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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
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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 X No ___
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.
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant on March 19, 1999, was approximately $114
million based on a closing price of $18.50 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 19, 1999, the registrant had
outstanding 21,230,892 shares of Common Stock, par value $0.01.
DOCUMENTS INCORPORATED BY REFERENCE
The information on pages 5 through 44 of Republic's 1998 Annual Report
to Shareholders is attached hereto as Exhibit 13.1 and incorporated by reference
into Part II, Items 5, 6, 7, 7A and 8 hereof. Additionally, Republic intends to
file the Registrant's Definitive Proxy Statement for its 1999 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 the consummation of the transaction contemplated under the
merger agreement with Union Planters Bank, N.A., 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, year 2000 compliance issues,
dependence on management and key personnel, supervision and regulation issues
and issues regarding the concentration of deposits and cross-border lending
activities.
PART 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 99.6%
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.
AGREEMENT TO MERGE INTO UNION PLANTERS BANK, N.A.
On February 22, 1999, Republic entered into an Agreement and Plan of
Reorganization with Union Planters Bank, National Associaton ("Union Planters"),
pursuant to which Republic will merge with a newly created, wholly owned
subsidiary of Union Planters, immediately following such merger Republic will be
dissolved and following such dissolution the Bank will be merged into Union
Planters. Under the terms of this agreement, shareholders of Republic would
receive $19.25 per share of common stock in cash following consummation of the
merger. The transaction is valued at approximately $412 million, including the
value of options outstanding which would be exerciseable at the time of the
merger and the value of minority shares in Republic's subsidiary Bank.
Consummation of the transaction contemplated under the agreement is subject to
customary conditions, including the receipt of all required regulatory
approvals. The transaction is expected to be consummated at mid year 1999 if all
such conditions are satisfied.
In connection with the execution of the merger agreement, Republic and
Union Planters entered into a termination fee agreement providing for the
payment of a fee to Union Planters of $11 million under certain circumstances
where the transaction was not consummated as a result of certain actions by
Republic, Republic's Board of Directors or its shareholders and subsequently
Republic entered into a business combination with another party within twelve
months of the termination of the agreement. Additionally, Rebank Netherlands
Antilles, N.V., the majority shareholder in Republic and the directors of
Republic, as individual shareholders, entered into agreements with Union
Planters to vote their respective shares of the common stock of Republic in
favor of the transaction. (See Form 8-K dated March 1, 1999 for full text of the
agreement between Republic and Union Planters Bank, N.A. and Exhibit 10.12).
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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 18.7% of FDIC insured deposits. Miami-Dade
County ranks first in population and first in deposits in the State of Florida.
The Bank holds approximately a 3.4% market share of deposits in Miami-Dade
County as of June 30, 1998 ranking it as the eighth largest institution in the
county based on deposit market share. The largest market share held by a single
financial institution is approximately 17.7%.
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.
Although 93% of the Bank's branch deposits and 25 of its branches are
located in Miami-Dade County, Florida, the Company has recently established two
branches in adjoining Broward County, Florida and has expanded its lending
activities in this adjacent county.
BUSINESS STRATEGY
The consolidation of financial institutions in south Florida has
reduced the number of locally-headquartered commercial banks. The Company
believes that this has created a niche for the Bank as a community bank which
focuses on establishing long-term relationships with its customers and in
providing responsive and personalized service to its customers. The Company's
community banking style emphasizes local decision-making ability by its
management and accessibility of its senior management to customers. The Company
also attempts to make decisions for customers quickly and to modify its
products, if appropriate, to match the needs of its customers. The Company
believes that these attributes allow the Company to compete effectively against
larger, regional financial institutions operating in south Florida. In addition,
the Company believes that the Bank's larger capital base, larger branch network
and broader product mix enable it to compete effectively against smaller
community banks operating in south Florida.
The Company's location in south Florida, which is also the location of
many businesses and individuals who engage in substantial trade with Latin
America and the Caribbean, and the Company's relationships with the Hispanic
community in Miami-Dade County, Florida, have enabled the Company to be active
in trade financing activities and in private banking operations with customers
in Latin America and the Caribbean. The Company derives a significant portion of
its deposits, loans and fee income from these customers.
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, 1998, the
Bank's loan portfolio consisted of: $256 million in commercial real estate loans
or 24.7% of gross loans; $228 million in domestic commercial loans
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or 22.1% of gross loans; $155 million in residential first mortgage loans to
domestic borrowers or 15.0% of gross loans; $141 million in construction loans
or 13.7% of gross loans; $115 million in foreign bank loans or 11.2% of gross
loans; $30 million in foreign government loans or 2.9% of gross loans; $54
million in loans to other foreign domiciled borrowers, including loans secured
by domestic real estate or other domestic collateral, or 5.3% of gross loans;
and 5.1% of gross loans in consumer and other loan categories.
DEPOSITS AND BRANCH OFFICES
Lending and investment activities are funded primarily from deposits
which represented 81.6% of total liabilities and stockholders' equity at
December 31, 1998. 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, 1998, $328 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, 1998, approximately $305 million or 23.7% of the total
deposits were comprised of time deposits in amounts in excess of $100,000. Of
this total, Florida public entity deposits amounted to approximately $87 million
or 6.8% of total deposits. 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 of
FNMA 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.
BORROWINGS
The Company uses borrowings as part of its asset and liability
management practices, primarily to fund investment activities. Borrowings are
generally collateralized by identified Company assets. At December 31, 1998, the
Company had $108 million in borrowings, representing 6.9% of its total
liabilities and stockholders' equity. Borrowings are of a short term nature
ranging from overnight to a final original maturity of three years.
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
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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 the 1990s, there
have been significant improvements in the economies of many countries in this
region. However, there have been recent, serious economic downturns for some
countries in this region, particularly Brazil and Ecuador, and there can be no
assurance that widespread economic difficulties will not be experienced by other
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 non-performing 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.
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;
however, this proceeding is currently stayed.. 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.
In August 1998, the Bank commenced a civil action in the United States
District Court for the Southern District of Florida against a state bank named
"Republic Bank", for trademark infringement and unfair competition
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under the Lanham Act and under Florida statutory and common law. The case is
currently in the discovery stage. Consequently, management is unable to predict
with any certainty the extent to which an adverse outcome of the proceeding may
have a material effect upon 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. In October 1998, the Company converted , under a license with its main
existing software vendor, all of its loan, deposit and principal accounting
applications to a year 2000 compliant system, replacing an existing licensing
arrangement which was to expire in 1999. This new software has required
additional hardware capacity. Costs associated with this endeavor are related to
the expiring software license replacement 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 new software
licensing agreement and the additional hardware leases resulted in capital
expenditures of approximately $362,000 and will increase 1999 operating costs by
an estimated $400,000.
The Company has upgraded all critical software applications to be year
2000 compliant and has completed testing of the renovated systems for year 2000
compliance. Banking regulators require completion of the testing phase by June
1999.
The Company has evaluated the impact of the year 2000 on other smaller
software applications, PC computer hardware and other equipment, including
telephone systems, elevators and air conditioning systems and is in the process
of upgrading necessary hardware and software of the non-critical applications.
The Company believes that all essential information technology and
non-information technology systems will be year 2000 compliant and that the
costs associated with year 2000 compliance will not be material to the Company.
Capital expenditures associated with the year 2000 are estimated at
approximately $700,000 and are within the normal equipment replacement cycle of
the Company.
The Company has and continues to assess through direct communication
whether customers, vendors, service providers and funds providers may have
compliance issues which will affect their interaction with the Company. No
assurance can be given that the systems of customers, vendors, service providers
and funds providers will be year 2000 compliant and that the failure to achieve
year 2000 compliance by such third parties will not have a material adverse
effect on the Company's business.
The Company's normal contingency plans include off-site recovery at a
back-up facility as well as limited manual processing capabilities. Specific
contingency plans have been developed targeted at the year 2000 event which
consider disruptions in the infrastructure that supports the Company's operating
environment.
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. In Miami-Dade County, the Company competes with similarly sized local
financial institutions, regional and multi-
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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 County, the Company competes primarily with regional and multi-regional
financial institutions. Many of the foregoing institutions also are the primary
competitors of the Company for employees.
Many of the Company's competitors, including the regional and
multi-regional financial institutions, have greater financial and other
resources than the Company. The Company believes that it has been able to
compete effectively with other financial institutions by emphasizing customer
service, through local decision-making, by establishing long term customer
relationships and building customer loyalty and by designing its loan products
to address the specific needs of its customers, when appropriate. Although the
Company has been able to compete effectively 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 non-financial 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.
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ACTIVITIES "CLOSELY RELATED" TO BANKING. The BHCA prohibits a bank
holding company, with certain limited exceptions, from acquiring direct or
indirect ownership or control of any voting shares of any company which is not a
bank or from engaging in any activities other than those of banking, managing or
controlling banks and certain other subsidiaries, or furnishing services to or
performing services for its subsidiaries. One principal exception to these
prohibitions allows the acquisition of interests in companies whose activities
are found by the FRB, by order or regulation, to be so closely related to
banking or managing or controlling banks, as to be a proper incident thereto.
Some of the activities that have been determined by regulation to be closely
related to banking are making or servicing loans, performing certain data
processing services, acting as an investment or financial advisor to certain
investment trusts and investment companies, and providing securities brokerage
services. Other activities approved by the FRB include the provision of consumer
financial counseling, tax planning and tax preparation, futures and options
advisory services, check guaranty services, collection agency and credit bureau
services, and personal property appraisals.
In approving acquisitions by bank holding companies of companies
engaged in banking-related activities, the FRB considers a number of factors and
weighs the expected benefits to the public (such as 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 non-bank 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 non-banking 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, 1998, the Company's ratio of Tier 1 capital to total
risk-weighted assets was 16.6%, and its ratio of total capital to total
risk-weighted assets was 17.9%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Capital Resources."
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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, 1998, the
Company's leverage ratio was 10.3%. 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 of 1991 ("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. 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,
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<PAGE>
any company is required to obtain the approval of the FRB under the BHCA before
acquiring 25% (5% in the case of an acquiror that is already a bank holding
company) or more of the outstanding Common Stock of the Company, or otherwise
obtaining control or a "controlling influence" over the Company.
CROSS-GUARANTEE PROVISIONS. The Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA") contains a "cross-guarantee" provision
which generally makes commonly controlled insured depository institutions liable
to the FDIC for any losses incurred in connection with the failure of a commonly
controlled insured 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 banking 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' enforcement authority in recent years, and the agencies have not yet
fully tested the limits of their enforcement 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.
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<PAGE>
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 deposit accounts are insured by the FDIC. Its operations are therefore also
subject to certain FRB and FDIC regulations. Various other federal and state
consumer laws and regulations also affect the operations of the Bank.
As a national bank, the Bank may be able to engage in certain
activities approved by the OCC which the FRB would not necessarily approve for
the Company or its non-national bank subsidiaries. The OCC has in recent years
allowed national banks to undertake an ever-increasing range of securities and
insurance activities. Along these lines, pursuant to certain revisions to the
OCC's regulations pertaining to national bank activities effective on December
31, 1996, national banks, among other things, are now be permitted on a
case-by-case basis to operate subsidiaries that may engage in activities some of
which are not permissible for the bank itself. Although the revised regulations
do not 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 full 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. However, in the past several months, the OCC has permitted national
banks to form operating subsidiaries to engage in activities not permissible for
national banks to conduct directly, such as (i) underwriting and dealing in
municipal revenue bonds, subject to certain limitations, and (ii) engaging in
research and verification services.
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.
11
<PAGE>
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 cash dividends that can be paid to Republic. The OCC, in general,
also has the ability to prohibit cash 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
cash dividends in any calendar year if the total of all cash dividends declared
by the Bank in that year exceeds the current year's net income combined with the
retained net income of the two preceding years. "Retained net income" means the
net income of a specified period less any common or preferred stock dividends
declared for that period. Moreover, no cash 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 cash dividends. As of December 31, 1998, an
aggregate of approximately $26 million was available for payment of cash
dividends by the Bank to the Company under applicable restrictions, without
regulatory approval.
There are also statutory limits on other transfer of funds to the
Company 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.
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<PAGE>
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 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 1998 was $260,000, and the Bank
believes it will be at least $256,000 for 1999.
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) from $4.9 million up
to $46.5 million, plus 10% of the amount over $46.5 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 the 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 CRA examination, conducted in
1998, the Bank received a "satisfactory" 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
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<PAGE>
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
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.
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 (age 54) 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.From 1985 until December 1998,
Mr. Isaias has served as President of Filanbanco, S.A., a major Ecuadorian bank,
until December 1998, when the Ecuadorian agency which guarantees bank deposits
took over control of Filanbanco, S.A. From 1971 to 1985, Mr. Isaias was employed
in various capacities at Filanbanco, S.A.
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<PAGE>
OSCAR BUSTILLO, JR. (age 55) 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 31 years of banking experience.
BERNARDO M. ARGUDIN (age 47) 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 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 25 years of banking experience.
FELIX M. GARCIA (age 49) 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 26 years of banking experience.
EDWARD F. HOLDEN (age 46) 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 22 years of
banking experience.
FERNANDO J. MARTINEZ (age 58) 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 20 years of banking
experience.
RAFAEL QUINTANA (age 58) 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 29 years
of banking experience.
ORLANDO A. QUINTERO (age 64) 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 46 years of banking experience.
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EMPLOYEES
At December 31, 1998, the Company had 690 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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<PAGE>
ITEM 2. PROPERTIES.
The Company is currently managed from its 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 2003
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 2002
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 1999
Tamarac.................... Branch Leased September 2006
<FN>
- ----------
(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.
</FN>
</TABLE>
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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. See "Trademarks and Intellectual Property" above for information
regarding the Bank's trademark infringement lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
TRADING MARKET
Effective February 12, 1998, Republic'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
information required by item 5 describing trading activity is contained in the
Annual Report to Shareholders (the "Annual Report"), which is attached hereto as
exhibit 13.1, under the caption "Selected Quarterly Market Price
Information-1998" this information is incorporated herein by reference.
As of March 19, 1999 there were approximately 206 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 $18.50.
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 1998 paid quarterly dividends aggregating $0.29 per share for the
year. A quarterly dividend of $0.10 per share was paid for the first quarter of
1999. A dividend is expected to be paid for the remaining quarters leading up to
the proposed merger with Union Planters Bank, N.A.
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.
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.
19
<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 59.1% 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 December 1998, Republic took action to reorganize its capital
structure by issuing to 13 existing shareholders of the Bank other than Republic
an aggregate of 97,693 shares of Common Stock for 41,400 shares of common stock
of the Bank. 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.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The information under the caption "Selected Consolidated Financial
Data" appearing on page 5 of 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 25 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 19 and 21, 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
PricewaterhouseCoopers LLP, appearing on pages 26 through 44 of the Annual
Report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
21
<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 1999
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.
22
<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, 1998 and 1997................................. 26
/bullet/ Consolidated Statements of Operation and Comprehensive Income for the years ended
December 31, 1998, 1997 and 1996............................................................. 27
/bullet/ Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 28
1998, 1997 and 1996..........................................................................
/bullet/ Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996... 29 - 30
/bullet/ Notes to Consolidated Financial Statements................................................... 31 - 43
/bullet/ Report of Independent Certified Public Accountants........................................... 44
<FN>
- ----------
* Incorporated by reference from the indicated pages of the 1998 Annual Report to Shareholders.
</FN>
</TABLE>
(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.
