1
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 March 31, 1996
OR
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 33-77324
REPUBLIC BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky (State or other jurisdiction of incorporation or
organization)
61-0862051 (I.R.S. Employer Identification No.)
601 West Market Street, Louisville, Kentucky (Address of
principal executive offices)
40202 (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 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: 6,045,491 shares of
Class A Common Stock and 1,175,977 shares of Class B Common Stock
as of May 14, 1996.
The Exhibit index is on page 26. This filing contains 28 pages
(including this facing sheet).
2
REPUBLIC BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II - OTHER INFORMATION
Item 2. Changes In Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
3
PART I
ITEM 1
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (dollars in thousands)
(UNAUDITED)
MARCH 31, DECEMBER 31,
1996 1995
ASSETS:
Cash and cash equivalents:
Cash and due from banks $ 20,955 $ 30,988
Federal funds sold 11,450 44,325
------ ------
Total cash and cash equivalents 32,405 75,313
Securities to be held to maturity- fair
values:$109,763 (1996) and $114,749 (1995) 109,663 114,654
Loans, less allowance for loan losses of
$4,261 (1996) and $3,695 (1995) 691,895 668,193
Mortgage loans held for sale 12,573 5,988
Federal Home Loan Bank stock 5,267 5,176
Accrued interest receivable 7,166 7,244
Premises and equipment, net 13,205 12,015
Other assets 1,677 2,764
--------- ----------
TOTAL $ 873,851 $ 891,347
========= ==========
LIABILITIES:
Deposits:
Non-interest bearing $62,766 $63,304
Interest bearing 630,605 671,139
Securities sold under agreements to
repurchase and other short-term borrowings 40,584 21,729
Other borrowed funds 70,810 68,063
Accrued interest payable 4,455 4,314
Other liabilities 4,704 4,296
-------- -------
Total Liabilities 813,924 832,845
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, no par value; authorized,
100,000 shares; Series A 8.5% noncumulative
convertible, 50,000 shares issued and
outstanding (liquidation preference $5,000) 5,000 5,000
Common stock, no par value 3,491 3,491
Additional paid-in capital 6,817 6,817
Retained earnings 44,619 43,194
------ ------
Total stockholders' equity 59,927 58,502
--------- ---------
TOTAL $ 873,851 $ 891,347
========= =========
See notes to consolidated financial statements.
4
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(in thousands, except per share data)
1996 1995
INTEREST INCOME:
Loans, including fees $17,105 $13,668
Investment securities and
mortgage-backed securities:
Taxable 1,985 1,614
Non-taxable 32 32
FHLB dividends 92 79
Other 394 263
-------- -------
Total interest income 19,608 15,656
-------- -------
INTEREST EXPENSE:
Deposits 8,834 6,375
Short-term borrowings 487 254
Long-term debt 983 1,194
------- -------
Total interest expense 10,304 7,823
------- -------
NET INTEREST INCOME 9,304 7,833
PROVISION FOR LOAN LOSSES 1,931 437
------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,373 7,396
------ -------
NON-INTEREST INCOME:
Service charges on deposit accounts 510 437
Other service charges and fees 392 320
Bank card services 344 307
Net gain on sale of loans 366 167
Loan servicing income 210 226
Other 666 269
----- -----
Total non-interest income 2,488 1,726
----- -----
NON-INTEREST EXPENSE:
Salaries and employee benefits 3,406 2,609
Occupancy and equipment 1,445 1,236
Communication and transportation 332 321
Marketing and development 340 262
Insurance 200 330
Supplies 212 268
Other 860 911
----- -----
Total non-interest expense 6,795 5,937
----- -----
INCOME BEFORE INCOME TAXES 3,066 3,185
INCOME TAXES 1,143 1,103
------- -------
NET INCOME $ 1,923 $ 2,082
======= =======
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ .24 $ .27
======= =======
See notes to consolidated financial statements.
5
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands, except per share data)
Common
Preferred Stock Additional Total
Stock Class A Class B Paid-in Retained Stockholders
Shares Amount Shares Amount Shares Amount Capital Earnings Equity
BALANCE
January 1,
1996 50,000 $5,000 1,203,578 $3,491 $6,817 $43,194 $58,502
Stock Dividend 6,017,890 $ 0
Dividend Declared
Preferred ($2.125 per share) (106) (106)
Common: Class A ($.055 per share) (332) (332)
Class B ($.050 per share) (60) (60)
Net Income 1,923 1,923
BALANCE ------ ------ --------- ---- --------- ------ ------ ------- -------
March 31, 1996 50,000 $5,000 6,017,890 $ 0 1,203,578 $3,491 $6,817 $44,619 $59,927
====== ====== ========= ==== ========= ====== ====== ======= =======
See notes to consolidated financial statements.
