-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tr9WIINRmYSmfUkSdS6v7wG7TYO6eCUyJMrcsxeAEpnVs58F54pdJndVYzktgJJx wgb5LDp05jKM0PiN3C2ivw== 0000921557-00-000002.txt : 20000411 0000921557-00-000002.hdr.sgml : 20000411 ACCESSION NUMBER: 0000921557-00-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REPUBLIC BANCORP INC /KY/ CENTRAL INDEX KEY: 0000921557 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 610862051 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-24649 FILM NUMBER: 583111 BUSINESS ADDRESS: STREET 1: REPUBLIC CORPORATE CENTER STREET 2: 601 WEST MARKET ST CITY: LOUISVILLE STATE: KY ZIP: 40202 BUSINESS PHONE: 5025843600 10-K 1 ANNUAL REPORT ON FORM 10K. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 1999 OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________ Commission File Number: 0-24649 ------- REPUBLIC BANCORP, INC. (Exact name of registrant as specified in its charter) Kentucky 61-0862051 - -------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 601 W. Market Street, Louisville, Kentucky 40202 ------------------------------------------------------------ (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (502) 584-3600 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock -------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of March 15, 2000 was approximately $63,447,500 (for purposes of this calculation, the market value of the Class B Common Stock was based on the market value of the Class A Common Stock into which it is convertible). The number of shares outstanding of the registrant's Class A Common Stock and Class B Common Stock as of March 15, 2000 was 14,805,725 and 2,141,149, respectively. DOCUMENTS INCORPORATED BY REFERENCE Portions of Registrant's Annual Report to Shareholders for the year ended December 31, 1999 are incorporated by reference into Parts I and II. Portions of Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held April 19, 2000 are incorporated by reference into Part III. TABLE OF CONTENTS PART I 1. Business 3 2. Properties 12 3. Legal Proceedings 13 4. Submission of Matters to a Vote of Security Holders 14 PART II 5. Market for Registrant's Common Equity And Related Security Holder Matters 14 6. Selected Financial Data 16 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 7A. Quantitative and Qualitative Disclosures about Market Risk 16 8. Financial Statements and Supplementary Data 16 9. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure 16 PART III 10. Directors and Executive Officers of the Registrant 17 11. Executive Compensation 17 12. Security Ownership of Certain Beneficial Owners and Management 17 13. Certain Relationships and Related Transactions 17 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 19 Signatures 20 CAUTIONARY STATEMENT This Annual Report on Form 10-K contains and incorporates by reference statements relating to future results of Republic Bancorp, Inc. that are considered "forward-looking" within the meaning of the Private Securities Litigation and Reform Act of 1995. These statements relate to, among other things, expectations concerning loan demand, growth and performance, simulated changes in interest rates, the adequacy of our allowance for loan losses, and the Year 2000 issue. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties, including, but not limited to, changes in political and economic conditions, interest rate fluctuations, competitive product and pricing pressures within our markets, equity and fixed income market fluctuations, personal and corporate customers' bankruptcies, inflation, acquisitions and integrations of acquired businesses, technological changes, changes in law and regulations (including changes resulting from the Gramm-Leach-Bliley Act enacted in November 1999), changes in fiscal, monetary, regulatory and tax policies, monetary fluctuations, success in gaining regulatory approvals when required as well as other risks and uncertainties reported from time to time in our filings with the Securities and Exchange Commission. PLEASE NOTE: As used in this report, the terms "Republic", the "Company", "we", "our" and "us" refer to Republic Bancorp, Inc., and, where the context requires, Republic Bancorp, Inc. and its subsidiaries; and the term the "Bank" refers to our subsidiary, Republic Bank & Trust Company. PART I ITEM 1. BUSINESS. Republic Bancorp, Inc. is a registered bank holding company headquartered in Louisville, Kentucky. Republic's principal subsidiary is Republic Bank & Trust Company, a Kentucky banking corporation. Incorporated in Kentucky on January 2, 1974, Republic became a bank holding company when the Bank was authorized to conduct a commercial banking business in Kentucky in 1981. The principal business of Republic is directing, planning and coordinating the business activities of the Bank. The financial condition and results of operations of Republic are primarily dependent upon the operations of the Bank. At December 31, 1999, Republic had total assets of $1.37 billion, total deposits of $801 million and total stockholders' equity of $104 million. Based on total assets as of December 31, 1999, Republic ranked as the fourth largest independent bank holding company headquartered in Kentucky. The executive offices of Republic are located at 601 West Market Street, Louisville, Kentucky 40202, telephone number (502) 584-3600. The Company's Website address is www.republicbank.com. GENERAL BUSINESS OVERVIEW As of March 1, 2000, Republic had a total of 21 banking centers in seven Kentucky communities and a loan production office in Clarksville, Indiana. Its two primary market areas are located in North Central and Central Kentucky. The North Central Kentucky market includes the Louisville metropolitan area, the largest city in Kentucky, where Republic is headquartered and has 11 banking centers. Republic's Central Kentucky market includes ten banking centers in the following Kentucky cities: Bowling Green (1); Elizabethtown (1); Frankfort (2); Lexington, the second largest city in Kentucky (4); Owensboro (1); and Shelbyville (1). Republic has developed a super community banking network, with most of its banking centers located either in separate communities or portions of urban areas that represent distinct communities. Each of Republic's banking centers is managed by an officer with the authority to make pricing and loan decisions