REPUBLIC BANCSHARES INC
10-Q, 2000-11-07
STATE COMMERCIAL BANKS
Previous: CONNETICS CORP, S-3/A, EX-23.1, 2000-11-07
 Next: REPUBLIC BANCSHARES INC, 10-Q, EX-27.0, 2000-11-07

TABLE OF CONTENTS

Financial Data Schedule

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 September 30, 2000
 
  [  ] 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 59-3347653
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
 
111 2nd Avenue N.E., St. Petersburg, FL 33701
(Address of Principal Office) (Zip Code)

(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 $2.00 per share                         10,555,989 shares outstanding at September 30, 2000

Table of Contents

REPUBLIC BANCSHARES, INC.

INDEX

Part I.   FINANCIAL INFORMATION

             
Page
Item 1. Financial Statements
Consolidated Balance Sheets – September 30, 2000 (unaudited) and December 31, 1999 2
Consolidated Statements of Operations - Three and nine month periods ended September 30, 2000 and 1999 (all unaudited) 3
Consolidated Statements of Stockholders’ Equity - Year ended December 31, 1999 and Nine months ended September 30, 2000 (unaudited) 4
Consolidated Statements of Comprehensive Income - Three and nine-month periods ended September 30, 2000 and 1999 (all unaudited) 4
Consolidated Statements of Cash Flows - Three and nine month periods ended September 30, 2000 and 1999 (all unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Selected Quarterly Financial and Other Data (unaudited) 12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
Part II OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24

Table of Contents

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

Certain 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 our expectations and beliefs presented under the caption, “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” may constitute forward-looking statements. Forward-looking statements are made based upon our expectations and beliefs concerning future development and their potential effect upon us. There can be no assurance that future developments will be in accordance with our expectations or that the effect of future developments will be those anticipated by us.

We wish 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 ending December 31, 2000, and thereafter include many factors that are beyond our ability to control or estimate precisely. These risks and uncertainties include, but are not limited to, the market demand and acceptance of our existing and new loan and deposit products, the impact of competitive products, and changes in economic conditions, such as inflation or fluctuations in interest rates.

While we periodically reassess material trends and uncertainties affecting our results of operations and financial condition in connection with our preparation of the stockholders’ letter and management’s discussion and analysis contained in our annual report, we do not intend to review or revise any particular forward-looking statement referenced herein in light of future events.

1

Table of Contents

REPUBLIC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS – SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
($ in thousands, except share data)

                       
September 30, December 31,
2000 1999
(unaudited)
ASSETS
Cash and due from banks $ 47,744 $ 62,643
Interest bearing deposits in banks 6,721 3,758
Federal funds sold 95,645 27,060
Commercial paper — available for sale — 39,888
Investment securities — available for sale 18,838 25,555
Mortgage-backed and mortgage-related securities:
Held to maturity 37,037 33,068
Available for sale 347,355 315,268
Trading 37,082 39,229
FHLB stock 13,816 13,816
Loans, net of allowance for loan losses 1,759,702 1,861,715
Premises and equipment, net 47,977 52,574
Other real estate acquired through foreclosure, net 5,373 5,332
Accrued interest receivable 14,038 14,747
Goodwill and premium on deposits 29,933 32,827
Other assets 28,920 38,546
Total assets $ 2,490,181 $ 2,566,026
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits-
Noninterest bearing checking $ 117,731 $ 127,619
Interest checking 176,301 187,463
Money market 298,683 211,558
Savings 215,881 309,996
Time deposits 1,372,125 1,446,173
Total deposits 2,180,721 2,282,809
Securities sold under agreements to repurchase 48,168 37,241
FHLB advances 763 769
Holding company senior debt 6,667 9,167
Convertible subordinated debt 14,693 14,684
Term subordinated debt and unsecured notes 6,250 2,750
Other liabilities 26,060 19,611
Total liabilities 2,283,322 2,367,031
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 September 30, 2000 and December 31, 1999.) 1,500 1,500
Common stock ($2.00 par, 20,000,000 shares authorized, and 10,555,989 and 10,555,889 shares issued and outstanding at September 30, 2000 and December 31, 1999, respectively.) 21,112 21,112
Capital surplus 128,735 128,780
Retained earnings 31,184 26,530
Net unrealized loss on available for sale securities, net of tax effect (4,422 ) (7,677 )
Total stockholders’ equity 178,109 170,245
Total liabilities and stockholders’ equity $ 2,490,181 $ 2,566,026

The accompanying notes are an integral part of these consolidated statements

2

Table of Contents

REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except share data; unaudited)
                                         
For the Three Months Ended
Sept. 30,		 For the Nine Months Ended
Sept. 30,
2000 1999 2000 1999
INTEREST INCOME:
Interest and fees on loans $ 40,723 $ 41,089 $ 124,207 $ 125,122
Interest on investment securities 293 498 947 1,524
Interest on mortgage-backed securities 6,635 4,232 19,092 8,151
Interest on trading securities 293 293 878 1,932
Interest on federal funds sold 839 1,645 3,256 4,009
Interest on commercial paper — — 112 —
Interest on other investments 380 401 1,104 1,064
Total interest income 49,163 48,158 149,596 141,802
INTEREST EXPENSE:
Interest on deposits 25,989 23,766 76,581 70,039
Interest on FHLB advances 42 — 68 157
Interest on senior debt 181 433 571 1,266
Interest on subordinated debt 266 27 797 27
Interest on term subordinated debt 74 6 212 6
Interest on unsecured notes 46 128 50 396
Interest on other borrowings 619 435 1,689 1,362
Total interest expense 27,217 24,795 79,968 73,253
Net interest income 21,946 23,363 69,628 68,549
PROVISION FOR LOAN LOSSES 5,000 3,871 14,400 6,803
Net interest income after provision for loan losses 16,946 19,492 55,228 61,746
NONINTEREST INCOME:
Service charges on deposit accounts 2,053 1,772 5,943 4,735
Loan service fees 1,340 1,412 4,552 5,014
Other loan fee income 1,402 1,235 3,380 3,188
Gain on sale of loans, net 73 316 93 3,574
Loss on securities, net (63 ) — (1,000 ) (245 )
Other operating income 485 2,886 1,431 4,518
Total noninterest income 5,290 7,621 14,399 20,784
NONINTEREST EXPENSES:
Salaries and employee benefits 9,307 9,779 27,822 32,211
Net occupancy expense 3,935 4,268 11,978 11,866
Advertising and marketing 91 222 880 815
Data and item processing fees and services 1,161 1,295 3,551 3,489
FDIC and state assessments 183 479 792 1,113
Telephone, postage and supplies 1,081 1,327 3,203 4,723
Legal and professional 197 445 1,083 1,219
Other operating expenses 1,996 2,800 6,598 8,212
Total operating expenses 17,951 20,615 55,907 63,648
ORE expense (income), net 84 76 430 (412 )
Amortization of goodwill & premium on deposits 964 967 2,894 2,945
Total noninterest expenses 18,999 21,658 59,231 66,181
Income before income taxes & minority interest 3,237 5,455 10,396 16,349
Income tax provision (1,295 ) (1,968 ) (4,276 ) (6,178 )
Income before minority interest 1,942 3,487 6,120 10,171
Minority interest in income from subsidiary trust (net of tax) (426 ) (424 ) (1,268 ) (1,266 )
NET INCOME $ 1,516 $ 3,063 $ 4,852 $ 8,905
PER SHARE DATA:
Net income per common share – basic $ .14 $ .29 $ .44 $ .83
Weighted average common shares outstanding-basic 10,555,989 10,510,415 10,555,925 10,463,369
Net income per common & common equivalent share — diluted $ .13 $ .27 $ .43 $ .79
Weighted average common & common equivalent shares outstanding – diluted 11,321,328 11,309,550 11,334,366 11,310,126

The accompanying notes are an integral part of these consolidated statements.

