizing
substantially all of its High LTV Loan production, it is possible that the FDIC
could act in the future to limit or restrict Flagship's High LTV Loan
origination activities.
Bancshares' ability to originate and purchase mortgage loans will also
depend upon its own financial condition. In this regard, Flagship's mortgage
loan production could be constrained or sharply limited if Bancshares were to
lack sufficient regulatory capital or liquidity to support Flagship's
operations. Bancshares' regulatory capital and liquidity position, in turn, will
be substantially affected by its mortgage loan sales and securitization
activities and the extent to which it retains subordinated and residual
interests in packages of securitized loans. If, for whatever reason, Bancshares
is unable to sell or securitize mortgage loans in an efficient manner and on a
timely basis, or finds it necessary to retain a larger-than-anticipated
subordinated and residual interest in loans that are securitized, Flagship's
future loan origination and purchase activities could be significantly impaired
and financial results could be adversely affected.
As a result, in part, of Flagship's expanded mortgage banking activities
during the first half of 1998, the level of Bancshares' liquid assets, as well
as the amount of funds available for borrowing from the FHLB, have declined. As
of June 30, 1998, Bancshares had $125 million in advances from and $225 million
remaining on its $350 million credit line with the FHLB, as compared to $35
million and $215 million, respectively, at December 31, 1997. At the same time,
(i) the recent growth in Bancshares' asset size and loan production costs
attributable to Flagship's operations and (ii) Bancshares' recent loan
securitizations, in which it has retained both subordinated and residual
interests, have significantly increased Bancshares' regulatory capital
requirements. As of December 31, 1997, it was necessary for Bancshares to have
at least $73 million in total capital in order to qualify as a "well-capitalized
institution" for regulatory purposes. (Bancshares' actual total capital at
year-end 1997 was $101 million.) By June 30, 1998, Bancshares' minimum
regulatory capital requirements had increased to $145 million, as compared to
its actual total capital of $159 million. The combined effect of these two
factors is such that Bancshares' current capital and liquidity levels will not
be able to support a continuation of Flagship's present rate of growth or future
securitization transactions in which Bancshares retains a substantial
subordinate and/or residual interest. Among the options that Bancshares is
currently considering are: disposition of Flagship's loan production exclusively
through whole loan sales or securitizations in which Bancshares retains no
interest; a reduction in the current growth rate of Flagship's mortgage
origination operations; future capital- and liquidity-raising transactions,
including additional FHLB borrowings; and/or disposition by Bancshares of all or
a portion of its equity interest in Flagship such that Flagship's operations are
no longer consolidated with those of Bancshares.
Should events arise in the future that prevent or otherwise adversely
affect Flagship's ability to originate or purchase mortgage loans, sales and
securitizations of loans, gains derived therefrom and revenues from Bancshares'
servicing of securitized loans will be reduced accordingly. Moreover, since
Bancshares would continue to incur ongoing expenses associated with its mortgage
banking activities during such a period, Bancshares' diminished revenues from
Flagship may not be sufficient to offset the expenses (primarily, salary,
occupancy, advertising and mailing costs) associated with Flagship's operations,
causing Bancshares to incur
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operating losses therefrom. In addition, if Flagship's loan origination and
purchase activities are reduced or eliminated, Bancshares may not be able to
recover its investment in Flagship.
Dependence on Loan Securitizations and Sales and Mismatch of Expenses and
Sales
Mortgage loans originated and purchased by Flagship are generally sold as
whole loans or securitized as market conditions permit. While a majority of the
expenses associated with loan origination and production are charged to
operations as they are incurred, any offsetting revenues are not recognized
until the periods in which such loans are sold or securitized. A significantly
greater volume of loan originations than sales in a particular period, either
due to growth in Flagship's loan production or reduced loan sales, could cause a
mismatch of expenses and revenues that would render Flagship's operations
unprofitable and, in turn, adversely affect Bancshares' financial results. In
the second quarter of 1998, Bancshares originated substantially more mortgage
loans than it was able to sell in its June 1998 securitization. Although
Bancshares did recognize a gain on the sale of loans that were securitized,
these revenues were not sufficient to offset the approximately $10.8 million of
indirect loan production costs that were incurred with respect to loans that had
not been sold by quarter end. The combination of these factors contributed to
the net loss reported by Bancshares during the second quarter. To the extent
that Flagship's future loan production costs exceed or increase more rapidly
than future loan sales, a similar mismatch in the timing and relative levels of
revenues and expenses could result.
Several factors affect (i) Bancshares' ability to complete and (ii) the
timing of loan sales or securitizations, including general economic conditions,
conditions in the securities markets and secondary mortgage markets generally,
conditions in the asset-based securities market specifically, perceptions of the
credit quality of the mortgage loans Bancshares offers for sale or
securitization, changes in interest rates and the effect of such factors as
mortgage loan refinancings, delinquencies, defaults and foreclosures. If
Bancshares fails to securitize or sell a sufficient number of loans in a
particular financial reporting period at or near its historical profit levels
for such sales, Bancshares' gain on sale of loans and other related income may
not offset Flagship's overhead and origination costs, particularly the costs
associated with originating High LTV Loans, resulting in Bancshares reporting
lower net income or a net loss for such period. Bancshares' costs and risks
associated with carrying its loans, including hedging costs, interest rate risk
and credit risk could also increase if loan sales or securitizations fail to
occur or are delayed. The ability of Bancshares to sell or securitize loans in
the secondary market is essential for the continuation of Flagship's mortgage
banking activities, and any event adversely affecting Bancshares' ability to
complete securitizations or loan sales on a regular basis could have a material
adverse effect on Bancshares' regulatory capital, business, financial condition
and results of operations.
Valuation of Capitalized Excess Interest-Only Spread and Mortgage Related
Securities
At June 30, 1998, Bancshares' statement of financial condition reflected an
excess interest-only spread of $2.7 million, mortgage-related securities of
$15.5 million, which resulted from the securitizations of Bancshares' loan
production, and a residual interest in the cash flows from the securitizations
valued at $17.3 million. Bancshares derives an increasingly larger portion of
its income by realizing gains upon the sale of loans due to the excess
interest-only spread associated with such loans recorded at the time of sale and
the capitalization of mortgage servicing rights recorded at sale. Excess
interest-only spread as capitalized on Bancshares' statement of financial
condition represents the present value of the excess of the interest rate
payable by an obligor on a loan over the interest rate passed through to the
purchaser acquiring an interest in such loan, less Bancshares' contracted
servicing fee and other applicable recurring fees.
Bancshares records gains on sale of loans through securitizations and whole
loan sales based in part on the estimated fair value of the mortgage-related
securities (residual interest and interest-only spread) retained by Bancshares
and on the estimated fair value of retained mortgage servicing rights related to
such loans. When loans are sold, Bancshares recognizes as a gain the present
value of the excess cash flow expected to be realized after the payment of all
principal and interest to the security holders. These present values are
computed using prepayment, default and interest rate assumptions that Bancshares
believes are reasonable. The amount of gain recognized upon the sale of loans
will vary depending on the assumptions utilized. The
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weighted average discount rate used to determine the present value of the excess
cash flows reflected on Bancshares' statement of financial condition at June 30,
1998 was approximately 15.0%.
Although Bancshares believes that it has made reasonable estimates of the
fair values of the residual interest, mortgage servicing rights and excess
interest-only spread likely to be realized, the rate of prepayment and the
amount of defaults utilized by Bancshares are estimates and actual experience
may vary from its estimates. Bancshares periodically reviews its prepayment and
default assumptions in relation to current rates of prepayment and default and,
if necessary, reduces the remaining excess interest-only spread, residual
interest and mortgage servicing rights assets to the net present value of the
estimated remaining future net cash flows, resulting in a charge to earnings in
the period of adjustment.
Increases in interest rates, competitive pressures, higher than anticipated
rates of loan prepayments or credit losses on the underlying loans in a
securitization could result in a reduction in the estimated value of Bancshares'
residual interest, mortgage servicing rights and excess interest-only spread and
may require Bancshares to write down the value of these assets, which in turn
could have a material adverse impact on Bancshares' results of operations and
financial condition. Bancshares is not aware of any active market for
Bancshares' residual interest, mortgage servicing rights and excess
interest-only spread. No assurance can be given that the residual interest,
mortgage servicing rights and excess interest-only spread could in fact be sold
at their carrying value, if at all.
Contingent Risks Relating to Bancshares' Beneficial Interest in the Loans
Although Bancshares intends to sell or securitize substantially all High
LTV Loans and other residential mortgage loans that Flagship originates or
purchases, Bancshares retains some degree of risk on most of these mortgage
loans. During the period of time that loans are held pending sale or
securitization, Bancshares is subject to the various business risks associated
with lending, including the risk of borrower delinquency, default or loss and
the risk that an increase in interest rates would reduce the value of loans to
potential purchasers. In May 1998, Bancshares recorded a pre-tax charge against
earnings of $252,000 for an equivalent principal amount of High LTV Loans held
for sale that had been delinquent 90 days or more at March 31, 1998.
Although whole loans are sold on a non-recourse basis, Bancshares continues
to be subject to the risks of delinquency, default and loss following the
securitization of mortgage loans. The agreements governing Bancshares'
securitizations generally require the initial principal amount of the pool of
mortgage loans that is securitized to exceed the aggregate principal amount of
the senior interests sold to third-party investors. Thereafter, the trustee of
the securitization is required to maintain over-collateralization levels through
retention of cash otherwise payable to the interest-only spread and residual
interest owners. Such excess amounts serve as credit enhancement for the related
senior interests and are available to fund losses realized on loans in the pool.
Because the residual interest in the pool retained by Bancshares is subordinated
to the senior interests in the loans purchased by third-party investors,
Bancshares continues to have a first-loss exposure with respect to the loans to
the extent of the overcollateralization amount. Bancshares also continues to be
subject to the risks of delinquency, default and loss insofar as interest-only
spread distributions are reduced by loan losses. In addition, its whole loan
sales and securitization agreements require Bancshares to commit to repurchase
or replace loans that do not conform to the representations and warranties made
by Bancshares at the time of transfer. In May 1998, a private investor that had
purchased from Bancshares $36.1 million of subprime loans put back $20.1 million
of the loans that did not satisfy the investor's pre-established purchase
criteria. It is possible that in the future Bancshares may be required to
repurchase or replace loans previously sold or securitized. Any higher than
expected loan losses or repurchases could have a material adverse effect on
Bancshares' regulatory capital, business, financial condition and results of
operation.
Loss of Right to Service Securitized Loans
The agreements entered into in connection with Bancshares' securitization
of High LTV Loans generally set forth certain conditions under which the insurer
or the trustee of the loan securitization can terminate Bancshares' right to act
as servicer. If, at any measuring date, the loss and delinquency performance of
the
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mortgage loans in a particular pool of loans exceeds certain levels, servicing
rights may be terminated. Bancshares' servicing rights can also be terminated
with respect to a loan securitization (i) if Bancshares were to breach its
obligations under the related servicing agreement, (ii) if losses on
foreclosures of loans included in the pool were to exceed specified limits,
(iii) if the insurer were required to make payments under its policy, or (iv) if
Bancshares failed to meet certain financial tests, including a minimum net worth
test. It is possible that Bancshares' servicing rights with respect to mortgage
loans included in any securitization may be terminated in the future. In
addition, if any loan included in a securitization is prepaid, Bancshares will
no longer be entitled to loan servicing fees with respect to such loan. Any
termination or reduction of Bancshares' right to act as servicer with respect to
securitized loans would result in a loss of servicing revenue and could
adversely affect its ability to participate in future securitizations.
Borrowers With Limited Home Equity
In the High LTV Loan market and certain other markets, Bancshares targets
borrowers with little equity in their homes. Loans made to such borrowers may
entail a higher risk of delinquency, default and loss than other types of
mortgage loans due to their substantially unsecured nature. While Bancshares
believes that the underwriting policies and collection methods it employs enable
it to control the higher risks inherent in High LTV Loans, no assurance can be
given that such criteria or methods will afford adequate protection against such
risks. Additionally, because of Bancshares' recent entrance into the High LTV
Loan market, there is limited performance history on which to base various
assumptions by Bancshares with respect to defaults and prepayments of such
loans. If loans originated or purchased by Bancshares experience higher
delinquencies, defaults or losses than anticipated, Bancshares' regulatory
capital, business, financial condition or results of operation could be
adversely affected.
Risks Relating to Growth Strategy
Bancshares' strategic plan contemplates the continued expansion of its
Flagship operations. Bancshares' implementation of its expansion strategy
depends on its ability to increase the volume of loans it originates and
purchases while maintaining credit quality and managing its resulting growth.
Bancshares' ability to increase its loan production will depend on, among other
factors, its ability to (i) obtain and maintain increasingly larger amounts of
funding and liquidity in the form of federally-insured deposits, FHLB advances
and other borrowings and proceeds from loan sales and securitizations, (ii)
effectively sell or securitize pools of loans that it originates, (iii) offer
attractive products to prospective borrowers, (iv) attract and retain qualified
underwriting, servicing and other personnel, (v) market its loan products
successfully and (vi) establish and maintain relationships with correspondents
and mortgage brokers in states in which Bancshares is currently active and in
additional states. Bancshares' ability to manage growth as it pursues its
Flagship expansion strategy will be dependent upon, among other things, its
ability to (i) maintain appropriate procedures, policies and systems to ensure
that Bancshares' loan portfolio does not have an unacceptable level of credit
risk and loss, (ii) satisfy its need for additional capital, funding and
liquidity on reasonable terms, (iii) manage the costs associated with expanding
its infrastructure, (iv) retain key personnel and (v) continue operating in
competitive, economic, regulatory and judicial environments that are conducive
to Bancshares' business activities. There can be no assurance that Bancshares
will be able to expand Flagship's mortgage lending operations successfully.
Possible Adjustment of Compensation Levels of Mortgage Banking Personnel
As a Florida-chartered commercial bank, Republic is subject to the
regulatory oversight, examination and supervision of both the FDIC and the
Department. As part of their regular examinations of Republic, the FDIC and the
Department review, among other things, the compensation arrangements for
Republic's executive officers and other employees to ensure that they are
commensurate with such employees' responsibilities and duties performed, and
that Republic's overall compensation levels are consistent with such levels at
other similarly-sized financial institutions.
The FDIC has recently expressed its concerns to Republic regarding the high
levels of compensation being received by the executive officers and certain
employees of Republic's Flagship mortgage banking
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division in relation to Republic's earnings. In response, Republic's Board of
Directors has reviewed and analyzed the current compensation arrangements for
its mortgage banking personnel and, to the extent deemed appropriate, made
adjustments in such compensation. It is possible that the personnel affected may
pursue employment opportunities with other mortgage lenders or companies that
are not regulated as extensively as Republic, given that such other entities
would not be subject to the same degree of compensation constraints as those
that prevail in a highly regulated industry such as banking.
Republic is not currently aware of any plans that any of its mortgage
banking staff may have to seek other employment. However, no assurance can be
given that the executive officers or other employees of its mortgage banking
division will not leave Republic or that any such departure would not have a
material adverse effect on Republic's mortgage banking activities or its
financial condition and earnings. In addition, if Flagship's loan origination
and purchase activities are reduced or eliminated as a result of such
departures, Bancshares may not be able to recover its investment in Flagship.
Competition
The home equity loan market, and particularly the High LTV Loan market, is
highly competitive. Bancshares faces competition from commercial banks, savings
and loan associations, consumer finance lenders, mortgage lenders and mortgage
brokers. Many of these competitors and potential competitors are substantially
larger, have more capital and other resources and have lower cost structures
than Bancshares. Competition can take many forms, including convenience in
obtaining a loan, customer service, marketing and distribution channels and
interest rates charged to borrowers. In addition, the current level of gains
realized by Bancshares and its competitors on High LTV Loans could attract
additional competitors into this market, with the possible effect of lowering
the interest rates and origination fees that Bancshares can charge borrowers as
well as gains that may be realized on Bancshares' future loan sales. To the
extent that existing competitors significantly expand their operations or new
competitors enter this segment of the mortgage lending market, Bancshares'
results of operations and financial condition could be materially adversely
affected.
Nonperforming Assets
At the time of the Change in Control, Republic had a relatively high ratio
of nonperforming assets to total assets. In addition, Bancshares has purchased,
at a discount, certain loans that it placed in nonperforming status shortly
after purchase. Although Bancshares has reduced its nonperforming assets ratio
from 5.66% at year-end 1993 to 1.79% at June 30, 1998, its current level of
nonperforming assets is still significantly above 0.95%, which is the average
level for all commercial banks with assets between $1.0 billion and $3.0
billion, according to the most recently available data from the Uniform
Performance Banking Report issued by federal bank regulators. There is no
assurance that this ratio will continue to decline, particularly if general
economic conditions or Florida real estate values deteriorate.
Adequacy of Loan Loss Allowance
Industry experience indicates that a portion of Bancshares' loans will
become delinquent and will be partially or completely charged-off. Regardless of
the underwriting criteria utilized by Bancshares, losses may be experienced as a
result of various factors beyond Bancshares' control, including, among other
things, changes in market conditions affecting the value of properties and
problems affecting the credit of the borrower. Bancshares' determination of the
adequacy of its allowance for loan losses is based on various considerations,
including an analysis of the risk characteristics of various classifications of
loans, previous loan loss experience, specific loans that would have loan loss
potential, delinquency trends, the estimated fair market value of the underlying
collateral, current economic conditions, the view of Bancshares' regulators, and
geographic and industry loan concentration. However, if delinquency levels were
to increase as a result of adverse general economic conditions, especially in
Florida where Bancshares' exposure is greatest, the loan loss allowance so
determined by Bancshares may not be adequate. A substantial portion of
Bancshares' loan loss allowances are allocated to specific portfolios or pools
of loans purchased by Bancshares. Accordingly, such allocations would not be
available to cover losses related to originated loans or other purchased loans.
To the extent that losses in certain pools or portfolios of loans exceed the
loan loss allowances and unamortized
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loan discount allocated to such pool or portfolio, or available as a general
reserve, Bancshares' results of operations would be adversely affected. There
can be no assurance that Bancshares' allowance for loan losses will be adequate
to cover its future loan losses or that Bancshares will not experience
significant losses in its loan portfolios that may require significant increases
to the allowance for loan losses in the future. Additionally, Bancshares' policy
is to record its loans held for sale at the lower of cost or market.
Accordingly, no allowances are allocated to loans that are held for sale or
securitization.
Potential Impact of Changes in Interest Rates
Bancshares' 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. Bancshares, like most financial institutions, is affected by
changes in general interest rate levels, which are currently relatively low, and
by other economic factors beyond its control. Interest rate risk arises from
mismatches (i.e., the interest rate sensitivity gap) between the dollar amount
of repricing or maturing assets and liabilities, and is measured in terms of the
ratio of the interest rate sensitivity gap to total assets. More assets
repricing or maturing than liabilities over a given time frame is considered
asset-sensitive and is reflected as a positive gap, and more liabilities
repricing or maturing than assets over a given time frame is considered
liability-sensitive and is reflected as a negative gap. An asset-sensitive
position (i.e., a positive gap) will generally enhance earnings in a rising
interest rate environment and will negatively impact earnings in a falling
interest rate environment, while a liability-sensitive position (i.e., a
negative gap) will generally enhance earnings in a falling interest rate
environment and negatively impact earnings in a rising interest rate
environment. Fluctuations in interest rates are not predictable or controllable.
Bancshares has attempted to structure its asset and liability management
strategies to mitigate the impact on net interest income of changes in market
interest rates. Bancshares believes that, based on certain assumptions and
experience, its one-year cumulative gap was positive at December 31, 1997.
Regulatory Oversight
Republic is subject to extensive regulation, supervision and examination by
the Department as its chartering authority and primary regulator, and by the
FDIC as its federal regulator and administrator of the insurance fund that
insures Republic's deposits up to applicable limits. Republic is a member of the
FHLB and is subject to certain limited regulation by the Federal Reserve. In
connection with its acquisition of the Georgia Branch, Bancshares chartered the
Savings Bank. After it was organized, the Savings Bank became subject to
regulation, supervision and examination by the OTS as its chartering authority
and primary regulator and by the FDIC as the administrator of the Savings Bank's
insurance fund. As a federally-chartered thrift, the Savings Bank was
automatically a member of the FHLB. As the holding company of Republic and the
Savings Bank, Bancshares is also subject to regulation and oversight by the
Federal Reserve. 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 been granted
extensive discretion in connection with their supervisory and enforcement
activities, and regulations have been adopted that have increased capital
requirements, commercial bank insurance premiums and administrative,
professional and compensation expenses. Any change in the regulatory structure
or the applicable statutes or regulations, such as the recently-issued OTS
guidelines regarding High LTV Loans, could have a material adverse impact on
Bancshares, Republic, the Savings Bank and their respective operations.
Additional legislation and regulations may be enacted or adopted in the future
which could significantly affect the powers, authority and operations of
Republic and the Savings Bank and their competitors, which in turn could have a
material adverse effect on both institutions and their regulatory capital,
business, financial condition and results of operations.
In the course of a recent review of Republic's operations by the FDIC,
issues arose as to the software and procedures used by Republic 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. Management
believes Republic has taken the necessary actions to address these issues,
including the payment of refunds or additional interest as appropriate.
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CONTROL BY THE PRINCIPAL STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
As of June 30, 1998, Bancshares' Principal Stockholders, William R. Hough
and John W. Sapanski (and their respective affiliates and immediate family
members) owned shares of Bancshares' capital stock representing approximately
40.2% and 4.8%, respectively, of the total voting rights of Bancshares.
Following the consummation of the Merger, Messrs. Hough and Sapanski will own
approximately 38.3% and 4.6% of the total voting rights of Bancshares,
respectively. On the basis of such ownership, the Principal Stockholders will
likely still be able to exert a controlling influence over the affairs of
Bancshares and Republic. Bancshares has engaged in numerous transactions with
affiliates of Mr. Hough, and it is likely that Bancshares will in the future
continue to engage in such transactions. Generally, transactions with affiliates
can involve conflicts of interests. However, Bancshares believes that its
transactions with its affiliates were on terms as or more favorable as those
that could have been obtained in arm's-length transactions. See Note 17 to
Bancshares' Consolidated Financial Statements included elsewhere herein.
CAPITAL LIMITATIONS ON FUTURE GROWTH
Since the Change in Control, one of Bancshares' primary business objectives
has been to increase its total asset size, expand into new market areas and
increase market share in its existing markets. Bancshares has sought to
accomplish this goal through a combination of internal growth, loan and other
asset purchases, deposit assumptions, the opening of de novo branches and
acquisitions of other financial institutions and branches. Bancshares' ability
to continue to grow is constrained by, among other things, its regulatory
capital levels. See Note 16 to Bancshares' Consolidated Financial Statements
included elsewhere herein. Most recently, in May 1998, Bancshares sold 2,642,150
shares of Bancshares Common Stock in a public offering and raised $72.9 million
in additional capital. The primary purposes of the offering were to increase
Bancshares' regulatory capital to permit it to consummate the recent branch
acquisitions and the Proposed Mergers and to continue to expand Flagship's
mortgage banking activities while maintaining its "well capitalized" status.
Bancshares intends to continue its current growth strategy for the foreseeable
future. Since the Change in Control, Bancshares has raised capital five times to
accommodate its growth. There can be no assurance that Bancshares will in the
future have sufficient capital or the ability to obtain additional sufficient
capital on acceptable terms to continue to pursue its growth strategy.
YEAR 2000 ISSUES
In the next two years, many companies, including financial institutions
such as Bancshares, 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 a 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 business and operations.
In 1997, Bancshares began the process of identifying the many software
applications and hardware devices expected to be impacted by this issue.
Bancshares formed a Year 2000 Committee, consisting of Republic's senior
management and key data processing employees to address the year 2000 compliance
project. The Board of Directors is updated on Bancshares' progress towards
compliance on a monthly basis. Also, as Republic's primary federal regulator,
the FDIC conducts periodic examinations of Republic's readiness for year 2000
operations.
Additional staff for year 2000 compliance, including a full-time project
coordinator and other technically-proficient employees, have been hired to
monitor the daily activities of the project for Republic. 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.
Bancshares 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
25
<PAGE> 35
applications as year 2000 compliant, the test results are being forwarded to
Republic for verification. All main client applications are expected to be
compliant and installed by year-end 1998 with Republic and ALLTEL performing
future date testing during the fourth quarter of 1998 to verify system
compliance. Republic's vendors will be able to perform tests with ALLTEL during
this time also. Bancshares anticipates that the critical internal systems of BSB
and Lochaven will be converted to the ALLTEL loan and deposit application
systems by December 31, 1998, and that the day-to-day activities of BSB and
Lochaven will thereafter be fully integrated into Republic.
In the event that Republic 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 Republic and Bancshares:
(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) Bancshares and Republic may be unable to provide the public and
the applicable regulatory authorities with timely and accurate financial
information; or
(c) Bancshares and Republic may be unable to fulfill on a timely basis
their various contractual obligations.
Republic expects to formulate a contingency plan by September 30, 1998 for
the remote possibility that ALLTEL will not be year 2000 compliant. Republic
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.
Bancshares 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.
COMPETITION
Bancshares competes with various types of financial institutions, including
other commercial banks, savings institutions, finance companies, mortgage
banking companies, money market funds and credit unions, many of which have
substantially greater financial resources than Bancshares and, in some cases,
operate with fewer regulatory costs and constraints. Bancshares not only
competes with other financial institutions that operate in Florida but, through
Flagship, also competes nationwide with a number of finance companies, mortgage
banking companies and other financial institutions located throughout the United
States. As Bancshares expands its retail banking operations to additional
markets in Florida and Georgia and its mortgage banking activities to additional
states, it will encounter other larger and well-established financial
institutions in those markets. While Bancshares believes that it has been able
to compete successfully with larger financial institutions in its current
geographic and product markets, there can be no assurance that it will be able
to compete effectively in the new markets it is entering.
VOLATILITY OF SHARE PRICE
The market price of the Bancshares Common Stock has and may continue to
experience fluctuations that are both related and unrelated to the operating
performance of Bancshares. In particular, the price of the Bancshares Common
Stock may be affected by general market price movements as well as changes in
interest rates. In addition, increases in Bancshares' loan production costs or
the inability of Bancshares to complete significant loan sale transactions or
securitizations in a particular quarter have had and may in the future have a
material adverse impact on Bancshares' results of operations for that quarter
and could, therefore, negatively impact the price of the Common Stock.
[Balance of page intentionally left blank]
26
<PAGE> 36
COMPARATIVE MARKET PRICES OF BANCSHARES AND BSB COMMON STOCK
Bancshares Common Stock is traded in the over-the-counter market and quoted
on the Nasdaq National Market. BSB Common Stock is not traded in any established
market. The following table sets forth, as of the indicated dates, (i) the last
sale price of Bancshares Common Stock, (ii) the sale price in the last known
transaction of purchase and sale of BSB Common Stock, and (iii) equivalent per
share price (as explained below) of BSB Common Stock. The indicated dates of
February 9, 1998 and August 31, 1998 represent, respectively, the last trading
day immediately preceding public announcement that Bancshares and BSB had
executed a letter of intent for the combination of the two companies and the
latest practical date prior to mailing of this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
EQUIVALENT PER
BANCSHARES BSB SHARE PRICE OF
COMMON STOCK COMMON STOCK BSB COMMON STOCK
------------ ------------ ----------------
<S> <C> <C> <C>
Market Price Per Share at:
$8.00 at January 6,
February 9, 1998..................... $28.625 1998 $14.69
(prior to announcement)
August 31, 1998...................... $ 19.50 $9.50 $10.01
</TABLE>
The equivalent per share price of BSB Common Stock at each specified date
represents the Market Value of a share of Bancshares Common Stock on such date
multiplied by the estimated Exchange Ratio at June 30, 1998 of 0.5132.
Stockholders are advised to obtain current market quotations for Bancshares
Common Stock. No assurance can be given as to the market price of Bancshares
Common Stock at or after the Effective Time, or as to the final Exchange Ratio
that will be used to determine the number of shares of Bancshares Common Stock
to be received by the holders of BSB Common Stock.
[Balance of page intentionally left blank]
27
<PAGE> 37
COMPARATIVE PER SHARE DATA
The following table sets forth certain comparative per share data relating
to net income, cash dividends declared and book value on (i) a historical basis
for Bancshares and BSB, (ii) a pro forma combined basis per share of Bancshares
Common Stock (taking into effect conversion of each share of Bancshares'
noncumulative convertible perpetual preferred stock, $20.00 par value
("Bancshares Preferred Stock"), into ten (10) shares of Bancshares Common
Stock), giving effect to the Merger, (iii) an equivalent pro forma basis per
share of BSB Common Stock, giving effect to the Merger, (iv) a pro forma
combined basis per share of Bancshares Common Stock, giving effect to the
Proposed Mergers, and (v) an equivalent pro forma basis per share of BSB Common
Stock, giving effect to the Proposed Mergers. The Bancshares and BSB pro forma
combined information and the Bancshares pro forma Merger equivalent information
give effect to the Merger on a pooling of interests basis and assume an Exchange
Ratio of 0.5132 of a share of Bancshares Common Stock for each share of BSB
Common Stock. See "Description of the Transaction -- Accounting Treatment." The
Bancshares and BSB pro forma combined information and the Bancshares pro forma
Merger and BSB equivalent information give effect to (i) the Merger as described
in the preceding sentence and (ii) Bancshares' other Proposed Merger. Bancshares
did not pay dividends during the periods presented. The pro forma data are
presented for information purposes only and are not necessarily indicative of
the results of operations or combined financial position that would have
resulted had the Merger been consummated at the dates or during the periods
indicated, nor are they necessarily indicative of future results of operations
or combined financial position.
The information shown below should be read in conjunction with, and is
qualified in its entirety by, the historical financial statements of Bancshares
and BSB, including the respective notes thereto, included elsewhere herein. See
"Documents Incorporated by Reference" and "Selected Financial and Other Data of
Bancshares and BSB."
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
--------------- ------------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
(UNAUDITED) (UNAUDITED, EXCEPT FOR
BANCSHARES AND BSB
HISTORICAL)
<S> <C> <C> <C> <C> <C>
Net income per common share (diluted basis):
Bancshares historical............................... $ 0.16 $ 0.47 $ 1.21 $ 0.74 $ 1.10
BSB historical...................................... 0.09 0.09 0.21 (1.06) (0.81)
Bancshares and BSB pro forma combined............... 0.16 -- 1.17 0.59 0.96
BSB pro forma equivalent(1)......................... 0.08 -- 0.60 0.30 0.49
Bancshares, BSB and proposed merger pro forma
combined(2)...................................... 0.16 -- 1.02 0.53 0.94
BSB pro forma equivalent(1)......................... 0.08 -- 0.52 0.27 0.48
Book value per common share:
Bancshares historical............................... 16.26 10.79 12.27 10.32 9.65
BSB historical...................................... 6.23 6.01 6.14 5.91 6.98
Bancshares and BSB pro forma combined............... 16.12 -- -- -- --
BSB pro forma equivalent(1)......................... 8.28 -- -- -- --
Bancshares, BSB and proposed merger pro forma
combined(2)...................................... 16.13 -- -- -- --
BSB pro forma equivalent............................ 8.28 -- -- -- --
</TABLE>
- ---------------
(1) Represents pro forma combined information multiplied by the assumed Exchange
Ratio of 0.5132 of a share of Bancshares Common Stock for each share of BSB
Common Stock.
(2) Represents the combined results of Bancshares and BSB, as if all such
acquisitions were consummated on January 1, 1997.
28
<PAGE> 38
SELECTED FINANCIAL AND OTHER DATA OF BANCSHARES AND BSB
The following tables present certain selected historical financial
information for Bancshares and BSB. The data should be read in conjunction with
the historical financial statements, related notes and other financial
information concerning Bancshares and BSB incorporated by reference or included
herein. Interim unaudited data of Bancshares and BSB for the three months and
six months ended June 30, 1998 and 1997 reflect, in the opinion of the
respective managements of Bancshares and BSB, all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of such data.
Results for the three months and six months ended June 30, 1998 are not
necessarily indicative of results that may be expected for any other interim
period or for the year as a whole. See "Documents Incorporated by Reference."
Selected consolidated operating data, per share data, balance sheet data
and selected financial ratios for Bancshares as of and for each of the years
ended December 31, 1997, 1996, 1995 and 1994, the seven-month period ended
December 31, 1993, and the five-month period ended May 31, 1993, were derived
from the consolidated financial statements which have been audited by Arthur
Andersen LLP, independent certified public accountants. The selected
consolidated operating data, per share data, balance sheet data, selected
financial ratios and other data for Bancshares as of and for the three- and
six-month periods ended June 30, 1998 and 1997, were derived from unaudited
consolidated financial statements. Financial data for those interim periods
include all adjustments, consisting of normal accruals, that management
considers necessary for a fair presentation of financial condition and results
of operations for such interim periods. In light of the significant
mark-to-market adjustments and other adjusting entries to Bancshares' financial
statements that were made following the Change in Control on May 28, 1993,
management of Bancshares believes that the usefulness of comparisons between (i)
the financial statements and the financial data derived therefrom as of the
dates and for the periods prior to June 1, 1993, and (ii) the financial
statements and the financial data derived therefrom as of the dates and for the
periods since June 1, 1993, may be limited. In addition, since (i) Republic's
initial public offering and (ii) the CrossLand Purchase and Assumption in
December 1993, Bancshares has operated in a significantly different manner from
that which it had previously operated. Accordingly, the financial results for
periods prior to the CrossLand Purchase and Assumption differ significantly from
periods since then.
Selected operating data, per share data and balance sheet data for BSB as
of and for each of the years ended December 31, 1997, 1996, 1995, 1994 and 1993,
were derived from the financial statements that have been audited by Deloitte &
Touche LLP, independent auditors.
The following information should be read in conjunction with "Recent
Developments," "Certain Information Concerning BSB -- Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements, related notes and other financial information
included elsewhere herein by Bancshares and BSB.
29
<PAGE> 39
SELECTED HISTORICAL FINANCIAL DATA OF BANCSHARES
SELECTED FINANCIAL AND OTHER DATA -- TABLE 1
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
OPERATING DATA:
Interest income................................. $ 38,115 $ 25,344 $ 71,893 $ 49,221
Interest expense................................ 19,857 12,822 36,972 24,863
---------- ---------- ---------- ----------
Net interest income............................. 18,258 12,522 34,921 24,258
Loan loss provision............................. 1,032 501 1,525 1,639
---------- ---------- ---------- ----------
Net interest income after loan loss provision... 17,226 12,021 33,396 22,619
Other noninterest income........................ 11,218 2,749 23,747 6,453
General and administrative ("G&A") expense...... 29,896 12,224 52,828 22,707
Other noninterest expense....................... 589 303 690 617
---------- ---------- ---------- ----------
Net income (loss) before income taxes & minority
interest...................................... (2,041) 2,241 3,625 5,748
Income tax (provision) benefit.................. 800 (863) (1,375) (2,178)
Minority interest in income from subsidiary
trust......................................... (422) -- (842) --
Minority interest in FFO........................ -- (227) -- (415)
---------- ---------- ---------- ----------
Net income (loss)..................... $ (1,663) $ 1,151 $ 1,408 $ 3,155
========== ========== ========== ==========
PER SHARE DATA:
Earnings per share -- diluted................... $ (.23) $ .17 $ .16 $ .47
========== ========== ========== ==========
Weighted average shares outstanding --diluted... 8,522,623 7,017,181 8,712,367 7,002,356
========== ========== ========== ==========
Earnings per share -- basic..................... $ (.26) $ .20 $ .18 $ .54
========== ========== ========== ==========
Weighted average shares outstanding -- basic.... 8,522,623 5,852,861 7,786,911 5,853,633
========== ========== ========== ==========
BALANCE SHEET DATA (at period-end):
Total assets.................................... $2,155,025 $1,321,573 $2,155,025 $1,321,573
Investment & mortgage backed securities......... 109,760 140,899 109,760 140,899
Loans held for sale............................. 410,113 72,487 410,113 72,487
Portfolio loans, net of unearned income......... 1,374,797 995,864 1,374,797 995,864
Allowance for loan losses....................... 20,296 19,328 20,296 19,328
Goodwill & premium on deposits.................. 28,765 397 28,765 397
Deposits........................................ 1,741,377 1,165,042 1,741,377 1,165,042
Stockholders' equity............................ 170,341 71,254 170,341 71,254
Book value per share............................ 16.26 10.79 16.26 10.79
SELECTED FINANCIAL RATIOS:
Return on average assets........................ (.35)% .35% .16% .50%
Return on average equity........................ (5.29) 6.33 2.61 8.99
Equity to assets................................ 7.90 5.39 7.90 5.39
Equity and minority interest in preferred
subsidiary to assets.......................... 9.24 -- 9.24 --
Portfolio loans/deposit ratio................... 78.95 85.48 78.95 85.48
Net interest spread............................. 3.85 3.52 3.85 3.52
Net interest margin............................. 4.14 4.10 4.18 4.10
G&A expenses to average assets(1)............... 3.16 3.29 3.11 3.17
G&A efficiency ratio(1)......................... 71.07 73.79 67.30 69.30
Nonperforming loans to portfolio loans.......... 2.13 1.99 2.13 1.99
</TABLE>
30
<PAGE> 40
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Nonperforming assets to total assets............ 1.79% 2.08% 1.79% 2.08%
Loan loss allowance to portfolio loans(2)....... 1.48 1.94 1.48 1.94
Loan loss allowance to nonperforming loans(2)...
Originated portfolio.......................... 90.92 90.96 90.92 90.96
July 1997 bulk purchase of loans.............. 27.64 -- 27.64 --
March 1995 bulk purchase of loans............. 263.80 441.82 263.80 441.82
CrossLand loan portfolio...................... 409.57 106.60 409.57 106.60
Other purchased loan portfolios............... 17.82 46.67 17.82 46.67
Total................................. 69.19 97.32 69.19 97.32
OTHER DATA (at period-end):
Number of branch banking offices................ 53 45 53 45
Number of full-time equivalent employees........ 1,439 856 1,439 856
</TABLE>
- ---------------
(1) Commercial banking segment only.
(2) See "Note 6 -- Allowance for Loan Losses" for a discussion of the allocation
and availability of loan loss allowance amount portfolio of loans within
Republic.
[Balance of page intentionally left blank]
31
<PAGE> 41
SELECTED HISTORICAL FINANCIAL DATA OF BANCSHARES
SELECTED FINANCIAL AND OTHER DATA -- TABLE 2
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995 1994
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
OPERATING DATA:
Interest income................................. $ 108,457 $ 88,944 $ 77,593 $ 53,997
Interest expense................................ 54,923 44,949 40,112 24,423
---------- ---------- ---------- ----------
Net interest income............................. 53,534 43,995 37,481 29,574
Loan loss provision............................. 2,628 2,582 2,162 172
---------- ---------- ---------- ----------
Net interest income after loan loss provision... 50,906 41,413 35,319 29,402
Other noninterest income........................ 25,031 6,745 5,353 5,099
Gain on sale of ORE held for investment......... -- 1,207 -- --
General and administrative ("G&A") expense...... 57,484 36,829 30,963 23,678
Merger expenses................................. 1,144 -- -- --
SAIF special assessment......................... -- 4,005 -- --
Provision for losses on ORE..................... 530 111 -- --
Other noninterest expense....................... 273 (490) 902 4,216
Amortization of goodwill & premium on
deposits...................................... 464 491 450 1,269
---------- ---------- ---------- ----------
Net income before income taxes,
negative goodwill accretion &
minority interest................... 16,042 8,419 8,357 5,338
Accretion of negative goodwill.................. -- -- 1,578 2,705
---------- ---------- ---------- ----------
Net income before income taxes & minority
interest...................................... 16,042 8,419 9,935 8,043
Income tax (expense) benefit.................... (6,096) (3,035) (2,516) (702)
Minority interest in income from subsidiary
trust......................................... (701) -- -- --
Minority interest in FFO Financial, Inc......... (674) (505) (503) (131)
---------- ---------- ---------- ----------
Net income............................ $ 8,571 $ 4,879 $ 6,916 $ 7,210
========== ========== ========== ==========
Earnings per share -- diluted................... $ 1.21 $ 0.74 1.10 1.28
========== ========== ========== ==========
Weighted average shares outstanding --diluted... 7,301,499 6,626,604 6,261,368 5,632,437
========== ========== ========== ==========
Earnings per share -- basic..................... $ 1.40 $ 0.83 $ 1.26 $ 1.48
========== ========== ========== ==========
Weighted average shares outstanding -- basic.... 6,128,014 5,857,174 5,491,250 4,868,211
========== ========== ========== ==========
BALANCE SHEET DATA (at period-end):
Total assets.................................... $1,552,405 $1,224,357 $1,103,480 $ 879,873
Investment & mortgage backed securities......... 108,593 161,357 155,345 101,028
Loans held for sale............................. 151,404 46,593 27,476 7,930
Loans held in portfolio, net of unearned
income........................................ 1,149,731 920,782 831,033 680,604
Allowance for loan losses....................... 20,776 18,747 20,048 15,272
Goodwill & premium on deposits.................. 4,855 527 1,017 820
Deposits........................................ 1,361,312 1,114,907 992,041 794,717
Stockholders' equity............................ 95,531 68,178 63,833 47,618
Book value per share............................ 12.27 10.32 9.65 8.16
SELECTED FINANCIAL RATIOS:
Return on average assets........................ 0.63% 0.43% 0.68% 0.90%
Return on average equity........................ 11.44 7.41 12.62 16.73
Equity to assets................................ 6.15 5.57 5.78 5.41
</TABLE>
32
<PAGE> 42
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Equity and minority interest in preferred
subsidiary.................................... 8.01% 5.57% 5.78% 5.41%
Net interest spread............................. 3.71 3.63 3.65 3.87
Net interest margin............................. 4.18 4.02 3.95 4.06
G&A expenses to average assets.................. 4.26 3.21 3.06 2.95
G&A efficiency ratio............................ 73.17 72.58 72.29 68.29
Loan/deposit ratio.............................. 84.46 82.59 83.77 85.64
Nonperforming loans to loans.................... 2.36 2.12 2.18 2.44
Nonperforming assets to total assets............ 2.20 2.27 2.78 3.96
Loan loss allowance to loans.................... 1.81 2.04 2.40 2.24
Loan loss allowance to nonperforming loans
Originated portfolio.......................... 93.66 73.15 106.51 177.30
March 1995 bulk purchase of loans............. 73.91 488.78 647.83 N/A
CrossLand loan portfolio...................... 421.88 126.12 41.77 23.73
Other purchased loan portfolios............... 22.28 89.80 41.84 82.99
Total portfolio loans......................... 76.51 96.03 110.73 91.98
OTHER DATA (at period-end):
Number of branch banking offices................ 45 43 43 31
Number of full-time equivalent employees........ 1,045 795 573 451
</TABLE>
[Balance of page intentionally left blank]
33
<PAGE> 43
SELECTED HISTORICAL FINANCIAL DATA OF BANCSHARES
SELECTED FINANCIAL AND OTHER DATA -- TABLE 3
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED FIVE MONTHS ENDED
DECEMBER 31, 1993 MAY 31, 1993
--------------------- --------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
OPERATING DATA:
Interest income............................................. $ 11,885 $ 4,848
Interest expense............................................ 5,120 1,970
---------- ----------
Net interest income......................................... 6,765 2,878
Loan loss provision......................................... 3,222 379
---------- ----------
Net interest income after loan loss provision...... 3,543 2,499
Other noninterest income........................... 1,677 743
General and administrative ("G&A") expense.................. 6,481 2,699
Provision for losses on ORE................................. -- 1,214
Other noninterest expense................................... 331 443
---------- ----------
Net income before income taxes, negative goodwill
accretion & minority interest.................... (1,592) (1,114)
Accretion of negative goodwill.............................. 1,578 --
Net income before income taxes & minority interest.......... (14) (1,114)
Income tax (expense) benefit.............................. 2,844 --
Minority interest in FFO Financial, Inc..................... (197) --
---------- ----------
Net income......................................... $ 2,633 $ (1,114)
========== ==========
Earnings per share -- diluted............................... $ 1.01 $ (1.00)
========== ==========
Weighted average shares outstanding -- diluted.............. 2,594,923 1,117,192
========== ==========
Earnings per share -- basic................................. $ 1.10 $ (1.11)
========== ==========
Weighted average shares outstanding -- basic................ 2,398,066 1,002,794
========== ==========
BALANCE SHEET DATA (at period-end):
Total assets................................................ $ 780,711 $ 168,741
Investment & mortgage backed securities..................... 74,042 27,433
Loans held for sale......................................... 11,346 --
Loans held in portfolio, net of unearned income............. 479,600 111,292
Allowance for loan losses................................... 15,872 1,866
Goodwill & premium on deposits.............................. 705,584 153,660
Deposits.................................................... 4,283 5,861
Stockholders' equity........................................ 34,003 8,058
Book value per share........................................ 6.11 N/A
SELECTED FINANCIAL RATIOS:
Return on average assets.................................... 0.97% (1.61)%
Return on average equity.................................... 36.97 (21.75)
Equity to assets............................................ 4.36 4.78
Equity and minority interest in preferred subsidiary........ 3.88 4.21
Net interest spread......................................... 4.30 4.66
Net interest margin......................................... 2.38 6.28
G&A expenses to average assets.............................. 76.77 74.54
G&A efficiency ratio........................................ 67.97 72.43
Loan/deposit ratio.......................................... 4.03 2.27
Nonperforming loans to loans................................ 5.66 5.89
Nonperforming assets to total assets........................ 3.31 1.68
Loan loss allowance to loans................................
Loan loss allowance to nonperforming loans..................
Originated portfolio...................................... 129.06 73.03
CrossLand portfolio....................................... 39.88 N/A
Total portfolio loans.............................. 82.20 73.03
OTHER DATA (at period-end):
Number of branch banking offices............................ 29 7
Number of full-time equivalent employees.................... 373 96
</TABLE>
34
<PAGE> 44
SELECTED HISTORICAL FINANCIAL DATA OF BSB
SELECTED FINANCIAL AND OTHER DATA -- TABLE 4
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
OPERATING DATA:
Interest income................................. $ 1,172 $ 1,161 $ 2,384 $ 2,294
Interest expense................................ 788 766 1,603 1,532
-------- -------- -------- --------
Net interest income..................... 384 395 781 762
Loan loss provision (credit).................... 21 19 42 34
-------- -------- -------- --------
Net interest income after loan loss
provision............................. 363 376 739 728
Other noninterest income........................ 419 325 794 682
General and administrative ("G&A") expenses..... 736 661 1,460 1,345
SAIF special assessment......................... 0 0 0 0
Provision for losses on ORE..................... 0 0 0 0
Other noninterest expense....................... 0 0 0 0
-------- -------- -------- --------
Net income before income taxes.......... 46 40 73 65
Income tax provision (credit)................... 0 0 0 0
-------- -------- -------- --------
Net income (loss)....................... $ 46 $ 40 $ 73 $ 65
======== ======== ======== ========
PER SHARE DATA:
Earnings per share -- diluted................... $ 0.06 $ 0.06 $ 0.09 $ 0.09
======== ======== ======== ========
Weighted average shares outstanding --diluted... 814,071 690,333 816,714 713,988
======== ======== ======== ========
Earnings per share -- basic..................... $ 0.07 $ 0.06 $ 0.11 $ 0.09
======== ======== ======== ========
Weighted average shares outstanding -- basic.... 690,498 690,333 690,416 690,333
======== ======== ======== ========
BALANCE SHEET DATA (at period-end):
Total assets.................................... $ 68,342 $ 68,318 $ 68,342 $ 68,318
Investment & mortgage backed securities......... 6,068 8,032 6,068 8,032
Loans held for sale............................. 7,036 5,063 7,036 5,063
Portfolio loans, net of unearned income......... 42,790 44,707 42,790 44,707
Allowance for loan losses....................... 418 324 418 324
Deposits........................................ 60,701 56,609 60,701 56,609
Stockholders' equity............................ 4,385 4,147 4,385 4,147
Book value per share............................ 6.23 6.01 6.23 6.01
SELECTED FINANCIAL RATIOS:
Return on average assets........................ 0.27% 0.24% 0.22% 0.20%
Return on average equity........................ 4.25 3.88 3.44 3.21
Net interest spread............................. 2.16 2.42 2.26 2.35
Net interest margin............................. 2.51 2.68 2.58 2.64
G&A expense to average assets................... 1.08 0.98 2.15 2.00
G&A efficiency ratio............................ 91.68 91.93 92.76 93.07
Non-accrual loans to loans...................... 3.00 1.94 3.00 1.94
Nonperforming assets to total assets............ 3.14 2.41 3.14 2.41
Loan loss allowance to loans.................... 0.97 0.72 0.97 0.72
Loan loss allowance to non-performing loans..... 32.43% 37.33% 32.43% 37.33%
OTHER DATA (at period-end):
Number of full service offices.................. 2 2 2 2
Number of full-time equivalent employees........ 31 32 31 32
</TABLE>
35
<PAGE> 45
SELECTED HISTORICAL FINANCIAL DATA OF BSB
SELECTED FINANCIAL AND OTHER DATA -- TABLE 5
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income............................. $ 4,724 $ 4,283 $ 5,091 $ 5,182 $ 3,803
Interest expense............................ 3,167 2,927 3,717 3,044 1,918
-------- -------- -------- -------- --------
Net interest income............... 1,557 1,356 1,374 2,138 1,885
Loan loss provision (credit)................ 101 131 121 (135) 80
-------- -------- -------- -------- --------
Net interest income after loan
loss provision.................. 1,456 1,225 1,253 2,273 1,805
Other noninterest income.................... 1,459 1,376 735 1,328 1,485
General and administrative ("G&A")
expenses.................................. 2,759 2,980 2,830 3,388 2,954
SAIF special assessment..................... 0 408 0 0 0
Provision for losses on ORE................. 0 0 0 0 0
Other noninterest expense................... 0 0 0 0 0
-------- -------- -------- -------- --------
Net income before income taxes.... 156 (787) (842) 213 336
Income tax provision (credit)............... 0 (54) (286) 4 80
-------- -------- -------- -------- --------
Net income (loss)................. $ 156 $ (733) $ (556) $ 209 $ 256
======== ======== ======== ======== ========
PER SHARE DATA:
Earnings (loss) per share -- diluted........ $ 0.21 $ (1.06) $ (0.81) $ 0.30 $ 0.37
======== ======== ======== ======== ========
Weighted average shares
outstanding -- diluted.................... 734,085 690,333 690,333 690,333 690,333
======== ======== ======== ======== ========
Earnings per share -- basic................. $ 0.23 $ (1.06) $ (0.81) $ 0.30 $ 0.37
======== ======== ======== ======== ========
Weighted average shares
outstanding -- basic...................... 690,333 690,333 690,333 690,333 690,333
======== ======== ======== ======== ========
BALANCE SHEET DATA (at period-end):
Total assets................................ $ 67,060 $ 66,339 $ 63,129 $ 81,018 $ 72,688
Investment & mortgage backed securities..... 8,032 9,035 9,042 9,048 9,055
Loans held for sale......................... 3,924 6,071 4,284 3,070 10,973
Portfolio loans, net of unearned income..... 47,565 43,174 42,145 62,799 57,443
Allowance for loan losses................... 376 328 283 189 324
Deposits.................................... 56,016 56,283 50,974 55,361 60,644
Stockholders' equity........................ 4,237 4,082 4,815 5,371 5,162
Book value per share........................ 6.14 5.91 6.98 7.78 7.48
SELECTED FINANCIAL RATIOS:
Return on average assets.................... 0.23% (1.14)% (0.74)% 0.27% 0.43%
Return on average equity.................... 3.75 (15.94) (10.79) 3.99 5.09
Net interest spread......................... 2.29 2.09 1.67 2.74 3.16
Net interest margin......................... 2.59 2.34 1.81 2.86 3.28
G&A expense to average assets............... 4.07 4.63 3.78 4.37 4.99
G&A efficiency ratio........................ 91.51 109.11 134.23 97.75 87.66
Non-accrual loans to loans.................. 1.99 2.71 3.89 1.21 1.19
Nonperforming assets to total assets........ 2.52 2.82 2.85 0.98 0.76
Loan loss allowance to loans................ 0.79 0.76 0.67 0.32 0.70
Loan loss allowance to non-performing
loans..................................... 39.75% 27.99% 17.28% 26.21% 58.70%
OTHER DATA (at period-end):
Number of full service offices.............. 2 2 2 2 2
Number of full-time equivalent employees.... 33 36 41 58 68
</TABLE>
36
<PAGE> 46
THE SPECIAL MEETING OF BSB STOCKHOLDERS
DATE, PLACE, TIME AND PURPOSE
This Proxy Statement/Prospectus is being furnished to the holders of BSB
Common Stock in connection with the solicitation by the BSB Board of Directors
of proxies for use at the Special Meeting, at which BSB stockholders will be
asked to vote upon a proposal to approve the Agreement and the transactions
contemplated therein. The Special Meeting will be held at BSB's main office,
located at 2222 Ponce de Leon Boulevard, Coral Gables, Florida 33134, on October
20, 1998, at 4:00 p.m., local time.
RECORD DATE, VOTING RIGHTS, REQUIRED VOTES AND REVOCABILITY OF PROXIES
BSB's Board of Directors has fixed the close of business on September 10,
1998, as the Record Date. Only holders of record of shares of BSB Common Stock
on the Record Date will be entitled to notice of and to vote at the Special
Meeting. Each share of BSB Common Stock is entitled to one vote. Stockholders
who execute proxies retain the right to revoke them at any time prior to being
voted at the Special Meeting. At June 30, 1998, there were 705,333 shares of BSB
Common Stock issued and outstanding, which were held by approximately 130
stockholders of record.
To hold a vote on any proposal, a quorum must be assembled, which is the
presence in person or by proxy of holders of a majority of the outstanding
shares of BSB Common Stock. In determining whether a quorum exists at the
Special Meeting for purposes of all matters to be voted on, all votes "for" or
"against," as well as all abstentions, will be counted. Approval of the
Agreement and the transactions contemplated therein requires the affirmative
vote by holders of two-thirds (approximately 470,222 shares) of the outstanding
shares of BSB Common Stock. As a result, abstentions and broker non-votes will
have the same effect as votes cast against the approval of the Agreement at the
Special Meeting.
As of the Record Date, all directors and executive officers of BSB as a
group (12 persons) were entitled to vote 46,400 shares of BSB Common Stock,
constituting approximately 6.6% of the total number of shares of BSB Common
Stock outstanding at that date, and are anticipated to vote their shares of BSB
Common Stock in favor of the Agreement and the transactions contemplated
therein. As of the Record Date, Bancshares, Republic and their affiliates did
not own of record any shares of BSB Common Stock.
Shares of BSB Common Stock represented by properly executed proxies, if
such proxies are received in time and not revoked, will be voted in accordance
with the instructions indicated on the proxies. IF NO INSTRUCTIONS ARE
INDICATED, SUCH PROXIES WILL BE VOTED FOR APPROVAL OF THE AGREEMENT, AND THUS
THE HOLDERS OF THE SHARES OF BSB COMMON STOCK REPRESENTED BY SUCH PROXIES WILL
NOT BE ENTITLED TO ASSERT DISSENTERS' RIGHTS (SEE "DESCRIPTION OF THE
TRANSACTION -- DISSENTING STOCKHOLDERS"). SUCH PROXIES WILL ALSO BE VOTED IN THE
DISCRETION OF THE PROXY HOLDER AS TO ANY OTHER MATTER THAT MAY PROPERLY COME
BEFORE THE SPECIAL MEETING. If necessary, the proxy holder may vote in favor of
a proposal to adjourn the Special Meeting in order to permit further
solicitation of proxies in the event a quorum is not present or there are not
sufficient votes to approve the foregoing proposal at the time of the Special
Meeting.
FAILURE EITHER TO VOTE BY PROXY OR IN PERSON AT THE SPECIAL MEETING WILL
HAVE THE EFFECT OF A VOTE CAST AGAINST APPROVAL OF THE AGREEMENT.
A BSB stockholder who has given a proxy may revoke it at any time prior to
its exercise at the Special Meeting by (i) giving written notice of revocation
to the Secretary of BSB, (ii) properly submitting to BSB a duly executed proxy
bearing a later date, or (iii) attending the Special Meeting and voting in
person. All written notices of revocation and other communications with respect
to revocation of proxies should be addressed as follows: Bankers Savings Bank,
FSB, 2222 Ponce de Leon Boulevard, Coral Gables, Florida 33134; Attention:
William Dolan.
The costs associated with the solicitation of proxies for the Special
Meeting will be borne by BSB. In addition to the solicitation of stockholders of
record by mail, telephone, facsimile or personal contact, BSB will be contacting
brokers, dealers, banks or voting trustees or their nominees who can be
identified as record holders of BSB Common Stock. Such holders, after inquiry by
BSB, will provide information concerning
37
<PAGE> 47
quantities of proxy materials needed to supply such information to beneficial
owners, and BSB will reimburse them for the reasonable expense of mailing proxy
materials to such persons.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF BSB
The Board of Directors of BSB has unanimously adopted the Agreement,
believes the Merger is in the best interests of BSB and its stockholders, and
unanimously recommends that stockholders of BSB vote "FOR" adoption of the
Agreement and the consummation of the transactions contemplated therein. See
"Description of the Transaction -- Background of and Reasons for the Merger;
BSB's Reasons for the Merger and Recommendation of Directors."
