PROSPECTUS
2,000,000 SHARES
REPUBLIC BANKING CORPORATION OF FLORIDA
COMMON STOCK
----------------
Of the 2,000,000 shares of Common Stock (the "Common Stock") offered
hereby (the "Offering"), 933,270 shares are being sold by Republic Banking
Corporation of Florida (the "Company") and 1,066,730 shares are being sold by
certain shareholders of the Company (the "Selling Shareholders"). The Company
will not receive any proceeds from the sale of shares by the Selling
Shareholders. Prior to the Offering, there has been no established public
market for the Common Stock and there can be no assurance that any active
trading market will develop. See "Underwriting." The Company's Common Stock has
been approved for quotation on the Nasdaq National Market ("Nasdaq") under the
symbol "RBCF."
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.
SEE "RISK FACTORS" ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE PROCEEDS PROCEEDS TO
TO UNDERWRITING TO SELLING
PUBLIC DISCOUNTS (1) COMPANY(2) SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share ...... $ 15.00 $ 1.05 $ 13.95 $ 13.95
Total(3) ...... $30,000,000 $2,100,000 $13,019,116.50 $14,880,883.50
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including, in the case of the
Company, liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(2) Before deducting Offering expenses payable by the Company, estimated at
$800,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
300,000 additional shares of Common Stock, on the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be approximately $34,500,000,
$2,415,000 and $17,204,116.50, respectively. See "Underwriting."
The shares of Common Stock to be distributed to the public are offered by
the Underwriters, subject to prior sale, when, as and if received and accepted
by the Underwriters, subject to approval of certain legal matters by counsel
for the Underwriters and certain other conditions. The Underwriters reserve the
right to withdraw or cancel such offer and to reject orders in whole or in
part. It is expected that delivery of the certificates for the shares of Common
Stock will be made against payment thereon in New York, New York on or about
February 18, 1998.
KEEFE, BRUYETTE & WOODS, INC. CIBC OPPENHEIMER
THE DATE OF THIS PROSPECTUS IS FEBRUARY 11, 1998
<PAGE>
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE MARKET PRICE OF
THE COMMON STOCK, THE PURCHASE OF COMMON STOCK TO COVER SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL SHARE AND PER SHARE INFORMATION HAS
BEEN ADJUSTED TO GIVE EFFECT TO A 2.5 FOR 1 STOCK SPLIT WHICH WAS EFFECTED IN
JANUARY 1998 (THE "STOCK SPLIT"). A REORGANIZATION OF THE CAPITAL STRUCTURE OF
THE COMPANY, WAS COMPLETED IN NOVEMBER 1997 (THE "REORGANIZATION") AND
CONSISTED OF THE ISSUANCE OF 1,220,225 SHARES OF COMMON STOCK (POST-STOCK
SPLIT) FOR SHARES IN THE COMPANY'S THEN 93.1%-OWNED SUBSIDIARY, REPUBLIC
NATIONAL BANK OF MIAMI (THE "BANK"). THE EFFECT OF THE REORGANIZATION IS
REFLECTED ONLY IN PRO-FORMA INFORMATION CONTAINED IN THIS PROSPECTUS AND AS
OTHERWISE INDICATED HEREIN. REFERENCES IN THIS PROSPECTUS TO THE "COMPANY"
INCLUDE REPUBLIC BANKING CORPORATION OF FLORIDA ("BANCORP"), AND ITS NOW
99.1%-OWNED SUBSIDIARY, THE BANK. UNLESS OTHERWISE INDICATED, ALL INFORMATION
IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT
EXERCISED.
THE COMPANY
GENERAL
Bancorp was incorporated as a business corporation under the laws of the
State of Florida in 1970 to serve as a holding company for the Bank. The Bank
was chartered in 1965 as a national bank with one banking office in Miami,
Florida. Since its formation, Bancorp has derived substantially all of its
revenues and income from the operations of the Bank. The Company's total
assets, total loans, total deposits and total shareholders' equity increased
each year from 1994 through 1996 over the prior year. At September 30, 1997,
the Company had total assets of $1,517.5 million, total loans of $953.1
million, total deposits of $1,298.5 million and total shareholders' equity of
$129.2 million. Total loans and total deposits decreased approximately $20.6
million and $21.6 million, respectively, from December 31, 1996 to September
30, 1997. As of March 31, 1997, the Company was the third largest independent
bank holding company in terms of deposits with headquarters in the State of
Florida.
The Company has reported consistent growth in earnings since 1993. The
Company's earnings have increased from $11.7 million in 1993 to $18.0 million
in 1996. During this period, the mean of the Company's return on average assets
was 1.26% and the mean of the Company's return on average equity was 15.24%.
For the nine months ended September 30, 1997, the Company earned $14.1
million, compared to $12.9 million for the nine months ended September 30,
1996. The 1997 results represent an annualized return on average assets of
1.23% and an annualized return on average equity of 15.42%.
MARKET POSITION
The Bank, since its formation, has acted as a community bank, serving the
needs of businesses and individuals located in Miami-Dade County, Florida. The
Company believes that Miami-Dade County, Florida is an attractive market for
operating a community bank. Miami-Dade County has a population of more than 2
million, representing more than 14% of the population of the State of Florida
and accounting for approximately 19.1% of domestic deposits in the State of
Florida. Miami-Dade County ranks first in population and first in deposits in
the State of Florida.
Historically, the Bank has catered primarily to the growing Cuban
population, which has become a major economic force in Miami-Dade County,
Florida, and to other Hispanic populations in Miami-Dade County, Florida. These
populations remain the core of the Bank's client base. In 1996, Hispanics
represented a majority of the population of Miami-Dade County, Florida.
Management believes that approximately 90% of the Company's customers are
Hispanic.
Although 94% of the Bank's branch deposits and 25 of its branches are
located in Miami-Dade County, Florida, the Company has recently established two
branches in adjoining Broward County,
3
<PAGE>
Florida. The Company intends to continue its expansion in Broward County,
Florida, and in future years, in adjoining Palm Beach County, Florida. Broward
and Palm Beach Counties, Florida, are two of the fastest-growing counties in
the United States. They rank as the counties with (i) the second and third
largest population bases in Florida, respectively, (ii) the second and third
largest banking markets in Florida, respectively, measured by total deposits,
and (iii) the eighth highest and the highest per capita income in Florida,
respectively.
BUSINESS STRATEGY
The consolidation of financial institutions in south Florida has reduced
the number of locally-headquartered commercial banks. The Company believes that
this has created a niche for the Bank as a community bank which focuses on
establishing long-term relationships with its customers and in providing
responsive and personalized service to its customers. The Company's community
banking style emphasizes local decision-making ability by its management and
accessibility of its senior management to customers. The Company also attempts
to make decisions for customers quickly and to modify its products, if
appropriate, to match the needs of its customers. The Company believes that
these attributes allow the Company to compete effectively against larger,
regional financial institutions operating in south Florida. In addition, the
Company believes that the Bank's larger capital base, larger branch network and
broader product mix enable it to compete effectively against smaller community
banks operating in south Florida.
The Company's location in south Florida, which is also the location of
many businesses and individuals who engage in substantial trade with Latin
America and the Caribbean, and the Company's relationships with the Hispanic
community in Miami-Dade County, Florida, have enabled the Company to be active
in trade financing activities and in private banking operations with customers
in Latin America and the Caribbean. The Company derives a significant portion
of its deposits, loans and fee income from these customers.
CONTROLLING SHAREHOLDERS AND MANAGEMENT
The Company's largest shareholder is Rebank Netherlands Antilles N.V.
("Rebank"), which is owned by Roberto Isaias, Estefano Isaias and William
Isaias, three brothers who also own a major Ecuadorian bank. Roberto, Estefano
and William Isaias directly or indirectly own, in the aggregate, 13,190,005
shares or 65.6% of the issued and outstanding Common Stock after the
Reorganization and prior to this Offering and will own 59.6% of the issued and
outstanding Common Stock after this Offering, as Rebank is selling 647,320
shares of Common Stock in this Offering. See "Principal and Selling
Shareholders." The Isaias family acquired control of the Company in 1970.
Roberto Isaias is the Chairman of the Board of Bancorp and has served in
that capacity since 1982. He has been a director of Bancorp since 1970. Oscar
Bustillo, Jr., the Chief Executive Officer and President of Bancorp and
Chairman of the Board, Chief Executive Officer and President of the Bank,
joined the Bank in 1985. In 1989, Mr. Bustillo became President of the Bank and
in 1994 he became President of Bancorp. The Company has recently experienced
personnel losses that were heavier than historical experience, including an
Executive Vice President and four Senior Vice Presidents, although the Company
has replaced all of the officers and other personnel that has left. The Company
believes that this turnover was due to the public disclosure that it was
involved in merger negotiations that have since terminated, the resulting
uncertainties for employees and competitors' attempts to take advantage of
these uncertainties. See "Risk Factors--Recent Personnel Losses" and "The
Company--Barnett Negotiations." The Company's President and six Executive Vice
Presidents have an aggregate of nearly 200 years of banking experience. Its
three Executive Vice Presidents involved in lending have an aggregate of 65
years of lending experience. Its Executive Vice President--Retail Banking has
28 years of experience in the industry. The Company believes that this
combination of consistent ownership and highly experienced local management
gives the Company a competitive advantage in operating a community banking
institution.
4
<PAGE>
LENDING ACTIVITIES
The Bank's lending activities consist of community bank lending activities
and international lending activities.
The Bank, in its community bank lending activities, initially served as a
commercial lender to small and medium-sized businesses and as a commercial real
estate lender. Construction loans and consumer loans have also been part of the
Bank's loan portfolio since it commenced business. The Bank has continued to
add a variety of other loan products. Today, the bank has a diversified loan
portfolio. At September 30, 1997, the Company's community bank lending
activities consisted primarily of commercial loans ($289.3 million), commercial
real estate and construction loans ($303.4 million), single-family residential
mortgage loans ($150.1 million) and consumer loans, including equity lines,
($82.6 million).
The Company's international lending activities are leveraged off
historical relationships the Company has formed with correspondent financial
institutions in Latin America and the Caribbean. At September 30, 1997, the
Company's total international lending activities, including foreign bank
acceptances, consisted of $106.7 million of loans.
The Company's international lending activities primarily include (i) trade
financing for correspondent financial institutions in Latin America and the
Caribbean, including pre-export financing, advances on letters of credit and
bankers' acceptances, (ii) trade financing for local commercial customers who
are primarily importing from or exporting to Latin America or the Caribbean,
(iii) the term financing of the export of United States goods and services
guaranteed by the EximBank and (iv) other correspondent banking services. Trade
finance for correspondent financial institutions comprises the largest segment
of the Company's international lending activities and represents 7.62% of the
Company's total lending activities. The yield on such loans is lower than the
average yield for the Company's loan portfolio, but such loans are floating
rate, have short term maturities, and historically have had low credit losses.
Accordingly, the Company considers this to be an attractive line of business.
Management also believes that the Company has a significant opportunity to
expand its EximBank guaranteed financing business.
DEPOSITS AND BRANCH OFFICES
Lending and investment activities are funded from a strong deposit base,
which consisted of over 100,000 deposit accounts at September 30, 1997.
Approximately 43.40% of the amount of the Company's deposits at September 30,
1997 consisted of checking and savings accounts.
The Company primarily attracts deposits through a network of 27 branches,
25 of which are located in Miami-Dade County, Florida and two of which are
located in Broward County, Florida. The Company built its strong core deposit
base through de novo expansion, as well as through acquisitions. From 1988 to
1991, the Company acquired branch locations and deposits from four failed
financial institutions being liquidated by the Federal Deposit Insurance
Corporation (the "FDIC") and the Resolution Trust Corporation (the "RTC"). In
1995, the Company expanded its retail offices in Miami-Dade County as well as
entered into Broward County, Florida with the acquisition of Plaza Bank of
Miami.
In addition to its branch deposit base, the Company obtains significant
deposits as a result of its relationships throughout Latin America and the
Caribbean and from foreigners who travel to south Florida. Such deposits
provide the Company with an additional funding source at reasonable costs,
require lower overhead expenses than domestic deposit gathering activities and
provide the Company with additional fee income through service charges. At
September 30, 1997, $331 million of the Company's deposits were from foreigners
or correspondents, $169 million of which were attributable to the private
banking department. The Company intends to continue to maintain this deposit
base by providing quality services to its private banking customers and by
maintaining relationships in Latin America and the Caribbean.
5
<PAGE>
GROWTH STRATEGY
The Company also believes that consolidation of the south Florida banking
industry should provide it with the opportunity to service additional customers
who prefer to conduct business with a local, community-oriented financial
institution, such as the Company, and that the Company can take advantage of
the opportunities presented by the growing populations in Miami-Dade, Broward
and Palm Beach Counties, Florida.
The Company's overall business strategy is to (i) continue to serve the
local community by increasing lending activity in commercial, commercial real
estate, construction and single-family residential loans, (ii) increase
international trade services, (iii) take advantage of regional bank
consolidation by pursuing customers wishing to do business with a local
community bank and (iv) expand its operations in south Florida.
Such expansion could be through the formation of de novo branches or
through strategic acquisitions of financial institutions or banking assets in
those locations that management believes would complement and help grow the
Company's existing business. Such acquisitions may be structured as
stock-for-stock exchanges with other institutions. The Company believes that
having publicly traded stock will facilitate such acquisitions and therefore
enhance the ability of the Company to expand through acquisitions. See "Risk
Factors--Ability of the Company to Continue Its Growth," "--Foreign Ownership
of United States Banks" and "--Controlling Ownership Interest and Possible
Effects."
HEADQUARTERS
The Company's headquarters are located at 2800 Ponce de Leon Boulevard,
Coral Gables, Florida 33134, and its telephone number is (305) 441-7300.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company ...... 933,270 shares
Common Stock offered by the Selling
Shareholders ........................... 1,066,730 shares
Common Stock to be outstanding after
the Offering ........................... 21,026,399 shares(1)(2)
Use of Proceeds ........................... The estimated net proceeds of the Offering to the
Company (approximately $12.2 million) will be
invested in the capital of the Bank to support future
growth in its business and for working capital and
other general corporate purposes. See "Use of
Proceeds."
Risk Factors .............................. See "Risk Factors" for a discussion of certain factors
that should be considered by each prospective
investor.
Proposed Nasdaq Symbol .................. "RBCF"
</TABLE>
- ----------------
(1) Does not include 1,000,000 shares of Common Stock reserved for issuance
upon the exercise of options under the Company's 1998 Stock Option Plan
(the "Plan") pursuant to which options to purchase 500,000 shares of
Common Stock will be issued and outstanding upon consummation of this
Offering at an exercise price equal to the initial public offering price.
See "Management--1998 Stock Option Plan."
(2) Upon consummation of this Offering, 71.7% of the issued and outstanding
shares of Common Stock of the Company will be held by the Company's
executive officers, directors and beneficial owners of more than 5% of the
issued and outstanding shares of Common Stock.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following Summary Consolidated Financial Data of the Company is
derived from the Selected Consolidated Financial Data appearing elsewhere in
this Prospectus, and should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto (the "Consolidated
Financial Statements"), the information contained in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and other
financial information included elsewhere in this Prospectus. The selected
historical consolidated financial data as of and for the four years ended
December 31, 1996 are derived from the Company's Consolidated Financial
Statements which have been audited by Price Waterhouse LLP, independent
certified public accountants. The selected historical consolidated financial
data as of and for the year ended December 31, 1992 are derived from the
Company's Consolidated Financial Statements which have been audited by other
independent certified public accountants. The selected historical consolidated
financial data as of and for the nine months ended September 30, 1997 and
September 30, 1996 have not been audited but, in the opinion of management,
contain all adjustments (consisting of normal recurring adjustments) necessary
for a fair statement of the results for the interim periods. The results of
operations for the nine months ended September 30, 1997 are not necessarily
indicative of the results of operations that may be expected for the year ended
December 31, 1997, or for any future periods.
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Interest income .................................... $ 85,886 $ 77,323
Interest expense ................................. 38,039 31,762
-------- --------
Net interest income .............................. 47,847 45,561
Provision for loan losses ........................ 3,604 1,778
-------- --------
Net interest income after provision for loan losses 44,243 43,783
Noninterest income ................................. 17,963 17,856
Noninterest expenses .............................. 39,799 40,345
-------- --------
Net income before taxes ........................... 22,407 21,294
Provision for income tax expense .................. 7,243 7,468
Cumulative effect of change in accounting principle -- --
Minority interest ................................. 1,058 961
-------- --------
Net income ....................................... $ 14,106 $ 12,865
======== ========
PRO FORMA INCOME STATEMENT DATA(1):
Net income before taxes ........................... $ 22,238
Provision for income tax expense .................. 7,243
Minority interest ................................. 144
--------
Net income ....................................... $ 14,851
========
PER SHARE DATA(2):
Net income ....................................... $ 0.75 $ 0.68
Book value ....................................... 6.84 6.31
Tangible book value .............................. 6.39 5.81
Cash dividends .................................... 0.52 0.50
Dividends payout ratio ........................... 69.33% 73.53%
Weighted average common and common equivalent shares
outstanding (in thousands) ........................ 18,873 18,873
PRO FORMA PER SHARE DATA(1):
Net income ....................................... $ 0.74
Book value ....................................... 7.07
Cash dividends .................................... 0.52
Dividends payout ratio ........................... 70.27%
Weighted average common and common equivalent shares
outstanding (in thousands) ........................ 20,093
<CAPTION>
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------ ------------ ------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income .................................... $ 104,134 $ 95,056 $ 76,964 $ 75,531 $ 83,737
Interest expense ................................. 43,249 38,411 24,322 21,795 31,984
--------- -------- -------- --------- --------
Net interest income .............................. 60,885 56,645 52,642 53,736 51,753
Provision for loan losses ........................ 2,381 890 2,500 2,450 3,205
--------- -------- -------- --------- --------
Net interest income after provision for loan losses 58,504 55,755 50,142 51,286 48,548
Noninterest income ................................. 24,231 22,458 20,289 17,046 17,886
Noninterest expenses .............................. 53,017 50,021 46,456 50,379 47,822
--------- -------- -------- --------- --------
Net income before taxes ........................... 29,718 28,192 23,975 17,953 18,612
Provision for income tax expense .................. 10,324 9,103 7,687 6,181 4,983
Cumulative effect of change in accounting principle -- -- -- 838 --
Minority interest ................................. 1,350 1,330 1,136 881 949
--------- -------- -------- --------- --------
Net income ....................................... $ 18,044 $ 17,759 $ 15,152 $ 11,729 $ 12,680
========= ======== ======== ========= ========
PRO FORMA INCOME STATEMENT DATA(1):
Net income before taxes ........................... $ 29,492
Provision for income tax expense .................. 10,324
Minority interest ................................. 184
---------
Net income ....................................... $ 18,984
=========
PER SHARE DATA(2):
Net income ....................................... $ 0.96 $ 0.94 $ 0.80 $ 0.62 $ 0.67
Book value ....................................... 6.61 6.15 5.32 5.06 4.84
Tangible book value .............................. 6.12 5.62 5.25 4.97 4.73
Cash dividends .................................... 0.50 0.25 0.42 0.40 0.35
Dividends payout ratio ........................... 52.08% 26.60% 52.50% 64.52% 52.24%
Weighted average common and common equivalent shares
outstanding (in thousands) ........................ 18,873 18,873 18,873 18,873 18,873
PRO FORMA PER SHARE DATA(1):
Net income ....................................... $ 0.94
Book value .......................................
Cash dividends .................................... 0.50
Dividends payout ratio ........................... 53.19%
Weighted average common and common equivalent shares
outstanding (in thousands) ........................ 20,093
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1997 1996
--------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets .......................................... $ 1,517,529 $ 1,451,676
Securities ............................................. 384,988 346,676
Loans ................................................... 953,052 909,202
Allowance for loan losses .............................. 12,209 11,770
Total deposits .......................................... 1,298,535 1,253,964
Total shareholders' equity .............................. 129,150 119,123
PRO FORMA BALANCE SHEET DATA(1):
Total assets .......................................... $ 1,522,044
Total shareholders' equity .............................. 141,989
AVERAGE BALANCE SHEET DATA:
Total assets .......................................... $ 1,533,553 $ 1,387,477
Securities ............................................. 330,095 324,240
Loans ................................................... 983,091 851,834
Allowance for loan losses .............................. 12,272 11,823
Total deposits .......................................... 1,326,907 1,208,298
Total shareholders' equity .............................. 122,346 114,714
PERFORMANCE RATIOS(3):
Return on average assets .............................. 1.23% 1.24%
Return on average equity .............................. 15.42 14.98
Net interest margin .................................... 4.57 4.81
Efficiency ratio(4) .................................... 60.48 63.62
ASSET QUALITY RATIOS(5):
Nonperforming assets to total loans and other real
estate ................................................ 1.82% 0.60%
Net loan charge-offs to average loans(3) ............... 0.40 0.22
Allowance for loan losses to total loans ............... 1.28 1.29
Allowance for loan losses to nonperforming loans(6) 79.70 504.93
CAPITAL RATIOS(5):
Leverage ratio .......................................... 8.52% 8.27%
Average shareholders' equity to average total assets . 7.98 8.27
Tier 1 risk-based capital ratio ........................ 14.14 14.06
Total risk-based capital ratio ........................ 15.39 15.31
<CAPTION>
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1996 1995 1994 1993
---------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets .......................................... $ 1,511,951 $ 1,324,968 $ 1,172,209 $ 1,106,641
Securities ............................................. 331,204 320,084 359,545 284,611
Loans ................................................... 973,640 821,090 667,091 641,413
Allowance for loan losses .............................. 11,578 11,411 11,680 11,563
Total deposits .......................................... 1,320,126 1,156,324 1,029,116 967,615
Total shareholders' equity .............................. 124,693 116,140 100,447 95,509
PRO FORMA BALANCE SHEET DATA(1):
Total assets ..........................................
Total shareholders' equity ..............................
AVERAGE BALANCE SHEET DATA:
Total assets .......................................... $ 1,405,517 $ 1,261,146 $ 1,136,191 $ 1,148,513
Securities ............................................. 327,425 348,438 328,504 342,779
Loans ................................................... 872,094 735,318 635,555 627,929
Allowance for loan losses .............................. 11,793 11,893 11,968 10,922
Total deposits .......................................... 1,221,350 1,105,382 1,000,787 1,011,508
Total shareholders' equity .............................. 116,493 106,141 95,250 91,393
PERFORMANCE RATIOS(3):
Return on average assets .............................. 1.28% 1.41% 1.33% 1.02%
Return on average equity .............................. 15.49 16.73 15.91 12.83
Net interest margin .................................... 4.75 4.91 5.06 5.14
Efficiency ratio(4) .................................... 62.29 63.09 63.70 71.17
ASSET QUALITY RATIOS(5):
Nonperforming assets to total loans and other real
estate ................................................ 0.55% 0.96% 1.21% 2.19%
Net loan charge-offs to average loans(3) ............... 0.25 0.25 0.37 0.14
Allowance for loan losses to total loans ............... 1.19 1.39 1.75 1.80
Allowance for loan losses to nonperforming loans(6) 395.96 244.09 230.74 112.46
CAPITAL RATIOS(5):
Leverage ratio .......................................... 8.52% 8.78% 9.32% 8.82%
Average shareholders' equity to average total assets . 8.29 8.42 8.38 7.96
Tier 1 risk-based capital ratio ........................ 14.44 13.75 15.63 16.13
Total risk-based capital ratio ........................ 15.69 15.00 16.88 17.38
<CAPTION>
1992
---------------
<S> <C>
BALANCE SHEET DATA:
Total assets .......................................... $ 1,193,649
Securities ............................................. 343,900
Loans ................................................... 678,920
Allowance for loan losses .............................. 10,022
Total deposits .......................................... 1,062,368
Total shareholders' equity .............................. 91,329
PRO FORMA BALANCE SHEET DATA(1):
Total assets ..........................................
Total shareholders' equity ..............................
AVERAGE BALANCE SHEET DATA:
Total assets .......................................... $ 1,195,731
Securities ............................................. 372,866
Loans ................................................... 613,459
Allowance for loan losses .............................. 9,116
Total deposits .......................................... 1,068,858
Total shareholders' equity .............................. 84,479
PERFORMANCE RATIOS(3):
Return on average assets .............................. 1.06%
Return on average equity .............................. 15.01
Net interest margin .................................... 4.78
Efficiency ratio(4) .................................... 68.67
ASSET QUALITY RATIOS(5):
Nonperforming assets to total loans and other real
estate ................................................ 4.62%
Net loan charge-offs to average loans(3) ............... 0.27
Allowance for loan losses to total loans ............... 1.48
Allowance for loan losses to nonperforming loans(6) 64.20
CAPITAL RATIOS(5):
Leverage ratio .......................................... 8.03%
Average shareholders' equity to average total assets . 7.07
Tier 1 risk-based capital ratio ........................ 14.46
Total risk-based capital ratio ........................ 15.71
</TABLE>
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(1) Pro forma balance sheet information gives effect to the Reorganization as
if it occurred on September 30, 1997. Pro forma income statement
information gives effect to the goodwill amortization and change in
minority interest as a result of the Reorganization as if the
Reorganization occurred on January 1, 1996.
(2) Per share data is based upon the weighted average number of common and
common equivalent shares outstanding during the period, adjusted for a 20%
stock dividend in 1996 and for the Stock Split. Under FASB No. 128, the
calculation of basic and fully diluted earnings per share would be the
same for all periods presented.
(3) All interim periods have been annualized.
(4) Calculated by dividing total noninterest expenses by net interest income
plus noninterest income, excluding securities gains and losses.
(5) At period end, except for "Net loan charge-offs to average loans" and
"Average shareholders' equity to average total assets."
(6) Nonperforming loans consist of nonaccrual loans, restructured loans and
accruing loans 90 days or more past due.
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RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK, INCLUDING THE RISKS DESCRIBED BELOW. IN ADDITION TO THE OTHER INFORMATION
CONTAINED HEREIN, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE COMPANY BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY.
INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS"
WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS
"BELIEVES," "EXPECTS," "MAY," "WILL," "SHOULD," "COULD," "INTEND," "ESTIMATED,"
"PROJECTED," "CONTEMPLATED" OR "ANTICIPATES" OR THE NEGATIVE THEREOF OR OTHER
VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. NO ASSURANCE CAN BE GIVEN THAT
THE FUTURE RESULTS COVERED BY THE FORWARD-LOOKING STATEMENTS WILL BE ACHIEVED.
THESE STATEMENTS, BY THEIR NATURE, INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES,
CERTAIN OF WHICH ARE BEYOND THE COMPANY'S CONTROL. THE FOLLOWING FACTORS AND
OTHER FACTORS DESCRIBED ELSEWHERE IN THIS PROSPECTUS COULD CAUSE ACTUAL
EXPERIENCE TO VARY MATERIALLY FROM THE FUTURE RESULTS COVERED IN SUCH
FORWARD-LOOKING STATEMENTS. OTHER FACTORS, SUCH AS THE GENERAL STATE OF THE
ECONOMY, COULD ALSO CAUSE ACTUAL EXPERIENCE TO VARY MATERIALLY FROM THE MATTERS
COVERED IN SUCH FORWARD-LOOKING STATEMENTS.
EXPOSURE TO LOCAL AND REGIONAL ECONOMIC CONDITIONS
The Company's success is dependent to a significant extent upon general
economic conditions in Florida, particularly south Florida, and Latin America
and the Caribbean. General economic conditions include such factors as the
south Florida real estate market, inflation, recession, unemployment and other
factors beyond the Company's control. During the mid-1980s, adverse economic
conditions in Latin America adversely affected the south Florida economy. In
the 1990s, the economy has improved in part due to economic growth in Latin
America. Although the south Florida economy has strengthened, it remains
susceptible to adverse effects resulting from adverse conditions in the south
Florida real estate markets, a decline in tourism, or adverse economic
conditions or recession in the national economy or in Latin America or the
Caribbean. Economic recession over a prolonged period or other economic
dislocation in south Florida, Latin America or the Caribbean could cause
increases in nonperforming assets, thereby causing operating losses, impairing
liquidity and eroding capital. There can be no assurance that future adverse
changes in the Florida, Latin American or Caribbean economies would not have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
INTEREST RATE RISK
The Company's earnings depend to a great extent on "rate differentials,"
which are the differences between interest income that the Company earns on
interest-bearing assets, such as loans and investments, and the interest
expense paid on interest-bearing liabilities, such as deposits and other
borrowings. Financial institutions, including the Bank, are affected by changes
in general interest rate levels. Fluctuations in interest rates are not
predictable or controllable. Interest rates are highly sensitive to many
factors which are beyond the Company's control, including general economic
conditions and the policies of various government and regulatory authorities.
For example, actions taken by the Board of Governors of the Federal Reserve
System (the "FRB") can lead to changes in interest rates, which affect the
Company's interest income, interest expense and investment portfolio. The
nature, timing and effect of any future changes in federal monetary and fiscal
policies on the Company and its results of operations are not predictable. From
time to time, maturities of assets and liabilities are not balanced, and a
rapid increase or decrease in interest rates could have a material adverse
effect on the net interest margin and results of operations of the Company.
There can be no assurance that the Company will not experience a material
adverse effect on its net interest income in a changing rate environment. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--For the Nine Months Ended September 30, 1997 and 1996--Interest
Rate Sensitivity and Liquidity" and "--For the Years Ended December 31, 1996,
1995 and 1994--Interest Rate Sensitivity and Liquidity."
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CREDIT RISKS AND COLLATERAL
The financial difficulty or failure of customers of the Company may
adversely affect the Company's ability to recover funds due to it. In addition,
most of the Company's lending and financing activities involve collateral or
guarantees. The Company, in its lending, runs the risk that such collateral or
guarantees will be inadequate, largely due to changing market conditions,
deteriorating financial condition of guarantors or deterioration in the value
of the collateral. In its trade financing activity, the Company also runs the
risk of fraud in the underlying trade transaction, which may leave either the
Company or its customer holding documents of title to non-existent or defective
goods. In addition, at September 30, 1997, approximately 82.00% of the
Company's lending to correspondent banks involved pre-export financing, which
is unsecured and more susceptible to risks associated with the creditworthiness
of the borrower and economic and political conditions in Latin America.
Accordingly, the Company maintains an allowance for loan losses. The allowance
for loan losses is determined after evaluating historic loan loss experience
adjusted for current conditions and circumstances, ratio analyses of credit
quality classifications and their trend in light of current portfolio trends
and economic conditions, as well as other pertinent considerations, all of
which involve significant estimation and judgment and are subject to rapid
changes which may not be foreseeable. As a result, ultimate losses could vary
significantly from current estimates and may be either greater or less than the
Company's allowance for loan losses. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--For the Nine Months Ended
September 30, 1997 and 1996--Allowance For Loan Losses" and "--For the Years
Ended December 31, 1996, 1995 and 1994--Allowance for Loan Losses."
ABILITY OF THE COMPANY TO CONTINUE ITS GROWTH
The Company has historically achieved growth in its lending activities by
attracting new customers, expanding its services to existing customers and
increasing its deposit base. In 1995 and 1996, the Company's total loans
increased approximately 23.08% and 18.57% in the aggregate, respectively, to
approximately $821.1 million and $973.6 million, and deposits increased by
approximately 12.36% and 14.17%, respectively, to approximately $1,156.3
million and $1,320.1 million. There can be no assurance that the Company will
be able to continue to grow at these rates in the future. In fact, for the nine
month period ended September 30, 1997, total loans decreased by 2.11% to $953.1
million, and deposits decreased by 1.64% to $1,298.5 million. Management
believes that these declines were primarily attributable to the disruption
caused by the announcement of a proposed sale of the Company to Barnett Banks,
Inc. ("Barnett") and the subsequent termination of the negotiations related
thereto. Historical growth rates are not necessarily indicative of future
results, and it becomes more difficult to maintain historical rates of growth
as a company increases in size. The Company's ability to further implement its
strategy for continued growth of its lending activities is largely dependent
upon the Company's ability to attract and retain quality customers for the
Company's services in a competitive market, on the business growth of those
customers, and on the Company's ability to increase deposit growth, all of
which may be affected by a number of factors not within the Company's control.
As many of the Company's loans and most of its deposits are short-term in
nature and thereby turn over rapidly, any decline or reversal of the growth
rate could occur more quickly than it would otherwise. Moreover, as part of its
growth strategy, the Company expects to increase its exposure to certain
customers and to attract larger customers. A significant loss on these larger
exposures could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.
CONCENTRATION OF DEPOSITS
A significant portion of the Company's deposits are comprised of
certificates of deposit and other time deposits in amounts in excess of
$100,000. At September 30, 1997, approximately 21.73% of the Company's total
deposits were comprised of time deposits in amounts in excess of $100,000. Most
of such deposits closely match the maturity of the Company's assets. In the
event that more deposits were withdrawn at or prior to their respective
maturities than anticipated, the Company could be required to satisfy such
deposit amounts through the (i) sale of short-term investments, (ii) borrowings
utilizing its
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investment portfolio as collateral, (iii) sale or securitization of Fannie Mae
qualified residential mortgage loans, (iv) discount of bankers' acceptances or
(v) liquidation of certain investments. Although management believes that it
has historically been successful in matching the maturity dates of these
deposits against its loan portfolio, there can be no assurance that the Company
will continue to be successful or that it would not ultimately be required to
liquidate assets or take other steps in order to satisfy such deposit amounts.
COMPETITION
The banking business is highly competitive, and the profitability of the
Company depends principally upon the Company's ability to compete in the market
areas in which its banking operations are located. The Company competes for
loans, deposits and other matters with other commercial banks, savings banks,
savings and loan associations, credit unions, finance companies, mutual funds,
insurance companies, brokerage and investment banking firms and asset-based
non-bank lenders which may offer more favorable financing than the Company. The
Company competes with similarly-sized local financial institutions, regional
and multi-regional financial institutions and smaller community banks, although
its size, including the number of branches, and a higher legal lending limit,
give it certain competitive advantages with respect to the smaller community
banks. In Broward and Palm Beach counties, the Company may compete primarily
with regional and multi-regional financial institutions. Many of the foregoing
institutions also are the primary competitors of the Company for employees and
several of them hired a number of Company employees after the announcement of a
proposed sale to Barnett. In addition, the Company competes with major money
center banks and foreign banks operating in Miami-Dade County with respect to
its private banking and international lending businesses. Many of the Company's
competitors, including the regional and multi-regional financial institutions,
have greater financial and other resources than the Company. Although the
Company has been able to compete effectively with other financial institutions
in the past, no assurances may be given that the Company will continue to be
able to compete effectively in the future. In addition, various legislative
acts in recent years have led to increased competition among financial
institutions. As a result of these acts, most barriers to entry in the south
Florida market by out-of-state financial institutions have been eliminated.
There can be no assurance that the United States Congress or the Florida
legislature will not enact legislation that may further increase competitive
pressures on the Company. Competition from both financial and nonfinancial
institutions is expected to continue. See "The Company--Competition."
RISKS ASSOCIATED WITH CROSS-BORDER LENDING ACTIVITIES
At September 30, 1997, approximately 13.28% in principal amount of the
Company's total loans were outstanding to borrowers in over 20 countries
outside the United States, almost exclusively in Latin America and the
Caribbean, including Brazil (3.35%), Peru (1.57%) and Ecuador (1.26%). All such
loans are denominated in United States dollars. Most of these borrowers are
correspondent banks, which are subject to different types of regulation than
United States banks. Providing loans and financing in Latin America and the
Caribbean subjects the Company to certain economic and political risks in
addition to the usual credit risks involved with lending and financing,
including those described in "--Credit Risks and Collateral."
ECONOMIC RISKS
During the 1980s, many of the countries in Latin America and the Caribbean
experienced severe economic difficulties, including periods of slow or negative
growth, large government budget deficits, high inflation, currency
devaluations, government influence over the private sector, nationalization and
expropriation of assets, vulnerability to weakness in world prices for
commodity exports (particularly in smaller countries), large foreign
indebtedness on the part of their governments, and exchange controls and
unavailability of foreign exchange, including United States dollars. As a
result, many governments and public and private institutions in this region
were unable to make interest and principal payments on their external debt.
Much of this external debt has now been restructured to provide for extensions
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<PAGE>
of repayment schedules, grace periods during which payments of principal are
suspended and, in certain cases, reduced rates of interest. In recent years
there have been significant improvements in the economies of many countries in
this region. However, there have been periodic, serious economic downturns for
countries in this region, and there can be no assurance that widespread
economic difficulties will not be experienced by countries in this region at
some time in the future. Any such downturn could adversely affect business in
Latin America and the Caribbean and could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
POLITICAL RISKS
Democracy has largely prevailed in Latin America and the Caribbean since
the early 1990s, and was endorsed as a key, shared principle at the
Presidential Summit of the Americas celebrated in Miami, Florida in December
1994 among 37 Presidents representing various Hemispheric nations.
Nevertheless, many Latin American and Caribbean countries have a history of
political instability involving periodic, non-democratic forms of government. A
number of these countries have also experienced or are experiencing popular
unrest, internal insurgencies, terrorist activities, hostilities with
neighboring countries, drug trafficking and authoritarian military governments.
A return to such non-democratic forms of government or expansion of such
destabilizing activities in one or more of the key countries in Latin America
or the Caribbean could affect investors' confidence not only in these
countries, but in Latin America and the Caribbean as a whole, reducing trade
with such countries. This could have a material adverse effect on the south
Florida economy generally and on the Company's lending and financing activities
in Latin America and the Caribbean and, consequently, on the Company's
business, prospects, financial condition and results of operations.
REGULATION
Bank holding companies and banks operate in a highly regulated environment
and are subject to extensive supervision and examination by several federal and
state regulatory agencies. Bancorp is subject to the Bank Holding Company Act
of 1956, as amended (the "BHCA"), and to regulation and supervision by the FRB.
The Bank, as a national bank, the deposits of which are insured by the FDIC, is
subject to the primary regulation and supervision of the Office of the
Comptroller of the Currency (the "OCC"). These regulations are intended
primarily for the protection of depositors and customers, rather than for the
benefit of investors. Federal laws and regulations govern numerous matters,
including changes in the ownership or control of banks and bank holding
companies, maintenance of adequate capital and the financial condition of a
financial institution, permissible types, amounts and terms of extensions of
credit and investments, permissible non-banking activities, the level of
reserves against deposits and restrictions on dividend payments. In addition,
the FRB has adopted a policy that requires a bank holding company such as
Bancorp to serve as a source of financial strength to its banking subsidiaries.
The FRB has required bank holding companies to contribute cash to their
troubled bank subsidiaries based upon this "source of strength" policy, which
could have the effect of decreasing funds available for distributions to
shareholders. In addition, a bank holding company in certain circumstances
could be required to guarantee the capital plan of an undercapitalized banking
subsidiary. The OCC and the FDIC possess cease and desist powers to prevent or
remedy unsafe or unsound practices or violations of law by national banks, and
the FRB possesses similar powers with respect to bank holding companies. These
and other restrictions limit the manner in which Bancorp and the Bank may
conduct business and obtain financing.
The Company is subject to changes in federal and state laws, as well as
changes in regulations and governmental policies, income tax laws and
accounting principles. The effects of any potential changes cannot be predicted
but could materially adversely affect the business and operations of the
Company in the future. Furthermore, the commercial banking business is affected
by general economic conditions, and the monetary policies of the FRB. See "The
Company--OCC Agreement" and "Regulation."
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<PAGE>
FOREIGN OWNERSHIP OF UNITED STATES BANKS
Since the enactment of the federal Foreign Bank Supervision Enhancement
Act of 1991, it has become increasingly difficult for foreign companies, and
foreign individuals acting through a holding company, to acquire control of
United States banks. In mid-1996, the Bank submitted to the FRB the names of
Roberto, William and Estefano Isaias, the controlling shareholders of the
Company, for the FRB to initiate background checks. Such checks are part of the
process of obtaining FRB approval of an acquisition and are believed to require
considerable time to complete. Until such time as the Bank is notified that
such background checks are completed and that the FRB would not have an
objection to an acquisition by the Company of another United States bank based
on such background checks, the Company does not intend to undertake
acquisitions which require FRB approval. No assurance can be given that such
background checks will be completed at any time or, if completed, that the FRB
would approve the Company's acquisition of another United States bank. As a
result, the Company's ability to acquire other institutions is more limited
than that of domestically owned institutions, but the Company believes that it
can acquire other institutions in transactions which are structured in such a
way so as not to require the approval of the FRB. For example, currently, a
direct bank to bank merger effected by the Bank would not necessarily be
subject to FRB approval. However, such direct mergers could have adverse tax
consequences to the Company unless they can be structured as tax-free
transactions under the Internal Revenue Code of 1986, as amended. The Company
believes that having publicly traded stock will facilitate such "tax free"
acquisitions and therefore enhance the ability of the Company to expand through
acquisitions.
Currently, foreign individuals are required by the FRB to enter into a
series of negotiated commitments prior to acquiring control of a United States
bank. While those commitments may vary from individual to individual and over
time, they commonly include (i) agreeing to keep the FRB informed as to other
companies controlled by that individual, in the United States or abroad, and to
provide certain information regarding those companies upon request by the FRB
from time to time; (ii) submitting to the jurisdiction of United States courts
for certain actions relating to alleged violations of United States law which
may be brought by the FRB or other United States authorities; and (iii)
restricting the activities between the United States bank, the foreign
individual and other companies controlled by the foreign individual. In 1987,
in connection with the organization of Rebank, it committed to the FRB as
follows: (i) to consent to the jurisdiction of the United States and to appoint
an agent for service of process in the United States acceptable to the FRB;
(ii) not to request or accept extensions of credit from the Bank, including the
issuance of commercial letters of credit for the benefit of other institutions
under their control, in an amount exceeding the limits on extensions of credit
set forth in Regulation O of the FRB or other applicable law; (iii) that Rebank
would not incur debt in excess of $50,000 without the prior written approval of
the FRB (this commitment is no longer applicable); (iv) to permit Rebank's
books and records to be examined by the FRB at a location in the United States;
and (v) not to transfer any of its shares, except to Roberto, Estefano or
William Isaias, without the prior written approval of the FRB. Although
Roberto, Estefano and William Isaias entered into these commitments in 1987,
should the Company decide to effect a merger or acquisition which requires
approval of the FRB, the completion of that acquisition could be also hampered
or delayed should the FRB at that time feel it appropriate to require the
Company's foreign majority shareholders to enter into additional commitments.
