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 September 30, 1997 Commission File Number 0-15734
REPUBLIC BANCORP INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2604669
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1070 East Main Street, Owosso, Michigan 48867
(Address of principal executive offices)
(517) 725-7337
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES __X___ NO _______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock Outstanding as of October 31, 1997:
Common Stock, $5 Par Value ................................ 16,944,502 Shares
<PAGE>
<TABLE>
<CAPTION>
INDEX
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 .............................................. 3
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1997 and 1996............................ 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 and 1996............................ 5
Notes to Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition....................... 7 - 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................... 19
Item 2. Changes in Securities............................................... 19
Item 6. Exhibits and Reports on Form 8-K.................................... 19
SIGNATURE.......................................................................... 20
EXHIBITS........................................................................... 21 - 23
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
<TABLE>
<CAPTION>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31,
(Dollars in thousands) 1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................ $ 34,001 $ 40,114
Mortgage loans held for sale ......................... 465,124 329,157
Securities available for sale (amortized cost of
$185,086 and $232,388, respectively) ............... 182,996 228,621
Loans ................................................ 1,016,308 784,628
Less allowance for loan losses ..................... (7,267) (4,709)
----------- -----------
Net loans ............................................ 1,009,041 779,919
----------- -----------
Premises and equipment, net of depreciation .......... 12,010 15,008
Mortgage servicing rights ............................ 53,867 44,398
Other assets ......................................... 47,330 53,148
----------- -----------
Total assets ..................................... $ 1,804,369 $ 1,490,365
=========== ===========
LIABILITIES
Noninterest-bearing deposits ......................... $ 72,622 $ 126,940
Interest-bearing deposits ............................ 1,064,418 886,767
----------- -----------
Total deposits ................................... 1,137,040 1,013,707
Federal funds purchased and securities sold under
agreements to repurchase ......................... 84,097 115,156
Other short-term borrowings .......................... 5,500 5,986
Short-term FHLB advances ............................. 151,000 39,000
Long-term FHLB advances .............................. 175,632 95,200
Accrued expenses and other liabilities ............... 76,444 49,243
Long-term debt ....................................... 47,500 49,189
----------- -----------
Total liabilities ................................ 1,677,213 1,367,481
Minority interest .................................... 1,075 1,069
----------- -----------
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, 30,000,000 shares
authorized; 16,907,523 and 17,129,142 shares
issued and outstanding, respectively ............... 84,538 85,646
Capital surplus ...................................... 32,862 37,538
Retained earnings .................................... 10,039 1,079
Net unrealized losses on securities available for sale (1,358) (2,448)
----------- -----------
Total shareholders' equity ....................... 126,081 121,815
----------- -----------
Total liabilities and shareholders' equity ....... $ 1,804,369 $ 1,490,365
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
(In thousands, except per share data) 1997 1996 1997 1996
- ------------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees ......................................... $ 28,396 $ 20,738 $ 74,315 $ 59,134
Investment securities ......................................... 3,257 4,824 10,391 14,496
Money market investments ...................................... 36 46 220 356
-------- ------ ------- --------
Total interest income ................................... 31,689 25,608 84,926 73,986
-------- ------ ------- --------
Interest Expense:
Demand deposits ............................................... 252 338 853 1,036
Savings and time deposits ..................................... 12,457 10,043 34,523 30,015
Short-term borrowings ......................................... 1,975 2,797 5,034 8,948
FHLB advances ................................................. 3,833 1,593 8,425 4,211
Long-term debt ................................................ 858 888 2,604 2,849
-------- ------ ------- --------
Total interest expense .................................. 19,375 15,659 51,439 47,059
-------- ------ ------- --------
Net interest income ........................................... 12,314 9,949 33,487 26,927
Provision for loan losses ..................................... 136 90 2,621 200
-------- ------ ------- --------
Net interest income after provision for loan losses ........... 12,178 9,859 30,866 26,727
-------- ------ ------- --------
Noninterest Income:
Service charges ............................................... 376 296 1,087 902
Mortgage banking .............................................. 26,041 22,225 66,232 63,608
Gains (losses) on sale of securities .......................... 136 314 (509) 742
Gains on sale of SBA loans .................................... 231 290 706 765
Gain on sale of bank branches and deposits .................... -- -- 4,442 --
Other noninterest income ...................................... 604 450 1,871 986
-------- ------ ------- --------
Total noninterest income ................................ 27,388 23,575 73,829 67,003
-------- ------ ------- --------
Noninterest Expense:
Salaries and employee benefits ................................ 12,243 11,386 33,800 31,238
Mortgage loan commissions ..................................... 8,619 6,211 20,743 17,964
Occupancy expense of premises ................................. 1,735 1,600 5,273 4,536
Equipment expense ............................................. 1,150 1,187 3,348 3,502
Other noninterest expense ..................................... 7,470 7,307 20,139 19,919
-------- ------ ------- --------
Total noninterest expense ............................... 31,217 27,691 83,303 77,159
-------- ------ ------- --------
Income before income taxes and extraordinary item ............. 8,349 5,743 21,392 16,571
Provision for income taxes .................................... 2,974 1,989 7,349 5,656
-------- ------ ------- --------
Income before extraordinary item .............................. 5,375 3,754 14,043 10,915
Extraordinary item (early redemption of debt, net of tax) ..... -- -- -- (388)
-------- ------ ------- --------
Net Income .................................................... $ 5,375 $ 3,754 $ 14,043 $ 10,527
======== ======== ======== ========
Income per common share before extraordinary item............. $ .31 $ .21 $ .81 $ .60
Extraordinary item ............................................ -- -- -- (.02)
-------- ------ ------- --------
Net income per common share - primary and fully diluted....... $ .31 $ .21 $ .81 $ .58
====== ====== ===== =======
Average common shares outstanding - fully diluted ............. 17,275 17,842 17,357 18,170
======= ======= ====== ======
Cash dividends declared per common share...................... $ .10 $ .09 $ .30 $ .27
======== ======== ======= =======