[Balance of page intentionally left blank]
38
<PAGE> 48
DESCRIPTION OF THE TRANSACTION
The following material describes certain aspects of the Merger. This
description does not purport to be complete and is qualified in its entirety by
reference to the Appendices hereto, including the Agreement, which is attached
as Appendix A to this Proxy Statement/Prospectus and incorporated herein by
reference. All BSB stockholders are urged to read the Appendices in their
entirety.
GENERAL
Shares of BSB Common Stock (except for certain shares held by BSB or
Bancshares, or their respective subsidiaries, in each case other than shares
held in a fiduciary capacity or in satisfaction of debts previously contracted,
and excluding shares held by BSB's stockholders who perfect their dissenters'
rights) issued and outstanding at the Effective Time will cease to be
outstanding and will be converted into shares of Bancshares Common Stock based
on the Exchange Ratio formula set forth in the Agreement, as described below.
Each share of Bancshares Common and Preferred Stock outstanding immediately
prior to the Effective Time will remain outstanding and unchanged as a result of
the Merger. No fractional shares of Bancshares Common Stock will be issued in
connection with the Merger.
EXCHANGE RATIO
Under the terms of the Agreement, the Exchange Ratio is to be based
primarily on a multiple of BSB's total stockholders' equity as of December 31,
1997, which was approximately $4,237,000, as adjusted to reflect certain
equity-affecting items. The adjusted equity amount is arrived at by first
reducing BSB's year-end 1997 equity figure by the net after-tax cost of certain
change in control payments to BSB's executive officers, approximately $250,000,
and then either adding or further subtracting as appropriate, BSB's aggregate
earnings or losses in 1998 through the month prior to the date on which the
Special Meeting of BSB stockholders is held. BSB's equity, as adjusted above, is
to be multiplied by 1.7. Added to the resulting multiple of BSB's adjusted
equity will be $2.0 million, which represents the difference between the $6.2
million sales price of BSB's main office facility in Coral Gables and its
December 31, 1997 book value, which was $4.2 million. The combined amount of the
multiple of BSB's adjusted equity and the gain on the sale of BSB's main office
facility will then be divided by the total number of shares of BSB Common Stock
outstanding at the Effective Time, yielding the BSB Per Share Value. For the six
months ended June 30, 1998, BSB reported aggregate earnings of $73,000 and
equity increased $75,000 due to the exercise of stock options. Accordingly,
based on the 705,333 shares of BSB Common Stock outstanding as of June 30, 1998,
the BSB Per Share Value would have been approximately $12.83.
The actual Exchange Ratio utilized to convert the shares of BSB Common
Stock into shares of Bancshares Common Stock will be calculated by dividing the
BSB Per Share Value by the Market Value, which is derived by calculating the
Average Price of the Bancshares Common Stock. If the Average Price of the
Bancshares Common Stock is within a range of $22.50 to $27.50, the Market Value
will be $25.00. If the Average Price is not within this range, the Market Value
will be the mean of the average closing price and $25.00.
The Market Value of Bancshares Common Stock was $25.00 as of June 30, 1998.
Accordingly, it is estimated that the Exchange Ratio would have been 0.5132
($12.83 divided by $25.00), and that BSB stockholders would have received
approximately 361,977 shares of Bancshares Common Stock, if the Merger had been
consummated on that date. These figures are for illustration only. The actual
Exchange Ratio will vary depending upon (i) future changes in the Market Value,
(ii) BSB's subsequent earnings performance, and (iii) the issuance of additional
shares of BSB Common Stock.
No fractional shares of Bancshares Common Stock will be issued in
connection with the Merger. In lieu of issuing fractional shares, Bancshares
will make a cash payment (without interest) equal to the fractional part of a
share of Bancshares Common Stock that the BSB stockholder would otherwise have
received multiplied by the Average Price of a share of Bancshares Common Stock
as described above in "--Exchange Ratio." No BSB stockholder will be entitled to
dividends, voting rights or any other rights as a stockholder with respect to
any fractional share.
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<PAGE> 49
TREATMENT OF BSB OPTIONS
Each of the options to purchase BSB Common Stock issued and outstanding at
the Effective Time (the "BSB Options"), will cease to be outstanding and will be
converted into and exchanged for the right to acquire Bancshares Common Stock on
substantially the same terms applicable to the BSB Options. The number of
options to acquire Bancshares Common Stock to be issued pursuant to the exercise
of such options will equal the number of shares of BSB Common Stock subject to
such options multiplied by the Exchange Ratio, provided that no fractions of
options for shares of Bancshares Common Stock will be issued, and the number of
shares of Bancshares Common Stock to be issued upon the exercise of the BSB
Options, if a fractional share exists, will equal the number of whole shares
obtained by rounding to the nearest whole number, giving account to such
fraction. The exercise price for the acquisition of Bancshares Common Stock will
be the exercise price for each share of BSB Common Stock subject to such options
divided by the Exchange Ratio, adjusted as appropriate for any rounding to whole
shares that may be done.
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger
For the past several years, BSB has struggled with profitability, improving
over the past year when BSB returned to modest profitability, and the Board of
Directors of BSB has searched for ways to enhance stockholder value. The Board
has evaluated BSB's options as a small savings institution but has been
constrained by certain regulatory restrictions on its activities, its small
size, its modest capital base, a series of changes in its chief executive
officer and the extent of competition in its market. The Board has considered
remaining independent, adding additional product lines to increase
profitability, merging with other similarly sized institutions or being acquired
by a larger institution.
From time to time, certain large stockholders and the Chairman of the Board
have been approached with respect to the possible acquisition of BSB by private
investor groups. Upon investigation, these approaches have been rejected as
either inadequate from a financial point of view or as so unlikely to receive
necessary regulatory approvals as to be speculative and not worthy of pursuit.
In early 1998, a large stockholder of BSB and the Chairman of the Board met
with representatives of Bancshares. As a result of these discussions, Bancshares
proposed a transaction whereby Bancshares would acquire BSB by merging BSB into
Republic. After negotiating the terms and conditions of the proposed
transaction, on February 10, 1998, the Chairman of the Board of BSB executed a
letter of intent with Bancshares reflecting the transaction, subject to the
negotiation of a definitive agreement and the approval of the Board of Directors
of BSB. Bancshares issued a press release upon execution of the letter of
intent, describing the proposed transaction.
Between February 10 (the date of the letter of intent) and February 26,
1998, various of the directors of BSB reviewed the proposed transaction, and
discussed the transaction informally among themselves. At the same time, counsel
for BSB and Bancshares negotiated the definitive agreement reflecting the
proposed transaction. The Board of Directors of BSB met on February 26, 1998,
and approved the proposed transaction.
Each member of the Board of Directors of BSB has indicated his or her
intent to vote all of the shares of BSB Common Stock beneficially owned by such
member in favor of the Agreement. The Board of Directors of BSB UNANIMOUSLY
recommends that its stockholders vote for approval of the Agreement.
Bancshares' Reasons for the Merger
The Bancshares Board of Directors has approved the Agreement and determined
that the Merger is in the best interests of Bancshares and its stockholders. In
approving the Agreement, Bancshares' Board considered a number of factors.
Without assigning any relative or specific weights to the factors, Bancshares'
Board considered the following material factors:
(a) The information presented to Bancshares' Board by its executive
officers concerning the business, operations, earnings and financial
condition, including the capital levels and asset quality, of
40
<PAGE> 50
BSB on an historical, prospective and pro forma basis and in comparison to
other financial institutions in the area;
(b) The demographic, economic and financial characteristics of the
markets in which BSB operates, including existing competition, history of
the market areas with respect to financial institutions and average demand
for credit, on an historical and prospective basis;
(c) The results of Bancshares' due diligence review of BSB;
(d) A variety of factors affecting and relating to the overall
strategic focus of Bancshares, including Bancshares' desire to increase its
presence in the southeastern Florida market; and
(e) The legal advice of Bancshares' counsel.
Based upon the consideration of the foregoing factors, the Board of
Directors of Bancshares concluded that the Merger is in the best interest of
Bancshares' stockholders.
BSB's Reasons for the Merger
The BSB Board of Directors, with the assistance of outside legal and
financial advisors, evaluated the financial, legal and market considerations
bearing on the decision to recommend the Merger. In reaching its conclusion that
the Agreement is in the best interest of BSB and its stockholders, the BSB Board
of Directors carefully considered the following material factors:
(a) The lack of adequate capital to expand, and the resulting impact
on current and future profitability;
(b) The level of non-performing assets and the adequacy of reserves;
(c) The lack of revenue diversification;
(d) The costs of upgrading technology;
(e) The relative illiquidity of BSB Common Stock and the increased
liquidity that would be associated with exchanging the shares of BSB Common
Stock for shares of Bancshares Common Stock as contemplated by the
transaction;
(f) The small size and lack of name recognition of BSB;
(g) The significant competition from other financial institutions in
the Dade County market;
(h) Other factors affecting the potential for significant appreciation
and return for stockholders;
(i) A comparison of the value inherent in the proposed transaction
with the likely alternatives available for BSB, including remaining
independent, potentially linking with a similar-sized organization or
seeking another transaction with another acquiror;
(j) The impact the proposed transaction would have on the stockholders
of BSB; and
(k) The preliminary opinion of RP Financial that the transaction was
fair to the stockholders of BSB from a financial point of view.
While each member of the BSB Board individually considered the foregoing
and other factors, the Board did not collectively assign any specific or
relative weights to the factors considered and did not make any determination
with respect to any individual factor. The BSB Board collectively made its
determination with respect to the Merger based on the unanimous conclusion
reached by its members, in light of the factors that each of them considered as
appropriate, that the Merger is in the best interests of the BSB stockholders.
The terms of the Merger, including the purchase price, were the result of
arm's-length negotiations between representatives of BSB and representatives of
Bancshares. Based upon its consideration of the foregoing factors, the Board of
Directors of BSB approved the Agreement and the Merger as being in the best
interests of BSB and its stockholders.
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<PAGE> 51
THE BSB BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE AGREEMENT AND
THE MERGER BE ADOPTED AND APPROVED BY ALL STOCKHOLDERS OF BSB.
OPINION OF BSB'S FINANCIAL ADVISOR
The Board of Directors of BSB retained RP Financial in February 1998 to
provide certain financial advisory and investment banking services to BSB in
conjunction with the Merger, including the rendering of an opinion with respect
to the fairness of the Merger consideration from a financial point of view to
holders of BSB Common Stock. In requesting RP Financial's advice and opinion,
the Board of Directors of BSB did not give any special instruction to, or impose
any limitations upon the scope of the investigation that RP Financial might wish
to conduct to enable it to give its opinion. RP Financial was selected by BSB to
act as its financial advisor because of RP Financial's expertise in the
valuation of businesses and their securities for a variety of purposes including
its expertise in connection with mergers and acquisitions of savings and loans,
savings banks, and savings and loan holding companies.
On February 26, 1998, at a meeting in which the Board of Directors of BSB
reviewed the Agreement and the transactions contemplated thereby, RP Financial
rendered its oral opinion to the Board that, as of such date, the Merger
consideration was fair to holders of BSB Common Stock from a financial point of
view. The opinion has been updated and delivered in written form as of the date
of this Proxy Statement/Prospectus. In connection with its opinion dated the
date of this Proxy Statement/Prospectus, RP Financial also confirmed the
appropriateness of its reliance on the analysis used to render its February 26,
1998 opinion by performing procedures to confirm the appropriateness of such
analyses and by reviewing the assumptions on which such analyses were based and
the factors considered in connection therewith.
The full text of the opinion of RP Financial, which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached as appendix B to this Proxy Statement/Prospectus and is incorporated
herein by reference. Holders of BSB Common Stock are urged to read the opinion
in its entirety.
THE OPINION OF RP FINANCIAL IS DIRECTED TO THE BOARD OF DIRECTORS OF BSB IN
ITS CONSIDERATION OF THE MERGER CONSIDERATION AS DESCRIBED IN THE AGREEMENT, AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF BSB AS TO ANY ACTION
THAT SUCH STOCKHOLDER SHOULD TAKE IN CONNECTION WITH THE AGREEMENT, OR
OTHERWISE. IT IS FURTHER UNDERSTOOD THAT THE OPINION OF RP FINANCIAL IS BASED ON
MARKET CONDITIONS AND OTHER CIRCUMSTANCES EXISTING ON THE DATE HEREOF.
In rendering this fairness opinion, RP Financial reviewed the following
material: (1) the Agreement, including exhibits; (2) financial and other
information for BSB, all with regard to balance and off-balance sheet
composition, profitability, interest rates, volumes, maturities, trends, credit
risk, interest rate risk, liquidity risk and operations: (a) audited financial
statements for the fiscal years ended December 31, 1995 through 1997; (b)
regulatory and internal financial and other reports through June 30, 1998; (c)
the most recent proxy statement for BSB; (d) internal budgets and financial
projections prepared by management; and (e) BSB's management and Board comments
regarding past and current business, operations, financial condition and future
prospects; and (3) financial and other information for Bancshares including: (a)
audited financial statements for the fiscal years ended December 31, 1995
through 1997, incorporated in Annual Reports to stockholders; (b) Bancshares'
annual report on Form 10-K as of December 31, 1997; (c) stockholder, regulatory
and internal financial and other reports through June 30, 1998; (d) internal
budgets and financial projections prepared by management of Bancshares; (e) the
registration statement on Form S-4 filed on September 10, 1998 in conjunction
with the issuance of common stock to BSB's stockholders; (f) the Proxy
Statement/Prospectus furnished to BSB's stockholders in connection with the
adoption of the Agreement; and (g) Bancshares' management comments regarding
past and current business, operations, financial condition, and future
prospects.
In addition, RP Financial reviewed financial, operational, market area and
stock price and trading characteristics for Bancshares and the stock price and
relatively limited trading information available for BSB relative to
publicly-traded banks and savings institutions, respectively, with comparable
resources, financial
42
<PAGE> 52
conditions, earnings, operations and markets. RP Financial also considered the
economic and demographic characteristics in the local market area, and the
potential impact of the regulatory, legislative and economic environments on
operations for BSB and Bancshares and the public perception of banks and savings
institutions. In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning BSB
and Bancshares furnished by the respective institutions to RP Financial for
review, as well as publicly-available information regarding other financial
institutions and economic and demographic data. BSB and Bancshares did not
restrict RP Financial as to the material it was permitted to review. The opinion
further states that RP Financial did not perform or obtain any independent
appraisals or evaluations of the assets and liabilities and potential and/or
contingent liabilities of BSB or Bancshares. RP Financial further indicated that
the financial forecasts and budgets reviewed by RP Financial were prepared by
the managements of BSB and Bancshares; that neither BSB nor Bancshares publicly
discloses internal management forecasts or budgets of the type provided to RP
Financial in connection with the review of the Merger; and such financial
forecasts were not prepared with a view toward public disclosure. The financial
forecasts and budgets were based upon numerous variables and assumptions which
are inherently uncertain, including without limitation factors related to
general economic and competitive conditions, as well as trends in asset quality.
Accordingly, RP Financial cautioned that actual results could vary significantly
from those set forth in such financial forecasts.
In connection with rendering its oral opinion dated February 26, 1998 and
updated as of the date of this Proxy Statement/Prospectus, RP Financial
performed a variety of analyses, which are summarized below. The preparation of
a fairness opinion is a complex process involving subjective judgments and is
not necessarily susceptible to partial analyses or summary description. RP
Financial stated that its analyses must be considered as a whole and that
selecting portions of such analyses and of the factors considered by RP
Financial without considering all such analyses and factors could create an
incomplete view of the process underlying RP Financial's opinion. In its
analyses, RP Financial made numerous assumptions with respect to industry
performance, business and economic conditions, applicable laws and regulations
and other matters, many of which are beyond the control of BSB. Any estimates
contained in RP Financial's analyses are not necessarily indicative of future
results or values, which may be significantly more or less favorable than such
estimates. No company or transaction utilized in RP Financial's analyses was
identical to BSB, Bancshares or the Merger. None of the analyses performed by RP
Financial were assigned a greater significance by RP Financial than any other.
The following is a summary of the material financial analyses performed by
RP Financial in connection with providing its fairness opinion.
(a) Transaction Summary. RP Financial summarized the terms of the Merger,
including the conversion of each share of BSB Common Stock into the right to
receive Bancshares Common Stock pursuant to the Exchange Ratio. RP Financial
also summarized the formula for calculating the Exchange Ratio, the treatment of
the outstanding options to acquire BSB Common Stock, the termination provisions
incorporated in the Agreement, and the pricing ratios indicated by the Merger
consideration relative to the tangible book value, historical earnings, budgeted
earnings, assets and deposits of BSB. RP Financial also summarized the impact on
the Merger consideration of certain provisions of the Agreement related to the
real estate owned by BSB.
(b) Comparable Transactions Analysis. In this analysis, RP Financial
conducted an evaluation of the financial terms, financial and operating
condition and market area of recent business combinations among comparable
thrift institutions both pending and completed. In conjunction with its
analysis, RP Financial considered the multiples of tangible book value, earnings
and assets implied by the terms in such completed and pending transactions
involving selling companies whose financial characteristics were comparable to
those of BSB including two comparable groups: (1) selling companies operating in
Florida, with total assets less than $150 million and completed/announced since
1996, representing a total of nine transactions ("Comparable Group #1"; and (2)
selling companies operating in the Southeast U.S. with total assets less than
$150 million, and completed/announced since 1996, representing a total of
twenty-nine transactions ("Comparable Group #2"). The median tangible
price-to-book value ratios indicated by Comparable Group #1 and Comparable Group
#2 were 155% and 156%, respectively, versus a tangible price-to-book value ratio
of
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approximately 203% indicated by the Merger consideration based on June 30, 1998
financial data. The median price-to-assets ratios indicated by the Comparable
Group #1 and Comparable Group #2 were 10.4% and 13.6%, respectively, versus a
price-to-assets ratio of approximately 13.0% indicated by the Merger
consideration based on June 30, 1998 financial data. The median
price-to-earnings multiples indicated by the Comparable Group #1 and Comparable
Group #2 were 18.1 times and 20.1 times, respectively, based on trailing twelve
month earnings, versus a price-to-earnings multiple of approximately 60.0 times
indicated by the Merger consideration relative to BSB's June 30, 1998 trailing
twelve month earnings. The pricing ratios based on tangible book value, earnings
and trailing twelve month earnings indicated by the Merger consideration were
comparable to or exceeded the median pricing ratios indicated by the Comparable
Group #1 and #2, which RP Financial cited in support of its fairness
conclusions.
(c) Discounted Cash Flow Analysis. RP Financial prepared several
discounted cash flow ("DCF") analyses, all of which incorporated a five-year
financial projection and cash flow analysis to stockholders. The DCF analyses
incorporated several specific factors reflecting the operating environment of
BSB on a stand-alone basis, including growth prospects in the local market, the
level of competition from other financial institutions and future earnings
projections for BSB under a stand-alone business plan. The projections of future
cash flows to stockholders included no cash dividends, consistent with current
BSB policy, but rather were comprised wholly of the receipt of consideration at
the end of five years of operations, assuming a terminal value for BSB Common
Stock equal to an assumed merger value. The merger value reflected an estimate
of the price that could be received for BSB Common Stock assuming the Board of
Directors of BSB sought to pursue a merger transaction at the end of five years,
including an orderly marketing of BSB to potential merger partners and receipt
of a control premium by the holders of BSB Common Stock. In the "base case"
operating scenario, the projections of future cash flows assumed asset growth of
10% annually, a return on average assets ranging from 0.55% of average assets to
0.75% of average assets, and realization of a terminal value at the end of five
years of operations equal to 150% of book value per share (assumed to be the
"current market merger value" based on comparable group transaction data). The
cash flow represented by the terminal value was discounted to present value
using a discount rate of 15%. The "base case" DCF analysis indicated a present
value to stockholders of $9.27 per share (assuming a current market merger value
of 150% of book value). In addition to the "base case" operating scenario, RP
Financial prepared DCF analyses assuming different operating scenarios. Under
the conservative operating scenario, in which earnings were projected at 90% of
the "base case", the DCF analysis indicated a present value to stockholders of
$8.94 per share. Under the aggressive operating scenario, in which earnings were
projected at 110% of the "base case", the DCF analysis indicated a present value
to stockholders of $9.59 per share. Assuming a terminal value of 170% of book
value per share (the "aggressive merger value"), the DCF analysis indicated a
present value to stockholders of $10.50 per share, $10.14 per share, and $10.87
per share, respectively, under the "base case", the conservative operating
scenario, and the aggressive operating scenario. RP Financial concluded that,
since the Merger consideration exceeded the present value of future cash flows
accruing to holders of BSB Common Stock under all scenarios assuming the current
market merger value and the aggressive merger value, the DCF analyses supported
its fairness conclusions.
(d) Impact Analysis. RP Financial evaluated the projected financial impact
of the Merger on the balance sheet, income statement and per share financial
measures of BSB. RP Financial's analysis considered the financial condition and
operations of BSB and Bancshares at June 30, 1998 and the pro forma impact of
the Merger. RP Financial calculated the impact analysis assuming that the
holders of BSB Common Stock would receive 0.5737 shares of Bancshares Common
Stock pursuant to the Exchange Ratio formula based on the Bancshares closing
price of $19.00 per share as of September 2, 1998. Under these circumstances, RP
Financial estimated that holders of BSB Common Stock would realize accretion of
33.1 percent in tangible book value per share. RP Financial further estimated
that holders of BSB Common Stock would realize dilution of 54 percent to pro
forma trailing twelve-month EPS. The holders of BSB Common Stock would realize
earnings accretion and a stronger return on equity (ROE) on a pro forma basis
relative to stand-alone operations based on budgeted earnings. RP Financial
considered both the impact of the Merger on the overall financial measures of
BSB as well as the impact of the Merger on the per share financial measures of
BSB in support of the fairness issue.
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In addition to these financial analyses, RP Financial considered several
other considerations in its fairness conclusions. Such other financial
considerations included the greater market capitalization of the merged company
relative to BSB on a stand-alone basis; the significantly greater liquidity in
the shares relative to the shares of BSB Common Stock without the Merger; the
likelihood of greater potential stock price appreciation in the Bancshares
Common Stock relative to the shares of BSB Common Stock without the Merger; and,
the potential benefits to BSB of the greater geographic and operating
diversification of the merged company relative to BSB on a stand-alone basis.
On the basis of these analyses and other considerations, RP Financial
concluded that the Merger consideration, as described in the Agreement, is fair
to the stockholders of BSB from a financial point of view. As described above,
RP Financial's opinion and presentation to Board of Directors of BSB was one of
many factors taken into consideration by the Board in making its determination
to approve the Agreement. Although the foregoing summary describes the material
components of the analyses presented by RP Financial to the Board of Directors
of BSB, it does not purport to be a complete description of all the analyses
performed by RP Financial and is qualified by reference to the written opinion
of RP Financial set forth as Appendix B hereto, which the holders of BSB Common
Stock are urged to read in its entirety.
Pursuant to a letter dated February 25, 1998 (the "RP Financial Engagement
Letter"), RP Financial estimates that it will receive from BSB total fees of
$20,000, of which $10,000 has been paid to date, plus reimbursement of certain
out-of-pocket expenses, for its services in connection with the Merger. In
addition, BSB has agreed to indemnify RP Financial against certain liabilities,
including liabilities under the federal securities laws.
EFFECTIVE TIME OF THE MERGER
Subject to the conditions to the obligations of the parties to effect the
Merger, the Effective Time will occur on the date and at the time set forth in
the Certificate of Merger to be filed with the Department. Unless otherwise
agreed upon by Bancshares and BSB, and subject to the conditions to the
obligations of the parties to effect the Merger, the parties will use their
reasonable efforts to cause the Effective Time to occur on or before the tenth
business day (as designated by Bancshares) following the last to occur of (i)
the effective date (including expiration of any applicable waiting period) of
the last required consent of any regulatory authority having authority over and
approving or exempting the Merger (which has already occurred); or (ii) the date
on which the stockholders of BSB approve the Agreement.
No assurance can be provided that the necessary stockholder approval can be
obtained or that other conditions precedent to the Merger can or will be
satisfied. Bancshares and BSB anticipate that all conditions to consummation of
the Merger will be satisfied so that the Merger can be effected during the
fourth quarter of 1998. However, delays in the consummation of the Merger could
occur.
The Board of Directors of either Bancshares or BSB generally may terminate
the Agreement if the Merger is not consummated by December 1, 1998. See
"-- Conditions to Consummation of the Merger" and "-- Waiver, Amendment and
Termination of the Agreement."
DISTRIBUTION OF BANCSHARES' STOCK CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES
Promptly after the Effective Time, Bancshares will cause the Exchange Agent
to mail to the former stockholders of BSB a form letter of transmittal, together
with instructions for the exchange of such stockholders' certificates
theretofore representing shares of BSB Common Stock for new certificates
representing shares of Bancshares Common Stock.
BSB STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE THE FORM LETTER OF TRANSMITTAL AND INSTRUCTIONS.
Upon surrender to the Exchange Agent of certificates for BSB Common Stock,
together with a properly completed letter of transmittal, there will be issued
and mailed to each holder of BSB Common Stock surrendering such items a
certificate or certificates representing the number of shares of Bancshares
Common
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Stock to which such holder is entitled, as well as payment, by check, for any
resulting fractional shares of Bancshares Common Stock. The amount of the
payment to be received by the holder will equal the product of the fractional
share amount multiplied by the Average Price of Bancshares Common Stock. After
the Effective Time, to the extent permitted by law, BSB stockholders of record
as of the Effective Time will be entitled to vote at any meeting of holders of
Bancshares Voting Stock the number of whole shares of Bancshares Common Stock
into which their BSB Common Stock has been converted, regardless of whether such
stockholders have surrendered their BSB Common Stock certificates. No dividend
or other distribution payable after the Effective Time with respect to
Bancshares Common Stock, however, will be paid to the holder of any
unsurrendered BSB Common Stock certificate until the holder duly surrenders such
certificate. Upon such surrender, all undelivered dividends and other
distributions will be delivered to such former BSB stockholder, in each case
without interest.
The stock transfer books of BSB shall be closed at the Effective Time.
After the Effective Time, there will be no transfers of shares of BSB Common
Stock on BSB's stock transfer books. If certificates representing shares of BSB
Common Stock are presented for transfer after the Effective Time, they will be
canceled and exchanged for the shares of Bancshares Common Stock deliverable in
respect thereof.
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to a number of conditions, including,
but not limited to:
(a) Approvals from the FDIC, the Federal Reserve and the Department
without any conditions or restrictions that would, in the reasonable
judgment of Bancshares' or BSB's Board of Directors, so materially
adversely impact the economic or business benefits of the transactions
contemplated by the Agreement that had such condition or requirement been
known, Bancshares or BSB would not, in their reasonable respective
judgments, have entered into the Agreement, and the expiration of all
applicable waiting and notification periods. All required regulatory
approvals for the Merger have been obtained, and all applicable waiting
periods have expired.
(b) The approval of the Agreement by the holders of two-thirds of the
outstanding shares of BSB Common Stock;
(c) The absence of any action by any court or governmental authority
restraining, prohibiting, restricting or making illegal consummation of the
Merger;
(d) The receipt of satisfactory opinions of counsel that the Merger
qualifies for federal income tax treatment as a reorganization under
Section 368(a) of the Code and that the exchange of BSB Common Stock for
Bancshares Common Stock will not give rise to recognition of gain or loss
to BSB stockholders, except to the extent of any cash received. Such
opinions have already been rendered by counsel to Bancshares and BSB; and
(e) The Registration Statement of which this Proxy
Statement/Prospectus is a part shall have become effective under the
Securities Act, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued, no action, suit, proceeding
or investigation by the Commission to suspend the effectiveness thereof
shall have been initiated and be continuing, and all necessary approvals
under state securities laws or the Securities Act relating to the issuance
or trading of the shares of Bancshares Common Stock issuable pursuant to
the Merger shall have been received. The Registration Statement was
declared effective by the Commission on September , 1998.
Consummation of the Merger also is subject to the satisfaction or waiver of
various other conditions specified in the Agreement, including, among others:
(i) the delivery by Bancshares and BSB of opinions of their respective counsel
and certificates executed by their respective duly authorized officers as to
compliance with the Agreement; and (ii) as of the Closing Date, the accuracy of
certain representations and warranties and the compliance in all material
respects with the agreements and covenants of each party.
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REGULATORY APPROVALS
As noted above, the Merger required the approval of the FDIC, the Federal
Reserve and the Department prior to consummation. On June 4, 1998, the Federal
Reserve issued its approval, which was originally due to expire on September 4,
1998. Prior to such expiration, the Federal Reserve extended its approval so as
to remain in effect until December 4, 1998. On June 15, 1998, the Department
issued its final order approving the Merger conditional on BSB stockholder
approval. The Department's approval expires in six months unless an extension of
time is requested and granted. Also, on July 8, 1998, the FDIC issued its
approval, which expires in six months. Approval by the OTS is not required, but
notification of the Merger by BSB to the OTS has been provided and the requisite
30-day notification period has expired.
Under the FDI Act, the Merger may not be consummated until the 30th day
following the date of FDIC approval, which may be shortened to the 15th day by
the FDIC, during which time the United States Department of Justice may
challenge the transaction on antitrust grounds. The commencement of any
antitrust action would stay the effectiveness of the FDIC's approval, unless a
court specifically orders otherwise. The applicable waiting period for the
Merger expired on July 23, 1998.
WAIVER, AMENDMENT AND TERMINATION OF THE AGREEMENT
Prior to the Effective Time, and to the extent permitted by law, any
provision of the Agreement generally may be: (i) waived by the party benefitted
by the provision; or (ii) amended by a written agreement between Bancshares and
BSB approved by their respective Boards of Directors; provided, however, after
BSB stockholder approval of the Agreement, no amendment relating to the manner
in which BSB Common Stock shall be exchanged for Bancshares Common Stock may be
made without the further approval of such stockholders.
The Agreement may be terminated, and the Merger abandoned, at any time
prior to the Effective Time, either before or after approval by BSB
stockholders, under certain circumstances, including:
(a) By mutual consent of the Boards of Directors of Bancshares and
BSB;
(b) By the Board of Directors of either Bancshares or BSB in the event
of an inaccuracy of any representation or warranty of the other party
contained in the Agreement; provided that the terminating party is not then
in breach of any representation or warranty or in material breach of any
covenant or other agreement contained in the Agreement that cannot be or
has not been cured within 30 days after the giving of written notice to the
other party;
(c) By the Board of Directors of either Bancshares or BSB in the event
of a material breach by the other party of any covenant contained in the
Agreement that cannot be or has not been cured within 30 days after the
giving of written notice to the breaching party of such breach;
(d) By the Board of Directors of Bancshares or BSB in the event (i)
any application filed with any regulatory authority required for
consummation of the Merger and the other transactions contemplated by the
Agreement is denied by final nonappealable action of such authority or if
any action taken by such authority is not appealed within the time limit
for appeal, or (ii) the stockholders of BSB fail to vote their approval of
the matters submitted for the approval by such stockholders at the Special
Meeting where the transactions will be presented to such stockholders for
approval and voted upon; provided that such denial or failure is not caused
by any willful breach of the Agreement by the party electing to terminate;
(e) By the Board of Directors of either Bancshares or BSB in the event
that the Merger shall not have been consummated by December 1, 1998;
provided that such failure to consummate is not caused by any willful
breach of the Agreement by the party electing to terminate; or
(f) By the Board of Directors of either Bancshares or BSB in the event
that any of the conditions precedent to the obligations of such party to
consummate the Merger cannot be satisfied or fulfilled by the date
specified in the Agreement; provided that the terminating party is not then
in breach of any representation or warranty or in material breach of any
covenant or other agreement contained in the Agreement.
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If the Agreement is terminated, the parties will have no further
obligations, except with respect to certain provisions, including those
providing for payment of expenses and restricting disclosure of confidential
information. Further, termination will not relieve the parties from the
consequences of any uncured willful breach of the Agreement giving rise to such
termination.
CONDUCT OF BUSINESS PENDING THE MERGER
Each of Bancshares and BSB has generally agreed, unless the prior consent
of the other party is obtained, and except as otherwise contemplated by the
Agreement, to operate its business only in the ordinary course, preserve intact
in all material respects its business organizations and assets, maintain its
rights and franchises, and take no action that would materially adversely affect
the ability of either party to perform its covenants and agreements under the
Agreement or to obtain any consent or approval required for the consummation of
the transactions contemplated by the Agreement. In addition, the Agreement
contains certain other restrictions applicable to the conduct of the business of
BSB and Bancshares prior to consummation of the Merger, as described below.
BSB
BSB has agreed not to take certain actions relating to the operation of its
business pending consummation of the Merger without the prior approval of
Bancshares. Those actions generally include, without limitation: (i) amending
the Charter or By-laws or other governing instrument of BSB and its
subsidiaries; (ii) becoming responsible for any obligation for borrowed money in
excess of an aggregate amount outstanding at any time of $50,000 (except in the
ordinary course of business consistent with past practices); (iii) repurchasing,
redeeming, acquiring or exchanging, directly or indirectly, any shares or any
securities convertible into shares of its capital stock (other than exchanges in
the ordinary course under employee benefits plans) or declaring or paying any
dividend or making any other distribution in respect of its capital stock; (iv)
except pursuant to the exercise of outstanding options to purchase BSB Common
Stock, issuing or selling any additional shares of any BSB capital stock, any
rights to acquire any such stock or any security convertible into such stock;
(v) adjusting, splitting, combining or reclassifying any of its capital stock;
(vi) except for U.S. Treasury or federal agency securities or Freddie Mac,
Fannie Mae, Ginnie Mae or other investment-grade securities, purchasing any
securities of or making any material investment in any entity other than one of
its wholly-owned subsidiaries or otherwise acquiring control over any other
entity; (vii) except in accordance with past practice or as previously approved
by the Board of Directors of BSB, granting any increase in compensation or
benefits to employees, officers or directors, paying any severance pay or bonus
(except pursuant to any existing written policies or contracts), entering into
or amending any severance agreements with officers (except as provided by the
Agreement), or voluntarily accelerating the vesting of any employee benefits;
(viii) granting any increase in fees or other increases in compensation or other
benefits to the directors of BSB or any of its subsidiaries except in accordance
with past practice; (ix) entering into or amending (except for any amendment
required by law) any employment contract that it does not have the unconditional
right to terminate without liability (other than liability for services already
rendered); (x) adopting any new employee benefit plan or program or materially
changing any existing plan or program (except for any change required by law or
advisable to maintain the tax qualified status of any such plan); (xi) making
any significant change in tax or accounting methods or systems of internal
accounting controls (except in conformity to changes in tax laws or generally
accepted accounting principles); (xii) commencing any litigation (except in
accordance with past practices), or settling any litigation for material money
damages or restrictions upon the operations of BSB or any of its subsidiaries;
or (xiii) modifying or terminating any material contract.
Bancshares
Bancshares has agreed (a) to continue to conduct its business in a manner
designed to enhance the long-term value of the Bancshares Common Stock and the
business prospects of Bancshares and (b) to take no action that would adversely
affect the ability of either Bancshares or BSB (i) to obtain any regulatory
approvals required for the Merger or (ii) to perform its covenants and
agreements under the Agreement.
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MANAGEMENT OF BANCSHARES AND REPUBLIC FOLLOWING THE MERGER
Consummation of the Merger will not alter the present directors and
officers of Bancshares or Republic. Information concerning the management of
Bancshares and Republic is included in the documents incorporated herein by
reference. See "Documents Incorporated by Reference."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Agreement generally provides that Bancshares will, to full extent
provided by Florida law and the OTS Regulations and by BSB's Charter and
By-laws, indemnify, defend and hold harmless the present and former directors,
officers, employees and agents of BSB or any of its subsidiaries against all
liabilities arising out of actions or omissions occurring at or prior to the
Effective Time.
The Agreement also provides that, after the Effective Time, Bancshares will
provide generally to officers and employees of BSB and its subsidiaries who
become officers or employees of Bancshares or its subsidiaries employee benefits
under employee benefit plans on terms and conditions that, taken as a whole, are
substantially similar to those currently provided by Bancshares and its
subsidiaries to their similarly situated officers and employees. For purposes of
participation and vesting (but not benefit accrual) under such employee benefit
plans, service with BSB or its subsidiaries prior to the Effective Time will be
treated as service with Bancshares or its subsidiaries. The Agreement further
provides that Bancshares will cause BSB to honor all provisions for vested
amounts earned or accrued through the Effective Time under BSB's benefit plans.
In addition, certain directors and officers of BSB will receive
compensation upon the consummation of the Merger, pursuant to several change of
control agreements. Octavio Hernandez, the President, Chief Executive Officer
and a director of BSB will receive 12 months' compensation upon the consummation
of the Merger. The compensation to be received by Mr. Hernandez under the terms
of this change of control provision includes his annual salary, car allowance,
bonus paid during the previous year, unused vacation time and 12 months' medical
and dental insurance benefit. In addition, Mr. Hernandez will receive a bonus
equal to 10% of the after-tax profits of BSB for the current year.
Additionally, Dennis Dill, the current Senior Vice President and Chief
Financial Officer, Abel V. Montuori, the current Vice President of Commercial
Lending, Enid B. Cline, the current Vice President of Mortgage Loan
Administration, Ron Lunger, the current Vice President and Controller, Margaret
Simpson, the current Vice President and Branch Manager and Rosa Mejia, the
current Human Resources Director will be entitled to receive a six-month salary
continuation and six months' medical and dental insurance benefit in the event
of a change of control of BSB.
As described above under "-- Treatment of BSB Options," the Agreement also
provides that all rights with respect to BSB Common Stock pursuant to stock
options granted by BSB under its stock option plans that are outstanding at the
Effective Time, whether or not then exercisable, will be converted into and will
become options with respect to Bancshares Common Stock, and Republic will assume
each of such options in accordance with its terms and the Exchange Ratio in the
Agreement.
DISSENTING STOCKHOLDERS
General
If the Merger and the transactions contemplated thereby are consummated,
any BSB stockholder who properly perfects his or her dissenters' rights of
appraisal will be entitled to receive in cash the fair or appraised value of
such stockholder's shares of BSB Common Stock determined immediately prior to
the Effective Time, excluding any appreciation or depreciation in anticipation
of the Merger, as provided in Section 552.14 of the OTS Regulations, a copy of
which is included as Appendix C to this Proxy Statement/Prospectus. FAILURE TO
STRICTLY COMPLY WITH THE PROCEDURES PRESCRIBED BY THE APPLICABLE OTS REGULATIONS
WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS.
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Regulatory Requirements
The following is a summary of the steps to be taken by a BSB stockholder
who is interested in perfecting such holder's dissenters' rights and should be
read in conjunction with the full text of Appendix C. Each of the steps
enumerated below must be taken in strict compliance with the applicable
provisions of the OTS Regulations in order for holders of BSB Common Stock to
perfect their dissenters' rights.
Any written objection, demand or notice required by the OTS Regulations in
connection with the exercise of dissenters' rights should be sent to BSB at 2222
Ponce De Leon Boulevard, Coral Gables, Florida 33134, Attention: William Dolan,
Corporate Secretary (telephone (305) 441-2222). It is recommended that all
required documents to be delivered by mail be sent by registered or certified
mail with return receipt requested.
Any stockholder of BSB entitled to vote on the Agreement has the right to
receive payment of the fair or appraised value of his or her shares of BSB
Common Stock upon compliance with the applicable provisions of the OTS
Regulations. A stockholder may dissent as to all or less than all of the shares
that are registered in his or her name. Any BSB stockholder intending to enforce
the right to dissent (i) must not vote in favor of the Agreement, and (ii) must
file a written notice of intent to demand appraisal of and payment for his or
her shares (the "Objection Notice") with BSB before the vote on the proposal to
approve the Agreement and the transactions contemplated thereby is taken at the
Special Meeting. The Objection Notice must identify the stockholder and state
that the stockholder intends to demand appraisal of and payment for his or her
shares of BSB Common Stock if the Merger is effected. Such demand must be in
addition to and separate from any proxy or vote against the Agreement submitted
by the stockholder. A VOTE AGAINST APPROVAL OF THE AGREEMENT, IN AND OF ITSELF,
WILL NOT CONSTITUTE AN OBJECTION NOTICE SATISFYING THE REQUIREMENTS OF THE OTS
REGULATIONS.
If the Agreement is approved by BSB's stockholders at the Special Meeting,
each stockholder who has properly filed an Objection Notice and has not voted in
favor of the Agreement will be notified by Republic of the Merger within ten
days of the Effective Date. In such notice Republic will make a written offer to
the dissenting BSB stockholder to pay a specified price that it deems to be the
fair value for their shares of BSB Common Stock. The notice will also set forth
the steps that must be taken by a dissenting stockholder in order to perfect his
or her dissenter's rights. The Republic notice and offer will be accompanied by
certain BSB financial statements. If the fair value for the shares is agreed
upon within 60 days following the Effective Date of the Merger, the dissenting
stockholder shall receive payment for his or her shares within 90 days of the
Effective Date of the Merger.
If Republic and any dissenting stockholder are unable to agree as to the
fair value of the stockholder's shares of BSB Common Stock, the stockholder must
to file a petition with the OTS demanding a determination of the fair market
value of the stock of all dissenting stockholders, with a copy of the petition
sent by registered or certified mail to Republic, within 60 days following the
Effective Date of the Merger. Also within such 60-day period, the stockholder
must submit to Republic's transfer agent, ChaseMellon Shareholders Services, his
or her BSB Common Stock certificates for notation thereon that (i) an appraisal
and payment have been demanded with respect to such stock and (ii) appraisal
proceedings are pending. ANY BSB STOCKHOLDER WHO EITHER FAILS TO FILE A PETITION
WITH THE OTS DEMANDING AN APPRAISAL OR FAILS TO SUBMIT HIS OR HER BSB COMMON
STOCK CERTIFICATES FOR NOTATION WILL NO LONGER BE ENTITLED TO APPRAISAL RIGHTS
AND WILL BE DEEMED TO HAVE ACCEPTED THE TERMS SET FORTH IN THE AGREEMENT.
After receiving a properly filed petition, the OTS will conduct an
appraisal and will make a determination as to the fair value of the dissenting
stockholders' shares. The OTS will then direct Republic to pay such amount upon
surrender of the BSB Common Stock certificates. Any payment made by Republic
will include interest from the Effective Date of the Merger at a rate deemed
equitable by the OTS. The agency may also apportion and assess costs and
expenses against all or some of the parties to the appraisal proceeding as it
deems equitable, taking into consideration whether any party has acted
arbitrarily, vexatiously or not in good faith in exercising its rights.
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THE FOREGOING SUMMARY OF THE APPLICABLE PROVISIONS OF SECTION 552.14 OF THE
OTS REGULATIONS IS NOT INTENDED TO BE A COMPLETE STATEMENT OF SUCH PROVISIONS,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SECTION, WHICH IS
REPRODUCED IN FULL AS APPENDIX C HEREOF. THE PROVISIONS OF THE OTS REGULATIONS
ARE TECHNICAL IN NATURE AND COMPLEX. IT IS RECOMMENDED THAT ANY BSB STOCKHOLDER
WHO DESIRES TO EXERCISE THE RIGHT TO DISSENT TO THE AGREEMENT CONSULT HIS OR HER
COUNSEL. FAILURE TO STRICTLY COMPLY WITH THE PROVISIONS OF THE OTS REGULATIONS
MAY DEFEAT A STOCKHOLDER'S RIGHT TO DISSENT.
Any dissenting BSB stockholder who perfects such holder's right to be paid
the value of such holder's shares in cash under the foregoing procedures for
dissent and appraisal will recognize taxable gain or loss for federal income tax
purposes upon receipt of cash for such shares. See "-- Certain Federal Income
Tax Consequences of the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
THE FOLLOWING IS A SUMMARY OF CERTAIN ANTICIPATED FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. THIS SUMMARY IS BASED ON THE FEDERAL INCOME TAX LAWS
NOW IN EFFECT AND AS CURRENTLY INTERPRETED; IT DOES NOT TAKE INTO ACCOUNT
POSSIBLE CHANGES IN SUCH LAWS OR INTERPRETATIONS, INCLUDING AMENDMENTS TO
APPLICABLE STATUTES OR REGULATIONS OR CHANGES IN JUDICIAL OR ADMINISTRATIVE
RULINGS, SOME OF WHICH MAY HAVE RETROACTIVE EFFECT. THIS SUMMARY ASSUMES THAT
STOCKHOLDERS HOLD STOCK AS A CAPITAL ASSET. THIS SUMMARY DOES NOT PURPORT TO
ADDRESS ALL ASPECTS OF THE POSSIBLE FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER AND IS NOT INTENDED AS TAX ADVICE TO ANY PERSON. IN PARTICULAR, AND
WITHOUT LIMITING THE FOREGOING, THIS SUMMARY DOES NOT ADDRESS THE FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER TO STOCKHOLDERS IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES OR STATUS (FOR EXAMPLE, AS FOREIGN PERSONS, TAX-EXEMPT ENTITIES,
DEALERS IN SECURITIES, INSURANCE COMPANIES AND CORPORATIONS, STOCKHOLDERS WHO
ACQUIRED STOCK THROUGH THE EXERCISE OF OPTIONS OR AS COMPENSATION OR THROUGH A
TAX QUALIFIED RETIREMENT PLANS, AMONG OTHERS). NOR DOES THIS SUMMARY ADDRESS ANY
CONSEQUENCES OF THE MERGER UNDER ANY STATE, LOCAL, ESTATE OR FOREIGN TAX LAWS.
STOCKHOLDERS, THEREFORE, ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING
REQUIREMENTS, THE APPLICATION AND EFFECT OF FEDERAL, FOREIGN, STATE, LOCAL AND
OTHER TAX LAWS AND THE IMPLICATIONS OF ANY PROPOSED CHANGES IN THE TAX LAWS.
A federal income tax ruling with respect to this transaction was not
requested from the Internal Revenue Service. Instead, Holland & Knight LLP,
special counsel to Bancshares, and Alston & Bird LLP, special counsel to BSB,
will each render an opinion to Bancshares and BSB, respectively, concerning
certain federal income tax consequences of the proposed Merger under federal
income tax law. Each such opinion of counsel will be based on customary
assumptions and factual representations regarding matters germane to such
opinion. It is anticipated by both firms that:
(a) Provided the Merger qualifies as a statutory merger under
applicable law, the Merger will be a reorganization within the meaning of
Section 368(a) of the Code, and BSB, Republic and Bancshares will each be
"a party to a reorganization" within the meaning of Section 368(b) of the
Code.
(b) The stockholders of BSB will recognize no gain or loss upon the
exchange of their BSB Common Stock solely for shares of Bancshares Common
Stock.
(c) The basis of the Bancshares Common Stock received by the BSB
stockholders in the proposed transaction will be the same as the basis of
the BSB Common Stock surrendered in exchange therefor less the basis of any
fractional share of Bancshares Common Stock settled by cash payment.
(d) The holding period of the Bancshares Common Stock received by the
BSB stockholders will, in each instance, include the period during which
the BSB Common Stock surrendered in exchange therefor was held, provided
that the BSB Common Stock was held as a capital asset on the date of the
exchange.
(e) The payment of cash to BSB stockholders in lieu of fractional
share interests of Bancshares Common Stock will be treated for federal
income tax purposes as if the fractional shares were distributed
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as part of the exchange and then were redeemed by Bancshares. These cash
payments will be treated as having been received as distributions in full
payment in exchange for the stock redeemed. Generally, any gain or loss
recognized upon such exchange will be capital gain or loss, provided the
fractional share would constitute a capital asset in the hands of the
exchanging stockholder.
(f) Where solely cash is received by a BSB stockholder in exchange for
his BSB Common Stock pursuant to the exercise of dissenters' rights, such
cash will be treated as having been received in redemption of his BSB
Common Stock, subject to the provisions and limitations of Section 302 of
the Code.
THE TAX OPINIONS DO NOT ADDRESS ANY STATE, LOCAL OR OTHER TAX CONSEQUENCES
OF THE MERGER. BSB STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES OF THE PROPOSED TRANSACTION TO THEM
INDIVIDUALLY, INCLUDING TAX CONSEQUENCES UNDER STATE OR LOCAL LAW.
ACCOUNTING TREATMENT
The Merger will be accounted for as a pooling of interests in which BSB's
assets will be carried forward at their historical cost. No charge to goodwill
will be made following the Merger. The equity of the Combined Company will be
increased by $4.4 million, based on data as of June 30, 1998.
Following the Merger, the Combined Company will restate its historical
financial and other data necessary for a fair presentation of financial
condition and results of operations "as if" Bancshares and BSB had been combined
during the current and four preceding fiscal years.
EXPENSES AND FEES
The Agreement provides, in general, that each of the parties will bear and
pay its own expenses in connection with the transactions contemplated by the
Agreement, including fees and expenses of its own financial or other
consultants, investment bankers, accountants and counsel, except that the
parties will each bear and pay one half of the printing costs incurred in
connection with the printing and filing of this Proxy Statement/Prospectus.
RESALES OF BANCSHARES COMMON STOCK
The Bancshares Common Stock to be issued to stockholders of BSB in
connection with the Merger will be registered under the Securities Act. All
shares of Bancshares Common Stock received by holders of BSB Common Stock, and
all shares of Bancshares Common Stock issued and outstanding immediately prior
to the Effective Time, upon consummation of the Merger, will be freely
transferable by those stockholders of BSB and Bancshares not deemed to be
"Affiliates" of BSB or Bancshares. "Affiliates" generally are defined as persons
or entities who control, are controlled by or are under common control with BSB
or Bancshares at the Effective Time of the Merger.
Rules 144 and 145 promulgated under the Securities Act restrict the sale of
Bancshares Common Stock received in the Merger by Affiliates and certain of
their family members and related interests. Generally speaking, during the
one-year period following the Effective Time, Affiliates of BSB or Bancshares
may resell publicly the Bancshares Common Stock received by them in the Merger
within certain limitations as to the amount of Bancshares Common Stock sold in
any three-month period and as to the manner of sale. After this one-year period,
such Affiliates of BSB who are not Affiliates of Bancshares may resell their
shares without restriction. This Proxy Statement/Prospectus does not cover any
resales of Bancshares Common Stock received by persons who may be deemed to be
Affiliates of BSB or Bancshares.
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BSB has agreed to use its reasonable efforts to cause each person who BSB
reasonably believes will be an Affiliate of BSB to execute and deliver to
Bancshares a written agreement providing that such person generally will not
sell, pledge, transfer or otherwise dispose of any Bancshares Common Stock to be
received by such person upon consummation of the Merger, except in compliance
with the Securities Act and the rules and regulations of the Commission
promulgated thereunder.
[Balance of page intentionally left blank]
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EFFECT OF THE MERGER ON RIGHTS OF STOCKHOLDERS
As a result of the Merger, holders of BSB Common Stock will be exchanging
their shares of BSB, a federal savings association governed by the HOLA, the OTS
Regulations, BSB's Charter (the "Charter") and BSB's By-laws, for shares of
Bancshares, a Florida corporation governed by the FBCA, Bancshares' Articles of
Incorporation (the "Bancshares Articles") and Bancshares' By-Laws. Certain
differences exist between the rights of BSB stockholders and those of Bancshares
stockholders. Certain of these differences are summarized below. The following
discussion is necessarily general; it is not intended to be a complete statement
of all differences affecting the rights of stockholders and their respective
entities, and it is qualified in its entirety by reference to the FBCA and the
OTS Regulations as well as to the Bancshares Articles and By-Laws and the BSB
Charter and By-laws.
AUTHORIZED CAPITAL STOCK
Bancshares
The Bancshares Articles authorize the issuance of up to 20,000,000 shares
of Bancshares Common Stock, and 100,000 shares of Bancshares Preferred Stock, of
which 9,724,325 and 75,000 shares, respectively, were issued and outstanding as
of June 30, 1998. Each share of Bancshares Preferred Stock is convertible into
ten shares of Bancshares Common Stock and is redeemable by Bancshares upon 30
days prior written notice at a price of $96.80 per share.
Unless otherwise required by law or the Bancshares Articles, holders of
Bancshares Common and Preferred Stock vote together as a single class on all
matters presented to Bancshares' stockholders. Each share of Bancshares
Preferred Stock is entitled to ten votes for all purposes, and each share of
Bancshares Common Stock is entitled to one vote. No cash dividend may be
declared or paid on shares of Bancshares Common Stock unless, simultaneously
therewith or prior thereto, there is or has been declared or paid the quarterly
dividend payable on Bancshares Preferred Stock.
In any liquidation or dissolution of the corporation, the holders of
Bancshares Preferred Stock will be entitled to receive, out of the assets
available for distribution to stockholders, an amount equal to $88.00 per share
before any amount is paid to holders of Bancshares Common Stock. After the above
preference amount has been paid to the holders of Bancshares Preferred Stock,
such holders will not be entitled to any further distributions. The holders of
Bancshares Common Stock will then be entitled to participate, pro rata in
accordance with the number of shares owned by them, in the distribution of
Bancshares' remaining assets.
Bancshares' Board of Directors may authorize the issuance of additional
authorized but unissued shares of Bancshares Common and Preferred Stock without
further action by Bancshares' stockholders, unless such action is required in a
particular case by applicable laws or regulations or by any stock exchange upon
which Bancshares' capital stock may be listed. The Bancshares Articles do not
provide any preemptive rights to Bancshares' stockholders.
The authority to issue additional shares of Bancshares Common Stock
provides Bancshares with the flexibility necessary to met its future needs
without the delay resulting from seeking stockholder approval. The authorized
but unissued shares of Bancshares Common and Preferred Stock will be issuable
from time to time for any corporate purpose, including, without limitation,
stock splits, stock dividends, employee benefit and compensation plans,
acquisitions and public or private sales for cash as a means of raising capital.
BSB
As of the Record Date, BSB's authorized capital stock consisted of
10,000,000 shares of BSB Common Stock, par value $4.00 per share, of which
705,333 shares were issued and outstanding. BSB's Board of Directors may
authorize the issuance of additional shares of BSB Common Stock without further
action by BSB's stockholders, except to the extent that such approval is
required by the Charter, governing law, rule or regulation. The holders of the
BSB Common Stock exclusively possess all voting power. Each holder of shares of
BSB Common Stock is entitled to one vote on all matters for each share held by
such holder. BSB's
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Charter does not provide the stockholders of BSB with preemptive rights or the
right to cumulate votes in an election of directors.
Subject to any provision for a liquidation account, in the event of any
liquidation, dissolution or winding up of BSB, the holders of BSB Common Stock
would be entitled, after payment or provision for payment of all debts and
liabilities of BSB, to receive the remaining assets of BSB available for
distribution, in cash or in kind. Each share of BSB Common Stock has the same
relative rights as and is identical in all respects with all the other shares of
BSB Common Stock.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS
Bancshares
The Bancshares Articles provide that such articles may be amended as
provided by law. The FBCA generally requires that the approval of a
corporation's board of directors and the affirmative vote of a majority of (i)
all shares entitled to vote thereon and (ii) the shares of each class of stock
entitled to vote thereon as a class, to amend a corporation's articles of
incorporation, unless the corporation's articles specify a greater voting
requirement. A majority of the Bancshares Board of Directors has the power to
adopt, amend or repeal the Bancshares By-Laws. Neither the Bancshares Articles
nor By-Laws expressly permit the Bancshares stockholders to make, alter or
rescind any By-Laws.
BSB
The BSB Charter generally provides that such charter may not be amended
unless (i) an amendment is proposed by the BSB's Board of Directors, (ii) the
proposed amendment is approved by the affirmative vote by holders of a majority
of the outstanding shares of BSB Common Stock (unless a higher vote is otherwise
required) and (iii) the OTS approves or preapproves the proposed amendment.
The BSB Board of Directors generally has the power to amend, alter and
repeal the By-laws and to adopt new By-laws; provided that the Board of
Directors may delegate such power to the BSB stockholders. Any amendment to
BSB's By-laws that provides for the election of directors by classes for
staggered terms, however, must be adopted by the BSB stockholders.
BOARD OF DIRECTORS AND ABSENCE OF CUMULATIVE VOTING
Bancshares
Bancshares' By-Laws generally provide that the number of directors
constituting the Bancshares Board shall be not less than five nor more than 25
directors as fixed from time to time by resolution of Bancshares' Board of
Directors. Currently, the number of Bancshares directors is fixed at six. The
Bancshares directors are elected to one-year terms, and the Bancshares Board is
not classified. Bancshares' stockholders do not have cumulative voting rights
with respect to the election of directors. All elections for directors are
decided by a plurality vote.
BSB
BSB's Charter provides that the number of directors constituting the BSB
Board shall be not less than five nor more than 15 except when a greater or
lesser number is approved by the Director of the OTS. The number of directors
may be fixed from time to time by action of the directors and stockholders.
Currently, the number of BSB directors is fixed at six. The BSB Board is divided
into three classes, and BSB directors are elected to staggered, three-year
terms. BSB stockholders do not have cumulative voting rights with respect to the
election of directors.
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REMOVAL OF DIRECTORS
Bancshares
Pursuant to Bancshares' By-Laws, any or all of the directors may be removed
with or without cause by the affirmative vote of the holders of at least a
majority of the outstanding shares then entitled to vote.