RESTRICTIONS ON ABILITY TO PAY DIVIDENDS
While Bancorp has paid cash dividends on the Common Stock since 1990,
there is no assurance that Bancorp will pay dividends on the Common Stock in
the future. The declaration and payment of dividends on the Common Stock will
depend upon the earnings and financial condition of the Company, liquidity and
capital requirements, the general economic and regulatory climate, the
Company's ability to service any equity or debt obligations senior to the
Common Stock and other factors deemed relevant by Bancorp's Board of Directors.
The FRB's policy is that bank holding companies should pay cash dividends on
common stock only out of income available over the past year and only if
prospective earnings retention is consistent with the organization's expected
future needs and financial condition.
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<PAGE>
The policy provides that bank holding companies should not maintain a level of
cash dividends that undermines the bank holding company's ability to serve as a
source of strength to its banking subsidiaries.
Bancorp's principal source of funds to pay dividends on the shares of
Common Stock will be cash dividends that Bancorp receives from the Bank. The
payment of dividends by the Bank to Bancorp is subject to certain restrictions
imposed by federal banking laws, regulations and authorities. The federal
banking statutes prohibit federally insured banks from making any capital
distributions (including a dividend payment) if, after making the distribution,
the institution would be "undercapitalized" as defined by statute. In addition,
the relevant federal regulatory agencies also have authority to prohibit an
insured bank from engaging in an unsafe or unsound practice, as determined by
the agency, in conducting an activity. The payment of dividends could be deemed
to constitute such an unsafe or unsound practice, depending on the financial
condition of the Bank. Regulatory authorities could impose administratively
stricter limitations on the ability of the Bank to pay dividends to Bancorp if
such limits were deemed appropriate to preserve certain capital adequacy
requirements. As of September 30, 1997, an aggregate of approximately $27.7
million was available for payment of dividends by the Bank to Bancorp under
applicable restrictions, without regulatory approval, taking into consideration
dividends that would have to be paid to minority shareholders of the Bank after
giving effect to the Reorganization. See "Dividend Policy," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources" and "Regulation."
CONTROLLING OWNERSHIP INTEREST AND POSSIBLE EFFECTS
After the consummation of the Offering, Roberto, Estefano and William
Isaias will beneficially own, directly or indirectly, including through their
ownership interest in Rebank, 59.6% of the outstanding shares of Common Stock,
and approximately 58.8% of such shares of Common Stock if the Underwriters'
over-allotment option is fully exercised. Accordingly, these shareholders will
be able to control, to a significant extent, the outcome of all matters
required to be submitted to the Company's shareholders for approval, including
decisions relating to the election of directors of the Company, future
issuances of Common Stock or other securities by the Company, any dividend
payable on the Common Stock, the determination of day-to-day corporate and
management policies of the Company and other significant corporate
transactions. These shareholders also control other banking operations outside
the United States. The common ownership, as currently constituted, of the
Company and these other banking operations by such shareholders may impede the
use of the pooling of interests method of accounting for a merger or business
combination to which the Company is a party. As a result, the purchase method
of accounting may be required to be used in connection with all mergers and
business combinations to which the Company is a party. Accordingly, in any
potential merger or business combination in which stock of another party or the
Company would be the predominant consideration, the inability to account for
such transaction as a pooling of interests could make such transaction less
attractive or competitive to either or both of the parties involved, could
adversely affect the consideration to be paid in any such transaction or could
limit the number of parties that may be interested in any such transaction. See
"The Company--Controlling Shareholders and Management," "Management,"
"Principal and Selling Shareholders" and "Description of Capital Stock."
RECENT PERSONNEL LOSSES
The Company has recently experienced personnel losses that were
significantly heavier than historical experience. The Company believes that
this was due to the public disclosure that it was involved in merger
negotiations that have since terminated, the resulting uncertainties for
employees, and competitors' attempts to take advantage of these uncertainties.
The Company has replaced most of the personnel that has left, including several
officers, through a combination of internal promotion of personnel and the
hiring of individuals from external organizations, there can be no assurance
that such departures will not have a material adverse effect on the Company or
that the Company will not experience significant personnel losses in the
future. See "The Company--Barnett Negotiations."
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DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contribution of members of its senior management, particularly Oscar Bustillo,
Jr., the Company's President and Chief Executive Officer and the Bank's
Chairman of the Board, Chief Executive Officer and President, as well as
Bernardo M. Argudin, the Company's Vice President and Chief Financial Officer
and the Bank's Chief Financial Officer and Executive Vice President, and the
following officers of the Bank, the Executive Vice President and Chief Credit
Officer, the Executive Vice President--Real Estate Lending, the Executive Vice
President--Retail Banking and the Executive Vice President--Corporate Banking,
many of whom would be difficult to replace. The future success of the Company
also depends on its ability to identify, attract and retain additional
qualified personnel, particularly managerial personnel with the appropriate
experience in the banking business. Although nine officers, including those
identified above, have employment agreements with the Company, the loss of Mr.
Bustillo or other key officers and personnel could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations. The Company does not maintain key person life insurance with
respect to any of its officers. See "Management."
YEAR 2000
Almost all of the Company's operations are supported by accounting and
recordkeeping computerized systems and are dependent on the capability of
software applications and operating systems to function properly in the year
2000. The Company has entered into a licensing contract with its main existing
software vendor to convert all of its loan, deposit and principal accounting
applications to a year 2000 compliant system in 1998, replacing an existing
licensing arrangement which will expire in 1999. This new software will require
additional hardware capacity. Costs associated with this endeavor are related
to the new software and hardware acquisition and are not principally the result
of the year 2000 programming, as the Company would have incurred these costs
regardless of the year 2000 issue. The Company is evaluating the impact of the
year 2000 on other smaller applications and PC computer hardware. The Company
believes that all essential computer applications will be year 2000 compliant
and that the costs associated with year 2000 compliance will not be material to
the Company.
ABSENCE OF PUBLIC MARKET; POSSIBLE FLUCTUATIONS OF STOCK PRICE
Prior to this Offering, there has been no public market for Bancorp's
Common Stock. The Company's Common Stock has been approved for quotation on
Nasdaq under the symbol "RBCF." The Representatives have advised the Company
that they intend to make a market in the Common Stock as long as the volume of
trading activity in the Common Stock and certain other market making conditions
justify doing so. Nonetheless, there can be no assurance that an active trading
market for the Common Stock will develop or that, if developed, it will be
sustained after this Offering, or that it will be possible to resell the shares
of Common Stock at or above the initial public offering price. Making a market
involves maintaining bid and asked quotations for the Common Stock and being
available as principal to effect transactions in reasonable quantities at those
quoted prices, subject to various securities laws and other regulatory
requirements. A public trading market having the desired characteristics of
depth, liquidity and orderliness depends upon the presence in the marketplace
of willing buyers and sellers of the Common Stock at any given time, which
presence is dependent upon the individual decisions of investors over which
neither the Company nor any market maker has any control. The market price of
the Common Stock could be subject to significant fluctuations in response to
the Company's operating results and other factors. In addition, the stock
market in recent years has experienced extreme price and volume fluctuations
that often have been unrelated or disproportionate to the operating performance
of individual companies. Such fluctuations, and general economic and market
conditions, may adversely affect the market price of the Common Stock. See
"Underwriting."
DETERMINATION OF INITIAL PUBLIC OFFERING PRICE
The initial public offering price of the shares of Common Stock has been
determined by negotiations between the Company and the Representatives and does
not necessarily bear any
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relationship to the Company's book value, past operating results, financial
condition or other established criteria of value and may not be indicative of
the market price of the Common Stock after the Offering. Among the factors
considered in such negotiations were prevailing market and general economic
conditions, the market capitalization, trading histories and stages of
development of other traded companies that the Company and the Representatives
of the Underwriters believed to be comparable to the Company, the results of
operations of the Company in recent periods, the current financial position of
the Company, estimates of business potential of the Company and the present
state of the Company's development and the availability for sale in the market
of a significant number of shares of Common Stock. Additionally, consideration
was given to the general status of the securities market, the market conditions
for new issues of securities and the demand for securities of comparable
companies at the time the Offering is made. See "Underwriting" for information
relating to the method of determining the initial public offering price.
BROAD DISCRETION IN USE OF PROCEEDS
The Company intends to contribute substantially all of the net proceeds of
the Offering to the capital of the Bank to support future growth in the Bank's
business and for working capital and other general corporate purposes.
Accordingly, the Company will have broad discretion as to the application of
such proceeds. An investor will not have the opportunity to evaluate the
economic, financial and other relevant information which will be utilized by
the Company in determining the application of such proceeds. See "Use of
Proceeds."
SHARES ELIGIBLE FOR FUTURE SALE
After the Reorganization and upon consummation of this Offering, Bancorp
will have 21,026,399 shares of Common Stock outstanding (21,326,399 if the
over-allotment option granted to the Underwriters is exercised in full). Of
these shares, 7,508,528 shares (7,808,528 shares if the over-allotment option
granted to the Underwriters is exercised in full) will be freely transferable
without restriction or registration under the Securities Act, unless purchased
by persons deemed to be "affiliates" (as that term is defined under the
Securities Act) of the Company. All of the remaining 13,517,871 shares of
Common Stock held by the controlling shareholders, directors and executive
officers of the Company and by shareholders who participated in the
Reorganization will be "restricted securities" as that term is defined in Rule
144 promulgated under the Securities Act. Bancorp's and substantially all of
the Bank's executive officers, directors, the Selling Shareholders and certain
of Bancorp's other existing shareholders are agreeing that they will not sell
or otherwise transfer any shares of Common Stock for 180 days after the
Offering without the prior written consent of the Representatives, except for
bona fide gifts or similar transfers or devises for estate planning, charitable
and other related purposes or pursuant to bona fide pledges, in any such case,
only to persons who agree to be bound by the foregoing restrictions. A majority
of the shares of Common Stock issued and outstanding prior to the Offering have
been pledged to other financial institutions in connection with loans to
shareholders. In addition, the Company may issue its Common Stock to minority
shareholders of the Bank in exchange for their shares in the Bank. See
"Underwriting." Additionally, upon consummation of this Offering, 1,000,000
shares of Common Stock will have been reserved for issuance under the Plan and
options to purchase 500,000 shares of Common Stock will have been issued under
the Plan at the initial public offering price per share. The Company intends to
register under the Securities Act all eligible shares reserved for issuance
under the Plan. Shares covered by such registration will be eligible for resale
in the public market, subject to Rule 144 limitations applicable to affiliates.
See "Management--1998 Stock Option Plan." Future sales of substantial amounts
of Common Stock in the public market, or the availability of such shares for
future sale, could impair the Company's ability to raise capital through an
offering of securities and may adversely affect the then-prevailing market
prices. See "Shares Eligible for Future Sale."
16
<PAGE>
CERTAIN POTENTIAL ANTI-TAKEOVER PROVISIONS
The beneficial ownership by Roberto, Estefano and William Isaias of 59.6%
of the issued and outstanding shares of Common Stock after the Offering will
prevent any change of control without the consent of such shareholders of the
Company. In addition, the Company's Amended and Restated Articles of
Incorporation (the "Articles") and Amended and Restated Bylaws (the "Bylaws")
will contain certain provisions which may delay, frustrate, discourage or
prevent the removal of incumbent directors or an attempted acquisition or
change of control of the Company, including a merger, tender offer or proxy
contest, even if such events were perceived by shareholders as beneficial to
their interests. These provisions include: (i) a Board of Directors classified
into three classes of directors with the directors of each class having
staggered, three-year terms, (ii) provisions authorizing the Board to increase
its size by up to two members between annual meetings and authorizing either
the Board or the shareholders to fill vacancies on the Board, (iii) a provision
that any special meeting of shareholders of the Company may be called only by a
majority of the Board of Directors, the Chairman of the Board, the Chief
Executive Officer, or the holders of at least 30% of the shares entitled to
vote on the matter and that any action required or permitted to be taken by the
Company's shareholders may not be effected by consent in writing and (iv) a
provision establishing certain advance notice procedures for nomination of
candidates for election as directors and for shareholder proposals to be
considered at an annual or special meeting of shareholders. The Company's
Articles will provide for noncumulative voting for directors and authorize the
Board of Directors of the Company to issue shares of preferred stock of the
Company without shareholder approval and upon such terms, as the Board of
Directors may determine. The issuance of preferred stock, could have the effect
of making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, a controlling interest in the Company and could
adversely affect the voting power of other rights of shareholders of the
Company's Common Stock. Although the Company at present has no intention to
issue any shares of its preferred stock, there can be no assurance that the
Company will not do so in the future. In addition, certain provisions of
Florida and federal law may also have the effect of delaying, discouraging or
preventing attempted acquisition or change in control of the Company in which
shareholders of the Company might otherwise receive a substantial premium for
their shares over then-current market prices. See "Regulation" and "Description
of Capital Stock--Preferred Stock."
REGULATION OF CONTROL
Individuals or entities, alone or acting in concert with others, wishing
to acquire 10% or more of any class of voting securities of the Company (5% if
the prospective acquiror is already a bank holding company), must obtain the
prior approval of the FRB for any such acquisition. Accordingly, prospective
investors need to be aware of and comply with these requirements in connection
with any purchase of shares of the Common Stock offered hereby.
17
<PAGE>
THE COMPANY
GENERAL
Bancorp was incorporated as a business corporation under the laws of the
State of Florida in 1970 to serve as a holding company for the Bank. The Bank
was chartered in 1965 as a national bank with one banking office in Miami,
Florida. Since its formation, Bancorp has derived substantially all of its
revenues and income from the operations of the Bank. The Company's total
assets, total loans, total deposits and total shareholders' equity increased
each year from 1994 through 1996 over the prior year. At September 30, 1997,
the Company had total assets of $1,517.5 million, total loans of $953.1
million, total deposits of $1,298.5 million and total shareholders' equity of
$129.2 million. Total loans and total deposits decreased approximately $20.6
million and $21.6 million, respectively, from December 31, 1996 to September
30, 1997. As of March 31, 1997, the Company was the third largest independent
bank holding company in terms of deposits with headquarters in the State of
Florida.
The Company has reported consistent growth in earnings since 1993. The
Company's earnings have increased from $11.7 million in 1993 to $18.0 million
in 1996. During this period the mean of the Company's return on average assets
was 1.26% and the mean of the Company's return on average equity was 15.24%.
For the nine months ended September 30, 1997, the Company earned $14.1 million
compared to $12.9 million for the nine months ended September 30, 1996. The
1997 results represent an annualized return on average assets of 1.23% and an
annualized return on average equity of 15.42%.
MARKET POSITION
The Bank, since its formation, has acted as a community bank, serving the
needs of businesses and individuals located in Miami-Dade County, Florida. The
Company believes that Miami-Dade County, Florida is an attractive market for
operating a community bank. Miami-Dade County has a population of more than 2
million, representing more than 14% of the population of the State of Florida
and accounting for approximately 19.1% of domestic deposits in the State of
Florida. Miami-Dade County ranks first in population and first in deposits in
the State of Florida.
Historically, the Bank has catered primarily to the growing Cuban
population, which has become a major economic force in Miami-Dade County,
Florida, and to other Hispanic populations in Miami-Dade County, Florida. These
populations remain the core of the Bank's client base. In 1996, Hispanics
represented a majority of the population of Miami-Dade County, Florida.
Management believes that approximately 90% of the Company's customers are
Hispanic.
Although 94% of the Bank's branch deposits and 25 of its branches are
located in Miami-Dade County, Florida, the Company has recently established two
branches in adjoining Broward County, Florida. The Company intends to continue
its expansion in Broward County, Florida, and in future years, in adjoining
Palm Beach County, Florida. Broward and Palm Beach Counties, Florida, are two
of the fastest-growing counties in the United States. They rank as the counties
with (i) the second and third largest population bases in Florida,
respectively, (ii) the second and third largest banking markets in Florida,
respectively, measured by total deposits, and (iii) the eighth highest and the
highest per capita income in Florida, respectively.
BUSINESS STRATEGY
The consolidation of financial institutions in south Florida has reduced
the number of locally-headquartered commercial banks. The Company believes that
this has created a niche for the Bank as a community bank which focuses on
establishing long-term relationships with its customers and in providing
responsive and personalized service to its customers. The Company's community
banking style emphasizes local decision-making ability by its management and
accessibility of its senior management to customers. The Company also attempts
to make decisions for customers quickly and to modify its products, if
appropriate, to match the needs of its customers. The Company believes that
18
<PAGE>
these attributes allow the Company to compete effectively against larger,
regional financial institutions operating in south Florida. In addition, the
Company believes that the Bank's larger capital base, larger branch network and
broader product mix enable it to compete effectively against smaller community
banks operating in south Florida.
The Company's location in south Florida, which is also the location of
many businesses and individuals who engage in substantial trade with Latin
America and the Caribbean, and the Company's relationships with the Hispanic
community in Miami-Dade County, Florida, have enabled the Company to be active
in trade financing activities and in private banking operations with customers
in Latin America and the Caribbean. The Company derives a significant portion
of its deposits, loans and fee income from these customers.
CONTROLLING SHAREHOLDERS AND MANAGEMENT
The Company's largest shareholder is Rebank, which is owned by Roberto
Isaias, Estefano Isaias and William Isaias, three brothers who also own a major
Ecuadorian bank. Roberto, Estefano and William Isaias directly or indirectly
own, in the aggregate, 13,190,005 shares or 65.6% of the issued and outstanding
Common Stock after the Reorganization and prior to this Offering and will own
59.6% of the issued and outstanding Common Stock after this Offering, as Rebank
is selling 647,320 shares of Common Stock in this Offering. See "Principal and
Selling Shareholders." The Isaias family acquired control of the Company in
1970.
Roberto Isaias is the Chairman of the Board of Bancorp and has served in
that capacity since 1982. He has been a director of Bancorp since 1970. Oscar
Bustillo, Jr., the Chief Executive Officer and President of Bancorp and
Chairman of the Board, Chief Executive Officer and President of the Bank,
joined the Bank in 1985. In 1989, Mr. Bustillo became President of the Bank,
and in 1994 he became President of Bancorp. The Company has recently
experienced personnel losses that were heavier than normal experience,
including an Executive Vice President and four Senior Vice Presidents, although
the Company has replaced all of the officers and other personnel that has left.
The Company believes that this turnover was due to the public disclosure that
it was involved in merger negotiations that have since terminated, the
resulting uncertainties for employees and competitors' attempts to take
advantage of the uncertainties. See "Risk Factors--Recent Personnel Losses" and
"The Company--Barnett Negotiations." The Company's President and six Executive
Vice Presidents have an aggregate of nearly 200 years of banking experience.
Its three Executive Vice Presidents involved in lending have an aggregate of 65
years of lending experience. Its Executive Vice President--Retail Banking has
28 years of experience in the industry. The Company believes that this
combination of consistent ownership and highly experienced local management
gives the Company a competitive advantage in operating a community banking
institution.
LENDING ACTIVITIES
The Bank's lending activities consist of community bank lending activities
and international lending activities.
The Bank, in its community bank lending activities, initially served as a
commercial lender to small and medium-sized businesses and as a commercial real
estate lender. Construction loans and consumer loans have also been part of the
Bank's loan portfolio since it commenced business. The Bank has continued to
add a variety of other loan products. Today, the Bank has a diversified loan
portfolio. At September 30, 1997, the Company's community bank lending
activities consisted primarily of commercial loans ($289.3 million), commercial
real estate and construction loans ($303.4 million), single-family residential
mortgage loans ($150.1 million) and consumer loans, including equity lines,
($82.6 million).
The Company's international lending activities are leveraged off
historical relationships the Company has formed with correspondent financial
institutions in Latin America and the Caribbean. At
19
<PAGE>
September 30, 1997, the Company's total international lending activities,
including foreign bank acceptances, consisted of $106.7 million of loans.
The Company's international lending activities primarily include (i) trade
financing for correspondent financial institutions in Latin America and the
Caribbean, including pre-export financing, advances on letters of credit and
bankers' acceptances, (ii) trade financing for local commercial customers who
are primarily importing from or exporting to Latin America or the Caribbean,
(iii) the term financing of the export of United States goods and services
guaranteed by the EximBank and (iv) other correspondent banking services. Trade
finance for correspondent financial institutions comprises the largest segment
of the Company's international lending activities and represents 7.62% of the
Company's total lending activities. The yield on such loans is lower than the
average yield for the Company's loan portfolio, but such loans are floating
rate, have short term maturities, and historically have had low credit losses.
Accordingly, the Company considers this to be an attractive line of business.
Management also believes that the Company has a significant opportunity to
expand its EximBank guaranteed financing business.
DEPOSITS AND BRANCH OFFICES
Lending and investment activities are funded from a strong deposit base,
which consisted of over 100,000 deposit accounts at September 30, 1997.
Approximately 43.40% of the amount of the Company's deposits at September 30,
1997, consisted of checking and savings accounts.
The Company primarily attracts deposits through a network of 27 branches,
25 of which are located in Miami-Dade County, Florida and two of which are
located in Broward County, Florida. The Company built its strong core deposit
base through de novo expansion, as well as through acquisitions. From 1988 to
1991, the Company acquired branch locations and deposits from four failed
financial institutions being liquidated by the FDIC and the RTC. In 1995, the
Company expanded its retail offices in Miami-Dade County as well as entered
into Broward County, Florida with the acquisition of Plaza Bank of Miami.
In addition to its branch deposit base, the Company obtains significant
deposits as a result of its relationships throughout Latin America and the
Caribbean and from foreigners who travel to south Florida. Such deposits
provide the Company with an additional funding source at reasonable costs,
require lower overhead expenses than domestic deposit gathering activities and
provide the Company with additional fee income through service charges. At
September 30, 1997, $331 million of the Company's deposits were from foreigners
or correspondents, $169 million of which were attributable to the private
banking department. The Company intends to continue to maintain this deposit
base by providing quality services to its private banking customers and by
maintaining relationships in Latin America and the Caribbean.
GROWTH STRATEGY
The Company also believes that consolidation of the south Florida banking
industry should provide it with the opportunity to service additional customers
who prefer to conduct business with a local, community-oriented financial
institution, such as the Company, and that the Company can take advantage of
the opportunities presented by the growing populations in Miami-Dade, Broward
and Palm Beach Counties, Florida.
The Company's overall business strategy is to (i) continue to serve the
local community by increasing lending activity in commercial, commercial real
estate, construction and single-family residential loans, (ii) increase
international trade services, (iii) take advantage of regional bank
consolidation by pursuing customers wishing to do business with a local
community bank, and (iv) expand its operations in south Florida.
Such expansion could be through the formation of de novo branches or
through strategic acquisitions of financial institutions or banking assets in
those locations that management believes
20
<PAGE>
would complement and help grow the Company's existing business. Such
acquisitions may be structured as stock-for-stock exchanges with other
institutions. The Company believes that having publicly traded stock will
facilitate such acquisitions and therefore enhance the ability of the Company
to expand through acquisitions. See "Risk Factors--Ability of the Company to
Continue Its Growth," "--Foreign Ownership of United States Banks" and
"--Controlling Ownership Interest and Possible Effects."
HEADQUARTERS
The Company's headquarters are located at 2800 Ponce de Leon Boulevard,
Coral Gables, Florida 33134, and its telephone number is (305) 441-7300.
PRIOR GRAND JURY INVESTIGATIONS AND SETTLEMENT
In 1988, the Bank discovered certain transactions that appeared to be
contrary to banking laws and regulations and reported them to the appropriate
governmental agencies. Corrective action was taken based upon the advice of
counsel. A federal grand jury then commenced an investigation involving money
laundering and other criminal activities. The investigation also focused on
self-dealing by three former officers of the Bank. These three former officers
were ultimately indicted and convicted of self-dealing, although the
convictions were overturned on procedural grounds. In connection with the grand
jury investigation, in January 1994 the Bank ultimately entered into a
settlement agreement with the Department of Justice in which the Bank paid a
civil money penalty of $1.95 million for failure to file timely currency
transaction reports in 1987 and 1988.
In addition, as part of the settlement, the Bank agreed to purchase at
appraised value from the United States government, at such time as the
government acquires title, properties at which one bank branch is located and a
former bank branch was located. The Bank paid the United States government
$800,000 in connection with the settlement and relinquished any rights under an
existing mortgage in the principal amount of $800,000 relating to a previously
charged-off loan. The settlement agreement resolved the criminal and civil
liability of the Bank for any act, omission or transaction that was committed
at the Bank by an officer or employee of the Bank which was learned of in the
course of the investigations by the United States Attorney's Office, the
Internal Revenue Service and the FBI.
OCC AGREEMENT
In 1992, the OCC entered into an agreement with the Bank requiring, among
other things, that the Bank assess senior management, improve its credit
administration by, for example, reviewing its compliance procedures,
establishing a position for a person to review real estate appraisals and
reviewing its allowance for loan loss methodology, as well as improving its
Community Reinvestment Act methodology. The agreement was terminated by the OCC
in 1993. The Bank believes that its current relationship with the OCC is
excellent.
BARNETT NEGOTIATIONS
In May 1997, the Company entered into a letter of intent to be acquired by
Barnett for a purchase price in excess of $400 million. Within two weeks of
publicly disclosing the proposed sale, the parties determined that a
transaction would not be consummated. During the ninety day period following
the disclosure of the proposed sale, 102 employees, including the
then-Executive Vice President of Corporate Banking and four Senior Vice
Presidents, three of whom were involved in retail banking, left the Company.
This was more than twice the normal amount of turnover for such a period. The
Company believes that this turnover was due to the public disclosure of the
letter of intent, the resulting uncertainties for employees and competitors'
attempts to take advantage of these uncertainties. The Company does not know
whether the amount of turnover was unusual for this type of situation. The
Company has replaced all personnel that left during this period. Turnover has
returned to historical levels. See "Risk Factors--Recent Personnel Losses" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
21
<PAGE>
The Company also took a defensive posture with its customers during this
period by adjusting loan and fee pricing downward and deposit pricing upward,
as well as increasing its advertising costs, in order to retain customers. The
Company believes that some of its customers were concerned with the uncertainty
relating to a potential sale of the Company and that others were more intensely
solicited by the Company's competitors. The Company also increased its
personnel costs in order to retain employees. The Company overcame this episode
with a limited impact on its balance sheet, but experienced some decline in
loans and deposits, and felt the impact of the resulting competitive pressures
on its second and third quarter earnings.
TRADEMARKS AND INTELLECTUAL PROPERTY
The Company owns eight registered domestic U.S. trademarks or service
marks, and has three pending applications for registration. All of the pending
applications are currently subject to a concurrent use proceeding before the
United States Patent and Trademark Office (concurrent use proceeding No. 791).
These pending applications relate to the use of the proposed trademarks "RNB
Republic Bank", "Republic National Bank" and "Republic National Bank of Miami."
Pursuant to the proceeding, the Company is seeking the right to the exclusive
use of the marks subject to pending applications in certain Florida counties.
The pending applications are contested by several parties. Management believes
that the Company's inability to obtain federal registration of the foregoing
trademarks would not have a material adverse effect on the Company.
LEGAL PROCEEDINGS
The Company is involved only in routine litigation incidental to the
business of banking, none of which is expected to have a material adverse
effect on the Company.
EMPLOYEES
At September 30, 1997, the Company had 691 full-time equivalent employees.
The Company's employees are not represented by a collective bargaining group,
and the Company considers its relations with its employees to be good.
22
<PAGE>
PROPERTIES
The Company is currently managed from its newly constructed headquarters
located in Coral Gables, Florida, where a branch office is also located.
Twenty-four of the Company's other branch offices are located in Miami-Dade
County, Florida. Two branch offices are located in Broward County, Florida.
The table below summarizes the Company's owned and leased facilities:
<TABLE>
<CAPTION>
AVERAGE DEPOSITS
FOR
LEASED SEPTEMBER
LOCATION TYPE OF FACILITY OR OWNED EXPIRATION DATE 1997
- --------------------------------------- ------------------ ---------- ----------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
MIAMI-DADE COUNTY:
Coral Gables ........................ Corporate Owned -- $ 322,389
headquarters
and branch
Bird Road ........................... Branch Owned -- 52,859
Calle Ocho ........................... Branch (1) July 2000(3) 70,543
Country Walk ........................ Branch Leased October 2001 3,779
Downtown .............................. Branch Leased October 2000 87,709
East Hialeah ........................ Branch Owned -- 34,009
Fisher Island ........................ Branch Leased June 2001 14,218
Gratigny .............................. Branch Leased February 2003 35,010
Hialeah .............................. Branch Owned -- 49,271
LeJeune .............................. Branch (1) January 2001(3) 167,766
Little Havana ........................ Branch (1) November 2055 38,790
Miami Lakes ........................... Branch Leased August 2006 13,448
Milam Dairy ........................... Branch Leased July 1998 18,236
North Dade ........................... Branch Leased March 2000 29,529
Orange Bowl ........................... Branch Owned -- 44,106
Overtown .............................. Branch Leased October 2000 1,030
Palmetto .............................. Branch Leased June 2004 6,438
South Miami ........................... Branch Owned -- 20,925
Tamiami .............................. Branch Owned -- 26,893
Suniland(2) ........................... Branch Leased March 1999 --
West Dade ........................... Branch Owned -- 38,378
West Gables ........................... Branch Owned -- 591
West Kendall ........................ Branch Owned -- 33,463
Westchester ........................... Branch Leased December 2015 63,699
Westland .............................. Branch Leased October 2013 55,292
----------
Total Miami-Dade
County deposits .................. 1,228,371
----------
BROWARD COUNTY:
Palm Aire ........................... Branch Leased December 1998 32,355
Tamarac .............................. Branch Leased September 2006 46,361
----------
Total Broward County deposits ...... 78,716
----------
Total deposits ..................... $1,307,087
==========
</TABLE>
- ----------------
(1) Represents branches at which the buildings are located on land, a portion
of which is leased by the Company pursuant to a long-term lease.
(2) Represents branch opened after September 30, 1997.
(3) On locations with multiple land leases, the earliest expiration date is
shown.
23
<PAGE>
COMPETITION
The banking business is highly competitive, and the profitability of the
Company depends principally upon the Company's ability to compete in the market
areas in which its banking operations are located. The Company competes for
loans, deposits and other matters with other commercial banks, savings banks,
savings and loan associations, credit unions, finance companies, mutual funds,
insurance companies, brokerage and investment banking firms and asset-based
non-bank lenders which may offer more favorable financing than the Company. The
Company competes with similarly-sized local financial institutions, regional
and multi-regional financial institutions and smaller community banks, although
its size, including the number of branches, and a higher legal lending limit,
give it certain competitive advantages with respect to the smaller community
banks. In Broward and Palm Beach counties, the Company may compete primarily
with regional and multi-regional financial institutions. Many of the foregoing
institutions also are the primary competitors of the Company for employees, and
several of them hired a number of Company employees after the announcement of a
proposed sale to Barnett. In addition, the Company competes with major money
center banks and foreign banks operating in Miami-Dade County with respect to
its private banking and international lending businesses. Many of the Company's
competitors, including the regional and multi-regional financial institutions,
have greater financial and other resources than the Company. The Company
believes that it has been able to compete effectively with other financial
institutions by emphasizing customer service, through local decision-making, by
establishing long-term customer relationships and building customer loyalty and
by designing its loan products to address the specific needs of its customers,
when appropriate. Although the Company has been able to compete effectively in
the past, no assurances may be given that the Company will continue to be able
to compete effectively in the future. In addition, various legislative acts in
recent years have led to increased competition among financial institutions. As
a result of these acts, most barriers to entry in the south Florida market by
out of state financial institutions have been eliminated. There can be no
assurance that the United States Congress or the Florida legislature will not
enact legislation that may further increase competitive pressures on the
Company. Competition from both financial and nonfinancial institutions is
expected to continue. See "Risk Factors--Competition."
24
<PAGE>
RECENT DEVELOPMENTS
Net income for the three months ended December 31, 1997 was $4.2 million,
or $0.22 per share, compared to $5.2 million, or $0.27 per share, for the same
period in 1996. Included in the determination of net income for the fourth
quarter of 1997 were expenses related to an increase in the provision for loan
losses as compared to the provision for loan losses for the fourth quarter of
1996, which management determined to be necessary based on its assessment of
the loan portfolio, after taking into consideration commercial and consumer
loan chargeoffs for the quarter. Net income for the year ended December 31,
1997 (including the above items) was $18.3 million, or $0.96 per share,
compared to $18.0 million, or $0.96 per share. Notwithstanding an increase in
net interest income and a decrease in non-interest expenses, net income
remained relatively stable, primarily because of a higher provision for loan
losses.
The following table presents for the periods indicated certain summary
consolidated financial data reflecting the Company's results of operations and
financial condition.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------- -----------------------
1997 1996 1997 1996
------------- ------------- ------------ --------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net income ................................. $ 4,234 $ 5,179 $18,340 $18,044
Net income per share(1) ..................... 0.22 0.27 0.96 0.96
Provision for loan losses .................. 1,962 603 5,566 2,381
Net loan chargeoffs ........................ 2,171 795 5,144 2,214
Weighted average common and common equivalent
shares outstanding ........................ 19,686 18,873 19,076 18,873
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------
1997 1996
--------------- ---------------
(UNAUDITED)
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets ................................................... $ 1,515,418 $ 1,511,951
Total loans ................................................... 929,410 973,640
Total deposits ................................................ 1,302,345 1,320,126
Total shareholders' equity .................................... 146,131 124,693
Book value per share .......................................... 7.27 6.61
ASSET QUALITY RATIOS(2):
Nonperforming assets to total loans and other real estate ...... 0.96% 0.55%
Allowance for loan losses to nonperforming loans(2) ............ 173.59 395.96
Allowance for loan losses to total loans ........................ 1.29 1.19
</TABLE>
- ----------------
(1) Net income per share is based upon the weighted average number of common
shares outstanding and common share equivalents during the period,
adjusted for a 20% stock dividend in 1996 and for the Stock Split. Under
FASB No. 128, the calculation of basic and fully diluted earnings per
share would be the same for all periods presented.
(2) Nonperforming loans consist of nonaccrual loans, restructured loans and
accruing loans 90 days or more past due.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of shares of
Common Stock offered hereby, after deducting the underwriting discount and
estimated offering expenses, are estimated to be approximately $12.2 million
($16.4 million if the Underwriters' over-allotment option is exercised in
full). The Company will receive no proceeds from the sale of Common Stock by
the Selling Shareholders.
The Company intends to invest substantially all of the net proceeds of the
Offering in the Bank to support future growth in the Bank's business and for
working capital and other general corporate purposes.
25
<PAGE>
DIVIDEND POLICY
Holders of Common Stock are entitled to receive dividends when, as and if
declared by the Company's Board of Directors out of funds legally available
therefor. While the Company has declared dividends on its Common Stock since
1990 and in 1997 paid an annual dividend aggregating $0.52 per share, there is
no assurance that the Company will continue to pay dividends in the future.
For the foreseeable future, the principal source of cash revenues of
Bancorp will be dividends paid by the Bank with respect to the Bank's capital
stock. There are certain restrictions on the payment of such dividends imposed
by federal and state banking laws, regulations and authorities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Regulation--The Bank."
In the future, the declaration and payment of dividends on the Common
Stock will depend upon the earnings and financial condition of the Company,
liquidity and capital requirements, the general economic and regulatory
climate, the Company's ability to service any equity or debt obligations senior
to the Common Stock and other factors deemed relevant by the Company's Board of
Directors, although the Company presently intends to pay quarterly dividends of
$0.07 per share beginning in 1998. See "Regulation" and "Description of Capital
Stock." As of September 30, 1997, an aggregate of approximately $27.7 million
was available for payment of dividends by the Bank to Bancorp under applicable
restrictions, without regulatory approval, taking into consideration dividends
that would have to be paid to minority shareholders of the Bank after giving
effect to the Reorganization. Regulatory authorities could impose
administratively stricter limitations on the ability of the Bank to pay
dividends to Bancorp if such limits were deemed appropriate to preserve certain
capital adequacy requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Regulation."
26
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1997 giving pro forma effect to the Reorganization
and to the change in par value of the Common Stock to $0.01 per share, and as
adjusted, giving effect also to the sale by the Company of 933,270 shares of
Common Stock offered hereby and the related estimated net proceeds therefrom
(approximately $12.2 million). See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED
------------- -------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Shareholders' Equity:
Preferred Stock, $0.01 par value; 5,000,000 shares authorized;
0 shares issued and outstanding ........................... $ -- $ -- $ --
Common Stock, $0.01 par value; 50,000,000 shares authorized;
18,872,904 shares issued and outstanding; 20,093,129 pro
forma shares issued and outstanding(1), 21,026,399 shares
issued and outstanding, as adjusted(2) ..................... 9,437 201 210
Capital surplus ............................................. 77,221 99,269 111,479
Retained earnings .......................................... 42,077 42,077 42,077
Net unrealized gain on available-for-sale securities ......... 415 442 442
--------- --------- ---------
Total shareholders' equity ................................. $ 129,150 $ 141,989 $ 154,208
========= ========= =========
Ratios(3):
Tier 1 Capital Ratio ....................................... 14.14% 14.14% 15.35%
Total Capital Ratio .......................................... 15.39 15.39 16.60
Leverage Ratio ............................................. 8.52 8.52 9.25
</TABLE>
- ----------------
(1) The pro forma information gives effect to the Reorganization as if the
Reorganization had occurred on September 30, 1997. Common Stock is
reflected at $0.01 par value per common share.
(2) Does not include an aggregate of 1,000,000 shares of Common Stock reserved
for issuance under the Plan, pursuant to which options to purchase 500,000
shares of Common Stock will be issued and outstanding upon consummation of
this Offering. See "Management--1998 Stock Option Plan."
(3) The net proceeds from this Offering will initially be deposited in cash and
cash equivalents and will subsequently be applied as described in "Use of
Proceeds." The "as adjusted" ratios have been calculated assuming the net
proceeds are invested in assets with a weighted average risk weighting of
60%, which is consistent with the Company's historical risk-weighted asset
composition.
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following Selected Consolidated Financial Data of the Company should
be read in conjunction with the Consolidated Financial Statements of the
Company, the information contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
included elsewhere in this Prospectus. The selected historical consolidated
financial data as of and for the four years ended December 31, 1996 are derived
from the Company's Consolidated Financial Statements which have been audited by
Price Waterhouse LLP, independent certified public accountants. The selected
historical consolidated financial data as of and for the year ended December
31, 1992 are derived from the Company's Consolidated Financial Statements which
have been audited by other independent certified public accountants. The
selected historical consolidated financial data as of and for the nine months
ended September 30, 1997 and September 30, 1996 have not been audited but, in
the opinion of management, contain all adjustments (consisting of normal
recurring adjustments) necessary for a fair statement of the results for the
interim periods. The results of operations for the nine months ended September
30, 1997 are not necessarily indicative of the results of operations that may
be expected for the year ended December 31, 1997, or for any future periods.
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Interest income .................................... $ 85,886 $ 77,323
Interest expense ................................. 38,039 31,762
-------- --------
Net interest income .............................. 47,847 45,561
Provision for loan losses ........................ 3,604 1,778
-------- --------
Net interest income after provision for loan losses 44,243 43,783
Noninterest income ................................. 17,963 17,856
Noninterest expenses .............................. 39,799 40,345
-------- --------
Net income before taxes ........................... 22,407 21,294
Provision for income tax expense .................. 7,243 7,468
Cumulative effect of change in accounting principle -- --
Minority interest ................................. 1,058 961
-------- --------
Net income ....................................... $ 14,106 $ 12,865
======== ========
PRO FORMA INCOME STATEMENT DATA(1):
Net income before taxes ........................... $ 22,238
Provision for income tax expense .................. 7,243
Minority interest ................................. 144
--------
Net income ....................................... $ 14,851
========
PER SHARE DATA(2):
Net income ....................................... $ 0.75 $ 0.68
Book value ....................................... 6.84 6.31
Tangible book value .............................. 6.39 5.81
Cash dividends .................................... 0.52 0.50
Dividends payout ratio ........................... 69.33% 73.53%
Weighted average common and common equivalent shares
outstanding (in thousands) ........................ 18,873 18,873
PRO FORMA PER SHARE DATA(1):
Net income ....................................... $ 0.74
Book value ....................................... 7.07
Cash dividends .................................... 0.52
Dividends payout ratio ........................... 70.27%
Weighted average common and common equivalent shares
outstanding (in thousands) ........................ 20,093
<CAPTION>
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------ ------------ ------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income .................................... $ 104,134 $ 95,056 $ 76,964 $ 75,531 $ 83,737
Interest expense ................................. 43,249 38,411 24,322 21,795 31,984
--------- -------- -------- --------- --------
Net interest income .............................. 60,885 56,645 52,642 53,736 51,753
Provision for loan losses ........................ 2,381 890 2,500 2,450 3,205
--------- -------- -------- --------- --------
Net interest income after provision for loan losses 58,504 55,755 50,142 51,286 48,548
Noninterest income ................................. 24,231 22,458 20,289 17,046 17,886
Noninterest expenses .............................. 53,017 50,021 46,456 50,379 47,822
--------- -------- -------- --------- --------
Net income before taxes ........................... 29,718 28,192 23,975 17,953 18,612
Provision for income tax expense .................. 10,324 9,103 7,687 6,181 4,983
Cumulative effect of change in accounting principle -- -- -- 838 --
Minority interest ................................. 1,350 1,330 1,136 881 949
--------- -------- -------- --------- --------
Net income ....................................... $ 18,044 $ 17,759 $ 15,152 $ 11,729 $ 12,680
========= ======== ======== ========= ========
PRO FORMA INCOME STATEMENT DATA(1):
Net income before taxes ........................... $ 29,492
Provision for income tax expense .................. 10,324
Minority interest ................................. 184
---------
Net income ....................................... $ 18,984
=========
PER SHARE DATA(2):
Net income ....................................... $ 0.96 $ 0.94 $ 0.80 $ 0.62 $ 0.67
Book value ....................................... 6.61 6.15 5.32 5.06 4.84
Tangible book value .............................. 6.12 5.62 5.25 4.97 4.73
Cash dividends .................................... 0.50 0.25 0.42 0.40 0.35
Dividends payout ratio ........................... 52.08% 26.60% 52.50% 64.52% 52.24%
Weighted average common and common equivalent shares
outstanding (in thousands) ........................ 18,873 18,873 18,873 18,873 18,873
PRO FORMA PER SHARE DATA(1):
Net income ....................................... $ 0.94
Book value .......................................
