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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File
December 31, 1997 No. 0-27652
REPUBLIC BANCSHARES, INC.
(Exact Name of Registrant As Specified In Its Charter)
FLORIDA 59-3347653
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
111 2nd Avenue N.E., St. Petersburg, FL 33701
(Address of Principal Office) (Zip Code)
(813) 823-7300
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12 (b) of
the Act: None Securities registered pursuant to
Section 12 (g) of the Act:
Title of each Class
-------------------
Common Stock, par value $2.00
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.|X|
As of March 13, 1998, there were 7,047,812 shares of the Registrant's Common
Stock, par value $2.00 per share, issued and outstanding. Accordingly, the
aggregate market value of the voting stock held by non-affiliates of the
Registrant was $218,482,172.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the 1998 Annual Meeting of
Stockholders are incorporated by reference into Parts I, II, III, and IV of this
report.
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TABLE OF CONTENTS
PART I
<TABLE>
<S> <C> <C>
ITEM 1. BUSINESS
Background and Prior Operating History..................................................................... 1
Recent Developments........................................................................................ 2
Business of Republic Bancshares, Inc....................................................................... 3
Sources of Funds........................................................................................... 3
Lending and Loan Portfolio Purchase Activities............................................................. 4
Credit Administration...................................................................................... 6
Asset Quality.............................................................................................. 7
Investment Activities...................................................................................... 12
Employees.................................................................................................. 12
Market Area................................................................................................ 12
Supervision and Regulation................................................................................. 13
Effects of Inflation ...................................................................................... 14
Year 2000 Considerations................................................................................... 20
Changes in Accounting Standards............................................................................ 20
ITEM 2. PROPERTIES................................................................................................. 22
ITEM 3. LEGAL PROCEEDINGS.......................................................................................... 28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................................ 28
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................................................................ 29
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA....................................................................... 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Years Ended December 31, 1997 and 1996..................................................................... 33
Years Ended December 31, 1996 and 1995..................................................................... 39
Asset/Liability Management and Liquidity................................................................... 44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................................ 47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND DISCLOSURE............................................................................................. 47
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................................................... 47
ITEM 11. EXECUTIVE COMPENSATION..................................................................................... 48
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 48
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................. 48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K........................................................................................ 48
</TABLE>
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PART I
ITEM 1. BUSINESS
Republic Bancshares, Inc. (the "Company") is a registered bank holding company
whose principal subsidiary is Republic Bank (the "Bank"), 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, the Company is now the largest independent bank
holding company in Florida, based on its December 31, 1997, assets of $1.6
billion. The Bank provides a broad range of traditional commercial banking
services, emphasizing commercial real estate and business lending, and through a
separate division, mortgage banking activities. Currently, the Bank's branch
network consists of 46 branches in Brevard, Hernando, Manatee, Orange, Osceola,
Pasco, Pinellas, Sarasota and Seminole counties. At December 31, 1997, the
Company's consolidated assets totaled $1.6 billion, portfolio loans totaled $1.1
billion, deposits totaled $1.4 billion and stockholders' equity was $95.5
million. The Company is currently regulated by the Federal Reserve, and the Bank
is regulated by the Florida Department of Banking and Finance (the "Department")
and the Federal Deposit Insurance Corporation ("FDIC"). The Bank's deposits are
insured by the FDIC up to applicable limits, and the Bank is a member of the
Federal Home Loan Bank of Atlanta ("FHLB").
BACKGROUND AND PRIOR OPERATING HISTORY OF THE BANK
In May 1993, William R. Hough and John W. Sapanski together (the "Controlling
Stockholders") acquired from the prior controlling stockholder more than 99.0%
of the Bank's outstanding common stock (the "Change in Control"). Currently,
Messrs. Hough and Sapanski (and their respective affiliates and immediate family
members) own shares of the Company's capital stock representing approximately
54.0% and 6.5%, respectively, of the total voting rights of the Company. Mr.
Hough is a member of the Company's Board of Directors and Mr. Sapanski serves as
the Company's Chairman of the Board, Chief Executive Officer and President.
After the Change in Control, the Bank began to implement a program of expanding
its branches and lines of business. In December 1993, the Bank acquired 12
branches from CrossLand Savings FSB, a federal stock savings bank ("CrossLand"),
assumed deposit liabilities of $327.7 million and purchased loans secured by
real estate and other real estate ("ORE") amounting to $201.6 million (the
"CrossLand Purchase and Assumption"). The CrossLand Purchase and Assumption more
than doubled the Bank's size, increasing total assets to $531.3 million and
total deposits to $494.3 million at December 31, 1993. Additionally, the new
branches expanded the Bank's market area to include Manatee and Sarasota
counties and more than doubled the Bank's branch network to a total of 19
branches.
During the latter part of 1994 and throughout 1995, the Bank continued to pursue
a strategy of increasing its retail banking presence on the west coast of
Florida. The Bank opened 13 de novo branches, increasing market presence in
existing counties and providing entry into Pasco County.
During 1996 and 1997, the Company focused on increasing its residential lending
capabilities. Through internal growth and the addition of the Bank's new
mortgage banking division, the Company added eight loan production offices in
Florida, one loan production office in Boston, Massachusetts, and one wholesale
loan production office in Irvine, California. These offices expanded the
Company's product line to include government-insured first mortgage loans, and
high loan-to-value debt consolidation and home improvement loans secured by
junior liens on real estate ("High LTV Loans"). In the fourth quarter of 1996,
the Bank also added a wholesale lending operation that purchases loans from
third-party originators for resale. The Company sells or securitizes a
substantial portion of the loans it originates from its mortgage banking
division, and consummated its first securitization of High LTV Loans in December
1997. The Company currently anticipates consummating additional loan sales and
securitizations on a quarterly or other periodic basis during 1998, depending
upon current market conditions and other factors.
The Company continued to pursue external expansion and in January 1997, the
Company expanded into Hernando County by opening a de novo branch. In April, the
Company acquired Firstate Financial, F.A. ("Firstate"), a thrift institution
headquartered in Orlando, Florida, for a cash purchase price of $5.5 million
(the "Firstate Acquisition"). The Firstate Acquisition increased the Company's
presence in central Florida, where the Company previously operated a loan
production facility but had no branches. At April 18, 1997, Firstate had total
assets of $72.1 million, total deposits of
1
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$68.1 million and operated a branch in each of Orange and Seminole counties. The
Firstate Acquisition was accounted for using the purchase accounting method.
On September 19, 1997, F.F.O. Financial Group, Inc. ("FFO"), St. Cloud, Florida,
the holding company parent of First Federal Savings and Loan Association of
Osceola County, was merged into the Company in a stock transaction (the "FFO
Merger"). The FFO Merger further increased the Company's presence in central
Florida with 11 branches in Brevard, Orange and Osceola counties. At the date of
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 the Company,
as the majority stockholder of each company, were combined at historical cost in
a manner similar to a pooling of interests, while the minority interest in FFO
was combined with the Company using the purchase accounting method.
RECENT DEVELOPMENTS
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 booked 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.
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 and the acquisition of BSB 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 (the "BSB Branches")
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. The BSB Acquisition will be
accounted for as a pooling of interests and must be consummated by November 1,
1998.
In March 1998, the Company entered into a purchase and assumption 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.
The Company anticipates that it will be able to obtain all required regulatory
approvals by the applicable deadlines set forth in the NationsBank Subsidiary
Agreements, the Bankers Savings Bank Agreement, and Dime Savings Bank Agreement,
and the Company does not anticipate that any of the regulatory authorities will
impose any approval conditions that would have a material adverse impact on the
business or operations of the entities to be acquired.
If consummated, the Proposed Acquisitions will increase the total assets of the
Company to approximately $2.1 billion, and expand the Bank's branch network in
Florida from 46 to 56 branches located in Brevard, Broward, Columbia, Dade,
Hernando, Manatee, Marion, Monroe, Orange, Osceola, Pasco, Pinellas, Sarasota,
Seminole and Suwannee counties.
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BUSINESS OF REPUBLIC BANCSHARES, INC.
The Company's business strategy entails (i) originating and purchasing real
estate secured loans for portfolio and sale and originating business and
consumer loans for portfolio; (ii) improving market share and expanding its
market area through acquisitions of financial institutions, branch purchases and
de novo branching; (iii) increasing noninterest income through expanded mortgage
banking activities and emphasis on commercial and retail checking relationships;
and (iv) increasing its range of products and services. While pursuing this
strategy, management remains committed to improving asset quality, managing
interest rate risk and enhancing profitability.
SOURCES OF FUNDS
Deposit accounts are the primary source of funds for lending, investment, and
other general business purposes. In addition to deposits, funds are derived from
loan repayments and loan sales. Scheduled loan payments on the residential loan
portfolio are a relatively stable source of funds, while residential loan
prepayments, deposit in-flows and out-flows are significantly influenced by
general interest rate and money market conditions. Funding needs may be
supplemented through borrowings from the FHLB which are secured by a blanket
lien on the portfolio of residential loans. Management believes that current
funding requirements can be met through retail deposits, without reliance on
brokered deposits. To the extent there are requirements for short-term financing
beyond liquid assets, the Company intends to rely on repurchase agreements, FHLB
advances, and other traditional money market sources of funding. For additional
discussion of asset/liability management policies and strategies, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Asset/Liability Management."
A full range of deposit services is offered, including checking and other
transaction accounts, savings accounts, and time deposits. At December 31, 1997,
the Company had no brokered deposits, and time deposits in amounts of $100,000
or more constituted 8.52% of total deposits.
The following table sets forth the principal types of deposit accounts offered
and the aggregate amounts of such accounts at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
Weighted
Average Percent of
Interest Rate Amount Total Deposits
------------- ------ --------------
<S> <C> <C> <C>
Noninterest bearing 0.00% $ 93,843 6.9%
Interest checking 1.09 137,240 10.1
Passbook savings 2.08 30,389 2.2
Statement savings 4.89 238,268 17.5
Money market 1.98 53,336 3.9
----------
Time deposits with original maturities of:
One year or less 5.37 166,878 12.3
Over 1 year through 5 years 5.60 513,546 37.7
Over 5 years 6.25 127,812 9.4
---------- -------
Total time deposits(1) 5.65 808,236 59.4
---------- -------
Total deposits 4.36% $1,361,312 100.0%
========== =======
</TABLE>
(1) Includes time deposits in amounts of $100,000 or more of $116.0 million.
3
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At December 31, 1997, scheduled maturities of total time deposits were as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended Percent of
December 31, Amount Total Time Deposits
------------ ------------ -------------------
<S> <C> <C>
1998 $ 533,606 66.0%
1999 171,234 21.2
2000 59,772 7.4
2001 31,634 3.9
2002 10,974 1.4
Thereafter 1,016 0.1
------------ -------
Total time deposits $ 808,236 100.0%
============ =======
</TABLE>
LENDING AND LOAN PORTFOLIO PURCHASE ACTIVITIES
The Company originates a full range of lending products for its portfolio and
real estate-secured loans for sale in the secondary market. Portfolio lending
efforts are focused on customers located along the west coast of Florida and in
central Florida. During 1995, the Company opened commercial loan production
offices in central and southwest Florida. The Company's portfolio objective is
to maintain a one-to-four family, primarily adjustable-rate, residential loan
portfolio of at least 50% of its total loans and to achieve, over time, a level
of approximately 10% of its total loan portfolio in consumer loans, consisting
of home equity loans as well as extensions of credit for other household
purposes such as automobile loans and secured personal loans. The approximate
40% remainder of the loan portfolio will consist of commercial real estate
loans, multifamily residential loans, and commercial (business) loans.
In April 1996, the Company started a mortgage banking division of the Bank,
which currently has eight loan production offices in Florida, one office in
Boston, Massachusetts, one office each in Atlanta, Georgia and Virginia Beach,
Virginia, as well as a wholesale lending operation in Irvine, California. The
wholesale lending operation is engaged in acquiring whole loans from third-party
mortgage brokers and originators. Substantially all of the loans generated by
the mortgage banking division are intended for sale into the secondary market
via securitization or a whole loan basis, depending upon individual loan
characteristics, securities market conditions, and the relative profitability of
either sales approach. In 1997, the Company's mortgage banking division also
began to originate High LTV Loans secured by junior liens on real estate and
selling these loans to investors. The loan-to-value ("LTV") ratio of these High
LTV Loans typically ranges from 110% to 125%. In December 1997, the Company
consummated its first securitization of $57.4 million of collateralized mortgage
obligations secured by High LTV Loans.
For 1997, originations of residential mortgage loans totaled $482.3 million,
including $401.8 million in fixed-rate loans and $80.5 million of
adjustable-rate loans. Contributing to this increase in residential mortgage
loan originations was the employment of a commissioned sales force experienced
in loan originations and a support staff whose compensation is also
significantly incentive based. Sales of residential loans totaled $389.9 million
for 1997.
Originations of commercial real estate and commercial (business) loans totaled
$297.6 million for 1997. In the third quarter of 1997, the Company began
originating and selling into the secondary market a portion of its commercial
real estate loans and collecting fee income on the sale and retaining the
servicing of these loans.
The Company purchased loans totaling approximately $193.5 million in connection
with the CrossLand Purchase and Assumption. Loan purchases totaled $102.3
million in 1995, $8.2 million in 1996, and $95.4 million in 1997. During 1996
and 1997, loan originations were the predominate source of growth in the loan
portfolio and this is expected to continue for the foreseeable future.
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The following tables set forth information concerning the loan portfolio, based
on total dollars and percent of portfolio, by collateral type as of the dates
indicated (in thousands):
<TABLE>
<CAPTION>
Based on total dollars: At December 31,
- ----------------------- ----------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real estate mortgage loans:
One-to-four family residential $ 642,178 $ 492,269 $ 465,924 $ 351,417 $ 206,960
Multifamily residential 83,302 88,115 93,703 106,495 85,349
Commercial real estate 265,153 224,715 179,716 139,687 122,877
Construction/land development 50,203 31,382 24,262 25,564 11,642
Home equity loans 45,663 13,704 7,871 7,568 7,324
-------------- ---------- ----------- ----------- -----------
Total real estate mortgage loans 1,086,499 850,185 771,476 630,731 434,152
Commercial (business) loans 36,263 37,417 33,121 29,479 25,212
Consumer loans 26,527 31,886 24,069 17,150 16,183
Lease financing receivables 442 1,294 2,367 3,244 945
Other loans -- -- -- -- 3,10
-------------- ---------- ---------- ----------- -----------
Total portfolio loans 1,149,731 920,782 831,033 680,604 479,600
Allowance for loan losses (20,776) (18,747) (20,048) (15,272) (15,872)
-------------- ---------- ---------- ----------- -----------
Portfolio loans, net of allowance 1,128,955 902,035 810,985 665,332 463,728
Loans held for sale:
Residential first mortgage loans 105,734 41,082 27,476 7,930 11,346
Title I/debt consolidation loans 45,670 5,511 -- -- --
--------------- ---------- ---------- --------- ---------
Loans held for sale 151,404 46,593 27,476 7,930 11,346
Total loans $ 1,280,35 $ 948,628 $ 838,461 $ 673,262 $ 475,074
=============== ========== ========== ========= =========
</TABLE>
At December 31, 1997 and 1996, the balance of loans purchased included in
portfolio totals amounted to $322.8 million and $286.5 million, respectively.
<TABLE>
<CAPTION>
Based on percent of portfolio: December 31,
- ------------------------------ ---------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real estate mortgage loans:
One-to-four family residential 55.85 % 53.46 % 56.07 % 51.63 % 43.15 %
Multifamily residential 7.25 9.57 11.28 15.65 17.80
Commercial real estate 23.06 24.40 21.63 20.52 25.62
Construction/land development 4.37 3.41 2.92 3.76 2.43
Home equity loans 3.97 1.49 0.95 1.11 1.53
------ ------- ------- ------ -------
Total real estate mortgage loans 94.50 92.33 92.83 92.67 90.52
Commercial (business) loans 3.15 4.06 3.99 4.33 5.26
Consumer loans 2.31 3.46 2.90 2.52 3.37
Lease financing receivables 0.04 0.14 0.28 0.48 0.20
Other loans 0.00 0.00 0.00 0.00 0.65
------ ------- ------- ------ -------
Total portfolio loans 100.00% 100.00 % 100.00% 100.00% 100.00%
====== ======= ======= ======= =======
</TABLE>
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The following table sets forth the contractual amortization of real estate and
commercial loans at December 31, 1997 and 1996. Loans having no stated schedule
of repayments and no stated maturity are reported as due in one year or less.
The table also sets forth the dollar amount of loans scheduled to mature after
one year, according to their interest rate characteristics (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
Type of loan: Real Estate Commercial Real Estate Commercial
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Amounts due:
One year or less $ 64,668 $ 15,156 $ 91,174 $ 18,730
After one through five years 273,650 17,728 178,746 16,580
More than five years 748,181 3,380 580,265 2,107
----------- ----------- ----------- ----------
Total $ 1,086,499 $ 36,264 $ 850,185 $ 37,417
=========== =========== =========== ==========
Interest rate terms on amounts due after one year:
Adjustable $ 689,181 $ 6,806 $ 511,222 $ 12,053
Fixed 332,650 14,302 247,789 6,634
----------- ----------- ----------- ----------
Total $ 1,021,831 $ 21,108 $ 759,011 $ 18,687
=========== =========== =========== ==========
</TABLE>
CREDIT ADMINISTRATION
The loan approval process provides for various levels of lending authority to
loan officers, the Officers' Loan Committee, and the Chairman and Chief
Executive Officer. In addition, loans in excess of $1.5 million require the
approval of the Board of Directors' Loan Committee or a majority of the full
Board prior to funding. Loan purchases are generally made subject to the same
underwriting standards as loan originations. All loan purchases must be approved
in advance of funding by the Chief Executive Officer and are reported to the
full Board following purchase. To achieve consistency in underwriting policies
and procedures, the supervision of all credit decision functions is centralized.