within Company policies and guidelines. The Bank also has local advisory boards of directors that enhance Republic's awareness of the particular needs of the communities served. Republic continues to seek and evaluate additional expansion opportunities, either through the establishment of de novo banking centers and/or through acquisitions of existing institutions in the financial services industry and ancillary nonbanking businesses. The Company intends to continue to consider various strategic acquisitions of banks, banking assets or financial services entities related to banking in those geographical areas that management believes would complement and increase Republic's existing business lines, or expansion in new market areas or product lines that management determines would be in the best interest of the Company and its shareholders. The Company has historically extended credit and provided general banking services through its banking center network to individuals, professionals, and businesses. Over the past several years the Company began to seek product offerings to diversify its asset mix and further enhance its profitability. While each product offering reflects the Company's efforts to enrich its asset mix, each of these products is founded upon basic community banking concepts that the Company has traditionally engaged. The Company principally markets its services through the following products: MORTGAGE LENDING. The Company utilizes its banking centers and commissioned originators to offer a complete line of single family residential mortgage products. The Company generally retains mortgage loans with variable rates or adjustable rates with up to 10 year fixed rate terms, and sells its longer term fixed rate loans into the secondary market. Once closed, secondary market loans are sold without recourse to institutional investors. Generally, fixed rate loans in process are covered by forward commitments to investors, that limit Republic's interest rate risk. Republic does not retain the servicing on the majority of its loans sold in the secondary market, a practice dating back to 1995. Management's decision to retain or release servicing rights is largely dependent upon market conditions. When administering loans with the servicing retained by the Company, the responsibility of collecting principal and interest payments, escrowing for taxes and insurance, and remitting payments to the secondary market investors remains with Republic. Investors pay a fee to Republic for performing these standard servicing functions. COMMERCIAL LENDING AND LEASING. In 1997, the Company established a centralized commercial lending unit as an outgrowth of the Company's historical business of originating loans for small and medium-sized businesses at its banking centers. Commercial loans are primarily real-estate secured and are generated by leads from its banking centers, primarily in the Company's market areas. The Company makes commercial loans to a variety of businesses and industries. The Company intends to expand this business through focused calling programs, and will broaden relationships with commercial clients by offering both loan and deposit accounts and cash management services. PREFERRED CLIENT SERVICES. Republic has established extensive long standing relationships with the medical communities in its primary markets. Special loan and deposit products have been tailored to meet the needs of physicians and their practices. Republic may expand these specialized services to other professional business groups. CONSUMER LENDING. Consumer loans include automobile loans, home improvement and home equity loans, operating lines of credit, and personal loans (both secured and unsecured). SPECIALIZED LENDING. Republic has pursued specialized lending opportunities to complement its traditional lending programs. One specialized product line includes Refunds Now, a program offering tax refund anticipation services. Republic began offering these services through a joint venture arrangement with Refunds Now, Inc. In October 1998, the Company acquired Refunds Now, Inc. as a subsidiary, in a stock merger transaction accounted for as a pooling of interests. INTERNET BANKING. Republic continues to expand its product lines and service delivery by offering clients Internet banking services through republicbank.com. Sixteen percent of the Bank's existing checking account clients now utilize Republic's Internet banking services. Republicbank.com is accessible outside of Kentucky and has over $42 million in deposits from 44 states and the District of Columbia. During the first quarter of 2000, Republic made on-line tax preparation available and intends to make on-line brokerage available later in the year. OTHER BANKING SERVICES. The Bank also provides trust services and engages in credit life insurance sales, item processing, and other related financial institution lines of business. The Bank plans to initiate the sale of life and long-term care insurance products in 2000. During 1999, the trust services offered by Republic were expanded to include investment management and personal trust services. At December 31, 1999, Republic had over of $850 million in trust assets under management. Deposits are a key component to the Company's banking business, serving as a source of funding for lending as well as increasing client relationships. Borrowings, principally from the Federal Home Loan Bank ("FHLB"), and repurchase agreements, provide additional liquidity. Also, the Company's investment securities, together with cash and cash equivalents, provide an important source of liquidity. The Company uses its investments as collateral for borrowings and to secure public fund deposits. Republic's operating revenues are derived primarily from interest earned from its loan and investment securities portfolios and fee income from loan, deposit, and other banking products. For information about Republic's loan loss reserve and the allocation of the allowance for loan losses by loan type, see the discussion under the sub-heading "Asset Quality" included on pages 24 to 25 of Republic's 1999 Annual Report to Shareholders, which is incorporated herein by reference. YEAR 2000 PROJECT For a discussion of Republic's year 2000 project, see page 30 of the Company's 1999 Annual Report to Shareholders, which discussion is incorporated herein by