UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 0-24649
REPUBLIC BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-0862051
(State of other jurisdiction or (I.R.S. Employer Identification No.)
incorporation or organization)
601 West Market Street, Louisville, Kentucky 40202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 584-3600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
The number of shares outstanding of the issuer's class of common stock as of the
latest practicable date: 14,521,431 shares of Class A Common Stock and 2,140,633
shares of Class B Common Stock as of May 5, 2000.
The Exhibit index is on page 34. This filing contains 35 pages (including this
facing sheet).
<PAGE>
REPUBLIC BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements 4-17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18-30
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 30
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 2. Changes in Securities 31
Item 6. Exhibits and Reports on Form 8-K 31
Signatures 32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Republic Bancorp, Inc.
Louisville, Kentucky
We have reviewed the consolidated balance sheet of Republic Bancorp, Inc. as of
March 31, 2000 and the related consolidated statements of income and
comprehensive income and cash flows for the year-to-date periods ended March 31,
2000 and 1999 and the consolidated statement of changes in stockholders' equity
for the year-to-date period ended March 31, 2000. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Louisville, Kentucky
May 11, 2000
<PAGE>
PART I
ITEM 1
REPUBLIC BANCORP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
<S> <C> <C>
ASSETS:
Cash and due from banks $ 28,043 $ 20,827
Federal funds sold and securities
purchased under agreements to resell 3,000 46,700
Securities available for sale 162,312 181,627
Securities to be held to maturity 93,240 32,931
Mortgage loans held for sale 6,438 7,408
Loans, less allowance for loan losses
of $7,862 (2000 and 1999) 1,066,728 1,031,512
Federal Home Loan Bank stock 15,319 15,054
Accrued interest receivable 9,252 9,162
Premises and equipment, net 19,073 18,986
Other assets 6,454 4,776
----------- -----------
TOTAL $ 1,409,859 $ 1,368,983
=========== ===========
LIABILITIES:
Deposits:
Non-interest bearing $ 109,347 $ 84,256
Interest bearing 722,799 716,653
Securities sold under agreements to repurchase
and other short-term borrowings 216,728 215,718
Other borrowed funds 233,814 231,383
Accrued interest payable 4,223 3,942
Guaranteed preferred beneficial interests in
Company's subordinated debentures 6,352 6,352
Other liabilities 10,597 6,909
----------- -----------
Total liabilities 1,303,860 1,265,213
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A and Class B Common stock, no par value 4,093 4,099
Additional paid-in capital 33,551 33,617
Retained earnings 76,526 73,600
Unearned Employee Stock Ownership Plan shares (3,548) (3,620)
Accumulated other comprehensive income (loss) (4,623) (3,926)
----------- -----------
Total stockholders' equity 105,999 103,770
----------- -----------
TOTAL $ 1,409,859 $ 1,368,983
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
REPUBLIC BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND 1999(in thousands, except per share data)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
INTEREST INCOME:
Loans, including fees $ 24,807 $ 20,511
Securities available for sale 2,617 2,707
Securities to be held to maturity:
Taxable 1,171 332
Non-taxable 21 23
FHLB dividends 263 250
Other 203 32
-------- --------
Total interest income 29,082 23,855
-------- --------
INTEREST EXPENSE:
Deposits 8,550 8,063
Short-term borrowings 2,813 1,245
Long-term debt 3,539 2,404
-------- --------
Total interest expense 14,902 11,712
-------- --------
NET INTEREST INCOME 14,180 12,143
PROVISION FOR LOAN LOSSES 535 854
-------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 13,645 11,289
-------- --------
NON-INTEREST INCOME:
Service charges on deposit accounts 934 848
Electronic refund check fees 955 861
Other service charges and fees 82 143
Loan servicing income 97 118
Net gain on sale of loans 201 1,397
Net gain(loss) on sale of securities (161) 130
Other 315 171
-------- --------
Total non-interest income 2,423 3,668
-------- --------
NON-INTEREST EXPENSE:
Salaries and employee benefits 5,607 5,630
Occupancy and equipment 2,181 1,982
Communication and transportation 499 454
Marketing and development 383 333
Supplies 263 254
Other 1,680 1,236
-------- --------
Total non-interest expense 10,613 9,889
-------- --------
INCOME BEFORE INCOME TAXES 5,455 5,068
INCOME TAXES 1,804 1,704
-------- --------
NET INCOME $ 3,651 $ 3,364
======== ========
(Continued)
</TABLE>
<PAGE>
REPUBLIC BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (in thousands, except per share data)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX:
Change in unrealized loss on securities $ (803) $ (752)
Reclassification of realized amount 106 (86)
-------- --------
Net unrealized loss recognized in
comprehensive income (697) (838)
-------- --------
COMPREHENSIVE INCOME $ 2,954 $ 2,526
======== ========
EARNINGS PER SHARE
Class A $ .22 $ .20
Class B $ .22 $ .20
EARNINGS PER SHARE ASSUMING DILUTION
Class A $ .21 $ .19
Class B $ .21 $ .19
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
REPUBLIC BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Unearned
Empl. Stock Accumulated Total
Common Stock Additional Ownership Other Stock-
Class A Class B Paid-In Retained Plan Comprehensive Holders'
Shares Shares Amount Capital Earnings Shares Income(Loss) Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 2000 14,536 2,142 $4,099 $33,617 $73,600 $(3,620) $(3,926) $103,770
Conversion of Class B to Class A 1 (1)
Dividend Declared
Common: Class A ($.03575 per share) (521) (521)
Class B ($.03250 per share) (69) (69)
Repurchase of Class A Common (22) (6) (43) (135) (184)
Commitment of 5,578 shares to be released under the
Employee Stock Ownership Plan 6 (23) 72 49
Net changes in accumulated other
comprehensive income (loss) (697) (697)
Net Income 3,651 3,651
------ ----- ------ ------- ------- ------- ------- --------
BALANCE, March 31, 2000 14,521 2,141 $4,093 $33,551 $76,526 $(3,548) $(4,623) $105,999
====== ===== ====== ======= ======= ======= ======= ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
REPUBLIC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (in thousands)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,651 $ 3,364
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of premises and equipment 966 950
Amortization and accretion of securities 57 171
FHLB stock dividends (265) (248)
Provision for loan losses 535 854
Net loss (gain) on sale of securities 161 (130)
Net gain on sale of loans (201) (1,397)
Proceeds from sale of loans 21,764 97,642
Origination of mortgage loans held for sale (20,593) (68,932)
