SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1997 Commission File Number 0-15734
REPUBLIC BANCORP INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2604669
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1070 East Main Street, Owosso, Michigan 48867
(Address of principal executive offices)
(517) 725-7337
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock Outstanding as of April 30, 1997:
Common Stock, $5 Par Value ............................. 16,919,892 Shares
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996 ................................. 3
Consolidated Statements of Income for the Three
Months Ended March 31, 1997 and 1996................... 4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1997 and 1996................... 5
Notes to Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition.......... 7 - 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................... 17
Item 2. Changes in Securities.................................. 17
Item 4. Submission of Matters to a Vote of Security Holders.... 17
Item 6. Exhibits and Reports on Form 8-K....................... 18
SIGNATURE ............................................................ 19
EXHIBITS..............................................................20 - 21
2
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31,
(Dollars in thousands) 1997 1996
- -------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents ............................ $ 27,741 $ 40,114
Mortgage loans held for sale ......................... 294,860 329,157
Securities available for sale (amortized cost of
$233,654 and $232,388, respectively) ............... 229,232 228,621
Loans ................................................ 829,905 784,628
Less allowance for loan losses ..................... (4,983) (4,709)
----------- -----------
Net loans ............................................ 824,922 779,919
----------- -----------
Premises and equipment, net of depreciation .......... 12,243 15,008
Mortgage servicing rights ............................ 45,245 44,398
Other assets ......................................... 45,502 53,148
----------- -----------
Total assets ..................................... $ 1,479,745 $ 1,490,365
=========== ===========
LIABILITIES
Deposits:
Noninterest-bearing ................................ $ 111,839 $ 126,940
Interest-bearing ................................... 906,776 886,767
----------- -----------
Total deposits ................................... 1,018,615 1,013,707
Federal funds purchased and securities sold under
agreements to repurchase ........................... 78,802 115,156
Other short-term borrowings .......................... 3,889 5,986
FHLB advances ........................................ 159,632 134,200
Accrued expenses and other liabilities ............... 49,573 49,243
Long-term debt ....................................... 47,500 49,189
----------- -----------
Total liabilities ................................ 1,358,011 1,367,481
Minority interest .................................... 1,017 1,069
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, $25 stated value: $2.25 cumulative
and convertible; 5,000,000 shares authorized,
none issued and outstanding ........................ -- --
Common stock, $5 par value, 30,000,000 shares
authorized; 17,046,092 and 17,129,142 shares
issued and outstanding, respectively ............... 85,230 85,646
Capital surplus ...................................... 35,036 37,538
Retained earnings .................................... 3,326 1,079
Net unrealized losses on securities available for sale (2,875) (2,448)
----------- -----------
Total shareholders' equity ....................... 120,717 121,815
----------- -----------
Total liabilities and shareholders' equity ....... $ 1,479,745 $ 1,490,365
=========== ===========
<FN>
See notes to consolidated financial statements.
3
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended
March 31,
(In thousands, except per share data) 1997 1996
- -------------------------------------------------------------------------------
Interest Income:
Loans, including fees ................................... $ 21,530 $ 19,074
Investment securities ................................... 3,366 4,820
Short-term investments .................................. 150 268
-------- --------
Total interest income ............................. 25,046 24,162
-------- --------
Interest Expense:
Demand deposits ......................................... 311 351
Savings and time deposits ............................... 10,756 10,088
Short-term borrowings ................................... 1,254 3,307
FHLB advances ........................................... 1,847 1,246
Long-term debt .......................................... 889 1,069
-------- --------
Total interest expense ............................ 15,057 16,061
-------- --------
Net interest income ..................................... 9,989 8,101
Provision for loan losses ............................... 297 65
-------- --------
Net interest income after provision for loan losses ..... 9,692 8,036
-------- --------
Noninterest Income:
Service charges ......................................... 352 319
Mortgage banking ........................................ 18,950 19,444
Gains on sale of securities ............................. 37 435
Gains on sale of SBA loans .............................. 184 220
Other noninterest income................................. 813 245
-------- --------
Total noninterest income .......................... 20,336 20,663
-------- --------
Noninterest Expense:
Salaries and employee benefits .......................... 10,033 10,172
Mortgage loan commissions ............................... 5,116 5,546
Occupancy expense of premises ........................... 1,733 1,451
Equipment expense ....................................... 1,101 1,170
Other noninterest expense................................ 6,170 5,849
-------- --------
Total noninterest expense ......................... 24,153 24,188
-------- --------
Income before income taxes and extraordinary item ....... 5,875 4,511
Provision for income taxes .............................. 1,919 1,496
-------- --------
Income before extraordinary item ........................ 3,956 3,015
Extraordinary item (early redemption of debt, net of tax) -- (388)
-------- --------
Net Income .............................................. $ 3,956 $ 2,627
======== ========
Income per common share before extraordinary item ....... $ .23 $ .16
Extraordinary item ...................................... -- (.02)
-------- --------
Net income per common share - primary and fully diluted . $ .23 $ .14
======== ========
Average common shares outstanding - fully diluted ....... 17,543 18,465
======== ========
Cash dividends declared per common share ................ $ .10 $ .09
======== ========
<FN>
See notes to consolidated financial statements.
