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 June 30, 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 July 31, 1996:
Common Stock, $5 Par Value ........................... 15,886,818 Shares
INDEX
PART I.....FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995 ..................................... 3
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1996 and 1995........................ 4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1996 and 1995........................ 5
Notes to Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 7 - 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 18
Item 2. Changes in Securities..................................... 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
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, Dec. 31,
(Dollars in thousands) 1996 1995
------- --------
ASSETS
Cash and due from banks............................ $ 35,977 $ 39,641
Mortgage loans held-for-sale....................... 376,820 423,364
Securities available-for-sale (amortized cost of
$331,635 and $319,865, respectively)............ 325,235 317,769
Loans.............................................. 619,352 578,112
Less allowance for loan losses.................. (4,796) (5,002)
---------- ----------
Net loans.......................................... 614,556 573,110
---------- ----------
Premises and equipment, net of depreciation........ 14,264 14,724
Mortgage servicing rights.......................... 51,228 58,265
Other assets....................................... 50,217 45,817
---------- ----------
Total assets................................. $1,468,297 $1,472,690
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing............................. $ 139,499 $ 126,427
Interest-bearing................................ 784,706 778,302
---------- ----------
Total deposits............................... 924,205 904,729
Federal funds purchased and securities sold under
agreements to repurchase........................ 204,216 134,237
Other short-term borrowings........................ 103 129,214
FHLB advances...................................... 108,000 80,500
Accrued expenses and other liabilities............. 61,275 44,806
Long-term debt..................................... 49,261 51,928
---------- ----------
Total liabilities............................ 1,347,060 1,345,414
---------- ----------
Minority interest.................................. 1,093 900
---------- ----------
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; 15,936,493 and 16,477,981 shares
issued and outstanding, respectively............ 79,683 82,390
Capital surplus.................................... 38,916 43,177
Market value adjustment on securities
available-for-sale, net......................... (4,160) (1,363)
Retained earnings.................................. 5,705 2,172
---------- ----------
Total shareholders' equity................... 120,144 126,376
---------- ----------
Total liabilities and shareholders' equity... $1,468,297 $1,472,690
========== ==========
<FN>
See notes to consolidated financial statements.
3
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(In thousands, except per share data) 1996 1995 1996 1995
- ------------------------------------- ---- ---- ---- ----
Interest Income:
Loans, including fees....................... $19,322 $16,529 $38,396 $32,078
Securities held-to-maturity................. -- 4,049 -- 8,084
Securities available-for-sale............... 4,852 2,462 9,672 5,316
Money market investments.................... 42 369 310 471
------- ------- ------- -------
Total interest income............... 24,216 23,409 48,378 45,949
------- ------- ------- -------
Interest Expense:
Demand deposits............................. 347 399 698 834
Savings and time deposits................... 9,884 9,424 19,972 17,528
Short-term borrowings....................... 2,844 4,320 6,151 8,753
FHLB advances............................... 1,372 280 2,618 866
Long-term debt.............................. 892 1,450 1,961 2,656
------- ------- ------- -------
Total interest expense.............. 15,339 15,873 31,400 30,637
------- ------- ------- -------
Net interest income......................... 8,877 7,536 16,978 15,312
Provision for loan losses................... 45 12 110 24
------- ------- ------- -------
Net interest income after provision
for loan losses.......................... 8,832 7,524 16,868 15,288
------- ------- ------- -------
Noninterest Income:
Service charges............................. 287 322 606 625
Mortgage banking............................ 21,939 17,648 41,383 33,002
Gain (loss) on sale of securities........... (7) 8 428 (82)
Gain on sale of SBA loans................... 255 369 475 599
Other....................................... 291 306 536 539
------- ------- ------- -------
Total noninterest income............ 22,765 18,653 43,248 34,683
------- ------- ------- -------
Noninterest Expense:
Salaries and employee benefits.............. 9,680 6,898 19,852 13,942
Mortgage loan commissions................... 6,207 4,486 11,753 6,922
Occupancy expense of premises............... 1,485 1,266 2,936 2,546
Equipment expense........................... 1,145 1,047 2,315 2,099
Other operating expense..................... 6,556 5,885 12,419 11,040
Minority interest........................... 207 330 193 528
------- ------- ------- -------
Total noninterest expense........... 25,280 19,912 49,468 37,077
------- ------- ------- -------
Income before income taxes and
extraordinary item....................... 6,317 6,265 10,828 12,894
Provision for income taxes.................. 2,171 2,340 3,667 4,764
------- ------- ------- -------
Income before extraordinary item............ 4,146 3,925 7,161 8,130
Extraordinary item (early redemption
of debt, net of tax)..................... -- -- (388) --
------- ------- ------ -------
Net Income.................................. $ 4,146 $ 3,925 $ 6,773 $ 8,130
======= ======= ======= =======
Income per common share before
extraordinary item....................... $ .25 $ .23 $ .43 $ .48
Extraordinary item.......................... -- -- (.02) --
------- ------- ------ -------
Net income per common share - primary
and fully diluted........................ $ .25 $ .23 $ .41 $ .48
======= ======= ======= =======
Average common shares outstanding -
fully diluted........................... 16,553 16,909 16,669 16,984
======= ======= ======= =======
Cash dividends declared per common share.... $ .10 $ .08 $ .20 $ .16
======= ======= ======= =======
<FN>
See notes to consolidated financial statements.