Employee Stock Ownership Plan expense 49 41
Changes in assets and liabilities:
Other assets (761) 466
Other liabilities 3,979 1,251
-------- --------
Net cash provided by operating activities 9,342 34,032
-------- --------
INVESTING ACTIVITIES:
Purchases of securities available for sale (15,203) (62,123)
Purchases of securities to be held to maturity (73,044)
Proceeds from maturities of securities to be held to maturity 12,765 18,280
Proceeds from maturities and paydowns of securities available for sale 5,645 16,511
Proceeds from sales of securities available for sale 27,569 20,190
Net increase in loans (36,399) (27,854)
Purchases of premises and equipment (1,053) (1,612)
-------- --------
Net cash used in investing activities (79,720) (36,608)
-------- --------
FINANCING ACTIVITIES:
Net increase in deposits 31,237 16,599
Net change in securities sold under agreement to
repurchase and other short-term borrowings 1,010 (33,731)
Payments on other borrowings (25,269) (52,055)
Proceeds from other borrowings 27,700 67,425
Purchase of shares for Employee Stock Ownership Plan (3,873)
Repurchase of Class A Common Stock (184) (877)
Cash dividends paid (600) (467)
-------- --------
Net cash provided by (used in) financing activities 33,894 (6,979)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (36,484) (9,555)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 67,527 39,946
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 31,043 $ 30,391
======== ========
(Continued)
</TABLE>
<PAGE>
REPUBLIC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (in thousands)
<TABLE>
<CAPTION>
2000 1999
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<S> <C> <C>
Cash paid during the period for:
Interest $ 14,621 $ 11,558
======== ========
Income taxes $ $ 302
======== ========
Transfers from loans to real estate
acquired in settlement of loans $ 648 $ 740
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
REPUBLIC BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION (AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES)
BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of Republic Bancorp, Inc. and its wholly-owned subsidiaries; Republic
Mortgage Company, Republic Insurance Agency, Inc., Republic Capital Trust, and
Republic Bank & Trust Company (Bank) and its subsidiary Republic Financial
Services Corporation (d.b.a. Refunds Now), collectively "Republic". All
significant intercompany balances and transactions have been eliminated in
consolidation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ending March 31,
2000 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto-included in Republic's annual report
on Form 10-K for the year ended December 31, 1999.
NEW ACCOUNTING PRONOUNCEMENTS - In September 1999, the FASB issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". This new
standard requires companies to record derivatives on the balance sheet as assets
or liabilities at fair value. Depending on the use of the derivative and whether
it qualifies for hedge accounting, gains or losses resulting from changes in the
values of those derivatives would either be recorded as a component of net
income or as a change in stockholders' equity. Republic is required to adopt
this new standard January 1, 2001. Management has not yet determined the impact
of this standard.
RECLASSIFICATIONS - Certain amounts have been reclassified in the 1999 financial
statements to conform with the current period classifications. The
reclassifications have no effect on net income or stockholders' equity as
previously reported.
<PAGE>
2. SECURITIES
<TABLE>
<CAPTION>
Securities Available For Sale:
March 31, 2000
(in thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury Securities and U.S.
Government Agencies $ 82,416 $ (2,114) $ 80,302
Mortgage-backed securities 67,649 (3,717) 63,932
Corporate bonds 19,251 (1,173) 18,078
-------- -------- -------- --------
Total securities available for sale $169,316 $ (7,004) $162,312
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Securities To Be Held To Maturity:
March 31, 2000
(in thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury Securities and U.S.
Government Agencies $ 35,211 $ (219) $ 34,992
Obligations of state and political
subdivisions 3,685 $ 79 (1) 3,763
Mortgage-backed securities 54,344 209 (197) 54,356
-------- -------- -------- --------
Total securities to be held to maturity $ 93,240 $ 288 $ (417) $ 93,111
======== ======== ======== ========
</TABLE>
Securities having an amortized cost of $141 million and a fair value of $138
million at March 31, 2000, were pledged to secure public deposits, securities
sold under agreements to repurchase and for other purposes, as required or
permitted by law.
<PAGE>
3. LOANS
<TABLE>
<CAPTION>
March 31, 2000 Dec. 31, 1999
---------------------------------
(in thousands)
<S> <C> <C>
Residential real estate $ 651,055 $ 636,012
Commercial real estate 181,689 163,064
Real estate construction 61,248 63,928
Commercial 32,383 31,411
Consumer 38,515 39,435
Home equity 106,600 103,833
Other 4,392 2,973
----------- -----------
Total loans 1,075,882 1,040,656
Less:
Unearned interest income and
unamortized loan fees (1,292) (1,282)
Allowance for loan losses (7,862) (7,862)
----------- -----------
Loans, net $ 1,066,728 $ 1,031,512
=========== ===========
</TABLE>
The following table sets forth the changes in the allowance for loan losses:
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
(in thousands)
<S> <C> <C>
Balance, beginning of period $ 7,862 $ 7,862
Provision charged to income 535 854
Charge-offs (839) (894)
Recoveries 304 140
-------- --------
Balance, end of period $ 7,862 $ 7,962
======== ========
</TABLE>
Information about Republic's investment in impaired loans is as follows:
<TABLE>
<CAPTION>
March 31, 2000 Dec. 31, 1999
--------------------------------
(in thousands)
<S> <C> <C>
Gross impaired loans $ 523 $1,043
Less: Related allowance for loan losses 523 700
------ ------
Net impaired loans with related allowances 343
Impaired loans with no related allowances
------ ------
Total $ $ 343
====== ======
Average impaired loans outstanding $ 759 $1,043
====== ======
</TABLE>
<PAGE>
4. DEPOSITS
<TABLE>
<CAPTION>
March 31, 2000 Dec. 31, 1999
--------------------------------
(in thousands)
<S> <C> <C>
Demand (NOW, Super NOW and Money Market) $154,481 $174,376
Internet money market accounts 37,425 29,695
Savings 13,263 12,158
Money market certificates of deposit 43,005 43,152
Individual retirement accounts 29,656 29,380
Certificates of deposit, $100,000 and over 101,713 91,848
Other certificates of deposit 326,749 319,558
Brokered deposits 16,507 16,486
-------- --------
Total interest bearing deposits 722,799 716,653
Total non-interest bearing deposits 109,347 84,256
-------- --------
Total $832,146 $800,909
======== ========
</TABLE>
5. 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.
