UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
OR
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 0-24649
REPUBLIC BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-0862051
-------- ----------
(State of other jurisdiction or (I.R.S. Employer Identification No.)
incorporation or organization)
601 West Market Street, Louisville, Kentucky 40202
-------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 584-3600
--------------
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 and 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.
X Yes No
The number of shares outstanding of the issuer's class of common stock as of the
latest practicable date: 14,466,903 shares of Class A Common Stock and 2,094,124
shares of Class B Common Stock as of November 6, 2000.
The Exhibit index is on page 35. This filing contains 37 pages (including this
facing sheet).
REPUBLIC BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements 4-18
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19-32
Item 3. Quantitative and Qualitative Disclosures about Market Risk 32
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 33
Item 2. Changes in Securities 33
Item 6. Exhibits and Reports on Form 8-K 33
Signatures 34
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Republic Bancorp, Inc.
Louisville, Kentucky
We have reviewed the consolidated balance sheet of Republic Bancorp, Inc. as of
September 30, 2000 and the related consolidated statements of income and
comprehensive income for the quarter and year-to-date periods ended September
30, 2000 and 1999, the consolidated statements of cash flows for the
year-to-date periods ended September 30, 2000 and 1999, and the consolidated
statement of changes in stockholders' equity for the year-to-date period ended
September 30, 2000. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Louisville, Kentucky
November 10, 2000
PART I
ITEM 1
REPUBLIC BANCORP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands)
September 30, December 31,
2000 1999
ASSETS:
Cash and due from banks $ 24,413 $ 20,827
Federal funds sold and securities purchased
under agreements to resell 46,700
Securities available for sale 181,200 181,627
Securities to be held to maturity 105,348 32,931
Mortgage loans held for sale 4,872 7,408
Loans, less allowance for loan losses of
$7,862 (2000 and 1999) 1,124,816 1,031,512
Federal Home Loan Bank stock 15,872 15,054
Accrued interest receivable 10,584 9,162
Premises and equipment, net 19,794 18,986
Other assets 4,475 4,776
------------ -------------
TOTAL $ 1,491,374 $ 1,368,983
============ =============
LIABILITIES:
Deposits:
Non-interest bearing $ 101,743 $ 84,256
Interest bearing 743,835 716,653
Securities sold under agreements to repurchase and
other short-term borrowings 232,575 215,718
Other borrowed funds 281,699 231,383
Accrued interest payable 3,836 3,942
Guaranteed preferred beneficial interests in
Company's subordinated debentures 6,352 6,352
Other liabilities 9,044 6,909
------------ -------------
Total liabilities 1,379,084 1,265,213
------------ -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A and Class B Common stock, no par value 4,067 4,099
Additional paid-in capital 33,264 33,617
Retained earnings 80,963 73,600
Unearned Employee Stock Ownership Plan shares (3,399) (3,620)
Accumulated other comprehensive income (loss) (2,605) (3,926)
------------ -------------
Total stockholders' equity 112,290 103,770
------------ -------------
TOTAL $ 1,491,374 $ 1,368,983
============ =============
See notes to consolidated financial statements.
REPUBLIC BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
( in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
INTEREST INCOME:
Loans, including fees $ 25,417 $ 20,986 $ 74,591 $ 61,547
Securities available for sale 2,444 2,715 7,391 8,315
Securities to be held to maturity:
Taxable 1,653 217 4,514 706
Non-taxable 24 24 66 72
FHLB dividends 320 250 846 757
Other 28 276 36
---------- --------- ---------- --------
Total interest income 29,886 24,192 87,684 71,433
---------- --------- ---------- --------
INTEREST EXPENSE:
Deposits 9,758 8,304 27,335 24,332
Short-term borrowings 3,714 1,212 9,753 3,595
Other borrowed funds 4,023 3,050 11,346 8,134
---------- --------- ---------- --------
Total interest expense 17,495 12,566 48,434 36,061
---------- --------- ---------- --------
NET INTEREST INCOME 12,391 11,626 39,250 35,372
PROVISION FOR LOAN LOSSES 39 204 1,006 1,477
---------- --------- ---------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 12,352 11,422 38,244 33,895
---------- --------- ---------- --------
NON-INTEREST INCOME:
Service charges on deposit accounts 1,158 914 3,063 2,675
Electronic refund check fees 180 1,064 1,238
Other service charges and fees 129 107 272 402
Loan servicing income 87 110 278 348
Net gain on sale of loans 347 446 936 2,501
Net gain (loss) on sale of securities (161) 184
Other 313 241 921 657
---------- --------- ---------- --------
Total non-interest income 2,034 1,998 6,373 8,005
---------- --------- ---------- --------
NON-INTEREST EXPENSE:
Salaries and employee benefits 5,010 4,785 15,637 15,616
Occupancy and equipment 2,191 1,847 6,548 5,763
Communication and transportation 507 432 1,553 1,302
Marketing and development 387 308 1,121 999
Supplies 232 226 715 718
Other 1,469 1,347 4,518 3,748
---------- --------- ---------- --------
Total non-interest expense 9,796 8,945 30,092 28,146
---------- --------- ---------- --------
INCOME BEFORE INCOME TAXES 4,590 4,475 14,525 13,754
INCOME TAXES 1,522 1,468 4,744 4,615
---------- --------- ---------- --------
NET INCOME $ 3,068 $ 3,007 $ 9,781 $ 9,139
========== ========= ========== ========
(Continued)
REPUBLIC BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
( in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX:
Change in unrealized loss on securities $ 1,709 $ (363) $ 1,215 $(2,897)
Reclassification of realized amount 106 (121)
---------- --------- ---------- -------
Net unrealized gain/(loss) recognized in
comprehensive income 1,709 (363) 1,321 (3,018)
---------- --------- ---------- -------
COMPREHENSIVE INCOME $ 4,777 $ 2,644 $ 11,102 $ 6,121
========== ========= ========== =======
EARNINGS PER SHARE
Class A $ 0.19 $ 0.18 $ 0.59 $ 0.54
Class B $ 0.18 $ 0.18 $ 0.58 $ 0.54
EARNINGS PER SHARE ASSUMING DILUTION
Class A $ 0.18 $ 0.17 $ 0.57 $ 0.52
Class B $ 0.18 $ 0.17 $ 0.56 $ 0.52
See notes to consolidated financial statements.
REPUBLIC BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands, except for per share data)
Unearned
Common Stock Empl. Stock Accumulated
---------------------------- Additional Ownership Other Total
Class A Class B Paid-In Retained Plan Comprehensive Stockholders'
Shares Shares Amount Capital Earnings Shares Income(Loss) Equity
BALANCE, January 1, 2000 14,536 2,142 $ 4,099 $ 33,617 $ 73,600 $(3,620) $ (3,926) $ 103,770
Conversion of Class B to Class A 48 (48)
Dividend Declared
Common: Class A ($.10725 per share) (1,555) (1,555)
Class B ($.09750 per share) (207) (207)
Repurchase of Class A Common (134) (32) (266) (656) (954)
Commitment of 17,041 shares to be
released under the Employee
Stock Ownership Plan 17 (87) 221 134
Net change in accumulated other
comprehensive income (loss) 1,321 1,321
Net Income 9,781 9,781
------ ------ ----- ------- ------ ------- -------- --------
BALANCE, September 30, 2000 14,467 2,094 $ 4,067 $ 33,264 $80,963 $ (3,399) $ (2,605) $112,290
====== ====== ===== ======= ====== ======= ======== ========
See notes to consolidated financial statements.