Real estate lending is defined as extensions of credit secured by liens on
interests in real estate or made for the purpose of financing the construction
of a building or other improvements to real estate, regardless of whether a lien
has been taken on the property. Applicable regulations require that
comprehensive written real estate lending policies be adopted and maintained
that are consistent with safe and sound banking practices. These lending
policies must reflect consideration of the Interagency Guidelines for Real
Estate Lending Policies adopted by the federal banking agencies in December 1992
(the "Guidelines"). Pursuant to the mandates of the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), the Guidelines set forth
regulations prescribing standards for real estate lending, which the Company has
incorporated into its lending policy.
The Company's lending policy addresses certain lending considerations set forth
in the Guidelines, including LTV limits, loan administration procedures,
underwriting standards, portfolio diversification standards and documentation,
approval and reporting requirements. The LTV ratio framework, with an LTV ratio
being the total amount of credit to be extended divided by the appraised value
or purchase price of the property at the time the credit is originated, has been
established for each category of real estate loans. The Company's policy,
subject to certain approval exceptions, establishes, among other things, the
following LTV limits: raw land (65%); land development (75%); construction
(commercial, multifamily and non-residential) (80%); and improved property
(85%). For portfolio purposes, loans on one-to-four family residential (owner
occupied) mortgages where the LTV exceeds 95% are not made, and any LTV Ratio in
excess of 80% generally requires appropriate insurance or additional security
from readily marketable collateral. Loans with a LTV higher than 95% may be made
if saleable to investors at an acceptable premium. The policy is reviewed and
approved by the Board of Directors at least annually.
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The Company's commercial (business) lending is based on a strategy of extending
credit to the local business community, and the Company's policy has been to
make corporate and commercial loans to borrowers with satisfactory cash flows.
The loan portfolio is managed on an ongoing basis pursuant to written portfolio
management strategies, guidelines for underwriting standards and risk
assessment, and procedures for ongoing identification and management of credit
deterioration. Regular portfolio reviews are undertaken to estimate loss
exposure and ascertain compliance with policies (see -- "Asset Quality").
ASSET QUALITY
ALLOWANCE/PROVISION FOR LOAN LOSSES
The allowance for loan losses represents management's estimate of an amount
adequate to provide for potential losses inherent in the loan portfolio.
However, it is likely that there are additional risks of future losses which
cannot be quantified precisely or attributed to particular loans or classes of
loans. Because those risks include general economic trends, as well as
conditions affecting individual borrowers, management's judgment of the reserve
is necessarily approximate and imprecise. The allowance is also subject to
regulatory examinations and determinations as to adequacy, which may take into
account such factors as the methodology used to calculate the allowance and the
size of the allowance in comparison to peers identified by the regulatory
agencies.
The Company believes that its loan loss allowance policy is both consistent with
policies established by the FDIC and commensurate with historical loss
experience. Provisions for loan losses charged to expense during each period
will be the result of management's assessment of the adequacy of the allowance
when compared to the inherent risk of the portfolio. As part of the risk
assessment for loans purchased in the CrossLand Purchase and Assumption and for
loans purchased during 1994, 1995, 1996, and 1997 management allocated a portion
of the discount on such loan purchases to the allowance in amounts which are
consistent with loan loss allowance policy guidelines. Amounts resulting from
discount allocation to the allowance are available to absorb potential losses
only on those purchased loans and are not available for losses from other loans.
To the extent that losses in certain pools or portfolios of loans exceed the
loan loss allowance and any remaining unearned loan discount, or available as a
general allowance, the Company's results of operations would be adversely
effected.
Management conducts an ongoing evaluation and grading of its loan portfolio
according to an eight-point rating system. The loan ratings serve as a guideline
in assessing the risk level of a particular loan and provide a basis for the
establishment of the overall allowance. The Loan Review Department independently
rates loans and, on a quarterly basis, meets with senior management and the loan
officers to discuss all loans which have been identified for potential credit
quality problems. The Loan Review Department also reports its findings to the
Directors' Audit Committee to ensure independence of the loan grading function.
Various loan purchases were made totaling $157.4 million, during 1994, $102.3
million during 1995, $8.2 million during 1996 and $95.4 million during 1997. A
portion of the discount on those purchased loans was allocated to the allowance
in amounts consistent with the Company's loan loss allowance policy guidelines.
The remainder of the discount arising from the purchase price is recorded as
unearned discount and subsequently accredited to income as a yield adjustment
over the life of the loans. In 1995, such allocation included $7.2 million
related solely to one particular portfolio purchase in the aggregate principal
amount of $48.1 million. Subsequently, the principal balance of the March 1995
Purchase had declined to $39.9 million and the allowance allocated to this
purchase was reduced to $4.4 million. This was principally the result of charges
to the reserve for loans which were nonperforming when acquired and subsequently
taken into foreclosure and recorded at their fair value. The Company's history
of administering this loan purchase indicates that the expected loss rate on the
remaining loans in this portfolio will be less than the amount remaining in the
allowance. Consequently, the Company reallocated $1.5 million from the allowance
to unearned discount in the fourth quarter of 1996, reducing the December 31,
1996 allowance allocated to the March 1995 Purchase to $4.4 million. In the
third quarter of 1997, the Company sold $7.2 million of loans previously
purchased and transferred $773,000 of the amount originally allocated to the
allowance for purchased loans into the allocation for originated loans. At
December 31, 1997, $3.4 million was allocated to the March 1995 Purchase, $1.0
million was allocated to loans purchased from CrossLand, $1.0 million was
allocated to the July 1997 Purchase, $1.4 million was allocated to other loan
purchases, and $13.9 million was allocated to originated loans. At December 31,
1997, the amount of unearned discount on purchased loans which had not been
allocated to the allowance totaled $4.6 million.
7
<PAGE> 12
Activity to the allowance during 1997 included a $2.6 million provision for loan
losses, $769,000 of loan charge-offs (net of recoveries), $39,000 reallocated
from loan discounts to the allowance and $132,000 in allowances obtained through
the Firstate Acquisition. Activity to the allowance during 1996 included a $2.6
million provision for loan losses, loan charge-offs (net of recoveries) of $2.2
million, and $1.7 million transferred to unearned discount. The net charge-off
amount for 1996 included $1.0 million assessed against the allowance for loans
acquired in the March 1995 Purchase as properties securing certain nonperforming
loans, which were purchased at a substantial discount, were acquired through
foreclosure and recorded at their fair value.
[Balance of page intentionally left blank]
8
<PAGE> 13
The following table sets forth information concerning the activity in the
allowance for loan losses during the periods indicated (in thousands):
<TABLE>
<CAPTION>
Seven Five
Years Ended December 31, Months Ended Months Ended
----------------------------------------- December 31, May 31,
1997 1996 1995 1994 1993 1993 (1)
---- ---- ---- ---- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Allowance at beginning
of period: $ 18,746 $ 20,048 $ 15,272 $ 15,872 $ 8,293 $ 1,958
Reserves from Firstate
Acquisition 132 -- -- -- -- --
Allowance activity related to
minority interest -- -- -- -- 2,294 --
Loan discount (net) allocated
to/(from) the allowance for
loans acquired in the:
Purchase and Assumption -- -- -- (757) 4,046 --
Loans purchased in 1994 -- (202) -- 1,400 -- --
Loans purchased in 1995 (773) (1,541) 7,658 -- -- --
Loans purchased in 1996 -- 11 -- -- -- --
Loans purchased in 1997 812 -- -- -- -- --
--------- ---------- ---------- ---------- ----------- -----------
Total loan discount allocated
to/(from) the allowance 39 (1,732) 7,658 643 4,046 --
Charge-offs:
Residential loans (1-4 family) (590) (1,736) (275) (119) (745) --
Commercial real estate/
multi-family -- (170) (4,054) (1,612) (1,586) (43)
Commercial (business) (125) (249) (1,000) (320) (437) (439)
Consumer and other loans (288) (292) (207) (141) (268) (50)
--------- --------- --------- ---------- ----------- ------------
Total charge-offs (1,003) (2,447) (5,536) (2,192) (3,036) (532)
Recoveries:
Residential loans (1-4 family) 3 31 50 62 928 1
Commercial real estate/
multi-family 54 35 379 113 19 1
Commercial loans (business) 152 168 53 64 91 44
Consumer and other loans 25 62 10 1 15 15
--------- --------- --------- ---------- ----------- ------------
Total recoveries 234 296 492 240 1,053 61
Net charge-offs (769) (2,151) (5,044) (1,952) (1,983) (471)
Reclassification of allowance for
in substance foreclosures under
adoption of SFAS Nos.114 and 118 -- -- -- 537 -- --
Provisions for loan losses 2,628 2,582 2,162 172 3,222 379
--------- --------- --------- ---------- ----------- -------------
Allowance at end of period $ 20,776 $ 18,747 $ 20,048 $ 15,272 $ 15,872 $ 1,866
========= ========= ========= ========== =========== =============
Charges to allocated loan discount 0.04 0.16% 0.10% 0.23% 0.00% 0.00%
Other net charge-offs 0.03 0.08 0.55 0.12 0.59 0.43
--------- ---------- --------- ---------- ----------- -------------
Total net charge-offs to
average loans 0.07 % 0.24% 0.65% 0.35% 0.59% 0.43%
========= ========= ========= ========== =========== =============
</TABLE>
(1) Restatement to include FFO Financial, Inc. for the five months ended May 31,
1993, is not required.
9
<PAGE> 14
The following table sets forth the allocation of the allowance based on
management's subjective estimates and the percent of the loan portfolio for each
category presented. The amount allocated to a particular segment should not be
construed as the only amount available for future charge-offs that might occur
within that segment. In addition, the amounts allocated by segment may not be
indicative of future charge-off trends. The allocation of the allowance may
change from year to year should management determine that the risk
characteristics of the loan portfolio and off-balance sheet commitments have
changed.
<TABLE>
<CAPTION>
1997 1996
----------------------- ----------------------
Allowance Allocation Amount Percent Amount Percent
------ ------- ------ -------
(in thousands)
<S> <C> <C> <C> <C>
Performing/not classified:
Residential loans:
March 1995 Purchase $ 3,421 2.3% $ 4,171 1.9 %
All other residential 1,344 57.6 2,058 58.0
Commercial (business) 347 2.7 370 2.5
Commercial real estate 3,340 28.4 3,137 28.1
Consumer & other 1,383 5.5 931 6.1
--------- ------- -------- -----
Subtotal $ 9,835 96.5 $ 10,667 96.6
Nonperforming/classified:
Special mention 181 .7 124 .6
Substandard & nonperforming 5,050 2.6 3,488 2.6
Doubtful 722 .1 674 .1
Loss 992 .1 800 .1
--------- ------- -------- ------
Subtotal 6,945 3.5 5,086 3.4
Off balance sheet risk 946 -- 434 --
Unallocated 3,050 -- 2,560 --
--------- ------- -------- ------
Total $ 20,776 100.0% $ 18,747 100.0%
========= ======= ======== ======
</TABLE>
NONPERFORMING ASSETS
Nonperforming assets include (i) loans which are 90 days or more past due and
have been placed into non-accrual status, (ii) restructured loans that have not
yet demonstrated a sufficient payment history to warrant return to performing
status and therefore, are not accruing interest, (iii) accruing loans that are
90 days or more delinquent that are deemed by management to be adequately
secured and in the process of collection, and (iv) ORE (i.e., real estate
acquired through foreclosure or deed in lieu of foreclosure). All delinquent
loans are reviewed on a regular basis and are placed on non-accrual status when,
in the opinion of management, the possibility of collecting additional interest
is deemed insufficient to warrant further accrual. As a matter of policy,
interest is not accrued on loans past due 90 days or more unless the loan is
both well secured and in process of collection. When a loan is placed in
non-accrual status, interest accruals cease and uncollected accrued interest is
reversed and charged against current income. Additional interest income on such
loans is recognized only when received.
Loans classified as non-accrual totaled $19.4 million at December 31, 1996,
compared with $27.0 million at December 31, 1997, an increase of $7.6 million.
This increase was primarily the result of a $1.6 million increase in one-to-four
family residential nonperforming loans which were purchased from the FDIC in
July, 1997; $1.0 million in other residential loans purchased; $2.2 million
increase in originated residential loans; $1.1 million in commercial real estate
and multifamily loans; and $1.3 million in Small Business Association ("SBA")
claims receivable. At December 31, 1997, and December 31, 1996, the Company had
nonperforming assets (including loans classified as non-accrual) of $34.2
million or 2.20 % of total assets and $27.8 million or 2.27% of total assets,
respectively. The ratio of nonperforming assets to total assets was 2.78 % at
year-end 1995 and 3.96 % at year-end 1994. Accruing loans which were 90 days
past due amounted to $196,000 at December 31, 1997, and $113,000 at December 31,
1996, and primarily consisted of loans in process of renewal. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- -Comparison of Balance Sheets at December 31, 1997 and 1996."
10
<PAGE> 15
The following table sets forth information regarding the components of
nonperforming assets at the dates indicated (in thousands):
<TABLE>
<CAPTION>
Nonperforming Assets: At December 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
- -----------------
Residential loans (1-4 family) $13,675(1) $ 9,446(1) $ 10,427(1) $ 9,433 $ 5,000
Multi-family residential 194 55 129 1,160 10,670
Commercial real estate 9,121 8,140 4,119 3,907 1,769
Commercial (business) 2,031 1,604 1,059 1,179 1,002
Home equity and consumer 619 164 495 632 143
SBA claims receivable 1,319 -- -- -- --
------- --------- --------- ------- -------
Total non-accrual loans 26,959 19,409 16,229 16,311 18,584
ORE acquired through foreclosure 6,997 8,320 12,546 18,205 24,853
Accruing loans 90 days
past due 196 113 1,876 293 725
------- --------- --------- ------- -------
Nonperforming assets $34,152 $ 27,842 $ 30,651 $34,809 $44,162
======= ========= ========= ======= =======
Nonperforming loans
to loans 2.37% 2.12% 2.18% 2.44% 4.03%
Nonperforming assets
to total assets 2.20% 2.27% 2.78% 3.96% 5.66%
</TABLE>
(1)Net of $157,000, $184,000 and $950,000 of loan loss allowances at December
31, 1997, 1996, and 1995, respectively, allocated to nonaccrual loans acquired
in the March 1995 Purchase.
OTHER REAL ESTATE ACQUIRED THROUGH FORECLOSURE
All ORE assets are recorded at the lower of cost or estimated fair value based
on appraisal information that is updated when a property is taken into ORE and
thereafter when determined appropriate by management. As of December 31, 1997,
in no case did the book value of any ORE property exceed 90% of the most recent
appraisal.
The following table sets forth information regarding the Company's ORE
balances, net of allowances, as of the dates indicated (in thousands):
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Vacant undeveloped residential land $ 1,145 $ 1,334 $ 1,755 $ 2,444 $ 4,137
Vacant developed residential lots 254 254 265 434 600
Residential houses 1,654 2,541 860 1,313 795
Vacant commercial undeveloped land 855 821 1,357 6,419 4,716
Commercial land developed for sale 2,600 3,200 4,823 6,771 9,545
Income-producing commercial buildings 427 12 2,801 -- 3,534
Vacant commercial buildings 62 -- 685 824 1,526
------- ------- ------- ------- -------
Total ORE $ 6,997 $ 8,162 $12,546 $18,205 $24,853
======= ======= ======= ======= =======
ORE to total assets 0.45% 0.68% 1.14% 2.07% 3.18%
======= ======= ======= ======= =======
</TABLE>
At December 31, 1997, ORE properties with book values in excess of $1.0 million
included a tract of land in Holiday, Florida, currently carried at $2.7 million,
that has been developed as a shopping center site. This tract was obtained in
1988 through foreclosure in connection with a $1.8 million loan. The tract
contains wetlands, some of which were required to be filled, and the resultant
permitting process took approximately five years to complete. During that time,
more than $2.0 million was spent in engineering, environmental, and legal costs
(which costs were capitalized) and approximately $500,000 for the purchase of
several additional parcels of land required for environmental mitigation
purposes pursuant to the permit requirements. The Company is offering for sale
the completed shopping center sites and other commercial pad sites. One shopping
center site was sold to a developer who constructed the retail space for the
11
<PAGE> 16
anchor tenants, Publix and Walgreens. The Company presently operates a branch
banking facility on the tract. Federal regulations had required the Bank to
dispose of the tract no later than December 31, 1996, but the FDIC has approved
two extensions of the holding period to December 1998. While the current
appraisal indicates that the fair market value of the tract exceeds book value,
a sale to a party other than an end-user could result in proceeds below the
current book value.
TROUBLED DEBT RESTRUCTURINGS
A troubled debt restructuring ("TDR") is a situation in which the creditor
allows the debtor certain concessions that would not normally be allowed, such
as modifying the terms of the debt to a basis more favorable than those offered
to other creditors or accepting third-party receivables in lieu of the debt. At
December 31, 1997 and 1996, the loan portfolio included TDRs amounting to $7.2
million and $7.4 million, respectively. Restructured, nonperforming loans (all
in non-accrual status), included in total TDR's, for those same periods were
$4.9 million and $6.0 million, respectively.