3

Table of Contents

REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 2000
($ in thousands, except share data; unaudited)

                                                                 
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
Balance, December 31, 1998 75,000 $ 1,500 10,323,194 $ 20,646 $ 125,364 $ 16,103 $ (16 ) $ 163,597
Net income for the year ended Dec. 31, 1999 — — — — — 10,692 — 10,692
Net unrealized loss on available for sale securities, net of tax effect — — — — — — (7,661 ) (7,661 )
Exercise of stock options — — 232,695 466 2,313 — — 2,779
Additional paid-in capital from nonqualified/performance stock options — — — — 1,103 — — 1,103
Dividends on preferred stock — — — — — (265 ) — (265 )
Balance, December 31, 1999 75,000 1,500 10,555,889 21,112 128,780 26,530 (7,677 ) 170,245
Net income for the nine months ended September 30, 2000 — — — — — 4,852 — 4,852
Net unrealized gain on available for sale securities, net of tax effect — — — — — — 3,255 3,255
Exercise of stock options — — 100 — 1 — — 1
Adjustment to paid-in capital from nonqualified/performance stock options — — — — (46 ) — — (46 )
Dividends on preferred stock — — — — — (198 ) — (198 )
Balance, September 30, 2000 75,000 $ 1,500 10,555,989 $ 21,112 $ 128,735 $ 31,184 $ (4,422 ) $ 178,109

 

REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands; unaudited)

                                   
For the Three Months Ended
Sept. 30,		 For the Nine Months Ended
Sept. 30,
2000 1999 2000 1999
Net income $ 1,516 $ 3,063 $ 4,852 $ 8,905
Unrealized losses on securities:
Unrealized holding gains (losses), net of tax effect during period 3,553 (1,224 ) 3,401 (5,806 )
Less reclassification adjustment for gains realized in net income (148 ) — (146 ) —
Net unrealized gains (losses) 3,405 (1,224 ) 3,255 (5,806 )
Comprehensive income $ 4,921 $ 1,839 $ 8,107 $ 3,099

The accompanying notes are an integral part of these consolidated statements.

4

Table of Contents

REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands; unaudited)

                                     
For the Three Months
Ended Sept. 30,		 For the Nine Months
Ended Sept. 30,
2000 1999 2000 1999
OPERATING ACTIVITIES:
Net income $ 1,516 $ 3,063 $ 4,852 $ 8,905
Reconciliation of net income to net cash provided by operating activities:
Provision for loan and ORE losses 5,075 3,871 14,475 6,803
Depreciation and amortization, net (1,490 ) (6,080 ) 6,891 3,309
Amortization of premium (accretion) of fair value, net (1,112 ) 1,797 822 6,978
Gain on sale of loans (73 ) (316 ) (93 ) (3,574 )
Loss on sale of investment securities 63 — 1,000 244
(Gain) on sale of ORE (27 ) (33 ) 78 (695 )
Capitalization of mortgage servicing/residual interest (162 ) (437 ) (515 ) (3,887 )
Net decrease in deferred tax asset 848 973 3,103 1,733
Gain on disposal of premises & equipment — (804 ) — (594 )
Net decrease in other assets 186 1,050 4,696 5,713
Net increase (decrease) in other liabilities 2,889 (1,451 ) 6,449 (3,253 )
Net increase in value performance options — — (46 ) —
Net cash provided by operating activities 7,713 1,633 41,712 21,682
INVESTING ACTIVITIES:
Net decrease (increase) in loans 73,533 (2,266 ) 83,372 114,364
Proceeds from sales & maturities of:
Investment securities available for sale (3,997 ) — 3,003 131,500
Mortgage-backed securities available for sale 12,167 — 15,484 1,552
Commercial paper — — 40,000 —
Revenue bonds 480 — 555 —
Purchase of investment securities AFS (687 ) — (1,685 ) (134,868 )
Purchase of investment securities HTM — (1 ) — (1,900 )
Purchase of mortgage-backed securities AFS (9,380 ) (21,066 ) (85,954 ) (177,006 )
Purchase of mortgage-backed securities HTM — — (16,980 ) —
Principal repayment on mortgage-backed securities 32,818 12,641 61,246 26,731
Principal repayment on revenue bonds — 405 — 405
(Purchase) redemption of FHLB stock — 115 — (2,664 )
Disposal/(purchase) of premises & equipment, net (1,614 ) 12,370 (1,081 ) 12,260
Proceeds from sale of ORE 2,205 754 5,356 5,701
Investment in other real estate owned, net 1,875 153 1,819 475
Net cash provided (used in) by investing activities 107,400 3,105 105,135 (23,450 )
FINANCING ACTIVITIES:
Net (decrease) increase in deposits (72,219 ) (48,728 ) (101,931 ) 37,517
Net (decrease) increase in repurchase agreements (1,636 ) (4,405 ) 10,927 1,061
Repayment of FHLB advances, net (2 ) — (6 ) (25,000 )
Proceeds from issuance of common stock — 162 1 3,046
Proceeds from Holding Company debt 2,338 (4,567 ) 3,500 (4,567 )
Repayment of Holding Company debt (830 ) — (2,491 ) —
Dividends on perpetual preferred stock (66 ) (66 ) (198 ) (198 )
Net cash (used in) provided by financing activities (72,415 ) (57,604 ) (90,198 ) 11,859
Net increase (decrease) in cash and cash equivalents 42,698 (52,866 ) 56,649 10,091
Cash and cash equivalents, beginning of period 107,412 205,567 93,461 142,610
Cash and cash equivalents, end of period $ 150,110 $ 152,701 $ 150,110 $ 152,701
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for-
Interest 20,043 25,237 72,418 88,727
Income taxes paid (refunded) 220 (288 ) 405 (4,827 )

The accompanying notes are an integral part of these consolidated statements

5

Table of Contents

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” or “Republic” or “We”), the accompanying consolidated financial statements (marked “unaudited” where applicable) reflect all adjustments necessary to present fairly our financial position as of September 30, 2000 and the results of operations and cash flows, for the three and nine month periods ended September 30, 2000 and 1999. The accounting and reporting policies of the Company and its wholly-owned subsidiaries, Republic Bank (the “Bank”) and RBI Capital Trust I (“RBI”), are in conformity with generally accepted accounting principles and prevailing practices within the financial services industry. Financial data for 1999 includes results of operations for Republic Bank, F.S.B., which was dissolved on September 10, 1999.

The preparation of financial statements in conformity with generally accepted accounting principles requires that we 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.

Our consolidated financial statements include the accounts of the Company, RBI, the Bank, and the Bank’s wholly-owned subsidiary, Republic Insurance Agency, Inc. and, for the three and nine months ended September 30, 1999, Republic Bank, F.S.B. All significant intercompany accounts and transactions have been eliminated. Our primary source of income is from the Bank, which operates 81 branches throughout Florida. The Bank’s primary source of revenue has been derived from net interest income on loans and investments.

These consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 1999, filed with the Securities and Exchange Commission (“SEC”) on March 10, 2000. The results for the nine months ended September 30, 2000, are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2000.

Reclassifications

Certain reclassifications have been made to prior period financial statements to conform to the September 2000 financial statement presentation.

Recent Accounting Developments

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. SFAS No. 133 requires that entities recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, the FASB issued SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of FASB Statement No. 133”, which delayed the date for implementation to all fiscal quarters of all fiscal years beginning after June 15, 2000. We have not yet adopted the provisions of SFAS No. 133, however, we do not believe that SFAS No. 133 will have a material effect upon our results of operations or financial position.

