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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO _____________
COMMISSION FILE NUMBER: 0-23643
REPUBLIC BANKING CORPORATION OF FLORIDA
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-1318959
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
2800 PONCE DE LEON BLVD.
CORAL GABLES, FLORIDA 33134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER: (305) 774-5197
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
NONE NONE
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant on March 31, 1998, was approximately $112
million based on a closing price of $17.875 for the Common Stock as reported on
the Nasdaq National Market System on such date. For purposes of the foregoing
computation, all executive officers, directors and 5% beneficial owners of the
registrant are deemed to be affiliates. As of March 31, 1998, the registrant had
outstanding 21,326,399 shares of Common Stock, par value $0.01.
DOCUMENTS INCORPORATED BY REFERENCE
The information on pages 5 through 40 of the Company's 1997 Annual
Report to Shareholders is attached hereto as Exhibit 13.1 and incorporated by
reference into Part II, Items 6, 7, 7A and 8 hereof. Additionally, the Company
intends to file the Registrant's Definitive Proxy Statement for its 1998 Annual
Meeting of Shareholders with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K
pursuant to Rule G(3) of the General Instructions for Form 10-K. Information
from such Definitive Proxy Statement will be incorporated by reference into Part
III, Items 10, 11, 12 and 13 hereof.
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This Form 10-K contains certain "forward-looking statements" which
represent the Company's expectations or beliefs, including, but not limited to,
statements concerning industry performance and the Company's operations,
performance, financial condition, growth and strategies. For this purpose, any
statements contained in the Form 10-K that are not statements of historical fact
may be deemed to be forward-looking statements. Without limiting the generality
of the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "intend," "could," "estimate" or "continue" or the negative or
other variations thereof or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, certain of which are beyond the Company's control, and
actual results may differ materially depending on a variety of important factors
which are noted herein, including but not limited to the potential impact of
changes in interest rates, competition, credit risks and collateral, changes in
local or regional economic conditions, the ability of the Company to continue
its growth strategy, dependence on management and key personnel, supervision and
regulation issues and issues regarding the concentration of deposits and
cross-border lending activities.
PART I I
ITEM 1. BUSINESS.
GENERAL
Republic Banking Corporation of Florida ("Republic") is a bank holding
company registered pursuant to the provisions of the Bank Holding Company Act of
1956, as amended (the "BHCA"), and conducts its operations through its
wholly-owned banking subsidiary, Republic National Bank of Miami (the "Bank").
Republic and its subsidiary are collectively referred to herein as the "Company"
unless otherwise provided herein. Republic was incorporated as a business
corporation under the laws of the State of Florida in 1970 and the Bank was
chartered in 1965 as a national bank with one banking office in Miami, Florida.
Since its formation, Republic has derived substantially all of its revenues and
income from the operations of the Bank.
The Company's headquarters are located at 2800 Ponce de Leon Boulevard,
Coral Gables, Florida 33134, and its telephone number is (305) 774-5197.
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. 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 1996, Hispanics represented a
majority of the population of Miami-Dade County, Florida. These populations
remain the core of the Bank's client base. Management believes that
approximately 90% of the Company's customers are Hispanic.
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
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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.
LENDING ACTIVITIES
The Bank's lending activities consist of community bank lending
activities and international lending activities.
The Bank in its domestic lending activities is primarily a commercial
lender, but offers an array of commercial and consumer lending products. The
Bank in its local lending activities also makes loans to foreign-domiciled
borrowers secured by domestic collateral or guarantees. The Bank is also engaged
in international lending, primarily trade financing for correspondent banks and
for local commercial customers who are importing from or exporting to Latin
America or the Caribbean.
The Bank has a diversified loan portfolio. At December 31, 1997, the
Bank's loan portfolio consisted of: $270 million in commercial loans or 29.0% of
gross loans; $262 million in commercial real estate loans or 28.1% of gross
loans; $155 million in residential first mortgage loans or 16.6% of gross loans;
$74.5 or 8.0% in other consumer loans; $60.8 million in foreign bank loans and
acceptances discounted or 6.5% of gross loans; $48.4 million in construction
loans or 5.2% of gross loans and 6.6% of gross loans in other loan categories.
DEPOSITS AND BRANCH OFFICES
Lending and investment activities are funded primarily from deposits.
The Bank attracts deposits through a network of 27 retail branches, 25 of which
are located in Miami-Dade County, Florida and two of which are located in
Broward County, Florida. The Bank has built its deposit base through de novo
expansion as well as through acquisitions. From 1988 to 1991, the Bank acquired
branch locations and deposits from four failed financial institutions being
liquidated by the FDIC and the RTC. In 1995, the Bank expanded its offices in
Miami-Dade County and entered into Broward County, Florida with the acquisition
of the Plaza Bank of Miami.
In addition to its retail branch deposit base, the Bank obtains
significant deposits as the result of its significant relationships throughout
Latin America and the Caribbean and from foreigners who travel to south Florida.
At December 31, 1997, $316 million of the Bank's deposits were from
foreign-domiciled customers or correspondent banks.
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 December 31, 1997, approximately 22% 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 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.
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ECONOMIC RISKS
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 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 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.
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.
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.
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
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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.
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.
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.
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
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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 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.
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 Federal Deposit Insurance Corporation (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. Republic is a bank holding company registered under the
BHCA, and as such it is subject to supervision, regulation and examination by
the Board of Governors of the Federal Reserve System (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
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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 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 December 31, 1997, the Company's ratio of Tier 1 capital to total
risk-weighted assets was 15.01%, and its ratio of total capital to total
risk-weighted assets was 16.26%. 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 December 31, 1997, the
Company's leverage ratio was
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8.96%. 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.
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 Netherlands Antilles N.V. ("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. Rebank is owned by Roberto Isaias, Estefano Isaias and
William Isaias, three brothers and directors of the Company, who also own a
major Ecuadorian bank. For additional information regarding foreign ownership of
U.S. banks, see "Foreign Ownership of United States Banks" below.
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
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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.
EXPANDING ENFORCEMENT AUTHORITY. The Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") and FIRREA 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. The Bank, as a national bank, is subject to
regulation primarily by the Office of the Comptroller of the Currency ("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
9
<PAGE>
subsidiaries that may engage in activities some of which are not permissible for
the bank itself. Although the revised regulations do not 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 Republic. 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
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<PAGE>
retained net income of the two preceding years. "Retained net income" means the
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 December 31, 1997, an
aggregate of approximately $32 million was available for payment of dividends by
the Bank to Republic under applicable restrictions, without regulatory approval.
There are also statutory limits on other transfer of funds to Republic
and any other future non-banking subsidiaries of Republic 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 Republic or any future Republic subsidiary,
or 20% in the aggregate to Republic 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 Republic 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.
FDICIA also provided for increased funding of the Bank Insurance Fund
("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
11
<PAGE>
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 Savings Association Insurance Fund ("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.
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
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<PAGE>
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.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
ROBERTO ISAIAS has been a director of Republic 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 Republic since April 1994. Since March 1989, he has served as an officer and
director of Republic. 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 Republic since April 1992. Mr. Argudin has served as a director of
Republic 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
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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.
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 B. 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.
EMPLOYEES
At December 31, 1997, the Company had 709 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.
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ITEM 2. 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>
LOCATION TYPE OF FACILITY LEASED OR OWNED EXPIRATION DATE
-------- ---------------- --------------- ---------------
<S> <C> <C> <C>
MIAMI-DADE COUNTY:
Coral Gables............... Corporate headquarters Owned --
and branch
Bird Road.................. Branch Owned --
Calle Ocho................. Branch (1) July 2000(2)
Country Walk............... Branch Leased October 2001
Downtown................... Branch Leased October 2000
East Hialeah............... Branch Owned --
Fisher Island.............. Branch Leased June 2001
Gratigny................... Branch Leased February 2003
Hialeah.................... Branch Owned --
LeJeune.................... Branch (1) January 2001(2)
Little Havana.............. Branch (1) November 2055
Miami Lakes................ Branch Leased August 2006
Milam Dairy................ Branch Leased July 1998
North Dade................. Branch Leased March 2000
Orange Bowl................ Branch Owned --
Overtown................... Branch Leased October 2000
Palmetto................... Branch Leased June 2004
South Miami................ Branch Owned --
Tamiami.................... Branch Owned --
Suniland................... Branch Leased March 1999
West Dade.................. Branch Owned --
West Gables................ Branch Owned --
West Kendall............... Branch Owned --
Westchester................ Branch Leased December 2015
Westland................... Branch Leased October 2013
BROWARD COUNTY:
Palm Aire Branch Leased December 1998
Tamarac Branch Leased September 2006
</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) On locations with multiple land leases, the earliest expiration date is
shown.
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<PAGE>
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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<PAGE>
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
TRADING MARKET
Effective February 12, 1998, the Company's Common Stock was listed for
trading on the Nasdaq National Market under the symbol "RBCF." Prior to that
date, there was no established trading market for the Common Stock. The high and
low sales prices of the Company's Common Stock since the commencement of public
trading for the quarter ended March 31, 1998 were $19 5/8 and $16 1/8.
As of April 7, 1998, there were approximately 210 holders of record,
not including individual participants in security position listings of the
Company's Common Stock and the closing price as quoted on the Nasdaq National
Market was $18 7/8.
DIVIDEND POLICY
Holders of Common Stock are entitled to receive dividends when and if
declared by Republic's Board of Directors out of funds legally available
therefor. Republic has declared a dividend on its Common Stock each year since
1990, and in 1997 paid an annual dividend aggregating $0.52 per share.
For the foreseeable future, the principal source of cash revenues of
Republic will be dividends paid by the Bank with respect to the Bank's capital
stock. Federal banking laws and regulations may limit the payment of such
dividends by the Bank and may limit Republic's ability to pay dividends as is
the case with other banking organizations.
Republic's dividend policy was changed for 1998, decreasing the
dividend payout ratio and changing its frequency from an annual dividend to a
quarterly dividend. A quarterly dividend of $0.07 per share was paid for the
first quarter of 1998.
RECENT SALES OF REGISTERED SECURITIES
In February 1998, Republic sold 1,233,270 shares of its Common Stock
and certain selling shareholders sold 1,066,730 shares of Common Stock pursuant
to a registration statement on Form S-1 (Registration No. 333-41301) filed with
the Securities and Exchange Commission, which was declared effective on February
11, 1998 (the "Offering"). The Offering commenced on February 18, 1998 and was
terminated subsequent to the sale of all of the registered securities at a price
to the public of $15.00 per share. The Offering was underwritten by Keefe,
Bruyette & Woods, Inc. and CIBC Oppenheimer Corp. Expenses incurred by Republic
in connection with the sale of the shares of Common Stock included the
following:
SEC registration fee...................................................$ 10,856
NASD filing fee........................................................ 4,180
Nasdaq National Market listing fee..................................... 95,000
Legal fees and expenses................................................ 357,150
Accounting fees and expenses........................................... 260,400
Printing and engraving expenses........................................ 156,499
Transfer agent and registrar fees...................................... 3,500
Miscellaneous fees and expenses........................................ 12,479
---------
Total..................................................................$ 900,064
=========
The net offering proceeds to Republic after deduction of the above
expenses were approximately $16.3 million and have temporarily been invested in
securities purchased under agreements to resell transactions with the Bank.
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<PAGE>
One of the selling shareholders in the Offering was Rebank Netherlands
Antilles N.V. ("Rebank"), which is owned by Roberto Isaias, Estefano Isaias and
William Isaias. Roberto, Estefano and William Isaias directly or indirectly own,
in the aggregate, 12,540,285 shares or 58.8% of the issued and outstanding
Common Stock. Roberto Isaias is the Chairman of the Board of Republic and
Estafano and William Isaias are directors of Republic. The net proceeds to
Rebank from the sale of 647,320 shares of Common Stock in the Offering were
$9,030,114.
RECENT SALES OF UNREGISTERED SECURITIES
In November 1997, prior to the 2.5-for-1 stock split effected in
January 1998, Republic took action to reorganize its capital structure by
issuing to 13 existing shareholders of the Bank other than Republic an aggregate
of 488,091 shares (1,220,225 post-split) of Common Stock for 488,091 shares of
common stock of the Bank and no cash consideration. The issuance was made in
reliance upon the exemption from the registration provisions of the Securities
Act of 1933, as amended, afforded by Section 4(2) thereof and/or Regulation D
promulgated thereunder, as transactions by an issuer not involving a public
offering.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The information under the caption "Selected Consolidated Financial
Data" appearing on page 5 of Republic's 1997 Annual Report to Shareholders (the
"Annual Report"), which is attached hereto as Exhibit 13.1, is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information contained under the caption "Management's Discussion
and Analysis" appearing on pages 6 through 22 of the Annual Report is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained under the caption "Management's Discussion
and Analysis -- Derivatives" and "-- Market Risk, Interest Rate Sensitivity and
Liquidity" appearing on pages 18 and 20, respectively, of the Annual Report is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements, together with the report thereon of Price
Waterhouse LLP dated March 6, 1998, appearing on pages 23 through 40 of the
Annual Report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the caption "Election of Directors" to
appear in Republic's definitive proxy statement relating to Republic's 1998
Annual Meeting of Shareholders, which definitive proxy statement will be filed
with the Securities and Exchange Commission not later than 120 days after the
end of Republic's fiscal year covered by this Report on Form 10-K (hereinafter
referred to as the "Annual Meeting Proxy Statement"), is incorporated herein by
reference. Information concerning the executive officers of Republic is included
in Part 1 of this Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the caption "Executive Compensation" to
appear in the Annual Meeting Proxy Statement is incorporated herein by
reference. The information included in the Annual Meeting Proxy Statement
pursuant to Rule 402(i), (k) and (l) is not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the caption "Security Ownership of
Certain Beneficial Owners and Management" to appear in the Annual Meeting Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the caption "Certain Relationships and
Related Transactions" to appear in the Annual Meeting Proxy Statement is
incorporated herein by reference.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements
The following consolidated financial statements of the Company and its
subsidiary and the independent certified public accountant's report thereon
appear in Item 8 hereof.
<TABLE>
<CAPTION>
PAGE IN
ANNUAL
REPORT*
-------
<S> <C>
/bullet/ Consolidated Balance Sheets as of December 31, 1997 and 1996................... 23
/bullet/ Consolidated Statements of Operation for the years ended December 31, 1997, 24
1996 and 1995...................................................................
/bullet/ Consolidated Statements of Changes in Stockholders' Equity for the years ended 25
December 31, 1997, 1996 and 1995................................................
/bullet/ Consolidated Statements of Cash Flows for the years ended December 31, 1997, 26 - 27
1996 and 1995...................................................................
