<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- Act of 1934
For the quarterly period ended September 30, 1996
OR
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
Commission File Number 33-77324
REPUBLIC BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-0862051
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
601 West Market Street, Louisville, Kentucky 40202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 584-3600
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.
X Yes __ No
The number of shares outstanding of the issuer's class of common stock as of the
latest practicable date: 6,051,261 shares of Class A Common Stock and 1,170,207
shares of Class B Common Stock as of November 6, 1996.
The Exhibit index is on page 29. This filing contains 33 pages (including this
facing sheet).
- --------------------------------------------------------------------------------
<PAGE>
REPUBLIC BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 29
Signatures
<PAGE>
PART I
ITEM 1
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
<S> <C> <C>
ASSETS:
Cash and cash equivalents:
Cash and due from banks $22,099 $30,988
Federal funds sold 12,700 44,325
-------- ---------
Total cash and cash equivalents 34,799 75,313
Securities to be held to maturity - fair values:
$157,929 (1996) and $114,749 (1995) 159,001 114,654
Loans, less allowance for loan losses of
$6,241 (1996) and $3,695 (1995) 733,809 668,193
Mortgage loans held for sale 4,234 5,988
Federal Home Loan Bank stock 5,452 5,176
Accrued interest receivable 7,731 7,244
Premises and equipment, net 15,261 12,015
Other assets 3,033 2,764
-------- ---------
TOTAL $963,320 $891,347
========= =========
LIABILITIES:
Deposits:
Non-interest bearing $63,029 $63,304
Interest bearing 676,651 671,139
Securities sold under agreements to repurchase and
other short-term borrowings 75,522 21,729
Other borrowed funds 76,865 68,063
Accrued interest payable 5,075 4,314
Other liabilities 7,275 4,296
--------- ---------
Total Liabilities 904,417 832,845
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, no par value; authorized, 100,000 shares;
Series A 8.5% noncumulative convertible, 50,000 shares
issued and outstanding (liquidation preference $5,000) 5,000 5,000
Class A Common stock, no par value
Class B Common stock, no par value 3,491 3,491
Additional paid-in capital 6,817 6,817
Retained earnings 43,595 43,194
-------- ---------
Total stockholders' equity 58,903 58,502
-------- ---------
TOTAL $963,320 $891,347
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
<S> <C> <C> <C> <C>
INTEREST INCOME: 1996 1995 1996 1995
Loans, including fees $17,749 $16,137 $52,650 $44,962
Investment securities and mortgage-backed securities:
Taxable 2,389 2,100 6,307 5,788
Non-taxable 32 31 96 96
FHLB dividends 90 85 283 247
Other 438 319 1,079 1,030
------- ------ ------- -------
Total interest income 20,698 18,672 60,415 52,123
------- ------ ------- -------
INTEREST EXPENSE:
Deposits 9,333 8,914 26,747 23,349
Short-term borrowings 865 260 2,010 768
Long-term debt 1,099 913 3,064 3,258
------- ------ ------- --------
Total interest expense 11,297 10,087 31,821 27,375
------- ------ ------- --------
NET INTEREST INCOME 9,401 8,585 28,594 24,748
PROVISION FOR LOAN LOSSES 1,625 896 7,259 2,836
------- ------- ------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,776 7,689 21,335 21,912
------- ------- ------- --------
NON-INTEREST INCOME:
Service charges on deposit accounts 759 526 1,853 1,432
Bank card services 180 251 811 866
Net gain on sale of loans 240 341 962 723
Loan servicing income 206 220 622 670
Other 148 298 1,295 2,015
------- ------- ------- -------
Total non-interest income 1,533 1,636 5,543 5,706
------- ------- ------- -------
NON-INTEREST EXPENSE:
Salaries and employee benefits 3,384 2,935 9,782 8,183
Occupancy and equipment 1,688 1,363 4,719 3,918
Communication and transportation 415 339 1,145 997
Marketing and development 374 288 1,129 859
Insurance 2,533 220 3,029 871
Supplies 246 210 700 665
Other 1,033 896 3,007 2,696
------- ------- ------- -------
Total non-interest expense 9,673 6,251 23,511 18,189
------- ------- ------- -------
INCOME BEFORE INCOME TAXES (364) 3,074 3,367 9,429
INCOME TAXES (9) 1,127 1,473 3,347
------- ------ ------- -------
NET INCOME $ (355) $ 1,947 $ 1,894 $ 6,082
======= ======= ======= =======
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ (.06) $ .24 $ .22 $ .78
======= ======= ======= =======
WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING 7,221 7,194 7,221 7,188
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Common
Preferred Stock Additional Total
Stock Class A Class B Paid-in Retained Stockholders
Shares Amount Shares Amount Shares Amount Capital Earnings Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE January 1, 1996 50,000 $5,000 1,203,578 $3,491 $6,817 $43,194 $58,502
Stock Dividend 6,017,890 $ 0
Conversion of Class B Common
to Class A Common 33,371 $ 0 (33,371) $ 0
Dividend Declared
Preferred ($2.125 per share) (319) (319)
Common: Class A ($.055 per share) (997) (997)
Class B ($.050 per share) (177) (177)
Net Income 1,894 1,894
------ ------ --------- ---- --------- ------ ------ ------ ------
BALANCE September 30, 1996 50,000 $5,000 6,051,261 $ 0 1,170,207 $3,491 $6,817 $43,595 $58,903
====== ====== ========= ==== ========= ====== ====== ======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
OPERATING ACTIVITIES: 1996 1995
Net income $ 1,894 $6,082
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization of premises and equipment 2,382 1,725
Amortization and accretion of investment securities (147) (316)
FHLB stock dividends (276) (241)
Provision for loan losses 7,259 2,836
Net gain on sale of loans (962) (723)
Proceeds from sale of loans 87,380 58,100
Origination of mortgage loans held for sale (84,664) (63,990)
Changes in assets and liabilities:
Accrued interest receivable (487) (1,843)
Other assets (269) (1,142)
Accrued interest payable 761 1,023
Other liabilities 2,888 1,961
-------- --------
Net cash provided by (used in) operating activities 15,759 3,472
-------- --------
INVESTING ACTIVITIES:
Purchases of securities to be held to maturity (161,218) (64,916)
Proceeds from maturities of securities 117,018 40,377
Net increase in loans (72,875) (79,799)
Proceeds from sales of real estate acquired in settlement of loans 227
Net purchases of premises and equipment (5,628) (1,478)
-------- --------
Net cash used in investing activities (122,703) (105,589)
--------- ---------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits 5,237 110,687
Net increase in securities sold under agreements to repurchase
and other short-term borrowings 53,793 11,913
Payments on other borrowings (31,198) (18,504)
Proceeds from other borrowings 40,000
Purchase and retirement of common stock (75)
Sale of common stock 213
Sale of preferred stock 5,000
Cash dividends paid (1,402) (1,156)
-------- --------
Net cash provided by financing activities 66,430 108,078
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (40,514) 5,961
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 75,313 38,559
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 34,799 $ 44,520
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 31,060 $ 26,352
======== ========
Income taxes $ 2,902 $ 2,920
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. BASIS OF PRESENTATION (AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES)
Basis of Presentation - The consolidated financial statements include the
accounts of Republic Bancorp, Inc. and its wholly-owned subsidiaries;
Republic Mortgage Company, Republic Insurance Agency, Inc. and Republic Bank &
Trust Company (Bank), collectively "Republic". All significant intercompany
balances and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements 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 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month and nine-month periods
ending September 30, 1996, are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996. For further information,
refer to the consolidated financial statements and footnotes thereto included in
Republic's annual report on Form 10-K for the year ended December 31, 1995.