23
<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)
(10.12) Agreement and plan of Reorganization by and between
Union Planters Bank, National Association and
Republic Banking Corporation of Florida (Exhibit 2 to
Form 8-K dated March 1, 1999)
(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.
24
<PAGE>
*** 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 1998. A Form 8-K was filed on March 1, 1999 with reference
to item 5 Other Events- Announcement of merger agreement between
Republic and Union Planters Bank, N.A.
25
<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
-----------------------------------
Dated: March 30, 1999 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 March 30, 1999
- ----------------------------
ROBERTO ISAIAS
/S/ OSCAR BUSTILLO, JR. Chief Executive Officer, March 30, 1999
- ---------------------------- President and Director
OSCAR BUSTILLO, JR.
/S/ BERNARDO M. ARGUDIN Vice President and Chief Financial March 30, 1999
- ---------------------------- Officer and Principal Accounting
BERNARDO M. ARGUDIN Officer and Director
/S/ JOSE P. BARED Director March 30, 1999
- ----------------------------
JOSE P. BARED
/S/ JOHN H. BLAKE Director March 30, 1999
- ----------------------------
JOHN H. BLAKE
/S/ ESTEFANO ISAIAS Director March 30, 1999
- ----------------------------
ESTEFANO ISAIAS
/S/ WILLIAM ISAIAS Director March 30, 1999
- ----------------------------
WILLIAM ISAIAS
/S/ MILTON H. LEHR Director March 30, 1999
- ----------------------------
MILTON H. LEHR
/S/ FERNANDO TAMAYO Director March 30, 1999
- ----------------------------
FERNANDO TAMAYO
</TABLE>
26
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------ -----------
13.1 Annual Report to Security Holders.
27.1 Financial Data Schedule.
EXHIBIT 13.1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income....................................... $ 113,175 $ 114,788 $ 104,430 $ 95,056 $ 76,964
Interest expense...................................... 50,865 50,974 43,249 38,411 24,322
--------------------------------------------------------------------------
Net interest income................................... 62,310 63,814 61,181 56,645 52,642
Provision for loan losses............................. 8,017 5,566 2,381 890 2,500
--------------------------------------------------------------------------
Net interest income after provision for loan losses .. 54,293 58,248 58,800 55,755 50,142
Non-interest income................................... 23,469 23,486 23,935 22,458 20,289
Non-interest expenses................................. 53,585 52,589 53,017 50,021 46,456
--------------------------------------------------------------------------
Net income before taxes............................... 24,177 29,145 29,718 28,192 23,975
Provision for income tax expense...................... 8,233 9,617 10,324 9,103 7,687
Minority interest..................................... 150 1,188 1,350 1,330 1,136
--------------------------------------------------------------------------
Net income............................................ $ 15,794 $ 18,340 $ 18,044 $ 17,759 $15,152
==========================================================================
PER SHARE DATA:
Basic and diluted earnings............................ $ 0.75 $ 0.96 $ 0.96 $ 0.94 $ 0.80
Book value............................................ 8.05 7.27 6.61 6.15 5.32
Tangible book value .................................. 7.50 6.64 6.12 5.62 5.25
Cash dividends ....................................... 0.29 0.52 0.50 0.25 0.42
Dividends payout ratio................................ 38.67 % 54.17 % 52.08 % 26.60 % 52.50%
Weighted average common and common equivalent
shares outstanding (in thousands)................ 21,129 19,076 18,873 18,873 18,873
BALANCE SHEET DATA:
Total assets.......................................... $ 1,575,412 $ 1,515,006 $ 1,511,951 $ 1,324,968 $1,172,209
Securities............................................ 388,313 372,988 331,204 320,084 359,545
Total loans........................................... 1,030,767 929,410 973,640 821,090 667,091
Allowance for loan losses............................. 12,402 11,999 11,578 11,411 11,680
Total deposits........................................ 1,285,370 1,302,217 1,320,126 1,156,324 1,029,116
Total shareholders' equity............................ 171,003 146,131 124,693 116,140 100,447
AVERAGE BALANCE SHEET DATA:
Total assets.......................................... $ 1,530,005 $ 1,528,395 $ 1,405,517 $ 1,261,146 $1,136,191
Securities............................................ 388,791 341,947 327,425 348,438 328,504
Total loans........................................... 959,454 973,136 872,094 735,318 635,555
Allowance for loan losses............................. 12,638 12,329 11,793 11,893 11,968
Total deposits........................................ 1,292,720 1,321,188 1,221,350 1,105,382 1,000,787
Total shareholders' equity............................ 162,288 126,865 116,493 106,141 95,250
PERFORMANCE RATIOS:
Return on average assets.............................. 1.03 % 1.20 % 1.28 % 1.41 % 1.33 %
Return on average equity.............................. 9.73 14.46 15.49 16.73 15.91
Net interest margin................................... 4.47 4.58 4.77 4.91 5.06
Efficiency ratio...................................... 62.58 60.24 62.29 63.09 63.70
ASSET QUALITY RATIOS:
Non-performing assets to total loans
and other real estate............................ 0.97 % 0.94 % 0.55 % 0.96 % 1.21 %
Net loan charge-offs to average loans................. 0.79 0.53 0.25 0.25 0.37
Allowance for loan losses to total loans.............. 1.20 1.29 1.19 1.39 1.75
Allowance for loan losses to non-performing loans..... 124.21 179.49 395.96 244.09 230.74
CAPITAL RATIOS:
Leverage ratio (Tier 1 capital-to-total assets)....... 10.34 % 8.96 % 8.52 % 8.78 % 9.32 %
Average shareholders' equity to average total assets.. 10.61 8.30 8.29 8.42 8.38
Tier 1 risk-based capital ratio....................... 16.61 15.01 14.44 13.75 15.63
Total risk-based capital ratio........................ 17.86 16.26 15.69 15.00 16.88
</TABLE>
<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, 1998, 1997, and 1996 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 99.6% 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
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 February 1998, Republic completed an initial public offering of its common
stock and issued an additional 1,233,270 shares of its common stock.
In August 1998, Republic's Board of Directors authorized a stock repurchase
program. During the remainder of 1998 Republic repurchased 193,200 shares of its
common stock at an average price of $10.31.
In December 1998, Republic issued 97,693 shares of its common stock in exchange
for 41,400 shares of the common stock of the Bank held by minority shareholders,
increasing its ownership in the subsidiary from 99.1% to 99.6%.
PERFORMANCE OVERVIEW
Republic had net income in 1998 of $15.8 million representing a decrease of $2.5
million from 1997 net income of $18.3 million. Net income for 1997 was $296,000
higher than 1996 net income of $18.0 million. Net income per average basic and
fully diluted share was $0.75 for 1998, and $0.96 for 1997 and 1996. Return on
average shareholders' equity was 9.73%, 14.46% and 15.49% for 1998, 1997, and
1996, respectively.
The decrease in net income from 1997 to 1998 was due, primarily to a continued
increase in the provision for loan losses, a decrease in net interest income and
higher occupancy and equipment expense. The provision for loan losses of $8.0
million was 1.4 times the 1997 provision. The increased provision resulted from
loan losses of $6.3 million relating to a single large commercial loan
relationship. Net interest income declined primarily as a result of competitive
pricing pressure on loans and deposits and the introduction of a premium money
market product which, while reversing a decline in the volume of money market
accounts from 1996 to 1997, raised the overall cost of money market deposits by
74 basis point from 1997 to 1998. The increase in occupancy and equipment
expense reflects the impact of the expenses associated with Republic's new
headquarters building which opened in May 1997 and higher computer expense
related to the replacement of software and hardware systems.
The decrease in return on average shareholders' equity resulted from the
combined effect of a higher equity capital position, diminished leverage and
lower earnings. Loan volume declined during the first half of the year as
Republic took steps to reduce some of its larger commercial credit exposures.
Loan volume increased in the second half of the year from growth in
international, residential and commercial real estate lending.
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 in 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.
Total assets at December 31, 1998, 1997 and 1996 were $1,575.4 million, $1,515.0
million and $1,512.0 million, respectively. Total deposits at December 31, 1998,
1997 and 1996 were $1,285.4 million, $1,302.2 million, and $1,320.1 million,
respectively. Total loans at December 31, 1998, 1997, and 1996 were $1,030.8
million, $929.4 million and $973.6 million, respectively.
Total shareholders' equity was $171.0 million, $146.1 million and $124.7 million
at December 31, 1998, 1997, and 1996, respectively.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS-(CONTINUED)
RESULTS OF OPERATIONS
NET INTEREST INCOME
1998 VERSUS 1997. Net interest income totaled $62.3 million for 1998 compared to
$63.8 million in 1997, a decrease of $1.5 million or 2.4%. Interest income
decreased $1.6 million, a decline which was driven by interest rates and asset
mix. Overall average interest earning assets increased by $1.8 million, or .13%
and average loans decreased by $13.7 million, or 1.4%, respectively, in 1998 as
compared to 1997. The decline in average loans was offset by higher investment
volume.
Loan interest income declined by $2.4 million, which was due to the lower
average loan volume and to the decline in overall loan yield. The change in
average asset mix with growth in lower yielding investments and a decline in
loans resulted in lower income and earning asset yield.
The decrease in interest income was partially offset by a decrease in interest
expense of $109,000 or 0.21% resulting from a decline in the volume of interest
bearing liabilities. The lower volume of interest bearing liabilities and the
increased funding from shareholder's equity offset the higher cost of several
interest bearing categories, primarily money market accounts. Average interest
bearing liabilities decreased by $18.9 million, or 1.70%.
Net interest margins were 4.47% and 4.58% and net interest spreads were 3.46%
and 3.66%, for 1998 and 1997, respectively. The decrease in the net interest
margin from 1997 to 1998 reflects a 7 basis point increase in the rate paid on
average interest bearing liabilities and a 13 basis point decrease in the yield
on average interest earning assets. The yield on average interest earning assets
decreased to 8.11% in 1998 from 8.24% in 1997 due to lower yields on loans and
investment securities. Average loan yield decreased from 9.16% in 1997 to 9.04%
in 1998. The cost of average interest bearing liabilities increased from 4.58%
in 1997 to 4.65% in 1998.
1997 VERSUS 1996. Net interest income totaled $63.8 million for 1997 compared to
$61.2 million in 1996, an increase of $2.6 million or 4.25%. 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 9.20% in 1996 to 9.16% 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 4.58% and 4.77% and net interest spreads were 3.66%
and 3.82%, 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 8.24% in 1997 from 8.15% 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.
Funds utilized for the construction of Republic's headquarters reduced the
available volume of earning assets and resulting net interest income in 1998,
1997 and 1996. A capitalized construction interest cost was imputed and
reflected as a credit in "Other Operating Expenses" in the amount of $390,000
and $773,000 in 1997 and 1996, respectively. Construction was completed in the
first half of 1997.
<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,
---------------------------------------------------------------------------------------
1998 1997
----------------------------------------- ----------------------------------------
AVERAGE AVERAGE
OUTSTANDING INTEREST AVERAGE OUTSTANDING INTEREST AVERAGE
BALANCE EARNED/PAID YIELD/RATE BALANCE EARNED/PAID YIELD/RATE
------------ ----------- ---------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest earning assets:
Total loans................................. $ 959,454 $ 86,703(1) 9.04% $ 973,136 $ 89,110(1) 9.16%
Taxable securities.......................... 362,919 22,433 6.18 308,095 19,536 6.34
Tax-exempt securities....................... 25,872 1,340 5.18 33,852 1,903 5.62
Federal funds sold and other
temporary investments.................. 46,503 2,699 5.80 77,894 4,239 5.44
---------- -------- ---- ---------- -------- ----
Total interest earning assets............... 1,394,748 113,175 8.11 1,392,977 114,788 8.24
-------- ---- -------- ----
Less allowance for loan losses.............. 12,638 12,329
---------- ----------
Total interest earning assets, net of
allowance.............................. 1,382,110 1,380,648
Non-earning assets.......................... 147,895 147,747
---------- ----------
Total assets................................ $1,530,005 $1,528,395
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Interest bearing demand deposits............ $ 57,981 786 1.36 63,156 962 1.52
Savings and money market accounts........... 255,651 8,037 3.14 247,989 7,023 2.83
State, county and municipal
certificates of deposit................ 69,185 3,889 5.62 30,999 1,715 5.53
Certificates of deposit..................... 649,827 35,139 5.41 711,786 38,388 5.39
Federal funds purchased and securities
sold under repurchase agreements....... 51,492 2,530 4.91 53,243 2,561 4.81
Other borrowings............................ 9,986 484 4.85 5,869 325 5.54
---------- -------- ---- ---------- -------- ----
Total interest bearing liabilities.......... 1,094,122 50,865 4.65 1,113,042 50,974 4.58
-------- ---- -------- ----
Non-interest bearing demand deposits........ 260,076 267,258
Other liabilities........................... 12,200 13,380
---------- ----------
Total liabilities........................... 1,366,398 1,393,680
Minority interest........................... 1,319 7,850
Shareholders' equity........................ 162,288 126,865
---------- ----------
Total liabilities and shareholders' equity.. $1,530,005 $1,528,395
========== ==========
Net interest income......................... $ 62,310 $ 63,814
======== ========
Net interest spread......................... 3.46% 3.66%
==== ====
Net interest margin......................... 4.47% 4.58%
---- ----
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996
---------------------------------------
AVERAGE
OUTSTANDING INTEREST AVERAGE
BALANCE EARNED/PAID YIELD/RATE
----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
Interest earning assets:
Total loans................................. $ 872,094 $ 80,193(1) 9.20%
Taxable securities.......................... 296,318 17,893 6.04
Tax-exempt securities....................... 31,107 1,874 6.02
Federal funds sold and other
temporary investments.................. 82,064 4,470 5.45
---------- -------- ----
Total interest earning assets............... 1,281,583 104,430 8.15
-------- ----
Less allowance for loan losses.............. 11,793
----------
Total interest earning assets, net of
allowance.............................. 1,269,790
Non-earning assets.......................... 135,727
----------
Total assets................................ $1,405,517
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Interest bearing demand deposits............ $ 66,229 $ 1,103 1.67%
Savings and money market accounts........... 261,718 7,474 2.86
State, county and municipal
certificates of deposit................ 18,907 1,013 5.36
Certificates of deposit..................... 610,132 31,692 5.19
Federal funds purchased and securities
sold under repurchase agreements....... 37,483 1,769 4.72
Other borrowings............................ 4,432 198 4.47
---------- -------- ----
Total interest bearing liabilities.......... 998,901 43,249 4.33
-------- ----
Non-interest bearing demand deposits........ 264,364
Other liabilities........................... 17,102
----------
Total liabilities........................... 1,280,367
Minority interest........................... 8,657
Shareholders' equity........................ 116,493
----------
Total liabilities and shareholders' equity.. $1,405,517
==========
Net interest income......................... $ 61,181
========
Net interest spread......................... 3.82%
====
Net interest margin......................... 4.77%
----
</TABLE>
(1) Includes $2.6 million, $2.9 million and $2.4 million in loan fees for 1998,
1997 and 1996, respectively.
