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, 2002 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)
(989) 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, 2002:
Common Stock, $5 Par Value ............................... 53,149,000 Shares
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 2002
and December 31, 2001 ............................................... 3
Consolidated Statements of Income for the Three
Months Ended March 31, 2002 and 2001 ................................ 4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2002 and 2001 ................................ 5
Notes to Consolidated Financial Statements .......................... 6 - 8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition ....................... 8 - 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................................. 17
Item 2. Changes in Securities .............................................. 17
Item 4. Submission of Matters to a Vote of Security Holders ................ 17
Item 6. Exhibits and Reports on Form 8-K ................................... 17
SIGNATURE .................................................................... 18
2
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
(Dollars in thousands) 2002 2001
- --------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Cash and cash equivalents ......................................... $ 59,936 $ 76,734
Mortgage loans held for sale ...................................... 410,862 748,463
Securities available for sale (amortized cost of
$397,977 and $369,492, respectively) ........................... 394,092 364,648
Loans ............................................................. 3,467,300 3,458,381
Less allowance for loan losses ................................. (29,324) (29,157)
----------- -----------
Net loans ......................................................... 3,437,976 3,429,224
----------- -----------
Premises and equipment ............................................ 29,687 30,858
Mortgage servicing rights ......................................... 2,333 2,482
Other assets ...................................................... 74,569 88,196
----------- -----------
Total assets ................................................. $ 4,409,455 $ 4,740,605
=========== ===========
LIABILITIES
Noninterest-bearing deposits ...................................... $ 228,274 $ 245,395
Interest-bearing deposits:
NOW accounts ................................................... 158,917 153,839
Savings and money market accounts .............................. 844,716 819,674
Certificates of deposit ........................................ 1,467,753 1,534,560
----------- -----------
Total interest-bearing deposits .............................. 2,471,386 2,508,073
----------- -----------
Total deposits ............................................... 2,699,660 2,753,468
Federal funds purchased and other short-term borrowings ........... 162,548 176,500
FHLB advances ..................................................... 1,069,718 1,300,718
Accrued expenses and other liabilities ............................ 72,227 112,783
Long-term debt .................................................... 13,500 13,500
----------- -----------
Total liabilities ............................................ 4,017,653 4,356,969
Trust preferred securities and preferred stock of subsidiary ...... 78,719 78,719
SHAREHOLDERS' EQUITY
Preferred stock, $25 stated value: $2.25 cumulative
and convertible; 5,000,000 shares authorized,
none issued and outstanding .................................... - -
Common stock, $5 par value, 75,000,000 shares
authorized; 53,131,000 and 53,166,000, issued and
outstanding, respectively ...................................... 265,653 265,831
Capital surplus ................................................... 36,787 38,693
Retained earnings ................................................. 13,168 3,542
Accumulated other comprehensive loss .............................. (2,525) (3,149)
----------- -----------
Total shareholders' equity ..................................... 313,083 304,917
----------- -----------
Total liabilities and shareholders' equity ................... $ 4,409,455 $ 4,740,605
=========== ===========
See notes to consolidated financial statements.
3
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended
March 31,
(In thousands, except per share data) 2002 2001
- -----------------------------------------------------------------------------------------------------
Interest Income:
Loans, including fees ..................................................... $ 69,027 $ 84,923
Investment securities ..................................................... 4,508 3,542
-------- --------
Total interest income .............................................. 73,535 88,465
-------- --------
Interest Expense:
Deposits .................................................................. 20,640 33,014
Short-term borrowings ..................................................... 783 524
FHLB advances ............................................................. 14,208 20,247
Long-term debt ............................................................ 242 727
-------- --------
Total interest expense ............................................. 35,873 54,512
-------- --------
Net interest income ....................................................... 37,662 33,953
Provision for loan losses ................................................. 2,400 2,000
-------- --------
Net interest income after provision for loan losses ....................... 35,262 31,953
-------- --------
Noninterest Income:
Service charges ........................................................... 1,989 1,651
Mortgage loan production revenue .......................................... 7,246 16,650
Net mortgage servicing revenue (expense) .................................. 146 (199)
Gain on sale of securities ................................................ 401 367
Other noninterest income .................................................. 795 852
-------- --------
Total noninterest income ............................................. 10,577 19,321
-------- --------
Noninterest Expense:
Salaries and employee benefits ............................................ 13,927 16,669
Occupancy expense of premises ............................................. 2,487 3,400
Equipment expense ......................................................... 1,680 2,375
Other noninterest expense ................................................. 5,703 7,961
Restructuring costs to exit mortgage servicing business ................... - 19,000
-------- --------
Total noninterest expense .......................................... 23,797 49,405
-------- --------
Income before income taxes ................................................ 22,042 1,869
Provision for income taxes ................................................ 6,168 389
-------- --------
Income before preferred stock dividends ................................... 15,874 1,480
Dividends on preferred stock .............................................. 1,756 681
-------- --------
Net income ................................................................ $ 14,118 $ 799
======== ========
Basic earnings per share .................................................. $ .27 $ .02
======== ========
Diluted earnings per share ................................................ $ .26 $ .01
======== ========
Average common shares outstanding - diluted ............................... 53,791 55,129
======== ========
Cash dividends declared per common share .................................. $ .085 $ .077
======== ========
See notes to consolidated financial statements.
