UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the fiscal year ended December 31, 1999
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to __________
Commission File Number: 0-24649
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REPUBLIC BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-0862051
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
601 W. Market Street, Louisville, Kentucky 40202
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (502) 584-3600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting and non-voting common stock held
by non-affiliates of the registrant as of March 15, 2000 was approximately
$63,447,500 (for purposes of this calculation, the market value of the Class B
Common Stock was based on the market value of the Class A Common Stock into
which it is convertible).
The number of shares outstanding of the registrant's Class A Common Stock
and Class B Common Stock as of March 15, 2000 was 14,805,725 and 2,141,149,
respectively.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Shareholders for the year ended
December 31, 1999 are incorporated by reference into Parts I and II.
Portions of Registrant's Proxy Statement for the Annual Meeting of Shareholders
to be held April 19, 2000 are incorporated by reference into Part III.
<PAGE>
TABLE OF CONTENTS
PART I
1. Business 3
2. Properties 12
3. Legal Proceedings 13
4. Submission of Matters to a Vote of Security Holders 14
PART II
5. Market for Registrant's Common Equity And Related
Security Holder Matters 14
6. Selected Financial Data 16
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
7A. Quantitative and Qualitative Disclosures about Market Risk 16
8. Financial Statements and Supplementary Data 16
9. Changes in and Disagreements with Accountants On Accounting
and Financial Disclosure 16
PART III
10. Directors and Executive Officers of the Registrant 17
11. Executive Compensation 17
12. Security Ownership of Certain Beneficial Owners and Management 17
13. Certain Relationships and Related Transactions 17
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 19
Signatures 20
CAUTIONARY STATEMENT
This Annual Report on Form 10-K contains and incorporates by reference
statements relating to future results of Republic Bancorp, Inc. that are
considered "forward-looking" within the meaning of the Private Securities
Litigation and Reform Act of 1995. These statements relate to, among other
things, expectations concerning loan demand, growth and performance, simulated
changes in interest rates, the adequacy of our allowance for loan losses, and
the Year 2000 issue. Actual results may differ materially from those expressed
or implied as a result of certain risks and uncertainties, including, but not
limited to, changes in political and economic conditions, interest rate
fluctuations, competitive product and pricing pressures within our markets,
equity and fixed income market fluctuations, personal and corporate customers'
bankruptcies, inflation, acquisitions and integrations of acquired businesses,
technological changes, changes in law and regulations (including changes
resulting from the Gramm-Leach-Bliley Act enacted in November 1999), changes in
fiscal, monetary, regulatory and tax policies, monetary fluctuations, success in
gaining regulatory approvals when required as well as other risks and
uncertainties reported from time to time in our filings with the Securities and
Exchange Commission.
PLEASE NOTE:
As used in this report, the terms "Republic", the "Company", "we", "our" and
"us" refer to Republic Bancorp, Inc., and, where the context requires, Republic
Bancorp, Inc. and its subsidiaries; and the term the "Bank" refers to our
subsidiary, Republic Bank & Trust Company.
<PAGE>
PART I
ITEM 1. BUSINESS.
Republic Bancorp, Inc. is a registered bank holding company headquartered
in Louisville, Kentucky. Republic's principal subsidiary is Republic Bank &
Trust Company, a Kentucky banking corporation. Incorporated in Kentucky on
January 2, 1974, Republic became a bank holding company when the Bank was
authorized to conduct a commercial banking business in Kentucky in 1981.
The principal business of Republic is directing, planning and coordinating
the business activities of the Bank. The financial condition and results of
operations of Republic are primarily dependent upon the operations of the Bank.
At December 31, 1999, Republic had total assets of $1.37 billion, total deposits
of $801 million and total stockholders' equity of $104 million. Based on total
assets as of December 31, 1999, Republic ranked as the fourth largest
independent bank holding company headquartered in Kentucky. The executive
offices of Republic are located at 601 West Market Street, Louisville, Kentucky
40202, telephone number (502) 584-3600. The Company's Website address is
www.republicbank.com.
GENERAL BUSINESS OVERVIEW
As of March 1, 2000, Republic had a total of 21 banking centers in seven
Kentucky communities and a loan production office in Clarksville, Indiana. Its
two primary market areas are located in North Central and Central Kentucky. The
North Central Kentucky market includes the Louisville metropolitan area, the
largest city in Kentucky, where Republic is headquartered and has 11 banking
centers. Republic's Central Kentucky market includes ten banking centers in the
following Kentucky cities: Bowling Green (1); Elizabethtown (1); Frankfort (2);
Lexington, the second largest city in Kentucky (4); Owensboro (1); and
Shelbyville (1).
Republic has developed a super community banking network, with most of its
banking centers located either in separate communities or portions of urban
areas that represent distinct communities. Each of Republic's banking centers is
managed by an officer with the authority to make pricing and loan decisions
within Company policies and guidelines. The Bank also has local advisory boards
of directors that enhance Republic's awareness of the particular needs of the
communities served.
Republic continues to seek and evaluate additional expansion opportunities,
either through the establishment of de novo banking centers and/or through
acquisitions of existing institutions in the financial services industry and
ancillary nonbanking businesses. The Company intends to continue to consider
various strategic acquisitions of banks, banking assets or financial services
entities related to banking in those geographical areas that management believes
would complement and increase Republic's existing business lines, or expansion
in new market areas or product lines that management determines would be in the
best interest of the Company and its shareholders.
The Company has historically extended credit and provided general banking
services through its banking center network to individuals, professionals, and
businesses. Over the past several years the Company began to seek product
offerings to diversify its asset mix and further enhance its profitability.
While each product offering reflects the Company's efforts to enrich its asset
mix, each of these products is founded upon basic community banking concepts
that the Company has traditionally engaged. The Company principally markets its
services through the following products:
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MORTGAGE LENDING. The Company utilizes its banking centers and commissioned
originators to offer a complete line of single family residential mortgage
products. The Company generally retains mortgage loans with variable rates
or adjustable rates with up to 10 year fixed rate terms, and sells its
longer term fixed rate loans into the secondary market. Once closed,
secondary market loans are sold without recourse to institutional
investors. Generally, fixed rate loans in process are covered by forward
commitments to investors, that limit Republic's interest rate risk.
Republic does not retain the servicing on the majority of its loans sold in
the secondary market, a practice dating back to 1995. Management's decision
to retain or release servicing rights is largely dependent upon market
conditions. When administering loans with the servicing retained by the
Company, the responsibility of collecting principal and interest payments,
escrowing for taxes and insurance, and remitting payments to the secondary
market investors remains with Republic. Investors pay a fee to Republic for
performing these standard servicing functions.
COMMERCIAL LENDING AND LEASING. In 1997, the Company established a centralized
commercial lending unit as an outgrowth of the Company's historical
business of originating loans for small and medium-sized businesses at its
banking centers. Commercial loans are primarily real-estate secured and are
generated by leads from its banking centers, primarily in the Company's
market areas. The Company makes commercial loans to a variety of businesses
and industries. The Company intends to expand this business through focused
calling programs, and will broaden relationships with commercial clients by
offering both loan and deposit accounts and cash management services.
PREFERRED CLIENT SERVICES. Republic has established extensive long standing
relationships with the medical communities in its primary markets. Special
loan and deposit products have been tailored to meet the needs of
physicians and their practices. Republic may expand these specialized
services to other professional business groups.
CONSUMER LENDING. Consumer loans include automobile loans, home improvement and
home equity loans, operating lines of credit, and personal loans (both
secured and unsecured).
SPECIALIZED LENDING. Republic has pursued specialized lending opportunities to
complement its traditional lending programs. One specialized product line
includes Refunds Now, a program offering tax refund anticipation services.
Republic began offering these services through a joint venture arrangement
with Refunds Now, Inc. In October 1998, the Company acquired Refunds Now,
Inc. as a subsidiary, in a stock merger transaction accounted for as a
pooling of interests.
INTERNET BANKING. Republic continues to expand its product lines and service
delivery by offering clients Internet banking services through
republicbank.com. Sixteen percent of the Bank's existing checking account
clients now utilize Republic's Internet banking services. Republicbank.com
is accessible outside of Kentucky and has over $42 million in deposits from
44 states and the District of Columbia. During the first quarter of 2000,
Republic made on-line tax preparation available and intends to make on-line
brokerage available later in the year.
OTHER BANKING SERVICES. The Bank also provides trust services and engages in
credit life insurance sales, item processing, and other related financial
institution lines of business. The Bank plans to initiate the sale of life
and long-term care insurance products in 2000. During 1999, the trust
services offered by Republic were expanded to include investment management
and personal trust services. At December 31, 1999, Republic had over of
$850 million in trust assets under management.
<PAGE>
Deposits are a key component to the Company's banking business, serving as
a source of funding for lending as well as increasing client relationships.
Borrowings, principally from the Federal Home Loan Bank ("FHLB"), and repurchase
agreements, provide additional liquidity. Also, the Company's investment
securities, together with cash and cash equivalents, provide an important source
of liquidity. The Company uses its investments as collateral for borrowings and
to secure public fund deposits.
Republic's operating revenues are derived primarily from interest earned
from its loan and investment securities portfolios and fee income from loan,
deposit, and other banking products. For information about Republic's loan loss
reserve and the allocation of the allowance for loan losses by loan type, see
the discussion under the sub-heading "Asset Quality" included on pages 24 to 25
of Republic's 1999 Annual Report to Shareholders, which is incorporated herein
by reference.
YEAR 2000 PROJECT
For a discussion of Republic's year 2000 project, see page 30 of the
Company's 1999 Annual Report to Shareholders, which discussion is incorporated
herein by reference.
EMPLOYEES
As of December 31, 1999, the Bank had 485 employees of which 417 were
full-time and 68 part-time. None of the Bank's employees are subject to a
collective bargaining agreement, and neither Republic nor the Bank has ever
experienced a work stoppage.
COMPETITION
The Company actively competes with several local and regional commercial
banks, thrifts, credit unions and mortgage companies for deposits, loans and
other banking related financial services. There is intense competition in the
Bank's markets from other financial institutions as well as other "non-bank"
companies which engage in similar activities. Some of the Company's competitors
are not subject to the same degree of regulatory review and restrictions which
apply to the Bank. In addition, the Company must compete with much larger
financial institutions which have greater financial resources than the Company
and, while predominantly headquartered in other states, aggressively compete for
market share in Kentucky. These competitors attempt to gain market share through
their financial products mix, pricing strategies and banking center locations.
Legislative developments related to interstate branching and banking in general,
provide large banking institutions easier access to a broader marketplace, thus
creating more pressure on smaller financial institutions to consolidate. This
pressure is likely to increase as a result of the recently enacted financial
modernization legislation which, beginning March 11, 2000, will permit the
combination of banking, insurance and securities firms. The Kentucky legislature
recently passed a bill that will permit statewide branching, effective July,
2000. The Company also competes with insurance companies, consumer finance
companies, investment banking firms, brokerage houses, mutual fund managers and
investment advisors. Retail establishments compete for loans by offering credit
cards and retail installment contracts for the purchase of goods and
merchandise. It is anticipated that competition from both bank and "non-bank"
entities will continue to remain strong in the near future.
<PAGE>
SUPERVISION AND REGULATION
Republic and the Bank are subject to the policies of various regulatory
authorities. In particular, bank holding companies and their subsidiaries are
affected by the credit and monetary policies of the Federal Reserve Board.
Republic and the Bank are subject to numerous federal and state laws and
regulations affecting their business and also must undergo periodic examination
by federal and state financial institution examiners. The earnings of the Bank,
and the earnings of Republic, are affected not only by the laws and regulations
applicable to the banking business, but also by the policies and interpretations
of regulatory authorities.
The supervision and regulation of bank holding companies and their
subsidiaries is intended primarily for the protection of depositors, the deposit
insurance funds of the FDIC and the banking system as a whole, and not for the
protection of the bank holding company shareholders or creditors. The banking
agencies have broad enforcement power over bank holding companies and banks
including the power to impose substantial fines and other penalties for
violations of laws and regulations, to issue cease and desist or removal orders,
to seek injunctions, and publicly disclose such actions; and extensive authority
to police unsafe or unsound practices.
The following description summarizes some of the laws to which the Company
and the Bank are subject. References herein to applicable statutes and
regulations are brief summaries thereof, do not purport to be complete, and are
qualified in their entirety by reference to such statutes and regulations.
THE COMPANY
The Company is a bank holding company registered under the BHCA, and it is
subject to supervision, regulation and examination by the Federal Reserve Board.
The BHCA and other federal laws subject bank holding companies to particular
restrictions on the types of activities in which they may engage, and to a range
of supervisory requirements and activities, including regulatory enforcement
actions for violations of laws and regulations.
BANK ACQUISITIONS BY BANK HOLDING COMPANIES. The BHCA requires every bank
holding company to obtain the prior approval of the Federal Reserve Board before
it may acquire all or substantially all of the assets of any bank, or ownership
or control of any voting shares of any bank, if after such acquisition it would
own or control, directly or indirectly, more than 5% of the voting shares of
such bank. In approving bank acquisitions by bank holding companies, the Federal
Reserve Board is required to consider the financial and managerial resources and
future prospects of the bank holding company and the banks concerned, the
convenience and needs of the communities to be served, and various competitive
factors. Consideration of convenience and needs issues includes the parties'
performance under the Community Reinvestment Act of 1977, as amended. Under the
Community Reinvestment Act, all financial institutions have a continuing and
affirmative obligation consistent with safe and sound operation to help meet the
credit needs of their entire communities, including low-to-moderate income
neighborhoods. By virtue of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994, the geographic location of the bank is no longer a
factor. Under that Act, a well-capitalized and adequately-managed bank holding
company may acquire a bank located in any state, subject to certain deposit
percentage limitations and aging requirements.
IMPACT OF RECENT LEGISLATION. The activities permissible to bank holding
companies and their affiliates were substantially expanded by the
Gramm-Leach-Bliley Act which the President signed into law on November 12, 1999.
When it is fully phased in, the Gramm-Leach-Bliley Act will remove Federal and
state law barriers that currently prevent banking organizations, such as the
Corporation, from affiliating with insurance organizations and securities firms.
Beginning March 11, 2000, an eligible bank holding company may elect to be
treated as a financial holding company and, as such, it may engage in financial
activities (activities that are financial in nature, such as insurance and
securities underwriting and dealing activities) and activities the Federal
Reserve determines to be complementary to financial activities which do not pose
a substantial risk to the safety or soundness of depository institutions or the
financial system generally. To be eligible to elect the status of a financial
holding company, all of the depository institution subsidiaries of the bank
holding company must meet the requirements of their regulators to be considered
well managed and well capitalized and have a CRA rating of at least
"satisfactory". Bank holding companies that do not elect the status of a
financial holding company may continue to engage in and own companies conducting
non-banking activities which had been approved by Federal Reserve order or
regulation prior to November 12, 1999.
<PAGE>
The Federal Reserve Board and Treasury Secretary will determine what
activities qualify as financial in nature. A financial holding company will not
be required to obtain prior Federal Reserve Board approval in order to engage in
the financial activities identified in the Gramm-Leach-Bliley Act, other than in
connection with an acquisition of a thrift. However, a financial holding company
will not be able to commence, or acquire, any new financial activities if one of
its depository institution subsidiaries receives a less than satisfactory CRA
rating. In addition, if any of its depository institution subsidiaries ceases
being well capitalized or well managed, and compliance is not achieved within
180 days, a financial holding company may be forced, in effect, to cease
conducting business as a financial holding company by divesting either its
nonbanking financial activities or its banks.
Subject to certain exceptions, national banks will also be able to engage
in financial activities through separate subsidiaries. As a general rule,
financial subsidiaries of national banks will not be permitted to engage as
principal in underwriting insurance or issuing annuities, real estate
development or investment, merchant banking (for at least 5 years) or insurance
company portfolio activities in which financial holding companies may engage.
Insured state banks, such as the Bank, are permitted to control or hold an
interest in a financial subsidiary that engages in the same type of activities
permissible for national banks. Large banks (the top 50 to 100) may be required
to meet certain eligible debt investment grade rating requirements in order to
utilize financial subsidiaries to engage in financial activities. Conducting
financial activities through a bank subsidiary can impact capital adequacy, and
restrictions will apply to affiliate transactions between the bank and its
financial subsidiary.
The banking, securities and insurance activities of financial organizations
will be functionally regulated by the banking regulators, the Securities and
Exchange Commission and state securities regulators and organizations, and the
state insurance regulators, respectively. Consistent with this functional
approach, and after eighteen months have elapsed after the enactment of the
Gramm-Leach-Bliley Act, banks will no longer be excluded from the definition of
a broker or a dealer under the Federal securities laws. Limited exemptions will
be retained for specific types of bank activities, including an exemption to
permit banks to continue to offer on-site third party brokerage services under
certain conditions. Banks advising registered investment companies will be
required to register as investment advisors, and only common trust funds that
are employed by banks solely as an aid to the administration of trusts, estates,
or other fiduciary accounts will be able to avoid the registration requirements
imposed on investment companies. The Gramm-Leach-Bliley Act includes consumer
privacy protections and CRA "sunshine" rules, "modernizes" various other banking
related statutes, permits mutual bank holding companies, and requires a number
of studies and reports to Congress over the next 5 years.
Republic meets the eligibility requirements imposed under the
Gramm-Leach-Bliley Act, and has submitted a filing to elect the status of a
financial holding company that was effective March 13, 2000. The Company has
identified the sale of life insurance and associated long-term care insurance
products as new financial activities in which it proposes to engage.
<PAGE>
ACTIVITIES "CLOSELY RELATED" TO BANKING. For holding companies that do not
elect the status of a financial holding company, the BHCA will continue to
prohibit the bank holding company, with certain limited exceptions, from
acquiring direct or indirect ownership or control of any voting shares of any
company which is not a bank or from engaging in any activities other than those
of banking, managing or controlling banks and certain other subsidiaries, or
furnishing services to or performing services for its subsidiaries which were
permissible prior to the Gramm-Leach-Bliley Act. One principal exception to
these prohibitions allows the acquisition of interests in companies whose
activities are found by the Federal Reserve Board, by order or regulation, to be
so closely related to banking or managing or controlling banks, as to be a
proper incident to banking. In approving acquisitions by bank holding companies
or companies engaged in banking-related activities, the Federal Reserve Board
considers a number of factors, and weighs the expected benefits to the public
(such as greater convenience and increased competition or gains in efficiency)
against the risks of possible adverse effects (such as undue concentration of
resources, decreased or unfair competition or conflicts of interest). Despite
prior approval, the Federal Reserve may order a holding company or its
subsidiaries to terminate any activity, or terminate its ownership or control of
any subsidiary, when it has reasonable cause to believe that continuation of
such activity constitutes a serious risk to the financial safety, soundness or
stability of any bank subsidiary of the bank holding company.
SAFE AND SOUND BANKING PRACTICES. Bank holding companies are not permitted
to engage in unsafe and unsound banking practices. The Federal Reserve Board may
prohibit a bank holding company from engaging in an activity if it believes that
the transaction would constitute an unsafe or unsound practice or would violate
any law or regulation. The FDIC and the Kentucky Department of Financial
Institutions have similar authority with respect to the Bank.
SOURCE OF STRENGTH. Under Federal Reserve Board policy, a bank holding
company is expected to act as a source of financial strength to each of its
banking subsidiaries and to commit resources to their support. Such support may
be required at times when, absent this Federal Reserve Board policy, a holding
company may not be inclined to provide it. As noted below, a bank holding
company may also be required to guarantee the capital restoration plan of an
undercapitalized banking subsidiary.