Mortgage Servicing Rights - On January 1, 1996, Republic adopted Statement of
Financial Accounting Standards No. 122, Accounting for Mortgage Servicing Rights
(SFAS No. 122) which requires an enterprise with mortgage banking activities to
recognize the right to service mortgage loans for others as a separate asset,
however those rights were acquired. Under previous accounting guidance, a
separate asset was recognized for purchased, but not originated, mortgage
servicing rights. Under SFAS No. 122, the total cost of mortgage loans
originated with the intent to sell is allocated between the servicing right and
the loan without the servicing right based on their relative fair values at the
date of origination. The capitalized cost of servicing rights are amortized in
proportion to, and over the period of, the estimated net servicing income. The
mortgage servicing asset is periodically evaluated for impairment by stratifying
by predominant risk characteristics.
Since adoption of this Statement, loans sold in the secondary market have been
primarily servicing released. Accordingly, adoption of SFAS No. 122 has had no
material impact on Republic's financial position or results of operations.
<PAGE>
Stock Based Compensation - On January 1, 1996, Republic adopted Statement of
Financial Accounting Standards No. 123, Accounting for Stock Based Compensation
(SFAS No. 123). This Statement establishes a fair value based method of
accounting for stock options and similar equity instruments such as warrants.
Companies may either adopt the fair value method of accounting introduced in
SFAS No. 123 or continue to apply the intrinsic value method required under
current accounting methods. Under current accounting methods, because the
exercise price of Republic's employee stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is
recognized. Companies which elect to remain with the current method of
accounting must make pro-forma disclosures of net income and earnings per share
as if the fair value method provided for in SFAS No. 123 had been adopted. The
disclosure requirements are not applied in an interim report unless a full set
of financial statements are provided.
Current option pricing models, such as the Black-Scholes model, were developed
for use in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because Republic's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimates,
management believes the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. Accordingly,
management has elected to continue applying current accounting guidance.
Earnings Per Share - Earnings per common and common equivalent share is based
upon the weighted average of common and common equivalent shares outstanding
during the year. Primary and fully diluted earnings per share are approximately
the same.
2. STOCKHOLDERS EQUITY AND STOCK DIVIDEND
At December 31, 1995, common stock authorized consisted of 2,000,000 shares of
no par stock, of which 1,203,578 shares were issued and outstanding. On January
8, 1996 the stockholders approved an amendment to Republic's Articles of
Incorporation to authorize 15,000,000 shares of Class A Common Stock, no par
value and 2,000,000 shares of Class B Common Stock, no par value.
On February 16, 1996, the Board of Directors declared a stock dividend of five
shares of Class A Common Stock for each share of Class B Common Stock owned by
stockholders of record on February 20, 1996 payable on February 29, 1996. The
stock dividend has been treated as a stock split and all share and earnings per
share amounts have been retroactively restated to give effect to the stock
split.
The Class A shares are entitled to cash dividends equal to 110% of the dividend
paid per share on the Class B Common Stock. Class A shares have one vote per
share and Class B shares have ten votes per share. Class B stock may be
converted, at the option of the holder, to Class A stock on a share-for-share
basis. The Class A Common Stock is not convertible into any other class of
Republic's capital stock.
<PAGE>
3. RECLASSIFICATIONS
Certain amounts have been reclassified in the 1995 financial statements to
conform with the current period classifications. The reclassifications have no
effect on net income or stockholders' equity as previously reported.
4. SECURITIES TO BE HELD TO MATURITY
<TABLE>
<CAPTION>
September 30, 1996
(in thousands)
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury Securities and
U.S. Government Agencies $153,776 $231 $(1,437) $152,570
Obligations of state and political subdivisions 4,544 182 (2) 4,724
Mortgage-backed securities 681 (46) 635
-------- ---- -------- --------
Total securities to be held to maturity $159,001 $413 $(1,485) $157,929
======== ==== ======== ========
</TABLE>
Securities to be held to maturity having an amortized cost of $127 million and a
fair value of $126 million at September 30, 1996, were pledged to secure public
deposits, securities sold under agreements to repurchase and for other purposes,
as required or permitted by law.