4
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31 (In thousands) 2002 2001
- ------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income .................................................................. $ 14,118 $ 799
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization .......................................... 1,870 2,357
Amortization and impairment of mortgage servicing rights ............... 249 19,477
Net gains on sale of mortgage servicing rights ......................... - (10,161)
Net gains on sale of securities available for sale ..................... (401) (367)
Net gains on sale of loans ............................................. (802) (501)
Proceeds from sale of mortgage loans held for sale ..................... 841,719 1,086,806
Origination of mortgage loans held for sale ............................ (504,118) (1,278,811)
Decrease in other assets ............................................... 11,593 7,140
(Decrease) Increase in other liabilities ............................... (40,556) 12,119
Other, net ............................................................. (197) (673)
---------- ------------
Total adjustments .................................................... 309,357 (162,614)
---------- ------------
Net cash provided by (used in) operating activities .................. 323,475 (161,815)
---------- ------------
Cash Flows From Investing Activities:
Proceeds from sale of securities available for sale ......................... 40,275 80,689
Proceeds from maturities/payments of securities available for sale .......... 7,111 1,566
Purchases of securities available for sale .................................. (75,618) (78,784)
Proceeds from sale of consumer loans ........................................ - 39,485
Proceeds from sale of commercial and residential real estate loans .......... 42,634 25,857
Net (increase) decrease in loans made to customers .......................... (50,496) 74,669
Proceeds from sale of mortgage servicing rights ............................. - 30,940
Additions to mortgage servicing rights ...................................... (100) (21,917)
---------- ------------
Net cash (used in) provided by investing activities .................. (36,194) 152,505
---------- ------------
Cash Flows From Financing Activities:
Net (decrease) increase in total deposits ................................... (53,808) 101,955
Net (decrease) increase in short-term borrowings ............................ (13,952) 1,687
Net (decrease) increase in short-term FHLB advances ......................... (280,000) 1,000
Proceeds from long-term FHLB advances ....................................... 49,000 40,000
Payments on long-term FHLB advances ......................................... - (85,751)
Payments on long-term debt .................................................. - (9,000)
Net proceeds from issuance of common shares ................................. 2,930 1,910
Repurchase of common shares ................................................. (3,706) (1,374)
Dividends paid on common shares ............................................. (4,543) (4,205)
---------- ------------
Net cash (used in) provided by financing activities .................. (304,079) 46,222
---------- ------------
Net (decrease) increase in cash and cash equivalents ........................ (16,798) 36,912
Cash and cash equivalents at beginning of period ............................ 76,734 82,377
---------- ------------
Cash and cash equivalents at end of period .................................. $ 59,936 $ 119,289
========== ============
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
accounting principles generally accepted in the United States 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 accounting principles
generally accepted in the United States 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, 2001.
Note 2 - Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the parent
company, Republic Bancorp Inc., its wholly-owned banking subsidiary, Republic
Bank (including its wholly-owned subsidiaries D&N Capital Corporation, Quincy
Investment Services, Inc., CAS Properties, Inc., Republic Bank Real Estate
Finance, LLC and Republic Management Company, Inc.) and Republic Capital Trust
I. All significant intercompany accounts and transactions have been eliminated
in consolidation.
Note 3 - Consolidated Statements of Cash Flows
-------------------------------------
Supplemental disclosures of cash flow information for the three months ended
March 31, include:
(In thousands) 2002 2001
---- ----
Cash paid during the period for:
Interest ...................................... $36,970 $54,328
Income taxes .................................. $ - 2,323
Non-cash investing activities:
Loan charge-offs .............................. $ 2,583 $ 1,989
Note 4 - Comprehensive Income
--------------------
The following table sets forth the computation of comprehensive income:
Three Months Ended
March 31,
(In thousands) 2002 2001
- ---------------------------------------------------------------------------------------------------
Net income ................................................................ $ 14,118 $ 799
Unrealized holding gains on securities, net of tax ........................ $ 885 $ 326
Reclassification adjustment for gains included in net
income, net of tax ................................................ (261) (239)
-------- --------
Net unrealized gains on securities, net of tax ............................ 624 87
-------- --------
Comprehensive income ...................................................... $ 14,742 $ 886
======== ========
Note 5 - Intangible Assets
-----------------
The following table summarizes the Company's core deposit intangible asset which
is subject to amortization:
(Dollars in thousands) March 31, 2002 Dec. 31, 2001
- --------------------------------------------------------------------------------
Core Deposit Intangible Asset:
Gross carrying amount ................... $ 8,749 $ 8,749
Accumulated amortization ................ 2,438 2,191
---------- ----------
Net book value ........................ $ 6,311 $ 6,558
========== ==========
Amortization expense on the core deposit intangible asset totaled $248,000 for
each of the quarters ended March 31, 2002 and 2001, and $990,000 for the year
ended December 31, 2001. The Company expects core deposit intangible
amortization expense to be $990,000 for each of the years ending December 31,
2002, 2003 and 2004. The Company expects core deposit intangible amortization
expense for the years ended December 31, 2005 and 2006 to be $945,000 and
$936,000, respectively.
6
Note 6 - Earnings Per Share
------------------
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended
March 31,
(Dollars in thousands, except per share data) 2002 2001
- -------------------------------------------------------------------------------------------
Numerator for basic and diluted earnings per share:
Net income ............................................... $ 14,118 $ 799
Denominator for basic earnings per share--
weighted-average shares .................................. 53,024,891 54,447,430
Effect of dilutive securities:
Employee stock options ............................. 709,988 636,804
Warrants ........................................... 55,798 44,729
----------- -----------
Dilutive potential common shares .............. 765,786 681,533
----------- -----------
Denominator for diluted earnings per share--adjusted
weighted-average shares for assumed conversions .......... 53,790,677 55,128,963
=========== ===========
Basic earnings per share ...................................... $ .27 $ .02
=========== ===========
Diluted earnings per share .................................... $ .26 $ .01
=========== ===========
Note 7 - Segment Information
-------------------
The Company's operations are managed as three major business segments: (1)
commercial banking (2) retail banking and (3) mortgage banking. The commercial
banking segment consists of commercial lending to small- and medium-sized
companies, primarily in the form of commercial real estate and Small Business
Administration (SBA) loans. The retail banking segment consists of home equity
lending, other consumer lending and the deposit-gathering function. Deposits and
loan products are offered through 83 retail branch offices of Republic Bank,
which are staffed by personal bankers and loan originators. The mortgage banking
segment is comprised of mortgage loan production and mortgage loan servicing for
others. Mortgage loan production is conducted in 56 offices of Republic Bank.
Treasury and Other is comprised of balance sheet management activities that
include the securities portfolio, residential real estate mortgage portfolio
loans and non-deposit funding. Treasury and Other also includes unallocated
corporate expenses such as corporate overhead, including accounting and
operation costs.
In conjunction with the merger of Republic Bank and D&N Bank in 2000 and the
sale of Market Street Mortgage Corporation in 2001, the Company redefined its
business segments. All prior period amounts have been restated to conform to the
current year presentation.
