<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 14, 1998
REGISTRATION STATEMENT NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
REPUBLIC BANCSHARES, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C>
FLORIDA 59-3347653
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
111 SECOND AVENUE N.E., SUITE 300
ST. PETERSBURG, FLORIDA 33701
(813) 823-7300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
CHRISTOPHER M. HUNTER, ESQUIRE
CORPORATE SECRETARY
REPUBLIC BANCSHARES, INC.
111 SECOND AVENUE, N.E., SUITE 300
ST. PETERSBURG, FLORIDA 33701
(813) 823-7300
(Name, address, including zip code, and telephone number,
including area code, of registrant's agent for service)
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
CHESTER E. BACHELLER, ESQUIRE JOHN P. GREELEY, ESQUIRE
HOLLAND & KNIGHT LLP SMITH, MACKINNON, GREELEY,
200 CENTRAL AVENUE BOWDOIN & EDWARDS, P.A.
ONE PROGRESS PLAZA 255 SOUTH ORANGE AVENUE, SUITE 800
ST. PETERSBURG, FLORIDA 33701 ORLANDO, FLORIDA 32801
(813) 227-8500 (407) 843-7300
FACSIMILE: (813) 229-0134 FACSIMILE: (407) 843-2448
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statements for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
=======================================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE OFFERING PRICE AGGREGATE REGISTRATION
TITLE OF SHARES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(1)(2) FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $2.00
per share..................... 2,300,000 $33.25 $76,475,000 $22,561
=======================================================================================================================
</TABLE>
(1) Includes 300,000 shares to cover over-allotments, if any, pursuant to an
over-allotment option granted to the Underwriters.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended, based upon the
last sale reported by the Nasdaq Stock Market's National Market on April 9,
1998.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL , 1998
(REPUBLIC BANCSHARES LOGO)
2,000,000 SHARES
REPUBLIC BANCSHARES, INC.
COMMON STOCK
---------------------
All of the 2,000,000 shares of Common Stock, $2.00 par value per share (the
"Common Stock"), offered hereby (the "Offering") are being issued and sold by
Republic Bancshares, Inc. (the "Company"). The Common Stock is traded on the
Nasdaq Stock Market's National Market (the "Nasdaq National Market") under the
symbol "REPB." On April 9, 1998, the last reported sale price of the Company's
Common Stock on the Nasdaq National Market was $33.25 per share. See "Price
Range of Common Stock."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
==================================================================================================================
PRICE TO UNDERWRITING DISCOUNT PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3)............................... $ $ $
==================================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $ , payable by the Company.
(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase, in the aggregate, up to 300,000 additional shares of the Common
Stock on the same terms and conditions as set forth above to cover
overallotments, if any. If the Underwriters exercise the over-allotment
option in full, the total Price to Public will be $ , the total
Underwriting Discounts and Commissions will be $ and the total
Proceeds to Company will be $ . See "Underwriting."
---------------------
The Common Stock is offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by them, and subject to certain other
conditions, including the right of the Underwriters to withdraw, cancel, modify
or reject any order in whole or in part. It is expected that delivery of the
Common Stock will be made on or about , 1998, at the offices of
William R. Hough & Co., St. Petersburg, Florida.
(WILLIAM R. HOUGH & CO. LOGO) (RYAN, BECK & CO. LOGO)
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
MAP OF FLORIDA AND SOUTH GEORGIA WITH SHADED PORTIONS INDICATING THE
COUNTIES IN WHICH THE COMPANY HAS BRANCHES OR WILL HAVE BRANCHES, AND MARKERS
INDICATING THE CITIES IN WHICH SUCH BRANCHES ARE LOCATED
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENTS, STABILIZING AND SHORT-COVERING TRANSACTIONS. FOR A
DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
<PAGE> 4
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, the information in this Prospectus
assumes that the Underwriters' over-allotment option will not be exercised.
THE COMPANY AND THE BANK
Republic Bancshares, Inc. (the "Company") is a registered bank holding
company 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 commercial bank holding company headquartered 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 real estate
and business lending. The Bank is also active in mortgage banking through its
mortgage banking division, Flagship Mortgage Services ("Flagship"), which
originates first lien residential mortgages and high loan-to-value debt
consolidation and home improvement loans ("High LTV Loans"). Flagship's High LTV
Loans are secured by junior liens on residential real estate where the combined
amount of indebtedness secured by the residence may be up to 125% of the value
of the residence and often times exceeds 100%. 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, loans held in portfolio
totaled $1.1 billion, deposits totaled $1.4 billion and stockholders' equity was
$95.5 million. The Company is currently regulated by the Board of Governors of
the Federal Reserve (the "Federal Reserve"), and the Bank is regulated by the
Florida Department of Banking and Finance (the "Department") and the Federal
Deposit Insurance Corporation (the "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").
In May 1993, William R. Hough and John W. Sapanski (together, the
"Controlling Stockholders") acquired from the Bank's prior controlling
stockholder more than 99.0% of the Bank's outstanding common stock (the "Change
in Control"). As of December 31, 1997, the Controlling Stockholders (and their
respective affiliates and immediate family members) owned shares of the
Company's voting stock representing approximately 54.0% and 6.5%, respectively,
of the total voting rights of the Company. Since the Controlling Stockholders do
not intend to purchase any shares of the Common Stock offered hereby, it is
anticipated that, following consummation of the Offering, the Controlling
Stockholders' voting rights will be reduced to 43.0% and 5.2%, respectively. Mr.
Hough is a member of the Company's and the Bank's Board of Directors and Mr.
Sapanski serves as the Company's and the Bank's Chairman of the Board, Chief
Executive Officer and President.
Following 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 owned ("ORE") amounting to $201.6
million (the "CrossLand Purchase and Assumption"). The CrossLand Purchase and
Assumption almost tripled the Bank's size, increasing total assets to $531.3
million and total deposits to $494.3 million at December 31, 1993. Additionally,
the 12 CrossLand branches expanded the Bank's market coverage 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 central
coast of Florida. The Bank opened 13 additional new branches, expanding its
market coverage in existing counties and providing entry into Pasco County.
In January 1996, the Bank organized the Company and became its wholly-owned
subsidiary.
During 1996 and 1997, the Company focused on increasing its residential
lending capabilities. In conjunction with the establishment of Flagship in April
1996 and its internal growth, the Company added eight residential loan
production offices in Florida, one residential loan production office in Boston,
1
<PAGE> 5
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, beginning in the fourth quarter of 1996, High LTV
Loans. At the same time, the Bank also began purchasing residential mortgage
loans from mortgage brokers and other third-party originators for resale. The
strategy of the Company is to sell or securitize substantially all of the loans
it originates and purchases through Flagship. The Company has engaged in various
whole loan sales and consummated its first securitization of High LTV Loans
totalling $60 million in December 1997. The Company currently anticipates
further whole loan sales and/or securitizations on a quarterly or other periodic
basis during 1998, depending upon then-prevailing market conditions and other
factors.
In addition to expanding its mortgage banking activities, the Company
continued its geographic expansion strategy throughout 1997. In January 1997,
the Company opened a new branch in Hernando County. In April 1997, the Company
acquired Firstate Financial, F.A. ("Firstate"), a federal savings association
headquartered in Orlando, Florida, for a cash purchase price of $5.5 million
(the "Firstate Acquisition"). The Firstate Acquisition increased the Company's
presence in central Florida, where the Company previously operated a loan
production facility but had no branches. At the date of acquisition, Firstate
had total assets of $72.1 million and total deposits of $68.1 million. The
Firstate Acquisition was accounted for using purchase accounting rules.
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, which was also majority controlled by Mr. Hough,
was merged into the Company in a stock-for-stock transaction (the "FFO Merger").
The FFO Merger expanded the Company's presence in central Florida by adding 11
branches in Brevard, Orange and Osceola counties. On the date of the FFO Merger,
FFO had total assets of $328.4 million, total loans of $233.3 million and total
deposits of $303.4 million. The FFO Merger was accounted for as a corporate
reorganization in which Mr. Hough's interests in FFO and the Company were
combined at historical cost in a manner similar to a pooling of interests, while
the minority interests in FFO were combined with the Company at fair market
value using purchase accounting rules.
On December 15, 1997, the Company and NationsBank Corporation
("NationsBank") entered into two purchase and assumption agreements (the
"NationsBank Branch Agreements") for the Company to acquire three branches of
NationsBank's subsidiary bank, NationsBank, N.A. ("NationsBank Subsidiary") and
five branches of Barnett Bank, N.A. ("Barnett Bank") which NationsBank acquired
in January 1998. The Company has agreed to pay NationsBank approximately $37.8
million (based on August 31, 1997 data and the most recent data available) for
these eight branches. The Company will purchase certain of the loans and other
assets booked at those branches and assume the deposits and other liabilities
assigned to such branches (the "NationsBank Branch Acquisition"). Of the
branches being purchased, three are located in Monroe County (Key West, Marathon
and Plantation Key), two are located in Marion County (Ocala and Silver
Springs), one is located in Columbia County (Lake City) and one is located in
Suwannee County (Live Oak) (collectively, the "Florida Branches"). The eighth
branch is located in Glynn County, Georgia (the "Georgia Branch" and with the
Florida Branches, collectively, the "NationsBank Branches"). At August 31, 1997,
the NationsBank Branches had deposit liabilities of $225.5 million and $29.2
million, respectively, and loans of $163.9 million and $19.4 million,
respectively. The NationsBank Branch Acquisition will be accounted for using
purchase accounting rules. See "Combined Financial Data" and
"Business -- Proposed Acquisitions."
The Company anticipates that it will be able to obtain all required
regulatory approvals by the June 30, 1998 termination date set forth in the
NationsBank Branch Agreements, 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 Company.
On March 2, 1998, the Company entered into a merger agreement (the "Bankers
Merger Agreement") with Bankers Savings Bank, F.S.B., Coral Gables, Florida
("Bankers"), providing for the merger of Bankers into the Bank (the "Bankers
Acquisition"). Bankers has two branches in Dade County, Florida, 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. As of February 28, 1998, it is
estimated that the stockholders of Bankers would have received 0.44 of a
2
<PAGE> 6
share of the Common Stock for each of the 692,333 outstanding shares of Bankers'
common stock if the Bankers Acquisition had been consummated on that date. It is
anticipated that the Bankers Acquisition will be accounted for as a pooling of
interests. The transaction may be terminated by either Bankers or the Company if
it is not consummated by November 1, 1998. See "Combined Financial Data" and
"Business -- Proposed Acquisitions."
In March 1998, the Company entered into a purchase and assumption agreement
with Dime Savings Bank, F.S.B. (the "Dime Branch Agreement"), to acquire a Dime
branch (the "Dime Branch") in Deerfield Beach, Florida (the "Dime Branch
Acquisition" and with the Bankers Acquisition and NationsBank Branch
Acquisition, collectively, the "Proposed Acquisitions"), including the
assumption of the deposits and other liabilities assigned to such branch, the
assumption of the leasehold on the branch property, and the purchase of the
personal property and equipment of the branch. The Company is not acquiring any
loans in the transaction. As of March 31, 1998, the Dime Branch had total
deposits of $202.9 million and the Company's purchase price would have been
approximately $9.8 million. The transaction will be accounted for using purchase
accounting rules and must be consummated within 30 days of receiving regulatory
approval. See "Combined Financial Data" and "Business -- Proposed Acquisitions."
If consummated, the Proposed Acquisitions will increase the total assets of
the Company to approximately $2.1 billion (based on most recent available data),
and expand the Bank's branch network from 46 to 56 branches in Florida, located
in Brevard, Broward, Columbia, Dade, Hernando, Manatee, Marion, Monroe, Orange,
Osceola, Pasco, Pinellas, Sarasota, Seminole and Suwannee counties, and one
branch in Georgia, located in Glynn County. See "Combined Financial Data." There
can be no assurance that the Company will be able to consummate, or, if
consummated, successfully integrate the operations and management of the
Proposed Acquisitions. See "Risk Factors -- Proposed Acquisitions and Ability to
Manage Growth and Integrate Operations."
On March 31, 1998, the Company sold on a non-recourse basis $95.6 million
of High LTV Loans (the "Repo Loans") to Republic SPC1 Corp. (the "SPC"), a
wholly owned, second-tier subsidiary of the Company that was formed for the
purpose of purchasing and holding the loans. The Repo Loans were sold on a whole
loan basis with the Company retaining servicing rights. The SPC purchased the
loans utilizing a capital contribution from the Company to the SPC and the $81.2
million in proceeds from a repurchase agreement simultaneously entered into
between the SPC and Lehman Commercial Paper Corp. ("Lehman"). On April 1, 1998,
the Company used this funding to reduce its FHLB advance borrowings. The capital
contribution will be treated for accounting purposes as a trading account
investment by the Company. The Company anticipates that the transaction will be
accounted for as a sale, and that a gain will be recognized in connection
therewith, subject to the Company's ability to create an acceptable entity to
securitize the loans or sell the loans on a whole-loan basis to a non-affiliated
third party.
The Company anticipates continuing its strategy of geographic expansion for
the foreseeable future through whole bank and thrift acquisitions, branch
acquisitions or de novo branching, depending upon various factors, including
whether (i) the transaction will be accretive to earnings no later than one year
following the acquisition; (ii) the transaction will provide the Company with a
new or additional location in a desirable market area; (iii) the transaction
will close an existing gap in the Company's Florida branch network; and (iv)
competitive opportunities arise, such as branches becoming available due to bank
mergers and other consolidations.
The principal executive offices of the Company are located at 111 Second
Avenue N.E., Suite 300, St. Petersburg, Florida, 33701, and its telephone number
is (813) 823-7300.
BUSINESS STRATEGY
The Company's business strategy entails (i) originating and purchasing real
estate-secured loans for portfolio and sale, (ii) originating business and
consumer loans for portfolio; (iii) improving market share and expanding market
coverage through acquisitions of other financial institutions, branch purchases
and de novo branching; (iv) increasing non-interest income through expanded
mortgage banking activities and increased
3
<PAGE> 7
emphasis on commercial and retail checking relationships; and (v) increasing its
range of products and services. While pursuing this strategy, management remains
committed to improving asset quality, managing interest rate risk, enhancing
profitability and maintaining its status as a well-capitalized institution for
regulatory capital purposes.
The results of the Company's business strategy include:
- Expanded Branch Network -- Since the Change in Control, the Company has
expanded its retail banking presence from seven branches in northern
Pinellas County to its current 46 branches in Brevard, Hernando, Manatee,
Orange, Osceola, Pasco, Pinellas, Sarasota and Seminole counties. In
December 1997, the Company entered into the NationsBank Branch Agreements
to acquire seven additional branches located in Columbia, Marion, Monroe
and Suwannee counties in Florida and one branch in Glynn County, Georgia.
In March 1998, the Company entered into the Bankers Merger Agreement to
acquire Bankers, which operates two branches in Dade County, and the Dime
Branch Agreement to acquire the Dime Branch located in Broward County.
- Substantial Asset Growth -- Since the Change in Control, the Company has
increased in asset size from approximately $168.7 million to
approximately $1.6 billion at year end 1997. The Proposed Acquisitions,
if all are consummated, will increase the total asset size of the Company
to approximately $2.1 billion. This asset growth is largely attributable
to bulk purchases of loan portfolios and deposit assumptions such as the
CrossLand Purchase and Assumption, acquisitions of other financial
institutions such as Firstate, FFO and Bankers, branch purchases such as
the NationsBank and Dime Branch Acquisitions, the opening of new branches
and internally-generated deposit and loan growth.
- Increased Mortgage Banking and Other Fee-Generating
Activities -- Primarily through the establishment of Flagship, with its
emphasis on mortgage banking activities, the Company has dramatically
increased its levels of non-interest income, both in absolute terms and
as a relative percentage of its net income. In 1997, Flagship contributed
approximately $15.3 million in non-interest income (over 60% of total
non-interest income) and $2.8 million in pre-tax income to the Company.
The Company has also increased its non-interest income through improved
revenue from expanded deposit products. As a result of the Company having
expanded its sources and amounts of fee income, total non-interest income
was 1.85% of average assets in 1997, as compared to .63% in 1994, the
first full year after the Change in Control.
- Improved Asset Quality Ratios -- A significant portion of the assets of
the Bank at the time of the Change in Control and the assets acquired in
the CrossLand Purchase and Assumption were nonperforming. As a result,
the Company's nonperforming assets were $44.2 million or 5.66% of total
assets, at year end 1993. At December 31, 1997, nonperforming assets had
been reduced to $34.2 million, or 2.20% of total assets, primarily
through the implementation of consistent loan underwriting policies and
procedures, centralization of all credit decision functions, increased
size of the loan portfolio, write-offs and sales of ORE. However, the
level of the Company's nonperforming assets continues to be higher than
that of peer group institutions. See "Risk Factors -- Nonperforming
Assets."
- Management of Financial Risks -- One of the Company's primary objectives
is to reduce the financial risk from fluctuations in net interest income
caused by changes in market interest rates and changes in the value of
its mortgage loans held for sale. To manage interest rate risk, the
Company generally limits holding loans in its portfolio to those that
have variable interest rates tied to interest-sensitive indices and
actively manages the maturities within the investment portfolio. The
Company also engages in various hedging activities to reduce its exposure
to the risks attributable to mortgage loans held pending subsequent sale
or securitization. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Asset/Liability
Management."
4
<PAGE> 8
THE OFFERING
Common Stock offered by the
Company..................... 2,000,000 shares
Common Stock to be outstanding
after the Offering........... 9,047,812 shares(1)
Use of Proceeds............... The net proceeds from the Offering will be
contributed by the Company to the Bank to
maintain the regulatory capital ratios of the
Company and the Bank in conjunction with the
consummation of the Proposed Acquisitions and
to support future growth.
Nasdaq National Market
Symbol....................... REPB
- ---------------
(1) Does not include the 750,000 shares of Common Stock issuable upon conversion
of the 75,000 shares of the Company's noncumulative convertible perpetual
preferred stock, $20.00 par value per share (the "Preferred Stock"), or any
of the 411,249 shares of Common Stock subject to options currently
outstanding.
RISK FACTORS
Before making an investment decision, prospective investors should consider
all of the information contained in this Prospectus. In particular, prospective
investors should evaluate the factors discussed under "Risk Factors."
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The Summary Consolidated Financial and other Data presented below has been
derived from the audited Consolidated Financial Statements of the Company and,
prior to 1996, the Bank, and are qualified in their entirety by reference to the
more detailed Consolidated Financial Statements and notes thereto, included
elsewhere herein. For additional information relating to the financial and other
data below, see "Selected Consolidated Financial Data."
<TABLE>
<CAPTION>
SEVEN FIVE
MONTHS MONTHS
ENDED ENDED
YEARS ENDED DECEMBER 31, DECEMBER 31, MAY 31,
------------------------------------------------- ------------ ----------
1997 1996 1995 1994 1993 1993
---------- ---------- ---------- ---------- ------------ ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income................. $ 108,457 $ 88,944 $ 77,593 $ 53,997 $ 11,885 $ 4,848
Interest expense................ 54,923 44,949 40,112 24,423 5,120 1,970
---------- ---------- ---------- ---------- ---------- ----------
Net interest income............. 53,534 43,995 37,481 29,574 6,765 2,878
Loan loss provision............. 2,628 2,582 2,162 172 3,222 379
---------- ---------- ---------- ---------- ---------- ----------
Net interest income after loan
loss provision................ 50,906 41,413 35,319 29,402 3,543 2,499
Other noninterest income........ 25,031 6,745 5,353 5,099 1,677 743
Gain on sale of ORE held for
investment.................... -- 1,207 -- -- -- --
General and administrative
("G&A") expenses.............. 57,484 36,829 30,963 23,678 6,481 2,699
Merger expenses................. 1,144 -- -- -- -- --
SAIF special assessment......... -- 4,005 -- -- -- --
Provision for losses on ORE..... 530 111 -- -- -- 1,214
Other noninterest expense....... 273 (490) 902 4,216 331 443
</TABLE>
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<TABLE>
<CAPTION>
SEVEN FIVE
MONTHS MONTHS
ENDED ENDED
YEARS ENDED DECEMBER 31, DECEMBER 31, MAY 31,
------------------------------------------------- ------------ ----------
1997 1996 1995 1994 1993 1993
---------- ---------- ---------- ---------- ------------ ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Amortization of goodwill &
premium on deposits........... 464 491 450 1,269 -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income before income taxes,
negative goodwill accretion &
minority interest............. 16,042 8,419 8,357 5,338 (1,592) (1,114)
Accretion of negative
goodwill...................... -- -- 1,578 2,705 1,578 --
---------- ---------- ---------- ---------- ---------- ----------
Net income before income taxes &
minority interest............. 16,042 8,419 9,935 8,043 (14) (1,114)
Income tax expense (benefit).... 6,096 3,035 2,516 702 (2,844) --
Minority interest in income from
subsidiary trust.............. (701) -- -- -- -- --
Minority interest in FFO........ (674) (505) (503) (131) (197) --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............... $ 8,571 $ 4,879 $ 6,916 $ 7,210 $ 2,633 $ (1,114)
========== ========== ========== ========== ========== ==========
Earnings (loss) per share,
diluted....................... $ 1.21 $ 0.74 $ 1.10 $ 1.28 $ 1.01 $ (1.00)
========== ========== ========== ========== ========== ==========
Weighted average shares
outstanding, diluted.......... 7,301,499 6,626,604 6,261,368 5,632,437 2,594,923 1,117,192
========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA
(at period end):
Total assets.................... $1,552,405 $1,224,357 $1,103,480 $ 879,873 $ 780,711 $ 168,741
Investment & mortgage backed
securities.................... 108,593 161,357 155,345 101,028 74,042 27,433
Loans held for sale............. 151,404 46,593 27,476 7,930 11,346 --
Loans held in portfolio, net of
unearned income............... 1,149,731 920,782 831,033 680,604 479,600 111,292
Allowance for loan losses....... 20,776 18,747 20,048 15,272 15,872 1,866
Goodwill & premium on
deposits...................... 4,855 527 1,017 820 1,966 --
Deposits........................ 1,361,312 1,114,907 992,041 794,717 705,584 153,660
Stockholders' equity............ 95,531 68,178 63,833 47,618 34,003 8,058
Book value per share............ 12.27 10.32 9.65 8.16 6.11 N/A
SELECTED FINANCIAL RATIOS(2):
Return on average assets........ 0.63% 0.43% 0.68% 0.90% 0.97% (1.61)%
Return on average equity........ 11.44 7.41 12.62 16.73 36.97 (21.75)
Net interest spread............. 3.71 3.63 3.65 3.87 3.88 4.21
Net interest margin............. 4.18 4.02 3.95 4.06 4.30 4.66
G&A expense to average assets... 4.26 3.21 3.06 2.95 2.38 6.28
G&A efficiency ratio............ 73.17 72.58 72.29 68.29 76.77 74.54
Loan/deposit ratio(1)........... 84.46 82.59 83.77 85.64 67.97 72.43
Nonperforming loans to loans.... 2.36 2.12 2.18 2.44 4.03 2.27
Nonperforming assets to total
assets........................ 2.20 2.27 2.78 3.96 5.66 5.89
Loan loss allowance to
loans(1)(3)................... 1.81 2.04 2.40 2.24 3.31 1.68
Loan loss allowance applicable
to nonperforming loans
from(3):
Originated portfolio.......... 93.66 73.15 106.51 177.30 129.06 73.03
March 1995 purchase........... 373.91 488.78 647.83 N/A N/A N/A
CrossLand portfolio........... 421.88 126.12 41.77 23.73 39.88 N/A
Other purchased portfolios.... 22.28 89.80 41.84 82.99 N/A N/A
Total loans................... 76.51 96.03 110.73 91.98 82.20 73.03
</TABLE>
6
<PAGE> 10
<TABLE>
<CAPTION>
SEVEN FIVE
MONTHS MONTHS
ENDED ENDED
YEARS ENDED DECEMBER 31, DECEMBER 31, MAY 31,
------------------------------------------------- ------------ ----------
1997 1996 1995 1994 1993 1993
---------- ---------- ---------- ---------- ------------ ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA (at period end):
Number of branches.............. 45 43 43 31 29 7
Number of full-time equivalent
employees..................... 1,045 795 573 451 373 96
</TABLE>
- ---------------
(1) Ratio excludes loans held for sale.
(2) Information is annualized, where applicable, for the periods ended December
31, 1993 and May 31, 1993.
(3) See "Business -- Asset Quality" for a discussion of the allocation and
availability of loan loss reserves among portfolios of loans within the
Bank.
7
<PAGE> 11
RISK FACTORS
Prospective investors should carefully consider, together with the other
information contained and incorporated by reference in this Prospectus, the
following factors in evaluating the Company before purchasing the Common Stock
offered hereby. Prospective investors should note, in particular, that this
Prospectus contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"), and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
that involve substantial risks and uncertainties. When used in this Prospectus,
or in the documents incorporated by reference herein, the words "anticipate,"
"believe," "estimate," "may," "intend" and "expect" and similar expressions
identify certain of such forward-looking statements. Actual results, performance
or achievements could differ materially from those contemplated, expressed or
implied by the forward-looking statements contained herein. The considerations
listed below represent certain important factors the Company believes could
cause such results to differ. These considerations are not intended to represent
a complete list of the general or specific risks that may affect the Company. It
should be recognized that other risks, including general economic factors and
business strategies, may be significant, presently or in the future, and the
risks set forth below may affect the Company to a greater extent than indicated.
PROPOSED ACQUISITIONS AND ABILITY TO MANAGE GROWTH AND INTEGRATE OPERATIONS
Since the Change in Control, the Company has rapidly expanded its
operations through acquisitions, loan purchases, the opening of loan production
offices and de novo branches and the establishment of Flagship, the Bank's
mortgage banking division. There can be no assurance that the Company will not
encounter unforeseen difficulties and complications in integrating expanded
operations and new employees, resulting in the disruption of overall operations.
In addition, such rapid growth may adversely affect the Company's operating
results because of many factors, including unforeseen start-up costs, diversion
of management resources, deterioration of asset quality and required operating
adjustments. There can be no assurance that the Company will successfully
achieve the anticipated benefits of its growth or expanded operations.
Following consummation of the Proposed Acquisitions, the Company may
encounter unanticipated operational or organizational difficulties. The
successful integration of the Proposed Acquisitions will require, among other
things, consolidation of certain operations, elimination of duplicative
corporate and administrative expense, elimination of certain positions and the
chartering by the Company of a new federal savings bank subsidiary (the "Savings
Bank"). There can be no assurance that integration will be accomplished
effectively or in a timely manner. Additionally, there can be no assurance that,
following the consummation of the Proposed Acquisitions, the branches purchased
in the Proposed Acquisitions will be able to retain existing customers or
deposits. In addition, the integration of certain operations following the
Proposed Acquisitions will require the dedication of management resources, which
may temporarily distract attention from the day-to-day business of the Company.
Failure to accomplish effectively the integration of operations could have a
material adverse effect on the Company's regulatory capital, business, financial
condition and results of operations following the Proposed Acquisitions. See
"Proposed Acquisitions."
IMPACT OF CHANGES IN REAL ESTATE VALUES
A significant portion of the Company's loan portfolio consists of
residential mortgage loans and commercial real estate loans. At December 31,
1997, 58.55% of the Company's loans were secured by one-to-four family
residential real estate, 30.31% were secured by commercial real estate and
multifamily residential and 4.37% were real estate-secured construction loans,
and the Company had ORE with a book value of $7.0 million, or .50% of assets.
Further, a substantial portion of the properties securing the Company's loans
are located in Florida. Real estate values and real estate markets generally are
affected by, among other things, changes in national, regional or local economic
conditions, fluctuations in interest rates and the availability of loans to
potential purchasers, changes in the tax laws and other governmental statutes,
regulations and policies, demographic trends and acts of nature. Any decline in
real estate prices, particularly in Florida, could significantly reduce the
value of the real estate collateral securing the Company's loans, increase the
level of
8
<PAGE> 12
the Company's nonperforming loans, require writedowns in the book value of its
ORE, and have a material adverse effect on the Company's regulatory capital,
business, financial condition and results of operations.
In recent years, the Company has increased its level of construction and
commercial real estate loans, which are generally considered to involve a higher
degree of credit risk than that for one-to-four family residential lending.
Further, the Company's retention of High LTV Loans in anticipation of later sale
or securitization, increases its credit risk and vulnerability to changes in
real estate values.
DEPENDENCE ON EXISTING MANAGEMENT
The Company's ability to operate as a profitable enterprise has depended,
and will continue to depend in large part, upon the management and banking
abilities of the Company's senior management, including John W. Sapanski, the
Chairman, Chief Executive Officer and President of the Company and the Bank. The
Company does not currently have a Chief Operating Officer. If, for any reason,
the services of Mr. Sapanski were to become unavailable to the Company, such
event would likely have an adverse impact upon the future results of operations
of the Company in light of Mr. Sapanski's experience and reputation in the
banking industry, his stature within the Company, his extensive knowledge of and
familiarity with the Company's operations, and the critical role played by Mr.
Sapanski within the Company. Mr. Sapanski is 67 years old. Neither the Company
nor the Bank maintains a key man life insurance policy for Mr. Sapanski.
Additionally, neither Mr. Sapanski nor any other member of senior management has
an employment or noncompetition agreement with the Company.
The Company believes that its results will also depend in part upon its
ability to attract and retain highly skilled and qualified management, sales and
marketing personnel. Competition for such personnel is intense, and there can be
no assurance that the Company will be successful in attracting and retaining
such personnel. Departures and additions of key personnel may be disruptive to
the Company's business and could have a material adverse effect on the Company's
business, financial condition and results of operations.
INCREASED EMPHASIS ON MORTGAGE BANKING ACTIVITIES AND HIGH LTV LOANS
In 1996, the Company began its emphasis on mortgage banking operations,
both as the primary focus of its residential mortgage lending activities and the
key business strategy to increase substantially its levels of non-interest
income. As a result, the Company's mortgage banking operations represented
approximately 9.75% of the Company's assets at year-end 1997 and 17.5% of its
pre-tax profits in 1997. The Company continues to devote significant resources
to and to incur significant expenses operating Flagship and expanding its
mortgage loan origination and purchase capabilities.
Mortgage banking is fundamentally different from other traditional kinds of
real estate-secured residential and commercial lending in that substantially all
of the mortgage loans directly originated or purchased from mortgage brokers are
re-sold into the secondary market instead of being held in portfolio until
maturity. Such sales may take the form of either whole loan sales or
securitizations.
Approximately 50% of the dollar amount of mortgage loans originated or
purchased by Flagship in 1997 were second-mortgage High LTV Loans made to
borrowers who may have had historical credit problems but are now considered by
the Company to be acceptable credit risks. These borrowers generally have little
or no equity in their homes. Because these loans generally pose a higher credit
risk to the lender, they normally carry significantly higher interest rates and
origination fees than conventional mortgage loans. At the same time, overhead
and origination costs incurred by Flagship are substantially higher on a per
loan basis than the costs incurred in the Company's other lending operations due
to the nationwide scope of Flagship's mortgage banking activities and the
substantial amount of advertising, direct mail and other marketing expenses that
it incurs to be higher.
In a securitization of High LTV Loans, an intermediate entity such as a
trust or special purpose corporation is typically organized to purchase a pool
of mortgage loans from the financial institution. The entity funds its purchase
of the loans by selling tiered levels or "tranches" of debt securities that
entitle the holders to receive, in order of priority, payments at a set
percentage rate until all principal is repaid. Payments
9
<PAGE> 13
are made to the debt holders out of the entity's collection of interest payments
and principal repayments on the loans. Because there is generally no recourse to
the financial institution in a securitization transaction, third-party investors
typically require "over-collateralization" such that the principal amount of the
loans in the pool exceeds the total amount of indebtedness issued by the entity.
The selling financial institution may retain a subordinated debt interest in the
pool of securitized High LTV Loans as well as an "interest-only," "principal-
only" or other type of residual interest in the pool. Any such interest retained
by the financial institution will be valued in accordance with Statement of
Financial Accounting Standards No. 125.
Certain aspects of the Company's mortgage banking operations that
distinguish it from other traditional forms of lending pose risks that are
unique to this type of business. Set forth below are certain risks to the
Company associated with Flagship's mortgage banking activities:
Dependence on Origination and Purchase of Mortgage Loans
The future profitability of Flagship's mortgage banking operations will
depend upon the extent to which the Company is able to originate and/or purchase
and sell and/or securitize High LTV Loans and other mortgage loans. The
Company's ability to do so is affected by a number of factors beyond its
control, including general economic conditions, conditions and values in
residential real estate markets, interest rates and competition. For example,
periods of economic slowdown or recession and high interest rates may be
accompanied by decreased demand for consumer credit and declining real estate
and other asset values. Any material decline in real estate values, in turn,
reduces the ability of borrowers to use home equity to support borrowings.
The Company's ability to originate and purchase mortgage loans will also
depend upon its own financial condition. In this regard, Flagship's mortgage
loan production could be constrained or sharply limited if the Company were to
lack sufficient regulatory capital or liquidity to support Flagship's
operations. The Company's regulatory capital and liquidity position, in turn,
will be substantially affected by its mortgage loan sales and securitization
activities and the extent to which it retains residual interests in packages of
securitized loans. If, for whatever reason, the Company is unable to sell or
securitize mortgage loans in an efficient manner and on a timely basis, or finds
it necessary to retain a larger-than-anticipated residual interest in loans that
are securitized, Flagship's future loan origination and purchase activities
could be significantly impaired and financial results would be adversely
affected.
As a result, in part, of Flagship's expanded mortgage banking activities
during the first quarter of 1998, the level of the Company's liquid assets, as
well as the amount of funds available for borrowing from the FHLB, have
declined. As of April 9, 1998, the Company had $215 million in advances from and
$35 million remaining on its approved credit line with the FHLB, as compared to
$35 million and $215 million, respectively, at December 31, 1997. The Company
has been informally advised by the FHLB that its credit line with the FHLB will
be increased by $100 million to $350 million, but it has not yet received
written confirmation of this increase. Based on Flagship's current levels of
loan production, unless other credit sources are obtained, the Company
anticipates that it will reach its FHLB borrowing limit of $350 million by the
end of May 1998. The Company intends to seek additional funding either through
further loan sales or securitizations or other third-party borrowings, but has
not yet finalized any such arrangements. To the extent such alternatives are not
available to the Company, the Company's ability to originate and purchase loans
would be impaired.
Should events arise in the future that prevent or otherwise adversely
affect Flagship's ability to originate or purchase mortgage loans, gains derived
from sales and securitizations of loans and revenues from the Company's
servicing of securitized loans will be reduced accordingly. Moreover, until it
implements any decision it might make to reduce the time and financial resources
devoted to its mortgage banking activities in response to such events, the
Company will continue to incur ongoing expenses associated with such activities.
During this period, the Company's diminished revenues from Flagship may not be
sufficient to offset the expenses (primarily, salary, occupancy, advertising and
mailing costs) associated with Flagship's operations, causing the Company to
incur operating losses therefrom. In addition, if Flagship's loan origination
and
10
<PAGE> 14
purchase activities are reduced or eliminated, the Company may not be able to
recover its investment in Flagship.
Dependence on Loan Securitizations and Sales
Mortgage loans originated and purchased by Flagship are generally sold as
whole loans or securitized as market conditions permit. The Company anticipates
that revenues generated by its mortgage banking operations will be derived
primarily from gains realized on sale and, to a lesser extent, interest income
on the loans while they are held in portfolio pending sale or securitization and
servicing fees on loans that are sold with servicing rights retained.
The revenues from sale of loans generated by Flagship's activities are
primarily from the sale or securitization of High LTV loans. Prior to September
30, 1997, the Company generally sold its High LTV Loans and other mortgage loans
originated or purchased by Flagship on a whole loan basis. In the fourth quarter
of 1997, the Company completed a securitization of $60.0 million of High LTV
Loans originated during the period, while retaining servicing rights and an $8.2
million residual interest, including an initial $2.4 million
over-collateralization. The Company currently plans to consummate additional
loan sales and securitizations utilizing a significant portion of Flagship's
loan production on a periodic basis throughout 1998.
Several factors affect the Company's ability to complete loan sales or
securitizations, including general economic conditions, conditions in the
securities markets and secondary mortgage markets generally, conditions in the
asset-based securities market specifically, perceptions of the credit quality of
the mortgage loans the Company offers for sale or securitization, changes in
interest rates and the effect of such factors as mortgage loan refinancings,
delinquencies, defaults and foreclosures. If the Company fails to securitize or
sell a sufficient number of loans in a particular financial reporting period at
or near its historical profit levels for such sales, the Company's gain on sale
of loans and other related income may not offset Flagship's overhead and
origination costs, particularly the costs associated with originating High LTV
Loans, resulting in the Company reporting lower net income or a net loss for
such period. The Company's costs and risks associated with carrying its loans,
including hedging costs, interest rate risk and credit risk could also increase
if loan sales or securitizations fail to occur or are delayed. The ability of
the Company to sell or securitize loans in the secondary market is essential for
the continuation of Flagship's mortgage banking activities, and any event
adversely affecting the Company's ability to complete securitizations or loan
sales on a regular basis could have a material adverse effect on the Company's
regulatory capital position, business, financial condition and results of
operations.
Capitalized Excess Interest-Only Spread and Valuation of Mortgage Related
Securities
At December 31, 1997, the Company's statement of financial condition
reflected excess interest-only spread of $2.1 million, mortgage related
securities of $26.3 million, which resulted from the December 1997
securitization of the Company's loan production and a residual interest in the
cash flows from a securitization valued at $8.2 million. The Company derives an
increasingly larger portion of its income by realizing gains upon the sale of
loans due to the excess interest-only spread associated with such loans recorded
at the time of sale and the capitalization of mortgage servicing rights recorded
at origination. Excess interest-only spread as capitalized on the Company's
statement of financial condition represents the excess of the interest rate
payable by an obligor on a loan over the interest rate passed through to the
purchaser acquiring an interest in such loan, less the Company's normal
servicing fee and other applicable recurring fees.
The Company records gains on sale of loans through securitizations and
whole loan sales based in part on the estimated fair value of the mortgage
related securities (residual interest and interest-only spread) retained by the
Company and on the estimated fair value of retained mortgage servicing rights
related to such loans. When loans are sold, the Company recognizes as a gain the
present value of the excess cash flow expected to be realized after the payment
of all principal and interest to the security holders. These present values are
computed using prepayment, default and interest rate assumptions that the
Company believes are reasonable. The amount of gain recognized upon the sale of
loans will vary depending on the assumptions utilized. The
11
<PAGE> 15
weighted average discount rate used to determine the present value of the excess
cash flows reflected on the Company's statement of financial condition at
December 31, 1997 was approximately 14%.
Although the Company believes that it has made reasonable estimates of the
fair value of the excess residual interest and mortgage servicing rights likely
to be realized, the rate of prepayment and the amount of defaults utilized by
the Company are estimates and actual experience may vary from its estimates.
Higher levels of future prepayments and defaults could result in the actual
value of excess residual interest and mortgage servicing rights falling below
their estimated values, thereby requiring a write down and a resulting charge to
earnings in the period of adjustment. The Company periodically reviews its
prepayment and default assumptions in relation to current rates of prepayment
and default and, if necessary, reduces the remaining excess interest-only
spread, residual interest and mortgage servicing rights assets to the net
present value of the estimated remaining future net cash flows, resulting in a
charge to earnings in the period of adjustment. Rapid increases in interest
rates or competitive pressures may result in a reduction of gain recognized by
the Company upon the sale of loans in the future.
Increases in interest rates or higher than anticipated rates of loan
prepayments or credit losses on the underlying loans of the Company's excess
interest-only spread and residual interest may require the Company to write down
the value of these assets and result in a material adverse impact on the
Company's results of operations and financial condition. The Company is not
aware of any active market for the Company's excess interest-only spread and
residual interest. No assurance can be given that the excess interest-only
spread and residual interest could in fact be sold at their carrying value, if
at all.
Contingent Risks Relating to the Company's Beneficial Interest in the Loans
Although the Company intends to sell substantially all High LTV Loans and
other residential mortgage loans that Flagship originates or purchases, the
Company retains some degree of risk on most of these mortgage loans. During the
period of time that loans are held in portfolio pending sale or securitization,
the Company is subject to the various business risks associated with lending,
including the risk of borrower delinquency, default or loss and the risk that an
increase in interest rates would reduce the value of loans to potential
purchasers.
Although whole loans are sold on a non-recourse basis, the Company
continues to be subject to the risks of delinquency, default and loss following
the securitization of mortgage loans. The agreements governing the Company's
December 1997 securitization and securitizations in general require the initial
principal amount of the pool of mortgage loans that is securitized to exceed the
aggregate principal amount of the senior interests sold to third-party
investors. Thereafter, the trustee of the securitization is required to maintain
over-collateralization levels through retention of cash otherwise payable to the
interest-only spread and residual interest owners. Such excess amounts serve as
credit enhancement for the related senior interests and are available to fund
losses realized on loans in the pool. Because the residual interest in the pool
retained by the Company is subordinated to the senior interests in the loans
purchased by third-party investors, the Company continues to have a first loss
exposure with respect to the loans to the extent of the over-collateralization
amount. The Company also continues to be subject to the risks of delinquency,
default and loss insofar as interest-only spread distributions are reduced by
loan losses. In addition, agreements effecting whole loan sales and
securitizations require the Company to commit to repurchase or replace loans
that do not conform to the representations and warranties made by the Company at
the time of transfer. There can be no assurance that in the future the Company
will not be required to repurchase or replace loans previously sold or
securitized. Any higher than expected loan losses or repurchases could have a
material adverse effect on the Company's regulatory capital, business, financial
condition and results of operation.
Loss of Right to Service Securitized Loans
The agreements entered into in connection with the Company's securitization
of High LTV Loans generally set forth certain conditions under which the insurer
or the trustee of the loan securitization can terminate the Company's right to
act as servicer. If, at any measuring date, the loss and delinquency performance
of the mortgage loans in a particular pool of loans exceeds certain levels,
servicing rights may be
12
<PAGE> 16
terminated. The Company's servicing rights can also be terminated with respect
to a loan securitization (i) if the Company were to breach its obligations under
the related servicing agreement, (ii) if losses on foreclosures of loans
included in the pool were to exceed specified limits, (iii) if the insurer were
required to make payments under its policy, or (iv) if the Company failed to
meet certain financial tests, including a minimum net worth test. There can be
no assurance that the Company's servicing rights with respect to mortgage loans
included in any securitization, will not be terminated in the future. In
addition, if any loan included in a securitization is prepaid, the Company will
no longer be entitled to loan servicing fees with respect to such loan. Any
termination or reduction of the Company's right to act as servicer with respect
to securitized loans would result in a loss of servicing revenue and could
materially and adversely affect its ability to participate in future
securitizations.
Borrowers With Limited Home Equity
In the High LTV Loan market and certain other markets, the Company targets
borrowers with little equity in their homes. Loans made to such borrowers may
entail a higher risk of delinquency, default and loss than other types of
mortgage loans. While the Company believes that the underwriting policies and
collection methods it employs enable it to control the higher risks inherent in
High LTV Loans, no assurance can be given that such criteria or methods will
afford adequate protection against such risks. Additionally, because of the
Company's recent entrance into the High LTV market, there is limited performance
history on which to base various assumptions by the Company with respect to
defaults and prepayments of such loans. If loans originated or purchased by the
Company experience higher delinquencies, defaults or losses than anticipated,
the Company's regulatory capital, business, financial condition or results of
operation could be adversely affected.
Risks Relating to Growth Strategy
The Company's strategic plan contemplates the continued expansion of its
Flagship operations. The Company's implementation of its expansion strategy
depends on its ability to increase the volume of loans it originates and
purchases while maintaining credit quality and managing its resulting growth.