Cash dividends .................................... 0.50
Dividends payout ratio ........................... 53.19%
Weighted average common and common equivalent shares
outstanding (in thousands) ........................ 20,093
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1997 1996
--------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets .......................................... $ 1,517,529 $ 1,451,676
Securities ............................................. 384,988 346,676
Loans ................................................... 953,052 909,202
Allowance for loan losses .............................. 12,209 11,770
Total deposits .......................................... 1,298,535 1,253,964
Total shareholders' equity .............................. 129,150 119,123
PRO FORMA BALANCE SHEET DATA(1):
Total assets .......................................... $ 1,522,044
Total shareholders' equity .............................. 141,989
AVERAGE BALANCE SHEET DATA:
Total assets .......................................... $ 1,533,553 $ 1,387,477
Securities ............................................. 330,095 324,240
Loans ................................................... 983,091 851,834
Allowance for loan losses .............................. 12,272 11,823
Total deposits .......................................... 1,326,907 1,208,298
Total shareholders' equity .............................. 122,346 114,714
PERFORMANCE RATIOS(3):
Return on average assets .............................. 1.23% 1.24%
Return on average equity .............................. 15.42 14.98
Net interest margin .................................... 4.57 4.81
Efficiency ratio(4) .................................... 60.48 63.62
ASSET QUALITY RATIOS(5):
Nonperforming assets to total loans and other real
estate ................................................ 1.82% 0.60%
Net loan charge-offs to average loans(3) ............... 0.40 0.22
Allowance for loan losses to total loans ............... 1.28 1.29
Allowance for loan losses to nonperforming loans(6) 79.70 504.93
CAPITAL RATIOS(5):
Leverage ratio .......................................... 8.52% 8.27%
Average shareholders' equity to average total assets . 7.98 8.27
Tier 1 risk-based capital ratio ........................ 14.14 14.06
Total risk-based capital ratio ........................ 15.39 15.31
<CAPTION>
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1996 1995 1994 1993
---------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets .......................................... $ 1,511,951 $ 1,324,968 $ 1,172,209 $ 1,106,641
Securities ............................................. 331,204 320,084 359,545 284,611
Loans ................................................... 973,640 821,090 667,091 641,413
Allowance for loan losses .............................. 11,578 11,411 11,680 11,563
Total deposits .......................................... 1,320,126 1,156,324 1,029,116 967,615
Total shareholders' equity .............................. 124,693 116,140 100,447 95,509
PRO FORMA BALANCE SHEET DATA(1):
Total assets ..........................................
Total shareholders' equity ..............................
AVERAGE BALANCE SHEET DATA:
Total assets .......................................... $ 1,405,517 $ 1,261,146 $ 1,136,191 $ 1,148,513
Securities ............................................. 327,425 348,438 328,504 342,779
Loans ................................................... 872,094 735,318 635,555 627,929
Allowance for loan losses .............................. 11,793 11,893 11,968 10,922
Total deposits .......................................... 1,221,350 1,105,382 1,000,787 1,011,508
Total shareholders' equity .............................. 116,493 106,141 95,250 91,393
PERFORMANCE RATIOS(3):
Return on average assets .............................. 1.28% 1.41% 1.33% 1.02%
Return on average equity .............................. 15.49 16.73 15.91 12.83
Net interest margin .................................... 4.75 4.91 5.06 5.14
Efficiency ratio(4) .................................... 62.29 63.09 63.70 71.17
ASSET QUALITY RATIOS(5):
Nonperforming assets to total loans and other real
estate ................................................ 0.55% 0.96% 1.21% 2.19%
Net loan charge-offs to average loans(3) ............... 0.25 0.25 0.37 0.14
Allowance for loan losses to total loans ............... 1.19 1.39 1.75 1.80
Allowance for loan losses to nonperforming loans(6) 395.96 244.09 230.74 112.46
CAPITAL RATIOS(5):
Leverage ratio .......................................... 8.52% 8.78% 9.32% 8.82%
Average shareholders' equity to average total assets . 8.29 8.42 8.38 7.96
Tier 1 risk-based capital ratio ........................ 14.44 13.75 15.63 16.13
Total risk-based capital ratio ........................ 15.69 15.00 16.88 17.38
<CAPTION>
1992
---------------
<S> <C>
BALANCE SHEET DATA:
Total assets .......................................... $ 1,193,649
Securities ............................................. 343,900
Loans ................................................... 678,920
Allowance for loan losses .............................. 10,022
Total deposits .......................................... 1,062,368
Total shareholders' equity .............................. 91,329
PRO FORMA BALANCE SHEET DATA(1):
Total assets ..........................................
Total shareholders' equity ..............................
AVERAGE BALANCE SHEET DATA:
Total assets .......................................... $ 1,195,731
Securities ............................................. 372,866
Loans ................................................... 613,459
Allowance for loan losses .............................. 9,116
Total deposits .......................................... 1,068,858
Total shareholders' equity .............................. 84,479
PERFORMANCE RATIOS(3):
Return on average assets .............................. 1.06%
Return on average equity .............................. 15.01
Net interest margin .................................... 4.78
Efficiency ratio(4) .................................... 68.67
ASSET QUALITY RATIOS(5):
Nonperforming assets to total loans and other real
estate ................................................ 4.62%
Net loan charge-offs to average loans(3) ............... 0.27
Allowance for loan losses to total loans ............... 1.48
Allowance for loan losses to nonperforming loans(6) 64.20
CAPITAL RATIOS(5):
Leverage ratio .......................................... 8.03%
Average shareholders' equity to average total assets . 7.07
Tier 1 risk-based capital ratio ........................ 14.46
Total risk-based capital ratio ........................ 15.71
</TABLE>
- ---------------
(1) Pro forma balance sheet information gives effect to the Reorganization as
if it occurred on September 30, 1997. Pro forma income statement
information gives effect to the goodwill amortization and change in
minority interest as a result of the Reorganization as if the
Reorganization occurred on January 1, 1996.
(2) Per share data is based upon the weighted average number of common and
common equivalent shares outstanding during the period, adjusted for a 20%
stock dividend in 1996 and for the Stock Split. Under FASB No. 128, the
calculation of basic and fully diluted earnings per share would be the
same for all periods presented.
(3) All interim periods have been annualized.
(4) Calculated by dividing total noninterest expenses by net interest income
plus noninterest income, excluding securities gains and losses.
(5) At period end, except for "Net loan charge-offs to average loans" and
"Average shareholders' equity to average total assets."
(6) Nonperforming loans consist of nonaccrual loans, restructured loans and
accruing loans 90 days or more past due.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company analyzes the major elements of the Company's balance
sheets and statements of operations. This section should be read in conjunction
with the Company's Consolidated Financial Statements and accompanying notes and
other detailed information appearing elsewhere in this Prospectus.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
OVERVIEW
The strong balance sheet growth from 1995 and 1996 continued through the
first quarter of 1997. During the second quarter, the Board of Directors
entered into negotiations with Barnett for the sale of the Company. While these
negotiations terminated within ten days of the public announcement thereof,
they resulted in high personnel turnover, significantly greater than historical
experience. During the second and third quarters, the Company's retail and
lending staff experienced particularly high turnover. See "The Company--Barnett
Negotiations." The Company took a defensive posture with its customers during
this period by adjusting loan and fee pricing downward and deposit pricing
upward, as well as increasing its advertising costs, in order to retain
customers. The Company believes that some of its customers were concerned with
the uncertainty relating to a potential sale of the Company and that others
were more intensely solicited by the Company's competitors. The Company also
increased its personnel costs in order to retain employees. The Company
overcame this episode with a limited impact on its balance sheet, but
experienced some decline in loans and deposits and felt the impact of the
resulting competitive pressures on its second and third quarter earnings. The
provision for loan losses during the nine month period ended September 30, 1997
was also above historical levels, as the Company experienced a higher than
historical level of losses in its commercial loan portfolio and continued
losses in its consumer portfolio. Although there is no assurance and it is
impossible for the Company to predict with any certainty at this time, based
upon present conditions, the Company does not believe that it will experience,
in 1998, as high a level of loan losses relative to its historical performance
as it experienced in 1997. Actual results may differ from management's beliefs
and such difference could result in higher losses.
Net income for the nine month period ended September 30, 1997 was $14.1
million or 9.30% more than net income of $12.9 million for the nine months
ended September 30, 1996. Net income per share was $0.75 for the nine months
ended September 30, 1997 and $0.68 for the nine months ended September 30,
1996. The increase in net income reflected higher net interest income, which
was driven by growth in interest-earning assets. Earnings were impacted by a
higher provision for loan losses in 1997 which was double the amount provided
for during the same period in 1996. Return on average assets and return on
average equity were 1.23% and 15.42%, respectively, for the nine months ended
September 30, 1997, compared to 1.24% and 14.98%, respectively, for the nine
months ended September 30, 1996. Earnings for the nine month period ended
September 30, 1996 were affected by a special FDIC assessment of $1.4 million.
Total assets at September 30, 1997 increased to $1,517.5 million from
$1,451.7 million at September 30, 1996, an increase of $65.8 million or 4.53%.
Deposits rose to $1,298.5 million at September 30, 1997 from $1,254.0 million
at September 30, 1996, an increase of $44.5 million or 3.55%. Total
shareholders' equity was $129.2 million at September 30, 1997, representing a
$10.1 million or 8.48% increase over total shareholders' equity of $119.1
million at September 30, 1996.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income represents the amount by which interest income on
interest-earning assets, including securities and loans, exceeds interest
expense incurred on interest-bearing liabilities, including deposits and other
borrowed funds. Net interest income is the principal source of the Company's
earnings. Interest rate fluctuations, as well as changes in the amount and type
of interest-earning assets and interest-bearing liabilities, combine to affect
net interest income.
30
<PAGE>
Net interest income for the nine months ended September 30, 1997 was $47.8
million compared to $45.6 million for the nine months ended September 30, 1996,
an increase of $2.2 million or 4.82%. Interest income increased primarily as a
result of increased loan volume, partially offset by a decrease in average
yields on loans. Average interest-earning assets increased to $1,399.4 million
for the nine months ended September 30, 1997 from $1,264.9 million for the nine
months ended September 30, 1996, an increase of $134.5 million or 10.63%.
Average loans increased to $983.1 million for the nine months ended September
30, 1997 from $851.8 million for the nine months ended September 30, 1996, an
increase of $131.3 million or 15.41%. The increase in interest income was
partially offset by a $6.3 million or 19.76% increase in interest expense
primarily due to the growth in time deposits and the average rates paid
thereon. Average interest-bearing liabilities increased to $1,119.3 million for
the nine months ended September 30, 1997 from $984.0 million for the nine
months ended September 30, 1996, an increase of $135.3 million or 13.75%.
Average time deposits increased to $742.8 million for the nine months ended
September 30, 1997 from $616.0 million for the nine months ended September 30,
1996, an increase of $126.8 million or 20.58%.
The Company posted net interest margins of 4.57% and 4.81% and net
interest spreads of 3.66% and 3.86% for the periods ended September 30, 1997
and September 30, 1996, respectively. The decrease in the net interest margin
from the first nine months of 1996 to the first nine months of 1997 reflects a
three basis point increase in the yield on average interest-earning assets and
a 23 basis point increase in the cost of interest-bearing liabilities. The
yield on average interest-earning assets increased to 8.20% for the nine months
ended September 30, 1997 from 8.17% for the nine months ended September 30,
1996, primarily due to a 22 basis point increase in the average yield on
securities. This was partially offset by a 16 basis point decrease in the
average yield on loans due to competitive pressures and growth in lower
yielding international loans. The cost of interest-bearing liabilities
increased to 4.54% for the nine months ended September 30, 1997 from 4.31% for
the nine months ended September 30, 1996. This increase was due mainly to
increased funding from higher cost time deposits and higher costs of funds.
31
<PAGE>
The following table presents for the periods indicated the total dollar
amount of average balances, interest income from average interest-earning
assets, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and annualized rates. No tax equivalent
adjustments were made and all average balances are average daily balances.
Nonaccruing loans have been included in the tables as loans carrying a zero
yield.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------------
1997 1996
------------------------------------------- -------------------------------------------
AVERAGE AVERAGE
OUTSTANDING INTEREST AVERAGE OUTSTANDING INTEREST AVERAGE
BALANCE EARNED/PAID YIELD/RATE BALANCE EARNED/PAID YIELD/RATE
------------- ---------------- ------------ ------------- ----------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Total loans(1) ........................ $ 983,091 $ 66,934(1) 9.10% $ 851,834 $ 59,035(1) 9.26%
Taxable securities .................. 295,435 13,974 6.32 294,174 13,294 6.04
Tax-exempt securities ............... 34,660 1,480 5.71 30,066 1,363 6.06
Federal funds sold and other
temporary investments ............... 86,217 3,498 5.42 88,800 3,631 5.46
----------- ----------- ---- ----------- ------------ ----
Total interest-earning assets ...... 1,399,403 85,886 8.20 1,264,874 77,323 8.17
----------- ---- ------------ ----
Less allowance for loan losses ......... 12,272 11,823
----------- -----------
Total interest-earning assets, net of
allowance ........................... 1,387,131 1,253,051
Nonearning assets ..................... 146,422 134,426
----------- -----------
Total assets ........................ $1,533,553 $1,387,477
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits . $ 64,388 729 1.51 $ 66,444 820 1.65
Savings and money market
accounts ........................... 250,766 5,260 2.80 262,989 5,635 2.86
State, county and municipal
certificates of deposit ............ 28,535 1,170 5.48 16,920 677 5.39
Certificates of deposit ............... 714,305 28,628 5.36 599,030 23,225 5.18
Federal funds purchased and
securities sold under repurchase
agreements ........................ 54,471 1,965 4.82 34,040 1,208 4.74
Other borrowings ..................... 6,824 287 5.62 4,609 197 5.71
----------- ----------- ---- ----------- ------------ ----
Total interest-bearing liabilities . 1,119,289 38,039 4.54 984,032 31,762 4.31
----------- ---- ------------ ----
Noninterest-bearing liabilities:
Noninterest-bearing demand
deposits ........................... 268,913 262,913
Other liabilities .................. 13,909 17,294
----------- -----------
Total liabilities .................. 1,402,111 1,264,239
Minority interest ..................... 9,096 8,524
Shareholders' equity .................. 122,346 114,714
----------- -----------
Total liabilities and
shareholders' equity ............... $1,533,553 $1,387,477
=========== ===========
Net interest income .................. $ 47,847 $ 45,561
=========== ============
Net interest spread .................. 3.66% 3.86%
==== ====
Net interest margin .................. 4.57% 4.81%
==== ====
</TABLE>
- ----------------
(1) Includes $2.2 million and $1.7 million in loan fees for the 1997 and 1996
periods, respectively.
32
<PAGE>
The following schedule presents the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase
(decrease) related to higher outstanding balances and the volatility of
interest rates. For purposes of this table, changes attributable to both rate
and volume have been allocated to rate.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1997 VS. 1996
----------------------------------------
INCREASE (DECREASE)
DUE TO
---------------------------
VOLUME RATE TOTAL
---------- -------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets
Total loans ............................................. $9,096 $(1,197) $7,899
Securities ................................................ 265 532 797
Federal funds sold and other temporary investments ...... (106) (27) (133)
------ ------- ------
Total increase (decrease) in interest income ............ 9,255 (692) 8,563
------ ------- ------
Interest-bearing liabilities
Interest-bearing demand deposits ........................ (25) (66) (91)
Savings and money market accounts ........................ (262) (113) (375)
State, county and municipal certificates of deposit ...... 465 28 493
Certificates of deposit and other time deposits ......... 4,466 937 5,403
Federal funds purchased and securities sold under
repurchase agreements ................................. 725 32 757
Other borrowings .......................................... 95 (5) 90
------ ---------- ------
Total increase (decrease) in interest expense ............ 5,464 813 6,277
------ --------- ------
Increase (decrease) in net interest income ............... $3,791 $(1,505) $2,286
====== ========= ======
</TABLE>
PROVISION FOR LOAN LOSSES
In determining the adequacy of the allowance for loan losses, the Company
considers portfolio quality, composition, loss experience, growth, economic
conditions and other risk factors related to the loan portfolio. The provision
for loan losses increased to $3.6 million for the nine months ended September
30, 1997 from $1.8 million for the same time period in 1996, an increase of
$1.8 million or 100%. The increased provision resulted from a continued high
level of consumer loan losses and above historical average commercial loan
losses in 1997. See "--Financial Condition--Allowance for Loan Losses."
NONINTEREST INCOME
Noninterest income is an important source of revenue for financial
institutions in a deregulated environment. Noninterest income for the nine
months ended September 30, 1997 was $18.0 million, an increase of $107,000 or
0.60% from $17.9 million for the same period in 1996. The following table
presents for the periods indicated the major categories of noninterest income:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
--------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Service charges on deposit accounts ...... $ 9,037 $ 9,754
Merchant credit card discounts ............ 6,109 5,246
Letter of credit fees ..................... 793 792
Gains on sale of securities ............... -- 1
Other noninterest income .................. 2,024 2,063
------- -------
Total noninterest income ............... $17,963 $17,856
======= =======
</TABLE>
33
<PAGE>
Service charges on deposit accounts is the largest component of
noninterest income and a significant source of revenue to the Company. Service
charges on deposit accounts declined by $717,000 or 7.35% to $9.0 million for
the nine months ended September 30, 1997 from $9.8 million for the nine months
ended September 30, 1996, principally as a result of a reduced number of
overdrafts and reduced monthly service fees on certain checking accounts. The
Company generates substantial noninterest income from merchant credit card
discounts, consisting of fees paid by commercial clients for the processing of
credit card transactions. Merchant credit card discounts increased $863,000 or
16.45% to $6.1 million for the nine months ended September 30, 1997 from $5.2
million for the nine months ended September 30, 1996, principally due to the
successful marketing of such services. Letter of credit fees remained constant
during the nine months ended September 30, 1997 as compared to the nine months
ended September 30, 1996.
NONINTEREST EXPENSE
Noninterest expenses decreased $546,000 or 1.37% to $39.8 million for the
nine month period ended September 30, 1997 from $40.3 million for the nine
month period ended September 30, 1996. The efficiency ratio, calculated by
dividing total noninterest expenses by net interest income plus noninterest
income excluding securities gains or losses, was 60.48% for the nine months
ended September 30, 1997 and 63.62% for the nine months ended September 30,
1996. This improvement was partially due to personnel savings in 1997 and the
aforementioned large 1996 expenditures.
The following table represents for the periods indicated the major
categories of noninterest expense:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Employee compensation and benefits .................. $20,144 $20,472
------- -------
Non-staff expenses:
Occupancy .......................................... 4,379 3,661
Furniture and equipment ........................... 2,034 2,088
Provision for loss on disposition of property ...... -- 810
Merchant credit card interchange fees ............... 4,227 3,693
Professional fees ................................. 379 1,097
FDIC assessment .................................... 194 1,720
Advertising ....................................... 1,025 696
Amortization of intangibles ........................ 683 716
Printing and supplies .............................. 689 731
Other real estate owned ........................... 236 149
Fraud losses (recoveries) net ..................... 401 (60)
Capitalized construction interest credit ............ (390) (520)
Other ............................................. 5,798 5,092
------- -------
Total non-staff expenses ........................... 19,655 19,873
------- -------
Total noninterest expense ........................ $39,799 $40,345
======= =======
</TABLE>
Employee compensation and benefit expense for the nine months ended
September 30, 1997 was $20.1 million, a decrease of $328,000 or 1.60% from
$20.5 million in the same period of 1996. This decrease was primarily a result
of the implementation of a reengineering study of the Company (the
"Reengineering Study"), partially offset by normal salary increases, the impact
of branch expansion and mid-year staff compensation adjustments due to the high
level of turnover. Total full-time equivalent employees at September 30, 1997
increased to 691 from 683 at September 30, 1996.
Non-staff expenses decreased to $19.7 million for the nine month period
ended September 30, 1997 from $19.9 million for the same period in 1996, a
decrease of $218,000 or 1.10%. This decrease in non-staff expenses primarily
reflected reduced charges related to a special FDIC assessment, provision for
loss on disposition of property and the Reengineering Study, partially offset
by increased occupancy
34
<PAGE>
expenses relating to the Company's new headquarters and the opening of three
new branches, increased merchant credit card interchange fees, increased
advertising expenditures, increased fraud losses and increases in certain other
expenses.
Occupancy expenses increased $718,000 in the nine months ended September
30, 1997, principally as a result of the opening of the Company's new corporate
headquarters in April 1997. During the nine months ended September 30, 1996,
the Company recorded a provision of $810,000 related to disposition of
property. The Company did not record a similar provision during the nine months
ended September 30, 1997.
In 1995, the Company commissioned an independent consultant to conduct the
Reengineering Study. The focus of the Reengineering Study was to enable the
Company to better manage costs related to personnel. The costs associated with
the Reengineering Study are reflected in professional fees paid by the Company
in 1995 and 1996. Professional fees decreased by $718,000 in the nine months
ended September 30, 1997 as compared to the nine months ended September 30,
1996, primarily as a result of the completion of the Reengineering Study in
August 1996.
In September 1996, the Company paid a one-time FDIC assessment of $1.4
million with respect to the Company's deposits acquired from failed thrifts and
insured by the Savings Association Insurance Fund ("SAIF") of the FDIC.
Principally because no similar assessment was made in the nine months ended
September 30, 1997, FDIC assessment decreased by $1.5 million as compared to
the nine months ended September 30, 1996.
Merchant credit card interchange fees increased by $534,000 in the nine
months ended September 30, 1997 as compared to the nine months ended September
30, 1996 as a result of the growth of the Company's merchant credit card
operations.
INCOME TAXES
Income tax expense includes the regular federal income tax at the
statutory rate and the Florida bank franchise tax. The amount of federal income
tax expense is influenced by the amount of taxable income, the amount of
tax-exempt income, the amount of non-deductible interest expenses and the
amount of other non-deductible expense. Taxable income with respect to the
Florida bank franchise tax is federal pre-tax income, plus income obligations
of tax exempt entities located outside the state of Florida less related
nondeductible interest expenses. A credit is allowed against the tax equal to
the lesser of 65.00% of the bank franchise tax or the amount of Florida
intangible tax expense paid during the year. An additional exclusion from
taxable income is provided for net income from an international banking
facility. During the nine months ended September 30, 1997, income tax expense
was $7.2 million or 4.00% lower than the $7.5 million for the nine months ended
September 30, 1996. The effective tax rate for the nine months ended September
30, 1997 was 32.32%.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" and in
December 1996, the FASB issued a related Statement of Financial Accounting
Standards No. 127, "Deferral of the Effective Date of Certain Provisions of
FASB No. 125" (collectively "Statement No. 125"). Statement No. 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities based on a financial components
approach that focuses on control. Portions of Statement No. 125 were effective
for transactions entered into after December 31, 1996 with the remaining
portions effective for transactions entered into after December 31, 1997. The
impact of adopting Statement No. 125 has not been nor is it currently expected
to be material to the Company's financial position or results of operations.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("Statement No. 128"). Statement No.
128 specifies the computation, presentation and disclosure requirements for
earnings per share for public companies. It replaces primary earnings per share
and fully diluted earnings per share with basic earnings per share and diluted
earnings per share and is effective for the reporting periods ending after
December 15, 1997. For the Company, the
35
<PAGE>
computation for basic earnings per share is similar to the primary earnings per
share currently presented by the Company. The calculation of diluted earnings
per share will first apply to the Company for the financial statements upon the
effective date of the Plan and the grant of options thereunder. The impact of
adopting Statement No. 128 will depend upon the number of options outstanding
under the Plan at any one time.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure"
("Statement No. 129"). Statement No. 129 continues previous requirements to
disclose certain information about an entity's capital structure. The Company
currently complies with the disclosure requirements of Statement No. 129.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("Statement No. 130").
Statement No. 130 establishes standards for reporting and display of
comprehensive income and its components in an entity's financial statements.
This statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income as a separate component
in the equity section of a statement of financial position. This statement is
effective for reporting periods beginning after December 15, 1997. The impact
of adopting Statement No. 130 cannot be determined at this time.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information
("Statement No. 131"). Statement No. 131 establishes standards for the way
public business enterprises report information about operating segments in
annual financial statements and for related disclosures about products and
services, geographic areas and major customers. This statement is effective for
reporting periods beginning after December 15, 1997. The Company's internal
reports contain the necessary information to comply with this statement.
36
<PAGE>
FINANCIAL CONDITION
LOAN PORTFOLIO
Loans, net of unearned interest, were $953.1 million at September 30,
1997, an increase of $43.9 million or 4.83% from $909.2 million at September
30, 1996.
The following table summarizes the loan portfolio of the Company by type
of loan as of the dates indicated:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------------------------------------------------------
1997 1996
--------------------------------- --------------------------------
AMOUNT % OF GROSS LOANS AMOUNT % OF GROSS LOANS
------------ ------------------ ------------ -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Domestic:
Commercial ........................ $289,291 30.25% $276,585 30.31%
Commercial real estate ............ 249,468 26.09 216,233 23.69
Construction ..................... 53,923 5.64 32,891 3.60
Residential first mortgages ...... 150,125 15.70 128,142 14.04
Residential equity lines ......... 17,698 1.85 18,434 2.02
Consumer ........................ 64,884 6.79 88,602 9.71
Overdrafts ........................ 3,845 0.40 3,401 0.37
Bankers' acceptances ............ -- -- 29,762 3.26
-------- ------ -------- ------
Total domestic .................. 829,234 86.72 794,050 87.00
-------- ------ -------- ------
Foreign:
Banks ........................... 63,498 6.64 84,117 9.22
Bankers' acceptances ............ 26,862 2.81 5,981 0.66
Government ........................ 2,000 0.21 4,000 0.44
Other ........................... 34,588 3.62 24,512 2.68
-------- ------ -------- ------
Total foreign .................. 126,948 13.28 118,610 13.00
-------- ------ -------- ------
Total gross loans ............... 956,182 100.00% 912,660 100.00%
====== ======
Unearned ........................... (3,130) (3,458)
-------- --------
Total loans .................. $953,052 $909,202
======== ========
</TABLE>
The primary lending focus of the Company is on commercial loans,
commercial real estate loans and construction loans. The Company also focuses
on single-family residential loans, as well as to a lesser extent,
international loans and consumer loans.
The Company engages in commercial lending to small and medium-sized
businesses. The commercial loans primarily include term loans and lines of
credit. Commercial loans include trade financing for local commercial customers
who are primarily importing from or exporting to Latin America or the
Caribbean. A broad range of short to medium-term commercial loans, primarily
collateralized, are made available to businesses for working capital (including
inventory and receivables), business expansion and the purchase of equipment
and machinery. Commercial loans are originated primarily through relationships
that the Company's officers have with local businesses. Generally, the
Company's commercial loans are underwritten in the Company's primary market
area on the basis of the borrower's ability to service such debt from income or
asset conversion. Commercial loans generally are for amounts between $25,000
and $15 million, and are generally secured by business assets, which may
include accounts receivable and inventory, certificates of deposit, securities,
real estate, guarantees or other collateral. At September 30, 1997, the average
loan was approximately $100,000 and the Company had outstanding $289.3 million
of commercial loans. Approximately 6.30% of the commercial loans outstanding at
September 30, 1997 were unsecured.
The Commercial Real Estate Division of the Bank focuses on commercial real
estate loans, which include permanent financing of various types of properties,
and on construction loans. Commercial real
37
<PAGE>
estate loans generally range between $1 million and $16 million. Such loans are
originated primarily through relationships that the Company's officers have
with local property owners and developers. These loans are generally
collateralized by first liens on the underlying real estate, including the
property being constructed, where applicable, and generally relate to rental
apartments, shopping centers, office buildings, warehouses and single-family
residential projects. Generally, these loans relate to real estate in the
Company's primary market area. The Company conducts periodic inspections,
either directly or through an agent, prior to approval of periodic draws on
construction loans. Construction loans generally have terms ranging from 12-18
months. Permanent loans are generally for five-year terms with a balloon
payment due in the final year, although for competitive reasons, the Company
has begun to offer ten-year loans with a rate adjustment after five years and a
balloon payment due in the tenth year. In underwriting commercial real estate
loans, consideration is given to the property's operating history, future
operating projections, location and physical condition of the property. In
underwriting construction loans, consideration is given to the experience of
the builder and the feasibility of the project. The underwriting analysis also
includes credit checks, appraisals and a review of the financial condition of
the borrower. The Company originates most of its commercial real estate
portfolio, although it will occasionally purchase participations in commercial
real estate loans directly from other financial institutions. Generally, the
loan-to-value ratio of these loans does not exceed 75% of appraised value. At
September 30, 1997, the average loan was approximately $700,000 and the Company
had outstanding $303.4 million of commercial real estate and construction
loans.
The Company offers a complete line of single-family residential mortgage
loans. Single-family residential mortgage loans are generally for terms of 15
or 30 years and may be fixed or adjustable, usually depending upon the market.
Loans collateralized by single-family residential real estate generally have
been originated in amounts of no more than 80% of appraised value or have
mortgage insurance. The Company always requires mortgage title insurance and
hazard insurance in the amount of the loan. Although at September 30, 1997,
32.88% of the Company's residential mortgage loans are Fannie Mae-qualified,
loans in excess of $207,000 and loans made to international customers are not.
Single-family residential mortgage loans are usually originated through
advertisements and referrals. The Company generally does not purchase or sell
residential mortgage loans, although on occasion the Company will sell such
loans without recourse to the Company and retain servicing rights. At September
30, 1997, the Company had outstanding $150.1 million in single-family
residential mortgage loans and was servicing $21.5 million of such loans which
it had sold.
The Retail Division of the Bank focuses on consumer loans, including
automobile loans, home improvement loans and personal loans, as well as
residential equity lines. Consumer loans generally range between $1,000 and
$300,000. The terms of these loans typically range from one year to six years
and vary based upon the nature of collateral and size of loan. Equity lines
expire after a maximum of ten years. The Bank's branches represent the primary
sources for these loans. In April 1997, the Company discontinued its indirect
automobile lending operations due to a high level of loan losses. At September
30, 1997, the Company had outstanding $82.6 million of consumer loans and
residential equity lines, $28.4 million of which were indirect automobile
loans.
Foreign loans consist of most international loans and other loans to
foreign-domiciled borrowers with respect to whom the Company has domestic
guarantees or cash collateral. The Bank does not consider the latter a part of
international lending activities. At September 30, 1997, the Company had
outstanding $106.7 million of international loans, ($100.8 million of which
represented foreign loans) and $26.1 million in loans to foreign-domiciled
borrowers, or an aggregate of $126.9 million of foreign loans. Institutional
loans primarily consist of trade financing for correspondent financial
institutions, which aggregated $72.6 million at September 30, 1997. This
included pre-export financing, which represented 82% of trade financing for
correspondent financial institutions at September 30, 1997. International loans
range between $50,000 and $6 million. The terms of these loans generally do not
exceed six months. These loans usually are originated through correspondent
banking relationships which the Company has developed in Latin America and the
Caribbean over the years. The Company also provides financing to local
import-export companies, including financing guaranteed by the Eximbank.
The Company is organized along specialized lending groups. The Real Estate
Division is responsible for commercial and residential real estate loans. The
Corporate Division is responsible for
38
<PAGE>
commercial and international loans. At September 30, 1997, the Company's
lending limit was approximately $22.0 million. The lending limit is applied to
each borrower and related entities to the extent required by law. Finally, the
Retail Banking Division is responsible for consumer lending and commercial
loans below $100,000.
The Company's Credit Division maintains the Company's credit policy and
establishes underwriting standards. This division monitors compliance with
policy through the Company's Credit Administration department and handles
problem credits through the Company's Special Assets department. Finally, the
Credit Division provides support in the underwriting process through the
preparation of credit analyses and other reports by the Credit Analysis
department.
Each lending division can approve non-residential mortgage loans of up to
$200,000 internally if there are no exceptions to Company underwriting
guidelines and policy, and up to $100,000 if there are exceptions.
Non-residential mortgage loans over this amount and up to $500,000 must be
approved by the Credit Division and loans of $500,000 and more require Loan
Committee approval. Residential mortgage loans under $1 million are approved
within the Real Estate Division. Residential mortgage loans $1 million and
higher must be approved by the Loan Committee. The Loan Committee consists of
the Chief Executive Officer and President of the Bank, the Executive Vice
President and Chief Credit Officer, the Executive Vice President--Real Estate
Lending and the Executive Vice President-- Corporate Banking. In addition, the
Company has a Country Risk Committee that meets regularly throughout the year
to review the Company's international lending activities and practices and the
level of exposure in the countries in which it makes loans. The Country Risk
Committee consists of the Chairman of the Company, the Chief Executive Officer
of Bancorp and the Bank, the Executive Vice President and Chief Credit Officer
of the Bank, the Executive Vice President--Corporate Banking of the Bank and
the Vice President--International of the Bank.
At September 30, 1997, commercial loans outstanding were $289.3 million,
an increase of $12.7 million or 4.59% from the $276.6 million outstanding at
September 30, 1996. Commercial real estate loans outstanding at September 30,
1997 were $249.5 million, an increase of $33.3 million or 15.40% from the
$216.2 million outstanding at September 30, 1996. Construction loans
outstanding at September 30, 1997 were $53.9 million, an increase of $21.0
million or 63.83% from the $32.9 million outstanding at September 30, 1996.
Residential mortgage loans increased $22.0 million or 17.17% from $128.1
million at September 30, 1996 to $150.1 million at September 30, 1997. Consumer
loans, including residential equity lines outstanding, declined $24.4 million
or 22.80% from $107.0 million at September 30, 1996 to $82.6 million at
September 30, 1997. Foreign loans increased $8.3 million or 7.00% from $118.6
million at September 30, 1996 to $126.9 million at September 30, 1997.
39
<PAGE>
The contractual maturity ranges of domestic commercial, commercial real
estate and construction loan portfolio and foreign loan portfolio and the
amount of such loans with predetermined interest rates and floating rates in
each maturity range as of September 30, 1997 are summarized in the following
table:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
----------------------------------------------------
BETWEEN
ONE YEAR ONE AND AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
---------- ------------ ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Domestic:
Commercial .................................... $136,339 $126,885 $26,067 $289,291
Commercial real estate ........................ 38,429 163,626 47,413 249,468
Construction loans ........................... 33,338 19,329 1,256 53,923
-------- -------- ------- --------
Total domestic .............................. 208,106 309,840 74,736 592,682
-------- -------- ------- --------
Foreign:
Banks ....................................... 63,148 350 -- 63,498
Bankers' acceptances ........................ 26,862 -- -- 26,862
Government .................................... 2,000 -- -- 2,000
Other ....................................... 34,588 -- -- 34,588
-------- -------- ------- --------
Total foreign .............................. 126,598 350 -- 126,948
-------- -------- ------- --------
Total .................................... $334,704 $310,190 $74,736 $719,630
======== ======== ======= ========
Loans with a predetermined interest rate ...... $177,576 $198,499 $55,780 $431,855
Loans with a floating interest rate ............ 157,128 111,691 18,956 287,775
-------- -------- ------- --------
Total .................................... $334,704 $310,190 $74,736 $719,630
======== ======== ======= ========
</TABLE>
LOANS BY COUNTRY
The following table sets forth the distribution of the Company's gross
loans by country of the borrower at the dates indicated.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------------------------------------
1997 1996
----------------------- ----------------------
% OF GROSS % OF GROSS
AMOUNT LOANS AMOUNT LOANS
-------- ------------ -------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
United States ............ $829 86.71% $794 86.97%
Brazil .................. 32 3.35 28 3.07
Peru ..................... 15 1.57 13 1.42
Ecuador .................. 12 1.26 13 1.42
Other(1) .................. 68 7.11 65 7.12
---- ------ ---- ------
Total Gross Loans ...... $956 100.00% $913 100.00%
==== ====== ==== ======
</TABLE>
- ----------------
(1) "Other" consists of loans to borrowers in countries in which loans did not
exceed the lesser of $11 million or one percent of total assets on the
dates indicated.
40
<PAGE>
TOTAL CROSS-BORDER OUTSTANDINGS BY COUNTRY
The following table sets forth, at the dates indicated, the aggregate
amount of the Company's cross-border outstandings (including foreign bonds, due
from bank accounts and interest-earning deposits with other banks), as well as
the percentage of such cross-border outstandings to the Company's total assets.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------------------------------------
1997 1996
----------------------- ----------------------
% OF TOTAL % OF TOTAL
AMOUNT ASSETS AMOUNT ASSETS
-------- ------------ -------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Brazil ......... $ 32 2.11% $ 28 1.93%
Peru ......... 15 0.99 13 0.90
Ecuador ...... 12 0.79 13 0.90
Other(1) ...... 70 4.61 67 4.61
---- ---- ---- ----
Total ...... $129 8.50% $121 8.34%
==== ==== ==== ====
</TABLE>
- ----------------
(1) "Other" consists of loans to borrowers in countries in which loans did not
exceed $11 million or one percent of total assets on the dates indicated.
NONPERFORMING ASSETS
The Company has established procedures to assist it in maintaining the
overall quality of its loan portfolio. The Company has established underwriting
guidelines to be followed by its officers. The Company also monitors its
delinquency levels for any negative or adverse trends. There can be no
assurance, however, that the Company's loan portfolio will not become subject
to increasing pressures from deteriorating borrower credit due to general
economic conditions.
The Company has historically reflected improving loan quality, with
non-performing assets declining from 1992 through 1996 as a percentage of loans
and other real estate owned. At September 30, 1997, nonaccrual loans had
increased to $14.1 million from $1.5 million at September 30, 1996. This large
increase is primarily attributable to a single borrowing relationship
consisting of two loans with an aggregate outstanding balance at September 30,
1997 of $9.7 million. This indebtedness consists of a performing asset-based
lending line secured by inventory and accounts receivable and a term workout
loan of $2.6 million secured by various other assets of the borrowing entity.
Both loans are on nonaccrual status with interest recognized on a cash basis
due to the financial condition of the borrower. A specific allowance for
possible loan losses has been made for these loans.
The Company generally places a loan on nonaccrual status and ceases
accruing interest when loan payment performance is deemed unsatisfactory. All
loans past due 90 days are placed on nonaccrual status, unless a loan is both
well-secured and in the process of collection. Cash payments received while a
loan is classified as nonaccrual are recorded as a reduction of principal as
long as significant doubt exists as to collection of the principal. Otherwise,
interest is recognized on a cash basis. The Company is sometimes required to
revise a loan's interest rate or repayment terms in a troubled debt
restructuring. In addition to nonaccrual loans, the Company's internal loan
review department evaluates additional potential problem loans as to risk
exposure in determining the adequacy of the allowance for loan losses.
The Company maintains on an ongoing basis updated appraisals on nonaccrual
loans and potential problem loans secured by real estate. In instances where
updated appraisals reflect reduced collateral values, an evaluation of the
borrower's overall financial condition is made to determine the need, if any,
for possible writedowns or appropriate additions to the allowance for loan
losses. The Company records other real estate at fair value at the time of
acquisition, less estimated costs to sell.
41
<PAGE>
The following table presents information regarding nonperforming assets at
September 30, 1997 and September 30, 1996:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------------
1997 1996
------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans ................................................ $ 14,058 $ 1,459
Restructured loans ............................................. 379 419
Accruing loans 90 days or more past due ........................ 882 453
Other real estate ............................................. 2,043 3,140
-------- -------
Total nonperforming assets .................................... $ 17,362 $ 5,471
======== =======
Nonperforming assets to total loans and other real estate ...... 1.82% 0.60%
======== =======
</TABLE>
There were no foreign loans in these categories on each of the reporting
dates.
The Company would have recorded additional interest income of
approximately $237,000 in the first nine months of 1997 on nonperforming loans
if the loans had been current in accordance with original terms. Interest
income recorded on nonperforming loans for the first nine months of 1997 was
approximately $957,000.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is a reserve established through charges to
earnings in the form of a provision for loan losses. Management has established
an allowance for loan losses which it believes is adequate for estimated losses
in the Company's loan portfolio. Based on an evaluation of the loan portfolio
by the Company's internal loan review department, management presents a monthly
review of the allowance for loan losses to the Bank's Board of Directors,
indicating any change in the allowance since the last review and any
recommendations as to adjustments in the allowance. In making its evaluation,
management considers the diversification of the Company's commercial loan
portfolio, the effect of changes in the local real estate market on collateral
values, the results of recent regulatory examinations, the effects on the loan
portfolio of current economic indicators and their probable impact on
borrowers, the amount of charge-offs for the period, the amount of
nonperforming loans and related collateral security, and the evaluation of its
loan portfolio by the loan review function, which prepares an analysis of the
adequacy of the allowance. Charge-offs occur when loans are deemed to be
uncollectible.
The Company follows a loan review program to evaluate the credit risk in
the loan portfolio. Through the loan review process, the Company maintains an
internally classified loan list which, along with the delinquency list of
loans, helps management assess the overall quality of the loan portfolio and
the adequacy of the allowance for loan losses. Loans classified as
"substandard" are those loans with clear and defined weaknesses such as a
highly-leveraged position, unfavorable financial ratios, uncertain repayment
sources or poor financial condition, which may jeopardize recoverability of the
debt.
Loans classified as "doubtful" are those loans which have characteristics
similar to substandard accounts, but with an increased risk that a loss may
occur, or at least a portion of the loan may require a charge-off if liquidated
at present. Loans classified as "loss" are those loans which are in the process
of being charged off.
In order to determine the adequacy of the allowance for loan losses,
management considers the risk classification or delinquency status of loans and
other factors, such as collateral value, portfolio composition, trends in
economic conditions and the financial strength of borrowers. Management
establishes specific allowances for loans which management believes require
reserves greater than those allocated according to their classification or
delinquent status. A general allowance is established based upon the Company's
historical loss experience for loans not criticized. An unallocated portion of
the allowance represents management's best estimate of probable losses inherent
in the loan portfolio which cannot be associated with a specific loan or
segment of the portfolio, but that reflect risks associated with economic
conditions, the size of loans being funded and other factors, such as trends in
42
<PAGE>
delinquencies. The Company then charges to operations a provision for loan
losses to maintain the allowance for loan losses at an adequate level as
determined by the foregoing methodology.
For the nine months ended September 30, 1997, net loan charge-offs
totalled $3.0 million or 0.30% of average loans outstanding for the period (or
0.40% on an annualized basis), compared to $1.4 million in net loan charge-offs
or 0.17% of average loans outstanding for the nine months ended September 30,
1996 (or 0.22% on an annualized basis). During the nine months ended September
30, 1997, the Company recorded a provision for loan losses of $3.6 million,
compared to $1.8 million for the nine months ended September 30, 1996. In 1997,
the Company charged off $1.3 million with respect to two commercial loans which
accounted for most of the increase in the provision. In addition, the Company
experienced a continuing high level of losses on consumer loans, substantially
arising from losses with respect to indirect automobile loans and small
unsecured loans. At September 30, 1997, the allowance totalled $12.2 million or
1.28% of total loans, resulting in a ratio of the allowance to nonperforming
loans of 79.70%.
