UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2000 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 0-24649 REPUBLIC BANCORP, INC. (Exact name of registrant as specified in its charter) Kentucky 61-0862051 (State of other jurisdiction or (I.R.S. Employer Identification No.) incorporation or organization) 601 West Market Street, Louisville, Kentucky 40202 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (502) 584-3600 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No The number of shares outstanding of the issuer's class of common stock as of the latest practicable date: 14,521,431 shares of Class A Common Stock and 2,140,633 shares of Class B Common Stock as of May 5, 2000. The Exhibit index is on page 34. This filing contains 35 pages (including this facing sheet).
REPUBLIC BANCORP, INC. FORM 10-Q TABLE OF CONTENTS PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements 4-17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18-30 Item 3. Quantitative and Qualitative Disclosures about Market Risk 30 PART II - OTHER INFORMATION Item 1. Legal Proceedings 31 Item 2. Changes in Securities 31 Item 6. Exhibits and Reports on Form 8-K 31 Signatures 32
REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Shareholders Republic Bancorp, Inc. Louisville, Kentucky We have reviewed the consolidated balance sheet of Republic Bancorp, Inc. as of March 31, 2000 and the related consolidated statements of income and comprehensive income and cash flows for the year-to-date periods ended March 31, 2000 and 1999 and the consolidated statement of changes in stockholders' equity for the year-to-date period ended March 31, 2000. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles. Crowe, Chizek and Company LLP Louisville, Kentucky May 11, 2000
PART I ITEM 1 REPUBLIC BANCORP, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands) <TABLE> <CAPTION> March 31, December 31, 2000 1999 <S> <C> <C> ASSETS: Cash and due from banks $ 28,043 $ 20,827 Federal funds sold and securities purchased under agreements to resell 3,000 46,700 Securities available for sale 162,312 181,627 Securities to be held to maturity 93,240 32,931 Mortgage loans held for sale 6,438 7,408 Loans, less allowance for loan losses of $7,862 (2000 and 1999) 1,066,728 1,031,512 Federal Home Loan Bank stock 15,319 15,054 Accrued interest receivable 9,252 9,162 Premises and equipment, net 19,073 18,986 Other assets 6,454 4,776 ----------- ----------- TOTAL $ 1,409,859 $ 1,368,983 =========== =========== LIABILITIES: Deposits: Non-interest bearing $ 109,347 $ 84,256 Interest bearing 722,799 716,653 Securities sold under agreements to repurchase and other short-term borrowings 216,728 215,718 Other borrowed funds 233,814 231,383 Accrued interest payable 4,223 3,942 Guaranteed preferred beneficial interests in Company's subordinated debentures 6,352 6,352 Other liabilities 10,597 6,909 ----------- ----------- Total liabilities 1,303,860 1,265,213 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Class A and Class B Common stock, no par value 4,093 4,099 Additional paid-in capital 33,551 33,617 Retained earnings 76,526 73,600 Unearned Employee Stock Ownership Plan shares (3,548) (3,620) Accumulated other comprehensive income (loss) (4,623) (3,926) ----------- ----------- Total stockholders' equity 105,999 103,770 ----------- ----------- TOTAL $ 1,409,859 $ 1,368,983 =========== =========== </TABLE> See notes to consolidated financial statements.
REPUBLIC BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2000 AND 1999(in thousands, except per share data) <TABLE> <CAPTION> 2000 1999 <S> <C> <C> INTEREST INCOME: Loans, including fees $ 24,807 $ 20,511 Securities available for sale 2,617 2,707 Securities to be held to maturity: Taxable 1,171 332 Non-taxable 21 23 FHLB dividends 263 250 Other 203 32 -------- -------- Total interest income 29,082 23,855 -------- -------- INTEREST EXPENSE: Deposits 8,550 8,063 Short-term borrowings 2,813 1,245 Long-term debt 3,539 2,404 -------- -------- Total interest expense 14,902 11,712 -------- -------- NET INTEREST INCOME 14,180 12,143 PROVISION FOR LOAN LOSSES 535 854 -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 13,645 11,289 -------- -------- NON-INTEREST INCOME: Service charges on deposit accounts 934 848 Electronic refund check fees 955 861 Other service charges and fees 82 143 Loan servicing income 97 118 Net gain on sale of loans 201 1,397 Net gain(loss) on sale of securities (161) 130 Other 315 171 -------- -------- Total non-interest income 2,423 3,668 -------- -------- NON-INTEREST EXPENSE: Salaries and employee benefits 5,607 5,630 Occupancy and equipment 2,181 1,982 Communication and transportation 499 454 Marketing and development 383 333 Supplies 263 254 Other 1,680 1,236 -------- -------- Total non-interest expense 10,613 9,889 -------- -------- INCOME BEFORE INCOME TAXES 5,455 5,068 INCOME TAXES 1,804 1,704 -------- -------- NET INCOME $ 3,651 $ 3,364 ======== ======== (Continued) </TABLE>
REPUBLIC BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (in thousands, except per share data) <TABLE> <CAPTION> 2000 1999 <S> <C> <C> OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: Change in unrealized loss on securities $ (803) $ (752) Reclassification of realized amount 106 (86) -------- -------- Net unrealized loss recognized in comprehensive income (697) (838) -------- -------- COMPREHENSIVE INCOME $ 2,954 $ 2,526 ======== ======== EARNINGS PER SHARE Class A $ .22 $ .20 Class B $ .22 $ .20 EARNINGS PER SHARE ASSUMING DILUTION Class A $ .21 $ .19 Class B $ .21 $ .19 See accompanying notes to consolidated financial statements. </TABLE>
REPUBLIC BANCORP, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (in thousands, except for per share data) <TABLE> <CAPTION> Unearned Empl. Stock Accumulated Total Common Stock Additional Ownership Other Stock- Class A Class B Paid-In Retained Plan Comprehensive Holders' Shares Shares Amount Capital Earnings Shares Income(Loss) Equity <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> BALANCE, January 1, 2000 14,536 2,142 $4,099 $33,617 $73,600 $(3,620) $(3,926) $103,770 Conversion of Class B to Class A 1 (1) Dividend Declared Common: Class A ($.03575 per share) (521) (521) Class B ($.03250 per share) (69) (69) Repurchase of Class A Common (22) (6) (43) (135) (184) Commitment of 5,578 shares to be released under the Employee Stock Ownership Plan 6 (23) 72 49 Net changes in accumulated other comprehensive income (loss) (697) (697) Net Income 3,651 3,651 ------ ----- ------ ------- ------- ------- ------- -------- BALANCE, March 31, 2000 14,521 2,141 $4,093 $33,551 $76,526 $(3,548) $(4,623) $105,999 ====== ===== ====== ======= ======= ======= ======= ======== </TABLE> See notes to consolidated financial statements.