The following table presents the financial results of each business segment for
the three months ended March 31, 2002 and 2001.
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury
(In thousands) Commercial Retail Mortgage and Other Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
For the Three Months Ended March 31, 2002
Net interest income from external customers $ 24,295 $ (13,839) $ 11,780 $ 15,426 $ 37,662
Internal funding (10,754) 41,913 (5,891) (25,268) -
----------- ---------- ---------- ---------- ----------
Net interest income 13,541 28,074 5,889 (9,842) 37,662
Provision for loan losses 1,282 304 - 814 2,400
Noninterest income 290 1,998 7,306 983 10,577
Noninterest expense 2,451 8,188 7,189 5,969 23,797
----------- ---------- ---------- ---------- ----------
Income before taxes 10,098 21,580 6,006 (15,642) 22,042
Preferred stock dividend - - - 1,756 1,756
Income taxes 3,534 7,553 2,102 (7,021) 6,168
----------- ---------- ---------- ---------- ----------
Net income $ 6,564 $ 14,027 $ 3,904 $ (10,377) $ 14,118
=========== ========== ========== ========== ==========
Depreciation and amortization $ 34 $ 798 $ 559 $ 728 $ 2,119
Capital expenditures $ 18 $ 138 $ 36 $ 173 $ 365
Net identifiable assets (in millions) $ 1,370 $ 2,841 $ 569 $ (371) $ 4,409
Return on equity/(1)/ 19.38% 21.50% 42.26% n/m 18.14%
Return on assets 1.94% 1.95% 2.11% n/m 1.25%
Efficiency ratio 17.72% 27.23% 54.48% n/m 49.74%
- -----------------------------------------------------------------------------------------------------------------------------------
7
Note 7 - Segment Information (Continued)
-------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury
(In thousands) Commercial Retail Mortgage and Other Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
For the Three Months Ended March 31, 2001/(2)/
Net interest income from external customers $ 26,252 $(23,249) $ 12,435 $ 18,515 $ 33,953
Internal funding (13,377) 48,035 (8,151) (26,507) -
-------- -------- -------- -------- --------
Net interest income 12,875 24,786 4,284 (7,992) 33,953
Provision for loan losses 668 114 - 1,218 2,000
Noninterest income 269 1,726 14,708 2,618 19,321
Noninterest expense 2,301 7,822 14,798 5,484 30,405
-------- -------- -------- -------- --------
Income before taxes 10,175 18,576 4,194 (12,076) 20,869
Preferred stock dividend - - - 681 681
Income taxes 3,561 6,502 1,468 (4,492) 7,039
-------- -------- -------- -------- --------
Net income $ 6,614 $ 12,074 $ 2,726 $ (8,265) $ 13,149
======== ======== ======== ======== ========
Depreciation and amortization $ 43 $ 837 $ 4,376 $ 513 $ 5,769
Capital expenditures $ 48 $ 381 $ 79 $ 502 $ 1,010
Net identifiable assets (in millions) $ 1,196 $ 2,894 $ 816 $ (236) $ 4,670
Return on equity/(1)/ 22.61% 18.96% 32.29% n/m 17.64%
Return on assets 2.26% 1.73% 1.66% n/m 1.13%
Efficiency ratio 17.51% 29.50% 77.92% n/m 57.47%
- --------------------------------------------------------------------------------
/(1)/ Capital is allocated as a percentage of assets of 10%, 10% and 5% for the
commercial, retail and mortgage banking segments, respectively.
/(2)/ Amounts exclude $19.0 million of pretax restructuring costs to exit the
mortgage servicing business
n/m - Not meaningful
- --------------------------------------------------------------------------------
Note 8 - Accounting and Financial Reporting Developments
-----------------------------------------------
In July 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible
Assets, which drastically changed the accounting for goodwill, and intangible
assets. Under Statement No. 142, goodwill and indefinite lived intangible assets
are no longer amortized but are reviewed annually (or more frequently if
impairment indicators arise) for impairment. Separable intangible assets that
are not deemed to have an indefinite life will continue to be amortized over
their useful lives (but with no maximum life)(see Note 5). The Company's
goodwill balance was $1.2 million at March 31, 2002 and December 31, 2001. The
Company adopted the provisions of Statement No. 142 on January 1, 2002, which
had an insignificant effect on the Company's results of operations for the
quarter ended March 31, 2002 compared to the quarter ended March 31, 2001.
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
EARNINGS PERFORMANCE
- --------------------
The Company reported record net income for the quarter ended March 31, 2002 of
$14.1 million, a 7% increase over net operating income of $13.1 million in the
first quarter of 2001. Diluted earnings per share for the first quarter of 2002
were $.26, an increase of 8% over diluted operating earnings of $.24 in 2001.
Annualized returns on average assets and shareholders' equity for the first
three months of 2002 were 1.25% and 18.14%, respectively.
Net operating earnings for the first quarter of 2001 exclude $19.0 million of
pre-tax charges related to the exit of the Company's residential mortgage
servicing business. Including these charges, the Company reported net income for
the first quarter of 2001 of $799,000, or $.01 per share.
RESULTS OF OPERATIONS
- ---------------------
Mortgage Banking
The following discussion provides information that relates specifically to the
Company's mortgage banking line of business, which generates revenue from
mortgage loan production and mortgage loan servicing for others activities.
Mortgage banking revenue represents the largest component of the Company's total
noninterest income.
The Company closed $711 million in single-family residential mortgage loans in
the first quarter of 2002 compared to $851 million closed in the same period
last year. For comparability, residential mortgage loan closings exclude Market
Street Mortgage loan
8
closings of $510 for the first quarter of 2001. Mortgage loan volumes during
2002 decreased primarily due to the increase in interest rates which has
resulted in a lower level of mortgage refinance activity. Refinancings for the
first quarter of 2002 represented approximately 57% of total closings compared
to 67% in the first quarter of 2001.