INVESTMENT ACTIVITIES
State law requires that a specified minimum amount of liquid assets be
maintained, based on the level of deposits, which are subject to certain
restrictions. At all times during 1997, the amount of liquid assets maintained
exceeded the regulatory minimum.
EMPLOYEES
At December 31, 1997, there were 1,045 full-time equivalent employees, none of
whom were represented by a union or other collective bargaining agreement. The
Company makes use of part-time and flex-time employees in connection with its
branch operations. One of the Company's primary operating principles is to
nurture its staff through, among other things, fair compensation, a good working
environment and career development and enhancement opportunities.
Management considers its relations with its employees to be good.
MARKET AREA
Currently, the Company has 46 branches, including three branches in Pasco
County, 20 branches in Pinellas County, seven branches in Manatee County, five
branches in each of Osceola and Brevard counties, two branches in each of
Sarasota and Orange counties, and one branch in each of Hernando and Seminole
counties. As a multi-branch institution, the Company's market area encompasses
all of the counties in which it operates. If consummated, the Proposed
Acquisitions will increase the Bank's branch network from 46 branches in nine
counties to 56 branches in 15 counties in Florida and the Savings Bank will have
one branch in Glynn County, Georgia, with a headquarters branch in Pinellas
County, Florida. The Company also operates 10 loan production offices in
Pinellas, Lee, Orange, Palm Beach and Polk counties in Florida, one office in
Boston, Massachusetts, and one wholesale lending operation in Irvine,
California.
Most of the Company's branches are in Metropolitan Statistical Areas ("MSA"). An
MSA is defined by the U.S. Census Bureau as a geographic area with a significant
population nucleus, along with any adjacent communities that have a high degree
of economic and social integration with the nucleus. Of the Company's branches,
33 are in the MSA's which anchor the west coast of Florida: Tampa-St.
Petersburg-Clearwater, which includes Hillsborough, Hernando, Pasco and Pinellas
counties, and Sarasota-Bradenton, comprised of Manatee and Sarasota counties. As
of April 1, 1997, the latest estimates available, the Tampa-St. Petersburg MSA
had a population of 2.25 million, ranking it 23rd in the nation.
Sarasota-Bradenton had a population of 552,500, ranking it 95th. Together, the
two MSAs had a combined population of 2.8 million residents which would rank
approximately 12th in the United States. The economic base of the MSAs in which
the Company has branches are supported by a large and growing segment of
retirees, tourism, which contributes to the economic base throughout the year,
and light industry.
12
<PAGE> 17
Florida is a highly competitive state for financial service of all kinds.
Competition for deposits also exists from money market funds and credit unions.
Competition for mortgage loans is extremely strong from specialized lenders,
other mortgage bankers and independent brokers capable of selling qualified
mortgage loans to the highest bidder. Similarly, consumers can choose from a
wide range of suppliers of personal credit, including credit card companies,
consumer finance companies and credit unions.
The Company ranked 13th among banks and 24th among all depository institutions
in the state of Florida in terms of deposits held as of December 31, 1997, the
latest date for which data is available. As the table below indicates, market
share ranges from almost 14% in Osceola County to just over 1% in Sarasota,
Orange and Pasco counties.
<TABLE>
<CAPTION>
Branch Deposits by County
September 30, 1997
($ in millions)
The Company Total The Company
----------- ----- -----------
<S> <C> <C> <C>
Brevard $ 135 $ 3,814 3.9%
Hernando 8 1,934 .4
Manatee 174 2,808 6.2
Pasco 56 3,786 1.5
Pinellas 141 1,022 13.9
Osceola 174 2,808 6.2
Orange 102 7,922 1.4
Sarasota 75 5,715 1.3
------- --------- -----
Total $ 1,290 $ 39,523 3.3%
======= ========= =====
</TABLE>
MARKET RISK
The market risk inherent in the Company's market sensitive instruments is the
potential loss arising from changes in interest rates and the changes of prices
of marketable equity securities. At December 31, 1997, the Company did not use
derivative financial instruments to manage its market risk.
One of the primary objectives of the Company is to reduce fluctuations in net
interest income caused by changes in interest rates. To manage interest rate
risk, the Board of Directors has established interest-rate risk policies and
procedures which delegate to the Asset/Liability Committee the responsibility to
monitor and report on interest-rate risk, devise strategies to manage
interest-rate risk, monitor loan originations and deposit activity, and approve
all pricing strategies. The Company manages its interest rate market risk on the
loans held for sale and its estimated future commitments to originate and close
mortgage loans for borrowers at fixed prices ("Locked Loans") through hedging
techniques which include listed options and fixed price forward delivery
commitments ("Forward Commitments") to sell mortgage- backed securities or
specific whole loans to investors on a mandatory or best efforts basis. The
Company records the inventory of loans held for sale at the lower of cost or
market on an aggregate basis after considering any market value changes in the
loans held for sale, Locked Loans, and Forward Commitments.
Currently, all investments in the Company's portfolio are identified as
securities available for sale or as trading assets. Securities
available-for-sale, which are those securities that may be sold prior to
maturity as part of 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. 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 interest only strips
receivable. Trading securities are carried at market value with any unrealized
gains or losses included in the statement of operations under "Gain on sale of
securities, net."
13
<PAGE> 18
The table below represents principal amounts and related average interest rates,
by year of maturity, for the Company's market sensitive instruments (dollars in
thousands).
<TABLE>
<CAPTION>
Assets 1998 1999 2000 2001 2002 Thereafter Total
- ------ -------- -------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest bearing
deposits $ 671 $ -- $ -- $ -- $ -- $ -- $ 671
Avg. interest rate 5.46% -- -- -- -- -- 5.46%
Federal funds
sold 33,000 -- -- -- -- -- 33,000
Avg. interest rate 5.55% -- -- -- -- -- 5.55%
U.S. treasuries and
government agencies -- -- -- -- -- 14,535 14,535
Avg. interest rate -- -- -- -- -- 6.17% 6.17%
Revenue bond -- -- -- -- -- 1,545 1,545
Avg. interest rate -- -- -- -- -- 8.60% 8.60%
Mortgage-backed
Securities 11,101 10,723 10,279 10,200 10,116 40,094 92,513
Avg. interest rate 6.99% 7.05% 7.02% 7.01% 6.99% 7.00% 6.96%
FHLB stock -- -- -- -- -- 8,148 8,148
Avg. interest rate -- -- -- -- -- 7.25% 7.25%
Loans portfolio 96,064 120,425 91,049 86,791 69,750 837,056 1,301,135
Avg. interest rate 8.56% 8.47% 8.44% 8.43% 8.43% 8.37% 8.42%
Mortgage servicing
Rights 356 338 322 306 290 5,513 7,125
Avg. interest rate -- -- -- -- -- -- --
Liabilities
Deposits 875 357 273 33 23 8 1,361,312
Avg. interest rate 4.14% 5.51% 5.97% 5.80% 5.80% 5.75% 4.32%
Securities sold under
Agreements to repurch. 19,654 -- -- -- -- -- 19,654
Avg. interest rate 4.99% -- -- -- -- -- 4.99%
FHLB advances 35,000 -- -- -- -- -- 35,000
Avg. interest rate 5.90% -- -- -- -- -- 5.90%
</TABLE>
SUPERVISION AND REGULATION
The Company and the Bank are, and the Savings Bank once chartered will be,
extensively regulated under both federal and state law. The following is a brief
summary of certain statutes, rules, and regulations affecting the Company, the
Bank and the Savings Bank. This summary is qualified in its entirety by
reference to the particular statutory and regulatory provisions referenced below
and is not intended to be an exhaustive description of the statutes or
regulations applicable to the Company's business. Supervision, regulation, and
examination of the Company, the Bank, and the Savings Bank by the bank
regulatory agencies are intended primarily for the protection of depositors
rather than stockholders.
REGULATION OF THE COMPANY
The Company is a bank holding company registered with the Federal Reserve under
the Bank Holding Company Act of 1956, as amended ("BHC Act"). As such, the
Company is subject to the supervision, examination, and reporting requirements
of the BHC Act and the regulations of the Federal Reserve.
The BHC Act requires every bank holding company to obtain the prior approval of
the Federal Reserve before: (i) it may acquire direct or indirect ownership or
control of any voting shares of any bank if, after such acquisition, the bank
holding company will directly or indirectly own or control more than five
percent 5.0% of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of the
14
<PAGE> 19
bank; or (iii) it may merge or consolidate with any other bank holding company.
Similar federal statues require bank holding companies and other companies to
obtain the prior approval of the OTS before acquiring ownership or control of a
savings association.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community served. The Federal Reserve is also required to consider the
financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the communities
to be served. Considerations of financial resources generally focuses on capital
adequacy, and consideration of convenience and needs issues includes the
parties' performance under the Community Reinvestment Act of 1977 (the "CRA").
The BHC Act, as amended by the interstate banking provisions of the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking
Act"), authorizes the Company, and any other bank holding company located in
Florida to acquire a bank located in any other state, and any bank holding
company located outside Florida may lawfully acquire any Florida-based bank,
regardless of state law to the contrary, in either case subject to certain
deposit-percentage, aging requirements, and other restrictions. The Interstate
Banking Act also generally provides that national and state-chartered banks may
branch interstate through acquisitions of banks in other states, unless a state
has "opted out" of the interstate branching provisions of the Interstate Banking
Act prior to June 1, 1997. Neither Florida nor any other state in the
southeastern United States has "opted out." Accordingly, the Company would have
the ability to acquire a bank in a state in the Southeast and thereafter
consolidate all of its bank subsidiaries into a single bank with interstate
branches.
The BHC Act generally prohibits the Company from engaging in activities other
than banking or managing or controlling banks or other permissible subsidiaries
and from acquiring or retaining direct or indirect control of any company
engaged in any activities other than those activities determined by the Federal
Reserve to be so closely related to banking or managing or controlling banks as
to be a proper incident thereto. While these activity restrictions are not
applicable to the Bank, they will apply to the Savings Bank. Thus, the Savings
Bank and its subsidiaries will not be able to engage in certain insurance and
real estate development-related activities that could otherwise be conducted if
the thrift were a stand-alone entity or were owned by a unitary savings and loan
holding company.
In determining whether a particular activity is permissible, the Federal Reserve
must consider whether the performance of such an activity reasonably can be
expected to produce benefits to the public, such as greater convenience,
increased competition, or gains in efficiency, that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices. For example,
operating a thrift subsidiary, factoring accounts receivable, acquiring or
servicing loans, leasing personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in selling credit life insurance and certain other types of
insurance in connection with credit transactions, and performing certain
insurance underwriting activities all have been determined by the Federal
Reserve to be permissible activities of bank holding companies. The BHC Act does
not place territorial limitations on permissible nonbanking activities of bank
holding companies. Despite prior approval, the Federal Reserve has the power to
order a bank holding company or its non-bank subsidiaries to terminate any
activity or to terminate its ownership or control of any subsidiary when it has
reasonable cause to believe that continuation of such activity or such ownership
or control constitutes a serious risk to the financial safety, soundness, or
stability of any bank subsidiary of the holding company.
Under Federal Reserve policy, bank holding companies are expected to act as a
source of financial strength and support to their subsidiary banks. This support
may be required at times when, absent such Federal Reserve policy, the holding
company may not be inclined to provide it. In addition, any capital loans by a
bank holding company to any bank subsidiary are subordinate in right of payment
to deposits and to certain other indebtedness of such subsidiary bank. In the
event of a bank holding company's bankruptcy, any commitment by the bank holding
company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority payment.
15
<PAGE> 20
REGULATION OF THE BANK AND THE PROPOSED SAVINGS BANK
The Bank is organized as a Florida-chartered commercial bank and is regulated
and supervised by the Department. In addition, the Bank is regulated and
supervised by the FDIC, which serves as its primary federal regulator and the
administrator of the fund that insures the Bank's deposits. Accordingly, the
Department and the FDIC conduct regular examinations of the Bank, reviewing the
adequacy of the loan loss reserves, quality of loans and investments, propriety
of management practices, compliance with laws and regulations, and other aspects
of the Bank's operations. In addition to these regular examinations, the Bank
must furnish to the FDIC quarterly reports containing detailed financial
statements and schedules. Once organized, the Savings Bank will be 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. The OTS's examinations of the Savings Bank will be
similar to the current examinations of the Bank by the FDIC and the Department.
Federal and Florida banking laws and regulations govern all areas of the
operations of the Bank, including reserves, loans, mortgages, capital, issuances
of securities, payment of dividends, and establishment of branches. As its
primary federal regulator, the FDIC has authority to impose penalties, initiate
civil and administrative actions, and take other steps intended to prevent the
Bank from engaging in unsafe or unsound practices. The Bank is a member of the
Bank Insurance Fund and, as such, deposits in the Bank are insured by the FDIC
to the maximum extent permissible by law.
As a federally-chartered institution, the Savings Bank and its deposit-taking
and lending activities will be governed primarily by federal law, although
certain aspects of Florida and Georgia law will be applicable to the Savings
Bank and its branch banking facility in Brunswick. The OTS will exercise
supervision and enforcement authority over the Savings Bank similar to that
currently exercised by the FDIC with respect to the Bank. The Savings Bank will
be a member of the SAIF, and deposits in the Savings Bank will be insured by the
FDIC to the same extent as those of the Bank.
The Bank is, and the Savings Bank will be, subject to the provisions of the CRA.
Under the CRA, the Bank and the Savings Bank have a continuing and affirmative
obligation consistent with their safe and sound operation to help meet the
credit needs of their entire communities, including low- and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit the Bank's or the Savings
Bank's discretion to develop the types of products and services that it believes
are best suited to their particular communities, consistent with the CRA. The
CRA requires the appropriate federal bank regulatory agency (in the case of the
Bank, the FDIC, and in the case of the Savings Bank, the OTS), in connection
with their regular examinations, to assess a financial institution's record in
meeting the credit needs of the community serviced by it, including lowand
moderate-income neighborhoods. The assessment of a federally-regulated financial
institution's CRA record is made available to the public. Further, such
assessment is required whenever the institution applies to, among other things,
establish a new branch that will accept deposits, relocate an existing office or
merge or consolidate with, or acquire the assets of or assume the liabilities
of, a federally-regulated financial institution. In the case where Republic
applies for approval to acquire a bank or other bank holding company, the
federal regulator approving the transaction will also assess the CRA records of
the Bank (and, after it is chartered, the Savings Bank). The Bank received a
"Satisfactory" CRA rating in its most recent examination.
In April 1995, the federal banking agencies adopted amendments revising their
CRA regulations, with a phase-in schedule applicable to various provisions.
Among other things, the amended CRA regulations, which became fully effective on
July 1, 1997, substitute for the prior process-based assessment factors a new
evaluation system that will rate an institution based on its actual performance
in meeting community needs. In particular, the system will focus on three tests:
(i) a lending test, to evaluate the institution's record of making loans in its
service areas; (ii) an investment test, to evaluate the institution's record of
investing in community development projects; and (iii) a service test, to
evaluate the institution's delivery of services through its branches and other
offices. The amended CRA regulations also clarify how an institution's CRA
performance will be considered in the application process. The Company does not
anticipate that the revised CRA regulations will have any material impact on the
Bank's or the Savings Bank's operations or that they will have any impact on
either institution's CRA rating.
DEPOSIT INSURANCE
16
<PAGE> 21
The Bank is, and the savings Bank will be, subject to FDIC deposit insurance
assessments. In 1994, the Bank became subject to a new risk-based assessment
system for insured depository institutions that takes into account the risks
attributable to different categories and concentrations of assets and
liabilities. The new system assigns an institution to one of three capital
categories: (i) well capitalized; (ii) adequately capitalized; and (iii)
undercapitalized. An institution is also assigned, by the FDIC, to one of three
supervisory subgroups within each capital group. The supervisory subgroup to
which an institution is assigned is based on a supervisory evaluation provided
to the FDIC by the institution's primary federal regulator and information which
the FDIC determines to be relevant to the institution's financial condition and
the risk posed to the deposit insurance funds (which may include, if applicable,
information provided by the institution's state supervisor). An institution's
insurance assessment rate is then determined based on the capital category and
posed to the deposit insurance funds (which may include, if applicable,
information provided by the institution's state supervisor). An institution's
insurance assessment rate is then determined based on the capital category and
supervisory category to which it is assigned. Under the risk-based assessment
system, there are nine assessment risk classifications (i.e., combinations of
capital groups and supervisory subgroups) to which different assessment rates
are applied. Assessment rates on deposits for an institution in the highest
category (i.e., "well capitalized" and "healthy") are less than assessment rates
on deposits for an institution in the lowest category (i.e., "undercapitalized"
and "substantial supervisory concern").
Prior to enactment of the Funds Act, the SAIF assessments were used to pay
interest on bonds issued by the Financing Corporation (the "FICO") in the late
1980s to fund the resolution of troubled thrifts, and only insurance payments by
SAIF-member institutions were available to satisfy FICO's interest payment
obligations. A second provision of the Funds Act severs the linkage that had
existed between the SAIF and the FICO funding requirements, authorizing the FICO
to impose its own assessments separate and apart from any insurance fund
assessment. The Funds Act also shifts a portion of the FICO funding obligations
to BIF-member institutions beginning in 1997. Through the end of 1999, the FICO
assessment rate on BIF-assessable deposits is required by the statute to be
one-fifth of the SAIF rate. Thereafter, FICO assessment rates for members of
both insurance funds will presumably be equalized
Currently, the FICO assessment rate for BIF assessable deposits is 0.013 percent
(or 1.3 basis points) and the FICO assessment rate for SAIF assessable deposits
if 0.0648 percent or (6.48 basis points). In 1997, the Bank's total FICO payment
obligation was $824,000, $782,000 of which was attributable to the Bank's
SAIF-assessable deposits and the balance of which was attributable to its
BIF-assessable deposits. As noted above, because all of the Savings Bank's
initial deposits are being acquired from a BIF-insured bank, it is anticipated
that all of the Savings Bank's deposits will be subject to the BIF's 1.3 basis
point assessment rate in 1998 and 1999 (rather than the SAIF's rate) barring any
assumption of SAIF-assessed deposits by the Savings Bank during such a period.