6
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (in thousands)
1996 1995
OPERATING ACTIVITIES:
Net income $1,923 $2,082
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization of
premises and equipment 748 564
Amortization and accretion of
investment securities (155) (126)
FHLB stock dividends (92) (79)
Provision for loan losses 1,931 437
Net gain on sale of loans (366) (167)
Proceeds from sale of loans 30,298 10,367
Origination of mortgage loans
held for sale (36,517) (11,245)
Changes in assets and liabilities:
Accrued interest receivable 78 (286)
Other assets 1,081 (2,715)
Accrued interest payable 141 (106)
Other liabilities 325 1,066
------- -------
Net cash used in operating activities (605) (208)
------- -------
INVESTING ACTIVITIES:
Purchases of securities to be held
to maturity (79,829) (45,915)
Proceeds from maturities of securities 84,975 27,012
Net increase in loans (25,633) (27,410)
Net purchases of premises and equipmen (1,938) (257)
-------- --------
Net cash used in investing activities (22,425) (46,570)
-------- --------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (41,073) 46,706
Net increase in securities sold under
agreements to repurchase
and other short-term borrowings 18,856 11,923
Payments on other borrowings (6,253) (902)
Proceeds from other borrowings 9,000
Purchase and retirement of common stock (34)
Sale of common stock 127
Sale of preferred stock 5,000
Cash dividends paid (408)
Net cash provided by (used in) ------- ------
financing activities (19,878) 62,820
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS (42,908) 16,042
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 75,313 38,559
------- -------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $32,405 $54,601
======= =======
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $10,164 $7,930
======= ======
Income taxes $ 1,000 $ 175
======= ======
See notes to consolidated financial statements.
7
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to March 31, 1996, and 1995 is 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 Bank & Trust Company (Bank), 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 month period ending March 31,
1996, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996. 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, 1995.
Earnings Per Share - Earnings per common and common equivalent
share is based upon the weighted average of common and common
equivalent shares outstanding during the year. Primary and fully
diluted earnings per share are approximately the same. The
number of common and common equivalent shares utilized in the per
share computations was 7,586,986 and 7,513,462 for
March 31, 1996 and 1995, respectively.
2. STOCKHOLDERS EQUITY AND STOCK DIVIDEND
At December 31, 1995, common stock authorized consisted of
2,000,000 shares of no par stock, of which 1,203,578 shares were
issued and outstanding. On January 8, 1996 the stockholders
approved an amendment to Republic's Articles of Incorporation to
authorize 15,000,000 shares of Class A Common Stock, no par value
and 2,000,000 shares of Class B Common Stock, no par value.
On February 16, 1996, the Board of Directors declared a stock
dividend of five shares of Class A Common Stock for each share of
Class B Common Stock owned by stockholders of record on February
20, 1996 payable on February 29, 1996. The stock dividend has
been treated as a stock split and all share and earnings per
share amounts have been retroactively restated to give effect to
the stock split.
8
The Class A shares are entitled to cash dividends equal to 110%
of the dividend paid per share on the Class B Common Stock.
Class A shares have one vote per share and Class B shares have
ten votes per share. Class B stock may be converted, at the
option of the holder, to Class A stock on a share-for-share
basis. The Class A Common Stock is not convertible into any
other class of Republic's capital stock.
3. RECLASSIFICATIONS
Certain amounts have been reclassified in the 1995 financial
statements to conform with the current period classifications.
The reclassifications have no effect on net income or
stockholders' equity as previously reported.
4. SECURITIES TO BE HELD TO MATURITY
March 31,1996
(in thousands)
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
U.S. Treasury Securities and
U.S. Government Agencies $104,285 $ 429 $ (457) $104,257
Obligations of state
and political subdivisions 4,654 167 (2) 4,819
Mortgage-backed securities 724 (37) 687
Total securities -------- ----- ------- --------
to be held to maturity $109,663 $596 $ (496) $109,763
======== ===== ======= ========
Securities to be held to maturity having an amortized cost of
$96.0 million and a fair value of $95.9 million at March 31,
1996, were pledged to secure public deposits, securities sold
under agreements to repurchase and for other purposes, as
required or permitted by law.