/bullet/ Notes to Consolidated Financial Statements..................................... 28 - 40
/bullet/ Report of Independent Certified Public Accountants............................. 40
</TABLE>
- -----------------------------
* Incorporated by reference from the indicated pages of the 1997 Annual
Report to Shareholders.
(2) Financial Statement Schedules
Schedules are omitted because the conditions requiring their filing are
not applicable or because the required information is provided in the
Consolidated Financial Statements, including the Notes thereto.
(3) Exhibits.*
(3.1) Form of Amended and Restated Articles of
Incorporation of the Company [Exhibit 3.1 to the
Company's Registration Statement [Registration No.
333-41301] on Form S-1 as filed with the Securities
and Exchange Commission on December 1, 1997 [the
"Registration Statement"]).
(3.2) Form of Amended and Restated Bylaws of the Company.
(Exhibit 3.2 to the Registration Statement)
(4.1) See Exhibits 3.1 and 3.2 for provisions in the
Company's Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws
defining the rights of holders of the Company's
Common Stock.
- -----------------------------
* Exhibits followed by a parenthetical reference are incorporated herein
by reference from the document described therein.
21
<PAGE>
(10.1) Form of Indemnification Agreement between the Company
and each of its directors and certain officers.
(Exhibit 10.1 to the Registration Statement) **
(10.2) Form of 1998 Stock Option Plan. (Exhibit 10.2 to the
Registration Statement) **
(10.3) Bank Software License and Development Agreement
between Republic National Bank of Miami, Filanbanco,
S.A. and Infordatos, S.A. dated February 12, 1994.
(Exhibit 10.3 to the Registration Statement)
(10.4) Construction Agreement between Republic National Bank
of Miami and The Bared Construction Company of Miami
dated August 10, 1995. (Exhibit 10.4 to the
Registration Statement)
(10.5) Agreement between Republic National Bank of Miami and
Kirchman Corporation dated November 7, 1997. (Exhibit
10.5 to the Registration Statement)
(10.6) Employment Agreement dated as of January 1, 1998 by
and between Republic National Bank of Miami and Oscar
Bustillo, Jr. (Exhibit 10.6 to the Registration
Statement) **
(10.7) Employment Agreement dated as of January 1, 1998 by
and between Republic National Bank of Miami and Felix
M. Garcia. (Exhibit 10.7 to the Registration
Statement) **
(10.8) Employment Agreement dated as of January 1, 1998 by
and between Republic National Bank of Miami and
Rafael Quintana. (Exhibit 10.8 to the Registration
Statement) **
(10.9) Employment Agreement dated as of January 1, 1998 by
and between Republic National Bank of Miami and
Fernando J. Martinez. (Exhibit 10.9 to the
Registration Statement) **
(10.10) Employment Agreement dated as of January 1, 1998 by
and between Republic National Bank of Miami and
Bernardo M. Argudin. (Exhibit 10.10 to the
Registration Statement) **
(10.11) Form of Agreement between the Company and Miguel and
Angela Baduy. (Exhibit 10.20 to the Registration
Statement)
(13.1) Annual Report to Security Holders.
(21.1) List of subsidiaries of the Company (Exhibit 21.1 to
the Registration Statement).
(27.1) Financial Data Schedule. ***
- -----------------------------
* Exhibits followed by a parenthetical reference are incorporated herein
by reference from the document described therein.
** These exhibits are management contracts or compensatory plans or
arrangements.
*** Filed electronically only.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth
quarter of 1997.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REPUBLIC BANKING CORPORATION OF
FLORIDA
By:/S/ BERNARDO M. ARGUDIN
------------------------------------------
BERNARDO M. ARGUDIN
Dated: April 24, 1998 Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/S/ ROBERTO ISAIAS
- ------------------------------------ Chairman of the Board April 24, 1998
ROBERTO ISAIAS
/S/ OSCAR BUSTILLO, JR.
- ------------------------------------ Chief Executive Officer, April 24, 1998
OSCAR BUSTILLO, JR. President and Director
/S/ BERNARDO M. ARGUDIN
- ------------------------------------ Vice President and Chief Financial April 24, 1998
BERNARDO M. ARGUDIN Officer and Principal Accounting
Officer and Director
/S/ JOSE P. BARED
- ------------------------------------ Director April 24, 1998
JOSE P. BARED
/S/ JOHN H. BLAKE
- ------------------------------------ Director April 24, 1998
JOHN H. BLAKE
/S/ ESTEFANO ISAIAS
- ------------------------------------ Director April 24, 1998
ESTEFANO ISAIAS
/S/ WILLIAM ISAIAS
- ------------------------------------ Director April 24, 1998
WILLIAM ISAIAS
/S/ MILTON H. LEHR
- ------------------------------------ Director April 24, 1998
MILTON H. LEHR
/S/ FERNANDO TAMAYO
- ------------------------------------ Director April 24, 1998
FERNANDO TAMAYO
</TABLE>
23
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
13.1 Annual Report to Security Holders
27.1 Financial Data Schedule
- --------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1997 1996
- ------------------------------------------------------------------------------------------
(Dollars In Thousands, Except
Per Share Data)
<S> <C> <C>
INCOME STATEMENT DATA:
Interest income .......................................... $ 114,501 $ 104,134
Interest expense ......................................... 50,974 43,249
- ----------------------------------------------------------------------------------------
Net interest income ...................................... 63,527 60,885
Provision for loan losses ................................ 5,566 2,381
- ----------------------------------------------------------------------------------------
Net interest income after provision for loan losses ...... 57,961 58,504
Non-interest income ...................................... 23,773 24,231
Non-interest expenses .................................... 52,589 53,017
- ----------------------------------------------------------------------------------------
Net income before taxes .................................. 29,145 29,718
Provision for income tax expense ......................... 9,617 10,324
Cumulative effect of change in accounting principle ...... -- --
Minority interest ........................................ 1,188 1,350
- ----------------------------------------------------------------------------------------
Net income ............................................... $ 18,340 $ 18,044
========================================================================================
PER SHARE DATA:
Net income ............................................... $ 0.96 $ 0.96
Book value (year end) .................................... 7.27 6.61
Tangible book value (year end) ........................... 6.64 6.12
Cash dividends ........................................... 0.52 0.50
Dividends payout ratio ................................... 54.17% 52.08%
Weighted average common and common equivalent
shares outstanding (in thousands) ....................... 19,076 18,873
BALANCE SHEET DATA:
Total assets ............................................. $ 1,515,006 $ 1,511,951
Securities ............................................... 372,988 331,204
Loans .................................................... 929,410 973,640
Allowance for loan losses ................................ 11,999 11,578
Total deposits ........................................... 1,302,217 1,320,126
Total shareholders' equity ............................... 146,131 124,693
AVERAGE BALANCE SHEET DATA:
Total assets ............................................. $ 1,528,395 $ 1,405,517
Securities ............................................... 341,947 327,425
Loans .................................................... 973,136 872,094
Allowance for loan losses ................................ 12,329 11,793
Total deposits ........................................... 1,321,188 1,221,350
Total shareholders' equity ............................... 126,865 116,493
PERFORMANCE RATIOS:
Return on average assets ................................. 1.20% 1.28%
Return on average equity ................................. 14.46 15.49
Net interest margin ...................................... 4.56 4.75
Efficiency ratio ......................................... 60.24 62.29
ASSET QUALITY RATIOS:
Non-performing assets to total loans
and other real estate ................................... 0.94% 0.55%
Net loan charge-offs to average loans .................... 0.53 0.25
Allowance for loan losses to total loans ................. 1.29 1.19
Allowance for loan losses to non-performing loans ........ 179.49 395.96
CAPITAL RATIOS:
Leverage ratio ........................................... 8.96% 8.52%
Average shareholders' equity to average total assets ..... 8.30 8.29
Tier 1 risk-based capital ratio .......................... 15.01 14.44
Total risk-based capital ratio ........................... 16.26 15.69
<CAPTION>
As of and for the Years Ended December 31,
---------------------------------------------
1995 1994 1993
--------------- -------------- --------------
(Dollars In Thousands, Except Per Share Data)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income .......................................... $ 95,056 $ 76,964 $ 75,531
Interest expense ......................................... 38,411 24,322 21,795
----------- ---------- ----------
Net interest income ...................................... 56,645 52,642 53,736
Provision for loan losses ................................ 890 2,500 2,450
----------- ---------- ----------
Net interest income after provision for loan losses ...... 55,755 50,142 51,286
Non-interest income ...................................... 22,458 20,289 17,046
Non-interest expenses .................................... 50,021 46,456 50,379
----------- ---------- ----------
Net income before taxes .................................. 28,192 23,975 17,953
Provision for income tax expense ......................... 9,103 7,687 6,181
Cumulative effect of change in accounting principle ...... -- -- 838
Minority interest ........................................ 1,330 1,136 881
----------- ---------- ----------
Net income ............................................... $ 17,759 $ 15,152 $ 11,729
=========== ========== ==========
PER SHARE DATA:
Net income ............................................... $ 0.94 $ 0.80 $ 0.62
Book value (year end) .................................... 6.15 5.32 5.06
Tangible book value (year end) ........................... 5.62 5.25 4.97
Cash dividends ........................................... 0.25 0.42 0.40
Dividends payout ratio ................................... 26.60% 52.50% 64.52%
Weighted average common and common equivalent
shares outstanding (in thousands) ....................... 18,873 18,873 18,873
BALANCE SHEET DATA:
Total assets ............................................. $ 1,324,968 $1,172,209 $1,106,641
Securities ............................................... 320,084 359,545 284,611
Loans .................................................... 821,090 667,091 641,413
Allowance for loan losses ................................ 11,411 11,680 11,563
Total deposits ........................................... 1,156,324 1,029,116 967,615
Total shareholders' equity ............................... 116,140 100,447 95,509
AVERAGE BALANCE SHEET DATA:
Total assets ............................................. $ 1,261,146 $1,136,191 $1,148,513
Securities ............................................... 348,438 328,504 342,779
Loans .................................................... 735,318 635,555 627,929
Allowance for loan losses ................................ 11,893 11,968 10,922
Total deposits ........................................... 1,105,382 1,000,787 1,011,508
Total shareholders' equity ............................... 106,141 95,250 91,393
PERFORMANCE RATIOS:
Return on average assets ................................. 1.41% 1.33% 1.02%
Return on average equity ................................. 16.73 15.91 12.83
Net interest margin ...................................... 4.91 5.06 5.14
Efficiency ratio ......................................... 63.09 63.70 71.17
ASSET QUALITY RATIOS:
Non-performing assets to total loans
and other real estate ................................... 0.96% 1.21% 2.19%
Net loan charge-offs to average loans .................... 0.25 0.37 0.14
Allowance for loan losses to total loans ................. 1.39 1.75 1.80
Allowance for loan losses to non-performing loans ........ 244.09 230.74 112.46
CAPITAL RATIOS:
Leverage ratio ........................................... 8.78% 9.32% 8.82%
Average shareholders' equity to average total assets ..... 8.42 8.38 7.96
Tier 1 risk-based capital ratio .......................... 13.75 15.63 16.13
Total risk-based capital ratio ........................... 15.00 16.88 17.38
</TABLE>
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 5
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis of the consolidated financial condition
and results of operations of Republic Banking Corporation of Florida
("Republic") for the years ended December 31, 1997, 1996 and 1995 should be
read in conjunction with Republic's Consolidated Financial Statements and
accompanying notes.
All historical per share data has been restated to give effect to a 2.5-for-1
stock split completed in January 1998 and a 20% stock dividend issued in
January 1996.
GENERAL
Republic is a holding company for its 99.1% owned subsidiary, Republic National
Bank of Miami (the "Bank"). Republic, through its subsidiary operates as a
commercial bank serving the South Florida area. Republic's income is derived
principally from its lending and investment activities which are funded
primarily by deposits, borrowings and cash flow from asset repayment and
ongoing operations. Consequently, Republic's net income is highly dependent on
the spread between the average yield on earning assets and the rates paid on
interest bearing liabilities. A second source of income is fee income derived
from deposit and other types of services offered to its customers. Results of
operations are also highly dependent on the volume of earning assets, asset
credit quality and the efficiency of operations.
Republic is subject to interest rate risk to the extent that its interest
bearing liabilities re-price or mature more or less frequently than its
interest earning assets.
CAPITAL TRANSACTIONS
In November 1997, Republic issued 1,220,225 shares (post-stock split) of its
common stock in exchange for shares of the Bank held by minority shareholders
increasing its ownership in the subsidiary from 93.1% to 99.1%.
In February 1998, Republic completed an initial public offering of its common
stock and issued an additional 1,233,270 shares of its common stock to the
public.
PERFORMANCE OVERVIEW
Republic had net income in 1997 of $18.3 million, representing an increase of
$296,000 over 1996 net income of $18.0 million. Net income for 1996 was
$285,000 higher than 1995 net income of $17.8 million. Net income per common
share was $0.96 for 1997 and 1996 and $0.94 for 1995. Return on average
shareholders' equity was 14.46%, 15.49% and 16.73% for 1997, 1996 and 1995,
respectively.
The increase in net income from 1996 to 1997 was due, primarily, to increased
net interest income and reduced non-interest expenses. Earnings were adversely
impacted by a higher provision for loan losses in 1997, which was 2.3 times the
amount provided for 1996. This resulted from a higher than historical level of
loan losses in its commercial and consumer loan portfolios. In May 1997, the
principal shareholder and the Board of Directors entered into negotiations with
Barnett Banks, Inc. for the sale of Republic and the Bank. While these
negotiations terminated within two weeks of their public announcement, they
resulted in high personnel turnover and competitive pressures from other
financial institutions during the second and third quarters of the year.
Republic took a defensive posture with its customers during this period by
adjusting its pricing practices as well as increasing its advertising and
personnel costs. The impact of this episode on the balance sheet was limited,
but Republic experienced a decline in loans and deposits in the second half of
the year.
Earnings growth from 1995 to 1996 resulted principally from loan growth and
increased fee income, but was impacted by the following transactions which had
a significant impact on performance in each of those years. In June 1995,
Republic acquired the Plaza Bank of Miami which was merged into its subsidiary
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 Bank 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 Bank commenced a re-engineering 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 Bank paid a one time
FDIC assessment of $1.4 million with respect to the Bank's deposits acquired
from the Resolution Trust Corporation and insured by the Savings Association
Insurance Fund ("SAIF").
Total assets at December 31, 1997, 1996 and 1995 were $1,515.0 million,
$1,512.0 million and $1,325.0 million, respectively. Total deposits at December
31, 1997, 1996 and 1995 were $1,302.2 million, $1,320.1 million and $1,156.3
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, 1997, 1996 and 1995 were $929.4 million, $973.6 million, and
$821.1 million, respectively. Total
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 6
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS--(CONTINUED)
shareholders' equity was $146.1 million, $124.7 million and $116.1 million at
December 31, 1997, 1996 and 1995, respectively.