<TABLE>
<CAPTION>
March 31, 2000 Dec. 31, 1999
------------------------------
(in thousands)
<S> <C> <C>
Average outstanding balance $219,477 $129,903
Average interest rate 5.13% 4.35%
Maximum outstanding at month end $227,999 $217,143
End of period $216,728 $215,718
</TABLE>
<PAGE>
6. OTHER BORROWED FUNDS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------------------
(in thousands)
<S> <C> <C>
Federal Home Loan Bank convertible fixed rate
advances (1) $ 10,000 $ 10,000
Federal Home Loan Bank variable interest rate
advances, with weighted average interest rate
of 6.06% at March 31, 2000, due through 2001 110,000 110,000
Federal Home Loan Bank fixed interest rate advances,
with weighted average interest rate of 5.67%
at March 31, 2000, due through 2003 113,814 111,383
---------- ----------
Total $ 233,814 $ 231,383
========== ==========
</TABLE>
(1) During December 1998, Republic entered into a convertible fixed-rate
advance totaling $10 million with a ten-year maturity. The advance is fixed
for two 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 outstanding advances. Republic has sufficient collateral to borrow
approximately $112 million in additional funds from the Federal Home Loan Bank.
Republic also has unsecured lines of credit totaling $40 million and secured
lines of $86 million available through various financial institutions that were
unused as of March 31, 2000.
Aggregate future principal payments on borrowed funds as of March 31, 2000 are
as follows:
<TABLE>
<CAPTION>
Year
(in thousands)
<S> <C>
2000 $ 53,530
2001 110,284
2002
2003 60,000
2004 and thereafter 10,000
------------
Total $ 233,814
============
</TABLE>
<PAGE>
7. EARNINGS PER SHARE
A reconciliation of the combined Class A and Class B Common Stock numerators and
denominators of the earnings per share and earnings per share assuming dilution
computations is 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. The aggregate dividend premium paid to Class
A Common stock for the 2000 and 1999 was approximately one cent on basic
earnings per share.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
(in thousands)
<S> <C> <C>
Earnings Per Share:
Net Income available to common shares
outstanding $ 3,651 $ 3,364
========== ==========
Weighted average shares outstanding 16,671 16,934
========== ==========
Earnings per share, basic:
Class A .22 .20
Class B .22 .20
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
(in thousands)
<S> <C> <C>
Earnings Per Share Assuming Dilution:
Net Income $ 3,651 $ 3,364
Add: Interest expense, net of tax benefit,
on assumed conversion of guaranteed
preferred beneficial interests in
Republic's subordinated debentures 87 89
---------- ----------
Net Income available to common
Shareholder assuming conversion $ 3,738 $ 3,453
========== ==========
Weighted average shares outstanding 16,671 16,934
Add dilutive effects of assumed
conversion and exercise:
Convertible guaranteed preferred
beneficial interest in Republic's
subordinated debentures 635 640
Stock options 355 563
---------- ----------
Weighted average shares and dilutive
potential shares outstanding 17,661 18,137
========== ==========
Earnings per share assuming dilution:
Class A .21 .19
Class B .21 .19
</TABLE>
Stock options for 275,000 and 251,500 shares of Class A Common stock were
excluded from the 2000 and 1999 earnings per share assuming dilution because
their impact was antidilutive.
<PAGE>
8. EMPLOYEE STOCK OWNERSHIP PLAN
On January 29, 1999, Republic formed an Employee Stock Ownership Plan (ESOP) for
the benefit of its employees. The ESOP borrowed $3.9 million from the Parent
Company and directly and indirectly purchased 300,000 shares of Class A Common
Stock from Republic's largest beneficial owner at a market value of $12.91 per
share. The purchase price, determined by an independent pricing committee, was
the average closing price for the thirty trading days immediately prior to the
transaction. Shares in the ESOP will be allocated to eligible employees based on
principal payments over the term of the loan, which is ten years. Participants
become fully vested in allocated shares after five years of credited service and
may receive their distributions in the form of cash or stock. For the quarter
ended March 31, 2000; 5,578 shares were committed to be released resulting in
ESOP compensation expense of approximately $49,000 for the quarter.