<FN>
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30 (In thousands) 1997 1996
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income .......................................................... $ 14,043 $ 10,527
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ................................... 3,622 4,041
Amortization of mortgage servicing rights ....................... 4,695 5,992
Net (gain) loss on sales of securities available for sale ....... 509 (770)
Net gain on sales of mortgage servicing rights .................. (22,504) (24,106)
Net gain on sales of loans ...................................... (3,333) (3,300)
Origination of mortgage loans held for sale ..................... (2,513,016) (2,549,233)
Proceeds from sales of mortgage loans held for sale ............. 2,377,049 2,654,563
Net decrease in other assets .................................... 10,130 917
Net increase in other liabilities ............................... 27,201 12,608
Other, net ...................................................... (107) (1,703)
----------- -----------
Total adjustments ............................................. (115,754) 99,009
----------- -----------
Net cash provided by (used in) operating activities ........ (101,711) 109,536
----------- -----------
Cash Flows From Investing Activities:
Proceeds from sales of securities available for sale ................ 129,090 125,325
Proceeds from maturities/prepayments of securities available for sale 27,527 31,256
Purchases of securities available for sale .......................... (110,358) (115,115)
Proceeds from sales of loans ........................................ 156,091 107,655
Net increase in loans made to customers ............................. (382,625) (240,308)
Proceeds from sale of fixed assets .................................. 4,156 --
Proceeds from sales of mortgage servicing rights .................... 19,491 36,106
Additions to mortgage servicing rights .............................. (19,881) (9,490)
----------- -----------
Net cash used in investing activities ...................... (176,509) (64,571)
----------- -----------
Cash Flows From Financing Activities:
Net increase in deposits ............................................ 175,469 64,304
Sale of bank branch deposits ........................................ (52,136) --
Net decrease in short-term borrowings ............................... (31,545) (132,600)
Net increase in short-term FHLB advances ............................ 112,000 24,500
Increase in long-term FHLB advances ................................. 116,432 13,500
Payments on long-term FHLB advances ................................. (36,000) --
Proceeds from issuance of senior debentures, net of issuance costs .. (30) 22,233
Payments on long-term debt .......................................... (1,689) (25,625)
Net proceeds from issuance of common shares ......................... 1,546 606
Repurchase of common shares ......................................... (6,827) (10,376)
Dividends paid ...................................................... (5,113) (4,727)
----------- -----------
Net cash provided by (used in) financing activities ........ 272,107 (48,185)
----------- -----------
Net decrease in cash and cash equivalents ........................... (6,113) (3,220)
Cash and cash equivalents at beginning of period .................... 40,114 39,831
----------- -----------
Cash and cash equivalents at end of period .......................... $ 34,001 $ 36,611
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements of Republic
Bancorp Inc. and Subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes necessary for a comprehensive presentation of financial
position, results of operations and cash flow activity required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all normal recurring adjustments necessary for a fair
presentation of results have been included. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Certain amounts in prior periods have been reclassified to conform to the
current year's presentation.
Note 2 - Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the parent
company, Republic Bancorp Inc. and its wholly-owned banking subsidiaries,
Republic Bank and Republic Savings Bank. Republic Bank has three mortgage
company subsidiaries: Republic Bancorp Mortgage Inc., including its three
divisions, Home Funding, Inc., Unlimited Mortgage Services, Inc., and
Exchange Mortgage Corporation; CUB Funding Corporation, including its
division, Leader Financial; and Market Street Mortgage Corporation. Republic
Bank has an 80%- majority ownership interest in Market Street Mortgage, while
Republic Bancorp Mortgage and CUB Funding are wholly-owned. All material
intercompany transactions and balances have been eliminated in consolidation.
Note 3 - Consolidated Statements of Cash Flows
-------------------------------------
Supplemental disclosures of cash flow information for the nine months ended
September 30, include:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
---- ----
<S> <C> <C>
Cash paid during the period for:
Interest ................. $49,972 $47,032
Income taxes ............. $ 4,806 $ 7,676
Non-cash investing activities:
Loan charge-offs ......... $ 191 $ 643
</TABLE>
6
<PAGE>
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
EARNINGS PERFORMANCE
- --------------------
The Company reported net income of $5.4 million for the quarter ended
September 30, 1997, an increase of 43% when compared to $3.8 million reported
for the same period in 1996. Fully diluted earnings per share for the third
quarter of 1997 were $0.31, up 48% from $0.21 for the same period last year.
Return on average shareholders' equity was 17.23% and return on average
assets was 1.26% for the quarter, compared to 12.40% and 1.03%, respectively,
in 1996. The prior year's third quarter results include a one-time, federally
mandated assessment of $975,000, or $.06 per share, after tax, for the
recapitalization of the Savings Association Insurance Fund (SAIF).
For the nine months ended September 30, 1997, the Company earned $14.0
million, an increase of 33% over the $10.5 million reported for the
corresponding period in 1996. Fully diluted earnings per share were $.81, up
40% from $.58 for the first nine months of 1996. Return on average
shareholders' equity was 15.31% and return on average assets was 1.20% for
the first nine months of 1997, compared to 11.39% and .97%, respectively, in
1996. Year-to-date results for 1996 include the SAIF assessment and an
after-tax extraordinary loss of $388,000, or $.02 per share, for the early
redemption of debt.
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 activities. Mortgage
banking revenue represents the largest component of the Company's total
noninterest income.
The Company closed $1.1 billion in single-family residential mortgage loans
in the third quarter of 1997, a 23% increase from $882 million closed in the
same period a year ago. This improvement resulted primarily from a $273
million, or 40%, increase in retail production, reflecting the Company's
continued focus on this more profitable area of mortgage lending. Retail
mortgage loan closings benefited from a higher level of refinance activity
during the third quarter of 1997 due to declining mortgage interest rates.
Refinancings were up $151 million, or 10%, from the third quarter of 1996,
and represented 27% of total closings.
For the nine months ended September 30, 1997, mortgage loan closings were
$2.8 billion, compared to $2.7 billion for the comparable period in 1996. The
slight increase in mortgage loan closings during this period resulted from a
19% increase in retail production, which was largely offset by a
reduction in the Company's wholesale mortgage production activities.