REPUBLIC BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (in thousands) <TABLE> <CAPTION> 2000 1999 <S> <C> <C> OPERATING ACTIVITIES: Net income $ 3,651 $ 3,364 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of premises and equipment 966 950 Amortization and accretion of securities 57 171 FHLB stock dividends (265) (248) Provision for loan losses 535 854 Net loss (gain) on sale of securities 161 (130) Net gain on sale of loans (201) (1,397) Proceeds from sale of loans 21,764 97,642 Origination of mortgage loans held for sale (20,593) (68,932) Employee Stock Ownership Plan expense 49 41 Changes in assets and liabilities: Other assets (761) 466 Other liabilities 3,979 1,251 -------- -------- Net cash provided by operating activities 9,342 34,032 -------- -------- INVESTING ACTIVITIES: Purchases of securities available for sale (15,203) (62,123) Purchases of securities to be held to maturity (73,044) Proceeds from maturities of securities to be held to maturity 12,765 18,280 Proceeds from maturities and paydowns of securities available for sale 5,645 16,511 Proceeds from sales of securities available for sale 27,569 20,190 Net increase in loans (36,399) (27,854) Purchases of premises and equipment (1,053) (1,612) -------- -------- Net cash used in investing activities (79,720) (36,608) -------- -------- FINANCING ACTIVITIES: Net increase in deposits 31,237 16,599 Net change in securities sold under agreement to repurchase and other short-term borrowings 1,010 (33,731) Payments on other borrowings (25,269) (52,055) Proceeds from other borrowings 27,700 67,425 Purchase of shares for Employee Stock Ownership Plan (3,873) Repurchase of Class A Common Stock (184) (877) Cash dividends paid (600) (467) -------- -------- Net cash provided by (used in) financing activities 33,894 (6,979) -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (36,484) (9,555) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 67,527 39,946 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 31,043 $ 30,391 ======== ======== (Continued) </TABLE>
REPUBLIC BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (in thousands) <TABLE> <CAPTION> 2000 1999 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: <S> <C> <C> Cash paid during the period for: Interest $ 14,621 $ 11,558 ======== ======== Income taxes $ $ 302 ======== ======== Transfers from loans to real estate acquired in settlement of loans $ 648 $ 740 ======== ======== </TABLE> See notes to consolidated financial statements.
REPUBLIC BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION (AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES) BASIS OF PRESENTATION - The consolidated financial statements include the accounts of Republic Bancorp, Inc. and its wholly-owned subsidiaries; Republic Mortgage Company, Republic Insurance Agency, Inc., Republic Capital Trust, and Republic Bank & Trust Company (Bank) and its subsidiary Republic Financial Services Corporation (d.b.a. Refunds Now), collectively "Republic". All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ending March 31, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto-included in Republic's annual report on Form 10-K for the year ended December 31, 1999. NEW ACCOUNTING PRONOUNCEMENTS - In September 1999, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". This new standard requires companies to record derivatives on the balance sheet as assets or liabilities at fair value. Depending on the use of the derivative and whether it qualifies for hedge accounting, gains or losses resulting from changes in the values of those derivatives would either be recorded as a component of net income or as a change in stockholders' equity. Republic is required to adopt this new standard January 1, 2001. Management has not yet determined the impact of this standard. RECLASSIFICATIONS - Certain amounts have been reclassified in the 1999 financial statements to conform with the current period classifications. The reclassifications have no effect on net income or stockholders' equity as previously reported.
2. SECURITIES <TABLE> <CAPTION> Securities Available For Sale: March 31, 2000 (in thousands) Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value <S> <C> <C> <C> <C> U.S. Treasury Securities and U.S. Government Agencies $ 82,416 $ (2,114) $ 80,302 Mortgage-backed securities 67,649 (3,717) 63,932 Corporate bonds 19,251 (1,173) 18,078 -------- -------- -------- -------- Total securities available for sale $169,316 $ (7,004) $162,312 ======== ======== ======== ======== </TABLE> <TABLE> <CAPTION> Securities To Be Held To Maturity: March 31, 2000 (in thousands) Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value <S> <C> <C> <C> <C> U.S. Treasury Securities and U.S. Government Agencies $ 35,211 $ (219) $ 34,992 Obligations of state and political subdivisions 3,685 $ 79 (1) 3,763 Mortgage-backed securities 54,344 209 (197) 54,356 -------- -------- -------- -------- Total securities to be held to maturity $ 93,240 $ 288 $ (417) $ 93,111 ======== ======== ======== ======== </TABLE> Securities having an amortized cost of $141 million and a fair value of $138 million at March 31, 2000, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes, as required or permitted by law.