The Company's ability to increase its loan production will depend on, among
other factors, its ability to (i) obtain and maintain increasingly larger
amounts of funding and liquidity in the form of federally-insured deposits, FHLB
advances and other borrowings and proceeds from loan sales and securitizations,
(ii) effectively securitize pools of loans for sale, (iii) offer attractive
products to prospective borrowers, (iv) attract and retain qualified
underwriting, servicing and other personnel, (v) market its loan products
successfully and (vi) establish and maintain relationships with correspondents
and mortgage brokers in states in which the Company is currently active and in
additional states. The Company's ability to manage growth as it pursues its
Flagship expansion strategy will be dependent upon, among other things, its
ability to (i) maintain appropriate procedures, policies and systems to ensure
that the Company's loan portfolio does not have an unacceptable level of credit
risk and loss, (ii) satisfy its need for additional capital, funding and
liquidity on reasonable terms, (iii) manage the costs associated with expanding
its infrastructure, (iv) retain key personnel and (v) continue operating in
competitive, economic, regulatory and judicial environments that are conducive
to the Company's business activities. There can be no assurance that the Company
will be able to expand Flagship's mortgage lending operations successfully.
Competition
The home equity loan market, and particularly the High LTV Loan market, is
highly competitive. The Company faces competition from commercial banks, savings
and loan associations, consumer finance lenders, mortgage lenders and mortgage
brokers. Many of these competitors and potential competitors are substantially
larger and have more capital and other resources than the Company. Competition
can take many forms, including convenience in obtaining a loan, customer
service, marketing and distribution channels and interest rates charged to
borrowers. In addition, the current level of gains realized by the Company and
its competitors on High LTV Loans could attract additional competitors into this
market, with the possible effect of lowering the interest rates and origination
fees that the Company can charge borrowers as well as gains that may be
13
<PAGE> 17
realized on the Company's future loan sales. To the extent that existing
competitors significantly expand their operations or new competitors enter this
segment of the mortgage lending market, the Company's results of operations and
financial condition could be materially adversely affected.
NONPERFORMING ASSETS
At the time of the Change in Control, the Bank had a relatively high ratio
of nonperforming assets to total assets. In addition, the Company has purchased,
at a discount, certain loans that it placed in non-performing status shortly
after purchase. Although the Company has reduced its non-performing assets ratio
from 5.66% at year end 1993 to 2.20% at December 31, 1997, its current level of
non-performing assets is still significantly above 0.95%, which is the average
level for all commercial banks with assets between $1.0 billion and $3.0
billion, according to the most recently available data from the Uniform
Performance Banking Report issued by federal bank regulators. There is no
assurance that this ratio will continue to decline, particularly if general
economic conditions or Florida real estate values deteriorate.
ADEQUACY OF LOAN LOSS ALLOWANCE
Industry experience indicates that a portion of the Company's loans will
become delinquent and a portion of the loans will be partially or completely
charged-off. Regardless of the underwriting criteria utilized by the Company,
losses may be experienced as a result of various factors beyond the Company's
control, including, among other things, changes in market conditions affecting
the value of properties and problems affecting the credit of the borrower. The
Company's determination of the adequacy of its allowance for loan losses is
based on various considerations, including an analysis of the risk
characteristics of various classifications of loans, previous loan loss
experience, specific loans which would have loan loss potential, delinquency
trends, estimated fair market value of the underlying collateral, current
economic conditions, the view of the Company's regulators, and geographic and
industry loan concentration. However, if delinquency levels were to increase as
a result of adverse general economic conditions, especially in Florida where the
Company's exposure is greatest, the loan loss allowance so determined by the
Company may not be adequate. A substantial portion of the Company's loan loss
allowances are allocated to specific portfolios or pools of loans purchased by
the Company. Accordingly, such allocations are not available to cover losses
related to originated loans or other purchased loans. To the extent that losses
in certain pools or portfolios of loans exceed the loan loss allowances and
unamortized loan discount allocated to such pool or portfolio, or available as a
general reserve, the Company's results of operations would be adversely
affected. There can be no assurance that the Company's allowance for loan losses
will be adequate to cover its loan losses or that the Company will not
experience significant losses in its loan portfolios which may require
significant increases to the allowance for loan losses in the future.
Additionally, the Company's policy is to record its loans held for sale at the
lower of cost or market. Accordingly, no allowances are allocated to loans that
are held for sale or securitization.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The Company's profitability is dependent to a large extent on its net
interest income, which is the difference between its interest income on
interest-earning assets and its interest expense on interest-bearing
liabilities. The Company, like most financial institutions, is affected by
changes in general interest rate levels, which are currently relatively low, and
by other economic factors beyond its control. Interest rate risk arises from
mismatches (i.e., the interest rate sensitivity gap) between the dollar amount
of repricing or maturing assets and liabilities, and is measured in terms of the
ratio of the interest rate sensitivity gap to total assets. More assets
repricing or maturing than liabilities over a given time frame is considered
asset-sensitive and is reflected as a positive gap, and more liabilities
repricing or maturing than assets over a given time frame is considered
liability-sensitive and is reflected as a negative gap. An asset-sensitive
position (i.e., a positive gap) will generally enhance earnings in a rising
interest rate environment and will negatively impact earnings in a falling
interest rate environment, while a liability-sensitive position (i.e., a
negative gap) will generally enhance earnings in a falling interest rate
environment and negatively impact earnings in a rising interest rate
environment. Fluctuations in interest rates are not predictable or controllable.
The Company has attempted to
14
<PAGE> 18
structure its asset and liability management strategies to mitigate the impact
on net interest income of changes in market interest rates. The Company believes
that, based on certain assumptions and experience, its one-year cumulative gap
was positive at December 31, 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Asset/Liability
Management."
REGULATORY OVERSIGHT
The Bank is subject to extensive regulation, supervision and examination by
the Department as its chartering authority and primary regulator, and by the
FDIC as its federal regulator and administrator of the insurance fund that
insures the Bank's deposits up to applicable limits. The Bank is a member of the
FHLB and is subject to certain limited regulation by the Federal Reserve. In
order to acquire the Georgia Branch, the Company elected to charter the Savings
Bank. After it is organized, the Savings Bank will be subject to regulation,
supervision and examination by the Office of Thrift Supervision ("OTS") as its
chartering authority and primary regulator and by the FDIC as the administrator
of the Savings Bank's insurance fund. As a federally-chartered thrift, the
Savings Bank will automatically be a member of the FHLB. As the holding company
of the Bank and the Savings Bank, the Company is also subject to regulation and
oversight by the Federal Reserve. Such regulation and supervision governs the
activities in which an institution may engage and is intended primarily for the
protection of the FDIC insurance funds and depositors. Regulatory authorities
have been granted extensive discretion in connection with their supervisory and
enforcement activities, and regulations have been implemented that have
increased capital requirements, commercial bank insurance premiums and
administrative, professional and compensation expenses. Any change in the
regulatory structure or the applicable statutes or regulations could have a
material impact on the Company, the Bank, the Savings Bank and their operations.
Additional legislation and regulations may be enacted or adopted in the future
which could significantly affect the powers, authority and operations of the
Bank and the Savings Bank and their competitors, which in turn could have a
material adverse effect on both institutions and their regulatory capital,
business, financial condition and results of operations. See "Business --
Supervision and Regulation."
In the course of a recent review of the Bank's operations by the FDIC,
issues arose as to the software and procedures used by the Bank to record and
calculate the charges and other information for certain types of mortgage loans,
and the amounts of interest due on one class of deposit accounts. Management
believes the Bank has taken the necessary actions to address these issues,
including the payment of refunds or additional interest as appropriate.
CONTROL BY THE CONTROLLING STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
As of December 31, 1997, the Company's Controlling Stockholders, William R.
Hough and John W. Sapanski (and their respective affiliates and immediate family
members) owned shares of the Company's capital stock representing approximately
50.2% and 6.4%, respectively, of the total voting rights of the Company.
Following the consummation of this Offering, Messrs. Hough and Sapanski will own
43.0% and 5.2%, respectively (if, as anticipated, the Controlling Stockholders
do not purchase any shares of Common Stock in this Offering). On the basis of
such ownership, the Controlling Stockholders are able to elect the Company's
Board of Directors and, through their control of the Company's Board, are able
to direct the affairs of the Company and the Bank. It is reasonable to expect
that the Controlling Stockholders will continue to be able to exert a
controlling influence over the Company's policies and operations following
consummation of this Offering. The Company and the Bank have engaged in numerous
transactions with affiliates of Mr. Hough, and it is likely that the Company and
the Bank will in the future continue to engage in such transactions. Generally,
transactions with affiliates can involve conflicts of interests. However, the
Company believes that its transactions with its affiliates were on terms as
favorable as those that could have been obtained in arm's-length transactions.
See Note 17 to the Company's Consolidated Financial Statements included
elsewhere herein.
15
<PAGE> 19
CAPITAL LIMITATIONS ON FUTURE GROWTH
Since the Change in Control, one of the Company's primary business
objectives has been to increase its total asset size, expand into new market
areas, and increase market share in its existing markets. The Company has sought
to accomplish this goal through a combination of internal growth, loan and other
asset purchases, deposit assumptions, the opening of de novo branches and
acquisitions of other financial institutions and branches. The Company's ability
to continue to grow is constrained by, among other things, the amount of
regulatory capital. See Note 16 to the Company's Consolidated Financial
Statements included elsewhere herein. Most recently, in December 1997, the
Company entered into the NationsBank Branch Agreements to acquire eight branches
having total deposits of $249.7 million at August 31, 1997, the Bankers Merger
Agreement to acquire two branches having total deposits of $56.0 million at
August 31, 1997, and the Dime Branch Agreement to acquire a branch having total
deposits of $202.9 million at March 31, 1998. One of the primary reasons for
this Offering is to increase the Company's regulatory capital to permit it to
consummate the Proposed Acquisitions and to continue to expand Flagship's
mortgage banking activities while maintaining its "well capitalized" status. The
Company intends to continue its current growth strategy for the foreseeable
future. Since the Change in Control, the Company has raised capital four times
to accommodate its growth. There can be no assurance that the Company will in
the future have sufficient capital or the ability to obtain additional
sufficient capital on acceptable terms to continue to pursue its growth
strategy.
YEAR 2000 ISSUES
In the next two years, many companies, including financial institutions
such as 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 and its significant
customers are actively addressing the problems associated with the "Year 2000"
issue. However, there can be no assurance that the Company will not be adversely
affected by the failure of such third party vendors or significant customers of
the Bank to become Year 2000 compliant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000
Considerations."
COMPETITION
The Company competes with various types of financial institutions,
including other commercial banks, savings institutions, finance companies,
mortgage banking companies, money market funds and credit unions, many of which
have substantially greater financial resources than the Company and, in some
cases, operate under fewer regulatory constraints. The Company not only competes
with other financial institutions that operate in Florida but, through Flagship,
also competes nationwide with a number of finance companies, mortgage banking
companies and other financial institutions located throughout the United States.
As the Company expands its retail banking operations to additional markets in
Florida and into Georgia and its mortgage banking activities to additional
states, it will encounter other larger and well-established financial
institutions in those markets. While the Company believes that it has been able
to compete successfully with larger financial institutions in its current
geographic and product markets, there can be no assurance that it will be able
to compete effectively in the new markets it is entering. See
"Business -- Competition" and "-- Supervision and Regulation."
LIMITED HISTORICAL TRADING MARKET
Because a majority of the Common stock has been closely held prior to the
Offering, there has been only a limited market for the Common Stock and there
can be no assurance that an active public trading market for the Common Stock
will develop after the Offering or that, if developed, it will be sustained. The
public
16
<PAGE> 20
offering price of the Common Stock offered hereby has been determined by
negotiations between the Company and the Underwriters and may not be indicative
of the price at which the Common Stock will trade after the Offering. See
"Underwriting." Consequently, there can be no assurance that the market price
for the Common Stock will not fall below the public offering price.
POSSIBLE VOLATILITY OF SHARE PRICE
The market price of the Common Stock may experience fluctuations that are
unrelated to the operating performance of the Company. In particular, the price
of the Common Stock may be affected by general market price movements as well as
developments specifically related to the Company's mortgage banking activities
such as, among other things, sales and securitizations of High LTV Loans. See
"Business -- Mortgage Banking Activities." In addition, the Company's operating
income on a quarterly basis is significantly dependent upon the successful
completion of the Company's loan sales or securitizations, and the inability of
the Company to complete significant loan sale transactions or securitizations in
a particular quarter may have a material adverse impact on the Company's results
of operations for that quarter and could, therefore, negatively impact the price
of the Common Stock.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 2,000,000
shares of Common Stock offered hereby, after deducting the estimated
underwriting discount and offering expenses payable by the Company, are
estimated to be approximately $ million ($ million if the underwriters'
over-allotment option is exercised in full). The net proceeds from the sale of
the Common stock will be contributed by the Company to the capital of the Bank.
A primary purpose of the Offering is to maintain the regulatory capital ratios
of the Bank and the Company in conjunction with the NationsBank Branch and the
Dime Branch Acquisitions, and to support future growth. The specific use of the
proceeds by the Bank, as well as the timing of such uses, will be a function of
the funding needs of the Bank and the availability of other funds to the Bank.
Initially, such proceeds will be invested by the Bank in short-term obligations.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is currently traded on the Nasdaq National
Market under the symbol "REPB." The table below sets forth, for the periods
indicated, the high and low bid information for the Common Stock as regularly
quoted on the Nasdaq National Market for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996:
First Quarter............................................. $14.25 $13.25
Second Quarter............................................ 15.00 12.25
Third Quarter............................................. 12.88 11.75
Fourth Quarter............................................ 15.50 12.63
1997:
First Quarter............................................. 16.00 14.00
Second Quarter............................................ 18.50 17.25
Third Quarter............................................. 27.63 16.88
Fourth Quarter............................................ 27.88 23.75
1998:
First Quarter............................................. 32.00 24.63
Second Quarter (to April 9, 1998)......................... 33.25 28.75
</TABLE>
17
<PAGE> 21
CAPITALIZATION
The following table sets forth the actual and adjusted consolidated
capitalization of the Company at December 31, 1997. The adjusted capitalization
gives effect to (i) the Proposed Acquisitions and (ii) this Offering. The
information set forth below should be read in conjunction with the Consolidated
Financial Statements of the Company included elsewhere in this Prospectus. See
"Combined Financial Data."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
COMPANY AS
ACTUAL ADJUSTED
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Company-obligated mandatorily redeemable capital securities
of subsidiary trust(1).................................... $28,750 $28,750
Stockholders' Equity:
Perpetual preferred convertible stock, 100,000 shares
authorized, 75,000 shares issued and outstanding....... 1,500 1,500
Common Stock, 20,000,000 shares authorized, 7,035,886
shares issued and outstanding.......................... 14,072
Capital surplus........................................... 50,322
Retained earnings......................................... 29,155
Net unrealized gain on debt securities available for
sale -- net of deferred income taxes................... 482
------- -------
Total stockholders' equity................................ $95,531 $
======= =======
</TABLE>
- ---------------
(1) Represents beneficial interests in an aggregate amount of $28.8 million of
Junior Subordinated Debentures of the Company. See Note 1 to the Company's
Consolidated Financial Statements included elsewhere herein.
18
<PAGE> 22
PROPOSED ACQUISITIONS
On December 15, 1997, the Company entered into the NationsBank Branch
Agreements to acquire three branches of NationsBank Subsidiary and five branches
of Barnett Bank, including the loans and other assets booked at those branches,
and to assume the deposits and other liabilities assigned to such branches. Of
the branches being purchased, three are located in Monroe County (Key West,
Marathon and Plantation Key), two are located in Marion County (Ocala and Silver
Springs), one is located in Columbia County (Lake City) and one is located in
Suwannee County (Live Oak). The eighth branch is located in Glynn County
(Brunswick), Georgia. As a condition to receiving regulatory approval of its
acquisition of Barnett and its subsidiaries, NationsBank agreed to divest itself
of a significant number of branches, including these eight branches. The
NationsBank Branch Acquisition will be accounted for using purchase accounting
rules. See "Combined Financial Data."
The Florida Branches will be merged into, and become a part of, the Bank's
existing Florida branch network. In order to facilitate the acquisition of the
Georgia Branch, the Company elected to charter the Savings Bank as a de novo
federally-chartered thrift. The Georgia Branch will be operated as an interstate
branch of the Savings Bank, which will be headquartered in St. Petersburg. It is
anticipated that in connection with the chartering of the Savings Bank, certain
of the Bank's out-of-state mortgage origination operations may be transferred to
the Savings Bank. See "Business--Supervision and Regulation."
As of August 31, 1997, the most recent date that is available from the
seller, the Florida Branches had deposit liabilities of $225.5 million and loans
of $163.9 million. Under the terms of the NationsBank Branch Agreement for the
Florida Branches (the "Florida Agreement"), the Company will (i) purchase the
real estate and personal property associated with the Florida Branches for a
price equal to the net book value of such assets at the closing plus a premium
of $5.5 million, (ii) purchase the performing loans booked at these branches for
a price equal to 102.81% of the net book value of such loans at the closing, and
(iii) pay a deposit premium of 12.13% of total deposits at the Closing to assume
all of the deposit liabilities assigned to the Florida Branches. Based on the
loans, other assets and deposit liabilities associated with the Florida Branches
as of August 31, 1997, the Company's purchase price for the Florida Branches
would have been $37.5 million if the Company's acquisition of the Florida
Branches had been consummated on that date. Under the terms of the Florida
Agreement, the Company will offer to retain all of the individuals employed at
the Florida Branches at the time its acquisition of the Florida Branches is
consummated and will pay severance to any such employee terminated within a
12-month period thereafter. The Florida Agreement also provides that the Company
must consummate its acquisition of the Florida Branches by no later than June
30, 1998.
As of August 31, 1997, the Georgia Branch had deposit liabilities of $29.2
million, and loans of $19.4 million. Under the terms of the NationsBank Branch
Agreement for the Georgia Branch (the "Georgia Agreement"), the Company will (i)
purchase the performing loans and other assets associated with the Georgia
Branch at a price equal to their net book value at the closing and (ii) pay a
deposit premium of 1.0% of total deposits at the closing to assume all of the
deposit liabilities assigned to the Georgia Branch. Based on the loans, other
assets and deposit liabilities associated with the Georgia Branch as of August
31, 1997, the Company's total purchase price for the Georgia Branch would have
been $290,000 if the Company's acquisition of the Georgia Branch had been
consummated on that date. The Georgia Agreement contains employee retention and
severance provisions identical to those set forth in the Florida Agreement. The
Georgia Agreement also provides that the Company must consummate its acquisition
of the Georgia Branch by no later than June 30, 1998.
The NationsBank Branch Agreements also contain non-solicitation provisions
under which NationsBank and its subsidiaries are prohibited for a one-year
period from (i) specifically targeting or soliciting customers assigned to the
acquired branches using any customer or mailing list consisting primarily of
such customers and (ii) soliciting for employment any individual who remains
employed by the Company following its acquisition of the branches. The Company
reciprocally agreed for such one-year period not to solicit any of NationsBank's
credit card customers for credit card products or any of NationsBank's business
customers for credit and debit card processing and other similar merchant
services.
19
<PAGE> 23
The Company anticipates that it will be able to obtain all required
regulatory approvals by the applicable deadlines set forth in the NationsBank
Branch Agreements, 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 Company. The Savings Bank will be subject to
supervision and regulation by the OTS, and its deposits will be insured by the
FDIC. For a further discussion of the regulatory framework as applicable to the
Bank and the Savings Bank, see "Business -- Supervision and Regulation."
In March 1998, the Company and Bankers entered into the Bankers Merger
Agreement, which provides for the merger of Bankers into the Company. Bankers
has two branches in Dade County, Florida, and at 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 transaction will be accounted for as a
pooling of interests. The Bankers Acquisition may be terminated by either
Bankers or the Company it if is not consummated by November 1, 1998. See
"Combined Financial Data."
Pursuant to the terms of the Bankers Merger Agreement, the stockholders of
Bankers will receive a fraction of a share of the Company's Common Stock for
each outstanding share of Bankers' common stock that is based on the sum of (i)
the book value of Bankers' total common equity at December 31, 1997 (plus
Bankers' 1998 earnings and less certain change of control payments to Bankers'
directors, senior officers and key employees) multiplied by 1.7, plus (ii) the
difference between the appraised value of Bankers' headquarters building (or
sales price, if the building is sold or a contract for sale is entered into
prior to closing) and the $4.2 million book value of the building as of December
31, 1997. This sum will be divided by the total number of outstanding shares of
Bankers' common stock, thereby producing a dollar value per share. This dollar
value, in turn, will be divided by the "Market Value" of the Company's Common
Stock. If the twenty consecutive day average (the "Average Price") of the
closing prices of the Common Stock on the National Market is between $22.50 and
$27.50, the Market Value will be $25.00. If the Average Price is either greater
than $27.50 or less than $22.50, the Market Value will be the mean of $25.00 and
the Average Price. As of February 28, 1998, and assuming a $6.0 million
valuation of Bankers' headquarter's building, the stockholders of Bankers would
have received 0.44 of a share of the Common Stock for each of the 692,333
outstanding shares of Bankers' common stock, if the closing for the Bankers
Acquisition had taken place on that date.
Also in March 1998, the Company entered into the Dime Branch Agreement to
acquire the Dime Branch in Deerfield Beach, Broward County, including the
assumption of the deposits and other liabilities assigned to such branch, the
assumption of the leasehold on the branch property, and the purchase of the
personal property and equipment of the branch. The Company is not acquiring any
loans in the transaction. As of March 31, 1998, the Dime Branch had total
deposits of $202.9 million, and the purchase price would have been approximately
$9.8 million based on that deposit amount. The transaction will be accounted for
using purchase accounting rules and must be consummated within 30 days of
receiving regulatory approval.
If consummated, the Proposed Acquisitions will increase the total assets of
the Company to approximately $2.1 billion (based on most recent available data),
expand the Company's branch network from 46 to 56 branches in Florida and one
branch in Georgia and increase the number of counties served by the Company's
branches from nine to 15 counties in Florida and one county in Georgia. The
Company's total deposits will increase to $1.9 billion and total portfolio loans
will increase to $1.4 billion. Premium on deposits from the NationsBank Branch
and Dime Branch Acquisitions will amount to $36.8 million, bringing the total
amount of goodwill and premium on deposits to $41.7 million. Nonperforming
assets from the Bankers Acquisition totaled approximately $1.7 million at
December 31, 1997. There are no nonperforming assets being purchased in
connection with the NationsBank Branch and Dime Branch Acquisitions.
There can be no assurance that the Company will be able to consummate, or,
if consummated, successfully integrate the operations and management of the
Proposed Acquisitions. See "Risk Factors -- Proposed Acquisitions and Ability to
Manage Growth and Integrate Operations."
20
<PAGE> 24
COMBINED FINANCIAL DATA
The unaudited combined balance sheet as of December 31, 1997, gives effect
to, among other things, the Offering and Proposed Acquisitions. See
"Business -- Proposed Acquisitions" for a description of the Proposed
Acquisitions. The NationsBank Branch Acquisition and the Dime Branch Acquisition
will be accounted for using purchase accounting rules. The Bankers Acquisition
is anticipated to be accounted for as a pooling of interests. The data is based
upon available information and upon certain assumptions that the Company
believes are reasonable under the circumstances. The combined financial data
should be read in conjunction with the Company's Consolidated Financial
Statements and notes thereto appearing elsewhere in this Prospectus. The
combined financial data is not necessarily indicative of the results that would
have occurred had the Proposed Acquisitions actually occurred on the dates
indicated, nor can they be used to predict the Company's future results of
operations.
21
<PAGE> 25
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
UNAUDITED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMPANY
WITH THE
PROPOSED
NATIONSBANK DIME ACQUISITIONS
BANKERS BRANCH BRANCH AND THE
COMPANY ACQUISITION ACQUISITION(A) ACQUISITION OFFERING(B) OFFERING
---------- ----------- -------------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks............ $ 45,998 $ 1,247 $ 4,911 $ -- $ -- $ 52,156
Investment securities.............. 16,751 8,032 -- -- -- 24,783
Mortgage backed securities......... 55,300 -- -- -- -- 55,300
Trading securities................. 37,213 -- -- -- -- 37,213
FHLB stock......................... 8,148 500 -- -- -- 8,648
Federal funds sold................. 33,000 192 20,716 183,205 56,550 293,663
Loans held for sale................ 151,404 4,126 -- -- -- 155,530
Loans receivable, net.............. 1,128,955 46,987 189,760 -- -- 1,365,702
Premises and equipment, net........ 33,303 4,180 11,997 100 -- 49,580
Real estate owned.................. 6,997 763 -- -- -- 7,760
Goodwill and premium on deposits... 4,855 -- 27,646 9,242 -- 41,743
Other assets....................... 30,481 1,030 -- -- -- 31,511
---------- ------- -------- -------- ------- ----------
Total assets.............. $1,552,405 $67,057 $255,030 $192,547 $56,550 $2,123,589
========== ======= ======== ======== ======= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing checking... $ 93,843 $ 2,775 $ 76,229 $ 212 $ -- $ 173,059
Interest checking.............. 137,240 2,157 22,649 4,585 -- 166,631
Money market................... 30,389 4,901 21,657 9,654 -- 66,601
Savings........................ 291,604 2,981 28,695 4,629 -- 327,909
Time deposits.................. 808,236 43,207 105,800 173,467 -- 1,130,710
---------- ------- -------- -------- ------- ----------
Total deposits............ 1,361,312 56,021 255,030 192,547 -- 1,864,910
Other borrowings................. 54,654 6,100 -- -- -- 60,754
Other liabilities................ 12,158 699 -- -- -- 12,857
---------- ------- -------- -------- ------- ----------
Total liabilities......... 1,428,124 62,820 255,030 192,547 -- 1,938,521
Company-obligated mandatorily
redeemable securities of
subsidiary trust................. 28,750 -- -- 28,750
Stockholders' equity:
Perpetual preferred convertible
stock.......................... 1,500 -- -- 1,500
Common stock..................... 14,072 2,761 4,000 20,833
Capital surplus.................. 50,322 1,233 52,550 104,105
Retained earnings................ 29,155 243 -- 29,398
Net unrealized gain on AFS
securities..................... 482 -- -- 482
---------- ------- -------- -------- ------- ----------
Total stockholders'
equity.................. 95,531 4,237 -- -- 56,550 156,318
---------- ------- -------- -------- ------- ----------
Total liabilities and
stockholders' equity.... $1,552,405 $67,057 $255,030 $192,547 $56,550 $2,123,589
========== ======= ======== ======== ======= ==========
CERTAIN REGULATORY CAPITAL RATIOS
Tier 1 (leverage) ratio........... 6.94% 5.96%
Tier 1 (risk-based) ratio......... 10.05 10.31
Total capital ratio............... 11.66 11.90
</TABLE>
- ---------------
(a) Most recent branch loan and deposit information as of August 31, 1997.
(b) The offering assumes the Company receives proceeds from the sale of
2,000,000 shares of Company Common Stock in the Offering, less estimated
Underwriters' commission and offering expenses.
22
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data presented below has been derived
from the audited Consolidated Financial Statements of the Company and, prior to
1996, the Bank, and are qualified in their entirety by reference to the more
detailed Consolidated Financial Statements and notes thereto, included elsewhere
herein. Financial data for interim periods include all adjustments, consisting
of normal accruals, that management considers necessary for a fair presentation
of the financial conditions and results of operations for such interim periods.
In light of the significant mark-to-market adjustments and other adjusting
entries to its financial statements that were made following the Change in
Control, management believes that the usefulness of comparisons between (i) the
financial statements and the financial data derived therefrom as of the dates
and for the period prior to June 1, 1993, and (ii) the financial statements and
the financial data derived therefrom as of the dates and for the periods since
June 1, 1993, may be limited. In addition, subsequent to consummation of the
Company's initial public offering in December 1993 and the CrossLand Purchase
and Assumption in that month, the Company has operated in a significantly
different manner from that which it had previously operated. Accordingly, the
financial results for periods prior to the CrossLand Purchase and Assumption
differ significantly from periods since then.
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 interest 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
financial information at and for the period ended May 31, 1993 is not restated
to reflect the FFO Merger as the Change of Control did not occur until May 1993.
<TABLE>
<CAPTION>
SEVEN
MONTHS FIVE MONTHS
ENDED ENDED
YEARS ENDED DECEMBER 31, DECEMBER 31, MAY 31,
------------------------------------------------- ------------ -----------
1997 1996 1995 1994 1993 1993
---------- ---------- ---------- ---------- ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income................... $ 108,457 $ 88,944 $ 77,593 $ 53,997 $ 11,885 $ 4,848
Interest expense.................. 54,923 44,949 40,112 24,423 5,120 1,970
---------- ---------- ---------- ---------- ---------- ----------
Net interest income............... 53,534 43,995 37,481 29,574 6,765 2,878
Loan loss provision............... 2,628 2,582 2,162 172 3,222 379
---------- ---------- ---------- ---------- ---------- ----------
Net interest income after loan
loss provision.................. 50,906 41,413 35,319 29,402 3,543 2,499
Other noninterest income.......... 25,031 6,745 5,353 5,099 1,677 743
Gain on sale of ORE held for
investment...................... -- 1,207 -- -- -- --
General and administrative ("G&A")
expenses........................ 57,484 36,829 30,963 23,678 6,481 2,699
Merger expenses................... 1,144 -- -- -- -- --
SAIF special assessment........... -- 4,005 -- -- -- --
Provision for losses on ORE....... 530 111 -- -- -- 1,214
Other noninterest expense......... 273 (490) 902 4,216 331 443
Amortization of goodwill & premium
on deposits..................... 464 491 450 1,269 -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income before income taxes,
negative goodwill accretion &
minority interest............... 16,042 8,419 8,357 5,338 (1,592) (1,114)
Accretion of negative goodwill.... -- -- 1,578 2,705 1,578 --
---------- ---------- ---------- ---------- ---------- ----------
Net income before income taxes &
minority interest............... 16,042 8,419 9,935 8,043 (14) (1,114)
Income tax expense (benefit)...... 6,096 3,035 2,516 702 (2,844) --
Minority interest in income from
subsidiary trust................ (701) -- -- -- -- --
</TABLE>
23
<PAGE> 27
<TABLE>
<CAPTION>
SEVEN
MONTHS FIVE MONTHS
ENDED ENDED
YEARS ENDED DECEMBER 31, DECEMBER 31, MAY 31,
------------------------------------------------- ------------ -----------
1997 1996 1995 1994 1993 1993
---------- ---------- ---------- ---------- ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Minority interest in FFO.......... (674) (505) (503) (131) (197) --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)................. $ 8,571 $ 4,879 $ 6,916 $ 7,210 $ 2,633 $ (1,114)
========== ========== ========== ========== ========== ==========
Earnings (loss) per share,
diluted......................... $ 1.21 $ 0.74 $ 1.10 $ 1.28 $ 1.01 $ (1.00)
========== ========== ========== ========== ========== ==========
Weighted average shares
outstanding, diluted............ 7,301,499 6,626,604 6,261,368 5,632,437 2,594,923 1,117,192
========== ========== ========== ========== ========== ==========
Earnings per share -- basic....... $ 1.40 $ 0.83 $ 1.26 $ 1.48 $ 1.10 $ (1.11)
========== ========== ========== ========== ========== ==========
Weighted average shares
outstanding -- basic.............. 6,128,014 5,857,174 5,491,250 4,868,211 2,398,066 1,002,794
========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA (at period end):
Total assets...................... $1,552,405 $1,224,357 $1,103,480 $ 879,873 $ 780,711 $ 168,741
Investment & mortgage backed
securities...................... 108,593 161,357 155,345 101,028 74,042 27,433
Loans held for sale............... 151,404 46,593 27,476 7,930 11,346 --
Loans held in portfolio, net of
unearned income................. 1,149,731 920,782 835,744 680,604 479,600 111,292
Allowance for loan losses......... 20,776 18,747 20,048 15,272 15,872 1,866
Goodwill & premium on deposits.... 4,855 527 1,017 820 1,966 --
Deposits.......................... 1,361,312 1,114,907 992,041 794,717 705,584 153,660
Stockholders' equity.............. 95,531 68,178 63,833 47,618 34,003 8,058
Book value per share.............. 12.27 10.32 9.65 8.16 6.11 N/A
SELECTED FINANCIAL RATIOS(2):
Return on average assets.......... 0.63% 0.43% 0.68% 0.90% 0.97% (1.61)%
Return on average equity.......... 11.44 7.41 12.62 16.73 36.97 (21.75)
Net interest spread............... 3.71 3.63 3.65 3.87 3.88 4.21
Net interest margin............... 4.18 4.02 3.95 4.06 4.30 4.66
G&A expense to average assets..... 4.26 3.21 3.06 2.95 2.38 6.28
G&A efficiency ratio.............. 73.17 72.58 72.29 68.29 76.77 74.54
Loan/deposit ratio(1)............. 84.46 82.59 83.77 85.64 67.97 72.43
Nonperforming loans to loans...... 2.36 2.12 2.18 2.44 4.03 2.27
Nonperforming assets to total
assets.......................... 2.20 2.27 2.78 3.96 5.66 5.89
Loan loss allowance to
loans(1)(3)..................... 1.81 2.04 2.40 2.24 3.31 1.68
Loan loss allowance applicable to
nonperforming loans from(3):
Originated portfolio............ 93.66 73.15 106.51 177.30 129.06 73.03
March 1995 purchase............. 373.91 488.78 647.83 N/A N/A N/A
CrossLand portfolio............. 421.88 126.12 41.77 23.73 39.88 N/A
Other purchased portfolios...... 22.28 89.80 41.84 82.99 N/A N/A
Total loans................ 76.51 96.03 110.73 91.98 82.20 73.03
OTHER DATA (at period end):
Number of branches................ 46 43 43 31 29 7
Number of full-time equivalent
employees....................... 1,045 795 573 451 373 96
</TABLE>
- ---------------
(1) Ratio excludes loans held for sale.
(2) Information is annualized, where applicable, for the periods ended December
31, 1993 and May 31, 1993.
(3) See "Business -- Asset Quality" for a discussion of the allocation and
availability of loan loss reserves among portfolios of loans within the
Bank.
24
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's balance sheets and
statements of operations should be read in conjunction with "Selected
Consolidated Financial Data" and the Consolidated Financial Statements and the
related notes included elsewhere herein.
YEARS ENDED DECEMBER 31, 1997 AND 1996
COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 1997 AND DECEMBER 31, 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 offer by RBI Capital Trust I ("RBI Capital"), a
wholly-owned subsidiary of the Company, of $28.75 million cumulative trust
preferred securities (the "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, a 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.
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 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.
Allowance for Loan Losses
The allowance for loan losses amounted to $20.8 million at December 31,
1997, compared to $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 loan purchase made in March 1995
(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.
25
<PAGE> 29
Nonperforming Assets
Nonperforming assets amounted to $34.2 million, or 2.20% of total assets at
December 31, 1997, compared to $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 to $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 to
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 to issue the Preferred
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 Debentures
On December 27, 1996, the Company issued $6.0 million in convertible
subordinated debentures (the "Debentures") at a fixed rate of 6.0%, 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, all or any of the Debentures if the closing price of the Company's
Common Stock equaled or exceeded 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 the next interest payment
date, December 1, 1997. All of the holders elected to convert the Debentures
into an aggregated 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.
26
<PAGE> 30
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND
1996
Overview
Net income for the year ended December 31, 1997, was $8.6 million, or $1.21
per share, compared to $4.9 million, or $0.74 per share, for the same period in
1996. Pre-tax net income before minority interest reductions for the Company
included $13.2 million from commercial banking activities and $2.8 million from
Flagship which commenced operations in April 1996. Return on average assets for
the year ended December 31, 1997, was .63%, compared to .43% for the same period
in 1996, while return on average equity was 11.44%, compared to 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 Flagship, a separate division of the Bank,
include originating and purchasing mortgage loans for sale or securitization.
The Bank provides support for Flagship in areas such as secondary marketing,
data processing and financial management. All funding for Flagship 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.
<TABLE>
<CAPTION>
1997 1996
---------------------------------- ----------------------------------
COMMERCIAL MORTGAGE COMPANY COMMERCIAL MORTGAGE COMPANY
BANKING BANKING TOTAL BANKING BANKING TOTAL
---------- -------- ---------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total assets (at period
end):....................... $1,401,001 $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
---------- -------- ---------- ---------- ------- ----------
Net 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
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
---------- -------- ---------- ---------- ------- ----------
Net income (loss) before
income taxes & minority
interest................. $ 13,242 $ 2,800 16,042 $ 8,893 $ (474) 8,419
========== ======== ========== =======
</TABLE>
27
<PAGE> 31
<TABLE>
<CAPTION>
1997 1996
---------------------------------- ----------------------------------
COMMERCIAL MORTGAGE COMPANY COMMERCIAL MORTGAGE COMPANY
BANKING BANKING TOTAL BANKING BANKING TOTAL
---------- -------- ---------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income tax expense
(benefit)................ 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>
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 and securitizations 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 or securitization also increased substantially, from $2.1 million
in 1996 to $17.5 million in 1997.
The improvement in the results of operations from mortgage banking was
primarily due to 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 resulted from the
continued expansion of mortgage banking activities into products such as
construction loans which have an extended period between cost and revenue
recognition.
Analysis of Net Interest Income
Net interest income for the year ended December 31, 1997, was $53.5
million, compared to $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 rates 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. The average interest earning 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.
28
<PAGE> 32
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 (dollars 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:
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%
==== ====
</TABLE>
29
<PAGE> 33
<TABLE>
<CAPTION>
INCREASE
(DECREASE) DUE TO (1)
---------------------------
VOLUME RATE TOTAL
------- ------- -------
<S> <C> <C> <C>
CHANGES IN NET INTEREST INCOME
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.
Noninterest Income
Noninterest income for the year ended December 31, 1997, was $25.0 million,
compared to $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 Generations Gold fee income of
$317,000.
30
<PAGE> 34
The following table reflects the components of noninterest income for the
years ended December 31, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
INCREASE
1997 1996 (DECREASE)
------- ------ ----------
<S> <C> <C> <C>
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 to $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 to $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 (dollars 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
-------- -------- --------
Total 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>
31
<PAGE> 35
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 FFO Merger, was $674,000 for 1997,
compared to $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 a $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
32
<PAGE> 36
net charge-off amount for 1996 included $1.0 million assessed against the
allowance for loans acquired in the March 1995 Purchase as properties securing
certain nonperforming loans, which were purchased at a substantial discount,
were acquired through foreclosure and recorded at their fair value. At December
31, 1996, the amount of unearned discount on purchased loans not allocated to
allowance totaled $4.7 million.
Nonperforming Assets
Nonperforming assets amounted to $27.8 million, or 2.27% of total assets at
December 31, 1996, compared to $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 to $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.
Convertible Subordinated Debentures
In December 1996, the Company completed a private offering of $6.0 million
of 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 106.0%
of face value, with the premium declining 1.0% per year thereafter and without
any premium if the price of the Company Common Stock equals or exceed 130.0% 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 to $63.8 million, or 5.78% of total assets at
December 31, 1995. At December 31, 1996, the Company's and the Bank's capital
ratios were all in excess of minimum regulatory guidelines for an institution to
be considered "well-capitalized."
COMPARISON OF RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1996 AND 1995
Overview
Consolidated net income for 1996, was $4.9 million, or $.74 per share,
compared to $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, compared to $5.3
million, or $.85 per share for 1995, excluding negative goodwill accretion.
33
<PAGE> 37
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.
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 (dollars in
thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS 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:
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%
==== ====
</TABLE>
34
<PAGE> 38
<TABLE>
<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.
Noninterest Income
Noninterest income for 1996, was $8.0 million, compared to $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 provided $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.
35
<PAGE> 39
The following table reflects the components of noninterest income for the
years ended December 31, 1996 and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
INCREASE
1996 1995 (DECREASE)
------ ------ ----------
<S> <C> <C> <C>
Income from mortgage banking operations.................... $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 to $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 Savings Bank". G&A expenses for 1996, included in the noninterest
expense total, were $36.8 million, compared to $30.9 million, an increase of
$5.9 million. The increase was primarily the result of establishing the
Company's mortgage banking activities and related administrative support units.
The following table reflects the components of noninterest expense for the
years ended December 31, 1996 and 1995 (dollars 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.............................................. 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>
36
<PAGE> 40
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Liquidity
The Asset/Liability Management Committee ("ALCO") reviews the Company's
liquidity, which is its ability to generate sufficient cash to meet the funding
needs of current loan demand, deposit withdrawals, and other cash demands. The
primary sources of funds consist of 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 liquidity ratio, consisting of net cash and
investments of $275.8 million divided by net deposits and short-term liabilities
of $1.4 billion, was 19.8%, compared to 13.42% at December 31, 1996. (The
liquidity ratio as of December 31, 1996, has not been recomputed to incorporate
FFO 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
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.
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
37
<PAGE> 41
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 interestrate risk policy,
which sets out target levels for the appropriate level of interest-rate risk.
The policy is to maintain a cumulative one-year gap of no more than 15% of
total assets. Management attempts to conform to this policy primarily by
managing the maturity distribution of the investment portfolio and emphasizing
loan originations and loan purchases carrying variable interest rates tied to
interest-sensitive indices. Additionally, the Bank has joined the FHLB to
enhance its liquidity position and to provide it with the ability to utilize
long-term fixed-rate advances to improve the match between interest-earning
assets and interest-bearing liabilities in certain periods. Currently,
off-balance-sheet hedging instruments are not used to manage overall interest
rate risk but such instruments are used to limit the exposure to changes in the
value of residential loans held for resale and estimated loan commitments to
originate and close fixed rate residential and mortgage loans. However, there
continues to be a risk that such loan commitments do not close or are
renegotiated in a declining interest rate environment. Management may expand its
use of off-balance sheet hedging instruments to manage exposure to overall
interest rate risk in the future, subject to Board approval.
The cumulative one-year gap at 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
38
<PAGE> 42
balance for every three-month interval over a five-year period and repricing of
money market accounts is assessed at 25.0% of the total balance over a 12-month
period.
INTEREST SENSITIVITY ANALYSIS
DECEMBER 31, 1997
<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
-------- ------ -------- ------ --------- ------ -------- ------
(DOLLARS IN THOUSANDS)
<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 -- --
Generations 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......................... -- -- -- -- -- -- 28,750 9.10
-------- -------- --------- --------
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>
EFFECTS OF INFLATION
As a financial institution, the majority of the Company's assets are
monetary in nature and, therefore, differ greatly from those of most industrial
or commercial companies that have significant investments in fixed assets. The
effects of inflation on the financial condition and results of operations,
therefore, are less significant than the effects of changes in interest rates.
The most significant effect of inflation is on noninterest expense, which tends
to rise during periods of general inflation.
39
<PAGE> 43
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.
However, there can be no assurance that the Company will not be adversely
affected by the failure of any third party vendors or significant customers of
the Bank to become Year 2000 compliant.
40
<PAGE> 44
BUSINESS
The Company is a registered bank holding company formed in February 1996
under the laws of the State of Florida, whose principal subsidiary is the Bank,
a Florida-chartered, FDIC-insured commercial bank headquartered in St.
Petersburg, Florida. As a result of the sale of several Florida-based banking
organizations to out-of-state bank holding companies in January 1998, the
Company became the largest commercial 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 real estate and business
lending. The Bank is also active in mortgage banking through its mortgage
banking division, Flagship, which originates first lien residential mortgages
and High LTV Loans. 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, loans held in portfolio 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
Department and the FDIC. The Bank's deposits are insured by the FDIC up to
applicable limits, and the Bank is a member of the FHLB. Upon the consummation
of the NationsBank Branch Acquisition, the Savings Bank will be subject to
regulation, supervision and examination by the OTS and the FDIC.
BACKGROUND AND PRIOR OPERATING HISTORY
In May 1993, the Controlling Stockholders, William R. Hough and John W.
Sapanski, acquired from the prior controlling stockholder more than 99.0% of the
Bank's outstanding common stock. As of December 31, 1997, the Controlling
Stockholders (and their respective affiliates and immediate family members)
owned shares of the Company's voting stock representing approximately 54% and
6.5%, respectively, of the total voting rights of the Company. Since the
Controlling Stockholders do not intend to purchase any shares of the Common
Stock offered hereby, following the consummation of this Offering, the
Controlling Stockholders will possess 43.0% and 5.2%, respectively, of the
Company's total voting rights. Mr. Hough is a member of the Company's and the
Bank's Board of Directors and Mr. Sapanski serves as the Company's and the
Bank's Chairman of the Board, Chief Executive Officer and President.
