SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1995 Commission File Number 0-15734
REPUBLIC BANCORP INC.
(Exact name of registrant as specified in its charter)
Michigan 38-260-4669
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1070 East Main Street, Owosso, Michigan 48867
(Address of principal executive offices)
(517) 725-7337
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES __X__ NO_____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock Outstanding as of May 9, 1995
Common Stock, $5 Par Value................. 14,901,338 shares
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
March 31, 1995 and December 31, 1994................ 1
Consolidated Statements of Income for the Three
Months Ended March 31, 1995 and 1994................ 2
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1994.......... 3
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation........ 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................. 20
Item 2. Changes in Securities.............................. 20
Item 3. Defaults upon Senior Securities.................... 20
Item 4. Submission of Matters to a Vote of
Security Holders................................... 20
Item 5. Other Information.................................. 20
Item 6. Exhibit and Reports on Form 8-K.................... 20
SIGNATURE.................................................... 21
EXHIBITS:
Statements RE: Computation of Per Share Earnings..... Exhibit 11
Financial Data Schedule............................... Exhibit 27
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
March 31, December 31,
1995 1994
----------- -----------
Assets
Cash and due from banks $ 18,407 $ 22,518
Federal Funds Sold 24,500 --
Other cash investments 3,716 779
----------- -----------
Cash and cash equivalents 46,623 23,297
Mortgage loans held for sale 149,930 152,138
Securities:
Held-to-maturity (aggregate market value
of $260,171, 1995 and $254,996, 1994) 267,956 269,701
Available-for-sale (amortized cost of
$168,209, 1995 and $204,614, 1994) 164,423 196,502
Loans 627,008 605,089
Less allowance for estimated loan losses 5,390 5,544
----------- -----------
Net loans 621,618 599,545
Premises and equipment, net 15,600 15,484
Purchased mortgage servicing rights 53,092 57,183
Other assets 55,943 49,764
----------- -----------
Total assets $ 1,375,185 $ 1,363,614
=========== ===========
Liabilities
Deposits:
Non-interest bearing $ 128,121 $ 111,425
Interest bearing 762,542 707,317
----------- -----------
Total deposits 890,663 818,742
Federal funds purchased and reverse repurchase
agreements 202,824 217,124
Short-term borrowings 36,024 39,822
FHLB advances 17,000 69,950
Accrued and other liabilities 49,203 43,077
Long-Term debt 59,215 56,379
----------- -----------
Total liabilities 1,254,929 1,245,094
----------- -----------
Minority interest 780 606
----------- -----------
Shareholders' Equity
Preferred stock, $25 stated value;
5,000,000 shares authorized, none issued and
outstanding -- --
Common stock, $5 par value, 20,000,000 shares
authorized; 14,970,134 and 15,246,134 shares
issued and outstanding, respectively 74,851 76,231
Capital surplus 32,924 35,636
Market value adjustment for securities
available-for-sale (2,461) (5,273)
Retained earnings 14,162 11,320
----------- -----------
Total shareholders' equity 119,476 117,914
----------- -----------
Total liabilities and shareholders' equity $ 1,375,185 $ 1,363,614
=========== ===========
1
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended
March 31,
1995 1994
-------- --------
Interest Income
Loans, including fees $ 15,549 $ 12,890
Securitites:
Held-to-maturity 4,035 1,357
Available-for-sale 2,854 1,299
Money market investments 102 350
-------- --------
Total interest income 22,540 15,896
-------- --------
Interest Expense
Demand deposits 435 593
Savings and time deposits 8,104 5,850
Short-term borrowings 4,433 1,159
FHLB advances 586 302
Long-term debt 1,206 459
-------- --------
Total interest expense 14,764 8,363
-------- --------
Net interest income 7,776 7,533
Provision for estimated loan losses 12 47
-------- --------
Net interest income after provision for
loan losses 7,764 7,486
-------- --------
Non-Interest Income
Service charges 303 352
Mortgage banking 15,354 27,823
Gain/(loss) on sale of securities (90) 483
Gain on sale of SBA loans 230 234
Other 233 508
-------- --------
Total non-interest income 16,030 29,400
-------- --------
Non-Interest Expense
Salaries and employee benefits 9,480 16,872
Occupancy expense of premises 1,280 1,299
Equipment expense 1,052 1,044
Other 5,155 8,256
Minority interest 198 --
-------- --------
Total non-interest expense 17,165 27,471
-------- --------
Income before income taxes 6,629 9,415
Provision for income taxes 2,424 3,333
-------- --------
Net Income $ 4,205 $ 6,082
======== ========
Net income per common share outstanding
Primary and fully diluted $ 0.27 $ 0.39
======== ========
Average common shares outstanding
Fully diluted 15,508 15,723
======== ========
Cash dividend declared per common share $ 0.09 $ 0.08
======== ========
2
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
Three Months Ended
March 31,
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,205 $ 6,082
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation and amortization 1,122 1,040
Amortization of purchased mortgage servicing rights 1,763 1,350
Provision for loan losses 12 47
(Gain)/loss on sale of securities available-for-sale 90 (483)
Gain on sale of mortgage servicing rights (7,380) (15,756)
Gain on sale of loans (501) (654)
Increase in interest receivable (832) (437)
Increase in interest payable 1,135 35
Decrease in deferred loan fees (146) (403)
Net premium amortization on securities 212 206
Increase in other assets (8,527) (7,518)
Increase in other liabilities 5,236 4,833
Proceeds from sale of mortgage loans held for sale 338,585 1,226,088
Origination of mortgage loans held for sale (348,704) (1,017,533)