In September 1997, the Company's affiliate, Republic Bancorp Mortgage Inc.,
completed the purchase of certain assets and the mortgage origination network
of Exchange Mortgage Corporation of Southfield, Michigan. Exchange Mortgage
operates three offices in Southfield, Southgate and Lansing, Michigan,
including a sub-prime mortgage lending division, Union Mortgage Services.
7
<PAGE>
The following table summarizes the Company's income from mortgage banking
activities:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
(In thousands) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Mortgage loan production income (1)............ $ 23,948 $ 19,119 $ 59,489 $ 55,995
Net mortgage loan servicing income............. 1,580 2,168 5,126 6,267
Gains on bulk sales of mortgage servicing...... 513 938 1,617 1,346
----------- ----------- ---------- ----------
Total mortgage banking income............. $ 26,041 $ 22,225 $ 66,232 $ 63,608
======== ======== ======== ========
<FN>
(1) Includes fee income derived from the loan origination process (i.e.,
points collected), gains on the sale of mortgage loans and gains on the
sale of mortgage servicing rights released concurrently with the
underlying loans sold.
</TABLE>
For the three months ended September 30, 1997, mortgage banking income
increased $3.8 million, or 17%, to $26.0 million from $22.2 million a year
earlier, as an increase in mortgage loan production income more than offset
declines in mortgage loan servicing income and gains on bulk sales of
mortgage servicing rights. Mortgage loan production income grew primarily as
a result of a $4.0 million, or 39%, increase in gains on the sale of
mortgages with servicing rights released. The Company sold $981 million of
single-family mortgage loans in the third quarter of 1997 versus $862 million
in the third quarter of 1996. Gross profit margins on the sale of these mortgage
loans improved as the ratio of mortgage loan production income to mortgage
loans sold increased 22 basis points to 244 basis points for the three months
ended September 30, 1997, from 222 basis points for the corresponding quarter
in 1996.
For the nine months ended September 30, 1997, mortgage banking income
increased $2.6 million, or 4%, from the prior year, as increased gains on the
sale of mortgage loans and mortgage servicing rights were partially offset by
a decrease in mortgage loan servicing income. Mortgage loan sales totaled
$2.5 billion for the first nine months of 1997, down from $2.7 billion in
1996. Profitability levels increased, however, as the ratio of mortgage
production income to mortgage loans sold rose 28 basis points to 236 basis
points for the nine months ended September 30, 1997 from 208 basis points for
the year-earlier period. The improvement in gross profit margins is due to the
Company's origination of mortgage loans primarily through its own retail
banking and mortgage loan production offices rather than through wholesale
channels.
The Company serviced $2.98 billion, or 39,315 loans, for the benefit of
others at September 30, 1997, compared to $2.71 billion, or 36,267 loans, at
December 31, 1996 and $2.95 billion, or 37,365 loans, at September 30, 1996.
Changes in the size of the Company's servicing portfolio over the past year
reflect the net result of additions from loan production and reductions from
bulk servicing sales, prepayments, partial prepayments, and scheduled
amortization of mortgage loans. Net mortgage loan servicing income for the
third quarter of 1997 decreased by 27% when compared to the third quarter of
1996. For the first nine months of 1997, net mortgage loan servicing income
declined 18% when compared to the same period a year ago. The overall decline
in mortgage servicing income is primarily due to the fact that the Company's
servicing portfolio, on average, is smaller this year than it was in 1996.
The Company periodically sells, in bulk form, mortgage servicing rights
(MSRs) that were previously retained. For the quarter ended September 30,
1997, MSRs for loans having a principal balance of $98.0 million were sold,
resulting in a net gain of $513,000. In the third quarter of 1996, bulk sales
of MSRs for loans with a principal balance of $435.1 million resulted in
gains totaling $938,000. During the first nine months of 1997, MSRs for loans
having a principal balance of $345.2 million were sold in bulk form,
resulting in gains totaling $1.6 million. For the corresponding period in
1996, bulk sales of MSRs for loans with a principal balance of $1.1 billion
resulted in gains totaling $1.3 million.
8
<PAGE>
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 line of
business.
Net Interest Income
- -------------------
The following discussion should be read in conjunction with Tables I and II
on the following pages, which provide detailed analyses of the components
impacting net interest income for the three months and nine months ended
September 30, 1997 and 1996.
Net interest income, on a fully taxable equivalent (FTE) basis, was $12.4
million for the third quarter of 1997, an increase of $2.2 million, or 21%,
over the third quarter of 1996. The increase in net interest income resulted
from strong portfolio loan growth. Average portfolio loans for the third
quarter of 1997 grew $369.9 million, or 55%, over the prior year, reflecting
growth in commercial, residential real estate and installment loan
categories. This growth was partially funded by a reduction in investment
securities, as well as increases in average total deposits and FHLB advances.
The net interest margin (FTE) was 3.15% for the quarter ended September 30,
1997, an increase of 11 basis points from 3.04% a year ago. Expansion in the
margin was primarily due to growth in higher-yielding portfolio loan
categories and a reduction in lower-yielding investment securities. The
resulting shift in the mix of earning assets was principally responsible for
a 28 basis-point increase in the yield on average earning assets. Partially
offsetting growth in the margin was a 13 basis-point increase in the average
cost of funds.
For the nine months ended September 30, 1997, net interest income (FTE) was
$33.8 million, an increase of $6.3 million, or 23%, over the first nine
months of 1996. This increase was fueled primarily by a $313.2 million, or
51%, increase in average portfolio loans. Partly funding the growth in
portfolio loans were reductions in the average balances of investment
securities and mortgage loans held for sale, as well as increases in average
total deposits and FHLB advances.
The net interest margin (FTE) for the nine months ended September 30, 1997,
rose 31 basis points to 3.14% from 2.83% for the comparable period in 1996,
primarily due to the favorable shift in the mix of earning assets toward
higher-yielding loan products. This shift was largely responsible for a 27
basis-point increase in the yield on average earning assets. Also
contributing to the improved margin was an 8 basis-point decline in the
average cost of funds, as interest-bearing deposits increased as a percentage
of interest-bearing liabilities.
