<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
COMMISSION FILE NUMBER 0-27652
REPUBLIC BANCSHARES, INC.
(Exact Name of Registrant As Specified In Its Charter)
FLORIDA 59-1463900
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
111 2nd Avenue N.E., St. Petersburg, FL 33701
(Address of Principal Office) Zip Code
(727) 823-7300
(Registrant's Telephone Number, Including Area Code)
N/A
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
COMMON STOCK PAR VALUE 10,494,701 SHARES OUTSTANDING
$2.00 PER SHARE AT MAY 5, 1999
- ----------------------- -----------------------------
<PAGE> 2
REPUBLIC BANCSHARES, INC.
INDEX
PART I. FINANCIAL INFORMATION (all financial information for prior periods
has been restated for the mergers with Lochaven Federal Savings and
Loan Association and Bankers Savings Bank, F.S.B.)
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS PAGE
<S> <C> <C>
Consolidated Balance Sheets - March 31, 1999 (unaudited)
and December 31, 1998............................................................................. 1
Consolidated Statements of Operations -
Three month periods ended March 31, 1999 and 1998 (all unaudited)................................ 2
Consolidated Statements of Stockholders' Equity -
Year ended December 31, 1998 and
Three months ended March 31, 1999 (unaudited)..................................................... 3
Consolidated Statements of Comprehensive Income
Three month periods ended March 31, 1999 and 1998 (unaudited).................................... 3
Consolidated Statements of Cash Flows -
Three month periods ended March 31, 1999 and 1998 (all unaudited)................................. 4
Notes to Consolidated Financial Statements (unaudited)............................................. 5
Selected Quarterly Financial and Other Data (unaudited)............................................ 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................................................ 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................................. 20
ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K.................................................................. 20
SIGNATURES................................................................................................. 21
</TABLE>
<PAGE> 3
REPUBLIC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS - MARCH 31, 1999 AND DECEMBER 31, 1998
($ in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks $ 50,238 $ 46,143
Interest bearing deposits in banks 10,130 3,467
Federal funds sold 7,600 93,000
Investment securities (all available for sale) 162,338 31,003
Mortgage-backed and mortgage-related securities (Note 2):
Available for sale 80,226 32,713
Trading 112,460 66,067
FHLB stock 13,958 11,152
Loans held for sale (Note 3) 80,915 184,176
Loans, net of allowance for loan losses (Notes 3 and 4) 1,808,913 1,868,212
Premises and equipment, net 56,835 60,274
Other real estate acquired through foreclosure, net 6,296 4,951
Accrued interest receivable 13,297 13,452
Goodwill and premium on deposits 35,906 36,916
Other assets 54,313 53,591
----------- -----------
Total assets $ 2,493,425 $ 2,505,117
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits-
Noninterest bearing checking $ 137,082 $ 138,934
Interest checking 178,813 189,392
Money market 189,908 159,868
Savings 366,397 366,817
Time deposits 1,316,270 1,332,401
----------- -----------
Total deposits 2,188,470 2,187,412
Securities sold under agreements to repurchase 46,718 36,640
FHLB advances -- 25,000
Holding company senior debt 25,000 25,000
Holding company unsecured notes 7,000 7,000
Other liabilities 29,039 31,718
----------- -----------
Total liabilities 2,296,227 2,312,770
----------- -----------
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust solely holding junior
subordinated debentures of the Company 28,750 28,750
Stockholders' equity:
Perpetual preferred convertible stock ($20.00 par, 100,000 shares authorized
75,000 shares issued and outstanding. Liquidation preference $6.6 million
at March 31, 1999 and December 31, 1998.) 1,500 1,500
Common stock ($2.00 par, 20,000,000 shares authorized, 10,474,804 and
10,323,194 shares issued and outstanding at March 31, 1999 and
December 31, 1998, respectively.) 20,950 20,646
Capital surplus 127,495 125,364
Retained earnings 18,891 16,103
Net unrealized (loss) gain on available for sale securities, net of tax effect (388) (16)
----------- -----------
Total stockholders' equity 168,448 163,597
----------- -----------
Total liabilities and stockholders' equity $ 2,493,425 $ 2,505,117
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
1
<PAGE> 4
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except share data)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 43,081 $ 33,366
Interest on investment securities 536 596
Interest on mortgage-backed securities 594 626
Interest on trading securities 950 701
Interest on federal funds sold 1,237 473
Interest on other investments 281 198
------------ -----------
Total interest income 46,679 35,960
INTEREST EXPENSE:
Interest on deposits 23,114 16,290
Interest on FHLB advances 157 1,955
Interest on senior debt 393 --
Interest on unsecured notes 135 --
Interest on other borrowings 457 313
------------ -----------
Total interest expense 24,256 18,558
------------ -----------
Net interest income 22,423 17,402
PROVISIONS FOR LOAN LOSSES 1,522 538
------------ -----------
Net interest income after provision
for loan losses 20,901 16,864
------------ -----------
NONINTEREST INCOME:
Gain on sale of loans, net 2,793 871
Income from mortgage banking activities -- 9,985
Service charges on deposit accounts 1,131 851
Loan fee income 2,787 1,265
Gain (loss) on securities, net (135) 222
Other operating income 787 873
------------ -----------
Total noninterest income 7,363 14,067
NONINTEREST EXPENSES:
General and administrative ("G&A") expenses 22,346 25,201
Merger expenses -- 3
Provision for losses on ORE -- (80)
Other ORE (income) expense, net (359) 8
Amortization of goodwill & premium on deposits 1,010 159
------------ -----------
Total noninterest expenses 22,997 25,291
Income before income taxes &
minority interest 5,267 5,640
Income tax provision (1,991) (2,154)
------------ -----------
Income before minority interest 3,276 3,486
Minority interest in income from subsidiary
trust (net of tax) (421) (421)
------------ -----------
NET INCOME $ 2,855 $ 3,065
============ ===========
PER SHARE DATA:
Net income per common and
common equivalent share - diluted $ .25 $ .36
============ ===========
Weighted average common and common
equivalent shares outstanding - diluted 11,246,636 8,621,293
============ ===========
Net income per common share - basic $ .27 $ .40
============ ===========
Weighted average common shares
outstanding - basic 10,386,952 7,608,814
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE> 5
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
($ in thousands)
<TABLE>
<CAPTION>
Perpetual Preferred Net Unrealized
Convertible Stock Common Stock Gains/(Losses)
------------------- ----------------- on Available
Shares Shares Capital Retained for Sale
Issued Amount Issued Amount Surplus Earnings Securities Total
------ ---------- ------ ------ ------- -------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 75,000 $1,500 7,602,992 $15,206 $ 56,553 $ 28,789 $ 482 $ 102,530