reference. EMPLOYEES As of December 31, 1999, the Bank had 485 employees of which 417 were full-time and 68 part-time. None of the Bank's employees are subject to a collective bargaining agreement, and neither Republic nor the Bank has ever experienced a work stoppage. COMPETITION The Company actively competes with several local and regional commercial banks, thrifts, credit unions and mortgage companies for deposits, loans and other banking related financial services. There is intense competition in the Bank's markets from other financial institutions as well as other "non-bank" companies which engage in similar activities. Some of the Company's competitors are not subject to the same degree of regulatory review and restrictions which apply to the Bank. In addition, the Company must compete with much larger financial institutions which have greater financial resources than the Company and, while predominantly headquartered in other states, aggressively compete for market share in Kentucky. These competitors attempt to gain market share through their financial products mix, pricing strategies and banking center locations. Legislative developments related to interstate branching and banking in general, provide large banking institutions easier access to a broader marketplace, thus creating more pressure on smaller financial institutions to consolidate. This pressure is likely to increase as a result of the recently enacted financial modernization legislation which, beginning March 11, 2000, will permit the combination of banking, insurance and securities firms. The Kentucky legislature recently passed a bill that will permit statewide branching, effective July, 2000. The Company also competes with insurance companies, consumer finance companies, investment banking firms, brokerage houses, mutual fund managers and investment advisors. Retail establishments compete for loans by offering credit cards and retail installment contracts for the purchase of goods and merchandise. It is anticipated that competition from both bank and "non-bank" entities will continue to remain strong in the near future. SUPERVISION AND REGULATION Republic and the Bank are subject to the policies of various regulatory authorities. In particular, bank holding companies and their subsidiaries are affected by the credit and monetary policies of the Federal Reserve Board. Republic and the Bank are subject to numerous federal and state laws and regulations affecting their business and also must undergo periodic examination by federal and state financial institution examiners. The earnings of the Bank, and the earnings of Republic, are affected not only by the laws and regulations applicable to the banking business, but also by the policies and interpretations of regulatory authorities. The supervision and regulation of bank holding companies and their subsidiaries is intended primarily for the protection of depositors, the deposit insurance funds of the FDIC and the banking system as a whole, and not for the protection of the bank holding company shareholders or creditors. The banking agencies have broad enforcement power over bank holding companies and banks including the power to impose substantial fines and other penalties for violations of laws and regulations, to issue cease and desist or removal orders, to seek injunctions, and publicly disclose such actions; and extensive authority to police unsafe or unsound practices. The following description summarizes some of the laws to which the Company and the Bank are subject. References herein to applicable statutes and regulations are brief summaries thereof, do not purport to be complete, and are qualified in their entirety by reference to such statutes and regulations. THE COMPANY The Company is a bank holding company registered under the BHCA, and it is subject to supervision, regulation and examination by the Federal Reserve Board. The BHCA and other federal laws subject bank holding companies to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations. BANK ACQUISITIONS BY BANK HOLDING COMPANIES. The BHCA requires every bank holding company to obtain the prior approval of the Federal Reserve Board before it may acquire all or substantially all of the assets of any bank, or ownership or control of any voting shares of any bank, if after such acquisition it would own or control, directly or indirectly, more than 5% of the voting shares of such bank. In approving bank acquisitions by bank holding companies, the Federal Reserve Board is required to consider the financial and managerial resources and future prospects of the bank holding company and the banks concerned, the convenience and needs of the communities to be served, and various competitive factors. Consideration of convenience and needs issues includes the parties' performance under the Community Reinvestment Act of 1977, as amended. Under the Community Reinvestment Act, all financial institutions have a continuing and affirmative obligation consistent with safe and sound operation to help meet the credit needs of their entire communities, including low-to-moderate income neighborhoods. By virtue of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, the geographic location of the bank is no longer a factor. Under that Act, a well-capitalized and adequately-managed bank holding company may acquire a bank located in any state, subject to certain deposit percentage limitations and aging requirements. IMPACT OF RECENT LEGISLATION. The activities permissible to bank holding companies and their affiliates were substantially expanded by the Gramm-Leach-Bliley Act which the President signed into law on November 12, 1999. When it is fully phased in, the Gramm-Leach-Bliley Act will remove Federal and state law barriers that currently prevent banking organizations, such as the Corporation, from affiliating with insurance organizations and securities firms. Beginning March 11, 2000, an eligible bank holding company may elect to be treated as a financial holding company and, as such, it may engage in financial activities (activities that are financial in nature, such as insurance and securities underwriting and dealing activities) and activities the Federal Reserve determines to be complementary to financial activities which do not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally. To be eligible to elect the status of