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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1994 Commission File Number 0-15734
REPUBLIC BANCORP INC.
(Exact name of registrant as specified in its charter)
Michigan 38-260-4669
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1070 East Main Street, Owosso, Michigan 48867
(Address of principal executive offices)
(517) 725-7337
(Registrant's telephone number, including area code)
----------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
------ -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock Outstanding as of May 9, 1994:
Common Stock, $5 Par Value . . . . . . . . . . . 13,804,465 Shares
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<PAGE>
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 1994
and December 31, 1993 . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income for the Three
Months Ended March 31, 1994 and 1993. . . . . . . . . . 2
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1994 and 1993. . . . . . . 3
Notes to Unaudited Consolidated Financial
Statements. . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 19
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . 19
Item 3. Defaults upon Senior Securities. . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Security Holders. . . 19
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . 19
Item 6. Exhibit and Reports on Form 8-K. . . . . . . . . . . . . 19
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Statements RE: Computation of Per Share Earnings. . . . . . . . . Exhibit A
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
March 31, Dec. 31,
1994 1993
<S> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . . . . . . $ 26,590 $ 23,508
Other cash investments. . . . . . . . . . . . . . . 1,859 4,517
Federal funds sold. . . . . . . . . . . . . . . . . 33,633 -
Cash and cash equivalents . . . . . . . . . . . . . 62,082 28,025
Mortgage loans held for sale. . . . . . . . . . . . 299,240 507,795
Securities:
Held to maturity (aggregate market value of
$151,359, 1994 and $108,360, 1993) . . . . . . 154,553 107,398
Available for sale (amortized cost of
$167,197 at March 31, 1994). . . . . . . . . . 167,137 -
Held for sale (aggregate market value of
$51,794 at December 31, 1993). . . . . . . . . - 51,044
Loans . . . . . . . . . . . . . . . . . . . . . . . 423,357 407,117
Less allowance for loan losses . . . . . . . . . 6,595 7,214
Net loans . . . . . . . . . . . . . . . . . . . . . 416,762 399,903
Premises and equipment, net . . . . . . . . . . . . 16,792 16,295
Purchased mortgage servicing rights . . . . . . . . 19,105 18,428
Other assets. . . . . . . . . . . . . . . . . . . . 49,729 41,706
Total assets. . . . . . . . . . . . . . . . . $1,185,400 $1,170,594
LIABILITIES
Deposits:
Non-interest bearing . . . . . . . . . . . . . . $ 147,523 $ 153,474
Interest bearing . . . . . . . . . . . . . . . . 666,524 680,260
Total deposits. . . . . . . . . . . . . . . . 814,047 833,734
Federal funds purchased and reverse
repurchase agreements . . . . . . . . . . . . . . 34,290 35,572
Short-term borrowings . . . . . . . . . . . . . . . 63,959 101,273
FHLB advances . . . . . . . . . . . . . . . . . . . 61,000 23,000
Accrued and other liabilities . . . . . . . . . . . 50,235 45,123
Long-term debt. . . . . . . . . . . . . . . . . . . 44,784 19,970
Total liabilities . . . . . . . . . . . . . . 1,068,315 1,058,672
Minority Interest . . . . . . . . . . . . . . . . . 355 489
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; 13,804,465 and 13,747,771 shares
issued and outstanding, respectively. . . . . . . 69,022 68,739
Capital surplus . . . . . . . . . . . . . . . . . . 27,298 27,229
Unrealized loss on securities available for sale. . (39) -
Retained earnings . . . . . . . . . . . . . . . . . 20,449 15,465
Total shareholders' equity. . . . . . . . . . . . 116,730 111,433
Total liabilities and shareholders' equity. . $1,185,400 $1,170,594
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
INTEREST INCOME
Loans, including fees . . . . . . . . . . . . . . . . . . . . $12,890 $14,851
Securities:
Held to maturity . . . . . . . . . . . . . . . . . . . . . 1,357 2,957
Available for sale . . . . . . . . . . . . . . . . . . . . 1,299 -
Held for sale. . . . . . . . . . . . . . . . . . . . . . . - 367
Money market investments. . . . . . . . . . . . . . . . . . . 350 684
Total interest income . . . . . . . . . . . . . . . . . . 15,896 18,859
INTEREST EXPENSE
Demand deposits . . . . . . . . . . . . . . . . . . . . . . . 593 417
Savings and time deposits . . . . . . . . . . . . . . . . . . 5,850 8,617
Short-term borrowings . . . . . . . . . . . . . . . . . . . . 1,159 983
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . 302 436
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . 459 377
Total interest expense. . . . . . . . . . . . . . . . . . 8,363 10,830
Net interest income . . . . . . . . . . . . . . . . . . . . . 7,533 8,029
Provision for loan losses . . . . . . . . . . . . . . . . . . 47 117
Net interest income after provision for loan losses . . . . . 7,486 7,912
NON-INTEREST INCOME
Service charges . . . . . . . . . . . . . . . . . . . . . . . 352 356
Mortgage banking. . . . . . . . . . . . . . . . . . . . . . . 27,823 15,196
Gain on sale of securities. . . . . . . . . . . . . . . . . . 483 -
