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SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



FORM 10-KSB



Mark One



|x |  | Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2002
|- |  | --------------------------------------------------------------------------------------------------------------------------------



or



| ̈ |  | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period  from
                     to                    .
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



Commission File Number:
000-33201



REPUBLIC BANCSHARES OF TEXAS,
INC.

(Exact name of small business issuer as specified in its charter)



|Texas                                                          |  | 76-0691991                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                              
|6809 FM 1960 West, Houston, Texas                              |  | 77069                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



281-315-1100

(Issuers telephone number)



Securities registered pursuant to Section 12(b) of the Act:



|Title of each class: |  | Name of each exchange on which registered:
|-------------------- |  | ------------------------------------------
|NONE                 |  | NONE                                      



Securities registered pursuant to Section 12(g) of the Act:



Title of class:

Common Stock, $1.00 par value



Check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 (Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No ̈



Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to Form 10-KSB. x



Issuers revenues for the
fiscal year ended December 31, 2002 were $22,963,000.



As of
February 28, 2003, the aggregate market value of the common stock held by non-affiliates of the issuer was approximately $33,861,000.



The number of shares of common stock of the issuer outstanding as of February 28, 2003 was 1,934,911.



Documents incorporated by reference.Portions of the Companys
Proxy Statement for the 2003 Annual Meeting of Shareholders, which will be filed within 120 days after December 31, 2002, are incorporated by reference into Part III, Items 10-13 of this Form 10-KSB.



Transitional Small Business Disclosure Format: Yes ̈No x



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CAUTIONARY STATEMENTS RELATING TO FORWARD-LOOKING STATEMENTS



This document contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, cash flows, dividends, financing plans, business strategies, operating efficiencies or synergies, budgets, capital and other
expenditures, competitive positions, growth opportunities, benefits from new technology, plans and objectives of management, and other matters. Statements in this document that are not historical facts are hereby identified as forward-looking
statements for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended and Section 27A of the Securities Act of 1933, as amended. Such forward-looking statements include, without limitation,
those relating to the future business prospects, revenues, working capital, liquidity, capital needs, interest costs and income, wherever they occur in this document, are necessarily estimates reflecting the best judgment of the senior management of
Republic Bancshares of Texas, Inc. (the Company) and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Such forward-looking statements
should, therefore, be considered in light of various important factors, including those set forth in this document. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking
statements include, without limitation:



| |  |  | changes in interest rates and market prices, which could reduce the Companys net interest margins, asset valuations and expense expectations;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timing, impact and other uncertainties of the Companys ability to establish a significant presence in new geographic service areas and capitalize on growth
opportunities;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the failure of assumptions underlying the establishment of and provisions made to the allowance for loan losses;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | changes in statutes and government regulations or their interpretations applicable to national banks;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | the effects of vigorous competition in the markets in which the Company operates, including the impact on revenues and earnings of competitive changes to existing
price structures and underlying interest rates;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | requirements imposed (or latitude allowed to competitors) by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation (FDIC), or state regulatory bodies;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | general economic or business conditions that may be less favorable than expected, resulting in, among other things, lower than expected revenues or greater than
expected credit problems among the Companys customer and potential customer base;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ability of the Company to acquire, operate and maintain cost effective and efficient systems without incurring unexpectedly difficult or expensive but necessary
technological changes;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the loss of senior management or operating personnel and the potential inability to hire qualified personnel at reasonable compensations levels; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adverse changes in debt and capital markets.
| | - |  | --------------------------------------------



The words estimate, project, intend, expect, believe and similar expressions are intended to
identify forward-looking statements. These forward-looking statements are found at various places throughout this document and the other documents incorporated herein by reference. All written and oral forward-looking statements attributable to the
Company are expressly qualified in their entirety by these cautionary statements. The Company undertakes no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or
otherwise, unless the securities laws require it to do so.





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REPUBLIC BANCSHARES OF TEXAS, INC.



ANNUAL REPORT ON FORM 10-KSB



For the year ended December 31, 2002



Table of Contents



|PART I.   |  |                                                                                                                 |  |   
|--------- |  | --------------------------------------------------------------------------------------------------------------- |  | --
|ITEM 1.   |  | DESCRIPTION OF BUSINESS                                                                                         |  | 4 
|ITEM 2.   |  | DESCRIPTION OF PROPERTY                                                                                         |  | 10
|ITEM 3.   |  | LEGAL PROCEEDINGS                                                                                               |  | 10
|ITEM 4.   |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                             |  | 11
|         
|PART II.  |  |                                                                                                                 |  |   
|ITEM 5.   |  | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                                        |  | 12
|ITEM 6.   |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION                            |  | 13
|ITEM 7.   |  | FINANCIAL STATEMENTS                                                                                            |  | 27
|ITEM 8.   |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                            |  | 27
|         
|PART III. |  |                                                                                                                 |  |   
|ITEM 9.   |  | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT |  | 28
|ITEM 10.  |  | EXECUTIVE COMPENSATION                                                                                          |  | 28
|ITEM 11.  |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND RELATED STOCKHOLDER MATTERS                     |  | 28
|ITEM 12.  |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                  |  | 28
|ITEM 13.  |  | EXHIBITS AND REPORTS ON FORM 8-K                                                                                |  | 28
|ITEM 14   |  | CONTROLS AND PROCEDURES                                                                                         |  | 29



3



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PART I.



ITEM 1. DESCRIPTION OF BUSINESS



GENERAL



Republic Bancshares of Texas, Inc. (the
Company) was incorporated as a business corporation under the laws of the State of Texas on May 17, 2001 for the purpose of serving as a bank holding company for Republic National Bank (the Bank). On June 20, 2001, RBT
Holdings, Inc. (RBT) was incorporated under the laws of Delaware. Pursuant to the terms of an agreement and plan of reorganization dated May 30, 2001, the Bank became a wholly-owned subsidiary of RBT and RBT became a wholly-owned
subsidiary of the Company. The reorganization was consummated on September 7, 2001. The reorganization was accounted for in a manner similar to that in pooling-of-interests accounting and all financial statements reflect the consolidated operations
as if the reorganization had taken place prior to the periods covered by such consolidated financial statements. The Bank was chartered as a national banking association which began operations on November 13, 1998. At December 31, 2002, the Company
had total assets of $384.2 million, total loans of $293.6 million, total deposits of $349.1 million and shareholders equity of $26.0 million.



The Company offers a diversified range of commercial and personal banking products and services to small- and medium-sized businesses and consumers
located primarily in the Houston metropolitan area. The Bank presently has five (5) full-service banking offices located in Houston. The Bank offers checking accounts, savings accounts, certificates of deposit, bank-by-mail and 24-hour depository
facilities, drive-up banking, cashiers checks, travelers checks, savings bonds, consumer loans, commercial loans, commercial payroll accounts, merchant bank card services, lock-box and other cash management services, safe deposit boxes and
online banking services. The Banks business emphasis is to provide personal, responsive and dependable banking services to individuals, professionals and owner-operated businesses. The Bank does not presently offer trust services. Through
Star-NET, the Banks online banking product, customers can view their account information, transfer funds and download information to a personal finance software program. Online bill payment services are also available for an additional fee.



EMPLOYEES AND EMPLOYMENT RELATIONS



As of December 31, 2002, the Bank and Company had 105 full-time equivalent
employees, 45 of whom were officers. The Bank provides medical insurance and other benefits to full-time employees and considers relations with employees to be excellent. The Banks employees are not represented by any collective bargaining
group.



COMPETITION



The Company has substantial competition in lending funds and attracting and
retaining deposits. The primary factors in competing for loans are the range and quality of lending services offered, interest rates and loan origination fees. In competing for commercial loans (a targeted growth segment), the Company believes that
the personal relationships between lending officers and commercial borrowers is a primary factor. Competition for the origination of real estate loans normally comes from other commercial banks, savings and loans, mortgage bankers, finance and
insurance companies. The primary factors in competing for deposits are the range and quality of financial services offered, the ability to offer attractive rates and the availability of convenient locations. There is direct competition for deposits
from commercial banks, credit unions and savings and loans. Additional significant competition for savings deposits comes from other investment alternatives, such as money market funds, credit unions, and corporate and government securities.



The Company expects increased competition. For a variety of
reasons, including legislative developments relating to interstate branching and the ownership of financial institutions, the consolidation within the financial services industry will likely continue. For the Company, this trend means that the
number of locally-owned financial institutions will decrease and that the Bank will increasingly compete against larger regional and out-of-state banks. While these larger regional and national banks will likely attract the largest Texas businesses
(sales over $100 million), the Company believes that these large banks are unable to provide the relationship-oriented, customer service that the Company provides its target customer base of small and medium-sized businesses, professionals and other
individuals. Although



4



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the Bank has been able to compete effectively in its market areas to date, there is no assurance that the
Bank will continue to do so in the future, especially with the rapid changes occurring within the financial services industry.



REGULATION AND SUPERVISION



The following discussion sets forth the material elements of the regulatory framework applicable to bank holding companies and their subsidiaries, and
provides certain specific information relevant to the Company and the Bank. This regulatory framework primarily is intended for the protection of depositors and the deposit insurance funds that insure deposits of banks, and not for the protection of
the Companys shareholders. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to those provisions. A change in the statutes, regulations or regulatory
policies applicable to the Company or its subsidiaries may have a material effect on its business.



General. As a bank holding company, the Company is subject to regulation under the Bank Holding Company Act of 1956, as amended, and to inspection, examination and supervision by the Board of
Governors of the Federal Reserve System (FRB). Under the Bank Holding Company Act, bank holding companies generally may not acquire ownership or control of any company, including a bank, without the prior approval of the FRB. In
addition, bank holding companies generally may engage, directly or indirectly, only in banking and those other activities as are determined by the FRB to be closely related to banking. Under legislation effective in 2000, certain bank holding
companies can elect to become financial holding companies and engage in broader financial activities. See The Gramm-Leach-Bliley Act below.



Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act, as amended, limit borrowings by the Company and its non-bank
subsidiaries and also limit various other transactions between the Company and its non-bank subsidiaries, on the one hand, and the Company, on the other. Section 23A of the Federal Reserve Act also generally requires that an insured depository
institutions loans to its non-bank affiliates be secured, and Section 23B of the Federal Reserve Act generally requires that an insured depository institutions transactions with its non-bank affiliates be on arms-length terms.



The Bank is subject to extensive supervision, examination and
regulation by the Office of the Comptroller of the Currency (the OCC). The Company and its subsidiaries are also affected by the fiscal and monetary policies of the Federal government and the FRB, and by various other governmental
requirements and regulations.



Liability for the Company.
Under current FRB policy, a bank holding company is expected to act as a source of financial and managerial strength to a subsidiary bank and to maintain resources adequate to support the subsidiary bank. This support may be required at times when
the bank holding company may not have the resources to provide it. In addition, Section 55 of the National Bank Act permits the OCC to order the pro rata assessment of stockholders of a national bank whose capital has become impaired. If a
stockholder fails, within three months, to pay that assessment, the board of directors has a duty to sell the stockholders stock to cover the deficiency. In the event of a bank holding companys bankruptcy, any commitment by the bank
holding company to a Federal bank regulatory agency to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and entitled to priority of payment.



Any depository institution insured by the Federal Deposit Insurance Corporation (the FDIC) can be held liable for
any loss incurred, or reasonably expected to be incurred, by the FDIC in connection with:



| |  |  | the default of a commonly controlled FDIC-insured depository institution; or
| | - |  | ----------------------------------------------------------------------------



| |  |  | any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default.
| | - |  | ----------------------------------------------------------------------------------------------------------------------



Default generally is defined as the appointment of a conservator
or receiver and in danger of default generally is defined as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. Also, if a default occurred with respect to a bank,
any capital loans to the bank from its parent holding company would be subordinate in right of payment to payment of the banks depositors and certain of its other obligations.



5



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Capital Requirements.
The Company is subject to risk-based capital requirements and guidelines imposed by the FRB, which are substantially similar to the capital requirements and guidelines imposed by the OCC and the FDIC on the Bank. For this purpose, a depository
institutions or holding companys assets and certain specified off-balance sheet commitments are assigned to four risk categories, each weighted differently based on the level of credit risk that is ascribed to those assets or
commitments. In addition, risk-weighted assets are adjusted for low-level recourse and market-risk equivalent assets. A depository institutions or holding companys capital, in turn, is divided into three tiers:



| |  |  | core, or Tier 1, capital, which consists primarily of stockholders equity less certain identifiable intangible assets and certain other assets;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | supplementary, or Tier 2, capital, which includes, among other items, certain other debt and equity investments that do not qualify as Tier 1 capital;
and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | market risk, or Tier 3, capital, which includes qualifying unsecured subordinated debt.
| | - |  | -----------------------------------------------------------------------------------------



Like other bank holding companies, the Company currently is required to
maintain Tier 1 and Total Capital (the sum of Tier 1, Tier 2 and Tier 3 capital) equal to at least 4% and 8% of its total risk-weighted assets (including certain off-balance-sheet items, such as unused lending commitments and standby
letter of credit), respectively. At December 31, 2002, the Company met both requirements, with Tier 1 and Total Capital equal to 11.4% and 12.5%, respectively, of its total risk-weighted assets.



The FRB also requires bank holding companies to maintain a minimum
Leverage Ratio, defined as Tier 1 capital to average adjusted total assets, of 3%, if the bank holding company has the highest regulatory rating and meets certain other requirements, or of at least 4% if the bank holding company does not
meet these requirements. At December 31, 2002, the Companys leverage ratio was 9.0%, which exceeded the minimum leverage ratio to which it was subject.



The FRB may set capital requirements higher than the minimums noted above for holding companies whose circumstances warrant it. For example, bank holding
companies experiencing or anticipating significant growth may be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the FRB has indicated
that it will consider a Tangible Tier 1 Capital Leverage Ratio, which would deduct all intangibles and other indicia of capital strength in evaluating proposals for expansion or new activities.



The Bank is subject to similar risk-based and leverage capital requirements
adopted by the OCC. The Company and the Bank were in compliance with the applicable minimum capital requirements as of December 31, 2002.



Failure to meet capital requirements could subject the Company to a variety of enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business, which are described immediately below.



Corrective Measures for Capital Deficiencies. The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), among other things, identifies five capital categories for insured depository
institutions  well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized  and requires Federal bank regulatory agencies to implement systems for prompt corrective
action for insured depository institutions that do not meet minimum capital requirements based on these categories. FDICIA imposes progressively more restrictive constraints on operation, management and capital distributions, depending on the
category in which an institution is classified. Unless a bank is well-capitalized, it is subject to restrictions on its ability to offer brokered deposits and on certain other aspects of its operations. An undercapitalized bank must develop a
capital restoration plan and its parent bank holding company must guarantee the banks compliance with the plan up to the lesser of 5% of a banks assets at the time it became undercapitalized and the amount needed to comply with the plan.