<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 YEAR ENDED
DECEMBER 31, 1998 V. 1997 DECEMBER 31, 1997 V. 1996
---------------------------------- -----------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
--------------------- ---------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
- ----------------------------------------------------------------------------------------- -----------------------------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Total loans.......................................... $ (1,253) $ (1,154) $ (2,407) $ 9,296 $ (379) $ 8,917
Securities........................................... 2,937 (603) 2,334 877 795 1,672
Federal funds sold and other temporary investments (1,708) 168 (1,540) (227) (4) (231)
- --------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in interest income......... (24) (1,589) (1,613) 9,946 412 10,358
- --------------------------------------------------------------------------------------------------------------------------------
Interest bearing liabilities:
Interest bearing demand deposits..................... (79) (97) (176) (51) (90) (141)
Savings and money market accounts.................... 217 797 1,014 (393) (58) (451)
State, county and municipal certificates of deposit.. 2,112 62 2,174 648 54 702
Certificates of deposit and other time deposits...... (3,340) 91 (3,249) 5,276 1,420 6,696
Federal funds purchased and securities sold under
repurchase agreements........................... (84) 53 (31) 744 48 792
Other borrowings..................................... 228 (69) 159 64 63 127
- --------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in interest expense........ (946) 837 (109) 6,288 1,437 7,725
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net interest income........... $ 922 $ (2,426) $ (1,504) $ 3,658 $ (1,025) $ 2,633
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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,
segregated by domestic and foreign activities 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>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998
---------------------------------------------
AVERAGE
OUTSTANDING INTEREST AVERAGE
BALANCE EARNED/PAID YIELD/RATE
- -------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
Interest earning assets:
Total loans-domestic........................................... $ 820,134 $ 74,647 9.10%
Total loans-foreign............................................ 139,320 12,056 8.65
Taxable securities-domestic.................................... 362,219 22,382 6.18
Taxable securities-foreign..................................... 700 51 7.29
Tax-exempt securities-domestic................................. 25,872 1,340 5.18
Federal funds sold............................................. 41,851 2,291 5.47
Other temporary investments-foreign............................ 4,652 408 8.77
----------- ----------- ----
Total interest earning assets.................................. 1,394,748 113,175 8.11
----------- ----
Less allowance for loan losses-domestic........................ 10,803
Less allowance for loan losses-foreign......................... 1,835
-----------
Total interest earning assets, net of allowance................ 1,382,110
Non-earning assets-domestic.................................... 147,074
Non-earning assets-foreign..................................... 821
-----------
Total assets................................................... $ 1,530,005
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Interest bearing demand deposits-domestic...................... $ 38,513 488 1.27
Interest bearing demand deposits-foreign....................... 19,468 298 1.53
Savings and money market accounts-domestic..................... 186,240 5,839 3.14
Savings and money market accounts-foreign...................... 69,411 2,198 3.17
State, county and municipal certificates of deposit-domestic... 69,185 3,889 5.62
Certificates of deposit-domestic............................... 469,049 25,353 5.41
Certificates of deposit-foreign................................ 180,778 9,786 5.41
Federal funds purchased and securities sold under
repurchase agreements-domestic............................. 47,477 2,353 4.96
Federal funds purchased and securities sold under
repurchase agreements-foreign.............................. 4,015 177 4.41
Other borrowings-domestic...................................... 9,986 484 4.85
----------- ----------- ----
Total interest bearing liabilities............................. 1,094,122 50,865 4.65
----------- ----
Non-interest bearing demand deposits-domestic.................. 218,280
Non-interest bearing demand deposits-foreign................... 41,796
Other liabilities-domestic..................................... 11,442
Other liabilities-foreign...................................... 758
-----------
Total liabilities.............................................. 1,366,398
Minority interest.............................................. 1,319
Shareholders' equity........................................... 162,288
-----------
Total liabilities and shareholders' equity..................... $ 1,530,005
===========
Net interest income............................................ $ 62,310
===========
Net interest spread............................................ 3.46%
====
Net interest margin............................................ 4.47%
====
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS-(CONTINUED)
PROVISION FOR LOAN LOSSES
In determining the adequacy of the allowance for loan losses, the Bank 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 $2.4 million to $8.0 million for 1998
from $5.6 million for 1997. The provision increased by $3.2 million for 1997
from $2.4 million for 1996. The provision for 1998 was 1.4 times the 1997 level
and 3.3 times the 1996 level. The increased provision for 1998 from 1997
resulted from a $6.3 million loss on a single large commercial loan
relationship. The increase in provision for 1997 from 1996 resulted from a high
level of consumer loan losses and above historical average commercial loan
losses. The volume of consumer net losses has declined from $1.6 million in 1997
to $408,000 in 1998. The volume of commercial net loan losses has increased from
$782,000 in 1996 to $3.3 million in 1997 and $7.4 million in 1998. Management is
aware of the impact of large commercial loan losses on Republic's performance
and has increased its credit monitoring efforts in this area.
NON-INTEREST INCOME
Non-interest income for the year ended December 31, 1998 remained level with
1997 at $23.5 million. Non-interest income in 1997 decreased $449,000 or 1.9%
compared to non-interest income of $23.9 million in 1996 primarily as a result
of a decline in income from service charges on deposits. The following table
presents for the periods indicated the major categories of non-interest income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service charges on deposit accounts............ $ 11,824 $ 12,070 $ 12,960
Merchant credit card discounts................. 7,751 7,894 7,307
Letter of credit fees.......................... 929 1,015 1,064
Gains on sale of securities.................... 154 - 1
Other non-interest income...................... 2,811 2,507 2,603
- ------------------------------------------------------------------------------------------
Total non-interest income............ $ 23,469 $ 23,486 $ 23,935
- ------------------------------------------------------------------------------------------
</TABLE>
Service charges on deposit accounts are the primary component of non-interest
income. Service charges on deposit accounts declined by $246,000 to $11.8
million from 1997 to 1998 and $890,000 to $12.1 million from 1996 to 1997.
Merchant credit card discounts, the next largest component of non-interest
income decreased from $7.9 million in 1997 to $7.8 million in 1998 and increased
by $587,000 in 1997 from $7.3 million in 1996. Letter of credit fee income
declined by $86,000 or 8.47% in 1998 from $1.0 million in 1997, due to a decline
in product demand resulting in a lower volume of activity.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS-(CONTINUED)
NONINTEREST EXPENSES
For 1998, 1997 and 1996, non-interest expenses totaled $53.6 million, $52.6
million and $53.0 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 62.58%, 60.24% and 62.29% for
1998, 1997 and 1996, respectively.
The following table represents, for the periods indicated, the major categories
of non-interest expenses:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Employee compensation and benefits................. $ 26,960 $ 26,706 $ 26,775
- ----------------------------------------------------------------------------------------------
Non-staff expenses:
Occupancy.......................................... 5,806 5,557 4,770
Furniture and equipment............................ 3,235 2,921 2,985
Provision for loss on disposition of property...... 213 -- 1,275
Merchant credit card interchange fees.............. 5,742 5,589 5,104
Professional fees.................................. 886 529 1,218
FDIC assessment.................................... 260 265 1,868
Advertising........................................ 744 1,372 880
Amortization of intangibles........................ 1,136 982 845
Printing and supplies.............................. 994 902 940
Other real estate owned............................ (206) 223 111
Fraud losses (recoveries), net..................... 313 431 (11)
Capitalized construction interest credit........... -- (390) (773)
Other.............................................. 7,502 7,502 7,030
- ----------------------------------------------------------------------------------------------
Total non-staff expenses........................... 26,625 25,883 26,242
- ----------------------------------------------------------------------------------------------
Total non-interest expense......................... $ 53,585 $ 52,589 $ 53,017
- ----------------------------------------------------------------------------------------------
</TABLE>
1998 v. 1997 Employee compensation and benefit expense for 1998 was $27.0
million, an increase of $254,000 or 0.95% from $26.7 million for 1997. Total
full-time equivalent employees at December 31, 1998 and 1997 were 690 and 709,
respectively. Slow growth in compensation and benefit expense reflected lower
bonus accruals in 1998 and reduced full time equivalent employees.
Non-staff expenses were $26.6 million in 1998, an increase of $742,000 or 2.87%
from $25.9 million in 1997. This increase in non-staff expenses primarily
reflected an increase in occupancy, furniture and equipment expense of $563,000
associated with Republic's headquarters building opened in April 1997 and higher
computer expense. A write-down on former banking premises of $213,000 was taken
in 1998. Increases were also reflected in merchant credit card interchange fees
and in professional fees. The latter reflects costs associated with a computer
systems consulting project and professional fees associated with regulatory
compliance. Reductions in advertising and other real estate owned expense helped
offset increases in other expense categories.
1997 v. 1996 Employee compensation and benefit expense for 1997 decreased
$69,000 or 0.26% from $26.8 million in 1996. Total full-time equivalent
employees at December 31, 1997 and 1996 were 709 and 690, respectively. The
decrease resulted primarily from the continued results of a re-engineering
program completed in 1996. Cost savings from this program in 1997 were partly
offset by salary and benefit adjustments implemented in the second and third
quarter of 1997 in response to the high personnel turnover in 1997 following the
Barnett acquisition discussions.
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 partly by
higher occupancy expenses , increased merchant credit card exchange fees and
advertising expenses.
Occupancy expense increased $787,000 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.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS-(CONTINUED)
INCOME TAXES
In 1998, income tax expense was $8.2 million, a decrease of $1.4 million or
14.6% from $9.6 million for 1997. In 1997, income tax expense was $707,000 or
6.8% lower than the $10.3 million expense for 1996. The effective tax rates in
1998, 1997 and 1996,respectively, were 34.05%, 33.00% and 34.74%.
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 real estate loans,
construction loans and commercial loans. Republic also focuses on single-family
residential loans and international loans, as well as consumer loans to a lesser
extent.
Total loans increased by $101.4 million or 10.9% to $1,030.8 million at December
31, 1998, from $929.4 million at December 31, 1997. The increase was centered in
construction loans which increased by $92.8 million or 191.6% and foreign bank
loans which increased by $54.6 million or 89.8%. Foreign government loans
increased by $29 million. Residential mortgage lending on domestic properties to
domestic and foreign domiciled borrowers increased, while commercial, commercial
real estate and other consumer loans declined. Loan portfolio mix change
reflected management's strategic direction for 1999 as well as the impact of
customer loan demand and competition.
During 1997, total loans decreased by $44.2 million or 4.54% from $973.6 million
at December 31, 1996. The decrease in 1997 was centered in foreign bank loans
which decreased by $76.4 million or 55.7% and domestic consumer loans which
declined $25.3 million or 30.3%. The decrease in these loan categories was
partly offset by growth in commercial real estate, construction and residential
mortgage lending.
Total loans represented 65.43%, 61.35% and 64.39% of assets at December 31,
1998, 1997 and 1996, respectively. Total loans represented 80.19%, 71.37% and
73.75% of deposits at December 31, 1998, 1997 and 1996, respectively.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS-(CONTINUED)
The following table summarizes the loan portfolio by type of loan as of the
dates indicated:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------ -------------------- ---------------- ----------------- -------------------
% OF % OF % OF % OF % OF
GROSS GROSS GROSS GROSS GROSS
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
- ---------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial.............$ 228,472 22.12% $269,978 28.97% $286,054 29.25% $287,080 34.81% $202,921 30.26%
Commercial real estate. 255,604 24.74 261,902 28.10 225,813 23.09 181,887 22.05 165,102 24.62
Construction........... 141,241 13.67 48,434 5.20 38,761 3.96 33,957 4.12 16,976 2.53
Residential first
mortgages (1)..... 154,466 14.95 154,864 16.62 133,005 13.60 120,539 14.61 90,926 13.56
Residential equity
lines............. 13,324 1.29 16,487 1.77 19,938 2.04 17,458 2.12 9,829 1.47
Consumer............... 36,028 3.49 58,024 6.23 83,331 8.52 85,226 10.33 72,668 10.84
Overdrafts............. 3,965 0.38 5,352 0.57 3,722 0.38 3,349 0.41 3,771 0.56
Domestic Banks - - 4,357 0.47 20,826 2.14 - - 564 0.09
- ---------------------------------------------------------------------------------------------------------------------------------
Total domestic......... 833,100 80.64 819,398 87.93 811,450 82.98 729,496 88.45 562,757 83.93
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign:
Banks.................. 115,392 11.17 60,806 6.52 137,181 14.03 66,689 8.09 79,827 11.90
Government............. 30,200 2.92 1,000 0.11 3,000 0.31 6,000 0.73 7,000 1.04
Other.................. 54,408 5.27 50,721 5.44 26,213 2.68 22,614 2.73 20,901 3.13
- ---------------------------------------------------------------------------------------------------------------------------------
Total foreign.......... 200,000 19.36 112,527 12.07 166,394 17.02 95,303 11.55 107,728 16.07
- ---------------------------------------------------------------------------------------------------------------------------------
Total gross loans...... 1,033,100 100.00% 931,925 100.00% 977,844 100.00% 824,799 100.00% 670,485 100.00%
====== ====== ====== ====== ======
Unearned............... (2,333) (2,515) (4,204) (3,709) (3,394)
------------ -------- -------- -------- --------
Total loans............$ 1,030,767 $929,410 $973,640 $821,090 $667,091
============ ======== ======== ======== ========
</TABLE>
(1) Prior to 1998, residential first mortgages on US properties cannot be
segregated by country of domicile of borrower. All such loans for 1994 through
1997 are reflected in the domestic total.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS-(CONTINUED)
The contractual maturity ranges of the loan portfolio, by type and the amount of
such loans with predetermined interest rates and floating rates in each maturity
range as of December 31, 1998 are summarized in the following table:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
----------------------------------------------------
ONE YEAR BETWEEN ONE AND
OR LESS FIVE YEARS AFTER FIVE YEARS TOTAL
- -------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Domestic:
Commercial............................. $ 100,063 $ 102,414 $ 25,995 $ 228,472
Commercial real estate................. 68,508 146,241 40,855 255,604
Construction........................... 40,050 101,162 29 141,241
Residential first mortgages............ - 2,387 152,079 154,466
Residential equity line................ - 675 12,649 13,324
Consumer............................... 2,215 24,788 9,025 36,028
Overdrafts............................. 3,965 - - 3,965
- -------------------------------------------------------------------------------------------------
Total domestic...................... 214,801 377,667 240,632 833,100
- -------------------------------------------------------------------------------------------------
Foreign:
Banks.................................. 115,392 - - 115,392
Government............................. 30,200 - - 30,200
Other.................................. 13,986 12,700 27,722 54,408
- -------------------------------------------------------------------------------------------------
Total foreign....................... 159,578 12,700 27,722 200,000
- -------------------------------------------------------------------------------------------------
Total............................ $ 374,379 $ 390,367 $ 268,354 $1,033,100
=================================================================================================
Loans with a predetermined interest rate.. $ 256,695 $ 228,672 $ 201,214 $ 686,581
Loans with a floating interest rate....... 117,684 161,695 67,140 346,519
- -------------------------------------------------------------------------------------------------
Total............................ $ 374,379 $ 390,367 $ 268,354 $1,033,100
- -------------------------------------------------------------------------------------------------
</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,
-------------------------------------------------------
1998 1997 1996
------------------ ----------------- ------------------
% OF GROSS % OF GROSS % OF GROSS
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
- ---------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
United States..................... $ 833 80.64% $ 819 87.88% $ 812 83.03%
Ecuador........................... 42 4.07 23 2.47 13 1.33
Brazil............................ 34 3.29 22 2.36 30 3.07
Peru.............................. 29 2.81 18 1.93 21 2.15
Panama............................ 14 1.36 7 0.97 11 1.12
Guatemala......................... 12 1.16 9 0.75 11 1.12
El Salvador....................... 12 1.16 5 0.54 5 0.51
Colombia.......................... 3 0.29 1 0.11 12 1.23
Other (1)......................... 54 5.22 28 2.99 63 6.44
- ---------------------------------------------------------------------------------------------
Total Gross Loans............ $1,033 100.00% $ 932 100.00% $ 978 100.00%
- ---------------------------------------------------------------------------------------------
</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.
