SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 2001 Commission File Number 0-15734
REPUBLIC BANCORP INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2604669
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1070 East Main Street, Owosso, Michigan 48867
(Address of principal executive offices)
(517) 725-7337
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 day
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock Outstanding as of April 30, 2001:
Common Stock, $5 Par Value 49,459,054 Shares
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000.............................. 3
Consolidated Statements of Income for the Three
Months Ended March 31, 2001 and 2000............... 4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2001 and 2000............... 5
Notes to Consolidated Financial Statements......... 6 - 9
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition...... 9 - 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................. 21
Item 2. Changes in Securities.............................. 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K................... 21
SIGNATURE........................................................ 22
2
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31,
(Dollars in thousands) 2001 2000
-------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents....................................... $ 119,289 $ 82,377
Mortgage loans held for sale.................................... 577,212 385,207
Securities available for sale (amortized cost of
$209,102 and $212,183, respectively)........................... 208,914 211,860
Loans........................................................... 3,631,631 3,771,676
Less allowance for loan losses................................. (28,794) (28,450)
---------- ----------
Net loans....................................................... 3,602,837 3,743,226
---------- ----------
Premises and equipment.......................................... 35,021 36,094
Mortgage servicing rights....................................... 33,457 51,796
Other assets.................................................... 92,892 100,081
---------- ----------
Total assets.................................................. $4,669,622 $4,610,641
========== ==========
LIABILITIES
Noninterest-bearing deposits.................................... $ 302,572 $ 267,509
Interest-bearing deposits:
NOW accounts................................................... 142,066 150,476
Savings and money market accounts.............................. 671,132 590,056
Certificates of deposit........................................ 1,714,711 1,720,485
---------- ----------
Total interest-bearing deposits.............................. 2,527,909 2,461,017
---------- ----------
Total deposits................................................ 2,830,481 2,728,526
Federal funds purchased and other short-term
borrowings..................................................... 3,416 1,729
FHLB advances................................................... 1,338,762 1,383,513
Accrued expenses and other liabilities.......................... 137,909 125,790
Long-term debt.................................................. 38,500 47,500
---------- ----------
Total liabilities............................................ 4,349,068 4,287,058
Preferred stock of subsidiary................................... 28,719 28,719
SHAREHOLDERS' EQUITY
Preferred stock, $25 stated value: $2.25 cumulative
and convertible; 5,000,000 shares authorized,
none issued and outstanding.................................... - -
Common stock, $5 par value, 75,000,000 shares
authorized; 49,542,000 and 49,424,000,
issued and outstanding, respectively.........................
247,711 247,119
Capital surplus................................................. 44,671 44,961
Retained earnings............................................... (424) 2,994
Accumulated other comprehensive loss............................ (123) (210)
---------- ----------
Total shareholders' equity................................... 291,835 294,864
---------- ----------
Total liabilities and shareholders' equity.................. $4,669,622 $4,610,641
========== ==========
See notes to consolidated financial statements.
3
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended
March 31,
(In thousands, except per share data) 2001 2000
--------------------------------------------------------------------------------------------
Interest Income:
Loans, including fees................................ $ 84,923 $ 76,480
Investment securities................................ 3,542 3,758
-------- --------
Total interest income............................ 88,465 80,238
-------- --------
Interest Expense:
Deposits....................................................... 33,014 27,819
Short-term borrowings.......................................... 524 1,095
FHLB advances.................................................. 20,247 17,754
Long-term debt................................................. 727 859
-------- --------
Total interest expense..................................... 54,512 47,527
-------- --------
Net interest income............................................ 33,953 32,711
Provision for loan losses...................................... 2,000 1,600
-------- --------
Net interest income after provision for loan losses............
31,953 31,111
-------- --------
Non-interest Income:
Service charges............................................... 1,651 1,779
Mortgage loan production revenue.............................. 16,650 14,722
Net mortgage servicing revenue (loss)......................... (199) 3,977
Gain on sale of securities.................................... 367 107
Other non-interest income..................................... 852 913
-------- --------
Total non-interest income................................. 19,321 21,498
-------- --------
Non-interest Expense:
Salaries and employee benefits................................ 16,669 19,822
Occupancy expense of premises................................. 3,400 3,535
Equipment expense............................................. 2,375 2,253
Other non-interest expense.................................... 7,961 9,183
Restructuring costs to exit mortgage
servicing business........................................... 19,000 -
-------- --------
Total non-interest expense................................ 49,405 34,793
-------- --------
Income before income taxes.................................... 1,869 17,816
Provision for income taxes.................................... 389 5,843
-------- --------
Income before preferred stock dividends....................... 1,480 11,973
Dividends on preferred stock.................................. 681 681
-------- --------
Net income.................................................... $ 799 $11,292
======== =======
Basic earnings per share...................................... $ .02 $ .22
======== =======
Diluted earnings per share.................................... $ .02 $ .22
======== =======
Average common shares outstanding - diluted................... 50,117 50,136
======== =======
Cash dividends declared per common share...................... $ .085 $ .077
======== =======
See notes to consolidated financial statements.