December 31, 1995
(in thousands)
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
U.S. Treasury Securities and
U.S. Government Agencies $109,282 $777 $ (823) $109,236
Obligations of state and
political subdivisions 4,629 176 (1) 4,804
Mortgage-backed securities 743 (34) 709
Total securities -------- ---- ------ --------
to be held to maturity $114,654 $953 $ (858) $114,749
======== ==== ====== ========
9
5. LOANS
March 31, 1996 December 31, 1995
(in thousands)
Residential real estate $386,289 $371,846
Commercial real estate 71,045 75,648
Real estate construction 31,820 31,230
Commercial 24,328 21,042
Consumer 110,196 98,730
Home equity 47,672 48,244
Bank card 24,410 25,581
Other 3,079 3,424
------- -------
Total loans 698,839 675,745
Less:
Unearned interest income and
unamortized loan fees 2,683 3,857
Allowance for loan losses 4,261 3,695
-------- --------
Loans, net $691,895 $668,193
======== ========
The following table sets forth the changes in the allowance for
loan losses:
Three months ended March 31,
(in thousands)
1996 1995
Balance, beginning of period $3,695 $1,827
Provision charged to income 1,931 437
Charge-offs (1,400) (85)
Recoveries 35 8
------ ------
Balance, end of period $4,261 $2,187
====== ======
Information about Republic's investment in impaired loans is as
follows:
March 31, 1996 December 31, 1995
(in thousands)
Gross impaired loans $3,924 $4,064
Less: Related allowances for loan losses 549 589
Net impaired loans with related allowances 3,375 3,475
Impaired loans with no related allowances 87
------ ------
Total $3,375 $3,562
====== ======
Average impaired loans outstanding $3,394 $3,432
====== ======
10
6. INTEREST BEARING DEPOSITS
March 31, 1996 December 31, 1995
(in thousands)
Demand (interest bearing):
NOW and Super NOW $68,100 $76,972
Money market 34,542 26,772
Savings 16,039 15,395
Money market certificates of deposit 65,642 58,599
Individual retirement accounts 33,987 34,275
Certificates of deposit,
$100,000 and over 48,978 55,708
Other certificates of deposit 315,183 355,344
Brokered deposits 48,134 48,074
-------- --------
Total interest bearing deposits $630,605 $671,139
======== ========
7. SEGMENT INFORMATION
The Bank's operations include two reportable segments: banking
and mortgage banking. The banking segment is engaged in making
loans, investing in securities and collecting deposits. The
mortgage banking segment originates residential mortgage loans
for resale in the secondary mortgage market and services loans
for the Bank and others.
Intersegment interest income and expense represent interest on
loans and advances from the banking segment to the mortgage
banking segment computed at prime, and advances from Republic Bancorp, Inc.
to the Bank.
11
Three months ended March 31, 1996
(in thousands)
Mortgage Republic
Bank Banking Bancorp Eliminations Consolidated
Interest income:
Unaffiliated customers $19,407 $ 151 $ 50 $ 19,608
Intersegment 170 $ (170)
------- ------ ----- ------- --------
Total interest income 19,577 151 50 (170) 19,608
------- ------ ----- ------- --------
Interest expense:
Unaffiliated customers 10,263 41 10,304
Intersegment 50 120 (170)
------ ------ ----- ------- ------
Total interest expense 10,313 120 41 (170) 10,304
------ ------ ----- ------- ------
Net interest income 9,264 31 9 9,304
Provision for loan losses 1,931 1,931
Non-interest income 1,979 509 2,488
Non-interest expense 6,485 270 40 6,795
----- ----- ---- ------
Income (loss) before
income taxes $ 2,827 $ 270 $(31) $3,066
======= ===== ===== ======
Identifiable assets $859,658 $13,433 $ 760 $873,851
======== ======= ===== ========
Depreciation and
amortization of
premises and equipment $ 725 $ 23 $ 748
======= ====== =======
Capital expenditures $2,037 $ 8 $ 2,045
====== ====== =======
12
Three months ended March 31, 1995
(in thousands)
Mortgage Republic
Bank Banking Bancorp Eliminations Consolidated
Interest income:
Unaffiliated customers $ 15,502 $ 134 $ 20 $ 15,656
Intersegment 128 (128)
-------- ------ ----- ----- --------
Total interest income 15,630 134 20 (128) 15,656
-------- ------ ----- ----- --------
Interest expense:
Unaffiliated customers 7,760 63 7,823
Intersegment 20 108 (128)
-------- ------ ----- ----- --------
Total interest expense 7,780 108 63 (128) 7,823
-------- ------ ----- ----- --------
Net interest income 7,850 26 (43) 7,833
Provision for loan losses 437 437
Non-interest income 1,359 367 1,726
Non-interest expense 5,660 277 5,937
------- ------ ----- ---------
Income (loss) before
income taxes $ 3,112 $ 116 $(43) $ 3,185
======== ====== ====== ========
Identifiable assets $792,971 $ 8,139 $760 $801,870
======== ======= ==== ========
Depreciation and
amortization of
premises and equipment $ 531 $ 33 $ 564
======== ======= =======
Capital expenditures $ 255 $ 2 $ 257
======= ======= ========
13
PART I
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Republic, headquartered in Louisville, Kentucky, was incorporated
on January 2, 1974. The 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
seventeen banking centers throughout Kentucky. The Bank's
activities include the acceptance of deposits for checking,
savings and time deposit accounts, making secured and unsecured
loans, investing in securities, rental of safe deposit boxes, and
providing financial counseling and trust services. The Bank's
lending services include the making of real estate, commercial,
consumer and credit card loans and its 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, and
municipalities. Regulators for Republic include the Federal
Deposit Insurance Corporation (FDIC), Federal Reserve Bank and
the Kentucky Department of Financial Institutions.
