<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1998
REGISTRATION STATEMENT NO. 333-50087
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
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. [ ]
---------------------
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 28, 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 23, 1998, the last reported sale price of the Company's
Common Stock on the Nasdaq National Market was $33.75 per share. See "Price
Range of Common Stock."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 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 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 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 50.2% and 6.4%, 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 Florida Branches and the Georgia Branch 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
2
<PAGE> 6
million. As of February 28, 1998, it is estimated that the stockholders of
Bankers would have received 0.44 of a share of 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 The 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"), 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 based on that deposit amount 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."
On April 21, 1998, the Company entered into a letter of intent (the
"Lochaven Letter of Intent") with Lochaven Federal Savings and Loan Association,
Orlando, Florida ("Lochaven"), providing for the merger of Lochaven with and
into Republic (the "Lochaven Acquisition," and with the Bankers Acquisition, the
Dime Branch Acquisition and the NationsBank Branch Acquisition, collectively,
the "Proposed Acquisitions"). Lochaven has one branch in Orange County, Florida,
and as of December 31, 1997, had total assets of $58.3 million, total loans of
$50.0 million and total deposits of $54.9 million. Under the terms of the
Lochaven Letter of Intent, stockholders of Lochaven are to receive 169,804
shares of Common Stock. It is anticipated that the Lochaven Acquisition will be
accounted for as a pooling of interests. The transaction may be terminated by
either Lochaven or the Company if it is not consummated by December 1, 1998. See
"Combined Financial Data" and "Business -- Proposed Acquisitions."
If consummated, the Proposed Acquisitions and the Offering will increase
the total assets of the Company to approximately $2.2 billion (based on most
recent available data) and expand the Bank's branch network from 46 to 57
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."
The Company anticipates continuing its strategy of geographic expansion for
the foreseeable future through whole bank and thrift acquisitions, branch
acquisitions and de novo branching, depending upon various factors, including
whether (i) the transaction will be accretive to the Company's earnings per
share 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; or (iv) the transaction will present competitive opportunities,
such as branches becoming available due to bank mergers and other
consolidations.
On March 31, 1998, the Company sold on a non-recourse basis $95.2 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 $81.3
million in proceeds from a 90-day repurchase agreement (the "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 was treated for
accounting purposes as an investment in an unconsolidated subsidiary carried at
the lower of cost or market. The transaction was accounted for as a
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<PAGE> 7
sale, and a gain was recognized in connection therewith. See "Recent
Developments -- Republic SPC 1 Corp."
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 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. In
April 1998, the Company entered into the Lochaven Letter of Intent to
acquire Lochaven, which operates one branch in Orange 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 $2.2 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
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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."
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."
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<PAGE> 9
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
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
========== ========== ========== ========== ========== ==========
Earnings (loss) 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
========== ========== ========== ========== ========== ==========
</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>
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
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
RECENT DEVELOPMENTS
The following table sets forth unaudited selected consolidated financial
and other data at the dates and for the periods indicated. The data at March 31,
1998, and for the three months ended March 31, 1998 and 1997, are unaudited and,
in the opinion of management, contain all adjustments (none of which were other
than normal recurring entries) necessary for a fair presentation of the results
for such unaudited periods. The selected operations data for the three months
ended March 31, 1998 are not necessarily indicative of the results of operations
for the entire fiscal year. This information should be read in conjunction with
the Consolidated Financial Statements and Notes thereto presented elsewhere in
this Prospectus.
UNAUDITED SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
1998 1997
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING DATA:
Interest income............................................. $ 33,778 $ 23,878
Interest expense............................................ 17,115 12,142
Net interest income......................................... 16,663 11,736
Loan loss provision......................................... 493 1,138
Net interest income after loan loss provision............... 16,170 10,598
Noninterest income.......................................... 12,529 3,703
General and administrative (G&A) expenses................... 22,923 10,482
Provision for losses (recoveries) on ORE.................... (80) 170
Other noninterest expense................................... 190 144
Net income before income taxes.............................. 5,666 3,505
Income tax expense.......................................... 2,175 1,315
Net income before minority interest......................... 3,491 2,190
Minority interest in income from subsidiary trust........... (420) --
Minority interest in FFO.................................... -- (188)
Net income................................................ 3,071 2,002
Earnings per share -- diluted............................... $ .39 $ .30
Weighted average shares outstanding diluted................. 7,968,984 6,987,074
Earnings per share -- basic................................. .44 .34
Weighted average shares outstanding basic................... 7,043,024 5,854,414
Return on average assets.................................... .75% .66%
Return on average equity.................................... 13.60 11.76
Equity to assets............................................ 5.34 6.14
Equity and minority interest in preferred subsidiary to
assets.................................................... 6.90 8.01
Net interest spread......................................... 3.85 3.52
Net interest margin......................................... 4.24 4.10
G&A expense to average assets (commercial banking segment
only)..................................................... 2.34 2.94
G&A efficiency ratio (commercial banking segment only)...... 59.71 64.93
</TABLE>
8
<PAGE> 12
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA AND RATIOS (AT PERIOD END):
Total assets................................................ $1,841,143 $1,552,405
Investment and mortgage backed securities................... 99,341 108,593
Loans held for sale......................................... 311,749 151,404
Loans held in portfolio, net of unearned income............. 1,158,251 1,149,731
Allowance for loan losses................................... 20,557 20,776
Deposits.................................................... 1,418,555 1,361,312
Goodwill and premium on deposits............................ 4,679 4,855
Stockholders' equity........................................ 98,281 95,531
Book value per share (dollars).............................. $ 12.60 $ 12.28
Loan/deposit ratio(1)....................................... 84.19 84.46
Nonperforming loans to loans................................ 2.51 2.36
Nonperforming assets to total assets........................ 2.03 2.20
Loan loss allowance to loans(1)............................. 1.72 1.81
Loan loss allowance to nonperforming loans:
Originated portfolio...................................... 76.60 93.66
March 1995 purchase....................................... 459.97 373.91
CrossLand portfolio....................................... 71.39 421.88
Other purchased portfolios................................ 27.24 22.28
Total portfolio loans..................................... 70.62 76.51
OTHER DATA (AT PERIOD-END):
Number of branches.......................................... 46 46
Number of full time equivalent employees.................... 1,256 1,045
</TABLE>
- ---------------
(1) Ratio excludes loans held for sale
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1997
OVERVIEW
Net income for the three months ended March 31, 1998 was $3.1 million or
$0.39 per share compared to $2.0 million or $0.30 per share for the first
quarter of 1997 (prior period data has been restated for the FFO Merger). Return
on average assets was 0.75% for the first quarter of 1998 compared to 0.66% for
1997 and the return on average equity was 13.60% compared to 11.76% last year.
Net interest spread for the first quarter of 1998 was 3.85%, a 33 basis point
increase over 3.52% last year, and net interest margin, which includes the
benefit of noninterest bearing funds, was 4.24% this year, compared to 4.10% for
the same period a year ago.
9
<PAGE> 13
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 its mortgage banking division in areas such as
secondary marketing, data processing and financial management. All funding for
the mortgage banking division is provided through the Bank. The following are
the business segment results of operation for the three months ended March 31,
1998 and 1997. The Company has elected to report its business segments without
allocation of income taxes and minority interests.
BUSINESS SEGMENT DATA
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
---------------------------------- ----------------------------------
COMMERCIAL MORTGAGE COMPANY COMMERCIAL MORTGAGE COMPANY
BANKING BANKING TOTALS BANKING BANKING TOTALS
---------- -------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total assets (at
period-end)................. $1,529,394 $311,749 $1,841,143 1,186,682 44,774 1,231,456
OPERATING DATA:
Interest income............... 26,305 7,473 33,778 $ 22,853 $1,025 $ 23,878
Interest expense.............. 13,424 3,691 17,115 11,665 477 12,142
---------- -------- ---------- ---------- ------ ----------
Net interest income........... 12,881 3,782 16,663 11,188 548 11,736
Loan loss provision 493 -- 493 1,138 -- 1,138
---------- -------- ---------- ---------- ------ ----------
Net interest income after loan
loss provision.............. 12,388 3,782 16,170 10,050 548 10,598
Other noninterest income...... 2,691 9,838 12,529 2,717 986 3,703
General and administrative
(G&A) expenses.............. 10,061 12,862 22,923 9,028 1,454 10,482
Merger expenses............... 9 -- 9 -- -- --
Provision for losses
(recoveries) on ORE......... (80) -- (80) 170 -- 170
Other noninterest expense..... 22 -- 22 21 -- 21
Amort. of goodwill & premium
on deposits................. 159 -- 159 123 -- 123
---------- -------- ---------- ---------- ------ ----------
Net income before income,
before taxes and minority
interest.................... $ 4,908 $ 758 5,666 $ 3,425 $ 80 3,505
---------- -------- ---------- ------
Income tax (expense).......... (2,175) (1,315)
Minority interest in income
from subsidiary trust....... (420) --
Minority interest in FFO...... -- (188)
---------- ----------
Net income.................... $ 3,071 $ 2,002
========== ==========
</TABLE>
COMMERCIAL BANKING ACTIVITIES
Income from commercial banking activities in the first quarter of 1998 was
$4.9 million compared to $3.4 million a year ago, an increase of $1.5 million or
44.1%. Net interest income from commercial banking activities was $12.9 million
for the first three months of the year compared to $11.2 million for the first
quarter of 1997. Other improvements came from growth in the loan portfolio and
earnings on the assets acquired in the Firstate Acquisition. G&A expenses in
this business segment increased by $1.0 million over the same period last year.
However, the ratio of G&A expenses to average assets assigned to commercial
banking activities was 2.34% for the quarter, a reduction of 60 basis points
from 2.94% one year ago. This reduction resulted primarily from the reduction of
expenses achieved through the FFO merger. G&A expenses attributable to the
branches acquired from FFO amounted to $1.1 million in the first quarter of
1998. FFO's G&A expenses in the first quarter of 1997 were $2.3 million.
10
<PAGE> 14
MORTGAGE BANKING ACTIVITIES
Pre-tax net income from mortgage banking activities was $758,000 for the
first quarter of 1998, which included a $695,000 charge to G&A expenses to
record compensation expense on stock options issued to management of the
mortgage banking division. For the same period last year, pre-tax income from
mortgage banking activities was $80,000. The improvement was largely the result
of the introduction of the High LTV Loan product, which accounted for income of
$2.2 million during the first quarter of 1998 compared to $310,000 for the same
period last year. Loan originations of High LTV Loans were $120.9 million in
1998, while loan sales of High LTV Loans were $95.6 million during the same
period. A $1.5 million net loss was incurred on first lien residential loans in
the first quarter of 1998, compared to a $230,000 net loss for the same period
last year. Originations of first lien loans held for sale amounted to $202.4
million, while sales from this category totaled $91.2 million.
COMPARISON OF BALANCE SHEETS AT MARCH 31, 1998 AND DECEMBER 31, 1997
OVERVIEW
Total assets were $1.8 billion at March 31, 1998, an increase of $288.7
million from December 31, 1997. Loans held for sale increased $160.3 million to
$311.7 million, federal funds sold increased $72.0 million, while sales reduced
the balance of mortgage-backed securities by $26.4 million. Deposits increased
$57.2 million from the prior year-end, primarily from a $21.0 million increase
in savings accounts, and advance borrowings from the FHLB totaled $260.0
million, an increase of $225.0 million. The Company currently uses FHLB advances
secured by a blanket lien on its portfolio of residential loans to fund most of
its loans held for sale. The Company's FHLB line of credit was increased to
$350.0 million in April 1998. The Company anticipates changing to a warehouse
credit arrangement with the FHLB in May 1998, which will permit its loans held
for sale to be used as collateral for borrowings.
LOANS AND LOANS HELD FOR SALE
Total loans held for portfolio were largely unchanged from year end,
amounting to $1.2 billion at March 31, 1998. Loans held for sale increased
$160.3 million to $311.7 million at March 31, 1998. One-to-four family first
lien residential loans held for sale increased by $105.2 million, and High LTV
Loans held for sale increased $54.6 million.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses amounted to $20.6 million at March 31, 1998,
compared with $20.8 million at December 31, 1997. Activity in the allowance in
1998 included a $493,000 provision for loan losses and $712,000 of loan
charge-offs (net of recoveries).
NONPERFORMING ASSETS
Nonperforming assets amounted to $37.3 million or 2.03% of total assets at
March 31, 1998, compared with $34.2 million or 2.20% of total assets at December
31, 1997. Nonperforming loans totaled $29.1 million at March 31, 1998, an
increase of $3.3 million from December 31, 1997. Other real estate decreased by
$47,000 to $7.0 million at March 31, 1998.
STOCKHOLDERS' EQUITY
Stockholders' equity was $98.3 million at March 31, 1998, or 5.34% of total
assets, compared to $95.5 million or 6.15% of total assets at December 31, 1997.
At March 31, 1998, the Bank's Tier 1 ("Leverage") Capital ratio was 6.70%, its
Tier 1 Risk-Based Capital ratio was 9.46%, and its Total Risk-Based Capital
ratio was 10.72%, all in excess of minimum FDIC capital guidelines for an
institution to be considered a "well-capitalized" bank. At December 31, 1997,
the Company's ratios were 6.58%, 9.30%, and 10.71%, respectively.
11
<PAGE> 15
REPUBLIC SPC 1 CORP.
On March 31, 1998, the Company sold on a non-recourse basis the $95.2
million of Repo Loans to SPC, a wholly owned, second-tier subsidiary of the
Company. The Repo Loans were sold on a whole loan basis with the Company
recording a gain on sale and retaining servicing rights. The SPC purchased the
loans utilizing the Company's $10.7 million capital contribution to the SPC and
the proceeds of a Repurchase Agreement simultaneously entered into between SPC
and Lehman. The capital contribution will be treated for accounting purposes by
the Company as an investment in an unconsolidated subsidiary, carried at the
lower of cost or market. The Repurchase Agreement provides for the SPC to
repurchase the Repo Loans within a period of 90 days (the "Repurchase Date") at
a price (the "Repurchase Price") equal to the original purchase price plus an
additional amount based on a "pricing rate" of the London Interbank Offered Rate
plus 1.5%.
Because the SPC was organized as a qualified special purpose entity
("QSPE") and satisfies all the requirements applicable to QSPEs under Statement
of Financial Accounting Standards No. 125 ("SFAS 125"), the Company was able to
account for its loan sale transaction with the SPC as a sale, and in connection
therewith recognized in mortgage banking income a gain on sale of $8.9 million.
It is anticipated that on or before the Repurchase Date, the SPC will either (1)
sell all or part of the Repo Loans to one or more third parties on a whole loan
basis, (2) sell the Repo Loans to another QSPE organized by the Company, which
in turn will obtain additional third-party financing to fund its purchase, (3)
sell the Repo Loans to a trust or other entity that will securitize the loans,
or (4) sell the loans to another entity. It is unlikely that the Company could
repurchase the loans in a manner that is consistent with SFAS 125.
Following the SPC's repurchase and subsequent sale of the Repo Loans, it is
anticipated that the SPC will be liquidated and any remaining funds held by the
SPC will be distributed to the Company in its capacity as sole shareholder. To
the extent that the Repo Loans are sold for an amount that is less than the sum
of the Repurchase Price plus the Company's investment in the SPC, the Company
will incur a loss on its $10.7 million investment.
12
<PAGE> 16
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"), which will operate the Georgia Branch. There can be no assurance that
integration will be accomplished effectively or in a timely manner.
Additionally, there can be no assurance that, 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, 55.85% 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
13
<PAGE> 17
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 mortgage
loans. 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 9.8% 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 High LTV Loans generally pose a higher
credit risk to the lender, they normally carry significantly higher interest
rates and origination fees than conventional mortgage loans. 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.
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 a financial institution or other party owning the loans.