Shares held by the plan at March 31, 2000 are as follows:
<TABLE>
<CAPTION>
(dollars in thousands) March 31, 2000
<S> <C>
Allocated shares 19,612
Unallocated shares 280,388
----------
Total Employee Stock Ownership Plan Shares 300,000
==========
Fair value of unallocated shares $ 2,278
</TABLE>
<PAGE>
9. SEGMENT INFORMATION
The reportable segments are determined by the products and services offered,
primarily distinguished between banking, tax refund services and mortgage
banking operations. Loans, investments, deposits and fees provide the revenues
in the banking operation, fees from refund anticipation loans and electronic
refund checks provide the revenues for the tax refund services, 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>
Three Months Ended March 31, 2000
Tax Refund Mortgage Consolidated
Banking Services Banking Totals
(in thousands)
<S> <C> <C> <C> <C>
Net interest income $ 11,840 $ 2,277 $ 63 $ 14,180
Provision for loan losses 188 347 535
Electronic refund check fees 955 955
Net gain on sale of loans 201 201
Other revenue 1,293 48 (74) 1,267
Non-interest expense 9,933 494 186 10,613
Income tax expense 998 805 1 1,804
Segment profit 2,014 1,634 3 3,651
Segment assets 1,397,897 1,377 10,585 1,409,859
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
Tax Refund Mortgage Consolidated
Banking Services Banking Totals
(in thousands)
<S> <C> <C> <C> <C>
Net interest income $ 11,066 $ 982 $ 95 $ 12,143
Provision for loan losses 654 200 854
Electronic refund check fees 861 861
Net gain on sale of loans 1,397 1,397
Other revenue 1,444 8 (42) 1,410
Non-interest expense 8,804 429 656 9,889
Income tax expense 1,023 411 270 1,704
Segment profit 2,029 811 524 3,364
Segment assets 1,192,432 592 11,499 1,204,523
</TABLE>
<PAGE>
PART 1
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Republic Bancorp, Inc., headquartered in Louisville, Kentucky, was incorporated
on January 2, 1974. Republic Bank & Trust Company (Bank) is a commercial banking
and trust corporation organized and chartered under the laws of the Commonwealth
of Kentucky. The Bank is also headquartered in Louisville, Kentucky and provides
banking services through 21 banking centers throughout Kentucky and a loan
production office in southern Indiana. The Bank's activities include the
acceptance of deposits for checking, savings and time deposit accounts, making
secured and unsecured loans, investing in securities and trust services. The
Bank's lending services include the origination of real estate, commercial and
consumer loans. Operating revenues are derived primarily from interest and fees
on domestic real estate, commercial and consumer loans, and from interest on
securities of the United States Government and Agencies, states, and
municipalities. Regulators for Republic include the Federal Deposit Insurance
Corporation (FDIC), the Board of Governors of the Federal Reserve System (and
the Federal Reserve Bank of St. Louis) and the Kentucky Department of Financial
Institutions.
REPUBLIC HAS MADE, AND MAY CONTINUE TO MAKE, VARIOUS FORWARD-LOOKING STATEMENTS
WITH RESPECT TO CREDIT QUALITY (INCLUDING DELINQUENCY TRENDS AND THE ALLOWANCE
FOR LOAN LOSSES), CORPORATE OBJECTIVES AND OTHER FINANCIAL AND BUSINESS MATTERS.
WHEN USED IN THIS DISCUSSION THE WORDS "ANTICIPATE," "PROJECT," "EXPECT,"
"BELIEVE," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. REPUBLIC CAUTIONS THAT THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO NUMEROUS ASSUMPTIONS, RISKS AND UNCERTAINTIES, ALL OF WHICH MAY CHANGE OVER
TIME. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM FORWARD-LOOKING STATEMENTS.
IN ADDITION TO FACTORS DISCLOSED BY REPUBLIC, THE FOLLOWING FACTORS, AMONG
OTHERS, COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH
FORWARD-LOOKING STATEMENTS: PRICING PRESSURES ON LOAN AND DEPOSIT PRODUCTS;
COMPETITION; CHANGES IN ECONOMIC CONDITIONS BOTH NATIONALLY AND IN THE BANK'S
MARKETS; THE EXTENT AND TIMING OF ACTIONS OF THE FEDERAL RESERVE BOARD;
CUSTOMERS' ACCEPTANCE OF THE BANK'S PRODUCTS AND SERVICES; AND THE EXTENT AND
TIMING OF LEGISLATIVE AND REGULATORY ACTIONS AND REFORMS.
OVERVIEW
Net income for the first quarter of 2000 was $3.7 million, up from $3.4 million
for the same period in 1999. Class A and B diluted earnings per share for the
quarter ending March 31, 2000 were $0.21 up 11% over the same period in 1999.
The increase in earnings during the first quarter of 2000 reflects a strong
financial performance in many areas of the Company, particularly Refunds Now.
Refunds Now, a wholly owned subsidiary of the Bank, is a rapid tax refund
service that operates through a nationwide network of over 1,300 tax offices.
Total revenues for Refunds Now increased 68% over the comparable period in 1999
to $2.9 million at March 31, 2000. The increase in revenue was due to increased
volume and change in product mix. Through additional marketing efforts
management expects Refunds Now to have continued success in gaining additional
market share for its rapid tax refund products.
<PAGE>
Republic's total assets at March 31, 2000 grew to over $1.4 billion. Net loans
increased $35 million from December 31, 1999 to approximately $1.1 billion at
March 31, 2000. The residential real estate portfolio grew $15 million and the
commercial real estate portfolio increased $19 million. This growth was due to
continued loan demand in Republic's markets and the further development of
Republic's commercial and business banking services.
Funding for loan growth was primarily derived from deposits, which increased $31
million from December 31, 1999. Non-interest bearing deposits increased more
than $25 million, primarily as a result of Republic's cash management programs.
Money market deposits and CD's also had healthy increases from December 31,
1999, as Republic continued to aggressively pursue deposits through its banking
centers and the Internet.
Republic continues to evaluate and implement operating efficiencies in its
product delivery systems. During the first quarter of 2000, the Company
finalized the centralization of its loan administration operations. Reductions
in loan administration staffing requirements helped offset the costs associated
with banking center expansion. The reduction was achieved through attrition and
did not result in any significant reorganization costs. Centralization of loan
administration functions is expected to allow Republic to have additional loan
growth without substantial increases in its loan administration expenses.
During the first quarter of 2000 Republic opened a new facility in the City of
Prospect (Louisville metropolitan area), bringing Republic's total number of
banking centers in Kentucky's largest metropolitan area to eleven. Republic has
21 banking centers, a loan production office and 36 ATMs serving its clients in
Kentucky and Indiana.
Republicbank.com increased its deposits to more than $51 million from 47 states
at March 31, 2000. Republic continues to expand its products and service
offerings at republicbank.com to attract new customers and provide expanded
services to existing Internet clients. Republicbank.com intends to make on-line
brokerage services available to the Bank's customers during the second quarter.
Overall, 16% of the Bank's existing customers are using republicbank.com,
exceeding management's initial projections.