The following table summarizes the Company's income from mortgage banking
activities:
Three Months Ended
March 31,
(In thousands) 2002 2001
- --------------------------------------------------------------------------------
Mortgage loan production revenue /(1)/ ................ $ 7,246 $ 16,650
Net mortgage loan servicing revenue (expense) /(2)/ ... 146 (199)
-------- --------
Total mortgage banking revenue .................. $ 7,392 $ 16,451
======== ========
- --------------------------------------------------------------------------------
/(1)/ Includes fee revenue derived from the loan origination process (i.e.,
points collected), gains on the sale of mortgage loans and the related
mortgage servicing rights released concurrently with the underlying loans
sold, net of commissions and incentives paid of $8.6 million and $7.2
million for 2002 and 2001, respectively.
/(2)/ Includes servicing fees, late fees and other ancillary charges, net of
amortization of mortgage servicing rights.
For the three months ended March 31, 2002, mortgage banking revenue decreased
$9.1 million, or 55%, to $7.4 million from $16.5 million a year earlier. For
comparability, excluding the results of Market Street Mortgage, total mortgage
banking revenue for the first quarter of 2001 was $9.0 million. The decrease is
primarily due to a 16.5% decrease in mortgage loan production revenue, which
corresponds to the decrease in production volume discussed above.
Net mortgage loan servicing revenue increased to $146,000 for the quarter ended
March 31, 2002 compared to a net expense $199,000 for the quarter ended March
31, 2001. The increase in revenue reflects a decrease in amortization of
mortgage servicing rights as a result of the decrease in residential mortgage
loan refinance activity during 2002 and corresponding decrease in mortgage
prepayments of the Company's remaining servicing portfolio. At the end of the
first quarter of 2001, the Company elected to exit the residential mortgage
servicing business through the sale of Market Street Mortgage's $1.8 billion
mortgage loan servicing portfolio and mortgage servicing rights were reduced by
$16.1 million at March 31, 2001 to reflect the current market value of the
servicing portfolio. Loans serviced for others averaged $182 million for the
first quarter of 2002 compared to $2.2 billion for the first quarter of 2001.
Commercial and Retail Banking
The remaining disclosures and analyses within Management's Discussion and
Analysis regarding the Company's results of operations and financial condition
relate principally to the commercial and retail banking segments.
Net Interest Income
- -------------------
The following discussion should be read in conjunction with Table I on the
following page, which provides detailed analyses of the components impacting net
interest income for the three months ended March 31, 2002 and 2001.
Net interest income, on a fully taxable equivalent (FTE) basis, was $38.9
million for the first quarter of 2002 compared to $34.2 million for the first
quarter of 2001. The increase was primarily the result of an increase in the net
interest margin. The net interest margin (FTE) was 3.54% for the quarter ended
March 31, 2002, an increase of 42 basis points from 3.12% in 2001. The increase
in the margin was due to the Company's cost of funds on interest-bearing
liabilities decreasing more than the decline in yield on earning assets and the
mix of the Company's interest-bearing liabilities. Average balances of the
Company's higher cost interest-bearing liabilities of time deposits and FHLB
advances decreased $425 million compared to the first quarter of 2001. The
decrease was partially offset by increases in the average balances of lower cost
interest-bearing demand deposits, savings deposits and short-term borrowings of
$277 million.
Noninterest Expense
- -------------------
For comparability, excluding the $19.0 million of charges related to the exit of
its residential mortgage servicing business and the noninterest expenses of
Market Street Mortgage for the first quarter of 2001, total non-interest expense
for the quarter ended March 31, 2002 increased $1.3 million, or 6%, to $23.8
million compared to $22.5 million for the first quarter of 2001. The increase is
primarily the result of increases in salaries and employee benefits in the first
quarter of 2002 compared to 2001.
9
Table I - Quarterly Net Interest Income and Rate/Volume Analysis (FTE)
Three Months Ended Three Months Ended
March 31, 2002 March 31, 2001
- ----------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
(Dollar amounts in thousands) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------------
Average Assets:
Short-term investments ............................. $ 765 $ 5 2.47% $ 3,584 $ 47 5.34%
Mortgage loans held for sale ....................... 565,750 9,431 6.67 495,815 9,272 7.58
Securities available for sale ...................... 366,934 5,727 6.33 198,604 3,700 7.56
Portfolio loans/(1)/:
Commercial loans ................................ 1,376,387 24,616 7.15 1,174,373 26,252 8.94
Residential real estate mortgage loans .......... 1,494,531 24,598 6.58 1,904,660 34,372 7.32
Installment loans ............................... 582,136 10,382 7.23 658,601 15,027 9.25
----------- ------- ---- ----------- -------- ------
Total loans, net of unearned income ........... 3,453,054 59,596 6.92 3,737,634 75,651 8.17
----------- ------- ---- ---------- -------- ------
Total interest-earning assets ................. 4,386,503 74,759 6.84 4,435,637 88,670 8.07
Allowance for loan losses .......................... (29,285) (29,005)
Cash and due from banks ............................ 62,452 68,553
Other assets ....................................... 106,479 177,950
----------- -----------
Total assets .................................. $4,526,149 $4,653,135
=========== ===========
Average Liabilities and Shareholders' Equity:
Interest-bearing demand deposits ................... $ 156,240 242 0.63 $ 51,629 221 1.73
Savings deposits ................................... 833,068 3,694 1.80 792,998 6,395 3.27
Time deposits ...................................... 1,508,784 16,704 4.49 1,709,329 26,398 6.26
----------- ------- ---- ----------- -------- ------
Total interest-bearing deposits ................. 2,498,092 20,640 3.35 2,553,956 33,014 5.24
Short-term borrowings .............................. 169,285 783 1.85 36,983 524 5.67
FHLB advances ...................................... 1,182,874 14,208 4.80 1,407,204 20,247 5.76
Long-term debt ..................................... 13,500 242 7.15 40,000 727 7.27
----------- ------- ---- ----------- -------- ------
Total interest-bearing liabilities ............ 3,863,751 35,873 3.74 4,038,143 54,512 5.45
------- ---- -------- ------