6



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As of December 31, 2002, the
Bank was adequately capitalized, based on the prompt corrective action ratios and guidelines described above. It should be noted, however, that a banks capital category is determined solely for the purpose of applying the OCCs, or the
FDICs, prompt corrective action regulations and that the capital category may not constitute an accurate representation of the banks overall financial condition or prospects.



Dividend Restrictions. For the foreseeable future, the principal source of revenues to the Company is through the sale
of common stock and the payment of dividends by the Bank. Federal and state statutory provisions limit the amount of dividends that the Bank can pay to the Company without regulatory approval. Dividend payments by national banks are limited to the
lesser of:



| |  |  | the level of undivided profits; and
| | - |  | -----------------------------------



| |  |  | absent regulatory approval, an amount not in excess of net income for the current year combined with retained net income for the preceding two years.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



In addition, Federal bank regulatory authorities
have authority to prohibit the Bank from engaging in an unsafe or unsound practice in conducting business. The payment of dividends, depending upon the Banks financial condition at the time of the proposed dividend payment, could be deemed to
constitute an unsafe or unsound practice. The Banks ability to pay dividends in the future is currently, and could be further, influenced by bank regulatory policies and capital guidelines.



The Company has no plans to pay dividends in the foreseeable future.



Deposit Insurance Assessments. The deposits of the
Company are insured up to regulatory limits by the FDIC, and, accordingly, are subject to deposit insurance assessments to maintain the Bank Insurance Fund (the BIF), which is administered by the FDIC. The FDIC has adopted regulations
establishing a permanent risk-related deposit insurance assessment system. Under this system, the FDIC places each insured bank in one of nine risk categories based on (1) the banks capitalization and (2) supervisory evaluations provided to
the FDIC by the institutions primary Federal regulator. Each insured banks insurance assessment rate is then determined by the risk category in which it is classified by the FDIC. The annual insurance premiums on bank deposits insured by
the BIF currently vary between $0.00 per $100 of deposits for banks classified in the highest capital and supervisory evaluation categories to $0.27 per $100 of deposits for banks classified in the lowest capital and supervisory evaluation
categories.



Interstate Banking and Branching. Under the
Riegle-Neal Interstate Banking and Branching Efficiency Act (Interstate Act), subject to certain concentration limits and other requirements:



| |  |  | bank holding companies, such as the Company, are permitted to acquire banks and bank holding companies located in any state;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | any bank that is a subsidiary of a bank holding company is permitted to receive deposits, renew time deposits, close loans, service loans and receive loan payments
as an agent for any other bank subsidiary of that bank holding company; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | banks are permitted to acquire branch offices outside their home states by merging with out-of-state banks, purchasing branches in other states and establishing de
novo branch offices in other states. The ability of banks to acquire branch offices through purchase or opening of other branches is contingent, however, on the host state having adopted legislation opting in to those provisions of the
Interstate Act. In addition, the ability of a bank to merge with a bank located in another state is contingent on the host state not having adopted legislation opting out of that provision of the Interstate Act.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Control Acquisitions. The Change in Bank Control Act prohibits a person or group of persons from
acquiring control of a bank holding company, unless the FRB has been notified and has not objected to the transaction. Under a rebuttable presumption established by the FRB, the acquisition of 10% or more of a class of voting stock of a
bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as the Company, would, under the circumstances set forth in the presumption, constitute acquisition of control of the bank holding company.



In addition, a company is required to obtain the approval of the
FRB under the Bank Holding Company Act before acquiring 25% (5% in the case of an acquirer that is a bank holding company) or more of any class of outstanding common stock of a bank holding company, or otherwise obtaining control or a
controlling influence over that bank holding company.



The Gramm-Leach-Bliley Act. In November 1999, the Gramm-Leach-Bliley Financial Modernization Act of 1999 (the GLBA) was signed into law, which allows bank holding companies to engage in a wider range of nonbanking
activities, including greater authority to engage in securities and insurance activities. Under the GLBA, a bank holding company that elects to become a financial holding company may engage in any activity that the FRB, in consultation with the
Secretary of the Treasury, determines by regulation or order is (1) financial in nature, (2) incidental to any such financial activity, or (3) complementary to any such financial activity and does not pose a substantial risk to the safety or
soundness of depository institutions or the financial system generally. The GLBA makes significant changes in U.S. banking law, principally by repealing the restrictive provisions of the 1933 Glass-Steagall Act. The GLBA specifies certain activities
that are deemed to be financial in nature, including lending, exchanging, transferring, investing for others, or safeguarding money or securities; underwriting and selling insurance; providing financial, investment, or economic advisory services;
underwriting, dealing in or making a market in, securities; and any activity currently permitted for bank holding companies by the FRB under section 4(c)(8) of the Bank Holding Company Act. The GLBA does not authorize banks or their affiliates to
engage in commercial activities that are not financial in nature. A bank holding company may elect to be treated as a financial holding company only if all depository institution subsidiaries of the holding company are well-capitalized, well-managed
and have at least a satisfactory rating under the Community Reinvestment Act.



National banks are also authorized by the GLBA to engage, through financial subsidiaries, in any activity that is permissible for a financial holding company (as described above) an any activity that the Secretary of the
Treasury, in consultation with the FRB, determines is financial in nature or incidental to any such financial activity, except (1) insurance underwriting, (2) real estate development or real estate investment activities (unless otherwise permitted
by law), (3) insurance company portfolio investments and (4) merchant banking. The authority of a national bank to invest in a financial subsidiary is subject to a number of conditions, including, among other things, requirements that the bank must
be well-managed and well-capitalized (after deducting from the banks capital outstanding investments in financial subsidiaries). The GLBA provides that state banks may invest in financial subsidiaries (assuming they have the requisite
investment authority under applicable state law) subject to the same conditions that apply to national bank investments in financial subsidiaries.



Instability of Regulatory Structure



Various legislation, such as the Gramm-Leach-Bliley Act which expanded the powers of banking institutions and their holding companies, and proposals to
overhaul the bank regulatory system and limit the investments that a depository institution may make with insured funds, is from time to time introduced in Congress. Such legislation may change banking statutes and the environment in which the
Company and its banking subsidiaries operate in substantial and unpredictable ways. Neither the Company nor the Bank can determine the ultimate effect that the Gramm-Leach-Bliley Act will have, or the effect that any other potential legislation, if
enacted, or implementing regulations with respect thereto, would have, upon the financial condition or results of operations of the Company or the Bank.



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Expanding Enforcement
Authority



One of the major additional burdens imposed on
the banking industry by FDICIA is the increased ability of banking regulators to monitor the activities of banks and their holding companies. In addition, the Federal Reserve and FDIC are possessed of extensive authority to police unsafe or unsound
practices and violations of applicable laws and regulations by depository institutions and their holding companies. For example, the FDIC may terminate the deposit insurance of any institution which it determines has engaged in an unsafe or unsound
practice. The agencies can also assess civil money penalties, issue cease and desist or removal orders, seek injunctions, appoint conservators and receivers and publicly disclose such actions. FDICIA and other laws have expanded the agencies
authority in recent years, and the agencies have not yet fully tested the limits of their powers.



Monetary Policy



The monetary policies of regulatory authorities, including the Federal Reserve, have a significant effect on the operating results of banks and bank holding companies. The Federal Reserve supervises and regulates the national supply
of bank credit. Among the means available to the Federal Reserve to regulate the supply of bank credit are open market purchases and sales of U.S. government securities, changes in the discount rate on borrowings from the Federal Reserve System and
changes in reserve requirements with respect to deposits. These activities are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits on a national basis, and their use may affect interest
rates charged on loans or paid for deposits.



Federal Reserve
monetary policies and the fiscal policies of the federal government have materially affected the operating results of commercial banks in the past and are expected to continue to do so in the future. We cannot predict the nature of future monetary
and fiscal policies and the effect of such policies on the future business and earnings of the Bank or the Company.



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ITEM 2. DESCRIPTION OF PROPERTY



FACILITIES



The Bank currently operates from the
following five banking office locations in Houston, Texas, and other than the Northwest Freeway office, all of the locations are leased:



The Champions office is located at 6809 FM 1960 West, where the Bank leases approximately 7,000 square feet in a building constructed in
1999. This office includes a five lane drive-in facility attached to the building. This office opened for business on November 13, 1998. The remaining term of the building and land lease is for six years, not including optional renewal periods which
may be available.



The Cypress Station office is
located at 1055 FM 1960 West, where the Bank leases approximately 1.50 acres of land on which the Bank constructed a building in 1999. This office includes a four lane drive-in facility. This office opened for business on February 24, 1999. The
remaining term of the lease is for eleven years, not including optional renewal periods which may be available.



The River Oaks office is located at 4200 Westheimer Road, where the Bank leases approximately 7,000 square feet. This office has a four
lane drive-in facility. This office opened for business on July 8, 1999. The remaining term of the lease is for six years, not including optional renewal periods which may be available.



The Memorial office is located at 10301-A Katy Freeway, where the Bank leases approximately 6,800 square
feet, which includes a three lane drive-in facility. This office opened for business on February 22, 2000. The remaining term of the lease is for two years.



The Northwest Freeway office is located at 14604 Northwest Freeway, where the Banks office building is situated on a 1.436 acre
tract at the intersection of U.S. Hwy. 290 at Windfern Road in Northwest Houston. The office contains 11,400 square feet which includes a banking facility with a five lane drive-in and office space for most of the Banks operations. This office
opened for business on September 10, 2001.



The following table
sets forth specific information on the Banks offices, each of which offers full banking operations provided by a full complement of lobby staff (including tellers, new account representatives, and lending professionals on site), safe-deposit
boxes, an automated teller machine, and drive-through banking services:



|Banking Office    |  | Size in Square Feet (Approximate) |  | Location                |  | Deposits at December 31, 2002
|----------------- |  | --------------------------------- |  | ----------------------- |  | -----------------------------
|                  |  |                                   |  |                         |  | (In thousands)               
|Champions         |  | 7,000                             |  | 6809 FM 1960 West       |  | $                            
|Cypress Station   |  | 5,000                             |  | 1055 FM 1960 West       |  |                              
|River Oaks        |  | 7,000                             |  | 4200 Westheimer Road    |  |                              
|Memorial          |  | 6,800                             |  | 10301-A Katy Freeway    |  |                              
|Northwest Freeway |  | 11,400                            |  | 14604 Northwest Freeway |  |                              



ITEM 3. LEGAL PROCEEDINGS



The Company
and the Bank are involved in routine legal proceedings from time to time in the normal course of business. Management does not believe that there is any pending or threatened proceeding against the Company or the Bank which, if determined adversely,
would have a material effect on the business, financial position or results of operations of the Company or the Bank.



10



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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



No matters were submitted to a vote of the Companys security holders during the fourth quarter of 2002.



11



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PART II.



ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



There is no public trading market for the shares of common stock of the Company and it is unlikely that an active market will develop for the common stock in the foreseeable future. The Company has no
present plans for listing its common stock on a national or regional securities exchange or with the National Association of Securities Dealers Automated Quotations System. Trades in shares of the Companys stock are often privately negotiated
between the buyer and the seller, and the Company does not know the prices at which some or all of such transactions took place. In March 2000, the Bank sold 720,000 shares of common stock at $12.50 per share. The only other sales by the Company
have been through exercise of stock options or purchases through the Employee Stock Purchase Plan. As of February 28, 2003, there were 1,934,911 shares outstanding and 660 shareholders of record.



Dividends



The Company has not declared or paid any cash dividends since inception. One of the principal sources of cash revenue to the
Company is dividends paid by the Bank with respect to the Banks capital stock. See Description of BusinessRegulation and SupervisionDividend Restrictions for a description of regulatory restrictions that limit the
Banks ability to pay dividends on its common equity.



Securities authorized for issuance under equity compensation plans



The Company currently has options outstanding. The options were granted under the Companys 1998 Stock Option Plan, which was approved by the Banks shareholders and assumed by the Company in
connection with its formation. The following table provides information as of December 31, 2002 regarding the Companys equity compensation plans under which the Companys equity securities are authorized for issuance:



EQUITY COMPENSATION PLAN INFORMATION



|                                                           |  | (a)                                                                                         |  | (b)                                                    |       | (c)                                                                                                                                        
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | ------------------------------------------------------ | ----- | -------------------------------------------------------------------------------------------------------------------------------------------
|Plan category                                              |  | Number of securities to be issued upon exercise of outstanding options, warrants and
rights |  | Weighted-average exercise price of outstanding options |       | Number of securities remaining available for future issuance under equity compensation plans
(excluding securities reflected in column (a))
|Equity compensation plans approved by security holders     |  | 230,200                                                                                     |  | $                                                      | 11.17 |                                                                                                                                            
|Equity compensation plans not approved by security holders |  |                                                                                            |  |                                                        |      |                                                                                                                                            
|                                                           |  |                                                                                             |  |                                                        |       |                                                                                                                                            
|Total                                                      |  | 230,200                                                                                     |  | $                                                      | 11.17 |                                                                                                                                            
|                                                           |  |                                                                                             |  |                                                        |       |                                                                                                                                            



12



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|ITEM 6. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------



Managements Discussion and Analysis of Financial Condition and Results
of Operations of the Company analyzes the major elements of the Companys consolidated balance sheets and consolidated statements of income. This section should be read in conjunction with the Companys consolidated financial statements
and accompanying notes and other financial information appearing elsewhere in this document.



The financial position and results of operations as of December 31, 2002 and 2001 and for the period of September 7, 2001 to December 31, 2001 represent the Company and the Bank on a consolidated basis
and include the effects of the formation of the Company and RBT Holdings, Inc. as bank holding companies for the Bank on September 7, 2001. The results of operations for the period of January 1, 2001 through September 6, 2001 represent only the
Bank.



For The Years Ended December 31, 2002
and 2001



OVERVIEW



For the year ended December 31, 2002, the Company produced net income of $3.0
million, diluted earnings per share of $1.49 and a return on average equity of 12.2% compared with net income of $2.2 million, diluted earnings per share of $1.15 and a return on average equity of 10.3% for the year ended December 31, 2001. Return
on average assets for the years ended December 31, 2002 and 2001 was 0.86% and 0.85%, respectively.



For the year ended December 31, 2002, the net interest margin and the net interest rate spread were 4.98% and 4.38%, respectively, compared with 5.04% and 3.95%, respectively, at December 31, 2001.



At December 31, 2002, the Company had total assets of $384.2
million, total loans of $293.6 million, total deposits of $349.1 million and shareholders equity of $26.0 million. At December 31, 2001, the Company had total assets of $312.2 million, total loans of $258.5 million, total deposits of $288.1
million and shareholders equity of $22.9 million. The amounts at December 31, 2002 reflect an increase of $72.0 million or 23.1% in assets, $35.1 million or 13.6% in loans, $60.9 million or 21.2% in deposits and $3.1 million or 13.5% in
shareholders equity compared with the amounts at December 31, 2001. In September 2001, the Bank opened its Northwest Freeway office which resulted in increased loans and deposits during 2002. In addition, the Bank added officers at some of its
other offices which resulted in increased deposits and loans.