<PAGE>
REFUNDS NOW
Refunds Now is a rapid refund tax processing service for taxpayers receiving
both federal and state tax refunds through a nationwide network of tax
preparers. Refund anticipation loans ("RALs") are made to taxpayers filing
income tax returns electronically. The RALs are repaid by the taxpayer when the
taxpayer's refunds are electronically received by the Bank from governmental
taxing authorities. Refunds Now also provides electronic refund checks ("ERCs")
to taxpayers. After receiving refunds electronically from governmental taxing
authorities, checks are issued to taxpayers for the amount of their refund, less
fees. During the three months ended March 31, 2000, Refunds Now generated $2.0
million in electronic tax refund loan fees, compared to $890,000 for the same
period in 1999. Refunds Now also received $955,000 in electronic refund check
fees in the first quarter of 2000, compared to $861,000 during first quarter
1999. In addition, RAL volume was up almost 264% from the first quarter of 1999.
The increase in revenues for Refunds Now resulted from a 36% increase in tax
offices served and a 63% increase in the tax refunds processed during the first
quarter of 2000. Refunds Now expects to continue to aggressively market its
products to additional tax preparers during 2000 for the 2001 tax season.
Substantially all of the income realized by the Bank from the activities of
Refunds Now is recognized during the first quarter of the year.
RESULTS OF OPERATIONS
Net Interest Income. For the first quarter 2000, net interest income was $14.2
million, up $2.1 million over the $12.1 million attained during first quarter
1999. Overall, the net interest rate spread increased slightly from 3.51% during
first quarter of 1999 to 3.54% in the comparable quarter of 2000. The Bank's net
interest margin remained constant at 4.20% for both the first quarters 1999 and
2000. The increase in the net interest spread occurred because the yield on
interest earning assets increased 37 basis points while the rate paid on
liabilities increased 34 basis points. During the first quarter 2000, average
interest-earning assets were $1.3 billion, an increase of $193 million over
first quarter 1999. Total average interest bearing liabilities increased from
$988 million in the first quarter of 1999 to $1.2 billion in the first quarter
of 2000.
Included in loan fees are RAL fees from Refunds Now of $2.0 million for first
quarter 2000 and $890,000 for first quarter 1999. Excluding these fees,
Republic's loan yield would have been 8.52% for first quarter 2000 and 8.51% for
first quarter 1999.
Table 1 provides detailed information as to average balance, interest
income/expense, and rates by major balance sheet category for the three and
three months ended March 31, 2000 and 1999.
<PAGE>
Table 1 - Average Balance Sheet Rates for First quarter, 2000 and 1999 (dollars
in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000 Three Months Ended March 31, 1999
----------------------------------- ----------------------------------
Average Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Earning Assets:
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
Agency Securities $ 121,665 $ 1,747 5.74% $ 138,471 $ 1,891 5.46%
State and Political Subdivision Securities 3,687 79 8.57% 3,990 87 8.72%
Other Investments 33,424 537 6.43% 31,594 492 6.23%
Mortgage-Backed Securities 104,430 1,709 6.55% 56,760 842 5.93%
Federal Funds Sold and Securities Purchased
Under Agreements to Resell 14,608 203 5.56% 2,876 32 4.45%
Total Loans and Fees 1,071,560 24,807 9.26% 922,226 20,511 8.90%
----------- ------- ----------- -------
Total Earning Assets 1,349,374 29,082 8.62% 1,155,917 23,855 8.25%
----------- ------- ----------- -------
Less: Allowance for Loan Losses (7,862) (7,929)
Non-Earning Assets:
Cash and Due From Banks 24,331 18,447
Bank Premises and Equipment, Net 19,156 16,460
Other Assets 14,731 12,883
----------- -----------
Total Assets $ 1,399,730 $ 1,195,778
=========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest Bearing Liabilities:
Transaction Accounts $ 125,127 $ 835 2.67% $ 73,414 $ 349 1.90%
Money Market Accounts 122,550 1,425 4.65% 121,993 1,342 4.40%
Individual Retirement Accounts 29,740 408 5.49% 23,953 322 5.38%
Certificates of Deposit and Other
Time Deposits 436,740 5,882 5.39% 458,606 6,050 5.28%
Repurchase Agreements and Other
Short-Term Borrowings 219,477 2,813 5.13% 123,110 1,245 4.05%
Other Borrowings 240,316 3,539 5.89% 186,534 2,404 5.16%
----------- ------- ----------- -------
Total Interest Bearing Liabilities 1,173,950 14,902 5.08% 987,610 11,712 4.74%
Non-Interest Bearing Liabilities:
Non-Interest Bearing Deposits 106,796 92,899
Other Liabilities 13,092 11,949
Stockholders' Equity 105,892 103,320
----------- -----------
Total Liabilities and Stockholders'
Equity $ 1,399,730 $ 1,195,778
=========== ===========
Net Interest Income $14,180 $12,143
======= =======
Net Interest Spread 3.54% 3.51%
==== ====
Net Interest Margin 4.20% 4.20%
==== ====
</TABLE>
For the purposes of these calculations, non-accruing loans are included in the
quarterly average loan amounts outstanding.
<PAGE>
The following table presents the extent to which changes in interest rates and
changes in the volume of interest earning assets and interest bearing
liabilities have affected Republic's interest income and interest expense during
the periods indicated. Information is provided in each category with respect to
(i) changes attributable to changes in volume (changes in volume multiplied by
prior rate), (ii) changes attributable to changes in rate (changes in rate
multiplied by old volume), and (iii) the net change. The changes attributable to
the combined impact of volume and rate have been allocated proportionately to
the changes due to volume and the changes due to rate.