Noninterest-bearing deposits ....................... 227,953 199,884
Other liabilities .................................. 44,369 88,265
----------- -----------
Total liabilities ............................. 4,136,073 4,326,292
Preferred stock of subsidiary ...................... 78,719 28,719
Shareholders' equity ............................... 311,357 298,124
----------- -----------
Total liabilities and shareholders' equity .... $ 4,526,149 $ 4,653,135
=========== ===========
Net interest income/rate spread (FTE) .............. $38,886 3.10% $34,158 2.62%
======= ==== ======== ====
Net interest margin (FTE) .......................... 3.54% 3.12%
==== ====
Increase (decrease) due to change in: Volume/(2)/ Rate/(2)/ Net Change
------------------------------------------------------------------------------------------------------------
Short-term investments .................... $ (25) $ (17) $ (42)
Mortgage loans held for sale .............. 1,304 (1,145) 159
Securities available for sale ............. 2,725 (698) 2,027
Portfolio loans/(1)/:
Commercial loans ....................... 4,101 (5,737) (1,636)
Residential real estate mortgage loans . (6,651) (3,123) (9,774)
Installment loans ...................... (1,612) (3,033) (4,645)
--------- ------- ---------
Total loans, net of unearned income .. (4,162) (11,893) (16,055)
---------- ------- ---------
Total interest income ................ (158) (13,753) (13,911)
Interest-bearing demand deposits .......... 232 (211) 21
Savings deposits .......................... 316 (3,017) (2,701)
Time deposits ............................. (2,843) (6,851) (9,694)
---------- ------- ---------
Total interest-bearing deposits ......... (2,295) (10,079) (12,374)
Short-term borrowings ..................... 812 (553) 259
FHLB advances ............................. (2,952) (3,087) (6,039)
Long-term debt ............................ (473) (12) (485)
--------- ------- ---------
Total interest expense ............... (4,908) (13,731) (18,639)
--------- ------- ---------
Net interest income .................. $ 4,750 $ (22) $ 4,728
========= ======= =========
(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
BALANCE SHEET ANALYSIS
- ----------------------
ASSETS
- ------
At March 31, 2002, the Company had $4.41 billion in total assets, a decrease of
$331 million, or 7%, from $4.74 billion at December 31, 2001. The decrease is
primarily the result of a decrease in the Company's mortgage loans held for
sale.
Securities
- ----------
Investment securities available for sale increased $29 million, to $394 million,
representing 8.9% of total assets at March 31, 2002. At December 31, 2001, the
investment securities portfolio totaled $365 million, or 7.7% of total assets.
During the first three months of 2002, the company sold $39.9 million of
investment securities and realized gross gains and losses on the sales of
available for sale securities of $415,000 and $14,000, respectively.
The Company's investment securities portfolio serves as a secondary source of
earnings and contributes to the management of interest rate risk and liquidity
risk. The debt securities portfolio is comprised primarily of municipal
securities and collateralized mortgage obligations. Fixed rate debt securities
within the portfolio, excluding municipal securities, totaled $81.4 million and
$12.9 million at March 31, 2002 and December 31, 2001, respectively.
The following table details the composition, amortized cost and fair value of
the Company's investment securities portfolio at March 31, 2002:
Securities Available for Sale
--------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities:
Government agency securities .............................. $ 25,108 $ - $ 147 $ 24,961
Collateralized mortgage obligations ....................... 82,313 120 199 82,234
Mortgage-backed securities ................................ 7,304 31 91 7,244
Municipal and other securities ............................ 204,158 169 3,768 200,559
------------ ----------- ----------- ------------
Total debt securities ................................... 318,883 320 4,205 314,998
Investment in FHLB ........................................... 79,094 - - 79,094
------------ ----------- ----------- ------------
Total securities available for sale ..................... $ 397,977 $ 320 $ 4,205 $ 394,092
============ =========== =========== ============
Certain securities having a carrying value of approximately $6.2 million and
$8.4 million at March 31, 2002 and December 31, 2001, respectively, were pledged
to secure FHLB advances and public deposits as required by law.
Mortgage Loans Held for Sale
- ----------------------------
Mortgage loans held for sale were $411 million at March 31, 2002, a decrease of
$338 million, or 45%, from $748 million at December 31, 2001. The decrease was
primarily due to a decrease in residential mortgage loan closings during the
first quarter of 2002 of $711 million compared to $1.4 billion closed during the
fourth quarter of 2001 (loans closed generally remain in loans held for sale for
30 to 60 days after closing).
Portfolio Loans
- ---------------
Total portfolio loans were $3.47 billion at March 31, 2002, an increase of $9
million from $3.46 billion at December 31, 2001. The increase was due to
increases in the commercial real estate mortgage loan and consumer direct
installment loan balances which were offset by decreases in the residential real
estate mortgage loan and consumer indirect loan portfolios. The commercial
portfolio loan balance increased $38 million during the first three months of
2002, for an annualized growth rate of 11%, reflecting continued strong demand
for real estate-secured lending in markets served by the Company. During the
three months ended March 31, 2002 and 2001, the Company closed $10.0 million and
$5.4 million in Small Business Administration (SBA) loans, respectively. The
Company sold $3.3 million and $1.6 million of the guaranteed portion of SBA
loans in the first three months of 2002 and 2001, respectively, resulting in
corresponding gains of $178,000 and $40,000, respectively.
The residential mortgage portfolio loan balance decreased $29 million, or 2%,
since year-end 2001 to $1.48 billion at March 31, 2002. The decrease in
residential mortgage loans was due to an increase of loans being refinanced from
the residential mortgage loan portfolio. The Company refinanced a significant
portion of these mortgage portfolio loans, which are subsequently reflected as
loans held for sale.
The consumer direct installment loan portfolio increased $16 million during the
first three months of 2002 due to an increase in home equity loan closings. The
consumer indirect installment loan portfolio decreased $16 million during the
first quarter of 2002 due to the anticipated runoff of the indirect consumer
loan portfolio.