CAPITAL ADEQUACY REQUIREMENTS. The Federal Reserve Board has adopted a
system using risk-based capital guidelines to evaluate the capital adequacy of
bank holding companies. Under the guidelines, specific categories of assets are
assigned different risk weights, based generally on the perceived credit risk of
the asset. These risk weights are multiplied by corresponding asset balances to
determine a "risk-weighted" asset base. The guidelines require a minimum total
risk-based capital ratio of 8.0% (of which at least 4.0% is required to consist
of Tier 1 capital elements). Total capital is the sum of Tier 1 and Tier 2
capital. As of December 31, 1999, the Company's ratio of Tier 1 capital to total
risk-weighted assets was 13.36% and its ratio of total capital to total
risk-weighted assets was 14.28%. See Note 13 to the Consolidated Financial
Statements.
In addition to the risk-based capital guidelines, the Federal Reserve Board
uses a leverage ratio as an additional tool to evaluate the capital adequacy of
bank holding companies. The leverage ratio is a company's Tier 1 capital divided
by its average total consolidated assets (less goodwill and certain other
intangible assets). Certain highly-rated bank holding companies may maintain a
minimum leverage ratio of 3.0%, but other bank holding companies may be required
to maintain a leverage ratio of up to 200 basis points above the regulatory
minimum. As of December 31, 1999, the Company's leverage ratio was 8.61%.
<PAGE>
The federal banking agencies' risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banking organizations that meet
certain specified criteria, assuming that they have the highest regulatory
rating. Banking organizations not meeting these criteria are expected to operate
with capital positions well above the minimum ratios. The federal bank
regulatory agencies may set capital requirements for a particular banking
organization that are higher than the minimum ratios when circumstances warrant.
Federal Reserve Board guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets.
THE BANK
The Bank is a Kentucky chartered banking corporation, the deposits of which
are insured by the Bank Insurance Fund (BIF) and the Savings Association Fund
(SAIF) of the FDIC. The Bank is not a member of the Federal Reserve System; the
Bank is subject to supervision and regulation by the FDIC and the Kentucky
Department of Financial Institutions. Such supervision and regulation subjects
the Bank to special restrictions, requirements, potential enforcement actions
and periodic examination by the FDIC and the Kentucky Department of Financial
Institutions. Because the Federal Reserve Board regulates the bank holding
company parent of the Bank, the Federal Reserve Board also has supervisory
authority that directly affects the Bank.
BRANCHING. Kentucky law currently permits a Kentucky chartered bank, with
prior regulatory approval, to establish a branch office in any county in which
the bank's principal office or an existing branch is located. In addition, a
Kentucky chartered bank is permitted to combine with a commonly controlled bank
or thrift regardless of its location in Kentucky, provided, under current
Kentucky law, both of the institutions have been in operation for at least five
years. The Kentucky banking statutes also permit a Kentucky bank, with prior
regulatory approval, to engage in an interstate merger transaction, and thereby
establish a branch office outside of Kentucky. In any case, the transaction must
also be approved by the FDIC, which considers a number of factors, including
financial history, capital adequacy, earnings prospects, character of
management, needs of the community and consistency with corporate powers. An
out-of-state bank is permitted to establish branch offices in Kentucky by
merging with a Kentucky bank, provided, under current Kentucky law, the Kentucky
bank has been in operation for at least 5 years. De novo branching into Kentucky
by an out-of-state bank is not permitted by the Kentucky banking statutes.
Recently adopted legislation in Kentucky, to become effective in July, 2000,
permits branching statewide, and removes the restrictions on acquisitions and
combinations that are currently applicable to Kentucky banks that have not been
in operation for at least 5 years.
RESTRICTIONS ON AFFILIATE TRANSACTIONS. Transactions between the Bank and
its nonbanking affiliates, including the Company, are subject to Section 23A of
the Federal Reserve Act. In general, Section 23A imposes limits on the amount of
such transactions, and also requires certain levels of collateral for loans to
affiliated parties. It also limits the amount of advances to third parties which
are collateralized by the securities or obligations of the Company or its
subsidiaries.
Affiliate transactions are also subject to Section 23B of the Federal
Reserve Act which generally requires that certain transactions between the Bank
and its affiliates be on terms substantially the same, or at least as favorable
to the Bank, as those prevailing at the time for comparable transactions with or
involving other nonaffiliated persons.
RESTRICTIONS ON DISTRIBUTION OF SUBSIDIARY BANK DIVIDENDS AND ASSETS.
Dividends paid by the Bank have provided a substantial part of the Company's
operating funds, and for the foreseeable future it is anticipated that dividends
paid by the Bank to the Company will continue to be the Company's principal
source of operating funds. Capital adequacy requirements serve to limit the
amount of dividends that may be paid by the Bank. Under federal law, the Bank
cannot pay a dividend if, after paying the dividend, the Bank will be
"undercapitalized." The FDIC may declare a dividend payment to be unsafe and
unsound even though the Bank would continue to meet its capital requirements
after the dividend. Under Kentucky banking law, the dividends the Bank can pay
during any calendar year are generally limited to its profits for that year,
plus its retained net profits for the two preceding years, less any required
transfers to surplus or to fund the retirement of preferred stock or debt,
absent approval of the Commissioner of the Kentucky Department of Financial
Institutions.
<PAGE>
Because the Company is a legal entity separate and distinct from its
subsidiaries, its right to participate in the distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization will be subject
to the prior claims of the subsidiary's creditors. In the event of a liquidation
or other resolution of an insured depository institution, the claims of
depositors and other general or subordinated creditors are entitled to a
priority of payment over the claims of holders of any obligation of the
institution to its shareholders, including any depository institution holding
company (such as the Company) or any shareholder or creditor thereof.
CAPITAL ADEQUACY REQUIREMENTS. The FDIC has adopted regulations
establishing minimum requirements for the capital adequacy of insured
institutions. The FDIC may establish higher minimum requirements if, for
example, a bank has previously received special attention or has a high
susceptibility to interest rate risk.
The FDIC's risk-based capital guidelines generally require state banks to
have a minimum ratio of Tier 1 capital to total risk-weighted assets of 4% and a
ratio of total capital to total risk-weighted assets of 8%. The capital
categories generally have the same definitions for the Bank as for the Company.
As of December 31, 1999, the Bank's ratio of Tier 1 capital to total
risk-weighted assets was 12.86% and its ratio of total capital to total
risk-weighted assets was 13.79%. See Note 13 to the Consolidated Financial
Statements.
The FDIC's leverage guidelines require state banks to maintain Tier 1
capital of no less than 4% of average total assets, except in the case of
certain highly rated banks for which the requirement is 3% of average total
assets. As of December 31, 1999, the Bank's ratio of Tier 1 capital to average
total assets (leverage ratio) was 8.29%. See Note 13 to the Consolidated
Financial Statements.
CORRECTIVE MEASURES FOR CAPITAL DEFICIENCIES. The federal banking
regulators are required to take "prompt corrective action" with respect to
capital-deficient institutions. Agency regulations define, for each capital
category, the levels at which institutions are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." Under these regulations, a "well capitalized"
bank has a total risk-based capital ratio of 10% or higher; a Tier 1 risk-based
capital ratio of 6% or higher; a leverage ratio of 5% or higher; and is not
subject to any written agreement, order or directive requiring it to maintain a
specific capital level for any capital measure. An "adequately capitalized" bank
has a total risk-based capital ratio of 8% or higher; a Tier 1 risk-based
capital ratio of 4% or higher; a leverage ratio of 4% or higher (3% or higher if
the bank was rated a CAMEL 1 in its most recent examination report and is not
experiencing significant growth); and does not meet the criteria for a well
capitalized bank. A bank is "undercapitalized" if it fails to meet any one of
the ratios required to be adequately capitalized.
Undercapitalized institutions are required to submit a capital restoration
plan, which must be guaranteed by any holding company of the institution. In
addition, agency regulations contain broad restrictions on certain activities of
undercapitalized institutions including asset growth, acquisitions, branch
establishment, and expansion into new lines of business. With certain
exceptions, an insured depository institution is prohibited from making capital
distributions, including dividends, and is prohibited from paying management
fees to control persons if the institution would be undercapitalized after any
such distribution or payment. A bank's capital classification will also affect
its ability to accept brokered deposits. Under the FDIC regulations, a bank may
not lawfully accept, roll over or renew brokered deposits unless either it is
well capitalized or it is adequately capitalized and receives a waiver from the
FDIC.
<PAGE>
As an institution's capital decreases, the FDIC's enforcement powers become
more enhanced. A significantly undercapitalized institution is subject to
mandated capital raising activities, restrictions on interest rates paid and
transactions with affiliates, removal of management, and other restrictions. The
FDIC has only very limited discretion in dealing with a critically
undercapitalized institution and is virtually required to appoint a receiver or
conservator.
Banks with risk-based capital and leverage ratios below the required
minimums may also be subject to certain administrative actions, including the
termination of deposit insurance upon notice and hearing, or a temporary
suspension of insurance without a hearing in the event the institution has no
tangible capital.
DEPOSIT INSURANCE ASSESSMENTS. Currently, the FDIC maintains two funds for
the insurance of deposits of financial institutions - the Bank Insurance Fund
(BIF) for deposits originated by banks and the Savings Association Insurance
Fund (SAIF) for deposits originated by savings associations, including savings
association deposits acquired by banks. The Bank must pay assessments to the
FDIC for federal deposit insurance protection. The FDIC has adopted a risk based
assessment system as required by amendments made to the Federal Deposit
Insurance Act. Under this system, FDIC-insured depository institutions pay
insurance premiums at rates based on their risk classification. Institutions
assigned to higher-risk classifications (that is, institutions that pose a
greater risk of loss to their respective deposit insurance funds) pay
assessments at higher rates than institutions that pose a lower risk. An
institution's risk classification is assigned based on its capital levels and
the level of supervisory concern the institution poses to the regulators. In
addition, the FDIC can impose special assessments in certain instances.
The Deposit Insurance Funds Act of 1996 addressed the payment of the
Financing Corporation's ("FICO") bond obligations, requiring both BIF and SAIF
insured institutions to share the cost of the FICO bond through additional
assessments on insured deposits.
CROSS-GUARANTEE PROVISIONS. The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") contains a "cross-guarantee" provision which
generally makes commonly controlled insured depository institutions liable to
the FDIC for any losses incurred in connection with the failure of a commonly
controlled depository institution.
<PAGE>
CONSUMER LAWS AND REGULATIONS. In addition to the laws and regulations
discussed herein, the Bank is also subject to certain consumer laws and
regulations that are designed to protect consumers in transactions with banks.
While the list set forth herein is not exhaustive, these laws and regulations
include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds
Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity
Act, the Real Estate Settlement Procedures Act, and the Fair Housing Act, among
others. These laws and regulations mandate certain disclosure requirements and
regulate the manner in which financial institutions must deal with clients when
taking deposits or making loans. The Bank must comply with the applicable
provisions of these consumer protection laws and regulations as part of its
ongoing business operation.
LEGISLATIVE INITIATIVES
The United States Congress continues to consider a number of proposals for
altering the structure, regulation, and competitive relationships of the
nation's financial institutions. Among such bills are proposals to combine banks
and thrifts into a unified charter, and to further expand or change the
regulation of the powers of depository institutions, bank holding companies, and
competitors of depository institutions. In addition, numerous regulations are
required to be promulgated to implement the significant legislative changes made
in the recently enacted Gramm-Leach-Bliley Act discussed above. From time to
time the Kentucky General Assembly also considers legislative proposals that
could significantly change state banking laws applicable to the Bank, including
proposals to expand the powers of state banks. It cannot be predicted whether,
or in what form, any of these proposals or regulatory initiatives will be
adopted, the impact they will have on the financial institutions industry or the
extent to which the business or financial condition of the Company and its
subsidiaries may be affected thereby
<PAGE>
STATISTICAL DISCLOSURES
The statistical information required by Item 1 may be found in the
Company's 1999 Annual Report to Shareholders (Exhibit 13 hereto) which, to the
extent indicated, is hereby incorporated herein by reference, as follows:
Page in the Company's
1999 Annual Report to
Guide 3 Disclosures Shareholders
I. Distribution of Assets, Liabilities and Shareholders' Equity:
Interest Rates and Interest Differential
A. Average Balance Sheet 19
B. Net Interest Earnings Analysis 19
C. Rate/Volume Analysis 20
II. Investment Portfolio
A. Book Value of Investment Securities 25
B. Maturities of Investment Securities 26
C. Investment Securities Concentrations 25
III. Loan Portfolio
A. Types of Loans 22
B. Maturities and Sensitivity of Loans to Changes in Interest Rates 23
C. Risk Elements
1. Nonaccrual, Past Due 90 Days or More,
and Restructured Loans 25
2. Potential Problem Loans 42
3. Foreign Outstandings N/A
4. Loan Concentrations 22
D. Other Interest-Bearing Assets N/A
IV. Summary of Loan Loss Experience
A. Analysis of Allowance for Loan Losses 24
B. Allocation of the Allowance for Loan Losses 24
V. Deposits
A. Average Balances 19
B. Maturities of Large Denomination Certificates of Deposit 43
C. Foreign Deposit Liability Disclosure N/A
VI. Return on Equity and Assets
A. Return on Average Assets 16
B. Return on Average Equity 16
C. Dividend Payout Ratio 16
D. Equity to Assets Ratio 16
VII. Short-Term Borrowings 43
<PAGE>
ITEM 2. PROPERTIES
The Company's executive offices, principal support and operational
functions are located at 601 West Market Street in Louisville, Kentucky.
Republic has a loan production office in Southern Indiana while all of
Republic's full-service banking centers are located in Kentucky. The location of
the 21 banking centers, their respective approximate square footage and their
form of occupancy is described in the following table:
SQUARE OWNED (O)/
BANKING CENTERS FOOTAGE LEASED (L)
- --------------- ------- ----------
LOUISVILLE METROPOLITAN AREA
2801 Bardstown Road, Louisville (1) 5,000 L
601 West Market Street, Louisville (1) 43,000 L
661 South Hurstbourne Parkway, Louisville (1) 27,000 L
4921 Brownsboro Road, Louisville 2,000 L
4655 Outer Loop, Louisville 3,000 L
5320 Dixie Highway, Louisville 5,000 O/L (2)
3950 Kresge Way, Louisville 400 L
9600 Brownsboro Road, Louisville (1) 13,000 L
3726 Lexington Road, Louisville 4,000 L
7101 Bardstown Road, Louisville 5,000 O/L (2)
9101 U.S. Highway 42, Prospect 4,000 O/L (2)
LEXINGTON
651 Perimeter Drive, Lexington 4,000 L
2401 Harrodsburg Road, Lexington 4,000 O
641 East Euclid Avenue, Lexington 3,500 O
3098 Helmsdale Place, Lexington 4,000 O/L (2)
FRANKFORT
100 Highway 676, Frankfort 4,000 O/L (2)
1001 Versailles Road, Frankfort 4,000 O
BOWLING GREEN, 1700 Scottsville Road 4,000 O/L (2)
OWENSBORO, 3500 Frederica Street 5,000 O
ELIZABETHTOWN, 1690 Ring Road 21,000 O
SHELBYVILLE, 1641 Midland Trail 5,000 O/L (2)
LOAN PRODUCTION OFFICE
- ----------------------
LOUISVILLE METROPOLITAN AREA
610 Eastern Boulevard, Clarksville, Indiana (1) 3,200 L
REFUNDS NOW OFFICE
- ------------------
125-127-129 South Sixth Street, Louisville 4,700 L
(1) The Louisville metropolitan area locations comprised of 610 Eastern Blvd.
(Clarksville), 601 West Market Street, 2801 Bardstown Road, 9600 Brownsboro Road
and 661 South Hurstbourne Parkway are leased from Republic's Chairman, Mr.
Bernard M. Trager, and partnerships in which Republic's Chairman (Bernard M.
Trager) and Chief Executive Officer (Steven E. Trager) are partners. See Item 13
of this Report.
(2) The banking centers at these locations are owned by Republic; however, they
are located on land that is leased through long-term agreements with third
parties.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of operations, Republic and the Bank are defendants
in various legal proceedings incidental to the business. In the opinion of
management, after a review of known facts, there are no material legal
proceedings pending in which an adverse decision could result in a material
adverse change in the business or consolidated financial position of Republic or
the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
CLASS A COMMON STOCK. The Company's Class A Common Stock is traded on the
Nasdaq National Market under the symbol RBCAA. At February 25, 2000, the
approximate number of record holders of Class A Common Stock holders was 825.
The following table summarizes transactions in Class A Common Stock since
July 21, 1998, the date the Class A Common Stock began trading on Nasdaq. Prior
to that time, there was no established public trading market for the Class A
Common Stock. The trading price information reflects the range of actual closing
sales prices for the Class A Common Stock as reported by Nasdaq.
Quarter Ended High Low
- ------------------------- ------ ------
September 30, 1998 $16.44 $12.63
December 31, 1998 14.13 11.88
March 31, 1999 13.00 11.00
June 30, 1999 12.00 10.63
September 30, 1999 11.63 9.00
December 31, 1999 9.94 8.31
CLASS B COMMON STOCK. At February 25, 2000, the approximate number of
record holders of Class B Common Stock was 227. There is no established public
trading market for the Class B Common Stock.
DIVIDENDS. Holders of Class A and Class B Common Stock are entitled to
receive dividends when, as and if declared by Republic's board of directors out
of funds legally available. Under Republic's Articles of Incorporation, if cash
dividends are paid on Class B Common Stock, shares of Class A Common Stock are
entitled to cash dividends equal to 110% of the cash dividend paid per share on
the Class B Common Stock.
<PAGE>
During 1998 and 1999, Republic declared and paid the following
quarterly cash dividends per share on its Common Stock:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1998
----
Class A Common Stock $.0275 $.0275 $.0275 $.0275
Class B Common Stock $.0250 $.0250 $.0250 $.0250
1999
----
Class A Common Stock $.0275 $.0275 $.0275 $.0358
Class B Common Stock $.0250 $.0250 $.0250 $.0325
<PAGE>
Republic currently intends to continue to pay regular quarterly cash
dividends on the Class A and Class B Common Stock, subject to Republic's needs
for funds. However, payment of dividends is also subject to the discretion of
Republic's Board of Directors and regulatory requirements. In determining
whether to continue such dividend payments and in establishing the amount of any
dividends to be paid, the Board of Directors will consider Republic's earnings,
capital requirements and financial condition, prospects for future earnings,
federal economic and regulatory policies, general business conditions and other
relevant factors, certain of which are beyond the control of Republic.
The primary source of funds for dividends paid by Republic to its
shareholders is the dividend income received from the Bank. Although management
believes that the Bank will be able to generate sufficient earnings to pay
dividends to Republic in amounts sufficient to continue Republic's current
dividend policy with respect to the Class A and Class B Common Stock, there can
be no assurance that the Bank will be able to generate such earnings or to pay
such dividends in the future. The instruments under which the Trust Preferred
securities of Republic's subsidiary, Republic Capital Trust, are outstanding
prohibit the payment of dividends on the Class A and Class B Common Stock if the
Company elects to defer payments of those securities, as permitted by those
instruments.
Republic has made available to its employees participating in its 401(k)
plan the opportunity to invest funds held in their accounts under the plan in
shares of Class A Common Stock of Republic. Shares were purchased by the
independent bank trustee, administering the plan, from time to time in the open
market in broker's transactions. As of December 31, 1999, approximately 116,000
shares of Class A Common Stock were held by the trustee on behalf of the plan.