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
14
<PAGE> 18
principal is repaid. Payments are made to the debt holders out of the entity's
collection of interest payments and principal repayments on the loans. Because
there is generally no recourse to the transferor of the loans 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 party
transferring the loans 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
party transferring loans will be valued in accordance with Statement of
Financial Accounting Standards No. 125.
Certain aspects of the Company's mortgage banking operations that
distinguish that operation 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 24, 1998, the Company had $235 million in advances from
and $115 million remaining on its $350 million credit line with the FHLB, as
compared to $35 million and $215 million, respectively, at December 31, 1997.
Based on Flagship's current levels of loan production, unless other credit
sources are obtained, the Company anticipates that it will reach its recently
increased 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 purchase activities are reduced or eliminated, the Company may not be able
to recover its investment in Flagship.
15
<PAGE> 19
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 sales 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, business, financial condition and results of operations.
Valuation of Capitalized Excess Interest-Only Spread and Mortgage Related
Securities
At December 31, 1997, the Company's statement of financial condition
reflected an excess interest-only spread of $2.1 million, mortgage related
securities of $26.7 million, which resulted from 1997 securitizations of the
Company's loan production, and a residual interest in the cash flows from the
December 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 sale. Excess interest-only spread as capitalized on the Company's statement
of financial condition represents the present value of the excess of the
interest rate payable by an obligor on a loan over the interest rate passed
through to the purchaser acquiring an interest in such loan, less 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 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 values of the residual interest, mortgage servicing rights and excess
interest-only spread likely to be realized, the rate of prepayment
16
<PAGE> 20
and the amount of defaults utilized by the Company are estimates and actual
experience may vary from its estimates. Increases in interest rates or higher
levels of future prepayments and defaults could result in the actual value of
residual interest, mortgage servicing rights and excess interest-only spread
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 residual
interest, mortgage servicing rights and excess interest-only spread 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 residual
interest, mortgage servicing rights and excess interest-only spread. No
assurance can be given that the residual interest, mortgage servicing rights and
excess interest-only spread could in fact be sold at their carrying value, if at
all.
Contingent Risks Relating to 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 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
17
<PAGE> 21
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 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 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.
18
<PAGE> 22
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 that would have loan loss potential, delinquency
trends, the 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 would not be available to cover
losses related to originated loans or other purchased loans. To the extent that
losses in certain pools or portfolios of loans exceed the loan loss allowances
and unamortized 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 that 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 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."
19
<PAGE> 23
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 adopted that have increased
capital requirements, commercial bank insurance premiums and administrative,
professional and compensation expenses. Any change in the regulatory structure
or the applicable statutes or regulations could have a material adverse impact
on the Company, the Bank, the Savings Bank and their respective operations.
Additional legislation and regulations may be enacted or adopted in the future
which could significantly affect the powers, authority and operations of 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 will likely be 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 or
more 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.
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, its regulatory
capital levels. See Note 16 to the Company's Consolidated Financial Statements
included elsewhere herein.
20
<PAGE> 24
The Company recently entered into (i) the NationsBank Branch Agreements to
acquire eight branches having total deposits of $255.0 million at August 31,
1997, (ii) the Bankers Merger Agreement to acquire two branches having total
deposits of $56.0 million at August 31, 1997, (iii) the Dime Branch Agreement to
acquire a branch having total deposits of $202.9 million at March 31, 1998 and
(iv) the Lochaven Letter of Intent to acquire a branch having total deposits of
$54.9 million at December 31, 1997. 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 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.
21
<PAGE> 25
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 Proposed 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............................................ 14.94 12.25
Third Quarter............................................. 12.88 11.75
Fourth Quarter............................................ 15.50 13.625
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 23, 1998)........................ 33.75 28.75
</TABLE>
22
<PAGE> 26
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................... 482 482
-------- --------
Total stockholders' equity................................ $ 95,531 $
Total Capitalization........................................ $124,281 $
======== ========
</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.
23
<PAGE> 27
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, 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 banking 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 most recent date for which the relevant data is
available to the Company, 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.
24
<PAGE> 28
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 Bank. 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 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 the
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 to determine the actual exchange ratio. 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
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.
On April 21, 1998, the Company entered into a letter of intent with
Lochaven, providing for the merger of Lochaven with and into the Bank. Lochaven
has one branch in Orange County, Florida, and as of December 31, 1997, had total
assets of $58.3 million, total loans of $50.0 million and total deposits of
$54.9 million. Under the terms of the Lochaven Letter of Intent, stockholders of
Lochaven are to receive 0.2776 of a share of Common Stock for each of the
609,094 outstanding shares of Lochaven's common stock. It is anticipated that
the Lochaven Acquisition will be accounted for as a pooling of interests. The
transaction may be terminated by either Lochaven or the Company if it is not
consummated by December 1, 1998.
If consummated, the Proposed Acquisitions and the Offering will increase
the total assets of the Company to approximately $2.2 billion (based on most
recent available data), expand the Company's branch network from 46 to 57
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
25
<PAGE> 29
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."
26
<PAGE> 30
UNAUDITED COMBINED FINANCIAL DATA
The unaudited combined balance sheet as of December 31, 1997, gives effect
to 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 and Lochaven Acquisition are
each 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.
<TABLE>
<CAPTION>
COMPANY,
PROPOSED
NATIONSBANK DIME ACQUISITIONS
BANKERS BRANCH BRANCH LOCHAVEN AND THE
COMPANY ACQUISITION ACQUISITION(A) ACQUISITION ACQUISITION OFFERING(B) OFFERING
---------- ----------- -------------- ----------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Cash and due from banks.... $ 45,998 $ 1,247 $ 4,911 $ -- $ 818 $ -- $ 52,974
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 -- -- 368 -- 9,016
Federal funds sold......... 33,000 192 20,716 183,205 5,036 56,160 298,309
Loans held for sale........ 151,404 4,126 -- -- 14,497 -- 170,027
Loans receivable, net...... 1,128,955 46,987 189,760 -- 35,475 -- 1,401,177
Premises and equipment,
net...................... 33,303 4,180 11,997 100 742 -- 50,322
Real estate owned.......... 6,997 763 -- -- 342 -- 8,102
Goodwill and premium on
deposits................. 4,855 -- 27,646 9,242 -- -- 41,743
Other assets............... 30,481 1,030 -- -- 972 -- 32,483
---------- ------- -------- -------- ------- ------- ----------
Total assets....... $1,552,405 $67,057 $255,030 $192,547 $58,250 $56,160 $2,181,449
========== ======= ======== ======== ======= ======= ==========
Liabilities:
Deposits:
Noninterest-bearing
checking............. $ 93,843 $ 2,775 $ 76,229 $ 212 691 $ -- $ 173,750
Interest checking...... 137,240 2,157 22,649 4,585 4,708 -- 171,339
Money market........... 30,389 4,901 21,657 9,654 22,816 -- 89,417
Savings................ 291,604 2,981 28,695 4,629 1,254 -- 329,163
Time deposits.......... 808,236 43,207 105,800 173,467 25,459 -- 1,156,169
---------- ------- -------- -------- ------- ------- ----------
Total deposits..... 1,361,312 56,021 255,030 192,547 54,928 -- 1,919,831
Other borrowings......... 54,654 6,100 -- -- -- -- 60,754
Other liabilities........ 12,158 699 -- -- 517 -- 13,374
---------- ------- -------- -------- ------- ------- ----------
Total
liabilities...... 1,428,124 62,820 255,030 192,547 55,445 -- 1,993,961
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 6 4,000 20,839
Capital surplus.......... 50,322 1,233 3,365 52,160 107,080
Retained earnings........ 29,155 243 (566) -- 28,832
Net unrealized gain on
AFS securities......... 482 -- -- 482
---------- ------- -------- -------- ------- ------- ----------
Total stockholders'
equity........... 95,531 4,237 -- -- 2,805 56,160 158,733
---------- ------- -------- -------- ------- ------- ----------
Total liabilities
and stockholders'
equity........... $1,552,405 $67,057 $255,030 $192,547 $58,250 $56,160 $2,181,449
========== ======= ======== ======== ======= ======= ==========
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.
27
<PAGE> 31
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) -- -- -- -- --
Minority interest in FFO.......... (674) (505) (503) (131) (197) --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)................. $ 8,571 $ 4,879 $ 6,916 $ 7,210 $ 2,633 $ (1,114)
========== ========== ========== ========== ========== ==========
</TABLE>
28
<PAGE> 32
<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>
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 (loss) 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.
29
<PAGE> 33
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.
30
<PAGE> 34
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.
31
<PAGE> 35
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
========== ======== ========== =======
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>
32
<PAGE> 36
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.
33
<PAGE> 37
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>
34
<PAGE> 38
<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.
35
<PAGE> 39
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>
36
<PAGE> 40
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
37
<PAGE> 41
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.
38
<PAGE> 42
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>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1996 1995
------------------------------- -------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Summary of average
rates/interest earning
assets:
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 77,616 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% $37,504 3.68%
======= ==== ======= ====
Net interest margin......... 4.05% 3.98%
==== ====
</TABLE>
39
<PAGE> 43
<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.
40
<PAGE> 44
The following table reflects the components of noninterest income for the
years ended December 31, 1996 and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
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>
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>
41
<PAGE> 45
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 April 24,
1998, the Company had $235 million in FHLB advances outstanding, with an
aggregate FHLB borrowing limit of $350 million. Based on Flagship's current
levels of loan production, unless other credit sources are obtained, the Company
anticipates that it will reach such limit by the end of May 1998. 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.
42
<PAGE> 46
ALCO uses an industry standard computer modeling system to analyze the
impact of financial strategies prior to their implementation. The system
attempts to simulate the asset and liability base and project future operating
results under a variety of interest rate and spread assumptions. Through this
management tool, management can also, among other things, project the effects of
changing its asset and liability mix and modifying its balance sheet, and
identify appropriate investment opportunities. The results of these simulations
are evaluated within the context of the 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
43
<PAGE> 47
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.
44
<PAGE> 48
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.
45
<PAGE> 49
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 is now the largest independent 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 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 54.0% 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, 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 its 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 Common
Stock 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 Common Stock.
46
<PAGE> 50
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 Company 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 its wholly-owned subsidiary, RBI Capital
Trust I ("RBI Capital") completed an offering by RBI Capital of $28.8 million of
cumulative trust preferred securities (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
$81.3 million in proceeds from a repurchase agreement simultaneously entered
into between the SPC and Lehman. The capital contribution was treated for
accounting purposes as an investment in an unconsolidated subsidiary carried at
the lower of cost or market. See "Recent Developments -- Republic SPC 1 Corp."
The Company anticipates continuing its strategy of geographic expansion for
the foreseeable future through whole bank and thrift acquisitions, branch
acquisitions and de novo branching, depending upon various factors, including
whether (i) the transaction will be accretive to earnings no later than one year
following 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
47
<PAGE> 51
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. In
April 1998, the Company entered into the Lochaven Letter of Intent to
acquire Lochaven, which operates one branch in Orange 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."
48
<PAGE> 52
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 57 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.
49
<PAGE> 53
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.
50
<PAGE> 54
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 2.42
Home equity loans............................... 3.97 1.49 0.93 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 3.47 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>
51
<PAGE> 55
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
52
<PAGE> 56
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.
53
<PAGE> 57
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.
54
<PAGE> 58
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.
55
<PAGE> 59
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% 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
56
<PAGE> 60
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 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
57
<PAGE> 61
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 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.
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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 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.
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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 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.
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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.
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
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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 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.
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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
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,
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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.
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
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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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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.
66
<PAGE> 70
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% 1.1%
John W. Sapanski.......................................... 503,092(5) 6.4% 5.2%
All directors and principal officers as a group (11
persons)................................................ 4,722,220(6) 47.7% 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 may 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
67
<PAGE> 71
(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.
68
<PAGE> 72
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.
69
<PAGE> 73
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.
70
<PAGE> 74
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.
71
<PAGE> 75
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated in this Prospectus by reference and made a part hereof:
(1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1997, filed with the Commission on March 30, 1998.
(2) Amendment No. 1 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, filed with the Commission on April 13,
1998.
(3) Amendment No. 2 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, filed with the Commission on April 17,
1998.
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.
72
<PAGE> 76
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> 77
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%, in 1997, 26% and 25% in 1996,
respectively, and total revenues of 22% in 1995, 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.
ARTHUR ANDERSEN LLP
Tampa, Florida
March 13, 1998
F-2
<PAGE> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
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> 95
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> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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 -- beginning 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 -- beginning 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> 102
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> 103
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> 104
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> 105
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> 106
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> 107
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> 108
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> 109
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> 110
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> 111
======================================================
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
Recent Developments................... 8
Risk Factors.......................... 13
Use of Proceeds....................... 22
Price Range of Common Stock........... 22
Capitalization........................ 23
Proposed Acquisitions................. 24
Unaudited Combined Financial Data..... 27
Selected Consolidated Financial
Data................................ 28
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 30
Business.............................. 46
Management............................ 66
Principal Stockholders................ 67
Description of Capital Stock.......... 68
Underwriting.......................... 69
Legal Matters......................... 71
Experts............................... 71
Available Information................. 71
Incorporation of Certain Documents by
Reference........................... 72
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
(REPUBLIC BANCSHARES LOGO)
2,000,000 SHARES
REPUBLIC BANCSHARES, INC.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
WILLIAM R. HOUGH & CO. LOGO
(RYAN, BECK & CO. LOGO)
, 1998
======================================================
<PAGE> 112
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............... 8,200.00
Printing and engraving expenses*............................ 50,000.00
Accounting fees and expenses*............................... 50,000.00
Legal fees and expenses*.................................... 150,000.00
Blue Sky fees and expenses*................................. 5,000.00
Miscellaneous*.............................................. 14,239.00
-----------
Total............................................. $300,000.00
===========
</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> 113
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.*
10.5 -- Form of Letter of Intent between the Bank and Lochaven
Federal Savings and Loan Association dated April 21, 1998.
23.1 -- Consent of Holland & Knight LLP (included in Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP.
24 -- Power of Attorney.*
27 -- Financial Data Schedule (for SEC use only).*
</TABLE>
- ---------------
* Filed with the Company's Registration Statement of Form S-2 filed April 14,
1998, Registration No. 333-50087 and incorporated herein by reference.
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)
II-2
<PAGE> 114
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-3
<PAGE> 115
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of St
Petersburg, State of Florida, on April 28, 1998.
REPUBLIC BANCSHARES, INC.
By: /s/ JOHN W. SAPANSKI
------------------------------------
John W. Sapanski
Chairman of the Board of Directors,
Chief Executive Officer, and
President
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 28, 1998
- -------------------------------------------------- Officer and Director
John W. Sapanski (Principal Executive Officer)
/s/ WILLIAM R. FALZONE Treasurer (Principal Financial April 28, 1998
- -------------------------------------------------- and Accounting Officer)
William R. Falzone
* Director April 28, 1998
- --------------------------------------------------
Fred Hemmer
Director
- --------------------------------------------------
Marla Hough
* Director April 28, 1998
- --------------------------------------------------
William R. Hough
* Director April 28, 1998
- --------------------------------------------------
Alfred T. May
* Director April 28, 1998
- --------------------------------------------------
William J. Morrison
*By: /s/ JOHN W. SAPANSKY April 28, 1998
------------------------------------------------
John W. Sapansky
Attorney-in-fact
</TABLE>
II-4
<PAGE> 116
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.*
10.5 -- Form of Letter of Intent between the Bank and Lochaven
Federal Savings and Loan Association dated April 21, 1998.
23.1 -- Consent of Holland & Knight LLP (included in Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP.
24 -- Power of Attorney.*
27 -- Financial Data Schedule (for SEC use only).*
</TABLE>
- ---------------
* Filed with the Company's Registration Statement of Form S-2 filed April 14,
1998, Registration No. 333-50087 and incorporated herein by reference.
<PAGE> 1
EXHIBIT 1
REPUBLIC BANCSHARES, INC.
2,000,000 shares of Common Stock (1)
UNDERWRITING AGREEMENT
________, 1998
William R. Hough & Co.