Other, net 201 (127)
----------- -----------
Total adjustments (17,734) 190,688
----------- -----------
Net cash provided by/(used in) operating activities (13,529) 196,770
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mortgage servicing rights (10,392) (9,557)
Proceeds from sale of mortgage servicing rights 20,100 24,094
Proceeds from sale of securities available-for-sale 31,969 32,649
Proceeds from maturities/principal payments of
securities available-for-sale 4,299 12,141
Proceeds from maturities/principal payments of
securities held-to-maturity 1,650 6,746
Purchase of securities available-for-sale -- (88,853)
Purchase of securities held-to-maturity -- (126,154)
Recoveries on loans previously charged off 85 60
Proceeds from sale of loans 59,879 8,763
Net increase in loans made to customers (69,075) (24,764)
Premises and equipment expenditures (817) (1,308)
Payment for the purchase of AmeriFirst Financial
Corporation (177) --
----------- -----------
Net cash provided by/(used in) investing activities 37,521 (166,183)
----------- -----------
(continued on next page)
3
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
CONTINUED
Three Months Ended
March 31,
1995 1994
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts
and savings accounts $ 1,601 $ 881
Net increase/(decrease) in certificate of deposits 49,824 (20,568)
Purchase of Standard Federal Bank demand deposits
NOW accounts and savings accounts 6,701 --
Purchase of Standard Federal Bank certificate of
deposits 13,796 --
Net decrease in short-term borrowings (70,660) (596)
Net proceeds from issuance of common shares -- 325
Repurchase of common shares (3,014) --
Dividends paid (1,363) (1,098)
Payments on long-term debt (1,223) (186)
Increase in long-term debt 3,672 --
Proceeds from issuance of senior debentures,
net of issuance cost -- 24,712
-------- --------
Net cash provided by/(used in) financing activities (666) 3,470
-------- --------
Net increase in cash and cash equivalents 23,326 34,057
Cash and cash equivalents at beginning of period 23,297 28,025
-------- --------
Cash and cash equivalents at end of period $ 46,623 $ 62,082
======== ========
Cash paid during the period for:
Interest $ 13,629 $ 8,328
Income taxes $ 850 $ 3,403
Non cash investing activities:
- - During the three months ended March 31, 1995 and 1994, the Company incurred
charge-offs on portfolio loans of $250,000 and $726,000, respectively.
4
REPUBLIC BANCORP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements of Republic Bancorp Inc.
("Republic" or the "Company") and subsidiaries are prepared in accordance
with generally accepted accounting principles for interim financial
information, the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all normal, recurring adjustments necessary
to present fairly the consolidated operating results of the Company and
its subsidiaries for the three months ended March 31, 1995 and 1994, as
well as the financial position at March 31, 1995, and cash flows for the
three months ended March 31, 1995 and 1994.
Certain reclassifications have been made in the consolidated financial
statements for 1994 to conform with the 1995 presentation.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Republic
Bancorp Inc. and the accounts of three wholly owned subsidiares: Republic
Bank, Republic Bancorp Mortgage Inc. and Republic Savings Bank (formerly
Horizon Savings Bank). The consolidated financial statements also include
the accounts of Market Street Mortgage Corporation and CUB Funding
Corporation, of which the Company owns an 80% majority interest in both
entities. Republic Bancorp Mortgage Inc. operates Home Funding, Inc.,
which was acquired in October 1994, and AmeriFirst Home Mortgage, which
was acquired in February 1995, as divisions. All significant intercompany
transactions and balances have been eliminated in consolidation.
3. ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 115, "Accounting for
Certain Investments in Debt and Equity Securities," effective for fiscal
years beginning after December 15, 1993. Under SFAS 115, all affected
debt and equity securities must be classified as held-to-maturity,
trading or available-for-sale. Classification is critical because it
affects the carrying amount of the security, as well as the timing of
gain or loss recognition in the income statement. The Company does not
currently maintain a trading account classification. The Company adopted
SFAS 115 for the financial period beginning January 1, 1994.
5
Management determines the appropriate classification for debt securities
at the time of purchase and reevaluates such designation as of each
balance sheet date. In accordance with SFAS 115, securities
held-to-maturity include only those securities which the Company has the
positive intent and ability to hold until maturity. Such securities are
carried at cost adjusted for amortization of premium and accretion of
discount, computed in a manner which approximates the effective interest
method. Securities held-to-maturity consist primarily of U.S. Treasuries
and U.S. Government Agency obligations, and fixed rate mortgage-backed
securities and collateralized mortgage obligations.
Debt securities not classified as held-to-maturity and marketable equity
securities are classified as available-for-sale. Available-for-sale
securities consist primarily of adjustable rate mortgage-backed
securities. Such securities are stated at fair value, with the market
value adjustment, net of tax, reported as a separate component of
shareholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion
of discounts to maturity, or in the case of mortgage-backed securities
and collateralized mortgage obligations, over the estimated life of the
security. Interest and dividends are included in interest income from
investments. Realized gains and losses, and declines in value judged to
be other-than-temporary are included in net securities gains (losses).