4
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31 (In thousands) 2001 2000
-------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income......................................................... $ 799 $ 11,292
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................................... 2,357 2,356
Amortization and write-down of mortgage servicing rights......... 19,477 1,762
Net gain on sale of securities available for sale................ (367) (107)
Net gain on sale of mortgage servicing rights.................... (10,161) (8,181)
Net gain on sale of loans........................................ (501) (124)
Origination of mortgage loans held for sale...................... (1,278,811) (739,813)
Proceeds from sales of mortgage loans held for sale.............. 1,086,806 768,375
Net decrease in other assets..................................... 7,140 7,339
Net increase in other liabilities................................ 12,119 13,446
Other, net....................................................... (673) (2,694)
----------- ---------
Total adjustments............................................... (162,614) 42,359
----------- ---------
Net cash provided by operating activities....................... (161,815) 53,651
----------- ---------
Cash Flows From Investing Activities:
Proceeds from sale of securities available for sale................ 80,689 1,328
Proceeds from maturities/payments of securities
available for sale................................................ 1,566 3,138
Purchases of securities available for sale......................... (78,784) (3,759)
Proceeds from sale of consumer loans............................... 39,485 -
Proceeds from sale of SBA and residential real estate loans........ 25,857 44,344
Net decrease (increase) in loans made to customers................. 74,669 (206,203)
Proceeds from sale of mortgage servicing rights.................... 30,940 22,179
Additions to mortgage servicing rights............................. (21,917) (10,064)
Proceeds from sale of fixed assets................................. - 1,673
----------- ---------
Net cash used in investing activities........................... 152,505 (147,364)
----------- ---------
Cash Flows From Financing Activities:
Net increase (decrease) in deposits................................ 101,955 (29,663)
Net increase in short-term borrowings.............................. 1,687 6,860
Net increase (decrease) in short-term FHLB advances................ 1,000 (148,000)
Proceeds from long-term FHLB advances.............................. 40,000 375,000
Payments on long-term FHLB advances................................ (85,751) (117,057)
Payments on long-term debt......................................... (9,000) -
Net proceeds from issuance of common shares........................ 1,910 1,298
Repurchase of common shares........................................ (1,374) (2,927)
Dividends paid..................................................... (4,205) (3,872)
----------- ---------
Net cash provided by financing activities....................... 46,222 81,639
----------- ---------
Net (decrease) increase in cash and cash equivalents............... 36,912 (12,074)
Cash and cash equivalents at beginning of period................... 82,377 83,761
----------- ---------
Cash and cash equivalents at end of period......................... $ 119,289 $ 71,687
=========== =========
See notes to consolidated financial statements.
5
REPUBLIC BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements of Republic Bancorp
Inc. and Subsidiary (the "Company") have been prepared in accordance with
generally accepted accounting principles in the United States for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes necessary for a comprehensive presentation of financial position,
results of operations and cash flow activity required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all normal recurring adjustments necessary for a fair presentation
of results have been included. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
Certain amounts in prior periods have been reclassified to conform to the
current year's presentation.
Note 2 - Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the parent
company, Republic Bancorp Inc., and its wholly-owned banking subsidiary,
Republic Bank (including its subsidiaries D&N Capital Corporation, Quincy
Investment Services, Inc. and Market Street Mortgage Corporation). D&N Capital
Corporation and Quincy Investment Services, Inc. are wholly-owned subsidiaries
and Market Street Mortgage Corporation is an 80% majority-owned mortgage company
subsidiary. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Note 3 - Consolidated Statements of Cash Flows
-------------------------------------
Supplemental disclosures of cash flow information for the three months ended
March 31, include:
(In thousands) 2001 2000
------- -------
Cash paid during the period for:
Interest........................ $54,328 $45,973
Income taxes.................... $ 2,323 2,500
Non-cash investing activities:
Loan charge-offs................ $ 1,989 $ 1,101
6
Note 4 - Earnings Per Share
------------------
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended
March 31,
(Dollars in thousands, except per share data) 2001 2000
--------------------------------------------------------------------------------
Numerator for basic and diluted earnings per share:
Net income........................................ $ 799 $ 11,292
Denominator for basic earnings per share--
weighted-average shares........................... 49,497,664 49,737,851
Effect of dilutive securities:
Employee stock options...................... 578,912 126,715
Warrants.................................... 40,663 271,383
----------- -----------
Dilutive potential common shares....... 619,575 398,098
----------- -----------
Denominator for diluted earnings per share--adjusted
weighted-average shares for assumed conversions... 50,117,239 50,135,949
=========== ===========
Basic earnings per share.......................... $ .02 $ .22
=========== ===========
Diluted earnings per share........................ $ .02 $ .22
=========== ===========
Note 5 - Comprehensive Income
--------------------
The following table sets forth the computation of comprehensive income:
Three Months Ended
March 31,
(In thousands) 2001 2000
------------------------------------------------------------- ----- -------
Net income................................................... $ 799 $11,292
Unrealized holding gains (losses) on securities, net of tax.. $ 326 $ (99)
Reclassification adjustment for gains included in net
income, net of tax....................................... (239) (70)
----- -------
Net unrealized gains (losses) on securities, net of tax...... 87 (169)
----- -------
Comprehensive income......................................... $ 886 $11,123
===== =======
7
Note 6 - Segment Information
-------------------
The Company's operations are managed as two major business segments: (1)
commercial and retail banking and (2) mortgage banking. The commercial and
retail banking segment consists of commercial lending to small- and medium-sized
companies, primarily in the form of commercial real estate and Small Business
Administration (SBA) loans; mortgage portfolio lending; home equity lending; and
the deposit-gathering function. The mortgage banking segment is comprised of
mortgage loan production and mortgage loan servicing.
The following table presents the financial results of each business segment for
the three months ended March 31, 2001 and 2000.
---------------------------------------------------------------------------------------------------------------------------
Commercial and
Retail Banking Mortgage Banking Consolidated
----------------------- -------------------------- -------------------------
Three Months Ended, Three Months Ended, Three Months Ended,
March 31, March 31, March 31, March 31, March 31, March 31,
(In thousands) 2001 2000 2001 2000 2001 2000
----------------------------------- -------- -------- -------- --------- --------- ---------
Interest income $76,030 $69,360 $12,435 $10,878 $88,465 $80,238
Interest expense 45,288 39,432 9,224 8,095 54,512 47,527
------- ------- ------- ------- ------- --------
Net interest income(1) 30,742 29,928 3,211 2,783 33,953 32,711
Provision for loan losses 2,000 1,600 - - 2,000 1,600
Noninterest income 2,870 2,799 16,451 18,699 19,321 21,498
Noninterest expense 14,237 15,951 16,168(2) 18,842 30,405(2) 34,793
------- ------- ------- ------- ------- --------
Income before taxes $17,375 $15,176 $ 3,494 $ 2,640 $20,869 $17,816
======= ======= ======= ======= ======= =======
Preferred stock dividend $ 681 $ 681 $ - $ - $ 681 $ 681
Income taxes $ 5,816 $ 4,919 $ 1,223 $ 924 $ 7,039 $ 5,843
Depreciation and amortization $ 1,393 $ 1,354 $ 4,376 $ 2,764 $ 5,769 $ 4,118
Capital expenditures $ 931 $ 192 $ 79 $ 2,997 $ 1,010 $ 3,189
Identifiable assets (in millions) $ 3,854 $ 3,855 $ 816 $ 553 $ 4,670 $ 4,408
Efficiency ratio 42.82% 48.90% 82.23%(2) 87.71% 57.47%(2) 64.31%
---------------------------------------------------------------------------------------------------------------------------
(1) Net interest income for the mortgage banking segment is generated from the
interest earned on mortgage loans held for sale, less the interest expense
incurred on short-term borrowings used to fund loan production and servicing
acquisitions. The Company's internal funds transfer pricing charges the
mortgage banking segment an interest rate based on its overall cost of funds for
the loans held for sale balances and an interest rate based on the prime rate to
fund its servicing portfolio and operations.