4
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30 (In thousands) 1996 1995
- ---------------------------------------- ---- ----
Cash Flows From Operating Activities:
Net income................................................... $ 6,773 $ 8,130
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization.......................... 2,716 2,523
Amortization of mortgage servicing rights.............. 4,279 3,465
Net (gains) losses on sale of securities
available-for-sale.................................. (428) 82
Net gains on sale of mortgage servicing rights......... (15,747) (14,287)
Net gains on sale of loans............................. (2,390) (867)
Origination of mortgage loans held-for-sale............ (1,718,181) (961,326)
Proceeds from sales of mortgage loans held-for-sale.... 1,764,724 798,454
Increase in other assets............................... (1,111) (8,369)
Increase in other liabilities.......................... 16,469 8,250
Other, net............................................. (729) (1,336)
----------- ---------
Total adjustments.................................... 49,602 (173,411)
----------- ---------
Net cash provided by (used in) operating
activities................................... 56,375 (165,281)
----------- ---------
Cash Flows From Investing Activities:
Proceeds from sale of securities available-for-sale.......... 71,492 49,777
Proceeds from maturities/prepayments of securities
available-for-sale....................................... 16,084 6,257
Purchases of securities available-for-sale................... (99,361) (14,959)
Proceeds from maturities/prepayments of securities
held-to-maturity......................................... -- 13,310
Proceeds from sale of loans.................................. 75,598 156,034
Net increase in loans made to customers...................... (113,853) (112,454)
Proceeds from sale of mortgage servicing rights.............. 20,994 33,052
Additions to mortgage servicing rights....................... (6,464) (13,694)
----------- ---------
Net cash provided by (used in)
investing activities......................... (35,510) 117,323
----------- ---------
Cash Flows From Financing Activities:
Net increase in deposits..................................... 19,476 79,331
Purchase of bank branch deposits............................. -- 20,497
Net decrease in short-term borrowings........................ (59,132) (10,908)
Net increase (decrease) in short-term FHLB advances.......... 19,000 (44,950)
Increase in long-term FHLB advances.......................... 8,500 10,000
Increase in long-term debt................................... -- 15,702
Proceeds from issuance of senior debentures, net of
issuance costs............................................ 22,233 --
Payments on long-term debt................................... (24,900) (5,374)
Net proceeds from issuance of common shares.................. 553 117
Repurchase of common shares.................................. (7,138) (3,914)
Dividends paid............................................... (3,121) (2,706)
----------- ---------
Net cash provided by (used in) financing
activities................................... (24,529) 57,795
----------- ---------
Net increase (decrease) in cash and cash equivalents......... (3,664) 9,837
Cash and cash equivalents at beginning of period............. 39,641 23,297
----------- ---------
Cash and cash equivalents at end of period................... $ 35,977 $ 33,134
=========== =========
<FN>
See notes to consolidated financial statements.
5
REPUBLIC BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements of Republic
Bancorp Inc. and Subsidiaries (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes necessary for a comprehensive presentation of financial position,
results of operations and cash flow activity required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all normal recurring adjustments necessary for a fair presentation
of results have been included. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
Certain amounts in prior periods have been reclassified to conform to the
current year's presentation.
Note 2 - Principles of Consolidation
The consolidated financial statements include the accounts of Republic Bancorp
Inc.; two wholly-owned subsidiaries, Republic Bank and Republic Savings Bank
("Republic Savings"); and Market Street Mortgage Corporation ("Market
Street"), of which the Company owns an 80% majority interest. Republic Bank
operates a wholly-owned subsidiary, Republic Bancorp Mortgage Inc. ("Republic
Mortgage"), and its division, Home Funding, Inc. Republic Bank also owns an
80% majority interest in CUB Funding Corporation ("CUB Funding") which
operates two divisions, RSL Mortgage and Leader Financial. All material
intercompany transactions and balances have been eliminated in consolidation.
Note 3 - Consolidated Statements of Cash Flows
Supplemental disclosures of cash flow information for the six months ended
June 30, include:
(In thousands) 1996 1995
- -------------- ---- ----
Cash paid during the period for:
Interest........................................ $33,040 $30,785
Income taxes.................................... $ 3,205 $ 3,900
Non-cash investing activities:
Portfolio loan charge-offs...................... $ 381 $ 691
Securitization of residential real
estate portfolio loans into
investment securities available-for-sale.... $25,000 $48,000
6
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
EARNINGS PERFORMANCE
The Company reported net income of $4.1 million for the quarter ended June 30,
1996, a 6% increase over the $3.9 million earned in the second quarter of
1995. Fully diluted earnings per share were $.25, an increase of 9% from $.23
in the second quarter of 1995. Return on equity was 13.56% and return on
average assets was 1.13% for the second quarter of 1996, compared to 13.01%
and 1.12%, respectively, a year ago.