Gain on sale of SBA loans . . . . . . . . . . . . . . . . . . 234 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508 263
Total non-interest income . . . . . . . . . . . . . . . . 29,400 15,815
NON-INTEREST EXPENSE
Salaries and employee benefits. . . . . . . . . . . . . . . . 16,872 9,419
Occupancy expense of premises . . . . . . . . . . . . . . . . 1,299 1,009
Equipment expense . . . . . . . . . . . . . . . . . . . . . . 1,044 658
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,256 5,428
Minority interest . . . . . . . . . . . . . . . . . . . . . . - 11
Total non-interest expense. . . . . . . . . . . . . . . . 27,471 16,525
Income before income taxes. . . . . . . . . . . . . . . . . . 9,415 7,202
Provision for income taxes. . . . . . . . . . . . . . . . . . 3,333 2,403
Net income before cumulative effect of change in
accounting principle. . . . . . . . . . . . . . . . . . . . 6,082 4,799
Cumulative effect of change in accounting principle . . . . . - 950
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,082 $ 5,749
NET INCOME PER COMMON SHARE
Income before cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . . . . . . . . . . $ .43 $ .35
Cumulative effect of change in accounting principle . . . . . - .07
Net income per common shares outstanding - primary and
fully diluted . . . . . . . . . . . . . . . . . . . . . . . $ .43 $ .42
Average common shares outstanding - fully diluted . . . . . . 14,294 13,848
Cash dividend declared per common share . . . . . . . . . . . $ .08 $ .05
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . $ 6,082 $ 5,749
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . 1,040 685
Amortization of purchased mortgage servicing
rights. . . . . . . . . . . . . . . . . . . . . . 1,350 563
Provision for loan losses . . . . . . . . . . . . . 47 117
Gain on sale of mortgage servicing rights . . . . . (15,756) (3,390)
Gain on sale of securities available for sale . . . (483) -
Gain on sale of loans . . . . . . . . . . . . . . . (654) -
(Increase)/decrease in interest receivable. . . . . (437) 304
Increase in interest payable. . . . . . . . . . . . 35 52
Increase/(decrease) in deferred loan fees . . . . . (403) 305
Net premium amortization/(discount accretion)
on securities . . . . . . . . . . . . . . . . . . 206 (160)
Decrease in other assets. . . . . . . . . . . . . . 25,814 809
Increase in other liabilities . . . . . . . . . . . 4,833 3,057
Proceeds from sale of loans held for sale . . . . . 1,226,088 634,612
Origination of loans held for sale. . . . . . . . . (1,017,533) (637,062)
Total adjustments. . . . . . . . . . . . . . . 224,147 (108)
Net cash provided by operating activities . . . . . . . 230,229 5,641
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mortgage servicing rights . . . . . . . . . (9,557) (3,949)
Net increase in receivable on sale of mortgage
servicing rights. . . . . . . . . . . . . . . . . . . (16,666) (2,266)
Proceeds from sale of mortgage servicing rights . . . . 7,428 2,866
Proceeds from sale of securities available for sale . . 32,649 -
Proceeds from maturities/principal payments of
securities available for sale . . . . . . . . . . . . 12,141 -
Proceeds from maturities/principal payments of
securities held to maturity . . . . . . . . . . . . . 6,746 7,115
Proceeds from maturities/principal payments of
securities held for sale. . . . . . . . . . . . . . . - 10,735
Purchase of securities available for sale . . . . . . . (88,853) -
Purchase of securities held to maturity . . . . . . . . (126,154) (39,910)
Purchase of securities held for sale. . . . . . . . . . - (17,660)
Proceeds from sale of loans . . . . . . . . . . . . . . 8,763 1,086
Net increase in loans made to customers . . . . . . . . (24,704) (5,026)
Premises and equipment expenditures . . . . . . . . . . (1,308) (3,338)
Net cash used in investing activities . . . . . . . . . (199,515) (50,347)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
(continued)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts and
savings accounts. . . . . . . . . . . . . . . . . . . . 881 20,913
Net decrease in certificates of deposit . . . . . . . . . (20,568) (16,112)
Net decrease in short-term borrowings . . . . . . . . . . (596) (3,942)
Net proceeds from issuance of common shares . . . . . . . 325 321
Dividends paid. . . . . . . . . . . . . . . . . . . . . . (1,098) (549)
Net decrease in minority interest . . . . . . . . . . . . (134) (379)
Payments on long-term debt. . . . . . . . . . . . . . . . (186) (3,811)
Proceeds from issuance of subordinated notes,
net of issuance cost. . . . . . . . . . . . . . . . . . - 16,492
Proceeds from issuance of senior debentures,
net of issuance cost. . . . . . . . . . . . . . . . . . 24,719 -
Net cash provided by financing activities . . . . . . . . 3,343 12,933
Net increase/(decrease) in cash and cash equivalents. . . 34,057 (31,773)
Cash and cash equivalents at beginning of period. . . . . 28,025 97,855
Cash and cash equivalents at end of period. . . . . . . . $ 62,082 $ 66,082
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . $ 8,328 $ 10,778
Income taxes. . . . . . . . . . . . . . . . . . . . . . 3,403 2,713
<FN>
Non-cash investing activities:
- - - During the three months ended March 31, 1994 and 1993, the Company
incurred charge-offs on portfolio loans of $726,000 and $29,000,
respectively.
