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 March 31, 1999
OR
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 0-24649
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: 14,594,825 shares of Class A Common Stock and 2,169,444
shares of Class B Common Stock as of May 11, 1999.
The Exhibit index is on page 32. This filing contains 35 pages (including this
facing sheet).
<PAGE>
REPUBLIC BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements 3-16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17-29
Item 3. Quantitative and Qualitative Disclosures about Market Risk 29
PART II - OTHER INFORMATION
Item 2. Changes in Securities 30
Item 6. Exhibits and Reports on Form 8-K 30
Signatures 31
<PAGE>
PART I
ITEM 1
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
ASSETS:
<S> <C> <C>
Cash and due from banks $ 29,191 $ 37,446
Federal funds sold 1,200 2,500
Securities available for sale 211,020 186,936
Securities to be held to maturity 11,733 29,985
Mortgage loans held for sale 10,854 38,167
Loans, less allowance for loan losses of
$7,962 (1999) and $7,862 (1998) 896,291 870,031
Federal Home Loan Bank stock 14,284 14,036
Accrued interest receivable 8,657 8,825
Premises and equipment, net 16,532 15,870
Other assets 4,761 3,888
------------ -------------
TOTAL $ 1,204,523 $ 1,207,684
============ =============
LIABILITIES:
Deposits:
Non-interest bearing $ 87,005 $ 80,345
Interest bearing 676,741 666,802
Securities sold under agreements to repurchase and
other short-term borrowings 114,928 148,659
Other borrowed funds 205,592 190,222
Accrued interest payable 3,923 3,769
Guaranteed preferred beneficial interests in
Company's subordinated debentures 6,352 6,402
Other liabilities 8,729 7,643
------------ -------------
Total liabilities 1,103,270 1,103,842
------------ -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A and Class B Common stock, no par value 4,134 4,149
Additional paid-in capital 33,916 34,014
Retained earnings 67,659 65,469
Unearned Employee Stock Ownership Plan shares (3,828)
Net unrealized appreciation (depreciation) on securities
Available for sale, net of tax (628) 210
------------ -------------
Total stockholders' equity 101,253 103,842
------------ -------------
TOTAL $ 1,204,523 $ 1,207,684
============ =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998(in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
INTEREST INCOME:
Loans, including fees $ 20,511 $ 19,123
Securities available for sale 2,707 1,725
Securities to be held to maturity:
Taxable 332 1,367
Non-taxable 23 28
FHLB dividends 250 188
Other 32 354
----------- -----------
Total interest income 23,855 22,785
----------- -----------
INTEREST EXPENSE:
Deposits 8,063 8,532
Short-term borrowings 1,245 1,216
Long-term debt 2,404 2,667
----------- -----------
Total interest expense 11,712 12,415
----------- -----------
NET INTEREST INCOME 12,143 10,370
PROVISION FOR LOAN LOSSES 854 643
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 11,289 9,727
----------- -----------
NON-INTEREST INCOME:
Net gain on sale of loans 1,397 1,009
Electronic refund check fees 861 297
Service charges on deposit accounts 848 753
Other service charges and fees 143 100
Loan servicing income 118 166
Net gain on available for sale securities 130 324
Net gain on sale of deposits 4,116
Other 171 147
----------- -----------
Total non-interest income 3,668 6,912
----------- -----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 5,630 4,076
Occupancy and equipment 1,982 1,862
Communication and transportation 454 426
Marketing and development 333 305
Supplies 254 260
Other 1,236 1,145
----------- -----------
Total non-interest expense 9,889 8,074
----------- -----------
INCOME BEFORE INCOME TAXES 5,068 8,565
INCOME TAXES 1,704 3,041
----------- -----------
NET INCOME $ 3,364 $ 5,524
=========== ===========
</TABLE>
See notes to consolidated financial statements.
(Continued)
<PAGE>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(CONTINUED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX:
Change in unrealized gain (loss) on securities $ (752) $ 81
Reclassification of realized amount (86) (211)
------------- ------------
Net unrealized gain (loss) recognized in
comprehensive income (838) (130)
------------- ------------
COMPREHENSIVE INCOME $ 2,526 $ 5,394
============= ============
EARNINGS PER SHARE
Class A $ .20 $ .37
Class B $ .20 $ .37
EARNINGS PER SHARE ASSUMING DILUTION
Class A $ .19 $ .35
Class B $ .19 $ .35
</TABLE>
See accompanying notes to consolidated financial statements.
<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
Unearned Appreciation/
Empl.Stock (Depreciation)
Common Stock Additional Ownershipon Available Total
Class A Class B Paid-In Retained Plan For Sale Stockholders'
Shares Shares Amount Capital Earnings Shares Securities Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1999 14,869 2,305 $ 4,149 $ 34,014 $ 65,469 $ 210 $ 103,842
Conversion of Class B to Class A 101 (101)
Dividend Declared
Common: Class A ($.0275 per share) (401) (401)
Class B ($.0250 per share) (55) (55)
Repurchase of Class A Common (72) (16) (143) (718) (877)
Conversion of Trust Preferred Securities
To Class A Common 5 1 49 50
Purchase of 300,000 shares under the
Employee Stock Ownership Plan (300) $(3,873) (3,873)
3,470 shares committed to be released
under the Employee Stock Ownership Plan 3 (4) 45 41
Net changes in unrealized appreciation/
(depreciation) on securities available
for sale (838) (838)
Net Income 3,364 3,364
------- ------ ------- -------- -------- ------- -------- --------
BALANCE, March 31, 1999 14,606 2,204 $ 4,134 $ 33,916 $ 67,659 $(3,828) $(628) $101,253
======= ====== ======= ======== ======== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (in thousands)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,364 $ 5,524
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization of premises and equipment 950 838
Amortization and accretion of securities 171 57
FHLB stock dividends (248) (188)
Provision for loan losses 854 643
Net gain on sale of securities (130) (324)
Net gain on sale of loans (1,397) (1,009)
Net gain on sale of deposits (4,116)
Proceeds from sale of loans 97,642 58,043
Origination of mortgage loans held for sale (68,932) (73,164)
Employee Stock Ownership Plan expense 41
Changes in assets and liabilities:
Accrued interest receivable 168 (230)
Other assets 298 (595)
Accrued interest payable 154 4,116
Other liabilities 1,097 (2,108)
----------- -----------
Net cash provided by (used in) operating activities 34,032 (12,513)
----------- ------------
INVESTING ACTIVITIES:
Purchases of securities available for sale (62,123) (81,269)
Purchases of Federal Home Loan Bank stock (2,404)
Proceeds from maturities of securities to be held to maturity 18,280 18,522
Proceeds from maturities and paydowns of securities available for sale 16,511 794
Proceeds from sales of securities available for sale 20,190 39,928
Net (increase) decrease in loans (27,854) 10,208
Purchases of premises and equipment (1,612) (2,001)
Disposal of premises and equipment 878
----------- -----------
Net cash used in investing activities (36,608) (15,344)
------------ ------------
FINANCING ACTIVITIES:
Net increase in deposits 16,599 62,151
Sale of deposits (61,564)
Net change in securities sold under agreement to
repurchase and other short-term borrowings (33,731) (660)
Payments on other borrowings (52,055) (35,241)
Proceeds from other borrowings 67,425 90,000
Proceeds from stock options exercised 59
Purchase of shares for Employee Stock Ownership Plan (3,873)
Repurchase of Class A Common Stock (877)
Cash dividends paid (467) (405)
------------ ------------
Net cash provided by (used in) financing activities (6,979) 54,340
------------ -----------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (9,555) 26,483
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 39,946 24,546
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 30,391 $ 51,029
=========== ===========
</TABLE>
<PAGE>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (in thousands)
<TABLE>
<CAPTION>
1999 1998
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<S> <C> <C>
Cash paid during the period for:
Interest $ 11,558 $ 8,299
=========== ===========
Income taxes $ 302 $ 2,581
=========== ===========
</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., Republic Capital Trust, and
Republic Bank & Trust Company (Bank) and its subsidiary Republic Financial
Services (dba Refunds Now), 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 period ending March 31,
1999 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999. 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, 1998.