(2) Excludes impact of $19.0 million charge related to the exit of the
residential mortgage servicing business.
---------------------------------------------------------------------------------------------------------------------------
Note 7 - Subsequent Event
----------------
On April 16, 2001, the Company announced that it had executed a definitive
agreement for the sale of Market Street Mortgage Corporation for $20 million in
cash and stock to NetBank, Inc. Market Street Mortgage, headquartered in
Clearwater, Florida, is a retail mortgage lender with 42 offices in 11 states.
The sale is expected to close later in the second quarter, subject to regulatory
approvals. Based upon the current stock price of NetBank, the Company expects
to record a gain of approximately $12-$14 million, which is net of transaction
costs and closing adjustments. In conjunction with the sale of Market Street
Mortgage, the Company is separately selling its $1.8 billion mortgage servicing
portfolio and exiting the servicing business.
8
Note 8 - Accounting and Financial Reporting Developments
-----------------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which was amended
in June 1999 by Statement No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,
and in June 2000 by Statement No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities and is required to be adopted by the
Company in years beginning after June 15, 2000. The Statement requires
companies to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will
be immediately recognized in earnings.
The Company implemented FAS 133, as amended effective January 1, 2001. The
cumulative effect of the adoption of FAS 133 was not material. For the quarter
ended March 31, 2001, the Company's hedging policies using mandatory forward
commitments, as they relate to Interest Rate Lock Commitments and mortgage loans
held for sale, were highly effective. Therefore, FAS 133's impact on net income
was immaterial.
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
EARNINGS PERFORMANCE
--------------------
The Company reported record net operating income for the quarter ended March 31,
2001 of $13.1 million, a 16% increase over the $11.3 million earned in the first
quarter of 2000. Diluted operating earnings per share for the first quarter of
2001 were $.26, an increase of 17% over the $.22 earned in 2000. Annualized
operating returns on average assets and shareholders' equity for the first three
months of 2001 were 1.13% and 16.75%, respectively.
To better understand underlying trends and performance, net operating earnings
for the first quarter of 2001 exclude $19.0 million of pre-tax charges related
to the exit of the Company's residential mortgage servicing business. These
charges include a write-down of mortgage servicing rights of $16.1 million,
transaction costs associated with the servicing portfolio sale of approximately
$2.0 million and costs associated with winding down the servicing operation of
approximately $900,000. Severance and employee benefit accruals were
immaterial. The sale and related wind down of the loan servicing operation is
expected to take place during the second and third quarter of 2001. The accrued
expenses for these items will be utilized during the same period. Including
these charges, the Company reported net income for the quarter of $799,000 or
$.02 per share.
RESULTS OF OPERATIONS
---------------------
Mortgage Banking
The following discussion provides information that relates specifically to the
Company's mortgage banking line of business, which generates revenue from
mortgage loan production and mortgage loan servicing activities. Mortgage
banking revenue represents the largest component of the Company's total
noninterest income.
The Company closed $1.4 billion in single-family residential mortgage loans in
the first quarter of 2001, up 60% compared to $851 million closed in the same
period last year. Mortgage loan volumes during 2001 increased primarily due to
the declining interest rate environment which has resulted in a higher level of
mortgage refinance activity. Refinancings for the first quarter of 2001
represented approximately 54% of total closings compared to 12% in the first
quarter of 2000.
9
The following table summarizes the Company's income from mortgage banking
activities:
Three Months Ended
March 31,
(In thousands) 2001 2000
--------------------------------------------------- -------- --------
Mortgage loan production revenue (1)............... $16,650 $14,722
Net mortgage loan servicing revenue (expense) (2).. (199) 2,877
Gain on bulk sales of mortgage servicing rights.... - 1,100
------- -------
Total mortgage banking revenue.................. $16,451 $18,699
======= =======
(1) Includes fee revenue derived from the loan origination process (i.e.,
points collected), gains on the sale of mortgage loans and the related
mortgage servicing rights released concurrently with the underlying loans
sold, net of commissions and incentives paid of $7.2 million and $3.8
million for 2001 and 2000, respectively.
(2) Includes servicing fees, late fees and other ancillary charges, net of
amortization of mortgage servicing rights.
For the three months ended March 31, 2001, mortgage banking revenue decreased
$2.2 million, or 12%, to $16.5 million from $18.7 million a year earlier. The
decrease is primarily the result of decreases in net mortgage loan servicing
revenue of $3.1 million for the first quarter of 2001 compared to 2000 and no
gain on the bulk sales of mortgage servicing rights in 2001 compared to $1.1
million in 2000. These decreases were off set by a $1.9 million or 13% increase
in mortgage production revenue. The increase in mortgage loan production
revenue was primarily a result of higher mortgage loan production and the
resulting sales of loans in the secondary market. Total loans sold during the
quarter were $1.1 billion compared to $768 million during the first quarter of
2000. The ratio of mortgage production revenue to mortgage loans sold was 2.14%
in the first quarter of 2001 compared to 2.41% in the first quarter of 2000.
Net mortgage loan servicing revenue was a net loss of $199,000 for the quarter
ended March 31, 2001 compared to a revenue of $2.9 million for the quarter ended
March 31, 2000. The decrease in revenue reflects an increase in amortization of
mortgage servicing rights of $1.6 million from the first quarter of 2000 to $3.4
million during the first quarter of 2001. The increase in amortization expense
was the result of the increase in residential mortgage loan refinance activity
during 2001 and corresponding increase in mortgage prepayments of the Company's
servicing portfolio. The decrease in net mortgage loan servicing revenue also
reflects a reduction in the average mortgage loan servicing portfolio as loans
serviced for others averaged $2.1 billion for the first quarter of 2001 compared
to $2.9 billion for 2000.
