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 JUNE 30, 1997 OR _Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 COMMISSION FILE NUMBER 33-77324 REPUBLIC BANCORP, INC. (Exact name of registrant as specified in its charter) KENTUCKY 61-0862051 (State 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: 6,051,611 shares of Class A Common Stock and 1,169,857 shares of Class B Common Stock as of August 12, 1997. The Exhibit index is on page 24. This filing contains 26 pages (including this facing sheet).
REPUBLIC BANCORP, INC. FORM 10-Q TABLE OF CONTENTS PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements 3-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-21 PART II - OTHER INFORMATION Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 22 Signatures 23
PART I - - ITEM 1 REPUBLIC BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> JUNE 30, DECEMBER 31, 1997 1996 <S> <C> <C> ASSETS: Cash and cash equivalents: Cash and due from banks $ 37,148 $ 40,021 Federal funds sold 250 16,650 ------------- -------------- Total cash and cash equivalents 37,398 56,671 Securities available for sale 103,275 107,937 Securities to be held to maturity 118,683 173,918 Loans, less allowance for loan losses of $6,281 (1997) and $6,241 (1996) 796,403 759,424 Mortgage loans held for sale 7,190 7,624 Federal Home Loan Bank stock 6,756 5,548 Accrued interest receivable 9,561 9,685 Premises and equipment, net 17,605 17,509 Other assets 12,842 2,566 -------------- ------------- TOTAL $ 1,109,713 $ 1,140,882 ============== ============= LIABILITIES: Deposits: Non-interest bearing $ 67,627 $ 66,969 Interest bearing 762,698 716,172 Securities sold under agreements to repurchase and other short-term borrowings 86,080 181,634 Other borrowed funds 110,065 106,974 Accrued interest payable 7,232 5,643 Guaranteed preferred beneficial interests in Company's subordinated debentures 6,452 Other liabilities 6,115 4,471 ------------ ------------ Total liabilities 1,046,269 1,081,863 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred Stock, no par value; authorized 100,000 shares; Series A 8.5% noncumulative convertible, 50,000 shares issued and outstanding (liquidation preference $5,000) 5,000 5,000 Class A Common stock, no par value Class B Common stock, no par value 3,491 3,491 Additional paid-in capital 6,817 6,817 Retained earnings 48,471 43,930 Net unrealized depreciation on securities available for sale, net of tax (335) (219) ------------- -------------- Total stockholders' equity 63,444 59,019 ------------- ------------- TOTAL $ 1,109,713 $ 1,140,882 ============= ============= See notes to consolidated financial statements. </TABLE>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) ( IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1997 1996 1997 1996 ---- ---- ---- ---- <S> <C> <C> <C> <C> INTEREST INCOME: Loans, including fees $ 19,557 $ 17,526 $ 38,372 $ 34,631 Securities available for sale 1,441 2,904 Securities to be held to maturity: Taxable 1,955 1,933 3,933 3,918 Non-taxable 32 32 63 64 FHLB dividends 117 101 227 193 Other 140 247 353 641 ----------- ----------- ---------- ----------- Total interest income 23,242 19,839 45,852 39,447 --------- --------- -------- --------- INTEREST EXPENSE: Deposits 10,148 8,580 19,812 17,414 Short-term borrowings 1,098 658 2,340 1,145 Long-term debt 1,756 982 3,453 1,965 ---------- ----------- --------- --------- Total interest expense 13,002 10,220 25,605 20,524 --------- --------- -------- --------- NET INTEREST INCOME 10,240 9,619 20,247 18,923 PROVISION FOR LOAN LOSSES 1,416 3,703 2,714 5,634 ---------- ---------- --------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,824 5,916 17,533 13,289 --------- ---------- -------- ----------- NON-INTEREST INCOME: Service charges on deposit accounts 824 584 1,601 1,094 Other service charges and fees 170 276 480 668 Bank card services 99 287 508 631 Net gain on sale of loans 263 356 544 722 Loan servicing income 186 206 375 416 Gain on sale of bank card 3,410 3,410 Securities gains 16 16 Other 189 83 319 749 ---------- ------------ ---------- ----------- Total non-interest income 5,157 1,792 7,253 4,280 --------- ---------- --------- ---------- NON-INTEREST EXPENSE: Salaries and employee benefits 4,103 2,992 7,791 6,398 Occupancy and equipment 1,962 1,586 3,968 3,031 Communication and transportation 469 398 905 730 Marketing and development 349 415 712 755 FDIC deposit insurance 296 53 496 Supplies 265 242 507 454 Other 1,143 1,114 2,350 1,974 --------- ---------- --------- ----------- Total non-interest expense 8,291 7,043 16,286 13,838 --------- ---------- -------- ---------- INCOME BEFORE INCOME TAXES 5,690 665 8,500 3,731 INCOME TAXES 2,034 339 2,964 1,482 --------- ----------- -------- ---------- NET INCOME $ 3,656 $ 326 $ 5,536 $ 2,249 ======== ======= ======== ========= NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ .48 $ .03 $ .72 $ .27 ========= =========== ========= =========== See notes to consolidated financial statements. </TABLE>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) <TABLE> <CAPTION> NET UNREALIZED DEPRECIATION COMMON STOCK ADDITIONAL ON AVAILABLE TOTAL PREFERRED STOCK CLASS A CLASS B PAID-IN RETAINED FOR SALE STOCKHOLDERS' SHARES AMOUNT SHARES SHARES AMOUNT CAPITAL EARNINGS SECURITIES EQUITY <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> BALANCE, January 1, 1997 50 $ 5,000 6,052 1,170 $ 3,491 $ 6,817 $ 43,930 $ (219) $ 59,019 Dividend Declared Preferred ($2.125 per share) (213) (213) Common: Class A ($.055 per share) (666) (666) Class B ($.05 per share) (116) (116) Net changes in unrealized depreciation on securities available for sale (116) (116) Net Income 5,536 5,536 ----- ------- ------ ------ ------- ------- --------- -------- --------- BALANCE, June 30, 1997 50 $ 5,000 6,052 1,170 $ 3,491 $ 6,817 $ 48,471 ($ 335) $ 63,444 ===== ======= ====== ====== ======= ======= ========= ======== ========= See notes to consolidated financial statements. </TABLE>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (IN THOUSANDS) <TABLE> <CAPTION> 1997 1996 OPERATING ACTIVITIES: <S> <C> <C> Net income $ 5,536 $ 2,249 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization of premises and equipment 2,048 1,542 Amortization and accretion of securities 315 (143) FHLB stock dividends (208) (183) Provision for loan losses 2,714 5,634 Net gain on sale of securities (16) Net gain on sale of loans (544) (722) Net gain on sale of bank card (3,410) Proceeds from sale of bank card 25,555 Proceeds from sale of loans 46,993 76,426 Origination of mortgage loans held for sale (46,015) (75,773) Changes in assets and liabilities: Accrued interest receivable 124 (776) Other assets (9,577) 491 Accrued interest payable 1,589 (13) Other liabilities 1,644 (701) ---------- ----------- Net cash provided by (used in) operating activities 26,748 8,031 --------- ----------- INVESTING ACTIVITIES: Purchases of securities available for sale (5,044) Purchases of securities to be held to maturity (11,189) (117,602) Purchases of Federal Home Loan Bank Stock (1,000) Proceeds from maturities of securities to be held to maturity 66,516 97,995 Proceeds from sales of securities available for sale 9,140 Net increase in loans (62,478) (43,901) Net purchases of premises and equipment (2,144) (3,292) ---------- ----------- Net cash provided by (used in) investing activities (6,199) (66,800) ---------- ---------- FINANCING ACTIVITIES: Net increase in deposits 47,184 12,477 Net increase (decrease) in securities sold under agreement to repurchase and other short-term borrowings (95,554) 28,480 Payments on other borrowings (136,159) (21,723) Proceeds from other borrowings 139,250 24,000 Proceeds from issuance of guaranteed preferred beneficial interests in Company's subordinated debentures 6,452 Cash dividends paid (995) (905) ------------ ----------- Net cash used in financing activities (39,822) 43,329 ---------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (19,273) (16,440) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 56,671 75,313 ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 37,398 $ 58,873 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 24,016 $ 20,537 ========= ========= Income taxes $ 1,839 $ 2,432 ========== ========== See notes to consolidated financial statements. </TABLE>
REPUBLIC BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION (AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES) BASIS OF PRESENTATION - The consolidated financial statements include the accounts of Republic Bancorp, Inc. and its subsidiaries; Republic Mortgage Company, Republic Insurance Agency, Inc., Republic Capital Trust, and Republic Bank & Trust Company (Bank), collectively "Republic". All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 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 six-month periods ending June 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. 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, 1996. NEW ACCOUNTING PRONOUNCEMENTS - In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 130, Reporting Comprehensive Income. This standard requires that certain items currently reported as direct changes in separate components of stockholders' equity be reported in a separate statement of comprehensive income or be included as a separate, additional component of the statement of income. Such items include foreign currency translation, accounting for futures contracts, accounting for defined benefit pension plans, and accounting for certain investments in debt and equity securities. If a company has no items of comprehensive income in any periods reported a statement of comprehensive income is not required. The periodic change in net appreciation or depreciation on securities available for sale reported in Republic's financial statements is an element of comprehensive income under this standard. This standard is effective for Republic in 1998. Management has not yet determined the manner of presentation to be used to comply with this standard. In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. This standard changes the way public companies report information about operating segments in annual financial statements and requires that those companies report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Operating segments are defined as parts of a company for which separate information is available which is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in evaluating performance. Required disclosures for operating segments include total segment revenues, total segment profit or loss, and total segment assets. The standard also requires disclosures regarding revenues derived from products and services (or similar groups of products or services), countries in which the company derives revenue or holds assets, and about major customers, regardless of whether this information is used in operating decision making. Certain additional descriptive information to help the financial statement reader understand how the information was developed and how it compares to total amounts reflected in the company's financial statements are also required. Republic is required to adopt the disclosure requirements in its 1998 annual report, and in interim periods in 1999. The 1999 interim period disclosures are required to include comparable 1998 information. EARNINGS PER SHARE - Earnings per common and common equivalent share is based upon the weighted average common and common equivalent shares outstanding during the year. Primary and fully diluted earnings per share are approximately the same. The number of common and common equivalent shares utilized in the per share computations was approximately 7,393,000 and 7,296,000 for the three months ended