11
The following table provides further information regarding the Company's loan
portfolio:
March 31, 2002 December 31, 2001
----------------------------- -------------------------------
(Dollars in thousands) Amount Percent Amount Percent
- ----------------------------------------------------------------------------------------------------------------------
Commercial loans:
Commercial and industrial ...................... $ 68,353 2.0% $ 68,428 2.0%
Commercial real estate mortgage ................ 1,332,721 38.4 1,294,634 37.4
----------- ------- ----------- -------
Total commercial loans .................... 1,401,074 40.4 1,363,062 39.4
Residential real estate mortgages ................. 1,482,824 42.8 1,511,831 43.7
Installment loans:
Consumer direct .............................. 512,586 14.8 496,972 14.4
Consumer indirect ............................ 70,816 2.0 86,516 2.5
----------- ------- ----------- -------
Total installment loans .................. 583,402 16.8 583,488 16.9
----------- ------- ----------- -------
Total portfolio loans ...................... $ 3,467,300 100.0% $ 3,458,381 100.0%
=========== ======= =========== =======
Credit Quality
- --------------
The Company attempts to minimize credit risk in the loan portfolio by focusing
primarily on real estate-secured lending (i.e., commercial real estate mortgage
loans, commercial real estate construction loans, residential real estate
mortgage loans, residential real estate construction loans, and home equity
loans). As of March 31, 2002, such loans comprised approximately 94% 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 75% or less and secured by personal guarantees.
The Company originates primarily conventional mortgage loans secured by
residential properties which conform to the underwriting guidelines for sale to
the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac), or conversion to mortgage-backed securities
issued by the Government National Mortgage Association (GNMA). The majority of
the Company's commercial loans is secured by real estate and is generally made
to small and medium-size businesses. These loans are made at rates based on the
prevailing prime interest rates of Republic Bank, as well as fixed rates for
terms generally ranging from three to five years. Management's emphasis on real
estate-secured lending and adherence to conservative underwriting standards is
reflected in the Company's historically low net charge-offs.
Non-Performing Assets
- ---------------------
Non-performing assets consist of non-accrual loans and other real estate owned
(OREO). OREO represents real estate properties acquired through foreclosure or
by deed in lieu of foreclosure. Commercial loans, residential real estate
mortgage loans and installment loans are generally placed on non-accrual status
when principal or interest is 90 days or more past due, unless the loans are
well-secured and in the process of collection. In all cases, loans may be placed
on non-accrual status earlier when, in the opinion of management, reasonable
doubt exists as to the full, timely collection of interest or principal.
The following table summarizes the Company's non-performing assets and 90-day
past due loans:
March 31, December 31,
(Dollars in thousands) 2002 2001
- --------------------------------------------------------------------------------------------------------
Non-Performing Assets:
Non-accrual loans:
Commercial ........................................................ $ 7,012 $ 6,413
Residential real estate mortgages ................................. 14,132 18,808
Installment ....................................................... 2,363 2,957
--------- ---------
Total non-performing loans ...................................... 23,507 28,178
Other real estate owned ............................................. 3,134 2,978
--------- ---------
Total non-performing assets ..................................... $ 26,641 $ 31,156
========= =========
Non-performing assets as a percentage of:
Portfolio loans and OREO .......................................... .77% .90%
Portfolio loans, mortgage loans held for
sale and OREO ............................................... .69% .74%
Total assets ...................................................... .60% .66%
Loans past due 90 days or more and still accruing interest:
Commercial .......................................................... $ 136 $ 144
Residential real estate ............................................. - -
Installment ......................................................... - -
--------- ---------
Total loans past due 90 days or more ............................ $ 136 $ 144
========= =========
12
At March 31, 2002, approximately $37.3 million, or .96% of total loans were
30-89 days delinquent, compared to $40.5 million, or 1.17%, at December 31,
2001.
Provision and Allowance for Loan Losses
- ---------------------------------------
The allowance for loan losses represents the Company's estimate of probable
credit losses related to specifically identified loans as well as probable
credit losses inherent in the remainder of the loan portfolio that have been
incurred as of the balance sheet date. The allowance for loan losses is
maintained at an adequate level through additions to the provision for loan
losses. An appropriate level of the risk allocated allowance is determined based
on the application of risk percentages to graded loans by categories. Specific
reserves are established for individual loans when deemed necessary by
management. In addition, management considers other factors when determining the
unallocated allowance, including loan quality, changes in the size and character
of the loan portfolio, consultation with regulatory authorities, amount of
nonperforming loans, delinquency trends and economic conditions and industry
trends.
SFAS No. 114, Accounting By Creditors for Impairment of a Loan, as amended by
SFAS No. 118, considers a loan impaired when it is probable that payment of
principal and interest will not be collected in accordance with the contractual
terms of the original loan agreement. Consistent with this definition, all
non-accrual and restructured loans (with the exception of residential mortgage
and consumer installment loans) are impaired. An impaired loan for which it is
deemed necessary to record a specific allocated allowance may be written down to
the fair value of the underlying collateral via a direct charge-off against the
allowance for loan losses at the time it is determined the loan balance exceeds
the fair value of the collateral. Consequently, those impaired loans not
requiring a specific allocated allowance represent loans for which the fair
value of the underlying collateral equaled or exceeded the recorded investment
in the loan. All impaired loans were evaluated using the fair value of the
underlying collateral as the measurement method.
It must be understood, however, that inherent risks and uncertainties related to
the operation of a financial institution require management to rely on
estimates, appraisals and evaluations of loans to prepare the Company's
financial statements. Changes in economic conditions and the financial prospects
of borrowers may result in abrupt changes to the estimates, appraisals or
evaluations used. In addition, 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 income
could be significantly impacted.
Net loan charge-offs increased $577,000 to $2.2 million for the three months
ended March 31, 2002 compared to $1.7 million for the same period of 2001. The
increase in 2002 is primarily due to increases in commercial loan charge-offs,
which have been impacted by growth in the commercial real estate loan portfolio
and the overall economy in the Company's primary market areas of Michigan, Ohio
and Indiana. Based on these factors, the Company may have higher loss experience
on such loans in the future. The Company recorded provision for loan losses of
$2.4 million for the three months ended March 31, 2002 compared to $2.0 million
for 2001.