RESULTS OF OPERATIONS
NET INTEREST INCOME
1997 VERSUS 1996. Net interest income totaled $63.5 million for 1997 compared
to $60.9 million in 1996, an increase of $2.6 million or 4.30%. Interest income
increased $10.4 million primarily due to an increase in average interest
earning assets.
Average interest earning assets increased by $111.4 million, or 8.69%, and
average loans increased by $101.0 million, or 11.59%, respectively, in 1997 as
compared to 1996. Average loan yield decreased from 9.16% in 1996 to 9.13% in
1997. The increase in interest income was partially offset by an increase in
interest expense of $7.7 million, or 17.86%, reflecting an increase in the
volume of interest bearing deposits and an increase in the average rate paid on
time deposits. Average interest-bearing liabilities increased by $114.1
million, or 11.43%, and average time deposits increased by $113.7 million, or
18.08%, respectively, in 1997 as compared to 1996.
Net interest margins were 4.56% and 4.75% and net interest spreads were 3.64%
and 3.80%, for 1997 and 1996, respectively. The decrease in the net interest
margin from 1996 to 1997 reflects a 25 basis point increase in the rate paid on
average interest bearing liabilities, partially offset by a 9 basis point
increase in the yield on average interest earning assets. The yield on average
interest earning assets increased to 8.22% in 1997 from 8.13% in 1996 due to
increased yield on taxable investments and growth in average loans. The cost of
interest bearing liabilities increased from 4.33% in 1996 to 4.58% in 1997. Net
interest margin and net interest spreads narrowed, principally due to a 20
basis point increase in the average rate paid on time deposits and funding
growth centered in time deposits.
1996 VERSUS 1995. Net interest income totaled $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 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 Republic's headquarters reduced the
available volume of earning assets and resulting net interest income in 1997,
1996 and 1995. A capitalized construction interest cost was imputed and
reflected as a credit in "Other Operating Expenses" in the amount of $390,000,
$773,000 and $255,000 in 1997, 1996 and 1995, respectively.
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 7
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS--(CONTINUED)
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 daily average balances. Non-accruing
loans have been included in the tables as loans carrying a zero yield.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------------
1997 1996
---------------------------------------- ----------------------------------------
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 ............................ $ 973,136 $ 88,823(1) 9.13% $ 872,094 $ 79,897(1) 9.16%
Taxable securities ..................... 308,095 19,536 6.34 296,318 17,893 6.04
Tax-exempt securities .................. 33,852 1,903 5.62 31,107 1,874 6.02
Federal funds sold and other
temporary investments ................. 77,894 4,239 5.44 82,064 4,470 5.45
---------- ----------- ----- ---------- ----------- -----
Total interest earning assets .......... 1,392,977 114,501 8.22 1,281,583 104,134 8.13
----------- ----- ----------- -----
Less allowance for loan losses ......... (12,329) (11,793)
---------- ----------
Total interest earning assets,
net of allowance ...................... 1,380,648 1,269,790
Non-earning assets ..................... 147,747 135,727
---------- ----------
Total assets ........................... $1,528,395 $1,405,517
========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Interest bearing
demand deposits ....................... $ 63,156 $ 962 1.52% $ 66,229 $ 1,103 1.67%
Savings and money
market accounts ....................... 247,989 7,023 2.83 261,718 7,474 2.86
State, county and municipal
certificates of deposit ............... 30,999 1,715 5.53 18,907 1,013 5.36
Certificates of deposit ................ 711,786 38,388 5.39 610,132 31,692 5.19
Federal funds purchased and
securities sold ....................... 53,243 2,561 4.81 37,483 1,769 4.72
Other borrowings ....................... 5,869 325 5.54 4,432 198 4.47
---------- ----------- ----- ---------- ----------- -----
Total interest bearing liabilities ..... 1,113,042 50,974 4.58 998,901 43,249 4.33
----------- ----- ----------- -----
Non-interest bearing liabilities:
Non-interest bearing
demand deposits ....................... 267,258 264,364
Other liabilities ...................... 13,380 17,102
---------- ----------
Total liabilities ...................... 1,393,680 1,280,367
Minority interest ...................... 7,850 8,657
Shareholders' equity ................... 126,865 116,493
---------- ----------
Total liabilities and
shareholders' equity .................. $1,528,395 $1,405,517
========== ==========
Net interest income .................... $ 63,527 $ 60,885
=========== ===========
Net interest spread .................... 3.64% 3.80%
===== =====
Net interest margin .................... 4.56% 4.75%
===== =====
<CAPTION>
Years Ended December 31,
-----------------------------------------
1995
-----------------------------------------
Average Interest Average
Outstanding Earned/ Yield/
Balance Paid Rate
- ----------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C>
ASSETS
Interest earning assets:
Total loans ............................ $ 735,318 $ 70,077(1) 9.53%
Taxable securities ..................... 312,897 18,447 5.90
Tax-exempt securities .................. 35,541 2,340 6.58
Federal funds sold and other
temporary investments ................. 70,330 4,192 5.96
---------- ----------- -----
Total interest earning assets .......... 1,154,086 95,056 8.24
----------- -----
Less allowance for loan losses ......... (11,893)
----------
Total interest earning assets,
net of allowance ...................... 1,142,193
Non-earning assets ..................... 118,953
----------
Total assets ........................... $1,261,146
==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Interest bearing
demand deposits ....................... $ 65,124 $ 1,310 2.01%
Savings and money
market accounts ....................... 270,119 8,111 3.00
State, county and municipal
certificates of deposit ............... 2,879 161 5.59
Certificates of deposit ................ 519,761 27,480 5.29
Federal funds purchased and
securities sold ....................... 21,465 1,105 5.15
Other borrowings ....................... 4,883 244 5.00
---------- ----------- -----
Total interest bearing liabilities ..... 884,231 38,411 4.34
----------- -----
Non-interest bearing liabilities:
Non-interest bearing
demand deposits ....................... 247,499
Other liabilities ...................... 15,393
----------
Total liabilities ...................... 1,147,123
Minority interest ...................... 7,882
Shareholders' equity ................... 106,141
----------
Total liabilities and
shareholders' equity .................. $1,261,146
==========
Net interest income .................... $ 56,645
===========
Net interest spread .................... 3.90%
=====
Net interest margin .................... 4.91%
=====
</TABLE>
(1) Includes $2.7 million, $2.1 million and $1.5 million in loan fees for 1997,
1996 and 1995, respectively.
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 8
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS--(CONTINUED)
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
DECEMBER 31, 1997 VS. 1996
----------------------------------
INCREASE (DECREASE)
DUE TO
-----------------------
VOLUME RATE TOTAL
- ----------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C>
Interest earning assets:
Total loans ................................................. $9,255 $ (329) $8,926
Securities .................................................. 877 795 1,672
Federal funds sold and other temporary investments .......... (227) (4) (231)
- ---------------------------------------------------------------------------------------------
Total increase (decrease) in interest income ................ 9,905 462 10,367
- ---------------------------------------------------------------------------------------------
Interest bearing liabilities:
Interest bearing demand deposits ............................ (51) (90) (141)
Savings and money market accounts ........................... (393) (58) (451)
State, county and municipal certificates of deposit ......... 648 54 702
Certificates of deposit and other time deposits ............. 5,276 1,420 6,696
Federal funds purchased and securities sold under
repurchase agreements ..................................... 744 48 792
Other borrowings ............................................ 64 63 127
- ---------------------------------------------------------------------------------------------
Total increase (decrease) in interest expense ............... 6,288 1,437 7,725
- ---------------------------------------------------------------------------------------------
Increase (decrease) in net interest income .................. $3,617 $ (975) $2,642
=============================================================================================
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996 VS. 1995
-----------------------------------
INCREASE (DECREASE)
DUE TO
-----------------------
VOLUME RATE TOTAL
---------- ------------ -----------
(Dollars In Thousands)
<S> <C> <C> <C>
Interest earning assets:
Total loans ................................................. $13,035 $(3,215) $9,820
Securities .................................................. (1,254) 234 (1,020)
Federal funds sold and other temporary investments .......... 699 (421) 278
- --------------------------------------------------------------------- ------- ------
Total increase (decrease) in interest income ................ 12,480 (3,402) 9,078
- --------------------------------------------------------------------- ------- ------
Interest bearing liabilities:
Interest bearing demand deposits ............................ 22 (229) (207)
Savings and money market accounts ........................... (252) (385) (637)
State, county and municipal certificates of deposit ......... 896 (44) 852
Certificates of deposit and other time deposits ............. 4,781 (569) 4,212
Federal funds purchased and securities sold under
repurchase agreements ..................................... 825 (161) 664
Other borrowings ............................................ (23) (23) (46)
- --------------------------------------------------------------------- ------- ------
Total increase (decrease) in interest expense ............... 6,249 (1,411) 4,838
- --------------------------------------------------------------------- ------- ------
Increase (decrease) in net interest income .................. $6,231 $(1,991) $4,240
============================================================================================
</TABLE>
PROVISION FOR LOAN LOSSES
In determining the adequacy of the allowance for loan losses, Republic
considers portfolio quality, composition, loss experience, growth, economic
conditions and other risk factors related to the loan portfolio. The provision
for loan losses increased by $3.2 million to $5.6 million for 1997 from $2.4
million for 1996. The provision increased by $1.5 million for 1996 from
$890,000 for 1995. The increased provision for 1997 from 1996 resulted from a
continued high level of consumer loan losses and above historical average
commercial loan losses. The increase in the provision for 1996 from 1995
resulted from the impact of rising consumer loan losses and changes in the
overall portfolio quality assessment.
NON-INTEREST INCOME
Non-interest income for the year ended December 31, 1997 was $23.8 million, a
decrease of $458,000 or 1.9% compared to $24.2 million in 1996. Non-interest
income in 1996 increased $1.7 million or 7.56% over non-interest income of
$22.5 million in 1995. The following table presents for the periods indicated
the major categories of non-interest income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
- --------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C>
Service charges on
deposit accounts ........... $12,070 $12,960 $12,722
Merchant credit card
discounts .................. 7,894 7,307 5,761
Letter of credit fees ......... 1,015 1,064 1,214
Gain (loss) on sale of
securities ................. 0 1 (185)
Other non-interest income 2,794 2,899 2,946
- --------------------------------------------------------------------
Total non-interest income $23,773 $24,231 $22,458
====================================================================
</TABLE>
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 9
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS--(CONTINUED)
Service charges on deposit accounts are the primary component of non-interest
income. Service charges on deposit accounts declined by $890,000 to $12.0
million from 1996 to 1997 and increased by $238,000 from 1995 to 1996. The
decline from 1996 to 1997 reflected reduced transaction volumes and lowering of
fees in certain fee categories. Merchant credit card discounts, the next
largest component of non-interest income increased from $7.3 million in 1996 to
$7.9 million in 1997 and increased by $1.5 million from $5.8 million in 1995 to
$7.3 million in 1996. Letter of credit fee income declined by $150,000 or
12.40% in 1996 from $1.2 million in 1995, due to a decline in product demand
resulting in lower volume, and remained level from 1996 to 1997.
NON-INTEREST EXPENSES
For 1997, 1996 and 1995, non-interest expenses totaled $52.6 million, $53.0
million and $50.0 million, respectively. The efficiency ratio, calculated by
dividing total non-interest expenses by net interest income plus non-interest
income, excluding securities gains and losses, was 60.24%, 62.29% and 63.09%
for 1997, 1996 and 1995, respectively. The efficiency ratio improved each year,
reflecting Republic's continued efforts to control operating expenses.
The following table represents for the periods indicated the major categories
of non-interest expenses:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
- ------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C>
Employee compensation
and benefits ................... $26,706 $26,775 $27,472
- ------------------------------------------------------------------
Non-staff expenses:
Occupancy expense ................. 5,771 4,962 4,661
Furniture and equipment
expense ........................ 2,722 2,793 2,375
Provision for loss on
disposition of property ........ -- 1,275 650
Merchant credit card
interchange fees ............... 5,589 5,104 3,961
Professional fees ................. 529 1,218 895
FDIC assessment ................... 265 1,868 1,451
Advertising ....................... 1,372 880 1,098
Amortization of intangibles ....... 982 845 709
Printing and supplies ............. 902 940 952
Other real estate owned ........... 223 111 478
Fraud losses (recoveries) net ..... 431 (11) (816)
Capitalized construction
interest credit ................ (390) (773) (255)
Other ............................. 7,487 7,030 6,390
- ------------------------------------------------------------------
Total non-staff expenses .......... 25,883 26,242 22,549
- ------------------------------------------------------------------
Total non-interest expenses ....... $52,589 $53,017 $50,021
==================================================================
</TABLE>
Employee compensation and benefit expense for 1997 was $26.7 million, a
decrease of $69,000 or 0.26% from $26.8 million for 1996. Employee compensation
and benefit expense for 1996 decreased $697,000 or 2.54% from 1995. The
decrease from the preceding year for both 1997 and 1996 resulted mainly from
savings associated with the implementation of a re-engineering program. Cost
savings from this program for 1997 were partly offset by salary and benefit
adjustments implemented in the second and third quarter in response to the high
personnel turnover following the Barnett acquisition discussions. Total
full-time equivalent employees at December 31, 1997, 1996 and 1995 were 709,
690 and 763, respectively.
Non-staff expenses were $25.9 million in 1997, a decrease of $359,000 or 1.37%
from $26.2 million in 1996. This decrease in non-staff expenses primarily
reflected a decrease in professional fees associated with the re-engineering
study completed in 1996, a reduced FDIC assessment following the special SAIF
assessment in 1996 and a provision for loss on disposition of property in 1996.
Republic recorded a provision related to the disposition of bank property of
$1.3 million in 1996 and none in 1997. These reductions were offset partially
by higher occupancy expenses, increased merchant credit card interchange fees
and advertising expenses.
Occupancy expense increased $809,000 in 1997 principally as a result of the
opening of Republic's new corporate headquarters in April 1997 and the addition
of three new branches. Merchant credit card interchange fees increased by
$485,000 in 1997 as compared to 1996 as a result of the growth of Republic's
merchant credit card operations. Advertising expense increased $492,000 in 1997
as compared to 1996 due, in part, to an image campaign following the Barnett
transaction.
Non-staff expenses were $26.2 million in 1996, an increase of $3.7 million or
16.38% from $22.5 million in 1995. This increase in non-staff expenses
primarily reflected increases in: merchant credit card interchange fees, the
provision for loss on disposition of property, furniture and equipment expense,
occupancy expense and amortization of intangibles related to the acquisition of
Plaza Bank of Miami, charges related to the special SAIF assessment and costs
associated with the re-engineering study. These increased expenses were
partially offset by an increase in capitalized construction interest credit and
decreases in other real estate owned and advertising expenses.