Net loss for the twelve months
ended December 31, 1998 -- -- -- -- -- (12,421) -- (12,421)
Net unrealized losses on
available for sale securities,
net of tax effect -- -- -- -- -- -- (498) (498)
Exercise of stock options -- -- 78,052 156 662 -- -- 818
Issuance of common stock -- -- 2,642,150 5,284 67,598 -- -- 72,882
Additional paid-in capital from
performance stock options -- -- -- -- 551 -- -- 551
Dividends on preferred
stock -- -- -- -- -- (265) -- (265)
------ ------ ---------- ------- -------- -------- ----- ---------
BALANCE, DECEMBER 31, 1998 75,000 1,500 10,323,194 20,646 125,364 16,103 (16) 163,597
Net income for the three
months ended March 31, 1999 -- -- -- -- -- 2,855 -- 2,855
Net unrealized loss on
available for sale securities,
net of tax -- -- -- -- -- -- (372) (372)
Exercise of stock options -- -- 151,610 304 1,540 -- -- 1,844
Additional paid-in capital from
nonqualified/performance
stock options -- -- -- -- 591 -- -- 591
Dividends on preferred
stock -- -- -- -- -- (67) -- (67)
------ ------ ---------- ------- -------- -------- ----- ---------
BALANCE, MARCH 31, 1999 75,000 $1,500 10,474,804 $20,950 $127,495 $ 18,891 $(388) $ 168,448
====== ====== ========== ======= ======== ======== ===== =========
</TABLE>
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
($ in thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1999 1998
---- ----
<S> <C> <C>
Net income $ 2,855 $ 3,065
Unrealized losses on securities:
Unrealized holding losses, net of tax effect during period (372) (83)
Less reclassification adjustment for gains realized in net income -- (333)
------- -------
Net unrealized losses (372) (416)
------- -------
Comprehensive income $ 2,483 $ 2,649
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE> 6
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,855 $ 3,065
Reconciliation of net income to net cash
provided by (used in):
Provision for loan and ORE losses 1,522 458
Depreciation and amortization, net 4,640 1,449
Amortization of premium (accretion) of fair value, net 1,261 525
Loss/(Gain) on sale of loans (2,793) (10,856)
(Gain) on sale of investment securities 135 (222)
(Gain) on sale of ORE (423) (7)
Capitalization of mortgage servicing/residual interest (2,593) (4,208)
Net decrease in deferred tax sset 857 1,022
Loss/(Gain) on disposal of premises & equipment 7 (2)
Net (increase) decrease in other assets 104 (980)
Net (decrease) in other liabilities (2,684) (3,390)
--------- ---------
Net cash provided by (used in) operating activities 2,888 (13,146)
INVESTING ACTIVITIES:
Net decrease (increase) in loans 109,175 (214,362)
Proceeds from sales & maturities of:
Mortgage-backed securities available for sale 1,552 26,288
Investment securities available for sale 3,500 4,000
Purchase of investment securities available for sale (134,868) (20,137)
Purchase of mortgage-backed securities AFS (53,229) --
Principal repayment on mortgage-backed securities 6,327 3,445
Purchase of FHLB stock (2,806) (4,747)
Disposal/(purchase) of premises and equipment, net 1,627 (1,800)
Proceeds from sale of ORE 2,419 1,064
Investments in unconsolidated subsidiary -- (10,817)
Disposals in other real estate owned, net 162 (308)
--------- ---------
Net cash used in investing activities (66,141) (217,374)
FINANCING ACTIVITIES:
Net increase in deposits 1,165 64,096
Net increase in repurchase agreements 10,078 5,897
(Repayment) proceeds from FHLB Advances, net (25,000) 222,500
Proceeds from exercise of stock options 2,435 163
Dividends on perpetual preferred stock (67) (66)
--------- ---------
Net cash provided by (used in) financing activities (11,389) 292,590
Net increase (decrease) in cash and cash equivalents (74,642) 62,070
Cash and cash equivalents, beginning of period 142,610 88,070
--------- ---------
Cash and cash equivalents, end of period $ 67,968 $ 150,140
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for-
Interest $ 39,304 $ 28,604
Income taxes 1,737 1,901
</TABLE>
The accompanying notes are an integral part of these consolidated statements
4
<PAGE> 7
REPUBLIC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Organization
In the opinion of Republic Bancshares, Inc. (the "Company"), the accompanying
unaudited consolidated financial statements reflect all adjustments necessary to
present fairly the financial position of the Company as of March 31, 1999 and
the results of operations and cash flows, for the three month periods ended
March 31, 1999 and 1998. The December 31, 1998 statement of financial position
was derived from audited financial statements. The accounting and reporting
policies of the Company and its wholly-owned subsidiaries, Republic Bank (the
"Bank"), RBI Capital Trust I and Republic Bank, F.S.B. (the "Savings Bank") are
in conformity with generally accepted accounting principles and prevailing
practices within the financial services industry. The preparation of financial
statements in conformity with generally accepted accounting principles requires
that management make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and
expense during the reporting period. Such estimates are subject to change in the
future as additional information becomes available or previously existing
circumstances are modified.
The consolidated financial statements of the Company include the accounts of the
Company, RBI Capital Trust I ("RBI"), the Savings Bank, the Bank, and the Bank's
wholly-owned subsidiaries, Republic Insurance Agency, Inc., RBREO, Inc., Tampa
Bay Equities, Inc. and VQH Development, Inc. All financial information has been
restated for the acquisitions of Bankers Savings Bank, F.S.B. ("BSB") and
Lochaven Federal Savings and Loan Association ("Lochaven"), both consummated in
1998. All significant inter-company accounts and transactions have been
eliminated. The Company's primary source of income is from its banking
subsidiary, which operates 70 branches throughout Florida. The Savings Bank
operates two branches, one in Pinellas County, Florida and one in Brunswick,
Georgia. The Bank's primary source of revenue has been derived from net interest
income on loans and investments and income from mortgage banking activities.
These consolidated financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report for the year ended December 31, 1998, filed with the Securities and
Exchange Commission ("SEC") on Form 10-K. The results for the three months ended
March 31, 1999, are not necessarily indicative of the results to be expected for
the fiscal year ending December 31, 1999.
Reclassifications
Certain reclassifications have been made to prior period financial statements to
conform with the March 1999 financial statement presentation.
Recent Accounting Developments
Accounting for Costs of Computer Software for Internal Use
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP-98-1 provides guidance
for capitalizing and expensing the costs of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. The adoption of SOP 98-1 did not
have a material impact on the accompanying consolidated financial statements.
5
<PAGE> 8
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that entities recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for all fiscal quarters beginning after June 15, 1999. Management does not
believe that the adoption of SFAS No. 133 will have a material effect upon the
results of operations of the Company.
Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise". SFAS No. 134 amends SFAS Nos. 65, "Accounting
for Certain Mortgage Banking Activities" and SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". SFAS No. 134 establishes
standards for the classification of securities and other beneficial interests in
accordance with SFAS No. 115. SFAS No. 134 allows an enterprise engaged in
mortgage banking activities to classify mortgage-backed securities and other
beneficial interests retained after the securitization of mortgage loans as
trading, available for sale or held to maturity, depending upon an entity's
intent and ability to hold those securities, except for those with sales
commitments in place which must be classified as trading. Previously, such
securities and beneficial interests retained after securitization of mortgage
loans held for sale by an entity engaged in mortgage banking activities were
required to be classified as trading. SFAS No. 134 is effective for periods
beginning after December 15, 1998 with early application permitted. The adoption
of SFAS No. 134 did not have a material financial effect on results of
operations.
2. MORTGAGE-BACKED AND MORTGAGE-RELATED SECURITIES
The Company has classified its mortgage-backed securities purchased in open
market transactions as "available for sale" and mortgage-backed and
mortgage-related securities resulting from securitization of its loans held for
sale as "trading" assets. As of March 31, 1999, there were $80.2 million of such
assets in the available for sale category and $112.5 million held as trading
assets. Included in the trading category were $83.0 million of mortgage-backed
securities and $29.4 million of mortgage-related securities. The market values
assigned to the mortgage-backed securities held by the Company were derived
using market quotations at March 31, 1999. However, market value quotations for
the Company's mortgage-related securities, principally retained interests in the
excess cash flows from securitizing High Loan-to-Value ("High LTV Loans"), were
generally not available. These retained interests, which are essentially
interest-only strips receivable, were valued based on estimates of the present
value of the future excess cash flows from the underlying pool or pools of
loans. In valuing the Company's mortgage-related securities, management has
conducted surveys and analyses of current market conditions and has relied on
third parties to assist in this process. The present value of the excess cash
flows principally include the following assumptions: (i) the future rate of
prepayment; (ii) the discount rate used to calculate present value; and (iii)
the estimate for credit losses on loans sold. The estimated life of the
securitized loans depends on the assumed annual prepayment rate which is a
function of estimated voluntary (full and partial) and involuntary
(liquidations) prepayments. The prepayment rate used in the valuation process
represents management's expectations of future prepayment rates based on prior
observed and future expected loan performance, the type of loans in the relevant
pool and industry data. The rate of prepayment may be affected by a variety of
economic and other factors, including prevailing interest rates, the presence of
prepayment penalties, the loan-to-value ratios and the credit grades of the
loans included in the securitization. Management has used prepayment estimates
resulting in an initial average expected life of the pool of loans ranging 4.0
to 4.5 years, cumulative lifetime default rates ranging from 9.5% to 10% and
discount rates ranging from 14% to 15%. To date, the interest-only strips
receivable have performed in a manner consistent with management's assumptions.
6
<PAGE> 9
3. LOANS AND LOANS HELD FOR SALE
Loans at March 31, 1999 and December 31, 1998, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Real estate mortgage loans:
One-to-four family residential $ 969,303 $ 973,538
Multifamily residential 74,519 92,209
Commercial real estate 351,638 379,797
Construction/land development 150,398 130,415
----------- -----------
Mortgage loans secured by first liens 1,545,858 1,575,959
Commercial business loans 75,706 84,002
Consumer loans 32,728 43,857
Retail home equity loans 72,381 75,707
High LTV Loans 109,682 116,764
----------- -----------
Total gross portfolio loans 1,836,355 1,896,289
Less-allowance for loan losses (27,442) (28,077)
----------- -----------
Total loans held for portfolio 1,808,913 1,868,212
Loans held for sale:
Residential first lien mortgage loans 80,915 184,176
----------- -----------
Total loans $ 1,889,828 $ 2,052,388
=========== ===========
</TABLE>
Mortgage loans serviced for others as of March 31, 1999 and December 31, 1998
were $1.6 billion and $1.5 billion, respectively. Included in the total amount
serviced for others were High LTV Loans amounting to $812.2 million and $835.0
million at March 31, 1999 and December 31, 1998, respectively. Mortgage loan
servicing rights (both purchased and originated) amounted to $24.0 million and
$22.9 million at March 31, 1999 and December 31, 1998, respectively. Loans on
which interest was not being accrued at March 31, 1999 and December 31, 1998,
totaled approximately $34.4 million and $35.6 million, respectively. Loans past
due 90 days or more and still accruing interest at March 31, 1999 and December
31, 1998 totaled $289,000 and $1.2 million, respectively.
4. ALLOWANCES FOR LOSSES
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 probable losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. The evaluations are periodically
reviewed and adjustments are recorded in the period in which changes become
known.
The allowance for loan losses as of March 31, 1999, was comprised of: (i) $24.6
million allocated to originated loans (including loans acquired through mergers
and acquisitions); (ii) $524,000 allocated to loans acquired from CrossLand
Savings, F.S.B. in December 1993, (the "CrossLand Portfolio"); (iii) $1.1
million allocated to a pool of loans purchased in March 1995 (the "March 1995
Purchase"); (iv) $232,000 allocated to a pool of loans purchased in July 1997
(the "July 1997 Purchase"); and (v) $1.0 million allocated to the other pools of
purchased loans. Of the amounts allocated to the Crossland Portfolio, the March
1995 Purchase, the July 1997 Purchase and other purchased loan portfolios, $1.9
million are acquired reserves which only are available to absorb losses on the
related acquired loans. In addition to amounts allocated to the allowance at
March 31, 1999, the balance of unaccreted loan discount available to absorb
losses on pools of portfolios of purchased loans exceeding amounts transferred
to the allowance amounted to $3.9 million.
7
<PAGE> 10
Changes in the allowance for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1999 1998
---- ----
<S> <C> <C>
Balance, beginning of period $ 28,077 $ 22,023
Provision for possible loan losses 1,522 538
Loans charged off (2,518) (881)
Recoveries of loans charged off 361 121
-------- --------
Net charge-offs (2,157) (760)
-------- --------
Balance, end of period $ 27,442 $ 21,801
======== ========
</TABLE>
Of the $2.2 million of net charge-offs in the first quarter of 1999, $1.3
million resulted from losses on High LTV Loans taken into portfolio in the
fourth quarter of 1998.
Allowance for Losses on Other Real Estate ("ORE")
The Company recognizes any estimated potential decline in the value of ORE
between appraisal dates through periodic additions to the allowance for losses
on ORE. Writedowns charged against this allowance are taken if the related real
estate is sold at a loss.
State banking regulations require the Bank to dispose of all ORE acquired
through foreclosure within five years of acquisition, with a possibility for
additional extension, each of up to five years. During the quarter ended March
31, 1999, the Bank sold a tract of land carried at $884,000 acquired through
foreclosure in 1988 that had partially been developed as a shopping center site.
Federal law and regulations had required the Bank to dispose of this tract by
March 31, 1999. The Bank has been granted an extension on a second piece of
property, with a book value of $208,000, until November 30, 1999. This property,
consisting of residential lots, is currently under contract.
5. MARKET RISK
The market risk inherent in the Company's market sensitive instruments is the
potential loss arising from changes in interest rates and the changes in prices
of marketable equity securities. One of the primary objectives of the Company is
to reduce fluctuations in net interest income caused by changes in interest
rates.
