SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1996 Commission File Number 0-15734
REPUBLIC BANCORP INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2604669
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1070 East Main Street, Owosso, Michigan 48867
(Address of principal executive offices)
(517) 725-7337
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES ___ X ___ NO _______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock Outstanding as of April 30, 1996:
Common Stock, $5 Par Value ............................. 16,161,169 Shares
INDEX
PART I..FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995 ............................... 4
Consolidated Statements of Income for the Three
Months Ended March 31, 1996
and 1995............................................. 5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1996 and 1995................. 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 8-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 18
Item 2. Changes in Securities................................ 18
Item 3. Defaults Upon Senior Securities...................... 18
Item 4. Submission of Matters to a Vote of Security Holders.. 18
Item 5. Other Information.................................... 18
Item 6. Exhibits and Reports on Form 8-K..................... 18
SIGNATURE ..................................................... 19
EXHIBITS............................................................ 20-21
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The unaudited consolidated financial statements of Republic Bancorp Inc. (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, 1996 and 1995, as well as
the financial position at March 31, 1996 and cash flows for the three months
ended March 31, 1996 and 1995.
Certain reclassifications have been made to the consolidated financial
statements for 1995 to conform with the 1996 presentation.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company, and
the accounts of two wholly owned subsidiaries: Republic Bank and Republic
Savings Bank (Republic Savings). The consolidated financial statements also
include the accounts of Market Street Mortgage Corporation (Market Street), of
which the Company owns an 80% majority interest. Republic Bank operates a
wholly-owned subsidiary; Republic Bancorp Mortgage Inc. (Republic Mortgage),
and its division, Home Funding, Inc. Republic Bank also owns an 80% majority
interest in CUB Funding Corporation (CUB Funding) which operates a division;
RSL Mortgage. All material intercompany transactions and balances have been
eliminated in consolidation.
3
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands) March 31, Dec. 31,
1996 1995
--------- --------
ASSETS
Cash and cash equivalents ................................... $ 31,009 $ 39,641
Mortgage loans held for sale ................................ 415,189 423,364
Securities available-for-sale (amortized cost of
$313,873 and $319,865, respectively) .................. 309,877 317,769
Loans ....................................................... 564,053 578,112
Less allowance for loan losses .......................... 4,992 5,002
----------- -----------
Net loans ................................................... 559,061 573,110
Premises and equipment, net of depreciation ................. 14,503 14,724
Mortgage servicing rights ................................... 58,693 58,265
Other assets ................................................ 47,398 45,817
----------- -----------
Total assets .......................................... $ 1,435,730 $ 1,472,690
=========== ===========
LIABILITIES
Deposits:
Non-interest bearing .................................... $ 139,032 $ 126,427
Interest bearing ........................................ 815,979 778,302
----------- -----------
Total deposits ........................................ 955,011 904,729
Federal funds purchased and reverse
repurchase agreements ................................... 141,544 134,237
Other short-term borrowings ................................. 10,524 129,214
FHLB advances ............................................... 93,000 80,500
Accrued and other liabilities ............................... 62,196 44,806
Long-term debt .............................................. 49,266 51,928
----------- -----------
Total liabilities ..................................... 1,311,541 1,345,414
----------- -----------
Minority interest ........................................... 886 900
----------- -----------
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; 16,271,419 and 16,477,981 shares
issued and outstanding, respectively .................... 81,357 82,390
Capital surplus ............................................. 41,376 43,177
Market value adjustment on securities available-for-sale, net (2,597)
(1,363)
Retained earnings ........................................... 3,167 2,172