- - - During the three months ended March 31, 1993, the Company
securitized residential real estate portfolio loans into mortgage-
backed securities held for sale of $18.6 million.
</TABLE>
4
<PAGE>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 1994 and 1993
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements of Republic Bancorp Inc.
("Republic" or the "Company") and subsidiaries are prepared in accordance
with generally accepted accounting principles for interim financial
information, the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all normal, recurring adjustments necessary to
present fairly the consolidated operating results of the Company and its
subsidiaries for the three months ended March 31, 1994 and 1993, as well as
the financial position at March 31, 1994 and cash flows for the three months
ended March 31, 1994 and 1993.
Certain reclassifications have been made in the consolidated financial
statements for 1993 to conform with the 1994 presentation.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Republic
Bancorp Inc., and the accounts of three wholly owned subsidiaries: Republic
Bank, Republic Bancorp Mortgage Inc. and Horizon Savings Bank, and Market
Street Mortgage Corporation, of which the Company owns an 80% majority
interest. CUB Funding Corporation, which was acquired in November 1993, is
operating as a division of Market Street Mortgage Corporation. The Company's
financial statements have been restated for the effect of the acquisition of
Horizon Financial Services Inc. on June 30, 1993, which was accounted for
under the "pooling of interest" method of accounting. All significant
intercompany transactions and balances have been eliminated in consolidation.
3. ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
In May 1993, the Financial Accounting Standards Board issued Statement No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
effective for fiscal years beginning after December 15, 1993. Republic
Bancorp Inc. adopted Statement No. 115 for the financial period beginning
January 1, 1994.
In accordance with Statement No. 115, Securities Held to Maturity include
only those securities which the Company has the positive intent and ability
to hold until maturity. Such securities are carried at cost adjusted for
amortization of premium and accretion of discount, computed in a manner which
approximates the effective interest method. Securities held to maturity
consist primarily of U.S. Treasuries and U.S. Government Agency obligations,
and fixed rate mortgage-backed securities and collateralized mortgage
obligations.
5
<PAGE>
In accordance with Statement No. 115, Securities Available for Sale include
only those securities available to be sold prior to final maturity. The
Company classifies securities available for sale based on management of its
asset and liability position and liquidity needs. Using the specific
identification method such securities are carried at market value, with a
corresponding market value adjustment carried, net of tax, as a separate
component of stockholders' equity. The adjusted cost of each security sold
is used to compute realized gains or losses on the sales of these securities.
Securities available for sale consist primarily of adjustable rate
mortgage-backed securities. The adoption of Statement No. 115 had no
material impact on the Company's financial condition.
The following is a summary of available for sale securities and held to
maturity securities:
<TABLE>
<CAPTION>
Available for Sale Securities
Gross Gross Estimated
Unrealized Unrealized Fair
March 31, 1994 (in thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury Obligations . . . . . . . - - - -
U.S. Government Agency Obligations. . . $ 10,366 $ 60 $ 62 $ 10,364
Collateralized Mortgage Obligations . . 5,809 28 63 5,774
Mortgage-Backed Securities. . . . . . . 147,598 942 965 147,575
Other Securities. . . . . . . . . . . . 3,424 - - 3,424
$167,197 $1,030 $1,090 $167,137
<CAPTION>
Held to Maturity Securities
Gross Gross Estimated
Unrealized Unrealized Fair
March 31, 1994 (in thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury Obligations . . . . . . . $ 28,099 $ 2 $ 168 $ 27,933
U.S. Government Agency Obligations. . . 1,991 - 16 1,975
Collateralized Mortgage Obligations . . 108,915 31 2,881 106,065
Mortgage-Backed Securities. . . . . . . 13,952 71 284 13,739
Other Securities. . . . . . . . . . . . 1,596 51 - 1,647
$154,553 $155 $3,349 $151,359
</TABLE>
The gross realized gains and losses on sales of available for sale
securities totaled $483,000 and $0, respectively, for the quarter ended
March 31, 1994.
6
<PAGE>
The following tables detail the components of the securities held to maturity
and securities available for sale portfolio and the amortized cost and market
value of the portfolio classified by maturity at March 31, 1994. Expected
maturities will differ from contractual maturities because the issuers of the
securities may have the right to prepay obligations without prepayment
penalties.
SECURITIES HELD TO MATURITY
Maturity Distribution
($ in thousands)
March 31, 1994
<TABLE>
<CAPTION>
U.S. Govt. Collateralized Mortgage-
U.S. Treas. Agency Mortgage Backed Other
Obligations Obligations Obligations Securities Securities Total
--------------- -------------- ----------------- --------------- ---------------- ------------------
Book Mkt. Book Mkt. Book Mkt. Book Mkt. Book Mkt. Book Mkt.