4
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31 (In thousands) 1997 1996
- -------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income ................................................. $ 3,956 $ 2,627
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .......................... 1,280 1,303
Amortization of mortgage servicing rights .............. 1,474 2,112
Net gains on sale of securities available for sale ..... (37) (435)
Net gains on sale of mortgage servicing rights ......... (3,402) (7,161)
Net gains on sale of loans ............................. (1,167) (1,574)
Origination of mortgage loans held for sale ............ (654,594) (827,637)
Proceeds from sales of mortgage loans held for sale .... 688,891 835,812
(Increase) decrease in other assets .................... 7,631 (2,867)
Increase in other liabilities .......................... 330 17,390
Other, net ............................................. (289) (99)
--------- ---------
Total adjustments .................................... 40,117 16,844
--------- ---------
Net cash provided by operating activities ......... 44,073 19,471
--------- ---------
Cash Flows From Investing Activities:
Proceeds from sale of securities available for sale ........ 11,024 67,946
Proceeds from maturities/prepayments of securities
available for sale ....................................... 5,226 8,249
Purchases of securities available for sale ................. (17,658) (69,937)
Proceeds from sale of loans ................................ 61,962 47,629
Net increase in loans made to customers .................... (104,880) (31,928)
Proceeds from sale of fixed assets ......................... 3,550 --
Proceeds from sale of mortgage servicing rights ............ 1,084 9,878
Additions to mortgage servicing rights ..................... (3,041) (4,203)
--------- ---------
Net cash (used in) provided by investing activities (42,733) 27,634
--------- ---------
Cash Flows From Financing Activities:
Net increase in deposits ................................... 4,908 50,282
Net decrease in short-term borrowings ...................... (38,451) (111,383)
Net increase in short-term FHLB advances ................... 23,000 5,000
Net increase in long-term FHLB advances .................... 12,432 7,500
Payments on long-term FHLB advances ........................ (10,000) --
Proceeds from issuance of senior debentures,
net of issuance costs .................................... -- 22,242
Payments on long-term debt ................................. (1,689) (25,162)
Net proceeds from issuance of common shares ................ 570 553
Repurchase of common shares ................................ (2,766) (3,278)
Dividends paid ............................................. (1,717) (1,491)
--------- ---------
Net cash used in financing activities ............. (13,713) (55,737)
--------- ---------
Net decrease in cash and cash equivalents .................. (12,373) (8,632)
Cash and cash equivalents at beginning of period ........... 40,114 39,641
--------- ---------
Cash and cash equivalents at end of period ................. $ 27,741 $ 31,009
========= =========
<FN>
See notes to consolidated financial statements.
5
REPUBLIC BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements of Republic
Bancorp Inc. and Subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes necessary for a comprehensive presentation of financial
position, results of operations and cash flow activity required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all normal recurring adjustments necessary for a fair
presentation of results have been included. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Certain amounts in prior periods have been reclassified to conform to the
current year's presentation.
Note 2 - Principles of Consolidation
The consolidated financial statements include the accounts of Republic
Bancorp Inc.; two wholly-owned subsidiaries, Republic Bank and Republic
Savings Bank ("Republic Savings"); and Market Street Mortgage Corporation
("Market Street"), of which the Company owns an 80% majority interest.
Republic Bank operates a wholly-owned subsidiary, Republic Bancorp Mortgage
Inc. ("Republic Mortgage"), and its divisions, Home Funding, Inc. and
Unlimited Mortgage Services. Republic Bank also owns an 80% majority interest
in CUB Funding Corporation ("CUB Funding") which operates two divisions, RSL
Mortgage and Leader Financial. All material intercompany transactions and
balances have been eliminated in consolidation.
Note 3 - Consolidated Statements of Cash Flows
Supplemental disclosures of cash flow information for the three months ended
March 31, include:
(In thousands) 1997 1996
---- ----
Cash paid during the period for:
Interest ................... $13,905 $16,455
Income taxes ............... $ -- $ --
Non-cash investing activities:
Portfolio loan charge-offs . $ 55 $ 121
6
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
EARNINGS PERFORMANCE
The Company reported net income of $4.0 million for the quarter ended March
31, 1997, an increase of 51% when compared to $2.6 million earned in the
first quarter of 1996. Fully diluted earnings per share for the quarter were
$0.23, up 64% from $0.14 for the same period last year. Return on average
shareholders' equity was 13.03% and return on average assets was 1.12% for
the quarter, compared to 8.35% and 0.73%, respectively, in 1996.