ITEM 6. SELECTED FINANCIAL DATA
The information captioned "Selected Consolidated Financial Data" included
on page 16 of the Company's annual report to shareholders for the year ended
December 31, 1999 is incorporated herein by reference.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results
of Operations included on pages 17 through 30 of the Company's annual report to
shareholders for the year ended December 31, 1999, is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information included under the caption "Asset/Liability Management and
Market Risk" included on pages 28 through 29 of the Company's annual report to
shareholders for the year ended December 31, 1999 is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item, Report of Independent Public
Accountants and Consolidated Financial Statements and related notes, appears on
pages 31 through 56 of the Company's annual report to shareholders for the year
ended December 31, 1999 and is incorporated herein by reference. The Selected
Quarterly Financial Data appears in Note 22 on page 56 of the Company's annual
report to shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item appears under the heading "PROPOSAL
ONE ELECTION OF DIRECTORS" on pages 6 through 9 of the Proxy Statement, dated
March 17, 2000, of Republic Bancorp, Inc. for the 2000 Annual Meeting of
Shareholders to be held April 19, 2000 ("Proxy Statement"), and under the
heading "SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" on page 18 of
the Proxy Statement, all of which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information under the sub-heading "Directors Compensation" on page 9 of the
Proxy Statement and under the heading "CERTAIN INFORMATION AS TO MANAGEMENT" on
pages 9 to 12 of the Proxy Statement is incorporated herein by reference. In
addition, the information under the heading "COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION" on page 15 of the Proxy Statement is incorporated
herein by reference, provided that information in the Proxy Statement under the
heading "COMPENSATION COMMITTEE REPORT" is not incorporated in this Report and
shall not be deemed to be a part of this Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by this item is contained on pages 2 to 6 under the
heading "SHARE OWNERSHIP" of the Proxy Statement and is incorporated herein by
reference.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by this item is contained on pages 16 to 17 under the
heading "CERTAIN OTHER RELATIONSHIPS AND RELATED TRANSACTIONS" of the Proxy
Statement and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements.
The following consolidated financial statements of the registrant and
report of independent public accountants are included in the Annual Report to
Shareholders for the fiscal year ended December 31, 1999, on the pages indicated
and are incorporated herein by reference.
Description Page
- ------------------------------------------------------------- ----
Report of Independent Auditors 31
Consolidated balance sheets - December 31, 1999 and 1998 32
Consolidated statements of income and comprehensive income -
years ended December 31 1999, 1998, and 1997 33
Consolidated statements of changes in stockholders' equity -
years ended December 31, 1999, 1998 and 1997 34-35
Consolidated statements of cash flows -
years ended December 31, 1999, 1998 and 1997 36
Notes to consolidated financial statements 37-56
(a)(2) Financial Statements Schedules:
Schedules are omitted because the information is not applicable.
(a)(3) Exhibits:
The Exhibit Index on page 22 of this report is incorporated herein by
reference. The management contracts and compensatory plans or arrangements
required to be filed as exhibits to this Form 10-K pursuant to Item 14(c) are
noted by asterisk in the Exhibit Index.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REPUBLIC BANCORP, INC.
March 29, 2000 By: /s/ Steven E. Trager
--------------------
Steven E. Trager
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated.
/s/ Bernard M. Trager Chairman of the Board March 29, 2000
- --------------------- & Director --------------
Bernard M. Trager
/s/ Steven E. Trager President, Chief Executiv March 29, 2000
- -------------------- Officer & Director --------------
Steven E. Trager
/s/ Scott Trager Vice Chairman & Director March 29, 2000
- ---------------- --------------
Scott Trager
/s/Bill Petter Vice Chairman, Chief Operating March 29, 2000
- -------------- Officer & Director --------------
Bill Petter
/s/ Mark A. Vogt Chief Financial Officer March 29, 2000
- ---------------- --------------
Mark A. Vogt
/s/ Kevin Sipes Principal Accounting Officer March 29, 2000
- --------------- --------------
Kevin Sipes
/s/ R. Wayne Stratton Director March 29, 2000
- --------------------- --------------
R. Wayne Stratton
/s/ Larry M. Hayes Director March 29, 2000
- ------------------ --------------
Larry M. Hayes
/s/ Samuel G. Swope Director March 29, 2000
- ------------------- --------------
Samuel G. Swope
/s/ Sandra Metts Snowden Director March 29, 2000
- ------------------------ --------------
Sandra Metts Snowden
/s/ Charles E. Anderson Director March 29, 2000
- ----------------------- --------------
Charles E. Anderson
<PAGE>
INDEX TO EXHIBITS
No. Description
2.1 Agreement to Purchase Assets and Assume Liabilities dated April 1, 1997
by and between United Commonwealth Bank, FSB and Republic Bank & Trust
Company (Incorporated by reference to Exhibit 2.1 to the Current Report
on Form 8-K of Registrant as of November 7, 1997 (Commission File
Number: 33-77324))
2.2 Purchase and Assumption Agreement dated July 18, 1997 between The
Paducah Bank & Trust Company and Republic Bank & Trust Company
(Incorporated by reference to Exhibit 2.2 to the Current Report on Form
8-K of Registrant as of November 7, 1997 (Commission File Number:
33-77324))
2.3 Purchase and Assumption Agreement dated July 21, 1997 between Peoples
First National Bank & Trust Company and Republic Bank & Trust Company
(Incorporated by reference to Exhibit 2.3 to the Current Report on Form
8-K of Registrant as of November 7, 1997 (Commission File Number:
33-77324))
2.4 Purchase and Assumption Agreement dated September 12, 1997 between
First Federal Savings Bank of Leitchfield and Republic Bank & Trust
Company (Incorporated by reference to Exhibit 2.4 to the Current Report
on Form 8-K of Registrant as of November 7, 1997 (Commission File
Number: 33-77324))
3(i) Articles of Incorporation of Registrant, as amended (Incorporated by
reference to Exhibit 3(i) to the Registration Statement on Form S-1 of
Registrant (Registration No. 333-56583))
3(ii) Bylaws of Registrant, as amended (Incorporated by reference to Exhibit
3(ii) to the Registration Statement on Form S-1 of Registrant
(Registration No. 333-56583))
4.1 Provisions of Articles of Incorporation of Registrant defining rights
of security holders (see Articles of Incorporation, as amended, of
Registrant incorporated as Exhibit 3(i) herein)
4.2 Agreement Pursuant to Item 601 (b)(iii) of Regulation S-K (Incorporated
by reference to Exhibit 4.2 of the Annual Report on Form 10-K of
Registrant for the year ended December 31, 1997 (Commission File
Number: 33-77324))
10.1* Officer Compensation Continuation Agreement with Steven E. Trager,
dated January 12, 1995 (Incorporated by reference to Exhibit 10.1 to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995 (Commission File Number:
33-77324))
10.2* Stock Option Plan Agreement with Steven E. Trager, dated January 12,
1996 (Incorporated by reference to Exhibit 10.2 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995 (Commission
File Number: 33-77324))
10.5* Officer Compensation Continuation Agreement with A. Scott Trager, dated
January 12, 1995 (Incorporated by reference to Exhibit 10.5 to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995 (Commission File Number: 33-77324))
10.6* Stock Option Plan Agreement with A. Scott Trager dated January 12, 1996
(Incorporated by reference to Exhibit 10.6 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995 (Commission
File Number: 33-77324))
10.7* Officer Compensation Continuation Agreement with E. William Petter,
Jr., dated January 12, 1995 (Incorporated by reference to Exhibit 10.7
to Registrant's Annual Report on Form 10-K for the year ended December
31, 1995 (Commission File Number: 33-77324))
10.8* Stock Option Plan Agreement with E. William Petter, Jr., dated January
12, 1996 (Incorporated by reference to Exhibit 10.8 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995
(Commission File Number: 33-77324))
10.9* Death Benefit Agreement with Bernard M. Trager dated September 10, 1996
(Incorporated by reference to Exhibit 10.9 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996 (Commission
File Number: 33-77324))
10.10 Lease between Republic Bank & Trust Company and TEECO Properties dated
October 1, 1996, relating to 601 West Market Street, Louisville
(Incorporated by reference to Exhibit 10.10 to the Registration
Statement on Form S-1 of Registrant (Registration No. 333-56583))
10.11 Lease between Republic Bank & Trust Company and Jaytee Properties,
dated August 1, 1982, relating to 2801 Bardstown Road, Louisville
(Incorporated by reference to Exhibit 10.11 of Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998 (Commission
File Number: 33-77324))
10.12 Lease between Republic Bank & Trust Company and Jaytee Properties,
dated February 3, 1993, as amended, relating to 661 South Hurstbourne
Parkway, Louisville (Incorporated by reference to Exhibit 10.12 of
Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998 (Commission File Number: 33-77324))
10.13 Lease between Republic Bank & Trust Company and Jaytee Properties,
dated November 17, 1997, relating to 9600 Brownsboro Road, Louisville
(Incorporated by reference to Exhibit 10.13 of Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998 (Commission
File Number: 33-77324))
10.14* Officer Compensation Continuation Agreement with Mark A. Vogt, dated
October 16, 1997 (Incorporated by reference to Exhibit10.14 to the
Registration Statement on Form S-1 of Registrant (Registration No.
333-56583))
10.15* Stock Option Plan Agreement with Mark Vogt, dated April 15, 1996
(Incorporated by reference to Exhibit10.15 to the Registration
Statement on Form S-1 of Registrant (Registration No. 333-56583))
10.16* Summary of Directors Stock Options (Incorporated by reference to
Exhibit 10.16 of Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 (Commission File Number: 000-24649))
10.17 Lease between Republic Bank & Trust Company and Jaytee Properties,
dated February 1, 1999, as amended, relating to 661 South Hurstbourne
Parkway (Incorporated by reference to Exhibit 10.17 of Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
(Commission File Number: 33-77324))
10.18 Lease between Republic Bank & Trust Company and Jaytee Properties,
dated August 1, 1999, as amended, relating to 9600 Brownsboro Road
(Incorporated by reference to Exhibit 10.18 of Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999 (Commission
File Number: 33-77324))
10.19 Lease between Republic Bank & Trust Company and Jaytee Properties,
dated May 1, 1999, as amended, relating to 610 Eastern Boulevard,
Clarksville, Indiana (Incorporated by reference to Exhibit 10.19 of
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1999 (Commission File Number: 33-77324))
10.20 Lease between Republic Bank & Trust Company and Jaytee Properties,
dated October 30, 1999, as amended, relating to 9600 Brownsboro Road
10.21 Lease between Republic Bank & Trust Company and Jaytee Properties,
dated February 1, 2000, as amended, relating to 661 South Hurstbourne
Parkway
10.22 Lease between Republic Bank & Trust Company and Jaytee Properties,
dated February 1, 2000, as amended, relating to 9600 Brownsboro Road
11 Statement regarding Computation of Per Share Earnings
13 Excerpts from the 1999 Annual Report to Shareholders incorporated by
reference
21 Subsidiaries of the Registrant
23 Consent of Crowe, Chizek & Company LLP
27 Financial Data Schedule
* Denotes management contracts and compensatory plans or arrangements required
to be filed as exhibits to this Form 10-K pursuant to Item 14(c).
AMENDMENT TO REPUBLIC BANK BUILDING LEASE
This Amendment dated October 30, 1999, is made to the Republic Bank Building
Lease dated August 1, 1999 between Jaytee Properties, a Kentucky general
partnership, hereinafter referred to as "Landlord" and Republic Bank & Trust
Company, hereinafter referred to as the "Tenant". As parties hereto, Landlord
and Tenant hereby agree to modify and amend their original Lease Agreement as
hereafter set forth.
Article II, TERM, is hereby amended to include the following:
Tenant shall have two options to renew the Lease for an additional five-year
period each. The first option shall be for the sum of Thirteen thousand four
hundred ninety-four and 00/100 ($13,494.00) per month plus a rent adjustment
proportionate to the increase in the Consumer Price Index for all urban
consumers during the initial five-year term of the Lease. If Tenant subsequently
elects to exercise the second option, the rent shall be equal to the amount paid
during the first option period plus a rent adjustment proportionate to the
increase in the Consumer Price Index for all urban consumers during the second
five year term (first term of the option). Tenant shall notify Landlord of
Tenant's intent to exercise any option herein provided within 90 days of the
expiration of the immediately preceding five-year term.
The terms and provisions of the lease shall continue in full force and effect
except as modified and amended herein.
ATTEST: JAYTEE PROPERTIES
BY:/s/ M.A. Ringswald BY:/s/ Steve Trager
------------------ ----------------
REPUBLIC BANK & TRUST COMPANY
BY:/s/ Bill Petter
---------------
Sixth Amendment to Lease
(Hurstbourne Lane)
This Amendment to Lease dated this 1st day of February, 2000 shall further amend
the terms of a lease dated February 3, 1993, as amended, ("Lease") by and
between Jaytee Properties ("Landlord") and Republic Bank & Trust Company
("Tenant") at Republic Bank Place and any other amendments to such lease.
Landlord and Tenant agree that the following terms of the Lease shall be amended
to increase the Tenant's square footage by 3,464 square feet. The Tenant's rent
shall be increased by $6000.00, ($20.78 per square foot) per month effective
February 1, 2000 and continue in accordance with the terms of that original
lease, as amended, referenced herein.
ARTICLE I. PREMISES
SECTION 1. Tenant leases from Landlord and Landlord leases to Tenant the
following additional premises (hereinafter called the "Premises"):
Being an additional 3,464 square feet of office space located on the first floor
in the Republic Bank Building (hereinafter called "the Building") located at
Hurstbourne Parkway and Stone Creek Parkway in Jefferson County, Kentucky.
ARTICLE II. TERM
The Term of this lease, as amended, shall remain in effect to 6/31/03.
ARTICLE III. RENT AND OPERATING EXPENSES
SECTION 1. Tenant shall pay to Landlord, at Landlord's office in the Building or
at such place as Landlord may from time to time designate, as monthly rental for
the Premises as of the effective date of this Amendment, the sum of $33,940.
JAYTEE PROPERTIES
By: /s/ Steve Trager
----------------
REPUBLIC BANK & TRUST COMPANY
By: /s/ Bill Petter
---------------
SECOND AMENDMENT TO REPUBLIC BANK BUILDING LEASE
This Amendment dated February 1, 2000, is made to the Republic Bank Building
Lease dated August 1, 1999 between Jaytee Properties, a Kentucky general
partnership, hereinafter referred to as "Landlord" and Republic Bank & Trust
Company, hereinafter referred to as the "Tenant". As parties hereto, Landlord
and Tenant hereby agree to further modify and amend their original Lease
Agreement, as amended, as hereafter set forth.
Landlord and Tenant agree that the following terms of the Lease shall be amended
to increase the Tenant's square footage by 3,990 square feet. The Tenant's rent
shall be increased by $3,325.00, ($10.00 per square foot) per month effective
February 1, 2000 and continue in accordance with the terms of that original
lease, as amended, referenced herein.
ARTICLE I. PREMISES
SECTION 1. Tenant leases from Landlord and Landlord leases to Tenant the
following additional premises (hereinafter called the "Premises"):
Being an additional 3,990 square feet of office space located on the lower floor
in the Republic Bank Building (hereinafter called "the Building") located at
9600 Brownsboro Road, Jefferson County, Ky.
ARTICLE III. RENT AND OPERATING EXPENSES
SECTION 1. Tenant shall pay to Landlord, at Landlord's office in the Building or
at such place as Landlord may from time to time designate, as monthly rental for
the Premises as of the effective date of this Second Amendment, the sum of
$16,819.
The terms and provisions of the original lease, as amended, shall continue in
full force and effect except as modified and amended herein.
REPUBLIC BANK & TRUST COMPANY JAYTEE PROPERTIES
BY:/s/ Bill Petter BY:/s/ Steve Trager
--------------- ----------------
Exhibit 11. Statement Regarding Computation of Per Share Earnings
See Item 8 Note 12 "Earnings Per Share" for calculations.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth Republic's selected historical
financial information from 1995 through 1999. This information should be read in
conjunction with the Consolidated Financial Statements and the related Notes.
Factors affecting the comparability of certain indicated periods are discussed
in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Years Ended December 31,
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income .............................. $ 97,157 $ 92,667 $ 91,194 $ 81,986 $ 71,133
Interest expense ............................. 49,552 50,174 50,856 43,855 37,720
Net interest income .......................... 47,605 42,493 40,338 38,131 33,413
Provision for loan losses .................... 1,806 3,110 7,251 9,149 4,268
Non-interest income .......................... 10,084 11,396 7,743 7,097 7,520
Gain on sale of deposits ..................... 4,116 7,527
Gain on sale of Bankcard ..................... 3,660
Non-interest expense ......................... 37,383 33,533 32,880 31,409 24,505
Income before taxes .......................... 18,500 21,362 19,137 4,670 12,160
Net income ................................... 12,252 13,756 12,259 2,727 7,788
Balance Sheet Data:
Total assets ................................. $1,368,983 $1,207,684 $1,054,950 $1,140,882 $ 891,347
Total securities ............................. 214,558 216,921 192,372 281,855 114,654
Total loans, net ............................. 1,031,512 870,031 794,939 759,424 668,193
Allowance for loan losses .................... 7,862 7,862 8,176 6,241 3,695
Total deposits ............................... 800,909 747,147 731,598 783,141 734,443
Repurchase agreements and other
short-term borrowings ..................... 215,718 148,659 111,137 181,634 21,729
Other borrowed funds ......................... 231,383 190,222 124,405 106,974 68,063
Total stockholders' equity ................... 103,770 103,842 68,386 59,019 58,502
Per Share Data:(1)
Basic Class A common earnings
per share ................................. $ 0.73 $ 0.87 $ 0.82 $ 0.16 $ N/A
Basic Class B common earnings
per share ................................. 0.72 0.86 0.81 0.15 N/A
Basic common earnings per share .............. N/A N/A N/A N/A 0.52
Book value (2) ............................... 6.46 6.03 4.58 3.74 3.71
Cash dividends per Class A common ............ 0.12 0.11 0.11 0.11 N/A
Cash dividends per Class B common ............ 0.11 0.10 0.10 0.10 N/A
Cash dividend per common ..................... N/A N/A N/A N/A 0.09
Performance ratios:
Return on average assets ..................... 0.98% 1.20% 1.12% .29% .95%
Return on average common equity .............. 11.90 15.82 18.81 4.57 14.46
Net interest margin .......................... 3.96 3.84 3.85 4.21 4.25
Efficiency ratio ............................. 65 62(3) 68(4) 64(5) 60
Asset quality ratios:
Non-performing assets to total
loans ..................................... 0.38% 0.63% 0.90% 1.06% 0.41%
Net loan charge-offs to average
loans ..................................... 0.19 0.40 0.66 0.91 0.38
Allowance for loan losses to
total loans ............................... 0.76 0.89 1.02 0.81 0.55
Allowance for loan losses to
non-performing loans ...................... 213 158 115 78 168
Capital ratios:
Leverage ratio ............................... 8.61% 9.29% 6.99% 5.76% 6.62%
Average stockholders' equity to
average total assets ...................... 8.27 7.58 5.97 6.30 6.56
Tier 1 risk-based capital ratio .............. 13.36 14.63 10.57 9.14 10.29
Total risk-based capital ratio ............... 14.28 15.68 11.73 10.10 10.96
Dividend payout ratio ........................ 16 13 13 68 16
Other key data:
End-of-period full-time
equivalent employees ...................... 467 425 418 419 363
Number of bank offices ....................... 20 19 18 21 17
</TABLE>
- -----------
(1) In 1996 the Company's common stock was replaced by Class A Common Stock and
Class B Common Stock.
(2) Exclusive of accumulated other comprehensive income.
(3) Excludes pre-tax gain on sale of deposits of $4.1 million.
(4) Excludes pre-tax gain on sale of deposits of $7.5 million and pre-tax gain
on sale of Bankcard of $3.7 million.
(5) Excludes one-time Savings Association Insurance Fund ("SAIF") assessment of
$2.3 million.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Republic Bancorp, Inc. ("Republic" or "the Company") analyzes the
major elements of Republic's balance sheets and statements of income. Republic,
a bank holding company headquartered in Louisville, Kentucky, is the parent of
Republic Bank & Trust Company (the "Bank"). This section should be read in
conjunction with the Company's Consolidated Financial Statements and
accompanying Notes and other detailed information.
This discussion includes 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 elsewhere in this Annual
Report, 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; clients' acceptance of the Bank's products and services;
and the extent and timing of legislative and regulatory actions and reforms.
HIGHLIGHTS
Republic reported earnings of $12.3 million during 1999 compared with $13.8
million for 1998. Excluding a one-time gain on sale of deposits during 1998, net
income increased by 11% during 1999. Republic's 1999 performance was supported
by steady increases in net interest income and continued declining provisions
due to reduced loan losses. These improvements more than offset a reduction in
gains on sales of loans in the secondary market, due to rising interest rates,
and increases in non-interest expenses arising from banking center expansion.
Republic's book value per common share, exclusive of accumulated other
comprehensive income, increased from $6.03 at December 31, 1998 to $6.46 per
share at December 31, 1999.
The following table summarizes selected financial information regarding
Republic's financial performance.
<TABLE>
<CAPTION>
TABLE 1 - SUMMARY
Years Ended December 31, (dollars in thousands) 1999 1998 1997
<S> <C> <C> <C>
Net income $ 12,252 $ 13,756 $ 12,259
Net income excluding asset dispositions 12,252 11,122 5,099
Diluted Class A earnings per share 0.71 0.83 0.79
Diluted Class A earnings per share
excluding asset dispositions 0.71 0.68 0.32
ROA 0.98% 1.20% 1.12%
ROA excluding asset dispositions 0.98 0.97 0.47
ROE 11.90 15.82 18.81
ROE excluding asset dispositions 11.90 13.19 8.11
</TABLE>
Republic's total assets at December 31, 1999 grew more than 13% over 1998
to approximately $1.4 billion. Net loans increased $161 million from December
31, 1998 to over $1 billion at December 31, 1999. The residential real estate
portfolio grew $115 million while the commercial real estate portfolio increased
$45 million. This growth was attributable to continued loan demand in Republic's
markets and the further development of Republic's commercial and business
banking services. While loan growth remained strong, the Bank's level of
delinquent loans declined favorably to 1.29% at December 31, 1999, compared to
2.29% at December 31, 1998.
Funding for the growth in the loan portfolio was derived from deposits,
repurchase agreements and Federal Home Loan Bank advances. Deposits and
repurchase agreements increased to over $1.0 billion as of December 31, 1999
compared to $896 million at year-end 1998. A significant portion of this
increase was in lower cost deposits such as demand and money market accounts.
Republic's Internet banking (Republicbank.com) accounted for $42 million of the
increase in deposits, while Republic's corporate cash management accounts
reflected a 43% increase in balances over year-end 1998. FHLB advances increased
from $190 million at December 31, 1998 to $231 million at December 31, 1999.
During 1999 Republic continued to expand its banking centers. Republic
moved into newly completed facilities in the Springhurst and Fern Creek areas in
Louisville. The Bank also opened a loan production office in Southern Indiana,
its first location outside of Kentucky.
<PAGE>
Republic continues to expand its product lines and service delivery through
Republicbank.com. Sixteen percent of the Bank's checking account clients now
utilize Republic's Internet banking services. Republicbank.com has deposits from
44 states and the District of Columbia as of December 31, 1999. During 2000
Republic intends to make available on-line tax preparation and on-line
brokerage.
During 1999, Republic began offering investment management and personal
trust services. During 1999, Republic was awarded an $800 million custodial
account relationship. In less than a year of operation, this division now has in
excess of $850 million in trust assets under management
REFUNDS NOW(R)
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(R) 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(R) 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 1999, Refunds Now(R) generated $944,000 in
electronic tax refund loan fees and $1.2 million in electronic tax refund check
fees. During 1999, Republic successfully marketed its products to new tax
preparers for the year 2000. These additional relationships are projected to
increase revenues for Refunds Now(R) during 2000. The projected increase in
Refunds Now(R) earnings is not expected to materially impact the earnings of
Republic in 2000.
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, of which Republic realized a net gain of approximately $7.5 million.
During 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. Republic retained substantially
all of its Western Kentucky banking center loan portfolios in those
transactions. The Mayfield transaction represented the final Western Kentucky
banking center sale. Management funded these transactions with additional
advances from the Federal Home Loan Bank, deposits at its existing retail
banking centers and liquidation of selected investment securities and overnight
federal funds.
Also during 1997, Republic sold its $17 million Bankcard portfolio, its
merchant processing assets and its $6 million, 50% interest in a joint venture
Bankcard arrangement. Collectively, these asset sales resulted in a pre-tax gain
of $3.7 million.
RESULTS OF OPERATIONS
NET INTEREST INCOME
The principal source of Republic's revenue is net interest income. Net
interest income is the difference between interest income on interest-earning
assets such as loans and securities and the interest expense on liabilities used
to fund those assets, such as interest-bearing deposits and borrowings. Net
interest income is impacted by both changes in the amount and composition of
interest-earning assets and interest-bearing liabilities and market interest
rates.
The change in net interest income is typically measured by changes in net
interest spread and net interest margin. Net interest spread is the difference
between the average yield on interest-earning assets and the average cost of
interest-bearing liabilities. Net interest margin is determined by dividing net
interest income by average interest-earning assets.
Average interest-earning assets increased 9% in 1999, compared to a 6%
increase in 1998. The 1999 and 1998 growth resulted from increased loan volume
coupled with an increase in investment securities.
<PAGE>
During 1999, average interest-bearing liabilities grew $77 million to $1.0
billion, an increase of 8% over 1998. The increase was primarily in transaction
accounts, money market accounts and other borrowings. In 1998, average
interest-bearing liabilities grew 2% over 1997. The increase of $20 million
during 1998 was primarily in certificates of deposit, other time deposits and
overnight repurchase agreements.
For 1999, net interest income was $48 million, up $6 million over the $42
million attained during 1998. Overall, the net interest rate spread increased
from 3.18% during 1998 to 3.34% in 1999. The Bank's net interest margin also
increased from 3.84% in 1998 to 3.96% in 1999. The increase in the net interest
spread and margin in 1999 occurred because the yield on interest earning assets
decreased 29 basis points while the rate paid on liabilities decreased 45 basis
points. As a result, the average rate on earning assets decreased slower than
the average rate paid on liabilities as Republic continues to focus efforts on
attracting additional lower-cost transaction accounts, Internet banking and cash
management accounts. Net interest margin also grew because during 1999 Republic
funded a greater portion of its interest earning assets through equity and
non-interest bearing deposits.
Net interest income increased 5% in 1998 over 1997. The increase in 1998
was attributable to Republic's loan growth, particularly residential and
commercial lending.
Table 2 provides detailed information as to average balances, interest
income/expense, and rates by major balance sheet category for 1997 through 1999.
Table 3 provides an analysis of the changes in net interest income attributable
to changes in rates and changes in volume of interest-earning assets and
interest-bearing liabilities.
<TABLE>
<CAPTION>
TABLE 2 - AVERAGE BALANCE SHEETS AND RATES FOR DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
---- ---- ----
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
U.S. Treasury and U.S. Government
Agency Securities ............... $ 127,492 $ 6,938 5.44% $ 168,862 $ 9,798 5.80% $ 209,599 $12,473 5.95%
State and political subdivision
securities ...................... 3,915 339 8.66 4,195 368 8.77 4,447 381 8.57
Mortgage-backed securities ......... 32,781 2,104 6.42 42,572 2,591 6.09 4,415 263 5.96
Other investments .................. 65,493 4,015 6.13 15,365 1,061 6.91 6,952 497 7.15
Federal funds sold ................. 3,487 180 5.16 16,472 930 5.65 12,452 691 5.55
Total loans and fees(1)(2) ......... 967,751 83,581 8.64 858,420 77,919 9.08 809,700 76,889 9.50
Total earning assets ............... 1,200,919 97,157 8.09 1,105,886 92,667 8.38 1,047,565 91,194 8.71
Less: Allowance for loan losses .... (7,911) (8,150) (6,278)
Non-earning assets:
Cash and due from banks ............ 20,931 19,942 20,338
Bank premises and equipment, net ... 17,597 14,123 16,793
Other assets ....................... 13,552 14,934 13,198
Total assets ....................... $ 1,245,088 $ 1,146,735 $ 1,091,616
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Transaction accounts ............... $ 124,435 $ 3,311 2.66% $ 102,231 $ 3,263 3.19% $ 124,062 $ 4,250 3.43%
Money market accounts .............. 139,567 6,285 4.50 105,668 4,977 4.71 47,036 2,329 4.95
Individual retirement accounts ..... 26,359 1,407 5.34 22,549 1,316 5.84 35,641 2,090 5.86
Certificates of deposits and other
time deposits ................... 414,406 21,683 5.23 425,721 24,665 5.79 512,260 30,271 5.91
Repurchase agreements and other
borrowings ...................... 337,590 16,866 5.00 308,744 15,953 5.17 226,400 11,916 5.26
Total interest bearing liabilities . 1,042,357 49,552 4.75 964,913 50,174 5.20 945,399 50,856 5.38
Non-interest bearing liabilities:
Non-interest bearing deposits ...... 87,760 79,636 68,184
Other liabilities .................. 12,002 15,218 12,875
Stockholders' equity ............... 102,969 86,968 65,158
Total liabilities and stockholders'
equity .......................... $ 1,245,088 $ 1,146,735 $ 1,091,616
Net interest income ................ $47,605 $42,493 $40,338
Net interest spread ................ 3.34% 3.18% 3.33%
Net interest margin ................ 3.96% 3.84% 3.85%
</TABLE>
- -----------
(1) The amount of fee income included in interest on loans was $2,050,000,
$1,367,000, and $837,000 for the years ended December 31, 1999, 1998, and
1997, respectively.
(2) Calculations include non-accruing loans in the 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 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 prior volume), and (iii) the net change. The changes attributable to the
combined impact of volume and rate have been allocated proportionately to the
changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
TABLE 3 - VOLUME/RATE VARIANCE ANALYSIS
Year Ended December 31, 1999 Year Ended December 31, 1998
compared to compared to
Year Ended December 31, 1998 Year Ended December 31, 1997
INCREASE/(DECREASE) INCREASE/(DECREASE)
Due to Due to
Total Net Total Net
Change Volume Rate Change Volume Rate
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
U.S. Treasury and Government Agency Securities ....... $(2,860) $(2,400) $ (460) $(2,675) $(2,424) $ (251)
State and political subdivision securities ........... (29) (25) (4) (13) (22) 9
Mortgage backed securities ........................... (487) (596) 109 2,328 2,273 55
Other investments .................................... 2,954 3,461 (507) 564 601 (37)
Federal funds sold ................................... (750) (733) (17) 239 223 16
Total loans and fees(1)(2) ........................... 5,662 9,924 (4,262) 1,030 4,626 (3,596)
Total increase (decrease) in interest income ......... 4,490 9,631 (5,141) 1,473 5,277 (3,804)
Interest expense:
Interest bearing transaction accounts ................ 48 709 (661) (987) (748) (239)
Money market accounts ................................ 1,308 1,597 (289) 2,648 2,903 (255)
Individual retirement accounts ....................... 91 222 (131) (774) (768) (6)
Certificates of deposit and other time deposits ...... (2,982) (656) (2,326) (5,606) (5,114) (492)
Repurchase agreements and other borrowings ........... 913 1,490 (577) 4,037 4,334 (297)
Total increase (decrease) in interest expense ........ (622) 3,362 (3,984) (682) 607 (1,289)
Increase (decrease) in net interest income ........... $ 5,112 $ 6,269 $(1,157) $ 2,155 $ 4,670 $(2,515)
</TABLE>
- -----------
(1) Interest income for loans on non-accrual status has been excluded from
interest income.
(2) The amount of fee income included in interest on loans was $2,050,000,
$1,367,000, and $837,000 for the years ended December 31, 1999, 1998, and
1997, respectively.
NON-INTEREST INCOME
Non-interest income was $10.1 million during 1999, $15.5 million during
1998, and $18.9 million during 1997. The decrease from 1997 and 1998 was
primarily due to the gains from the sale of deposits and Bankcard. Also during
1998 Republic benefited from gains generated from sales of loans into the
secondary market and sales of investment securities.
<TABLE>
<CAPTION>
TABLE 4 - ANALYSIS OF NON-INTEREST INCOME
Percent
Increase (Decrease)
Years Ended December 31, (dollars in thousands) 1999 1998 1997 1999/98 1998/97
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts ................ $ 3,653 $ 3,255 $ 3,284 12% (1%)
Electronic refund check fees ....................... 1,238 380 247 226 54
Other service charges and fees ..................... 489 441 414 11 7
Bankcard services .................................. 508 NM NM
Net gain on available for sale securities .......... 184 1,139 81 (84) 1,306
Net gain on sale of mortgage loans ................. 2,974 4,326 1,852 (31) 134
Loan servicing income .............................. 455 598 734 (24) (19)
Other .............................................. 1,091 1,257 623 (13) 102
Subtotal ........................................ 10,084 11,396 7,743 (12) 47
Net gain on sale of deposits ....................... 4,116 7,527 NM (45)
Net gain on sale of Bankcard ....................... 3,660 NM NM
Total ........................................... $10,084 $15,512 $18,930 (35%) (18%)
</TABLE>
<PAGE>
Service charges on deposit accounts were $3.7 million for 1999, compared
with $3.3 million for 1998. Electronic refund check fees increased by $858,000
due to Republic's acquisition of Refunds Now, Inc., and increased volume
following the acquisition.
The interest rate environment heavily influences revenue from mortgage
banking activities. This revenue during early 1999, 1998 and 1997 reflected
increases in secondary market originations, sales volume, and the sale of most
loans with servicing released. This period generally had low, stable interest
rates. During mid to late 1999, the increase in rates led to fewer secondary
market loan originations resulting in reduced mortgage banking revenue. Proceeds
from sales of loans were $211 million, $272 million, and $124 million in 1999,
1998, and 1997, respectively. Net gains from sales of loans closely track
secondary market loan origination volume. Net gains as a percentage of loans
sold were 1.43%, 1.59%, and 1.49% in 1999, 1998, and 1997, respectively. As of
December 31, 1999, Republic was servicing $199 million in mortgage loans for
other investors, compared to $220 million at December 31, 1998.
NON-INTEREST EXPENSE
Total non-interest expense increased by 11% to $37.4 million in 1999,
compared to $33.5 million in 1998, and $32.9 million in 1997. Republic received
the benefit from reduced non-interest expenses during 1998 following the Western
Kentucky banking center sales. However, the costs, including related salary
expense, associated with Republic's addition of three new banking centers since
1997, opening the Indiana loan production office, expanded facilities at two
locations and continued technology enhancements resulted in an overall increase
in non-interest expense during 1998 and 1999.
Non-interest expense levels are often measured using an efficiency ratio
(non-interest expense divided by the sum of net interest income and non-interest
income). Excluding its one-time gains from the sale of deposits and related
fixed assets and Bankcard, Republic's efficiency ratio was 65% in 1999 compared
to 62% in 1998 and 68% in 1997.
<TABLE>
<CAPTION>
TABLE 5 - ANALYSIS OF NON-INTEREST EXPENSE
Percent
Increase/(Decrease)
Years Ended December 31, (dollars in thousands) 1999 1998 1997 1999/98 1998/97
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits ..................... $20,661 $16,968 $15,444 22% 10%
Occupancy and equipment ............................ 7,632 7,423 8,562 3 (13)
Communication and transportation ................... 1,716 1,703 1,796 1 (5)
Marketing and development .......................... 1,266 1,372 1,299 (8) 6
Supplies ........................................... 940 1,066 1,013 (12) 5
Other .............................................. 5,168 5,001 4,766 3 5
Total .............................................. $37,383 $33,533 $32,880 11% 2%
</TABLE>
Salary and employee benefits expense increased approximately 22% and 10% in
1999 and 1998, respectively. Republic's overall staffing level increased to 467
full-time equivalent employees ("FTE's") at December 31, 1999, compared to 425
FTE's at December 31, 1998. The increases in salaries and employee benefits
during 1999 were attributable to several factors. Republic opened a new banking
center, loan production office and moved into permanent facilities in
Springhurst banking center, while also expanding its commercial lending, cash
management and trust activities. Annual merit salary increases were also awarded
during the year. Additional expense was also recognized as a result of the
formation of the Employee Stock Ownership Plan ("ESOP"). The rise in 1998 was
primarily due to increased staffing and commissions paid for Republic's mortgage
banking activities as a result of higher loan volumes. Also in 1998 Republic had
increases in the number of higher salaried technical and lending staff additions
and annual merit salary increases.
Occupancy and equipment expenses increased 3% in 1999 following a 13%
decrease during 1998. The 1998 decrease was primarily due to reduced
depreciation and maintenance expenses resulting from the sale of western
Kentucky banking centers. The increase in 1999 is largely attributable to the
costs associated with Republic's continued banking center expansion. These
expenses may continue to increase in the near term as the Bank intends to open
an additional location during 2000.
<PAGE>
FINANCIAL CONDITION
LOAN PORTFOLIO
Republic experienced record loan growth and healthy loan demand throughout
its markets in 1999. During 1999 residential loan demand shifted from longer
term fixed rate secondary market products to the Bank's portfolio products. The
shift in demand was prompted by increases in rates for longer term fixed rate
products. As a result, total portfolio loans increased 18% to over $1.0 billion
at December 31, 1999 compared to $879 million at December 31, 1998. Republic
also experienced strong loan demand for its commercial loan products.
The residential real estate lending portfolio increased 22% to $636 million
at December 31, 1999. The increase in the residential real estate portfolio was
a result of a strong demand for the Bank's adjustable-rate mortgage products.
Republic's adjustable rate mortgage products consist of 3,5,7 and 10 year
initial fixed rate terms. At December 31, 1999 Republic had $216 million
outstanding in these products. These portfolio products were specifically
designed to compete effectively with long term fixed rate secondary market
products.
Republic's commercial real estate loan portfolio increased by 38% to $163
million at December 31, 1999. Republic's commercial banking initiatives are
targeted principally toward the Bank's existing customer base. As a result of
increased client demand, Republic allocated additional resources to the
commercial lending function. Commercial real estate lending remains primarily
concentrated within the Bank's existing markets, and are principally comprised
of loans secured by multifamily investment properties, medical facilities, small
business owner-occupied office and retail properties. In conjunction with its
commercial real estate lending, emphasis has also been placed on acquiring the
associated deposit relationships from these loan clients.
By design, Republic's consumer loans decreased from $60 million at December
31, 1998 to $42 million at December 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
is currently not originating these unsecured products and has elected to allow
the remaining portfolios to paydown. These portfolios had $20 million
outstanding at December 31, 1998 compared to $8 million at December 31, 1999.
Republic anticipates that the loan portfolio retained from the Western
Kentucky deposit sales will continue to be subjected to a higher level of
prepayments than its overall loan portfolio in general. During 1999, loans
associated with Republic's Western Kentucky banking centers decreased from $87
million at December 31, 1998 to $58 million at December 31, 1999. Republic
continues to provide service to these clients through its centralized loan
operations, but expects a number of these clients will elect to refinance with
other local institutions. Republic is not able to predict the rate at which the
Western Kentucky loan portfolio will pre-pay.