As discussed earlier, at the end of the first quarter of 2001 the Company
elected to exit the residential mortgage servicing business. Mortgage servicing
rights were reduced by $16.1 million at March 31, 2001 to reflect the current
market value of the servicing portfolio. A sale agreement regarding Market
Street's mortgage servicing portfolio was subsequently signed in April 2001 with
an unaffiliated company. The significant decrease in the value of the servicing
portfolio from December 31, 2000 was a result of dramatic increases in the
prepayment speed assumption (PSA) during the first quarter of 2001, as well as
an over 120 basis points decrease in the earnings rate received on escrow
balances. These changes were a result of the decline in short-term interest
rates occurring during the quarter due to the Federal Reserve Board's action to
lower the federal funds rate. The impairment reserve on the Company's mortgage
servicing rights balance at December 31, 2000 was $6.6 million.
The Company expects to sell all mortgage servicing rights concurrently with the
sale of the underlying loans. The Company did not have any bulk sales of
mortgage servicing rights in the first three months of 2001. In the first
quarter of 2000, bulk sales of mortgage servicing rights with principal balances
of $361 million, resulted in a gain of $1.1 million.
10
Commercial and Retail Banking
The remaining disclosures and analyses within Management's Discussion and
Analysis regarding the Company's results of operations and financial condition
relate principally to the commercial and retail banking line of business.
Net Interest Income
-------------------
The following discussion should be read in conjunction with Tables I on the
following page, which provides detailed analyses of the components impacting net
interest income for the three months ended March 31, 2001 and 2000.
Net interest income, on a fully taxable equivalent (FTE) basis, was $34.2
million for the first quarter of 2001 compared to $32.7 million for the first
quarter of 2000. The increase was primarily the result of an increase in the
Company's average interest-earning assets of $362 million. The average
portfolio loan balance increased $307 million, or 9% during the first quarter of
2001 compared to 2000. This increase reflects a $256 million, or 28% increase
in average commercial loans, a $122 million, or 7% increase in residential real
estate mortgage loans, net of a $71 million, or 10% decrease in installment
loans. In addition, the average balance of mortgage loans held for sale
increased $66 million, or 15% for the first quarter of 2001 compared to 2000.
Funding the growth in portfolio loans and mortgage loans held for sale were
increases in the Company's savings and time deposits and FHLB advances.
The net interest margin (FTE) was 3.12% for the quarter ended March 31, 2001, a
decrease of 9 basis points from 3.21% in 2000. The decrease in the margin was
due to the increase in the Company's cost of funds for the first quarter of 2001
exceeding the increase in the interest yield on earning assets.
Noninterest Expense
-------------------
Excluding the $19.0 million of charges related to the exit of its residential
mortgage servicing business, total non-interest expense for the quarter ended
March 31, 2001 decreased $4.4 million, or 13%, to $30.4 million compared to
$34.8 million for the first quarter of 2000. The decrease is primarily the
result of decreases in salaries and employee benefits and other noninterest
expense. These decreases reflect cost savings associated with the integration
of D&N Bank and Republic Banc Mortgage Corporation into Republic Bank which took
place in December 2000.
11
Table I - Quarterly Net Interest Income and Rate/Volume Analysis (FTE)
Three Months Ended Three Months Ended
March 31, 2001 March 31, 2000
-------------------------------- -------------------------------
Average Average Average Average
(Dollar amounts in thousands) Balance Interest Rate Balance Interest Rate
------------------------------------------------ ----------- --------- -------- ----------- -------- --------
Average Assets:
Short-term investments.......................... $ 3,584 $ 47 5.34% $ 2,743 $ 36 5.26%
Mortgage loans held for sale.................... 495,815 9,272 7.58 429,520 8,697 8.12
Securities available for sale................... 198,604 3,700 7.56 210,773 3,742 7.10
Portfolio loans(1):
Commercial loans............................. 1,174,373 26,252 8.94 917,924 20,004 8.74
Residential real estate mortgage loans....... 1,904,660 34,372 7.32 1,782,894 32,068 7.19
Installment loans............................ 658,601 15,027 9.25 729,686 15,711 8.64
---------- ------- ------- ---------- ------- ----
Total loans, net of unearned income........ 3,737,634 75,651 8.17 3,430,504 67,783 7.92
---------- ------- ------- ---------- ------- ----
Total interest-earning assets.............. 4,435,637 88,670 8.07 4,073,540 80,258 7.89
Allowance for loan losses....................... (29,005) (27,672)
Cash and due from banks......................... 68,553 60,586
Other assets.................................... 177,950 190,928
---------- ----------
Total assets............................... $4,653,135 $4,297,382
========== ==========
Average Liabilities and Shareholders' Equity:
Interest-bearing demand deposits................ $ 51,629 $ 221 1.73 $ 109,482 442 1.62
Savings deposits................................ 792,998 6,395 3.27 711,070 5,324 3.00
Time deposits................................... 1,709,329 26,398 6.26 1,582,490 22,053 5.59
---------- ------- ------- ---------- ------- ----
Total interest-bearing deposits................ 2,553,956 33,014 5.24 2,403,042 27,819 4.64
Short-term borrowings........................... 36,983 524 5.67 74,971 1,095 5.86
FHLB advances................................... 1,407,204 20,247 5.76 1,213,665 17,754 5.87
Long-term debt.................................. 40,000 727 7.27 47,500 859 7.23
---------- ------- ------- ---------- ------- ----
Total interest-bearing liabilities......... 4,038,143 54,512 5.45 3,739,178 47,527 5.10
------- ------- ------- ----
Noninterest-bearing deposits.................... 199,884 184,607
Other liabilities............................... 88,265 75,168
---------- ----------
Total liabilities.......................... 4,326,292 3,998,953
Preferred stock of subsidiary................... 28,719 28,719
Shareholders' equity............................ 298,124 269,710
---------- ----------
Total liabilities and shareholders' equity. $4,653,135 $4,297,382
========== ==========
Net interest income/rate spread (FTE)........... $34,158 2.62% $32,731 2.79%
======= ======= ======= ====
Net interest margin (FTE)....................... 3.12% 3.21%
======= ====
Increase (decrease) due to change in: Volume(2) Rate(2) Net Change
------------------------------------------- ----------- --------- ----------
Short-term investments..................... $ 10 $ 1 $ 11
Mortgage loans held for sale............... 1,213 (638) 575
Securities available for sale.............. (248) 206 (42)
Portfolio loans(1):
Commercial loans........................ 5,775 473 6,248
Residential real estate mortgage loans.. 1,822 482 2,304
Installment loans....................... (1,687) 1,003 (684)
---------- ------- -------
Total loans, net of unearned income... 5,910 1,958 7,868
---------- ------- -------
Total interest income................. 6,885 1,527 8,412
Interest-bearing demand deposits........... (249) 28 (221)
Savings deposits........................... 601 470 1,071
Time deposits.............................. 1,741 2,604 4,345
---------- ------- -------
Total interest-bearing deposits........ 2,093 3,102 5,195
Short-term borrowings...................... (536) (35) (571)
FHLB advances.............................. 2,828 (335) 2,493
Long-term debt............................. (136) 4 (132)
---------- ------- -------
Total interest expense................ 4,249 2,736 6,985
---------- ------- -------
Net interest income................... $ 2,636 $(1,209) $ 1,427
========== ======= =======
/(1)/ Non-accrual loans and overdrafts are included in average balances.