NEW ACCOUNTING PRONOUNCEMENTS - 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 parts of a company
for which separate information is available which is evaluated 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 or 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. Republic adopted
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.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". This new standard requires companies to
record derivatives on the balance sheet as assets or liabilities at fair value.
Depending on the use of the derivative and whether it qualifies for hedge
accounting, gains or losses resulting from changes in the values of those
derivatives would either be recorded as a component of net income or as a change
in stockholders' equity. Republic is required to adopt this new standard January
1, 2000. Management has not yet determined the impact of this standard.
RECLASSIFICATIONS - Certain amounts have been reclassified in the 1998 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
Securities Available For Sale:
<TABLE>
<CAPTION>
March 31, 1999
(in thousands)
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury Securities and U.S.
Government Agencies $ 129,939 $ 185 $ (342) $ 129,782
Mortgage-backed securities 62,721 22 (491) 62,252
Corporate bonds 19,311 (325) 18,986
----------- --------- ---------- -----------
Total securities available for sale $ 211,971 $ 207 $ (1,158) $ 211,020
=========== ========= ========== ===========
</TABLE>
Securities To Be Held To Maturity:
<TABLE>
<CAPTION>
March 31, 1999
(in thousands)
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
<S> <C> <C> <C>
U.S. Treasury Securities and U.S.
Government Agencies $ 7,302 $ $ (66) $ 7,236
Obligations of state and political
subdivisions 3,966 162 4,128
Mortgage-backed securities 465 (25) 440
----------- --------- --------- -----------
Total securities to be held to maturity $ 11,733 $ 162 $ (91) $ 11,804
=========== ========= ========= ===========
</TABLE>
Securities having an amortized cost of $156.3 million and a fair value of $155.9
million at March 31, 1999, were pledged to secure public deposits, securities
sold under agreements to repurchase and for other purposes, as required or
permitted by law.
<PAGE>
<TABLE>
<CAPTION>
3. LOANS
March 31, 1999 December 31, 1998
--------------------------------------------
(in thousands)
<S> <C> <C>
Residential real estate $ 547,118 $ 520,583
Commercial real estate 124,766 118,293
Real estate construction 56,933 47,396
Commercial 27,099 26,381
Consumer 50,754 56,728
Home equity 96,723 106,845
Other 2,290 3,146
---------- ----------
Total loans 905,683 879,372
Less:
Unearned interest income and unamortized
loan fees (1,430) (1,479)
Allowance for loan losses (7,962) (7,862)
---------- -----------
Loans, net $ 896,291 $ 870,031
========== ===========
</TABLE>
The following table sets forth the changes in the allowance for loan losses:
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
(in thousands)
<S> <C> <C>
Balance, beginning of period $ 7,862 $ 8,176
Provision charged to income 854 643
Charge-offs (894) (702)
Recoveries 140 117
---------- ---------
Balance, end of period $ 7,962 $ 8,234
========== =========
</TABLE>
Information about Republic's investment in impaired loans is as follows:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
--------------------------------------------
(in thousands)
<S> <C> <C>
Gross impaired loans $ 1,107 $ 1,116
Less: Related allowance for loan losses 100 100
--------- --------
Net impaired loans with related allowances 1,007 1,016
Impaired loans with no related allowances
--------- --------
Total $ 1,007 $ 1,016
========= ========
Average impaired loans outstanding $ 1,007 $ 1,116
========= ========
</TABLE>
<PAGE>
4. DEPOSITS
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
--------------------------------------------
(in thousands)
<S> <C> <C>
Demand (NOW, Super NOW and Money Market) $ 180,096 $ 179,804
Savings 12,873 12,330
Money market certificates of deposit 43,650 35,139
Individual retirement accounts 24,721 23,353
Certificates of deposit, $100,000 and over 77,868 77,365
Other certificates of deposit 308,617 309,938
Brokered deposits 28,916 28,873
----------- -----------
Total interest bearing deposits 676,741 666,802
Total non-interest bearing deposits 87,005 80,345
----------- -----------
Total $ 763,746 $ 747,147
=========== ===========
</TABLE>
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>
March 31, 1999 December 31, 1998
---------------------------------------------
(in thousands)
<S> <C> <C>
Average outstanding balance $ 122,086 $ 115,280
Average interest rate 4.08% 4.21%
Maximum outstanding at month end $ 127,084 $ 148,659
End of period $ 114,928 $ 148,659
</TABLE>
<PAGE>
6. OTHER BORROWED FUNDS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------------------------------
(in thousands)
<S> <C> <C>
Federal Home Loan Bank convertible fixed rate
advance (1) $ 50,000 $ 50,000
Federal Home Loan Bank variable interest rate
advances, with weighted average interest rate
of 4.79% at March 31, 1999, due through 1999 68,425 52,800
Federal Home Loan Bank fixed interest rate advances, with weighted
average interest rate of 5.30% at March 31, 1999, due through 2008 87,167 87,422
------------ ------------
Total $ 205,592 $ 190,222
============ ============
</TABLE>
(1) Republic has entered into convertible fixed rate advances ranging from
5 to 10 years with the Federal Home Loan Bank (FHLB) totaling $50 million.
The advances are fixed from one to three years at rates varying from 4.26%
to 5.11%. At the end of the fixed term, the FHLB has the right to convert
the fixed rate advance on a quarterly basis to a variable rate advance tied
to the three-month LIBOR index. The advances can be prepaid at any
quarterly date without penalty, but may not be prepaid at any time during
the fixed rate term.