The Bank, as a state-chartered commercial bank, is a member of the Bank
Insurance Fund (the "BIF). However as part of the CrossLand Purchase and
Assumption, the Bank acquired $327.7 million in deposits insured by the Savings
Association Insurance Fund (the "SAIF") and thereby became a so-called Oakar
bank. Based on the CrossLand Purchase and Assumption and the Firstate
acquisition, the bank is required to pay insurance premiums to the FDIC on a
substantial portion of its deposits at the SAIF assessment rate notwithstanding
its status as a BIF member. As of December 31, 1996, the most recent measurement
date for assessment purposes, approximately 76% of the Bank's deposits were
treated as SAIF-insured deposits, with the remaining 24% of deposits being
assessed at the BIF rate. The Savings Bank, once chartered, will technically be
a member of the SAIF. However, since all of its initial deposits will be
deposits assumed by the Savings Bank from Barnett, a BIF-member bank, it is
anticipated that all of the Savings Bank's deposits will be assessed at the BIF
assessment rate.
Until recently, the FDIC had established separate risk-based assessment
schedules for the BIF and the SAIF. In December 1996, the FDIC established the
current assessment schedule for BIF-assessed deposits, with assessment rates
ranging from zero percent to 0.27 percent (or 27 basis points) of deposits.
As part of the omnibus budget legislation passed in 1996, Congress enacted the
Deposit Insurance Funds Act of 1996 (the "Funds Act"). With certain exceptions,
the Funds Act imposed a one-time special assessment on SAIF-assessable deposits
held by all depository institutions in an aggregate amount that would cause the
SAIF to meet its designated reserves-to-deposits ratio of 1.25 percent. Pursuant
to the Funds Act, the Bank on November 27, 1996, paid a special assessment to
the SAIF of $4.0 million.
17
<PAGE> 22
CAPITAL REQUIREMENTS
The Company and the Bank are, and the Savings Bank will be, required to comply
with the capital adequacy standards established by the Federal Reserve (for the
Company), and the FDIC (for the Bank) and the OTS (for the Savings Bank). There
are three basic measures of capital adequacy for banks that have been
promulgated by the Federal Reserve; two risk-based measures and a leverage
measure. All applicable capital standards must be satisfied for a bank holding
company to be considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guidelines for the ratio of total capital ("Total Capital") to
risk-weighted assets (including certain off- balance-sheet items, such as
standby letter of credit) is 8.0%. At least half of Total Capital (i.e. 4% of
risk-weighted assets) must comprise common stock, minority interests in the
equity accounts of consolidated subsidiaries, noncumulative perpetual preferred
stock, and a limited amount of cumulative perpetual preferred stock, less
goodwill and certain other intangible assets ("Tier 1 Capital"). The remainder
may consist of subordinated debt, other preferred stock, and a limited amount of
loan loss reserves ("Tier 2 Capital"). In addition, the Federal Reserve has
established minimum leverage ratio guidelines for bank holding companies. These
guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less
goodwill and certain other intangible assets, of 3% for banks that meet certain
specified criteria, including having the highest regulatory rating. All other
bank holding companies generally are required to maintain a leverage ratio of at
least 3.0%, plus an additional cushion of 100 to 200 basis points. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above minimum supervisory levels, without significant reliance on
intangible assets. Furthermore, the Federal Reserve has indicated that it will
consider a "tangible Tier 1 Capital leverage ratio" (deducting all intangibles)
and other indicators of capital strength in evaluating proposals for expansion
or new activities.
The Bank had previously undertaken in writing to the FDIC to achieve a leverage
ratio of at least 5.5% by December 31, 1995, which it did, and the Company will
consider raising additional capital or reducing internal growth in order to
maintain the Bank's leverage ratio at or above that level, should the ratio fall
below that level in the future. Other than the foregoing commitment, the Bank
has not been advised by the FDIC of any specific minimum capital ratio
requirement applicable to it. As a condition to obtaining its charter and FDIC
insurance of accounts, the Savings Bank will be required to maintain a Tier 1
Capital-to-average assets ratio of at least 8% during its first three years of
operations.
For additional information regarding the Bank's capital requirements, see "Note
16 of the Company's Consolidated Financial Statement."
PAYMENT OF DIVIDENDS
As a Florida-chartered commercial bank, the Bank is subject to the laws of
Florida as to the payment of dividends. Under the Florida Financial Institutions
Code, the prior approval of the Department is required if the total of all
dividends declared by a bank in any calendar year will exceed the sum of the
bank's net profits for that year and its retained net profits for the preceding
two years.
As a federally-chartered thrift institution, the Savings Bank will be subject to
the OTS's regulations applicable to the payment of dividends and other capital
distributions by savings associations. Under these regulations, a thrift that is
well-capitalized (i.e., has risk-based capital of 10% or more, Tier 1 Capital of
5% or more and Tier 1 risk-based capital of 6% or more), both before and after
the proposed distribution, and that has not been designated by the OTS as being
"In need of more than normal supervision" may distribute in a calendar year the
greater of (i) 100% of net income for the current calendar year plus 50% of its
"capital surplus" or (ii) 75% of its net income over the most recent four
quarters. The percentages of income that may be distributed are lower for
thrifts that are adequately
18
<PAGE> 23
capitalized. It is the Company's current intention to maintain the Savings Bank
at a well-capitalized level such that it will be able to upstream as much of its
net income as is not required for the thrift's current operations and future
growth.
Under Federal law, if, in the opinion of the federal banking regulator, a bank
or thrift under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), such regulation
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Prompt
Corrective Action regulations adopted by the federal banking agencies in
December 1992, a depository institution may not pay any dividend to its holding
company if payment would cause it to become undercapitalized or if it already is
undercapitalized.
FEDERAL RESERVE SYSTEM
The Federal Reserve regulations require banks to maintain non-interest-earning
reserves against their transaction accounts (primarily NOW and regular checking
accounts). The new Federal Reserve Board regulations, effective April 1, 1997,
generally require that reserves be maintained against aggregate transaction
accounts as follows: (i) for accounts aggregating $49.3 million or less (subject
to adjustment by the Federal Reserve) the reserve requirement is 3.0%; and (ii)
for accounts greater than $49.3 million, the reserve requirement is $1,479,000
plus 10.0% (subject to adjustment by the Federal Reserve between 8.0% and 14.0%)
against that portion of total transaction accounts in excess of $49.3 million.
The first $4.4 million of otherwise reservable balances (subject to adjustments
by the Federal Reserve) are exempted from the reserve requirements. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve may
be used to satisfy liquidity requirements imposed by the Department. Because
required reserves must be maintained in the form of either vault cash, a
noninterest-bearing account at a Federal Reserve Bank or a pass-through account
as defined by the Federal Reserve, the effect of this reserve requirement is to
reduce the Bank's interest-earning assets. FHLB System members also are
authorized to borrow from the Federal Reserve "discount window," but Federal
Reserve regulations require institutions to exhaust all Federal Home Loan Bank
sources before borrowing from a Federal Reserve Bank.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB system, which consists of 12 regional Federal
Home Loan Banks governed and regulated by the Federal Housing Finance Board (the
"FHFB"). The Federal Home Loan Banks provide a central credit facility for
member institutions. The Bank, as a member of the FHLB, is required to acquire
and hold shares of capital stock in the FHLB in an amount at least equal to the
greater of 1% of the aggregate principal amount of its unpaid residential
mortgage loans, home purchase contracts and similar obligations as of the close
of each calendar year, or 5% of its borrowings from the FHLB (including advances
and letters of credit issued by the FHLB on the Bank's behalf). Once it is
chartered, the Savings Bank will be required to become a member of the FHLB and
to purchase stock in the FHLB.
The FHLB makes advances to members in accordance with policies and procedures
periodically established by the FHFB and the Board of Directors of the FHLB.
Currently outstanding advances from the FHLB are required to be secured by a
member's shares of stock in the FHLB and by certain types of mortgages and other
assets. Interest rates charged for advances vary depending on maturity, the cost
of funds to the FHLB and the purpose of the borrowing. As of December 31, 1997,
the Bank had $35.0 million of outstanding advances from the FHLB.
19
<PAGE> 24
LIQUIDITY
Under Florida banking regulations, the Bank is required to maintain a daily
liquidity position equal to at least 15% of its total transaction accounts and
eight percent of its total nontransaction accounts, less those deposits of
public funds for which security has been pledged as provided by law. The Bank
may satisfy its liquidity requirements with cash on hand (including cash items
in process of collection), deposits held with the Federal Reserve, demand
deposits due from correspondent banks, Federal funds sold, interest-bearing
deposits maturing in 31 days or less and the market value of certain
unencumbered, rated, investment-grade securities and securities issued by
Florida or any county, municipality of other political subdivision within the
State. The FDIC also reviews the Bank's liquidity position as part of its
examination and imposes similar requirements on the Bank. Any Florida-chartered
commercial bank that fails to comply with its liquidity requirements generally
may not further diminish liquidity either by making any new loans (other than by
discounting or purchasing bills of exchange payable at sight) or by paying
dividends. At December 31, 1997, the Bank's net liquid assets exceeded the
minimum amount required under the applicable Florida regulations.
MONETARY POLICY AND ECONOMIC CONTROLS
The banking business is affected not only by general economic conditions, but
also by the monetary policies of the of the Federal Reserve. Changes in the
discount rate on member bank borrowing, availability of borrowing at the
"discount window," open market operations, the imposition of changes in reserve
requirements against bank deposits and the imposition of and changes in reserve
requirements against certain borrowings by banks and their affiliates are some
of the instruments of monetary policy available to the Federal Reserve. The
monetary policies have had a significant effect on the operating results of
commercial banks and are expected to continue to do so in the future. The
monetary policies of the Federal Reserve are influenced by various factors,
including inflation, unemployment and short- and long-term changes in the
international trade balance and in the fiscal policies of the United States
Government. Future monetary policies and the effect of such policies on the
future business and earnings of the Bank cannot be predicted.
EFFECTS OF INFLATION
As a financial institution, the majority of the Company's assets are monetary in
nature and, therefore, differ greatly from those of more industrial or
commercial companies that have significant investments in fixed assets. The
effects of inflation on the financial condition and results of operations,
therefore, are less significant than the effects of changes in interest rates.
The most significant effect of inflation is on noninterest expense, which tends
to rise during periods of general inflation.
YEAR 2000 CONSIDERATIONS
In the next two years, many companies, including financial institutions such as
the Company, will face potentially serious issues 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. In 1997, the Company began the process of identifying the many
software applications and hardware devices expected to be impacted by this
issue. The Company outsources its principal data processing activities to one or
more third parties, and purchases most of its software applications from third
party vendors. The Company believes that its vendors are actively addressing the
problems associated with the "Year 2000" issue. While the Company expects that
efforts on the part of current employees of the Company will be required to
continue to monitor Year 2000 activities, the Company does not expect the cost
of addressing any Year 2000 issue will be a material event or uncertainty that
would cause reported financial information not to be necessarily indicative of
future operating results or financial condition.
20
<PAGE> 25
CHANGES IN ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") recently adopted or issued
proposals and guidelines that may have a significant impact on the accounting
practices of commercial enterprises in general and financial institutions in
particular.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights," which requires that a mortgage banking enterprise recognize as a
separate asset the right to service mortgage loans for others, regardless of the
manner in which such servicing rights are acquired. Moreover, this statement
requires that the total cost of acquiring mortgage loans be allocated to the
servicing rights and the loans based on their relative fair values, if
practicable. This standard was effective for fiscal years beginning after
December 15, 1995. Management implemented SFAS No. 122 beginning July 1, 1995.
The impact upon the results of operations of the Bank was not material.
During 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," which is
effective for the Company's fiscal year beginning January 1, 1997. SFAS 125
provides standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. In addition to providing
further guidance related to the recording of mortgage servicing rights, SFAS No.
125 required that the Company classify loans securitized which are retained in
the Company's portfolio and excess spread related to mortgage servicing rights
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.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which is
effective for the Company's fourth quarter and year ended December 31, 1997.
Early application is not permitted and after the effective date, prior period
earnings per share presented must be restated. SFAS No. 128 establishes new
standards for computing and presenting earnings per share. Specifically, SFAS
No. 128 replaces the presentation of primary earnings per share with basic
earnings per share, requires dual presentation for companies with complex
capital structures of basic and diluted earnings per share and requires a
reconciliation of the numerator and denominator of the basic earnings per share
computation to those of the diluted earnings per share computation. The impact
of the adoption of SFAS No. 128 on the results of operations of the Company was
not material.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for the Company's fiscal year beginning January 1, 1998. SFAS
130 establishes standards for reporting and display of comprehensive income, its
components and accumulated balances in a financial statements. Comprehensive
income is defined to include those revenues, expenses, gains, and losses of a
normal, recurring nature, as well as items which are nonrecurring, unusual and
infrequent. Management believes SFAS No. 130 will have no material effect on the
Company's financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which is effective for the Company's
fiscal year beginning January 1, 1998. SFAS No. 131 establishes standards for
the way the Company reports information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements. The Company's commercial
banking and mortgage banking activities constitute operating segments for which
the Company has provided additional disclosure regarding their respective
assets, revenues, profit or loss and other operating data.
21
<PAGE> 26
ITEM 2. PROPERTIES
At December 31, 1997, the Company had 46 branch offices, of which 20 are leased
and 26 are owned. In addition, there were 13 loan production offices, three
operations centers and two facilities used for warehouse purposes which were
leased. Substantially all furniture, fixtures and equipment items are owned. The
following table shows the name, location and lease expiration date (if
applicable) for each facility as of December 31, 1997:
<TABLE>
<CAPTION>
Location Ownership/Lease Expiration Date
- -------- -------------------------------
Florida:
- --------
<S> <C>
Brevard County:
- --------------
Causeway Office Facility Owned
450 East Eau Gallie Boulevard
Indian Harbour Beach, Florida 32937
Imperial Plaza Office September 30, 1999
6769 N. Wickham Road, Suite 100
Melbourne, Florida 32940-2019
Melbourne Office Facility Owned
1300 Babcock Street
Melbourne, Florida 32901
Melbourne Beach Office May 1, 1999
401 Ocean Avenue
Melbourne Beach, Florida 32951
Palm Bay Office May 31, 2004
6000 Babcock Street, SE
Palm Bay, Florida 32909
Hernando County:
- ---------------
Spring Hill Office January 20, 2007
5331 Spring Hill Drive
Spring Hill, Florida 34606
Manatee County:
- --------------
Pavilion Office Facility owned
1301 Sixth Avenue West
Bradenton, Florida 34205
Bayshore Office Facility owned
6204 14th Street West
Bradenton, Florida 34207
Westside Office Facility owned
5905 Manatee Avenue West
Bradenton, Florida 34209
Ironwood Office Facility owned
4302 Cortez Road West
Bradenton, Florida 34210
</TABLE>
22
<PAGE> 27
PROPERTIES (CONT'D)
<TABLE>
<CAPTION>
Location Ownership/Lease Expiration Date
- -------- -------------------------------
Manatee County (continued):
- ---------------------------
<S> <C>
Mt. Vernon Office Facility owned
9819 Cortez Road West
Bradenton, Florida 34210
53rd Avenue Office Facility owned
415 53rd Avenue
Bradenton, Florida 34207
Ellenton Office Facility owned
3510 U.S. Highway 301
Ellenton, Florida 34222
Orange County:
- --------------
Downtown Orlando Office February 28, 2002
255 S. Orange Avenue
Orlando, Florida 32801
Winter Garden Office Facility Owned
232 S. Dillard Street
Winter Garden, Florida 34787
Osceola County:
- ---------------
Bermuda Office Facility Owned
1115 North Bermuda Avenue
Kissimmee, Florida 34741
Broadway Office Facility Owned
200 East Broadway
Kissimmee, Florida 34741
Mill Creek Office Facility Owned
1300 East Vine Street
Kissimmee, Florida 34744
Ninth Street Office December 31, 1999
1220 Ninth Street
St. Cloud, Florida 34769
Oak Park Office Facility Owned
4291 13th Street
St. Cloud, Florida 34769
Pasco County:
- -------------
Holiday Office December 31, 1999
4649 Sunray Drive
Holiday, Florida 34691
</TABLE>
23
<PAGE> 28
PROPERTIES (CONT'D)
<TABLE>
<CAPTION>
Location Ownership/Lease Expiration Date
- -------- -------------------------------
Pasco County (continued):
- -------------------------
<S> <C>
Holiday Drive-up Facility owned
4649-A Sunray Drive
Holiday, Florida 34691
New Port Richey Office Facility owned
6500 Massachusetts Avenue
New Port Richey, Florida 34653
Gulfview Square Mall Office April 30, 2005
9501 U.S. 19 North
Port Richey, Florida 34668
Pinellas County:
- ----------------
Corporate Headquarters and Branch December 13, 2004
111 Second Avenue N.E.
St. Petersburg, Florida 33701
Main Office Drive-Up October 31, 2004
201 Second Avenue South
St. Petersburg, Florida 33701
Countryside Office March 8, 2005
28050 U.S. 19 North
Clearwater, Florida 34621
Northwood Office February 28, 2006
3024 Enterprise Road
Clearwater, Florida 34619
Missouri Office December 31, 2000
1235 So. Missouri Avenue
Clearwater, Florida 34616
Highland Avenue Office Facility Owned
1831 Highland Avenue North
Clearwater, Florida 34615
ICOT Office December 31, 1998
5801 Ulmerton Road
Clearwater, Florida 34620
Seminole Office September 30, 2007 (Ground lease);
8000 113rd Street North Facility Owned
Seminole, Florida 33772-4801
Palm Harbor Office October 31, 2002
33920 US 19 North
Palm Harbor, Florida 34684
</TABLE>
24
<PAGE> 29
PROPERTIES (CONT'D)
<TABLE>
<CAPTION>
Location Ownership/Lease Expiration Date
- -------- -------------------------------
Pinellas County (continued):
- ----------------------------
<S> <C>
Largo Mall Office February 28, 2004
10500 Ulmerton Road E, #816
Largo, Florida 34641
Pinellas Park Office Facility owned
7600 66th Street North
Pinellas Park, Florida 33781
St. Petersburg Office Facility owned
100 34th St. North
St. Petersburg, Florida 33713
Oldsmar Office March 31, 2001
3711 Tampa Road
Oldsmar, Florida 34677
Dunedin Office Facility owned
1478 Main Street
Dunedin, Florida 34698
Belleair Bluffs Office Facility owned
401 N. Indian Rocks Road
Belleair Bluffs, Florida 33770
Caladesi Office Facility owned
2678 Bayshore Blvd.
Dunedin, Florida 33774
Walsingham Office Facility owned
14141 Walsingham Road
Largo, Florida 34644
Pinellas Point Office October 14, 2006 (Ground lease)
3000 54th Avenue South Facility owned
St. Petersburg, Florida 33712
Tyrone Office December 31, 2004
6900 22nd Avenue North
St. Petersburg, Florida 33710
Northeast Office December 31, 1999 (Facility);
250 37th Avenue North December 31, 2017 (Ground lease)
St. Petersburg, Florida 33704
</TABLE>
25
<PAGE> 30
PROPERTIES (CONT'D)
<TABLE>
<CAPTION>
Location Ownership/Lease Expiration Date
- -------- -------------------------------
Pinellas County (continued):
- ----------------------------
<S> <C>
East Lake Woodlands March 31, 2007
3412 East Lake Road
Palm Harbor, Florida 34685
Clearwater Loan Operations Center June 30, 2006
28051 US 19 North, Suite G
Clearwater, Florida 34621
Clearwater Loan Operations Center August 31, 1998
28059 US Highway 19 North, Suite 203
Clearwater, Florida 34621
Polk County:
- ------------
Lakeland Loan Production Office October 31, 1999
1506 South Florida Avenue
Lakeland, Florida 33803
Sarasota County:
- ----------------
Sarasota Office and Loan Production Office Facility owned
1100 S. Tamiami Trail
Sarasota, Florida 34236
Venice Office Facility owned
400 Venice By-pass North
Venice, Florida 34292
Seminole County:
- ----------------
Lake Howell Office Facility owned
1980 Howell Branch Road
Winter Park, Florida 32792
Indian River County:
- --------------------
Vero Beach Loan Production Office Month-to-Month lease
5070 North highway A1A, Suite 216
Vero Beach, Florida 32963
Lee County:
- -----------
Bonita Springs June 30, 1998
Loan Production Office
24830 Burnt Pine Drive, Suite 2
Bonita Springs, Florida 34134
</TABLE>
26
<PAGE> 31
PROPERTIES (CONT'D)
<TABLE>
<CAPTION>
Location Ownership/Lease Expiration Date
- -------- -------------------------------
Lee County (cont'd)
- ----------------------------
<S> <C>
Ft. Myers Loan Production Office October 31, 1998
12681 New Brittany Blvd.
Ft. Myers, Florida 33907
Cape Coral Loan Production Office April 30, 1998
3501 Del Prado Blvd., Suite 302
Cape Coral, Florida
Hillsborough County:
- --------------------
Tampa Loan Production Office November 30, 1998
3802 Ehrlich Road, Suite 108
Tampa, Florida 33624
Palm Beach County:
- ------------------
West Palm Beach Loan Production Office August 31, 1999
1645 Palm Beach Lakes Blvd., Suite 480
West Palm Beach, Florida 33401
Boca Raton Loan Production Office Month-to-Month lease
5355 Town Center Road, Suite 301
Boca Raton, Florida 33846
Other Florida Facilities:
- -------------------------
Warehouse February 15, 2000
2718 24th Street North
St. Petersburg, Florida 33713
Warehouse - Midstate Month-to-Month lease
3215 13th Street, Units 13 & 19
St. Cloud, Florida 34769
Republic Bank Center Facility Owned
1432 66th Street North
St. Petersburg, Florida 33710
Republic Bank Center Annex October 31, 2012
1500 66th Street North
St. Petersburg, Florida 33710
</TABLE>
27
<PAGE> 32
PROPERTIES (CONT'D)
<TABLE>
<CAPTION>
Location Ownership/Lease Expiration Date
- -------- -------------------------------
<S> <C>
Boston, Massachusetts:
- ---------------------
Boston Loan Production Office July 31, 2000
137 Newbury Street
Boston, Massachusetts 02116
Atlanta, Georgia
Satellite Loan Production Office Month-to-Month lease
1349 West Peachtree Street
Two Midtown Plaza
Atlanta, Georgia 30309
Virginia Beach, Virginia:
- -------------------------
Satellite Loan Production Office Month-to-Month lease
1206 Laskin Road
Birdneck Executive Centre, Suite 201E
Virginia Beach, Virginia 23451
Irvine, California:
- -------------------
Loan Production Office April 1, 1998
University Towers
Suites 19 and 28
Irvine, California 92612
Loan Production Office April 30, 1998
199 Campus Drive, Suite G
Irvine, California 92612
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings in the ordinary course of
its business. Based on information presently available, management does not
believe that the ultimate outcome in such proceedings, in the aggregate, would
have a material adverse effect on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information required by this item is incorporated by reference from the
Company's Proxy Statement for its 1998 Annual Meeting.
28
<PAGE> 33
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
TRADING MARKET
The Company's Common Stock is currently traded on the Nasdaq National Market
under the symbol "REPB." The table below sets forth, the high, low and closing
bid information for the Common Stock as regularly quoted on the Nasdaq National
Market for the periods indicated.
<TABLE>
<CAPTION>
High Low Closing
---- --- -------
<S> <C> <C> <C>
Quarter ended March 31, 1996 14 1/4 13 1/4 13 3/8
Quarter ended June 30, 1996 14 15/16 12 1/4 12 5/16
Quarter ended September 30, 1996 12 7/8 11 3/4 12 7/8
Quarter ended December 31, 1996 15 1/2 13 5/8 15 1/8
Quarter ended March 31, 1997 16 14 15 1/2
Quarter ended June 30, 1997 18 1/2 17 1/4 17 1/4
Quarter ended September 30, 1997 27 5/8 16 7/8 26 3/8
Quarter ended December 31, 1997 27 7/8 23 3/4 26 1/2
</TABLE>
These over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily reflect actual
transactions.
STOCKHOLDERS
As of December 31, 1997, the Company had approximately 2,137 beneficial owners
of the Common Stock.
DIVIDENDS
As a Florida-chartered commercial bank, the Bank is subject to the laws of
Florida as to the payment of dividends. Under the Florida Financial Institutions
Code, the prior approval of the Department is required if the total of all
dividends declared by a bank in any calendar year will exceed the sum of the
bank's net profits for that year and its retained net profits for the preceding
two years.
As a federally-chartered thrift institution, the Savings Bank will be subject to
the OTS's regulations applicable to the payment of dividends and other capital
distributions by savings associations. Under these regulations, a thrift that is
well-capitalized (i.e., has risk-based capital of 10% or more, Tier 1 Capital of
5% or more and Tier 1 risk-based capital of 6% or more), both before and after
the proposed distribution, and that has not been designated by the OTS as being
"in need of more than normal supervision" may distribute in a calendar year the
greater of (i) 100% of net income for the current calendar year plus 50% of its
"capital surplus" or (ii) 75% of its net income over the most recent four
quarters. The percentages of income that may be distributed are lower for
thrifts that are adequately capitalized. It is the Company's intention to
maintain the Savings Bank at a well-capitalized level such that it will be able
to upstream to the Company as much of its net income as is not required for the
thrift's current operations and future growth.
Under Federal law, if, in the opinion of the federal banking regulator, a bank
or thrift under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), such regulator
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Prompt
Corrective Action regulations adopted by the federal banking agencies in
December 1992, a depository institution may not pay any dividend to its holding
company if payment would cause it to become undercapitalized or if it already is
undercapitalized. See Item 1. "Business -- Supervision and Regulation -- Payment
of Dividends."
29
<PAGE> 34
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated operating data, per share data, balance
sheet data and selected financial ratios as of and for each of the years ended
December 31, 1994, 1995, 1996, and 1997, the seven-month period ended December
31, 1993, and the five-month period ended May 31, 1993 were derived from the
audited consolidated financial statements. The FFO Merger, completed on
September 19, 1997, was accounted for as a corporate reorganization in which the
majority stockholder's interest in FFO was combined at historical cost in a
manner similar to a pooling of interests while the minority interest in FFO was
combined using purchase accounting rules. This accounting treatment required
that all prior period financial information be restated as if the FFO Merger had
been completed in those previous years. The Company's financial information will
differ, in some cases substantially, from financial information presented prior
to completion of the FFO Merger. Financial data at and for the period ended May
31, 1993, is not restated to reflect the FFO merger as the change in control did
not occur until May 28, 1993. Comparison of financial results presented herein
to financial information in the Company's previously-issued financial reports
may be misleading. In light of the significant mark-to-market adjustments and
other adjusting entries to its financial statements that were made following the
change in control, management believes that the usefulness of comparisons
between (i) the financial statements and the financial data derived therefrom as
of the dates and for the periods prior to June 1, 1993, and (ii) the financial
statements and the financial data derived therefrom as of the dates and for the
periods since June 1, 1993, may be limited. In addition, subsequent to
consummation of the initial public offering and the Purchase and Assumption in
December 1993, the Company has operated in a significantly different manner from
that which it had previously operated. Accordingly, the financial results for
periods prior to the Purchase and Assumption differ significantly from periods
since then. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements, related notes and other
financial information presented elsewhere.
[Balance of page intentionally left blank]
30
<PAGE> 35
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
- TABLE 1
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1997 1996 1995 1994
----------- ----------- ----------- -----------
<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") expenses 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
Amort. 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 - diluted $ 1.40 $ 0.83 $ 1.26 $ 1.48
=========== =========== =========== ===========
Weighted average shares outstanding - diluted 6,128,014 5,857,174 5,491,250 4,868,211
=========== =========== =========== ===========
BALANCE SHEET DATA:
------------------
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 (dollars) 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
Equity to assets 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 expense 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 purchase 373.91 488.78 647.83 N/A
Crossland portfolio 421.88 126.12 41.77 23.73
Other purchased 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 branches 45 43 43 31
Number of full time equivalent employees 1,045 795 573 451
</TABLE>
31
<PAGE> 36
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
- TABLE 2
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Seven Months Ended Five Months Ended
December 31, 1993 May 31, 1993
---------------------------- -----------------------
<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 743
General and administrative (G&A) expenses 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 (197) --
----------- -----------
Net income $ 2,633 $ (1,114)
=========== ===========
Earnings(loss) per share-diluted $ 1.01 $ (1.00)
=========== ===========
Weighted average shares outstanding-diluted 2,594,923 1,117,192
=========== ===========
Earnings(loss) per share-basic $ 1.10 $ (1.11)
=========== ===========
Weighted average shares outstanding-basic 2,398,066 1,002,794
=========== ===========
BALANCE SHEET DATA:
- ------------------
Total assets $ 780,711 $ 168,741
Investment and 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
Deposits 705,584 153,660
Negative goodwill 4,283 5,861
Stockholders' equity 34,003 8,058
Book value per share (dollars) 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
Net interest spread 3.88 4.21
Net interest margin 4.30 4.66
G&A expense to average assets 2.38 6.28
G&A efficiency ratio 76.77 74.54
Loan/deposit ratio 67.97 72.43
Nonperforming loans to loans 4.03 2.27
Nonperforming assets to total assets 5.66 5.89
Loan loss allowance to loans 3.31 1.68
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 branches 29 7
Number of full time equivalent employees 373 96
</TABLE>
32
<PAGE> 37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The FFO Merger, completed on September 19, 1997, was accounted for as a
corporate reorganization in which the majority stockholder's interest in FFO was
combined at historical cost in a manner similar to a pooling of interests while
the minority interest in FFO was combined using purchase accounting rules. The
accounting treatment required that all prior period financial information be
restated as if the FFO Merger had been completed in those previous years.
Therefore, the management's Discussion and Analysis has been revised to
incorporate those restatements. The following discussion and analysis of the
Company's balance sheets and statements of operations should be read in
conjunction with Item 6. "Selected Consolidated Financial Data" and the
Consolidated Financial Statements and the related notes included elsewhere
therein.
YEARS ENDED DECEMBER 31, 1997 AND 1996
COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 1997 AND 1996
OVERVIEW
Total assets of the Company were $1.6 billion at December 31, 1997, and $1.2
billion at December 31, 1996, an increase of $328 million. This increase was
primarily the result of the Company's acquisition of Firstate, growth in volume
of loans originated for portfolio and for sale, the Company's purchase of $75.0
million of residential loans from the FDIC in July 1997 (the "July 1997
Purchase"). The growth was primarily funded through an increase in deposits and
the completion of an offering by RBI Capital Trust I, a wholly-owned subsidiary
of the Company, of $28 million of cumulative trust preferred securities.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Investment and mortgage-backed securities, consisting of U.S. Treasury and
federal agency securities, were $108.6 million at December 31, 1997, compared to
$161.4 million at December 31, 1996, as decrease of $52.8 million. The Company
has recorded all its purchased investment and mortgage-backed securities as of
December 31, 1997, as "available for sale" and all mortgage-backed securities
resulting from securitization of the Company's loans as trading securities. The
Company has also included in the trading asset category the excess spread on
mortgage servicing rights, which amounted to $2.1 million at year-end 1997, $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 their fair market
value. The Company recorded $1.3 million in net gains on $150.7 million in
investments and mortgage-backed securities of which $30.7 million were obtained
through the Firstate Acquisition.
LOANS AND LOANS HELD FOR SALE
Total loans held for portfolio were $1.1 billion at December 31, 1997, and
$920.8 million at December 31, 1996, an increase of $229.0 million. One-to-four
family first lien residential loans increased by $149.9 million, primarily as a
result of the $75.0 million July 1997 Purchase and $24.8 million of residential
loans from the Firstate Acquisition. Commercial real estate loans were $398.7
million, and $344.2 million, respectively, at December 31, 1997 and 1996,
respectively.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses amounted to $20.8 million at December 31, 1997,
compared with $18.7 million at December 31, 1996. At December 31, 1997, the
allowance for loan losses included $13.9 million allocated to loans originated
by the Company, $3.5 million allocated to the March 1995 Purchase, $1.0 million
allocated to loans purchased from CrossLand , $1.0 million allocated to the July
1997 Purchase, and $1.4 million allocated to other loan purchases. Other
activity to the allowance in 1997 included $2.6 million of provisions for loan
losses (based generally on the growth in the loan portfolio), $769,000 of loan
charge-offs (net of recoveries), $39,000 reallocated from loan discounts to the
allowance and $132,000 in allowances obtained through the Firstate Acquisition.
The net charge-off amount for the period included $115,000 assessed against the
allowance for loan losses on loans allocated to the March 1995 Purchase as
properties securing certain nonperforming loans in that purchase were acquired
through foreclosure and recorded at their fair value.
33
<PAGE> 38
NONPERFORMING ASSETS
Nonperforming assets amounted to $34.2 million or 2.20% of total assets at
December 31, 1997, compared with $27.8 million or 2.27% of total assets at
December 31, 1996. Nonperforming loans totaled $27.0 million at December 31,
1997, an increase of $7.6 million from December 31, 1996. This increase was
primarily the result of a $1.6 million increase in one-to-four residential
nonperforming loans which were purchased from the FDIC in July, $1.0 million
increase in other residential loans purchased, $2.2 million increase in
originated residential loans, $1.1 million in commercial real estate and
multifamily loans and $1.3 million in Small Business Association ("SBA") claims
receivable. Other real estate decreased by $1.3 million from $8.3 million at
December 31, 1996, to $7.0 million at December 31, 1997. This improvement was
primarily the result of sales of $3.6 million of ORE properties at an aggregate
net gain of $109,000, which exceeded the amount of foreclosures on properties.
DEPOSITS
Total deposits were $1.4 billion at December 31, 1997, compared with
$1.1 billion at December 31, 1996, an increase of $246.4 million. Excluding the
Firstate Acquisition, which comprised $67.9 million in deposits at year-end
1997, total deposits would have increased by $178.5 million. Compared with
December 31, 1996, retail and commercial checking balances increased by $64.5
million and certificates of deposit increased by $181.9 million.
MINORITY INTEREST IN MANDATORILY-REDEEMABLE SECURITIES OF SUBSIDIARY TRUST
On May 29, 1997, the Company formed RBI Capital Trust 1 ("RBI Capital"), a
wholly-owned subsidiary of the Company, 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 had an
interest rate of 9.10%. The Company used the proceeds from the junior
subordinated debt to increase the equity capital of the Bank.