<TABLE>
<CAPTION>
TABLE 6 - LOANS BY TYPE
As of December 31, (dollars in thousands) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real estate:
Residential .................... $ 636,012 $520,583 $480,874 $457,204 $371,846
Commercial ..................... 163,064 118,293 76,306 59,086 75,648
Construction ................... 63,928 47,396 37,940 32,130 31,230
Commercial ........................ 31,411 26,381 21,552 25,115 21,042
Consumer .......................... 42,408 59,874 86,061 124,974 127,735
Home Equity ....................... 103,833 106,845 102,512 69,572 48,244
Total Loans ....................... $1,040,656 $879,372 $805,245 $768,081 $675,745
</TABLE>
<PAGE>
The mortgage banking operation provides for the origination and the sale of
first mortgage residential loans into the secondary market. This operation
primarily sells fixed rate originations in the secondary market without
recourse. During 1999, Republic sold $208 million of residential mortgage loans
into the secondary market compared to $268 million in 1998. At the end of 1999,
Republic was servicing $199 million in mortgage loans for other investors
compared to $220 million in 1998 and $263 million in 1997. The decline in the
mortgage banking servicing portfolio from 1997 to 1999 resulted from
management's election to sell a majority of its originations on a servicing
released basis combined with regular loan principal paydowns.
Table 7 illustrates Republic's fixed rate maturities and repricing
frequency for the loan portfolio:
<TABLE>
<CAPTION>
TABLE 7 - SELECTED LOAN DISTRIBUTION
One Over One Over
Year Through Five Five
As of December 31, 1999 (dollars in thousands) Total Or Less Years Years
<S> <C> <C> <C> <C>
Fixed rate maturities ............................ $ 131,551 $ 70,171 $ 37,730 $ 23,650
Variable rate repricing frequency ................ 909,105 477,017 348,531 83,557
Total ............................................ $1,040,656 $547,188 $386,261 $107,207
</TABLE>
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The provision for loan losses was $1.8 million for the year ended December
31, 1999, compared to $3.1 million for 1998 and $7.3 million for 1997. Net
charge-offs were $1.8 million during 1999 compared to $3.4 million and $5.3
million for 1998 and 1997, respectively. Republic's unsecured consumer loan
portfolio accounted for 34% of total net charge-offs for the year ended December
31, 1999.
The allowance for loan losses remained constant at $7.9 million for both
December 31, 1999 and 1998. Republic's allowance to total loan ratio was .76% at
December 31, 1999 compared to .89% at December 31, 1998. This change in the
allowance reflects a reduction in overall portfolio risk due to the decreased
outstandings in the Bank's unsecured consumer loan portfolio. As the overall
loan portfolio outstandings have increased, higher risk unsecured consumer loans
have been principally replaced by lower risk, secured residential real estate
loans. There has also been an increase in commercial real estate lending, which
is generally considered to carry greater risk of loss than residential real
estate. Management is monitoring this portfolio closely, and believes it has
provided an adequate component within the allowance for this expanded activity.
The allowance for loan losses is regularly evaluated by management and
maintained at a level believed to be adequate to absorb loan losses in the
Bank's lending portfolios. Periodic provisions to the allowance are made as
needed. The amount of the provision for loan losses necessary to maintain an
adequate allowance is based upon an assessment of current economic conditions,
analysis of periodic internal loan reviews, delinquency trends and ratios,
changes in the mixture and levels of the various categories of loans, historical
charge-offs, recoveries, and other information. Management believes, based on
information presently available, that it has adequately provided for loan losses
at December 31, 1999. Although management believes it uses the best information
available to make allowance provisions, future adjustments which could be
material may be necessary if management's assumptions differ significantly from
the loan portfolio's actual performance.
<PAGE>
<TABLE>
<CAPTION>
TABLE 8 - SUMMARY OF LOAN LOSS EXPERIENCE
Years Ended December 31, (dollars in thousands) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at beginning of year .................... $ 7,862 $ 8,176 $ 6,241 $ 3,695 $ 1,827
Charge-offs:
Real estate .................................................... (593) (1,017) (358) (242) (313)
Commercial ..................................................... (97) (79) (43) (22) (107)
Consumer ....................................................... (1,708) (2,828) (5,458) (6,865) (2,069)
Total ..................................................... (2,398) (3,924) (5,859) (7,129) (2,489)
Recoveries:
Real estate .................................................... 15 7 23 290 22
Commercial ..................................................... 8 4 25
Consumer ....................................................... 569 489 520 236 42
Total ..................................................... 592 500 543 526 89
Net loan charge-offs .............................................. (1,806) (3,424) (5,316) (6,603) (2,400)
Provision for loan losses ......................................... 1,806 3,110 7,251 9,149 4,268
Allowance for loan losses at end of year .......................... $ 7,862 $ 7,862 $ 8,176 $ 6,241 $ 3,695
Ratios:
Allowance for loan losses to total loans ....................... .76% .89% 1.02% .81% .55%
Net loan charge-offs to average loans outstanding for the period .19 .40 .66 .91 .38
Allowance for loan losses to non-performing loans .............. 213 158 115 78 168
</TABLE>
The following table is management's allocation of the allowance for loan
losses by loan type. Allowance funding and allocation is based on management's
assessment of economic conditions, past loss experience, loan volume, past due
history and other factors. Since these factors are subject to change, the
allocation is not necessarily indicative of future portfolio performance.
<TABLE>
<CAPTION>
TABLE 9 - MANAGEMENT'S ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
As of December 31, (dollars in thousands) 1999 1998 1997
---- ---- ----
Percent Percent Percent
of Loans of Loans of Loans
to Total to Total to Total
Allowance Loans Allowance Loans Allowance Loans
<S> <C> <C> <C> <C> <C> <C>
Real estate ........................ $6,235 83% $5,729 78% $3,590 74%
Commercial ......................... 483 3 265 3 46 3
Consumer ........................... 1,144 14 1,868 19 4,540 23
Total .............................. $7,862 100% $7,862 100% $8,176 100%
</TABLE>
ASSET QUALITY
Loans (including impaired loans under SFAS 114 and 118 but 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 and charged off when they reach 120 days
past due. At December 31, 1999, Republic had $97,000 in consumer loans 90 days
or more past due compared to $256,000 at December 31, 1998.
<PAGE>
Total non-performing loans decreased from $5.0 million at December 31,
1998, to $3.7 million at December 31, 1999. These loans are primarily secured
1-4 family residential loans. Should the underlying collateral be determined to
be insufficient to satisfy the obligation, the loan is classified as
non-performing and the Bank's allowance is increased accordingly. Historically,
Republic's security in residential loans has been generally adequate and has
acted to limit the Bank's exposure to loss.
<TABLE>
<CAPTION>
TABLE 10 - NON-PERFORMING ASSETS
As of December 31, (dollars in thousands) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Loans on non-accrual status(1)(2) ............................ $2,721 $3,258 $2,676 $3,055 $ 742
Loans past due 90 days or more ............................... 968 1,731 4,459 4,955 1,463
Total non-performing loans ................................... 3,689 4,989 7,135 8,010 2,205
Other real estate owned ...................................... 218 540 22 104 552
Total non-performing assets .................................. $3,907 $5,529 $7,157 $8,114 $2,757
Percentage of non-performing loans to total loans ............ .35% .57% .90% 1.04% .33%
Percentage of non-performing assets to total loans ........... .38 .63 .90 1.06 .41
</TABLE>
- -------------
(1) Loans on non-accrual status include impaired loans. See note 4 to the
Consolidated Financial Statements for additional discussion on impaired
loans.
(2) The 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
other 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 that it is
probable the full amount will not be collected. Impaired loans, consisting of
one commercial real estate loan, decreased slightly from December 31, 1998 to
$1.1 million at December 31, 1999.
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
TABLE 11 - SECURITIES PORTFOLIO
As of December 31, (dollars in thousands) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury and government agencies ............ $ 97,029 $123,976 $ 44,559 $107,937
Agency mortgage-backed securities ................ 66,340 47,806 49,267
Corporate bonds .................................. 18,258 15,154
Total Securities Available for Sale ........ 181,627 186,936 93,826 107,937
Securities Held to Maturity:
U.S. Treasury and government agencies ............ 25,353 25,422 93,693 168,797 $109,282
States and political subdivisions ................ 3,775 4,077 4,270 4,458 4,629
Agency mortgage-backed securities ................ 3,803 486 583 663 743
Total Securities Held to Maturity .......... 32,931 29,985 98,546 173,918 114,654
Total ................................... $214,558 $216,921 $192,372 $281,855 $114,654
</TABLE>
The investment portfolio primarily consists of U.S. Treasury and U.S.
Government Agency obligations, corporate bonds and mortgage-backed securities.
The mortgage-backed securities (MBS's) consist of 15-year fixed and 7.5-year
balloon mortgage securities, underwritten and guaranteed by FNMA, a
government-sponsored agency.
<PAGE>
Securities available for sale decreased slightly from $187 million at
December 31, 1998 to $182 million at December 31, 1999. Securities available for
sale have a weighted average maturity of 6.1 years. Securities to be held to
maturity increased slightly from $30 million at December 31, 1998 to $33 million
at December 31, 1999. Securities to be held to maturity have a weighted average
maturity of 3.6 years.
<TABLE>
<CAPTION>
TABLE 12 - INVESTMENT SECURITIES AVAILABLE FOR SALE
Average Weighted
Amortized Maturity Average
As of December 31, 1999 (dollars in thousands) Cost Fair Value in Years Yield
---- ---------- -------- -----
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government Agencies:
Within one year ......................................... $ 24,029 $ 23,876 0.6 5.12%
Over one through five years ............................. 74,989 73,153 2.4 5.33
Total U.S. Treasury and Government Agencies ............. 99,018 97,029 2.0 5.28
Corporate Bonds
Over one through five years ............................. 19,267 18,258 3.7 5.64
Total corporate bonds ................................... 19,267 18,258 3.7 5.64
Total mortgage-backed securities ........................ 69,292 66,340 6.05
Total available for sale investment securities ............. $187,577 $181,627 6.1 5.60
</TABLE>
<TABLE>
<CAPTION>
TABLE 13 -INVESTMENT SECURITIES HELD TO MATURITY
Average Weighted
Amortized Maturity Average
As of December 31, 1999 (dollars in thousands) Cost Fair Value in Years Yield
---- ---------- -------- -----
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government Agencies:
Within one year ......................................... $ 6,300 $ 6,280 0.2 4.96%
Over one through five years ............................. 19,053 18,939 2.0 6.19
Total U.S. Treasury and Government Agencies ............. 25,353 25,219 1.6 5.89
Obligations of states and political subdivision:
Within one year ......................................... 225 228 0.5 9.38
Over one through five years ............................. 276 277 2.7 7.90
Over five through ten years ............................. 824 909 6.5 11.26
Over ten years .......................................... 2,450 2,450 16.4 10.00
Total obligations of state and political subdivisions ... 3,775 3,864 12.3 10.09
Total mortgage-backed securities ........................ 3,803 3,753 6.97
Total held to maturity investment securities ............... $32,931 $32,836 3.6 6.49
</TABLE>
<PAGE>
DEPOSITS
Total deposits were $801 million at December 31, 1999 compared to $747
million at December 31, 1998. Republic was also successful in changing its
deposit mix by increasing its low cost deposits (Checking, NOW and Money
Market). Republic's growth in deposits was the result of management's emphasis
on retail deposit gathering and its commercial cash management program.
<TABLE>
<CAPTION>
TABLE 14 - DEPOSITS
As of December 31, (dollars in thousands) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Demand (NOW, SuperNOW and Money Market) ............ $204,071 $179,804 $118,870 $116,180 $103,744
Savings ............................................ 12,158 12,330 12,165 14,840 15,395
Money market certificates of deposit ............... 43,152 35,139 41,307 63,423 58,599
Individual retirement accounts ..................... 29,380 23,353 30,167 35,845 34,275
Certificates of deposit, $100,000 and over ......... 91,848 77,365 63,045 60,890 55,708
Other certificates of deposit ...................... 319,558 309,938 352,478 374,864 355,344
Brokered deposits .................................. 16,486 28,873 47,653 50,130 48,074
Total interest bearing deposits .................... 716,653 666,802 665,685 716,172 671,139
Total non-interest bearing deposits ................ 84,256 80,345 65,913 66,969 63,304
Total .............................................. $800,909 $747,147 $731,598 $783,141 $734,443
</TABLE>
Republic's $16 million in brokered deposits at the end of 1999 decreased
$12 million from 1998 due to maturities. Republic did not solicit or add any
additional brokered deposits during 1999. The brokered deposits have stated
rates ranging from 5.35% to 6.15% and original contractual maturities ranging
from 3 to 5 years. The entire balance of brokered deposits matures in 2000.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM BORROWINGS
Short-term borrowings consist of repurchase agreements and overnight
liabilities to deposit clients arising from Republic's cash management program.
While effectively deposit equivalents, these arrangements consist of securities
sold under agreements to repurchase and liabilities secured by private
insurance. Short-term borrowings increased from $149 million at December 31,
1998, to $215 million at December 31, 1999. Included in December 31, 1999
balances are approximately $28 million in deposits from public funds entities
which are expected to be withdrawn during the first quarter of 2000.
OTHER BORROWED FUNDS
Other borrowed funds, which consist principally of FHLB advances, increased
from $190 million at December 31, 1998 to $231 million at December 31, 1999.
Additional borrowings were also used to fund loan growth and purchase investment
securities that were used to collateralize deposits due to the bank's growth in
public funds and high balance commercial accounts. Republic's management expects
to continue to use FHLB borrowings as a source of funds in addition to retail
deposits. The need for additional FHLB borrowings above current levels will be
evaluated by management, with consideration given to the growth of the Bank's
loan portfolio, liquidity needs, cost of deposits, market conditions and other
factors. As of December 31, 1999, Republic had the capacity to increase its
borrowings from the FHLB an additional $103 million.
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 $102 million of repurchase agreements are
attributable to three customer relationships at December 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. 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.
<PAGE>
CAPITAL
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 purchased 300,000 shares of Class A Common Stock. The
transaction led to a reduction in capital of $3.6 million during 1999.
In July of 1998 Republic sold 2 million shares of its Class A Common Stock
at an initial offering price of $13 per share and received approximately $23.6
million in proceeds. The stock offering proceeds strengthened Republic's capital
base and are being utilized for continued banking center expansion, broadening
existing business lines and other general corporate purposes.
Republic's board of directors approved a Class A share repurchase program
of 500,000 shares during the fourth quarter of 1998 and throughout 1999 Under
the repurchase program Republic has repurchased approximately 299,000 shares as
of December 31, 1999 with a weighted average cost of $11.42, totaling $3.4
million.
On December 31, 1997, Republic redeemed its $5 million outstanding Series A
Convertible Preferred stock. At the option of each shareholder, each security
was either convertible into 10 shares of Class A Common Stock and 2 shares of
Class B Common Stock, or redeemable in cash for the initial offering price of
$100 per share plus a 20% premium. As a result of this redemption approximately
80% of the outstanding securities were converted to Common Stock. The remaining
securities were redeemed for cash. The $1.2 million payout to those shareholders
included the 20% premium of $203,000, which was charged to retained earnings.
Regulatory agencies measure capital adequacy within a framework that makes
capital requirements, in part, dependent on the individual risk profiles of
financial institutions. Republic improved its capital position in 1998 due to
capital raised during the offerings mentioned above and increased retained
earnings achieved during the period. Republic's capital decreased slightly in
1999 due to net unrealized depreciation on securities available for sale of $3.9
million, and the ESOP plan shares totalling $3.6 million. These reductions were
largely offset by an increase of $8.1 million in retained earnings in 1999
compared to 1998. Republic's capital to average assets ratio increased to 8.27%
at December 31, 1999 compared to 7.58% and 5.97% at year end 1998 and 1997.
Republic continues to exceed the regulatory requirements for Tier I, Tier I
leverage and total risk-based capital. The Bank intends to maintain a capital
position that meets or exceeds the "well capitalized" requirements as defined by
the FDIC. See Note 13 to the Consolidated Financial Statements.
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 Bank's board of directors sets policy
guidelines establishing maximum limits on the Bank's interest rate risk
exposure. Republic's management monitors and adjusts exposure to interest rate
fluctuations as influenced by the Bank's loan and deposit portfolios.
Republic uses 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 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 of various management strategies.
Interest rate risk management focuses on maintaining acceptable net
interest income within policy limits approved by the board of directors. The
Bank'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.
<PAGE>
Tables 15 & 16 illustrate Republic's estimated annualized earnings
sensitivity profile based on the asset/liability model as of year-end 1999 and
year-end 1998:
<TABLE>
<CAPTION>
TABLE 15 - INTEREST RATE SENSITIVITY FOR 1999
Decrease in Rates Increase in Rates
----------------- -----------------
200 100 100 200
As of December 31, 1999 (dollars in thousands) Basis Points Basis Points BASE Basis Points Basis Points
<S> <C> <C> <C> <C> <C>
Projected interest income
Loans ................................ $ 82,805 $ 87,101 $ 92,825 $ 97,350 $101,418
Investments .......................... 13,311 13,862 14,191 14,565 14,914
Short-term investments ............... 353 871 585 613 631
Total interest income ................ 96,469 101,834 107,601 112,528 116,963
Projected interest expense
Deposits ............................. 28,261 31,367 34,736 38,277 41,834
Other borrowings ..................... 16,622 20,047 23,661 27,256 30,866
Total interest expense ............... 44,883 51,414 58,397 65,533 72,700
Net interest income .................. $ 51,586 $ 50,420 $ 49,204 $ 46,995 $ 44,263
Change from base ..................... $ 2,382 $ 1,216 $ (2,209) $ (4,941)
% Change from base ................... 4.84% 2.47% (4.49)% (10.04)%
</TABLE>
<TABLE>
<CAPTION>
TABLE 16 - INTEREST RATE SENSITIVITY FOR 1998
Decrease in Rates Increase in Rates
----------------- -----------------
200 100 100 200
As of December 31, 1999 (dollars in thousands) Basis Points Basis Points BASE Basis Points Basis Points
<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>
Republic's interest sensitivity profile changed from 1998 to 1999 as a
result of the increase in longer term adjustable rate mortgage (ARM) loan
products. In a rising interest rate environment these longer term ARM loans
reduce net interest income, due to the fact that the rates during the initial
term on the five-, seven-, and ten-year products are fixed. Given a sustained
200 basis point downward shock to the interest rate yield curve used in the
simulation model, Republic's base net interest income would decrease by an
estimated 16.20% in 1998 compared to an increase of 9.84% for 1999. Given a 200
basis point rise in the yield curve Republic's base net interest income would
increase by an estimated 11.03% in 1998 compared to a decrease of 10.04% for
1999.
The interest rate sensitivity profile of Republic at any point in time will
be affected by a number of factors. These factors include the mix of interest
sensitive assets and liabilities as well as their relative repricing schedules.
The tables above may not be a precise measurement of the effect of changing
interest rates on Republic in the future.
<PAGE>
YEAR 2000
Republic undertook a project (the "Year 2000 Project") to identify and
assess the readiness of its computer systems, programs and other infrastructure
that could be affected by the Year 2000 issue and to remedy any problems
identified. Republic's Year 2000 Project also included an assessment of the Year
2000 readiness of key third parties on whom the Company's operations depend, as
well as customers Republic deemed to have material Year 2000 issues. Republic
also developed contingency plans permitting the Company to continue operations,
consistent with the highest quality standards, in the event Year 2000 problems
arose. Management believes that its Year 2000 Project proceeded successfully as
all operating systems performed well during the year change. While management
does not expect future problems resulting from the Year 2000 issue, it is
possible that other dates in the year 2000 may further affect computer software
or systems, or cause a Year 2000 problem relating to the Company's own systems
or to those of key third parties with whom Republic conducts business that could
adversely affect its financial condition.
Republic has incurred costs of approximately $760,000 attributable to year
2000 remediation and anticipates total costs and charges to be in an approximate
range of $1.2 to $1.5 million. A large proportion of the remaining budgeted
costs to be incurred are related to the Year 2000 employee retention program,
with the majority not being fully earned until the end of 2000. Actual expenses
could vary from management's estimates if unforeseen circumstances were to
arise.
Monitoring of computer date-sensitive issues will continue at least through
the first quarter of 2000. Corrective action will be taken if management
encounters any previously unidentified Year 2000 problems internally or in
interfacing with third parties, and the Company's contingency plans remain
available. Management has determined that if an unlikely business interruption
as a result of computer date-sensitive issues occurred, such an interruption
could be material to Republic's overall financial performance.