/(2)/ Rate/volume variances are proportionately allocated to rate and volume
based on the absolute value of the change in each.
12
BALANCE SHEET ANALYSIS
----------------------
ASSETS
------
At March 31, 2001, the Company had $4.67 billion in total assets, an increase of
$59 million, or 1%, from $4.61 billion at December 31, 2000. The increase is
primarily the result of increases in the Company's mortgage loans held for sale
and commercial loans.
Securities
----------
Investment securities available for sale decreased $3 million, to $209 million,
representing 4.5% of total assets at March 31, 2001. At December 31, 2000, the
investment securities portfolio totaled $212 million, or 4.6% of total assets.
During the first three months of 2001, the company sold $80.3 million of
investment securities and realized gross gains and losses on the sales of
available for sale securities of $371,000 and $4,000, respectively.
The Company's investment securities portfolio, while serving as a source of
earnings and liquidity risk, carries relatively minimal principal risk and
contributes to the management of interest rate risk. The portfolio is comprised
primarily of municipal securities and collateralized mortgage obligations. The
Company's equity securities portfolio consists primarily of Federal Home Loan
Bank stock.
The following table details the composition, amortized cost and fair value of
the Company's investment securities portfolio at March 31, 2001:
Securities Available for Sale
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
--------------------------------------------------- --------- ---------- ---------- ---------
Debt Securities:
U.S. Treasury and Government agency securities.... $ 6,268 $ 8 $165 $ 6,111
Collateralized mortgage obligations............... 53,318 48 452 52,914
Interest-only certificates........................ 68 - - 68
Mortgage-backed securities........................ 2,403 28 - 2,431
Municipal and other securities.................... 70,177 452 107 70,522
-------- ---- ---- --------
Total debt securities............................ 132,234 536 724 132,046
Equity securities and investment in FHLB........... 76,868 - - 76,868
-------- ---- ---- --------
Total securities available for sale.............. $209,102 $536 $724 $208,914
======== ==== ==== ========
Certain securities having a carrying value of approximately $12.3 million and
$58.7 million at March 31, 2001 and December 31, 2000, respectively, were
pledged to secure FHLB advances and public deposits as required by law.
Mortgage Loans Held for Sale
----------------------------
Mortgage loans held for sale were $577 million at March 31, 2001, an increase of
$192 million, or 50%, from $385 million at December 31, 2000. The increase was
primarily due to an increase in residential mortgage loan closings during the
first quarter of 2001 over the fourth quarter of 2000 (loans closed generally
remain in loans held for sale for 30 to 60 days after closing).
13
Portfolio Loans
---------------
Total portfolio loans were $3.63 billion at March 31, 2001, a decrease of $140
million, or 4%, from $3.77 billion at December 31, 2000. The decrease was due
to decreases in the residential real estate mortgage loan and consumer indirect
loan portfolios which were partially offset by an increase in the commercial
loan balance. The residential mortgage portfolio loan balance decreased $146
million, or 7%, since year-end 2000 to $1.82 billion at March 31, 2001. The
decrease in residential mortgage loans was due to the significant increase of
loans being refinanced from the residential mortgage loan portfolio. The
Company refinanced a significant portion of these mortgage portfolio loans,
which are subsequently reflected as loans held for sale.
The installment loan portfolio decreased $67 million during the first three
months of 2001 due primarily to loan sales and runoff from the indirect consumer
loan portfolio. During the first quarter, the Company sold $39 million of
indirect marine and RV loans. There was no material gain on the sale. The
direct consumer loan portfolio remained consistent with the $459 million balance
at December 31, 2000.
The commercial portfolio loan balance increased $73 million during the first
three months of 2001, for an annualized growth rate of 26%, reflecting continued
strong demand for real estate-secured lending in markets served by the Company.
During the three months ended March 31, 2001 and 2000, the Company closed $5.4
million and $7.8 million in Small Business Administration (SBA) loans,
respectively. The Company sold $1.6 million and $756,000 of the guaranteed
portion of SBA loans in the first three months of 2001 and 2000, respectively,
resulting in corresponding gains of $40,000 and $49,000, respectively.
The following table provides further information regarding the Company's loan
portfolio:
March 31, 2001 December 31, 2000
--------------------- --------------------
(Dollars in thousands) Amount Percent Amount Percent
----------------------------------- ----------- -------- ---------- --------
Commercial loans:
Commercial and industrial......... $ 78,034 2.1% $ 79,544 2.1%
Commercial real estate mortgage... 1,127,591 31.1 1,052,748 27.9
---------- ----- ---------- -----
Total commercial loans.......... 1,205,625 33.2 1,132,292 30.0
Residential real estate mortgages.. 1,818,102 50.1 1,964,394 52.1
Installment loans:
Consumer direct.................. 458,928 12.6 459,359 12.2
Consumer indirect................ 148,976 4.1 215,631 5.7
---------- ----- ---------- -----
Total installment loans......... 607,904 16.7 674,990 17.9
---------- ----- ---------- -----
Total portfolio loans........... $3,631,631 100.0% $3,771,676 100.0%
========== ===== ========== =====
Credit Quality
--------------
The Company attempts to minimize credit risk in the loan portfolio by focusing
primarily on real estate-secured lending (i.e., commercial real estate mortgage
loans, commercial real estate construction loans, residential real estate
mortgage loans, residential real estate construction loans, and home equity
loans). As of March 31, 2001, such loans comprised approximately 92% of total
portfolio loans. The Company's general policy is to originate conventional
residential real estate mortgages with loan-to-value ratios of 80% or less and
SBA-secured loans or real estate-secured commercial loans with loan-to-value
ratios of 75% or less and secured by personal guarantees.
