UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
ý Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
OR
o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 0-24649
REPUBLIC BANCORP, INC.
(Exact name of registrant as specified in its charter)
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Kentucky |
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61-0862051 |
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(State of other
jurisdiction of incorporation
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(502) 584-3600
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
ý Yes o No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
ý Yes o No
Indicate the number of shares outstanding of the issuer’s class of common stock as of the latest practicable date.
16,099,053 shares of Class A Common Stock, no par value and 2,049,835 shares of Class B Common Stock, no par value were issued and outstanding at October 31, 2004.
REPUBLIC BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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EX-31.1 |
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Section 302 Certification of Principal Executive Officer |
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EX-31.2 |
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Section 302 Certification of Principal Financial Officer |
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EX-32.1 |
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Section 1350 Certification of Principal Executive Officer |
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EX-32.2 |
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Section 1350 Certification of Principal Financial Officer |
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2
PART I – FINANCIAL INFORMATION
REPUBLIC BANCORP, INC.
CONSOLIDATED BALANCE SHEETS ( in thousands )
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September 30
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December 31
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(unaudited) |
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ASSETS: |
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Cash and cash equivalents |
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$ |
103,058 |
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$ |
60,876 |
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Securities available for sale |
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350,560 |
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295,520 |
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Securities to be held to maturity (fair value of $89,913 in 2004 and $114,736 in 2003) |
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90,173 |
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115,411 |
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Mortgage loans held for sale |
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11,753 |
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13,732 |
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Loans, less allowance for loan losses of $13,535 (2004) and $13,959 (2003) |
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1,719,195 |
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1,567,993 |
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Federal Home Loan Bank stock |
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20,106 |
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19,148 |
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Premises and equipment, net |
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34,566 |
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34,329 |
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Other assets and accrued interest receivable |
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23,325 |
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20,762 |
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TOTAL ASSETS |
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$ |
2,352,736 |
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$ |
2,127,771 |
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LIABILITIES: |
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Deposits: |
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Non interest-bearing |
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$ |
265,492 |
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$ |
193,321 |
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Interest-bearing |
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1,135,172 |
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1,103,791 |
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Total deposits |
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1,400,664 |
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1,297,112 |
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Securities sold under agreements to repurchase and other short-term borrowings |
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317,784 |
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220,040 |
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Federal Home Loan Bank borrowings |
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420,309 |
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420,178 |
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Other liabilities and accrued interest payable |
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22,588 |
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21,062 |
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Total liabilities |
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2,161,345 |
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1,958,392 |
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STOCKHOLDERS’ EQUITY: |
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Preferred stock, no par value |
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— |
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— |
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Class A and Class B Common Stock, no par value |
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4,380 |
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4,157 |
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Additional paid in capital |
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57,899 |
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40,260 |
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Retained earnings |
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130,881 |
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126,251 |
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Unearned shares in Employee Stock Ownership Plan |
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(1,995 |
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(2,289 |
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Accumulated other comprehensive income |
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226 |
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1,000 |
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Total stockholders’ equity |
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191,391 |
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169,379 |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
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$ |
2,352,736 |
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$ |
2,127,771 |
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See accompanying notes to consolidated financial statements.
3
REPUBLIC BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME ( UNAUDITED )
( in thousands, except per share data )
See accompanying notes to consolidated financial statements.
4
REPUBLIC BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY ( UNAUDITED )
( in thousands, except per share data )
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Unearned |
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Shares in |
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Accumulated |
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Common Stock |
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Additional |
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Employee Stock |
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Other |
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Total |
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Class A |
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Class B |
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Paid In |
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Retained |
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Ownership |
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Comprehensive |
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Stockholders’ |
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Shares |
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Shares |
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Amount |
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Capital |
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Earnings |
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Plan |
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Income (Loss) |
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Equity |
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BALANCE, January 1, 2004 |
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15,809 |
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2,055 |
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$ |
4,157 |
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$ |
40,260 |
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$ |
126,251 |
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$ |
(2,289 |
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$ |
1,000 |
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$ |
169,379 |
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Stock options exercised, net of shares redeemed |
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102 |
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— |
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23 |
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1,343 |
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(620 |
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— |
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— |
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746 |
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Repurchase of Class A and Class B Common Stock |
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(16 |
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— |
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(3 |
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(52 |
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(246 |
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— |
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(301 |
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Conversion of Class B Common Stock to Class A Common Stock |
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4 |
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(4 |
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— |
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— |
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— |
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— |
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— |
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Shares committed to be released under the Employee Stock Ownership Plan |
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24 |
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— |
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— |
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171 |
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— |
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294 |
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— |
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465 |
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Dividend declared Common Stock: |
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Class A ($0.2169 per share) |
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— |
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— |
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— |
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— |
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(3,427 |
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— |
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— |
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(3,427 |
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Class B ($0.1971 per share) |
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— |
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— |
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— |
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— |
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(405 |
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— |
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— |
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(405 |
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Stock dividend |
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— |
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— |
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203 |
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16,357 |
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(16,560 |
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— |
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— |
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— |
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Note receivable on common stock, net of cash payments |
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— |
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— |
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— |
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(180 |
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— |
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— |
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— |
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(180 |
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Net change in accumulated other comprehensive income (loss) |
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— |
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— |
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— |
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— |
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— |
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— |
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(774 |
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(774 |
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Net income |
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— |
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— |
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— |
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— |
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25,888 |
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— |
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— |
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25,888 |
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BALANCE, September 30, 2004 |
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15,923 |
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2,051 |
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$ |
4,380 |
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$ |
57,899 |
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$ |
130,881 |
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$ |
(1,995 |
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$ |
226 |
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$ |
191,391 |
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See accompanying notes to consolidated financial statements.
5
REPUBLIC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS ( UNAUDITED )
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 ( in thousands )
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2004 |
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2003 |
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OPERATING ACTIVITIES: |
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Net income |
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$ |
25,888 |
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$ |
23,567 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization, net |
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7,097 |
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4,426 |
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Federal Home Loan Bank stock dividends |
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(605 |
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(562 |
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Provision for loan losses |
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1,475 |
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6,418 |
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Net gain on sale of mortgage loans held for sale |
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(2,271 |
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(12,062 |
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Origination of mortgage loans held for sale |
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(189,074 |
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(750,060 |
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Proceeds from sale of mortgage loans held for sale |
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193,324 |
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805,351 |
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Employee Stock Ownership Plan expense |
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465 |
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295 |
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Changes in assets and liabilities: |
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Other assets and accrued interest receivable |
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(2,352 |
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(4,107 |
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Other liabilities and accrued interest payable |
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1,092 |
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2,263 |
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Net cash provided by operating activities |
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35,039 |
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75,529 |
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INVESTING ACTIVITIES: |
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Purchases of securities available for sale |
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(2,871,540 |
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(268,398 |
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Purchases of securities to be held to maturity |
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(31,514 |
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(137,720 |
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Purchases of Federal Home Loan Bank stock |
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(353 |
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(68 |
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Proceeds from calls, maturities and paydowns of securities available for sale |
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2,815,718 |
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285,067 |
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Proceeds from calls, maturities and paydowns of securities held to maturity |
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56,701 |
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99,638 |
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Net increase in loans |
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(153,792 |
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(235,249 |
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Purchases of premises and equipment, net |
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(6,348 |
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(12,805 |
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Net cash used in investing activities |
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(191,128 |
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(269,535 |
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FINANCING ACTIVITIES: |
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Net change in deposits |
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103,552 |
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180,255 |
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Net change in securities sold under agreements to repurchase and other short-term borrowings |
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97,744 |
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(48,666 |
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Payments on Federal Home Loan Bank borrowings |
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(151,239 |
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(73,028 |
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Proceeds from Federal Home Loan Bank borrowings |
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151,370 |
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176,697 |
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Repurchase of Common Stock |
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(301 |
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(339 |
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Proceeds from Common Stock options exercised |
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746 |
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649 |
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Cash dividends paid |
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(3,601 |
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(2,940 |
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Net cash provided by financing activities |
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198,271 |
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232,628 |
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NET INCREASE IN CASH AND CASH EQUIVALENTS |
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42,182 |
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38,622 |
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
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60,876 |
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39,853 |
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CASH AND CASH EQUIVALENTS, END OF PERIOD |
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$ |
103,058 |
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$ |
78,475 |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
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Cash paid during the period for: |
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Interest |
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$ |
30,644 |
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$ |
32,699 |
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Income taxes |
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12,143 |
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12,020 |
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SUPPLEMENTAL NONCASH DISCLOSURES: |
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Transfers from loans to real estate acquired in settlement of loans |
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$ |
935 |
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$ |
750 |
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Client transfers from securities sold under agreements to repurchase into deposits |
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— |
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35,829 |
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See accompanying notes to consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – SEPTEMBER 30, 2004 AND 2003 (UNAUDITED) AND DECEMBER 31, 2003
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation – The consolidated financial statements include the accounts of Republic Bancorp, Inc. (the “Holding Company”) and its wholly-owned subsidiaries: Republic Bank & Trust Company and Republic Bank & Trust Company of Indiana (together referred to as the “Bank”), Republic Funding Company and Republic Invest Co. Republic Invest Co. includes its wholly-owned subsidiary, Republic Capital LLC. All companies are collectively referred to as “Republic” or the “Company”. The consolidated financial statements also include the wholly-owned subsidiaries of Republic Bank & Trust Company: Republic Financial Services, LLC and Republic Insurance Agency, LLC. All significant intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States of America 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 quarter and nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. 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, 2003.
Stock Option Plans – Employee compensation expense under stock option plans is reported using the intrinsic value method. No stock based compensation cost is reflected in net income, as all options granted had an exercise price equal to the market price of the underlying common stock at the date of grant.
The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Statement No. 123, “Accounting for Stock Based Compensation”:
7
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Three months ended
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Nine months ended
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(dollars in thousands, except per share data) |
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2004 |
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2003 |
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2004 |
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2003 |
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Net income, as reported |
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$ |
6,982 |
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$ |
6,349 |
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$ |
25,888 |
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$ |
23,567 |
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Deduct: |
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Stock based compensation expense determined under the fair value based method, net of tax |
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133 |
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173 |
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397 |
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555 |
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Pro forma net income |
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$ |
6,849 |
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$ |
6,176 |
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$ |
25,491 |
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$ |
23,012 |
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Earnings per share as reported: |
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Class A Common Share |
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$ |
0.39 |
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$ |
0.36 |
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$ |
1.45 |
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$ |
1.33 |
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Class B Common Share |
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$ |
0.38 |
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$ |
0.35 |
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$ |
1.43 |
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$ |
1.31 |
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Pro forma earnings per share: |
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Class A Common Share |
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$ |
0.38 |
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$ |
0.35 |
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$ |
1.43 |
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$ |
1.30 |
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Class B Common Share |
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$ |
0.37 |
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$ |
0.34 |
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$ |
1.41 |
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$ |
1.28 |
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Diluted earnings per share as reported: |
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Class A Common Share |
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$ |
0.38 |
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$ |
0.35 |
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$ |
1.39 |
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$ |
1.30 |
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Class B Common Share |
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$ |
0.37 |
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$ |
0.34 |
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$ |
1.38 |
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$ |
1.28 |
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Pro forma diluted earnings per share: |
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Class A Common Share |
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$ |
0.37 |
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$ |
0.34 |
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$ |
1.37 |
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$ |
1.27 |
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Class B Common Share |
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$ |
0.36 |
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$ |
0.33 |
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$ |
1.35 |
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$ |
1.25 |
|
There were 512,500 options granted during the three and nine months ended September 30, 2004. There were 86,636 options granted during the nine month period ended September 30, 2003 with 10,500 of these options granted during the three months ended September 30, 2003.
Recently Adopted Accounting Standards – See discussion in Note 1 to the consolidated financial statements in Republic’s annual report on Form 10-K for the year ended December 31, 2003 for a discussion of recent accounting pronouncements.
Reclassifications – Certain amounts presented in prior periods have been reclassified to conform to the current period presentation. All prior period share and per share data has been restated to reflect the five percent (5%) stock dividend that was declared in the first quarter of 2004.