The Federal Home Loan Bank advances are collateralized by a blanket pledge of
eligible real estate loans with an unpaid principal balance of greater than 150%
of the outstanding advances. Republic has sufficient collateral to borrow
approximately $71 million additional from the Federal Home Loan Bank. Republic
also has unsecured lines of credit totaling $40 million and secured lines and
letters of credit of $180 million available through various financial
institutions.
Aggregate future principal payments on borrowed funds as of March 31, 1999 are
as follows:
Year
(in thousands)
1999 $ 69,210
2000 26,098
2001 284
2002
Thereafter 110,000
------------
Total $ 205,592
============
<PAGE>
7. EARNINGS PER SHARE
A reconciliation of the combined Class A and Class B Common Stock numerators and
denominators of the earnings per share and earnings per share assuming dilution
computations is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Earnings Per Share
Net Income available to common shares
outstanding $ 3,364 $ 5,524
============ ==========
Weighted average shares outstanding 16,934 14,958
============ ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Earnings Per Share Assuming Dilution
Net Income $ 3,364 $ 5,524
Add: Interest expense, net of tax benefit,
on assumed conversion of guaranteed
preferred beneficial interests in
Republic's subordinated debentures 89 90
------------ ------------
Net Income available to common shareholder
assuming conversion $ 3,453 $ 5,614
============ ============
Weighted average shares outstanding 16,934 14,958
Add dilutive effects of assumed
conversion and exercise:
Convertible guaranteed preferred
beneficial interest in Republic's
subordinated debentures 640 646
Stock options 563 294
------------ ------------
Weighted average shares and dilutive
potential shares outstanding 18,137 15,898
============ ============
</TABLE>
The difference in earnings per share between the two classes of common
stock results solely from the dividend premium paid to Class A over Class B
Common Stock.
<PAGE>
8. EMPLOYEE STOCK OWNERSHIP PLAN
On January 29, 1999, Republic formed an Employee Stock Ownership Plan
(ESOP) for the benefit of its employees. The ESOP borrowed $3.9 million
from the Parent Company and directly and indirectly purchased 300,000
shares of Class A Common Stock from Republic's largest beneficial owner at
a market value of $12.91 per share. The purchase price, determined by an
independent pricing committee, was the average closing price for the thirty
trading days immediately prior to the transaction. Shares in the ESOP will
be allocated to eligible employees based on principal payments over the
term of the loan, which is ten years. Participants become fully vested in
allocated shares after five years of credited service and may receive their
distributions in the form of cash or stock. During the first quarter of
1999, 3,470 shares of stock were committed to be released, resulting in
ESOP compensation expense of $90,000. On March 31, 1999, none of the
300,000 shares in the plan had been allocated. The fair value of the
unallocated shares was $3.3 million.
The cost of shares issued to the employee stock ownership plan but not yet
allocated to participants is presented in the consolidated balance sheet as
a reduction of shareholders equity. Compensation expense is recorded based
on the market price of the shares as they are committed to be released for
allocation to participant accounts. The difference between market price and
the cost of shares committed to be released is recorded as an adjustment to
paid in capital. Dividends on allocated plan shares are recorded as a
reduction of retained earnings; dividends on unallocated plan shares are
reflected as a reduction of debt and accrued interest.
<PAGE>
9. SEGMENT INFORMATION
The reportable segments are determined by the products and services
offered, primarily distinguished between banking and mortgage banking
operations. Loans, investments, and deposits provide the revenues in the
banking operation, and servicing fees and loan sales provide the revenues
in mortgage banking. All operations are domestic.
The accounting policies used are the same as those described in the summary
of significant accounting policies. Income taxes are allocated and indirect
expenses are allocated on revenue. Transactions among segments are made at
fair value. Information reported internally for performance assessment
follows.
<TABLE>
<CAPTION>
March 31, 1999
Mortgage Consolidated
Banking Banking Totals
(in thousands)
<S> <C> <C> <C>
Net interest income $ 12,048 $ 95 $ 12,143
Other revenues 2,313 1,355 3,668
Provision for loan loss 854 854
Net gain on sale of loans 1,397 1,397
Income tax expense 1,434 270 1,704
Segment profit 2,840 524 3,364
Segment assets 1,193,024 11,499 1,204,523
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
Mortgage Consolidated
Banking Banking Totals
(in thousands)
<S> <C> <C> <C>
Net interest income $ 10,291 $ 79 $ 10,370
Other revenues 5,999 913 6,912
Provision for loan loss 643 643
Net gain on sale of loans 1,009 1,009
Income tax expense 2,846 195 3,041
Segment profit 5,178 346 5,524
Segment assets 1,085,820 26,756 1,112,576
</TABLE>
<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. Republic Bank & Trust Company (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 19 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), the Board of Governors of the Federal Reserve
System (and the Federal Reserve Bank of St. Louis) and the Kentucky Department
of Financial Institutions.
REPUBLIC HAS MADE, AND MAY CONTINUE TO MAKE, VARIOUS FORWARD-LOOKING STATEMENTS
WITH RESPECT TO CREDIT QUALITY (INCLUDING DELINQUENCY TRENDS AND THE ALLOWANCE
FOR LOAN LOSSES), CORPORATE OBJECTIVES AND OTHER FINANCIAL AND BUSINESS MATTERS.
WHEN USED IN THIS DISCUSSION THE WORDS "ANTICIPATE," "PROJECT," "EXPECT,"
"BELIEVE," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. REPUBLIC CAUTIONS THAT THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO NUMEROUS ASSUMPTIONS, RISKS AND UNCERTAINTIES, ALL OF WHICH MAY CHANGE OVER
TIME. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM FORWARD-LOOKING STATEMENTS.
IN ADDITION TO FACTORS DISCLOSED BY REPUBLIC, THE FOLLOWING FACTORS, AMONG
OTHERS, COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH
FORWARD-LOOKING STATEMENTS: PRICING PRESSURES ON LOAN AND DEPOSIT PRODUCTS;
COMPETITION; CHANGES IN ECONOMIC CONDITIONS BOTH NATIONALLY AND IN THE BANK'S
MARKETS; THE EXTENT AND TIMING OF ACTIONS OF THE FEDERAL RESERVE BOARD;
CUSTOMERS' ACCEPTANCE OF THE BANK'S PRODUCTS AND SERVICES; AND THE EXTENT AND
TIMING OF LEGISLATIVE AND REGULATORY ACTIONS AND REFORMS.