REPUBLIC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (in thousands)
2000 1999
OPERATING ACTIVITIES:
Net income $ 9,781 $ 9,139
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of premises and equipment 2,990 2,755
Amortization and accretion of securities 90 347
FHLB stock dividends (818) (748)
Provision for loan losses 1,006 1,477
Net loss (gain) on sale of securities 161 (184)
Net gain on sale of loans (936) (2,501)
Proceeds from sale of loans 81,000 181,947
Origination of mortgage loans held for sale (77,528) (151,649)
Employee Stock Ownership Plan expense 134 155
Changes in assets and liabilities:
Other assets (846) 2,833
Other liabilities 2,039 1,240
----------- -----------
Net cash provided by operating activities 17,073 44,811
----------- -----------
INVESTING ACTIVITIES:
Purchases of securities available for sale (61,034) (89,042)
Purchases of securities to be held to maturity (88,109) (21,445)
Proceeds from maturities of securities to be held to maturity 15,803 18,389
Proceeds from maturities and paydowns of securities available for sale 35,532 65,652
Proceeds from sales of securities available for sale 27,569 20,060
Net increase in loans (95,266) (123,592)
Purchases of premises and equipment (3,798) (5,137)
----------- -----------
Net cash used in investing activities (169,303) (135,115)
------------ -----------
FINANCING ACTIVITIES:
Net increase in deposits 44,669 62,781
Net change in securities sold under agreements to
repurchase and other short-term borrowings 16,857 (18,682)
Payments on other borrowings (165,668) (52,574)
Proceeds from other borrowings 215,984 87,350
Purchase of shares for Employee Stock Ownership Plan (3,873)
Repurchase of Class A Common Stock (954) (2,328)
Cash dividends paid (1,772) (1,387)
----------- -----------
Net cash provided by financing activities 109,116 71,287
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (43,114) (19,017)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 67,527 39,946
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 24,413 $ 20,929
=========== ===========
(Continued)
REPUBLIC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (in thousands)
2000 1999
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 48,540 $ 35,968
=========== ===========
Income taxes $ 4,467 $ 4,349
=========== ===========
Transfers from loans to real estate
acquired in settlement of loans $ 956 $ 2,086
=========== ===========
See notes to consolidated financial statements.
REPUBLIC BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION (AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES)
BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of Republic Bancorp, Inc. and its wholly-owned subsidiaries; Republic
Mortgage Company, Republic Insurance Agency, Inc., Republic Capital Trust, and
Republic Bank & Trust Company (Bank) and its subsidiary Republic Financial
Services Corporation (d.b.a. Refunds Now), collectively "Republic". All
significant intercompany balances and transactions have been eliminated in
consolidation.
The accompanying unaudited consolidated financial statements 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 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three- and nine-month periods ending
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000. For further information, refer to
the consolidated financial statements and footnotes thereto-included in
Republic's annual report on Form 10-K for the year ended December 31, 1999.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1999, the FASB issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". This new
standard requires companies to record derivatives on the balance sheet as assets
or liabilities at fair value. Depending on the use of the derivative and whether
it qualifies for hedge accounting, gains or losses resulting from changes in the
values of those derivatives would either be recorded as a component of net
income or as a change in stockholders' equity. Republic's use of derivatives is
limited. Mandatory forward contracts are used to manage the interest rate risk
associated with its mortgage banking transactions. It is anticipated that the
change in fair value of the mandatory forward contracts will be offset by items
also carried at fair value and therefore have an insignificant impact on the
financial statements. Republic is required to adopt this new standard January 1,
2001.
RECLASSIFICATIONS - Certain amounts have been reclassified in the 1999 financial
statements to conform to the current period classifications. The
reclassifications have no effect on net income or stockholders' equity as
previously reported.
2. SECURITIES
Securities Available For Sale:
September 30, 2000
(in thousands)
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
U.S. Treasury Securities and U.S.
Government Agencies $ 97,315 $ 50 $ (1,286) $ 96,079
Mortgage-backed securities 68,611 9 (1,987) 66,633
Corporate bonds 19,221 (733) 18,488
----------- --------- --------- -----------
Total securities available for sale $ 185,147 $ 59 $ (4,006) $ 181,200
=========== ========= ========= ===========
Securities To Be Held To Maturity:
September 30, 2000
(in thousands)
Gross Gross
Amortized nrealized Unrealized
Cost Gains Losses Fair Value
U.S. Treasury Securities and U.S.
Government Agencies $ 40,330 $ $ (154) $ 40,176
Obligations of state and political
subdivisions 1,110 90 1,200
Mortgage-backed securities 63,908 355 (168) 64,095
----------- --------- --------- -----------
Total securities to be held to maturity $ 105,348 $ 445 $ (322) $ 105,471
=========== ========= ========= ===========
Securities having an amortized cost of $228 million and a fair value of $225
million at September 30, 2000, were pledged to secure public deposits,
securities sold under agreements to repurchase and for other purposes, as
required or permitted by law.
3. LOANS
September 30, 2000 December 31, 1999
--------------------------------------------
(in thousands)
Residential real estate $ 646,024 $ 636,012
Commercial real estate 232,868 163,064
Real estate construction 74,908 63,928
Commercial 31,527 31,411
Consumer 33,088 39,435
Home equity 114,114 103,833
Other 1,359 2,973
----------- -----------
Total loans 1,133,888 1,040,656
Less:
Unearned interest income and unamortized
loan fees (1,210) (1,282)
Allowance for loan losses (7,862) (7,862)
----------- -----------
Loans, net $ 1,124,816 $1,031,512
=========== ===========
The following table sets forth the changes in the allowance for loan losses:
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------- ---------------------------
2000 1999 2000 1999
(in thousands) (in thousands)
Balance, beginning of period $ 7,862 $ 7,962 $ 7,862 $ 7,862
Provision charged to income 39 204 1,006 1,477
Charge-offs (215) (425) (1,652) (1,926)
Recoveries 176 121 646 449
-------- --------- --------- ---------
Balance, end of period $ 7,862 $ 7,862 $ 7,862 $ 7,862
======== ========= ========= =========
Information about Republic's investment in impaired loans is as follows:
September 30, 2000 December 31, 1999
----------------------------------------------
(in thousands)
Gross impaired loans $ 780 $ 1,043
Less: Related allowance for loan losses 397 700
--------- --------
Net impaired loans with related allowances 383 343
Impaired loans with no related allowances
Total $ 383 $ 343
========= ========
Average impaired loans outstanding $ 390 $ 1,043
========= ========
4. DEPOSITS
September 30, 2000 December 31, 1999
---------------------------------------------
(in thousands)
Demand (NOW, Super NOW and Money Market) $ 201,908 $ 217,528
Internet money market accounts 51,795 29,695
Savings 12,551 12,158
Individual retirement accounts 32,069 29,380
Certificates of deposit, $100,000 and over 115,816 91,848
Other certificates of deposit 325,762 319,558
Brokered deposits 3,934 16,486
----------- -----------
Total interest bearing deposits 743,835 716,653
Total non-interest bearing deposits 101,743 84,256
----------- -----------
Total $ 845,578 $ 800,909
=========== ===========
5. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM
BORROWINGS
These borrowings consist of short-term excess funds from correspondent banks,
repurchase agreements and overnight liabilities to deposit customers arising
from a cash management program offered by Republic. While effectively deposit
equivalents, such arrangements are in the form of repurchase agreements or
liabilities secured by insurance policies and letters of credit purchased by
Republic. Repurchase agreements secured by securities are treated as financings;
accordingly, the securities involved with the agreements are recorded as assets
and are held by a safekeeping agent and the obligations to repurchase the
securities are reflected as liabilities. All securities underlying the
agreements were under Republic's control.