8
2. SECURITIES
Securities Available For Sale:
|
|
|
|
|
Gross |
|
Gross |
|
|
|
||||
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
|
|
||||
|
September 30, 2004 (in thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
U.S. Treasury securities and U.S. Government agencies |
|
$ |
177,811 |
|
$ |
126 |
|
$ |
(727 |
) |
$ |
177,210 |
|
|
Mortgage backed securities, including CMOs |
|
172,401 |
|
1,037 |
|
(88 |
) |
173,350 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total securities available for sale |
|
$ |
350,212 |
|
$ |
1,163 |
|
$ |
(815 |
) |
$ |
350,560 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
||||
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
|
|
||||
|
December 31, 2003 (in thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
U.S. Treasury securities and U.S. Government agencies |
|
$ |
154,533 |
|
$ |
328 |
|
$ |
(43 |
) |
$ |
154,818 |
|
|
Mortgage backed securities, including CMOs |
|
139,472 |
|
1,274 |
|
(44 |
) |
140,702 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total securities available for sale |
|
$ |
294,005 |
|
$ |
1,602 |
|
$ |
(87 |
) |
$ |
295,520 |
|
Securities To Be Held To Maturity:
|
|
|
|
|
Gross |
|
Gross |
|
|
|
||||
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
|
|
||||
|
September 30, 2004 (in thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
U.S. Treasury securities and U.S. Government agencies |
|
$ |
20,594 |
|
$ |
39 |
|
$ |
(11 |
) |
$ |
20,622 |
|
|
Mortgage backed securities, including CMOs |
|
69,579 |
|
105 |
|
(393 |
) |
69,291 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total securities to be held to maturity |
|
$ |
90,173 |
|
$ |
144 |
|
$ |
(404 |
) |
$ |
89,913 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
||||
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
|
|
||||
|
December 31, 2003 (in thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
U.S. Treasury securities and U.S. Government agencies |
|
$ |
9,707 |
|
$ |
18 |
|
$ |
— |
|
$ |
9,725 |
|
|
Mortgage backed securities, including CMOs |
|
105,704 |
|
82 |
|
(775 |
) |
105,011 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total securities to be held to maturity |
|
$ |
115,411 |
|
$ |
100 |
|
$ |
(775 |
) |
$ |
114,736 |
|
Securities pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes, as required or permitted by law are as follows:
|
(in thousands) |
|
September 30, 2004 |
|
December 31, 2003 |
|
||
|
|
|
|
|
|
|
||
|
Amortized cost |
|
$ |
385,013 |
|
$ |
272,801 |
|
|
Fair value |
|
384,959 |
|
273,561 |
|
||
9
3. LOANS
|
(in thousands) |
|
September 30, 2004 |
|
December 31, 2003 |
|
||
|
|
|
|
|
|
|
||
|
Residential real estate |
|
$ |
827,500 |
|
$ |
762,000 |
|
|
Commercial real estate |
|
478,844 |
|
442,083 |
|
||
|
Real estate construction |
|
63,535 |
|
70,897 |
|
||
|
Commercial |
|
37,193 |
|
34,553 |
|
||
|
Consumer |
|
63,626 |
|
58,034 |
|
||
|
Home equity |
|
262,667 |
|
215,088 |
|
||
|
Total loans |
|
1,733,365 |
|
1,582,655 |
|
||
|
Less: |
|
|
|
|
|
||
|
Unearned interest income and unamortized loan fees |
|
635 |
|
703 |
|
||
|
Allowance for loan losses |
|
13,535 |
|
13,959 |
|
||
|
|
|
|
|
|
|
||
|
Loans, net |
|
$ |
1,719,195 |
|
$ |
1,567,993 |
|
The following table illustrates real estate loans pledged to collateralize advances and letters of credit from the Federal Home Loan Bank (“FHLB”):
|
(in thousands) |
|
September 30, 2004 |
|
December 31, 2003 |
|
||
|
|
|
|
|
|
|
||
|
First lien, 1-4 family residential |
|
$ |
745,000 |
|
$ |
703,000 |
|
|
Multi-family, commercial real estate |
|
52,000 |
|
36,000 |
|
||
|
Home equity lines of credit |
|
168,000 |
|
142,000 |
|
||
Activity in the allowance for loan losses is summarized as follows:
|
|
|
Three months ended September 30 |
|
Nine months ended September 30 |
|
||||||||
|
(in thousands) |
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Balance, beginning of period |
|
$ |
13,530 |
|
$ |
12,668 |
|
$ |
13,959 |
|
$ |
10,148 |
|
|
Provision for loan losses |
|
(127 |
) |
223 |
|
1,475 |
|
6,418 |
|
||||
|
Charge offs |
|
(414 |
) |
(564 |
) |
(4,384 |
) |
(5,037 |
) |
||||
|
Recoveries |
|
546 |
|
1,353 |
|
2,485 |
|
2,151 |
|
||||
|
Balance, end of period |
|
$ |
13,535 |
|
$ |
13,680 |
|
$ |
13,535 |
|
$ |
13,680 |
|
Information regarding Republic’s impaired loans is as follows:
|
(in thousands) |
|
September 30, 2004 |
|
December 31, 2003 |
|
||
|
|
|
|
|
|
|
||
|
Loans with no allocated allowance for loan losses |
|
$ |
— |
|
$ |
— |
|
|
Loans with allocated allowance for loan losses |
|
5,359 |
|
6,176 |
|
||
|
|
|
|
|
|
|
||
|
Total |
|
$ |
5,359 |
|
$ |
6,176 |
|
|
|
|
|
|
|
|
||
|
Amount of the allowance for loan losses allocated |
|
$ |
1,094 |
|
$ |
1,484 |
|
|
|
|
|
|
|
|
||
|
Non-performing loans were as follows: |
|
|
|
|
|
||
|
Loans past due 90 days still on accrual |
|
486 |
|
473 |
|
||
|
Non-accrual loans |
|
8,046 |
|
12,466 |
|
||
10
4. DEPOSITS
|
(in thousands) |
|
September 30, 2004 |
|
December 31, 2003 |
|
||
|
Demand (NOW and SuperNOW) |
|
$ |
290,211 |
|
$ |
271,022 |
|
|
Money market accounts |
|
178,850 |
|
124,145 |
|
||
|
Internet money market accounts |
|
56,815 |
|
96,034 |
|
||
|
Savings |
|
41,004 |
|
35,735 |
|
||
|
Money market certificates of deposit |
|
71,192 |
|
70,208 |
|
||
|
Individual retirement accounts |
|
45,573 |
|
42,073 |
|
||
|
Certificates of deposit, $100,000 and over |
|
195,409 |
|
196,026 |
|
||
|
Other certificates of deposit |
|
209,996 |
|
203,893 |
|
||
|
Brokered deposits |
|
46,122 |
|
64,655 |
|
||
|
Total interest-bearing deposits |
|
1,135,172 |
|
1,103,791 |
|
||
|
|
|
|
|
|
|
||
|
Total non interest-bearing deposits |
|
265,492 |
|
193,321 |
|
||
|
|
|
|
|
|
|
||
|
Total |
|
$ |
1,400,664 |
|
$ |
1,297,112 |
|
5. FHLB BORROWINGS
|
(in thousands) |
|
September 30, 2004 |
|
December 31, 2003 |
|
||
|
|
|
|
|
|
|
||
|
FHLB convertible fixed interest rate advances with a weighted average interest rate of 5.17%(1) |
|
$ |
115,000 |
|
$ |
115,000 |
|
|
|
|
|
|
|
|
||
|
FHLB fixed interest rate advances with a weighted average interest rate of 3.54% due through 2034 |
|
305,309 |
|
305,178 |
|
||
|
|
|
$ |
420,309 |
|
$ |
420,178 |
|
(1) Represents convertible advances with the FHLB. These advances have original fixed rate periods ranging from one to five years with original maturities ranging from three to ten years if not converted earlier by the FHLB. The Company has $90 million in these advances that are currently eligible to be converted on their quarterly repricing date. Based on market conditions at this time, management does not believe these advances are likely to be converted in the short term.
FHLB advances are collateralized by a blanket pledge of eligible real estate loans. At September 30, 2004, Republic had available collateral to borrow an additional $149 million from the FHLB. Republic also has unsecured lines of credit totaling $135 million available through several financial institutions.
Aggregate future principal payments on borrowed funds, based on contractual maturity dates as of September 30, 2004 are as follows:
|
Year |
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
$ |
19,000 |
|
|
|
|
2005 |
|
82,570 |
|
|
|
|
|
2006 |
|
100,000 |
|
|
|
|
|
2007 |
|
60,000 |
|
|
|
|
|
2008 and thereafter |
|
158,739 |
|
|
|
|
|
Total |
|
$ |
420,309 |
|
|
|
11
6. EARNINGS PER SHARE
Class A and B shares participate equally in undistributed earnings. The difference in earnings per share between the two classes of common stock results solely from the 10% per share dividend premium paid on Class A Common Stock over that paid on Class B Common Stock.
A Reconciliation of the combined Class A and B Common Stock numerators and denominators of the earnings per share and diluted earnings per share computations is presented below:
|
|
|
Three months ended
|
|
Nine months ended
|
|
||||||||
|
(in thousands, except per share data) |
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net Income, basic and diluted |
|
$ |
6,982 |
|
$ |
6,349 |
|
$ |
25,888 |
|
$ |
23,567 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Average shares outstanding |
|
17,956 |
|
17,803 |
|
17,921 |
|
17,765 |
|
||||
|
Effect of dilutive securities |
|
693 |
|
587 |
|
671 |
|
405 |
|
||||
|
Average shares outstanding including dilutive securities |
|
18,649 |
|
18,390 |
|
18,592 |
|
18,170 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
||||
|
Class A Common Share |
|
$ |
0.39 |
|
$ |
0.36 |
|
$ |
1.45 |
|
$ |
1.33 |
|
|
Class B Common Share |
|
$ |
0.38 |
|
$ |
0.35 |
|
$ |
1.43 |
|
$ |
1.31 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
||||
|
Class A Common Share |
|
$ |
0.38 |
|
$ |
0.35 |
|
$ |
1.39 |
|
$ |
1.30 |
|
|
Class B Common Share |
|
$ |
0.37 |
|
$ |
0.34 |
|
$ |
1.38 |
|
$ |
1.28 |
|
There were no antidilutive stock options during the three and nine months ended September 30, 2004 and 2003.
7. SEGMENT INFORMATION
The reportable segments are determined by the type of products and services offered, primarily distinguished between banking operations, mortgage banking operations, tax refund services and deferred deposit transactions. Loans, investments and deposits provide the majority of revenue from banking operations; servicing fees and loan sales provide the majority of revenue from mortgage banking operations; Refund Anticipation Loan (“RAL”) fees and Electronic Refund Check (“ERC”) fees provide the majority of the revenue from tax refund services; and fees for providing deferred deposit transactions represent the primary revenue source for the deferred deposit segment. All four reportable segments are domestic.
The accounting policies used for Republic’s reportable segments are the same as those described in the summary of significant accounting policies. Income taxes are allocated based on income before income tax expense. Transactions among reportable segments are made at fair value.
Information reported internally for performance assessment follows:
12
|
|
|
Three Months Ended September 30, 2004 |
|
|||||||||||||
|
(in thousands) |
|
Banking |
|
Tax Refund
|
|
Mortgage
|
|
Deferred
|
|
Consolidated
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Net interest income |
|
$ |
16,848 |
|
$ |
— |
|
$ |
514 |
|
$ |
3,228 |
|
$ |
20,590 |
|
|
Provision for loan losses |
|
(92 |
) |
(205 |
) |
— |
|
170 |
|
(127 |
) |
|||||
|
Electronic refund check fees |
|
— |
|
61 |
|
— |
|
— |
|
61 |
|
|||||
|
Mortgage banking income |
|
— |
|
— |
|
757 |
|
— |
|
757 |
|
|||||
|
Other revenue |
|
5,586 |
|
(7 |
) |
(799 |
) |
— |
|
4,780 |
|
|||||
|
Income tax expense |
|
2,704 |
|
(202 |
) |
67 |
|
1,063 |
|
3,632 |
|
|||||
|
Segment profit |
|
5,355 |
|
(371 |
) |
129 |
|
1,869 |
|
6,982 |
|
|||||
|
Segment assets |
|
2,296,663 |
|
2,582 |
|
11,766 |
|
41,725 |
|
2,352,736 |
|
|||||
|
|
|
Three Months Ended September 30, 2003 |
|
|||||||||||||
|
(in thousands) |
|
Banking |
|
Tax Refund
|
|
Mortgage
|
|
Deferred
|
|
Consolidated
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Net interest income |
|
$ |
16,897 |
|
$ |
— |
|
$ |
274 |
|
$ |
2,322 |
|
$ |
19,493 |
|
|
Provision for loan losses |
|
205 |
|
— |
|
— |
|
18 |
|
223 |
|
|||||
|
Electronic refund check fees |
|
— |
|
70 |
|
— |
|
— |
|
70 |
|
|||||
|
Mortgage banking income |
|
— |
|
— |
|
1,567 |
|
— |
|
1,567 |
|
|||||
|
Other revenue |
|
5,784 |
|
(66 |
) |
(1,384 |
) |
— |
|
4,334 |
|
|||||
|
Income tax expense |
|
2,895 |
|
(182 |
) |
90 |
|
757 |
|
3,560 |
|
|||||
|
Segment profit |
|
5,163 |
|
(325 |
) |
161 |
|
1,350 |
|
6,349 |
|
|||||
|
Segment assets |
|
1,944,281 |
|
2,356 |
|
22,495 |
|
40,610 |
|
2,009,742 |
|
|||||
|
|
|
Nine Months Ended September 30, 2004 |
|
|||||||||||||
|
(in thousands) |
|
Banking |
|
Tax Refund
|
|
Mortgage
|
|
Deferred
|
|
Consolidated
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Net interest income |
|
$ |
49,793 |
|
$ |
8,523 |
|
$ |
1,629 |
|
$ |
8,609 |
|
$ |
68,554 |
|
|
Provision for loan losses |
|
(923 |
) |
1,707 |
|
— |
|
691 |
|
1,475 |
|
|||||
|
Electronic refund check fees |
|
— |
|
5,253 |
|
— |
|
— |
|
5,253 |
|
|||||
|
Mortgage banking income |
|
— |
|
— |
|
2,299 |
|
— |
|
2,299 |
|
|||||
|
Other revenue |
|
15,907 |
|
(22 |
) |
(2,252 |
) |
— |
|
13,633 |
|
|||||
|
Income tax expense |
|
7,051 |
|
3,259 |
|
310 |
|
2,932 |
|
13,552 |
|
|||||
|
Segment profit |
|
14,161 |
|
6,225 |
|
592 |
|
4,910 |
|
25,888 |
|
|||||
|
Segment assets |
|
2,296,663 |
|
2,582 |
|
11,766 |
|
41,725 |
|
2,352,736 |
|
|||||
|
|
|
Nine Months Ended September 30, 2003 |
|
|||||||||||||
|
(in thousands) |
|
Banking |
|
Tax Refund
|
|
Mortgage
|
|
Deferred
|
|
Consolidated
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Net interest income |
|
$ |
50,113 |
|
$ |
6,742 |
|
$ |
1,270 |
|
$ |
4,730 |
|
$ |
62,855 |
|
|
Provision for loan losses |
|
4,241 |
|
1,850 |
|
— |
|
327 |
|
6,418 |
|
|||||
|
Electronic refund check fees |
|
— |
|
3,932 |
|
— |
|
— |
|
3,932 |
|
|||||
|
Mortgage banking income |
|
— |
|
— |
|
10,718 |
|
— |
|
10,718 |
|
|||||
|
Other revenue |
|
15,705 |
|
(46 |
) |
(3,615 |
) |
— |
|
12,044 |
|
|||||
|
Income tax expense |
|
6,479 |
|
2,191 |
|
2,707 |
|
1,562 |
|
12,939 |
|
|||||
|
Segment profit |
|
12,125 |
|
3,991 |
|
4,931 |
|
2,520 |
|
23,567 |
|
|||||
|
Segment assets |
|
1,944,281 |
|
2,356 |
|
22,495 |
|
40,610 |
|
2,009,742 |
|
|||||
13
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Republic Bancorp, Inc. (“Republic” or the “Company”) analyzes the major elements of Republic’s consolidated balance sheets and consolidated statements of income. Republic, a bank holding company headquartered in Louisville, Kentucky, is the Holding Company of Republic Bank & Trust Company, Republic Bank & Trust Company of Indiana (together referred to as the “Bank”), Republic Funding Company and Republic Invest Co . Republic Invest Co. includes its wholly-owned subsidiary Republic Capital LLC. The consolidated financial statements also include the wholly-owned subsidiaries of Republic Bank & Trust Company: Republic Financial Services, LLC and Republic Insurance Agency, LLC. This section should be read in conjunction with the consolidated Financial Statements and accompanying Notes and other detailed information.
This discussion includes various forward-looking statements with respect to credit quality including, but not limited to, delinquency trends and the adequacy of the allowance for loan losses, corporate objectives, the Company’s interest rate sensitivity model and other financial and business matters. Broadly speaking, forward-looking statements include:
• projections of the Company’s revenues, income, earnings per share, capital expenditures, dividends, capital structure or other financial items;
• descriptions of plans or objectives of the Company’s management for future operations, products or services;
• forecasts of Republic’s future economic performance; and
• descriptions of assumptions underlying or relating to any of the foregoing.
The Company may make forward-looking statements discussing management’s expectations about:
• future credit losses and non-performing assets;
• the future value of mortgage servicing rights;
• the impact of new accounting standards;
• future short-term and long-term interest rate levels and their impact on Republic’s net interest margin, net income, liquidity and capital; and
• future capital expenditures.
Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements often include words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would,” or similar expressions. Do not unduly rely on forward-looking statements. Forward-looking statements detail management’s expectations about the future and are not guarantees. Forward-looking statements speak only as of the date they are made and management may not update them to reflect changes that occur after the date the statements are made.
Net income for the third quarter of 2004 was $7.0 million, representing an increase of $633,000 or 10% compared to the same period in 2003. Diluted earnings per Class A Common Share increased 9% for the quarter to $0.38. Republic’s rise in earnings for the quarter was attributed to increases in net interest income, service charges on deposit accounts and deferred deposit transaction fees. Republic’s net income for the quarter was also positively impacted by a negative provision for loan losses of $127,000.
Net income for the first nine months of 2004 was $25.9 million, an increase of $2.3 million or 10% compared to the same period in 2003. Diluted earnings per Class A Common Share increased 7% for the first nine months of 2004 to $1.39. Republic’s rise in earnings for the first nine months of 2004 was attributable to increases in net interest income, service charges on deposit accounts, deferred deposit transaction fees and a lower provision for loan losses.
14
Increased earnings at Republic Bank Tax Refund Solutions, a division of Republic Bank & Trust Company, which generates substantially all of its revenue during the first quarter of each year, also significantly impacted net income for the first nine months of 2004. The improvements in revenue for both the third quarter and first nine months of 2004 offset a decline in mortgage banking income of $810,000 for the quarter and $8.4 million for the first nine months of 2004.
FACTORS THAT MAY AFFECT FUTURE RESULTS
There are factors, many beyond our control, which may significantly change the results or expectations of the Company. Some of these factors are described below; however, many are described in the sections that follow. There are also other items which are included in the Annual Report on Form 10-K for the year ended December 31, 2003. Any factor described in this document, or in the Company’s 2003 Annual Report on Form 10-K, could, by itself, or with other factors, adversely affect our business, results of operations or financial condition. There are also additional factors not described in this document or in the 2003 Annual Report on Form 10-K which could cause our expectations to differ or could produce significantly different results.
Company Factors
The Holding Company relies on dividends from its subsidiaries for substantially all of its revenue. Republic Bancorp, Inc. is a separate legal entity from its subsidiaries. It receives substantially all of its revenue from dividends from its largest subsidiary, Republic Bank & Trust Company. Various federal and state laws and regulations limit the amount of dividends that may be paid to the Holding Company.
The Company’s accounting policies and estimates are critical components of the Company’s presentment of its financial statements. Our management must exercise judgment in selecting and adopting various accounting policies and in applying estimates. Actual outcomes can and may be materially different than amounts previously estimated. Management has identified two accounting policies as being critical to the presentation of the Company’s financial statements. These policies are further described in our 2003 Annual Report on Form 10-K in the section titled “Critical Accounting Policies” and relate to the allowance for loan losses and the valuation of mortgage servicing rights. Because of the inherent uncertainty of estimates, we cannot provide any assurance that the Company will not significantly increase its allowance for loan losses if actual losses are more than the amount reserved or recognize a significant provision for impairment of its mortgage servicing rights.
The Company has lines of business and products not typically associated with traditional banking. In addition to traditional banking products, i.e. customer loans and deposits, the Company provides Refund Anticipation Loans (“RALs”) and Electronic Refund Checks (“ERCs”), mortgage banking products, “Overdraft Honor” deposit accounts and deferred deposit transactions. Management believes diverse product offerings mitigate the Company’s exposure to significant downturns in any one segment of the banking industry; however, non-traditional banking products also expose the Company’s earnings to different additional risks and uncertainties. The following details specific risk factors related to Republic’s lines of business:
• RALs represent a significant business risk, and if the Company terminated the business it would materially impact earnings of the Company. Republic offers bank products to facilitate the electronic filing of tax returns by individuals across the country. The Company is one of only a few financial institutions in the United States of America that provides this service to taxpayers. Under this program, the taxpayer may receive a RAL or an ERC. In return, the Company charges a fee for the service. There is credit risk associated with a RAL because the money is disbursed to the client before the Company receives the client’s refund from the Internal Revenue Service (“IRS”). There is minimal credit risk with an ERC because the Company does not disburse the funds to the client until the Company has received the refund from the IRS. Various consumer groups have, from time to time, questioned the fairness of the Republic Bank Tax Refund Solutions program and have accused this industry of charging excessive rates of interest via the fee and engaging in predatory lending practices. A competing RAL financial institution is currently defending two lawsuits in the state of California relating to the cross-collection provision contained in its RAL contracts with customers. While the Company is a party to these two suits, it has not been named as a Defendant by the Plaintiffs regarding its cross-collection activities with customers. However, the issue of
15
cross-collection provisions in RAL contracts could result in litigation exposure for all RAL financial institutions, including the Company, as consumer groups have shown a willingness to oppose the RAL cross-collection provisions through litigation. Pressure from these groups, regulatory changes, or material litigation could result in the Company exiting this business at any time. Exiting this line of business, either voluntarily or involuntarily, would significantly reduce Company earnings.
• Mortgage banking activities can be significantly impacted by interest rates. Changes in interest rates can impact gain on sale of loans, loan origination fees and loan servicing fees, which account for a significant portion of mortgage banking income. A decline in interest rates generally results in higher demand for mortgage products, while an increase in rates generally results in a slow down in demand. If demand increases, mortgage banking income will be positively impacted by more gains on sale, however, the valuation of mortgage servicing rights will decrease and may result in a significant impairment. In addition to the previously mentioned risks, a decline in demand for mortgage banking products could also adversely impact other programs/products such as home equity lending, title insurance commissions and service charges on deposit accounts.
• The Company’s “Overdraft Honor” program represents a significant business risk, and if the Company terminated the program it would materially impact earnings of the Company. Republic’s “Overdraft Honor” program permits selected clients to overdraft their accounts up to $500 for the Company’s customary fee. Customers’ checking accounts that have been current for a certain period of time are allowed the privilege to enter into the program. This service is not considered an extension of credit, but rather is considered a fee for paying checks when sufficient funds are not otherwise available to the customer. This fee, if computed as a percentage of the amount overdrawn, results in an extremely high rate of interest when annualized and thus is considered excessive by some consumer groups. There can be no assurance, however, that the Company’s regulators or others will not impose limitations on this program or that the Company’s ability to offer the product will not be negatively impacted by regulatory authorities. The Company’s elimination of this program, either voluntarily or involuntarily, would significantly reduce Company earnings.
• Deferred deposit transactions represent a significant business risk and if the Company terminated the business it would materially impact earnings of the Company. Deferred deposits are transactions whereby customers receive cash advances in exchange for a check for the advanced amount plus a fixed fee (commonly referred to as a “payday loan” or “payday lending”). Various consumer groups have, from time to time, questioned the fairness of deferred deposit transactions and have accused this industry of charging excessive rates of interest via the fixed fee and engaging in predatory lending practices. Various federal and state regulatory agencies have also questioned whether this business should be permitted by member banks. There can be no assurance that the Federal Deposit Insurance Corporation (“FDIC”) or others will not impose additional limitations on or prohibit banks from engaging altogether in deferred deposit transactions. There also can be no assurances that private litigation might require the Company to exit from the program in one or more jurisdictions, or that the Company’s ability to continue to engage in the business profitably, or at all, will not be negatively impacted by the requirements of applicable laws, regulations or guidelines. The Company exiting this business, either voluntarily or involuntarily, would significantly reduce Company earnings.
Republic’s stock price can be extremely volatile. The Company’s stock price can fluctuate widely in response to a variety of factors. Factors include actual or anticipated variations in the Company’s quarterly operating results, recommendations by securities analysts, new technologies, operating and stock price performance of other companies, news reports and changes in government regulations, among other factors. The Company’s stock also generally has a low average daily trading volume, which limits a person’s ability to quickly accumulate or quickly divest themselves of large blocks of Republic’s stock. In addition, a low average daily trading volume can lead to significant price swings even when a relatively small number of shares are being traded.
Industry Factors
General business and economic conditions can significantly impact the Company’s earnings. General business and economic conditions in the United States of America and abroad can impact the Company. Conditions
16
include short-term and long-term interest rates, inflation, monetary supply and fluctuations in both debt and equity markets and the federal and state economies in which we operate. Economic factors such as a customer’s loss of employment can limit the ability of borrowers to repay principal and interest on their outstanding loans.
The Company’s earnings are significantly impacted by the fiscal and monetary policies of federal and state governments. The Board of Governors of the Federal Reserve Bank System regulates the supply of money and credit in the United States of America. Its policies determine, in large part, our cost of funds for lending and investing and the return we earn on those loans and investments, all of which impact our net interest margin. Its policies can materially affect the value of our financial instruments and earnings and can also affect our borrowers and their ability to repay their outstanding loans.
Republic’s industry is highly competitive. The Company operates in a highly competitive industry that could become even more competitive as a result of legislation, regulatory and technological changes, new market entries and acquisition activity. Many of our competitors have fewer regulatory constraints and some have lower cost structures. Federal legislation could also provide for changes in the banking laws that could impact the financial condition or results of operations of the Company or its subsidiaries.
Republic is heavily regulated by federal and state agencies. The Holding Company and its subsidiary banks are heavily regulated at both federal and state levels. This regulatory oversight is primarily intended to protect depositors, the federal deposit insurance funds and the banking system as a whole, not the shareholders of the Company. Changes in policies, regulations and statutes could significantly impact the earnings or products of Republic. Also, failure to comply with laws, regulations or policies could result in significant penalties or sanctions by regulatory agencies.
The Company relies on the accuracy and completeness of information provided by vendors, customers and other counterparties. In deciding whether to extend credit or enter into transactions with other parties, the Company relies on information furnished by or on behalf of customers or entities related to that customer. Our financial condition and earnings could be negatively impacted to the extent the Company relies on information that is false, misleading or inaccurate.
Deferred deposits are transactions whereby customers receive cash advances in exchange for a check for the advanced amount plus a fixed fee (commonly referred to as a “payday loan” or “payday lending”). Republic agrees to delay presentment of the check for payment until the advance due date, typically 14 to 30 days from the cash advance date. On or before the advance due date, the customer can redeem their check in cash for the amount of the advance plus the fee. If the customer does not reclaim the check in cash by the advance due date, the check is deposited. These transactions are recorded as loans on the Company’s financial statements and the corresponding fees are recorded as a component of interest income on loans.
Total outstandings were $31.8 million at September 30, 2004 compared to $27.6 million at December 31, 2003. FDIC guidance issued in July 2003 requires that banks limit deferred deposit transaction outstandings to the lesser of 25% of Tier I capital or the amount that actual capital levels exceed the “well-capitalized” classification for Tier I and total capital. Based on the Company’s capital levels at the end of the third quarter, deferred deposit transaction outstandings were below the Company’s regulatory limit of $39 million.
The Marketer/Servicers with which the Company does business have at times experienced legal and/or regulatory obstacles in some states in which they do business. In these states, laws have been enacted or amended to prohibit or limit their ability to conduct business without a financial institution partner. In addition, the Comptroller of the Currency has effectively prohibited national banks from conducting this business. This has provided opportunities for certain state-chartered commercial banks to enter the business and increase earnings with acceptable capital outlays. Certain legal and administrative risks are directly attributable to Republic’s deferred deposit transaction program.
17
The legal and regulatory climate for this product also continues to change. The FDIC’s guidance characterizes deferred deposit transactions as presenting substantial credit risks for lenders, because among other things, the loans are unsecured and the borrower generally has limited financial resources, as well as increased transaction, legal and reputation risks when a third party arrangement is used. This guidance proposes, among other items, that banks hold significantly more capital than would be required for other sub-prime type loans, suggesting required capital of as much as 100% of deferred deposit transactions outstanding. The guidance also requires that the allowance for loan and lease losses be adequate and take into account that many such transactions remain outstanding beyond their initial term due to renewals and rollovers, deferred deposit transactions be classified “substandard,” and transactions outstanding for more than 60 days generally be classified as “loss.” The guidance also prescribes limits on the ability of a borrower to renew or rollover a deferred deposit transaction and the number of transactions that can be entered into within a given period of time. The guidance requires examiners to assess the bank’s risk management program for third party marketing and servicing relationships, including the bank’s due diligence process for selecting third party marketing and servicing providers and its monitoring of the third party’s activities and performance. Banks are also advised to evaluate the third party’s compliance with consumer protection laws and applicable regulations.
The Company believes that it has adequately considered and addressed the risks associated with its deferred deposit transaction business, including the risks discussed in the FDIC guidelines and that the Company’s size, technological resources and experience in the successful management of other non-traditional banking product lines, among other factors, will enable the Company to adequately manage its deferred deposit transaction business. There can be no assurance, however, that state and federal regulators, court rulings or others will not impose additional limitations on or prohibit banks from engaging altogether in deferred deposit transactions. There is an identifiable potential that the business might lead to material litigation, public or private, and that the Company’s ability to continue to engage in the business profitably, or at all, will be impacted by requirements of applicable laws, regulations, guidelines or court decisions.