OVERVIEW
Net income for the three months ended March 31, 1999 decreased $2.2 million
compared to the first quarter of 1998. This decrease was solely attributable to
the one-time gain realized from the sale of deposits at the Mayfield banking
center, which occurred in January 1998. Excluding this one-time gain, net income
for the three months ended March 31, 1999 increased $474,000, or 16%, over the
comparable 1998 period. On a per share basis, Class A and B Common Stock diluted
earnings for the quarter ending March 31, 1999 was down $.16 compared to the
first quarter of 1998. Excluding the one-time gain on sale of deposits, Class A
and B Common Stock diluted earnings per share for the quarter ending March 31,
1999 was $0.19, up from $0.18 per share in first quarter 1998. Diluted earnings
per share, excluding the one-time gain on sale of deposits, increased during
1999 even though an additional 2 million shares of Common Stock were issued
during Republic's public offering in July 1998. Republic's book value per common
share increased over 23% from $4.91 at March 31, 1998 to $6.06 per share at
March 31, 1999.
<PAGE>
The following table summarizes selected financial information regarding
Republic's financial performance.
<TABLE>
<CAPTION>
Table 1
Excluding One-Time Including One-Time
Deposit Sales Deposit Sales
Quarters Ended March 31, Quarters Ended March 31,
(in thousands, except per share data) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Gross Operating Profit $ 5,068 $ 4,449 $ 5,068 $ 8,565
Net Income 3,364 2,890 3,364 5,524
Basic Class A and B Common Earnings Per Share 0.20 0.19 0.20 0.37
Diluted Class A and B Common Earnings Per Share 0.19 0.18 0.19 0.35
</TABLE>
The increase in earnings during the first quarter of 1999, excluding the
one-time gain on sale of deposits, reflects solid financial performance in many
areas of the Bank, particularly mortgage lending. Republic's loan originations
increased 14% to $198 million during the first quarter of 1999 over the
comparable period in 1998. This growth in loan volume resulted in not only
additional interest income, but also contributed significantly to increased
earnings realized from the sale of loans into the secondary market.
While portfolio loan growth remained strong, Republic's total assets remained
constant at $1.2 billion during the first quarter of 1999. This was primarily
due to a reduction in mortgage loans held for sale from $38 million at December
31, 1998 to $11 million at March 31, 1999. This reduction is attributable to a
moderation of secondary market loan refinancings during the period, indicating
that income from secondary market loan sales may not continue at recent levels.
Net portfolio loans increased $26 million from December 31, 1998 to $896 million
at March 31, 1999. The residential real estate portfolio grew $27 million. In
addition to the strong increase in residential real estate lending, the
construction loan portfolio increased $10 million and the commercial real estate
loan portfolio increased $6 million during the period. This growth was
attributable to continued portfolio loan demand in Republic's markets as well as
increased production from Republic's construction and commercial loan business
lines. The home equity portfolio decreased $10 million while the consumer loan
portfolio decreased by $6 million during the first quarter of 1999 (See
discussion of loans on page 23).
Funding for the growth in the loan portfolio was derived from retail deposits
and Federal Home Loan Bank (FHLB) advances. Deposits increased to $764 million
at first quarter 1999 from $747 million at year-end 1998. Of this increase,
non-interest bearing deposits accounted for $7 million. FHLB advances increased
from $190 million at December 31, 1998 to $206 million at March 31, 1999.
Republic is on schedule to open a loan production office in Clarksville, Indiana
during the summer of 1999, the Bank's first presence in Indiana. Republic will
also be adding two new full-service banking centers in Louisville later this
year, bringing its total number of banking centers in Kentucky's largest city to
eleven.
The Bank also expects to further develop its product lines and delivery system
capabilities. By third quarter 1999, Republic plans to introduce its Internet
bank operations, providing for a full range of personal computer accessible
services to the Bank's existing retail and commercial clients. Internet banking
is also expected to expand Republic's potential client base by providing deposit
and loan products to clients outside of the Bank's traditional service area.
Additionally, the Bank will also be offering for the first time, a full range of
investment and trust services to its clients beginning in the second quarter of
1999.
<PAGE>
DISPOSITION OF ASSETS
During 1997, Republic elected to focus its resources on its North Central and
Central Kentucky markets. Consistent with this focus, Republic sold its banking
centers in the Western Kentucky cities of Murray, Benton, Paducah, and Mayfield.
The Murray, Benton and Paducah sales were closed in the second half of 1997.
During the first quarter of 1998, Republic completed the sale of deposits and
fixed assets at the Mayfield banking center. Republic realized a pre-tax gain of
approximately $4.1 million from the Mayfield banking center sale. This sale was
comprised of approximately $66 million in deposits and certain other fixed
assets. Republic retained substantially all of its Mayfield banking center loan
portfolio in that transaction. The Mayfield transaction represented the final
Western Kentucky banking center sale.
REFUNDS NOW
During November 1998, a wholly owned subsidiary of the Bank acquired Refunds
Now, Inc. Republic exchanged 230,000 shares of Class B Common Stock for the
stock of Refunds Now, Inc. in a business combination accounted for as a pooling
of interest. Refunds Now is a rapid refund tax processing service for taxpayers
receiving both federal and state tax refunds through a nationwide network of tax
preparers. Refund anticipation loans ("RALs") are made to taxpayers filing
income tax returns electronically. The RALs are repaid by the taxpayer when the
taxpayer's refunds are electronically received by the Bank from governmental
taxing authorities. Refunds Now also provides electronic refund checks ("ERCs")
to taxpayers. After receiving refunds electronically from governmental taxing
authorities, checks are issued to taxpayers for the amount of their refund, less
fees. During the first quarter of 1999, Refunds Now generated $889,000 in
electronic tax refund loan fees and $861,000 in electronic tax refund check
fees. Substantially all of the income realized by the Bank from the activities
of Refunds Now is recognized during the first quarter of the year.
RESULTS OF OPERATIONS
NET INTEREST INCOME. For the first quarter 1999, net interest income was $12.1
million, up $1.7 million over the $10.4 million attained during first quarter
1998. Overall, the net interest rate spread increased from 3.31% during first
quarter of 1998 to 3.51% in the comparable quarter of 1999. The Bank's net
interest margin increased from 3.92% in first quarter 1998 to 4.20% in first
quarter 1999. The increase 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 decreased 57 basis points. Also supporting Republic's
increased net interest spread was $649,000 in additional loan fees provided by
Refunds Now and mortgage banking activities during the first quarter of 1999
over the comparable period in 1998. Net interest margin increased more than net
interest spread because the amount of assets supported by non-interest bearing
deposits, other liabilities, and equity increased to 17.4% from 14.6% in 1998.
During the first quarter 1999, average interest-earning assets were $1.16
billion, an increase of $99 million over first quarter 1998. Total average
interest bearing liabilities increased from $935 million in the first quarter of
1998 to $988 million in the first quarter of 1999.
Tables 2 and 3 provide detailed information as to average balance, interest
income/expense, and rates by major balance sheet category for the three months
ended March 31, 1999 and 1998.
<PAGE>
Table 2 - Average Balance Sheet Rates for March 31, 1999 and 1998 (dollars in
thousands)
<TABLE>
<CAPTION>
1999 1998
---- ----
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 $138,471 $1,891 5.46% $ 157,199 $ 2,307 5.87%
State and Political Subdivision Securities 3,990 87 8.72% 4,263 92 8.63%
Other Investments 31,594 492 6.23% 10,166 188 7.40%
Mortgage-Backed Securities 56,760 842 5.93% 46,773 721 6.17%
Federal Funds Sold and Securities Purchased
Under Agreements to Resell 2,876 32 4.45% 24,783 354 5.71%
Total Loans and Fees 922,226 20,511 8.90% 814,254 19,123 9.39%
------- ------ ------- ------
Total Earning Assets 1,155,917 23,855 8.25% 1,057,438 22,785 8.62%
--------- ------ --------- ------
Less: Allowance for Loan Losses (7,929) (8,221)
Non-Earning Assets:
Cash and Due From Banks 18,447 21,199
Bank Premises and Equipment, Net 16,460 12,795
Other Assets 12,883 12,410
------ ------
Total Assets $ 1,195,778 $ 1,095,621
=========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest Bearing Liabilities:
Transaction Accounts $ 73,414 $ 349 1.90% $ 94,303 $ 762 3.23%
Money Market Accounts 121,993 1,342 4.40% 79,333 986 4.97%
Individual Retirement Accounts 23,953 322 5.38% 22,739 339 5.96%
Certificates of Deposit and Other
Time Deposits 458,606 6,050 5.28% 438,325 6,445 5.88%
Repurchase Agreements and Other
Borrowings 309,644 3,649 4.71% 300,799 3,883 5.16%
------- ----- ------- -----
Total Interest Bearing Liabilities 987,610 11,712 4.74% 935,499 12,415 5.31%
Non-Interest Bearing Liabilities:
Non-Interest Bearing Deposits 92,899 72,663
Other Liabilities 11,949 14,157
Stockholders' Equity 103,320 73,302
------- ------
Total Liabilities and Stockholders'
Equity $ 1,195,778 $ 1,095,621
=========== ===========
Net Interest Income $12,143 $ 10,370
======= ========
Net Interest Spread 3.51% 3.31%
===== =====
Net Interest Margin 4.20% 3.92%
===== =====
</TABLE>
For the purposes of these calculations, non-accruing loans are included in the
quarterly average loan amounts outstanding.
<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 3 - Volume/Rate Variance Analysis (in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
Compared to
Three Months Ended March 31, 1998
Increase/(Decrease)
due to
Total Net
Change Volume Rate
<S> <C> <C> <C>
Interest Income (1):
U.S. Treasury and Government Agency Securities $ (395) $ (275) $ (120)
State and Political Subdivision Securities (26) (6) (20)
Other Investments 304 396 (92)
Mortgage-Backed Securities 121 154 (33)
Federal Funds Sold and Securities Purchased Under
Agreements to Resell (322) (313) (9)
Total Loans and Fees (2) 1,388 2,536 (1,148)
----- ----- -----
Net Change in Interest Income 1,070 2,492 (1,422)
----- ----- -----
Interest Expense:
Interest Bearing Transaction Accounts (413) (169) (244)
Money Market Accounts 356 530 (174)
Individual Retirement Accounts (17) 18 (35)
Certificates of Deposit and Other Time Deposits (395) 298 (693)
Repurchase Agreements and Other Borrowings (234) 114 (348)
---- --- ---
Net Change in Interest Expense (703) 791 (1,494)
--- --- -----
Increase in Net Interest Income $ 1,773 $ 1,701 $ 72
======= ======= ====
</TABLE>
(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 $1,122,000 and $473,000 for the
three months ended March 31, 1999 and 1998, respectively.
<PAGE>
NON-INTEREST INCOME. Non-interest income was $3.7 million during first quarter
1999, down from $6.9 million during first quarter of 1998. The decrease was
primarily due to the one-time gain of $4.1 million from the sale of Mayfield
banking center deposits during 1998. Excluding that one-time sale of deposits,
non-interest income increased by $872,000. The increase was principally a result
of gains generated from sales of loans into the secondary market, ERC fees from
Refunds Now and sales of investment securities.
Revenue from mortgage banking activities during the three-month period ending
March 31, 1999 has been positively influenced by an increase in secondary market
sales volume. Management anticipates that this sales volume may decrease as
secondary market loan originations have moderated during the current period.
Gains from sales of loans were $1.4 million and $1.0 million for the three-month
periods ending March 31, 1999 and 1998, respectively. The market interest rate
environment heavily influences secondary market residential loan originations
and correspondingly, consumer refinance activity. Net gains as a percentage of
loans sold were 1.43% and 1.74% for the three-month periods ending March 31,
1999 and 1998, respectively. Republic continually evaluates the decision to sell
servicing or retain servicing rights on loans sold in the secondary market.
Management anticipates that it will begin retaining servicing on loans sold in
the second quarter of 1999. However, since 1995 Republic has traditionally sold
loans servicing released in order to offset downward market pressure on loan
sale pricing. The sale of a significant number of loans with servicing released,
coupled with normal loan paydowns and payoffs, has resulted in a decline in the
size of the loan servicing portfolio and a corresponding decline in loan
servicing income compared to the same period in 1998. As of March 31, 1999,
Republic's $220 million servicing portfolio generated income of $118,000
compared to $166,000 during the comparable 1998 period.
Refunds Now ERC fees also generated $861,000 in fee income compared to $297,000
recognized by the Bank during the comparable 1998 period, an increase of 190%.
The increase in Electronic tax refund check fees during the first quarter of
1999 was attributable to both the acquisition of Refunds Now, Inc. and a 45%
increase in products sold.
Service charges on deposit accounts increased to $848,000 from $753,000 for the
three-month period ended March 31, 1999 and 1998. Republic continues to market
its transaction accounts and actively manage its deposit account service charge
collection activities.
NON-INTEREST EXPENSE. Total non-interest expense was $9.9 million in first
quarter 1999, compared to $8.1 million for first quarter 1998. The increase for
the three months ended March 31, 1999 was primarily attributable to costs
associated with salaries and employee benefits. Excluding the one-time gain on
sale of deposits, Republic's non-interest expense ratio (non-interest expense
divided by the sum of net interest income and non-interest expense) at March 31,
1999 was 63% compared to 61% at March 31, 1998.
Salary and employee benefit expense increased 38% for the first quarter 1999
over first quarter, 1998. Republic opened two new banking centers in its
Louisville, Kentucky market and expanded its Elizabethtown, Kentucky banking
center. Additional expense was also recognized as a result of the formation of
an Employee Stock Ownership Plan ("ESOP") during the first quarter of 1999.
Republic actively expanded its Commercial Lending, Cash Management, and Trust
activities during the period. This rise was also attributable to increased
commissions through Republic's mortgage banking activities and annual merit
salary increases. Republic's overall staffing level increased to 480 full-time
equivalent employees ("FTE's") at March 31, 1999, compared to 406 FTE's at March
31, 1998.
Occupancy and equipment expense increased to $2.0 million in first quarter 1999,
compared to $1.9 million for first quarter 1998. The increase is largely
attributable to the costs associated with the opening of two additional banking
centers and the expansion and relocation of the Elizabethtown, Kentucky banking
center. These expenses may increase in the near term as the Bank intends to open
a minimum of two additional locations in its existing markets as well as the new
proposed loan production office in Southern Indiana. It is also anticipated that
additional expenses will be incurred for technology enhancements for deposit,
lending and customer support systems, including Internet banking. (See also
"YEAR 2000" discussion)
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1999 AND DECEMBER 31, 1998
SECURITIES AVAILABLE FOR SALE. Securities available for sale consists primarily
of mortgage-backed securities, U.S. Treasury and U.S. Government Agencies and
Corporate bonds with a weighted average maturity of 3.15 years. Securities
available for sale increased from $187 million at December 31, 1998 to $211
million at March 31, 1999. Republic elected to invest funds from maturing
securities previously held to maturity into securities available for sale in
order to provide for more flexibility in administering the investment portfolio
under changing market conditions.
SECURITIES TO BE HELD TO MATURITY . Securities to be held to maturity decreased
from $30 million at December 31, 1998 to $12 million at March 31, 1999. The
decrease was due to management's decision to reinvest maturing securities into
securities available for sale. Securities to be held to maturity consists
primarily of U.S. Treasury and U.S government Agencies with a weighted average
maturity of 6.16 years.
LOANS. Net loans increased $26 million to $896 million at March 31, 1999
compared to $870 million at December 31, 1998. The increase in loans was
primarily in the secured real estate lending portfolio. The rise in residential
real estate loan volume was a result of a continued favorable rate environment
and consumer demand for Republic's portfolio products. Republic also had healthy
growth in its real estate construction portfolio due to steady demand for new
single family housing. The rise in commercial real estate lending was primarily
due to the Bank's continued emphasis on the active pursuit of lending
opportunities within the Bank's markets.
By design, Republic's consumer loans decreased from $57 million at December 31,
1998 to $51 million at March 31, 1999. The consumer loan portfolio consists of
both secured and unsecured loans. Republic's consumer portfolio also includes
the "All Purpose" and "Pre Approved" unsecured loan products. Republic's "All
Purpose" loans, with total outstandings of $6 million at March 31, 1999 and $8
million at December 31 1998, are originated through Republic's banking centers.
"Pre Approved" loans decreased from $12 million at December 31, 1998 to $10
million at March 31, 1999. These loans were originated through direct mail.
Management plans to continue to allow the "All Purpose" and "Pre Approved"
portfolios to reduce in the near term.
Republic's home equity portfolio decreased from $107 million at December 31,
1998 to $97 million at March 31, 1999. Following strong growth in this product
during 1998, Republic experienced decreased credit utilization by existing
customers and increased product competition from other area banks for the
consumer home equity loan business.
ALLOWANCE AND PROVISION FOR LOAN LOSSES. The provision for loan losses was
$854,000 in the first quarter, 1999, compared to $643,000 in the first quarter
of 1998. Charge-offs of $200,000 related to tax refund loans are included in the
total charge-offs for the first quarter of 1999. No charge-offs for these loans
were attributed to the Bank during the first quarter of 1998. Republic expects
charge-offs for tax refund loans originated in 1999 to be minimal during the
remainder of the year. Excluding charge-offs related to tax refund loans, net
charge-offs decreased slightly during first quarter 1999 compared to the same
period in 1998.
The allowance for loan losses increased slightly from $7.9 million at December
31, 1998 to $8.0 million at March 31, 1999. Management believes, based on
information presently available, that it has adequately provided for loan losses
at March 31, 1999.
<PAGE>
Table 5 below depicts the allowance activity by loan type for the three months
ended March 31, 1999 and 1998.
Table 5 - Summary of Loan Loss Experience
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
(in thousands)
<S> <C> <C>
Allowance for loan losses:,
Balance-beginning of period $ 7,862 $ 8,176
Charge-offs:
Real Estate (180) (19)
Commercial (7)
Consumer (507) (683)
Tax Refund Loans (200)
--------- ---------
Total (894) (702)
--------- ---------
Recoveries:
Real Estate 6 3
Commercial 4
Consumer 134 110
--------- ---------
Total 140 117
--------- ---------
Net charge-offs (754) (585)
Provision for loan losses 854 643
--------- ---------
Allowance for loan losses:
Balance-end of period $ 7,962 $ 8,234
========= =========
</TABLE>
DEPOSITS. Total deposits were $764 million at March 31, 1999 compared to $747
million at December 31, 1998. Republic's growth in deposits was the result of
management's ongoing emphasis on retail deposit gathering and its recently
instituted commercial cash management program. Republic plans to continue its
deposit gathering initiatives by utilizing aggressive pricing strategies and
offering competitive products in its existing markets.
OTHER BORROWED FUNDS. Other borrowed funds, which consist of FHLB advances,
increased from $190 million at December 31, 1998 to $206 million at March 31,
1999. The increase was primarily due to additional borrowings to fund loan
growth. Additional investment securities were also purchased to collateralize
deposits due to the bank's growth in public funds and high balance commercial
accounts.
STOCKHOLDERS' EQUITY. Total stockholders' equity decreased from $104 million at
December 31, 1998 to $101 million at March 31, 1999. The decrease is primarily
due to the formation of Republic's ESOP during January 1999. Under the terms of
the plan, the ESOP purchased 300,000 shares of Class A Common Stock that will be
allocated to Republic's employees over a ten-year period.
<PAGE>
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 or are deemed uncollectible. The Bank's level of delinquent loans
declined favorably to 1.90 % at March 31, 1999, compared to 2.29 % at December
31, 1998. At March 31, 1999, Republic had $234,000 in consumer loans 90 days or
more past due compared to $256,000 at December 31, 1998.
Table 6 provides information related to non-performing assets and loans 90 days
or more past due. Total non-performing assets increased slightly from December
31, 1998 to March 31, 1999.
Table 6 - Non-Performing Loans
<TABLE>
<CAPTION>
March 31, December 31,
(dollars in thousands) 1999 1998
<S> <C> <C>
Loans on non-accrual status (1)(2) $ 3,223 $ 3,258
Loans past due 90 days or more 2,176 1,731
--------- ---------
Total non-performing loans 5,399 4,989
Other real estate owned 704 540
--------- ---------
Total non-performing assets $ 6,103 $ 5,529
========= =========
Percentage of non-performing loans to total loans .60% .57%
Percentage of non-performing assets to total loans .67% .63%
</TABLE>
(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.