The following table presents, for the periods indicated, an analysis of
the allowance for loan losses and other related data:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1997 1996
------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average loans outstanding .................................... $983,091 $851,834
======== ========
Total loans outstanding at end of period ..................... $953,052 $909,202
======== ========
Allowance for loan losses at beginning of period ............ $ 11,578 $11,411
Provision for loan losses .................................... 3,604 1,778
Charge-offs:
Commercial and industrial ................................. (2,119) (789)
Real estate ................................................ (146) (1)
Consumer ................................................... (1,765) (1,448)
Foreign ................................................... -- --
Recoveries:
Commercial and industrial ................................. 512 350
Real estate ................................................ 14 17
Consumer ................................................... 531 452
Foreign ................................................... -- --
-------- ---------
Net loan charge-offs .......................................... (2,973) (1,419)
-------- ---------
Allowance for loan losses at end of period .................. $ 12,209 $11,770
======== =========
Ratio of allowance to end of period loans ..................... 1.28% 1.29%
Ratio of net loan charge-offs to average loans ............... 0.30% 0.17%
Ratio of allowance to end of period nonperforming loans ...... 79.70% 504.93%
</TABLE>
43
<PAGE>
The following table describes the allocation of the allowance for loan
losses among various categories of loans and certain other information for the
dates indicated. The allocation is made for analytical purposes and is not
necessarily indicative of the categories in which future losses may occur. The
total allowance is available to absorb losses from any segment of loans.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 AS OF SEPTEMBER 30, 1996
------------------------- ------------------------
% OF % OF
AMOUNT GROSS LOANS AMOUNT GROSS LOANS
--------- ------------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance of allowance for loan losses applicable to:
Domestic:
Commercial ....................................... $ 5,436 30.25% $ 5,140 30.31%
Commercial real estate ........................... 616 26.09 586 23.69
Construction .................................... 75 5.64 59 3.60
Residential first mortgages ..................... 364 15.70 212 14.04
Residential equity lines ........................ 147 1.85 47 2.02
Consumer ....................................... 1,237 6.79 1,024 9.71
Overdrafts ....................................... 275 0.40 63 0.37
Bankers' acceptances ........................... -- -- -- 3.26
------- ------ ------- ------
Total domestic ................................. 8,150 86.72 7,131 87.00
------- ------ ------- ------
Foreign:
Banks .......................................... 381 6.64 684 9.22
Bankers' acceptances ........................... -- 2.81 -- 0.66
Government ....................................... 17 0.21 36 0.44
Other .......................................... 232 3.62 144 2.68
------- ------ ------- ------
Total foreign ................................. 630 13.28 864 13.00
------- ------ ------- ------
Unallocated ....................................... 3,429 3,775
------- -------
Total allowance for loan losses ............... $12,209 100.00% $11,770 100.00%
======= ====== ======= ======
</TABLE>
The Company believes that the allowance for loan losses at September 30,
1997 is adequate to cover losses inherent in the portfolio as of such date.
There can be no assurance, however, that the Company will not sustain losses in
future periods, which could be substantial in relation to the size of the
allowance at September 30, 1997.
SECURITIES
The Company uses its securities portfolio primarily as a source of
liquidity and secondarily as a source of income. At September 30, 1997,
investment securities totalled $385.0 million, an increase of $38.3 million
from $346.7 million at September 30, 1996. The increase was primarily
attributable to purchases of securities of United States agencies and
corporations. At September 30, 1997, investment securities represented 25.37%
of total assets compared to 23.88% of total assets at September 30, 1996. The
yield on the investment portfolio for the nine months ended September 30, 1997
was 6.26% compared to a yield of 6.04% for the nine months ended September 30,
1996.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. At the date of purchase, the Company is required to classify
debt and equity securities into one of three categories: held-to-maturity,
trading or available-for-sale. At each reporting date, the appropriateness of
the classification is reassessed. Investments in debt securities are classified
as held-to-maturity and measured at amortized cost in the financial statements
only if management has the positive intent and ability to hold these securities
to maturity. Investments not classified as held to maturity are classified as
available-for-sale and measured at fair value in the financial statements with
unrealized gains and losses reported, net of tax, in a separate component of
shareholders' equity until realized. The Company does not have a trading
account.
44
<PAGE>
The following table presents the amortized cost of securities classified
as available-for-sale and their approximate fair values at September 30, 1997:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
--------------------------------------------------------------------
GROSS GROSS FAIR
AMORTIZED COST UNREALIZED GAIN UNREALIZED LOSS VALUE
---------------- ----------------- ----------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
United States Treasury securities ...... $109,020 $535 $ -- $109,555
Securities of the United States
agencies and corporations ............ 45,437 263 (70) 45,630
-------- ---- ----- --------
Total ................................. $154,457 $798 $ (70) $155,185
======== ==== ===== ========
</TABLE>
The following table presents the amortized cost of securities classified
as held-to-maturity and their approximate fair values at September 30, 1997:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
--------------------------------------------------------------------
GROSS GROSS FAIR
AMORTIZED COST UNREALIZED GAIN UNREALIZED LOSS VALUE
---------------- ----------------- ----------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
United States Treasury securities ...... $ 72,445 $ 502 $ -- $ 72,947
Securities of the United States agencies
and corporations ..................... 122,757 195 (62) 122,890
Securities issued by states and political
subdivisions ........................... 32,782 744 -- 33,526
Other debt securities .................. 600 -- -- 600
Federal Reserve Bank stock ............ 1,219 -- -- 1,219
-------- ------ ----- --------
Total ................................. $229,803 $1,441 $ (62) $231,182
======== ====== ===== ========
</TABLE>
The following table summarizes the contractual maturity of investment
securities at amortized cost (including federal funds sold and temporary
investments) and their weighted average yields. No tax equivalent adjustments
were made.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------------------------
AFTER ONE YEAR
BUT WITHIN
WITHIN ONE YEAR FIVE YEARS
--------------------- ---------------------
AMOUNT YIELD AMOUNT YIELD
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
United States Treasury
securities ..................... $110,420 6.33% $ 71,045 6.29%
Securities of other United
States agencies and
corporations .................. 29,870 6.87 125,709 6.57
Securities issued by states
and political subdivisions . 3,858 5.56 2,994 4.44
Other debt securities ......... -- -- 250 8.00
-------- ---- -------- ----
Total debt securities ......... 144,148 6.42 199,998 6.44
Federal Reserve Bank stock -- -- -- --
Federal funds sold ............ 42,103 6.19 -- --
Temporary investments ......... 873 4.13 -- --
-------- ---- -------- ----
Total ........................ $187,124 6.37% $199,998 6.44%
======== ==== ======== ====
<CAPTION>
AFTER FIVE YEARS
BUT WITHIN
TEN YEARS AFTER TEN YEARS
------------------- -------------------
AMOUNT YIELD AMOUNT YIELD TOTAL YIELD
--------- --------- --------- --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
United States Treasury
securities ..................... $ -- --% $ -- --% $181,465 6.31%
Securities of other United
States agencies and
corporations .................. 6,496 6.61 6,119 6.61 168,194 6.63
Securities issued by states
and political subdivisions . 11,482 5.24% 14,448 5.78 32,782 5.44
Other debt securities ......... 350 7.03 -- -- 600 7.43
------- ---- ------- ---- -------- ----
Total debt securities ......... 18,328 5.76 20,567 6.02 383,041 6.37
Federal Reserve Bank stock -- -- 1,219 6.00 1,219 6.00
Federal funds sold ............ -- -- -- -- 42,103 6.19
Temporary investments ......... -- -- -- -- 873 4.13
------- ---- ------- ---- -------- ----
Total ........................ $18,328 5.76% $21,786 6.02% $427,236 6.36%
======= ==== ======= ==== ======== ====
</TABLE>
DERIVATIVES
At September 30, 1997, the Company did not have off-balance sheet
derivative contracts outstanding. The Company does engage in a nominal amount
of foreign exchange contracts primarily as an accommodation to commercial
customer needs. The investment portfolio includes a $25 million par value
United States government agency inverse floater maturing in February 1998. The
portfolio also contains some securities with callable options.
45
<PAGE>
DEPOSITS
The Company offers a variety of deposit accounts having a wide range of
interest rates and terms to its deposit customers, both foreign and domestic.
The Company relies primarily on competitive pricing and customer service to
attract and retain these deposits. The Company does not have any brokered
deposits.
The Company's average total deposits for the nine months ended September
30, 1997 were $1,326.9 million or 9.82% above the average total deposits during
the same period in 1996. The Company's total deposits at September 30, 1997
were $1,298.5 million or 3.55% over total deposits at September 30, 1996.
The Company's lending and investment activities are funded primarily by
deposits, approximately 43.40% of which were demand and savings deposits at
September 30, 1997. Average non-interest bearing deposits for the nine month
period ended September 30, 1997 were $268.9 million as compared to $262.9
million for the same period in 1996, an increase of 2.28%. Approximately 20.27%
of average deposits for the nine month period ended September 30, 1997 were
non-interest bearing. Interest-bearing time deposits have represented the
primary source of deposit growth during 1997. Interest-bearing time deposits
increased an average of 20.60% for the first nine months of 1997 compared to
the comparable period in 1996.
The daily average balances and weighted average interest rates paid on
interest-bearing deposits for the nine months ended September 30, 1997 are
presented below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
----------------------------------------
AMOUNT % OF TOTAL RATE
------------ ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-bearing demand deposits ........................ $ 64,388 4.85% 1.51%
Savings ................................................... 133,534 10.06 2.94
Money market ............................................. 117,232 8.84 2.65
State, county and municipal certificates of deposit ...... 28,535 2.15 5.48
Time deposits less than $100,000 ........................ 425,749 32.09 5.42
Time deposits $100,000 and over ........................... 239,704 18.06 5.38
International banking facility deposits .................. 48,852 3.68 5.21
---------- ------ ----
Total interest-bearing deposits ........................ 1,057,994 79.73 4.52
Noninterest-bearing deposits .............................. 268,913 20.27 --
---------- ------ ----
Total deposits ....................................... $1,326,907 100.00% 3.61%
========== ====== ====
</TABLE>
The following table sets forth the amount of the Company's time deposits
that are $100,000 or greater by time remaining until maturity (includes
international banking facility deposits and state, county and municipal
certificates of deposit that are $100,000 or greater):
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
3 months or less .................. $101,147
Between 3 months and 6 months ...... 81,873
Between 6 months and 1 year ......... 84,715
Over 1 year ........................ 14,460
--------
Total ........................... $282,195
========
</TABLE>
As of September 30, 1997, 34 of such deposits had balances between
$500,000 and $1 million and 12 had balances over $1 million.
46
<PAGE>
As part of its funding process, the Company obtains deposits from
customers domiciled in other countries, primarily in Latin America. The
following table sets forth the amounts of deposits by country from customers
domiciled outside of the United States as of the dates indicated, as well as
the composition of such deposits by deposit type.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER
30,
--------------
1997 1996
------ -----
(DOLLARS IN
MILLIONS)
<S> <C> <C>
COUNTRY:
Venezuela ............................................. $ 89 $ 71
Ecuador ............................................. 46 65
Dominican Republic .................................... 19 12
Costa Rica .......................................... 18 18
Mexico ................................................ 18 19
Spain ................................................ 17 8
Brazil ................................................ 12 10
Argentina ............................................. 13 8
Guatemala ............................................. 14 10
Colombia ............................................. 11 11
Panama ................................................ 11 6
Honduras ............................................. 10 8
El Salvador .......................................... 8 5
British West Indies ................................. 4 2
Other(1) ............................................. 41 32
---- ----
Total foreign deposits .............................. $331 $285
==== ====
COMPOSITION BY DEPOSIT TYPE:
Certificates of deposit and other time deposits ...... $182 $106
Other ................................................ 149 179
---- ----
Total foreign deposits .............................. $331 $285
==== ====
</TABLE>
- ----------------
(1) "Other" consists of deposits from customers domiciled in countries from
which total deposits did not exceed $4 million as of September 30, 1997.
47
<PAGE>
INTEREST RATE SENSITIVITY AND LIQUIDITY
The Company's fund management policy provides management with guidance for
effective funds management, and the Company has established a measurement
system for monitoring its net interest rate sensitivity position. The Company
manages its sensitivity position within established guidelines.
An interest rate sensitive asset or liability is one that, within a
defined time period, either matures or experiences an interest rate change in
line with general market interest rates. The management of interest rate risk
is performed by analyzing the maturity and repricing relationships between
interest-earning assets and interest-bearing liabilities at specific points in
time ("GAP") and by analyzing the effects of interest rate changes on net
interest income over specific periods of time by projecting the performance of
the mix of assets and liabilities in varied interest rate environments.
Interest rate sensitivity reflects the potential effect on net interest income
of a movement in interest rates. A company is considered to be asset sensitive,
or having a positive GAP, when the amount of interest-earning assets maturing
or repricing within a given period exceeds the amount of its interest-bearing
liabilities maturing or repricing within that time period. Conversely, a
company is considered to be liability sensitive, or having a negative GAP, when
the amount of its interest-bearing liabilities maturing or repricing within a
given period exceeds the amount of its interest-earning assets maturing or
repricing within that time period. During a period of rising interest rates, a
negative GAP would tend to affect adversely net interest income, while a
positive GAP would tend to result in an increase in net interest income. During
a period of falling interest rates, a negative GAP would tend to result in an
increase in net interest income, while a positive GAP would tend to affect net
interest income adversely.
The following table sets forth an interest rate sensitivity analysis for
the Company at September 30, 1997:
<TABLE>
<CAPTION>
VOLUMES SUBJECT TO REPRICING WITHIN
-----------------------------------------
0-30 31-180 181-365
DAYS DAYS DAYS
------------ ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Federal funds sold and other
temporary investments ............... $ 42,453 $ -- $ 523
Securities ........................... 48,209 101,939 85,734
Total loans ........................ 362,687 116,906 69,629
--------- ---------- ----------
Total interest-earning assets ...... 453,349 218,845 155,886
--------- ---------- ----------
Interest-bearing liabilities:
Demand, money market and
savings deposits .................. 299,255 -- --
Certificates of deposit and other
time deposits ..................... 100,300 331,301 245,474
--------- ---------- ----------
Total interest-bearing deposits ... 399,555 331,301 245,474
Federal funds purchased and
securities sold under repurchase
agreements ........................ 50,898 -- --
Other borrowings ..................... 18,985 -- --
--------- ---------- ----------
Total interest-bearing liabilities 469,438 331,301 245,474
--------- ---------- ----------
Period GAP ........................... (16,089) (112,456) (89,588)
Cumulative GAP ..................... (16,089) (128,545) (218,133)
Period GAP to total assets ......... (1.06)% (7.41)% ( 5.90)%
Cumulative GAP to total assets ...... (1.06) (8.47) (14.37)
Cumulative interest-earning assets
to cumulative interest-bearing
liabilities ........................ 96.57 83.95 79.15
<CAPTION>
GREATER
1-3 3-5 5-10 THAN
YEARS YEARS YEARS 10 YEARS TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold and other
temporary investments ............... $ -- $ -- $ -- $ -- $ 42,976
Securities ........................... 128,175 5,700 13,810 1,421 384,988
Total loans ........................ 110,831 147,075 52,063 93,861 953,052
--------- --------- --------- --------- -----------
Total interest-earning assets ...... 239,006 152,775 65,873 95,282 1,381,016
--------- --------- --------- --------- -----------
Interest-bearing liabilities:
Demand, money market and
savings deposits .................. -- -- -- -- 299,255
Certificates of deposit and other
time deposits ..................... 56,720 924 26 -- 734,745
--------- --------- --------- --------- -----------
Total interest-bearing deposits ... 56,720 924 26 -- 1,034,000
Federal funds purchased and
securities sold under repurchase
agreements ........................ -- -- -- -- 50,898
Other borrowings ..................... -- -- -- -- 18,985
--------- --------- --------- --------- -----------
Total interest-bearing liabilities 56,720 924 26 -- 1,103,883
--------- --------- --------- --------- -----------
Period GAP ........................... 182,286 151,851 65,847 95,282 $ 277,133
===========
Cumulative GAP ..................... (35,847) 116,004 181,851 277,133
Period GAP to total assets ......... 12.01% 10.01% 4.34% 6.28%
Cumulative GAP to total assets ...... (2.36) 7.64 11.98 18.26
Cumulative interest-earning assets
to cumulative interest-bearing
liabilities ........................ 96.75 110.51 116.47 125.11
</TABLE>
Although the GAP analysis reflects a negative position, the Company
believes that savings deposits reflected as repriceable in the 0-30 days'
window and on which rates are set by management will reprice more slowly than
the GAP analysis indicates.
48
<PAGE>
Shortcomings are inherent in GAP analysis since certain assets and
liabilities may not move proportionately as interest rates change.
Consequently, in addition to GAP analysis, the Company uses a simulation model
and shock analysis to test the interest rate sensitivity of net interest income
and the balance sheet, respectively. Based on the Company's September 30, 1997
simulation analysis, the Company estimates that a 200 basis point rise or
decline in rates over the next twelve month period would have an impact of less
than 3.0% on its net interest income for the same period. The change is
relatively small, despite the Company's liability sensitive GAP position. This
results primarily from the behavior of demand, money market and savings
deposits. The Company maintains an Asset/Liability Committee that reviews the
Company's interest rate risk position, generally on a bi-weekly basis.
Liquidity involves the Company's ability to raise funds to support asset
growth or reduce assets to meet deposit withdrawals and other payment
obligations, to maintain reserve requirements and otherwise to operate the
Company on an ongoing basis. During the past three years, the Company's
liquidity needs have been met primarily by financing activities, which
consisted mainly of growth in time deposits and borrowings supplemented by
earnings through operating activities. Management believes that it will be able
to renew or replace these funding sources at then existing market rates, which
may be higher or lower than current rates. The composition of the investment
portfolio also provides the Company with flexibility in its liquidity
management.
CAPITAL RESOURCES
Capital management consists of providing equity to support both current
and future operations. The Company is subject to capital adequacy requirements
imposed by the FRB and the Bank is subject to capital adequacy requirements
imposed by the OCC. Both the FRB and the OCC have adopted risk-based capital
requirements for assessing bank holding company and bank capital adequacy.
These standards define capital and establish minimum capital requirements in
relation to assets and off-balance sheet exposure, adjusted for credit risk.
The risk-based capital standards currently in effect are designed to make
regulatory capital requirements more sensitive to differences in risk profiles
among bank holding companies and banks, to account for off-balance sheet
exposure and to minimize disincentives for holding liquid assets. Assets and
off-balance sheet items are assigned to broad risk categories, each with
appropriate relative risk weights. The resulting capital ratios represent
capital as a percentage of total risk-weighted assets and off-balance sheet
items.
Bank regulatory authorities in the United States have issued risk-based
capital standards by which all bank holding companies and banks are evaluated
in terms of capital adequacy. The risk-based capital standards issued by the
FRB apply to the Company. These guidelines relate a financial institution's
capital to the risk profile of its assets. The risk-based capital standards
require all financial institutions to have "Tier 1 capital" of at least 4.0%
and "total risk-based" capital (Tier 1 and Tier 2) of at least 8.0% of total
risk-adjusted assets. "Tier 1 capital" may consist of a limited amount of
intermediate-term preferred stock, a limited amount of term subordinated debt,
certain hybrid capital instruments and other debt securities, perpetual
preferred stock not qualifying as Tier 1 capital, and a limited amount of the
general valuation allowance for loan losses. The sum of Tier 1 capital and Tier
2 capital is "total risk-based capital."
The FRB has also adopted guidelines which supplement the risk-based
capital guidelines with a minimum ratio of Tier 1 capital to adjusted average
total consolidated assets ("leverage ratio") of 3.0% for institutions with well
diversified risk, including no undue interest rate exposure; excellent asset
quality; high liquidity; good earnings; and that are generally considered to be
strong banking organizations, rated composite 1 under applicable federal
guidelines, and that are not experiencing or anticipating significant growth.
Other banking organizations are required to maintain a leverage ratio of at
least 4.0% to 5.0%. These rules further provide that banking organizations
experiencing internal growth or making acquisitions will be expected to
maintain capital positions substantially above the minimum supervisory levels
and comparable to peer group averages, without significant reliance on
intangible assets.
Pursuant to Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), each federal banking agency revised its risk-based capital
standards to ensure that those standards take adequate account of interest rate
risk, concentration of credit risk and the risks of nontraditional
49
<PAGE>
activities, as well as reflect the actual performance and expected risk of loss
on multifamily mortgages. The Bank is subject to capital adequacy guidelines of
the OCC that are substantially similar to the FRB guidelines. Also pursuant to
FDICIA, the OCC has promulgated regulations setting the levels at which a
national bank such as the Bank would be considered "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized." See "Regulation-- The Company" and "--The
Bank."
Shareholders' equity increased from $119.1 million at September 30, 1996
to $129.2 million at September 30, 1997, an increase of $10.1 million or 8.48%.
This increase was primarily the result of net income of $19.3 million, less the
payment of common stock dividends of $9.8 million and an increase in net
unrealized gain on available for sale securities, net of taxes of $556,000.
The following table provides a comparison of the Company's and the Bank's
leverage and risk-weighted capital ratios as of September 30, 1997 to the
minimum and well-capitalized regulatory standards:
<TABLE>
<CAPTION>
ACTUAL RATIO
MINIMUM REQUIRED WELL-CAPITALIZED AT SEPTEMBER 30, 1997
------------------ ------------------ ----------------------
<S> <C> <C> <C>
THE COMPANY
Leverage ratio ........................ 3.00%(1) N/A 8.52%
Tier 1 risk-based capital ratio ...... 4.00 6.00% 14.14
Risk-based capital ratio ............ 8.00 10.00 15.39
THE BANK
Leverage ratio ........................ 3.00%(2) 5.00% 8.50%
Tier 1 risk-based capital ratio ...... 4.00 6.00 14.12
Risk-based capital ratio ............ 8.00 10.00 15.37
</TABLE>
- ----------------
(1) The FRB may require the Company to maintain a leverage ratio of up to 200
basis points above the required minimum.
(2) The OCC may require the Bank to maintain a leverage ratio of up to 200
basis points above the required minimum.
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
OVERVIEW
The Company engaged in several transactions in 1994, 1995 and 1996 which
had a significant impact on the Company's performance in each of those years.
In June 1995, the Company acquired the Plaza Bank of Miami which was merged
into the Bank. This transaction added $105.7 million in deposits and $124.4
million in assets. A resulting intangible asset of $9.3 million was recorded as
a result of this transaction. In 1995, the Bank began construction of its new
headquarters which were occupied in April 1997. In anticipation of this move,
the Company made provisions for estimated loss on disposition of property in
1995 and in 1996 in the amount of $650,000 and $1.3 million, respectively. In
1995, the Company commenced the Reengineering Study which was completed in
August 1996. Professional fees associated with this study amounted to $209,000
and $638,000 in 1995 and 1996, respectively. In September 1996, the Company
paid a one time FDIC assessment of $1.4 million with respect to the Company's
deposits acquired from failed thrifts and insured by the SAIF.
Net income was $18.0 million, $17.8 million and $15.2 million for each of
the years ended December 31, 1996, 1995 and 1994, respectively, and net income
per share was $0.96, $0.94 and $0.80 for each of these same periods,
respectively. Earnings growth from 1995 to 1996 resulted principally from loan
growth and increased fee income, but was impacted by the special FDIC
assessment, Reengineering Study costs and provision for estimated loss on
disposition of property. The increase in earnings from 1994 to 1995 was due
primarily to loan growth, increased fee income and a reduced provision for loan
losses. The Company posted returns on average assets of 1.28%, 1.41% and l.33%
and returns on average equity of 15.49%, 16.73% and 15.91% for the years 1996,
1995 and 1994, respectively.
Total assets at December 31, 1996, 1995 and 1994 were $1,512.0 million,
$1,325.0 million and $1,172.2 million, respectively. Total deposits at December
31, 1996, 1995 and 1994 were $1,320.1 million, $1,156.3 million and $1,029.1
million, respectively. The Company retained the five offices acquired in 1995,
as well as a major portion of the deposits at those locations. Total loans at
December 31, 1996, 1995 and 1994 were $973.6 million, $821.1 million, and
$667.1 million, respectively. Total loans increased
50
<PAGE>
$152.5 million or 18.57% from December 31, 1995 to December 31, 1996 and $154.0
million or 23.09% from December 31, 1994 to December 31, 1995. Total
shareholders' equity was $124.7 million, $116.1 million and $100.4 million at
December 31, 1996, 1995 and 1994, respectively. Changes in common shareholders'
equity primarily reflect net income, less cash dividends.
RESULTS OF OPERATIONS
NET INTEREST INCOME
1996 VERSUS 1995. Net interest income totalled $60.9 million in 1996
compared to $56.6 million in 1995, an increase of $4.3 million or 7.60%.
Interest income increased $9.0 million or 9.46% primarily as a result of
increased loan volume and the acquisition of an aggregate of $115.5 million of
interest-earning assets relating to the acquisition of the Plaza Bank of Miami
by the Company in June 1995, partially offset by a decrease in the average
yield on loans. Average interest-earning assets increased by $127.5 million or
11.05% and average loans increased by $136.8 million or 18.60%, respectively,
in 1996 as compared to 1995. The increase in interest income was partially
offset by a $4.8 million or 12.50% increase in interest expense, primarily due
to the growth in time deposits, net of a decline in the average rate paid on
such deposits. Average interest-bearing liabilities increased by $114.7 million
or 12.97% and average time deposits increased by $106.4 million or 20.36%,
respectively, in 1996 as compared to 1995.
Net interest margins were 4.75% and 4.91% and net interest spreads were
3.80% and 3.90%, in each case, for 1996 and 1995, respectively. The decrease in
the net interest margin from 1995 to 1996 primarily reflects an 11 basis point
decline in the yield on average interest-earning assets. The yield on average
interest-earning assets declined to 8.13% in 1996 from 8.24% in 1995,
principally due to a 37 basis point decline in the average yield on loans. The
cost of interest-bearing liabilities declined from 4.34% in 1995 to 4.33% in
1996, principally due to a 10 basis point decrease in the average rate paid on
time deposits and a 14 basis point decrease in the average rate paid on savings
and money market accounts.
Funds utilized for the construction of the Company's headquarters reduced
the available volume of earning assets and resulting net interest income in
1996 and 1995. A capitalized construction interest cost was imputed and
reflected as a credit in "Other Operating Expenses" in the amount of $773,000
and $255,000 in 1996 and 1995, respectively.
1995 VERSUS 1994. Net interest income totalled $56.6 million for 1995
compared to $52.6 million in 1994, an increase of $4.0 million or 7.60%.
Interest income increased $18.1 million primarily due to strong loan growth, an
increased average yield on loans, and the acquisition of an aggregate of $115.5
million of interest-earning assets relating to the acquisition by the Company
of the Plaza Bank of Miami in June 1995. Average interest-earning assets
increased 10.93% and average loans increased 15.70%, respectively, in 1995 as
compared to 1994. Loan yield increased from 8.50% in 1994 to 9.53% in 1995. The
increase in interest income was partially offset by an increase in interest
expense of $14.1 million, or 57.93%, reflecting an increase in interest-bearing
deposits primarily as a result of an increase in the average rate paid on time
deposits and savings and money market accounts, and also as a result of an
increase in time deposits. Average interest-bearing liabilities increased by
$93.6 million or 11.84% and average time deposits increased by $103.3 million
or 24.63%, respectively, in 1995 as compared to 1994.
Net interest margins were 4.91% and 5.06% and net interest spreads were
3.90% and 4.32%, for 1995 and 1994, respectively. The decrease in the net
interest margin from 1994 to 1995 reflects a 126 basis point increase in the
rate paid on average interest-bearing liabilities, partially offset by an 84
basis point increase in the yield on average interest-earning assets. The yield
on average interest-earning assets increased to 8.24% in 1995 from 7.40% in
1994, principally due to a 103 basis point increase in the average yield on
loans. The cost of interest-bearing liabilities increased from 3.08% in 1994 to
4.34% in 1995, principally due to a 160 basis point increase in the average
rate paid on time deposits and a 65 basis point increase in the average rate
paid on savings and money market accounts.
51
<PAGE>
The following table represents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. No tax equivalent adjustments
were made and all average balances are yearly average balances. Nonaccruing
loans have been included in the tables as loans carrying a zero yield.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1996 1995
---------------------------------------- ----------------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
------------- ---------------- --------- ------------- ---------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Total loans .................. $ 872,094 $ 79,897(1) 9.16% $ 735,318 $70,077(1) 9.53%
Taxable securities ............ 296,318 17,893 6.04 312,897 18,447 5.90
Tax-exempt securities ......... 31,107 1,874 6.02 35,541 2,340 6.58
Federal funds sold and other
temporary investments ......... 82,064 4,470 5.45 70,330 4,192 5.96
---------- ----------- ---- ---------- --------- ----
Total interest earning
assets ..................... 1,281,583 104,134 8.13 1,154,086 95,056 8.24
----------- ---- --------- ----
Less allowance for
loan losses .................. (11,793) (11,893)
---------- ----------
Total interest-earning
assets, net of
allowance .................. 1,269,790 1,142,193
Nonearning assets ............... 135,727 118,953
---------- ----------
Total assets .................. $1,405,517 $1,261,146
========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand
deposits ..................... $ 66,229 1,103 1.67 $ 65,124 1,310 2.01
Savings and money market
accounts ..................... 261,718 7,474 2.86 270,119 8,111 3.00
State, county and municipal
certificates of deposit ...... 18,907 1,013 5.36 2,879 161 5.59
Certificates of deposit ...... 610,132 31,692 5.19 519,761 27,480 5.29
Federal funds purchased and
securities sold ............... 37,483 1,769 4.72 21,465 1,105 5.15
Other borrowings ............... 4,432 198 4.47 4,883 244 5.00
---------- ----------- ---- ---------- --------- ----
Total interest-bearing
liabilities ............... 998,901 43,249 4.33 884,231 38,411 4.34
----------- ---- --------- ----
Noninterest-bearing liabilities:
Noninterest-bearing demand
deposits ..................... 264,364 247,499
Other liabilities ............ 17,102 15,393
---------- ----------
Total liabilities ............ 1,280,367 1,147,123
Minority interest ............ 8,657 7,882
Shareholders' equity ......... 116,493 106,141
---------- ----------
Total liabilities and
shareholders' equity ...... $1,405,517 $1,261,146
========== ==========
Net interest income ............ $ 60,885 $56,645
=========== =========
Net interest spread ............ 3.80% 3.90%
==== ====
Net interest margin ............ 4.75% 4.91%
==== ====
<CAPTION>
1994
---------------------------------------
AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE
------------- ---------------- --------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Total loans .................. $ 635,555 $ 54,003(1) 8.50%
Taxable securities ............ 274,321 16,000 5.83
Tax-exempt securities ......... 54,183 3,844 7.09
Federal funds sold and other
temporary investments ......... 76,288 3,117 4.09
---------- ----------- ----
Total interest earning
assets ..................... 1,040,347 76,964 7.40
----------- ----
Less allowance for
loan losses .................. (11,968)
----------
Total interest-earning
assets, net of
allowance .................. 1,028,379
Nonearning assets ............... 107,812
----------
Total assets .................. $1,136,191
==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand
deposits ..................... $ 65,464 1,414 2.16
Savings and money market
accounts ..................... 286,090 6,726 2.35
State, county and municipal
certificates of deposit ...... 1,356 45 3.32
Certificates of deposit ...... 418,006 15,444 3.69
Federal funds purchased and
securities sold ............... 14,865 530 3.57
Other borrowings ............... 4,813 163 3.39
---------- ----------- ----
Total interest-bearing
liabilities ............... 790,594 24,322 3.08
----------- ----
Noninterest-bearing liabilities:
Noninterest-bearing demand
deposits ..................... 229,871
Other liabilities ............ 13,410
----------
Total liabilities ............ 1,033,875
Minority interest ............ 7,066
Shareholders' equity ......... 95,250
----------
Total liabilities and
shareholders' equity ...... $1,136,191
==========
Net interest income ............ $ 52,642
===========
Net interest spread ............ 4.32%
====
Net interest margin ............ 5.06%
====
</TABLE>
- ---------------
(1) Includes $2.1 million, $1.5 million and $1.5 million in loan fees for 1996,
1995 and 1994, respectively.
52
<PAGE>
The following schedule presents the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase related
to higher outstanding balances and the volatility of interest rates. For
purposes of this table, changes attributable to both rate and volume have been
allocated to rate.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 VS. 1995 DECEMBER 31, 1995 VS. 1994
------------------------------------ -------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
------------------------ -------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
----------- ------------ ----------- ------------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Total loans ....................................... $ 13,035 $ (3,215) $ 9,820 $8,480 $ 7,594 $16,074
Securities ....................................... (1,254) 234 (1,020) 1,204 (261) 943
Federal funds sold and other temporary
investments .................................... 699 (421) 278 (244) 1,319 1,075
-------- -------- -------- ------- -------- -------
Total increase (decrease) in interest income ... 12,480 (3,402) 9,078 9,440 8,652 18,092
-------- -------- -------- ------- -------- -------
Interest-bearing liabilities:
Interest-bearing demand deposits .................. 22 (229) (207) (7) (97) (104)
Savings and money market accounts .................. (252) (385) (637) (375) 1,760 1,385
State, county and municipal certificates of deposit 896 (44) 852 51 65 116
Certificates of deposit and other time deposits ... 4,781 (569) 4,212 3,755 8,281 12,036
Federal funds purchased and securities sold under
repurchase agreements ........................... 825 (161) 664 235 340 575
Other borrowings ................................. (23) (23) (46) 2 79 81
-------- -------- -------- ------- -------- -------
Total increase (decrease) in interest expense ... 6,249 (1,411) 4,838 3,661 10,428 14,089
-------- -------- -------- ------- -------- -------
Increase (decrease) in net interest income ......... $ 6,231 $ (1,991) $ 4,240 $5,779 $ (1,776) $ 4,003
======== ======== ======== ======= ======== =======
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses increased to $2.4 million for 1996 from
$890,000 for 1995, reflecting the impact of rising consumer loan losses and
changes in the overall portfolio quality assessment. The provision for loan
losses decreased to $890,000 for 1995 from $2.5 million for 1994, reflecting
improved portfolio quality.
NONINTEREST INCOME
Noninterest income for the year ended December 31, 1996 was $24.2 million,
an increase of $1.7 million or 7.56% compared to $22.5 million in 1995,
primarily as a result of an increase in merchant credit card discounts.
Noninterest income in 1995 increased $2.2 million or 10.84% over non-interest
income of $20.3 million in 1994, primarily as a result of an increase in
merchant credit card discounts. The following table presents for the periods
indicated the major categories of noninterest income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
--------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service charges on deposit accounts ...... $12,960 $12,722 $12,769
Merchant credit card discounts ............ 7,307 5,761 3,776
Letter of credit fees ..................... 1,064 1,214 1,222
Gain (loss) on sale of securities ......... 1 (185) 3
Other non-interest income ............... 2,899 2,946 2,519
------- ------- -------
Total non-interest income ............... $24,231 $22,458 $20,289
======= ======= =======
</TABLE>
53
<PAGE>
Service charges on deposit accounts are the primary component of
noninterest income and have remained stable from 1994 to 1996. The increases in
noninterest income from 1994 to 1996 resulted primarily from increases in
merchant credit card discounts, the next largest component of noninterest
income. Merchant credit card discounts increased by $1.5 million from $5.8
million in 1995 to $7.3 million in 1996 and by $2.0 million in 1995 from $3.8
million in 1994, principally due to successful marketing. Letter of credit fee
income is another major source of noninterest income and declined by $150,000
or 12.50% in 1996 from $1.2 million in 1995, but was relatively constant from
1994 to 1995.
NONINTEREST EXPENSES
For the years ended December 31, 1996, 1995 and 1994, noninterest expense
totaled $53.0 million, $50.0 million and $46.5 million, respectively. The
Company's efficiency ratios were 62.29%, 63.09% and 63.70% for 1996, 1995 and
1994, respectively. The efficiency ratio improved slightly each year reflecting
the Company's continued efforts to control operating expenses.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
----------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Employee compensation and benefits .................. $26,775 $27,472 $25,463
------- ------- -------
Non-staff expenses:
Occupancy expense ................................. 4,962 4,661 4,399
Furniture and equipment expense ..................... 2,793 2,375 2,340
Provision for loss on disposition of property ...... 1,275 650 --
Merchant credit card interchange fees ............... 5,104 3,961 2,554
Professional fees ................................. 1,218 895 827
FDIC assessment .................................... 1,868 1,451 2,104
Advertising ....................................... 880 1,098 725
Amortization of intangibles ........................ 953 674 276
Printing and supplies .............................. 940 952 966
Other real estate owned ........................... 111 478 763
Fraud losses (recoveries) net ..................... (11) (816) 378
Capitalized construction interest credit ............ (773) (255) --
Other ............................................. 6,922 6,425 5,661
------- ------- -------
Total non-staff expenses ........................... 26,242 22,549 20,993
------- ------- -------
Total noninterest expense ........................ $53,017 $50,021 $46,456
======= ======= =======
</TABLE>
Employee compensation and benefit expense for the year ended December 31,
1996 was $26.8 million, a decrease of $697,000 or 2.54% from $27.5 million for
1995. Employee compensation and benefit expenses for the year 1995 increased
$2.0 million or 7.89% from 1994. The increase in 1995 was, to a large degree,
due to increased staff as a result of the acquisition of the Plaza Bank of
Miami. The decrease in 1996 resulted mainly from savings associated from
implementation of the Reengineering Study. Total full-time equivalent employees
at December 31, 1996, 1995 and 1994 were 690, 763 and 719, respectively.
Non-staff expenses were $26.2 million in 1996, an increase of $3.7 million
or 16.44% from $22.5 million in 1995. This increase in non-staff expenses
primarily reflected increased merchant credit card interchange fees, an
increase in the provision for loss on disposition of property, an increase in
furniture and equipment expense and occupancy expense and amortization of
intangibles related to the acquisition of Plaza Bank of Miami, increased
charges related to the special FDIC assessment and the Reengineering Study and
increases in certain other expenses. These increased expenses were partially
offset by an increase in capitalized construction interest credit and decreases
in other real estate owned and advertising expenses.
Merchant credit card interchange fees increased by $1.1 million in 1996 as
compared to 1995 as a result of the growth of the Company's merchant credit
card operations.
54
<PAGE>
Occupancy expense increased $301,000, furniture and equipment expense
increased $418,000 and amortization of intangibles increased by $279,000 in
1996 as compared to 1995, principally as a result of the acquisition of Plaza
Bank of Miami. The provision for loss on disposition of property related to the
opening of the Company's new headquarters increased by $625,000 in 1996 as
compared to 1995. In addition, the capitalized interest credit relating to the
construction of such headquarters increased by $518,000 in 1996 as compared to
1995.
Principally as a result of expenses related to the Reengineering Study,
professional fees increased by $323,000 in 1996 as compared to 1995. Other real
estate owned expense decreased by $367,000 in 1996 as compared to 1995,
principally as a result of the reduction of other real estate owned from $3.2
million as of December 31, 1995 to $2.4 million as of December 31, 1996, and a
decrease in property taxes paid with respect to such property. Non-staff
expenses in 1995 were also reduced by a substantial fraud recovery of $801,000.
Non-staff expenses in 1995 increased by $1.5 million or 7.14% from $21.0
million in 1994. This increase in non-staff expenses primarily reflected
increased merchant credit card interchange fees, the provision for loss on
disposition of property, increased occupancy expense, amortization of
intangibles related to the acquisition of Plaza Bank of Miami and increases in
certain other expenses. These increased expenses were partially offset by a
substantial fraud recovery in 1995, decreases in the FDIC assessment and other
real estate owned expense, and an increase in capitalized construction interest
credit.
Merchant credit card interchange fees increased by $1.4 million in 1995 as
compared to 1994 as a result of the growth of the Company's merchant credit
card operations.
Occupancy expense increased $262,000 and amortization of intangibles
increased by $398,000 in 1995 as compared to 1994, principally as a result of
the acquisition of Plaza Bank of Miami. In 1995, the Company established a
$650,000 provision for loss on disposition of property related to the opening
of the Company's new headquarters. In addition, the Company recorded a
capitalized construction interest credit of $255,000 relating to the
construction of such headquarters.
Other real estate owned expense decreased by $285,000 in 1995 as compared
to 1994, principally as a result of lower net losses realized on the
disposition of other real estate owned.
INCOME TAXES
In 1996, income tax expense was $10.3 million, an increase of $1.2 million
or 13.19% from $9.1 million for 1995. The 1995 amount was $1.4 million or
18.18% higher than $7.7 million for 1994. The effective tax rates in 1996, 1995
and 1994, respectively, were 34.74%, 32.29% and 32.06%.
FINANCIAL CONDITION
LOAN PORTFOLIO
Total loans increased by $152.5 million or 18.57% to $973.6 million at
December 31, 1996, from $821.1 million at December 31, 1995. During 1995, total
loans increased by $154.0 million or 23.08% from $667.1 million at December 31,
1994. The growth in loans reflected strong loan demand and the loans obtained
in connection with the 1995 acquisition.
Total loans represented 64.39%, 61.97% and 56.91% of assets at December
31, 1996, 1995 and 1994, respectively. Total loans represented 73.75%, 71.01%
and 64.82% of deposits at December 31, 1996, 1995 and 1994, respectively.