September 30, 2000 September 30, 1999
-----------------------------------------------
(in thousands)
Average outstanding balance $ 234,104 $ 116,635
Average interest rate 5.55% 4.11%
Maximum outstanding at month end $ 258,392 $ 148,659
6. OTHER BORROWED FUNDS
Sept. 30, December 31,
2000 1999
------------------------------
(in thousands)
Federal Home Loan Bank convertible fixed rate
advances (1) $ 10,000 $ 10,000
Federal Home Loan Bank variable interest rate
advances, with weighted average interest rate
of 6.20% at September 30, 2000, due through 2025 191,699 110,000
Federal Home Loan Bank fixed interest rate
advances, with weighted average interest rate
of 6.79% at September 30, 2000, due through 2002 80,000 111,383
------------ ------------
Total $ 281,699 $ 231,383
============ ============
(1) During December 1998, Republic entered into a convertible fixed-rate
advance totaling $10 million with a ten-year maturity. The advance was
fixed for two years at 4.61%. At the end of the fixed term, the FHLB has
the right to convert the fixed rate advance on a quarterly basis to a
variable rate advance tied to the three month LIBOR index. The advance can
be prepaid at any quarterly date without penalty, but may not be prepaid at
any time during the fixed rate term.
The Federal Home Loan Bank advances are collateralized by a blanket pledge of
eligible real estate loans with an unpaid principal balance of greater than 150%
of the outstanding advances. Republic has sufficient collateral to borrow
approximately $60 million in additional funds from the Federal Home Loan Bank.
Republic also has unsecured lines of credit totaling $84 million and secured
lines of $40 million available through various financial institutions that were
unused as of September 30, 2000.
Aggregate future principal payments on borrowed funds as of September 30, 2000
are as follows:
Year
(in thousands)
2000 $ 69,855
2001 40,284
2002 100,000
2003 60,000
2004
2005 and beyond 11,560
------------
Total $ 281,699
============
7. EARNINGS PER SHARE
A reconciliation of the combined Class A and Class B Common Stock numerators and
denominators of the earnings per share and earnings per share assuming dilution
computations are presented below.
Class A and B shares participate equally in undistributed earnings. The
difference in earnings per share between the two classes of common stock results
solely from the 10% per share dividend premium paid on Class A Common Stock over
that paid on Class B Common Stock. The aggregate dividend premium paid on Class
A Common Stock for 2000 and 1999 was approximately one cent on basic earnings
per share.
Three Months Ended Nine months Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
(in thousands) (in thousands)
Earnings Per Share:
Net Income available to common shares
outstanding $ 3,068 $ 3,007 $ 9,781 $ 9,139
======== ========= ========= ========
Weighted average shares outstanding 16,597 16,708 16,635 16,801
======== ========= ========= ========
Earnings per share, basic:
Class A $ 0.19 $ 0.18 $ 0.59 $ 0.54
Class B $ 0.18 $ 0.18 $ 0.58 $ 0.54
Three Months Ended Nine months Ended
September 30, September 30,
---------------------- ------------------
2000 1999 2000 1999
(in thousands) (in thousands)
Earnings Per Share Assuming Dilution:
Net Income $ 3,068 $ 3,007 $ 9,781 $ 9,139
Add: Interest expense, net of tax benefit,
on assumed conversion of guaranteed
preferred beneficial interests in
Republic's subordinated debentures 87 86 261 258
-------- --------- --------- --------
Net Income available to common
shareholder assuming conversion $ 3,155 $ 3,093 $ 10,042 $ 9,397
======== ========= ========= ========
Weighted average shares outstanding 16,597 16,708 16,635 16,801
Add dilutive effects of assumed
conversion and exercise:
Convertible guaranteed preferred
beneficial interest in Republic's
subordinated debentures 635 635 635 635
Stock options 253 471 284 522
-------- --------- --------- --------
Weighted average shares and dilutive
potential shares outstanding 17,485 17,814 17,554 17,958
======== ========= ========= ========
Earnings per share assuming dilution:
Class A $ 0.18 $ 0.17 $ 0.57 $ 0.52
Class B $ 0.18 $ 0.17 $ 0.56 $ 0.52
Stock options for 264,000 and 253,500 shares of Class A Common Stock were
excluded from the three months ended September 30, 2000 and 1999 earnings
per share assuming dilution because their impact was antidilutive.
Stock options for 275,000 and 256,500 shares of Class A Common Stock were
excluded from the nine months ended September 30, 2000 and 1999 earnings
per share assuming dilution because their impact was antidilutive.
8. EMPLOYEE STOCK OWNERSHIP PLAN
On January 29, 1999, Republic formed an Employee Stock Ownership Plan
(ESOP) for the benefit of its employees. The ESOP borrowed $3.9 million
from the Parent Company and directly and indirectly purchased 300,000
shares of Class A Common Stock from Republic's largest beneficial owner at
a market value of $12.91 per share. The purchase price, determined by an
independent pricing committee, was the average closing price for the thirty
trading days immediately prior to the transaction. Shares in the ESOP will
be allocated to eligible employees based on principal payments over the
term of the loan, which is ten years. Participants become fully vested in
allocated shares after five years of credited service and may receive their
distributions in the form of cash or stock. For the quarter ended September
30, 2000; 5,783 shares were committed to be released resulting in ESOP
compensation expense of approximately $45,000. For the nine months ended
September 30, 2000; 17,041 shares were committed to be released resulting
in ESOP compensation expense of approximately $134,000.
Shares held by the plan at September 30, 2000 are as follows:
(dollars in thousands) September 30, 2000
------------------
Allocated shares 19,612
Unallocated shares 280,388
-------------
Total Employee Stock Ownership Plan Shares 300,000
=============
Fair value of unallocated shares $ 1,963
9. SEGMENT INFORMATION
The reportable segments are determined by the products and services offered
and are primarily distinguished between banking, tax refund services and
mortgage banking. Loans, investments, deposits and fees provide the revenue
for banking operations, fees from refund anticipation loans and electronic
refund checks provide the revenue for tax refund services; and servicing
fees and loan sales provide the revenue for mortgage banking. All
operations are domestic.