<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,
------------------------------------------------------
1998 1997 1996
------------------ ----------------- -----------------
% OF TOTAL % OF TOTAL % OF TOTAL
AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS
- --------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Ecuador........................... $ 42 2.67% $ 23 1.52% $ 13 0.86%
Brazil............................ 34 2.16 22 1.45 30 1.98
Peru.............................. 29 1.84 18 1.19 21 1.39
Panama............................ 14 0.89 7 0.46 11 0.73
Guatemala......................... 12 0.76 9 0.59 11 0.73
El Salvador....................... 12 0.76 5 0.33 3 0.20
Colombia.......................... 3 0.19 1 0.07 12 0.79
Other (1)......................... 55 3.49 30 1.98 67 4.43
- --------------------------------------------------------------------------------------------
Total........................ $ 201 12.76% $ 115 7.59% $ 168 11.11%
- --------------------------------------------------------------------------------------------
</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.
As of December 31, 1998, there were no past due loans to foreign domiciled
borrowers. Since December 31, 1998 uncertainty over the economic conditions and
liquidity of the banking systems in Ecuador and Brazil have increased.
Management has taken steps to reduce the exposure in these countries as
outstanding loans mature.
NON-PERFORMING ASSETS
Non-performing assets at December 31, 1998 were $10.0 million compared to $8.7
million at December 31, 1997 and $5.3 million at December 31, 1996. This
resulted in ratios of non-performing assets to total loans plus other real
estate of 0.97%, 0.94% and 0.55% for 1998, 1997 and 1996, respectively. All
non-performing assets were domestic.
The following table presents information regarding non-performing assets at the
dates indicated:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans.................................. $ 7,619 $ 5,863 $ 1,563 $ 4,066 $ 4,564
Restructured loans................................. 48 371 404 306 368
Accruing loans 90 days or more past due............ 2,318 451 957 303 130
Other real estate.................................. 34 2,047 2,411 3,247 3,041
- ----------------------------------------------------------------------------------------------------------------------
Total non-performing assets..................... $ 10,019 $ 8,732 $ 5,335 $ 7,922 $ 8,103
======================================================================================================================
Non-performing assets to total loans
and other real estate........................... 0.97% 0.94% 0.55% 0.96% 1.21%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
If Republic had recorded interest on non-accrual loans, interest income on loans
would have increased by approximately $370,000, $273,000, $226,000, $350,000 and
$700,000 in 1998, 1997, 1996, 1995 and 1994, 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 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.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS-(CONTINUED)
The following is a summary of impaired loans for the years ended December 31,
1998, 1997 and 1996:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
- -------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Investment in impaired loans........... $ 5,813 $ 1,328 $ 262
Valuation allowance.................... 86 123 8
Average recorded investment in
impaired loans...................... 8,151 2,081 1,229
- -------------------------------------------------------------------------
</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 1998, net loan charge-offs totaled $7.6 million or 0.79% of average loans
outstanding, compared to $5.1 million or 0.53% in net loan charge-offs during
1997. During 1998, Republic recorded a provision for loan losses of $8.0 million
compared with $5.6 million for 1997. At December 31, 1998, the allowance totaled
$12.4 million, or 1.20% of total loans.
For the year ended 1997, net loan charge-offs totaled $5.1 million compared to
$2.2 million or 0.25% in net loan charge-offs in 1996. Republic made a provision
for loan losses of $5.6 million during 1997 as compared to a provision of $2.4
million for 1996. At December 31, 1997, the allowance aggregated $12.0 million
or 1.29% of total loans compared to $11.6 million, or 1.19% of total loans at
December 31, 1996.
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,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans outstanding............................. $ 959,454 $ 973,136 $ 872,094 $ 735,318 $ 635,555
===============================================================================================================================
Total loans outstanding at end of period.............. $ 1,030,767 $ 929,410 $ 973,640 $ 821,090 $ 667,091
===============================================================================================================================
Allowance for loan losses at beginning of period...... $ 11,999 $ 11,578 $ 11,411 $ 11,680 $ 11,563
Provision for loan losses............................. 8,017 5,566 2,381 890 2,500
Allowance from acquired bank.......................... -- -- -- 701 --
Charge-offs:
Commercial and industrial........................ (8,341) (3,898) (1,182) (690) (1,487)
Commercial real estate........................... (91) (275) (1) (131) (864)
Consumer......................................... (960) (2,342) (2,058) (1,241) (732)
Foreign.......................................... -- -- -- (521) (210)
Recoveries:
Commercial and industrial........................ 961 646 400 261 320
Commercial real estate........................... 226 21 17 21 82
Consumer......................................... 552 703 610 441 298
Foreign.......................................... 39 -- -- -- 210
- -------------------------------------------------------------------------------------------------------------------------------
Net loan charge-offs.................................. (7,614) (5,145) (2,214) (1,860) (2,383)
- -------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of period............ $ 12,402 $ 11,999 $ 11,578 $ 11,411 $ 11,680
===============================================================================================================================
Ratio of allowance to end of period loans............. 1.20% 1.29% 1.19% 1.39% 1.75%
Ratio of net loan recoveries (charge-offs) to
average loans.................................... 0.79 0.53 0.25 0.25 0.37
Ratio of allowance to end of period
non-performing loans............................. 124.21 179.49 395.96 244.09 230.74
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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,
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------- ----------------- ---------------- ------------------ -----------------
% OF % OF % OF % OF % OF
GROSS GROSS GROSS GROSS GROSS
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
- -----------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance of allowance for loan
losses applicable to:
Domestic:
Commercial.................... $ 6,735 22.12% $ 5,702 28.97% $ 5,464 29.25% $ 3,921 34.81% $ 3,693 30.26%
Commercial real estate........ 1,095 24.74 812 28.10 498 23.09 1,138 22.05 797 24.62
Construction.................. 325 13.67 63 5.20 58 3.96 61 4.12 115 2.53
Residential first mortgages... 287 14.95 478 16.62 185 13.60 254 14.61 196 13.56
Residential equity lines...... 78 1.29 112 1.77 66 2.04 28 2.12 13 1.47
Consumer...................... 572 3.49 1,202 6.23 1,164 8.52 825 10.33 781 10.84
Overdrafts.................... 217 0.38 368 0.57 150 0.38 78 0.41 95 0.56
Domestic Banks................ - - - 0.47 - 2.14 - - - 0.09
- -----------------------------------------------------------------------------------------------------------------------------------
Total domestic............. 9,309 80.64 8,737 87.93 7,585 82.98 6,305 88.45 5,690 83.93
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign:
Banks......................... 912 11.17 392 6.52 943 14.03 597 8.09 1,321 11.90
Government.................... 239 2.92 11 0.11 20 0.31 52 0.73 79 1.04
Other......................... 389 5.27 253 5.44 51 2.68 - 2.73 - 3.13
- -----------------------------------------------------------------------------------------------------------------------------------
Total foreign.............. 1,540 19.36 656 12.07 1,014 17.02 649 11.55 1,400 16.07
- -----------------------------------------------------------------------------------------------------------------------------------
Unallocated:..................... 1,553 2,606 2,979 4,457 4,590
------- -------- ------- -------- --------
Total allowance for
loan losses............. $12,402 100.00% $ 11,999 100.00% $11,578 100.00% $ 11,411 100.00% $ 11,680 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SECURITIES
Republic uses its securities portfolio first as a source of liquidity and second
as a source of income. At December 31, 1998, debt securities totaled $387.9
million, an increase of $15.5 million from $372.4 million at December 31, 1997.
The increase occurred primarily in United States agency and corporation
securities. During 1997, securities increased $41.6 million from $330.8 million
at December 31, 1996. The yield on the securities portfolio was 6.11%, 6.27% and
6.04% for 1998, 1997 and 1996, respectively. Portfolio volume fluctuations
generally reflect the impact of loan demand and liquidity needs. Certain
investment securities purchases in 1998 were funded with wholesale borrowings or
public fund deposits in leverage transactions with income as a primary
objective. Borrowings of $70 million and public fund deposits of approximately
$48 million were obtained for that purpose during 1998.
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.
The following table summarizes the amortized cost of investment securities held
by Republic as of the dates shown:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
United States Treasury securities........................... $ 37,187 $167,800 $203,096
Securities of the United States agencies and corporations... 320,377 173,368 89,956
Securities issued by states and political subdivisions...... 21,400 29,278 35,895
Other debt securities....................................... 700 700 600
FHLB stock.................................................. 7,003 - -
Federal Reserve Bank stock.................................. 1,219 1,219 1,219
- ----------------------------------------------------------------------------------------------
Total securities......................................... $387,886 $372,365 $330,766
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS-(CONTINUED)
The following table summarizes the carrying value and classification of debt
securities as of the dates shown:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Available-for-sale.................... $ 167,267 $ 159,928 $168,894
Held-to-maturity...................... 221,046 213,060 162,310
- ----------------------------------------------------------------------------
Total securities..................... $ 388,313 $ 372,988 $331,204
- ----------------------------------------------------------------------------
</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, 1998 DECEMBER 31, 1997
------------------------------------------ -----------------------------------------
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..... $ 25,197 $ 335 $ - $ 25,532 $118,162 $ 535 $ - $118,697
Securities of the
United States
agencies and
corporations... 141,643 316 (224) 141,735 41,143 137 (49) 41,231
- -------------------------------------------------------------------------------------------------------------------
Total $ 166,840 $ 651 $(224) $ 167,267 $159,305 $ 672 $ (49) $159,928
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
- ---------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
United States
Treasury
securities..... $117,238 $ 169 $ (23) $117,384
Securities of the
United States
agencies and
corporations... 51,218 430 (138) 51,510
- ---------------------------------------------------------------------
Total $168,456 $ 599 $(161) $168,894
- ---------------------------------------------------------------------
</TABLE>
The following table presents the amortized cost of securities classified as
held-to-maturity and their approximate fair values as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------------------- ----------------------------------------
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.............. $ 11,990 $ 130 $ - $ 12,120 $ 49,638 $ 347 $ - $ 49,985
Securities of the
United States
agencies and
corporations............ 178,734 990 (36) 179,688 132,225 273 (58) 132,440
Securities issued by
states and political
subdivisions............ 21,400 1,125 - 22,525 29,278 933 - 30,211
Other debt
securities.............. 700 - - 700 700 - - 700
FHLB stock................. 7,003 - - 7,003 - - - -
Federal Reserve
Bank stock.............. 1,219 - - 1,219 1,219 - - 1,219
- --------------------------------------------------------------------------------------------------------------------
Total...................... $221,046 $ 2,245 $ (36) $ 223,255 $ 213,060 $ 1,553 $ (58) $ 214,555
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
- -------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
United States
Treasury
securities.............. $ 85,858 $ 952 $ (13) $ 86,797
Securities of the
United States
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
FHLB stock................. - - - -
Federal Reserve
Bank stock.............. 1,219 - - 1,219
- -------------------------------------------------------------------------
Total...................... $ 162,310 $ 1,565 $ (213) $163,662
- -------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS-(CONTINUED)
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, 1998
--------------------------------------------------------------------------------------
AFTER ONE YEAR AFTER FIVE YEARS
BUT WITHIN BUT WITHIN
WITHIN ONE YEAR FIVE YEARS TEN YEARS AFTER TEN YEARS
--------------------------------------------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD TOTAL YIELD
- ---------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States Treasury securities.. $ 29,077 6.23% $ 8,110 6.40% $ - - % $ - - % $ 37,187 6.27%
Securities of other United States
agencies and corporations....... 8,859 6.04 294,449 6.09 10,491 5.62 6,578 6.60 320,377 6.08
Securities issued by states and
political subdivisions.......... 355 4.33 1,180 4.82 9,867 5.24 9,998 5.41 21,400 5.28
Other debt securities.............. - - 400 6.85 300 6.98 - - 700 6.91
- ---------------------------------------------------------------------------------------------------------------------------
Total debt securities........ 38,291 6.17 304,139 6.09 20,658 5.46 16,576 5.88 379,664 6.06
- ---------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank Stock....... - - - - - - 7,003 7.50 7,003 7.50
Federal Reserve Bank Stock......... - - - - - - 1,219 6.00 1,219 6.00
Federal funds sold................. 23,705 4.71 - - - - - - 23,705 4.71
Temporary investments.............. 136 5.49 - - - - - - 136 5.49
- ---------------------------------------------------------------------------------------------------------------------------
Total........................ $ 62,132 5.61% $304,139 6.09% $ 20,658 5.46% $24,798 5.89% $ 411,727 6.01%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
DERIVATIVES
At December 31, 1998, 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 which matured in February 1998.
The investment portfolio and certain borrowings from the Federal Home Loan Bank
contain 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 1998 decreased to $1,292.7 million from $1,321.2
million in 1997, a decrease of $28.5 million or 2.16%. The decrease was centered
in rate sensitive customer time deposits which decreased an average of $62
million after strong growth in 1997. The decline in customer time deposits was
partly offset by public fund time deposits which increased an average of $38
million and were used to fund investment transactions.
Average total deposits in 1997 increased $99.8 million or 8.17% from $1,221.4
million in 1996. The increase resulted primarily from growth in average interest
bearing time deposits which grew by 18.1% in 1997.
Republic's ratios of average non-interest bearing demand deposits to average
total deposits for the years ended December 31, 1998, 1997 and 1996 were 20.12%,
20.23%, and 21.65%, respectively.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS-(CONTINUED)
The daily average balances and weighted average interest rates paid on deposits
for each of the years ended December 31, 1998, 1997 and 1996 are presented
below:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ----------------------------- ----------------------------
% % %
AMOUNT OF TOTAL RATE AMOUNT OF TOTAL RATE AMOUNT OF TOTAL RATE
- ----------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest bearing demand
deposits....................... $ 57,981 4.49% 1.36% $ 63,156 4.78% 1.52% $ 66,229 5.42% 1.67%
Savings........................... 128,393 9.93 2.84 132,595 10.04 2.94 135,568 11.09 2.97
Money market...................... 127,258 9.84 3.45 115,394 8.73 2.71 126,150 10.33 2.74
State, county and municipal
certificates of deposit........ 69,185 5.35 5.62 30,999 2.35 5.53 18,907 1.55 5.36
Time deposits less than
$100,000....................... 414,430 32.06 5.42 432,401 32.73 5.39 351,090 28.75 5.22
Time deposits $100,000
and over....................... 226,102 17.49 5.41 238,526 18.05 5.42 217,622 17.82 5.26
International banking
facility time deposits......... 9,295 0.72 5.01 40,859 3.09 5.24 41,420 3.39 5.12
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
deposits.................... 1,032,644 79.88 4.63 1,053,930 79.77 4.56 956,986 78.35 4.31
Non-interest bearing
deposits....................... 260,076 20.12 - 267,258 20.23 - 264,364 21.65 -
- ----------------------------------------------------------------------------------------------------------------------------------
Total deposits................. $ 1,292,720 100.00% 3.70% $1,321,188 100.00% 3.64 % $1,221,350 100.00% 3.38%
- ----------------------------------------------------------------------------------------------------------------------------------
</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, 1998
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
3 months or less...................................... $ 78,815
Between 3 months and 6 months......................... 36,397
Between 6 months and 1 year........................... 122,926
Over 1 year........................................... 66,438
- -----------------------------------------------------------------------------
Total.............................................. $ 304,576
- -----------------------------------------------------------------------------
</TABLE>
<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,
-----------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Country:
Venezuela........................................................ $ 94 $ 91 $ 73
Ecuador.......................................................... 39 39 119
Spain............................................................ 17 17 10
Costa Rica....................................................... 16 16 18
Dominican Republic............................................... 15 16 10
British West Indies.............................................. 15 4 10
Mexico........................................................... 14 15 15
Brazil........................................................... 13 13 11
Colombia......................................................... 13 11 10
Guatemala........................................................ 12 13 11
Argentina........................................................ 11 11 9
Panama........................................................... 11 10 8
Honduras......................................................... 11 9 8
Other............................................................ 47 51 43
- -------------------------------------------------------------------------------------------
Total foreign deposits........................................ $ 328 $ 316 $ 355
===========================================================================================
Composition by deposit type:
Certificates of deposit and other time deposits.................. $ 178 $ 176 $ 176
Other............................................................ 150 140 179
- -------------------------------------------------------------------------------------------
Total foreign deposits........................................ $ 328 $ 316 $ 355
- -------------------------------------------------------------------------------------------
</TABLE>
MARKET RISK, INTEREST RATE SENSITIVITY AND LIQUIDITY
Net interest income, Republic's primary source of revenue, is affected by
changes in interest rates as well as the mix of interest earning assets and
interest bearing liabilities comprising the balance sheet. Interest rate risk
and balance sheet mix is managed within policy guidelines. The Asset/Liability
Management Committee reviews Republic's interest rate risk and balance sheet
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.