6

Table of Contents

2. EARNINGS PER SHARE

Diluted earnings per common and common equivalent shares have 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 had been exercised, at the average market price for the 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 that have been converted to common stock earlier in the year or the issue date (i.e., the if-converted method). Basic earnings per common share was computed by dividing net income less dividends paid on preferred stock, by the weighted average number of shares of common stock outstanding during the year.

The table below reconciles the calculation of the diluted and basic earnings per share for 2000 and 1999 ($ in thousands, except per share data; unaudited):

                                                 
For the three months ended September 30,
2000 1999
Weighted Earnings Weighted Earnings
Net Shares Per Net Shares Per
Income Outstanding Share Income Outstanding Share
Net income/basic earnings per share $ 1,450 10,555,989 $ .14 $ 2,997 10,510,415 $ .29
Options outstanding at end of period(1) 15,339 — 49,135 —
Convertible perpetual Preferred stock 66 750,000 — 66 750,000 —
Diluted earnings per share $ 1,516 11,321,328 $ .13 $ 3,063 11,309,550 $ .27
                                                 
For the nine months ended September 30,
2000 1999
Weighted Earnings Weighted Earnings
Net Shares Per Net Shares Per
Income Outstanding Share Income Outstanding Share
Net income/basic earnings per share $ 4,654 10,555,925 $ .44 $ 8,707 10,463,369 $ .83
Options exercised during the period-incremental effect prior to exercise — 6 — — 17,956 —
Options outstanding at end of period(1) — 28,435 — — 78,801 —
Convertible perpetual Preferred stock 198 750,000 — 198 750,000 —
Diluted earnings per share $ 4,852 11,334,366 $ .43 $ 8,905 11,310,126 $ .79

(1)   - There were 597,467 and 293,017 of stock options that were antidilutive as of September 30, 2000 and 1999, respectively.

7

Table of Contents

3. INVESTMENT, MORTGAGE-BACKED AND MORTGAGE-RELATED SECURITIES

Investments consisting of U.S. Treasury and federal agency securities (“Investment Securities”), mortgage-backed securities (“MBS”) and mortgage-related securities (“Mortgage-Related Securities”) were $440.3 million at September 30, 2000. We held no commercial paper at that date. As of September 30, 2000, $366.2 million of securities were classified as available for sale (of which $347.4 million were MBS and $18.8 million were Investment Securities), $37.0 million of MBS were classified as held to maturity and $37.1 million of Mortgage Related Securities were trading assets. Included in the trading asset category were: (1) a $10.9 million subordinate tranche purchased from our securitization of high loan-to-value loans (“High LTV Loans”) in June 1998; (2) $22.5 million in overcollateralization and residual interests in cash flows from a $60.0 million securitization in December 1997 and a $240.0 million securitization in June 1998; and (3) $3.7 million representing the excess spread on mortgage servicing rights.

The market values assigned to the MBS classified as available for sale were derived using market quotations at September 30, 2000. Trading assets are evaluated at least quarterly with any valuation adjustment reflected as a trading gain or loss in the consolidated statement of operations. Under applicable accounting rules, use of quoted market values is the preferred method for valuing trading assets. However, where the market for those assets is illiquid and price quotations are not readily available, other methods are permitted, including techniques utilizing the present value of expected cash flows. We have used present value techniques to value our trading assets. The factors used in the present value calculations included a 15.0% discount rate and a 15.0% prepayment speed assumption on both the December 1997 and June 1998 overcollateralization and residual interests. The default assumption on the December 1997 transaction, defined by estimating the total defaults over the life of the securitization, is 15.5% of the original $60 million collateral amount. Through September 30, 2000, actual losses have been 9.1% of the original collateral amount. The default assumption on the June 1998 securitization is 12.7% of the original $240 million collateral amount over the life of the securitization. Through September 30, 2000, actual losses have been 5.6% of the original collateral amount. Based on those valuations and the underlying assumptions, a trading loss of $211,000 was recorded for the third quarter of 2000. We believe the valuation is a reasonable approximation of the fair market value of the mortgage-related securities classified as trading assets; however, there is no assurance that we could realize this value if such assets were sold in the current illiquid market for High LTV- related assets.

4. LOANS AND LOANS HELD FOR SALE

Loans at September 30, 2000 and December 31, 1999, are summarized as follows ($ in thousands; unaudited):

                     
September 30, December 31,
2000 1999
Real estate mortgage loans:
One-to-four family residential $ 653,761 $ 725,333
Nonconforming mortgages 68,483 79,562
Multifamily residential 102,955 80,212
Warehouse lines of credit 40,899 96,873
Commercial real estate 424,424 416,827
Construction/land development 136,381 165,649
Mortgage loans secured by first liens 1,426,903 1,564,456
Commercial (business) loans 124,166 90,378
Consumer loans 24,276 23,737
Home equity loans 133,945 118,737
High LTV Loans 80,853 92,584
Total gross portfolio loans 1,790,143 1,889,892
Less-allowance for loan losses (30,441 ) (28,177 )
Total loans held for portfolio $ 1,759,702 $ 1,861,715

8

Table of Contents

Mortgage loans serviced for others as of September 30, 2000 and December 31, 1999, were $1.3 billion and $1.5 billion, respectively. Included in the total amount serviced for others were High LTV Loans amounting to $601.5 million and $699.0 million at September 30, 2000 and December 31, 1999, respectively. Mortgage loan servicing rights (both purchased and originated) amounted to $17.1 million and $20.7 million at September 30, 2000 and December 31, 1999, respectively. Loans on which interest was not being accrued at September 30, 2000 and December 31, 1999, totaled approximately $54.1 million and $25.0 million, respectively. Loans past due 90 days or more and still accruing interest at September 30, 2000 and December 31, 1999 totaled $3,000 and $171,000, respectively.

At September 30, 2000, the composition of our loan portfolio, according to the location of the borrower or the real estate taken as underlying collateral, was as follows ($ in thousands, unaudited):

                   
Percent of
State Amount Total
Florida $ 1,308,967 73.12 %
New England(1) 95,142 5.31
Georgia 48,896 2.73
California 45,708 2.55
Texas 40,536 2.26
Virginia 33,131 1.85
Illinois 27,745 1.55
New Jersey 25,119 1.40
Ohio 24,989 1.40
New York 21,248 1.19
North Carolina 15,155 .85
Missouri 11,021 .62
All other (none greater than $10,000) 92,486 5.17
Total $ 1,790,143 100.00 %

(1)   New England includes the states of Connecticut, Delaware, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont.

5. 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. Our allowance is an amount that we believe will be adequate to provide for probable losses on existing loans that may become uncollectible, based on our evaluations of the collectibility of the loans and prior loan loss experience. Our evaluations of the adequacy of the allowance take into consideration such factors as the Bank’s past loan loss experience, known and inherent risks in the loan portfolio, changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions and any adverse situations that may affect the borrower’s ability to pay (including the timing of future payments). The evaluations are periodically reviewed and adjustments are recorded in the period in which changes become known.

While we believe that the allowance for loan losses was adequate as of September 30, 2000, based on currently available information at that time, future provisions to the allowance may be necessary due to changes in economic conditions, deterioration of creditworthiness of borrowers, the value of underlying collateral, or other factors. Additionally, the Florida Department of Banking and Finance (the “Department”), the FDIC, and the Federal Reserve, as an integral part of their regular examination process, periodically review the allowance for loan losses.

9

Table of Contents

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 that was created through the allocation of discounts on purchased loans may only be used to absorb losses on the related acquired loans. As of September 30, 2000, approximately $1.0 million of the allowance remained from the allocation of discounts on purchased loans.