RESULTS OF OPERATIONS



Net interest income



Net interest income represents the amount by which interest
income on interest-earning assets, including investment securities and loans, exceeds interest expense incurred on interest-bearing liabilities, including deposits and other borrowed funds. Net interest income is the principal source of the
Companys income. Interest rate fluctuations, as well as changes in the amount and type of earning assets and liabilities, combine to affect net interest income.



Net interest income before provision for loan losses was $16.0 million for the year ended December 31, 2002 as compared to
$12.2 million for the year ended December 31, 2001. This represents an increase of $3.8 million or 30.6%. An increase in the average earning asset base of $78.0 million partially offset by a decrease in the net interest margin of 6 basis points
primarily account for the difference. Along with the addition of the Northwest Freeway office in September 2001, strong growth continued in all aspects of the Companys lending and deposit-gathering efforts throughout 2002.



13



---



The Companys deposits
grew from $288.1 million at December 31, 2001 to $349.1 million at December 31, 2002, an increase of $60.9 million or 21.2%. Growth in noninterest-bearing deposits accounted for $30.6 million or 50.2% of the increase. The growth of
noninterest-bearing deposits helped the Company maintain a differential of 60 basis points between the net interest margin and net interest spread attained. For the years ended December 31, 2002 and 2001, the Company posted a net interest margin of
4.98% and 5.04%, respectively.





14



---



The following table presents,
for the years ended December 31, 2002 and 2001, the total dollar amount of average balances, interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. Average balances are derived from average daily balances and the yields and costs are established by dividing income or expense by the average balance or liability. At December 31, 2002 and 2001, the Company had
extended no loans for which the interest thereon was exempt from taxation and had made no investments in tax-exempt portfolio securities. The Company had five loans totaling $772,200 which were on a nonaccrual basis at December 31, 2002 and one
nonaccrual loan with a balance of $185,000 at December 31, 2001. Nonaccrual loans are included in the table but have no interest income reflected.



|                                                                                        |  | Years ended December 31,    |        
|--------------------------------------------------------------------------------------- |  | --------------------------- | -------
|                                                                                        |  | 2002                        |        
|                                                                                        |  | Average outstanding balance |        
|                                                                                        |  | (Dollars in thousands)      |        
|Assets:                                                                                 |  |                             |        
|Interest-earning assets                                                                 |  |                             |        
|Loans                                                                                   |  | $                           | 278,418
|Investment securities                                                                   |  |                             | 10,205 
|Time deposits                                                                           |  |                             | 9,271  
|Federal funds sold                                                                      |  |                             | 22,878 
|                                                                                        |  |                             |        
|Total interest-earning assets                                                           |  | $                           | 320,772
|                                                                                        |  |                             |        
|Cash and due from banks                                                                 |  |                             | 21,511 
|Premises and equipment                                                                  |  |                             | 7,292  
|Other assets                                                                            |  |                             | 2,074  
|Allowance for loan losses                                                               |  |                             | (3,178 
|                                                                                        |  |                             |        
|Total assets                                                                            |  | $                           | 348,471
|                                                                                        |  |                             |        
|Liabilities:                                                                            |  |                             |        
|Interest-bearing liabilities                                                            |  |                             |        
|Money market checking and savings                                                       |  | $                           | 128,205
|Savings                                                                                 |  |                             | 2,065  
|Time deposits                                                                           |  |                             | 103,986
|                                                                                        |  |                             |        
|Total savings and time deposits                                                         |  | $                           | 234,256
|                                                                                        |  |                             |        
|Repurchase agreements and other borrowed funds                                          |  |                             |       
|Company obligated mandatorily redeemable trust preferred securities of subsidiary
trust |  |                             | 263    
|Total interest-bearing liabilities                                                      |  | $                           | 234,519
|Noninterest-bearing liabilities:                                                        |  |                             |        
|Demand deposits                                                                         |  |                             | 88,121 
|Other liabilities                                                                       |  |                             | 1,195  
|                                                                                        |  |                             |        
|Total liabilities                                                                       |  |                             | 323,835
|                                                                                        |  |                             |        
|Shareholders equity                                                                    |  |                             | 24,636 
|Total liabilities and equity                                                            |  | $                           | 348,471
|                                                                                        |  |                             |        
|Net interest income                                                                     |  |                             |        
|Net yield on interest-earning assets                                                    |  |                             |        
|                                                                                        |  |                             |        



15



---

The following table presents the effects of changes in volume, rate and rate/volume on interest income and
interest expense for the major categories of interest-earning assets and interest-bearing liabilities.



|                                                                     |  | Year ended December 31, 2002 compared with 2001 |      
|-------------------------------------------------------------------- |  | ----------------------------------------------- | -----
|                                                                     |  | Increase (decrease) due to change in            |      
|                                                                     |  | Volume                                          |      
|                                                                     |  | (In thousands)                                  |      
|Interest-earning assets                                              |  |                                                 |      
|Loans                                                                |  | $                                               | 4,782
|Investment securities                                                |  |                                                 | 523  
|Time deposits                                                        |  |                                                 | 185  
|Federal funds sold                                                   |  |                                                 | 236  
|                                                                     |  |                                                 |      
|Increase (decrease) in interest income                               |  |                                                 | 5,726
|                                                                     |  |                                                 |      
|Interest-bearing liabilities                                         |  |                                                 |      
|Savings                                                              |  |                                                 | 12   
|Money market checking and savings                                    |  |                                                 | 1,208
|Time deposits                                                        |  |                                                 | 756  
|                                                                     |  |                                                 |      
|Increase (decrease) in interest expense on savings and time deposits |  |                                                 | 1,976
|                                                                     |  |                                                 |      
|Other borrowings                                                     |  |                                                 | (3   
|Minority interest expense for trust preferred securities             |  |                                                 | 14   
|                                                                     |  |                                                 |      
|Increase (decrease) in interest expense                              |  |                                                 | 1,987
|                                                                     |  |                                                 |      
|Change in net interest income                                        |  | $                                               | 3,738
|                                                                     |  |                                                 |      



Provision for loan
losses



The provision for loan losses is established through
charges to income in the form of a provision to bring the total allowance for loan losses to a level deemed appropriate by management based on the factors discussed below under Allowance for loan losses. During 2002, due primarily
to a $35.1 million increase in the loan portfolio and an increase in net charge offs of $1.7 million, management made additional provisions to the allowance and believes the allowance for loan losses is adequate to cover losses inherent in the loan
portfolio at December 31, 2002. A provision of $2.1 million and $1.1 million was taken for the years ended December 31, 2002 and 2001, respectively.



Noninterest income



The Banks primary source of noninterest income is service charges on deposit accounts and other banking service-related fees. Noninterest income for
the years ended December 31, 2002 and 2001 was $1.7 million and $1.2 million, respectively, an increase of $500,000 or 41.7%. The increase, mostly in service charges, is primarily due to growth in the number of customers and services rendered.



16



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Noninterest expense



Generally, noninterest expense is composed of all costs
associated with operating the Companys business facilities, obtaining and retaining banking customer relationships and providing banking services. Major components of noninterest expense typically include: (1) employee salaries and benefits,
(2) occupancy-related charges to income (including depreciation of furniture, fixtures, and equipment), (3) data processing fees and technology-related costs, and (4) all other products used and fees incurred. During 2002, the Company has added
employees in the existing offices to meet additional customer needs due to growth. In addition to growth in the existing offices, in 2001, the Company had organizational costs and startup expenses related to the opening of the Northwest Freeway
office.



The following table presents for the periods indicated
the major categories of noninterest expense:



|                                     |  | Years ended December 31,
|------------------------------------ |  | ------------------------
|                                     |  | 2002                    
|                                     |  | (In thousands)          
|Salaries and benefits                |  | $                       
|Premises and equipment expenses, net |  |                         
|Data processing fees                 |  |                         
|Data service bureau                  |  |                         
|Other expenses                       |  |                         
|                                     |  |                         
|Total noninterest expense            |  | $                       
|                                     |  |                         



Employee compensation
and benefits expenses increased $1.0 million or 19.8% during 2002 and reflects growth in the Banks management and staff from 94 full-time-equivalent employees as of December 31, 2001 to 105 full-time equivalent employees as of December 31,
2002. This increase is partially attributable to the opening of the Northwest Freeway office in September 2001 and to officers and staff hired to accommodate growth in all aspects of the Companys operations. Management expects to continue to
add personnel during 2003 due to the increased needs at the offices as both lobby and support functions grow.



Non-staff expenses were $4.8 million for the year ended December 31, 2002 compared with $3.8 million for the year ended December 31, 2001, an increase of $1.0 million or 26.3%. This increase also
reflects the Companys growth during 2002, and is particularly influenced by the banking office opened in September 2001, and the services provided. Occupancy costs increased throughout the year primarily due to the opening of the Northwest
Freeway office and the increased depreciation due to the purchase of furniture, fixtures, and equipment for this facility and the expansion of the Banks computers, data systems and telephone technology.



FINANCIAL CONDITION



Total assets steadily increased to $384.2 million at December 31, 2002, up
$72.0 million or 23.1% from $312.2 million at December 31, 2001. Loans, the largest single asset, increased to $293.6 million at December 31, 2002 representing a growth of 13.6% over the $258.5 million in loans at December 31, 2001. Investment
securities available for sale at December 31, 2002 were $9.0 million representing a growth of $8.4 million over December 31, 2001. Investment securities held to maturity grew to $32.7 million at December 31, 2002, a growth of $32.2 million over
December 31, 2001.



17



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Loan portfolio



The Banks primary lending focus is on middle-market
commercial loans and owner-occupied real estate loans to local businesses. Typically, the Banks customers have financing requirements between $100,000 and $500,000. The Bank makes commercial loans primarily to small and medium-sized businesses
and to professionals. The Bank offers a variety of consumer loan and commercial loan products including revolving lines of credit, letters of credit, working capital loans and loans to finance accounts receivable, inventory and equipment.



The purpose of a particular loan generally determines its
structure. In almost all cases, the Bank requires personal guarantees on commercial loans to help assure repayment.



Commercial



The Banks commercial loans are primarily made within its market area and are underwritten on the basis of the borrowers ability to service
such debt from income. As a general practice, many of the Banks commercial loans have floating rates, are for varying terms, generally not exceeding three years, are personally guaranteed by the business owner and are secured by accounts
receivable, inventory and/or other business assets. In general, commercial loans involve more credit risk than residential mortgage loans and commercial mortgage loans and, therefore, usually yield a higher return. The increased risk for commercial
loans is due to the type of collateral securing these loans. The increased risk also derives from the expectation that commercial loans generally will be serviced principally from the business operations, and those operations may not be
successful. As a result of these additional complexities, variables and risks, commercial loans require more thorough underwriting and servicing than other types of loans.



In addition to commercial loans secured by non-real estate business assets, the Bank makes commercial mortgage loans to
finance the purchase of real property, which generally consists of real estate with completed structures. Commercial mortgage lending typically involves higher loan principal amounts and the repayment of loans is dependent, cash flow from business
operations or income from the properties securing the loans to cover operating expenses and debt service. As a general practice, the Bank requires its commercial mortgage loans to be well secured and guaranteed by responsible parties. The
Banks commercial mortgage loans are generally secured by first liens on real estate and typically amortize over a 10 to 15 year period with balloon payments due at the end of one to five years. In underwriting commercial mortgage loans,
consideration is given to the borrowers financial condition and cash flow with addition consideration given to the propertys operating history, future operating projections, current and projected occupancy, location and physical
condition. The underwriting analysis also includes credit checks, appraisals and an evaluation of the guarantors financial condition and cash flow.



Construction



The Bank makes loans to finance the construction of residential and, commercial properties. Construction loans are secured by first liens on real estate
and a minimum of 20% cash equity is typically required. The Bank conducts periodic inspections, either directly or through an agent, prior to approval of periodic draws on these loans. Construction loans involve additional risks attributable to the
fact that loan funds are advanced upon the security of a project under construction, and the project is of uncertain value prior to its completion. Construction lending often involves the disbursement of substantial funds with repayment dependent,
in part, on the successful completion of the construction project rather than the ability of a borrower or guarantor to repay the loan. If the Bank is forced to foreclose on a project prior to completion the Bank may choose to complete the
construction project however, there is no assurance that it will be able to recover all of the unpaid portion of the loan. In addition, the Bank may be required to fund additional amounts to complete a project and may have to hold the property for
an indeterminate period of time. Underwriting guidelines similar to those described above with respect to commercial mortgage loans are also used in the Banks construction lending activities.



18



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1-4 Family Residential



The Bank offers a variety of mortgage loan products. The
Banks loans collateralized by one-to-four family residential real estate generally are originated in amounts of no more than 90% of the lower of cost or appraised value. The Bank generally requires mortgage title insurance and hazard insurance
in the amount of the loan.



Consumer



The Bank provides a wide variety of consumer loans including motor vehicle,
watercraft, education loans, personal loans (collateralized and uncollateralized) and deposit account collateralized loans. The terms of these loans typically range from 12 to 72 months and vary based upon the nature of collateral and size of loan.
As of December 31, 2002, the Bank had no indirect consumer loans, indicating a preference to maintain personal banking relationships and strict underwriting standards. Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by rapidly depreciating assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for
the outstanding loan balance. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections are dependent on the
borrowers continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws may limit the amount which can be
recovered on such loans.



The Bank rarely makes loans at its
legal lending limit. Lending officers are assigned various levels of loan approval authority based upon their respective levels of experience and expertise. All relationships above $1.0 million are evaluated and acted upon by the Loan Committee,
while relationships in excess of $250,000 are subject to each banking offices chief executive officers review and approval. All new and renewed loans greater than $100,000 are reported monthly to the Board of Directors. The Banks
strategy for approving or disapproving loans is to follow conservative loan policies and underwriting practices which include: (i) granting loans on a sound and collectible basis; (ii) investing funds properly for the benefit of shareholders and the
protection of depositors; (iii) serving the legitimate needs of the community and the Banks general market area while obtaining a balance between maximum yield and minimum risk; (iv) ensuring that primary and secondary sources of repayment are
adequate in relation to the amount of the loan; (v) developing and maintaining adequate diversification of the loan portfolio as a whole and of the loans within each category; and (vi) ensuring that each loan is properly documented and, if
appropriate, insurance coverage is adequate. The Banks loan review and compliance personnel interact daily with commercial and consumer lenders to identify potential underwriting or technical exception variances. In addition, the Bank has
placed increased emphasis on the early identification of problem loans to aggressively seek resolution of the situations and thereby keep loan losses at a minimum.