The accounting policies used are the same as those described in the summary
of significant accounting policies. Income taxes and indirect expenses are
allocated based on revenue. Transactions among segments are made at fair
value. Information reported internally for performance assessment follows:
Three Months Ended September 30, 2000
Tax Refund Mortgage Consolidated
Banking Services Banking Totals
(in thousands)
Net interest income $ 12,108 $ 234 $ 49 $ 12,391
Provision for loan losses 39 39
Electronic refund check fees
Net gain on sale of loans 347 347
Other revenue 1,752 28 (93) 1,687
Non-interest expense 9,297 368 131 9,796
Income tax expense 1,500 (36) 58 1,522
Segment profit 3,024 (70) 114 3,068
Segment assets 1,481,173 255 9,946 1,491,374
Three Months Ended September 30, 1999
Tax Refund Mortgage Consolidated
Banking Services Banking Totals
(in thousands)
Net interest income $ 11,543 $ 5 $ 78 $ 11,626
Provision for loan losses 204 204
Electronic refund check fees 180 180
Net gain on sale of loans 446 446
Other revenue 1,266 25 81 1,372
Non-interest expense 8,167 212 566 8,945
Income tax expense 1,460 (6) 14 1,468
Segment profit 2,978 4 25 3,007
Segment assets 1,274,952 99 11,436 1,286,487
Nine months Ended September 30, 2000
Tax Refund Mortgage Consolidated
Banking Services Banking Totals
(in thousands)
Net interest income $ 36,478 $ 2,566 $ 206 $ 39,250
Provision for loan losses 659 347 1,006
Electronic refund check fees 1,064 1,064
Net gain on sale of loans 936 936
Other revenue 4,568 105 (300) 4,373
Non-interest expense 28,386 1,206 500 30,092
Income tax expense 3,886 742 116 4,744
Segment profit 8,115 1,440 226 9,781
Segment assets 1,481,173 255 9,946 1,491,374
Nine months Ended September 30, 1999
Tax Refund Mortgage Consolidated
Banking Services Banking Totals
(in thousands)
Net interest income $ 34,049 $ 1,065 $ 258 $ 35,372
Provision for loan losses 1,277 200 1,477
Electronic refund check fees 1,238 1,238
Net gain on sale of loans 2,501 2,501
Other revenue 4,127 59 80 4,266
Non-interest expense 25,505 792 1,849 28,146
Income tax expense 3,818 460 337 4,615
Segment profit 7,576 910 653 9,139
Segment assets 1,274,952 99 11,436 1,286,487
10. LEGAL PROCEEDINGS
The Bank is a defendant in a lawsuit which alleges that, in the course of
providing banking-related services, the Bank contributed to the death of a
borrower. The suit seeks approximately $6.4 million in damages. Republic
believes the case is without merit and intends to vigorously defend this claim.
PART 1
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Republic Bancorp, Inc., headquartered in Louisville, Kentucky, was incorporated
on January 2, 1974. Republic Bank & Trust Company (Bank) is a commercial banking
and trust corporation organized and chartered under the laws of the Commonwealth
of Kentucky. The Bank is also headquartered in Louisville, Kentucky and provides
banking services through 21 banking centers throughout Kentucky and a loan
production office in southern Indiana. The Bank's activities include the
acceptance of deposits for checking, savings and time deposit accounts, making
secured and unsecured loans, investing in securities, tax refund processing
services, trust and insurance services. The Bank's lending services include the
origination of real estate, commercial and consumer loans. Operating revenues
are derived primarily from interest and fees on domestic real estate, commercial
and consumer loans, and from interest on securities of the United States
Government and Agencies, states, municipalities and corporations. Governmental
regulators for Republic include the Federal Deposit Insurance Corporation
(FDIC), the Board of Governors of the Federal Reserve System (and the Federal
Reserve Bank of St. Louis) and the Kentucky Department of Financial
Institutions.
REPUBLIC HAS MADE, AND MAY CONTINUE TO MAKE, VARIOUS FORWARD-LOOKING STATEMENTS
WITH RESPECT TO CREDIT QUALITY (INCLUDING DELINQUENCY TRENDS AND THE ALLOWANCE
FOR LOAN LOSSES), CORPORATE OBJECTIVES AND OTHER FINANCIAL AND BUSINESS MATTERS.
WHEN USED IN THIS DISCUSSION THE WORDS "ANTICIPATE," "PROJECT," "EXPECT,"
"BELIEVE," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. REPUBLIC CAUTIONS THAT THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO NUMEROUS ASSUMPTIONS, RISKS AND UNCERTAINTIES, ALL OF WHICH MAY CHANGE OVER
TIME. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM FORWARD-LOOKING STATEMENTS.
IN ADDITION TO FACTORS DISCLOSED BY REPUBLIC, THE FOLLOWING FACTORS, AMONG
OTHERS, COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH
FORWARD-LOOKING STATEMENTS: PRICING PRESSURES ON LOAN AND DEPOSIT PRODUCTS;
COMPETITION; CHANGES IN ECONOMIC CONDITIONS BOTH NATIONALLY AND IN THE BANK'S
MARKETS; THE EXTENT AND TIMING OF ACTIONS OF THE FEDERAL RESERVE BOARD;
CUSTOMERS' ACCEPTANCE OF THE BANK'S PRODUCTS AND SERVICES; AND THE EXTENT AND
TIMING OF LEGISLATIVE AND REGULATORY ACTIONS AND REFORMS.
OVERVIEW
Net income for the third quarter of 2000 was $3.1 million, up $61,000 over the
same period in 1999. Third quarter diluted earnings per share increased 6% over
the same period in 1999, to $0.18. Republic's increased earnings were primarily
due to increased interest income resulting from steady growth of the loan
portfolio.
Net income for the nine months ended September 30, 2000 was $9.8 million,
compared to $9.1 million for the same period in 1999. Republic's book value per
common share, exclusive of accumulated other comprehensive income, increased
from $6.32 at September 30, 1999 to $6.94 at September 30, 2000.
Republic's total assets approached $1.5 billion at September 30, 2000. Net loans
increased $93 million from December 31, 1999 to over $1.1 billion at September
30, 2000. Real estate lending remained strong across all product lines,
particularly commercial real estate. Commercial loan originations totaled $176
million for the first nine months of 2000. Increased loan volume also resulted
in favorable growth of the residential and construction portfolios. Equity line
balances also grew 10% to $114 million at September 30, 2000. The consumer
portfolio declined modestly in accordance with management's planned reduced
emphasis on unsecured consumer lending. While overall loan volume remained
strong, the percentage of non-performing loans to total loans remained low at
0.41%, as the Bank maintained its underwriting standards and continued its
emphasis on secured real estate lending.
To fund the overall increase in loan growth, Republic utilized its 21 banking
centers and 36 ATM locations to market its retail deposit products and cash
management services. Cash management services oversees $240 million of deposits,
repurchase agreements and other short-term borrowings at September 30, 2000.
Republic continued to maintain and attract deposits nationally through
republicbank.com, which had more than $65 million in deposits from 48 states at
the close of the third quarter. In an effort to further grow lower cost
deposits, Republic introduced a new checking product, "Absolutely Free
Checking," to its markets during the third quarter.
As a result of ongoing efforts to further enhance fee income, Republic also
introduced "Overdraft Honors," a program that provides for overdraft protection
up to $500 per account for selected checking account customers. Utilization of
the program by the Bank's customer base is expected to enhance fee income above
current levels. This program is also expected to provide a positive incentive
for new potential customers to favorably consider the Bank's new "Absolutely
Free Checking" product. These initiatives are expected not only to broaden the
Bank's product mix and services for current customers, but also attract new
customers to the Bank.
RESULTS OF OPERATIONS
NET INTEREST INCOME. During the third quarter 2000, average interest-earning
assets were $1.4 billion, an increase of $198 million over third quarter 1999.
Total average interest bearing liabilities increased from $1.0 billion in the
third quarter of 1999 to $1.2 billion in the third quarter of 2000. Net interest
income was $12.4 million for the third quarter 2000, up 7% over the $11.6
million attained during third quarter 1999. The Company was able to increase its
net interest income primarily through growth in the loan portfolio. Overall, the
net interest rate spread decreased from 3.25% during third quarter 1999 to 2.85%
in the comparable quarter of 2000. The Bank's net interest margin decreased from
3.87% in third quarter 1999 to 3.54% in third quarter 2000. The decrease in the
net interest rate spread and margin occurred because the yield on interest
earning assets increased 49 basis points while the rate paid on liabilities
increased 89 basis points. (See Rate/Volume table on page 23 of this report.)