Changes in the allowance for loan losses were as follows ($ in thousands; unaudited):

                   
For the Nine Months Ended Sept. 30,
2000 1999
Balance, beginning of period $ 28,177 $ 28,077
Provision for possible loan losses 14,400 6,803
Loan discount (net) allocated to (from) purchased portfolios (5 ) —
Acquired reserve – purchased portfolios — 275
Loans charged-off (13,246 ) (8,279 )
Recoveries of loans charged-off 1,115 1,313
Net charge-offs (12,131 ) (6,966 )
Balance, end of period $ 30,441 $ 28,189

Allowance for Losses on Other Real Estate (“ORE”)

We generally conduct appraisals on ORE on an annual basis. We recognize 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 us 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. We have been granted an extension on a piece of property, with a book value of $149,000, until December 6, 2000. This property, consisting of residential lots, is currently under contract. There are no other properties that have exceeded the five-year holding period limitation.

6. MARKET RISK

The market risk inherent in market sensitive instruments is the potential loss arising from changes in interest rates and the changes in prices of marketable equity securities. One of our primary objectives is to reduce fluctuations in net interest income caused by changes in interest rates. To manage interest rate risk, the Bank’s Board of Directors has established interest rate risk policies and procedures that delegate to the Bank’s 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.

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 a subordinate tranche from a 1998 securitization of High LTV Loans, the resulting residual interest in cash flows from that securitization and from a securitization completed in 1997, and the excess spread on interest-only strips receivable. (See “Note 3. Investment, Mortgage-Backed and Mortgage-Related Securities”). Trading securities are carried at market value with any unrealized gains or losses included in the statement of operations under “Loss on securities, net”. Securities held to maturity are carried at amortized cost.

10

Table of Contents

7. RELATED PARTY TRANSACTIONS

Mr. William R. Hough, is the Company’s chairman of the board, a director of the Company and the Bank, and our largest shareholder. Mr. Hough is also President and the controlling shareholder of William R. Hough & Co. (“WRHC”), a NASD-member investment-banking firm. During 1999, we entered into an agreement with WRHC whereby they would act as our agent in open-market purchases of securities. WRHC is compensated under that agreement on a commission basis. We also periodically purchase from WRHC securities under agreement to repurchase at a rate based on the prevailing federal funds rate and plus one-eighth of one percent, per an agreement entered into on August 15, 1995.

WRHC offers sales of insurance and mutual fund products and investment advisory services on our premises. We are paid 50% of the net profits earned from sales of investment products on our premises. The fee income earned from this relationship was $112,000 and $105,000 for the nine months ended September 30, 2000 and 1999, respectively.

On May 17, 2000, we entered into a loan agreement with Mr. William R. Hough, individually, to borrow up to $2.0 million on an unsecured, revolving line of credit basis. The full amount of that line was drawn in the second quarter of 2000. On September 14, 2000, an additional loan agreement was entered into with Mr. Hough, to borrow up to $1.5 million. The full amount of that line was drawn in the third quarter of 2000. The proceeds were used for holding company debt service. Interest on these loans is at a variable rate, changing daily, and equal to the Citibank, N.A., New York Base Rate (the “Index”) plus .50%. The rate at September 30, 2000 was 10.0% per annum. The loans are payable in one payment of all outstanding principal plus all accrued unpaid interest on March 31, 2001. In addition, we are obligated to pay regular monthly payments of all accrued unpaid interest due. The repayment of principal and interest on these loans is subordinate to the payment of all principal and interest on the senior debt.

Certain other directors and executive officers, members of their immediate families, and entities with which such persons are associated are customers of ours. As such, they had transactions in the ordinary course of business with us. 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 our opinion, have not involved more than the normal risk of collectibility or presented other unfavorable features.

8. HOLDING COMPANY CASHFLOW AND DEBT SERVICE

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 a bank’s net retained profits (net income less any dividends paid) for that year and its retained net profits for the preceding two years. At January 1, 2000, the aggregate net retained profit position for dividend payment purposes was a $6.8 million deficit. Therefore, the Bank was not permitted to make dividend payments to the holding company until the Bank’s retained net profits for calendar year 2000 exceeded the $6.8 million deficit. The Bank’s net income for the nine months ended September 30, 2000 was $7.1 million and, as of September 30, 2000, there was a net retained profit surplus for dividend payment purposes of $323,000.

11

Table of Contents

Selected Quarterly Financial and Other Data
Five Consecutive Quarters
($ in thousands, except share data; unaudited)

                                         
Quarters Ended
Sept. 2000 June 2000 Mar. 2000 Dec. 1999 Sept. 1999
OPERATING DATA:
Interest income $ 49,163 $ 50,846 $ 49,587 $ 48,961 $ 48,158
Interest expense 27,217 26,836 25,915 25,128 24,795
Net interest income 21,946 24,010 23,672 23,833 23,363
Loan loss provision 5,000 5,000 4,400 3,120 3,871
Net interest income after loan loss provision 16,946 19,010 19,272 20,713 19,492
Noninterest income 5,290 4,178 4,930 5,048 7,621
Operating expenses 17,951 18,612 19,343 20,782 20,615
Other noninterest expense 1,048 994 1,282 1,150 1,043
Net income before income taxes & minority interest 3,237 3,582 3,577 3,829 5,455
Income tax provision (1,295 ) (1,474 ) (1,507 ) (1,622 ) (1,968 )
Minority interest in income from subsidiary trust (426 ) (421 ) (421 ) (421 ) (424 )
Net income $ 1,516 $ 1,687 $ 1,649 $ 1,786 $ 3,063
PER SHARE DATA:
Earnings per share — basic $ .14 $ .15 $ .15 $ .17 $ .29
Weighted average shares outstanding — basic 10,555,989 10,555,897 10,555,889 10,547,802 10,510,415
Earnings per share — diluted $ .13 $ .15 $ .15 $ .16 $ .27
Weighted average shares outstanding — diluted 11,321,328 11,310,583 11,318,488 11,310,681 11,309,550
BALANCE SHEET DATA (at period-end):
Total assets $ 2,490,181 $ 2,554,828 $ 2,626,458 $ 2,566,026 $ 2,516,507
Investment & mortgage-backed securities 440,312 466,180 442,845 453,008 356,639
Portfolio loans, net of unearned income 1,790,143 1,864,640 1,882,560 1,889,892 1,867,387
Nonperforming assets 60,100 36,066 29,903 31,218 32,633
Allowance for loan losses 30,441 28,273 30,470 28,177 28,189
Goodwill & premium on deposits 29,933 30,897 31,862 32,827 33,791
Deposits 2,180,721 2,252,982 2,334,661 2,282,809 2,224,614
Stockholders’ equity 178,109 173,254 170,489 170,245 169,544
Book value per share (dollars) 15.75 15.32 15.08 15.06 15.05
SELECTED FINANCIAL RATIOS:
Return on average assets .24 % .26 % .26 % .28 % .48 %
Return on average equity 3.44 3.96 3.90 4.19 7.07
Equity to assets 7.15 6.78 6.42 6.63 6.73
Equity and minority interest in preferred subsidiary to assets 8.31 7.91 7.50 7.75 7.88
Portfolio loans/deposit ratio 82.09 82.76 80.64 82.79 83.94
Net interest spread 3.29 3.49 3.50 3.63 3.50
Net interest margin 3.73 3.89 3.86 3.99 3.85
Operating expense to average assets 2.88 2.88 3.00 3.27 3.24
Operating efficiency ratio 65.91 66.03 67.63 71.96 66.53
Loan loss allowance to portfolio loans 1.70 1.52 1.62 1.49 1.51
Loan loss allowance to nonperforming loans 56.30 95.68 128.40 112.04 108.32
CAPITAL RATIOS:
Tier 1 (leverage) — Company 6.37 6.14 5.93 6.02 5.97
Tier 1 (leverage) — Bank 7.25 6.95 6.78 6.78 6.88
Tier 1/risk-assets — Company 10.05 9.81 9.27 9.17 9.28
Tier 1/risk assets — Bank 11.45 11.12 10.59 10.33 10.64
Risk-based capital — Company 12.48 12.20 11.65 11.53 11.66
Risk-based capital — Bank 12.75 12.41 11.89 11.63 11.94
OTHER DATA (at period-end):
Number of branch banking offices 81 81 81 81 81
Number of full-time equivalent employees 996 997 995 1,000 1,019