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. In addition, the capitalized interest credit relating to the
construction of such headquarters increased
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 10
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS--(CONTINUED)
by $518,000 in 1996 as compared to 1995. During 1996, Republic recorded a
provision related to the disposition of property held for sale of $1,275,000,
representing an increase of $625,000 in 1996 as compared to 1995.
Principally as a result of expenses related to the re-engineering study,
professional fees increased by $323,000 in 1996 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.
Merchant credit card interchange fees increased by $1.1 million in 1996 as
compared to 1995 as a result of the growth of Republic's merchant credit card
operations.
INCOME TAXES
In 1997, income tax expense was $9.6 million, a decrease of $707,000 or 6.8%
from $10.3 million for 1996. The 1996 amount was $1.2 million or 13.19% higher
than $9.1 million for 1995. The effective tax rates in 1997, 1996 and 1995,
respectively, were 33.00%, 34.74% and 32.29%.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
The impact of new accounting pronouncements issued by the Financial Accounting
Standards Board is discussed in the notes to the Consolidated Financial
Statements. See Note 1--Summary of Significant Accounting Policies.
FINANCIAL CONDITION
CREDIT RISK MANAGEMENT
In the conduct of its business activities, Republic is exposed to the
possibility that borrowers or counterparties may default on their obligations.
To manage this risk, Republic's Credit Division maintains credit policies,
establishes underwriting standards, and monitors compliance with policy.
Lending units are organized along specialty lines. The Real Estate Division
oversees construction, major commercial real estate loans and first mortgage
residential lending. The Corporate Division oversees corporate, commercial and
international lending activities. The Retail Division oversees other consumer
loans and smaller commercial credits. Credit risk management practices are
supported by a problem loan unit and a credit analysis unit reporting to the
Credit Division. Individual loan officers are responsible for evaluating their
assigned loan portfolio. The loan review department performs an independent
ongoing analysis of portfolio quality.
LOAN PORTFOLIO
Republic's primary lending focus is on commercial loans, commercial real estate
loans and construction loans. Republic also focuses on single-family
residential loans, as well as to a lesser extent, international loans and
consumer loans.
Total loans decreased by $44.2 million or 4.54% to $929.4 million at December
31, 1997, from $973.6 million at December 31, 1996. The decrease was centered
in foreign loans which declined by $54 million in 1997. During 1996, total
loans increased by $152.6 million or 18.58% from $821.1 million at December 31,
1995. The increase in 1996 reflected strong loan demand in that period. Total
loans represented 61.35%, 64.39% and 61.97% of assets at December 31, 1997,
1996 and 1995, respectively. Total loans represented 71.37%, 73.75% and 71.01%
of deposits at December 31, 1997, 1996 and 1995, respectively.
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 11
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS--(CONTINUED)
The following table summarizes the loan portfolio by type of loan as of the
dates indicated:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
1997 1996
----------------------- -----------------------
% OF % OF
GROSS GROSS
AMOUNT LOANS AMOUNT LOANS
----------- ----------- ----------- -----------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Domestic:
Commercial ................ $269,978 28.97% $286,054 29.25%
Commercial real
estate .................. 261,902 28.10 225,813 23.09
Construction .............. 48,434 5.20 38,761 3.96
Residential first
mortgages ............... 154,864 16.62 133,005 13.60
Residential equity
lines ................... 16,487 1.77 19,938 2.04
Consumer .................. 58,024 6.23 83,331 8.52
Overdrafts ................ 5,352 0.57 3,722 0.38
Bankers'
acceptances ............. 4,357 0.47 20,826 2.14
- --------------------------- -------- ------ -------- ------
Total domestic ............ 819,398 87.93 811,450 82.98
- --------------------------- -------- ------ -------- ------
Foreign:
Banks ..................... 56,768 6.09 116,421 11.91
Bankers'
acceptances ............. 4,038 0.43 20,760 2.12
Government ................ 1,000 0.11 3,000 0.31
Other ..................... 50,721 5.44 26,213 2.68
- --------------------------- -------- ------ -------- ------
Total foreign ............. 112,527 12.07 166,394 17.02
- --------------------------- -------- ------ -------- ------
Total gross loans ......... 931,925 100.00% 977,844 100.00%
====== ======
Unearned .................. (2,515) (4,204)
-------- --------
Total loans ............... $929,410 $973,640
======== ========
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------------------
1995 1994 1993
----------------------- ----------------------- -----------------------
% OF % OF % OF
GROSS GROSS GROSS
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
- ------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial ................ $287,080 34.81% $202,921 30.26% $207,962 32.22%
Commercial real
estate .................. 181,887 22.05 165,102 24.62 141,146 21.87
Construction .............. 33,957 4.12 16,976 2.53 17,049 2.64
Residential first
mortgages ............... 120,539 14.61 90,926 13.56 96,192 14.90
Residential equity
lines ................... 17,458 2.12 9,829 1.47 4,701 0.73
Consumer .................. 85,226 10.33 72,668 10.84 62,810 9.73
Overdrafts ................ 3,349 0.41 3,771 0.56 3,351 0.52
Bankers'
acceptances ............. -- 0.00 564 0.09 941 0.15
- ----------------------------------------------------------------------------------------------
Total domestic ............ 729,496 88.45 562,757 83.93 534,152 82.76
- ----------------------------------------------------------------------------------------------
Foreign:
Banks ..................... 66,469 8.06 74,591 11.12 58,739 9.10
Bankers'
acceptances ............. 220 0.03 5,236 0.78 12,986 2.01
Government ................ 6,000 0.73 7,000 1.04 9,000 1.39
Other ..................... 22,614 2.73 20,901 3.13 30,520 4.74
- ----------------------------------------------------------------------------------------------
Total foreign ............. 95,303 11.55 107,728 16.07 111,245 17.24
- ----------------------------------------------------------------------------------------------
Total gross loans ......... 824,799 100.00% 670,485 100.00% 645,397 100.00%
====== ====== ======
Unearned .................. (3,709) (3,394) (3,984)
-------- -------- --------
Total loans ............... $821,090 $667,091 $641,413
======== ======== ========
</TABLE>
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 12
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS--(CONTINUED)
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,
1997 are summarized in the following table:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
----------------------------------------------------------
ONE YEAR BETWEEN ONE AND
OR LESS FIVE YEARS AFTER FIVE YEARS TOTAL
- -------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Domestic:
Commercial .................................. $119,729 $130,758 $19,491 $269,978
Commercial real estate ...................... 35,587 179,789 46,526 261,902
Construction loans .......................... 33,197 13,868 1,369 48,434
- -------------------------------------------------------------------------------------------------------
Total domestic ............................. 188,513 324,415 67,386 580,314
- -------------------------------------------------------------------------------------------------------
Foreign:
Banks ....................................... 56,768 -- -- 56,768
Bankers' acceptances ........................ 4,038 -- -- 4,038
Government .................................. 1,000 -- -- 1,000
Other ....................................... 50,721 -- -- 50,721
- -------------------------------------------------------------------------------------------------------
Total foreign .............................. 112,527 -- -- 112,527
- -------------------------------------------------------------------------------------------------------
Total ..................................... $301,040 $324,415 $67,386 $692,841
=======================================================================================================
Loans with a predetermined interest rate ..... $150,120 $221,155 $49,119 $420,394
Loans with a floating interest rate .......... 150,920 103,260 18,267 272,447
- -------------------------------------------------------------------------------------------------------
Total ..................................... $301,040 $324,415 $67,386 $692,841
=======================================================================================================
</TABLE>
LOANS BY COUNTRY
The following table sets forth the distribution of Republic's gross loans by
country of the borrower at the dates indicated.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------------------
1997 1996 1995
----------------------- ----------------------- ----------------------
% OF GROSS % OF GROSS % OF GROSS
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
- ----------------------------------------------------------------------------------------------------
(Dollars In Millions)
<S> <C> <C> <C> <C> <C> <C>
United States .............. $819 87.88% $812 83.03% $730 88.48%
Ecuador .................... 23 2.47 13 1.33 13 1.58
Brazil ..................... 22 2.36 30 3.07 19 2.30
Peru ....................... 18 1.93 21 2.15 8 0.97
Guatemala .................. 9 0.97 11 1.12 13 1.58
Panama ..................... 7 0.75 11 1.12 4 0.48
Colombia ................... 1 0.10 12 1.23 8 0.97
Other(1) ................... 33 3.54 68 6.95 30 3.64
- ----------------------------------------------------------------------------------------------------
Total Gross Loans ......... $932 100.00% $978 100.00% $825 100.00%
====================================================================================================
</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.
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 13
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS--(CONTINUED)
TOTAL CROSS-BORDER OUTSTANDINGS BY COUNTRY
The following table sets forth, at the dates indicated, the aggregate amount of
Republic'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 total assets.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------------------
1997 1996 1995
----------------------- ----------------------- ----------------------
% OF TOTAL % OF TOTAL % OF TOTAL
AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS
- ------------------------------------------------------------------------------------------------
(Dollars In Millions)
<S> <C> <C> <C> <C> <C> <C>
Ecuador ........... $ 23 1.52% $ 13 0.86% $ 13 0.98%
Brazil ............ 22 1.45 30 1.98 19 1.44
Peru .............. 18 1.19 21 1.39 8 0.60
Guatemala ......... 9 0.59 11 0.73 13 0.98
Panama ............ 7 0.46 11 0.73 4 0.30
Colombia .......... 1 0.07 12 0.79 8 0.60
Other(1) .......... 35 2.31 70 4.63 57 4.31
- ----------------------------------------------------------------------------------------------
Total ............ $115 7.59% $168 11.11% $122 9.21%
==============================================================================================
</TABLE>
(1) "Other" consists of outstandings to borrowers in countries in which
outstandings did not exceed the lesser of $11 million or one percent of
total assets on the dates indicated.
NON-PERFORMING ASSETS
Non-performing assets at December 31, 1997 were $8.7 million compared to $5.3
million at December 31, 1996 and $7.9 million at December 31, 1995. This
resulted in ratios of non-performing assets to total loans plus other real
estate of 0.94%, 0.55% and 0.96% for 1997, 1996 and 1995, respectively.
The following table presents information regarding non-performing assets at the
dates indicated:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans ............................... $5,863 $1,563 $4,066 $4,564 $9,283
Restructured loans .............................. 371 404 306 368 540
Accruing loans 90 days or more past due ......... 451 957 303 130 459
Other real estate ............................... 2,047 2,411 3,247 3,041 3,855
- ------------------------------------------------------------------------------------------------------------------
Total non-performing assets .................... $8,732 $5,335 $7,922 $8,103 $14,137
==================================================================================================================
Non-performing assets to total loans and other
real estate ................................... 0.94% 0.55% 0.96% 1.21% 2.19%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
If Republic had recorded interest on non-accrual loans, interest income on
loans would have increased by approximately $273,000, $226,000, $350,000,
$700,000 and $900,000 in 1997, 1996, 1995, 1994 and 1993, respectively.
Effective January 1, 1995 Republic 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 Republic 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
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 14
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS--(CONTINUED)
collateral if the loan is collateral-dependent. The implementation of SFAS No.
114 did not have a material adverse affect on Republic's financial statements.
The following is a summary of impaired loans for the years ended December 31,
1997, 1996 and 1995:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
- ---------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C>
Investment in impaired loans ..... $1,328 $ 262 $3,215
Valuation allowance .............. 123 8 300
Average recorded investment in
impaired loans ................ 2,081 1,229 2,302
- -------------------------------------------------------------
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is an allowance established through charges to
earnings in the form of a provision for loan losses. Management has established
an allowance which it believes is adequate for estimated probable losses in the
loan portfolio. A review of loan quality is performed by Republic's loan review
department on an ongoing basis. Management's assessment of the required
allowance amount is based on this evaluation and other factors such as the
diversification in the loan portfolio, the effect of economic conditions on
real estate values and borrowers' ability to repay, the amount of charge-offs
for the period and the amount of non-performing loans and related collateral
security. Charge-offs occur when loans are deemed uncollectible.
For 1997, net loan charge-offs totaled $5.1 million or 0.53% of average loans
outstanding, compared to $2.2 million or 0.25% in net loan charge-offs during
1996. During 1997, Republic recorded a provision for loan losses of $5.6
million compared with $2.4 million for 1996. At December 31, 1997, the
allowance totaled $12.0 million, or 1.29% of total loans. Republic made a
provision for loan losses of $2.4 million during 1996 as compared to a
provision of $890,000 for 1995. At December 31, 1996, the allowance aggregated
$11.6 million or 1.19% of total loans compared to $11.4 million, or 1.39% of
total loans at December 31, 1995.