MARKET AND DIVIDEND INFORMATION
Republic's Class A common stock is traded on the Nasdaq National Market
System (NASDAQ) under the symbol "RBCAA". The following table sets forth the
high and low prices of the Class A common stock since July 21, 1998, the date
the Class A common stock began trading on NASDAQ.
1998
Quarter Ended High Low
- ------------------------------------------------------------------
September 30 $ 16.44 $ 12.63
December 31 14.13 11.88
1999
Quarter Ended High Low
- ------------------------------------------------------------------
March 31 $ 13.00 $ 11.00
June 30 12.00 10.63
September 30 11.63 9.00
December 31 9.94 8.31
There is no established public trading market for the Class B common stock,
and there was no established public trading market for the Class A common stock
prior to July 22, 1998. At February 25, 2000, the Class A common stock was held
by 825 shareholders of record, and the Class B common stock was held by 227
shareholders of record. Note 24 to Republic's Consolidated Financial Statements
provides the amount of quarterly cash dividends paid on the Class A and Class B
Common Stock for both 1999 and 1998. The Company currently intends to continue
its policy of paying quarterly cash dividends although there is no assurance
that such dividends will continue to be paid in the future. The payment of
dividends is subject to the discretion of the board of directors. The payment of
dividends in the future is dependent on future income, financial position,
capital requirements and other considerations. In addition, the payment of
dividends is subject to the restrictions described in note 13 to the Company's
consolidated financial statements.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
of Republic Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Republic
Bancorp, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income and comprehensive income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of Republic's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Republic Bancorp,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ending
December 31, 1999, in conformity with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Louisville, Kentucky
January 14, 2000
<PAGE>
<TABLE>
<CAPTION>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1999 and 1998 (dollars in thousands) 1999 1998
<S> <C> <C>
ASSETS:
Cash and cash equivalents:
Cash and due from banks $ 20,827 $ 37,446
Federal funds sold 46,700 2,500
----------- -----------
Total cash and cash equivalents 67,527 39,946
Securities available for sale 181,627 186,936
Securities to be held to maturity 32,931 29,985
Mortgage loans held for sale 7,408 38,167
Loans, less allowance for loan losses
of $7,862 (1999 and 1998) 1,031,512 870,031
Federal Home Loan Bank stock 15,054 14,036
Accrued interest receivable 9,162 8,825
Premises and equipment, net 18,986 15,870
Other assets 4,776 3,888
----------- -----------
TOTAL $ 1,368,983 $ 1,207,684
=========== ===========
LIABILITIES:
Deposits:
Non-interest bearing $ 84,256 $ 80,345
Interest bearing 716,653 666,802
Securities sold under agreements to repurchase
and other short-term borrowings 215,718 148,659
Other borrowed funds 231,383 190,222
Accrued interest payable 3,942 3,769
Guaranteed preferred beneficial interests in
Republic's subordinated debentures 6,352 6,402
Other liabilities 6,909 7,643
----------- -----------
Total liabilities 1,265,213 1,103,842
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 100,000 shares authorized
Series A 8.5% noncumulative convertible
Class A common stock, no par value, 30,000,000 shares authorized,
14,536,337 shares (1999) and 14,868,741 shares (1998) issued and
outstanding; Class B common stock, no par value, 5,000,000 shares
authorized, 2,142,149 shares (1999) and 2,304,928 shares (1998)
issued and outstanding 4,099 4,149
Additional paid-in capital 33,617 34,014
Retained earnings 73,600 65,469
Unearned employee stock ownership plan shares (3,620)
Accumulated other comprehensive income (loss) (3,926) 210
----------- -----------
Total stockholders' equity 103,770 103,842
----------- -----------
TOTAL $ 1,368,983 $ 1,207,684
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years Ended December 31, 1999, 1998 and 1997 (in thousands, except per share data)
1999 1998 1997
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $83,581 $77,919 $76,889
Securities available for sale - taxable 10,965 8,816 5,748
Securities to be held to maturity:
Taxable 1,295 4,035 7,249
Non-taxable 95 112 123
FHLB dividends 1,041 855 494
Other 180 930 691
------- ------- -------
Total interest income 97,157 92,667 91,194
------- ------- -------
INTEREST EXPENSE:
Deposits 32,686 34,221 38,940
Securities sold under agreements to
repurchase and short-term borrowings 5,656 4,869 4,533
Other borrowed funds 11,210 11,084 7,383
------- ------- -------
Total interest expense 49,552 50,174 50,856
------- ------- -------
NET INTEREST INCOME 47,605 42,493 40,338
PROVISION FOR LOAN LOSSES 1,806 3,110 7,251
------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 45,799 39,383 33,087
------- ------- -------
NON-INTEREST INCOME:
Service charges on deposit accounts 3,653 3,255 3,284
Electronic refund check fees 1,238 380 247
Other service charges and fees 489 441 414
Loan servicing income 455 598 734
Net gain on sale of mortgage loans 2,974 4,326 1,852
Net gain on sale of securities 184 1,139 81
Net gain on sale of deposits 4,116 7,527
Net gain on sale of Bankcard 3,660
Other 1,091 1,257 1,131
------- ------- -------
Total non-interest income 10,084 15,512 18,930
------- ------- -------
NON-INTEREST EXPENSE:
Salaries and employee benefits 20,661 16,968 15,444
Occupancy and equipment 7,632 7,423 8,562
Communication and transportation 1,716 1,703 1,796
Marketing and development 1,266 1,372 1,299
Supplies 940 1,066 1,013
Other 5,168 5,001 4,766
------- ------- -------
Total non-interest expense 37,383 33,533 32,880
------- ------- -------
INCOME BEFORE INCOME TAXES 18,500 21,362 19,137
INCOME TAXES 6,248 7,606 6,878
------- ------- -------
NET INCOME $12,252 $13,756 $12,259
======= ======= =======
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Change in unrealized gain (loss) on securities $(4,015) $ 1,004 $ 218
Reclassification of realized amount (121) (740) (53)
------- ------- -------
Net unrealized gain (loss) recognized in comprehensive
income (4,136) 264 165
------- ------- -------
COMPREHENSIVE INCOME $ 8,116 $14,020 $12,424
======= ======= =======
EARNINGS PER SHARE, BASIC
Class A $ .73 $ .87 $ .82
Class B .72 .86 .81
EARNINGS PER SHARE ASSUMING DILUTION
Class A .71 .83 .79
Class B .69 .82 .78
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997 (in thousands, except per share data)
Unearned Accumu-
Employee lated
Stock Other Total
Common Stock Additional Ownership Compre- Stock-
Preferred Stock Class A Class B Paid-In Retained Plan hensive holders'
Shares Amount Shares Shares Amount Capital Earnings Shares Income(Loss) Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 50 $ 5,000 12,104 2,340 $3,491 $ 6,817 $43,930 $ (219) $ 59,019
Exercise of Common Stock options 27 7 146 153
Redemption of preferred stock (10) (1,015) (203) (1,218)
Conversion of preferred stock into
Common Stock (40) (3,985) 398 80 115 3,870
Conversion of Class B Common to
Class A Common 2 (2)
Dividends declared:
Preferred ($8.50 per share) (425) (425)
Common: Class A ($ .11 per share) (1,335) (1,335)
Class B ($ .10 per share) (232) (232)
Net changes in unrealized appreciation
(depreciation) on securities available
for sale, net of tax 165 165
Net income 12,259 12,259
--- ------- ------ ------ ------ ------- ------- --------- ------- --------
BALANCE, December 31, 1997 12,531 2,418 $3,613 $10,833 $53,994 $ (54) $ 68,386
Exercise of Common Stock options 34 5 7 148 155
Issuance of Class A Common 2,000 484 23,097 23,581
Repurchase of Class A Common (52) (12) (100) (574) (686)
Acquisition of Refunds Now 230 55 (53) 30 32
Employee stock grant 3 1 40 41
Conversion of Class B Common to
Class A Common 348 (348)
Conversion of Capital Trust Preferred
to Class A Common 5 1 49 50
Dividends declared Common:
Class A ($ .11 per share) (1,501) (1,501)
Class B ($ .10 per share) (236) (236)
Net changes in unrealized appreciation
(depreciation) on securities available
for sale, net of tax 264 264
Net income 13,756 13,756
--- ------- ------ ------ ------ ------- ------- --------- ------- --------
BALANCE, December 31, 1998 14,869 2,305 $4,149 $34,014 $65,469 $ 210 $103,842
Exercise of Common Stock options 22 4 6 91 97
Repurchase of Class A Common (247) (57) (489) (2,167) (2,713)
Conversion of Class B Common to
Class A Common 167 (167)
Conversion of Capital Trust Preferred
to Class A Common 5 1 49 50
Purchase of 300,000 shares under the
Employee Stock Ownership Plan (300) $(3,873) (3,873)
Commitment of 19,612 shares to be
released under the Employee Stock
Ownership Plan 20 (48) 253 205
Dividends declared Common:
Class A ($ .11825 per share) (1,721) (1,721)
Class B ($ .10750 per share) (233) (233)
Net changes in unrealized appreciation
(depreciation) on securities available
for sale, net of tax (4,136) (4,136)
Net income 12,252 12,252
--- ------- ------ ------ ------ ------- ------- ------- ------- --------
BALANCE, December 31, 1999 14,536 2,142 $4,099 $33,617 $73,600 $(3,620) $(3,926) $103,770
=== ======= ====== ====== ====== ======= ======= ======= ======= ========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997 (in thousands)
1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 12,252 $ 13,756 $ 12,259
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of premises and equipment 3,608 3,313 4,683
Amortization and accretion of securities 341 331 606
FHLB stock dividends (1,018) (855) (456)
Provision for loan losses 1,806 3,110 7,251
Net gain on sale of deposits (4,116) (7,527)
Net gain on sale of Bankcard (3,660)
Net gain on sale of mortgage loans (2,974) (4,326) (1,852)
Net gain on sale of securities (184) (1,139) (81)
Proceeds from sale of mortgage loans held for sale 210,747 272,080 123,909
Origination of mortgage loans held for sale (177,014) (295,951) (124,403)
Employee stock grant 41
Employee Stock Ownership Plan expense 205
Changes in assets and liabilities:
Accrued interest receivable and other assets 3,273 595 899
Accrued interest payable and other liabilities (684) (1,623) 2,858
--------- --------- ---------
Net cash provided by (used in) operating activities 50,358 (14,784) 14,486
INVESTING ACTIVITIES:
Purchases of securities available for sale (89,042) (235,129) (69,355)
Purchases of securities to be held to maturity (61,354) (11,189)
Purchases of FHLB stock (5,057) (2,120)
Proceeds from maturities of securities to be held to maturity 58,544 68,827 86,746
Proceeds from maturities and paydowns of securities
available for sale 67,546 9,094
Proceeds from sales of securities available for sale 20,244 133,867 83,006
Proceeds from sale of Bankcard 26,590
Net increase in loans (165,653) (79,421) (66,654)
Purchases of premises and equipment (6,733) (7,394) (3,364)
Proceeds from sales of premises and equipment 9 985 3,416
Cash acquired in acquisition of Refunds Now 32
--------- --------- ---------
Net cash provided by (used in) investing activities (176,439) (114,196) 47,076
FINANCING ACTIVITIES:
Net increase in deposits 53,762 81,229 63,593
Sale of deposits (61,564) (107,609)
Net increase (decrease) in securities sold under agree-
ments to repurchase and other short-term borrowings 67,059 37,522 (70,497)
Payments on other borrowed funds (93,839) (336,453) (296,819)
Proceeds from other borrowed funds 135,000 402,270 314,250
Proceeds from issuance of Class A common stock 23,581
Repurchase of Class A common stock (2,713) (686)
Proceeds from issuance of guaranteed preferred beneficial
interests in Republic's subordinated debentures 6,452
Proceeds from common stock options exercised 97 155 153
Redemption of preferred stock (1,218)
Purchase of shares for Employee Stock Ownership Plan (3,873)
Cash dividends paid (1,831) (1,674) (1,992)
--------- --------- ---------
Net cash provided by (used in) financing activities 153,662 144,380 (93,687)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 27,581 15,400 (32,125)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 39,946 24,546 56,671
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 67,527 $ 39,946 $ 24,546
========= ========= =========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 49,379 $ 52,638 $ 50,266
Income taxes 5,949 8,379 6,095
Transfers from loans to other real estate owned 2,366 1,219 958
</TABLE>
See accompanying notes.
<PAGE>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999, 1998, AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BUSINESS - The consolidated financial
statements include the accounts of Republic Bancorp, Inc. (Parent Company)
and its wholly-owned subsidiaries; Republic Bank & Trust Company (Bank),
and its subsidiary Republic Financial Services (d/b/a Refunds Now),
Republic Capital Trust, Republic Mortgage Company and Republic Insurance
Agency, Inc. (collectively Republic). All significant intercompany
balances and transactions have been eliminated.
Republic operates 21 banking centers primarily in the retail banking
industry and conducts its operations predominately in metropolitan
Louisville and in Central Kentucky. During 1999, Republic began offering
services through an internet banking software application. Republic's
consolidated results of operations are dependent upon net interest income,
which is the difference between the interest income on interest-earning
assets and the interest expense on interest-bearing liabilities. Principal
interest-earning assets are securities and real estate mortgage,
commercial, and consumer loans. Interest-bearing liabilities consist of
interest-bearing deposit accounts and short-term and long-term borrowings.
Other sources of income include fees charged to customers for a variety of
banking services such as transaction deposit accounts, and trust services.
Republic also generates revenue from its mortgage banking activities,
which include the origination and sale of loans in the secondary market
and servicing loans for others, and through electronic tax return filing
services.
Republic's operating expenses consist primarily of salaries and employee
benefits, occupancy and equipment expenses, marketing and development,
communications and transportation costs and other general and
administrative expenses. Republic's results of operations are
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and
actions of regulatory agencies.
USE OF ESTIMATES - Financial statements prepared in conformity with
generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements, and the reported amounts of revenues
and expenses during the reporting periods. Estimates that are particularly
subject to change include the allowance for loan losses and fair value of
financial instruments. Actual results could differ from these estimates.
CASH FLOWS - Cash and cash equivalents includes cash, deposits with other
financial institutions under 90 days, and federal funds sold. Net cash
flows are reported for loan, deposit and other borrowing transactions.
SECURITIES - Securities to be held to maturity are those which Republic
has the positive intent and ability to hold to maturity and are reported
at cost, adjusted for premiums and discounts that are recognized in
interest income using the interest method over the period to maturity.
Securities available for sale, carried at fair value, consist of
securities not classified as trading securities nor as held to maturity
securities. Unrealized holding gains and losses, net of tax, on securities
available for sale are reported as a separate component of stockholders'
equity until realized. Gains and losses on the sale of available for sale
securities are determined using the specific-identification method.
Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
Declines in the fair value of individual securities below their cost that
are other than temporary result in write-downs of the individual
securities to their fair value. The related write-downs are included in
earnings as realized losses.
Federal Home Loan Bank stock is carried at cost.
MORTGAGE BANKING ACTIVITIES - Mortgage loans originated and intended for
sale in the secondary market are carried at the lower of aggregate cost or
market value. Republic controls its interest rate risk with respect to
mortgage loans held for sale and loan commitments expected to close by
entering into agreements to sell loans. The aggregate market value of
mortgage loans held for sale considers the sales prices of such
agreements. Republic also provides currently for any losses on uncovered
commitments to lend or sell.
Servicing rights are recognized as assets for purchased rights and for the
allocated value of retained servicing rights on loans sold. Servicing
rights are expensed in proportion to, and over the period of, estimated
net servicing revenues. Impairment is evaluated based on the fair value of
the rights, using groupings of the underlying loans as to interest rates
and then, secondarily, as to geographic and prepayment characteristics.
Any impairment of a grouping is reported as a valuation allowance.
Republic's loans sold in the secondary market have been primarily
servicing released. Accordingly, servicing rights have not had a material
impact on Republic's financial position or results of operations.
<PAGE>
Loan servicing income is recorded as principal payments are collected and
includes servicing fees from investors and certain charges collected from
borrowers, such as late payment fees. Costs of loan servicing are charged
to expense as incurred.
LOANS - Loans receivable that management has the intent and ability to
hold for the foreseeable future or until maturity or pay-off are reported
at their outstanding principal adjusted for any charge-offs, the allowance
for loan losses, and any deferred fees or costs on originated loans and
unamortized premiums or discounts on purchased loans.
Interest on loans is computed on the principal balance outstanding. Loan
origination fees and certain direct loan origination costs relating to
successful loan origination efforts are deferred and recognized over the
lives of the related loans as an adjustment to yield.
Generally, the accrual of interest on loans, including impaired loans, is
discontinued when it is determined that the collection of interest or
principal is doubtful, or when a default of interest or principal has
existed for 90 days or more, unless such loan is well secured and in the
process of collection. Interest received on non-accrual loans generally is
either applied against principal or reported as interest income, according
to management's judgment as to the collectibility of principal. When loans
are placed on non-accrual status, all unpaid accrued interest is reversed.
Such 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 generally are not placed on non-accrual status
but are reviewed periodically and charged off when deemed uncollectible.
Republic recognizes interest income on an impaired loan when earned,
unless the loan is on non-accrual status, in which case interest income is
recognized when received.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is an amount
that management believes will be adequate to absorb probable credit losses
on existing loans, based on evaluations of the collectibility of loans and
prior loan loss experience. The evaluations take into consideration such
factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current economic
conditions that may affect the borrowers' ability to pay. Although
management believes it uses the best information available to make
determinations with respect to Republic's allowance for loan losses,
future adjustments, which could be material, may be necessary if original
assumptions differ from actual performance.
A loan is defined as "impaired" when it is probable that a creditor will
be unable to collect all principal and interest due according to the
contractual terms of the loan agreement. Republic has defined its
population of impaired loans to be those commercial real estate and
commercial loans over $499,999 that management has classified as doubtful
(collection of all amounts due under the terms of the loan 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 determination that it is probable the amount will
not be collected.
Impairment of smaller balance, homogeneous loans (commercial real estate
and commercial loans less than $500,000, residential real estate,
consumer, home equity, and credit card loans) is measured on an aggregate
basis giving consideration to historical charge-off experience of the
related portfolios.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed over
the estimated useful lives of the related assets on the straight-line
method. Estimated lives are 25 to 31 1/2 years for buildings and
improvements, 3 to 5 years for furniture, fixtures and equipment and 3 to
9 years for leasehold improvements.
LONG LIVED ASSETS - Long lived assets are reviewed for impairment when
events indicate their carrying amount may not be recoverable from future
undiscounted cash flows. If impaired, the assets are recorded at
discounted amounts.
<PAGE>
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM
BORROWINGS - Substantially all repurchase agreement liabilities represent
amounts advanced by various customers. Securities are pledged to cover
most of these liabilities, not covered by federal deposit insurance.
Certain of these liabilities, which are not covered by federal deposit
insurance, are secured by private insurance purchased by Republic rather
than by a pledge of securities.
STOCK OPTION PLANS - Employee compensation expense under stock option
plans is reported if options are granted below market price at grant date.
Pro-forma disclosures of net income and earnings per share are shown using
the fair value method of SFAS No. 123 to measure expense for options
granted after 1994, using an option pricing model to estimate fair value.
INCOME TAXES - Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled.
As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
EMPLOYEE STOCK OWNERSHIP PLAN- The cost of shares held by the ESOP, but
not yet allocated to participants, is shown as a reduction of
stockholders' equity. Compensation expense is based on the market price of
shares as they are committed to be released to participant accounts.
Dividends on allocated ESOP shares reduce retained earnings; dividends on
unearned ESOP shares reduce debt and accrued interest.