12

Table of Contents

REPUBLIC BANCSHARES, INC.
QUARTERLY NONPERFORMING ASSET TREND
($ in thousands; unaudited)

                                               
Quarters Ended
Sept. 2000 June 2000 Mar. 2000 Dec. 1999 Sept. 1999
Non-performing loans:
Residential first lien $ 11,312 $ 14,133 $ 15,380 $ 13,813 $ 14,369
Warehouse lines of credit 2,467 2,867 48 868 48
Nonconforming first lien 3,866 4,280 4,177 4,973 5,909
Commercial real estate 34,274 6,332 1,327 3,252 3,749
Multifamily residential 315 — — — —
Commercial (business) 650 592 602 797 178
Home equity 686 831 1,841 833 440
Consumer & other 80 178 183 140 83
High LTV 424 336 173 474 1,249
Total nonperforming loans(1) 54,074 29,549 23,731 25,150 26,025
Other nonperforming receivables 653 687 711 736 761
Other real estate:
Residential 1,737 2,508 2,141 3,804 3,568
Commercial 3,636 3,322 3,320 1,528 2,279
Total ORE 5,373 5,830 5,461 5,332 5,847
Total nonperforming assets $ 60,100 $ 36,066 $ 29,903 $ 31,218 $ 32,633
(1)   Represents all loans on nonaccrual and all loans 90 days and over past due
Memorandum:
Past due 90+ days-still accruing (incl. above) $ 3 $ 46 $ 4 $ 171 $ 1,273
Nonperforming loans/portfolio loans 3.02 % 1.58 % 1.26 % 1.33 % 1.39 %
Nonperforming assets/assets 2.41 1.41 1.14 1.22 1.30
ORE/assets .22 .23 .21 .21 .23
Loan loss allowance to nonperforming loans:
Originated portfolio 56.05 % 98.18 % 143.60 % 137.61 % 121.52 %
July 1997 Purchase 2.93 1.94 2.43 — 35.21
March 1995 Purchase 238.39 1,136.17 228.45 246.89 153.85
CrossLand portfolio — — — 24.63 42.90
Other purchased portfolios 58.26 69.52 21.03 14.03 36.56
Total 56.30 % 95.68 % 128.40 % 112.04 % 108.32 %
Other loan delinquency data
30-89 days past due:
Residential first lien $ 14,683 $ 11,036 $ 12,257 $ 17,292 $ 14,180
Warehouse lines of credit — 222 11,048 42 —
Commercial real estate/multifamily 2,240 1,925 915 5,282 314
Commercial (business) 1,054 686 824 1,190 1,535
Home equity 1,893 1,290 1,351 1,864 1,399
Consumer & other 343 378 364 479 491
High LTV 2,342 2,890 2,385 3,301 2,253
Total $ 22,555 $ 18,427 $ 29,144 $ 29,450 $ 20,172

13

Table of Contents

REPUBLIC BANCSHARES, INC.
QUARTERLY CREDIT LOSS EXPERIENCE
($ in thousands; unaudited)

                                           
Quarters Ended
Sept. 2000 June 2000 Mar. 2000 Dec. 1999 Sept. 1999
Daily average loans outstanding:
Residential first lien $ 720,793 $ 735,289 $ 748,869 $ 757,410 $ 768,772
Warehouse lines of credit 52,584 71,124 81,049 95,654 103,847
Nonconforming first lien mortgages 70,129 73,570 78,118 82,167 84,919
Commercial real estate/multifamily 704,278 728,835 714,664 672,858 641,950
Commercial (business) 109,626 100,975 80,728 78,213 82,769
Home equity 62,028 64,308 63,554 63,632 65,318
Consumer 24,746 24,937 23,719 25,406 30,193
High LTV 83,372 87,269 90,142 98,565 102,674
Total $ 1,827,556 $ 1,886,307 $ 1,880,843 $ 1,873,905 $ 1,880,442
Allowance for loan losses at beginning of period $ 28,273 $ 30,470 $ 28,177 $ 28,189 $ 26,209
Loan discount (net) allocated to (from) purchased portfolios — — (5 ) (470 ) —
Provision for loan losses 5,000 5,000 4,400 3,120 3,871
Acquired reserve-purchased loans — — — — —
Charge-offs:
Residential first lien (405 ) (374 ) (463 ) (468 ) (534 )
Warehouse lines of credit (77 ) (4,412 ) (66 ) — —
Nonconforming first lien mortgages (172 ) (290 ) (319 ) (305 ) (239 )
Commercial real estate/multifamily (48 ) (1 ) — (167 ) (20 )
Commercial (business) (55 ) (3 ) — (115 ) (56 )
Home equity (235 ) (945 ) — — (312 )
Consumer (109 ) (44 ) (34 ) (155 ) (96 )
Other (67 ) (82 ) (32 ) (14 ) (77 )
High LTV (1,879 ) (1,299 ) (1,835 ) (1,620 ) (863 )
Total (3,047 ) (7,450 ) (2,749 ) (2,844 ) (2,197 )
Recoveries:
Residential first lien 68 31 48 4 110
Warehouse lines of credit 3 10 — — —
Nonconforming first lien mortgages — 4 — — —
Commercial real estate/multifamily 11 3 287 8 2
Commercial (business) 14 9 29 13 44
Home equity 37 9 4 25 21
Consumer 12 12 11 11 29
Other 26 5 2 24 16
High LTV 44 170 266 97 84
Total 215 253 647 182 306
Net (charge-offs) recoveries:
Residential first lien (337 ) (343 ) (415 ) (464 ) (424 )
Warehouse lines of credit (74 ) (4,402 ) (66 ) — —
Nonconforming first lien mortgages (172 ) (286 ) (319 ) (305 ) (239 )
Commercial real estate/multifamily (37 ) 2 287 (159 ) (18 )
Commercial (business) (41 ) 6 29 (102 ) (12 )
Home equity (198 ) (936 ) 4 25 (291 )
Consumer (97 ) (32 ) (23 ) (144 ) (67 )
Other (41 ) (77 ) (30 ) 10 (61 )
High LTV (1,835 ) (1,129 ) (1,569 ) (1,523 ) (779 )
Total (2,832 ) (7,197 ) (2,102 ) (2,662 ) (1,891 )
Allowance for loan losses at end of period $ 30,441 $ 28,273 $ 30,470 $ 28,177 $ 28,189
Net charge-offs (recoveries) to average loans-annualized:
Residential first lien .19 % .19 % .22 % .25 % .22 %
Warehouse lines of credit .56 24.76 .33 — —
Nonconforming first lien mortgages .98 1.55 1.63 1.48 1.13
Commercial real estate/multifamily .02 — (.16 ) .09 .01
Commercial (business) .15 (.02 ) (.14 ) .52 .03
Home equity 1.28 5.82 (.03 ) (.16 ) 1.78
Consumer 1.57 .51 .39 2.27 .89
High LTV 8.80 5.17 6.96 6.18 3.03
Total .62 % 1.53 % .45 % .57 % .40 %

14

Table of Contents

Item 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Comparison of Balance Sheets at September 30, 2000 and December 31, 1999

Overview

At September 30, 2000, we had total assets of $2.49 billion, stockholders’ equity of $178.1 million and a book value per share of $15.75, compared with total assets of $2.57 billion, stockholder’s equity of $170.2 million and a book value of $15.06 at December 31, 1999. Loans, net of allowances for loan losses, were $1.76 billion at September 30, 2000, a decrease of $102.0 million from $1.86 billion at December 31, 1999, while total deposits were $2.18 billion, a decrease of $102.1 million from $2.28 billion at year-end 1999.