100 Second Avenue South
Suite 800
St. Petersburg, Florida 33701
Ryan, Beck & Co., Inc.
80 Main Street
West Orange, New Jersey 07052
Ladies and Gentlemen:
Republic Bancshares, Inc., a Florida corporation (the "Company"), hereby
confirms its agreement (the "Agreement") with William R. Hough & Co. and Ryan
Beck & Co., Inc. (the "Underwriters"), with respect to the issue and sale by the
Company and the purchase by the Underwriters, acting severally and not jointly,
in such amounts as are set forth in Schedule A hereto opposite the name of such
Underwriter, of 2,000,000 shares (the "Initial Securities") of common stock, par
value $2.00 per share (the "Common Stock") of the Company. The Company also
proposes to issue and sell to the Underwriters, at the Underwriters' option, up
to an additional 300,000 shares of Common Stock (the "Option Securities") as set
forth herein. The term "Common Securities" as used herein, unless indicated
otherwise, shall mean the Initial Securities and the Option Securities.
- ------------------
(1) Plus an option to acquire up to 300,000 additional shares of Common Stock
from the Company, to cover over-allotments.
<PAGE> 2
The initial public offering price for the Common Securities, the purchase
price to be paid by the Underwriters for the Common Securities and the
commission per Common Security to be paid by the Company to the Underwriters
shall be agreed upon by the Company and the Underwriters, and such agreement
shall be set forth in a separate written instrument substantially in the form of
Exhibit A hereto (the "Price Determination Agreement"). The Price Determination
Agreement may take the form of an exchange of any standard form of written
telecommunication between the Company and the Underwriters and shall specify
such applicable information as is indicated in Exhibit A hereto. The offering of
the Common Securities will be governed by this Agreement as supplemented by the
Price Determination Agreement. From and after the date of the execution and
delivery of the Price Determination Agreement this Agreement shall be deemed to
incorporate, and all references herein to "this Agreement" shall be deemed to
include, the Price Determination Agreement.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-2 (File No.
333-_____) covering the registration of the Common Securities, under the
Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectus or prospectuses, and, if such registration statement has
not become effective, the Company will prepare and file, prior to the effective
date of such registration statement, an amendment to such registration
statement, including a final prospectus. Each prospectus used before the time
such registration statement becomes effective is herein called a "preliminary
prospectus." Such registration statement, including the exhibits thereto and the
documents incorporated by reference therein pursuant to Item 12 of Form S-2
under the 1933 Act, at the time it becomes effective, is herein called the
"Registration Statement," and the prospectus, including the documents
incorporated by reference therein pursuant to Item 12 of Form S-2 under the 1933
Act, included in the Registration Statement at the time it becomes effective is
herein called the "Prospectus," except that if any revised prospectus provided
to the Underwriters by the Company for use in connection with the offering of
the Common Securities differs from the prospectus included in the Registration
Statement at the time it becomes effective (whether or not such prospectus is
required to be filed pursuant to Rule 424(b)), the term "Prospectus" shall refer
to such revised prospectus from and after the time it is first furnished to the
Underwriters for such use.
The Underwriters may assemble and manage a selling group of broker-dealers
that are members of the National Association of Securities Dealers, Inc.
("NASD") to participate in the solicitation of purchase orders for the Common
Securities under a selected dealer agreement, the form of which is set forth as
Exhibit B to this Agreement.
The Company hereby confirms its engagement of Ryan, Beck & Co., Inc. as,
and Ryan, Beck & Co., Inc. hereby confirms its agreement with the Company to
render services as, "qualified independent underwriter" within the meaning of
Section 2720 of the Conduct Rules of the National Association of Securities
Dealers, Inc. with respect to the offering and sale of the Common Securities.
Ryan, Beck & Co., Inc., solely in its capacity as qualified independent
underwriter and not otherwise, is referred to herein as the "Independent
Underwriter."
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<PAGE> 3
Section 1. Representations and Warranties of the Company.
(a) The Company represents and warrants to and agrees with the
Underwriters that:
(i) The Company meets the requirements for use of Form S-2
under the 1933 Act and when the Registration Statement on such form
shall become effective and at all times subsequent thereto up to the
Closing Time referred to below and with respect to Option Securities,
up to the Date of Delivery referred to below, (A) the Registration
Statement and any amendments and supplements thereto will comply in
all material respects with the requirements of the 1933 Act and the
rules and regulations of the Commission under the 1933 Act (the "1933
Act Regulations"); (B) neither the Registration Statement nor any
amendment or supplement thereto will contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and (C)
neither the Prospectus nor any amendment or supplement thereto will
include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading, except that this representation and warranty does not
apply to statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by the
Underwriters expressly for use in the Registration Statement or the
Prospectus. The statements contained under the caption "Underwriting"
in the Prospectus constitute the only information furnished to the
Company in writing by the Underwriters expressly for use in the
Registration Statement or the Prospectus.
(ii) The documents incorporated by reference in the Prospectus
pursuant to Item 12 of Form S-2 under the 1933 Act, at the time they
were filed with the Commission. complied in all material respects with
the requirements of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and the rules and regulations of the Commission
thereunder (the "1934 Act Regulations") and, when read together and
with the other information in the Prospectus, at the time the
Registration Statement becomes effective and at all times subsequent
thereto up to the Closing Time, will not contain an 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
not misleading, in each case after excluding any statement that does
not constitute a part of the Registration Statement or the Prospectus
pursuant to Rule 412 of the 1933 Act Regulations.
(iii) Arthur Andersen LLP, who are reporting upon the audited
financial statements included or incorporated by reference in the
Registration Statement, are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.
(iv) This Agreement has been duly authorized, executed and
delivered by the Company and, when duly executed by the Underwriters,
will constitute the valid and
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<PAGE> 4
binding agreement of the Company enforceable against the Company in
accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, or reorganization, moratorium or
other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(v) The consolidated financial statements, audited and
unaudited (including the notes thereto), included or incorporated by
reference in the Registration Statement present fairly the
consolidated financial position of the Company and its subsidiaries as
of the dates indicated and the consolidated results of operations and
cash flows of the Company and its subsidiaries for the periods
specified. Such financial statements have been prepared in conformity
with generally accepted accounting principles applied on a consistent
basis throughout the periods involved except as otherwise stated
therein. The financial statement schedules, if any, included in the
Registration Statement present fairly the information required to be
stated therein. The selected financial, pro forma and statistical data
included in the Prospectus are accurate in all material respects and
present fairly the information shown therein and have been compiled on
a basis consistent with that of the audited and unaudited consolidated
financial statements included or incorporated by reference in the
Registration Statement.
(vi) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida
with corporate power and authority under such laws to own, lease and
operate its properties and conduct its business as described in the
Prospectus. Each subsidiary of the Company is an entity duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of organization with corporate power and
authority under such laws to own, lease and operate its properties and
conduct its business. The Company and each of its subsidiaries is duly
qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases
property of a nature, or transacts business of a type, that would make
such qualification necessary, except to the extent that the failure to
so qualify or be in good standing would not have a material adverse
effect on the condition (financial or otherwise), earnings, business
affairs, assets or business prospects of the Company and its
subsidiaries, considered as one enterprise. For purposes of this
Agreement, the terms "subsidiary" and "subsidiaries" include Republic
Bank (the "Bank'), RBI Capital Trust I (the "Trust"), and Republic
SPC1 Corp.
(vii) The Company is duly registered under the Bank Holding
Company Act of 1956, as amended; each subsidiary of the Company that
conducts business as a bank is duly authorized to conduct such
business in each jurisdiction in which such business is currently
conducted; and the deposit accounts of the Bank are insured by either
the Savings Association Insurance Fund or the Bank Insurance Fund of
the Federal Deposit Insurance Corporation ("FDIC"), up to the maximum
allowable limits thereof. The Company has all such power, authority,
authorization, approvals and orders as may be required to enter
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<PAGE> 5
into this Agreement, to carry out the provisions and conditions hereof
and to issue and sell the Common Securities.
(viii) The Bank is a Florida commercial bank duly organized,
validly existing and in good standing under the laws of the State of
Florida with corporate power and authority under such laws to own,
lease and operate its properties and conduct its business; the Bank is
duly qualified to transact business as a foreign corporation and is in
good standing in each other jurisdiction in which it owns or leases
property of a nature, or transacts business of a type that would make
such qualification necessary, except to the extent that the failure to
so qualify or be in good standing would not have a material adverse
effect on the condition (financial or otherwise), earnings, business
affairs, assets or business prospects of the Company and its
subsidiaries, considered as one enterprise. All of the outstanding
shares of capital stock of the Bank have been duly authorized and
validly issued and are fully paid and non-assessable and are owned by
the Company directly, free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any kind. All of the
outstanding shares of capital stock of the Company's subsidiaries have
been duly authorized and validly issued and are fully paid and
non-assessable and are owned by either the Company or the Bank
directly, free and clear of any pledge, lien, security interest,
charge, claim, equity or encumbrance of any kind, except that the
9.10% Cumulative Trust Preferred Securities issued by the Trust (the
"Trust Preferred Securities") are not owned by the Company or the
Bank.
(ix) Except for the Bank, the Company does not have any
"significant subsidiaries" as defined in Rule 1-02 of Regulation S-X
under the 1933 Act.
(x) The Company had at the date indicated a duly authorized
and outstanding capitalization as set forth in the Prospectus under
the caption "Capitalization."
(xi) The Common Securities to be issued and sold by the Company
to the Underwriters has been duly authorized and, when issued,
delivered and paid for pursuant to this Agreement, will be validly
issued, fully paid and nonassessable and will conform to the
description thereof contained in the Prospectus and the Registration
Statement. The delivery of certificates for the Common Securities to
be issued and sold by the Company hereunder and payment therefor
pursuant to the terms of this Agreement will pass valid title to such
Common Securities to the Underwriters, free and clear of any lien,
claim, encumbrance or defect in title. The issuance of such Common
Securities is not subject to preemptive or other similar rights.
The issuance by the Company of the Common Securities, the
compliance by the Company with all of the provisions of this
Agreement, the execution, delivery and performance by the Company of
this Agreement, and the consummation of the transactions herein
contemplated will not conflict with or result in a breach or violation
of any of the terms or provisions of, or constitute a default under,
any material indenture, loan
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<PAGE> 6
agreement, mortgage, deed of Company or other material agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation
of the provisions of the Articles of Incorporation or by-laws of the
Company or any of its subsidiaries or any statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company, any of its subsidiaries or any of their
respective properties; and no consent, approval, authorization, order,
license, certificate, permit, registration or qualification of or with
any such court or other governmental agency or body is required for
the issue of the Common Securities or the consummation by the Company
of the other transactions contemplated by this Agreement, except for
such consents, approvals, authorizations, licenses, certificates,
permits, registrations or qualifications as have already been
obtained, or as may be required under the 1933 Act or the 1933 Act
Regulations, 1934 Act or 1934 Act Regulations, or state securities
laws.
(xii) The Company is not, and after giving effect to the
offering and sale of the Common Securities will not be, an "investment
company," or an entity "controlled" by an "investment company," as
such terms are defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act").
(xiii) All of the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully
paid and non-assessable, and none of the outstanding shares of capital
stock was issued in violation of the preemptive rights of any
stockholder of the Company.
(xiv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
otherwise stated therein, there has not been (A) any material adverse
change in the condition (financial or otherwise), earnings, business
affairs, assets or business prospects of the Company and its
subsidiaries, considered as one enterprise, whether or not arising in
the ordinary course of business, (B) any transaction entered into by
the Company or any subsidiary, other than in the ordinary course of
business, that is material to the Company and its subsidiaries,
considered as one enterprise, or (C) any dividend or distribution of
any kind declared, paid or made by the Company on its capital stock.
Neither the Company, the Bank, nor any other subsidiary has any
material liability of any nature, contingent or otherwise, except as
set forth in the Prospectus.
(xv) Neither the Company, the Bank nor any other subsidiary is
in violation of any provision of its articles of incorporation,
charter or by-laws or in default in the performance or observance of
any obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which it is a party or by which it may be
bound or to which any of its
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<PAGE> 7
properties may be subject, except for such defaults that would not
have a material adverse effect on the condition (financial or
otherwise), earnings, business affairs, assets or business prospects
of the Company and its subsidiaries, considered as one enterprise.
(xvi) Except as disclosed in the Prospectus, there is no
action, suit or proceeding before or by any government, governmental
instrumentality or court, domestic or foreign, now pending or, to the
knowledge of the Company, threatened against the Company, the Bank or
any other subsidiary that is required to be disclosed in the
Prospectus or that could reasonably be expected to result in any
material adverse change in the condition (financial or otherwise),
earnings, business affairs, assets or business prospects of the
Company and its subsidiaries, considered as one enterprise, or that
could reasonably be expected to materially and adversely affect the
properties or assets of the Company and its subsidiaries, considered
as one enterprise, or that could reasonably be expected to materially
and adversely affect the consummation of the transactions contemplated
in this Agreement; all pending legal or governmental proceedings to
which the Company, the Bank or any other subsidiary is a party that
are not described in the Prospectus, including ordinary routine
litigation incidental to its business, if decided in a manner adverse
to the Company, would not have a material adverse effect on the
condition (financial or otherwise), earnings, business affairs or
business prospects of the Company and its subsidiaries, considered as
one enterprise.
(xvii) There are no material contracts or documents of a
character required to be described in the Registration Statement or
the Prospectus or to be filed as exhibits to the Registration
Statement that are not described and filed as required.
(xviii) The Company and its subsidiaries, including the Bank,
each has good and marketable title to all properties and assets
described in the Prospectus as owned by it, free and clear of all
liens, charges, encumbrances or restrictions, except such as (A) are
described in the Prospectus or (B) are neither material in amount nor
materially significant in relation to the business of the Company and
its subsidiaries, considered as one enterprise; all of the leases and
subleases material to the business of the Company and its
subsidiaries, considered as one enterprise, and under which the
Company, the Bank or any other subsidiary holds properties described
in the Prospectus, are in full force and effect, and neither the
Company, the Bank nor any other subsidiary has any notice of any
material claim that has been asserted by anyone adverse to the rights
of the Company, the Bank or any other subsidiary under any of the
leases or subleases mentioned above, or affecting or questioning the
rights of such corporation to the continued possession of the leased
or subleased premises under any such lease or sublease.
(xix) Each of the Company and its subsidiaries, including the
Bank, owns, possesses or has obtained all material governmental
licenses, permits, certificates, consents, orders, approvals and other
authorizations necessary to own or lease, as the case may be, and to
operate its properties and to carry on its business as presently
conducted,
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<PAGE> 8
and neither the Company, the Bank nor any other subsidiary has
received any notice of any restriction upon, or any notice of
proceedings relating to revocation or modification of, any such
licenses, permits, certificates, consents, orders, approvals or
authorizations.
(xx) No labor problem exists with the employees of the
Company or with employees of the Bank or any other subsidiary or to
the best knowledge of the Company, is imminent that could materially
adversely affect the Company and its subsidiaries, considered as one
enterprise, and the Company is not aware of any existing or imminent
labor disturbance by the employees of any of its, the Bank's or any
other subsidiary's principal suppliers, contractors or customers that
could reasonably be expected to materially adversely affect the
condition (financial or otherwise), earnings, business affairs or
business prospects of the Company and its subsidiaries, considered as
one enterprise.
(xxi) Except as disclosed in the Prospectus, there are no
persons with registration or other similar rights to have any
securities of the Company (i) registered pursuant to the Registration
Statement or (ii) otherwise registered by the Company under the 1933
Act.