June 30, 1997 and 1996, respectively, and 7,393,000 and 7,291,000 for the six months ended June 30, 1997 and 1996, respectively. RECLASSIFICATIONS - Certain amounts have been reclassified in the 1996 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 Available For Sale Securities: <TABLE> <CAPTION> JUNE 30, 1997 (IN THOUSANDS) GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE <S> <C> <C> <C> U.S. Treasury Securities and U.S. Government Agencies $ 103,781 $ (506) $ 103,275 Securities To Be Held To Maturity: </TABLE> <TABLE> <CAPTION> JUNE 30, 1997 (IN THOUSANDS) GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE <S> <C> <C> <C> <C> U.S. Treasury Securities and U.S. Government Agencies $ 113,595 $ 287 ($ 520) $ 113,362 Obligations of state and political subdivisions 4,461 160 4,621 Mortgage-backed securities 627 (43) 584 ---------- ------ ------- --------- Total securities to be held to maturity $ 118,683 $ 447 ($ 563) $ 118,567 ========== ====== ====== ========= </TABLE> Securities having an amortized cost of $192.0 million and a fair value of $191.5 million at June 30, 1997, 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> JUNE 30, 1997 DECEMBER 31, 1996 (IN THOUSANDS) <S> <C> <C> Residential real estate $ 477,035 $ 457,204 Commercial real estate 76,570 59,086 Real estate construction 36,468 32,130 Commercial 26,884 25,115 Consumer 92,669 96,138 Home equity 90,146 69,572 Bank card 1,384 24,527 Other 3,842 4,309 -------------- ------------ Total loans 804,998 768,081 Less: Unearned interest income and unamortized loan fees 2,314 2,416 Allowance for loan losses 6,281 6,241 -------------- ------------ Loans, net $ 796,403 $ 759,424 ============== ========== </TABLE>
The following table sets forth the changes in the allowance for loan losses: <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1997 1996 1997 1996 (IN THOUSANDS) <S> <C> <C> <C> <C> Balance, beginning of period $ 6,281 $ 4,261 $ 6,241 $ 3,695 Provision charged to income 1,416 3,703 2,714 5,634 Charge-offs (1,530) (1,761) (2,965) (3,161) Recoveries 114 38 291 73 --------- ----------- ---------- ---------- Balance, end of period $ 6,281 $ 6,241 $ 6,281 $ 6,241 ======== ======== ======== ======== </TABLE> Information about Republic's investment in impaired loans is as follows: <TABLE> <CAPTION> JUNE 30, 1997 DECEMBER 31, 1996 (IN THOUSANDS) <S> <C> <C> Gross impaired loans $ 1,639 $ 1,638 Less: Related allowance for loan losses 240 240 --------- --------- Net impaired loans with related allowances 1,399 1,398 Impaired loans with no related allowances 0 0 ----------- ----------- Total $ 1,399 $ 1,398 ======== ======== Average impaired loans outstanding $ 1,639 $ 1,638 ======== ======== </TABLE> 4. INTEREST BEARING DEPOSITS <TABLE> <CAPTION> JUNE 30, 1997 DECEMBER 31, 1996 (IN THOUSANDS) <S> <C> <C> Demand (NOW, Super NOW and Money Market): $ 113,040 $ 116,180 Savings 15,080 14,840 Money market certificates of deposit 56,108 63,423 Individual retirement accounts 37,504 35,845 Certificates of deposit, $100,000 and over 70,940 60,890 Other certificates of deposit 420,054 374,864 Brokered deposits 49,972 50,130 ---------- ---------- Total interest bearing deposits $ 762,698 $ 716,172 ========== ========== </TABLE>
5. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM BORROWINGS Short-term borrowings consist of repurchase agreements and overnight liabilities to deposit customers arising from a cash management program offered by Republic. While effectively deposit equivalents, such arrangements are in the form of repurchase agreements. The repurchase agreements are treated as financings; accordingly, the securities involved with the agreements are recorded as assets and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. <TABLE> <CAPTION> JUNE 30, 1997 DECEMBER 31, 1996 JUNE 30, 1996 (DOLLARS IN THOUSANDS) <S> <C> <C> <C> Average outstanding balance $ 100,552 $ 74,531 $ 55,303 Average interest rate 4.64% 4.74% 4.41% Maximum outstanding at month end $ 100,730 $ 182,485 $ 85,980 End of period $ 86,080 $ 181,634 $ 50,209 </TABLE> The decrease in outstandings from December 31, 1996 to June 30, 1997 resulted from an anticipated withdrawal of short-term deposits by a local government organization during the first quarter of 1997. 6. GUARANTEED PREFERRED BENEFICIAL INTERESTS In February 1997, Republic Capital Trust (RCT), a trust subsidiary of Republic Bancorp, Inc., completed the private placement of shares of cumulative trust preferred securities ("Preferred Securities") with a liquidation preference of $100 per security. Each security can be converted into five shares of Class A Common Stock at the option of the holder. The proceeds of the offering were loaned to Republic Bancorp, Inc. in exchange for subordinated debentures with terms that are similar to the Preferred Securities. Distributions on the securities are payable quarterly at the annual rate of 8.5% of the liquidation preference and are included in interest expense in the consolidated financial statements. Republic undertook the issuance of these securities to enhance its regulatory capital position. The Bank intends to utilize the capital for general business purposes and to support the Bank's future opportunities for growth. These securities are considered as Tier I capital under current regulatory guidelines. The Preferred Securities are subject to mandatory redemption, in whole or in part, upon repayment of the subordinated debentures at maturity or their earlier redemption at the liquidation preference. The subordinated debentures are redeemable prior to the maturity date of April 1, 2027 at the option of Republic on or after April 1, 2002, upon the occurrence of specific events, defined within the trust indenture. Republic has the option to defer distributions on the subordinated debentures from time to time for a period not to exceed 20 consecutive quarters.