For the six months ended June 30, 1996, the Company earned $7.2 million before
extraordinary item, a decrease of $969,000 from $8.1 million reported in the
comparable period of 1995. Fully diluted earnings per share before
extraordinary item were $.43 for the first half of 1996, compared to $.48
reported for the same period in 1995. Return on equity was 11.53% and return
on average assets was 1.00% for the first six months of 1996, compared to
13.66% and 1.17%, respectively, in 1995.
RESULTS OF OPERATIONS
Mortgage Banking
The following discussion provides information that relates specifically to the
Company's mortgage banking segment.
During the second quarter of 1996, the Company closed $936 million in 1-4
family residential mortgage loans, an increase of 45% compared to $647
million closed during the second quarter of 1995. For the six months ended
June 30, 1996 and 1995, residential mortgage loan closings totaled $1.8
billion and $1.0 billion, respectively. The increase in mortgage loan closings
is primarily attributable to a lower interest rate environment and the
acquisitions of RSL Mortgage and Leader Financial.
The increase in mortgage loan volumes resulted in an increase in mortgage
banking income of $4.3 million, or 24%, for the second quarter of 1996 and
$8.4 million, or 25%, for the six months ended June 30, 1996. The increase in
mortgage banking income was primarily due to higher levels of origination fee
income and increased gains on the sale of mortgages and mortgage servicing
rights in 1996 compared to 1995. The following table presents a summary of
income from mortgage banking activities:
Three Months Ended Six Months Ended
June 30, June 30,
----------------- ------------------
(In thousands) 1996 1995 1996 1995
- -------------- ---- ---- ---- ----
Net mortgage loan servicing fees... $ 2,082 $ 2,456 $ 4,099 $ 5,187
Origination fee income............. 9,048 6,608 16,635 10,697
Gain on sale of mortgages.......... 2,223 1,677 4,902 2,831
Gain on sale of servicing.......... 8,586 6,907 15,747 14,287
------- ------- ------- -------
Total mortgage banking income.. $21,939 $17,648 $41,383 $33,002
======= ======= ======= =======
At June 30, 1996 and 1995, the Company's mortgage loan servicing portfolio
totaled $3.3 billion and $3.1 billion, respectively. Net mortgage loan
servicing fees decreased for the quarter and first half of 1996, compared
to the corresponding periods in 1995, due to a reduction in the average size
of the mortgage loan servicing portfolio in 1996 and an increase in the
amortization of mortgage servicing rights.
7
The majority of the Company's residential mortgage production in 1996
continues to be long-term fixed rate mortgages. Typically, the Company sells
all of its long-term fixed rate mortgages and a significant portion of
variable rate mortgages to the secondary market. Gains on the sale of such
mortgages in the second quarter of 1996 totaled $2.2 million, an increase of
33% from the same period a year earlier. On a year-to-date basis, the Company
recognized $4.9 million in gains on the sale of mortgages, representing a 73%
increase over the prior year six-month period.
For the second quarter of 1996, the sale of purchased and originated mortgage
servicing rights (PMSRs and OMSRs) on loans with principal balances of $1.1
billion resulted in gains totaling $8.6 million, an increase of $1.7 million,
or 24%, from the $6.9 million earned a year earlier on the sale of PMSRs and
OMSRs associated with $1.2 billion in mortgage loans. For the six months ended
June 30, 1996 and 1995, the Company sold PMSRs and OMSRs on loans with
principal balances of $1.9 billion and $2.9 billion, respectively, resulting
in gains of $15.7 million and $14.3 million, respectively.
The remainder of the Management's Discussion and Analysis provides various
disclosures and analyses relating principally to the commercial banking
segment.
Net Interest Income
The following discussion should be read in conjunction with Tables I and II,
which provide detailed analyses of the components impacting net interest
income for the quarters and six months ended June 30, 1996 and 1995.
Net interest income, on a fully taxable equivalent (FTE) basis, was $9.1
million for the quarter ended June 30, 1996, an increase of $1.6 million, or
21%, from $7.5 million for the second quarter of 1995. The net interest margin
(FTE) for the second quarter was 2.82%, compared to 2.41% for the
corresponding period in 1995.
Average earning assets increased $38 million, or 3%, to $1.29 billion in the
second quarter of 1996 from $1.25 billion in the second quarter of 1995,
primarily due to strong growth in mortgage loans held-for-sale. Average
mortgage loans held-for-sale rose $200 million to $378 million for the quarter
ended June 30, 1996 from $178 million a year earlier as mortgage loan
production efforts were positively impacted by a declining interest rate
environment. This growth was partially funded by declines in the average
balances of investment securities and real estate mortgage loans of $102
million and $101 million, respectively. Average commercial loans increased $49
million, or 46%, to $156 million for the second quarter of 1996 from $107
million for the same period in 1995, reflecting management's efforts to expand
the Company's commercial lending programs. Average installment loans rose $16
million, or 29%, to $70 million from $54 million a year ago, as home equity
lending volumes improved. Improvement in the margin was partially the result
of a 10 basis-point increase in the yield on average interest-earning assets
to 7.57% from 7.47%. The primary reason for the increase in yield and interest
income was a shift in the mix of earning assets toward balances with higher
average rates, particularly mortgage loans held-for-sale, commercial loans and
installment loans.