Following the Change in Control, the Bank began to implement a program of
expanding its branches and lines of business. In December 1993, the Bank
purchased 12 branches in Pinellas, Manatee and Sarasota counties from CrossLand,
assumed deposit liabilities of $327.7 million, and purchased performing and non-
performing loans secured by real estate and ORE amounting to $201.6 million. The
Bank paid CrossLand $11.5 million for the branches and related furniture,
fixtures, equipment and other assets, plus a $1.9 million premium on the dollar
amount of the deposits assumed. The CrossLand Purchase and Assumption almost
tripled the Bank's size, increasing total assets to $531.3 million and total
deposits to $494.3 million at December 31, 1993. Additionally, the 12 CrossLand
branches expanded the Bank's market coverage to include Manatee and Sarasota
counties and more than doubled the Bank's branch network to a total of 19
branches.
Also in December 1993, the Bank sold 1,398,200 shares of its common stock
in an initial public offering at a price of $8.00 per share. The net proceeds
from the offering totaled $10.3 million. In addition, the Bank sold 75,000
shares of the Preferred Stock for a purchase price of $6.6 million (or $88.00
per share). In June 1995, the Bank sold 800,000 shares of its common stock in a
combined subscription rights and public offering at $12.50 per share, with net
proceeds totaling $9.1 million.
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 central
coast of Florida. The Bank opened 13 additional new branches, expanding its
market presence in existing counties and providing entry into Pasco County.
In January 1996, the Bank's shareholders approved a reorganization under
which the Bank became a wholly-owned subsidiary of the Company. All holders of
shares of the Bank's common and preferred stock received one share of the
Company's common or preferred stock, as appropriate, for each share of the
Bank's common or preferred stock held of record. Holders of outstanding options
to purchase or acquire the Bank's common stock received options to purchase an
equal number of shares of the Company's Common Stock.
41
<PAGE> 45
During 1996 and 1997, the Company focused on increasing its residential
lending capabilities. In conjunction with the establishment of Flagship in April
1996 and its internal growth, the Company added eight residential loan
production offices in Florida, one residential 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, beginning in the fourth quarter of 1996, High LTV
Loans. At the same time, the Bank also began purchasing residential mortgage
loans from mortgage brokers and other third-party originators for resale. The
strategy of the Company is to sell or securitize substantially all of the loans
it originates and purchases through Flagship. The Company has engaged in various
whole loan sales and consummated its first securitization of High LTV Loans
totaling $60.0 million in December 1997. The Company currently anticipates
further whole loan sales and/or securitizations on a quarterly or other periodic
basis during 1998, depending upon then-prevailing market conditions and other
factors.
In addition to expanding its mortgage banking activities, the Company also
continued its geographic expansion strategy throughout 1997. In January 1997,
the Company opened a new branch in Hernando County. In April 1997, the Company
acquired Firstate for a cash purchase price of $5.5 million. 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
the date of acquisition, Firstate had total assets of $71.1 million and total
deposits of $67.9 million. The Firstate Acquisition was accounted for using
purchase accounting rules.
In July 1997, the Company and RBI Capital completed an offering by RBI
Capital of the Preferred Securities. The proceeds from the Preferred Securities
were used to purchase an equivalent amount of the Company's Junior Subordinated
Debentures ("Junior Subordinated Debentures"). The net proceeds from the sale of
the Junior Subordinated Debentures were contributed by the Company to the
regulatory capital of the Bank. See Note 3 of the Company's Consolidated
Financial Statements included elsewhere herein.
On September 19, 1997, FFO was merged into the Company in the FFO Merger.
The FFO Merger further increased the Company's presence in central Florida by
adding 11 branches in Brevard, Orange and Osceola counties. On 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
were combined at historical cost in a manner similar to a pooling of interests,
while the minority interests in FFO were combined with the Company using
purchase accounting rules.
On March 31, 1998, the Company sold on a non-recourse basis the Repo Loans
to SPC, a wholly owned, second-tier subsidiary of the Company, which was formed
for the purpose of purchasing and holding the loans. The Repo Loans were sold on
a whole loan basis with the Company retaining servicing rights. The SPC
purchased the loans utilizing a capital contribution from the Company and the
$81.2 million in proceeds from a repurchase agreement simultaneously entered
into between the SPC and Lehman. The capital contribution will be treated for
accounting purposes as an investment by the Company. The transaction will be
accounted for as a sale, and the Company anticipates that a gain will be
recognized in connection therewith.
The Company anticipates continuing its strategy of geographic expansion for
the foreseeable future through whole bank and thrift acquisitions, branch
acquisitions or de novo branching, depending upon various factors, including
whether (i) the transaction will be accretive to earnings no later than one year
following the acquisition; (ii) the transaction will provide the Company with a
new or additional location in a desirable market area; (iii) the transaction
will close an existing gap in the Company's branch network; and (iv) competitive
opportunities arise, such as branches becoming available due to bank mergers and
other consolidations.
BUSINESS STRATEGY
The Company's business strategy entails (i) originating and purchasing real
estate-secured loans for portfolio and sale, (ii) originating business and
consumer loans for portfolio; (iii) improving market share and expanding its
market coverage through acquisitions of other financial institutions, branch
purchases and de
42
<PAGE> 46
novo branching; (iii) increasing non-interest income through expanded mortgage
banking activities and increased emphasis on commercial and retail checking
relationships; and (v) increasing its range of products and services. While
pursuing this strategy, management remains committed to improving asset quality,
managing interest rate risk, enhancing profitability and maintaining its status
as a well-capitalized institution for regulatory capital purposes.
The results of the Company's business strategy include:
- Expanded Branch Network -- Since the Change in Control, the Company has
expanded its retail banking presence from seven branches in northern
Pinellas County to its current 46 branches in Brevard, Hernando, Manatee,
Orange, Osceola, Pasco, Pinellas, Sarasota and Seminole counties. In
December 1997, the Company entered into the NationsBank Branch Agreements
to acquire seven additional branches located in Columbia, Marion, Monroe
and Suwannee counties in Florida and one branch in Glynn County, Georgia.
In March 1998, the Company entered into the Bankers Merger Agreement to
acquire Bankers, which operates two branches in Dade County, and the Dime
Branch Agreement to acquire the Dime Branch located in Broward County.
- Substantial Asset Growth -- Since the Change in Control, the Company has
increased in asset size from approximately $168.7 million to
approximately $1.6 billion at year end 1997. The Proposed Acquisitions,
if all are consummated, will increase the total asset size of the Company
to approximately $2.1 billion. This asset growth is largely attributable
to bulk purchases of loan portfolios and deposit assumptions such as the
CrossLand Purchase and Assumption, acquisitions of other financial
institutions such as Firstate, FFO and Bankers, branch purchases such as
the NationsBank Branch and Dime Branch Acquisitions, the opening of new
branches and internally-generated deposit and loan growth.
- Increased Mortgage Banking and Other Fee-Generating
Activities -- Primarily through the establishment of Flagship, with its
emphasis on mortgage banking activities, the Company has dramatically
increased its levels of non-interest income, both in absolute terms and
as a relative percentage of its net income. In 1997, Flagship contributed
approximately $15.3 million in non-interest income (over 60% of total
non-interest income) and $2.8 million in pre-tax income to the Company.
The Company has also increased its non-interest income through improved
revenue from expanded deposit products. As a result of the Company having
expanded its sources and amounts of fee income, total non-interest income
was 1.85% of average assets in 1997, as compared to .63% in 1994, the
first full year after the Change in Control.
- Improved Asset Quality Ratios -- A significant portion of the assets of
the Bank at the time of the Change in Control and the assets acquired in
the CrossLand Purchase and Assumption were nonperforming. As a result,
the Company's nonperforming assets were $44.2 million or 5.66% of total
assets, at year end 1993. At December 31, 1997, nonperforming assets had
been reduced to $34.2 million, or 2.20% of total assets, primarily
through the implementation of consistent loan underwriting policies and
procedures, centralization of all credit decision functions, increased
size of the loan portfolio, write-offs and sales of ORE. However, the
level of the Company's nonperforming assets continues to be higher than
that of peer group institutions. See "Risk Factors -- Nonperforming
Assets."
- Management of Financial Risks -- One of the Company's primary objectives
is to reduce the financial risk from fluctuations in net interest income
caused by changes in market interest rates and changes in the value of
its mortgage loans held for sale. To manage interest rate risk, the
Company generally limits holding loans in its portfolio to those that
have variable interest rates tied to interest-sensitive indices and
actively manages the maturities within the investment portfolio. The
Company also engages in various hedging activities to reduce its exposure
to the risks attributable to mortgage loans held pending subsequent sale
or securitization. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Asset/Liability
Management."
43
<PAGE> 47
MARKET AREA
Currently, the Company has 46 branches in Florida, 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 in Florida to 56 branches in 15 counties in Florida and the
Savings Bank will have one branch in Glynn County, Georgia, with its
headquarters in St. Petersburg, Florida. The Company also operates eight
residential loan production offices in Florida, one residential loan production
office in Boston, Massachusetts, and one wholesale loan production office in
Irvine, California.
Florida is a highly competitive state for financial services 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.
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 and borrowings from the
FHLB, 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 (dollars
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% $1,361,312 100.00%
========== ======
</TABLE>
- ---------------
(1) Includes time deposits greater than $100,000 of $116.0 million.
44
<PAGE> 48
At December 31, 1997, scheduled maturities of total time deposits were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED PERCENT OF TOTAL
DECEMBER 31, AMOUNT TIME DEPOSITS
- ------------ -------- ----------------
(DOLLARS IN THOUSANDS)
<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........................... $808,236 100.00%
======== ======
</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
relatively the same proportions as they currently are represented.
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 addition to the CrossLand Purchase and Assumption and the Firstate
Acquisition, which included $193.5 million and $56.8 million of loans,
respectively, the Company made various loan purchases totalling $102.3 million
in 1995, $8.2 million in 1996 and $95.4 million in 1997.
45
<PAGE> 49
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 (dollars in thousands):
<TABLE>
<CAPTION>
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 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....................... -- -- -- -- 3,108
---------- -------- -------- -------- --------
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
(High LTV's).................... 45,670 5,511 -- -- --
---------- -------- -------- -------- --------
Loans held for sale............. 151,404 46,593 27,476 7,930 11,346
---------- -------- -------- -------- --------
Total loans............. $1,280,359 $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>
AT DECEMBER 31,
------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Based on percent of portfolio:
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 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>
46
<PAGE> 50
The following table sets forth the contractual amortization of real estate
and commercial loans at December 31, 1997. 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 (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ ------------------------
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>
MORTGAGE BANKING ACTIVITIES
In April 1996, the Company started Flagship, which currently has eight loan
production offices in Florida, one office in Boston, Massachusetts, as well as
wholesale lending operations in St. Petersburg, Florida and 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. A securitization is the packaging of
whole loans into an asset-backed security for sale to investors. Most of the
first lien residential mortgage loans originated by Flagship are securitized
using one of the federal guarantee agencies which purchases the loans from the
Bank and issues a security in their place, assessing a guarantee fee to assume
the credit risk associated with the loans. The Bank normally retains the right
to service the loans after securitization.
In the fourth quarter of 1996, 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. These loans are typically solicited using
direct mail and television or radio advertising and origination is made via a
telemarketing program. The interest rate on these loans averages approximately
14% and the combined first and second lien loan-to-value ratio of these High LTV
Loans typically ranges from 110% to 125%. These loans are made to borrowers who
lack sufficient equity in their homes but have a credit profile and
debt-to-income level meeting certain standards established by the Company. In
December 1997, the Company consummated its first securitization of $60.0 million
of High LTV Loans via a private placement, retaining the servicing rights to the
loans and ownership of the residual interest in cash flows from the securities.
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
47
<PAGE> 51
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,1oan 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.
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 in subsequent years, 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.
48
<PAGE> 52
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.
In addition to the CrossLand Purchase and Assumption which included $193.5
million of loans, 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 accreted to
income as a yield adjustment over the life of the loans. In 1995, such
allocation included $7.2 million related solely to one particular portfolio
purchase in the aggregate principal amount of $48.1 million. Subsequently, the
principal balance of the March 1995 Purchase had declined to $39.9 million and
the allowance allocated to this purchase was reduced to $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 (including any loans acquired through acquisition
of other financial institutions). At December 31, 1997, the amount of unearned
discount on purchased loans which had not been allocated to the allowance
totaled $4.6 million.
Adjustments to the allowance during 1997 included a $2.6 million provision
for loan losses, $769,000 of loan chargeoffs (net of recoveries), $39,000
reallocated from loan discounts to the allowance and $132,000 in allowances
obtained through the Firstate Acquisition. Adjustments 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.
49
<PAGE> 53
The following table sets forth information concerning the activity in the
allowance for loan losses during the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
SEVEN FIVE
MONTHS MONTHS
ENDED ENDED
YEARS ENDED DECEMBER 31, DEC. 31, MAY 31,(1)
---------------------------------------- -------- ----------
1997 1996 1995 1994 1993 1993
------- ------- ------- ------- -------- ----------
<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:
CrossLand Purchase and
Assumption.............. -- -- -- (757) 4,046 --
CrossLand 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)
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 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 for the five months ended May 31, 1993, is not
required.
50
<PAGE> 54
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>
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ----------------------
PERCENT PERCENT
ALLOWANCE ALLOCATION AMOUNT OF PORTFOLIO AMOUNT OF PORTFOLIO
- -------------------- ------- ------------ ------- ------------
(DOLLARS 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
Non-performing/classified:
Special mention...................................... 181 0.7 124 0.6
Substandard & nonperforming.......................... 5,050 2.6 3,488 2.6
Doubtful............................................. 722 0.1 674 0.1
Loss................................................. 992 0.1 800 0.1
------- ----- ------- -----
Subtotal................................... 6,945 3.5 5,086 3.4
Off balance sheet risk(1)............................ 946 -- 434 --
Unallocated.......................................... 3,050 -- 2,560 --
------- ----- ------- -----
Total...................................... $20,776 100.0% $18,747 100.0%
======= ===== ======= =====
</TABLE>
- ---------------
(1) Includes unfunded loan commitments and letters of credit.
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 to $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 from the July 1997 Purchase, a $1.0
million increase in other purchased residential loans, a $2.2 million increase
in originated residential loans, $1.3 million in SBA claims receivable recorded
as nonperforming following the FFO Merger and an increase of $1.1 million in
commercial real estate and multifamily loans. 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%
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<PAGE> 55
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 December 31, 1996."
The following table sets forth information regarding the components of
nonperforming assets at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
NON-ACCRUAL LOANS 1997 1996 1995 1994 1993
- ----------------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Residential loans (1-4 family)(1)... $13,675 $ 9,446 $10,427 $ 9,433 $ 5,000
Multifamily 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 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:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------- ------- -------
(DOLLARS IN THOUSANDS)
<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 $2.6
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
52
<PAGE> 56
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 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 to reduce 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 TDRs, for those same periods were $4.9
million and $6.0 million, respectively.
REGULATORY LIABILITY REQUIREMENTS
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.
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 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 bank; or (iii) it may merge or consolidate with any other bank
holding company. Similar federal
53
<PAGE> 57
statutes 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. Consideration of financial resources generally focuses on capital
adequacy, and consideration of convenience and needs issues includes the
parties' performance under the Community Reinvestment Act of 1977 (the "CRA").
The BHC Act, 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
54
<PAGE> 58
certain other indebtedness of such subsidiary bank. In the event of a bank
holding company's bankruptcy, any commitment by the bank holding company to a
federal bank regulatory agency to maintain the capital of a subsidiary bank will
be assumed by the bankruptcy trustee and entitled to a priority payment.
Regulation of the Bank and the 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' 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 ("BIF") 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 low- and moderate-income neighborhoods. A federal banking agency's
assessment of a 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 now
focuses 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
55
<PAGE> 59
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. 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 the
FDIC determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds (which may include, if applicable,
information provided by the institution's state supervisor). An institution's
insurance assessment rate is then determined based on the capital category and
supervisory category to which it is assigned. Under the 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 is 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 period.
The Bank, as a state-chartered commercial bank, is a member of the BIF.
However, as part of the CrossLand Purchase and Assumption, the Bank acquired
$327.7 million in deposits insured by the SAIF and thereby became a so-called
Oakar bank. Based on the CrossLand Purchase and Assumption and the Firstate
Acquisition, the Bank is required to pay insurance premiums to the FDIC on a
substantial portion of its deposits at the SAIF assessment rate notwithstanding
its status as a BIF member. As of December 31, 1996, the most recent measurement
date for assessment purposes, approximately 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. It is also anticipated that the deposits assumed in the Dime
Branch Acquisition 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 and SAIF-assessed deposits, with
assessment rates ranging from zero percent to 0.27 percent (or 27 basis points)
of deposits.
56
<PAGE> 60
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.
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), 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
letters of credit) is 8.0%. At least half of Total Capital (i.e., 4% of
riskweighted assets) must comprise common stock, minority interests in the
equity accounts of consolidated subsidiaries, noncumulative perpetual preferred
stock, and a limited amount of cumulative perpetual preferred stock, less
goodwill and certain other intangible assets ("Tier 1 Capital"). The remainder
may consist of subordinated debt, other preferred stock, and a limited amount of
loan loss reserves ("Tier 2 Capital"). In addition, the Federal Reserve has
established minimum leverage ratio guidelines for bank holding companies. These
guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less
goodwill and certain other intangible assets, of 3% for banks that meet certain
specified criteria, including having the highest regulatory rating. All other
bank holding companies generally are required to maintain a leverage ratio of at
least 3.0%, plus an additional cushion of 100 to 200 basis points. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels, without significant reliance
on intangible assets. Furthermore, the Federal Reserve has indicated that it
will consider a "tangible Tier 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 8.0% during its first three years of
operations. See Note 16 to the Company's Consolidated Financial Statements
included elsewhere herein.
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' 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
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<PAGE> 61
be distributed are lower for thrifts that are adequately 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
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 Company anticipates that the
Bank and the Savings Bank will be in compliance with the foregoing requirements.
The balances maintained to meet the reserve requirements imposed by the Federal
Reserve may be used to satisfy liquidity requirements imposed by the Department.
Because required reserves must be maintained in the form of either vault cash, a
noninterest-bearing account at a Federal Reserve Bank or a pass-through account
as defined by the Federal Reserve, the effect of this reserve requirement is to
reduce the Bank's interest-earning assets. FHLB System members also are
authorized to borrow from the Federal Reserve "discount window," but Federal
Reserve regulations require institutions to exhaust all Federal Home Loan Bank
sources before borrowing from a Federal Reserve Bank.
Federal Home Loan Bank System. The Bank is a member of the FHLB system,
which consists of 12 regional Federal Home Loan Banks governed and regulated by
the Federal Housing Finance Board (the "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.
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 or other political subdivision
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<PAGE> 62
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.
The OTS' regulations currently require all savings associations to maintain
an average daily balance of liquid assets (cash, certain time deposits, banker's
acceptances, specified United States government, state or federal agency
obligations and other corporate debt obligations and commercial paper) equal to
5% of the sum of the average daily balance during the preceding calendar month
of net withdrawable accounts and short-term borrowings payable in one year or
less. All savings associations are also required to maintain an average daily
balance of short-term liquid assets (generally having maturities of 12 months of
less) equal to at least 1% of the average daily balance of net withdrawable
accounts and current borrowings.
Qualified Thrift Lender. The Savings Bank, like all savings associations,
will be required to meet the qualified thrift lender or "QTL" test for, among
other things, future eligibility for advances from the FHLB. The QTL test
requires that a savings association's qualified thrift investments equal or
exceed 65% of the savings association's portfolio assets calculated on a monthly
average basis in nine out of every twelve months. For the purposes of the QTL
test, portfolio assets are total assets less intangibles, properties used to
conduct business and liquid assets (up to 20% of total assets). The following
assets are included as qualified thrift investments without limit: (i) domestic
residential housing or manufacturing housing loans; (ii) home equity loans and
mortgage-backed securities secured by residential housing or manufacturing
housing loans; and (iii) certain obligations of the FDIC and other related
entities. Other qualifying assets which may be included up to an aggregate of
20% of portfolio assets are: (i) 50% of originated residential mortgage loans
sold within 90 days of origination; (ii) investments in debt or equity
securities of service corporations that derive at least 80% of their gross
revenues from housing-related activities; (iii) 200% of certain loans to and
investments in low-cost, one-to-four family housing; (iv) 200% of loans for
residential real property, churches, nursing homes, schools and small businesses
in areas where credit needs of low-to-moderate income families are not met; (v)
other loans for churches, schools, nursing homes and hospitals; and (vi)
consumer and education loans up to 10% of total portfolio assets.
Any savings association that fails to meet the QTL test must convert to a
commercial bank charter or limit its future investments and activities to those
permitted for both savings associations and national banks. Additionally, any
such savings association that does not convert to a commercial bank charter will
be ineligible to receive future advances from the FHLB and, beginning three
years after the loss of QTL status, will be required to repay all outstanding
advances from the FHLB except for special liquidity advances and dispose of or
discontinue all preexisting investments and activities not permitted for both
savings associations and national banks. The Company anticipates that the
Savings Bank will be able to satisfy its QTL requirements.
Monetary Policy and Economic Controls. The banking business is affected
not only by general economic conditions, but also by the monetary policies of
the Federal Reserve. Changes in the discount rate on member bank borrowing,
availability of borrowing at the "discount window," open market operations, the
imposition of changes in reserve 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.
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<PAGE> 63
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 those 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 the 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 non-recurring,
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 July 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 disclosure regarding their respective assets, revenues,
profit or loss and other operating data.
LEGAL PROCEEDINGS
The Company is party to various legal proceedings in the ordinary course of
its business. Based on information presently available, management does not
believe that the ultimate outcome of such proceedings, in the aggregate, would
have a material adverse effect on the Company's financial position or results of
operations.
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<PAGE> 64
MANAGEMENT
The table below sets forth the names and ages of the directors and
executive officers of the Company and the Bank as well as the positions and
offices held by such persons. All of the Company's directors also serve on the
Bank's Board of Directors. The Company's and the Bank's directors are elected
for a one-year term.
<TABLE>
<CAPTION>
YEAR FIRST
BECAME A
NAME AGE POSITION DIRECTOR
- ---- --- -------- ----------
<S> <C> <C> <C>
John W. Sapanski...................... 67 Chairman of the Board, Chief Executive 1993
Officer and President of the Company
and the Bank
Fred Hemmer........................... 43 Director of the Bank, Senior Executive 1986
Vice President of the Bank
William R. Falzone.................... 50 Treasurer of the Company and Executive
Vice President and Chief Financial
Officer of the Bank
John W. Fischer, Jr................... 49 Executive Vice President of the Bank
Steve McWhorter....................... 36 Head of Mortgage Banking Division
William R. Hough...................... 71 Director 1993
Marla Hough........................... 40 Director 1995
Alfred T. May......................... 60 Director 1993
William J. Morrison................... 65 Director 1980
</TABLE>
John W. Sapanski. Mr. Sapanski has been Chairman of the Board, Chief
Executive Officer and President of the Bank since June 1993 and Chairman of the
Board, Chief Executive Officer and President of the Company since March 1996. He
has 45 years of banking experience, including service with the Dime Savings Bank
in New York, New York, from 1949 to 1987, where he served as President and Chief
Operating Officer from 1981 to 1987 and with Florida Federal Savings Bank in St.
Petersburg, Florida ("Florida Federal") from 1988 to 1991 where he 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.
Fred Hemmer. Mr. Hemmer has served as Executive Vice President of the Bank
in charge of Corporate Banking and Special Assets since joining the Bank in
1991. He previously served as Executive Vice President of Rutenberg Corporation,
a real estate development company based in Clearwater, Florida, from 1980 to
1991. Mr. Hemmer is a certified public accountant and was employed by Arthur
Andersen & Co. from 1976 to 1980. Mr. Hemmer is also a licensed real estate
broker and certified general contractor.
William R. Falzone. Mr. Falzone has served as Treasurer of the Company
since March 1996 and Executive Vice President and Chief Financial Officer of the
Bank since February 1994. He was employed at Florida Federal from 1983 through
1991 where he served as Senior Vice President and Controller and as Director of
Financial Services. Most recently, he was a Senior Consultant for Stogniew and
Associates, a nationwide consulting firm. He has more than 20 years of banking
experience and is also a certified public accountant.
John W. Fischer, Jr. Mr. Fischer has served as Executive Vice President of
the Bank in charge of Consumer Banking since December 1994, having previously
served as Senior Vice President of the Bank 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, Florida, Regional Vice President of
Great Western Bank in Miami and Executive Vice President/Consumer Financial
Services for Florida Federal. Mr. Fischer holds life, health, annuity and Series
7 securities licenses.
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<PAGE> 65
Steve McWhorter. 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.
William R. Hough. Mr. Hough has served as Chairman of William R. Hough &
Co., St. Petersburg, Florida, an investment banking firm specializing in state,
county, and municipal bonds, since 1962, President of WRH Mortgage since May
1993, Director of FFO from September 1993 to September 1997 and President of
Royal Palm Center, II, Inc., Port Charlotte, Florida, a privately-held
retirement center, since September 1991.
Marla Hough. Mrs. Hough has served as President of Hough Engineering,
Inc., an engineering consulting firm, Bradenton, Florida, since March 1997 and
Vice President of Bishop & Associates, Bradenton, Florida, an engineering,
planning and surveying firm, since 1992. From 1984 to 1992, Mrs. Hough served as
Project Manager at Zoller, Najjar and Shroyer, Inc., an engineering, planning,
surveying and landscape architecture firm, Bradenton, Florida. Mrs. Hough is
married to a cousin of William R. Hough.
Alfred T. May. Mr. May served as Director and Chairman of the Board of FFO
and its subsidiary, First Federal, from September 1993 to September 1997. From
1989 to 1992, Mr. May served as President of Mid-State Federal Savings Bank,
Ocala, Florida.
William J. Morrison. Mr. Morrison has served as Senior Partner of Morrison
& Company, P.A., Tampa, Florida, a certified public accounting firm, since 1995,
as General Partner of Best-Morrison Properties, Tampa, Florida, a real estate
investment firm since 1975 and as Managing Partner of Morrison Investments, Ltd.
Tampa, Florida, a real estate and securities investment firm, since 1991.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of December 31, 1997, certain
information with respect to the beneficial ownership of Common Stock by (i) each
person known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each director of the Company, and (iii) each of the
directors and officers named in the Management table. Each of the holders listed
below has sole voting power and investment power over the shares beneficially
owned.
<TABLE>
<CAPTION>
PERCENT OF VOTING SHARES
-------------------------
SHARES PRIOR TO
BENEFICIALLY THE AFTER THE
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------ ------------ --------- ----------
<S> <C> <C> <C>
William R. Falzone........................................ 3,600 * *
John W. Fischer, Jr....................................... 7,760 * *
Fred Hemmer............................................... 20,225(1) * *
William R. Hough.......................................... 3,967,391(2) 50.2% 43.0%
Marla Hough............................................... 3,000(3) * *
Steve McWhorter........................................... 7,315 * *
Alfred T. May............................................. 71,675 * *
William J. Morrison....................................... 99,850(4) 1.4 *
John W. Sapanski.......................................... 503,092(5) 6.4% 5.2%
All directors and principal officers as a group (11
persons)................................................ 4,722,220(6) 59.7%
</TABLE>
- ---------------
* Less than 1.0% of the shares of Common Stock outstanding.
(1) Includes 10,800 shares that may be acquired by exercise of options
exercisable within 60 days and 1,600 shares held in Mr. Hemmer's individual
retirement account.
(2) Includes 600,000 shares that could be acquired upon conversion of the
Company's Preferred Stock.
(3) Includes 2,500 shares that may be acquired by exercise of options
exercisable within 60 days
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<PAGE> 66
(4) Includes 67,500 shares held in a trust for which trust Mr. Morrison serves
as trustee, 11,000 shares held by a partnership for which Mr. Morrison
serves as a general partner, and 3,750 shares that may be acquired by
exercise of options exercisable within 60 days.
(5) Includes 30,800 shares that may be acquired by exercise of options
exercisable within 60 days.
(6) Includes an aggregate of 64,080 shares that may be acquired by exercise of
options exercisable within 60 days.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue up to 20,000,000 shares of Common Stock
and 100,000 shares of Preferred Stock, of which 7,035,886 and 75,000 shares,
respectively, were issued and outstanding as of December 31, 1997. Each share of
Preferred Stock is convertible at any time into 10 shares of Common Stock and is
redeemable at any time by the Company upon 30 days prior written notice at a
price of $96.80 per share.
Unless otherwise required by law or the Company's Articles of Incorporation
(the "Articles"), holders of Common and Preferred Stock vote together as a
single class on all matters presented to the Company's stockholders. Each share
of Preferred Stock is entitled to 10 votes for all purposes, and each share of
Common Stock is entitled to one vote. No cash dividend may be declared or paid
on shares of Common Stock unless, simultaneously therewith or prior thereto,
there is or has been declared or paid the quarterly dividend payable on
Preferred Stock.
In any liquidation or dissolution of the Company, the holders of Preferred
Stock will be entitled to receive, out of the assets available for distribution
to stockholders, an amount equal to $88.00 per share before any amount is paid
to holders of Common Stock. After the above preference amount has been paid to
the holders of Preferred Stock, such holders will not be entitled to any further
distributions. The holders of Common Stock will then be entitled to participate,
pro rata in accordance with the number of shares owned by them, in the
distribution of the Company's remaining assets.
The Company's Board of Directors may authorize the issuance of additional
authorized but unissued shares of the Company's Common and Preferred Stock
without further action by the Company's stockholders, unless such action is
required in a particular case by applicable laws or regulations or by any stock
exchange upon which the Company's capital stock may be listed. The Company's
Articles do not provide any preemptive rights to the Company's stockholders.
The authority to issue additional shares of the Company's Common Stock
provides the Company with the flexibility necessary to meet its future needs
without the delay resulting from seeking stockholder approval. The authorized
but unissued shares of Common and Preferred Stock will be issuable from time to
time for any corporate purpose, including, without limitation, stock splits,
stock dividends, employee benefit and compensation plans, acquisitions, and
public or private sales for cash as a means of raising capital.
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<PAGE> 67
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the underwriters named
below (the "Underwriters"), and each of the Underwriters has severally agreed to
purchase from the Company the respective number of shares of common stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS COMMON SHARES
- ------------ -------------
<S> <C>
William R. Hough & Co.......................................
Ryan, Beck & Co., Inc.......................................
-------
Total.............................................
=======
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all 2,000,000 shares of
Common Stock offered hereby if any such Common Stock are purchased. In the event
of a default by any Underwriter, the Underwriting Agreement provides that, in
certain circumstances, purchase commitments of the non-defaulting Underwriters
may be increased or the Underwriting Agreement may be terminated.
The Company has been advised by the Underwriters that the several
Underwriters propose to offer such Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $ per share.
The Underwriters may allow and such dealers may re-allow a concession not in
excess of $ per share to other dealers. After the shares of Common
Stock are released for sale to the public, the offering price and other selling
terms may be changed by the Underwriters.
The Company has granted the Underwriters an option, expiring 30 days from
the date of this Prospectus, to purchase up to 300,000 additional shares of
Common Stock at the public offering price less underwriting discounts and
commissions set forth on the cover page of this Prospectus. The Underwriters may
exercise such option solely to cover over-allotments, if any, made in connection
with the sale of the Common Stock that the Underwriters have agreed to purchase.
To the extent the Underwriters exercise such option, each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase a number
of option shares proportionate to such Underwriter's initial commitment.
The Company and certain of its officers and directors have agreed that,
except with the prior written consent of the Underwriters, during the 90 days
following the date of this Prospectus that they will not directly or indirectly
offer for sale, sell, grant any options, rights or warrants with respect to any
shares of Common Stock or any other Company capital stock, securities or
instruments convertible into or exchangeable for Common Stock or other Company
capital stock, securities or instruments convertible into or exchangeable for
common stock of other company capital stock, or otherwise dispose of, or reduce
any risk of ownership, directly or indirectly, of any shares of Common Stock,
such other capital stock or any other securities, instruments, options or rights
convertible into or exchangeable for, or otherwise exercisable for Common Stock
or other Company capital stock, except for the Common Stock offered hereby.
Notwithstanding the foregoing, the Company may (i) grant options pursuant to the
Company's stock option plans in the ordinary course consistent with past
practice and issue shares of Common Stock upon the exercise of any such options
or under options currently outstanding and (ii) issue shares of Common Stock or
other securities convertible into Common Stock or any other capital stock of any
company solely to owners of capital stock of any company acquired by the Company
subsequent to the date 45 days from the date of this Prospectus. Any permitted
shortening of such periods and any related sales of Common Stock would not
necessarily be preceded by a public announcement of the Company or the
Underwriters that such consent has been given.
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<PAGE> 68
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities under the Securities Act or contribute
to payments the Underwriters may be required to make in respect thereof.
In connection with the Offering, the Underwriters and dealers may engage in
transactions effected in accordance with Rule 104 of the Securities and Exchange
Commission's (the "Commission") Regulation M that are intended to stabilize,
maintain or otherwise affect the market price of the Common Stock. Such
transactions may include over-allotment transactions in which the Underwriters
create a short position for their own account by selling more Common Stock than
they are committed to purchase from the Company. In such case, to cover all or
part of the short position, the Underwriters may exercise the over-allotment
option described above or may purchase Common Stock in the open market following
completion of the Offering. The Underwriters also may engage in stabilizing
transactions in which they bid for, and purchase, shares of the Common Stock at
a level above that which might otherwise prevail in the open market for the
purpose of preventing or retarding a decline in the market price of the Common
Stock. The Underwriters also may reclaim any selling concessions allowed to an
Underwriter or dealer if the Underwriters repurchase shares distributed by the
underwriter or dealer. Any of the foregoing transactions may result in the
maintenance of a price for the Common Stock at a level above that which might
otherwise prevail in the open market. Neither the Company nor any of the
Underwriters makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Common Stock. The Underwriters are not required to engage in any of
the foregoing transactions and, if commenced, such transaction may be
discontinued at any time without notice.
The Underwriters and dealers may also engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for, or purchase, the Common Stock at a price that exceeds the higher
independent bid. In addition, the net daily purchases made by any passive market
maker generally may not exceed 30% of its average daily trading volume in the
Common Stock during a specified two-month prior period, or 200 shares, whichever
is greater. A passive market maker must identify passive market making bids as
such on the Nasdaq National Market electronic inter-dealer reporting system.
Passive market making may stabilize or maintain the market price of the Common
Stock above independent market levels. Underwriters and dealers are not required
to engage in passive market making and may end passive market making activities
at any time.
Under the Conduct Rules of the National Association of Securities Dealers
("NASD"), no member of the NASD or an affiliate of such member may participate
in the distribution of a public offering of equity securities issued by a
company if the member and/or its affiliates have a conflict of interest (as
defined) unless the price at which such equity securities are to be distributed
to the public is no higher than that recommended by a qualified independent
underwriter ("QIU") meeting certain standards. As defined by the NASD, a
"conflict of interest" exists when, among other things, a member and/or its
affiliates in the aggregate beneficially own 10% or more of any class of equity
of a company. William R. Hough, a controlling stockholder of William R. Hough &
Co., owns more than 10% of the Company's common and preferred stock.
Accordingly, William R. Hough & Co. is deemed by the NASD to be an affiliate of
the Company.
Because the Offering is of a class of equity securities listed on the
Nasdaq National Market, the provisions of Rule 2720 of the NASD Conduct Rules,
which requires the opinion of a QIU with respect to the price of a security, do
not apply to this Offering. However, the Company and Ryan, Beck & Co., Inc. have
agreed that Ryan, Beck & Co., Inc. will act as a QIU in connection with the
Offering even though a QIU is not required by the NASD Conduct Rules. The price
of the Common Stock will be no more than that recommended by Ryan, Beck & Co.,
Inc., acting as QIU. Ryan, Beck & Co., Inc. has participated in the preparation
of this Prospectus and the Registration Statement of which this Prospectus is
part and has exercised the appropriate standards of due diligence with respect
thereto and will receive a fee of $10,000 in connection with its services as
QIU, which will be paid in addition to the underwriting discounts set forth on
the cover page of this Prospectus. The Company has agreed to indemnify Ryan,
Beck & Co., Inc. as the QIU against certain liabilities, including liabilities
under the Securities Act.
65
<PAGE> 69
For a description of certain relationships between the Company and William
R. Hough and certain of his affiliates, including William R. Hough & Co., see
Note 17 to the Company's Consolidated Financial Statements included herein.
LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of Common
Stock offered hereby will be passed upon for the Company by Holland & Knight
LLP, Tampa, Florida, and for the Underwriters by Smith, Mackinnon, Greeley,
Bowdoin & Edwards, P.A., Orlando, Florida.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996, and for each of the years in the three-year period ended December
31, 1997, included herein and in the Registration Statement have been audited by
Arthur Andersen LLP, independent certified public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance and upon
the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and
at the Commission's regional offices at Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission maintains an Internet web site that contains
reports, proxy and information statements and other information regarding
issuers who file electronically with the Commission. The address of that site is
http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-2 (together with all amendments thereto, (the "Registration Statement"), of
which this Prospectus is a part, under the Securities Act, with respect to the
Common Stock. This Prospectus does not contain all of the information set forth
in the Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. In addition, certain
documents filed by the Company with the Commission have been incorporated in
this Prospectus by reference. See "Incorporation of Certain Documents by
Reference." For further information with respect to the Company, reference is
made to the Registration Statement, including the exhibits thereto and the
documents incorporated herein by reference. Any statements contained herein
concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission or incorporated by
reference herein are not necessarily complete, and, in each instance, reference
is made to the copy of such document so filed for a more complete description of
the matter involved. Each such statement is qualified in its entirety by such
reference. The Registration Statement may be inspected without charge at the
principal office of the Commission in Washington, D.C., and copies of all or
part of it may be obtained from the Commission upon payment of the prescribed
fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated in this Prospectus by reference and made a part hereof:
(1) The Company's Annual Report on Form 10-K/A for the year ended
December 31, 1997, filed with the Commission on April 13, 1998.
66
<PAGE> 70
Any statement contained in a document incorporated by reference herein,
shall be deemed to be modified or superseded for purposes of the Registration
Statement and this Prospectus to the extent that a statement contained herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference, other than
certain exhibits to such documents. Written requests should be directed to
Republic Bancshares, Inc., 111 Second Avenue N.E., St. Petersburg, Florida
33701, Attention: Secretary, telephone: (813) 823-7300.
67
<PAGE> 71
REPUBLIC BANCSHARES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPUBLIC BANCSHARES, INC.
Report of Independent Certified Public Accountants........ F-2
Consolidated Balance Sheets at December 31, 1997 and
1996................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996, and 1995...................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996, and 1995...................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 72
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.