55
<PAGE>
The following table summarizes the loan portfolio of the Company by type
of loan as of the dates indicated:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
1996 1995
----------------------- -----------------------
% %
OF GROSS OF GROSS
AMOUNT LOANS AMOUNT LOANS
------------ ---------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Domestic:
Commercial ........................ $286,054 29.25% $287,080 34.81%
Commercial real estate ............ 225,813 23.09 181,887 22.05
Construction ..................... 38,761 3.96 33,957 4.12
Residential first mortgages ...... 133,005 13.60 120,539 14.61
Residential equity lines ......... 19,938 2.04 17,458 2.12
Consumer ........................ 83,331 8.52 85,226 10.33
Overdrafts ........................ 3,722 0.38 3,349 0.41
Bankers' acceptances ............ 20,826 2.14 -- 0.00
-------- ------ -------- ------
Total domestic .................. 811,450 82.98 729,496 88.45
-------- ------ -------- ------
Foreign:
Banks ........................... 116,421 11.91 66,469 8.06
Bankers' acceptances ............ 20,760 2.12 220 0.03
Government ........................ 3,000 0.31 6,000 0.73
Other ........................... 26,213 2.68 22,614 2.73
-------- ------ -------- ------
Total foreign .................. 166,394 17.02 95,303 11.55
-------- ------ -------- ------
Total gross loans ............... 977,844 100.00% 824,799 100.00%
====== ======
Unearned ........................... (4,204) (3,709)
-------- --------
Total loans .................. $973,640 $821,090
======== ========
<CAPTION>
1994 1993 1992
----------------------- ----------------------- ------------------------
% % %
OF GROSS OF GROSS OF GROSS
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------------ ---------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial ........................ $202,921 30.26% $207,962 32.22% $215,589 31.52%
Commercial real estate ............ 165,102 24.62 141,146 21.87 145,133 21.22
Construction ..................... 16,976 2.53 17,049 2.64 21,032 3.08
Residential first mortgages ...... 90,926 13.56 96,192 14.90 115,323 16.86
Residential equity lines ......... 9,829 1.47 4,701 0.73 3,953 0.58
Consumer ........................ 72,668 10.84 62,810 9.73 57,921 8.47
Overdrafts ........................ 3,771 0.56 3,351 0.52 3,564 0.52
Bankers' acceptances ............ 564 0.09 941 0.15 11,098 1.62
-------- ------ -------- ------ -------- ------
Total domestic .................. 562,757 83.93 534,152 82.76 573,613 83.87
-------- ------ -------- ------ -------- ------
Foreign:
Banks ........................... 74,591 11.12 58,739 9.10 61,682 9.02
Bankers' acceptances ............ 5,236 0.78 12,986 2.01 18,935 2.77
Government ........................ 7,000 1.04 9,000 1.39 7,957 1.16
Other ........................... 20,901 3.13 30,520 4.74 21,762 3.18
-------- ------ -------- ------ -------- ------
Total foreign .................. 107,728 16.07 111,245 17.24 110,336 16.13
-------- ------ -------- ------ -------- ------
Total gross loans ............... 670,485 100.00% 645,397 100.00% 683,949 100.00%
====== ====== ======
Unearned ........................... (3,394) (3,984) (5,029)
-------- -------- --------
Total loans .................. $667,091 $641,413 $678,920
======== ======== ========
</TABLE>
The contractual maturity ranges of the foreign, commercial and industrial
and real estate loan portfolio and the amount of such loans with predetermined
interest rates and floating rates in each maturity range as of December 31,
1996 are summarized in the following table:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-------------------------------------------------
BETWEEN AFTER
ONE YEAR ONE AND FIVE
OR LESS FIVE YEARS YEARS TOTAL
---------- ------------ --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Domestic:
Commercial .................................... $129,707 $122,577 $33,770 $286,054
Commercial real estate ........................ 32,579 132,191 61,043 225,813
Construction loans ........................... 26,639 11,383 739 38,761
-------- -------- ------- --------
Total domestic .............................. 188,925 266,151 95,552 550,628
-------- -------- ------- --------
Foreign:
Banks ....................................... 116,421 -- -- 116,421
Bankers' acceptances ........................ 20,760 -- -- 20,760
Government .................................... 1,000 2,000 -- 3,000
Other ....................................... 26,213 -- -- 26,213
-------- -------- ------- --------
Total foreign .............................. 164,394 2,000 -- 166,394
-------- -------- ------- --------
Total ....................................... $353,319 $268,151 $95,552 $717,022
======== ======== ======= ========
Loans with a predetermined interest rate ...... $202,751 $165,959 $52,426 $421,136
Loans with a floating interest rate ............ 150,568 102,192 43,126 295,886
-------- -------- ------- --------
Total ....................................... $353,319 $268,151 $95,552 $717,022
======== ======== ======= ========
</TABLE>
56
<PAGE>
Effective January 1, 1995 the Company adopted SFAS No. 114, ACCOUNTING FOR
CREDITORS FOR IMPAIRMENT OF A LOAN, as amended by SFAS No. 118, ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN--INCOME RECOGNITION AND DISCLOSURES. Under
SFAS No. 114, as amended, a loan is considered impaired based on current
information and events, if it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. The measurement of impaired loans
is based on the present value of expected future cash flows discounted at the
loan's effective interest rate or the loan's observable market price or based
on the fair value of the collateral if the loan is collateral-dependent. The
implementation of SFAS No. 114 did not have a material adverse affect on the
Company's financial statements.
LOANS BY COUNTRY
The following table sets forth the distribution of the Company's gross
loans by country of the borrower at the dates indicated.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- ----------------------
% OF GROSS % OF GROSS % OF GROSS
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
-------- ------------ -------- ------------ -------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
United States ............ $812 83.03% $730 88.48% $563 84.03%
Brazil .................. 30 3.07 19 2.30 30 4.48
Peru ..................... 21 2.15 8 0.97 2 0.30
Ecuador .................. 13 1.33 13 1.58 8 1.19
Colombia ............... 12 1.23 8 0.97 7 1.04
Guatemala ............... 11 1.12 13 1.58 11 1.64
Panama .................. 11 1.12 4 0.48 3 0.45
Other(1) ............... 68 6.95 30 3.64 46 6.87
---- ------ ---- ------ ---- ------
Total Gross Loans ...... $978 100.00% $825 100.00% $670 100.00%
==== ====== ==== ====== ==== ======
</TABLE>
- ----------------
(1) "Other" consists of loans to borrowers in countries in which loans did not
exceed the lesser of $11 million or one percent of total assets on the
dates indicated.
TOTAL CROSS-BORDER OUTSTANDINGS BY COUNTRY
The following table sets forth, at the dates indicated, the aggregate
amount of the Company's cross-border outstandings (including foreign bonds, due
from bank accounts and interest-earning deposits with other banks), as well as
the percentage of such cross-border outstandings to the Company's total assets.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- ----------------------
% OF TOTAL % OF TOTAL % OF TOTAL
AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS
-------- ------------ -------- ------------ -------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Brazil ......... $ 30 1.98% $ 19 1.44% $ 30 2.56%
Peru ............ 21 1.39 8 0.60 2 0.17
Ecuador ......... 13 0.86 13 0.98 8 0.68
Colombia ...... 12 0.79 8 0.60 7 0.60
Guatemala ...... 11 0.73 13 0.98 11 0.94
Panama ......... 11 0.73 4 0.30 3 0.26
Other(1) ...... 70 4.63 57 4.31 58 4.94
---- ----- ---- ---- ---- -----
Total ......... $168 11.11% $122 9.21% $119 10.15%
==== ===== ==== ==== ==== =====
</TABLE>
- ----------------
(1) "Other" consists of loans to borrowers in countries in which loans did not
exceed the lesser of $11 million or one percent of total assets on the
dates indicated.
57
<PAGE>
NONPERFORMING ASSETS
The Company's lending approach, as well as a healthy local economy, have
resulted in strong asset quality. Nonperforming assets at December 31, 1996
were $5.3 million compared to $7.9 million at December 31, 1995 and $8.1
million at December 31, 1994. This resulted in ratios of nonperforming assets
to total loans plus other real estate of 0.55%, 0.96% and 1.21% for the years
ended 1996, 1995 and 1994, respectively.
The following table presents information regarding nonperforming assets at
the dates indicated:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans ..................... $ 1,563 $ 4,066 $ 4,564 $ 9,283 $ 14,622
Restructured loans .................. 404 306 368 540 664
Accruing loans 90 days or more
past due ........................... 957 303 130 459 324
Other real estate ..................... 2,411 3,247 3,041 3,855 16,529
------- ------- ------- -------- --------
Total nonperforming assets ......... $ 5,335 $ 7,922 $ 8,103 $ 14,137 $ 32,139
======= ======= ======= ======== ========
Nonperforming assets to total loans and
other real estate .................. 0.55% 0.96% 1.21% 2.19% 4.62%
</TABLE>
There were no foreign assets in these categories at each reporting date,
except that at December 31, 1992 the Company had $561,000 of foreign assets in
these categories.
If the Company had recorded interest on non-accrual loans, interest income
on loans would have increased by approximately $226,000, $350,000, $700,000,
$900,000 and $1.2 million in 1996, 1995, 1994, 1993 and 1992, respectively.
ALLOWANCE FOR LOAN LOSSES
For the year ended 1996, net loan charge-offs totalled $2.2 million or
0.25% of average loans outstanding for the period, compared to $1.9 million or
0.25% in net loan charge-offs during 1995. During 1996, the Company recorded a
provision for loan losses of $2.4 million compared with $890,000 for 1995. At
December 31, 1996, the allowance totalled $11.6 million, or 1.19% of total
loans. The Company made a provision for loan losses of $890,000 during 1995 as
compared to a provision of $2.5 million for 1994. At December 31, 1995, the
allowance aggregated $11.4 million or 1.39% of total loans compared to $11.7
million, or 1.75% of total loans at December 31, 1994.
58
<PAGE>
The following table presents, for the periods indicated, an analysis of
the allowance for loan losses and other related data:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- ------------ ------------ -------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average loans outstanding ........................ $872,094 $735,318 $635,555 $627,929 $613,459
======== ======== ======== ======== ========
Total loans outstanding at end of period ......... $973,640 $821,090 $667,091 $641,413 $678,920
======== ======== ======== ======== ========
Allowance for loan losses at beginning
of period ....................................... $11,411 $ 11,680 $ 11,563 $10,022 $ 8,500
Provision for loan losses ........................ 2,381 890 2,500 2,450 3,205
Allowance from acquired bank ..................... -- 701 -- -- --
Charge-offs:
Commercial and industrial ..................... (1,182) (690) (1,487) (595) (1,784)
Real estate .................................... (1) (131) (864) (625) (366)
Consumer ....................................... (2,058) (1,241) (732) (314) (429)
Foreign banks ................................. -- (521) (210) (5) --
Recoveries:
Commercial and industrial ..................... 400 261 320 372 630
Real estate .................................... 17 21 82 41 64
Consumer ....................................... 610 441 298 212 202
Foreign banks ................................. -- -- 210 5 --
--------- -------- -------- --------- --------
Net loan charge-offs ........................... (2,214) (1,860) (2,383) (909) (1,683)
--------- -------- -------- --------- --------
Allowance for loan losses at end of period ...... $11,578 $ 11,411 $ 11,680 $11,563 $ 10,022
========= ======== ======== ========= ========
Ratio of allowance to end of period loans ...... 1.19% 1.39% 1.75% 1.80% 1.48%
Ratio of net loan charge-offs to
average loans ................................. 0.25 0.25 0.37 0.14 0.27
Ratio of allowance to end of period
nonperforming loans ........................... 395.96 244.09 230.74 112.46 64.20
</TABLE>
59
<PAGE>
The following tables describe the allocation of the allowance for loan
losses among various categories of loans and certain other information for the
dates indicated. The allocation is made for analytical purposes and is not
necessarily indicative of the categories in which future losses may occur. The
total allowance is available to absorb losses from any segment of loans.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------------
1996 1995 1994
--------------------- --------------------- ---------------------
% OF % OF % OF
GROSS GROSS GROSS
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
--------- ----------- --------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance of allowance for
loan losses applicable
to:
Domestic:
Commercial ............... $ 5,464 29.25% $ 3,921 34.81% $ 3,693 30.26%
Commercial real estate . 498 23.09 1,138 22.05 797 24.62
Construction ............... 58 3.96 61 4.12 115 2.53
Residential first
mortgages ............... 185 13.60 254 14.61 196 13.56
Residential equity lines 66 2.04 28 2.12 13 1.47
Consumer .................. 1,164 8.52 825 10.33 781 10.84
Overdrafts ............... 150 0.38 78 0.41 95 0.56
Bankers' acceptances ...... -- 2.14 -- -- -- 0.09
------- ------ ------- ------ ------- ------
Total domestic ............ 7,585 82.98 6,305 88.45 5,690 83.93
------- ------ ------- ------ ------- ------
Foreign:
Banks ..................... 943 11.91 597 8.06 1,321 11.12
Bankers' acceptances ...... -- 2.12 -- 0.03 -- 0.78
Government ............... 20 0.31 52 0.73 79 1.04
Other ..................... 51 2.68 -- 2.73 -- 3.13
------- ------ ------- ------ ------- ------
Total foreign ............ 1,014 17.02 649 11.55 1,400 16.07
------- ------ ------- ------ ------- ------
Unallocated: ............... 2,979 4,457 4,590
------- ------- -------
Total allowance for
loan losses ............ $11,578 100.00% $11,411 100.00% $11,680 100.00%
======= ====== ======= ====== ======= ======
<CAPTION>
1993 1992
--------------------- ---------------------
% OF % OF
GROSS GROSS
AMOUNT LOANS AMOUNT LOANS
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Balance of allowance for
loan losses applicable
to:
Domestic:
Commercial ............... $ 5,579 32.22% $ 3,957 31.52%
Commercial real estate . 1,070 21.87 1,824 21.22
Construction ............... 226 2.64 136 3.08
Residential first
mortgages ............... 377 14.90 702 16.86
Residential equity lines 16 0.73 15 0.58
Consumer .................. 417 9.73 674 8.47
Overdrafts ............... 115 0.52 177 0.52
Bankers' acceptances ...... -- 0.15 -- 1.62
------- ------ ------- ------
Total domestic ............ 7,800 82.76 7,485 83.87
------- ------ ------- ------
Foreign:
Banks ..................... 698 9.10 598 9.02
Bankers' acceptances ...... -- 2.01 -- 2.77
Government ............... 57 1.39 83 1.16
Other ..................... 198 4.74 72 3.18
------- ------ ------- ------
Total foreign ............ 953 17.24 753 16.13
------- ------ ------- ------
Unallocated: ............... 2,810 1,784
------- -------
Total allowance for
loan losses ............ $11,563 100.00% $10,022 100.00%
======= ====== ======= ======
</TABLE>
SECURITIES
The following table summarizes the amortized cost of investment securities
held by the Company as of the dates shown:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------
1996 1995 1994
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
United States Treasury securities .............................. $203,096 $190,096 $191,214
Securities of the United States agencies and corporations ...... 89,956 71,275 99,075
Securities issued by states and political subdivisions ......... 35,895 30,909 43,265
Other debt securities .......................................... 600 26,676 29,504
Federal Reserve Bank stock .................................... 1,219 599 599
-------- -------- --------
Total securities ............................................. $330,766 $319,555 $363,657
======== ======== ========
</TABLE>
60
<PAGE>
The following table summarizes the carrying value and classification of
securities as of the dates shown:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------
1996 1995 1994
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Available-for-sale ...... $168,894 $161,673 $152,321
Held-to-maturity ......... 162,310 158,411 207,224
-------- -------- --------
Total securities ...... $331,204 $320,084 $359,545
======== ======== ========
</TABLE>
At December 31, 1996, securities totalled $331.2 million, an increase of
$11.1 million from $320.1 million at December 31, 1995. The increase occurred
primarily in United States securities. During 1995, securities decreased $39.4
million from $359.5 million at December 31, 1994. The yield on the securities
portfolio was 6.04%, 5.97% and 6.04% for 1996, 1995 and 1994, respectively.
Portfolio volume fluctuations reflected the impact of loan demand and liquidity
needs.
The following table presents the amortized cost of securities classified
as available for sale and their approximate fair values as of the dates shown.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------------------------ ------------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE COST GAIN LOSS VALUE
----------- ------------ ------------ ---------- ----------- ------------ ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States
Treasury
securities ......... $117,238 $169 $ (23) $117,384 $105,867 $293 $ (103) $106,057
Securities of the
United States
agencies and
corporations ...... 51,218 430 (138) 51,510 55,277 403 (64) 55,616
--------- ---- ------ -------- --------- ---- ------ --------
Total ............ $168,456 $599 $ (161) $168,894 $161,144 $696 $ (167) $161,673
========= ==== ====== ======== ========= ==== ====== ========
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
----------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
United States
Treasury
securities ......... $124,182 $65 $ (3,517) $120,730
Securities of the
United States
agencies and
corporations ...... 32,251 -- (660) 31,591
--------- --- -------- --------
Total ............ $156,433 $65 $ (4,177) $152,321
========= === ======== ========
</TABLE>
The following table presents the amortized cost of securities classified
as held-to-maturity and their approximate fair values as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------------------------ ------------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE COST GAIN LOSS VALUE
----------- ------------ ------------ ---------- ----------- ------------ ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States
Treasury
securities ......... $ 85,858 $ 952 $ (13) $ 86,797 $ 84,229 $2,550 $ -- $ 86,779
Securities of the
United States
agencies and
corporations ...... 38,738 16 (196) 38,558 15,998 43 (136) 15,905
Securities issued
by states and
political
subdivisions ...... 35,895 597 (4) 36,488 30,909 895 (10) 31,794
Other debt
securities ......... 600 -- -- 600 26,676 28 -- 26,704
Federal Reserve
Bank stock ......... 1,219 -- -- 1,219 599 -- -- 599
--------- ------ ------- -------- --------- ------ ------ --------
Total ............ $162,310 $1,565 $(213) $163,662 $158,411 $3,516 $ (146) $161,781
========= ====== ======= ======== ========= ====== ====== ========
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
----------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
United States
Treasury
securities ......... $ 67,032 $ -- $ (2,117) $ 64,915
Securities of the
United States
agencies and
corporations ...... 66,824 -- (4,846) 61,978
Securities issued
by states and
political
subdivisions ...... 43,265 904 (871) 43,298
Other debt
securities ......... 29,504 16 (494) 29,026
Federal Reserve
Bank stock ......... 599 -- -- 599
--------- ---- -------- --------
Total ............ $207,224 $920 $ (8,328) $199,816
========= ==== ======== ========
</TABLE>
61
<PAGE>
The following table summarizes the contractual maturity of investment
securities at amortized cost (including federal funds sold and other temporary
investments) and their weighted average yields. No tax equivalent adjustments
were made.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-------------------------------------------
AFTER ONE YEAR
BUT WITHIN
WITHIN ONE YEAR FIVE YEARS
--------------------- ---------------------
AMOUNT YIELD AMOUNT YIELD
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
United States Treasury securities ...... $ 77,798 5.99% $125,298 6.17%
Securities of other United States agencies
and corporations ........................ 16,000 5.23 67,080 6.43
Securities issued by states and political
subdivisions ........................... 2,682 6.30 5,356 4.58
Other debt securities .................. -- -- 250 7.75
-------- ---- -------- ----
Total debt securities .................. 96,480 5.87 197,984 6.22
Federal Reserve Bank stock ............... -- --
Federal funds sold ..................... 71,056 6.46 -- --
Temporary investments .................. 5,880 5.33 -- --
-------- ---- -------- ----
Total ................................. $173,416 6.10% $197,984 6.22%
======== ==== ======== ====
<CAPTION>
AFTER FIVE YEARS
BUT WITHIN
TEN YEARS AFTER TEN YEARS
------------------- --------------------
AMOUNT YIELD AMOUNT YIELD TOTAL YIELD
-------- ---------- --------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
United States Treasury securities ...... $ -- -- $ -- -- $203,096 6.10%
Securities of other United States agencies
and corporations ........................ -- -- 6,876 6.32 89,956 6.21
Securities issued by states and political
subdivisions ........................... 8,892 5.50 18,965 6.15 35,895 5.77
Other debt securities .................. 350 6.97 -- -- 600 7.30
------ ---- ------- ---- -------- ----
Total debt securities .................. 9,242 5.55 25,841 6.20 329,547 6.10
Federal Reserve Bank stock ............... -- -- 1,219 6.00 1,219 6.00
Federal funds sold ..................... -- -- -- -- 71,056 6.46
Temporary investments .................. -- -- -- -- 5,880 5.33
------ ---- ------- ---- -------- ----
Total ................................. $9,242 5.55% $27,060 6.19% $407,702 6.15%
====== ==== ======= ==== ======== ====
</TABLE>
DEPOSITS
Average total deposits during 1996 increased to $1,221.4 million from
$1,105.4 million in 1995, an increase of $116.0 million or 10.49%. The increase
resulted primarily from growth in time deposits. Average deposits in 1995
increased from $1,000.8 million in 1994, an increase of $104.6 million or
10.45%. The increase resulted from internal growth and the acquisition of the
Plaza Bank of Miami on June 2, 1995. The Company's ratios of average
noninterest-bearing demand deposits to average total deposits for the years
ended December 31, 1996, 1995, and 1994 were 21.65%, 22.39% and 22.97%,
respectively.
The daily average balances and weighted average interest rates paid on
deposits for each of the years ended December 31, 1996, 1995 and 1994 are
presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
1996 1995
------------------------------------ ------------------------------------
AMOUNT % OF TOTAL RATE AMOUNT % OF TOTAL RATE
------------ ------------ ---------- ------------ ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing demand deposits ...... $ 66,229 5.42% 1.67% $ 65,124 5.89% 2.01%
Savings .............................. 135,568 11.09 2.97 137,008 12.39 3.11
Money market ........................... 126,150 10.33 2.74 133,111 12.04 2.89
State, county and municipal
certificates of deposit ............... 18,907 1.55 5.36 2,879 0.26 5.58
Time deposits less than $100,000 ...... 351,090 28.75 5.22 298,758 27.03 5.26
Time deposits $100,000 and over ...... 217,622 17.82 5.26 186,453 16.87 5.32
International banking
facility deposits ..................... 41,420 3.39 5.12 34,550 3.13 5.87
---------- ------ ---- ---------- ------ ----
Total interest-bearing deposits ...... 956,986 78.35 4.31 857,883 77.61 4.32
Noninterest-bearing deposits ......... 264,364 21.65 -- 247,499 22.39 --
---------- ------ ---- ---------- ------ ----
Total deposits ..................... $1,221,350 100.00% 3.38% $1,105,382 100.00% 3.35%
========== ====== ==== ========== ====== ====
<CAPTION>
1994
------------------------------------
AMOUNT % OF TOTAL RATE
------------ ------------ ----------
<S> <C> <C> <C>
Interest-bearing demand deposits ...... $ 65,464 6.54% 2.16%
Savings .............................. 148,859 14.87 2.20
Money market ........................... 137,231 13.71 2.51
State, county and municipal
certificates of deposit ............... 1,356 0.14 3.31
Time deposits less than $100,000 ...... 228,904 22.87 3.75
Time deposits $100,000 and over ...... 160,328 16.02 3.70
International banking
facility deposits ..................... 28,774 2.88 3.93
---------- ------ ----
Total interest-bearing deposits ...... 770,916 77.03 3.07
Noninterest-bearing deposits ......... 229,871 22.97 --
---------- ------ ----
Total deposits ..................... $1,000,787 100.00% 2.36%
========== ====== ====
</TABLE>
62
<PAGE>
The following table sets forth the amount of the Company's time deposits
that are $100,000 or greater by time remaining until maturity (includes
international banking facility deposits and state, county and municipal
certificates of deposit that are $100,000 or greater):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
3 months or less .................. $217,078
Between 3 months and 6 months ...... 80,485
Between 6 months and 1 year ......... 69,162
Over 1 year ........................ 5,237
--------
Total ........................... $371,962
========
</TABLE>
As part of its funding process, the Company obtains deposits from
customers domiciled in other countries, primarily in Latin America. The
following table sets forth the amounts of deposits by country from customers
domiciled outside of the United States as of the dates indicated, as well as
the composition of such deposits by deposit type.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1996 1995 1994
------ ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
COUNTRY:
Ecuador ............................................. $119 $ 72 $ 62
Venezuela ............................................. 73 89 73
Costa Rica .......................................... 18 19 18
Mexico ................................................ 15 21 17
Brazil ................................................ 11 10 16
Guatemala ............................................. 11 13 16
Dominican Republic .................................... 10 17 16
British West Indies ................................. 10 6 7
Spain ................................................ 10 21 20
Colombia ............................................. 10 12 12
Argentina ............................................. 9 8 6
Panama ................................................ 8 14 17
Honduras ............................................. 8 13 15
El Salvador .......................................... 6 9 12
Other(1) ............................................. 37 40 39
---- ---- ----
Total foreign deposits .............................. $355 $364 $346
==== ==== ====
COMPOSITION BY DEPOSIT TYPE:
Certificates of deposit and other time deposits ...... $176 $182 $175
Other ................................................ 179 182 171
---- ---- ----
Total foreign deposits .............................. $355 $364 $346
==== ==== ====
</TABLE>
- ----------------
(1) "Other" consists of deposits from customers domiciled in countries from
which total deposits did not exceed $6 million.
63
<PAGE>
INTEREST RATE SENSITIVITY AND LIQUIDITY
The following table sets forth an interest rate sensitivity analysis for
the Company at December 31, 1996:
<TABLE>
<CAPTION>
VOLUMES SUBJECT TO REPRICING WITHIN
------------------------------------------
181-365
0-30 DAYS 31-180 DAYS DAYS
------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Federal funds sold and other
temporary investments .................. $ 71,406 $ 524 $ 5,006
Securities .............................. 62,083 52,112 44,098
Total loans .............................. 357,778 193,475 60,863
--------- ---------- ----------
Total interest-earning assets ............ 491,267 246,111 109,967
--------- ---------- ----------
Interest-bearing liabilities:
Demand, money market and
savings deposits ........................ 318,441 -- --
Certificates of deposit and other
time deposits ........................... 186,749 391,701 139,199
--------- ---------- ----------
Total interest-bearing deposits ......... 505,190 391,701 139,199
--------- ---------- ----------
Federal funds purchased and
securities sold under repurchase
agreements .............................. 28,918 -- --
Other borrowings ........................ 16,679 -- --
--------- ---------- ----------
Total interest-bearing liabilities ...... 550,787 391,701 139,199
--------- ---------- ----------
Period GAP ................................. (59,520) (145,590) (29,232)
Cumulative GAP ........................... (59,520) (205,110) (234,342)
Period GAP to total assets ............... (3.94)% ( 9.63)% ( 1.93)%
Cumulative GAP to total assets ............ (3.94) (13.57) (15.50)
Cumulative interest-earning assets
to cumulative interest-bearing
liabilities .............................. 89.19 78.24 78.34
<CAPTION>
GREATER
THAN
1-3 YEARS 3-5 YEARS 5-10 YEARS 10 YEARS TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold and other
temporary investments .................. $ -- $ -- $ -- $ -- $ 76,936
Securities .............................. 151,793 3,112 18,006 -- 331,204
Total loans .............................. 123,682 105,232 47,571 85,039 973,640
--------- --------- --------- --------- -----------
Total interest-earning assets ............ 275,475 108,344 65,577 85,039 1,381,780
--------- --------- --------- --------- -----------
Interest-bearing liabilities:
Demand, money market and
savings deposits ........................ -- -- -- -- 318,441
Certificates of deposit and other
time deposits ........................... 15,992 4,273 248 -- 738,162
--------- --------- --------- --------- -----------
Total interest-bearing deposits ......... 15,992 4,273 248 -- 1,056,603
--------- --------- --------- --------- -----------
Federal funds purchased and
securities sold under repurchase
agreements .............................. -- -- -- -- 28,918
Other borrowings ........................ -- -- -- -- 16,679
--------- --------- --------- --------- -----------
Total interest-bearing liabilities ...... 15,992 4,273 248 -- 1,102,200
--------- --------- --------- --------- -----------
Period GAP ................................. 259,483 104,071 65,329 85,039 $ 279,580
===========
Cumulative GAP ........................... 25,141 129,212 194,541 279,580
Period GAP to total assets ............... 17.16% 6.88% 4.32% 5.62%
Cumulative GAP to total assets ............ 1.66 8.55 12.87 18.49
Cumulative interest-earning assets
to cumulative interest-bearing
liabilities .............................. 102.29 111.73 117.65 125.37
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--For the Nine Months Ended September 30, 1997 and
1996--Interest Rate Sensitivity and Liquidity" for a discussion of the
Company's policies regarding asset and liability risk management.
CAPITAL RESOURCES
Shareholders' equity increased to $124.7 million at December 31, 1996 from
$116.1 million at December 31, 1995, an increase of $8.6 million or 7.41%. This
increase was primarily the result of net income of $18.0 million offset by a
decline in the net unrealized gain on available-for-sale securities, net of tax
of $52,000, and dividends paid of $9.4 million. During 1995, shareholders'
equity increased by $15.7 million or 15.64%, from $100.4 million at December
31, 1994. In addition to net income of $17.8 million, the increase reflected a
change of $2.7 million in unrealized gain on available-for-sale securities, net
of tax, and dividends paid of $4.7 million.
64
<PAGE>
The following table provides a comparison of the Company's and the Bank's
leverage and risk-weighted capital ratios as of December 31, 1996 to the
minimum and well-capitalized regulatory standards:
<TABLE>
<CAPTION>
ACTUAL RATIO
MINIMUM REQUIRED WELL-CAPITALIZED AT DECEMBER 31, 1996
------------------ ------------------ ---------------------
<S> <C> <C> <C>
THE COMPANY
Leverage ratio ........................ 3.00%(1) N/A 8.52%
Tier 1 risk-based capital ratio ...... 4.00 6.00% 14.44
Risk-based capital ratio ............ 8.00 10.00 15.69
THE BANK
Leverage ratio ........................ 3.00%(2) 5.00% 8.51%
Tier 1 risk-based capital ratio ...... 4.00 6.00 14.42
Risk-based capital ratio ............ 8.00 10.00 15.67
</TABLE>
- ----------------
(1) The FRB may require the Company to maintain a leverage ratio of up to 200
basis points above the required minimum.
(2) The OCC may require the Bank to maintain a leverage ratio of up to 200
basis points above the required minimum.
65
<PAGE>
REGULATION
The supervision and regulation of bank holding companies and their
subsidiaries is intended primarily for the protection of depositors, the
deposit insurance funds of the FDIC and the banking system as a whole, and not
for the protection of the bank holding company, shareholders or creditors. The
federal banking agencies have broad enforcement power over bank holding
companies and banks including the power to impose substantial fines and other
penalties for violations of laws and regulations.
The following description summarizes some of the laws to which the Company
is subject. References herein to applicable statutes and regulations are brief
summaries thereof, do not purport to be complete, and are qualified in their
entirety by reference to such statutes and regulations.
THE COMPANY
Bancorp is a bank holding company registered under the BHCA, and as such
it is subject to supervision, regulation and examination by the FRB. The BHCA
and other federal laws subject bank holding companies to particular
restrictions on the types of activities in which they may engage in, and to a
range of supervisory requirements and activities, including regulatory
enforcement actions for violations of laws and regulations.
REGULATORY RESTRICTIONS ON DIVIDENDS; SOURCE OF STRENGTH. It is the policy
of the FRB that bank holding companies should pay cash dividends on common
stock only out of income available over the past year and only if prospective
earnings retention is consistent with the organization's expected future needs
and financial condition. The policy provides that bank holding companies should
not maintain a level of cash dividends that undermines the bank holding
company's ability to serve as a source of strength to its bank subsidiaries.
Under FRB policy, a bank holding company is expected to act as a source of
financial strength to each of its bank subsidiaries and commit resources to
their support. Such support may be required at times when, absent this FRB
policy, a holding company may not be inclined to provide it. As discussed
below, a bank holding company in certain circumstances could be required to
guarantee the capital plan of an undercapitalized bank subsidiary.
In the event of a bank holding company's bankruptcy under Chapter 11 of
the U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is
required to cure immediately any deficit under any commitment by the debtor
holding company to any of the federal banking agencies to maintain the capital
of an insured depository institution, and any claim for breach of that
obligation will generally have priority over most other unsecured claims.
ACTIVITIES "CLOSELY RELATED" TO BANKING. The BHCA prohibits a bank holding
company, with certain limited exceptions, from acquiring direct or indirect
ownership or control of any voting shares of any company which is not a bank or
from engaging in any activities other than those of banking, managing or
controlling banks and certain other subsidiaries, or furnishing services to or
performing services for its subsidiaries. One principal exception to these
prohibitions allows the acquisition of interests in companies whose activities
are found by the FRB, by order or regulation, to be so closely related to
banking or managing or controlling banks, as to be a proper incident thereto.
Some of the activities that have been determined by regulation to be closely
related to banking are making or servicing loans, performing certain data
processing services, acting as an investment or financial advisor to certain
investment trusts and investment companies, and providing securities brokerage
services. Other activities approved by the FRB include the provision of
consumer financial counseling, tax planning and tax preparation, futures and
options advisory services, check guaranty services, collection agency and
credit bureau services, and personal property appraisals.
In approving acquisitions by bank holding companies of companies engaged
in banking-related activities, the FRB considers a number of factors and weighs
the expected benefits to the public (such as
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greater convenience and increased competition or gains in efficiency) against
the risks of possible adverse effects (such as undue concentration of
resources, decreased or unfair competition, conflicts of interest, or unsafe
and unsound banking practices). The FRB is also empowered to differentiate
between activities commenced de novo and activities commenced through
acquisition of a going concern.
SECURITIES ACTIVITIES. The FRB has approved applications by bank holding
companies to engage, through nonbank subsidiaries, in certain
securities-related activities (underwriting of municipal revenue bonds
commercial paper, consumer receivable-related securities and one-to-four family
mortgage-backed securities), provided that the affiliates would not be
"principally engaged" in such activities for purposes of Section 20 of the
Glass-Steagall Act. In limited situations, holding companies may be able to use
such subsidiaries to underwrite and deal in corporate debt and equity
securities.
SAFE AND SOUND BANKING PRACTICES. Bank holding companies are not permitted
to engage in unsafe and unsound banking practices. The FRB's Regulation Y, for
example, generally requires a holding company to give the FRB prior notice of
any redemption or repurchase of its own equity securities, if the consideration
to be paid, together with the consideration paid for any repurchases or
redemptions in the preceding year, is equal to 10% or more of the company's
consolidated net worth. The FRB may oppose the transaction if it believes that
the transaction would constitute an unsafe or unsound practice or would violate
any law or regulation. Depending upon the particular facts and circumstances,
the FRB could take the position that paying a dividend would constitute an
unsafe or unsound banking practice.
The FRB has broad authority to prohibit activities of bank holding
companies and their nonbanking subsidiaries which represent unsafe and unsound
banking practices or which constitute violations of laws or regulations, and
can assess civil money penalties for certain activities conducted on a knowing
and reckless basis, if those activities caused a substantial loss to a
depository institution. The penalties can be as high as $1,000,000 for each day
the activity continues.
ANTI-TYING RESTRICTIONS. Banks are prohibited from tying the provision of
certain services, such as extensions of credit, to other services offered by an
affiliated bank holding company or its affiliates.
CAPITAL ADEQUACY REQUIREMENTS. The FRB has adopted a system using
risk-based capital guidelines to evaluate the capital adequacy of bank holding
companies. Under the guidelines, specific categories of assets are assigned
different risk weights, based generally on the perceived credit risk of the
asset. These risk weights are multiplied by corresponding asset balances to
determine a "risk-weighted" asset base. The guidelines require a minimum total
risk-based capital ratio of 8.0% (of which at least 4.0% is required to consist
of Tier 1 capital elements). Total capital is the sum of Tier 1 and Tier 2
capital. As of September 30, 1997, the Company's ratio of Tier 1 capital to
total risk-weighted assets was 14.14%, and its ratio of total capital to total
risk-weighted assets was 15.39%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Capital Resources."
In addition to the risk-based capital guidelines, the FRB uses a leverage
ratio as an additional tool to evaluate the capital adequacy of bank holding
companies. The leverage ratio is a company's Tier 1 capital divided by its
adjusted average total consolidated assets. Certain highly-rated bank holding
companies may maintain a minimum leverage ratio of 3.0%, but other bank holding
companies may be required to maintain a leverage ratio of up to 200 basis
points above the regulatory minimum. As of September 30, 1997, the Company's
leverage ratio was 8.52%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Capital Resources."
The federal banking agencies' risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banking organizations that meet
certain specified criteria, assuming that they have the highest regulatory
rating. Banking organizations not meeting these criteria are expected to
operate with capital positions above the minimum ratios. The federal bank
regulatory agencies may set capital requirements for a particular banking
organization that are higher than the minimum ratios when circumstances
warrant. FRB guidelines also provide that banking organizations experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions above the minimum supervisory levels, without significant
reliance on intangible assets.
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IMPOSITION OF LIABILITY FOR UNDERCAPITALIZED BANK SUBSIDIARIES. Bank
regulators are required to take "prompt corrective action" to resolve problems
associated with insured depository institutions whose capital declines below
certain levels. In the event an institution becomes "undercapitalized," it must
submit a capital restoration plan. The capital restoration plan will not be
accepted by the regulators unless each company having control of the
undercapitalized institution guarantees the subsidiary's compliance with the
capital restoration plan up to a certain specified amount. Any such guarantee
from a depository institution's holding company is entitled to a priority of
payment in bankruptcy.
The aggregate liability of the holding company of an undercapitalized
subsidiary bank is limited to the lesser of 5% of the institution's assets at
the time it became undercapitalized or the amount necessary to cause the
institution to be "adequately capitalized." The bank regulators have greater
power in situations where an institution becomes "significantly" or
"critically" undercapitalized or fails to submit a capital restoration plan.
For example, a bank holding company controlling such an institution can be
required to obtain prior FRB approval of proposed dividends, or might be
required to consent to a consolidation or to divest the troubled institution or
other affiliates.
ACQUISITIONS BY BANK HOLDING COMPANIES. The BHCA requires every bank
holding company to obtain the prior approval of the FRB before it may acquire
all or substantially all of the assets of any bank, or ownership or control of
any voting shares of any bank, if after such acquisition it would own or
control, directly or indirectly, more than 5% of the voting shares of such
bank. In approving bank acquisitions by bank holding companies, the FRB is
required to consider the financial and managerial resources and future
prospects of the bank holding company and the banks concerned, the convenience
and needs of the communities to be served and various competitive factors.
Rebank, the Company's majority shareholder, is a foreign bank holding
company registered under the BHCA and is subject to regulation by the FRB.
According to the FRB, Rebank is subject to the requirements of the Foreign Bank
Supervision Enforcement Act ("FBSEA"), which include, in connection with the
acquisition of control of a bank, a review of current commitments, background
checks of principals and a review of the bank holding company's affiliates and
of affiliates of the principals of the foreign bank holding company. See "Risk
Factors--Foreign Ownership of United States Banks."
CONTROL ACQUISITIONS. The BHCA prohibits a person or group of persons from
acquiring "control" of a bank holding company unless the FRB has been notified
and has not objected to the transaction. Under a rebuttable presumption
established by the FRB, the acquisition of 10% of more of a class of voting
stock of a bank holding company with a class of securities registered under
Section 12 of the Exchange Act, such as the Company, would, under the
circumstances set forth in the presumption, constitute acquisition of control
of the Company. In addition, any company is required to obtain the approval of
the FRB under the BHCA before acquiring 25% (5% in the case of an acquiror that
is already a bank holding company) or more of the outstanding Common Stock of
the Company, or otherwise obtaining control or a "controlling influence" over
the Company.
CROSS-GUARANTEE PROVISIONS. The Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA") contains a "cross-guarantee" provision
which generally makes commonly controlled insured depository institutions
liable to the FDIC for any losses incurred in connection with the failure of a
commonly controlled depository institution.
INSTABILITY OF REGULATORY STRUCTURE
Various legislation, including proposals to overhaul the federal bank
regulatory system, expand the powers of banking institutions and bank holding
companies and limit the investments that a depository institution may make with
insured funds, is from time to time introduced in Congress. Such legislation
may change the federal banking statutes and the operating environment of the
Company and its bank subsidiaries in substantial and unpredictable ways. The
Company cannot determine the ultimate effect that potential legislation, if
enacted, or implementing regulations with respect thereto, would have upon the
financial condition or results of operations of the Company or its
subsidiaries.
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EXPANDING ENFORCEMENT AUTHORITY
FIRREA and FDICIA both significantly increased the ability of the federal
banking agencies to monitor the activities of banks and their holding
companies. In addition, the FRB, the OCC, and the FDIC possess extensive
authority to police unsafe or unsound practices and violations of applicable
laws and regulations by national banks and their holding companies. For
example, if an institution is considered to be engaged in an unsafe or unsound
practice, the FDIC may terminate its deposit insurance, after the institution
is served a written notice and given an opportunity for a hearing on the
matter. The agencies can also assess civil money penalties, issue cease and
desist or removal orders, seek injunctions and publicly disclose such actions.
FDICIA, FIRREA and other laws have expanded the agencies' authority in recent
years, and the agencies have not yet fully tested the limits of their powers.
EFFECT ON ECONOMIC ENVIRONMENT
The policies of regulatory authorities, including the monetary policy of
the FRB, have a significant effect on the operating results of bank holding
companies and their subsidiaries. Among the means available to the FRB to
affect the money supply are open market operations in U.S. Government
securities, changes in the discount rate on member bank borrowings and changes
in reserve requirements against member bank deposits. These means are used in
varying combinations to influence overall growth and distribution of bank
loans, investments and deposits, and their use may affect interest rates
charged on loans or paid for deposits.
FRB monetary policies have materially affected the operating results of
commercial banks in the past and are expected to continue to do so in the
future. The nature of future monetary policies and the effect of such policies
on the business and earnings of the Company and its subsidiaries cannot be
predicted.
INTERSTATE BANKING
As of September 29, 1995, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "RNA") permitted adequately capitalized and managed
bank holding companies to acquire control of banks in any state. Additionally,
beginning on June 1, 1997, the RNA provides for banks to branch across state
lines, although individual states may authorize interstate branches earlier or
elect to opt-out entirely. Florida has allowed bank holding companies from the
Southeastern United States. to acquire banks in Florida since 1984, and in 1994
this was expanded to include bank holding companies from other parts of the
United States as well. In 1996, Florida enacted legislation, effective as of
June 1, 1997 which allowed out-of-state banks to enter Florida by merger with
an existing Florida-based bank, and thereafter to branch throughout the state,
while also allowing Florida-based banks to establish branches in other states
by merger with out-of-state banks. This may further increase competition for
the Bank by allowing large banks from other parts of the United States to
operate directly in Florida.
REGULATION OF THE BANK
GENERAL. The Bank, as a national bank, is subject to regulation primarily
by the OCC. Also, as a national bank, the Bank is a member of the Federal
Reserve System and its deposits are insured by the FDIC. Its operations are
therefore also subject to certain FRB and FDIC regulations. Various other
federal and state consumer laws and regulations also affect the operations of
the Bank.