Average interest-bearing liabilities rose 2%, or $27 million, to $1.13
billion. This increase, mainly the result of a $38 million increase in average
interest-bearing deposits, was partially offset by an $11 million decline in
the average balance of relatively more expensive short and long-term
borrowings. Average long-term debt declined $13 million, principally due to
repayments of term loan agreements during the second half of 1995 and the
first quarter of 1996. Average warehousing lines of credit decreased $55
million due to the Company's elimination of the warehousing lines of credit at
the mortgage companies. All of the Company's mortgage loan originations are
now funded with deposits, Federal Home Loan Bank (FHLB) advances and
short-term borrowings from Republic Bank and Republic Savings Bank. As a
result, average FHLB borrowings increased $76 million in the second quarter
of 1996, compared to the same period in 1995. The net interest margin
benefited from a 32 basis-point
8
Table I - Quarterly Net Interest Income and Rate/Volume Analysis (FTE)
Three Months Ended Three Months Ended
June 30, 1996 June 30, 1995
--------------------------------- ---------------------------------
Average Average Average Average
(Dollars in thousands) Balance(1) Interest Rate Balance(1) Interest Rate
- ---------------------- ---------- -------- ------- ---------- -------- -------
Assets:
Money market investments................. $ 3,176 $ 42 5.29% $ 26,555 $ 369 5.56%
Mortgage loans held for sale............. 377,986 7,163 7.58 178,162 3,742 8.40
Securities............................... 320,663 5,063 6.32 422,901 6,511 6.16
Commercial loans......................... 155,738 3,597 9.24 106,749 2,625 9.84
Real estate mortgage loans............... 363,834 6,807 7.48 464,570 8,736 7.52
Installment loans........................ 69,542 1,755 10.09 53,807 1,426 10.60
---------- ------- ----- ---------- ------- -----
Loans, net of unearned income......... 589,114 12,161 8.25 625,126 12,787 8.18
---------- ------- ----- ---------- ------- -----
Total interest earning assets...... 1,290,939 24,427 7.57 1,252,744 23,409 7.47
Allowance for loan losses................ (4,903) (5,401)
Cash and due from banks.................. 27,583 23,992
Other assets............................. 156,972 130,114
---------- ----------
Total assets....................... $1,470,591 $1,401,449
========== ==========
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits......... $ 59,042 347 2.35 $ 63,682 399 2.51
Savings deposits......................... 212,893 2,164 4.07 175,442 1,656 3.78
Time deposits............................ 526,808 7,720 5.86 521,799 7,768 5.95
---------- ------- ---- ---------- ------- -----
Total interest-bearing deposits....... 798,743 10,231 5.12 760,923 9,823 5.16
Warehousing lines of credit.............. 4,056 60 5.92 58,692 1,055 7.19
Other short-term borrowings.............. 185,920 2,784 5.99 206,072 3,265 6.34
FHLB advances............................ 94,602 1,372 5.80 18,233 280 6.14
Long-term debt........................... 49,359 892 7.23 62,226 1,450 9.32
---------- ------- ---- ---------- ------- -----
Total interest-bearing liabilities.. 1,132,680 15,339 5.42 1,106,146 15,873 5.74
------- ---- ------- -----
Noninterest-bearing deposits............. 131,857 130,351
Other liabilities........................ 83,733 44,273
---------- ----------
Total liabilities................... 1,348,270 1,280,770
Shareholders' equity..................... 122,321 120,679
---------- ----------
Total liabilities and shareholders'
equity........................... $1,470,591 $1,401,449
========== ==========
Net interest income/Rate spread (FTE).... $ 9,088 2.15% $ 7,536 1.73%
======= ==== ======= =====
Net interest margin...................... 2.82% 2.41%
==== =====
Net Inc
Increase (decrease) due to change in: Volume(2) Rate(2) (Dec)
------------------------------------- --------- ---- -------
Interest income:
Money market investments.............. $ (310) $ (17) $ (327)
Mortgage loans held for sale.......... 3,819 (398) 3,421
Securities............................ (1,613) 165 (1,448)
Commercial loans...................... 1,141 (169) 972
Real estate mortgage loans............ (1,883) (46) (1,929)
Installment loans..................... 400 (71) 329
------- ----- -------
Loans, net of unearned income....... (342) (286) (628)
------- ----- -------
Total interest income............ 1,554 (536) 1,018
Interest expense:
Interest-bearing demand deposits...... (28) (24) (52)
Savings deposits...................... 374 134 508
Time deposits......................... 73 (121) (48)
------- ----- -------
Total interest-bearing deposits..... 419 (11) 408
Warehousing lines of credit........... (836) (159) (995)
Other short-term borrowings........... (307) (174) (481)
FHLB advances......................... 1,108 (16) 1,092
Long-term debt........................ (268) (290) (558)
------- ----- -------
Total interest expense........... 116 (650) (534)
------- ----- -------
Net interest income................... $ 1,438 $ 114 $ 1,552
======= ===== =======
<FN>
(1) Non-accrual loans and overdrafts are included in average balances.
(2) Rate/volume variances are proportionately allocated to rate and volume
based on the absolute value of the change in each.