Republic uses GAP analysis as an analytical tool but recognizes that
shortcomings are inherent in GAP analysis because 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.
The use of modeling techniques also has limitations and may not fully reflect
market risk exposures. Republic's time deposit funding sources have contractual
penalties for early withdrawal, nonetheless, changes in interest rates and other
individual depositor considerations may affect the actual timing of fund
withdrawal and the model cash flow assumptions. Similarly, term loans are
subject to refinancing in a declining rate environment, in many instances with a
small cost to the borrowers, that could also affect cash flow assumptions. The
majority of Republic's debt investment securities are callable at the option of
the issuer prior to final maturity. The effect of this call feature on future
cash flows will vary depending on the coupon of the underlying security, current
market interest rates, and expected direction of interest rate movement. Certain
borrowings have similar call features that could affect the expected maturity of
the borrowing and the impact on future cash flows in the model.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS-(CONTINUED)
The effect of a 200 basis point rise in the sensitivity analysis model may have
a different effect on net interest income than the effect of a 200 basis point
decrease, depending on the expected maturity of the callable instruments, the
prepayment speed on long term loans and unscheduled withdrawal of deposits.
Management utilizes a valuation of the investment portfolio by a third party in
assessing the impact of a 200 basis point change on the expected maturity of the
callable securities and its corresponding effect on cash flows and net interest
income. Time deposits and other core deposit sources on which rates are set by
management such as savings deposits will not necessarily re-price in a parallel
fashion to money market interest rates. Taking this into consideration,
management has established interest rate floors for certain categories of core
deposits, such as savings and interest bearing checking accounts in its rate
sensitivity simulation. Republic's modeling approach also takes into
consideration an assumed prepayment speed for term residential mortgage loans.
The prepayment speed is defined based on prevailing market conditions at the
time of each quarterly assessment. Assumptions are also made as to the expected
effect of callable features on borrowings.
Based on the December 31, 1998 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 2% on its net interest income for the
same period.
For the table below, savings deposits are reflected as re-priceable in the 0-30
days window. Republic believes that these deposits on which rates are set by
management will re-price more slowly than the GAP analysis indicates. Callable
investment securities and borrowings are categorized as subject to re-pricing
based on the call date of the instruments, which was the most likely scenario as
of December 31, 1998. A rapid rise in interest rates could yield a different
re-pricing result than that reflected in the table.
<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, 1998:
<TABLE>
<CAPTION>
VOLUMES SUBJECT TO REPRICING WITHIN
-------------------------------------------------------------------------------------------
OVER ESTIMATED
1 YEAR 1-2 YEARS 2-3 YEARS 3-4 YEARS 4-5 YEARS 5 YEARS TOTAL FAIR VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold and other
temporary investments...........$ 37,324 $ - $ - $ - $ - $ - $ 37,324 $ 37,324
Average interest yield........... 6.27% - - - - - 6.27%
Taxable securities................... 259,152 91,467 5,200 100 - 10,989 366,908 367,997
Average interest yield.......... 6.17% 5.88% 6.09% 6.75% - 6.99% 6.12%
Tax-exempt securities................ 1,070 1,119 2,181 2,452 4,316 10,262 21,400 22,525
Average interest yield.......... 4.98% 4.99% 5.31% 5.32% 5.31% 5.31% 5.28%
Total loans.......................... 637,259 41,615 64,575 78,022 50,175 159,121 1,030,767 1,037,109
Average interest yield.......... 8.40% 8.95% 8.72% 8.81% 8.47% 7.95% 8.41%
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets........ 934,805 134,201 71,956 80,574 54,491 180,372 1,456,399 1,464,955
- ---------------------------------------------------------------------------------------------------------------------------------
Interest bearing liabilities:
Demand, money market and
savings deposits................ 315,496 - - - - - 315,496 315,496
Average interest rate........... 2.54% - - - - - 2.54%
Certificates of deposit and other
time deposits................... 630,932 76,150 479 496 1,555 9 709,621 711,898
Average interest rate........... 5.09% 5.38% 5.45% 6.18% 5.71% 5.27% 5.12%
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits...... 946,428 76,150 479 496 1,555 9 1,025,117 1,027,394
- ---------------------------------------------------------------------------------------------------------------------------------
Securities sold under
repurchase agreements........... 55,099 - - - - - 55,099 55,119
Average interest rate........... 4.48% - - - - - 4.48%
FHLB borrowings...................... 50,000 - - - - - 50,000 50,003
Average interest rate............. 4.32% - - - - - 4.32%
Other borrowings..................... 3,200 - - - - - 3,200 3,200
Average interest rate........... 4.32% - - - - - 4.32%
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities... 1,054,727 76,150 479 496 1,555 9 1,133,416 1,135,716
- ---------------------------------------------------------------------------------------------------------------------------------
Period GAP............................ (119,922) 58,051 71,477 80,078 52,936 180,363 322,983
Cumulative GAP........................ (119,922) (61,871) 9,606 89,684 142,620 322,983
Period GAP to total assets............ (7.61)% 3.68 % 4.54% 5.08% 3.36% 11.45%
Cumulative GAP to total assets........ (7.61)% (3.93)% 0.61% 5.69% 9.05% 20.50%
Cumulative interest earning assets
to cumulative interest bearing
liabilities...................... 88.63% 94.53 % 100.85% 107.92% 112.58% 128.50%
</TABLE>
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 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, 1998 are reflected in the
table that follows.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS-(CONTINUED)
Stockholders' equity increased to $171.0 million at December 31, 1998 from
$146.1 million at December 31, 1997, an increase of $24.9 million or 17.04%.
This reflects net income of $15.8 million less dividends paid of $6.1 million,
the issuance of shares in the public offering and in exchange for subsidiary
bank shares during 1998, as well as the results of the share repurchase program
During 1997, stockholders' equity increased by $21.4 million or 17.16%, from
$124.7 million at December 31, 1996. 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.
The following table provides a comparison of Republic's and its subsidiary
bank's leverage and risk-weighted capital ratios as of December 31, 1998 to the
minimum and well-capitalized regulatory standards:
<TABLE>
<CAPTION>
MINIMUM WELL- ACTUAL RATIO
REQUIRED CAPITALIZED AT DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Republic:
Leverage ratio................................ 3.0%(1) 5.0% 10.3%
Tier 1 risk-based capital ratio............... 4.0 6.0 16.6
Risk-based capital ratio...................... 8.0 10.0 17.9
The Bank:
Leverage ratio................................ 3.0%(2) 5.0% 9.2%
Tier 1 risk-based capital ratio............... 4.0 6.0 14.8
Risk-based capital ratio...................... 8.0 10.0 16.0
- ----------------------------------------------------------------------------------------------------
</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.
FOURTH QUARTER ANALYSIS
Net income for the fourth quarter of 1998 was $4.4 million or $0.21 per average
basic and diluted share, compared to $4.2 million or $0.22 per average basic and
diluted share in the fourth quarter of 1997.
Fourth quarter 1998 results represent a return on average assets of 1.13%
compared to 1.11% for the same period of 1997. Return on average shareholders'
equity was 10.36% and 11.96% for the fourth quarter of 1998 and 1997,
respectively.
Net income for the fourth quarter increased by 4.3% from the fourth quarter of
1997 and average loan volume increased by 8.4%. Net interest margin decreased
from 4.58% for the last quarter of 1997 to 4.50% in the last quarter of 1998.
Net interest income increased by $363,000, primarily as a result of growth in
loans.
Provision for loan losses decreased by $262,000 from the same period in 1997.
The provision for loan losses to average loans decreased 17 basis point from
0.83% in the last quarter of 1997 to 0.66% for the same period in 1998. Net loan
charge-offs to average loans decreased as well from 0.23% to 0.15% for the same
period. Nonperforming assets increased from $8.7 million to $10.0 million for
the last quarter of 1997 and 1998, respectively.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS-(CONTINUED)
SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE MONTHS ENDED,
---------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1998 1998 1998 1998
- ---------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income...................................... $ 28,967 $ 28,471 $ 28,004 $ 27,734
Interest expense..................................... 12,665 13,024 12,595 12,581
- ---------------------------------------------------------------------------------------------------------------
Net interest income.................................. 16,302 15,447 15,409 15,153
Provision for loan losses............................ 1,700 822 3,995 1,500
- ---------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses . 14,602 14,625 11,414 13,653
Non-interest income.................................. 5,905 5,913 5,947 5,704
Non-interest expenses................................ 13,620 13,469 13,381 13,115
- ---------------------------------------------------------------------------------------------------------------
Net income before taxes.............................. 6,887 7,069 3,980 6,242
Provision for income tax expense..................... 2,430 2,604 1,267 1,932
Minority interest.................................... 41 42 26 41
- ---------------------------------------------------------------------------------------------------------------
Net income........................................... $4,416 $ 4,423 $ 2,687 $ 4,269
===============================================================================================================
PER SHARE DATA:
Basic and diluted earnings (quarter) ................ $ 0.21 $ 0.21 $ 0.13 $ 0.21
Book value........................................... 8.05 7.96 7.80 7.74
Tangible book value ................................. 7.50 7.40 7.23 7.16
Cash dividends ...................................... 0.08 0.07 0.07 0.07
Dividends payout ratio............................... 40.00% 33.33% 53.85% 33.33%
Weighted average common and common equivalent
shares outstanding (in thousands)............... 21,188 21,311 21,326 20,682
BALANCE SHEET DATA:
Total assets......................................... $ 1,575,412 $ 1,542,658 $1,524,295 $1,543,577
Securities........................................... 388,313 375,426 399,889 386,471
Total loans.......................................... 1,030,767 1,002,528 923,650 938,657
Allowance for loan losses............................ 12,402 12,271 11,362 13,166
Total deposits....................................... 1,285,370 1,296,815 1,282,252 1,303,190
Total shareholders' equity........................... 171,003 169,304 166,344 165,145
AVERAGE BALANCE SHEET DATA:
Total assets......................................... $ 1,555,537 $ 1,530,588 $1,516,761 $1,516,697
Securities........................................... 389,531 386,462 387,286 379,668
Total loans.......................................... 1,015,196 967,588 935,655 930,644
Allowance for loan losses............................ 12,844 12,005 13,355 12,348
Total deposits....................................... 1,299,720 1,293,273 1,278,899 1,298,918
Total shareholders' equity........................... 169,186 166,832 165,148 154,699
PERFORMANCE RATIOS:
Return on average assets............................. 1.13% 1.15% 0.71% 1.14%
Return on average equity............................. 10.36 10.52 6.53 11.19
Net interest margin.................................. 4.50 4.39 4.48 4.47
Efficiency ratio..................................... 66.75 63.06 62.66 62.88
ASSET QUALITY RATIOS:
Non-performing assets to total loans
and other real estate........................... 0.97% 1.06% 1.01% 1.43%
Net loan charge-offs to average loans................ 0.15 (0.01) 2.49 0.15
Allowance for loan losses to total loans............. 1.20 1.22 1.23 1.40
Allowance for loan losses to non-performing loans.... 124.21 143.04 156.93 115.17
CAPITAL RATIOS:
Leverage ratio (Tier 1 capital-to-total assets)...... 10.34% 10.35% 10.25% 10.23%
Average shareholders' equity to average total assets. 10.88 10.90 10.89 10.20
Tier 1 risk-based capital ratio...................... 16.61 16.92 17.01 16.93
Total risk-based capital ratio....................... 17.86 18.17 18.25 18.18
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS-(CONTINUED)
SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE MONTHS ENDED,
-----------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1997 1997 1997 1997
- ----------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income........................................ $ 28,901 $ 29,001 $ 28,748 $ 28,138
Interest expense....................................... 12,935 12,939 12,728 12,372
- ----------------------------------------------------------------------------------------------------------------------
Net interest income.................................... 15,966 16,062 16,020 15,766
Provision for loan losses.............................. 1,962 1,473 1,231 900
- ----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses ... 14,004 14,589 14,789 14,866
Non-interest income.................................... 5,523 5,828 6,054 6,081
Non-interest expenses.................................. 12,790 13,542 13,588 12,669
- ----------------------------------------------------------------------------------------------------------------------
Net income before taxes................................ 6,737 6,875 7,255 8,278
Provision for income tax expense....................... 2,372 2,082 2,254 2,909
Minority interest...................................... 132 334 347 375
- ----------------------------------------------------------------------------------------------------------------------
Net income............................................. $ 4,233 $ 4,459 $ 4,654 $ 4,994
======================================================================================================================
PER SHARE DATA:
Basic and diluted earnings (quarter) .................. $ 0.22 $ 0.24 $ 0.25 $ 0.26
Book value............................................. 7.27 6.84 6.60 6.32
Tangible book value ................................... 6.64 6.39 6.13 5.85
Cash dividends ........................................ N/A N/A N/A 0.52
Dividends payout ratio................................. N/A N/A N/A 48.60%
Weighted average common and common equivalent
shares outstanding (in thousands)................. 19,686 18,873 18,873 18,873
BALANCE SHEET DATA:
Total assets........................................... $ 1,515,006 $ 1,517,529 $ 1,554,063 $ 1,535,935
Securities............................................. 372,988 384,988 351,414 302,095
Total loans............................................ 929,410 953,052 968,040 996,477
Allowance for loan losses.............................. 11,999 12,209 12,884 12,105
Total deposits......................................... 1,302,217 1,298,535 1,344,868 1,332,532
Total shareholders' equity............................. 146,131 129,150 124,469 119,345
AVERAGE BALANCE SHEET DATA:
Total assets........................................... $ 1,513,111 $ 1,533,800 $ 1,535,251 $ 1,531,868
Securities............................................. 384,107 373,355 307,637 308,578
Total loans............................................ 936,564 965,827 1,003,422 980,181
Allowance for loan losses.............................. 12,497 12,514 12,557 11,737
Total deposits......................................... 1,305,144 1,323,246 1,328,275 1,328,359
Total shareholders' equity............................. 140,448 126,421 121,830 119,574
PERFORMANCE RATIOS:
Return on average assets............................... 1.11% 1.15% 1.22% 1.32%
Return on average equity............................... 11.96 13.99 15.32 16.94
Net interest margin.................................... 4.58 4.57 4.58 4.56
Efficiency ratio....................................... 65.50 61.86 61.56 57.99