The cost of securities sold is based on the specific identification
method.
The following is a summary of available-for-sale securities and
held-to-maturity securities:
Available-for-Sale Securities
-----------------------------------
Gross Gross Estimated
March 31,1995 Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
-------- ---------- ---------- ---------
U.S. Government Agency
Obligations $ 3,490 -- $ 241 $ 3,249
Collateralized Mortgage
Obligations 4,669 -- 137 4,532
Mortgage-Backed Securities 140,684 $ 1 2,697 137,988
-------- ---------- ---------- ---------
Total Debt Securities 148,843 1 3,075 145,769
Equity Securities 19,366 -- 712 18,654
-------- ---------- ---------- ---------
Total Available-For-Sale
Securities $168,209 $ 1 $ 3,787 $164,423
======== ========== ========== =========
6
Held-to-Maturity Securities
-----------------------------------
Gross Gross Estimated
March 31,1995 Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
-------- ---------- ---------- ---------
U.S. Treasury
Obligations $ 81,414 -- $ 1,494 $ 79,920
U.S. Government Agency
Obligations 70,099 $ 39 963 69,175
Collateralized Mortgage
Obligations 103,267 1 4,860 98,408
Mortgage-Backed Securities 12,083 24 535 11,572
Other Securities 1,093 13 10 1,096
-------- ---------- ---------- ---------
Total Held-to-Maturity
Securities $267,956 $ 77 $ 7,862 $ 260,171
======== ========== ========== =========
The gross realized gains and losses on sales of available-for-sale
securities totaled $-0- and $90,000, respectively, for the quarter ended
March 31, 1995.
The following tables detail the components of the securities
available-for-sale and securities held-to-maturity portfolio and the
amortized cost and market value of the portfolio classified by maturity
at March 31, 1995. Expected maturities will differ from contractual
maturities because the issuers of the securities may have the right to
prepay obligations without prepayment penalties.
SECURITIES AVAILABLE-FOR-SALE
Maturity Distribution
($ in thousands)
March 31, 1995
Obligations of Collateralized Total Total
U.S. Government Mortgage-Backed Mortgage Available-for-Sale Available-for Sale
Agencies Securities Obligations Debt Securities Equity Securities Securities
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
Estimated Estimated Estimated Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value Cost Value Cost Value
Maturities:
Due within
one year... -- -- -- -- -- -- -- -- $ 19,366 $ 18,654 $ 19,366 $ 18,654
One to five
years...... $ 2,822 $ 2,600 -- -- -- -- $ 2,822 $ 2,600 -- -- 2,822 2,600
Five to ten
years...... 668 649 -- -- -- -- 668 649 -- -- 668 649
After ten
years...... -- -- $140,684 $137,988 $ 4,669 $ 4,532 145,353 142,520 -- -- 145,353 142,520
Total..... $ 3,490 $ 3,249 $140,684 $137,988 $ 4,669 $ 4,532 $148,843 $145,769 $ 19,366 $ 18,654 $168,209 $164,423
SECURITIES HELD-TO-MATURITY
Maturity Distribution
($ in thousands)
March 31, 1995
U.S. Treasury and Collateralized Total
Government Agency Mortgage-Backed Mortgage Other Held-to-Maturity
Obligations Securities Obligations Debt Securities Securities
-------------------- -------------------- -------------------- -------------------- --------------------
Estimated Estimated Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value Cost Value
Maturities:
Due within
one year... $ 48,501 $ 8,391 -- -- -- -- $ 235 $ 237 $ 8,736 $ 8,628
One to five
years...... 143,012 140,704 $ 4,484 $ 4,456 $ 3,892 $ 3,782 327 331 151,715 149,273
Five to ten
years...... -- -- 7,599 7,116 8,489 8,175 201 208 16,289 15,499
After ten
years...... -- -- -- -- 90,886 86,451 330 320 91,216 86,771
Total..... $151,513 $149,095 $ 12,083 $ 11,572 $103,267 $ 98,408 $ 1,093 $ 1,096 $267,956 $260,171
7
4. LOANS
Loans consist of the following:
March 31, December 31,
(In Thousands) 1995 1994
--------- ------------
Commercial loans:
Secured by real estate $ 82,388 $ 81,922
Other (generally secured) 22,302 15,989
--------- -----------
Total Commercial loans 104,690 97,911
Residential real estate mortgages 470,192 457,755
Installment loans 52,126 49,423
--------- -----------
Total loans 627,008 605,089
Allowance for estimated loan losses (5,390) (5,544)
--------- -----------
Net loans $ 621,618 $ 599,545
========= ===========
The Company adopted SFAS 114, "Accounting by Creditors for Impairment of
a Loan," and SFAS 118, "Accounting by Creditors for Impairment of a Loan
- Income Recognition and Disclosures," on January 1, 1995. Accordingly,
loans are classified as impaired when, based on current information and
events, it is probable that the Company will be unable to collect all
principal and interest due under the contractual terms of the loan
agreement. Impaired loans are measured based on the present value of
expected future cash flows discounted at the loans effective interest
rate or, as a practical expedient, at a loan's observable market price or
the fair value of the collateral if the loan is collateral dependent.