----------- -----------
Total shareholders' equity .............................. 123,303 126,376
----------- -----------
Total liabilities and shareholders' equity ............ $ 1,435,730 $ 1,472,690
=========== ===========
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
------------------
1996 1995
---- ----
INTEREST INCOME
Loans, including fees .................................. $ 19,074 $ 15,549
Securities held-to-maturity ............................ -- 4,035
Securities available-for-sale .......................... 4,820 2,854
Money market investments ............................... 268 102
-------- --------
Total interest income ............................ 24,162 22,540
-------- --------
INTEREST EXPENSE
Demand deposits ........................................ 351 435
Savings and time deposits .............................. 10,088 8,104
Short-term borrowings .................................. 3,307 4,433
FHLB advances .......................................... 1,246 586
Long-term debt ......................................... 1,069 1,206
-------- --------
Total interest expense ........................... 16,061 14,764
-------- --------
Net interest income .................................... 8,101 7,776
Provision for loan losses .............................. 65 12
-------- --------
Net interest income after provision for loan losses .... 8,036 7,764
-------- --------
NON-INTEREST INCOME
Service charges ........................................ 319 303
Mortgage banking ....................................... 19,444 15,354
Gain (loss) on sale of securities ...................... 435 (90)
Gain on sale of SBA loans .............................. 220 230
Other .................................................. 245 233
-------- --------
Total non-interest income ........................ 20,663 16,030
-------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits ......................... 15,718 9,480
Occupancy expense of premises .......................... 1,451 1,280
Equipment expense ...................................... 1,170 1,052
Other operating expense ................................ 5,849 5,155
Minority interest ...................................... -- 198
-------- --------
Total non-interest expense ....................... 24,188 17,165
-------- --------
Income before income taxes and extraordinary item ...... 4,511 6,629
Provision for income taxes ............................. 1,496 2,424
-------- --------
Income before extraordinary item ....................... 3,015 4,205
Extraordinary item -
loss on early extinguishment of debt, net of tax ..... (388) --
-------- --------
NET INCOME ............................................. $ 2,627 $ 4,205
======== ========
Income per common share before extraordinary item ...... $ 0.18 $ 0.25
Extraordinary item ..................................... (.02) --
-------- --------
Net income per common share - primary and fully diluted $ 0.16 $ 0.25
======== ========
Average common shares outstanding - fully diluted ...... 16,786 17,060
======== ========
Cash dividends declared per common share ............... $ 0.10 $ 0.08
======== ========
5
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
-----------------------
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................ $ 2,627 $ 4,205
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ............... 1,303 1,334
Amortization of mortgage servicing rights ... 2,112 1,763
Gain on sale of securities available-for-sale (435) 90
Gain on sale of mortgage servicing rights ... (7,161) (7,380)
Gain on sale of loans ....................... (1,574) (501)
Increase in other assets .................... (2,867) (9,505)
Increase in other liabilities ............... 17,390 6,371
Proceeds from sale of loans held for sale ... 835,812 338,585
Origination of loans held for sale .......... (827,637) (348,704)
Other, net .................................. (99) (696)
--------- ---------
Total adjustments ........................ 16,844 (18,643)
--------- ---------
Net cash provided by (used in) operating activities 19,471 (14,438)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to mortgage servicing rights ............ (4,203) (10,392)
Proceeds from sale of mortgage servicing rights ... 9,878 20,100
Proceeds from sale of securities available-for-sale 67,946 31,969
Proceeds from maturities/principal payments of
securities available-for-sale ................. 8,249 4,299
Proceeds from maturities/principal payments of
securities held-to-maturity ................... -- 1,650
Purchase of securities available-for-sale ......... (69,937) --
Proceeds from sale of loans ....................... 47,629 59,879
Net increase in loans made to customers ........... (31,928) (69,075)
--------- ---------
Net cash provided by investing activities ......... 27,634 38,430
--------- ---------
6
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