RESULTS OF OPERATIONS
Mortgage Banking
The following discussion provides information that relates specifically to
the Company's mortgage banking segment, which generates revenue from mortgage
loan production and mortgage loan servicing activities. Mortgage banking
revenue accounted for approximately 93% of total noninterest income for the
quarter ended March 31, 1997.
The Company closed $733.8 million in single-family residential mortgage loans
in the first quarter of 1997, a 14% decline when compared to $855.5 million
closed in the same period last year. This decrease in mortgage loan closings
was principally due to a reduction in the Company's wholesale mortgage
production activities. In the first quarter of 1997 and 1996, wholesale
mortgage loan closings were $128.0 million and $248.7 million, respectively.
Retail production remained relatively consistent between the periods
indicated.
Mortgage banking income decreased $494,000, or 3%, primarily due to declines
in mortgage loan production and mortgage loan servicing income. The following
table summarizes the Company's income from mortgage banking activities:
Three Months Ended
March 31,
(In thousands) 1997 1996
- ---------------------------------------------------------------------------
Mortgage loan production income ..................... $ 17,222 $ 17,547
Net mortgage loan servicing income .................. 1,728 2,017
Gain (loss) on sale of bulk mortgage servicing rights -- (120)
-------- --------
Total mortgage banking income .................. $ 18,950 $ 19,444
======== ========
Mortgage loan production income includes fee income derived from the loan
origination process (i.e., points collected), gains on the sale of mortgage
loans and gains on the sale of mortgage servicing rights released
concurrently with the underlying loans sold. Mortgage production income
declined less than 2% to $17.2 million for the quarter ended March 31, 1997,
primarily due to fewer mortgage loan sales. Sales of the Company's
single-family mortgage loans decreased to $747 million during the first
quarter of 1997 from $897 million a year ago, reflecting the decline in
wholesale originations. Despite the reduction in originations, profitability
levels improved as the ratio of mortgage production income to mortgage loans
sold increased 34 basis points to 230 basis points for the three months ended
March 31, 1997, from 196 basis points for the corresponding period in 1996.
7
Loans serviced for the benefit of others totaled $2.7 billion at March 31,
1997 and December 31, 1996, compared to $3.8 billion at March 31, 1996. Net
mortgage loan servicing income declined 14% to $1.7 million for the first
quarter of 1997 from $2.0 million a year ago, reflecting a reduction in the
size of the servicing portfolio in 1996 as the Company concentrated its
mortgage servicing activities at its mortgage company subsidiary, Market
Street Mortgage Corporation.
The Company periodically sells mortgage servicing rights (MSRs) from its
servicing portfolio through bulk sales. During the first quarter of 1997, no
MSRs were sold in this manner. In the first quarter of 1996, sales of bulk
mortgage servicing rights for loans with a principal balance of $218.6
million resulted in a net loss of $120,000.
Commercial and Retail Banking
The remaining disclosures and analyses within Management's Discussion and
Analysis regarding the Company's results of operations and financial
condition relate principally to the commercial and retail banking segment.
Net Interest Income
The following discussion should be read in conjunction with Table I which
provides a detailed analysis of the components impacting net interest income
for the quarters ended March 31, 1997 and 1996.
Net interest income, on a fully taxable equivalent (FTE) basis, rose $2.0
million, or 25%, to $10.1 million for the quarter ended March 31, 1997 from
$8.1 million in 1996, primarily due to strong portfolio loan growth and a
decline in short-term borrowings. Average portfolio loans increased $237.8
million, or 41%, to $819.5 million, reflecting growth across all lending
categories. This growth was partially funded by reductions in the average
balances of investment securities and mortgage loans held for sale. Average
warehouse lines of credit and other short-term borrowings decreased $123.0
million, or 58%, since the first quarter of 1996, primarily due to the
Company's replacement of third-party warehouse lines of credit used to fund
mortgage loan originations with interest-bearing deposits and short-term
borrowings from Republic Bank and Republic Savings Bank.
The net interest margin (FTE) increased 61 basis points to 3.13% for the
quarter ended March 31, 1997, from 2.52% for the similar period in 1996. The
expansion in the margin was partly due to a favorable shift in the mix of
earning assets away from lower-yielding investment securities to
higher-yielding residential, commercial and installment loan products. This
shift resulted in a 28 basis point increase in the yield on average earning
assets. Also contributing to the higher margin was a 27 basis point decline
in the average cost of funds on interest-bearing liabilities, particularly
time deposits and short-term borrowings used to fund mortgage loan
originations.
Noninterest Expense
Total noninterest expense for the quarter ended March 31, 1997 was relatively
unchanged compared to the amount reported for the same period in 1996, as the
impact of the lower level of originations on mortgage loan commissions paid
was offset by slight increases in occupancy and other operating expenses.