Impairment is recognized by adjusting the allowance for estimated loan
losses for the impaired loan with a corresponding charge to provision for
estimated loan losses. The adoption of SFAS 114 by the Company did not
result in any additional charge to the allowance for estimated loan
losses or provision for estimated loan losses. Additonally, adoption of
SFAS 118 did not result in any change to the recognition of income on
impaired loans.
SFAS 114 amends SFAS 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructuring," to clarify that substantive repossession
accounting is applicable in circumstances where the debtor surrenders the
collateral to the creditor and the creditor receives physical possession
of the collateral. Therefore, a loan for which foreclosure is probable,
as in the case of in-substance foreclosed (ISF) assets, should continue
to be accounted for as a loan. The impact of this change did not result
in any reclassifications of ISF assets.
March 31,
Impaired Loans: (In Thousands) 1995
---------
Gross recorded investment in impaired loans $ 2,788
Specific allowance for estimated loan losses (1,049)
---------
Total net impaired loans $ 1,739
=========
Three Months Ended
(In Thousands) March 31, 1995
------------------
Average impaired loans outstanding $ 2,765
=========
Interest income recognized $ 68
=========
8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MORTGAGE BANKING
During the first quarter of 1995, the Company closed $392 million in
single-family, owner occupied, residential mortgage loans, compared to $1.04
billion closed during the first quarter of 1994. The decrease in mortgage loan
closings was primarily attributable to the higher interest rate environment
which has significantly reduced the number of refinanced mortgages.
The decrease in mortgage loan volume resulted in a decrease of mortgage
banking income of $12.5 million, from $27.8 million in the first quarter of
1994 to $15.3 million in 1995. A breakdown of income from mortgage banking
activities is summarized as follows:
Three Months Ended
March 31, 1995
---------------------
1995 1994
------- -------
Net mortgage loan servicing fees $ 2,731 $ 1,453
Origination fee income 4,089 8,619
Gain on sale of mortgages 1,154 1,997
Gain on sale of servicing 7,380 15,754
------- -------
Total mortgage banking income $15,354 $27,823
======= =======
The Company generates origination fee income primarily through its retail
mortgage loan operation. The Company's retail mortgage loan closings were $288
million for the first quarter of 1995 compared to $530 million for 1994. The
decrease in retail mortgage closings resulted in a decrease in origination fee
income of $4.5 million over the first quarter in 1994.
The majority of the Company's residential mortgage production during 1995 and
1994 has been long-term fixed rate mortgages. The Company typically sells all
of its long-term fixed rate and a significant portion of its variable rate
mortgages to the secondary market. During the first quarter, the Company's
gain on sale of mortgages totaled $1.2 million, compared to $2.0 million for
the same period in 1994. The decrease in the gain on sale of mortgages was due
to the decline in closing volume.
During the first quarter of 1995 and 1994, the Company sold both purchased and
originated mortgage servicing rights on loans with principal balances of $1.6
billion and $2.1 billion, respectively, resulting in gains of $7.4 million and
$15.8 million, respectively.
On February 15, 1995, Republic Bancorp Mortgage Inc., a subsidiary of
Republic, purchased certain assets and the mortgage origination network of
AmeriFirst Financial Corporation with three offices in the state of Michigan.
The remainder of the Management's Discussion and Analysis provides various
disclosures and analyses relating principally to the commercial banking
segment.
9
RESULTS OF OPERATIONS
Net Interest Income
Net Interest Income totaled $7.8 million for the first quarter of 1995,
compared to $7.5 million for the same period in 1994. The slight increase in
net interest income in the first quarter was comprised of increases in both
interest income and interest expense. The increase in both interest income and
interest expense was due to an increase of interest earning assets and
interest bearing liabilities over the last twelve months, as well as an
increasing interest rate environment. The net interest margin for the first
quarter of 1995 decreased to 2.54%, from 3.08% for the same period in 1994.
The decrease in net interest margin is a result of a decrease of mortgage
loans held for sale and an increase in lower yielding securities and
adjustable rate residential single family mortgage portfolio loans.
Average earning balances increased 24.9%, or $243.6 million, to $1.223 billion
from March 31, 1994 to March 31, 1995. In addition, the yield on average
earning assets increased from 6.49% to 7.37%, resulting in a net increase of
$6.6 million in interest income. Primary factors in the increase in yield on
interest earning assets were the 198 basis points increase in average rates
earned on mortgage loans held for sale, the 122 basis points increase in
average rates earned on the securities portfolio and the 55 basis points
increase in average rates earned on portfolio real estate mortgage loans, the
majority of which reprice annually based on the one-year Constant Maturity
Treasury index, plus a margin.
The cost of interest bearing liabilities in first quarter 1995 increased to
5.33% from 4.17% in first quarter 1994. As a result of the slowdown in
mortgage loans held for sale originations, average borrowings of the Republic
mortgage affiliates under the higher cost warehousing facilities decreased $37
million over first quarter 1994 while the borrowing rate has increased from
6.18% to 7.97%. Offsetting the reduction in these borrowings was an increase
of $230 million in other short-term borrowings of the bank affiliates. Average
balances and rates on these borrowings were $237 million and 6.06% in 1995 and
$13 million and 3.52% in 1994.
The following table presents an analysis of average balances and rates for
the three month periods ended March 31, 1995 and 1994.