The Bank has offices in the Kentucky counties of Jefferson,
Shelby, Franklin, Fayette, Graves, Marshall, Daviess, Calloway,
Hardin, McCracken and Warren. The Bank also serves customers in
the Indiana counties of Clark and Floyd. The Bank serves
individuals and commercial and business concerns throughout its
service areas. In assets, the Bank is the sixth largest FDIC-
insured commercial bank in Louisville, Kentucky and the ninth
largest FDIC-insured commercial bank in Kentucky.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1996
AND DECEMBER 31, 1995
OVERVIEW. Republic's total assets were $873.9 million at March
31, 1996, compared to $891.3 million at December 31, 1995, a
decrease of $17.4 million. The decrease was primarily
attributable to a decline in cash and cash equivalents prompted
by a reduction in interest bearing deposits.
CASH AND CASH EQUIVALENTS. The cash and cash equivalents
decreased substantially from $75.3 million at December 31, 1995
to $32.4 million at March 31, 1996. Cash and due from banks
decreased $10.0 million, while federal funds sold decreased $32.9
million. The decrease resulted from a decline in the Bank's
interest bearing deposits (see Deposits discussion on page 15).
14
SECURITIES TO BE HELD TO MATURITY. Securities decreased from
$114.7 million at December 31, 1995, to $109.7 million at March
31, 1996. The investment portfolio consists primarily of U. S.
Treasury and U.S. Government Agencies with a range of maturities,
none of which exceed ten years. Funds provided by maturing
securities throughout the three month period ended March 31, 1996
were primarily used to purchase replacement securities. No
investment securities were sold prior to maturity through March
31, 1996.
LOANS. Net loans increased $23.7 million to $691.9 million at
March 31, 1996, compared to $668.2 million at December 31, 1995.
Republic experienced loan growth throughout its markets, with
particular strength in residential and unsecured consumer
lending. The increase in net loans was led by residential loans
which increased $14.4 million since December 31, 1995.
Residential real estate loans increased due to Republic's
marketing activities and sustained customer demand. The increase
in consumer loans was primarily attributable to specially
designed marketing initiatives on two previously developed
unsecured loan products, the "All-Purpose" and "Pre-Approved"
loans. Republic's "All Purpose" loans, with total outstandings
of $28.2 million at March 31, 1996, are originated through
Republic's retail operating units. This product has an average
loan amount of $8,800 and an average annual percentage rate of
17.73% with a standard maximum maturity of 5 years. "Pre-
Approved" loans, with total outstandings of $43.7 million at
March 31, 1996, are delivered through direct mail, targeting
customers both in and outside of Republic's traditional Kentucky
markets. The "Pre-Approved" product has an average loan amount
of $8,800 and an average annual percentage rate of 14.25% with a
standard maximum maturity of 5 years.
ALLOWANCE AND PROVISION FOR LOAN LOSSES. The allowance for loan
losses increased from $3.7 million at December 31, 1995 to $4.3
million at March 31, 1996. The increase is primarily
attributable to additional reserves for the unsecured "All-
Purpose" loan product. The additions to the allowance have
impacted Republic's allowance for loans losses to total loan
ratio which increased to .61% at March 31, 1996 compared to .55%
at December 31, 1995.
The provision for loan losses was $1.9 million in first quarter,
1996, compared to $437,000 in first quarter 1995. Net charge-
offs increased $1.3 million during first quarter 1996 over first
quarter 1995. This increase in charge-off activity occurred
principally in Republic's unsecured consumer loan portfolio which
accounted for 96% of total charge-offs. These charge-offs are
attributable to a higher than expected level of bankruptcy
filings by these loan customers during first quarter of 1996.
The charge-offs in the unsecured portfolio were principally
comprised of $630,000 in the "All-Purpose" portfolio and $390,000
in the "Pre-Approved" portfolio. Republic also experienced
charge-offs in its credit card portfolio of $282,000 in the first
quarter, 1996, compared to $4,000 in first quarter 1995.
Management anticipates that the current level of charge-offs in
the unsecured consumer loan portfolio and credit card portfolio
may continue, but believes, based on information presently
available, that it has adequately provided for these losses as of
March 31, 1996. Future adjustments, which could be material, may
be necessary if original assumptions differ from actual
performance.
15
Table 1 below depicts the allowance activity by loan type for the
three months ended March 31, 1996 and 1995.