The following table summarizes the Banks loan portfolio by type of loan as of December 31, 2002 and 2001:



|                                                    |  | 2002                   |         |         | 2001  |  
|--------------------------------------------------- |  | ---------------------- | ------- | ------- | ----- | -
|                                                    |  | Amount                 |         | Percent |       |  
|                                                    |  | (Dollars in thousands) |        
|Commercial                                          |  | $                      | 123,699 |         | 42.1  | %
|Real estate:                                        |  |                        |         |         |       |  
|Commercial owner occupied and multi-family          |  |                        | 90,268  |         | 30.8  | %
|Construction, land development and other land loans |  |                        | 29,308  |         | 10.0  | %
|Residential 1-4 family                              |  |                        | 21,740  |         | 7.4   | %
|Consumer and other                                  |  |                        | 28,540  |         | 9.7   | %
|                                                    |  |                        |         |         |       |  
|Total loans                                         |  | $                      | 293,555 |         | 100.0 | %
|                                                    |  |                        |         |         |       |  



19



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The increase in total loans
from $258.5 million at December 31, 2001 to $293.6 million at December 31, 2002 was primarily due to the addition of the Northwest Freeway office in September 2001, and growth in each of the other offices.



The contractual maturity ranges of the commercial business and construction
loan portfolios and the amount of such loans with predetermined interest rates and floating interest rates in each maturity range as of December 31, 2002 are summarized in the following table:



|                                         |  | December 31, 2002     
|---------------------------------------- |  | ----------------------
|                                         |  | One Year Or Less      
|                                         |  | (Dollars in thousands)
|Commercial and industrial                |  | $                     
|Real estateconstruction                 |  |                       
|                                         |  |                       
|Total                                    |  | $                     
|                                         |  |                       
|Loans with a predetermined interest rate |  | $                     
|Loans with a floating interest rate      |  |                       
|                                         |  |                       
|Total                                    |  | $                     
|                                         |  |                       



Nonperforming assets



The Bank has several procedures in place to assist it in
maintaining the overall quality of its loan portfolio. The Bank has established underwriting guidelines to be followed by its officers, and, when applicable, will also monitor delinquency levels for any negative or adverse trends. The Banks
loan review procedures include approval of lending policies and underwriting guidelines by the Board of Directors, annual independent loan review, approval of large credit relationships by the Banks loan committee and loan quality
documentation procedures. There can be no assurance, however, that the Banks loan portfolio will not become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.



A loan is placed on nonaccrual status when the loan reaches a past due status
of at least 90 days or the loan officer believes the loan may be partially uncollectible. At December 31, 2002, the Bank had five nonaccrual loans totaling $772,200 and at December 31, 2001, the Bank had one nonaccrual loan with a balance of
$185,000.



Allowance for loan lossesCritical Accounting
Policy



The Company considers its Allowance for Loan Losses
as a policy critical to the sound operations of the Bank. The Company provides for loan losses each period by an amount resulting from both (a) an estimate by management of loan losses that occurred during the period and (b) the ongoing adjustment
of prior estimates of losses occurring in prior periods. The provision for loan losses increases the allowance for loan losses which is netted against loans on the consolidated balance sheets. As losses are confirmed, the loan is written down,
reducing the allowance for loan losses. See Note 3 to the consolidated financial statements for additional information on loans and the allowance for loan losses.



Management has established a provision for loan losses which it believes is adequate for estimated losses in the Banks
loan portfolio. The Bank follows a loan review program to evaluate the credit risk in the loan portfolio. Through the loan review process, the Bank maintains an internally classified loan watch list which, along with a delinquency list of loans,
helps management assess the overall quality of the loan portfolio and the adequacy of the reserve for loan losses. In making its evaluation, management considers factors such as growth in the loan portfolio, the diversification by industry of the
Banks commercial loan portfolio, the effect of changes in the local real estate market on collateral values, the effects on the loan portfolio of current economic indicators and their probable impact on borrowers, the amount of charge-offs for
the period, the amount of nonperforming loans and related collateral security and the evaluation of its loan portfolio by the loan review function. Charge-offs occur when a loan is deemed to be



20



---



uncollectible. Loans
classified as substandard are those loans with clear and defined weaknesses such as a highly-leveraged position, unfavorable financial ratios, uncertain repayment sources, or poor financial condition, any or all of which may jeopardize
recoverability of the debt.



The following table presents an
analysis of the allowance for loan losses and other data for the years ended December 31, 2002 and 2001:



|                                                               |  | Years ended December 31, |       
|-------------------------------------------------------------- |  | ------------------------ | ------
|                                                               |  | 2002                     |       
|                                                               |  | (Dollars in thousands)   |       
|Balance, beginning of year                                     |  | $                        | 2,885 
|Provision for loan losses                                      |  |                          | 2,095 
|Loans charged off:                                             |  |                          |       
|Commercial loans                                               |  |                          | (1,732
|Consumer loans                                                 |  |                          | (56   
|Recoveries:                                                    |  |                          |       
|Commercial loans                                               |  |                          | 26    
|Consumer loans                                                 |  |                          | 18    
|                                                               |  |                          |       
|Net charge offs                                                |  |                          | (1,744
|                                                               |  |                          |       
|Balance, end of year                                           |  | $                        | 3,236 
|                                                               |  |                          |       
|Ratios:                                                        |  |                          |       
|Allowance to end of period loans                               |  |                          | 1.10  
|Net charge-offs to average loans outstanding during the period |  |                          | 0.63  



The following table
describes the allocation of the allowance for loan losses among various categories of loans and provides 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 the credit portfolio. The balance of the allowance for loan losses at December 31, 2002 and 2001 is as follows:



|                          |  | December 31,           |      
|------------------------- |  | ---------------------- | -----
|                          |  | 2002                   |      
|                          |  | Amount                 |      
|                          |  | (Dollars in thousands) |      
|Commercial and industrial |  | $                      | 1,566
|Real estate               |  |                        | 1,396
|Consumer and other        |  |                        | 274  
|                          |  |                        |      
|Total                     |  | $                      | 3,236
|                          |  |                        |      



Where management is able
to identify specific loans or categories of loans where specific amounts of allowance are required, allocations are assigned to those loans. Federal regulators also require that a bank maintain an allowance that is sufficient to absorb an estimated
amount of unidentified potential losses based on managements perception of economic conditions, loan portfolio growth, historical charge-off experience and exposure concentrations. Management of the Bank will monitor these conditions and is
committed to maintaining an adequate allowance.



21



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Investment securities



During the last half of 2002, the Bank purchased investment
securities aggregating $41.5 million. Because of the flatness of the interest rate yield curve throughout 2001 and the perceived need to maintain ready funds to meet its strong loan demand, management made no investment security purchases during
2001. A portion of the Banks investment securities were called in for redemption due to the downward movement in interest rates in 2001. At December 31, 2002 and 2001, the Bank had total investment securities of $41.7 million and $1.1 million
respectively.



The amortized cost and fair value of investment
securities classified as available for sale held at December 31, 2002 and 2001 is as follows:



|                                                        |  | 2002           |       | 2001              
|------------------------------------------------------- |  | -------------- | ----- | ------------------
|                                                        |  | Amortized cost |       | Gross market value
|                                                        |  | (In thousands)
|Agency securities due after one year through five years |  | $              | 2,054 |                   
|Mortgage-backed securities                              |  |                | 6,120 |                   
|Federal Reserve Bank stock                              |  |                | 631   |                   
|Federal Home Loan Bank stock                            |  |                | 244   |                   
|                                                        |  |                |       |                   
|                                                        |  | $              | 9,049 |                   
|                                                        |  |                |       |                   



The amortized cost and
fair value of investment securities classified as held to maturity at December 31, 2002 and 2001 is as follows:



|                                                                            |  | 2002           |        | 2001              
|--------------------------------------------------------------------------- |  | -------------- | ------ | ------------------
|                                                                            |  | Amortized cost |        | Gross market value
|                                                                            |  | (In thousands)
|Agency securities due in one year or less                                   |  | $              | 498    |                   
|U.S. Government and agency securities due after one year through five
years |  |                | 10,472 |                   
|Mortgage-backed securities                                                  |  |                | 21,685 |                   
|                                                                            |  |                |        |                   
|                                                                            |  | $              | 32,655 |                   
|                                                                            |  |                |        |                   



22



---



The following table summarizes
the contractual maturity of investment securities on an amortized cost basis and their weighted average yields as of December 31, 2002. Contractual maturity of mortgage-backed securities is not reliable indicator of their expected life because
borrowers have a right to prepay their obligations at any time.



|                                        |  | December 31, 2002      |    
|--------------------------------------- |  | ---------------------- | ---
|                                        |  | Within One Year        |    
|                                        |  | Amount                 |    
|                                        |  | (Dollars in thousands) |    
|U.S. Government securities              |  | $                      |   
|Obligations of U.S. Government Agencies |  |                        | 498
|Mortgage-backed securities              |  |                        |   
|Other (1)                               |  |                        |   
|                                        |  |                        |    
|                                        |  | $                      | 498
|                                        |  |                        |    

---

|(1) |  | Consists of the Banks investments in Federal Reserve Bank stock and in Federal Home Loan Bank stock.
|--- |  | -----------------------------------------------------------------------------------------------------



Deposits



The Banks deposits increased to $349.1 million at December 31, 2002, up from $288.1 million at December 31, 2001, an
increase of $60.9 million or 21.2%. The increase was primarily due to the addition of the Northwest Freeway banking office in September 2001. Management believes that the increase in noninterest-bearing deposits is even more significant, since
noninterest-bearing demand deposits are typically an indicator of the sort of business banking relationships that constitute the Banks target market. Noninterest-bearing deposits reached $106.0 million at December 31, 2002, up from $75.4
million at December 31, 2001. For the year ended December 31, 2002, interest-bearing deposits increased 14.3% from $212.3 million at December 31, 2001 to $243.1 million at December 31, 2002.



The daily average balances and weighted average rates paid on deposits for the
years ended December 31, 2002 and 2001 are presented below:



|                                 |  | Years ended December 31, |        
|-------------------------------- |  | ------------------------ | -------
|                                 |  | 2002                     |        
|                                 |  | Amount                   |        
|                                 |  | (Dollars in thousands)   |        
|Interest-bearing demand deposits |  | $                        | 128,205
|Savings                          |  |                          | 2,065  
|Time                             |  |                          | 103,986
|                                 |  |                          |        
|Total interest-bearing deposits  |  |                          | 234,256
|Noninterest-bearing deposits     |  |                          | 88,121 
|                                 |  |                          |        
|Total deposits                   |  | $                        | 322,377
|                                 |  |                          |        



Time deposits are
solicited from markets served by the Bank and are not sought through brokered sources. Time deposits are a significant source of the Banks funds. The following table presents the maturities of time deposits as of December 31, 2002:



|                                       |  | (In thousands) |        
|-------------------------------------- |  | -------------- | -------
|Maturities of time deposits            |  |                |        
|Three months or less                   |  | $              | 41,376 
|Over 3 through 6 months                |  |                | 21,232 
|Over 6 through 12 months               |  |                | 17,359 
|Over 12 months                         |  |                | 28,056 
|                                       |  |                |        
|Total                                  |  | $              | 108,024
|                                       |  |                |        
|Weighted average rate on time deposits |  |                | 3.12   
|                                       |  |                |        



23



---



Trust preferred securities



On December 19, 2002, the Company completed the private
placement of 8,000 floating rate capital securities (the Capital Securities) with an aggregate liquidation value of $8,000,000 through its newly formed Delaware statutory business trust, Republic Bancshares Capital Trust I (the
Trust). The Trust invested the proceeds from the sale of the Capital Securities, together with the proceeds from the sale by the Trust of its common securities to the Company, in an equivalent amount of the Companys Floating Rate
Junior Subordinated Debt Securities due 2033 (the Debentures). The Debentures will mature on January 7, 2033, which date may be shortened to a date not earlier than January 7, 2008 if certain conditions are met, including the prior
approval of the Federal Reserve and any other required regulatory approvals. The Debentures, which are the only assets of the Trust, are subordinate and junior in right of payment to all present and future senior indebtedness (as defined in the
Indenture dated December 19, 2002) of the Company. The Debentures accrue interest at a floating rate equal to the three-month LIBOR plus 3.35%, payable quarterly on January 7, April 7, July 7 and October 7 of each year; provided that the rate may
not exceed 12.5% through January 7, 2008. The quarterly distributions on the Capital Securities are paid at the same rate that interest is paid on the Debentures.



The Company has fully and unconditionally guaranteed the payment by the Trust of distributions and other amounts under the
Capital Securities to the extent that the Trust has funds available for such payments. The Trust must redeem the Capital Securities when the Debentures are paid at maturity or upon any earlier prepayment of the Debentures. The Debentures may be
prepaid if certain events occur, including a change in the tax status or regulatory capital treatment of the Capital Securities or a change in existing laws that requires the Trust to register as an investment company. Under the provisions of the
Debentures, the Company has the right to defer payment of interest on the Debentures at any time, or from time to time, for up to twenty consecutive quarterly periods. If interest payments on the Debentures are deferred, the distributions on the
Capital Securities will also be deferred.



For financial
reporting purposes, the Trust is treated as a subsidiary of the Company and consolidated in the corporate financial statements.



Liquidity



Liquidity involves the Banks ability to raise funds to support asset growth or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and
otherwise to operate the Bank on an ongoing basis. The Banks liquidity needs are primarily met by growth in core deposits. The Bank has arranged access to purchase funds from correspondent banks in the event of need and the Bank has used these
resources during 2002 but does not intend to rely on such sources for an extended period. The cash and federal funds sold positions have been maintained at high levels to create adequate liquidity during the initial operating period of the Bank,
especially in view of the high loan demand experienced to date. Management will, on occasion, take advantage of investment opportunities, and has begun to purchase investment securities as interest rate risk, other debt and interest market factors,
and as Bank liquidity needs warrant. To date, all funds have been invested in U.S. government agency securities. The Banks cash and federal funds sold position, supplemented by receipts of interest income and principal repayments from such
investments along with payments and maturities within the loan portfolio, will remain the primary sources that Bank management will rely on to maintain an adequate liquidity position.



Market risk is the exposure to loss resulting from changes in interest rates. Interest rate risk occurs when assets and
liabilities reprice at different times as interest rates change. For example, if fixed-rate loans are funded with floating-rate deposits, the spread between loan and deposit rates will decline or turn negative if rates increase. The Bank does not
engage in trading activities or use derivative instruments to control interest rate risk. Even though such activities may be permitted with the approval of the Board of Directors, the Bank does not intend to engage in such activities in the
immediate future.



24



---



Interest rate risk is managed
within the funds management policy of the Bank. The objectives of the funds management policy are to avoid fluctuating net interest margins and to maintain consistent growth of net interest income through periods of changing interest rates. The
Board of Directors oversees implementation of strategies to control interest rate risk. However, because of the volatility of market rates and uncertainties, there can be no assurance of the effectiveness of management programs to achieve a targeted
moderation of risk. Management uses two methodologies to manage interest rate risk: (1) an interest rate shock simulation model and (2) an analysis of relationships between interest-bearing assets and interest-bearing liabilities.