10
Three Months Ended Three Months Ended
March 31, 1995 March 31, 1994
---------------------------------- ---------------------------------
Average Average Average Average
Balance(1) Interest Rate Balance(1) Interest Rate
Average Assets:
Money market investments $ 6,745 $ 96 5.69% $ 43,434 $ 341 3.14%
Mortgage Loans held for sale 122,090 2,604 8.53 304,772 4,993 6.55
Securities 454,039 6,885 6.07 219,945 2,665 4.85
Commercial loans 101,108 2,473 9.78 128,621 2,774 8.63
Real estate mortgage loans 488,761 9,198 7.53 234,944 4,099 6.98
Installment loans 50,685 1,284 10.13 48,158 1,024 8.51
Total loans, net of
unearned income 640,554 12,955 8.09 411,723 7,897 7.67
Total interest earning
assets 1,223,428 22,540 7.37 979,874 15,896 6.49
Allowance for loan losses (5,578) (7,168)
Cash and due from banks 24,837 24,963
Other assets 131,329 94,787
Total assets $ 1,374,016 $ 1,092,456
Average Liabilities and
Shareholders' Equity:
Deposits:
Interest bearing demand
deposits $ 68,103 435 2.55 $ 89,736 593 2.64
Savings deposits 183,240 1,699 3.71 168,367 1,210 2.87
Time deposits 482,093 6,405 5.31 413,195 4,640 4.49
Total interest bearing
deposits 733,436 8,539 4.66 671,298 6,443 3.84
Short-term borrowings 279,566 4,432 6.34 86,981 1,159 5.33
FHLB advances 37,361 585 6.26 24,394 302 4.95
Long-term debt 56,787 1,208 8.51 19,992 459 9.18
Total interest bearing
liabilities 1,107,150 14,764 5.33 802,665 8,363 4.17
Non-interest bearing deposits 115,253 124,495
Other liabilities 34,175 51,444
Total liabilities 1,256,578 978,604
Shareholders' equity 117,438 113,852
Total liabilities and share-
holders' equity $ 1,374,016 $ 1,092,456
Net interest income $ 7,776 $ 7,533
Net interest spread 2.04% 2.32%
Net interest margin 2.54% 3.08%
<FN>
(1) Non-accrual loans and overdrafts are included in average balances. No
significant amounts of tax-exempt income were earned by the Company or
its subsidiaries during 1995 or 1994.
11
Net interest income can be analyzed in terms of the impact of changing
rates and changing volumes of interest earning assets and interest bearing
liabilities. The following table sets forth certain information regarding
changes in net interest income due to changes in the average balance of
interest earning assets and interest bearing liabilities and due to changes in
average rates for the periods indicated.
Three Months Ended March 31,
1995 versus 1994
Increase (Decrease) Due to Change In:
-------------------------------------
Average Average Net
Balance Rate (1) Change
Interest Income:
Money market investments $(1,254) $ 1,009 $ (245)
Mortgage loans held for sale (9,611) 7,222 (2,389)
Securities 3,413 807 4,220
Loans, net of unearned income (2) 4,604 454 5,058
Total interest income (2,848) 9,492 6,644
Interest expense:
Interest bearing demand deposits (138) (20) (158)
Savings deposits 113 376 489
Time deposits 842 923 1,765
Total interest bearing deposits 817 1,279 2,096
Short-term borrowings 3,015 258 3,273
FHLB advances 189 94 283
Long-term debt 978 (229) 749
Total interest expense 4,999 1,402 6,401
Net interest income $(7,847) $ 8,090 $ 243
<FN>
(1) Any variance attributable jointly to volume and rate changes is allocated
to volume and rate in proportion to the relationship of the absolute
dollar amount of the change in each.
(2) Non-accrual loans are included in average balances.
NON-INTEREST EXPENSE
Non-interest expense in the first quarter of 1995 was $17.2 million, compared
to $27.5 for the same period in 1994. Salaries and employee benefits are the
largest portion of non-interest expense totaling $9.5 million for the three
month period in 1995. Salaries and employee benefits decreased $7.4 million
from $16.9 million in the first quarter of 1994, as a result of lower
commissions and incentives paid on decreased mortgage loan volume for the
first quarter of 1995.
12
Financial Condition
ASSETS
Total assets at March 31, 1995 were $1.38 billion, compared to $1.36 billion
at December 31, 1994. The increase in assets since December 31, 1994 was
primarily in portfolio loans, offset by a decline in securities
available-for-sale.
LOANS
Total loans, excluding loans held for sale, at March 31, 1995 increased $21.9
million to $627.0 million from $605.1 million at December 31, 1994.
Residential real estate loans increased $12.4 million to 75.0% of total loans
at March 31, 1995 from December 31, 1994. Commercial loans, including
commercial loans secured by real estate, increased to $104.7 million or 16.7%
of total loans at March 31, 1995. Mortgage loans held for sale decreased to
$149.9 million at March 31, 1995 from $152.1 million at December 31, 1994.
During the first quarter of 1995, the Company closed $6.1 million of Small
Business Administration (SBA) loans. The Company sold $2.9 million of SBA
loans during the first three months of 1995, resulting in gains of $230,000.