Three Months Ended
March 31,
----------------------
(continued) 1996 1995
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits,
NOW accounts and savings accounts ................... 36,797 1,601
Net increase in certificates of deposit ................. 13,485 49,824
Purchase of Standard Federal Bank demand deposits,
NOW accounts and savings accounts ................... -- 6,701
Purchase of Standard Federal Bank certificates of deposit -- 13,796
Net decrease in short-term borrowings ................... (111,383) (17,710)
Net increase (decrease) in short-term FHLB advances ..... 5,000 (52,950)
Net proceeds from issuance of common shares ............. 553 --
Repurchase of common shares ............................. (3,278) (3,014)
Dividends paid .......................................... (1,491) (1,363)
Payments on long-term debt .............................. (25,162) (1,223)
Increase in long-term debt .............................. -- 3,672
Increase in FHLB advances ............................... 7,500 --
Proceeds from issuance of senior debentures, net of
issuance cost ....................................... 22,242 --
--------- ---------
Net cash used in financing activities ................... (55,737) (666)
--------- ---------
Net increase (decrease) in cash and cash equivalents .... (8,632) 23,326
Cash and cash equivalents at beginning of period ........ 39,641 23,297
--------- ---------
Cash and cash equivalents at end of period .............. $ 31,009 $ 46,623
========= =========
Cash paid during the period for:
Interest ............................................ $ 16,455 $ 13,629
Income taxes ........................................ $ -- $ 850
Non-cash investing activities:
- During the three months ended March 31, 1996 and 1995, the Company
incurred charge-offs on portfolio loans of $121,000 and $251,000,
respectively.
- During the three months ended March 31, 1996, the Company securitized
residential real estate portfolio loans into investment securities
available-for-sale of $40.9 million.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MORTGAGE BANKING
During the first quarter of 1996, the Company closed $855 million in
single-family, owner occupied, residential mortgage loans, compared to $392
million closed during the first quarter of 1995. The overall increase in
mortgage loan closings for the quarter, compared to the same period in 1995,
is due to a lower interest rate environment and the impact of the Company's
acquisition of RSL Mortgage.
The increase in mortgage loan volume resulted in an increase in mortgage
banking income of $4.0 million, from $15.4 million in the first quarter of
1995, to $19.4 million in 1996. This increase was primarily due to a higher
level of origination fee income and increased gains on the sale of mortgages.
A breakdown of income from mortgage banking activities is summarized as
follows:
Three Months Ended
March 31,
---------------------
(Dollars in thousands) 1996 1995
---- ----
Net mortgage loan servicing fees............ $ 2,017 $ 2,731
Origination fee income...................... 7,587 4,089
Gain on sale of mortgages................... 2,679 1,154
Gain on sale of servicing................... 7,161 7,380
------- -------
Total mortgage banking income.......... $19,444 $15,354
======= =======
The majority of the Company's residential mortgage production during 1996 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 of 1996, the Company's gain
on sale of mortgages totaled $2.7 million, compared to $1.2 million for the
same period in 1995. The increase in the gain on sale of mortgages was due to
the higher levels of mortgage loan closings for the first quarter of 1996
compared to the prior year, and a slight improvement in margins.
During the first quarters of 1996 and 1995, the Company sold both purchased
and originated mortgage servicing rights on loans with principal balances of
$632 million and $1.6 billion, respectively, resulting in gains of $7.2
million and $7.4 million, respectively.
The remainder of the Management's Discussion and Analysis provides various
disclosures relating principally to the commercial banking segment.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income totaled $8.1 million for the first quarter of 1996,
compared to $7.8 million for the same period in 1995. The increase in net
interest income was comprised of an increase in interest income which was
partially offset by an increase in interest expense. The increases in both
interest income and interest expense were due primarily to higher average
balances, especially in mortgage loans held for sale and time deposits. The
mix in interest bearing liabilities shifted to a higher percentage of time
deposits, which had a significant increase in average rates paid in 1996
compared to 1995. The net interest margin for the first quarter decreased to
2.52%, from 2.54% for the same period in 1995.