a financial holding company, all of the depository institution subsidiaries of the bank holding company must meet the requirements of their regulators to be considered well managed and well capitalized and have a CRA rating of at least "satisfactory". Bank holding companies that do not elect the status of a financial holding company may continue to engage in and own companies conducting non-banking activities which had been approved by Federal Reserve order or regulation prior to November 12, 1999. The Federal Reserve Board and Treasury Secretary will determine what activities qualify as financial in nature. A financial holding company will not be required to obtain prior Federal Reserve Board approval in order to engage in the financial activities identified in the Gramm-Leach-Bliley Act, other than in connection with an acquisition of a thrift. However, a financial holding company will not be able to commence, or acquire, any new financial activities if one of its depository institution subsidiaries receives a less than satisfactory CRA rating. In addition, if any of its depository institution subsidiaries ceases being well capitalized or well managed, and compliance is not achieved within 180 days, a financial holding company may be forced, in effect, to cease conducting business as a financial holding company by divesting either its nonbanking financial activities or its banks. Subject to certain exceptions, national banks will also be able to engage in financial activities through separate subsidiaries. As a general rule, financial subsidiaries of national banks will not be permitted to engage as principal in underwriting insurance or issuing annuities, real estate development or investment, merchant banking (for at least 5 years) or insurance company portfolio activities in which financial holding companies may engage. Insured state banks, such as the Bank, are permitted to control or hold an interest in a financial subsidiary that engages in the same type of activities permissible for national banks. Large banks (the top 50 to 100) may be required to meet certain eligible debt investment grade rating requirements in order to utilize financial subsidiaries to engage in financial activities. Conducting financial activities through a bank subsidiary can impact capital adequacy, and restrictions will apply to affiliate transactions between the bank and its financial subsidiary. The banking, securities and insurance activities of financial organizations will be functionally regulated by the banking regulators, the Securities and Exchange Commission and state securities regulators and organizations, and the state insurance regulators, respectively. Consistent with this functional approach, and after eighteen months have elapsed after the enactment of the Gramm-Leach-Bliley Act, banks will no longer be excluded from the definition of a broker or a dealer under the Federal securities laws. Limited exemptions will be retained for specific types of bank activities, including an exemption to permit banks to continue to offer on-site third party brokerage services under certain conditions. Banks advising registered investment companies will be required to register as investment advisors, and only common trust funds that are employed by banks solely as an aid to the administration of trusts, estates, or other fiduciary accounts will be able to avoid the registration requirements imposed on investment companies. The Gramm-Leach-Bliley Act includes consumer privacy protections and CRA "sunshine" rules, "modernizes" various other banking related statutes, permits mutual bank holding companies, and requires a number of studies and reports to Congress over the next 5 years. Republic meets the eligibility requirements imposed under the Gramm-Leach-Bliley Act, and has submitted a filing to elect the status of a financial holding company that was effective March 13, 2000. The Company has identified the sale of life insurance and associated long-term care insurance products as new financial activities in which it proposes to engage. ACTIVITIES "CLOSELY RELATED" TO BANKING. For holding companies that do not elect the status of a financial holding company, the BHCA will continue to prohibit the bank holding company, with certain limited exceptions, from acquiring direct or indirect ownership or control of any voting shares of any company which is not a bank or from engaging in any activities other than those of banking, managing or controlling banks and certain other subsidiaries, or furnishing services to or performing services for its subsidiaries which were permissible prior to the Gramm-Leach-Bliley Act. One principal exception to these prohibitions allows the acquisition of interests in companies whose activities are found by the Federal Reserve Board, by order or regulation, to be so closely related to banking or managing or controlling banks, as to be a proper incident to banking. In approving acquisitions by bank holding companies or companies engaged in banking-related activities, the Federal Reserve Board considers a number of factors, and weighs the expected benefits to the public (such as greater convenience and increased competition or gains in efficiency) against the risks of possible adverse effects (such as undue concentration of resources, decreased or unfair competition or conflicts of interest). Despite prior approval, the Federal Reserve may order a holding company or its subsidiaries to terminate any activity, or terminate its ownership or control of any subsidiary, when it has reasonable cause to believe that continuation of such activity constitutes a serious risk to the financial safety, soundness or stability of any bank subsidiary of the bank holding company. SAFE AND SOUND BANKING PRACTICES. Bank holding companies are not permitted to engage in unsafe and unsound banking practices. The Federal Reserve Board may prohibit a bank holding company from engaging in an activity if it believes that the transaction would constitute an unsafe or unsound practice or would violate any law or regulation. The FDIC and the Kentucky Department of Financial Institutions have similar authority with respect to the Bank. SOURCE OF STRENGTH. Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to each of its banking subsidiaries and to commit resources to their support. Such support may be required at times when, absent this Federal Reserve Board policy, a holding company may not be inclined to provide it. As noted below, a bank holding company may also be required to guarantee the capital restoration plan of an undercapitalized banking subsidiary. CAPITAL ADEQUACY REQUIREMENTS. The Federal Reserve Board has adopted a system using risk-based capital guidelines to evaluate the capital adequacy of bank holding companies. Under the guidelines, specific categories of assets are assigned different risk weights, based generally on the perceived credit risk of the asset. These risk weights are multiplied by corresponding asset balances to determine a "risk-weighted" asset base. The guidelines require a minimum total risk-based capital ratio of 8.0% (of which at least 4.0% is required to consist of Tier 1 capital elements). Total capital is the sum of Tier 1 and Tier 2 capital. As of December 31, 1999, the Company's ratio of Tier 1 capital to total risk-weighted assets was 13.36% and its ratio of total capital to total risk-weighted assets was 14.28%. See Note 13 to the Consolidated Financial Statements. In addition to the risk-based capital guidelines, the Federal Reserve Board uses a leverage ratio as an additional tool to evaluate the capital adequacy of bank holding companies. The leverage ratio is a company's Tier 1 capital divided by its average total consolidated assets (less goodwill and certain other intangible assets). Certain highly-rated bank holding companies may maintain a minimum leverage ratio of 3.0%, but other bank holding companies may be required to maintain a leverage ratio of up to 200 basis points above the regulatory minimum. As of December 31, 1999, the Company's leverage ratio was 8.61%. The federal banking agencies' risk-based and leverage ratios are minimum supervisory ratios generally applicable to banking organizations that meet certain specified criteria, assuming that they have the highest regulatory rating. Banking organizations not meeting these criteria are expected to operate with capital positions well above the minimum ratios. The federal bank regulatory agencies may set capital requirements for a particular banking organization that are higher than the minimum ratios when circumstances warrant. Federal Reserve Board guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. THE BANK The Bank is a Kentucky chartered banking corporation, the deposits of which are insured by the Bank Insurance Fund (BIF) and the Savings Association Fund (SAIF) of the FDIC. The Bank is not a member of the Federal Reserve System; the Bank is subject to supervision and regulation by the FDIC and the Kentucky Department of Financial Institutions. Such supervision and regulation subjects the Bank to special restrictions, requirements, potential enforcement actions and periodic examination by the FDIC and the Kentucky Department of Financial Institutions. Because the Federal Reserve Board regulates the bank holding company parent of the Bank, the Federal Reserve Board also has supervisory authority that directly affects the Bank. BRANCHING. Kentucky law currently permits a Kentucky chartered bank, with prior regulatory approval, to establish a branch office in any county in which the bank's principal office or an existing branch is located. In addition, a Kentucky chartered bank is permitted to combine with a commonly controlled bank or thrift regardless of its location in Kentucky, provided, under current Kentucky law, both of the institutions have been in operation for at least five years. The Kentucky banking statutes also permit a Kentucky bank, with prior regulatory approval, to engage in an interstate merger transaction, and thereby establish a branch office outside of Kentucky. In any case, the transaction must also be approved by the FDIC, which considers a number of factors, including financial history, capital adequacy, earnings prospects, character of management, needs of the community and consistency with corporate powers. An out-of-state bank is permitted to establish branch offices in Kentucky by merging with a Kentucky bank, provided, under current Kentucky law, the Kentucky bank has been in operation for at least 5 years. De novo branching into Kentucky by an out-of-state bank is not permitted by the Kentucky banking statutes. Recently adopted legislation in Kentucky, to become effective in July, 2000, permits branching statewide, and removes the restrictions on acquisitions and combinations that are currently applicable to Kentucky banks that have not been in operation for at least 5 years. RESTRICTIONS ON AFFILIATE TRANSACTIONS. Transactions between the Bank and its nonbanking affiliates, including the Company, are subject to Section 23A of the Federal Reserve Act. In general, Section 23A imposes limits on the amount of such transactions, and also requires certain levels of collateral for loans to affiliated parties. It also limits the amount of advances to third parties which are collateralized by the securities or obligations of the Company or its subsidiaries. Affiliate transactions are also subject to Section 23B of the Federal Reserve Act which generally requires that certain transactions between the Bank and its affiliates be on terms substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions with or involving other nonaffiliated persons. RESTRICTIONS ON DISTRIBUTION OF SUBSIDIARY BANK DIVIDENDS AND ASSETS. Dividends paid by the Bank have provided a substantial part of the Company's operating funds, and for the foreseeable future it is anticipated that dividends paid by the Bank to the Company will continue to be the Company's principal source of operating funds. Capital adequacy requirements serve to limit the amount of dividends that may be paid by the Bank. Under federal law, the Bank cannot pay a dividend if, after paying the dividend, the Bank will be "undercapitalized." The FDIC may declare a dividend payment to be unsafe and unsound even though the Bank would continue to meet its capital requirements after the dividend. Under Kentucky banking law, the dividends the Bank can pay during any calendar year are generally limited to its profits for that year, plus its retained net profits for the two preceding years, less any required transfers to surplus or to fund the retirement of preferred stock or debt, absent approval of the Commissioner of the Kentucky Department