While market interest rates have increased over the past year, short-term rates
have increased more than long-term rates during that time period. This has
caused interest-bearing liabilities, which are generally tied to shorter-term
market indices to reprice at higher rates than interest earning assets, which
are generally tied to longer-term indexes. Secondly, the Bank's interest bearing
liabilities have a shorter repricing frequency and are subject to repricing at a
faster pace than its interest earning assets. Management expects that market
conditions are likely to result in continued pressure on the Bank's net interest
spread, margin and loan origination volume during the fourth quarter. (For
further discussion see Asset/Liability Management and Market Risk on page 29 of
this report.)
Net interest income for the nine months ended September 30, 2000 was $39.3
million, up from $35.4 million attained in the same period during 1999.
Republic's net interest rate spread decreased 23 basis points and net interest
margin decreased 20 basis points for the nine months ended September 30, 2000
compared to the same period in 1999. The decrease in the net interest spread and
margin occurred because the yield on interest earning assets increased 40 basis
points while the rate paid on liabilities increased 64 basis points. The same
factors contributing to the decline in the quarterly net interest margin and
spread, also affected the results for the nine-month period.
Tables 1 and 2 provides detailed information as to average balance, interest
income/expense, and rates by major balance sheet category for the three and nine
months ended September 30, 2000 and 1999.
Table 1 - Average Balance Sheet Rates for Third Quarter, 2000 and 1999
(dollars in thousands)
Three Months Ended Sept. 30, 2000 Three Months Ended Sept. 30, 1999
--------------------------------- ---------------------------------
Average Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Earning Assets:
U.S. Treasury and U.S. Government
Agency Securities $ 120,836 $1,796 5.95% $ 110,470 $ 1,490 5.40%
State and Political Subdivision Securities 1,152 24 8.33% 3,905 85 8.71%
Other Investments 34,057 599 7.04% 33,299 523 6.28%
Mortgage-Backed Securities 115,916 2,022 6.98% 71,028 1,108 6.24%
Federal Funds Sold and Securities Purchased
Under Agreements to Resell 1,658 28 6.76%
Total Loans and Fees 1,126,124 25,417 9.03% 982,639 20,986 8.54%
--------- ------ ------- ------
Total Earning Assets 1,399,743 29,886 8.54% 1,201,341 24,192 8.05%
--------- ------ --------- ------
Less: Allowance for Loan Losses (7,862) (7,894)
Non-Earning Assets:
Cash and Due From Banks 25,130 21,502
Bank Premises and Equipment, Net 19,776 17,873
Other Assets 14,403 13,873
------ ------
Total Assets $ 1,451,190 $ 1,246,695
=========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest Bearing Liabilities:
Transaction Accounts $ 149,915 $ 1,221 3.26% $ 124,800 $ 831 2.66%
Money Market Accounts 107,601 1,411 5.25% 160,484 1,850 4.61%
Individual Retirement Accounts 31,429 476 6.06% 27,016 357 5.29%
Certificates of Deposit and Other
Time Deposits 446,606 6,650 5.96% 404,413 5,266 5.21%
Repurchase Agreements and Other
Short-Term Borrowings 248,668 3,714 5.97% 113,026 1,212 4.29%
Other Borrowings 246,413 4,023 6.53% 216,883 3,050 5.63%
------- ----- ------- -----
Total Interest Bearing Liabilities 1,230,632 17,495 5.69% 1,046,622 12,566 4.80%
--------- ------ --------- ------
Non-Interest Bearing Liabilities:
Non-Interest Bearing Deposits 96,820 86,030
Other Liabilities 12,996 11,935
Stockholders' Equity 110,742 102,108
------- -------
Total Liabilities and Stockholders'
Equity $ 1,451,190 $ 1,246,695
=========== ===========
Net Interest Income $12,391 $ 11,626
======= ========
Net Interest Spread 2.85% 3.25%
==== ====
Net Interest Margin 3.54% 3.87%
==== ====
For the purposes of these calculations, non-accruing loans are included in the
quarterly average loan amounts outstanding.
Table 2 - Average Balance Sheet Rates for Nine Months Ended, 2000 and 1999
(dollars in thousands)
Nine months Ended Sept. 30, 2000 Nine months Ended Sept. 30, 1999
-------------------------------- --------------------------------
Average Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Earning Assets:
U.S. Treasury and U.S. Government
Agency Securities $ 119,326 $5,258 5.88% $ 126,885 $ 5,162 5.42%
State and Political Subdivision Securities 2,415 158 8.72% 3,944 260 8.79%
Other Investments 33,697 1,674 6.62% 32,572 1,546 6.33%
Mortgage-Backed Securities 112,507 5,727 6.79% 63,402 2,882 6.06%
Federal Funds Sold and Securities Purchased
Under Agreements to Resell 6,384 276 5.76% 1,054 36 4.55%
Total Loans and Fees 1,100,406 74,591 9.04% 947,570 61,547 8.66%
--------- ------ ------- ------
Total Earning Assets 1,374,735 87,684 8.50% 1,175,427 71,433 8.10%
--------- ------ --------- ------
Less: Allowance for Loan Losses (7,862) (7,928)
Non-Earning Assets:
Cash and Due From Banks 24,885 20,151
Bank Premises and Equipment, Net 19,458 17,177
Other Assets 14,569 13,495
------ ------
Total Assets $ 1,425,785 $ 1,218,322
=========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest Bearing Liabilities:
Transaction Accounts $ 136,765 $ 3,020 2.94% $ 118,890 $ 2,392 2.68%
Money Market Accounts 114,108 4,224 4.94% 138,886 4,661 4.47%
Individual Retirement Accounts 30,363 1,308 5.74% 25,565 1,019 5.31%
Certificates of Deposit and Other
Time Deposits 443,176 18,783 5.65% 411,782 16,260 5.26%
Repurchase Agreements and Other
Short-Term Borrowings 234,104 9,753 5.55% 116,635 3,595 4.11%
Other Borrowings 244,824 11,346 6.18% 204,234 8,134 5.31%
------- ------ ------- -----
Total Interest Bearing Liabilities 1,203,340 48,434 5.36% 1,015,992 36,061 4.73%
--------- ------ --------- ------
Non-Interest Bearing Liabilities:
Non-Interest Bearing Deposits 101,422 87,753
Other Liabilities 12,983 11,816
Stockholders' Equity 108,040 102,761
------- -------
Total Liabilities and Stockholders'
Equity $ 1,425,785 $ 1,218,322
=========== ===========
Net Interest Income $39,250 $ 35,372
======= ========
Net Interest Spread 3.14% 3.37%
==== ====
Net Interest Margin 3.81% 4.01%
==== ====
For the purposes of these calculations, non-accruing loans are included in the
quarterly average loan amounts outstanding.
The following table presents the extent to which changes in interest rates and
changes in the volume of interest earning assets and interest bearing
liabilities have affected Republic's interest income and interest expense during
the periods indicated. Information is provided in each category with respect to
(i) changes attributable to changes in volume (changes in volume multiplied by
prior rate), (ii) changes attributable to changes in rate (changes in rate
multiplied by prior volume), and (iii) the net change. The changes attributable
to the combined impact of volume and rate have been allocated proportionately to
the changes due to volume and the changes due to rate.