During the first quarter of 1996, average earning balances increased by $65
million, or 5.3%, to $1.288 billion, from $1.223 billion during the 1995 first
quarter. Also impacting interest income growth was an increase in the yield on
interest earning assets to 7.50% during the quarter, from 7.37% during the
first quarter of 1995. The most significant contributor to the increase in
interest income on earning assets was a $249 million increase in average
mortgage loans held for sale. The increase in loans held for sale was funded
by a decrease in investment securities, additional time deposits and FHLB
advances.
The cost of funding assets in the first quarter of 1996 increased to 5.56%,
from 5.33% in the first quarter of 1995. The average balance of interest
bearing liabilities increased by $48 million, or 4.3%, to $1.155 billion, from
$1.107 billion during the 1995 first quarter. Time deposits represented the
largest growth category, increasing by $65 million, with the average rate paid
increasing by 69 basis points.
The following tables present an analysis of average balances and rates for the
three month periods ended March 31, 1996 and 1995:
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
------------------------------------- ---------------------------------------
Average Average Average Average
(Dollars in thousands) Balance(1) Interest Rate Balance(1) Interest Rate
--------- -------- ------- --------- -------- -------
AVERAGE ASSETS:
Money market investments ........... $ 20,453 $ 268 5.24% $ 6,745 $ 96 5.69%
Mortgage loans held for sale ....... 370,906 6,927 7.47 122,090 2,604 8.53
Securities ......................... 314,789 4,820 6.12 454,039 6,885 6.07
Commercial loans ................... 141,215 3,382 9.58 101,108 2,473 9.78
Real estate mortgage loans ......... 374,268 7,131 7.62 488,761 9,198 7.53
Installment loans .................. 66,281 1,634 9.86 50,685 1,284 10.13
------------- ------------- ------------- ------------- ------------- -------------
Total loans, net of
unearned income .............. 581,764 12,147 8.35 640,554 12,955 8.09
------------- ------------- ------------- ------------- ------------- -------------
Total interest earning assets .. 1,287,912 24,162 7.50 1,223,428 22,540 7.37
------------- ------------- ------------- -------------
Allowance for loan losses .......... (4,950) (5,578)
Cash and due from banks ............ 22,492 24,837
Other assets ....................... 122,863 131,329
------------- -------------
Total assets ................... $ 1,428,317 $ 1,374,016
============= =============
AVERAGE LIABILITIES AND
SHAREHOLDERS' EQUITY:
Deposits:
Interest bearing demand deposits $ 60,202 351 2.33 $ 68,103 435 2.55
Savings deposits ............... 195,783 1,874 3.83 183,240 1,699 3.71
Time deposits .................. 547,212 8,214 6.00 482,093 6,405 5.31
------------- ------------- ------------- ------------- ------------- -------------
Total interest bearing
deposits ................. 803,197 10,439 5.20 733,436 8,539 4.66
Warehousing lines of credit ........ 87,612 1,501 6.85 36,788 733 7.97
Other short-term borrowings ........ 123,711 1,806 5.84 242,778 3,699 6.09
FHLB advances ...................... 84,715 1,246 5.88 37,361 585 6.26
Long-term debt ..................... 55,486 1,069 7.71 56,787 1,208 8.51
------------- ------------- ------------- ------------- ------------- -------------
Total interest bearing
liabilities .................. 1,154,721 16,061 5.56 1,107,150 14,764 5.33
------------- ------------- ------------- -------------
Non-interest bearing deposits ...... 124,024 115,253
Other liabilities .................. 23,699 34,175
------------- -------------
Total liabilities .............. 1,302,444 1,256,578
------------- -------------
Shareholders' equity ............... 125,873 117,438
------------- -------------
Total liabilities and
shareholders' equity ......... $ 1,428,317 $ 1,374,016
============= =============
Net interest income ................ $ 8,101 $ 7,776
============= =============
Net interest spread ................ 1.94% 2.04%
============= =============
Net interest margin ................ 2.52% 2.54%
============= =============
<FN>
(1) Non-accrual loans and overdrafts are included in average balances. The
amount of tax-exempt income earned by the Company was not material during
1996 or 1995.
