CORPORATE PROFILE
Republic Banking Corporation of Florida is a Florida corporation organized in
1970 to serve as a holding company for Republic National Bank of Miami.
Republic National Bank of Miami was founded in 1965 with one office in Miami,
Florida and currently conducts its business through a network of twenty seven
branches located in Miami-Dade and Broward Counties in Florida. Republic is a
community-oriented bank offering commercial, real estate and residential
mortgage loans and a wide array of deposit products. Republic is also active in
international lending and deposit activities through its correspondent banking
network and private banking operations.
Republic Banking Corporation of Floridas common stock is publicly traded on the
Nasdaq National Market under the symbol RBCF.
TABLE OF CONTENTS
Financial Highlights...........1
Message to Shareholders........2
Board of Directors.............4
Financial Contents.............5
<PAGE>
FINANCIAL HIGHLIGHTS
Restated for 2.5-for-1 stock split in January 98 and for a 20% stock dividend
in 1996
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME STATEMENT DATA
Interest income $ 113,175 $ 114,788 $ 104,430
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
Non-interest income 23,469 23,486 23,935
Non-interest expense 53,585 52,589 53,017
Net income 15,794 18,340 18,044
- -----------------------------------------------------------------------------------------------
YEAR END BALANCE SHEET DATA
Total assets $ 1,575,412 $ 1,515,006 $ 1,511,951
Securities 388,313 372,988 331,204
Total loans 1,030,767 929,410 973,640
Allowance for loan losses 12,402 11,999 11,578
Total deposits 1,285,370 1,302,217 1,320,126
Shareholders' equity 171,003 146,131 124,693
AVERAGE BALANCE SHEET DATA
Total assets $ 1,530,005 $ 1,528,395 $ 1,405,517
Securities 388,791 341,947 327,425
Total loans 959,454 973,136 872,094
Allowance for loan losses 12,638 12,329 11,793
Total deposits 1,292,720 1,321,188 1,221,350
Shareholders' equity 162,288 126,865 116,493
- -----------------------------------------------------------------------------------------------
PERFORMANCE RATIO
Return on average assets 1.03 % 1.20 % 1.28 %
Return on average equity 9.73 14.46 15.49
Net interest spread 3.46 3.66 3.82
Net interest margin 4.47 4.58 4.77
Average equity to asset ratio 10.61 8.30 8.29
Efficiency ratio 62.58 60.24 62.29
Non-performing assets to
total loans and other real estate 0.97 0.94 0.55
</TABLE>
[GRAPHS OMITTED]
<PAGE>
DEAR SHAREHOLDERS
AND CUSTOMERS:
On February 22, 1999, your Board of Directors entered into an Agreement and Plan
of Reorganization with Union Planters Bank, National Association, pursuant to
which Republic will be merged into Union Planters. Under the terms of this
agreement Republic shareholders will receive $19.25 per share of the common
stock of Republic in cash at the closing, which is expected in the summer of
1999. Consummation of this merger is subject to regulatory and shareholder
approval, as well as to other customary conditions.
The Board of Directors took this action as a way to enhance shareholder value.
Many factors were considered by the Board in its determination and these are
detailed for you in the Proxy Statement which you will be receiving along with
this Annual Report to Shareholders. This was not an easy decision for the Board
of Directors to make. Republic, through its subsidiary, Republic National Bank
of Miami, has been serving the South Florida community for 34 years. We have
grown from a single office bank serving the growing Hispanic community in the
1960s to a twenty-seven office operation serving all South Florida. Many
successful businesses in the area can trace their beginnings to the financing
provided by Republic over the years. We truly are a local institution which will
leave a positive mark in the memories of our customers and the community at
large.
Industry consolidation continued at a rapid pace in 1998 and has significantly
changed the banking environment, increasing competitive pressures and bringing
both positive and negative changes for the customers. In seeking a merger with
Union Planters, which was founded in 1865, we have a merger partner which shares
our community banking philosophy. We believe that while our shareholders will
benefit from the planned merger, our customers will continue to receive the
community banking services they have grown accustomed to; with a greater array
of products and the support of a national organization. A majority of our staff
should also have the opportunity to continue with the new organization.
Financial results for 1998 were below our expectations. Earnings of $15.8
million provided shareholder return of 9.7% and were impacted by a $6.3 million
loss on a single commercial loan relationship. Although faced with continued
competitive pressures, the prospects for 1999 look favorable and the Board of
Directors increased the quarterly dividend payout rate to $0.10 per share in
January.
During the fourth quarter of 1998, we successfully converted our major software
applications to a Year 2000 compliant system. At the end of the first quarter of
1999, our critical software applications had been tested for compliance with the
Year 2000 requirements.
It is with great sadness that we note the passing of our former director,
Aristides J. Sastre. Mr. Sastre served as president of Republic National Bank of
Miami from 1971 until 1985. It was during his tenure as president that the bank
experienced its most impressive growth, going from less that $20 million in
deposits to just over $700 million in 1985. Mr. Sastre is remembered fondly by
our employees and customers.