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,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Average loans outstanding ............................ $973,136 $872,094 $735,318 $635,555 $627,929
======================================================================================================================
Total loans outstanding at end of period ............. $929,410 $973,640 $821,090 $667,091 $641,413
======================================================================================================================
Allowance for loan losses at beginning of period ..... $ 11,578 $ 11,411 $ 11,680 $ 11,563 $ 10,022
Provision for loan losses ............................ 5,566 2,381 890 2,500 2,450
Allowance from acquired bank ......................... -- -- 701 -- --
Charge-offs:
Commercial and industrial ........................... (3,898) (1,182) (690) (1,487) (595)
Real estate ......................................... (275) (1) (131) (864) (625)
Consumer ............................................ (2,342) (2,058) (1,241) (732) (314)
Foreign banks ....................................... -- -- (521) (210) (5)
Recoveries:
Commercial and industrial ........................... 646 400 261 320 372
Real estate ......................................... 21 17 21 82 41
Consumer ............................................ 703 610 441 298 212
Foreign banks ....................................... -- -- -- 210 5
- ------------------------------------------------------------------------------------------------------------------------
Net loan-charge-offs ................................. (5,145) (2,214) (1,860) (2,383) (909)
- ------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of period ........... $ 11,999 $ 11,578 $ 11,411 $ 11,680 $ 11,563
======================================================================================================================
Ratio of allowance to end of period loans ............ 1.29% 1.19% 1.39% 1.75% 1.80%
Ratio of net loan charge-offs to average loans ....... 0.53 0.25 0.25 0.37 0.14
Ratio of allowance to end of period
non-performing loans ............................... 179.49 395.96 244.09 230.74 112.46
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 15
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS--(CONTINUED)
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,
--------------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- ----------------------
% 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 .......................... $ 5,702 28.97% $ 5,464 29.25% $ 3,921 34.81%
Commercial real estate .............. 812 28.10 498 23.09 1,138 22.05
Construction ........................ 63 5.20 58 3.96 61 4.12
Residential first mortgages ......... 478 16.62 185 13.60 254 14.61
Residential equity lines ............ 112 1.77 66 2.04 28 2.12
Consumer ............................ 1,202 6.23 1,164 8.52 825 10.33
Overdrafts .......................... 368 0.57 150 0.38 78 0.41
Bankers' acceptances ................ -- 0.47 -- 2.14 -- --
- ------------------------------------------------------------------------------------------------------
Total domestic ..................... 8,737 87.93 7,585 82.98 6,305 88.45
- ------------------------------------------------------------------------------------------------------
Foreign:
Banks ............................... 392 6.09 943 11.91 597 8.06
Bankers' acceptances ................ -- 0.43 -- 2.12 -- 0.03
Government .......................... 11 0.11 20 0.31 52 0.73
Other ............................... 253 5.44 51 2.68 -- 2.73
- ------------------------------------------------------------------------------------------------------
Total foreign ...................... 656 12.07 1,014 17.02 649 11.55
- ------------------------------------------------------------------------------------------------------
Unallocated: ......................... 2,606 2,979 4,457
------- ------- -------
Total allowance for
loan losses ...................... $11,999 100.00% $11,578 100.00% $11,411 100.00%
======================================================================================================
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------
1994 1993
---------------------- ----------------------
% OF % OF
GROSS GROSS
AMOUNT LOANS AMOUNT LOANS
- ------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Balance of allowance for loan
losses applicable to:
Domestic:
Commercial .......................... $ 3,693 30.26% $ 5,579 32.22%
Commercial real estate .............. 797 24.62 1,070 21.87
Construction ........................ 115 2.53 226 2.64
Residential first mortgages ......... 196 13.56 377 14.90
Residential equity lines ............ 13 1.47 16 0.73
Consumer ............................ 781 10.84 417 9.73
Overdrafts .......................... 95 0.56 115 0.52
Bankers' acceptances ................ -- 0.09 -- 0.15
- -------------------------------------------------------------------------------
Total domestic ..................... 5,690 83.93 7,800 82.76
- -------------------------------------------------------------------------------
Foreign:
Banks ............................... 1,321 11.12 698 9.10
Bankers' acceptances ................ -- 0.78 -- 2.01
Government .......................... 79 1.04 57 1.39
Other ............................... -- 3.13 198 4.74
- -------------------------------------------------------------------------------
Total foreign ...................... 1,400 16.07 953 17.24
- -------------------------------------------------------------------------------
Unallocated: ......................... 4,590 2,810
------- -------
Total allowance for
loan losses ...................... $11,680 100.00% $11,563 100.00%
===============================================================================
</TABLE>
SECURITIES
Republic uses its securities portfolio primarily as a source of liquidity and
secondarily as a source of income. At December 31, 1997, debt securities
totaled $373.0 million, an increase of $41.6 million from $331.2 million at
December 31, 1996. The increase occurred primarily in United States agency and
corporation securities. During 1996, securities increased $11.1 million from
$320.1 million at December 31, 1995. The yield on the securities portfolio was
6.27%, 6.04% and 5.97% for 1997, 1996 and 1995, respectively. Portfolio volume
fluctuations reflected the impact of loan demand and liquidity needs.
Investments in debt securities are classified as held-to-maturity or as
available for sale in accordance with Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments and Debt and Equity
Securities. Republic does not have a trading account.
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 16
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS--(CONTINUED)
The following table summarizes the amortized cost of investment securities held
by Republic as of the dates shown:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C>
United States Treasury securities ........................ $167,800 $203,096 $190,096
Securities of the United States agencies and corporations 173,368 89,956 71,275
Securities issued by states and political subdivisions ... 29,278 35,895 30,909
Other debt securities .................................... 700 600 26,676
Federal Reserve Bank stock ............................... 1,219 1,219 599
- --------------------------------------------------------------------------------------------
Total securities ........................................ $372,365 $330,766 $319,555
============================================================================================
</TABLE>
The following table summarizes the carrying value and classification of debt
securities as of the dates shown:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------
1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Available-for-sale ......... $159,928 $168,894 $161,673
Held-to-maturity ........... 213,060 162,310 158,411
- --------------------------------------------------------------
Total securities .......... $372,988 $331,204 $320,084
==============================================================
</TABLE>
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 31,1997 December 31, 1996
------------------------------------------------ -------------------------------------------------
GROSS GROSS ESIMATED Gross Gross Estimated
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 ........... $118,162 $535 $ -- $118,697 $117,238 $169 $ (23) $117,384
Securities of the
United States
agencies and
corporations ......... 41,143 137 (49) 41,231 51,218 430 (138) 51,510
- -----------------------------------------------------------------------------------------------------------------------
Total ............... $159,305 $672 $ (49) $159,928 $168,456 $599 $ (161) $168,894
=======================================================================================================================
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
- ------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
United States
Treasury
securities ........... $105,867 $293 $ (103) $106,057
Securities of the
United States
agencies and
corporations ......... 55,277 403 (64) 55,616
- ----------------------------------------------------------------------
Total ............... $161,144 $696 $ (167) $161,673
======================================================================
</TABLE>
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 17
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS--(CONTINUED)
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, 1997 DECEMBER 31, 1996
------------------------------------------------- -------------------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
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 ........... $ 49,638 $ 347 $ -- $ 49,985 $ 85,858 $ 952 $ (13) $ 86,797
Securities of the
United States
agencies and
corporations ......... 132,225 273 (58) 132,440 38,738 16 (196) 38,558
Securities issued by
states and political
subdivisions ......... 29,278 933 -- 30,211 35,895 597 (4) 36,488
Other debt
securities ........... 700 -- -- 700 600 -- -- 600
Federal Reserve
Bank stock. .......... 1,219 -- -- 1,219 1,219 -- -- 1,219
- ------------------------------------------------------------------------------------------------------------------------
Total ................. $213,060 $1,553 $ (58) $214,555 $162,310 $1,565 $ (213) $163,662
========================================================================================================================
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
- ------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
United States Treasury
securities ........... $ 84,229 $2,550 $ -- $ 86,779
Securities of the
United States
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
Federal Reserve
Bank stock. .......... 599 -- -- 599
- ----------------------------------------------------------------------
Total ................. $158,411 $3,516 $ (146) $161,781
======================================================================
</TABLE>
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, 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 ......... $118,162 6.19% $ 49,638 6.14%
Securities of other United States agencies
and corporations ......................... 29,870 6.80 128,659 6.56
Securities issued by states and political
subdivisions ............................. 4,057 4.55 1,296 4.66
Other debt securities ..................... -- -- 400 7.60
- --------------------------------------------------------------------------------------
Total debt securities .................... 152,089 6.27 179,993 6.43
Federal Reserve Bank stock ................ -- -- -- --
Federal funds sold ........................ 76,038 6.43 -- --
Temporary investments ..................... 873 3.36 -- --
- --------------------------------------------------------------------------------------
Total .................................... $229,000 6.31% $179,993 6.43%
======================================================================================
<CAPTION>
AS OF DECEMBER 31, 1997
----------------------------------------------------------------
AFTER FIVE YEARS
BUT WITHIN
TEN YEARS AFTER TEN YEARS
-------------------- --------------------
AMOUNT YIELD AMOUNT YIELD TOTAL YIELD
---------- --------- ---------- --------- ----------- ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
United States Treasury securities ......... $ -- -- $ -- -- $167,800 6.18%
Securities of other United States agencies
and corporations ......................... 8,495 6.56 6,344 6.64 173,368 6.60
Securities issued by states and political
subdivisions ............................. 11,484 5.24 12,441 5.41 29,278 5.19
Other debt securities ..................... 300 6.98 -- -- 700 7.33
- ----------------------------------------------------------------------------------------------------------
Total debt securities .................... 20,279 5.82 18,785 5.83 371,146 6.30
Federal Reserve Bank stock ................ -- -- 1,219 6.00 1,219 6.00
Federal funds sold ........................ -- -- -- -- 76,038 6.43
Temporary investments ..................... -- -- -- -- 873 3.36
- ----------------------------------------------------------------------------------------------------------
Total .................................... $20,279 5.82% $20,004 5.84% $449,276 6.32%
==========================================================================================================
</TABLE>
DERIVATIVES
At December 31, 1997, Republic did not have off-balance sheet derivative
contracts outstanding. Republic does engage in a nominal amount of foreign
exchange contracts primarily as an accommodation to commercial customer needs.
The investment portfolio at December 31, 1997 included a $25 million par value
United States government agency inverse floater maturing in February 1998. The
portfolio also contains securities with callable options.
DEPOSITS
Customer deposits are the primary funding sources of Republic. The company
relies primarily on competitive pricing and customer service to attract and
retain deposits. There are no brokered deposits.
Average total deposits during 1997 increased to $1,321.2 million from $1,221.4
million in 1996, an increase of $99.8 million or 8.17%. The increase resulted
primarily from
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 18
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS--(CONTINUED)
growth in average interest bearing time deposits which grew by 18.1% in 1997.
Average total deposits in 1996 increased from $1,105.4 million in 1995, an
increase of $116.0 million or 10.49%. The increase resulted from internal
growth, primarily in time deposits, and the acquisition of the Plaza Bank of
Miami in June 1995.
Republic's ratios of average non-interest bearing demand deposits to average
total deposits for the years ended December 31, 1997, 1996, and 1995 were
20.23%, 21.65% and 22.39%, respectively.
Total deposits at year end 1997 had declined to $1,302.2 million from $1,320.1
million at year end 1996 or 1.4%. Total deposits at year end 1996 had increased
14.2% from $1,156.3 at year end 1995. The decline in deposits at year end 1997
from year end 1996 reflected changes in deposit pricing strategies following
the decline in loan demand in the second half of 1997.
The daily average balances and weighted average interest rates paid on deposits
for each of the years ended December 31, 1997, 1996 and 1995 are presented
below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1997 1996
---------------------------------- -----------------------------------
% %
AMOUNT OF TOTAL RATE AMOUNT OF TOTAL RATE
- ------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest bearing demand
deposits ..................... $ 63,156 4.78% 1.52% $ 66,229 5.42% 1.67%
Savings ....................... 132,595 10.04 2.94 135,568 11.09 2.97
Money market .................. 115,394 8.73 2.71 126,150 10.33 2.74
State, county and municipal
certificates of deposit ...... 30,999 2.35 5.53 18,907 1.55 5.36
Time deposits less than
$100,000...................... 432,401 32.73 5.39 351,090 28.75 5.22
Time deposits $100,000
and over ..................... 238,526 18.05 5.42 217,622 17.82 5.26
International banking
facility deposits ............ 40,859 3.09 5.24 41,420 3.39 5.12
- ----------------------------------------------------------------------------------------------------
Total interest bearing
deposits ................... 1,053,930 79.77 4.56 956,986 78.35 4.31
Non-interest bearing
deposits ..................... 267,258 20.23 -- 264,364 21.65 --
- ----------------------------------------------------------------------------------------------------
Total deposits ............... $1,321,188 100.00% 3.64% $1,221,350 100.00% 3.38%
====================================================================================================
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995
-----------------------------------
%
AMOUNT OF TOTAL RATE
- -------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Interest bearing demand
deposits ..................... $ 65,124 5.89% 2.01%
Savings ....................... 137,008 12.39 3.11
Money market .................. 133,111 12.04 2.8
State, county and municipal
certificates of deposit ...... 2,879 0.26 5.58
Time deposits less than
$100,000...................... 298,758 27.03 5.26
Time deposits $100,000
and over ..................... 186,453 16.87 5.32
International banking
facility deposits ............ 34,550 3.13 5.87
- -----------------------------------------------------------------
Total interest bearing
deposits ................... 857,883 77.61 4.32
Non-interest bearing
deposits ..................... 247,499 22.39 --
- -----------------------------------------------------------------
Total deposits ............... $1,105,382 100.00% 3.35%
=================================================================
</TABLE>
The following table sets forth the amount of Republic'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, 1997
- ---------------------------------------------------------------
(Dollars in thousands)
<S> <C>
3 months or less ...................... $115,603
Between 3 months and 6 months ......... 63,599
Between 6 months and 1 year ........... 91,091
Over 1 year ........................... 18,006
- --------------------------------------------------------
Total ................................ $288,299
========================================================
</TABLE>
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 19
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS--(CONTINUED)
As part of its funding process, Republic 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,
-------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------
(Dollars In Millions)
<S> <C> <C> <C>
COUNTRY:
Venezuela ............................................... $ 91 $ 73 $ 89
Ecuador ................................................. 39 119 72
Spain ................................................... 17 10 21
Costa Rica .............................................. 16 18 19
Dominican Republic ...................................... 16 10 17
Mexico .................................................. 15 15 21
Brazil .................................................. 13 11 10
Guatemala ............................................... 13 11 13
Argentina ............................................... 11 9 8
Colombia ................................................ 11 10 12
Panama .................................................. 10 8 14
Honduras ................................................ 9 8 13
El Salvador ............................................. 8 6 9
British West Indies ..................................... 4 10 6
Other ................................................... 43 37 40
- ----------------------------------------------------------------------------------
Total foreign deposits ................................. $316 $355 $364
==================================================================================
COMPOSITION BY DEPOSIT TYPE:
Certificates of deposit and other time deposits ......... $176 $176 $182
Other ................................................... 140 179 182
- ----------------------------------------------------------------------------------
Total foreign deposits ................................. $316 $355 $364
==================================================================================
</TABLE>
MARKET RISK, INTEREST RATE SENSITIVITY
AND LIQUIDITY
Republic's fund management policy provides management with guidance for
effective funds management. Republic has established a measurement system for
monitoring its net interest rate sensitivity position. Republic manages it
within established guidelines. The Asset/Liability Management committee reviews
Republic's interest rate risk and balance sheet mix position on a regular
basis.
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 re-pricing 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 re-pricing within a given period exceeds the amount of its interest-bearing
liabilities maturing or re-pricing 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 re-pricing within a
given period exceeds the amount of its interest-earning assets maturing or
re-pricing 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.