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 presents 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,
1996 versus 1995
Inc/(Dec) Due to Change in:
---------------------------------
Average Average Net
(Dollars in thousands) Balance(1) Rate(1) Change
--------- -------- -------
Interest income:
Money market investments ........... $ 180 $ (8) $ 172
Mortgage loans held for sale ....... 4,685 (362) 4,323
Securities ......................... (2,132) 67 (2,065)
Loans, net of unearned income (2) .. (1,217) 409 (808)
------- ------- -------
Total interest income .......... 1,516 106 1,622
------- ------- -------
Interest expense:
Interest bearing demand deposits ... (48) (36) (84)
Savings deposits ................... 119 56 175
Time deposits ...................... 922 887 1,809
------- ------- -------
Total interest bearing deposits 993 907 1,900
Warehousing lines of credit ........ 883 (115) 768
Other short-term borrowings ........ (1,744) (149) (1,893)
FHLB advances ...................... 699 (38) 661
Long-term debt ..................... (27) (112) (139)
------- ------- -------
Total interest expense ......... 804 493 1,297
------- ------- -------
Net interest income ............ $ 712 $ (387) $ 325
======= ======= =======
<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 for the first quarter of 1996 was $24.2 million, compared
with $17.2 million for the same period in 1995. Salaries and employee benefits
are the largest portion of non-interest expense, totaling $15.7 million and
$9.5 million for the first quarters of 1996 and 1995, respectively. This
increase was primarily due to higher commissions and incentives paid on the
higher levels of mortgage originations.
EXTRAORDINARY ITEM
The company incurred a one-time, after-tax charge of $388,000 for unamortized
debt issuance costs associated with the early redemption of the Company's
$17.25 million, 9% Subordinated Notes. See the section entitled "Long-Term
Debt" for further discussion.
FINANCIAL CONDITION
ASSETS
Total assets at March 31, 1996 were $1.44 billion, which represents a decrease
of $37 million from $1.47 billion at December 31, 1995. The decrease in assets
since December 31, 1995 was primarily in portfolio mortgage loans, partially
offset by an increase in commercial loans. The increase in commercial loans
was largely a result of an increase in commercial and Small Business
Administration (SBA) closings for the quarter ended March 31, 1996.
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 mortgage-backed securities and collateralized mortgage obligations. The
maturity structure of the portfolio is generally short-term, with an estimated
average maturity of less than three years, or at adjustable rates. The
securities portfolio constitutes 21.6% of the Company's assets at March 31,
1996, the same proportion as that of December 31, 1995. The $7.9 million
decrease in the securities portfolio is primarily a result of selling
securities to provide liquidity to fund higher interest earning asset
balances, mainly in the form of commercial loans.
Certain securities, with a carrying value of approximately $121.4 million and
$164.3 million at March 31, 1996 and December 31, 1995, respectively, were
pledged to secure reverse repurchase agreements, Federal Home Loan Bank (FHLB)
advances, and other deposits as required by law.
Securities are accounted for in accordance with Statement of Financial
Accounting Standards, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). 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 following is a summary of available-for-sale securities as of March 31,
1996:
Available-for-Sale Securities
----------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
(Dollars in thousands)
U.S. Treasury obligations ......... $ 12,332 -- $ 24 $ 12,308
U.S. Government agency obligations 38,838 $ 38 137 38,739
Mortgage-backed securities ........ 113,007 104 847 112,264
Collateralized mortgage obligations 97,460 10 1,770 95,700
Municipal and other securities .... 32,500 10 638 31,872
-------- -------- -------- --------
Total Debt Securities ............. 294,137 162 3,416 290,883
Equity securities ................. 19,736 -- 742 18,994
-------- -------- -------- --------
Total Securities Available-for-Sale $313,873 $ 162 $ 4,158 $309,877
======== ======== ======== ========
The gross realized gains and losses on sales of available-for-sale securities
totaled $437,000 and $2,000, respectively, for the quarter ended March 31,
1996.