As a national bank, the Bank may be able to engage in certain activities
approved by the OCC which the FRB would not necessarily approve for the Company
or its non-national bank subsidiaries. The OCC has in recent years allowed
national banks to undertake an ever-increasing range of securities and
insurance activities. Along these lines, pursuant to certain revisions to the
OCC's regulations pertaining to national bank activities effective on December
31, 1996, national banks, among other things, are now be permitted on a
case-by-case basis to operate subsidiaries that may engage in activities some
of which are not permissible for the bank itself. Although the revised
regulations do not
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authorize any new activities per se, it is expected that national banks, if
eligible and if they obtain the approval of the OCC, will use them to expand
further into the businesses of insurance and securities underwriting.
The revised OCC regulations contain "fire walls" intended to protect a
national bank from the risks taken by its subsidiary, including a 10%
limitation on the amount of bank capital that may be invested in the new
subsidiary, as well as requirements that extensions of credit to the operating
subsidiary be fully-collateralized and that transactions between the bank and
the subsidiary be conducted at arm's-length. Also, other safeguards are that
the parent national bank's exposure to any losses the subsidiary may incur be
limited to the bank's equity investment in the subsidiary, and that the parent
national bank be well-capitalized both before and after the investment is made.
Since OCC approval is required on a case-by-case basis for an eligible
bank to be permitted to engage in activities not permissible for the bank to
conduct directly, it is unclear at this time what the effect of these revised
regulations on the operations of national banks will be. Further, Congress is
considering new banking legislation which may address these revisions.
As a national bank, the Bank may not ordinarily lend more than 15% of its
capital unsecured to any one borrower, and may lend up to an additional 10% of
its capital to that same borrower on a fully secured basis involving readily
marketable collateral having a market value, as determined by reliable and
continuously available price quotations, equal at least to the amount borrowed.
In addition, there are various other circumstances in which the Bank may lend
in excess of such limits, including authority to lend up to 35% of capital and
surplus when the loan is secured by documents of title to readily marketable
staples and certain other exceptions relevant to international trade finance.
Federal law also imposes additional restrictions on the Bank with respect
to loans and extensions of credit to certain related parties and purchases from
and other transactions with the Bank and the Company's principal shareholders,
officers, directors and affiliates. Extensions of credit (i) must be made on
substantially the same terms (including interest rates and collateral) as, and
follow credit underwriting procedures that are not less stringent than, those
prevailing at the time for comparable transactions with members of the general
public, and (ii) must not involve more than the normal risk of repayment or
present other unfavorable features. In addition, extensions of credit to each
such person beyond certain limits set by applicable law must be approved by the
Bank's Board of Directors, with the individual who is applying for the credit
abstaining from participation in the decision. The Bank also is subject to
certain lending limits and restrictions on overdrafts to such persons. A
violation of these restrictions may result in the assessment of substantial
civil monetary penalties against the Bank or any officer, director, employee,
agent or other person participating in the conduct of the affairs of the Bank
or the imposition by the FRB of a cease and desist order.
The Bank is allowed to establish new branches throughout Florida. In
addition, by merger with a bank with branches in other states, the Bank may
also now establish branches in those other states. See "Interstate Banking"
above.
Moreover, under the Change in Bank Control Act of 1978, as amended, no
person or group of persons may directly or indirectly acquire control of the
voting stock of the Bank unless the OCC has been given 60 days' prior written
notice of the proposed acquisition and within that time period the OCC has not
issued a notice disapproving the proposed acquisition.
DIVIDENDS. The Bank is subject to legal limitations on the frequency and
amount of dividends that can be paid to Bancorp. The OCC, in general, also has
the ability to prohibit dividends by the Bank which would otherwise be
permitted under applicable regulations if the OCC determines that such
distribution would constitute an unsafe or unsound practice.
For the Bank, the approval of the OCC is required for the payment of
dividends in any calendar year if the total of all dividends declared by the
Bank in that year exceeds the current year's net income combined with the
retained net income of the two preceding years. "Retained net income" means the
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net income of a specified period less any common or preferred stock dividends
declared for that period. Moreover, no dividends may be paid by a national bank
in excess of its undivided profits account.
In accordance with the above regulatory restrictions, the Bank currently
has the ability to pay dividends. As of September 30, 1997, an aggregate of
approximately $27.7 million was available for payment of dividends by the Bank
to Bancorp under applicable restrictions, without regulatory approval, after
taking into consideration dividends that would have to be paid to minority
shareholders of the Bank after giving effect to the Reorganization.
There are also statutory limits on other transfer of funds to Bancorp and
any other future non-banking subsidiaries of Bancorp by the Bank, whether in
the form of loans or other extensions of credit, investments or asset
purchases. Such transfers by the Bank generally are limited in amount to 10% of
the Bank's capital and surplus, to Bancorp or any future Bancorp subsidiary, or
20% in the aggregate to Bancorp and all such subsidiaries. Furthermore, such
loans and extensions of credit are required to be fully collateralized in
specified amounts depending on the nature of the collateral involved.
FDICIA
FDICIA was enacted on December 19, 1991. It substantially revised the bank
regulatory and funding provisions of the Federal Deposit Insurance Act and made
significant revisions to other federal banking statutes. FDICIA provided for,
among other things, (i) a recapitalization of the Bank Insurance Fund of the
FDIC (the "BIF") by increasing the FDIC's borrowing authority and providing for
adjustments in its assessment rates; (ii) annual on-site examinations of
federally-insured depository institutions by banking regulators; (iii) publicly
available annual financial condition and management reports for financial
institutions, including audits by independent accountants; (iv) the
establishment of uniform accounting standards by federal banking agencies; (v)
the establishment of a "prompt corrective action" system of regulatory
supervision and intervention, based on capitalization levels, with more
scrutiny and restrictions placed on depository institutions with lower levels
of capital; (vi) additional grounds for the appointment of a conservator or
receiver; (vii) a requirement that the FDIC use the least-cost method of
resolving cases of troubled institutions in order to keep the costs to
insurance funds at a minimum; (viii) more comprehensive regulation and
examination of foreign banks; (ix) consumer protection provisions, including a
Truth-in-Savings Act; (x) a requirement that the FDIC establish a risk-based
deposit insurance premium assessment system; (xi) restrictions or prohibitions
on accepting brokered deposits, except for institutions which significantly
exceed minimum capital requirements; and (xii) certain additional limits on
deposit insurance coverage.
A central feature of FDICIA is the requirement that the federal banking
agencies take "prompt corrective action" with respect to insured depository
institutions that do not meet minimum capital requirements. Pursuant to FDICIA,
the federal bank regulatory authorities have adopted regulations setting forth
a five-tiered system for measuring the capital adequacy of the depository
institutions they supervise. Under these regulations, a depository institution
is classified in one of the following capital categories: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
and "critically undercapitalized."
FDICIA generally prohibits the Bank from making any capital distribution
(including payment of a cash dividend) or paying any management fees to Bancorp
if the Bank would thereafter be undercapitalized. Undercapitalized depository
institutions are subject to growth limitations and are required to submit
capital restoration plans acceptable to the federal banking agencies. If a
depository institution fails to submit an acceptable plan, it is treated as if
it is "significantly undercapitalized."
Significantly undercapitalized depository institutions may be subject to a
number of other requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, and requirements to
reduce total assets and to stop accepting deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator, generally within 90 days of the date such institution
is determined to be critically undercapitalized.
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FDICIA also provided for increased funding of the BIF. Under the FDIC's
risk-based insurance premium assessment system, each bank whose deposits are
insured by the BIF is assigned one of the nine risk classifications based upon
certain capital and supervisory measures and, depending upon its
classification, is assessed premiums. On November 14, 1995, the FDIC board of
directors voted to lower the BIF premium range to zero from .27% effective
January 1996. Accordingly, the Bank at this time is not subject to paying any
deposit insurance premiums. The rate schedule is subject to future adjustments
by the FDIC. In addition, the FDIC has authority to impose special assessments
from time to time. As a result of the enactment of the Federal Deposit
Insurance Funds Act of 1996 on September 30, 1996, commercial banks are now
required to pay part of the interest on the Financing Corporation's ("FICO")
bonds issued to deal with the savings and loan crisis of the late 1980s. As a
result, commercial bank deposits are now also subject to assessment by FICO
upon the approval by the FDIC Board ("FICO Assessment") of such assessment.
Beginning in 1997 and until the earlier of December 31, 1999 or the date on
which the last saving association ceases to exist, the assessment rate FICO
imposes on a commercial bank must be at a rate equal to one-fifth the
assessment rate applicable to deposits assessable by the SAIF. The Bank's FICO
Assessment for 1997 was $265,000, and the Bank believes it will be at least
$265,000 for 1998.
RESERVE REQUIREMENTS. The Bank is required to maintain reserves against
its transaction accounts. The reserves must be maintained in an interest-free
account at the Federal Reserve Bank of Atlanta. Reserve requirements and the
amount of required reserves is subject to adjustment by the FRB from time to
time. The current rate for reserves is 3% of a depository institution's
transaction accounts (less certain permissible deductions) up to $52 million,
plus 10% of the amount over $52 million.
BROKERED DEPOSIT RESTRICTIONS. Well-capitalized institutions may accept
brokered deposits. Adequately capitalized institutions cannot accept, renew or
roll over brokered deposits except with a waiver from the FDIC, and are subject
to restrictions on the interest rates that can be paid on such deposits.
Undercapitalized institutions may not accept, renew, or roll over brokered
deposits.
COMMUNITY REINVESTMENT ACT. The Community Reinvestment Act of 1977 ("CRA")
and the regulations issued thereunder are intended to encourage banks to help
meet the credit needs of their service area, including low and moderate income
neighborhoods, consistent with the safe and sound operations of the banks.
These regulations also provide for regulatory assessment of a bank's record in
meeting the needs of its service area when considering applications to
establish branch merger applications and applications to acquire the assets and
assume the liabilities of another bank. FIRREA requires federal banking
agencies to make public a rating of a bank's performance under the CRA. In the
case of a bank holding company, the CRA performance record of the banks
involved in the transaction are reviewed in connection with the filing of an
application to acquire ownership or control of shares or assets of a bank or to
merge with any other bank holding company. An unsatisfactory record can
substantially delay or block the transaction. Under the Bank's last two CRA
examinations, conducted in 1993 and 1995, the Bank received "Outstanding"
ratings (the highest rating) from the OCC.
CONSUMER LAWS AND REGULATIONS. In addition to the laws and regulations
discussed herein, the Bank is also subject to certain consumer laws and
regulations that are designed to protect consumers in transactions with banks.
While the list set forth herein is not exhaustive, these laws and regulations
include the Truth in Lending Act, the Truth in Savings Act, the Electronic
Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit
Opportunity Act, and the Fair Housing Act, among others. These laws and
regulations mandate certain disclosure requirements and regulate the manner in
which financial institutions must deal with customers when taking deposits or
making loans to such customers. The Bank must comply with the applicable
provisions of these consumer protection laws and regulations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- ----- -----------------------------------------------------------------
<S> <C> <C>
Roberto Isaias ............ 53 Chairman of the Board of Bancorp and Director of the Bank
Oscar Bustillo, Jr. ...... 54 President, Chief Executive Officer and Director of Bancorp and
Chairman of the Board, Chief Executive Officer and President
of the Bank
Bernardo M. Argudin ...... 46 Vice President, Chief Financial Officer and Director of Bancorp,
Executive Vice President, Chief Financial Officer and Director
of the Bank
Felix M. Garcia ............ 48 Executive Vice President, Chief Credit Officer and Director of
the Bank
Edward F. Holden ......... 45 Executive Vice President--Corporate Banking of the Bank
Fernando J. Martinez ...... 57 Executive Vice President--Real Estate Lending of the Bank
Rafael Quintana ............ 57 Executive Vice President--Retail Banking of the Bank
Orlando A. Quintero ...... 63 Executive Vice President--Operations of the Bank
Jose P. Bared ............ 56 Director of Bancorp and the Bank
John H. Blake ............ 52 Director of Bancorp and the Bank
Estefano Isaias ............ 49 Director of Bancorp
William Isaias ............ 53 Director of Bancorp
Milton H. Lehr ............ 79 Director of Bancorp and the Bank
Fernando Tamayo ............ 48 Director of Bancorp and the Bank
</TABLE>
ROBERTO ISAIAS has been a director of Bancorp since October 1970, and has
served as Chairman of the Board since May 1982. Mr. Isaias has served as a
director of the Bank since October 1984 and as Chairman of the Executive
Committee of the Bank since March 1985. Since 1985, Mr. Isaias has served as
President of Filanbanco, S.A., a major Ecuadorian bank. From 1971 to 1985, Mr.
Isaias was employed in various capacities at Filanbanco, S.A.
OSCAR BUSTILLO, JR. has served as President and Chief Executive Officer of
Bancorp since April 1994. Since March 1989, he has served as an officer and
director of Bancorp. Mr. Bustillo has served as President of the Bank since
February 1989, as Chief Executive Officer of the Bank since May 1993, as
Chairman of the Board of the Bank since April 1995, and as a director since
February 1989. From April 1985 to February 1989, Mr. Bustillo served as Senior
Vice President of the Bank and headed its International Division. From May 1980
to May 1985, Mr. Bustillo served as Vice President of the Bank of New England.
During the period from January 1975 to May 1980, Mr. Bustillo served as
Assistant Vice President in the Latin American Division of Irving Trust
International. Mr. Bustillo has approximately 30 years of banking experience.
BERNARDO M. ARGUDIN has served as Vice President and Chief Financial
Officer of Bancorp since April 1992. Mr. Argudin has served as a director of
Bancorp since November 1997 and as a director of the Bank since April 1997. He
has served as Executive Vice President of the Bank since March 1994, and as
Chief Financial Officer of the Bank since March 1992. From May 1988 to April
1992, Mr. Argudin served as Comptroller of the Bank. He was first employed by
the Bank in February 1986 as a Loan Review Officer, and served in that capacity
until May 1988. From May 1982 to June 1985, Mr. Argudin served as Comptroller
of FGS, Inc., a bank holding company located in Inverness, Florida. Mr. Argudin
worked as an OCC national bank examiner from June 1973 to May 1982. Mr. Argudin
has approximately 24 years of banking experience.
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FELIX M. GARCIA has served as an Executive Vice President and as Head of
the Credit Division of the Bank since January 1988, and as Chief Credit Officer
of the Bank since October 1992. He has served as a director of the Bank since
April 1997. From May 1986 to the present, Mr. Garcia has headed the Bank's
Credit Division. From April 1985 to May 1986 he served as a Loan Review Officer
and as Senior Vice President for the Bank. Prior to joining the Bank, Mr.
Garcia served as an OCC field office manager from May 1982 to April 1985, and
as an OCC national bank examiner from December 1972 to May 1982. Mr. Garcia has
approximately 25 years of banking experience.
EDWARD F. HOLDEN has served as Executive Vice President--Corporate Banking
of the Bank since June 1997. From March 1992 until June 1997, Mr. Holden served
as Senior Vice President of the Bank and headed Corporate Lending. Prior to
joining the Bank, Mr. Holden served as a Vice President of Southeast Bank, N.A.
from January 1987 to April 1991. Before that, Mr. Holden served as a Vice
President of Irving Business Center from February 1985 to January 1987. From
April 1979 to February 1985, Mr. Holden held a variety of positions with Irving
Trust International Bank, including that of Vice President. Mr. Holden held a
variety of positions with Southeast Bank, N.A. from January 1976 to April 1979.
Mr. Holden has approximately 21 years of banking experience.
FERNANDO J. MARTINEZ has served as Executive Vice President--Real Estate
Lending of the Bank since June 1997. During the period from August 1985 through
June 1997, Mr. Martinez served as Senior Vice President of the Bank and headed
Commercial Real Estate Lending. Prior to joining the Bank, Mr. Martinez served
as Senior Vice President of Consolidated Bank, NA from January 1979 to July
1985. Mr. Martinez has approximately 19 years of banking experience.
RAFAEL QUINTANA has served as Executive Vice President--Retail Banking of
the Bank since March 1994, and has headed the Bank's Retail Banking Division
since March 1992. Mr. Quintana joined the Bank as Senior Vice President in
January 1990, and headed the Bank's Marketing Department until March 1992. From
March 1975 to August 1989, Mr. Quintana held various positions with Amerifirst
Savings, including that of Vice President. Mr. Quintana served as President of
Union Federal Savings and Loan Association from May 1974 to May 1975. Mr.
Quintana served as Vice President--Retail Banking of Amerifirst Savings from
March 1969 to March 1973. Mr. Quintana has approximately 28 years of banking
experience.
ORLANDO A. QUINTERO has served as Executive Vice President--Operations of
the Bank since January 1986. During the period from August 1972 through the
present, Mr. Quintero has held various positions in the Bank's Operations
Department. From January 1952 to December 1965, Mr. Quintero worked in various
capacities in banking operations in Cuba. Mr. Quintero has approximately 45
years of banking experience.
JOSE P. BARED has served as a director of Bancorp since November 1997. He
has previously served several one-year terms as a director of Bancorp, as
Bancorp has historically rotated two director positions among directors of the
Bank. He has served as a director of the Bank since 1972. Since August 1992,
Mr. Bared has been Chief Executive Officer and President of Farm Stores, Inc.
From 1977 to 1992, Mr. Bared served as Chief Executive Officer and President of
Bared Company, Inc., an electrical and mechanical engineering contracting firm.
JOHN H. BLAKE has served as a director of Bancorp since November 1997 and
as a director of the Bank since June 1986. He has previously served several
one-year terms as a director of Bancorp, as Bancorp has historically rotated
two director positions among directors of the Bank. Since January 1995, Mr.
Blake has been President of A.I. Risk Specialists, Inc., an insurance agency.
From June 1994 to December 1994, Mr. Blake was General Manager of Northwest
Brokers, a reinsurance broker doing business in Latin America. From November
1992 to June 1994, Mr. Blake worked as a consultant to banks and insurance
companies.
ESTEFANO ISAIAS has served as a director of Bancorp since April 1982. Mr.
Isaias has served as President of Seguros Rocafuerte, an Ecuadorian insurance
company, since September 1985. He has
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<PAGE>
been President of Emilio Isaias C.A. de Comercio, an Ecuadorian company since
January 1980, and has been President of Compania Minera Gribipe, an Ecuadorian
mining company, since June 1994. Mr. Isaias has also served as President of
General Fruit S.A., a company engaged in the fruit exporting business, since
March 1995. Mr. Isaias has served as a director of Filanbanco, S.A., a major
Ecuadorian bank, since June 1980.
WILLIAM ISAIAS has served as a director of Bancorp since March 1987. Since
1988, Mr. Isaias has served as Executive Vice-President of Filanbanco, S.A., a
major Ecuadorian bank. He served as General Manager of the Quito branch office
of Filanbanco, S.A. from 1984 to 1988. Since 1984, Mr. Isias has been a member
of the Board of Directors of Indulana, S.A. a textile manufacturing company in
Ecuador.
MILTON H. LEHR has served as a director of Bancorp since November 1997 and
as a director of the Bank since December 1976. He has previously served several
one-year terms as a director of Bancorp, as Bancorp has historically rotated
two director positions among directors of the Bank. Mr. Lehr has been the owner
of the American Travel Club of Miami, a company specializing in the
organization of travel tours, since December 1978. Mr. Lehr has been the
co-publisher of IN SPAIN magazine since July 1979. From November 1959 until
February 1993, Mr. Lehr served as President of International Video Affiliates,
a company specializing in the sale of television films.
FERNANDO TAMAYO, has served as a director of Bancorp since November 1997
and has been a director of the Bank since March 1995. He has previously served
a one-year term as a director of Bancorp, as Bancorp has historically rotated
two director positions among directors of the Bank. Mr. Tamayo has served as
President of Southern Industrial Sales Corp., a company engaged in the export
of sugar mill equipment to Latin America, since May 1986.
Set forth below are descriptions of each of the directors of the Bank not
described above:
ANNE BETANCOURT, age 50, has served as a director of the Bank since April
1993. Since November 1991, Ms. Betancourt has been the director of the Center
for Professional Development of Miami-Dade Community College.
ROBERTO GONZALEZ-BLANCO, age 66, has served as a director of the Bank from
April 1978 to the present and served in various capacities, including Vice
Chairman of the Board, with the Bank from July 1968 until June 1996, when he
retired. Mr. Gonzalez-Blanco has served as President and Chief Executive
Officer of Argebe Strategic Financial Advisors, Inc., a consulting company,
since November 1996. From September 1966 to July 1968, Mr. Gonzalez-Blanco
served as a bank examiner for the Federal Reserve Bank of New York. From March
1963 to September 1966, Mr. Gonzalez-Blanco worked for the Central Savings
Bank, New York, New York.
OSCAR C. DE TUYA, JR., age 69, has served as a director of the Bank since
June 1978. He has previously served several alternating one-year terms as a
director of Bancorp, as Bancorp has historically rotated two director positions
among directors of the Bank. Since September 1992, Mr. de Tuya has served as
President of Amexport, a company engaged in the export of goods to Latin
America. Mr. de Tuya has also served as a consultant to Latin American
Forwarding Company, an international freight forwarder, since September 1992.
RICHARD A. ELIAS, M.D., age 67, has served as a director of the Bank since
September 1969. He has previously served several one-year terms as a director
of Bancorp, as Bancorp has historically rotated two director positions among
directors of the Bank. Mr. Elias has served as President of NPESC, P.A., a
medical practice, since July 1986. Mr. Elias has been a Clinical Professor of
Medicine at the University of Miami and Chief of the Miami Heart Institute
since July 1965. Mr. Elias served on the Advisory Committee of Southeast Bank,
N.A. from 1976 to 1979.
ROBERT PAUL, ESQ., age 66, has been a director of the Bank since 1967 and
was a director of Bancorp from 1982 until November 1997. Mr. Paul is an
attorney and has been a member of the law firm of
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<PAGE>
Hornsby, Sacher, Zelman, Stanton, Paul & Beiley, P.A. since January 1995. From
May 1964 to June 1994, Mr. Paul was a member of the law firm of Paul, Landy,
Beiley & Harper, P.A. Mr. Paul has been Chairman of TerraLex, Inc., a network
of international law firms, since April 1990. Mr. Paul has represented various
financial institutions during his almost 35 years of practice as an attorney.
Directors of Bancorp will be elected for three year terms, classified into
Classes I, II and III. Messrs. William Isaias, Blake and Tamayo will be Class I
directors with terms of office expiring on the date of the Company's annual
meeting of shareholders in 1998; Messrs. Estefano Isaias, Bared and Lehr will
be Class II directors with terms of office expiring on the date of Bancorp's
annual meeting of shareholders in 1999; and Messrs. Roberto Isaias, Argudin and
Bustillo will be Class III directors with terms of office expiring on the date
of Bancorp's annual meeting of shareholders in 2000. Each officer of Bancorp is
appointed by the Board of Directors of Bancorp and holds office until the
earlier of his or her death, resignation or removal.
Roberto Isaias, Estefano Isaias and William Isaias are brothers and are
the sole shareholders of Rebank, which is selling 647,320 shares of Common
Stock in this Offering.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of Bancorp has established Audit and Compensation
Committees. The Audit Committee reviews the general scope of the audit
conducted by the Company's independent auditors and matters relating to the
Company's internal control systems. In performing its function, the Audit
Committee meets separately with representatives of the Company's independent
auditors and with representatives of senior management. The members of the
Audit Committee are John H. Blake and Milton H. Lehr.
The Compensation Committee is responsible for making recommendations to
the Board of Directors with respect to the compensation of the Company's
executive officers and with respect to the establishment of policies dealing
with various compensation and employee benefit matters. The Compensation
Committee also administers the Plan and makes recommendations to the Board of
Directors as to option grants to Company employees under the Plan. The members
of the Compensation Committee are Jose P. Bared and Fernando Tamayo. All
matters approved by the Compensation Committee must also be approved by the
Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the Compensation Committee, matters related to
compensation, and employee benefit matters were considered by Mr. Roberto
Isaias, the Chairman of the Executive Committee of the Bank and by Mr.
Bustillo, Chief Executive Officer and President of the Bank. Mr. Bustillo
participated in determinations as to compensation for executive officers,
including himself. Final determination regarding compensation was made by the
Board of Directors of the Bank.
In connection with the construction of a headquarters and office building
in Coral Gables, Florida, the Bank entered into a contract in April 1995 with a
contractor to provide mechanical work for a total initial contract amount of
$3.5 million. Members of the family of Jose P. Bared, a director of Bancorp and
the Bank, are principals of the contractor. Through September 30, 1997, a total
of $4.17 million had been paid by the Bank to the contractor, including change
orders to the original contract, $2.5 million of which was paid in 1996 and
$1.0 million of which was paid in 1995. This contract was awarded under a
sealed bid.
Options to purchase 10,000 shares of Common Stock will be granted to
Messrs. Bared and Tamayo upon the effectiveness of the Offering at an exercise
price equal to the initial public offering price.
DIRECTOR COMPENSATION
Members of the Board of Directors of Bancorp have received a fee in the
amount of $100 per meeting attended. Following the consummation of the
Offering, members of Bancorp's Board of
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<PAGE>
Directors, other than executive officers and directors of the Bank, will
receive a monthly retainer of $1,000. Each director of Bancorp, other than
executive officers will receive a fee of $300 for each committee meeting
attended. The Company will continue to reimburse all directors of Bancorp for
all travel-related expenses incurred in connection with their activities as
directors.
To date, the Bank's Board of Directors has been actively involved in the
Bank's business. In recent years, each outside member of the Bank's Board of
Directors has received a monthly retainer of $1,000. In addition to the monthly
retainer, each director of the Bank who is not also an executive officer has
received a fee of $300 for each meeting of a committee of the Board of
Directors attended by such director. The Bank also provides out-of-town
directors and two honorary directors, William and Estefano Isaias, with a
travel allowance for travel expenses incurred in connection with their
activities as directors. For the year ended December 31, 1996, the Company paid
an aggregate of $157,000 in fees to its directors and $39,142 in travel
allowances. Bancorp also provides each director and honorary director of
Bancorp and the Bank with the option to participate in the Company's
self-insured health plan on the same cost basis as employees.
Each director of the Company and the Bank other than Messrs. Bustillo,
Garcia and Argudin have received non-qualified options to purchase 10,000
shares, or an aggregate of 120,000 shares, at the initial public offering
price. All such options have ten year terms and will be exercisable beginning
six months after the date of the grant, except for options granted to Mr.
Tamayo and Ms. Betancourt, which will be exercisable in 20% increments
beginning on the second anniversary of the grant. See "--Option Grants and
Exercises."
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company for the fiscal year ended December
31, 1997 to or on behalf of the Company's President and Chief Executive Officer
and each of the other four most highly compensated executive officers (the
"Named Executive Officers") (determined as of the end of 1997).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION COMPENSATION(6)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
- ----------------------------------------- ------ --------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Oscar Bustillo, Jr.
President, Chief Executive Officer
and director of Bancorp and
Chairman of the Board, Chief
Executive Officer and President of
the Bank .............................. 1997 327,500 (1)(2) (4) 5,420
Felix M. Garcia
Executive Vice President and Chief
Credit Officer of the Bank ............ 1997 149,167 (1)(2) (4) 1,395
Fernando J. Martinez
Executive Vice President--
Real Estate Lending of the Bank ...... 1997 140,016 1,000(1)(2)(3) 49,912(5) 3,609
Rafael Quintana
Executive Vice President--Retail
Banking of the Bank .................. 1997 139,166 (1)(2) 17,316(5) 3,474
Bernardo M. Argudin
Vice President, Chief Financial
Officer and Director of Bancorp
and Executive Vice President, Chief
Financial Officer and Director of
the Bank .............................. 1997 138,333 (1)(2) (4) 1,291
</TABLE>
- ----------------
(1) Bonuses will be paid in March 1998 for 1997 performance. The amounts of
such individual bonuses have not yet been determined, and will be
determined by the Compensation Committee and the Board.
(2) Does not include bonuses of $194,000, $38,000, $23,000, $37,000 and $30,000
paid to Messrs. Bustillo, Garcia, Martinez, Quintana and Argudin,
respectively, in March 1997 for 1996 performance.
(3) A bonus was paid to all officers other than executive officers and to all
employees in July 1997. The amount paid to Mr. Martinez was $1,000, as he
was not an executive officer at that time.
(4) The aggregate amount of perquisites and other personal benefits provided to
such Named Executive Officer is less than the lesser of 10% of the total
annual salary and bonus of such Named Executive Officer or $50,000.
(5) Represents the amount paid to each of Messrs. Martinez and Quintana to
compensate each of them for club initiation fees and annual dues.
(6) Represents the dollar value of premiums paid by the Company for term life
insurance.
BANK BONUS POLICY
Historically, pursuant to the Bank's bonus policy, which has been approved
by the Bank's Board of Directors and administered by the Bank's Chief Executive
Officer, the Bank has distributed an aggregate of 5 to 6% of the Bank's pre-tax
net income, before deduction of the bonus pool, to its executive officers and
other employees as bonuses. Historically, employees and executive officers of
the Company have received approximately 80% and 20% of the bonus pool,
respectively. For the year ended December 31, 1996, approximately $1.6 million
was distributed pursuant to the Company's bonus pool.
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<PAGE>
Following the consummation of the Offering, bonuses, if any, will be
recommended on an annual basis by the Company's Compensation Committee and
approved by the Board. See "--Employment Agreements."
EMPLOYMENT AGREEMENTS
Effective January 1, 1998, the Bank entered into employment agreements
with nine senior officers, including each of Oscar Bustillo, Jr., President and
Chief Executive Officer, Felix M. Garcia, Executive Vice President and Chief
Credit Officer, Fernando J. Martinez, Executive Vice President--Real Estate
Lending, Rafael Quintana, Executive Vice President--Retail Banking, and
Bernardo M. Argudin, Executive Vice President and Chief Financial Officer. Each
of the agreements is for a term to expire on December 31, 2000. Under the terms
of the agreements, Messrs. Bustillo, Garcia, Martinez, Quintana and Argudin,
are entitled to receive base salaries equal to their base salaries prior to the
agreements of $330,000, $150,000, $150,000, $145,000 and $140,000,
respectively, subject to annual review for potential increases. These
employment agreements provide that Messrs. Bustillo, Garcia, Martinez, Quintana
and Argudin are eligible to receive additional annual incentive compensation
based on individual and company performance, as may be awarded by the
Compensation Committee and approved by the Board. Pursuant to the employment
agreements, the Bank will make lump sum payments to Messrs. Bustillo, Garcia,
Martinez, Quintana and Argudin, if there is a change in control of the Bank,
and if they do not voluntarily terminate their employment with the Bank for a
three month period following consummation of the change in control. Messrs.
Bustillo, Garcia and Argudin would each be entitled to an aggregate amount
equal to two times the annual base salary he would be entitled to receive under
the agreement, plus an aggregate amount equal to two times the incentive
compensation received for the fiscal year immediately preceding the change in
control. Messrs. Martinez and Quintana would each be entitled to an amount
equal to the annual base salary he would be entitled to receive under the
agreement, plus an aggregate amount equal to the incentive compensation
received for the fiscal year immediately preceding the change in control. The
agreements contain confidentiality provisions and prohibit Messrs. Bustillo,
Garcia, Martinez, Quintana and Argudin from competing with the Bank during the
period of employment, and for a period of one year after voluntary termination
of employment.
1998 STOCK OPTION PLAN
Under the Company's 1998 Stock Option Plan (the "Plan"), effective on
January 1, 1998, 1,000,000 shares of Common Stock are reserved for issuance
upon exercise of stock options granted under the Plan. The Plan is designed as
a means to retain and motivate qualified and competent persons who provide
services to the Company and its subsidiaries. The Compensation Committee of the
Board of Directors (the "Compensation Committee") will administer and interpret
the Plan and the Compensation Committee, subject to final approval by the Board
of Directors, is authorized to grant options thereunder to all eligible
employees, directors (whether or not also employees of the Company or any of
its subsidiaries), consultants and independent contractors of the Company or
its subsidiaries. In the event of a change in the Common Stock due to a stock
dividend or recapitalization, the Plan provides for appropriate adjustment in
the number of shares available for grant under the Plan and the number of
shares and the exercise price per share under any option then outstanding under
the Plan, so that the same percentage of the Company's issued and outstanding
shares shall remain subject to being optioned under the Plan or subject to
purchase at the same aggregate exercise price under any such outstanding
option, as applicable. Unless otherwise provided in any option, the
Compensation Committee, with the Board of Directors' approval, may change the
option price and/or number of shares under any outstanding option when, in
their discretion, such adjustment becomes appropriate so as to preserve but not
increase benefits under the Plan. The aggregate number of shares subject to
options granted to any one optionee under the Plan may not exceed 400,000,
subject to adjustment as described above.
The Plan provides for the granting of both incentive stock options (as
defined in Section 422 of the Internal Revenue Code) and nonqualified stock
options. No incentive stock options may be granted to a
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<PAGE>
person who is not also an employee of the Company or a subsidiary. Options may
generally be granted under the Plan on such terms and at such prices as
determined by the Compensation Committee, subject to the approval of the Board
of Directors, except that the per share exercise price of any options cannot be
less than the fair market value of a share of the Common Stock on the date of
grant. Each option is exercisable after the period or periods specified in the
option agreement, but no option may become exercisable after the expiration of
ten years from the date of grant and no option granted to an employee of the
Company or any subsidiary may vest over a period of less than three years in
equal annual increments; however, the Compensation Committee, with the Board of
Directors' approval, may accelerate the exercisability or vesting of any option
or shares previously acquired by the exercise of any options, and, in the event
of a Change in Control (as defined in the Plan), each outstanding option will
become immediately fully exercisable. Incentive stock options granted to an
individual who owns (or is deemed to own) at least 10% of the total combined
voting power of all classes of stock of the Company or its subsidiary must have
an exercise price of at least 110% of the fair market value of the Common Stock
subject to such option on the date of grant and a term of no more than five
years. Incentive stock options granted under the Plan are not transferable
other than by will or by the laws of descent and distribution. Nonqualified
stock options are also not transferable unless the consent of the Compensation
Committee is obtained and such transfer does not violate Rule 16b-3 under the
Exchange Act. Unless otherwise provided in any option, the option price may be
paid by cash, certified or official bank check, personal check if accepted by
the Compensation Committee or the Board of Directors, money order, shares of
Common Stock, witholding of shares of Common Stock, any cashless exercise
procedure approved by the Compensation Committee or the Board of Directors,
other consideration deemed appropriate by the Compensation Committee or the
Board of Directors or a combination of the above. The Plan also authorizes the
Company to make or guarantee loans to optionees to enable them to exercise
their options. Such loans must (i) provide for recourse to the optionee, (ii)
bear interest at no less than the prime rate of the Bank, (iii) be secured by
the shares of Common Stock purchased and (iv) comply with all applicable laws
and regulations. The Board of Directors or the Compensation Committee with the
approval of the Board has the authority to amend or terminate the Plan or any
options, provided that no such action may substantially impair the rights or
benefits of the holder of any outstanding option without the consent of such
holder, and provided further that certain amendments to the Plan are subject to
shareholder approval. Unless terminated sooner, the Plan will continue in
effect until all options granted thereunder have expired or been exercised,
provided that no options may be granted after December 31, 2007.
OPTION GRANTS AND EXERCISES
The Company did not grant any options during 1996 or 1997 and no options
were exercised in 1996 or 1997. No options are currently outstanding, but upon
consummation of the Offering, options to purchase 500,000 shares will be
outstanding under the Plan. All of such options will be exercisable for a
period of up to ten years at the initial public offering price. Three hundred
and eighty thousand of such options are being granted to executive officers and
employees of the Company and the Bank and the remaining 120,000 are being
granted to directors of the Company and the Bank other than Messrs. Bustillo,
Garcia and Argudin. See "--Director Compensation." All of the options granted
to executive officers and employees will be incentive stock options to the
extent allowed by law and the remainder will be nonqualified stock options. All
such options granted to executive officers and employees of the Bank will be
exercisable in 20% increments beginning on the second anniversary of the grant.
Messrs. Bustillo, Garcia, Martinez, Quintana and Argudin will receive options
to purchase 100,000, 50,000, 30,000, 30,000 and 50,000 shares, respectively,
vesting in increments as described above. All options granted to directors who
have served on the Board of Bancorp or the Bank for at least ten years will be
exercisable beginning six months after the date of the grant. The other
directors, Mr. Tamayo and Ms. Betancourt, will receive options that will become
exercisable on the same schedule as the options granted to executive officers
and employees.
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<PAGE>
PENSION PLAN
The Bank has a tax-qualified non-contributory defined benefit pension plan
covering substantially all full time employees of the Bank, including the Named
Executive Officers (the "Pension Plan").
The following table sets forth the total estimated annual pension benefits
payable to a covered participant who retired from service with the Company in
1996 at age 65 and had attained the earnings and years of service
classifications specified under the Pension Plan, based upon compensation
covered under the pension plan ("covered compensation") and years of service
with the Bank credited under the pension plan ("Credited Service"):
PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL AVERAGE COMPENSATION YEARS OF CREDITED SERVICE
- ---------------------------- -------------------------------------------------------------
15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
$125,000 .................. $39,725 $43,174 $46,624 $50,074 $53,524
$150,000 .................. 47,796 51,978 56,160 60,342 64,524
$160,000 .................. 51,025 55,499 59,974 64,449 68,924
</TABLE>
Benefits shown above are computed as a single life annuity and are not
subject to any deduction for Social Security or other offset amounts. "Final
Average Compensation" is a participant's average annual compensation over the
five consecutive years in the most recent ten years yielding the highest
average annual compensation. A participant's covered compensation includes all
annual compensation reported in the Summary Compensation Table, but is subject
to certain limitations on compensation under the Internal Revenue Code.
Estimated years of credited service for each of the following officers as
of December 31, 1997 are as follows: Oscar Bustillo, Jr. - 13 years; Felix M.
Garcia - 13 years; Fernando J. Martinez - 13 years; Rafael Quintana - 8 years;
and Bernardo M. Argudin - 12 years. Covered compensation for all Named
Executive Officers was $160,000 each for the fiscal year ended December 31,
1997, which was the limit of covered compensation in 1997 under applicable law.
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CERTAIN TRANSACTIONS
From time to time, the Bank makes loans and extends credit to certain of
the Bank's officers, directors, employees and to certain companies affiliated
with such persons. In the opinion of the Company, all of such loans and
extensions of credit were made in the ordinary course of business, on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons
entered into on an arm's length basis. At September 30, 1997, December 31,
1996, 1995 and 1994, an aggregate of $2.6 million, $1.7 million, $2.4 million
and $1.4 million, respectively, of loans and extensions of credit were
outstanding to the then-existing executive officers and directors of the
Company and to certain companies affiliated with such persons.
In connection with the construction of a headquarters and office building
in Coral Gables, Florida, the Bank entered into a contract in April 1995 with a
contractor to provide mechanical work for a total initial contract amount of
$3.5 million. Members of the family of Jose P. Bared, a director of Bancorp and
the Bank, are principals of the contractor. Through September 30, 1997 a total
of $4.17 million had been paid by the Bank to the contractor, including change
orders to the original contract, $2.5 million of which was paid in 1996 and
$1.0 million of which was paid in 1995. This contract was awarded under a
sealed bid.
The Bank has paid fees for courier and pouch support services of $44,000
through September 30, 1997 and $53,000, $24,765 and $32,162 in 1996, 1995 and
1994, respectively, to Filanbanco, S.A., an Ecuadorian bank of which Roberto
Isaias is President and a director, William Isaias is Executive Vice President
and a director and Estefano Isaias is a director.
In 1994, the Bank entered into an agreement to acquire a license to
customized software to support its teller operations from Infordatos, S.A., an
affiliate of Filanbanco, S.A. and Roberto, Estefano and William Isaias.
Pursuant to the agreement, the Bank acquired a license for an indefinite
period, which would end only with a change in control in ownership of the Bank,
for a total license fee of $197,000, and without ongoing license payments. An
initial payment of $100,000 was made in 1994 and a final payment of $97,000 was
made in 1997 after all custom features were completed.
In addition to federal law, the Bank's policy as it relates to certain
affiliates requires that transactions with its officers, directors or
affiliates be on terms no less favorable than those that could be obtained from
unrelated third parties. The Company believes that the foregoing transactions
were on terms no less favorable than those that could have been obtained from
unrelated third parties. Any transactions requiring approval of the Bank's
Board of Directors must be approved by a majority of the Bank's disinterested
directors. Currently, any such transaction in excess of $25,000, if not
otherwise required by law to be approved by the Board of Directors, requires
approval of the Bank's Executive Committee, and any such transaction in excess
of $75,000 requires approval of the Bank's Board of Directors.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information concerning the beneficial
ownership of the Common Stock immediately after giving effect to the
Reorganization, and as adjusted to reflect the issuance and sale by Bancorp of
933,270 shares of Common Stock offered by Bancorp in this Offering (assuming no
exercise of the Underwriters' over-allotment option) and the sale of 1,066,730
shares of Common Stock by the Selling Shareholders, by (i) each director of
Bancorp, (ii) each person known to the Company to be the beneficial owner of
more than 5% of the outstanding Common Stock of Bancorp, (iii) each of the
Named Executive Officers, (iv) each of the Selling Shareholders and (v) all
directors of Bancorp and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED BENEFICIALLY OWNED
PRIOR TO THE OFFERING AFTER OFFERING(2)
------------------------ -----------------------
NAME(1) NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
- -------------------------------------------- ------------ --------- --------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Rebank Netherlands Antilles N.V. (2) ...... 12,606,350 62.7% 647,320 11,959,030 56.9%
Roberto Isaias (3) ........................ 13,182,900 65.6 (17) 12,535,580 59.6
Oscar Bustillo, Jr.(4) ..................... 21,902 * -- 21,902 *
Bernardo M. Argudin(5) ..................... 20,250 * -- 20,250 *
Felix M. Garcia(6) ........................ 11,600 * -- 11,600 *
Fernando J. Martinez(7) .................. 8,092 * -- 8,092 *
Rafael Quintana(8) ........................ 7,000 * -- 7,000 *
Jose P. Bared(9) ........................... 58,742 * -- 58,742 *
John H. Blake(10) ........................ 4,412 * -- 4,412 *
Estefano Isaias (11) ..................... 13,180,500 65.6 (17) 12,533,180 59.6
William Isaias (12) ........................ 13,187,605 65.6 (17) 12,540,285 59.6
Milton H. Lehr(13) ........................ 9,375 * -- 9,375 *
Fernando Tamayo(14) ........................ 4,460 * -- 4,460 *
Investors Overseas Limited, Inc.(15) ...... 1,294,640 6.4 -- 1,294,640 6.2
True Flight Investors, Ltd. ............... 1,080,317 5.4 -- 1,080,317 5.1
Miguel and Angela Baduy(16) ............... 419,410 2.1 419,410 -- --
All directors of Bancorp and executive
officers of the Company as a group,
including those listed above
(14 persons) ........................... 13,340,205 66.4 -- 12,692,885 60.4
</TABLE>
- ----------------
* Less than 1%.