Tampa, Florida
March 13, 1998
F-2
<PAGE> 73
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUES)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 45,998 $ 34,109
Interest bearing deposits in banks.......................... 671 11,783
Federal funds sold.......................................... 33,000 8,000
Investment securities:
Available for sale........................................ 16,080 74,397
Trading................................................... -- 4,032
Mortgage-backed securities:
Held to maturity.......................................... -- 15,343
Available for sale........................................ 55,467 62,037
Trading................................................... 37,046 5,548
FHLB stock.................................................. 8,148 7,209
Loans held for sale......................................... 151,404 46,593
Loans, net of allowance for loan losses..................... 1,128,955 902,035
Premises and equipment, net................................. 33,303 25,039
Other real estate owned acquired through foreclosure, net... 6,997 8,162
Accrued interest receivable................................. 9,611 7,160
Goodwill and premium on deposits............................ 4,855 527
Other assets................................................ 20,870 12,383
---------- ----------
Total assets...................................... $1,552,405 $1,224,357
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits --
Noninterest-bearing checking........................... $ 93,843 $ 64,363
Interest checking...................................... 137,240 87,639
Money market........................................... 30,389 32,665
Savings................................................ 291,604 303,932
Time deposits.......................................... 808,236 626,308
---------- ----------
Total deposits.................................... 1,361,312 1,114,907
Securities sold under agreements to repurchase.............. 19,654 15,372
FHLB advances............................................... 35,000 7,000
Subordinated debt........................................... -- 6,000
Other liabilities........................................... 12,158 6,479
---------- ----------
Total liabilities................................. 1,428,124 1,149,758
---------- ----------
Company-obligated mandatorily redeemable capital securities
of subsidiary trust holding soley junior subordinated
debentures of the Company................................. 28,750 --
---------- ----------
Minority interest in F.F.O. Financial Group, Inc............ -- 6,421
---------- ----------
Stockholders' equity:
Perpetual preferred convertible stock ($20.00 par, 100,000
shares authorized, 75,000 shares issued and
outstanding:
Liquidation preference $6,600 at December 31, 1997 and
1996................................................... 1,500 1,500
Common stock ($2.00 par, 20,000,000 shares authorized,
7,035,886 and 5,854,414 shares issued and outstanding at
December 31, 1997 and 1996, respectively)................. 14,072 11,708
Capital surplus............................................. 50,322 34,225
Retained earnings........................................... 29,155 20,847
Net unrealized gain (losses) on available-for-sale
securities, net of tax effect............................. 482 (102)
---------- ----------
Total stockholders' equity........................ 95,531 68,178
---------- ----------
Total liabilities and stockholders' equity........ $1,552,405 $1,224,357
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 74
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans.................................. $ 97,810 $ 78,955 $ 67,746
Interest on investment securities......................... 2,155 2,097 3,171
Interest on mortgage-backed securities.................... 5,252 5,375 2,869
Interest on trading securities............................ 59 -- --
Interest on federal funds sold............................ 2,447 1,714 3,117
Interest on other investments............................. 734 803 690
---------- ---------- ----------
Total interest income............................... 108,457 88,944 77,593
---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits...................................... 52,311 44,136 39,822
Interest on FHLB advances................................. 1,169 365 163
Interest on subordinated debt............................. 392 5 --
Interest on other borrowings.............................. 1,051 443 127
---------- ---------- ----------
Total interest expense.............................. 54,923 44,949 40,112
---------- ---------- ----------
Net interest income................................. 53,534 43,995 37,481
PROVISION FOR LOAN LOSSES................................... 2,628 2,582 2,162
---------- ---------- ----------
Net interest income after provision for possible loan
losses.................................................. 50,906 41,413 35,319
---------- ---------- ----------
NONINTEREST INCOME:
Income from mortgage banking activities................... 15,159 852 --
Gain on sale of loans..................................... 1,491 144 210
Service charges and fees on deposits...................... 3,358 2,847 2,644
Loan fee income........................................... 1,394 1,327 1,019
Gain on sale of ORE -- held for investment................ -- 1,207 --
Gain on sale of securities, net........................... 1,308 261 322
Other operating income.................................... 2,321 1,314 1,138
---------- ---------- ----------
Total noninterest income............................ 25,031 7,952 5,353
NONINTEREST EXPENSES:
Salaries and employee benefits............................ 27,253 18,505 15,294
Net occupancy expense..................................... 8,118 6,381 5,025
Data processing fees...................................... 2,605 2,119 1,716
FDIC and state assessments................................ 824 1,606 2,212
Other operating expense................................... 18,684 8,218 6,716
---------- ---------- ----------
Total general and administrative expenses........... 57,484 36,829 30,963
Merger expenses........................................... 1,144 -- --
SAIF special assessment................................... -- 4,005 --
Provisions for losses on ORE.............................. 530 111 240
ORE expense, net of ORE income............................ 273 (490) 662
Amortization of goodwill & premium on deposits............ 464 491 450
---------- ---------- ----------
Total noninterest expenses.......................... 59,895 40,946 32,315
---------- ---------- ----------
Income before negative goodwill accretion, income taxes and
minority interest......................................... 16,042 8,419 8,357
Negative goodwill accretion................................. -- -- 1,578
Income tax provision........................................ (6,096) (3,035) (2,516)
Minority interest in income from subsidiary trust........... (701) -- --
Minority interest in F.F.O.................................. (674) (505) (503)
---------- ---------- ----------
NET INCOME.......................................... $ 8,571 $ 4,879 $ 6,916
========== ========== ==========
PER SHARE DATA:
Net income per common and common equivalent
share -- diluted........................................ $ 1.21 $ 74 $ 1.10
========== ========== ==========
Weighted average common and common equivalent shares
outstanding -- diluted.................................. 7,301,499 6,626,604 6,261,368
========== ========== ==========
Net income per common share -- basic................ $ 1.40 $ .83 $ 1.26
---------- ---------- ----------
Weighted average common shares
outstanding -- basic.............................. 6,128,014 5,857,174 5,491,250
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 75
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
PERPETUAL UNREALIZED
PREFERRED GAINS
CONVERTIBLE STOCK (LOSSES)
----------------- COMMON STOCK ON AVAILABLE
SHARES SHARES CAPITAL RETAINED FOR SALE
ISSUED AMOUNT ISSUED AMOUNT SURPLUS EARNINGS SECURITIES TOTAL
------- ------- ------------ ------- ------- -------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994..... 75,000 $1,500 5,082,782 $10,166 $26,843 $ 9,577 $(549) $47,537
Net income................... -- -- -- -- -- 6,918 -- 6,918
Net unrealized gains on
available-for-sale
securities, net of tax
effect..................... -- -- -- -- -- -- 651 651
Issuance of common stock..... -- -- 800,000 1,600 7,537 -- -- 9,137
Exercise of stock options.... -- -- 3,170 6 23 -- -- 29
Dividends on preferred
stock...................... (263) (263)
Net change in minority
interest................... -- -- (23,200) (47) (129) -- -- (176)
------ ------ ---------- ------- ------- ------- ----- -------
BALANCE, DECEMBER 31, 1995..... 75,000 1,500 5,862,752 11,725 34,274 16,232 102 63,833
Net income................... -- -- -- -- -- 4,879 -- 4,879
Net unrealized loss on
available-for-sale
securities, net of tax
effect..................... -- -- -- -- -- -- (204) (204)
Dividends on preferred
stock...................... -- -- -- -- -- (264) -- (264)
Net change in minority
interest................... -- -- (8,338) (17) (49) -- -- (66)
------ ------ ---------- ------- ------- ------- ----- -------
BALANCE, DECEMBER 31, 1996..... 75,000 1,500 5,854,414 11,708 34,225 20,847 (102) 68,178
Net income................... -- -- -- -- -- 8,571 -- 8,571
Net unrealized gains on
available-for-sale
securities, net of tax
effect..................... -- -- -- -- -- -- 584 584
Exercise of stock options.... -- -- 21,300 43 197 -- -- 240
Net change in minority
interest................... -- -- (2,537) (5) (487) -- -- (492)
Issuance of common stock in
merger transaction......... -- -- 826,709 1,654 11,211 -- -- 12,865
Conversion of subordinated
debentures................. -- -- 336,000 672 5,176 -- -- 5,848
Dividends on preferred
stock...................... -- -- -- -- -- (263) -- (263)
------ ------ ---------- ------- ------- ------- ----- -------
BALANCE, DECEMBER 31, 1997..... 75,000 $1,500 7,035,886 $14,072 $50,322 $29,155 $ 482 $95,531
====== ====== ========== ======= ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-5
<PAGE> 76
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 8,571 $ 4,879 6,916
Reconciliation of net income to net cash (used in)
provided by operating activities:
Provision for loan and ORE losses....................... 3,235 2,693 2,402
Depreciation and amortization, net...................... 5,297 (1,165) 592
Amortization of premium (accretion) of fair value,
net................................................... 918 712 (1,111)
Gain on sale of loans................................... (16,500) (996) (210)
Gain on sale of investment securities................... (724) (457) (93)
Gain on sale of other real estate owned................. (27) (1,810) (39)
Capitalization of mortgage servicing.................... (6,826) (1,741) --
Loss (gain) on disposal of premises and equipment....... 14 (2) --
Net decrease (increase) in deferred tax benefit......... (3,768) (755) (12)
Net (increase) decrease in other assets................. (4,339) 1,803 (4,027)
Net increase (decrease) in other liabilities............ 4,554 (1,248) 1,800
--------- --------- ---------
Net cash (used in) provided by operating
activities....................................... (11,430) 1,919 6,218
--------- --------- ---------
INVESTING ACTIVITIES:
Proceeds from excess of deposit liabilities assumed on
assets acquired, net of cash acquired................... 7,223 -- --
Proceeds from sales and maturities of:
Investment securities held to maturity.................. -- 7,000 36,526
Investment securities available for sale................ 126,544 109,218 11,727
Mortgage-backed securities held to maturity............. -- 15,455 --
Mortgage-backed securities available for sale........... 50,627 6,393 9,732
Mortgage-backed securities in trading portfolio......... 2,764 13,496 --
Purchase of investment securities available for sale...... (66,771) (156,036) (68,187)
Purchase of mortgage backed securities in trading
portfolio............................................... (4,468) (20,105) (16,106)
Principal repayment on mortgage backed securities......... 9,809 25,606 3,073
Purchase of FHLB stock.................................... (131) (1,155) (2,248)
Net increase in loans..................................... (324,605) (118,650) (203,262)
Purchase of premises and equipment........................ (9,993) (2,379) (6,783)
Proceeds from sale of other real estate owned............. 4,739 10,271 10,623
Investments in other real estate owned (net).............. 2,276 101 315
--------- --------- ---------
Net cash used in investing activities.............. (201,986) (110,785) (224,590)
--------- --------- ---------
FINANCING ACTIVITIES:
Net increase in deposits.................................. 177,540 122,866 197,316
Net increase in repurchase agreements..................... 4,282 12,301 991
Proceeds from issuance of subordinated debt............... -- 6,000 --
Net change of minority interest in FFO.................... 645 -- --
Proceeds from issuance of common stock.................... 240 -- 9,166
Proceeds from issuance of minority interest in trust
subsidiary.............................................. 28,750 -- --
Proceeds from FHLB advances............................... 28,000 (23,000) 8,600
Dividends on perpetual preferred stock.................... (264) (264) (263)
--------- --------- ---------
Net cash provided by financing activities.......... 239,193 117,903 215,810
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 25,777 9,037 (2,562)
CASH AND CASH EQUIVALENTS, beginning of year................ 53,892 44,855 47,417
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year...................... $ 79,669 $ 53,892 44,855
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest.................... $ 47,342 $ 45,080 39,376
Cash paid during the year for income taxes................ 5,674 4,010 2,066
Noncash transactions:
Conversion of subordinated debt......................... 5,888 -- --
Stock issued for minority interest in FFO............... 5,307 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 77
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. BUSINESS:
BASIS OF PRESENTATION AND ORGANIZATION
The consolidated financial statements of Republic Bancshares, Inc. (the
Company) include the accounts of the Company, RBI Capital Trust I, Republic
Insurance Agency, Inc., and Republic Bank (the "Bank") and the Bank's
wholly-owned subsidiaries, RBREO, Inc., Tampa Bay Equities, Inc., and VQH
Development, Inc. restated for the acquisition of FFO Financial Group, Inc. as
discussed below. All significant intercompany accounts and transactions have
been eliminated. On November 21, 1995, the Bank's Board of Directors approved
for shareholder consideration an Amended and Restated Plan of Share Exchange and
Reorganization (the "Reorganization") under which the Bank became a wholly-owned
subsidiary of Company. On the effective date and time of the Reorganization, all
holders of shares of the Bank's Common and Preferred Stock -- at the November
30, 1995, record date -- received one share of Company Common Stock for each
share of the Bank's Common Stock held and one share of Company Preferred Stock
for each share of the Bank's Preferred Stock held. Holders of outstanding
options to purchase or acquire the Bank's Common Stock received options to
purchase an equal number of shares of Company Common Stock. All necessary
governmental and shareholder approvals for the Reorganization were received. The
Company's primary source of income is from its banking subsidiary which operates
46 branches throughout west central Florida. The Bank's primary source of
revenue is derived from net interest income on loans and investments and income
from mortgage banking activities.
NEGATIVE GOODWILL
On May 28, 1993 (the "Purchase Date"), 99 percent of the Company's
outstanding common stock was acquired for $4,450,000 (the "Purchase Price").
Also, on May 28, 1993, 583,334 additional shares of common stock were issued for
$3,500,000. The acquisition was accounted for by the purchase method of
accounting. Assets and liabilities were adjusted based upon their fair value as
of the Purchase Date. The excess of the adjusted net book value over the
Purchase Price was recorded as a reduction of the non current assets, to the
extent available. The remaining difference was recorded as excess of fair value
over purchase price ("negative goodwill").
The negative goodwill was accreted into income on a straight-line basis
over 26 months beginning May 28, 1993, and ending July 31, 1995, which was based
on the estimated life of the loans, investments and deposits acquired. The
premiums on loans and investment securities and the discount on demand and other
time deposits were amortized into income on a straight-line basis over periods
based on the estimated life of the related loans, securities or deposits ranging
from 12 to 30 months.
BUSINESS COMBINATIONS
Firstate Financial, F.A. On April 18, 1997, the Company acquired Firstate
Financial, F.A. ("Firstate"), a thrift institution headquartered in Orlando,
Florida, for a cash purchase of $5.5 million. At April 18, 1997, Firstate had
total assets of $71.1 million, total deposits of $67.9 million and operated a
branch in each of Orange and Seminole counties. The acquisition was accounted
for using the purchase accounting rules which do not require prior period
restatement. The amount of goodwill recorded was $130,000. Accordingly, the
consolidated results of operations only reflect activity subsequent to the
acquisition data.
F.F.O. Financial Group, Inc. On September 19, 1997, F.F.O. Financial
Group, Inc. ("FFO"), St. Cloud, Florida, the parent company for First Federal
Savings and Loan Association of Osceola County ("First Federal"), was merged
into the 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.
F-7
<PAGE> 78
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $ 5,777
F.F.O. Financial Group, Inc. .......................... 1,600 1,646
Minority interest decrease............................. (505) (503)
------- -------
Combined as restated........................................ $ 4,879 $ 6,916
======= =======
</TABLE>
RBI CAPITAL TRUST I ("RBI CAPITAL")
RBI Capital is a wholly-owned subsidiary of the Company which was formed on
May 29, 1997, to issue Cumulative Trust Preferred Securities (the "Preferred
Security or Securities") to the public. The Preferred Securities, issued through
an underwritten public offering on July 28, 1997, were sold at their $10 par
value. RBI Capital issued 2,875,000 shares of the Preferred Securities bearing a
dividend rate of 9.10% for net proceeds of $27.4 million, after deducting
underwriting commissions and other costs. RBI Capital invested the proceeds in
junior subordinated debt of the Company which also has an interest rate of
9.10%. The Company used the proceeds from the junior subordinated debt to
increase the equity capital of the Bank. Interest on the junior subordinated
debentures and distributions on the Preferred Securities are payable quarterly
in arrears, with the first payment having been paid on September 30, 1997.
Distribution on the Preferred Securities are cumulative and based upon the
liquidation value of $10 per Preferred Security. The Company has the right, at
any time, so long as no event of default has occurred and is continuing, to
defer payments of interest on the Junior Subordinated Debentures, which will
require deferral of distribution on the preferred securities, for a period not
exceeding 20 consecutive quarters, provided, that such deferral may not extend
beyond the stated maturity of the Junior Subordinated Debentures. If payments
are deferred, the Company will not be permitted to declare cash dividends. The
Preferred Securities are subject to mandatory redemption, in whole or in part,
upon repayment of the Junior Subordinated Debentures at maturity or their
earlier redemption. The Company 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
F-8
<PAGE> 79
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
guidelines or regulatory policies. In addition to the above right, the Company
has the right, at any time, to shorten the maturity of the Junior Subordinated
Debentures to a date not earlier than June 30, 2002. Exercise of this right is
also subject to the Company having received regulatory approval to do so if then
required under applicable capital guidelines or regulatory policies.
The Company has reported its obligation, with respect to the holders of the
Preferred Securities, as a separate line item on its audited consolidated
balance sheet under the caption "Company-obligated mandatorily redeemable
capital securities of subsidiary trust holding solely junior subordinated
debentures of the Company". The related dividend expense, net of the tax
benefit, is reported as a separate line item on the statement of operations
under the caption "minority interest in income from subsidiary trust."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ESTIMATES, APPRAISALS AND EVALUATIONS
The financial statements include, in conformity with generally accepted
accounting principles, estimates, appraisals and evaluations of loans, other
real estate owned and other assets and liabilities, and disclosure of contingent
assets and liabilities. Changes in such estimates, appraisals and evaluations
might be required because of rapidly changing economic conditions, changing
economic prospects of borrowers and other factors. Actual results may differ
from those estimates.
INVESTMENT SECURITIES
Securities that the Company has both the positive intent and ability to
hold to maturity are classified as Held to Maturity and are carried at
historical cost, adjusted for amortization of premiums and accretion of
discounts. Securities Available for Sale, which are those securities that may be
sold prior to maturity as part of asset/liability management or in response to
other factors, are carried at fair value with any valuation adjustment reported
in a separate component of stockholders' equity, net of tax effect.
Investments identified as trading securities, include mortgage backed
securities resulting from the securitization of residential and High LTV loans,
the resulting residual interest in cash flows from those securitizations, where
applicable, and the excess spread on mortgage servicing rights. Trading
securities are carried at market value with any unrealized gains or losses
included in the statement of operations under "Gain on sale of securities, net."
Interest and dividends on investment securities and amortization of
premiums and accretion of discounts are reported in interest on investment
securities. Gains (losses) realized on sales of investment securities are
generally determined on the specific identification method and are reported as a
component of other noninterest income.
LOANS
Interest on commercial and real estate loans and substantially all
installment loans is recognized monthly on the loan balance outstanding. The
Company's policy is to discontinue accruing interest on loans 90 days or more
delinquent and restructured loans that have not yet demonstrated a sufficient
payment history, which, in the opinion of management, may be doubtful as to the
collection of interest or principal. These loans are designated as "non-accrual"
and any accrued but unpaid interest previously recorded is reversed against
current period interest revenue.
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.
F-9
<PAGE> 80
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
HEDGING CONTRACTS AND LOANS HELD FOR SALE
The Company manages its interest rate market risk on the loans held for
sale and its estimated future commitments to originate and close mortgage loans
for borrowers at fixed prices ("Locked Loans") through hedging techniques which
include listed options and fixed price forward delivery commitments ("Forward
Commitments") to sell mortgage-backed securities or specific whole loans to
investors on a mandatory or best efforts basis. The Company records the
inventory of loans held for sale at the lower of cost or market on an aggregate
basis after considering any market value changes in the loans held for sale,
Locked Loans, and Forward Commitments.
MORTGAGE SERVICING RIGHTS
On July 1, 1995, SFAS No. 122, "Accounting for Mortgage Servicing Rights,
an amendment of FASB Statement No. 65," was adopted. SFAS No. 122 permits an
allocation of a portion of the cost of loan origination to the rights to service
mortgage loans. Approximately $5.5 million, $1.9 million, and $117,000 was
capitalized relating to mortgage servicing rights ("MSRs") during 1997, 1996 and
1995, respectively. Also included in the balance of mortgage servicing rights is
approximately $225,000 of rights acquired through the Firstate acquisition. As
of December 31, 1997, 1996 and 1995, the unamortized portion of these MSRs were
$7.1 million, $2.0 million, and $113,000, respectively. For purposes of
measuring impairment, MSRs are stratified based on the loan type, interest rate
and maturity of the underlying loans.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF
LIABILITIES
The FASB has issued SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities," which was effective for
the Company's fiscal year beginning January 1, 1997. SFAS 125 provides standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. In addition to providing further guidance related
to the recording of mortgage servicing rights, SFAS 125 required that the
Company classify loans held for sale which are securitized and retained in the
Company's portfolio, residual interest retained and excess spread interest only
strip receivable as trading assets. As a result, the Company is required to
carry these assets at their current market value as of the balance sheet date
with the resulting valuation adjustment recorded in the statement of operations.
The Company uses an automated portfolio analysis system to value its
mortgage servicing rights at the individual loan level. The model uses current
market assumptions to determine default probabilities and prepayment speed
assumptions based upon current factors to include interest rate, age, loan type,
geography and demographic factors. The automated foreclosure probabilities also
take into consideration the regional, demographic and 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
F-10
<PAGE> 81
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$57.6 million of asset backed notes and certificates. As part of that
transaction the Company recorded $5.7 million of residual interest on these
securities. The calculation used to determine the value of the residual interest
assumed a 14% discount rate, a default rate of 2.25%, and a prepayment rate
ranging from 12% through 15%.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses provides for risks of losses inherent in the
credit extension process. Losses and recoveries are either charged or credited
to the allowance. The Company's allowance is an amount that management believes
will be adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. The evaluations are periodically
reviewed and adjustments are recorded in the period in which changes become
known.
ACCOUNTING FOR IMPAIRMENT OF LOANS
The Company's measurement of impaired loans includes those loans which are
nonperforming and have been placed on non-accrual status and those loans which
are performing according to all contractual terms of the loan agreement but may
have substantive indication of potential credit weakness. As of December 31,
1997, $22.8 million of loans were considered impaired by the Company.
Approximately $16.0 million of these loans required valuation allowances,
totaling $2.8 million, which are included within the overall allowance for loan
losses at December 31, 1997. Residential mortgages and consumer loans and leases
outside the scope of SFAS 114 are collectively evaluated for impairment.
As of December 31, 1996, $19.2 million of loans were considered impaired by
the Company. Approximately $16.9 million of these loans required valuation
allowances, totaling $2.9 million, which were included within the overall
allowance for loan losses at December 31, 1996.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the related assets,
except for leasehold improvements for which the lesser of the estimated useful
life of the asset or the term of the lease is used. The useful lives used in
computing depreciation and amortization are as follows:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Buildings and improvements.................................. 39
Furniture and equipment..................................... 7
Leasehold improvements...................................... 5 - 15
</TABLE>
Gains and losses on routine dispositions are reflected in current
operations. Maintenance, repairs and minor improvements are charged to operating
expenses, and major replacements and improvements are capitalized.
OTHER REAL ESTATE
Other real estate owned ("ORE") represents property acquired through
foreclosure proceedings held for sale and real estate held for investment. ORE
is net of a valuation allowance established to reduce cost to fair value. Losses
are charged to the valuation allowance and recoveries are credited to the
allowance. Declines in market value and gains and losses on disposal are
reflected in current operations in ORE expense. Recoverable
F-11
<PAGE> 82
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
costs relating to the development and improvement of ORE are capitalized whereas
routine holding costs are charged to expense. The sales of these properties are
dependent upon various market conditions. Management is of the opinion that such
sales will result in net proceeds at least equal to present carrying values.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
The FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," which was effective for the
Company's fiscal year beginning January 1, 1996. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held and used be
reviewed for impairment whenever events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable. If the sum of the expected
future cash flows from the use of the asset and its eventual disposition is less
than the carrying amount of the asset, an impairment loss is recognized. SFAS
No. 121 also requires that certain assets to be disposed of be measured at the
lower of carrying amount or the net realizable value. The impact of adopting
SFAS No. 121 upon the results of operations of the Company was not material.
EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," SFAS
No. 128 simplifies the method for computing and presenting earnings per share
("EPS") previously required by APB Opinion No. 15, "Earnings Per Share", and
makes them comparable to international EPS standards. SFAS No. 128 is effective
for periods ending after December 15, 1997, and requires restatement of all
prior period EPS data and has been implemented by the Company. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation.
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'
F-12
<PAGE> 83
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
pensions and other post-retirement benefit plans. SFAS No. 132 is effective for
fiscal years beginning after December 15, 1997, earlier application is
encouraged. Management has implemented SFAS No. 132 in the year ended December
31, 1997.
INCOME TAXES
The Company follows the liability method which establishes deferred tax
assets and liabilities for the temporary differences between the financial
reporting bases and the tax bases of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. Net deferred tax assets, whose realization is dependent on taxable
earnings of future years, are recognized when a more-likely-than-not criterion
is met, that is, unless a greater than 50% probability exists that the tax
benefits will not actually be realized sometime in the future.
Effective April 1, 1995, federal regulations restricted the amount of
deferred tax assets that can be used to meet regulatory capital requirements to
an amount that the institution expects to realize within one year, or 10% of
Tier 1 capital, whichever is less.
The Company and its subsidiaries file consolidated tax returns with the
federal and state taxing authorities. A tax sharing agreement exists between the
Company and its subsidiaries whereby taxes for the subsidiaries are computed as
if the subsidiaries were separate entities. Amounts to be paid or credited with
respect to current taxes are paid to or received from the Company.
PREMIUM ON DEPOSITS
A premium on deposits is recorded for the difference between cash received
and the carrying value of deposits acquired in purchase transactions. This
premium is being amortized on a straight-line basis over three to four years.
Approximately $202,000 and $527,000 was included in other assets in the
accompanying financial statements, as of December 31, 1997, and 1996.
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.
F-13
<PAGE> 84
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
1997 1996
------- -------
<S> <C> <C>
BOOK VALUE AT DECEMBER 31:
Available-for-sale securities:............................ $16,080 $74,397
Trading Securities........................................ -- 4,032
------- -------
Total U.S. Treasuries & Federal Agency Notes...... $16,080 $78,429
======= =======
</TABLE>
The amortized cost and estimated market value of investment securities at
December 31, 1997, by contractual maturity are shown below (in thousands):
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
----------------------------------
ESTIMATED WEIGHTED
AMORTIZED MARKET AVERAGE
COST VALUE YIELD
--------- --------- --------
<S> <C> <C> <C>
Due in 1 year or less................................ $10,512 $10,521 5.68%
Due after 1 year through 5 years..................... 1,545 1,545 8.60
Due after 5 years.................................... 4,000 4,014 7.45
------- -------
Total...................................... $16,057 $16,080 6.40%
======= =======
</TABLE>
Proceeds from sales of U.S. Treasury and Federal Agency Notes during the
years ended 1997, 1996 and 1995, were $55,092,000, $7,545,000, and $2,972,000,
respectively. Gross losses of $7,109, $0, and $27,891 were realized for the
years ended December 31, 1997, 1996 and 1995. Gross gains of $193,218, $45,404,
and $0, were realized during the years ended December 31, 1997, 1996 and 1995,
respectively. U.S. Treasuries and Federal Agency Notes with a par value of
$10,500,000 and $19,000,000 at December 31, 1997 and 1996, respectively, were
pledged to secure public deposits and for other purposes. Net unrealized holding
gains on
F-14
<PAGE> 85
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
trading securities of $764,000, $26,000, and $101,000 were included in income
during 1997, 1996, and 1995, respectively.
4. MORTGAGE-BACKED SECURITIES:
Mortgage-backed securities ("MBS"), sometimes referred to as pass-through
certificates, represent an interest in a pool of loans. The securities are
issued by three government agencies or corporations: (i) the Government National
Mortgage Association ("GNMA"), (ii) the Federal Home Loan Mortgage Corporation
("FHLMC") and (iii) the Federal National Mortgage Association ("FNMA"). During
1997 and 1996 the Company securitized loans with a carrying value of $17,923,000
and $6,282,000, respectively. MBS securities held to maturity are recorded at
amortized cost, while securities available-for-sale and trading are recorded at
estimated market value. Mortgage-backed securities are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
GAINS GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1997:
Available for sale securities:
GNMA securities........................... $41,395 $ 648 $ -- $42,043
FHLMC securities.......................... 5,963 -- (9) 5,954
FNMA securities........................... 6,644 104 (2) 6,746
Other MBS securities...................... 716 8 -- 724
------- ----- ----- -------
Total MBS available for sale......... $54,718 $ 760 $ (11) $55,467
======= ===== ===== =======
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 spread interest only strip
receivable.............................. 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 spread interest only strip
receivable.............................. -- -- -- --
------- ----- ----- -------
Total MBS trading securities......... $ 5,554 $ -- $ (6) $ 5,548
======= ===== ===== =======
</TABLE>
F-15
<PAGE> 86
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
GAINS GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Held to maturity securities:
Mortgage-backed securities................ $15,343 $ 218 $ (47) $15,514
Collateralized mortgage backed
obligations............................. -- -- -- --
Excess spread interest only strip
receivable.............................. -- -- -- --
------- ----- ----- -------
Total MBS securities held to
maturity........................... $15,343 $ 218 $ (47) $15,514
======= ===== ===== =======
</TABLE>
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
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>
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
BOOK VALUE AT DECEMBER 31:
Held to maturity securities............................... $ -- $15,343
Available for sale securities............................. 55,467 62,037
Trading securities........................................ 37,046 5,548
------- -------
Total MBS......................................... $92,513 $82,928
======= =======
</TABLE>
The trading asset category at December 31, 1997, included $2.1 million in
excess spread on mortgage servicing rights, $8.7 million of securities purchased
from the Company's securitization of High LTV Loans in December 1997 and the
$8.2 million residual interest in cash flows from that securitization. The
Company has recorded these assets at what it believes to be their fair market
value, however, there is no ready market for residuals in cash flows from
securitization of High Loan-to-Value Loans.
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.
F-16
<PAGE> 87
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LOANS AND LOANS HELD FOR SALE:
Loans and loans held for sale at December 31, 1997 and 1996, are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Real estate mortgage loans:
One-to-four family residential.............................. $ 644,235 $ 494,955
Multi-family residential.................................... 86,835 90,745
Commercial real estate...................................... 265,153 224,715
Construction/land development............................... 50,203 42,206
Home equity loans........................................... 44,389 23,622
Commercial loans............................................ 36,515 37,626
Consumer loans.............................................. 26,072 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.
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
F-17
<PAGE> 88
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-18
<PAGE> 89
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Through the merger of FFO, the Company acquired an unrecognized deferred
tax liability of approximately $2,700,000 related to base year reserves
calculated under the thrift bad debt percentage method. If
F-19
<PAGE> 90
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
during any taxable year, the Company ceases to be a bank, these reserves shall
be taken into account ratably over the six taxable year period beginning with
such taxable year.
The Company's effective tax rate varies from the statutory rate of 34%. The
reasons for this difference are as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Computed "expected" tax provision........................... $5,454 $2,862 $ 3,37
Increase (reduction) of taxes:.............................. (20) (22) (27)
Tax-exempt interest income
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.
F-20
<PAGE> 91
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. OFF-BALANCE-SHEET RISK, COMMITMENTS AND CONTINGENCIES:
CONCENTRATION OF CREDIT RISK
The Company's core customer loan origination base is located along the west
coast and in central Florida. The majority of the Company's purchased loan
portfolio is concentrated in the states of Florida, California, Texas, and in
the northeastern United States. At December 31, 1997 and 1996, approximately 95%
and 94%, respectively, of the Company's loan portfolio was secured by real
estate. Mortgage loans secured by 1-4 family properties comprised approximately
56% and 53%, respectively, of total mortgage loans at December 31, 1997 and
1996.
OFF-BALANCE-SHEET ITEMS
The Company enters into financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers
and to limit exposure to changes in the value of loans held for sale. These
financial instruments include commitments to extend credit, commercial and
standby letters of credit, and forward contracts for the delivery of loans.
These instruments involve, to varying degrees, elements of credit and
interest-rate risk that are not recognized in the accompanying consolidated
balance sheets.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments discussed above is represented by the
contractual amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
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.
F-21
<PAGE> 92
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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....................................... (1,60)
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.
F-22
<PAGE> 93
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-23
<PAGE> 94
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The table below illustrates the estimated fair value of the Company's
financial instruments as of December 31 using the assumptions described above
(in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash and due from banks..................................... $ 45,998 $ 34,109
========= =========
Interest bearing deposits in banks.......................... 671 11,783
========= =========
Federal funds sold.......................................... 33,000 8,000
========= =========
Investment and mortgage backed securities................... 108,593 161,304
========= =========
Loans and loans held for sale (net of allowance for loan
losses)................................................... 1,306,678 991,635
========= =========
Mortgage servicing rights................................... 269 1,690
========= =========
Deposits.................................................... 1,365,824 1,119,888
========= =========
Securities sold under agreements to repurchase.............. 19,654 15,372
========= =========
FHLB stock.................................................. 35,000 7,000
========= =========
Subordinated debt........................................... -- 6,000
========= =========
Standby letters of credit................................... 12,168 7,415
========= =========
Commitments to extend credit and unfunded lines of credit... 232,711 121,420
========= =========
</TABLE>
14. STOCKHOLDERS' EQUITY:
PERPETUAL PREFERRED CONVERTIBLE STOCK
The Company has 75,000 outstanding shares of perpetual preferred
convertible stock. The preferred stock has a liquidation preference of $88 per
share and carries a noncumulative dividend of $3.52 per year, payable quarterly.
Dividends on the preferred stock must be paid before any dividends on common
stock can be paid. Beginning December 16, 1994, and thereafter, the preferred
stock can be converted by the holders into 10 shares of common stock for each
share of preferred stock. The holders of the preferred stock vote with the
holders of the common stock and are entitled to 10 votes per share of preferred
stock.
DIVIDENDS
Florida Statutes limit the amount of dividends the Bank can pay in any
given year to that year's net income plus retained net income from the two
preceding years. Additionally, the Bank and the Company cannot pay dividends
which would cause either to be undercapitalized as defined by federal
regulations.
1993 NON-QUALIFIED STOCK OPTION PLAN
On May 28, 1993, the Company adopted a non-qualified stock option plan (the
Option Plan) which reserved 80,000 shares of common stock for future issuance
under the Option Plan to eligible employees of the Company. As of December 31,
1997, 60,000 options were granted under the Option Plan and 30,000 were
outstanding. The per share exercise price of each stock option is determined by
the Board of Directors at the date of grant. The plan terminates in 2003 or at
the discretion of the Board of Directors.
1995 INCENTIVE STOCK OPTION PLAN
On April 29, 1994, the shareholders approved a qualified incentive stock
option plan to certain key employees. In connection with the Company's holding
company reorganization and share exchange in which all of the Company's
stockholders became stockholders of the Company, the Company adopted the
Republic
F-24
<PAGE> 95
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-25
<PAGE> 96
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AGGREGATE STOCK OPTION ACTIVITY
The Company adopted SFAS No. 123 for disclosure purposes in 1996. For SFAS
No. 123 purposes, the fair value of each option grant has been estimated as of
the date of grant using the Black-Scholes option pricing model with the
following assumptions (weighted averages) for 1997, 1996 and 1995: risk-free
interest rate of 5.35%, 6.50% and 6.03%, respectively, expected life of seven
years, dividend rate of zero percent, and expected volatility of 30.9% for 1997
and 25% for 1996 and 1995. The approximate fair value of the stock options
granted in 1997, 1996, and 1995 is $959,000, $1,583,000 and $347,000,
respectively, which would be amortized as compensation expense over the vesting
period of the options. Options vest equally over five years. Had compensation
cost been determined consistent with SFAS No. 123, utilizing the assumptions
detailed above, the Company's net income and earnings per share as reported
would have been the following pro forma amounts (in thousands except share
data):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net Income
As reported............................................... $8,571 $4,879 $6,916
Pro Forma................................................. 8,210 4,683 6,873
Earnings per share-diluted
As reported............................................... 1.21 .74 1.10
Pro forma................................................. 1.16 .71 1.10
Earnings per share-basic
As reported............................................... 1.40 .83 1.26
Pro forma................................................. 1.34 .80 1.25
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that expected in future years. A summary of
the status of the Company's stock option plans at December 31, 1997, 1996 and
1995, and for the years then ended is presented in the table below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
WTD AVG WTD AVG WTD AVG
SHARES EX PRICE SHARES EX PRICE SHARES EX PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Fixed Options
Outstanding -- beg. of year....... 196,470 $11.87 131,810 $11.00 81,500 $ 8.75
Granted........................... 82,999 25.94 70,900 13.63 59,700 14.00
Exercised......................... (21,300) 11.80 -- -- (3,170) 9.58
Forfeited/Expired................. (6,920) 13.04 (6,240) 13.42 (6,220) 11.06
------- ------- -------
Outstanding -- end of year........ 251,249 16.38 196,470 11.87 131,810 11.00
======= ======= =======
Exercisable -- end of year........ 118,979 12.52 92,530 10.29 45,112 9.07
Wtd. avg. fair value of options
granted......................... 11.91 5.84 5.81
Performance Options
Outstanding -- beg. of year....... 200,000 $13.63 200,000 $13.63 -- --
Granted........................... -- -- -- -- -- --
Exercised......................... -- -- -- -- -- --
Forfeited/Expired................. (40,000) 13.63 -- -- -- --
------- ------- -------
Outstanding -- end of year........ 160,000 13.63 200,000 13.63 -- --
======= ======= =======
Exercisable -- end of year........ -- -- -- -- -- --
Wtd. avg. fair value of options
granted......................... -- 5.84 --
</TABLE>
F-26
<PAGE> 97
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------- -------------------------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER EXERCISABLE
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE AT WEIGHTED-AVERAGE
EXERCISE PRICE AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE 12/31/97 EXERCISE PRICE
- -------------- ---------------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
2.13 2,499 1.00 years $ 2.13 2,499 $ 2.13
5.40-10.50 61,610 5.89 years 8.02 54,040 7.67
13.63-14.00 266,640 8.19 years 13.69 46,340 13.83
26.68 80,500 9.79 years 26.68 16,100 26.68
</TABLE>
15. EARNINGS PER SHARE:
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Diluted earnings per common and common equivalent share has been computed
by dividing net income by the weighted average common and common equivalent
shares outstanding during the periods. The weighted average common and common
equivalent shares outstanding has been adjusted to include the number of shares
that would have been outstanding if the stock options granted had been
exercised, at the average market price for period, with the proceeds being used
to buy shares from the market (i.e., the treasury stock method) and the
perpetual preferred stock and the convertible subordinated debentures had been
converted to common stock at the earlier of the beginning of the year or the
issue date (i.e., the if-converted method). Basic earnings per common share was
computed by dividing net income by the weighted average 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>
F-27
<PAGE> 98
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<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..................................... $.074 $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
F-28
<PAGE> 99
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
indicators of capital strength in evaluating proposals for expansion or new
activities. The Bank had previously undertaken in writing to the FDIC to achieve
a Leverage Ratio of at least 5.50% by September 30, 1995, which it did, and will
consider raising additional capital or reducing internal growth should the ratio
fall below that level in the future. The Company's leverage ratio requirement
remains at 5.00%. Other than the foregoing commitment, the Bank has not been
advised by the FDIC of any specific minimum capital ratio requirement applicable
to it.
Failure to meet capital guidelines could subject a bank or a bank holding
company to a variety of enforcement remedies, including issuance of a capital
directive, the termination of deposit insurance by the FDIC, a prohibition on
the taking of brokered deposits, and certain other restrictions on its business.
Substantial additional restrictions can be imposed upon FDIC-insured depository
institutions that fail to meet applicable capital requirements under the federal
prompt corrective action regulations.
As of December 31, 1997 and 1996, the Company and the Bank were considered
"well capitalized" under the federal banking agencies for prompt corrective
action regulations. Regulatory capital ratios for 1996 have not been restated to
include FFO, as the accounting methodology for a pooling of interest does not
apply under regulatory guidelines. The table which follows sets forth the
amounts of capital and capital ratios of the Company and the Bank as of December
31, 1997 and 1996, and the applicable regulatory minimums (in thousands):
<TABLE>
<CAPTION>
COMPANY BANK
----------------- -----------------
AMOUNT RATION AMOUNT RATIO
-------- ------ -------- ------
<S> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997:
RISK-BASED CAPITAL:
Tier 1 Capital
Actual....................................... $101,350 10.05% $103,162 10.25%
Minimum required to be "Adequately
Capitalized"............................... 40,329 4.00 40,265 4.00
Excess over minimum to be "Adequately
Capitalized"............................... 61,021 6.05 62,897 6.25
To be "Well Capitalized"..................... 60,494 6.00 60,398 6.00
Excess over "Well Capitalized"
requirements............................... 40,856 4.05 42,764 4.25
Total Capital
Actual....................................... 117,603 11.66 115,983 11.52
Minimum required to be "Adequately
Capitalized"............................... 80,658 8.00 80,530 8.00
Excess over minimum to be "Adequately
Capitalized"............................... 36,945 3.66 35,453 3.52
To be "Well Capitalized"..................... 100,823 10.00 100,663 10.00
Excess over "Well Capitalized"
requirements............................... 16,780 1.66 15,320 1.52
TIER 1 CAPITAL TO TOTAL ASSETS (LEVERAGE):
Actual.......................................... 101,350 6.94 103,162 7.07
Minimum required to be "Adequately
Capitalized"................................. 58,456 4.00 58,392 4.00
Excess over minimum to be "Adequately
Capitalized"................................. 42,894 2.94 44,770 3.07
To be "Well Capitalized"........................ 73,070 5.00 72,990 5.00
Excess over "Well Capitalized" requirements..... 28,280 1.94 30,172 2.07
</TABLE>
F-29
<PAGE> 100
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
COMPANY BANK
----------------- -----------------
AMOUNT RATION AMOUNT RATIO
-------- ------ -------- ------
<S> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
RISK-BASED CAPITAL:
Tier 1 Capital
Actual....................................... $ 51,325 8.82% $ 57,113 9.82%
Minimum required to be "Adequately
Capitalized"............................... 23,268 4.00 23,260 4.00
Excess over minimum to be "Adequately
Capitalized"............................... 28,057 4.82 33,853 5.82
To be "Well Capitalized"..................... 34,902 6.00 34,890 6.00
Excess over "Well Capitalized"
requirements............................... 16,423 2.82 22,223 3.82
Total Capital
Actual....................................... 64,630 11.11 64,418 11.08
Minimum required to be "Adequately
Capitalized"............................... 46,536 8.00 46,519 8.00
Excess over minimum to be "Adequately
Capitalized"............................... 18,094 3.11 17,899 3.08
To be "Well Capitalized"..................... 58,170 10.00 58,149 10.00
Excess over "Well Capitalized"
requirements............................... 6,460 1.11 6,269 1.08
TIER 1 CAPITAL TO TOTAL ASSETS (LEVERAGE):
Actual.......................................... 51,325 5.90 57,113 6.57
Minimum required to be "Adequately
Capitalized"................................. 34,807 4.00 34,798 4.00
Excess over minimum to be "Adequately
Capitalized"................................. 16,518 1.90 22,315 2.57
To be "Well Capitalized"........................ 43,509 5.00 47,848 5.50
Excess over "Well Capitalized" requirements..... 7,816 0.90 9,265 1.07
</TABLE>
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
F-30
<PAGE> 101
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-31
<PAGE> 102
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. BANK HOLDING COMPANY FINANCIAL STATEMENTS:
Condensed financial statements of the Company (Republic Bancshares, Inc.)
at December 31 are presented below. Amounts shown as investment in the
wholly-owned subsidiaries and equity in earnings of subsidiaries are eliminated
in consolidation.
REPUBLIC BANCSHARES, INC.
PARENT-ONLY CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1997 1996
-------- -------
<S> <C> <C>
ASSETS
Cash...................................................... $ -- $ --
Investment in wholly-owned subsidiaries................... 124,307 80,391
Prepaid issuance costs -- subordinated debt............... -- 212
-------- -------
Total............................................. $124,307 $80,603
======== =======
LIABILITIES
Subordinated debt......................................... $ -- $ 6,000
Junior subordinated debt to subsidiary.................... 28,750 --
Intercompany payable to subsidiary........................ 26 --
Accrued interest on subordinated debt..................... -- 4
-------- -------
Total liabilities................................. -- 4
Minority interest......................................... -- 6,421
STOCKHOLDERS' EQUITY
Perpetual preferred convertible stock..................... 1,500 1,500
Common stock.............................................. 14,072 11,708
Capital surplus........................................... 50,322 34,225
Retained earnings......................................... 29,155 20,847
Unrealized gains (losses) on available-for sale
securities............................................. 482 (102)
Total stockholders' equity........................ 95,531 68,178
-------- -------
Total............................................. $124,307 $80,603
======== =======
</TABLE>
REPUBLIC BANCSHARES, INC.
PARENT-ONLY CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1997 1996
-------- -------
<S> <C> <C>
INCOME
Dividends from bank....................................... $ 828 $ 264
Interest expense on subordinated debt..................... (392) (5)
Interest on borrowings from subsidiary.................... (1,090) --
Equity in undistributed net income of subsidiary.......... 9,225 4,620
------- ------
Net income........................................ $ 8,571 $4,879
======= ======
</TABLE>
F-32
<PAGE> 103
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PARENT-ONLY CONDENSED CASH FLOW STATEMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 8,571 $ 4,879
Adjustments to reconcile net income to net cash (Used in)
provided by operating activities:
Equity in undistributed net income of subsidiary.......... (9,225) (4,620)
Net decrease (increase) in other assets................... 212 --
Net increase (decrease) in other liabilities.............. 22 5
-------- --------
Net cash (used in) provided by operating
activities:..................................... (420) 264
-------- --------
INVESTMENT ACTIVITIES:
Equity investment in banking subsidiary................... (33,322) (56,648)
Equity investment in trust subsidiary..................... (889) --
Equity investment in insurance subsidiary................. (10) --
-------- --------
Net cash used in investing activities:............ (34,221) (56,648)
-------- --------
FINANCING ACTIVITIES:
Issuance of stock in merger............................... 12,374 50,860
Decrease in minority interest............................. (6,421) --
Increase in retained earnings from merger................. 1 --
Conversion/Issuance of subordinated debt.................. (152) 5,788
Proceeds from exercise of stock options................... 240 --
Proceeds of borrowings from subsidiary.................... 28,750 --
Dividend payments on perpetual preferred stock............ (264) (264)
-------- --------
Net cash provided by financing activities......... 34,528 56,384
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ -- --
======== ========
Cash balance beginning...................................... -- --
======== ========
Cash balance ending......................................... -- --
======== ========
</TABLE>
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
F-33
<PAGE> 104
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
(DOLLARS 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>
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
F-34
<PAGE> 105
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase price of approximately $37.5 million, based on the most recent data
available (the "NationsBank Subsidiary Acquisition"). The first purchase and
assumption agreement (the "Florida Agreement") is for three NationsBank
Subsidiary and four Barnett Subsidiary branches located throughout Florida (the
"Florida Branches"), consisting of three in Monroe County (Key West, Marathon
and Plantation Key), two in Marion County (Ocala and Silver Springs), one in
Columbia County (Lake City) and one in Suwannee County (Live Oak). The second
purchase and assumption agreement (the "Georgia Agreement" and with the Florida
Agreement, collectively, the "NationsBank Subsidiary Agreements") is for a
Barnett Subsidiary branch located in Glynn County, Georgia (the "Georgia Branch"
and with the "Florida Branches," collectively, the "NationsBank Subsidiary
Branches"). At August 31, 1997, the Florida Branches had deposit liabilities of
$225.5 million and loans of $163.9 million, and the Georgia Branch had deposit
liabilities of $24.2 million and loans of $19.4 million. The NationsBank
Subsidiary Acquisition will be accounted for using purchase accounting rules.
BANKERS SAVINGS BANK
In February 1998, the Company and Bankers Savings Bank, Inc. ("BSB"), Coral
Gables, Florida, entered into a definitive agreement (the "BSB Agreement") for
the merger of BSB into the Bank stock by the Company (the "BSB Acquisition") at
an exchange ratio of 0.54 of a share of the Company's Common Stock for each
share of BSB's Common Stock, subject to certain changes in the price of the
Company's Common Stock and a final valuation of BSB's headquarters building. BSB
has two branches in Dade County and, as of December 31, 1997, had total assets
of $67.1 million, total loans of $47.4 million and total deposits of $56.0
million. It is anticipated that the BSB Acquisition will be accounted for as a
pooling of interests. The BSB Acquisition may be terminated by either BSB or the
Company if it is not consummated by November 1, 1998.
DIME SAVINGS BANK
In March 1998, the Company entered into an agreement with Dime Savings
Bank, F.S.B. (the "DSB Agreement" and "DSB", respectively), to acquire a DSB
branch in Deerfield Beach, Florida (Broward County) and to assume the deposits
and other liabilities of approximately $192.5 million, assume the leasehold on
the branch property and purchase the personal property and equipment of the
branch for $100,000. The transaction will be accounted for using purchase
accounting rules and must be consummated within 30 days of receiving regulatory
approval.