We thank our shareholders and customers for the trust you have shown in allowing
us the stewardship of your capital, deposits and lending relationships.
Sincerely,
/s/ Oscar Bustillo, Jr.
Oscar Bustillo, Jr.
President and CEO
<PAGE>
CORPORATE INFORMATION
REPUBLIC BANKING
CORPORATION OF FLORIDA
BOARD OF DIRECTORS
ROBERTO ISAIAS
Chairman of the Board
Investor
OSCAR BUSTILLO, JR.
President & Chief Executive Officer
Chairman of the Board,
Chief Executive Officer & President
of Republic National Bank of Miami
BERNARDO M. ARGUDIN
Vice President & Chief Financial Officer
Executive Vice President
& Chief Financial Officer of
Republic National Bank of Miami
JOSE P. BARED
Chief Executive Officer, Farm Stores
JOHN H. BLAKE
President, A.I. Risk Specialists, Inc.
ESTEFANO ISAIAS
President, Seguros Rocafuerte
WILLIAM ISAIAS
Investor
MILTON H. LEHR
Owner, American Travel Club of Miami
FERNANDO TAMAYO
President, Southern Industrial Sales Corp.
EXECUTIVE OFFICERS
ROBERTO ISAIAS
Chairman of the Board
OSCAR BUSTILLO, JR.
President &
Chief Executive Officer
BERNARDO M. ARGUDIN
Vice President &
Chief Financial Officer
FELIX M. GARCIA*
Executive Vice President
Chief Credit Officer
EDWARD F. HOLDEN*
Executive Vice President
Corporate Banking
FERNANDO J. MARTINEZ*
Executive Vice President
Real Estate Lending
RAFAEL QUINTANA*
Executive Vice President
Retail Banking
ORLANDO QUINTERO*
Executive Vice President
Operations
*Officer of Republic National Bank of Miami only
REPUBLIC NATIONAL BANK OF MIAMI
BOARD OF DIRECTORS
OSCAR BUSTILLO, JR.
Chairman of the Board,
Chief Executive Officer
& President
BERNARDO M. ARGUDIN
Executive Vice President
& Chief Financial Officer
JOSE P. BARED
Chief Executive Officer, Farm Stores
ANNIE BETANCOURT
Director, Center for Professional
Development - Miami Dade
Community College
JOHN H. BLAKE
President, A.I. Risk Specialists Inc.
RICHARD A. ELIAS, M.D.
Cardiologist & Chairman of the Board
of the Miami Heart Research Institute & Clinical
Professor of Medicine of the University of Miami
FELIX M. GARCIA
Executive Vice President
& Chief Credit Officer
ROBERTO GONZALEZ-BLANCO
President & CEO, Argebe Strategic
Financial Advisors, Inc.
ROBERTO ISAIAS
Investor
MILTON H. LEHR
Owner, American Travel Club of Miami
ROBERT PAUL, ESQ.
Attorney, Hornsby, Sacher, Zelman,
Stanton, Paul & Beiley, P.A.
FERNANDO TAMAYO
President, Southern Industrial
Sales, Corp.
OSCAR C. DE TUYA
President, Amexport
SENIOR OFFICERS
OSCAR BUSTILLO, JR.
Chairman of the Board,
Chief Executive Officer & President
EXECUTIVE VICE PRESIDENTS
BERNARDO M. ARGUDIN
Chief Financial Officer
FELIX M. GARCIA
Chief Credit Officer
EDWARD F. HOLDEN
Corporate Banking
FERNANDO J. MARTINEZ
Real Estate Lending
RAFAEL QUINTANA
Retail Banking
ORLANDO QUINTERO
Operations
SENIOR VICE PRESIDENTS
MARIO L. ANGULO
Regional Retail Banking Manager
ROBERT L. BROMBERG
Human Resources
YVONNE DEBESA-HERNANDEZ
Operations
LYDIA A. FERNANDEZ
General Counsel
LUIS N. LOPEZ
Audit
LEONARDO LUCAS
Facilities Management
LUIS A. MIGUEL
Regional Retail Banking Manager
JUAN M. MOGENA
Commercial Lending
SAMUEL R. MONTI
Loan Review
RICARDO M. MORALES
Real Estate Lending
GEORGE J. QUINTERO
Management Information Systems
MARIA E. REMY
Loan Operations
CARLOS RODRIGUEZ
International Lending
WILLIAM J. TURNER
Credit Policy
<PAGE>
<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.
<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
<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.
<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>
<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
======== ======== ======== ========
<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.
<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.
<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
-------- -------- --------
<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.
<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
-------
<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%
<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
======= ======= =======
<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.
<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.
<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
======== ========
<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.
<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
<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)
===== ===== =====
<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>
<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.
<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.
<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.
<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
======== ========
<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>
<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.