To manage interest rate risk, the Board of Directors has established interest
rate risk policies and procedures which delegate to the Asset/Liability
Committee the responsibility to monitor and report on interest rate risk, devise
strategies to manage interest rate risk, monitor loan originations and deposit
activity, and approve pricing strategies.
Currently, all investments in the Company's portfolio are identified as
securities available for sale or as trading assets. Securities available for
sale, which are those securities that may be sold prior to maturity as part of
asset/liability management or in response to other factors, are carried at fair
value with any valuation adjustment reported in a separate component of
stockholders' equity, net of tax effect. Trading securities include mortgage-
backed securities resulting from the securitization of High LTV and residential
loans, the resulting residual interest in cash flows from those securitizations,
where applicable, and the excess spread on interest only-strips receivable.
Trading securities are carried at market value based on current market
quotations where available or, if not available, based on present value
techniques which management believes reasonably approximate market values. Any
unrealized gains or losses are included in the statement of operations under
"Gain on sale of securities, net".
8
<PAGE> 11
6. RESTRUCTURING COSTS AND OTHER RELATED CHARGES
In the fourth quarter of 1998 the Company significantly reduced the size and
scope of its mortgage banking activities. The Company ceased originating High
LTV Loans and substantially reduced its originations of nonconforming first
mortgage loans. The Company also closed its out-of-state lending offices and
ceased all telemarketing efforts that were the source of the majority of the
loan originations from its mortgage banking unit.
In connection with this reorganization of mortgage banking activities, a
restructuring charge of approximately $6.7 million was recorded, which included
severance benefits payable to mortgage banking employees whose positions were
eliminated, outplacement services for those employees, write-downs for abandoned
assets, costs related to the consolidation of facilities and legal costs
directly related to the restructuring. In addition, an $818,000 charge was
recorded for legal and other costs related to the reorganization but not
includable in the restructuring charge. The Company has substantially completed
the restructuring process of the mortgage banking unit.
Expenses charged against the restructuring accrual for the three months ended
March 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at December 31, 1998 $ 6,673
Amortization of:
Severance & benefits (3,923)
Abandonment of assets (290)
Consolidation of facilities (673)
Legal costs (4)
-------
Ending Balance at March 31, 1999 $ 1,783
=======
</TABLE>
7. PRIOR YEAR BUSINESS SEGMENT INFORMATION
As a result of the restructuring of the Company's mortgage banking operation in
the fourth quarter of 1998, that operation now represents an insubstantial
portion of the Company's overall business activities during 1999 and has ceased
to be a reportable business segment. The Company's operations during 1998 were
divided into two business segments; commercial banking and mortgage banking.
Commercial banking activities included the Company's lending for portfolio
purposes, deposit gathering through the retail branch network, investment and
liquidity management. Mortgage banking activities, which operated through a
separate division of the Bank, included originating and purchasing mortgage
loans for sale or securitization. The Bank provided support for its mortgage
banking division in areas such as secondary marketing and data processing. All
funding for the mortgage banking division was provided through the Bank. The
following are the prior year business segment results of operation for the three
months ended March 31, 1998. The Company elected to report its business segments
without allocation of income taxes and minority interests.
<TABLE>
<CAPTION>
BUSINESS SEGMENT DATA
($ in thousands)
1998
-------------------------------------------
COMMERCIAL MORTGAGE COMPANY
BANKING BANKING TOTAL
---------- -------- ----------
<S> <C> <C> <C>
Total assets (at period-end) $1,658,757 $311,749 $1,970,506
========== ======== ==========
Gross revenues $ 17,849 $ 13,620 $ 31,469
========== ======== ==========
Net income before taxes and
minority interest $ 4,882 $ 758 $ 5,640
========== ======== ==========
</TABLE>
9
<PAGE> 12
SELECTED QUARTERLY FINANCIAL AND OTHER DATA
FIVE CONSECUTIVE QUARTERS (UNAUDITED)
($ in thousands, except share data)
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------------------------
MAR. 1999 DEC. 1998 SEPT. 1998 JUNE 1998 MAR. 1998
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income $ 46,679 $ 45,734 $ 50,777 $ 40,322 $ 35,960
Interest expense 24,256 25,303 24,446 21,302 18,558
----------- ------------- ------------ ----------- -----------
Net interest income 22,423 20,431 26,331 19,020 17,402
Loan loss provision 1,522 8,305 4,340 1,078 538
----------- ------------- ------------ ----------- -----------
Net interest income after loan loss provision 20,901 12,126 21,991 17,942 16,864
Noninterest income 7,363 3,424 25,765 12,901 14,067
General and administrative ("G&A") expenses 22,346 37,214 34,615 31,987 25,201
Other noninterest expense 651 11,403 1,222 684 90
----------- ------------- ------------ ----------- -----------
Net income (loss) before income taxes
& minority interest 5,267 (33,067) 11,919 (1,828) 5,640
Income tax (provision) benefit (1,991) 12,391 (4,370) 736 (2,154)
Minority interest in income from
subsidiary trust (421) (421) (424) (422) (421)
----------- ------------- ------------ ----------- -----------
Net income (loss) $ 2,855 $ (21,097) $ 7,125 $ 1,514) $ 3,065
=========== ============= ============ =========== ===========
PER SHARE DATA:
Earnings per share - diluted $ .25 $ (2.04) $ .63 $ (.17) $ .36
=========== ============= ============ =========== ===========
Weighted average shares outstanding - diluted 11,246,636 10,322,263 11,238,535 8,840,330 8,621,293
=========== ============= ============ =========== ===========
Earnings per share - basic $ .27 $ (2.04) $ .69 $ (.17) $ .40
=========== ============= ============ =========== ===========
Weighted average shares outstanding - basic 10,386,952 10,322,263 10,307,777 8,840,330 7,608,814
=========== ============= ============ =========== ===========
BALANCE SHEET DATA (AT PERIOD-END):
Total assets $ 2,493,425 $ 2,505,117 $ 2,455,397 $ 2,282,601 $ 1,970,506
Investment & mortgage-backed securities 355,024 129,783 115,891 115,792 105,373
Loans held for sale 80,915 184,176 318,854 410,113 311,749
Portfolio loans, net of unearned income 1,836,355 1,896,289 1,477,124 1,477,814 1,264,900
Allowance for loan losses 27,442 28,077 20,530 21,505 21,800
Goodwill & premium on deposits 35,906 36,916 37,880 28,765 4,679
Deposits 2,188,470 2,187,412 2,138,970 1,853,535 1,535,602
Stockholders' equity 168,448 163,597 185,028 177,563 105,273
Book value per share (dollars) 15.01 14.77 16.71 16.07 12.58
SELECTED FINANCIAL RATIOS:
Return on average assets .47% (3.37)% 1.20% (.30)% .71%
Return on average equity 7.11 (45.03) 14.32 (4.23) 12.46
Equity to assets 6.76 6.53 7.54 7.78 5.34
Equity and minority interest in preferred
subsidiary to assets 7.91 7.68 8.71 9.04 6.80
Portfolio loans/deposit ratio 83.91 86.69 69.06 79.73 82.37
Net interest spread 3.46 3.17 4.38 3.50 3.76
Net interest margin 3.81 3.59 4.80 3.91 4.15
G & A expense to average assets (1) 3.61 2.78 2.75 2.73 2.81
G & A efficiency ratio (1) 75.02 73.75 63.83 75.14 69.13
Loan loss allowance to portfolio loans 1.49 1.48 1.39 1.46 1.72
Loan loss allowance to nonperforming loans 79.16 74.21 68.26 67.65 66.89
CAPITAL RATIOS:
Tier 1 (leverage) - Company 5.76 5.49 6.13 7.76 6.58
Tier 1 (leverage) - Bank 6.85 6.66 7.10 7.54 6.70
Tier 1/risk-assets - Company 8.72 7.72 9.51 9.85 9.30
Tier 1/risk assets - Bank 10.35 9.27 11.07 9.57 9.46
Risk-based capital - Company 10.02 9.01 10.75 10.91 10.71
Risk-based capital - Bank 11.65 10.56 12.32 10.63 10.72
OTHER DATA (AT PERIOD-END):
Number of branch banking offices 70 62 58 56 49
Number of full-time equivalent employees 1,297 1,733 1,702 1,558 1,381
</TABLE>
(1) Ratios prior to 1999 include commercial banking segment only.