F-35
<PAGE> 106
======================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER
TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 1
Risk Factors.......................... 8
Use of Proceeds....................... 17
Price Range of Common Stock........... 17
Capitalization........................ 18
Proposed Acquisitions................. 19
Combined Financial Data............... 21
Selected Consolidated Financial
Data................................ 23
Management's Discussion and Analysis
Financial Condition and Results of
Operations.......................... 25
Business.............................. 41
Management............................ 61
Principal Stockholders................ 62
Description of Capital Stock.......... 63
Underwriting.......................... 64
Legal Matters......................... 66
Experts............................... 66
Available Information................. 66
Incorporation of Certain Documents by
Reference........................... 66
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
(REPUBLIC BANCSHARES LOGO)
2,000,000 SHARES
REPUBLIC BANCSHARES, INC.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
WILLIAM R. HOUGH & CO.
RYAN, BECK & CO.
, 1998
======================================================
<PAGE> 107
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 22,561.00
Nasdaq National Market additional listing fee...............
Printing and engraving expenses*............................
Accounting fees and expenses*...............................
Legal fees and expenses*....................................
Blue Sky fees and expenses*.................................
Miscellaneous*..............................................
-----------
Total.............................................
===========
</TABLE>
- ---------------
* Estimate.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Florida corporation. The Florida Business Corporation Act
("FBCA") provides that, in general, a business corporation may indemnify any
person who is or was a party to any proceeding (other than an action by, or in
the right of, the corporation) by reason of the fact that he is or was a
director or officer of the corporation, against liability incurred in connection
with such proceeding, including any appeal thereof, provided certain standards
are met, including that such officer or director acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation, and provided further that, with respect to any criminal action
or proceeding, the officer or director had no reasonable cause to believe his
conduct was unlawful. In the case of proceedings by or in the right of the
corporation, the FBCA provides that, in general, a corporation may indemnify any
person who was or is a party to any such proceeding by reason of the fact that
he is or was a director or officer of the corporation against expenses and
amounts paid in settlement actually and reasonably incurred in connection with
the defense or settlement of such proceeding, including any appeal thereof,
provided that such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be made in respect of any claim as to which
such person is adjudged liable unless a court of competent jurisdiction
determines upon application that such person is fairly and reasonably entitled
to indemnity. To the extent that any officers or directors are successful on the
merits or otherwise in the defense of any of the proceedings described above,
the FBCA provides that the corporation is required to indemnify such officers or
directors against expenses actually and reasonably incurred in connection
therewith. However, the FBCA further provides that, in general, indemnification
or advancement of expenses shall not be made to or on behalf of any officer or
director if a judgment or other final adjudication establishes that his actions,
or omissions to act, were material to the cause of action so adjudicated and
constitute: (i) a violation of the criminal law, unless the director or officer
had reasonable cause to believe his conduct was lawful or had no reasonable
cause to believe it was unlawful; (ii) a transaction from which the director or
officer derived an improper personal benefit; (iii) in the case of a director, a
circumstance under which the director has voted for or assented to a
distribution made in violation of the FBCA or the corporation's articles of
incorporation; or (iv) willful misconduct or a conscious disregard for the best
interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or in the
right of a shareholder. Article V of the Company's Bylaws provides that the
Company shall indemnify any director, officer, employee or agent or any former
director, officer, employee or agent to the full extent permitted by Florida
law. The Company has purchased insurance with respect to, among other things,
certain liabilities that may arise under the statutory provisions referred to
above.
II-1
<PAGE> 108
ITEM 16. EXHIBITS
The following exhibits either are filed herewith or incorporated by
reference to documents previously filed or will be filed by amendment, as
indicated below:
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<C> <C> <S>
1 -- Form of Underwriting Agreement.*
4.1 -- Amended and Restated Articles of Incorporation of the
Company (incorporated by reference from Exhibit 3.1 of the
Company's Registration Statement on Form S-4, File No.
33-80895, dated December 28, 1995).
4.2 -- Bylaws of the Company (incorporated by reference from
Exhibit 3.2 of the Company's Registration Statement on Form
S-4, File No. 33-80895, dated December 28, 1995).
5 -- Opinion of Holland & Knight LLP.*
10.1 -- Purchase and Assumption Agreement relating to the Florida
Branches, between NationsBank Corporation and the Company,
dated December 15, 1997 (incorporated by reference from
Exhibit 10.1 of the Company's Annual Report on Form 10-K/A,
filed on April 13, 1998).
10.2 -- Purchase and Assumption Agreement relating to the Georgia
Branch, between NationsBank Corporation and the Company,
dated December 15, 1997 (incorporated by reference from
Exhibit 10.1 of the Company's Annual Report on Form 10-K/A,
filed on April 13, 1998).
10.3 -- Purchase and Assumption Agreement between Dime Savings Bank,
F.S.B. and the Company, dated March 24, 1998.
10.4.1 -- Agreement and Plan of Merger between Bankers Savings Bank,
F.S.B. and the Company dated March 2, 1998.
10.4.2 -- First Amendment to Agreement and Plan of Merger between
Bankers Savings Bank, F.S.B. and the Company dated March ,
1998.
23.1 -- Consent of Holland & Knight LLP (included in Exhibit 5.1).*
23.2 -- Consent of Arthur Andersen LLP.
24 -- Power of Attorney (included with signature pages to this
Registration Statement).
27 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 109
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Tampa, State of Florida, on
April 13, 1998.
REPUBLIC BANCSHARES, INC.
By: /s/ JOHN W. SAPANSKI
------------------------------------
John W. Sapanski
Chairman of the Board of Directors,
Chief Executive Officer, and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John W. Sapanski and William R. Falzone and each
of them acting alone, his true and lawful attorneys-in-fact and against, each
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments,
including post-effective amendments, to this Registration Statement, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each said attorneys-in-fact and agents or any
of them, or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN W. SAPANSKI Chairman, Chief Executive April 13, 1998
- -------------------------------------------------- Officer and Director
John W. Sapanski (Principal Executive Officer)
/s/ WILLIAM R. FALZONE Treasurer (Principal Financial April 13, 1998
- -------------------------------------------------- and Accounting Officer)
William R. Falzone
/s/ FRED HEMMER Director April 13, 1998
- --------------------------------------------------
Fred Hemmer
Director
- --------------------------------------------------
Marla Hough
/s/ WILLIAM R. HOUGH Director April 13, 1998
- --------------------------------------------------
William R. Hough
/s/ ALFRED T. MAY Director April 13, 1998
- --------------------------------------------------
Alfred T. May
/s/ WILLIAM J. MORRISON Director April 13, 1998
- --------------------------------------------------
William J. Morrison
</TABLE>
II-3
<PAGE> 110
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- -------- -----------
<C> <C> <S>
1 -- Form of Underwriting Agreement.*
4.1 -- Amended and Restated Articles of Incorporation of the
Company (incorporated by reference from Exhibit 3.1 of the
Company's Registration Statement on Form S-4, File No.
33-80895, dated December 28, 1995).
4.2 -- Bylaws of the Company (incorporated by reference from
Exhibit 3.2 of the Company's Registration Statement on Form
S-4, File No. 33-80895, dated December 28, 1995).
5 -- Opinion of Holland & Knight LLP.*
10.1 -- Purchase and Assumption Agreement relating to the Florida
Branches, between NationsBank Corporation and the Company,
dated December 15, 1997 (incorporated by reference from
Exhibit 10.1 of the Company's Annual Report on Form 10-K/A,
filed on April 13, 1998).
10.2 -- Purchase and Assumption Agreement relating to the Georgia
Branch, between NationsBank Corporation and the Company,
dated December 15, 1997 (incorporated by reference from
Exhibit 10.1 of the Company's Annual Report on Form 10-K/A,
filed on April 13, 1998).
10.3 -- Purchase and Assumption Agreement between Dime Savings Bank,
F.S.B. and the Company, dated March 24, 1998.
10.4.1 -- Agreement and Plan of Merger between Bankers Savings Bank,
F.S.B. and the Company dated March 2, 1998.
10.4.2 -- First Amendment to Agreement and Plan of Merger between
Bankers Savings Bank, F.S.B. and the Company dated March ,
1998.
23.1 -- Consent of Holland & Knight LLP (included in Exhibit 5.1).*
23.2 -- Consent of Arthur Andersen LLP.
24 -- Power of Attorney (included with signature pages to this
Registration Statement).
27 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 10.3
PURCHASE AND ASSUMPTION AGREEMENT
Purchase and Assumption Agreement dated as of March 24, 1998, between
Republic Bank, with executive offices at 111 2nd Avenue N.E., Suite 300, St.
Petersburg, Florida 33701 ("Purchaser"), and The Dime Savings Bank of New York,
FSB, a federally-chartered savings bank with executive offices at 589 Fifth
Avenue, New York, New York 10017 ("Seller").
WITNESSETH:
WHEREAS, Seller operates a branch office located at 1327 South Military
Trail, Deerfield Beach, Florida 33442(the "Branch Office"); and
WHEREAS, Seller desires to sell and Purchaser desires to acquire and
operate the Branch Office, and in this regard, Seller desires to sell and
Purchaser desires to acquire certain assets relating thereto, including all
right, title, and interest of Seller in the real estate leased by Seller and
used in connection with the Branch Office, certain personal property used in the
operation of the Branch Office, and all passbook loans, if any, maintained at
the Branch Office, all as set forth in this Agreement upon the terms and
conditions set forth herein; and
WHEREAS, Seller desires to assign to Purchaser and Purchaser desires to
assume from Seller certain liabilities relating to the Branch Office, including
certain obligations and liabilities relating to the deposits of the Branch
Office maintained at the
<PAGE> 2
Branch Office, and certain other obligations of Seller relating to the Branch
Office or the maintenance and operation thereof, all as set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants, representations, warranties and agreements herein contained, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS AND ASSIGNMENT AND ASSUMPTION OF LIABILITIES
Section 1.1 Purchase and Sale of Assets. Upon the terms and subject to the
conditions set forth in this Agreement, Seller shall sell, convey, assign,
transfer, and deliver to Purchaser, and Purchaser shall purchase and accept from
Seller, certain assets relating to the Branch Office, as follows:
(a) Real Property. Except to the extent covered by paragraph (b) of
this Section, all of Seller's interest in the land, buildings, and fixtures,
leasehold improvements, including security equipment pertaining to the Branch
Office pursuant to the terms and conditions of Assignment Agreement attached
hereto as Exhibit A (the "Real Property").
-2-
<PAGE> 3
(b) Personal Property. The personal property, including all furniture,
fixtures, leasehold improvements, and equipment not otherwise covered by
paragraph (a), associated with the Branch Office (the "Personal Property"). It
is understood that Purchaser will acquire the EDP equipment associated with the
Branch Office; and
(c) Loans. The passbook loans or account loans maintained at the Branch
Office which are outstanding as of the close of business on the Closing Date (as
hereinafter defined) on which any of the deposits being transferred hereunder
have been pledged as collateral (the "Loans"). No other loans maintained at the
Branch Office will be transferred; provided, however, that Purchaser may elect
to purchase and accept the overdraft checking credit lines and related balances
thereon maintained at the Branch Office. This election shall be made in writing
not later than thirty (30) days prior to the Closing. If Purchaser does not make
such election, Seller shall have the right to terminate any such agreements (and
to convert any balances then outstanding under such agreements to loans, on such
terms as Seller, in its sole discretion, may determine) or to transfer any such
agreements and any related deposit accounts from the Branch Office to any other
branches of Seller. All Loans shall be transferred without recourse and without
any warranties or
-3-
<PAGE> 4
representations regarding the collectability of such Loans or the
creditworthiness of the debtors.
(d) Cash. All cash on hand at the Branch Office on the date of Closing.
Section 1.2 Assignment and Assumption of Liabilities. Upon the terms and
subject to the conditions set forth in this Agreement, Seller shall assign to
Purchaser, and Purchaser shall accept and assume from Seller, certain
liabilities relating to the Branch Office, as follows:
(a) Deposit Liabilities. All liabilities for payment of all savings
accounts, all certificates of deposit, all negotiable orders of withdrawal
accounts all demand deposit accounts, all money market deposit accounts, and all
other deposits or savings accounts, maintained at the Branch Office according to
their respective terms, as of the close of business on the Closing Date,
together with interest accrued thereon but unpaid as of the Closing Date (the
"Deposits" or "Deposit Liabilities"). It is agreed and understood that Seller
shall have the right to transfer to another of its branches any deposit not
assumed by Purchaser hereunder;
(b) Lease Obligations. The obligations and liabilities of Seller under
the lease dated October 1, 1997, between Sawgrass Promenade, Inc., as Landlord,
and Seller, as
-4-
<PAGE> 5
Tenant (the "Lease"). A copy of the Lease, as currently in force, has been
provided to Purchaser. Seller has agreed to assign and Purchaser has agreed to
accept and assume all obligations of Seller under the Lease pursuant to the
Assignment Agreement attached hereto as Exhibit A.
(c) Contracts. The obligations and liabilities of Seller under the
contracts associated with the Branch Office. Seller shall provide Purchaser with
a schedule of such contracts within 10 days of the date of this Agreement.
Section 1.3 Transfer Payment.
(a) Amount. In connection with the acquisition by Purchaser from Seller
of the assets of the Branch Office as provided for herein, and the assumption by
Purchaser from Seller of the Deposits and other liabilities of the Branch Office
as provided for herein, Seller shall transfer to Purchaser an amount (the
"Transfer Payment") equal to:
(i) the aggregate amount of Deposit Liabilities of the Branch Office
outstanding as of the close of business on the Closing Date,
together with all accrued but unpaid interest thereon, which
interest shall be accrued according to the deposit agreements in
effect as of the close of business on the Closing Date and in the
manner customarily
-5-
<PAGE> 6
used by the Seller to accrue interest; minus (ii) the sum of the
following amounts: (1) a premium in the amount of Nine Million Seven
Hundred Eighty Eight Thousand Four Hundred Ninety Six and 00/100
dollars ($9,788,496.00), representing four and eight tenths percent
(4.8%) of $203,927,000, the amount of deposits, rounded to the
nearest thousand, at the Branch as of the close of business February
28, 1998. Seller shall endeavor through best efforts in marketing
interest rates paid on deposit products to maintain the deposit
liabilities of the Branch at a level of approximately $203,927,000.
Notwithstanding this objective, the premium will be adjusted as
follows: (aa) If the aggregate balance of deposit liabilities,
including accrued interest but excluding non-consumer certificates
of deposit of $100,000 or more with negotiated rates ("Wholesale
Certificates of Deposit"), of the Branch to be assumed by the
Purchaser at the close of business on the last day of the month
preceding the Closing Date (the "Measurement Date") exceeds
$208,927,000, the premium shall be increased in an
-6-
<PAGE> 7
amount equal to four and eight tenths percent (4.8%) of the amount
of deposits in excess of $208,927,000 on the Measurement Date. (bb)
If the aggregate balance of deposit liabilities, including accrued
interest but excluding Wholesale Certificates of Deposit of the
Branch is at the close of business on the Measurement Date less than
$198,927,000, the premium shall be decreased in an amount equal to
four and eight tenths percent (4.8%) of the amount that $198,927,000
exceeds the actual aggregate balance of such deposits on the
Measurement Date; (2) One Hundred Thousand and 00/100 ($100,000.00)
for the Personal Property, leasehold improvements, and fixtures, to
be conveyed hereunder; (3) the principal amount of the Loans and the
outstanding balances on any overdraft checking lines of credit
assumed by Purchaser and the accrued interest thereon as of the
close of business on the Closing Date; and (5) the cash balances on
hand in the Branch Office as of the close of business on the Closing
Date, as determined by any method mutually agreeable to the parties
hereto. This sum shall be adjusted by the
-7-
<PAGE> 8
amount of prorations, as provided for in Section 1.4 hereof.
(b) Method of Payment. Seller shall make the Transfer Payment to
Purchaser as follows:
(i) On the Closing Date, Seller shall transfer to Purchaser, by wire
transfer of immediately available funds as directed by Purchaser, an
amount which Seller estimates to be the amount of the Transfer
Payment, based upon the Seller's books and records as of the close
of business on the day preceding the Closing Date; and (ii) if
necessary, on a date not more than ten (10) calendar days after the
Closing Date (the "Adjustment Payment Date"), Seller shall transfer
to Purchaser or Purchaser shall transfer to Seller, as appropriate,
an amount (the "Adjustment Payment"), such that the net amount paid
by Seller to Purchaser under this Section 1.3 shall equal the
Transfer Payment. Any Adjustment Payment due to either party on the
Adjustment Payment Date under this Section 1.3 shall be paid to such
party by wire transfer of immediately available funds as directed by
the payee party and shall include
-8-
<PAGE> 9
interest at the Federal Funds Rate (as hereinafter defined) for the
period from the Closing Date to, and including, the Adjustment
Payment Date. As used herein, the term "Federal Funds Rate" shall
mean the interest rate quoted in the Wall Street Journal at the
opening of business on the Closing Date for inter-bank placements
with a maturity of one (1) day.
Section 1.4. Prorations. It is the intention of the parties hereto that
Seller shall operate for its own account the business being transferred pursuant
to this Agreement until the close of business on the Closing Date, and that
Purchaser shall operate for its own account the business being transferred
pursuant to this Agreement from and after the close of business on the Closing
Date. Thus, except as otherwise specifically provided in this Agreement, items
of income and expense shall be prorated between the parties hereto as of the
close of business on the Closing Date, whether or not such adjustment would
normally be made as of such time.
Section 1.5. Closing Date; Closing. The closing hereunder (as defined
immediately below) shall occur as of the start of business on the Closing Date.
As used herein, the term "Closing Date" shall mean the first date mutually
acceptable to the
-9-
<PAGE> 10
parties hereto following, as soon as possible, the receipt by the parties hereto
of all governmental and regulatory approvals necessary to the completion of the
transfers contemplated herein, which date shall not be later than thirty (30)
days after the receipt of all regulatory approvals required hereunder, unless
otherwise consented to by the parties hereto in writing (which consents shall
not be unreasonably withheld). Delivery of the instruments of assignment and
transfer to be delivered by Seller and payment of the estimated Transfer Payment
by Seller, delivery of the instruments of assumption to be delivered by
Purchaser, and the other transactions herein contemplated to take place
concurrently with such deliveries, assumptions, and payments (the "Closing"),
shall take place on the Closing Date, at such time and place as are agreed to by
the parties, and all such shall be effective as of the close of business on the
Closing Date; provided that any funds to be paid by Seller to Purchaser on the
Closing Date shall be paid by wire transfer of immediately available funds on
the Closing Date as early as possible and, in any event, before 3:00 p.m.
Eastern Time, on the Closing Date. Any deliveries, assignments, or transfers
required under this Agreement, other than the foregoing, shall be made at the
time and date specified in this Agreement (and where no time is specified, on or
before the close of business on the date
-10-
<PAGE> 11
specified) and in the manner and place specified in this Agreement (or, where
not specified, in the manner and place as may be reasonably requested in writing
by the party that is to receive such delivery, assignment or transfer).
Section 1.6 Fiduciary Relationships. As part of the assignment of Deposits
contemplated herein, Seller will assign to Purchaser, and Purchaser will assume
from Seller, all Individual Retirement Account ("IRA") and Defined Contribution
Plan (Keogh or Corporate) Deposits maintained at the Branch Office at Closing,
together with all fiduciary relationships, obligations, and duties of Seller
arising therefrom. Seller, in its capacity as Trustee of the IRA and Keogh
Deposits-being assumed by Purchaser hereunder, shall to the extent legally
permissible resign as Trustee and appoint and designate Purchaser as Successor
Trustee of such Deposits, effective as of Closing, and Purchaser shall accept
such appointment and designation.
Section 1.7 Inspection of Personal Property. The Personal Property to be
transferred hereunder shall be transferred in "as is" condition. Purchaser's
obligations hereunder are expressly subject to its, or its agent's, favorable
inspection of the Personal Property; provided, however, that Purchaser must
notify Seller in writing within ten (10) business days from the date of this
Agreement of any defects in the
-11-
<PAGE> 12
condition of the Personal Property unacceptable to it. Seller then shall have
ten (10) days from the date of this notice to decide whether to correct the
defects identified by Purchaser, in which case Seller shall act as expeditiously
as possible to correct such defects, or to terminate this Agreement. Any
objections of the Purchaser to the condition of the Personal Property to be
transferred hereunder (including any future demands for indemnification under
this Agreement) which are not raised within the time period specified above
shall be deemed waived.
ARTICLE II
REPRESENTATIONS, WARRANTIES, AND COVENANTS OF SELLER Seller represents,
warrants, and covenants to Purchaser as follows:
Section 2.1 Organization. Seller is a federal savings bank, duly
organized, validly existing, and in good standing under the laws of the United
States.
Section 2.2 Authority. Seller has the power and authority to enter into
and perform this Agreement. On or before the Closing Date, this Agreement and
the execution, delivery, and performance hereof will be duly authorized and
approved by the Board of Directors of Seller. This Agreement constitutes a valid
and binding obligation of Seller, enforceable against Seller in
-12-
<PAGE> 13
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws of general applicability
relating to or affecting creditors' rights, or by general equitable principles.
Section 2.3 Non-Contravention. The execution and delivery of this
Agreement by Seller do not and, subject to the receipt of all required approvals
and consents, the consummation of the transactions contemplated by this
Agreement will not constitute: (a) a breach or violation of or default under any
law, rule, regulation, judgment, order, governmental permit or license,
agreement, indenture, or instrument of Seller or to which Seller is subject,
which breach, violation, or default would have a material adverse effect on the
business or properties of the Branch Office; or (b) a breach or violation of or
a default under the Charter or By-Laws of Seller or any material contract or
other instrument to which Seller is a party or by which Seller is bound.
Section 2.4 Compliance with Law. The business and operations of the Branch
Office, to the best of Seller's knowledge, have been and are being conducted in
accordance with all material applicable laws, rules, and regulations of all
relevant authorities including, without limitation, proper interest reporting
and withholding.
-13-
<PAGE> 14
Section 2.5 Financial Information.
(a) All financial information previously furnished or to be furnished
by Seller to Purchaser in connection with the transactions contemplated in this
Agreement, to the best of Seller's knowledge, was or will be accurate and
complete in all material respects as of the dates and for the periods specified
therein;
(b) The books of account of the Branch Office fairly and accurately
reflect the respective assets and liabilities of the Branch Office in accordance
with generally accepted accounting principles, or regulatory accounting
principles, whichever is applicable and, in any case, consistently applied, and
there are no material assets or liabilities, contingent or otherwise, that are
not reflected therein;
(c) The books of account of the Branch Office have been, and are being,
maintained in accordance with applicable legal and accounting requirements and
reflect only actual transactions, and without limiting the foregoing, the
Deposits reflected as of the date of this Agreement on the books of account of
the Branch Office are valid and binding Deposits, subject to applicable
bankruptcy and insolvency laws, and such Deposits were generated in the ordinary
course of business of the Branch Office in compliance and in accordance with
applicable law
-14-
<PAGE> 15
and regulations and have been recorded on the books of account of the Branch
Office in accordance with the accounting principles described in Section 2.5
herein;
Section 2.6 Legal Proceedings. Except as indicated on Exhibit C to this
Agreement, there are no material actions, suits, or proceedings, whether civil,
criminal or administrative, pending or, to the knowledge of Seller, threatened
against or affecting Seller which may cause any material adverse change in the
aggregate value of the Real Property, the Personal Property, the Branch Office
generally, or in the amount of the Deposit Liabilities, or which have or may
have a material adverse impact on Seller's obtaining the regulatory approvals
Seller is required to obtain as a condition to the lawful consummation of the
transactions contemplated by this Agreement. Exhibit C shows all outstanding
actions or proceedings, pending or threatened, involving the Branch Office and
involving the assets to be conveyed or the liabilities to be assumed hereunder.
Section 2.7 Taxes. All property taxes imposed by the United States or by
any state, municipality, subdivision, or instrumentality of the United States,
or by any other taxing authority, which are due or payable by Seller with
respect to the Branch Office as of the start of business on the Closing Date, to
the best of Seller's knowledge, will have been paid in full or
-15-
<PAGE> 16
properly accrued and adequately provided for by reserves shown in
the books and records of Seller.
Section 2.8 Access to Information.
(a) Periodic Information. In the interval between execution of this
Agreement and the Closing, Seller shall use its best efforts to provide
Purchaser with weekly periodic information concerning aggregate deposits of the
Branch Office (broken down by type of deposit account, maturity dates, or in
other respects, as appropriate) as produced by Seller in its normal course of
business;
(b) Access to Branch Office. As soon as possible after the execution of
this Agreement, Seller shall, to the extent permitted by law, afford the
officers, attorneys, accountants and other authorized representatives of
Purchaser reasonable access during normal business hours to Seller's books,
records, and other information pertaining to the Branch Office and the business
conducted by Seller thereat, including all files of Seller relating to the
Deposits and Loans to be assumed or acquired by Purchaser; and
(c) Deposit Tape. As soon as possible after the execution of this
Agreement, Seller shall furnish to Purchaser to the extent permitted by law, a
sample magnetic tape, containing all types of information respecting deposit
accounts and holders
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thereof at the Branch Office as may be reasonably necessary or appropriate if
Purchaser is to assume the Deposits as of the Closing and establish accounts for
the holders thereof immediately thereafter, and Seller shall cooperate with
Purchaser in adapting such magnetic tape or in implementing such other method of
information transfer as shall expedite the transfer of Deposits to Purchaser at
Closing.
Section 2.9 Confidentiality. Seller shall keep confidential the existence
and nature of this Agreement and the negotiations leading hereto (except in the
event and to the extent that such Agreement and negotiations must be disclosed
to obtain regulatory approvals, other required approvals, or may be publicly
disclosed in accordance with Section 8.2 hereof or are deemed necessary to
comply with the federal securities disclosure laws) and shall keep confidential
all information obtained by it from Purchaser in connection with the
transactions provided for herein, such confidentiality to survive termination or
consummation of this Agreement.
Section 2.10 Untrue Statements. No representation or warranty by Seller in
this Agreement or any statement or certificate furnished or to be furnished to
Purchaser pursuant hereto or in connection with the transactions contemplated
hereby contains or will contain any untrue statement of material fact,
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or omits or will omit to state any material fact necessary to make statements
contained herein or therein not misleading.
Section 2.11 Regulatory Approvals and Standards. Seller will use its best
efforts to obtain, and to assist Purchaser in obtaining, as expeditiously as
possible any regulatory approvals, acquiescences or consents required to be
obtained as a condition to the lawful consummation of the transactions
contemplated by this Agreement, and will proceed diligently and in good faith to
prepare and file as promptly as practicable after execution of this Agreement
all necessary applications of Seller for such regulatory approvals,
acquiescences and consents. As of the Closing Date, Seller will satisfy each and
all of the standards and requirements lawfully within its control imposed as a
condition to obtaining or necessary to comply with any such regulatory approval,
acquiescence, or, consent except for any such standard or requirement which
would, in the opinion of Seller, have a material adverse impact on Seller.
Section 2.12 Possession. Possession of the Branch Office shall be
delivered to Purchaser on the Closing Date, provided Purchaser has satisfied all
of its obligations under this Agreement.
Section 2.13 Solicitation of Accounts. During the period between the
execution hereof and one year after the Closing Date,
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Seller will not attempt to persuade its deposit customers at the Branch Office
to transfer deposits to any other branches of Seller, except that the foregoing
shall not prohibit such attempts to persuade or solicit deposits as may occur in
connection with advertising or solicitations by or on behalf of Seller directed
to the public generally or to persons who were on the Closing Date or who
thereafter become depositors of branch offices of Seller other than the Branch
Office being transferred under the terms of this Agreement. In addition, nothing
in this Section shall prevent Seller from forwarding such notices or
communications as may be specifically authorized or contemplated under Article
VIII of this Agreement. Nothing contained in this Section is to be construed to
prevent Seller from accepting deposits from existing customers of the Branch
Office as of the Closing Date who desire to maintain their relationships with
Seller and request that their deposits be moved to another branch office of
Seller.
Section 2.14 New Branch. The Seller shall not open a new retail banking
office within the market area of the Branch (defined as a 2 mile radius around
the Branch) for a period of 12 months following the Closing Date. This
restriction shall not preclude the Seller from acquiring or being acquired by
another financial institution which may have Branches within such market
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area.
Section 2.15 Corporate and Other Consents. Seller shall use its best
efforts to secure all necessary corporate and other non-regulatory consents
(excepting those involving Purchaser) and shall comply with all applicable laws,
regulations, and rulings in connection with this agreement and the consummation
of the transactions contemplated hereby.
Section 2.16 Conduct of Business Pending Closing. Between the date hereof
and the Closing Date, Seller shall cause the Branch Office to conduct its
operations according to the ordinary and usual course of business and shall
cause the Branch Office to maintain its records and books of account in a manner
that fairly and accurately reflects its assets and liabilities in accordance
with generally accepted accounting principles and between the date hereof and
the Closing Date, no action shall be taken by Seller with respect to the Branch
Office and no course of conduct shall be engaged in by Seller with respect to
the Branch Office which would have the effect of materially diminishing the
assets or materially adversely affecting the business, property, or financial
position of the Branch Office. Furthermore, except as may be expressly provided
for herein, or may be required to obtain regulatory approvals, or as otherwise
may be required by a regulatory authority to effect the purposes contemplated
herein,
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between the date of execution hereof and the Closing Date, Seller shall not,
without the prior written consent of Purchaser:
(a) Material Transactions. Cause or permit the Branch Office to engage
or participate in any material transaction or incur or sustain any material
obligation, except in the ordinary course of business;
(b) Asset Transfers. Cause or permit the Branch Office to transfer to
any other branch or operation of Seller or any other person any material amount
of: (i) deposits (excepting transfers of deposits specifically requested by
depositors); (ii) equipment or supplies (excepting such as have a unique
function in Seller's business or which ordinarily would not be useful to
Purchaser); or (iii) fixed assets;
(c) Fixed Assets. Invest in any fixed assets for the Branch Office,
except for replacements of furniture, furnishings, and equipment and normal
refurbishing purchased or made in the ordinary course of business; or
(d) Inconsistent Actions. Undertake any actions which are inconsistent
with a program to use all reasonable efforts to maintain good relations with
employees employed at, and customers of, the Branch Office.
Section 2.17 Seller's Indemnities.
(a) Covered Items. Seller agrees to indemnify, hold
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harmless, and defend Purchaser at all times from and after the Closing against
and from any and all losses, claims, damages, costs, expenses, or liabilities to
which Purchaser becomes subject insofar as such losses, claims, damages, costs,
expenses, and liabilities (or actions in respect thereof and costs and expenses,
including legal fees incurred in connection with such actions) arise out of or
are based upon the following:
(i) The activities and operations of the Branch Office for all
periods up to and including the Closing, including but not
limited to obligations to depositors and borrowers on the
Deposits or Loans transferred to Purchaser;
(ii) The existence of any facts, circumstances, situations, or
conditions or the happening of any event constituting a breach
or violation of any of the representations, warranties,
covenants, certifications, or agreements of Seller contained
in this Agreement, or the untruth or inaccuracy thereof; or
(iii) Damages to persons or property that occur prior to or as
of the Closing in or relating to the operation of the Branch
Office other than those caused by or contributed to by
Purchaser.
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(b) Purchaser's Obligations. The indemnities available hereunder are
conditioned upon Purchaser giving Seller written notice of any claim promptly
upon discovery or assertion thereof.
(c) Seller's Participation. In any matter covered by this Section 2.17,
Seller shall be entitled to participate at Seller's own expense in the defense
or, if it so elects, to assume the defense of any such claim, in which event
such defense shall be conducted by counsel chosen by Seller. In such event,
Purchaser shall bear the expenses of any additional counsel retained by
Purchaser.
ARTICLE III
REPRESENTATIONS, WARRANTIES, AND COVENANTS OF PURCHASER
Purchaser represents, warrants, and covenants to Seller as follows:
Section 3.1 Organization. Purchaser is a banking corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida.
Section 3.2 Authority. Purchaser has the power and authority to enter into
and perform this Agreement. On or before the Closing Date, this Agreement and
the execution, delivery and performance hereof, and the consummation of the
transactions contemplated hereby will have been duly and validly authorized by
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all necessary corporate action on the part of Purchaser. This Agreement is a
valid and binding obligation of Purchaser, enforceable in accordance with its
terms except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws of general applicability relating to or
affecting creditors' rights, or by general equitable principles.
Section 3.3 Non-Contravention The execution and delivery of this Agreement
by Purchaser do not and, subject to the receipt of all required approvals and
consents, the consummation of the transactions contemplated by this Agreement
will not constitute: (a) a breach or violation of or default under any law,
rule, regulation, judgment, order, governmental permit or license, agreement,
indenture or instrument of Purchaser or to which Purchaser is subject, which
breach, violation or default would have a material adverse effect on Purchaser;
or (b) a breach or violation of or a default under the Certificate of
Incorporation or By-Laws of Purchaser or any material contract or other
instrument to which Purchaser is a party or by which Purchaser is bound.
Section 3.4 Confidentiality. Purchaser shall keep confidential the
existence and nature of this Agreement and the negotiations leading hereto
(except in the event and to the extent that such Agreement and negotiations must
be disclosed to
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obtain regulatory or other required approvals or may be publicly disclosed in
accordance with Section 8.2 hereof) and shall keep confidential all information
obtained from Seller in connection with the transactions provided for herein
which does not specifically relate to the Branch Office or the business
conducted thereat and shall not use such information otherwise than in
connection with this Agreement. In the event of termination of this Agreement,
Purchaser shall keep confidential all information received from Seller and shall
use all reasonable efforts to return to Seller, upon Seller's written request
therefor, all documents received from Seller that include or evidence such
information. This warranty shall survive Closing or the termination of the
Agreement.
Section 3.5 Regulatory Approvals and Standards. Purchaser will use its
best efforts to obtain, and to assist Seller in obtaining, as expeditiously as
possible any regulatory approvals, acquiescences or consents required to be
obtained as a condition to the lawful consummation of the transactions
contemplated by this Agreement, and will proceed diligently and in good faith to
prepare and file as promptly as practicable after the execution of this
Agreement all necessary applications of Purchaser for such regulatory approvals,
ascquiescences, and consents. Purchaser is unaware of any fact(s) which would
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interfere with or delay approval of the transactions contemplated by this
Agreement. As of the Closing Date, Purchaser will satisfy each and all of the
standards and requirements lawfully within its control imposed as a condition to
obtaining or necessary to comply with any such regulatory approval,
acquiescence, or consent, except for any such standard or requirement which
would, in the opinion of Purchaser, have a material adverse effect on Purchaser.
Section 3.6 Corporate Consents. Purchaser shall use best efforts to secure
all necessary corporate and other non-regulatory consents (except those
involving Seller) and shall comply with all applicable laws, regulations, and
rulings in connection with this Agreement and the consummation of the
transactions contemplated hereby.
Section 3.7 Change of Name; Notification of Customers. From and after the
Closing Date, Purchaser shall promptly: (a) change the name on all documents and
facilities relating to the Branch Office to Purchaser's name; (b) take any other
actions required by law or regulation or court or regulatory authority to notify
customers or depositors of the Branch Office or residents of the communities in
which such Office are located of the transfers and assumptions occurring
pursuant to this Agreement; (c) use its best efforts to cause all passbooks,
installment loan
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books, and other materials previously issued with respect to the Deposits or the
Loans transferred to Purchaser at Closing to be legended or replaced within six
(6) months of the Closing Date to reflect the name of Purchaser; and (d) cause
all agreements relating to any federal recurring payments or ACH transfers
covered by Section 7.3 to be amended to designate Purchaser within six (6)
months of the Closing Date. Nothing in this Section shall require Purchaser to
undertake to reissue deposits or rewrite outstanding loans or other documents
assumed by or assigned to Purchaser on the Closing Date, except in the ordinary
course of business; it being understood, however, that reasonable efforts will
be used to change names in accordance with the provisions of the first sentence
of this Section.
Section 3.8 Untrue Statements. No representation or warranty by Purchaser
in this Agreement or any statement or certificate furnished or to be furnished
to Seller pursuant hereto or in connection with the transactions contemplated
hereby contains or will contain any untrue statement of material fact, or omits
or will omit to state any material fact necessary to make statements contained
herein or therein not misleading.
Section 3.9 Exit and Entrance Fees. Purchaser agrees to pay any and all
fees imposed by the Savings Association Insurance Fund, Bank Insurance Fund, or
any other regulatory authority
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imposed in connection with this transaction.
Section 3.10 Sales and Transfer Taxes. All excise, sales, use, transfer
and recording taxes and any other taxes or assessments which are payable or
arise as a result of this Agreement or the consummation of the transfers
contemplated herein shall be timely paid by Purchaser.
Section 3.11 Records. Purchaser agrees that it will preserve and keep
safely, for as long as required by law, all of the signature cards, orders,
contracts, forms, taxpayer identification number certifications and other
records referred to in this Agreement for the joint benefit of itself and
Seller, and it will permit Seller and its representatives to inspect, and make
extracts from or copies of, any such documents, at any reasonable time, as shall
be reasonably necessary to Seller for purposes of its records.
Section 3.12 Purchaser's Indemnities.
(a) Pre-Closing Covered Items. Purchaser agrees to indemnify, hold
harmless, and defend Seller against any and all claims, demands, actions,
damages, costs, liabilities, losses or suits, including attorney's fees, for
personal injury or property damage to which Seller may become subject in any way
arising from the acts or omissions of persons entering the Real Property on
behalf of the Purchaser pursuant to this Agreement prior to the
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Closing;
(b) Post Closing Covered Items. Purchaser agrees to indemnify, hold
harmless, and defend Seller at all times after the Closing against and from any
and all losses, claims, damages, costs, expenses, or liabilities to which Seller
becomes subject insofar as such losses, claims, damages, costs, expenses and
liabilities (or actions in respect thereof and costs and expenses, including
legal fees incurred in connection with such actions) arise out of or are based
upon the following:
(i) The activities and operations of the Branch Office or the
Real Property for all periods after the Closing, including,
but not limited to, obligations to depositors and borrowers on
the Deposits or Loans acquired by Purchaser;
(ii) The existence of any facts, circumstances, situations, or
conditions or the happening of any event constituting a breach
or violation of any of the representations, warranties,
covenants, certifications, or agreements of Purchaser
contained in this Agreement, or the untruth or inaccuracy
thereof;
(iii) Any wrongful default under or failure to
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perform, on the part of Purchaser, after the Closing relating
to the Loans and liabilities transferred hereunder, including,
but not limited to, Purchaser's obligations as drawee or payor
bank on drafts, checks, and negotiable orders of withdrawal
written on Seller's check forms as provided in Article VII
hereof, and fiduciary relationships that are purchased or
assumed by Purchaser; or
(iv) Damages to persons or property that occur after the
Closing in or relating to the operation of the Branch Office
or Real Property.
(c) Seller's Obligations. The indemnities available hereunder are
conditioned upon Seller giving Purchaser written notice of any claim promptly
upon discovery or assertion thereof.
(d) Purchaser's Participation. In any matter covered by this Section
3.12, Purchaser shall be entitled to participate at Purchaser's own expense in
the defense or, if it so elects, to assume the defense of any such claim, in
which event such defense shall be conducted by counsel chosen by Purchaser. In
such event, Seller shall bear the expense of any additional counsel retained by
Seller.
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ARTICLE IV
DOCUMENTS AND TRANSFERS ON THE CLOSING DATE AND THE ADJUSTMENT PAYMENT DATE
Section 4.l Closing Date-Seller On the Closing Date, Seller shall
deliver the following documents and make the following transfers to Purchaser:
(a) A statement setting forth the aggregate amount of Deposit
Liabilities agreed to be transferred to and assumed by Purchaser and accrued
interest thereon, with a certification of an appropriate Officer of Seller,
certifying that, to the best of his knowledge, the information contained in the
statement is true, correct, and complete;
(b) A statement of the Loans to be purchased by Purchaser,
setting forth the aggregate principal amount of such loans and accrued interest
thereon and listing, for each such loan, the name and address of the borrower,
the principal amount of, interest rate on, and the amount of accrued but unpaid
interest owing in regard thereto, and such other information as may be necessary
for Purchaser to establish accounts therefor, with a certification of an
appropriate Officer of Seller, certifying that, to the best of his knowledge,
the information contained in the statement is true, correct, and complete;
(c) A statement of the proration amounts to be paid in
accordance with Section 1.4 hereof, with a certification of an
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appropriate Officer of Seller, certifying that to the best of his knowledge the
information contained in the statement is true, correct, and complete;
(d) An assignment of the Deposit Liabilities to Purchaser,
fully executed by Seller, in the form of the Assignment and Assumption of
Liabilities attached hereto as Exhibit D, and an assignment of the Loans and any
overdraft checking lines of credit assumed by Purchaser in form and substance
reasonably satisfactory to Purchaser;
(e) All records and files maintained at the Branch Office or
elsewhere relating to the Deposit Liabilities and Loans to be assumed or
purchased by Purchaser, including but not limited to, signature cards,
applications, copies of passbooks, certificates, notes, security agreements,
pledge agreements, and financing statements;
(f) The amount described in Section 1.3(b), paragraph (i);
(g) Certified copies of resolutions of Seller's Board of
Directors;
(h) An Officer's Certificate as provided in Section 6.4 of
this Agreement;
(i) A Closing Statement for execution by the parties;
(j) An assignment of the Lease in the form generally
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attached hereto as Exhibit A.
In addition, on the Closing Date, Seller shall make hand delivery to
Purchaser of a listing of the Deposits as of the close of business on the day
prior to the Closing Date (the "Deposit Listing"), on magnetic tape or utilizing
such other method of information transfer as the parties shall have agreed
pursuant to Section 2.8 hereof, which Deposit Listing shall include, for each
Deposit, the name and address of the owner thereof, the account number, the
principal balance, the accrued interest, the maturity date, if any, the interest
rate, the tax identification number, and such other information as may be
necessary for Purchaser to establish accounts therefor.
Section 4.2 Closing Date - Purchaser. On the Closing Date, Purchaser
shall deliver to Seller the following documents:
(a) An undertaking for assumption of the Deposit Liabilities,
fully executed by Purchaser, in the form of the Assignment and Assumption of
Liabilities attached hereto as Exhibit D, and an undertaking for assumption of
the Loans and any overdraft checking lines of credit to be assumed by Purchaser
fully executed by Purchaser, in form and substance satisfactory to Seller;
(b) Certified copies of resolutions of Purchaser's Board of
Directors; and
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(c) An Officer's Certificate as provided in Section 5.4 of
this Agreement.
(d) An executed closing statement.
(e) An executed Assignment of Lease in the form annexed hereto
as Exhibit A.
Section 4.3 Adjustment Payment Date - Seller. On the Adjustment Payment
Date, Seller shall deliver the following documents and make the following
transfers to Purchaser:
(a) A statement setting forth, in whatever format is most
convenient, any corrections to the information contained in the Deposit Listing
delivered to Purchaser on the Closing Date, with a certification of an
appropriate Officer of Seller, certifying that the information set forth in the
statement and attachments thereto, if any, is true, correct, and complete;
(b) A statement setting forth any corrections to the
information contained in the statement of Loans provided to the Purchaser on the
Closing Date, with a certification of an appropriate Officer of Seller,
certifying that the information contained in the statement is true, correct, and
complete;
(c) A statement setting forth, in whatever format is most
convenient, any corrections to the information contained in the statement of
proration amounts to be paid in accordance with Section 1.4 hereof as of the
close of business on the Closing
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Date, with a certification of an appropriate Officer of Seller, certifying that
the information contained in the statement is true, correct, and complete;
(d) Any Adjustment Payment due to the Purchaser, as provided
in Section 1.3(b), paragraph (ii) of this Agreement; and
(e) A Closing Statement for execution by the parties.
Section 4.4 Adjustment Payment Date - Purchaser On the Adjustment
Payment Date, Purchaser shall pay to Seller any Adjustment Payment owed to
Seller pursuant to Section 1.3(b), paragraph (ii) of this Agreement.