Table 3 - Volume/Rate Variance Analysis (in thousands)
Three Months Ended Sept. 30, 2000 Nine months Ended Sept. 30, 2000
Compared to Compared to
Three Months Ended Sept. 30, 1999 Nine months Ended Sept. 30, 1999
--------------------------------- --------------------------------
Increase/(Decrease) Increase/(Decrease)
due to due to
Total Net Total Net
Change Volume Rate Change Volume Rate
Interest Income:
U.S. Treasury and
Government Agency Securities $ 306 $ 140 $ 166 $ 96 $(308) $ 404
State and Political
Subdivision Securities (61) (60) (1) (102) (101) (1)
Other Investments 76 12 64 128 53 75
Mortgage-Backed Securities 914 700 214 2,845 2,232 613
Federal Funds Sold 28 28 240 182 58
Total Loans and Fees (1) (2) 4,431 3,064 1,367 13,044 9,927 3,117
----- ----- ----- ------ ----- -----
Net Change in Interest Income 5,694 3,884 1,810 16,251 11,985 4,266
----- ----- ----- ------ ----- -----
Interest Expense:
Interest Bearing
Transaction Accounts 390 167 223 628 360 268
Money Market Accounts (439) (610) 171 (437) (832) 395
Individual Retirement Accounts 119 58 61 289 191 98
Certificates of Deposit and
Other Time Deposits 1,384 549 835 2,523 1,240 1,283
Repurchase Agreements and Other
Short-Term Borrowings 2,502 1,455 1,047 6,158 3,621 2,537
Other Borrowings 973 415 558 3,212 1,617 1,595
----- ----- ----- ------ ----- -----
Net Change in Interest Expense 4,929 2,034 2,895 12,373 6,197 6,176
----- ----- ----- ------ ----- -----
Increase in Net Interest Income $ 765 $ 1,850 $ (1,085) $ 3,878 $ 5,788 $ (1,910)
===== ======= ======== ======= ======= ========
[FN]
(1) The amount of fees on loans in total interest income was approximately $536
and $287 for the quarters ended September 30, 2000 and 1999, respectively.
(2) The amount of fees on loans in total interest income was approximately
$3,115 and $1,709 for the nine months ended September 30, 2000 and 1999,
respectively.
</FN>
NON-INTEREST INCOME. Non-interest income remained level at $2.0 million during
third quarter 2000 from third quarter of 1999. Decreases in net gains on sale of
loans were offset by increases in service charges on deposit accounts. The
increase in service charges on deposit accounts was positively affected by the
Bank's new "Overdraft Honors" program. Overdraft related fees increased $192,000
for the third quarter 2000 compared to the same period in 1999, primarily as a
result of the "Overdraft Honors" program.
Non-interest income was down $1.6 million for the nine months ended September
30, 2000 to $6.4 million copared to the same period last year. The decrease for
the nine-month period was principally due to a reduction in gains generated from
sales of loans into the secondary market. Revenue from mortgage banking
activities, principally gains on sale of loans, declined during the period ended
September 30, 2000 as a result of reduced secondary market sales volume. The
market's interest-rate environment heavily influences secondary market
residential loan originations and, correspondingly, consumer-refinance activity.
Generally, long-term market interest rates during 2000 have been substantially
above 1999 levels, which has led to lower secondary market originations and
sales volumes this year. Given the sustained increase in interest rates in 2000
compared to 1999, management believes that the secondary market sales volume,
comprised of fixed rate products, is likely to continue at or near current
levels. This trend is likely to continue as long as long-term market interest
rates remain at or near current levels.
Non-interest income for the nine-month period was also adversely affected by a
net loss on sale of securities of $161,000 incurred during the first quarter of
2000. Management elected to incur this loss in order to reinvest the proceeds
in higher yielding securities. There was no net gain or loss on the sale of
securities during the current quarter.
NON-INTEREST EXPENSE. Total non-interest expense was $9.8 million for the third
quarter of 2000, compared to $8.9 million for the same period in 1999.
Non-interest expense increased from $28.1 million for the nine months ended
September 30, 1999 to $30.1 million for the comparable period in 2000. The
increases for both the three and nine months ended September 30, 2000 remain
primarily attributable to the increased number of banking centers in operation
during 2000.
Salary and employee benefits reflected a negligible increase during both the
three and nine months ended September 30, 2000. Republic's overall staffing
levels remained virtually unchanged at 465 full-time equivalent employees
("FTE's") as of September 30, 2000, compared to 466 FTE's as of September 30,
1999. The number of FTE's has remained stable despite the addition of two
banking centers since November of 1999. This was accomplished by staffing
efficiencies realized from the centralization of the Bank's loan administration
operations. Management anticipates that this "back-office" centralization has
also improved the Bank's capacity to handle growth in customer demand for loan
products.
Occupancy and equipment expense increased for both the three and nine months
ended September 30, 2000. The increase is largely attributable to the costs
associated with the two additional banking centers in operation during 2000
compared to the same period in 1999. It is also anticipated that additional
expense will be incurred for technology enhancements for deposit, lending and
customer support systems during the remainder of 2000.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL. Federal
funds sold and securities purchased under agreements to resell decreased $47
million from December 31, 1999, as Republic maintained a higher level of liquid
funds in conjunction with its Y2K planning at year-end 1999.
SECURITIES AVAILABLE FOR SALE. Securities available-for-sale consists primarily
of mortgage-backed securities, U.S. Treasury and U.S. Government Agencies and
Corporate bonds with a weighted average maturity of 2.7 years. Securities
available-for-sale decreased slightly from $182 million at December 31, 1999 to
$181 million at September 30, 2000.
SECURITIES TO BE HELD TO MATURITY . Securities to-be-held-to-maturity increased
from $33 million at December 31, 1999 to $105 million at September 30, 2000. The
increase occurred as Republic classified new security purchases and reinvestment
of proceeds from securities sales in the held-to-maturity category. Securities
to-be-held-to-maturity consists primarily of U.S. Treasury and U.S Government
Agencies as well as collateralized mortgage obligations (CMOs).
LOANS. Net loans, consisting of primarily secured real estate loans, increased
$93 million to $1.1 billion at September 30, 2000 from December 31, 1999.
Republic's commercial real estate lending portfolio increased $70 million from
December 31, 1999 as a result of the Bank's continued emphasis on commercial
real estate lending. Republic also had steady growth in residential real estate
(including home equity lines of credit) and construction lending as a result of
customer demand; however, current market conditions are likely to reduce loan
origination volume in the near term.
ALLOWANCE AND PROVISION FOR LOAN LOSSES. The provision for loan losses was
$39,000 in the third quarter of 2000, compared to $204,000 in the third quarter
of 1999. The provision for loan losses also decreased for the nine months ended
September 30, 2000, to $1.0 million compared to $1.5 million for the nine months
ended September 30, 1999. The reduction in the provision for loan losses in 2000
compared to 1999 is attributable to a decrease in loss experience. Charge-offs
of $500,000 and $200,000 related to tax processing services provided by
Republic's subsidiary, Refunds Now, are included in the total charge-offs for
the nine months ended September 30, 2000 and 1999. No additional charge-offs for
these tax processing services were realized by the Bank during the third quarter
of 2000. Excluding the charge-offs and recoveries related to tax processing
services, net charge-offs decreased approximately 48% for the nine months ended
September 30, 2000 compared to the comparable period in 1999.
The allowance for loan losses remained relatively steady at $7.9 million from
December 31, 1999 to September 30, 2000. Management believes, based on
information presently available, that it has adequately provided for loan losses
at September 30, 2000. Management has considered the effect of increased
commercial real estate lending on the allowance, and, in management's view, that
effect has been largely offset by the Bank's continuing decreased exposure in
its unsecured consumer portfolio.
Table 4 below depicts the allowance activity by loan type for the three and
three months ended September 30, 2000 and 1999.