FINANCIAL INSTRUMENTS - Financial instruments include off-balance sheet
credit instruments, such as commitments to make loans and standby letters
of credit, issued to meet customer financing needs. The face amount for
these items represents the exposure to loss, before considering customer
collateral or ability to repay. Such financial instruments are recorded
when they are funded.
EARNINGS PER SHARE - Earnings per share is based on income less preferred
stock dividends (and, in the case of Class B Common Stock, less the
dividend preference on Class A Common Stock) divided by the weighted
average number of shares outstanding during the period. Earnings per share
assuming dilution shows the effect of additional common shares issuable
under stock options, convertible preferred stock and guaranteed preferred
beneficial interests in Republic's subordinated debentures. All per share
amounts have been restated to reflect the stock splits occurring during
the periods presented.
COMPREHENSIVE INCOME - Comprehensive income consists of net income and
other comprehensive income. Other comprehensive income includes unrealized
gains and losses on securities available for sale which are also
recognized as separate components of equity.
SEGMENT INFORMATION - Segments are parts of a company evaluated by
management with separate financial information. Republic's internal
information is primarily reported and evaluated in two lines of business -
banking and mortgage banking.
ACQUISITION - During 1998, Republic acquired Refunds Now, Inc. for 230,000
shares of Class B Common Stock. Refunds Now(R) provides electronic tax
return filing and refund anticipation loan services through approximately
1,000 locations nationwide. The transaction was accounted for using the
pooling of interests method. As reflected in the consolidated statements
of stockholders' equity and cash flows, prior periods have not been
restated for the acquisition as the impact to those periods is not
material. As of and for the year ended 1998, Refunds Now had $507,000 in
total assets and net income of $169,000.
CURRENT ACCOUNTING ISSUES - Beginning January 1, 2001, a new accounting
standard will require all derivatives to be recorded at fair value. Unless
designated as hedges, changes in these fair values will be recorded in the
income statement. Fair value changes involving hedges will generally be
recorded by offsetting gains and losses on the hedge and on the hedged
item, even if the fair value of the hedged item is not otherwise recorded.
This is not expected to have a material effect, but the effect will depend
on derivative holdings when this standard applies.
RECLASSIFICATIONS - Certain amounts presented in prior periods have been
restated to conform with 1999 presentation.
<PAGE>
2. RESTRICTIONS ON CASH AND DUE FROM BANKS
Republic is required by the Federal Reserve Bank to maintain average
reserve balances. Cash and due from banks in the consolidated balance
sheet includes $5.8 million of reserve balances at December 31, 1999.
3. SECURITIES
<TABLE>
<CAPTION>
Securities available for sale:
Gross Gross
Amortized Unrealized Unrealized
As of December 31, 1999 (in thousands) Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government agencies $ 99,019 $ 3 $ (1,993) $ 97,029
Mortgage-backed securities 69,292 (2,952) 66,340
Corporate bonds 19,266 (1,008) 18,258
-------- -------- -------- --------
Total securities available for sale $187,577 $ 3 $ (5,953) $181,627
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
As of December 31, 1998 (in thousands) Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government agencies $123,520 $ 532 $ (76) $123,976
Mortgage-backed securities 47,771 185 (150) 47,806
Corporate bonds 15,326 (172) 15,154
-------- -------- -------- --------
Total securities available for sale $186,617 $ 717 $ (398) $186,936
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Securities to be held to maturity:
Gross Gross
Amortized Unrealized Unrealized
As of December 31, 1999 (in thousands) Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government agencies $ 25,353 $ $ (134) $ 25,219
Obligations of state and political
subdivisions 3,775 89 3,864
Mortgage-backed securities 3,803 (50) 3,753
-------- -------- -------- --------
Total securities to be held to maturity $ 32,931 $ 89 $ (184) $ 32,836
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
As of December 31, 1998 (in thousands) Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government agencies $ 25,422 $ 32 $ (111) $ 25,343
Obligations of state and political
subdivisions 4,077 159 4,236
Mortgage-backed securities 486 (26) 460
-------- -------- -------- --------
Total securities to be held to maturity $ 29,985 $ 191 $ (137) $ 30,039
======== ======== ======== ========
</TABLE>
<PAGE>
Securities having an amortized cost of $164.7 million and $168.1 million
and fair value of $160.6 million and $168.4 million at December 31, 1999
and 1998, respectively, were pledged to secure public deposits, securities
sold under agreements to repurchase and for other purposes, as required or
permitted by law. Gross gains of $185,000 and losses of $1,000 were
recognized in 1999 from proceeds of $20 million on sales of available for
sale securities. In 1998, gross gains of $1.1 million and losses of $2,000
were recognized from proceeds of $134 million on sales of available for
sale securities.
The amortized cost and fair value of securities, by contractual maturity,
are as follows:
<TABLE>
<CAPTION>
Securities to be Securities
held to maturity available for sale
Amortized Amortized
As of December 31, 1999 (in thousands) Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C>
Due in one year or less $ 6,525 $ 6,508 $ 24,029 $ 23,876
Due after one year through
five years 19,329 19,216 94,256 91,411
Due after five through ten years 824 909
Due after ten years 2,450 2,450
Mortgage-backed securities 3,803 3,753 69,292 66,340
-------- -------- -------- --------
Total $ 32,931 $ 32,836 $187,577 $181,627
======== ======== ======== ========
</TABLE>
4. LOANS
<TABLE>
<CAPTION>
As of December 31, (in thousands) 1999 1998
<S> <C> <C>
Residential real estate $ 636,012 $ 520,583
Commercial real estate 163,064 118,293
Real estate construction 63,928 47,396
Commercial 31,411 26,381
Consumer 39,435 56,728
Home equity 103,833 106,845
Other 2,973 3,146
---------- ----------
Total loans 1,040,656 879,372
Less:
Unearned interest income
and unamortized loan fees 1,282 1,479
Allowance for loan losses 7,862 7,862
---------- ----------
Loans, net $1,031,512 $ 870,031
========== ==========
</TABLE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
As of December 31, (in thousands) 1999 1998 1997
<S> <C> <C> <C>
Balance, beginning of year $ 7,862 $ 8,176 $ 6,241
Provision for loan losses charged to income 1,806 3,110 7,251
Charge-offs (2,398) (3,924) (5,859)
Recoveries 592 500 543
-------------- --------------- --------------
Balance, end of year $ 7,862 $ 7,862 $ 8,176
============== =============== ==============
</TABLE>
The level of charge-offs in 1997 exceeded losses incurred in subsequent
periods and were directly related to two unsecured credit programs
initiated in 1995. The net charge-offs related to loans arising under
these programs were $610,000, $1.9 million and $4.2 million in 1999, 1998
and 1997, and accounted for 34%, 57% and 71% of net charge offs in each of
those years. Originations of loans under these programs were significantly
reduced in 1997 and 1996, with no originations in 1998 and 1999.
<PAGE>
Information about Republic's investment in impaired loans is as follows:
<TABLE>
<CAPTION>
As of and for the Year Ended December 31, (in thousands) 1999 1998 1997
<S> <C> <C> <C>
Gross impaired loans which have allowances $ 1,043 $ 1,116 $ 1,640
Less: related allowances for loan losses 700 100 240
-------------- --------------- --------------
Net impaired loans with related allowances 343 1,016 1,400
Impaired loans with no related allowances 0 0 0
-------------- --------------- --------------
Total $ 343 $ 1,016 $ 1,400
============== =============== ==============
Average impaired loans outstanding $ 1,043 $ 1,116 $ 1,639
============== =============== ==============
Interest income recognized 92 100 93
Interest income received 92 100 93
Nonperforming loans were as follows:
Loans past due 90 days still on accrual 968 1,731 4,459
Nonaccrual loans 2,721 3,258 2,676
</TABLE>
Nonperforming loans includes impaired loans and smaller balance
homogeneous loans as defined in note 1.
Loans made to executive officers and directors of Republic and their
related interests in the ordinary course of business, subject to
substantially the same credit policies as other loans and current in their
terms, are as follows:
<TABLE>
<CAPTION>
Balance, Change in Balance,
Beginning Related Party New End
Period Of Period Status Loans Repayments Of Period
(in thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999 $ 3,520 $ (118) $ 4,167 $ (1,043) $ 6,526
============= ============ ============= ============= =============
</TABLE>
5. LOAN SERVICING
Republic was servicing loans for others (primarily FHLMC) totaling $199
million and $220 million at December 31, 1999 and 1998, respectively.
Servicing loans for others generally consists of collecting mortgage
payments, maintaining escrow accounts, disbursing payments to investors
and processing foreclosures.
6. PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
As of December 31, (in thousands) 1999 1998
<S> <C> <C>
Land $ 1,502 $ 1,502
Office buildings and improvements 11,348 9,458
Furniture, fixtures and equipment 20,666 18,322
Leasehold improvements 1,994 960
--------------- --------------
Total premises and equipment 35,510 30,242
Less accumulated depreciation and amortization 16,524 14,372
--------------- --------------
Net premises and equipment $ 18,986 $ 15,870
=============== ==============
</TABLE>
<PAGE>
7. DEPOSITS
Time deposits of $100,000 or more were approximately $92 million and $77
million at year-end 1999 and 1998.
At December 31, 1999, the scheduled maturities of time deposits of
$100,000 or more are as follows:
<TABLE>
<CAPTION>
Weighted
(dollars in thousands) Average Rate
<S> <C> <C>
Less than 1 year $ 61,440 5.55%
Over 1 year through 3 years 24,306 5.18
Over 3 years through 5 years 6,102 6.91
---------------
$ 91,848
</TABLE>
8. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT TERM
BORROWINGS
These borrowings consist of short-term excess funds from correspondent
banks, 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 or liabilities secured by insurance policies
purchased by Republic. Repurchase agreements secured by securities 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.
All securities underlying the agreements were under Republic's control.
Information concerning securities sold under agreements to repurchase and
liabilities secured by insurance policies at year end 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
As of December 31, (in thousands) 1999 1998
<S> <C> <C>
Average outstanding balance during the year $ 129,903 $ 115,280
Average interest rate during the year 4.35% 4.21%
Maximum month end balance during the year $ 217,143 $ 148,659
</TABLE>
Included in December 31, 1999 balances are $28 million from public funds
entities, which are expected to be withdrawn during the first quarter of
2000, and $102 million related to three major customer relationships.
9. OTHER BORROWED FUNDS
<TABLE>
<CAPTION>
As of December 31, (in thousands) 1999 1998
<S> <C> <C>
Federal Home Loan Bank convertible fixed rate advance (see comment below) $ 10,000 $ 50,000
Federal Home Loan Bank variable interest rate advances, with weighted
average interest rate of 6.42% at December 31, 1999, due through 2001 110,000 52,800
Federal Home Loan Bank fixed interest rate advances, with weighted average
interest rate of 5.61% at December 31, 1999, due through 2003 111,383 87,422
--------------- --------------
$ 231,383 $ 190,222
=============== ==============
</TABLE>
Republic has entered into a convertible fixed rate advance maturing in 9
years with the Federal Home Loan Bank (FHLB) totaling $10 million. The
advance is fixed for 2 years at 4.61%. 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
advance 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 total commitment. Republic has available collateral to
borrow an additional $102.6 million from the Federal Home Loan Bank.
Republic also has unsecured lines of credit totaling $40 million and
secured lines of credit of $100 million available through various
financial institutions.
Aggregate future principal payments on borrowed funds as of December 31,
1999 are as follows:
<TABLE>
<CAPTION>
Year (in thousands)
<S> <C>
2000 $ 51,099
2001 110,284
2002
2003 60,000
2004 and thereafter 10,000
---------
$ 231,383
=========
</TABLE>
<PAGE>
10. GUARANTEED PREFERRED BENEFICIAL INTERESTS
In February 1997, Republic Capital Trust (RCT), a trust subsidiary of
Republic Bancorp, Inc., completed the private placement of 64,520 shares
of cumulative trust preferred securities (Trust Preferred Securities) with
a liquidation preference of $100 per security. Each security can be
converted into ten 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
Trust 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.
The Trust 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, or 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. If distributions are deferred, Republic is prohibited from
paying dividends to its Class A and Class B Common stockholders.
11. INCOME TAXES
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31, (in thousands) 1999 1998 1997
<S> <C> <C> <C>
Current $ 5,692 $ 6,918 $ 7,587
Deferred expense (benefit) 556 688 (709)
--------------- -------------- --------------
Total $ 6,248 $ 7,606 $ 6,878
=============== ============== ==============
</TABLE>
The provision for income taxes differs from the amount computed at the
statutory rate as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
Increase (decrease) resulting from:
Tax-exempt interest income (0.2) (0.1) (0.3)
Other (1.0) 0.7 1.2
---- ---- ----
Effective rate 33.8% 35.6% 35.9%
==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, (in thousands) 1999 1998
<S> <C> <C>
Deferred tax assets:
Depreciation $ 691 $ 511
Allowance for loan losses 1,829 1,802
Unrealized securities losses 2,023
-------------- --------------
Total deferred tax assets 4,543 2,313
-------------- --------------
Deferred tax liabilities:
FHLB dividends 1,276 920
Unrealized securities gains 197
Loan fees 210
Mortgage servicing 182
Other 491 476
-------------- --------------
Total deferred tax liabilities 2,159 1,593
-------------- --------------
Net deferred tax asset, included in other assets $ 2,384 $ 720
============== ==============
</TABLE>
<PAGE>
12. EARNINGS PER SHARE
A reconciliation of the combined Class A and B Common Stock numerators and
denominators of the earnings per share and earnings per share assuming
dilution computations is presented below.
Class A and B shares participate equally in undistributed earnings. The
difference in earnings per share between the two classes of common stock
results solely from the 10% per share dividend premium paid to Class A
Common Stock over that paid to Class B Common Stock as discussed in Note
13. The aggregate dividend premium paid to Class A Common Stock for 1999,
1998 and 1997 was $156,000, $136,000 and $121,000, or approximately one
cent on basic earnings per share.
<TABLE>
<CAPTION>
Years Ended December 31, (in thousands) 1999 1998 1997
<S> <C> <C> <C>
Earnings Per Share
Net Income $ 12,252 $ 13,756 $ 12,259
Less: Dividends declared on preferred stock (425)
--------------- -------------- --------------
Net Income available to common shares
outstanding $ 12,252 $ 13,756 $ 11,834
=============== ============== ==============
Weighted average shares outstanding 16,769 15,886 14,450
=============== ============== ==============
Earnings Per Share, Basic
Class A $ .73 $ .87 $ .82
Class B .72 .86 .81
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, (in thousands) 1999 1998 1997
<S> <C> <C> <C>
Earnings Per Share Assuming Dilution
Net Income $ 12,252 $ 13,756 $ 12,259
Add: Interest expense, net of tax benefit,
on assumed conversion of guaranteed
preferred beneficial interests in
Republic's subordinated debentures 354 356 320
--------------- -------------- --------------
Net Income available to common shareholder
assuming conversion $ 12,606 $ 14,112 $ 12,579
=============== ============== ==============
Earnings Per Share, Diluted
Class A $ .71 $ .83 $ .79
Class B .69 .82 .78
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, (in thousands) 1999 1998 1997
<S> <C> <C> <C>
Weighted average shares outstanding 16,769 15,886 14,450
Add dilutive effects of assumed
conversion and exercise:
Convertible preferred stock 600
Convertible guaranteed preferred
beneficial interest in Republic's
subordinated debentures 635 645 564
Stock options 496 498 320
--------------- -------------- --------------
Weighted average shares and dilutive
potential shares outstanding 17,900 17,029 15,934
=============== ============== ==============
</TABLE>
Stock options for 238,000 shares of Class A Common Stock were excluded
from the 1999 earnings per share assuming dilution because their impact
was antidilutive.
The difference in earnings per share between the two classes of common
stock result solely from the dividend premium paid to Class A over Class B
Common Stock.
<PAGE>
13. STOCKHOLDERS' EQUITY
COMMON STOCK - The Class A shares are entitled to cash dividends equal to
110% of the cash dividend paid per share on the Class B Common Stock.
Class A shares have one vote per share and Class B shares have ten votes
per share. Class B Common Stock may be converted, at the option of the
holder, to Class A stock on a share-for-share basis. The Class A Common
Stock is not convertible into any other class of Republic's capital stock.
On June 30, 1998, the shareholders approved an amendment to Republic's
Articles of Incorporation to increase the authorized Class A Common Stock
to 30,000,000 shares and the authorized Class B Common Stock to 5,000,000
shares. Concurrently, the shareholders approved a 2-for-1 stock split
affecting both classes of Common Stock. All per share amounts have been
retroactively restated to reflect the split.
On July 21, 1998, Republic issued 2 million shares of Class A Common Stock
in an initial public offering at $13.00 per share.
PREFERRED STOCK - On December 31, 1997, Republic redeemed the $5 million
outstanding Series A Convertible Preferred stock. At the option of
shareholder, each security was either convertible into 10 shares of Class
A Common Stock and 2 shares of Class B Common Stock, or redeemable in cash
for the initial offering price of $100 per share plus a 20% premium.
DIVIDEND LIMITATIONS - Banking regulations limit the amount of dividends
that may be paid to the Parent Company 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 current year's net
profits, as defined, combined with the retained net profits of the
preceding two years, less any dividends declared during those periods. At
December 31, 1999, the Bank had $23 million of retained earnings available
for such purposes.
REGULATORY CAPITAL REQUIREMENTS - The Parent Company and the Bank are
subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could have a direct material effect on
Republic's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Parent Company and
the Bank must meet specific capital guidelines that involve quantitative
measures of the bank's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The capital
amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Parent Company and the Bank to maintain minimum amounts and
ratios (set forth in the table below) of Total and Tier I capital (as
defined in the regulations) to risk-weighted assets (as defined), and of
Tier I capital (as defined) to average assets (as defined). Management
believes, as of December 31, 1999, that the Parent Company and the Bank
meet all capital adequacy requirements to which it is subject.
The most recent notification from the FDIC categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized the Bank must maintain minimum Total
Risk-Based, Tier I Risk-Based, and Tier I Leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the Bank's category.
<PAGE>
<TABLE>
<CAPTION>
Minimum
Minimum Requirement
Requirement To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
----------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999
Total Risk Based Capital (to Risk Weighted Assets)
Consolidated $ 121,892 14.28% $ 68,285 8% $ 85,356 10%
Bank only 117,665 13.79 68,281 8 85,351 10
Tier I Capital (to Risk Weighted Assets)
Consolidated 114,030 13.36 34,142 4 51,213 6
Bank only 109,803 12.86 34,140 4 51,211 6
Tier I Leverage Capital (to Average Assets)
Consolidated 114,030 8.61 49,804 4 62,254 5
Bank only 109,803 8.29 49,799 4 62,249 5
As of December 31, 1998
Total Risk Based Capital (to Risk Weighted Assets)
Consolidated $ 117,878 15.68% $ 60,146 8% $ 75,192 10%
Bank only 117,528 15.63 60,144 8 75,181 10
Tier I Capital (to Risk Weighted Assets)
Consolidated 110,016 14.63 30,073 4 45,109 6
Bank only 109,666 14.59 30,072 4 45,108 6
Tier I Leverage Capital (to Average Assets)
Consolidated 110,016 9.29 47,374 4 59,217 5
Bank only 109,666 9.26 47,368 4 59,211 5
</TABLE>
14. STOCK OPTION PLAN
Under a stock option plan, certain key employees and directors are granted
options to purchase shares of Republic's common stock at fair value at the
date of the grant. Options granted become fully exercisable at the end of
two to six years of continued employment and must be exercised within one
year.