Section 4.5 Disputes. Any disputes between the parties hereto regarding
the accuracy or correctness of the financial statements or amounts delivered by
the parties hereto on the Closing Date shall be resolved as follows: Purchaser
or Seller, as the case may be, shall have twenty (20) days from the Closing Date
to request in writing that the dispute be reviewed by a recognized, national
accounting firm, other than a firm then employed by either Purchaser or Seller
(the "Accounting Firm"). (A copy of such request also shall be delivered to the
other party to this Agreement.) The Accounting Firm shall investigate the matter
and as soon as possible, render a determination as to what amounts, if any, are
payable by either party hereto so as to resolve the dispute in accordance with
the terms of this
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Agreement (the "Correction Payment"). The Correction Payment also shall include
interest thereon at the Federal Funds Rate for the period from the Adjustment
date to the date of its payment. The cost of the services provided by the
Accounting Firm shall be shared equally by the parties hereto; provided,
however, that such amount shall be paid in the first instance by the party
requesting the services; and provided further that the other party hereto shall
reimburse the payor of the obligation for one-half (1/2) of such amount within
ten (10) days of receipt by it of written demand for reimbursement.
ARTICLE V
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are subject to the
conditions that on the Closing Date:
Section 5.1 Compliance with Conditions. All of the covenants and
conditions required by this Agreement, or by any of the attached Exhibits, to be
complied with and performed by Purchaser on or before the Closing Date shall
have been duly complied with and performed in all material respects.
Section 5.2 Truth of Warranties. The representations and warranties
made by Purchaser herein or in the Exhibits, or in any certificate or document
delivered pursuant to the provisions
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hereof or thereof or in connection with the transactions contemplated hereby or
thereby shall be correct in all material respects, on and as of the Closing
Date, with the same force and effect as though such representations and
warranties had been made on the Closing Date.
Section 5.3 Regulatory Approvals. All regulatory approvals,
acquiescences, and consents necessary to the consummation of the transactions
provided for herein shall have been obtained without requirements which would,
in the opinion of Seller, have a material adverse impact on Seller, and shall be
in full force and effect, and all required waiting periods incident thereto
shall have expired.
Section 5.4 Officers' Certificate. Seller shall have received a
Certificate of an authorized officer of Purchaser as of the Closing Date,
certifying that: (a) Purchaser has performed and complied with all covenants and
conditions required by this Agreement and the Exhibits attached hereto to be
performed or complied with by Purchaser prior to or at the Closing, and (b) all
representations and warranties made by Purchaser in this Agreement, or in any
certificate or document delivered pursuant to the provisions hereof or thereof
or in connection with the transactions contemplated hereby or thereby, are true
at and as of the time of Closing.
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Section 5.5 Directors' Resolutions= Seller shall have received
certified copies of resolutions of Purchaser's Board of Directors authorizing
the execution, delivery, and performance of this Agreement.
Section 5.6 Absence of Adverse Facts. There shall be no discovery of
facts, developments or actual or threatened causes of action, investigations or
proceedings by or before any court or other governmental body that relates to or
involves Purchaser and which would have a materially adverse effect upon the
consummation of the transactions contemplated by this Agreement or that
challenges the validity or legality of this Agreement, seeks to restrain or
invalidate the consummation of the transactions contemplated by this Agreement,
seeks damages in connection therewith, or that would be materially adverse to
the interests of Seller.
Section 5.7 Consent to Assignment of Lease. The landlord under the
Lease shall have consented on terms reasonably satisfactory to Seller, to
Seller's assignment of the Lease to Purchaser.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser under this Agreement are subject to the
conditions that, on the Closing Date:
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Section 6.1 Compliance with Terms of Agreement. All the covenants and
conditions required by this Agreement or by the attached Exhibits to be complied
with and performed by Seller on or before the Closing Date shall have been duly
complied with and performed in all material respects.
Section 6.2 Truth of Warranties. The representations and warranties
made by Seller herein or in the attached Exhibits, or in any certificate or
document delivered pursuant to the provisions hereof or thereof or in connection
with the transactions contemplated hereby or thereby, shall be correct in all
material respects, on and as of the Closing Date, with the same force and effect
as though such representations and warranties had been made on the Closing Date.
Section 6.3 Regulatory Approvals. All regulatory approvals,
acquiescences, and consents necessary to the consummation of the transactions
provided for herein shall have been obtained without requirements which would,
in the opinion of Purchaser, have a material adverse effect on Purchaser, and
shall be in full force and effect and all required waiting periods incident
thereto shall have expired.
Section 6.4 Officers' Certificate. Purchaser shall have received a
Certificate of an appropriate officer of Seller, dated as of the Closing Date
certifying that: (a) Seller has performed
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and complied with all covenants and conditions required by this Agreement and
the Exhibits attached hereto to be performed or complied with by Seller prior to
or at the Closing, and (b) all representations and warranties made by Seller in
this Agreement or the Assignment Agreement, or in any certificate or document
delivered pursuant to the provisions hereof or thereof or in connection with the
transactions contemplated hereby or thereby, are true at and as of the time of
Closing.
Section 6.5 Directors' Resolutions. Purchaser shall have received
certified copies of resolutions of Seller's Board of Directors authorizing the
execution, delivery, and performance of this Agreement.
Section 6.6 Absence of Adverse Facts. There shall be no discovery of
facts, developments or actual or threatened causes of action, investigations or
proceedings by or before any court or other governmental body that relates to or
involves Seller and which would have a materially adverse effect upon the
consummation of the transactions contemplated by this Agreement or that
challenges the validity or legality of this Agreement, seeks to restrain or
invalidate the consummation of the transactions contemplated by this Agreement,
seeks damages in connection therewith, or that otherwise would be materially
adverse to the interests of Purchaser.
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ARTICLE VII
INTERIM SERVICING AND DEPOSIT HISTORIES
Section 7.l Demand Deposit Account Owners. Not less than twenty (20)
nor more than thirty (30) business days prior to Closing, Purchaser and Seller
will jointly notify all demand deposit and all negotiable order of withdrawal
account owners whose accounts are housed at the Branch Office and are to be
conveyed to Purchaser hereunder that checks or drafts written after the Closing
Date on Seller's draft or check forms will not be honored. Such notice shall be
made equally at Purchaser's and Seller's expense. Purchaser will supply such
account owners with Purchaser's own check or draft forms on or before Closing.
Section 7.2 Seller Processing Duties. For a period not to exceed 90
days after the Closing Date, Seller agrees to act as Purchaser's limited
correspondent for the processing of drafts, checks, and negotiable orders of
withdrawal drawn before or after the closing on forms provided by Seller on any
such accounts assumed by Purchaser hereunder. Seller agrees in this regard that
it shall:
(a) maintain a mechanism to receive such items on a daily
basis;
(b) provide a daily magnetic tape of, or transmit a daily
electronic record of, all such items received by it that
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same day to Purchaser, in such form as shall be agreed to by Purchaser and
Seller; and
(c) shall prepare for shipping all physical items received by
it by 10:00 a.m. of the following business day by such means as agreed to by the
parties.
Purchaser and Seller agree that any courier or telephone costs
associated with paragraphs (b) and (c) shall be borne by Purchaser. Seller
further agrees that it shall notify Purchaser of any information received
regarding the settlement and clearance of any foreign checks, savings bonds, or
coupons deposited with it prior to the Closing Date. Unless caused by the
negligence of Seller and subject to the provisions of Section 2.17, any risks of
loss associated with the interim servicing, including any risk of loss
associated with insufficient funds or stop payments, shall be the responsibility
of the Purchaser, provided in the case of stop payments that Seller has advised
Purchaser of the existence of such stop payment at the Closing.
Section 7.3 Processing of Electronic Items. For a period not to exceed
three months after the Closing Date Seller agrees to continue to receive after
the Closing on behalf of Purchaser all federal recurring payments or ACH
transfers currently directed to Seller. Seller also agrees that any daily
magnetic tapes or electronic transmissions provided to Purchaser pursuant
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to section 7.2 herein shall include a record of all such recurring federal
payments or ACH transfers received by Seller on the previous business day.
Purchaser agrees to reimburse Seller for any telephone costs incurred by Seller
in the provision of this service.
Section 7.4 Purchaser Processing Obligations. During the processing
period set out in Section 7.2 hereof, Purchaser agrees to honor and pay all
properly payable drafts, checks, or negotiable orders of withdrawal delivered to
it by Seller pursuant to Section 7.2 hereof.
Section 7.5 Return of Items During Processing Period. Purchaser further
agrees to be solely responsible for the return of any drafts, checks, or
negotiable orders of withdrawal delivered by Seller to Purchaser pursuant to
Section 7.2 of this Agreement or any return of any federal recurring payments or
ACH transactions processed pursuant to Section 7.3 hereof. Seller agrees to
notify Purchaser of the return to it of any items deposited in, or cashed at,
the Branch Office prior to the Closing Date and shall expeditiously forward any
such items to Purchaser.
Section 7.6 Settlement. In settlement of the transactions described in
Section 7.2, Section 7.3, and Section 7.5, Purchaser and Seller agree that
Seller shall provide
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Purchaser with a daily net settlement figure for all such transactions then
pending by 12:00 Noon, Eastern Time of each business day; the parties agree that
the party obligated to remit any funds thereunder shall do so by 1:00 P.M.,
Eastern Time, of such day. Any such settlement shall be provisional pending
receipt by Purchaser of the physical items relating to such settlement;
Purchaser shall adjust the next daily settlement to reflect any adjustments
resulting from its receipt of the physical items.
Section 7.7 Deposit Histories. In case of any dispute with or inquiry
by an accountholder whose Deposit is subject to this Agreement, which dispute or
inquiry relates to the servicing of such Deposit by Seller prior to the date for
which a Deposit history has been provided to Purchaser, Seller will provide
Purchaser with the appropriate information regarding the Deposit and copies of
pertinent documents or instruments with respect to such dispute or inquiry so as
to permit Purchaser to respond to the accountholder within a period of time and
in a manner which would comply with standard banking practices and customs.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Expenses. Except as expressly provided for herein, Seller
and Purchaser each shall pay its own expenses in
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<PAGE> 45
connection with this Agreement, including counsel fees and appraisals, if any,
whether or not the transactions contemplated by this Agreement are consummated;
provided, however, that Purchaser shall pay, or reimburse Seller for, all sales,
excise, use, property and other taxes that arise in connection with the
transactions contemplated in this Agreement, exclusive of taxes based on
Seller's net income; and provided, further, that nothing contained in this
Section shall be construed to relieve a party who breaches this Agreement from
liability to the non-breaching party for damages arising from the breach.
Section 8.2 Communications, Notices, etc. During the period from the
execution of this Agreement to the Closing, Purchaser and Seller shall not
communicate with the employees, depositors, or customers of the Branch Office,
except as specifically required by the relevant regulatory agencies as part of
their approval process, or as specifically provided for herein:
(a) Joint Communications. As soon as practicable after
execution of this Agreement, Purchaser and Seller shall jointly communicate at
Purchaser's and Seller's equal expense with the employees of the Branch Office
advising such employees of the transfers to be completed hereunder. In addition,
Seller shall permit Purchaser reasonable additional opportunities to
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<PAGE> 46
communicate with the employees of the Branch Office accompanied by a
representative of Seller. After receipt of all regulatory approvals required
for this transaction, Seller shall separately communicate, at Seller's and
Purchaser's equal expense, with each depositor or other customer of the Branch
Office, advising such persons of the pendency of the transfers contemplated
herein and urging each such customer to maintain the customer's relationship
with the Branch Office after the transfers contemplated herein are completed.
All communications shall be in a form and substance mutually satisfactory to the
parties hereto. After receipt of all required regulatory approvals, the parties
also may issue a joint press release announcing this transaction. All press
conferences or meetings with members of the news media regarding the transaction
shall be joint between the parties hereto.
(b) Purchaser's Communications. With the exception of the
communications permitted in Paragraph (a) above, Purchaser may not communicate
with the employees, depositors, and other customers of the Branch Office without
the prior written consent of Seller. Any such permitted communications may not
interrupt or interfere with the normal operations of the Branch Office and shall
be at Purchaser's sole cost and expense.
(c) Seller's Communications. In addition to the
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communications provided for in Paragraph (a) above, Seller at its own cost and
expense may communicate with the employees, depositors, and other customers of
the Branch Office at such times and in such form as it, in its sole discretion,
may deem appropriate; provided, that no such communication shall recommend any
actions by any person that shall be in contravention with the terms of this
Agreement or reflect adversely upon Purchaser. If this transaction constitutes a
branch closing as defined by the OTS, Seller shall post all signs and provide
Branch Office customers with any notices required by the regulations. Customer
notice of the Branch Office closing shall not be sent by Seller until receipt of
all regulatory and other approvals required for this sale.
Section 8.3 Trade Names, Trademarks, and Signs. Purchaser shall not
acquire hereunder any right to the use of the name "Dime", or any trade name,
trademark, slogan or service mark, if any, used by Seller. Seller shall give
employees or agents of Purchaser physical access to the premises of the Branch
Office during the weekend or holiday most nearly preceding the Closing Date for
the purpose of removing, or beginning the removal of, the sign fronts, logos,
and other insignia identifying or identified with Seller; provided that no sign
fronts, logos, or insignia identifying or identified with
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<PAGE> 48
Purchaser will be installed in or affixed to the premises until after the
Closing. No sign boxes, frames, or stands shall be removed by Seller after the
execution of this Agreement (or by Purchaser prior to the Closing), as the same
are to be transferred to the Purchaser hereunder. Purchaser will return all sign
fronts, logos, and insignia of Seller removed by it from the Branch Office on or
before fifteen (15) days after Closing to such location as Seller shall
reasonably designate. Purchaser shall be responsible for any damage to any sign
fronts, logos, and insignia occurring during the removal and delivery of same to
Seller.
Section 8.4 Employees. The Purchaser agrees to offer employment to any
or all employees of the Seller at the Branch who are still so employed as of the
Closing Date, on terms and conditions comparable to those provided by the Seller
to such employees; provided, however, that any such employee hired by Purchaser
shall receive Purchaser's benefits. Purchaser agrees to waive any waiting period
applicable to its benefits for all Branch employees which it hires. The Seller
will not renegotiate the position or compensation of any Branch employees prior
to the Closing Date, other than ordinary salary increases. Employment by the
Purchaser will commence on the Closing Date. The Purchaser agrees to keep
employed for a period of at least six
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months any employee, unless such employee is discharged for cause. Within ten
(10) days of the date of this Agreement, Seller shall provide Purchaser with a
schedule of each individual employed at the Branch Office as of the date of this
Agreement.
Section 8.5 Nature and Survival of Representations and Warranties.
Except as otherwise provided herein or in the Exhibits attached hereto, all
covenants, representations, and warranties made by Seller and Purchaser in this
Agreement or pursuant hereto shall survive the Closing hereunder.
Section 8.6 Termination.
(a) Grounds For. In addition to the grounds provided for
otherwise in this Agreement, this Agreement may be terminated in any of the
following ways:
(i) At any time on or prior to the Closing Date by
the mutual consent in writing of Purchaser and
Seller;
(ii) On or before the Closing Date, by either Seller
or Purchaser in writing, if the conditions made for
the benefit of either shall not have been satisfied
or it shall become clear that any such conditions can
not be satisfied;
(iii) At any time on or prior to the Closing Date, by
either Purchaser or Seller in writing, if there
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<PAGE> 50
has been any breach by the other party to this
Agreement of any representation and warranty in any
material respect or any breach of any covenant,
undertaking or restriction in any material respect;
(iv) On September 30, 1998, if the Closing has not
occurred by that date.
(b) Effect Of Termination. In the event of the termination and
abandonment of this Agreement, it shall terminate and become void and have no
effect; provided, however, that the obligations of the parties pursuant to
Sections 2.9 and 3.4 (Confidentiality) shall remain in effect; and provided,
further, that termination based upon a breach shall not relieve the breaching
party from liability to the non-breaching party for damages arising from the
breach.
Section 8.7 Tax Forms. Within applicable time limits, (a) Seller shall
mail to customers of the Branch Office as of the close of business on the
Closing Date, and shall file with the appropriate authorities, 1099 information
returns and other required tax forms covering the period prior to the Closing
Date, and (b) Purchaser shall mail to customers of the Branch Office and shall
file with the appropriate authorities, 1099 information returns and other
required tax forms covering the period from and
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after the Closing Date.
Section 8.8 Brokers-Finders. Except for Ryan, Beck & Co., Seller and
Purchaser hereby individually represent and warrant that no broker or finder has
been employed by either of them in connection with this Agreement and the
consummation of the transactions contemplated hereby. Seller agrees to be
responsible for all fees due Ryan, Beck & Co. which Seller has previously agreed
to pay such entity. Seller and Purchaser further agree to indemnify the other
against any claim arising out of the employment by the indemnifying party of any
other such broker or finder.
Section 8.9 Default; Attorneys' Fees. Default hereunder shall be deemed
to have occurred if either party shall refuse to consummate this transaction,
where all conditions to such performance shall have been satisfied, and such
refusal shall remain uncured for a ten (10) day period following receipt by such
defaulting party of written notice from the nondefaulting party of such default.
In the event of default by one party, the other party shall have all remedies
provided at law or in equity in regard to such default. The parties agree that
the non-breaching party has no adequate remedy at law, and shall be entitled to
specific performance of this Agreement in addition to
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any other available remedies. A defaulting party shall pay all reasonable
expenses incurred by the other party to enforce its rights under this Agreement
as a result of such default including, without limitation, court costs and
attorneys' fees.
Section 8.10 Modification and Waiver. No modification of any provision
of this Agreement shall be binding unless in writing and executed by the party
sought to be bound thereby. No waiver of any provision of this Agreement shall
be binding unless in writing and executed by the party granting such waiver.
Section 8.11 Binding Effect; Assignment. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that neither this
Agreement nor any rights, privileges, duties, or obligations of the parties
hereto may be assigned by either party hereto without the written consent of the
other party hereto, and provided, further, that in the case of any assignment,
the assigning party shall also remain responsible as a party hereto.
Section 8.12 Entire Agreement; Governing Law. This Agreement, together
with the exhibits attached hereto and made a part hereof, contains the entire
agreement between the parties hereto with respect to the transactions covered
and contemplated hereunder, and supersedes all prior agreements or
understandings
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between the parties hereto relating to the subject matter hereof. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York, except to the extent that federal law applies.
Section 8.13 Headings. The headings in this Agreement are intended
solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
Section 8.14 Severability. In the event that any provision of this
Agreement which both parties agree is not material, shall be held invalid,
illegal, or unenforceable in any respect, the validity, legality, and
enforceability of the remaining provisions contained in this Agreement shall not
in any way be affected or impaired thereby, and this Agreement shall otherwise
remain in full force and effect.
Section 8.15 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties hereto.
Section 8.16. Interpretation. This Agreement has been prepared and
negotiations in connection therewith have been conducted by the joint efforts of
both parties to this Agreement and the parties agree that it is not to be
interpreted against
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either of the parties hereto.
Section 8.17 Notices. All notices, consents, requests, instructions,
approvals, waivers, stipulations and other communications provided for herein to
be given by one party hereto to the other party shall be deemed validly given,
made or served, if in writing and delivered personally or sent by certified
mail, return receipt requested, if to Seller addressed to:
William Burns
The Dime Savings Bank of New York, FSB
589 Fifth Avenue
New York, New York 10017
with a copy to:
Lance J. Bennett
Associate General Counsel
The Dime Savings Bank of New York, FSB
EAB Plaza, East Tower, 15th Floor
Uniondale, New York 11556
and if to Purchaser addressed to:
John W. Sapanski
Republic Bank
111 2nd Avenue N.E. Suite 300
St. Petersburg, FL 33701
with a copy to:
Chris Hunter, Esq.
General Counsel
111 2nd Avenue, N.E., Suite 300
St. Petersburg, FL 33701
after mailing of the same. Either party may change the
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persons or addresses to whom or to which notices may be sent by written notice
to the other.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, by their duly authorized representatives, as of the day and year first
above written.
REPUBLIC BANK
ATTEST: By: /s/ John W. Sapansky
-------------------------------
/s/ Name: John W. Sapansky
- -------------------------- -----------------------------
SECT Title: President
----------------------------
THE DIME SAVINGS BANK
OF NEW YORK, FSB
ATTEST: By: /s/ Anthony K. Burriesci
-------------------------------
/s/ Name: Anthony K. Burriesci
- -------------------------- -----------------------------
Senior VP Title: CFO
----------------------------
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<PAGE> 56
EXHIBIT A
ASSIGNMENT OF LEASE
FOR VALUE RECEIVED, DIME SAVINGS BANK OF NEW YORK, FSB (hereinafter
called "Assignor"), hereby assigns, transfers, and sets over unto ___________
("Assignee"), all of Assignor's right, title and interest in and to the lease
set forth on the Schedule which is attached hereto as Attachment I and made a
part hereof (hereinafter called the "Lease").
TOGETHER with all options contained in the Lease and any other rights
of the Assignor set forth therein.
TO HAVE AND TO HOLD the same unto the Assignee, its successors and
assigns, from the _______ day of _____, 19__, for all the rest of the years
mentioned in said Lease subject to the terms, covenants, conditions and
provisions therein set forth.
Assignor hereby covenants and warrants that the Lease is in full force
and effect; that it has secured all necessary consents required by the Lease;
that Assignor is not in default thereunder and has no knowledge of defaults by
any other party thereto; and that the Lease is free and clear of any
encumbrances.
Assignee hereby assumes the performance of all the terms, covenants,
and conditions of the said Lease on the part of the Assignor to be performed,
and Assignee agrees to pay the rent on the next rent day, and thereafter, and to
perform all the said terms, conditions, and covenants and to indemnify the
Assignor
<PAGE> 57
for any damage arising out of any default on the part of the Assignee to pay the
said rent, or to perform the said covenants, terms, and conditions which arise
from and after the date hereof. Assignor covenants to indemnify Assignee for any
damages arising out of any default on the part of Assignor to pay the rent or to
perform the covenants, terms, and conditions of said Lease before the date
hereof.
IN WITNESS WHEREOF, the parties have signed, sealed, and delivered this
Assignment the ____ day of __________, 19 _.
Signed Sealed and ASSIGNOR;
delivered in the presence of:
THE DIME SAVINGS BANK OF
NEW YORK, FSB
By
- ---------------------------------- --------------------------------
ATTEST:
- ---------------------------------- ----------------------------------
Notary Public
(Notary Seal)
Signed, Sealed and ASSIGNEE:
delivered in the presence of
By
- ---------------------------------- --------------------------------
Witness
ATTEST:
- ---------------------------------- ----------------------------------
Notary Public
(Notary Seal)
<PAGE> 58
EXHIBIT B TO
PURCHASE AND ASSUMPTION
AGREEMENT
-----------------------
INTENTIONALLY OMITTED
<PAGE> 59
EXHIBIT C TO
PURCHASE AND ASSUMPTION
AGREEMENT
-----------------------
LITIGATION
NONE
<PAGE> 60
EXHIBIT D TO
PURCHASE AND ASSUMPTION
AGREEMENT
-----------------------
ASSIGNMENT AND ASSUMPTION OF LIABILITIES
For value received, The Dime Savings Bank of New York, FSB ("Dime")
hereby assigns to _______________, pursuant to the terms of a certain Purchase
and Assumption Agreement between _______________ and Dime dated _____________,
19__ (the "Agreement"), all the right, title, and interest in and to the Deposit
Liabilities (as defined in the Agreement) maintained at Dime's Branch Office
described in the Agreement.
______________ hereby accepts the foregoing assignment, agrees to
assume and perform all duties and obligations to be performed under the terms of
each such assigned Deposit Liability to the same extent as if ____________ had
been an original party thereto, and [___________] agrees to indemnify and hold
Dime harmless from any liability for performance or non-performance of such
duties and obligations occurring after such assignment, and Dime agrees to
indemnify and hold _________________ harmless from any liability for performance
or nonperformance of such duties and obligations occurring prior to such
assignment, all in accordance with and subject to the Agreement.
Dated: ______________, 19 __
----------------------------------------
By:
-------------------------------------
Title:
----------------------------------
THE DIME SAVINGS BANK OF
NEW YORK, FSB
By:
-------------------------------------
Title:
----------------------------------
<PAGE> 1
EXHIBIT 10.4.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of March 2, 1998, by and between REPUBLIC BANCSHARES, INC. ("Republic"),
a corporation organized and existing under the laws of the State of Florida,
with its principal office located in St. Petersburg, Florida; and BANKERS
SAVINGS BANK, F.S.B. ("BSB"), a federal savings bank organized and existing
under the laws of the United States of America, with its principal office
located in Coral Gables, Florida.
PREAMBLE
The Boards of Directors of Republic and BSB are of the opinion that the
transactions described herein are in the best interests of the parties to this
Agreement and their respective stockholders. This Agreement provides for the
merger (the "Merger") of BSB with and into Republic's wholly-owned subsidiary,
Republic Bank (the "Bank"). At the effective time of such Merger, the
outstanding shares of the capital stock of BSB shall be converted into shares of
the common stock of Republic (except as provided herein). The transactions
described in this Agreement are subject to the approvals of the stockholders of
BSB, the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, and the Florida Department of Banking and Finance, prior
notice to the Office of Thrift Supervision and the satisfaction of certain other
conditions described in this Agreement. It is the intention of the parties to
this Agreement that the Merger for federal income tax purposes shall qualify as
a "reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code.
Certain terms used in this Agreement are defined in Section 10.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth herein, the Parties agree as
follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF SHARE EXCHANGE
1.1 MERGER. Subject to the terms and conditions of this Agreement, at the
Effective Time, BSB will merge with and into the Bank in accordance with the
provisions of Section 655.412 of the Florida Financial Institutions Code (the
"Code") and Part 552 of the Rules and Regulations of the Office of Thrift
Supervision (the "OTS Regulations") and all outstanding shares of BSB Common
Stock shall be exchanged into shares of Republic Common Stock and with the
effect provided in Section 655.417 of the Code and Section 552.13 of the OTS
Regulations. The Merger shall be consummated pursuant to the terms of this
Agreement, which has been approved and adopted by the respective Boards of
Directors of BSB and Republic.
1.2 TIME AND PLACE OF CLOSING. The closing for the Merger (the "Closing")
will take place at 9:00 A.M. on the date that the Effective Time occurs (or the
immediately preceding day if the Effective Time is earlier than 9:00 A.M.), or
at such other time as the parties, acting through their duly authorized
officers,
1
<PAGE> 2
may mutually agree. The place of Closing shall be at such location as
may be mutually agreed upon by the parties.
1.3 EFFECTIVE TIME. The Merger contemplated by this Agreement shall become
effective on the date and at the time set forth in the Certificate of Merger
issued by the Department pursuant to Section 658.45 of the Code (the "Effective
Time"). Subject to the terms and conditions hereof, unless otherwise mutually
agreed upon in writing by the duly authorized officers of each party, the
parties shall use their reasonable efforts to cause the Effective Time to occur
on or before the tenth business day (as designated by Republic) following the
last to occur of (i) the effective date (including expiration of any applicable
waiting period) of the last required Consent of any Regulatory Authority having
authority over and approving or exempting the Merger; (ii) the date on which the
stockholders of BSB approve the matters relating to this Agreement required to
be approved by such stockholders by applicable law.
ARTICLE 2
MANNER OF CONVERTING SHARES
2.1 CONVERSION OF SHARES. Subject to the provisions of this Article 2, at
the Effective Time, by virtue of the Merger and without any action on the part
of Republic or BSB, or the stockholders of either of the foregoing, the shares
of the constituent entities shall be converted as follows:
(a) Each share of Republic Common Stock and Republic Preferred Stock
issued and outstanding immediately prior to the Effective Time shall remain
issued and outstanding from and after the Effective Time.
(b) Each share of BSB Common Stock (excluding shares held by any BSB
Company or any Republic Company, in each case other than in a fiduciary capacity
or as a result of debts previously contracted or shares held by stockholders who
perfect their dissenters' rights of appraisal) issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for shares of Republic Common Stock at an Exchange Ratio. The Exchange
Ratio of BSB Common Stock shares into Republic Common Stock shares will be
determined by (a) taking the difference between (i) of BSB's total common
equity at December 31, 1997 and (ii) any bonuses paid to officers, directors, or
employees of BSB upon a change of control after deducting the equivalent
corporate taxes on any such bonus payments; (b) adding to (or subtracting from)
any profits (or losses) though the month-end prior to the date that the Merger
is approved by all applicable Regulatory Authorities; (c) multiplying this sum
by 1.7; (d) adding to the resulting product the difference between (i) the
Appraised Value of Real Estate (as defined below) less (ii) the Book Value of
Real Estate (as defined below) on December 31, 1997; (e) dividing the resulting
sum by BSB's total number of shares of Common Stock outstanding; and (f)
dividing the resulting quotient by the Market Value of Republic's Common Stock
(as defined below). "Appraised Value of Real Estate" is defined as the value of
real estate owned by BSB at 2222 Ponce DeLeon Blvd., either (a) as appraised
by a recognized real estate appraisal firm, such appraisal being within a range
of $5.8 million and $6.2 million, or (b) as otherwise mutually agreed to by
the parties. "Book Value of Real Estate" is defined as the net of cost less
depreciation of the real estate owned by BSB at 2222 Ponce de Leon Blvd., as
reflected in BSB's opinion audit for the year ended December 31, 1997. "Market
Value of Republic's Common Stock" is defined as $25.00 unless the reported
average closing prices by the National Market for the twenty (20) consecutive
trading days ending on the third business day immediately preceding the
Effective Time ("Twenty Day Average Market Price") for a share of Republic
2
<PAGE> 3
Common Stock is greater than $27.50 or lower than $22.50, in which case the
Market Value of Republic's Common Stock is the mean between the Twenty Day
Average Market Price and $25.00.
(c) Each of the options to purchase BSB Common Stock issued and
outstanding at the Effective Time, which options and their respective dates of
grant are disclosed in Section 2.1 of the BSB Disclosure Memorandum (the "BSB
options"), shall cease to be outstanding and shall be converted into and
exchanged for the Right to acquire Republic Common Stock on substantially the
same terms applicable to the BSB options. The number of shares of Republic
Common Stock to be issued pursuant to the exercise of such options shall equal
the number of shares of BSB Common Stock subject to such options multiplied by
the Exchange Ratio, provided that no fractions of shares of Republic Common
Stock shall be issued, and the number of shares of Republic Common Stock to be
issued upon the exercise of the BSB options, if a fractional share exists, shall
equal the number of whole shares obtained by rounding to the nearest whole
number, giving account to such fraction. The exercise price for the acquisition
of each share of Republic Common Stock shall be the exercise price for each
share of BSB common stock subject to such options divided by the Exchange Ratio,
provided that the aggregate purchase price shall be adjusted as appropriate for
any rounding to whole shares that may be done.
(d) Provided that the stock option plan pursuant to which the BSB
options were issued permits such practice, holders of the BSB options will also
have the ability to convert their options directly into shares of Republic
Common Stock. The number of shares of Republic Common Stock that will be
issuable upon conversion of BSB options pursuant to this subparagraph (d) as
converted into options to acquire shares of Republic Common Stock as provided
above, will be (a) the difference between (i) the Market Value of Republic
Common Stock and (ii) the exercise price for a share of Republic Common Stock as
determined pursuant to (c) above, divided by (b) Market Value of Republic Common
Stock, such quotient to be multiplied by the number of shares of Republic Common
Stock subject to such options.
2.2 ANTI-DILUTION PROVISIONS. In the event Republic changes the number of
shares of Republic Common Stock issued and outstanding prior to the Effective
Time as a result of a stock split, stock dividend or similar recapitalization
with respect to such stock and the record date therefore (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split or similar
recapitalization for which a record date is not established) shall be prior to
the Effective Time, the Exchange Ratio shall be proportionately adjusted.
2.3 SHARES HELD BY BSB OR REPUBLIC. Each of the shares of BSB Common Stock
held by any BSB Company or by any Republic Company, in each case other than in a
fiduciary capacity or as a result of debts previously contracted, shall be
canceled and retired at the Effective Time and no consideration shall be issued
in exchange therefor.
2.4 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, each holder of shares of BSB Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of Republic Common Stock (after taking into account all certificates delivered
by such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of Republic Common Stock
multiplied by the Market Value of Republic Common Stock at the Effective Time.
3
<PAGE> 4
No such holder will be entitled to dividends, voting rights or any other rights
as a stockholder in respect of any fractional shares.
2.5 DISSENTING STOCKHOLDERS. Any holder of shares of BSB Common Stock who
perfects such holder's dissenters' rights of appraisal of accordance with and as
contemplated by Section 552.14 of the OTS Regulations and, to the extent not
inconsistent therewith, Section 658.44 of the Code, shall be entitled to receive
the value of such shares in cash as determined pursuant to such regulatory
provisions; provided that no such payment shall be made to any dissenting
stockholder unless and until such dissenting stockholder has complied with the
applicable provisions of the OTS Regulations and the Code and surrendered to BSB
the certificate or certificates representing the shares for which payment is
being made. In the event that after the Effective Time a dissenting stockholder
of BSB fails to perfect, or effectively withdraws or loses, such holder's right
to appraisal and of payment for such holder's shares, Republic shall issue and
deliver the consideration to which such holder of shares of BSB Common Stock is
entitled under this Article 2 (without interest) upon surrender by such holder
of the certificate or certificates representing shares of BSB Common Stock held
by such holder.
ARTICLE 3
EXCHANGE OF SHARES
3.1 EXCHANGE PROCEDURES. Promptly after the Effective Time, Republic shall
cause the exchange agent selected by Republic (the "Exchange Agent"),
ChaseMellon Shareholders Services, to mail to the former stockholders of BSB
appropriate transmittal materials (which shall specify that delivery shall be
effected, and risk of loss and title to the certificates theretofore
representing shares of BSB Common Stock shall pass, only upon proper delivery of
such certificates to the Exchange Agent). After the Effective Time, each holder
of shares of BSB Common Stock (other than shares to be canceled pursuant to
Section 2.3 of this Agreement or as to which dissenters' rights have been
perfected as provided in Section 2.5 of this Agreement) issued and outstanding
at the Effective Time shall surrender the certificate or certificates
representing such shares to the Exchange Agent and shall promptly upon surrender
thereof receive in exchange therefor the consideration provided in Section 2.1
of this Agreement, together with all undelivered dividends or distributions in
respect of such shares (without interest thereon) pursuant to Section 3.2 of
this Agreement. To the extent required by Section 2.4 of this Agreement, each
holder of shares of BSB Common Stock issued and outstanding at the Effective
Time also shall receive, upon surrender of the certificate or certificates
representing such shares, cash in lieu of any fractional share of Republic
Common Stock to which such holder may be otherwise entitled (without interest).
Republic shall not be obligated to deliver the consideration to which any former
holder of BSB Common Stock is entitled as a result of the Merger until such
holder surrenders such holder's certificate or certificates representing the
shares of BSB Common Stock for exchange as provided in this Section 3.1, or
otherwise complies with the procedures of the Exchange Agent with respect to
lost, stolen or destroyed certificates. The certificate or certificates of BSB
Common Stock so surrendered shall be duly endorsed as the Exchange Agent may
require. Any other provision of this Agreement notwithstanding, neither
Republic, BSB nor the Exchange Agent shall be liable to a holder of BSB Common
Stock for any amounts paid or property delivered in good faith to a public
official pursuant to any applicable abandoned property law following expiration
of the time period provided therein.
3.2 RIGHTS OF FORMER BSB STOCKHOLDERS. At the Effective Time, the stock
transfer books of BSB shall be closed as to holders of BSB Common Stock
immediately prior to the Effective Time and no transfer of
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BSB Common Stock by any such holder shall thereafter be made or recognized.
Until surrendered for exchange in accordance with the provisions of Section 3.1
of this Agreement, each certificate theretofore representing shares of BSB
Common Stock (other than shares to be canceled pursuant to Section 2.3 of this
Agreement or as to which dissenters' rights have been perfected as provided in
Section 2.5 of this Agreement) shall from and after the Effective Time represent
for all purposes only the right to receive the consideration provided in
Sections 2.1 and 2.4 of this Agreement in exchange therefor, subject, however to
the Bank's obligation to pay any dividends or make any other distributions with
a record date prior to the Effective Time which have been declared or made by
BSB in respect of share shares of BSB Common Stock in accordance with the terms
of this Agreement and which remain unpaid at the Effective Time. To the extent
permitted by law, former stockholders of record of BSB shall be entitled to vote
after the Effective Time at any meeting of Republic stockholders the number of
whole shares of Republic Common Stock into which their respective shares of BSB
Common Stock are converted, regardless of whether such holders have exchanged
their certificates representing BSB Common Stock for certificates representing
Republic Common Stock in accordance with the provisions of this Agreement.
Whenever a dividend or other distribution is declared by Republic on the
Republic Common Stock, the record date for which is at or after the Effective
Time, the declaration shall include dividends or other distributions on all
shares issuable pursuant to this Agreement, but no dividend or other
distribution payable to the holders of record of Republic Common Stock as of any
time subsequent to the Effective Time shall be delivered to the holder of any
certificate representing shares of BSB Common Stock issued and outstanding at
the Effective Time until such holder surrenders such certificate for exchange as
provided Section 3.1 of the Agreement. However, upon surrender of such BSB
Common Stock certificate, both the Republic Common Stock certificate (together
with all such undelivered dividends or other distributions without interest) and
any undelivered dividends and cash payments to be paid for fractional share
interests (without interest) shall be delivered and paid with respect to each
share represented by such certificate.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BSB
BSB hereby represents and warrants to Republic:
4.1 ORGANIZATION, STANDING AND POWER.
(a) BSB is a federal savings bank duly organized, validly existing,
and in good standing under the Laws of the United States of America, and has the
power and authority to carry on its business as now conducted and to own, lease
and operate its material Assets. BSB is duly qualified or licensed to transact
business as a foreign corporation in good standing in the states and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on BSB.
(b) BSB is an "insured institution" as defined in the Federal Deposit
Insurance Act and applicable regulations thereunder, the deposits of which are
insured by the Savings Association Fund, and is a member in good standing of the
Federal Home Loan Bank of Atlanta ("FHLB").
4.2 AUTHORITY; NO BREACH BY AGREEMENT.
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(a) BSB has the power and authority necessary to execute, deliver and
perform its obligations under this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated herein, including the
Merger, have been duly and validly authorized by all necessary corporate action
in respect thereof on the part of BSB, subject to the approval of this Agreement
by the required vote of the holders of outstanding shares of BSB Common Stock,
and consummation of the Merger by BSB. Subject to such requisite stockholder
approval, this Agreement represents a legal, valid binding obligation of BSB,
enforceable against BSB in accordance with its terms (except in all cases as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by BSB, nor
the consummation by BSB of the transactions contemplated hereby, nor compliance
by BSB with any of the provisions hereof, will (i ) conflict with or result in a
breach of any provision of BSB's Charter or Bylaws; or (ii) constitute or result
in a Default under, or require any Consent pursuant to, or result in the
creation of any Lien on any Asset of any BSB Company under, any Contract or
Permit of any BSB Company, where such Default or Lien, or any failure to obtain
such Consent, is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on BSB; or (iii) subject to receipt of the requisite
Consents referred to in Section 8.1(b) of this Agreement, violate any Law or
Order applicable to any BSB Company or any of their respective material Assets.
( c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities laws, and rules of
the NASD, and other than Consents required from Regulatory Authorities, and
other than Consents, filings or notifications which, if not obtained or made,
are not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on BSB, no notice to, filing with, or Consent of, any public body
or authority is necessary for the consummation by BSB of the Share Exchange and
the other transactions contemplated in this Agreement.
4.3 CAPITAL STOCK.
(a) The authorized capital stock of BSB consists of 10,000,000 shares
of BSB Common Stock, of which no more than 692,333 shares are issued and
outstanding as of the date of this Agreement. The stock register of BSB reflects
690,333 shares outstanding although the records of BSB's stock transfer agent
reflects 692,333 shares outstanding. BSB shall attempt to reconcile the
discrepancy prior to closing and shall provide Republic with the accurate number
of outstanding shares; provided, that if it is unable to do so, the
consideration to be paid to the shareholders of BSB in exchange for their shares
of BSB Common Stock shall be based upon 692,333 outstanding shares (or such
greater number as shall be determined by BSB after investigation), plus the
number of additional shares issued upon exercise of options as contemplated
herein. All of the issued and outstanding shares of capital stock of BSB are
duly and validly issued and outstanding and are fully paid and nonassessable
under the OTS Regulations. None of the outstanding shares of capital stock of
BSB has been issued in violation of any preemptive rights of the current or past
stockholders of BSB. In the event any BSB options are exercised subsequent to
January 1, 1998, the option price shall be added to BSB's equity as calculated
in paragraph 2.1 (b), and consequently, the number of outstanding shares will be
increased to the number resulting from the exercise of the option.
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(b) Except as set forth in Section 4.3(a) of this Agreement, there are
no shares of capital stock or other equity securities of BSB outstanding and
other than the options disclosed in Section 2.1 of the BSB Disclosure Memorandum
there are no outstanding rights relating to the capital stock of BSB.
4.4 BSB SUBSIDIARIES. BSB has disclosed in Section 4.4 of the BSB
Disclosure Memorandum all of the BSB Subsidiaries as of the date of this
Agreement. BSB or one of its Subsidiaries owns all of the issued and outstanding
shares of capital stock of each BSB Subsidiary. No equity securities of any BSB
Subsidiary are or may become required to be issued (other than to another BSB
Company) by reason of any Rights, and there are no Contracts by which any BSB
Subsidiary is bound to issue (other than to another BSB Company) additional
shares of its capital stock or Rights or by which any BSB Company is or may be
bound to transfer any shares of the capital stock of any BSB Subsidiary (other
than to another BSB Company). There are no Contracts relating to the rights of
any BSB Company to vote or to dispose of any shares of the capital stock of any
BSB Subsidiary. All of the shares of capital stock of each BSB Subsidiary held
by an BSB Company are fully paid and nonassessable under the applicable
corporation law of the jurisdiction in which such Subsidiary is incorporated or
organized and are owned by the BSB Company free and clear of any lien. Each BSB
Subsidiary is a corporation, duly organized, validly existing, and in good
standing under the laws of the jurisdiction in which it is incorporated or
organized, and has the corporate power and authority necessary for it to own,
lease and operate its Assets and to carry on its business as now conducted. Each
BSB Subsidiary is duly qualified or licensed to transact business as a foreign
corporation in good standing in the states of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on BSB.
4.5 FINANCIAL STATEMENTS.
(a) BSB has filed and made available to Republic all forms, reports
and documents required to be filed by BSB with the OTS since December 31, 1993
(collectively, the "BSB Reports"). The BSB Reports (i) at the time filed,
complied in all material respects with the applicable requirements of the OTS;
and (ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such BSB Reports or necessary in order to make the
statements in such BSB Reports, in light of the circumstances under which they
were made, not misleading. Except for BSB Subsidiaries that are registered as a
broker, dealer or investment advisor, none of BSB's Subsidiaries is required to
file any forms, reports or other documents with the OTS.
(b) Each of the BSB Financial Statements (including, in each case, any
related note) and schedules contained in the BSB Reports, including any BSB
Reports filed after the date of this Agreement until the Effective Time,
complied as to form in all material respects with the applicable published rules
and regulations of the OTS with respect thereto, was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements, or in the case of
unaudited statements, as permitted), and fairly presented the consolidated
financial position of BSB and its Subsidiaries as of the respective dates and
the consolidated results of its operations and cash flows
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for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount.
4.6 ABSENCE OF UNDISCLOSED LIABILITIES. To the knowledge of BSB, and
except as disclosed in Section 4.6 of the BSB Disclosure Memorandum, no BSB
Company has any liabilities that are reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on BSB, except liabilities which are
accrued or reserved against in the consolidated balance sheets of BSB as of
December 31, 1997 included in the BSB Financial Statements or reflected in the
notes thereto. No BSB Company has incurred or paid any Liability since December
31, 1997, except for such liabilities incurred or paid in the ordinary course of
business consistent with past business practice and which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
BSB.