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. The Bank is a commercial banking and trust corporation organized and chartered under the laws of the Commonwealth of Kentucky. The Bank is also headquartered in Louisville, Kentucky and provides banking services through 20 banking centers throughout Kentucky. The Bank's activities include the acceptance of deposits for checking, savings and time deposit accounts, making secured and unsecured loans, investing in securities and trust services. The Bank's lending services include the 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), Federal Reserve Bank and the Kentucky Department of Financial Institutions. In assets, the Bank is the sixth largest FDIC-insured commercial bank in Louisville, Kentucky and the eighth largest FDIC-insured commercial bank in Kentucky. COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 AND DECEMBER 31, 1996 Republic's total assets decreased slightly in 1997 from $1.14 billion at December 31, 1996 to $1.11 billion at June 30, 1997. The decrease resulted from an anticipated withdrawal of short-term deposits of $87 million from one public entity. While total assets decreased, Republic continues to experience strong overall loan demand. CASH AND CASH EQUIVALENTS. Cash and cash equivalents decreased from $57 million at December 31, 1996 to $37 million at June 30, 1997. Cash and due from banks decreased $3 million, while federal funds sold decreased $16 million. The decreases resulted from the expected withdrawal of short-term public deposits and sustained loan demand. INVESTMENT SECURITIES. The investment portfolio consists primarily of U.S. Treasury and U.S. Government Agencies with a weighted average maturity of less than 2 years. Securities available for sale decreased from $108 million at December 31, 1997 to $103 million at June 30, 1997. The decrease resulted from the sale of securities in the amount of $9 million. These securities were sold for a modest gain. Securities to be held to maturity decreased from $174 million at December 31, 1997 to $119 million at June 30, 1997. Funds provided by maturing securities were primarily used to provide for the anticipated public deposit withdrawals and fund sustained loan demand. During the second quarter of 1997 a new managerial position, chief investment officer, was created. Management also made certain modifications to its investment policy. The policy changes will permit management to take advantage of market changes and permit investments in additional mortgage-backed securities and collateralized mortgage obligations. The policy changes will also permit management to extend maturities up to ten years on U.S. Government and Agency obligations with certain limitations. Management intends to remain conservative in its overall investment strategy while taking advantage of certain market timing opportunities. LOANS. Net loans increased $37 million to $796 million at June 30, 1997 compared to $759 million at December 31, 1996. The increase in loans was led by real estate lending which rose $37 million since December 31, 1996. The rise in residential and commercial real estate loan volume was a result of a continued favorable rate environment and Republic's expanded market presence resulting from the opening of five new banking centers during 1996. Republic also experienced 30% growth in its Home Equity loan portfolio during 1997. The growth of Republic's Home Equity loan portfolio was primarily due to product enhancements including elimination of up-front closing costs and a six month introductory interest rate.
The increase in these loan types was offset by the sale of Republic's Bank card loan portfolio and Republic's portion of a credit card joint venture. During the second quarter of 1997, Republic sold its $17 million Bank card portfolio realizing a pre-tax gain of $2.6 million. Under the terms of the sale, Republic entered into an agent bank agreement which will allow Republic to continue to offer credit cards in its name and receive fees based on new originations. The terms of the sale did not include certain accounts with doubtful collectibility. Republic anticipates losses associated with these accounts to continue in the near term. Management gave consideration to these doubtful accounts in determining the gain on the sale of the portfolio. Republic also sold its 50% participation interest, totaling $7 million, in a credit card joint venture for a gain of $340,000. The agreement contains a limited recourse provision under which Republic is generally responsible for 50% of monthly net charge-offs above 0.34% of the average monthly outstandings. This recourse provision which remains in effect for up to 48 months has a maximum liability to Republic of $1.2 million. The gain on sale was determined after consideration of the probable loss under the recourse provision. Republic's consumer loans, excluding Bank card loans, decreased slightly from $96 million at December 31, 1996 to $93 million at June 30, 1997. Approximately 57% of loans in the consumer portfolio, excluding Bank card loans, are unsecured. Republic's unsecured consumer portfolio includes the "All Purpose" and "Pre Approved" loan programs. Republic's "All Purpose" loans, with total outstandings of $17 million at June 30, 1997 and $22 million at December 31 1996, are originated through Republic's banking centers. This product has an average original loan amount of $8,000 and an average percentage rate of 17.54% with a standard maximum maturity of five years. "Pre Approved" loans remained flat from December 31, 1996 to June 30, 1997 at $33 million. "Pre Approved" loans are delivered through direct mail, targeting customers both in and outside of Republic's traditional markets. The "Pre Approved" loan product has an average original loan amount of $7,800 and an average annual percentage rate of 13.96% with a standard maximum maturity of five years. Management presently plans to allow the "All Purpose" and "Pre Approved" portfolios to reduce in the near term. ALLOWANCE AND PROVISION FOR LOAN LOSSES. The allowance for loan losses remained constant at $6 million from December 31, 1996 to June 30, 1997. Republic's allowance to total loan ratio was .78% at June 30, 1997 compared to .81% at December 31, 1996. The provision for loan losses was $1.4 million in the second quarter, 1997, compared to $3.7 million in the second quarter of 1996. Net charge-offs decreased $300,000 from second quarter 1996 to second quarter 1997. Republic's unsecured consumer loan portfolio accounted for 83% of total charge-offs in the second quarter of 1997. The provision for loan losses was $2.7 million for the six months ended June 30, 1997, compared to $5.6 million for the six months ended June 30, 1996. Net charge-offs decreased slightly from year-to-date 1996 to year-to-date 1997. The increase in the provision during 1996 resulted from management's decision to increase the overall reserve for loan losses as a result of increased risk associated with unsecured consumer loans. Republic's unsecured consumer loan portfolio accounted for 84% of total charge-offs during year-to-date 1997 and 91% for year-to-date 1996. The charge-offs in the unsecured consumer loan portfolio during 1997 were principally comprised of $836,000 in the "All Purpose" program and $943,000 in the "Pre Approved" program (See description of programs under "Loans"). As a result of the level of charge-offs in the unsecured programs, management is not currently soliciting clients for these programs. This action is intended to improve the average credit quality of these loan portfolios over time. Republic also experienced a reduction in charge-offs in its Bank card portfolio during the current year. Charge-offs were $467,000 year-to-date 1997 compared to $665,000 for the same period in 1996. Management believes, based on information presently available, that it has adequately provided for loan losses at June 30, 1997.