A summary of Republic's stock option activity, and related information for
the years ended December 31 follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------- --------------------------------------------------
Options Weighted Options Weighted Options Weighted Options Weighted
Class A Average Class B Average Class A Average Class B Average
Shares Exercise Shares Exercise Shares Exercise Shares Exercise
Price Price Price Price
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding
beginning of year 1,217,500 $ 7.03 52,500 $ 3.83 993,000 $ 5.36 57,000 $ 3.81
Granted 7,000 10.63 281,000 12.52
Exercised (22,500) 3.61 (4,500) 3.61 (32,500) 4.34 (4,500) 3.61
Forfeited (76,000) 7.52 (24,000) 5.97
--------- --------- ---------
Outstanding
year end 1,126,000 7.08 48,000 3.84 1,217,500 7.03 52,500 3.83
========= ========= ========= =========
Exercisable
(vested) end
of year -- -- -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1997
---------------------------------------------------
Options Weighted Options Weighted
Class A Average Class B Average
Shares Exercise Shares Exercise
Price Price
<S> <C> <C> <C> <C>
Outstanding
beginning of year 937,000 $ 5.16 68,000 $ 3.73
Granted 227,000 6.00
Exercised (27,000) 5.54 (1,000) 3.61
Forfeited (144,000) 5.04 (10,000) 3.28
--------- ---------
Outstanding
year end 993,000 5.36 57,000 3.81
========= =========
Exercisable
(vested) end
of year -- --
</TABLE>
Options outstanding at year-end 1999 were as follows.
<TABLE>
<CAPTION>
Outstanding
Class A Class B
--------------------------- ----------------------------
Weighted Weighted
Average Average
Remaining Remaining
Contractual Contractual
Number Life Number Life
<S> <C> <C> <C> <C>
Range of Exercise Prices
$3.28 - $5.97 681,000 2.38 48,000 1.63
$6.00 - $13.00 445,000 4.46
--------- ------------- --------- -------------
Outstanding 1,126,000 3.21 48,000 1.63
========= ============= ========= =============
</TABLE>
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if Republic had
accounted for its employee stock options under the fair value method of
that Statement. The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model. The weighted average
assumptions for options granted during the year and the resulting
estimated weighted average fair values per share used in computing pro
forma disclosures are as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
<S> <C> <C> <C>
Assumptions:
Risk-free interest rate 5.08% 5.53% 6.25%
Expected dividend yield 1.03 .89 1.84
Expected life (years) 6.00 5.94 5.78
Expected common stock
market price volatility 17 13 13
Estimated fair value per share $ 2.78 $ 3.21 $ 1.38
</TABLE>
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period on an
accelerated basis. Republic's pro forma information follows (in thousands
except for earnings per share information):
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
<S> <C> <C> <C>
Pro forma net income $ 11,874 $ 13,461 $ 12,058
Pro forma earnings per share
Class A .71 .85 .81
Class B .70 .84 .80
Pro forma earnings per share
assuming dilution
Class A .69 .81 .79
Class B .68 .80 .78
</TABLE>
Future pro forma net income will be negatively impacted should Republic
choose to grant additional options.
15. EMPLOYEE BENEFIT PLANS
Republic maintains a 401(k) plan for full-time employees who have been
employed for 1,000 hours in a plan year and have reached the age of 21.
Participants in the plan may elect to contribute from 1% to 15% of their
annual compensation. Republic matches 50% of participant contributions up
to 5% of each participant's annual compensation. Republic's contribution
may increase if certain operating ratios are achieved. Republic's matching
contributions were $446,000, $372,000, and $313,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
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 are 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 1999, 19,612 shares of stock were allocated, resulting in ESOP
compensation expense of approximately $205,000. As of December 31, 1999,
280,388 shares were unallocated. The fair value of the unallocated shares
was approximately $2.4 million.
The cost of shares issued to the employee stock ownership plan but not yet
committed to be released 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 be paid in capital.
<PAGE>
16. LEASES AND TRANSACTIONS WITH AFFILIATES
Republic leases office facilities from Republic's Chairman and from
partnerships in which Republic's Chairman and Chief Executive Officer are
partners under operating leases. Rent expense for the years ended December
31, 1999, 1998 and 1997 under these leases was $1,320,000, $1,251,000 and
$1,064,000, respectively. Total rent expense on all operating leases was
$1,747,000, $1,563,000 and $1,533,000, for the years ended December 31,
1999, 1998 and 1997, respectively. The total minimum lease commitments
under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
December 31, 1999
Year Affiliate Other Total
(in thousands)
<S> <C> <C> <C>
2000 $ 1,367 $ 485 $ 1,852
2001 1,147 429 1,576
2002 522 423 945
2003 355 393 748
Thereafter 207 1,510 1,717
--------- --------- ---------
$ 3,598 $ 3,240 $ 6,838
========= ========= =========
</TABLE>
Republic made payments to companies owned by directors of the Bank for the
construction of branches totaling $245,000 for the year ended December 31,
1997.
A director of the Bank is a partner in a law firm. Fees paid by Republic
to this firm totaled $155,000, $207,000, and $88,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
Banker's Insurance Agency (BIA), a company beneficially owned by
Republic's chairman and CEO, sells title insurance to most of the
company's mortgage borrowers. Under an agreement between BIA and Republic,
Republic personnel perform certain functions for issuance of the policies.
BIA recorded title insurance revenues of $1.1 million, $1.0 million and
$496,000 from Republic loan clients in 1999, 1998 and 1997, respectively.
BIA paid Republic $61,000, $27,000 and $27,000 for services performed by
Republic employees during the same periods.
17. SALE OF DEPOSITS AND BANKING CENTERS
During 1997, Republic entered into agreements to sell deposits totaling
$180 million and fixed assets of $3.7 million associated with its Western
Kentucky banking centers. Substantially all loans originated by these
banking centers were retained by Republic at the time of sale. Sales of
four of the five banking centers were finalized during 1997, resulting in
a pretax gain of $7.5 million. The sale of the remaining banking center
was finalized during January 1998 for a pretax gain of $4.1 million.
18. OFF-BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES
Republic is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments primarily include commitments to
extend credit and standby letters of credit. The contract or notional
amounts of these instruments reflect the extent of involvement Republic
has in particular classes of financial instruments. Creditworthiness for
all instruments is evaluated on a case-by-case basis in accordance with
Republic's credit policies. Collateral, if deemed necessary, is based on
management's credit evaluation of the counterparty and may include
business assets of commercial borrowers as well as personal property and
real estate of individual borrowers or guarantors.
Republic extends binding commitments to prospective customers. Such
commitments assure the borrower of financing for a specified period of
time at a specified rate. The risk to Republic under such loan commitments
is limited by the terms of the contract. For example, Republic may not be
obligated to advance funds if the customer's financial condition
deteriorates or if the customer fails to meet specific covenants. An
approved, but undrawn, loan commitment represents a potential credit risk
once the funds are advanced to the customer, a liquidity risk since the
customer may demand immediate cash that would require a funding source,
and an interest rate risk since interest rates may rise above the rate
committed to the customer. Republic's current liquidity position continues
to meet its need for funds. In addition, since a portion of these loan
commitments normally expire unused, the total amount of outstanding
commitments at any point in time will not require a funding source. As of
December 31, 1999, Republic had outstanding loan commitments totaling $143
million which includes unused home equity lines of credit totaling $93
million. These commitments are substantially all at variable rates.
At December 31, 1999, Republic's mortgage banking activities included
commitments to extend credit, primarily representing fixed rate mortgage
loans, totaling $20 million. Of commitments to originate loans, borrowers
with commitments totaling $7 million have elected to wait until closing to
lock the rate on the loan. Republic has also entered into forward
commitments to deliver loans into the secondary market of $13 million at
December 31, 1999.
<PAGE>
Standby letters of credit are conditional commitments issued by Republic
to guarantee the performance of a customer to a third party. The terms and
risk of loss involved in issuing standby letters of credit are similar to
those involved in issuing loan commitments and extending credit.
Commitments outstanding under standby letters of credit totaled $3.9
million for December 31, 1999 and $2.0 million for December 31, 1998.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by Republic using
available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts Republic
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------------- ---------------------------
(in thousands)
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 67,527 $ 67,527 $ 39,946 $ 39,946
Securities available for sale 181,627 181,627 186,936 186,936
Securities to be held to maturity 32,931 32,836 29,985 30,039
Mortgage loans held for sale 7,408 7,462 38,167 38,525
Loans, net 1,031,512 1,025,216 870,031 874,253
Federal Home Loan Bank stock 15,054 15,054 14,036 14,036
Liabilities:
Deposits:
Certificate of deposit and individual
retirement accounts $ 457,272 $ 459,575 $ 439,529 $ 442,962
Non interest-bearing accounts 84,256 84,256 80,345 80,345
Transaction accounts 259,381 259,381 227,273 227,279
Securities sold under agreements to
repurchase and other short-term
borrowings 215,718 215,738 148,659 148,659
Other borrowed funds 231,383 227,737 190,222 190,608
Guaranteed preferred beneficial interests
in Republic's subordinated debentures 6,352 6,352 6,402 6,402
</TABLE>
CASH AND CASH EQUIVALENTS - The carrying amount is a reasonable estimate
of fair value.
SECURITIES AVAILABLE FOR SALE, SECURITIES TO BE HELD TO MATURITY AND
FEDERAL HOME LOAN BANK STOCK - Fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities. For Federal
Home Loan Bank stock, the carrying amount is a reasonable estimate of fair
value.
LOANS - The fair value is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
MORTGAGE LOANS HELD FOR SALE - Estimated fair value is defined as the
current quoted secondary market price for such loans without regard to
Republic's other commitments to make and sell loans.
DEPOSITS - The fair value of demand deposits, savings accounts and certain
money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar
remaining maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM
BORROWINGS - The carrying amount is a reasonable estimate of fair value.
GUARANTEED PREFERRED BENEFICIAL INTERESTS - The fair value is estimated
based on the estimated present value of future cash flows using the
current rates at which similar financings with the same remaining
maturities could be obtained.
<PAGE>
OTHER BORROWED FUNDS - The fair value is estimated based on the estimated
present value of future cash outflows using the current rates at which
similar loans with the same remaining maturities could be obtained.
COMMITMENTS TO EXTEND CREDIT - The fair value of commitments to extend
credit is based upon the difference between the interest rate at which
Republic is committed to make the loans and the current rates at which
similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities, adjusted for the estimated volume of
loan commitments actually expected to close. The fair value of such
commitments is not material.
COMMITMENTS TO SELL LOANS - The fair value of commitments to sell loans is
based upon the difference between the interest rates at which Republic is
committed to sell the loans and the current quoted secondary market price
for similar loans. The fair value of such commitments is not material.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1999 and 1998.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
that date and, therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
20. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
BALANCE SHEETS
As of December 31, (in thousands) 1999 1998
<S> <C> <C>
Assets:
Cash and cash equivalents $ 1,517 $ 1,238
Due from subsidiaries 4,293 1,493
Investment in subsidiaries 106,219 110,217
Other 46 19
-------------- --------------
Total assets $ 112,075 $ 112,967
============== ==============
Liabilities:
Long-term debt $ 6,652 $ 6,702
Other 1,653 2,423
-------------- --------------
Total liabilities 8,305 9,125
-------------- --------------
Stockholders' equity:
Common stock 4,099 4,149
Additional paid-in capital 33,617 34,014
Retained earnings 73,600 65,469
Unearned employees stock ownership plan shares (3,620)
Accumulated other comprehensive income (loss) (3,926) 210
--------------- --------------
Total stockholders' equity 103,770 103,842
-------------- --------------
Total $ 112,075 $ 112,967
============== ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Years Ended December 31, (in thousands) 1999 1998 1997
<S> <C> <C> <C>
Income:
Dividends from subsidiary $ 8,699 $ 2,826 $ 4,446
Interest 281 24 38
-------------- -------------- --------------
Total income 8,980 2,850 4,484
-------------- -------------- --------------
Expenses:
Interest expense 567 574 590
Other expense 165 73 67
-------------- -------------- --------------
Total expenses 732 647 657
-------------- -------------- --------------
Income before income taxes 8,248 2,203 3,827
Income tax benefit 220 222 283
-------------- -------------- --------------
Income before equity in undistributed
net income of subsidiaries 8,468 2,425 4,110
Equity in undistributed net income of subsidiaries 3,784 11,331 8,149
-------------- -------------- --------------
Net income $ 12,252 $ 13,756 $ 12,259
============== ============== ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Years Ended December 31, (in thousands) 1999 1998 1997
<S> <C> <C> <C>
Operating activities:
Net income $ 12,252 $ 13,756 $ 12,259
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed net income of subsidiaries (3,784) (11,331) (8,149)
Change in due from subsidiary (2,800) 727 (1,678)
Change in other assets (27) 1 (38)
Change in other liabilities (893) (609) 1,480
-------------- -------------- --------------
Net cash provided by operating activities 4,748 2,544 3,874
-------------- -------------- --------------
Investment activities:
Dividends on unallocated ESOP shares (22)
Purchase of common stock of subsidiary bank (23,278) (6,775)
Proceeds from maturities of repurchase agreements 889
-------------- -------------- --------------
Net cash used in investing activities (22) (23,278) (5,886)
-------------- -------------- --------------
Financing activities:
Dividends paid (1,831) (1,674) (1,992)
Proceeds from stock options exercised 97 155 153
Proceeds from issuance of guaranteed preferred beneficial
interests in Republic's subordinated debentures 6,752
Proceeds from issuance of Class A common stock 23,581
Repurchase of Class A common stock (2,713) (686)
Payments on long-term debt (1,638)
Redemption of preferred stock (1,218)
-------------- -------------- --------------
Net cash provided by (used in) financing activities (4,447) 21,376 2,057
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents 279 642 45
Cash and cash equivalents, beginning of year 1,238 596 551
-------------- -------------- --------------
Cash and cash equivalents, end of year $ 1,517 $ 1,238 $ 596
============== ============== ==============
</TABLE>
<PAGE>
21. 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>
1999
Mortgage Consolidated
Banking Banking Totals
(in thousands)
<S> <C> <C> <C>
Net interest income $ 47,285 $ 320 $ 47,605
Provision for loan loss 1,806 1,806
Net gain on sale of loans 2,974 2,974
Other revenues 7,110 7,110
Income tax expense 5,861 387 6,248
Segment profit 11,501 751 12,252
Segment assets 1,358,679 10,304 1,368,983
</TABLE>
<TABLE>
<CAPTION>
1998
Mortgage Consolidated
Banking Banking Totals
(in thousands)
<S> <C> <C> <C>
Net interest income $ 42,126 $ 367 $ 42,493
Provision for loan loss 3,110 3,110
Net gain on sale of loans 4,326 4,326
Other revenues 11,186 11,186
Income tax expense 6,758 848 7,606
Segment profit 12,111 1,645 13,756
Segment assets 1,168,562 39,122 1,207,684
</TABLE>
<TABLE>
<CAPTION>
1997
Mortgage Consolidated
Banking Banking Totals
(in thousands)
<S> <C> <C> <C>
Net interest income $ 40,114 $ 224 $ 40,338
Provision for loan loss 7,251 7,251
Net gain on sale of loans 1,852 1,852
Other revenues 17,078 17,078
Income tax expense 6,470 408 6,878
Segment profit 11,466 793 12,259
Segment assets 1,044,396 10,554 1,054,950
</TABLE>
<PAGE>
22. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
Presented below is a summary of the consolidated quarterly financial data
for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Fourth Third Second First
(dollars in thousands) Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1999:
Interest income $25,724 $24,192 $23,386 $23,855
Net interest income 12,233 11,626 11,603 12,143
Provision for loan losses 329 204 419 854
Income before income taxes 4,746 4,475 4,211 5,068
Net income 3,113 3,007 2,768 3,364
Earnings per share:
Class A Common .19 .18 .17 .20
Class B Common .18 .18 .16 .20
Earnings per share assuming dilution:
Class A Common .18 .17 .16 .19
Class B Common .18 .17 .16 .19
Weighted average common shares outstanding:
Basic Common 16,675 16,708 16,764 16,934
Diluted Common 17,696 17,814 17,925 18,137
Cash Dividends declared
Class A Common .03575 .0275 .0275 .0275
Class B Common .03250 .0250 .0250 .0250
1998:
Interest income $23,336 $23,517 $23,029 $22,785
Net interest income 11,096 10,710 10,317 10,370
Provision for loan losses 1,423 303 741 643
Income before income taxes 4,334 4,409 4,054 8,565
Net income 2,830 2,800 2,602 5,524
Earnings per share:
Class A Common 0.17 0.17 0.17 0.37
Class B Common 0.16 0.17 0.17 0.37
Earnings per share assuming dilution:
Class A Common 0.16 0.16 0.17 0.35
Class B Common 0.16 0.16 0.17 0.35
Weighted average common shares outstanding:
Basic Common 17,116 16,480 14,959 14,958
Diluted Common 18,382 17,751 15,873 15,898
Cash Dividends declared
Class A Common .0275 .0275 .0275 .0275
Class B Common .0250 .0250 .0250 .0250
</TABLE>
EXHIBIT 21 Subsidiaries of Republic Bancorp, Inc
Subsidiaries of Republic Bancorp, Inc.*
Name of Subsidiary State in Which Organized
Republic Bank & Trust Company Kentucky
Republic Capital Trust Delaware
Subsidiaries of Republic Bank & Trust Company
Republic Finacial Services d/b/a Refunds Now Inc Kentucky
*Certain subsidiaries are not listed since, considered in the aggregate as a
single subsidiary, they would not constitute a significant subsidiary at
December 31, 1999.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Form S-8 Registration
Statement No. 333-914511 of Republic Bancorp, Inc., of our report dated January
14, 2000 on the consolidated financial statements of Republic Bancorp, Inc. as
of December 31, 1999 and 1998 and for each of the three years in the period
ended December 31, 1999 as included in the registrant's annual report on Form
10-K.
Crowe, Chizek and Company LLP
Louisville, Kentucky
March 28, 2000
<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-K.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<EXCHANGE-RATE> 1.000 1.000
<CASH> 20,827 37,446
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 46,700 2,500
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 181,627 186,936
<INVESTMENTS-CARRYING> 32,931 29,985
<INVESTMENTS-MARKET> 32,836 30,039
<LOANS> 1,031,512 870,031
<ALLOWANCE> 7,862 7,862
<TOTAL-ASSETS> 1,368,983 1,207,684
<DEPOSITS> 800,909 747,147
<SHORT-TERM> 215,718 148,659
<LIABILITIES-OTHER> 17,203 17,814
<LONG-TERM> 231,383 190,222
0 0
0 0
<COMMON> 4,099 4,149
<OTHER-SE> 99,671 99,693
<TOTAL-LIABILITIES-AND-EQUITY> 1,368,983 1,207,684
<INTEREST-LOAN> 83,581 77,919
<INTEREST-INVEST> 13,396 13,818
<INTEREST-OTHER> 180 930
<INTEREST-TOTAL> 97,157 92,667
<INTEREST-DEPOSIT> 32,686 34,221
<INTEREST-EXPENSE> 49,552 50,174
<INTEREST-INCOME-NET> 47,605 42,493
<LOAN-LOSSES> 1,806 3,110
<SECURITIES-GAINS> 184 1,139
<EXPENSE-OTHER> 5,168 5,001
<INCOME-PRETAX> 18,500 21,362
<INCOME-PRE-EXTRAORDINARY> 12,252 13,756
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 12,252 13,756
<EPS-BASIC> .73 .87
<EPS-DILUTED> .71 .83
<YIELD-ACTUAL> 3.96 3.84
<LOANS-NON> 2,721 3,258
<LOANS-PAST> 968 1,731
<LOANS-TROUBLED> 1,043 1,116
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 7,862 8,176
<CHARGE-OFFS> 2,398 3,924
<RECOVERIES> 592 500
<ALLOWANCE-CLOSE> 7,862 7,862
<ALLOWANCE-DOMESTIC> 7,862 7,862
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