Table 2 - Volume/Rate Variance Analysis (in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000
Compared to
Three Months Ended March 31, 1999
Increase/(Decrease)
due to
Total Net
Change Volume Rate
<S> <C> <C> <C>
Interest Income:
U.S. Treasury and Government Agency Securities $ (144) $ (230) $ 86
State and Political Subdivision Securities (8) (7) (1)
Other Investments 45 28 17
Mortgage-Backed Securities 867 707 160
Federal Funds Sold 171 131 40
Total Loans and Fees (1) 4,296 3,321 975
------- ------- ------
Net Change in Interest Income 5,227 3,950 1,277
------- ------- ------
Interest Expense:
Interest Bearing Transaction Accounts 486 246 240
Money Market Accounts 83 6 77
Individual Retirement Accounts 86 78 8
Certificates of Deposit and Other Time Deposits (168) (288) 120
Repurchase Agreements and Other
Short-Term Borrowings 1,568 975 593
Other Borrowings 1,135 693 442
------- ------- ------
Net Change in Interest Expense 3,190 1,710 1,480
------- ------- ------
Increase in Net Interest Income $ 2,037 $ 2,240 $ (203)
======= ======= ======
</TABLE>
(1) The amount of fees in interest on loans was approximately $2.3 million and
$1.1 million for the periods ended March 31, 2000 and 1999, respectively.
<PAGE>
Non-Interest Income. Non-interest income was $2.4 million during first quarter
2000, down from $3.7 million during first quarter of 1999. The decrease was
principally due to a reduction in gains generated from sales of loans into the
secondary market and sales of securities.
Revenue from mortgage banking activities declined during the three-month period
ending March 31, 2000 as a result of reduced secondary market sales volume. The
market's interest-rate environment heavily influences secondary market
residential loan originations and, correspondingly, consumer-refinance activity.
For the first quarter of 2000, market interest rates were above first quarter
1999 levels, which led to lower secondary market originations and sales volumes.
As a result, gains from sales of loans decreased to $201,000 for the three-month
period ended March 31, 2000 compared to $1.4 million during the same period in
1999. Given the rise in interest rates from 1999, management believes that the
secondary market sales volume, comprised of fixed rate products, are likely to
continue at current levels. Management also believes that this reduction in
secondary market gains on the sale of loans will be partially offset by
increased interest income generated by further growth in the Bank's loan
portfolio. In addition, management believes that the decline in mortgage banking
activities may be moderated by decreased commission costs due to lower
origination volume.
Non-Interest Expense. Total non-interest expense was $10.6 million in first
quarter 2000, compared to $9.9 million for first quarter 1999. The increase for
the three months ended March 31, 2000 was primarily attributable to costs
associated with occupancy and equipment and other expenses.
Salary and employee benefit expenses decreased slightly for the first quarter
2000 over first quarter 1999. Republic's overall staffing level decreased
slightly to 477 full-time equivalent employees ("FTE's") at March 31, 2000,
compared to 480 FTE's at March 31, 1999. Overall salary cost and staffing
remained constant as Republic's staffing reductions associated with the
centralization of its loan administrative operations was offset by staffing
increases associated with additional banking center locations, commercial
lending, cash management and trust initiatives.
Occupancy and equipment expense increased $200,000 for first quarter 2000
compared to first quarter 1999. The increase is largely attributable to the
costs associated with the opening of two additional banking centers. It is also
anticipated that additional expenses will be incurred for technology
enhancements for deposit, lending and customer support systems during the
remainder of 2000.
Other expenses increased $400,000 for first quarter 2000 compared to first
quarter 1999. The increase is primarily due to one Bank fraud loss totaling
approximately $300,000.
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2000 AND DECEMBER 31, 1999
SECURITIES AVAILABLE FOR SALE. Securities available-for-sale consists primarily
of mortgage-backed securities, U.S. Treasury and U.S. Government Agencies and
Corporate bonds with a weighted average maturity of 3.4 years. Securities
available-for-sale decreased from $182 million at December 31, 1999 to $162
million at March 31, 2000.
SECURITIES TO BE HELD TO MATURITY. Securities to-be-held-to-maturity increased
from $33 million at December 31, 1999 to $93 million at March 31, 2000. The
increase occurred as Republic classified new security purchases and proceeds
from securities sales in the held-to-maturity category. Securities
to-be-held-to-maturity consists primarily of U.S. Treasury and U.S government
Agencies as well as collateralized mortgage obligations (CMOs). CMOs, which have
a monthly repricing frequency, have a weighted average maturity of 17.5 years,
while the remaining portfolio has a weighted average maturity of 2.6 years.
LOANS. Net loans increased $35 million to $1.1 billion at March 31, 2000
compared to $1.0 billion at December 31, 1999. The increase in loans was
primarily in the secured real estate lending portfolio. The rise in residential
real estate loan volume was a result of continued consumer demand for Republic's
portfolio products, primarily adjustable-rate mortgages. Republic also had
healthy growth in its commercial real estate lending portfolio as a result of
the Bank's ongoing emphasis on commercial lending.
ALLOWANCE AND PROVISION FOR LOAN LOSSES. The provision for loan losses was
$535,000 in the first quarter of 2000, compared to $854,000 in the first quarter
of 1999. Overall, net charge-offs decreased 29% during the first quarter of 2000
compared to the same period in 1999. The decrease in charge-offs in the
unsecured consumer loan portfolio was partially offset by an increase of
$300,000 in charge-offs of tax refund loans. This increase was primarily due to
a rise in RAL products sold compared to 1999. The increase in recoveries was
substantially the result of improved collection efforts on RALs.
The allowance for loan losses remained at $7.9 million from December 31, 1999 to
March 31, 2000. Management believes, based on information presently available,
that it has adequately provided for loan losses at March 31, 2000. Management
has considered the effect of increased commercial lending on the allowance, and
that effect has been largely offset by the Bank's decreased exposure in its
unsecured consumer portfolio.
<PAGE>
Table 3 below depicts the allowance activity by loan type for the three and
three months ended March 31, 2000 and 1999.