Noninterest Expense
- -------------------
For the quarter ended September 30, 1997, total noninterest expense increased
$3.5 million, or 13%, to $31.2 million from $27.7 million a year earlier. On
a year-to-date basis, total noninterest expense was $83.3 million, up $6.1
million, or 8%, over the first nine months of 1996. The rise in noninterest
expense reflects additional salaries and employee benefit expense associated
with a net increase in employees and an increase in commissions expense
accompanying the higher level of retail mortgage loan originations.
9
<PAGE>
<TABLE>
<CAPTION>
Table I - Quarterly Net Interest Income and Rate/Volume Analysis (FTE)
Three Months Ended Three Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
Average Average Average Average
(Dollars in thousands) Balance(1) Interest Rate Balance(1) Interest Rate
- ---------------------- ---------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Money market investments................. $ 2,441 $ 36 5.85% $ 5,026 $ 47 3.71%
Mortgage loans held for sale............. 337,191 6,532 7.75 332,687 6,682 8.03
Investment securities available for sale. 200,673 3,297 6.57 318,705 5,042 6.28
Commercial loans......................... 269,424 6,490 9.56 167,397 3,857 9.14
Residential real estate loans............ 674,347 12,911 7.66 428,039 8,270 7.73
Installment loans........................ 95,856 2,463 10.19 74,244 1,929 10.31
------------ -------- ----- ------------- ------- -----
Loans, net of unearned income.......... 1,039,627 21,864 8.38 669,680 14,056 8.33
------------ ------- ------ ------------ ------ -------
Total interest-earning assets........ 1,579,932 31,729 8.01 1,326,098 25,827 7.73
Allowance for loan losses................ (7,183) (4,730)
Cash and due from banks.................. 25,308 31,020
Other assets............................. 107,286 110,187
----------- ------------
Total assets......................... $ 1,705,343 $ 1,462,575
=========== ===========
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits......... $ 46,226 251 2.15 $ 55,580 339 2.42
Savings deposits and money market accounts 277,679 3,120 4.46 221,474 2,342 4.20
Time deposits............................ 638,562 9,337 5.80 523,626 7,701 5.83
----------- -------- ---- ------------ ------- ----
Total interest-bearing deposits........ 962,467 12,708 5.24 800,680 10,382 5.14
Federal funds purchased and securites sold
under agreement to repurchase.......... 132,812 1,936 5.78 199,925 2,760 5.48
Other short-term borrowings.............. 3,149 39 4.91 3,223 37 4.55
FHLB advances........................... 259,678 3,834 5.86 109,892 1,593 5.75
Long-term debt........................... 47,500 858 7.23 49,335 887 7.13
------------ -------- ---- ------------- --------- ----
Total interest-bearing liabilities... 1,405,606 19,375 5.47 1,163,055 15,659 5.34
------- ---- ------- ----
Noninterest-bearing deposits............. 123,720 130,464
Other liabilities........................ 51,269 47,947
------------ -------------
Total liabilities.................... 1,580,595 1,341,466
Shareholders' equity..................... 124,748 121,109
------------ ------------
Total liabilities and shareholders'
equity............................. $ 1,705,343 $ 1,462,575
=========== ===========
Net interest income/Rate spread (FTE).... $ 12,354 2.54% $ 10,168 2.39%
======== ==== ======== ====
Net interest margin (FTE)................ 3.15% 3.04%
==== ====
<CAPTION>
Increase (decrease) due to change in: Volume(2) Rate(2) Net Inc(Dec)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money market investments......... $ (31) $ 20 $ (11)
Mortgage loans held for sale..... 88 (238) (150)
Investment securities available
for sale......................... (1,962) 217 (1,745)
Commercial loans................. 2,448 185 2,633
Residential real estate loans.... 4,717 (76) 4,641
Installment loans................ 556 (22) 534
---------- ------- ---------
Loans, net of unearned income... 7,721 87 7,808
-------- -------- -------
Total interest income......... 5,816 86 5,902
Interest-bearing demand deposits. (53) (35) (88)
Savings deposits................. 626 152 778
Time deposits.................... 1,675 (39) 1,636
-------- ------- --------
Total interest-bearing deposits. 2,248 78 2,326
Federal funds purchased and
securities sold under
agreement to repurchase..... (966) 142 (824)
Other short-term borrowings...... (1) 3 2
FHLB advances.................... 2,210 31 2,241
Long-term debt................... (39) 10 (29)
--------- ------ -------
Total interest expense....... 3,452 264 3,716
-------- ------ -------
Net interest income........... $2,364 $ (178) $2,186
====== ====== =======
<FN>
(1) Non-accrual loans and overdrafts are included in average balances.