10
<PAGE> 13
REPUBLIC BANCSHARES, INC.
QUARTERLY NONPERFORMING ASSET TREND
(unaudited; $ in thousands)
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------------
MAR. 1999 DEC. 1998 SEPT. 1998 JUNE 1998 MAR. 1998
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
NON-PERFORMING LOANS:
Residential first lien $26,398 $24,714 $20,797 $21,610 $19,539
Commercial real estate 4,990 9,699 6,647 9,251 10,340
Multifamily residential 183 183 186 -- 95
Commercial (business) 1,386 1,312 649 595 729
Home equity 1,085 713 320 225 244
Consumer & other 160 203 351 213 599
High LTV 464 -- 290 -- --
------- ------- ------- ------- -------
Total nonperforming loans (1) 34,666 36,824 29,240 31,894 31,546
Total nonperforming other assets 901 1,010 1,091 2,231 1,284
OTHER REAL ESTATE:
Residential 3,567 3,069 3,058 4,335 4,346
Commercial-build & sell 620 884 2,004 2,480 2,480
Commercial bulk sale 2,109 998 981 1,823 1,620
------- ------- ------- ------- -------
Total ORE 6,296 4,951 6,043 8,638 8,446
Total nonperforming assets $41,863 $42,785 $36,374 $42,763 $41,276
======= ======= ======= ======= =======
</TABLE>
(1) Represents all loans on nonaccrual and 90 days and over past due
<TABLE>
MEMORANDUM:
<S> <C> <C> <C> <C> <C>
Past due 90+ days-still accruing (incl. above) $ 289 $ 1,232 $ 266 $ 2,036 $ 2,244
Nonperforming loans/portfolio loans 1.89% 1.94% 2.04% 2.15% 2.58%
Nonperforming assets/assets 1.68 1.71 1.48 1.87 2.09
Ore/assets 0.25 0.20 0.25 0.38 0.43
LOAN LOSS ALLOWANCE TO NONPERFORMING LOANS:
Originated portfolio 80.87 74.71 71.32 78.44 74.71
July 1997 Purchase 27.01 35.70 35.22 52.11 35.70
March 1995 Purchase 111.62 108.06 111.62 263.80 108.06
CrossLand portfolio 41.65 43.50 50.80 409.57 43.50
Other purchased portfolios 79.86 113.69 45.08 17.82 113.69
Total 79.16 74.21 68.26 67.65 74.21
OTHER LOAN DELINQUENCY DATA
30-89 DAYS PAST DUE:
Residential $12,553 $17,032 $18,496 $21,788 $19,376
Commercial/multifamily 6,958 7,128 7,583 6,266 6,199
Commercial (business) 1,540 2,082 1,101 3,924 1,086
Home equity 1,228 1,218 598 175 157
Consumer & other 453 720 519 517 454
High LTV 1,935 1,485 1,231 -- --
------- ------- ------- ------- -------
Total $24,667 $29,665 $29,528 $32,670 $27,272
======= ======= ======= ======= =======
</TABLE>
11
<PAGE> 14
REPUBLIC BANCSHARES, INC.
QUARTERLY CREDIT LOSS EXPERIENCE
(unaudited; $ in thousands)
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------------------------------------
MAR. 1999 DEC. 1998 SEPT. 1998 JUNE 1998 MAR. 1998
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
DAILY AVERAGE LOANS OUTSTANDING:
Residential $ 976,233 $ 962,492 $ 883,735 $ 852,224 $ 783,114
Commercial real estate/multifamily 629,870 592,009 556,171 497,029 455,036
Commercial (business) 197,055 188,348 152,522 129,984 111,190
Home equity 72,702 67,858 53,280 34,749 26,150
Consumer & other 32,476 34,576 29,795 28,256 25,733
High LTV 113,113 107,379 230,937 186,684 102,832
----------- ----------- ----------- ----------- -----------
Total $ 2,021,449 $ 1,952,662 $ 1,906,440 $ 1,728,926 $ 1,504,055
=========== =========== =========== =========== ===========
Allowance for loan losses
at beginning of period $ 28,077 $ 20,530 $ 21,505 $ 21,800 $ 22,023
Loan discount (net) allocated to
(from) purchased portfolios -- -- (3,262) (1,041) --
Provision for loan losses 1,522 8,305 4,340 1,078 538
CHARGE-OFFS:
Residential (709) (328) (772) (158) (217)
Commercial real estate/multifamily (17) -- -- -- (266)
Commercial (business) (6) (129) (1,057) (50) (214)
Home equity (32) (6) -- -- --
Consumer (188) (160) (181) (238) (179)
Other (160) (268) (104) (66) (1)
High LTV (1,406) -- -- -- --
----------- ----------- ----------- ----------- -----------
Total $ (2,518) $ (891) $ (2,114) $ (512) $ (877)
RECOVERIES:
Residential 25 55 17 28 --
Commercial real estate/multifamily 5 -- -- 90 93
Commercial (business) 111 7 19 16 6
Home equity -- 12 -- -- --
Consumer 43 36 18 45 14
Other 80 23 7 1 3
High LTV 97 -- -- -- --
----------- ----------- ----------- ----------- -----------
Total $ 361 $ 133 $ 61 $ 180 $ 116
NET CHARGE-OFFS (RECOVERIES):
Residential (684) (273) (755) (130) (217)
Commercial real estate/multifamily (12) -- -- 90 (173)
Commercial (business) 105 (122) (1,038) (34) (208)
Home equity (32) 6 -- -- --
Consumer (145) (124) (163) (193) (165)
Other (80) (245) (97) (65) 2
High LTV (1,309) -- -- -- --
----------- ----------- ----------- ----------- -----------
Total $ (2,157) $ (758) $ (2,053) $ (332) $ (761)
----------- ----------- ----------- ----------- -----------
Allowance for loan losses at
end of period $ 27,442 $ 28,077 $ 20,530 $ 21,505 $ 21,800
=========== =========== =========== =========== ===========
NET CHARGE-OFFS (RECOVERIES) TO AVERAGE
LOANS - ANNUALIZED:
Residential .28% .12% .36% .08% .12%
Commercial real estate/multifamily .01 -- -- (.08) .16
Commercial (business) (.20) .24 .03 .12 .76
Home equity .16 (.04) -- -- --
Consumer & other 1.80 1.44 2.20 2.72 2.56
High LTV 4.64 -- -- -- --
----------- ----------- ----------- ----------- -----------
Total .44% .16% .44% .08% .20%
=========== =========== =========== =========== ===========
</TABLE>
12
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF BALANCE SHEETS AT MARCH 31, 1999 AND DECEMBER 31, 1998
Overview
Total assets were $2.5 billion at March 31, 1999, substantially unchanged from
that at December 31, 1998. However, the mix of the Company's asset base changed
as the Company continued to sell its December 1998 inventory of loans held for
sale and reinvest those funds into U.S. Treasury and other government backed
securities. The percentage of portfolio loans and loans held for sale to total
assets was 76.9% and 83.0% at March 31, 1999 and December 31, 1998,
respectively.