Value Value Value Value Value Value Value Value Value Value Value Value
------- ------- ------- ------- -------- -------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Due within one year $ 1,000 $ 1,001 - - - - - - $ 220 $ 220 $ 1,220 $ 1,221
One to five years 27,099 26,932 $1,991 $1,975 $ 2,616 $ 2,602 $ 5,521 $ 5,438 152 158 37,379 37,105
Five to ten years - - - - 15,308 15,007 8,431 8,301 244 255 23,983 23,563
After ten years - - - - 90,991 88,456 - - 980 1,014 91,971 89,470
$28,099 $27,933 $1,991 $1,975 $108,915 $106,065 $13,952 $13,739 $1,596 $1,647 $154,553 $151,359
</TABLE>
SECURITIES AVAILABLE FOR SALE
Maturity Distribution
($ in thousands)
March 31, 1994
<TABLE>
<CAPTION>
U.S. Govt. Collateralized Mortgage-
U.S. Treas. Agency Mortgage Backed Other
Obligations Obligations Obligations Securities Securities Total
------------- ---------------- --------------- ------------------- --------------- ------------------
Book Mkt. Book Mkt. Book Mkt. Book Mkt. Book Mkt. Book Mkt.
Value Value Value Value Value Value Value Value Value Value Value Value
----- ----- ------- ------- ------ ------ -------- -------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Due within one year - - - - - - - - $3,424 $3,424 $ 3,424 $ 3,424
One to five years - - $ 9,216 $ 9,210 - - - - - - 9,216 9,210
Five to ten years - - 1,150 1,154 - - - - - - 1,150 1,154
After ten years - - - - $5,809 $5,774 $147,598 $147,575 - - 153,407 153,349
- - $10,366 $10,364 $5,809 $5,774 $147,598 $147,575 $3,424 $3,424 $167,197 $167,137
</TABLE>
7
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MORTGAGE BANKING
During the first quarter of 1994, the Company closed $1.04 billion in
single-family, owner occupied, residential mortgage loans, compared to
$658 million during the first quarter of 1993, an increase of 58%. The
increase in mortgage loan closings was primarily attributable to the
expansion of the Company's mortgage banking operation.
The increase in mortgage loan volume resulted in an increase of mortgage
banking income of $12.6 million, or 83% from $15.2 million in the first
quarter of 1993 to $27.8 million in the same period in 1994. A breakdown
of income from mortgage banking activities is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
Net mortgage loan servicing fees. . . . . . $ 1,453 $ 1,439
Origination fee income. . . . . . . . . . . 8,619 5,539
Gain on sale of mortgages . . . . . . . . . 1,997 4,828
Gain on sale of servicing . . . . . . . . . 15,754 3,390
Total mortgage banking income. . . . . $27,823 $15,196
</TABLE>
The Company's retail mortgage loan closings increased to $530 million during
the first quarter of 1994, compared to $316 million during the same period in
1993, an increase of 67%. The increase in total loan closings, combined with
the higher percentage of retail mortgage closings resulted in an increase in
origination fee income of $3.1 million, or 56% over the first quarter of
1993.
The majority of the Company's residential mortgage production during 1994 and
1993 has been long-term fixed rate mortgages. The Company typically sells
all of its long-term fixed rate and a significant portion of its variable
rate mortgages to the secondary market. During the first quarter of 1994,
the Company's gain on the sale of mortgages decreased 59% from the first
quarter of 1993 to $2.0 million due to decline in margins from rising
interest rates.
During the first quarters of 1994 and 1993, the Company sold both purchased
and originated mortgage servicing rights on loans with principal balances of
$2.1 billion and $414 million, respectively, resulting in gains of $15.8 and
$3.4 million, respectively.
The remainder of the Management's Discussion and Analysis provides various
disclosures and analyses relating principally to the commercial banking
segment.
8
<PAGE>
RESULTS OF OPERATIONS
- - ---------------------
NET INTEREST INCOME
Net interest income totaled $7.5 million for the three-month period ended
March 31, 1994, compared to $8.0 million earned for the same period in 1993.
The decrease in net interest income was comprised of a $3.0 million decrease
in interest income, partially offset by a $2.5 million decrease in interest
expense. The net interest margin decreased slightly from 3.13% for the first
three months of 1993 to 3.08% for the three months ended March 31, 1994. The
decrease in both interest income and interest expense was due to a decrease
in interest earning assets and interest bearing liabilities and general
declines in interest rates earned and paid over the last twelve months.
Average earning balances declined 4.5% or $45.7 million, to $979.9 million
from March 31, 1993 to March 31, 1994. In addition, the yield on average
earning assets decreased from 7.36% to 6.49%, resulting in a net decrease of
$3.0 million in interest income. Primary factors in the decline in yield on
interest earning assets were the 111 basis points decline in average rates
earned on mortgage loans held for sale, and the 136 basis points decline in
average rates earned on real estate mortgage loans, which reprice annually
based on the one-year Constant Maturity Treasury index, plus a margin.
Interest expense for the first quarter of 1994 decreased $2.5 million
compared to the same period in 1993. This decrease was a result of average
interest bearing liabilities decreasing $101.3 million, or 11.2% to $802.7
million at March 31, 1994 and the average rates paid on liabilities falling
from 4.79% to 4.17%. The decrease in interest bearing liabilities is due
principally to the decrease in time deposits which also contributed to the
decrease in the Company's overall cost of interest bearing deposits.
Also having a positive impact on net interest income was an increase of $42.1
million in average non-interest bearing deposit balances to $124.5 million in
the first quarter of 1994 compared to 1993. This increase is primarily due
to increases in drafts outstanding used to fund a portion of the mortgage
loans held for sale and increases in escrow balances for the servicing of
mortgage loans.