BSB
Under the BSB By-laws, any or all of the directors may be removed for cause
only, at any time, by vote of the stockholders holding a majority of the votes,
at any special meeting called for that purpose.
INDEMNIFICATION
Bancshares
The Bancshares By-Laws essentially provide that Bancshares will indemnify
its officers, directors, employees and agents to the full extent permitted by
the FBCA. Under the FBCA, other than in actions brought by or in the right of
Bancshares, such indemnification would apply if it were determined in the
specific case that the proposed indemnitee acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of
Bancshares and, with respect to any criminal proceeding, if such person had no
reasonable cause to belief that the conduct was unlawful. In actions brought by
or in the right of Bancshares, such indemnification would apply if it were
determined in the specific case that the proposed indemnitee acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interests of Bancshares, except that no indemnification may be made with
respect to any matter as to which such person is adjudged liable to Bancshares,
unless, and only to the extent that, the court determines upon application that,
in view of all the circumstances of the case, the proposed indemnitee is fairly
and reasonably entitled to indemnification for such expenses as the court deems
proper. To the extent that any director, officer, employee or agent of
Bancshares has been successful on the merits or otherwise in defense of any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, such person must be indemnified against reasonable expenses
incurred by such person in connection with the action.
The Bancshares By-Laws also provide that a director of Bancshares will have
no indemnification rights for liability for (i) willful misconduct or a
conscious disregard for the best interests of Bancshares or its stockholders,
(ii) acts or omissions constituting a violation of criminal law, (iii) the
payment of certain unlawful dividends and the making of certain unlawful stock
purchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit.
Expenses, including attorneys' fees, incurred by a Bancshares director or
officer in defending a civil or criminal action, suit or proceeding must be paid
by Bancshares in advance of the final disposition of the action upon receipt of
an undertaking by the director or officer to repay such amounts if he is
ultimately found not to be entitled to indemnification by Bancshares.
BSB
The BSB By-laws provide that BSB will indemnify any person against whom an
action is brought or threatened because that person is or was a director,
officer or employee of the association, for any amount for which that person
becomes liable under a judgment in such action, and reasonable costs and
expenses, including reasonable attorney's fees, actually paid or incurred by
that person in defending or settling such action, or in enforcing his or her
rights under BSB's By-laws, if he or she attains a favorable judgment in such
enforcement action.
Indemnification shall be made to such person only if (i) final judgment on
the merits is in his or her favor, or (ii) in case of settlement, final judgment
against his or her, or final judgment in his or her favor other than on the
merits, if a majority of the disinterested directors of the savings association
determine that he or she was acting in good faith within the scope of his or her
employment or authority as he or she could reasonably have perceived it under
the circumstances and for a purpose he or she could reasonably have believed
under the circumstances was in the best interest of BSB or its members.
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However, no indemnification shall be made unless BSB gives the OTS at least
60 days' notice of its intention to make such indemnification. Such notice shall
state the facts on which the action arose, the terms of any settlement, and any
disposition of the action by a court. Such notice, a copy thereof, and a
certified copy of the resolution containing the required determination by the
BSB Board of Directors shall be sent to the Regional Director of the OTS, who
shall promptly acknowledge receipt thereof. The notice period shall run from the
date of such receipt. No such indemnification may be made if the OTS advises BSB
in writing, within such notice period, of its objection thereto.
If a majority of the directors of BSB concludes that, in connection with an
action, any person ultimately may become entitled to indemnification under the
BSB By-laws, the directors may authorize payment of reasonable costs and
expenses, including reasonable attorneys' fees, arising from the defense or
settlement of such action. Nothing in BSB's By-laws shall prevent the directors
of BSB from imposing such conditions on a payment of expenses as they deem
warranted and in the interests of BSB. Before making advance payment of expenses
as provided in BSB's By-laws, BSB shall obtain an agreement that BSB will be
repaid if the person or whose behalf payment is made is later determined not to
be entitled to such indemnification.
SPECIAL MEETINGS OF STOCKHOLDERS
Bancshares
Under the Bancshares By-Laws, a special meeting of Bancshares stockholders
may be called at any time by the Chairman of the Board, the President or the
Board of Directors of Bancshares, or as otherwise required by the FBCA.
BSB
BSB's By-laws provide that special meetings of stockholders may be called
by the directors, by any officer instructed by the directors to call such a
meeting, by the Chairman of the Board or by stockholders holding ten percent
(10%) or more of the outstanding stock of BSB entitled to vote thereat.
ACTIONS OF STOCKHOLDERS WITHOUT A MEETING
Bancshares
The Bancshares By-Laws provide that any action required or permitted to be
taken by Bancshares stockholders at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a written consent signed by the holders of outstanding stock of each
group having not less than the minimum number of votes necessary to take such
action at a meeting at which all voting groups were present and voted is
delivered to Bancshares.
BSB
Pursuant to BSB's By-laws, any action required or permitted to be taken at
a meeting of the BSB stockholders may be taken without a meeting if a consent in
writing, setting forth the actions so taken, is signed by all of the
stockholders entitled to vote with respect to the subject matter thereof and
filed with the Secretary of BSB as part of the corporate records. In addition,
the BSB stockholders and directors may elect to hold a meeting through the
telephone and decide on any action in that manner.
STOCKHOLDER NOMINATIONS AND PROPOSALS
Bancshares
Bancshares' Articles, By-Laws and the FBCA are silent as to the procedures
to be followed for stockholders' director nominations and the submission of
stockholder proposals.
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BSB
BSB's By-laws provide that director nominations and new business submitted
by stockholders must be submitted in writing to the secretary of BSB at least
five days prior to the date of BSB's annual meeting in order to be voted upon.
MERGERS, CONSOLIDATION AND SALES OF ASSETS
Bancshares
Neither the Bancshares Articles nor its By-Laws contain provisions
regarding business combination transactions. Under the FBCA, such transactions
generally must be approved by Bancshares' Board of Directors and by the holders
of each class of voting securities by a majority of the total outstanding votes
entitled to be cast by the class unless, in the case of a surviving corporation
in a business combination, (i) its articles of incorporation will not differ
from its articles before the combination and, (ii) each stockholder whose shares
were outstanding immediately prior to the combination will hold the same number
of shares with identical designations, preferences, limitations and relative
rights immediately after the business combination.
BSB
BSB's Charter and By-laws are silent as to business combinations and sales,
leases or other dispositions of assets. For such transactions, the Board of
Directors and stockholder approval provisions set forth in the OTS Regulations
would apply. Under the OTS Regulations, such transactions generally must be
approved by at least two-thirds of the directors and holders of two-thirds of
the outstanding voting stock of BSB.
DISSENTERS' RIGHTS OF APPRAISAL
Bancshares
Under Section 1302 of the FBCA, a stockholder of a corporation generally
has the right to dissent from and to obtain payment of the fair value of his or
her shares in the event of a number of corporate actions, including: (i) a
merger that the stockholder has the right to vote on; (ii) a sales of all or
substantially all of a corporation's assets; (iii) a control share acquisition
or share exchange that the stockholder has the right to vote on; (iv) an
amendment to the articles of incorporation that would adversely affect the
stockholder in certain respects; or (v) any other corporate action to the extent
provided for in the corporation's articles of incorporation.
In order to receive payment of the fair value of his or her shares in the
foregoing situations, a stockholder must comply with all of the applicable
provisions of the FBCA. Any stockholder intending to enforce the right to
dissent (i) must not vote in favor of the corporate action, and (ii) must file a
written notice of intent to demand payment for his or her shares (the "Objection
Notice") with the corporation before the vote on the action. The Objection
Notice must state that the stockholder intends to demand payment for his or her
shares if the action is effected.
If the action is subsequently approved by the corporation's stockholders,
each stockholder who has properly filed an Objection Notice and has not voted in
favor of the action will be notified by the corporation within ten days of the
stockholder approval. Within 20 days following receipt of such notice, any
stockholder electing to dissent must file a notice of his or her election to
exercise dissenters' rights, stating the stockholder's name, address, the
number, classes and series of shares as to which the stockholder dissents, and a
demand for payment of the fair value of such shares (the "Election Notice"), and
simultaneously deposit the certificates representing the shares with the
corporation.
Within the later to occur of ten days following the expiration of the
period in which stockholders may file their Election Notices and ten days after
the corporate action is taken, the corporation must make a written offer to each
stockholder who has properly filed an Election Notice to pay what it deems to be
a fair value for the shares. Any stockholder who accepts such offer within 30
days shall receive payment for his or her shares within 90 days of such offer to
pay or the corporate action, whichever is later.
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In the event the corporation fails to make any payment offer within the
time period set forth above or any dissenting stockholder fails to accept such
offer within 30 days and demands payment within 60 days following the corporate
action, the corporation must institute proceedings in state circuit court
requesting that the fair value of such dissenting stockholder's shares be
determined. The court may, in its discretion, appoint an appraiser to receive
evidence and recommend a decision on the question of fair value. The judgment
may, in the discretion of the court, include a fair rate of interest. Each
dissenting stockholder will be entitled to payment as determined by the court,
within ten days following final determination by the court as to the fair value
of such stockholder's stock.
BSB
The rights of appraisal of dissenting stockholders of BSB in business
combination transactions are governed by Section 552.14 of the OTS Regulations.
See "Description of the Transaction -- Dissenting Stockholders" and "Appendix
C."
STOCKHOLDERS' RIGHTS TO EXAMINE BOOKS AND RECORDS
Bancshares
Bancshares' Articles and By-Laws are silent with respect to the
stockholders' rights to examine books and records. In the absence of such a
provision, the FBCA provides that a stockholder may inspect books and records
upon written demand at least five days before the date on which he wishes to
inspect such records. Such inspection is to occur during regular business hours
at the corporation's principal office. The corporation may deny any demand for
inspection if the demand was made for an improper purpose, which means a purpose
not reasonably related to such person's interest as a stockholder.
BSB
BSB's Charter and By-laws are silent with respect to the stockholders'
rights to examine books and records. In the absence of such a provision, the OTS
Regulations provide that any stockholder or group of stockholders holding of
record either (i) voting shares having a cost of not less than $100,000 or
constituting at least one percent of the total outstanding voting shares for a
period of at least six months or (ii) at least five percent of the total
outstanding voting shares may inspect the books and records of a federal savings
association and make extracts therefrom.
DIVIDENDS
Bancshares
The Bancshares Articles provide that Bancshares Preferred Stock shall pay a
noncumulative annual dividend of $3.52 per share payable in quarterly increments
from legally available funds prior to payment of any dividend on Bancshares
Common Stock for the dividend period. No dividend may be paid on Bancshares
Common Stock unless holders of Bancshares Preferred Stock have received their
dividend for that quarter. Under the FBCA, no dividend or other distribution to
stockholders may be made by Bancshares if, after giving effect to the
distribution, (i) Bancshares would not be able to pay its debts as they come due
in the usual course of business, or (ii) its total assets would be less than the
sum of its liabilities.
BSB
The BSB By-laws provide that dividends may be declared by the BSB Board of
Directors and BSB may pay dividends and other distributions with respect to its
outstanding shares in cash, property or its own shares.
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COMPARATIVE MARKET PRICES
BANCSHARES
Since April 24, 1995, Bancshares Common Stock (and, prior to March 1, 1996
Republic's common stock) has been listed on the Nasdaq National Market under the
symbol "REPB." From January 1, 1995 through April 23, 1995, Republic's common
stock was listed on the Nasdaq Small-Cap Market under the same symbol. To date
Bancshares has not declared any dividends on the Bancshares Common Stock. The
high, low and closing bids per share of Bancshares Common Stock on the Nasdaq
National Market for the indicated periods were as follows:
<TABLE>
<CAPTION>
HIGH LOW CLOSING
------ ------ -------
<S> <C> <C> <C>
Quarter ended March 31, 1996................................ $14.25 $12.25 $12.31
Quarter ended June 30, 1996................................. 14.94 12.25 12.31
Quarter ended September 30, 1996............................ 12.88 11.75 12.88
Quarter ended December 31, 1996............................. 15.50 13.63 15.31
Quarter ended March 31, 1997................................ 16.00 14.00 15.50
Quarter ended June 30, 1997................................. 18.50 17.25 17.25
Quarter ended September 30, 1997............................ 27.63 16.88 26.38
Quarter ended December 31, 1997............................. 27.88 23.75 26.50
Quarter ended March 31, 1998................................ 31.75 25.00 29.25
Quarter ended June 30, 1998................................. 34.75 25.81 27.13
Quarter ended September 30, 1998
(through August 31, 1998)................................. 27.06 19.50 19.50
</TABLE>
BSB
On February 9, 1998, the last business day prior to public announcement of
the proposed Merger, the last known price of BSB Common Stock was $8.00 (at
January 6, 1998).
BSB Common Stock is not traded in any established market. The following
table sets forth, as derived from quotations provided by America Online, an
internet service provider, the high and low bid prices per share of BSB Common
Stock for the indicated periods:
<TABLE>
<CAPTION>
HIGH LOW CLOSING
------ ------ -------
<S> <C> <C> <C>
Quarter ended March 31, 1996................................ $ 7.00 $ 5.50 $ 7.00
Quarter ended June 30, 1996................................. 7.50 6.00 6.50
Quarter ended September 30, 1996............................ 7.50 5.56 5.63
Quarter ended December 31, 1996............................. 5.63 5.50 5.63
Quarter ended March 31, 1997................................ 8.00 5.50 5.75
Quarter ended June 30, 1997................................. 5.75 5.75 5.75
Quarter ended September 30, 1997............................ 9.00 6.50 8.75
Quarter ended December 31, 1997............................. 9.00 8.25 8.75
Quarter ended March 31, 1998................................ 14.75 8.00 13.25
Quarter ended June 30, 1998................................. 13.88 11.13 11.75
Quarter ended September 30, 1998
(through August 31, 1998)................................. 11.50 9.13 9.50
</TABLE>
The payment of cash dividends to the holders of BSB Common Stock is subject
to authorization by the Board of Directors of BSB. BSB has never paid any
dividends on the BSB Common Stock.
60
<PAGE> 70
UNAUDITED COMBINED FINANCIAL DATA
UNAUDITED PRO FORMA COMBINED BALANCE SHEET FOR
BANCSHARES, BSB AND LOCHAVEN
The following unaudited pro forma combined balance sheet presents (i) the
historical unaudited consolidated balance sheet of Bancshares at June 30, 1998,
(ii) the pro forma combined balance sheet of Bancshares at June 30, 1998 giving
effect to the Proposed Mergers, as if it had occurred on that date, and (iii)
the pro forma combined balance sheet of Bancshares at June 30, 1998, giving
effect to the Proposed Mergers, as if they had occurred as of that date.
The Proposed Mergers will be accounted for as a pooling of interests in
which the assets of BSB will be combined with those of Republic at historical
cost. No goodwill will be created in the Mergers.
The pro forma adjustments are based upon available information and upon
certain assumptions that Bancshares believes are reasonable under the
circumstances. Pro forma adjustments consist solely of the issuance of
Bancshares Common Stock. The unaudited pro forma combined balance sheet should
be read in conjunction with the historical consolidated financial statements of
Bancshares and BSB, including the respective notes thereto, which are set forth
at pages F-2, through F-61, respectively, of this Proxy Statement/Prospectus,
and the unaudited financial information appearing elsewhere herein. See
"Comparative Per Share Data." The pro forma combined balance sheet is not
necessarily indicative of Bancshares' future financial position.
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61
<PAGE> 71
UNAUDITED PROFORMA COMBINED BALANCE SHEET
FOR BANCSHARES, BSB AND LOCHAVEN
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
COMBINED
BSB BANCSHARES LOCHAVEN COMPANY
ADJUSTMENTS WITH ADJUSTMENTS WITH
BANCSHARES BSB INC. (DEC) BSB LOCHAVEN INC. (DEC) LOCHAVEN
---------- ------- ----------- ---------- -------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.............. $ 39,095 $ 1,767 $ -- $ 40,862 $ 2,231 $ -- $ 43,093
Interest bearing deposits in banks... 29,356 -- -- 29,356 -- -- 29,356
Investment and MBS securities........ 109,760 6,068 -- 115,828 -- -- 115,828
FHLB stock........................... 10,247 393 -- 10,640 370 -- 11,010
Federal funds sold................... 73,500 4,804 -- 78,304 -- -- 78,304
Loans held for sale.................. 410,113 7,036 -- 417,149 13,987 -- 431,136
Loans, net........................... 1,354,501 42,372 -- 1,396,873 40,093 -- 1,436,966
Premises and equipment, net.......... 50,856 4,326 -- 55,182 654 -- 55,836
Other real estate owned.............. 6,944 876 -- 7,820 641 -- 8,461
Goodwill............................. 28,765 -- -- 28,765 -- -- 28,765
Other assets......................... 41,888 700 -- 42,588 1,311 -- 43,899
---------- ------- ------- ---------- ------- ----- ----------
Total assets................. $2,155,025 $68,342 $ - $2,223,367 $59,287 $ -- $2,282,654
========== ======= ======= ========== ======= ===== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits-
Noninterest-bearing checking..... $ 135,441 $ 3,874 $ -- $ 139,315 $ 6,351 $ -- $ 145,666
Interest checking................ 160,762 2,312 -- 163,074 22,895 -- 185,969
Savings & money market........... 417,705 8,468 -- 426,173 940 -- 427,113
Time deposits.................... 1,027,469 46,047 -- 1,073,516 25,941 -- 1,099,457
---------- ------- ------- ---------- ------- ----- ----------
Total deposits............... 1,741,377 60,701 -- 1,802,078 56,127 -- 1,858,205
Securities sold under agreements to
repurchase....................... 40,745 -- -- 40,745 -- -- 40,745
Other borrowed funds............... 125,000 1,800 -- 126,800 -- -- 126,800
Other liabilities.................. 48,806 1,456 -- 50,262 328 -- 50,590
---------- ------- ------- ---------- ------- ----- ----------
Total liabilities............ 1,955,928 63,957 -- 2,019,885 56,455 -- 2,076,340
Stockholders' Equity:
Company obligated mandatorily
redeemable preferred securities
of subsidiary trust solely
holding
junior subordinated debentures of
Bancshares....................... 28,750 -- -- 28,750 -- -- 28,750
Perpetual preferred convertible
stock............................ 1,500 -- -- 1,500 -- -- 1,500
Common stock....................... 19,449 2,813 (2,089) 20,173 6 332 20,511
Capital surplus.................... 118,937 1,256 2,089 122,282 3,365 (332) 125,315
Retained earnings.................. 30,429 316 -- 30,745 (539) -- 30,206
Net unrealized gains (losses)
on available-for-sale securities,
net of tax effect.................. 32 -- -- 32 -- -- 32
---------- ------- ------- ---------- ------- ----- ----------
Total stockholders' equity... 170,347 4,385 -- 174,732 2,832 -- 177,564
---------- ------- ------- ---------- ------- ----- ----------
Total liabilities and
stockholders' equity....... $2,155,025 $68,342 $ -- $2,223,367 $59,287 $ -- $2,282,654
========== ======= ======= ========== ======= ===== ==========
</TABLE>
62
<PAGE> 72
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR BANCSHARES, BSB AND LOCHAVEN
The following unaudited pro forma combined condensed statements of
operations have been prepared for the years ended December 31, 1997, 1996 and
1995 and for the six months ended June 30, 1998 and 1997, giving effect to the
Merger, as if it had occurred at the beginning of the respective periods. The
pro forma adjustments are based upon available information and upon certain
assumptions that Bancshares believes are reasonable under the circumstances. The
pro forma adjustments to the combined condensed statements of operations do not
include the effect of operating cost savings or revenue enhancements that may be
realized after the Merger is completed. The pro forma combined condensed
statements of operations are not necessarily indicative of the results that
actually would have occurred if the Proposed Mergers had been consummated at the
dates indicated or that may be obtained in the future. The unaudited pro forma
combined condensed statements of operations should be read in conjunction with
the historical consolidated financial statements of Bancshares and BSB,
including the respective notes thereto, which are set forth at pages F-2 through
F-61 respectively, of this Proxy Statement/Prospectus, and the unaudited
financial information appearing elsewhere herein. See "Comparative Per Share
Data."
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63
<PAGE> 73
UNAUDITED PROFORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR BANCSHARES, BSB & LOCHAVEN
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
BSB LOCHAVEN COMBINED
ADJUSTMENTS BANCSHARES ADJUSTMENTS COMPANY
BANCSHARES BSB INC. (DEC) W/BSB LOCHAVEN (DEC) W/LOCHAVEN
---------- -------- ----------- ---------- -------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income................... $ 71,893 $ 2,384 $ -- $ 74,277 $ 369 $ -- $ 74,646
Interest expense.................. 36,972 1,603 -- 38,575 231 -- 38,806
---------- -------- -------- ---------- -------- -------- ----------
Net interest income....... 34,921 781 -- 35,702 138 -- 35,840
Loan provision.................... 1,525 42 -- 1,567 8 -- 1,575
---------- -------- -------- ---------- -------- -------- ----------
Net interest income after loan
loss provision.................. 33,396 739 -- 34,135 130 -- 34,265
Noninterest income................ 23,747 794 -- 24,541 474 -- 25,015
General & administrative (G&A)
expenses........................ 52,828 1,460 -- 54,288 518 -- 54,806
Other noninterest expenses........ 690 -- -- 690 15 -- 705
---------- -------- -------- ---------- -------- -------- ----------
Net income before taxes... 3,625 73 -- 3,698 71 -- 3,769
Income tax expense................ (1,375) -- -- (1,375) (27) -- (1,402)
Minority interest in income from
subsidiary trust, net of tax.... (842) -- -- (842) -- -- (842)
Minority interest in FFO, net of
tax............................. -- -- -- -- -- -- --
---------- -------- -------- ---------- -------- -------- ----------
Net income................ $ 1,408 $ 73 $ -- $ 1,481 $ 44 $ -- $ 1,525
========== ======== ======== ========== ======== ======== ==========
Earnings per share -- diluted..... $ .16 $ .17 $ .16 $ .26 $ .16
========== ======== ========== ======== ==========
Weighted average shares
outstanding -- diluted.......... 8,712,367 419,137 9,131,504 169,084 9,300,588
========== ======== ========== ======== ==========
Earnings per share -- basic....... $ .18 $ .21 $ .18 $ .26 $ .18
========== ======== ========== ======== ==========
Weighted average shares
outstanding -- basic............ 7,786,911 354,321 8,141,232 169,084 8,310,316
========== ======== ========== ======== ==========
</TABLE>
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64
<PAGE> 74
UNAUDITED PROFORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR BANCSHARES, BSB & LOCHAVEN
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
BSB LOCHAVEN COMBINED
ADJUSTMENTS BANCSHARES ADJUSTMENTS COMPANY
BANCSHARES BSB INC. (DEC) W/BSB LOCHAVEN (DEC) W/LOCHAVEN
---------- -------- ------------ ---------- -------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income.................. $ 49,221 $ 2,294 $ -- $ 51,515 $ 2,474 $ -- $ 53,989
Interest expense................. 24,936 1,532 -- 26,495 1,336 -- 27,831
---------- -------- -------- ---------- -------- -------- ----------
Net interest income...... 24,258 762 -- 25,020 1,138 -- 26,158
Loan loss provision.............. 1,639 34 -- 1,673 37 -- 1,710
---------- -------- -------- ---------- -------- -------- ----------
Net interest income after
loan loss provision.... 22,619 728 -- 23,347 1,101 -- 24,448
Noninterest income............... 6,453 682 -- 7,135 2,233 -- 9,368
General and administrative
("G&A") expenses............... 22,707 1,345 -- 24,052 3,507 -- 27,559
Other noninterest expenses....... 617 -- -- 617 -- -- 617
---------- -------- -------- ---------- -------- -------- ----------
Income loss before income
taxes.......................... 5,748 65 -- 5,813 (173) -- 5,640
Income tax (expense) benefit..... (2,178) -- -- (2,178) 66 -- (2,112)
Minority interest in income from
subsidiary trust (net of
tax)........................... -- -- -- -- -- -- --
Minority interest in FFO (net of
tax)........................... (415) -- -- (415) -- -- (415)
---------- -------- -------- ---------- -------- -------- ----------
Net income (loss)........ $ 3,155 $ 65 $ -- $ 3,220 $ (107) $ -- $ 3,113
========== ======== ======== ========== ======== ======== ==========
Earnings per share -- diluted.... $ 0.47 $ 0.18 $ 0.44 $ (0.63) $ 0.41
========== ======== ========== ======== ==========
Weighted average shares
outstanding -- diluted......... 7,002,356 366,418 7,368,774 169,084 7,537,858
========== ======== ========== ======== ==========
Earnings per share -- basic...... $ 0.54 $ 0.18 $ 0.52 $ (0.63) $ 0.49
========== ======== ========== ======== ==========
Weighted average shares
outstanding -- basic........... 5,853,633 354,278 6,207,911 169,084 6,376,995
========== ======== ========== ======== ==========
</TABLE>
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65
<PAGE> 75
UNAUDITED PROFORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR BANCSHARES, BSB & LOCHAVEN
TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
BSB LOCHAVEN COMBINED
ADJUSTMENTS BANCSHARES ADJUSTMENTS COMPANY
BANCSHARES BSB INC. (DEC) W/BSB LOCHAVEN INC. (DEC) W/LOCHAVEN
----------- -------- ----------- ---------- -------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income......................... $ 108,457 $ 4,724 $ -- $ 113,181 $ 4,653 -- $ 117,834
Interest expense........................ 54,923 3,167 -- 58,090 2,652 -- 60,742
---------- -------- -------- ---------- -------- -------- ----------
Net interest income............. 53,534 1,557 -- 55,091 2,001 -- 57,092
Loan loss provision..................... 2,628 101 -- 2,729 517 -- 3,246
---------- -------- -------- ---------- -------- -------- ----------
Net interest income after loan
loss provision................ 50,906 1,456 -- 52,362 1,484 -- 53,846
Noninterest income...................... 25,031 1,459 -- 26,490 3,394 -- 29,884
General & Administrative (G&A)
expenses.............................. 57,484 2,759 -- 60,243 5,613 -- 65,856
Other noninterest expenses.............. 2,411 -- -- 2,411 135 -- 2,546
---------- -------- -------- ---------- -------- -------- ----------
Net income before taxes......... 16,042 156 -- 16,198 (870) -- 15,328
Income tax expense...................... (6,096) -- -- (6,096) (69) -- (6,165)
Minority interest income from subsidiary
trust, net of tax..................... (701) -- -- (701) -- -- (701)
Minority interest in FFO, net of tax.... (674) -- -- (674) -- -- (674)
---------- -------- -------- ---------- -------- -------- ----------
Net income (loss)............... $ 8,571 $ 156 $ -- $ 8,727 $ (939) $ -- $ 7,788
========== ======== ======== ========== ======== ======== ==========
Earnings per share -- diluted........... $ 1.21 $ .41 $ 1.17 $ 5.55 $ 1.02
========== ======== ========== ======== ==========
Weighted average shares outstanding --
diluted............................... 7,301,499 376,732 7,678,231 169,084 7,847,315
========== ======== ========== ======== ==========
Earnings per share -- basic............. $ 1.40 $ .44 $ 1.35 $ (5.55) $ 1.17
========== ======== ========== ======== ==========
Weighted average shares outstanding --
basic................................. 6,128,014 354,278 6,482,292 169,084 6,651,376
========== ======== ========== ======== ==========
</TABLE>
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66
<PAGE> 76
UNAUDITED PROFORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR BANCSHARES, BSB AND LOCHAVEN
TWELVE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
BSB LOCHAVEN COMBINED
ADJUSTMENTS BANCSHARES ADJUSTMENTS COMPANY
BANCSHARES BSB INC. (DEC) W/BSB LOCHAVEN INC. (DEC) W/LOCHAVEN
---------- -------- ----------- ---------- --------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income......................... $ 88,944 $ 4,283 $-- 93,227 $ 5,831 $-- $ 99,058
Interest expense........................ 44,949 2,927 -- 47,876 3,369 -- 51,245
---------- -------- -- --------- -------- -- ----------
Net interest income............. 43,995 1,356 -- 45,351 2,462 -- 47,813
Loan loss prevention.................... 2,582 131 -- 2,713 44 -- 2,757
---------- -------- -- --------- -------- -- ----------
Net interest income after loan
loss provision................ 41,413 1,225 -- 42,638 2,418 -- 45,056
Noninterest income...................... 7,952 1,376 -- 9,328 3,017 -- 12,345
General & Administrative (G&A)
expenses.............................. 36,829 3,388 -- 40,217 5,382 -- 45,599
Other noninterest expenses.............. 4,117 -- -- 4,117 610 -- 4,727
---------- -------- -- --------- -------- -- ----------
Net income before taxes......... 8,419 (787) -- 7,632 (557) -- 7,075
Income tax (expense) benefit............ (3,035) 54 -- (2,981) 209 -- (2,772)
Minority interest in FFO, net of tax.... (505) -- -- (505) -- -- (505)
---------- -------- -- --------- -------- -- ----------
Net income (loss)............... $ 4,879 $ (733) $-- 4,146 $ (348) $-- $ 3,798
========== ======== == ========= ======== == ==========
Earnings per share -- diluted........... $ .74 $ (2.07) $ .59 $ (2.06) $ .53
========== ======== ========= ==========
Weight average shares
outstanding -- diluted................ 6,626,604 354,278 6,980,882 169,084 7,149,966
========== ======== ========= ======== ==========
Earnings per share -- basic............. $ .83 $ (2.07) $ .67 $ (2.06) $ .60
========== ======== ========= ======== ==========
Weighted average shares
outstanding -- basic.................. 5,857,174 354,278 6,211,452 169,084 6,380,536
========== ======== ========= ======== ==========
</TABLE>
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67
<PAGE> 77
UNAUDITED PROFORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR BANCSHARES, BSB AND LOCHAVEN
TWELVE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
BSB LOCHAVEN COMBINED
ADJUSTMENTS BANCSHARES ADJUSTMENTS COMPANY
BANCSHARES BSB INC. (DEC) W/BSB LOCHAVEN INC. (DEC) W/LOCHAVEN
---------- -------- ----------- ---------- --------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income......................... $ 77,593 $ 5,091 $-- $ 82,684 $ 6,164 $-- $ 88,848
Interest expense........................ 40,112 3,717 -- 43,829 3,403 -- 47,232
---------- -------- -- --------- -------- -- ----------
Net interest income............. 37,481 1,374 -- 38,855 2,761 -- 41,616
Loan loss prevention.................... 2,162 121 -- 2,283 141 -- 2,424
---------- -------- -- --------- -------- -- ----------
Net interest income after loan
loss provision................ 35,319 1,253 -- 36,572 2,620 -- 39,192
Noninterest income...................... 5,353 735 -- 6,088 3,341 -- 9,429
General & Administrative (G&A)
expenses.............................. 30,963 2,830 -- 33,793 5,767 -- 39,560
Other noninterest expenses.............. 1,352 -- -- 1,352 191 -- 1,543
---------- -------- -- --------- -------- -- ----------
Net income before taxes......... 8,357 (842) -- 7,515 3 -- 7,518
Income tax (expense) benefit............ (2,516) 286 -- (2,230) (1) -- (2,231)
Goodwill amortization (accretion)....... 1,578 -- -- 1,578 -- -- 1,578
Minority interest in FFO, net of tax.... (503) -- -- (503) -- -- (503)
---------- -------- -- --------- -------- -- ----------
Net income (loss)............... $ 6,916 $ (556) $-- $ 6,360 $ 2 $-- $ 6,362
========== ======== == ========= ======== == ==========
Earnings per share -- diluted........... $ 1.10 $ (1.57) $ .96 $ .01 $ .94
========== ======== ========= ======== ==========
Weighted average shares outstanding --
diluted............................... 6,261,368 354,278 6,615,647 169,084 6,784,730
========== ======== ========= ======== ==========
Earnings per share -- basic............. $ 1.26 $ (1.57) $ 1.09 $ .01 $ 1.06
========== ======== ========= ======== ==========
Weighted average shares
outstanding -- basic.................. 5,491,250 354,278 5,845,528 169,084 6,014,612
========== ======== ========= ======== ==========
</TABLE>
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68
<PAGE> 78
CERTAIN INFORMATION CONCERNING BANCSHARES
Bancshares is a registered bank holding company formed in February 1996
under the laws of the State of Florida, whose principal subsidiary is Republic,
a Florida-chartered, FDIC-insured commercial bank headquartered in St.
Petersburg, Florida. As a result of the sale of several Florida-based banking
organizations to out-of-state bank holding companies in January 1998, Bancshares
is now the largest independent commercial bank holding company in Florida, based
on its June 30, 1998 assets of $2.2 billion. Bancshares, through Republic,
provides a broad range of traditional commercial banking services, emphasizing
real estate and business lending. Republic is also active in mortgage banking
through its mortgage banking division, Flagship, which originates first-lien
residential mortgages and High LTV Loans. Currently, Bancshares' branch network
consists of 55 branches in Brevard, Broward, Cloumbia, Hernando, Manatee,
Marion, Monroe, Orange, Osceola, Pasco, Pinellas, Sarasota, Seminole and
Suwannee counties and Florida and one branch in Glynn County, Georgia. At June
30, 1998, Bancshares' consolidated assets totaled $2.2 billion, loans held in
portfolio totaled $1.4 billion, deposits totaled $1.7 billion and stockholders'
equity was $170.3 million. Bancshares is regulated by the Federal Reserve, and
Republic is regulated by the Department and the FDIC. The Savings Bank is a
federally chartered savings bank headquartered in St. Petersburg with an
interstate branch located in Brunswick, Georgia that commenced operations on
August 21, 1998. The Savings Bank is regulated by the OTS and the FDIC.
Republic's and the Saving Bank's deposits are insured by the FDIC up to
applicable limits, and both institutions are members of the FHLB.
BACKGROUND AND PRIOR OPERATING HISTORY
In May 1993, the Principal Stockholders, William R. Hough and John W.
Sapanski, acquired from the prior controlling stockholder more than 99.0% of
Republic's outstanding common stock. As of June 30, 1998, the Principal
Stockholders (and their respective affiliates and immediate family members)
owned shares of Bancshares' voting stock representing approximately 40.2% and
4.8%, respectively, of the total voting rights of Bancshares. Following the
consummation of the Merger, and after taking into account the May 1998 Offering,
Messrs. Hough and Sapanski will own approximately 38.3% and 4.6%, respectively,
of the total voting rights of Bancshares. Mr. Hough is a member of Bancshares'
and Republic's Board of Directors and Mr. Sapanski serves as Bancshares' and
Republic's Chairman of the Board, Chief Executive Officer and President.
Following the Change in Control, Republic began to implement a program of
expanding its branches and lines of business. In December 1993, Republic
purchased 12 branches in Pinellas, Manatee and Sarasota counties from CrossLand,
assumed deposit liabilities of $327.7 million, and purchased performing and non-
performing loans secured by real estate and ORE amounting to $201.6 million.
Republic paid CrossLand $11.5 million for the branches and related furniture,
fixtures, equipment and other assets, plus a $1.9 million premium on the dollar
amount of the deposits assumed. The CrossLand Purchase and Assumption almost
tripled Republic's size, increasing total assets to $531.3 million and total
deposits to $494.3 million at December 31, 1993. Additionally, the 12 CrossLand
branches expanded Republic's market coverage to include Manatee and Sarasota
counties and more than doubled Republic's branch network to a total of 19
branches.
Also in December 1993, Republic 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
from the offering totaled $10.3 million. In addition, Republic sold 75,000
shares of its preferred stock for a purchase price of $6.6 million (or $88.00
per share). In June 1995, Republic sold 800,000 shares of its common stock in a
combined subscription rights and public offering at $12.50 per share, with net
proceeds totaling $9.1 million.
During the latter part of 1994 and throughout 1995, Republic continued to
pursue a strategy of increasing its retail banking presence on the west central
coast of Florida. Republic opened 13 additional new branches, expanding its
market presence in existing counties and providing entry into Pasco County.
In January 1996, Republic's stockholders approved a reorganization under
which Republic became a wholly-owned subsidiary of Bancshares. All holders of
shares of Republic's common and preferred stock received one share of Bancshares
Common Stock or Bancshares Preferred Stock, as appropriate, for each share of
Republic's common or preferred stock held of record. Holders of outstanding
options to purchase or
69
<PAGE> 79
acquire Republic's common stock received options to purchase an equal number of
shares of Bancshares Common Stock.
Bancshares also continued its geographic expansion strategy throughout
1997. In January 1997, Bancshares opened a new branch in Hernando County. In
April 1997, Bancshares acquired Firstate for a cash purchase price of $5.5
million. The Firstate Acquisition increased Bancshares' presence in central
Florida, where Bancshares previously operated an LPO but had no branches. On the
date of acquisition, Firstate had total assets of $71.1 million and total
deposits of $67.9 million. The Firstate Acquisition was accounted for using
purchase accounting rules.
In July 1997, Bancshares and its wholly-owned subsidiary, RBI Capital Trust
I ("RBI Capital") completed an offering by RBI Capital of $28.8 million of
Cumulative Trust Preferred Securities ("Preferred Securities"). The proceeds
from the Preferred Securities were used to purchase an equivalent amount of
Bancshares' 9.10% junior subordinated debentures. The net proceeds from the sale
of the junior subordinated debentures were contributed by Bancshares to the
regulatory capital of Republic. See Note 1 of Bancshares' Consolidated Financial
Statements included elsewhere herein.
On September 19, 1997, FFO was merged into Bancshares in the FFO Merger.
The FFO Merger further increased Bancshares' presence in central Florida by
adding 11 branches in Brevard, Orange and Osceola counties. On the date of FFO
Merger, FFO had total assets of $328.4 million, total loans of $222.4 million
and total deposits of $281.3 million. The FFO Merger was accounted for as a
corporate reorganization in which Mr. Hough's interests in FFO and Bancshares
were combined at historical cost in a manner similar to a pooling of interests,
while the minority interests in FFO were combined with Bancshares using purchase
accounting rules.
In May 1998, Bancshares completed the May 1998 Offering of 2,642,150 shares
of Bancshares Common Stock at price to the public of $29.50 per share. The
number of common equivalent shares outstanding as of that date increased to
9,713,035. Net proceeds from the May 1998 Offering were $72.9 million after
deducting underwriting discounts and commissions and expenses. Of the net
proceeds, $70.2 million were used to increase the common equity of Republic Bank
while $2.7 million was retained by Bancshares to be used for the capitalization
of the Savings Bank.
MORTGAGE BANKING AND LENDING ACTIVITIES
During 1996 and 1997, Bancshares focused on increasing its residential
lending capabilities. In conjunction with the establishment of Flagship in April
1996 and its internal growth, Bancshares added eight residential LPOs in
Florida, one residential LPO in Boston, Massachusetts, as well as wholesale LPOs
in St. Petersburg, Florida and in Irvine, California. These offices expanded
Bancshares' product line to include government-insured first mortgage loans,
and, beginning in the fourth quarter of 1996, High LTV Loans. At the same time,
Bancshares also began purchasing residential mortgage loans from mortgage
brokers and other third-party originators for resale. The strategy of Bancshares
is to sell or securitize substantially all of the loans it originates and
purchases through Flagship.
Until late 1997, Bancshares sold all of the High LTV and other mortgage
loans originated by Flagship in whole loan sales. In December 1997, however,
Bancshares consummated its first securitization, in which it securitized $60.0
million of High LTV Loans in a private placement offering. Bancshares retained
servicing rights with respect to the loans that were securitized.
In June 1998, Bancshares and SPC sold $240 million securities backed by
$240.0 million of its High LTV loans in a private placement securitization,
while retaining a $12.0 million subordinated interest in the pool of loans that
were securitized. Bancshares retained servicing rights with respect to the loans
that were securitized. Bancshares currently anticipates further whole loan sales
or securitizations with respect to the mortgage loans originated by Flagship on
a quarterly or other periodic basis, depending on then-prevailing market
conditions and other factors such as Republic's capitalization and liquidity.
70
<PAGE> 80
RECENT AND PROPOSED ACQUISITIONS
On June 19, 1998, Bancshares acquired three branch offices of NationsBank
and four branch offices of Barnett, including the loans and other assets
recorded at the NationsBank Florida Branches. These branches are located
throughout the State of Florida and include three in Monroe County (Key West,
Marathon and Plantation Key), two in Marion County (Ocala and Silver Springs)
and one each in Columbia County (Lake City) and Suwannee County (Live Oak). When
acquired, the NationsBank Florida Branches had deposit liabilities of $199.9
million and loans of $114.4 million. On August 20, 1998, Bancshares acquired the
Georgia Branch of Barnett located in Brunswick (Glynn County), Georgia, with the
office becoming an interstate branch of the Savings Bank. At the time of
acquisition, the Georgia Branch had deposit liabilities of $16.9 million and
loans of $7.5 million. Bancshares paid a combined deposit and loan premium of
$27.2 million for the NationsBank Branches. Bancshares' acquisitions of the
eight NationsBank Branches were both accounted for using purchase accounting
rules, with the deposit premiums being amortized using the straight-line method
over a 10-year period.
On August 13, 1998, Bancshares purchased the Dime Branch in Deerfield Beach
(Broward County), Florida from The Dime Savings Bank, F.S.B. Pursuant to the
transaction, Bancshares assumed $206.7 million of deposits and purchased $60,900
of loans and $100,000 of personal property and equipment assigned to the Dime
Branch. Bancshares' purchase price for the Dime Branch was $9.8 million, and the
transaction was accounted for using purchase accounting rules and a 10-year
straight-line amortization of the deposit premium.
On May 6, 1998, Bancshares entered into the Lochaven Agreement with
Lochaven providing for the merger of Lochaven with and into Republic. Lochaven
has one branch in Orange County, Florida, and as of June 30, 1998, had total
assets of $59.3 million, total loans of $54.4 million and total deposits of
$56.1 million. Under the terms of the Lochaven Agreement, stockholders of
Lochaven are to receive 0.2776 of a share of Bancshares Common Stock for each of
the 609,094 outstanding shares of Lochaven common stock. It is anticipated that
the Lochaven Acquisition will be accounted for as a pooling of interests. The
transaction may be terminated by either Lochaven or Bancshares if it is not
consummated by December 1, 1998. All required regulatory approvals for the
Lochaven Acquisition have been received.
If consummated, the Proposed Mergers, including the Merger, will increase
the total assets of Bancshares to approximately $2.5 billion (based on most
recent available data) and expand Bancshares' branch network from 55 to 58
branches in Florida, in addition to its one branch in Georgia. There can be no
assurance that Bancshares will be able to consummate the Proposed Mergers, or,
if consummated, successfully integrate the operations and management of the
Proposed Mergers. See "Risk Factors -- Current Acquisitions and Ability to
Manage Growth and Integrate Operations."
Bancshares anticipates continuing its strategy of geographic expansion for
the foreseeable future through a combination of whole bank and thrift
acquisitions, branch acquisitions and de novo branching, depending upon various
factors, including whether: (i) the transaction will be accretive to earnings no
later than one year following consummation; (ii) the transaction will provide
Bancshares with a new or additional location in a desirable market area; (iii)
the transaction will close an existing gap in Bancshares' branch network; or
(iv) the transaction will present competitive opportunities, such as branches
becoming available due to branch closings or bank mergers and other
consolidations.
BUSINESS STRATEGY
Bancshares' business strategy entails: (i) originating and purchasing real
estate-secured loans for portfolio and sale; (ii) originating business and
consumer loans for portfolio; (iii) improving market share and expanding its
market coverage through a combination of acquisitions of other financial
institutions, branch purchases and de novo branching; (iii) increasing
non-interest income through expanded mortgage banking activities and increased
emphasis on commercial and retail checking relationships; and (v) increasing its
range of products and services. While pursuing this strategy, management remains
committed to improving asset quality, managing interest rate risk, enhancing
profitability and maintaining its status as a well-capitalized institution for
regulatory capital purposes.
71
<PAGE> 81
The results of Bancshares' business strategy include:
- Expanded Branch Network. Since the Change in Control, Bancshares has
expanded its retail banking presence from seven branches in northern
Pinellas County to its current 55 branches in Brevard, Broward, Cloumbia,
Hernando, Manatee, Marion, Monroe, Orange, Osceola, Pasco, Pinellas,
Sarasota, Seminole and Suwanee counties and one branch in Glynn County,
Georgia. The Proposed Mergers, if consummated, will provide Bancshares
with a two branch presence in Dade County and an additional branch in
Orange County, bringing its total branch network to 58 branches in
Florida and one branch in Georgia.
- Substantial Asset Growth. Since the Change in Control, Bancshares has
increased in asset size from approximately $168.7 million to
approximately $2.2 billion at June 30, 1998. The Proposed Mergers, if all
are consummated, will increase the total asset size of Bancshares to
approximately $2.5 billion. This asset growth is largely attributable to
bulk purchases of loan portfolios and deposit assumptions such as the
CrossLand Purchase and Assumption, acquisitions of other financial
institutions such as Firstate, FFO, Lochaven and BSB, branch purchases
such as the NationsBank Branch Acquisition and the Dime Branch
Acquisition, the opening of new branches and internally-generated deposit
and loan growth.
- Increased Mortgage Banking and Other Fee-Generating
Activities. Bancshares has increased its non-interest income through
improved revenue from an expanded line of deposit products and through
the establishment of Flagship, with its emphasis on mortgage banking
activities, both in absolute terms and as a relative percentage of its
net income. In 1997, Flagship contributed approximately $15.3 million in
non-interest income (over 60% of total non-interest income) and $2.8
million in pre-tax income to Bancshares. Bancshares has also increased
its non-interest income through improved revenue from an expanded line of
deposit products. As a result of Bancshares having expanded its sources
and amounts of fee income, total non-interest income was 1.85% of average
assets in 1997, as compared to 0.63% in 1994, the first full year after
the Change in Control.
- Improved Asset Quality Ratios. A significant portion of the assets of
Republic at the time of the Change in Control and the assets acquired in
the CrossLand Purchase and Assumption were nonperforming. As a result,
Republic's nonperforming assets were $44.2 million, or 5.66% of total
assets, at year-end 1993. At June 30, 1998, nonperforming assets of
Bancshares had been reduced to $38.5 million, or 1.79% of total assets,
primarily through the implementation of consistent loan underwriting
policies and procedures, centralization of all credit decision functions,
increasing the size of the loan portfolio, write-offs and sales of ORE.
However, the level of Bancshares' nonperforming assets continues to be
higher than that of peer group institutions. See "Risk
Factors -- Nonperforming Assets."
- Management of Financial Risks. One of Bancshares' primary objectives is
to reduce fluctuations in net interest income caused by changes in market
interest rates and changes in the value of its mortgage loans held for
sale. To manage this interest rate risk, Bancshares generally limits
holding loans in its portfolio to those that have variable interest rates
tied to interest-sensitive indices and actively manages the maturities
within its investment portfolio. Bancshares also engages in various
hedging activities to reduce its exposure to the interest rate risks
attributable to mortgage loans held pending subsequent sale or
securitization.
72
<PAGE> 82
CERTAIN INFORMATION CONCERNING BSB
GENERAL
BSB is a federally-chartered savings and loan association headquartered in
Coral Gables, Florida, with two offices located in the cities of Coral Gables
and Miami, Florida. As of June 30, 1998, BSB had total assets of approximately
$68.3 million, total loans and loans held for sale of approximately $49.4
million, total deposits of approximately $60.7 million and total stockholders'
equity of approximately $4.4 million.
BSB offers a wide variety of traditional community-oriented depository and
lending services. In addition to these activities, BSB engages in a substantial
mortgage loan origination and sales business, which generated approximately $56
million in loan sales in 1997.
BSB was organized under the laws of the state of Florida and commenced
operations in 1987 as a state-chartered savings and loan association. On January
1, 1998, BSB converted to a federally-chartered savings and loan association.
BSB's principal executive office is located at 2222 Ponce de Leon Boulevard,
Coral Gables, Florida 33134, and its telephone number at such address is (305)
441-2222.
BSB is regulated by the OTS. Its deposits are insured by the FDIC up to
applicable limits, and BSB is a member of the FHLB. Additional information with
respect to BSB is included in this Proxy Statement/Prospectus and the financial
statements, related notes and other financial information presented included
elsewhere herein. See "Selected Financial and Other Data of Bancshares and BSB."
MANAGEMENT
The following table presents BSB Common Stock ownership information about
the directors and executive officers of BSB, as of August 31, 1998. Unless
otherwise indicated, each person has sole voting and investment power over the
indicated shares. Information relating to beneficial ownership of the BSB Common
Stock is based upon "beneficial ownership" concepts set forth in rules
promulgated under the Exchange Act. Under such rules, a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting power,"
which includes the power to vote or to direct the voting of such security, or
"investment power," which includes the power to dispose or to direct the
disposition of such security. Under the rules, more than one person may be
deemed to be a beneficial owner of the same securities.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
NAME OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
- ------------------------ ----------------- ----------------
<S> <C> <C>
William Dolan............................................... 23,000 shares(1) 3.19%
Frances Everett............................................. 20,700 shares(1) 2.87%
John Chris Hansen........................................... 21,000 shares(2) 2.90%
Octavio Hernandez........................................... 48,500 shares(3) 6.43%
Jack Levine................................................. 17,100 shares(4) 2.37%
Arthur Shapiro.............................................. 51,600 shares(2) 7.11%
Directors and Executive Officers as a Group -- 12 persons... 231,900 shares(5) 26.03%
</TABLE>
- ---------------
(1) Includes 15,000 shares that may be acquired within 60 days of August 31,
1998 pursuant to the exercise of options previously granted to the
beneficial owner.
(2) Includes 20,000 shares that may be acquired within 60 days of August 31,
1998 pursuant to the exercise of options previously granted to the
beneficial owner.
(3) Includes 48,500 shares that may be acquired within 60 days of August 31,
1998 pursuant to the exercise of options previously granted to the
beneficial owner. Additional options to purchase 2,500 shares at $11.50 per
share were granted to Mr. Hernandez on June 22, 1998, but are not
exercisable until December 22, 1998.
(4) Includes 17,000 shares that may be acquired within 60 days of August 31,
1998 pursuant to the exercise of options previously granted to the
beneficial owner.
(5) Includes 185,500 shares that may be acquired within 60 days of August 31,
1998 pursuant to the exercise of options previously granted to the
beneficial owner.
73
<PAGE> 83
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF BALANCE SHEETS AT JUNE 30, 1998, AND DECEMBER 31, 1997
Overview
Total assets were $68.3 million at June 30, 1998, compared to $67.1 million
at December 31, 1997, an increase of $1.2 million. This increase was primarily
due to increases in overnight investments and loans held for sale. The increase
was primarily funded through increased deposits in noninterest demand and money
market accounts.
Cash and Cash Equivalents
At June 30, 1998, cash and cash equivalents were $6.6 million compared to
$1.4 million at December 31, 1997. The increase of $5.2 million was primarily
due to additional overnight investments.
Investment Securities Held to Maturity
At June 30, 1998, investment securities held to maturity were $6.0 million,
a $2.0 million decrease from December 31, 1997. This decrease was due to the
maturity of a U.S. Agency security and the proceeds were invested in overnight
investments.
Loans Receivable
Loans receivable were $42.8 million at June 30, 1998, compared to $47.6
million at December 31, 1997, a decrease of $4.8 million. Residential mortgage
loans decreased $5.1 million due to higher loan prepayments. Commercial real
estate loans increased $422,000 as BSB continued to change the mix of its loan
portfolio to a larger proportion of commercial and consumer loans.
Loans Held for Sale
Loans held for sale increased $3.1 million to $7.0 million at June 30,
1998, from $3.9 million at December 31, 1997.
Non-Performing Assets
At June 30, 1998, non-performing assets were $2.1 million or 3.14% of total
assets, compared to $1.7 million or 2.52% of total assets at December 31, 1997.
Deposits
Total deposits were $60.7 million at June 30, 1998, compared to $56.0
million at December 31, 1997, an increase of $4.7 million. Certificates of
deposit increased $2.8 million and the funds were primarily used to pay off
short-term borrowings. Noninterest bearing demand deposits increased $1.1
million, while money market accounts increased $1.0 million.
Shareholder's Equity
At June 30, 1998, shareholder's equity was $4.4 million or 6.4% of total
assets compared to $4.2 million or 6.3% of total assets at December 31, 1997. At
June 30, 1998, BSB's Tier 1 ("Leverage") Capital ratio was 6.4%, its Tier 1
Risk-Based Capital ratio was 10.7% and its total Risk-Based Capital ratio was
11.7%, all in excess of minimum OTS guidelines for an institution to be
considered "well capitalized." BSB's ratios were 6.3%, 10.3% and 11.2%
respectively at December 31, 1997.
74
<PAGE> 84
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1997
Overview
Net income for the six months ended June 30, 1998, was $73,000, or $.09 per
share, compared to $65,000, or $.09 per share, for the six months ended June 30,
1997. Return on average assets for the six months ended June 30, 1998, was
0.22%, and return on average equity was 3.44%. For the six months ended June 30,
1997, the return on average assets and equity was 0.20% and 3.21%, respectively.
Analysis of Net Interest Income
Net interest income for the six months ended June 30, 1998, was $781,000
compared to $762,000 for the six months ended June 30, 1997. The increase of
$19,000 or 2.5%, was primarily the result of a change in the mix of the loan
portfolio from residential mortgage loans to higher yielding commercial and
consumer loans. Interest income for the six months ended June 30, 1998, was $2.4
million compared to $2.3 million for the same period in 1997. Interest expense
for the first six months of 1998 was $1.6 million compared to $1.5 million for
the same period in 1997. Average asset yield increased 3 basis points from 7.71%
in 1997 to 7.74% in the first six months of 1998. Average earning assets
increased $2.1 million in 1998. The average cost of interest-bearing liabilities
increased 12 basis points from 5.36% to 5.48%. BSB's net interest spread
decreased 9 basis points in 1998, primarily due to the higher cost of time
deposits. Net interest margin, which includes the benefit of noninterest bearing
funds, decreased from 2.64% in 1997 to 2.58% in 1998.
The following table summarizes the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities and changes in net interest income for the six months ended June 30,
1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------
1998 1997
------------------------- -------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF AVERAGE RATES
Interest-earning assets:
Loans, net................................ $50,460 $ 2,083 8.32% $48,097 $ 1,971 8.26%
Investment securities..................... 6,857 167 4.91 8,858 237 5.40
Mortgage backed securities................ 32 1 6.30 33 1 6.11
FHLB Stock................................ 439 18 8.27 500 19 7.66
Federal funds sold........................ 4,340 115 5.34 2,505 66 5.31
------- -------
Total interest-earning assets...... 62,128 2,384 7.74 59,993 2,294 7.71
------- ------- ----
Non interest-earning assets............... 5,845 7,266
------- -------
Total assets....................... $67,973 $67,259
======= =======
Interest-bearing liabilities:
Interest checking......................... $ 2,248 21 1.88 $ 2,068 20 1.95
Money market.............................. 5,212 105 4.06 5,222 98 3.78
Savings................................... 2,788 59 4.27 2,335 49 4.23
Time deposits............................. 46,202 1,346 5.87 43,190 1,233 5.76
FHLB advances............................. 2,300 62 5.44 3,385 99 5.90
Other borrowings.......................... 260 10 7.76 1,393 33 4.78
------- ------- ------- -------
Total interest-bearing
liabilities...................... 59,010 1,603 5.48 57,593 1,532 5.36
------- -------
Non interest-bearing liabilities.......... 4,682 5,553
Shareholders' equity...................... 4,281 4,113
------- -------
Total liabilities and equity....... $67,973 $67,259
======= =======
Net interest income/net interest spread..... $ 781 2.26% $ 762 2.35%
======= ==== ======= ====
Net interest margin......................... 2.58% 2.64%
==== ====
</TABLE>
75
<PAGE> 85
<TABLE>
<CAPTION>
INCREASE (DECREASE) DUE TO
---------------------------
VOLUME RATE TOTAL
-------- ------ -------
<S> <C> <C> <C>
CHANGES IN NET INTEREST INCOME
Interest-earning assets
Loans, net................................................ $ 98 $ 14 $112
Investment securities.................................. (48) (22) (70)
Mortgage backed securities............................. 0 0 0
FHLB stock............................................. (3) 2 (1)
Federal funds sold..................................... 49 0 49
---- ---- ----
Total change in interest income................... 96 (6) 90
---- ---- ----
Interest-bearing liabilities:
Interest checking...................................... 2 (1) 1
Money market........................................... 0 7 7
Savings................................................ 10 0 10
Time deposits.......................................... 89 24 113
FHLB advances.......................................... (29) (8) (37)
Other borrowings....................................... (44) 21 (23)
---- ---- ----
Total change in interest expense.................. 28 43 71
---- ---- ----
Increase (decrease) in net interest income.................. $ 68 $(49) $ 19
==== ==== ====
</TABLE>
Noninterest Income
Noninterest income for the six months ended June 30, 1998, was $794,000
compared to $682,000 for the comparable period in 1997. The following table
reflects the components of noninterest income for the six months ended June 30,
1998, and 1997 (in thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
------------------------
INCREASE
1998 1997 (DECREASE)
---- ---- ----------
<S> <C> <C> <C>
Rental income............................................... $300 $315 $(15)
Net gain on sale of loans................................... 354 241 113
Service charges on deposit accounts......................... 97 79 18
Loan servicing fees......................................... 40 25 15
Other....................................................... 3 22 (19)
---- ---- ----
Total noninterest income.......................... $794 $682 $112
==== ==== ====
</TABLE>
Noninterest Expense
For the six months ended June 30, 1998, noninterest expense was $1.5
million compared to $1.3 million for the comparable period in 1997. The
following table reflects the components of noninterest expense for the six
months ended June 30, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
----------------------------
INCREASE
1998 1997 (DECREASE)
------ ------ ----------
<S> <C> <C> <C>
Employee compensation and benefits......................... $ 716 $ 678 $ 38
Occupancy and equipment.................................... 213 189 24
Rental expenses............................................ 122 132 (10)
Deposit insurance premiums................................. 27 19 8
Professional fees.......................................... 82 75 7
Data processing............................................ 65 67 (2)
Stationery and printing.................................... 27 18 9
Advertising................................................ 1 6 (5)
Telephone.................................................. 26 26 0
Other expenses............................................. 181 135 46
------ ------ ----
Total noninterest expense........................ $1,460 $1,345 $115
====== ====== ====
</TABLE>
76
<PAGE> 86
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND
1997
Overview
Net income for the three months ended June 30, 1998, was $46,000, or $.06
per share, compared to $40,000, or $.06 per share, for the three months ended
June 30, 1997. Return on average assets for the three months ended June 30,
1998, was 0.27%, and return on average equity was 4.25%. For the three months
ended June 30, 1997, the return on average assets and equity was 0.24% and
3.88%, respectively.
