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