Investment, Mortgage-Backed and Mortgage-Related Securities

Investments in the available for sale category at September 30, 2000 were comprised of U.S. Treasury and mortgage-backed securities (“MBS”) issued by federal agencies totaling $440.3 million as compared to $453.0 million at the end of last year. MBS increased $36.1 million, while commercial paper totaling $39.9 million matured without replacement. Mortgage-related securities, all of which were in the trading category, amounted to $37.1 million at September 30, 2000, a $2.1 million decrease from $39.2 million at December 31, 1999. These trading assets consisted of: (1) a $10.9 million subordinate tranche purchased from our securitization of High LTV Loans in June 1998; (2) $22.5 million in overcollateralization and residual interests in cash flows from securitizations in December 1997 and June 1998; and (3) the excess spread on mortgage servicing rights, which amounted to $3.7 million at year-end 1999.

Loans

Total loans declined by $99.7 million from $1.89 billion at the prior year-end to $1.79 billion at September 30, 2000. Payoffs and other reductions of warehouse lines of credit and residential mortgages more than offset increases in commercial and consumer loans. Warehouse lines of credit decreased $56.0 million, nonconforming mortgages decreased $11.1 million and conventional/government residential loans declined by $71.6 million. High LTV Loans decreased by $11.7 million. Commercial loans increased $33.8 million and home equity loans increased $15.2 million, while commercial real estate loans and business loans secured by real estate increased $7.6 million.

Allowance for Loan Losses

The allowance for loan losses amounted to $30.4 million (1.70% of portfolio loans) at September 30, 2000, compared with $28.2 million (1.49% of portfolio loans) at December 31, 1999. Activity to the allowance in 2000 included provisions for loan losses of $14.4 million less loan charge-offs (net of recoveries) of $12.1 million. Of the net amount of charge-offs, $4.5 million resulted from charging off as uncollectible a portion of several mortgage warehouse lines of credit. The remainder resulted from charge-offs of High LTV, home equity and residential loans deemed uncollectible. At September 30, 2000, the ratio of the allowance for loan losses to nonperforming loans was 56.3% compared to 112.04% at the end of 1999.

Nonperforming Assets

Nonperforming assets amounted to $60.1 million (2.41% of total assets) at September 30, 2000, compared with $31.2 million (1.22% of total assets) at December 31, 1999. Nonperforming loans totaled $54.1 million at September 30, 2000, an increase of $28.9 million from the prior year-end total of $25.2 million. During the third quarter, we placed into nonperforming status a $15.3 million hotel construction loan in Wilmington, Delaware. Construction has been completed on the hotel but the loan has matured and the borrower has not yet been able to obtain the requisite certificate to begin operations. Also, a $13.1 million residential development project in

15

Table of Contents

Naples, Florida was placed in nonperforming status. Compared to the prior year-end, nonperforming mortgage warehouse lines of credit increased $1.6 million, while nonperforming one-to-four family residential mortgage loans and nonconforming first lien loans decreased $3.6 million. ORE balances increased $41,000 to $5.4 million.

Deposits

Total deposits were $2.18 billion at September 30, 2000, a $102.1 million decrease from the prior year-end. Certificates of deposit declined by $74.0 million, checking accounts (including non-retail deposits such as official checks) decreased by $21.1 million, and savings deposits declined by $94.1 million. These reductions were partially offset by an $87.1 million increase in money market deposits. Total deposits from the 24 branches which comprised our 1998 and 1999 branch expansion program have increased from year-end 1999 by $67.0 million to $268.7 million at September 30, 2000.

Holding Company Debt

Holding company debt increased by $1.0 million to $27.6 million at September 30, 2000. Holding company debt at September 30, 2000 consisted of senior debt to SunTrust Bank, N.A. of $6.7 million, term subordinated debt payable to several of our current and former directors of $2.8 million, $3.5 million of unsecured notes from Mr. William R. Hough, the chairman of the holding company’s board (see “Note 7. Related Party Transactions”) and $14.7 million of convertible subordinated debentures. The senior debt requires monthly principal payments of $278,000 plus interest at Libor plus 1.75% and a balloon payment on March 31, 2001 of approximately $5.0 million. As a result of the increase in the Bank’s nonperforming assets as of September 30, 2000, the Company is not in compliance with the Nonperforming Asset Ratio requirement contained in the senior debt loan agreement. The Company has requested, and received, a waiver of this debt covenant from SunTrust Bank, N.A. The unsecured notes from our chairman also mature on March 31, 2001. The term subordinated debt and convertible subordinated debt mature on September 22, 2006 and October 1, 2014, respectively.

Stockholders’ Equity

Stockholders’ equity was $178.1 million at September 30, 2000, or 7.15% of total assets, compared to $170.2 million or 6.63% of total assets at December 31, 1999. At September 30, 2000, the Bank’s tier 1 (leverage) capital ratio was 7.25%, its tier 1 (risk-based) capital ratio was 11.45%, and its total risk-based capital ratio was 12.75%, all in excess of minimum FDIC guidelines for an institution to be considered a “well-capitalized” bank. The same ratios for the Company at September 30, 2000 were 6.37%, 10.05%, and 12.48%, respectively.

16

Table of Contents

Comparison of Results of Operations for the Three Months Ended September 30, 2000 and 1999

Overview

Net income for the third quarter of 2000 was $1.5 million, or $.13 per share (on a diluted basis), compared with $3.1 million, or $.27 per share, on the same basis for the same period in 1999. In the current quarter we recorded a $5.0 million loan loss provision and a $211,000 trading loss on our residual interest in two High LTV Loan securitizations, compared with a $3.9 million loan loss provision and no trading loss in 1999. Net income for 1999 also included $2.4 million in gains from a branch sale and a branch relocation.

Analysis of Net Interest Income (see table on page 18)

Net interest income for the three months ended September 30, 2000 was $21.9 million compared with $23.4 million for the same period last year, a $1.4 million or 6.1% decrease. Included in this decrease was a $552,000 loss of interest income from the increase in nonperforming assets. Interest income was $49.2 million for the third quarter of 2000, an increase of $1.0 million over the same period in 1999. Interest expense increased by $2.4 million from $24.8 million in 1999 to $27.2 million in 2000. Average asset yield increased by 36 basis points from 7.98% for the same period of 1999 to 8.34% for 2000 and included a 26 basis point increase in loan portfolio yield. The average cost of interest-bearing liabilities increased by 57 basis points from 4.48% to 5.05%, primarily due to an increasingly competitive market for deposit accounts and a rising interest rate environment. Net interest margin, which includes the benefit of noninterest bearing funds, decreased from 3.85% for the third quarter of 1999 to 3.73% for the third quarter of 2000.

Noninterest Income

Noninterest income for the three months ended September 30, 2000 was $5.3 million compared with $7.6 million for the same period of 1999, a decrease of $2.3 million. The third quarter of 1999 included $2.4 million in gains from a branch sale and a branch relocation. A trading loss of $211,000 on the residual assets from securitizing High LTV Loans in prior years was recorded in the third quarter this year; no trading loss was recorded for the third quarter last year.