9
Table II - Year-to-Date Net Interest Income and Rate/Volume Analysis (FTE)
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
------------------------------- ---------------------------------
Average Average Average Average
(Dollars in thousands) Balance(1) Interest Rate Balance(1) Interest Rate
- ---------------------- ---------- -------- ------- ---------- -------- ------
Assets:
Money market investments................. $ 11,538 $ 310 5.37% $ 16,680 $ 471 5.65%
Mortgage loans held for sale............. 374,376 4,096 7.53 150,133 6,337 8.44
Securities............................... 317,725 10,041 6.32 438,399 13,400 6.11
Commercial loans......................... 148,476 6,983 9.41 103,928 5,098 9.81
Real estate mortgage loans............... 369,354 13,939 7.55 476,638 17,933 7.52
Installment loans........................ 67,911 3,378 9.95 52,254 2,710 10.37
---------- ------- ---- ---------- ------- -----
Loans, net of unearned income......... 585,741 24,300 8.30 632,820 25,741 8.14
---------- ------- ---- ---------- ------- -----
Total interest earning assets...... 1,289,380 48,747 7.56 1,238,032 45,949 7.42
Allowance for loan losses................ (4,926) (5,489)
Cash and due from banks.................. 25,038 24,915
Other assets............................. 140,164 131,358
---------- ----------
Total assets....................... $1,449,656 $1,388,816
========== ==========
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits......... $ 59,622 698 2.34 $ 65,880 834 2.53
Savings deposits......................... 204,338 4,037 3.95 179,114 3,355 3.75
Time deposits............................ 537,011 15,935 5.93 502,026 14,173 5.65
---------- -------- ---- ---------- ------- -----
Total interest-bearing deposits....... 800,971 20,670 5.16 747,020 18,362 4.92
Warehousing lines of credit.............. 45,834 1,561 6.81 47,739 1,787 7.49
Other short-term borrowings.............. 154,114 4,590 5.96 222,450 6,966 6.26
FHLB advances............................ 90,360 2,618 5.79 27,759 866 6.24
Long-term debt........................... 52,423 1,961 7.48 59,504 2,656 8.93
---------- ------- ----- ---------- ------- -----
Total interest-bearing
liabilities..................... 1,143,702 31,400 5.49 1,104,472 30,637 5.55
------- ---- ------- -----
Noninterest-bearing deposits............. 127,941 122,780
Other liabilities........................ 53,744 42,565
---------- ----------
Total liabilities.................. 1,325,387 1,269,817
Shareholders' equity..................... 124,269 118,999
---------- ----------
Total liabilities and shareholders'
equity......................... $1,449,656 $1,388,816
========== ==========
Net interest income/Rate spread (FTE).... $17,347 2.07% $15,312 1.87%
======= ==== ======= =====
Net interest margin...................... 2.69% 2.47%
==== =====
Increase (decrease) due to change in: Net Inc
Volume(2) Rate(2) (Dec)
------------------------------------- --------- ------- -------
Interest income:
Money market investments.............. $ (139) $ (22) $ (161)
Mortgage loans held for sale.......... 8,511 (752) 7,759
Securities............................ (3,805) 446 (3,359)
Commercial loans...................... 2,101 (216) 1,885
Real estate mortgage loans............ (4,065) 71 (3,994)
Installment loans..................... 782 (114) 668
------- ----- -------
Loans, net of unearned income....... (1,182) (259) (1,441)
------- ----- -------
Total interest income............ 3,385 (587) 2,798
Interest expense:
Interest-bearing demand deposits...... (76) (60) (136)
Savings deposits...................... 495 187 682
Time deposits......................... 1,030 732 1,762
------- ----- -------
Total interest-bearing deposits..... 1,448 860 2,308
Warehousing lines of credit........... (69) (157) (226)
Other short-term borrowings........... (2,055) (321) (2,376)
FHLB advances......................... 1,819 (67) 1,752
Long-term debt........................ (294) (401) (695)
------- ----- -------
Total interest expense........... 849 (86) 763
------- ----- -------
Net interest income................... $ 2,536 $(501) $ 2,035
======= ===== =======
<FN>
(1) Non-accrual loans and overdrafts are included in average balances.
(2) Rate/volume variances are proportionately allocated to rate and volume based
on the absolute value of the change in each.
10
decrease in the cost of funds associated with interest-bearing liabilities to
5.42% from 5.74%. This decline in the cost of funds was the result of a higher
mix of savings deposits as a percentage of total interest-bearing deposits,
the Company's elimination of external warehousing lines of credit to fund
mortgage loan originations, and the first quarter 1996 refinancing of the
Company's $17.25 million 9% Subordinated Notes with 6.87% Senior Debentures.
For the six months ended June 30, 1996, net interest income (FTE) totaled
$17.3 million, an increase of $2.0 million, or 13%, from $15.3 million earned
for the comparable period in 1995. This increase resulted primarily from
growth in mortgage loans held-for-sale and commercial loans, as well as
improvement in the net interest margin. The net interest margin for the first
six months of 1996 was 2.69%, compared to 2.47% for the same period a year
ago.