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 may not be collected. Impaired loans consist of one
commercial real estate loan that remained constant from December 31, 1998 to
March 31, 1999 at $1.1 million.
<PAGE>
LIQUIDITY
Republic maintains sufficient liquidity in order to fund loan demand and routine
deposit withdrawal activity. Liquidity is managed by retaining sufficient liquid
assets in the form of investment securities and core deposits to meet demand.
Funding and cash flows can also be realized from the available for sale portion
of the securities portfolio and paydowns from the loan portfolio. Republic's
banking centers also provide access to their retail deposit markets.
Approximately $49 million of repurchase agreements and money markets are
attributable to three customer relationships at March 31, 1999. These funds are
short-term in nature and subject to immediate withdrawal by these entities.
Should these funds be removed, Republic has the ability to replenish these funds
through various funding sources noted below. Republic has established lines of
credit with other financial institutions, the FHLB and brokerage firms. While
Republic utilizes numerous funding sources in order to meet liquidity
requirements, FHLB borrowings remain a material component of management's
balance sheet strategy.
Republic's objectives include 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. Republic continues to experience steady loan demand, that
requires management to continue to monitor interest rate and liquidity risk and
implement appropriate funding and balance sheet strategies.
CAPITAL
Regulatory agencies measure capital adequacy within a framework that makes
capital requirements, in part, dependent on the individual risk profiles of
financial institutions. Republic's capital to assets ratio was 8.64% at March
31, 1999 compared to 7.58% at December 31, 1998. Republic continues to exceed
the regulatory requirements for Tier I, Tier I Leverage and total risk-based
capital. The Bank expects to maintain a capital position that meets or exceeds
the "well capitalized" requirements as defined by the FDIC. Table 7 below
indicates the capital ratios at March 31, 1999.
Table 7 - 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>
Total Risk Based Capital (to Risk Weighted Assets)
Consolidated $ 116,177 15.48% $ 60,051 8% $ 75,064 10%
Bank only $ 110,934 14.78% $ 60,048 8% $ 75,060 10%
Tier I Capital (to Risk Weighted Assets)
Consolidated $ 108,215 14.42% $ 30,025 4% $ 45,038 6%
Bank only $ 102,972 13.72% $ 30,024 4% $ 45,036 6%
Tier I Leverage Capital (to Average Assets)
Consolidated $ 108,215 9.05% $ 47,831 4% $ 59,789 5%
Bank only $ 102,972 8.61% $ 47,829 4% $ 59,787 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 March 31, 1999, the
Bank had $16 million of retained earnings available for payment of dividends.
<PAGE>
ASSET/LIABILITY MANAGEMENT AND MARKET RISK
Asset/liability management control is designed to ensure safety and soundness,
maintain liquidity and regulatory capital standards, and achieve acceptable net
interest income. Management considers interest rate risk to be Republic's most
significant market risk. Interest rate risk is the exposure to adverse changes
in the net interest income as a result of market fluctuations in interest rates.
Management regularly monitors interest rate risk in relation to prospective
market and business conditions. The Board of Directors sets policy guidelines
establishing maximum limits on the Bank's interest rate risk exposure.
Management monitors and adjusts exposure to interest rate fluctuations as
influenced by the Bank's loan and deposit portfolios.
Republic utilizes an earnings simulation model to analyze net interest income
sensitivity. Potential changes in market interest rates and their subsequent
effect on interest income are then evaluated. The model projects the effect of
instantaneous movements in interest rates of both 100 and 200 basis points.
Assumptions based on the historical behavior of Republic's deposit rates and
balances in relation to changes in interest rates are also incorporated into the
model. These assumptions are inherently uncertain and, as a result, the model
cannot precisely measure future net interest income or precisely predict the
impact of fluctuations in market interest rates on net interest income. Actual
results will differ from the model's simulated results due to timing, magnitude
and frequency of interest rate changes as well as changes in market conditions
and the application and timing of various management strategies.
Interest rate risk management focuses on maintaining acceptable net interest
income within Board approved policy limits. Republic's Asset/Liability
Management Committee monitors and manages interest rate risk to maintain an
acceptable level of change to net interest income resulting from market interest
rate changes. Republic's Board approved policy established for interest rate
risk is stated in terms of the range of permissible change in net interest
income given a 100 and 200 basis point immediate and sustained increase or
decrease in market interest rates.
Republic's interest sensitivity profile changed slightly during the first
quarter. Given a sustained 200 basis point downward shock to the yield curve
used in the simulation model, Republic's base net interest income would decrease
by an estimated 13.7% at March 31, 1999 compared to a decrease of 16.2% at
December 31, 1998. Given a 200 basis point increase in the yield curve
Republic's base net interest income would increase by an estimated 7.7% at March
31, 1999 compared to 11.0% at December 31, 1998.
The interest sensitivity profile of Republic at any point in time will be
effected by a number of factors. These factors include the mix of interest
sensitive assets and liabilities as well as their relative pricing schedules.
The table below is representative only and is not a precise measurement of the
effect of changing interest rates on Republic's interest income in the future.
<PAGE>
Table 8 - Interest Rate Sensitivity
<TABLE>
<CAPTION>
March 31, 1999
Decrease in Rates Increase in Rates
200 100 100 200
Basis Points Basis Points Base Basis Points Basis Points
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Projected interest income
Loans $ 65,113 $ 70,901 $ 77,057 $ 82,703 $ 88,009
Investments 11,778 12,494 13,125 13,562 13,988
Short-term investments 166 253 358 460 564
----------- ---------- ---------- ----------- ---------
Total interest income $ 77,057 $ 83,648 $ 90,540 $ 96,725 $ 102,561
Projected interest expense
Deposits $ 27,472 $ 29,377 $ 31,280 $ 33,251 $ 35,469
Other borrowings 11,640 13,471 15,303 17,589 19,732
----------- ---------- ---------- ----------- ---------
Total interest expense 39,112 42,848 46,583 50,840 55,201
Net interest income $ 37,945 $ 40,800 $ 43,957 $ 45,885 $ 47,360
Change from base $ (6,012) $ (3,157) $ 1,928 $ 3,403
% Change from base (13.68)% (7.18)% 4.39% 7.74%
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
Decrease in Rates Increase in Rates
200 100 100 200
Basis Points Basis Points Base Basis Points Basis Points
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Projected interest income
Loans $ 63,043 $ 68,835 $ 75,394 $ 81,537 $ 86,959
Investments 11,111 12,011 13,060 13,583 14,102
Short-term investments 240 354 493 635 773
----------- ---------- ---------- ----------- ---------
Total interest income $ 74,394 $ 81,200 $ 88,947 $ 95,755 $ 101,834
Projected interest expense
Deposits $ 27,287 $ 29,197 $ 31,126 $ 33,111 $ 35,446
Other borrowings 12,368 14,366 16,364 18,361 20,359
----------- ---------- ---------- ----------- ---------
Total interest expense 39,655 43,563 47,490 51,472 55,805
Net interest income $ 34,739 $ 37,637 $ 41,457 $ 44,283 $ 46,029
Change from base $ (6,718) $ (3,820) $ 2,826 $ 4,572
% Change from base (16.20)% (9.21)% 6.82% 11.03%
</TABLE>
<PAGE>
YEAR 2000
Management has assessed the operational and financial implications of its year
2000 needs and developed a plan to ensure that data processing systems can
properly handle the century change. Management has determined that if a business
interruption as a result of the year 2000 issue occurred, that such an
interruption could be material to the Bank's overall financial performance. The
primary task required to prevent a potential business interruption was the
installation of the most current software releases for major mainframe
applications developed by Republic's third party software application providers.