Table 1 below depicts the allowance activity by loan type for the three months ended June 30, 1997 and 1996. TABLE 1 - SUMMARY OF LOAN LOSS EXPERIENCE <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------- -------- 1997 1996 1997 1996 (IN THOUSANDS) <S> <C> <C> <C> <C> Allowance for loan losses: Balance-beginning of period $ 6,281 $ 4,261 $ 6,241 $ 3,695 Charge-offs: Real Estate (142) (128) (164) (140) Commercial (5) (6) (43) (13) Consumer (1,383) (1,627) (2,758) (3,008) ------- ------ ------- ------ Total (1,530) (1,761) (2,965) (3,161) ------- ------- ------- ------- Recoveries: Real Estate 2 18 2 Commercial Consumer 114 37 273 72 --- -- --- -- Total 114 39 291 74 --- -- --- -- Net charge-offs (1,416) (1,722) (2,674) (3,087) Provision for loan losses 1,416 3,703 2,714 5,634 ----- ----- ----- ----- Allowance for loan losses: Balance-end of period $ 6,281 $ 6,241 $ 6,281 $ 6,241 ======= ======= ======= ======= </TABLE> DEPOSITS. Total deposits increased to $830 million at June 30, 1997 compared to $783 million at December 31, 1996. The change was primarily due to an increase in certificates of deposits resulting from competitive pricing. Republic plans to continue its deposit gathering initiatives through aggressive pricing strategies and competitive products. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT TERM BORROWINGS. Short term borrowings decreased from $182 at December 31, 1996 to $86 million at June 30, 1997. The decline in borrowings was primarily due to the removal of short-term public deposits by a local government organization. Management anticipated the withdrawal of these short-term public deposits during the first quarter of 1997. The transaction was funded with maturing investment securities, proceeds from the sale of available for sale securities, and cash on hand. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S SUBORDINATED DEBENTURES. During February of 1997, Republic issued $6 million of Trust Preferred securities through a newly formed subsidiary, Republic Capital Trust. (See Note 6 to the accompanying interim financial statements). SALE OF BANKING CENTERS During 1997, Republic elected to increase its focus and resources on the North Central and Central Kentucky markets. Republic believes that these markets will provide greater opportunities for future growth and profitability.
As a result of this decision, management has aggressively pursued opportunities to sell certain fixed assets and deposit liabilities of its Western Kentucky banking centers, with the exception of Owensboro. Republic's Western Kentucky fixed assets and deposit liabilities subject to sale include banking centers in the cities of Murray, Benton, Paducah and Mayfield. These banking centers provide a total of $185 million in deposits as of June 30, 1997. Republic intends to retain substantially all of the $167 million loan portfolio associated with these banking centers. Management anticipates that it will fund these transactions with additional deposits from its new and existing banking centers, liquidation of available for sale investment securities and additional advances from the Federal Home Loan Bank. In April 1997, Republic entered into an agreement to sell its Murray banking center to an unaffiliated Kentucky financial institution. The transaction includes the sale of real estate located in Murray, Kentucky, certain fixed assets and loans with an aggregate book value of approximately $237,000, and a transfer of certain deposit liabilities totaling approximately $18 million. The purchase price in the transaction was based on the book value of the assets transferred, plus a core deposit premium on market area deposits, and was payable through the reduction of the cash transferred by Republic to offset the deposit liabilities assumed. This transaction was closed on July 30, 1997 and Republic recognized an after tax gain of approximately $1.7 million. In addition, Republic has subsequently entered into two additional contracts with separate unaffiliated buyers to sell its Benton banking center and its two banking centers in Paducah. These contracts are contingent upon regulatory approval and are subject to due diligence and other contingencies. The Bank has also entered into a letter of intent to sell its Mayfield banking center with another unaffiliated institution, but has not as yet entered into a definitive agreement. The Benton, Paducah and Mayfield transactions could close by year end. While the terms of these agreements vary, management anticipates that Republic will realize a gain on each anticipated sale. The gain will be dependent upon the attributes and the amount of the deposit liabilities assumed by the purchasers at closing. OTHER MATTERS Republic was required to reimburse the FDIC for tax benefits received resulting from tax deductions for losses on loans and other real estate owned (OREO) acquired through the acquisition of two failed institutions. In the third quarter of 1995, Republic was notified by the FDIC that, under its interpretation of the Agreements, Republic may be required to remit additional payments related to prior years. During the second quarter of 1997, Republic settled this matter with the FDIC. The terms of the settlement had no significant impact on the financial position and results of operations of Republic and provided for a release by the FDIC of any further obligations of Republic under the Agreements. RESULTS OF OPERATIONS OVERVIEW. For the three months ended June 30, 1997, Republic reported net income of $3.7 million, or $.48 per share, for the second quarter of 1997 compared to $326,000, or $.03 per share, for the second quarter of 1996. Earnings for the second quarter 1997 produced an annualized return on average assets of .81% and a return on average stockholders' equity of 13.22%, compared to returns of .14% and 2.22%, respectively, for the comparable period in 1996. For the six months ended June 30, 1997, net income was $5.5 million compared to $2.2 million for the same period in 1996. The substantial increase in earnings during 1997 is primarily due to the sale of the Bank card portfolios and merchant processing which produced an after-tax gain of approximately $2.2 million. Also during the period, Republic benefited from reduced provisions for loan losses and increased net interest income. NET INTEREST INCOME. For the second quarter 1997, net interest income was $10.2 million, up 6% over the $9.6 million attained during second quarter 1996. This increase was primarily attributable to Republic's continued loan growth, particularly residential real estate and home equity loans. During the second quarter 1997, average interest-earning assets were $1.1 billion, an increase of $191.1 million over second quarter 1996. The yield on average interest-earning assets decreased from 9.19% during second quarter of 1996 to 8.82% during second quarter of 1997. Total average interest bearing liabilities increased from $776.3 million in the second quarter of 1996 to $952.6 million in the second quarter of 1997. The cost of average interest-bearing liabilities increased from 5.27% during second quarter of 1996 to 5.46% in the second quarter of 1997.
Overall, the net interest rate spread decreased from 3.92% during second quarter of 1996 to 3.36% in the comparable quarter of 1997. The Bank's net interest margin decreased from 4.46% in second quarter 1996 to 3.88% in second quarter 1997. The decrease in the net interest spread and margin occurred because the yield on interest earning assets decreased 37 basis points while the rate paid on liabilities increased 19 basis points. The decline in yield on earning assets was primarily attributable to a decrease in loan yields. The reduction in loan yields occurred in large part because of declining balances in the higher yielding "Pre Approved" and "All Purpose" loan portfolios. The rise in rates on interest bearing liabilities resulted from a new, higher yielding tiered rate program on money market accounts. Management anticipates that the net interest spread and margin may continue to decrease in the near term as the higher yielding consumer portfolios further reduce. Net interest income for the six months ended June 30, 1997 was $20.2 million, up $1.3 million from $18.9 million during the six months ended June 30, 1996. When comparing the respective six month periods, average earning assets grew by $192.6 million in 1997 and average interest bearing liabilities increased $180.5 million. The rise in net interest income in 1997 is primarily due to the increased volume of the Bank's loan portfolio. Tables 2, 3 and 4 on pages 16, 17 and 18 provide detailed information as to average balance, interest income/expense, and rates by major balance sheet category for the three and six months ended June 30, 1997 and 1996.
TABLE 2 - AVERAGE BALANCE SHEET RATES FOR SECOND QUARTER, 1997 AND 1996 (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30, 1997 THREE MONTHS ENDED JUNE 30, 1996 -------------------------------- -------------------------------- 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 $ 216,558 $ 3,324 6.14% $ 119,469 $ 1,856 6.21% State and Political Subdivision Securities 4,544 96 8.45% 4,590 98 8.54% Other Investments 6,752 117 6.93% 5,345 103 7.71% Mortgage-Backed Securities 641 8 4.99% 716 9 5.03% Federal Funds Sold 10,318 140 5.43% 19,012 247 5.20% Total Loans and Fees 815,648 19,557 9.59% 714,190 17,526 9.82% ------- ------ ------- ------ Total Earning Assets 1,054,461 23,242 8.82% 863,322 19,839 9.19% --------- ------ ------- ------ Less: Allowance for Loan Losses (6,281) (4,678) Non-Earning Assets: Cash and Due From Banks 21,191 20,656 Bank Premises and Equipment, Net 17,887 13,526 Other Assets 13,528 9,206 ------ ----- Total Assets $ 1,100,786 $ 902,032 =========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Interest Bearing Liabilities: Transaction Accounts $ 133,733 $ 1,159 3.47% $ 151,982 $ 1,307 3.44% Money Market Accounts 41,340 490 4.74% 33,852 364 4.30% Individual Retirement Accounts 37,429 546 5.84% 34,695 536 6.18% Certificates of Deposit and Other Time Deposits 530,274 7,953 6.00% 425,682 6,373 5.99% Repurchase Agreements and Other Borrowings 209,868 2,854 5.44% 130,092 1,640 5.04% ------- ----- ------- ----- Total Interest Bearing Liabilities 952,644 13,002 5.46% 776,303 10,220 5.27% ------- ------ ------- ------ Non-Interest Bearing Liabilities: Non-Interest Bearing Deposits 67,631 59,379 Other Liabilities 19,465 7,633 Stockholders' Equity 61,046 58,717 ---------- --------- Total Liabilities and Stockholders' Equity $ 1,100,786 $ 902,032 =========== ========= Net Interest Income $ 10,240 $ 9,619 ======== ======= Net Interest Spread 3.36% 3.92% ===== ===== Net Interest Margin 3.88% 4.46% ===== ===== For the purposes of these calculations, non-accruing loans are included in the quarterly average loan amounts outstanding. </TABLE>
TABLE 3 - AVERAGE BALANCE SHEET RATES FOR SIX MONTHS, 1997 AND 1996 (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> SIX MONTHS ENDED JUNE 30, 1997 SIX MONTHS ENDED JUNE 30, 1996 ------------------------------ ------------------------------ 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 $ 225,106 $ 6,668 5.92% $ 120,340 $ 3,762 6.25% State and Political Subdivision Securities 4,533 196 8.65% 4,613 197 8.54% Other Investments 6,593 227 6.89% 5,304 197 7.43% Mortgage-Backed Securities 649 36 11.09% 725 19 5.24% Federal Funds Sold 12,775 353 5.53% 24,033 641 5.33% Total Loans and Fees 801,345 38,372 9.58% 703,422 34,631 9.85% ------- ------ ------- ------ Total Earning Assets 1,051,001 45,852 8.73% 858,437 39,447 9.19% --------- ------ ------- ------ Less: Allowance for Loan Losses (6,271) (4,258) Non-Earning Assets: Cash and Due From Banks 22,737 19,669 Bank Premises and Equipment, Net 17,810 13,082 Other Assets 12,991 10,183 ------ ------ Total Assets $ 1,098,268 $ 897,113 =========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Interest Bearing Liabilities: Transaction Accounts $ 135,067 $ 2,333 3.45% $ 149,830 $ 2,610 3.48% Money Market Accounts 40,641 957 4.71% 32,565 697 4.28% Individual Retirement Accounts 36,874 1,078 5.85% 34,467 1,075 6.24% Certificates of Deposit and Other Time Deposits 520,783 15,444 5.93% 432,197 13,032 6.03% Repurchase Agreements and Other Borrowings 216,833 5,793 5.34% 120,669 3,110 5.15% ------- ----- ------- ----- Total Interest Bearing Liabilities 950,198 25,605 5.39% 769,728 20,524 5.33% ------- ------ ------- ------ Non-Interest Bearing Liabilities: Non-Interest Bearing Deposits 69,956 58,549 Other Liabilities 17,836 9,326 Stockholders' Equity 60,278 59,510 ------ ------ Total Liabilities and Stockholders' Equity $ 1,098,268 $ 897,113 =========== ========= Net Interest Income $ 20,247 $ 18,923 ======== ======== Net Interest Spread 3.34% 3.86% ===== ===== Net Interest Margin 3.85% 4.41% ===== ===== For the purposes of these calculations, non-accruing loans are included in the quarterly average loan amounts outstanding. </TABLE>