The following table summarizes the simulated change in net interest income for
parallel shifts of 100 basis points in market interest rates based on the Banks interest-earning asset portfolio at December 31, 2002:



|                                         |  | Increase (decrease) in net interest income |       
|---------------------------------------- |  | ------------------------------------------ | ------
|Changes in interest rates (basis points) |  | Estimated net interest income              |       
|                                         |  | (Dollars in thousands)                     |       
|+100                                     |  | $                                          | 19,347
|                                        |  |                                            | 18,562
|-100                                     |  |                                            | 17,753
|                                         |  |                                            |       



The measurements of risk
described above are based upon the industry diversification of the Banks loan portfolio and interest rate exposures at the particular point in time. An instantaneous and sustained 100 basis point change in interest rates is a hypothetical rate
scenario, used to calibrate risk, based on a twelve month horizon.



The management of interest rate risk is performed by analyzing the maturity and repricing relationships between interest-earning assets and interest-bearing liabilities over particular periods of time. The interest rate sensitivity
gap represents the dollar amount of difference between rate sensitive assets and rate sensitive liabilities within a given period of time (GAP). A GAP ratio is determined by dividing the rate sensitive assets by the rate sensitive
liabilities. A ratio of 1.0 indicates a perfectly matched position, in which case the effect on net interest income due to interest rate movements would be zero.



The following table summarizes interest rate sensitive assets and liabilities by their repricing dates at December 31, 2002:



|Interest rate sensitivity analysis        |  | 1-6 Months             |         |    | 6-12 Months |   |         | 1-3 Years |  |   | 3-5 Years |   |  | Over 5 years |         | Total
|----------------------------------------- |  | ---------------------- | ------- | -- | ----------- | - | ------- | --------- |  | - | --------- | - |  | ------------ | ------- | -----
|                                          |  | (Dollars in thousands)
|Loans (1)                                 |  | $                      | 150,029 |    |             | $ | 19,970  |           |  | $ | 71,469    |   |  | $            | 47,296  |      
|Securities                                |  |                        | 2,528   |    |             |   | 8,643   |           |  |   | 16,616    |   |  |              | 13,917  |      
|Federal funds sold and Time deposits      |  |                        | 19,684  |    |             |   |        |           |  |   |          |   |  |              |        |      
|                                          |  |                        |         |    |             |   |         |           |  |   |           |   |  |              |         |      
|Total interest bearing assets             |  |                        | 172,241 |    |             |   | 28,613  |           |  |   | 88,085    |   |  |              | 61,213  |      
|                                          |  |                        |         |    |             |   |         |           |  |   |           |   |  |              |         |      
|Savings                                   |  |                        | 2,302   |    |             |   |        |           |  |   |          |   |  |              |        |      
|Money Market checking and savings         |  |                        | 132,724 |    |             |   |        |           |  |   |          |   |  |              |        |      
|Time deposits and federal funds purchased |  |                        | 62,538  |    |             |   | 17,430  |           |  |   | 9,344     |   |  |              | 18,714  |      
|                                          |  |                        |         |    |             |   |         |           |  |   |           |   |  |              |         |      
|Total interest-bearing liabilities        |  |                        | 197,564 |    |             |   | 17,430  |           |  |   | 9,344     |   |  |              | 18,714  |      
|Rate sensitivity GAP (2)                  |  | $                      | (25,323 | )  |             | $ | 11,183  |           |  | $ | 78,741    |   |  | $            | 42,499  |      
|                                          |  |                        |         |    |             |   |         |           |  |   |           |   |  |              |         |      
|Cumulative rate sensitivity GAP           |  | $                      | (25,323 | )  |             | $ | (14,140 | )         |  | $ | 64,601    |   |  | $            | 107,100 |      
|Period GAP to total assets                |  |                        | (6.59   | )% |             |   | 2.91    | %         |  |   | 20.50     | % |  |              | 4.87    | %    
|Cumulative GAP to total assets            |  |                        | (6.59   | )% |             |   | (3.68   | )%        |  |   | 16.81     | % |  |              | 27.88   | %    
|                                          |  |                        |         |    |             |   |         |           |  |   |           |   |  |              |         |      



25



---



|(1) |  | All floating rate loans tied to some form of prime interest rate are classified as 1-6 months.
|--- |  | ----------------------------------------------------------------------------------------------

|(2) |  | Calculated by subtracting rate sensitive interest-bearing liabilities from rate sensitive interest-earning assets.
|--- |  | ------------------------------------------------------------------------------------------------------------------



Capital resources



Shareholders equity increased during 2002 and 2001 due primarily to the
net income. Shareholders equity stood at $26.0 million at December 31, 2002, up $3.1 million or 13.8% from $22.9 million at December 31, 2000. The ratio of shareholders equity to total assets was 6.8% at December 31, 2002, compared with
7.3% at December 31, 2001.



Capital management consists of
providing equity to support both current and future operations. The Company and the Bank are subject to capital adequacy requirements imposed by the Federal Reserve and the OCC. Both the Federal Reserve and the OCC have adopted risk-based capital
requirements. The Companys and Banks regulatory capital amounts and ratios in relation to current regulatory capital requirements for capital adequacy purposes are as follows:



|                                         |  | As of December 31, 2002 |       
|---------------------------------------- |  | ----------------------- | ------
|                                         |  | Actual                  |       
|Capital Requirement                      |  | Amount                  |       
|                                         |  | (Dollars in thousands)  |       
|Company                                  |  |                         |       
|Total capital (to risk-weighted assets)  |  | $                       | 37,241
|Tier 1 capital (to risk-weighted assets) |  |                         | 34,005
|Tier 1 capital (to average assets)       |  |                         | 34,005
|Bank                                     |  |                         |       
|Total capital (to risk-weighted assets)  |  | $                       | 36,137
|Tier 1 capital (to risk-weighted assets) |  |                         | 32,901
|Tier 1 capital (to average assets)       |  |                         | 32,901
|                                         |  |                         |       
|                                        
|                                         |  | As of December 31, 2001 |       
|Company                                  |  |                         |       
|Total capital (to risk-weighted assets)  |  | $                       | 25,740
|Tier 1 capital (to risk-weighted assets) |  |                         | 22,855
|Tier 1 capital (to average assets)       |  |                         | 22,855
|Bank                                     |  |                         |       
|Total capital (to risk-weighted assets)  |  | $                       | 25,724
|Tier 1 capital (to risk-weighted assets) |  |                         | 22,839
|Tier 1 capital (to average assets)       |  |                         | 22,839
|                                         |  |                         |       





26



---



ITEM 7.    FINANCIAL STATEMENTS



Reference is made to the financial statements, the report thereon, the notes thereto commencing at page F-1 of this Form 10-KSB, which financial statements, report and notes are incorporated herein by reference.



|ITEM 8. |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- |  | ------------------------------------------------------------------------------------



There have been no disagreements with accountants on any matter of accounting
principles or practices or financial statement disclosures during the two-year period ended December 31, 2002.



27



---



PART III.



|ITEM 9. |  | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
|------- |  | ---------------------------------------------------------------------------------------------------------------



The information under the captions Election of Directors,
Continuing Directors and Executive Officers and Section 16(a) Beneficial Ownership Reporting Compliance in the Companys definitive Proxy Statement for its 2003 Annual Meeting of Shareholders (the 2003 Proxy
Statement) to be filed with the Commission within 120 days after December 31, 2002, is incorporated herein by reference in response to this item.



ITEM 10.    EXECUTIVE COMPENSATION



The information under the caption Executive Compensation and Other Matters in the 2003 Proxy Statement is incorporated herein by reference in response to this item.



|ITEM 11. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- |  | -------------------------------------------------------------------------------------------



The information under the caption Beneficial Ownership of Common Stock
by Management of the Company and Principal Shareholders in the 2003 Proxy Statement is incorporated herein by reference in response to this item.



ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The information under the caption Interests of Management and Others in Certain Transactions in the 2003 Proxy Statement is incorporated herein by reference in response to this item.



ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K



(A) REPORTS ON FORM 8-K



No reports on Form 8-K were filed by the Company during the three months ended December 31, 2002.



(B) EXHIBITS:



|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                              
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|           
|2.1         |  | Agreement and Plan of Reorganization by and among Republic Bancshares of Texas, Inc., Republic National Bank and RBT
Holdings, Inc. dated as of May 30, 2001 (incorporated herein by reference to Exhibit 2.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on September 27, 2001 (the Form
8-K)).
|           
|3.1         |  | Articles of Incorporation of Republic Bancshares of Texas, Inc. (incorporated herein by reference to Exhibit 3.1 to
the Companys Form 8-K).                                                                                                                                                                                                        
|           
|3.2         |  | Bylaws of Republic Bancshares of Texas, Inc. (incorporated herein by reference to Exhibit 3.2 to the Companys
Form 8-K).                                                                                                                                                                                                                           
|           
|4.1         |  | Specimen certificate for shares of Common Stock of Republic Bancshares of Texas, Inc. (incorporated herein by
reference to Exhibit 4.1 to the Companys Form 8-K).                                                                                                                                                                                  



28



---

|    
|----
|10.1
|    
|10.2
|    
|21.1
|    
|23.1
|    
|99.1
|    
|    
|99.2
|    

---

|* |  | Filed herewith.
|- |  | ---------------

|+ |  | Represents Management contract or compensatory plan or arrangement.
|- |  | -------------------------------------------------------------------



ITEM 14. Controls and Procedures



Evaluation of disclosure controls and procedures.Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded
that the Companys disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the Exchange Act)) are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported to the Companys management within the time periods specified in the Securities and Exchange Commissions rules and
forms.



Changes in internal controls. Subsequent to the
date of their evaluation, there were no significant changes in the Companys internal controls or in other factors that could significantly affect the Companys disclosure controls and procedures, and there were no corrective actions with
regard to significant deficiencies and material weaknesses based on such evaluation.



29



---

SIGNATURES



In accordance with the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereto
duly authorized.



Republic Bancshares of Texas, Inc.(Registrant)By:

/s/ Stanley H. FloranceStanley H. Florance Secretary, Treasurer and Chief Financial Officer




Dated: March 21, 2003



In accordance with the
requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized. This report to be signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.



|Signature                                    |  | Title                                                                                      |  | Date          
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | --------------
|                                            
|/s/ C.P. BryanC. P. Bryan                    |  | Chairman of the Board, President and Chief Executive Officer (Principal Executive
Officer) |  | March 21, 2003
|                                            
|/s/ Stanley H. FloranceStanley H. Florance   |  | Secretary, Treasurer and Chief Financial Officer (Principal Financial
Officer)             |  | March 21, 2003
|                                            
|/s/ Gerald W. BodzyGerald W. Bodzy           |  | Director                                                                                   |  | March 21, 2003
|                                            
|/s/ Donn C. FullenweiderDonn C. Fullenweider |  | Director                                                                                   |  | March 21, 2003
|                                            
|/s/ James C. HassellJames C. Hassell         |  | Director                                                                                   |  | March 21, 2003
|                                            
|/s/ Wayne C. OwenWayne C. Owen               |  | Director                                                                                   |  | March 21, 2003



30



---



Certifications



I, C. P. Bryan, President and Chief Executive Officer of the
registrant, certify that:



1. I have reviewed
this annual report on Form 10-KSB of Republic Bancshares of Texas, Inc.;



2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this annual report;



3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is being prepared;



(b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date);
and



(c) presented in this annual report our
conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):



(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and



(b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrants internal controls; and



6. The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



Date: March 21, 2003



/s/ C. P. Bryan

---

C. P. Bryan

President and Chief Executive Officer



31



---



I, Stanley H. Florance, Chief
Financial Officer of the registrant, certify that:



1. I have reviewed this annual report on Form 10-KSB of Republic Bancshares of Texas, Inc.;



2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4. The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



(a) designed such disclosure controls and procedures to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



(b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date
within 90 days prior to the filing date of this annual report (the Evaluation Date); and



(c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;



5. The
registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent
functions):



(a) all significant deficiencies in
the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in
internal controls; and



(b) any fraud, whether or
not material, that involves management or other employees who have a significant role in the registrants internal controls; and



6. The registrants other certifying officers and I have indicated in this annual report whether or not there were significant
changes in internal controls or in other factors that could significantly affect the internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.



Date: March 21, 2003



/s/ Stanley H. Florance

---

Stanley H. Florance

Chief Financial Officer



32



---



Republic
Bancshares of Texas, Inc. and Subsidiaries



Consolidated Financial Statements



December 31, 2002 and 2001



(With
Independent Auditors Report Thereon)



F-1



---

Independent Auditors Report



The Board of Directors and Shareholders

Republic Bancshares of Texas, Inc.:



We have audited the accompanying consolidated balance sheets of Republic Bancshares of Texas, Inc. and subsidiaries (the Company) as of
December 31, 2002 and 2001, and the related consolidated statements of income, changes in shareholders equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards 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. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of Republic Bancshares of Texas, Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of America.



KPMG LLP



Houston, Texas

February 21, 2003



F-2



---



Consolidated Financial
Statements

Republic Bancshares of Texas, Inc. and Subsidiaries

Consolidated Balance Sheets



|                                                                                                                                                                               |  | December 31, |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | -------
|(Dollars in thousands, except share data)                                                                                                                                      |  | 2002         |        
|Assets                                                                                                                                                                         |  |              |        
|Cash and due from banks                                                                                                                                                        |  | $            | 22,707 
|Federal funds sold                                                                                                                                                             |  |              | 19,684 
|                                                                                                                                                                               |  |              |        
|Total cash and cash equivalents                                                                                                                                                |  |              | 42,391 
|Investment securities available for sale (note 2)                                                                                                                              |  |              | 9,049  
|Investment securities held to maturity (note 2)                                                                                                                                |  |              | 32,655 
|Loans (note 3)                                                                                                                                                                 |  |              | 293,555
|Less: Allowance for loan losses (note 3)                                                                                                                                       |  |              | (3,236 
|                                                                                                                                                                               |  |              |        
|Loans, net                                                                                                                                                                     |  |              | 290,319
|Premises and equipment, net (note 4)                                                                                                                                           |  |              | 6,987  
|Accrued interest receivable                                                                                                                                                    |  |              | 1,434  
|Other assets (notes 6 and 7)                                                                                                                                                   |  |              | 1,336  
|Total assets                                                                                                                                                                   |  | $            | 384,171
|                                                                                                                                                                               |  |              |        
|Liabilities and shareholders equity                                                                                                                                           |  |              |        
|Liabilities:                                                                                                                                                                   |  |              |        
|Deposits: (note 5)                                                                                                                                                             |  |              |        
|Noninterest-bearing                                                                                                                                                            |  | $            | 106,031
|Interest-bearing                                                                                                                                                               |  |              | 243,052
|                                                                                                                                                                               |  |              |        
|Total deposits                                                                                                                                                                 |  |              | 349,083
|Company obligated mandatorily redeemable trust preferred securities of subsidiary trust
(note 6)                                                                               |  |              | 8,000  
|Accrued interest payable                                                                                                                                                       |  |              | 425    
|Other liabilities                                                                                                                                                              |  |              | 658    
|                                                                                                                                                                               |  |              |        
|Total liabilities                                                                                                                                                              |  |              | 358,166
|                                                                                                                                                                               |  |              |        
|Commitments and contingencies (notes 8 and 9)                                                                                                                                  |  |              |        
|Shareholders equity (notes 8 and 10)                                                                                                                                          |  |              |        
|Common stock, $1 par value; 5,000,000 shares authorized, 1,934,311 issued and
outstanding as of December 31, 2002 and 1,923,421 issued and outstanding as of December 31, 2001 |  |              | 1,934  
|Additional paid-in capital                                                                                                                                                     |  |              | 19,253 
|Retained earnings                                                                                                                                                              |  |              | 4,818  
|                                                                                                                                                                               |  |              |        
|Total shareholders equity                                                                                                                                                     |  |              | 26,005 
|                                                                                                                                                                               |  |              |        
|Total liabilities and shareholders equity                                                                                                                                     |  | $            | 384,171
|                                                                                                                                                                               |  |              |        



See
accompanying notes to consolidated financial statements.