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 20
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS--(CONTINUED)
The following table sets forth an interest rate sensitivity analysis. The table
presents projected cash flows and related weighted average rates by expected
repayment dates at December 31, 1997:
<TABLE>
<CAPTION>
VOLUMES SUBJECT TO REPRICING WITHIN
------------------------------------------
1 YEAR 1-2 YEARS 2-3 YEARS
- ----------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C>
INTEREST EARNING ASSETS:
Federal funds sold and other
temporary investments .................... $ 76,911 $ -- $ --
Average interest yield .................... 6.40% -- --
Taxable securities ......................... 219,779 111,076 10,920
Average interest yield .................... 6.38% 6.33% 6.33%
Tax-exempt securities ...................... 8,831 570 1,123
Average interest yield .................... 4.98% 4.70% 4.99%
Total loans ................................ 513,365 68,612 42,641
Average interest yield .................... 9.03% 8.92% 9.06%
- ----------------------------------------------------------------------------------
Total interest earning assets .............. 818,886 180,258 54,684
- ----------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES:
Demand, money market and
savings deposits ......................... 305,136 -- --
Average interest rate ..................... 2.66% -- --
Certificates of deposit and other
time deposits ............................ 701,624 28,976 3,982
Average interest rate ..................... 5.55% 5.80% 6.88%
- ----------------------------------------------------------------------------------
Total interest bearing deposits ............ 1,006,760 28,976 3,982
- ----------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
repurchase agreements .................... 45,594 -- --
Average interest rate ..................... 4.93% -- --
Other borrowings ........................... 10,573 -- --
Average interest rate ..................... 6.09% -- --
- ----------------------------------------------------------------------------------
Total interest bearing liabilities ......... 1,062,927 28,976 3,982
- ----------------------------------------------------------------------------------
Period GAP .................................. (244,041) 151,282 50,702
Cumulative GAP .............................. (244,041) (92,759) (42,057)
Period GAP to total assets .................. (16.11)% 9.99% 3.35%
Cumulative GAP to total assets .............. (16.11)% (6.12)% (2.78)%
Cumulative interest earning assets
to cumulative interest bearing
liabilities ................................ 77.04% 91.50% 96.16%
- ----------------------------------------------------------------------------------
<CAPTION>
VOLUMES SUBJECT TO REPRICING WITHIN
---------------------------------------------------------------
ESTIMATED
OVER FAIR
3-4 YEARS 4-5 YEARS 5 YEARS TOTAL VALUE
- -------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Federal funds sold and other
temporary investments .................... $ -- $ -- $ -- $ 76,911 $ 76,911
Average interest yield .................... -- -- -- 6.40%
Taxable securities ......................... 200 100 1,635 343,710 344,272
Average interest yield .................... 7.10% 6.75% 6.48% 6.36%
Tax-exempt securities ...................... 2,180 2,456 14,118 29,278 30,211
Average interest yield .................... 5.31% 5.32% 5.32% 5.19%
Total loans ................................ 68,577 93,117 143,098 929,410 933,697
Average interest yield .................... 8.91% 8.76% 8.37% 8.91%
- ---------------------------------------------------------------------------------------------------------
Total interest earning assets .............. 70,957 95,673 158,851 1,379,309 1,385,091
- ---------------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES:
Demand, money market and
savings deposits ......................... -- -- -- 305,136 305,136
Average interest rate ..................... -- -- -- 2.66%
Certificates of deposit and other
time deposits ............................ 372 420 32 735,406 737,590
Average interest rate ..................... 5.56% 6.35% 5.26% 5.57%
- ---------------------------------------------------------------------------------------------------------
Total interest bearing deposits ............ 372 420 32 1,040,542 1,042,726
- ---------------------------------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
repurchase agreements .................... -- -- -- 45,594 45,594
Average interest rate ..................... -- -- -- 4.93%
Other borrowings ........................... -- -- -- 10,573 10,573
Average interest rate ..................... -- -- -- 6.09%
- ---------------------------------------------------------------------------------------------------------
Total interest bearing liabilities ......... 372 420 32 1,096,709 1,098,893
- ---------------------------------------------------------------------------------------------------------
Period GAP .................................. 70,585 95,253 158,819 282,600
Cumulative GAP .............................. 28,528 123,781 282,600
Period GAP to total assets .................. 4.66% 6.29% 10.48%
Cumulative GAP to total assets .............. 1.88% 8.17% 18.65%
Cumulative interest earning assets
to cumulative interest bearing
liabilities ................................ 102.60% 111.29% 125.77%
- ------------------------------------------------------------------------------
</TABLE>
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, Republic uses a simulation model and shock analysis
to test the interest rate sensitivity of net interest income and the balance
sheet. Based on Republic's December 31, 1997 simulation analysis, Republic
estimates that a 200 basis point rise or decline in interest rates over the
next twelve month period would have an impact of less than 3% on its net
interest income for the same period.
Liquidity for a bank represents the ability to meet loan commitments, deposit
withdrawals and other operating needs. Liquidity needs can be met by converting
liquid assets to cash or by attracting new deposits or other sources of
funding. Factors affecting a bank's ability to meet its liquidity needs include
its asset and liability needs, capital resources, credit standing and general
economic conditions. Republic meets its liquidity needs through its asset and
liability management process. Temporary investments and debt securities are
primary sources of
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 21
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS--(CONTINUED)
liquidity along with deposit generating programs. Additional sources of
liquidity are provided by loan repayments and other borrowing sources.
CAPITAL RESOURCES
Capital management consists of providing equity to support both current and
future operations. Republic is subject to capital adequacy requirements imposed
by the Federal Reserve Board and its subsidiary bank is subject to capital
adequacy requirements imposed by the Office of the Comptroller of the Currency.
Both regulatory bodies have adopted risk based capital requirements that define
capital and establish minimum capital requirements in relation to asset risk
and off-balance sheet risk classifications. Assets and off-balance sheet items
are assigned to broad risk categories each with appropriate relative weights.
Capital is categorized into two tiers by the regulatory agencies, with limits
set for each tier. Based on its present capital structure, Republic's Tier 1
capital consists of the sum of its tangible equity capital and the similar
interest of minority shareholders in its subsidiary bank, subject to certain
adjustments. Its Tier 2 capital consists of a limited portion of its allowance
for loan losses. An additional leverage requirement has been imposed which is
based on the ratio of Tier 1 capital to adjusted quarterly average assets.
Standards and actual capital ratios at December 31, 1997 are reflected in the
table that follows.
Stockholders' equity increased to $146.1 million at December 31, 1997 from
$124.7 million at December 31, 1996, an increase of $21.4 million or 17.19%.
This reflects net income of $18.3 million and dividends paid of $9.8 million as
well as the issuance of shares of common stock issued in exchange for
subsidiary bank shares in 1997. During 1996, stockholders' equity increased by
$8.6 million or 7.36%, from $116.1 million at December 31, 1995. This reflects
net income of $18.0 million and dividends paid of $9.4 million.
The following table provides a comparison of Republic's and its subsidiary
bank's leverage and risk-weighted capital ratios as of December 31, 1997 to the
minimum and well-capitalized regulatory standards:
<TABLE>
<CAPTION>
Actual Ratio
MINIMUM REQUIRED WELL-CAPITALIZED AT DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPUBLIC:
Leverage ratio .......................... 3.00%(1) N/A 8.96%
Tier 1 risk-based capital ratio ......... 4.00 6.00% 15.01
Risk-based capital ratio ................ 8.00 10.00 16.26
THE BANK:
Leverage ratio .......................... 3.00%(2) 5.00% 8.90%
Tier 1 risk-based capital ratio ......... 4.00 6.00 14.99
Risk-based capital ratio ................ 8.00 10.00 16.24
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) The FRB may require Republic 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.
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 22
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
------------- -------------
(In Thousands, Except Share
Amounts)
ASSETS
<S> <C> <C>
Cash and cash equivalents:
Non-interest earning ................................................. $ 49,362 $ 58,124
Federal funds sold ................................................... 76,038 71,056
- ---------------------------------------------------------------------- ---------- ----------
125,400 129,180
Interest earning deposits in other banks ............................. 873 5,880
Held-to-maturity securities (market value of $214,555 and $163,662
at December 31, 1997 and 1996, respectively) ........................ 213,060 162,310
Available-for-sale securities ........................................ 159,928 168,894
Loans receivable, net ................................................ 917,411 962,062
Premises and equipment, net .......................................... 58,737 48,349
Customers' acceptance liability ...................................... 3,313 4,289
Accrued interest receivable .......................................... 12,941 12,159
Other real estate owned .............................................. 2,047 2,411
Deferred taxes ....................................................... 3,852 3,818
Other assets ......................................................... 4,829 3,424
Goodwill and other intangibles ....................................... 12,615 9,175
- ---------------------------------------------------------------------- ---------- ----------
Total assets ......................................................... $1,515,006 $1,511,951
====================================================================== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing ................................................. $ 261,675 $ 263,523
Interest bearing:
NOW and money market ................................................. 177,539 183,930
Savings .............................................................. 127,597 134,511
Time ................................................................. 735,406 738,162
- ---------------------------------------------------------------------- ---------- ----------
1,302,217 1,320,126
Securities sold under repurchase agreements .......................... 45,594 28,918
Other short-term borrowings .......................................... 10,573 16,679
Acceptances outstanding .............................................. 3,313 4,289
Accrued interest payable ............................................. 2,763 2,427
Income taxes payable ................................................. 383 1,746
Other liabilities .................................................... 2,684 3,803
- ---------------------------------------------------------------------- ---------- ----------
Total liabilities .................................................... 1,367,527 1,377,988
- ---------------------------------------------------------------------- ---------- ----------
Commitments and contingencies (Notes 5, 12 and 13) ................... -- --
- ---------------------------------------------------------------------- ---------- ----------
Minority interest in consolidated subsidiary ......................... 1,348 9,270
- ---------------------------------------------------------------------- ---------- ----------
Stockholders' equity:
Common stock--authorized 50,000,000 shares of $0.01 par value;
20,093,129 shares issued and outstanding in 1997 and
18,872,904 shares issued and outstanding in 1996 .................... 201 189
Capital surplus ...................................................... 99,240 86,469
Retained earnings .................................................... 46,311 37,785
Net unrealized gain on available-for-sale securities, net of tax ..... 379 250
- ---------------------------------------------------------------------- ---------- ----------
Total stockholders' equity ........................................... 146,131 124,693
- ---------------------------------------------------------------------- ---------- ----------
Total liabilities and stockholders' equity ........................... $1,515,006 $1,511,951
====================================================================== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 23
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
(In Thousands, Except Share
Amounts)
Interest income:
<S> <C> <C> <C>
Interest and fees on loans ............................. $ 88,823 $ 79,897 $ 70,077
Investment securities:
Taxable interest ....................................... 19,536 17,893 18,447
Tax exempt interest .................................... 1,903 1,874 2,340
Interest on federal funds sold ......................... 4,057 3,645 2,910
Interest on deposits in other banks .................... 182 825 1,282
- -------------------------------------------------------- -------- -------- --------
Total interest income .................................. 114,501 104,134 95,056
- -------------------------------------------------------- -------- -------- --------
Interest expense:
Deposits ............................................... 48,088 41,282 37,062
Securities sold under repurchase agreements ............ 2,383 1,512 1,105
Other borrowings ....................................... 503 455 244
- -------------------------------------------------------- -------- -------- --------
Total interest expense ................................. 50,974 43,249 38,411
- -------------------------------------------------------- -------- -------- --------
Net interest income .................................... 63,527 60,885 56,645
Provision for loan losses .............................. 5,566 2,381 890
- -------------------------------------------------------- -------- -------- --------
Net interest income after provision for loan losses .... 57,961 58,504 55,755
- -------------------------------------------------------- -------- -------- --------
Non-interest income:
Service charges on deposit accounts .................... 12,070 12,960 12,722
Other charges, commissions and fees .................... 11,703 11,270 9,921
Gain (loss) on sale of securities ...................... -- 1 (185)
- -------------------------------------------------------- -------- -------- --------
23,773 24,231 22,458
-------- -------- --------
Non-interest expenses:
Salaries and wages ..................................... 21,217 21,664 21,638
Employee benefits ...................................... 5,489 5,111 5,834
Occupancy expense ...................................... 5,771 4,962 4,661
Furniture and equipment expense ........................ 2,722 2,793 2,375
Other real estate owned expense ........................ 223 111 478
Other .................................................. 17,167 18,376 15,035
- -------------------------------------------------------- -------- -------- --------
52,589 53,017 50,021
-------- -------- --------
Income before provision for income taxes ............... 29,145 29,718 28,192
Provision for income taxes ............................. 9,617 10,324 9,103
- -------------------------------------------------------- -------- -------- --------
Income before minority interest ........................ 19,528 19,394 19,089
Minority interest ...................................... (1,188) (1,350) (1,330)
- -------------------------------------------------------- -------- -------- --------
Net income ............................................. $ 18,340 $ 18,044 $ 17,759
======================================================== ======== ======== ========
Basic and fully diluted earnings per share ............. $ 0.96 $ 0.96 $ 0.94
======================================================== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24 R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended December 31, 1997, 1996
and 1995
-----------------------------------
Common Stock
-------------------------
Shares
Issued and Par Capital
Outstanding Value Surplus
------------- ----------- ---------
(In Thousands)
<S> <C> <C> <C>
Balance at December 31, 1994 ................... 15,728 $ 7,864 $59,444
Cash dividend .................................. -- -- --
Net income ..................................... -- -- --
Net change in unrealized loss on
available-for-sale securities, net of tax ..... -- -- --
- ------------------------------------------------ ------ --------- -------
Balance at December 31, 1995 ................... 15,728 7,864 59,444
Stock dividend ................................. 3,145 1,573 17,777
Cash dividend .................................. -- -- --
Net income ..................................... -- -- --
Net change in unrealized gain on
available-for-sale securities, net of tax ..... -- -- --
- ------------------------------------------------ ------ --------- -------
Balance at December 31, 1996 ................... 18,873 9,437 77,221
Cash dividend .................................. -- -- --
Net income ..................................... -- -- --
Shares issued to acquire shares of minority
interest in subsidiary ........................ 1,220 610 12,173
Net change in unrealized gain on
available-for-sale securities, net of tax ..... -- -- --
Change in par value ............................ -- (9,846) 9,846
- ------------------------------------------------ ------ --------- -------
BALANCE AT DECEMBER 31, 1997 ................... 20,093 $ 201 $99,240
================================================ ====== ========= =======
<CAPTION>
Years Ended December 31, 1997, 1996 and 1995
------------------------------------------------
Unrealized Gain
(Loss) on Total
Retained Available-for-Sale Stockholders'
Earnings Securities, Net Equity
------------ -------------------- --------------
(In Thousands)
<S> <C> <C> <C>
Balance at December 31, 1994 ................... $ 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 ................... 48,530 302 116,140
Stock dividend ................................. (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 ................... 37,785 250 124,693
Cash dividend .................................. (9,814) -- (9,814)
Net income ..................................... 18,340 -- 18,340
Shares issued to acquire shares of minority