8
Table I - Quarterly Net Interest Income and Rate/Volume Analysis (FTE)
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
- --------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
(Dollars in thousands) Balance(1) Interest Rate Balance(1) Interest Rate
- --------------------------------------------------------------------------------------------------------------------------
Assets:
Short-term investments ................... $ 12,490 $ 149 4.84% $ 20,453 $ 268 5.24%
Mortgage loans held for sale ............. 239,755 4,661 7.78 370,906 6,927 7.47
Investment securities available for sale . 224,115 3,516 6.28 314,789 4,820 6.12
Commercial loans ......................... 198,179 4,720 9.66 141,215 3,382 9.58
Real estate mortgage loans ............... 536,831 10,076 7.51 374,268 7,131 7.62
Installment loans ........................ 84,520 2,073 9.95 66,281 1,634 9.86
----------- ----------- ---- ----------- ----------- ----
Loans, net of unearned income .......... 819,530 16,869 8.28 581,764 12,147 8.35
----------- ----------- ---- ----------- ----------- ----
Total interest earning assets ........ 1,295,890 25,195 7.78 1,287,912 24,162 7.50
Allowance for loan losses ................ (4,801) (4,950)
Cash and due from banks .................. 20,622 22,492
Other assets ............................. 105,890 122,863
----------- -----------
Total assets ......................... $ 1,417,601 $ 1,428,317
=========== ===========
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits.......... $ 57,487 311 2.19 $ 60,202 351 2.33
Savings deposits ......................... 263,860 2,812 4.32 195,783 1,874 3.83
Time deposits ............................ 567,210 7,944 5.68 547,212 8,214 6.00
----------- ----------- ---- ----------- ----------- ----
Total interest-bearing deposits ........ 888,557 11,067 5.05 803,197 10,439 5.20
Warehouse lines of credit ................ -- -- -- 87,612 1,501 6.85
Other short-term borrowings .............. 88,308 1,254 5.76 123,711 1,806 5.84
FHLB advances ............................ 127,485 1,847 5.88 84,715 1,246 5.88
Long-term debt ........................... 49,292 889 7.21 55,486 1,069 7.71
----------- ----------- ---- ----------- ----------- ----
Total interest-bearing liabilities ... 1,153,642 15,057 5.29 1,154,721 16,061 5.56
----------- ---- ----------- ----
Noninterest-bearing deposits ............. 111,111 124,024
Other liabilities ........................ 31,378 23,699
----------- -----------
Total liabilities .................... 1,296,131 1,302,444
Shareholders' equity ..................... 121,470 125,873
----------- -----------
Total liabilities and
shareholders' equity ............... $ 1,417,601 $ 1,428,317
=========== ===========
Net interest income/Rate spread (FTE) .... $ 10,138 2.49% $ 8,101 1.94%
=========== ==== =========== ====
Net interest margin (FTE) ................ 3.13% 2.52%
==== ====
Increase (decrease) due to change in: Volume(2) Rate(2) Net Inc(Dec)
- ------------------------------------------------------------------------------
Interest income:
Short-term investments ........... $ (99) $ (20) $ (119)
Mortgage loans held for sale ..... (2,539) 273 (2,266)
Investment securities
available for sale ............. (1,420) 116 (1,304)
Commercial loans ................. 1,311 27 1,338
Real estate mortgage loans ....... 3,053 (108) 2,945
Installment loans ................ 426 13 439
------- ------- -------
Loans, net of unearned income .. 4,790 (68) 4,722
------- ------- -------
Total interest income ........ 732 301 1,033
Interest expense:
Interest-bearing demand deposits . (17) (23) (40)
Savings deposits ................. 684 254 938
Time deposits .................... 249 (519) (270)
------- ------- -------
Total interest-bearing deposits 916 (288) 628
Warehousing lines of credit ...... (1,501) -- (1,501)
Other short-term borrowings ...... (527) (25) (552)
FHLB advances .................... 601 -- 601
Long-term debt ................... (114) (66) (180)
------- ------- -------
Total interest expense ....... (625) (379) (1,004)
------- ------- -------
Net interest income .............. $ 1,357 $ 680 $ 2,037
======= ======= =======
<FN>
(1) Non-accrual loans and overdrafts are included in average balances.
(2) Rate/volume variances are proportionately allocated to rate and volume
based on the absolute value of the change in each.
9
BALANCE SHEET ANALYSIS
ASSETS
Total assets decreased $10.6 million, or less than 1%, to $1.48 billion at
March 31, 1997 from $1.49 billion at December 31, 1996, as an increase in
portfolio loans was more than offset by declines in mortgage loans held for
sale, cash, premises and equipment and other assets.