F-3



---



Consolidated Financial
Statements (Continued)

Republic Bancshares of Texas, Inc. and Subsidiaries

Consolidated Statements of Income



|                                                                                       |  | Years ended December 31, |          
|-------------------------------------------------------------------------------------- |  | ------------------------ | ---------
|(Dollars in thousands, except share and per share data)                                |  | 2002                     |          
|Interest income:                                                                       |  |                          |          
|Loans, including fees                                                                  |  | $                        | 20,301   
|Federal Reserve stock                                                                  |  |                          | 39       
|Investment securities held to maturity                                                 |  |                          | 386      
|Interest on federal funds sold and interest-bearing deposits in financial
institutions |  |                          | 532      
|                                                                                       |  |                          |          
|Total interest income                                                                  |  |                          | 21,258   
|                                                                                       |  |                          |          
|Interest expense:                                                                      |  |                          |          
|Interest on interest-bearing deposits                                                  |  |                          | 5,258    
|Other borrowings                                                                       |  |                          |         
|Trust preferred securities                                                             |  |                          | 14       
|                                                                                       |  |                          |          
|Total interest expense                                                                 |  |                          | 5,272    
|                                                                                       |  |                          |          
|Net interest income before provision for loan losses                                   |  |                          | 15,986   
|Provision for loan losses                                                              |  |                          | 2,095    
|                                                                                       |  |                          |          
|Net interest income after provision for loan losses                                    |  |                          | 13,891   
|                                                                                       |  |                          |          
|Noninterest income:                                                                    |  |                          |          
|Service charges on deposits                                                            |  |                          | 1,181    
|Other noninterest income                                                               |  |                          | 524      
|                                                                                       |  |                          |          
|Total noninterest income                                                               |  |                          | 1,705    
|                                                                                       |  |                          |          
|Noninterest expense:                                                                   |  |                          |          
|Salaries and benefits                                                                  |  |                          | 6,237    
|Occupancy, net                                                                         |  |                          | 1,242    
|Premises and equipment expense                                                         |  |                          | 473      
|Service bureau fees                                                                    |  |                          | 541      
|Data processing fees                                                                   |  |                          | 281      
|Other                                                                                  |  |                          | 2,240    
|                                                                                       |  |                          |          
|Total noninterest expense                                                              |  |                          | 11,014   
|                                                                                       |  |                          |          
|Income before federal income tax provision                                             |  |                          | 4,582    
|Federal income tax provision (benefit) (note 7)                                        |  |                          |          
|Current                                                                                |  |                          | 1,595    
|Deferred                                                                               |  |                          | (14      
|                                                                                       |  |                          |          
|Total federal income tax provision                                                     |  |                          | 1,581    
|                                                                                       |  |                          |          
|Net income                                                                             |  | $                        | 3,001    
|                                                                                       |  |                          |          
|Earnings per common share:                                                             |  |                          |          
|Basic                                                                                  |  | $                        | 1.56     
|Diluted                                                                                |  | $                        | 1.49     
|Shares used in computing per share data:                                               |  |                          |          
|Basic                                                                                  |  |                          | 1,927,619
|Diluted                                                                                |  |                          | 2,007,585



See
accompanying notes to consolidated financial statements.



F-4



---



Consolidated Financial
Statements (Continued)

Republic Bancshares of Texas, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders Equity



|(Dollars in thousands)       |  | Common stock |       | Additional Paid-in capital |   | Retained earnings (accumulated deficit) |  |   | Total shareholders equity
|---------------------------- |  | ------------ | ----- | -------------------------- | - | --------------------------------------- |  | - | --------------------------
|Balance at December 31, 2000 |  | $            | 1,922 |                            | $ | 19,098                                  |  | $ | (428                      
|Issuance of common stock     |  |              | 1     |                            |   | 17                                      |  |   |                          
|Net income                   |  |              |      |                            |   |                                        |  |   | 2,245                     
|                             |  |              |       |                            |   |                                         |  |   |                           
|Balance at December 31, 2001 |  |              | 1,923 |                            |   | 19,115                                  |  |   | 1,817                     
|                             |  |              |       |                            |   |                                         |  |   |                           
|Issuance of common stock     |  |              | 7     |                            |   | 92                                      |  |   |                          
|Exercise of stock options    |  |              | 4     |                            |   | 46                                      |  |   |                          
|Net income                   |  |              |      |                            |   |                                        |  |   | 3,001                     
|                             |  |              |       |                            |   |                                         |  |   |                           
|Balance at December 31, 2002 |  | $            | 1,934 |                            | $ | 19,253                                  |  | $ | 4,818                     
|                             |  |              |       |                            |   |                                         |  |   |                           



See
accompanying notes to consolidated financial statements.



F-5



---



Consolidated Financial
Statements (Continued)

Republic Bancshares of Texas, Inc. and Subsidiaries

Consolidated Statements of Cash Flows



|                                                                                  |  | Years ended December 31, |        
|--------------------------------------------------------------------------------- |  | ------------------------ | -------
|(Dollars in thousands)                                                            |  | 2002                     |        
|Cash flows from operating activities:                                             |  |                          |        
|Net income                                                                        |  | $                        | 3,001  
|Adjustments to reconcile net income to net cash provided by operating
activities: |  |                          |        
|Depreciation                                                                      |  |                          | 636    
|Accretion of discount on investment securities                                    |  |                          | (3     
|Amortization of premium on investment securities                                  |  |                          | 47     
|Amortization of trust preferred issuance cost                                     |  |                          | 1      
|Provision for loan losses                                                         |  |                          | 2,095  
|Gain on call of investment securities held to maturity                            |  |                          |       
|Loss on sale of equipment                                                         |  |                          |       
|Deferred income tax benefit                                                       |  |                          | (14    
|Decrease (increase) in accrued interest receivable                                |  |                          | (326   
|Decrease (increase) in other assets                                               |  |                          | (293   
|Increase (decrease) in accrued interest payable                                   |  |                          | (122   
|Increase in other liabilities                                                     |  |                          | 4      
|                                                                                  |  |                          |        
|Net cash provided by operating activities                                         |  |                          | 5,026  
|                                                                                  |  |                          |        
|Cash flows from investing activities:                                             |  |                          |        
|Net increase in loans                                                             |  |                          | (36,812
|Proceeds from call of investment securities held to maturity                      |  |                          | 913    
|Purchases of bank premises and equipment                                          |  |                          | (79    
|Purchase of investment securities available for sale                              |  |                          | (8,176 
|Purchase of investment securities held to maturity                                |  |                          | (33,116
|Purchase of Federal Home Loan Bank stock                                          |  |                          | (244   
|Net purchase of Federal Reserve stock                                             |  |                          |       
|                                                                                  |  |                          |        
|Net cash used in investing activities                                             |  |                          | (77,514
|                                                                                  |  |                          |        
|Cash flows from financing activities                                              |  |                          |        
|Net increase in deposit accounts                                                  |  |                          | 60,942 
|Net proceeds from issuance of trust preferred securities                          |  |                          | 7,760  
|Proceeds from the sale of common stock                                            |  |                          | 99     
|Proceeds from the exercise of stock options                                       |  |                          | 50     
|                                                                                  |  |                          |        
|Net cash provided by financing activities                                         |  |                          | 68,851 
|                                                                                  |  |                          |        
|Net (decrease) increase in cash and cash equivalents                              |  |                          | (3,637 
|Cash and cash equivalents at beginning of year                                    |  |                          | 46,028 
|                                                                                  |  |                          |        
|Cash and cash equivalents at end of year                                          |  | $                        | 42,391 
|                                                                                  |  |                          |        
|Supplemental disclosure of cash flow information:                                 |  |                          |        
|Interest paid                                                                     |  | $                        | 5,394  
|Taxes paid                                                                        |  |                          | 1,581  



See
accompanying notes to consolidated financial statements.



F-6



---



REPUBLIC
BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2002 and 2001



|(1) |  | Organization and summary of significant accounting policies
|--- |  | -----------------------------------------------------------



Republic Bancshares of Texas, Inc. (the Company) was incorporated as a business corporation under the laws of the
State of Texas on May 17, 2001 for the purpose of serving as a bank holding company for Republic National Bank (the Bank). On June 20, 2001, RBT Holdings, Inc. (RBT) was incorporated under the laws of Delaware in accordance
with the terms of an agreement and plan of reorganization dated May 30, 2001. Pursuant to the terms of the agreement, the Bank became a wholly-owned subsidiary of RBT and RBT became a wholly-owned subsidiary of the Company. The reorganization was
consummated on September 7, 2001. The reorganization was accounted for in a manner similar to that in pooling-of-interests accounting and all financial statements reflect the consolidated operations as if the reorganization had taken place prior to
the periods covered by such consolidated financial statements. The Bank was chartered as a national banking association which began operations on November 13, 1998.



The Bank offers a full range of banking services through five banking offices located in the Houston metropolitan area. The
accounting and reporting policies of the Company, RBT and the Bank conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry.



Use of estimates



The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 income and expenses during the reporting period. Actual results could differ from those estimates.



Principles of consolidation



The consolidated financial statements include the amounts of the Company, Bank and RBT. All significant intercompany amounts and transactions have been
eliminated in consolidation.



Cash and cash equivalents



Cash and cash equivalents include cash on hand, amounts due
from banks and federal funds sold.



Cash and interest-bearing
demand deposits of approximately $6.6 million and $4.0 million at December 31, 2002 and 2001, respectively, are maintained to satisfy the Federal Reserve requirement.



F-7



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





Investment securities



The Company uses the
amortized cost method for investments in debt securities when management has the positive intent and ability to hold such securities to maturity. Investments in debt securities that are not expected to be held to maturity and equity securities that
have readily determinable fair values are to be classified as trading or available for sale and measured at fair value in the consolidated balance sheets. Unrealized gains and losses on securities classified as trading securities are to be included
in the consolidated statements of income. Unrealized gains and losses on securities classified as available for sale are to be reported as a separate component of shareholders equity, net of the applicable tax effect. Premiums and discounts
are recognized in interest income using the interest method over the period to maturity. For classification purposes, the Banks investment in the Federal Reserve Bank and the Federal Home Loan Bank are classified and available for sale.



Loans



Interest on commercial and real estate loans is calculated using the simple
interest method based on daily average balances of the principal amount outstanding and is included in earnings. Interest on installment loans is included in earnings using a method that approximates the interest method.



Management continually reviews the loan portfolio to identify loans which,
with respect to principal or interest, may become collection problems. When a loan, in managements judgement, becomes doubtful as to the collection of accrued interest income, it is placed on nonaccrual status and all previously accrued
interest is reversed through a charge to earnings. Interest payments received on nonaccrual loans are recognized as income on a cash basis.



Nonrefundable fees (including commitment fees) are recognized into income as the fees occur. The difference in recognizing fees in this manner and in
accordance with Statement of Financial Accounting Standards No. 91, Accounting for Nonrefundable Fees and Costs Associated withOriginating or Acquiring Loans and Initial Direct Costs of Leases, which generally requires the deferral of
net direct origination fees and costs and subsequent amortization thereof by the interest method, is not material.



A loan is considered impaired when, based upon current information and events, it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Impaired loans are valued using (i) the present value of expected future cash flows discounted at the effective interest rate of the loan, (ii) the fair value of the underlying collateral, or
(iii) the observable market price of the loan, whichever is more readily available.



Provision and allowance for loan losses



The allowance for loan losses is based on managements evaluation of the loan portfolio under current economic conditions and such other factors as, in managements best judgement, deserve recognition in determining the
allowance and resultant provision for losses.



The real estate
properties securing a portion of the Companys loans are primarily located in the Houston, Texas area. Accordingly, the ultimate collectability of a portion of the Companys loan portfolio is susceptible to changes in market conditions in
the area.



F-8



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





Management believes that
the allowance for loan losses is adequate to cover probable losses inherent in the loan portfolio. While management uses available information to recognize loan losses, future additions to the allowance account may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Companys allowance for loan losses. Such agencies may require the Company to recognize additions to the
allowance based on their judgements about information available to them at the time of their examination.



Premises and equipment



Premises and equipment are stated at cost, less accumulated depreciation and amortization computed on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter
of the useful life of the improvements or the remaining term of the lease. Maintenance, repairs and minor improvements are charged to noninterest expense as incurred.



Federal income taxes



Deferred income tax assets and liabilities are determined using the asset and liability method. Under this method, the net deferred tax asset or liability
is determined based on the tax effects of the differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.



Deferred issuance costs



The Company capitalizes all costs related to the issuance of trust preferred
securities. The unamortized issuance costs at December 31, 2002 of approximately $245,000 are included in other assets in the consolidated balance sheet. Deferred issuance costs are amortized over ten years and included as interest expense on trust
preferred securities in the consolidated statements of income.



Earnings per share



Basic earnings per
share (EPS) is calculated by dividing net income by the weighted average number of common shares outstanding. Diluted EPS is calculated by dividing net income by the weighted average diluted shares outstanding. The weighted average number of shares
of common stock outstanding were 1,927,619 and 1,922,258 and the weighted average diluted shares outstanding were 2,007,585 and 1,955,836 for the years ended December 31, 2002 and 2001, respectively.



Stock-based compensation



FASB statement No. 123 (Statement 123), Accounting for Stock-Based
Compensation, requires companies to record compensation cost for stock-based employee compensation plans at fair value. Management has chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, Accordingly, compensation cost of stock options is measured as the excess, if any, of the fair value of the Companys common stock at the date of the
grant over the amount an employee must pay to acquire the common stock. No stock-based employee compensation cost is reflected in net income for the years ended December 31, 2002 and 2001.