interest in subsidiary ........................ -- 29 12,812
Net change in unrealized gain on
available-for-sale securities, net of tax ..... -- 100 100
Change in par value ............................ -- -- --
- ------------------------------------------------- ---------- -------- --------
BALANCE AT DECEMBER 31, 1997 ................... $ 46,311 $ 379 $146,131
================================================= ========== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 25
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1997 1996 1995
------------- ------------ ------------
(In Thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 18,340 $ 18,044 $ 17,759
- ------------------------------------------------------------------------------------- ---------- ---------- ---------
Adjustments to reconcile net income to net cash provided by operating activities:
Minority interest in consolidated subsidiary ........................................ 1,188 1,350 1,330
Depreciation and amortization ....................................................... 2,714 1,859 1,855
Investment (accretion) amortization, net ............................................ (797) (167) 75
Amortization of goodwill and other intangibles ...................................... 982 845 709
Provision for loan losses ........................................................... 5,566 2,381 890
Deferred tax (benefit) provision .................................................... (105) 342 (970)
Other ............................................................................... 144 1,192 853
Changes in assets and liabilities, net of effect of acquisition:
(Decrease) increase in unearned income .............................................. (1,689) 495 315
(Increase) decrease in accrued interest receivable .................................. (782) 180 113
(Increase) decrease in other assets ................................................. (1,788) (923) 1,588
Decrease in income taxes payable .................................................... (1,363) (642) (936)
Increase (decrease) in accrued interest payable ..................................... 336 (32) 173
(Decrease) increase in other liabilities ............................................ (1,119) 729 (1,097)
- ------------------------------------------------------------------------------------- ---------- ---------- ---------
Total adjustments ................................................................... 3,287 7,609 4,898
- ------------------------------------------------------------------------------------- ---------- ---------- ---------
Net cash provided by operating activities ........................................... 21,627 25,653 22,657
- ------------------------------------------------------------------------------------- ---------- ---------- ---------
Cash flows from investing activities:
Net decrease (increase) in interest earning deposits in other banks ................. 5,007 20,366 (14,777)
Proceeds from redemptions of held-to-maturity securities ............................ 62,195 56,955 58,131
Purchases of held-to-maturity securities ............................................ (112,452) (59,159) (23,999)
Proceeds from sales or redemptions of available-for-sale securities ................. 51,042 67,000 93,025
Purchases of available-for-sale securities .......................................... (41,587) (75,842) (52,943)
Net loan payments (originations) .................................................... 40,719 (155,689) (95,022)
Investment in premises and equipment ................................................ (12,719) (16,475) (8,097)
Proceeds from sale of other real estate owned and other ............................. 275 1,388 2,853
Net cash and cash equivalents received in acquisition ............................... -- -- 12,135
- ------------------------------------------------------------------------------------- ---------- ---------- ---------
Net cash used in investing activities ............................................... (7,520) (161,456) (28,694)
- ------------------------------------------------------------------------------------- ---------- ---------- ---------
Cash flows from financing activities:
Net decrease in demand deposits, NOW, money market and savings accounts ............. (15,153) (2,183) (46,791)
Net (decrease) increase in time deposits ............................................ (2,756) 165,985 68,269
Net increase in securities sold under repurchase agreements ......................... 16,676 4,916 611
Net (decrease) increase in other borrowings ......................................... (6,106) 11,996 (2,174)
Dividend paid by subsidiary to minority interest .................................... (734) (706) (352)
Cash dividends paid ................................................................. (9,814) (9,439) (4,718)
- ------------------------------------------------------------------------------------- ---------- ---------- ---------
Net cash (used in) provided by financing activities ................................. (17,887) 170,569 14,845
- ------------------------------------------------------------------------------------- ---------- ---------- ---------
Net (decrease) increase in cash and cash equivalents ................................ (3,780) 34,766 8,808
Cash and cash equivalents at beginning of the year .................................. 129,180 94,414 85,606
- ------------------------------------------------------------------------------------- ---------- ---------- ---------
Cash and cash equivalents at end of the year ........................................ $ 125,400 $ 129,180 $ 94,414
===================================================================================== ========== ========== =========
</TABLE>
(continued)
26 R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ........................................................................ $56,638 $41,250 $38,042
================================================================================= ======= ======= =======
Income taxes .................................................................... $10,799 $10,080 $ 8,457
================================================================================= ======= ======= =======
Supplemental schedule of noncash investing activities:
Transfers from loans to other real estate owned ................................. $ 55 $ 430 $ 3,059
================================================================================= ======= ======= =======
Transfers from held-to-maturity securities to available-for-sale securities ..... $ -- $ -- $33,024
================================================================================= ======= ======= =======
Issuance of stock to acquire shares of minority interest in subsidiary:
Minority interest acquired ...................................................... $ 8,391 $ -- $ --
Goodwill ........................................................................ 4,421 -- --
- --------------------------------------------------------------------------------- ------- ------- -------
$12,812 $ -- $ --
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 27
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 99.1% owned
subsidiary, Republic National Bank of Miami (the "Bank"). 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.
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 non-interest 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 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 or, as a
practical expedient, at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. Impairment losses are
included in the allowance for loan losses through a charge to the provision.
Cash receipts on impaired loans 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
28 R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
owned. Upon classification as other real estate, the excess of the unpaid
balance of the loan over the fair value of the collateral is charged to the
allowance for loan losses. Net expenses of maintaining properties, subsequent
provisions 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 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
principally over fifteen to twenty years. Core deposit premiums are amortized
over varying useful lives ranging from seven to ten years. At December 31, 1997
and 1996, intangible assets amounted to $19,407,000 and $14,984,000,
respectively. Accumulated amortization of intangible assets was $6,792,000 and
$5,809,000 as of December 31, 1997 and 1996, respectively.
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 one
stock split (see Note 9) and the 20% common stock dividend in January 1996. The
weighted average number of shares was 19,076,275, 18,872,904 and 15,727,580 at
December 31, 1997, 1996 and 1995, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the 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
the 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 computation for basic earnings per
share is similar to the primary earnings per share previously presented by the
Company. The calculation of diluted earnings per share will first apply to the
Company upon the effective date of the Company's 1998 Stock Option Plan and the
grant of options thereunder (see Note 10). 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
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 29
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 the
comprehensive income as a separate component in the equity section of a balance
sheet. 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 currently
generates internally the information for the required disclosures.
RECLASSIFICATIONS
Certain amounts in 1996 and 1995 have been reclassified to conform to the 1997
financial statement presentation.
INTEREST RATE RISK
The Bank's profitability is dependent to a large extent on its net interest
income, which is the difference between income on interest-earning assets and
its interest expense on interest-bearing liabilities. The Bank, like most
financial institutions, is affected by changes in general interest rate levels
and by other economic factors beyond its control. Interest rate risk arises
from mismatches (i.e., the interest sensitivity gap) between the dollar amount
of repricing or maturing assets and liabilities, and is measured in terms of
the ratio of the interest rate sensitivity gap to total assets. More assets
repricing or maturing than liabilities over a given time frame is considered
asset-sensitive, or a positive gap, and more liabilities repricing or maturing
than assets over a given time frame is considered liability-sensitive, or a
negative gap. An asset-sensitive position will generally enhance earnings in a
rising interest rate environment and will negatively impact earnings in a
falling interest rate environment, while a liability-sensitive position will
generally enhance earnings in a falling interest rate environment and
negatively impact earnings in a rising interest rate environment. Fluctuations
in interest rates are not predictable or controllable. The Bank has attempted
to structure its asset and liability management strategies to mitigate the
impact on net interest income of changes in market interest rates.
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.
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>
30 R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVESTMENT SECURITIES
Amortized cost 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>
DECEMBER 31, 1997
U.S. TREASURY
SECURITIES ............ $ 49,638 $ 347 $ -- $ 49,985
SECURITIES OF OTHER
U.S. AGENCIES AND
CORPORATIONS .......... 132,225 273 (58) 132,440
SECURITIES ISSUED
BY STATES
AND POLITICAL
SUBDIVISIONS .......... 29,278 933 -- 30,211
OTHER DEBT
SECURITIES ............ 700 -- -- 700
- -------------------------- -------- ------ ----- --------
TOTAL DEBT
SECURITIES ............ 211,841 1,553 (58) 213,336
FEDERAL RESERVE
BANK STOCK ............ 1,219 -- -- 1,219
- -------------------------- -------- ------ ----- --------
TOTAL SECURITIES ......... $213,060 $1,553 $ (58) $214,555
========================== ======== ====== ===== ========
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
========================== ======== ====== ======= ========
</TABLE>
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>
DECEMBER 31, 1997
U.S. TREASURY
SECURITIES ............ $118,162 $535 $ -- $118,697
SECURITIES OF OTHER
U.S. AGENCIES AND
CORPORATIONS .......... 41,143 137 (49) 41,231
- -------------------------- -------- ---- ------ --------
TOTAL SECURITIES ......... $159,305 $672 $ (49) $159,928
========================== ======== ==== ====== ========
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
========================== ======== ==== ====== ========
</TABLE>
At December 31, 1997, 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 .......... $ 35,767 $ 36,021 $106,572 $106,810
One to five
years ......... 143,096 143,423 46,910 47,274
Five to ten
years ......... 20,279 20,640 -- --
Over ten
years ......... 13,918 14,471 5,823 5,844
- ------------------ -------- -------- -------- --------
Total ............ $213,060 $214,555 $159,305 $159,928
================== ======== ======== ======== ========
</TABLE>
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 31
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following sets forth information concerning sales of available-for-sale
securities and calls of held-to-maturity securities for the years indicated (in
thousands):
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1997 1996 1995
--------- ------ ----------
<S> <C> <C> <C>
Available-for-Sale Securities
Amortized cost ................ $ -- $ -- $51,889
Proceeds ...................... $ -- $ -- $51,701
Gross realized gains .......... $ -- $ -- $ 22
Gross realized losses ......... $ -- $ -- $ 210
Held-to-Maturity Securities
Amortized cost ................ $6,515 $240 $ 9,936
Proceeds ...................... $6,515 $241 $ 9,939
Gross realized gains .......... $ -- $ 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 Financial Accounting Standards Board.
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 $25,069,000 and
$25,375,000 at December 31, 1997 and 1996, respectively. This security, which
matured in February 1998, is classified as available-for-sale and recorded at
its estimated fair value. The interest rate earned by the Company on this
security (7.31% at December 31, 1997 and 6.37% at December 31, 1996) is
calculated as the difference between a stated rate ("cap") of 12.75% at
December 31, 1997 and 11.75% at December 31, 1996 and the average federal
funds rate.
Securities with an aggregate cost of approximately $89,308,000 and $67,344,000
at December 31, 1997 and 1996, respectively, were pledged as collateral for
public depositors or subject to sales under repurchase agreements.
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
Major classifications of loans are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Commercial .......................... $285,733 $309,238
Commercial real estate
and construction ................. 310,336 264,574
International ....................... 92,734 122,450
Residential first mortgages ......... 154,864 133,005
Residential equity lines ............ 16,487 17,831
Consumer ............................ 58,024 85,438
Overdrafts .......................... 5,352 3,722
Bankers' acceptances ................ 8,395 41,586
- -------------------------------------- -------- --------
931,925 977,844
Unearned income ..................... (2,515) (4,204)
- -------------------------------------- -------- --------
929,410 973,640
Allowance for loan losses
and transfer risk ................ (11,999) (11,578)
- -------------------------------------- -------- --------
Loans, net .......................... $917,411 $962,062
====================================== ======== ========
</TABLE>
Real estate mortgage loans serviced for others, not included in the above
amounts, were approximately $20,793,000 and $24,300,000 in 1997 and 1996,
respectively.
The following is a summary of impaired loans for the years ended December 31,
1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
--------- --------
<S> <C> <C>
Investment in impaired loans ......... $1,328 $ 262
Valuation allowance .................. 123 8
Average recorded investment in
impaired loans .................... 2,081 1,229
- --------------------------------------- ------ -----
</TABLE>
32 R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth, at the dates indicated, the aggregate amount of
the Company's cross-border outstandings, including loans, foreign bonds, due
from bank accounts and interest bearing deposits with other banks (in
thousands).
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Ecuador ........... $ 23,000 $ 13,000 $ 13,000
Brazil ............ 22,000 30,000 19,000
Peru .............. 18,000 21,000 8,000
Guatemala ......... 9,000 11,000 13,000
Panama ............ 7,000 11,000 4,000
Colombia .......... 1,000 12,000 8,000
Other ............. 35,000 70,000 57,000
- -------------------- -------- -------- --------
$115,000 $168,000 $122,000
======== ======== ========
</TABLE>
Changes in the allowance for loan losses are as follows (in thousands):
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning
of year ..................... $11,578 $11,411 $11,680
Allowance from
acquired bank ............... -- -- 701
Provision charged
to operations ............... 5,566 2,381 890
- --------------------------------- -------- -------- --------
17,144 13,792 13,271
-------- -------- --------
Loans charged-off .............. (6,515) (3,241) (2,583)
Less recoveries ................ 1,370 1,027 723
- --------------------------------- -------- -------- --------
Net charge-offs ................ (5,145) (2,214) (1,860)
- --------------------------------- -------- -------- --------
Balance at end of year ......... $11,999 $11,578 $11,411
================================= ======== ======== ========
Loans not accruing
interest at
end of year ................. $ 5,863 $ 1,563 $ 4,066
================================= ======== ======== ========
</TABLE>
Had the Company recorded interest on non-accrual loans, interest income on
loans would have increased by approximately $273,000, $226,000 and $350,000 in
1997, 1996 and 1995, respectively.
Restructured loans amounted to $371,000 and $404,000 at December 31, 1997 and
1996, respectively.
5. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized below (in
thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Bank buildings ...................... $46,441 $13,759
Leasehold improvements .............. 4,160 3,920
Leasehold acquisition costs ......... 1,284 1,228
Furniture and equipment ............. 19,811 16,894
Construction in progress ............ -- 22,844
- -------------------------------------- ------- -------
71,696 58,645
Less--accumulated depreciation
and amortization ................. (24,834) (22,184)
- -------------------------------------- ------- -------
46,862 36,461
Land ................................ 11,875 11,888
- -------------------------------------- ------- -------
Net premises and equipment .......... $58,737 $48,349
====================================== ======= =======
</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 $390,000 in 1997, $773,000 in 1996 and $255,000 in 1995 with
respect to this construction project.
At December 31, 1997, premises and equipment included $2.3 million (net of
prior year writedowns of $1,925,000), related to an operations building which
was held for sale. At December 31, 1997, net book value approximated net
realizable value.