ASSET QUALITY RATIOS:
Non-performing assets to total loans
and other real estate............................. 0.94% 1.82% 0.94% 1.57%
Net loan charge-offs to average loans.................. 0.23 0.22 0.18 0.16
Allowance for loan losses to total loans............... 1.29 1.28 1.33 1.21
Allowance for loan losses to non-performing loans...... 179.49 79.70 192.73 89.74
Capital Ratios:
Leverage ratio (Tier 1 capital-to-total assets)........ 8.96% 8.52% 7.53% 7.85%
Average shareholders' equity to average total assets... 9.28 8.24 7.94 7.81
Tier 1 risk-based capital ratio........................ 15.01 14.14 12.80 13.41
Total risk-based capital ratio......................... 16.26 15.39 14.05 14.66
</TABLE>
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Non-interest earning $ 48,296 $ 49,362
Federal funds sold 23,705 76,038
---------- ----------
72,001 125,400
Interest earning deposits in other banks 136 873
Held-to-maturity securities (market value of $223,255 and $214,555
in 1998 and 1997, respectively) 221,046 213,060
Available-for-sale securities 167,267 159,928
Loans receivable, net 1,018,365 917,411
Premises and equipment, net 55,657 58,737
Bank premises held for sale 2,100 --
Customers' acceptance liability 4,469 3,313
Accrued interest receivable 13,833 12,941
Other real estate owned 34 2,047
Deferred taxes 4,753 3,852
Goodwill and other intangibles 11,751 12,615
Other assets 4,000 4,829
---------- ----------
Total assets $1,575,412 $1,515,006
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 260,253 $ 261,675
Interest bearing:
NOW and money market 186,066 177,539
Savings 129,430 127,597
Time 709,621 735,406
---------- ----------
1,285,370 1,302,217
Securities sold under repurchase agreements 55,099 45,594
Other short-term borrowings 3,200 10,573
FHLB borrowings 50,000 --
Acceptances outstanding 4,469 3,313
Accrued interest payable 2,944 2,763
Income taxes payable 618 383
Other liabilities 2,058 2,684
---------- ----------
Total liabilities 1,403,758 1,367,527
---------- ----------
Commitments and contingencies (Notes 4, 14 and 15) -- --
---------- ----------
Minority interest in consolidated subsidiary 651 1,348
---------- ----------
Stockholders' equity:
Common stock - authorized 50,000,000 shares of $0.01 par
value; 21,230,892 shares issued and outstanding in 1998,
20,093,129 shares issued and outstanding in 1997 212 201
Capital surplus 114,519 99,240
Retained earnings 56,011 46,311
Accumulated other comprehensive income 261 379
---------- ----------
Total stockholders' equity 171,003 146,131
---------- ----------
Total liabilities and stockholders' equity $1,575,412 $1,515,006
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 86,703 $ 89,110 $ 80,193
Investment securities:
Taxable interest 22,433 19,536 17,893
Tax exempt interest 1,340 1,903 1,874
Interest on federal funds sold 2,291 4,057 3,645
Interest on deposits in other banks 408 182 825
--------- --------- ---------
Total interest income 113,175 114,788 104,430
--------- --------- ---------
Interest expense:
Deposits 47,851 48,088 41,282
Securities sold under repurchase agreements 2,413 2,383 1,512
Other borrowings 601 503 455
--------- --------- ---------
Total interest expense 50,865 50,974 43,249
--------- --------- ---------
Net interest income 62,310 63,814 61,181
Provision for loan losses 8,017 5,566 2,381
--------- --------- ---------
Net interest income after provision for loan losses 54,293 58,248 58,800
--------- --------- ---------
Non-interest income:
Service charges on deposit accounts 11,824 12,070 12,960
Other charges, commissions and fees 11,491 11,416 10,974
Gain on sale of securities 154 -- 1
--------- --------- ---------
23,469 23,486 23,935
--------- --------- ---------
Non-interest expenses:
Salaries and wages 21,425 21,217 21,664
Employee benefits 5,535 5,489 5,111
Occupancy expense 5,806 5,557 4,770
Furniture and equipment expense 3,235 2,921 2,985
Other real estate owned expense (206) 223 111
Other 17,790 17,182 18,376
--------- --------- ---------
53,585 52,589 53,017
--------- --------- ---------
Income before provision for income taxes 24,177 29,145 29,718
Provision for income taxes 8,233 9,617 10,324
--------- --------- ---------
Income before minority interest 15,944 19,528 19,394
Minority interest (150) (1,188) (1,350)
--------- --------- ---------
Net income 15,794 18,340 18,044
--------- --------- ---------
Other comprehensive (loss) income, net of tax:
Net unrealized (losses) gains on securities available for
sale arising during the year (32) 100 (52)
Reclassification adjustment for net gains
included in net income (86) -- --
--------- --------- ---------
Other comprehensive (loss) income (118) 100 (52)
--------- --------- ---------
Comprehensive income $ 15,676 $ 18,440 $ 17,992
========= ========= =========
Basic and diluted earnings per share $ 0.75 $ 0.96 $ 0.96
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
--------------------------
ACCUMULATED
SHARES OTHER TOTAL
ISSUED AND PAR CAPITAL RETAINED COMPREHENSIVE STOCKHOLDERS'
OUTSTANDING VALUE SURPLUS EARNINGS INCOME EQUITY
----------- --------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 15,728 $ 7,864 $ 59,444 $ 48,530 $ 302 $ 116,140
Stock dividend 3,145 1,573 17,777 (19,350) -- --
Cash dividend -- -- -- (9,439) -- (9,439)
Net income -- -- -- 18,044 -- 18,044
Other comprehensive loss -- -- -- -- (52) (52)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1996 18,873 9,437 77,221 37,785 250 124,693
Cash dividend -- -- -- (9,814) -- (9,814)
Net income -- -- -- 18,340 -- 18,340
Shares issued to acquire shares of
minority interest in subsidiary 1,220 610 12,173 -- 29 12,812
Change in par value -- (9,846) 9,846 -- -- --
Other comprehensive income -- -- -- -- 100 100
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1997 20,093 201 99,240 46,311 379 146,131
Cash dividend -- -- -- (6,094) -- (6,094)
Issuance of common stock 1,233 12 16,292 -- -- 16,304
Repurchase of common stock (193) (2) (1,989) -- -- (1,991)
Shares issued to acquire shares of
minority interest in subsidiary 98 1 976 -- -- 977
Net income -- -- -- 15,794 -- 15,794
Other comprehensive loss -- -- -- -- (118) (118)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1998 21,231 $ 212 $ 114,519 $ 56,011 $ 261 $ 171,003
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 15,794 $ 18,340 $ 18,044
--------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in consolidated subsidiary 150 1,188 1,350
Depreciation and amortization 3,209 2,714 1,859
Net investment amortization (accretion) 103 (797) (167)
Amortization of goodwill and other intangibles 1,135 982 845
Provision for loan losses 8,017 5,566 2,381
Deferred tax (benefit) provision (826) (105) 342
Gain on sale of securities (154) -- (1)
Other (14) 144 1,193
Changes in assets and liabilities:
(Decrease) increase in unearned income (182) (1,689) 495
(Increase) decrease in accrued interest receivable (892) (782) 180
Decrease (increase) in other assets 829 (1,788) (923)
Increase (decrease) in accrued interest payable 181 336 (32)
Increase (decrease) in income taxes payable 235 (1,363) (642)
(Decrease) increase in other liabilities (626) (1,119) 729
--------- --------- ---------
Total adjustments 11,165 3,287 7,609
--------- --------- ---------
Net cash provided by operating activities 26,959 21,627 25,653
--------- --------- ---------
Cash flows from investing activities:
Net decrease in interest earning deposits
in other banks 737 5,007 20,366
Proceeds from redemptions of held-to-maturity
securities 140,977 62,195 56,955
Purchases of held-to-maturity securities (148,811) (112,452) (59,159)
Proceeds from sales or redemptions of available-
for-sale securities 132,767 51,042 67,000
Purchases of available-for-sale securities (140,404) (41,587) (75,842)
Net loan (originations) payments (108,789) 40,719 (155,689)
Investment in premises and equipment (2,450) (12,719) (16,475)
Proceeds from sale of other real estate owned
and other 2,186 275 1,388
--------- --------- ---------
Net cash used in investing activities (123,787) (7,520) (161,456)
--------- --------- ---------
</TABLE>
(continued)
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in demand deposits, NOW,
money market and savings accounts 8,938 (15,153) (2,183)
Net (decrease) increase in time deposits (25,785) (2,756) 165,985
Net increase in securities sold under repurchase
agreements 9,505 16,676 4,916
Net increase (decrease) in other borrowings 42,627 (6,106) 11,996
Net proceeds from issuance of common stock
through initial public offering 16,304 -- --
Repurchase of common stock (1,991) -- --
Dividend paid by subsidiary to minority interest (75) (734) (706)
Cash dividends paid (6,094) (9,814) (9,439)
--------- --------- ---------
Net cash provided by (used in) financing activities 43,429 (17,887) 170,569
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (53,399) (3,780) 34,766
Cash and cash equivalents, beginning of the year 125,400 129,180 94,414
--------- --------- ---------
Cash and cash equivalents, end of the year $ 72,001 $ 125,400 $ 129,180
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 50,684 $ 50,638 $ 41,250
========= ========= =========
Income taxes $ 8,663 $ 10,799 $ 10,080
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfers from loans to other real estate owned $ -- $ 55 $ 430
========= ========= =========
Transfer of operating property to bank premises
held for sale $ 2,313 $ -- $ --
========= ========= =========
Issuance of stock to acquire shares of minority interest in subsidiary:
Minority interest acquired $ 766 $ 8,391 $ --
Goodwill 211 4,421 --
========= ========= =========
$ 977 $ 12,812 $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Republic Banking Corporation of Florida
("Republic") include the accounts of Republic and its 99.6% 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 Republic conform to practices within the banking
industry and generally accepted accounting principles.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A summary of Republic'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 have been eliminated in
consolidation.
INVESTMENT SECURITIES AND DEPOSITS WITH BANKS
Republic 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 related tax effect, reported in comprehensive income as
a separate component of stockholders' equity. Securities held-to-maturity are
recorded at cost, adjusted for amortization of premiums and accretion of
discounts.
Interest on investment securities is recorded as income when earned. 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 an allowance for loan losses. Unearned income on installment loans is
recognized over the term of the loans on a level yield basis. 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 and prior year's uncollected
interest is charged against the allowance for loan losses. Collection of
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
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.
Interest on loans is recorded as income when earned. Unearned income on
installment loans is recognized over the term of the loans on a level yield
basis. 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 Republic 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 Republic has acquired physical possession
but no legal title is also classified as other real estate owned. Upon
classification as other real estate, the excess of the unpaid balance of the
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.
-2-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
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. Premises held for sale are stated at the lower of cost or
net realizable value.
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. Intangible assets also include goodwill resulting from
the exchange of Republic shares for shares of the Bank previously owned by a
limited group of minority shareholders (see Note 8). 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, 1998 and 1997, intangible assets amounted to $19,678,000
and $19,407,000, respectively. Accumulated amortization of intangible assets was
$7,927,000 and $6,792,000 as of December 31, 1998 and 1997, respectively.
INCOME TAXES
Republic 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.
Republic files consolidated tax returns with its subsidiary.
CASH AND CASH EQUIVALENTS
For purposes 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
Basic earnings per 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 8) in January 1998 and the 20% stock dividend in January 1996.
The weighted average number of shares used in the calculation of basic earnings
per share was 21,128,866, 19,076,275 and 18,872,904 at December 31, 1998, 1997
and 1996, respectively. Diluted earnings per share reflects the potential
dilution that could occur if
-3-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
outstanding options were exercised. Options to purchase 520,000 shares of common
stock at $15 per share were outstanding at December 31, 1998. These have not
been included in the computation of diluted earnings per share because the
options' exercise price was greater than the average quoted market price of the
shares for the year (see Note 10).
NEW ACCOUNTING PRONOUNCEMENTS
On June 15, 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999 (January 1, 2000
for Republic). SFAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. Management of Republic anticipates
that, due to its limited use of derivative instruments, the adoption of SFAS 133
will not have a significant effect on Republic's results of operations or its
financial position.
INTEREST RATE RISK
Republic'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. Republic, 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. Republic has attempted to structure
its asset and liability management strategies to mitigate the impact on net
interest income of changes in market interest rates.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' financial statements to
conform with current year presentation.
-4-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
2. 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, 1998
- -----------------
U.S. Treasury securities $ 11,990 $ 130 $ -- $ 12,120
Securities of other U.S. agencies
and corporations 178,734 990 (36) 179,688
Securities issued by states and
political subdivisions 21,400 1,125 -- 22,525
Other debt securities 700 -- -- 700
-------- -------- -------- --------
Total debt securities 212,824 2,245 (36) 215,033
FHLB stock 7,003 -- -- 7,003
Federal Reserve Bank stock 1,219 -- -- 1,219
-------- -------- -------- --------
Total securities $221,046 $ 2,245 $ (36) $223,255
======== ======== ======== ========
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
======== ======== ======== ========
</TABLE>
-5-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
Amortized cost and estimated fair values of available-for-sale securities are as
follows (in thousands):
<TABLE>
<CAPTION>
GROSS UNREALIZED
---------------------- ESTIMATED
AMORTIZED FAIR
COST GAINS LOSSES VALUE
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
- -----------------
U.S. Treasury securities $ 25,197 $ 335 $ -- $ 25,532
Securities of other U.S. agencies
and corporations 141,643 316 (224) 141,735
-------- -------- -------- --------
Total securities $166,840 $ 651 $ (224) $167,267
======== ======== ======== ========
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
======== ======== ======== ========
</TABLE>
At December 31, 1998, the scheduled contractual maturity of held-to-maturity and
available-for-sale securities was as follows (in thousands):
HELD-TO-MATURITY AVAILABLE-FOR-SALE
----------------------- -----------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- -------- --------- ---------
Within one year $ 15,184 $ 15,325 $ 17,087 $ 17,278
One to five years 174,468 175,446 135,451 135,749
Five to ten years 10,389 10,859 10,000 9,937
Over ten years 12,783 13,403 4,302 4,303
-------- -------- -------- --------
Total $212,824 $215,033 $166,840 $167,267
======== ======== ======== ========
-6-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
The following sets forth information concerning sales and calls of
available-for-sale and held-to-maturity securities for the years indicated (in
thousands):
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
--------- --------- ---------
AVAILABLE-FOR-SALE SECURITIES
- -----------------------------
Amortized cost $ 54,392 $ -- $ --
Proceeds $ 57,533 $ -- $ --
Gross realized gains $ 147 $ -- $ --
Gross realized losses $ (6) $ -- $ --
HELD-TO-MATURITY SECURITIES
- ---------------------------
Amortized cost $ 104,475 $ 6,515 $ 240
Proceeds $ 104,488 $ 6,515 $ 241
Gross realized gains $ 13 $ -- $ 1
Gross realized losses $ -- $ -- $ --
Securities with an aggregate cost of approximately $143,635,000 and $89,308,000
at December 31, 1998 and 1997, respectively, were pledged as collateral for
public deposits or subject to sales under repurchase agreements.