4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1997, except
as disclosed in Section 4.7 of the BSB Disclosure Memorandum, (i) there have
been no events, changes or occurrences which have had, or are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on BSB; and
(ii) the BSB Companies have not taken any action, or failed to take any action,
prior to the date of this Agreement, which action or failure, if taken after the
date of this Agreement, would represent or result in a material breach or
violation of any of the covenants and agreements of BSB provided in Article 7 of
this Agreement.
4.8 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of any of the
BSB Companies have been timely filed or requests for extensions have been timely
filed, granted and have not expired for periods ended on or before December 31,
1996, and on or before the date of the most recent fiscal year end immediately
preceding the Effective Time, except to the extent that all such failures to
file, taken together, are not reasonably likely to have a Material Adverse
Effect on BSB, and all Tax Returns filed are complete and accurate in all
material respects. All taxes shown on filed Tax Returns have been paid. There is
no audit examination, deficiency or refund litigation with respect to any Taxes
that is reasonably likely to result in a determination that would have,
individually or in the aggregate, a Material Adverse Effect on BSB, except as
reserved against in the BSB Financial Statements delivered prior to the date of
this Agreement. All Taxes and other liabilities due with respect to completed
and settled examinations or concluded litigation have been paid.
(b) None of the BSB Companies has executed an extension or waiver of
any statute of limitations on the assessment or collection of any Tax due that
is currently in effect.
(c ) Adequate provision for any Taxes due or to become due for any of
the BSB Companies for the period or periods through and including the date of
the respective BSB Financial Statements has been made and is reflected on such
BSB Financial Statements.
(d) Deferred Taxes of the BSB Companies have been adequately provided
for in the BSB Financial Statements.
(e) Each of the BSB Companies is in compliance with, and its records
contain all information and documents (including properly completed IRS Forms
W-9) necessary to comply with, all applicable
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information reporting and tax withholding requirements under federal, state and
local tax Laws, and such records identify with specificity all accounts subject
to backup withholding under Section 3406 of the Internal Revenue Code, except
for such instances of noncompliance and such omissions as are not reasonably
likely to have individually or in the aggregate, a Material Adverse Effect on
BSB.
(f) None of the BSB Companies has made any payments, is obligated to
make any payments, or is a party to any contract, agreement or other arrangement
that could obligate it to make any payments that would be disallowed as a
deduction under Section 280G or 162(m) of the Internal Revenue Code.
(g) There are no Liens with respect to Taxes upon any of the Assets of
the BSB Companies, other than Liens for Taxes on real estate of BSB obtained as
a result of or in lieu of foreclosures, which Liens are reflected in the
carrying value of the Assets on the BSB Financial Statements, and Liens on real
estate securing loans made by BSB.
(h) Except as contemplated by this Agreement, there has not been an
ownership change, as defined in Internal Revenue Code Section 382(g), of the BSB
Companies that occurred during or after any taxable period in which the BSB
Companies incurred a net operating loss that carries over to any Taxable Period
ending after December 31, 1994.
(i) No BSB Company has filed any consent under Section 341(f) of the
Internal Revenue Code concerning collapsible corporations.
(j) All material elections with respect to Taxes affecting the BSB
Companies as of the date of this Agreement have been or will be timely made as
set forth in Section 4.8 of the BSB Disclosure Memorandum. After the date
hereof, no Material election with respect to Taxes will be made by BSB without
the prior consultation with Republic.
(k) No BSB Company has or has had a permanent establishment in any
foreign country, as defined in any applicable tax treaty or convention between
the BSB States and such foreign country.
4.9 ASSETS. Except as disclosed in Section 4.9 of the BSB Disclosure
Memorandum or reflected on the BSB Financial Statements, the BSB Companies have
good and marketable title, free and clear of all Liens, to all of their
respective Assets that are Material to the conduct of their business. All
tangible properties that are Material to the businesses of the BSB Companies are
in good condition, reasonable wear and tear excepted, and are usable in the
ordinary course of business consistent with BSB's past practices. All Assets
which are Material to BSB's business on a consolidated basis, held under leases
or subleases by any of the BSB Companies, are held under valid written contracts
enforceable in accordance with their respective terms (except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceedings may be brought), and each such Contract is in full force and effect.
A list of insurance policies maintained by BSB is set forth in Section 4.9 of
the BSB Disclosure Memorandum. Except as disclosed in Section 4.9 of the BSB
Disclosure Memorandum, none of the BSB Companies has received notice from any
insurance carrier that (i) such insurance will be canceled or that coverage
thereunder will be reduced or eliminated; or (ii) premium costs with respect to
such policies of insurance will be substantially increased.
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There are presently no claims pending under such policies of insurance and no
notices have been given by an BSB Company under such policies. The Assets of the
BSB Companies include all assets required to operate the business of the BSB
Companies as presently conducted.
4.10 ENVIRONMENTAL MATTERS.
(a) To the knowledge of BSB, each BSB Company, its Participation
Facilities and its Loan Properties are and have been in compliance with all
environmental Laws, except for violations which are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on BSB and/or
are set forth in Section 4.10 of the BSB Disclosure Memorandum.
(b) There is no litigation pending or to the knowledge of BSB,
threatened before any court, governmental agency or authority or other forum in
which any BSB Company or any of its Loan Properties or Participation Facilities
(or any BSB Company in respect of any such Loan Property or Participation
Facility) has been or, with respect to threatened litigation, may be named as a
defendant or potentially responsible party (i) for alleged noncompliance
(including by any predecessor) with any environmental law; or (ii) relating to
the release into the environment of any hazardous material, whether or not
occurring at, on, under or involving a site owned, leased or operated by any BSB
Company or any of its Loan Properties or Participation Facilities.
(c) To the knowledge of BSB there have been no releases of hazardous
material in, on, under or affecting any Participation Facility or Loan Property
of an BSB Company, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on BSB.
4.11 COMPLIANCE WITH LAWS. BSB is a federal savings bank organized under
the HOLA and the OTS Regulations. Each BSB Company has in effect all Permits
necessary for it to own, lease or operate its material assets and to carry on
its business as now conducted, except for those Permits the absence of which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on BSB, and there has occurred no default under any such Permit,
other than defaults which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on BSB. None of the BSB Companies:
(a) is in violation of any laws, orders or permits applicable to its
business or employees conducting its business, except for violations which
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on BSB; and
(b) except as disclosed in Section 4.11 of the BSB Disclosure
Memorandum, has received any notification or communication from any agency
or department of federal, state or local government or any regulatory
authority or the staff thereof (i) asserting that any BSB Company is not in
compliance with any of the Laws or orders which such governmental authority
or regulatory authority enforces, where such noncompliance is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect
on BSB; (ii) threatening to revoke any Permits, the revocation of which is
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on BSB; or (iii) requiring any BSB Company to enter into or
consent to the issuance of a cease and desist order, formal agreement,
directive, commitment or memorandum of understanding, or to adopt any Board
resolution or similar undertaking, which restricts materially the conduct
of its business, or in any manner relates to
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its capital adequacy, its credit or reserve policies, its management or the
payment of dividends.
4.12 LABOR RELATIONS. No BSB Company is the subject of any litigation
asserting that it or any other BSB Company has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other BSB Company to bargain with any
labor organization as to wages or conditions of employment, nor is there any
strike or other labor dispute involving any BSB Company, pending or threatened,
or to the knowledge of BSB, is there any activity involving any BSB Company's
employee's seeking to certify a collective bargaining unit or engaging in any
other organization activity.
4.13 EMPLOYEE BENEFIT PLANS.
(a) BSB has disclosed in Section 4.13 of the BSB Disclosure
Memorandum, and has delivered or made available to Republic prior to the
execution of this Agreement copies in each case of, all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus or other incentive plan, all other written
employee programs, arrangements or agreements, all medical, vision, dental or
other health plans, all life insurance plans and all other employee benefit
plans or fringe benefit plans, including "employee benefit plans" as that term
is defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored
in whole or in part by, or contributed to by any Applied Company or ERISA
Affiliate (as defined below) thereof for the benefit of employees, retirees,
dependents, spouses, directors, independent contractors or other beneficiaries
and under which employees, retirees, dependents, spouses, directors, independent
contractors or other beneficiaries are eligible to participate (collectively,
the "BSB Benefit Plans"). None of the BSB Benefit Plans is an "employee pension
benefit plan," as that term is defined in Section 3(2) of ERISA.
(b) No BSB Company has any liability for retiree health and life
benefits under any of the BSB Benefit Plans and there are no restrictions on the
rights of such BSB Company to amend or terminate any such Plan without incurring
any liability thereunder, which liability is reasonably likely to have a
Material Adverse Effect on BSB.
(c) Except as disclosed in Section 4.13 of the BSB Disclosure
Memorandum, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute or
otherwise) becoming due to any director or any employee of any BSB Company from
any BSB Company under any BSB Benefit Plan or otherwise; (ii) increase any
benefits otherwise payable under any BSB Benefit Plan; or (iii) result in any
acceleration of the time of payment or vesting of any such benefit, where such
payment, increase or acceleration is reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on BSB.
(d) The actuarial present values of all accrued deferred compensation
entitlement (including entitlement under any executive compensation,
supplemental retirement or employment agreement) of employees and former
employees of any BSB Company and their respective beneficiaries, other than
entitlement accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal
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Revenue Code or Section 302 of ERISA, have been fully reflected on the BSB
Financial Statements to the extent required by and in accordance with GAAP.
(e) There are no Material claims pending (or, to the Knowledge of BSB,
threatened in a writing which is under review, or has been reviewed within
twelve (12) months prior to the date of this Agreement, by counsel to BSB or
BSB's Director of Human Resources) by or on behalf of any BSB Benefit Plan, by
any employee or beneficiary covered under any BSB Benefits Plan, or otherwise
concerning the operation or administration of any BSB Benefit Plan (other than
routine claims for benefits).
4.14 MATERIAL CONTRACTS. Except as otherwise reflected in the BSB Financial
Statements and as disclosed in Section 4.14 of the BSB Disclosure Memorandum,
none of the BSB Companies, nor any of their respective assets, businesses or
operations is a party to or is bound or affected by or receives benefits under
(i) any employment, severance, terminating, consulting or retirement contract
providing for aggregate payments to any person in any calendar year in excess of
$100,000; and (ii) any contract relating to the borrowing of money by any BSB
Company or the guarantee by any BSB Company of any such obligation (other than
contracts evidencing deposit liabilities, purchases of federal funds, FHLB
advances, fully-secured repurchase agreements and advances, trade payables and
contracts relating to borrowings or guarantees made in the ordinary course of
business); (together with all contracts referred to in Section 4.8 and 4.13(a)
of this Agreement, the "BSB Contracts"). With respect to each BSB Contract: (i)
the contract is in full force and effect; (ii) no BSB Company is in default
thereunder, other than defaults which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on BSB; (iii) no BSB
Company has repudiated or waived any material provision of any such contract;
and (iv) no other party to any such contract is, to the knowledge of BSB, in
default in any respect, other than defaults which are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on BSB or has
repudiated or waived any material provision thereunder. Except for FHLB
advances, all of the indebtedness of any BSB Company for money borrowed is
prepayable at any time by such BSB Company without penalty or premium.
4.15 LEGAL PROCEEDINGS.
(a) Except as disclosed in Section 4.15(a) of the BSB Disclosure
Memorandum, there is no litigation instituted or pending or, to the knowledge of
BSB, threatened (or unasserted but considered probable of assertion and which if
asserted would have at least a reasonable probability of an unfavorable outcome)
against any BSB Company, or against any Asset, employee benefit plan, interest
or right of any of them, that is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on BSB, nor are there any orders of any
regulatory authorities, other governmental authorities, or arbitrators
outstanding against any BSB Company, that are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on BSB.
(b) Section 4.15(b) of the BSB Disclosure Memorandum includes a
summary report of all litigation as of the date of this Agreement to which any
BSB Company is a party and which names an BSB Company as a defendant or
cross-defendant.
4.16 REPORTS. Since January 1, 1995, or the date of organization if later,
each BSB Company has timely filed all reports and statements, together with any
amendments required to be made with respect thereto, that it was required to
file with any Regulatory Authorities (except, in the case of state securities
authorities,
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failures to file which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on BSB). As of their respective dates, each
of such reports and documents, including the financial statements, exhibits and
schedules thereto, complied in all material respects with all applicable Laws.
As of its respective date, each such report and document did not, in all
material respects, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
4.17 STATEMENTS TRUE AND CORRECT. None of the information supplied or to be
supplied by any BSB Company or any Affiliate thereof for inclusion in the
Registration Statement to be filed by Republic with the SEC will, when the
Registration Statement becomes effective, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any BSB Company or any Affiliate thereof for inclusion in the Proxy
Statement/Prospectus to be mailed to BSB's stockholders in connection with the
Stockholders' Meeting, and any other documents to be filed by an BSB Company or
any Affiliate thereof with the SEC or any other Regulatory Authority in
connection with the transactions contemplated hereby, will, at the respective
time such documents are filed, and with respect to the Proxy
Statements/Prospectus, when first mailed to the stockholders of BSB, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading or, in the case of the Proxy
Statements/Prospectus or any amendment thereof or supplement thereto, at the
time of the Stockholders' Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Stockholders' Meetings. All documents that any BSB Company or any
Affiliate thereof is responsible for filing with any regulatory authority in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the provisions of applicable law.
4.18 TAX AND REGULATORY MATTERS. Except as specifically contemplated by
this Agreement, no BSB Company or any Affiliate thereof has taken or agreed to
take any action or has any knowledge of any fact or circumstance that is
reasonably likely to ( i) prevent the transactions contemplated hereby,
including the Share Exchange, from qualifying as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code; or (ii) materially
impede or delay receipt of any consents of Regulatory Authorities referred to in
Section 8.1(b) of this Agreement or result in the imposition of a condition or
restriction of the type referred to in the last sentence of such section.
4.19 CHARTER PROVISIONS. Each BSB Company has taken all action so that the
entering into of this Agreement and the consummation of the Share Exchange and
the other transactions contemplated by this Agreement do not and will not result
in the grant of any rights to any person under the Charter, Articles of
Incorporation, Bylaws or other governing instruments of any BSB Company or
restrict or impair the ability of Republic or any of its Subsidiaries to vote or
otherwise to exercise the rights of a stockholder with respect to shares of any
BSB Company that may be directly or indirectly acquired or controlled by it.
4.20 DERIVATIVES CONTRACTS. Except as disclosed in Section 4.20 of the BSB
Disclosure Memorandum, neither BSB nor any of its Subsidiaries is a party to or
has agreed to enter into an exchange-traded or over-the-counter swap, forward,
future, option, cap, floor or collar financial contract, or any other interest
rate or foreign currency protection contract not included on its balance sheet
which is a financial derivative contract (including various combinations
thereof).
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF REPUBLIC
Republic hereby represents and warrants to BSB as follows:
5.1 ORGANIZATION, STANDING AND POWER. Republic is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its material assets. Republic is
duly qualified or licensed to transact business as a foreign corporation in good
standing in the states and foreign jurisdictions where the character of its
assets or the nature or conduct of its business requires it to be so qualified
or licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Republic.
5.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) Republic has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of Republic.
This Agreement represents a legal, valid and binding obligation of Republic,
enforceable against Republic in accordance with its terms (except in all cases
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by Republic
nor the consummation by Republic of the transactions contemplated hereby nor
compliance by Republic with any of the provisions hereof will (i) conflict with
or result in a breach of any provision of Republic's Articles of Incorporation
or By-laws; or (ii) constitute or result in a default under, or require any
Consent pursuant to or result in the creation of any Lien or any asset of any
Republic Company under any contract or Permits of any Republic Company, where
such default or Lien or any failure to obtain such consent is reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on
Republic; or (iii) subject to receipt of the requisite consents referred to in
Section 8.1(b) of this Agreement, violate any law or order applicable to any
Republic Company or any of their respective material assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities laws and rules of the
NASD and other than Consents required from Regulatory Authorities, and other
than Consents, filings or notifications which, if not obtained or made, are not
reasonably likely to have, individually or in the aggregate a Material Adverse
Effect on Republic, no notice to, filing with or Consent of any public body or
authority is necessary for the consummation by Republic of the Merger and the
other transactions contemplated in this Agreement.
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5.3 CAPITAL STOCK. The authorized capital stock of Republic consists of
20,000,000 shares of Republic Common Stock, of which 7,035,886 shares were
issued and outstanding as of December 31, 1997, and 100,000 shares of Republic
Preferred Stock, of which 75,000 shares were issued and outstanding as of
December 31, 1997. All of the issued and outstanding shares of Republic Common
Stock and Republic Preferred Stock are, and all of the shares of Republic Common
Stock to be issued in exchange for shares of BSB Common Stock upon consummation
of the Merger, when issued in accordance with the terms of this Agreement, will
be, duly and validly issued and outstanding and fully paid and nonassessable
under the FBCA. None of the outstanding shares of Republic Common Stock has
been, and none of the shares of Republic Common Stock to be issued in exchange
for shares of BSB Common Stock upon consummation of the Merger will be issued in
violation of any preemptive rights of the current or past stockholders of
Republic.
5.4 REPUBLIC SUBSIDIARIES. Republic or one of its Subsidiaries owns all of
the issued and outstanding shares of capital stock of each Republic Subsidiary.
No equity securities of any Republic Subsidiary are or may become required to be
issued (other than to another Republic Company) by reason of any Rights, and
there are no Contracts by which any Republic Subsidiary is bound to issue (other
than to another Republic Company) additional shares of its capital stock or
Rights or by which any Republic Company is or may be bound to transfer any
shares of the capital stock of any Republic Subsidiary (other than to another
Republic Company). There are no Contracts relating to the Rights of any Company
to vote or to dispose of any shares of the capital stock of any Republic
Subsidiary. All of the shares of capital stock of each Republic Subsidiary held
by a Republic Company are fully paid and nonassessable under the applicable
corporation law of the jurisdiction in which such Subsidiary is incorporated or
organized and are owned by the Republic Company free and clear of any Lien. Each
Republic Subsidiary is either a bank or a corporation, and is duly organized,
validly existing, and (as to corporations) in good standing under the Laws of
the jurisdiction in which it is incorporated or organized, and has the corporate
power and authority necessary for it to own, lease and operate its Assets and to
carry on its business as now conducted. Each Republic Subsidiary is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the States and foreign jurisdictions where the character of its
Assets or the nature or conduct of its business requires it to be so qualified
or licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Republic. Each Republic Subsidiary that
is a depository institution is an "insured institution" as defined in the
Federal Deposit Insurance Act and applicable regulations thereunder, and the
deposits in which are insured by the Bank Insurance Fund or Savings Association
Insurance Fund.
5.5 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Republic has filed and made available to BSB all forms, Reports
and documents required to be filed by Republic and the Bank with the FDIC and
the SEC since December 31, 1993, other than registration statements on Forms S-4
and S-8 (collectively, the "Republic SEC Reports"). The Republic SEC Reports (
i) at the time filed, complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the case may be; and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such Republic SEC Reports or necessary in order to make
the statements in such Republic SEC Reports, in light of the circumstances under
which they were made, not misleading.
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(b) Each of the Republic Financial Statements (including, in each
case, any related notes) contained in the Republic SEC Reports, including any
Republic SEC Reports filed after the date of this Agreement until the Effective
Time, complied as to form in all material respects with the applicable published
rules and regulations of the SEC with respect thereto, was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC),
and fairly presented the consolidated financial position of Republic and its
Subsidiaries as at the respective dates and the consolidated results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in
amount.
5.6 ABSENCE OF UNDISCLOSED LIABILITIES. To the Knowledge of Republic, no
Republic Company has any Liabilities that are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Republic, except
Liabilities which are accrued or reserved against in the consolidated balance
sheets of Republic as of December 31, 1997 included in the Republic Financial
Statements or reflected in the notes thereto. Except as disclosed in Section 5.6
of the Republic Disclosure Memorandum, no Republic Company has incurred or paid
any Liability since December 31, 1997, except for such Liabilities incurred or
paid in the ordinary course of business consistent with past business practice
and which are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Republic.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1997, except
as disclosed in the Republic Financial Statements delivered prior to the date of
this Agreement or in Section 5.7 of the Republic Disclosure Memorandum, ( i)
there have been no events, changes or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Republic; and (ii) the Republic Companies have not taken any action,
or failed to take any action, prior to the date of this Agreement, which action
or failure, if taken after the date of this Agreement, would represent or result
in a material breach or violation of any of the covenants and agreements of
Republic provided in Article 7 of this Agreement.
5.8 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of any of the
Republic Companies have been timely filed or requests for extensions have been
timely filed, granted and have not expired for periods ended on or before
December 31, 1996, and on or before the date of the most recent fiscal year end
immediately preceding the Effective Time, except to the extent that all such
failures to file, taken together, are not reasonably likely to have a Material
Adverse Effect on Republic, and all Tax Returns filed are complete and accurate
in all material respects. All Taxes shown on filed Tax Returns have been paid.
There is no audit examination, deficiency or refund Litigation with respect to
any Taxes that is reasonably likely to result in a determination that would
have, individually or in the aggregate, a Material Adverse Effect on Republic,
except as reserved against in the Republic Financial Statements delivered prior
to the date of this Agreement. All Taxes and other Liabilities due with respect
to completed and settled examinations or concluded Litigation have been paid.
(b) Adequate provision for any Taxes due or to become due for any of
the Republic Companies for the period or periods through and including the date
of the respective Republic Financial Statements has been made and is reflected
on such Republic Financial Statements.
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(c) Deferred Taxes of the Republic Companies have been adequately
provided for in the Republic Financial Statements.
5.9 ENVIRONMENTAL MATTERS.
(a) To the Knowledge of Republic, each Republic Company, its
Participation Facilities and its Loan Properties are and have been in compliance
with all Environmental Laws, except for violations which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Republic.
(b) There is no Litigation pending or, to the Knowledge of Republic,
threatened before any court, governmental agency or authority or other forum in
which any Republic Company or any of its Loan Properties or Participation
Facilities (or any regions Company in respect of any such Loan Property or
Participation Facility) has been or, with respect to threatened Litigation, may
be named as a defendant or potentially responsible party (i ) for alleged
noncompliance (including by any predecessor) with any Environmental Law; or (ii)
relating to the release into the environment of any Hazardous Material, whether
or not occurring at, on, under or involving any of its Loan Properties or
Participation Facilities, except for such Litigation pending or threatened that
is not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Republic.
(c) To the Knowledge of Republic, there have been no releases of
Hazardous Material in, on, under or affecting any Participation Facility or Loan
Property of a Republic Company, except such as are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on Republic.
5.10 COMPLIANCE WITH LAWS. Republic is duly registered as a bank holding
company under the BHC Act. Each Republic Company has in effect all Permits
necessary for it to own, lease or operate its material Assets and to carry on
its business as now conducted, except for those Permits the absence of which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Republic, and there has occurred no Default under any such
Permit, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Republic. No
Republic Company:
(a) is in violation of any Laws, Orders or permits applicable to its
business or employees conducting its business, except for violations which
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Republic; and
(b) has received any notification or communication from any agency or
department of federal, state or local government or any Regulatory
Authority or the staff thereof ( i) asserting that any Republic Company is
not in compliance with any of the Laws or Orders which such governmental
authority or Regulatory Authority enforces, where such noncompliance is
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Republic; (ii) threatening to revoke any permits, the
revocation of which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Republic; or (iii) requiring any
Republic Company to enter into or consent to the issuance of a cease and
desist order, formal agreement, directive, commitment or memorandum of
understanding, or to adopt any Board resolution or similar undertaking,
which restricts materially the conduct of
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its business, or in any manner relates to its capital adequacy, its credit
or reserve policies, its management or the payment of dividends.
5.11 LEGAL PROCEEDINGS. Except as set forth in Section 5.11 of the Republic
Disclosure Memorandum, there is no Litigation instituted or pending or, to the
Knowledge of Republic, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against any Republic Company, or against any Asset,
interest or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Republic, nor are
there any Orders of any Regulatory Authorities, other governmental authorities
or arbitrators outstanding against any Republic Company, that are reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Republic.
5.12 REPORTS. Since January 1, 1995, or the date of organization if later,
each Republic Company has filed all reports and statements, together with any
amendments required to be made with respect thereto, that it was required to
file with Regulatory Authorities (except, in the case of state securities
authorities, failures to file which are no reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Republic). As of
their respective dates, each of such reports and documents, including the
financial statements, exhibits and schedules thereto, complied in all material
respects with all applicable Laws. As of its respective date, each such report
and document did not, in all material respects, contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
5.13 STATEMENTS TRUE AND CORRECT. None of the information supplied or to be
supplied by any Republic Company or any Affiliate thereof for inclusion in the
Registration Statement to be filed by Republic with the SEC will, when the
Registration Statement becomes effective, be false or misleading with respect to
any material fact or omit to state any material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any Republic Company or any Affiliate thereof for inclusion in the
Proxy Statement/Prospectus to be mailed to BSB's stockholders in connection with
its Stockholders' Meeting, and any other documents to be filed by any Republic
Company or any Affiliate thereof with the SEC or any other Regulatory Authority
in connection with the transactions contemplated hereby will, at the respective
time such documents are filed, and with respect to the Proxy
Statement/Prospectus, when first mailed to the stockholders of BSB, be false or
misleading with respect to any material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading or, in the case of the Proxy
Statement/Prospectus or any amendment thereof or supplement thereto, at the time
of the Stockholders' Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Stockholders' Meeting. All documents that any Republic Company or
any Affiliate thereof is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the provisions of applicable Law.
5.14 TAX AND REGULATORY MATTERS. Except as specifically contemplated by
this Agreement, no Republic Company or any Affiliate thereof has taken or agreed
to take any action or has any Knowledge of any fact or circumstance that is
reasonably likely to (i) prevent the transactions contemplated hereby,
including the Merger, from qualifying for treatment as a reorganization within
the meaning of Section 368(a) of the Internal
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Revenue Code; or (ii) materially impede or delay receipt of any Consents of
Regulatory Authorities referred to in Section 9.1(b) of this Agreement or result
in the imposition of a condition or restriction of the type referred to in the
last sentence of such Section.
ARTICLE 6
CONDUCT OF BUSINESS PENDING CONSUMMATION
6.1 AFFIRMATIVE COVENANTS OF BSB. Unless the prior written consent of
Republic shall have been obtained and, except as otherwise expressly
contemplated herein, BSB shall and shall cause each of its Subsidiaries to (i )
operate its business only in the usual, regular and ordinary course; (ii)
preserve intact its business organization and Assets and maintain its rights and
franchises; (iii) use its reasonable efforts to maintain its current employee
relationships; and (iv) take no action which would (a) adversely affect the
ability of any party to obtain any Consents required for the transactions
contemplated hereby without imposition of a condition or restriction of the type
referred to in the last sentence of Section 8.1(b) of this Agreement; or (b)
adversely affect the ability of any party to perform its covenants and agreement
sunder this Agreement.
6.2 NEGATIVE COVENANTS OF BSB. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, and except
as expressly permitted by this Agreement, BSB covenants and agrees that it will
not do or agree or commit to do, or permit any of its Subsidiaries to do or
agree or commit to do, any of the following without the prior written consent of
an authorized officer of Republic:
(a) except as required by applicable Law, amend the Charter, Articles
of Incorporation, Bylaws or other governing instruments of any BSB Company;
or
(b) incur any additional debt obligation or other obligation for
borrowed money (other than indebtedness of an BSB Company to another BSB
Company) in excess of an aggregate of $50,000 (for the BSB Companies on a
consolidated basis) except in the ordinary course of the business
consistent with past practices (which shall include, for BSB, creation of
deposit liabilities, purchases of federal funds, advances from the Federal
Reserve Bank of Atlanta or FHLB, and entry into repurchase agreements fully
secured by U.S. government or agency securities), or impose or suffer the
imposition on any Asset of any BSB Company of any Lien or permit any such
Lien to exist (other than in connection with deposits, repurchase
agreements, bankers acceptances, "treasury tax and loan" accounts
established in the ordinary course of business, the satisfaction of legal
requirements in the exercise of trust powers, and Liens in effect as of the
date hereof that are disclosed in the BSB Disclosure Memorandum); or
(c) repurchase, redeem or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of
the capital stock of any BSB Company, or declare or pay any dividend or
make any other distribution in respect of BSB's capital stock.
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(d) except for this Agreement and except with respect to options
outstanding on the date hereof, issue, sell, pledge, encumber, authorize
the issuance of, enter into any Contract to issue, sell, pledge, encumber
or authorize the issuance of, or otherwise permit to become outstanding,
any additional shares of BSB Common Stock or any other capital stock of any
BSB Company, or any stock appreciation rights, or any option, warrant,
conversion or other right to acquire any such stock or any security
convertible into any such stock; or
(e) adjust, split, combine or reclassify any capital stock of any BSB
Company or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of BSB Common Stock, or sell,
lease, mortgage or otherwise dispose of or otherwise encumber (x) any
shares of capital stock of any BSB Subsidiary (unless any such shares of
stock are sold or otherwise transferred to another BSB Company) or (y) any
Asset other than in the ordinary course of business for reasonable and
adequate consideration; or
(f) except for purchases of U.S. Treasury securities, or U.S.
Government agency securities, Federal Home Loan Mortgage Corporation,
Fannie Mae, Ginnie Mae or other investment grade securities, purchase any
securities or make any material investment, either by purchase of stock or
securities, contributions to capital, Asset transfers, or purchase of any
Assets, in any Person other than a wholly-owned BSB Subsidiary, or
otherwise acquire direct or indirect control over any Person, other than in
connection with ( i) foreclosures in the ordinary course of business; (ii)
acquisitions of control by a depository institution Subsidiary in its
fiduciary capacity; or (iii) the creation of new wholly-owned Subsidiaries
organized to conduct or continue activities otherwise permitted by this
Agreement; or
(g) grant any increase in compensation or benefits to the employees or
officers of any BSB Company, except in accordance with past practice
disclosed in Section 6.2(g) of the BSB Disclosure Memorandum or as required
by Law; pay any severance or termination pay or any bonus other than
pursuant to written policies or written Contracts in effect on the date of
this Agreement; except as authorized by Section 7.13 of this Agreement,
enter into or amend any severance agreements with officers of any BSB
Company; grant any material increase in fees or other increases in
compensation or other benefits to directors of any BSB Company except in
accordance with past practice disclosed in Section 6.2(g) of the BSB
Disclosure Memorandum; or voluntarily accelerate the vesting of any stock
options or other stock-based compensation or employee benefits; or
(h) except as authorized by Section 7.13 of this Agreement, enter into
or amend any employment Contract between any BSB Company and any Person
(unless such amendment is required by Law) that the BSB Company does not
have the unconditional right to terminate without Liability (other than
Liability for services already rendered), at any time on or after the
Effective Time; or
( i) adopt any new employee pension benefit plan as such term is
defined in Section 3.2 of ERISA or make any Material change in or to any
other employee benefit plans of any BSB Company other than any such change
that it required by Law or that, in the opinion of counsel, is necessary or
advisable to maintain the tax qualified status of any such plan; or
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(j) make any significant change in any Tax or accounting methods or
systems of internal accounting controls, except as may be appropriate to
conform to changes in Tax Laws or regulatory accounting requirements or
GAAP; or
(k) commence any Litigation other than in accordance with past
practice or settle any Litigation involving any Liability of any BSB
Company for material money damages or restrictions upon the operations of
any BSB Company; or
(l) except in the ordinary course of business, modify, amend or
terminate any material Contract or waive, release, compromise or assign any
material Contract or waive, release, compromise or assign any material
rights or claims.
6.3 COVENANTS OF REPUBLIC. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, Republic
covenants and agrees that it shall ( i) continue to conduct its business and the
business of its Subsidiaries in a manner designed, in its reasonable judgment,
to enhance the long-term value of the Republic Common Stock and the business
prospects of the Republic Companies; and (ii) take no action which would (a)
materially adversely affect the ability of any party to obtain any Consents
required for the transactions contemplated hereby without imposition of a
condition or restriction of the type referred to in the last sentence of Section
8.1(b) of this Agreement; or (b) materially adversely affect the ability of any
party to perform its covenants and agreements under this Agreement; provided,
that the foregoing shall not prevent any Republic Company from discontinuing or
disposing of any of its Assets or business if such action is, in the judgment of
Republic, desirable in the conduct of the business of Republic and its
Subsidiaries.
6.4 ADVERSE CHANGES IN CONDITION. Each party agrees to give written notice
promptly to the other party upon becoming aware of the occurrence or impending
occurrence of any event or circumstance relating to it or any of its
Subsidiaries which ( i) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it; or (ii) would cause or constitute a
material breach of any of its representations, warranties or covenants contained
herein, and to use its reasonable effects to prevent or promptly to remedy the
same.
6.5 REPORTS. Each party and its Subsidiaries shall file all reports
required to be filed by it with Regulatory Authorities between the date of this
Agreement and the Effective Time and shall deliver to the other party copies of
all such reports promptly after the same are filed. If financial statements are
contained in any such reports filed with the SEC or the OTS, such financial
statements will fairly present the consolidated financial position of the entity
filing such statements as of the dates indicated and the consolidated results of
operations, changes in stockholders' equity and cash flows for the periods then
ended in accordance with GAAP (subject in the case of interim financial
statements to normal recurring year-end adjustments that are not material). As
of their respective dates, such reports filed with the SEC or the OTS will
comply in all material respects with the Securities Laws and will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any financial statements contained in any other reports to another
Regulatory Authority shall be prepared in accordance with Laws applicable to
such reports.
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ARTICLE 7
ADDITIONAL AGREEMENTS
7.1 REGISTRATION STATEMENT; PROXY STATEMENT; STOCKHOLDER APPROVAL. As soon
as reasonably practicable after execution of this Agreement, Republic (i) as
sole stockholder of the Bank, shall approve this Agreement and (ii) shall file
the Registration Statement with the SEC and shall use its reasonable efforts to
cause the Registration Statement to become effective under the 1933 Act and take
any action required to be taken under the applicable state Blue Sky or
Securities Laws in connection with the issuance of the shares of Republic Common
Stock upon consummation of the Merger. BSB shall furnish all information
concerning it and the holders of the BSB Common Stock as Republic may reasonably
request in connection with such action. BSB shall call a Stockholders' Meeting,
to be held as soon as reasonably practicable after the Registration Statement is
declared effective by the SEC, for the purpose of voting upon approval of this
Agreement and such other related matters as they deems appropriate. In
connection with the Stockholders' Meetings, (i) BSB shall mail a Proxy
Statement/Prospectus to its stockholders; (ii) the parties shall furnish to each
other all information concerning them that they may reasonably request in
connection with such Proxy Statement/Prospectus; (iii) the Board of Directors of
BSB shall recommend (subject to compliance with their fiduciary duties as
advised by counsel) to their stockholders the approval of the matters submitted
for approval; and (iv) the Board of Directors and officers of BSB shall (subject
to compliance with their fiduciary duties as advised by counsel) use their
reasonable efforts to obtain such stockholders' approval.
7.2 EXCHANGE LISTING. Republic shall use its reasonable efforts to list,
prior to the Effective Time, on the National Market, subject to official notice
of issuance, the shares of Republic Common Stock to be issued to the holders of
BSB Common Stock pursuant to the Merger.
7.3 APPLICATIONS. Republic shall promptly prepare and file, and BSB shall
cooperate in the preparation and, where appropriate, filing of, applications
and/or notices with all Regulatory Authorities having jurisdiction over the
transactions contemplated by this Agreement seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement.
7.4 FILINGS WITH STATE OFFICES. Upon the terms and subject to the
conditions of this Agreement, Republic Bank and BSB shall execute and file a
Certificate of Merger with the Department.
7.5 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms and
conditions of this Agreement, each party agrees to use, and to cause its
Subsidiaries to use, its reasonable best efforts to take, or cause to be taken,
all actions and to do or cause to be done all things necessary, proper or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement, including using its reasonable best efforts to
lift or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article 8 of this Agreement; provided that nothing herein shall
preclude either party from exercising its rights under this Agreement. Each
party shall use, and shall cause each of its Subsidiaries to use, its reasonable
best efforts to obtain all Consents necessary or desirable for the consummation
of the transactions contemplated by this Agreement.
7.6 INVESTIGATION AND CONFIDENTIALITY.
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(a) Prior to the Effective Time, each party shall keep the other party
advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other party to make or cause to
be made such investigation of the business and properties of its and its
Subsidiaries and of their respective financial and legal conditions as the other
party reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operation. No investigation by a party shall affect
the representations and warranties of the other party.
(b) Each party shall, and shall cause its advisers and agents to,
maintain the confidentiality of all confidential information furnished to it by
the other party concerning its and its Subsidiaries' businesses, operations and
financial positions ("Confidential Information") and shall not use such
information for any purpose except in furtherance of the transactions
contemplated by this Agreement. Each party shall maintain the confidentiality of
all Confidential Information obtained in connection with this Agreement or the
transactions contemplated hereby unless ( i) such information becomes publicly
available through no fault of such party, or was, is or becomes available to
that party from a source other than the other party or its Representatives,
which source was itself not bound by a confidentiality agreement with, or other
contractual, legal or fiduciary obligation of confidentiality with respect to
that information; or (ii) the furnishing or use of such information is required
by proper judicial, administrative or other legal proceeding, provided that the
other party is promptly notified in writing of such request, unless such
notification is not, in the opinion of counsel, permitted by Law. Each party and
its Representatives will hold and maintain all Confidential Information in
confidence and will not disclose to any third party or permit any third party
access to any Confidential Information or the substance thereof; provided that a
party may disclose Confidential Information to such of its Representatives who
need to know such information in connection with the transactions contemplated
hereby. If this Agreement is terminated prior to the Effective Time, each party
shall promptly return or certify the destruction of all documents and copies
thereof, and all work papers containing confidential information received from
the other party.
(c) Each party agrees to give the other party notice as soon as
practicable after any determination by it of any fact or occurrence relating to
the other party which it has discovered through the course of its investigation
and which represents, or is reasonably likely to represent, either a material
breach of any representation, warranty, covenant or agreement of the other party
or which has had or is reasonably likely to have a Material Adverse Effect on
the other party.
7.7 PRESS RELEASES. Prior to the Effective Time, Republic and BSB shall
mutually agree upon and jointly issue any press release or other public
disclosure materially related to this Agreement or any other transaction
contemplated hereby; provided that nothing in this Section 7.7 shall be deemed
to prohibit any party from making any disclosure which its counsel deems
necessary or advisable in order to satisfy such party's disclosure obligations
imposed by Law.
7.8 CERTAIN ACTIONS. Except with respect to this Agreement and the
transactions contemplated hereby, no BSB Company nor any Affiliate thereof nor
any Representatives thereof retained by any BSB Company shall directly or
indirectly solicit any Acquisition Proposal by any Person. Except to the extent
necessary to comply with the fiduciary duties of BSB's Board of Directors as
advised by counsel, no BSB Company or any Affiliate or Representative thereof
shall furnish any non-public information that it is not legally obligated to
furnish, negotiate with respect to, or enter into any Contract with respect to,
any Acquisition Proposal, but BSB may
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communicate information about such an Acquisition Proposal to its stockholders
if and to the extent that it is required to do so in order to comply with its
legal obligations as advised by counsel. BSB shall promptly notify Republic
orally and in writing in the event that it receives any inquiry or proposal
relating to any such transaction. BSB shall ( I) immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
Persons conducted heretofore with respect to any of the foregoing; and (ii)
direct and use its reasonable efforts to cause all of its Representatives not to
engage in any of the foregoing.
7.9 TAX TREATMENT. Each of the parties undertakes and agrees to use its
reasonable efforts to cause the Merger and to take no action which would cause
the Merger not to qualify for treatment as a "reorganization" to be within the
meaning of Section 368(a) of the Internal Revenue Code for federal income tax
purposes.
7.10 STATE TAKEOVER LAWS. Each BSB Company shall take all necessary steps
to exempt the transactions contemplated by this Agreement from, or if necessary
challenge the validity or applicability of, any applicable state or federal
"moratorium", "control share", "fair price", "business combination" or other
anti-takeover statute or regulation ("Takeover Laws").
7.11 CHARTER PROVISIONS. Each BSB Company shall take all necessary action
to ensure that the entering into of this Agreement and the consummation of the
Merger and the other transactions contemplated hereby do not and will not result
in the grant of any rights to any Person under the Charter, Articles of
Incorporation, Bylaws, or other governing instruments of any BSB Company or
restrict or impair the ability of Republic or any of its Subsidiaries to vote,
or otherwise to exercise the rights of a stockholder with respect to, shares of
any BSB Company that may be directly or indirectly acquired or controlled by it.
7.12 AGREEMENT OF AFFILIATES. BSB has disclosed in Section 7.12 of the BSB
Disclosure Memorandum each Person whom it reasonably believes is an "affiliate"
of BSB for purposes of Rule 145 under the 1933 Act. BSB shall use its reasonable
efforts to cause each such Person to deliver to Republic not later than 30 days
prior to the Effective Time, a written agreement, in substantially the form of
Exhibit 1, providing that such Person will not sell, pledge, transfer, or
otherwise dispose of the shares of BSB Common Stock held by such Person except
as contemplated by such agreement or by this Agreement and will not sell,
pledge, transfer, or otherwise dispose of the shares of Republic Common Stock to
be received by such Person upon consummation of the Share Exchange except in
compliance with applicable provisions of the 1933 Act and the rules and
regulations thereunder and Republic shall be entitled to place restrictive
legends upon certificates for shares of Republic Common Stock issued to
affiliates of BSB pursuant to this Agreement to enforce the provisions of this
Section 7.12. Republic shall not be required to maintain the effectiveness of
the Registration Statement under the 1933 Act for the purposes of resale of
Republic Common Stock by such affiliates.
7.13 EMPLOYEE BENEFITS AND CONTRACTS.
(a) Following the Effective Time, Republic shall provide generally to
officers and employees of the BSB Companies, who at or after the Effective Time
become employees of a Republic Company, employee benefits under employee benefit
plans, on terms and conditions which when taken as a whole are substantially
similar to those currently provided by the Republic Companies to their similarly
situated officers and employees. For purposes of participation and vesting (but
not accrual of benefits) under such employee benefit plan,
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(i) service as an employee of BSB shall be treated as service under Republic's
qualified defined benefit plans, (ii) service as an employee of BSB shall be
treated as service under Republic's qualified defined contribution plans, and
(iii) service as an employee of BSB shall be treated as service under Republic's
various benefit plans offered to its employees.
(b) Republic shall honor on terms reasonably agreed upon by the
parties thereto all employment, severance, consulting, and other compensation
Contracts either authorized by Section 7.13(b) of this Agreement or disclosed in
Section 7.13 of the BSB Disclosure Memorandum to Republic between any BSB
Company and any current or former director, officer, or employee thereof, and
all provisions for vested benefits or other vested amounts earned or accrued
through the Effective Time under the BSB Benefit Plans.
7.14 INDEMNIFICATION.
(a) Until such times as the applicable statute of limitations shall
have expired with respect to any such Liabilities, Republic shall indemnify,
defend, and hold harmless the present and former directors, officers, employees,
and agents of the BSB Companies (each, an "Indemnified Party") against all
Liabilities arising out of actions or omissions occurring at or prior to the
Effective Time (including the transactions contemplated by this Agreement) to
the full extent permitted under Florida Law and the OTS Regulations and by BSB's
Charter and Bylaws as in effect on the date hereof, including provisions
relating to advances of expenses incurred in the defense of any Litigation.
Without limiting the foregoing, in any case in which approval by Republic is
required to effectuate any indemnification, Republic shall direct, at the
election of the Indemnified Party, that the determination of any such approval
shall be made by independent counsel mutually agreed upon between Republic and
the Indemnified Party.
(b) If Republic or any of its successors or assigns shall consolidate
with or merge into any other Person and shall not be the continuing or surviving
Person of such consolidation or merger or shall transfer all or substantially
all of its assets to any Person, then and in each case, proper provision shall
be made so that the successors and assigns of Republic shall assume the
obligations set forth in this Section 7.14.
(c) The provisions of this Section 7.14 are intended to be for the
benefit of and shall be enforceable by, each Indemnified Party, his or her heirs
and representatives.