MINORITY INTEREST IN FFO
The FFO Merger, which was accounted for as a corporate reorganization, required
the restatement of periods prior to the September 19, 1997, merger date as if
the FFO Merger had been completed in prior years. A portion of FFO's net income
was allocated to FFO's minority shareholders. The cumulative amount of that
allocation is reflected on the balance sheet as a minority interest in FFO.
CONVERTIBLE SUBORDINATED DEBT
On December 27, 1996, the Company issued $6 million in convertible subordinated
debentures (the "Debentures") at a fixed rate of 6.00%, interest payable
semi-annually with a maturity of December 1, 2011. Under the terms of the
indenture the Company had the right to redeem, without payment of a premium, the
all or any of the Debentures if the closing price of the Company Common Stock
equals or exceeds 130% of the conversion price, which was $17.78514, for not
less than 20 consecutive trading days. During September 1997, the closing price
of the common stock remained above that price for the requisite number of
consecutive trading days. The Company then exercised its option to redeem all of
the outstanding debentures on December 1, 1997. All of the holders elected to
convert their debentures back into the issuance of 336,000 shares of Common
Stock.
STOCKHOLDERS' EQUITY
Stockholders' equity was $95.5 million at December 31, 1997, or 6.15% of total
assets, compared to $68.2 million or 5.57% of total assets at December 31, 1996.
At December 31, 1997, the Bank's Tier 1 ("Leverage") Capital ratio was 7.07%,
its Tier 1 Risk-Based Capital ratio was 10.25%, and its Total Risk-Based Capital
ratio was 11.52%, all in excess of minimum FDIC guidelines for an institution to
be considered a "well-capitalized" bank. The Company's ratios were 6.94%,
10.05%, and 11.66%, respectively.
34
<PAGE> 39
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND
1996
OVERVIEW
Net income for the year ended December 31, 1997, was $8.6 million, or $1.21 per
share, compared with $4.9 million, or $0.74 per share, for the same period in
1996. Pretax net income before minority interest reductions for the Company
included $13.2 million from commercial banking activities and $2.8 million from
the Company's mortgage banking operation which began in April 1996. Return on
average assets for the year ended December 31, 1997, was .63%, compared with
.43% for the same period in 1996, while the return on average equity was 11.44%,
compared with 7.41% for the same period in 1996.
BUSINESS SEGMENT INFORMATION
The Company's operations are divided into two business segments; commercial
banking and mortgage banking. Commercial banking activities include the
Company's lending for portfolio purposes, deposit gathering through the retail
branch network, investment and liquidity management. Mortgage banking
activities, which operate through a separate division of the Bank, include
originating and purchasing mortgage loans for sale or securitization. The Bank
provides support for its mortgage banking division in areas such as secondary
marketing, data processing and financial management. All funding for the
mortgage banking division is provided through the Bank. The following are the
business segment results of operation for the years ended December 31, 1997 and
1996. The Company has elected to report its business segments without allocation
of income taxes and minority interests.
BUSINESS SEGMENT DATA
YEARS ENDED DECEMBER 31, 1997 AND 1996
($ 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 PERIOD-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 50,772 4,151 54,923 43,986 963 44,949
----------- -------- ---------- ----------- ---------- -----------
et interest income 48,555 4,979 53,534 43,487 508 43,995
Loan loss provision 2,628 -- 2,628 2,582 -- 2,582
----------- -------- ---------- ----------- ---------- -----------
Net interest income after
loan loss provision 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
Other noninterest expense 273 -- 273 (490) -- (490)
Amort. of goodwill & premium
on deposits 464 -- 464 491 -- 491
---------- -------- --------- ----------- ----------- -----------
Net income (loss) before income
before taxes and minority interest $ 13,242 $ 2,800 16,042 $ 8 ,893 $ (474) 8,419
---------- -------- --------- ----------- ----------- -----------
Income tax (expense) (6,096) (3,035)
Minority interest in income from
subsidiary trust (701) --
Minority interest in FFO (674) (505)
-------- ------------
Net income $ 8,571 $ 4,879
======== =============
</TABLE>
35
<PAGE> 40
COMMERCIAL BANKING ACTIVITIES
Income from commercial banking activities (before income taxes and minority
interests) was $13.2 million for 1997 compared to $8.9 million for 1996, an
increase of $4.3 million. Commercial banking results for 1996 included the $4.0
million one-time SAIF Special Assessment while results for 1997 included $1.1
million of expense related to merger activity. Excluding these items, income
from commercial banking would have increased $1.4 million or 10.86%.
MORTGAGE BANKING ACTIVITIES
Income from mortgage banking, an activity which began in April 1996, improved
from a pre-tax net loss of $474,000 for 1996 to net income of $2.8 million for
1997. Net interest income for this segment increased by $3.5 million from
$508,000 in 1996 to $5.0 million in 1997. Noninterest income, primarily gains on
sale of loans, increased by $14.2 million from $1.1 million in 1996 to $15.3
million in 1997. The cost of producing mortgage loans for sale also increased
substantially, from $2.1 million in 1996 to $17.5 million in 1997.
The primary improvement in the results of operations from mortgage banking was
the introduction of the High LTV Loan in the latter part of 1996. Income from
the High LTV Loan product was $3.3 million for 1997 while first lien mortgage
loans contributed a $518,000 loss to results of operations. A portion of the
loss contribution for first lien loans results from continued expansion of
mortgage banking activities into products such as construction loans which have
an extended period between cost and revenue recognition.
The results of operation for this segment are highly dependent on the Company's
ability to sell or securitize its loan production. The inability to complete a
sufficient volume of such transactions in an accounting period is likely to
cause the results of operation to fluctuate significantly when compared to prior
periods.
ANALYSIS OF NET INTEREST INCOME
Net interest income for the year ended December 31, 1997, was $53.5 million,
compared with $44.0 million for the same period in 1996. This $9.5 million, or
21.7%, increase was primarily the result of $9.5 million in additional income
from increased net interest spread partially offset by a $163,000 increase in
interest bearing liabilities over interest earning assets. Interest income was
$108.5 million for the year ended December 31, 1997, an increase of $19.5
million from the same period in 1996. For the year ended December 31, 1997,
interest expense increased by $10.0 million to $54.9 million from $45.0 million
for the same period in 1996. Average asset yield increased 37 basis points from
8.20% for the year ended December 31, 1996, to 8.57% for the same period in 1997
and average earning assets increased $181.2 million from $1.1 billion for the
year ended December 31, 1996, to $1.3 billion for the same period in 1997.
During this same period, the average cost of interest-bearing liabilities
increased 28 basis points from 4.54% to 4.82%. As a result, the Company's net
interest spread increased nine basis points to 3.75%. Net interest margin, which
includes the benefit of noninterest bearing funds, increased from 4.05% for the
year ended December 31, 1996, to 4.23% for the same period in 1997.
36
<PAGE> 41
The following table summarizes the average yields earned on interest-earning
assets and the average rates paid on interest-bearing liabilities for the years
ended December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------
1997 1996
------------------------------------ -----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Summary of Average Rates
Interest earning assets:
Loans, net $ 1,094,363 $ 97,810 8.94% $ 911,669 $ 78,955 8.65%
Investment securities 35,098 2,155 6.14 39,314 2,097 5.33
Mortgage backed securities 80,348 5,252 6.54 87,224 5,375 6.16
Trading securities 1,505 59 3.92 -- -- 0.00
Interest bearing deposits in banks 3,293 158 4.79 6,454 291 4.50
FHLB stock 7,918 576 7.28 6,994 512 7.32
Federal funds sold 42,351 2,447 5.78 32,085 1,714 5.33
------------- ----------- ------------ --------
Total interest-earning assets 1,264,916 108,457 8.57 1,083,740 88,944 8.20
Non interest-earning assets 72,228 46,351
------------- ------------
Total assets $ 1,337,144 $ 1,130,091
============= ============
Interest-bearing liabilities:
Interest checking $ 102,173 1,058 1.04 $ 104,828 1,283 1.22
Money market 33,367 647 1.94 37,778 809 2.14
Savings 41,797 1,058 2.53 66,027 1,189 1.80
Passbook gold 222,957 10,901 4.89 142,008 6,689 4.71
Time deposits 691,922 38,647 5.59 624,787 34,166 5.47
FHLB advances 22,384 1,169 5.22 6,583 365 5.54
Other borrowings 25,636 1,443 5.63 8,885 448 5.04
------------- ------------ ------------ ---------
Total interest-bearing liabilities 1,140,236 54,923 4.82 990,896 44,949 4.54
Non interest-bearing liabilities 123,631 73,190
Stockholders' equity 73,277 66,005
------------- ------------
Total liabilities and equity $ 1,337,144 $ 1,130,091
============= ------------ ============
Net interest income/net interest spread $ 53,534 3.75% $ 43,995 3.66%
============ ==== ========= ======
Net interest margin 4.23% 4.05%
==== ======
<CAPTION>
Increase (Decrease) Due to(1)
Changes in Net Interest Income Volume Rate Total
- ------------------------------
<S> <C> <C> <C>
Interest earning assets:
Loans, net $ 13,749 $ 5,106 $ 18,855
Investment securities (101) 159 58
Mortgage backed securities (439) 316 (123)
Trading securities 59 -- 59
Interest bearing deposits in banks (151) 18 (133)
FHLB stock 67 (3) 64
Federal funds sold 579 154 733
---------- ------------ ---------
Total change in interest income 13,763 5,750 19,513
Interest-bearing liabilities:
Interest checking (35) (190) (225)
Money market (91) (71) (162)
Savings (522) 391 (131)
Passbook gold 3,948 264 4,212
Time deposits 8,841 (4,360) 4,481
FHLB advances 943 (139) 804
Other borrowings 962 33 995
---------- ------------ ----------
Total change in interest expense 14,046 (4,072) 9,974
---------- ------------ ----------
Increase (decrease) in net interest income $ (283) $ 9,822 $ 9,539
========== ============ ==========
</TABLE>
(1) Changes in net interest income due to changes in rate and/or volume are
calculated at the individual product level (i.e., residential, commercial,
etc.). The amounts above represent the sum of the individual amounts.
37
<PAGE> 42
NONINTEREST INCOME
Noninterest income for the year ended December 31, 1997, was $25.0 million
compared with $8.0 million for the same period in 1996, an increase of $17.1
million. This increase is primarily the result of higher income from mortgage
banking activities, which increased $14.0 million, and $1.5 million of gains on
the sale of portfolio loans. Additional improvements resulted from increases in
service fees on deposit accounts of $511,000, gain on redemption of stock in a
data processing cooperative of $757,000, and an increase in Generations Gold fee
income of $317,000.
The following table reflects the components of noninterest income for the years
ended December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
Increase
1997 1996 (Decrease)
--------- --------- ----------
<S> <C> <C> <C>
Income from mortgage banking activities $ 15,009 $ 1,002 $ 14,007
Service charges on deposit accounts 3,358 2,847 511
Loan fee income 1,394 1,327 67
Gain on sale of loans, net 1,491 144 1,347
Unrealized gain (loss) on loans held for sale 150 (150) 300
Gain on sale of securities, net 544 457 87
Net trading account profit (loss) 764 (196) 960
Gain on sale of ORE held-for-investment -- 1,207 (1,207)
Generations Gold fee income 517 200 317
Merchant charge card processing fees 265 108 157
Foreign exchange income 72 57 15
Other income 1,467 949 518
------------ ------------ -----------
Total noninterest income $ 25,031 $ 7,952 $ 17,079
============ ============ ===========
</TABLE>
NONINTEREST EXPENSE
Total noninterest expenses for the year ended December 31, 1997, were $59.9
million, compared with $40.9 million for the same period in 1996, an increase of
$18.9 million. General and administrative ("G&A") expenses for the year ended
December 31, 1997, included in the noninterest expense total, were $57.5
million, compared with $36.8 million for the same period in 1996, an increase of
$20.7 million. This increase was primarily the result of increased costs from an
overall expansion of the Company's loan production and mortgage banking
capabilities.
The following table reflects the components of noninterest expense for the years
ended December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------
Increase
1997 1996 (Decrease)
-------- -------- ----------
<S> <C> <C> <C>
Salaries and benefits $ 27,253 $ 18,505 $ 8,748
Net occupancy expense 8,118 6,381 1,737
Advertising and marketing 4,638 900 3,738
FDIC and state assessments 824 1,606 (782)
Data processing fees and services 2,605 2,119 486
Telephone expense 1,421 917 504
Legal and professional 1,976 922 1,054
Postage and supplies 5,349 1,634 3,715
Other operating expense 5,300 3,845 1,455
----------- ----------- ----------
G & A expenses 57,484 36,829 20,655
Merger expenses 1,144 - 1,144
SAIF Special Assessment - 4,005 (4,005)
Provision for losses on ORE 530 111 419
ORE expense, net of ORE income 273 (490) 763
Amortization of premium on deposits 464 491 (27)
----------- ----------- ----------
Total noninterest expense $ 59,895 $ 40,946 $ 18,949
=========== =========== ==========
</TABLE>
38
<PAGE> 43
MINORITY INTERESTS
The minority interest reduction from a subsidiary trust, which represents the
after-tax cost of borrowings through RBI Capital, was $701,000 for 1997. The
minority interest reduction representing the portion of FFO's earnings allocable
to its minority shareholders, prior to the merger, was $674,000 for 1997
compared with $505,000 for 1996.
YEARS ENDED DECEMBER 31, 1996 AND 1995
COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 1996 AND 1995
OVERVIEW
Total assets of the Company were $1.2 billion at December 31, 1996 and $1.1
billion at December 31, 1995, an increase of $120.9 million. This growth was
primarily the result of the expansion of the Company's residential and
commercial real estate loan production and mortgage banking capabilities. Total
loans increased by $104.2 million from $863.2 million at the end of 1995 to
$967.4 million at the end of 1996. Total deposits increased by $108.0 million
from $992.0 million at year-end 1995 to $1.1 billion at year-end 1996.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
The Company's investment securities consisted of U.S. Treasury Bills and Notes.
Mortgage-backed securities amounted to $82.9 million including $15.3 million
held to maturity, $62.0 million available for sale and $5.5 million as trading.
LOANS AND LOANS HELD FOR SALE
Total loans at December 31, 1996, included $920.8 million of loans held for
portfolio and $46.6 million held for sale, a total of $967.4 million. At
December 31, 1995, these amounts were $835.7 million and $27.5 million,
respectively. The $85.0 million increase in total portfolio loans was primarily
comprised of a $45.0 million increase in commercial real estate loans to $224.7
million (24.4% of total loans), and a $33.7 million increase in other real
estate-secured loans. At December 31, 1996, loans secured by first liens on real
estate constituted 92.3% of the total loan portfolio. Commercial (business)
loans not secured by real estate increased $4.3 million while consumer loans
increased $7.8 million. Residential loan sales for 1996 amounted to $132.5
million and totaled $8.9 million for 1995.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses amounted to $18.7 million at December 31, 1996,
compared to $20.0 million at December 31, 1995. The total amount of loans for
determining the adequacy of the allowance includes $645.3 million of loans
originated by the Company and purchased loans amounting to $275.5 million.
The Company made various loan purchases totaling $157.4 million during 1994,
$102.3 million during 1995 and $8.2 million in 1996. The Company allocated a
portion of the discount on its purchased loans to the allowance in amounts
consistent with loan loss allowance policy guidelines and recorded the remainder
as an unearned discount to be accredited to income as a yield adjustment. In
1995 such allocation included $7.2 million related solely to the March 1995
Purchase. Subsequently, the principal balance of the March 1995 Purchase had
declined to $39.9 million and losses on certain nonperforming loans in this pool
had reduced the allowance allocated to this purchase to $5.9 million. The
Company's history of administering this loan purchase indicates that the
expected loss rate on the remaining loans in this portfolio will be less than
the amount remaining in the allowance. Consequently, the Company reallocated
$1.5 million from the allowance to unearned discount in the fourth quarter of
1996, reducing the December 31, 1996 allowance allocated to the March 1995
Purchase to $4.4 million. The overall allowance at year-end 1996 of $18.7
million also included $1.0 million allocated to loans purchased from Crossland,
$1.8 million allocated to other loan purchases and $11.5 million allocated to
originated loans.
Activity to the allowance during 1996 included $2.6 million provision for loan
losses, loan charge-offs (net of recoveries) of $2.2 million, and $1.7 million
allocated from the allowance to unearned discount. The net charge-off amount for
1996 included $1.0 million assessed against the allowance for loans acquired in
the March 1995 Purchase as properties securing certain nonperforming loans which
were purchased at a substantial discount, were acquired through foreclosure and
recorded at their fair value. At December 31, 1996, the amount of unearned
discount on purchased loans not allocated to allowance totaled $4.7 million.
39
<PAGE> 44
NONPERFORMING ASSETS
Nonperforming assets amounted to $27.8 million, or 2.27% of total assets, at
December 31, 1996, compared with $30.7 million, or 2.78% of total assets, at
December 31, 1995. Nonperforming loans totaled $19.5 million at the end of 1996,
an increase of $1.4 million from the prior year-end total of $18.1 million. The
ratio of nonperforming loans to total loans declined from 2.18% at the end of
1995 to 2.12% at year-end 1996. Nonperforming loans at December 31, 1996 and
1995, included troubled debt restructurings of $1.1 million and $1.0 million,
respectively. ORE acquired through foreclosure decreased by $4.2 million from
$12.5 million at the end of 1995 to $8.3 million at year-end 1996.