F-9



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





In accordance with FASB
Statement No. 148, Accounting for Stock-Based Compensation  Transitionand Disclosure (see recent accounting pronouncements), the following table illustrates the effect on net income and earnings per share if the fair value based
method had been applied to all outstanding and unvested awards in each period.



|                                                                                                                                             |  | Year ended December 31,                  |      
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | -----
|                                                                                                                                             |  | 2002                                     |      
|                                                                                                                                             |  | (In thousands, except per share amounts) |      
|Net income as reported                                                                                                                       |  | $                                        | 3,001
|Deduct: Total stock-based employee compensation expense determined under fair value
based method for all awards1, net of related tax effects |  |                                          | (80  
|                                                                                                                                             |  |                                          |      
|Pro forma net income                                                                                                                         |  | $                                        | 2,921
|                                                                                                                                             |  |                                          |      
|Earnings per share:                                                                                                                          |  |                                          |      
|Basicas reported                                                                                                                            |  | $                                        | 1.56 
|                                                                                                                                             |  |                                          |      
|Basic  pro forma                                                                                                                            |  | $                                        | 1.52 
|                                                                                                                                             |  |                                          |      
|Dilutedas reported                                                                                                                          |  | $                                        | 1.49 
|                                                                                                                                             |  |                                          |      
|Dilutedpro forma                                                                                                                            |  | $                                        | 1.45 
|                                                                                                                                             |  |                                          |      

---

|1 |  | All awards consist of awards granted, modified, or settled in fiscal periods beginning after 1994that is, awards for which the fair value was required to be
measured under Statement 123.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Impaired loans



In accordance with FASB Statement No. 114, Accounting by
Creditors for Impairment of a Loan, (Statement 114) as amended by FASB Statement No. 118, Accounting by Creditors for Impairment of a Loan  Income Recognition and Disclosures. a loan is considered impaired when it is probable that
the creditor will be unable to collect all principal and interest amounts due according to the contractual terms of the loan agreement. Smaller balance homogeneous loans, including single family residential and consumer loans, are excluded from the
scope of Statement 114. These loans, however, are considered when determining the adequacy of the allowance for loan losses.



Impaired loans are identified and measured in conjunction with managements review of non-performing loans, classified assets, and the allowance for
loan losses. Impairment of large non-homogeneous loans is measured one of three ways: discounting estimated future cash flows, or the loans market price, or the fair value of the collateral, if the loan is collateral dependent. If the
measurement of the loan is less than the recorded amount of the loan, excluding any allowance for credit losses and including accrued interest, then the impairment is recognized by a charge to operations or an allocation of the allowance for loan
losses.



F-10



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





Recent accounting
pronouncements



In June 2001, the FASB issued Statement No.
141, Business Combinations (Statement 141). Statement 141 requires that any business combination initiated after June 30, 2001 be accounted for using the purchase method of accounting instead of the pooling of interests method of accounting.
Additionally, Statement 141 specifies that intangible assets acquired in a purchase method business combination must need to be recognized and reported apart from goodwill. The implementation of Statement 141 did not have an impact on the
Companys consolidated financial statements as it had no business combinations during the year.



In June 2001, the FASB issued Statement No. 142, Accounting for Goodwill and Intangible Assets(Statement 142). Statement 142 requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment annually. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle. Statement 142 also requires that
intangible assets with definite useful lives be amortized over their estimated useful lives to the estimated residual values, and reviewed for impairment in accordance with the FASBs Statement 121 (Statement 121), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed ofor Statement 144 upon adoption.Statement 142 is effective for the fiscal years beginning after December 15, 2001. The implementation of Statement 142 as of
January 1, 2002 did not have an impact on the Companys consolidated financial statements as the Company does not have any goodwill.



In August 2001, the FASB issued Statement No. 144, Accounting for the Impairment or Disposal ofLong-Lived Assets (Statement 144). Statement
144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Statement 144 requires companies to separately report discontinued operations
and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying
value less cost to sell. The Company adopted Statement 144 on January 1, 2002 and it did not have any impact on the Companys consolidated financial statements.



F-11



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





In December 2002, the FASB
issued Statement No. 148, Accounting for Stock-Based Compensation Transition and Disclosure.This statement amends Statement Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition
for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Certain disclosure modifications are required for fiscal years ending after December 15, 2002 and are
included in the notes to these consolidated financial statements. The adoption of Statement 148 as of December 31, 2002 had no effect on the Companys consolidated financial position or results of operations.



Reclassifications



Certain amounts in the 2001 financial statements have been reclassified to
conform to 2002 presentation with no effect on net income or shareholders equity as previously reported.



F-12



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





(2) Investment
securities available for sale



The amortized cost and fair
value of securities available for sale is as follows:



|                             |  | December 31, 2002
|---------------------------- |  | -----------------
|                             |  |                  
|                             |  | Amortized Cost   
|                             |  | (In thousands)   
|Agency securities            |  | $                
|Mortgage-backed securities   |  |                  
|Federal Reserve Bank stock   |  |                  
|Federal Home Loan Bank stock |  |                  
|                             |  |                  
|                             |  | $                
|                             |  |                  
|                            
|                             |  | December 31, 2001
|                             |  |                  
|                             |  | Amortized Cost   
|                             |  | (In thousands)   
|Federal Reserve Bank stock   |  | $                
|                             |  |                  



Investment securities
held to maturity



The amortized cost and fair value of
securities held to maturity is as follows:



|                                    |  | December 31, 2002
|----------------------------------- |  | -----------------
|                                    |  |                  
|                                    |  | Amortized Cost   
|                                    |  | (In thousands)   
|U.S. Treasury and agency securities |  | $                
|Mortgage-backed securities          |  |                  
|                                    |  |                  
|                                    |  | $                
|                                    |  |                  



F-13



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





|                  |  | December 31, 2001
|----------------- |  | -----------------
|                  |  |                  
|                  |  | Amortized Cost   
|                  |  | (In thousands)   
|Agency securities |  | $                
|                  |  |                  



There were $1.5 million
and $494,000 at December 31, 2002 and 2001 respectively, of securities held to maturity pledged as collateral to public deposits and other purposes required or permitted by law.



Contractual maturities of investment securities



The following table summarizes the contractual maturity of investment securities on an amortized cost basis and their
weighted average yields as of December 31, 2002. Contractual maturity of mortgage-backed securities is not reliable indicator of their expected life because borrowers have a right to prepay their obligations at any time.



|                                        |  | December 31, 2002      |    
|--------------------------------------- |  | ---------------------- | ---
|                                        |  | Within One Year        |    
|                                        |  | Amount                 |    
|                                        |  | (Dollars in thousands) |    
|U.S. Government securities              |  | $                      |   
|Obligations of U.S. Government Agencies |  |                        | 498
|Mortgage-backed securities              |  |                        |   
|Other (1)                               |  |                        |   
|                                        |  |                        |    
|                                        |  | $                      | 498
|                                        |  |                        |    

---

|(1) |  | Consists of the Banks investments in Federal Reserve Bank stock and in Federal Home Loan Bank stock.
|--- |  | -----------------------------------------------------------------------------------------------------



F-14



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





(3) Loans



A summary of loans at December 31, 2002 and 2001 follows:



|                                                    |  | 2002           |         | 2001
|--------------------------------------------------- |  | -------------- | ------- | ----
|                                                    |  | (In thousands)
|Commercial                                          |  | $              | 123,699 |     
|Real estate:                                        |  |                |         |     
|Construction, land development and other land loans |  |                | 29,308  |     
|Commercial owner occupied and multi family          |  |                | 90,268  |     
|1-4 family residential                              |  |                | 21,740  |     
|Consumer and other                                  |  |                | 28,540  |     
|                                                    |  |                |         |     
|                                                    |  | $              | 293,555 |     
|                                                    |  |                |         |     



All loans to directors
and officers of the Company and the Bank and principal shareholders of the Company and associates of such persons are, in the opinion of management, made in the ordinary course of business on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable loans of like quality and risk of collectibility. The outstanding balance of such loans as of December 31, 2002 and 2001 was approximately $4.9 million and $5.2 million, respectively.



At December 31, 2002 and 2001, the Company had no recorded
investment in impaired loans. At December 31, 2002 and 2001, the Company had an allowance for loan losses of $3.2 million and $2.9 million respectively. Management believes the allowance is adequate to cover probable losses inherent in the loan
portfolio. Five nonaccrual loans totaling $772,200 existed at December 31, 2002 and one nonaccrual loan with a balance of $185,000 existed at December 31, 2001.



The following is a summary of the activity in the allowance for loan losses for the years ended December 31, 2002 and 2001:



|                                     |  | 2002           |        |   | 2001 |  
|------------------------------------ |  | -------------- | ------ | - | ---- | -
|                                     |  | (In thousands) |       
|Balance, beginning of year           |  | $              | 2,885  |   |      | $
|Provision for loan losses            |  |                | 2,095  |   |      |  
|Loans charged off, net of recoveries |  |                | (1,744 | ) |      |  
|                                     |  |                |        |   |      |  
|Balance, end of year                 |  | $              | 3,236  |   |      | $
|                                     |  |                |        |   |      |  



F-15



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





(4) Premises and
equipment



A summary of premises and equipment, at cost, and
accumulated depreciation follows:



|                                     |  | Estimated useful lives |      | As of December 31, |       
|------------------------------------ |  | ---------------------- | ---- | ------------------ | ------
|                                     |  |                        | 2002 |                    |       
|                                     |  |                        |      | (In thousands)     |       
|Land                                 |  |                        |      | $                  | 729   
|Buildings and leasehold improvements |  | 24 years               |      |                    | 4,466 
|Furniture and equipment              |  | 2-10 years             |      |                    | 3,359 
|                                     |  |                        |      |                    |       
|Subtotal                             |  |                        |      |                    | 8,554 
|Less: accumulated depreciation       |  |                        |      |                    | (1,567
|                                     |  |                        |      |                    |       
|Premises and equipment, net          |  |                        |      | $                  | 6,987 
|                                     |  |                        |      |                    |       



Depreciation expense for
the years ended December 31, 2002 and 2001 was approximately $636,000 and $461,000, respectively.



(5) Deposits



The Company offers a variety of deposit accounts having a wide range of interest rates and terms. The Company relies on competitive pricing policies and customer service to attract and retain these deposits. At both December 31, 2002
and 2001 the Company had no brokered deposits and does not anticipate having any in the foreseeable future. Deposits provide the primary source of funding for the Companys lending and investing activities, and the interest paid for deposits
must be managed carefully to help maintain the Companys interest margin.



The Companys ratio of average non-interest bearing demand deposits to average total deposits for the years ended December 31, 2002 and 2001 was 26.5% and 24.5% respectively.



F-16



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





Deposits, their stated
rates and the related weighted average interest rates at December 31, 2002 and 2001 are summarized below (dollars in thousands):



|                                |  | 2002           |   |  | 2001   |        
|------------------------------- |  | -------------- | - |  | ------ | -------
|                                |  | Stated rate    |   |  | Amount |        
|Noninterest-bearing deposits    |  | 0.00           | % |  | $      | 106,031
|                                |  |                |   |  |        |        
|Interest-bearing deposits:      |  |                |   |  |        |        
|Interest-bearing checking       |  | 0.20-0.90      |   |  |        | 20,127 
|Savings deposits                |  | 0.40-0.65      |   |  |        | 2,302  
|Money market demand deposits    |  | 0.40-0.95      |   |  |        | 112,597
|Certificate accounts            |  | Less than 2.00 |   |  |        | 27,489 
|                                |  | 2.00-2.99      |   |  |        | 24,742 
|                                |  | 3.00-3.99      |   |  |        | 18,543 
|                                |  | 4.00-4.99      |   |  |        | 16,392 
|                                |  | 5.00-5.99      |   |  |        | 15,926 
|                                |  | 6.00-6.99      |   |  |        | 3,776  
|                                |  | 7.00-7.99      |   |  |        | 1,158  
|                                |  |                |   |  |        |        
|Total interest-bearing deposits |  |                |   |  |        | 243,052
|                                |  |                |   |  |        |        
|Total deposits                  |  |                |   |  | $      | 349,083
|                                |  |                |   |  |        |        
|Weighted average rate           |  |                |   |  |        | 3.12   
|                                |  |                |   |  |        |        



Interest expense on time
deposits in denominations of $100,000 or more was approximately $2,642,000 and $3,385,000 during the years ended December 31, 2002 and 2001, respectively.



Time deposits are solicited from markets served by the Bank and are not sought through brokered sources. Time deposits are a significant source of funds.
The following table presents the maturities of time deposits as of December 31, 2002:



|                                       |  | (In thousands) |        
|-------------------------------------- |  | -------------- | -------
|Maturities of time deposits            |  |                |        
|Three months or less                   |  | $              | 41,376 
|Over 3 through 6 months                |  |                | 21,232 
|Over 6 through 12 months               |  |                | 17,359 
|Over 12 months                         |  |                | 28,056 
|                                       |  |                |        
|Total                                  |  | $              | 108,024
|                                       |  |                |        
|Weighted average rate on time deposits |  |                | 3.12   
|                                       |  |                |        



F-17



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





(6) Trust preferred
securities



On December 19, 2002, the Company completed the
private placement of 8,000 floating rate capital securities (the Capital Securities) with an aggregate liquidation value of $8,000,000 through its newly formed Delaware statutory business trust, Republic Bancshares Capital Trust I (the
Trust). The Trust invested the proceeds from the sale of the Capital Securities, together with the proceeds from the sale by the Trust of its common securities to the Company, in an equivalent amount of the Companys Floating Rate
Junior Subordinated Debt Securities due 2033 (the Debentures). The Debentures will mature on January 7, 2033, which date may be shortened to a date not earlier than January 7, 2008 if certain conditions are met, including the prior
approval of the Federal Reserve and any other required regulatory approvals. The Debentures, which are the only assets of the Trust, are subordinate and junior in right of payment to all present and future senior indebtedness (as defined in the
Indenture dated December 19, 2002) of the Company. The Debentures accrue interest at a floating rate equal to the three-month LIBOR plus 3.35%, payable quarterly on January 7, April 7, July 7 and October 7 of each year; provided that the rate may
not exceed 12.5% through January 7, 2008. The quarterly distributions on the Capital Securities are paid at the same rate that interest is paid on the Debentures.



The Company has fully and unconditionally guaranteed the payment by the Trust of distributions and other amounts under the
Capital Securities to the extent that the Trust has funds available for such payments. The Trust must redeem the Capital Securities when the Debentures are paid at maturity or upon any earlier prepayment of the Debentures. The Debentures may be
prepaid if certain events occur, including a change in the tax status or regulatory capital treatment of the Capital Securities or a change in existing laws that requires the Trust to register as an investment company. Under the provisions of the
Debentures, the Company has the right to defer payment of interest on the Debentures at any time, or from time to time, for up to twenty consecutive quarterly periods. If interest payments on the Debentures are deferred, the distributions on the
Capital Securities will also be deferred.