14
The substantial majority of the Company's residential mortgage loan production
is underwritten in compliance with the requirements for sale to or conversion to
mortgage-backed securities issued by Freddie Mac, the Federal National Mortgage
Association (FNMA), or the Government National Mortgage Association (GNMA). The
majority of the Company's commercial loans is secured by real estate and is
generally made to small and medium-size businesses. These loans are made at
rates based on the prevailing prime interest rates of Republic Bank, as well as
fixed rates for terms generally ranging from three to five years. Management's
emphasis on real estate-secured lending and adherence to conservative
underwriting standards is reflected in the Company's historically low net
charge-offs.
Non-Performing Assets
---------------------
Non-performing assets consist of non-accrual loans and other real estate owned
(OREO). OREO represents real estate properties acquired through foreclosure or
by deed in lieu of foreclosure. Commercial loans, residential real estate
mortgage loans and installment loans are generally placed on non-accrual status
when principal or interest is 90 days or more past due, unless the loans are
well-secured and in the process of collection. In all cases, loans may be
placed on non-accrual status earlier when, in the opinion of management,
reasonable doubt exists as to the full, timely collection of interest or
principal.
The following table summarizes the Company's non-performing assets and 90-day
past due loans:
March 31, December 31,
(Dollars in thousands) 2001 2000
---------------------------------------------------------- --------- -----------
Non-Performing Assets:
Non-accrual loans:
Commercial.............................................. $ 6,111 $ 5,499
Residential real estate mortgages....................... 16,681 13,429
Installment............................................. 2,383 2,167
------- -------
Total non-performing loans............................. 25,175 21,095
Other real estate owned.................................. 3,314 4,906
------- -------
Total non-performing assets............................ $28,489 $26,001
======= =======
Non-performing assets as a percentage of:
Portfolio loans and OREO ............................. .78% .69%
Portfolio loans, mortgage loans held for
sale and OREO....................................... .68% .62%
Total assets............................................ .61% .56%
Loans past due 90 days or more and still
accruing interest:
Commercial............................................... $ - $ 209
Residential real estate.................................. - -
Installment.............................................. - -
------- -------
Total loans past due 90 days or more................... $ - $ 209
======= =======
At March 31, 2001, approximately $37.1 million, or .88% of total loans were 30-
89 days delinquent, compared to $45.2 million, or 1.09%, at December 31, 2000.
Provision and Allowance for Loan Losses
---------------------------------------
The allowance for loan losses represents the Company's estimate of probable
credit losses related to specifically identified loans as well as probable
credit losses inherent in the remainder of the loan portfolio that have been
incurred as of the balance sheet date. The allowance for loan losses is
maintained at an adequate level through
15
additions to the provision for loan losses. An appropriate level of the general
allowance is determined based on the application of projected risk percentages
to graded loans by categories. In addition, specific reserves are established
for individual loans when deemed necessary by management. Management also
considers other factors when determining the unallocated allowance, including
loan quality, changes in the size and character of the loan portfolio,
consultation with regulatory authorities, amount of nonperforming loans,
delinquency trends and economic conditions and industry trends.
SFAS No. 114, Accounting By Creditors for Impairment of a Loan, as amended by
SFAS No. 118, considers a loan impaired when it is probable that payment of
principal and interest will not be collected in accordance with the contractual
terms of the original loan agreement. Consistent with this definition, all non-
accrual and restructured loans (with the exception of residential mortgage and
consumer installment loans) are impaired. An impaired loan for which it is
deemed necessary to record a specific allowance is, typically, written down to
the fair value of the underlying collateral at the time it is placed in non-
accrual status via a direct charge-off against the allowance for loan losses.
Consequently, those impaired loans not requiring a specific allowance represent
loans for which the fair value of the underlying collateral equaled or exceeded
the recorded investment in the loan. All impaired loans were evaluated using
the fair value of the underlying collateral as the measurement method.
It must be understood, however, that inherent risks and uncertainties related to
the operation of a financial institution require management to depend on
estimates, appraisals and evaluations of loans to prepare the Company's
financial statements. Changes in economic conditions and the financial
prospects of borrowers may result in abrupt changes to the estimates, appraisals
or evaluations used. In addition, if actual circumstances and losses differ
substantially from management's assumptions and estimates, the allowance for
loan losses may not be sufficient to absorb all future losses, and net income
could be significantly impacted.
Gross loan charge-offs increased $900,000 to $2.0 million for the three months
ended March 31, 2001 compared to $1.1 million for the same period of 2000. The
increase is primarily related to charge-offs of certain commercial loans during
the first quarter of 2001. The Company recorded provision for loan losses of
$2.0 million for the three months ended March 31, 2001 compared to $1.6 million
for 2000.
The following table provides an analysis of the allowance for loan losses:
Three Months Ended
March 31,
--------------------
(Dollars in thousands) 2001 2000
-------------------------------------------------------------------------------------------
Allowance for loan losses:
Balance at January 1................................................ $28,450 $27,128
Loans charged off.................................................. (1,989) (1,101)
Recoveries of loans previously charged off......................... 333 324
------- -------
Net charge-offs................................................... (1,656) (777)
Provision charged to expense....................................... 2,000 1,600
------- -------
Balance at March 31................................................. $28,794 $27,951
======= =======
Annualized net charge-offs as a percentage of average loans
(including loans held for sale)................................... .16% .08%
Allowance for loan losses as a percentage of total portfolio loans
outstanding at period-end......................................... .79 .79
Allowance for loan losses as a percentage of non-performing
loans............................................................. 114.38% 160.11%
16
Off-Balance Sheet Instruments
-----------------------------
At March 31, 2001, the Company had outstanding $599 million of commitments to
fund residential real estate loan applications with agreed-upon rates (Interest
Rate Lock Commitments). Interest Rate Lock Commitments and holding residential
mortgage loans for sale to the secondary market exposes the Company to interest
rate risk during the period from application to when the loan is sold to the
investors. To minimize this exposure to interest rate risk, the Company enters
into firm commitments to sell such mortgage loans and Interest Rate Lock
Commitments at specified future dates to various third parties.