The following table provides an analysis of the allowance for loan losses:
Three Months Ended
March 31,
-------------------------------
(Dollars in thousands) 2002 2001
- -------------------------------------------------------------------------------------------------------------------
Allowance for loan losses:
Balance at January 1 ........................................................... $ 29,157 $ 28,450
Loans charged off ........................................................... (2,583) (1,989)
Recoveries of loans previously charged off .................................. 350 333
----------- -----------
Net charge-offs ........................................................... (2,233) (1,656)
Provision charged to expense ................................................ 2,400 2,000
----------- -----------
Balance at March 31 ............................................................ $ 29,324 $ 28,794
=========== ===========
Annualized net charge-offs as a percentage of average loans
(including loans held for sale) ........................................... .22% .16%
Allowance for loan losses as a percentage of total portfolio loans
outstanding at period-end ................................................. .85% .79%
Allowance for loan losses as a percentage of non-performing
loans ..................................................................... 124.75% 114.38%
Off-Balance Sheet Instruments
- -----------------------------
At March 31, 2002, the Company had outstanding $112 million of commitments to
fund residential real estate loan applications with agreed-upon rates (Interest
Rate Lock Commitments). Interest Rate Lock Commitments and holding residential
mortgage loans for sale to the secondary market exposes the Company to interest
rate risk during the period from application to when the loan is sold to the
investors. To minimize this exposure to interest rate risk, the Company enters
into firm commitments to sell such mortgage loans and Interest Rate Lock
Commitments at specified future dates to various third parties.
13
At March 31, 2002, the Company had outstanding mandatory forward commitments to
sell $506 million of residential mortgage loans, of which $405 million covered
mortgage loans held for sale and $100 million covered Interest Rate Lock
Commitments. These outstanding forward commitments to sell mortgage loans are
expected to settle in the second quarter of 2002 without producing any material
gains or losses.
The Company implemented FAS 133, as amended effective January 1, 2001. The
cumulative effect of the adoption of FAS 133 was not material. For the quarter
ended March 31, 2002, the Company's hedging policies using mandatory forward
commitments, as they relate to Interest Rate Lock Commitments and mortgage loans
held for sale, were highly effective. Therefore, the impact of FAS 133 on net
income was immaterial.
LIABILITIES
- -----------
Total liabilities were $4.02 billion at March 31, 2002, a $339 million, or 8%
decrease from $4.36 billion at December 31, 2001. This decrease was primarily
due to a decrease in FHLB advances, which were used to fund mortgage loans held
for sale.
Deposits
- --------
Total deposits decreased $54 million, or 2%, to $2.70 billion at March 31, 2002
from $2.75 billion at December 31, 2001. Noninterest bearing deposits decreased
$17 million and certificates of deposit decreased $67 million for the quarter,
while NOW and savings and money market accounts increased $30 million since
year-end 2001.
Short-Term Borrowings
- ---------------------
Short-term borrowings with maturities of less than one year, along with the
related average balances and interest rates for the three months ended March 31,
2002 and the year ended December 31, 2001, were as follows:
March 31, 2002 December 31, 2001
------------------------------------- ------------------------------------
Average Average
Ending Average Rate During Ending Average Rate During
(Dollars in thousands) Balance Balance Period Balance Balance Period
- ------------------------------------------------------------------------------------------------------------------------
Federal funds purchased .................. $162,000 $168,690 1.85% $176,000 $ 90,290 3.47%
Other short-term borrowings .............. 548 595 1.23 500 6,140 5.28
-------- -------- ----- -------- -------- ----
Total short-term borrowings ........... $162,548 $169,285 1.85% $176,500 $ 96,430 3.54%
======== ======== ===== ======== ======== ====
At March 31, 2002 and December 31, 2001, other short-term borrowings consisted
of treasury, tax and loan (TT&L) demand notes.
FHLB Advances
- -------------
Republic Bank routinely utilizes FHLB advances, both on a short- and long-term
basis, to provide funding for mortgage loans held for sale and to minimize the
interest rate risk associated with certain fixed rate commercial and residential
mortgage portfolio loans. These advances are generally secured under a blanket
security agreement by first mortgage loans and investment securities with an
aggregate book value equal to at least 145% of the total advances.
FHLB advances outstanding at March 31, 2002 and December 31, 2001, were as
follows:
March 31, 2002 December 31, 2001
------------------------ --------------------------
Average Average
Ending Rate At Ending Rate At
(Dollars in thousands) Balance Period-End Balance Period-End
- -------------------------------------------------------------------------------------------------------------------
Short-term FHLB advances ..................... $ 205,000 3.11% $ 485,000 2.69%
Long-term FHLB advances ....................... 864,718 5.53 815,718 5.59
---------- ---- ---------- ----
Total .................................... $1,069,718 5.07% $1,300,718 4.51%
========== ==== ========== ====
The long-term FHLB advances have original maturities ranging from April 2002 to
October 2017.
Long-Term Debt
- --------------
Long-term debt at March 31, 2002 and December 31, 2001 consisted of $13.5
million of 6.95% Senior Debentures due January 15, 2003.
CAPITAL
- -------
Shareholders' equity was $313 million at March 31, 2002, an $8 million, or 3%,
increase from $305 million at December 31, 2001. This increase primarily
resulted from the retention of $9.6 million in earnings after the payment of
dividends and the repurchase of 299,000 shares of common stock during the first
three months of 2002.
14
The Company is subject to regulatory capital requirements administered by
federal banking agencies. Failure to meet minimum capital requirements can
initiate actions by regulators that, if undertaken, could have an effect on the
Company's financial statements. Capital adequacy guidelines require minimum
capital ratios of 8.00% for Total risk-based capital, 4.00% for Tier 1
risk-based capital and 3.00% for Tier 1 leverage. To be considered
well-capitalized under the regulatory framework for prompt corrective action,
minimum capital ratios of 10.00% for Total risk-based capital, 6.00% for Tier 1
risk-based capital and 5.00% for Tier 1 leverage must be maintained.
As of March 31, 2002, the Company met all capital adequacy requirements to which
it is subject and management does not anticipate any difficulty in meeting these
requirements on an ongoing basis. The Company's capital ratios were as follows:
March 31, December 31,
2002 2001
------------- ------------
Total capital to risk-weighted assets /(1)/ ................................. 13.21% 12.31%
Tier 1 capital to risk-weighted assets /(1)/ ................................ 12.28 11.43
Tier 1 capital to average assets /(1)/ ...................................... 8.56 8.34
/(1)/ As defined by the regulations.