Securities
Investment securities available for sale remained relatively flat since
year-end 1996, increasing less than 1% to $229.2 million, or 15.5% of total
assets, at March 31, 1997 from $228.6 million, or 15.3% of total assets, at
December 31, 1996. The Company's securities portfolio serves as a source of
liquidity and earnings, carries relatively minimal principal risk and
contributes to the management of interest rate risk. The portfolio is
comprised primarily of U.S. Government agency obligations, obligations
collateralized by U.S. Government agencies, mainly in the form of
mortgage-backed securities and collateralized mortgage obligations, and
municipal obligations. With the exception of municipal obligations, the
maturity structure of the securities portfolio is generally short-term in
nature or indexed to variable rates. At March 31, 1997, the estimated average
maturity of fixed rate investment securities, excluding municipal securities,
ranged from 0.3 year to 4.5 years.
The following table details the composition, amortized cost and fair value of
the Company's available-for-sale securities portfolio at March 31, 1997:
Available-for-Sale Securities
--------------------------------------------------
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------
Debt Securities:
U.S. Government agency obligations .. $ 40,840 $ 29 $ 360 $ 40,509
Collateralized mortgage obligations . 92,109 21 1,415 90,715
Mortgage-backed securities .......... 59,659 5 1,608 58,056
Municipal and other securities ...... 20,980 33 356 20,657
-------- -------- -------- --------
Total Debt Securities ............. 213,588 88 3,739 209,937
Equity securities ..................... 20,066 -- 771 19,295
-------- -------- -------- --------
Total Available-for-Sale Securities $233,654 $ 88 $ 4,510 $229,232
======== ======== ======== ========
Gross realized gains and losses on sales of available-for-sale securities
were $48,000 and $11,000, respectively, for the quarter ended March 31, 1997.
Certain securities having a carrying value of approximately $73.0 million and
$65.0 million at March 31, 1997 and December 31, 1996, respectively, were
pledged to secure repurchase agreements, FHLB advances, public and other
deposits as required by law.
Mortgage Loans Held for Sale
Mortgage loans held for sale declined $34.3 million, or 10%, to $294.9
million at March 31, 1997 from $329.2 million at December 31, 1996,
reflecting the lower volume of originations in the first quarter compared to
the fourth quarter of 1996.
10
Portfolio Loans
Total portfolio loans increased $45.3 million, or 6%, to $829.9 million at
March 31, 1997 from $784.6 million at December 31, 1996, reflecting growth
across all lending areas.
The residential mortgage portfolio loan balance rose $20.8 million, or 4%,
since year-end 1996 to $527.8 million at March 31, 1997 in response to
increased consumer demand for adjustable rate and jumbo mortgage loans. The
installment loan portfolio balance, which is predominantly comprised of home
equity loans, grew $5.5 million, or 7%, to $88.0 million at March 31, 1997.
The commercial loan balance increased $19.0 million, or 10%, since year-end
1996 to $214.2 million at March 31, 1997, reflecting continued strong demand
for real estate-secured lending in markets served by the Company. During the
first quarter of 1997, the Company closed $4.2 million of Small Business
Administration (SBA) loans, a 34% increase from the $3.1 million closed in
the first quarter of 1996. The Company sold $2.1 million and $2.5 million of
the guaranteed portion of SBA loans in the first three months of 1997 and
1996, respectively, resulting in gains of $184,000 and $220,000,
respectively.
The following table provides further information regarding the Company's loan
portfolio:
March 31, 1997 December 31, 1996
------------------- --------------------
(Dollars in thousands) Amount Percent Amount Percent
- -----------------------------------------------------------------------------------
Commercial loans:
Commercial and industrial ..... $ 28,133 3.4% $ 29,483 3.8%
Real estate construction ...... 28,207 3.4 32,946 4.2
Commercial real estate mortgage 157,841 19.0 132,763 16.9
-------- ----- -------- -----
Total commercial loans ... 214,181 25.8 195,192 24.9
Residential real estate mortgages 527,764 63.6 506,944 64.6
Installment loans ............... 87,960 10.6 82,492 10.5
-------- ----- -------- -----
Total portfolio loans ..... $829,905 100.0% $784,628 100.0%
======== ===== ======== =====
Credit Quality
The Company attempts to minimize credit risk in the loan portfolio by
focusing primarily on residential real estate mortgage lending, real
estate-secured commercial lending and home equity lending. As of March
31, 1997, such loans comprised 94.6% of total portfolio loans. The Company's
general policy is to originate conventional residential real estate mortgages
with loan-to-value ratios of 80% or less and SBA-secured loans or real
estate-secured commercial loans with loan-to-value ratios of 70% or less.
The substantial majority of the Company's residential mortgage loan
production is underwritten in compliance with the requirements for sale to or
conversion to mortgage-backed securities issued by the Federal Home Loan
Mortgage Corporation (FHLMC), the Federal National Mortgage Association
(FNMA), or the Government National Mortgage Association (GNMA). The majority
of the Company's commercial loans are secured by real estate and are
generally made to small and medium-sized businesses. These loans are made at
rates based on the prevailing prime interest rates of Republic Bank and
Republic Savings Bank, as well as fixed rates for terms generally ranging
from three to five years. Management's emphasis on real estate-secured
lending with conservative loan-to-value ratios is reflected in the Company's
historically low net charge-off ratio percentages.