Table 1 - Summary of Loan Loss Experience
Three Months Ended March 31,
(in thousands)
1996 1995
Allowance For Loan Losses
Balance Beginning of Period $3,695 $1,827
Charge Offs:
Real Estate 12 20
Commercial 7 5
Consumer 1,381 60
----- -----
Total 1,400 85
Recoveries:
Real Estate
Commercial
Consumer 35 8
----- -----
Total 35 8
----- -----
Net Charge Offs: 1,365 77
Provision For Loan Losses 1,931 437
----- -----
Allowance For Loan Losses
End of Period $4,261 $2,187
====== ======
Mortgage Loans Held for Sale. Mortgage loans held for sale
increased from $6.0 million at December 31, 1995, to $12.6
million at March 31, 1996. A significant portion of the loans
held for sale at March 31, 1996 have been committed to be sold in
the secondary market and are pending delivery. Republic has
elected to continue the practice of selling these loans in the
secondary market with servicing released.
Deposits. Total deposits decreased to $693.4 million at March
31, 1996, compared to $734.4 million at December 31, 1995. This
reduction is primarily due to an outflow of maturing rate-
sensitive Certificate of Deposit products. Republic has initiated
strategies to reduce the outflow of maturing rate- sensitive deposits.
In addition, Republic is emphasizing deposit gathering activities
designed to attract new funds.
16
Securities Sold Under Agreements to Repurchase and Other Short
Term Borrowings. The Bank's decrease in deposits was offset by a
rise in short term borrowings which increased from $21.7 million
at December 31, 1995 to $40.6 million at March 31, 1996. The
change was primarily due to increased funds provided by public
sector enterprises and other new funding relationships.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996
AND 1995
Overview. For the three months ended March 31, 1996, the Bank's
net income was $1.9 million, or $.24 per share compared to $ 2.1
million, or $.27 per share, for the first quarter of 1995.
Earnings for the first quarter 1996 produced an annualized return
on average assets of .86% and a return on average stockholders'
equity of 13.01%, compared to returns of 1.10% and 16.13%,
respectively, for the comparable period in 1995.
Net Interest Income. For first quarter, 1996, net interest
income was $9.3 million, up $1.5 million over the $7.8 million
attained during first quarter, 1995. This increase was primarily
attributable to Republic's continued loan growth, particularly
residential and unsecured consumer loans. During first quarter,
1996, average interest-earning assets increased $132.1 million
to $853.6 million compared to $721.5 million during the
comparable period in 1995. The average yield on interest-earning
assets increased from 8.68% during first quarter of 1995 to 9.19%
during first quarter of 1996. This improvement in yield is
largely attributable to growth in the unsecured consumer loan
portfolio. The average cost of interest-bearing liabilities
increased to 5.39% during first quarter of 1996 from 4.85% during
first quarter, 1995, as the Bank pursued more aggressive pricing
strategies in order to attract additional deposits to fund loan
growth. Overall, this resulted in a slight decrease in net
interest rate spread from 3.83% during first quarter of 1995, to
3.80% in the comparable quarter of 1996. The Bank's net interest
margin increased modestly from 4.34% in first quarter, 1995,
to 4.36% in first quarter, 1996.
The Bank's exposure to changes in interest rates is managed by
maintaining a balance between interest-earning assets and
interest-bearing liabilities which are expected to mature or are
sensitive to interest rate changes. At March 31, 1996, the
Bank's exposure to changes in interest rates reflected a negative
one year gap of eight thousand dollars compared to a negative one
year gap of $12.3 million at December 31, 1995. The change in the one
year gap was attributable to the maturity of short-term certificates
of deposits.
Table 2 on page 17 provides detailed information as
to average balance, interest income/expense, and rates by major
balance sheet category for the three months ended March 31, 1996
and 1995. Table 3 on page 18 provides an analysis of the change
in net interest income attributable to changes in rates and
volume of interest-earning assets and interest-bearing
liabilities for the three months ended March 31, 1996.