(2) Rate/volume variances are proportionately allocated to rate and
volume based on the absolute value of the change in each.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Table II - Year-to-Date Net Interest Income and Rate/Volume Analysis (FTE)
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
Average Average Average Average
(Dollars in thousands) Balance(1) Interest Rate Balance(1) Interest Rate
---------- -------- ---- ---------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Assets:
Money market investments................. $ 6,824 $ 220 4.31% $ 9,361 $ 356 5.08%
Mortgage loans held for sale............. 278,917 16,279 7.78 360,338 20,778 7.69
Securities............................... 220,671 10,705 6.47 317,966 15,084 6.34
Commercial loans......................... 232,890 16,789 9.64 154,811 10,828 9.35
Residential real estate loans............ 604,912 34,457 7.59 389,608 22,209 7.60
Installment loans........................ 89,886 6,790 10.10 70,036 5,319 10.15
--------- ------ ---- --------- ------ ----
Loans, net of unearned income.......... 927,688 58,036 8.35 614,455 38,356 8.35
--------- ------ ---- --------- ------ ----
Total interest-earning assets........ 1,434,100 85,240 7.93 1,302,120 74,574 7.66
Allowance for loan losses................ (5,935) (4,860)
Cash and due from banks.................. 22,736 26,979
Other assets............................. 104,558 127,775
-------- ---------
Total assets......................... $1,555,459 $1,452,014
========== ==========
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits......... $ 52,238 853 2.18 $ 58,264 1,036 2.38
Savings deposits and money market
accounts................................ 269,622 8,948 4.44 210,100 6,377 4.06
Time deposits............................ 597,396 25,575 5.72 532,506 23,638 5.93
--------- ------ ---- --------- ------ ----
Total interest-bearing deposits........ 919,256 35,376 5.15 800,870 31,051 5.18
Warehousing lines of credit.............. - - - 30,556 1,775 7.77
Federal funds purchased and securities
sold under agreement to repurchase..... 108,026 4,609 5.70 167,004 6,942 5.56
Other short-term borrowings.............. 8,339 425 6.81 4,630 231 6.67
FHLB advances........................... 192,315 8,425 5.86 95,728 4,211 5.88
Long-term debt........................... 48,097 2,604 7.22 51,393 2,848 7.41
--------- ------ ---- --------- ------ ----
Total interest-bearing liabilities... 1,276,033 51,439 5.39 1,150,181 47,058 5.47
------ ---- -------- ----
Noninterest-bearing deposits............. 118,245 128,790
Other liabilities........................ 38,867 49,827
--------- ---------
Total liabilities.................... 1,433,145 1,328,798
Shareholders' equity..................... 122,314 123,216
------------ ----------
Total liabilities and shareholders'
equity.......................... $1,555,459 $1,452,014
========== ==========
Net interest income/Rate spread (FTE).... $33,801 2.54% $27,516 2.19%
======= ==== ======= ====
Net interest margin...................... 3.14% 2.83%
==== ====
<CAPTION>
Increase (decrease) due to change in: Volume(2) Rate(2) Net Inc(Dec)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money market investments......... $ (87) $ (49) $ (136)
Mortgage loans held for sale..... (4,586) 87 (4,499)
Securities....................... (4,492) 113 (4,379)
Commercial loans................. 5,616 345 5,961
Residential real estate loans.... 12,258 (10) 12,248
Installment loans................ 1,481 (10) 1,471
------- ------ -------
Loans, net of unearned income... 19,354 326 19,680
------- ------ -------
Total interest income......... 10,190 476 10,666
Interest-bearing demand deposits. (101) (82) (183)
Savings deposits................. 1,933 638 2,571
Time deposits.................... 2,367 (430) 1,937
------- ------ -------
Total interest-bearing deposits. 4,199 126 4,325
Warehousing lines of credit...... (1,775) - (1,775)
Federal funds purchased and
securities sold under agreement
to repurchase.................. (2,396) 63 (2,333)
Other short-term borrowings...... 189 5 194
FHLB advances.................... 4,219 (5) 4,214
Long-term debt................... (177) (67) (244)
------- ------ -------
Total interest expense....... 4,259 122 4,381
------- ------ -------
Net interest income........... $ 5,931 $ 354 $ 6,285
======= ======= =======
<FN>
(1) Non-accrual loans and overdrafts are included in average balances.
(2) Rate/volume variances are proportionately allocated to rate and
volume based on the absolute value of the change in each.
</TABLE>
11
<PAGE>
BALANCE SHEET ANALYSIS
ASSETS
- ------
At September 30, 1997, the Company had $1.8 billion in total assets, an
increase of $314.0 million, or 21%, from $1.49 billion at December 31, 1996.
Asset growth primarily resulted from increases in portfolio loans and
mortgage loans held for sale.
Securities
- ----------
Investment securities available for sale declined $45.6 million, or 20%, to
$183.0 million, representing 10.1% of total assets at September 30, 1997. At
December 31, 1996, the investment securities portfolio totaled $228.6
million, or 15.3% of total assets. During the third quarter of 1997, the
Company sold $35.0 million of investment securities and reinvested the
proceeds in higher-yielding portfolio loans. Gross realized gains and losses
on sales of securities were $192,000 and $56,000, respectively, for the
quarter ended September 30, 1997. For the first nine months of 1997, gross
realized gains and losses totaled $408,000 and $917,000, respectively.
The Company's securities portfolio serves as a source of liquidity and
earnings, carries relatively minimal principal risk and contributes to the
management of interest rate risk. The portfolio is comprised primarily of
U.S. Government agency obligations, obligations collateralized by U.S.
Government agencies, mainly in the form of mortgage-backed securities and
collateralized mortgage obligations, and municipal obligations. With the
exception of municipal obligations, the maturity structure of the securities
portfolio is generally short-term in nature or indexed to variable rates.
The following table details the composition, amortized cost and fair value of
the Company's available-for-sale securities portfolio at September 30, 1997:
<TABLE>
<CAPTION>
Available-for-Sale Securities
-----------------------------------------------------
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
--------- ---------- ---------- ----
<S> <C> <C> <C> <C>
Debt Securities:
U.S. Government agency obligations........ $ 43,643 $ 77 $ 254 $ 43,466
Collateralized mortgage obligations....... 61,593 59 314 61,338
Mortgage-backed securities................ 49,796 3 986 48,813
Municipal and other securities............ 3,052 87 - 3,139
---------- --------- --------- ----------
Total Debt Securities................... 158,084 226 1,554 156,756
Equity securities........................... 27,002 - 762 26,240
---------- --------- --------- ----------
Total Available-for-Sale Securities..... $ 185,086 $ 226 $ 2,316 $ 182,996
========== ========= ========= ==========
</TABLE>
Certain securities having a carrying value of approximately $81.6 million and
$65.0 million at September 30, 1997 and December 31, 1996, respectively, were
pledged to secure repurchase agreements and public and other deposits as
required by law.
Mortgage Loans Held for Sale
- ----------------------------
Mortgage loans held for sale were $465.1 million at September 30, 1997, an
increase of $136.0 million, or 41%, from $329.2 million at December 31, 1996.
This growth was caused by the increase in the volume of loans originated
during the third quarter of 1997.
Portfolio Loans
- ---------------
Total portfolio loans exceeded $1.0 billion at September 30, 1997, rising
$231.7 million, or 30%, from $784.6 million at December 31, 1996, due to
strong growth in all lending areas. The residential real estate portfolio
loan balance rose $120.4 million, or 24%, during the year to $627.3 million
at September 30, 1997, as consumer demand for adjustable rate mortgage loans
increased. The installment portfolio loan balance, which is
12
<PAGE>
predominantly comprised of home equity loans, grew $17.2 million, or 21%,
since year-end 1996 to $99.7 million at September 30, 1997, reflecting
successful marketing and sales efforts aimed at the Company's existing
customer base.