Excluding these items, noninterest income increased by $267,000 from the same period last year. Improvements to noninterest income included a $281,000 increase in service charges on deposit accounts and other deposit-related fee income sources and a $167,000 increase in other loan fee income.

The following table reflects the components of noninterest income for the three months ended September 30, 2000, and 1999 ($ in thousands; unaudited):

                         
For the Three Months Ended September 30,
Increase
2000 1999 (Decrease)
Service charges on deposit accounts $ 2,053 $ 1,772 $ 281
Loan service fees 1,340 1,412 (72 )
Other loan fee income 1,402 1,235 167
Gain on sale of loans, net 73 316 (243 )
Gain on sale of securities, net 148 — 148
Net trading account loss (211 ) — (211 )
Foreign exchange income 8 26 (18 )
Gain on sale of branch deposits — 1,098 (1,098 )
Gain on branch relocation(s) — 1,289 (1,289 )
Other income 477 473 4
Total noninterest income $ 5,290 $ 7,621 $ (2,331 )

17

Table of Contents

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 September 30, 2000 and 1999 ($ in thousands; unaudited):

                                                           
Three Months Ended September 30,
2000 1999
Average Average Average Average
Summary of Average Rates Balance Interest Rate Balance Interest Rate
Interest earning assets:
Loans, net $ 1,827,556 $ 40,723 8.88 % $ 1,880,442 $ 41,089 8.62 %
Investment securities 19,073 293 6.15 37,771 498 5.27
Mortgage-backed securities 394,213 6,635 6.73 271,973 4,232 6.22
Trading securities 37,202 293 3.14 39,974 293 2.93
Interest bearing deposits in banks 6,653 111 6.63 10,934 138 5.01
FHLB stock 13,816 269 7.75 13,926 263 7.48
Federal funds sold 50,921 839 6.45 127,947 1,645 5.03
Total interest-earning assets 2,349,434 49,163 8.34 2,382,967 48,158 7.98
Noninterest earning assets 144,012 165,204
Total assets $ 2,493,446 $ 2,548,171
Interest bearing liabilities:
Interest checking $ 174,949 $ 350 .80 % $ 175,110 $ 333 .76 %
Money market 296,040 3,306 4.44 214,635 2,024 3.74
Savings 60,791 250 1.63 67,822 279 1.63
Passbook Gold 162,970 1,673 4.08 277,739 2,892 4.13
Time deposits 1,374,926 20,410 5.91 1,391,715 18,238 5.20
FHLB advances 2,449 42 6.85 — — —
Subordinated debt 14,691 266 7.23 1,330 27 7.95
Other holding company debt 11,589 301 10.39 30,494 567 7.44
Other borrowings 43,682 619 5.63 37,450 435 4.65
Total interest-bearing liabilities 2,142,087 27,217 5.05 2,196,295 24,795 4.48
Noninterest bearing liabilities 179,304 180,115
Stockholders’ equity 172,055 171,761
Total liabilities and equity $ 2,493,446 $ 2,548,171
Net interest income/net interest spread $ 21,946 3.29 % $ 23,363 3.50 %
Net interest margin 3.73 % 3.85 %
                             
Increase (Decrease) Due to
Changes in Net Interest Income Volume Rate Total
Interest earning assets:
Loans, net $ (1,865 ) $ 1,499 $ (366 )
Investment securities (231 ) 26 (205 )
Mortgage-backed securities 2,066 337 2,403
Trading securities (21 ) 21 —
Interest bearing deposits in banks (64 ) 37 (27 )
FHLB stock (3 ) 9 6
Federal funds sold (1,181 ) 375 (806 )
Total change in interest income (1,299 ) 2,304 1,005
Interest bearing liabilities:
Interest checking (1 ) 18 17
Money market 857 425 1,282
Savings (29 ) — (29 )
Passbook Gold (1,186 ) (33 ) (1,219 )
Time deposits 144 2,028 2,172
FHLB advances 42 — 42
Subordinated debt 242 (3 ) 239
Other holding company debt (432 ) 166 (266 )
Other borrowings 85 99 184
Total change in interest expense (278 ) 2,700 2,422
Increase (decrease) in net interest income $ (1,021 ) $ (396 ) $ (1,417 )

18

Table of Contents

Noninterest Expense

Operating expenses for the third quarter of 2000 were $18.0 million compared with $20.6 million for the same period last year, a decrease of $2.7 million or 12.9%. This improvement is primarily due to a $472,000 decrease in salary and benefits expenses, a $333,000 decrease in net occupancy expense and a $187,000 decrease in postage and supplies expense, resulting largely from cost savings in the 1999 closing of the Bank’s mortgage banking division and other cost-saving initiatives implemented in 1999 and 2000. Total noninterest expenses, which includes operating expenses, were $19.0 million for the three months ended September 30, 2000 compared with $21.7 million for the same period last year.

The following table reflects the components of noninterest expense for the three months ended September 30, 2000 and 1999 ($ in thousands; unaudited):

                         
For the Three Months Ended September 30,
Increase
2000 1999 (Decrease)
Salaries and benefits $ 9,307 $ 9,779 $ (472 )
Net occupancy expense 3,935 4,268 (333 )
Advertising and marketing 91 222 (131 )
Data processing fees and services 1,161 1,295 (134 )
FDIC and state assessments 183 479 (296 )
Telephone expense 347 406 (59 )
Postage and supplies 734 921 (187 )
Legal and professional 197 445 (248 )
Other operating expense 1,996 2,800 (804 )
Total operating expenses 17,951 20,615 (2,664 )
ORE expense, net of ORE income 9 76 (67 )
Provision for losses on ORE 75 — 75
Amortization of premium on deposits and goodwill 964 967 (3 )
Total noninterest expense $ 18,999 $ 21,658 $ (2,659 )

Comparison of Results of Operations for the Nine Months Ended September 30, 2000 and 1999

Overview

Net income for the first nine months of 2000 was $4.9 million, or $.43 per share (on a diluted basis), compared with net income of $8.9 million, or $.79 per share, on the same basis for the same period in 1999. For the first nine months of the current year, we recorded a $14.4 million loan loss provision as compared with $6.8 million for the same period last year. Year-to-date, we have recorded a $1.0 million trading loss on our residual interest in two High LTV Loan securitizations, compared with a $245,000 trading loss on those residual interests for the first nine months of 1999.

Analysis of Net Interest Income (see table on page 20)

Net interest income for the nine months ended September 30, 2000 was $69.6 million compared with $68.5 million for the same period last year, a $1.1 million or a 1.5% increase. Interest income was $149.6 million for the first nine months of 2000, an increase of $7.8 million over the same period in 1999. Interest expense increased by $6.7 million. Average asset yield increased by 24 basis points from 8.03% for the same period in 1999 to 8.27% for 2000. The average cost of interest-bearing liabilities increased by 32 basis points from 4.53% to 4.85%. Net interest margin, which includes the benefit of noninterest bearing funds, decreased by 3 basis points from 3.85% for 1999 to 3.82% for 2000.