The following table presents an analysis of average balances and rates for
each of the three month periods ended March 31, 1994 and 1993.
9
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1994 March 31, 1993
--------------------------- -----------------------------
Average Avg. Average Avg.
Balance(1) Interest Rate Balance(1) Interest Rate
---------- -------- ----- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Average Assets:
Money market investments:
Federal funds sold $ 43,434 $ 341 3.14% $ 89,481 $ 642 2.87%
Other - - - 5,252 30 2.28
Mortgage loans held for sale 304,772 4,993 6.55% 180,201 3,452 7.66
Securities 219,945 2,665 4.85 228,484 3,336 5.84
Commercial loans 128,621 2,774 8.63 191,039 4,349 9.11
Real estate mortgage loans 234,944 4,099 6.98 283,655 5,912 8.34
Installment loans 48,158 1,024 8.51 47,445 1,138 9.59
Total loans, net of unearned
income 411,723 7,897 7.67 522,139 11,399 8.73
Total interest earning
assets 979,874 15,896 6.49 1,025,557 18,859 7.36
Allowance for loan losses (7,168) (7,745)
Cash and due from banks 24,963 20,025
Other assets 94,787 63,835
Total assets $1,092,456 $1,101,672
Average Liabilities and
Shareholders' Equity:
Deposits:
Interest bearing demand
deposits $ 89,736 593 2.64 $ 58,841 417 2.83
Savings deposits 168,367 1,210 2.87 180,839 1,329 2.94
Time deposits 413,195 4,640 4.49 558,813 7,288 5.22
Total interest bearing
deposits 671,298 6,443 3.84 798,493 9,034 4.53
Short-term borrowings 86,981 1,159 5.33 62,789 984 6.27
FHLB advances 24,394 302 4.95 25,000 436 7.00
Long-term debt 19,992 459 9.18 17,694 376 8.50
Total interest bearing
liabilities 802,665 8,363 4.17 903,976 10,830 4.79
Non-interest bearing deposits 124,495 82,389
Other liabilities 51,444 28,163
Total liabilities 978,604 1,014,528
Shareholders' equity 113,852 87,144
Total liabilities and
shareholders' equity $1,092,456 $1,101,672
Net interest income $ 7,533 $ 8,029
Net interest spread 2.32% 2.57%
Net interest margin 3.08% 3.13%
<FN>
(1) Non-accrual loans and overdrafts are included in average balances.
No significant amounts of tax-exempt income were earned by the Company
or its subsidiaries during 1994 or 1993.
</TABLE>
10
<PAGE>
Net interest income can be analyzed in terms of the impact of changing
rates and changing volumes of interest earning assets and interest
bearing liabilities. The following table sets forth certain information
regarding changes in net interest income due to changes in the average
balance of interest earning assets and interest bearing liabilities and
due to changes in average rates for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 versus 1993
Increase (Decrease) Due to Change In:
Average Average Net
Balance(1) Rate(1) Change
<S> <C> <C> <C>
Interest income:
Money market investments $ (396) $ 65 $ (331)
Mortgage loans held for sale 2,101 (560) 1,541
Securities (122) (549) (671)
Loans, net of unearned income (2) (2,225) (1,277) (3,502)
Total interest income (642) (2,321) (2,963)
Interest expense:
Interest bearing demand deposits $ 206 $ (30) $ 176
Savings deposits (88) (31) (119)
Time deposits (1,724) (924) (2,648)
Total interest bearing deposits (1,606) (985) (2,591)
Short-term borrowings 338 (163) 175
FHLB advances (11) (123) (134)
Long-term debt 51 32 83
Total interest expense (1,228) (1,239) (2,467)
Net interest income $ 586 $(1,082) $ (496)
<FN>
(1) Any variance attributable jointly to volume and rate changes is
allocated to volume and rate in proportion to the relationship of
the absolute dollar amount of the change in each.
(2) Non-accrual loans are included in average balances
</TABLE>
11
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense for the three-month period ended March 31, 1994
increased to $27.5 million compared to $16.5 million for the same period in
1993. Salaries and employee benefits are the largest portion of non-interest
expense, totalling $16.9 million and $9.4 million, or 61% and 57% of total
non-interest expense, for the three-month periods ended March 31, 1994 and
1993, respectively. The increase in salaries and employee benefits and in
other non-interest expenses can be attributed to the increased mortgage loan
volume and the Company's expanded mortgage delivery system, including the
operations of CUB Funding Corporation.
FINANCIAL CONDITION
ASSETS
Total assets at March 31, 1994 were $1.19 billion, which represents an
increase of $15 million over the $1.17 billion at December 31, 1993. The
increase in assets since December 31, 1993 was primarily in securities and
cash and cash equivalents, offset by a decline in mortgage loans held for
sale. The decrease in mortgage loans held for sale was primarily a result of
rising interest rates and a decrease in residential loan closings from the
quarter ended December 31, 1993. The corresponding increase in securities
was a result of investing funds made available due to the decrease in
mortgage loans held for sale. The increase in cash and cash equivalents is
primarily due to the proceeds received from the $25 million senior debentures
private offering completed on March 31, 1994.