Mainframe software upgrades and modifications for major applications have been
installed and placed into production. Year 2000 Script Testing has been
conducted for mission-critical internal core processing systems for each of the
thirteen test dates identified by the FFIEC. The Bank's personal computer
network continues to be reviewed and upgraded. Minor software upgrades and
modifications will also be required for certain other data processing
applications.
Republic has identified selected employees whose primary function is year 2000
compliance. The loss of these employees could have a material adverse effect on
the implementation of Republic's year 2000 plan. Republic initiated a year 2000
employee retention program, that to date has been highly successful. The program
was designed to encourage and promote the retention of information system
employees.
Year 2000 remediation has resulted in some delay in other data processing
projects, none of which are deemed material to the Bank's financial performance.
Management believes its current state of year 2000 readiness is satisfactory and
in accordance with general industry and regulatory standards and
recommendations. Management has contacted its major suppliers and customers and
inquired about the status of their year 2000 readiness, with no material
problems being noted. At this time, the Bank believes that its software
providers will be able to adequately address the Bank's needs for year 2000
software functionality. However, Republic must also rely on the year 2000
readiness of additional third parties, not only its hardware and software
providers, but other third parties such as public utilities and governmental
units that provide important ongoing services to the Bank. Management is
therefore developing and implementing contingency plans that are scheduled to be
in place by the end of the second quarter of 1999.
In carrying out its overall year 2000 plan, Republic will incur certain
operational expenses and may replace some existing software that has not been
fully amortized. Most of the expenditures associated with software application
upgrades represent capitalizable costs that would have been incurred in the
normal course of business. The operating expenses will be expensed as incurred,
and the unamortized cost of software replaced, if any, will be charged off when
the applicable software is removed from service. Republic has incurred costs of
approximately $700,000 attributable to year 2000 remediation and anticipates
total costs and charges to be in an approximate range of $1.2 to $1.6 million.
The majority of the remaining costs to be incurred are related to the year 2000
employee retention program. Actual expenses could vary from management's
estimates if unforeseen circumstances were to arise.
NEW ACCOUNTING PRONOUNCEMENTS
See discussion in Note 1 to financial statements for a discussion of recent
accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information for this item is incorporated by reference to the Asset
/Liability Management and Market Risks section of Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in securities
During the first quarter of 1999, the Company issued 101,000 shares of Class A
Common Stock upon conversion of shares of Class B Common Stock by shareholders
of the Company in accordance with the share-for-share conversion provision
option of the Class B Common Stock. The exemption from registration of the newly
issued Class A Common Stock relied upon was Section (3)(a)(9) of the Securities
Act of 1933.
During the first quarter of 1999, the Company also issued 5,000 shares of Class
A Common Stock upon conversion of 500 shares of Trust Preferred Securities
(liquidation amount $50,000). The Trust Preferred Securities represent
beneficial interests in convertible subordinated debt securities of the company
and through those debt securities can be converted into Class A Common Stock at
a conversion rate of 10 shares of Class A Common for each Trust Preferred
Security. The exemption from registration relied upon was Section (3)(a)(9) of
the Securities Act of 1933, and when the trust preferred securities were
originally sold, Rule 506 of Regulation D of the Securities Act of 1933.
Item 6. Exhibits and Reports on Form 8-K
The exhibits required by Item 601 of Regulation S-K are attached to and listed
in the Exhibit Index on page 32.
<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: 05/14/99 /s/ Steven E. Trager
Steven E. Trager
Chief Executive Officer
Principal Financial Officer:
Date: 05/14/99 /s/ Mark A. Vogt
Mark A. Vogt
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Incorporated
Exhibit Description By Reference To
<S> <C> <C>
11 Statement Regarding Computation Filed as Exhibit 11 on page 33 of this
of Per Share Earnings Form 10-Q for the period ended
March 31, 1999
27 Financial Data Schedule Filed as Exhibit 27 on page 34 of this
Form 10-Q for the period ended
March 31, 1999
</TABLE>
Exhibit 11.
Statement Regarding Computation of Per Share Earnings
See Item 1, Note 7 "Earnings Per Share" for calculations.
<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.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<EXCHANGE-RATE> 1 1
<CASH> 29,191 21,354
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 1,200 29,675
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 211,020 134,364
<INVESTMENTS-CARRYING> 11,733 80,103
<INVESTMENTS-MARKET> 11,804 80,191
<LOANS> 896,291 783,505
<ALLOWANCE> 7,962 8,234
<TOTAL-ASSETS> 1,204,523 1,112,576
<DEPOSITS> 763,746 728,069
<SHORT-TERM> 114,928 110,477
<LIABILITIES-OTHER> 19,004 21,432
<LONG-TERM> 205,592 179,164
0 0
0 0
<COMMON> 4,134 3,615
<OTHER-SE> 97,119 69,819
<TOTAL-LIABILITIES-AND-EQUITY> 1,204,523 1,112,576
<INTEREST-LOAN> 20,511 19,123
<INTEREST-INVEST> 3,312 3,416
<INTEREST-OTHER> 32 246
<INTEREST-TOTAL> 23,855 22,785
<INTEREST-DEPOSIT> 8,063 8,532
<INTEREST-EXPENSE> 11,712 12,415
<INTEREST-INCOME-NET> 12,143 10,370
<LOAN-LOSSES> 854 643
<SECURITIES-GAINS> 130 324
<EXPENSE-OTHER> 1,236 1,145
<INCOME-PRETAX> 5,068 8,565
<INCOME-PRE-EXTRAORDINARY> 3,364 5,524
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,364 5,524
<EPS-PRIMARY> .20 .37
<EPS-DILUTED> .19 .35
<YIELD-ACTUAL> 4.20 3.92
<LOANS-NON> 3,223 2,537
<LOANS-PAST> 2,176 5,084
<LOANS-TROUBLED> 1,107 1,640
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 7,862 8,176
<CHARGE-OFFS> 894 702
<RECOVERIES> 140 117
<ALLOWANCE-CLOSE> 7,962 8,234
<ALLOWANCE-DOMESTIC> 7,962 8,234
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