DEPOSITS
Total deposits were $1.1 billion at December 31, 1996, compared with $992.0
million at the prior year-end, an increase of $108.0 million. Passbook savings
accounts offered to higher-balance customers at a premium rate of 5.0% increased
by $156.5 million. The Company reduced its reliance on time deposits through a
less aggressive pricing strategy which resulted in $41.2 million decline in
certificates of deposits and a decline in other interest-bearing balances of
$7.4 million. At December 31, 1996, jumbo ($100,000 and over) deposits totaled
$62.5 million or 5.6% of total deposits. There were no brokered deposits.
40
<PAGE> 45
CONVERTIBLE SUBORDINATED DEBT
In December 1996, the Company completed a private offering of $6.0 million of
the 6.0% Convertible Subordinated Debentures (the "Debentures"). The proceeds
were used to increase the capital of the Bank. The Debentures were convertible
by the holder at any time prior to maturity into shares of Common Stock at a
conversion price of $17.85714 per share (equivalent to a conversion rate of 56
shares per $1,000 principal amount of Debentures). The Debentures were sold at
par and the Company incurred $213,000 in expenses associated with the offering.
The Company 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 Common Stock equals or exceed 130% of the
conversion price for not less than 20 consecutive trading days. In November
1997, the Company exercised its right to redeem all the Debentures on December
1, 1997 (the "Redemption Date"). Prior to the Redemption Date, the holders of
all the Debentures exercised their right to conversion of the Debentures into a
total of 336,000 shares of Common Stock.
STOCKHOLDERS' EQUITY
Stockholders' equity of the Company was $68.2 million at December 31, 1996, or
5.57% of total assets, compared with $63.8 million, or 5.78% of total assets, at
December 31, 1995. At December 31, 1996, the Company and the Bank's capital
ratios were all in excess of minimum regulatory guidelines for an institution to
be considered "well-capitalized."
COMPARISON OF RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1996 AND 1995
OVERVIEW
Consolidated net income for 1996 was $4.9 million, or $.74 per share, compared
with $6.9 million, or $1.10 per share, for 1995. Consolidated net income
excluding the Savings Association Insurance Fund ("SAIF") special assessment
would have been $7.4 million, or $1.11 per share, for 1996 as compared with $5.3
million, or $.85 per share, for 1995, excluding negative goodwill accretion.
ANALYSIS OF NET INTEREST INCOME
Net interest income for 1996 was $44.0 million compared to $37.5 million for
1995. This $6.5 million or 17.4% increase, was primarily the result of
additional income from balance sheet growth. Interest income was $88.9 million
for 1996, an increase of $11.4 million over 1995. During the same period,
interest expense increased by $4.8 million from $40.1 million for 1995 to $44.9
million for 1996. Asset yield decreased three basis points from 8.23% for 1995
to 8.20% for 1996 and average earning assets increased $140.4 million. The
average cost of interest-bearing liabilities decreased one basis point from
4.55% to 4.54%. Net interest spread decreased two basis points from 3.68% for
1995 to 3.66% for 1996 but net interest margin, which includes the benefit of
noninterest bearing funds, increased from 3.98% for 1995 to 4.05% for 1996.
41
<PAGE> 46
The following table summarizes the average yields earned on interest-earning
assets and the average rates paid on interest-bearing liabilities for the years
ended December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------
1996 1995
------------------------------------ ------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
---------- ---------- ---- ------ -------- ----
<S> <C> <C> <C> <C> <C> <C>
Summary of Average Rates
- ------------------------
Interest earning assets:
Loans, net $ 911,669 $ 78,955 8.65% $ 778,769 $ 67,769 8.67%
Investment securities 39,314 2,097 5.33 54,898 3,171 5.78
Mortgage backed securities 87,224 5,375 6.16 45,174 2,869 6.35
Trading securities -- -- 0.00 -- -- 0.00
Interest bearing deposits in banks 6,454 291 4.50 6,316 272 4.30
FHLB stock 6,994 512 7.32 5,641 418 7.40
Federal funds sold 32,085 1,714 5.33 52,536 3,117 5.88
---------- ---------- ---------- ----------
Total interest-earning assets 1,083,740 88,944 8.20 943,334 77,593 8.23
Non interest-earning assets 46,351 62,584
---------- ----------
Total assets $1,130,091 $1,005,918
========== ==========
Interest-bearing liabilities:
Interest checking $ 104,828 1,283 1.22 $ 96,713 1,522 1.57
Money market 37,778 809 2.14 58,987 1,736 2.94
Savings 66,027 1,189 1.80 65,722 1,596 2.43
Passbook gold 142,008 6,689 4.71 61,102 2,599 4.25
Time deposits 624,787 34,166 5.47 592,541 32,369 5.46
FHLB advances 6,583 365 5.54 2,705 163 6.03
Other borrowings 8,885 448 5.04 3,304 127 3.85
---------- --------- ---------- ----------
Total interest-bearing liabilities 990,896 44,949 4.54 881,074 40,112 4.55
Non interest-bearing liabilities 73,190 58,838
Stockholders' equity 66,005 66,006
---------- ----------
Total liabilities and equity $1,130,091 $1,005,918
========== ---------- ==========
Net interest income/net interest spread $ 43,995 3.66% $ 37,484 3.68%
========== ========== ========== ====
Net interest margin 4.05% 3.98%
========== ====
<CAPTION>
Increase (Decrease) Due to (1)
Changes in Net Interest Income Volume Rate Total
- ------------------------------
<S> <C> <C> <C>
Interest earning assets:
Loans, net $ 10,317 $ 892 $ 11,209
Investment securities (662) (412) (1,074)
Mortgage backed securities 2,594 (88) 2,506
Trading securities - - -
Interest bearing deposits in banks 7 12 19
FHLB stock 99 (5) 94
Federal funds sold (1,108) (295) (1,403)
------------ -------- --------
Total change in interest income 11,247 104 11,351
Interest-bearing liabilities:
Interest checking 124 (363) (239)
Money market (526) (401) (927)
Savings 12 (419) (407)
Passbook gold 3,784 306 4,090
Time deposits 14,175 (12,378) 1,797
FHLB advances 222 (20) 202
Other borrowings 249 72 321
------------ --------- --------
Total change in interest expense 18,040 (13,203) 4,837
------------ --------- --------
Increase (decrease) in net interest income (6,793) 13,307 6,514
============ ========= ========
</TABLE>
(1) Changes in net interest income due to changes in rate and/or volume are
calculated at the individual product level (i.e., residential, commercial,
etc.). The amounts above represent the sum of the individual amounts.
42
<PAGE> 47
NONINTEREST INCOME
Noninterest income for 1996 was $8.0 million compared with $5.4 million for
1995, an increase of $2.6 million. The gain on sale of the former headquarters
building accounted for $1.2 million of the increase. Income from the Company's
expanded mortgage banking activities increased $1.0 million, service fees on
deposit accounts and Generations Gold fee income increased $383,000, loan
service and other ancillary fees increased $308,000, and net gains on sale of
investments increased $364,000. Other sources of income increased $380,000 and
merchant charge card processing fees, a program which has been discontinued,
declined $425,000.
The following table reflects the components of noninterest income for the years
ended December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
For the Years
Ended December 31,
Increase
1996 1995 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Income from mortgage banking activities $ 1,002 $ -- $ 1,002
Service charges on deposit accounts 2,847 2,664 183
Loan fee income 1,327 1,019 308
Gain on sale of loans, net 144 210 (66)
Unrealized loss on loans held for sale (150) -- (150)
Gain on sale of securities, net 457 93 364
Net trading account profit (loss) (196) 229 (425)
Gain on sale of ORE held-for-investment 1,207 -- 1,207
Generations Gold fee income 200 -- 200
Merchant charge card processing fees 108 533 (425)
Foreign exchange income 57 36 21
Other income 949 569 380
------------ ------------ ---------
Total noninterest income $ 7,952 $ 5,353 $ 2,599
=========== ============ =========
</TABLE>
NONINTEREST EXPENSE
Total noninterest expenses for 1996 were $40.9 million compared with $32.3
million for the same period in 1995, an increase of $8.6 million. Noninterest
expenses for 1996 include a $4.0 million charge for the one-time SAIF Special
Assessment (See "Business - Supervision and Regulation - Regulation of the Bank
and the Proposed Savings Bank"). G & A expenses for 1996, included in the
noninterest expense total, were $36.8 million compared with $30.9 million, an
increase of $5.9 million. The increase was primarily the result of expanding the
Company's mortgage banking activities and related administrative support units.
43
<PAGE> 48
The following table reflects the components of noninterest expense for the years
ended December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
For the Years
Ended December 31,
--------------------------------------------------
Increase
1996 1995 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Salaries and benefits $ 18,505 $ 15,294 $ 3,211
Net occupancy expense 6,381 5,025 1,356
Advertising and marketing 900 738 162
FDIC and state assessments 1,606 2,212 (606)
Data processing fees 2,119 1,716 403
Telephone expense 917 736 181
Legal and professional 922 894 28
Postage and supplies 1,634 1,227 407
Other operating expense 3,845 3,121 724
--------- ----------- ---------
Total G & A expenses 36,829 30,963 5,866
Merger expenses -- -- --
SAIF special assessment 4,005 -- 4,005
Provision for losses on ORE 111 240 (129)
ORE expense, net of ORE income (490) 662 (1,152)
Amortization of premium on deposits 491 450 41
--------- ----------- ---------
Total noninterest expense $ 40,946 $ 32,315 $ 8,631
========== =========== =========
</TABLE>
SELECTED QUARTERLY FINANCIAL DATA
Summarized selected quarterly financial information for the years ended December
31, 1997 and 1996 follows (in thousands except share data):
<TABLE>
<CAPTION>
1997
---------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income $ 23,878 $ 25,344 $ 29,464 $ 29,771
Interest expense 12,142 12,821 14,721 15,239
-------- -------- -------- --------
Net interest income $ 11,736 $ 12,523 $ 14,743 $ 14,532
======== ======== ======== ========
Net income $ 2,002 $ 1,112 $ 3,191 $ 2,266
======== ======== ======== ========
Earnings per share-diluted $ .30 $ .17 $ .45 $ .29
======== ======== ======== ========
Earnings per share-basic $ .34 $ .19 $ .54 $ .33
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income $ 21,328 $ 21,335 $ 22,065 $ 24,216
Interest expense 11,067 10,764 11,279 11,839
-------- -------- -------- --------
Net interest income 10,261 10,571 10,786 12,377
======== ======== ======== ========
Net income (loss) $ 1,242 $ 1,627 $ (515) $ 2,525
======== ======== ======== ========
Earnings (loss) per share-diluted $ .19 $ .25 $ (.08) $ .38
======== ======== ======== ========
Earnings (loss) per share-basic $ .21 $ .28 $ (.09) $ .43
======== ======== ======== ========
</TABLE>
44
<PAGE> 49
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995
Certain of the statements contained in this Annual Report on Form 10-K (other
than the financial statements and statements of historical fact), including,
without limitation, statements as to management expectations and belief
presented under the captions "Letters to Our Stockholders" and "Management's
Discussion and Analysis", are forward-looking statements. Forward-looking
statements are made based upon management's expectations and belief concerning
future development and their potential effect upon the Corporation. There can be
no assurance that future developments will be in accordance with management's
expectations or that the effect of future developments on the Corporation will
be those anticipated by management.
The Corporation wishes to caution readers that the assumptions which form the
basis for forward-looking statements with respect to or that may impact earnings
for the year ended December 31, 1998 and thereafter include many factors that
are beyond the Corporation's ability to control or estimate precisely. These
risks and uncertainties include, but are not limited to, the market demand and
acceptance of the Corporation's existing and new loan and deposit products, the
impact of competitive products, the Company's ability to achieve the desired
consolidation efficiencies from its planned acquisitions, and changes in
economic conditions, such as inflation or fluctuations in interest rates.
While the Corporation periodically reassesses material trends and uncertainties
affecting the Corporation's results of operations and financial condition in
connection with its preparation of the stockholders' letter and management's
discussion and analysis contained in its Annual Report, the Corporation does not
intend to review or revise any particular forward-looking statement referenced
herein in light of future events.
ASSET/LIABILITY MANAGEMENT AND LIQUIDITY
LIQUIDITY
The Asset/Liability Management Committee ("ALCO") reviews the Company's
liquidity, which is its ability to generate sufficient cash to meet the funding
needs of current loan demand, deposit withdrawals, and other cash demands. The
primary sources of funds consist of deposits, amortization and prepayments of
loans, sales of investments, other funds from operations and the Company's
capital. The Bank is a member of the FHLB and has the ability to borrow to
supplement its liquidity needs.
When the Company's primary sources of funds are not sufficient to meet deposit
outflows, loan originations and purchases and other cash requirements, the
Company may supplementally borrow funds from the FHLB and from other sources.
The FHLB acts as an additional source of funding for banks and thrift
institutions that make residential mortgage loans.
FHLB borrowings, known as "advances," are secured by the Bank's mortgage loan
portfolio, and the terms and rates charged for FHLB advances vary in loan
portfolio, and the terms and rates charged for FHLB advances vary in response to
general economic conditions. As a shareholder of the FHLB, the Bank is
authorized to apply for advances from this bank. A wide variety of borrowing
plans are offered by the FHLB, each with its own maturity and interest rate. The
FHLB will consider various factors, including an institution's regulatory
capital position, net income, quality and composition of assets, lending
policies and practices, and level of current borrowings from all sources, in
determining the amount of credit to extend to an institution. As of December 31,
1997, the Bank had $35.0 million of outstanding advances from the FHLB. See
"Business - Supervision and Regulation - Federal Home Loan Bank System and
Liquidity."
At December 31, 1997, the Bank's liquidity ratio, defined as net cash and
investments of $275.8 million divided by net deposits and short-term liabilities
of $1.4 billion, was 19.8% as compared with 13.42% at December 31, 1996. (The
liquidity ratio as of December 31, 1996, has not been recomputed to incorporate
FFO Financial, Inc. as of that date.) Net liquid assets were $25.4 million in
excess of the amount required by Florida banking regulations.
ASSET/LIABILITY MANAGEMENT
One of the primary objectives of the Company is to reduce fluctuations in net
interest income caused by changes in interest rates. To manage interest rate
risk, the Board of Directors has established interest-rate risk policies and
45
<PAGE> 50
procedures which delegate to ALCO the responsibility to monitor and report on
interest-rate risk, devise strategies to manage interest-rate risk, monitor loan
originations and deposit activity, and approve all pricing strategies.
The management of interest-rate risk is one of the most significant factors
affecting the ability to achieve future earnings. The measure of the mismatch of
assets maturing or repricing within certain periods, and liabilities maturing or
repricing within the same period, is commonly referred to as the "gap" for such
period. Controlling the maturity or repricing of an institution's assets and
liabilities in order to minimize interest rate risk is commonly referred to as
gap management. "Negative gap" occurs when, during a specific time period, an
institution's liabilities are scheduled to reprice more rapidly than its assets,
so that, barring other factors affecting interest income and expense, in periods
of rising interest rates the institution's interest expense would increase more
rapidly than its interest income, and in periods of falling interest rates the
institution's interest expense would decrease more rapidly than its interest
income. "Positive gap" occurs when an institution's assets are scheduled to
reprice more rapidly than its liabilities, so that, barring other factors
affecting interest income and expense, in periods of falling interest rates the
institution's interest income would decrease more rapidly than its interest
expense, and in periods of rising interest rates the institution's interest
income would increase more rapidly than its interest expense. It is common to
focus on the one-year gap, which is the difference between the dollar amount of
assets and the dollar amount of liabilities maturing or repricing within the
next 12 months.
46
<PAGE> 51
ALCO uses an industry standard computer modeling system to analyze the impact of
financial strategies prior to their implementation. The system attempts to
simulate the asset and liability base and project future operating results under
a variety of interest rate and spread assumptions. Through this management tool,
management can also, among other things, project the effects of changing its
asset and liability mix and modifying its balance sheet, and identify
appropriate investment opportunities. The results of these simulations are
evaluated within the context of the interest-rate risk policy, which sets out
target levels for the appropriate level of interest-rate risk.
The policy is to maintain a cumulative one-year gap of no more than 15% of total
assets. Management attempts to conform to this policy primarily by managing the
maturity distribution of its investment portfolio and emphasizing loan
originations and loan purchases carrying variable interest rates tied to
interest-sensitive indices. Additionally, the Bank has joined the FHLB to
enhance its liquidity position and to provide it with the ability to utilize
long-term fixed-rate advances to improve the match between interest-earning
assets and interest-bearing liabilities in certain periods. Currently,
off-balance-sheet hedging instruments are not used to manage overall interest
rate risk but such instruments are used to limit the exposure to changes in the
value of residential loans held for resale and estimated loan commitments to
originate and close fixed rate residential and mortgage loans. However, there
continues to be a risk that such loan commitments do not close or are
renegotiated in a declining interest rate environment. Management may expand its
use of off-balance sheet hedging instruments to manage exposure to overall
interest rate risk in the future, subject to board approval.
The cumulative one-year gap at December 31, 1997, was $115.6 million, or a
positive 7.45% (expressed as a percentage of total assets). Management will
attempt to moderate any lengthening of the repricing structure of earning assets
by emphasizing variable-rate assets and, where appropriate, match-funding
longer-term fixed-rate loans with FHLB advances. See "Business -- Sources of
Funds."