The Attorney General of North Carolina recently issued an investigative demand to one of the Company’s Marketer/Servicers in the state of North Carolina. The Attorney General seeks to make a determination as to whether or not the Company’s Marketer/Servicer complies with North Carolina statues. The Company’s Marketer/Servicer has been asked to document how it conducts its business in the state of North Carolina and has been asked to disclose its contractual relationship with the Company and produce other documents relating to the deferred deposit transaction business. The North Carolina Commissioner of Banks has joined this inquiry. This action does not currently affect operations in the state of North Carolina and all agreements between customers and Republic remain valid and enforceable.
RESULTS OF OPERATIONS
Net Interest Income
The principal source of Republic’s revenue is net interest income. Net interest income represents the difference between interest income on interest-earning assets, such as loans and securities, and the interest expense on liabilities used to fund those assets, such as interest-bearing deposits and borrowings. Net interest income is impacted by both changes in the amount and composition of interest-earning assets and interest-bearing liabilities as well as market interest rates.
Despite contraction of the net interest spread and margin during the third quarter of 2004, the Company was able to increase its net interest income primarily through growth in the securities and loan portfolios, including an increase in deferred deposit transactions outstanding. In general, the contraction of the Company’s net interest spread and margin generally occurred as long-term market interest rates trended lower while short term interest rates increased, due to Federal Reserve Bank interest rate actions. As a result, downward repricing continued to occur in both the securities and loan portfolios as maturities and prepayments were replaced by lower yielding assets. Overall, Republic’s yield on earning assets declined 52 basis points compared to the third quarter of 2003.
Republic’s increase in interest expense during the third quarter of 2004 resulted primarily from growth in interest bearing liabilities while the Company experienced a slight decrease of four basis points in its overall cost of funds due to a market driven shift in product mix. Generally, Republic experienced more growth in its lower-cost deposit
18
product types such as transaction accounts, money markets and repurchase agreements than it experienced in its higher cost certificates of deposit and Federal Home Loan Bank borrowings. As a result, the lower cost product types became a larger percentage of the total interest bearing liabilities thus driving down the overall cost of funds. While this change in product mix benefited current earnings through a lower cost of funds, future results could be impacted in a rising interest rate environment due to the immediate repricing potential of the lower-cost product types compared to the time deposits with fixed interest rates. (See sections titled “Deposits” and “Securities Sold Under Agreements to Repurchase and Other Short-term Borrowings” on pages 27-28 for additional discussion on changes in balance sheet accounts. See section titled “ASSET/LIABILITY MANAGEMENT AND MARKET RISK” on page 31 for additional discussion on the impact of changes in interest rates on future net interest income.)
Similar to the third quarter of 2004, the Company grew net interest income for the nine months ended September 30, 2004 while experiencing contraction in the net interest spread and margin. As with the third quarter, the Company was able to increase its net interest income for the first nine months of 2004 primarily through growth in the securities and loan portfolios, including an increase in deferred deposit transactions outstanding. In addition, the Company also had a significant increase in RAL volume during the first quarter of 2004 compared to the same period in 2003. The contraction of the Company’s net interest spread and margin generally occurred as long-term market interest rates trended lower while short term interest rates increased, primarily due to Federal Reserve Bank interest rate actions. As a result, downward repricing continued to occur in both the securities and loan portfolios as maturities and prepayments were replaced by lower yielding instruments. Overall, Republic’s yield on earning assets declined 59 basis points compared to the first nine months of 2003.
As with the third quarter, Republic’s increase in interest expense during the first nine months of 2004 resulted primarily from growth in interest bearing liabilities while the Company experienced a decrease of 20 basis points in its overall cost of funds due to a shift in product mix. Generally, Republic experienced more growth in its lower-cost deposit product types such as transaction accounts, money markets and repurchase agreements than it experienced in its higher cost certificates of deposit and Federal Home Loan Bank borrowings. As a result, the lower cost product types became a larger percentage of the total interest bearing liabilities thus driving down the overall cost of funds. While this change in product mix benefited current earnings through a lower cost of funds, future results could be impacted in a rising interest rate environment due to the immediate repricing potential of the lower-cost product types compared to the time deposits. (See sections titled “Deposits” and “Securities Sold Under Agreements to Repurchase and Other Short-term Borrowings” on pages 27-28 for additional discussion on changes in balance sheet accounts. See section titled “ASSET/LIABILITY MANAGEMENT AND MARKET RISK” on page 31 for additional discussion on the impact of changes in interest rates on future net interest income.)
Table 1 and Table 2 provide detailed information as to average balances, interest income/expense and rates by major balance sheet category for the three and nine month periods ended September 30, 2004 and 2003. Table 2 provides an analysis of the changes in net interest income attributable to changes in rates and changes in volume of interest-earning assets and interest-bearing liabilities.
19
Table 1 – Average Balance Sheets and Interest Rates for the Three Months Ended September 30, 2004 and 2003
(1) For the purpose of this calculation, the fair market value adjustment on investment securities resulting from SFAS 115 is included as a component of other assets.
(2) The amount of fee income included in interest on loans was $3.8 million and $3.3 million for the quarters ended September 30, 2004 and 2003.
20
Table 2 – Average Balance Sheets and Interest Rates for the Nine Months Ended September 30, 2004 and 2003
(1) For the purpose of this calculation, the fair market value adjustment on investment securities resulting from SFAS 115 is included as a component of other assets.
(2) The amount of fee income included in interest on loans was $19.2 million and $13.9 million for the nine months ended September 30, 2004 and 2003.
21
The following table illustrates the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected Republic’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume) and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
Table 3 – Volume/Rate Variance Analysis
|
|
|
Three months ended September 30, 2004
|
|
Nine months ended September 30, 2004
|
|
||||||||||||||
|
|
|
Increase/(Decrease)
|
|
Increase/(Decrease)
|
|
||||||||||||||
|
(in thousands) |
|
Total Net
|
|
Volume |
|
Rate |
|
Total Net
|
|
Volume |
|
Rate |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Investment securities |
|
$ |
773 |
|
$ |
1,042 |
|
$ |
(269 |
) |
$ |
818 |
|
$ |
2,603 |
|
$ |
(1,785 |
) |
|
Federal funds sold and other |
|
53 |
|
20 |
|
33 |
|
166 |
|
173 |
|
(7 |
) |
||||||
|
Total loans and fees |
|
1,756 |
|
3,376 |
|
(1,620 |
) |
8,047 |
|
12,745 |
|
(4,698 |
) |
||||||
|
Net change in interest income |
|
2,582 |
|
4,438 |
|
(1,856 |
) |
9,031 |
|
15,521 |
|
(6,490 |
) |
||||||
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Transaction accounts |
|
118 |
|
115 |
|
3 |
|
161 |
|
383 |
|
(222 |
) |
||||||
|
Money market accounts |
|
243 |
|
40 |
|
203 |
|
681 |
|
410 |
|
271 |
|
||||||
|
Individual retirement accounts |
|
30 |
|
46 |
|
(16 |
) |
43 |
|
122 |
|
(79 |
) |
||||||
|
Certificates of deposit and other time deposits |
|
(25 |
) |
132 |
|
(157 |
) |
(680 |
) |
177 |
|
(857 |
) |
||||||
|
Brokered deposits |
|
128 |
|
75 |
|
53 |
|
332 |
|
8 |
|
324 |
|
||||||
|
Repurchase agreements and other short-term borrowings |
|
674 |
|
414 |
|
260 |
|
1,064 |
|
963 |
|
101 |
|
||||||
|
Federal Home Loan Bank borrowings |
|
317 |
|
349 |
|
(32 |
) |
1,731 |
|
2,337 |
|
(606 |
) |
||||||
|
Net change in interest expense |
|
1,485 |
|
1,171 |
|
314 |
|
3,332 |
|
4,400 |
|
(1,068 |
) |
||||||
|
Increase in net interest income |
|
$ |
1,097 |
|
$ |
3,267 |
|
$ |
(2,170 |
) |
$ |
5,699 |
|
$ |
11,121 |
|
$ |
(5,422 |
) |
22
Non interest Income
Non interest income declined 6% for the third quarter ended September 30, 2004 compared to the same period in 2003. The decrease was driven by the decline in mortgage banking income and title insurance commissions, which closely correlates with mortgage origination volume. These declines were partially offset by increases in both service charges on deposit accounts and debit card interchange income.
Non interest income declined 21% for the first nine months of 2004 compared to the same period in 2003. As with the third quarter of 2004, the decrease was related to the decline in mortgage banking income and title insurance commissions. The year to date decline was partially offset by increases in service charges on deposit accounts, debit card interchange income and ERC fees.
Service charges on deposit accounts increased 42% during the third quarter compared to the same period in 2003. The increase was due primarily to growth in the Company’s checking account base supported by the Company’s “Overdraft Honor” program, which permits selected clients to overdraft their accounts up to $500 for the Company’s customary fee. Total overdraft fees increased $521,000 or 24% while the total number of accounts eligible for the “Overdraft Honor” program increased to 48,000 from 41,000 at September 30, 2003.
Service charges on deposit accounts increased 36% during the first nine months of 2004 compared to the same period in 2003. Total overdraft fees increased $1.4 million or 23% for the first nine months of the year. The increase in service charges on deposit accounts for the year was for the same reasons described in the preceding paragraph.
ERC fees increased $1.3 million during the first nine months of 2004 compared to the same period in the prior year. The increase was due primarily to a substantial increase in overall ERC volume attributed to successful program marketing efforts in the second half of 2003. The majority of these fees are received during the first quarter of the calendar year.
Mortgage banking income includes net gain on sale of loans, loan servicing income and amortization of Mortgage Servicing Rights (“MSRs”). Mortgage banking income decreased $810,000 during the quarter ended September 30, 2004 compared to the same period in 2003. The decrease was primarily due to a $1.3 million decline in net gain on sale of loans. The reduction in gain on sale of loans resulted from a substantial decline in mortgage origination volume of 15 and 30 year fixed rate residential real estate loans from the strong levels attained by the Company in the third quarter of 2003. The higher volume of originations during the prior year resulted from aggressive marketing of the Company’s “$999” closing cost loan product and sustained consumer demand for fixed rate, first mortgage residential real estate loan products due to historically low market interest rates during that period. This demand began to decline substantially during the third quarter of 2003, reaching and sustaining lower levels during the first nine months of 2004.
Mortgage banking income decreased $8.4 million during the first nine months of 2004 compared to the same period in 2003. The decrease resulted from a $9.8 million decline in net gain on sale of loans resulting from the lower volume of loans sold into the secondary market compared to the record volume attained during the first nine months of 2003.
Title insurance commissions decreased $536,000 and $1.1 million during the third quarter of 2004 and first nine months of 2004 compared to the same periods in 2003 due primarily to the decline in mortgage origination volume.
Non interest Expenses
Non interest expenses increased $369,000 or 2% during the quarter ended September 30, 2004 compared to the same period in 2003. The Company continued its extensive focus on controlling non interest expenses during the third quarter of 2004.
Salaries and employee benefits increased $485,000 for the third quarter of 2004 compared to the same period in 2003. Included within the salaries and employee benefits category is the Company’s deferral for direct expenses on origination of loans. Republic’s deferral decreased $597,000 for the third quarter of 2004 compared to the third
23
quarter of 2003 due to a reduction in the volume of new mortgage loans originated. The Company’s number of full-time equivalent employees (“FTE’s”) decreased to 587 at September 30, 2004 from 638 at September 30, 2003. For the first nine months of 2004, total salaries and employee benefits increased $1.9 million. The deferral for the first nine months of 2004 decreased $1.4 million compared to the first nine months of 2003 due to a reduction of new loan originations.
Occupancy and equipment increased for both the three and nine month periods due primarily to costs associated with the new banking centers opened during the latter half of 2003 and first half of 2004.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
Securities available for sale primarily consists of U.S. Treasury and U.S. Government Agency obligations, including agency mortgage backed securities (“MBSs”) and collateralized mortgage obligations (“CMOs”). The MBSs consist of 15-year fixed, 7-year balloons, 5-year balloons, as well as other adjustable rate mortgage securities, underwritten and guaranteed by Ginnie Mae (“GNMA”), Freddie Mac (“FHLMC”) and Fannie Mae (“FNMA”). CMOs held in the investment portfolio are substantially all floating rate securities that adjust monthly. Securities available for sale increased from $296 million at December 31, 2003 to $351 million at September 30, 2004. Securities to be held to maturity consist primarily of floating rate CMOs and decreased from $115 million at December 31, 2003 to $90 million at September 30, 2004. In addition to economic and market conditions, the overall management strategy of the investment portfolio is determined by, among other factors, loan demand, deposit mix, liquidity and collateral needs, the Company’s interest rate risk position and the overall structure of the balance sheet. During the first nine months of 2004, Republic purchased $2.9 billion in securities and had maturities of $2.8 billion. Approximately $2.7 billion of the securities purchased were agency discount notes, which the Company utilized primarily for collateral purposes. The yield on these discount notes was 1.05% with an average term of 6 days.
Net loans, primarily consisting of secured real estate loans, increased by $151 million to $1.7 billion at September 30, 2004. This growth was primarily attributable to a $66 million increase in residential real estate loans, a $48 million increase in home equity loans and a $37 million increase in commercial real estate loans during the first nine months of 2004.
Republic experienced steady growth in its residential real estate adjustable rate mortgage loan portfolios. The $66 million increase in this category resulted primarily from the promotion of these products through reduced closing costs to the client. Republic offered closing costs as low as $499 on many of its adjustable rate products during the first nine months of 2004. With reduced closing costs and lower interest rates, these loans compared favorably to longer-term, fixed rate secondary market products. Management anticipates continuing to offer residential real estate products with promotional closing costs during the fourth quarter of 2004, which could heavily impact origination volume.