Analysis of Net Interest Income
Net interest income for the three months ended June 30, 1998, was $384,000
compared to $395,000 for the three months ended June 30, 1997. Interest income
for the three months ended June 30, 1998 and 1997, was $1.2 million. Interest
expense for the second quarter of 1998 was $788,000 compared to $766,000 for the
same period in 1997. Average asset yield decreased 19 basis points from 7.73% in
1997 to 7.54% in the second quarter of 1998. Average earning assets increased
$2.1 million in 1998. The average cost of interest-bearing liabilities increased
seven basis points from 5.31% to 5.38%. BSB's net interest spread decreased 26
basis points in 1998, primarily due to the decrease in the yield earned on loans
and an increase in the cost of time deposits. Net interest margin, which
includes the benefit of noninterest bearing funds, decreased from 2.68% in 1997
to 2.51% in 1998.
The following table summarizes the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities and changes in net interest income for the three months ended June
30, 1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------------------------------
1998 1997
-------------------------- --------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF AVERAGE RATES
Interest-earning assets:
Loans, net........................... $50,276 $1,029 8.21% $48,564 $1,008 8.33%
Investment securities................ 6,009 69 4.61 8,750 116 5.32
Mortgage backed securities........... 32 1 12.53 33 1 12.15
FHLB Stock........................... 393 8 8.16 500 9 7.22
Federal funds sold................... 5,599 65 4.66 2,391 27 4.53
------ ------
Total interest-earning
assets..................... 62,309 1,172 7.54 60,238 1,161 7.73
------ ------
Non interest-earning assets.......... 5,938 7,288
------- -------
Total assets................. $68,247 $67,526
======= =======
Interest-bearing liabilities:
Interest checking.................... $ 2,292 10 1.75 $ 2,103 11 2.10
Money market......................... 5,637 58 4.13 4,984 47 3.78
Savings.............................. 2,664 27 4.07 2,525 27 4.29
Time deposits........................ 46,285 669 5.80 43,907 624 5.70
FHLB advances........................ 1,800 24 5.35 2,600 36 5.55
Other borrowings..................... 36 0 0.00 1,714 21 4.91
------- ------ ------- ------
Total interest-bearing
liabilities................ 58,714 788 5.38 57,833 766 5.31
------ ------
Non interest-bearing liabilities..... 5,223 5,561
Shareholders' equity................. 4,310 4,132
------- -------
Total liabilities and
equity..................... $68,247 $67,526
======= =======
Net interest income/net interest
spread............................... $ 384 2.16% $ 395 2.42%
====== ===== ====== =====
Net interest margin.................... 2.51% 2.68%
===== =====
</TABLE>
77
<PAGE> 87
<TABLE>
<CAPTION>
INCREASE (DECREASE) DUE TO
--------------------------
VOLUME RATE TOTAL
------- ----- ------
<S> <C> <C> <C>
CHANGES IN NET INTEREST INCOME
Interest-earning assets:
Loans, net................................................ $ 36 $(14) $ 22
Investment securities..................................... (31) (16) (47)
Mortgage backed securities................................ 0 0 0
FHLB stock................................................ (2) 1 (1)
Federal funds sold........................................ 36 1 37
---- ---- ----
Total change in interest income................... 39 (28) 11
---- ---- ----
Interest-bearing liabilities:
Interest checking......................................... 1 (2) (1)
Money market.............................................. 7 4 11
Savings................................................... 1 (1) 0
Time deposits............................................. 34 11 45
FHLB advances............................................. (11) (1) (12)
Other borrowings.......................................... (21) 0 (21)
---- ---- ----
Total change in interest expense.................. 11 11 22
---- ---- ----
Increase (decrease) in net interest income.................. $ 28 $(39) $(11)
==== ==== ====
</TABLE>
Noninterest Income
Noninterest income for the three months ended June 30, 1998, was $419,000
compared to $325,000 for the comparable period in 1997. The following table
reflects the components of noninterest income for the three months ended June
30, 1998, and 1997 (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JUNE 30,
--------------------------
INCREASE
1998 1997 (DECREASE)
----- ----- ----------
<S> <C> <C> <C>
Rental income............................................... $151 $157 $(6)
Net gain on sale of loans................................... 197 112 85
Service charges on deposit accounts......................... 52 38 14
Loan servicing fees......................................... 18 17 1
Other....................................................... 1 1 0
---- ---- ---
Total noninterest income.......................... $419 $325 $94
==== ==== ===
</TABLE>
78
<PAGE> 88
Noninterest Expense
For the three months ended June 30, 1998, noninterest expense was $736,000
compared to $661,000 for the comparable period in 1997. The following table
reflects the components of noninterest expense for the three months ended June
30, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
--------------------------
INCREASE
1998 1997 (DECREASE)
---- ---- ----------
<S> <C> <C> <C>
Employee compensation and benefits...................... $354 $331 $23
Occupancy and equipment................................. 112 91 21
Rental expenses......................................... 60 65 (5)
Deposit insurance premiums.............................. 13 14 (1)
Professional fees....................................... 40 36 4
Data processing......................................... 34 34 0
Stationery and printing................................. 12 10 2
Advertising............................................. 0 3 (3)
Telephone............................................... 13 13 0
Other expenses.......................................... 98 64 34
---- ---- ---
Total noninterest expense..................... $736 $661 $75
==== ==== ===
</TABLE>
COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 1997 AND 1996
Overview
Total assets of BSB were $67.1 million at December 31, 1997, and $66.3
million at December 31, 1996, an increase of $800,000. This increase was
primarily due to an increase in commercial real estate loans originated. The
growth was funded through an increase in short-term borrowings.
Investment Securities Held to Maturity
At December 31, 1997, investment securities held to maturity consisted of
U.S. government agency securities and totaled $8.0 million compared to $9.0
million at December 31, 1996. The $1.0 million decrease was due to the maturity
of a U.S. Treasury note and the proceeds were used to fund loan originations.
Loans Receivable
Loans receivable were $47.6 million at December 31, 1997, and $43.2 million
at December 31, 1996, an increase of $4.4 million. In 1997, BSB continued to
change the mix of the loan portfolio to a higher percentage of commercial and
consumer loans. Commercial real estate loans increased $4.4 million and consumer
loans increased $886,000, while one-to-four family residential real estate loans
decreased $1.3 million.
Loans Held for Sale
Loans held for sale consist of residential first-mortgage one-to-four
family loans and decreased $2.2 million to $3.9 million at December 31, 1997,
from $6.1 million at December 31, 1996. Loans originated in 1997 increased to
$54.4 million from $43.5 million in 1996, while loan sales increased to $55.8
million in 1997, compared to $41.7 million in 1996.
Allowance for Loan Losses
The allowance for loan losses was $376,000 at December 31, 1997, compared
to $328,000 at December 31, 1996, an increase of $48,000. The increase was due
to an excess of provision for loan losses over charge-offs.
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<PAGE> 89
Non-Performing Assets
Non-performing assets were $1.7 million or 2.52% of total assets at
December 31, 1997, compared with $1.9 million or 2.82% of total assets at
December 31, 1996, a decrease of $200,000. The decrease was primarily due to a
reduction in non-performing residential loans.
Deposits
Total deposits were $56.0 million at December 31, 1997, compared to $56.3
million at December 31, 1996, a decrease of $300,000. Noninterest bearing demand
deposit accounts decreased $1.4 million and were partially offset by an increase
of $1.0 million in money market and statement savings accounts.
Shareholder's Equity
At December 31, 1997, shareholders equity was $4.2 million or 6.3% of total
assets compared to $4.1 million or 6.1% of total assets at December 31, 1996. At
December 31, 1997, BSB's Tier 1 ("Leverage") Capital ratio was 6.3%, its Tier 1
Risk-Based Capital ratio was 10.3% and its Total Risk-Based Capital ratio was
11.2%, all in excess of minimum OTS guidelines for an institution to be
considered "well-capitalized". BSB's ratios were 6.1%, 9.3% and 10.0%,
respectively, at December 31, 1996.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND
1996
Overview
Net income for the year ended December 31, 1997, was $156,000, or $0.21 per
share, compared with a net loss of $733,000, or $1.06 per share for the year
ended December 31, 1996. Return on average assets for the year ended December
31, 1997, was 0.23%, and return on average equity was 3.75%. For the year ended
December 31, 1996, BSB had a negative return on assets and equity of 1.14% and
15.94%, respectively.
Analysis of Net Interest Income
Net interest income for the year ended December 31, 1997, was $1.6 million,
compared with $1.4 million for the same period in 1996. This increase of
$201,000 or 14.8%, was primarily the result of a change in the mix of the loan
portfolio from residential mortgage loans to higher yielding commercial and
consumer loans. Interest income for the year ended December 31, 1997, was $4.7
million, an increase of $441,000 from the same period in 1996. Interest expense
for the year ended December 31, 1997, was $3.2 million, an increase of $240,000
from the same period in 1996. Average asset yield increased 27 basis points from
7.45% for the year ended December 31, 1996, to 7.72% for the same period in
1997. Average earning assets increased $3.7 million in 1997. In 1997, the
average cost of interest-bearing liabilities increased 7 basis points from 5.36%
to 5.43%. BSB's net interest spread increased 20 basis points in 1997, primarily
due to the increase in the yield earned on loans. Net interest margin, which
includes the benefit of noninterest-bearing funds, increased from 2.34% for the
year ended December 31, 1996, to 2.59% for the comparable period in 1997.
80
<PAGE> 90
The following table summarizes the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities and changes in net interest income for the years ended December 31,
1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996
------------------------- -------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF AVERAGE RATES
Interest-earning assets:
Loans, net................................... $49,795 $4,109 8.25% $45,222 $3,639 8.05%
Investment securities........................ 8,501 443 5.21 9,005 452 5.02
Mortgage backed securities................... 33 3 9.09 34 3 8.82
FHLB stock................................... 500 36 7.20 526 39 7.41
Federal funds sold........................... 2,395 133 5.55 2,689 150 5.58
------- ------ ------- ------
Total interest-earning assets........ 61,224 4,724 7.72 57,476 4,283 7.45
------ ------
Noninterest-earning assets................... 6,640 6,903
------- -------
Total assets......................... $67,864 $64,379
======= =======
Interest-bearing liabilities:
Interest checking............................ $ 2,062 42 2.04 $ 1,779 33 1.86
Money market................................. 5,245 199 3.79 4,513 168 3.72
Savings...................................... 2,551 109 4.27 1,565 57 3.64
Time deposits................................ 43,622 2,536 5.81 41,472 2,357 5.68
FHLB advances................................ 3,392 195 5.75 4,780 285 5.96
Other borrowings............................. 1,469 86 5.85 480 27 5.63
------- ------ ------- ------
Total interest-bearing liabilities... 58,341 3,167 5.43 54,589 2,927 5.36
------ ------
Noninterest-bearing liabilities.............. 5,372 5,189
Shareholders' equity......................... 4,151 4,601
------- -------
Total liabilities and equity......... $67,864 $64,379
======= =======
Net interest income/net interest spread........ $1,557 2.29% $1,356 2.09%
====== ==== ====== ====
Net interest margin............................ 2.59% 2.34%
==== ====
</TABLE>
81
<PAGE> 91
<TABLE>
<CAPTION>
INCREASE (DECREASE) DUE TO
--------------------------
VOLUME RATE TOTAL
------- ----- ------
<S> <C> <C> <C>
CHANGES IN NET INTEREST INCOME
Interest-earning assets:
Loans, net................................................ $379 $ 91 $470
Investment securities..................................... (26) 17 (9)
Mortgage backed securities................................ 0 0 0
FHLB stock................................................ (2) (1) (3)
Federal funds sold........................................ (16) (1) (17)
---- ---- ----
Total change in interest income................... $335 $106 $441
==== ==== ====
Interest-bearing liabilities:
Interest checking......................................... $ 6 $ 3 $ 9
Money market.............................................. 28 3 31
Savings................................................... 42 10 52
Time deposits............................................. 125 54 179
FHLB advances............................................. (80) (10) (90)
Other borrowings.......................................... 58 1 59
---- ---- ----
Total change in interest expense.................. 179 61 240
---- ---- ----
Increase (decrease) in net interest income.................. $156 $ 45 $201
==== ==== ====
</TABLE>
Noninterest Income
Noninterest income for the year ended December 31, 1997, was $1.5 million
compared to $1.4 million in 1996. The increase was primarily due to additional
gains on sale of residential mortgage loans due to the higher originations and
sales in 1997 compared to 1996.
The following table reflects the components of noninterest income for the
years ended December 31, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
INCREASE
1997 1996 (DECREASE)
------- ------- -----------
<S> <C> <C> <C>
Rental income.......................................... $ 611 $ 607 $ 4
Net gain on sale of loans.............................. 589 484 105
Service charges on deposit accounts.................... 167 141 26
Loan servicing fees.................................... 67 58 9
Other income........................................... 25 86 (61)
------ ------ ----
Total noninterest income..................... $1,459 $1,376 $ 83
====== ====== ====
</TABLE>
Noninterest Expense
Total noninterest expenses for the year ended December 31, 1997, were $2.8
million, compared to $3.4 million for the same period in 1996. The one-time SAIF
special assessment was $408,000 in 1996. Professional fees decreased $58,000 in
1997 from $237,000 to $179,000. Employee compensation and benefits decreased
$47,000 in 1997 due to a reduction in the number of employees from 1996.
82
<PAGE> 92
The following table reflects the components of noninterest expense for the
years ended December 31, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
INCREASE
1997 1996 (DECREASE)
------- ------- -----------
<S> <C> <C> <C>
Employee compensation and benefits..................... $1,335 $1,382 $ (47)
Occupancy and equipment................................ 388 383 5
Rental expenses........................................ 260 253 7
Deposit insurance premiums............................. 46 148 (102)
SAIF special assessment................................ 0 408 (408)
Professional fees...................................... 179 237 (58)
Data processing........................................ 134 122 12
Stationery and printing................................ 44 38 6
Advertising............................................ 10 9 1
Telephone.............................................. 54 57 (3)
Other expenses......................................... 309 351 (42)
------ ------ -----
Total noninterest expense.................... $2,759 $3,388 $(629)
====== ====== =====
</TABLE>
COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 1996 AND 1995
Overview
Total assets of BSB were $66.3 million at December 31, 1996, and $63.1
million at December 31, 1995, an increase of $3.2 million. This increase was
primarily due to an increase in the volume of loans originated for portfolio and
held for sale. The growth was primarily funded through an increase in deposits.
Investment Securities Held to Maturity
BSB investment securities for both years consisted of U.S. government
agency securities and a U.S. Treasury note.
Loans Receivable
Loans receivable were $43.2 million at December 31, 1996, and $42.1 million
at December 31, 1995, an increase of $1.1 million. During 1996, BSB was changing
the mix of its loan portfolio to a higher percentage of commercial and consumer
loans. Commercial loans, primarily real estate, increased by $7.0 million and
consumer loans increased by $1.4 million in 1996. One-to-four family residential
loans decreased by $7.4 million in 1996.
Loans Held for Sale
Loans held for sale consist of residential first mortgage one-to-four
family loans and increased $1.8 million to $6.1 million at December 31, 1996,
from $4.3 million at December 31, 1995. Loans originated in 1996 were $43.5
million, compared to $40.4 million in 1995. Loans sold were $41.7 million in
1996 compared to $39.3 million for 1995.
Allowance for Loan Losses
The allowance for loan losses was $328,000 at December 31, 1996, compared
to $283,000 at December 31, 1995. The provision for loan losses exceeded
charge-offs by $45,000 in 1996.
Non-Performing Assets
Non-performing assets totaled $1.9 million, or 2.82% of total assets, at
December 31, 1996, compared to $1.8 million, or 2.85% of total assets, at
December 31, 1995.
83
<PAGE> 93
Deposits
Total deposits were $56.3 million at December 31, 1996, compared to $51.0
million at December 31, 1995, an increase of $5.3 million. The increase was
primarily due to an increase in lower-cost demand, money market and savings
accounts.
Shareholders' Equity
At December 31, 1996, shareholders' equity was $4.1 million, or 6.1% of
total assets, compared to $4.8 million or 7.6% of total assets, at December 31,
1995. At December 31, 1996, BSB's Tier 1 ("Leverage") Capital ratio was 6.1%,
its Tier 1 Risk-Based Capital ratio was 9.3% and its total Risk Based Capital
ratio was 10.0%, all at or in excess of minimum OTS guidelines for an
institution to be considered "well-capitalized". BSB's ratios were 7.6%, 14.8%
and 15.7%, respectively, at December 31, 1995.
COMPARISON OF RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1996 AND 1995
Overview
The net loss for the year ended December 31, 1996, was $733,000 or $1.06
per share, compared with a net loss of $556,000 or $.81 per share for the
comparable period of 1995. BSB's return on assets and equity for 1996 were a
negative 1.14% and 15.94%, respectively, compared with a negative 0.74% and
10.79%, respectively, in 1995.
Analysis of Net Interest Income
Net interest income was $1.4 million for both 1996 and 1995. Interest
income for 1996 was $4.3 million, compared with $5.1 million in 1995. The
decrease of $800,000 was primarily due to the sale of $17.0 million of fixed
rate one-to-four family residential mortgage loans to reduce BSB's interest rate
risk. The proceeds from the sale of the loans were used to reduce advances from
the FHLB and deposit accounts, which resulted in an $800,000 decrease in
interest expense. Asset yield increased 20 basis points in 1996 from 7.25% in
1995 to 7.45% in 1996. Average earning assets decreased $12.8 million in 1996
due to the sale of fixed-rate mortgage loans. The average cost of
interest-bearing liabilities decreased 22 basis points to 5.36% from 5.58% due
to the lower cost of certificates of deposit. Net interest spread increased 42
basis points from 1.67% in 1995 to 2.09% in 1996. Net interest margin, which
includes the benefit of noninterest-bearing funds, increased from 1.81% for 1995
to 2.34% for 1996.
84
<PAGE> 94
The following table summarizes the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities and changes in net interest income for the years ended December 31,
1996 and 1995 (dollars in thousands).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995
------------------------- -------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Summary of average rates
Interest-earning assets:
Loans, net..................................... $45,222 $3,639 8.05% $55,596 $4,288 7.71%
Investment securities.......................... 9,005 452 5.02 9,011 474 5.26
Mortgage backed securities..................... 34 3 8.82 34 3 8.82
FHLB stock..................................... 526 39 7.41 716 54 7.54
Federal funds sold............................. 2,689 150 5.58 4,883 272 5.57
------- ------ ------- ------
Total interest-earning assets.......... 57,476 4,283 7.45 70,240 5,091 7.25
------ ------
Noninterest-earning assets..................... 6,903 4,574
------- -------
Total assets........................... $64,379 $74,814
======= =======
Interest-bearing liabilities:
Interest checking.............................. $ 1,779 $ 33 1.85 $ 1,289 $ 24 1.86
Money market................................... 4,513 168 3.72 4,952 179 3.61
Savings........................................ 1,565 57 3.64 1,142 37 3.24
Time deposits.................................. 41,472 2,357 5.68 48,214 2,823 5.86
FHLB advances.................................. 4,780 285 5.96 10,900 650 5.96
Other borrowings............................... 480 27 5.63 71 4 5.63
------- ------ ------- ------
Total interest-bearing liabilities..... 54,589 2,927 5.36 66,568 3,717 5.58
------ ------
Noninterest-bearing liabilities................ 5,189 3,096
Shareholders' equity........................... 4,601 5,150
------- -------
Total liabilities and equity........... $64,379 $74,814
======= =======
Net interest income/net interest spread.......... $1,356 2.09% $1,374 1.67%
====== ==== ====== ====
Net interest margin.............................. 2.34% 1.81%
==== ====
</TABLE>
85
<PAGE> 95
<TABLE>
<CAPTION>
INCREASE (DECREASE) DUE TO
--------------------------
VOLUME RATE TOTAL
------- ----- ------
<S> <C> <C> <C>
Changes in Net Interest Income
Interest-earning assets:
Loans, net................................................ $(838) $189 $(649)
Investment securities..................................... 0 (22) (22)
Mortgage backed securities................................ 0 0 0
FHLB stock................................................ (13) (2) (15)
Federal funds sold........................................ (123) 1 (122)
----- ---- -----
Total change in interest income................... (974) 166 (808)
----- ---- -----
Interest-bearing liabilities:
Interest checking......................................... 9 0 9
Money market.............................................. (16) 5 (11)
Savings................................................... 15 5 20
Time deposits............................................. (379) (87) (466)
FHLB advances............................................. (365) 0 (365)
Other borrowings.......................................... 23 0 23
----- ---- -----
Total change in interest expense.................. (713) (77) (790)
----- ---- -----
Increase (decrease) in net interest income.................. $(261) $243 $ (18)
===== ==== =====
</TABLE>
Noninterest Income
Noninterest income was $1.4 million for the year ended December 31, 1996,
compared to $700,000 for the comparable period in 1995. The increase of $641,000
was primarily due to increased rental property income of $141,000 and an
increase in gain on sale of loans of $414,000. Although the gain on sale of
mortgage loans from current production was relatively the same in 1996 and 1995,
BSB sold $17.0 million in fixed rate mortgage loans to reduce interest rate risk
and realized a loss of $373,000 in 1995.
The following table reflects the components of noninterest income for the
years ended December 31, 1996 and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
INCREASE
1996 1995 (DECREASE)
------- ----- -----------
<S> <C> <C> <C>
Rental income......................................... $ 607 $466 $141
Net gain on sale of loans............................. 484 70 414
Service charges on deposit accounts................... 141 78 63
Loan servicing fees................................... 58 54 4
Other income.......................................... 86 67 19
------ ---- ----
Total noninterest income.................... $1,376 $735 $641
====== ==== ====
</TABLE>
Noninterest Expense
Total noninterest expenses for 1996 were $3.4 million, compared to $2.8
million in 1995, or an increase of $558,000. The one-time SAIF special
assessment in 1996 was $408,000. Rental property expenses increased by $44,000
and professional fees increased by $30,000 in 1996. Other operating expenses
included $65,000 in 1996 for the settlement of a lawsuit.
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<PAGE> 96
The following table reflects the components of noninterest expense for the
years ended December 31, 1996 and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
INCREASE
1996 1995 (DECREASE)
------- ------- -----------
<S> <C> <C> <C>
Employee compensation and benefits..................... $1,382 $1,381 1
Occupancy and equipment................................ 383 381 2
Rental expenses........................................ 253 209 44
Deposit insurance premiums............................. 148 161 (13)
SAIF special assessment................................ 408 0 408
Professional fees...................................... 237 207 30
Data processing........................................ 122 118 4
Stationery and printing................................ 38 32 6
Advertising............................................ 9 26 (17)
Telephone.............................................. 57 74 (17)
Other expenses......................................... 351 241 110
------ ------ ----
Total noninterest expense.................... $3,388 $2,830 $558
====== ====== ====
</TABLE>
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS OF BSB
To the best of BSB's knowledge, the following lists each stockholder of
record that directly or indirectly owned, controlled or held with power to vote
five percent (5.0%) or more of the 705,333 outstanding shares of BSB Common
Stock as of August 31, 1998.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
- ------------------------------------ ----------------- ----------------
<S> <C> <C>
James B. Burgin, Sr. ....................................... 50,200 shares(1) 7.12%
P.O. Box 562076
Miami, FL 33256-2076
Cede & Co................................................... 472,180 shares(2) 66.94%
P.O. Box 20
New York, NY 10004
The Krasnow Foundation...................................... 46,400 shares 6.58%
1101 96th Street
Miami, FL 33154
Hashu Gidoomal.............................................. 50,000 shares 7.09%
676 N. Michigan Avenue
Chicago, IL 60611
Octavio Hernandez........................................... 48,500 shares(3) 6.43%
12850 SW 147 Lane Road
Miami, FL 33186
Estate of Imre Rosenthal.................................... 58,000 shares(4) 8.22%
1370 Broadway
New York, NY 10018
Arthur Shapiro.............................................. 51,600 shares(5) 7.11%
3141 Royal Palm Avenue
Miami Beach, FL 33140
Milton J. Wallace........................................... 150,305 shares(6) 21.3%
55 Casvarina Concourse
Coral Gables, FL 33143
</TABLE>
- ---------------
(1) Includes 31,885 shares in the name of James B. Burgin Trustee U/T James B.
Burgin Rev. Trust, and 18,115 shares in the name of James B. Burgin, Jr.
(2) Includes 127,690 shares beneficially owned by Milton J. Wallace.
87
<PAGE> 97
(3) Includes 48,500 shares that may be acquired within 60 days of August 31,
1998 pursuant to the exercise of options previously granted to the
beneficial owner. Additional options to purchase 2,500 shares at $11.50 per
share were granted to Mr. Hernandez on June 22, 1998, but are not
exercisable until December 22, 1998.
(4) Includes 18,000 shares in the name of Atlantic Avenue Associates and 40,000
shares in the name of the estate of Imre Rosenthal.
(5) Includes 20,000 shares that may be acquired within 60 days of August 31,
1998 pursuant to the exercise of options previously granted to the
beneficial owner, 21,600 shares in the name of Arthur and Rivka Shapiro as
Tenants by the Entireties, 2,000 shares in the name of Rivka Shapiro as
Custodian for Iris Shapiro UGMA, 2000 shares in the name of Rivka Shapiro as
Custodian for Sylvie Shapiro UGMA, 4,000 shares in the Arthur Shapiro
Rollover Cust, and 2,000 shares in the name of Rivka Shapiro.
(6) Includes 3,500 shares in the name of Biscayne National Corp., 1,000 shares
in the name of Patricia Wallace, 18,115 shares in the names of Milton J. and
Patricia Wallace as Joint Tenants, 53,475 shares in the names of Milton J.
and Patricia Wallace's 1st Equity IRA Rollover, and 62,000 shares in Milton
J. Wallace's Prudential IRA Rollover account.
[Balance of page intentionally left blank]
88
<PAGE> 98
DESCRIPTION OF BANCSHARES COMMON AND PREFERRED STOCK
BANCSHARES COMMON STOCK
Bancshares is authorized to issue 20,000,000 shares of Bancshares Common
Stock, of which 9,724,325 shares were issued and outstanding as of June 30,
1998. Each holder of Bancshares Common Stock has the same relative rights as
each other holder of Bancshares Common Stock, and each share of Bancshares
Common Stock is identical in all respects with each other share of Bancshares
Common Stock. Bancshares Common Stock does not constitute a deposit account of
any savings association or bank, is not guaranteed by either Bancshares or
Republic and is not insured by the FDIC.
Holders of shares of Bancshares Common Stock are entitled to dividends,
when, as and if declared by the Board of Directors, from funds legally available
therefor, but only after payment of all required dividends on any outstanding
preferred stock. Upon the liquidation, dissolution or winding up of Bancshares,
the holders of Bancshares Common Stock are entitled to share ratably in all
assets remaining after payment of all liabilities, subject to the liquidation
preferences of any preferred stock that may be issued and outstanding. Shares of
Bancshares Common Stock are not redeemable and do not have any conversion
rights.
The holders of shares of Bancshares Common Stock do not have preemptive
rights to subscribe to a pro-rata share of any future offers of shares of
Bancshares Common Stock. Accordingly, shares may be offered to the public,
stockholders or to both at the discretion of the Bancshares Board of Directors.
In addition, holders do not have the right to cumulate their votes for the
election of directors. In certain circumstances, cumulative voting rights allow
the holders of less than a majority of the voting shares to elect one or more
directors when such holders would not be able to elect any directors if
cumulative voting were not allowed. The holders of Bancshares Common Stock have
voting powers on all matters requiring approval of stockholders, subject to the
voting rights of the holders of any preferred stock that may be issued and
outstanding. Each holder of Bancshares Common Stock is entitled to one vote for
each share held.
BANCSHARES PERPETUAL PREFERRED CONVERTIBLE STOCK
There are 100,000 authorized shares of Bancshares Preferred Stock, of which
75,000 shares were issued and outstanding as of June 30, 1998. The Board of
Directors, without further action by the stockholders, may issue shares of
Bancshares Preferred Stock in one or more series and with such terms, at such
times and for such consideration as the Board may determine. The Board's
authority includes the determination or fixing of the following matters with
respect to the shares or any series thereof: (i) the number of shares and
designation thereof; (ii) rights as to dividends; (iii) voting rights, if any;
(iv) the terms upon which shares will be redeemable; (v) the amount payable on
the shares in the event of dissolution, liquidation or winding-up of the affairs
of Bancshares; (vi) the sinking fund provisions, if any, for the redemption or
purchase of the shares; and (vii) whether and upon what terms the shares will be
convertible. The Board of Directors may determine that any shares that are
issued would rank prior to shares of Bancshares Common Stock as to dividend and
liquidation rights. The Bancshares Preferred Stock is non-cumulative, perpetual
preferred stock and qualifies as Tier 1 Capital for bank regulatory purposes.
Holders of shares of Bancshares Preferred Stock are entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available for payment, non-cumulative cash dividends, payable quarterly in
arrears, at the rate of $3.52 per share per annum, which is equivalent to $0.88
per share per quarter. Declared dividends accrue from the date of issuance or
the most recent date on which dividends were payable and are payable quarterly
on the first day of March, June, September and December of each year (each, a
"Dividend Payment Date"). The rights of holders of Bancshares Preferred Stock to
receive dividends is non-cumulative. Accordingly, if the Board of Directors
fails to declare a dividend payable on a Dividend Payment Date, then holders
will have no right to receive a dividend in respect of the dividend period
ending on such Dividend Payment Date, and Bancshares will have no obligation to
pay the dividend for such period, whether or not dividends are declared payable
on any future Dividend Payment Dates.
No full dividends shall be declared and paid or set apart for payment on
Bancshares Preferred Stock of any series ranking, as to dividends, on a parity
with Bancshares Preferred Stock during any calendar quarter
89
<PAGE> 99
unless full dividends on Bancshares Preferred Stock for the dividend period
ending during such calendar quarter have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof is set apart
for such payment. Unless full dividends have been declared and paid or set apart
for payment for the Dividend Payment Date falling in the then-current dividend
period, no dividend or distribution may be declared, set aside or paid on any
shares of Bancshares Common Stock or on any series of preferred stock ranking,
as to dividends, junior to Bancshares Preferred Stock.
In the event of any liquidation, dissolution or winding up of Bancshares,
voluntary or involuntary, the holders of Bancshares Preferred Stock will be
entitled to receive out of the assets of Bancshares available for distribution
to stockholders, before any distribution of assets is made to the holders of
Bancshares Common Stock or any other shares of stock ranking junior to
Bancshares Preferred Stock as to such distribution, liquidating distributions in
the amount of $88.00 per share plus dividends declared but unpaid for the then-
current dividend period (without accumulation of unpaid dividends for prior
dividend periods) to the date fixed for such liquidation, dissolution or winding
up. After payment of the full amount of the liquidating distribution to which
they are entitled, the holders of Bancshares Preferred Stock will not be
entitled to any further participation in any distribution of assets. All
distributions made with respect to Bancshares Preferred Stock in connection with
such liquidation, dissolution or winding up of Bancshares shall be made pro rata
to the holders entitled thereto.
Bancshares Preferred Stock is redeemable, subject to any required bank
regulatory approvals, out of funds of Bancshares legally available therefor, at
the option of Bancshares for cash, in whole at any time or in part, from time to
time, at $96.80 per share, plus declared but unpaid dividends for the
then-current dividend period to the date fixed for redemption (without
accumulation of unpaid dividends for prior dividend periods) without interest.
In order to exercise the right of redemption, Bancshares must give 30 days prior
written notice to the holders, during which time period the holders may convert
Bancshares Preferred Stock into Bancshares Common Stock as described below.
Except as described below or otherwise required by the FBCA, the holders of
Bancshares Preferred Stock are entitled to vote on all matters submitted to a
vote of the holders of Bancshares Common Stock, voting together with the holders
of Bancshares Common Stock as one class. Each share of Bancshares Preferred
Stock is entitled to a number of votes equal to the number of shares of
Bancshares Common Stock into which such share could be converted on the record
date for determining the stockholders entitled to vote. Currently, each share of
Bancshares Preferred Stock is entitled to ten votes. Bancshares Preferred Stock
is entitled to vote as a separate class with respect to any proposal to (i)
alter or change any of the powers, preferences, privileges or rights of
Bancshares Preferred Stock, (ii) amend the provisions of the Bancshares Articles
relating to Bancshares Preferred Stock, (iii) create any new class or series of
stock having preferences prior to or being on a parity with the Bancshares
Preferred Stock as to dividends or assets, (iv) sell, lease, convey, exchange,
transfer or otherwise dispose of all or substantially all of the assets of
Bancshares, or (v) merge or consolidate with or into any other corporation
except into or with a wholly-owned subsidiary.
Each share of Bancshares Preferred Stock is convertible at the option of
the holder into ten shares of Bancshares Common Stock, subject to adjustment in
the event of a stock split, stock dividend or similar recapitalization.
LEGAL OPINIONS
The legality of Bancshares Common Stock to be issued in the Merger and
certain tax matters will be passed upon by the law firm of Holland & Knight LLP,
Washington, D.C. and Tampa, Florida. Certain legal matters related to the Merger
are being passed upon for BSB by the law firm of Alston & Bird LLP, Atlanta,
Georgia.
EXPERTS
The audited consolidated financial statements of Bancshares have been
audited by Arthur Andersen LLP, independent public accountants, for the period
indicated in their report thereon that is included in
90
<PAGE> 100
Bancshares' Annual Report on Form 10-K. The financial statements audited by
Arthur Andersen LLP, have been included herein in reliance on their report given
on their authority as experts in accounting and auditing.
The financial statements of BSB as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997, included in this
Proxy Statement/Prospectus of Bancshares have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein, and have
been so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
[Balance of page intentionally left blank]
91
<PAGE> 101
[This page intentionally left blank]
92
<PAGE> 102
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
BANCSHARES
Report of Independent Certified Public Accountants.......... F-2
Consolidated Balance Sheets at December 31, 1997 and 1996... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995.......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1996 and 1997.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
BSB
For the Year Ended December 31, 1997
Independent Auditors' Report................................ F-36
Statements of Financial Condition at December 31, 1997 and
1996...................................................... F-37
Statements of Operations for the years ended December 31,
1997, 1996 and 1995....................................... F-38
Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995.......................... F-39
Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995....................................... F-40
Notes to Financial Statements............................... F-41
For the Six Months Ended June 30, 1998
Statements of Financial Condition at June 30, 1998 and
December 31, 1997 (unaudited)............................. F-56
Statements of Operations for the three and six months ended
June 30, 1998 and 1997 (unaudited)........................ F-57
Statements of Shareholders' Equity for the six months ended
June 30, 1998 (unaudited)................................. F-58
Statements of Cash Flows for the six months ended June 30,
1998 and 1997 (unaudited)................................. F-59
Notes to Unaudited Financial Statements..................... F-60
</TABLE>
F-1
<PAGE> 103
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 subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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 did not audit the financial statements of F.F.O. Financial Group, Inc.,
a company acquired during 1997 in a transaction accounted for as a corporate
reorganization, as discussed in Note 1. Such statements are included in the
consolidated financial statements of Republic Bancshares, Inc. and reflect total
assets and total revenues of 27% and 25%, respectively, of the related
consolidated totals. These statements were audited by other auditors whose
report has been furnished to us and our opinion, insofar as it relates to
amounts included for F.F.O. Financial Group, Inc., is based solely upon the
report of the other auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Republic Bancshares, Inc. and subsidiaries
as of December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Tampa, Florida
March 13, 1998
F-2
<PAGE> 104
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
($ IN THOUSANDS, EXCEPT PAR VALUES)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 45,998 $ 34,109
Interest bearing deposits in banks.......................... 671 11,783
Federal funds sold.......................................... 33,000 8,000
Investment securities:
Available for sale........................................ 16,080 74,397
Trading................................................... -- 4,032
Mortgage-backed securities:
Held to maturity.......................................... -- 15,343
Available for sale........................................ 55,467 62,037
Trading................................................... 37,046 5,548
FHLB stock.................................................. 8,148 7,209
Loans held for sale......................................... 151,404 46,593
Loans, net of allowance for loan losses..................... 1,128,955 902,035
Premises and equipment, net................................. 33,303 25,039
Other real estate owned acquired through foreclosure, net... 6,997 8,162
Accrued interest receivable................................. 9,611 7,160
Goodwill and premium on deposits............................ 4,855 527
Other assets................................................ 20,870 12,383
---------- ----------
Total assets....................................... $1,552,405 $1,224,357
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits --
Noninterest-bearing checking............................ $ 93,843 $ 64,363
Interest checking....................................... 137,240 87,639
Money market............................................ 30,389 32,665
Savings................................................. 291,604 303,932
Time deposits........................................... 808,236 626,308
---------- ----------
Total deposits..................................... 1,361,312 1,114,907
Securities sold under agreements to repurchase............ 19,654 15,372
FHLB advances............................................. 35,000 7,000
Subordinated debt......................................... -- 6,000
Other liabilities......................................... 12,158 6,479
---------- ----------
Total liabilities.................................. 1,428,124 1,149,758
---------- ----------
Company-obligated mandatorily redeemable capital securities
of subsidiary trust holding soley junior subordinated
debentures of the Company................................. 28,750 --
---------- ----------
Minority interest in F.F.O. Financial Group, Inc............ -- 6,421
---------- ----------
Stockholders' equity:
Perpetual preferred convertible stock ($20.00 par, 100,000
shares authorized, 75,000 shares issued and outstanding.
Liquidation preference $6,600 at December 31, 1997 and
1996.).................................................... 1,500 1,500
Common stock ($2.00 par, 20,000,000 shares authorized,
7,035,886 and 5,854,414 shares issued and outstanding at
December 31, 1997 and 1996, respectively)................. 14,072 11,708
Capital surplus............................................. 50,322 34,225
Retained earnings........................................... 29,155 20,847
Net unrealized gain (losses) on available-for-sale
securities, net of tax effect............................. 482 (102)
---------- ----------
Total stockholders' equity......................... 95,531 68,178
---------- ----------
Total liabilities and stockholders' equity......... $1,552,405 $1,224,357
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 105
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans................................ $ 97,810 $ 78,955 $ 67,746
Interest on investment securities......................... 2,155 2,097 3,171
Interest on mortgage-backed securities.................... 5,252 5,375 2,869
Interest on trading securities............................ 59 -- --
Interest on federal funds sold............................ 2,447 1,714 3,117
Interest on other investments............................. 734 803 690
---------- ---------- ----------
Total interest income.............................. 108,457 88,944 77,593
---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits...................................... 52,311 44,136 39,822
Interest on FHLB advances................................. 1,169 365 163
Interest on subordinated debt............................. 392 5 --
Interest on other borrowings.............................. 1,051 443 127
---------- ---------- ----------
Total interest expense............................. 54,923 44,949 40,112
---------- ---------- ----------
Net interest income................................ 53,534 43,995 37,481
PROVISION FOR LOAN LOSSES................................... 2,628 2,582 2,162
---------- ---------- ----------
Net interest income after provision for possible loan
losses.................................................. 50,906 41,413 35,319
---------- ---------- ----------
NONINTEREST INCOME:
Income from mortgage banking activities................... 15,159 852 --
Gain on sale of loans..................................... 1,491 144 210
Service charges and fees on deposits...................... 3,358 2,847 2,644
Loan fee income........................................... 1,394 1,327 1,019
Gain on sale of ORE -- held for investment................ -- 1,207 --
Gain on sale of securities, net........................... 1,308 261 322
Other operating income.................................... 2,321 1,314 1,138
---------- ---------- ----------
Total noninterest income........................... 25,031 7,952 5,353
NONINTEREST EXPENSES:
Salaries and employee benefits............................ 27,253 18,505 15,294
Net occupancy expense..................................... 8,118 6,381 5,025
Data processing fees...................................... 2,605 2,119 1,716
FDIC and state assessments................................ 824 1,606 2,212
Other operating expense................................... 18,684 8,218 6,716
---------- ---------- ----------
Total general and administrative expenses.......... 57,484 36,829 30,963
Merger expenses........................................... 1,144 -- --
SAIF special assessment................................... -- 4,005 --
Provisions for losses on ORE.............................. 530 111 240
ORE expense, net of ORE income............................ 273 (490) 662
Amortization of goodwill & premium on deposits............ 464 491 450
---------- ---------- ----------
Total noninterest expenses......................... 59,895 40,946 32,315
---------- ---------- ----------
Income before negative goodwill accretion, income taxes and
minority interest......................................... 16,042 8,419 8,357
Negative goodwill accretion................................. -- -- 1,578
Income tax provision........................................ (6,096) (3,035) (2,516)
Minority interest in income from subsidiary trust........... (701) -- --
Minority interest in F.F.O.................................. (674) (505) (503)
---------- ---------- ----------
NET INCOME......................................... $ 8,571 $ 4,879 $ 6,916
========== ========== ==========
PER SHARE DATA:
Net income per common and common equivalent
share-diluted........................................... $ 1.21 $ .74 $ 1.10
========== ========== ==========
Weighted average common and common equivalent shares
outstanding -- diluted.................................. 7,301,499 6,626,604 6,261,368
========== ========== ==========
Net income per common share -- basic...................... $ 1.40 $ .83 $ 1.26
========== ========== ==========
Weighted average common shares outstanding -- basic....... 6,128,014 5,857,174 5,491,250
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 106
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
($ 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,
1994...................... 75,000 $1,500 5,082,782 $10,166 $26,843 $ 9,577 $(549) $47,537
Net income.................. -- -- -- -- -- 6,918 -- 6,918
Net unrealized gains on
available-for-sale
securities, net of tax
effect.................... -- -- -- -- -- -- 651 651
Issuance of common stock.... -- -- 800,000 1,600 7,537 -- -- 9,137
Exercise of stock options... -- -- 3,170 6 23 -- -- 29
Dividends on preferred
stock..................... (263) (263)
Net change in minority
interest.................. -- -- (23,200) (47) (129) -- -- (176)
------ ----- --------- ------- ------- ------- ----- -------
Balance, December 31,
1995...................... 75,000 1,500 5,862,752 11,725 34,274 16,232 102 63,833
Net income.................. -- -- -- -- -- 4,879 -- 4,879
Net unrealized loss on
available-for-sale
securities, net of tax
effect.................... -- -- -- -- -- -- (204) (204)
Dividends on preferred
stock..................... -- -- -- -- -- (264) -- (264)
Net change in minority
interest.................. -- -- (8,338) (17) (49) -- -- (66)
------ ----- --------- ------- ------- ------- ----- -------
Balance, December 31,
1996...................... 75,000 1,500 5,854,414 11,708 34,225 20,847 (102) 68,178
Net income.................. -- -- -- -- -- 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 $95,531
====== ====== ========= ======= ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-5
<PAGE> 107
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 8,571 $ 4,879 $ 6,916
Reconciliation of net income to net cash (used in) provided
by operating activities:
Provision for loan and ORE losses......................... 3,235 2,693 2,402
Depreciation and amortization, net........................ 5,297 (1,165) 592
Amortization of premium (accretion) of fair value, net.... 918 712 (1,111)
Gain on sale of loans..................................... (16,500) (996) (210)
Gain on sale of investment securities..................... (724) (457) (93)
Gain on sale of other real estate owned................... (27) (1,810) (39)
Capitalization of mortgage servicing...................... (6,826) (1,741) --
Loss (gain) on disposal of premises and equipment......... 14 (2) --
Net decrease (increase) in deferred tax benefit........... (3,768) (755) (12)
Net (increase) decrease in other assets................... (4,339) 1,803 (4,027)
Net increase (decrease) in other liabilities.............. 4,554 (1,248) 1,800
--------- --------- ---------
Net cash (used in) provided by operating
activities....................................... (11,430) 1,919 6,218
--------- --------- ---------
INVESTING ACTIVITIES:
Proceeds from excess of deposit liabilities assumed on
assets acquired, net of cash acquired................... 7,223 -- --
Proceeds from sales and maturities of:
Investment securities held to maturity.................. -- 7,000 36,526
Investment securities available for sale................ 126,544 109,218 11,727
Mortgage-backed securities held to maturity............. -- 15,455 --
Mortgage-backed securities available for sale........... 50,627 6,393 9,732
Mortgage-backed securities in trading portfolio......... 2,764 13,496 --
Purchase of investment securities available for sale...... (66,771) (156,036) (68,187)
Purchase of mortgage backed securities in trading
portfolio............................................... (4,468) (20,105) (16,106)
Principal repayment on mortgage backed securities......... 9,809 25,606 3,073
Purchase of FHLB stock.................................... (131) (1,155) (2,248)
Net increase in loans..................................... (324,605) (118,650) (203,262)
Purchase of premises and equipment........................ (9,993) (2,379) (6,783)
Proceeds from sale of other real estate owned............. 4,739 10,271 10,623
Investments in other real estate owned (net).............. 2,276 101 315
--------- --------- ---------
Net cash used in investing activities.............. (201,986) (110,785) (224,590)
--------- --------- ---------
FINANCING ACTIVITIES:
Net increase in deposits.................................. 177,540 122,866 197,316
Net increase in repurchase agreements..................... 4,282 12,301 991
Proceeds from issuance of subordinated debt............... -- 6,000 --
Net change of minority interest in FFO.................... 645 -- --
Proceeds from issuance of common stock.................... 240 -- 9,166
Proceeds from issuance of minority interest in trust
subsidiary.............................................. 28,750 -- --
Proceeds from FHLB advances............................... 28,000 (23,000) 8,600
Dividends on perpetual preferred stock.................... (264) (264) (263)
--------- --------- ---------
Net cash provided by financing activities.......... 239,193 117,903 215,810
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 25,777 9,037 ( 2,562)
CASH AND CASH EQUIVALENTS, beginning of year................ 53,892 44,855 47,417
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year...................... $ 79,669 $ 53,892 $ 44,855
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest............. $ 47,342 $ 45,080 $ 39,376
Cash paid during the year for income taxes......... 5,674 4,010 2,066
Noncash transactions: Conversion of subordinated
debt............................................. 5,888 -- --
Stock issued for minority interest in FFO.......... 5,307 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-6
<PAGE> 108
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. BUSINESS:
BASIS OF PRESENTATION AND ORGANIZATION
The consolidated financial statements of Republic Bancshares, Inc. (the
Company) include the accounts of the Company, RBI Capital Trust I, Republic
Insurance Agency, Inc., and Republic Bank (the "Bank") and the Bank's
wholly-owned subsidiaries, RBREO, Inc., Tampa Bay Equities, Inc., and VQH
Development, Inc. restated for the acquisition of FFO Financial Group, Inc. as
discussed below. 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 and one share of Company Preferred Stock
for each share of the Bank's Preferred Stock held. 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
46 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"), 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 adjusted based upon their fair value as
of the Purchase Date. The excess of the adjusted 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").
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.
BUSINESS COMBINATIONS
Firstate Financial, F.A.
On April 18, 1997, the Company acquired Firstate Financial, F.A.
("Firstate"), a thrift institution headquartered in Orlando, Florida, for a cash
purchase of $5.5 million. At April 18, 1997, Firstate had total assets of $71.1
million, total deposits of $67.9 million and operated a branch in each of Orange
and Seminole counties. The acquisition was accounted for using the purchase
accounting rules which do not require prior period restatement. The amount of
goodwill recorded was $130,000. Accordingly, the consolidated results of
operations only reflect activity subsequent to the acquisition data.
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 ("First Federal"), was merged into the
F-7
<PAGE> 109
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company in a stock transaction (the "FFO Merger"). William R. Hough, one of the
Company's controlling stockholders, also owned a majority interest in FFO.
The FFO Merger was accounted for as a corporate reorganization in which the
controlling 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 will be amortized over 10 years. The Company issued 1,668,370
shares of common stock to the controlling interest and 826,709 shares of common
stock to the minority interest.
The pooling of interests method of accounting, which is used to account for
the controlling interest in the FFO merger, requires the restatement of
financial results for all prior periods presented. The Company's previously
reported components of consolidated income and the amounts reflected in the
accompanying consolidated statements of operations for the two years ended
December 31, 1996 and 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1996 1995
------- -------
<S> <C> <C>
Net Interest Income:
As previously reported:
Republic Bancshares, Inc.................................. $34,021 $27,862
F.F.O. Financial Group, Inc............................... 9,974 9,619
------- -------
Combined as restated...................................... $43,995 $37,481
======= =======
Net Income:
As previously reported:
Republic Bancshares, Inc.................................. $ 3,784 $ 5,773
F.F.O. Financial Group, Inc............................... 1,600 1,646
Minority interest decrease................................ (505) (503)
------- -------
Combined as restated...................................... $ 4,879 $ 6,916
======= =======
</TABLE>
RBI Capital Trust I ("RBI Capital")
RBI Capital is a wholly-owned subsidiary of the Company which was formed on
May 29, 1997, to issue Cumulative Trust Preferred Securities (the "Preferred
Security or Securities") to the public. The Preferred Securities, issued through
an underwritten public offering on July 28, 1997, were sold at their $10 par
value. RBI Capital issued 2,875,000 shares of the Preferred Securities bearing a
dividend rate of 9.10% for net proceeds of $27.4 million, after deducting
underwriting commissions and other costs. RBI Capital invested the proceeds in
junior subordinated debt of the Company which also has an interest rate of
9.10%. The Company used the proceeds from the junior subordinated debt to
increase the equity capital of the Bank. Interest on the junior subordinated
debentures and distributions on the Preferred Securities are payable quarterly
in arrears, with the first payment having been paid on September 30, 1997.
Distribution on the Preferred Securities are cumulative and based upon the
liquidation value of $10 per Preferred Security. The Company has the right, at
any time, so long as no event of default has occurred and is continuing, to
defer payments of interest on the Junior Subordinated Debentures, which will
require deferral of distribution on the preferred securities, for a period not
exceeding 20 consecutive quarters, provided, that such deferral may not extend
beyond the stated maturity of the Junior Subordinated Debentures. If payments
are deferred, the Company will not be permitted to declare cash dividends. The
Preferred Securities are subject to mandatory redemption, in whole or in part,
upon repayment of the Junior Subordinated Debentures at maturity or their
earlier redemption. The Company
F-8
<PAGE> 110
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
has the right to redeem the Junior Subordinated Debentures in whole (but not in
part) within 180 days following certain events whether occurring before or after
June 30, 2002. The exercise of such right is subject to the Company having
received regulatory approval to do so if then required under applicable capital
guidelines or regulatory policies. In addition to the above right, the Company
has the right, at any time, to shorten the maturity of the Junior Subordinated
Debentures to a date not earlier than June 30, 2002. Exercise of this right is
also subject to the Company having received regulatory approval to do so if then
required under applicable capital guidelines or regulatory policies.
The Company has reported its obligation, with respect to the holders of the
Preferred Securities, as a separate line item on its audited consolidated
balance sheet under the caption "Company-obligated mandatorily redeemable
capital securities of subsidiary trust holding solely junior subordinated
debentures of the Company". The related dividend expense, net of the tax
benefit, is reported as a separate line item on the statement of operations
under the caption "minority interest in income from subsidiary trust."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ESTIMATES, APPRAISALS AND EVALUATIONS
The financial statements include, in conformity with generally accepted
accounting principles, 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.
Investments identified as trading securities, include mortgage backed
securities resulting from the securitization of residential and High LTV loans,
the resulting residual interest in cash flows from those securitizations, where
applicable, and the excess spread on mortgage servicing rights. Trading
securities are carried at market value with any unrealized gains or losses
included in the statement of operations under "Gain on sale of securities, net."
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 as a
component of other noninterest 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.
F-9
<PAGE> 111
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
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 $5.5 million, $1.9 million, and $117,000 was
capitalized relating to mortgage servicing rights ("MSRs") during 1997, 1996 and
1995, respectively. Also included in the balance of mortgage servicing rights is
approximately $225,000 of rights acquired through the Firstate acquisition. As
of December 31, 1997, 1996 and 1995, the unamortized portion of these MSRs were
$7.1 million, $2.0 million, and $113,000, respectively. For purposes of
measuring impairment, MSRs are stratified based on the loan type, interest rate
and maturity of the underlying loans.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF
LIABILITIES
The FASB has issued SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities," which was 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. In addition to providing further guidance related
to the recording of mortgage servicing rights, SFAS 125 required that the
Company classify loans held for sale which are securitized and retained in the
Company's portfolio, residual interest retained and excess spread interest only
strip receivable as trading assets. As a result, the Company is required to
carry these assets at their current market value as of the balance sheet date
with the resulting valuation adjustment recorded in the statement of operations.
The Company uses an automated portfolio analysis system to value its
mortgage servicing rights at the individual loan level. The model uses current
market assumptions to determine default probabilities and prepayment speed
assumptions based upon current factors to include interest rate, age, loan type,
geography and demographic factors. The automated foreclosure probabilities also
take into consideration the regional, demographic and behavioral
characteristics. These factors are applied to each loan based on its own
individual characteristics. The following table shows the amount of servicing
assets which were capitalized and
F-10
<PAGE> 112
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amortized, and the fair value of those assets as of December 31, for the periods
indicated (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ----
<S> <C> <C> <C>
Balance, beginning of year.................................. $1,968 $ 113 $ --
Rights acquired through Firstate acquisition.............. 225 -- --
Capitalized servicing assets.............................. 5,504 1,923 117
Amortization.............................................. (572) (68) (4)
------ ------ ----
Balance, end of year...................................... $7,125 $1,968 $113
====== ====== ====
Fair Value of assets...................................... $7,505 $2,289 $113
====== ====== ====
</TABLE>
During December, 1997, the Company completed a securitization of $60
million of High LTV home equity loans. The assets were sold to Republic Bank
Home Loan Owner Trust 1997-1 and the trust then issued $57.6 million of asset
backed notes and certificates. As part of that transaction the Company recorded
$5.7 million of residual interest on these securities. The calculation used to
determine the value of the residual interest assumed a 14% discount rate, a
default rate of 2.25%, and a prepayment rate ranging from 12% through 15%.
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,
1997, $22.8 million of loans were considered impaired by the Company.
Approximately $16.0 million of these loans required valuation allowances,
totaling $2.8 million, which are included within the overall allowance for loan
losses at December 31, 1997. Residential mortgages and consumer loans and leases
outside the scope of SFAS 114 are collectively evaluated for impairment.
As of December 31, 1996, $19.2 million of loans were considered impaired by
the Company. Approximately $16.9 million of these loans required valuation
allowances, totaling $2.9 million, which were included within the overall
allowance for loan losses at December 31, 1996.
F-11
<PAGE> 113
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
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 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 No. 121 upon the results of operations of the Company was not material.
EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," SFAS
No. 128 simplifies the method for computing and presenting earnings per share
("EPS") previously required by APB Opinion No. 15, "Earnings Per Share", and
makes them comparable to international EPS standards. SFAS No. 128 is effective
for periods ending after December 15, 1997, and requires restatement of all
prior period EPS data and has been implemented by the Company. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation.
F-12
<PAGE> 114
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," SFAS No. 130 establishes standards for reporting and display of
comprehensive income. A specific reporting format is not required, provided the
financial statements show the amount of total comprehensive income for the
period. Those items which are not included in net income are required to be
shown in the financial statements with appropriate footnote disclosure and the
aggregate balance of such items must be shown separately from retained earnings
and additional paid-in-capital in the equity section of the balance sheet. SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods is required. SFAS
No. 130 will have no material effect on the Company's financial statements.
DISCLOSURES ABOUT BUSINESS SEGMENTS
In June 1997, the FASB adopted SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way the Company reports information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial reports. SFAS No. 131 is effective for
periods beginning after December 15, 1997. Management has implemented SFAS No.
131 in the year ended December 31, 1997, and believes its commercial banking and
mortgage banking activities constitute operating segments which require
additional disclosure about their respective assets, revenues, profit or loss
and other operating data.