For financial
reporting purposes, the Trust is treated as a subsidiary of the Company and consolidated in the corporate financial statements. The Company received net proceeds of $7.76 million. The Company invested $7.0 million of the proceeds into the Bank. The
remaining funds will be used for the general corporate purposes. The issuance cost of the trust preferred securities was $245,000 and is carried in other assets on the consolidated balance sheet. At December 31, 2002, the unamortized cost was
$244,000. This cost is being amortized over ten years as interest expense on trust preferred securities in the consolidated statements of income.



(7) Federal income taxes



A net deferred tax asset of approximately $546,000 and $532,000 is included in other assets at December 31, 2002 and 2001, respectively. The deferred tax
assets relate primarily to the allowance for loan losses at December 31, 2002 and 2001.



A valuation allowance for the deferred tax assets has not been recorded as management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred
tax assets.



F-18



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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





The income tax expense for
the years ended December 31, 2002 and 2001 differs from the amount computed applying the federal income tax rate of 34% to income before federal income tax provision due to expenses that are nondeductible for tax purposes.



(8) Compensation plans



Employee stock purchase plan



The Purchase Plan authorizes the offer and sale of up to 300,000 shares of
Common Stock to employees of the Company and its subsidiaries, including the Bank. The Purchase Plan is implemented through three-month purchase periods beginning every January 1, April 1, July 1 and October 1. The offering price per share is an
amount equal to 85% of the fair market value of the Common Stock on the last day of the applicable purchase period. The Purchase Plan was implemented in August 2001, and for the years ended December 31, 2002 and 2001, a total of 6,890 shares and
1,421 shares respectively, were sold.



401(k) plan



The Board of Directors has approved a 401(k) plan for
employees of the Bank. As of December 31, 2002, the Bank matches 50% of an employees contributions to the 401(k) plan, up to a maximum of 6% of the employees annual compensation. For the years ended December 31, 2002 and 2001 the Bank
contributed approximately $112,000 and $89,000 respectively, to the plan.



Stock-based compensation



In 1998, the
Company adopted an incentive stock option plan under which options to purchase shares of the Companys common stock may be granted to key employees at a price not less than the par value of the Companys common stock. All options that have
been granted have been at fair market value on the date of grant. The options must be exercised within ten years from the date granted and vest ratably over a period of five years



F-19



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





A summary of the stock
option activity for the years ended December 31, 2002 and 2001 is as follows:



|                                 |  | 2002             |   | 2001
|-------------------------------- |  | ---------------- | - | ----
|                                 |  | Number of shares |   |     
|Outstanding at beginning of year |  | 228,500          |   |     
|Granted                          |  | 7,000            |   |     
|Exercised                        |  | (4,000           | ) |     
|Forfeited                        |  | (1,300           | ) |     
|                                 |  |                  |   |     
|Outstanding at end of year       |  | 230,200          |   |     
|                                 |  |                  |   |     



The following table
summarizes information regarding stock options outstanding and exercisable at December 31, 2002 and 2001:



|             |  |                  |  | Options outstanding                         |  | Options exercisable            
|------------ |  | ---------------- |  | ------------------------------------------- |  | -------------------------------
|December 31, |  | Number of shares |  | Weighted average remaining contractual life |  | Weighted average exercise price
|2002         |  | 230,200          |  | 6.79 years                                  |  | $                              
|2001         |  | 228,500          |  | 8.09 years                                  |  | $                              
|             |  |                  |  |                                             |  |                                



The fair value of each
option grant is estimated on the date of grant using the minimum value method (excluding a volatility assumption) with the following weighted average assumptions as of December 31, 2002 and 2001:



|                        |  | 2002    |   |  | 2001    |  
|----------------------- |  | ------- | - |  | ------- | -
|Assumptions:            |  |         |   |  |         |  
|Risk-free interest rate |  | 3.2     | % |  | 4.3     | %
|Dividend yield          |  | 0.0     | % |  | 0.0     | %
|Expected life           |  | 5 years |   |  | 5 years |  
|                        |  |         |   |  |         |  



(9) Commitments and
contingencies



Commitments to extend credit



In the normal course of business, the Company enters into
various transactions which, in accordance with accounting principles generally accepted in the United States of America, are not included in the consolidated balance sheets. These transactions are referred to as off-balance-sheet
commitments. The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and letters of credit which involve elements of credit risk in excess of the amounts
recognized in the consolidated balance sheets. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.



F-20



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





The Company enters into
contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Customers use credit commitments to ensure that funds will be available for working capital
purposes, for capital expenditures and to ensure access to funds at specified terms and conditions. Substantially all of the Companys commitments to extend credit are contingent upon customers maintaining specific credit standards at the time
of loan funding. Management assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for loan losses.



Letters of credit are written conditional commitments issued by the Bank to guarantee the performance of a customer to a
third party. The Companys policies generally require that letters of credit arrangements contain security and debt covenants similar to those contained in loan agreements.



Cash reserves are commitments to extend credit on a customers transaction deposit account, whereby the Company will
clear draws on the account even if existing funds are insufficient. Outstanding unfunded commitments to extend credit at December 31, 2002 and 2001 are $50,520,000 and $43,092,000, respectively.



The Company is involved in various litigation arising in the normal course of
business. In the opinion of management, the ultimate liability, if any, would not be material to the consolidated financial position or results of operations of the Company.



Lease commitments



The Company is lessee under operating leases for real estate used for various banking offices. The approximate minimum lease payments under these leases,
at December 31, 2002, for the periods shown are:



|Year ending December 31, |  | Amount        
|------------------------ |  | --------------
|                         |  | (In thousands)
|2003                     |  | $   746       
|2004                     |  | 780           
|2005                     |  | 637           
|2006                     |  | 623           
|2007                     |  | 625           
|Thereafter               |  | 1,007         
|                         |  |               
|                         |  | $4,418        
|                         |  |               



It is expected that, in
the normal course of business, leases that expire will be renewed or replaced by leases on other property or equipment.



Rent expense under the noncancelable operating leases aggregated approximately $754,000 and $744,000 for the years ended December 31, 2002 and 2001,
respectively.



F-21



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





(10) Regulatory matters



The Company and the Bank are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory  and possibly additional discretionary  actions by regulators that, if undertaken, could have
a direct material effect on the Companys consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that
involve quantitative measures of the Companys and the Banks assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Companys and the Banks capital amounts and
classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors.



Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2002 and 2001,
that the Company and the Bank meet all capital adequacy requirements to which they are subject.



As of December 31, 2002, the most recent notification from the Office of the Comptroller of Currency categorized the Bank as adequately capitalized under the regulatory framework for prompt corrective
action. To be categorized as adequately capitalized, the Bank must maintain minimum total risk-based ratio of 8.0%, Tier 1 risk-based ratio of 4.0% and Tier 1 leverage ratio of 4.0% as set forth in the following table. The Company and the Bank both
maintained ratios in excess of these requirements. There are no conditions or events that management believes have changed the Companys or the Banks categories.



F-22



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





The Companys and
Banks regulatory capital amounts and ratios in relation to their current existing regulatory capital requirements for capital adequacy purposes are as follows:



|                                         |  | As of December 31, 2002 |       
|---------------------------------------- |  | ----------------------- | ------
|                                         |  | Actual                  |       
|Capital Requirement                      |  | Amount                  |       
|                                         |  | (Dollars in thousands)  |       
|Company                                  |  |                         |       
|Total capital (to risk-weighted assets)  |  | $                       | 37,241
|Tier 1 capital (to risk-weighted assets) |  |                         | 34,005
|Tier 1 capital (to average assets)       |  |                         | 34,005
|                                        
|Bank                                     |  |                         |       
|Total capital (to risk-weighted assets)  |  | $                       | 36,137
|Tier 1 capital (to risk-weighted assets) |  |                         | 32,901
|Tier 1 capital (to average assets)       |  |                         | 32,901
|                                         |  |                         |       
|                                        
|                                         |  | As of December 31, 2001 |       
|Company                                  |  |                         |       
|Total capital (to risk-weighted assets)  |  | $                       | 25,740
|Tier 1 capital (to risk-weighted assets) |  |                         | 22,855
|Tier 1 capital (to average assets)       |  |                         | 22,855
|                                        
|Bank                                     |  |                         |       
|Total capital (to risk-weighted assets)  |  | $                       | 25,724
|Tier 1 capital (to risk-weighted assets) |  |                         | 22,839
|Tier 1 capital (to average assets)       |  |                         | 22,839
|                                         |  |                         |       



F-23



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





Management intends to
continue compliance with all regulatory capital requirements.



For the foreseeable future, the Company does not plan to pay dividends, but instead will retain all earnings to support the growth of the Company.



(10) Disclosures about fair values of financial instruments



The following estimated fair values of financial instruments have been
determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgement is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value
amounts.



The following methods and assumptions were used to
estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.



Cash and cash equivalents



For these short-term instruments, the carrying amount is a reasonable estimate of fair value.



Investment securities available for sale



Fair values of investment securities available for sale are estimated based on quoted market prices. For Federal Reserve Bank
and Federal Home Loan Bank stock held as investments, fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.



Investment securities held to maturity



Fair values of investment securities held to maturity are estimated based on
quoted market prices.



Loans



The fair value of loans was estimated based on the current market interest
rates for similar loans, the remaining maturity, and credit risk. At December 31, 2002 and 2001, approximately 41.3% and 42.3%, respectively, of the Banks loans have variable rates that generally change with market rates. Consequently, the
estimated fair value of these variable rate loans approximates the carrying amount adjusted for anticipated losses as reflected by the allowance for credit losses. The fair value of fixed rate loans has been estimated by discounting estimated cash
flows using current rates at which similar loans would be made.



F-24



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





Deposits



The fair value of demand deposits, savings accounts and
certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.



Accrued interest receivable and payable



The carrying amounts of accrued interest approximate their fair values.



The estimated fair values of the Companys financial
instruments at December 31, 2002 and 2001 are as follows:



|                                         |  | 2002            |         | 2001      
|---------------------------------------- |  | --------------- | ------- | ----------
|                                         |  | Carrying amount |         | Fair value
|                                         |  | (In thousands) 
|Financial assets:                        |  |                 |         |           
|Cash and cash equivalents                |  | $               | 42,391  |           
|Investment securities available for sale |  |                 | 9,049   |           
|Investment securities held to maturity   |  |                 | 32,655  |           
|Loans, net                               |  |                 | 290,319 |           
|Accrued interest receivable              |  |                 | 1,434   |           
|Financial liabilities:                   |  |                 |         |           
|Deposits                                 |  | $               | 349,083 |           
|Accrued interest payable                 |  |                 | 425     |           
|Trust preferred securities               |  |                 | 8,000   |           



The fair value estimates
presented herein are based on pertinent information available to management as of December 31, 2002 and 2001. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not
been significantly revalued for purposes of these consolidated financial statements since these dates and, therefore, current estimates of fair value may differ from the amounts presented herein.



F-25



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001





(11) Parent company
financial information



Condensed financial information for
Republic Bancshares of Texas, Inc. is as follows:



REPUBLIC
BANCSHARES OF TEXAS, INC.

CONDENSED BALANCE SHEETS



|                                                  |  | December 31,  
|------------------------------------------------- |  | --------------
|                                                  |  | 2002          
|                                                  |  | (In thousands)
|Assets:                                           |  |               
|Cash and cash equivalents                         |  | $             
|Other assets                                      |  |               
|Investment in Republic Bancshares Capital Trust I |  |               
|Investment in RBT Holdings, Inc.                  |  |               
|                                                  |  |               
|Total assets                                      |  | $             
|                                                  |  |               
|Liabilities and shareholders equity              |  |               
|Liabilities:                                      |  |               
|Junior subordinated debentures                    |  |               
|Accrued interest payable                          |  |               
|                                                  |  |               
|Total liabilities                                 |  |               
|                                                  |  |               
|Shareholders equity                              |  | $             
|                                                  |  |               
|Total liabilities and shareholders equity        |  | $             
|                                                  |  |               



REPUBLIC BANCSHARES
OF TEXAS, INC.

CONDENSED STATEMENTS OF INCOME



|                                                   |  | Years ended December 31,
|-------------------------------------------------- |  | ------------------------
|                                                   |  | 2002                    
|                                                   |  | (In thousands)          
|Income:                                            |  |                         
|Equity in undistributed earnings of subsidiaries   |  | $                       
|                                                   |  |                         
|Expense:                                           |  |                         
|Interest expense on junior subordinated debentures |  |                         
|                                                   |  |                         
|Net interest expense                               |  |                         
|                                                   |  |                         
|Other expense                                      |  |                         
|                                                   |  |                         
|Income before income tax benefit                   |  |                         
|Income tax benefit                                 |  |                         
|                                                   |  |                         
|Net Income                                         |  | $                       
|                                                   |  |                         



F-26



---

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



December 31, 2002 and 2001



REPUBLIC BANCSHARES OF TEXAS, INC.

CONDENSED STATEMENTS OF CASH FLOWS



|                                                                              |  | Years ended December 31, |       
|----------------------------------------------------------------------------- |  | ------------------------ | ------
|                                                                              |  | 2002                     |       
|                                                                              |  | (In thousands)           |       
|Cash flows from operating activities                                          |  |                          |       
|Net income                                                                    |  | $                        | 3,001 
|Adjustments to reconcile net income to net cash used in operating
activities: |  |                          |       
|Equity in undistributed earnings of subsidiaries                              |  |                          | (3,057
|Increase in other assets                                                      |  |                          | (28   
|Increase in accrued interest payable                                          |  |                          | 14    
|                                                                              |  |                          |       
|Net cash used in operating activities                                         |  |                          | (70   
|                                                                              |  |                          |       
|Cash flows from investing activities                                          |  |                          |       
|Investment in RBT Holdings, Inc.                                              |  |                          | (7,006
|Net proceeds from issuance of trust preferred securities                      |  |                          | 7,760 
|                                                                              |  |                          |       
|Net cash provided by (used in) investing activities                           |  |                          | 754   
|                                                                              |  |                          |       
|Cash flows from financing activities                                          |  |                          |       
|Proceeds from sale of common stock                                            |  |                          | 99    
|Exercise of stock options                                                     |  |                          | 50    
|                                                                              |  |                          |       
|Net cash provided by financing activities                                     |  |                          | 149   
|                                                                              |  |                          |       
|Net increase in cash and cash equivalents                                     |  |                          | 833   
|Cash and cash equivalents at beginning of year                                |  |                          | 6     
|                                                                              |  |                          |       
|Cash and cash equivalents at end of year                                      |  | $                        | 839   
|                                                                              |  |                          |       



F-27