LOANS
Total loans, excluding loans held for sale, at March 31, 1996 decreased by
$14.0 million to $564.1 million, from $578.1 million at December 31, 1995.
Residential real estate loans decreased by $34.3 million, to 61.6% of total
loans at March 31, 1996, from 66.0% at December 31, 1995. Commercial loans,
including those secured by real estate, increased to $150.2 million, or 26.6%,
of total loans at March 31, 1996. The increase was due to an emphasis by the
Company on the origination of high quality commercial credits. Mortgage loans
held for sale decreased to $415.2 million at March 31, 1996, from $423.4
million at December 31, 1995.
During the first quarter of 1996, the Company closed $3.1 million of SBA
loans. The Company sold $2.5 million of SBA loans during the first three
months of the year, resulting in gains of $220,000.
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, 1996, these loans comprised 81.8% of the
total loan portfolio, excluding loans held for sale. The Company's general
policy is to originate conventional residential 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), Federal National Mortgage Association (FNMA) or
Government National Mortgage Association (GNMA).
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. The Company has not
emphasized installment loans and 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,
1996 1995
---------------------- ---------------------
(Dollars in thousands) Amount Percent Amount Percent
------ ------- ------ -------
Commercial loans:
Secured by real estate ...... $113,921 20.2% $108,108 18.7%
Other (generally secured) ... 36,328 6.4 24,325 4.2
-------- ----- -------- -----
Total commercial loans .. 150,249 26.6 132,433 22.9
Residential real estate mortgages 347,498 61.6 381,803 66.0
Installment loans ............... 66,306 11.8 63,876 11.1
-------- ----- -------- -----
Total portfolio loans ... $564,053 100.0% $578,112 100.0%
======== ===== ======== =====
At March 31, 1996, the Company had commitments to fund residential real estate
loans of $177.4 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
$415.2 million, the Company had firm commitments to sell forward $548.7
million of residential real estate loans. These commitments to sell forward,
which are expected to settle in the second quarter of 1996, will not produce
any material gain or loss.
NON-PERFORMING ASSETS
Loans held in portfolio 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:
March 31, Dec. 31, March 31,
1996 1995 1995
(Dollars in thousands) -------- -------- --------
Loans past due 90 days or more and still
accruing interest:
Commercial .......................... $ 129 $ 209 $ 56
Residential real estate mortgages ... 239 42 128
Installment ......................... 62 94 66
------ ------ ------
Total ........................... $ 430 $ 345 $ 250
====== ====== ======
Non-accrual loans:
Commercial .......................... $1,358 $ 500 $ 834
Residential real estate mortgages ... 1,399 661 810
Installment ......................... 290 131 114
------ ------ ------
Total ........................... 3,047 1,292 1,758
Restructured loans .................. 587 688 1,123
Other real estate owned ............. 985 980 593
------ ------ ------
Total non-performing assets ..... $4,619 $2,960 $3,474
====== ====== ======
Non-performing assets as a percentage of:
Total portfolio loans and OREO (1) .. 0.82% 0.51% 0.55%
Total loans and OREO (2) ............ 0.47% 0.30% 0.45%
Total assets ........................ 0.32% 0.20% 0.25%
<FN>
(1) Excluding mortgage loans held for sale.
(2) Including mortgage loans held for sale.
At March 31, 1996, approximately $7.2 million, or 1.2% 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 loan 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.
As of March 31, 1996, the allowance for estimated loan losses was $5.0
million, or .89%, of total loans, excluding mortgage loans held for sale,
compared with $5.0 million, or .87%, as of December 31, 1995. The allowance
for estimated loan losses as a percentage of non-performing loans was 137% at
March 31, 1996, versus 253% at December 31, 1995.