17
Table 2 - Average Balance Sheet and Average Rates - for the Three
Months Ended March 31, 1996 and 1995 (in thousands)
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
Average Average Average Average
Balance Interest Rate <F4> Balance Interest Rate<F4>
------- --------- -------- ------- -------- --------
Earning Assets:
US Treasury and US
Government Agency
Securities $121,213 $1,906 6.29% $105,932 $1,535 5.80%
State and
Political
Subdivision
Securities 4,638 99 8.54% 4,721 100 8.47%
Other Investment
Securities 5,264 94 7.14% 4,916 78 6.35%
Mortgage-Backed
Securities 732 10 5.46% 785 9 4.59%
Federal Funds Sold 29,054 394 5.42% 17,608 266 6.04%
Total Loans and
Fees <F1> 692,651 17,105 9.88% 587,579 13,668 9.30%
-------- ------- ------ ------- ------- -----
Total Earning
Assets 853,552 19,608 9.19% 721,541 15,656 8.68%
Less: Allowance
for Loan Losses (3,838) (1,841)
Non-Earning
Assets:
Cash and Due From
Banks 18,684 16,423
Bank Premises and
Equipment, Net 12,637 12,196
Other Assets 10,947 11,038
-------- -------
Total Assets $891,982 $759,357
======== =======
LIABILITIES
AND STOCK-
HOLDERS' EQUITY:
Interest Bearing Liabilities:
Transaction
Accounts $147,678 $1,304 3.53% $83,215 $567 2.73%
Money Market
Accounts 31,279 332 4.25% 11,656 123 4.22%
Individual
Retirement
Accounts 34,240 538 6.29% 25,845 377 5.83%
Certificates of
Deposits and Other
Time Deposits 438,265 6,660 6.08% 424,078 5,308 5.01%
Federal Funds
Purchased and
Other Borrowings 112,809 1,470 5.21% 100,614 1,448 5.76%
------- ------ ------ -------- ------ ------
Total Interest
Bearing
Liabilities 764,271 10,304 5.39% 645,408 7,823 4.85%
Non-Interest Bearing
liabilities:
Non-Interest
Bearing Deposits 58,430 50,456
Other Liabilities 10,147 11,868
Stockholders'
Equity 59,134 51,625
------ -------
Total Liabilities
and Stock-holders'
Equity $891,982 $759,357
======= =======
Net Interest
Income $9,304 $7,833
====== ======
Net Interest
Spread <F2> 3.80% 3.83%
===== =====
Net Interest
Margin <F3> 4.36% 4.34%
===== =====
For purposes of these calculations, non-accruing loans are
included in the quarterly average loan amounts outstanding.
<F1> The amount of fees included in Interest on loans was $10,000
and $35,000 for the three months ended March 31, 1996 and 1995,
respectively.
<F2> Net interest spread represents the difference between the
average yield on average interest-earning assets and the average
cost of average interest-bearing liabilities.
<F3> Net interest margin represents net interest income divided by
average interest-earning assets.
<F4> For purposes of calculating these figures, all interest
income and interest costs are annualized.
18
Table 3 - Volume/Rate Variance Analysis
(in thousands)
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 the Company'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 new 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.
Three Months Ended March 31, 1996
Compared to Three Months Ended March 31, 1995
Increase/(Decrease) Due To
Total Net
Change Volume Rate
Interest Income <F5>:
US Treasury and
Government Agency Securities $371 $221 $150
State and Political
Subdivision Securities (1) (2) 1
Other Investment Securities 16 6 10
Mortgage-Backed Securities 1 (1) 2
Federal Funds Sold 128 173 (45)
Total Loans and Fees 3,437 2,549 888
----- ----- -----
Net Change in Interest Income 3,952 2,946 1,006
----- ----- -----
Interest Expense:
Interest Bearing
Transaction Accounts 737 439 298
Money Market Accounts 209 207 2
Individual Retirement
Accounts 161 122 39
Certificates of Deposit and
Other Time Deposits 1,352 178 1,174
Repo's, Federal Funds
Purchased and Other
Borrowings 22 176 (154)
Net Change in Interest ----- ------ -----
Expense 2,481 1,122 1,359
Increase in ------ ------- ------
Net Interest Income $1,471 $1,824 ($353)
<F5> Interest income for loans on non-accrual status has been
included in revenues.
19
Non-Interest Income. Non-interest income was $2.5 million during
first quarter of 1996, up from $1.7 million during first quarter
of 1995. Net gain on sale of loans increased $199,000 in first
quarter, 1996, over first quarter, 1995, due to increased
secondary market mortgage loan volume. In addition, service
charge income increased $145,000 during the first quarter, 1996,
over first quarter, 1995, due largely to increased fees generated
from demand deposit accounts and late fees on loans. The
increase in other non-interest income resulted from one time
gains realized from the sale of the Bagdad banking center located
in Shelby County, Kentucky and the successful disposition of
other real estate owned (OREO).
Non-Interest Expense. Total non-interest expense was $6.8
million in first quarter 1996, compared to $ 5.9 million for
first quarter 1995, an increase of 14%. Republic's non-interest
expense ratio improved from 62% for the first quarter 1995, to
58% for first quarter 1996.
Salary and employee benefits expense increased approximately
$800,000 or 31% for the first quarter, 1996 over first quarter,
1995, due to additions to staff along with cost of living and
merit increases. Republic increased staffing levels to 393 full-
time equivalent employees (FTE's) at March 31, 1996, compared to
340 FTE's at March 31, 1995. The increase staffing levels were
primarily attributable to additions to the retail banking
centers. Also, operational areas were increased to support
strong loan demand.
Occupancy and equipment expense increased 17% in first quarter,
1996, over first quarter 1995. The increase was primarily due to
depreciation expenses associated with new technology enhancements
for lending and customer support systems. The increase is also
due to an additional banking center location which was opened
during the first quarter of 1996. Management intends to continue
its expansion plans by adding 3 additional locations during 1996,
subject to regulatory approval. Management anticipates that
Republic's expansion plans and continued technology enhancements
will result in an increased occupancy and equipment expense level
during the remainder of 1996.