(1) The address of each of the beneficial owners identified is 2800 Ponce de
Leon Boulevard, Coral Gables, Florida 33134.
(2) Roberto, Estefano and William Isaias are the sole shareholders of Rebank.
The shares of Common Stock beneficially owned by the Isaiases through
their ownership in Rebank are included in calculating the shares
beneficially owned by Roberto, Estefano and William Isaias.
(3) Includes 12,606,350 shares held by Rebank prior to the Offering and
11,959,030 held after the Offering, 574,150 shares jointly held by
Roberto, Estefano and William Isaias and 2,400 shares held by Roberto
Isaias individually. Does not include 10,000 shares of Common Stock
subject to options to be granted upon the effectiveness of the Offering,
which options will not be exercisable within 60 days from the date hereof.
(4) Includes 19,502 shares owned jointly with his wife, Virginia, and 2,400
shares held individually. Does not include 100,000 shares of Common Stock
subject to options to be granted upon the effectiveness of the Offering,
which options will not be exercisable within 60 days from the date hereof.
(5) Includes 14,250 shares held jointly with his wife, Cynthia, and 6,000
shares held by his wife as custodian for their minor children under the
Florida Uniform Gifts to Minors Act. Does not include 50,000 shares of
Common Stock subject to options to be granted upon the effectiveness of
the Offering, which options will not be exercisable within 60 days from
the date hereof.
(6) Includes 500 shares owned jointly with his wife, Diana, and 11,100 shares
held individually. Does not include 50,000 shares of Common Stock subject
to options to be granted upon the effectiveness of the Offering, which
options will not be exercisable within 60 days from the date hereof.
(7) Does not include 30,000 shares of Common Stock subject to options to be
granted upon the effectiveness of the Offering, which options will not be
exercisable within 60 days from the date hereof.
(8) Shares are held in trust by Mr. Quintana for his adult children. Does not
include 30,000 shares of Common Stock subject to options to be granted
upon the effectiveness of the Offering, which options will not be
exercisable within 60 days from the date hereof.
(9) Includes 54,000 shares held as trustee for his adult children and 4,742
shares held individually. Does not include 10,000 shares
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<PAGE>
of Common Stock subject to options to be granted upon the effectiveness of
the Offering, which options will not be exercisable within 60 days from the
date hereof.
(10) Does not include 10,000 shares of Common Stock subject to options to be
granted upon the effectiveness of the Offering, which options will not be
exercisable within 60 days from the date hereof.
(11) Includes 12,606,350 shares held by Rebank prior to the Offering and
11,959,030 held after the Offering, and 574,150 shares jointly held by
Roberto, Estefano and William Isaias. Does not include 10,000 shares of
Common Stock subject to options to be granted upon the effectiveness of
the Offering, which options will not be exercisable within 60 days from
the date hereof.
(12) Includes 12,606,350 shares held by Rebank prior to the Offering and
11,959,030 held after the Offering, 574,150 shares jointly held by
Roberto, Estefano and William Isaias and 7,105 shares held jointly by
William and his wife, Carmen. Does not include 10,000 shares of Common
Stock subject to options to be granted upon the effectiveness of the
Offering, which options will not be exercisable within 60 days from the
date hereof.
(13) Does not include 10,000 shares of Common Stock subject to options to be
granted upon the effectiveness of the Offering, which options will not be
exercisable within 60 days from the date hereof.
(14) Does not include 10,000 shares of Common Stock subject to options to be
granted upon the effectiveness of the Offering, which options will not be
exercisable within 60 days from the date hereof.
(15) The Bank has extended loans to Investors Overseas Limited, Inc. and three
of its subsidiaries, pursuant to which these companies had outstanding
approximately $129,000 at December 31, 1997, $6.9 million at December 31,
1996, and $7.0 million at December 31, 1995. The sole shareholders of
Investors Overseas Limited, Inc. are first cousins of Roberto, Estefano
and William Isaias.
(16) The Bank has extended two lines of credit in the aggregate amount of $2.3
million to two companies wholly-owned by Miguel Baduy, pursuant to which
such companies had outstanding approximately $2.3 million at December 31,
1997, $2.1 million at December 31, 1996 and $2.2 million at December 31,
1995. Additionally, the Company has agreed to indemnify Miguel and Angela
Baduy against certain liabilities under the Securities Act of 1933, as
amended.
(17) Roberto, Estefano and William Isaias are the sole shareholders of Rebank,
which is selling 647,320 shares of Common Stock in this Offering.
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DESCRIPTION OF CAPITAL STOCK
Bancorp's authorized capital stock consists of 50 million shares of Common
Stock, par value $0.01 per share, and 5 million shares of Preferred Stock, par
value $0.01 per share. After giving effect to the Reorganization and upon
consummation of the Offering, an aggregate of 21,026,399 shares of Common Stock
and no shares of Preferred Stock will be issued and outstanding. The following
brief description of Bancorp's capital stock does not purport to be complete
and is subject in all respects to applicable Florida law and the provisions of
the Company's Articles and Bylaws, which will be in effect prior to the
effective date of this Offering. Copies of the Articles and Bylaws are being
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of shareholders, including the election of directors. The
Common Stock does not have cumulative voting rights, which means that the
holders of a majority of the shares voting for election of directors can elect
all members of the Board of Directors. A majority of the shares voting is also
required for other actions that require the vote of shareholders, except where
otherwise required by law. For example, certain corporate actions such as
mergers require the approval of a majority of the shares outstanding. Dividends
may be paid to holders of Common Stock when, as and if declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." Upon
liquidation or dissolution of Bancorp, holders of Common Stock will be entitled
to share ratably in the assets of Bancorp legally available for distribution to
shareholders.
The holders of Common Stock have no preemptive or conversion rights and
are not subject to further calls or assessments by Bancorp.
PREFERRED STOCK
Although Bancorp has no present plans to issue shares of Preferred Stock,
Preferred Stock may be issued from time to time in one or more classes or
series with such designations, powers, preferences, rights, qualifications,
limitations and restrictions as may be fixed by Bancorp's Board of Directors.
The Board of Directors, without obtaining shareholder approval, could issue the
Preferred Stock with voting and/or conversion rights and thereby dilute the
voting power and equity of the holders of Common Stock and adversely effect the
market price of such stock. The issuance of Preferred Stock could also be used
as an antitakeover measure by Bancorp without any further action by the
shareholders.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF FLORIDA LAW, FEDERAL BANKING LAW
AND BANCORP'S ARTICLES AND BYLAWS
Bancorp is subject to several anti-takeover provisions under Florida law
that apply to a public corporation organized under Florida law, unless the
corporation has elected to opt out of such provisions in its Articles of
Incorporation or Bylaws. Bancorp is subject to the "affiliated transactions"
and "control-share acquisition" provisions of the Florida Business Corporation
Act (the "FBCA"). These provisions require, subject to certain exceptions, that
an "affiliated transaction" be approved by the holders of two-thirds of the
voting shares other than those beneficially owned by an "interested
shareholder" or by a majority of disinterested directors and that voting rights
be conferred on "control shares" acquired in specified control share
acquisitions generally only to the extent conferred by resolution approved by
the shareholders, excluding holders of shares defined as "interested shares."
These provisions could prohibit or delay the accomplishment of mergers or other
takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
In addition, certain provisions of the Articles and Bylaws, which will be
in effect prior to the effective date of this Offering and are summarized in
the following paragraphs, may be deemed to have
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an anti-takeover effect and may delay, defer or prevent a tender offer or
takeover attempt that a shareholder might consider in its best interest,
including those attempts that might result in a premium over the market price
for the shares held by shareholders.
CLASSIFIED BOARD OF DIRECTORS. Under the Company's Articles and Bylaws,
the Board of Directors is classified into three classes, with the directors
being elected for staggered, three-year terms. The classification of the
Company's Board of Directors will have the effect of making it more difficult
to change the composition of the Board of Directors, because at least two
annual meetings of the shareholders would be required to change the control of
the Board of Directors rather than one.
SIZE OF AND VACANCIES ON BOARD OF DIRECTORS. The Articles and Bylaws
authorize a majority of the Board of Directors or the shareholders to fill
vacant directorships. In addition, the Articles authorize the Board of
Directors to increase its size by up to two members between annual meetings.
This provision may deter a shareholder from removing incumbent directors and
simultaneously gaining control of the Board of Directors.
SPECIAL MEETINGS. The Articles and Bylaws provide that special meetings of
shareholders may be called only by a majority of the Board of Directors, the
Chairman of the Board, the Chief Executive Officer or upon the written demand
of the holders of not less than 30% of the votes entitled to be cast at a
special meeting.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws provide that shareholders seeking to bring business
before an annual meeting of shareholders, or to nominate candidates for
election as directors at an annual or special meeting of shareholders, must
provide timely notice thereof in writing. To be timely, a shareholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Company not less than 90 days nor more than 120 days prior to the first
anniversary of the date of the Company's notice of annual meeting provided with
respect to the previous year's annual meeting; provided, however, that if no
annual meeting was held the previous year or the date of the annual meeting has
been changed to be more than 30 calendar days earlier than or 60 calendar days
after such anniversary, such shareholders' notice to be timely must be so
received not more than 90 days prior to nor later than the later of 60 days
prior (i) to the annual meeting or (ii) the close of business on the 10th day
following the day on which notice of the date of the annual meeting is given to
shareholders or made public. The Bylaws also specify certain requirements for a
shareholder's notice to be in proper written form. These provisions may
preclude some shareholders from bringing matters before the shareholders at an
annual or special meeting or from making nominations for directors at an annual
or special meeting.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
Common Stock and Preferred Stock are available for future issuance without
shareholder approval (subject to certain limitations under the rules of
Nasdaq). If issued, these additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued and unreserved Common Stock and Preferred Stock may
enable the Board of Directors to issue shares to persons friendly to current
management which could render more difficult or discourage an attempt to obtain
control of the Company by means of a proxy contest, tender offer, merger or
otherwise, and thereby protect the continuity of the Company's management.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF FEDERAL BANKING LAW. Because
Bancorp is a bank holding company, any person or entity which acquires 10% or
more of any class of its voting stock (5% in the case of a person which is
itself a banking holding company) will need prior approval from the FRB under
the federal Change in Bank Control Act. Furthermore, any entity which acquires
25% or more of any class of Bancorp's voting stock will likely itself become a
bank holding company, subject to the restrictions of, and to regulation by, the
FRB under the BHCA. These provisions may restrict the number of shares of
Bancorp that any investor may seek to acquire.
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<PAGE>
LIMITED LIABILITY AND INDEMNIFICATION
Under the FBCA, a director is not personally liable for monetary damages
to the corporation or any other person for any statement, vote, decision or
failure to act unless (i) the director breached or failed to perform his duties
as a director and (ii) a director's breach of, or failure to perform, those
duties constitutes (1) a violation of the criminal law, unless the director had
reasonable cause to believe his conduct was lawful or had no reasonable cause
to believe his conduct was unlawful, (2) a transaction from which the director
derived an improper personal benefit, either directly or indirectly, (3) a
circumstance under which an unlawful distribution is made, (4) in a proceeding
by or in the right of the corporation to procure a judgment in its favor or by
or in the right of a shareholder, conscious disregard for the best interest of
the corporation or willful misconduct, or (5) in a proceeding by or in the
right of someone other than the corporation or a shareholder, recklessness or
an act or omission which was committed in bad faith or with malicious purpose
or in a manner exhibiting wanton and willful disregard of human rights, safety
or property. A corporation may purchase and maintain insurance on behalf of any
director or officer against any liability asserted against him and incurred by
him in his capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the FBCA.
The Articles of Bancorp provide that Bancorp may, to the fullest extent
permitted by applicable law, as amended from time to time, indemnify all
directors of Bancorp, as well as any officers or employees of Bancorp to whom
Bancorp has agreed to grant indemnification. Bancorp has also entered into an
agreement with each of its directors and certain of its officers wherein it has
agreed to indemnify each of them to the fullest extent permitted by law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
After the Reorganization and upon consummation of this Offering, Bancorp
will have 21,026,399 shares of Common Stock outstanding (21,326,399 shares if
the over-allotment option granted to the Underwriters is exercised in full). Of
those shares, the 2,000,000 shares sold in this Offering (2,300,000 shares if
the over-allotment option is exercised in full) will be freely transferable
without restriction or registration under the Securities Act, unless purchased
by persons deemed to be "affiliates" (as that term is defined under the
Securities Act) of the Company. In the aggregate, including the shares offered
hereby, 7,508,528 shares (7,808,528 shares if the over-allotment option granted
to the Underwriters is exercised in full) will be freely transferable without
restriction or registration under the Securities Act, unless purchased by
persons deemed to be "affiliates" of the Company. All of the remaining
13,517,871 shares of Common Stock to be outstanding immediately following the
Offering, are held by the controlling shareholders, directors and executive
officers of the Company and the shareholders who participated in the
Reorganization, and therefore the transfer thereof is restricted in accordance
with applicable securities laws ("restricted shares"). Such shares may only be
sold in the public market if such shares are registered under the Securities
Act or sold in accordance with Rule 144 promulgated under the Securities Act.
In general, under Rule 144 a person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned his shares for
one year may sell in the open market within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the then outstanding
shares of the Company's Common Stock (approximately 210,264 shares immediately
after this Offering, 213,264 if the over-allotment option is exercised in full)
or (ii) the average weekly trading volume in the Common Stock in the
over-the-counter market during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain limitations on the manner of
sale, notice requirements and availability of current public information about
the Company. A person (or persons whose shares are aggregated) who is deemed
not to have been an "affiliate" of the Company at any time during the 90 days
preceding a sale by such person and who has beneficially owned his shares for
at least two years may sell such shares in the public market under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, notice
requirements or availability of current information referred to above.
Restricted shares properly sold in reliance upon Rule 144 are thereafter freely
tradable without restrictions or registration under the Securities Act, unless
thereafter held by an "affiliate" of the Company.
The Company has reserved an aggregate of 1,000,000 shares of Common Stock
for issuance pursuant to the Plan. Options to purchase 500,000 shares of Common
Stock will be issued under the Plan upon consummation of this Offering at the
initial public offering price per share. The Company intends to register
eligible shares of Common Stock issuable upon the exercise of options under the
Plan on Form S-8 following this Offering. Subject to restrictions imposed
pursuant to the Plan, such eligible shares of Common Stock issued pursuant to
the Plan after the effective date of any Registration Statement on Form S-8
will be available for sale in the public market without restriction to the
extent they are held by persons who are not affiliates of the Company. See
"Management--1998 Stock Option Plan."
Prior to this Offering, there has been no trading market for the Common
Stock. No prediction can be made as to the effect, if any, that future sales of
shares pursuant to Rule 144 or otherwise will have on the market price
prevailing from time to time. Sales of substantial amounts of the Common Stock
in the public market following this Offering could adversely affect the then
prevailing market price. Bancorp's and substantially all of the Bank's
executive officers, directors, the Selling Shareholders and certain of
Bancorp's other existing shareholders are agreeing that they will not sell or
otherwise transfer any shares of Common Stock for 180 days after this Offering
without the prior written consent of the Representatives, except for bona fide
gifts or similar transfers or devises for estate planning, charitable and other
related purposes or pursuant to bona fide pledges, in any such case, only to
persons who agree to be bound by the foregoing restrictions. A majority of the
shares of Common Stock issued and outstanding prior to the offering have been
pledged to other financial institutions in connection with loans to
shareholders. In addition, the Company may issue its Common Stock to minority
shareholders of the Bank in exchange for their shares in the Bank. Such shares
could be offered on the same terms and conditions, including for the same
consideration, as the shares of Common Stock issued in connection with the
Reorganization. See "Risk Factors--Shares Eligible for Future Sale" and
"Underwriting."
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CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the acquisition, ownership and disposition of Common
Stock by a "Non-U.S. Holder" and is included in this Prospectus because a
substantial number of "Non-U.S. Holders" hold and are expected to continue to
hold Common Stock. For this purpose, a "Non-U.S. Holder" is any person who is,
for U.S. federal income tax purposes, a foreign corporation, a non-resident
alien individual, a foreign partnership or a foreign estate or trust, as those
terms are defined in section 7701(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The rules classifying trusts as foreign for U.S. federal
income tax purposes have changed recently, and a prospective purchaser of
Common Stock that is a trust is urged to consult its tax adviser regarding its
classification. This discussion does not address tax consequences to U.S.
citizens or residents or domestic corporations, partnerships, estates or
trusts. This discussion does not address all aspects of U.S. federal income and
estate taxation and does not deal with state, local or foreign tax consequences
that may be relevant to a Non-U.S. Holder in light of his particular
circumstances. This discussion is based on provisions of the Code, existing and
proposed regulations promulgated thereunder and administrative and judicial
interpretations thereof as of the date hereof, all of which are subject to
change, possibly retroactively. Each prospective purchaser of Common Stock is
advised to consult his tax adviser with respect to current and possible future
U.S. federal income tax consequences of acquiring, owning and disposing of
Common Stock as well as any tax consequences that may arise under the laws of
any state, local, foreign or other taxing jurisdiction.
DIVIDENDS
A dividend paid to a Non-U.S. Holder of Common Stock generally will be
subject to withholding of U.S. federal income tax at a 30 percent rate or at a
lower rate that may be specified by an applicable income tax treaty. However, a
dividend that is effectively connected with the conduct of a trade or business
by the Non-U.S. Holder within the United States (or, if a tax treaty applies,
is attributable to a U.S. permanent establishment of the Non-U.S. Holder) is
not subject to U.S. withholding tax (provided certain certification and
disclosure requirements are satisfied) but instead is subject to U.S. federal
income tax on a net income basis at regular graduated U.S. federal income tax
rates. Any effectively connected dividend received by a foreign corporation
will be subject, under certain circumstances, to an additional "branch profits
tax" at a 30 percent rate or at a lower rate that may be specified by an
applicable income tax treaty. A Non-U.S. Holder of Common Stock who is eligible
for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may
obtain a refund of any excess tax withheld by filing an appropriate claim for
refund with the U.S. Internal Revenue Service ("IRS").
Under U.S. Treasury regulations in effect for payments made before January
1, 1999, dividends paid to an address outside the United States are presumed to
be paid to a resident of that country (unless the payer has knowledge to the
contrary) for purposes of the withholding tax discussed above and, under the
current interpretation of U.S. Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Under U.S. Treasury
regulations that apply to payments made after December 31, 1998, a Non-U.S.
Holder of Common Stock who wishes to claim the benefit of an applicable treaty
rate (and avoid backup withholding of tax, as discussed below) would be
required to satisfy certain certification and other requirements.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to gain recognized on a sale or other disposition of Common Stock
unless (i) the gain is effectively connected with a trade or business of the
Non-U.S. Holder in the United States, (ii) in the case of a Non-U.S. Holder who
is an individual and holds the Common Stock as a capital asset, the holder is
present in the United States for 183 or more days in the taxable year of the
sale or other disposition and certain other conditions are met, (iii) the
Non-U.S. Holder is subject to U.S. federal income tax pursuant to rules
applicable to certain U.S. expatriates and prior lawful permanent residents of
the United States or (iv) the Company is or, in certain circumstances, has been
a "United States real property holding corporation" for U.S. federal income tax
purposes.
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An individual Non-U.S. Holder described in clause (i) above will be
subject to tax on its net effectively connected gains at regular graduated U.S.
federal income tax rates. Gain realized by an individual Non-U.S. Holder
described in clause (ii) above, which may be offset by U.S. source capital
losses (even though the individual is not considered a resident of the United
States), will be subject to a 30 percent tax. Gain realized by a Non-U.S.
Holder described in clause (i) above that is a foreign corporation will be
subject to tax at regular graduated U.S. federal income tax rates and, in
addition, under certain circumstances, will be subject to an additional "branch
profits tax" at a 30 percent rate or at a lower rate that may be specified by
an applicable income tax treaty.
The Company is not currently and does not anticipate becoming a "United
States real property holding corporation" for U.S. federal income tax purposes.
FEDERAL ESTATE TAX
Common Stock owned or treated as owned by an individual Non-U.S. Holder at
the time of death will be included in the Non-U.S. Holder's gross estate for
U.S. federal estate tax purposes unless an applicable estate tax treaty
provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the IRS and to each Non-U.S. Holder
the amount of dividends paid to that Non-U.S. Holder and the tax withheld with
respect to those dividends, regardless of whether withholding was required.
Copies of the information returns reporting the dividends and the tax withheld
also may be made available to the tax authorities in the country in which the
Non-U.S. Holder resides under the provisions of an applicable income tax treaty
or other agreement.
Under U.S. Treasury regulations in effect for payments made before January
1, 1999, backup withholding of tax generally will not apply to dividends paid
to a Non-U.S. Holder at an address outside the United States (unless the payer
has knowledge that the payee is a United States person). Under Treasury
regulations that apply to payments made after December 31, 1998, however, a
Non-U.S. Holder will be subject to backup withholding of tax, at the rate of 31
percent, unless applicable certification and other requirements are met.
Payment of the proceeds of a sale of Common Stock by or through a U.S.
office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner certifies under penalties of perjury that
it is a Non-U.S. Holder or otherwise establishes an exemption. In general,
backup withholding and information reporting will not apply to a payment made
outside the United States of the proceeds of a sale of Common Stock by or
through a foreign office of a broker. However, U.S. information reporting
requirements (but not backup withholding) will apply to a payment of
disposition proceeds outside the United States if (i) the payment is made
through an office outside the United States of a broker that, for U.S. federal
income tax purposes, is a United States person, a controlled foreign
corporation, or a foreign person that derives 50 percent or more of its gross
income for a specified period from the conduct of a trade or business in the
United States, and (ii) the broker fails to maintain documentary evidence in
its records that (a) the beneficial owner is a Non-U.S. Holder and certain
other conditions are met or (b) the beneficial owner otherwise is entitled to
an exemption.
Any amounts withheld under the backup withholding rules may be allowed as
a refund or a credit against the holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
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UNDERWRITING
Subject to the terms and conditions of the Purchase Agreement among the
Company, the Selling Shareholders and the Representatives, on behalf of the
Underwriters, the underwriters named below (the "Underwriters") have severally
agreed to purchase from the Company and the Selling Shareholders, the following
respective numbers of shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---------------------------------------- -----------------
<S> <C>
Keefe, Bruyette & Woods, Inc. ...... 1,000,000
CIBC Oppenheimer Corp. ............ 1,000,000
---------
2,000,000
=========
</TABLE>
The Purchase Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all such shares of the Common Stock if any of such shares are
purchased. The Underwriters are obligated to take and pay for all of the shares
of Common Stock offered hereby (other than those covered by the over-allotment
option described below) if any are taken.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer such shares of Common Stock to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $0.63 per share. The Underwriters may allow, and such dealers may re-allow,
a concession not in excess of $0.15 per share to certain other dealers. After
the initial public offering, the offering price and other selling terms may be
changed by the Representatives of the Underwriters.
Pursuant to the Purchase Agreement, the Company has granted to the
Underwriters an option, exercisable not later than 30 days after the date of
this Prospectus, to purchase up to 300,000 additional shares of Common Stock at
the public offering price, less the underwriting discounts and commissions set
forth on the cover page of this Prospectus, solely to cover over-allotments. To
the extent that the Underwriters exercise such option, each Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
in such table, and the Company will be obligated, pursuant to the option, to
sell such shares to the Underwriters.
Bancorp's and substantially all of the Bank's executive officers,
directors, the Selling Shareholders and certain of Bancorp's other existing
shareholders are agreeing that they will not sell or otherwise transfer any
shares of Common Stock for a period of 180 days after the Offering without the
prior written consent of the Representatives, except for bona fide gifts or
similar transfers or devises for estate planning, charitable and other related
purposes or pursuant to bona fide pledges, in any such case, only to persons
who agree to be bound by the foregoing restrictions. A majority of the shares
of Common Stock issued and outstanding prior to the Offering have been pledged
to other financial institutions in connection with loans to shareholders. In
addition, while the Company intends to consider issuing its Common Stock to
minority shareholders of the Bank, representing 76,876, or approximately 0.9%,
of the 8,129,171 issued and outstanding shares of the Bank in exchange for
their shares in the Bank, it has no definitive plans to make any such exchange.
The minority shareholders represent shareholders who did not exchange their
shares for Company shares when the Company made an exchange offer to the Bank's
shareholders in 1982 or sell or exchange their shares in the Bank thereafter,
and the successors of such shareholders. See "Risk Factors--Shares Eligible for
Future Sale" and "Shares Eligible for Future Sale."
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
91
<PAGE>
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including, in the case of the
Company, liabilities under the Securities Act.
Until the distribution of the Common Stock is completed, rules of the
Commission (as defined herein) may limit the liability of the Underwriters and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell a greater aggregate number of
shares of Common Stock than is set forth on the cover page of this Prospectus,
the Underwriters may reduce the short position by purchasing shares of Common
Stock in the open market. The Underwriters may also elect to reduce any short
position by exercising all or part of the over-allotment option described
above.
The Underwriters may also impose a penalty bid on certain selling group
members. This means that if the Underwriters purchase Common Stock in the open
market to reduce the selling group members' short position or to stabilize the
price of the Common Stock, they may reclaim the amount of the selling
concession from the selling group members who sold those shares of Common Stock
as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor the Representatives make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor the Representatives make any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiations between the Company and the Representatives of
the Underwriters. Among the factors considered in such negotiations were
prevailing market and general economic conditions, the market capitalizations,
trading histories and stages of development of other traded companies that the
Company and the Representatives of the Underwriters believed to be comparable
to the Company, the results of operations of the Company in recent periods, the
current financial position of the Company, estimates of the business potential
of the Company and the present state of the Company's development and the
availability for sale in the market of a significant number of shares of Common
Stock. Additionally, consideration has been given to the general status of the
securities market, the market conditions for new issues of securities and the
demand for securities of comparable companies at the time the Offering was
made.
The Company's Common Stock has been approved for quotation on Nasdaq.
92
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock to be issued by the Company
will be passed upon by Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.,
Miami, Florida. Certain legal matters with respect to the Common Stock offered
hereby will be passed upon for the Selling Shareholders by Murai Wald Biondo &
Moreno P.A. and for the Underwriters by White & Case LLP. Rene V. Murai, who is
a shareholder of Murai Wald Biondo & Moreno, P.A., and his family own 13,112
shares of the Common Stock of the Company and 1,138 shares of the Bank, none of
which are offered for sale hereunder.
EXPERTS
The financial statements as of December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent certified public accountants, given on the authority of said
firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is not subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended. The company has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-1
(the "Registration Statement") under the Securities Act, with respect to the
offer and sale of Common Stock pursuant to this Prospectus. This Prospectus,
filed as a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement or the exhibits and
schedules thereto in accordance with the rules and regulations of the
Commission and reference is hereby made to such omitted information. Statements
made in this Prospectus concerning the contents of any contract, agreement or
other document filed as an exhibit to the Registration Statement are summaries
of the terms of such contracts, agreements or documents and are not necessarily
complete. Reference is made to each such exhibit for a more complete
description of the matters involved and such statements shall be deemed
qualified in their entirety by such reference. The Registration Statement and
the exhibits and schedules thereto filed with the Commission may be inspected,
without charge, and copies may be obtained at prescribed rates, at the public
reference facility maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. For further information pertaining to the
Common Stock offered by this Prospectus and the Company, reference is made to
the Registration Statement. The Registration Statement and other information
filed by the Company with the Commission are also available at the Commission's
World Wide Web site on the Internet at http:www.sec.gov.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements certified by independent auditors and
quarterly reports containing unaudited financial statements for the first three
quarters of each fiscal year.
93
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE COMPANY'S FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants ................................. F-2
Consolidated Balance Sheets as of September 30, 1997 (unaudited) and December 31, 1996
and 1995 ........................................................................... F-3
Consolidated Statements of Operations for the Nine Months Ended September 30, 1997
and 1996 (unaudited) and for the Years Ended December 31, 1996, 1995, and 1994 ...... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months Ended September 30, 1997 (unaudited) and for the
Years Ended December 31, 1996, 1995, and 1994 ....................................... F-5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and
1996 (unaudited) and for the Years Ended December 31, 1996, 1995, and 1994 ......... F-6
Notes to Consolidated Financial Statements .......................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Republic Banking Corporation of Florida
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the
financial position of Republic Banking Corporation of Florida and its
subsidiary at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles. These
consolidated financial statements are the responsibility of Republic's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Miami, Florida
February 21, 1997
F-2
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------
1997 1996 1995
-------------- ------------ -----------
ASSETS (UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents:
Non-interest earning ....................................... $ 56,113 $ 58,124 $ 53,360
Federal funds sold .......................................... 42,103 71,056 41,054
---------- ---------- ----------
98,216 129,180 94,414
Interest earning deposits in other banks ..................... 873 5,880 26,246
Held-to-maturity securities (market value of $231,182 at
September 30, 1997, (unaudited) $163,662 at December 31, 1996
and $161,781 at December 31, 1995)........................... 229,803 162,310 158,411
Available-for-sale securities .............................. 155,185 168,894 161,673
Loans receivable, net ....................................... 940,843 962,062 809,679
Premises and equipment, net ................................. 58,166 48,349 34,927
Customers' acceptance liability .............................. 3,842 4,289 6,620
Accrued interest receivable ................................. 11,532 12,159 12,339
Other real estate owned .................................... 2,043 2,411 3,247
Deferred taxes ............................................. 4,128 3,818 4,125
Other assets ................................................ 4,433 3,424 3,267
Goodwill and other intangibles .............................. 8,465 9,175 10,020
---------- ---------- ----------
Total assets ............................................. $1,517,529 $1,511,951 $1,324,968
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing ....................................... $ 264,535 $ 263,523 $ 256,772
Interest bearing:
NOW and Money Market ....................................... 166,986 183,930 194,459
Savings ................................................... 132,269 134,511 132,916
Time ...................................................... 734,745 738,162 572,177
---------- ---------- ----------
1,298,535 1,320,126 1,156,324
Securities sold under repurchase agreements .................. 50,898 28,918 24,002
Other short-term borrowings ................................. 18,985 16,679 4,683
Acceptances outstanding .................................... 3,842 4,289 6,620
Accrued interest payable .................................... 2,405 2,427 2,459
Income taxes payable ....................................... 731 1,746 2,386
Other liabilities .......................................... 3,378 3,803 3,724
---------- ---------- ----------
Total liabilities ....................................... 1,378,774 1,377,988 1,200,198
---------- ---------- ----------
Commitments and contingencies (Notes 12 and 13) ............ -- -- --
---------- ---------- ----------
Minority interest in consolidated subsidiary ............... 9,605 9,270 8,630
---------- ---------- ----------
Stockholders' equity:
Common stock-authorized 20,000,000 shares of $0.50 par
value; 18,872,904 shares issued and outstanding in 1997
and 1996 (15,727,580 shares in 1995) ..................... 9,437 9,437 7,864
Capital surplus ............................................. 77,221 77,221 59,444
Retained earnings .......................................... 42,077 37,785 48,530
Net unrealized gain on available-for-sale securities,
net of tax ................................................ 415 250 302
---------- ---------- ----------
Total stockholders' equity .............................. 129,150 124,693 116,140
---------- ---------- ----------
Total liabilities and stockholders' equity ............... $1,517,529 $1,511,951 $1,324,968
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------- ---------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans ........................ $ 66,933 $59,030 $ 79,897 $ 70,077 $ 54,003
Investment securities:
Taxable interest ................................. 13,975 13,293 17,893 18,447 16,000
Tax exempt interest .............................. 1,480 1,363 1,874 2,340 3,844
Interest on deposits in other banks ............ 175 781 825 1,282 934
Interest on federal funds sold .................. 3,323 2,856 3,645 2,910 2,183
-------- ------- -------- -------- --------
Total interest income ........................... 85,886 77,323 104,134 95,056 76,964
-------- ------- -------- -------- --------
Interest expense:
Deposits .......................................... 35,786 30,399 41,282 37,062 23,630
Securities sold under repurchase agreements ...... 1,828 1,045 1,512 1,105 530
Other borrowings ................................. 425 318 455 244 162
-------- ------- -------- -------- --------
Total interest expense ........................ 38,039 31,762 43,249 38,411 24,322
-------- ------- -------- -------- --------
Net interest income .............................. 47,847 45,561 60,885 56,645 52,642
Provision for loan losses ........................ 3,604 1,778 2,381 890 2,500
-------- ------- -------- -------- --------
Net interest income after provision
for loan losses .............................. 44,243 43,783 58,504 55,755 50,142
-------- ------- -------- -------- --------
Non-interest income:
Service charges on deposit accounts ............... 9,037 9,754 12,960 12,722 12,769
Other charges, commissions and fees ............... 8,926 8,101 11,270 9,921 7,517
Gain (loss) on sale of securities ............... -- 1 1 (185) 3
-------- ------- -------- -------- --------
17,963 17,856 24,231 22,458 20,289
-------- ------- -------- -------- --------
Non-interest expenses:
Salaries and wages .............................. 15,870 16,334 21,664 21,638 19,753
Employee benefits ................................. 4,274 4,138 5,111 5,834 5,710
Occupancy expense ................................. 4,379 3,661 4,962 4,661 4,399
Furniture and equipment expense .................. 2,034 2,088 2,793 2,375 2,340
Other real estate owned expense .................. 236 149 111 478 763
Other ............................................. 13,006 13,975 18,376 15,035 13,491
-------- ------- -------- -------- --------
39,799 40,345 53,017 50,021 46,456
-------- ------- -------- -------- --------
Income before provision for income taxes ......... 22,407 21,294 29,718 28,192 23,975
Provision for income taxes ........................ 7,243 7,468 10,324 9,103 7,687
-------- ------- -------- -------- --------
Income before minority interest .................. 15,164 13,826 19,394 19,089 16,288
Minority interest ................................. (1,058) (961) (1,350) (1,330) (1,136)
-------- ------- -------- -------- --------
Net income ....................................... $ 14,106 $12,865 $ 18,044 $ 17,759 $ 15,152
======== ======= ======== ======== ========
Earnings per common share ........................ $ 0.75 $ 0.68 $ 0.96 $ 0.94 $ 0.80
======== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-4
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- UNREALIZED
SHARES GAIN (LOSS) ON TOTAL
ISSUED AND PAR CAPITAL RETAINED AVAILABLE-FOR-SALE STOCKHOLDERS'
OUTSTANDING VALUE SURPLUS EARNINGS SECURITIES, NET EQUITY
------------- -------- --------- ------------ -------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 ......... 15,728 $7,864 $59,444 $ 28,201 $ -- $ 95,509
Effect of adoption of SFAS 115 ...... -- -- -- -- 2,517 2,517
Cash dividend paid on
January 31, 1994 .................. -- -- -- (7,864) -- (7,864)
Net income ........................... -- -- -- 15,152 -- 15,152
Net change in unrealized loss on
available-for-sale securities,
net of tax ........................ -- -- -- -- (4,867) (4,867)
------ ------ ------- --------- -------- --------
Balance at December 31, 1994 ......... 15,728 7,864 59,444 35,489 (2,350) 100,447
Cash dividend ........................ -- -- -- (4,718) -- (4,718)
Net income ........................... -- -- -- 17,759 -- 17,759
Net change in unrealized loss on
available-for-sale securities,
net of tax ........................ -- -- -- -- 2,652 2,652
------ ------ ------- --------- -------- --------
Balance at December 31, 1995 ......... 15,728 7,864 59,444 48,530 302 116,140
Stock dividend ..................... 3,145 1,573 17,777 (19,350) -- --
Cash dividend ........................ -- -- -- (9,439) -- (9,439)
Net income ........................... -- -- -- 18,044 -- 18,044
Net change in unrealized gain on
available-for-sale securities,
net of tax ........................ -- -- -- -- (52) (52)
------ ------ ------- --------- -------- --------
Balance at December 31, 1996 ......... 18,873 9,437 77,221 37,785 250 124,693
Cash dividend ........................ -- -- -- (9,814) -- (9,814)
Net income (unaudited) ............... -- -- -- 14,106 -- 14,106
Net change in unrealized gain on
available-for-sale securities,
net of tax (unaudited) ............ -- -- -- -- 165 165
------ ------ ------- --------- -------- --------
Balance at September 30, 1997
(unaudited) ........................ 18,873 $9,437 $77,221 $ 42,077 $ 415 $129,150
====== ====== ======= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-5
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------------- ---------------------------------------
1997 1996 1996 1995 1994
------------- ------------- ------------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................. $ 14,106 $ 12,865 $ 18,044 $ 17,759 $ 15,152
---------- ---------- ---------- -------- ----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interest in
consolidated subsidiary .................. 1,058 961 1,350 1,330 1,136
Depreciation and amortization ............ 1,886 1,405 1,859 1,855 1,686
Investment (accretion) amortization, net ... (589) 51 (167) 75 1,942
Amortization of goodwill and
other intangibles ........................ 710 599 845 709 311
Provision for loan losses .................. 3,604 1,778 2,381 890 2,500
Deferred tax provision (benefit) ......... (421) 3 342 (970) 737
Other .................................... (247) 271 1,192 853 360
Changes in assets and liabilities, net of
effect of acquisition:
Increase (decrease) in unearned
income ................................. (1,074) (251) 495 315 (590)
Decrease (increase) in accrued interest
receivable ........................... 627 1,247 180 113 (1,830)
(Increase) decrease in other assets ...... (1,009) 107 (923) 1,588 (1,165)
Decrease in income taxes payable ......... (1,015) (1,327) (642) (936) (859)
(Decrease) increase in accrued
interest payable ..................... (22) (348) (32) 173 156
Increase (decrease) in other liabilities (425) 3,259 729 (1,097) (2,791)
---------- ---------- ---------- -------- ----------
Total adjustments ........................ 3,083 7,755 7,609 4,898 1,593
---------- ---------- ---------- -------- ----------
Net cash provided by
operating activities .................. 17,189 20,620 25,653 22,657 16,745
---------- ---------- ---------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in interest earning
deposits in other banks .................. 5,007 25,322 20,366 (14,777) 14,998
Proceeds from sales or redemptions of
held-to-maturity securities ............... 35,692 44,496 56,955 58,131 43,575
Purchase of held-to-maturity securities ... (102,824) (32,862) (59,159) (23,999) (143,509)
Proceeds from sales or redemptions of
available-for- sale securities ............ 46,749 36,789 67,000 93,025 87,687
Purchase of available-for-sale securities ... (32,523) (75,842) (75,842) (52,943) (68,738)
Net loan (originations) pay downs ......... 18,639 (89,687) (155,689) (95,022) (29,884)
Investment in premises and equipment ...... (11,313) (12,178) (16,475) (8,097) (1,919)
Proceeds from sale of other real estate
owned and other ........................... 275 547 1,388 2,853 2,868
Net cash and cash equivalents received
in acquisition ........................... -- -- -- 12,135 --
---------- ---------- ---------- -------- ----------
Net cash used in investing activities ... (40,298) (103,415) (161,456) (28,694) (94,922)
---------- ---------- ---------- -------- ----------
</TABLE>
(CONTINUED)
F-6
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------------- --------------------------------------------
1997 1996 1996 1995 1994
------------- ----------- ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand deposits,
NOW, Money Market and savings
accounts .................................... $ (18,174) $ 13,757 $ (2,183) $ (46,791) $ (17,384)
Net increase (decrease) in time deposits ...... (3,417) 83,883 165,985 68,269 78,885
Net increase in securities sold under
repurchase agreements ........................ 21,980 12,160 4,916 611 2,307
Net increase (decrease) in
other borrowings ........................... 2,306 12,269 11,996 (2,174) (3,164)
Dividend paid by subsidiary to
minority interest ........................... (736) (706) (706) (352) (589)
Dividends paid ................................. (9,814) (9,439) (9,439) (4,718) (7,864)
--------- -------- -------- --------- ---------
Net cash provided by (used in)
financing activities ..................... (7,855) 111,924 170,569 14,845 52,191
--------- -------- -------- --------- ---------
Net increase (decrease) in cash and cash
equivalents .................................... (30,964) 29,129 34,766 8,808 (25,986)
Cash and cash equivalents at beginning
of the period ................................. 129,180 94,414 94,414 85,606 111,592
--------- -------- -------- --------- ---------
Cash and cash equivalents at end
of the period ................................. $ 98,216 $123,543 $129,180 $ 94,414 $ 85,606
========= ======== ======== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest .................................... $ 38,061 $ 32,110 $ 41,250 $ 38,042 $ 24,166
========= ======== ======== ========= =========
Income taxes ................................. $ 8,750 $ 8,232 $ 10,080 $ 8,457 $ 7,694
========= ======== ======== ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
Transfers from loans to other real
estate owned ................................. $ 50 $ 407 $ 430 $ 3,059 $ 2,413
========= ======== ======== ========= =========
Transfers from held-to-maturity securities to
available-for-sale securities ............... $ -- $ -- $ -- $ 33,024 $ --
========= ======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-7
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Republic Banking Corporation of
Florida (the "Company") include the accounts of the Company and its 93.1% owned
subsidiary, Republic National Bank of Miami (the "Bank")(See Note 18). The Bank
is a commercial bank with branches located in Miami-Dade and Broward counties,
Florida. The accounting and reporting policies of the Company conform to
practices within the banking industry and generally accepted accounting
principles.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The unaudited consolidated financial statements as of and for the nine
months ended September 30, 1997 and 1996 have not been audited but, in the
opinion of management, contain all adjustments (consisting of normal recurring
adjustments) necessary for a fair statement of the results for the interim
periods.
A summary of the Company's more significant accounting and reporting
policies applied in the preparation of the accompanying financial statements
follows.
PRINCIPLES OF CONSOLIDATION
All significant intercompany accounts and transactions are eliminated in
the consolidation.
INVESTMENT SECURITIES AND DEPOSITS WITH BANKS
The Company classifies its securities as either held-to-maturity or
available-for-sale with distinct accounting treatment for each classification.
Investments available-for-sale are reported at fair value, with unrealized net
gains and losses, net of the tax effect, reported as a separate component of
stockholders' equity. Securities held-to-maturity are recorded at cost,
adjusted for amortization of premiums and accretion of discounts.