<TABLE>
<CAPTION>
December 31, 1995
(in thousands)
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury Securities and
U.S. Government Agencies $109,282 $777 $ (823) $109,236
Obligations of state and political subdivisions 4,629 176 (1) 4,804
Mortgage-backed securities 743 (34) 709
-------- ---- -------- --------
Total securities to be held to maturity $114,654 $953 $ (858) $114,749
======== ==== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5. LOANS
September 30, 1996 December 31, 1995
(in thousands)
<S> <C> <C>
Residential real estate $437,395 $371,846
Commercial real estate 62,283 75,648
Real estate construction 32,721 31,230
Commercial 23,589 21,042
Consumer 99,655 98,730
Home equity 58,607 48,244
Credit card 23,980 25,581
Other 4,316 3,424
-------- --------
Total loans 742,546 675,745
-------- --------
Less:
Unearned interest income and
unamortized loan fees 2,496 3,857
Allowance for loan losses 6,241 3,695
------- --------
Loans, net $733,809 $668,193
======== ========
</TABLE>
The following table sets forth the changes in the allowance for loan losses:
<TABLE>
<CAPTION>
Three Months Ended, Nine Months Ended,
September 30 September 30
1996 1995 1996 1995
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $6,241 $3,052 $3,695 $1,827
Provision charged to income 1,625 896 7,259 2,836
Charge-offs (1,995) (625) (5,156) (1,365)
Recoveries 370 33 443 58
------- ------ ------- --------
Balance, end of period $ 6,241 $3,356 $6,241 $3,356
======= ====== ====== ======
</TABLE>
Information about Republic's investment in impaired loans is as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
(in thousands)
<S> <C> <C>
Gross impaired loans $1,638 $4,064
Less: Related allowances for loan losses 100 589
------ ------
Net impaired loans with related allowances 1,538 3,475
Impaired loans with no related allowances 0 87
------ ------
Total $1,538 $3,562
======= ======
Average impaired loans outstanding $1,638 $3,432
======= ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
6. INTEREST BEARING DEPOSITS
September 30, 1996 December 31, 1995
(in thousands)
<S> <C> <C>
Demand (NOW, Super NOW and Money Market): $99,644 $103,744
Savings 14,968 15,395
Money market certificates of deposit 66,334 58,599
Individual retirement accounts 35,298 34,275
Certificates of deposit, $100,000 and over 59,296 55,708
Other certificates of deposit 351,005 355,344
Brokered deposits 50,106 48,074
-------- --------
Total interest bearing deposits $676,651 $671,139
======== ========
</TABLE>
7. SHORT-TERM BORROWINGS
Short-term borrowings consist of repurchase agreements and overnight liabilities
to deposit customers arising from a cash management program offered by Republic.
While effectively deposit equivalents, such arrangements are in the form of
repurchase agreements. The repurchase agreements are treated as financings;
accordingly, the securities involved with the agreements are recorded as assets
and are held by a safekeeping agent and the obligations to repurchase the
securities are reflected as liabilities. Balances as of and for the nine months
ended September 30, 1996:
(dollars in thousands)
Average outstanding balance $61,272
Average interest rate 4.37%
Maximum outstanding at month end $102,515
<PAGE>
8. SEGMENT INFORMATION
Republic's operations include two reportable segments: banking and mortgage
banking. The banking segment is engaged in making loans, investing in securities
and collecting deposits. The mortgage banking segment originates residential
mortgage loans for resale in the secondary mortgage market and services loans
for the Bank and others.
Intersegment interest income and expense represent interest on loans and
advances from the banking segment to the mortgage banking segment computed at
New York prime, and advances from Republic to the Bank.
<TABLE>
<CAPTION>
Three months ended September 30, 1996
(in thousands)
Mortgage Republic
Bank Banking Bancorp Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Interest income:
Unaffiliated customers $ 20,585 $ 104 $ 9 $ 20,698
Intersegment 83 $ (83)
-------- ------- ------ -------
Total interest income 20,668 104 9 (83) 20,698
-------- ------- ------ ------- --------
Interest expense:
Unaffiliated customers 11,254 43 11,297
Intersegment 9 74 (83)
-------- ------- ------ -------
Total interest expense 11,263 74 43 (83) 11,297
-------- ------- ------ ------- --------
Net interest income 9,405 30 (34) 9,401
Provision for loan losses 1,625 1,625
Non-interest income 1,103 430 1,533
Non-interest expense 9,378 311 (16) 9,673
-------- ------- ------ --------
Income (loss) before income taxes $ (495) $ 149 $ (18) $ 0
======== ======= ====== =========
Identifiable assets $958,770 $ 4,529 $963,320 $(963,299) $963,320
======== ======= ======== ========== ========
Depreciation and amortization
of premises and equipment $ 819 $ 21 $ 840
======== ======= ========
Capital expenditures $ 2,334 $ 2 $ 2,336
======== ======= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three months ended September 30, 1995
(in thousands)
Mortgage Republic
Bank Banking Bancorp Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Interest income:
Unaffiliated customers $ 18,472 $ 153 $ 47 $ 18,672
Intersegment 167 $ (167)
-------- ------- ------ -------
Total interest income 18,639 153 47 (167) 18,672
-------- ------- ------ ------- --------
Interest expense:
Unaffiliated customers 10,034 53 10,087
Intersegment 47 120 (167)
-------- ------- ------ -------
Total interest expense 10,081 120 53 (167) 10,087
-------- ------- ------ ------- --------
Net interest income 8,558 33 (6) 8,585
Provision for loan losses 896 896
Non-interest income 1,137 499 1,636
Non-interest expense 5,980 262 9 6,251
-------- ------- ------ --------
Income (loss) before
income taxes $ 2,819 $ 270 $ (15) $ 0 $ 3,074
======== ======= ====== ======= ========
Identifiable assets $845,628 $ 7,503 $853,153 $(853,131) $853,153
======== ======= ======== ========== ========
Depreciation and amortization
of premises and equipment $ 578 $ 30 $ 608
======== ======= ========
Capital expenditures $ 693 $ 12 $ 705
======== ======= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1996
(in thousands)
Mortgage Republic
Bank Banking Bancorp Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Interest income:
Unaffiliated customers $ 59,864 $ 445 $ 106 $ 60,415
Intersegment 440 $ (440)
-------- ------- ------ -------
Total interest income 60,304 445 106 (440) 60,415
-------- ------- ------ ------- --------
Interest expense:
Unaffiliated customers 31,696 125 31,821
Intersegment 106 334 (440)
-------- ------- ------ -------
Total interest expense 31,802 334 125 (440) 31,821
-------- ------- ------ ------- --------
Net interest income 28,502 111 (19) 28,594
Provision for loan losses 7,259 7,259
Non-interest income 4,082 1,461 5,543
Non-interest expense 22,588 899 24 23,511
-------- ------- ------ --------
Income (loss) before
income taxes $ 2,737 $ 673 $ (43) $ 0 $ 3,367
======== ======= ====== ======= ========
Identifiable assets $958,770 $ 4,529 $963,320 $(963,299) $963,320
======== ======= ======== ========== ========
Depreciation and amortization
of premises and equipment $ 2,316 $ 66 $ 2,382
======== ======= ========
Capital expenditures $ 5,612 $ 16 $ 5,628
======== ======= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1995
(in thousands)
Mortgage Republic
Bank Banking Bancorp Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Interest income:
Unaffiliated customers $ 51,567 $ 442 $ 114 $ 52,123
Intersegment 472 $ (472)
-------- ------- ------ -------
Total interest income 52,039 442 114 (472) 52,123
-------- ------- ------ ------- --------
Interest expense:
Unaffiliated customers 27,205 170 27,375
Intersegment 114 358 $ (472)
-------- ------- ------ -------
Total interest expense 27,319 358 170 (472) 27,375
-------- ------- ------ ------- --------
Net interest income 24,720 84 (56) 24,748
Provision for loan losses 2,836 2,836
Non-interest income 4,382 1,324 5,706
Non-interest expense 17,379 795 15 18,189
-------- ------- ------ --------
Income (loss) before
income taxes $ 8,887 $ 613 $ (71) $ 0 $ 9,429
======== ======= ====== ======= ========
Identifiable assets $845,628 $ 7,503 $853,153 $(853,131) $853,153
======== ======= ======== ========== ========
Depreciation and amortization
of premises and equipment $ 1,630 $ 95 $ 1,725
======== ======= ========
Capital expenditures $ 1,464 $ 14 $ 1,478
======== ======= ========
</TABLE>
<PAGE>
PART I
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Republic, headquartered in Louisville, Kentucky, was incorporated on January 2,
1974. The Bank is a commercial banking and trust corporation organized and
chartered under the laws of the Commonwealth of Kentucky. The Bank is also
headquartered in Louisville, Kentucky and provides banking services through
twenty banking centers throughout Kentucky. The Bank's activities include the
acceptance of deposits for checking, savings and time deposit accounts, making
secured and unsecured loans, investing in securities and trust services. The
Bank's lending services include the making of real estate, commercial, consumer
and credit card loans and its operating revenues are derived primarily from
interest and fees on domestic real estate, commercial and consumer loans, and
from interest on securities of the United States Government and Agencies,
states, and municipalities. Regulators for Republic include the Federal Deposit
Insurance Corporation (FDIC), Federal Reserve Bank and the Kentucky Department
of Financial Institutions. In assets, the Bank is the sixth largest FDIC-insured
commercial bank in Louisville, Kentucky and the ninth largest FDIC-insured
commercial bank in Kentucky.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1996
AND DECEMBER 31, 1995
Overview. Republic's total assets were $963.3 million at September 30, 1996,
compared to $891.3 million at December 31, 1995, an increase of 8%. The growth
was primarily attributable to continued market loan demand.
Cash and cash equivalents. The cash and cash equivalents decreased from $75.3
million at December 31, 1995 to $34.8 million at September 30, 1996. Cash and
due from banks decreased $8.9 million, while federal funds sold decreased $31.6
million. These decreases resulted from funding increased loan demand and
investment in Republic's securities portfolio.
Securities to be held to maturity. Securities increased from $114.7 million at
December 31, 1995, to $159.0 million at September 30, 1996. The increase in
investment securities was attributable to management's decision to transfer cash
into higher yielding investment securities. The investment portfolio consists
primarily of U. S. Treasury and U.S. Government Agencies with a range of
maturities, none of which exceed ten years. Republic maintains a conservative
interest rate risk strategy in that 90% of the portfolio matures within 5 years.
Funds provided by maturing securities throughout the nine month period ended
September 30, 1996 were primarily used to purchase replacement securities. No
investment securities were sold prior to maturity through September 30, 1996.
<PAGE>
Loans. Net loans increased $65.6 million to $733.8 million at September 30,
1996, compared to $668.2 million at December 31, 1995. The increase in net loans
was led by residential lending which has increased 18% since December 31, 1995.
Residential real estate loans increased due to Republic's market presence and
sustained customer demand. In recent periods, Republic has experienced strong
overall loan growth throughout its markets. If current interest rates remain
stable or decline, Republic anticipates continued residential loan growth
throughout the remainder of 1996.
Republic's unsecured consumer loan portfolio ("All Purpose", "Pre-Approved", and
"Bankcard") decreased marginally from $88.3 million at December 31, 1995 to
$84.7 million at September 30, 1996. This decrease reflects management's
intention to limit the growth of the unsecured consumer portfolio. Republic's
"All Purpose" loans, with total outstandings of $24.4 million at September 30,
1996, are originated through Republic's retail operating units. This product has
an average loan amount of $8,000 and an average annual percentage rate of 17.32%
with a standard maximum maturity of 5 years. "Pre-Approved" loans, with total
outstandings of $36.3 million at September 30, 1996, were delivered through
direct mail, targeting customers both in and outside of Republic's traditional
Kentucky markets. The "Pre-Approved" product has an average loan amount of
$7,800 and an average annual percentage rate of 14.29% with a standard maximum
maturity of 5 years. Republic's "Bankcard" program, with total outstandings of
$24.0 million at September 30, 1996, has an average loan amount of $2,518 and an
average annual percentage rate of 13.35%.
Allowance and Provision for Loan Losses. The allowance for loan losses increased
from $3.7 million at December 31, 1995 to $6.2 million at September 30, 1996.
The increase is primarily attributable to charge-off experience and anticipated
losses in the unsecured consumer loan portfolio. The additions to the allowance
have increased Republic's allowance for loans losses to total loan ratio to .84%
at September 30, 1996 up from .55% at December 31, 1995.
The provision for loan losses was $1.6 million in third quarter, 1996, compared
to $896,000 in third quarter 1995. Net charge-offs increased $1.0 million during
third quarter 1996 over third quarter 1995. Republic's unsecured consumer loan
portfolio accounted for 99% of total charge-offs in the third quarter of 1996.
Similarly, the provision for loan losses was $7.3 million for the nine months
ended September 30, 1996, compared to $2.8 million for the nine months ended
September 30, 1995. Net charge-offs increased $3.4 million during nine months
ended September 30, 1996 over the comparable period in 1995. Republic's
unsecured consumer loan portfolio accounted for 97% of total charge-offs through
September 30, 1996. The charge-offs in the unsecured portfolio were principally
comprised of $2.1 million in the "All-Purpose" program and $1.5 million in the
"Pre-Approved" program. As a result of increasing charge-offs, management has
continued to limit the growth of the unsecured consumer loan portfolio by
tightening the underwriting standards for the "All-Purpose" program and
eliminating any direct mail offers during the period under the "Pre-Approved"
loan program. These actions are expected to improve the average credit quality
of these loan programs and gradually reduce the level of charge-offs. Republic
also experienced charge-offs in its "Bank card" program of $1.1 million for the
nine months ended September 30, 1996, compared to $612,000 for the comparable
period in 1995. Management anticipates that the charge-offs in the unsecured
consumer loan portfolio may continue at or near recent levels, and believes,
based on information presently available, that it has adequately provided for
these losses as of September 30, 1996. Future adjustments, which could be
material, may be necessary if the portfolio's performance differs from
management's estimates.
<PAGE>
Table 1 below depicts the allowance activity by loan type for the three months
and nine months ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
Table 1 - Summary of Loan Loss Experience
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Allowance For Loan Losses
Balance Beginning of Period $6,241 $3,052 $3,695 $1,827
Charge-offs:
Real Estate 14 0 154 313
Commercial 1 7 14 12
Consumer 1,980 618 4,988 1,040
------ ------ ------ ------
Total 1,995 625 5,156 1,365
------ ------ ------ ------
Recoveries:
Real Estate 288 22 290 22
Commercial
Consumer 82 11 153 36
------ ------ ------ ------
Total 370 33 443 58
------ ------ ------ ------
Net charge-offs: 1,625 592 4,713 1,307
Provision For Loan Losses 1,625 896 7,259 2,836
------ ------ ------ ------
Allowance For Loan Losses
End of Period $6,241 $3,356 $6,241 $3,356
====== ====== ====== ======
</TABLE>
Premises and Equipment, net. Premises and equipment increased from $12.0 million
at December 31, 1995 to $15.3 million at September 30, 1996. The increase
resulted from the addition of four new banking centers and continued technology
enhancements. The technology enhancements included expansion and updating of the
Bank's personal computer network, teller automation and telecommunication system
improvements.
<PAGE>
Deposits. Total deposits remained constant at $739.7 million at September 30,
1996, compared to $734.4 million at December 31, 1995. Republic plans to
emphasize its deposit gathering initiatives while also implementing programs to
maximize retention of maturing rate-sensitive deposits through aggressive
pricing strategies and new products.
Securities Sold Under Agreements to Repurchase and Other Short Term Borrowings.
Short term borrowings increased from $21.7 million at December 31, 1995 to $75.5
million at September 30, 1996. The change was primarily due to increased
deposits provided by public sector enterprises and other similar funding
relationships. Management intends to develop additional public sector
relationships which will result in further increases in short term borrowings,
if achieved. (See Note 7 of Notes to Consolidated Financial Statements).
RESULTS OF OPERATIONS
Overview. For the three months ended September 30, 1996, Republic reported a net
loss of $355,000, or $(.06) per share compared to net income of $1.9 million, or
$.24 per share, for the third quarter of 1995. Earnings for the third quarter
1996 produced an annualized return on average assets of (.14)% and a return on
average stockholders' equity of (2.37)%, compared to returns of .93% and 14.25%,
respectively, for the comparable period in 1995. For the nine months ended
September 30, 1996, net income was $1.9 million compared to $6.1 million for the
same period in 1995.
During the third quarter of 1996, Republic was subject to a one-time $2.3
million Savings Association Insurance Fund (SAIF) assessment. Excluding this
one-time charge, net income for the three months ended September 30, 1996 and
1995 remained constant at $1.9 million. Earnings for the third quarter 1996
would have produced an annualized return on average assets of .49% and a return
on average stockholders' equity of 7.61%. For the nine months ended September
30, 1996, excluding the one-time charge, net income would have been $3.4 million
compared to $6.1 million for the same period in 1995.
Net Interest Income. For third quarter 1996, net interest income was $9.4
million, up 9% over the $8.6 million attained during third quarter 1995. This
increase was primarily attributable to Republic's continued loan growth,
particularly residential real estate loans. During the third quarter 1996,
average interest-earning assets were $922 million, an increase of $119 million
over third quarter 1995. The yield on average interest-earning assets decreased
from 9.30% during third quarter of 1995 to 8.98% during third quarter of 1996.
Total average interest bearing liabilities increased from $717 million in the
third quarter of 1995 to $833 million in the third quarter of 1996. The cost of
average interest-bearing liabilities decreased from 5.63% during third quarter
of 1995 to 5.42% in the third quarter of 1996, as higher cost deposits matured.
Overall, the net interest rate spread decreased from 3.67% during third quarter
of 1995 to 3.56% in the comparable quarter of 1996. The Bank's net interest
margin decreased from 4.28% in third quarter 1995 to 4.08% in third quarter
1996. The decrease in the net interest spread and margin is attributable to the
growth in the mortgage loan portfolio along with a reduction in the higher
yielding consumer portfolio. Additionally, the net interest margin was
negatively impacted by the growth in interest earning assets over interest
bearing liabilities for the three months ended September 30, 1996 compared to
the three months ended September 30, 1995.
<PAGE>
Net interest income for the nine months ended September 30, 1996 was $28.6
million, up $3.9 million from $24.7 million during the nine months ended
September 30, 1995. When comparing the respective nine month periods, average
earning assets grew by $109.8 million in 1996 and average interest bearing
liabilities increased $106.2 million. The rise in net interest income in 1996 is
primarily due to the increase in the Bank's residential loan portfolio.
The Bank's exposure to changes in interest rates is managed by maintaining a
balance between interest-earning assets and interest-bearing liabilities which
are expected to mature or are sensitive to interest rate changes. At September
30, 1996, the Bank's exposure to changes in interest rates reflected a one year
positive gap of $12.5 million compared to a one year positive gap of $12.3
million at December 31, 1995.
Tables 2 and 3 on pages 21 and 22 provides detailed information as to average
balance, interest income/expense, and rates by major balance sheet category for
the three and nine months ended September 30, 1996 and 1995.
<PAGE>
Table 2 - Average Balance Sheet and Average Rates - for Third Quarter,
1996 and 1995 (in thousands)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1996 Three Months Ended September 30, 1995
Average Average Average Average
Balance Interest Rate (4) Balance Interest Rate (4)
ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
US Treasury and US
Government Agency Securities $150,513 $2,315 6.15% $120,614 $2,022 6.71%
State and Political
Subdivision Securities 4,513 97 8.60% 4,656 98 8.42%
Other Investment Securities 5,444 91 6.69% 5,082 86 6.77%
Mortgage-Backed Securities 696 8 4.60% 783 10 5.11%
Federal Funds Sold 32,809 38 5.34% 21,550 319 5.92%
Total Loans and Fees (1) 728,228 17,749 9.75% 650,243 16,137 9.93%
------- ------ ---- ------- ------ -----
Total Earning Assets 922,203 20,698 8.98% 802,928 18,672 9.30%
Less: Allowance
for Loan Losses (6,241) (3,228)
Non-Earning
Assets:
Cash and Due From
Banks 21,525 16,188
Bank Premises and
Equipment, Net 14,562 11,288
Other Assets 11,211 12,106
--------- --------
Total Assets $963,260 $839,282
========= ========
LIABILITIES AND STOCK-
HOLDERS' EQUITY:
Interest Bearing Liabilities
Transaction Accounts $147,144 $1,390 3.78% $139,674 $1,301 3.73%
Money Market Accounts 36,556 439 4.80% 20,805 247 4.75%
Individual Retirement
Accounts 35,351 543 6.14% 32,823 528 6.43%
Certificates of Deposits and
Other Time Deposits 464,602 6,961 5.99% 437,693 6,838 6.25%
Federal Funds Purchased and
Other Borrowings 149,621 1,964 5.25% 85,541 1,173 5.49%
------- ------ ---- ------- ------ -----
Total Interest Bearing
Liabilities 833,274 11,297 5.42% 716,536 10,087 5.63%
Non-Interest Bearing
Liabilities:
Non-Interest Bearing
Deposits 59,891 56,205
Other Liabilities 10,426 11,884
Stockholders'
Equity 59,669 54,657
Total Liabilities and Stock- -------- ---------
holders' Equity $963,320 $839,282
======== =========
Net Interest
Income $9,401 $8,585
====== ======
Net Interest
Spread (2) 3.56% 3.67%
===== =====
Net Interest
Margin (3) 4.08% 4.28%
===== ======
<FN>
For purposes of these calculations, non-accruing loans are included in
the quarterly average loan amounts outstanding.
(1) The amount of fees included in Interest on loans was $103,243 and
$156,668 for the three months ended September 30, 1996 and 1995,
respectively.
(2) Net interest spread represents the difference between the average
yield on average interest-earning assets and the average cost of
average interest-bearing liabilities.
(3) Net interest margin represents net intere4st income divided by average
interest-earning assets.
(4) For purposes of calculating these figures, all interest income and interest
costs are annualized.
</FN>
</TABLE>
<PAGE>
Table 3 - Average Balance Sheet and Average Rates - for Nine Months, 1996
and 1995 (in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1996 Nine Months Ended September 30, 1995
Average Average Average Average
Balance Interest Rate (4) Balance Interest Rate (4)
ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
US Treasury and US
Government Agency Securities $130,472 $6,077 6.21% $116,120 $5,554 6.38%
State and Political
Subdivision Securities 4,580 293 8.53% 4,708 297 8.41%
Other Investment Securities 5,351 288 7.18% 5,018 250 6.64%
Mortgage-Backed Securities 715 28 5.22% 809 30 4.94%
Federal Funds Sold 26,980 1,079 5.33% 23,101 1,030 5.94%
Total Loans and Fees (1) 711,753 52,650 9.86% 620,271 44,962 9.67%
------- ------ ----- ------- ------ -----
Total Earning Assets 879,851 60,415 9.16% 770,027 52,123 9.03%
Less: Allowance
for Loan Losses (4,924) (2,534)
Non-Earning
Assets:
Cash and Due From
Banks 20,292 15,836
Bank Premises and
Equipment, Net 13,637 11,325
Other Assets 10,470 10,873
-------- --------
Total Assets $919,326 $805,527
======== ========
LIABILITIES AND STOCK-
HOLDERS' EQUITY:
Interest Bearing Liabilities
Transaction Accounts $148,927 $3,941 3.53% $145,543 $3,851 3.53%
Money Market Accounts 33,905 1,136 4.47% 16,903 581 4.58%
Individual Retirement
Accounts 34,764 1,618 6.21% 30,076 1,402 6.22%
Certificates of Deposits and
Other Time Deposits 443,078 20,052 6.03% 399,484 17,515 5.85%
Federal Funds Purchased and
Other Borrowings 131,446 5,074 5.15% 93,960 4,026 5.71%
------- ------ ----- ------- ------ -----
Total Interest Bearing
Liabilities 792,120 31,821 5.36% 685,966 27,375 5.32%
Non-Interest Bearing
Liabilities:
Non-Interest Bearing
Deposits 59,082 53,571
Other Liabilities 8,513 11,730
Stockholders'
Equity 59,611 54,260
Total Liabilities and Stock- -------- --------
holders' Equity $919,326 $805,527
======== ========
Net Interest
Income $28,594 $24,748
======= =======
Net Interest
Spread (2) 3.80% 3.71%
===== =====
Net Interest
Margin (3) 4.33% 4.29%
===== =====
<FN>
For purposes of these calculations, non-accruing loans are included in the
quarterly average loan amounts outstanding.
(1) The amount of fees included in Interest on loans was $419,099 and $445,961
for the nine months ended September 30, 1996 and 1995, respectively.
(2) Net interest spread represents the difference between the average yield on
average interest-earning assets and the average cost of average interest-
bearing liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
(4) For purposes of calculating these figures, all interest income and interest
costs are annualized.
</FN>
</TABLE>
<PAGE>
Table 4 - Volume/Rate Variance Analysis(in thousands)
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
Three Months Ended September 30, 1996 Nine Months Ended September 30, 1996
Compared to Three Months Ended September 30, 1995 Compared to Nine Months Ended September 30, 1995
Increase/(Decrease) Increase/(Decrease)
Due To Due To
Total Net Total Net
Change Volume Rate Change Volume Rate
<S> <C> <C> <C> <C> <C> <C>
Interest Income (1):
US Treasury and
Government Agency Securities $293 $501 ($208) $523 $686 ($163)
State and Political
Subdivision Securities (1) (3) 2 (4) (8) 4
Other Investment Securities 5 6 (1) 38 17 21
Mortgage-Backed Securities (2) (1) (1) (2) (3) 1
Federal Funds Sold 119 167 (48) 49 173 (124)
Total Loans and Fees 1,612 1,935 (323) 7,688 6,631 1,057
----- ----- ----- ----- ----- -----
Net Change in Interest Income 2,026 2,605 (579) 8,292 7,496 796
----- ----- ----- ----- ----- -----
Interest Expense:
Interest Bearing
Transaction Accounts 89 70 19 90 90 0
Money Market Accounts 192 187 5 555 584 (29)
Individual Retirement Accounts 15 41 (26) 216 312 (96)
Certificates of Deposit and
Other Time Deposits 123 420 (297) 2,537 1,911 626
Repo's, Federal Funds Purchased
and Other Borrowings 791 879 (88) 1,048 1,606 (558)
----- ----- ----- ----- ----- -----
Net Change in Interest 1,210 1,597 (387) 4,446 4,503 (57)
----- ----- ----- ----- ----- -----
Increase in
Net Interest Income $816 $1,008 ($192) $3,846 $2,993 $853
===== ====== ====== ====== ====== =====
<FN>
(1) Interest income for loans on non-accrual status have been eliminated from
revenues.
</FN>
</TABLE>
<PAGE>
Non-Interest Income. Non-interest income was $1.5 million during third quarter
1996, down from $1.6 million during third quarter of 1995. Non-interest income
decreased $163,000 to $5.5 million for the nine months ended September 30, 1996
compared to the same period in 1995. Service charges on deposit accounts rose
44% in third quarter 1996 over third quarter 1995, and increased 29% for the
nine months ended September 30, 1996. During 1996 management restructured its
service charges on deposit accounts and improved collection activities,
resulting in the increased fee income. Other non-interest income declined as a
result of reduced insurance commissions as Republic limited new originations in
its consumer loan portfolio. The decrease in other non-interest income for the
nine month period ended 1996 resulted primarily from a one-time gain of $738,000
for the reversal of previously expensed legal matters during the second quarter
of 1995 as well as lower insurance commission income.
Income from mortgage banking, a component of non-interest income, includes
proceeds from the sale of loans in the secondary market and servicing income.
Gain on sale of loans decreased 30% in third quarter 1996 from third quarter
1995. Republic's net gain on sale of loans decreased due to reduced margins. For
the nine months ended September 30, 1996, Republic's net gain on sale of loans
increased 33%. The overall increase in gain on sale of loans for the nine months
ended 1996 was attributable to increased sales volume. Loan servicing income
declined slightly for the three months ended 1996 and 1995, while decreasing 7%
for the nine months ended September 30, 1996 from the comparable 1995 period.
The decrease was attributable to a decline in the servicing portfolio due to
normal payoff activity and the sale of loans on the secondary market with
servicing released.
Non-Interest Expense. Total non-interest expense was $9.7 million in third
quarter 1996, compared to $6.3 million for third quarter 1995, an increase of
55%. Non-interest expense increased 29% from $18.2 million for the nine months
ended September 30, 1995, compared to $23.5 million for the comparable period in
1996. The increase for the three months and nine months ended September 30, 1996
was primarily attributable to the one-time SAIF assessment and costs associated
with Republic's expansion efforts. Management anticipates that non-interest
expense will continue to increase in the near term due to continued franchise
growth and expansion. Exclusive of the one-time SAIF assessment, non-interest
expense increased $1.1 million in third quarter 1996 and $3.0 million for the
nine months ended September 30, 1996.
Salary and employee benefit expense increased 15% for the third quarter 1996
over third quarter, 1995, and 20% for the nine months ended September 30, 1996
over the comparable 1995 period due to staff additions and annual merit
increases. Republic's staffing level rose to 414 full-time equivalent employees
(FTE's) at September 30, 1996, compared to 350 FTE's at September 30, 1995. The
increase in staffing was prompted by the Bank's expansion activities during 1996
as well as additional staffing in operational areas needed to support strong
loan demand.
<PAGE>
Occupancy and equipment expense increased 24% in third quarter 1996, over third
quarter 1995. This expense increased from $3.9 million for the nine months ended
September 30, 1995 to $4.7 for the comparable period in 1996. The increase was
primarily due to depreciation expenses associated with new technology
enhancements for lending and customer support systems. The increase is also due
to the opening of three additional banking centers during the third quarter of
1996. Management intends to continue its expansion plans by adding one
additional banking center during the remainder of 1996, subject to regulatory
approval. Management anticipates that Republic's expansion plans and continued
technology enhancements will result in an increased occupancy and equipment
expense level during the remainder of 1996 and into 1997.
Insurance expense increased $2.3 million from third quarter 1995 to third
quarter 1996. This increase is principally a result of the federally mandated
one-time assessment on the Bank's SAIF deposits in the amount of $2.3 million.
Approximately 45% of the Bank's deposits are insured by the FDIC's Bank
Insurance Fund (BIF). The remaining 55% are insured by the FDIC's Savings
Association Insurance Fund (SAIF) resulting from the Bank's merger with Republic
Savings Bank, F.S.B.. The recent legislation which mandated the one-time SAIF
assessment provided for a future ongoing reduction in the FDIC's insurance rate
premiums on SAIF insured deposits. Management anticipates that Republic will
ultimately recapture the charge attributable to the one-time SAIF assessment
through a reduction of the FDIC's insurance rate premiums from their current
levels.
Other non-interest expense increased $137,000 during the third quarter 1996 over
third quarter 1995, and $311,000 for the nine months ended September 30, 1996
over the comparable period in 1995. The increase is attributable to higher state
taxes on deposits and professional fees.
Republic is required to reimburse the FDIC for tax benefits received resulting
from tax deductions for losses on loans and other real estate owned (OREO)
acquired through the acquisition of a failed institution. Republic has remitted
to the FDIC the amounts it has determined to be due under the terms of the
agreement with the FDIC. Republic is involved in discussions with the FDIC
concerning interpretations of certain provisions of the agreement and may be
required to remit additional payments related to prior years. Management intends
to vigorously contest any request by the FDIC for additional payments. There
have been no new developments with respect to this matter during the period.
ASSET QUALITY
Loans, including impaired loans under SFAS 114 and excluding consumer loans, are
placed on non-accrual status when they become past due 90 days or more as to
principal or interest, unless they are adequately secured and in the process of
collection. When loans are placed on non-accrual status, all unpaid accrued
interest is reversed. These loans remain on non-accrual status until the
borrower demonstrates the ability to remain current or the loan is deemed
uncollectible and is charged off. Consumer loans are not placed on non-accrual
status but are reviewed periodically and charged off when they reach 120 days
past due and are deemed uncollectible. At September 30, 1996, Republic had
$598,000 in consumer loans 90 days or more past due compared to $361,000 at
December 31, 1995.
<PAGE>
Table 5 provides information related to non-performing assets and loans 90 days
or more past-due. Accruing loans contractually past due 90 days or more
increased from $1.5 million at December 31, 1995 to $2.4 million at September
30, 1996. This rise is primarily attributable to loans secured by residential
real estate. Management does not consider this increase to be material in
relation to the total outstanding balance of the residential loan portfolio.
While loans on non-accrual status and loans past due 90 days or more increased
by $1.2 million from December 31, 1995 to September 30, 1996, total
non-performing assets increased moderately due to minimal OREO levels.
<TABLE>
<CAPTION>
Table 5 - Non-Performing Assets
September 30, December 31,
1996(1) 1995(1)
(dollars in thousands)
<S> <C> <C>
Loans on non-accrual status (2) $1,022 $ 742
Loans past due 90 days or more 2,371 1,463
------ -----
Total non-performing loans 3,393 2,205
Other real estate owned 0 552
------ ------
Total non-performing assets $3,393 $2,757
====== ======
Percentage of non-performing loans to total loans .46% .33%
Percentage of non-performing assets to total loans .46% .41%
<FN>
(1) The table is exclusive of impaired loans which remained on accrual status
as of September 30, 1996.
(2) Interest income that would have been earned and received on non-accrual
loans was not material.
</FN>
</TABLE>
Republic defines impaired loans to be those commercial real estate and
commercial loans greater than $499,999 that management has classified as
doubtful (collection of all amounts due is highly questionable or improbable) or
loss (all or a portion of the loan has been written off or a specific allowance
for loss has been provided). Republic's policy is to charge off all or that
portion of its investment in an impaired loan upon a determination it is
probable the full amount will not be collected. Impaired loans decreased from
$3.6 million at December 31, 1995 to $1.5 million at September 30, 1996.
LIQUIDITY
Republic has established access to various sources of funding alternatives if
needed for liquidity. Substantial resources can be realized from the investment
portfolio, of which $43.6 million matures or is putable within one year. These
maturing securities can be utilized to provide liquidity as needed. Republic's
banking centers also provide access to a retail deposit market. In addition,
Republic has established lines of credit with various financial institutions
which can provide additional funds for liquidity if needed.
Asset/liability management strategies are designed to ensure safety and
soundness, maintain liquidity and regulatory capital standards and achieve an
acceptable net interest margin. Management regularly monitors interest rate and
liquidity risk in relation to prospective market and business conditions and
implements appropriate funding and balance sheet strategies accordingly.
<PAGE>
CAPITAL
The Bank intends to maintain a capital position that meets the regulatory
definition, as defined by the FDIC, of a "well capitalized" institution. Table 6
below indicates the Bank's capital at September 30, 1996.
<TABLE>
<CAPTION>
Table 6 - Bank Capital Ratios
As of September 30, 1996
Tier I Tier I Total
(dollars in thousands) Risk Based Leverage Capital Risk Based
Capital Ratio Ratio Capital
Ratio
<S> <C> <C> <C>
Bank Stockholders' Equity $60,110 $60,110 $60,110
General Valuation Allowance 6,241
Less: Goodwill and Core
Deposit Intangibles 9 9 9
------- ------- -------
Computed Regulatory Capital $60,101 $60,101 $66,342
======= ======= =======
Computed Ratio 10.1% 6.2% 11.1%
FDIC "Well Capitalized" Ratio 6.0% 5.0% 10.0%
FDIC Minimum Capital Requirements 4.0% 4.0% 8.0%
</TABLE>
Kentucky banking regulations limit the amount of dividends that may be paid to
Republic by the Bank without prior approval of the Bank's regulatory agency.
Under these regulations, the amount of dividends that may be paid in any
calendar year is limited to the Bank's current year's net income, as defined in
the regulations, combined with the retained net income of the preceding two
years, less any dividends declared during those periods. At September 30, 1996,
the Bank had $7.7 million of retained earnings available for payment of
dividends.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996 the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities (SFAS No. 125). SFAS No.
125 provides new guidance for determining the circumstances under which
transfers of financial assets are considered sales or financings and extends the
accounting guidance of SFAS No. 122 for accounting for mortgage servicing rights
to all servicing rights and liabilities. Under this standard, accounting for
transfers of financial assets and extinguishments of liabilities is based on
control. After a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered and derecognizes
liabilities when extinguished.
<PAGE>
This statement is effective for fiscal years beginning after December 31, 1996
and early adoption is not permitted. The FASB is currently considering a
proposal to delay the implementation date of certain sections of the standard.
Management has not yet determined the impact of SFAS No. 125 on Republic's
financial statements.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. The exhibits required by Item 601 of Regulation S-K are attached to and
listed in the Exhibit Index on page 31.
B. No reports on Form 8-K have been filed during the quarter for which the
report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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)
Principal Executive Officer:
Date: 11/14/96 /s/ Bernard M. Trager
Bernard M. Trager
Chairman and Chief Executive Officer
Principal Financial Officer:
Date: 11/14/96 /s/ E. William Petter, Jr.
E. William Petter, Jr.
Executive Vice President,
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
11 Statement Regarding Computation of Per Share 32
Earnings
27 Financial Data Schedule 33
<PAGE>
Exhibit 11.
Statement Regarding Computation of Per Share Earnings
in thousands, except per share amounts (unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September. 30, Ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Primary earnings per common share:
Weighted average common shares outstanding 7,221 7,194 7,221 7,188
Common stock equivalents due to dilutive
effect of stock options 130 78 97 84
Common stock equivalents due to dilutive
effect of Convertible Preferred Stock 300 300 300 246
------ ------ ------ -------
Average shares and equivalents outstanding 7,651 7,572 7,618 7,518
Net income $ (355) $1,947 $1,894 $6,082
Less preferred stock dividends 106 106 319 258
------ ------ ------ ------
Income available for common stock (461) 1,841 1,575 5,824
Primary net income per share $(.06) $ .24 $ .21 $ .77
====== ===== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(This schedule contains summary financial information extracted from the
consolidated balance sheet, the consolidated statement of income and bank
records and is qualified in its entirety by reference to such report on
Form 10-Q
dollars in thousands, except per share figures.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 22,099
<INT-BEARING-DEPOSITS> 96
<FED-FUNDS-SOLD> 12,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 159,001
<INVESTMENTS-MARKET> 157,929
<LOANS> 742,546
<ALLOWANCE> 6,241
<TOTAL-ASSETS> 963,320
<DEPOSITS> 739,680
<SHORT-TERM> 75,522
<LIABILITIES-OTHER> 7,275
<LONG-TERM> 76,865
0
5,000
<COMMON> 3,491
<OTHER-SE> 50,412
<TOTAL-LIABILITIES-AND-EQUITY> 963,320
<INTEREST-LOAN> 52,650
<INTEREST-INVEST> 7,765
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 60,415
<INTEREST-DEPOSIT> 26,747
<INTEREST-EXPENSE> 31,821
<INTEREST-INCOME-NET> 28,594
<LOAN-LOSSES> 7,259
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,007
<INCOME-PRETAX> 3,367
<INCOME-PRE-EXTRAORDINARY> 1,894
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,894
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
<YIELD-ACTUAL> 4.33
<LOANS-NON> 1,022
<LOANS-PAST> 16,063
<LOANS-TROUBLED> 2,898
<LOANS-PROBLEM> 3,658
<ALLOWANCE-OPEN> 3,625
<CHARGE-OFFS> 5,156
<RECOVERIES> 443
<ALLOWANCE-CLOSE> 6,241
<ALLOWANCE-DOMESTIC> 6,241
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,946
</TABLE>
