<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 JUNE 30, 1997
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 of other jurisdiction or (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 and 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: 6,051,611 shares of Class A Common Stock and 1,169,857
shares of Class B Common Stock as of August 12, 1997.
The Exhibit index is on page 24. This filing contains 26 pages (including this
facing sheet).
<PAGE>
REPUBLIC BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements 3-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-21
PART II - OTHER INFORMATION
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
<PAGE>
PART I
- -
ITEM 1
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
<S> <C> <C>
ASSETS:
Cash and cash equivalents:
Cash and due from banks $ 37,148 $ 40,021
Federal funds sold 250 16,650
------------- --------------
Total cash and cash equivalents 37,398 56,671
Securities available for sale 103,275 107,937
Securities to be held to maturity 118,683 173,918
Loans, less allowance for loan losses of
$6,281 (1997) and $6,241 (1996) 796,403 759,424
Mortgage loans held for sale 7,190 7,624
Federal Home Loan Bank stock 6,756 5,548
Accrued interest receivable 9,561 9,685
Premises and equipment, net 17,605 17,509
Other assets 12,842 2,566
-------------- -------------
TOTAL $ 1,109,713 $ 1,140,882
============== =============
LIABILITIES:
Deposits:
Non-interest bearing $ 67,627 $ 66,969
Interest bearing 762,698 716,172
Securities sold under agreements to repurchase and
other short-term borrowings 86,080 181,634
Other borrowed funds 110,065 106,974
Accrued interest payable 7,232 5,643
Guaranteed preferred beneficial interests in
Company's subordinated debentures 6,452
Other liabilities 6,115 4,471
------------ ------------
Total liabilities 1,046,269 1,081,863
------------ ------------
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 48,471 43,930
Net unrealized depreciation on securities available
for sale, net of tax (335) (219)
------------- --------------
Total stockholders' equity 63,444 59,019
------------- -------------
TOTAL $ 1,109,713 $ 1,140,882
============= =============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
( IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 19,557 $ 17,526 $ 38,372 $ 34,631
Securities available for sale 1,441 2,904
Securities to be held to maturity:
Taxable 1,955 1,933 3,933 3,918
Non-taxable 32 32 63 64
FHLB dividends 117 101 227 193
Other 140 247 353 641
----------- ----------- ---------- -----------
Total interest income 23,242 19,839 45,852 39,447
--------- --------- -------- ---------
INTEREST EXPENSE:
Deposits 10,148 8,580 19,812 17,414
Short-term borrowings 1,098 658 2,340 1,145
Long-term debt 1,756 982 3,453 1,965
---------- ----------- --------- ---------
Total interest expense 13,002 10,220 25,605 20,524
--------- --------- -------- ---------
NET INTEREST INCOME 10,240 9,619 20,247 18,923
PROVISION FOR LOAN LOSSES 1,416 3,703 2,714 5,634
---------- ---------- --------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 8,824 5,916 17,533 13,289
--------- ---------- -------- -----------
NON-INTEREST INCOME:
Service charges on deposit accounts 824 584 1,601 1,094
Other service charges and fees 170 276 480 668
Bank card services 99 287 508 631
Net gain on sale of loans 263 356 544 722
Loan servicing income 186 206 375 416
Gain on sale of bank card 3,410 3,410
Securities gains 16 16
Other 189 83 319 749
---------- ------------ ---------- -----------
Total non-interest income 5,157 1,792 7,253 4,280
--------- ---------- --------- ----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 4,103 2,992 7,791 6,398
Occupancy and equipment 1,962 1,586 3,968 3,031
Communication and transportation 469 398 905 730
Marketing and development 349 415 712 755
FDIC deposit insurance 296 53 496
Supplies 265 242 507 454
Other 1,143 1,114 2,350 1,974
--------- ---------- --------- -----------
Total non-interest expense 8,291 7,043 16,286 13,838
--------- ---------- -------- ----------
INCOME BEFORE INCOME TAXES 5,690 665 8,500 3,731
INCOME TAXES 2,034 339 2,964 1,482
--------- ----------- -------- ----------
NET INCOME $ 3,656 $ 326 $ 5,536 $ 2,249
======== ======= ======== =========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ .48 $ .03 $ .72 $ .27
========= =========== ========= ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
NET UNREALIZED
DEPRECIATION
COMMON STOCK ADDITIONAL ON AVAILABLE TOTAL
PREFERRED STOCK CLASS A CLASS B PAID-IN RETAINED FOR SALE STOCKHOLDERS'
SHARES AMOUNT SHARES SHARES AMOUNT CAPITAL EARNINGS SECURITIES EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 50 $ 5,000 6,052 1,170 $ 3,491 $ 6,817 $ 43,930 $ (219) $ 59,019
Dividend Declared
Preferred ($2.125 per share) (213) (213)
Common: Class A ($.055 per share) (666) (666)
Class B ($.05 per share) (116) (116)
Net changes in unrealized depreciation
on securities available for sale (116) (116)
Net Income 5,536 5,536
----- ------- ------ ------ ------- ------- --------- -------- ---------
BALANCE, June 30, 1997 50 $ 5,000 6,052 1,170 $ 3,491 $ 6,817 $ 48,471 ($ 335) $ 63,444
===== ======= ====== ====== ======= ======= ========= ======== =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 5,536 $ 2,249
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization of premises and equipment 2,048 1,542
Amortization and accretion of securities 315 (143)
FHLB stock dividends (208) (183)
Provision for loan losses 2,714 5,634
Net gain on sale of securities (16)
Net gain on sale of loans (544) (722)
Net gain on sale of bank card (3,410)
Proceeds from sale of bank card 25,555
Proceeds from sale of loans 46,993 76,426
Origination of mortgage loans held for sale (46,015) (75,773)
Changes in assets and liabilities:
Accrued interest receivable 124 (776)
Other assets (9,577) 491
Accrued interest payable 1,589 (13)
Other liabilities 1,644 (701)
---------- -----------
Net cash provided by (used in) operating activities 26,748 8,031
--------- -----------
INVESTING ACTIVITIES:
Purchases of securities available for sale (5,044)
Purchases of securities to be held to maturity (11,189) (117,602)
Purchases of Federal Home Loan Bank Stock (1,000)
Proceeds from maturities of securities to be held to maturity 66,516 97,995
Proceeds from sales of securities available for sale 9,140
Net increase in loans (62,478) (43,901)
Net purchases of premises and equipment (2,144) (3,292)
---------- -----------
Net cash provided by (used in) investing activities (6,199) (66,800)
---------- ----------
FINANCING ACTIVITIES:
Net increase in deposits 47,184 12,477
Net increase (decrease) in securities sold under agreement to
repurchase and other short-term borrowings (95,554) 28,480
Payments on other borrowings (136,159) (21,723)
Proceeds from other borrowings 139,250 24,000
Proceeds from issuance of guaranteed preferred beneficial
interests in Company's subordinated debentures 6,452
Cash dividends paid (995) (905)
------------ -----------
Net cash used in financing activities (39,822) 43,329
---------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (19,273) (16,440)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 56,671 75,313
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 37,398 $ 58,873
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 24,016 $ 20,537
========= =========
Income taxes $ 1,839 $ 2,432
========== ==========
See notes to consolidated financial statements.
</TABLE>
<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 subsidiaries; Republic Mortgage
Company, Republic Insurance Agency, Inc., Republic Capital Trust, 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 Article 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 six-month periods
ending June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. 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, 1996.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 130,
Reporting Comprehensive Income. This standard requires that certain items
currently reported as direct changes in separate components of stockholders'
equity be reported in a separate statement of comprehensive income or be
included as a separate, additional component of the statement of income. Such
items include foreign currency translation, accounting for futures contracts,
accounting for defined benefit pension plans, and accounting for certain
investments in debt and equity securities. If a company has no items of
comprehensive income in any periods reported a statement of comprehensive income
is not required. The periodic change in net appreciation or depreciation on
securities available for sale reported in Republic's financial statements is an
element of comprehensive income under this standard. This standard is effective
for Republic in 1998. Management has not yet determined the manner of
presentation to be used to comply with this standard.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. This standard changes the way public
companies report information about operating segments in annual financial
statements and requires that those companies report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. Operating segments are defined as parts of a company for which
separate information is available which is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in evaluating
performance. Required disclosures for operating segments include total segment
revenues, total segment profit or loss, and total segment assets. The standard
also requires disclosures regarding revenues derived from products and services
(or similar groups of products or services), countries in which the company
derives revenue or holds assets, and about major customers, regardless of
whether this information is used in operating decision making. Certain
additional descriptive information to help the financial statement reader
understand how the information was developed and how it compares to total
amounts reflected in the company's financial statements are also required.
Republic is required to adopt the disclosure requirements in its 1998 annual
report, and in interim periods in 1999. The 1999 interim period disclosures are
required to include comparable 1998 information.
EARNINGS PER SHARE - Earnings per common and common equivalent share is based
upon the weighted average common and common equivalent shares outstanding during
the year. Primary and fully diluted earnings per share are approximately the
same. The number of common and common equivalent shares utilized in the per
share computations was approximately 7,393,000 and 7,296,000 for the three
months ended June 30, 1997 and 1996, respectively, and 7,393,000 and 7,291,000
for the six months ended June 30, 1997 and 1996, respectively.
RECLASSIFICATIONS - Certain amounts have been reclassified in the 1996 financial
statements to conform with the current period classifications. The
reclassifications have no effect on net income or stockholders' equity as
previously reported.
<PAGE>
2. SECURITIES
Available For Sale Securities:
<TABLE>
<CAPTION>
JUNE 30, 1997
(IN THOUSANDS)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
<S> <C> <C> <C>
U.S. Treasury Securities and U.S.
Government Agencies $ 103,781 $ (506) $ 103,275
Securities To Be Held To Maturity:
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
(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 $ 113,595 $ 287 ($ 520) $ 113,362
Obligations of state and political
subdivisions 4,461 160 4,621
Mortgage-backed securities 627 (43) 584
---------- ------ ------- ---------
Total securities to be held to maturity $ 118,683 $ 447 ($ 563) $ 118,567
========== ====== ====== =========
</TABLE>
Securities having an amortized cost of $192.0 million and a fair value of $191.5
million at June 30, 1997, were pledged to secure public deposits, securities
sold under agreements to repurchase and for other purposes, as required or
permitted by law.
3. LOANS
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
(IN THOUSANDS)
<S> <C> <C>
Residential real estate $ 477,035 $ 457,204
Commercial real estate 76,570 59,086
Real estate construction 36,468 32,130
Commercial 26,884 25,115
Consumer 92,669 96,138
Home equity 90,146 69,572
Bank card 1,384 24,527
Other 3,842 4,309
-------------- ------------
Total loans 804,998 768,081
Less:
Unearned interest income and unamortized
loan fees 2,314 2,416
Allowance for loan losses 6,281 6,241
-------------- ------------
Loans, net $ 796,403 $ 759,424
============== ==========
</TABLE>
<PAGE>
The following table sets forth the changes in the allowance for loan losses:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 6,281 $ 4,261 $ 6,241 $ 3,695
Provision charged to income 1,416 3,703 2,714 5,634
Charge-offs (1,530) (1,761) (2,965) (3,161)
Recoveries 114 38 291 73
--------- ----------- ---------- ----------
Balance, end of period $ 6,281 $ 6,241 $ 6,281 $ 6,241
======== ======== ======== ========
</TABLE>
Information about Republic's investment in impaired loans is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
(IN THOUSANDS)
<S> <C> <C>
Gross impaired loans $ 1,639 $ 1,638
Less: Related allowance for loan losses 240 240
--------- ---------
Net impaired loans with related allowances 1,399 1,398
Impaired loans with no related allowances 0 0
----------- -----------
Total $ 1,399 $ 1,398
======== ========
Average impaired loans outstanding $ 1,639 $ 1,638
======== ========
</TABLE>
4. INTEREST BEARING DEPOSITS
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
(IN THOUSANDS)
<S> <C> <C>
Demand (NOW, Super NOW and Money Market): $ 113,040 $ 116,180
Savings 15,080 14,840
Money market certificates of deposit 56,108 63,423
Individual retirement accounts 37,504 35,845
Certificates of deposit, $100,000 and over 70,940 60,890
Other certificates of deposit 420,054 374,864
Brokered deposits 49,972 50,130
---------- ----------
Total interest bearing deposits $ 762,698 $ 716,172
========== ==========
</TABLE>
<PAGE>
5. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER 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.
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996 JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average outstanding balance $ 100,552 $ 74,531 $ 55,303
Average interest rate 4.64% 4.74% 4.41%
Maximum outstanding at month end $ 100,730 $ 182,485 $ 85,980
End of period $ 86,080 $ 181,634 $ 50,209
</TABLE>
The decrease in outstandings from December 31, 1996 to June 30, 1997 resulted
from an anticipated withdrawal of short-term deposits by a local government
organization during the first quarter of 1997.
6. GUARANTEED PREFERRED BENEFICIAL INTERESTS
In February 1997, Republic Capital Trust (RCT), a trust subsidiary of Republic
Bancorp, Inc., completed the private placement of shares of cumulative trust
preferred securities ("Preferred Securities") with a liquidation preference of
$100 per security. Each security can be converted into five shares of Class A
Common Stock at the option of the holder. The proceeds of the offering were
loaned to Republic Bancorp, Inc. in exchange for subordinated debentures with
terms that are similar to the Preferred Securities. Distributions on the
securities are payable quarterly at the annual rate of 8.5% of the liquidation
preference and are included in interest expense in the consolidated financial
statements. Republic undertook the issuance of these securities to enhance its
regulatory capital position. The Bank intends to utilize the capital for general
business purposes and to support the Bank's future opportunities for growth.
These securities are considered as Tier I capital under current regulatory
guidelines.
The Preferred Securities are subject to mandatory redemption, in whole or in
part, upon repayment of the subordinated debentures at maturity or their earlier
redemption at the liquidation preference. The subordinated debentures are
redeemable prior to the maturity date of April 1, 2027 at the option of Republic
on or after April 1, 2002, upon the occurrence of specific events, defined
within the trust indenture. Republic has the option to defer distributions on
the subordinated debentures from time to time for a period not to exceed 20
consecutive quarters.
<PAGE>
PART 1
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Republic Bancorp, Inc., 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 20 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 origination of real estate, commercial
and consumer loans. 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 eighth largest FDIC-insured
commercial bank in Kentucky.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 AND DECEMBER 31, 1996
Republic's total assets decreased slightly in 1997 from $1.14 billion at
December 31, 1996 to $1.11 billion at June 30, 1997. The decrease resulted from
an anticipated withdrawal of short-term deposits of $87 million from one public
entity. While total assets decreased, Republic continues to experience strong
overall loan demand.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents decreased from $57 million
at December 31, 1996 to $37 million at June 30, 1997. Cash and due from banks
decreased $3 million, while federal funds sold decreased $16 million. The
decreases resulted from the expected withdrawal of short-term public deposits
and sustained loan demand.
INVESTMENT SECURITIES. The investment portfolio consists primarily of U.S.
Treasury and U.S. Government Agencies with a weighted average maturity of less
than 2 years. Securities available for sale decreased from $108 million at
December 31, 1997 to $103 million at June 30, 1997. The decrease resulted from
the sale of securities in the amount of $9 million. These securities were sold
for a modest gain.
Securities to be held to maturity decreased from $174 million at December 31,
1997 to $119 million at June 30, 1997. Funds provided by maturing securities
were primarily used to provide for the anticipated public deposit withdrawals
and fund sustained loan demand.
During the second quarter of 1997 a new managerial position, chief investment
officer, was created. Management also made certain modifications to its
investment policy. The policy changes will permit management to take advantage
of market changes and permit investments in additional mortgage-backed
securities and collateralized mortgage obligations. The policy changes will also
permit management to extend maturities up to ten years on U.S. Government and
Agency obligations with certain limitations. Management intends to remain
conservative in its overall investment strategy while taking advantage of
certain market timing opportunities.
LOANS. Net loans increased $37 million to $796 million at June 30, 1997 compared
to $759 million at December 31, 1996. The increase in loans was led by real
estate lending which rose $37 million since December 31, 1996. The rise in
residential and commercial real estate loan volume was a result of a continued
favorable rate environment and Republic's expanded market presence resulting
from the opening of five new banking centers during 1996. Republic also
experienced 30% growth in its Home Equity loan portfolio during 1997. The growth
of Republic's Home Equity loan portfolio was primarily due to product
enhancements including elimination of up-front closing costs and a six month
introductory interest rate.
<PAGE>
The increase in these loan types was offset by the sale of Republic's Bank card
loan portfolio and Republic's portion of a credit card joint venture. During the
second quarter of 1997, Republic sold its $17 million Bank card portfolio
realizing a pre-tax gain of $2.6 million. Under the terms of the sale, Republic
entered into an agent bank agreement which will allow Republic to continue to
offer credit cards in its name and receive fees based on new originations. The
terms of the sale did not include certain accounts with doubtful collectibility.
Republic anticipates losses associated with these accounts to continue in the
near term. Management gave consideration to these doubtful accounts in
determining the gain on the sale of the portfolio.
Republic also sold its 50% participation interest, totaling $7 million, in a
credit card joint venture for a gain of $340,000. The agreement contains a
limited recourse provision under which Republic is generally responsible for 50%
of monthly net charge-offs above 0.34% of the average monthly outstandings. This
recourse provision which remains in effect for up to 48 months has a maximum
liability to Republic of $1.2 million. The gain on sale was determined after
consideration of the probable loss under the recourse provision.
Republic's consumer loans, excluding Bank card loans, decreased slightly from
$96 million at December 31, 1996 to $93 million at June 30, 1997. Approximately
57% of loans in the consumer portfolio, excluding Bank card loans, are
unsecured. Republic's unsecured consumer portfolio includes the "All Purpose"
and "Pre Approved" loan programs. Republic's "All Purpose" loans, with total
outstandings of $17 million at June 30, 1997 and $22 million at December 31
1996, are originated through Republic's banking centers. This product has an
average original loan amount of $8,000 and an average percentage rate of 17.54%
with a standard maximum maturity of five years. "Pre Approved" loans remained
flat from December 31, 1996 to June 30, 1997 at $33 million. "Pre Approved"
loans are delivered through direct mail, targeting customers both in and outside
of Republic's traditional markets. The "Pre Approved" loan product has an
average original loan amount of $7,800 and an average annual percentage rate of
13.96% with a standard maximum maturity of five years. Management presently
plans to allow the "All Purpose" and "Pre Approved" portfolios to reduce in the
near term.
ALLOWANCE AND PROVISION FOR LOAN LOSSES. The allowance for loan losses remained
constant at $6 million from December 31, 1996 to June 30, 1997. Republic's
allowance to total loan ratio was .78% at June 30, 1997 compared to .81% at
December 31, 1996.
The provision for loan losses was $1.4 million in the second quarter, 1997,
compared to $3.7 million in the second quarter of 1996. Net charge-offs
decreased $300,000 from second quarter 1996 to second quarter 1997. Republic's
unsecured consumer loan portfolio accounted for 83% of total charge-offs in the
second quarter of 1997.
The provision for loan losses was $2.7 million for the six months ended June 30,
1997, compared to $5.6 million for the six months ended June 30, 1996. Net
charge-offs decreased slightly from year-to-date 1996 to year-to-date 1997. The
increase in the provision during 1996 resulted from management's decision to
increase the overall reserve for loan losses as a result of increased risk
associated with unsecured consumer loans.
Republic's unsecured consumer loan portfolio accounted for 84% of total
charge-offs during year-to-date 1997 and 91% for year-to-date 1996. The
charge-offs in the unsecured consumer loan portfolio during 1997 were
principally comprised of $836,000 in the "All Purpose" program and $943,000 in
the "Pre Approved" program (See description of programs under "Loans"). As a
result of the level of charge-offs in the unsecured programs, management is not
currently soliciting clients for these programs. This action is intended to
improve the average credit quality of these loan portfolios over time. Republic
also experienced a reduction in charge-offs in its Bank card portfolio during
the current year. Charge-offs were $467,000 year-to-date 1997 compared to
$665,000 for the same period in 1996. Management believes, based on information
presently available, that it has adequately provided for loan losses at June 30,
1997.
<PAGE>
Table 1 below depicts the allowance activity by loan type for the three months
ended June 30, 1997 and 1996.
TABLE 1 - SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1997 1996 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for loan losses:
Balance-beginning of period $ 6,281 $ 4,261 $ 6,241 $ 3,695
Charge-offs:
Real Estate (142) (128) (164) (140)
Commercial (5) (6) (43) (13)
Consumer (1,383) (1,627) (2,758) (3,008)
------- ------ ------- ------
Total (1,530) (1,761) (2,965) (3,161)
------- ------- ------- -------
Recoveries:
Real Estate 2 18 2
Commercial
Consumer 114 37 273 72
--- -- --- --
Total 114 39 291 74
--- -- --- --
Net charge-offs (1,416) (1,722) (2,674) (3,087)
Provision for loan losses 1,416 3,703 2,714 5,634
----- ----- ----- -----
Allowance for loan losses:
Balance-end of period $ 6,281 $ 6,241 $ 6,281 $ 6,241
======= ======= ======= =======
</TABLE>
DEPOSITS. Total deposits increased to $830 million at June 30, 1997 compared to
$783 million at December 31, 1996. The change was primarily due to an increase
in certificates of deposits resulting from competitive pricing. Republic plans
to continue its deposit gathering initiatives through aggressive pricing
strategies and competitive products.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT TERM BORROWINGS.
Short term borrowings decreased from $182 at December 31, 1996 to $86 million at
June 30, 1997. The decline in borrowings was primarily due to the removal of
short-term public deposits by a local government organization. Management
anticipated the withdrawal of these short-term public deposits during the first
quarter of 1997. The transaction was funded with maturing investment securities,
proceeds from the sale of available for sale securities, and cash on hand.
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S SUBORDINATED DEBENTURES.
During February of 1997, Republic issued $6 million of Trust Preferred
securities through a newly formed subsidiary, Republic Capital Trust. (See Note
6 to the accompanying interim financial statements).
SALE OF BANKING CENTERS
During 1997, Republic elected to increase its focus and resources on the North
Central and Central Kentucky markets. Republic believes that these markets will
provide greater opportunities for future growth and profitability.
<PAGE>
As a result of this decision, management has aggressively pursued opportunities
to sell certain fixed assets and deposit liabilities of its Western Kentucky
banking centers, with the exception of Owensboro. Republic's Western Kentucky
fixed assets and deposit liabilities subject to sale include banking centers in
the cities of Murray, Benton, Paducah and Mayfield. These banking centers
provide a total of $185 million in deposits as of June 30, 1997. Republic
intends to retain substantially all of the $167 million loan portfolio
associated with these banking centers. Management anticipates that it will fund
these transactions with additional deposits from its new and existing banking
centers, liquidation of available for sale investment securities and additional
advances from the Federal Home Loan Bank.
In April 1997, Republic entered into an agreement to sell its Murray banking
center to an unaffiliated Kentucky financial institution. The transaction
includes the sale of real estate located in Murray, Kentucky, certain fixed
assets and loans with an aggregate book value of approximately $237,000, and a
transfer of certain deposit liabilities totaling approximately $18 million. The
purchase price in the transaction was based on the book value of the assets
transferred, plus a core deposit premium on market area deposits, and was
payable through the reduction of the cash transferred by Republic to offset the
deposit liabilities assumed. This transaction was closed on July 30, 1997 and
Republic recognized an after tax gain of approximately $1.7 million.
In addition, Republic has subsequently entered into two additional contracts
with separate unaffiliated buyers to sell its Benton banking center and its two
banking centers in Paducah. These contracts are contingent upon regulatory
approval and are subject to due diligence and other contingencies. The Bank has
also entered into a letter of intent to sell its Mayfield banking center with
another unaffiliated institution, but has not as yet entered into a definitive
agreement. The Benton, Paducah and Mayfield transactions could close by year
end. While the terms of these agreements vary, management anticipates that
Republic will realize a gain on each anticipated sale. The gain will be
dependent upon the attributes and the amount of the deposit liabilities assumed
by the purchasers at closing.
OTHER MATTERS
Republic was 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 two failed institutions. In the third
quarter of 1995, Republic was notified by the FDIC that, under its
interpretation of the Agreements, Republic may be required to remit additional
payments related to prior years. During the second quarter of 1997, Republic
settled this matter with the FDIC. The terms of the settlement had no
significant impact on the financial position and results of operations of
Republic and provided for a release by the FDIC of any further obligations of
Republic under the Agreements.
RESULTS OF OPERATIONS
OVERVIEW. For the three months ended June 30, 1997, Republic reported net income
of $3.7 million, or $.48 per share, for the second quarter of 1997 compared to
$326,000, or $.03 per share, for the second quarter of 1996. Earnings for the
second quarter 1997 produced an annualized return on average assets of .81% and
a return on average stockholders' equity of 13.22%, compared to returns of .14%
and 2.22%, respectively, for the comparable period in 1996. For the six months
ended June 30, 1997, net income was $5.5 million compared to $2.2 million for
the same period in 1996. The substantial increase in earnings during 1997 is
primarily due to the sale of the Bank card portfolios and merchant processing
which produced an after-tax gain of approximately $2.2 million. Also during the
period, Republic benefited from reduced provisions for loan losses and
increased net interest income.
NET INTEREST INCOME. For the second quarter 1997, net interest income was $10.2
million, up 6% over the $9.6 million attained during second quarter 1996. This
increase was primarily attributable to Republic's continued loan growth,
particularly residential real estate and home equity loans. During the second
quarter 1997, average interest-earning assets were $1.1 billion, an increase of
$191.1 million over second quarter 1996. The yield on average interest-earning
assets decreased from 9.19% during second quarter of 1996 to 8.82% during second
quarter of 1997. Total average interest bearing liabilities increased from
$776.3 million in the second quarter of 1996 to $952.6 million in the second
quarter of 1997. The cost of average interest-bearing liabilities increased from
5.27% during second quarter of 1996 to 5.46% in the second quarter of 1997.
<PAGE>
Overall, the net interest rate spread decreased from 3.92% during second quarter
of 1996 to 3.36% in the comparable quarter of 1997. The Bank's net interest
margin decreased from 4.46% in second quarter 1996 to 3.88% in second quarter
1997. The decrease in the net interest spread and margin occurred because the
yield on interest earning assets decreased 37 basis points while the rate paid
on liabilities increased 19 basis points. The decline in yield on earning assets
was primarily attributable to a decrease in loan yields. The reduction in loan
yields occurred in large part because of declining balances in the higher
yielding "Pre Approved" and "All Purpose" loan portfolios. The rise in rates on
interest bearing liabilities resulted from a new, higher yielding tiered rate
program on money market accounts. Management anticipates that the net interest
spread and margin may continue to decrease in the near term as the higher
yielding consumer portfolios further reduce.
Net interest income for the six months ended June 30, 1997 was $20.2 million, up
$1.3 million from $18.9 million during the six months ended June 30, 1996. When
comparing the respective six month periods, average earning assets grew by
$192.6 million in 1997 and average interest bearing liabilities increased $180.5
million. The rise in net interest income in 1997 is primarily due to the
increased volume of the Bank's loan portfolio.
Tables 2, 3 and 4 on pages 16, 17 and 18 provide detailed information as to
average balance, interest income/expense, and rates by major balance sheet
category for the three and six months ended June 30, 1997 and 1996.
<PAGE>
TABLE 2 - AVERAGE BALANCE SHEET RATES FOR SECOND QUARTER, 1997 AND 1996 (DOLLARS
IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1997 THREE MONTHS ENDED JUNE 30, 1996
-------------------------------- --------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
ASSETS BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ----
EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
Agency Securities $ 216,558 $ 3,324 6.14% $ 119,469 $ 1,856 6.21%
State and Political Subdivision Securities 4,544 96 8.45% 4,590 98 8.54%
Other Investments 6,752 117 6.93% 5,345 103 7.71%
Mortgage-Backed Securities 641 8 4.99% 716 9 5.03%
Federal Funds Sold 10,318 140 5.43% 19,012 247 5.20%
Total Loans and Fees 815,648 19,557 9.59% 714,190 17,526 9.82%
------- ------ ------- ------
Total Earning Assets 1,054,461 23,242 8.82% 863,322 19,839 9.19%
--------- ------ ------- ------
Less: Allowance for Loan Losses (6,281) (4,678)
Non-Earning Assets:
Cash and Due From Banks 21,191 20,656
Bank Premises and Equipment, Net 17,887 13,526
Other Assets 13,528 9,206
------ -----
Total Assets $ 1,100,786 $ 902,032
=========== =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest Bearing Liabilities:
Transaction Accounts $ 133,733 $ 1,159 3.47% $ 151,982 $ 1,307 3.44%
Money Market Accounts 41,340 490 4.74% 33,852 364 4.30%
Individual Retirement Accounts 37,429 546 5.84% 34,695 536 6.18%
Certificates of Deposit and Other
Time Deposits 530,274 7,953 6.00% 425,682 6,373 5.99%
Repurchase Agreements and Other
Borrowings 209,868 2,854 5.44% 130,092 1,640 5.04%
------- ----- ------- -----
Total Interest Bearing Liabilities 952,644 13,002 5.46% 776,303 10,220 5.27%
------- ------ ------- ------
Non-Interest Bearing Liabilities:
Non-Interest Bearing Deposits 67,631 59,379
Other Liabilities 19,465 7,633
Stockholders' Equity 61,046 58,717
---------- ---------
Total Liabilities and Stockholders'
Equity $ 1,100,786 $ 902,032
=========== =========
Net Interest Income $ 10,240 $ 9,619
======== =======
Net Interest Spread 3.36% 3.92%
===== =====
Net Interest Margin 3.88% 4.46%
===== =====
For the purposes of these calculations, non-accruing loans are included in the
quarterly average loan amounts outstanding.
</TABLE>
<PAGE>
TABLE 3 - AVERAGE BALANCE SHEET RATES FOR SIX MONTHS, 1997 AND 1996 (DOLLARS IN
THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 SIX MONTHS ENDED JUNE 30, 1996
------------------------------ ------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
ASSETS BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ----
EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
Agency Securities $ 225,106 $ 6,668 5.92% $ 120,340 $ 3,762 6.25%
State and Political Subdivision Securities 4,533 196 8.65% 4,613 197 8.54%
Other Investments 6,593 227 6.89% 5,304 197 7.43%
Mortgage-Backed Securities 649 36 11.09% 725 19 5.24%
Federal Funds Sold 12,775 353 5.53% 24,033 641 5.33%
Total Loans and Fees 801,345 38,372 9.58% 703,422 34,631 9.85%
------- ------ ------- ------
Total Earning Assets 1,051,001 45,852 8.73% 858,437 39,447 9.19%
--------- ------ ------- ------
Less: Allowance for Loan Losses (6,271) (4,258)
Non-Earning Assets:
Cash and Due From Banks 22,737 19,669
Bank Premises and Equipment, Net 17,810 13,082
Other Assets 12,991 10,183
------ ------
Total Assets $ 1,098,268 $ 897,113
=========== =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest Bearing Liabilities:
Transaction Accounts $ 135,067 $ 2,333 3.45% $ 149,830 $ 2,610 3.48%
Money Market Accounts 40,641 957 4.71% 32,565 697 4.28%
Individual Retirement Accounts 36,874 1,078 5.85% 34,467 1,075 6.24%
Certificates of Deposit and Other
Time Deposits 520,783 15,444 5.93% 432,197 13,032 6.03%
Repurchase Agreements and Other
Borrowings 216,833 5,793 5.34% 120,669 3,110 5.15%
------- ----- ------- -----
Total Interest Bearing Liabilities 950,198 25,605 5.39% 769,728 20,524 5.33%
------- ------ ------- ------
Non-Interest Bearing Liabilities:
Non-Interest Bearing Deposits 69,956 58,549
Other Liabilities 17,836 9,326
Stockholders' Equity 60,278 59,510
------ ------
Total Liabilities and Stockholders'
Equity $ 1,098,268 $ 897,113
=========== =========
Net Interest Income $ 20,247 $ 18,923
======== ========
Net Interest Spread 3.34% 3.86%
===== =====
Net Interest Margin 3.85% 4.41%
===== =====
For the purposes of these calculations, non-accruing loans are included in the
quarterly average loan amounts outstanding.
</TABLE>
<PAGE>
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 Republic'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 old 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 4 - VOLUME/RATE VARIANCE ANALYSIS (IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1997 SIX MONTHS ENDED JUNE 30, 1997
COMPARED TO COMPARED TO
THREE MONTHS ENDED JUNE 30, 1996 SIX MONTHS ENDED JUNE 30, 1996
-------------------------------- ------------------------------
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):
U.S. Treasury and
Government Agency Securities $ 1,468 $ 1,508 $ (40) $ 2,906 $ 3,275 $ (369)
State and Political
Subdivision Securities (2) (1) (1) (1) (3) 2
Other Investments 14 27 (13) 30 48 (18)
Mortgage-Backed Securities (1) (1) 0 17 (2) 19
Federal Funds Sold (107) (113) 6 (288) (300) 12
Total Loans and Fees (2) 2,031 2,490 (459) 3,741 4,821 (1,080)
----- ------ ----- ------ ----- -------
Net Change in Interest Income 3,403 3,910 (507) 6,405 7,839 (1,434)
----- ------ ----- ------ ----- -------
Interest Expense:
Interest Bearing
Transaction Accounts (148) (157) 9 (277) (257) (20)
Money Market Accounts 126 81 45 260 173 87
Individual Retirement Accounts 10 42 (32) 3 75 (72)
Certificates of Deposit and
Other Time Deposits 1,580 1,566 14 2,412 2,671 (259)
Repurchase Agreements and
Other Borrowings 1,214 1,006 208 2,683 2,478 205
----- ----- --- ----- ----- ---
Net Change in Interest Expense 2,782 2,538 244 5,081 5,140 (59)
----- ----- --- ------- ------- ---------
Increase in Net Interest Income $ 621 $ 1,372 $ (751) $ 1,324 $ 2,699 $ (1,375)
===== ======= ======= ======= ======= =========
(1) Interest income for loans on non-accrual status have been included in
Interest Income.
(2) The amount of fees in interest on loans was $448,000 and $47,000 for the years ended June 30, 1997 and 1996, respectively.
</TABLE>
<PAGE>
NON-INTEREST INCOME. Non-interest income was $5.2 million during second quarter
1997, up from $1.8 million during second quarter of 1996. Non-interest income
increased 70% from $4.3 million for the six months ended June 30, 1996 to $7.3
million for the comparable period in 1997. The primary change in other
non-interest income resulted from the $3.4 million pre-tax gain realized on the
sale of the Bank card portfolios and merchant processing.
Service charges on deposit accounts increased for both the three month and six
month periods ended June 30, 1997. The increase was due to a restructuring of
service charges on deposit accounts and improved collection activities. Bank
card fees decreased for both the three month and six month periods ended June
30, 1997. This decrease resulted from the sale of the Bank's merchant processing
business. Other non-interest income declined for the six months ended June 30,
1997 as a result of one time gains realized during 1996. These one time events
in 1996 included the sale of the Bagdad banking center located in Shelby County,
Kentucky and the successful disposition of other real estate owned.
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 for both the three and six month period ended
June 30, 1997. Republic's net gain on sale of loans decreased due to reduced
volume of fixed rate originations. The decline in secondary market loan
originations has resulted in increased variable rate originations which are held
by Republic. Loan servicing income declined slightly for the three and six
months ended 1997 due to a decline in the servicing portfolio as a result of
normal payoff activity and the sale of loans to the secondary market with
servicing released.
NON-INTEREST EXPENSE. Total non-interest expense was $8.3 million in second
quarter 1997, compared to $7.0 million for second quarter 1996. Non-interest
expense increased 18% from $13.8 million for the six months ended June 30, 1996,
compared to $16.3 million for the comparable period in 1997. The increase during
both periods was primarily attributable to costs associated with Republic's
expansion into five new banking centers. Republic's non-interest expense ratio
(non-interest expense divided by the sum of net interest income and non-interest
income) was 69% in the second quarter 1997 compared to 62% for the comparable
period in 1996. Management anticipates that non-interest expense will moderate
in the near term due to the sale of certain Western Kentucky banking centers.
Salary and employee benefit expense increased 37% for the second quarter 1997
over second quarter, 1996, and 22% for the six months ended June 30, 1997 due to
staff additions and 1997 bonus accruals. Republic's staffing level rose to 443
full-time equivalent employees (FTE's) at June 30, 1997, compared to 401 FTE's
at June 30, 1996. 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.
Occupancy and equipment expense increased from $1.6 million in second quarter
1996 to $2.0 million for the comparable period in 1997. The increase was
primarily due to depreciation expenses associated with the opening of five
additional banking centers during 1996. The increase was also due to technology
enhancements for deposit, lending and customer support systems.
Insurance expense decreased for both the three month and six month periods ended
June 30, 1997. The primary decrease in FDIC insurance expense is due to overall
reduced insurance premiums for SAIF insured institutions since the third quarter
1996. FDIC insurance premiums were further reduced by a rebate on prior
insurance premiums paid in 1996. Management anticipates that this rebate will
continue to have a positive impact on insurance expense in the third quarter.
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 June 30, 1997, Republic had $416,000
in consumer loans 90 days or more past due compared to $357,000 at December 31,
1996.
<PAGE>
Table 5 provides information related to non-performing assets and loans 90 days
or more past-due. Total non-performing assets decreased slightly from December
31, 1996 to June 30, 1997.
TABLE 5 - NON-PERFORMING LOANS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(DOLLARS IN THOUSANDS) 1997 (1) 1996 (1)
<S> <C> <C> <C>
Loans on non-accrual status (2) $ 2,823 $ 3,055
Loans past due 90 days or more 3,153 3,714
----- -----
Total non-performing loans 5,976 6,769
Other real estate owned 523 104
-------- --------
Total non-performing assets $ 6,499 $ 6,873
======== =======
Percentage of non-performing loans to total loans .74% .88%
==== ====
Percentage of non-performing assets to total loans .80% .89%
==== ====
(1) The table is exclusive of impaired loans which remained on accrual status.
(2) Interest income that would have been earned and received on non-accrual
loans was not material.
</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 remained constant
from December 31, 1996 to June 30, 1997 at $1.6 million.
LIQUIDITY
Republic's objectives include providing consistent earnings, and preserving an
adequate liquidity position. Asset/liability management control is designed to
ensure safety and soundness, maintain liquidity and regulatory capital
standards, and achieve an acceptable net interest margin. While Republic
continues to experience strong loan demand, management continues to monitor
interest rate and liquidity risk and implement appropriate funding and balance
sheet strategies. If loan growth continues at its present level management
intends to obtain additional funds through its traditional retail markets or
through borrowing agreements with the Federal Home Loan Bank or other financial
institutions.
Republic has access to sources of additional liquidity if needed. Republic also
has access to a portion of the $103 million of investment securities which have
been designated as "Available for Sale".
<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 capital ratios at June 30, 1997 as measured under applicable
regulations.
TABLE 6 - CAPITAL RATIOS
<TABLE>
<CAPTION>
MINIMUM
REQUIREMENT
MINIMUM TO BE WELL
REQUIREMENT CAPITALIZED
FOR CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1997
Total Risk Based Capital (to Risk Weighted Assets)
Consolidated $ 76,512 11.26% $ 54,349 8% $ 67,937 10%
Bank only $ 75,955 11.30% $ 53,780 8% $ 67,225 10%
Tier I Capital (to Risk Weighted Assets)
Consolidated $ 70,231 10.34% $ 27,175 4% $ 40,762 6%
Bank only $ 69,674 10.36% $268,890 4% $ 40,335 6%
Tier I Leverage Capital (to Average Assets)
Consolidated $ 70,231 6.38% $ 44,015 4% $ 55,019 5%
Bank only $ 69,674 6.33% $ 44,015 4% $ 55,019 5%
</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 June 30, 1997, the
Bank had $8.9 million of retained earnings available for payment of dividends.
NEW ACCOUNTING PRONOUNCEMENTS
See discussion in Note 1 to financial statements.
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
As discussed under the heading "Sale of Banking Centers" in Item 2, Part 1 of
this Report, Republic is actively pursuing the sale of certain fixed assets and
deposits of its Western Kentucky banking centers, with the exception of
Owensboro. In general, Republic will be retaining its loan portfolio, and thus
its presence in the Western Kentucky market. On July 30, 1997, Republic
completed the sale of certain fixed assets and this transfer of deposits of its
Murray, Kentucky, banking center. Information concerning the banking center
transaction, which considered alone is not deemed by management to be material,
is presented at page 13 of this Report, and is incorporated herein by reference.
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 24.
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: 08/14/97 /s/ Bernard M. Trager
----------------------------
Bernard M. Trager
Chairman and Chief Executive Officer
Principal Financial Officer:
Date: 08/14/97 /s/ E. William Petter
-----------------------------
E. William Petter, Jr.
Executive Vice President,
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
11 Statement Regarding Computation of Per Share Earnings 25
27 Financial Data Schedule 26
<PAGE>
EXHIBIT 11.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
JUNE 30, JUNE 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Primary earnings per common share:
Weighted average common shares outstanding 7,222 7,222 7,222 7,222
Common stock equivalents due to dilutive effect of
stock options 171 74 171 69
--- -- --- --
Average shares and equivalents outstanding 7,393 7,296 7,393 7,291
Net income $ 3,656 $ 326 $ 5,536 $ 2,249
Less preferred stock dividends 106 106 213 213
--- --- --- ---
Income available for common stock 3,550 220 5,323 2,036
Primary net income per share $ .48 $ .03 $ .72 $ .27
===== ===== ====== ======
Fully-diluted earnings per common share:
Weighted average common shares outstanding 7,222 7,222 7,222 7,222
Common stock equivalents due to dilutive effect of
stock options 171 74 171 69
Common stock equivalents due to dilutive effect of
convertible preferred stock 300 300 300 300
Common stock equivalents due to dilutive effect of
guaranteed preferred beneficial interests in
Company's subordinated debentures 323 323 _____ Average
------ -------- ------
shares and equivalents outstanding 8,016 7,596 8,016 7,591
Net income $ 3,656 $ 326 $ 5,536 $ 2,249
Add interest expense on guaranteed beneficial interests
in Company's subordinated debentures, net of tax 89 142 _____
-------- -------- -------
Income available for common stock 3,745 326 5,678 2,249
Fully-diluted net income per share $ .47 $ .03 $ .71 $ .27
===== ===== ====== ======
</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 reports on Form
10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
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