The commercial portfolio loan balance rose $94.1 million, or 48%, during the
year to $289.3 million, reflecting continued strong demand for real
estate-secured lending in markets served by the Company. During the third
quarter of 1997, the Company closed $8.7 million in Small Business
Administration (SBA) loans, an increase of 64% from the $5.3 million closed
in the third quarter of 1996. For the first nine months of 1997, SBA loan
closings totaled $18.9 million compared to $16.1 million for the
corresponding period a year ago. For the nine months ended September 30, 1997
and 1996, the Company sold $9.4 million and $11.6 million, respectively, of
the guaranteed portion of SBA loans for corresponding gains of $706,000 and
$765,000.
The following table provides further information regarding the Company's loan
portfolio:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
-------------------------- ----------------------
(Dollars in thousands) Amount Percent Amount Percent
- ---------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial loans:
Commercial and industrial................. $ 34,705 3.4% $ 29,483 3.8%
Real estate construction.................. 49,269 4.9 32,946 4.2
Commercial real estate mortgage .......... 205,350 20.2 132,763 16.9
----------- ----- --------- -----
Total commercial loans............... 289,324 28.5 195,192 24.9
Residential real estate loans .............. 627,311 61.7 506,944 64.6
Installment loans........................... 99,673 9.8 82,492 10.5
----------- ----- --------- -----
Total portfolio loans................. $ 1,016,308 100.0% $ 784,628 100.0%
=========== ===== ========= =====
</TABLE>
Credit Quality
- --------------
The Company attempts to minimize credit risk in the loan portfolio by
focusing primarily on real estate-secured lending (i.e., residential mortgage
and construction, commercial mortgage and construction, and home equity
loans). As of September 30, 1997, such loans comprised approximately 94.6% of
total portfolio loans. The Company's general policy is to originate
conventional residential real estate mortgages with loan-to-value ratios of
80% or less and SBA-secured loans or real estate-secured commercial loans
with loan-to-value ratios of 70% or less.
The substantial majority of the Company's residential mortgage loan
production is underwritten in compliance with the requirements for sale to or
conversion to mortgage-backed securities issued by the Federal Home Loan
Mortgage Corporation (FHLMC), the Federal National Mortgage Association
(FNMA), or the Government National Mortgage Association (GNMA). The majority
of the Company's commercial loans are secured by real estate and are
generally made to small and medium-size businesses. These loans are made at
rates based on the prevailing prime interest rates of Republic Bank and
Republic Savings 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 and is classified as other
assets on the balance sheet until such time as the property is sold.
Commercial loans, residential real estate 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. 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.
13
<PAGE>
The following table summarizes the Company's non-performing assets and 90-day
past due loans:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
(Dollars in thousands) 1997 1996 1996
------------- ------------ -------------
<S> <C> <C> <C>
Non-Performing Assets:
Non-accrual loans:
Commercial ............................. $ 1,216 $ 1,321 $ 1,473
Residential real estate ................ 7,586 3,968 3,010
Installment ............................ 298 50 108
------- ------- -------
Total non-accrual loans .............. 9,100 5,339 4,591
Restructured loans ....................... -- -- --
------- ------- -------
Total non-performing loans ........... 9,100 5,339 4,591
Other real estate owned .................. 1,784 1,250 1,319
------- ------- -------
Total non-performing assets .......... $10,884 $ 6,589 $ 5,910
======= ======= =======
Loans past due 90 days or more and still
accruing interest:
Commercial ............................... $ -- $ -- $ --
Residential real estate .................. 687 548 406
Installment .............................. 12 22 39
------- ------- -------
Total loans past due 90 days or more . $ 699 $ 570 $ 445
======= ======= =======
Non-performing assets as a percentage of:
Total portfolio loans and OREO (1) ..... 1.07% .84% .82%
Total loans and OREO (2) ............... .73% .59% .57%
Total assets ........................... .60% .44% .41%
<FN>
(1) Excludes mortgage loans held for sale.
(2) Includes mortgage loans held for sale.
</TABLE>
At September 30, 1997, approximately $10.4 million, or 1.02% of total
portfolio loans were 30-89 days delinquent, compared to $4.8 million, or
.61%, at December 31, 1996 and $6.4 million, or .89% at September 30, 1996.
Substantially all of the $3.8 million increase in non-performing loans since
December 31, 1996, has been concentrated in the residential real estate loan
category. This increase is attributable to growth in the amount of
residential loans retained in the portfolio. Historically, credit losses on
loans secured by residential property have been minimal as demonstrated by
the Company's low level of net charge-offs. The Company's actual losses have,
generally, been limited to forgone interest and costs related to the
foreclosure process.
Allowance for Loan Losses
- -------------------------
Management is responsible for maintaining an adequate allowance for loan
losses. An appropriate level of the allowance is determined based on the
application of projected loss percentages to risk-rated loans, both
individually and by category. The projected loss percentages were developed
giving consideration to actual loan loss experience, adjusted for current and
prospective economic conditions. Management also considers other factors when
assessing the adequacy of the allowance for loan losses, including loan
quality, changes in the size and character of the loan portfolio and
consultation with regulatory agencies. In addition, specific reserves are
established for individual loans when deemed necessary by management.
14
<PAGE>
Management believes the allowance for loan losses is adequate to meet
potential losses in the loan portfolio that can be reasonably anticipated
based on current conditions. In addition, 94.6% of the total loan portfolio
at September 30, 1997, was secured by real estate, thereby, reducing
potential losses. It must be understood, however, that inherent risks and
uncertainties related to the operation of a financial institution require
management to depend 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 and adversely
affected.