19

Table of Contents

The following table summarizes the average yields earned on interest-earning assets and the average rates paid on interest-bearing liabilities for the nine months ended September 30, 2000 and 1999 ($ in thousands; unaudited):

                                                   
Nine Months Ended September 30,
2000 1999
Average Average Average Average
Summary of Average Rates Balance Interest Rate Balance Interest Rate
Interest earning assets:
Loans, net $ 1,864,840 $ 124,207 8.84 % $ 1,930,517 $ 125,122 8.59 %
Investment securities 21,431 947 5.89 39,177 1,524 5.20
Mortgage-backed securities 384,884 19,092 6.61 177,418 8,151 6.13
Trading securities 38,218 878 3.06 62,838 1,932 4.10
Commercial paper 2,507 112 5.87 — — —
Interest bearing deposits in banks 5,907 294 6.64 9,706 334 4.61
FHLB stock 13,816 810 7.83 13,108 730 7.45
Federal funds sold 71,284 3,256 6.00 109,856 4,009 4.81
Total interest-earning assets 2,402,887 149,596 8.27 2,342,620 141,802 8.03
Noninterest earning assets 147,731 169,208
Total assets $ 2,550,618 $ 2,511,828
Interest bearing liabilities:
Interest checking $ 181,530 $ 1,058 .78 % $ 177,951 $ 1,017 .76 %
Money market 275,079 8,886 4.31 194,755 5,463 3.75
Savings 61,749 759 1.64 70,427 881 1.67
Passbook Gold 189,103 5,789 4.09 285,644 8,924 4.18
Time deposits 1,426,762 60,089 5.63 1,356,837 53,754 5.30
FHLB advances 1,332 68 6.85 4,231 157 4.95
Subordinated debt 14,688 797 7.23 443 27 7.95
Other holding company debt 11,334 833 9.80 31,491 1,668 7.06
Other borrowings 41,743 1,689 5.40 41,113 1,362 4.42
Total interest-bearing liabilities 2,203,320 79,968 4.85 2,162,892 73,253 4.53
Noninterest bearing liabilities 176,678 182,474
Stockholders’ equity 170,620 166,462
Total liabilities and equity $ 2,550,618 $ 2,511,828
Net interest income/net interest spread $ 69,628 3.42 % $ 68,549 3.50 %
Net interest margin 3.82 % 3.85 %
                             
Increase (Decrease) Due to
Changes in Net Interest Income Volume Rate Total
Interest earning assets:
Loans, net $ (4,603 ) $ 3,688 $ (915 )
Investment securities (629 ) 52 (577 )
Mortgage-backed securities 10,235 706 10,941
Trading securities (573 ) (481 ) (1,054 )
Commercial paper 112 — 112
Interest bearing deposits in banks (156 ) 116 (40 )
FHLB stock 42 38 80
Federal funds sold (1,599 ) 846 (753 )
Total change in interest income 2,829 4,965 7,794
Interest bearing liabilities:
Interest checking 22 19 41
Money market 2,513 910 3,423
Savings (105 ) (17 ) (122 )
Passbook Gold (2,950 ) (185 ) (3,135 )
Time deposits 4,066 2,269 6,335
FHLB advances (157 ) 68 (89 )
Subordinated debt 773 (3 ) 770
Other holding company debt (1,319 ) 484 (835 )
Other borrowings 42 285 327
Total change in interest expense 2,885 3,830 6,715
Increase (decrease) in net interest income $ (56 ) $ 1,135 $ 1,079

20

Table of Contents

Noninterest Income

Noninterest income for the nine months ended September 30, 2000 was $14.4 million compared with $20.8 million for the same period in 1999, a decrease of $6.4 million. Noninterest income for 1999 included gains from a branch sale and branch relocation of $2.4 million and gains on sale of loans of $3.5 million. Further, a $901,000 increase in trading losses on High LTV residuals reduced noninterest income.

Excluding these items, noninterest income increased by $384,000. Service charges on deposit accounts and other deposit-related fee income sources increased by $1.2 million, while other loan fee and loan service fees income decreased $270,000.

The following table reflects the components of noninterest income for the nine months ended September 30, 2000, and 1999 ($ in thousands; unaudited):

                         
For the Nine Months Ended September 30,
Increase
2000 1999 (Decrease)
Service charges on deposit accounts $ 5,943 $ 4,735 $ 1,208
Loan service fees 4,552 5,014 (462 )
Other loan fee income 3,380 3,188 192
Gain on sale of loans, net 93 3,574 (3,481 )
Gain on sale of securities, net 146 — 146
Net trading account loss (1,146 ) (245 ) (901 )
Foreign exchange income 60 83 (23 )
Gain on sale of branch deposits — 1,098 (1,098 )
Gain on branch relocation(s) — 1,289 (1,289 )
Other income 1,371 2,048 (677 )
Total noninterest income $ 14,399 $ 20,784 $ (6,385 )

Noninterest Expense

Operating expenses for the first nine months of 2000 were $55.9 million compared with $63.6 million for the same period last year, a decrease of $7.7 million. Costs associated with the now-discontinued mortgage banking operation accounted for $6.8 million of last year’s operating expenses. Total noninterest expenses, which include operating expense, were $59.2 million for the nine months ended September 30, 2000 compared with $66.2 million for the same period last year.

21

Table of Contents

The following table reflects the components of noninterest expense for the nine months ended September 30, 2000 and 1999 ($ in thousands; unaudited):

                           
For the Nine Months Ended September 30,
Increase
2000 1999 (Decrease)
Salaries and benefits $ 27,822 $ 32,211 $ (4,389 )
Net occupancy expense 11,978 11,866 112
Advertising and marketing 880 815 65
Data processing fees and services 3,551 3,489 62
FDIC and state assessments 792 1,113 (321 )
Telephone expense 1,056 1,412 (356 )
Postage and supplies 2,147 3,311 (1,164 )
Legal and professional 1,083 1,219 (136 )
Other operating expense 6,598 8,212 (1,614 )
Total operating expenses 55,907 63,648 (7,741 )
ORE expense, net of ORE income 355 (412 ) 767
Provision for losses on ORE 75 — 75
Amortization of premium on deposits and goodwill 2,894 2,945 (51 )
Total noninterest expense $ 59,231 $ 66,181 $ (6,950 )

Part II.      Other Information

Item 1.      Legal Proceedings

In November 1999, 18 former shareholders of Bankers Savings Bank, F.S.B. (“BSB”) filed a claim against us in the Miami-Dade County, Florida, Circuit Court that alleges we had knowledge of and failed to disclose to them, to BSB and to their shareholders, prior to acquiring BSB in November 1998, the loss incurred for the fourth quarter of 1998 which resulted from the now-discontinued mortgage banking activities. The claim alleges breach of contract, fraud, negligent misrepresentation and violation of the Florida Securities and Investor Protection Act. The plaintiffs have alleged damages generally in the amount of $3.4 million. This matter has been scheduled for trial in January 2001. We believe the plaintiffs’ claims are without merit and will continue to defend such action vigorously.

Previously, we reported on a matter involving the former High LTV Loan manager of the now-discontinued mortgage banking unit that included causes of action for indemnity and breach of fiduciary duty. The former manager asserted a counterclaim, alleging unpaid compensation. On October 18, 2000 this matter was settled. The settlement amount was not material.

We are subject to various legal proceedings in the ordinary course of business. Based on information presently available, we do not believe that the ultimate outcome in such proceedings, in the aggregate, would have a material adverse effect on our financial position or results of operation.

22

Table of Contents

Item 6. Exhibits and Reports on Form 8-K
 
a. Exhibits:
27.0   Financial Data Schedule (for SEC use only)
 
b. The following reports on Form 8-K filed year-to-date, are hereby incorporated by reference:
 
1. Report on Form 8-K dated February 9, 2000 – Announcement of net income of $10.7 million or $.95 per share on a diluted basis for year-ended December 31, 1999.
 
2. Report on Form 8-K dated March 20, 2000 – Announcement of the appointment of Mr. William R. Klich as President and Chief Executive Officer. Separately, disclosure of operational deficiencies in the warehouse lending department.
 
3. Report on Form 8-K dated April 18, 2000 – Announcement of net income of $1.6 million or $.15 per share on a diluted basis for the first quarter of 2000.

23



© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission