UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
OR
o 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.
ý Yes o No
The number of shares outstanding of the issuer’s class of common stock as of the latest practicable date: 13,990,719 shares of Class A Common Stock and 2,073,731 shares of Class B Common Stock as of November 6, 2001.
The Exhibit index is on page 34. This filing contains 40 pages (including this facing sheet).
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
PART II - OTHER INFORMATION
Legal Proceedings
Changes in Securities
Item 6.
Exhibits and Reports on Form 8-K
Signatures
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 September 30, 2001 and the related consolidated statements of income and comprehensive income for the quarters and nine months ended September 30, 2001 and 2000, the consolidated statements of cash flows for the nine months ended September 30, 2001 and 2000, and the consolidated statements of changes in stockholders' equity for the nine months ended September 30, 2001. 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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of America.
As disclosed in Note 1 to the consolidated financial statements, on January 1, 2001 the Company changed its method of accounting for derivative instruments and hedging activities to comply with new accounting guidance.
Crowe, Chizek and Company LLP
November 7, 2001
PART I
ITEM 1
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands)
September 30,
December 31,
2001
2000
ASSETS:
Cash and due from banks
$
31,826
40,215
Federal funds sold and securities purchased under agreements to resell
27,400
Securities available for sale
223,534
171,800
Securities to be held to maturity
1,488
103,768
Mortgage loans held for sale
15,121
5,229
Loans, less allowance for loan losses of $8,549 (2001) and $7,862 (2000)
1,166,156
1,136,531
Federal Home Loan Bank stock
17,074
16,171
Premises and equipment, net
19,406
19,573
Other assets and accrued interest receivable
12,081
14,785
TOTAL
1,514,086
1,508,072
LIABILITIES:
Deposits:
Non-interest bearing
120,080
107,317
Interest bearing
727,109
756,444
Securities sold under agreements to repurchase and other short-term borrowings
222,456
263,001
Other borrowed funds
297,829
246,050
Guaranteed preferred beneficial interests in Company’s subordinated debentures
5,952
6,352
Other liabilities and accrued interest payable
17,261
11,966
Total liabilities
1,390,687
1,391,130
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Class A and Class B Common stock, no par value
3,943
4,079
Additional paid-in capital
32,823
33,294
Retained earnings
87,885
83,345
Unearned shares in Employee Stock Ownership Plan
(3,087
)
(3,324
Accumulated other comprehensive income (loss)
1,835
(452
Total stockholders’ equity
123,399
116,942
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
( in thousands, except per share data)
Three Months Ended September 30,
Nine Months Ended September 30,
INTEREST INCOME:
Loans, including fees
24,605
25,417
78,618
74,591
Securities
Taxable
3,101
4,097
10,118
11,905
Non-taxable
3
24
9
66
Other
579
348
1,712
1,122
Total interest income
28,288
29,886
90,457
87,684
INTEREST EXPENSE:
Deposits
7,841
9,758
26,210
27,335
Securities sold under agreements to repurchase and short-term borrowings
1,871
3,714
7,342
9,753
4,402
4,023
12,449
11,346
Total interest expense
14,114
17,495
46,001
48,434
NET INTEREST INCOME
14,174
12,391
44,456
39,250
PROVISION FOR LOAN LOSSES
569
39
2,206
1,006
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
13,605
12,352
42,250
38,244
NON-INTEREST INCOME:
Service charges on deposit accounts
1,622
1,158
4,410
3,063
Electronic refund check fees
13
2,075
1,064
Title insurance commissions
371
126
1,040
Net gain on sale of mortgage loans
1,554
347
3,775
936
Net gain (loss) on sale of securities
159
1,313
(161
500
403
1,439
1,345
Total non-interest income
4,219
2,034
14,052
6,373
NON-INTEREST EXPENSE:
Salaries and employee benefits
6,401
5,010
19,444
15,637
Occupancy and equipment
2,278
2,191
6,855
6,548
Communication and transportation
567
507
1,714
1,553
Marketing and development
622
387
1,895
1,121
Bankshares Tax
378
335
1,135
1,004
Legal Fees
278
97
766
202
Supplies
262
232
854
715
1,393
915
4,158
2,542
Total non-interest expense
12,179
9,796
36,821
30,092
INCOME BEFORE INCOME TAXES
5,645
4,590
19,481
14,525
INCOME TAXES
1,933
1,522
6,524
4,744
NET INCOME
3,712
3,068
12,957
9,781
(Continued)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Change in unrealized gain (loss) on securities
1,392
1,709
3,146
1,215
Reclassification of realized amount
(100
(859
106
Net unrealized gain/(loss) recognized in comprehensive income
1,292
2,287
1,321
COMPREHENSIVE INCOME
5,004
4,777
15,244
11,102
EARNINGS PER SHARE
Class A
0.23
0.19
0.80
0.59
Class B
0.18
0.79
0.58
EARNINGS PER SHARE ASSUMING DILUTION
0.22
0.77
0.57
0.76
0.56
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except for per share data)
Additional Paid-In Capital
Retained Earnings
Unearned Shares in Empl. Stock Ownership Plan
Accumulated Other Comprehensive Income (Loss)
Total Stockholders’ Equity
Common Stock
Class A Shares
Class BShares
Amount
BALANCE, January 1, 2001
14,512
2,105
Conversion of Class B to Class A
49
(49
Conversion of Capital Trust Preferred to Class A Common
40
10
390
400
Stock Options exercised, net of stock redeemed
117
17
34
702
(283
453
Dividend declared
Common:Class A ($0.132 per share)
(1,832
Class B ($0.120 per share)
(250
Repurchase of Class A Common
(757
(180
(1,509
(6,052
(7,741
Commitment of 18,319 shares to be released under the Employee Stock Ownership Plan
18
(54
237
183
Net change in accumulated other comprehensive income (loss)
Net Income
BALANCE, September 30, 2001
13,979
2,073
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (in thousands)
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, net
2,749
3,080
FHLB stock dividends
(903
(818
Provision for loan losses
Net (gain) loss on sale of securities
(1,313
161
(3,775
(936
Proceeds from sale of mortgage loans held for sale
349,822
81,000
Origination of mortgage loans held for sale
(355,939
(77,528
Employee Stock Ownership Plan expense
134
Changes in assets and liabilities:
Accrued interest receivable and other assets
2,026
(846
Accrued interest payable and other liabilities
5,353
2,039
Net cash provided by operating activities
13,366
17,073
INVESTING ACTIVITIES:
Purchases of securities available for sale
(167,597
(61,034
Purchases of securities to be held to maturity
(88,109
Proceeds from maturities and paydowns of securities to be held to maturity
124
15,803
Proceeds from maturities and paydowns of securities available for sale
120,895
35,532
Proceeds from sales of securities available for sale
102,063
27,569
Net increase in loans
(32,332
(95,266
Purchases of premises and equipment, net
(2,742
(3,798
Net cash provided by (used in) investing activities
20,411
(169,303
FINANCING ACTIVITIES:
Net increase (decrease) in deposits
(16,572
44,669
Net change in securities sold under agreements to repurchase and other short-term borrowings
(40,545
16,857
Payments on other borrowed funds
(74,851
(165,668
Proceeds from other borrowed funds
126,630
215,984
Common stock options exercised
Repurchase of Class A Common Stock
(954
Cash dividends paid
(2,140
(1,772
Net cash provided by (used in) financing activities
(14,766
109,116
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
19,011
(43,114
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
67,527
CASH AND CASH EQUIVALENTS, END OF PERIOD
59,226
24,413
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest
47,144
48,540
Income taxes
3,486
4,467
SUPPLEMENTAL NONCASH DISCLOSURES:
Transfers from loans to real estate acquired in settlement of loans
501
956
Transfers from securities to be held to maturity to securities available for sale
102,153
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. (Parent Company) and its wholly-owned subsidiaries: Republic Bank & Trust Company and Republic Bank & Trust Company of Indiana (collectively “Bank”), Republic Capital Trust and Republic Mortgage Company (all wholly owned subsidiaries and parent company to be collectively referred to as “Republic”). The consolidated financial statements also include the wholly-owned subsidiaries of Republic Bank & Trust Company: Republic Financial Services, LLC (d/b/a Refunds Now) and Republic Insurance Agency, Inc. All significant intercompany balances and transactions have been eliminated.
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, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. 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, 2000.
New Accounting Pronouncements – Effective January 1, 2001, a new accounting standard required all derivatives to be recorded 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’s use of derivatives is limited. Mandatory forward contracts are used to manage the interest rate risk associated with its mortgage banking transactions. The change in the fair value of the mandatory forward contracts had an insignificant impact on the financial statements during 2001.
Also, as allowed with the adoption of this standard, on January 1, 2001, Republic transferred substantially all of its securities in the held to maturity portfolio into the available for sale portfolio. As a result of this transaction, accumulated other comprehensive income increased $273,000.
Reclassifications - Certain amounts have been reclassified in the prior period financial statements to conform to the current period classifications.
2. SECURITIES
Securities Available For Sale:
September 30, 2001
(in thousands)
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
U.S. Treasury Securities and U.S. Government Agencies
46,434
1,184
47,618
Mortgage-backed securities
174,195
2,085
(489
175,791
Other securities
125
Total securities available for sale
220,754
3,269
Securities To Be Held To Maturity:
1,000
(13
987
Obligations of state and political subdivisions
200
4
204
288
(9
279
Total securities to be held to maturity
(22
1,470
Securities having an amortized cost of $215 million and a fair value of $217 million at September 30, 2001, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes, as required or permitted by law.
3. LOANS
December 31, 2000
Residential real estate
599,646
633,328
Commercial real estate
312,329
256,834
Real estate construction
83,614
77,437
Commercial
27,385
30,008
Consumer
28,863
31,121
Home equity
121,764
115,467
2,223
1,541
Total loans
1,175,824
1,145,736
Less:
Unearned interest income and unamortized loan fees
1,119
1,343
Allowance for loan losses
8,549
7,862
Loans, net
The following table sets forth the changes in the allowance for loan losses:
Three months ended Sept. 30,
Nine months ended Sept. 30,
Balance, beginning of period
7,902
Provision charged to income
Charge-offs
(435
(215
(2,806
(1,652
Recoveries
513
176
1,287
646
Balance, end of period
Information about Republic’s investment in impaired loans is as follows:
Sept. 30, 2001
Loans with no allocated allowance for loan losses
0
Loans with allocated allowance for loan losses
112
767
Total
Amount of the allowance for loan losses allocated
385
Average of impaired loans during the period
592
714
Interest income recognized during impairment
Cash-basis interest income recognized
4. DEPOSITS
Demand (NOW, Super NOW and Money Market)
131,663
137,272
Internet money market accounts
58,582
69,239
Savings
15,562
12,584
Money market certificates of deposit
122,293
76,818
Individual retirement accounts
34,698
32,933
Certificates of deposit, $100,000 and over
91,259
106,313
Other certificates of deposit
273,052
321,285
Total interest bearing deposits
Total non-interest bearing deposits
847,189
863,761
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 letters of credit and private insurance bonds 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.
September 30, 2000
Average outstanding balance
247,241
234,104
Average interest rate
3.96
%
5.55
Maximum outstanding at month end
240,558
258,392
6. OTHER BORROWED FUNDS
Sept. 30,
Federal Home Loan Bank convertible fixed rate advances with weighted average interest rate of 5.39%(1) (2) (3)
140,000
60,000
Federal Home Loan Bank variable interest rate advances
40,000
Federal Home Loan Bank fixed interest rate advances, with weighted average interest rate of 6.12% at Sept. 30, 2001, due through 2031
157,829
146,050
(1) During December 1998, Republic entered into a convertible fixed-rate advance totaling $10 million with a ten-year maturity. The advance was fixed for three 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.
(2) During the fourth quarter of 2000 and the first quarter of 2001, Republic entered into $95 million in convertible fixed rate advances with maturities of three, five and ten years. These advances have coupons ranging from 4.78% to 6.40% and are fixed for periods of one to five years. At the end of the fixed term, the FHLB has the right to convert the fixed rate advances on a quarterly basis to variable rate advances tied to the three-month LIBOR index. The advances can be prepaid at any quarterly date without penalty, but may not be prepaid at any time during the fixed rate term.
(3) During the second and third quarters of 2001, Republic entered into $35 million in convertible fixed rate advances with maturities of ten years. These advances have coupons ranging from 4.40% to 5.20% and are fixed for periods of two to five years. At the end of the fixed term, the FHLB has the right to convert the fixed rate advances on a quarterly basis to variable rate advances tied to the three-month LIBOR index. The advances can be prepaid at any quarterly date without penalty, but may not be prepaid at any time during the fixed rate term.
The Federal Home Loan Bank advances are collateralized by a blanket pledge of eligible real estate loans with an unpaid principal balance of greater than 135% of the outstanding advances. Republic has sufficient collateral to borrow approximately $28 million in additional funds from the Federal Home Loan Bank. Republic also has unsecured lines of credit totaling $40 million and secured lines of $115 million available through various financial institutions that were unused as of September 30, 2001.
Aggregate future principal payments on borrowed funds as of September 30, 2001 are as follows:
Year
10,000
2002
95,145
2003
90,000
2004
35,000
2005 and beyond
67,684
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 are 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, if any, results solely from the 10% per share dividend premium paid on Class A Common Stock over that paid on Class B Common Stock. The aggregate dividend premium paid on Class A Common Stock for the third quarter of 2001 and 2000 was approximately 0.4 cents and 0.3 cents, respectively, on basic earnings per share. The aggregate dividend premium paid on Class A Common Stock for the nine months ended September 30, 2001 and 2000 was approximately 1.2 cents and 0.9 cents, respectively, on basic earnings per share.
Three months ended
Nine months ended
Earnings Per Share:
Net Income available to common shares outstanding
Weighted average shares outstanding
16,022
16,597
16,141
16,635
Earnings per share, basic:
Earnings Per Share Assuming Dilution:
Add: Interest expense, net of tax benefit, on assumed conversion of guaranteed preferred beneficial interests in Republic’s subordinated debentures
85
87
256
261
Net Income available to common shareholder assuming conversion
3,797
3,155
13,213
10,042
Add dilutive effects of assumed conversion and exercise:
Convertible guaranteed preferred beneficial interest in Republic’s subordinated debentures
612
635
627
Stock options
448
253
367
284
Weighted average shares and dilutive potential shares outstanding
17,082
17,485
17,135
17,554
Earnings per share assuming dilution:
Stock options for 199,000 and 264,000 shares of Class A Common Stock were excluded from the three months ended September 30, 2001 and 2000 earnings per share assuming dilution because their impact was antidilutive.
Stock options for 210,000 and 275,000 shares of Class A Common Stock were excluded from the nine months ended September 30, 2001 and 2000 earnings per share assuming dilution because their impact was antidilutive.
8. SEGMENT INFORMATION
The reportable segments are determined by the products and services offered and are primarily distinguished between banking, tax refund services and mortgage banking. Loans, investments, deposits and fees provide the revenue for banking operations, fees from refund anticipation loans and electronic refund checks provide the revenue for tax refund services; and servicing fees and loan sales provide the revenue for 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 and indirect expenses are allocated based on revenue. Transactions among segments are made at fair value. Referral fees paid to the Bank by the Mortgage Banking operations are reflected in other revenue. Information reported internally for performance assessment follows:
Quarter Ended September 30, 2001
Tax Refund
Mortgage
Consolidated
Banking
Services
Totals
Net interest income
13,945
216
Net gain on sale of loans
Other revenue
3,185
(542
2,652
Income tax expense
1,852
(205
286
Segment profit
3,613
551
Segment assets
1,493,584
1,423
19,079
Quarter Ended September 30, 2000
12,108
234
1,752
28
(93
1,687
1,500
(36
58
3,024
(70
114
1,481,173
255
9,946
1,491,374
Nine Months Ended September 30, 2001
40,591
3,282
583
1,137
1,069
9,778
(1,600
8,202
5,207
725
10,341
1,177
Nine Months Ended September 30, 2000
36,478
2,566
206
659
4,568
105
(300
4,373
3,886
742
116
8,115
1,440
226
ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Republic Bancorp, Inc. (“Republic” or the “Company”), headquartered in Louisville, Kentucky, was incorporated on January 2, 1974. Republic Bank & Trust Company and Republic Bank & Trust Company of Indiana (collectively “Bank”) are commercial banking and trust corporations organized and chartered under the laws of the Commonwealth of Kentucky and state of Indiana, respectively. Republic Bank & Trust Company is headquartered in Louisville, Kentucky and provides banking services through 21 banking centers throughout Kentucky. Republic Bank & Trust Company of Indiana is headquartered and conducts its banking business in Clarksville, Indiana. The activities of both Banks include the acceptance of deposits for checking, savings and time deposit accounts, making secured and unsecured loans, investing in securities, tax refund processing services, trust and insurance services. The Banks’ 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, municipalities and corporations. Governmental 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 and Indiana Departments 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.
Net income for the third quarter of 2001 was $3.7 million, up $644,000 over the same period in 2000. Third quarter diluted earnings per share increased 22% over the same period in 2000, to $0.22. Republic’s increased earnings were primarily due to increases in net interest income, service charges on deposit accounts and gain on sale of loans into the secondary market. The increase in diluted earnings per share was also caused, in part, by a decrease in weighted average shares and diluted potential shares outstanding resulting from the “Dutch auction” tender offer completed during the first quarter of 2001.
Net income for the nine months ended September 30, 2001 was $13.0 million, compared to $9.8 million for the same period in 2000. Republic’s book value per common share, exclusive of accumulated other comprehensive income, increased from $6.94 at September 30, 2000 to $7.57 at September 30, 2001.
Republic’s total assets remained consistent at $1.5 billion at September 30, 2001. Net loans increased $30 million from December 31, 2000 to $1.2 billion at September 30, 2001. Residential real estate loans decreased during 2001 as declining market interest rates caused an increase in 1-4 family refinancing activity into fixed-rate, secondary market loan products. Commercial real estate lending remained strong with originations of loans and lines of credit totaling $172 million for the first nine months of 2001. Increased loan volume also resulted in favorable growth of the real estate construction portfolio. While overall loan volume remained strong, the percentage of non-performing loans to total loans remained low at 0.40%, as the Bank maintained its underwriting standards and continued its emphasis on secured real estate lending. Due to changes in the economy and the Bank’s loan portfolio, the allowance for loan losses was increased $647,000 during the third quarter to $8.6 million. (See discussion for provision/allowance for loan losses on page 25 of this document for more information).
Net Interest Income. For the third quarter and the first nine months of 2001, the Company was able to increase its net interest income primarily through growth in the average loan portfolio. Additionally, net interest income also benefited from a significant decline in the Company’s cost of funds due to a reduction in short-term market interest rates. Management continued its focus during the third quarter of 2001 of reducing the Company’s emphasis on higher cost certificates of deposit in favor of lower cost transactional deposit accounts.
Table 1 and Table 2 provide detailed information as to average balance, interest income/expense, and rates by major balance sheet category for the quarter and nine months ended September 30, 2001 and 2000.
Table 1 - - Average Balance Sheet Rates for Third Quarter, 2001 and 2000 (dollars in thousands)
Third Quarter Ended Sept. 30, 2001
Third Quarter Ended Sept. 30, 2000
Average
ASSETS
Balance
Rate
Earning Assets:
U.S. Treasury and U.S. Government Agency Securities
51,934
706
5.44
120,836
1,796
5.95
State and Political Subdivision Securities
6.00
1,152
8.33
Other Investments
21,874
370
6.77
34,057
599
7.04
Mortgage-Backed Securities
175,685
2,326
5.30
115,916
2,022
6.98
Federal Funds Sold and Securities Purchased Under Agreements to Resell
33,262
3.34
1,658
6.76
Total Loans and Fees
1,189,103
8.28
1,126,124
9.03
Total Earning Assets
1,472,058
7.69
1,399,743
8.54
Less: Allowance for Loan Losses
(7,929
(7,862
Non-Earning Assets:
Cash and Due From Banks
27,721
25,130
Bank Premises and Equipment, Net
19,409
19,776
Other Assets
12,591
14,403
Total Assets
1,523,850
1,451,190
LIABILITIES AND STOCKHOLDERS’EQUITY
Interest Bearing Liabilities:
Transaction Accounts
218,309
1,202
2.20
149,915
1,221
3.26
Money Market Accounts
109,147
871
3.19
107,601
1,411
5.25
Individual Retirement Accounts
34,259
506
5.91
31,429
476
6.06
Certificates of Deposit and Other Time Deposits
369,256
5,262
5.70
446,606
6,650
5.96
Repurchase Agreements and Other Short-Term Borrowings
242,797
3.08
248,668
5.97
Other Borrowings
297,785
246,413
6.53
Total Interest Bearing Liabilities
1,271,553
4.44
1,230,632
5.69
Non-Interest Bearing Liabilities:
Non-Interest Bearing Deposits
114,573
96,820
Other Liabilities
16,246
12,996
Stockholders’ Equity
121,478
110,742
Total Liabilities and Stockholders’ Equity
Net Interest Income
Net Interest Spread
3.25
2.85
Net Interest Margin
3.85
3.54
For the purposes of these calculations, non-accruing loans are included in the quarterly average loan amounts outstanding.
Table 2 - Average Balance Sheet Rates for Nine Months Ended, 2001 and 2000 (dollars in thousands)
Nine Months Ended Sept. 30, 2001
Nine Months Ended Sept. 30, 2000
Average Balance
Average Rate
71,750
3,026
5.62
119,326
5,258
5.88
242
4.96
2,415
158
8.72
30,409
1,491
6.54
33,697
1,674
6.62
153,201
6,500
5.66
112,507
5,727
6.79
25,869
813
4.19
6,384
276
5.76
1,181,145
8.87
1,100,406
9.04
1,462,616
8.25
1,374,735
8.50
(7,886
26,456
24,885
19,387
19,458
12,786
14,569
1,513,359
1,425,785
202,347
2.69
136,765
3,020
2.94
115,770
3,448
3.97
114,108
4,224
4.94
33,376
1,503
30,363
1,308
5.74
387,215
17,180
5.92
443,176
18,783
5.65
279,001
244,824
6.18
1,264,950
4.85
1,203,340
5.36
114,196
101,422
14,584
12,983
119,629
108,040
3.40
3.14
4.05
3.81
For the purposes of these calculations, non-accruing loans are included in the nine months average loan amounts outstanding.
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 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 3 - Volume/Rate Variance Analysis (in thousands)
Three months ended Sept. 30, 2001
Nine months ended Sept. 30, 2001
Compared to
Three months ended Sept. 30, 2000
Nine months ended Sept. 30, 2000
Increase/(Decrease)
due to
Change
Volume
Interest Income:
U.S. Treasury and Government Agency Securities
(1,090
(948
(142
(2,232
(2,015
(217
(21
(16
(5
(149
(101
(48
(229
(206
(23
(183
304
(567
773
(1,062
Federal Funds Sold
250
271
537
632
(95
Total Loans and Fees (1) (2)
(812
1,374
(2,186
4,027
5,393
(1,366
Net Change
(1,598
1,346
(2,944
2,773
5,583
(2,810
Interest Expense:
Interest Bearing Transaction Accounts
(19
452
(471
1,059
1,342
(540
20
(560
(776
61
(837
30
42
(12
195
(1,388
(1,112
(276
(1,603
(2,453
850
(1,843
(86
(1,757
(2,411
521
(2,932
379
784
(405
1,103
1,537
(434
(3,381
100
(3,481
(2,433
1,142
(3,575
Increase in Net Interest Income
1,783
1,246
5,206
4,441
765
(1) The amount of fees on loans in total interest income was approximately $680 and $536 for the quarters ended September 30, 2001 and 2000, respectively.
(2) The amount of fees on loans in total interest income was approximately $4,841 and $3,115 for the nine months ended September 30, 2001 and 2000, respectively.
Non-Interest Income. Non-interest income rose during the third quarter and nine-month period ended September 30, 2001, due to increases in gain on sale of loans and service charges on deposits. Additionally, increases in Electronic Refund Check fees, title insurance commissions and securities gains were key components of the rise in non-interest income during the nine months ended September 30, 2001.
Net gain on sale of loans increased 348% during the third quarter of 2001 and 303% during the first nine months of 2001 as declining market interest rates prompted an increase in consumer refinance activity of 1-4 family fixed-rate residential loans, which Republic generally sells into the secondary market. Revenue from mortgage banking activities, principally gains on sale of loans, increased during the three- and nine-month periods September 30, 2001, as a result of increased secondary market sales volume. As a percentage of loans sold, gain on sale decreased due primarily to a promotional mortgage loan product that reduced the amount of fees charged to the client. Overall the Bank originated $116 million in mortgage loans available for sale during the third quarter of 2001 compared to $22 million during the same period in 2000. The Bank also originated $356 million in loans available for sale during the nine months ended September 30, 2001 compared to $78 million during the same period in 2000. The market’s interest-rate environment heavily influences secondary market residential loan originations and, correspondingly, consumer-refinance activity. Generally, long-term market interest rates during 2001 have been substantially below 2000 levels, which has led to higher secondary market originations and sales volumes this year. Management anticipates that the level of 1-4 family refinancing volume will continue at or above current levels during the fourth quarter of 2001.
Service charges on deposit accounts was positively affected by the Bank’s new “Overdraft Honor” program. Overdraft related fees increased $440,000 for the third quarter of 2001 and $1.3 million for the first nine months of 2001 compared to the same periods in 2000. The “Overdraft Honor” program permits selected clients to automatically overdraft their accounts up to $500 for the Bank’s customary fee. At September 30, 2001 the Bank had 23,000 accounts in the program.
The Bank receives substantially all Electronic Refunds Check fees during the first quarter of the fiscal year. Electronic Refund Check fees increased $1.0 million during the first nine months of 2001. This increase was due to a 65% increase in overall ERC volume compared to prior year resulting from successful marketing efforts during the last half of 2000. The Company has continued its aggressive marketing strategies in order to increase its overall market share in this line of business.
Title insurance commissions increased $245,000 for the quarter ended and $914,000 for the nine months ended September 30, 2001. Because the Bank began offering this product on July 1, 2000, the nine month figures for 2000 reflect only 3-months activity. As a result, title insurance commissions for the nine months ended September 30, 2001 reflects a significant increase over nine months ended September 20, 2000. Additionally, the large volume of refinance activity in 1-4 family residential real estate loans during 2001 contributed to the increase for the quarter and nine months ended September 30, 2001.
A declining interest-rate environment during the first nine months of 2001 also led to an increase in the market value of the available for sale securities portfolio. Republic sold $14 million and $101 million of securities available for sale during the three months and nine months ended September 30, 2001 resulting in overall gains of $159,000 and $1.3 million, respectively. Approximately $67 million of these securities were subject to rapid prepayment due to the declining interest environment. Republic also had $5 million and $60 million in securities that were called during the third quarter and nine months ended September 30, 2001 resulting in additional recognized gains of $4,000 and $252,000, respectively.
Non-Interest Expense. Non-interest expense increased during the third quarter and nine-month period ended September 30, 2001 compared to the same period in 2000. The most significant factors comprising the increase in non-interest expense for the third quarter and nine months ended September 30, 2001 were increases in salaries and benefits, marketing and legal expenses.
Salary and employee benefits increased for both the three-month and nine-month periods ended September 30, 2001. The increase was attributable to annual merit increases and associated incentive compensation accruals, additions to commercial lending and cash management professional sales staff, additions to staff and overtime at Refunds Now and additional staff to support the strong loan origination volume attained during the first nine months of 2001. Total full-time equivalent employees (FTE’s) increased to 513 at September 30, 2001 from 465 at September 30, 2000.
Marketing and development increased during the three-month and nine-month period ended September 30, 2001. The increase was attributable to the Company’s aggressive direct-mail marketing campaign for the “Absolutely Free Checking” product and enhanced radio marketing for the Bank’s fixed-rate secondary market loan products.
Legal expenses increased $181,000 for the third quarter of 2001 over the same period in 2000 and $564,000 for the nine months ended September 30, 2001 over the first nine months of 2000. The increase was attributable to the patent litigation at Refunds Now. All parties have agreed to settle the matter, and as a result, legal fees are expected to reduce to historical levels sustained in the normal course of business prior to the initiation of the patent litigation. (For further discussion, see Part II, Item 1, Legal proceedings on page 32 of this 10Q.)
Securities available for sale. Securities available-for-sale consists primarily of mortgage-backed securities, collateralized mortgage obligations (CMO’s), U.S. Treasury and U.S. Government Agencies. Excluding CMO’s and other mortgage-backed securities, investments in the AFS category have an increased weighted-average maturity of 3.3 years compared to 2.8 years at December 31, 2000. Securities available-for-sale increased from $172 million at December 31, 2000 to $224 million at September 30, 2001. On January 1, 2001, Republic reclassified substantially all of its securities to be held to maturity into the available for sale category as permitted by SFAS No. 133.
Securities to be held to maturity. Securities to-be-held-to-maturity decreased from $104 million at December 31, 2000 to $1.5 million at September 30, 2001. The decrease occurred due to the reclassification of substantially all of these securities into the available for sale category on January 1, 2001.
Mortgage loans held for sale. Mortgage loans held for sale is primarily comprised of fixed-rate, single family residential loans the Company intends to sell into the secondary market. Management has elected to sell the majority of its fixed-rate residential loans into the secondary market in order to reduce its exposure to market interest rate risk. Mortgage loans held for sale increased to $15.1 million at September 30, 2001 as lower long-term market interest rates has led to an increase in the number of customers electing to refinance into fixed-rate secondary market loan products.
Loans. Net loans, primarily consisting of secured real estate loans, increased slightly by $30 million to $1.2 billion at September 30, 2001. Republic’s commercial real estate lending portfolio increased $55 million from December 31, 2000 as a result of the Bank’s continued emphasis on commercial real estate lending. Republic maintained consistent volume in the real estate construction portfolio as a result of steady customer demand. Residential real estate loans declined $34 million as refinance activity increased. Many adjustable rate portfolio loans were refinanced into fixed-rate, secondary market loans as consumers elected to take advantage of a generally declining long-term interest rate environment.
Allowance and Provision for Loan Losses. The provision for loan losses was $569,000 in the third quarter of 2001, compared to $39,000 in the third quarter of 2000. The increase during the quarter was largely attributable to management’s decision to increase the allowance for loan losses. For the nine months ended September 30, 2001 the provision for loan losses was $2.2 million compared to $1.0 million during the same period in 2000. The higher provision for loan losses in 2001 compared to 2000 was primarily attributable to an increase in estimated losses associated with the higher volume of Refund Anticipation Loans at Refunds Now as well as the overall increase in the allowance.
While Refunds Now transaction volume increased, net charge-offs from refund anticipation loans also increased from $347,000 for the nine months ended September 30, 2000 to $1.1 million for the same period in 2001. This increase was attributable to higher overall volume, and to a lesser extent, losses attributable to limited errors in information received from third parties that Refunds Now utilizes, in part, in connection with its underwriting criteria. Excluding the net charge-offs related to Refunds Now, net charge-offs for the Bank’s traditional loan portfolios decreased from $659,000 for the nine months of 2000 to $450,000 during the same period in 2001.
The total allowance for loan losses increased $687,000 to $8.5 million from December 31, 2000 to September 30, 2001. Management elected to increase the allowance for loan losses due to the continued strong growth in commercial real estate lending during the quarter, a slowing in the U.S. economy during the quarter and an overall change in the product mix within the loan portfolio. Management believes, based on information presently available, that it has adequately provided for loan losses at September 30, 2001. Management continues to monitor the commercial real estate loan portfolio closely, recognizing that commercial real estate loans generally carry a greater risk of loss than residential real estate loans. Management believes that it had provided an adequate component within the allowance for loans associated with the growth in commercial real estate lending.
Table 4 below depicts the allowance activity by loan type for the quarter and nine months ended September 30, 2001 and 2000.
Table 4 - Summary of Loan Loss Experience
Three months ended September 30,
Nine months ended September 30,
Allowance for loan losses:
Balance-beginning of period
Charge-offs:
Real Estate
(326
(97
(673
(73
(114
(38
(113
(600
(441
Tax Refund Loans
(1,550
(500
Recoveries:
411
7
419
44
6
16
11
99
163
438
481
153
Net charge-offs
78
(39
(1,519
(1,006
Balance-end of period
Deposits. Total deposits were $847 million at September 30, 2001 compared to $864 million at December 31, 2000. Non-interest bearing deposits increased $13 million since December 31, 2000 to $120 million as management continues to focus on gathering lower cost funds through the Company’s free checking promotion and Cash Management area. Because these funds are primarily transaction based, they are likely to have fluctuating balances from period to period.
Money market certificates of deposit increased $45 million as declining market interest rates prompted certificate of deposit clients to switch their maturing deposits into more liquid investment vehicles. Certificates of deposits decreased $63 million as management pursued a strategy of lowering its rates on high-cost, retail certificates of deposit while utilizing lower-cost, longer-term Federal Home Loan Bank borrowings during the first nine months of 2001.
Securities sold under agreements to repurchase and other short-term borrowings. Securities sold under agreements to repurchase and other short-term borrowings declined $41 million. Approximately $31 million of this decrease occurred as funds received from securities sold during the year were utilized to reduce short-term borrowings. In addition, securities sold under agreements to repurchase declined due to decreases in a small number of the Company’s larger cash management accounts. These accounts are subject to large periodic changes in balances; however, the Company continues to maintain positive banking relationships with each of these clients.
Other borrowed funds. Other borrowed funds consists primarily of borrowings from the Federal Home Loan Bank. Management elected to extend borrowings in this category during 2001 in order to improve its overall interest rate risk position and lower its current cost of funds. The Company borrowed $123 million during 2001 with $40 million fixed for 5 years. The remaining $83 million in borrowings are callable by the Federal Home Loan Bank after their respective fixed-rate periods, ranging from one to five years. These advances have a maturity of five to ten years if not called earlier by the Federal Home Loan Bank.
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 September 30, 2001, Republic had $131,000 in consumer loans 90 days or more past due compared to $116,000 at December 31, 2000.
The Bank’s level of delinquent loans increased to 1.41% at September 30, 2001, up from 1.27% at December 31, 2000. Republic experienced a modest increase in total non-performing loans from $4.1 million at December 31, 2000 to $4.7 million at September 30, 2001. Other real estate owned increased marginally from $478,000 at December 31, 2000 to $537,000 at September 30, 2001. Management does not consider the overall increase in non-performing assets during the period to be material or indicative of any adverse change in the overall asset quality of the Bank’s loan portfolio.
Table 5 provides information related to non-performing assets and loans 90 days or more past due.
Table 5 - Non-Performing Loans
(dollars in thousands)
Loans on non-accrual status
4,128
3,100
Loans past due 90 days or more
619
984
Total non-performing loans
4,747
4,084
Other real estate owned
478
Total non-performing assets
5,284
4,562
Percentage of non-performing loans to total loans
0.40
0.36
Percentage of non-performing assets to total loans
0.45
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 loans have 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, which are a component of loans on non-accrual status, decreased from $767,000 at December 31, 2000 to approximately $112,000 at September 30, 2001.
LIQUIDITY
Republic maintains sufficient liquidity 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 retail deposit markets. Approximately $61 million of deposits, repurchase agreements and short-term borrowings collateralized by investment securities, private insurance bonds and Federal Home Loan Bank letters of credit are attributable to three customer relationships at September 30, 2001. These funds are short-term in nature and subject to immediate withdrawal by those entities. Should these funds be withdrawn, Republic has the ability to replenish them through alternative funding sources, including 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. (See Note 6 regarding other borrowed funds for additional information on available credit lines).
CAPITAL
Total capital increased from $117 million at December 31, 2000 to $123 million at September 30, 2001. The increase in capital was primarily attributable to net income during the first nine months of 2001, increases in accumulated other comprehensive income and stock options exercised by Republic’s employees. These increases were largely offset by a “Dutch Auction” tender offer completed in March 2001. Under this tender offer, Republicpurchased 747,319 shares of the Company’s Class A Common Stock at a cost of $10 per share. The overall reduction to capital attributable to the tender offer was $7.6 million. The offer to purchase commenced February 12, 2001 and expired on March 13, 2001.
Republic’s board of directors approved a Class A share repurchase program of 500,000 shares during 1998 and 1999. Under the repurchase program, Republic repurchased approximately 451,000 shares through September 30, 2001 with a weighted average cost of $10.05, and a total cost of $4.5 million. Republic purchased 9,750 of these shares during the first nine months of 2001 at a weighted average cost of $12.55. Republic is authorized to buyback an additional 49,000 shares of Class A Common Stock under the current program as of September 30, 2001.
During the second quarter of 2001, the board of directors of Republic Bank & Trust Company approved a $5 million dividend to Republic Bancorp, Inc. The Parent Company then utilized the $5 million dividend as a capital contribution to its newly formed, wholly owned banking subsidiary, Republic Bank & Trust Company of Indiana.
Regulatory agencies measure capital adequacy within a framework that makes capital requirements, in part, dependent on the individual risk profiles of financial institutions. Republic continues to exceed the regulatory requirements for Tier I, Tier I leverage and total risk–based capital. The Bank intends to maintain a capital position that meets or exceeds the "well capitalized" requirements as defined by the FDIC. 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 7.90% at September 30, 2001 compared to 7.58% at December 31, 2000.
Table 6 - Capital Ratios
Minimum
Requirement
To Be Well
Capitalized
For Capital
Under Prompt
As of September 30, 2001
Actual
Purposes
Action Provisions
Ratio
Total Risk Based Capital (to Risk Weighted Assets)
135,891
13.64
79,675
8
99,594
Republic Bank & Trust Company
126,430
12.80
79,003
98,754
Republic Bank & Trust Company of Indiana
5,056
66.21
611
764
Tier I Capital (to Risk Weighted Assets)
127,342
12.79
39,838
59,757
117,968
11.95
39,502
59,252
4,969
65.07
305
458
Tier I Leverage Capital (to Average Assets)
8.36
60,947
76,184
5
7.78
60,634
75,793
62.32
319
399
Kentucky banking laws limit the amount of dividends that may be paid to Parent Company by Republic Bank & Trust Company without prior approval of the Kentucky Department of Financial Institutions. Under these laws, the amount of dividends that may be paid in any calendar year is limited to current year's net income, as defined in the laws, combined with the retained net income of the preceding two years, less any dividends declared during those periods. At September 30, 2001, Republic Bank & Trust Company had approximately $12 million of retained earnings that could be utilized for payment of dividends if authorized by its board of directors without prior regulatory approval.
Indiana banking laws prohibit the payment of dividends to the Parent Company by Republic Bank & Trust Company of Indiana for a period of three years without prior approval of the Indiana Department of Financial Institutions. These laws also require a minimum Tier I Capital ratio of 8% to be maintained for a period of three years.
Asset/liability management control is designed to ensure safety and soundness, maintain liquidity and regulatory capital standards, and achieve acceptable net interest income. Interest rate risk is the exposure to adverse changes in the net interest income as a result of market fluctuations in interest rates. Management, on an ongoing basis, monitors interest rate and liquidity risk in order to implement appropriate funding and balance sheet strategies. Management considers interest rate risk to be Republic’s most significant market risk.
Republic utilizes an earnings simulation model to analyze net interest income sensitivity. Potential changes in market interest rates and their subsequent effects on net 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, 2000 to September 30, 2001 as management pursued a strategy of extending liabilities to reduce the sensitivity of the Company’s balance sheet to fluctuations in market interest rates. Given a sustained 100 basis point downward shock to the yield curve used in the simulation model, Republic’s base net interest income would decrease by an estimated 0.46% at September 30, 2001 compared to an increase of 2.22% at December 31, 2000. Given a 100 basis point increase in the yield curve Republic’s base net interest income would decrease by an estimated 2.46% at September 30, 2001 compared to a decrease of 3.85% at December 31, 2000. Management elected to shift a portion of Republic’s funding from short-term repricing liabilities to longer-term FHLB borrowings with fixed interest rates from one to five years. (See discussion regarding other borrowed funds on page 26 of this document.) In addition to moderating the Company’s interest rate risk position, this strategy minimized potential additional income from future rate decreases and reduced the negative impact on potential income resulting from future rate increases.
The interest sensitivity profile of Republic at any point in time will be affected by a number of factors. These factors include the mix of interest sensitive assets and liabilities as well as their relative pricing schedules. It is also influenced by market interest rates, deposit growth, loan growth, and other factors. The table below is representative only and is not a precise measurement of the effect of changing interest rates on Republic’s net interest income in the future.
Table 7 - Interest Rate Sensitivity
Decrease in Rates
Increase in Rates
Basis Points
Base
Projected interest income
Loans
82,162
85,778
89,732
92,791
95,860
Investments
9,691
10,760
11,460
12,460
13,622
Short-term investments
133
389
648
790
689
91,986
96,927
101,840
106,041
110,171
Projected interest expense
17,724
20,739
23,898
27,460
30,923
Repurchase agreements and other borrowings
20,491
21,998
23,504
25,481
27,443
38,215
42,737
47,402
52,941
58,366
53,771
54,190
54,438
53,100
51,805
Change from base
(667
(248
(1,338
(2,633
% Change from base
-1.23
-0.46
-2.46
-4.84
100,645
105,004
108,130
112,093
115,729
14,868
16,447
18,160
19,738
21,027
246
194
162
89
115,759
121,645
126,452
131,920
136,862
35,333
40,182
43,051
47,458
51,500
23,709
26,784
29,911
33,031
36,026
59,042
66,966
72,962
80,489
87,526
56,717
54,679
53,490
51,431
49,336
3,227
1,189
(2,059
(4,154
6.03
2.22
-3.85
-7.77
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 on page 29 and 30 of Part 1, Item 2., Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this report.
PART II – OTHER INFORMATION
Item 1. Legal proceedings
Reference is made to the Company’s Annual Report on Form 10-K for the period ended December 31, 2000, in which information was reported regarding the litigation brought by Beneficial Franchise Company, Inc. against the Bank and others. The Court has been informed that all parties to this litigation have reached confidential settlements with the Plaintiff. It is expected that pursuant to the settlements, all parties will either have submitted or will soon submit stipulations to dismiss all claims with prejudice. All hearing dates and pending motions before the Court have been stricken as moot pursuant to the settlements. The settlement entered into by the Company will have no restrictions or limitations on the Company's ability to continue to pursue or expand its rapid tax refund business now or in the future.
Item 2. Changes in securities
During the third quarter of 2001, Republic issued approximately 49,000 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.
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.
(Registrant)
Principal Executive Officer:
Date:
November13, 2001
/s/ Steven E. Trager
Steven E. Trager
Chief Executive Officer
Principal Financial Officer:
/s/ Kevin Sipes
Kevin Sipes
Chief Financial Officer &
Chief Accounting Officer
EXHIBIT INDEX
Incorporated
Exhibit
Description
By Reference To
10.24
Assignment of lease of 610 Eastern Blvd.
Filed as exhibit 10.24 of
to Republic Bank & Trust Co. of Indiana
this Form 10-Q for the period ended
10.25
Extension of lease of 601 W. Market St.
Filed as exhibit 10.25 of
Statement Regarding Computation of Per Share Earnings
Filed as Exhibit 11 of this Form 10-Q for the period ended September 30, 2001
15
Awareness Letter
Filed as Exhibit 15 of this
Form 10-Q for the period ended