(xxii) Except as disclosed in the Prospectus, the Company and
its subsidiaries, including the Bank, own or possess all patents,
patent rights, licenses, inventions. copyrights, know-how (including
trade secrets or other unpatented and/or unpatentable proprietary or
confidential information systems or procedures), trademarks,
servicemarks and tradenames (collectively " patent and proprietary
right") currently employed by them in connection with the business now
operated by them except where the failure to so own, possess or
acquire such patent and proprietary rights would not have a material
adverse effect on the condition (financial or otherwise), earnings,
business affairs, assets or business prospects of the Company and its
subsidiaries considered as one enterprise, and neither the Company,
the Bank nor any other subsidiary has received any notice nor is
otherwise aware of any infringement of or conflict with asserted
rights of others with respect to any patent or proprietary rights, and
which infringement or conflict (if the subject of any unfavorable
decision, rule and refinement, singly or in the aggregate) could
reasonably be expected to result in any material adverse change in the
condition (financial or otherwise), earnings, business affairs, assets
or business prospects of the Company and its subsidiaries, considered
as one enterprise.
(xxiii) The Company and each subsidiary of the Company have
filed all Federal, state and local income, franchise or other tax
returns required to be filed and have made timely payments of all
taxes due and payable in respect of such returns and no material
deficiency has been asserted with respect thereto by any taxing
authority.
(xxiv) The Company has filed with the NASD all documents and
notices required by the NASD of companies that have issued securities
that are traded in the over-the-counter market and quotations for
which are reported by the National Market of The Nasdaq Stock Market,
Inc. (the "Nasdaq Stock Market").
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<PAGE> 9
(xxv) Neither the Company, nor any subsidiary has taken or
will take, directly or indirectly, any action designed to cause or
result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation, under the
Exchange Act or otherwise, of the price of the Common Securities.
(xxvi) Neither the Company, the Bank nor any other subsidiary
is or has been (by virtue of any action, omission to act, contract to
which it is a party or by which it is bound, or any occurrence or
state of facts whatsoever) in violation of any applicable Federal,
state, municipal, or local statutes, laws, ordinances, rules,
regulations and/or orders issued pursuant to foreign, federal, state,
municipal, or local statutes, laws, ordinances, rules, or regulations
(including those relating to any aspect of banking, bank holding
companies, environmental protection, occupational safety and health,
and equal employment practices) heretofore or currently in effect,
except such violation that has been fully cured or satisfied without
recourse or that is not reasonably likely to have a material adverse
effect on the condition (financial or otherwise), earnings, business
affairs, assets or business prospects of the Company and its
subsidiaries considered as one enterprise.
(xxvii) Neither the Company, the Bank nor any other subsidiary
has any agreement or understanding with any entity concerning the
future acquisition by the Company or the Bank of a controlling
interest in any entity that is required by the 1933 Act or the 1933
Act Regulations to be disclosed by the Company that is not disclosed
in the Prospectus; neither the Company, the Bank nor any other
subsidiary has any agreement or understanding with any entity
concerning the future acquisition of a controlling interest in the
Company, the Bank or any other subsidiary by any entity that is
required by the 1933 Act or the 1933 Act Regulations to be disclosed
by the Company that is not disclosed in the Prospectus.
(xxviii) The Trust has been duly created and is validly existing
as a statutory business trust in good standing under the General
Corporation Law of the State of Delaware with the power and authority
to own, lease and operate its properties and conduct its business, and
has so conducted its business, as described in the Prospectus; all of
the outstanding Trust Preferred Securities have been duly authorized
and validly issued and are fully paid and non-assessable, and none of
the outstanding Trust Preferred Securities was issued in violation of
the preemptive rights of any stockholder of the Company; all of the
outstanding common securities representing undivided beneficial
interests in the assets of the Trust have been duly authorized and
validly issued and are fully paid and non-assessable and are owned by
the Company, free and clear of any pledge, lien, security interest,
charge, claim, equity or encumbrance of any kind.
(xxix) The separate Purchase and Sale Agreements (the
"NationsBank Branch Agreements"), dated as of December 15, 1997, by
and between the Company and NationsBank Corporation ("NationsBank")
were duly authorized, executed and delivered by the Company and
constitute valid, legal and binding obligations of the Company
enforceable in accordance with their terms, except as enforcement may
be limited by
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<PAGE> 10
bankruptcy, insolvency or other laws relating to or affecting
enforcement of creditors' rights generally or by general principles of
equity (regardless of whether enforcement is sought in a proceeding in
equity or at law). The Company had full corporate power and authority
to enter into the NationsBank Branch Agreements. The execution,
delivery and performance of the NationsBank Branch Agreements and the
consummation of the transactions contemplated thereby will not
conflict with or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, any indenture, loan
agreement, mortgage, deed of the Company or any of its subsidiaries or
other material agreement or instrument to which the Company or any of
its subsidiaries is bound or to which any of the property or assets of
the Company or any of its subsidiaries is subject, nor will such
actions result in the violation of the provisions of the articles of
incorporation or by-laws of the Company or any of its subsidiaries or
any indenture or agreement of any subsidiary or any statute or any
order or decree of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries; and no
consent, approval, authorization or order of, or any filing with, any
court or governmental agency or body is required for the execution,
delivery and performance of the NationsBank Branch Agreements and the
transactions contemplated thereby, except such as may be required
under the 1933 Act or state securities laws or regulatory approvals
contemplated by the NationsBank Branch Agreements. The Company is not
in breach or default of any of the terms and provisions of the
NationsBank Branch Agreements and, to the knowledge of the Company,
NationsBank is not in breach or default of any of the terms and
provision of the NationsBank Branch Agreements. To the knowledge of
the Company, each of the representations and warranties of NationsBank
contained in the NationsBank Branch Agreements is true and correct in
all material respects.
(xxx) The Agreement and Plan of Merger (the "Bank Acquisition
Agreement") dated as of March 2, 1998, by and between the Company and
Bankers Savings Bank, F.S.B. ("Acquired Bank") was duly authorized,
executed and delivered by the Company and constitutes a valid, legal
and binding obligation of the Company enforceable in accordance with
its terms, except as enforcement may be limited by bankruptcy,
insolvency or other laws relating to or affecting enforcement of
creditors' rights generally or by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity
or at law). The Company had full corporate power and authority to
enter into the Bank Acquisition Agreement. The execution, delivery and
performance of the Bank Acquisition Agreement and the consummation of
the transactions contemplated thereby will not conflict with or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, loan agreement, mortgage,
deed of the Company or any of is subsidiaries or other material
agreement or instrument to which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such actions
result in the violation of the provisions of the articles of
incorporation or by-laws of the Company or any of its subsidiaries or
any indenture or agreement of any subsidiary or any statute or any
order or decree of any court or governmental agency or body having
jurisdiction over
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<PAGE> 11
the Company or any of its subsidiaries; and no consent, approval,
authorization or order of, or any filing with, any court or
governmental agency or body is required for the execution, delivery
and performance of the Bank Acquisition Agreement and the transactions
contemplated thereby, except such as may be required under the 1933
Act or state securities laws or regulatory approvals contemplated by
the Bank Acquisition Agreement. The Company is not in breach or
default of any of the terms and provisions of the Bank Acquisition
Agreement and, to the knowledge of the Company, Acquired Bank is not
in breach or default of any of the terms and provision of the Bank
Acquisition Agreement. To the knowledge of the Company, each of the
representations and warranties of Acquired Bank contained in the Bank
Acquisition Agreement is true and correct in all material respects.
(xxxi) The Purchase and Sale Agreement (the "Dime Branch
Agreement"), dated as of March ____, 1998, by and between the Company
and Dime Savings Bank, F.S.B. ("Dime") was duly authorized, executed
and delivered by the Company and constitutes a valid, legal and
binding obligation of the Company enforceable in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency
or other laws relating to or affecting enforcement of creditors'
rights generally or by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
The Company had full corporate power and authority to enter into the
Dime Branch Agreement. The execution, delivery and performance of the
Dime Branch Agreement and the consummation of the transactions
contemplated thereby will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, any indenture, loan agreement, mortgage, deed of the
Company or any of its subsidiaries or other material agreement or
instrument to which the Company or any of its subsidiaries is bound or
to which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such actions result in the violation
of the provisions of the articles of incorporation or by-laws of the
Company or any of its subsidiaries or any indenture or agreement of
any subsidiary or any statute or any order or decree of any court or
governmental agency or body having jurisdiction over the Company or
any of its subsidiaries; and no consent, approval, authorization or
order of, or any filing with, any court or governmental agency or body
is required for the execution, delivery and performance of the Dime
Branch Agreement and the transactions contemplated thereby, except
such as may be required under the 1933 Act or state securities laws or
regulatory approvals contemplated by the Dime Branch Agreement. The
Company is not in breach or default of any of the terms and provisions
of the Dime Branch Agreement and, to the knowledge of the Company,
Dime is not in breach or default of any of the terms and provision of
the Dime Branch Agreement. To the knowledge of the Company, each of
the representations and warranties of Dime contained in the Dime
Branch Agreement is true and correct in all material respects.
For purposes of this Agreement, the NationsBank Branch Agreements
and the Dime Branch Agreement are collectively referred to as the
"Branch Agreements."
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(b) Any certificate signed by any authorized officer of the
Company or the Bank and delivered to the Underwriters or to counsel for the
Underwriters pursuant to this Agreement shall be deemed a representation and
warranty by the Company to the Underwriters as to the matters covered thereby.
Section 2. Sale and Delivery to the Underwriters, Closing.
(a) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, the Company
agrees to sell to the Underwriters, and the Underwriters agree to purchase from
the Company, 2,000,000 Initial Securities at the purchase price and terms set
forth herein and in the Price Determination Agreement.
In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the Underwriters to purchase up to an
additional 300,000 Common Securities in accordance with the terms set forth
herein and in the Price Determination Agreement. The option hereby granted will
expire at 5:00 p.m. on the 30th day after the date the Registration Statement is
declared effective by the Commission (or at 5:00 p.m. on the next business day
if such 30th day is not a business day) and may be exercised, on one occasion
only, solely for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Initial Securities upon
notice by you to the Company setting forth the number of Option Securities as to
which the Underwriters are exercising the option and the time, date and place of
payment and delivery for the Option Securities. Such time and date of delivery
(the "Option Closing Date") shall be determined by the Underwriters but shall
not be later than five full business days after the exercise of said option, nor
in any event prior to Closing Time, as hereinafter defined, nor earlier than the
second business day after the date on which the notice of the exercise of the
option shall have been given.
(b) Payment of the purchase price for, and delivery of certificates
for, the Initial Securities shall be made at the offices of Holland & Knight
LLP, St. Petersburg, Florida, or at such other place as shall be agreed upon by
the Company and the Underwriters, at 9:30 a.m. on the third full business day
after the effective date of the Registration Statement, or at such other time
not earlier than three nor more than ten full business days thereafter as you
and the Company shall determine (such date and time of payment and delivery
being herein called the "Closing Time"). In addition, in the event that any or
all of the Option Securities are purchased by the Underwriters, payment of the
purchase price for, and delivery of certificates for, such Option Securities
shall be made at the above-mentioned office of Holland & Knight LLP, or at such
other place as shall be agreed upon by the Company and the Underwriters, on the
Option Closing Date as specified in the notice from the Underwriters to the
Company. Payment for the Initial Securities and the Option Securities, if any,
shall be made to the Company by wire transfer of immediately available funds,
against delivery to the Underwriters for the respective accounts of the
Underwriters of Common Securities to be purchased by each.
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(c) The Initial Securities shall be issued in the form of one or more
fully registered global securities (the "Global Securities") in book-entry form
in such denominations and registered in the name of the nominee of The
Depository Trust Company (the "DTC") or in such names as the Underwriters may
request in writing at least one business day before the Closing Date or the
Option Closing Date, as the case may be. The Global Securities representing the
Initial Securities or the Option Securities to be purchased will be made
available for examination by the Underwriters and counsel to the Underwriters
not later than 10:00 A.M. on the business day prior to the Closing Time or the
Option Closing Date, as the case may be.
Section 3. Certain Covenants of the Company. The Company covenants
with the Underwriters as follows:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective and will notify the Underwriters immediately, and
confirm the notice in writing, (i) when the Registration Statement, or any
post-effective amendment to the Registration Statement, shall have become
effective, or any supplement to the Prospectus or any amended Prospectus shall
have been filed, (ii) of the receipt of any comments from the Commission, (iii)
of any request of the Commission to amend the Registration Statement or amend or
supplement the Prospectus or for additional information and (iv) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the Common
Securities or capital stock, for offering or sale in any jurisdiction, or of the
institution or threatening of any proceedings for any of such purposes. The
Company will use every reasonable effort to prevent the issuance of any such
stop order or of any order preventing or suspending such use and, if any such
order is issued, to obtain the lifting thereof at the earliest possible moment.
(b) The Company will not at any time file or make any amendment to
the Registration Statement, or any amendment or supplement if the Company has
elected to rely upon Rule 430A, to the Prospectus (including documents
incorporated by reference into such prospectus or to the Prospectus) of which
the Underwriters shall not have previously been advised and have previously been
furnished a copy, or to which the Underwriters or counsel for the Underwriters
shall reasonably object.
(c) The Company has furnished or will furnish to you as many signed
and conformed copies of the Registration Statement as originally filed and of
each amendment thereto, whether filed before or after the Registration Statement
becomes effective, copies of all exhibits and documents filed therewith
(including documents incorporated by reference into the Prospectus pursuant to
Item 12 of Form S-2 under the 1933 Act) and signed copies of all consents and
certificates of experts as you may reasonably request.
(d) The Company will deliver or cause to be delivered to the
Underwriters, without charge, from time to time until the effective date of the
Registration Statement, as many copies of each preliminary prospectus as the
Underwriters may reasonably request, and the Company hereby
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<PAGE> 14
consents to the use of such copies for purposes permitted by the 1933 Act. The
Company will deliver or cause to be delivered to the Underwriters, without
charge, as soon as the Registration Statement shall have become effective (or,
if the Company has elected to rely upon Rule 430A, as soon as practicable after
the Price Determination Agreement has been executed and delivered) and
thereafter from time to time as requested during the period when the Prospectus
is required to be delivered under the 1933 Act, such number of copies of the
Prospectus (as supplemented or amended) as the Underwriters may reasonably
request.
(e) The Company will comply to the best of its ability with the 1933
Act and the1933 Act Regulations, and the 1934 Act and the 1934 Act Regulations,
so as to permit the completion of the distribution of the Common Securities as
contemplated in this Agreement and in the Prospectus. If, at any time when a
prospectus is required by the 1933 Act to be delivered in connection with sales
of the Common Securities, any event shall occur or condition exist as a result
of which it is necessary, in the reasonable opinion of counsel for the
Underwriters or counsel for the Company, to amend the Registration Statement or
amend or supplement the Prospectus in order that the Prospectus will not include
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light of
the circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the reasonable opinion of either such counsel, at any
such time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the 1933 Act or the 1933
Act Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such untrue statement or omission or to make the Registration Statement
or the Prospectus comply with such requirements.
(f) The Company will use its best efforts, in cooperation with the
Underwriters, to qualify the Common Securities for offering and sale under the
applicable securities laws of such states and other jurisdictions as the
Underwriters may designate and to maintain such qualifications in effect for a
period of not less than one year from the effective date of the Registration
Statement; provided, however, that the Company shall not be obligated to file
any general consent to service of process or to qualify as a foreign corporation
or as a dealer in securities in any jurisdiction in which it is not so qualified
or to subject itself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise so subject. The Company will file such
statements and reports as may be required by the laws of each jurisdiction in
which the Common Securities have been qualified as above provided.
(g) The Company will make generally available (within the meaning of
Rule 158) to its securityholders and the Underwriters as soon as practicable,
but not later than 90 days after the close of the period covered thereby, an
earnings statement of the Company and its subsidiaries (in form complying with
the provisions of Rule 158 of the 1933 Act Regulations) covering a period of at
least 12 months beginning after the effective date of the Registration Statement
but not later than the first day of the Company's fiscal quarter next following
such effective date.
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<PAGE> 15
(h) The Company and the Bank will use the net proceeds received by
them from the sale of the Common Securities in the mariner specified in the
Prospectus under the caption "Use of Proceeds."