Federal Funds Sold and Interest Bearing Deposits
Federal funds sold, all on an overnight basis, decreased by $85.4 million from
$93.0 million at the prior year-end to $7.6 million at March 31, 1999, primarily
as a result of the reinvestment of excess cash into government securities.
Mortgage-Backed and Mortgage-Related Securities
In the quarter ended March 31, 1999, the Company increased its mortgage
securities in the available for sale category by $46.4 million through purchases
of securities issued by the Government National Mortgage Association ("GNMA")
and increased its mortgage securities in the trading category by $49.8 million
through retention of securities created through securitization of the Company's
residential loan production.
Loans and Loans Held for Sale
Total loans held for portfolio decreased by $59.3 million from $1.87 billion at
the prior year-end to $1.81 billion at March 31, 1999. A $50.0 million portion
of the decrease was attributable to the participation out to another financial
institution of commercial real estate loans. Real estate-secured loans declined
during the period by $40.5 million to $1.7 billion or 94.1% of total portfolio
loans. Loans held for sale decreased by $103.3 million to $80.9 million, at
March 31, 1999, primarily as a result of loan sales.
Allowance for Loan Losses
The allowance for loan losses amounted to $27.4 million at March 31, 1999,
(1.49% of portfolio loans) compared with $28.1 million (1.48% of portfolio
loans) at December 31, 1998. Activity relating to the allowance in 1999 included
provisions for loan losses of $1.5 million, and loan charge-offs (net of
recoveries) of $2.2 million. Of the net amount of charge-offs, $1.3 million
resulted from High LTV Loans taken into portfolio in the fourth quarter of 1998.
Nonperforming Assets
Nonperforming assets amounted to $41.9 million or 1.68% of total assets at March
31, 1999, compared with $42.8 million or 1.71% of total assets at December 31,
1998. Nonperforming loans totaled $35.6 million at March 31, 1999, a decrease of
$2.2 million from the prior year-end total of $37.8 million. Nonperforming
residential mortgage loans increased by $2.1 million, due primarily to increased
delinquency levels in loans originated by the mortgage banking unit. This was
offset by a decrease in nonperforming commercial real estate and commercial
(business) nonperforming loans of $4.6 million. ORE balances increased by $1.3
million to $6.3 million.
13
<PAGE> 16
Deposits
Total deposits were $2.2 billion at March 31, 1999, substantially unchanged from
the prior year-end. Checking account, savings and money market accounts
increased by $17.2 million while certificates of deposit declined by $16.1
million.
Stockholders' Equity
Stockholders' equity was $168.4 million at March 31, 1999, or 6.8% of total
assets, compared to $163.6 million or 6.5% of total assets at December 31, 1998.
At March 31, 1999, the Bank's Tier 1 ("Leverage") Capital ratio was 6.85%, its
Tier 1 Risk-Based Capital ratio was 10.35%, and its Total Risk-Based Capital
ratio was 11.65%, all in excess of minimum FDIC guidelines for an institution to
be considered a "well-capitalized" bank. The Company's ratios were 5.76%, 8.72%,
and 10.02%, respectively.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 1998
Overview
Net income for the first quarter of 1999 was $2.9 million, or $.25 per share (on
a diluted basis), compared with a net income of $3.1 million, or $.36 per share,
on the same basis for the same period in 1998.
"Core net income", defined by the Company as after-tax net income excluding: (i)
the contribution from new branches opened in late 1998 and 1999; (ii) direct
costs of mortgage production activities, net of gains on loans held for sale;
and (iii) other unusual or infrequently occurring items, was $4.1 million for
the quarter ended March 31, 1999 compared to $3.8 million for the prior year, a
7.9% increase. An analysis of the Company's core income is as follows ($ in
thousands, net of tax effect):
<TABLE>
<CAPTION>
QUARTERS ENDED MARCH 31,
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
CORE RESULTS:
Net interest income $ 13,781 $ 10,756
Loan loss provision 946 333
Noninterest income 2,837 1,985
G & A expense 10,949 8,460
Amortization of goodwill & premium on deposits 628 99
-------- --------
Core net income 4,095 3,849
NET INCOME (LOSS) FROM OTHER ACTIVITIES:
Mortgage production activities (271) (3,549)
New branches (773) --
Sale of portfolio loans -- 3,144
ORE & other non-operating items 224 42
-------- --------
Net income before minority interest 3,275 3,486
Minority interest (net of tax) (420) (421)
-------- --------
Net income $ 2,855 $ 3,065
======== ========
</TABLE>
Analysis of Net Interest Income (see table on page 16)
Net interest income for the three months ended March 31, 1999 was $22.4 million
compared with $17.4 million for the same period last year, a $5.0 million or
28.7% increase. Interest income was $46.7 million for the first quarter of 1999,
an increase of $10.7 million over the same period in 1998. Interest expense
increased by $5.7 million. Average asset yield decreased by 60 basis points from
8.67% for the same period of 1998 to 8.07% for 1999, primarily as a result of a
higher investment in securities and federal funds sold relative to total
earnings assets. The average cost of interest-bearing liabilities also declined
by 30 basis points from 4.91% to 4.61%, primarily due to reduced reliance on
outside borrowings and lower costs for certificate of deposits. As a result, net
interest spread decreased 30 basis points from 3.76% for 1998 to 3.46% for 1999
and net interest margin, which includes the benefit of noninterest bearing
funds, declined by 34 basis points from 4.15% for 1998 to 3.81% for 1999.