Average earning assets increased $51 million, or 4%, to $1.29 billion for the
six months ended June 30, 1996, from $1.24 billion for the same period in
1995, led by strong growth in average mortgage loans held-for-sale, commercial
loans and installment loans. Average mortgage loans held-for-sale were $374
million for the first six months of 1996, an increase of $224 million compared
to $150 million for the comparable period in 1995. Average commercial loans
increased over $44 million, or 43%, to $148 million from $104 million a year
ago. Average installment loans rose $16 million, or 30%, to $68 million from
$52 million for the first half of 1995. Growth in the average balances of
these loan categories was partially funded by declines in average investment
securities and real estate mortgage loans of $121 million and $107 million,
respectively. Positively impacting the net interest margin was a 14
basis-point increase in the yield on average earning assets as the mix shifted
toward higher-yielding mortgage loans held-for-sale, commercial loans and
installment loans.
For the six-month period ended June 30, 1996, average interest-bearing
liabilities rose $39 million, or 4%, to $1.14 billion, compared to $1.10
billion for the comparable period a year earlier. This increase, resulting
primarily from rising average balances in interest-bearing deposits and FHLB
advances of $54 million and $63 million, respectively, was partially offset by
declines in average warehousing lines of credit, other short-term borrowings
and long-term debt totaling $77 million. A decline in the cost of funds by 6
basis points contributed to an increase in the net interest margin for the
first six months of 1996. The cost of funds decreased mainly because of the
first quarter 1996 elimination of external warehousing lines of credit and
refinancing of 9% Subordinated Notes with 6.87% Senior Debentures.
Non-Interest Expense
Non-interest expense was $25.3 million for the three months ended June 30,
1996, compared to $20.0 million for the same period in 1995. For the first six
months of 1996, non-interest expense was $49.5 million, compared to $37.1
million for the first half of 1995. Salaries and employee benefits and
mortgage loan commissions represent the largest components of non-interest
expense. Salaries and benefits expense rose $2.8 million to $9.7 million for
the second quarter of 1996 and $5.9 million to $19.9 million for the first
half of 1996, primarily reflecting the acquisitions of RSL Mortgage and Leader
Financial as well as additional support staff necessary for higher loan
origination volumes. Mortgage loan commissions increased $1.7 million to $6.2
million for the second quarter of 1996 and $4.8 million to $11.8 million for
the first six months of 1996, as a result of higher levels of mortgage loan
originations.
11
BALANCE SHEET ANALYSIS
ASSETS
Total assets at June 30, 1996 decreased $4 million to $1.468 billion from
$1.472 billion at December 31, 1995, as increases in investment securities and
portfolio loans totaling $49 million were offset by decreases in mortgage
loans held-for sale and capitalized mortgage servicing rights totaling $54
million.
Securities
The Company's securities available-for-sale portfolio serves as a source of
liquidity and earnings with relatively minimal principal risk. The portfolio
is comprised primarily of U.S. Treasury securities, 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 current expected maturities ranging from less than one year
to 4.2 years or indexed to adjustable rates. At June 30, 1996, the securities
portfolio constituted 22.2% of total assets, compared to 21.6% at December 31,
1995. The securities available-for-sale balance remained relatively stable
from December 31, 1995 to June 30, 1996, increasing just 2%, or $8 million.
The following table details the composition, amortized cost and fair value of
the Company's available-for-sale securities portfolio at June 30, 1996:
Available-for-Sale Securities
---------------------------------------------
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- -------------- --------- ---------- ---------- -----
Debt Securities:
U.S. Treasury securities..................... $ 12,345 $ -- $ (216) $ 12,129
U.S. Government agency obligations........... 64,041 115 (567) 63,589
Mortgage-backed securities................... 107,930 177 (1,921) 106,186
Collateralized mortgage obligations.......... 91,595 12 (2,133) 89,474
Municipal and other securities............... 35,908 9 (1,114) 34,803
-------- ---- -------- --------
Total Debt Securities..................... 311,819 313 (5,951) 306,181
Equity securities............................... 19,816 -- (762) 19,054
-------- ---- -------- --------
Total Securities Available-for-Sale....... $331,635 $313 $(6,713) $325,235
======== ==== ======== ========
Gross realized gains and losses on sales of available-for-sale securities were
zero and $7,000, respectively, for the quarter ended June 30, 1996, and
$437,000 and $9,000, respectively, for the six months ended June 30, 1996.
Certain securities having a carrying value of approximately $187.3 million and
$164.3 million at June 30, 1996 and December 31, 1995, respectively, were
pledged to secure repurchase agreements, Federal Home Loan Bank (FHLB)
advances, and other deposits as required by law.
Mortgage Loans Held-for-Sale and Portfolio Loans
Mortgage loans held-for-sale totaled $376.8 million at June 30, 1996, a
decrease of $47 million, or 11%, from December 31, 1995. Total portfolio loans
rose $41 million, or 7%, during the same period, principally due to a $31
million increase in commercial loans.
During the second quarter of 1996, the Company closed $5.5 million of SBA
loans, an increase of 47% from the $3.7 million closed in the second quarter
of 1995. For the first half of 1996, SBA loan closings were $10.8 million,
compared to $9.8 million for the same period in 1995. During the first six
months of 1996 and 1995, $5.8 million and $4.2 million, respectively, of
SBA loans were sold, resulting in gains of $475,000 and $599,000, respectively.