Insurance expense decreased 30% from first quarter, 1995, to
first quarter 1996. The decrease resulted from a lowering of
federal deposit insurance premiums on deposits insured by the
Bank Insurance Fund (BIF). Approximately 45% of Republic's
deposits are insured by BIF. The remaining 55% are insured by
the Savings Association Insurance Fund (SAIF) of the FDIC
resulting from the merger of Republic Savings Bank, F.S.B. with
the Bank in 1994. The SAIF deposits are currently assessed at 23
cents per $100 of deposits. However, Congress has been
considering a special, one-time assessment on SAIF deposits and a
subsequent merger of the SAIF and BIF funds. If enacted, this
legislation could result in a material one-time pre-tax charge.
The amount of such charge, if any, cannot be predicted at this
time.
Republic is required to reimburse the FDIC for tax benefits
received resulting from tax deductions for losses on loans and
OREO acquired through the acquisition of a failed institution.
Republic has remitted amounts it has determined to be due under
the terms of the agreement. Republic is having preliminary
discussions with the FDIC concerning interpretations of certain
provisions of the agreement and may be required to remit
additional payments related to prior years.
20
Management intends to vigorously contest any request by the
FDIC for additional payments. While Republic does not believe
the outcome will have a material impact on its future results
of operations, the ultimate resolution of this matter is unknown.
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 deemed uncollectible.
At March 31, 1996, Republic had $357,000 in consumer loans 90
days or more past due.
Table 4 provides information related to non-performing assets and
loans 90 days or more past-due. Accruing loans contractually
past due 90 days or more increased from $1.5 million at December
31, 1995 to $2.2 million at March 31, 1996. While loans past due
90 days or more increased, total non-performing loans increased
moderately due to the successful disposition of OREO.
Table 4 - Non-Performing Assets
March 31, December 31,
(dollars in thousands) 1996<F6> 1995<F6>
Loans on non-accrual status <F7> $ 858 $ 742
Loans past due 90 days or more 2,161 1,463
----- -----
Total non-performing loans 3,019 2,205
Other real estate owned 25 552
------ ------
Total non-performing assets $3,044 $2,757
====== ======
Percentage of non-performing loans to .43% .33%
total loans
.44% .41%
Percentage of non-performing assets
to total loans
<F6> The above table is exclusive of impaired loans as such loans
remain on accrual status as of March 31, 1996
<F7> The interest income earned and received on non-accrual loans
was not material.
21
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 under
the terms of the loan is highly questionable or improbable) or
loss (all or a portion of the loan has 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 determination that it is probable the full
amount will not be collected. Impaired loans decreased from $3.6
million at December 31, 1995 to $3.4 million at March 31, 1996.
Liquidity
Asset/liability management strategies are designed to ensure
safety and soundness, maintain liquidity and regulatory capital
standards and achieve an optimal net interest margin. Management
regularly monitors interest rate and liquidity risk in relation
to prospective market and business conditions and implements
appropriate funding and balance sheet strategies. These
strategies are designed to maintain liquidity within the Bank's
policy guidelines.
In order to maintain an acceptable liquidity position, Republic
has access to numerous sources of additional funding.
Substantial resources can be realized from the investment
portfolio, of which $35 million matures or is putable within one
year. These maturing securities can be utilized to provide
additional liquidity as needed. Additionally, Republic's
operating centers provide access to a retail deposit market.
Republic also has access to lines of credit with various
financial institutions which can provide funds for liquidity as
needed.
22
Capital
The Bank intends to maintain a capital position that meets the
regulatory definition, as defined by the FDIC, of a "well
capitalized" institution. Table 5 below indicates the Bank's
capital at March 31, 1996.
Table 5 - Bank Capital Ratios
As of March 31, 1996
Tier I
(dollars in thousands) Risk Total
Based Tier I Risk
Capital Leverage Based
Ratio Ratio Capital
Bank Stockholders' Equity $57,326 $57,326 $57,326
General Valuation Allowance 4,261
Less: Goodwill and
Core Deposit Intangibles 9 9 9
------- ------- -------
Computed Regulatory Capital $57,317 $57,317 $61,578
======= ======= =======
Computed Ratio 10.2% 6.4% 10.9%
FDIC "Well Capitalized" Ratio 6.0% 5.0% 10.0%
FDIC Minimum Capital Requirements 4.0% 3.0% 8.0%
Kentucky banking regulations 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 regulations, 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 regulations, combined with the retained net income
of the preceding two years, less any dividends declared during those periods.
At March 31, 1996, the Bank had $9.0 million of retained earnings available
for payment of dividends.