11
Non-Performing Assets
Non-performing assets consist of non-accrual loans, restructured loans and
other real estate owned (OREO). OREO represents real estate properties
acquired through foreclosure or by deed in lieu of foreclosure and is
classified as other assets on the balance sheet until such time as the
property is sold. Commercial loans, residential real estate mortgage loans
and installment loans are generally placed on non-accrual status when
principal or interest is 90 days or more past due, unless the loans are
well-secured and in the process of collection. Loans may be placed on
non-accrual status earlier when, in the opinion of management, reasonable
doubt exists as to the full, timely collection of interest or principal.
The following table summarizes the Company's non-performing assets and 90-day
past due loans:
March 31, December 31, March 31,
(Dollars in thousands) 1997 1996 1996
- ------------------------------------------------------------------------------------
Non-Performing Assets:
Non-accrual loans:
Commercial ............................. $1,025 $1,321 $1,358
Residential real estate mortgages ...... 4,677 3,968 1,399
Installment ............................ 127 50 290
------ ------ ------
Total non-accrual loans .............. 5,829 5,339 3,047
Restructured loans ....................... -- -- 587
------ ------ ------
Total non-performing loans ........... 5,829 5,339 3,634
Other real estate owned .................. 1,811 1,250 985
------ ------ ------
Total non-performing assets .......... $7,640 $6,589 $4,619
====== ====== ======
Loans past due 90 days or more and still
accruing interest:
Commercial ............................... $ 8 $ -- $ 129
Residential real estate mortgages ........ 277 548 239
Installment .............................. 24 22 62
------ ------ ------
Total loans past due 90 days or more . $ 309 $ 570 $ 430
====== ====== ======
Non-performing assets as a percentage of:
Total portfolio loans and OREO (1) ..... .92% .84% .82%
Total loans and OREO (2) ............... .68% .59% .47%
Total assets ........................... .52% .44% .32%
<FN>
(1) Excludes mortgage loans held for sale.
(2) Includes mortgage loans held for sale.
At March 31, 1997, approximately $8.4 million, or 1.01% of total portfolio
loans were 30-89 days delinquent.
Allowance for Loan Losses
Management is responsible for maintaining an adequate allowance for loan
losses. An appropriate level of the allowance is determined based on the
application of projected loss percentages to risk-rated loans, both
individually and by category. The projected loss percentages were developed
giving consideration to actual loan loss experience, adjusted for current and
prospective economic conditions. Management also considers other factors when
assessing the adequacy of the allowance for loan losses, including loan
quality, changes in the size and character of the loan portfolio and
consultation with regulatory agencies. In addition, specific reserves are
established for individual loans when deemed necessary by management.
12
Management believes the allowance for loan losses is adequate to meet
potential losses in the loan portfolio that can be reasonably anticipated
based on current conditions. In addition, 94.6% of the total loan portfolio
at March 31, 1997, was secured by real estate, thereby, reducing potential
losses. It must be understood, however, that inherent risks and uncertainties
related to the operation of a financial institution require management to
depend on estimates, appraisals and evaluations of loans to prepare the
Company's financial statements. Changes in economic conditions and the
financial prospects of borrowers may result in abrupt changes to the
estimates, appraisals or evaluations used. In addition, if actual
circumstances and losses differ substantially from management's assumptions
and estimates, the allowance for loan losses may not be sufficient to absorb
all future losses, and net income could be significantly and adversely
affected.
The following table provides an analysis of the allowance for loan losses:
Three Months Ended
March 31,
(Dollars in thousands) 1997 1996
---- ----
Allowance for loan losses:
Balance at January 1 ....................... $ 4,709 $ 5,002
Loans charged off ........................ (55) (121)
Recoveries of loans previously charged off 32 46
------- -------
Net charge-offs ........................ (23) (75)
Provision charged to expense ............. 297 65
------- -------
Balance at March 31 ........................ $ 4,983 $ 4,992
======= =======
Net charge-offs as a percentage
of average portfolio loans
outstanding ............................ .01% .05%
Allowance for loan losses as a
percentage of total portfolio loans
outstanding at period-end .............. .60 .89
Allowance for loan losses as a
percentage of non-performing
loans .................................. 85.48 137.35
Off-Balance Sheet Instruments
Unused commitments to extend credit totaled $335.1 million for residential
real estate loans and $80.8 million for commercial real estate loans at March
31, 1997.