(i) The Company, during the period when the Prospectus is required to
be delivered under the 1933 Act, will file promptly all documents required to be
filed with the Commission pursuant to Section 13 or 14 of the 1934 Act
subsequent to the time the Registration Statement becomes effective.
(j) For a period of five years after the Closing Time, the Company
will furnish to the Underwriters copies of all annual reports, quarterly reports
and current reports filed with the Commission on Forms 10K, 10Q and 8-K, or such
other similar forms as may be designated by the Commission and such other
documents, reports, Proxy Statements and information as shall be furnished by
the Company to its stockholders generally.
(k) The Company will file with the Nasdaq Stock Market all documents
and notices required by the Nasdaq Stock Market of companies that have issued
securities that are traded on the National Market, in the over-the-counter
market and quotations for which are reported by the Nasdaq Stock Market.
(l) The Company shall pay the legal fees and related filing fees of
counsel to the Underwriters to prepare one or more "blue sky" surveys (each, a
"Blue Sky Survey") for use in connection with the offering of the Common
Securities as contemplated by the Prospectus and a copy of such Blue Sky Survey
or surveys shall be delivered to each of the Company and the Underwriters.
(m) If, at the time the Registration Statement becomes effective, any
information shall have been omitted therefrom in reliance upon Rule 430A of the
1933 Act Regulations, then the Company will prepare, and file or transmit for
filing with the Commission in accordance with such Rule 430A and Rule 424(b),
copies of an amended Prospectus, or, if required by such Rule 430A, a
post-effective amendment to the Registration Statement (including an amended
Prospectus), containing all information so omitted.
(n) The Company will, at its expense, subsequent to the issuance of
the Common Securities, prepare and distribute to each of the Underwriters and
counsel to the Underwriters, copies of the documents used in connection with the
issuance of the Common Securities.
(o) The Company will not, prior to the Option Closing Date or thirty
(30) days after the date of this Agreement, whichever occurs first, incur any
material liability or obligation, direct or contingent, or enter into any
material transaction, other than in the ordinary course of business, except as
contemplated by the Prospectus.
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<PAGE> 16
(p) During a period of thirty (30) days from the date of the
Prospectus, the Company will not, without the prior written consent of the
Underwriters, directly or indirectly, offer, sell, offer to sell, or otherwise
dispose of any Common Securities, or other securities of the Company or any
subsidiaries that are substantially similar to the Common Securities, including
any guarantee of such securities. The foregoing sentence shall not apply to any
of the Common Securities to be sold hereunder.
Section 4. Payment of Expenses and Independent Underwriter Fee.
(a) The Company will pay and bear all costs and expenses incident to
the performance of its obligations under this Agreement, including (a) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits), as originally filed and as amended, the
preliminary prospectuses and the Prospectus and any amendments or supplements
thereto, and the cost of furnishing copies thereof to the Underwriters, (b) the
preparation, printing and distribution of this Agreement, the Common Securities
and the Blue Sky Survey, (c) the issuance and delivery of the Common Securities
to the Underwriters, including any transfer taxes payable upon the sale of the
Common Securities to the Underwriters, (d) the fees and disbursements of the
Company's counsel and accountants, (e) NASD filing fees, (f) fees and
disbursements of counsel to the Company in connection with the Blue Sky Survey
(such counsel's fees shall not exceed $10,000 exclusive of out-of-pocket
expenses of counsel), (g) the qualification of the Common Securities under the
applicable securities laws in accordance with Section 3(f) and any filing fee
for review of the offering with the NASD, (h) the legal fees and expenses of the
Underwriters' counsel (such counsel's fees shall not exceed $55,000 exclusive of
out-of-pocket expenses of counsel) and general out-of-pocket expenses of the
Underwriters, and (i) all other costs incident to the performance of the
Company' obligations hereunder.
(b) The Independent Underwriter shall be entitled to the payment of a
fee of $10,000 for fulfilling its obligations as Independent Underwriter that
shall be payable at the Closing Time, provided that such fee shall be payable
out of the commissions due to the Underwriters under the Price Determination
Agreement.
If (i) the Closing Time does not occur on or before June 30, 1998,
(ii) the Company abandons or terminates the Offering, or (iii) this Agreement is
terminated by the Underwriters in accordance with the provisions of Section 5 or
9(a), the Company shall reimburse the Underwriters for all their reasonable
out-of-pocket expenses, as set forth in this Section 4, including the reasonable
fees and disbursements of counsel for the Underwriters.
Section 5. Conditions of Underwriters' Obligations. The obligations of
the Underwriters to purchase and pay for the Common Securities that each has
respectively agreed to purchase pursuant to this Agreement are subject to the
accuracy of the representations and warranties of the Company contained herein
or in certificates of the officers of the Company or any subsidiary delivered
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder and to the following further conditions:
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<PAGE> 17
(a) The Registration Statement shall have become effective not later
than 5:30 P.M. on the date of this Agreement or, with your consent, at a later
time and date not later, however, than 5:30 P.M. on the first business day
following the date hereof, or at such later time or on such later date as you
may agree to in writing; at the Closing Time, no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act and no proceedings for that purpose shall have been instituted or shall
be pending or, to the Underwriters' knowledge or the knowledge of the Company,
shall be contemplated by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
satisfaction of counsel for the Underwriters. If the Company has elected to rely
upon Rule 430A, a prospectus containing the Rule 430A Information shall have
been filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A).
(b) At the Closing Time, you shall have received:
(i) The favorable opinion, dated as of Closing Time, of
Holland & Knight LLP, special counsel for the Company, in form and
substance reasonably satisfactory to counsel for the Underwriters,
substantially in the form set forth in Exhibit C.
(ii) The favorable opinion, dated as of Closing Time, of
Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A., counsel for the
Underwriters, in form and substance satisfactory to the Underwriters.
In giving such opinions, such counsel may rely, as to all matters
governed by the laws of jurisdictions other then the federal law of the United
States, upon opinions of other counsel, who shall be counsel satisfactory to
counsel for the Underwriters in which case the opinion shall state that counsel
believes that you and your counsel are entitled to so rely. Such counsel may
also state that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of the
Company and the Bank and certificates of public officials.
(c) At the Closing Time and again at the Option Closing Date, (i) the
Registration Statement and the Prospectus, as they may then be amended or
supplemented, shall contain all statements that are required to be stated
therein under the 1933 Act and the 1933 Act Regulations and in all material
respects shall conform to the requirements of the 1933 Act and the 1933 Act
Regulations, the Company shall have complied in all material respects with Rule
430A (if it shall have elected to rely thereon) and neither the Registration
Statement nor the Prospectus, as they may then be amended or supplemented, shall
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (ii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement, any material adverse
change in the condition (financial or otherwise), earnings, business affairs,
assets or business prospects of the Company and its
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<PAGE> 18
subsidiaries, considered as one enterprise, whether or not arising in the
ordinary course of business, (iii) no action, suit or proceeding at law or in
equity shall be pending or, to the knowledge of the Company, threatened against
the Company or any subsidiary, that would be required to be set forth in the
Prospectus other than as set forth therein and no proceedings shall be pending
or, to the knowledge of the Company, threatened against the Company or any
subsidiary before or by any federal, state or other commission, board or
administrative agency wherein an unfavorable decision, ruling or finding could
reasonably be expected to materially adversely affect the condition (financial
or otherwise), earnings, business affairs, assets or business prospects of the
Company and its subsidiaries, considered as one enterprise, other than as set
forth in the Prospectus, (iv) the Company shall have complied, in all material
respects, with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Closing Time or Option Closing Date,
as applicable, (v) the other representations and warranties of the Company set
forth in Section l(a) shall be accurate in all material respects as though
expressly made at and as of the Closing Time or Option Closing Date, as
applicable, and (vi) no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceeding for that purpose
been initiated or, to the knowledge of the Company, threatened by the
Commission. At the Closing Time, the Underwriters shall have received a
certificate of the Chairman and of the Chief Financial Officer or Controller of
the Company, dated as of the Closing Time, to such effect.
(d) At the time that this Agreement is executed by the Company, you
shall have received from Arthur Andersen LLP a letter dated such date, in form
and substance satisfactory to you, confirming that they are independent
certified public accountants with respect to the Company within the meaning of
the 1933 Act and the published 1933 Act Regulations, and stating in effect that,
with respect to the Company:
(i) in their opinion, the consolidated financial statements as
of December 31, 1997 and 1996, and for each of the years in the three
year period ended December 31, 1997 and the related financial
statement schedules included or incorporated by reference in the
Registration Statement and the Prospectus and covered by their
opinions included therein comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the
published 1933 Act Regulations;
(ii) on the basis of procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in SAS No. 71, interim financial
information for the unaudited interim consolidated financial
information of the Company for the three-month period ended March 31,
1998 and March 31, 1997, including a reading of the latest available
unaudited interim consolidated financial statements for the Company, a
reading of the minutes of all meetings of the Board of Directors of
the Company and the Bank and of the Audit and Executive Committees of
the Board of Directors since January 1, 1998, inquiries of certain
officials of the Company and its subsidiaries responsible for
financial and accounting matters, and such other
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inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) the unaudited interim consolidated financial information
included as Recent Developments in the Prospectus are not
presented in conformity with generally accepted accounting
principles applied on a basis consistent with that of the
audited financial statements included in the Prospectus;
(B) at a specified date not more than three days prior to
the date of this Agreement, there was any increase in the
capital stock, long-term debt, Federal Home Loan Bank
advances or real estate owned or any decrease in total
assets, deposits, loan loss allowance or stockholders'
equity of the Company and its consolidated subsidiaries, in
each case as compared with amounts shown in the financial
statements at December 31, 1997 included in the Registration
Statement, except in all cases for increases or decreases
that the Registration Statement discloses have occurred or
may occur; or
(C) for the period from January 1, 1998 to a specified date
not more than three days prior to the date of this
Agreement, there was any decrease in net interest income,
non-interest income or net income or net income per common
and common equivalent share, or any increase in the
provision for loan losses or non-interest expense in each
case as compared with a period of comparable length in the
preceding year, except in all cases for increases or
decreases that the Registration Statement discloses have
occurred or may occur; and
(iii) in addition to the procedures referred to in clause (ii)
above, they have performed other specified procedures, not
constituting an audit, with respect to certain amounts, percentages,
numerical data and financial information appearing in the Registration
Statement (including the Selected Consolidated Financial Data and
Recent Developments) having compared such items with, and having found
such items to be in agreement with, the financial statements of the
Company or general accounting records of the Company, as applicable,
which are subject to the Company's internal accounting controls or
other data and schedules prepared by the Company from such records;
and
(iv) on the basis of a review of schedules provided to them by
the Company, nothing came to their attention that caused them to
believe that the pro forma information, set forth in the Prospectus
under the heading "Capitalization" and "Pro Forma Financial Data" had
not been correctly calculated on the basis described therein.
(e) At the Closing Time, the Underwriters shall have received from
Arthur Andersen LLP a letter, in form and substance satisfactory to the
Underwriters and dated as of the Closing Time, to the effect that it reaffirms
the statements made in the letter furnished pursuant to Section 5(d), except
that the inquiries specified in Section 5(d) shall be made based upon the latest
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<PAGE> 20
available unaudited interim consolidated financial statements and the specified
date referred to shall be a date not more than three days prior to the Closing
Time.
(f) At the Closing Time, counsel for the Underwriters shall have been
furnished with all such documents, certificates and opinions as they may request
for the purpose of enabling them to pass upon the issuance and sale of the
Common Securities as contemplated in this Agreement and the matters referred to
in Section 5(c) and in order to evidence the accuracy and completeness of any of
the representations, warranties or statements of the Company, the performance of
any of the covenants of the Company, or the fulfillment of any of the conditions
herein contained; and all proceedings taken by the Company at or prior to the
Closing Time in connection with the authorization, issuance and sale of the
Common Securities as contemplated in this Agreement shall be satisfactory in
form and substance to the Underwriters and to counsel for the Underwriters.
(g) Between the date of this Agreement and the Closing Time, (i) no
downgrading shall have occurred in the rating accorded any securities of the
Company or any deposit instruments of the Bank by any "nationally recognized
statistical rating organizations" as that term is defined by the Commission for
purposes of Rule 436(g) (2) under the 1933 Act and (ii) no such organization
shall have given any notice of any intended or potential downgrading or of any
surveillance or review, with possible negative implications, of its rating of
any of the Company's securities or any deposit instruments of the Bank.
(h) The Company shall have paid, or made arrangements satisfactory to
the Underwriters for the payment of, all such expenses as may be required by
Section 4 hereof.
(i) In the event the Underwriters exercise their option provided in
Section 2 hereof to purchase all or any portion of the Option Securities, the
obligations of the Underwriters to purchase the Option Securities that they have
agreed to purchase shall be subject to the accuracy of the representations and
warranties of the Company contained herein and of the statements in any
certificates furnished by the Company hereunder as of such Option Closing Date
(as if made on such date), to the performance by the Company of its obligations
hereunder and to the receipt by you on the Option Closing Date of:
(1) A certificate, dated the Option Closing Date, of the
Chairman and of the Chief Financial Officer or Controller of the
Company confirming that the certificate delivered on the Closing
Time pursuant to Section 5(c) hereof remains true as of the Option
Closing Date;
(2) The favorable opinion of Holland & Knight LLP, counsel
for the Company, addressed to you and dated the Option Closing
Date, in form satisfactory to Smith, Mackinnon, Greeley, Bowdoin &
Edwards, P.A., counsel to the Underwriters, relating to the Option
Securities and otherwise to the same effect as the opinion
required by Section 5(b) hereof;
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(3) The favorable opinion of Smith, Mackinnon, Greeley,
Bowdoin & Edwards, P.A., dated the Option Closing Date, relating
to the Option Shares and otherwise to the same effect as the
opinion required by Section 5(b) hereof; and
(4) A letter from Arthur Andersen LLP addressed to each of
the Underwriters and dated the Option Closing Date, in form and
substance satisfactory to the Underwriters and substantially the
same in form and substance as the letter furnished to the
Underwriters pursuant to Section 5(d) hereof.
(j) The Common Securities shall have been qualified or registered for
sale, or subject to an available exemption from such qualification or
registration, under the Blue Sky or securities laws of such jurisdictions as
shall have been reasonably specified by the Underwriters and the offering
contemplated by this Agreement shall have been cleared by the NASD.
If any of the conditions specified in this Section 5 shall not have
been fulfilled when and as required by this Agreement to be fulfilled, this
Agreement may be terminated by the Underwriters on notice to the Company at any
time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other Party, except as provided in Section 4.
Notwithstanding any such termination, the provisions of Sections 6, 7, 10, 12
and 13 shall remain in effect.
Section 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriters, officers, directors, employees, agents and counsel of the
Underwriters (including any Underwriter in its role as Independent Underwriter),
and each person, if any, who controls the Underwriters within the meaning of
Section 15 of the 1933 Act or Section 20(a) of the 1934 Act, against any loss,
liability, claim, damage, and expense whatsoever (which shall include, but not
be limited to, amounts incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim or investigation
whatsoever and any and all amounts paid in settlement of any claim or
litigation), as and when incurred, arising out of, based upon or in connection
with (i) any untrue statement or alleged untrue statement of a material fact or
any omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, contained in
(A) any Preliminary Prospectus, the Registration Statement, or the Prospectus
(as from time to time amended and supplemented), or any amendment or supplement
thereto or in any document incorporated by reference therein or required to be
delivered with any Preliminary Prospectus or the Prospectus or (B) in any
application or other document or communication (collectively called an
"application") executed by or on behalf of the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to qualify the Common Securities under the "blue sky" or securities
laws thereof or filed with the Commission or any securities exchange; unless
such statement or omission or alleged statement or omission was made in reliance
upon and in conformity with written information concerning the Underwriters, the
Underwriting Agreement or the compensation of the
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Underwriters furnished to the Company by or on behalf of the Underwriters
expressly for inclusion in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or in any
application, as the case may be, or (ii) any breach of any representation,
warranty, covenant or agreement of the Company contained in the Underwriting
Agreement. For purposes of this section, the term "expense" shall include, but
not be limited to, counsel fees and costs, court costs, out-of-pocket costs and
compensation for the time spent by the Underwriters' directors, officers,
employees and counsel according to his or her normal hourly billing rates. The
indemnification provisions shall also extend to all affiliates of the
Underwriters, their respective directors, officers, employees, legal counsel,
agents and controlling persons within the meaning of the federal securities
laws. The foregoing agreement to indemnify shall be in addition to any liability
the Company may otherwise have to the Underwriters or the persons entitled to
the benefit of these indemnification provisions.