Table 3 - Summary of Loan Loss Experience
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
(in thousands)
<S> <C> <C>
Allowance for loan losses:
Balance-beginning of period $ 7,862 $ 7,862
Charge-offs:
Real Estate (131) (180)
Commercial (8) (7)
Consumer (200) (507)
Tax Refund Loans (500) (200)
------- -------
Total (839) (894)
------- -------
Recoveries:
Real Estate 1 6
Commercial
Consumer 150 134
Tax Refund Loans 153
------- -------
Total 304 140
------- -------
Net charge-offs (535) (754)
Provision for loan losses 535 854
------- -------
Allowance for loan losses:
Balance-end of period $ 7,862 $ 7,962
======= =======
</TABLE>
Deposits. Total deposits were $832 million at March 31, 2000 compared to $801
million at December 31, 1999. The increase in deposits was primarily in
Republic's lower cost transaction accounts. Non-interest bearing deposits have
increased by approximately 30% since December 31, 1999. Republic's growth in
deposits was the result of management's ongoing emphasis on its commercial cash
management program, retail deposit gathering and its successful Internet banking
initiative. As of March 31, 2000, Republic had $37 million in money market
accounts and $14 million in CD's which had been opened through the Internet.
Republic plans to continue development of its deposit gathering programs by
utilizing commissioned deposit originators and offering competitive products in
its existing markets, including republicbank.com.
<PAGE>
ASSET QUALITY
Loans, including impaired loans under SFAS 114 and excluding consumer loans, are
placed on non-accrual status when they become past due 90 days or more as to
principal or interest, unless they are adequately secured and in the process of
collection. When loans are placed on non-accrual status, all unpaid accrued
interest is reversed. These loans remain on non-accrual status until the
borrower demonstrates the ability to remain current or the loan is deemed
uncollectible and is charged off. Consumer loans are not placed on non-accrual
status but are reviewed periodically and charged off when they reach 120 days
past due or are deemed uncollectible. At March 31, 2000, Republic had $101,000
in consumer loans 90 days or more past due compared to $256,000 at December 31,
1999. The reduction in consumer loans 90 days or more past due is largely
attributable to the overall reduction in outstanding loans associated with the
Bank's Pre-Approved and All-Purpose unsecured loan programs.
The Bank's level of delinquent loans increased slightly to 1.40% at March 31,
2000, up from 1.29% at December 31, 1999. Republic experienced a modest increase
in total non-performing loans from $3.7 million at December 31, 1999 to $4.3
million at March 31, 2000. This increase is not deemed by management to reflect
any adverse change in overall asset quality. Other real estate owned increased
from $218,000 at December 31, 1999 to $690,000 at March 31, 2000. The increase
was solely attributable to one commercial property in the amount of $500,000
that was subsequently sold early in the second quarter of 2000. Management does
not consider the modest overall increase in non-performing assets during the
quarter to be material.
Table 4 provides information related to non-performing assets and loans 90 days
or more past due.
Table 4 - Non-Performing Loans
<TABLE>
<CAPTION>
March 31, Dec. 31,
(dollars in thousands) 2000 1999
<S> <C> <C>
Loans on non-accrual status (1)(2) $3,068 $2,721
Loans past due 90 days or more 1,257 968
------ ------
Total non-performing loans 4,325 3,689
Other real estate owned 690 218
------ ------
Total non-performing assets $5,015 $3,907
====== ======
Percentage of non-performing loans to total loans .40% .35%
Percentage of non-performing assets to total loans .47% .38%
</TABLE>
(1) The table is exclusive of impaired loans which remained on accrual status.
(2) Interest income that would have been earned and received on non-accrual
loans was not material.
Republic defines impaired loans to be those commercial real estate and
commercial loans greater than $499,999 that management has classified as
doubtful (collection of all amounts due is highly questionable or improbable) or
loss (all or a portion of the loan has been written off or a specific allowance
for loss has been provided). Republic's policy is to charge off all or that
portion of its investment in an impaired loan upon a determination it is
probable the full amount may not be collected. Impaired loans consist of one
commercial real estate loan that decreased from December 31, 1999 to
approximately $500,000 at March 31, 2000.
<PAGE>
LIQUIDITY
Republic maintains sufficient liquidity in order to fund loan demand and routine
deposit withdrawal activity. Liquidity is managed by retaining sufficient liquid
assets in the form of investment securities and core deposits to meet demand.
Funding and cash flows can also be realized from the available-for-sale portion
of the securities portfolio and paydowns from the loan portfolio. Republic's
banking centers also provide access to their retail deposit markets.
Approximately $90 million of deposits and collateralized sweeps are attributable
to three customer relationships at March 31, 2000. These funds are short-term in
nature and subject to immediate withdrawal by these entities. Should these funds
be removed, Republic has the ability to replenish these funds through various
funding sources noted below. Republic has established lines of credit with other
financial institutions, the FHLB and brokerage firms. While Republic utilizes
numerous funding sources in order to meet liquidity requirements, FHLB
borrowings remain a material component of management's balance sheet strategy.
CAPITAL
Regulatory agencies measure capital adequacy within a framework that makes
capital requirements, in part, dependent on the individual risk profiles of
financial institutions. Republic's average capital to average assets ratio was
7.57% at March 31, 2000 compared to 8.27% at December 31, 1999. Republic
continues to exceed the minimum regulatory requirements for Tier I, Tier I
Leverage and total risk-based capital. The Bank expects to maintain a capital
position that meets or exceeds the "well capitalized" requirements as defined by
the FDIC. Table 5 below indicates the capital ratios at March 31, 2000.
Table 5 - Capital Ratios
<TABLE>
<CAPTION>
Minimum
Requirement
Minimum To Be Well
Requirement Capitalized
For Capital Under Prompt
Adequacy Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Risk Based Capital (to Risk Weighted Assets)
Consolidated $124,818 14.09% $ 70,869 8% $ 88,586 10%
Bank only $120,672 13.62% $ 70,865 8% $ 88,582 10%
Tier I Capital (to Risk Weighted Assets)
Consolidated $116,956 13.20% $ 35,434 4% $ 53,152 6%
Bank only $112,810 12.74% $ 35,433 4% $ 53,149 6%
Tier I Leverage Capital (to Average Assets)
Consolidated $116,956 8.36% $ 55,989 4% $ 69,987 5%
Bank only $112,810 8.06% $ 55,983 4% $ 69,979 5%
</TABLE>
Kentucky banking regulations limit the amount of dividends that may be paid to
Republic by the Bank without prior approval of the Bank's regulatory agency.