Home equity loans, substantially all with loan to values of 100% or less, increased from $215 million at December 31, 2003 to $263 million at September 30, 2004. The rise in home equity loans was primarily the result of the Company’s promotional product, which has a zero percent interest rate for the first three months of the loan. Management anticipates continuing to offer promotional rate home equity loans during the fourth quarter of 2004, but will reassess the program if there is an increase in short-term interest rates by the Federal Reserve Bank. At September 30, 2004, Republic clients had $220 million of home equity line balances available for funding.
Allowance and Provision for Loan Losses
The total allowance for loan losses decreased $424,000 from December 31, 2003 to $13.5 million at September 30, 2004. Management believes, based on information presently available, that it has adequately provided for loan losses at September 30, 2004.
24
Republic recorded a negative provision for loan losses of $127,000 during the third quarter of 2004 due primarily to low levels of charge-off activity, lower delinquency trends in the portfolio and further improvement in overall asset quality. The Company’s year to date provision for loan losses decreased from $6.4 million for the first nine months of 2003 to $1.5 million for the same period in 2004. Included in the provision for loan losses was $1.7 million for RALs during the first nine months of 2004 compared to $1.9 million for the first nine months of 2003. The overall decrease in the provision for the first nine months of 2004, exclusive of RALs, was primarily due to continued low levels of charge-offs, lower delinquency trends in the portfolio and an improvement in overall asset quality.
Table 4 - Summary of Loan Loss Experience
|
|
|
Three months ended
|
|
Nine months ended
|
|
||||||||
|
(dollars in thousands) |
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
||||
|
Allowance for loan losses at beginning of period |
|
$ |
13,530 |
|
$ |
12,668 |
|
$ |
13,959 |
|
$ |
10,148 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Charge offs: |
|
|
|
|
|
|
|
|
|
||||
|
Real estate: |
|
|
|
|
|
|
|
|
|
||||
|
Residential |
|
(71 |
) |
(131 |
) |
(192 |
) |
(563 |
) |
||||
|
Commercial |
|
— |
|
(18 |
) |
(4 |
) |
(1,223 |
) |
||||
|
Construction |
|
— |
|
— |
|
— |
|
(135 |
) |
||||
|
Commercial |
|
— |
|
(43 |
) |
(8 |
) |
(50 |
) |
||||
|
Consumer |
|
(233 |
) |
(336 |
) |
(662 |
) |
(727 |
) |
||||
|
Home equity |
|
(108 |
) |
(36 |
) |
(115 |
) |
(39 |
) |
||||
|
Tax refund loans |
|
(2 |
) |
— |
|
(3,403 |
) |
(2,300 |
) |
||||
|
Total |
|
(414 |
) |
(564 |
) |
(4,384 |
) |
(5,037 |
) |
||||
|
Recoveries: |
|
|
|
|
|
|
|
|
|
||||
|
Real estate: |
|
|
|
|
|
|
|
|
|
||||
|
Residential |
|
11 |
|
228 |
|
114 |
|
281 |
|
||||
|
Commercial |
|
203 |
|
1,009 |
|
281 |
|
1,068 |
|
||||
|
Construction |
|
35 |
|
— |
|
35 |
|
— |
|
||||
|
Commercial |
|
6 |
|
8 |
|
34 |
|
63 |
|
||||
|
Consumer |
|
78 |
|
98 |
|
277 |
|
263 |
|
||||
|
Home equity |
|
6 |
|
10 |
|
48 |
|
26 |
|
||||
|
Tax refund loans |
|
207 |
|
— |
|
1,696 |
|
450 |
|
||||
|
Total |
|
546 |
|
1,353 |
|
2,485 |
|
2,151 |
|
||||
|
Net loan (charge offs) / recoveries |
|
132 |
|
789 |
|
(1,899 |
) |
(2,886 |
) |
||||
|
Provision for loan losses |
|
(127 |
) |
223 |
|
1,475 |
|
6,418 |
|
||||
|
Allowance for loan losses at end of period |
|
$ |
13,535 |
|
$ |
13,680 |
|
$ |
13,535 |
|
$ |
13,680 |
|
Deposits
Total deposits increased $104 million from December 31, 2003 to September 30, 2004 to $1.4 billion. Interest-bearing deposits increased $32 million while non interest-bearing deposits increased $72 million from December 31, 2003 to September 30, 2004.
The increase in non interest-bearing accounts relates primarily to growth in escrow, retail and commercial transaction accounts across the Company’s retail banking center network. Interest bearing accounts experienced changes across several different product lines. Increases were recorded in demand accounts, money market accounts and certificates of deposit. These increases were partially offset by a decline in internet money market accounts and brokered deposits.
Demand accounts increased $19 million primarily from promotion of the Company’s “High Interest Checking” product. Through much of 2004, this product offered a premium rate of interest with balances growing as high as $293 million. When the Federal Reserve Bank began raising short-term interest rates late in the second quarter,
25
however, management began moderating the rate on this account closer to market levels. As a result, the balances in this account type began to decline in the third quarter. Management anticipates a strategy that includes continued moderation of the rate paid on this account type during the fourth quarter unless additional funds are needed to meet loan demand or for liquidity purposes.
Money market accounts, excluding internet money market accounts, increased $55 million for the first nine months of 2004. The increase in money market accounts was primarily the result of growth in the Company’s Premier First account. Premier First accounts are Commercial Cash Management’s primary product offering for medium to large business relationships. A dedicated force of six full-time sales associates promotes this product for the Company.
Internet money market accounts declined $39 million and brokered deposits declined $19 million for the first nine months of 2004. Both Internet money market accounts and brokered deposits were utilized in the first quarter of 2004 as a funding mechanism for RALs. The Internet money market accounts were accumulated beginning in the third quarter of 2003. Pricing on the product was moderated in February 2004, when funding was no longer needed to fund RALs. Since the pricing was moderated in February 2004, these accounts have decreased $43 million. The Company acquired its brokered deposits beginning in the fourth quarter of 2003. Because the funding needs for RALs are short-term in nature, a substantial portion of these brokered deposits had maturities of 3 months.
Total certificates of deposit increased $6 million during the first nine months of 2004. The Company began offering more competitive pricing on its traditional CD products as their rates became more favorable compared to Federal Home Loan Bank borrowings.
Securities Sold Under Agreements to Repurchase and Other Short-term Borrowings
Securities sold under agreements to repurchase and other short-term borrowings increased $98 million during the first nine months of 2004. The majority of this increase was related to two large cash management accounts with average balances of approximately $90 million that the Company opened during 2004.
ASSET QUALITY
Loans, including impaired loans under SFAS 114, 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.
|
(dollars in thousands) |
|
September 30, 2004 |
|
December 31, 2003 |
|
||
|
|
|
|
|
|
|
||
|
Loans on non-accrual status (1) |
|
$ |
8,046 |
|
$ |
12,466 |
|
|
Loans past due 90 days or more |
|
486 |
|
473 |
|
||
|
Total non-performing loans |
|
8,532 |
|
12,939 |
|
||
|
Other real estate owned |
|
223 |
|
— |
|
||
|
Total non-performing assets |
|
$ |
8,755 |
|
$ |
12,939 |
|
|
Percentage of non-performing loans to total loans |
|
0.49 |
% |
0.82 |
% |
||
|
Percentage of non-performing assets to total assets |
|
0.37 |
|
0.61 |
|
||
(1) Loans on non-accrual status include impaired loans.
Total non-performing loans decreased to 0.49% at September 30, 2004, down from 0.82% at December 31, 2003, while the total balance of non-performing loans decreased by $4.4 million for the same period. The decrease in the non-performing loans category was primarily related to three large commercial real estate relationships totaling $3 million that paid off or paid down during 2004.
26
Republic defines impaired loans to be those commercial real estate loans that management has classified as doubtful (collection of total amount due is improbable) or loss (all or a portion of the loan has been written off or a specific allowance for loss has been provided) or otherwise meet the definition of impaired. Republic’s policy is to charge off all or that portion of its investment in an impaired loan upon a determination that it is probable the full amount will not be collected. Impaired loans, which are a component of loans on non-accrual status, decreased from $6.2 million at December 31, 2003 to $5.4 million at September 30, 2004. The impaired balance remained attributable to three commercial real estate lending relationships.
Republic maintains sufficient liquidity to fund loan demand and routine deposit withdrawal activity. Liquidity is managed by maintaining sufficient liquid assets in the form of investment securities. Funding and cash flows can also be realized by the sale of securities available for sale, principal paydowns on loans and MBSs and proceeds realized from loans held for sale. Republic’s banking centers and its Internet site, republicbank.com, also provide access to retail deposit markets. These retail deposits, if offered at attractive rates, have historically been a source of additional funding when needed. The Company utilized brokered deposits during 2003 and the first nine months of 2004 as an additional funding source for RALs and in part to fund loan growth.
Traditionally, the Company has also utilized borrowings from the FHLB to supplement its funding requirements. On September 30, 2004, the Company had capacity with the FHLB to borrow an additional $149 million. Republic also utilizes unsecured line of credit facilities through various financial institutions in order to meet liquidity needs. The purpose of these lines of credit is to provide short term working capital to the Holding Company and its subsidiaries, if necessary. At September 30, 2004 the Company had $135 million available through various third party sources. In the short term, management anticipates the cost of borrowing under the line of credit will be lower than the cost of accessing the capital markets to issue additional common stock.
Liquidity at the Holding Company level should also be considered separately from the consolidated liquidity since there are restrictions on the ability of the banking affiliates to distribute funds to the Holding Company. The Holding Company is defined as the Company on an unconsolidated basis. The Holding Company’s primary sources of funds are dividends and distributions from its subsidiaries, proceeds from the issuance of its common stock, and access to the capital markets.
CAPITAL
Total stockholders’ equity increased from $169 million at December 31, 2003 to $191 million at September 30, 2004. The increase in stockholders’ equity was primarily attributable to net income earned during the first nine months of 2004 and exercises of Company stock options.
Prior to 2000, Republic’s board of directors approved a Class A Common Stock repurchase program of 525,000 shares. In March 2003, the Company’s board of directors authorized management to purchase an additional 262,500 shares bringing the total shares authorized for purchase to 787,500. The repurchase program will remain effective until the number of shares authorized is repurchased or until Republic’s board of directors terminate the program. Republic repurchased 16,700 shares during the first nine months of 2004 and 10,900 during the third quarter of 2004. Through September 30, 2004, Republic has purchased 537,288 shares with a weighted-average cost of $10.14 and a total cost of $5.4 million. All amounts above have been adjusted to reflect the five percent (5%) stock dividend that was declared in the first quarter of 2004.
Regulatory Capital Requirements – The Holding Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Republic’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Holding Company and each of the Banks must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to
27
qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Holding Company and each Bank to maintain minimum amounts and ratios (set forth in the following table) of Total and Tier I capital (as defined in the regulations) to risk weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). As of September 30, 2004, the Holding Company, Republic Bank & Trust Company and Republic Bank & Trust Company of Indiana met all capital adequacy requirements.
The most recent notification from the FDIC categorized each Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, each Bank must maintain minimum Total Risk Based, Tier I Risk Based and Tier I Leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the banks’ capital ratings.
In March 2004, the Company received final regulatory approval to execute an intragroup trust preferred transaction, which will provide Republic Bank & Trust Company access to additional capital markets, if needed, in the future. On a consolidated basis, this transaction has had no impact to the capital levels and ratios of the total Company. The subordinated debentures held by Republic Bank & Trust Company as a result of this transaction, however, are treated as Tier 2 capital based on requirements administered by the federal banking agencies. If Republic Bank & Trust Company’s Tier I capital ratios do not meet the minimum requirement to be well capitalized, the Company can immediately modify the transaction in order to maintain its well capitalized status.
28
|
|
|
|
|
|
|
|
|
|
|
Minimum |
|
||||||
|
|
|
|
|
|
|
Minimum |
|
Requirement |
|
||||||||
|
|
|
|
|
|
|
Requirement |
|
To Be Well |
|
||||||||
|
|
|
|
|
|
|
For Capital |
|
Capitalized Under |
|
||||||||
|
|
|
|
|
|
|
Adequacy |
|
Prompt Corrective |
|
||||||||
|
|
|
|
|
|
|
Actual Purposes |
|
Action Provisions |
|
||||||||
|
As of September 30, 2004 (dollars in thousands) |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total Risk Based Capital (to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Republic Bancorp, Inc. |
|
$ |
204,190 |
|
13.22 |
% |
$ |
123,567 |
|
8.00 |
% |
$ |
154,459 |
|
10.00 |
% |
|
|
Republic Bank & Trust Co. |
|
191,876 |
|
12.72 |
|
120,685 |
|
8.00 |
|
150,856 |
|
10.00 |
|
||||
|
Republic Bank & Trust Co. of Indiana |
|
6,085 |
|
16.89 |
|
2,883 |
|
8.00 |
|
3,603 |
|
10.00 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Tier I Capital (to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Republic Bancorp, Inc. |
|
190,655 |
|
12.34 |
|
61,784 |
|
4.00 |
|
92,676 |
|
6.00 |
|
||||
|
Republic Bank & Trust Co. |
|
155,309 |
|
10.30 |
|
60,342 |
|
4.00 |
|
90,513 |
|
6.00 |
|
||||
|
Republic Bank & Trust Co. of Indiana |
|
5,667 |
|
15.73 |
|
1,441 |
|
4.00 |
|
2,162 |
|
6.00 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Tier I Leverage Capital (to Average Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Republic Bancorp, Inc. |
|
190,655 |
|
8.28 |
|
92,142 |
|
4.00 |
|
115,177 |
|
5.00 |
|
||||
|
Republic Bank & Trust Co. |
|
155,309 |
|
6.84 |
|
90,873 |
|
4.00 |
|
113,591 |
|
5.00 |
|
||||
|
Republic Bank & Trust Co. of Indiana |
|
5,667 |
|
11.64 |
|
1,947 |
|
4.00 |
|
2,433 |
|
5.00 |
|
||||
Dividend Limitations – Kentucky banking laws limit the amount of dividends that may be paid to the Holding Company by Republic Bank & Trust Company without prior approval of the Kentucky Department of Financial Institutions. Under these laws, the amount of dividends that may be paid in any calendar year is limited to current year’s net income, combined with the retained net income of the preceding two years, less any dividends declared during those periods. At September 30, 2004, Republic Bank & Trust Company had $33 million of retained earnings, subject to capital requirements, that could be utilized for payment of dividends if authorized by its board of directors without prior regulatory approval.