(b) The Underwriters agree to indemnify and hold harmless the Company,
its directors, officers who signed the Registration Statement and each person,
if any, who controls the Company within the meaning of Section 15 of the 1933
Act or Section 20(a) of the 1934 Act, against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
above, as incurred, but only with respect to untrue statements or omissions, or
alleged untrue statements or omissions, made in the Registration Statement (or
any amendment thereto) or any Preliminary Prospectus or the Prospectus (or any
amendment or supplement thereto) or any application in reliance upon and in
conformity with written information about the Underwriters, the Underwriting
Agreement or the compensation of the Underwriters, furnished to the Company by
the Underwriters expressly for use in the Registration Statement (or any
amendment thereto) or such Preliminary Prospectus or the Prospectus (or any
amendment or supplement thereto) or in any application.
(c) An indemnified party shall give prompt notice to the indemnifying
party if any action, suit, proceeding or investigation is commenced in respect
of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve the indemnifying party from its obligations
to indemnify hereunder, except to the extent that the indemnifying party has
been prejudiced in any material respect by such failure. If it so elects within
a reasonable time after receipt of such notice, an indemnifying party may assume
the defense of such action, including the employment of counsel satisfactory to
the indemnified parties and payment of all expenses of the indemnified party in
connection with such action. Such indemnified party or parties shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless the employment of such counsel shall have been authorized in
writing by the indemnifying party in connection with the defense of such action
or the indemnifying party shall not have promptly employed counsel reasonably
satisfactory to such indemnified party or parties or such indemnified party or
parties shall have reasonably concluded that there may be one or more legal
defenses available to it or them or to other indemnified parties that are
different from or additional to those available to one or more of the
indemnifying parties, in any of which events such fees and expenses shall be
borne by the indemnifying party and the indemnifying party shall not have the
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right to direct the defense of such action on behalf of the indemnified party or
parties. The Company shall be liable for any settlement of any claim against the
Underwriters (or their directors, officers, employees, affiliates or controlling
persons), made with the Company's written consent, which consent shall not be
unreasonably withheld. The Company shall not, without the written consent of the
Underwriters, settle or compromise any claim against them based upon
circumstances giving rise to an indemnification claim against the Company
hereunder unless such settlement or compromise provides that the Underwriters
and the other indemnified parties shall be unconditionally and irrevocably
released from all liability in respect to such claim.
(d) In order to provide for just and equitable contribution, if a
claim for indemnification pursuant to these indemnification provisions is made
but it is found in a final judgment by a court that such indemnification may not
be enforced in such case, even though the express provisions hereof provide for
indemnification in such case, then the Company, on the one hand, and the
Underwriters, on the other hand, shall contribute to the amount paid or payable
by such indemnified persons as a result of such loss, liability, claim, damage
and expense in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Underwriters, on the
other hand, from the underwriting, and also the relative fault of the Company,
on the one hand, and the Underwriters, on the other hand, in connection with the
statements, acts or omissions which resulted in such loss, liability claim,
damage and expense, and any other relevant equitable considerations shall also
be considered. No person found liable for a fraudulent misrepresentation or
omission shall be entitled to contribution from any person who is not be found
liable for such fraudulent misrepresentation or omission. Notwithstanding the
foregoing, the Underwriters shall not be obligated to contribute any amount
hereunder that exceeds the amount of the underwriting commission paid by the
Company to the Underwriters with respect to the Common Securities purchased by
the Underwriters.
(e) The indemnity and contribution agreements contained herein are in
addition to any liability which the Company may otherwise have to the
Underwriters.
(f) Neither termination nor completion of the engagement of the
Underwriters nor any investigation made by or on behalf of the Underwriters
shall affect the indemnification obligations of the Company or the Underwriters
hereunder, which shall remain and continue to be operative and in full force and
effect.
Section 7. Representations, Warranties and Agreements to Survive
Delivery. The representations, warranties, indemnities, agreements and other
statements of the Company or its officers set forth in or made pursuant to this
Agreement will remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Company or the Underwriters or any
controlling person and will survive delivery of and payment for the Common
Securities.
Section 8. Offering by the Underwriters. The Company is advised by the
Underwriters that the Underwriters propose to make a public offering of the
Common Securities, on the terms
23
<PAGE> 24
and conditions set forth in the Registration Statement from time to time as and
when the Underwriters deem advisable after the Registration Statement becomes
effective.
Section 9. Termination of Agreement.
(a) You may terminate this Agreement, by notice to the Company, at any
time at or prior to the Closing Time (i) if there has been, since the respective
dates as of which information is given in the Registration Statement, any
material adverse change in the condition (financial or otherwise, earnings,
business affairs or business prospects of the Company and its subsidiaries,
considered as one enterprise, whether or not arising in the ordinary course of
business), or (ii) if there has occurred any outbreak or escalation of existing
hostilities or other national or international calamity or crisis the effect of
which on the financial markets of the United States is such as to make it, in
the Underwriters' reasonable judgment, impracticable to market the Common
Securities or enforce contracts for the sale of the Common Securities, or (iii)
if trading in any securities of the Company has been suspended by the Commission
or the National Association of Securities Dealers, Inc., or if trading generally
on the New York Stock Exchange or in the over-the-counter market has been
suspended, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices for securities have been required, by such exchange or by
order of the Commission, the National Association of Securities Dealers, Inc. or
any other governmental authority with appropriate jurisdiction over such
matters, or (iv) if a banking moratorium has been declared by either federal or
Florida authorities, or (v) if there shall have been such material and
substantial change in the market for securities in general or in political,
financial or economic conditions as in your reasonable judgment makes it
inadvisable to proceed with the Offering, sale and delivery of the Common
Securities on the terms contemplated by the Prospectus, or (vi) if you
reasonably determine (which determination shall be in good faith) that there has
not been satisfactory disclosure of all relevant financial information relating
to the Company in the Company's disclosure documents and that the sale of the
Common Securities is inadvisable given such disclosures.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party, except
to the extent provided in Section 4. Notwithstanding any such termination, the
provisions of Sections 6, 7, 10, 12 and 13 shall remain in effect.
Section 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at the Closing Time to purchase the Initial
Securities that it or they are obligated to purchase pursuant to this Agreement
(the "Defaulted Securities"), you shall have the right, within 24 hours
thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms set forth in this Agreement; if, however, you have not completed such
arrangements within such 24-hour period, then:
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<PAGE> 25
(a) if the aggregate amount of Defaulted Securities does not exceed
10% of the aggregate amount of Initial Securities, the non-defaulting
Underwriters shall be obligated to purchase the full amount thereof in the
proportions that their respective Initial Securities underwriting obligation
proportions bear to the underwriting obligations of all non-defaulting
Underwriters; or
(b) if the aggregate amount of Defaulted Securities exceeds 10% of the
aggregate amount of Initial Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect to its default.
In the event of any such default that does not result in a
termination of this Agreement, either you or the Company shall have the right to
postpone the Closing Time for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements. As used herein, the term "Underwriter"
includes any person substituted for an Underwriter under this Section 10.
Section 11. Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered, mailed or transmitted by any standard form of telecommunication.
Notices shall be addressed as follows:
If to the Underwriters:
William R. Hough & Co.
100 Second Avenue South, Suite 800
St. Petersburg, Florida 33701
Attention: Ronald Goff, First Vice President
and
Ryan, Beck & Co., Inc.
80 Main Street
West Orange, New Jersey 07052
Attention: Bruce Miller, Senior Vice President
25
<PAGE> 26
with a copy to:
Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A.
255 South Orange Avenue, Suite 800
Orlando, Florida 32801
Attention: John P. Greeley
If to the Company or the Company:
Republic Bancshares, Inc.
111 Second Avenue, N.E.
Saint Petersburg, FL 33701
Attention: John Sapanski, Chairman, Chief Executive
Officer and President
with a copy to:
Holland & Knight LLP
2100 Pennsylvania Avenue, N.W.
Washington, DC 20037
Attention: John A. Buchman
Section 12. Parties. This Agreement is made solely for the benefit of
the Underwriters, and the officers, directors, employees, agents and counsel of
the Underwriters specified in Section 6, the Company and, to the extent
expressed, any person controlling the Company or the Underwriters, and the
directors of the Company, their respective officers who have signed the
Registration Statement, and their respective executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include any purchaser, as such purchaser, from the Underwriters of the
Common Securities.
Section 13. Arbitration. Any claims, controversies, demands, disputes
or differences between or among the parties hereto or any persons bound hereby
arising out of, or by virtue of, or in connection with, or otherwise relating to
this Agreement shall be submitted to and settled by arbitration conducted in
Tampa, Florida before one or three arbitrators, each of whom shall be
knowledgeable in the field of securities law and investment banking. Such
arbitration shall otherwise be conducted in accordance with the rules then
obtaining of the American Arbitration Association. The parties hereto agree to
share equally the responsibility for all fees of the arbitrators, abide by any
decision rendered as final and binding and waive the right to appeal the
decision or otherwise submit the dispute to a court of law for a jury or
non-jury trial. The parties hereto specifically agree that neither party may
appeal or subject the award or decision of any such arbitrator to appeal or
review in any court of law or in equity or in any other tribunal, arbitration
26
<PAGE> 27
system or otherwise. Judgment upon any award granted by such arbitrator may be
enforced in any court having jurisdiction thereof.
Section 14. Governing Law and Time. This Agreement shall be governed
by the laws of the State of Florida. Specified times of the day refer to New
York City time.
Section 15. Severability. In the event that any provision or any
portion of any provision of this Agreement shall be held invalid, illegal or
unenforceable under applicable, law the remainder of this Agreement shall remain
valid and enforceable.
Section 16. Counterparts. This Agreement may be executed in one or
more counterparts, and when a counterpart has been executed by each party, all
such counterparts taken together shall constitute one and the same agreement.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement between the Company and the
Underwriters in accordance with its terms.
Very truly yours,
REPUBLIC BANCSHARES, INC.
By:
------------------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
WILLIAM R. HOUGH & CO.
By:
--------------------------
Name:
Title:
27
<PAGE> 28
RYAN, BECK & CO., INC.
By:
--------------------------
Name:
Title:
28
<PAGE> 29
SCHEDULE A
<TABLE>
<CAPTION>
Amount of Percentage of
Initial Securities Initial Securities
Underwriter to be Purchased to be Purchased
----------- --------------- ---------------
<S> <C> <C>
William R. Hough & Co. _________ ___%
Ryan, Beck & Co., Inc. _________ ___%
TOTAL _________ ___%
</TABLE>
29
<PAGE> 30
EXHIBIT A
REPUBLIC BANCSHARES, INC.
(a Florida corporation)
2,000,000 Shares of Common Stock
PRICE DETERMINATION AGREEMENT
_______________, 1998
William R. Hough & Co.
100 Second Avenue South
St. Petersburg, FL 33701
Ryan, Beck & Co., Inc.
80 Main Street
West Orange, New Jersey 07052
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement, dated the date hereof
(the "Underwriting Agreement"), among Republic Bancshares, Inc. (the "Company")
and the Underwriters named above (the "Underwriters"). The Underwriting
Agreement provides for the purchase by the Underwriters from the Company,
subject to the terms and conditions set forth therein, of 2,000,000 shares of
the common stock, par value $2.00 per share (the "Common Stock"), subject to a
300,000 share increase (to cover over-allotments, if any). This Agreement is the
Price Determination Agreement referred to in the Underwriting Agreement.
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<PAGE> 31
Pursuant to Section 2 of the Underwriting Agreement, the Company agrees
with the Underwriters as follows:
1. The public offering price per Common Stock shall be $______.
2. The purchase price for the Common Stock to be paid by the
Underwriters shall be $______ per Common Stock.
3. The commission per Common Stock to be paid by the Company to the
Underwriters for their commitments hereunder shall be $_______ per Common Stock.
The Company represents and warrants to the Underwriters that the
representations and warranties of the Company set forth in Section 1(a) of the
Underwriting Agreement are accurate as though expressly made at and as of the
date hereof.
This Agreement shall be governed by the laws of the State of Florida.
If the foregoing is in accordance with the understanding of the
Underwriters of the agreement between the Underwriters and the Company, please
sign and return to the Company a counterpart hereof, whereupon this instrument,
along with all counterparts and together with the Underwriting Agreement, shall
be a binding agreement between the Underwriters and the Company in accordance
with its terms and the terms of the Underwriting Agreement.
Very truly yours,
REPUBLIC BANCSHARES, INC.
By:
------------------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
WILLIAM R. HOUGH & CO. RYAN, BECK & CO., INC.
By: By:
------------------------------ ------------------------------
Name: Name:
Title: Title:
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<PAGE> 32
EXHIBIT B
MASTER SELECTED DEALER AGREEMENT
Gentlemen:
(1) General. We understand that William R. Hough & Co. is entering into
this Agreement with us and other firms who may be offered the right to purchase
as principal a portion of securities being distributed to the public. The terms
and conditions of this Agreement shall be applicable to any public offering of
securities ("Securities") pursuant to a registration statement filed under the
Securities Act of 1933 (the "Securities Act") wherein William R. Hough & Co.
(acting for its own account or for the account of any underwriting or similar
group or syndicate) is responsible for managing or otherwise implementing the
sale of the Securities to selected dealers ("Selected Dealers") and has informed
us that such terms and conditions shall be applicable. Any such offering of
Securities to us as a Selected Dealer is hereinafter called an "Offering." In
the case of any Offering in which you are acting for the account of any
underwriting or similar group or syndicate ("Underwriters"), the terms and
conditions of this Agreement shall be for the benefit of, and binding upon, such
Underwriters, including, in the case of any Offering in which you are acting
with others as representatives of Underwriters, such other representatives. The
term "preliminary prospectus" means any preliminary prospectus relating to an
Offering of Securities or any preliminary prospectus supplement together with a
prospectus relating to an Offering of Securities; the term "Prospectus" means
the prospectus, together with the final prospectus supplement, if any, relating
to an Offering of Securities, filed pursuant to Rule 424(b) or Rule 424(c) under
the Securities Act or any successor or similar rules.
(2) Conditions of Offering Acceptance and Purchase. Any Offering will be
subject to delivery of the Securities and their acceptance by you and any other
Underwriters, may be subject to the approval of all legal matters by counsel and
the satisfaction of other conditions, and may be made on the basis of
reservation of Securities or an allotment against subscription. You will advise
us by telegram, telex, facsimile, e-mail, or other form of written communication
("Written Communication") of the particular method and supplementary terms and
conditions (including, without limitation, the information as to prices and
offering date referred to in Section 3(b)) of any Offering in which we are
invited to participate. To the extent such supplementary terms and conditions
are inconsistent with any provision herein, such terms and conditions shall
supersede any such provision. Unless otherwise indicated in any such Written
Communication, acceptances and other communications by us with respect to any
Offering should be sent to William R. Hough & Co. You reserve the right to
reject any acceptance in whole or in part. Payment for Securities purchased by
us is to be made at such office as you may designate, at the public offering
price, or, if you shall so advise us, at such price less the concession to
dealers or at the price set forth or indicated in a Written Communication, on
such date as you shall determine, on one day's prior notice to us, by wire
transfer to a William R. Hough & Co. account, against delivery of certificates
or other forms evidencing such Securities. If payment is made for Securities
purchased
1
<PAGE> 33
by us at the public offering price, the concession to which we shall be entitled
will be paid to us upon termination of the provisions of Section 3(b) with
respect to such Securities.