The Company attempts to minimize credit risk in its loan portfolio by focusing
primarily on residential real estate mortgages and real estate-secured
commercial lending. As of March 31, 1995, these loans comprised 88.1% of the
total loan portfolio, excluding loans held for sale. The Company's general
policy is to originate conventional real estate mortgages with loan to value
ratios of 80% or less and real estate-secured commercial loans with loan to
value ratios of 70% or less. The substantial majority of the Company's
mortgage loans comply with the requirements for sale to or conversion to
mortgage-backed securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") or Federal National Mortgage Association ("FNMA").
The majority of the Company's commercial loans are secured by real estate and
are made to small and medium-sized businesses. These loans or lines of credit
are generally made at rates based on the prevailing prime interest rates of
the subsidiary banks and are adjusted periodically. The focus of the Company
on real estate-secured lending with lower loan to value ratios is generally
reflected in the low net charge-off ratio percentages.
13
The Company has not emphasized installment loans and, excluding home equity
loans, does not intend to emphasize these loans in the future. The following
table summarizes the composition of the Company's loan portfolio:
March 31, December 31,
1995 1994
------------------ -------------------
(Dollars in thousands) Amount % Amount %
Commercial Loans:
Secured by real estate ............... $ 82,388 13.1% $ 81,922 13.5%
Other (generally secured) ............ 22,302 3.6 15,989 2.6
Total Commercial Loans ............. 104,690 16.7 97,911 16.1
Residential Real Estate
Mortgages ............................ 470,192 75.0 457,755 75.7
Installment Loans ...................... 52,126 8.3 49,423 8.2
Total Portfolio Loans ................ $627,008 100.0% $605,089 100.0%
At March 31, 1995 the Company had commitments to fund residential real estate
loans of $200.6 million. These commitments are expected to result in mortgage
loan closings during the next 30 to 60 days. Offsetting the interest rate risk
associated with these commitments, as well as mortgage loans held for sale of
$149.9 million, the Company had firm commitments to sell forward $257.3
million of residential real estate loans. These commitments to sell forward,
which are expected to settle in the second quarter of 1995, will not produce
any material gain or loss.
NON-PERFORMING ASSETS
Portfolio loans are reviewed on a regular basis and are placed on non-accrual
status when, in the opinion of management, reasonable doubt exists as to the
full, timely collection of interest or principal. Real estate acquired by the
Company as a result of foreclosure or by deed in lieu of foreclosure is
classified as other real estate owned ("OREO") until such time as it is sold.
The following table provides information with respect to the Company's past
due loans and the components of non-performing assets at the dates indicated.
14
Mar. 31, Dec. 31, Mar. 31,
(Dollars in thousands) 1995 1994 1994
Loans past due 90 days or more and still
accruing interest:
Commercial .............................................. $ 56 $ 104 $ 50
Residential real estate mortgages ....................... 128 -- --
Installment ............................................. 66 35 65
Total ................................................. $ 250 $ 139 $ 115
Non-accrual loans:
Commercial .............................................. $ 834 $ 982 $1,178
Residential real estate mortgages ....................... 810 1,304 80
Installment ............................................. 114 79 297
Total ................................................ 1,758 2,365 1,555
Restructured loans ...................................... 1,123 1,130 2,136
Other real estate owned ................................. 593 586 936
Total non-performing assets ........................... $3,474 $4,081 $4,627
Non-performing assets as a percentage of:
Total loans and OREO (1) ................................ .55% .67% 1.09%
Total loans and OREO (2) ................................ .45% .54% .65%
Total assets ............................................ .25% .30% .39%
<FN>
(1) Excluding mortgage loans held for sale.
(2) Including mortgage loans held for sale.
At March 31, 1995, approximately $2.5 million, or .41% of portfolio loans were
30-89 days delinquent.
ALLOWANCE FOR ESTIMATED LOAN LOSSES
Management is responsible for maintaining an adequate allowance for estimated
loan losses. The appropriate level of the allowance for estimated loan losses
is determined by systematically reviewing the loan portfolio quality,
analyzing economic changes, consulting with regulatory agencies and reviewing
historical loan loss experience. Actual net losses are charged against this
allowance. If actual circumstances and losses differ substantially from
management's assumptions and estimates, such reserves for loan losses may not
be sufficient to absorb all future losses, and net earnings could be
significantly and adversely affected. Management is of the opinion that the
allowance for estimated loan losses is adequate to meet potential losses in
the portfolio. It must be understood, however, that there are inherent risks
and uncertainties related to the operation of a financial institution. By
necessity, the Company's financial statements are dependent upon estimates,
appraisals and evaluations of loans. Therefore, the possibility exists that
abrupt changes in such estimates, appraisals and evaluations might be required
because of changing economic conditions and the economic prospects of
borrowers.
15
As of March 31, 1995, the allowance for estimated loan losses was $5.4 million
or .86% of total loans, excluding mortgage loans held for sale, compared with
$5.5 million or .92% as of December 31, 1994. The allowance for estimated loan
losses as a percentage of non-performing loans was 187.07% at March 31, 1995
versus 158.6% at December 31, 1994.
An analysis of the allowance for estimated loan losses, the amount of loans
charged off and the recoveries on loans previously charged off is summarized
in the following table.