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,
------------------
(Dollars in thousands) 1996 1995
---- ----
Allowance for estimated loan losses:
Balance at January 1 ......................... $ 5,002 $ 5,544
Loans charged off ........................ (121) (251)
Recoveries of loans previously charged off 46 85
------- -------
Net charge-offs .............................. (75) (166)
Provision charged to expense ................. 65 12
------- -------
Balance at March 31 .......................... $ 4,992 $ 5,390
======= =======
LIABILITIES
DEPOSITS
Non-interest bearing deposits increased by $12.6 million, or 10.0%, from
$126.4 million at December 31, 1995, to $139.0 million at March 31, 1996. The
primary reason for this was an increase in mortgage escrow balances of $10.9
million. Interest bearing deposits increased by $37.7 million, or 4.8% , from
$778.3 million at December 31, 1995, to $816.0 million at March 31, 1996.
SHORT-TERM BORROWINGS
As of March 31, 1996, the Company had $107.5 million of securities sold under
agreements to repurchase, at an average rate for the quarter of 5.52%. Such
agreements, which have stated maturities of 30 days to two years are secured
by certain securities with a carrying value of $110.4 million. The proceeds
from the reverse repurchase agreements are used to fund mortgage loans held
for sale.
On May 22, 1995, Market Street entered into a $75 million warehousing line of
credit agreement with Residential Funding Corporation used for the purpose of
funding the purchase or origination of mortgage loans by Market Street. The
line of credit, which is payable on demand, is secured by various real estate
mortgage loans and expires August 31, 1996. Market Street is required to pay
interest on the unpaid principal amount of each advance at 1.50% above the
monthly average LIBOR rate. There were no borrowings under this warehousing
line of credit at March 31, 1996. During the first quarter of 1996, the
average borrowing and interest rate paid on this warehousing line were $39.5
million and 6.82%, respectively.
Republic Mortgage has a $25 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 July, 1996. Republic
Mortgage is required to pay interest on the unpaid principal amount of each
advance in a range of federal funds sold plus 1.0%, to Wall Street Journal
Prime, based on the document status of each loan as applicable to such
advance. There were no borrowings under this warehousing line of credit at
March 31, 1996. During the first quarter of 1996, the average borrowing and
interest rate paid on this line were $13.0 million and 7.11%, respectively.
15
In August, 1995, Republic Mortgage entered into a revolving repurchase
agreement with Paine Webber, as a source of funding for mortgage loan
originations. Security for the agreement includes various real estate mortgage
notes, and expires at the option of either party. Interest is calculated at
LIBOR plus .90%. Borrowings under this agreement at March 31, 1996, were
$92,000. The average borrowing and interest rate paid on this agreement for
the first quarter of 1996 were $628,000 and 6.40%, respectively.
CUB Funding has a $16 million warehousing line of credit agreement with
Prudential Home Mortgage Company, used for funding the purchase or origination
of mortgage loans by CUB Funding. Interest is payable monthly and is computed
based upon the 30-day commercial paper index plus various indexes ranging from
1.00% to 2.75%, based on the document status of each loan. Borrowings under
this line of credit were $10.3 million at March 31, 1996. During the first
quarter of 1996, the average interest rate was 6.70% and the average balance
outstanding was $16.7 million. The line of credit, which is payable on demand,
is secured by various real estate mortgage loans and expires in May, 1996.
In May 1995, CUB Funding entered into a $4 million mortgage servicing
acquisition line of credit with Prudential Home Mortgage Company used for the
acquisition of mortgage servicing rights. Interest is calculated based on the
30-day commercial paper index plus 2.75%. At March 31, 1996, there were no
amounts outstanding under this line of credit. The line of credit expires in
May, 1996.
In March 1995, CUB Funding entered into a revolving repurchase agreement with
Paine Webber Inc. as a funding source for mortgage loan originations. Security
for this borrowing agreement includes various real estate mortgage notes and
expires at the option of either party. Interest is calculated at various rates
depending on loan document status and ranges from federal funds plus .60% to
30-day LIBOR plus .90% to 1.75%. There were no borrowings under this agreement
at March 31, 1996. During the first quarter of 1996, the average borrowing and
interest rate paid for this agreement were $15.1 million and 6.64%,
respectively.