3. LOANS <TABLE> <CAPTION> March 31, 2000 Dec. 31, 1999 --------------------------------- (in thousands) <S> <C> <C> Residential real estate $ 651,055 $ 636,012 Commercial real estate 181,689 163,064 Real estate construction 61,248 63,928 Commercial 32,383 31,411 Consumer 38,515 39,435 Home equity 106,600 103,833 Other 4,392 2,973 ----------- ----------- Total loans 1,075,882 1,040,656 Less: Unearned interest income and unamortized loan fees (1,292) (1,282) Allowance for loan losses (7,862) (7,862) ----------- ----------- Loans, net $ 1,066,728 $ 1,031,512 =========== =========== </TABLE> The following table sets forth the changes in the allowance for loan losses: <TABLE> <CAPTION> Three months ended March 31, 2000 1999 (in thousands) <S> <C> <C> Balance, beginning of period $ 7,862 $ 7,862 Provision charged to income 535 854 Charge-offs (839) (894) Recoveries 304 140 -------- -------- Balance, end of period $ 7,862 $ 7,962 ======== ======== </TABLE> Information about Republic's investment in impaired loans is as follows: <TABLE> <CAPTION> March 31, 2000 Dec. 31, 1999 -------------------------------- (in thousands) <S> <C> <C> Gross impaired loans $ 523 $1,043 Less: Related allowance for loan losses 523 700 ------ ------ Net impaired loans with related allowances 343 Impaired loans with no related allowances ------ ------ Total $ $ 343 ====== ====== Average impaired loans outstanding $ 759 $1,043 ====== ====== </TABLE>
4. DEPOSITS <TABLE> <CAPTION> March 31, 2000 Dec. 31, 1999 -------------------------------- (in thousands) <S> <C> <C> Demand (NOW, Super NOW and Money Market) $154,481 $174,376 Internet money market accounts 37,425 29,695 Savings 13,263 12,158 Money market certificates of deposit 43,005 43,152 Individual retirement accounts 29,656 29,380 Certificates of deposit, $100,000 and over 101,713 91,848 Other certificates of deposit 326,749 319,558 Brokered deposits 16,507 16,486 -------- -------- Total interest bearing deposits 722,799 716,653 Total non-interest bearing deposits 109,347 84,256 -------- -------- Total $832,146 $800,909 ======== ======== </TABLE> 5. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM BORROWINGS These borrowings consist of short-term excess funds from correspondent banks, repurchase agreements and overnight liabilities to deposit customers arising from a cash management program offered by Republic. While effectively deposit equivalents, such arrangements are in the form of repurchase agreements or liabilities secured by insurance policies purchased by Republic. Repurchase agreements secured by securities are treated as financings; accordingly, the securities involved with the agreements are recorded as assets and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. All securities underlying the agreements were under Republic's control. <TABLE> <CAPTION> March 31, 2000 Dec. 31, 1999 ------------------------------ (in thousands) <S> <C> <C> Average outstanding balance $219,477 $129,903 Average interest rate 5.13% 4.35% Maximum outstanding at month end $227,999 $217,143 End of period $216,728 $215,718 </TABLE>
6. OTHER BORROWED FUNDS <TABLE> <CAPTION> March 31, December 31, 2000 1999 ------------------------- (in thousands) <S> <C> <C> Federal Home Loan Bank convertible fixed rate advances (1) $ 10,000 $ 10,000 Federal Home Loan Bank variable interest rate advances, with weighted average interest rate of 6.06% at March 31, 2000, due through 2001 110,000 110,000 Federal Home Loan Bank fixed interest rate advances, with weighted average interest rate of 5.67% at March 31, 2000, due through 2003 113,814 111,383 ---------- ---------- Total $ 233,814 $ 231,383 ========== ========== </TABLE> (1) During December 1998, Republic entered into a convertible fixed-rate advance totaling $10 million with a ten-year maturity. The advance is fixed for two years at 4.61%. At the end of the fixed term, the FHLB has the right to convert the fixed rate advance on a quarterly basis to a variable rate advance tied to the three month LIBOR index. The advance can be prepaid at any quarterly date without penalty, but may not be prepaid at any time during the fixed rate term. The Federal Home Loan Bank advances are collateralized by a blanket pledge of eligible real estate loans with an unpaid principal balance of greater than 150% of the outstanding advances. Republic has sufficient collateral to borrow approximately $112 million in additional funds from the Federal Home Loan Bank. Republic also has unsecured lines of credit totaling $40 million and secured lines of $86 million available through various financial institutions that were unused as of March 31, 2000. Aggregate future principal payments on borrowed funds as of March 31, 2000 are as follows: <TABLE> <CAPTION> Year (in thousands) <S> <C> 2000 $ 53,530 2001 110,284 2002 2003 60,000 2004 and thereafter 10,000 ------------ Total $ 233,814 ============ </TABLE>
7. EARNINGS PER SHARE A reconciliation of the combined Class A and Class B Common Stock numerators and denominators of the earnings per share and earnings per share assuming dilution computations is presented below. Class A and B shares participate equally in undistributed earnings. The difference in earnings per share between the two classes of common stock results solely from the 10% per share dividend premium paid to Class A Common stock over that paid to Class B Common stock. The aggregate dividend premium paid to Class A Common stock for the 2000 and 1999 was approximately one cent on basic earnings per share. <TABLE> <CAPTION> Three Months Ended March 31, 2000 1999 (in thousands) <S> <C> <C> Earnings Per Share: Net Income available to common shares outstanding $ 3,651 $ 3,364 ========== ========== Weighted average shares outstanding 16,671 16,934 ========== ========== Earnings per share, basic: Class A .22 .20 Class B .22 .20 </TABLE> <TABLE> <CAPTION> Three Months Ended March 31, 2000 1999 (in thousands) <S> <C> <C> Earnings Per Share Assuming Dilution: Net Income $ 3,651 $ 3,364 Add: Interest expense, net of tax benefit, on assumed conversion of guaranteed preferred beneficial interests in Republic's subordinated debentures 87 89 ---------- ---------- Net Income available to common Shareholder assuming conversion $ 3,738 $ 3,453 ========== ========== Weighted average shares outstanding 16,671 16,934 Add dilutive effects of assumed conversion and exercise: Convertible guaranteed preferred beneficial interest in Republic's subordinated debentures 635 640 Stock options 355 563 ---------- ---------- Weighted average shares and dilutive potential shares outstanding 17,661 18,137 ========== ========== Earnings per share assuming dilution: Class A .21 .19 Class B .21 .19 </TABLE> Stock options for 275,000 and 251,500 shares of Class A Common stock were excluded from the 2000 and 1999 earnings per share assuming dilution because their impact was antidilutive.