Three Months Ended
March 31,
-------------------
1995 1994
Allowance for estimated loan losses:
Balance at January 1 .......................... $ 5,544 $ 7,214
Loans charged off ............................ (251) (726)
Recoveries of loans previously charged off ... 85 60
Net charge-offs ................................ (166) (666)
Provision charged to expense ................... 12 47
Balance at March 31 ........................... $ 5,390 $ 6,595
SECURITIES
The securities portfolio serves as a source of earnings with relatively
minimal principal risk. As a result, the Company's portfolio is comprised
primarily of U.S. Treasuries, U.S. Government agency obligations and
obligations collateralized by U.S. Government agencies, primarily in the form
of collateralized mortgage obligations and mortgage-backed securities. The
maturity structure of the securities portfolio is generally short-term, with
an estimated average maturity of less than three years, or at adjustable
rates. The securities portfolio, including securities available-for-sale,
constituted 31.4% of the Company's assets at March 31, 1995, compared to 34.2%
at December 31, 1994. The decrease in the securities portfolio is primarily a
result of selling available-for-sale securities to provide liquidity to fund
higher interest earning portfolio loan balances.
Certain securities, with a carrying value of approximately $239.4 million and
$235.3 million at March 31, 1995 and December 31, 1994, respectively, were
pledged to secure reverse repurchase agreements and other deposits as required
by law.
See Note 3 to the consolidated financial statements for further discussion of
the securities portfolio.
LIABILITIES
Deposits
Non-interest bearing deposits increased $16.7 million, or 15.0%, from $111.4
million at December 31, 1994 to $128.1 million at March 31, 1995, primarily
due to an increase in mortgage escrow balances of $13.4 million and official
checks outstanding used to fund mortgage loans held for sale of $3.9 million.
Interest bearing deposits increased $55.2 million, or 7.8%, from $707.3
million at December 31, 1994 to $762.5 million at March 31, 1995, due
primarily to an increase of $49.8 million in certificates of deposit as well
as the acquisition of $20.2 million in interest bearing deposits through the
acquisition of deposits of three Michigan based Standard Federal Bank branches
in February 1995. These increases were partially offset by a decrease in other
interest bearing deposit accounts of $14.8 million.
16
On February 24, 1995, the Company completed the acquisition of the Standard
Federal Bank Branches in Owosso and Flushing, Michigan, as well as the deposit
accounts of the Flint branch of Standard Federal Bank. Through the
acquisition, the Company added $20.2 million of interest bearing and $300,000
of non-interest bearing deposits. The Owosso and Flushing branches were opened
as Republic Bank offices on February 27, 1995.
Short-Term Borrowings
As of March 31, 1995, the Company had $202.8 million of securities sold under
agreements to repurchase at an average rate for the quarter of 6.07%. Such
agreements, which have stated maturities of 30 days to one year are secured by
certain securities with a carrying value of $206.2 million. The proceeds from
the reverse repurchase agreements are used to fund mortgage loans held for
sale closings.
Market Street Mortgage Corporation has a $75 million warehousing line of
credit agreement with G.E. Capital Mortgage Services Inc. and Cooper River
Funding Inc. used for the purpose of funding the origination of mortgage loans
by Market Street, which expires in July 1995. Interest, which is payable
monthly, is calculated at a rate equal to the lower of 2.0% above the lender's
one month commercial paper rate or the LIBOR rate. Borrowings under this
warehousing line of credit decreased to $19.6 million at March 31, 1995 from
$22.8 million at December 31, 1994. During the first quarter of 1995, the
average borrowings and interest rate paid on this warehousing line was $27.6
million and 8.10%, respectively.
Republic Bancorp Mortgage Inc. has a $20 million warehousing line of credit
with NBD Bank, N.A. used to fund the acquisition or origination of mortgage
loans by Republic Mortgage. The line of credit, which is payable on demand, is
secured by various real estate mortgage loans and expires in April 1995.
Republic Mortgage is required to pay interest on the unpaid principal amount
of each advance at the adjusted LIBOR rate or federal funds sold plus 1.25%,
as applicable to such advance. There were no borrowings under this line at
March 31, 1995 or December 31, 1994 or during the first quarter of 1995.
CUB Funding Corporation has a $16 million warehousing line of credit agreement
with Prudential Home Mortgage Company used for funding the origination of
mortgage loans by CUB Funding. Interest, which is payable monthly, is computed
based upon the 30 day commercial paper index plus various spreads ranging from
1.00% to 2.75% based on the document status of each loan. Borrowings under
this line of credit decreased to $12.4 million at March 31, 1995 from $13.1
million at December 31, 1994. During the first quarter of 1995 the average
interest rate was 7.57% and the average balance outstanding was $9.1 million.
The line of credit, which is payable on demand, is secured by various real
estate mortgage loans and expires in August, 1995.
17
The Company has an $18 million revolving Credit Agreement with Firstar Bank
Milwaukee, N.A. with proceeds to be utilized for working capital purposes. The
agreement provides for borrowings with interest at the prime rate, less .25%,
or LIBOR plus 1.75%. At March 31, 1995, $500,000 was outstanding under this
Credit Agreement. During the first quarter of 1995, the average borrowings and
interest rate paid for this credit agreement were $3.7 million and 8.75%,
respectively.