14
<PAGE> 17
Noninterest Income
Noninterest income for the three months ended March 31, 1999 was $7.4 million
compared with $14.1 million for the same period of 1998, a decrease of $6.7
million. Excluding gains on sale of loans and income from mortgage banking
activities, noninterest income was $4.6 million for the first quarter of 1999
compared to $3.2 million for the same period last year. Loan fee income
increased from $1.3 million in 1998 to $2.8 million for 1999 and service charges
on deposit accounts and other deposit-related fee income sources increased by
$280,000.
The following table reflects the components of noninterest income for the three
months ended March 31, 1999, and 1998 (in thousands):
<TABLE>
<CAPTION>
For the three Months
Ended March 31,
--------------------------------------
Increase
1999 1998 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Gains on sales of loans, net $ 2,793 $ 871 $ 1,922
Income from mortgage banking operations -- 9,985 (9,985)
Service charges on deposit accounts 1,131 851 280
Loan fee income 2,787 1,265 1,522
Gain on sale of securities, net -- 333 (333)
Net trading account loss (135) (111) (24)
Generations Gold fee income 323 195 128
Foreign exchange income 28 32 (4)
Other income 436 646 (210)
------- -------- -------
Total noninterest income $ 7,363 $ 14,067 $(6,704)
======= ======== =======
</TABLE>
[Balance of page intentionally left blank]
15
<PAGE> 18
The following table summarizes the average yields earned on interest-earning
assets and the average rates paid on interest-bearing liabilities for the three
months ended March 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------------------
1999 1998
------------------------------------- -----------------------------------
Average Average Average Average
Summary of Average Rates Balance Interest Rate Balance Interest Rate
- ------------------------ ------- -------- ------- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans, net $2,021,449 $43,081 8.51% $1,504,055 $33,366 8.91%
Investment securities 42,352 536 5.12 36,260 596 6.63
Mortgage-backed securities 37,890 594 6.27 36,889 626 6.78
Trading securities 83,010 950 4.58 37,464 701 7.49
Interest bearing deposits in banks 7,519 72 3.88 1,802 16 3.68
FHLB stock 11,433 209 7.41 9,994 182 7.37
Federal funds sold 106,420 1,237 4.65 38,380 473 4.94
---------- ------- ---- ---------- ------- ----
Total interest earning assets $2,310,073 46,679 8.07 1,664,844 35,960 8.67
Noninterest earning assets 167,304 94,737
---------- ----------
Total assets $2,477,377 $1,759,581
========== ==========
Interest bearing liabilities:
Interest checking $ 179,649 340 .77% $ 134,371 588 1.78%
Money market 172,465 1,614 3.80 55,277 199 1.46
Savings 72,595 329 1.84 54,948 297 2.19
Passbook Gold 291,630 3,049 4.24 252,752 3,058 4.91
Time deposits 1,329,324 17,782 5.43 875,121 12,149 5.63
FHLB advances 12,833 157 4.95 134,742 1,955 5.88
Other borrowings 74,057 985 5.39 24,844 312 5.10
---------- ------- ---- ---------- ------- ----
Total interest bearing liabilities 2,132,553 24,256 4.61 1,532,055 18,558 4.91
------- -------
Noninterest bearing liabilities 182,023 130,814
Stockholders' equity 162,801 96,712
---------- ----------
Total liabilities and equity $2,477,377 $1,759,581
========== ==========
Net interest income/net interest spread $22,423 3.46% $17,402 3.76%
======= ==== ======= ====
Net interest margin 3.81% 4.15%
==== ====
</TABLE>
<TABLE>
<CAPTION>
Increase (Decrease) Due to
-------------------------------------
Changes in Net Interest Income Volume Rate Total
- ------------------------------ ------ ---- -----
<S> <C> <C> <C>
Interest earning assets:
Loans, net $ 10,621 $ (906) $ 9,715
Investment securities 122 (182) (60)
Mortgage-backed securities 16 (48) (32)
Trading securities 602 (353) 249
Interest bearing deposits in banks 55 1 56
FHLB stock 26 1 27
Federal funds sold 793 (29) 764
-------- ------- --------
Total change in interest income 12,235 (1,516) 10,719
Interest bearing liabilities:
Interest checking 156 (404) (248)
Money market 806 609 1,415
Savings 85 (53) 32
Passbook Gold 436 (445) (9)
Time deposits 6,232 (599) 5,633
FHLB advances (1,047) (751) (1,798)
Other borrowings 718 (45) 673
-------- ------- --------
Total change in interest expense 7,386 (1,688) 5,698
-------- ------- --------
Increase (decrease) in net interest income $ 4,849 $ 172 $ 5,021
======== ======= ========
</TABLE>
16
<PAGE> 19
Noninterest Expense
General and administrative ("G & A") expenses for the first quarter of 1999 were
$22.3 million compared with $25.2 million for the same period last year, a
decrease of $2.9 million. These improvements were primarily attributable to the
reduced operating expenses associated with the Company's restructured mortgage
activities. Total noninterest expenses, which include G & A expense, were $23.0
million for the three months ended March 31, 1999 compared with $25.3 million
for the same period last year.
The following table reflects the components of noninterest expense for the three
months ended March 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
For the Quarter Ended
March 31,
---------------------------------------
Increase
1999 1998 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Salaries and benefits $ 12,010 $ 10,578 $ 1,432
Net occupancy expense 3,792 2,739 1,053
Advertising 368 4,366 (3,998)
Data processing fees 1,034 721 313
FDIC and state assessments 333 273 60
Telephone expense 551 526 25
Legal and professional 632 739 (107)
Postage and supplies 1,101 4,074 (2,973)
Other operating expense 2,525 1,185 1,340
-------- -------- -------
Total G & A expenses 22,346 25,201 (2,855)
Merger expenses -- 3 (3)
Provision for losses on ORE -- (80) 80
ORE expense, net of ORE income (359) 8 (367)
Amortization of premium on deposits
and goodwill 1,010 159 851
-------- -------- -------
Total noninterest expense $ 22,997 $ 25,291 $(2,294)
======== ======== =======
</TABLE>
17
<PAGE> 20
YEAR 2000 ISSUES
In the next year, many companies, including financial institutions such as the
Company, will face potentially serious risks associated with the inability of
existing data processing hardware and software to appropriately recognize
calendar dates beginning in the year 2000. Many computer programs that can only
distinguish the final two digits of the year entered may read entries for the
year 2000 as the year 1900 and compute payment, interest or delinquency based on
the wrong date. If a Company's critical internal systems do not correctly
recognize and process data information beyond the year 1999, there could be a
material adverse impact on business and operations.