7.15 CERTAIN MODIFICATIONS. Republic and BSB shall consult with respect to
their loan, litigation, and real estate valuation policies and practices
(including loan classifications and levels of reserves) and BSB shall make such
modifications or changes to its policies and practices, if any, prior to the
Effective Time, as may be mutually agreed upon. Republic and BSB also shall
consult with respect to the character, amount, and timing of restructuring and
Merger-related expense charges to be taken by each of the parties in connection
with the transactions contemplated by this Agreement and shall take such charges
in accordance with GAAP, prior to the Effective Time, as may be mutually agreed
upon by the parties. Neither parties' representations, warranties, and covenants
contained in this Agreement shall be deemed to be inaccurate or breached in any
respect as a consequence of any modifications or charges undertaken solely on
account of this Section 7.15.
7.16 BANK MERGER AGREEMENT. Within 5 days of the date of this Agreement,
the Bank, with the approval of Republic as sole shareholder of the Bank, shall
enter into a merger agreement with BSB whereby BSB shall merge with and into the
Bank, with the Bank as the surviving entity. The Bank shall prepare and
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file, and BSB shall cooperate in the preparation and filing of, applications
and/or notices with all Regulatory Authorities having jurisdiction over the
transaction contemplated herein seeking the requisite Consents required to
consummate the transactions contemplated herein.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
8.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations of
each party to perform this Agreement and to consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both parties pursuant to Section 10.6 of
this Agreement:
(a) STOCKHOLDER APPROVAL. The stockholders of BSB, and Republic, as
sole stockholder of the Bank, shall have approved this Agreement, and the
consummation of the transactions contemplated hereby, including the Merger, as
and to the extent required by Law, by the provisions of any governing
instruments, or by the rules of the NASD.
(b) REGULATORY APPROVALS. All Consents of, filings and registration
with, and notifications to, all Regulatory Authorities required for consummation
of the Merger shall have been obtained or made and shall be in full force and
effect and all waiting periods required by Law shall have expired. No Consent
obtained from any Regulatory Authority which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted in a manner
(including requirements relating to the raising of additional capital or the
disposition of Assets) which in the reasonable judgment of the Board of
Directors of Republic or BSB would so materially adversely impact the economic
or business benefits of the transactions contemplated by this Agreement that,
had such condition or requirement been known, Republic or BSB would not, in its
reasonable judgment, have entered into this Agreement.
(c) CONSENTS AND APPROVALS. Each party shall have obtained any and all
Consents required for consummation of the Merger (other than those referred to
in Section 8.1(b) of this Agreement) or for the preventing of any Default under
any Contract or Permit of such party which, if not obtained or made, is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on such party. No Consent so obtained which is necessary to consummate
the transactions contemplated hereby shall be conditioned or restricted in a
manner which in the reasonable judgment of the Board of Directors of Republic or
BSB would so materially adversely impact the economic or business benefits of
the transactions contemplated by this Agreement so as to render inadvisable the
consummation of the Merger.
(d) LEGAL PROCEEDINGS. No court or governmental or Regulatory
Authority of competent jurisdiction shall have enacted, issued, promulgated,
enforced, or entered any Law or Order (whether temporary, preliminary or
permanent) or taken any other action which prohibits, restricts, or makes
illegal consummation of the transactions contemplated by this Agreement.
(e) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the 1933 Act, no stop orders suspending the effectiveness
of the Registration Statement shall have been issued,
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no action, suit, proceeding, or investigation by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing, and all
necessary approvals under state securities Laws or the 1933 Act relating to the
issuance or trading of the shares of Republic Common Stock issuable pursuant to
the Merger shall have been received.
(f) TAX MATTERS. Each party shall have received a written opinion or
opinions from Holland & Knight LLP in a form reasonably satisfactory to such
parties (the "Tax Opinion"), to the effect that (i) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
and (ii) the exchange in the Merger of BSB Common Stock for Republic Common
Stock will not give rise to gain or loss to the stockholders of BSB with respect
to such exchange (except to the extent of any cash received). In rendering such
Tax Opinion, such counsel shall be entitled to rely upon representations of
officers of BSB and Republic reasonably satisfactory in form and substance to
such counsel.
8.2 CONDITIONS TO OBLIGATIONS OF REPUBLIC. The obligations of Republic to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by Republic pursuant to Section 10.6(a) of this Agreement:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of BSB set forth in this Agreement shall be true and correct as of
the date of this Agreement and as of the Effective Time with the same effect as
though all such representations and warranties had been made on and as of the
Effective Time (provided that representations and warranties which are confined
to a specified date shall speak only as of such date). The representations and
warranties of BSB set forth in Section 4.3 of this Agreement shall be true and
correct (except for inaccuracies which are de minimis in amount). The
representations and warranties of BSB set forth in Sections 4.18, 4.19, and 4.20
of this Agreement shall be true and correct in all material respects. There
shall not exist in this Agreement (including the representations and warranties
set forth in Sections 4.3, 4.18, 4.19, and 4.20) any inaccuracies such that the
aggregate effect of such inaccuracies has, or is reasonably likely to have, a
Material Adverse Effect on BSB; provided that, for purposes of this sentence
only, those representations and warranties which are qualified by reference to
"material" or "Material Adverse Effect" or to the "Knowledge" of BSB or to a
matter being "known" by BSB shall be deemed not to include such qualifications.
(b) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the
agreements and covenants of BSB to be performed and complied with pursuant to
this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all material
respects.
(c) CERTIFICATES. BSB shall have delivered to Republic (i) a
certificate, dated as of the Closing Date and signed on its behalf by its duly
authorized officers, to the effect that the conditions of its obligations set
forth in Sections 8.2(a) and 8.2(b) of this Agreement have been satisfied, and
(ii) certified copies of resolutions duly adopted by BSB's Board of Directors
and stockholders evidencing the taking of all corporate action necessary to
authorize the execution, delivery, and performance of this Agreement, and the
consummation of the transactions contemplated hereby, all in such reasonable
detail as Republic and its counsel shall request.
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(d) LEGAL OPINION. Republic shall have received the opinions of Alston
& Bird LLP, counsel to BSB, or other counsel reasonably acceptable to Republic,
dated as of the Closing Date or such earlier date as may be agreed to by the
parties, with respect to such matters related to BSB and the Merger as Republic
may reasonably request. As to certain matters of fact, such counsel may rely on
certificates of public officials and senior officers of BSB knowledgeable and
having responsibility with respect to the matters covered by such certificate.
8.3 CONDITIONS TO OBLIGATIONS OF BSB. The obligations of BSB to perform
this Agreement and consummate the Merger and the other transactions contemplated
hereby are subject to the satisfaction of the following conditions, unless
waived by BSB pursuant to Section 10.6(b) of this Agreement.
(a) REPRESENTATIONS AND WARRANTIES. For purposes of this Section
8.3(a), the accuracy of the representations and warranties of Republic set forth
in this Agreement shall be assessed as of the date of this Agreement and as of
the Effective Time with the same effect as though all such representations and
warranties had been made on and as of the Effective Time (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). The representations and warranties of Republic set
forth in Section 5.3 of this Agreement shall be true and correct (except for
inaccuracies in the Agreement such that the aggregate effect of such
inaccuracies which are de minimus in amount). The representations and warranties
of Republic set forth in Section 5.14 of this Agreement shall be true and
correct in all material respects. There shall not exist inaccuracies has, or is
reasonably likely to have, a Material Adverse Effect on Republic; provided that,
for purposes of this sentence only, those representations and warranties which
are qualified by references to "material" to "Material Adverse Effect" or to the
"Knowledge" of Republic or to a matter being "known" by Republic shall be deemed
not to include such qualifications.
(b) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the
agreements and covenants of Republic to be performed and complied with pursuant
to this Agreement and the other agreements contemplated hereby prior to the
Effective Time, shall have been duly performed and complied with in all material
respects.
(c) CERTIFICATES. Republic shall have delivered to BSB ( i) a
certificate, dated as of the Effective Time and signed on its behalf by its duly
authorized officers, to the effect that the conditions of its obligations set
forth in Sections 8.3(a) and 8.3(b) of this Agreement have been satisfied, and
(ii) certified copies of resolutions duly adopted by Republic's Board of
Directors and Republic's approval, as sole stockholder of the Bank, evidencing
the taking of all corporate and stockholder action necessary to authorize the
execution, delivery, and performance of this Agreement, and the consummation of
the transactions contemplated hereby, all in such reasonable detail as BSB and
its counsel shall request.
(d) LEGAL OPINION. BSB shall have received the opinions of Holland &
Knight LLP, special counsel to Republic, dated as of the Closing Date or such
earlier date as may be agreed to by the parties, with respect to such matters
related to Republic and the Merger as BSB may reasonably request. As to certain
matters of fact, such counsel may rely on certificates of public officials and
senior officers of BSB knowledgeable and having responsibility with respect to
the matters covered by such certificate.
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MERGER ARTICLE 9
TERMINATION
9.1 TERMINATION. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement by the stockholders of BSB,
this Agreement may be terminated and the Share Exchange abandoned at any time
prior to the Effective Time:
(a) By mutual consent of the Board of Directors of Republic and the
Board of Directors of BSB; or
(b) By the Board of Directors of either party (provided that the
terminating party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in Section
8.2(a) of this Agreement in the case of BSB and Section 8.3(a) of this Agreement
in the case of Republic or in material breach of any covenant or other agreement
contained in this Agreement) in the event of an inaccuracy of any representation
or warranty of the other party contained in this Agreement which cannot be or
has not been cured within 30 days after the giving or written notice to the
breaching party of such inaccuracy and which inaccuracy would provide the
terminating party the ability to refuse to consummate the Merger under the
applicable standard set forth in Section 8.2(a) of this Agreement in the case of
Republic and Section 8.3(a) of this Agreement in the case of BSB; or
(c) By the Board of Directors of either party in the event of a
material breach by the other party of any covenant or agreement contained in
this Agreement which cannot be or has not been cured within 30 days after the
giving of written notice to the breaching party of such breach; or
(d) By the Board of Directors of either party in the event (I ) any
Consent of any Regulatory Authority required for consummation of the Merger and
the other transactions contemplated hereby shall have been denied by final
nonappealable action of such authority or if any action taken by such authority
is not appealed within the time limit for appeal, or (ii) the stockholders of
BSB fail to vote their approval of the matters submitted for the approval by
such stockholders at the Stockholders' Meeting where the transactions were
presented to such stockholders for approval and voted upon; or
(e) By the Board of Directors of either party in the event that the
Merger shall not have been consummated by December 1, 1998, if the failure to
consummate the transactions contemplated hereby on or before such date is not
caused by any breach of this Agreement by the party electing to terminate
pursuant to this Section 9.1(e); or
(f) By the Board of Directors of either party (provided that the
terminating party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in Section
8.2(a) of this Agreement in the case of BSB and Section 8.3(a) of this Agreement
in the case of Republic or in material breach of any covenant or other agreement
contained in this Agreement) in the event that any of the conditions precedent
to the obligations of such party to consummate the Merger cannot be satisfied or
fulfilled by the date specified in Section 9.1(e) of this Agreement.
9.2 EFFECT OF TERMINATION. In the event of the termination and abandonment
of this Agreement pursuant to Section 9.1 of this Agreement, this Agreement
shall become void and have no effect, except that (i) the provisions of this
Section 9.2 and Article 10 and Section 7.6(b) of this Agreement shall survive
any such
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termination and abandonment, and (ii) a termination pursuant to Section 9.1(b),
9.1(c), or 9.1(f) of this Agreement shall not relieve the breaching party from
Liability for an uncured willful breach of a representation, warranty, covenant,
or agreement giving rise to such termination.
9.3 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS. The respective
representations, warranties, obligations, covenants, and agreements of the
parties shall not survive the Effective Time except this Section 9.3 and
Articles 1,2, 3, and 10 and Sections 7.12, 7.13 and 7.14 of this Agreement.
ARTICLE 10
MISCELLANEOUS
10.1 DEFINITIONS.
(a) Except as otherwise provided herein, the capitalized terms set
forth below shall have the following meanings:
"Acquisition Proposal" with respect to a party shall mean any
tender offer or exchange offer or any proposal for a merger,
acquisition of all of the stock or Assets of, or other business
combination involving such party or any of its Subsidiaries or the
acquisition of a substantial equity interest in, or a substantial
portion of the Assets of, such party or any of its Subsidiaries.
"Affiliate" of a Person shall mean: (i) any other Person
directly, or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such
Person; (ii) any officer, director, partner, employer, or direct
or indirect beneficial owner of any 10% or greater equity or
voting interest of such Person; or (iii) any other Person for
which a Person described in clause (ii) acts in any such a
capacity.
"Agreement" shall mean this Agreement and Plan of Share
Exchange, including the Exhibits delivered pursuant hereto and
incorporated herein by reference.
"Assets" of a Person shall mean all of the assets,
properties, businesses, and rights of such Person of every kind,
nature, character, and description, whether real, personal, or
mixed, tangible or intangible, accrued or contingent, or otherwise
relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, whether or not carried on the
books and records of such Person, and whether or not owned in the
name of such Person or any Affiliate of such Person and wherever
located.
"BHC Act" shall mean the Bank Holding Company Act of 1956, as
amended.
"BSB Common Stock" shall mean the common stock of BSB.
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"BSB Companies" shall mean , collectively, BSB and all BSB
Subsidiaries.
"BSB Disclosure Memorandum" shall mean the written
information entitled "Bankers Savings Bank, F.S.B. Disclosure
Memorandum" delivered prior to 5:00 p.m., Eastern time, on the
seventh day after the date of this Agreement, to Republic
describing in reasonable detail the matters contained therein and,
with respect to each disclosure made therein , specifically
referencing each Section or subsection of this Agreement under
which such disclosure is being made. Information disclosed with
respect to one Section or subsection shall not be deemed to be
disclosed for purposes of any other Section or subsection not
specifically referenced with respect thereto.
"BSB Financial Statements" shall mean (i) statements of
income, changes in stockholders' equity, and cash flows (including
related notes and schedules, if any for each of the three years
ended December 31, 1997, 1996 and 1995, as filed by BSB or the
Bank in OTS Documents and (ii) the consolidated statements of
condition of BSB including related notes and schedules, if any)
and related statements of income, changes in stockholders' equity
and cash flows (including related notes and schedules, if any)
included in OTS Documents filed with respect to periods ended
subsequent to December 31, 1997.
"BSB Subsidiaries" shall mean the Subsidiaries of BSB, which
shall include any corporation, bank, savings association, or other
organization acquired as a Subsidiary of BSB in the future and
owned by BSB and the Effective Time.
"Closing Date" shall mean the date on which the Closing
occurs.
"Consent" shall mean any consent, approval, authorization,
clearance, exemption, or waiver, similar affirmation by any Person
pursuant to any Contract, Law, Order or Permit.
"Contract shall mean any written or oral agreement,
arrangement, authorization, commitment, contract, indenture,
instrument, lease, obligation, plan, practice, restriction,
understanding or undertaking of any kind or character, or other
document to which any Person is a party or that is binding on any
Person or its capital stock, assets or business.
"Default" shall mean (i) any breach or violation of or
default under any Contract, Order or Permit, (ii) any occurrence
of any event that with the passage of time or the giving of notice
or both would constitute a breach or violation of or default under
any Contract, Order or Permit, or (iii) any occurrence of any
event that with or without the passage of time or the giving of
notice would give rise to a right to terminate or revoke, change
the current terms of, or renegotiate, or to accelerate, increase,
or
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impose any Liability under, any Contract, Order or Permit, where,
in any such event, such Default is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on a
party.
"Environmental Laws" shall mean all Laws relating to
pollution or protection of human health or the environment
(including ambient air, surface water, ground water, land surface,
or subsurface strata) and which are administered, interpreted, or
enforced by the United States Environmental Protection Agency and
state and local agencies with jurisdiction over, and including
common law in respect of, pollution or protection of the
environment, including the Comprehensive Environmental Response
Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq.
U.S.C. 6901 et seq. ("RCRA"), and other Laws relating to
emissions, discharges, releases, or threatened releases of any
Hazardous Material, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport, or handling of any Hazardous Material.
"ERISA" shall mean the Employee Retirement Income Security
Act or 1974, as amended.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Exhibits", inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are
hereby incorporated by reference herein and made a part hereof,
and may be referred to in this Agreement and any other related
instrument or document without being attached hereto.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"Hazardous Material" shall mean (i) any hazardous substance,
hazardous material, hazardous waste, regulated substance, or toxic
substance (as those terms are defined by any applicable
Environmental Laws) and (ii) any chemicals, pollutants,
contaminants, petroleum, petroleum products, or oil (and
specifically shall include asbestos requiring abatement, removal,
or encapsulation pursuant to the requirements of governmental
authorities and any polychlorinated biphenyls).
"HOLA" shall mean the Home Owners' Loan Act of 1933, as
amended.
"Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended, and the rules and regulations promulgated
thereunder.
"Knowledge" as used with respect to a Person (including
references to such Person being aware of a particular matter)
shall mean the personal knowledge of the
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<PAGE> 33
chairman, president, chief financial officer, chief accounting
officer, chief credit officer, general counsel, and any assistant
or deputy general counsel, or any senior or executive vice
president of such Person and the knowledge of any such persons
obtained or which would have been obtained from a reasonable
investigation.
"Law" shall mean any code, law, ordinance, regulation,
reporting or licensing requirement, rule, or statute applicable to
a Person or its Assets, Liabilities, or business, including those
promulgated, interpreted, or enforced by any Regulatory Authority.
"Liability" shall mean any direct or indirect, primary or
secondary, liability, indebtedness, obligation, penalty, cost, or
expense (including costs of investigation, collection, and
defense), claim, deficiency, guaranty, or endorsement of or by any
Person (other than endorsements of notes, bills, checks, and
drafts presented for collection or deposit in the ordinary course
of business) of any type, whether accrued, absolute or contingent,
liquidated or unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of
title, easement, encroachment, encumbrance, hypothecation,
infringement, lien, mortgage, pledge, reservation, restriction,
security interest, title retention, or other security arrangement,
or any adverse right or interest, charge, or claim of any nature
whatsoever of, on, or with respect to any property or property
interest, other than (i) Liens for current property Taxes not yet
due and payable, and (ii) for depository institution Subsidiaries
of a party, pledges to secure deposits, and other Liens incurred
in the ordinary course of the banking business.
"Litigation" shall mean any action, arbitration, cause of
action, claim, complaint, criminal prosecution, demand letter,
governmental or other examination or investigation, hearing,
inquiry, administrative or other proceeding, or notice (written or
oral) by any Person alleging potential Liability or requesting
information relating to or affecting a party, its business, its
Assets (including Contracts related to it), or the transactions
contemplated by this Agreement, but shall not include regular,
periodic examinations of depository institutions and their
Affiliates by Regulatory Authorities.
"Loan Property" shall mean any property owned, leased, or
operated by the party in question or by any of its Subsidiaries or
in which such party or Subsidiary holds a security or other
interest (including an interest in fiduciary capacity), and, where
required by the context, includes the owner or operator of such
property, but only with respect to such property.
"Market Value" shall mean the per share market value of
either BSB Common Stock or Republic Common Stock, as appropriate,
at the Closing Date.
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"Material" for purposes of this Agreement shall be determined
in light of the facts and circumstances of the matter in question;
provided that any specific monetary amount stated in this
Agreement shall determine materiality in that instance.
"Material Adverse Effect" on a party shall mean an event,
change, or occurrence which, individually or together with any
other event, change, or occurrence, has a material adverse impact
on (i) the financial position, business, or results of operations
of such party and its Subsidiaries, taken as a whole, or (ii) the
ability of such party to perform its obligations under this
Agreement or to consummate the Merger or the other transactions
contemplated by this Agreement, provided that "Material Adverse
Effect" shall not be deemed to include the impact of (a) changes
in banking and similar Laws of general applicability or
interpretations thereof by courts or governmental authorities, (b)
changes in GAAP or regulatory accounting principles generally
applicable to banks and their holding companies, ( c) actions and
omissions of a party (or any of its Subsidiaries) taken with the
prior informed consent of the other party in contemplation of the
transactions contemplated hereby, and (d) the Merger and
compliance with the provisions of this Agreement on the operating
performance of the parties.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"National Market" shall mean the Nasdaq National Market
System.
"Order" shall mean any administrative decision or award,
decree, injunction, judgment, order, quasi-judicial decision or
award, ruling, or writ of any federal, state, local, or foreign or
other court, arbitrator, mediator, tribunal, administrative
agency, or Regulatory Authority.
"OTS" shall mean the Office of Thrift Supervision.
"Participation Facility" shall mean any facility or property
in which the party in question or any of its Subsidiaries
participates in the management and, where required by the context,
said term means the owner or operator of such facility or
property, but only with respect to such facility or property.
"Permit" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement,
filing, franchise, license, notice, permit, or right to which any
Person is a party or that is or may be binding upon or inure to
the benefit of any Person or its securities, Assets, or business.
"Person" shall mean a natural person or any legal,
commercial, or governmental entity, such as, but not limited to, a
corporation, general partnership, joint venture, limited
partnership, limited liability company, trust, business
association, group acting in concert, or any person acting in a
representative capacity.
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"Proxy Statement/Prospectus" shall mean the proxy statement
used by BSB to solicit the approval of their respective
stockholders of the transactions contemplated by this Agreement,
which shall include the prospectus of Republic relating to the
issuance of the Republic Common Stock to holders of BSB Common
Stock in the Share Exchange
"Registration Statement" shall mean the Registration
Statement on Form S-4, or other appropriate form, including any
pre-effective or post-effective amendments or supplements thereto,
filed with the SEC by Republic under the 1933 Act with respect to
the shares of Republic Common Stock to be issued to the
stockholders of BSB in connection with the transactions
contemplated by this Agreement.
"Regulatory Authorities" shall mean , collectively, the
Federal Trade Commission, the United States Department of Justice,
the Board of Governors of the Federal Reserve System the FDIC, the
OTS, the Florida Department of Banking and Finance, all other
state agencies having jurisdiction over Republic and BSB and their
respective Subsidiaries, the NASD, and the SEC.
"Representative" shall mean any investment banker, financial
advisor, attorney, accountant, consultant or other representative
of a Person.
"Republic Common Stock" shall mean the $2.00 par value common
stock of Republic.
"Republic Companies" shall mean, collectively, Republic and
all Republic Subsidiaries.
"Republic Disclosure Memorandum" shall mean the written
information entitled "Republic Bancshares, Inc. Disclosure
Memorandum" delivered prior to the date of this Agreement to BSB
describing in reasonable detail the matters contained therein and,
with respect to each disclosure made therein, specifically
referencing each Section or subsection of this Agreement under
which such disclosure is being made. Information disclosed with
respect to one Section or subsection shall not be deemed to be
disclosed for purposes of any other Section or subsection not
specifically referenced with respect thereto.
"Republic Financial Statements" shall mean (i) the
consolidated statements of condition (including related notes and
schedules, if any) of Republic as of December 31, 1997, and 1996
and the consolidated statements of condition (including related
notes and schedules, if any) of the Bank as of December 31, 1995,
and the related restated statements of income, changes in
stockholders' equity, and cash flows
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<PAGE> 36
(including related notes and schedules, if any) for each of the
three years ended December 31, 1997, 1996 and 1995, as filed by
Republic or the Bank in SEC Documents and (ii) the consolidated
statements of condition of Republic (including related notes and
schedules, if any) and related statements of income, changes in
stockholders' equity and cash flows (including related notes and
schedules, if any) included in SEC Documents filed with respect to
periods ended subsequent to December 31, 1997.
"Republic Preferred Stock" shall mean the $20.00 par value
noncumulative convertible perpetual preferred stock of Republic.
"Republic Subsidiaries" shall mean the Subsidiaries of
Republic and any corporation, bank, savings association or other
organization acquired as a Subsidiary of Republic in the future
and owned by Republic at the Effective Time.
"Rights" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings,
warrants or other binding obligations of any character whatsoever
relating to, or securities or rights convertible into or
exchangeable for, shares of the capital stock of a Person or by
which a Person is or may be bound to issue additional shares of
its capital stock or other Rights.
"SEC" shall mean the United States Securities and Exchange
Commission.
"SEC Documents" shall mean all forms, proxy statements,
registration statements, reports, schedules and other documents
filed or required to be filed by a party or any of its
Subsidiaries with any Regulatory Authority pursuant to the
Securities Laws.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment
Advisors Act of 1940, as amended, the Trust Indenture Act of 1939,
as amended, and the rules and regulations of any Regulatory
Authority promulgated thereunder.
"Stockholders' Meeting" shall mean the meeting of the
stockholders of BSB to be held pursuant to Section 7.1 of this
Agreement, including any adjournment or adjournments thereof.
"Subsidiaries" shall mean all those corporations, banks,
associations or other entities of which the entity in question
owns or controls 50% or more of the outstanding equity securities
either directly or through an unbroken chain of entities as to
each of which 50% or more of the outstanding equity securities is
owned
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directly or indirectly by its parent; provided, there shall not be
included any such entity acquired through foreclosure or any such
entity the equity securities of which are owned or controlled in a
fiduciary capacity.
"Tax" or "Taxes" shall mean all federal, state, local and
foreign taxes, charges, fees, levies, imposts, duties or other
assessments, including income, gross receipts, excise, employment,
sales, use, transfer, license, payroll, franchise, severance,
stamp, occupation, windfall profits, environmental, federal
highway use, commercial rent, customs duties, capital stock,
paid-up capital, profits, withholding, Social Security, single
business and unemployment, disability, real property, personal
property, registration, ad valorem, value added, alternative or
add-on minimum, estimated or other tax or governmental fee of any
kind whatsoever, imposed or required to be withheld by the United
States or any state, local, foreign government or subdivision or
agency thereof, including any interest, penalties or additions
thereto.
"Taxable Period" shall mean any period prescribed by any
governmental authority, including the United States or any state,
local, foreign government or subdivision or agency thereof for
which a Tax Return is required to be filed or Tax is required to
be paid.
"Tax Return" shall mean any report, return, information
return or other information required to be supplied to a taxing
authority in connection with Taxes, including any return of an
affiliated or combined or unitary group that includes a party or
its Subsidiaries.
(b) The terms set forth below shall have the meanings ascribed thereto
in the referenced sections:
OTS Regulations Section 2.1.1
Certificate of Merger Section 1.3
Closing Section 1.2
Effective Time Section 1.3
ERISA Affiliate Section 4.13(c)
Exchange Agent Section 3.1
Exchange Ratio Section 2.1(b)
BSB Benefit Plans Section 4.13(a)
BSB Contracts Section 4.14
BSB ERISA Plan Section 4.13(a)
FHLB Section 4.1 (b)
BSB options Section 2.1(c)
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BSB Pension Plan Section 4.13(a)
BSB Reports Section 4.5(a)
OTS Section 4.5(a)
Indemnified party Section 7.14
Share Exchange Section 1.1
Republic SEC Reports Section 5.5(a)
Takeover Laws Section .10
Tax Opinion Section .1(g)
(c) Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words "include,"
"includes," or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
10.2 EXPENSES.
(a) BSB may (i) pay a fee to RP Financial, LC. (an investment banking
firm to be selected by BSB) in connection with a fairness opinion regarding the
transactions contemplated by this Agreement, and (ii) reimburse an individual in
connection with actual costs incurred in connection with engaging in certain
discussions with Republic, such reimbursement not to exceed $5,000. Except as
set forth on the preceding sentence each of the parties shall bear and pay all
direct costs and expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder, including filing, registration, and
application fees, printing fees, and fees and expenses of its own financial or
other consultants, investment brokers, accountants, and counsel, except that
each of the parties shall bear and pay one-half of the printing costs incurred
in connection with the printing and filing of the Registration Statement and the
Proxy Statement/Prospectus.
(b) Nothing contained in this Section 10.2 shall constitute or shall
be deemed to constitute liquidated damages for the willful breach by a party of
the terms of this Agreement or otherwise limit the rights of the nonbreaching
party.
10.3 BROKERS AND FINDERS. Each of the parties represents and warrants that
neither it nor any of its officers, directors employees, or Affiliates has
employed any broker or finder or incurred any Liability for any financial
advisory fees, investment bankers' fees, brokerage fees, commissions, or
finders' fees in connection with this Agreement or the transactions contemplated
hereby. In the event of a claim by any broker or finder based upon his, her or
its representing or being retained by or allegedly representing or being
retained by BSB or Republic, each of BSB and Republic, as the case may be,
agrees to indemnify and hold the other party harmless of and from any Liability
in respect of any such claim.
10.4 ENTIRE AGREEMENT. Except as otherwise expressly provided herein, this
Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. Nothing in this Agreement
expressed or implied, is intended to confer upon any Person, other than the
parties or their respective successors, any Rights, remedies, obligations, or
Liabilities under or by reason of this Agreement, other than (i) the
stockholders of BSB, as provided in Articles 1, 2 and 3 of this Agreement, and
(ii) as provided in Sections 7.12, 7.13 and 7.14 of this Agreement.
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10.5 AMENDMENTS. To the extent permitted by Law, this Agreement may be
amended by a subsequent writing signed by each of the parties upon the approval
of the Boards of Directors of each of the parties, whether before or after
stockholder approval of this Agreement has been obtained; provided, that the
provisions of this Agreement relating to the manner or basis in which shares of
BSB Common Stock will be exchanged for Republic Common Stock shall not be
amended after the Stockholder's Meeting without the requisite approval of the
holders of the issued and outstanding shares of BSB Common Stock entitled to
vote thereon.
10.6 WAIVERS.
(a) Prior to or at the Effective Time, Republic, acting through its
Board of Directors, chief executive officer, chief financial officer, or other
authorized officer, shall have the right to waive any Default in the performance
of any term of this Agreement by BSB, to waive or extend the time for the
compliance or fulfillment by BSB of any and all of its obligations under this
Agreement, and to waive any or all of the conditions precedent to the
obligations of Republic under this Agreement, except any condition which, if not
satisfied, would result in the violation of any Law. No such waiver shall be
effective unless in writing signed by a duly authorized officer of Republic.
(b) Prior to or at the Effective Time, BSB, acting through its Board
of Directors, chief executive officer, chief financial officer, or other
authorized officer, shall have the right to waive any Default in the performance
of any term of this Agreement by Republic, to waive or extend the tine for the
compliance or fulfillment by Republic of any and all of its obligations under
this Agreement, and to waive any or all of the conditions precedent to the
obligations of BSB under this Agreement, except any condition which, if not
satisfied, would result in the violation of any Law. No such waiver shall be
effective unless in writing signed by a duly authorized officer of BSB.
(c) The failure of any party at any time to require performance of any
provision hereof shall in no manner affect the right of such party at a later
time to enforce the same or any other provision of this Agreement. No waiver of
any condition or of the breach of any term contained in this Agreement in one or
more instances shall be deemed to be or construed as a further or continuing
waiver of such condition or breach or a waiver of any other condition or of the
breach of any other term of this Agreement.
10.7 ASSIGNMENT. Except as expressly contemplated hereby, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be enforceable
by the parties and their respective successors and assigns.
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<PAGE> 40
10.8 NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage prepaid or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
BSB: Bankers Savings Bank
2222 Ponce de Leon Blvd.
Coral Gables, Fl 33134
Telecopy No.: (305) 567-8933
Attention: Octavio Hernandez
President and Chief Executive Officer
Copy to Counsel: John L.Douglas, Esq.
One Atlantic Center
1201 W. Peachtree Street, Suite 4000
Atlanta, GA 30309
Telecopy No.: (404) 881-7777
Republic: Republic Bancshares, Inc.
111 Second Avenue, N.E., Suite 300
St. Petersburg, Florida 33701
Telecopy No.: (813) 825-0269
Attention: John W. Sapanski
Chairman of the Board
Chief Executive Officer and
President
Copy to Counsel:
Republic Bancshares, Inc.
111 Second Avenue, N.E., Suite 300
St. Petersburg, Florida 33701
Telecopy No.: (813) 895-5791
Attention: Christopher M. Hunter, Esq.
General Counsel
10.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Florida, without regard to any
applicable conflicts of Laws, except to the extent that the provisions of Title
12 of the United States Code and the OTS Regulations and the implementing
regulations of the FDIC govern the transactions contemplated by this Agreement.
10.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
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10.11 CAPTIONS. The captions contained in this Agreement are for reference
purposes only and are part of this Agreement.
10.12 INTERPRETATIONS. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated and accepted by all parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of the
parties.
10.13 ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
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10.14 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
BANKERS SAVINGS BANK, F.S.B.
By: By:
------------------------------- -------------------------------------
Corporate Secretary Octavio Hernandez
President and Chief Executive Officer
[CORPORATE SEAL]
REPUBLIC BANCSHARES, INC.
By: By:
------------------------------- -------------------------------------
Christopher M. Hunter John W. Sapanski
Corporate Secretary Chairman of the Board,
Chief Executive Officer and
President
[CORPORATE SEAL]
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<PAGE> 1
EXHIBIT 10.4.2
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT (the "Amendment") is made and entered into this
____ day of March, 1998, by, between and among Republic Bancshares, Inc.
("Republic"), a Florida corporation; Republic Bank (the"Bank"), a Florida
chartered commercial bank; and Bankers Savings Bank, F.S.B., a federal savings
bank ("BSB"), and amends that certain Agreement and Plan of Merger dated March
2, 1998 between Republic and BSB (the "Agreement").
W I T N E S S E T H
WHEREAS, the Agreement provides for the merger of BSB into and with the
Bank, as contemplated by Section 655.412 and Sections 658.41 through 658.45 of
the Florida Statutes, and by Part 552 of the Rules and Regulations of the Office
of Thrift Supervision; and
WHEREAS, the Bank, by this Amendment, joins into and becomes a party to
the Agreement as if originally named therein and as if an original signatory
thereto; and
WHEREAS, this Amendment, together with the Agreement, constitutes an
agreement and plan of merger for the purposes of Section 658.42 of the Florida
Statutes; and
WHEREAS, the Boards of Directors of Republic, the Bank and BSB have
approved the Agreement and this Amendment and the Merger contemplated hereby and
thereby, and Republic, in its capacity as sole shareholder of the Bank, has
approved the Agreement and this Amendment and the Merger contemplated hereby and
thereby;
NOW THEREFORE, in consideration of the mutual covenants, and subject
to the terms and conditions set forth below, the parties hereto agree as
follows:
1. RECITALS. The above recitals are true and correct, are
incorporated herein and are made a part of this Amendment
2. CONSTITUENT BANKS. The Bank is a commercial bank organized and
existing under the laws of the State of Florida with its principal office at 111
Second Avenue, N.E., St. Petersburg, Florida 33701. A listing of each branch
office of the Bank is set forth on Exhibit "B" attached hereto. BSB is a savings
association organized and existing under the laws of the United States of
America, with its principal office at 2222 Ponce de Leon Blvd., Coral Gables,
Florida 33134.
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A listing of each branch office of BSB is set forth on Exhibit "C".
3. RESULTING STATE BANK. With respect to the resulting state bank the
parties hereto agree as follows:
A. Name. The name of the resulting state bank shall be Republic
Bank and the specific location of the proposed main office is 111 Second Avenue,
N.E., St. Petersburg, Florida 33701. A list of each existing and proposed branch
office is attached hereto as Exhibit "D"
B. Directors. The names and addresses of each of the directors of
the resulting state bank who will serve until the next meeting of stockholders
at which directors are elected is attached hereto as Exhibit "E".
C. Executive Officers. The names and addresses of each of the
executive officers of the resulting state bank is attached hereto as Exhibit
"F".
D. Capital Stock. Republic currently has 20,000,000 shares of
$2.00 par value common stock authorized, of which 7,035,886 shares are
outstanding as of the date hereof. Republic also has 100,000 shares of preferred
stock authorized, of which 75,000 shares are outstanding as of the date hereof.
As of December 31, 1997, the Bank had retained earnings of $95,531,000.00.
E. Trust Powers. The Bank , as the resulting state bank, will
have trust powers. Currently the Bank's trust powers are inactive with the
Florida Department of Banking, subject to activation upon the filing of an
appropriate application and notice therefore.
F. Articles of Incorporation. The Articles of Incorporation of
the Bank shall continue to be the Articles of Incorporation of the resulting
bank following the effective date of the Merger. A copy of the Articles of
Incorporation is attached hereto as Exhibit "G".
4. TERMS AND CONDITIONS. On the effective date of the Merger, the
separate existence of BSB shall cease, and, except as otherwise set forth in the
Merger Agreement, the Bank shall succeed to all the rights, privileges,
immunities and franchises and all the property real, personal and mixed of BSB,
without the necessity for any separate transfer. The Bank shall then be
responsible and liable for all liabilities and obligations of BSB, and neither
the rights of creditors nor any liens on the property of BSB shall be impaired
by the Merger.
5. CONVERSION OF SHARES. The manner and basis of converting the
shares of BSB stock into shares of Republic stock is set forth in Article 2 of
the Agreement, which is incorporated herein by reference. Section 2.1(b) of the
Agreement is modified by adding the following at the end thereof:
(A) Republic agrees that any agreement to sell, or any actual
sale, of the real
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estate owned by BSB at 2222 Ponce de Leon Ave., Coral Gables, Florida (the
"Property") for a sales price in excess of $5.8 million will not constitute a
breach of any warranty, representation or covenant made by BSB contained in this
Agreement, nor will such events be asserted in any respect as a failure to
satisfy a condition that would permit Republic to refuse to close the
transactions contemplated by this Agreement.
(B) Republic acknowledges that in the event an agreement to sell
or the sale of the Property results in a different accounting treatment other
than a "pooling of interests", Republic may not assert such event as a cause or
condition that might permit it to refuse to close the transactions contemplated
by this Agreement.
(C) If BSB proposes to enter into a binding contract to sell the
Property, Republic will have (5) business days in which to review the terms
(other than the purchase price, which shall be subject to paragraph (A) above)
of the contract of sale, to conduct its due diligence with respect to the
proposed purchaser and to approve the purchase, which approval will not be
unreasonably withheld. If Republic has not notified BSB in writing of its
disapproval within such five (5) business day period, or if Republic has
notified BSB in writing of its approval within such period, BSB will be
authorized to enter into a binding contract with such purchaser.
(D) If BSB enters into a binding contract to sell the Property
prior to the Effective Time, the Appraised Value of Real Estate shall be the
sales price specified in the contract.
(E) If the Property is sold prior to the Effective Time, Republic
agrees that the Appraised Value of Real Estate shall be equal to the sales price
for the Property.
(F) For the purposes of this Agreement, the "sales price" shall be
equal to the gross sales price for the Property, before commissions and other
routine closing costs.
6. BYLAWS. The By-laws of the Bank shall continue to be its By-laws
following the Effective Date of the Merger.
7. DIRECTORS AND OFFICERS. The Directors and Officers of the Bank, on
the Effective Date of the Merger, shall continue as the Directors and Officers
of the Bank for the full unexpired terms of their offices and until their
successors have been elected or appointed.
8. APPROVAL. The Agreement, as amended by this Amendment, shall be
submitted for the approval of the shareholders of BSB in the manner provided by
the applicable laws of the State of Florida and the United States of America and
shall further be submitted for approval by the Florida Department of Banking,
the Federal Deposit Insurance Corporation and such other state or federal
regulatory agencies as state or federal law shall require.
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9. DISSENTING STOCKHOLDERS. In accordance with the provisions of
Section 655.414 (1)(e)
of the Florida Statutes, dissenting shareholders of BSB are entitled to the
rights set forth in Section 658.44(4) and (5) of the Florida Statutes. The
rights of dissenting shareholders of BSB are described in Section 2.5 of the
Merger Agreement.
10. NONCONFORMING ACTIVITIES. From and after the effective date of the
Merger, the Bank will not engage in any nonconforming activities, except to the
extent necessary to fulfill obligations existing prior to the Merger pursuant to
the provisions of Section 655.418(4) of the Florida Statutes.
11. EFFECTIVE DATE OF MERGER. Following satisfaction of the various
conditions specified in the Agreement, the Merger shall be consummated on the
date of the Closing and at the Effective Time, as such terms are defined in the
Agreement, as specified in the Certificate of Merger to be issued by the
Department of Banking and Finance of the State of Florida. The parties hereto
shall request the issuance of the Certificate of Merger with the effective date
therein to be as of such date and time.
12. CONVERSION OF DATA PROCESSING SYSTEM. A new Section 7.17 shall be
added to the Agreement as follows:
7.17 CONVERSION OF DATA PROCESSING SYSTEM. At the request
of Republic, and on or before April 1, 1998, BSB shall notify its outside data
processing service provider of its intent to terminate its data processing
contract effective September 1, 1998. BSB shall take such steps as may be
reasonably requested by Republic to convert to the Bank's outside data
processing service provider, commencing upon termination of BSB's existing
contract, and to coordinate the transition of the data processing systems of BSB
to those of the Bank upon consummation of the Merger. In connection therewith,
the parties agree as follows:
(a) Termination by BSB of its data processing contract as provided
herein shall not constitute a breach of any warranty, representation or covenant
contained in the Agreement;
(b) In the event the transition to the data processing service of
the Bank results in increased costs over that provided in BSB's existing
contract (including, without limitations, start up fees, item processing costs,
conversion fees and expenses), Republic shall reimburse BSB for such costs upon
request. Such increased costs, to the extent they are incurred during a month
prior to the month in which regulatory approvals are received to consummate the
Merger, shall be treated as income of BSB for the purposes of Section 2.1(b) of
this Agreement;
(c) In the event the Agreement is terminated for any reason,
Republic and the Bank shall indemnify and hold BSB harmless from all costs,
liabilities and expenses (including costs resulting from customer claims)
incurred by BSB in (i) terminating such agreement or
4
<PAGE> 5
contract it may have entered into with the Bank's data processing service
provider, (ii) the resumption of data processing services from its current data
processing service provider or such other provider as it may reasonably select.
In connection therewith, Republic and the Bank shall take all reasonable steps
to assure that BSB continues to receive data processing services from the Bank's
data processing service provider for such time as may be required in order to
effect an orderly transition to a new provider.
(d) Nothwithstanding any other provision of this Agreement, the
provisions of this Section 7.17 shall survive the termination of this Agreement.
13. MISCELLANEOUS AMENDMENTS. The Agreement shall also be amended as
follows:
a. The reference to "Holland & Knight LLP" in Section 8.1(f) of the
Agreement shall be changed to "its respective counsel";
b. The reference to the phrase "Share Exchange" in Section 10.0(b) of
the Agreement shall be deleted, and all other references to "Share
Exchange" in Section 9.1 and elsewhere in the Agreement shall be
changed to "Merger; and
c. The following term (and its accompanying section reference) shall
be added to Section 10.0(b) of the Agreement:
"Merger Preamble
Property 2.1(b)
Sales price 2.1(b)"
14. CAPITALIZED TERMS. All of the capitalized terms in this Amendment
not defined herein shall have the same definitions and meanings as those set
forth in the Agreement.
15. AMENDMENT AND TERMINATION. The Agreement, as amended by this
Amendment, may be amended or terminated in accordance with the provisions on
amendment and termination set forth in the Agreement.
16. EXECUTION OF AGREEMENT. This Amendment may be executed in any
number of counterparts, and each counterpart shall constitute an original
instrument.
5
<PAGE> 6
17. APPLICABLE LAW. The Agreement, as amended by this Amendment,
shall be interpreted and governed by the laws of the State of Florida.
IN WITNESS WHEREOF, this Amendment is executed on behalf of the
parties hereto by their officers, sealed with their corporate seals, and
attested by their respective Secretaries pursuant to the authorizations of their
respective Boards of Directors on the date first above written.
REPUBLIC BANK
Attest
--------------------------------------
- ------------------------- John W. Sapanski
Secretary President and Chief Executive Officer
Corporate Seal:
REPUBLIC BANCSHARES, INC.
Attest
--------------------------------------
- ------------------------- John W. Sapanski
Secretary President and Chief Executive Officer
Corporate Seal:
BANKERS SAVINGS BANK, F.S.B
Attest:
--------------------------------------
- ------------------------- Octavio Hernandez
Secretary President and Chief Executive Officer
Corporate Seal:
6
<PAGE> 1
EXHIBIT 23.2
[ARTHUR ANDERSEN LETTERHEAD]
CONSENT TO USE OF REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of
our report and to all references to our firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Tampa, Florida,
April 9, 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>