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, 1996, no amounts were outstanding under this
line of credit. During the first quarter of 1996, the average borrowing and
interest rate paid for this credit line were $3.5 million and 5.45%,
respectively.
FHLB ADVANCES
Republic Bank and Republic Savings routinely borrow short-term and long-term
advances from the FHLB to provide liquidity for mortgage loan originations. As
of March 31, 1996, total short-term advances were $59.5 million. Long-term
advances at March 31, 1996 totaled $33.5 million, with maturity dates ranging
from 15 months to 5 years. These advances are generally secured by first
mortgage loans or securities equal to at least 160% of the advances under a
blanket security agreement. Interest is payable monthly for all advances, and
principal is due in a lump sum at the maturity date of each advance.
LONG-TERM DEBT
Republic Mortgage has a mortgage loan in the amount of $1.86 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, 1996, $98,000 of the total $1.86 million is classified as short-term
borrowings.
16
On January 29, 1996, the Company completed a private offering of 6.87%, $22.5
million Senior Debentures, with $9.0 million maturing in 2001 and $13.5
million maturing in 2003. A portion of the proceeds were used to redeem the
Company's existing 9%, $17.25 million Subordinated Notes. The Company incurred
an extraordinary charge of $388,000, net of tax, in connection with the
redemption, due to the write-off of the remaining debt issuance costs. Republic
also has $25 million of 7.17% Senior Debentures which mature April 2001, with
interest on the notes payable semiannually.
CAPITAL RESOURCES
Total shareholders' equity at March 31, 1996 was $123.3 million, compared with
$126.4 million at December 31, 1995. The decrease of $3.1 million during the
first quarter of 1996 was primarily due to the repurchase of 291,000 of the
Company's common shares under the stock repurchase program.
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies. At March 31, 1996, Republic's Tier 1 Risk-Based Capital and
Total Risk-Based Capital Ratios were 15.01% and 15.64%, respectively, versus
15.72% and 18.63%, respectively at December 31, 1995. The reason for the
decrease in the Total Risk-Based Capital Ratio is that the Company's 9% $17.25
million Subordinated Notes redeemed during the quarter qualified as
Tier 2 capital. These ratios exceed minimum guidelines prescribed by
regulatory agencies. As of March 31, 1996, total risk-based capital was $123.5
million, an excess of $60.3 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 Leverage ratio at
March 31, 1996 was 8.34%, versus 8.31% at December 31, 1995.
The Company is committed to maintaining a strong capital position. As of March
31, 1996, Republic Bank and Republic Savings' Total Risk-Based Capital Ratio
and Tier 1 Risk-Based Capital 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.
ACCOUNTING DEVELOPMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock-Based Compensation." The statement encourages, but does
not require, establishment of a fair value based method of accounting for
stock-based compensation plans. The Company has elected to retain the
accounting treatment prescribed by APB Opinion 25, "Accounting for Stock
Issued to Employees." SFAS 123 mandates certain disclosures, regardless of the
method used to account for stock-based employee compensation. These required
disclosures will be effective for the Company's December 31, 1996 financial
statements.
17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are parties to certain ordinary
routine litigation incidental to its business. In the opinion of
management, liabilities arising from such litigation would not have
a material effect on the Company's consolidated financial
statements.
Item 2. Changes in Securities
At its February 16, 1996 meeting, the Board of Directors declared a
quarterly cash dividend of $0.10 per share on common stock, payable
on April 5, 1996 to shareholders of record on March 8, 1996.
Item 3. Defaults upon Senior Securities
Not applicable
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. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Statement RE: Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
During the interim period covered by this report, there were
no reports filed by the Company on Form 8-K.
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 15, 1996 BY: /S/ THOMAS F. MENACHER
-----------------------
Thomas F. Menacher
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)