At March 31, 1997, the Company had outstanding $242.6 million of commitments
to fund residential real estate loan applications with agreed-upon rates,
including $34.3 million of residential portfolio loans. Agreeing to fund
residential real estate loan applications at specified rates and holding
residential mortgage loans for sale to the secondary market exposes the
Company to interest rate risk during the period before the loans are sold to
investors. To minimize this exposure to interest rate risk, the Company
enters into firm commitments to sell such mortgage loans at specified future
dates to various third parties. At March 31, 1997, the Company had
outstanding forward commitments to sell $478.2 million of residential
mortgage loans, of which $294.9 million covered the mortgage loans held for
sale balance and $183.3 million covered commitments to fund residential real
estate loan applications with agreed-upon rates. These outstanding forward
commitments to sell mortgage loans are scheduled to settle in the second
quarter of 1997 without producing any material gains or losses.
13
LIABILITIES.
Total liabilities decreased $9.5 million to $1.36 billion at March 31, 1997
from $1.37 billion at December 31, 1996, as increases in FHLB advances and
deposits were offset by declines in short-term borrowings and long-term debt.
Deposits
Total deposits remained relatively consistent with the year-end 1996 balance,
increasing less than 1% to $1.02 billion at March 31, 1997.
Noninterest-bearing deposits declined $15.1 million, or 12%, to $111.8
million from $126.9 million at year-end 1996. Interest-bearing deposits rose
$20.0 million, or 2%, to $906.8 million at March 31, 1997 from $886.8 million
at December 31, 1996, as funds were attracted to the Company's high-yield
savings account.
Short-Term Borrowings
Short-term borrowings with maturities of less than one year, along with the
related average balances and interest rates for the three months ended March
31, 1997 and the year ended December 31, 1996, were as follows:
March 31, 1997 December 31, 1996
----------------------------------- --------------------------------
Average Average
Ending Average Rate During Ending Average Rate During
(Dollars in thousands) Balance Balance Period Balance Balance Period
- -------------------------------------------------------------------------------------------------------------
Federal funds purchased ........ $ 20,600 $ 15,123 5.60% $ 67,900 $ 25,312 5.71%
Securities sold under agreements
to repurchase ................ 58,202 64,311 5.60 47,256 122,298 5.67
Other short-term borrowings .... 3,889 8,874 7.13 5,986 27,124 7.17
-------- -------- ---- -------- -------- ----
Total short-term borrowings $ 82,691 $ 88,308 5.76% $121,142 $174,734 5.91%
======== ======== ==== ======== ======== ====
Other short-term borrowings consisted of treasury, tax and loan demand notes
(TT&L) at March 31, 1997. At December 31, 1996, other short-term borrowings
were comprised of $4.0 million in TT&Ls, $1.9 million in borrowings
outstanding under a revolving credit agreement with a financial institution
and the current portion of long-term debt.
FHLB Advances
Republic Bank and Republic Savings Bank routinely borrow short- and long-term
advances from the Federal Home Loan Bank (FHLB) to provide liquidity for
mortgage loan originations and to minimize the interest rate risk associated
with certain fixed rate commercial and residential mortgage portfolio loans.
These advances are generally secured under a blanket security agreement by
first mortgage loans or investment securities with an aggregate book value
equal to at least 150% of the advances. FHLB advances outstanding as of the
dates indicated were as follows:
March 31, 1997 December 31, 1996
--------------------- ---------------------
Average Average
Ending Rate At Ending Rate At
(Dollars in thousands) Balance Period-End Balance Period-End
- ----------------------------------------------------------------------------
Short-term FHLB advances $ 62,000 6.58% $ 39,000 5.73%
Long-term FHLB advances . 97,632 5.87 95,200 6.22
-------- ---- -------- ----
Total ............... $159,632 6.14% $134,200 5.89%
======== ==== ======== ====
The long-term FHLB advances have original maturities ranging from June 1997
to October 2001.
14
Long-Term Debt
Obligations with original maturities of more than one year consisted of the
following:
March 31, December 31,
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------
7.17% Senior Debentures due 2001 .................. $ 25,000 $ 25,000
6.75% Senior Debentures due 2001 .................. 9,000 9,000
6.95% Senior Debentures due 2003 .................. 13,500 13,500
6.99% Mortgage Loan due 2000 ...................... -- 1,792
-------- --------
47,500 49,292
Less current maturities included in other
short-term borrowings ........................... -- (103)
-------- --------
Total long-term debt .......................... $ 47,500 $ 49,189
======== ========
In March 1997, the Company paid off the 6.99% Mortgage Loan due 2000 due to
the sale of an office building of its affiliate, Republic Bancorp Mortgage
Inc.
Capital
Shareholders' equity declined $1.1 million to $120.7 million at March 31,
1997 from $121.8 million at December 31, 1996. This decrease primarily
reflects the repurchase of 272,300 shares of the Company's common stock
under the previously announced stock repurchase program, less the reissuance
of 60,300 shares to employees under the Company's restricted stock plan.