Table 4 - Summary of Loan Loss Experience
Three Months Ended Nine months Ended
September 30, September 30,
------------------------ -------------------
2000 1999 2000 1999
(in thousands)
Allowance for loan losses:
Balance-beginning of period $ 7,862 $ 7,962 $ 7,862 $ 7,862
Charge-offs:
Real Estate (97) (134) (673) (449)
Commercial (5) (40) (38) (68)
Consumer (113) (251) (441) (1,209)
Tax Refund Loans (500) (200)
-------- ------- -------- -------
Total (215) (425) (1,652) (1,926)
-------- ------- -------- -------
Recoveries:
Real Estate 7 1 44 10
Commercial 6 1 11 1
Consumer 163 119 438 438
Tax Refund Loans 153
-------- ------- -------- -------
Total 176 121 646 449
-------- ------- -------- -------
Net charge-offs (39) (304) (1,006) (1,477)
Provision for loan losses 39 204 1,006 1,477
-------- ------- -------- -------
Allowance for loan losses:
Balance-end of period $ 7,862 $ 7,862 $ 7,862 $ 7,862
======== ======= ======== =======
DEPOSITS. Total deposits were $846 million at September 30, 2000 compared to
$801 million at December 31, 1999. Non-interest bearing deposits have increased
by approximately 21% since December 31, 1999 to $102 million. Management
continues to focus on growing both its non-interest bearing and low-interest
bearing deposit accounts. Republic's overall growth in deposits was also
achieved by the successful performance of the Bank's commercial cash management
program, retail deposit gathering efforts of the banking centers and its
Internet banking initiative. As of September 30, 2000, Republic had $52 million
in money market accounts and $13 million in CD's which had been opened through
the Internet. Republic plans to continue to emphasize its deposit gathering
programs throughout the remainder of 2000 by offering competitive products in
its existing markets and maintaining recently instituted sales force incentives.
ASSET QUALITY
Loans, including impaired loans under SFAS 114 and excluding consumer loans, are
placed on non-accrual status when they become past due 90 days or more as to
principal or interest, unless they are adequately secured and in the process of
collection. When loans are placed on non-accrual status, all unpaid accrued
interest is reversed. These loans remain on non-accrual status until the
borrower demonstrates the ability to remain current or the loan is deemed
uncollectible and is charged off. Consumer loans are not placed on non-accrual
status but are reviewed periodically and charged off when they reach 120 days
past due or are deemed uncollectible. At September 30, 2000, Republic had
$163,000 in consumer loans 90 days or more past due compared to $97,000 at
December 31, 1999.
The Bank's level of delinquent loans increased to 1.59% at September 30, 2000,
up from 1.29% at December 31, 1999. Republic experienced an increase in total
non-performing loans from $3.7 million at December 31, 1999 to $4.7 million at
September 30, 2000. A portion of loans past due that comprises total
non-performing loans also includes otherwise performing loans that have matured,
but are pending renewal. Other real estate owned increased only marginally from
$218,000 at December 31, 1999 to $234,000 at September 30, 2000. Management does
not consider the overall increase in non-performing assets during the period to
be material or indicative of any adverse change in overall asset quality.
Table 5 provides information related to non-performing assets and loans 90 days
or more past due.
Table 5 - Non-Performing Loans
September 30, December 31,
(dollars in thousands) 2000 1999
Loans on non-accrual status (1) $ 3,410 $ 2,721
Loans past due 90 days or more 1,279 968
--------- ---------
Total non-performing loans 4,689 3,689
Other real estate owned 234 218
--------- ---------
Total non-performing assets $ 4,923 $ 3,907
========= =========
Percentage of non-performing loans to total loans .41% .35%
Percentage of non-performing assets to total loans .43% .38%
[FN]
(1) Interest income that would have been earned and received on non-accrual
loans was not material.
</FN>
Republic defines impaired loans to be those commercial real estate and
commercial loans greater than $499,999 that management has classified as
doubtful (collection of all amounts due is highly questionable or improbable) or
loss (all or a portion of the loans have been written off or a specific
allowance for loss has been provided). Republic's policy is to charge off all or
that portion of its investment in an impaired loan upon a determination it is
probable the full amount may not be collected. Impaired loans decreased from
$1.0 million at December 31, 1999 to approximately $800,000 at September 30,
2000.
LIQUIDITY
Republic maintains sufficient liquidity to fund loan demand and routine deposit
withdrawal activity. Liquidity is managed by retaining sufficient liquid assets
in the form of investment securities and core deposits to meet demand. Funding
and cash flows can also be realized from the available-for-sale portion of the
securities portfolio and paydowns from the loan portfolio. Republic's banking
centers also provide access to retail deposit markets. Approximately $70 million
of deposits, repurchase agreements and short-term borrowings secured by letters
of credit are attributable to three customer relationships at September 30,
2000. These funds are short-term in nature and subject to immediate withdrawal
by those entities. Should these funds be withdrawn, Republic has the ability to
replenish them through alternative funding sources. Republic has established
lines of credit with other financial institutions, the FHLB and brokerage firms.
While Republic utilizes numerous funding sources in order to meet liquidity
requirements, FHLB borrowings remain a material component of management's
balance sheet strategy.
CAPITAL
Regulatory agencies measure capital adequacy within a framework that makes
capital requirements, in part, dependent on the individual risk profiles of
financial institutions. Republic's average capital to average assets ratio was
7.58% at September 30, 2000 compared to 8.27% at December 31, 1999. The decrease
in Republic's capital ratio is primarily due to the successful growth of the
Bank's loan portfolio and an increase in the average accumulated other
comprehensive loss. For the year total capital increased $8 million from
December 31, 1999 to $112 million at September 30, 2000 primarily as a result of
net income.
The increase in capital due to net income was partially offset by dividends of
$1.8 million declared during the first three quarters of 2000 and Republic's
stock buyback program. The stock buyback program resulted in the purchase of
134,000 shares of Class A Common Stock at a total cost of $954,000 during 2000.
The Company is authorized to buyback an additional 68,000 shares of Class A
Common Stock under the current buyback program.
Republic continues to exceed the minimum regulatory requirements for Tier I,
Tier I Leverage and total risk-based capital. The Bank expects to maintain a
capital position that meets or exceeds the "well capitalized" requirements as
defined by the FDIC. Table 6 below depicts the capital ratios at September 30,
2000.
Table 6 - Capital Ratios
Minimum
Requirement
Minimum To Be Well
Requirement Capitalized
For Capital Under Prompt
Adequacy Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(dollars in thousands)
Total Risk Based Capital (to Risk Weighted Assets)
Consolidated $ 128,535 13.90% $ 73,980 8% $ 92,476 10%
Bank only $ 124,264 13.44% $ 73,979 8% $ 92,473 10%
Tier I Capital (to Risk Weighted Assets)
Consolidated $ 120,673 13.05% $ 36,990 4% $ 55,485 6%
Bank only $ 116,402 12.59% $ 36,989 4% $ 55,484 6%
Tier I Leverage Capital (to Average Assets)
Consolidated $ 120,673 8.32% $ 57,031 4% $ 71,289 5%
Bank only $ 116,402 8.02% $ 57,029 4% $ 71,286 5%
Kentucky banking laws limit the amount of dividends that may be paid to Republic
by the Bank without prior approval of the Bank's regulatory agency. Under these
laws, the amount of dividends that may be paid in any calendar year is limited
to the Bank's current year's net income, as defined in the laws, combined with
the retained net income of the preceding two years, less any dividends declared
during those periods. At September 30, 2000, the Bank had approximately $22
million of retained earnings that could be utilized for payment of dividends if
authorized by the Bank's Board of Directors.