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 4 - VOLUME/RATE VARIANCE ANALYSIS (IN THOUSANDS) <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30, 1997 SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO COMPARED TO THREE MONTHS ENDED JUNE 30, 1996 SIX MONTHS ENDED JUNE 30, 1996 -------------------------------- ------------------------------ INCREASE/(DECREASE) INCREASE/(DECREASE) DUE TO DUE TO TOTAL NET TOTAL NET CHANGE VOLUME RATE CHANGE VOLUME RATE <S> <C> <C> <C> <C> <C> <C> Interest Income (1): U.S. Treasury and Government Agency Securities $ 1,468 $ 1,508 $ (40) $ 2,906 $ 3,275 $ (369) State and Political Subdivision Securities (2) (1) (1) (1) (3) 2 Other Investments 14 27 (13) 30 48 (18) Mortgage-Backed Securities (1) (1) 0 17 (2) 19 Federal Funds Sold (107) (113) 6 (288) (300) 12 Total Loans and Fees (2) 2,031 2,490 (459) 3,741 4,821 (1,080) ----- ------ ----- ------ ----- ------- Net Change in Interest Income 3,403 3,910 (507) 6,405 7,839 (1,434) ----- ------ ----- ------ ----- ------- Interest Expense: Interest Bearing Transaction Accounts (148) (157) 9 (277) (257) (20) Money Market Accounts 126 81 45 260 173 87 Individual Retirement Accounts 10 42 (32) 3 75 (72) Certificates of Deposit and Other Time Deposits 1,580 1,566 14 2,412 2,671 (259) Repurchase Agreements and Other Borrowings 1,214 1,006 208 2,683 2,478 205 ----- ----- --- ----- ----- --- Net Change in Interest Expense 2,782 2,538 244 5,081 5,140 (59) ----- ----- --- ------- ------- --------- Increase in Net Interest Income $ 621 $ 1,372 $ (751) $ 1,324 $ 2,699 $ (1,375) ===== ======= ======= ======= ======= ========= (1) Interest income for loans on non-accrual status have been included in Interest Income. (2) The amount of fees in interest on loans was $448,000 and $47,000 for the years ended June 30, 1997 and 1996, respectively. </TABLE>
NON-INTEREST INCOME. Non-interest income was $5.2 million during second quarter 1997, up from $1.8 million during second quarter of 1996. Non-interest income increased 70% from $4.3 million for the six months ended June 30, 1996 to $7.3 million for the comparable period in 1997. The primary change in other non-interest income resulted from the $3.4 million pre-tax gain realized on the sale of the Bank card portfolios and merchant processing. Service charges on deposit accounts increased for both the three month and six month periods ended June 30, 1997. The increase was due to a restructuring of service charges on deposit accounts and improved collection activities. Bank card fees decreased for both the three month and six month periods ended June 30, 1997. This decrease resulted from the sale of the Bank's merchant processing business. Other non-interest income declined for the six months ended June 30, 1997 as a result of one time gains realized during 1996. These one time events in 1996 included the sale of the Bagdad banking center located in Shelby County, Kentucky and the successful disposition of other real estate owned. Income from mortgage banking, a component of non-interest income, includes proceeds from the sale of loans in the secondary market and servicing income. Gain on sale of loans decreased for both the three and six month period ended June 30, 1997. Republic's net gain on sale of loans decreased due to reduced volume of fixed rate originations. The decline in secondary market loan originations has resulted in increased variable rate originations which are held by Republic. Loan servicing income declined slightly for the three and six months ended 1997 due to a decline in the servicing portfolio as a result of normal payoff activity and the sale of loans to the secondary market with servicing released. NON-INTEREST EXPENSE. Total non-interest expense was $8.3 million in second quarter 1997, compared to $7.0 million for second quarter 1996. Non-interest expense increased 18% from $13.8 million for the six months ended June 30, 1996, compared to $16.3 million for the comparable period in 1997. The increase during both periods was primarily attributable to costs associated with Republic's expansion into five new banking centers. Republic's non-interest expense ratio (non-interest expense divided by the sum of net interest income and non-interest income) was 69% in the second quarter 1997 compared to 62% for the comparable period in 1996. Management anticipates that non-interest expense will moderate in the near term due to the sale of certain Western Kentucky banking centers. Salary and employee benefit expense increased 37% for the second quarter 1997 over second quarter, 1996, and 22% for the six months ended June 30, 1997 due to staff additions and 1997 bonus accruals. Republic's staffing level rose to 443 full-time equivalent employees (FTE's) at June 30, 1997, compared to 401 FTE's at June 30, 1996. The increase in staffing was prompted by the Bank's expansion activities during 1996 as well as additional staffing in operational areas needed to support strong loan demand. Occupancy and equipment expense increased from $1.6 million in second quarter 1996 to $2.0 million for the comparable period in 1997. The increase was primarily due to depreciation expenses associated with the opening of five additional banking centers during 1996. The increase was also due to technology enhancements for deposit, lending and customer support systems. Insurance expense decreased for both the three month and six month periods ended June 30, 1997. The primary decrease in FDIC insurance expense is due to overall reduced insurance premiums for SAIF insured institutions since the third quarter 1996. FDIC insurance premiums were further reduced by a rebate on prior insurance premiums paid in 1996. Management anticipates that this rebate will continue to have a positive impact on insurance expense in the third quarter. ASSET QUALITY Loans, including impaired loans under SFAS 114 and excluding consumer loans, are placed on non-accrual status when they become past due 90 days or more as to principal or interest, unless they are adequately secured and in the process of collection. When loans are placed on non-accrual status, all unpaid accrued interest is reversed. These loans remain on non-accrual status until the borrower demonstrates the ability to remain current or the loan is deemed uncollectible and is charged off. Consumer loans are not placed on non-accrual status but are reviewed periodically and charged off when they reach 120 days past due and are deemed uncollectible. At June 30, 1997, Republic had $416,000 in consumer loans 90 days or more past due compared to $357,000 at December 31, 1996.