DISCLOSURES ABOUT PENSIONS AND OTHER POST-RETIREMENT BENEFITS
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosure about
Pensions and Other Retirement Benefits," (SFAS No. 132). SFAS No. 132 revises
the disclosure requirements for employees' pensions and other post-retirement
benefit plans. SFAS No. 132 is effective for fiscal years beginning after
December 15, 1997, earlier application is encouraged. Management has implemented
SFAS No. 132 in the year ended December 31, 1997.
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.
The Company and its subsidiaries file consolidated tax returns with the
federal and state taxing authorities. A tax sharing agreement exists between the
Company and its subsidiaries whereby taxes for the subsidiaries are computed as
if the subsidiaries were separate entities. 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 three to four years.
Approximately $202,000 and $527,000 was included in other assets in the
accompanying financial statements, as of December 31, 1997, and 1996.
F-13
<PAGE> 115
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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". Effective in 1996, the Company adopted the disclosure option of SFAS
No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 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 No. 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 No. 123.
CASH EQUIVALENTS
For purposes of preparing the Consolidated Statements of Cash Flows, cash
equivalents are defined to include cash and due from banks, interest-bearing
deposits in banks, and federal funds sold.
RECLASSIFICATIONS
Certain reclassifications have been made to prior period financial
statements to conform with the 1997 financial statement presentation.
3. INVESTMENT SECURITIES:
The Company's investment securities consisted primarily of U.S. Treasury
Bills, Notes, and Agencies. The investment securities of the Company at December
31, 1997 and 1996, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1997:
Available-for-sale securities:
U.S. Government Treasuries.................... $10,512 $ 9 $ -- $10,521
U.S. Agencies................................. 4,000 14 -- 4,014
Revenue bond.................................. 1,545 -- -- 1,545
------- ------- ------- -------
Total U.S. Treasuries & Federal Agency
Notes............................... $16,057 $ 23 $ -- $16,080
======= ======= ======= =======
AT DECEMBER 31, 1996:
Available-for-sale securities:
U.S. Government Treasuries.................... $72,905 $ -- $ (53) $72,852
Revenue Bond.................................. 1,545 -- -- 1,545
------- ------- ------- -------
Total available for sale.............. 74,450 -- (53) 74,397
Trading securities:
U.S. Agencies................................. 4,000 32 -- 4,032
------- ------- ------- -------
Total U.S. Treasuries & Federal Agency
Notes............................... $78,450 $ 32 $ (53) $78,429
======= ======= ======= =======
</TABLE>
F-14
<PAGE> 116
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------- -------
<S> <C> <C> <C> <C>
BOOK VALUE AT DECEMBER 31:
Available-for-sale securities:.................. $16,080 $74,397
Trading Securities.............................. -- 4,032
------- -------
Total U.S. Treasuries & Federal Agency
Notes............................... $16,080 $78,429
======= =======
</TABLE>
The amortized cost and estimated market value of investment securities at
December 31, 1997, 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.................................... $10,512 $10,521 5.68%
Due after 1 year through 5 years......................... 1,545 1,545 8.60
Due after 5 years........................................ 4,000 4,014 7.45
------- -------
Total.......................................... $16,057 $16,080 6.40%
======= =======
</TABLE>
Proceeds from sales of U.S. Treasury and Federal Agency Notes during the
years ended 1997, 1996 and 1995, were $55,092,000, $7,545,000, and $2,972,000,
respectively. Gross losses of $7,109, $ 0, and $27,891 were realized for the
years ended December 31, 1997, 1996 and 1995. Gross gains of $193,218, $45,404,
and $0, were realized during the years ended December 31, 1997, 1996 and 1995,
respectively. U.S. Treasuries and Federal Agency Notes with a par value of
$10,500,000 and $19,000,000 at December 31, 1997 and 1996, respectively, were
pledged to secure public deposits and for other purposes. Net unrealized holding
gains on trading securities of $764,000, $26,000, and $101,000 were included in
income during 1997, 1996, and 1995, respectively.
4. 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
1997 and 1996 the Company securitized loans with a carrying value of $17,923,000
and $6,282,000, respectively. MBS securities held to maturity are recorded at
amortized cost, while securities available-for-sale and trading are recorded at
estimated market value. Mortgage-backed securities are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
GAINS GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1997:
Available for sale securities:
GNMA securities................................ $41,395 $648 $ -- $42,043
FHLMC securities............................... 5,963 -- (9) 5,954
FNMA securities................................ 6,644 104 (2) 6,746
Other MBS securities........................... 716 8 -- 724
------- ---- ------- -------
Total MBS available for sale......... $54,718 $760 $ (11) $55,467
======= ==== ======= =======
</TABLE>
F-15
<PAGE> 117
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
GAINS GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Trading securities:
GNMA securities................................ $16,346 $478 $ -- $16,824
FNMA Title 1 securities........................ 1,200 -- 1,200
Republic Bank Owner Trust 1997-1 M2............ 4,350 -- -- 4,350
Republic Bank Owner Trust 1997-1 B............. 4,350 -- -- 4,350
Republic Bank Owner Trust 1997-1-
Overcollateralization........................ 2,400 -- -- 2,400
Residual interest.............................. 5,845 -- -- 5,845
Excess servicing interest only strip........... 2,077 -- -- 2,077
------- ---- ------- -------
Total MBS trading securities......... $36,568 $478 $ -- $37,046
======= ==== ======= =======
AT DECEMBER 31, 1996:
Available for sale securities:
Mortgage-backed securities..................... $61,560 $108 $ (219) $61,449
Collateralized mortgage backed obligations..... -- -- --
Excess servicing interest only strip........... 588 -- -- 588
------- ---- ------- -------
Total MBS available for sale......... $62,148 $108 $ (219) $62,037
======= ==== ======= =======
Trading Securities:
Mortgage-backed securities..................... $ -- $ -- $ -- $ --
Collateralized mortgage backed obligations..... 5,554 -- (6) 5,548
Excess servicing interest only strip........... -- -- -- --
------- ---- ------- -------
Total MBS trading securities......... $ 5,554 $ -- $ (6) $ 5,548
======= ==== ======= =======
Held to maturity securities:
Mortgage-backed securities..................... $15,343 $218 $ (47) $15,514
Collateralized mortgage backed obligations..... -- -- -- --
Excess spread interest only strip receivable... -- -- -- --
------- ---- ------- -------
Total MBS securities held to
maturity........................... $15,343 $218 $ (47) $15,514
======= ==== ======= =======
</TABLE>
<TABLE>
<CAPTION>
1997 1996
---------- -------
<S> <C> <C> <C> <C>
BOOK VALUE AT DECEMBER 31:
Held to maturity securities.................... $ -- $15,343
Available for sale securities.................. 55,467 62,037
Trading securities............................. 37,046 5,548
------- -------
Total MBS............................ $92,513 $82,928
======= =======
</TABLE>
The trading asset category at December 31, 1997, included $2.1 million in
excess spread on mortgage servicing rights, $8.7 million of securities purchased
from the Company's securitization of High LTV Loans in December 1997 and the
$8.2 million residual interest in cash flows from that securitization. The
Company has recorded these assets at what it believes to be their fair market
value, however, there is no ready market for residuals in cash flows from
securitization of High Loan-to-Value Loans.
F-16
<PAGE> 118
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997, 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, 1997, 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>
ESTIMATED WEIGHTED
AMORTIZED MARKET AVERAGE
COST VALUE YIELD
--------- --------- --------
<S> <C> <C> <C>
Due 5 - 10 years......................................... $ 716 $ 724 7.39%
Due after 10 years....................................... 90,570 91,789 6.86
------- -------
Total.......................................... $91,286 $92,513 6.87
======= =======
</TABLE>
Proceeds from sales of MBS securities during the years ended December 31,
1997, 1996 and 1995 were $59,111,000, $47,750,000 and $17,487,000, respectively.
Gross gains of $359,511, $495,837 and $130,038 and gross losses of $1,890,
$85,845 and $9,000, respectively, were realized on these sales. Mortgage backed
securities with a par value of $29.3 million and a market value of $30.0 million
were pledged to secure repurchase agreements at December 31, 1997.
5. LOANS AND LOANS HELD FOR SALE:
Loans and loans held for sale at December 31, 1997 and 1996, are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Real estate mortgage loans:
One-to-four family residential............................ $ 644,235 $494,955
Multi-family residential.................................. 86,835 90,745
Commercial real estate.................................... 265,153 224,715
Construction/land development............................. 50,203 42,206
Home equity loans......................................... 44,389 23,622
Commercial loans............................................ 36,515 37,626
Consumer loans.............................................. 26,259 21,845
Other loans................................................. 442 1,294
---------- --------
Total gross portfolio loans....................... 1,154,031 937,008
Less-allowance for loan losses.............................. (20,776) (18,747)
Less-undisbursed loans in process........................... -- (10,824)
Less-premiums and unearned discounts on loans purchased..... (3,273) (4,731)
Less-unamortized loan fees.................................. (1,027) (671)
---------- --------
Total loans held for portfolio.................... 1,128,955 902,035
Residential loans held for sale............................. 151,404 46,593
---------- --------
Total loans....................................... $1,280,359 $948,628
========== ========
</TABLE>
Mortgage loans serviced for others as of December 31, 1997 and 1996, were
$370,106,000 and $224,311,000, respectively. Loans on which interest was not
being accrued totaled approximately $26,959,000, $19,409,000, and $16,229,000 at
December 31, 1997, 1996 and 1995, respectively. Had interest been accrued on
these loans at their originally contracted rates, interest income would have
been increased by approximately $2,138,000, $1,661,000, and $1,729,000 in the
years ended December 31, 1997, 1996 and 1995, respectively. Loans past due 90
days or more and still accruing interest at December 31, 1997 and 1996, totaled
approximately $196,000 and $113,000, respectively. The Company restructured
loans totaling $0 and $2,516,000 during 1997 and 1996, respectively.
F-17
<PAGE> 119
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ALLOWANCE FOR LOAN LOSSES:
Changes in the allowance for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
BALANCE, beginning of year............................. $18,747 $20,048 $15,272
Provision for possible loan losses................... 2,628 2,582 2,162
Allowance from Firstate acquisition.................. 132 -- --
Discount on purchased loans allocated to (from)
allowance for loan losses......................... 39 (1,732) 7,658
Loans charged off.................................... (1,003) (2,448) (5,536)
Recoveries of loans charged off...................... 223 297 492
------- ------- -------
BALANCE, end of year................................... $20,776 $18,747 $20,048
======= ======= =======
</TABLE>
While management believes that the allowance for loan losses is adequate at
December 31, 1997, 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, 1997 and 1996, approximately
$6,197,000 and $7,150,000 of the allowance had arisen through an allocation of
discounts on purchased loans.
7. PREMISES AND EQUIPMENT:
Premises and equipment at December 31, 1997 and 1996, included (in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Land........................................................ $ 7,202 $ 6,249
Buildings and improvements.................................. 19,354 14,370
Furniture and equipment..................................... 16,008 12,634
Leasehold improvements...................................... 2,279 1,051
Construction in progress.................................... 1,137 268
-------- -------
Total premises and equipment...................... 45,980 34,572
Less-accumulated depreciation and amortization.............. (12,677) (9,533)
-------- -------
Premises and equipment, net............................... $ 33,303 $25,039
======== =======
</TABLE>
8. 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 three
ORE properties totaling approximately $3,451,000 at December 31, 1997, which
were required to be disposed of by year end. The Company has been granted an
extension on these properties by the State of Florida. The largest piece of
these properties is a tract of land carried at $2.6 million acquired through
foreclosure in 1988 that has partially been developed as a shopping center site.
The FDIC has also granted an extension of the holding period on this property.
The Bank
F-18
<PAGE> 120
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
currently has a firm commitment to sell a substantial portion of the second
largest property, with a book value of approximately $597,000, for an amount in
excess of the current book value. 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 $6,471,000,
and $7,249,000, for the years ended December 31, 1997 and 1996, respectively.
Sales of ORE that were financed by the Company totaled $113,000 and $6,572,000
for the years ended December 31, 1997 and 1996, respectively.
Changes in the valuation allowance for ORE were as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
BALANCE, beginning of year.................................. $2,672 $2,090 $4,043
Provision................................................. 530 111 240
Charge-offs, net.......................................... 77 471 (2,193)
------ ------ ------
BALANCE, end of year........................................ $3,279 $2,672 $2,090
====== ====== ======
</TABLE>
9. INCOME TAXES:
Income taxes are comprised of the following (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Current provision........................................... $ 7,991 $3,728 $2,528
Deferred benefit............................................ (1,895) (693) (12)
------- ------ ------
$ 6,096 $3,035 $2,516
======= ====== ======
</TABLE>
At December 31, 1997, the Company had approximately $7,061,000 of remaining
federal and $8,784,000 of state net operating loss carryforwards. These
carryforwards expire in the years 2005 through 2012.
Following the change of ownership in 1993, and the two acquisitions in
1997, recognition of net operating loss carryforwards are limited to
approximately $571,000 each year under the rules of IRC Section 382. 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.
F-19
<PAGE> 121
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities were comprised of the following at
December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Gross deferred tax assets:
Tax bases over financial bases for loans (loan loss
allowance and discounts)............................... $ 6,091 $ 3,643
Financial amortization of premium over tax amortization... 701 646
Interest on non-accrual loans............................. 522 452
Tax bases over financial bases for ORE.................... 1,516 1,346
Net operating losses and tax credit carryforward.......... 2,717 2,039
Mark-to-market-loans held for sale........................ 1,268 232
Other..................................................... 457 149
------- -------
Gross deferred tax asset............................. 13,272 8,507
Gross deferred tax liabilities....................... (3,315) (2,318)
------- -------
Net deferred tax asset............................... $ 9,957 $ 6,189
======= =======
</TABLE>
There were no valuation allowances against the deferred tax asset 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 1997 and 1996 by approximately $352,000 and $63,000,
respectively, relating to the unrealized gain on available for sale securities
which is recorded directly to stockholders' equity.
Through the merger of FFO, the Company acquired an unrecognized deferred
tax liability of approximately $2,700,000 related to base year reserves
calculated under the thrift bad debt percentage method. If during any taxable
year, the Company ceases to be a bank, these reserves shall be taken into
account ratably over the six taxable year period beginning with such taxable
year.
The Company's effective tax rate varies from the statutory rate of 34%. The
reasons for this difference are as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Computed "expected" tax provision........................... $5,454 $2,862 $3,377
Increase (reduction) of taxes:
Tax-exempt interest income............................. (20) (22) (27)
Valuation allowance.................................. -- -- (355)
Goodwill amortization.................................. 122 -- --
Amortization of excess of fair value over purchase
price................................................ -- -- (536)
State taxes............................................... 578 304 298
Other..................................................... (38) (109) (241)
------ ------ ------
Total............................................. $6,096 $3,035 $2,516
====== ====== ======
</TABLE>
10. OTHER BORROWINGS:
At December 31, 1997, the Company was required by its collateral agreement
with the FHLB to maintain qualifying first mortgage loans in an amount equal to
at least 100% of the FHLB advances outstanding as collateral. The FHLB advances
at December 31, 1997 and 1996, were collateralized by such loans and securities
totaling $35.0 million and $32.2 million, respectively. In addition, all of the
Company's FHLB stock is pledged as collateral for such advances.
F-20
<PAGE> 122
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities and average interest rates of advances from the FHLB as of
December 31, 1997 and 1996, were as follows (in thousands):
<TABLE>
<CAPTION>
BALANCE AT
DECEMBER 31,
WEIGHTED ----------------
MATURITIES IN YEAR ENDING DECEMBER 31, AVERAGE RATE 1997 1996
- -------------------------------------- ------------ ------- ------
<S> <C> <C> <C>
1997..................................................... 6.95% $ -- $7,000
1998..................................................... 6.50 35,000 --
---- ------- ------
TOTAL.......................................... $35,000 $7,000
==== ======= ======
</TABLE>
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 had 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. During 1997, the Company's common stock
exceeded 130% of the conversion price of $17.85714 for more than 20 consecutive
days. As a result, the Company notified the trustee of its intention to redeem
the debentures as of December 1, 1997. All of the holders converted their
debentures prior to this date into a total of 336,000 shares of common stock.
11. 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, 1997 and 1996, approximately 95%
and 94%, respectively, of the Company's loan portfolio was secured by real
estate. Mortgage loans secured by 1-4 family properties comprised approximately
56% and 53%, respectively, of total mortgage loans at December 31, 1997 and
1996.
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-21
<PAGE> 123
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of financial instruments with off-balance-sheet risk at December
31, 1997, is as follows (in thousands):
<TABLE>
<CAPTION>
CONTRACTUAL
AMOUNT
-----------
<S> <C>
Commitments to extend credit................................ $ 76,698
Unfunded lines of credit.................................... 156,013
Commercial and standby letters of credit.................... 12,168
--------
Total............................................. $244,879
========
</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 counter party. 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, 1997,
totaled approximately $3,269,000.
At December 31, 1997, in connection with managing the interest rate market
risk on its loans held for sale of $151,404,000 and locked loans (without
consideration for any fallout) of $56,097,000, the Company had outstanding
$32,040,000 (estimated fair value of $31,910,000) 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-22
<PAGE> 124
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
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, 1997, minimum rental
commitments based on the remaining noncancelable lease terms were as follows (in
thousands):
<TABLE>
<S> <C>
1998...................................................... $ 3,077
1999...................................................... 2,895
2000...................................................... 2,403
2001...................................................... 2,197
2002...................................................... 1,891
Thereafter................................................ --
-------
Gross operating lease commitments.................... 12,463
Less-sublease rentals..................................... (1,620)
-------
Net operating lease commitments........................ $10,843
=======
</TABLE>
Total rent expense for the years ended December 31, 1997, 1996 and 1995,
was $2,546,000, $2,031,000, and $1,372,000, respectively. Total rental income
from subleases for the years ended December 31, 1997, 1996 and 1995, was
$582,000, $1,031,000, and $1,190,000, 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 1998 and $107,000 in 1999. In addition, the Company is obligated to
make processing payments in relation to its computer facilities of approximately
$1,545,000 in 1998, $1,653,000 in 1999, $1,759,000 in 2000, and $293,000 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.
12. EMPLOYEE BENEFIT PLANS:
On January 1, 1987, a retirement plan was adopted, covering substantially
all employees, which includes a 401(k) arrangement. The Company's contributions
were $437,200, $186,900, and $107,200 in the years ended December 31, 1997, 1996
and 1995, respectively.
13. 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, among other things.
F-23
<PAGE> 125
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 and mortgage backed securities portfolio was evaluated using
market quotes, where available, or fair market value calculations as of December
31, 1997 and 1996. The fair value of the loan portfolio was evaluated using
market quotes for similar financial instruments, where available. Otherwise,
discounted cash flows at current market, after adjusting for credit
deterioration and an average prepayment assumption, 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. The value of the
Company's mortgage servicing rights was determined using the net discounted cash
flows from servicing.
These evaluations may incorporate specific value to the Company in
accordance with its asset/liability strategies, interest rate projections and
business plans at a specific point in time and therefore, should not necessarily
be viewed as liquidation value. They should also not be used in determining
overall value of the Company due to undisclosed and intangible aspects such as
business and franchise value, and due to changes to assumptions of interest
rates and expected cash flows which might need to be made to reflect
expectations of returns to be earned on instruments with higher credit risks.
The table below illustrates the estimated fair value of the Company's
financial instruments as of December 31 using the assumptions described above
(in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash and due from banks..................................... $ 45,998 $ 34,109
========== ==========
Interest bearing deposits in banks.......................... 671 11,783
========== ==========
Federal funds sold.......................................... 33,000 8,000
========== ==========
Investment and mortgage backed securities................... 108,593 161,304
========== ==========
Loans and loans held for sale (net of allowance for loan
losses)................................................... 1,306,678 991,635
========== ==========
Mortgage servicing rights................................... 269 1,690
========== ==========
Deposits.................................................... 1,365,824 1,119,888
========== ==========
Securities sold under agreements to repurchase.............. 19,654 15,372
========== ==========
FHLB stock.................................................. 35,000 7,000
========== ==========
Subordinated debt........................................... -- 6,000
========== ==========
Standby letters of credit................................... 12,168 7,415
========== ==========
Commitments to extend credit and unfunded lines of credit... 232,711 121,420
========== ==========
</TABLE>
14. 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.
F-24
<PAGE> 126
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
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,
1997, 60,000 options were granted under the Option Plan and 30,000 were
outstanding. The per share exercise price of each stock option is determined by
the Board of Directors at the date of grant. The plan terminates in 2003 or at
the discretion of the Board of Directors.
1995 INCENTIVE STOCK OPTION PLAN
On April 29, 1994, the shareholders approved a qualified incentive stock
option plan to certain key employees. In connection with the Company's holding
company reorganization and share exchange in which all of the Company's
stockholders became stockholders of the Company, the Company adopted the
Republic Bancshares, Inc. 1995 Stock Option Plan (the "Plan") as a replacement
for the Company's 1994 Stock Option Plan. The Plan was approved by the
stockholders of the Bank at the Bank's Special Meeting held on February 27,
1996. On April 23, 1996, the shareholders approved certain amendments to the
Plan (the "Amendment"). Under the Amendment, the total number of shares that may
be purchased pursuant to the plan cannot exceed 525,000 over the life of the
plan and provides that the maximum number of options granted to any one
individual in any fiscal year under the plan cannot exceed 62,000. There is no
limitation on the annual aggregate number of options to be granted in any fiscal
year. Each option granted under the plan will be exercisable by the grantee
during a term, not to exceed 10 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 1997,
1996 and 1995, options to purchase 80,500, 270,900 and 59,700 shares,
respectively, under the incentive stock option plan were granted. Of the options
previously granted, 59,380 shares have expired, thereby making these options
available for future grants. As of December 31, 1997, 408,750 options remained
outstanding under this plan, with 116,250 available to be granted at a future
time.
F-25
<PAGE> 127
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997 STOCK APPRECIATION RIGHTS PLAN
On October 21, 1997, the Board of Directors of the Company approved a Stock
Appreciation Rights Plan (the "SAR Plan"). Under the SAR Plan, certain key
employees have been granted the right to receive cash equal to the excess of the
fair market value of a share of the Company's common stock at the time of
exercise, over the fair market value of a share of the Company's common stock at
date of grant, times the number of rights exercised. As of December 31, 1997,
40,250 SAR's had been granted at the then current market value of $26.675. No
more than 20% of the shares may vest annually by beginning at date of grant. The
term of an SAR may vary, but shall not be less than one year nor more than 10
years from the date of grant.
The Company records compensation expense equal to the appreciation of the
fair market value of the stock times the number of outstanding stock
appreciation rights. As of December 31, 1997, there had been no appreciation of
the Company's common stock over the fair market value at date of grant.
Therefore, no compensation expense had been recorded.
AGGREGATE STOCK OPTION ACTIVITY
The Company adopted SFAS No. 123 for disclosure purposes in 1996. For SFAS
No. 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) for 1997, 1996 and 1995: risk-free
interest rate of 5.35%, 6.50% and 6.03%, respectively, expected life of seven
years, dividend rate of zero percent, and expected volatility of 30.9% for 1997
and 25% for 1996 and 1995. The approximate fair value of the stock options
granted in 1997, 1996, and 1995 is $959,000, $1,583,000 and $347,000,
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 No. 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>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net Income
As reported............................................... $8,571 $4,879 $6,916
Pro forma................................................. 8,210 4,683 6,873
Earnings per share -- diluted
As reported............................................... 1.21 .74 1.10
Pro forma................................................. 1.16 .71 1.10
Earnings per share -- basic
As reported............................................... 1.40 .83 1.26
Pro forma................................................. 1.34 .80 1.25
</TABLE>
F-26
<PAGE> 128
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Because the SFAS No. 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, 1997, 1996 and
1995, and for the years then ended is presented in the table below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
WTD AVG WTD AVG WTD AVG
SHARES EX PRICE SHARES EX PRICE SHARES EX PRICE
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
FIXED OPTIONS
Outstanding -- beg. of year.... 196,470 $11.87 131,810 $11.00 81,500 $8.75
Granted........................ 82,999 25.94 70,900 13.63 59,700 14.00
Exercised...................... (21,300) 11.80 -- -- (3,170) 9.58
Forfeited/Expired.............. (6,920) 13.04 (6,240) 13.42 (6,220) 11.06
------- ------- -------
Outstanding -- end of year..... 251,249 16.38 196,470 11.87 131,810 11.00
======= ======= =======
Exercisable -- end of year..... 118,979 12.52 92,530 10.29 45,112 9.07
Wtd. avg. fair value of options
granted..................... 11.91 5.84 5.81
PERFORMANCE OPTIONS
Outstanding -- beg. of year.... 200,000 $13.63 200,000 $13.63 -- --
Granted........................ -- -- -- -- -- --
Exercised...................... -- -- -- -- -- --
Forfeited/Expired.............. (40,000) 13.63 -- -- -- --
------- ------- -------
Outstanding -- end of year..... 160,000 13.63 200,000 13.63 -- --
======= ======= =======
Exercisable -- end of year..... -- -- -- -- -- --
Wtd. avg. fair value of options
granted..................... -- 5.84 --
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------- -------------------------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER EXERCISABLE
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE AT WEIGHTED-AVERAGE
EXERCISE PRICE AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE 12/31/97 EXERCISE PRICE
- -------------- ---------------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
2.13 2,499 1.00 years $ 2.13 2,499 $ 2.13
5.40-10.50 61,610 5.89 years 8.02 54,040 7.67
13.63-14.00 266,640 8.19 years 13.69 46,340 13.83
26.68 80,500 9.79 years 26.68 61,100 26.68
</TABLE>
15. EARNINGS PER SHARE:
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Diluted earnings 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, at the average market price for period, with the proceeds being used
to buy shares from the market (i.e., the treasury stock method) and the
perpetual preferred stock and the convertible subordinated debentures 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). Basic earnings per common share was
computed by dividing net income by the weighted average
F-27
<PAGE> 129
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
number of shares of common stock outstanding during the year. The table below
reconciles the calculation of diluted and basic earnings per share (dollars in
thousands, except share data):
<TABLE>
<CAPTION>
1997
-------------------------------
WEIGHTED EARNINGS
NET SHARES PER
INCOME OUTSTANDING SHARE
------ ----------- --------
<S> <C> <C> <C>
Net Income................................................ $8,571 6,128,014
Basic earnings per share................................ $1.40
Options exercised during the period -- incremental
effect prior to exercise............................. -- 5,198
Options outstanding at end of period.................... -- 117,835
Convertible perpetual preferred stock................... -- 750,000
Convertible subordinated debentures -- incremental
effect prior to conversion........................... 245 300,452
------ --------- -----
Diluted earnings per share.............................. $8,816 7,301,499 $1.21
====== ========= =====
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------
WEIGHTED EARNINGS
NET SHARES PER
INCOME OUTSTANDING SHARE
------ ----------- --------
<S> <C> <C> <C>
Net Income................................................ $4,879 5,857,174
Basic earnings per share................................ $0.83
Options exercised during the period -- incremental
effect prior to exercise............................. -- --
Options outstanding at end of period.................... -- 19,430
Convertible perpetual preferred stock................... -- 750,000
Convertible subordinated debentures -- incremental
effect prior to conversion........................... -- -- --
------ --------- -----
Diluted earnings per share................................ $4,879 6,626,604 $0.74
====== ========= =====
</TABLE>
<TABLE>
<CAPTION>
1995
-------------------------------
WEIGHTED EARNINGS
NET SHARES PER
INCOME OUTSTANDING SHARE
------ ----------- --------
<S> <C> <C> <C>
Net income................................................ $6,916 5,491,250
Basic earnings per share................................ $1.26
Options exercised during the period -- incremental
effect prior to exercise............................. -- 388
Options outstanding at end of period.................... -- 19,730
Convertible perpetual preferred stock................... -- 750,000
Convertible subordinated debentures -- incremental
effect prior to conversion........................... -- -- --
------ --------- -----
Diluted earnings per share................................ $6,916 6,261,368 $1.10
====== ========= =====
</TABLE>
F-28
<PAGE> 130
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1997, the Company adopted SFAS No. 128, "Earnings per Share," effective
December 15, 1997. As a result, the Company's reported earnings per share for
1996 and 1995 were restated. The effect of this accounting change on previously
reported earnings per share ("EPS") data was as follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Primary EPS as Reported..................................... $0.74 $1.10
Effect of SFAS No. 128...................................... 0.09 0.16
----- -----
Basic EPS as restated....................................... $0.83 $1.26
===== =====
Fully diluted EPS as Reported............................... $0.74 $1.10
Effect of SFAS No. 128...................................... -- --
----- -----
Diluted EPS as restated..................................... $0.74 $1.10
===== =====
</TABLE>
16. REGULATORY CAPITAL REQUIREMENTS:
The Company and the Bank are required to comply with the capital adequacy
standards established by the Federal Reserve (for the Company) and the FDIC (for
the Bank). There are three basic measures of capital adequacy for banks that
have been promulgated by the Federal Reserve; two risk-based measures and a
leverage measure. All applicable capital standards must be satisfied for a bank
holding company to be considered in compliance.
The minimum guidelines for the ratio ("Risk-Based Capital Ratio") of total
capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8.0%. At least
half of Total Capital (i.e., 4.0% of risk-weighted assets) must comprise common
stock, minority interests in the equity accounts of consolidated subsidiaries,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less goodwill and certain other intangible assets
("Tier 1 Capital"). The remainder may consist of subordinated debt, other
preferred stock, and a limited amount of loan loss reserves ("Tier 2 Capital").
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3.0% for banks that meet certain
specified criteria, including having the highest regulatory rating. All other
bank holding companies generally are required to maintain a Leverage Ratio of at
least 3.0%, plus an additional cushion of 100 to 200 basis points. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve has indicated that it
will consider a "tangible Tier I Capital leverage ratio" (deducting all
intangibles) and other indicators of capital strength in evaluating proposals
for expansion or new activities. The Bank had previously undertaken in writing
to the FDIC to achieve a Leverage Ratio of at least 5.50% by September 30, 1995,
which it did, and will consider raising additional capital or reducing internal
growth should the ratio fall below that level in the future. The Company's
leverage ratio requirement remains at 5.00%. Other than the foregoing
commitment, the Bank has not been advised by the FDIC of any specific minimum
capital ratio requirement applicable to it.
Failure to meet capital guidelines could subject a bank or a bank holding
company to a variety of enforcement remedies, including issuance of a capital
directive, the termination of deposit insurance by the FDIC, a prohibition on
the taking of brokered deposits, and certain other restrictions on its business.
Substantial additional restrictions can be imposed upon FDIC-insured depository
institutions that fail to meet applicable capital requirements under the federal
prompt corrective action regulations.
As of December 31, 1997 and 1996, the Company and the Bank were considered
"well capitalized" under the federal banking agencies for prompt corrective
action regulations. Regulatory capital ratios for 1996 have
F-29
<PAGE> 131
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
not been restated to include FFO, as the accounting methodology for a pooling of
interest does not apply under regulatory guidelines. The table which follows
sets forth the amounts of capital and capital ratios of the Company and the Bank
as of December 31, 1997 and 1996, and the applicable regulatory minimums (in
thousands):
<TABLE>
<CAPTION>
COMPANY BANK
---------------- ----------------
AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- -----
<S> <C> <C> <C> <C>
As of December 31, 1997:
RISK-BASED CAPITAL:
Tier 1 Capital
Actual.......................................... $101,350 10.05% $103,162 10.25%
Minimum required to be "Adequately
Capitalized"................................. 40,329 4.00 40,265 4.00
Excess over minimum to be "Adequately
Capitalized"................................. 61,021 6.05 62,897 6.25
To be "Well Capitalized"........................ 60,494 6.00 60,398 6.00
Excess over "Well Capitalized" requirements..... 40,856 4.05 42,764 4.25
Total Capital
Actual.......................................... 117,603 11.66 115,983 11.52
Minimum required to be "Adequately
Capitalized"................................. 80,658 8.00 80,530 8.00
Excess over minimum to be "Adequately
Capitalized"................................. 36,945 3.66 35,453 3.52
To be "Well Capitalized"........................ 100,823 10.00 100,663 10.00
Excess over "Well Capitalized" requirements..... 16,780 1.66 15,320 1.52
TIER 1 CAPITAL TO TOTAL ASSETS (LEVERAGE):
Actual.......................................... 101,350 6.94 103,162 7.07
Minimum required to be "Adequately
Capitalized"................................. 58,456 4.00 58,392 4.00
Excess over minimum to be "Adequately
Capitalized"................................. 42,894 2.94 44,770 3.07
To be "Well Capitalized"........................ 73,070 5.00 72,990 5.00
Excess over "Well Capitalized" requirements..... 28,280 1.94 30,172 2.07
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
</TABLE>
F-30
<PAGE> 132
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. 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. ("WRHC"),
an NASD-member investment banking firm. As part of the normal course of business
the Company solicits competitive bids for the sales of mortgage securities from
approved broker/dealers, including William R. Hough & Company. During 1997, the
Company placed $115,410,000 of forward sales on mortgage backed securities
through William R. Hough & Company. Additionally, the Company periodically
purchased securities under agreement to repurchase at a rate based on the
prevailing federal funds rate plus 1/8 of 1% per an agreement entered into on
August 15, 1995.
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.
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 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 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.
During the years ended December 31, 1996 and 1995, FFO purchased
approximately $53.3 million, and $69.5 million of securities through WRHC,
respectively. During the years ended December 31, 1996 and 1995, FFO sold
approximately $46.0 million and $19.7 million of securities through WRHC,
respectively. In connection with such transactions, FFO paid WRHC an aggregate
of $118,000 and $92,000, in commissions during the years ended December 31, 1996
and 1995, respectively.
In July 1997, in connection with an offering of trust preferred securities,
William R. Hough & Company participated as co-manager, and as such was entitled
to receive one-half of an underwriting fee of 3.75% of the dollar amount of
preferred stock issued in an amount equal to approximately $539,063. In
addition, the Company agreed to reimburse William R. Hough & Company for certain
expenses and legal fees not to exceed $65,000.
In December 1997, the Company completed a securitization of $60 million of
high loan-to-value home equity loans. William R. Hough & Company participated as
co-underwriters and was paid one-half of an amount equal to 1.5% of the
principal amount of senior securities; 1.5% of the principal amount of
F-31
<PAGE> 133
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subordinated securities; and 2.5% of the gross proceeds from the sale of
interest only securities totaling $450,000. The Company also reimbursed William
R. Hough & Company for reasonable out-of-pocket expenses. 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 1997. 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.
18. BANK HOLDING COMPANY FINANCIAL STATEMENTS:
Condensed financial statements of the Company (Republic Bancshares, Inc.)
at December 31 are presented below. Amounts shown as investment in the
wholly-owned subsidiaries and equity in earnings of subsidiaries are eliminated
in consolidation.
REPUBLIC BANCSHARES, INC.
PARENT-ONLY CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1997 1996
-------- -------
<S> <C> <C>
ASSETS
Cash...................................................... $ -- $ --
Investment in wholly-owned subsidiaries................... 124,307 80,391
Prepaid issuance costs -- subordinated debt............... -- 212
-------- -------
Total............................................. $124,307 $80,603
======== =======
LIABILITIES
Subordinated debt......................................... $ -- $ 6,000
Junior subordinated debt to subsidiary.................... 28,750 --
Intercompany payable to subsidiary........................ 26 --
Accrued interest on subordinated debt..................... -- 4
-------- -------
Total liabilities................................. -- 4
Minority interest......................................... -- 6,421
STOCKHOLDERS' EQUITY
Perpetual preferred convertible stock..................... 1,500 1,500
Common stock.............................................. 14,072 11,708
Capital surplus........................................... 50,322 34,225
Retained earnings......................................... 29,155 20,847
Unrealized gains (losses) on available-for sale
securities............................................. 482 (102)
Total stockholders' equity........................ 95,531 68,178
-------- -------
Total............................................. $124,307 $80,603
======== =======
</TABLE>
F-32
<PAGE> 134
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REPUBLIC BANCSHARES, INC.
PARENT-ONLY CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Income
Dividends from bank....................................... $ 828 $ 264
Interest expense on subordinated debt..................... (392) (5)
Interest on borrowings from subsidiary.................... (1,090) --
Equity in undistributed net income of subsidiary.......... 9,225 4,620
------- ------
Net income........................................ $ 8,571 $4,879
======= ======
</TABLE>
REPUBLIC BANCSHARES, INC.
PARENT-ONLY CONDENSED CASH FLOW STATEMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 8,571 $ 4,879
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Equity in undistributed net income of subsidiary.......... (9,225) (4,620)
Net decrease (increase) in other assets................... 212 --
Net increase (decrease) in other liabilities.............. 22 5
-------- --------
Net cash (used in) provided by operating activities:... (420) 264
-------- --------
INVESTMENT ACTIVITIES:
Equity investment in banking subsidiary................... (33,322) (56,648)
Equity investment in trust subsidiary..................... (889) --
Equity investment in insurance subsidiary................. (10) --
-------- --------
Net cash used in investing activities:................. (34,221) (56,648)
-------- --------
FINANCING ACTIVITIES:
Issuance of stock in merger............................... 12,374 50,860
Decrease in minority interest............................. (6,421) --
Increase in retained earnings from merger................. 1 --
Conversion/Issuance of subordinated debt.................. (152) 5,788
Proceeds from exercise of stock options................... 240 --
Proceeds of borrowings from subsidiary.................... 28,750 --
Dividend payments on perpetual preferred stock............ (264) (264)
-------- --------
Net cash provided by financing activities.............. 34,528 56,384
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ -- --
-------- --------
Cash balance beginning...................................... -- --
-------- --------
Cash balance ending......................................... $ -- $ --
======== ========
</TABLE>
F-33
<PAGE> 135
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. BUSINESS SEGMENTS:
The Company's operations are 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 began in 1996, operate through a separate division of the
Bank, include originating and purchasing mortgage loans for sale as well as
selling those loans. The Company 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 business segment results of operation for the years
ended December 31, 1997 and 1996. The Company has elected to report its business
segments without allocation of income taxes and minority interests.
REPUBLIC BANCSHARES, INC.
BUSINESS SEGMENT DATA
YEARS ENDED DECEMBER 31, 1997 AND 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
---------------------------------- ----------------------------------
COMMERCIAL MORTGAGE COMPANY COMMERCIAL MORTGAGE COMPANY
BANKING BANKING TOTAL BANKING BANKING TOTAL
---------- -------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
TOTAL ASSETS (AT
YEAR-END)................. $1,401,001 $151,404 $1,552,405 $1,177,764 $46,593 $1,224,357
OPERATING DATA:
Interest income............. 99,327 9,130 108,457 87,473 1,471 88,944
Interest expense............ 55,772 4,151 54,923 43,986 963 44,949
---------- -------- ---------- ---------- ------- ----------
Net interest income......... 48,555 4,979 53,534 43,487 508 43,995
Provision for loan losses... 2,628 -- 2,628 2,582 -- 2,582
---------- -------- ---------- ---------- ------- ----------
Net interest income after
provision for loan
losses.................... 45,927 4,979 50,906 40,905 508 41,413
Other noninterest income.... 9,728 15,303 25,031 5,671 1,074 6,745
Gain on sale of ORE held for
investment................ -- -- -- 1,207 -- 1,207
General and administrative
(G & A) expenses.......... 40,002 17,482 57,484 34,773 2,056 36,829
Merger expenses............. 1,144 -- 1,144 -- -- --
SAIF special assessment..... -- -- -- 4,005 -- 4,005
Provision for losses on
ORE....................... 530 -- 530 111 -- 111
ORE expense, net of ORE
income.................... 273 -- 273 (490) -- (490)
Amort. of goodwill & prem.
on deposits............... 464 -- 464 491 -- 491
---------- -------- ---------- ---------- ------- ----------
Income before income taxes &
minority interest......... $ 13,242 $ 2,800 16,042 $ 8,893 $ (474) 8,419
========== ======== ========== =======
Income tax provision........ (6,096) (3,035)
Minority interest in income
from subsidiary trust..... (701) --
Minority interest in
F.F.O..................... (674) (505)
========== ==========
Net income.................. $ 8,571 $ 4,879
========== ==========
</TABLE>
F-34
<PAGE> 136
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. PROPOSED MERGERS AND ACQUISITIONS (UNAUDITED):
NATIONSBANK AND BARNETT BRANCHES
In December 1997, the Company entered into two purchase and assumption
agreements with NationsBank Corporation ("NationsBank"), to acquire three
branches of NationsBank's subsidiary bank, NationsBank, N.A. ("NationsBank
Subsidiary"), and five branches of Barnett Bank, N.A. ("Barnett Subsidiary"), a
wholly-owned subsidiary of Barnett Banks, Inc. ("BBI"), including the loans and
other assets recorded at those branches, and to assume the deposits and other
liabilities assigned to such branches for a purchase price of approximately
$37.5 million, based on the most recent data available (the "NationsBank
Subsidiary Acquisition"). The first purchase and assumption agreement (the
"Florida Agreement") is for three NationsBank Subsidiary and four Barnett
Subsidiary branches located throughout Florida (the "Florida Branches"),
consisting of three in Monroe County (Key West, Marathon and Plantation Key),
two in Marion County (Ocala and Silver Springs), one in Columbia County (Lake
City) and one in Suwannee County (Live Oak). The second purchase and assumption
agreement (the "Georgia Agreement" and with the Florida Agreement, collectively,
the "NationsBank Subsidiary Agreements") is for a Barnett Subsidiary branch
located in Glynn County, Georgia (the "Georgia Branch" and with the "Florida
Branches," collectively, the "NationsBank Subsidiary Branches"). At August 31,
1997, the Florida Branches had deposit liabilities of $225.5 million and loans
of $163.9 million, and the Georgia Branch had deposit liabilities of $24.2
million and loans of $19.4 million. The NationsBank Subsidiary Acquisition will
be accounted for using purchase accounting rules.
BANKERS SAVINGS BANK
In February 1998, the Company and Bankers Savings Bank, Inc. ("BSB"), Coral
Gables, Florida, entered into a definitive agreement (the "BSB Agreement") for
the merger of BSB into the Bank stock by the Company (the "BSB Acquisition") at
an exchange ratio of 0.54 of a share of the Company's Common Stock for each
share of BSB's Common Stock, subject to certain changes in the price of the
Company's Common Stock and a final valuation of BSB's headquarters building. BSB
has two branches in Dade County and, as of December 31, 1997, had total assets
of $67.1 million, total loans of $47.4 million and total deposits of $56.0
million. It is anticipated that the BSB Acquisition will be accounted for as a
pooling of interests. The BSB Acquisition may be terminated by either BSB or the
Company if it is not consummated by November 1, 1998.
DIME SAVINGS BANK
In March 1998, the Company entered into an agreement with Dime Savings
Bank, F.S.B. (the "DSB Agreement" and "DSB", respectively), to acquire a DSB
branch in Deerfield Beach, Florida (Broward County) and to assume the deposits
and other liabilities of approximately $192.5 million, assume the leasehold on
the branch property and purchase the personal property and equipment of the
branch for $100,000. The transaction will be accounted for using purchase
accounting rules and must be consummated within 30 days of receiving regulatory
approval.
F-35
<PAGE> 137
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Bankers Savings Bank, FSB:
We have audited the accompanying statements of financial condition of
Bankers Savings Bank, FSB (the "Bank") as of December 31, 1997 and 1996, and the
related statements of operations, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Bank'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 financial statements referred to above present fairly,
in all material respects, the financial position of Bankers Savings Bank, FSB as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Miami, Florida
March 6, 1998
F-36
<PAGE> 138
BANKERS SAVINGS BANK, FSB
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS................................... $ 1,438,496 $ 1,728,006
SECURITIES HELD TO MATURITY (Fair value: $7,827,500 in 1997
and $8,690,000 in 1996)................................... 7,999,733 9,001,841
MORTGAGE-BACKED SECURITIES HELD TO MATURITY (Fair value:
$32,674 in 1997 and $33,272 in 1996)...................... 32,674 33,272
LOANS HELD FOR SALE......................................... 3,924,027 6,071,369
LOANS RECEIVABLE, Net....................................... 47,187,759 42,845,815
ACCRUED INTEREST RECEIVABLE................................. 445,641 387,491
OFFICE PROPERTIES AND EQUIPMENT, Net........................ 4,381,238 4,535,189
FEDERAL HOME LOAN BANK STOCK................................ 499,600 499,600
REAL ESTATE OWNED........................................... 763,279 702,228
OTHER ASSETS................................................ 387,615 533,940
----------- -----------
TOTAL............................................. $67,060,062 $66,338,751
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS.................................................... $56,016,293 $56,283,199
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE............... 195,030 200,826
ADVANCES FROM FEDERAL HOME LOAN BANK........................ 4,300,000 4,431,894
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE.............. 1,800,000 1,034,000
ACCRUED INTEREST PAYABLE.................................... 305,215 99,856
OTHER LIABILITIES........................................... 206,131 207,227
----------- -----------
Total Liabilities................................. 62,822,669 62,257,002
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 15)
SHAREHOLDERS' EQUITY:
Common stock, par value $4 per share -- 10,000,000 shares
authorized; 690,333 shares issued and outstanding...... 2,761,332 2,761,332
Additional paid-in capital................................ 1,233,088 1,233,088
Retained earnings......................................... 242,973 87,329
----------- -----------
Total shareholder's equity........................ 4,237,393 4,081,749
----------- -----------
TOTAL............................................. $67,060,062 $66,338,751
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE> 139
BANKERS SAVINGS BANK, FSB
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME:
Loans.................................................... $4,108,816 $3,639,488 $4,287,960
Securities held to maturity.............................. 442,546 451,666 474,204
Other.................................................... 173,011 192,149 328,456
---------- ---------- ----------
Total interest income............................ 4,724,373 4,283,303 5,090,620
---------- ---------- ----------
INTEREST EXPENSE:
Deposits................................................. 2,886,322 2,615,349 3,062,768
Advances from Federal Home Loan Bank..................... 195,269 284,825 649,793
Securities sold under agreements to repurchase........... 85,939 26,813 4,312
---------- ---------- ----------
Total interest expense........................... 3,167,530 2,926,987 3,716,873
---------- ---------- ----------
NET INTEREST INCOME........................................ 1,556,843 1,356,316 1,373,747
PROVISION FOR LOAN LOSSES.................................. 101,000 131,050 120,548
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES........ 1,455,843 1,225,266 1,253,199
---------- ---------- ----------
OTHER INCOME:
Net gain on sale of loans................................ 589,541 483,534 69,857
Loan servicing fees and other............................ 258,954 285,764 199,808
Rental income............................................ 610,924 607,099 465,737
---------- ---------- ----------
Total other income............................... 1,459,419 1,376,397 735,402
---------- ---------- ----------
OTHER EXPENSES:
Employee compensation and benefits....................... 1,335,128 1,381,969 1,381,317
Occupancy and equipment.................................. 387,791 383,203 381,209
Rental property operating expenses....................... 260,084 252,881 208,874
Deposit insurance premiums............................... 45,743 556,378 161,122
Other.................................................... 730,872 814,110 698,270
---------- ---------- ----------
Total other expenses............................. 2,759,618 3,388,541 2,830,792
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.......................... 155,644 (786,878) (842,191)
BENEFIT FROM INCOME TAXES.................................. -- 53,472 286,344
---------- ---------- ----------
NET INCOME (LOSS).......................................... $ 155,644 $ (733,406) $ (555,847)
========== ========== ==========
AVERAGE SHARES OUTSTANDING:
Basic.................................................... 690,333 690,333 690,333
========== ========== ==========
Diluted.................................................. 734,085 690,333 690,333
========== ========== ==========
NET INCOME (LOSS) PER SHARE:
Basic.................................................... $ 0.23 $ (1.06) $ (0.81)
========== ========== ==========
Diluted.................................................. $ 0.21 $ (1.06) $ (0.81)
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE> 140
BANKERS SAVINGS BANK, FSB
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------- ADDITIONAL RETAINED SHAREHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL EARNINGS EQUITY
------- ---------- --------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1994................... 690,333 $2,761,332 $1,233,088 $1,376,582 $5,371,002
Net loss......................... -- -- -- (555,847) (555,847)
------- ---------- ---------- ---------- ----------
Balance,
December 31, 1995................... 690,333 2,761,332 1,233,088 820,735 4,815,155
Net loss......................... -- -- -- (733,406) (733,406)
------- ---------- ---------- ---------- ----------
Balance,
December 31, 1996................... 690,333 2,761,332 1,233,088 87,329 4,081,749
Net income....................... -- -- -- 155,644 155,644
------- ---------- ---------- ---------- ----------
Balance,
December 31, 1997................... 690,333 $2,761,332 $1,233,088 $ 242,973 $4,237,393
======= ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE> 141
BANKERS SAVINGS BANK, FSB
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $ 155,644 $ (733,406) $ (555,847)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Net gain on sale of real estate owned.............. (37,822) (28,215) (543)
Depreciation and amortization...................... 220,022 234,733 225,751
Provision for loan losses.......................... 101,000 131,050 120,548
Origination of mortgage loans held for sale........ (54,423,756) (43,492,840) (40,435,789)
Proceeds from sale of mortgage loans held for
sale............................................ 55,778,909 41,705,424 39,265,337
(Increase) decrease in accrued interest
receivable...................................... (58,150) 29,756 44,742
Decrease (increase) in other assets................ 146,326 (153,837) (192,455)
Increase (decrease) in accrued interest payable.... 205,359 (26,814) (37,802)
(Decrease) increase in other liabilities........... (1,096) 55,549 (35,088)
------------ ------------ ------------
Net cash provided by (used in) operating
activities............................... 2,086,436 (2,278,600) (1,601,146)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans receivable........ (3,853,984) (1,907,498) 17,357,957
Proceeds from sale of Federal Home Loan Bank
stock........................................... -- 113,200 363,100
Proceeds from maturities of investment
securities...................................... 1,002,705 -- --
Net proceeds from the sale of real estate owned.... 180,000 282,488 63,222
Decrease in interest-bearing deposits with other
financial institutions.......................... -- -- 28,626
Purchases of office properties and equipment....... (66,071) (9,504) (361,179)
------------ ------------ ------------
Net cash (used in) provided by investing
activities............................... (2,737,350) (1,521,314) 17,451,726
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits................ (266,906) 5,309,059 (4,387,097)
Net decrease in advances by borrowers for taxes and
insurance....................................... (5,796) (25,773) (189,969)
Decrease in advances from Federal Home Loan Bank... (131,894) (543,106) (14,542,857)
Increase (decrease) in securities sold under
agreements to repurchase........................ 766,000 (826,000) 1,860,000
------------ ------------ ------------
Net cash provided by (used in) financing
activities............................... 361,404 3,914,180 (17,259,923)
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS........................................ (289,510) 114,266 (1,409,343)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....... 1,728,006 1,613,740 3,023,083
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR............. $ 1,438,496 $ 1,728,006 $ 1,613,740
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid during the year...................... $ 2,721,628 $ 2,953,801 $ 3,754,675
============ ============ ============
Income tax refunds received during the year........ $ 206,104 $ 11,179 $ 59,133
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
ACTIVITIES -- Loans totaling $321,254, $792,442 and
$156,059 were foreclosed during 1997, 1996 and
1995, respectively, and transferred into real
estate owned.
</TABLE>
See accompanying notes to financial statements.
F-40
<PAGE> 142
BANKERS SAVINGS BANK, FSB
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bankers Savings Bank (the "Bank") was incorporated on February 6, 1987, as
a Florida stock savings bank. On June 1, 1987, the Bank obtained its Certificate
of Insurance of Deposit Accounts from the Federal Savings and Loan Insurance
Corporation and, on June 19, 1987, obtained its Certificate of Authority (the
"Certificate") from the Office of the Comptroller of the State of Florida to
begin operations. On January 1, 1998, the Bank's Certificate was canceled
pursuant to the conversion of the Bank to a federal charter, with the name
Bankers Savings Bank, FSB. The Bank is engaged in the traditional banking
practice of gathering deposits and originating loans, in addition to its
mortgage banking business, in which it originates, purchases and sells loans.
The Bank offers these services through its main office and branch located in
Dade County, Florida.
The accounting and reporting policies of the Bank conform, in all material
respects, to generally accepted accounting principles and to general practices
within the savings and loan industry. The following summarizes the most
significant of these policies and practices:
Use of 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 income and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -- Cash on hand and overnight deposits with the
Federal Home Loan Bank of Atlanta are considered cash and cash equivalents for
financial reporting purposes.
Investment and Mortgage-Backed Securities -- Investment and mortgage-backed
securities are accounted for under Statement of Financial Accounting Standards
("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Under SFAS No. 115, investment securities must be classified and
accounted for under the following conditions:
Trading Account Securities -- Trading account securities are held in
anticipation of short-term sales or market movements. Trading account
securities are stated at fair value. Gains or losses on the sale of trading
account securities, as well as unrealized fair value adjustments, are
included in operating income. At December 31, 1997 and 1996, the Bank held
no trading account securities.
Securities Available for Sale -- Securities to be held for unspecified
periods of time including securities that management intends to use as part
of its asset/liability strategy, or that may be sold in response to changes
in interest rates, changes in prepayment risk, or other similar factors are
classified as available for sale and are carried at fair value. Unrealized
gains or losses are reported as a net amount in a separate component of
stockholders' equity until realized. At December 31, 1997 and 1996, the
Bank held no securities available for sale.
Securities Held to Maturity -- Securities that management has a
positive intent and the ability to hold to maturity are carried at cost,
adjusted for amortization of premiums and accretions of discounts over the
life of the securities using the interest method. At December 31, 1997 and
1996, all of the Bank's securities are classified as held to maturity.
Loans Receivable -- Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or payoff are
reported at their outstanding unpaid principal balances reduced by any
charge-offs or specific valuation accounts and net of any deferred fees or costs
on originated loans, or unamortized premiums or discounts on purchased loans.
Discounts and premiums on purchased residential real estate loans are
amortized to income using the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments.
F-41
<PAGE> 143
BANKERS SAVINGS BANK, FSB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Loan origination fees and certain direct origination costs are deferred and
recognized using the interest method as an adjustment of the yield of the
related loan.
Allowance for Loan Losses -- 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 Bank'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. Many of these
factors involve a significant degree of judgment and are subject to rapid change
which may be unforeseen by management. Changes in these factors could result in
material adjustments to the allowance in the near term.
Impaired Loans -- Individually identified impaired loans are measured based
on the present value of payments expected to be received, using the historical
effective loan rate as the discount rate. Alternatively, measurement may also be
based on observable market prices or, for loans that are solely dependent on the
collateral for repayment, measurement may be based on the fair value of the
collateral. Loans that are to be foreclosed are measured based on the fair value
of the collateral. If the recorded investment in the impaired loan exceeds that
measure of fair value, a valuation allowance is required as a component of the
allowance for loan losses. Groups of smaller-balance homogeneous loans
(generally residential mortgage and consumer loans) are collectively evaluated
for impairment. Changes to the valuation allowance are recorded as a component
of the provision for loan losses.
Commercial loans that are past due 90 days or more as to principal or
interest or where reasonable doubt exists as to timely collection, including
loans that are individually identified as being impaired under SFAS No. 114, are
generally classified as nonperforming loans unless, based on the evaluation of
management, the loan is well secured and in the process of collection.
At December 31, 1997 and 1996, there was approximately $151,000 and
$456,000, respectively, in loans considered to be impaired. At December 31, 1997
and 1996, these impaired loans required an allowance for loan losses of
approximately $29,000 and $68,000, respectively. The average recorded investment
in impaired loans during the years ended December 31, 1997 and 1996 was $255,000
and $695,000, respectively.
Mortgage Banking Activities -- The Bank originates mortgage loans for
portfolio investment or sale in the secondary market. During the period of
origination, mortgage loans are designated as held either for sale or investment
purposes. 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. Transfers of loans held for sale to the investment portfolio
are recorded at the lower of cost or estimated market value on the transfer
date.
At December 31, 1997 and 1996, the Bank was servicing loans for others
amounting to approximately $9,208,000 and $8,008,000, respectively. Servicing
loans for others generally consists of collecting mortgage payments, maintaining
escrow accounts, disbursing payments to investors, and foreclosure processing.
Loan servicing income is recorded on the accrual basis and includes servicing
fees from investors and certain charges collected from borrowers, such as late
payment fees.
Originated Mortgage Servicing Rights -- On January 1, 1996, the Bank
adopted SFAS No. 122, Accounting for Mortgage Servicing Rights. SFAS No. 122
required mortgage servicing rights to be recognized as separate assets from the
related loans. Upon origination of a mortgage loan, the book value of the
mortgage loan is allocated to the mortgage servicing right and to the loan
(without the mortgage servicing right) based on its estimated relative fair
value, provided there is a plan to sell or securitize the related loan. On
January 1, 1997, the Bank adopted SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which
supersedes SFAS No. 122, and requires, among other things, that the book value
of loans be allocated between the mortgage servicing right and the related loan
at the time of sale or securtization, if servicing is retained.
F-42
<PAGE> 144
BANKERS SAVINGS BANK, FSB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Mortgage servicing rights are periodically evaluated for impairment based
on the fair value of these rights. The fair vale of mortgage servicing rights is
determined by discounting the estimated future cash flows using a discount rate
commensurate with the risks involved. This method of valuation incorporates
assumptions that market participants would use in their estimates of future
servicing income and expense, including assumptions about prepayment, default
and interest rates. For purposes of measuring impairment, the loans underlying
the mortgage servicing rights are stratified on the basis of interest rate and
type. The amount of impairment is the amount by which the mortgage servicing
rights, net of accumulated amortization, exceed their fair value by strata.