As of March 31, 2002, the Company's total risk-based capital was $416 million
and Tier 1 risk-based capital was $387 million, an excess of $101 million and
$198 million, respectively, over the minimum guidelines prescribed by regulatory
agencies for a well-capitalized institution. In addition, Republic Bank had
regulatory capital ratios in excess of the minimum levels established for
well-capitalized institutions.
FORWARD-LOOKING STATEMENTS
- --------------------------
The section that follows entitled "Market Risk Management" contains certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements involve certain
risks, uncertainties, estimates and assumptions by management, which may cause
actual results to differ materially from those contemplated by such statements.
MARKET RISK MANAGEMENT
- ----------------------
Market risk is the risk of loss arising from adverse changes in the fair value
of financial instruments due to changes in interest rates, foreign exchange
rates and equity prices. The Company's market risk exposure is composed entirely
of interest rate risk. Interest rate risk arises in the normal course of
business to the extent that there is a difference between the amount of the
Company's interest-earning assets and interest-bearing liabilities that are
prepaid/withdrawn, reprice or mature in specified periods.
The primary objective of asset and liability management is to maintain stability
in the level of net interest income by producing the optimal yield and maturity
mix of assets and liabilities within the interest rate risk limits set by the
Company's Asset and Liability Management Committee (ALCO) and consistent with
projected liquidity needs and capital adequacy requirements.
The Company's ALCO, which meets weekly, is responsible for reviewing the
interest rate sensitivity position of the Company and establishing policies to
monitor and limit exposure to interest rate risk. Senior management is
responsible for ensuring that the Bank asset and liability management procedures
adhere to corporate policies and risk limits established by its respective board
of directors.
The Company utilizes two complementary quantitative tools to measure and monitor
interest rate risk: static gap analysis and earnings simulation modeling. Each
of these interest rate risk measurements has limitations, but when evaluated
together, they provide a reasonably comprehensive view of the exposure the
Company has to interest rate risk.
Static Gap Analysis: Static gap analysis is utilized at the end of each month to
measure the amount of interest rate risk embedded in the balance sheet as of a
point in time. It does this by comparing the differences in the repricing
characteristics of interest-earning assets and interest-bearing liabilities. A
gap is defined as the difference between the principal amount of
interest-earning assets and interest-bearing liabilities that reprice within a
specified time period. This gap provides a general indication of the sensitivity
of the Company's net interest income to interest rate changes. Consequently, if
more assets than liabilities reprice or mature in a given period, resulting in
an asset sensitive position or positive gap, increases in market interest rates
will generally benefit net interest income because earning asset rates will
reflect the changes more quickly. Alternatively, where interest-bearing
liabilities reprice more quickly than interest-earning assets, resulting in a
liability sensitive position or negative gap, increases in market interest rates
will generally have an adverse impact on net interest income. At March 31, 2002,
the Company's cumulative one-year gap was a positive 6.10% of total earning
assets.
The Company's current policy is to maintain a mix of asset and liabilities with
repricing and maturity characteristics that permit a moderate amount of
short-term interest rate risk based on current interest rate projections,
customer credit demands and deposit preferences. The Company generally operates
in a range of plus or minus 10% of total earning assets for the cumulative
one-year gap. Management believes that this range reduces the vulnerability of
net interest income to large shifts in market interest rates while allowing the
Company to take advantage of fluctuations in current short-term rates.
15
Earnings Simulation Modeling: On a monthly basis, the earnings simulation model
is used to quantify the effects of various hypothetical changes in interest
rates on the Company's projected net interest income over the ensuing
twelve-month period. The model permits management to evaluate the effects of
various parallel shifts of the U.S. Treasury yield curve, upward and downward,
on net interest income expected in a stable interest rate environment (i.e.,
base net interest income).
As of March 31, 2002, the earnings simulation model projects net interest income
would increase by 3.5% of base net interest income, assuming an immediate
parallel shift upward in market interest rates by 200 basis points. If market
interest rates fall by 200 basis points, the model projects net interest income
would decrease by 4.6%. These projected levels are well within the Company's
policy limits. These results portray the Company's interest rate risk position
as neutral for the one-year horizon. The earnings simulation model assumes that
current balance sheet totals remain constant and all maturities and prepayments
of interest-earning assets and interest-bearing liabilities are reinvested at
current market rates.
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
In the ordinary course of business, the Company and its subsidiaries
are parties to certain routine litigation. In the opinion of
management, the aggregate liabilities, if any, arising from such legal
proceedings would not have a material adverse effect on the Company's
consolidated financial position, results of operations and liquidity.
Item 2. Changes in Securities
---------------------
On February 21, 2002, the Board of Directors declared a quarterly cash
dividend of $0.085 per share of common stock, payable on April 8, 2002
to shareholders of record March 14, 2002.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Republic Bancorp Inc. held its 2002 Annual Meeting of Shareholders on
April 24, 2002. The following directors were elected at the annual
meeting to serve until the next annual meeting:
Director For Abstentions
-------- --- -----------
Jerry D. Campbell 42,571,731 377,965
Dana M. Cluckey 44,598,543 377,965
George J. Butvilas 44,589,498 377,965
Mary P. Cauley 44,070,658 377,965
Richard J. Cramer, Sr. 44,582,303 377,965
Dr. George A. Eastman 44,096,390 377,965
Howard J. Hulsman 44,593,499 377,965
Gary Hurand 44,593,829 377,965
Dennis J. Ibold 44,099,426 377,965
Stanley A. Jacobson 44,597,246 377,965
John J. Lennon 44,581,666 377,965
Sam H. McGoun 44,602,602 377,965
Kelly E. Miller 44,073,249 377,965
Randolph P. Piper 43,453,862 377,965
Dr. Isaac J. Powell 44,303,726 377,965
B. Thomas M. Smith, Jr. 44,608,584 377,965
Dr. Jeoffrey K. Stross 44,061,466 377,965
Steven E. Zack 44,587,637 377,965
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(12) Computations of ratios of earnings to fixed charges.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the first quarter
of 2002.
17
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, 2002 BY: /s/ Thomas F. Menacher
-----------------------------------
Thomas F. Menacher
Executive Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
18