-7-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
Major classifications of loans are as follows (in thousands):
DECEMBER 31,
-----------------------------
1998 1997
----------- -----------
Commercial $ 256,624 $ 320,699
Commercial real estate and construction 396,845 310,336
Foreign government 30,200 1,000
Foreign banks 115,392 60,806
Domestic banks -- 4,357
Residential first mortgages 180,142 154,864
Residential equity lines 13,324 16,487
Consumer 36,608 58,024
Overdrafts 3,965 5,352
----------- -----------
1,033,100 931,925
Unearned income (2,333) (2,515)
----------- -----------
1,030,767 929,410
Allowance for loan losses and transfer risk (12,402) (11,999)
----------- -----------
Loans receivable, net $ 1,018,365 $ 917,411
=========== ===========
Real estate mortgage loans serviced for others, not included in the above
amounts, were approximately $15,687,000 and $20,793,000 in 1998 and 1997,
respectively.
-8-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
Changes in the allowance for loan losses are as follows (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
-------- -------- --------
Balance, beginning of the year $ 11,999 $ 11,578 $ 11,411
Provision charged to operations 8,017 5,566 2,381
-------- -------- --------
20,016 17,144 13,792
-------- -------- --------
Loans charged-off (9,392) (6,515) (3,241)
Less recoveries 1,778 1,370 1,027
-------- -------- --------
Net charge-offs (7,614) (5,145) (2,214)
-------- -------- --------
Balance, end of the year $ 12,402 $ 11,999 $ 11,578
======== ======== ========
Loans not accruing interest at end of year $ 7,619 $ 5,863 $ 1,563
-------- -------- --------
-9-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
Had Republic recorded interest on non-accrual loans, interest income on loans
would have increased by approximately $370,000 and $273,000 in 1998 and 1997,
respectively. Interest income recorded on these loans amounted to approximately
$321,000 and $346,000 in 1998 and 1997, respectively.
The following is a summary of impaired loans as of and for the years ended
December 31, 1998 and 1997 (in thousands):
1998 1997
------ ------
Investment in impaired loans $5,813 $1,328
Valuation allowance 86 123
Average recorded investment in impaired loans 8,151 2,081
Interest income recognized on impaired loans -- --
Restructured loans amounted to $48,000 and $371,000 at December 31, 1998 and
1997, respectively.
4. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized below (in
thousands):
DECEMBER 31,
-----------------------
1998 1997
-------- --------
Bank buildings $ 45,233 $ 46,441
Leasehold improvements 4,836 4,160
Leasehold acquisition costs 1,284 1,284
Furniture and equipment 18,026 19,811
-------- --------
69,379 71,696
Less - accumulated depreciation
and amortization (24,097) (24,834)
-------- --------
45,282 46,862
Land 10,375 11,875
-------- --------
Net premises and equipment $ 55,657 $ 58,737
-------- --------
During 1997, Republic finalized construction of its new headquarters and office
building in Coral Gables, Florida. Republic capitalized interest costs of
approximately $390,000 in 1997 and $773,000 in 1996 with respect to this
construction project.
-10-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
At December 31, 1997, net premises and equipment included $2.3 million related
to an operations building occupied by Republic. During 1998, Republic vacated
this building and reclassified its net carrying value at the time of transfer to
bank premises held for sale. At December 31, 1998, the property's net book value
of $2.1 million approximated its net realizable value.
Republic leases facilities for several branch offices, certain land, and
equipment under operating leases from unrelated parties. Net rent expense was
approximately $2,522,000, $2,358,000 and $2,172,000 for 1998, 1997 and 1996,
respectively. Minimum rental commitments over the lives of the leases are as
follows at December 31, 1998 (in thousands):
YEAR ENDING
DECEMBER 31, AMOUNT
------------ --------
1999 $ 2,305
2000 1,547
2001 1,187
2002 1,070
2003 666
Thereafter 14,443
-------
Total $21,218
-------
During 1997, Republic began leasing space in its office building to unrelated
parties. Future minimum lease payments receivable under these leases are as
follows (in thousands):
YEAR ENDING
DECEMBER 31, AMOUNT
------------ --------
1999 $ 1,337
2000 1,344
2001 1,350
2002 1,363
2003 1,257
Thereafter 4,045
-------
Total $10,696
-------
-11-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
5. DEPOSITS
At December 31, 1998 and 1997, time deposits greater than $100,000 totalled
$304,576,000 and $288,299,000, respectively; the average interest rate on these
time deposits was approximately 5.4% and 5.5% for 1998 and 1997, respectively.
The majority of time deposits mature within one year. Deposits held from related
financial institutions amounted to approximately $4,239,000 at December 31, 1997
(none at December 31, 1998).
6. BORROWINGS
Securities sold under repurchase agreements are used to accommodate the needs of
large customers and to provide wholesale funding for investment activities. At
December 31, 1998 Republic had securities with an aggregate cost of
approximately $72,851,000 pledged as collateral under these agreements. The
following table sets forth information concerning repurchase agreements as of
and for the years ended December 31, 1998, 1997 and 1996 (in thousands):
REPURCHASE AGREEMENTS 1998 1997 1996
-------- -------- --------
Maximum amount of agreements outstanding
at any month-end during the year $75,984 $58,088 $42,200
Average amount outstanding during the year 64,477 50,005 32,574
Weighted average interest rate for the year 4.81% 4.77% 4.64%
Other short-term borrowings consist of U.S. Treasury tax and loan notes ("TT&L
Notes") and Federal funds purchased. The following table sets forth information
concerning these borrowings as of and for the years ended December 31, 1998,
1997 and 1996 (in thousands):
TT&L NOTES 1998 1997 1996
-------- -------- --------
Maximum amount outstanding at any
month-end during the year $14,878 $14,479 $ 9,900
Average amount outstanding during the year 5,603 5,867 4,432
Weighted average interest rate for the year 5.24% 5.53% 4.47%
FEDERAL FUNDS PURCHASED 1998 1997 1996
-------- -------- --------
Maximum amount outstanding at any
month-end during the year $ 4,002 $ 5,024 $12,000
Average amount outstanding during the year 2,302 3,238 4,909
Weighted average interest rate for the year 5.04% 5.50% 5.26%
-12-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
At December 31, 1998, Republic had $50 million in Federal Home Loan Bank
advances outstanding with a final maturity of three years but which are callable
on a quarterly basis. The following table summarizes their terms.
INTEREST NEXT CALL FINAL
AMOUNT ISSUE DATE RATE DATE MATURITY
$25 million November 1998 4.30% February 1999 November 2001
$25 million December 1998 4.33% March 1999 December 2001
Republic had average outstanding FHLB advances during 1998 of $4,384,000 with a
weighted average rate of interest paid of 4.37%.
7. INCOME TAXES
The components of the provision for income taxes are as follows (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
-------- -------- --------
Currently payable
Federal $ 8,205 $ 8,829 $ 9,326
State 854 893 656
Deferred (benefit) provision (826) (105) 342
------- ------- -------
Total provision for income taxes $ 8,233 $ 9,617 $10,324
======= ======= =======
-13-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
A reconciliation of income taxes to statutory rates is as follows (in
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- -------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tax at Federal statutory rate $ 8,462 35 % $ 10,201 35 % $ 10,413 35 %
Tax exempt income (437) (2)% (628) (2)% (653) (2)%
State income tax, less effect on
Federal tax 523 2 % 682 2 % 651 2 %
Other (315) (1)% (638) (2)% (87) --
-------- -------- -------- -------- -------- ---------
$ 8,233 34 % $ 9,617 33 % $ 10,324 35 %
======== ======== ======== ======== ======== =========
</TABLE>
The components of the net deferred income tax asset are as follows (in
thousands):
DECEMBER 31,
------------------
1998 1997
------ ------
Allowance for loan losses $4,405 $4,237
Building writedown 826 743
Intangibles 187 141
Self-insurance reserve 112 79
Loan origination fees 87 40
Deferred compensation 49 73
Other real estate losses 31 90
Other 11 43
------ ------
Gross deferred tax assets 5,708 5,446
------ ------
Depreciation 569 1,142
Unrealized gain - available-for-sale securities 165 240
Pension 134 134
Other 87 78
------ ------
Gross deferred tax liabilities 955 1,594
------ ------
Net deferred tax asset $4,753 $3,852
====== ======
Based on available information, management considers that the net deferred tax
asset will be realized; therefore, no valuation allowance has been established.
-14-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
8. STOCKHOLDERS' EQUITY
In January 1996, Republic 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.
In November 1997, Republic exchanged 1,220,225 (488,091 pre-stock split) shares
of common stock of Republic for the same number of shares of common stock from a
limited number of minority stockholders of the Bank. The difference of
$4,421,000 between the estimated fair value of the shares of Republic given in
exchange, valued at approximately $12,812,000, and the book value of the
minority interest acquired, amounting to $8,391,000, was recorded as goodwill in
Republic's financial statements.
Republic declared a 2.5 for 1 stock split effective January 15, 1998.
Effective January 1998, Republic 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.
In February 1998, Republic 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 Republic. Net proceeds received by Republic amounted to
approximately $16.3 million.
During 1998, Republic repurchased 193,200 shares of common stock previously
issued at an average price of $10.31 per share. During 1998, Republic issued an
additional 97,693 shares of Republic for 41,400 shares of common stock from a
limited group of shareholders of the Bank. The aggregate fair value of the
shares at the time of exchange amounted to approximately $977,000, resulting in
goodwill recognition of approximately $211,000.
Cash dividends paid amounted to $6,094,000, $9,814,000 and $9,439,000 in 1998,
1997 and 1996, respectively. A cash dividend of $0.10 per share was declared on
January 20, 1999 to stockholders of record on February 2, 1999, payable on
February 12, 1999.
9. EMPLOYEE BENEFIT PLAN
Republic adopted a 401(k) savings plan beginning April 1, 1998 in which eligible
participants are allowed to contribute up to 15% of their annual compensation.
For 1998, Republic provided a 50% match of the employee contribution to a
maximum 2% of the employee's compensation. The employees are subject to a
graduated vesting schedule for the matching contribution. The amount contributed
by Republic for 1998 was approximately $233,000.
-15-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
10. PENSION PLAN AND STOCK OPTION PLAN
Republic has a non-contributory defined benefit pension plan covering
substantially all full time employees. Plan benefits are based on years of
service and the employees' highest average compensation over a consecutive five
year period. Retirement plan expense is computed using the actuarial unit credit
method. Republic's funding policy is to contribute no less than the minimum
required by ERISA and no more than the maximum allowed by the Internal Revenue
Service as a deduction for the year.
The following table sets forth plan information as of and for the years ended
December 31, 1998 and 1997 (in thousands), as furnished by Republic's benefit
consultants:
1998 1997
-------- --------
Changes in benefit obligations:
Benefit obligation, beginning of the year $ 15,080 $ 14,537
Service cost 1,068 1,057
Interest cost 986 978
Change in assumptions (130) 1,209
Actuarial gain (323) (640)
Benefits paid (702) (2,061)
-------- --------
Benefit obligation, end of the year 15,979 15,080
-------- --------
Change in plan assets:
Fair value of plan assets, beginning of the year 12,306 12,216
Actual return on plan assets 1,119 899
Employer contributions 1,276 1,252
Benefits paid (702) (2,061)
-------- --------
Fair value of plan assets, end of the year 13,999 12,306
-------- --------
Funded status (1,980) (2,774)
Unrecognized net actuarial loss 2,960 3,669
Unrecognized net transition liability 102 137
Unrecognized prior service cost (604) (686)
-------- --------
Net prepaid benefit cost $ 478 $ 346
======== ========
-16-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
Components of pension cost included in employee benefits were as follows (in
thousands):
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1998 1997
-------- --------
Service cost-benefits earned during the year $ 1,068 $ 1,057
Interest cost on projected benefit obligation 986 978
Amortization of unrecognized prior service cost (82) (82)
Expected return on plan assets (1,028) (984)
Other amortization 200 161
------- -------
Net periodic pension cost $ 1,144 $ 1,130
======= =======
Computational assumptions used in determining net periodic pension cost were as
follows:
1998 1997
-------- --------
Weighted average discount rate 7.0% 7.5%
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
STOCK-BASED COMPENSATION
Republic adopted the 1998 Stock Option plan effective on January 1, 1998. The
plan provides for incentive and non-qualified stock option grants to certain
officers and employees of the Bank and for non-qualified stock options to
directors of Republic and its subsidiary. 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 may grant options only with the approval of the Board of
Directors. Options are granted for a maximum term of ten years. The maximum
number of shares authorized to be granted under this plan is 1,000,000 shares.
Options normally vest in 20% increments beginning on the second anniversary date
of the grant. Options granted to directors who had served on the Board of
Republic or its subsidiary for at least ten years, at the inception of the plan,
were exercisable beginning six months after the date of grant. Should a change
in control occur, all options become fully vested.
During 1998 incentive stock options to purchase 310,000 shares were granted to
certain officers of the Bank and non-qualified options to purchase 220,000
shares were granted to certain officers and directors.
-17-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
The following table presents additional data concerning Republic's outstanding
stock options for 1998:
OUTSTANDING EXERCISABLE
Options granted 530,000 100,000
Options exercised -- --
Options forfeited 10,000 --
Options outstanding at December 31, 1998 520,000 100,000
All options were granted at $15 per share which was equal to or exceeded the
fair market value on the date of that grant.
Republic adopted the disclosure-only method of accounting for transactions with
employees under SFAS No. 123, "Accounting for Stock-Based Compensation" and
follows the measurement provisions of APB 25, "Accounting for Stock Issued to
Employees" for measuring compensation expense for stock issued to employees.
Republic determines compensation of non-employee director options by measurement
of the fair value of options at the date the options become exercisable.
If compensation cost for employee stock options had been determined based on the
fair value of the options at the grant dates using a method prescribed under
SFAS No. 123, Republic's net income and earnings per share for the year ended
December 31, 1998 would have been reduced to the pro-forma amounts indicated
below:
Net income
As reported $ 15,794
Pro forma 15,402
Basic and diluted earnings per share
As reported $ 0.75
Pro forma 0.73
-18-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
For determining the pro forma amounts, the fair value of employee options is
estimated on the date of the grant using the Black-Scholes option pricing model,
with the following assumptions applied to grants expected to be exercised.
Expected dividend yield 2.2%
Expected volatility 60%
Weighted risk free interest rate 5.65%
Expected life (in years) 7
Based upon the above assumptions, the weighted average fair value of options
granted during 1998 was $8.01.
11. FOREIGN ACTIVITIES
Republic lends to foreign domiciled borrowers and obtains deposits from foreign
domiciled customers. To a lesser extent, Republic makes investments in foreign
securities.
The following table sets forth, at the dates indicated, the aggregate amount of
Republic's cross-border outstandings, including loans, foreign bonds, due from
bank accounts and interest earning deposits in other banks (in thousands).
DECEMBER 31,
------------------------------------
1998 1997 1996
-------- -------- --------
Ecuador $ 42,000 $ 23,000 $ 13,000
Brazil 34,000 22,000 30,000
Peru 29,000 18,000 21,000
Panama 14,000 7,000 11,000
Guatemala 12,000 9,000 11,000
El Salvador 12,000 5,000 3,000
Colombia 3,000 1,000 12,000
Other 55,000 30,000 67,000
-------- -------- --------
$201,000 $115,000 $168,000
======== ======== ========
The following table represents the total dollar amount of revenue, net income
before taxes and net income associated with foreign activites for the year
ended December 31, 1998 (in thousands).
Interest income $12,515
Non interest income 1,251
-------
Total revenue $13,766
=======
Net income before taxes $ 6,146
=======
Net income $ 3,775
=======
Net income before taxes is computed based on internal allocations for income and
expense recognition. These allocations include an assigned cost of capital,
overhead and income or expense associated with the internal sale of funds
between domestic and foreign activities.