Under these regulations, the amount of dividends that may be paid in any
calendar year is limited to the Bank's current year's net income, as defined in
the regulations, combined with the retained net income of the preceding two
years, less any dividends declared during those periods. At March 31, 2000, the
Bank had approximately $18 million of retained earnings that could be utilized
for payment of dividends if authorized by the Board of Directors.
<PAGE>
ASSET/LIABILITY MANAGEMENT AND MARKET RISK
Asset/liability management control is designed to ensure safety and soundness,
maintain liquidity and regulatory capital standards, and achieve acceptable net
interest income. Republic continues to experience steady loan demand that
requires management to continue to monitor interest rate and liquidity risk and
implement appropriate funding and balance sheet strategies. 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.
Republic utilizes an earnings simulation model to analyze net interest income
sensitivity. Potential changes in market interest rates and their subsequent
effect on interest income are then evaluated. The model projects the effect of
instantaneous movements in interest rates of both 100 and 200 basis points.
Assumptions based on the historical behavior of Republic's deposit rates and
balances in relation to changes in interest rates are also incorporated into the
model. These assumptions are inherently uncertain and, as a result, the model
cannot precisely measure future net interest income or precisely predict the
impact of fluctuations in market interest rates on net interest income. Actual
results will differ from the model's simulated results due to timing, magnitude
and frequency of interest rate changes as well as changes in market conditions
and the application and timing of various management strategies.
Republic's interest sensitivity profile changed from December 31, 1999 to March
31, 2000. Given a sustained 200 basis point downward shock to the yield curve
used in the simulation model, Republic's base net interest income would increase
by an estimated 4.17% at March 31, 2000 compared to an increase of 2.47% at
December 31, 1999. Given a 200 basis point increase in the yield curve
Republic's base net interest income would decrease by an estimated 6.62% at
March 31, 2000 compared to a decrease of 4.49% at December 31, 1999. The overall
product mix has substantially remained constant from December 31, 1999 to March
31, 2000. However, the overall interest sensitivity profile changed due to
rising interest rates during the quarter and growth.
The interest sensitivity profile of Republic at any point in time will be
effected by a number of factors. These factors include the mix of interest
sensitive assets and liabilities as well as their relative pricing schedules.
The table below is representative only and is not a precise measurement of the
effect of changing interest rates on Republic's interest income in the future.
<PAGE>
Table 6 - Interest Rate Sensitivity
<TABLE>
<CAPTION>
March 31, 2000
Decrease in Rates Increase in Rates
----------------- -----------------
200 100 100 200
Basis Points Basis Points Base Basis Points Basis Points
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Projected interest income
Loans $ 90,141 $ 92,905 $ 96,820 $ 100,485 $ 103,454
Investments 15,567 16,491 17,371 18,101 18,784
Short-term investments 24 49 3
--------- --------- --------- --------- ---------
Total interest income 105,732 109,445 114,194 118,586 122,238
Projected interest expense
Deposits 31,502 35,789 40,112 44,429 48,715
Other borrowings 19,465 21,704 24,208 27,586 30,335
--------- --------- --------- --------- ---------
Total interest expense 50,967 57,493 64,320 72,015 79,050
Net interest income $ 54,765 $ 51,952 $ 49,874 $ 46,571 $ 43,188
Change from base $ 4,891 $ 2,078 $ (3,303) $ (6,686)
% Change from base 9.81% 4.17% (6.62)% (13.41)%
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
Decrease in Rates Increase in Rates
----------------- -----------------
200 100 100 200
Basis Points Basis Points Base Basis Points Basis Points
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Projected interest income
Loans $ 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>
<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.
Management believes that its Year 2000 Project proceeded successfully as all
operating systems performed well during the year change.
Republic has incurred costs of approximately $804,000 attributable to year 2000
remediation and anticipates total costs and charges to be in an approximate
range of $1.2 to $1.4 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.
NEW ACCOUNTING PRONOUNCEMENTS
See discussion in Note 1 to financial statements for a discussion of recent
accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information for this item is incorporated by reference to the Asset
/Liability Management and Market Risks section of Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal proceedings
On April 21, 2000, Beneficial Franchise Company Inc. filed a lawsuit in the
United States District Court for the Northern District of Illinois at Chicago
against Bank One, N.A., First Security Bank, River City Bank, Santa Barbara Bank
& Trust and the Company. The lawsuit alleges that the operations infringe on
three patents owned by Beneficial and induce others to infringe the patents.
Beneficial seeks unspecified damages against all defendants. The Company intends
to vigorously defend the litigation.
Item 2. Changes in securities
During the first quarter of 2000, Republic issued approximately 1,000 shares of
Class A Common Stock upon conversion of shares of Class B Common Stock by
shareholders of Republic in accordance with the share-for-share conversion
provision option of the Class B Common Stock. The exemption from registration of
the newly issued Class A Common Stock relied upon was Section (3)(a)(9) of the
Securities Act of 1933.
Item 6. Exhibits and Reports on Form 8-K
The exhibits required by Item 601 of Regulation S-K are attached to and
listed in the Exhibit Index on page 34.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Republic Bancorp, Inc.
(Registrant)
Principal Executive Officer:
Date: May 15, 2000 /s/ Steven E. Trager
------------ --------------------
Steven E. Trager
Chief Executive Officer
Principal Financial Officer:
Date: May 15, 2000 /s/ Mark A. Vogt
------------ ----------------
Mark A. Vogt
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Incorporated
Exhibit Description By Reference To
- ------- ----------- ---------------
11 Statement Regarding Filed as Exhibit 11
Computation of Per on page 35 of this
Share Earnings Form 10-Q for the
period ended
March 31, 2000
27 Financial Data Schedule Filed as Exhibit 27
on page 36 of this
Form 10-Q for the
period ended
March 31, 2000
<PAGE>
Exhibit 11.
Statement Regarding Computation of Per Share Earnings
See Item 1, Note 7 "Earnings Per Share" for calculations.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
the consolidated balance sheet, the consolidated statement of income and bank
records and is qualified in its entirety by reference to such report on Form
10-K.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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0
0
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<INCOME-PRETAX> 5,455
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