Unless we promptly give you written instructions otherwise, if
transactions in the Securities may be settled through the facilities of The
Depository Trust Company, delivery of Securities purchased by us will be made
through such facilities if we are a member, or if we are not a member,
settlement may be made through our ordinary correspondent who is a member.
(3) Representations, Warranties, and Agreements.
(a) Prospectuses. You shall provide us with such number of copies of each
preliminary, prospectus, the Prospectus and any supplement thereto relating to
each Offering as we may reasonably request for the purposes contemplated by the
Securities Act and the Securities Exchange Act of 1934 (Exchange Act) and the
applicable Rules and regulations of the Securities and Exchange Commission
thereunder. We represent that we are familiar with Rule 15c2-8 under the
Exchange Act relating to the distribution of preliminary and final prospectuses
and agree that we will comply therewith. We agree to keep an accurate record of
our distribution (including dates, number of copies, and persons to whom sent)
of copies of the Prospectus or any preliminary prospectus (or any amendment or
supplement to any thereof), and promptly upon request by you, to bring all
subsequent changes to the attention of anyone to whom such material shall have
been furnished. We agree to furnish to persons who receive a confirmation of
sale a copy of the Prospectus filed pursuant to Rule 424(b) or Rule 424(c) under
the Securities Act. We agree that in purchasing Securities in an Offering we
will rely upon no statements whatsoever, written or oral, other than the
statements in the Prospectus delivered to us by you. We will not be authorized
by the issuer or other seller of Securities offered pursuant to a Prospectus or
by any Underwriters to give any information or to make any representation not
contained in the Prospectus in connection with the sale of such Securities.
(b) Offer and Sale to the Public. With respect to any Offering of
Securities, you will inform us by a Written Communication of the public offering
price, the selling concession, the reallowance (if any) to dealers, and the time
when we may commence selling Securities to the public. After such public
offering has commenced, you may change the public offering price, the selling
concession, and the reallowance to dealers. With respect to each Offering of
Securities, until the provisions of this Section 3(b) shall be terminated
pursuant to Section 4, we agree to offer Securities to the public only at the
public offering price, except that if a reallowance is in effect, a reallowance
from the public offering price not in excess of such reallowance may be allowed
as consideration for services in distribution to dealers who are actually
engaged in the investment banking or securities business, who execute the
written agreement prescribed by Rule 2740 of the Rules of Conduct of the
National Association of Securities Dealers, Inc. (the "NASD") and who are either
members in good standing of the NASD or foreign brokers or dealers not eligible
for membership in the NASD who represent to us that they will promptly reoffer
such Securities at the public offering price and will abide by the conditions
with respect to foreign brokers and dealers set forth in Section 3(e).
2
<PAGE> 34
(c) Stabilization and Overallotment. You may, with respect to any
Offering, be authorized to over-allot in arranging sales to Selected Dealers, to
purchase and sell Securities, any other securities of the issuer of the
Securities of the same class and series and any other securities of such issuer
that you may designate for long or short account, and to stabilize or maintain
the market price of the Securities. We agree to advise you from time to time
upon request, prior to the termination of the provisions of Section 3(b) with
respect to any Offering, of the amount of Securities purchased by us hereunder
remaining unsold and we will, upon your request, sell to you, for the accounts
of the Underwriters, such amount of Securities as you may designate, at the
public offering price thereof less an amount to be determined by you not in
excess of the concession to dealers. In the event that prior to the later of (i)
the termination of the provisions of Section 3(b) with respect to any Offering,
or (ii) the covering by you of any short position created by you in connection
with such Offering for your account or the account of one or more Underwriters,
you purchase or contract to purchase for the account of any of the Underwriters,
in the open market or otherwise, any securities delivered to us, you reserve the
right to withhold the above-mentioned concession to dealers on such Securities
if sold to us at the public offering price, or if such concession has been
allowed to us through our purchase at a net price, we agree to repay such
concession upon your demand, plus in each case any taxes on redelivery,
commissions, accrued interest, and dividends paid in connection with such
purchase or contract to purchase.
(d) Open Market Transactions. We agree to abide by Regulation M under the
Exchange Act and we agree not to bid for, purchase, attempt to purchase, or
sell, directly or indirectly, any Securities, any other Reference Securities (as
defined in Regulation M) of the issuer, or any other securities of such issuer
as you may designate, except as brokers pursuant to unsolicited orders and as
otherwise provided in this Agreement. If the Securities are common stock or
securities convertible into common stock, we agree not to effect, or attempt to
induce others to effect, directly or indirectly, any transactions in or relating
to any stock of such issuer, except to the extent permitted by Rule 101 of
Regulation M under the Exchange Act.
(e) NASD. We represent that we are actually engaged in the investment
banking or securities business and we are either a member in good standing of
the NASD, or, if not such a member, a foreign dealer not eligible for
membership. If we are such a member we agree that in making sales of the
Securities we will comply with all applicable Rules of the NASD, including,
without limitations the NASD's Interpretation with Respect to Free-Riding and
Withholding and Rule 2740 of the Conduct Rules. If we are such a foreign dealer,
we agree not to offer or sell any Securities in the United States of America
except through you and in making sales of Securities outside the United States
of America we agree to comply as though we were a member with such
Interpretation and Rule 2730, 2740 and 2750 of the Conduct Rules of the NASD and
to comply with Rule 2420 of the Conduct Rules of the NASD as it applies to a
nonmember broker or dealer in a foreign country.
(f) Relationship among Underwriters and Selected Dealers. You may buy
Securities from or sell Securities to any Underwriter or Selected Dealer and,
with your consent, the
3
<PAGE> 35
Underwriters (if any) and the Selected Dealers may purchase Securities from and
sell Securities to each other at the public offering price less all or any part
of the concession. We are not authorized to act as agent for you or any
Underwriter or the issuer or other seller of any Securities in offering
Securities to the public or otherwise. Nothing contained herein or in any
Written Communication from you shall constitute the Selected Dealers partners
with you or any Underwriter or with one another. Neither you nor any Underwriter
shall be under any obligation to us except for obligations assumed hereby or in
any Written Communication from you in connection with any Offering. In
connection with any Offering, we agree to pay our proportionate share of any
claim, demand, or liability asserted against us, and the other Selected Dealers
or any of them, or against you or the Underwriters, if any, based on any claim
that such Selected Dealers or any of them constitute an association,
unincorporated business, or other separate entity, including in each case our
proportionate share of any expense incurred in defending against any such claim,
demand, or liability.
(g) Blue Sky Laws. Upon application to you, you will inform us as to the
jurisdictions in which you believe the Securities have been qualified for sale
or are exempt under the respective securities or "blue sky" laws of such
jurisdictions. We understand and agree that compliance with the securities or
"blue sky" laws in each jurisdiction in which we shall offer or sell any of the
Securities shall be our sole responsibility and that you assume no
responsibility or obligations as to the eligibility of the Securities for sale
or our right to sell the Securities in any jurisdiction.
(h) Compliance with Law. We agree that in selling Securities pursuant to
any Offering (which agreement shall also be for the benefit of the issuer or
other seller of such Securities), we will comply with the applicable provisions
of the Securities Act and the Exchange Act, the applicable Rules and regulations
of the Securities and Exchange Commission thereunder, the applicable Rules and
regulations of the NASD, and the applicable Rules and regulations of any
securities exchange having jurisdiction over the Offering. You shall have full
authority to take such action as you may deem advisable in respect of all
matters pertaining to any Offering. Neither you nor any Underwriter shall be
under any liability to us, except for lack of good faith and for obligations
expressly assumed by you in this Agreement; provided, however, that nothing in
this sentence shall be deemed to relieve you from any liability imposed by the
Securities Act.
(4) Termination Supplements and Amendments. This Agreement may be
terminated by either party hereto upon five business days' written notice to the
other party; provided that with respect to any Offering for which a Written
Communication was sent and accepted prior to such notice, this Agreement as it
applies to such Offering shall remain in full force and effect and shall
terminate with respect to such Offering in accordance with the last sentence of
this Section. This Agreement may be supplemented or amended by you by written
notice thereof to us, and any such supplement or amendment to this Agreement
shall be effective with respect to any Offering to which this Agreement applies
after the date of such supplement or amendment. Each reference to "this
Agreement" herein shall, as appropriate, be to this Agreement as so amended and
supplemented. The terms and conditions set forth in Sections 3(b) and (d) with
regard to any Offering will terminate at the close of business on the thirtieth
day after the date of the initial
4
<PAGE> 36
public offering of the Securities to which such Offering relates, but such terms
and conditions, upon notice to us, may be terminated by you at any time.
(5) Successors and Assigns. This Agreement shall be binding on, and inure
to the benefit of, the parties hereto and other persons specified or indicated
in Section 1, and the respective successors and assigns of each of them.
(6) Governing Law. This Agreement and the terms and conditions set forth
herein with respect to any Offering together with such supplementary terms and
conditions with respect to such Offering as may be contained in any Written
Communication from you to us in connection therewith shall be governed by, and
construed in accordance with, the laws of the State of New York.
By signing this Agreement we confirm that our subscription to, or our
acceptance of any reservation of any Securities pursuant to an Offering shall
constitute (i) acceptance of and agreement to the terms and conditions of this
Agreement (as supplemented and amended pursuant to Section 4) together with and
subject to any supplementary terms and conditions contained in any Written
Communication from you in connection with such Offering, all of which shall
constitute a binding agreement between us and you, individually, or as
representative of any Underwriters, (ii) in confirmation that our
representations and warranties set forth in Section 3 are true and correct at
that time and (iii) confirmation that our agreements set forth in Sections 2 and
3 have been and will be fully performed by us to the extent and at the times
required thereby.
Very truly yours,
_____________________________________________
(Name of Firm)
_____________________________________________
(Authorized Signature)
_____________________________________________
(Title)
5
<PAGE> 37
Confirmed, as of the date first above written:
WILLIAM R. HOUGH & CO.
By:___________________________________________
William F. Hough & Co.
100 Second Avenue South, Suite 800
St. Petersburg, FL 33701
(813) 895-8830
(813) 895-8895 (fax)
Execution Date:_____________________
6
<PAGE> 38
EXHIBIT C
The opinion of special counsel to the Company to be delivered pursuant to
Section 5(b)(i) of the Underwriting Agreement shall be substantially to the
effect that:
1. The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida with requisite corporate power
and authority to own, lease and operate its properties and conduct its business
as described in the Registration Statement and is registered as a bank holding
company under the Bank Holding Company Act of 1956, as amended. Each of the
Company's subsidiaries is duly organized, validly existing and in good standing
under the laws of its respective jurisdiction of incorporation, with requisite
corporate power and authority to own, lease and operate its respective
properties and conduct its business as described in the Registration Statement,
except where the failure to be in good standing would not have a material
adverse effect on the condition (financial or otherwise), earnings, business
affairs, assets or business prospects of the Company and its subsidiaries,
considered as one enterprise. The Bank is a Florida-chartered commercial bank
duly organized, validly existing and in good standing under the laws of the
State of Florida. The Trust is validly existing in good standing as a business
trust under the Delaware Business Trust Act, 12 Del. C. ss.3801 et seq.
2. The Company and each subsidiary are duly qualified to transact business as
foreign corporations under the corporation laws of each jurisdiction in which
the Company or such subsidiary, as the case may be, owns or leases property of a
nature, has an office, or transacts business of a type, that would make such
qualification necessary, except where the failure to so qualify would not have a
material adverse effect on the condition (financial or otherwise), earnings,
business affairs, assets or business prospects of the Company and its
subsidiaries, considered as one enterprise.
3. The deposit accounts of the Bank are insured by either the Savings
Association Insurance Fund or the Bank Insurance Fund of the FDIC up to the
maximum amount allowable by law and, to such counsel's knowledge, no proceedings
for the termination or revocation of such membership or insurance are pending or
threatened.
4. All of the issued and outstanding shares of capital stock of each of the
Company's subsidiaries have been duly and validly authorized and issued and are
fully paid and nonassessable and, to such counsel's knowledge, are owned by the
Company or the Bank, as the case may be, free and clear of any security
interests, liens, pledges, claims or other encumbrances, except where the
failure to own such shares free and clear of any security interests, liens,
pledges, claims or other encumbrances would not have a material adverse effect
on the condition (financial or otherwise), earnings, business affairs, assets or
business prospects of the Company and its subsidiaries, considered as one
enterprise and except that the Trust Preferred Securities are not owned by the
Company or the Bank.
1
<PAGE> 39
5. The authorized and outstanding capital stock of the Company is as set forth
in the Prospectus under the heading "Description of Capital Stock." The issued
and outstanding shares of capital stock of the Company immediately prior to the
issuance and sale of the Common Securities to be sold by the Company under the
Underwriting Agreement have been duly authorized and validly issued, are fully
paid and non-assessable, and there are no preemptive, preferential or, except as
described in the Prospectus and to our knowledge after investigation, other
rights to subscribe for or purchase any shares of capital stock of the Company
and, to our knowledge after investigation, no shares of capital stock of the
Company have been issued in violation of such rights.
6. The Company has full corporate power and authority to execute, deliver and
perform the Underwriting Agreement and to issue, sell and deliver the Common
Securities to be sold by it to the Underwriters as provided therein; the
Underwriting Agreement has been duly authorized, executed and delivered by the
Company and constitutes a legal valid, and binding obligation of each of the
Company and is enforceable against the Company in accordance with its terms,
except as enforceability of the Underwriting Agreement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally, and by equitable principles limiting the right to
specific performance or other equitable relief and except as the obligations of
the Company under the indemnification and contribution provisions of Section 6
of the Underwriting Agreement may be limited by laws or unenforceable as against
public policy, as to which no opinion is expressed, and an implied covenant of
good faith and fair dealing.
7. The certificates for the Common Securities to be delivered under the
Underwriting Agreement are in due and proper form and conform to the
requirements of applicable law; and when duly countersigned by the Company's
transfer agent and delivered to the Underwriters or upon the order of the
Underwriters against payment of the agreed consideration therefor in accordance
with the provisions of the Underwriting Agreement, the Common Securities to be
sold by the Company represented thereby will be duly authorized and validly
issued, fully paid and non-assessable, and free of preemptive, preferential or
other rights to subscribe for or purchase shares of Common Securities and, upon
delivery to the Underwriter or upon the order against payment of the agreed
consideration therefor in accordance with the provisions of the Underwriting
Agreement, the Underwriter will acquire good and marketable title thereto, free
and clear of any lien, claim, security interest, encumbrance, or restriction on
transfer.
8. The Company is not an "investment company" or an entity "controlled" by an
"investment company," as such terms are defined in Investment Company Act of
1940, as amended.
9. The description in the Registration Statement and the Prospectus of statutes,
laws, regulations, legal and governmental proceedings, and contracts and other
legal documents described therein insofar as they purport to describe the
provisions of the laws referred to therein, fairly summarize the legal matters
described therein, and fairly and correctly present, in all material respects,
the information to be included therein by the 1933 Act.
2
<PAGE> 40
10. The Registration Statement was declared effective under the Securities Act
as of the date and time specified in such order, any required filing of the
Prospectus or any supplement thereto pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b) and, to such
counsel's knowledge and information, no stop order suspending the effectiveness
of the Registration Statement has been issued under the Securities Act and no
proceedings therefor have been initiated or threatened by the Commission.