The following table provides an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(Dollars in thousands) 1997 1996
- ---------------------- ---- ----
<S> <C> <C>
Allowance for loan losses:
Balance at January 1 ............................. $ 4,709 $ 5,002
Loans charged off .............................. (191) (643)
Recoveries of loans previously charged off ..... 128 92
------- -------
Net charge-offs .............................. (63) (551)
Provision charged to expense ................... 2,621 200
------- -------
Balance at September 30 .......................... $ 7,267 $ 4,651
======= =======
Net charge-offs as a percentage of average
portfolio loans outstanding ................... .01% .12%
Allowance for loan losses as a percentage of total
portfolio loans outstanding at period-end ..... .72 .65
Allowance for loan losses as a percentage of
non-performing loans .......................... 79.86 101.32
</TABLE>
Off-Balance Sheet Instruments
- -----------------------------
Unused commitments to extend credit totaled $344.9 million for residential
real estate loans and $88.2 million for commercial real estate loans at
September 30, 1997.
At September 30, 1997, the Company had outstanding $228.8 million of
commitments to fund residential real estate loan applications with
agreed-upon rates, including $37.0 million of residential portfolio loans.
Committing to fund residential real estate loan applications at specified
rates and holding residential mortgage loans for sale to the secondary market
exposes the Company to interest rate risk during the period before the loans
are sold to investors. To minimize this exposure to interest rate risk, the
Company enters into firm commitments to sell such mortgage loans at specified
future dates to various third parties. At September 30, 1997, the Company had
outstanding mandatory forward commitments to sell $581.9 million of
residential mortgage loans, of which $414.7 million covered mortgage loans
held for sale and $167.2 million covered commitments to fund residential real
estate loan applications with agreed-upon rates. These outstanding forward
commitments to sell mortgage loans are expected to settle in the fourth
quarter of 1997 without producing any material gains or losses.
15
<PAGE>
LIABILITIES.
- ------------
Total liabilities were $1.68 billion at September 30, 1997, an increase of
$309.7 million from $1.37 billion at December 31, 1996, as increases in
deposits and FHLB advances were partially offset by declines in federal funds
purchased, securities sold under agreement to repurchase and long-term debt.
Deposits
- --------
Total deposits grew $123.3 million, or 12%, to $1.14 billion at September 30,
1997 from $1.01 billion at December 31, 1996, as consumers responded to
special promotions for the Company's Diamond savings account product and
the Company grew its municipal certificates of deposit.
Short-Term Borrowings
- ---------------------
Short-term borrowings with maturities of less than one year, along with the
related average balances and interest rates for the nine months ended
September 30, 1997 and the year ended December 31, 1996, were as follows:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
----------------------------------- -----------------------------------
Average Average
Ending Average Rate During Ending Average Rate During
(Dollars in thousands) Balance Balance Period Balance Balance Period
------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Federal funds purchased............. $ 19,000 $ 35,576 5.77% $ 67,900 $ 25,312 5.71%
Securities sold under agreements
to repurchase..................... 65,097 72,450 5.67 47,256 122,298 5.67
Other short-term borrowings......... 5,500 8,339 6.81 5,986 27,124 7.17
--------- -------- ---- -------- -------- ----
Total short-term borrowings....... $ 89,597 $ 116,365 5.78% $121,142 $ 174,734 5.91%
========= ======== ==== ======= ======= ====
</TABLE>
At September 30, 1997, other short-term borrowings consisted of $5.5 million
in treasury, tax and loan demand notes (TT&L). At December 31, 1996, other
short-term borrowings were comprised of $4.0 million in TT&Ls, $1.9 million
in borrowings outstanding under the revolving credit agreement and the
current portion of long-term debt.
FHLB Advances
- -------------
Republic Bank and Republic Savings Bank routinely borrow short- and long-term
advances from the Federal Home Loan Bank (FHLB) to provide liquidity for
mortgage loan originations 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 with an aggregate book value equal to at least 150% of
the advances.
FHLB advances outstanding at September 30, 1997 and December 31, 1996, were
as follows:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
-------------------- ---------------------
Average Average
Ending Rate At Ending Rate At
(Dollars in thousands) Balance Period-End Balance Period-End
- ---------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Short-term FHLB advances................... $ 151,000 5.73% $ 39,000 5.73%
Long-term FHLB advances..................... 175,632 5.75 95,200 6.02
--------- ---- --------- ----
Total................................... $ 326,632 5.74% $ 134,200 5.89%
========= ==== ========= ====
</TABLE>
The long-term FHLB advances have original maturities ranging from June 1998
to September 2002.
17
<PAGE>
Long-Term Debt
- --------------
Obligations with original maturities of more than one year consisted of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in thousands) 1997 1996
------------- ------------
<S> <C> <C>
7.17% Senior Debentures due 2001................................. $ 25,000 $ 25,000
6.75% Senior Debentures due 2001................................. 9,000 9,000
6.95% Senior Debentures due 2003................................. 13,500 13,500
6.99% Mortgage Loan due 2000..................................... -- 1,792
------- -------
47,500 49,292
Less current maturities included in other short-term borrowings.. -- (103)
------- -------
Total long-term debt......................................... $ 47,500 $ 49,189
======== ========
</TABLE>
CAPITAL
- -------
Shareholders' equity was $126.1 million at September 30, 1997, a $4.3
million, 4%, increase from $121.8 million at December 31, 1996. This increase
occurred as the retention of $9.0 million in earnings after the payment of
dividends and a $1.1 million decrease in net unrealized losses on securities
available for sale were partially offset by the repurchase of 624,000 shares
of the Company's common stock.
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 September 30, 1997, 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:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Total capital to risk-weighted assets (1)................. 11.29% 13.84%
Tier 1 capital to risk-weighted assets (1)................ 10.64 13.30
Tier 1 capital to average assets (1)...................... 7.02 8.16
<FN>
(1) As defined by the regulations.
</TABLE>
As of September 30, 1997, the Company's Total risk-based capital was $126.4
million and Tier 1 risk-based capital was $119.1 million, an excess of $14.4
million and $51.9 million, respectively, over the minimum guidelines
prescribed by regulatory agencies for a well-capitalized institution. In
addition, Republic Bank and Republic Savings Bank had regulatory capital
ratios in excess of the minimum levels established for well-capitalized
institutions.