Table 5 provides information related to non-performing assets and loans 90 days or more past-due. Total non-performing assets decreased slightly from December 31, 1996 to June 30, 1997. TABLE 5 - NON-PERFORMING LOANS <TABLE> <CAPTION> JUNE 30, DECEMBER 31, (DOLLARS IN THOUSANDS) 1997 (1) 1996 (1) <S> <C> <C> <C> Loans on non-accrual status (2) $ 2,823 $ 3,055 Loans past due 90 days or more 3,153 3,714 ----- ----- Total non-performing loans 5,976 6,769 Other real estate owned 523 104 -------- -------- Total non-performing assets $ 6,499 $ 6,873 ======== ======= Percentage of non-performing loans to total loans .74% .88% ==== ==== Percentage of non-performing assets to total loans .80% .89% ==== ==== (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. </TABLE> Republic defines impaired loans to be those commercial real estate and commercial loans greater than $499,999 that management has classified as doubtful (collection of all amounts due is highly questionable or improbable) or loss (all or a portion of the loan has been written off or a specific allowance for loss has been provided). Republic's policy is to charge off all or that portion of its investment in an impaired loan upon a determination it is probable the full amount will not be collected. Impaired loans remained constant from December 31, 1996 to June 30, 1997 at $1.6 million. LIQUIDITY Republic's objectives include providing consistent earnings, and preserving an adequate liquidity position. Asset/liability management control is designed to ensure safety and soundness, maintain liquidity and regulatory capital standards, and achieve an acceptable net interest margin. While Republic continues to experience strong loan demand, management continues to monitor interest rate and liquidity risk and implement appropriate funding and balance sheet strategies. If loan growth continues at its present level management intends to obtain additional funds through its traditional retail markets or through borrowing agreements with the Federal Home Loan Bank or other financial institutions. Republic has access to sources of additional liquidity if needed. Republic also has access to a portion of the $103 million of investment securities which have been designated as "Available for Sale".
CAPITAL The Bank intends to maintain a capital position that meets the regulatory definition, as defined by the FDIC, of a "well capitalized" institution. Table 6 below indicates the capital ratios at June 30, 1997 as measured under applicable regulations. TABLE 6 - 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> As of June 30, 1997 Total Risk Based Capital (to Risk Weighted Assets) Consolidated $ 76,512 11.26% $ 54,349 8% $ 67,937 10% Bank only $ 75,955 11.30% $ 53,780 8% $ 67,225 10% Tier I Capital (to Risk Weighted Assets) Consolidated $ 70,231 10.34% $ 27,175 4% $ 40,762 6% Bank only $ 69,674 10.36% $268,890 4% $ 40,335 6% Tier I Leverage Capital (to Average Assets) Consolidated $ 70,231 6.38% $ 44,015 4% $ 55,019 5% Bank only $ 69,674 6.33% $ 44,015 4% $ 55,019 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 June 30, 1997, the Bank had $8.9 million of retained earnings available for payment of dividends. NEW ACCOUNTING PRONOUNCEMENTS See discussion in Note 1 to financial statements.
PART II - OTHER INFORMATION Item 5. Other Information As discussed under the heading "Sale of Banking Centers" in Item 2, Part 1 of this Report, Republic is actively pursuing the sale of certain fixed assets and deposits of its Western Kentucky banking centers, with the exception of Owensboro. In general, Republic will be retaining its loan portfolio, and thus its presence in the Western Kentucky market. On July 30, 1997, Republic completed the sale of certain fixed assets and this transfer of deposits of its Murray, Kentucky, banking center. Information concerning the banking center transaction, which considered alone is not deemed by management to be material, is presented at page 13 of this Report, and is incorporated herein by reference. Item 6. Exhibits and Reports on Form 8-K A. The exhibits required by Item 601 of Regulation S-K are attached to and listed in the Exhibit Index on page 24. B. No reports on Form 8-K have been filed during the quarter for which the report is filed.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Republic Bancorp, Inc. (Registrant) Principal Executive Officer: Date: 08/14/97 /s/ Bernard M. Trager ---------------------------- Bernard M. Trager Chairman and Chief Executive Officer Principal Financial Officer: Date: 08/14/97 /s/ E. William Petter ----------------------------- E. William Petter, Jr. Executive Vice President, Chief Financial Officer
EXHIBIT INDEX EXHIBIT DESCRIPTION PAGE 11 Statement Regarding Computation of Per Share Earnings 25 27 Financial Data Schedule 26
EXHIBIT 11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS (UNAUDITED) <TABLE> <CAPTION> Three Months Ended Six Months Ended JUNE 30, JUNE 30, 1997 1996 1997 1996 <S> <C> <C> <C> <C> Primary earnings per common share: Weighted average common shares outstanding 7,222 7,222 7,222 7,222 Common stock equivalents due to dilutive effect of stock options 171 74 171 69 --- -- --- -- Average shares and equivalents outstanding 7,393 7,296 7,393 7,291 Net income $ 3,656 $ 326 $ 5,536 $ 2,249 Less preferred stock dividends 106 106 213 213 --- --- --- --- Income available for common stock 3,550 220 5,323 2,036 Primary net income per share $ .48 $ .03 $ .72 $ .27 ===== ===== ====== ====== Fully-diluted earnings per common share: Weighted average common shares outstanding 7,222 7,222 7,222 7,222 Common stock equivalents due to dilutive effect of stock options 171 74 171 69 Common stock equivalents due to dilutive effect of convertible preferred stock 300 300 300 300 Common stock equivalents due to dilutive effect of guaranteed preferred beneficial interests in Company's subordinated debentures 323 323 _____ Average ------ -------- ------ shares and equivalents outstanding 8,016 7,596 8,016 7,591 Net income $ 3,656 $ 326 $ 5,536 $ 2,249 Add interest expense on guaranteed beneficial interests in Company's subordinated debentures, net of tax 89 142 _____ -------- -------- ------- Income available for common stock 3,745 326 5,678 2,249 Fully-diluted net income per share $ .47 $ .03 $ .71 $ .27 ===== ===== ====== ====== </TABLE>