Gains and losses on securities sales or redemptions are accounted for by
the specific identification method and are included in other operating income
when securities are sold.
Interest earning deposits in other banks mature within one year.
LOANS RECEIVABLE
Loans are stated at the amount of unpaid principal, reduced by unearned
income and allowance for loan losses. Unearned income on installment loans is
recognized over the term of the loans. Accrual of interest is discontinued on a
loan when management believes that the borrower's financial condition is such
that collection of interest is unlikely. When a loan is placed on non-accrual
status, any interest accrued in the current period, but not collected, is
reversed against interest income; prior year's
F-8
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
uncollected interest is charged against the allowance for loan losses.
Collection of interest while the loan is on non-accrual status is generally
recognized on a cash basis unless collection of principal is doubtful, in which
case, cash collections are applied to unpaid principal.
Non-refundable loan origination fees and certain costs associated with the
loan origination process are deferred and amortized as an adjustment to the
yield of the loans over the term of those loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is an amount that management believes will
be adequate to absorb possible loan losses on existing loans that may become
uncollectible. The adequacy of the allowance is based on ongoing 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
collateral and current economic conditions that may affect the borrowers'
ability to pay.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. Recoveries on amounts previously charged off are credited to the
allowance.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a loan to be impaired
when it is probable that the Bank will be unable to collect all amounts due
according to the contractual terms of the loan. When a loan is considered to be
impaired, the amount of the impairment is measured based on the present value
of expected future cash flows discounted at the loan's effective interest rate.
Impairment losses are included in the allowance for loan losses through a
charge to the provision. Cash receipts on impaired loans on which collection of
principal is doubtful are applied to reduce the principal amount of such loans
until the principal has been recovered, and are thereafter recognized as
interest income.
OTHER REAL ESTATE OWNED
Real estate acquired through foreclosure or through deed in lieu of
foreclosure is reflected in the financial statements at the lower of cost or
estimated net realizable value. Real estate in which the Bank has acquired
physical possession but no legal title is also classified as other real estate
owned. Upon classification as other real estate, the excess of the unpaid
balance of the loans over the fair value of the collateral is charged to the
allowance for loan losses. Net expenses of maintaining properties, subsequent
writedowns due to changes in market conditions and gains or losses on
disposition are included in other operating expenses.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is provided principally on the straight-line
basis over the estimated useful life of each type
F-9
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
of asset, usually 5 to 40 years. Leasehold improvements are amortized over the
life of the respective leases or the estimated useful life of the asset,
generally between 5 and 40 years, whichever is shorter.
GOODWILL AND OTHER INTANGIBLES
Intangible assets consist of the excess of cost over the fair value of the
net assets of businesses acquired, which excess cost is allocated between
goodwill and core deposit premium. Goodwill is amortized on a straight-line
basis over fifteen years. Core deposit premiums are amortized over varying
useful lives ranging from seven to ten years. At December 31, 1996 and 1995,
intangible assets amount to $14,984,000 and $14,840,000, respectively
($14,984,000 at September 30, 1997 (unaudited)). Accumulated amortization of
intangible assets was $5,809,000 and $4,820,000 as of December 31, 1996 and
1995, respectively, and $6,519,000 at September 30, 1997 (unaudited).
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. The asset and liability approach requires the recognition of deferred
tax assets and liabilities utilizing the currently expected tax rate to be
applied when the temporary differences reverse. Income tax expense is
recognized on the periodic change in the deferred tax asset and liability
amounts at the current statutory rates. Changes in the value of deferred tax
assets and liabilities resulting from a change in the expected tax rate are
recognized in the year when the tax rate change is enacted. The deferred tax
asset is reduced by a valuation allowance when, based on all available
evidence, it is more likely than not that some portion of the deferred asset
will not be realized.
The Company files consolidated tax returns with its subsidiary.
CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, cash and cash equivalents include
cash on hand, demand balances due from banks and other cash equivalents having
an initial maturity of three months or less.
EARNINGS PER SHARE
Earnings per common share have been computed based on the weighted average
number of shares outstanding after giving retroactive effect to the 2.5 for 1
stock split (see Note 18) and the 20% common stock dividend in January 1996.
The weighted average number of shares was 18,872,904 for all periods for which
earnings per share are presented.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" and in
December 1996, the FASB issued a related Statement of Financial Accounting
Standards No. 127, "Deferral of the Effective Date of Certain Provisions of
FASB
F-10
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
No. 125" (collectively, "Statement No. 125"). Statement No. 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities based on a financial components
approach that focuses on control. Portions of Statement No. 125 were effective
for transactions entered into after December 31, 1996 with the remaining
portions effective for transactions entered into after December 31, 1997. The
impact of adopting Statement No. 125 has not been nor is it currently expected
to be material to the Company's financial position or results of operations.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("Statement No. 128"). Statement No.
128 specifies the computation, presentation and disclosure requirements for
earnings per share for public companies. It replaces primary earnings per share
and fully diluted earnings per share with basic earnings per share and diluted
earnings per share and is effective for reporting periods ending after December
15, 1997. For the Company, the computation for basic earnings per share is
similar to the primary earnings per share currently presented by the Company.
The calculation of diluted earnings per share will first apply to the Company
for the financial statements upon the effective date of the Company's 1998
Stock Option Plan and the grant of options thereunder (See Note 18). The impact
of adopting Statement No. 128 will depend upon the number of options
outstanding under the Plan at any time.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure"
("Statement No. 129"). Statement No. 129 continues previous requirements to
disclose certain information about an entity's capital structure. The Company
currently complies with the disclosure requirements of Statement No. 129.
RECLASSIFICATIONS
Certain amounts in 1995 and 1994 have been reclassified to conform to the
1996 financial statement presentation.
2. ACQUISITION
On June 2, 1995, the Company acquired all of the outstanding capital stock
of The Plaza Bank of Miami ("Plaza") for approximately $12,850,000 in cash and
$1,898,000 in loans retained by the seller. The acquisition was accounted for
using the purchase method. Accordingly, the purchase price was allocated to
assets and liabilities acquired based on their estimated fair values. Goodwill
and core deposit premiums of approximately $7,300,000 and $2,000,000,
respectively, representing the excess of cost over the fair value of net assets
acquired, were recorded as a result of this transaction. Results of operations
of Plaza have been included in the statement of operations since the date of
acquisition.
F-11
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
2. ACQUISITION--(CONTINUED)
A summary of the fair values of the net assets acquired is as follows (in
thousands):
<TABLE>
<S> <C>
Cash ...................................................... $ 5,284
Federal funds sold .......................................... 19,700
Investment securities ....................................... 30,375
Loans, net ................................................ 65,408
Bank premises and equipment ................................. 1,384
Accrued interest receivable ................................. 1,064
Other assets ................................................ 1,224
--------
124,439
--------
Deposits ................................................... 105,731
Securities sold under agreements to repurchase ............ 7,975
Accrued interest payable .................................... 196
Taxes payable ............................................. 3,300
Other liabilities .......................................... 1,820
--------
119,022
--------
Fair value of net assets acquired ........................... 5,417
Purchase price ............................................. 14,748
--------
Excess of cost over fair value of net assets acquired ...... $ 9,331
========
</TABLE>
F-12
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
3. INVESTMENT SECURITIES
Carrying amounts and estimated fair values of held-to-maturity securities
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
GROSS UNREALIZED ESTIMATED
AMORTIZED ---------------------- FAIR
COST GAINS LOSSES VALUE
----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1997 (UNAUDITED)
U.S. Treasury securities ............... $ 72,445 $ 502 $ -- $ 72,947
Securities of other U.S. agencies and
corporations ........................... 122,757 195 (62) 122,890
Securities issued by states and political
subdivisions ........................... 32,782 744 -- 33,526
Other debt securities .................. 600 -- -- 600
--------- ------ ----- --------
Total debt securities .................. 228,584 1,441 (62) 229,963
Federal Reserve Bank stock ............ 1,219 -- -- 1,219
--------- ------ ----- --------
Total securities ..................... $229,803 $1,441 $ (62) $231,182
========= ====== ===== ========
DECEMBER 31, 1996
U.S. Treasury securities ............... $ 85,858 $ 952 $ (13) $ 86,797
Securities of other U.S. agencies and
corporations ........................... 38,738 16 (196) 38,558
Securities issued by states and political
subdivisions ........................... 35,895 597 (4) 36,488
Other debt securities .................. 600 -- -- 600
--------- ------ ------- --------
Total debt securities .................. 161,091 1,565 (213) 162,443
Federal Reserve Bank stock ............ 1,219 -- -- 1,219
--------- ------ ------- --------
Total securities ..................... $162,310 $1,565 $(213) $163,662
========= ====== ======= ========
DECEMBER 31, 1995
U.S. Treasury securities ............... $ 84,229 $2,550 $ -- $ 86,779
Securities of other U.S. agencies and
corporations ........................... 15,998 43 (136) 15,905
Securities issued by states and political
subdivisions ........................... 30,909 895 (10) 31,794
Other debt securities .................. 26,676 28 -- 26,704
--------- ------ ------- --------
Total debt securities .................. 157,812 3,516 (146) 161,182
Federal Reserve Bank stock ............ 599 -- -- 599
--------- ------ ------- --------
Total securities ..................... $158,411 $3,516 $(146) $161,781
========= ====== ======= ========
</TABLE>
F-13
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
3. INVESTMENT SECURITIES--(CONTINUED)
Amortized cost and estimated fair values of available-for-sale securities are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
GROSS UNREALIZED ESTIMATED
AMORTIZED -------------------- FAIR
COST GAINS LOSSES VALUE
----------- ------- ---------- ----------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1997 (UNAUDITED)
U.S. Treasury securities .............................. $109,020 $535 $ -- $109,555
Securities of other U.S. agencies and corporations . 45,437 263 (70) 45,630
--------- ----- ------ --------
Total securities ....................................... $154,457 $798 $ (70) $155,185
========= ===== ====== ========
DECEMBER 31, 1996
U.S. Treasury securities .............................. $117,238 $169 $ (23) $117,384
Securities of other U.S. agencies and corporations . 51,218 430 (138) 51,510
--------- ----- ------ --------
Total securities ....................................... $168,456 $599 $ (161) $168,894
========= ===== ====== ========
DECEMBER 31, 1995
U.S. Treasury securities .............................. $105,867 $293 $ (103) $106,057
Securities of other U.S. agencies and corporations . 55,277 403 (64) 55,616
--------- ----- ------ --------
Total securities ....................................... $161,144 $696 $ (167) $161,673
========= ===== ====== ========
</TABLE>
At December 31, 1996, the scheduled maturity of held-to-maturity and
available-for-sale securities was as follows (in thousands):
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
------------------------- ------------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Within one year ......... $ 55,438 $ 55,763 $ 41,043 $ 41,025
One to five years ...... 77,447 77,998 120,537 121,003
Five to ten years ...... 9,242 9,408 -- --
Over ten years ......... 20,183 20,493 6,876 6,866
--------- --------- --------- --------
Total .................. $162,310 $163,662 $168,456 $168,894
========= ========= ========= ========
</TABLE>
F-14
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
3. INVESTMENT SECURITIES--(CONTINUED)
The following sets forth information concerning sales of
available-for-sale securities, for the periods indicated and calls of
held-to-maturity securities (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS
ENDED FOR THE YEAR ENDED DECEMBER
SEPTEMBER 30, 31,
----------------- -----------------------------
1997 1996 1996 1995 1994
-------- ------ ------ --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
Amortized cost ............ $5,000 $ -- $ -- $51,889 $22,698
Proceeds .................. $5,000 $ -- $ -- $51,701 $22,701
Gross realized gains ...... $ -- $ -- $ -- $ 22 $ 89
Gross realized losses ...... $ -- $ -- $ -- $ 210 $ 86
HELD-TO-MATURITY SECURITIES
Amortized cost ............ $4,515 $240 $240 $ 9,936 $ --
Proceeds .................. $4,515 $241 $241 $ 9,939 $ --
Gross realized gains ...... $ -- $ 1 $ 1 $ 3 $ --
Gross realized losses ...... $ -- $ -- $ -- $ -- $ --
</TABLE>
Held-to-maturity securities with an amortized cost of $33,024,000 and
market value of $33,131,000 were transferred to the available for sale
portfolio on December 19, 1995 in accordance with a one time accounting
provision established by the FASB.
The Company has only limited involvement with derivative financial
instruments. The Company has one U.S. government agency security ("inverse
floater") with an aggregate cost of $25,000,000 and estimated fair value of
$25,187,500, $25,375,000 and $25,187,000, respectively, at September 30, 1997
(unaudited), December 31, 1996 and 1995, respectively. This security, with
stated maturity in 1998, is classified as available-for-sale and recorded at
its estimated fair value. The interest rate earned by the Company on this
security (7.17% at September 30, 1997 (unaudited), 6.37% at December 31, 1996
and 4.85% at December 31, 1995) is calculated as the difference between a
stated rate ("cap"), 12.75% at September 30, 1997 (unaudited), 11.75% at
December 31, 1996, and 10.75% at December 31, 1995, and the average federal
funds rate.
Securities with an aggregate cost of approximately $92,047,000,
$67,344,000 and $72,242,000 at September 30, 1997 (unaudited) and December 31,
1996 and 1995 were pledged as collateral for public depositors or subject to
sales under repurchase agreements.
F-15
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
Major classifications of loans are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------
1997 1996 1995
-------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Commercial ....................................... $ 309,583 $ 309,238 $ 310,873
Commercial real estate and construction ......... 303,391 264,574 215,844
International .................................... 79,794 122,450 71,290
Residential first mortgages ..................... 150,125 133,005 120,539
Residential equity lines ........................ 17,698 19,938 17,458
Installment ....................................... 64,884 83,331 85,226
Overdrafts ....................................... 3,845 3,722 3,349
Bankers' acceptances .............................. 26,862 41,586 220
--------- --------- ---------
956,182 977,844 824,799
Unearned income ................................. (3,130) (4,204) (3,709)
--------- --------- ---------
953,052 973,640 821,090
Allowance for loan losses and transfer risk ...... (12,209) (11,578) (11,411)
--------- --------- ---------
Loans, net ....................................... $ 940,843 $ 962,062 $ 809,679
========= ========= =========
</TABLE>
Real estate mortgage loans serviced for others, not included in the above
amounts, were approximately $24,300,000 and $29,000,000 in 1996 and 1995,
respectively ($21,478,000 at September 30, 1997 (unaudited)).
The following table sets forth, at the dates indicated, the aggregate
amount of the Company's cross-border outstandings, including foreign bonds, due
from bank accounts and interest earning deposits with other banks (in
thousands).
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------
1997 1996 1995
-------------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Brazil ......... $ 32,000 $ 30,000 $ 19,000
Peru ............ 15,000 21,000 8,000
Ecuador ......... 12,000 13,000 13,000
Guatemala ...... 9,000 11,000 13,000
Panama ......... 8,000 11,000 4,000
Colombia ...... 4,000 12,000 8,000
Other ......... 49,000 70,000 57,000
-------- -------- --------
$129,000 $168,000 $122,000
======== ======== ========
</TABLE>
F-16
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
4. LOANS AND ALLOWANCE FOR LOAN LOSSES--(CONTINUED)
Changes in the allowance for loan losses are as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period ...... $ 11,578 $ 11,411 $ 11,411 $ 11,680 $ 11,563
Allowance from acquired bank ......... -- -- -- 701 --
Provision charged to operations ...... 3,604 1,778 2,381 890 2,500
-------- -------- -------- -------- --------
15,182 13,189 13,792 13,271 14,063
-------- -------- -------- -------- --------
Loans charged-off ..................... (4,030) (2,238) (3,241) (2,583) (3,293)
Less recoveries ..................... 1,057 819 1,027 723 910
-------- -------- -------- -------- --------
Net charge-offs ..................... (2,973) (1,419) (2,214) (1,860) (2,383)
-------- -------- -------- -------- --------
Balance at end of period ............ $ 12,209 $ 11,770 $ 11,578 $ 11,411 $ 11,680
======== ======== ======== ======== ========
Loans not accruing interest at end
of period ........................... $ 14,058 $ 1,459 $ 1,563 $ 4,066 $ 4,564
======== ======== ======== ======== ========
</TABLE>
Had the Company recorded interest on non-accrual loans, interest income on
loans would have increased by approximately $226,000, $350,000 and $700,000 in
1996, 1995 and 1994, respectively, and by $237,000 and $256,000 for the nine
month periods ended September 30, 1997 and 1996 (unaudited), respectively.
The following is a summary of impaired loans for the period ended
September 30, 1997 and years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------
1997 1996 1995
-------------- -------- -------
(UNAUDITED)
<S> <C> <C> <C>
Investment in impaired loans ........................ $4,104 $ 262 $3,215
Valuation allowance ................................. 991 8 300
Average recorded investment in impaired loans ...... 1,990 1,229 2,302
</TABLE>
F-17
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
5. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized below (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------
1997 1996 1995
-------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Bank buildings ....................................... $ 44,155 $ 13,759 $ 14,875
Leasehold improvements .............................. 5,308 3,920 3,645
Leasehold acquisition costs ........................... 1,284 1,228 1,228
Furniture and equipment .............................. 19,466 16,894 16,154
Construction in progress .............................. 108 22,844 8,209
--------- --------- ---------
70,321 58,645 44,111
Less--accumulated depreciation and amortization ...... (24,030) (22,184) (21,092)
--------- --------- ---------
46,291 36,461 23,019
Land ................................................ 11,875 11,888 11,908
--------- --------- ---------
Net premises and equipment ........................... $ 58,166 $ 48,349 $ 34,927
========= ========= =========
</TABLE>
During 1997, the Bank finalized construction of its new headquarters and
office building in Coral Gables, Florida. The Company capitalized interest
costs of approximately $773,000 in 1996 and $255,000 in 1995 with respect to
this construction project. Capitalized interest for the nine months ended
September 30, 1997 and 1996 (unaudited) amounted to $390,000 and $520,000,
respectively.
The Company leases facilities for several branch offices, certain land and
equipment under operating leases from unrelated parties. Net rent expense was
approximately $2,172,000, $2,064,000 and $1,836,000 for 1996, 1995 and 1994,
respectively, and $1,746,000 and $1,569,000 for the nine months ended September
30, 1997 and 1996 (unaudited), respectively. The minimum rental commitments
over the lives of the leases are as follows at December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------------------- ---------------
(IN THOUSANDS)
<S> <C>
1997 ............ $ 1,982
1998 ............ 1,850
1999 ............ 1,712
2000 ............ 1,071
2001 ............ 640
Thereafter ...... 14,602
-------
Total ......... $21,857
=======
</TABLE>
Beginning in 1997, the Company leases office space in its office building
to unrelated parties. Future minimum lease payments receivable under these
leases are as follows (in thousands):
F-18
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
5. PREMISES AND EQUIPMENT--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------------------- ------------
(UNAUDITED)
<S> <C>
1997 ............ $ 502
1998 ............ 1,300
1999 ............ 1,306
2000 ............ 1,312
2001 ............ 1,318
Thereafter ...... 6,492
-------
Total ......... $12,230
=======
</TABLE>
6. DEPOSITS
At September 30, 1997 and December 31, 1996 and 1995, time deposits
greater than $100,000 totalled $282,195,000 (unaudited), $371,962,000 and
$245,319,000, respectively; the average interest rate on these time deposits
was approximately 5.4% (unaudited), 5.3% and 5.3% for the same periods. The
majority of time deposits mature within one year. Deposits held from related
financial institutions amounted to approximately $12,587,000 (unaudited),
$69,018,000 and $7,214,000 at September 30, 1997, December 31, 1996 and 1995,
respectively.
7. SHORT-TERM BORROWINGS
Securities sold under repurchase agreements are primarily used to
accommodate commercial deposit customers. Funds generated are principally
placed in money market investments. The following sets forth information
concerning repurchase agreements for the periods indicated (in thousands):
<TABLE>
<CAPTION>
AS OF AND FOR THE NINE
MONTHS ENDED AS OF AND FOR THE
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------------- ------------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Maximum amount of outstanding
agreements at any month-end during
the period ........................ $ 58,088 $ 36,162 $ 42,200 $ 31,256 $ 19,034
Average amount outstanding during the
period .............................. 51,168 29,849 32,574 21,449 14,865
Weighted average interest rate for the
period .............................. 4.78% 4.68% 4.64% 5.15% 3.60%
</TABLE>
F-19
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
7. SHORT-TERM BORROWINGS--(CONTINUED)
Other short term borrowings consist of U.S. Treasury tax and loan notes
("TT&L Notes") and Federal funds purchased. The maximum amount outstanding of
TT&L Notes at any month end was $14,457,000 in 1997 (unaudited), $9,900,000 in
1996 and $10,405,000 in 1995. The average balance outstanding was $6,824,000 in
1997 (unaudited), $4,432,000 in 1996 and $4,883,000 in 1995. The average
interest rate was 5.61% in 1997 (unaudited), 4.47% in 1996 and 5.00% in 1995.
The maximum outstanding Federal funds purchased at any month end was $5,000,000
in 1997 (unaudited) and $12,000,000 in 1996 (none in 1995). The average
interest rate was 4.15% in 1997 (unaudited) and 5.26% in 1996.
8. INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------
1997 1996 1996 1995 1994
---------- ---------- --------- ---------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Currently payable
Federal .............................. $6,772 $7,002 $ 9,326 $8,619 $6,193
State ................................. 713 492 656 935 689
Deferred provision (benefit) ......... (242) (26) 342 (451) 805
------ ------ ------- ------ ------
Total provision for income taxes ...... $7,243 $7,468 $10,324 $9,103 $7,687
====== ====== ======= ====== ======
</TABLE>
A reconciliation of income taxes to statutory rates is as follows (in
thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
-----------------------------------------
1997 1996
-------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- --------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax at Federal
statutory rate ............ $7,842 35% $7,453 35%
Tax exempt income ......... (487) (2) (444) (2)
State income tax, less effect
on Federal tax ............ 474 2 449 2
Other ..................... (586) (3) 10 --
------ ----- ------ ----
$7,243 32% $7,468 35%
====== ==== ====== ====
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994
--------------------- -------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- --------- ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Tax at Federal
statutory rate ............ $10,413 35% $9,867 35% $ 8,391 35%
Tax exempt income ......... (653) (2) (791) (3) (1,329) (5.5)
State income tax, less effect
on Federal tax ............ 651 2 661 2 528 2.2
Other ..................... (87) -- (634) (2) 97 .3
------- ---- ------ ----- -------- ----
$10,324 35% $9,103 32% $ 7,687 32%
======= ==== ====== ==== ======== ====
</TABLE>
F-20
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
8. INCOME TAXES--(CONTINUED)
The components of the net deferred income tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------
1997 1996 1995
-------------- -------- -------
(UNAUDITED)
<S> <C> <C> <C>
Allowance for loan losses ........................... $4,323 $4,083 $4,015
Loan origination fees .............................. 69 212 555
Self-insurance reserve .............................. 76 112 252
Other real estate losses ........................... 93 93 426
Deferred compensation .............................. 79 96 118
Other ................................................ 917 847 291
------ ------ ------
Gross deferred tax assets ........................... 5,557 5,443 5,657
------ ------ ------
Depreciation ....................................... 949 1,302 1,185
Unrealized gain--available-for-sale securities ...... 280 169 204
Pension ............................................. 122 86 67
FDIC prepayment .................................... -- -- 54
Other ................................................ 78 68 22
------ ------ ------
Gross deferred tax liabilities ..................... 1,429 1,625 1,532
------ ------ ------
Net deferred tax asset .............................. $4,128 $3,818 $4,125
====== ====== ======
</TABLE>
Based on available information, management considers that the net deferred
tax asset at December 31, 1996 will be realized; therefore, no valuation
allowance has been established.
Federal income tax returns for the years 1985 through 1988, and 1990
through 1992, are currently being examined. Management believes that income
taxes for those years and subsequent years have been adequately provided for.
9. STOCKHOLDERS' EQUITY
In January 1996, the Company declared a 20% stock dividend to stockholders
of record as of December 31, 1995. As a result, 3,145,355 shares (post stock
split shares--see Note 18) of common stock were issued.
Cash dividends paid amounted to $9,439,000 and $4,718,000 in 1996 and
1995, respectively. A cash dividend was declared on January 16, 1997 to
shareholders of record on December 31, 1996 and amounted to $9,814,000.
See also Note 18.
10. PENSION PLAN
The Bank has a non-contributory defined benefit pension plan covering
substantially all full time employees. The plan benefits are based on years of
service and the employees highest average
F-21
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
10. PENSION PLAN--(CONTINUED)
compensation over a consecutive five year period. Retirement plan expense is
computed using the actuarial unit credit method. The Company's funding policy
is to contribute no less than the minimum required by ERISA and no more than
the maximum allowed by the Internal Revenue Service as a deduction for the
year.
The following table sets forth the plan status as of year end:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of:
Accumulated benefit obligation including vested benefits of
$10,744 in 1996 and $9,858 in 1995 ........................ $ 11,306 $ 10,711
======== ========
Projected benefit obligation .............................. $ 14,537 $ 13,743
Plan assets at fair value ................................. 12,216 11,661
-------- --------
Projected benefit obligation in excess of plan assets ...... 2,321 2,082
Unrecognized prior service cost ........................... 768 623
Unrecognized net transition liability ..................... (171) (205)
Unrecognized net actuarial loss ........................... (3,142) (2,675)
-------- --------
Net prepaid pension cost ................................. $ (224) $ (175)
======== ========
</TABLE>
Computational assumptions in determining the projected benefit obligation
were as follows:
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Weighted average discount rate ............... 7.5% 7.0%
Rate of increase in compensation levels ...... 4.0% 4.0%
</TABLE>
Components of pension cost included in employee benefits were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Service cost-benefits earned during the period ...... $1,262 $ 1,294
Interest cost on projected benefit obligation ......... 944 918
Amortization of unrecognized prior service cost ...... (82) (62)
Actual return on plan assets ........................ (428) (1,127)
Other amortization .................................... 199 189
Deferred net asset (loss) gain ........................ (551) 348
------ -------
Net periodic pension cost ........................... $1,344 $ 1,560
====== =======
</TABLE>
F-22
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
10. PENSION PLAN--(CONTINUED)
Computational assumptions used in determining net periodic pension cost
were as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Weighted average discount rate .............................. 7.0% 8.0%
Rate of increase in compensation levels ..................... 4.0% 5.0%
Expected long term rate of return on plan assets ............ 8.5% 8.5%
Amortization period on unrecognized prior service cost ...... 11 years 11 years
</TABLE>
11. REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends
that it may declare without prior regulatory approval. At December 31, 1996,
approximately $25,100,000 ($28,000,000 at September 30, 1997 (unaudited)) of
retained earnings were available for dividend declaration without prior
regulatory approval.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. The regulations require the
Bank to meet specific capital adequacy guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance sheet items
as calculated under regulatory accounting practices. The Bank's capital
classification is also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of Total and Tier I
capital to risk-weighted assets, and of Tier I capital to average assets.
Management believes, as of December 31, 1996, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Bank's
regulators categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Bank must maintain minimum total risk based, Tier I risk based, and Tier I
leverage ratios as set forth in the table below. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The Bank's capital amounts and ratios are presented in the following table
(dollars in thousands).
F-23
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
11. REGULATORY MATTERS--(CONTINUED)
<TABLE>
<CAPTION>
TO BE WELL
REQUIRED FOR CAPITALIZED UNDER
CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
-------------------- ------------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ------- --------- ------- --------- ------
As of September 30, 1997 (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Total capital ratio ............ $141,321 15.4% $73,449 8.0% $91,811 10.0%
======== ==== ======= === ======= ====
Tier I capital ratio ............ 129,844 14.1 36,724 4.0 55,086 6.0
======== ==== ======= === ======= ====
Tier I leverage ratio ............ 129,844 8.5 45,731 3.0 76,218 5.0
======== ==== ======= === ======= ====
As of December 31, 1996
Total capital ratio ............ 135,136 15.7 68,989 8.0 86,236 10.0
======== ==== ======= === ======= ====
Tier I capital ratio ............ 124,356 14.4 34,494 4.0 51,742 6.0
======== ==== ======= === ======= ====
Tier I leverage ratio ............ 124,356 8.5 43,832 3.0 73,042 5.0
======== ==== ======= === ======= ====
As of December 31, 1995
Total capital ratio ............ 124,694 15.0 66,593 8.0 83,242 10.0
======== ==== ======= === ======= ====
Tier I capital ratio ............ 114,277 13.8 33,296 4.0 49,945 6.0
======== ==== ======= === ======= ====
Tier I leverage ratio ............ 114,277 8.8 39,076 3.0 65,127 5.0
======== ==== ======= === ======= ====
</TABLE>
12. CONTINGENCIES
The Company maintains a self-funded medical reimbursement plan covering
employees and their eligible dependents. Employees contribute towards a portion
of the cost of dependent coverage. The plan covers reimbursement of eligible
medical and dental expenses up to $1,000,000 over the life of the eligible
participant. The Company maintains an insurance policy that limits loss per
specific participant per year to $100,000. In addition, the Company maintains a
policy that limits the aggregate loss within a plan year to a variable amount
based on the number of participants in the plan. At December 31, 1996, this
aggregate annual stop loss level was approximately $2,700,000. The Company had
accrued approximately $493,000, $593,000 and $835,000 at September 30, 1997
(unaudited) and December 31, 1996 and 1995 for estimated claims which were
incurred as of those dates but not yet paid.
The Bank is a defendant in several legal actions arising from its normal
business activities. Legal counsel and management believe that the ultimate
liability, if any, resulting from these legal actions will not materially
affect the Company's financial position or results of operations.
13. OFF-BALANCE SHEET RISK
In the normal course of business, the Bank engages in off-balance sheet
activities in order to meet the financial needs of its customers. These
activities include commitments to extend credit, commercial letters of credit,
standby letters of credit and guarantees.
F-24
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
13. OFF-BALANCE SHEET RISK--(CONTINUED)
These instruments carry credit and market risks and are managed in
accordance with the Company's credit and country risk policies. The maximum
credit risk from failure of a counterparty to perform may be in excess of
amounts, if any, reflected on the balance sheet. Collateral required in
accordance with the approval of specific transactions may consist of cash, real
estate or other consideration, and may mitigate this exposure.
The maximum potential credit loss from commitments to extend credit,
commercial letters of credit and standby letters of credit is represented by
the contractual amount of the commitment. The measurement of the risk
associated with these transactions must be evaluated in conjunction with
failure of the counterparty to perform.
A summary of the Bank's contractual or notional amounts for off-balance
sheet activities as of September 30, 1997 (unaudited) and December 31, 1996 is
summarized below (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
CREDIT ACTIVITIES 1997 1996
- --------------------------------------------- --------------- -------------
(UNAUDITED)
<S> <C> <C>
Unused commercial lines of credit ...... $193,050 $158,029
Other commitments to extend credit ...... 90,462 86,505
Standby letters of credit ............... 14,681 9,840
Commercial letters of credit ............ 27,535 24,333
-------- --------
$325,728 $278,707
======== ========
</TABLE>
Of the outstanding standby letters of credit, approximately $3,900,000 are
secured by cash collateral at December 31, 1996 and $6,397,000 at September 30,
1997.
14. CONCENTRATIONS OF CREDIT RISK
While maintaining a diversified portfolio, the Company is dependent on the
economic conditions affecting the Miami-Dade County, Florida market and that of
Central and South America, its primary source of international lending
activity. The investment and loan portfolio credit risk concentration
distribution is as described in Notes 3 and 4, respectively.
Diversification is managed through asset/liability management policies
with limitations for exposures to individual debtor entities and for country
risk exposure.
15. RELATED PARTY TRANSACTIONS
In its normal course of business, the Bank lends to directors, officers,
employees and their related interests. Loans outstanding to executive officers,
directors, principal stockholders or their related interests were approximately
$1,766,000 and $2,412,000 at December 31, 1996 and 1995, respectively
($2,558,000 at September 30, 1997 (unaudited)). In connection with the
construction of its new headquarters and office building (see Note 5), the
Company entered into a contract with a mechanical
F-25
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
15. RELATED PARTY TRANSACTIONS--(CONTINUED)
contractor, the owners of which are related to a member of the Board of
Directors, to provide mechanical work. The total contract amount is
approximately $4,166,000. Approximately $602,000 (unaudited), $2,555,000 and
$1,009,000 were paid during the period ended September 30, 1997 and the years
ended December 31, 1996 and 1995, respectively, in connection with this
contract.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments have been estimated by the Company using available market
information for marketable instruments and appropriate valuation methodologies
for other instruments. However, considerable judgment and subjectivity is
necessarily required in interpreting data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------- ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ------------ ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents ............... $129,180 $129,180 $94,414 $ 94,414
Marketable certificates of deposit ...... 5,880 5,880 26,246 26,266
Marketable securities .................. 331,204 332,556 320,084 323,452
Performing loans ........................ 972,077 970,511 817,024 823,185
Liabilities:
Time deposits ........................... 738,162 739,544 572,177 574,613
Other deposits ........................... 581,964 581,964 584,147 584,147
Securities sold under repurchase
agreements ........................... 28,918 28,918 24,002 24,002
Other short term borrowings ............ 16,679 16,679 4,683 4,683
</TABLE>
The fair value of loans is estimated based on present values using
applicable discount factors based on the current rates of interest charged by
the Company for similar transactions. For this purpose loans have been
aggregated into major categories based on pricing characteristics. No
adjustment was made to the discount factors for changes in the credit quality
of loans. Management believes that the risk factor embedded in the discount
rates along with the portion of the allowance for possible loan losses
applicable to the performing loans results in a fair valuation of the
performing loan portfolio. The fair value of non-accrual loans with a recorded
book value of $1,563,000 in 1996 and $4,066,000 in 1995 was not estimated
because it is not practicable to reasonably assess the credit adjustment that
would be applied in the marketplace for such loans.
The fair value of investments is based on quoted market values. See Note
3--Investment Securities.
The fair value of time deposits is estimated based on present values using
discount factors based on the current rate of interest paid for deposits of
similar maturity. All other categories of deposits, which
F-26
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
have no stated maturities, are shown at their face value. Management estimates
that these core deposits would have a market value discount. This is
attributable to the estimated cost savings from the low cost of such deposits
over their estimated life, discounted using an alternative cost of funds rate.
Management has not assessed the core deposit value of its total core deposit
base. A core deposit premium has been paid by the Company in the acquisition of
core deposits from other institutions. The net value of this core deposit
premium is $2,081,000 in 1996 and $2,532,000 in 1995.
Borrowings consist of overnight and short-term debt instruments with
original maturities of ninety days or less. These borrowings are shown at face
value which approximate fair value.
Standby letters of credit and other commitments to extend credit are of a
short term nature and reflective of the current fee structure of the Company in
providing these services. The face value of these instruments is considered
reflective of fair value and is disclosed in Note 13--Off-Balance Sheet Risk.
The fair values presented herein are based on pertinent information
available to management as of December 31, 1996 and 1995. Although management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and, therefore, current estimates
of fair value may differ from the amounts presented herein.
F-27
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
17. REPUBLIC BANKING CORPORATION OF FLORIDA
The following summarizes the major categories of the Company's (parent
company only) financial statements (in thousands):
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------
1997 1996 1995
-------------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Assets:
Cash ...................................................... $ 169 $ 161 $ 421
Investment in the Bank .................................... 128,593 124,120 115,545
Excess of cost over net assets of subsidiaries, net ...... 383 410 446
Other assets ............................................. 5 2 8
-------- -------- --------
Total assets .......................................... $129,150 $124,693 $116,420
======== ======== ========
Liabilities ................................................ $ -- $ -- $ 280
-------- -------- --------
Stockholders' equity:
Common stock ............................................. 9,437 9,437 7,864
Paid-in capital .......................................... 77,221 77,221 59,444
Retained earnings ....................................... 42,077 37,785 48,530
Net unrealized gains on securities available-for-sale,
net of taxes .......................................... 415 250 302
-------- -------- --------
Total stockholders' equity .............................. 129,150 124,693 116,140
-------- -------- --------
Total liabilities and stockholders' equity ............ $129,150 $124,693 $116,420
======== ======== ========
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------------
1997 1996 1996 1995 1994
------------ ---------- ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Dividend from subsidiary ........................... $9,833 $ 9,455 $9,455 $4,728 $ 7,879
Interest income .................................... 6 6 9 7 4
Equity in undistributed earnings of the Bank ...... 4,309 3,436 8,627 13,076 7,328
Operating expenses ................................. (47) (32) (49) (57) (69)
------ ------- ------ ------ -------
Income before income taxes ........................ 14,101 12,865 18,042 17,754 15,142
Income tax expense (benefit) ..................... (5) -- (2) (5) (10)
--------- ------- --------- --------- -------
Net income .................................... $14,106 $12,865 $18,044 $17,759 $15,152
======== ======= ======== ======== =======
</TABLE>
F-28
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
17. REPUBLIC BANKING CORPORATION OF FLORIDA--(CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net income ....................................... $ 14,106 $ 12,865 $ 18,044 $ 17,759 $ 15,152
Less: Equity in undistributed earnings of
the Bank ....................................... (4,309) (3,436) (8,627) (13,076) (7,328)
Other .......................................... 25 123 (239) 320 (135)
-------- -------- -------- --------- --------
Net cash provided by operating activities ...... 9,822 9,552 9,178 5,003 7,689
-------- -------- -------- --------- --------
Cash flow used in financing activities:
Cash dividends paid ........................... (9,814) (9,439) (9,439) (4,718) (7,864)
-------- -------- -------- --------- --------
Decrease (increase) in cash and
cash equivalents .............................. 8 113 (261) 285 (175)
Cash and cash equivalents at beginning
of year ....................................... 161 422 422 137 312
-------- -------- -------- --------- --------
Cash and cash equivalents at end of year ......... $ 169 $ 535 $ 161 $ 422 $ 137
======== ======== ======== ========= ========
</TABLE>
18. SUBSEQUENT EVENTS (UNAUDITED)
The Company declared a 2.5 for 1 stock split which became effective in
January 1998. The accompanying financial statements have been restated to
reflect the effect of the stock split on all share amounts and earnings per
share for all periods presented.
In November 1997, the Company exchanged 1,220,225 shares (post
stock-split) of common stock of the Company for the same number of shares of
common stock from a limited number of minority shareholders of the Bank's
common stock. The difference between the estimated fair value of the shares of
the Company given in exchange valued at approximately $12,812,000 and the book
value of the minority interest acquired, amounting to approximately $8,391,000,
will be recorded as goodwill in the Company's financial statements, at the
transaction's effective date, and amortized over 20 years.
The Company has approved (i) an increase in the number of authorized
shares of common stock from 20,000,000 shares to 50,000,000 shares and (ii) an
amendment to its articles of incorporation to effect a change in the par value
of its common stock outstanding from $0.50 per share, post stock split to $0.01
per share.
The Company is adopting the 1998 Stock Option Plan ("the Plan"). This Plan
provides for incentive stock option grants to certain officers and employees of
the Company and non-qualified options to directors, officers and employees.
Options may only be granted at or above the fair market
F-29
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
18. SUBSEQUENT EVENTS (UNAUDITED)--(CONTINUED)
value of the stock at the date of grant. The Board's Compensation Committee
will grant options only upon approval by the Board of Directors. The maximum
term of the Plan is ten years and will become effective January 1, 1998. The
maximum number of shares authorized to be granted under this Plan is 1,000,000
shares (post stock-split). No options are currently outstanding, but upon
consummation of the Company's initial public offering, options to purchase
500,000 shares will be outstanding under the Plan.
The unaudited pro forma condensed consolidated statements of operations
and balance sheets of the Company for the periods ended, and at, September 30,
1997 and December 31, 1996, after giving effect to the exchange transaction
(post stock-split) described in the preceding paragraph, as if that transaction
had taken place on September 30, 1997 for pro forma balance sheet and on
January 1, 1996 for pro forma income statements, is presented below:
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
------------- ------------
(IN THOUSANDS,
EXCEPT PER SHARE)
<S> <C> <C>
Income before provision for income taxes ......... $ 22,238 $ 29,492
Provision for income taxes ..................... 7,243 10,324
----------- -----------
Income before minority interest .................. 14,995 19,168
Minority interest .............................. 144 184
----------- -----------
Net income ....................................... $ 14,851 $ 18,984
=========== ===========
Earnings per common share ........................ $ 0.74 $ 0.94
=========== ===========
Weighted average common shares outstanding ...... 20,093,129 20,093,129
</TABLE>
F-30
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
18. SUBSEQUENT EVENTS (UNAUDITED)--(CONTINUED)
* * * * *
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1997
UNAUDITED
<TABLE>
<CAPTION>
1997
---------------
(IN THOUSANDS)
<S> <C>
Assets
Cash and cash equivalents ....................................... $ 98,216
Investments and interest earnings deposits in other banks ...... 385,861
Loans receivable, net .......................................... 940,843
Other assets ................................................... 84,144
Goodwill and other intangibles ................................. 12,980
----------
$1,522,044
==========
Liabilities and Stockholders' Equity
Deposits ...................................................... $1,298,535
Other liabilities ............................................. 80,239
----------
1,378,774
Minority interest ................................................ 1,281
Stockholders' equity ............................................. 141,989
----------
$1,522,044
==========
</TABLE>
F-31
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED,
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Prospectus Summary ........................ 3
Summary Consolidated Financial Data ...... 7
Risk Factors .............................. 9
The Company .............................. 18
Recent Developments ........................ 25
Use of Proceeds ........................... 25
Dividend Policy ........................... 26
Capitalization ........................... 27
Selected Consolidated Financial Data ...... 28
Management's Discussion and Analysis
of Financial Condition and
Results of Operations .................. 30
Regulation ................................. 66
Management ................................. 73
Certain Transactions ..................... 82
Principal and Selling Shareholders ......... 83
Description of Capital Stock ............... 85
Shares Eligible for Future Sale ............ 88
Certain United States Tax Consequences
to Non-U.S. Holders ..................... 89
Underwriting .............................. 91
Legal Matters .............................. 93
Experts .................................... 93
Available Information ..................... 93
Index to Consolidated Financial
Statements .............................. F-1
</TABLE>
-----------------------------------
UNTIL MARCH 8, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,000,000 SHARES
REPUBLIC BANKING
CORPORATION OF FLORIDA
COMMON STOCK
-----------------------------------
PROSPECTUS
-----------------------------------
KEEFE, BRUYETTE & WOODS, INC.
CIBC OPPENHEIMER
FEBRUARY 11, 1998
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