17
<PAGE>
Accounting Developments
- -----------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Informaton, which supersedes current
accounting literature regarding segment reporting. According to the
Statement's new "management approach" to segment reporting, companies would
report financial and descriptive information about their operating segments
in both annual financial statements and interim financial reports. Operating
segments are revenue-producing components of the enterprise for which
separate financial information is produced internally and are subject to
evaluation by the chief operating decision maker in deciding how to allocate
resources to segments. SFAS No. 131 is effective for financial statements for
fiscal years beginning after December 15, 1997, with early adoption
encouraged. The Statement is not expected to significantly alter the nature
of the Company's segment disclosures in its annual report; however, the
Company's segment disclosures in Form 10-Q's filed with the Securities and
Exchange Commissions in 1998 will be expanded to encompass the required
financial information.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements. Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactons and other events and
circumstances, except those resulting from investments by owners and
distributions to owners. Net income plus other comprehensive income (e.g.,
unrealized holding gains and losses on available-for-sale securities)
represent the total of all components of comprehensive income. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997, with earlier
application permitted. The Company expects that adoption of this Statement
will result in expanded disclosures in the consolidated statement of changes
in shareholders' equity.
In February 1997, the FASB issued SFAS No. 129, Disclosure of Information
about Capital Structure, which consolidates existing accounting guidance
relating to a company's capital structure and is effective for financial
statements for periods ending after December 15, 1997. Adoption of the
Statement is not expected to have any impact on the Company's disclosures
about its financial position, results of operations, liquidity or capital
position.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which
simplifies the calculation of earnings per share (EPS). Under SFAS No. 128,
primary EPS currently computed in accordance with APB Opinion No. 15 will be
replaced with a new simpler calculation called basic EPS. Basic EPS will be
calculated by dividing income available to common shareholders by the
weighted average common shares outstanding. Thus, options, warrants and other
common stock equivalents will be excluded from the calculation. Fully diluted
EPS will not change significantly but has been renamed diluted EPS. SFAS No.
128 is effective for both interim and annual financial statements for periods
ending after December 15, 1997, with earlier application prohibited. The
impact of SFAS No. 128 will result in a $0.01 increase in the Company's
primary earnings per share for each of the third quarters ended September 30,
1997 and 1996.
On January 1, 1997, the Company adopted the provisions of SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, issued by the FASB in June 1996, pertaining
to sales, securitizations and servicing of receivables and other financial
assets and the extinguishment of liabilities without material impact to
financial position and results of operations. The effective date for
provisions of the Statement relating to repurchase agreements, securities
lending and other similar transactions and pledged collateral was delayed
until after December 31, 1997 through the FASB's issuance of SFAS No. 127,
Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125, an amendment to FASB Statement No. 125. The adoption of SFAS No. 127 is
not expected to have a material impact on the Company's financial position
and results of operations.
18
<PAGE>
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 August 21, 1997, the Board of Directors declared a $0.10 cash
dividend per share, payable October 3, 1997 to shareholders of
record September 5, 1997.
On October 16, 1997, the Board of Directors declared a 10% stock
dividend, payable on December 5, 1997 to shareholders of record
November 7, 1997.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(11) Statement Re: Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the third
quarter of 1997.
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: November 14, 1997 BY: /s/ Thomas F. Menacher
--------------------------------------
Thomas F. Menacher
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
20
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit Number Exhibit Page Number
-------------- ------- -----------
11 Statement Re: Computation of
Earnings Per Share 22
27 Financial Data Schedule 23
EXHIBIT 11 - Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 1997 1996(1) 1997 1996(1)
- -------------- ---- ------- ---- -------
<S> <C> <C> <C> <C>
Primary
Average shares outstanding ...... 16,912 17,380 16,993 17,714
Common stock equivalents:
Net effect of the assumed
exercise of stock options and
stock warrants based on
average market price ........ 339 439 345 447
------- ------- ------- -------
Primary average shares .............. 17,251 17,819 17,338 18,161
======= ======= ======= =======
Net income applicable to common
shares .......................... $ 5,375 $ 3,754 $14,043 $10,527
Primary net income per share ........ $ .31 $ .21 $ .81 $ .58
Fully diluted
Average shares outstanding ...... 16,912 17,380 16,993 17,714
Common stock equivalents:
Net effect of the assumed
exercise of stock options and
stock warrants based on end
of period market price ...... 363 462 364 456
------- ------- ------- -------
Fully diluted average shares ........ 17,275 17,842 17,357 18,170
======= ======= ======= =======
Net income applicable to common
shares .......................... $ 5,375 $ 3,754 $14,043 $10,527
Fully diluted net income per share .. $ .31 $ .21 $ .81 $ .58
<FN>
(1) Share figures for 1996 have been restated for the 10% stock dividend
issued in December 1996.
</TABLE>
22
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet as of September 30, 1997, consolidated statement of
income for the nine months ended September 30, 1997, schedules and other
required disclosures and is qualified in its entirety by reference to the
Company's September 30, 1997 Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> $ 21,360
<INT-BEARING-DEPOSITS> 2,461
<FED-FUNDS-SOLD> 10,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 182,996
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,481,432
<ALLOWANCE> 7,267
<TOTAL-ASSETS> 1,804,369
<DEPOSITS> 1,137,040
<SHORT-TERM> 240,597
<LIABILITIES-OTHER> 253,151
<LONG-TERM> 47,500
0
0
<COMMON> 84,538
<OTHER-SE> 41,543
<TOTAL-LIABILITIES-AND-EQUITY> 1,804,369
<INTEREST-LOAN> 74,315
<INTEREST-INVEST> 10,391
<INTEREST-OTHER> 220
<INTEREST-TOTAL> 84,926
<INTEREST-DEPOSIT> 35,376
<INTEREST-EXPENSE> 51,439
<INTEREST-INCOME-NET> 33,487
<LOAN-LOSSES> 2,621
<SECURITIES-GAINS> (509)
<EXPENSE-OTHER> 83,303
<INCOME-PRETAX> 21,392
<INCOME-PRE-EXTRAORDINARY> 14,043
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,043
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
<YIELD-ACTUAL> 3.14
<LOANS-NON> 9,100
<LOANS-PAST> 699
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,322
<ALLOWANCE-OPEN> 4,709
<CHARGE-OFFS> 191
<RECOVERIES> 128
<ALLOWANCE-CLOSE> 7,267
<ALLOWANCE-DOMESTIC> 5,571
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,696
</TABLE>