The Company is subject to regulatory capital requirements administered by
federal banking agencies. Failure to meet minimum capital requirements can
initiate actions by regulators that, if undertaken, could have an effect on
the Company's financial statements. Capital adequacy guidelines require
minimum capital ratios of 8.00% for Total risk-based capital, 4.00% for Tier
1 risk-based capital and 3.00% for Tier 1 leverage. To be considered
well-capitalized under the regulatory framework for prompt corrective action,
minimum capital ratios of 10.00% for Total risk-based capital, 6.00% for Tier
1 risk-based capital and 5.00% for Tier 1 leverage must be maintained.
As of March 31, 1997, the Company met all capital adequacy requirements to
which it is subject and management does not anticipate any difficulty in
meeting these requirements on an ongoing basis. The Company's capital ratios
were as follows:
March 31, December 31,
1997 1996
--------- ------------
Total capital to risk-weighted assets (1) ............ 13.56% 13.84%
Tier 1 capital to risk-weighted assets (1) ........... 13.00 13.30
Tier 1 capital to average assets (1) ................. 8.16 8.16
<FN>
(1) As defined by the regulations.
As of March 31, 1997, the Company's Total risk-based capital was $119.9
million and Tier 1 risk-based capital was $114.9 million, an excess of $31.5
million and $61.9 million, respectively, over the minimum guidelines
prescribed by regulatory agencies for a well-capitalized institution. In
addition, Republic Bank and Republic Savings Bank had regulatory capital
ratios in excess of the levels established for well-capitalized institutions.
15
Accounting Developments
On January 1, 1997, the Company adopted the provisions of SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, issued by the FASB in June 1996, pertaining
to sales, securitizations and servicing of receivables and other financial
assets and the extinguishment of liabilities without material impact to
financial position and results of operations. The effective date for
provisions of the Statement relating to repurchase agreements, securities
lending and other similar transactions and pledged collateral was delayed
until after December 31, 1997 through the issuance by the FASB of SFAS No.
127, Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125, an amendment to FASB Statement No. 125. The adoption of SFAS No. 127
is not expected to have a material impact on the Company's financial position
and results of operations.
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, the Company and its
subsidiaries are parties to certain routine litigation. In the
opinion of management, the aggregate liabilities, if any, arising
from such legal proceedings would not have a material adverse
effect on the Company's consolidated financial position, results
of operations and liquidity.
Item 2. Changes in Securities
In February 1997, the Board of Directors declared a quarterly cash
dividend of $0.10 per share of common stock, payable on April 4,
1997 to shareholders of record March 7, 1997.
Item 4. Submission of Matters to Vote of Security Holders.
Republic Bancorp Inc. held its 1997 annual meeting of shareholders
on April 23, 1997. The following directors were elected at the
annual meeting to serve until the next annual meeting:
Abstentions and
Director For Against Withheld Broker Non-Votes
-------- --- ------- -------- ----------------
Jerry D. Campbell 15,037,656 0 134,898 330
Dana M. Cluckey 15,038,205 0 134,349 330
Bruce L. Cook 15,035,101 0 137,453 330
Richard J. Cramer 15,038,218 0 134,336 330
Dr. George A. Eastman 15,028,662 0 143,893 330
Howard J. Hulsman 15,037,143 0 135,411 330
Gary Hurand 14,998,869 0 173,685 330
Dennis J. Ibold 15,038,010 0 134,544 330
Stephen M. Klein 15,022,628 0 149,926 330
John J. Lennon 15,036,731 0 135,823 330
Sam H. McGoun 14,974,288 0 198,266 330
Kelly E. Miller 15,000,274 0 172,280 330
Joe D. Pentecost 15,023,060 0 149,494 330
George B. Smith 15,034,017 0 138,537 330
Dr. Jeoffrey K. Stross 15,033,759 0 138,795 330
An Amendment of the Company's Articles of Incorporation was
submitted to the shareholders for approval. The Articles of
Incorporation, as amended, authorize the issuance of 30,000,000
shares of Common Stock, $5.00 par value, from 20,000,000 shares as
previously authorized. The Articles of Incorporation, as amended,
were approved at the annual meeting by the following votes:
14,412,999 for; 547,025 against; 212,860 abstentions and broker
non-votes.
The Adoption of Republic Bancorp Inc.'s 1997 Stock Option Plan
(the "1997 Plan") was submitted to the shareholders for approval.
The 1997 Plan authorizes grants of stock options to officers and
key employees of the Company and its subsidiaries up to a maximum
of 750,000 shares of Common Stock. The 1997 Plan was approved at
the annual meeting by the following votes: 13,330,140 for;
1,471,381 against; 371,363 abstentions and broker non-votes.
17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Statement Re: Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
None.
18
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REPUBLIC BANCORP INC.
(Registrant)
Date: May 14, 1997 BY: /s/ Thomas F. Menacher
-------------------------------------
Thomas F. Menacher
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
19