LOANS
Total loans, excluding loans held for sale, at March 31, 1994 increased $16.2
million to $423.3 million from $407.1 million. Residential real estate loans
increased $25.4 million to 60.1% of total loans at March 31, 1994 from 56.3%
at December 31, 1993. Commercial loans, including commercial loans secured
by real estate, decreased slightly to $122.5 million or 28.9% of total loans
at March 31, 1994. Mortgage loans held for sale decreased to $299 million at
March 31, 1994 from $508 million at December 31, 1993.
During the period ended March 31, 1994, the Company closed $2.2 million of
Small Business Administration (SBA) loans. The Company also sold $3.1
million of SBA loans during the quarter resulting in gains of $234,000.
The Company attempts to minimize credit risk in its loan portfolio by
focusing primarily on residential real estate mortgages and real estate-
secured commercial lending. As of March 31, 1994, these loans comprised
83.3% of the total loan portfolio, excluding loans held for sale. The
Company's general policy is to originate conventional real estate mortgages
with loan to value ratios of 80% or less and real estate-secured commercial
loans with loan to value ratios of 70% or less. The substantial majority of
the Company's mortgage loans are conventional loans which are secured by
residential properties and which comply with the requirements for sale to or
conversion to mortgage-backed securities issued by the Federal Home Loan
Mortgage Corporation ("FHLMC") or Federal National Mortgage Association
("FNMA").
12
<PAGE>
The majority of the Company's commercial loans are secured by real estate and
are made to small and medium-sized businesses. These loans or lines of
credit are generally made at rates based on the prevailing prime interest
rates of the subsidiary banks and are adjusted periodically. The focus of
the Company on real estate-secured lending with lower loan to value ratios is
generally reflected in the low net charge-off ratio percentages.
The Company has not emphasized installment loans and, excluding home equity
loans, does not intend to emphasize these loans in the future. The following
table summarizes the composition of the Company's loan portfolio:
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
--------------- ----------------
Amount % Amount %
-------- ------ --------- ------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Commercial Loans:
Secured by real estate. . . . $ 98,028 23.2% $ 94,428 23.2%
Other (generally secured) . . 24,443 5.8 32,114 7.9
Total commercial loans. . . 122,471 29.0% 126,542 31.1
Residential real estate
mortgages. . . . . . . . . . . 254,603 60.1 229,203 56.3
Installment loans. . . . . . . . 46,283 10.9 51,372 12.6
Total portfolio loans . . . $423,357 100.0% $407,117 100.0%
</TABLE>
At March 31, 1994 and December 31, 1993, the Company had commitments to
fund residential real estate loan applications with agreed-upon rates of
$455.9 million and $418.7 million, respectively. Offsetting the interest
rate risk associated with these commitments, as well as mortgage loans
held for sale, Republic has entered into firm agreements to sell $568.8
million of residential mortgage loans to various third parties of which
$299.2 million relates to the balances of mortgage loans held for sale at
March 31, 1994 with the remaining $269.6 million relating to those
commitments for real estate loan applications with agreed-upon interest
rates. At December 31, 1993, Republic had entered into firm agreements to
sell $669.4 million of residential mortgage loans of which $507.8 million
related to the balances of mortgage loans held for sale with the
remaining $161.6 million relating to those commitments for residential
real estate loan applications with agreed-upon interest rates.
NON-PERFORMING ASSETS
Loans held in portfolio are reviewed on a regular basis and are placed on
non-accrual status when, in the opinion of management, reasonable doubt
exists as to the full, timely collection of interest or principal. Real
estate acquired by the Company as a result of foreclosure or by deed in
lieu of foreclosure is classified as other real estate owned ("OREO")
until such time as it is sold. The following table provides information
with respect to the Company's past due loans and the components of non-
performing assets at the dates indicated.
13
<PAGE>
<TABLE>
<CAPTION>
March 31, Dec. 31, March 31,
1994 1993 1993
<S> <C> <C> <C>
(Dollars in thousands)
Loans past due 90 days or more and still
accruing interest:
Commercial $ 50 $ 217 $ 29
Residential real estate mortgages - - -
Installment 65 93 6
Total $ 115 $ 310 $ 35
Non-accrual loans:
Commercial $1,178 $1,812 $1,616
Residential real estate mortgages 80 803 1,147
Installment 297 108 34
Total 1,555 2,723 2,797
Restructured loans 2,136 2,140 2,140
Other real estate owned 936 405 2,518
Total non-performing assets $4,627 $5,268 $7,455
Non-performing assets as a percentage of:
Total loans and OREO (1) 1.09% 1.29% 1.65%
Total loans and OREO (2) .65% .58% .98%
Total assets .39% .45% .65%
<FN>
(1) Excluding mortgage loans held for sale.
(2) Including mortgage loans held for sale.
</TABLE>
At March 31, 1994, approximately $2.9 million, or .68% of portfolio loans
were 30-89 days delinquent.
ALLOWANCE FOR ESTIMATED LOAN LOSSES
Management is responsible for maintaining an adequate allowance for estimated
loan losses. The appropriate level of the allowance for estimated loan
losses is determined by systematically reviewing the loan portfolio quality,
analyzing economic changes, consulting with regulatory agencies and reviewing
historical loan loss experience. Actual net losses are charged against this
allowance. If actual circumstances and losses differ substantially from
management's assumptions and estimates, such reserves for loan losses may not
be sufficient to absorb all future losses, and net earnings could be
significantly and adversely affected. Management is of the opinion that the
allowance for estimated loan losses is adequate to meet potential losses in
the loan portfolio. It must be understood, however, that there are inherent
risks and uncertainties related to the operation of a financial institution.