At March 31, 2001, the Company had outstanding mandatory forward commitments to
sell $1.03 billion of residential mortgage loans, of which $538 million covered
mortgage loans held for sale and $496 million covered Interest Rate Lock
Commitments. These outstanding forward commitments to sell mortgage loans are
expected to settle in the second quarter of 2001 without producing any material
gains or losses. At March 31, 2001, the mortgage loans held for sale balance
included $39 million of loan products for which the Company did not enter into
mandatory forward commitments. The Company's exposure to market risk was not
significantly increased, however, since these loans had been committed for bulk
sale to third parties prior to March 31, 2001 or were floating rate residential
loans.
The Company implemented FAS 133, as amended effective January 1, 2001. The
cumulative effect of the adoption of FAS 133 was not material. For the quarter
ended March 31, 2001, the Company's hedging policies using mandatory forward
commitments, as they relate to Interest Rate Lock Commitments and mortgage loans
held for sale, were highly effective. Therefore, FAS 133's impact on net income
was immaterial.
LIABILITIES
-----------
Total liabilities were $4.35 billion at March 31, 2001, a $62 million, or 1%
increase from $4.29 billion at December 31, 2000. This increase was primarily
due to an increase in deposits.
Deposits
--------
Total deposits increased $102 million, or 4%, to $2.83 billion at March 31, 2001
from $2.73 billion at December 31, 2000. Noninterest bearing deposits increased
$35 million for the quarter, while savings and money market accounts increased
$81 million.
Short-Term Borrowings
---------------------
Short-term borrowings with maturities of less than one year, along with the
related average balances and interest rates for the three months ended March 31,
2001 and the year ended December 31, 2000, were as follows:
March 31, 2001 December 31, 2000
---------------------------------- -------------------------------
Average Average
Ending Average Rate During Ending Average Rate During
(Dollars in thousands) Balance Balance Period Balance Balance Period
----------------------------------------------------------------------------------------------------------
Federal funds purchased....... $3,000 $35,923 5.66% $ - $53,687 6.44%
Other short-term borrowings... 416 1,060 6.04 1,729 1,360 5.59
------ ------- ---- ------ ------- ----
Total short-term borrowings.. $3,416 $36,983 5.67% $1,729 $55,047 6.42%
====== ======= ==== ====== ======= ====
At March 31, 2001 and December 31, 2000, other short-term borrowings consisted
of treasury, tax and loan (TT&L) demand notes.
17
FHLB Advances
-------------
Republic Bank routinely borrows short- and long-term advances from the Federal
Home Loan Bank (FHLB) to fund mortgage loan originations and to minimize the
interest rate risk associated with certain fixed rate commercial and residential
mortgage portfolio loans and investment securities. These advances are
generally secured under a blanket security agreement by first mortgage loans
with an aggregate book value equal to at least 145% of the advances.
FHLB advances outstanding at March 31, 2001 and December 31, 2000, were as
follows:
March 31, 2001 December 31, 2000
----------------------- -------------------------
Average Average
Ending Rate At Ending Rate At
(Dollars in thousands) Balance Period-End Balance Period-End
-----------------------------------------------------------------------------------------------------------------------------------
Short-term FHLB advances...................................................... $ 556,000 5.25% $ 555,000 6.08%
Long-term FHLB advances........................................................ 782,762 5.76 828,513 5.82
---------- ---- ---------- ------------
Total........................................................................ $1,338,762 5.55% $1,383,513 5.92%
========== ==== ========== ============
The long-term FHLB advances have original maturities ranging from May 2001 to
January 2011.
Long-Term Debt
--------------
Obligations with original maturities of more than one year consisted of the
following:
March 31, December 31,
(Dollars in thousands) 2001 2000
-----------------------------------------------------------------------------------------------------------------------------------
7.17% Senior Debentures due 2001............................................... $ 25,000 $25,000
6.75% Senior Debentures due 2001............................................... - 9,000
6.95% Senior Debentures due 2003............................................... 13,500 13,500
---------- ------------
Total long-term debt $ 38,500 $47,500
========== ============
CAPITAL
-------
Shareholders' equity was $292 million at March 31, 2001, a $3 million, or 1%,
decrease from $295 million at December 31, 2000. This decrease primarily
resulted from the payment of cash dividends and the repurchase of 113,000 shares
of common stock during the first three months of 2001.
The Company is subject to regulatory capital requirements administered by
federal banking agencies. Failure to meet minimum capital requirements can
initiate actions by regulators that, if undertaken, could have an effect on the
Company's financial statements. Capital adequacy guidelines require minimum
capital ratios of 8.00% for Total risk-based capital, 4.00% for Tier 1 risk-
based capital and 3.00% for Tier 1 leverage. To be considered well-capitalized
under the regulatory framework for prompt corrective action, minimum capital
ratios of 10.00% for Total risk-based capital, 6.00% for Tier 1 risk-based
capital and 5.00% for Tier 1 leverage must be maintained.
As of March 31, 2001, the Company met all capital adequacy requirements to which
it is subject and management does not anticipate any difficulty in meeting these
requirements on an ongoing basis. The Company's capital ratios were as follows:
March 31, December 31,
2001 2000
-------- ------------
Total capital to risk-weighted assets (1)... 10.54% 10.38%
Tier 1 capital to risk-weighted assets (1).. 9.63 9.50
Tier 1 capital to average assets (1)........ 6.60 6.82
(1) As defined by the regulations.
18
As of March 31, 2001, the Company's total risk-based capital was $335 million
and Tier 1 risk-based capital was $306 million, an excess of $17 million and
$115 million, respectively, over the minimum guidelines prescribed by regulatory
agencies for a well-capitalized institution. In addition, Republic Bank had
regulatory capital ratios in excess of the minimum levels established for well-
capitalized institutions.
FORWARD-LOOKING STATEMENTS
--------------------------
The section that follows entitled "Market Risk Management" contains certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements involve certain
risks, uncertainties, estimates and assumptions by management, which may cause
actual results to differ materially from those contemplated by such statements.