Impairment, if any, is recognized through a valuation allowance and a charge to
current operations. A valuation allowance related to its mortgage servicing
rights was not required at or for the year ended December 31, 1997 and 1996.
Mortgage servicing rights are amortized in proportion to, and over the period
of, the estimated net servicing income of the underlying mortgages.
During the year ended December 31, 1997 and 1996, the Bank sold loans and
retained mortgage servicing rights totaling approximately $13,000 and $47,000,
respectively. At December 31, 1997 and 1996, the carrying amount of these
mortgage servicing rights were approximately $47,000 and $43,000, respectively.
Interest Rate Risk -- The Bank is engaged principally in providing first
mortgage loans (both adjustable rate and fixed rate mortgage loans) to
individuals (see Note 5 for the composition of the mortgage loan portfolio at
December 31, 1997 and 1996). To a lesser extent, the Bank also purchases and
holds securities which primarily provide fixed rate returns over short terms.
Mortgage loans and securities held to maturity are funded primarily with
short-term liabilities that have interest rates that vary with market rates over
time.
At December 31, 1997, the Bank had interest-earning assets of approximately
$59,835,000 having a weighted-average effective interest rate of 7.97% and a
remaining term of 7.7 years, and interest-bearing liabilities of approximately
$59,346,000 having a weighted-average effective interest rate of 5.40% and a
remaining term of 0.6 years based upon the contractual repricing or stated
maturity of the underlying instrument and commitments to sell mortgage loans.
The shorter remaining term of the interest-bearing liabilities indicates that
the Bank is exposed to interest rate risk because, in a rising rate environment,
liabilities will be repricing faster at higher interest rates, thereby reducing
the market value of long-term assets and net interest income. Net interest
income and the market value of net interest-earning assets will fluctuate based
on changes in interest rates and changes in the levels of interest-sensitive
assets and liabilities. The actual remaining term of interest-earning assets and
interest-bearing liabilities may differ significantly from the stated remaining
term as a result of prepayment, early withdrawals and similar factors.
Real Estate Owned -- Real estate owned acquired through a foreclosure
proceeding or acceptance of a deed in lieu of foreclosure is carried at the
lower of cost or fair value less selling costs. The estimates of fair value are
susceptible to changes that could result in a material adjustment to results of
operations in the near term. Recovery of the carrying value of real estate owned
is dependent to a great extent on economic, operating and other conditions that
may be beyond the Bank's control. Expenses incurred from ownership of the
properties, and gains and losses on dispositions, are included in other
operating expenses.
Allowance for Uncollected Interest -- The Bank provides an allowance for
the entire amount of mortgage loan interest earned for all mortgage loans past
due more than ninety days. Such interest, if ultimately collected, is credited
to income in the period of recovery.
Office Properties and Equipment -- Office properties and equipment are
carried at cost less accumulated depreciation and amortization. Depreciation and
amortization are computed on the straight-line method over the estimated useful
lives of the related assets which range from five to thirty-five years;
amortization of leasehold improvements is computed over the terms of the
respective leases (including renewal periods which management intends to
exercise) or their estimated useful lives, whichever is shorter.
Income Taxes -- In accordance with SFAS No. 109, Accounting for Income
Taxes, the Bank provides for deferred taxes under the liability method. Under
such method, deferred taxes are adjusted for tax rate
F-43
<PAGE> 145
BANKERS SAVINGS BANK, FSB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
changes as they occur. Deferred income tax assets and liabilities are computed
annually for differences between the financial statements and tax bases of
assets and liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Provision for income taxes is the tax payable or refundable for
the period plus or minus the change during the period in deferred tax assets and
liabilities.
Stock-Based Compensation -- SFAS No. 123, Accounting for Stock-Based
Compensation, which became effective for the Bank on January 1, 1996,
encourages, but does not require, companies to record compensation cost for
employee and non-employee members of the Board stock-based compensation plans at
fair value. The Bank has chosen to continue to account for stock-based
compensation to employees and non-employee members of the Board using the
intrinsic value method as prescribed by Accounting Principles Board Opinion
("APB") No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Accordingly, compensation cost for stock options issued to
employees and non-employee members of the Board are measured as the excess, if
any, of the fair value of the Bank's stock at the date of grant over the amount
an employee or non-employee member of the Board must pay for the stock. See Note
12.
Net Income (Loss) Per Share -- The Bank adopted SFAS No. 128, Earnings Per
Share, for fiscal year 1997. Under SFAS No. 128, basic earnings per share is
computed based on the average number of common shares outstanding and diluted
earnings per share is computed based on the average number of common and
dilutive potential common stock (consisting of only stock options, see Note 12)
outstanding. SFAS No. 128 required the restatement of all prior-period earnings
per share data.
New Accounting Pronouncements -- In June 1996, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which is
effective for transactions occurring after December 31, 1996. SFAS No. 125
provides guidance for determining whether a transfer of a financial asset is
treated as a sale versus a financing. Additionally, if a transfer qualifies as a
financing transaction, the statement contains provisions that may require the
recognition of collateral received or provided, in addition to the financing
balance.
In December 1996, the FASB issued SFAS No. 127, Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125, which defers for one year
the effective date of the collateral provisions for all transactions and the
sale provisions for repurchase agreements, securities lending, and similar
transactions. These provisions will be applied prospectively to transactions
entered into after December 31, 1997. The adoption of such provisions is not
expected to have a significant impact on the Bank's results of operations.
In June 1997, the FASB issued SFAS No 130, Reporting Comprehensive Income.
SFAS No. 130 requires that all components of comprehensive income be reported on
one of the following: (1) the statement of income, (2) the statement of changes
in stockholders' equity, or (3) a separate statement of comprehensive income.
Comprehensive income is comprised of net income and all changes to stockholders'
equity, except those due to investments by owners (changes in paid-in-capital)
and distributions to owners (dividends). SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 130 is not
expected to have a material impact on the Bank's financial statements.
Impact of New Legislative Issues -- In August 1996, Congress passed
legislation which repeals the Bank's present method of accounting for bad debts
for federal income tax purposes. The Bank currently uses the percentage of
taxable income method to determine its bad debt deduction, in the computation of
its taxable income. Under the new legislation, the Bank will be required to use
the specific charge-off method, which may result in a different deduction for
bad debts in determining taxable income than is presently computed under the
current method. Additionally, the Bank will be required to recapture its
post-1987 additions to its bad debt reserves. As the Bank had provided deferred
taxes for the income tax bad debt
F-44
<PAGE> 146
BANKERS SAVINGS BANK, FSB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
reserves established after 1987, management does not anticipate any additional
income tax liability related to the recapture. The new legislation is effective
for taxable years beginning after December 31, 1995.
On September 30, 1996, Congress passed, and the President signed, the
Deposit Insurance Fund Act of 1996 which mandated that all institutions which
have SAIF-insured deposits are required to pay a one-time special assessment of
65.7 basis points (subject to certain adjustments) on SAIF-insured deposits that
were held at March 31, 1995 payable by November 27, 1996 to recapitalize the
SAIF which is administered by the Federal Deposit Insurance Corporation
("FDIC"). The assessment was intended to bring the SAIF's reserve ratio to a
comparable level of the Bank Insurance Fund at 1.25 percent of total insured
deposits. The FDIC in connection with the recapitalization also lowered SAIF
premiums beginning in January 1997. The Bank's share of this special assessment
totaled approximately $408,000, and is included in the accompanying financial
statements for the year ended December 31, 1996.
2. REGULATORY CAPITAL REQUIREMENTS AND OTHER REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the Office of Thrift Supervision ("OTS"). 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 Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgments by regulators about
components, risk-weighting, and other factors.
Quantitative measures established by federal regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios of tangible
capital to adjusted total assets, total capital to risk-weighted total assets
and tier I (core) capital to adjusted total assets, as defined in the
regulations. Management believes, as of December 31, 1997, that the Bank meets
all capital adequacy requirements to which it is subject.
As of December 31, 1997 and 1996, the most recent notification from the OTS
categorized the Bank as well capitalized under the framework for prompt
corrective action. To be considered well capitalized under prompt corrective
action provisions, the Bank must maintain risk-based and core capital ratios as
set forth in the following table. There are no conditions or events since that
notification that management believes have changed the Bank's OTS
categorization.
F-45
<PAGE> 147
BANKERS SAVINGS BANK, FSB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Bank's actual capital amounts and ratios are presented in the following
table:
<TABLE>
<CAPTION>
TO BE CONSIDERED
WELL CAPITALIZED
MINIMUM FOR FOR PROMPT
CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PURPOSES
---------------- ---------------- ------------------
RATIO AMOUNTS RATIO AMOUNTS RATIO AMOUNTS
----- ------- ----- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997:
Shareholder's equity, and ratio
to total assets............... 6.3% $ 4,237
====
Excess mortgage servicing
rights........................ $ (5)
-------
Tangible capital, and ratio to
adjusted total assets......... 6.3% $ 4,232 1.5% $1,007 N/A
==== ======= === ======
Tier 1 (core) capital, and ratio
to adjusted total assets...... 6.3% $ 4,232 3.0% $2,012 5.0% $3,353
==== ======= === ====== ==== ======
Tier 1 (core) capital, and ratio
to risk-weighted total
assets........................ 10.3% $ 4,232 N/A 6.0% $2,462
==== ==== ======
Allowance for loan losses....... $ 360
-------
Total risk-based capital, and
ratio to risk-weighted total
assets........................ 11.2% $ 4,592 8.0% $3,283 10.0% $4,104
==== ======= === ====== ==== ======
Total assets.................... $67,060
=======
Adjusted total assets........... $67,055
=======
Risk-weighted total assets...... $41,038
=======
AS OF DECEMBER 31, 1996:
Shareholder's equity, and ratio
to total assets............... 6.1% $ 4,082
====
Excess mortgage servicing
rights........................ $ (4)
-------
Tangible capital, and ratio to
adjusted total assets......... 6.1% $ 4,078 1.5% $ 999 N/A
==== ======= === ======
Tier 1 (core) capital, and ratio
to adjusted total assets...... 6.1% $ 4,078 3.0% $1,999 5.0% $3,332
==== ======= === ====== ==== ======
Tier 1 (core) capital, and ratio
to risk-weighted total
assets........................ 9.3% $ 4,078 N/A 6.0% $2,633
==== ==== ======
Allowance for loan losses....... $ 328
-------
Total risk-based capital, and
ratio to risk-weighted total
assets........................ 10.0% $ 4,406 8.0% $3,511 10.0% $4,388
==== ======= === ====== ==== ======
Total assets.................... $66,339
=======
Adjusted total assets........... $66,335
=======
Risk-weighted total assets...... $43,884
=======
</TABLE>
F-46
<PAGE> 148
BANKERS SAVINGS BANK, FSB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In 1995, the Bank entered into supervisory agreements with the OTS and the
State of Florida agreeing to address and correct certain matters of regulatory
concern. The state agreement also included a requirement that the Bank maintain
its tangible capital ratio at not less than 6.0 percent and the federal
agreement places a restriction on asset growth. Management of the Bank believes
that the Bank has substantially complied with all of the provisions of the
supervisory agreements. As indicated in Note 1, as of January 1, 1998, the Bank
became a federally chartered savings bank and is no longer subject to the State
of Florida supervisory agreement.
3. SECURITIES HELD TO MATURITY
The amortized cost and approximate fair values of securities held to
maturity at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ----------------- FAIR
COST GAINS LOSSES VALUE
---------- ------ -------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
U.S. Agency securities....................... $7,999,733 $172,233 $7,827,500
========== ======== ==========
DECEMBER 31, 1996
U.S. Treasury Note........................... $1,003,708 $1,292 $ -- $1,005,000
U.S. Agency securities....................... 7,998,133 -- 313,133 7,685,000
---------- ------ -------- ----------
Total.............................. $9,001,841 $1,292 $313,133 $8,690,000
========== ====== ======== ==========
</TABLE>
The following table shows the amortized cost and fair value by maturity
distribution (based on contractual maturities) of the held to maturity portfolio
at December 31, 1997:
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION
-------------------------------------------------------------
LESS THAN ONE - FIVE SIX - TEN AFTER TEN
ONE YEAR YEARS YEARS YEARS TOTAL
---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Agency securities......... $1,999,733 $5,000,000 $-- $1,000,000 $7,999,733
========== ========== === ========== ==========
Fair value..................... $1,992,500 $4,842,500 $-- $ 992,500 $7,827,500
========== ========== === ========== ==========
</TABLE>
4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
A summary of the amortized cost and fair values of mortgage-backed
securities held to maturity at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
-------------- ----------
<S> <C> <C>
1997
FHLMC adjustable rate....................................... $32,674 $32,674
======= =======
1996
FHLMC adjustable rate....................................... $33,272 $33,272
======= =======
</TABLE>
The mortgage-backed securities held by the Bank at December 31, 1997 and
1996 have a contractual maturity of approximately 20 years and are pledged as
collateral for public deposits.
F-47
<PAGE> 149
BANKERS SAVINGS BANK, FSB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LOANS RECEIVABLE
Loans receivable (excluding loans held for sale) consist of the following
at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Residential real estate (one to four units)................. $31,915,142 $33,167,000
Commercial real estate...................................... 10,835,419 6,462,388
Commercial.................................................. 2,267,288 1,878,576
Consumer.................................................... 2,550,737 1,664,462
----------- -----------
Subtotal.................................................. 47,568,586 43,172,426
Less: Net deferred loan fees, discounts and costs........... (4,429) 1,787
Allowance for loan losses............................. (376,398) (328,398)
----------- -----------
Loans receivable, net............................. $47,187,759 $42,845,815
=========== ===========
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at the beginning of the year................... $328,398 $283,348 $189,000
Provision for loan losses.............................. 101,000 131,050 120,548
Charge-offs............................................ (53,000) (86,000) (26,200)
-------- -------- --------
Balance at the end of the year............... $376,398 $328,398 $283,348
======== ======== ========
</TABLE>
The Bank originates and purchases both adjustable and fixed interest rate
loans. At December 31, 1997, the composition of these loans (excluding loans
held for sale) was as follows:
<TABLE>
<CAPTION>
FIXED RATE ADJUSTABLE RATE
- ---------------------------------------- ----------------------------------------
TERM OF MATURITY BOOK VALUE TERM TO RATE ADJUSTMENT BOOK VALUE
- ---------------- ----------- ----------------------- -----------
<S> <C> <C> <C>
Less than 10 years......... $ 3,758,520 1 month - 1 year........... $18,183,785
10 years - 20 years........ 6,174,232 1 year - 7 years........... 4,078,939
Over 20 years.............. 15,373,110
----------- -----------
$25,305,862 $22,262,724
=========== ===========
</TABLE>
The adjustable rate residential real estate loans have interest rate
adjustment limitations (the interest rate on these loans typically cannot
increase by more than 2% per year) and are generally indexed to the weekly
average yield on U.S. Treasury securities, adjusted to a constant maturity of
one year, as made available by the Federal Reserve Board. Future market factors
may affect the correlation of the interest rate adjustment with the rates the
Bank pays on the short-term deposits that have been primarily utilized to fund
these loans.
The majority of the Bank's lending activities are conducted with customers
located in South Florida.
The Bank had nonaccruing loans of approximately $946,000 and $1,172,000 at
December 31, 1997 and 1996, respectively. If interest on these loans had been
accrued, such income would have approximated $74,000 and $69,000 for 1997 and
1996, respectively.
The Bank is subject to numerous lending-related regulations. Under the
Financial Institutions Reform and Recovery Act of 1989, the Bank may not make
real estate loans to one borrower in excess of 15% of its capital. This
limitation results in a loan to one borrower limitation for the Bank of
approximately $689,000 at December 31, 1997. The Bank was in compliance with the
loans to one borrower regulation at December 31, 1997.
F-48
<PAGE> 150
BANKERS SAVINGS BANK, FSB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is comprised of the following at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Accrued interest receivable on loans (net of allowance for
uncollected interest of $74,416 and $78,205,
respectively)............................................. $367,218 $279,868
Accrued interest and dividends receivable on investment and
mortgage-backed securities held to maturity and FHLB
stock..................................................... 78,423 107,623
-------- --------
Total............................................. $445,641 $387,491
======== ========
</TABLE>
7. OFFICE PROPERTIES AND EQUIPMENT
At December 31, 1997 and 1996, office properties and equipment are as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land........................................................ $1,200,000 $1,200,000
Office building............................................. 3,430,607 3,401,285
Furniture, fixtures and equipment........................... 881,897 860,563
Leasehold improvements...................................... 204,533 189,117
---------- ----------
Subtotal.......................................... 5,717,037 5,650,965
Less: accumulated depreciation.............................. 1,335,799 1,115,776
---------- ----------
Office properties and equipment -- net............ $4,381,238 $4,535,189
========== ==========
</TABLE>
Rent expense charged to operations was $45,262, $45,979 and $47,456 for the
years ended December 31, 1997, 1996 and 1995, respectively.
Depreciation expense charged to operations was $220,022, $228,248 and
$219,350 for the years ended December 31, 1997, 1996 and 1995, respectively.
The Bank leases a certain portion of its Coral Gables Office Building under
various rental agreements. As of December 31, 1997, the approximate future
minimum lease and sublease rental income for all non-cancelable leases and
subleases with initial or remaining terms of more than one year is as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ ----------
<S> <C>
1998........................................................ $ 467,000
1999........................................................ 375,000
2000........................................................ 309,000
2001........................................................ 207,000
2002........................................................ 21,000
----------
Total future minimum rental income................ $1,379,000
==========
</TABLE>
F-49
<PAGE> 151
BANKERS SAVINGS BANK, FSB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. DEPOSITS
The nominal interest rates paid on deposits and related balances at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Transaction accounts:
Noninterest bearing -- demand............................. $ 2,770,329 $ 4,169,569
Negotiable order of withdrawal ("NOW") accounts (below
3.00%)................................................. 2,156,866 2,239,356
----------- -----------
Total transaction accounts........................ 4,927,195 6,408,925
----------- -----------
Statement savings and money market accounts -- 3.00% - 5.25%
for 1997 and 1996......................................... 7,881,595 6,849,618
----------- -----------
Certificates of deposit:
3.00% - 3.99%............................................. 331,547 1,852,288
4.00% - 4.99%............................................. 3,089,834 6,684,248
5.00% - 5.99%............................................. 31,521,018 26,733,874
6.00% - 6.99%............................................. 4,662,471 4,252,122
7.00% - 7.99%............................................. 3,584,798 3,469,244
8.00% and over............................................ 17,835 32,880
----------- -----------
Total certificates of deposit..................... 43,207,503 43,024,656
----------- -----------
Total............................................. $56,016,293 $56,283,199
=========== ===========
</TABLE>
Scheduled maturities of certificates of deposit as of December 31, 1997,
for future fiscal years ending December 31, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
- ----------- -----------
<S> <C>
1998........................................................ $34,091,062
1999........................................................ 6,155,890
2000........................................................ 2,082,438
2001........................................................ 537,679
2002........................................................ 317,753
Thereafter.................................................. 22,681
-----------
Total............................................. $43,207,503
===========
</TABLE>
Interest on deposits by type of account for the years ended December 31,
1997, 1996 and 1995 is summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Statement savings.................................. $ 109,338 $ 57,042 $ 37,206
Money market....................................... 199,229 168,410 179,092
NOW................................................ 41,523 33,021 23,884
Certificates of deposit............................ 2,536,232 2,356,876 2,822,586
---------- ---------- ----------
Total.................................... $2,886,322 $2,615,349 $3,062,768
========== ========== ==========
</TABLE>
The weighted average nominal interest rate payable on deposits at December
31, 1997 and 1996 was 5.10% and 4.58%, respectively.
F-50
<PAGE> 152
BANKERS SAVINGS BANK, FSB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank at December 31, 1997 and 1996 of
$4,300,000 and $4,431,894 respectively, are collateralized by a blanket floating
lien on qualifying first mortgage loans of the Bank. As of December 31, 1997,
the advances incur interest and are repayable as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, INTEREST RATE FIXED/ADJUSTABLE AMOUNT
------------------------ ------------- ---------------- ----------
<S> <C> <C> <C>
1998............................................ 6.2% Fixed $ 500,000
1998............................................ 6.5 Adjustable 2,000,000
1998 to 2003 (payable in annual installments of
$300,000)..................................... 5.3 Fixed 1,800,000
----------
Total................................. $4,300,000
==========
</TABLE>
10. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Bank has entered into sales of investment securities under agreements
to repurchase the identical securities. The securities underlying the agreements
are book-entry securities. The securities were delivered by appropriate entry
from the Bank's account maintained at the Federal Home Loan Bank of Atlanta to
the account of the counterparty, a primary dealer. At December 31, 1997, the
borrowings bear interest at a rate of 7.10% and are callable at the option of
the Bank or dealer. The dealer may have sold, loaned, or otherwise disposed of
such securities to other parties in the normal course of their operations, and
have agreed to resell substantially identical securities to the Bank at the
maturity of the agreement.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Average balance during the year............................. $1,468,851 $ 479,869
Average interest rate during the year....................... 5.83% 5.59%
Maximum month-end balance during the year................... 3,886,000 1,860,000
Securities held to maturity underlying the agreements at
year-end:
Carrying value............................................ 2,000,000 1,115,000
Estimated fair value...................................... 1,935,000 1,062,000
</TABLE>
11. INCOME TAXES
During the years ended December 31, 1996 and 1995, the Bank recorded a
benefit from income taxes of $53,472 and $286,344, respectively, comprised
entirely of deferred federal income taxes. No provision was recorded during the
year ended December 31, 1997 as the Bank had available net operating loss
carryover.
The benefit from income taxes for the years ended December 31, 1997, 1996
and 1995 differs from the amount obtained by applying the statutory federal
income tax rate to pretax income for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Income tax expense (benefit), at statutory rate...... $ 52,919 $(267,538) $(281,829)
Change in valuation allowance........................ (97,443) 295,243 --
Other, including capital loss carryover utilized..... 44,524 (81,177) (4,515)
-------- --------- ---------
Total...................................... $ 0 $ (53,472) $(286,344)
======== ========= =========
</TABLE>
F-51
<PAGE> 153
BANKERS SAVINGS BANK, FSB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31 are presented below:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Federal Home Loan Bank stock dividends.................... $ 36,501 $ 38,592
Net deferred loan costs................................... 34,370 86,888
Depreciation and other.................................... 102,446 15,173
--------- ---------
Gross deferred tax liability........................... 173,317 140,653
--------- ---------
Deferred tax assets:
Capital loss carryover.................................... 122,783 --
Net operating loss carryover.............................. 89,430 270,943
Excess of book allowance over tax allowance for loan
losses................................................. 87,650 101,963
Depreciation.............................................. -- 10,939
Excess of book allowance over tax allowance for interest
receivable............................................. 28,003 105,866
Real estate owned and other............................... 117,180 20,114
--------- ---------
Gross deferred tax asset............................... 445,046 509,825
--------- ---------
Valuation allowance.................................... (218,257) (315,700)
--------- ---------
Net deferred tax asset............................ $ 53,472 $ 53,472
========= =========
</TABLE>
12. SHAREHOLDERS' EQUITY
On February 22, 1996, the Bank's Board of Directors authorized two new
stock option plans, one for the benefit of directors and another for employees.
The number of shares of common stock available for grant under the directors'
and employee plans are 100,000 and 125,000, respectively, at a price to be
determined by the Board of Directors or committee, as the case may be, but in
each case shall not be less than one hundred percent of the fair market value of
the Bank's common stock at the date of grant. The options have a term of 5 years
and are exercisable six months from the date of grant.
Options outstanding and the activity for 1996 and 1997 are presented below:
<TABLE>
<CAPTION>
DIRECTORS EMPLOYEE
------------------ ------------------
NUMBER OF OPTION NUMBER OF OPTION
SHARES PRICE SHARES PRICE
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Options outstanding at December 31, 1995........... -- --
Granted.......................................... 48,000 $5.75 87,500 $5.75
Canceled......................................... -- (8,000) 5.75
------- -------
Options outstanding at December 31, 1996........... 48,000 5.75 79,500 5.75
------- -------
Granted:
January 1997.................................. -- 10,000 5.75
April 1997.................................... 52,000 5.75 19,000 5.75
July 1997..................................... -- 10,000 5.75
------- -------
Total granted.................................... 52,000 5.75 39,000 5.75
------- -------
Canceled......................................... -- (1,500) 5.75
-------
Options outstanding at December 31, 1997........... 100,000 $5.75 117,000 $5.75
======= =======
</TABLE>
During January 1998, the Bank granted 5,500 options to key employees at an
exercise price of $8.19.
F-52
<PAGE> 154
BANKERS SAVINGS BANK, FSB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Bank applies APB No. 25 and related interpretations in accounting for
its stock option plans to employees and non-employee members of the Board as
described in Note 1. Accordingly, no compensation expense has been recognized in
the year ended December 31, 1997 and 1996 related to these plans. Compensation
costs would have been increased by approximately $135,000 and $199,000 in 1997
and 1996, respectively, had the fair value of stock options granted been
recognized as compensation expense as prescribed by SFAS No. 123. The fair value
of the stock options at the date of grant were estimated using the minimum value
method prescribed by SFAS No. 123.
13. OTHER EXPENSES
Other expenses for the years ended December 31, 1997, 1996, and 1995 are
comprised of:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Professional fees...................................... $179,482 $237,024 $206,586
Data processing........................................ 134,294 122,122 117,931
Stationery and printing................................ 43,991 38,296 32,469
Advertising............................................ 9,552 8,903 25,906
Telephone.............................................. 54,451 57,003 74,440
Miscellaneous.......................................... 309,102 350,762 240,938
-------- -------- --------
Total........................................ $730,872 $814,110 $698,270
======== ======== ========
</TABLE>
14. RELATED PARTY TRANSACTIONS
The following expenses were incurred by the Bank in transactions with
related parties (principal owners, directors and affiliates) for the years ended
December 31, 1997, 1996 and 1995 and are included in other expenses in the
accompanying statements of operations.
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Legal services.............................................. $33,815 $108,560 $ 69,670
Office rental............................................... 45,262 50,259 54,848
Insurance premiums.......................................... -- -- 40,874
------- -------- --------
Total............................................. $79,077 $158,819 $165,392
======= ======== ========
</TABLE>
Rental income for the years ended December 31, 1997, 1996 and 1995 includes
approximately $17,000, $51,000 and $45,000, respectively, from related parties
(principal owners and affiliates), and is included in rental income in the
accompanying statements of operations.
Directors, officers and their related entities have borrower relationships
with the Bank in the ordinary course of business. Loan balances to these
individuals and their related entities approximated $416,000 and $97,000 at
December 31, 1997 and 1996, respectively.
15. COMMITMENTS AND CONTINGENCIES
Several claims and lawsuits are pending against the Bank including alleged
truth in lending violations. Management believes the outcome of such actions
will not have a material adverse effect on the financial statements of the Bank.
In the normal course of business, the Bank utilizes various financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. These financial instruments consist principally of commitments to
extend credit. The credit risks associated with financial instruments are
generally managed in conjunction with the Bank's balance sheet activities and
are subject to normal credit policies, financial
F-53
<PAGE> 155
BANKERS SAVINGS BANK, FSB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
controls, and risk limiting and monitoring procedures. Credit losses are
incurred when one of the parties fails to perform in accordance with the terms
of the contract. The Bank's off-balance sheet exposure to credit risk is
represented by the contractual amount of the commitments to extend credit.
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 many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained if deemed
necessary by the Bank upon extension of credit is based on management's credit
evaluation of the counterparty. Collateral held consists of real estate. At
December 31, 1997, the Bank had outstanding commitments to originate loans of
approximately $1,264,000.
The Bank had entered into commitments to sell loans of approximately
$3,754,000 at December 31, 1997.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined by the Bank
using available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret market data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts the Bank could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 AT DECEMBER 31, 1996
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents................. $ 1,439,000 $ 1,439,000 $ 1,728,000 $ 1,728,000
Securities held to maturity............... 8,000,000 7,828,000 9,002,000 8,690,000
Mortgage-backed securities held to
maturity............................... 33,000 33,000 33,000 33,000
Loans held for sale....................... 3,924,000 3,924,000 6,071,000 6,071,000
Loans receivable, net..................... 47,188,000 47,317,000 42,846,000 43,001,000
Federal Home Loan Bank stock.............. 500,000 500,000 500,000 500,000
LIABILITIES:
Demand deposits........................... 12,809,000 12,809,000 13,259,000 13,259,000
Time deposits............................. 43,208,000 43,419,000 43,025,000 43,222,000
Securities sold under repurchase
agreements............................. 1,800,000 1,800,000 1,034,000 1,034,000
Advance from Federal Home Loan Bank....... 4,300,000 4,254,000 4,432,000 4,180,000
</TABLE>
The fair value of securities is based on quoted market prices obtained from
independent pricing services. The fair value of fixed-rate loans, time deposits,
and other financial instruments is estimated based on the present value method
using current entry-value rates applicable to each category of such financial
instruments with maturities more than one year. Demand deposits and Federal Home
Loan Bank stock are shown at their carrying value which approximates fair value.
The fair value estimates presented herein are based on pertinent
information available to management. Although management is not aware of any
factors that would significantly affect the estimated fair value amounts, such
amounts have not been comprehensively revalued for purposes of these financial
statements since that date and, therefore, current estimates of fair value may
differ significantly from the amounts presented herein.
F-54
<PAGE> 156
BANKERS SAVINGS BANK, FSB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
17. SUBSEQUENT EVENT
On March 2, 1998, the Board of Directors of the Bank signed an Agreement
and Plan of Merger (the "Merger Agreement") by and between Republic Bancshares,
Inc. ("Republic") and the Bank, pursuant to which the Bank will be merged with
and into Republic and Republic will be the surviving corporation. The Merger
Agreement is subject to stockholder and regulatory approvals.
F-55
<PAGE> 157
BANKERS SAVINGS BANK, FSB
STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1998 1997
------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS................................... $ 6,571,288 $ 1,438,496
SECURITIES HELD TO MATURITY (Fair value: $5,861,481 in
1998...................................................... 6,036,481 7,999,733
and $7,827,500 in 1997)
MORTGAGE-BACKED SECURITIES HELD TO MATURITY................. 32,281 32,674
(Fair value: $32,281 in 1998 and $32,674 in 1997)
LOANS HELD FOR SALE......................................... 7,035,572 3,924,027
LOANS RECEIVABLE, Net....................................... 42,372,268 47,187,759
ACCRUED INTEREST RECEIVABLE................................. 425,048 445,641
OFFICE PROPERTIES AND EQUIPMENT, Net........................ 4,325,929 4,381,238
FEDERAL HOME LOAN BANK STOCK................................ 392,900 499,600
REAL ESTATE OWNED........................................... 875,798 763,279
OTHER ASSETS................................................ 274,276 387,615
----------- -----------
TOTAL............................................. $68,341,841 $67,060,062
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS.................................................... $60,700,971 $56,016,293
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE............... 559,598 195,030
ADVANCES FROM FEDERAL HOME LOAN BANK........................ 1,800,000 4,300,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE.............. -- 1,800,000
ACCRUED INTEREST PAYABLE.................................... 477,618 305,215
OTHER LIABILITIES........................................... 418,422 206,131
----------- -----------
Total Liabilities................................. 63,956,609 62,822,669
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, par value $4 per share -- 10,000,000 shares
authorized:
705,333 shares in 1998 and 690,333 shares in 1997
issued and outstanding............................... 2,813,332 2,761,332
Additional paid-in capital................................ 1,255,838 1,233,088
Retained earnings......................................... 316,062 242,973
----------- -----------
Total shareholder's equity........................ 4,385,232 4,237,393
TOTAL............................................. $68,341,841 $67,060,062
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-56
<PAGE> 158
BANKERS SAVINGS BANK, FSB
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans......................................... $1,028,816 $1,008,892 $2,083,678 $1,971,178
Securities held to maturity................... 69,490 115,938 166,731 237,146
Other......................................... 74,191 36,240 134,147 85,115
---------- ---------- ---------- ----------
Total interest income................. 1,172,497 1,161,070 2,384,556 2,293,439
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Deposits...................................... 764,468 709,194 1,531,538 1,399,787
Advances from Federal Home Loan Bank.......... 23,964 35,687 61,615 99,295
Securities sold under agreements to
repurchase................................. -- 21,460 10,161 32,661
---------- ---------- ---------- ----------
Total interest expense................ 788,432 766,341 1,603,314 1,531,743
---------- ---------- ---------- ----------
NET INTEREST INCOME............................. 384,065 394,729 781,242 761,696
PROVISION FOR LOAN LOSSES....................... 21,000 19,000 42,000 34,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES........................................ 363,065 375,729 739,242 727,696
---------- ---------- ---------- ----------
OTHER INCOME:
Net gain on sale of loans..................... 197,431 111,900 353,884 241,252
Loan servicing fees and other................. 70,537 56,273 141,004 126,097
Rental income................................. 151,238 157,324 299,557 314,752
---------- ---------- ---------- ----------
Total other income.................... 419,206 325,497 794,445 682,101
---------- ---------- ---------- ----------
OTHER EXPENSES:
Employee compensation and benefits............ 354,406 330,906 715,753 678,489
Occupancy and equipment....................... 111,533 91,483 213,079 188,805
Rental property operating expenses............ 59,913 65,390 121,940 131,611
Deposit insurance premiums.................... 13,072 13,591 26,834 19,305
Other......................................... 197,721 159,913 382,992 326,186
---------- ---------- ---------- ----------
Total other expenses.................. 736,645 661,283 1,460,598 1,344,396
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES...................... 45,626 39,943 73,089 65,401
BENEFIT FROM INCOME TAXES....................... -- -- -- --
---------- ---------- ---------- ----------
NET INCOME...................................... $ 45,626 $ 39,943 $ 73,089 $ 65,401
========== ========== ========== ==========
AVERAGE SHARES OUTSTANDING:
Basic......................................... 690,498 690,333 690,416 690,333
========== ========== ========== ==========
Diluted....................................... 814,071 690,333 816,714 713,988
========== ========== ========== ==========
NET INCOME PER SHARE:
Basic......................................... $ 0.07 $ 0.06 $ 0.11 $ 0.09
========== ========== ========== ==========
Diluted....................................... $ 0.06 $ 0.06 $ 0.09 $ 0.09
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-57
<PAGE> 159
BANKERS SAVINGS BANK, FSB
STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------- ADDITIONAL RETAINED SHAREHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL EARNINGS EQUITY
------- ---------- --------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997............. 690,333 $2,761,332 $1,233,088 $242,973 $4,237,393
Net income........................... 73,089 73,089
Exercise of stock options............ 15,000 52,000 22,750 74,750
------- ---------- ---------- -------- ----------
Balance, June 30, 1998................. 705,333 $2,813,332 $1,255,838 $316,062 $4,385,232
======= ========== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
[Balance of page intentionally left blank]
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<PAGE> 160
BANKERS SAVINGS BANK, FSB
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 73,089 $ 65,401
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Net gain on sale of Real Estate Owned..................... -- (6,991)
Depreciation and amortization............................. 109,553 108,642
Provision for loan losses................................. 42,000 34,000
Origination of mortgage loans held for sale............... (32,329,157) (23,897,128)
Proceeds from sale of mortgage loans held for sale........ 29,217,611 24,905,055
(Increase) decrease in accrued interest receivable........ 20,593 (73,186)
Decrease (increase) in other assets....................... 113,339 193,112
Increase (decrease) in accrued interest payable........... 172,402 136,737
(Decrease) increase in other liabilities.................. 212,293 27,739
------------ ------------
Net cash provided by (used in) operating
activities...................................... (2,368,277) 1,493,381
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in loans receivable............... 4,660,971 (1,784,867)
Proceeds from sale of Federal Home Loan Bank Stock........ 106,700 --
Proceeds from maturities of investment securities......... 1,963,645 1,002,961
Net proceeds from the sale of real estate owned........... -- 144,219
Purchases of office properties and equipment.............. (54,243) (42,943)
------------ ------------
Net cash used in investing activities............. 6,677,073 (680,630)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits....................... 4,684,678 326,023
Net (decrease) increase in advances by borrowers for taxes
and insurance.......................................... 364,568 403,729
Decrease in advance from Federal Home Loan Bank........... (2,500,000) (1,831,894)
Increase (decrease) in securities sold under agreements to
repurchase............................................. (1,800,000) 2,852,000
Proceeds from exercise of stock options................... 74,750 --
------------ ------------
Net cash provided by financing activities......... 823,996 1,749,858
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ 5,132,792 2,562,609
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 1,438,496 1,728,006
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 6,571,288 $ 4,290,615
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the year............................. $ 1,430,912 $ 1,395,006
============ ============
Income tax refunds received during the period............. $ 56,840 $ 206,104
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
ACTIVITIES -- loans totaling $108,329 and $249,665 were
foreclosed during the six months ended 6/30/98 and
6/30/97, respectively, and transferred into real estate
owned.
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 161
BANKERS SAVINGS BANK, FSB
NOTES TO UNAUDITED FINANCIAL STATEMENTS AT AND FOR
THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
General -- The financial statements of Bankers Savings Bank (BSB) conform
to generally accepted accounting principles and to general practices within the
savings and loan industry. The accompanying interim financial statements are
unaudited; however, in the opinion of management, all adjustments necessary for
the fair presentation of the financial statements have been included. All such
adjustments are of a normal recurring nature. The notes included herein should
be read in conjunction with the notes to financial statements of BSB for the
years ended December 31, 1997 and 1996, included in this prospectus.
On January 1, 1998, BSB adopted the provisions of Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (Statement 125), relating
to repurchase agreements, securities lending and other similar transactions and
pledged collateral, which had been delayed until after December 31, 1997 by
Statement of Financial Accounting Standards No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125, an amendment of FASB
Statement No. 125" (Statement 127). Statement 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities based on a consistent application of a
"financial-components approach" that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered and derecognizes liabilities
when extinguished. Statement 125 provides standards for consistently
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. The adoption of the additional provisions of Statement
125 as amended by Statement 127 resulted in no material impact on BSB's
financial condition or results of operations.
On January 1, 1998, BSB also adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This statement establishes
standards for reporting the components of comprehensive income and requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be included in a financial statement that is
displayed with the same prominence as other financial statements. Comprehensive
income includes net income as well as certain items that are reported directly
within a separate component of shareholders' equity and bypass net income. The
adoption of Statement 130 did not have a material impact on BSB's financial
condition or results of operations.
In February 1998, the Financial Accounting Standards Board issued Statement
132, "Employers' Disclosures about Pension and Other Postretirement
Benefits -- an amendment of FASB Statements No. 87, 88 and 106." This statement
revises employers' disclosures about pension and other postretirement benefit
plans, but does not change the measurement or recognition of those plans. It
standardizes the disclosure requirements to the extent practicable, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis and eliminates certain
disclosures that are no longer as useful as they were when Statements 87, 88 and
106 were issued. This statement is effective for fiscal years beginning after
December 15, 1997. Restatement of disclosures for previous periods provided for
comparative purposes is required unless the information is not readily
available, in which case the notes to the financial statements should include
all available information and a description of the information not available.
These disclosure requirements will have no material impact on BSB's financial
position or results of operations.
In June 1998, Statement No. 133, "Accounting for Derivative Instruments and
for Hedging Activities," (Statement 133), was issued by the Financial Accounting
Standards Board. Statement 133 provides a comprehensive and consistent standard
for the recognition and measurement of derivative and hedging activities. It
requires all derivatives to be recorded on the balance sheet at fair value and
establishes unique accounting treatment for the following three different types
of hedges: hedges of changes in the fair value of assets, liabilities or firm
commitments, referred to as fair value hedges; hedges of the variable cash flows
of
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<PAGE> 162
forecasted transactions, referred to as cash flow hedges; and hedges of foreign
currency exposures of net investments in foreign operations. The accounting for
each of the three types of hedges results in recognizing offsetting changes in
value or cash flows of both the hedge and the hedged item in earnings in the
same period. Changes in the fair value of derivatives that do not meet the
criteria of one of these three types of hedges are included in earnings in the
period of change. Statement 133 is effective for fiscal years beginning after
June 15, 1999. The impact of adopting Statement 133 on BSB's financial condition
or results of operations is not expected to be material.
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<PAGE> 163
APPENDIX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 2nd day of March, 1998 (as
amended and restated as of September 4, 1998, this "Agreement"), by and among
REPUBLIC BANCSHARES, INC. ("Republic"), a corporation organized and existing
under the laws of the State of Florida, with its principal office located in St.
Petersburg, Florida; REPUBLIC BANK (the "Bank"), a commercial bank organized and
existing under the laws of the State of Florida that is a wholly-owned
subsidiary of Republic, with its principal office located in St. Petersburg,
Florida; and BANKERS SAVINGS BANK ("BSB"), a federal savings association
organized and existing under the laws of the United States of America, with its
principal office located in Coral Gables, Florida.
WITNESSETH
WHEREAS, Republic and BSB entered into an Agreement and Plan of Merger as
of March 2, 1998, providing for the merger of BSB with and into the Bank and the
exchange of all outstanding shares of the capital stock of BSB for shares of the
common stock of Republic, except as therein otherwise provided (the "Merger");
and
WHEREAS, Republic, the Bank and BSB entered into a First Amendment to
Agreement and Plan of Merger as of March 2, 1998, which (i) set forth certain
additional information concerning Republic, the Bank and BSB required to be
included in an agreement and plan of merger under Section 658.42 of the Florida
Statutes and (ii) amended the original Agreement and Plan of Merger in certain
other respects; and
WHEREAS, Republic, the Bank and BSB desire to enter into this Amended and
Restated Agreement and Plan of Merger in order to reflect subsequent
developments, to satisfy the requirements of Section 658.42 of the Florida
Statutes, to consolidate the terms and conditions of the contemplated Merger
into a single agreement and to amend the Agreement in certain additional
respects; and
WHEREAS, The Boards of Directors of Republic, the Bank and BSB are of the
opinion that the transactions described herein are in the best interests of the
parties to this Agreement and their respective stockholders and, accordingly,
have approved this Agreement and the Merger contemplated hereby, and Republic,
in its capacity as sole stockholder of the Bank, has approved this Agreement and
the Merger contemplated hereby; and
WHEREAS, The parties to this Agreement intend for this Agreement to
constitute the agreement and plan of merger prescribed by Section 658.42 of the
Florida Statutes;
WHEREAS, The parties to this Agreement intend that the Merger contemplated
by this Agreement for federal income tax purposes shall qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"); and
WHEREAS, Certain terms used in this Agreement are defined in Section 10.1
of this Agreement;
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations and covenants, and subject to the terms and conditions set forth
below, the parties hereto agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 Constituent Banks. The Bank is a commercial bank organized and
existing under the laws of the State of Florida with its principal office at 111
Second Avenue, N.E., St. Petersburg, Florida 33701. A listing of each branch
office of the Bank is attached hereto as Exhibit A. BSB is a savings association
organized and existing under the laws of the United States of America, with its
principal office at 2222 Ponce de Leon
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<PAGE> 164
Boulevard, Coral Gables, Florida 33134. A listing of each branch office of BSB
is attached hereto as Exhibit B.
1.2 Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined below), BSB will merge with and into the Bank in
accordance with the provisions of Section 655.412 of the Florida Statutes and
Part 552 of the Rules and Regulations of the Office of Thrift Supervision (the
"OTS Regulations"), and all outstanding shares of BSB Common Stock shall be
exchanged into shares of Republic Common Stock, with the effect provided in
Section 655.417 of the Florida Statutes and Section 552.13 of the OTS
Regulations. At the Effective Time, the separate existence of BSB shall cease,
and, except as otherwise set forth in this Agreement, the Bank shall succeed to
all the rights, privileges, immunities and franchises and all the property real,
personal and mixed of BSB, without the necessity for any separate transfer. The
Bank shall then be responsible and liable for all liabilities and obligations of
BSB, and neither the rights of creditors nor any Liens on the property of BSB
shall be impaired by the Merger.
1.3 Date and Place of Closing. The closing for the Merger (the "Closing")
will take place at 9:00 A.M. on the date that the Effective Time occurs (or the
immediately preceding day if the Effective Time is earlier than 9:00 A.M.), or
at such other time as the parties, acting through their duly authorized
officers, may mutually agree. The place of Closing shall be at such location as
may be mutually agreed upon by the parties.
1.4 Effective Time. The Merger contemplated by this Agreement shall become
effective on the date and at the time set forth in the certificate of merger
(the "Certificate of Merger") issued by the Department pursuant to Section
658.45 of the Florida Statutes (the "Effective Time"). The parties shall request
that the Certificate of Merger have as the Effective Time the date and time set
forth in the filing made with the Department pursuant to Section 658.44(9) of
the Florida Statutes. Subject to the terms and conditions hereof, unless
otherwise mutually agreed upon in writing by the duly authorized officers of
each party, the parties shall use their reasonable efforts to cause the
Effective Time to occur on or before the tenth business day (as designated by
Republic) following the last to occur of: (i) the effective date (including
expiration of any applicable waiting period) of the last required Consent of any
Regulatory Authority having authority over and approving or exempting the
Merger; or (ii) the date on which the stockholders of BSB approve the matters
relating to this Agreement required to be approved by such stockholders by
applicable Law.
1.5 Resulting State Bank. With respect to the resulting state bank, the
parties hereto agree as follows:
(a) Name. The name of the resulting state bank shall be Republic Bank
and the specific location of the proposed main office will be 111 Second
Avenue, N.E., St. Petersburg, Florida 33701. A list of each existing and
proposed branch office of the resulting state bank is attached hereto as
Exhibit C.
(b) Directors. The directors of the Bank shall continue as the
directors of the resulting state bank for the full unexpired terms of their
offices and until their successors have been elected or appointed. A list
of the names and addresses of each of the directors of the resulting state
bank who will serve until the next meeting of stockholders at which
directors are elected is attached hereto as Exhibit D.
(c) Executive Officers. The officers of the Bank shall continue as
the officers of the resulting state bank until their successors have been
elected or appointed. A list of the names and addresses of each of the
executive officers of the resulting state bank is attached hereto as
Exhibit E.
(d) Capital Stock and Retained Earnings. The Bank has 10,000,000
shares of common stock, $2.00 par value, authorized, of which 4,182,257
shares are outstanding as of the date hereof. The Bank also has 100,000
shares of noncumulative convertible perpetual preferred stock, $20.00 par
value, authorized, of which 75,000 shares are outstanding as of the date
hereof. As of December 31, 1997, the Bank had retained earnings of
$29,155,000.
(e) Trust Powers. The Bank, as the resulting state bank, will have
trust powers. Currently, the Bank's trust powers are inactive with the
Department, subject to activation upon the filing of an appropriate
application and notice therefor.
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<PAGE> 165
(f) Articles of Incorporation. The Articles of Incorporation of the
Bank shall continue to be the Articles of Incorporation of the resulting
state bank following the Effective Time. A copy of the Articles of
Incorporation of the Bank is attached hereto as Exhibit F.
(g) Bylaws. The By-Laws of the Bank shall continue to be its By-Laws
following the Effective Time.
(h) Nonconforming Activities. From and after the Effective Time, the
Bank will not engage in any nonconforming activities, except to the extent
necessary to fulfill obligations existing prior to the Merger pursuant to
the provisions of Section 655.418(4) of the Florida Statutes.
1.6 Approvals. This Agreement shall be submitted for the approval of the
stockholders of BSB in the manner provided by the applicable Laws of the United
States of America and the State of Florida and shall further be submitted for
approval by the Department, the FDIC and such other state or federal regulatory
agencies as federal or state Law shall require.
ARTICLE 2
MANNER OF CONVERTING SHARES
2.1 Conversion of Shares. Subject to the provisions of this Article 2, at
the Effective Time by virtue of the Merger and without any action on the part of
Republic or BSB, or the stockholders of either of the foregoing, the shares of
the constituent entities shall be converted as follows:
(a) Each share of Republic Common Stock and Republic Preferred Stock
issued and outstanding immediately prior to the Effective Time shall remain
issued and outstanding from and after the Effective Time.
(b) Each share of the BSB Common Stock (excluding shares held by any
BSB Company or any Republic Company, in each case other than in a fiduciary
capacity or as a result of debts previously contracted or shares held by
stockholders who perfect their dissenters' rights of appraisal) issued and
outstanding at the Effective Time shall cease to be outstanding and shall
be converted into and exchanged for shares of Republic Common Stock at an
exchange ratio (the "Exchange Ratio") determined in accordance with the
following formula. The Exchange Ratio of BSB Common Stock shares into
Republic Common Stock shares will be determined by (a) taking the
difference between $4,237,000 and any bonuses paid to officers, directors
or employees of BSB upon a change of control after deducting equivalent
corporate taxes on such bonus payments; (b) adding to (or subtracting from)
such difference any profits (or losses) earned (or incurred) by BSB in 1998
though the month-end prior to the date on which the Stockholders' Meeting
is held; (c) multiplying this sum by 1.7; (d) adding $2,020,000 to the
resulting product in (c); (e) dividing the resulting sum by the total
number of shares of BSB Common Stock outstanding at the Effective Time; and
(f) dividing the resulting quotient by the Market Value of Republic Common
Stock (as defined in the following sentence). The "Market Value of Republic
Common Stock" shall be $25.00 unless the average of the closing prices on
the National Market (as reported by The Wall Street Journal or, if not
reported thereby, any other authoritative source selected by Republic) for
the twenty (20) consecutive trading days ending on the third business day
immediately preceding the Effective Time (the "Average Market Price") for a
share of Republic Common Stock is greater than $27.50 or lower than $22.50,
in which case the Market Value of Republic Common Stock is the mean between
the Average Market Price and $25.00.
(c) Each of the options to purchase BSB Common Stock issued and
outstanding at the Effective Time, which options and their respective dates
of grant are disclosed in Section 2.1 of the BSB Disclosure Memorandum (the
"BSB Options"), shall cease to be outstanding and shall be converted into
and exchanged for the Right to acquire Republic Common Stock on
substantially the same terms applicable to the BSB Options. The number of
shares of Republic Common Stock to be issued pursuant to the exercise of
such options shall equal the number of shares of BSB Common Stock subject
to such options multiplied by the Exchange Ratio, provided that no
fractions of shares of Republic Common Stock shall
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<PAGE> 166
be issued, and the number of shares of Republic Common Stock to be issued
upon the exercise of the BSB options, if a fractional share exists, shall
equal the number of whole shares obtained by rounding to the nearest whole
number, giving account to such fraction. The exercise price for the
acquisition of each share of Republic Common Stock shall be the exercise
price for each share of BSB Common Stock subject to such options divided by
the Exchange Ratio, provided that the aggregate purchase price shall be
adjusted as appropriate for any rounding to whole shares that may be done.
(d) Provided that the stock option plan pursuant to which the BSB
Options were issued permits such practice, holders of the BSB Options will
also have the ability to convert their BSB Options directly into shares of
Republic Common Stock. The number of shares of Republic Common Stock that
will be issuable upon conversion of the BSB Options pursuant to this
subparagraph (d), as converted into options to acquire shares of Republic
Common Stock as provided above, will be (a) the difference between (i) the
Average Market Price and (ii) the exercise price for a share of Republic
Common Stock as determined pursuant to (c) above, divided by (b) the
Average Market Price, such quotient to be multiplied by the number of
shares of Republic Common Stock subject to such options.
2.2 Anti-Dilution Provisions. In the event Republic changes the number of
shares of Republic Common Stock issued and outstanding prior to the Effective
Time as a result of a stock split, stock dividend or similar recapitalization
with respect to such stock and the record date therefore (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split or similar
recapitalization for which a record date is not established) shall be prior to
the Effective Time, the Exchange Ratio shall be proportionately adjusted.
2.3 Shares Held by BSB or Republic. Each of the shares of BSB Common Stock
held by any BSB or any Republic Company, in each case other than in a fiduciary
capacity or as a result of debts previously contracted, shall be canceled and
retired at the Effective Time and no consideration shall be issued in exchange
therefor.
2.4 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of BSB Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of Republic Common Stock (after taking into account all certificates delivered
by such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of Republic Common Stock
multiplied by the Average Market Price. No such holder will be entitled to
dividends, voting rights or any other rights as a stockholder in respect of any
fractional shares.
2.5 Dissenting Stockholders. Any holder of shares of BSB Common Stock who
perfects such holder's dissenters' rights of appraisal in accordance with and as
contemplated by Section 552.14 of the OTS Regulations and, to the extent not
inconsistent therewith, Section 658.44 of the Florida Statutes, shall be
entitled to receive the value of such shares in cash as determined pursuant to
such provision of Law; provided, that no such payment shall be made to any
dissenting stockholder unless and until such dissenting stockholder has complied
with the applicable provisions of the OTS Regulations and the Florida Statutes
and has surrendered to BSB the certificate or certificates representing the
shares for which payment is being sought. In the event that after the Effective
Time a dissenting stockholder of BSB fails to perfect, or effectively withdraws
or loses, such holder's right to appraisal and of payment for such holder's
shares, Republic shall issue and deliver the consideration to which such holder
of shares of BSB Common Stock is entitled under this Article 3 (without
interest) upon surrender by such holder of the certificate or certificates
representing shares of BSB Common Stock held by such holder.
ARTICLE 3
EXCHANGE OF SHARES
3.1 Exchange Procedures. Promptly after the Effective Time, Republic and
BSB shall cause ChaseMellon Shareholder Services (the "Exchange Agent") to mail
to the former stockholders of BSB appropriate transmittal materials (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates theretofore representing shares of BSB Common Stock shall pass,
only upon proper delivery
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<PAGE> 167
of such certificates to the Exchange Agent). After the Effective Time, each
holder of shares of BSB Common Stock (other than shares to be canceled pursuant
to Section 2.3 of this Agreement or as to which dissenters' rights have been
perfected as provided in Section 2.5 of this Agreement) issued and outstanding
at the Effective Time shall surrender the certificate or certificates
representing such shares to the Exchange Agent and shall promptly upon surrender
thereof receive in exchange therefor the consideration provided in Section 2.1
of this Agreement, together with all undelivered dividends or distributions in
respect of such shares (without interest thereon) pursuant to Section 3.2 of
this Agreement. To the extent required by Section 2.4 of this Agreement, each
holder of shares of BSB Common Stock issued and outstanding at the Effective
Time also shall receive, upon surrender of the certificate or certificates
representing such shares, cash in lieu of any fractional share of Republic
Common Stock to which such holder may be otherwise entitled (without interest).
Republic shall not be obligated to deliver the consideration to which any former
holder of BSB Common Stock is entitled as a result of the Merger until such
holder surrenders such holder's certificate or certificates representing the
shares of BSB Common Stock for exchange as provided in this Section 3.1, or
otherwise complies with the procedures of the Exchange Agent with respect to
lost, stolen or destroyed certificates. The certificate or certificates of BSB
Common Stock so surrendered shall be duly endorsed as the Exchange Agent may
require. Any other provision of this Agreement notwithstanding, neither
Republic, BSB nor the Exchange Agent shall be liable to a holder of BSB Common
Stock for any amounts paid or property delivered in good faith to a public
official pursuant to any applicable abandoned property Law.
3.2 Rights of Former BSB Stockholders. At the Effective Time, the stock
transfer books of BSB shall be closed as to holders of BSB Common Stock
immediately prior to the Effective Time and no transfer of BSB Common Stock by
any such holder shall thereafter be made or recognized. Until surrendered for
exchange in accordance with the provisions of Section 3.1 of this Agreement,
each certificate theretofore representing shares of BSB Common Stock (other than
shares to be canceled pursuant to Section 2.3 of this Agreement or as to which
dissenters' rights have been perfected as provided in Section 2.5 of this
Agreement) shall from and after the Effective Time represent for all purposes
only the right to receive the consideration provided in Sections 2.1 and 2.4 of
this Agreement in exchange therefor. To the extent permitted by Law, former
stockholders of record of BSB shall be entitled to vote after the Effective Time
at any meeting of Republic stockholders the number of whole shares of Republic
Common Stock into which their respective shares of BSB Common Stock are
converted, regardless of whether such holders have exchanged their certificates
representing BSB Common Stock for certificates representing Republic Common
Stock in accordance with the provisions of this Agreement. Whenever a dividend
or other distribution is declared by Republic on the Republic Common Stock, the
record date for which is at or after the Effective Time, the declaration shall
include dividends or other distributions on all shares issuable pursuant to this
Agreement, but no dividend or other distribution payable to the holders of
record of Republic Common Stock as of any time subsequent to the Effective Time
shall be delivered to the holder of any certificate representing shares of BSB
Common Stock issued and outstanding at the Effective Time until such holder
surrenders such certificate for exchange as provided Section 3.1 of the
Agreement. However, upon surrender of such BSB Common Stock certificate, both
the Republic Common Stock certificate (together with all such undelivered
dividends or other distributions without interest) and any undelivered dividends
and cash payments to be paid for fractional share interests (without interest)
shall be delivered and paid with respect to each share represented by such
certificate.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BSB
BSB hereby represents and warrants to Republic:
4.1 Organization, Standing and Power. (a) BSB is a federal savings
association duly organized, validly existing and in good standing under the Laws
of the United States, and has the corporate power and authority to carry on its
business as now conducted and to own, lease and operate its Material Assets. BSB
is duly qualified or licensed to transact business as a foreign corporation in
good standing in the states of the United States and foreign jurisdictions where
the character of its Assets or the nature or conduct of its business
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requires it to be so qualified or licensed, except for such jurisdictions in
which the failure to be so qualified or licensed is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on BSB.