By necessity, the Company's financial statements are dependent upon
estimates, appraisals and evaluations of loans. Therefore, the possibility
exists that abrupt changes in such estimates, appraisals and evaluations
might be required because of changing economic conditions and the economic
prospects of borrowers.
The provision for loan losses was $47,000 for the first three months of 1994
compared to $117,000 for the same period in 1993. The decline in the
provision was due to the decline in non-accrual loans of $1.24 million or 44%
from March 31, 1993, and the decrease of 6% in total loans outstanding.
14
<PAGE>
As of March 31, 1994, the allowance for estimated loan losses was $6.6
million or 1.56% of total loans, excluding mortgage loans held for sale,
compared with $7.2 million or 1.77% as of December 31, 1993. The allowance
for estimated loan losses as a percentage of non-performing loans was 178.7%
at March 31, 1994 versus 148.3% at December 31, 1993.
An analysis of the allowance for estimated loan losses, the amount of loans
charged off, and the recoveries on loans previously charged off is summarized
in the following table.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
Allowance for estimated loan losses:
Balance at January 1 $7,214 $7,684
Loans charged off (726) (29)
Recoveries of loans previously charged off 60 95
Net charge-offs (666) 66
Provision charged to expense 47 117
Balance at March 31 $6,595 $7,867
</TABLE>
SECURITIES
The securities portfolio serves as a source of earnings with relatively
minimal principal risk. As a result, the Company's portfolio is comprised
primarily of U.S. Treasuries, Government agency obligations and obligations
collateralized by U.S. Government agencies, primarily in the form of
collateralized mortgage obligations and mortgage-backed securities. The
maturity structure of the portfolio is generally short-term, with estimated
average maturities of less than five years, or at adjustable rates. The
securities portfolio, including securities available for sale, constituted
27.1% of the Company's assets at March 31, 1994, compared to 13.5% at
December 31, 1993.
Certain securities, with a carrying value of approximately $36.0 million and
$25.5 million at March 31, 1994 and December 31, 1993, respectively, were
pledged to secure reverse repurchase agreements and other deposits as
required by law.
See Note 3 to the consolidated financial statements for further discussion of
the securities portfolio.
LIABILITIES
DEPOSITS
Non-interest bearing deposits decreased $6.0 million, or 3.9%, from $153.5
million at December 31, 1993 to $147.5 million at March 31, 1994, primarily
due to a decrease in official checks outstanding.
15
<PAGE>
Interest bearing deposits decreased $13.7 million, or 2.0%, to $666.5 million
at March 31, 1994 from $680.2 million at December 31, 1993. The decrease
during the first quarter of 1994 was composed of a $5.2 million decline in
certificate of deposits over $100,000, and a decrease of $8.5 million in
other interest bearing deposits. The decline in interest bearing deposits is
due to an unwillingness of certificate of deposit customers to lock into
interest rates for an extended period of time.
SHORT-TERM BORROWINGS
As of March 31, 1994, the Company had $34.3 million of securities sold under
agreements to repurchase at an average rate of 3.75%. Such agreements, which
mature in April 1994, are secured by certain securities with a carrying value
of $36.0 million. The proceeds from the reverse repurchase agreements were
used to fund mortgage loan closings and securities purchases.
Market Street Mortgage Corporation has a $135 million warehousing line of
credit agreement with G.E. Capital Mortgage Services, Inc. used for the
purpose of funding the origination of mortgage loans by Market Street, and
its division, CUB Funding Corporation, which expires in July 1994. Due to
the decreased mortgage loan origination volume, borrowings under this
warehousing line of credit decreased to $54.2 million at March 31, 1994 from
$85.5 million at December 31, 1993. During the first quarter of 1994, the
average borrowings and interest rate paid on this warehousing line were $63.7
million and 5.78%, respectively.
Republic Bancorp Mortgage Inc. has a $50 million warehousing line of credit
with NBD Bank, N.A. and Comerica, Inc., used to fund the acquisition or
origination of mortgage loans by Republic Mortgage. The line of credit,
which is payable on demand, is secured by various real estate mortgage loans
and expires in April 1995. Republic Mortgage is required to pay interest on
the unpaid principal amount on each borrowing at either the prime rate or
federal funds rate plus 175 basis points. Due to the decreased mortgage loan
volume, borrowings under this line decreased $6.0 million, to $8.9 million at
March 31, 1994 from $14.9 million at December 31, 1993. During the first
quarter of 1994, the average borrowings and interest rate paid on this line
were $9.9 million and 5.45%, respectively.
The Company has an $18 million revolving Credit Agreement with Firstar Bank
Milwaukee, N.A. with loan proceeds to be utilized for working capital
purposes. At March 31, 1994 no amounts were outstanding under this Credit
Agreement.
FHLB ADVANCES
Horizon Savings Bank has outstanding two advances from the Federal Home Loan
Bank ("FHLB"), a $10 million advance with an interest rate of 7.15%, maturing
in February 1997, and a $5 million advance with an interest rate of 4.45%,
maturing in December 1995. These advances are secured by first mortgage
loans equal to at least 150% of the advances under a blanket security
agreement, with interest payable monthly for both advances.