The Company leases facilities for several branch offices, certain land and
equipment under operating leases from unrelated parties. Net rent expense was
approximately $2,358,000, $2,172,000 and $2,064,000 for 1997, 1996 and 1995,
respectively. The minimum rental commitments over the lives of the leases are
as follows at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
Year Ending December 31, Amount
- -------------------------- ---------
<S> <C>
1998 ..................... $ 2,075
1999 ..................... 1,852
2000 ..................... 1,207
2001 ..................... 746
2002 ..................... 620
Thereafter ............... 14,474
- --------------------------- -------
Total .................... $20,974
=========================== =======
</TABLE>
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 33
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Beginning in 1997, the Company leases space in its office building to unrelated
parties. Future minimum lease payments receivable under these leases are as
follows (in thousands):
<TABLE>
<CAPTION>
Year Ending December 31, Amount
- -------------------------- ---------
<S> <C>
1998 ..................... $ 1,301
1999 ..................... 1,306
2000 ..................... 1,312
2001 ..................... 1,318
2002 ..................... 1,332
Thereafter ............... 5,281
- --------------------------- -------
Total .................... $11,850
=========================== =======
</TABLE>
6. DEPOSITS
At December 31, 1997 and 1996, time deposits greater than $100,000 totalled
$288,299,000 and $268,476,000, respectively; the average interest rate on these
time deposits was approximately 5.5% and 5.3% for 1997 and 1996, respectively.
The majority of time deposits mature within one year. Deposits held from
related financial institutions amounted to approximately $4,239,000 and
$69,018,000 at December 31, 1997 and 1996, respectively.
7. 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
Year Ended
December 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Maximum amount of outstanding
agreements at any month-end
during the year ........... $58,088 $42,200
Average amount outstanding
during the year ........... 50,005 32,574
Weighted average interest rate
for the year .............. 4.77% 4.64%
- ------------------------------- ------- -------
</TABLE>
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 $14,479,000 in 1997 and $9,900,000 in 1996. The
average balance outstanding was $5,867,000 in 1997 and $4,432,000 in 1996. The
average interest rate was 5.53% in 1997 and 4.47% in 1996. The maximum
outstanding Federal funds purchased at any month end was $5,024,000 in 1997 and
$12,000,000 in 1996. The average balance outstanding was $3,238,000 in 1997 and
$4,909,000 in 1996. The average interest rate was 5.50% in 1997 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 Year Ended December 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Currently payable
Federal ................ $8,829 $ 9,326 $8,619
State .................. 893 656 935
Deferred (benefit)
provision ............ (105) 342 (451)
- -------------------------- ------ ------- ------
Total provision for
income taxes ......... $9,617 $10,324 $9,103
========================== ====== ======= ======
</TABLE>
34 R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of income taxes to statutory rates is as follows (in
thousands):
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------------------------
1997 1996 1995
----------------------- ----------------------- -----------------------
Amount Percent Amount Percent Amount Percent
---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Tax at Federal statutory rate ........................ $10,201 35 % $10,413 35 % $9,867 35 %
Tax exempt income .................................... (628) (2)% (653) (2)% (791) (3)%
State income tax, less effect on Federal tax ......... 682 2 % 651 2 % 661 2 %
Other ................................................ (638) (2)% (87) -- (634) (2)%
- ------------------------------------------------------ ------- ---- ------- -------- ------ ----
$9,617 33 % $10,324 35 % $9,103 32 %
======= ======= ======= ======== ====== =======
</TABLE>
The components of the net deferred income tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
Allowance for loan losses ................ $4,237 $4,083
Intangibles .............................. 141 73
Loan origination fees .................... 40 212
Self-insurance reserve ................... 79 112
Other real estate losses ................. 90 93
Deferred compensation .................... 73 96
Building writedown ....................... 743 743
Other .................................... 43 31
- ------------------------------------------- ------ ------
Gross deferred tax assets ................ 5,446 5,443
- ------------------------------------------- ------ ------
Depreciation ............................. 1,142 1,302
Unrealized gain--
available-for-sale securities ......... 240 169
Pension .................................. 134 86
Other .................................... 78 68
- ------------------------------------------- ------ ------
Gross deferred tax liabilities ........... 1,594 1,625
- ------------------------------------------- ------ ------
Net deferred tax asset ................... $3,852 $3,818
=========================================== ====== ======
</TABLE>
Based on available information, management considers that the net deferred tax
asset will be realized; therefore, no valuation allowance has been established.
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 of common stock
were issued.
Cash dividends paid amounted to $9,814,000, $9,439,000 and $4,718,000 in 1997,
1996 and 1995, respectively. A cash dividend of $0.07 per share was declared on
January 21, 1998 to stockholders of record on that date payable on February 4,
1998.
In November 1997, the Company exchanged 1,220,225 (488,091 pre-stock split)
shares of common stock of the Company for the same number of shares of common
stock from a limited number of minority stockholders of the Bank. 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, was recorded
as goodwill in the Company's financial statements and is being amortized over
20 years.
Effective January 1998, the Company 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 $1.25 ($.50 post-stock
split) per share to $0.01 per share.
The Company declared a 2.5 for 1 stock split to be effective January 15, 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 February 1998, the Company completed an initial public offering of its
common stock. As a result, 2,300,000 shares were sold in the public market,
1,066,730 of which were sold by a limited group of existing shareholders and
the remaining 1,233,270 by the Company. Net proceeds received by the Company
amounted to approximately $16.3 million.
10. PENSION PLAN AND STOCK OPTION 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 employees' highest average 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
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 35
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 the dates indicated (in
thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Actuarial present value of:
Accumulated benefit obligation
including vested benefits of
$10,919 in 1997 and $10,744
in 1996 .............................. $11,524 $11,306
========================================== ======= =======
Projected benefit obligation ............ $15,080 $14,537
Plan assets at fair value ............... 12,306 12,216
- ------------------------------------------ ------- -------
Projected benefit obligation in excess
of plan assets ....................... 2,774 2,321
Unrecognized prior service cost ......... 686 768
Unrecognized net transition
liability ............................ (137) (171)
Unrecognized net actuarial loss ......... (3,669) (3,142)
- ------------------------------------------ ------- -------
Net prepaid pension cost ................ $ (346) $ (224)
========================================== ======= =======
</TABLE>
Computational assumptions in determining the projected benefit obligation were
as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Weighted average discount rate ................... 7.0% 7.5%
Rate of increase in compensation levels .......... 4.0% 4.0%
- --------------------------------------------------- --- ---
</TABLE>
Components of pension cost included in employee benefits were as follows (in
thousands):
<TABLE>
<CAPTION>
For the Year Ended
December 31,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
Service cost-benefits earned
during the year ................... $1,057 $1,262
Interest cost on projected
benefit obligation ................ 978 944
Amortization of unrecognized
prior service cost ................ (82) (82)
Actual return on plan assets ......... (899) (428)
Other amortization ................... 161 199
Deferred net asset loss .............. (85) (551)
- --------------------------------------- ------ ------
Net periodic pension cost ............ $1,130 $1,344
======================================= ====== ======
</TABLE>
Computational assumptions used in determining net periodic pension cost were as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Weighted average discount rate .......... 7.5% 7.0%
Rate of increase in
compensation levels .................. 4.0% 4.0%
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>
The Company adopted the 1998 Stock Option Plan ("the Plan") effective on
January 1, 1998. This Plan provides for incentive stock option grants to
certain officers and employees of the Company and non-qualified options to
directors. Options may only be granted at or above the fair market 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. The maximum number of shares authorized to be granted under
this Plan is 1,000,000 shares (post stock split). Upon the effective date of
the Company's initial public offering in February 1998, 500,000 options were
granted to members of senior management and the Board of Directors. All of such
options will be exercisable for a period of up to ten years at the initial
public offering price. All of 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. All options granted to directors who have
served on the Board of the Company or the Bank for at least ten years will be
exercisable beginning six months after the effective date of the grant.
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, 1997,
approximately $32,364,000 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
36 R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
direct material effect on the Company's financial statements. The regulations
require the Company to meet specific capital adequacy guidelines that involve
quantitative measures of the Company's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices.
The Company'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, 1997, that the Company meets all
capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Company's
regulators categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Company 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).
<TABLE>
<CAPTION>
To be Well
Capitalized Under
Required for Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------ ---------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997
TOTAL CAPITAL RATIO ........... $145,521 16.2% $71,707 8.0% $89,633 10.0%
TIER I CAPITAL RATIO .......... $134,307 15.0% $35,854 4.0% $53,780 6.0%
TIER I LEVERAGE RATIO ......... $134,307 8.9% $45,044 3.0% $75,073 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%
</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, 1997, this
aggregate annual stop loss level was approximately $2,173,000. The Company had
accrued approximately $601,000 and $593,000 at December 31, 1997 and 1996 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.
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.
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 37
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the Bank's contractual or notional amounts for off-balance sheet
activities as of December 31, 1997 is summarized below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
-------------
<S> <C>
Credit Activities
Unused commercial lines of credit .......... $186,000
Other commitments to extend credit ......... 64,100
Standby letters of credit .................. 14,500
Commercial letters of credit ............... 25,800
- --------------------------------------------- --------
$290,400
========
</TABLE>
Of the outstanding standby letters of credit, approximately $5,919,000 are
secured by cash collateral at December 31, 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
$1,926,000 and $1,766,000 at December 31, 1997 and 1996, respectively. In
connection with the construction of its new headquarters and office building
(see Note 5), the Company entered into a contract with a mechanical contractor,
the owner of which is a member of the Board of Directors, to provide mechanical
work. The total contract amount is $4,410,000. Approximately $855,000,
$2,555,000 and $1,000,000 were paid during the years ended December 31, 1997,
1996 and 1995, respectively, in connection with this contract.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures 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, 1997 December 31, 1996
------------------------ -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ----------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents ......... $125,400 $125,400 $129,180 $129,180
Interest earning
deposits
in other
banks ............... 873 873 5,880 5,880
Investment
securities .......... 372,988 374,483 331,204 332,556
Performing
loans ............... 923,547 927,834 972,077 970,511
Liabilities:
Time deposits .......... 735,406 737,590 738,162 739,544
Other
deposits ............ 566,811 566,811 581,964 581,964
Securities
sold under
repurchase
agreements .......... 45,594 45,594 28,918 28,918
Other
short term
borrowings .......... 10,573 10,573 16,679 16,679
- ------------------------ -------- -------- -------- --------
</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.
38 R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $5,863,000 in
1997 and $1,563,000 in 1996 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 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.
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, 1997 and 1996.
17. REPUBLIC BANKING CORPORATION OF FLORIDA
The following summarizes the major categories of the Company's (parent company
only) financial statements (in thousands):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Assets
Cash ............................... $ 41 $ 161
Investments in the Bank ............ 141,197 124,120
Excess of cost over net assets of
subsidiaries, net ............... 4,760 410
Other assets ....................... 225 2
- ------------------------------------- -------- --------
Total assets ....................... $146,223 $124,693
===================================== ======== ========
Liabilities ........................ $ 92 $ --
Stockholders' equity
Common stock ....................... 201 189
Paid-in capital .................... 99,240 86,469
Retained earnings .................. 46,311 37,785
Net unrealized gains on
securities available-for-sale,
net of taxes .................... 379 250
- ------------------------------------- -------- --------
Total stockholders' equity ......... 146,131 124,693
- ------------------------------------- -------- --------
Total liabilities and
stockholders' equity ............ $146,223 $124,693
===================================== ======== ========
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Dividend from
subsidiary ................... $ 9,833 $ 9,455 $ 4,728
Equity in undistributed
earnings of the Bank ......... 8,588 8,627 13,076
Interest income ................. 8 9 7
Operating expenses .............. (95) (49) (57)
- ---------------------------------- ------- ------- -------
Income before
income taxes ................. 18,334 18,042 17,754
Income tax benefit .............. (6) (2) (5)
- ---------------------------------- --------- --------- ---------
Net income ...................... $18,340 $18,044 $17,759
================================== ======== ======== ========
</TABLE>
R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a 39
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------
1997 1996 1995
---------- ---------- ------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income ............................................. $ 18,340 $ 18,044 $ 17,759
Less: Equity in undistributed earnings of the Bank ..... (8,588) (8,627) (13,076)
Other .................................................. 75 (239) 320
- -------------------------------------------------------- -------- -------- ---------
Net cash provided by operating activities .............. 9,827 9,178 5,003
- -------------------------------------------------------- -------- -------- ---------
Cash flow from financing activities:
Cash dividends paid .................................... (9,814) (9,439) (4,718)
Other .................................................. (133) -- --
- -------------------------------------------------------- -------- -------- ---------
Net cash used in financing activities .................. (9,947) (9,439) (4,718)
- -------------------------------------------------------- -------- -------- ---------
Decrease in cash and cash equivalents .................. (120) (261) 285
Cash and cash equivalents at beginning of year ......... 161 422 137
- -------------------------------------------------------- -------- -------- ---------
Cash and cash equivalents at end of year ............... $ 41 $ 161 $ 422
======================================================== ======== ======== =========
</TABLE>
- --------------------------------------------------------------------------------
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,
1997 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. 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.
[GRAPHIC OMITTED]
PRICE WATERHOUSE LLP
Miami, Florida
March 6, 1998
40 R e p u b l i c B a n k i n g C o r p o r a t i o n o f F l o r i d a
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND
THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 49,362
<INT-BEARING-DEPOSITS> 873
<FED-FUNDS-SOLD> 76,038
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 159,928
<INVESTMENTS-CARRYING> 213,060
<INVESTMENTS-MARKET> 214,555
<LOANS> 929,410
<ALLOWANCE> 11,999
<TOTAL-ASSETS> 1,515,006
<DEPOSITS> 1,302,217
<SHORT-TERM> 56,167
<LIABILITIES-OTHER> 9,143
<LONG-TERM> 0
0
0
<COMMON> 201
<OTHER-SE> 145,930
<TOTAL-LIABILITIES-AND-EQUITY> 1,515,006
<INTEREST-LOAN> 88,823
<INTEREST-INVEST> 20,439
<INTEREST-OTHER> 4,239
<INTEREST-TOTAL> 114,501
<INTEREST-DEPOSIT> 48,088
<INTEREST-EXPENSE> 50,974
<INTEREST-INCOME-NET> 63,527
<LOAN-LOSSES> 5,566
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 52,589
<INCOME-PRETAX> 29,145
<INCOME-PRE-EXTRAORDINARY> 29,145
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,340
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.96
<YIELD-ACTUAL> 8.22
<LOANS-NON> 5,863
<LOANS-PAST> 451
<LOANS-TROUBLED> 371
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 11,578
<CHARGE-OFFS> 6,515
<RECOVERIES> 1,370
<ALLOWANCE-CLOSE> 11,999
<ALLOWANCE-DOMESTIC> 8,737
<ALLOWANCE-FOREIGN> 656
<ALLOWANCE-UNALLOCATED> 2,606
</TABLE>