(b) BSB is an "insured institution," as defined in the Federal Deposit
Insurance Act and applicable regulations thereunder, is a member of the Savings
Association Insurance Fund and is a member in good standing of the Federal Home
Loan Bank of Atlanta ("FHLB").
4.2 Authority; No Breach by Agreement. (a) BSB has the corporate power and
authority necessary to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein, including the Merger, have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of BSB, subject to the approval of this Agreement by the required vote of
the holders of outstanding shares of BSB Common Stock, which is the only
stockholder vote required for approval of this Agreement and consummation of the
Merger by BSB. Subject to such requisite stockholder approval, this Agreement
represents a legal, valid and binding obligation of BSB, enforceable against BSB
in accordance with its terms (except in all cases as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar Laws affecting the enforcement of creditors' rights generally and except
that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by BSB, the
consummation by BSB of the transactions contemplated hereby, nor compliance by
BSB with any of the provisions hereof, will (i) conflict with or result in a
breach of any provision of BSB's Charter or Bylaws or (ii) constitute or result
in a Default under, require any Consent pursuant to or result in the creation of
any Lien on any Asset of any BSB Company under any Contract or Permit of any BSB
Company, where such Default or Lien, or any failure to obtain such Consent, is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on BSB; or (iii) subject to receipt of the requisite Consents referred to
in Section 9.1(b) of this Agreement, violate any Law or Order applicable to any
BSB Company or any of their respective Material Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws and rules of the
NASD, and other than Consents required from Regulatory Authorities, and other
than notices to or filings with the Internal Revenue Service or the Pension
Benefit Guaranty Corporation with respect to any employee benefit plans, and
other than Consents, filings or notifications which, if not obtained or made,
are not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on BSB, no notice to, filing with or Consent of any public body
or authority is necessary for the consummation by BSB of the Merger and the
other transactions contemplated in this Agreement.
4.3 Capital Stock. (a) The authorized capital stock of BSB consists of
10,000,000 shares of BSB Common Stock, of which no more than 692,333 shares are
issued and outstanding as of the date of this Agreement. The stock register of
BSB reflects 690,333 shares outstanding. BSB shall attempt to reconcile the
discrepancy prior to closing and shall provide Republic with the accurate number
of outstanding shares; provided, that if it is unable to do so, the
consideration to be paid to the shareholders of BSB in exchange for their shares
of BSB Common Stock shall be based upon 692,333 outstanding shares (or such
greater number as shall be determined by BSB after investigation). All of the
issued and outstanding shares of capital stock of BSB are duly and validly
issued and outstanding and are fully paid and nonassessable under the OTS
Regulations. None of the outstanding shares of capital stock of BSB has been
issued in violation of any preemptive rights of the current or past stockholders
of BSB. In the event any BSB options are exercised subsequent to January 1,
1998, the option price shall be added to BSB's equity as calculated in paragraph
2.1(b), and consequently, the number of outstanding shares will be increased to
the number resulting from the exercise of the option.
(b) Except as set forth in Section 4.3(a) of this Agreement, there are no
shares or capital stock or other equity securities of BSB outstanding and, other
than the options disclosed in Section 2.1 of the BSB Disclosure Memorandum,
there are no outstanding rights relating to the capital stock of BSB.
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4.4 BSB Subsidiaries. BSB has disclosed in Section 4.4 of the BSB
Disclosure Memorandum all of the BSB Subsidiaries as of the date of this
Agreement. BSB or one of its Subsidiaries owns all of the issued and outstanding
shares of capital stock of each BSB Subsidiary. No equity securities of any BSB
Subsidiary are or may become required to be issued (other than to another BSB
Company) by reason of any Rights, and there are no Contracts by which any BSB
Subsidiary is bound to issue (other than to another BSB Company) additional
shares of its capital stock or Rights or by which any BSB Company is or may be
bound to transfer any shares of the capital stock of any BSB Subsidiary (other
than to another BSB Company). There are no Contracts relating to the rights of
any BSB Company to vote or to dispose of any shares of the capital stock of any
BSB Subsidiary. All of the shares of capital stock of each BSB Subsidiary held
by a BSB Company are fully paid and nonassessable under the applicable
corporation Law of the jurisdiction in which such Subsidiary is incorporated or
organized and are owned by the BSB Company free and clear of any Lien. Each BSB
Subsidiary is duly organized, validly existing and in good standing under the
Laws of the jurisdiction in which it is incorporated or organized, and has the
corporate power and authority necessary for it to own, lease and operate its
Assets and to carry on its business as now conducted. Each BSB Subsidiary is
duly qualified or licensed to transact business as a foreign corporation in good
standing in the states of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on BSB.
4.5 Financial Statements. (a) BSB has filed and made available to Republic
all forms, reports and documents required to be filed by BSB with the OTS since
December 31, 1993 (collectively, the "BSB Reports"). The BSB Reports: (i) at the
time filed, complied in all Material respects with the applicable requirements
of the OTS; and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a Material fact or omit to state a
Material fact required to be stated in such BSB Reports or necessary in order to
make the statements in such BSB Reports, in light of the circumstances under
which they were made, not misleading. Except for BSB Subsidiaries that are
registered as a broker, dealer or investment advisor, none of BSB's Subsidiaries
is required to file any forms, reports or other documents with the OTS or the
SEC.
(b) Each of the BSB Financial Statements (including, in each case, any
related notes) contained in the BSB Reports, including any BSB Reports filed
after the date of this Agreement until the Effective Time, complied as to form
in all Material respects with the applicable published rules and regulations of
the OTS with respect thereto, was prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes to such financial statements, or in the case of unaudited statements,
as permitted by Form 10-Q of the SEC), and fairly presented the consolidated
financial position of BSB and its Subsidiaries as of the respective dates and
the consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not or are not
expected to be Material in amount.
4.6 Absence of Undisclosed Liabilities. No BSB Company has any liabilities
that are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on BSB, except liabilities that are accrued or reserved against
in the consolidated balance sheets of BSB as of December 31, 1997 included in
the BSB Financial Statements or reflected in the notes thereto. No BSB Company
has incurred or paid any Liability since December 31, 1997, except for such
liabilities incurred or paid in the ordinary course of business consistent with
past business practice and that are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on BSB.
4.7 Absence of Certain Changes or Events. Since December 31, 1997, except
as disclosed in Section 4.7 of the BSB Disclosure Memorandum, (i) there have
been no events, changes or occurrences which have had, or are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on BSB; and
(ii) the BSB Companies have not taken any action, or failed to take any action,
prior to the date of this Agreement, which action or failure, if taken after the
date of this Agreement, would represent or result in a Material breach or
violation of any of the covenants and agreements of BSB provided in Article 7 of
this Agreement.
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4.8 Tax Matters. (a) All Tax returns required to be filed by or on behalf
of any of the BSB Companies have been timely filed or requests for extensions
have been timely filed, granted and have not expired for periods ended on or
before December 31, 1996, and on or before the date of the most recent fiscal
year end immediately preceding the Effective Time, except to the extent that all
such failures to file, taken together, are not reasonably likely to have a
Material Adverse Effect on BSB, and all Tax Returns filed are complete and
accurate in all Material respects. All Taxes shown on filed Tax returns have
been paid. There is no audit examination, deficiency or refund litigation with
respect to any Taxes that is reasonably likely to result in a determination that
would have, individually or in the aggregate, a Material Adverse Effect on BSB,
except as reserved against in the BSB Financial Statements delivered prior to
the date of this Agreement. All Taxes and other Liabilities due with respect to
completed and settled examinations or concluded Litigation have been paid.
(b) None of the BSB Companies has executed an extension or waiver of any
statute of limitations on the assessment or collection of any Tax due that is
currently in effect.
(c) Adequate provision for any Taxes due or to become due for any of the
BSB Companies for the period or periods through and including the date of the
respective BSB Financial Statements has been made and is reflected on such BSB
Financial Statements.
(d) Deferred Taxes of the BSB Companies have been adequately provided for
in the BSB Financial Statements.
(e) Each of the BSB Companies is in compliance with, and its records
contain all information and documents (including properly completed IRS Forms
W-9) necessary to comply with, all applicable information reporting and tax
withholding requirements under federal, state and local tax Laws, and such
records identify with specificity all accounts subject to backup withholding
under Section 3406 of the Code, except for such instances of noncompliance and
such omissions as are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on BSB.
(f) None of the BSB Companies has made any payments, is obligated to make
any payments, or is a party to any Contract, agreement or other arrangement that
could obligate it to make any payments that would be disallowed as a deduction
under Section 280G or 162(m) of the Code.
(g) There are no Liens with respect to Taxes upon any of the Assets of the
BSB Companies, other than Liens for Taxes on real estate of BSB obtained as a
result of or in lieu of foreclosures, which Liens are reflected in the carrying
value of the Assets on the BSB Financial Statements, and Liens on real estate
securing loans made by BSB.
(h) Except as contemplated by this Agreement, there has not been an
ownership change, as defined in Code Section 382(g), of the BSB Companies that
occurred during or after any taxable period in which the BSB Companies incurred
a net operating loss that carries over to any Taxable Period ending after
December 31, 1994.
(i) No BSB Company has filed any consent under Section 341(f) of the Code
concerning collapsible corporations.
(j) All Material elections with respect to Taxes affecting the BSB
Companies as of the date of this Agreement have been or will be timely made as
set forth in Section 4.8 of the BSB Disclosure Memorandum. After the date
hereof, no Material election with respect to Taxes will be made by BSB without
the prior consultation with Republic.
(k) No BSB Company has or has had a permanent establishment in any foreign
country, as defined in any applicable tax treaty or convention between the
United States and such foreign country.
4.9 Assets. Except as disclosed in Section 4.9 of the BSB Disclosure
Memorandum or reflected on the BSB Financial Statements, the BSB Companies have
good and marketable title, free and clear of all Liens, to all of their
respective Assets that are Material to the conduct of their business. All
tangible properties that are Material to the businesses of the BSB Companies are
in good condition, reasonable wear and tear excepted,
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and are usable in the ordinary course of business consistent with BSB's past
practices. All Assets that are Material to BSB's business on a consolidated
basis, held under leases or subleases by any of the BSB Companies, are held
under valid written Contracts enforceable in accordance with their respective
terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other Laws affecting the enforcement
of creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceedings may be brought), and each such
Contract is in full force and effect. A list of insurance policies maintained by
BSB is set forth in Section 4.9 of the BSB Disclosure Memorandum. Except as
disclosed in Section 4.9 of the BSB Disclosure Memorandum, none of the BSB
Companies has received notice from any insurance carrier that (i) such insurance
will be canceled or that coverage thereunder will be reduced or eliminated; or
(ii) premium costs with respect to such policies of insurance will be
substantially increased. There are presently no claims pending under such
policies of insurance and no notices have been given by a BSB Company under such
policies. The Assets of the BSB Companies include all Assets required to operate
the business of the BSB Companies as presently conducted.
4.10 Environmental Matters. (a) To the Knowledge of BSB, each BSB Company,
its Participation Facilities and its Loan Properties are and have been in
compliance with all Environmental Laws, except for violations which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on BSB and/or are set forth in Section 4.10 of the BSB Disclosure
Memorandum.
(b) There is no Litigation pending or, to the Knowledge of BSB, threatened
before any court, governmental agency or authority or other forum in which any
BSB Company or any of its Loan Properties or Participation Facilities (or any
BSB Company in respect of any such Loan Property or Participation Facility) has
been or, with respect to threatened Litigation, may be named as a defendant or
potentially responsible party (i) for alleged noncompliance (including by any
predecessor) with any Environmental Law, or (ii) relating to the release into
the environment of any Hazardous Material, whether or not occurring at, on,
under or involving a site owned, leased or operated by any BSB Company or any of
its Loan Properties or Participation Facilities.
(c) To the Knowledge of BSB, there have been no releases of Hazardous
Material in, on, under or affecting any Participation Facility or Loan Property
of an BSB Company, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on BSB.
4.11 Compliance with Laws. BSB is a federal savings association organized
under the Home Owners' Loan Act of 1933, as amended, and the OTS Regulations.
Each BSB Company has in effect all Permits necessary for it to own, lease or
operate its Material Assets and to carry on its business as now conducted,
except for those Permits the absence of which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on BSB, and there
has occurred no default under any such Permit, other than defaults which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on BSB. None of the BSB Companies:
(a) is in violation of any Laws, Orders or Permits applicable to its
business or employees conducting its business, except for violations which
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on BSB; and
(b) except as disclosed in Section 4.11 of the BSB Disclosure
Memorandum, has received any notification or communication from any agency
or department of federal, state or local government or any Regulatory
Authority or the staff thereof (i) asserting that any BSB Company is not in
compliance with any of the Laws or Orders which such governmental authority
or Regulatory Authority enforces, where such noncompliance is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect
on BSB; (ii) threatening to revoke any Permits, the revocation of which is
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on BSB; or (iii) requiring any BSB Company to enter into or
consent to the issuance of a cease and desist Order, formal agreement,
directive, commitment or memorandum of understanding, or to adopt any Board
resolution or similar undertaking, which restricts materially the conduct
of its business, or in any manner relates to its capital adequacy, its
credit or reserve policies, its management or the payment of dividends.
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4.12 Labor Relations. No BSB Company is the subject of any Litigation
asserting that it or any other BSB Company has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state Law) or seeking to compel it or any other BSB Company to bargain with any
labor organization as to wages or conditions of employment, nor is there any
strike or other labor dispute involving any BSB Company, pending or threatened,
or to the Knowledge of BSB, is there any activity involving any BSB Company's
employee's seeking to certify a collective bargaining unit or engaging in any
other organization activity.
4.13 Employee Benefit Plans. (a) BSB has disclosed in Section 4.13 of the
BSB Disclosure Memorandum, and has delivered or made available to Republic prior
to the execution of this Agreement copies in each case of, all pension,
retirement, profit-sharing, deferred compensation, stock option, employee stock
ownership, severance pay, vacation, bonus or other incentive plan, all other
written employee programs, arrangements or agreements, all medical, vision,
dental or other health plans, all life insurance plans and all other employee
benefit plans or fringe benefit plans, including "employee benefit plans" as
that term is defined in Section 3(3) of ERISA, currently adopted, maintained by,
sponsored in whole or in part by or contributed to by any BSB Company for the
benefit of employees, retirees, dependents, spouses, directors, independent
contractors or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors or other beneficiaries
are eligible to participate (collectively, the "BSB Benefit Plans"). None of the
BSB Benefit Plans is an "employee pension benefit plan," as that term is defined
in Section 3(2) of ERISA.
(b) No BSB Company has any Liability for retiree health and life benefits
under any of the BSB Benefit Plans and there are no restrictions on the rights
of such BSB Company to amend or terminate any such Plan without incurring any
Liability thereunder, which Liability is reasonably likely to have a Material
Adverse Effect on BSB.
(c) Except as disclosed in Section 4.13 of the BSB Disclosure Memorandum,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including
severance, unemployment compensation, golden parachute or otherwise) becoming
due to any director or any employee of any BSB Company from any BSB Company
under any BSB Benefit Plan or otherwise; (ii) increase any benefits otherwise
payable under any BSB Benefit Plan; or (iii) result in any acceleration of the
time of payment or vesting of any such benefit, where such payment, increase or
acceleration is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on BSB.
(d) The actuarial present values of all accrued deferred compensation
entitlement (including entitlement under any executive compensation,
supplemental retirement or employment agreement) of employees and former
employees of any BSB Company and their respective beneficiaries, other than
entitlement accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Code or Section 302 of ERISA, have been fully
reflected on the BSB Financial Statements to the extent required by and in
accordance with GAAP.
(e) There are no Material claims pending (or, to the Knowledge of BSB,
threatened in a writing which is under review, or has been reviewed within
twelve (12) months prior to the date of this Agreement, by counsel to BSB or
BSB's Director of Human Resources) by or on behalf of any BSB Benefit Plan, by
any employee or beneficiary covered under any BSB Benefits Plan or otherwise
concerning the operation or administration of any BSB Benefit Plan (other than
routine claims for benefits).
4.14 Material Contracts. Except as otherwise reflected in the BSB
Financial Statements and as disclosed in Section 4.14 of the BSB Disclosure
Memorandum, none of the BSB Companies, nor any of their respective Assets,
businesses or operations, is a party to or is bound or affected by or receives
benefits under (i) any employment, severance, terminating, consulting or
retirement Contract providing for aggregate payments to any person in any
calendar year in excess of $100,000; (ii) any Contract relating to the borrowing
of money by any BSB Company or the guarantee by any BSB Company of any such
obligation (other than Contracts evidencing deposit liabilities, purchases of
federal funds, fully-secured repurchase agreements and FHLB advances of
depository institution subsidiaries, trade payables and Contracts relating to
borrowings or guarantees made in the ordinary course of business) (together with
all Contracts referred to in Section 4.8 and
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4.13(a) of this Agreement, the "BSB Contracts"). With respect to each BSB
Contract: (i) the Contract is in full force and effect; (ii) no BSB Company is
in default thereunder, other than defaults which are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on BSB; (iii)
no BSB Company has repudiated or waived any Material provision of any such
Contract; and (iv) no other party to any such Contract is, to the knowledge of
BSB, in default in any respect, other than defaults which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
BSB or has repudiated or waived any Material provision thereunder. Except for
FHLB advances, all of the indebtedness of any BSB Company for money borrowed is
prepayable at any time by such BSB Company without penalty or premium.
4.15 Legal Proceedings. (a) Except as disclosed in Section 4.15(a) of the
BSB Disclosure Memorandum, there is no Litigation instituted or pending or, to
the Knowledge of BSB, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against any BSB Company, or against any Asset, Employee
Benefit Plan, interest or right of any of them, that is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on BSB, nor
are there any Orders of any Regulatory Authorities, other governmental
authorities or arbitrators outstanding against any BSB Company, that are
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on BSB.
(b) Section 4.15(b) of the BSB Disclosure Memorandum includes a summary
report of all Litigation as of the date of this Agreement to which any BSB
Company is a party and which names a BSB Company as a defendant or
cross-defendant.
4.16 Reports. Since January 1, 1995, or the date of organization if later,
each BSB Company has timely filed all reports and statements, together with any
amendments required to be made with respect thereto, that it was required to
file with any Regulatory Authorities (except, in the case of state securities
authorities, failures to file which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on BSB). As of their
respective dates, each of such reports and documents, including the financial
statements, exhibits and schedules thereto, complied in all Material respects
with all applicable Laws. As of its respective date, each such report and
document did not, in all Material respects, contain any untrue statement of a
Material fact or omit to state a Material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
4.17 Statements True and Correct. None of the information supplied or to
be supplied by any BSB Company or any Affiliate thereof for inclusion in the
Registration Statement to be filed by Republic with the SEC will, when the
Registration Statement becomes effective, be false or misleading with respect to
any Material fact, or omit to state any Material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any BSB Company or any Affiliate thereof for inclusion in the Proxy
Statement/Prospectus to be mailed to BSB's stockholders in connection with the
Stockholders' Meeting, and any other documents to be filed by an BSB Company or
any Affiliate thereof with the SEC or any other Regulatory Authority in
connection with the transactions contemplated hereby, will, at the respective
time such documents are filed, and with respect to the Proxy
Statements/Prospectus or any amendment thereof or supplement thereto, at the
time of the Stockholders' Meeting, be false or misleading with respect to any
Material fact, or omit to state any Material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Stockholders' Meeting. All documents that any BSB Company or any
Affiliate thereof is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form in
all Material respects with the provisions of applicable Law.
4.18 Tax and Regulatory Matters. Except as specifically contemplated by
this Agreement, no BSB Company or any Affiliate thereof has taken or agreed to
take any action or has any knowledge of any fact or circumstance that is
reasonably likely to (i) prevent the transactions contemplated hereby, including
the Merger, from qualifying as a reorganization within the meaning of Section
368(a) of the Code, or (ii) materially impede or delay receipt of any consents
of Regulatory Authorities referred to in Section 8.1(b) of this Agreement or
result in the imposition of a condition or restriction of the type referred to
in the last sentence of such section.
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4.19 Charter Provisions. Each BSB Company has taken all action so that the
entering into of this Agreement and the consummation of the Merger and the other
transactions contemplated by this Agreement do not and will not result in the
grant of any Rights to any person under the Charter or Articles of
Incorporation, Bylaws or other governing instruments of any BSB Company or
restrict or impair the ability of Republic or any of its Subsidiaries to vote or
otherwise to exercise the Rights of a stockholder with respect to shares of any
BSB Company that may be directly or indirectly acquired or controlled by it.
4.20 Derivatives Contracts. Except as disclosed in Section 4.20 of the BSB
Disclosure Memorandum, neither BSB nor any of its Subsidiaries is a party to or
has agreed to enter into an exchange-traded or over-the-counter swap, forward,
future, option, cap, floor or collar financial Contract, or any other interest
rate or foreign currency protection Contract not included on its balance sheet
that is a financial derivative Contract (including various combinations
thereof).
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF REPUBLIC AND THE BANK
Republic hereby represents and warrants to BSB as follows:
5.1 Organization, Standing and Power. Republic is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Florida and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its Material Assets. The Bank is a
commercial bank duly organized, validly existing and in good standing under the
Laws of the State of Florida and has the corporate power and authority to carry
on its business as now conducted and to own, lease and operate its Material
Assets. Republic and the Bank are each duly qualified or licensed to transact
business as a foreign corporation in good standing in the states and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Republic.
5.2 Authority; No Breach by Agreement. (a) Republic and the Bank have the
corporate power and authority necessary to execute, deliver and perform their
obligations under this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein, including the Merger, have
been duly and validly authorized by all necessary corporate action in respect
thereof on the part of Republic and the Bank. This Agreement represents a legal,
valid and binding obligation of Republic and the Bank, enforceable against
Republic and the Bank in accordance with its terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by Republic or the
Bank, the consummation by Republic or the Bank of the transactions contemplated
hereby nor compliance by Republic or the Bank with any of the provisions hereof
will (i) conflict with or result in a breach of any provision of Republic's or
the Bank's Articles of Incorporation or By-Laws or (ii) constitute or result in
a default under, require any Consent pursuant to or result in the creation of
any Lien on any Asset of any Republic Company under any Contract or Permit of
any Republic Company, where such Default or Lien or any failure to obtain such
Consent is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Republic; or (iii) subject to receipt of the
requisite consents referred to in Section 9.1(b) of this Agreement, violate any
Law or Order applicable to any Republic Company or any of their respective
Material Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws and rules of the
NASD and other than Consents required from Regulatory Authorities, and other
than Consents, filings or notifications, which, if not obtained or made, are not
reasonably likely to have, individually or in the aggregate a Material Adverse
Effect on Republic, no notice to,
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filing with or Consent of any public body or authority is necessary for the
consummation by Republic and the Bank of the Merger and the other transactions
contemplated in this Agreement.
5.3 Capital Stock. The authorized capital stock of Republic consists of
20,000,000 shares of Republic Common Stock, of which 7,035,886 shares were
issued and outstanding as of December 31, 1997, and 100,000 shares of Republic
Preferred Stock, of which 75,000 shares were issued and outstanding as of
December 31, 1997. All of the issued and outstanding shares of Republic Common
Stock and Republic Preferred Stock are, and all of the shares of Republic Common
Stock to be issued in exchange for shares of BSB Common Stock upon consummation
of the Merger, when issued in accordance with the terms of this Agreement, will
be, duly and validly issued and outstanding and fully paid and nonassessable
under the Florida Business Corporation Act. None of the outstanding shares of
Republic Common Stock has been, and none of the shares of Republic Common Stock
to be issued in exchange for shares of BSB Common Stock upon consummation of the
Merger will be, issued in violation of any preemptive Rights of the current or
past stockholders of Republic.
5.4 Republic Subsidiaries. Republic or one of its Subsidiaries owns all of
the issued and outstanding shares of capital stock of the Bank and each other
Republic Subsidiary. No equity securities of any Republic Subsidiary are or may
become required to be issued (other than to another Republic Company) by reason
of any Rights, and there are no Contracts by which any Republic Subsidiary is
bound to issue (other than to another Republic Company) additional shares of its
capital stock or Rights or by which any Republic Company is or may be bound to
transfer any shares of the capital stock of any Republic Subsidiary (other than
to another Republic Company). There are no Contracts relating to the Rights of
any Republic Company to vote or to dispose of any shares of the capital stock of
any Republic Subsidiary. All of the shares of capital stock of each Republic
Subsidiary held by a Republic Company are fully paid and nonassessable under the
applicable corporation Law of the jurisdiction in which such Subsidiary is
incorporated or organized and are owned by the Republic Company, free and clear
of any Lien. Each Republic Subsidiary is either a bank or a corporation, and is
duly organized, validly existing and (as to corporations) in good standing under
the Laws of the jurisdiction in which it is incorporated or organized, and has
the corporate power and authority necessary for it to own, lease and operate its
Assets and to carry on its business as now conducted. Each Republic Subsidiary
is duly qualified or licensed to transact business as a foreign corporation in
good standing in the States of the United States and foreign jurisdictions where
the character of its Assets or the nature or conduct of its business requires it
to be so qualified or licensed, except for such jurisdictions in which the
failure to be so qualified or licensed is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Republic. Each
Republic Subsidiary that is a depository institution is an "insured institution"
as defined in the Federal Deposit Insurance Act and applicable regulations
thereunder, and the deposits in which are insured by the Bank Insurance Fund or
Savings Association Insurance Fund.
5.5 SEC Filings; Financial Statements. (a) Republic has filed and made
available to BSB all forms, reports and documents required to be filed by
Republic and the Bank with the FDIC and the SEC since December 31, 1993, other
than registration statements on Forms S-4 and S-8 (collectively, the "Republic
SEC Reports"). The Republic SEC Reports (i) at the time filed, complied in all
Material respects with the applicable requirements of the Securities Laws and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a Material fact or omit to state a Material fact
required to be stated in such Republic SEC Reports or necessary in order to make
the statements in such Republic SEC Reports, in light of the circumstances under
which they were made, not misleading.
(b) Each of the Republic Financial Statements (including, in each case, any
related notes) contained in the Republic SEC Reports, including any Republic SEC
Reports filed after the date of this Agreement until the Effective Time,
complied as to form in all Material respects with the applicable published rules
and regulations of the SEC with respect thereto, was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements or, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC), and fairly
presented the consolidated financial position of Republic and its subsidiaries
as of the respective dates and the consolidated results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial
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statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be Material in amount.
5.6 Absence of Undisclosed Liabilities. To the Knowledge of Republic, no
Republic Company has any Liabilities that are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Republic, except
Liabilities which are accrued or reserved against in the consolidated balance
sheets of Republic as of December 31, 1997 included in the Republic Financial
Statements or reflected in the notes thereto. Except as disclosed in Section 5.6
of the Republic Disclosure Memorandum, no Republic Company has incurred or paid
any Liability since December 31, 1997, except for such Liabilities incurred or
paid in the ordinary course of business consistent with past business practice
and which are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Republic.
5.7 Absence of Certain Changes or Events. Since December 31, 1997, except
as disclosed in the Republic Financial Statements delivered prior to the date of
this Agreement or in Section 5.7 of the Republic Disclosure Memorandum, (i)
there have been no events, changes or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Republic, and (ii) the Republic Companies have not taken any action,
or failed to take any action, prior to the date of this Agreement, which action
or failure, if taken after the date of this Agreement, would represent or result
in a Material breach or violation of any of the covenants and agreements of
Republic provided in Article 7 of this Agreement.
5.8 Tax Matters. (a) All Tax Returns required to be filed by or on behalf
of any of the Republic Companies have been timely filed or requests for
extensions have been timely filed, granted and have not expired for periods
ended on or before December 31, 1996, and on or before the date of the most
recent fiscal year end immediately preceding the Effective Time, except to the
extent that all such failures to file, taken together, are not reasonably likely
to have a Material Adverse Effect on Republic, and all Tax Returns filed are
complete and accurate in all Material respects. All Taxes shown on filed Tax
Returns have been paid. There is no audit examination, deficiency or refund
Litigation with respect to any Taxes that is reasonably likely to result in a
determination that would have, individually or in the aggregate, a Material
Adverse Effect on Republic, except as reserved against in the Republic Financial
Statements delivered prior to the date of this Agreement. All Taxes and other
Liabilities due with respect to completed and settled examinations or concluded
Litigation have been paid.
(b) Adequate provision for any Taxes due or to become due for any of the
Republic Companies for the period or periods through and including the date of
the respective Republic Financial Statements has been made and is reflected on
such Republic Financial Statements.
(c) Deferred Taxes of the Republic Companies have been adequately provided
for in the Republic Financial Statements.
5.9 Environmental Matters. (a) To the Knowledge of Republic, each Republic
Company, its Participation Facilities and its Loan Properties are and have been
in compliance with all Environmental Laws, except for violations which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Republic.
(b) There is no Litigation pending or, to the Knowledge of Republic,
threatened before any court, governmental agency or authority or other forum in
which any Republic Company or any of its Loan Properties or Participation
Facilities has been or, with respect to threatened Litigation, may be named as a
defendant or potentially responsible party (i) for alleged noncompliance
(including by any predecessor) with any Environmental Law, or (ii) relating to
the release into the environment of any Hazardous Material, whether or not
occurring at, on, under or involving any of its Loan Properties or Participation
Facilities, except for such Litigation pending or threatened that is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Republic.
(c) To the Knowledge of Republic, there have been no releases of Hazardous
Material in, on, under or affecting any Participation Facility or Loan Property
of a Republic Company, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Republic.
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5.10 Compliance with Laws. Republic is duly registered as a bank holding
company under the BHC Act. Each Republic Company has in effect all Permits
necessary for it to own, lease or operate its Material Assets and to carry on
its business as now conducted, except for those Permits the absence of which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Republic, and there has occurred no Default under any such
Permit, other than Defaults that are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on Republic. No Republic Company:
(a) is in violation of any Laws, Orders or Permits applicable to its
business or employees conducting its business, except for violations that
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Republic; and
(b) has received any notification or communication from any agency or
department of federal, state or local government or any Regulatory
Authority or the staff thereof (i) asserting that any Republic Company is
not in compliance with any of the Laws or Orders which such governmental
authority or Regulatory Authority enforces, where such noncompliance is
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Republic, (ii) threatening to revoke any Permits, the
revocation of which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Republic, or (iii) requiring any
Republic Company to enter into or consent to the issuance of a cease and
desist Order, formal agreement, directive, commitment or memorandum of
understanding, or to adopt any Board resolution or similar undertaking,
that restricts materially the conduct of its business, or in any manner
relates to its capital adequacy, its credit or reserve policies, its
management or the payment of dividends.
5.11 Legal Proceedings. Except as set forth in Section 5.11 of the
Republic Disclosure Memorandum, there is no Litigation instituted or pending or,
to the Knowledge of Republic, threatened (or unasserted but considered probable
of assertion and which if asserted would have at least a reasonable probability
of an unfavorable outcome) against any Republic Company, or against any Asset,
interest or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Republic, nor are
there any Orders of any Regulatory Authorities, other governmental authorities
or arbitrators outstanding against any Republic Company that are reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Republic.
5.12 Reports. Since January 1, 1995, or the date of organization if later,
each Republic Company has filed all reports and statements, together with any
amendments required to be made with respect thereto, that it was required to
file with Regulatory Authorities (except, in the case of state securities
authorities, failures to file that are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Republic). As of
their respective dates, each of such reports and documents, including the
financial statements, exhibits and schedules thereto, complied in all Material
respects with all applicable Laws. As of its respective date, each such report
and document did not, in all Material respects, contain any untrue statement of
a Material fact or omit to state a Material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
5.13 Statements True and Correct. None of the information supplied or to
be supplied by any Republic Company or any Affiliate thereof for inclusion in
the Registration Statement to be filed by Republic with the SEC will, when the
Registration Statement becomes effective, be false or misleading with respect to
any Material fact or omit to state any Material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any Republic Company or any Affiliate thereof for inclusion in the
Proxy Statement/Prospectus to be mailed to BSB's stockholders in connection with
its Stockholders' Meeting, and any other documents to be filed by any Republic
Company or any Affiliate thereof with the SEC or any other Regulatory Authority
in connection with the transactions contemplated hereby will, at the respective
time such documents are filed, and with respect to the Proxy
Statement/Prospectus, when first mailed to the stockholders of BSB, be false or
misleading with respect to any Material fact or omit to state any Material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading or, in the case of the Proxy
Statement/Prospectus or any amendment thereof or supplement thereto, at the time
of the Stockholders' Meeting, be false or misleading with respect to any
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Material fact, or omit to state any Material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Stockholders' Meeting. All documents that any Republic Company or
any Affiliate thereof is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form in
all Material respects with the provisions of applicable Law.
5.14 Tax and Regulatory Matters. Except as specifically contemplated by
this Agreement, no Republic Company or any Affiliate thereof has taken or agreed
to take any action or has any Knowledge of any fact or circumstance that is
reasonably likely to (i) prevent the transactions contemplated hereby, including
the Merger, from qualifying for treatment as a reorganization within the meaning
of Section 368(a) of the Code or (ii) materially impede or delay receipt of any
Consents of Regulatory Authorities referred to in Section 9.1(b) of this
Agreement or result in the imposition of a condition or restriction of the type
referred to in the last sentence of such Section.
ARTICLE 6
CONDUCT OF BUSINESS PENDING CONSUMMATION
6.1 Affirmative Covenants of BSB. Unless the prior written consent of
Republic shall have been obtained and, except as otherwise expressly
contemplated herein, BSB shall and shall cause each of its Subsidiaries to: (i)
operate its business only in the usual, regular and ordinary course; (ii)
preserve intact its business organization and Assets and maintain its rights and
franchises; (iii) use its reasonable efforts to maintain its current employee
relationships; and (iv) take no action that would (a) adversely affect the
ability of any party to obtain any Consents required for the transactions
contemplated hereby without imposition of a condition or restriction of the type
referred to in the last sentence of Section 8.1(b) of this Agreement or (b)
adversely affect the ability of any party to perform its covenants and
agreements under this Agreement.
6.2 Negative Covenants of BSB. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, BSB
covenants and agrees that it will not do or agree or commit to do, or permit any
of its Subsidiaries to do or agree or commit to do, any of the following without
the prior written consent of an authorized officer of Republic:
(a) except as required by applicable Law, amend the Charter or
Articles of Incorporation, By-Laws or other governing instruments of any
BSB Company; or
(b) incur any additional debt obligation or other obligation for
borrowed money (other than indebtedness of an BSB Company to another BSB
Company) in excess of an aggregate of $50,000 (for the BSB Companies on a
consolidated basis) except in the ordinary course of the business of BSB or
the BSB Subsidiaries consistent with past practices (which shall include,
for BSB and for BSB Subsidiaries that are depository institutions, creation
of deposit liabilities, purchases of federal funds, advances from the
Federal Reserve Bank of Atlanta or the FHFB, and entry into repurchase
agreements fully secured by U.S. government or agency securities), or
impose or suffer the imposition on any Asset of any BSB Company of any Lien
or permit any such Lien to exist (other than in connection with deposits,
repurchase agreements, bankers acceptances, "treasury tax and loan"
accounts established in the ordinary course of business, the satisfaction
of legal requirements in the exercise of trust powers and Liens in effect
as of the date hereof that are disclosed in the BSB Disclosure Memorandum);
or
(c) repurchase, redeem or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of
the capital stock of any BSB Company, or declare or pay any dividend or
make any other distribution in respect of BSB's capital stock;
(d) except for this Agreement and except with respect to options
outstanding on the date hereof, issue, sell, pledge, encumber, authorize
the issuance of, enter into any Contract to issue, sell, pledge, encumber
or authorize the issuance of, or otherwise permit to become outstanding,
any additional shares of BSB Common Stock or any other capital stock of any
BSB Company, or any stock appreciation rights,
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or any option, warrant, conversion or other Right to acquire any such stock
or any security convertible into any such stock; or
(e) adjust, split, combine or reclassify any capital stock of any BSB
Company or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of BSB Common Stock, or sell,
lease, mortgage or otherwise dispose of or otherwise encumber (x) any
shares of capital stock of any BSB Subsidiary (unless any such shares of
stock are sold or otherwise transferred to another BSB Company) or (y) any
Asset other than in the ordinary course of business for reasonable and
adequate consideration; or
(f) except for purchases of U.S. Treasury securities, U.S. Government
agency securities or Freddie Mac, Fannie Mae, Ginnie Mae or other
investment grade securities, purchase any securities or make any Material
investment, either by purchase of stock or securities, contributions to
capital, Asset transfers or purchase of any Assets, in any Person other
than a wholly-owned BSB Subsidiary, or otherwise acquire direct or indirect
control over any Person, other than in connection with (i) foreclosures in
the ordinary course of business, (ii) acquisitions of control by a
depository institution Subsidiary in its fiduciary capacity or (iii) the
creation of new wholly-owned Subsidiaries organized to conduct or continue
activities otherwise permitted by this Agreement; or
(g) grant any increase in compensation or benefits to the employees or
officers of any BSB Company, except in accordance with past practice
disclosed in Section 6.2(g) of the BSB Disclosure Memorandum or as required
by Law; pay any severance or termination pay or any bonus other than
pursuant to written policies or written Contracts in effect on the date of
this Agreement; except as authorized by Section 7.13 of this Agreement,
enter into or amend any severance agreements with officers of any BSB
Company; grant any Material increase in fees or other increases in
compensation or other benefits to directors of any BSB Company, except in
accordance with past practice disclosed in Section 6.2(g) of the BSB
Disclosure Memorandum; or voluntarily accelerate the vesting of any stock
options or other stock-based compensation or employee benefits; or
(h) except as authorized by Section 7.13 of this Agreement, enter into
or amend any employment Contract between any BSB Company and any Person
(unless such amendment is required by Law) that the BSB Company does not
have the unconditional right to terminate without Liability (other than
Liability for services already rendered), at any time on or after the
Effective Time; or
(i) adopt any new employee benefit plan as such term is defined in
Section 3.2 of ERISA or make any Material change in or to any other
employee benefit plans of any BSB Company other than any such change that
is required by Law or that, in the opinion of counsel, is necessary or
advisable to maintain the tax-qualified status of any such plan; or
(j) make any significant change in any Tax or accounting methods or
systems of internal accounting controls, except as may be appropriate to
conform to changes in Tax Laws or regulatory accounting requirements or
GAAP; or
(k) commence any Litigation other than in accordance with past
practice or settle any Litigation involving any Liability of any BSB
Company for Material money damages or restrictions upon the operations of
any BSB Company; or
(l) except in the ordinary course of business, modify, amend or
terminate any Material Contract or waive, release, compromise or assign any
Material Contract or waive, release, compromise or assign any Material
rights or claims.
6.3 Covenants of Republic. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, Republic
covenants and agrees that it shall (i) continue to conduct its business and the
business of its Subsidiaries in a manner designed, in its reasonable judgment,
to enhance the long-term value of the Republic Common Stock and the business
prospects of the Republic Companies and (ii) take no action that would (a)
materially adversely affect the ability of any party to obtain any Consents
required for the transactions contemplated hereby without imposition of a
condition or restriction of the type
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referred to in the last sentence of Section 8.1(b) of this Agreement, or (b)
materially adversely affect the ability of any party to perform its covenants
and agreements under this Agreement; provided, that the foregoing shall not
prevent any Republic Company from discontinuing or disposing of any of its
Assets or business if such action is, in the judgment of Republic, desirable in
the conduct of the business of Republic and its Subsidiaries.
6.4 Adverse Changes in Condition. Each party agrees to give written notice
promptly to the other party upon becoming aware of the occurrence or impending
occurrence of any event or circumstance relating to it or any of its
Subsidiaries that (i) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it, or (ii) would cause or constitute a
Material breach of any of its representations, warranties or covenants contained
herein, and to use its reasonable effects to prevent or promptly to remedy the
same.
6.5 Reports. Each party and its Subsidiaries shall file all reports
required to be filed by it with the Regulatory Authorities between the date of
this Agreement and the Effective Time and shall deliver to the other party
copies of all such reports promptly after the same are filed. If financial
statements are contained in any such reports filed with the SEC or OTS, such
financial statements will fairly present the consolidated financial position of
the entity filing such statements as of the dates indicated and the consolidated
results of operations, changes in stockholders' equity and cash flows for the
periods then ended in accordance with GAAP (subject in the case of interim
financial statements to normal recurring year-end adjustments that are not
material). As of their respective dates, such reports filed with the SEC or the
OTS will comply in all Material respects with the Securities Laws and will not
contain any untrue statement of a Material fact or omit to state a Material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any financial statements contained in any other reports to another
Regulatory Authority shall be prepared in accordance with Laws applicable to
such reports.
ARTICLE 7
ADDITIONAL AGREEMENTS
7.1 Registration Statement; Proxy Statement; Stockholder Approval. As soon
as reasonably practicable after execution of this Agreement, Republic (i) as
sole stockholder of the Bank, shall approve this Agreement and (ii) shall file
the Registration Statement with the SEC and shall use its reasonable efforts to
cause the Registration Statement to become effective under the Securities Act
and take any action required to be taken under the applicable state blue sky or
other Securities Laws in connection with the issuance of the shares of Republic
Common Stock upon consummation of the Merger. BSB shall furnish all information
concerning it and the holders of the BSB Common Stock as Republic may reasonably
request in connection with such action. BSB shall call a Stockholders' Meeting,
to be held as soon as reasonably practicable after the Registration Statement is
declared effective by the SEC, for the purpose of voting upon approval of this
Agreement and such other related matters as they deem appropriate. In connection
with the Stockholders' Meeting, (i) BSB shall mail the Proxy
Statement/Prospectus to its stockholders, (ii) the parties shall furnish to each
other all information concerning them that they may reasonably request in
connection with such Proxy Statement/Prospectus, (iii) the Board of Directors of
BSB shall recommend (subject to compliance with their fiduciary duties as
advised by counsel) to their stockholders the approval of the matters submitted
for approval, and (iv) the Board of Directors and officers of BSB shall (subject
to compliance with their fiduciary duties as advised by counsel) use their
reasonable efforts to obtain such stockholders' approval.
7.2 Exchange Listing. Republic shall use its reasonable efforts to list,
prior to the Effective Time, on the National Market, subject to official notice
of issuance, the shares of Republic Common Stock to be issued to the holders of
BSB Common Stock pursuant to the Merger.
7.3 Applications. Republic shall promptly prepare and file, and BSB shall
cooperate in the preparation and, where appropriate, filing of, applications
with all Regulatory Authorities having jurisdiction over the transactions
contemplated by this Agreement seeking the requisite Consents necessary to
consummate the transactions contemplated by this Agreement.
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7.4 Filings with State Offices. Upon the terms and subject to the
conditions of this Agreement, the Bank and BSB shall execute and file a
Certificate of Merger with the Department.
7.5 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, each party agrees to use, and to cause its
Subsidiaries to use, its reasonable best efforts to take, or cause to be taken,
all actions and to do or cause to be done all things necessary, proper or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement, including using its reasonable best efforts to
lift or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article 8 of this Agreement; provided that nothing herein shall
preclude either party from exercising its rights under this Agreement. Each
party shall use, and shall cause each of its Subsidiaries to use, its reasonable
best efforts to obtain all Consents necessary or desirable for the consummation
of the transactions contemplated by this Agreement.
7.6 Investigation and Confidentiality. (a) Prior to the Effective Time,
each party shall keep the other party advised of all Material developments
relevant to its business and to consummation of the Merger and shall permit the
other party to make or cause to be made such investigation of its business and
properties and those of its Subsidiaries and of their respective financial and
legal conditions as the other party reasonably requests; provided, that such
investigation shall be reasonably related to the transactions contemplated
hereby and shall not interfere unnecessarily with normal operation. No
investigation by a party shall affect the representations and warranties of the
other party.
(b) Each party shall, and shall cause its advisers and agents to, maintain
the confidentiality of all confidential information furnished to it by the other
party concerning its and its Subsidiaries' businesses, operations and financial
positions ("Confidential Information") and shall not use such information for
any purpose except in furtherance of the transactions contemplated by this
Agreement. Each party shall maintain the confidentiality of all Confidential
Information obtained in connection with this Agreement or the transactions
contemplated hereby unless: (i) such information becomes publicly available
through no fault of such party, or was, is or becomes available to that party
from a source other than the other party or its Representatives, which source
was itself not bound by a confidentiality agreement with, or other contractual,
legal or fiduciary obligation of confidentiality with respect to that
information; or (ii) the furnishing or use of such information is required by
proper judicial, administrative or other legal proceeding; provided, that the
other party is promptly notified in writing of such request, unless such
notification is not, in the opinion of counsel, permitted by Law. Each party and
its Representatives will hold and maintain all Confidential Information in
confidence and will not disclose to any third party or permit any third party
access to any Confidential Information or the substance thereof; provided, that
a party may disclose Confidential Information to such of its Representatives who
need to know such information in connection with the transactions contemplated
hereby. If this Agreement is terminated prior to the Effective Time, each party
shall promptly return or certify the destruction of all documents and copies
thereof and all work papers containing Confidential Information received from
the other party.
(c) Each party agrees to give the other party notice as soon as practicable
after any determination by it of any fact or occurrence relating to the other
party, which it has discovered through the course of its investigation, that
represents, or is reasonably likely to represent, either a Material breach of
any representation, warranty, covenant or agreement of the other party or that
has had or is reasonably likely to have a Material Adverse Effect on the other
party.
7.7 Press Releases. Prior to the Effective Time, Republic and BSB shall
mutually agree upon and jointly issue any press release or other public
disclosure materially related to this Agreement or any other transaction
contemplated hereby; provided, that nothing in this Section 7.7 shall be deemed
to prohibit any party from making any disclosure that its counsel deems
necessary or advisable in order to satisfy such party's disclosure obligations
imposed by Law.
7.8 Certain Actions. Except with respect to this Agreement and the
transactions contemplated hereby, no BSB Company nor any Affiliate thereof nor
any Representatives thereof retained by any BSB Company shall directly or
indirectly solicit any Acquisition Proposal by any Person. Except to the extent
necessary to
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comply with the fiduciary duties of BSB's Board of Directors as advised by
counsel, no BSB Company or any Affiliate or Representative thereof shall furnish
any non-public information that it is not legally obligated to furnish,
negotiate with respect to or enter into any Contract with respect to, any
Acquisition Proposal, but BSB may communicate information about such an
Acquisition Proposal to its stockholders if and to the extent that it is
required to do so in order to comply with its legal obligations as advised by
counsel. BSB shall promptly notify Republic orally and in writing in the event
that it receives any inquiry or proposal relating to any such transaction. BSB
shall (i) immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any Persons conducted heretofore with respect
to any of the foregoing and (ii) direct and use its reasonable efforts to cause
all of its Representatives not to engage in any of the foregoing.
7.9 Tax Treatment. Each of the parties undertakes and agrees to use its
reasonable efforts to cause the Merger and to take no action which would cause
the Merger not to qualify for treatment as a "reorganization" within the meaning
of Section 368(a) of the Code for federal income tax purposes.
7.10 State Takeover Laws. Each BSB Company shall take all necessary steps
to exempt the transactions contemplated by this Agreement from, or if necessary
challenge the validity or applicability of, any applicable state or federal
"moratorium", "control share", "fair price", "business combination" or other
anti-takeover statute or regulation ("Takeover Laws").
7.11 Charter Provisions. Each BSB Company shall take all necessary action
to ensure that the entering into of this Agreement and the consummation of the
Merger and the other transactions contemplated hereby do not and will not result
in the grant of any Rights to any Person under the Charter or Articles of
Incorporation, By-Laws or other governing instruments of any BSB Company or
restrict or impair the ability of Republic or any of its Subsidiaries to vote,
or otherwise to exercise the Rights of a stockholder with respect to, shares of
any BSB Company that may be directly or indirectly acquired or controlled by it.
7.12 Agreement of Affiliates. BSB has disclosed in Section 7.12 of the BSB
Disclosure Memorandum each Person whom it reasonably believes is an "affiliate"
of BSB for purposes of Rule 145 under the Securities Act. BSB shall use its
reasonable efforts to cause each such Person to deliver to Republic not later
than 30 days prior to the Effective Time, a written agreement, in substantially
the form of Exhibit 1, providing that such Person will not sell, pledge,
transfer or otherwise dispose of the shares of BSB Common Stock held by such
Person except as contemplated by such agreement or by this Agreement and will
not sell, pledge, transfer or otherwise dispose of the shares of Republic Common
Stock to be received by such Person upon consummation of the Merger except in
compliance with applicable provisions of the Securities Act and the rules and
regulations thereunder, and Republic shall be entitled to place restrictive
legends upon certificates for shares of Republic Common Stock issued to
affiliates of BSB pursuant to this Agreement to enforce the provisions of this
Section 7.12. Republic shall not be required to maintain the effectiveness of
the Registration Statement under the Securities Act for the purposes of resale
of Republic Common Stock by such affiliates.
7.13 Employee Benefits and Contracts. (a) Following the Effective Time,
Republic shall provide generally to officers and employees of the BSB Companies,
who at or after the Effective Time become employees of a Republic Company,
employee benefits under employee benefit plans (other than stock option or other
plans involving the potential issuance of Republic Common Stock except as set
forth in this Section 7.13), on terms and conditions that when taken as a whole
are substantially similar to those currently provided by the Republic Companies
to their similarly situated officers and employees. For purposes of
participation and vesting (but not accrual of benefits) under such employee
benefit plans, (i) service as an employee of BSB shall be treated as service
under Republic's qualified defined benefit plans, (ii) service as an employee of
BSB shall be treated as service under Republic's qualified defined contribution
plans, and (iii) service as an employee of BSB shall be treated as service under
Republic's various benefit plans offered to its employees.
(b) Republic shall honor on terms reasonably agreed upon by the parties
thereto all employment, severance, consulting and other compensation Contracts
either authorized by Section 7.13(b) of this Agreement or disclosed in Section
7.13 of the BSB Disclosure Memorandum to Republic between any BSB Company and
any current or former director, officer or employee thereof, and all provisions
for vested benefits or other vested amounts earned or accrued through the
Effective Time under the BSB Benefit Plans.
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7.14 Indemnification. (a) Until such times as the applicable statute of
limitations shall have expired with respect to any such Liabilities, Republic
shall indemnify, defend and hold harmless the present and former directors,
officers, employees and agents of the BSB Companies (each, an "Indemnified
Party") against all Liabilities arising out of actions or omissions occurring at
or prior to the Effective Time (including the transactions contemplated by this
Agreement) to the full extent permitted under Florida Law and the OTS
Regulations, and by BSB's Charter and Bylaws as in effect on the date hereof,
including provisions relating to advances of expenses incurred in the defense of
any Litigation. Without limiting the foregoing, in any case in which approval by
Republic is required to effectuate any indemnification, Republic shall direct,
at the election of the Indemnified Party, that the determination of any such
approval shall be made by independent counsel mutually agreed upon between
Republic and the Indemnified Party.
(b) If Republic or any of its successors or assigns shall consolidate with
or merge into any other Person and shall not be the continuing or surviving
Person of such consolidation or merger or shall transfer all or substantially
all of its Assets to any Person, then and in each case, proper provision shall
be made so that the successors and assigns of Republic shall assume the
obligations set forth in this Section 7.14.
(c) The provisions of this Section 7.14 are intended to be for the benefit
of and shall be enforceable by, each Indemnified Party, his or her heirs and
representatives.
7.15 Certain Modifications. Republic and BSB shall consult with respect to
their loan, litigation and real estate valuation policies and practices
(including loan classifications and levels of reserves) and BSB shall make such
modifications or changes to its policies and practices, if any, prior to the
Effective Time, as may be mutually agreed upon. Republic and BSB also shall
consult with respect to the character, amount and timing of restructuring and
Merger-related expense charges to be taken by each of the parties in connection
with the transactions contemplated by this Agreement and shall take such charges
in accordance with GAAP, prior to the Effective Time, as may be mutually agreed
upon by the parties. Neither parties' representations, warranties and covenants
contained in this Agreement shall be deemed to be inaccurate or breached in any
respect as a consequence of any modifications or charges undertaken solely on
account of this Section 7.15.
7.16 Conversion of Data Processing System. BSB hereby certifies that it
has notified its outside data processing service provider of its intent to
terminate its data processing Contract effective October 6, 1998. BSB shall take
such steps as may reasonably requested by Republic to convert to the Bank's
outside data processing service provider, commencing upon termination of BSB's
existing contract, and to coordinate the transition of the data processing
systems of BSB to those of the Bank upon consummation of the Merger. In
connection therewith, the parties agree as follows:
(a) Termination by BSB of its data processing contract as provided
herein shall not constitute a breach of any warranty, representation or
covenant contained in this Agreement.
(b) In the event the transition to the data processing service of the
Bank results in increased costs over that provided in BSB's existing
contract (including, without limitations, start up fees, item processing
costs, conversion fees and expenses), Republic shall reimburse BSB for such
costs upon request. Such increased costs, to the extent they are incurred
during a month prior to the month in which regulatory approvals are
received to consummate the Merger, shall be treated as income of BSB for
the purposes of Section 2.1(b) of this Agreement.
(c) In the event the Agreement is terminated for any reason, Republic
and the Bank shall indemnify and hold BSB harmless from all costs,
liabilities and expenses (including costs resulting from customer claims)
incurred by BSB in (i) terminating such agreement or Contract it may have
entered into with the Bank's data processing service provider, and (ii) the
resumption of data processing services from its current processing service
provider or such other provider as it may reasonably select. In connection
therewith, Republic and the Bank shall take all reasonable steps to assure
that BSB continues to receive data processing services from the Bank's data
processing service provider, and time as may be required to effect an
orderly transition to a new provider.
(d) Notwithstanding any other provision of this Agreement, the
provisions of this Section 7.16 shall survive the termination of this
Agreement.
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7.17 Pooling Treatment of the Merger. Republic and the Bank acknowledge
that in the event an agreement by BSB to sell or the sale by BSB of the real
estate and building owned by BSB at 2222 Ponce de Leon Boulevard, Coral Gables,
Florida results in a different accounting treatment other than a "pooling of
interests", Republic and the Bank may not assert such event as a cause or
condition that might permit them to refuse to consummate the transactions
contemplated by this Agreement.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
8.1 Conditions to Obligations of Each Party. The respective obligations of
each party to perform this Agreement and to consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both parties pursuant to Section 10.6 of
this Agreement:
(a) Stockholder Approval. The stockholders of BSB, and Republic, as
sole stockholder of the Bank, shall have approved this Agreement, and the
consummation of the transactions contemplated hereby, including the Merger,
as and to the extent required by Law, by the provisions of any governing
instrument, or by the rules of the NASD.
(b) Regulatory Approvals. All Consents of, filings and registration
with and notifications to all Regulatory Authorities required for
consummation of the Merger shall have been obtained or made and shall be in
full force and effect and all waiting periods required by Law shall have
expired. No Consent obtained from any Regulatory Authority that is
necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner (including requirements relating to
the raising of additional capital or the disposition of Assets) that in the
reasonable judgment of the Board of Directors of Republic would so
materially adversely impact the economic or business benefits of the
transactions contemplated by this Agreement that, had such condition or
requirement been known, Republic would not, in its reasonable judgement,
have entered into this Agreement.
(c) Consents and Approvals. Each party shall have obtained any and
all Consents required for consummation of the Merger (other than those
referred to in Section 8.1(b) of this Agreement) or for the preventing of
any Default under any Contract or Permit of such party that, if not
obtained or made, is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on such party. No Consent so obtained
that is necessary to consummate the transactions contemplated hereby shall
be conditioned or restricted in a manner which in the reasonable judgment
of the Board of Directors of Republic or BSB would so materially adversely
impact the economic or business benefits of the transactions contemplated
by this Agreement so as to render inadvisable the consummation of the
Merger.
(d) Legal Proceedings. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any Law or Order (whether temporary,
preliminary or permanent) or taken any other action that prohibits,
restricts or makes illegal consummation of the transactions contemplated by
this Agreement.
(e) Registration Statement. The Registration Statement shall have
become effective under the Securities Act, no stop Orders suspending the
effectiveness of the Registration Statement shall have been issued, no
action, suit, proceeding or investigation by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing, and all
necessary approvals under state securities Laws or the Securities Act
relating to the issuance or trading of the shares of Republic Common Stock
issuable pursuant to the Merger shall have been received.
(f) Tax Matters. Each party shall have received a written opinion or
opinions from its respective counsel in a form reasonably satisfactory to
such parties (the "Tax Opinions"), to the effect that (i) the Merger will
constitute a reorganization within the meaning of Section 368(a) of the
Code and (ii) the exchange in the Merger of BSB Common Stock for Republic
Common Stock will not give rise to gain or
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loss to the stockholders of BSB with respect to such exchange (except to
the extent of any cash received). In rendering such Tax Opinions, such
counsel shall be entitled to rely upon representations of officers of BSB
and Republic reasonably satisfactory in form and substance to such counsel.
8.2 Conditions to Obligations of Republic. The obligations of Republic to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by Republic pursuant to Section 10.6(a) of this Agreement:
(a) Representations and Warranties. Each of the representations and
warranties of BSB set forth in this Agreement shall be true and correct as
of the date of this Agreement and as of the Effective Time with the same
effect as though all such representations and warranties had been made on
and as of the Effective Time (provided that representations and warranties
that are confined to a specified date shall speak only as of such date).