8. EMPLOYEE STOCK OWNERSHIP PLAN On January 29, 1999, Republic formed an Employee Stock Ownership Plan (ESOP) for the benefit of its employees. The ESOP borrowed $3.9 million from the Parent Company and directly and indirectly purchased 300,000 shares of Class A Common Stock from Republic's largest beneficial owner at a market value of $12.91 per share. The purchase price, determined by an independent pricing committee, was the average closing price for the thirty trading days immediately prior to the transaction. Shares in the ESOP will be allocated to eligible employees based on principal payments over the term of the loan, which is ten years. Participants become fully vested in allocated shares after five years of credited service and may receive their distributions in the form of cash or stock. For the quarter ended March 31, 2000; 5,578 shares were committed to be released resulting in ESOP compensation expense of approximately $49,000 for the quarter. Shares held by the plan at March 31, 2000 are as follows: <TABLE> <CAPTION> (dollars in thousands) March 31, 2000 <S> <C> Allocated shares 19,612 Unallocated shares 280,388 ---------- Total Employee Stock Ownership Plan Shares 300,000 ========== Fair value of unallocated shares $ 2,278 </TABLE>
9. SEGMENT INFORMATION The reportable segments are determined by the products and services offered, primarily distinguished between banking, tax refund services and mortgage banking operations. Loans, investments, deposits and fees provide the revenues in the banking operation, fees from refund anticipation loans and electronic refund checks provide the revenues for the tax refund services, and servicing fees and loan sales provide the revenues in mortgage banking. All operations are domestic. The accounting policies used are the same as those described in the summary of significant accounting policies. Income taxes are allocated and indirect expenses are allocated on revenue. Transactions among segments are made at fair value. Information reported internally for performance assessment follows. <TABLE> <CAPTION> Three Months Ended March 31, 2000 Tax Refund Mortgage Consolidated Banking Services Banking Totals (in thousands) <S> <C> <C> <C> <C> Net interest income $ 11,840 $ 2,277 $ 63 $ 14,180 Provision for loan losses 188 347 535 Electronic refund check fees 955 955 Net gain on sale of loans 201 201 Other revenue 1,293 48 (74) 1,267 Non-interest expense 9,933 494 186 10,613 Income tax expense 998 805 1 1,804 Segment profit 2,014 1,634 3 3,651 Segment assets 1,397,897 1,377 10,585 1,409,859 </TABLE> <TABLE> <CAPTION> Three Months Ended March 31, 1999 Tax Refund Mortgage Consolidated Banking Services Banking Totals (in thousands) <S> <C> <C> <C> <C> Net interest income $ 11,066 $ 982 $ 95 $ 12,143 Provision for loan losses 654 200 854 Electronic refund check fees 861 861 Net gain on sale of loans 1,397 1,397 Other revenue 1,444 8 (42) 1,410 Non-interest expense 8,804 429 656 9,889 Income tax expense 1,023 411 270 1,704 Segment profit 2,029 811 524 3,364 Segment assets 1,192,432 592 11,499 1,204,523 </TABLE>
PART 1 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Republic Bancorp, Inc., headquartered in Louisville, Kentucky, was incorporated on January 2, 1974. Republic Bank & Trust Company (Bank) is a commercial banking and trust corporation organized and chartered under the laws of the Commonwealth of Kentucky. The Bank is also headquartered in Louisville, Kentucky and provides banking services through 21 banking centers throughout Kentucky and a loan production office in southern Indiana. The Bank's activities include the acceptance of deposits for checking, savings and time deposit accounts, making secured and unsecured loans, investing in securities and trust services. The Bank's lending services include the origination of real estate, commercial and consumer loans. Operating revenues are derived primarily from interest and fees on domestic real estate, commercial and consumer loans, and from interest on securities of the United States Government and Agencies, states, and municipalities. Regulators for Republic include the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System (and the Federal Reserve Bank of St. Louis) and the Kentucky Department of Financial Institutions. REPUBLIC HAS MADE, AND MAY CONTINUE TO MAKE, VARIOUS FORWARD-LOOKING STATEMENTS WITH RESPECT TO CREDIT QUALITY (INCLUDING DELINQUENCY TRENDS AND THE ALLOWANCE FOR LOAN LOSSES), CORPORATE OBJECTIVES AND OTHER FINANCIAL AND BUSINESS MATTERS. WHEN USED IN THIS DISCUSSION THE WORDS "ANTICIPATE," "PROJECT," "EXPECT," "BELIEVE," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. REPUBLIC CAUTIONS THAT THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO NUMEROUS ASSUMPTIONS, RISKS AND UNCERTAINTIES, ALL OF WHICH MAY CHANGE OVER TIME. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM FORWARD-LOOKING STATEMENTS. IN ADDITION TO FACTORS DISCLOSED BY REPUBLIC, THE FOLLOWING FACTORS, AMONG OTHERS, COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH FORWARD-LOOKING STATEMENTS: PRICING PRESSURES ON LOAN AND DEPOSIT PRODUCTS; COMPETITION; CHANGES IN ECONOMIC CONDITIONS BOTH NATIONALLY AND IN THE BANK'S MARKETS; THE EXTENT AND TIMING OF ACTIONS OF THE FEDERAL RESERVE BOARD; CUSTOMERS' ACCEPTANCE OF THE BANK'S PRODUCTS AND SERVICES; AND THE EXTENT AND TIMING OF LEGISLATIVE AND REGULATORY ACTIONS AND REFORMS. OVERVIEW Net income for the first quarter of 2000 was $3.7 million, up from $3.4 million for the same period in 1999. Class A and B diluted earnings per share for the quarter ending March 31, 2000 were $0.21 up 11% over the same period in 1999. The increase in earnings during the first quarter of 2000 reflects a strong financial performance in many areas of the Company, particularly Refunds Now. Refunds Now, a wholly owned subsidiary of the Bank, is a rapid tax refund service that operates through a nationwide network of over 1,300 tax offices. Total revenues for Refunds Now increased 68% over the comparable period in 1999 to $2.9 million at March 31, 2000. The increase in revenue was due to increased volume and change in product mix. Through additional marketing efforts management expects Refunds Now to have continued success in gaining additional market share for its rapid tax refund products.
Republic's total assets at March 31, 2000 grew to over $1.4 billion. Net loans increased $35 million from December 31, 1999 to approximately $1.1 billion at March 31, 2000. The residential real estate portfolio grew $15 million and the commercial real estate portfolio increased $19 million. This growth was due to continued loan demand in Republic's markets and the further development of Republic's commercial and business banking services. Funding for loan growth was primarily derived from deposits, which increased $31 million from December 31, 1999. Non-interest bearing deposits increased more than $25 million, primarily as a result of Republic's cash management programs. Money market deposits and CD's also had healthy increases from December 31, 1999, as Republic continued to aggressively pursue deposits through its banking centers and the Internet. Republic continues to evaluate and implement operating efficiencies in its product delivery systems. During the first quarter of 2000, the Company finalized the centralization of its loan administration operations. Reductions in loan administration staffing requirements helped offset the costs associated with banking center expansion. The reduction was achieved through attrition and did not result in any significant reorganization costs. Centralization of loan administration functions is expected to allow Republic to have additional loan growth without substantial increases in its loan administration expenses. During the first quarter of 2000 Republic opened a new facility in the City of Prospect (Louisville metropolitan area), bringing Republic's total number of banking centers in Kentucky's largest metropolitan area to eleven. Republic has 21 banking centers, a loan production office and 36 ATMs serving its clients in Kentucky and Indiana. Republicbank.com increased its deposits to more than $51 million from 47 states at March 31, 2000. Republic continues to expand its products and service offerings at republicbank.com to attract new customers and provide expanded services to existing Internet clients. Republicbank.com intends to make on-line brokerage services available to the Bank's customers during the second quarter. Overall, 16% of the Bank's existing customers are using republicbank.com, exceeding management's initial projections.
REFUNDS NOW Refunds Now is a rapid refund tax processing service for taxpayers receiving both federal and state tax refunds through a nationwide network of tax preparers. Refund anticipation loans ("RALs") are made to taxpayers filing income tax returns electronically. The RALs are repaid by the taxpayer when the taxpayer's refunds are electronically received by the Bank from governmental taxing authorities. Refunds Now also provides electronic refund checks ("ERCs") to taxpayers. After receiving refunds electronically from governmental taxing authorities, checks are issued to taxpayers for the amount of their refund, less fees. During the three months ended March 31, 2000, Refunds Now generated $2.0 million in electronic tax refund loan fees, compared to $890,000 for the same period in 1999. Refunds Now also received $955,000 in electronic refund check fees in the first quarter of 2000, compared to $861,000 during first quarter 1999. In addition, RAL volume was up almost 264% from the first quarter of 1999. The increase in revenues for Refunds Now resulted from a 36% increase in tax offices served and a 63% increase in the tax refunds processed during the first quarter of 2000. Refunds Now expects to continue to aggressively market its products to additional tax preparers during 2000 for the 2001 tax season. Substantially all of the income realized by the Bank from the activities of Refunds Now is recognized during the first quarter of the year. RESULTS OF OPERATIONS Net Interest Income. For the first quarter 2000, net interest income was $14.2 million, up $2.1 million over the $12.1 million attained during first quarter 1999. Overall, the net interest rate spread increased slightly from 3.51% during first quarter of 1999 to 3.54% in the comparable quarter of 2000. The Bank's net interest margin remained constant at 4.20% for both the first quarters 1999 and 2000. The increase in the net interest spread occurred because the yield on interest earning assets increased 37 basis points while the rate paid on liabilities increased 34 basis points. During the first quarter 2000, average interest-earning assets were $1.3 billion, an increase of $193 million over first quarter 1999. Total average interest bearing liabilities increased from $988 million in the first quarter of 1999 to $1.2 billion in the first quarter of 2000. Included in loan fees are RAL fees from Refunds Now of $2.0 million for first quarter 2000 and $890,000 for first quarter 1999. Excluding these fees, Republic's loan yield would have been 8.52% for first quarter 2000 and 8.51% for first quarter 1999. Table 1 provides detailed information as to average balance, interest income/expense, and rates by major balance sheet category for the three and three months ended March 31, 2000 and 1999.
Table 1 - Average Balance Sheet Rates for First quarter, 2000 and 1999 (dollars in thousands) <TABLE> <CAPTION> Three Months Ended March 31, 2000 Three Months Ended March 31, 1999 ----------------------------------- ---------------------------------- Average Average Average Average ASSETS Balance Interest Rate Balance Interest Rate ------- -------- ---- ------- -------- ---- Earning Assets: <S> <C> <C> <C> <C> <C> <C> U.S. Treasury and U.S. Government Agency Securities $ 121,665 $ 1,747 5.74% $ 138,471 $ 1,891 5.46% State and Political Subdivision Securities 3,687 79 8.57% 3,990 87 8.72% Other Investments 33,424 537 6.43% 31,594 492 6.23% Mortgage-Backed Securities 104,430 1,709 6.55% 56,760 842 5.93% Federal Funds Sold and Securities Purchased Under Agreements to Resell 14,608 203 5.56% 2,876 32 4.45% Total Loans and Fees 1,071,560 24,807 9.26% 922,226 20,511 8.90% ----------- ------- ----------- ------- Total Earning Assets 1,349,374 29,082 8.62% 1,155,917 23,855 8.25% ----------- ------- ----------- ------- Less: Allowance for Loan Losses (7,862) (7,929) Non-Earning Assets: Cash and Due From Banks 24,331 18,447 Bank Premises and Equipment, Net 19,156 16,460 Other Assets 14,731 12,883 ----------- ----------- Total Assets $ 1,399,730 $ 1,195,778 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Interest Bearing Liabilities: Transaction Accounts $ 125,127 $ 835 2.67% $ 73,414 $ 349 1.90% Money Market Accounts 122,550 1,425 4.65% 121,993 1,342 4.40% Individual Retirement Accounts 29,740 408 5.49% 23,953 322 5.38% Certificates of Deposit and Other Time Deposits 436,740 5,882 5.39% 458,606 6,050 5.28% Repurchase Agreements and Other Short-Term Borrowings 219,477 2,813 5.13% 123,110 1,245 4.05% Other Borrowings 240,316 3,539 5.89% 186,534 2,404 5.16% ----------- ------- ----------- ------- Total Interest Bearing Liabilities 1,173,950 14,902 5.08% 987,610 11,712 4.74% Non-Interest Bearing Liabilities: Non-Interest Bearing Deposits 106,796 92,899 Other Liabilities 13,092 11,949 Stockholders' Equity 105,892 103,320 ----------- ----------- Total Liabilities and Stockholders' Equity $ 1,399,730 $ 1,195,778 =========== =========== Net Interest Income $14,180 $12,143 ======= ======= Net Interest Spread 3.54% 3.51% ==== ==== Net Interest Margin 4.20% 4.20% ==== ==== </TABLE> For the purposes of these calculations, non-accruing loans are included in the quarterly average loan amounts outstanding.
The following table presents the extent to which changes in interest rates and changes in the volume of interest earning assets and interest bearing liabilities have affected Republic's interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by old volume), and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate. Table 2 - Volume/Rate Variance Analysis (in thousands) <TABLE> <CAPTION> Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999 Increase/(Decrease) due to Total Net Change Volume Rate <S> <C> <C> <C> Interest Income: U.S. Treasury and Government Agency Securities $ (144) $ (230) $ 86 State and Political Subdivision Securities (8) (7) (1) Other Investments 45 28 17 Mortgage-Backed Securities 867 707 160 Federal Funds Sold 171 131 40 Total Loans and Fees (1) 4,296 3,321 975 ------- ------- ------ Net Change in Interest Income 5,227 3,950 1,277 ------- ------- ------ Interest Expense: Interest Bearing Transaction Accounts 486 246 240 Money Market Accounts 83 6 77 Individual Retirement Accounts 86 78 8 Certificates of Deposit and Other Time Deposits (168) (288) 120 Repurchase Agreements and Other Short-Term Borrowings 1,568 975 593 Other Borrowings 1,135 693 442 ------- ------- ------ Net Change in Interest Expense 3,190 1,710 1,480 ------- ------- ------ Increase in Net Interest Income $ 2,037 $ 2,240 $ (203) ======= ======= ====== </TABLE> (1) The amount of fees in interest on loans was approximately $2.3 million and $1.1 million for the periods ended March 31, 2000 and 1999, respectively.
Non-Interest Income. Non-interest income was $2.4 million during first quarter 2000, down from $3.7 million during first quarter of 1999. The decrease was principally due to a reduction in gains generated from sales of loans into the secondary market and sales of securities. Revenue from mortgage banking activities declined during the three-month period ending March 31, 2000 as a result of reduced secondary market sales volume. The market's interest-rate environment heavily influences secondary market residential loan originations and, correspondingly, consumer-refinance activity. For the first quarter of 2000, market interest rates were above first quarter 1999 levels, which led to lower secondary market originations and sales volumes. As a result, gains from sales of loans decreased to $201,000 for the three-month period ended March 31, 2000 compared to $1.4 million during the same period in 1999. Given the rise in interest rates from 1999, management believes that the secondary market sales volume, comprised of fixed rate products, are likely to continue at current levels. Management also believes that this reduction in secondary market gains on the sale of loans will be partially offset by increased interest income generated by further growth in the Bank's loan portfolio. In addition, management believes that the decline in mortgage banking activities may be moderated by decreased commission costs due to lower origination volume. Non-Interest Expense. Total non-interest expense was $10.6 million in first quarter 2000, compared to $9.9 million for first quarter 1999. The increase for the three months ended March 31, 2000 was primarily attributable to costs associated with occupancy and equipment and other expenses. Salary and employee benefit expenses decreased slightly for the first quarter 2000 over first quarter 1999. Republic's overall staffing level decreased slightly to 477 full-time equivalent employees ("FTE's") at March 31, 2000, compared to 480 FTE's at March 31, 1999. Overall salary cost and staffing remained constant as Republic's staffing reductions associated with the centralization of its loan administrative operations was offset by staffing increases associated with additional banking center locations, commercial lending, cash management and trust initiatives. Occupancy and equipment expense increased $200,000 for first quarter 2000 compared to first quarter 1999. The increase is largely attributable to the costs associated with the opening of two additional banking centers. It is also anticipated that additional expenses will be incurred for technology enhancements for deposit, lending and customer support systems during the remainder of 2000. Other expenses increased $400,000 for first quarter 2000 compared to first quarter 1999. The increase is primarily due to one Bank fraud loss totaling approximately $300,000.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2000 AND DECEMBER 31, 1999 SECURITIES AVAILABLE FOR SALE. Securities available-for-sale consists primarily of mortgage-backed securities, U.S. Treasury and U.S. Government Agencies and Corporate bonds with a weighted average maturity of 3.4 years. Securities available-for-sale decreased from $182 million at December 31, 1999 to $162 million at March 31, 2000. SECURITIES TO BE HELD TO MATURITY. Securities to-be-held-to-maturity increased from $33 million at December 31, 1999 to $93 million at March 31, 2000. The increase occurred as Republic classified new security purchases and proceeds from securities sales in the held-to-maturity category. Securities to-be-held-to-maturity consists primarily of U.S. Treasury and U.S government Agencies as well as collateralized mortgage obligations (CMOs). CMOs, which have a monthly repricing frequency, have a weighted average maturity of 17.5 years, while the remaining portfolio has a weighted average maturity of 2.6 years. LOANS. Net loans increased $35 million to $1.1 billion at March 31, 2000 compared to $1.0 billion at December 31, 1999. The increase in loans was primarily in the secured real estate lending portfolio. The rise in residential real estate loan volume was a result of continued consumer demand for Republic's portfolio products, primarily adjustable-rate mortgages. Republic also had healthy growth in its commercial real estate lending portfolio as a result of the Bank's ongoing emphasis on commercial lending. ALLOWANCE AND PROVISION FOR LOAN LOSSES. The provision for loan losses was $535,000 in the first quarter of 2000, compared to $854,000 in the first quarter of 1999. Overall, net charge-offs decreased 29% during the first quarter of 2000 compared to the same period in 1999. The decrease in charge-offs in the unsecured consumer loan portfolio was partially offset by an increase of $300,000 in charge-offs of tax refund loans. This increase was primarily due to a rise in RAL products sold compared to 1999. The increase in recoveries was substantially the result of improved collection efforts on RALs. The allowance for loan losses remained at $7.9 million from December 31, 1999 to March 31, 2000. Management believes, based on information presently available, that it has adequately provided for loan losses at March 31, 2000. Management has considered the effect of increased commercial lending on the allowance, and that effect has been largely offset by the Bank's decreased exposure in its unsecured consumer portfolio.
Table 3 below depicts the allowance activity by loan type for the three and three months ended March 31, 2000 and 1999. Table 3 - Summary of Loan Loss Experience <TABLE> <CAPTION> Three Months Ended March 31, 2000 1999 (in thousands) <S> <C> <C> Allowance for loan losses: Balance-beginning of period $ 7,862 $ 7,862 Charge-offs: Real Estate (131) (180) Commercial (8) (7) Consumer (200) (507) Tax Refund Loans (500) (200) ------- ------- Total (839) (894) ------- ------- Recoveries: Real Estate 1 6 Commercial Consumer 150 134 Tax Refund Loans 153 ------- ------- Total 304 140 ------- ------- Net charge-offs (535) (754) Provision for loan losses 535 854 ------- ------- Allowance for loan losses: Balance-end of period $ 7,862 $ 7,962 ======= ======= </TABLE> Deposits. Total deposits were $832 million at March 31, 2000 compared to $801 million at December 31, 1999. The increase in deposits was primarily in Republic's lower cost transaction accounts. Non-interest bearing deposits have increased by approximately 30% since December 31, 1999. Republic's growth in deposits was the result of management's ongoing emphasis on its commercial cash management program, retail deposit gathering and its successful Internet banking initiative. As of March 31, 2000, Republic had $37 million in money market accounts and $14 million in CD's which had been opened through the Internet. Republic plans to continue development of its deposit gathering programs by utilizing commissioned deposit originators and offering competitive products in its existing markets, including republicbank.com.
ASSET QUALITY Loans, including impaired loans under SFAS 114 and excluding consumer loans, are placed on non-accrual status when they become past due 90 days or more as to principal or interest, unless they are adequately secured and in the process of collection. When loans are placed on non-accrual status, all unpaid accrued interest is reversed. These loans remain on non-accrual status until the borrower demonstrates the ability to remain current or the loan is deemed uncollectible and is charged off. Consumer loans are not placed on non-accrual status but are reviewed periodically and charged off when they reach 120 days past due or are deemed uncollectible. At March 31, 2000, Republic had $101,000 in consumer loans 90 days or more past due compared to $256,000 at December 31, 1999. The reduction in consumer loans 90 days or more past due is largely attributable to the overall reduction in outstanding loans associated with the Bank's Pre-Approved and All-Purpose unsecured loan programs. The Bank's level of delinquent loans increased slightly to 1.40% at March 31, 2000, up from 1.29% at December 31, 1999. Republic experienced a modest increase in total non-performing loans from $3.7 million at December 31, 1999 to $4.3 million at March 31, 2000. This increase is not deemed by management to reflect any adverse change in overall asset quality. Other real estate owned increased from $218,000 at December 31, 1999 to $690,000 at March 31, 2000. The increase was solely attributable to one commercial property in the amount of $500,000 that was subsequently sold early in the second quarter of 2000. Management does not consider the modest overall increase in non-performing assets during the quarter to be material. Table 4 provides information related to non-performing assets and loans 90 days or more past due. Table 4 - Non-Performing Loans <TABLE> <CAPTION> March 31, Dec. 31, (dollars in thousands) 2000 1999 <S> <C> <C> Loans on non-accrual status (1)(2) $3,068 $2,721 Loans past due 90 days or more 1,257 968 ------ ------ Total non-performing loans 4,325 3,689 Other real estate owned 690 218 ------ ------ Total non-performing assets $5,015 $3,907 ====== ====== Percentage of non-performing loans to total loans .40% .35% Percentage of non-performing assets to total loans .47% .38% </TABLE> (1) The table is exclusive of impaired loans which remained on accrual status. (2) Interest income that would have been earned and received on non-accrual loans was not material. Republic defines impaired loans to be those commercial real estate and commercial loans greater than $499,999 that management has classified as doubtful (collection of all amounts due is highly questionable or improbable) or loss (all or a portion of the loan has been written off or a specific allowance for loss has been provided). Republic's policy is to charge off all or that portion of its investment in an impaired loan upon a determination it is probable the full amount may not be collected. Impaired loans consist of one commercial real estate loan that decreased from December 31, 1999 to approximately $500,000 at March 31, 2000.
LIQUIDITY Republic maintains sufficient liquidity in order to fund loan demand and routine deposit withdrawal activity. Liquidity is managed by retaining sufficient liquid assets in the form of investment securities and core deposits to meet demand. Funding and cash flows can also be realized from the available-for-sale portion of the securities portfolio and paydowns from the loan portfolio. Republic's banking centers also provide access to their retail deposit markets. Approximately $90 million of deposits and collateralized sweeps are attributable to three customer relationships at March 31, 2000. These funds are short-term in nature and subject to immediate withdrawal by these entities. Should these funds be removed, Republic has the ability to replenish these funds through various funding sources noted below. Republic has established lines of credit with other financial institutions, the FHLB and brokerage firms. While Republic utilizes numerous funding sources in order to meet liquidity requirements, FHLB borrowings remain a material component of management's balance sheet strategy. CAPITAL Regulatory agencies measure capital adequacy within a framework that makes capital requirements, in part, dependent on the individual risk profiles of financial institutions. Republic's average capital to average assets ratio was 7.57% at March 31, 2000 compared to 8.27% at December 31, 1999. Republic continues to exceed the minimum regulatory requirements for Tier I, Tier I Leverage and total risk-based capital. The Bank expects to maintain a capital position that meets or exceeds the "well capitalized" requirements as defined by the FDIC. Table 5 below indicates the capital ratios at March 31, 2000. Table 5 - Capital Ratios <TABLE> <CAPTION> Minimum Requirement Minimum To Be Well Requirement Capitalized For Capital Under Prompt Adequacy Corrective Actual Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio (dollars in thousands) <S> <C> <C> <C> <C> <C> <C> Total Risk Based Capital (to Risk Weighted Assets) Consolidated $124,818 14.09% $ 70,869 8% $ 88,586 10% Bank only $120,672 13.62% $ 70,865 8% $ 88,582 10% Tier I Capital (to Risk Weighted Assets) Consolidated $116,956 13.20% $ 35,434 4% $ 53,152 6% Bank only $112,810 12.74% $ 35,433 4% $ 53,149 6% Tier I Leverage Capital (to Average Assets) Consolidated $116,956 8.36% $ 55,989 4% $ 69,987 5% Bank only $112,810 8.06% $ 55,983 4% $ 69,979 5% </TABLE> Kentucky banking regulations limit the amount of dividends that may be paid to Republic by the Bank without prior approval of the Bank's regulatory agency. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the Bank's current year's net income, as defined in the regulations, combined with the retained net income of the preceding two years, less any dividends declared during those periods. At March 31, 2000, the Bank had approximately $18 million of retained earnings that could be utilized for payment of dividends if authorized by the Board of Directors.