ASSET/LIABILITY MANAGEMENT AND MARKET RISK
Asset/liability management control is designed to ensure safety and soundness, maintain liquidity and regulatory capital standards and achieve acceptable net interest income. Interest rate risk is the exposure to adverse changes in net interest income as a result of market fluctuations in interest rates. Management, on an ongoing basis, monitors interest rate and liquidity risk in order to implement appropriate funding and balance sheet strategies. Management considers interest rate risk to be Republic’s most significant market risk in a fluctuating rate environment.
Republic utilizes an earnings simulation model to analyze net interest income sensitivity. Potential changes in market interest rates and their subsequent effects on net interest income are then evaluated. The model projects the effect of instantaneous movements in interest rates of both 100 and 200 basis point increments. These projections are computed based on various assumptions, which are used to determine the 100 and 200 basis point increments as well as the base case (which is a 12 month projected amount) scenario. Assumptions based on growth expectations and on the historical behavior of Republic’s deposit and loan rates and their related balances in relation to changes in interest rates are also incorporated into the model. These assumptions are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes, as well as changes in market conditions and the application and timing of various management strategies.
29
The interest sensitivity profile of Republic at any point in time will be affected by a number of factors. These factors include the mix of interest sensitive assets and liabilities as well as their relative pricing schedules. It is also influenced by market interest rates, deposit growth, loan growth and other factors.
The following table illustrates Republic’s estimated annualized earnings sensitivity profile based on the asset/liability model for as of September 30, 2004 and December 31, 2003:
Table 7 – Interest Rate Sensitivity
|
|
|
Decrease in Rates |
|
|
|
Increase in Rates |
|
|||||||||
|
September 30, 2004
|
|
200
|
|
100
|
|
Base |
|
100
|
|
200
|
|
|||||
|
Projected interest income: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Short-term investments |
|
$ |
224 |
|
$ |
235 |
|
$ |
565 |
|
$ |
895 |
|
$ |
1,288 |
|
|
Investments |
|
12,687 |
|
14,104 |
|
16,515 |
|
18,595 |
|
20,677 |
|
|||||
|
Loans, excluding fees |
|
94,450 |
|
98,621 |
|
104,244 |
|
109,885 |
|
115,401 |
|
|||||
|
Total interest income |
|
107,361 |
|
112,960 |
|
121,324 |
|
129,375 |
|
137,366 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Projected interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Deposits |
|
18,526 |
|
20,115 |
|
24,716 |
|
30,919 |
|
37,213 |
|
|||||
|
Securities sold under agreements to repurchase |
|
3,046 |
|
3,501 |
|
6,770 |
|
10,560 |
|
14,346 |
|
|||||
|
Federal Home Loan Bank borrowings |
|
16,130 |
|
16,281 |
|
16,373 |
|
16,421 |
|
16,933 |
|
|||||
|
Total interest expense |
|
37,702 |
|
39,897 |
|
47,859 |
|
57,900 |
|
68,492 |
|
|||||
|
Net interest income |
|
$ |
69,659 |
|
$ |
73,063 |
|
$ |
73,465 |
|
$ |
71,475 |
|
$ |
68,874 |
|
|
Change from base |
|
$ |
(3,806 |
) |
$ |
(402 |
) |
|
|
$ |
(1,990 |
) |
$ |
(4,591 |
) |
|
|
% Change from base |
|
(5.18 |
)% |
(0.55 |
)% |
|
|
(2.71 |
)% |
(6.25 |
)% |
|||||
|
|
|
Decrease in Rates |
|
|
|
Increase in Rates |
|
|||||||||
|
December 31, 2003
|
|
200
|
|
100
|
|
Base |
|
100
|
|
200
|
|
|||||
|
Projected interest income: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Short-term investments |
|
$ |
103 |
|
$ |
70 |
|
$ |
92 |
|
$ |
941 |
|
$ |
1,303 |
|
|
Investments |
|
6,420 |
|
7,129 |
|
10,487 |
|
12,920 |
|
15,224 |
|
|||||
|
Loans, excluding fees |
|
86,782 |
|
90,649 |
|
94,814 |
|
100,166 |
|
105,724 |
|
|||||
|
Total interest income |
|
93,305 |
|
97,848 |
|
105,393 |
|
114,027 |
|
122,251 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Projected interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Deposits |
|
17,541 |
|
18,867 |
|
22,555 |
|
29,284 |
|
35,970 |
|
|||||
|
Securities sold under agreements to repurchase |
|
1,018 |
|
1,368 |
|
2,503 |
|
5,057 |
|
7,607 |
|
|||||
|
Federal Home Loan Bank borrowings |
|
16,673 |
|
16,714 |
|
16,795 |
|
16,749 |
|
17,214 |
|
|||||
|
Total interest expense |
|
35,232 |
|
36,949 |
|
41,853 |
|
51,090 |
|
60,791 |
|
|||||
|
Net interest income |
|
$ |
58,073 |
|
$ |
60,899 |
|
$ |
63,540 |
|
$ |
62,937 |
|
$ |
61,460 |
|
|
Change from base |
|
$ |
(5,467 |
) |
$ |
(2,641 |
) |
|
|
$ |
(603 |
) |
$ |
(2,080 |
) |
|
|
% Change from base |
|
(8.60 |
)% |
(4.16 |
)% |
|
|
(0.95 |
)% |
(3.27 |
)% |
|||||
30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is included in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was conducted under the supervision and with the participation of Republic’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)14(c) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by Republic in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
There were no significant changes in Republic’s internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected or are reasonably likely to materially affect Republic’s internal control over financial reporting.
31
On July 27, 2004, certain Deferred Deposit customers (the “Plaintiffs”) filed suit in North Carolina requesting certification as a Class Action, seeking to enjoin one of the Company’s Marketer/Servicers from continuing to market and service deferred deposit transactions in the state of North Carolina. Other Marketer/Servicers, with whom the Company has no contractual agreement with, were also named as Defendants in separate lawsuits. The state court suit alleges that the Company’s Marketer/Servicer is not authorized to engage in payday lending operations, that it is operating in violation of several consumer protection statutes and other state law violations. The Plaintiffs seek a Declaratory Judgment that the Company’s Marketer/Servicer is unlawfully operating in North Carolina, and the Plaintiffs are seeking an injunction barring further alleged violations and an unspecified award of money damages. The Complaint specifies that the Plaintiffs do not assert claims against any bank. The Company believes that the allegations as to its Marketer/Servicer are without merit and intends to vigorously support its Marketer/Servicer in its defense of the litigation. In this regard, the Company filed a Petition for Declaratory Judgment, Order Directing Arbitration, and Injunctive Relief on September 24, 2004 in the United States District Court, Eastern District of North Carolina, Southern Division. The petition seeks to require the Plaintiffs in the North Carolina state court action to submit to arbitration and, also seeks an injunction enjoining the Plaintiffs from seeking to adjudicate any dispute in any non-arbitral forum except a small claims tribunal with jurisdiction. If the Plaintiffs were to prevail in their state court action against the Company’s North Carolina Marketer/Servicer, the Company would not be able to continue its deferred deposit business in the State of North Carolina.
A competing RAL financial institution is currently defending two lawsuits in the state of California relating to the cross-collection provision contained in its RAL contracts with customers. Both lawsuits purport to be class actions and the Plaintiffs are seeking restitution under the California Unfair Competition Act. Both lawsuits pose a serious challenge to the competing financial institution’s practice of cross-collection of delinquent RAL loans. These suits, if successful, could likely be expanded to include other financial institutions, including the Company. Additionally, the Company and other RAL financial institutions have been brought into the two California state court actions as a cross-defendant as the competing RAL financial institution is asserting that the Company may be subject to a claim of indemnity under the Company’s cross-collection agreement with the Defendant. The indemnity claim is expressly limited to the RAL products that were cross-collected for the benefit of the Company. The Company intends to vigorously defend against this claim. The outcome of the litigation against the competing RAL lender and that Lender’s subsequent claim for indemnity against the Company are not currently discernable.
32
Details of Republic’s common stock repurchases during the third quarter of 2004 are included in the following table:
(In thousands, except per share data)
|
2004 period |
|
Total number of
|
|
Average price
|
|
Total shares
|
|
Maximum
|
|
|
|
July 1 – July 31 |
|
10,900 |
|
$ |
18.23 |
|
10,900 |
|
250,212 |
|
|
August 1 – August 30 |
|
— |
|
— |
|
— |
|
250,212 |
|
|
|
Sept 1 – Sept 30 |
|
— |
|
— |
|
— |
|
250,212 |
|
|
|
Total |
|
10,900 |
|
$ |
18.23 |
|
10,900 |
|
250,212 |
|
Prior to 2000, Republic’s board of directors approved a Class A Common Stock repurchase program of 525,000 shares. In March 2003, the Company’s board of directors authorized management to purchase an additional 262,500 shares bringing the total shares authorized for purchase to 787,500. The repurchase program will remain effective until the number of shares authorized is repurchased or until Republic’s board of directors terminate the program. Republic repurchased 16,700 shares during the first nine months of 2004 and 10,900 during the third quarter of 2004. Through September 30, 2004, Republic has purchased 537,288 shares with a weighted-average cost of $10.14 and a total cost of $5.4 million. All amounts above have been adjusted to reflect the five percent (5%) stock dividend that was declared in the first quarter of 2004.
During the first nine months of 2004, Republic issued 1,437 shares of Class A Common Stock upon conversion of shares of Class B Common Stock by shareholders of Republic in accordance with the share-for-share conversion provision option of the Class B Common Stock. The exemption from registration of the newly issued Class A Common Stock relied upon was Section (3)(a)(9) of the Securities Act of 1933.
There were no equity securities of the registrant sold without registration during the quarter covered by this report.
There were no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the disclosure provided in Republic’s Proxy Statement filed March 2, 2004.
Exhibits
The following exhibits are filed or furnished as a part of this report:
|
|
Description of Exhibit |
|
|
|
|
|
|
10.1 |
|
1995 Stock Option Plan (as amended to date) |
|
|
|
|
|
10.2 |
|
Form of Stock Option Agreement for Directors and Executive Officers |
|
|
|
|
|
31.1 |
|
Certification of Principal Executive Officer, pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
33
|
31.2 |
|
Certification of Principal Financial Officer, pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
32.1* |
|
Certification of Principal Executive Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
32.2* |
|
Certification of Principal Financial Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
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: |
November 8, 2004 |
|
|
/s/ Steven E. Trager |
|
|
|
Steven E. Trager |
||
|
|
|
President & Chief Executive Officer |
||
|
|
|
|
||
|
|
|
|
||
|
|
|
Principal Financial Officer: |
||
|
|
|
|
||
|
Date: |
November 8, 2004 |
|
|
/s/ Kevin Sipes |
|
|
|
Kevin Sipes |
||
|
|
|
Executive
Vice President, Chief Financial
|
||
34
EXHIBIT 10.1
1995 Stock Option Plan (as amended to date)
REPUBLIC BANCORP, INC.
1995 STOCK OPTION PLAN
(as amended as of April 10, 2003)
(all share amounts have been adjusted for stock splits and stock dividends through March 19, 2004)
Section 1 — PURPOSE.
The purpose of the 1995 Stock Option Plan (the “Plan”) is to promote the interests of Republic Bancorp, Inc. (the “Company”), and its shareholders by providing a means to attract, retrain and motivate employees of the Company and its subsidiaries, and to encourage stock ownership in the Company by such employees and provide them with a means to acquire a proprietary interest in the Company.
The stock options provided under the Plan will enable the Company to respond to changes in compensation practices, tax laws, accounting regulations, and the size and diversity of its business.
Section 2 — DEFINITIONS
For purposes of the Plan, the following terms shall have the meanings below unless the context clearly indicates otherwise:
2.1 “Bank” shall mean Republic Bank & Trust Company.
2.2 “Board of Directors” shall mean the Board of Directors of the Company.
2.3 “Change of Control” of the Company shall mean (i) an event or series of events which have the effect of any “person” as such term is used in Section 13(d) and 14(d) of the Exchange Act, becoming the “beneficial owner” as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of the Company or the Bank representing a greater percentage of the combined voting power of the Company’s or Bank’s then outstanding stock, than the Trager Family Members as a group; (ii) an event or series of events which have the effect of decreasing the Trager Family Members’ percentage ownership of the combined voting power of the Company’s or Bank’s then outstanding stock to less than 25%; or (iii) the business of the Company or Bank is disposed of pursuant to a partial or complete liquidation, sale of assets, or otherwise. A Change in Control shall also be deemed to occur if (i) the Company or Bank enters into an agreement, the consummation of which would result in the occurrence of a Change in Control, (ii) any person (including the Company) publicly announces an intention to take or to consider taking actions which have consummated would constitute a Change in Control, (iii) the Board adopts a resolution to the effect that a potential Change in Control for purposes of this Plan has occurred. For purposes of this paragraph, “Trager Family Member” shall mean Bernard M. Trager, Jean S. Trager and any of their lineal descendants, and any corporation, partnership, limited liability company or trust the majority owners or beneficiaries of which are directly or indirectly through another entity, Bernard M. Trager, Jean S. Trager, or one or more of their lineal descendants.
2.4 “Code” shall mean the Internal Revenue Code of 1986, as it may be amended from time to time.
2.5 “Committee” shall mean the Compensation/Human Resources Committee appointed by the Board of Directors.
2.6 “Company” shall mean Republic Bancorp, Inc.
2.7 “Disability” shall mean permanent disability within the meaning of Section 22(e)(3) of the Code. The determination of the Committee or any question involving disability shall be conclusive and binding.
1
2.8 “Employee” shall mean an employee of the Company or any of its Subsidiaries who has been designated by the Chairman of the Board of Directors and approved by the Committee, under the criteria in Section 5, as eligible to participate in the Plan.
2.9 “Fair Market Value” shall have the meaning specified in Section 6.2.
2.10 “Incentive Stock Option” shall mean an option to purchase Stock granted under Section 6.2 of the Plan which is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422 of the Code.
2.11 “Nonqualified Stock Option” shall mean an option to purchase Stock granted under Section 6.2 of the Plan which is not intended to be an Incentive Stock Option.