In 1997, the Company began the process of identifying the many software
applications and hardware devices affected by Year 2000 issues. The Company
formed a Year 2000 Committee, consisting of the Bank's senior management and
essential data processing employees to address the year 2000 compliance project.
The Board of Directors is updated on the Company's progress towards compliance
on a monthly basis. In addition, as the Bank's primary federal regulator, the
FDIC conducts periodic examinations of the Bank's Year 2000 readiness.
Additional staffing for Year 2000 compliance, including a full-time project
coordinator and other technically proficient employees, have been hired to
monitor the daily activities of the project for the Bank. Non-compliant vendors
have been and continue to be contacted for project progress reports. The Bank is
independently verifying significant vendors' Year 2000 readiness. Communication
with compliant vendors to develop and implement testing plans is also ongoing.
In the event that the Bank's efforts are unsuccessful and/or that one or more of
the Company's critical internal systems should not properly recognize January 1,
2000 and subsequent dates, the following could occur, any of which could have a
material adverse impact on the operations of the Company and the Bank.
(a) Client service could deteriorate to the point that a substantial number
of the Bank's and Savings Bank's clients move their account relationships
to another financial institution;
(b) The Company and the Bank may be unable to provide the public and the
applicable regulatory authorities with timely and accurate financial
information; or
(c) The Company, the Bank, and the Savings Bank may be unable to fulfill, on
a timely basis, their various contractual obligations.
The FDIC set a target date of June 30, 1999 for financial institutions to
complete all phases of the Year 2000 compliance effort. The Bank and the Savings
Bank's main client loan, deposit and general ledger application systems are
processed by ALLTEL Information Services, Inc. ("ALLTEL") which has certified
its applications as Year 2000 compliant with the test results forwarded to Bank
personnel for verification. The Bank has substantially completed the testing
process and expects to have the process fully-completed by the June 30, 1999
target date set by the FDIC. The critical internal systems of all the Bank's
merged and acquired entities have been converted to the ALLTEL loan and deposit
application systems.
The Bank and Savings Bank have formulated a contingency plan for the remote
possibility that ALLTEL will not be year 2000 compliant. The Company will
continue its efforts toward year 2000 compliance with a goal of June 30, 1999
for completion of all testing and implementation of compliant systems.
18
<PAGE> 21
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Certain of the statements contained in this Quarterly Report on Form 10-Q (other
than the financial statements and statements of historical fact), including,
without limitation, statements as to management expectations and beliefs
presented under the caption, "Management's Discussion and Analysis," may
constitute forward-looking statements. Forward-looking statements are made based
upon management's expectations and beliefs concerning future development and
their potential effect upon the Company. There can be no assurance that future
developments will be in accordance with management's expectations or that the
effect of future developments on the Company will be those anticipated by
management.
The Company wishes to caution readers that the assumptions which form the basis
for forward-looking statements with respect to or that may impact earnings for
the year ended December 31, 1999, and thereafter include many factors that are
beyond the Company's ability to control or estimate precisely. These risks and
uncertainties include, but are not limited to, the market demand and acceptance
of the Company's existing and new, loan and deposit products, the impact of
competitive products, the Company's ability to achieve the desired consolidation
efficiencies from its planned acquisitions, and changes in economic conditions,
such as inflation or fluctuations in interest rates.
While the Company periodically reassesses material trends and uncertainties
affecting the Company's results of operations and financial condition in
connection with its preparation of management's discussion and analysis
contained in its Quarterly Report, the Company does not intend to review or
revise any particular forward-looking statement referenced herein in light of
future events.
19
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In December 1998, the Company received notice of a potential claim by certain
unnamed former directors and shareholders of BSB which alleges that the Company
failed to disclose information relating to the loss incurred by the Company in
the fourth quarter of 1998. No action has been initiated to date.
Also in January 1999, the Company filed a lawsuit against a former vendor that
provided printing and direct mailing services for the Company's mortgage banking
operation to invalidate a term contract executed by the former manager of the
High LTV Loan origination unit who was not an officer of the Company or the Bank
at the time the contract was executed. The lawsuit also alleges civil conspiracy
and fraud in connection with the execution of the contract. The vendor has, at
this same time, filed an arbitration proceeding against the Company relating to
the same issues. This matter is in the discovery phase. The vendor has changed
its estimate of alleged damages from $13 million to a range of $2 - $9 million.
The Company is also subject to various legal proceedings in the ordinary course
of its business. Based on information presently available, management does not
believe that the ultimate outcome in such proceedings, in the aggregate, would
have a material adverse effect on the Company's financial position or results of
operation.
ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
27.0 Financial Data Schedule
b. On January 7, 1999, the Company filed a report on Form 8-K
disclosing the text of a press release initially disclosed on
December 30, 1998 which amended the Company's projected loss
for the period ended December 31, 1998. On January 29, 1999,
the Company filed a report on Form 8-K disclosing the text of
a press release disclosed on that same day that the Company's
Board of Directors had hired an investment banker to assist
it in evaluating strategic alternatives among which included
the possible sale of the Company.
20
<PAGE> 23
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
REPUBLIC BANCSHARES, INC.
Date: 05/12/99 By: /s/Alfred T. May
-------- ------------------------------------
Alfred T. May
Chairman and Chief Executive Officer
(principal executive officer)
Date: 05/12/99 By: /s/William R. Falzone
-------- ------------------------------------
William R. Falzone
Treasurer (principal financial and
accounting officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 50,238
<INT-BEARING-DEPOSITS> 10,130
<FED-FUNDS-SOLD> 7,600
<TRADING-ASSETS> 112,460
<INVESTMENTS-HELD-FOR-SALE> 242,564
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,836,355
<ALLOWANCE> 27,442
<TOTAL-ASSETS> 2,493,425
<DEPOSITS> 2,188,470
<SHORT-TERM> 78,718
<LIABILITIES-OTHER> 29,039
<LONG-TERM> 0
28,750
1,500
<COMMON> 20,950
<OTHER-SE> 145,998
<TOTAL-LIABILITIES-AND-EQUITY> 2,493,425
<INTEREST-LOAN> 43,081
<INTEREST-INVEST> 3,598
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 46,679
<INTEREST-DEPOSIT> 23,114
<INTEREST-EXPENSE> 1,142
<INTEREST-INCOME-NET> 22,423
<LOAN-LOSSES> 1,522
<SECURITIES-GAINS> (135)
<EXPENSE-OTHER> 22,997
<INCOME-PRETAX> 5,267
<INCOME-PRE-EXTRAORDINARY> 5,267
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,855
<EPS-PRIMARY> .27
<EPS-DILUTED> .25
<YIELD-ACTUAL> 8.07
<LOANS-NON> 34,377
<LOANS-PAST> 289
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 901
<ALLOWANCE-OPEN> 28,077
<CHARGE-OFFS> 2,518
<RECOVERIES> 361
<ALLOWANCE-CLOSE> 27,442
<ALLOWANCE-DOMESTIC> 27,442
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 27,442
</TABLE>