The representations and warranties of BSB set forth in Section 4.3 of this
Agreement shall be true and correct (except for inaccuracies which are de
minimis in amount). The representations and warranties set forth in
Sections 4.18 and 4.19 shall be true and correct in all material respects.
There shall not exist inaccuracies in the representations and warranties of
BSB set forth in this Agreement (including the representations and
warranties set forth in Sections 4.3, 4.18 and 4.19) such that the
aggregate effect of such inaccuracies has, or is reasonably likely to have,
a Material Adverse Effect on BSB; provided that, for purposes of this
sentence only, those representations and warranties which are qualified by
reference to "Material" or "Material Adverse Effect" or to the "Knowledge"
of BSB or to a matter being "known" by BSB shall be deemed not to include
such qualifications.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of BSB to be performed and complied with pursuant
to this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all
Material respects.
(c) Certificates. BSB shall have delivered to Republic (i) a
certificate, dated as of the Closing Date and signed on its behalf by its
duly authorized officers, to the effect that the conditions of its
obligations set forth in Sections 8.2(a) and 8.2(b) of this Agreement have
been satisfied, and (ii) certified copies of resolutions duly adopted by
BSB's Board of Directors and stockholders evidencing the taking of all
corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as Republic and its
counsel shall request.
(d) Legal Opinion. Republic shall have received the opinions of
Alston & Bird LLP, counsel to BSB, or other counsel reasonably acceptable
to Republic, dated as of the Closing Date or such earlier date as may be
agreed to by the parties, with respect to such matters related to BSB and
the Merger as Republic may reasonably request. As to certain matters of
fact, such counsel may rely on certificates of public officials and senior
officers of BSB knowledgeable and having responsibility with respect to the
matters covered by such certificate.
8.3 Conditions to Obligations of BSB. The obligations of BSB to perform
this Agreement and consummate the Merger and the other transactions contemplated
hereby are subject to the satisfaction of the following conditions, unless
waived by BSB pursuant to Section 10.6(b) of this Agreement.
(a) Representations and Warranties. For purposes of this Section 8.3(a),
the accuracy of the representations and warranties of Republic and the Bank set
forth in this Agreement shall be assessed as of the date of this Agreement and
as of the Effective Time with the same effect as though all such representations
and warranties had been made on and as of the Effective Time (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). The representations and warranties of Republic and
the Bank set forth in Section 5.3 of this Agreement shall be true and correct
(except for inaccuracies which are de minimis in amount). The representations
and warranties of Republic and the Bank set forth in Section 5.14 of this
Agreement shall be true and correct in all Material respects. There shall not
exist inaccuracies in the representations and warranties of Republic and the
Bank set forth in this Agreement (including the representations and warranties
set forth in Sections 5.3 and 5.14) such that the aggregate effect
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of such inaccuracies has, or is reasonably likely to have, a Material Adverse
Effect on Republic; provided that, for purposes of this sentence only, those
representations and warranties which are qualified by references to "Material"
or "Material Adverse Effect" or to the "Knowledge" of Republic or to a matter
being "known" by Republic shall be deemed not to include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of Republic to be performed and complied with pursuant
to this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all Material
respects.
(c) Certificates. Republic shall have delivered to BSB (i) a certificate,
dated as of the Closing Date and signed on its behalf by its duly authorized
officers, to the effect that the conditions of its obligations set forth in
Sections 8.3(a) and 8.3(b) of this Agreement have been satisfied, and (ii)
certified copies of resolutions duly adopted by Republic's Board of Directors
and Republic's approval, as sole stockholder to the Bank, evidencing the taking
of all corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as BSB and its counsel shall
request.
(d) Legal Opinion. BSB shall have received the opinions of Holland &
Knight LLP, special counsel to Republic, dated as of the Closing Date or such
earlier date as may be agreed to by the parties, with respect to such matters
related to Republic and the Merger as BSB may reasonably request. As to certain
matters of fact, such counsel may rely on certificates of public officials and
senior officers of BSB knowledgeable and having responsibility with respect to
the matters covered by such certificate.
ARTICLE 9
TERMINATION
9.1 Termination. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement by the stockholders of BSB,
this Agreement may be terminated and the Merger abandoned at any time prior to
the Effective Time:
(a) By mutual consent of the Board of Directors of Republic and the
Board of Directors of BSB; or
(b) By the Board of Directors of either party (provided that the
terminating party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in
Section 8.2(a) of this Agreement in the case of BSB and Section 8.3(a) of
this Agreement in the case of Republic or in Material breach of any
covenant or other agreement contained in this Agreement) in the event of an
inaccuracy of any representation or warranty of the other party contained
in this Agreement that cannot be or has not been cured within 30 days after
the giving or written notice to the breaching party of such inaccuracy and
which inaccuracy would provide the terminating party the ability to refuse
to consummate the Merger under the applicable standard set forth in Section
8.2(a) of this Agreement in the case of Republic and Section 8.3(a) of this
Agreement in the case of BSB; or
(c) By the Board of Directors of either party in the event of a
Material breach by the other party of any covenant or agreement contained
in this Agreement that cannot be or has not been cured within 30 days after
the giving of written notice to the breaching party of such breach; or
(d) By the Board of Directors of either party in the event (i) any
Consent of any Regulatory Authority required for consummation of the Merger
and the other transactions contemplated hereby shall have been denied by
final nonappealable action of such authority or if any action taken by such
authority is not appealed within the time limit for appeal, or (ii) the
stockholders of BSB fail to vote their approval of the matters submitted
for the approval at the Stockholders' Meeting where the transactions were
presented to such stockholders for approval and voted upon; or
(e) By the Board of Directors of either party in the event that the
Merger shall not have been consummated by December 1, 1998, if the failure
to consummate the transactions contemplated hereby
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on or before such date is not caused by any breach of this Agreement by the
party electing to terminate pursuant to this Section 9.1(e); or
(f) By the Board of Directors of either party (provided that the
terminating party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in
Section 8.2(a) of this Agreement in the case of BSB and Section 8.3(a) of
this Agreement in the case of Republic or in Material breach of any
covenant or other agreement contained in this Agreement) in the event that
any of the conditions precedent to the obligations of such party to
consummate the Merger cannot be satisfied or fulfilled by the date
specified in Section 9.1(e) of this Agreement.
9.2 Effect of Termination. In the event of the termination and abandonment
of this Agreement pursuant to Section 9.1 of this Agreement, this Agreement
shall become void and have no effect, except that (i) the provisions of this
Section 9.2, Section 7.6(b), Section 7.16 and Article 10 of this Agreement shall
survive any such termination and abandonment, and (ii) a termination pursuant to
Section 9.1(b), 9.1(c), or 9.1(f) of this Agreement shall not relieve the
breaching party from Liability for an uncured willful breach of a
representation, warranty, covenant, or agreement giving rise to such
termination.
9.3 Non-Survival of Representations and Covenants. The respective
representations, warranties, obligations, covenants and agreements of the
parties shall not survive the Effective Time except this Section 9.3 and
Articles 1, 2, 3, and 10 and Sections 7.12 and 7.14 of this Agreement.
ARTICLE 10
MISCELLANEOUS
10.1 Definitions. (a) Except as otherwise provided herein, the capitalized
terms set forth below shall have the following meanings:
"Acquisition Proposal" with respect to a party shall mean any tender
offer or exchange offer or any proposal for a merger, acquisition of all of
the stock or Assets of, or other business combination involving such party
or any of its Subsidiaries or the acquisition of a substantial equity
interest in, or a substantial portion of the Assets of, such party or any
of its Subsidiaries.
"Affiliate" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by
or under common control with such Person; (ii) any officer, director,
partner, employer or direct or indirect beneficial owner of any 10% or
greater equity or voting interest of such Person; or (iii) any other Person
for which a Person described in clause (ii) acts in any such a capacity.
"Agreement" shall mean this Amended and Restated Agreement and Plan of
Merger, including the Exhibits delivered pursuant hereto and incorporated
herein by reference.
"Assets" of a Person shall mean all of the assets, properties,
businesses, and rights of such Person of every kind, nature, character and
description, whether real, personal, or mixed, tangible or intangible,
accrued or contingent or otherwise relating to or utilized in such Person's
business, directly or indirectly, in whole or in part, whether or not
carried on the books and records of such Person, and whether or not owned
in the name of such Person or any Affiliate of such Person and wherever
located.
"BHC Act" shall mean the Bank Holding Company Act of 1956, as amended.
"BSB Common Stock" shall mean the $4.00 par value common stock of BSB.
"BSB Companies" shall mean, collectively, BSB and all BSB
Subsidiaries.
"BSB Disclosure Memorandum" shall mean the written information
entitled "Bankers Savings Bank Disclosure Memorandum" previously delivered
to Republic describing in reasonable detail the matters contained therein
and, with respect to each disclosure made therein, specifically referencing
each Section or subsection of this Agreement under which such disclosure is
being made. Information disclosed with
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respect to one Section or subsection shall not be deemed to be disclosed
for purposes of any other Section or subsection not specifically referenced
with respect thereto.
"BSB Financial Statements" shall mean (i) statements of income,
changes in stockholders' equity and cash flows (including related notes and
schedules, if any, for each of the three years ended December 31, 1997,
1996 and 1995, as filed by BSB in SEC Documents and (ii) the consolidated
statements of condition of BSB (including related notes and schedule, if
any) and related statements of income, changes in stockholders' equity and
cash flows (including related notes and schedules, if any) included in SEC
Documents filed with respect to periods ended subsequent to December 31,
1997.
"BSB Subsidiaries" shall mean the Subsidiaries of BSB, which shall
include any corporation, bank, savings association or other organization
acquired as a Subsidiary of BSB in the future and owned by BSB at the
Effective Time.
"Closing Date" shall mean the date on which the Closing occurs.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver or similar affirmation by any Person pursuant to any
Contract, Law, Order or Permit.
"Contract" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding or undertaking of
any kind or character, or other document to which any Person is a party or
that is binding on any Person or its capital stock, Assets or business.
"Default" shall mean (i) any breach or violation of or default under
any Contract, Order or Permit, (ii) any occurrence of any event that with
the passage of time or the giving of notice or both would constitute a
breach or violation of or default under any Contract, Order or Permit, or
(iii) any occurrence of any event that with or without the passage of time
or the giving of notice would give rise to a right to terminate or revoke,
change the current terms of, or renegotiate or to accelerate, increase or
impose any Liability under, any Contract, Order or Permit, where, in any
such event, such Default is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on a party.
"Department" shall mean the Florida Department of Banking and Finance.
"Environmental Laws" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air,
surface water, ground water, land surface or subsurface strata) that are
administered, interpreted or enforced by the United States Environmental
Protection Agency and state and local agencies with jurisdiction over, and
including common law in respect of, pollution or protection of the
environment, including the Comprehensive Environmental Response
Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq. U.S.C.
6901 et seq. ("RCRA"), and other Laws relating to emissions, discharges,
releases or threatened releases of any Hazardous Material, or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of any Hazardous Material.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exhibits", inclusive, shall mean the Exhibits so marked, copies of
which are attached to this Agreement. Such Exhibits are hereby incorporated
by reference herein and made a part hereof, and may be referred to in this
Agreement and any other related instrument or document without being
attached hereto.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"Hazardous Material" shall mean (i) any hazardous substance, hazardous
material, hazardous waste, regulated substance or toxic substance (as those
terms are defined by any applicable Environmen-
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tal Laws) and (ii) any chemicals, pollutants, contaminants, petroleum,
petroleum products or oil (and specifically shall include asbestos
requiring abatement, removal or encapsulation pursuant to the requirements
of governmental authorities and any polychlorinated biphenyls).
"Knowledge" as used with respect to a Person (including references to
such Person being aware of a particular matter) shall mean the personal
knowledge of the chairman, president, chief financial officer, chief
accounting officer, chief credit officer, general counsel, and any
assistant or deputy general counsel, or any senior or executive vice
president of such Person and the knowledge of any such persons obtained or
which would have been obtained from a reasonable investigation.
"Law" shall mean any code, law, ordinance, regulation, reporting or
licensing requirement, rule or statute applicable to a Person or its
Assets, Liabilities, or business, including those promulgated, interpreted
or enforced by any Regulatory Authority.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including
costs of investigation, collection and defense), claim, deficiency,
guaranty or endorsement of or by any Person (other than endorsements of
notes, bills, checks and drafts presented for collection or deposit in the
ordinary course of business) of any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge or claim of any nature whatsoever of, on, or with respect to any
property or property interest, other than (i) Liens for current property
Taxes not yet due and payable, and (ii) for parties or their Subsidiaries
that are depository institutions, pledges to secure deposits and other
Liens incurred in the ordinary course of the banking business.
"Litigation" shall mean any action, arbitration, cause of action,
claim, complaint, criminal prosecution, demand letter, governmental or
other examination or investigation, hearing, inquiry, administrative or
other proceeding or notice (written or oral) by any Person alleging
potential Liability or requesting information relating to or affecting a
party, its business, its Assets (including Contracts related to it) or the
transactions contemplated by this Agreement, but shall not include regular,
periodic examinations of depository institutions and their Affiliates by
the Regulatory Authorities.
"Loan Property" shall mean any property owned, leased or operated by
the party in question or by any of its Subsidiaries or in which such party
or Subsidiary holds a security or other interest (including an interest in
fiduciary capacity), and, where required by the context, includes the owner
or operator of such property, but only with respect to such property.
"Material" for purposes of this Agreement shall be determined in light
of the facts and circumstances of the matter in question; provided, that
any specific monetary amount stated in this Agreement shall determine
materiality in that instance.
"Material Adverse Effect" on a party shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a material adverse impact on (i) the financial position,
business or results of operations of such party and its Subsidiaries, taken
as a whole, or (ii) the ability of such party to perform its obligations
under this Agreement or to consummate the Merger or the other transactions
contemplated by this Agreement, provided that "Material Adverse Effect"
shall not be deemed to include the impact of (a) changes in banking and
similar Laws of general applicability or interpretations thereof by courts
or governmental authorities, (b) changes in GAAP or regulatory accounting
principles generally applicable to banks and their holding companies, (c)
actions and omissions of a party (or any of its Subsidiaries) taken with
the prior informed consent of the other party in contemplation of the
transactions contemplated hereby, and (d) the Merger and compliance with
the provisions of this Agreement on the operating performance of the
parties.
"NASD" shall mean the National Association of Securities Dealers, Inc.
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"National Market" shall mean The Nasdaq National Market.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency or Regulatory Authority.
"OTS" shall mean the Office of Thrift Supervision.
"Participation Facility" shall mean any facility or property in which
the party in question or any of its Subsidiaries participates in the
management and, where required by the context, said term means the owner or
operator of such facility or property, but only with respect to such
facility or property.
"Permit" shall mean any federal, state, local and foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit or right to which any Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its securities,
Assets or business.
"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert or any person acting
in a representative capacity.
"Proxy Statement/Prospectus" shall mean the proxy statement used by
BSB to solicit the approval at the Stockholders' Meeting of the
transactions contemplated by this Agreement, which shall include the
prospectus of Republic relating to the issuance of the Republic Common
Stock to holders of BSB Common Stock.
"Regulatory Authorities" shall mean, collectively, the Federal Trade
Commission, the United States Department of Justice, the Board of the
Governors of the Federal Reserve System, the OTS, the Office of the
Comptroller of the Currency, the FDIC, all state regulatory agencies having
jurisdiction over Republic, the Bank, BSB and their respective
Subsidiaries, the NASD and the SEC.
"Republic Common Stock" shall mean the $2.00 par value common stock of
Republic.
"Republic Companies" shall mean, collectively, Republic and all
Republic Subsidiaries.
"Republic Disclosure Memorandum" shall mean the written information
entitled "Republic Bancshares, Inc. Disclosure Memorandum" delivered prior
to the date of this Agreement to BSB describing in reasonable detail the
matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section or subsection of this
Agreement under which such disclosure is being made. Information disclosed
with respect to one Section or subsection shall not be deemed to be
disclosed for purposes of any other Section or subsection not specifically
referenced with respect thereto.
"Republic Financial Statements" shall mean (i) the consolidated
statements of condition (including related notes and schedules, if any) of
Republic as of December 31, 1997 and 1996, and the consolidated statements
of condition (including related notes and schedules, if any) of the Bank as
of December 31, 1995, and the related restated statements of income,
changes in stockholders' equity and cash flows (including related notes and
schedules, if any) for each of the three years ended December 31, 1997,
1996 and 1995, as filed by Republic or the Bank in SEC Documents and (ii)
the consolidated statements of condition of Republic (including related
notes and schedules, if any) and related statements of income, changes in
stockholders' equity and cash flows (including related notes and schedules,
if any) included in SEC Documents filed with respect to periods ended
subsequent to December 31, 1997.
"Republic Preferred Stock" shall mean the $20.00 par value
noncumulative convertible perpetual preferred stock of Republic.
"Republic Subsidiaries" shall mean the Subsidiaries of Republic and
any corporation, bank, savings association or other organization acquired
as a Subsidiary of Republic in the future and owned by Republic at the
Effective Time.
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"Rights" shall mean all arrangements, calls, commitments, Contracts,
options, rights to subscribe to, scrip, understandings, warrants or other
binding obligations of any character whatsoever relating to, or securities
or rights convertible into or exchangeable for, shares of the capital stock
of a Person or by which a Person is or may be bound to issue additional
shares of its capital stock or other rights.
"SEC" shall mean the United States Securities and Exchange Commission.
"SEC Documents" shall mean all forms, proxy statements, registration
statements, reports, schedules and other documents filed or required to be
filed by a party or any of its Subsidiaries with any Regulatory Authority
pursuant to the Securities Laws.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Laws" shall mean the Securities Act, the Exchange Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the
rules and regulations of any Regulatory Authority promulgated thereunder.
"Stockholders' Meeting" shall mean the meeting of the stockholders of
BSB to be held pursuant to Section 7.1 of this Agreement, including any
adjournment or adjournments thereof.
"Subsidiaries" shall mean all those corporations, banks, associations
or other entities of which the entity in question owns or controls 50% or
more of the outstanding equity securities either directly or through an
unbroken chain of entities as to each of which 50% or more of the
outstanding equity securities is owned directly or indirectly by its
parent; provided, there shall not be included any such entity acquired
through foreclosure or any such entity the equity securities of which are
owned or controlled in a fiduciary capacity.
"Tax" or "Taxes" shall mean all federal, state, local and foreign
taxes, charges, fees, levies, imposts, duties or other assessments,
including income, gross receipts, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp, occupation, windfall
profits, environmental, federal highway use, commercial rent, customs
duties, capital stock, paid-up capital, profits, withholding, Social
Security, single business and unemployment, disability, real property,
personal property, registration, ad valorem, value added, alternative or
add-on minimum, estimated or other tax or governmental fee of any kind
whatsoever, imposed or required to be withheld by the United States or any
state, local or foreign government or subdivision or agency thereof,
including any interest, penalties or additions thereto.
"Taxable Period" shall mean any period prescribed by any governmental
authority, including the United States or any state, local or foreign
government or subdivision or agency thereof for which a Tax Return is
required to be filed or Tax is required to be paid.
"Tax Return" shall mean any report, return, information return or
other information required to be supplied to a taxing authority in
connection with Taxes, including any return of an affiliated or combined or
unitary group that includes a party or its Subsidiaries.
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(b) The terms set forth below shall have the meanings ascribed thereto in
the referenced sections:
<TABLE>
<S> <C>
Average Market Price..................................... Section 2.1(b)
BSB Benefit Plans........................................ Section 4.13(a)
BSB ERISA Plan........................................... Section 4.13(a)
BSB Options.............................................. Section 2.1(c)
BSB Pension Plan......................................... Section 4.13(a)
BSB Reports.............................................. Section 4.5(a)
Certificate of Merger.................................... Section 1.4
Closing.................................................. Section 1.3
Code..................................................... Preamble
Confidential Information................................. Section 7.6
Effective Time........................................... Section 1.4
Exchange Agent........................................... Section 3.1
Exchange Ratio........................................... Section 2.1(b)
FHLB..................................................... Section 4.1(b)
Indemnified party........................................ Section 7.14
Market Value of Republic Common Stock.................... Section 2.1(b)
Merger................................................... Preamble
OTS Regulations.......................................... Section 1.2
Republic SEC Reports..................................... Section 5.5(a)
Takeover Laws............................................ Section 7.10
Tax Opinion.............................................. Section 8.1(f)
</TABLE>
(c) Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
10.2 Expenses. (a) BSB may (i) pay a fee to RP Financial, LC. (an
investment banking firm selected by BSB) in connection with a fairness opinion
regarding the transactions contemplated by this Agreement, and (ii) reimburse an
individual in connection with actual costs incurred in connection with engaging
in certain discussions with Republic, such reimbursement not to exceed $5,000.
Except as set forth in the preceding sentence, each of the parties shall bear
and pay all direct costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder, including filing,
registration and application fees, printing fees and fees and expenses of its
own financial or other consultants, investment brokers, accountants and counsel,
except that each of the parties shall bear and pay one-half of the printing
costs incurred in connection with the printing and filing of the Registration
Statement and the Proxy Statement/Prospectus.
(b) Nothing contained in this Section 10.2 shall constitute or shall be
deemed to constitute liquidated damages for the willful breach by a party of the
terms of this Agreement or otherwise limit the rights of the nonbreaching party.
10.3 Brokers and Finders. Each of the parties represents and warrants that
neither it nor any of its officers, directors, employees or Affiliates has
employed any broker or finder or incurred any Liability for any financial
advisory fees, investment bankers' fees, brokerage fees, commissions or finders'
fees in connection with this Agreement or the transactions contemplated hereby.
In the event of a claim by any broker or finder based upon his, her or its
representing or being retained by or allegedly representing or being retained by
BSB or Republic, each of BSB and Republic, as the case may be, agrees to
indemnify and hold the other party harmless of and from any Liability in respect
of any such claim.
10.4 Entire Agreement. Except as otherwise expressly provided herein, this
Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. Nothing in this Agreement,
expressed or implied, is intended to confer upon any Person, other than the
parties or their respective successors, any rights, remedies, obligations or
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Liabilities under or by reason of this Agreement, other than as provided in
Sections 6.12 and 7.14 of this Agreement.
10.5 Amendments. To the extent permitted by Law, this Agreement may be
amended by a subsequent writing signed by each of the parties upon the approval
of the Boards of Directors of each of the parties, whether before or after
stockholder approval of this Agreement has been obtained; provided, that the
provisions of this Agreement relating to the manner or basis in which shares of
BSB Common Stock will be exchanged for Republic Common Stock shall not be
amended after the Stockholder's Meeting without the requisite approval of the
holders of the issued and outstanding shares of BSB Common Stock entitled to
vote thereon.
10.6 Waivers. (a) Prior to or at the Effective Time, Republic, acting
through its Board of Directors, chief executive officer, chief financial officer
or other authorized officer shall have the right to waive any Default in the
performance of any term of this Agreement by BSB, to waive or extend the time
for the compliance or fulfillment by BSB of any and all of its obligations under
this Agreement, and to waive any or all of the conditions precedent to the
obligations of Republic under this Agreement, except any condition which, if not
satisfied, would result in the violation of any Law. No such waiver shall be
effective unless in writing signed by a duly authorized officer of Republic.
(b) Prior to or at the Effective Time, BSB, acting through its Board of
Directors, chief executive officer, chief financial officer or other authorized
officer shall have the right to waive any Default in the performance of any term
of this Agreement by Republic, to waive or extend the time for the compliance or
fulfillment by Republic of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of BSB
under this Agreement, except any condition which, if not satisfied, would result
in the violation of any Law. No such waiver shall be effective unless in writing
signed by a duly authorized officer of BSB.
(c) The failure of any party at any time to require performance of any
provision hereof shall in no manner affect the right of such party at a later
time to enforce the same or any other provision of this Agreement. No waiver of
any condition or of the breach of any term contained in this Agreement in one or
more instances shall be deemed to be or construed as a further or continuing
waiver of such condition or breach or a waiver of any other condition or of the
breach of any other term of this Agreement.
10.7 Assignment. Except as expressly contemplated hereby, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
10.8 Notices. All notices or other communications that are required or
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage prepaid, or by
courier or overnight carrier to the persons at the addresses set forth below (or
at such other address as may be provided hereunder), and shall be deemed to have
been delivered as of the date so delivered:
BSB: Bankers Savings Bank
2222 Ponce de Leon Blvd.
Coral Gables, FL 33134
Telecopy No.: (305) 567-8933
Attn: Octavio Hernandez
President
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<PAGE> 194
Copy to Counsel:
John L. Douglas, Esq.
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street, Suite 4000
Atlanta, GA 30309
Telecopy No.: (404) 881-7777
Republic: Republic Bancshares, Inc.
111 Second Avenue, N.E., Suite 300
St. Petersburg, Florida 33701
Telecopy No.: (813) 825-0269
Attn: John W. Sapanski Chairman of the Board
Chief Executive Officer and President
Copy to Counsel:
Republic Bancshares, Inc.
111 Second Avenue, N.E., Suite 300
St. Petersburg, Florida 33701
Telecopy No.: (813) 895-5791
Attn: Christopher M. Hunter, Esq.
General Counsel
10.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Florida, without regard to any
applicable conflicts of Laws, except to the extent that the provisions of Title
12 of the United States Code and the OTS Regulations and the implementing
regulations of the FDIC govern the transactions contemplated by this Agreement.
10.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
10.11 Captions. The captions contained in this Agreement are for reference
purposes only and are part of this Agreement.
10.12 Interpretations. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated and accepted by all parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of the
parties.
10.13 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
10.14 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
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<PAGE> 195
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
BANKERS SAVINGS BANK, FSB
<TABLE>
<S> <C>
By: /s/ JOHN C. HANSEN By: /s/ OCTAVIO HERNANDEZ
------------------------------------------------ ------------------------------------------------
Assistant Secretary Octavio Hernandez
President
[CORPORATE SEAL]
REPUBLIC BANCSHARES, INC.
By: /s/ CHRISTOPHER M. HUNTER By: /s/ JOHN W. SAPANSKI
------------------------------------------------ ------------------------------------------------
Christopher M. Hunter John W. Sapanski
Corporate Secretary Chairman of the Board,
Chief Executive Officer
and President
[CORPORATE SEAL]
REPUBLIC BANK
By: /s/ CHRISTOPHER M. HUNTER By: /s/ JOHN W. SAPANSKI
------------------------------------------------ ------------------------------------------------
Christopher M. Hunter John W. Sapanski
Secretary Chairman of the Board,
Chief Executive Officer
and President
[CORPORATE SEAL]
</TABLE>
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<PAGE> 196
APPENDIX B
September , 1998
Board of Directors
Bankers Savings Bank, FSB
222 Ponce De Leon Boulevard
Coral Gables, Florida 33134
Members of the Board:
You have requested RP Financial, LC. ("RP Financial") to provide you with
an opinion as to the fairness from a financial point of view to the shareholders
of Bankers Savings Bank, FSB, a federally-chartered savings bank ("BSB"), of the
Agreement and Plan of Merger, dated as of March 3, 1998 (as amended and restated
as of July 1, 1998, the "Agreement"), by and between Republic Bancshares, Inc.,
St. Petersburg, Florida, a Florida Corporation ("Bancshares") and BSB. The
Agreement is incorporated herein by reference. Unless otherwise defined, all
capitalized terms incorporated herein have the meaning ascribed to them in the
Agreement.
SUMMARY DESCRIPTION OF CONSIDERATION
At the Effective Time, each share of common stock of BSB issued and
outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall be converted into shares of Bancshares Common Stock (the
"Merger Consideration") at an Exchange Ratio. The Exchange Ratio of BSB Common
Stock shares into Bancshares Common Stock shares will be determined by (a)
calculating the December 31, 1997 book value of BSB less the dollar amount of
certain change in control payments to be made to BSB's executive officers
($4,237,000 minus $250,000 or $3,987,000); (b) adding to (or subtracting from)
$3,987,000 any profits earned (or losses incurred) by BSB in 1998 through the
month-end prior to the date on which the Special Meeting is held; (c)
multiplying the sum in (b) by 1.7; (d) adding to the product in (c) $2,020,000,
which represents the difference between the sales price of BSB's main office
facility and its book value as of December 31, 1997; (e) dividing the resulting
sum in (d) by the total number of shares of BSB Common Stock outstanding at the
Effective Time, yielding a fixed per share value for each share of BSB Common
Stock (the "BSB Per Share Value"); and (f) dividing the resulting quotient by
the Market Value of Bancshares' Common Stock (as defined below). "Market Value
of Bancshares' Common Stock" is defined as $25.00 unless the reported average
closing prices by the National Market for the twenty (20) consecutive trading
days ending on the third business day immediately preceding the Effective Time
("Twenty Day Average Market Price") for a share of republic Common Stock is
greater than $27.50 or lower than $22.50, in which case the Market Value of
Bancshares' Common Stock is the mean between the Twenty Day Average Price and
$25.00.
Each of the options to purchase BSB Common Stock issued and outstanding at
the Effective Time, shall cease to be outstanding and shall be converted into
and exchanged for the Right to acquire Bancshares Common Stock on substantially
the same terms applicable to the BSB options. The number of shares of Bancshares
Common Stock to be issued pursuant to the exercise of such options shall equal
the number of shares of BSB Common Stock subject to such options multiplied by
the Exchange Ratio, provided that no fractions of shares of Bancshares Common
Stock shall be issued, and the number of shares of Bancshares Common Stock to be
issued upon the exercise of the BSB options, if a fractional share exists, shall
equal the number of whole shares obtained by rounding to the nearest whole
number, giving account to such faction. The exercise price for the acquisition
of each share of Bancshares Common Stock shall be the exercise price for each
share of BSB common stock subject to such options divided by the Exchange Ratio,
provided that the aggregate purchase price shall be adjusted as appropriate for
any rounding to whole shares that may be done.
As of the date hereof, BSB had 705,333 shares of common stock issued and
outstanding and 212,000 stock options outstanding. Cash will be paid in lieu of
fractional shares.
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RP FINANCIAL BACKGROUND AND EXPERIENCE
RP Financial, as part of its financial institution valuation and consulting
practice, is regularly engaged in the valuation of financial institution
securities in connection with mergers and acquisitions of commercial banks and
thrift institutions, initial and secondary offerings, mutual-to-stock
conversions of thrift institutions, and business valuations for other corporate
purposes for financial institutions. As specialists in the valuation of
securities of financial institutions, RP Financial has experience in, and
knowledge of, the Florida and Southeast markets for thrift and bank securities
and financial institutions operating in Florida.
MATERIALS REVIEWED
In rendering this fairness opinion, RP Financial reviewed the following
material: (1) the Agreement including exhibits; (2) financial and other
information for BSB, all with regard to balance and off-balance sheet
composition, profitability, interest rates, volumes, maturities, trends, credit
risk, interest rate risk, liquidity risk and operations: (a) audited financial
statements for the fiscal years ended December 31, 1995 through 1997, (b)
regulatory and internal financial and other reports through June 30, 1998, (c)
the most recent proxy statement for BSB, (d) internal budgets and financial
projections prepared by management and (e) BSB's management and Board comments
regarding past and current business, operations, financial condition, and future
prospects; and (3) financial and other information for Bancshares including: (a)
audited financial statements for the fiscal years ended December 31, 1995
through 1997, incorporated in Annual Reports to shareholders, (b) Form 10K as of
December 31, 1997, (c) shareholders, regulatory and internal financial and other
reports through June 30, 1998, (d) internal budgets and financial projections
prepared by management of Bancshares, (e) registration statement on Form S-4
filed on September , 1998 in conjunction with the issuance of common stock to
BSB's stockholders; (f) the Proxy Statement furnished to BSB's stockholders in
connection with the adoption of the Agreement; and (g) Bancshares' management
comments regarding past and current business, operations financial condition,
and future prospects.
In addition, RP Financial reviewed financial, operational, market area and
stock price and trading characteristics for Bancshares and the stock price and
relatively limited trading information available for BSB relative to
publicly-traded banks and savings institutions, respectively, with comparable
resources, financial condition, earnings, operations and markets. RP Financial
also considered the economic and demographic characteristics in the local market
area, and the potential impact of the regulatory, legislative and economic
environments on operations for BSB and Bancshares and the public perception of
banks and savings institutions. RP Financial also considered: (a) a transaction
summary, as set forth in the Proxy Statement, of the financial terms of the
Merger, including the aggregate Merger Consideration relative to tangible book
value, trailing twelve month earnings, budgeted 1998 earnings, assets and
deposit liabilities of BSB: (b) the financial terms, financial condition,
operating performance and market area of other recently completed and pending
mergers and acquisitions of comparable financial institution entities, including
Florida transactions specifically and Southeast U.S. transactions both generally
and specifically; (c) discounted cash flow analyses for BSB on a stand-along
basis, incorporating estimated earnings and equity levels implied by BSB's
current business plan and future prospects; and (d) the pro forma impact on
Bancshares of the acquisition of BSB, which is expected to be accounted for as a
pooling. Furthermore, RP Financial also considered the pro forma impact of the
Merger to the holders of BSB Common Stock (incorporating the Merger
Consideration, transaction adjustments and potential earnings improvements),
including the pro forma impact to the market value per share, tangible book
value per share, and earnings per share of the Bancshares Common Stock. RP
Financial also considered the greater liquidity characteristics of the
Bancshares Common Stock relative to the BSB Common Stock, the enhanced
competitive position of Bancshares resulting from the Merger, and the
opportunities for Bancshares to increase earnings in the future. The results of
these analyses and the other factors considered were evaluated as a whole, with
the aggregate results indicating a range of financial parameters utilized to
assess the Merger Consideration as described in the Agreement.
In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning BSB
and Bancshares furnished by the respective institutions to RP Financial for
review, as well as publicly-available information regarding other financial
institutions and economic and demographic data. BSB and Bancshares did not
restrict RP Financial as to the material it was
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<PAGE> 198
permitted to review. RP Financial did not perform or obtain any independent
appraisals or evaluations of the assets and liabilities and potential and/or
contingent liabilities of BSB or Bancshares.
RP Financial expresses no opinion on matters of a legal, regulatory, tax or
accounting nature or the ability of the merger as set forth in the Agreement to
be consummated. In rendering its opinion, RP Financial assumed that, in the
course of obtaining the necessary regulatory and governmental approvals for the
Merger, no restriction will be imposed on Bancshares that would have a material
adverse effect on the ability of the Merger to be consummated as set forth in
the Agreement.
OPINION
It is understood that this letter is directed to the Board of Directors of
BSB in its consideration of the Agreement, and does not constitute a
recommendation to any shareholder of BSB as to any action that such shareholder
should take in connection with the Agreement, or otherwise.
It is understood that this opinion is based on market conditions and other
circumstances existing on the date hereof.
It is understood that this opinion may be included in its entirety in any
communication by BSB or its Board of Directors to the stockholders of BSB. It is
also understood that this opinion may be included in its entirety in any
regulatory filing by BSB or Bancshares, and that RP Financial consents to the
summary of the opinion in the proxy materials of BSB, and any amendments
thereto. Except as described above, this opinion may not be summarized,
excerpted from or otherwise publicly referred to without RP Financial's prior
written consent.
Based upon and subject to the foregoing, and other such matters considered
relevant, it is RP Financial's opinion that, as of the date hereof, the Merger
Consideration to be received by BSB's shareholders, as described in the
Agreement, is fair to such shareholders from a financial point of view.
Respectfully submitted,
RP FINANCIAL, LC.
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<PAGE> 199
APPENDIX C
SECTION 552.14 DISSENTER AND APPRAISAL RIGHTS.
(a) Right to demand payment of fair or appraised value. Except as provided
in paragraph (b) of this section, any stockholder of a Federal stock association
combining in accordance with sec. 552.13 of this part shall have the right to
demand payment of the fair or appraised value of his stock: Provided, That such
stockholder has not voted in favor of the combination and complies with the
provisions of paragraph (c) of this section.
(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to sec. 552.13(h)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ, or any combination of such
shares of stock and cash.
(c) Procedure -- (1) Notice. Each constituent Federal stock association
shall notify all stockholders entitled to rights under this section, not less
than twenty days prior to the meeting at which the combination agreement is to
be submitted for stockholder approval, of the right to demand payment of
appraised value of shares, and shall include in such notice a copy of this
section. Such written notice shall be mailed to stockholders of record and may
be part of management's proxy solicitation for such meeting.
(2) Demand for approval and payment. Each stockholder electing to make a
demand under this section shall deliver to the Federal stock association, before
voting on the combination, a writing identifying himself or herself and stating
his or her intention thereby to demand appraisal of and payment for his or her
shares. Such demand must be in addition to and separate from any proxy or vote
against the combination by the stockholder.
(3) Notification of effective date and written offer. Within ten days
after the effective date of the combination, the resulting association shall:
(i) Give written notice by mail to stockholders of constituent Federal
stock associations who have complied with the provisions of paragraph
(c)(2) of this section and have not voted in favor of the combination, of
the effective date of the combination;
(ii) Make a written offer to each stockholder to pay for dissenting
shares at a specified price deemed by the resulting association to be the
fair value thereof; and
(iii) Inform them that, within sixty days of such date, the respective
requirements of paragraphs (c)(5) and (c)(6) of this section (set out in
the notice) must be satisfied.
The notice and offer shall be accompanied by a balance sheet and statement of
income of the association the shares of which the dissenting stockholder holds,
for a fiscal year ending not more than sixteen months before the date of notice
and offer, together with the latest available interim financial statements.
(4) Acceptance of offer. If within sixty days of the effective date of the
combination the fair value is agreed upon between the resulting association and
any stockholder who has complied with the provisions of paragraph (c)(2) of this
section, payment therefor shall be made within ninety days of the effective date
of the combination.
(5) Petition to be filed if offer not accepted. If within sixty days of
the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholder may file a
petition with the Office, with a copy by registered or certified mail to the
resulting association, demanding a determination of the fair market value of the
stock of all such stockholders. A stockholder entitled to file a petition under
this section who fails to file such petition within sixty days of the effective
date of the combination shall be deemed to have accepted the terms offered under
the combination.
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(6) Stock certificates to be noted. Within sixty days of the effective
date of the combination, each stockholder demanding appraisal and payment under
this section shall submit to the transfer agent his certificates of stock for
notation thereon that an appraisal and payment have been demanded with respect
to such stock and that appraisal proceedings are pending. Any stockholder who
fails to submit his or her stock certificates for such notation shall no longer
be entitled to appraisal rights under this section and shall be deemed to have
accepted the terms offered under the combination.
(7) Withdrawal of demand. Notwithstanding the foregoing, at any time
within sixty days after the effective date of the combination, any stockholder
shall have the right to withdraw his or her demand for appraisal and to accept
the terms offered upon the combination.
(8) Valuation and payment. The Director shall, as he or she may elect,
either appoint one or more independent persons or direct appropriate staff of
the Office to appraise the shares to determine their fair market value, as of
the effective date of the combination, exclusive of any element of value arising
from the accomplishment or expectation of the combination. Appropriate staff of
the Office shall review and provide an opinion or appraisals prepared by
independent persons as to the suitability of the appraisal methodology and the
adequacy of the analysis and supportive data. The Director after consideration
of the appraisal report and the advice of the appropriate staff shall, if he or
she concurs in the valuation of the of the shares, direct payment by the
resulting association of the appraised fair market value of the shares, upon
surrender of the certificates representing such stock. Payment shall be made,
together with interest from the effective date of the combination, at a rate
deemed equitable by the Director.
(9) Costs and expenses. The costs and expenses of any proceeding under
this section may be apportioned and assessed by the Director as he or she may
deem equitable against all or some of the parties. In making this determination
the Director shall consider whether any party has acted arbitrarily,
vexatiously, or not in good faith in respect to the rights provided by this
section.
(10) Voting and distribution. Any stockholder who has demanded appraisal
rights as provided in paragraph (c)(2) of this section shall thereafter neither
be entitled to vote such stock for any purpose nor be entitled to the payment of
dividends or other distributions on the stock (except dividends or other
distribution payable to, or a vote to be taken by stockholders of record at a
date which is on or prior to, the effective date of the combination): Provided,
That if any stockholder becomes unentitled to appraisal and payment of appraised
value with respect to such stock and accepts or is deemed to have accepted the
terms offered upon the combination, such stockholder shall thereupon be entitled
to vote and receive the distributions described above.
(11) Status. Shares of the resulting association into which shares of the
stockholders demanding appraisal rights would have been converted or exchanged,
had they assented to the combination, shall have the status of authorized and
unissued shares of the resulting association.
C-2
<PAGE> 201
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The provisions of the Florida Business Corporation Act (the "FBCA") and
Bancshares' By-Laws (the "By-Laws") set forth the extent to which the
Registrant's directors and officers may be indemnified against liabilities they
may incur while serving in such capacities. The FBCA provisions for
indemnification are summarized below.
Section 607.0850(1) of the FBCA empowers a corporation to indemnify any
person who was or is a party to any proceeding (other than an action by, or in
right of, the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
liability incurred in connection with such proceeding, including any appeal
thereof, if he acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. This Subsection further provides that the termination of
proceeding by judgment, order, settlement or conviction or upon a plea of nolo
contender or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he reasonably believed to
be in, or not opposed to, the best interests of the corporation or, with respect
to any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
Section 607.0850(2) empowers a corporation to indemnify any person who was
or is a party to any proceeding by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses and amounts paid in settlement not exceeding, in the judgment of the
board of directors, the estimated expense of litigating the proceeding to
conclusion, actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof. Such
indemnification shall be authorized if such person acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation, except that no indemnification may be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable unless, any only to the extent that, the court in which such proceeding
was brought, or any other court of competent jurisdiction shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
Section 607.0850(3) provides that to the extent that a director, officer,
employee or agent of a corporation has been successful on the merits or
otherwise in the defense of any proceeding referred to in the preceding
subparagraphs, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses actually and reasonably incurred by him in
connection therewith.
Section 607.0850(4) provides that any indemnification under subsections (1)
or (2), unless pursuant to a determination by a court, shall be made by the
corporation only as authorized in a specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because the person has met the applicable standard of conduct as
set forth in subsections (1) or (2). Such determination shall be made (a) by the
Board of Directors by a majority vote of a quorum consisting of directors who
are not parties to such proceeding; (b) if such a quorum is not obtaining or,
even if obtainable, by majority vote of a committee duly designated by the board
of directors (in which directors who are parties may participate) consisting
solely of two or more directors who are not at the time parties to the
proceeding; (c) by independent legal counsel selected by the board of directors
described in paragraph (a) or the committee described in paragraph (b), or if a
quorum of the directors cannot be obtained for paragraph (a) and the committee
cannot be designated under paragraph (b), selected by a majority vote of the
full board of directors (in which directors who are parties may participate); or
(d) by the shareholders by a majority vote
II-1
<PAGE> 202
of a quorum consisting of shareholders who are not parties to such proceeding
or, if no such quorum is obtainable, by a majority vote of shareholders who were
not parties to such proceeding.
Section 607.0850(5) provides that evaluation of the reasonableness of
expenses and authorization of indemnification shall be made in the same manner
as the determination that indemnification is permissible. However, if the
determination of permissibility is made by independent legal counsel, persons
specified by paragraph 4(c) shall evaluate the reasonableness of expenses and
may authorize indemnification.
Section 607.0850(6) provides that expenses incurred by an officer or
director in defending a civil or criminal proceeding may be paid by the
corporation in advance of the final disposition of such proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if he is ultimately found not to be entitled to indemnification by the
corporation. Expenses incurred by other employees and agents may be paid in
advance upon terms or conditions that the board of directors deems appropriate.
Section 607.0850(7) provides that the indemnification and advancement of
expenses provided pursuant to this section are not exclusive, and the
corporation is empowered to make any other or further indemnification or
advancement of expenses of any of its directors, officers, employees or agents,
under any bylaw, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, unless a judgement or other final
adjudication establishes that such person's actions or omissions to act were
material to the cause of action so adjudicated and constitute (a) a violation of
the criminal law, unless such person had reasonable cause to believe that his
conduct was lawful or had no reasonable cause to believe that his conduct was
unlawful; (b) a transaction from which such person derived an improper personal
benefit; (c) in the case of a director, a circumstance under which the liability
provisions of Section 607.0834 of the FBCA are applicable; or (d) willful
misconduct or a conscious disregard for the best interests of the corporation in
a proceeding by or in the right of the corporation to procure a judgment in its
favor, or in a proceeding by or in the right of a shareholder.
Section 607.0850(8) provides that indemnification and advancement of
expenses shall continue as, unless otherwise provided when authorized or
ratified, to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of such person's heirs, executors and
administrators unless otherwise provided when authorized or ratified.
Section 607.0850(9) provides that unless the corporation's articles of
incorporation provide otherwise, notwithstanding the failure of a corporation to
provide indemnification and despite any contrary determination of the board or
of the shareholders of the specific case, a director, officer, employee or agent
who is or was a party to a proceeding may apply for indemnification or
advancement of expenses, or both, to the court conducting the proceeding, to the
circuit court or to another court of competent jurisdiction. On receipt of an
application, the court, after giving any notice that it considers necessary, may
order indemnification and advancement of expenses, including expenses incurred
in seeking court-ordered indemnification or advancement of expenses, if it
determines that (a) the director, officer, employee or agent is entitled to
mandatory indemnification under subsection (3), in which case the court shall
also order the corporation to pay the director reasonable expenses incurred in
obtaining court-ordered indemnification or advancement or expenses; (b) the
director, officer, employee or agent is entitled to indemnification or
advancement of expenses, or both, by virtue of the exercise by the corporation
of its power pursuant to subsection (7); or (c) the director, officer, employee
or agent is reasonably entitled to indemnification or advancement of expenses,
or both, in view of all the relevant circumstances, regardless of whether such
person meet the standard of conduct set forth in subsection (1), subsection (2)
or subsection (7).
Section 607.0850(12) provides that the corporation is empowered to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation or is or was a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or incurred by him
in any such capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this section.
II-2
<PAGE> 203
The Registrant maintains an insurance policy insuring the Registrant and
directors and officers of the Registrant against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities Act").
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits (See exhibit index immediately preceding the exhibits for the
page number where each exhibit can be found).
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
2 -- Agreement and Plan of Merger, dated as of March 2, 1998 (as
amended and restated as of September 4, 1998), by and among
Bancshares, Republic and BSB (included as Appendix A to the
Proxy Statement/Prospectus and incorporated by reference
herein)
3.1 -- Amended and Restated Articles of Incorporation of Bancshares
(incorporated by reference from Exhibit 3.1 of Bancshares'
Registration Statement on Form S-4, File No. 33-808895,
dated December 28, 1995)
3.2 -- By-Laws of Bancshares (incorporated by reference from
Exhibit 3.2 of Bancshares Registration Statement on Form
S-4, File No. 33-808895, dated December 28, 1995)
4 -- Specimen Common Stock Certificate (incorporated herein by
reference from Exhibit 4.1 of Registrant's Registration
Statement on Form S-4, File No. 33-808895, dated December
28, 1995)
5 -- Opinion of Holland & Knight LLP, including consent
8.1 -- Opinion of Holland & Knight LLP regarding federal income tax
matters, including consent(1)
8.2 -- Opinion of Alston & Bird LLP regarding federal income tax
matters, including consent(1)
23.1 -- Consent of Arthur Andersen LLP regarding use of report
23.2 -- Consent of Arthur Andersen LLP regarding Bancshares' Form
10-Q for the quarter ended June 30, 1998
23.3 -- Consent of Deloitte & Touche LLP
23.4 -- Consent of Holland & Knight LLP (included in Exhibit 5)
23.5 -- Consent of Alston & Bird LLP (included in Exhibit 8.2)
23.6 -- Consent of RP Financial, LC.
24 -- Powers of Attorney (included in the signature page on page
II-5)
99 -- Form of Proxy of BSB
</TABLE>
- ---------------
(1) To be filed by amendment.
(b) Financial Statement Schedules
Schedules are omitted because they are not required or are not applicable,
or the required information is shown in the financial statements or notes
thereto.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the
II-3
<PAGE> 204
form of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Registrant's Articles of Incorporation or By-Laws, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission (the "Commission") such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that are incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
Bancshares being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 205
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Petersburg, State of
Florida, on September 4, 1998.
REPUBLIC BANCSHARES, INC.
By: /s/ JOHN W. SAPANSKI
------------------------------------
John W. Sapanski
Chairman and
Chief Executive Officer
Date: September 4, 1998
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John W. Sapanski and William R. Falzone,
and each of them, as true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to the Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all which said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do, or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE DATE TITLE
--------- ---- -----
<C> <C> <S>
/s/ JOHN W. SAPANSKI September 4, 1998 Chairman, Chief Executive
- ----------------------------------------------------- Officer and Director
John W. Sapanski (principal executive
officer)
/s/ WILLIAM R. FALZONE September 4, 1998 Treasurer (principal
- ----------------------------------------------------- financial and accounting
William R. Falzone officer)
/s/ FRED HEMMER September 4, 1998 Director
- -----------------------------------------------------
Fred Hemmer
/s/ MARLA HOUGH September 4, 1998 Director
- -----------------------------------------------------
Marla Hough
/s/ WILLIAM R. HOUGH September 4, 1998 Director
- -----------------------------------------------------
William R. Hough
/s/ ALFRED T. MAY September 4, 1998 Director
- -----------------------------------------------------
Alfred T. May
September 4, 1998 Director
- -----------------------------------------------------
William J. Morrison
</TABLE>
II-5
<PAGE> 206
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
2 -- Agreement and Plan of Merger, dated as of March 2, 1998 (as
amended and restated as of September 4, 1998), by and among
Bancshares, Republic and BSB (included as Appendix A to the
Proxy Statement/Prospectus and incorporated by reference
herein)
3.1 -- Amended and Restated Articles of Incorporation of Bancshares
(incorporated by reference from Exhibit 3.1 of Bancshares'
Registration Statement on Form S-4, File No. 33-808895,
dated December 28, 1995)
3.2 -- By-Laws of Bancshares (incorporated by reference from
Exhibit 3.2 of Bancshares Registration Statement on Form
S-4, File No. 33-808895, dated December 28, 1995)
4 -- Specimen Common Stock Certificate (incorporated herein by
reference from Exhibit 4.1 of Registrant's Registration
Statement on Form S-4, File No. 33-808895, dated December
28, 1995)
5 -- Opinion of Holland & Knight LLP, including consent
8.1 -- Opinion of Holland & Knight LLP regarding federal income tax
matters, including consent(1)
8.2 -- Opinion of Alston & Bird LLP regarding federal income tax
matters, including consent(1)
23.1 -- Consent of Arthur Andersen LLP regarding use of report
23.2 -- Consent of Arthur Andersen LLP regarding Bancshares' Form
10-Q for the quarter ended June 30, 1998
23.3 -- Consent of Deloitte & Touche LLP
23.4 -- Consent of Holland & Knight LLP (included in Exhibit 5)
23.5 -- Consent of Alston & Bird LLP (included in Exhibit 8.2)
23.6 -- Consent of RP Financial, LC.
24 -- Powers of Attorney (included in the signature page on page
II-5)
99 -- Form of Proxy of BSB
</TABLE>
- ---------------
(1) To be filed by amendment.
<PAGE> 1
EXHIBIT 5
HOLLAND & KNIGHT LLP
September 4, 1998
Board of Directors
Republic Bancshares, Inc.
111 Second Avenue, N.E. Suite 300
St. Petersburg, Florida 33701
Gentlemen:
This opinion is given in connection with the filing by Republic Bancshares,
Inc., a corporation organized and existing under the laws of the State of
Florida ("Bancshares"), with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), of a Registration Statement on Form S-4 ("Registration Statement") with
respect to the shares of the $2.00 par value common stock of Bancshares
("Bancshares Common Stock") to be issued in connection with the proposed
acquisition of Bankers Savings Bank, FSB ("BSB") by Bancshares.
The proposed acquisition is intended to be effected pursuant to an
Agreement and Plan of Merger, dated as of March 2, 1998 (as amended and restated
as of September 4, 1998, the "Agreement"), by and among Bancshares, its
wholly-owned subsidiary, Republic Bank ("Republic") and BSB pursuant to which
BSB will merge with and into Republic (the "Merger"). Upon consummation of the
Merger, each outstanding share of the common stock of BSB ("BSB Common Stock")
(excluding shares held by BSB or Bancshares or their respective subsidiaries, in
each case other than in a fiduciary capacity or as a result of debts previously
contracted, and excluding shares held by shareholders who perfect their
dissenters' rights) will be converted into and exchanged for solely the right to
receive that number of shares of Bancshares Common Stock as determined in
accordance with the terms of the Agreement.
In rendering this opinion, we have examined the corporate records and
documents, including the Agreement, as we have deemed relevant and necessary as
the basis for the opinion set forth herein. Except to the extent expressly set
forth herein, we have made no independent investigations with regard thereto,
and, accordingly, we do not express any opinion as to matters that have been
disclosed by independent verification.
Based upon the foregoing and subject to the limitations set forth herein,
it is our opinion that the shares of Bancshares Common Stock included in the
Registration Statement have been duly authorized by all requisite actions on the
part of Bancshares and, upon consummation of the Merger, such shares, when
issued to the holders of BSB Common Stock in connection with the Merger as
provided in the Agreement, will be validly issued, fully paid and
non-assessable.
Members of this firm are licensed to practice law in the States of
California, Florida, Georgia, Massachusetts, New York and Virginia and the
District of Columbia and before the federal courts in such jurisdictions, and,
for purposes of this opinion, we express no opinion with regard to any law other
than the laws of the State of Florida.
We hereby consent to the use of the opinions as Exhibits 5 and 8 of this
Registration Statement and to the reference made to the firm under the caption
"Opinions" in the Proxy Statement/Prospectus constituting part of the
Registration Statement. In giving consent, we do not thereby admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Commission thereunder.
Sincerely yours,
HOLLAND & KNIGHT LLP
<PAGE> 1
EXHIBIT 23.1
ARTHUR ANDERSEN LLP
CONSENT TO USE OF REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our report, and to all references to our firm, included in or made a part of
this registration statement.
ARTHUR ANDERSEN LLP
Tampa, Florida
September 2, 1998
<PAGE> 1
EXHIBIT 23.2
September 2, 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 Form S-4, its Form 10-Q for the quarter ended June
30, 1998, which includes our report dated August 13, 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
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Republic
Bancshares, Inc. on Form S-4 of our report dated March 6, 1998 of Bankers
Savings Bank, FSB for the year ended December 31, 1997, appearing in the Proxy
Statement/Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Financial and Other Data of Bancshares and BSB" and "Experts" in such Proxy
Statement/Prospectus.
DELOITTE & TOUCHE LLP
Miami, Florida
September 9, 1998
<PAGE> 1
EXHIBIT 23.6
CONSENT OF RP FINANCIAL, LC.
Board of Directors
Bankers Savings Bank, FSB
2220 Ponce De Leon Boulevard
Coral Gables, Florida 33134
Gentlemen:
We hereby consent to the use of our firm's name in the Form S-4
Registration Statement of Republic Bancshares, Inc. and any amendments thereto,
and the inclusion of, summary of and references to our fairness opinion in such
filings including the Prospectus of Republic Bancshares, Inc. and the Proxy
Statement for Bankers Savings Bank, FSB.
RP FINANCIAL, LC.
September 4, 1998
<PAGE> 1
EXHIBIT 99
PROXY
BANKERS SAVINGS BANK, FSB
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby constitutes and appoints and
, or either of them, as proxies, each with full power of
substitution, to vote the number of shares of the $4.00 par value common stock
("BSB Common Stock") of Bankers Savings Bank, FSB, a federally-chartered savings
and loan association ("BSB"), which the undersigned would be entitled to vote if
personally present at the Special Meeting of BSB shareholders to be held at
BSB's main office, located at 2222 Ponce de Leon Boulevard, Coral Gables,
Florida 33134, on Tuesday, October 20, 1998, at 4:00 p.m., local time, and at
any adjournment or postponement thereof (the "Special Meeting"), upon the
proposals described in the Proxy Statement/Prospectus and the Notice of Special
Meeting of Shareholders, both dated September , 1998.
1. MERGER. To approve, ratify, confirm and adopt the Agreement and Plan of
Merger, dated as of March 2, 1998 (as amended and restated as of September
4, 1998, the "Agreement"), by and among Republic Bancshares, Inc., a
Florida corporation ("Bancshares"), Republic Bank, a commercial bank
organized and existing under the laws of the State of Florida that is a
wholly-owned subsidiary of Bancshares ("Republic"), and BSB, pursuant to
which (i) BSB will merge (the "Merger") with and into the Bank, and (ii)
each share of BSB Common Stock issued and outstanding at the effective time
of the Merger will be converted into shares of the $2.00 par value common
stock of Bancshares in accordance with the exchange ratio formula set forth
in the Agreement, all as more fully described in the Proxy Statement/
Prospectus dated September __, 1998.
FOR / / AGAINST / / ABSTAIN / /
2. OTHER BUSINESS. In the discretion of the proxies on such other matters as
may properly come before the Special Meeting or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1 ABOVE.
Please sign this proxy exactly as your name appears below. When shares are held
jointly, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
DATED: , 1998
---------------------------
---------------------------------------
Signature
---------------------------------------
Signature if held jointly
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF BANKERS SAVINGS BANK, FSB,
AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