ASSET/LIABILITY MANAGEMENT AND MARKET RISK Asset/liability management control is designed to ensure safety and soundness, maintain liquidity and regulatory capital standards, and achieve acceptable net interest income. Republic continues to experience steady loan demand that requires management to continue to monitor interest rate and liquidity risk and implement appropriate funding and balance sheet strategies. Management considers interest rate risk to be Republic's most significant market risk. Interest rate risk is the exposure to adverse changes in the net interest income as a result of market fluctuations in interest rates. Republic utilizes an earnings simulation model to analyze net interest income sensitivity. Potential changes in market interest rates and their subsequent effect on interest income are then evaluated. The model projects the effect of instantaneous movements in interest rates of both 100 and 200 basis points. Assumptions based on the historical behavior of Republic's deposit rates and balances in relation to changes in interest rates are also incorporated into the model. These assumptions are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model's simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies. Republic's interest sensitivity profile changed from December 31, 1999 to March 31, 2000. Given a sustained 200 basis point downward shock to the yield curve used in the simulation model, Republic's base net interest income would increase by an estimated 4.17% at March 31, 2000 compared to an increase of 2.47% at December 31, 1999. Given a 200 basis point increase in the yield curve Republic's base net interest income would decrease by an estimated 6.62% at March 31, 2000 compared to a decrease of 4.49% at December 31, 1999. The overall product mix has substantially remained constant from December 31, 1999 to March 31, 2000. However, the overall interest sensitivity profile changed due to rising interest rates during the quarter and growth. The interest sensitivity profile of Republic at any point in time will be effected by a number of factors. These factors include the mix of interest sensitive assets and liabilities as well as their relative pricing schedules. The table below is representative only and is not a precise measurement of the effect of changing interest rates on Republic's interest income in the future.
Table 6 - Interest Rate Sensitivity <TABLE> <CAPTION> March 31, 2000 Decrease in Rates Increase in Rates ----------------- ----------------- 200 100 100 200 Basis Points Basis Points Base Basis Points Basis Points (dollars in thousands) <S> <C> <C> <C> <C> <C> Projected interest income Loans $ 90,141 $ 92,905 $ 96,820 $ 100,485 $ 103,454 Investments 15,567 16,491 17,371 18,101 18,784 Short-term investments 24 49 3 --------- --------- --------- --------- --------- Total interest income 105,732 109,445 114,194 118,586 122,238 Projected interest expense Deposits 31,502 35,789 40,112 44,429 48,715 Other borrowings 19,465 21,704 24,208 27,586 30,335 --------- --------- --------- --------- --------- Total interest expense 50,967 57,493 64,320 72,015 79,050 Net interest income $ 54,765 $ 51,952 $ 49,874 $ 46,571 $ 43,188 Change from base $ 4,891 $ 2,078 $ (3,303) $ (6,686) % Change from base 9.81% 4.17% (6.62)% (13.41)% </TABLE> <TABLE> <CAPTION> December 31, 1999 Decrease in Rates Increase in Rates ----------------- ----------------- 200 100 100 200 Basis Points Basis Points Base Basis Points Basis Points (dollars in thousands) <S> <C> <C> <C> <C> <C> Projected interest income Loans $ 82,805 $ 87,101 $ 92,825 $ 97,350 $ 101,418 Investments 13,311 13,862 14,191 14,565 14,914 Short-term investments 353 871 585 613 631 --------- --------- --------- --------- --------- Total interest income 96,469 101,834 107,601 112,528 116,963 Projected interest expense Deposits 28,261 31,367 34,736 38,277 41,834 Other borrowings 16,622 20,047 23,661 27,256 30,866 --------- --------- --------- --------- --------- Total interest expense 44,883 51,414 58,397 65,533 72,700 Net interest income $ 51,586 $ 50,420 $ 49,204 $ 46,995 $ 44,263 Change from base $ 2,382 $ 1,216 (2,209) $ (4,941) % Change from base 4.84% 2.47% (4.49)% (10.04)% </TABLE>
YEAR 2000 Republic undertook a project (the "Year 2000 Project") to identify and assess the readiness of its computer systems, programs and other infrastructure that could be affected by the Year 2000 issue and to remedy any problems identified. Management believes that its Year 2000 Project proceeded successfully as all operating systems performed well during the year change. Republic has incurred costs of approximately $804,000 attributable to year 2000 remediation and anticipates total costs and charges to be in an approximate range of $1.2 to $1.4 million. A large proportion of the remaining budgeted costs to be incurred are related to the Year 2000 employee retention program, with the majority not being fully earned until the end of 2000. Actual expenses could vary from management's estimates if unforeseen circumstances were to arise. NEW ACCOUNTING PRONOUNCEMENTS See discussion in Note 1 to financial statements for a discussion of recent accounting pronouncements. Item 3. Quantitative and Qualitative Disclosures about Market Risk The information for this item is incorporated by reference to the Asset /Liability Management and Market Risks section of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
PART II - OTHER INFORMATION Item 1. Legal proceedings On April 21, 2000, Beneficial Franchise Company Inc. filed a lawsuit in the United States District Court for the Northern District of Illinois at Chicago against Bank One, N.A., First Security Bank, River City Bank, Santa Barbara Bank & Trust and the Company. The lawsuit alleges that the operations infringe on three patents owned by Beneficial and induce others to infringe the patents. Beneficial seeks unspecified damages against all defendants. The Company intends to vigorously defend the litigation. Item 2. Changes in securities During the first quarter of 2000, Republic issued approximately 1,000 shares of Class A Common Stock upon conversion of shares of Class B Common Stock by shareholders of Republic in accordance with the share-for-share conversion provision option of the Class B Common Stock. The exemption from registration of the newly issued Class A Common Stock relied upon was Section (3)(a)(9) of the Securities Act of 1933. Item 6. Exhibits and Reports on Form 8-K The exhibits required by Item 601 of Regulation S-K are attached to and listed in the Exhibit Index on page 34.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Republic Bancorp, Inc. (Registrant) Principal Executive Officer: Date: May 15, 2000 /s/ Steven E. Trager ------------ -------------------- Steven E. Trager Chief Executive Officer Principal Financial Officer: Date: May 15, 2000 /s/ Mark A. Vogt ------------ ---------------- Mark A. Vogt Chief Financial Officer
EXHIBIT INDEX Incorporated Exhibit Description By Reference To - ------- ----------- --------------- 11 Statement Regarding Filed as Exhibit 11 Computation of Per on page 35 of this Share Earnings Form 10-Q for the period ended March 31, 2000 27 Financial Data Schedule Filed as Exhibit 27 on page 36 of this Form 10-Q for the period ended March 31, 2000
Exhibit 11. Statement Regarding Computation of Per Share Earnings See Item 1, Note 7 "Earnings Per Share" for calculations.