ASSET/LIABILITY MANAGEMENT AND MARKET RISK
Asset/liability management control is designed to ensure safety and soundness,
maintain liquidity and regulatory capital standards, and achieve acceptable net
interest income. Interest rate risk is the exposure to adverse changes in the
net interest income as a result of market fluctuations in interest rates.
Management, on an ongoing basis, monitors interest rate and liquidity risk in
order to implement appropriate funding and balance sheet strategies. Management
considers interest rate risk to be Republic's most significant market risk.
Republic utilizes an earnings simulation model to analyze net interest income
sensitivity. Potential changes in market interest rates and their subsequent
effects on net interest income are then evaluated. The model projects the effect
of instantaneous movements in interest rates of both 100 and 200 basis points.
Assumptions based on the historical behavior of Republic's deposit rates and
balances in relation to changes in interest rates are also incorporated into the
model. These assumptions are inherently uncertain and, as a result, the model
cannot precisely measure future net interest income or precisely predict the
impact of fluctuations in market interest rates on net interest income. Actual
results will differ from the model's simulated results due to timing, magnitude
and frequency of interest rate changes as well as changes in market conditions
and the application and timing of various management strategies.
Republic's interest sensitivity profile changed from December 31, 1999 to
September 30, 2000. Given a sustained 100 basis point downward shock to the
yield curve used in the simulation model, Republic's base net interest income
would increase by an estimated 4.28% at September 30, 2000 compared to an
increase of 2.47% at December 31, 1999. Given a 100 basis point increase in the
yield curve Republic's base net interest income would decrease by an estimated
4.76% at September 30, 2000 compared to a decrease of 4.49% at December 31,
1999.
The interest sensitivity profile of Republic at any point in time will be
affected by a number of factors. These factors include the mix of interest
sensitive assets and liabilities as well as their relative pricing schedules. It
is also influenced by market interest rates, deposit growth, loan growth, and
other factors. The table below is representative only and is not a precise
measurement of the effect of changing interest rates on Republic's net interest
income in the future.
Table 7 - Interest Rate Sensitivity
September 30, 2000
Decrease in Rates Increase in Rates
----------------- -----------------
200 100 100 200
Basis Points Basis Points Base Basis Points Basis Points
(dollars in thousands)
Projected interest income
Loans $ 95,825 $ 99,851 $ 102,330 $ 105,893 $ 109,170
Investments 17,250 18,365 19,686 21,232 22,326
Short-term investments 65 76 170 240 164
----------- ---------- ---------- ----------- ---------
Total interest income 113,140 118,292 122,186 127,365 131,660
Projected interest expense
Deposits 36,542 40,377 43,392 47,585 51,225
Other borrowings 24,584 27,973 30,904 34,171 37,566
----------- ---------- ---------- ----------- ---------
Total interest expense 61,126 68,350 74,296 81,756 88,791
Net interest income $ 52,014 $ 49,942 $ 47,890 $ 45,609 $ 42,869
Change from base $ 4,124 $ 2,052 $ (2,281) $ (5,021)
% Change from base 8.61% 4.28% (4.76)% (10.48)%
December 31, 1999
Decrease in Rates Increase in Rates
----------------- -----------------
200 100 100 200
Basis Points Basis Points Base Basis Points Basis Points
(dollars in thousands)
Projected interest income
Loans $ 82,805 $ 87,101 $ 92,825 $ 97,350 $ 101,418
Investments 13,311 13,862 14,191 14,565 14,914
Short-term investments 353 871 585 613 631
----------- ---------- ---------- ----------- ---------
Total interest income 96,469 101,834 107,601 112,528 116,963
Projected interest expense
Deposits 28,261 31,367 34,736 38,277 41,834
Other borrowings 16,622 20,047 23,661 27,256 30,866
----------- ---------- ---------- ----------- ---------
Total interest expense 44,883 51,414 58,397 65,533 72,700
Net interest income $ 51,586 $ 50,420 $ 49,204 $ 46,995 $ 44,263
Change from base $ 2,382 $ 1,216 $ (2,209) $ (4,941)
% Change from base 4.84% 2.47% (4.49)% (10.04)%
NEW ACCOUNTING PRONOUNCEMENTS
See discussion in Note 1 to financial statements for a discussion of recent
accounting pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information for this item is incorporated by reference to the Asset
/Liability Management and Market Risks section on pages 30 and 31 of Part 1,
Item 2., Management's Discussion and Analysis of Financial Condition and Results
of Operations, of this report.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
Reference is made to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000 in which information was reported regarding the litigation
brought by Esther A. Grossman, individually and as next friend of Jessica
Grossman, a minor, and as administratrix of the estate of Martin L. Grossman
against the Bank. Reference is also made to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 2000, in which information was reported
regarding the litigation brought by Beneficial Franchise Company, Inc. against
the Bank and others. There has been no material change in the status of these
litigation matters during the quarter. The Company continues to believe that the
allegations in both of these lawsuits are without merit. The Company continues
to vigorously defend against both lawsuits.
Item 2. Changes in securities
During the third quarter of 2000, Republic issued approximately 42,000 shares of
Class A Common Stock upon conversion of shares of Class B Common Stock by
shareholders of Republic in accordance with the share-for-share conversion
provision option of the Class B Common Stock. The exemption from registration of
the newly issued Class A Common Stock relied upon was Section (3)(a)(9) of the
Securities Act of 1933.
Item 6. Exhibits and Reports on Form 8-K
The exhibits required by Item 601 of Regulation S-K are attached to and
listed in the Exhibit Index on page 35.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Republic Bancorp, Inc.
(Registrant)
Principal Executive Officer:
Date: November 14, 2000 /s/ Steven E. Trager
--------------------------- --------------------
Steven E. Trager
Chief Executive Officer
Principal Financial Officer:
Date: November 14, 2000 /s/ Kevin Sipes
---------------------------- ---------------
Kevin Sipes
Chief Financial Officer &
Chief Accounting Officer
EXHIBIT INDEX
Incorporated
Exhibit Description By Reference To
11 Statement Regarding Computation of Filed as Exhibit 11 on page 35 of this
Per Share Earnings Form 10-Q for the period ended
September 30, 2000
15 Awareness Letter Filed as Exhibit 15 on page 36 of this
Form 10-Q for the period ended
September 30, 2000
27 Financial Data Schedule Filed as Exhibit 27 on page 37 of this
Form 10-Q for the period ended
September 30, 2000
Exhibit 11.
Statement Regarding Computation of Per Share Earnings
See Item 1, Note 7 "Earnings Per Share" for calculations.
Exhibit 15.
Awareness Letter
November 10, 2000
Republic Bancorp, Inc.
601 West Market Street
Louisville, Kentucky 40202
We have reviewed, in accordance with standards established by the AICPA, the
unaudited interim financial information of Republic Bancorp, Inc. (the Company)
as of September 30, 2000 and for the quarter and year-to-date periods ended
September 30, 2000 and 1999 as indicated in our report dated November 10, 2000.
Because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which was included in your
quarterly report on Form 10-Q, is being incorporated by reference in the Form
S-8 Registration statement.
We also are aware that our report referred to above, under Rule 436(c) under the
Securities Act of 1933, is not considered a part of the registration statement
prepared or certified by an accountant or a report prepared or certified by an
accountant within the meaning of Sections 7 and 11 of the Act.
Crowe, Chizek and Company LLP