12. COMPREHENSIVE INCOME
The following table sets forth a reconciliation of related tax effects allocated
to each item of comprehensive income for the years ended December 31, 1998, 1997
and 1996 (in thousands):
BEFORE-TAX TAX NET-OF-TAX
AMOUNT EFFECT AMOUNT
1998
Net unrealized losses on securities available
for sale arising during the year $ (52) $ 20 $ (32)
Reclassification adjustment for net gains
included in net income (140) 54 (86)
----- ----- -----
Other comprehensive loss $(192) $ 74 $(118)
===== ===== =====
1997
Net unrealized gains on securities available
for sale arising during the year $ 163 $ (63) $ 100
Reclassification adjustment for net gains
included in net income -- -- --
----- ----- -----
Other comprehensive income $ 163 $ (63) $ 100
===== ===== =====
1996
Net unrealized losses on securities available
for sale arising during the year $ (85) $ 33 $ (52)
Reclassification adjustment for net gains
included in net income -- -- --
----- ----- -----
Other comprehensive loss $ (85) $ 33 $ (52)
===== ===== =====
-19-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
13. 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, 1998,
approximately $26,248,000 of retained earnings were available for dividend
declaration without prior regulatory approval.
Republic is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on
Republic's financial statements. The regulations require Republic to meet
specific capital adequacy guidelines that involve quantitative measures of
Republic's assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. Republic'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 Republic 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, 1998, that Republic meets all capital
adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from Republic's regulators
categorized Republic as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized Republic 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 Republic's category.
The 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, 1998
Total capital ratio $171,658 17.9% $ 77,533 8.0% $ 96,917 10.0%
Tier I capital ratio $159,641 16.6% $ 38,767 4.0% $ 58,150 6.0%
Tier I leverage ratio $159,641 10.3% $ 46,317 3.0% $ 77,195 5.0%
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%
</TABLE>
-20-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
14. CONTINGENCIES
Republic 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.
Republic maintains an insurance policy that limits loss per specific participant
per year to $100,000. In addition, Republic 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, 1998, this aggregate annual stop loss
level was approximately $2,393,000. Republic had accrued approximately $510,000
and $601,000 at December 31, 1998 and 1997 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
Republic's financial position or results of operations.
15. OFF-BALANCE SHEET RISK
In the normal course of business, Republic 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 Republic'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.
-21-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
A summary of Republic's contractual or notional amounts for off-balance sheet
activities as of December 31, 1998 is summarized below (in thousands):
Unused commercial lines of credit $ 264,990
Other commitments to extend credit $ 161,911
Commercial letters of credit $ 17,460
Standby letters of credit $ 12,346
Of the outstanding standby letters of credit, approximately $4,954,000 are
secured by cash collateral at December 31, 1998. Of the commerical letters of
credit, approximately $3,412,000 were for the benefit of foreign customers.
16. CONCENTRATIONS OF CREDIT RISK
While maintaining a diversified portfolio, Republic 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 is as described in Notes
2, 3 and 11.
Diversification is managed through asset/liability management policies with
limitations for exposures to individual debtor entities and for country risk
exposure.
17. RELATED PARTY TRANSACTIONS
In its normal course of business, Republic lends to directors, officers,
employees and their related interests. Loans outstanding to executive officers,
directors, principal stockholders or their related interests were approximately
$2,110,000 and $1,926,000 at December 31, 1998 and 1997, respectively. In
connection with the construction of its new headquarters and office building
(see Note 4), Republic entered into a contract with a mechanical contractor, the
owner of which is a member of the Board of Directors, to provide mechanical
work. Approximately $855,000 and $2,555,000 were paid during the years ended
December 31, 1997 and 1996, respectively, in connection with this contract.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of the estimated fair value of financial instruments
have been estimated by Republic 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 Republic could realize in a current market exchange.
-22-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
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, 1998 DECEMBER 31, 1997
-------------------------- --------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 72,001 $ 72,001 $ 125,400 $ 125,400
Interest earning deposits in other banks 136 136 873 873
Investment securities 388,313 390,522 372,988 374,483
Performing loans 1,023,148 1,029,490 923,547 927,834
Liabilities:
Time deposits 709,621 711,898 735,406 737,590
Other deposits 575,749 575,749 566,811 566,811
Securities sold under repurchase
agreements 55,099 55,119 45,594 45,594
Other borrowings 53,200 53,203 10,573 10,573
</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 Republic for
similar transactions. For this purpose loans have been aggregated into major
categories based on pricing characteristics. No adjustment was made to the
discount factors for changes in the credit quality of loans. Management believes
that the risk factor embedded in the discount rates along with the portion of
the allowance for possible loan losses applicable to the performing loans
results in a fair valuation of the performing loan portfolio. The fair value of
non-accrual loans with a recorded book value of $7,619,000 in 1998 and
$5,863,000 in 1997 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 2 -
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 in excess of recorded value. 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 Republic in the acquisition of
core deposits from other institutions.
-23-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
Borrowings consist of overnight and debt instruments with original maturities of
three years or less. Fair value of term obligations is estimated based on
present values using discount factors based on the current rate of interest
charged by lenders on similar term obligations.
Standby letters of credit and other commitments to extend credit are of a short
term nature and reflective of the current fee structure of Republic in providing
these services. The face value of these instruments is considered reflective of
fair value and is disclosed in Note 15 - Off-Balance Sheet Risk.
The fair values presented herein are based on pertinent information available to
management as of December 31, 1998 and 1997. Although management is not aware of
any factors that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for purposes of these
financial statements since that date and, therefore, current estimates of fair
value may differ from the amounts presented herein.
19. REPUBLIC BANKING CORPORATION OF FLORIDA
The following summarizes the major categories of Republic's (parent company
only) financial statements (in thousands):
CONDENSED BALANCE SHEETS
DECEMBER 31,
----------------------
1998 1997
-------- --------
Assets
Cash $ 98 $ 41
Securities purchased under agreement to resell 16,479 --
Investment in the Bank 149,710 141,197
Goodwill and other intangibles 4,773 4,760
Other assets -- 225
-------- --------
Total assets $171,060 $146,223
======== ========
Liabilities $ 57 $ 92
-------- --------
Stockholders' equity
Common stock 212 201
Paid-in capital 114,519 99,240
Retained earnings 56,011 46,311
Accumulated other comprehensive
income 261 379
-------- --------
Total stockholders' equity 171,003 146,131
-------- --------
Total liabilities and stockholders' equity $171,060 $146,223
======== ========
-24-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Dividend received from the Bank $ 7,891 $ 9,833 $ 9,455
Equity in undistributed earnings of the Bank 7,862 8,588 8,627
Interest income 687 8 9
Operating expenses (458) (95) (49)
-------- -------- --------
Income before income taxes 15,982 18,334 18,042
Income tax expense (benefit) 188 (6) (2)
-------- -------- --------
Net income $ 15,794 $ 18,340 $ 18,044
======== ======== ========
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 15,794 $ 18,340 $ 18,044
Less: Equity in undistributed earnings of the Bank (7,862) (8,588) (8,627)
Other 300 75 (239)
-------- -------- --------
Net cash provided by operating activities 8,232 9,827 9,178
-------- -------- --------
Cash flow from investing activities:
Investment in subsidiary (10) -- --
Minority stock exchange costs (38) -- --
-------- -------- --------
Net cash used in investing activities (48) -- --
-------- -------- --------
Cash flow from financing activities:
Net proceeds from issuance of common stock 16,304 -- --
Repurchase of common stock (1,991) -- --
Cash dividends paid (6,094) (9,814) (9,439)
Other 133 (133) --
-------- -------- --------
Net cash provided by (used in) financing activities 8,352 (9,947) (9,439)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 16,536 (120) (261)
Cash and cash equivalents, beginning of the year 41 161 422
-------- -------- --------
Cash and cash equivalents, end of the year $ 16,577 $ 41 $ 161
-------- -------- --------
</TABLE>
-25-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
20. SEGMENT INFORMATION
Republic is organized into six divisions, four of which comprise the reportable
operating segments. Certain operating centers have been aggregated based on
common characteristics and are reported as single operating segments.
The Real Estate division is comprised of two segments, Commercial Real Estate
and Residential Mortgage Lending. The Corporate division is categorized into
three reporting segments, International Operations, Private Banking and
Commercial Lending. The Retail division comprises retail deposit and consumer
lending activities and is categorized as a single segment. The Finance division
comprises Republic's investment and wholesale funding activities.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies, except that internal allocations are
made for income and expense recognition for transactions among segments and
other support units in the organization. Allocations are based on the
inter-segment services provided or are based on the volume of funds sold between
segments. An internally defined risk-based allocation of equity capital is taken
into consideration in determining the volume of funds to be sold between the
segments. Pricing of services from support units to reporting segments is
generally cost based and the inter-segment sale of funds is based on an
internally defined pricing mechanism. Segment assets and liabilities represent
the external assets and liabilities booked in the particular reporting segment.
The Bank evaluates segment performance based on profit or loss from operations
before income taxes. Net interest income is computed on a tax equivalent basis.
Certain items of overhead are not allocated to the reporting segments.
The Bank is a commercial bank and all its operations are conducted in Florida.
All its revenues and assets are derived within the state.
-26-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
SEGMENT INFORMATION
(In Thousands)
<TABLE>
<CAPTION>
RESIDENTIAL
COMMERCIAL MORTGAGE INTERNATIONAL PRIVATE COMMERCIAL
REAL ESTATE LENDING OPERATIONS BANKING LENDING
----------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
External interest income $ 32,104 $ 13,595 $ 9,337 $ 1,771 $ 19,250
Inter-segment interest income -- -- 70 8,157 --
----------- ----------- ----------- ----------- -----------
Total interest income 32,104 13,595 9,407 9,928 19,250
----------- ----------- ----------- ----------- -----------
External interest expense 420 -- 759 7,313 876
Inter-segment interest expense 15,057 7,909 4,423 -- 7,239
----------- ----------- ----------- ----------- -----------
15,477 7,909 5,182 7,313 8,115
----------- ----------- ----------- ----------- -----------
Net interest income $ 16,627 $ 5,686 $ 4,225 $ 2,615 $ 11,135
=========== =========== =========== =========== ===========
External non-interest income $ 139 $ 213 $ 2,439 $ 342 $ 422
Inter-segment non-interest income 1 35 -- -- --
----------- ----------- ----------- ----------- -----------
$ 140 $ 248 $ 2,439 $ 342 $ 422
=========== =========== =========== =========== ===========
Depreciation and amortization $ 33 $ 30 $ 54 $ 17 $ 28
=========== =========== =========== =========== ===========
Intangible amortization $ 17 $ -- $ 25 $ 115 $ 27
=========== =========== =========== =========== ===========
Segment profit before taxes $ 13,986 $ 3,919 $ 2,989 $ 450 $ 1,233
=========== =========== =========== =========== ===========
Segment assets $ 376,085 $ 182,605 $ 164,940 $ 25,183 $ 202,507
=========== =========== =========== =========== ===========
Segment liabilities $ 15,598 $ 1,872 $ 29,345 $ 184,608 $ 47,139
=========== =========== =========== =========== ===========
<CAPTION>
INTER SEGMENT
RETAIL INVESTMENTS OTHER ELIMINATIONS TOTAL
----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
External interest income $ 10,548 $ 27,182 $ 82 $ (694) $ 113,175
Inter-segment interest income 46,933 -- 739 (55,899) --
----------- ----------- ----------- ----------- -----------
Total interest income 57,481 27,182 821 (56,593) 113,175
----------- ----------- ----------- ----------- -----------
External interest expense 36,411 5,088 (2) -- 50,865
Inter-segment interest expense 1,487 17,386 2,398 (55,899) --
----------- ----------- ----------- ----------- -----------
37,898 22,474 2,396 (55,899) 50,865
----------- ----------- ----------- ----------- -----------
Net interest income $ 19,583 $ 4,708 $ (1,575) $ (694) $ 62,310
=========== =========== =========== =========== ===========
External non-interest income $ 19,313 $ 164 $ 437 $ -- $ 23,469
Inter-segment non-interest income 334 8 21,700 (22,078) --
----------- ----------- ----------- ----------- -----------
$ 19,647 $ 172 $ 22,137 $ (22,078) $ 23,469
=========== =========== =========== =========== ===========
Depreciation and amortization $ 1,124 $ 5 $ 1,918 $ -- $ 3,209
=========== =========== =========== =========== ===========
Intangible amortization $ 693 $ -- $ 258 $ -- $ 1,135
=========== =========== =========== =========== ===========
Segment profit before taxes $ 510 $ 3,623 $ (1,839) $ (694) $ 24,177
=========== =========== =========== =========== ===========
Segment assets $ 123,707 $ 409,619 $ 90,767 $ -- $ 1,575,412
=========== =========== =========== =========== ===========
Segment liabilities $ 963,888 $ 159,973 $ 1,335 $ -- $ 1,403,758
=========== =========== =========== =========== ===========
</TABLE>
-27-
<PAGE>
REPUBLIC BANKING CORPORATION OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
21. SUBSEQUENT EVENT
On February 22, 1999, Republic's Board of Directors approved a definitive plan
to merge with Union Planters Bank, N.A. Consummation of the transaction is
subject to stockholders' and regulatory approval.
* * * * *
-28-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
February 12, 1999, except for Note 21,
as to which the date is February 22, 1999.
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 and comprehensive income, 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, 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.
PricewaterhouseCoopers LLP
Miami, Florida
<PAGE>
SELECTED QUARTERLY MARKET PRICE INFORMATION-1998
QUARTERS 1Q 2Q 3Q 4Q
--------------------------------------------------------------------
High $ 19.625 $ 19.125 $ 16.000 $ 11.750
Low $ 16.125 $ 15.375 $ 10.125 $ 7.750
Close $ 17.875 $ 16.000 $ 10.375 $ 10.625
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AT DECEMBER 31, 1998 AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 48,296
<INT-BEARING-DEPOSITS> 136
<FED-FUNDS-SOLD> 23,705
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 167,267
<INVESTMENTS-CARRYING> 221,046
<INVESTMENTS-MARKET> 223,255
<LOANS> 1,030,767
<ALLOWANCE> 12,402
<TOTAL-ASSETS> 1,575,412
<DEPOSITS> 1,285,370
<SHORT-TERM> 108,299
<LIABILITIES-OTHER> 10,089
<LONG-TERM> 0
0
0
<COMMON> 212
<OTHER-SE> 170,791
<TOTAL-LIABILITIES-AND-EQUITY> 1,575,412
<INTEREST-LOAN> 86,703
<INTEREST-INVEST> 23,773
<INTEREST-OTHER> 2,699
<INTEREST-TOTAL> 113,175
<INTEREST-DEPOSIT> 47,851
<INTEREST-EXPENSE> 50,865
<INTEREST-INCOME-NET> 62,310
<LOAN-LOSSES> 8,017
<SECURITIES-GAINS> 154
<EXPENSE-OTHER> 53,585
<INCOME-PRETAX> 24,177
<INCOME-PRE-EXTRAORDINARY> 24,177
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,794
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.75
<YIELD-ACTUAL> 8.11
<LOANS-NON> 7,619
<LOANS-PAST> 2,318
<LOANS-TROUBLED> 48
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 11,999
<CHARGE-OFFS> 9,392
<RECOVERIES> 1,778
<ALLOWANCE-CLOSE> 12,402
<ALLOWANCE-DOMESTIC> 9,309
<ALLOWANCE-FOREIGN> 1,540
<ALLOWANCE-UNALLOCATED> 1,553
</TABLE>