<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>
<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.
* * * * *
<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>
SHAREHOLDER'S INFORMATION
STOCK DATA
Republic completed its initial public common stock offering on February 11,
1998. Prior to its initial public offering, Republic's stock was not actively
traded. Prior to 1998, Republic paid an annual dividend. For 1997, Republic paid
an annual dividend of $0.52 per share. After its public offering, Republic
decreased its dividend payout ratio and changed the frequency from an annual to
a quarterly dividend. The following table reflects quarterly trading ranges for
Republic's common stock and cash dividends for 1998.
Quarters ended
Market Value March 31 June 30 September 30 December 31
High $ 19.63 $ 19.13 $ 16.00 $ 11.75
Low 16.13 15.38 10.13 7.75
Close 17.88 16.00 10.38 10.63
Dividends paid 0.07 0.07 0.07 0.08
FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements that involve risk and
uncertainty. A variety of factors could cause actual results and experience to
differ materially from the anticipated results or expectations expressed in
forward-looking statements.
Risks and uncertainties that may affect the actual results include, but are not
limited to, economic conditions, Year 2000 contingencies, interest rate
movements, credit and cross-border lending risks and competition. Readers of
this report are cautioned not to place undue reliance on forward-looking
statements.
CORPORATE OFFICES
Republic Banking Corporation
of Florida
2800 Ponce de Leon Boulevard
Coral Gables, Florida 33134
Telephone: (305) 774-5197
SHAREHOLDER ASSISTANCE
A copy of Republic's Form 10-K as filed with the Securities and Exchange
Commission may be obtained without charge to shareholders by writing: Finance
Division, Republic Banking Corporation of Florida, at the above address.
Analysts, investors and others seeking additional information should contact:
Bernardo Argudin, Vice President
and Chief Financial Officer,
at (305) 774-5197
SHAREHOLDER DATA
There were 206 shareholders of record as of March 19, 1999.
TRANSFER AGENT
Shareholders requiring a change of address, information about their accounts,
lost certificates or dividend check should contact:
American Stock Transfer & Trust Company
Shareholders Services Department
40 Wall Street
New York, NY 10005
(800) 937-5449
ANNUAL MEETING
Republic's annual meeting of shareholders will be on Wednesday, June 23, 1999 at
10:30 am at 2800 Ponce de Leon Boulevard, Coral Gables, Florida
SECURITIES MARKETS
Republic's common stock is traded on the Nasdaq National Market system (ticker
symbol: RBCF). The listing found in most newspapers is RepublicBkingFL.
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP.
<PAGE>
BANKING CENTERS
DADE COUNTY
BIRD ROAD
9450 SW 40th Street
(305) 552-7002
CALLE OCHO
2205 SW 8th Street
(305) 541-4545
CORAL GABLES
2800 Ponce de Leon Blvd.
(305) 774-5000
COUNTRY WALK
15800 SW 137th Avenue
(305) 278-8694
DOWNTOWN
265 SE 1st Street
(305) 358-5557
EAST HIALEAH
4375 East 4th Avenue
(305) 685-6868
FISHER ISLAND
42113 Fisher Island Dr.
(305) 531-9424
GRATIGNY
1794 West Gratigny Rd.
(305) 556-0300
HIALEAH
2899 West 4th Avenue
(305) 883-8643
LEJEUNE
10 NW 42nd Avenue
(305) 441-7300
LITTLE HAVANA
99 SW 12th Avenue
(305) 545-6000
MIAMI LAKES
15330 NW 79th Court
(305) 820-1800
MILAM DAIRY
5400 NW 72nd Avenue
(305) 885-0085
NORTH DADE
1505 NW 167th Street
(305) 625-5800
ORANGE BOWL
2800 NW 7th Street
(305) 642-7100
OVERTOWN
1490 NW 3rd Avenue
(305) 573-4191
PALMETTO
(Drive-thru only)
2050 West 56th Street
(305) 364-1200
SOUTH MIAMI
6193 SW 72nd Street
(305) 667-1330
SUNILAND
7880 SW 104th Street
(305) 273-7144
TAMIAMI
12310 SW 8th Street
(305) 222-1636
WEST DADE
2700 NW 107th Avenue
(305) 471-6383
WEST GABLES
(Drive-thru only)
5827 SW 40th Street
(305) 662-2887
WEST KENDALL
14770 N. Kendall Drive
(305) 387-7353
WESTCHESTER
9798 Coral Way
(305) 553-1277
WESTLAND
4440 West 16th Avenue
(305) 825-3030
BROWARD COUNTY
PALM AIRE
1321 S. Powerline Road
(954) 979-5000
TAMARAC
7118 N. University Drive
(954) 724-2980
OTHER OFFICES
HEADQUARTERS
2800 Ponce de Leon Blvd.
(305) 441-7200
MORTGAGE CENTER
(305) 447-4400
PRIVATE BANKING
(305) 441-1295