MARKET RISK MANAGEMENT
----------------------
Market risk is the risk of loss arising from adverse changes in the fair value
of financial instruments due to changes in interest rates, foreign exchange
rates and equity prices. The Company's market risk exposure is composed
entirely of interest rate risk. Interest rate risk arises in the normal course
of business to the extent that there is a difference between the amount of the
Company's interest-earning assets and interest-bearing liabilities that are
prepaid/withdrawn, reprice or mature in specified periods.
The primary objective of asset and liability management is to maintain stability
in the level of net interest income by producing the optimal yield and maturity
mix of assets and liabilities within the interest rate risk limits set by the
Company's Asset and Liability Management Committee (ALCO) and consistent with
projected liquidity needs and capital adequacy requirements.
The Company's ALCO, which meets weekly, is responsible for reviewing the
interest rate sensitivity position of the Company and establishing policies to
monitor and limit exposure to interest rate risk. Senior management at each of
the Company's subsidiaries is responsible for ensuring that the subsidiary asset
and liability management procedures adhere to corporate policies and risk limits
established by its respective board of directors.
The Company utilizes two complementary quantitative tools to measure and monitor
interest rate risk: static gap analysis and earnings simulation modeling. Each
of these interest rate risk measurements has limitations, but when evaluated
together, they provide a reasonably comprehensive view of the exposure the
Company has to interest rate risk.
Static Gap Analysis: Static gap analysis is utilized at the end of each month to
measure the amount of interest rate risk embedded in the balance sheet as of a
point in time. It does this by comparing the differences in the repricing
characteristics of interest-earning assets and interest-bearing liabilities. A
gap is defined as the difference between the principal amount of interest-
earning assets and interest-bearing liabilities that reprice within a specified
time period. This gap provides a general indication of the sensitivity of the
Company's net interest income to interest rate changes. Consequently, if more
assets than liabilities reprice or mature in a given period, resulting in an
asset sensitive position or positive gap, increases in market interest rates
will generally benefit net interest income because earning asset rates will
reflect the changes more quickly. Alternatively, where interest-bearing
liabilities reprice more quickly than interest-earning assets, resulting in a
liability sensitive position or negative gap, increases in market interest rates
will generally have an adverse impact on net interest income. At March 31,
2001, the Company's cumulative one-year gap was a positive 2.43% of total
earning assets.
19
The Company's current policy is to maintain a mix of asset and liabilities with
repricing and maturity characteristics that permit a moderate amount of short-
term interest rate risk based on current interest rate projections, customer
credit demands and deposit preferences. The Company generally operates in a
range of plus or minus 10% of total earning assets for the cumulative one-year
gap. Management believes that this range reduces the vulnerability of net
interest income to large shifts in market interest rates while allowing the
Company to take advantage of fluctuations in current short-term rates.
Earnings Simulation Modeling: On a quarterly basis, the earnings simulation
model is used to quantify the effects of various hypothetical changes in
interest rates on the Company's projected net interest income over the ensuing
twelve-month period. The model permits management to evaluate the effects of
various parallel shifts of the U.S. Treasury yield curve, upward and downward,
on net interest income expected in a stable interest rate environment (i.e.,
base net interest income).
As of March 31, 2001, the earnings simulation model projects net interest income
would decrease by 8% of base net interest income, assuming an immediate parallel
shift upward in market interest rates by 200 basis points. If market interest
rates fall by 200 basis points, the model projects net interest income would
increase by 8%. These projected levels are well within the Company's policy
limits. The earnings simulation model assumes that current balance sheet totals
remain constant and all maturities and prepayments of interest-earning assets
and interest-bearing liabilities are reinvested at current market rates.
20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
In the ordinary course of business, the Company and its subsidiaries
are parties to certain routine litigation. In the opinion of
management, the aggregate liabilities, if any, arising from such legal
proceedings would not have a material adverse effect on the Company's
consolidated financial position, results of operations and liquidity.
Item 2. Changes in Securities
---------------------
On February 15, 2001, the Board of Directors declared a quarterly cash
dividend of $0.085 per share of common stock, payable on April 2, 2001
to shareholders of record March 8, 2001.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Republic Bancorp Inc. held its 2001 Annual Meeting of Shareholders on
April 25, 2001. The following directors were elected at the annual
meeting to serve until the next annual meeting:
Director For Against Abstentions Broker Non-Votes
-------------------------------- ---------- ------- ----------- ----------------
Jerry D. Campbell 43,398,165 0 675,130 0
Dana M. Cluckey 43,171,021 0 675,130 0
George J. Butvilas 43,243,328 0 675,130 0
Mary P. Cauley 41,319,565 0 675,130 0
Richard J. Cramer, Sr. 41,308,028 0 675,130 0
Dr. George A. Eastman 43,005,033 0 675,130 0
Howard J. Hulsman 43,215,173 0 675,130 0
Gary Hurand 43,154,066 0 675,130 0
Dennis J. Ibold 43,161,285 0 675,130 0
Stanley A. Jacobson 49,185,005 0 675,130 0
John J. Lennon 41,289,133 0 675,130 0
Sam H. McGoun 41,266,652 0 675,130 0
Kelly E. Miller 41,236,845 0 675,130 0
Joe D. Pentecost 43,083,795 0 675,130 0
Randolph P. Piper 41,323,462 0 675,130 0
Dr. Isaac J. Powell 37,757,923 0 675,130 0
B. Thomas M. Smith, Jr. 41,295,639 0 675,130 0
Dr. Jeoffrey K. Stross 41,282,912 0 675,130 0
Peter Van Pelt 41,294,099 0 675,130 0
Steven E. Zack 41,310,704 0 675,130 0
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
On April 20, 2001, the Company filed a report on Form 8-K
announcing the Company had executed a definitive agreement with
NetBank, Inc., of Alpharetta, Georgia and its subsidiary, Net
Interim, Inc., of Alpharetta, Georgia, which provides for the sale
by Republic of its subsidiary, Market Street Mortgage Corporation
of Clearwater, Florida to NetBank for $20 million in cash and
NetBank stock.
21
SIGNATURE
Pursuant to the requirements of the Securities and 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)
Date: May 14, 2001 BY: /s/ Thomas F. Menacher
--------------------------------
Thomas F. Menacher
Executive Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
22