12
Credit Quality
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 June 30, 1996, these loans comprised 83.9% of total
portfolio loans. The Company's general policy is to originate conventional
residential real estate mortgages with loan-to-value ratios of 80% or less and
SBA-secured loans or real estate-secured commercial loans with loan-to-value
ratios of 70% or less. The substantial majority of the Company's loans are
conventional mortgage loans which are secured by residential properties and
comply with the requirements for sale to or conversion to mortgage-backed
securities issued by the Federal Home Loan Mortgage Corporation (FHLMC), the
Federal National Mortgage Association (FNMA), or the Government National
Mortgage Association (GNMA). The majority of the Company's commercial loans
are secured by real estate and are generally made to small and medium-sized
businesses. These loans are generally made at rates based on the prevailing
prime interest rates of Republic Bank and Republic Savings and are adjusted
periodically. Management's emphasis on real estate-secured lending with lower
loan-to-value ratios is reflected in the Company's historically low net
charge-off ratio percentages.
The following table provides further information regarding the Company's loan
portfolio:
June 30, 1996 December 31, 1995
------------------ ------------------
(Dollars in thousands) Amount Percent Amount Percent
- ---------------------- ------ ------- ------ -------
Commercial loans:
Secured by real estate........ $134,413 21.7% $108,108 18.7%
Other (generally secured)..... 28,565 4.6 24,325 4.2
-------- ----- -------- -----
Total commercial loans... 162,978 26.3 132,433 22.9
Residential real estate mortgages... 385,295 62.2 381,803 66.0
Installment loans................... 71,079 11.5 63,876 11.1
-------- ----- -------- -----
Total portfolio loans.... $619,352 100.0% $578,112 100.0%
======== ===== ======== =====
Non-performing Assets
Loans held in the 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.
13
The following table summarizes the Company's non-performing assets and
90-day past due loans:
June 30, Dec. 31, June 30,
(Dollars in thousands) 1996 1995 1995
- --------------------- -------- -------- --------
Non-performing Assets:
Non-accrual loans:
Commercial.............................. $1,824 $ 500 $1,137
Residential real estate mortgages....... 1,686 661 984
Installment............................. 157 131 100
------ ------ ------
Total non-accrual loans............... 3,667 1,292 2,221
Restructured loans......................... --- 688 794
------ ------ ------
Total non-performing loans............ 3,667 1,980 3,015
Other real estate owned.................... 637 980 1,121
------ ------ ------
Total non-performing assets........... $4,304 $2,960 $4,136
====== ====== ======
Loans past due 90 days or more and still
accruing interest:
Commercial................................. $ 327 $ 209 --
Residential real estate mortgages.......... 706 42 --
Installment................................ 44 94 $ 40
------ ------ ------
Total loans past due 90 days or more.. $1,077 $ 345 $ 40
====== ====== ======
Non-performing assets as a percentage of:
Total portfolio loans and OREO (1)....... .69% .51% .72%
Total loans and OREO (2)................. .43% .30% .47%
Total assets............................. .29% .20% .29%
<FN>
(1) Excluding mortgage loans held for sale.
(2) Including mortgage loans held for sale.
At June 30, 1996, approximately $6.0 million, or .97% of total portfolio loans
were 30-89 days delinquent.
Allowance for 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 the
allowance. If actual circumstances and losses differ substantially from
management's assumptions and estimates, the allowance for loan losses may not
be sufficient to absorb all future losses, and net earnings could be
significantly and adversely affected.
In management's opinion, the allowance for loan losses is adequate to meet
potential losses in the loan portfolio that can be reasonably anticipated
based on current conditions. 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 due to changes in economic conditions and/or the
economic prospects of borrowers.
14
The following table provides an analysis of the allowance for loan losses:
Six Months Ended
June 30,
-----------------
(Dollars in thousands) 1996 1995
---- ----
Allowance for loan losses:
Balance at January 1........................... $5,002 $5,544
Loans charged off........................... (381) (691)
Recoveries of loans
previously charged off................... 65 191
------ ------
Net charge-off........................... (316) (500)
Provision charged to expense................ 110 24
------ ------
Balance at June 30............................. $4,796 $5,068
====== ======
Net charge-offs as a percentage of
average portfolio loans
outstanding............................. .11% .16%
Allowance for loan losses as a percentage
of total portfolio loans
outstanding at period-end............... .77 .88
Allowance for loan losses as a percentage
of non-performing loans................. 130.80 168.09
Off-Balance Sheet Instruments
At June 30, 1996 the Company had commitments to fund residential real estate
loan applications with agreed-upon rates of $267.9 million. To offset the
interest-rate risk associated with these commitments, as well as mortgage loans
held-for-sale, the Company entered into firm commitments to sell forward
$584.2 million of residential mortgage loans to various third parties, of
which $376.8 million related to the balances of mortgage loans held-for-sale
at June 30, 1996. These outstanding forward commitments to sell mortgage
loans, which are expected to settle in the third quarter of 1996, are not
expected to produce any material gains or losses. Included in the residential
real estate loan applications with agreed-upon rates are $32.9 million of loans
expected to be placed in the residential loan portfolio.