2.12 “Option” shall mean an Incentive Stock Option or a nonqualified Stock Option.
2.13 “Option Period” shall mean the period from the date of the grant of an Option to the date when the Option expires as stated in the terms of the Stock Option Agreement.
2.14 “Optionee” shall mean an Employee who has been granted an option to purchase shares of Stock under the provisions of the Plan.
2.15 “Plan” shall mean this Republic Bancorp, Inc. 1995 Stock Option Plan.
2.16 “Stock” shall mean the Company’s voting common stock of no par value.
2.17 “Stock Option Agreement” shall mean an agreement between an Optionee and the Company covering the specific terms and conditions of an Option.
2.18 “Subsidiary” or “Subsidiaries” shall mean any corporation which at the time qualifies as a subsidiary of the Company under the definition of “subsidiary corporation” in Section 424(f) of the Code.
2.19 “Termination of Employment” shall be deemed to have occurred at the close of business on the last day on which an employee is carried as an active employee on the records of the Company or any of its Subsidiaries. The Committee shall determine whether an authorized leave of absence, or other absence on military or government service, constitutes severance of the employment relationship between the Company or a Subsidiary and the Employee.
Section 3 — STOCK SUBJECT TO PLAN
3.1 AUTHORIZED STOCK. Subject to adjustment as provided in this Section, the aggregate number of shares of Stock subject to an Option under the Plan shall not exceed 3,570,000 shares of Class A Common Stock and 210,000 Shares of Class B Common Stock. Stock delivered under the Plan may consist, in whole or in part, of authorized and unissued shares or treasury shares. Upon approval by the Board of Directors, the Company may from time to time acquire shares of Stock on the open market upon such terms as it deems appropriate for reserve in connection with exercises hereunder.
3.2 EFFECT OF EXPIRATIONS. If any Option granted under the Plan expires or terminates without exercise, the Stock no longer subject to such Option shall be available to be re-awarded under the Plan.
3.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, split-up, share combination, or other change in the corporate structure of the Company affecting the number of shares of Stock or the kind of shares or securities an appropriate and proportionate adjustment shall be made in the number and kind of shares which may be delivered under the Plan, and in the number and kind of or price of share subject to outstanding Options; provided that the number of shares subject to any Option shall always be a whole number. Any adjustment of an Incentive Stock Option under this Section shall be made in such a manner so as not to constitute a “modification” within the meaning
2
of Section 424(h) of the Code. If the Company shall at any time merge or consolidate with or into another corporation or association, each Optionee will thereafter receive, upon the exercise of an Option, the securities or property to which a holder of the number of shares of Stock then deliverable upon the exercise of such Option would have been entitled upon such merger or consolidation, and the Company shall take such steps in connection with such merger or consolidation as may be necessary to assure that the provisions of this Plan shall thereafter be applicable, as nearly as is reasonably possible, in relation to any securities or property thereafter deliverable upon the exercise of such Option. A sale of all or substantially all the assets of the Company for a consideration (apart from the assumption of obligations) consisting primarily of securities shall be deemed a merger or consolidation for the foregoing purposes.
Section 4 — ADMINISTRATION
4.1 THE COMMITTEE. The Plan shall be administered by the Committee.
4.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan and upon the submission or request of the Chairman of the Board of Directors, the Committee shall have sole power to (i) construe and interpret the Plan; (ii) to establish, amend or waive rules and for its administration; (iii) to determine and accelerate exercisability of any Option; (iv) to correct inconsistencies in the Plan or in any Stock Option Agreement, or any other instrument relating to an Option; and (v) subject to the provisions of Section 8 to amend the terms and conditions of any outstanding Option, to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan. Notwithstanding the foregoing, no action of the Committee may, without the consent of the person or persons entitled to exercise any outstanding Option, adversely affect the rights of such person or persons. Nothing in this Section 4.2 shall be construed to give the Committee member the authority to select any Committee as a person to whom stock may be allocated pursuant to this Plan, or to determine the number or maximum number of shares of Stock which may be allocated to any Committee member.
4.3 SELECTION OF EMPLOYEE PARTICIPANTS. The Chairman of the Board of Directors shall recommend the Employees to whom Options should be granted and the number of such Options, and the Committee shall have the authority to approve such grants.
4.4 DECISIONS BINDING. All determinations and decisions made by the Committee pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, including the Company, its shareholders, Optionees and their estates and beneficiaries.
4.5 DELEGATION OF CERTAIN RESPONSIBILITIES. The Committee may, in its sole discretion, delegate to appropriate officers of the Company the administration of the Plan under this Section 4; provided, however, that no such delegation by the Committee shall be made with respect to the administration of the Plan as its affects officers or directors of the Company and provided further that the Committee may not delegate its authority to correct inconsistencies in the Plan. The Committee may delegate to the Chairman of the Company its authority under this Section 4 to grant Options to Employees who are not officers or directors of the Company. All authority delegated by the Committee under this Section 4.5 shall be exercised in accordance with the provisions of the Plan and any guidelines for the exercise of such authority that may from time to time be established by the Committee.
4.6 PROCEDURES OF THE COMMITTEE. All determinations of the Committee shall be made by not less than a majority of its members present at a meeting (in person or otherwise) at which a quorum is present, or by unanimous written consent. A majority of the entire Committee shall constitute a quorum for the transaction of business. To the fullest extent permitted by law, no member of the Committee shall be liable, and the Company shall indemnify each Committee member, for any act or omission with respect to his services on the Committee. Service on the Committee shall constitute service as a director of the Company so that members of the Committee shall be entitled to indemnification and reimbursement for services on the Committee to the same extent as for services as directors of the Company.
4.7 STOCK OPTION AGREEMENTS. Each Option under the Plan shall be evidenced by a Stock Option Agreement which shall be signed by the Chairman of the Board and by the Optionee, and shall contain such terms and conditions as may be approved by the Committee, which need not be the same in all cases. Any Stock Option Agreement may be supplemented or amended in writing from time to time as approved by the Committee, provided that the terms of such Agreements as amended or supplemented, as well as the terms of the original Stock
3
Option Agreement, are not inconsistent with the provisions of the Plan. An Employee who receives an Option under the Plan shall not, with respect to the Option, be deemed to have become an Optionee, or to have any rights with respect to the Option, unless and until the Employee has executed a Stock Option Agreement or other instrument evidencing the Option and shall have delivered an executed copy thereof to the Company, and has otherwise complied with the applicable terms and conditions of the Option.
4.8 STOCK AWARDS. Awards of Stock may be made to Employees (“Stock Awards”) with or without other payments therefor as additional compensation for services to the Company. Stock Awards shall be subject to such terms and conditions as the Committee determines appropriate. The Committee may issue restricted or unrestricted Stock Awards to employees in its sole discretion. The Committee will specify in a stock grant agreement the manner in which a restricted Stock Award will vest and become nonforfeitable, as well as any conditions, restrictions and contingencies to which the Stock may be subject. A recipient of a Stock Award will have immediate right of ownership in the shares of Stock, including the right to vote the shares and the right to receive dividends with respect to the shares.
Section 5 — ELIGIBILITY
Employees of the Company and its Subsidiaries who are expected to contribute substantially to the growth and profitability of the Company and its Subsidiaries are eligible to receive Options.
Section 6 — GRANT OF OPTIONS
6.1 GENERAL. Any Option granted to an Employee may be made either alone or in conjunction with any other type of Option which may be granted under the Plan.
6.2 OPTION PRICE. The purchase price per share of Stock covered by an option shall be determined by the Committee but shall not be less than 100% of the fair market value (the “Fair Market Value”) of such Stock on the date the Option is granted. The Fair Market Value shall be determined by the Committee in its sole discretion, provided that, if the Company’s Stock is publicly traded on an established securities market, the Fair Market Value shall be the closing market price of the Company’s Stock as reported on the date of grant, or, if no trades were reported on that date, the closing price on the most recent trading day immediately preceding the date of the grant. An Incentive Stock Option granted to any person who, at the time the Option is granted, owns (within the meaning of Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of its parent or any Subsidiary, shall have an exercise price which is at least 110% of the Fair Market Value of the Stock subject to the Option.
6.3 OPTION PERIOD. The Option Period shall be determined by the Committee, but no Option shall be exercisable later than ten years from the date of grant. Notwithstanding the foregoing, in the case of an Optionee owning (within the meaning of Section 424(d) of the Code), at the time an Incentive Stock Option is granted, more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary, such Incentive Stock Option shall not be exercisable later than five years from the date of grant. No Option may be exercised at any time unless such Option is valid and outstanding as provided in this Plan.
6.4 LIMITATION ON AMOUNT OF INCENTIVE STOCK OPTIONS. The aggregate Fair Market Value (determined as of the time the Option is granted) of the Stock with respect to which an Optionee’s Incentive Stock Options are exercisable for the first time during any calendar year (under this and all other stock option plans of the Company, any Subsidiary or any parent corporation) shall not exceed $100,000. Options or portions of Options exercisable as a result of acceleration under Section 10.8 in excess of the $100,000 limit described herein shall be treated as a Nonqualified Stock Option for tax purposes.
6.5 NONTRANSFERABILITY OF OPTIONS. No Option shall be transferable by the Optionee otherwise than by will or by the laws of descent and distribution, and such option shall be exercisable, during the Optionee’s lifetime, only by the Optionee.
4
Section 7 — EXERCISE OF OPTIONS
7.1 EXERCISABILTY. An Option may be exercised, so long as it is valid and outstanding, from time to time in part or as a whole, subject to any limitations with respect to the number of shares for which the Option may be exercised at a particular time and to such other conditions (e.g., exercise could be conditioned on performance) as the Committee in its discretion may specify upon granting the Option or as otherwise provided in Section 7.
7.2 METHOD OF EXERCISE. To exercise an Option, the Optionee or the other person(s) entitled to exercise the Option shall give written notice of exercise to the Committee, specifying the number of full shares to be purchased. Such notice shall be accompanied either by payment in full in cash for the Stock being purchased plus, in the case of Nonqualified Stock Options, any required withholding tax as provided in Section 11. If permitted by the Committee, in its sole discretion, payment in full or in part may by made in the form of Stock owned by the Optionee for at least 6 months (based on the Fair Market Value of the Stock on the date the Option is exercised) evidenced by negotiable Stock certificates registered either in the sole name of the Optionee or the names of the Optionee and spouse, or by any combination of cash or shares. No shares of Stock shall be issued unless the Optionee has fully complied with the provisions of this Section 7.2.
7.3 TERMINATION OF EMPLOYMENT BY EMPLOYEE. After an Employee’s Termination of Employment, an Option may not be exercised, except as may be specifically allowed in the applicable Stock Option Agreement upon death or Disability but in no event after the expiration date of the Option as specified in the applicable Stock Option Agreement. Except to the extent shorter periods are provided in the Stock Option Agreement by the Committee, an Employee’s right to exercise an Incentive Stock Option shall terminate (i) at the expiration of one year in the event of Disability of the Employee, or (ii) at the expiration of one year after the Employee’s death, if the Employee’s Termination of Employment occurs by reason of death or Disability; any Option exercised after death may be exercised in full by the legal representative of the estate of the Employee or by the person or persons who acquire the right to exercise such Option by bequest or inheritance.
Section 8 - AMENDMENTS AND TERMINATION
8.1 AMENDMENTS AND TERMINATION. The Board of Directors may terminate, suspend, amend or alter the Plan, but no action of directors may:
(a) Impair or adversely affect the rights of an Optionee under an Option theretofore granted, without the Optionee’s consent; or,
(b) Without the approval of the shareholders:
(i) Increase the total amount of Stock which may be delivered under the Plan except as is provided in Section 3 of the Plan;
(ii) Decrease the option price of any Option to less than the option price on the date the Option was granted;
(iii) Extend the maximum Option Period, or
(iv) Extend the period during which Options may be granted, as specified in Section 13.
8.2 CONDITIONS ON OPTIONS. In granting an Option, the Committee may establish any conditions that it determines are consistent with the purposes and provisions of the Plan, including, without limitation, a condition that the granting of an Option is subject to the surrender for cancellation of any or all outstanding Options held by the Optionee. Any new Option made under this section may contain such terms and conditions as the Committee may determine, including an exercise price that is lower than that of any surrendered Option.
8.3 SELECTIVE AMENDMENTS. Any amendment or alteration of the Plan may be limited to, or may exclude from its effect, particular classes of Optionees.
5
Section 9 - RESTRICTION ON TRANSFER
9.1 RESTRICTION ON TRANSFER. No Optionee shall sell, assign, transfer or otherwise dispose of any of his Option Stock for (i) at least 12 months following exercise of the Option, or (ii) before his death or Disability if such event occur sooner, and thereafter not until (a) he has received a bona fide written offer to buy the Option Stock and has delivered to the Company an irrevocable written offer to sell any such shares of Option Stock at any time within 60 days after delivery of the offer and at a price per share equal to the bona fide offer, and (b) the Company shall have failed to accept such offer within the 60-day period. To accept the offer, the Company shall deliver notice of its acceptance of its offer with 60 days after delivery of offer. Payment for the Option Stock shall be made as provided in Section 9.4. The restrictions imposed by this Section 9.1 shall not apply to the transfer by operation of law to a deceased Optionee’s personal representative or to persons who acquire the Option Stock by bequest or inheritance (the “Heir”), but shall apply to the Option Stock further transferred by that personal representative or Heir.
9.2 DEATH OR DISABILITY. With respect to any Option Stock acquired by exercise of an Option after the Optionee’s death or Disability, the personal representative or Heir shall sell his Option Stock and the Company shall purchase his Option Stock at a price per share equal to Book Value divided by the total number of shares of Stock outstanding as of the date Book Value is determined. Payment for the Option Stock shall be made as provided in Section 9.4. For purposes of this paragraph, “Book Value” shall be determined as of the end of the month preceding the date of sale as determined on the regular books of account of the Company.
9.3 EFFECT OF A CHANGE IN CONTROL. If a Change in Control occurs as a result of the sale of securities of the Company or Bank for cash, the purchase price in Section 9.2 shall be the greater of Fair Market Value, or the case sale price per share of stock involved in the Change in Control transaction. If the Option Stock is converted into the stock of another entity, or otherwise becomes readily tradable on a public securities market, the Optionee shall not be bound to sell his Option Stock under these stock restrictions and the right of first refusal and restriction on transfer in Section 9.1 shall no longer apply and neither the Optionee nor the Company shall be bound thereby.