11. The Registration Statement (including the Rule 430A Information, if
applicable) and the Prospectus and any amendment or supplement thereto (except
for the financial statements and other financial and statistical data included
therein or omitted therefrom, as to which such counsel need express no opinion),
as of their respective effective or issue dates, comply or complied as to form
in all material respects to the applicable requirements of the 1933 Act and the
1933 Act Regulations.
12. The documents incorporated by reference in the Prospectus (except for the
financial statements and other financial or statistical data included therein or
omitted therefrom, as to which such counsel expresses no opinion, and except to
the extent that any statement therein is modified or superseded in the
Prospectus), as of the dates they were filed with the Commission, complied as to
form in all material respects to the applicable requirements of the 1934 Act and
the 1934 Act Regulations.
13. Such counsel knows of no legal or governmental proceedings pending to which
the Company or any subsidiary is a party or of which any property of the Company
or any subsidiary is the subject that are required to be disclosed in the
Registration Statement or that would affect the consummation of the transactions
contemplated in the Underwriting Agreement, or the Common Securities, and such
counsel knows of no such proceedings that are threatened or contemplated by
governmental authorities or threatened by others.
14. Such counsel knows of no contracts, indentures, mortgages, loan agreements,
notes, leases or other instruments required to be described in the Registration
Statement or to be filed as exhibits thereto other than those described therein
or filed or incorporated by reference as exhibits thereto, and such instruments
as are summarized in the Registration Statement are fairly summarized in all
material respect
15. No approval, authorization, consent, registration, qualification or other
order of any public board or body is required in connection with the execution
and delivery of the Underwriting Agreement or the issuance and sale of the
Common Securities or the consummation by the Company of the other transactions
contemplated by the Underwriting Agreement, except such as have been obtained
under the Securities Act and the Exchange Act or such as may be required under
the blue sky or securities laws of various states in connection with the
offering and sale of the Common Securities.
3
<PAGE> 41
16. To such counsel's knowledge, the Company and each of its subsidiaries,
including the Bank, each has all material licenses, permits and other
governmental authorizations currently required for the conduct of its business
as presently conducted.
17. The execution and delivery of the Underwriting Agreement, the issue and sale
of the Common Securities, the compliance by the Company with the provisions of
the Common Securities and the Underwriting Agreement and the consummation of the
transactions therein contemplated will not conflict with or constitute a breach
of, or default under, the articles of incorporation or by-laws of the Company or
any subsidiary or a breach or default under any contract, indenture, mortgage,
loan agreement, note, lease or other instrument known to such counsel to which
either the Company or any subsidiary is a party or by which any of them or any
of their respective properties may be bound except for such breaches as would
not have a material adverse effect on the condition (financial or otherwise),
earnings, business affairs, assets or business prospects of the Company and its
subsidiaries considered as one enterprise, nor will such action result in a
violation on the part of the Company or any subsidiary of any applicable law or
regulation or of any administrative, regulatory or court decree known to such
counsel.
18. The Common Securities are registered under the Exchange Act.
19. The Company has full corporate power and authority to enter into the Branch
Agreements and to effect the transactions contemplated by the Branch Agreements,
and the Branch Agreements have been duly authorized, executed and delivered by
the Company and constitute valid, legal and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the rights of creditors generally and by
equitable principles limiting the right to specific performance or other
equitable relief; the execution, delivery and performance of the Branch
Agreements and the consummation of the transactions therein contemplated will
not result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, rule or reputation, any agreement or
instrument known to such counsel to which the Company or any subsidiary is a
party or by which it is bound or to which any of their respective property is
subject, the Company's or any subsidiary's charter or bylaws, or any statute,
order or decree known to such counsel of any court or governmental agency or
body having jurisdiction over the Company, any subsidiary, or any of their
respective properties; and no consent, approval, authorization or order of, or
filing with, any court or governmental agency or body is required for the
execution, delivery and performance of the Branch Agreements or for the
consummation of the transactions contemplated thereby, except such as may be
required under the 1933 Act or state securities laws or regulatory approvals
contemplated by the Branch Agreements.
20. The Company has full corporate power and authority to enter into the Bank
Acquisition Agreement and to effect the transactions contemplated by the Bank
Acquisition Agreement, and the Bank Acquisition Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid, legal
and binding obligation of the Company enforceable against
4
<PAGE> 42
the Company in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally and by equitable principles limiting
the right to specific performance or other equitable relief; the execution,
delivery and performance of the Bank Acquisition Agreement and the consummation
of the transactions therein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
any statute, rule or reputation, any agreement or instrument known to such
counsel to which the Company or any subsidiary is a party or by which it is
bound or to which any of their respective property is subject, the Company's or
any subsidiary's charter or bylaws, or any statute, order or decree known to
such counsel of any court or governmental agency or body having jurisdiction
over the Company, any subsidiary, or any of their respective properties; and no
consent, approval, authorization or order of, or filing with, any court or
governmental agency or body is required for the execution, delivery and
performance of the Bank Acquisition Agreement or for the consummation of the
transactions contemplated thereby, except such as may be required under the 1933
Act or state securities laws or regulatory approvals contemplated by the Bank
Acquisition Agreement.
21. Counsel will supplementally provide a written statement that such counsel
has participated in the preparation of the Registration Statement and Prospectus
and has reviewed the documents incorporated by reference in the Prospectus and
no facts have come to the attention of such counsel to lead it to believe (a)
that the Registration Statement (including the Rule 430A Information if
applicable) or any amendment thereto (except for the financial statements and
other financial or statistical data included therein or omitted therefrom, as to
which such counsel need express no opinion), at the time the Registration
Statement or any such amendment became effective, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or (b) that the
Prospectus or any amendment or supplement thereto (except for the financial
statements and other financial or statistical data included therein or omitted
therefrom as to which such counsel need express no opinion), at the time the
Prospectus was issued, or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading or (c) that the documents
incorporated by reference in the Prospectus (except for the financial statements
and other financial or statistical data contained therein or omitted therefrom
as to which such counsel expresses no opinion, and except to the extent that any
statement therein is modified or superceded in the Prospectus or any
subsequently filed document which is incorporated by reference into the
Prospectus), as of the dates they were filed with the Commission, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
5
<PAGE> 1
EXHIBIT 5
HOLLAND & KNIGHT LLP
Atlanta Northern Virginia
Boca Raton Orlando
400 North Ashley Drive, Suite 2300 Fort Lauderdale San Francisco
P.O. Box 1288 (ZIP 33601-1288) Jacksonville St.Petersburg
Tampa, Florida 33602-4300 Lakeland Tallahassee
Mexico City Tampa
813-227-8500 Miami Washington, D.C.
FAX 813-229-0134 New York West Palm Beach
April 28, 1998
Republic BancShares, Inc.
111 Second Avenue N.E.
Suite 300
St. Petersburg, Florida 33701
Re: Registration Statement on Form S-2
(File No. 333-50087)
Gentlemen:
We refer to the Registration Statement (the "Registration Statement")
on Form S-2 (File No. 333-50087), filed by Republic BancShares, Inc. (the
"Company"), with the Securities and Exchange Commission, for the purpose of
registering under the Securities Act of 1933 up to 2,300,000 shares (the
"Shares") of the authorized common stock, par value $2.00 per share, of the
Company to be offered to the public by the Company pursuant to an underwriting
agreement (the "Underwriting Agreement") between the Company and William R.
Hough & Co. and Ryan, Beck & Co., Inc., as representatives of the underwriters.
In connection with the registration, we have acted as counsel for the
Company and have examined originals, or copies certified to our satisfaction, of
all such corporate records of the Company, certificates of public officials and
representatives of the Company and other documents as we deemed it necessary to
require as a basis for the opinion expressed below.
Based upon the foregoing, and having regard for legal considerations
that we deem relevant, it is our opinion that the Shares will be, when and if
sold in accordance with the Underwriting Agreement, duly authorized, legally
issued and fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement, and to the reference to this firm under the caption
"Legal Matters" contained in the prospectus filed as part of the Registration
Statement. In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act.
Very truly yours,
/s/ Holland & Knight LLP
HOLLAND & KNIGHT LLP
<PAGE> 1
EXHIBIT 10.5
April_, 1998
Lochaven Federal Savings and
Loan Association
Board of Directors
Ms. Patricia Schwartz, Chairman
of the Board
2410 N. Orange Blossom Trail
Orlando, FL 328004
Dear _______________:
This letter will serve to confirm our intentions concerning the proposed
transaction between Republic Bancshares, Inc ("Republic") and Lochaven
Federal Savings and Loan Association ("Lochaven"). Once fully executed by both
parties, this letter supersedes all previous communications from Republic or
representations of Republic regarding the proposed transaction.
The terms of the proposed transaction are as follows:
1. MERGER
(a)(i) Republic will exchange its common stock for all of the 609,094
outstanding shares of the common stock of Lochaven. The stock exchange will be
in connection with a merger of the Lochaven with and into Republic's
wholly-owned subsidiary, Republic Bank ("Bank"). Each share of Lochaven's common
stock shall be converted into shares of Republic's common stock at an exchange
ratio of 0.2776 of a share of Republic's common stock.
(a)(ii) Each holder of shares of Lochaven's common stock exchanged
pursuant to the Merger who would otherwise have been entitled to receive a
fraction of a share of Republic's 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 one share of Republic's
common stock on the Effective Date. The Market Value of one share of Republic's
common stock on the Effective Date shall be determined by calculating the
average of the closing prices of Republic's common stock on The Nasdaq National
Market (as reported by The Wall Street Journal or, if not reported thereby, any
other authoritative source selected by Republic) on each of the twenty (20)
consecutive trading days ending on the third business day immediately
<PAGE> 2
Lochaven Federal Savings and
Loan Association
April _____, 1998
Page 2
preceding the Effective Date. No such holder will be entitled to dividends,
voting rights or any other rights as a stockholder in respect of any fractional
shares.
(b)(i) On the Effective Date, and assuming the plan under which such
options are issued permits such treatment, Republic shall assume all outstanding
options to purchase Lochaven's common stock, which options were granted pursuant
to Lochaven's customary arrangements consistent with past practice, and each
such option shall cease to represent a right to acquire Lochaven's common stock
and shall, instead, represent the right to acquire Republic's common stock on
substantially the same terms applicable to Lochaven's options except as
specified below. The number of shares of Republic's common stock to be issued
pursuant to such options shall equal the number of shares of Lochaven's common
stock subject to Lochaven's options multiplied by the Exchange Ratio, provided
that no fractions of shares of Republic's common stock shall be issued and the
number of shares of Republic's common stock to be issued upon the exercise of
Lochaven's 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 Republic's common stock
shall be the exercise price for each share of Lochaven's common stock subject to
such options divided by the Exchange Ratio, adjusted appropriately to any
rounding to whole shares that may be done. It is intended that the assumption by
Republic of the Lochaven's options shall be undertaken in a manner that will not
constitute a "modification" as defined in Section 424 of the Internal Revenue
Code of 1986, as amended, as to any stock option which is an "incentive stock
option".
(b)(ii) In the event any options described in paragraph 1.(b)(i) are
exercised subsequent to January 1, 1996, the number of outstanding shares of
Lochaven's common stock will be increased from 609,094 to the number resulting
from the exercise of the option.
(c) The merger will be subject to the minimum affirmative vote of the
respective shareholders of the parties required by law.
(d) The merger will be subject to qualification for accounting purposes
as a pooling of interests and for Federal income tax purposes as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended.
<PAGE> 3
Lochaven Federal Savings and
Loan Association
April _____, 1998
Page 3
2. VOTING BY DIRECTORS OF REPUBLIC AND LOCHAVEN
The directors of each party hereto shall agree, subject to their legal
and fiduciary duties, and subject to the terms and conditions of a definitive
agreement of merger, to vote in favor of the agreement.
3. COOPERATION OF LOCHAVEN
Lochaven and the directors of Lochaven agree to cooperate fully with
Republic to accomplish the merger. Republic and directors of Republic agree to
cooperate fully with Lochaven to accomplish the merger. Lochaven permits and
authorizes Republic and Republic permits and authorizes Lochaven to have bucks
conversations with each institution's regulatory authorities as each
institution deems necessary and desirable to effectuate the proposed
transection.
4. OTHER MATTERS
(a) Subject to applicable laws, any public announcement relating to
the proposed transaction shall be mutually agreed upon and jointly made by
Lochaven and Republic except to the extent that either party's counsel deems a
disclosure necessary or advisable in order to satisfy such party's legal
disclosure obligations.
(b)(i) Without prior approval of Republic, Lochaven will not pay
bonuses, grant employment agreements or issue stock options to any of Lochaven's
officers, directors or employees.
(b)(ii) Lochaven will notify Republic immediately if any inquiries or
proposals are received by Lochaven regarding any acquisition or purchase of all
or of a substantial portion of the assets of, or of a substantial equity
interest in Lochaven, or any combination involving Lochaven, other than those
possible negotiations and discussion between officers, directors or agents of
Lochaven, and officers, directors or agents of Republic as contemplated by this
letter of intent. If any such inquiries or proposals are requested from
Lochaven, or if any such negotiations or discussions are sought to be initiated
with Lochaven, Lochaven shall, subject to paragraph (b)(iii) below, instruct the
officers, directors, agents or affiliates of Lochaven to refrain from doing any
of the above.
(b)(iii) Notwithstanding any other provision, nothing herein shall be
construed to require the officers or directors of Lochaven to violate their
fiduciary obligations to the shareholders of Lochaven under applicable law, and
they may and shall act pursuant to their fiduciary obligations without breach
hereunder.
<PAGE> 4
Lochaven Federal Savings and
Loan Association
April _____, 1998
Page 4
(c) To the full extent permitted by law, Lochaven agrees to provide
Republic and its agents full access to its premises and to all books, records
and reports of examination of Lochaven and to furnish such financial,
operating and other information with respect to Lochaven as may be necessary
to enable Republic to conduct a due diligence review. All such information
which is not in the public domain will be maintained on a confidential basis
by Republic and its agents unless such information enters the public domain.
(d) To the full extent permitted by law, Republic agrees to provide
Lochaven and its agents full access to its premises and to all books, records
and reports of examination of Republic as may be necessary to enable Lochaven
to conduct a due diligence review. All such information which is not in the
public domain will be maintained on a confidential basis by Lochaven and its
agents unless such information enters the public domain.
(e) Each party hereto, will bear its own costs and expenses in
connection with this transaction, including legal, auditing, travel, telephone
and other expenses.
(f) If a definitive agreement is entered into between the parties it
will provide that either party will be permitted to terminate the agreement if
the effective date of the share exchange does not occur by December 1, 1998.
5. EXECUTION OF AGREEMENT OF MERGER
This non-binding letter of intent represents an agreement in principle
only regarding consummation of the proposed transaction and is conditioned
upon each party's prompt negotiation in good faith of, and agreement to, a
definitive agreement of merger which meets the approval of the boards of
directors of Lochaven and Republic. Both parties to this letter of intent
specifically agree that the consummation of the transaction contemplated hereby
shall not occur unless both parties agree to and execute a formal and definitive
merger agreement, within 45 days of your acceptance of this letter, which
receives applicable regulatory approvals, and that no part of this letter may be
used to force tither party to consummate the proposed transaction contemplated
hereby. Both parties specifically agree that no action or negotiation made
before the execution of the definitive merger agreement will be held to be
binding on either party. This paragraph supersedes all other conflicting
language. This letter of intent will terminate 45 days after the date that it
is accepted by Lochaven.
<PAGE> 5
Lochaven Federal Savings and
Loan Association
April _____, 1998
Page 5
If the foregoing correctly sets forth your understanding, please
execute and return to Republic the enclosed copy of this letter, thereby
signifying assent to the terms and conditions set forth.
Sincerely,
John W. Sapanski
Chairman & Chief Executive Officer
Republic Bancahares, Inc.
The undersigned acknowledges as of _____, 1998,
that the foregoing is in accordance with its
understanding and intentions.
Lochaven Federal Savings and Loan Association
By:
-------------------------------------------
Its
-------------------------------------------
<PAGE> 1
EXHIBIT 23.2
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
Registration Statement File No. 333-50087.
/s/ Arthur Andersen LLP
Tampa, Florida
April 27, 1998