23
PART II - OTHER INFORMATION
Item 2. Changes in Securities
On February 16, 1996, Republic created a new class of common
stock designated Class A Common Stock. In addition, Republic
declared a stock dividend of five (5) shares of the new Class A
Common Stock for each share of Republic's existing stock, payable
on February 29, 1996, for stockholders of record on February 20,
1996.
As a result of this stock dividend, stockholders were entitled to
the original one share held prior to the dividend which was
designated Class B Common Stock, and 5 new shares designated
Class A Common Stock. The total book value remains the same.
The voting rights of the Class B Common Stock were expanded to ten
votes per share. Moreover, stockholders have the continuing
option of converting Class B Common Stock to Class A Common
Stock. Class A Common Stock is entitled to one vote per share
and cash dividends equal to 110% of any cash dividends declared
and paid on Class B Common Stock.
Item 4. Submission of Matters to a Vote of Security Holders
A regularly scheduled annual meeting of the stockholders of
Republic was held on January 8, 1996. For the special meeting,
proxies were solicited by Republic's Board of Directors for
matters to be voted on at the annual meeting. The following
items were voted upon and approved at the annual meeting.
Authorization for a New Class of Common Stock: A proposal to
approve an amendment to Republic's Articles of Incorporation to
create a new class of common stock designated as Class A Common
Stock, resulting in a designation of the current outstanding
common stock as Class B Common Stock was approved by a vote of the
majority of the shares of Republic common stock represented at the
meeting; 1,026,330 shares were voted in favor of the proposal; 0
shares were voted against; 0 shares were withheld; and 0 shares
abstained.
Setting the Number of Directors: A proposal to set the number
of directors for the Board of Directors of the Corporation at ten
(10) was approved by a vote of the majority of the shares of the
Corporation's common stock represented at the meeting; 1,026,330
shares voted in favor of the proposal; 0 shares were voted
against; 0 shares were withheld; and 0 shares abstained.
24
Election of Directors: At the annual meeting, shareholders
voted upon the election of directors. All nominees were elected
by vote of the shareholders. Holders of 892,066 shares of the
common stock were present in person at the meeting and 134,264
shares were represented by proxy for a total of 1,026,330,
equaling 81.9% of the total outstanding common stock. The voting
results for each nominee were as follows:
Nominee Votes Votes Votes Non-
For Against Withheld Votes
James B. Brien 1,026,330 0 0 0
Reed Conder 1,026,330 0 0 0
Larry M. Hayes 1,026,330 0 0 0
D. Harry Jones 1,026,330 0 0 0
L. Lee Kinsolving, Jr. 1,026,330 0 0 0
E. William Petter, Jr. 1,026,330 0 0 0
R. Wayne Stratton 1,026,330 0 0 0
A. Scott Trager 1,026,330 0 0 0
Bernard M. Trager 1,026,330 0 0 0
Steven E. Trager 1,026,330 0 0 0
Item 6. Exhibits and Reports on Form 8-K
A. The exhibits required by Item 601 of Regulation S-K are
attached to and listed in the Exhibit Index on page 26.
B. A Form 8-K dated February 16, 1996 was filed relating to "Item
5. Other Events". The Form 8-K disclosed the creation of the Class A Common
Stock and the declaration of a stock dividend of five (5) shares of the Class A
Common Stock for each share of Republic's existing common stock.
25
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: May 15, 1996 /s/ Bernard M. Trager
Bernard M. Trager
Chairman and Chief Executive Officer
Principal Financial Officer:
Date: May 15, 1996 /s/ E. William Petter, Jr.
E. William Petter, Jr.
Executive Vice President,
Chief Financial Officer
26
EXHIBIT INDEX
Exhibit Description Page
11 Statement Regarding Computation of Per Share 27
Earnings
27 Financial Data Schedule 28
27
Exhibit 11.
Statement Regarding Computation of Per Share Earnings
in thousands, except per share amounts (unaudited)
Three Months Ended
March 31,
1996 1995
Primary earnings per common share:
Weighted average common shares outstanding 7,221 7,180
Common stock equivalents due to dilutive
effect of stock options 66 33
Common stock equivalents due to dilutive
effect of Convertible Preferred Stock 300
----- -----
Average shares and equivalents outstanding 7,587 7,213
Net income $1,923 $2,082
Less preferred stock dividends 106 45
------ -----
Income available for common stock 1,817 2,037
Primary net income per share $ .24 $ .27
===== =====
Fully-diluted earnings per common share:
Weighted average common shares outstanding $7,221 $7,180
Common stock equivalents due to dilutive
effect of stock options 66 33
Common stock equivalents due to dilutive
effect of Convertible Preferred Stock 300
----- ------
Average shares and equivalents outstanding 7,587 7,213
Net income $1,923 $2,082
Less preferred stock dividends 106 45
----- -----
Income available for common stock 1,817 2,037
Fully-diluted net income per share $ .24 $ .27
===== =====