9.4 PAYMENT FOR OPTION STOCK. The Company hall make payment in cash for any Option Stock that it purchases pursuant to this Section 9 within 30 days after the date when the Company delivers notice of its acceptance of the offer made pursuant to Section 9.1, or six months after the death or Disability that triggers purchases pursuant to Section 9.2. The Optionee or personal representative shall surrender certificates representing the offered Option Stock at the time the Company makes such payment.
9.5 RESTRICTION ON PLEDGE. No Optionee shall, without the prior written consent of the Company, pledge, mortgage or otherwise encumber any of his Option Stock.
Section 10 - GENERAL PROVISIONS
10.1 UNFUNDED STATUS OF PLAN. The Plan is intended to constitute an “unfunded” plan for incentive compensation, and the Plan is not intended to constitute a plan subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended, and shall not extend, with respect to any payments not yet made to an Optionee, any rights that are greater than those of a general creditor of the Company.
10.2 TRANSFERS, LEAVES OF ABSENCE AND OTHER CHANGES IN EMPLOYMENT STATUS. For purposes of the Plan (i) a transfer of an Employee from the Company to a Subsidiary, or vice versa, or from one Subsidiary to another; or (ii) a leave of absence, duly authorized in writing by the Company or a Subsidiary, for military service or sickness, or for any other purpose approved by the Company or a Subsidiary if the period of such leave does not exceed 90 days; or (iii) any leave of absence in excess of 90 days approved by the Company, shall not be deemed a Termination of Employment. The Committee, in its sole discretion subject to the terms of the Stock Option Agreement, shall determine the disposition of all Options made under the Plan in all cases involving any substantial change in employment status other than as specified herein.
10.3 DISTRIBUTION OF STOCK -SECURITIES RESTRICTIONS. The Committee may require Optionees receiving Stock pursuant to any Option under the Plan to represent to and agree with the Company in writing that the Optionee is acquiring the shares for investment without a view to distribution thereof. No shares
6
shall be issued or transferred pursuant to an Option unless such issuance or transfer complies with all relevant provisions of law, including but not limited to, the (i) limitations, if any, imposed in the state of issuance or transfer, (ii) restrictions, if any, imposed by the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, and (iii) requirements of any stock exchange upon which the Company’s shares may then be listed. The certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer.
10.4 ASSIGNMENT PROHIBITED. Subject to the provisions of the Plan and the Stock Option Agreement, no Option shall be assigned, transferred, pledged or otherwise encumbered by the Optionee otherwise than by will or by the laws of descent and distribution, and such Options shall be exercisable, during the Optionee’s lifetime, only by the Optionee. Options shall not be pledged or hypothecated in any way, and shall not be subject to any execution, attachment, or similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of an Option or Option Stock contrary to the provisions of the Plan, or the levy of any process upon an Option or Option Stock, shall be null, void and without effect.
10.5 OTHER COMPENSATION PLANS. Nothing contained in the Plan shall prevent the Company or the Bank from adopting other compensation arrangements, subject to stockholder approval if such approval is required.
10.6 AUTHORITY LIMITED TO COMMITTEE. No person shall at any time have any right to receive an Option hereunder and no person shall have authority to enter into an agreement on behalf of the Company for the granting of an Option or to make any representation or warranty with respect thereto, except as granted by the Committee. Optionees shall have no rights in respect to any Option except as set forth in the Plan and the applicable Stock Option Agreement.
10.7 NO RIGHT TO EMPLOYMENT. Neither the action of the Company in establishing the Plan, nor any action taken by it or by the Board of Directors or the Committee under the Plan or any Stock Option Agreement, or any provision of the Plan, shall be construed as giving to any person the right to be retained in the employ of the Company or any Subsidiary.
10.8 CHANGE OF CONTROL. In the event of a Change of Control, Options granted under the Plan shall become exercisable in full whether or not otherwise exercisable at such time, and any such Option shall remain exercisable in full thereafter until it expires pursuant to its terms.
10.9 OPTION PERIOD. No Option granted under the Plan shall be exercisable or payable more than 10 years from the date of grant.
10.10 NOT A SHAREHOLDER. The person or persons entitled to exercise, or who have exercised, an Option shall not be entitled to any rights as a shareholder of the Company with respect to any shares subject to the Option until such person or persons shall have become the holder of record of such shares.
Section 11 - TAXES
11.1 TAX WITHHOLDING. All Optionees shall make arrangements satisfactory to the Committee to pay to the Company, at the time of exercise in the case of a Nonqualified Stock Option, any federal, state or local taxes required to be withheld with respect to such shares. If such Optionee shall fail to make such tax payments as are required, the Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Optionee.
11.2 SHARE WITHHOLDING. If permitted by the Committee, the withholding obligation may be satisfied by the Company retaining shares of Stock with a fair market value equal to the amount required to be withheld.
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Section 12 - EFFECTIVE DATE OF PLAN
The Plan shall be effective on the date (the “Effective Date”) when the Board of Directors adopts the Plan, subject to approval of the Plan by a majority of the total votes eligible to be cast at a meeting of shareholders following adoption of the Plan by the Board of Directors, which vote shall be taken within 12 months of the Effective Date; provided, however, that Options may be granted before obtaining shareholder approval of the Plan, but any such Options shall be contingent upon such shareholder approval being obtained and may not be exercised before such approval.
Section 13 - TERM OF PLAN
Unless terminated earlier by the Board of Directors, no Option shall be granted under the Plan more than ten years after the Effective Date as defined in Section 12.
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EXHIBIT 10.2
REPUBLIC BANCORP, INC. 1995 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
This is a STOCK OPTION AGREEMENT (the “Agreement”) dated as of «BEGINDATE» by and between Republic Bancorp, Inc., a Kentucky corporation (the “Company”), and «NAME» (the “Optionee”).
Recitals
A. Subject to and effective upon shareholder approval, the Board of Directors of the Company (the Board”) adopted the Republic Bancorp, Inc. 1995 Stock Option Plan (the “Plan”).
B. The Chairman of the Board and Compensation/Human Resources Committee of the Board (the “Committee”), have determined that it is in the best interests of the Company and appropriate to the stated purposes of the Plan that the Company grant to the Optionee an option to purchase shares of the Company’s common stock (“Shares”) pursuant and subject to the terms, definitions, and conditions of the Plan.
C. The Committee has decided to grant Incentive Stock Options, despite the fact that the Company is not entitled to a tax deduction for the value of such an option, because an Incentive Stock Option allows the Optionee to avoid ordinary income taxes upon exercise on the difference between the exercise price and the then-value of the Shares.
D. Any capitalized terms used but not defined herein shall have the respective meanings given them in the Plan, a copy of which is attached hereto and incorporated by reference herein in its entirety.
NOW, THEREFORE, the Company and the Optionee do hereby agree as follows:
SECTION 1 — GRANT OF OPTION
Subject to the terms and conditions of this Agreement, the Company hereby grants to the Optionee an option (the “Option”) to purchase all or any part from time to time of the aggregate shares as set forth below:
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Incentive Stock Options |
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«TOTALSHARES» Class A |
SECTION 2 — OPTION PRICE
The option price hereunder is $«SHAREPRICE» per Share, which equals 100% of the fair market value of a Share as determined in accordance with the Plan.
SECTION 3 — DURATION OF OPTION
Except as accelerated as provided in Section 10.8 of the Plan (upon a Change in Control), or upon death or Disability of the Optionee, and subject to such shorter period provided in Section 8 of this Agreement (regarding Termination of Employment), the Option with respect to «HALF» Shares may be exercised no sooner than, «Firstbegin» and no later than «FIRSTEND»; and the Option may be exercised with respect to an additional «HALF»
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Shares no sooner than «SECONDBEGIN» and no later than «ENDDATE» (the “Option Period”), after which dates the respective portions of the Option shall expire.
SECTION 4 — EXERCISE OF OPTION
During the Option Period, the Optionee may exercise the Option upon compliance with the following additional terms:
(a) Method of Exercise. The Optionee shall exercise portions of the Option by written notice, which shall:
(i) state the election to exercise the Option, the number of Shares, in respect of which it is being exercised, and the Optionee’s address and Social Security Number;
(ii) contain such representations and agreements, if any, as the Company’s counsel may require concerning the holder’s investment intent regarding such Shares,
(iii) include an acknowledgement and acceptance of the restrictions on transfer of the Option Stock as provided in Section 9 of the Plan (right of first refusal);
(iv) be signed by the Optionee; and
(v) be in writing and delivered in person or by certified mail to the Committee.
(b) Payment Upon Exercise of Option. Payment of the full Option Price for Shares upon which the Option is exercised plus any tax withholding (if applicable) shall accompany the written notice of exercise described above. The Committee may, in its discretion, permit payment of the Option Price in full or in part by the delivery of Stock owned by the Optionee for at least 6 months (based on the Fair Market Value of the Stock on the date of exercise), evidenced by negotiable Stock certificates registered either in the sole name of the Optionee or the names of the Optionee and spouse. The Company shall cause to be issued and delivered to the Optionee the certificate(s) representing such Shares as soon as practicable following the receipt of notice and payment described above.
SECTION 5 — NONTRANSFERABILITY OF OPTION
The Option shall not be transferable or assignable by the Optionee. The Option shall be exercisable, during the Optionee’s lifetime, only by him. The Option shall not be pledged or hypothecated in any way, and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of the Option contrary to the provisions hereof, and the levy of any process upon the Option, shall be null, void and without effect.
SECTION 6 — EFFECT OF AMENDMENT, SUSPENSION
OR TERMINATION OF EXISTING OPTIONS
No amendment, suspension or termination of the Plan shall, without the Optionee’s written consent, alter or impair the Option granted under the terms of this Agreement.
SECTION 7 — RESTRICTIONS ON ISSUING SHARES
Shares shall not be issued pursuant to the exercise of the Option, unless the issuance and transferability of the Shares shall comply with all relevant provisions of law, including, but not limited to, the (i) limitations, if any, imposed by the Commonwealth of Kentucky; and (ii) restrictions, if any, imposed by the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder by the United States Securities and Exchange Commission. The Committee may, in its discretion, determine if such
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restrictions or such issuance of Shares so complies with all relevant provisions of law. Any certificate issued upon exercise of an Option shall bear a legend setting forth notice of the restrictions on transfer in Section 9 of the Plan.
SECTION 8 — EXERCISE AFTER TERMINATION OF EMPLOYMENT
After an Employee’s Termination of Employment due to death or Disability, an Option may be exercised in full, rather than in the portions specified in Section 3, but in no event after «ENDDATE». The right to exercise will expire at the end of six months after the Employee’s death or Disability; any Option exercised under this Section may be exercised in full by the legal representative of the estate of the Employee or by the person or persons who acquire the right to exercise such Option by bequest or inheritance. In no other case may an Option be exercised following Termination of Employment or during a period when the Executive is not in “good standing,” with the Company or the Bank, in accordance with its usual rules and policies.
SECTION 9 — PROTECTION OF PROPRIETARY INFORMATION
By accepting the terms of this option you agree that, should your employment with the Company discontinue, you will not directly or indirectly solicit the Company’s or its affiliates’ customers or employees for a period of two years nor will you share any of the Company’s or its affiliates’ trade secrets or other proprietary information.
SECTION 10 — ACKNOWLEDGEMENTS
The Optionee acknowledges receipt contemporaneously herewith of a copy of the Plan, and the Optionee represents that he is familiar with the terms and provisions thereof and hereby accepts the Option subject to all the terms and provisions thereof. Any capitalized term used herein and not otherwise defined shall have the meaning given in the Plan. The Optionee acknowledges that nothing contained in the Plan or this Agreement shall (a) confer upon the Optionee any additional rights to continued employment by the Company or any corporation related to the Company; or (b) interfere in any way with the right of the Company to terminate the Optionee’s employment or change the Optionee’s compensation at any time.
SECTION 11 — TERM OF AGREEMENT
This Agreement shall terminate upon the earlier of (i) complete exercise or termination of the Option; (ii) mutual agreement of the parties; or (iii) on «ENDDATE».
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date set forth in the preamble hereto, but actually on the dates set forth below.
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In the event this original agreement is not signed and returned to the Chairman or the Director of Human Resources by Optionee within ten days of receipt, it shall be deemed rejected by Optionee and the Company’s offer shall be immediately withdrawn and become null and void.
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EXHIBIT 31.1
SECTION 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Steven E. Trager, the President and Chief Executive Officer of Republic Bancorp, Inc., certify that:
1) I have reviewed this quarterly report on Form 10-Q of Republic Bancorp, Inc.;
2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3) Based on my knowledge, the financial statements and other financial information included in this quarterly report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this quarterly report;
4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) [Omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation;
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ Steven E. Trager |
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Steven E. Trager |
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President & Chief Executive Officer |
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Date: November 8, 2004 |
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EXHIBIT 31.2
SECTION 302 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Kevin Sipes, Executive Vice President, Chief Financial Officer and Chief Accounting Officer, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Republic Bancorp, Inc.;
2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3) Based on my knowledge, the financial statements and other financial information included in this quarterly report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this quarterly report;
4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) [Omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation;
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Kevin Sipes |
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Executive Vice President, Chief Financial Officer and Chief Accounting Officer |
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Date: November 8, 2004 |
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EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the quarterly report on Form 10-Q of Republic Bancorp, Inc. (the “Company”) for the three and nine month periods ended September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) I, Steven E. Trager, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2003, that, to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
This certification is provided solely pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”) and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
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By: |
/s/ Steven E. Trager |
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Steven E. Trager |
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President and Chief Executive Officer |
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Date: November 8, 2004 |
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EXHIBIT 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the quarterly report on Form 10-Q of Republic Bancorp, Inc. (the “Company”) for the three and nine month periods ended September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) I, Kevin Sipes, Executive Vice President, Chief Financial Officer and Chief Accounting Officer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2003, that, to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
This certification is provided solely pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”) and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
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By: |
/s/ Kevin Sipes |
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Kevin Sipes |
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Executive Vice President, Chief Financial Officer and Chief Accounting Officer |
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Date: November 8, 2004 |
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