The following table presents the maturities or repricing of interest-earning
assets and interest-bearing liabilities at December 31, 1997. The balances shown
have been derived based on the financial characteristics of the various assets
and liabilities. Adjustable and floating-rate assets are included in the period
in which interest rates are next scheduled to adjust rather than their scheduled
maturity dates. Fixed-rate loans are shown in the periods in which they are
scheduled to be repaid according to contractual amortization and, where
appropriate, prepayment assumptions, based on the coupon rates in the portfolio
have been used to adjust the repayment amounts. Repricing of time deposits is
based on their scheduled maturities. Based on management's experience in the
markets in which the Company operates, statement savings deposits are assumed to
reprice at 8.3% of the total balance in the first three months, 25.0% in the
four-to-twelve month category, and the remaining 66.7% from one to five years.
Passbook savings deposits are assumed to reprice equally over a 24-month period.
Repricing of interest checking is assumed to occur at 12.7% of the total balance
for every three month interval over a 5-year period and repricing of money
market accounts is assumed at 25.0% of the total balance over a 12-month period.
[Balance of page intentionally left blank]
47
<PAGE> 52
INTEREST SENSITIVITY ANALYSIS
DECEMBER 31, 1997
($ IN THOUSANDS)
<TABLE>
<CAPTION>
0-3 months 4-12 months 1-5 Years Over 5 Years
Yield/ Yield/ Yield/ Yield/
Amount Rate Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
U.S. Treasury securities
and government agencies $ 0.00% $ 10,512 5.68% $ $ 4,024 7.45%
Revenue bonds -- -- -- -- 1,545 8.60 -- --
Mortgage backed securities 3,961 6.64 69,266 6.65 -- -- 2,339 6.77
Trading securities 16,946 8.60 -- -- -- -- -- --
Federal funds sold 33,000 5.55 -- -- -- -- --
Interest bearing deposits
in banks 672 5.46 -- -- -- -- -- --
FHLB stock -- -- -- -- -- -- 8,148 7.25
Loans held for sale 110,000 10.78 41,403 10.78
Portfolio loans 314,265 9.21 285,875 8.27 294,674 8.62 255,187 8.45
-------------- ---------- ---------- ---------
Total interest-earning
assets $ 478,844 8.96 $ 407,056 8.18 $ 296,219 8.62 $ 269,698 8.17
Interest-bearing liabilities:
Deposits
Interest checking $ 13,722 1.09 $ 41,166 1.09 $ 82,352 1.09 $ -- --
Money market 7,593 2.08 22,780 2.08 -- --
Savings 4,446 1.98 13,338 1.98 35,551 1.98 -- --
Passbook gold 19,854 4.88 59,562 4.88 158,852 4.88 -- --
Time deposits 175,593 5.44 357,470 5.51 272,823 5.97 2,350 5.80
FHLB advances 35,000 5.90 -- -- --
Obligations under capital leases 30 7.49 90 7.49 184 7.49 --
Repurchase agreements 19,654 4.99 -- -- --
Minority interest in
consolidated subsidiary -- -- --
-------------- ----------- ----------
Total interest-bearing
liabilities $ 275,892 5.06 $ 494,406 4.81 $ 549,762 4.67 $ 31,100 8.64
-------------- ----------- ---------- ---------
Excess (deficiency) of interest-
earning assets over interest-
bearing liabilities $ 202,952 3.90% $ (87,350) 3.37% $ (253,543) 3.95% $238,598 (0.47)%
============== ===== =========== ==== ========== ==== ======== =====
Cumulative excess (deficiency)
of interest-earning assets
over interest-bearing
liabilities $ 202,952 3.90% $ 115,602 3.70% $ (137,941) 3.80% $100,657 3.61%
============== ===== =========== ==== ========== ==== ======== =====
Cumulative excess (deficiency)
of interest-earning assets
over interest-bearing
liabilities as a percent
of total assets 13.07% 7.45% (8.89)% 6.48%
===== ==== ===== =====
</TABLE>
48
<PAGE> 53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is provided at pages ___ through ____ within
the Consolidated Financial Statements and notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There are no such items to report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE COMPANY AND BANK
The information relating to the Directors of the Company and Bank appears on
pages ___ through ____ of the Company's Proxy Statement for its 1998 Annual
Meeting of Stockholders under the caption "Nominees for Director" and is
incorporated by reference.
SENIOR EXECUTIVE OFFICERS OF THE COMPANY AND BANK
The following list sets forth the name and age of each executive officer of the
Company or the Bank and all positions held by each such officer (and the period
each such position has been held), a brief account of each such officer's
business experience during the past five years and certain other information:
John W. Sapanski (67)-- Mr. Sapanski has been Chairman of the Board,
Chief Executive Officer and President of the Bank since June 1993 and Chairman
of the Board, Chief Executive Officer and President of the Company since March,
1996. He has 45 years of banking experience, including service with the Dime
Savings Bank in New York, New York, from 1949 to 1987, where he served as
President and Chief Operating Officer from 1981 to 1987 and with Florida Federal
Savings Bank in St. Petersburg, Florida ("Florida Federal") from 1988 to 1991
where he served as President and Chief Executive Officer from 1988 to 1991. Mr.
Sapanski was President and Chief Executive Officer of Florida Federal at the
time the Office of Thrift Supervision placed Florida Federal in conservatorship.
Mr. Sapanski was retained by the Resolution Trust Corporation (the "RTC"), the
conservator for Florida Federal, to assist in managing the institution in
conservatorship until it was sold by the RTC to First Union Corporation in
August 1991.
James B. Davis (61)-- President of the Bank's Central Florida Division.
Mr. Davis joined the Bank in September 1997 following the Company's acquisition
of F.F.O. Financial Group, Inc. ("FFO"), where he served as Chairman of the
Board and Chief Executive Officer since its formation in 1988. Mr. Davis was
also employed with FFO's subsidiary, First Federal Savings and Loan Association
of Osceola County in St. Cloud, Florida, from 1971 to 1997 and as President from
1976 to 1997. He has over 30 years of banking experience, including service with
Florida League of Financial Institutions, Broward Federal Savings and Loan
Association and Florida Infomanagement Services, Inc. as Chairman of the Board.
Fred Hemmer (43)-- Mr. Hemmer has served as Senior Executive Vice
President of the Bank in charge of Corporate Banking and Special Assets since
joining the Bank in 1991. He previously served as Executive Vice President of
Rutenberg Corporation, a real estate development company based in Clearwater,
Florida, from 1980 to 1991. Mr. Hemmer is a certified public accountant and was
employed by Arthur Andersen & Co. from 1976 to 1980. Mr. Hemmer is also a
licensed real estate broker and certified general contractor.
William R. Falzone (50)-- Mr. Falzone has served as Treasurer of the
Company since March 1996 and First Executive Vice President and Chief Financial
Officer of the Bank since February 1994. He was employed at Florida Federal from
1983 through 1991 where he served as Senior Vice President and Controller and as
Director of Financial Services. Most recently, he was a Senior Consultant for
Stogniew and Associates, a nationwide consulting firm. He has more than 20 years
of banking experience and is also a certified public accountant.
49
<PAGE> 54
John W. Fischer, Jr. (49)-- Mr Fischer has served as Executive Vice
President of the Bank in charge of Consumer Banking since December 1993. He has
more than 20 years of banking experience in retail branch management and
consumer and residential lending. Mr. Fischer formerly served as Regional
Marketing Director for Western Reserve Life in Clearwater, Regional Vice
President of Great Western Bank in Miami and Executive Vice President/Consumer
Financial Services for Florida Federal. Mr. Fischer holds a life, health,
annuity and Series 7 securities license.
Steve McWhorter (36)-- Mr. McWhorter has served as Executive Vice
President/Division Director in charge of the Company's mortgage banking
division, since April, 1996, having previously served as Regional Manager of FT
Mortgage Company since 1992. He has more than 14 years of experience in the
mortgage banking industry.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item which appears on pages 7 through 14 of
the Company's Proxy Statement for its 1998 Annual Meeting of Shareholders is
incorporated by reference under the caption "Executive Compensation and
Benefits" and "Certain Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by items 12 and 13 are incorporated by reference from the
Company's Proxy Statement for its 1998 Annual Meeting.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report at pages 49
through 81.
1. Financial Statements
Financial Statements of Republic Bancshares, Inc.
Report of Independent Certified Public Accountants
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements Of Operations, Stockholders' Equity and Cash
Flows for: Years Ended December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
All required schedules are included in the financial statements or
related notes.
(b) No report on Form 8-K has been filed during fiscal year ending December 31,
1997.
(c) Exhibits:
27.0 Financial Data Schedule(for SEC use only).
50
<PAGE> 55
[This page intentionally left blank]
51
<PAGE> 56
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
52
<PAGE> 57
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -DECEMBER 31, 1997 AND 1996
($ in thousands, except par values)
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1996
---- ----
ASSETS
<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 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.
53
<PAGE> 58
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.
54
<PAGE> 59
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 STOCK COMMON STOCK GAINS (LOSSES)
------------------ ------------------ ON AVAILABLE
SHARES SHARES CAPITAL RETAINED FOR SALE
ISSUED AMOUNT ISSUED AMOUNT SURPLUS EARNINGS SECURITIES TOTAL
------ ------ ------ ------ ------- -------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 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 $95,531
====== ====== ========= ======== ======== ======= ==== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements
55
<PAGE> 60
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ 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 (3,921) 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 (12,324) 1,803 (4,027)
Net increase (decrease) in other liabilities 4,554 (1,248) 1,800
--------- --------- ---------
Net cash (used in) provided by operating activities (14,883) 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 (325,217) (118,650) (203,262)
Purchase of premises and equipment (10,309) (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 (202,914) (110,785) (224,590)
--------- --------- ---------
FINANCING ACTIVITIES:
Net increase in deposits 176,614 122,866 197,316
Net increase in repurchase agreements 4,282 12,301 991
Proceeds from issuance of subordinated debt - 6,000 -
Reduction of minority interest in FFO (6,421) - -
Proceeds from issuance of common stock 12,613 - 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 243,574 117,903 215,810
--------- --------- ---------
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
Income taxes 5,674 4,010 2,066
</TABLE>
The accompanying notes are an integral part of these consolidated statements
56
<PAGE> 61
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 of record and one share of Company Preferred Stock for
each share of the Bank's Preferred Stock held of record. Holders of outstanding
options to purchase or acquire the Bank's Common Stock received options to
purchase an equal number of shares of Company Common Stock. All necessary
governmental and shareholder approvals for the Reorganization were received. The
Company's primary source of income is from its banking subsidiary which operates
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 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.
57
<PAGE> 62
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,
------------------------
Net Interest Income: 1996 1995
-------- --------
<S> <C> <C>
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 subordinateDP
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 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."
58
<PAGE> 63
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.
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.
59
<PAGE> 64
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 behavorial 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 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. Of this
amount, $2.7 million were carried on a non-accrual basis. Approximately 12.6% of
these loans were measured for impairment using the fair value of collateral,
while the remaining 87.4% were measured using the present value of the expected
future cash flows discounted at the loan's effective rate. As a result of these
measurements, approximately $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. Average impaired loans during 1997 were approximately
$25.2 million and the amount of cash basis interest income recognized on these
loans was $2.1 million.
As of December 31, 1996, $27.6 million of loans were considered impaired by the
Company. Of this amount, $17.5
60
<PAGE> 65
million were carried on a non-accrual basis. Approximately 42.3% of these loans
were measured for impairment using the fair value of collateral, while the
remaining 57.7% were measured using the present value of the expected future
cash flows discounted at the loan's effective rate. As a result of these
measurements, approximately $25.3 million of these loans required valuation
allowances, totaling $4.0 million, which were included within the overall
allowance for loan losses at December 31, 1996. Average impaired loans during
1996 were approximately $25.9 million, and the amount of cash basis interest
income recognized on these loans was $1.2 million.
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.
61
<PAGE> 66
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 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.
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.
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<PAGE> 67
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.
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.
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<PAGE> 68
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>
<TABLE>
<CAPTION>
BOOK VALUE AT DECEMBER 31: 1997 1996
---- ----
<S> <C> <C>
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> <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.
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<PAGE> 69
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
--------- ---------- ---------- -------
AT DECEMBER 31, 1997:
Available for sale securities:
<S> <C> <C> <C> <C>
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
======= ========== ========= =======
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 spread interest only strip receivable 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 servicing interest only strip -- -- -- --
------- ---------- --------- -------
Total MBS securities held to maturity $15,343 $ 218 $ (47) $15,514
======= ========== ========= =======
1997 1996
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>
65
<PAGE> 70
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.
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
----------- ---------
Real estate mortgage loans:
<S> <C> <C>
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 26,072 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.
66
<PAGE> 71
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 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.
67
<PAGE> 72
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.
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.
68
<PAGE> 73
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. 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
Maturities in December 31,
Year Ending Weighted -------------------
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.
69
<PAGE> 74
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.
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.
70
<PAGE> 75
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.
71
<PAGE> 76
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 232,711 116,358
========== ========
</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. 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.
72
<PAGE> 77
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.
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
73
<PAGE> 78
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
Net Income ---- ---- ----
<S> <C> <C> <C>
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>
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
------- -------- ------- -------- ------- ---------
FIXED OPTIONS
<S> <C> <C> <C> <C> <C> <C>
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>
74
<PAGE> 79
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------- -----------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
- ----------------- ---------------- ---------------- ---------------- ----------- ----------------
<C> <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 16,100 26.68
</TABLE>
75
<PAGE> 80
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 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>
76
<PAGE> 81
<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 prepetual preferred
stock -- 750,000
Convertible subordinated
debentures - incremental effect
prior to conversion -- -- --
---------- --------- ----------
Diluted earnings per share $ 6,916 6,261,368 $ 1.10
========== ========= ==========
</TABLE>
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.
77
<PAGE> 82
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 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):
78
<PAGE> 83
<TABLE>
<CAPTION>
COMPANY BANK
---------------------- --------------------
AMOUNT RATIO AMOUNT RATIO
------ ----- ------ -----
As of December 31, 1997:
RISK-BASED CAPITAL:
Tier 1 Capital
- ----------------
<S> <C> <C> <C> <C>
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>
79
<PAGE> 84
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
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
80
<PAGE> 85
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,
-----------------------
1996 1997
-------- ---------
ASSETS
<S> <C> <C>
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>
REPUBLIC BANCSHARES, INC.
PARENT-ONLY CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCOME 1997 1996
------- -------
<S> <C> <C>
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>
81
<PAGE> 86
REPUBLIC BANCSHARES, INC.
PARENT-ONLY CONDENSED CASH FLOW STATEMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996
-------- --------
OPERATING ACTIVITIES:
<S> <C> <C>
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>
82
<PAGE> 87
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 1996
($ 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>
83
<PAGE> 88
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.
84
<PAGE> 89
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REPUBLIC BANCSHARES, INC.
By:/s/ John W. Sapanski
---------------------------
John W. Sapanski
Chairman and Chief Executive Officer
Date: March 27, 1998
--------------
85
<PAGE> 90
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE DATE TITLE
- --------- ---- -----
<S> <C> <C>
/s/John W. Sapanski March 27, 1998 Chairman, Chief Executive
- -------------------------------------- -------------- Officer and Director (principal executive officer)
John W. Sapanski
/s/William R. Falzone March 27, 1998 Treasurer (principal financial and accounting
- -------------------------------------- -------------- officer)
William R. Falzone
/s/Fred Hemmer March 27, 1998 Director
- -------------------------------------- --------------
Fred Hemmer
Director
- -------------------------------------- --------------
Marla Hough
Director
- -------------------------------------- --------------
William R. Hough
/s/Alfred T. May March 27, 1998 Director
- -------------------------------------- --------------
Alfred T. May
/s/William J. Morrison March 27, 1998 Director
- -------------------------------------- --------------
William J. Morrison
</TABLE>
86
<PAGE> 91
INDEX TO EXHIBITS
23.0 Consent to Use Report of Independent Certified Public Accountants
27.0 Financial Data Schedule
87
<PAGE> 1
Exhibit 23.0
CONSENT TO USE OF REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into Republic
Bancshares, Inc.'s previously filed Registration Statement File No. 333-32151.
/s/ ARTHUR ANDERSEN LLP
Tampa, Florida
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 9 <LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REPUBLIC
BANCSHARES' CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATION
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 45,998
<INT-BEARING-DEPOSITS> 671
<FED-FUNDS-SOLD> 33,000
<TRADING-ASSETS> 37,046
<INVESTMENTS-HELD-FOR-SALE> 71,547
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,301,135
<ALLOWANCE> 20,776
<TOTAL-ASSETS> 1,552,405
<DEPOSITS> 1,361,312
<SHORT-TERM> 54,654
<LIABILITIES-OTHER> 12,158
<LONG-TERM> 0
0
1,500
<COMMON> 14,072
<OTHER-SE> 79,959
<TOTAL-LIABILITIES-AND-EQUITY> 1,552,405
<INTEREST-LOAN> 97,810
<INTEREST-INVEST> 10,647
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 108,457
<INTEREST-DEPOSIT> 52,311
<INTEREST-EXPENSE> 54,923
<INTEREST-INCOME-NET> 53,534
<LOAN-LOSSES> 2,628
<SECURITIES-GAINS> 1,308
<EXPENSE-OTHER> 59,895
<INCOME-PRETAX> 14,667
<INCOME-PRE-EXTRAORDINARY> 14,667
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,571
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.21
<YIELD-ACTUAL> 8.53
<LOANS-NON> 26,959
<LOANS-PAST> 196
<LOANS-TROUBLED> 7,189
<LOANS-PROBLEM> 17,364
<ALLOWANCE-OPEN> 18,747
<CHARGE-OFFS> 1,003
<RECOVERIES> 223
<ALLOWANCE-CLOSE> 20,776
<ALLOWANCE-DOMESTIC> 20,776
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