FHLB Advances
Republic Savings Bank has outstanding two advances from the Federal Home Loan
Bank ("FHLB"), a $10 million advance with an interest rate of 7.15%, maturing
in February 1997, and a $5 million advance with an interest rate of 4.45%,
maturing in December 1995. These advances are secured by first mortgage loans
equal to at least 150% of the advances under a blanket security agreement with
interest payable monthly for both advances.
In order to provide liquidity needs for mortgage loan originations, Republic
Savings also has a $50 million line of credit with the FHLB. As of March 31,
1995, borrowing under this line totaled $2.0 million with an average interest
rate paid of 6.49%.
Long-Term Debt
Republic Bancorp Mortgage has a mortgage loan in the amount of $2.0 million
with Firstar Bank Milwaukee, N.A. Principal and interest with a fixed rate of
6.99% is payable quarterly, with a final maturity date of October 1, 2000. As
of March 31, 1995, $93,000 of the total $2.0 million is classified as
short-term borrowings.
Market Street Mortgage Corporation has a note payable with Poughkeepsie
Savings Bank, F.S.B. of $558,000, secured by the servicing rights underlying
the Poughkeepsie mortgages which are serviced by Market Street. Interest is
payable at the prime rate plus 2%, or 11.0% at March 31, 1995, and is payable
in twelve equal quarterly installments with final maturity due November 30,
1995.
On March 30, 1995, Market Street Mortgage Corporation entered into a $10
million revolving credit agreement with Bank United of Texas FSB used for the
funding of purchased mortgage servicing rights. Interest, which is payable
monthly, is calculated at a floating rate of interest which is equal to 3.75%
over the monthly average LIBOR rate. Principal is payable in sixteen
consecutive quarterly installments commencing April 1, 1996, with each of the
initial fifteen payments equal to 1/24th of the outstanding principal amount
of the advances as of the revolving line maturity date and the sixteenth
principal payment equal to the remaining principal amount then outstanding on
March 31, 2000. Borrowings under this line of credit at March 31, 1995 were
$3.7 million.
Market Street Mortgage Corporation also has a $16 million revolving credit
agreement with G.E. Capital Mortgage Services, Inc. used for the funding of
purchased mortgage servicing rights. Interest, which is payable monthly, is
calculated at 3.75% above the lender's one month commercial paper rate.
Principal is payable in monthly installments commencing January 1995 with a
balloon payment equal to the unpaid principal balance required in the 48th
month (December 1, 1998). Borrowings under this line of credit at March 31,
1995 were $14.3 million.
18
The Company has $17.25 million of 9% Subordinated Notes outstanding which
mature February 1, 2003. Interest on the notes is payable monthly at 9%. The
notes are redeemable in whole or in part by the Company, subject to Federal
Reserve Board approval at par plus accrued interest at any time after February
1, 1996. The subordinated Notes qualify as Tier 2 Capital for the calculation
of Total risk-based capital under Federal Reserve Board guidelines. On March
31, 1994, Republic completed a $25 million private offering of 7.17% senior
debentures which mature April 2001 with interest on the notes payable
semiannually.
Capital Resources
Total shareholders' equity at March 31, 1995 was $119.5 million compared to
$117.9 million at December 31, 1994. The increase of $1.6 million during the
first three months was due to earnings net of dividends, and the unrealized
gain in market valuation adjustment on securities available-for-sale.
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies. At March 31, 1995, Republic's Tier 1 Capital and Total
risk-based capital ratios were 16.99% and 20.37%, respectively, versus 17.65%
and 21.14%, respectively at December 31, 1994. These ratios exceed minimum
guidelines prescribed by regulatory agencies. As of March 31, 1995, total
risk-based capital was $136.3 million, an excess of $82.8 million over the
minimum guidelines prescribed by regulatory agencies.
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. Republic's Tier 1 Capital leverage
ratio at March 31, 1995 was 8.32%, versus 8.47% at December 31, 1994.
The Company is committed to maintaining a strong capital position. As of March
31, 1995, Republic Bank and Republic Savings Bank's Total capital to
risk-weighted assets ratio, and Tier 1 Capital to risk-weighted assets ratio
were in excess of all minimum regulatory requirements. It is management's
opinion that the Company and its subsidiaries' capital structure is adequate
and the Company does not anticipate any difficulty in meeting these
requirements on an ongoing basis.
19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Republic and its subsidiaries are parties to certain ordinary
routine litigation incidental to Republic's business. In the
opinion of management, liabilities arising from such litigation
would not have a material effect on Republic's consolidated
financial statements.
Item 2. Changes in Securities
At the February 17, 1995 meeting, the Board of Directors declared a
quarterly cash dividend of $.09 per share on common stock, payable
on April 7, 1995 to shareholders of record on March 10, 1995.
Item 3. Defaults upon Senior Securities
During the interim period covered by this report, there were no
defaults upon senior securities.
Item 4. Submission of Matters to Vote of Security Holders
During the interim period covered by this report, there were no
matters submitted to a vote of security holders.
Item 5. Other Information
Not applicable.
Item 6. Exhibit and Reports on Form 8-K
(a) Exhibits
11. Statement RE: Computation of per share earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
During the interim period covered by this report, there were no
reports filed by the Company on Form 8-K.
20
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REPUBLIC BANCORP INC.
-------------------------
(Registrant)
Date: May 12, 1995 By: /s/ Thomas F. Menacher
-------------------------
Thomas F. Menacher,
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
21