LIABILITIES
Total liabilities of $1.35 billion at June 30, 1996 were consistent with the
December 31, 1995 balance as increases in deposits and other liabilities
totaling $36 million were largely offset by a $34 million decrease in
short-term and long-term borrowings.
Deposits
Total deposits were $924.2 million at June 30, 1996, an increase of $19.5
million, or 2%, from $904.7 million at December 31, 1995. Noninterest-bearing
deposits rose $13.1 million, or 10%, from $126.4 million at December 31, 1995,
to $139.5 million at June 30, 1996, primarily due to an increase in mortgage
escrow balances of $14.5 million. Interest-bearing deposits increased to
$784.7 million at June 30, 1996 from $778.3 million at December 31, 1995.
15
Short-Term Borrowings
Short-term borrowings with maturities of less than one year, along with the
related average balances and interest rates for the six months ended June 30,
1996 and the year ended December 31, 1995, were as follows:
June 30, 1996 December 31, 1995
--------------------------- ---------------------------
Ending Average Average Ending Average Average
(Dollars in thousands) Balance Balance Rate Balance Balance Rate
- ---------------------- -------- -------- ------- -------- -------- -------
Federal funds purchased..................... $ 33,000 $ 25,168 5.67% $ 16,000 $ 9,427 5.65%
Securities sold under agreements
to repurchase............................ 171,216 125,389 5.66 118,237 158,999 6.21
-------- --------
Total federal funds purchased and
securities sold under agreements
to repurchase....................... $204,216 $134,237
======== ========
Other short-term borrowings:
Revolving repurchase agreements.......... -- 7,024 6.67 $ 27,797 25,900 6.93
Warehousing lines of credit.............. -- 38,810 6.81 88,779 63,300 7.28
Mortgage servicing acquisition
line of credit........................ -- 1,333 8.14 4,000 3,714 8.60
Revolving credit agreement............... -- 2,121 7.99 8,125 10,200 8.54
Short-term portion of long-term
debt.................................. $ 103 103 6.99 513 513 8.25
-------- --------
Total other short-term borrowings $ 103 $129,214
======== ========
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 and
match fund certain fixed-rate commercial and mortgage loans. These advances
are generally secured by first mortgage loans or securities equal to at least
150% of the advances under a blanket security agreement. FHLB borrowings
outstanding as of the periods indicated were as follows:
June 30, 1996 December 31, 1995
----------------- -----------------
Ending Average Ending Average
(Dollars in thousands) Balance Rate Balance Rate
- ---------------------- ----------------- -----------------
Short-term FHLB advances..... $ 63,500 5.65% $44,500 5.73%
Long-term FHLB advances....... 44,500 6.11 36,000 6.22
-------- ------
Total................... $108,000 $80,500
======== ======
The long-term FHLB advances have maturities ranging from July 1997 to February
2001.
16
Long-Term Debt
Obligations with original maturities of more than one year consisted of the
following:
June 30, December 31,
(Dollars in thousands) 1996 1995
- ---------------------- -------- ------------
7.17% Senior Debentures due 2001.................. $25,000 $25,000
6.75% Senior Debentures due 2001.................. 9,000 --
6.95% Senior Debentures due 2003.................. 13,500 --
9.00% Subordinated Notes due 2003................. -- 17,250
6.99% Mortgage Loan due 2000...................... 1,761 1,796
Note payable under term loan agreement @ prime
(8.50% at 12/31/95) plus 1.00% due 2000........ -- 7,882
------- -------
Total long-term debt...................... $49,261 $51,928
======= =======
Capital
Shareholders' equity at June 30, 1996 was $120.1 million, compared with $126.4
million at December 31, 1995. The decrease of $6.3 million during the first
half of 1996 was primarily due to the repurchase of 625,700 shares of the
Company's common stock under the previously announced stock repurchase
program.
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies. At June 30, 1996, the Company's capital ratios were as
follows:
June 30, December 31,
1996 1995
-------- ------------
Tier 1 risk-based capital (minimum - 4.00%).... 14.58% 15.72%
Total risk-based capital (minimum - 8.00%)..... 15.18 18.63
Tier 1 leverage (minimum - 3.00%).............. 8.00 8.31
The total risk-based capital ratio declined from year-end 1995 due to the
Company's first quarter 1996 redemption of $17.25 million of 9.00%
Subordinated Notes, which qualified as Tier 2 capital. As of June 30, 1996,
total risk-based capital was $121.8 million, an excess of $58.6 million over
the minimum guidelines prescribed by regulatory agencies.
The Company is committed to maintaining a strong capital position. As of
June 30, 1996, the Total risk-based capital and Tier 1 risk-based capital
ratios for Republic Bank and Republic Savings exceeded the minimum regulatory
requirements. In management's opinion, 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 in the normal course of 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
In May 1996, the Board of Directors declared a quarterly cash dividend
of $0.10 per share on common stock, payable on July 5, 1996 to
shareholders of record on June 7, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Statement Re: Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
None.
18
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REPUBLIC BANCORP INC.
---------------------
(Registrant)
Date: August 14, 1996 BY: /s/ Thomas F. Menacher
------------------------------------
Thomas F. Menacher
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
19