16
<PAGE>
In order to provide liquidity needs for mortgage loan originations, Horizon
Savings also has a $65 million line of credit with the FHLB. As of March 31,
1994, borrowing under this line totaled $46.0 million with an average
interest rate paid of 3.40%.
LONG-TERM DEBT
Republic Bancorp Mortgage has a mortgage loan in the amount of $2.1 million
with Firstar Bank Milwaukee, N.A. Principal and interest with a fixed rate
of 6.99% is payable quarterly, with a final maturity date of October 1, 2000.
As of March 31, 1994, $85,000 of the total $2.1 million is classified as
short-term borrowings.
Market Street Mortgage Corporation has a note payable with Poughkeepsie
Savings Bank, F.S.B. of $2.0 million, secured by the servicing rights
underlying the Poughkeepsie mortgages which are serviced by Market Street.
Interest is payable at the prime rate plus 2%, or 8.25% at March 31, 1994,
and is payable in twelve equal quarterly installments commencing February
1993 with final maturity due November 30, 1995. As of March 31, 1994,
$743,000 of the remaining $1.3 million is classified as short-term
borrowings.
The Company has $17.25 million of 9% Subordinated Notes outstanding which
mature in 2003. The Subordinated Notes qualify as Tier 2 Capital for the
calculation of Total risk-based capital under Federal Reserve Board
guidelines.
On March 31, 1994, Republic completed a $25 million private offering of 7.17%
senior debentures which mature in April 2001. Proceeds will be used to
expand the Company's mortgage banking operations and for general corporate
purposes, including possible future acquisitions.
CAPITAL RESOURCES
Total shareholders' equity at March 31, 1994 was $116.7 million compared to
$111.4 million at December 31, 1993 and $84.2 million. The increase of $5.3
million during the first quarter was due primarily to the increase in
earnings net of dividends.
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies. At March 31, 1994, Republic's Tier 1 Capital and Total
risk-based capital ratios were 18.69% and 22.75%, respectively, versus 16.35%
and 20.19%, respectively at December 31, 1993. These ratios exceed minimum
guidelines prescribed by regulatory agencies. As of March 31, 1994, total
risk-based capital was $133.4 million, an excess of $86.5 million over the
minimum guidelines prescribed by regulatory agencies.
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. Republic's Tier 1 Capital leverage
ratio at March 31, 1994 was 10.03%, versus 8.43% at December 31, 1993.
17
<PAGE>
The Company is committed to maintaining a strong capital position at Republic
Bank and Horizon Savings Bank. As of March 31, 1994, Republic Bank and
Horizon Savings Bank's Total capital to risk-weighted assets ratio, and Tier
1 Capital to risk-weighted assets ratio were in excess of all minimum
regulatory requirements. It is management's opinion that the Company and its
subsidiaries' capital structure is adequate and the Company does not
anticipate any difficulty in meeting these requirements on an ongoing basis.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Republic and its subsidiaries are also parties to certain ordinary
routine litigation incidental to Republic's business. In the
opinion of management, liabilities arising from such litigation
would not have a material effect on Republic's consolidated
financial statements.
Item 2. Changes in Securities
At the February 18, 1994 meeting, the Board of Directors declared
a quarterly cash dividend of $.08 per share on common stock,
payable on April 8, 1994 to shareholders of record on March 11,
1994.
Item 3. Defaults upon Senior Securities
During the interim period covered by this report, there were no
defaults upon senior securities.
Item 4. Submission of Matters to Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibit and Reports on Form 8-K
Not applicable.
19
<PAGE>
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 13, 1994 By: /s/ Thomas F. Menacher
----------------------
Thomas F. Menacher
Chief Financial Officer
(Principal Financial and
Accounting Officer)
20
<PAGE>
EXHIBIT A
STATEMENT RE COMPUTATION OF
PER SHARE EARNINGS
Primary earnings per common share are computed by dividing net income by
the weighted average number of common shares outstanding and common
equivalent shares with a dilutive effect. Common equivalent shares are
shares which may be issuable upon exercise of outstanding stock options
and warrants. Stock options and warrants were included in earnings per
primary common share computed for both periods presented.
Fully diluted earnings per common share are determined on the assumption
that the weighted average number of common shares and common equivalent
shares outstanding is further increased by the effect of the end of
period market price on stock options and stock warrants. Stock options
and stock warrants were included in earnings per fully diluted common
share computations for 1994 and 1993.
The following table presents information necessary for the computation of
earnings per share, on both primary and fully diluted bases, for the
three months ended March 31, 1994 and 1993.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
Average number of common shares
outstanding . . . . . . . . . . . . . . . . . 13,766,390 12,950,062
Common share equivalents on stock
options and stock warrants based
on average market price . . . . . . . . . . . 528,030 816,093
Average number of common shares
outstanding to compute primary
earnings per share. . . . . . . . . . . . . . 14,294,420 13,766,155
Incremental common share equivalent
on stock options and stock warrants
based on end of period market price . . . . . - 81,886
Average number of common shares
outstanding to compute fully
diluted earnings per share. . . . . . . . . . 14,294,420 13,848,041
</TABLE>