of Financial Institutions. Because the Company is a legal entity separate and distinct from its subsidiaries, its right to participate in the distribution of assets of any subsidiary upon the subsidiary's liquidation or reorganization will be subject to the prior claims of the subsidiary's creditors. In the event of a liquidation or other resolution of an insured depository institution, the claims of depositors and other general or subordinated creditors are entitled to a priority of payment over the claims of holders of any obligation of the institution to its shareholders, including any depository institution holding company (such as the Company) or any shareholder or creditor thereof. CAPITAL ADEQUACY REQUIREMENTS. The FDIC has adopted regulations establishing minimum requirements for the capital adequacy of insured institutions. The FDIC may establish higher minimum requirements if, for example, a bank has previously received special attention or has a high susceptibility to interest rate risk. The FDIC's risk-based capital guidelines generally require state banks to have a minimum ratio of Tier 1 capital to total risk-weighted assets of 4% and a ratio of total capital to total risk-weighted assets of 8%. The capital categories generally have the same definitions for the Bank as for the Company. As of December 31, 1999, the Bank's ratio of Tier 1 capital to total risk-weighted assets was 12.86% and its ratio of total capital to total risk-weighted assets was 13.79%. See Note 13 to the Consolidated Financial Statements. The FDIC's leverage guidelines require state banks to maintain Tier 1 capital of no less than 4% of average total assets, except in the case of certain highly rated banks for which the requirement is 3% of average total assets. As of December 31, 1999, the Bank's ratio of Tier 1 capital to average total assets (leverage ratio) was 8.29%. See Note 13 to the Consolidated Financial Statements. CORRECTIVE MEASURES FOR CAPITAL DEFICIENCIES. The federal banking regulators are required to take "prompt corrective action" with respect to capital-deficient institutions. Agency regulations define, for each capital category, the levels at which institutions are "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." Under these regulations, a "well capitalized" bank has a total risk-based capital ratio of 10% or higher; a Tier 1 risk-based capital ratio of 6% or higher; a leverage ratio of 5% or higher; and is not subject to any written agreement, order or directive requiring it to maintain a specific capital level for any capital measure. An "adequately capitalized" bank has a total risk-based capital ratio of 8% or higher; a Tier 1 risk-based capital ratio of 4% or higher; a leverage ratio of 4% or higher (3% or higher if the bank was rated a CAMEL 1 in its most recent examination report and is not experiencing significant growth); and does not meet the criteria for a well capitalized bank. A bank is "undercapitalized" if it fails to meet any one of the ratios required to be adequately capitalized. Undercapitalized institutions are required to submit a capital restoration plan, which must be guaranteed by any holding company of the institution. In addition, agency regulations contain broad restrictions on certain activities of undercapitalized institutions including asset growth, acquisitions, branch establishment, and expansion into new lines of business. With certain exceptions, an insured depository institution is prohibited from making capital distributions, including dividends, and is prohibited from paying management fees to control persons if the institution would be undercapitalized after any such distribution or payment. A bank's capital classification will also affect its ability to accept brokered deposits. Under the FDIC regulations, a bank may not lawfully accept, roll over or renew brokered deposits unless either it is well capitalized or it is adequately capitalized and receives a waiver from the FDIC. As an institution's capital decreases, the FDIC's enforcement powers become more enhanced. A significantly undercapitalized institution is subject to mandated capital raising activities, restrictions on interest rates paid and transactions with affiliates, removal of management, and other restrictions. The FDIC has only very limited discretion in dealing with a critically undercapitalized institution and is virtually required to appoint a receiver or conservator. Banks with risk-based capital and leverage ratios below the required minimums may also be subject to certain administrative actions, including the termination of deposit insurance upon notice and hearing, or a temporary suspension of insurance without a hearing in the event the institution has no tangible capital. DEPOSIT INSURANCE ASSESSMENTS. Currently, the FDIC maintains two funds for the insurance of deposits of financial institutions - the Bank Insurance Fund (BIF) for deposits originated by banks and the Savings Association Insurance Fund (SAIF) for deposits originated by savings associations, including savings association deposits acquired by banks. The Bank must pay assessments to the FDIC for federal deposit insurance protection. The FDIC has adopted a risk based assessment system as required by amendments made to the Federal Deposit Insurance Act. Under this system, FDIC-insured depository institutions pay insurance premiums at rates based on their risk classification. Institutions assigned to higher-risk classifications (that is, institutions that pose a greater risk of loss to their respective deposit insurance funds) pay assessments at higher rates than institutions that pose a lower risk. An institution's risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to the regulators. In addition, the FDIC can impose special assessments in certain instances. The Deposit Insurance Funds Act of 1996 addressed the payment of the Financing Corporation's ("FICO") bond obligations, requiring both BIF and SAIF insured institutions to share the cost of the FICO bond through additional assessments on insured deposits. CROSS-GUARANTEE PROVISIONS. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") contains a "cross-guarantee" provision which generally makes commonly controlled insured depository institutions liable to the FDIC for any losses incurred in connection with the failure of a commonly controlled depository institution. CONSUMER LAWS AND REGULATIONS. In addition to the laws and regulations discussed herein, the Bank is also subject to certain consumer laws and regulations that are designed to protect consumers in transactions with banks. While the list set forth herein is not exhaustive, these laws and regulations include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act, and the Fair Housing Act, among others. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with clients when taking deposits or making loans. The Bank must comply with the applicable provisions of these consumer protection laws and regulations as part of its ongoing business operation. LEGISLATIVE INITIATIVES The United States Congress continues to consider a number of proposals for altering the structure, regulation, and competitive relationships of the nation's financial institutions. Among such bills are proposals to combine banks and thrifts into a unified charter, and to further expand or change the regulation of the powers of depository institutions, bank holding companies, and competitors of depository institutions. In addition, numerous regulations are required to be promulgated to implement the significant legislative changes made in the recently enacted Gramm-Leach-Bliley Act discussed above. From time to time the Kentucky General Assembly also considers legislative proposals that could significantly change state banking laws applicable to the Bank, including proposals to expand the powers of state banks. It cannot be predicted whether, or in what form, any of these proposals or regulatory initiatives will be adopted, the impact they will have on the financial institutions industry or the extent to which the business or financial condition of the Company and its subsidiaries may be affected thereby STATISTICAL DISCLOSURES The statistical information required by Item 1 may be found in the Company's 1999 Annual Report to Shareholders (Exhibit 13 hereto) which, to the extent indicated, is hereby incorporated herein by reference, as follows: Page in the Company's 1999 Annual Report to Guide 3 Disclosures Shareholders I. Distribution of Assets, Liabilities and Shareholders' Equity: Interest Rates and Interest Differential A. Average Balance Sheet 19 B. Net Interest Earnings Analysis 19 C. Rate/Volume Analysis 20 II. Investment Portfolio A. Book Value of Investment Securities 25 B. Maturities of Investment Securities 26 C. Investment Securities Concentrations 25 III. Loan Portfolio A. Types of Loans 22 B. Maturities and Sensitivity of Loans to Changes in Interest Rates 23 C. Risk Elements 1. Nonaccrual, Past Due 90 Days or More, and Restructured Loans 25 2. Potential Problem Loans 42 3. Foreign Outstandings N/A 4. Loan Concentrations 22 D. Other Interest-Bearing Assets N/A IV. Summary of Loan Loss Experience A. Analysis of Allowance for Loan Losses 24 B. Allocation of the Allowance for Loan Losses 24 V. Deposits A. Average Balances 19 B. Maturities of Large Denomination Certificates of Deposit 43 C. Foreign Deposit Liability Disclosure N/A VI. Return on Equity and Assets A. Return on Average Assets 16 B. Return on Average Equity 16 C. Dividend Payout Ratio 16 D. Equity to Assets Ratio 16 VII. Short-Term Borrowings 43 ITEM 2. PROPERTIES The Company's executive offices, principal support and operational functions are located at 601 West Market Street in Louisville, Kentucky. Republic has a loan production office in Southern Indiana while all of Republic's full-service banking centers are located in Kentucky. The location of the 21 banking centers, their respective approximate square footage and their form of occupancy is described in the following table: SQUARE OWNED (O)/ BANKING CENTERS FOOTAGE LEASED (L) - --------------- ------- ---------- LOUISVILLE METROPOLITAN AREA 2801 Bardstown Road, Louisville (1) 5,000 L 601 West Market Street, Louisville (1) 43,000 L 661 South Hurstbourne Parkway, Louisville (1) 27,000 L 4921 Brownsboro Road, Louisville 2,000 L 4655 Outer Loop, Louisville 3,000 L 5320 Dixie Highway, Louisville 5,000 O/L (2) 3950 Kresge Way, Louisville 400 L 9600 Brownsboro Road, Louisville (1) 13,000 L 3726 Lexington Road, Louisville 4,000 L 7101 Bardstown Road, Louisville 5,000 O/L (2) 9101 U.S. Highway 42, Prospect 4,000 O/L (2) LEXINGTON 651 Perimeter Drive, Lexington 4,000 L 2401 Harrodsburg Road, Lexington 4,000 O 641 East Euclid Avenue, Lexington 3,500 O 3098 Helmsdale Place, Lexington 4,000 O/L (2) FRANKFORT 100 Highway 676, Frankfort 4,000 O/L (2) 1001 Versailles Road, Frankfort 4,000 O BOWLING GREEN, 1700 Scottsville Road 4,000 O/L (2) OWENSBORO, 3500 Frederica Street 5,000 O ELIZABETHTOWN, 1690 Ring Road 21,000 O SHELBYVILLE, 1641 Midland Trail 5,000 O/L (2) LOAN PRODUCTION OFFICE - ---------------------- LOUISVILLE METROPOLITAN AREA 610 Eastern Boulevard, Clarksville, Indiana (1) 3,200 L REFUNDS NOW OFFICE - ------------------ 125-127-129 South Sixth Street, Louisville 4,700 L (1) The Louisville metropolitan area locations comprised of 610 Eastern Blvd. (Clarksville), 601 West Market Street, 2801 Bardstown Road, 9600 Brownsboro Road and 661 South Hurstbourne Parkway are leased from Republic's Chairman, Mr. Bernard M. Trager, and partnerships in which Republic's Chairman (Bernard M. Trager) and Chief Executive Officer (Steven E. Trager) are partners. See Item 13 of this Report. (2) The banking centers at these locations are owned by Republic; however, they are located on land that is leased through long-term agreements with third parties. ITEM 3. LEGAL PROCEEDINGS In the ordinary course of operations, Republic and the Bank are defendants in various legal proceedings incidental to the business. In the opinion of management, after a review of known facts, there are no material legal proceedings pending in which an adverse decision could result in a material adverse change in the business or consolidated financial position of Republic or the Bank. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of 1999. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS CLASS A COMMON STOCK. The Company's Class A Common Stock is traded on the Nasdaq National Market under the symbol RBCAA. At February 25, 2000, the approximate number of record holders of Class A Common Stock holders was 825. The following table summarizes transactions in Class A Common Stock since July 21, 1998, the date the Class A Common Stock began trading on Nasdaq. Prior to that time, there was no established public trading market for the Class A Common Stock. The trading price information reflects the range of actual closing sales prices for the Class A Common Stock as reported by Nasdaq. Quarter Ended High Low - ------------------------- ------ ------ September 30, 1998 $16.44 $12.63 December 31, 1998 14.13 11.88 March 31, 1999 13.00 11.00 June 30, 1999 12.00 10.63 September 30, 1999 11.63 9.00 December 31, 1999 9.94 8.31 CLASS B COMMON STOCK. At February 25, 2000, the approximate number of record holders of Class B Common Stock was 227. There is no established public trading market for the Class B Common Stock. DIVIDENDS. Holders of Class A and Class B Common Stock are entitled to receive dividends when, as and if declared by Republic's board of directors out of funds legally available. Under Republic's Articles of Incorporation, if cash dividends are paid on Class B Common Stock, shares of Class A Common Stock are entitled to cash dividends equal to 110% of the cash dividend paid per share on the Class B Common Stock. During 1998 and 1999, Republic declared and paid the following quarterly cash dividends per share on its Common Stock: First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- 1998 ---- Class A Common Stock $.0275 $.0275 $.0275 $.0275 Class B Common Stock $.0250 $.0250 $.0250 $.0250 1999 ---- Class A Common Stock $.0275 $.0275 $.0275 $.0358 Class B Common Stock $.0250 $.0250 $.0250 $.0325 Republic currently intends to continue to pay regular quarterly cash dividends on the Class A and Class B Common Stock, subject to Republic's needs for funds. However, payment of dividends is also subject to the discretion of Republic's Board of Directors and regulatory requirements. In determining whether to continue such dividend payments and in establishing the amount of any dividends to be paid, the Board of Directors will consider Republic's earnings, capital requirements and financial condition, prospects for future earnings, federal economic and regulatory policies, general business conditions and other relevant factors, certain of which are beyond the control of Republic. The primary source of funds for dividends paid by Republic to its shareholders is the dividend income received from the Bank. Although management believes that the Bank will be able to generate sufficient earnings to pay dividends to Republic in amounts sufficient to continue Republic's current dividend policy with respect to the Class A and Class B Common Stock, there can be no assurance that the Bank will be able to generate such earnings or to pay such dividends in the future. The instruments under which the Trust Preferred securities of Republic's subsidiary, Republic Capital Trust, are outstanding prohibit the payment of dividends on the Class A and Class B Common Stock if the Company elects to defer payments of those securities, as permitted by those instruments. Republic has made available to its employees participating in its 401(k) plan the opportunity to invest funds held in their accounts under the plan in shares of Class A Common Stock of Republic. Shares were purchased by the independent bank trustee, administering the plan, from time to time in the open market in broker's transactions. As of December 31, 1999, approximately 116,000 shares of Class A Common Stock were held by the trustee on behalf of the plan. ITEM 6. SELECTED FINANCIAL DATA The information captioned "Selected Consolidated Financial Data" included on page 16 of the Company's annual report to shareholders for the year ended December 31, 1999 is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Management's Discussion and Analysis of Financial Condition and Results of Operations included on pages 17 through 30 of the Company's annual report to shareholders for the year ended December 31, 1999, is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information included under the caption "Asset/Liability Management and Market Risk" included on pages 28 through 29 of the Company's annual report to shareholders for the year ended December 31, 1999 is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item, Report of Independent Public Accountants and Consolidated Financial Statements and related notes, appears on pages 31 through 56 of the Company's annual report to shareholders for the year ended December 31, 1999 and is incorporated herein by reference. The Selected Quarterly Financial Data appears in Note 22 on page 56 of the Company's annual report to shareholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this Item appears under the heading "PROPOSAL ONE ELECTION OF DIRECTORS" on pages 6 through 9 of the Proxy Statement, dated March 17, 2000, of Republic Bancorp, Inc. for the 2000 Annual Meeting of Shareholders to be held April 19, 2000 ("Proxy Statement"), and under the heading "SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" on page 18 of the Proxy Statement, all of which is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Information under the sub-heading "Directors Compensation" on page 9 of the Proxy Statement and under the heading "CERTAIN INFORMATION AS TO MANAGEMENT" on pages 9 to 12 of the Proxy Statement is incorporated herein by reference. In addition, the information under the heading "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" on page 15 of the Proxy Statement is incorporated herein by reference, provided that information in the Proxy Statement under the heading "COMPENSATION COMMITTEE REPORT" is not incorporated in this Report and shall not be deemed to be a part of this Report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information required by this item is contained on pages 2 to 6 under the heading "SHARE OWNERSHIP" of the Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information required by this item is contained on pages 16 to 17 under the heading "CERTAIN OTHER RELATIONSHIPS AND RELATED TRANSACTIONS" of the Proxy Statement and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) Financial Statements. The following consolidated financial statements of the registrant and report of independent public accountants are included in the Annual Report to Shareholders for the fiscal year ended December 31, 1999, on the pages indicated and are incorporated herein by reference. Description Page - ------------------------------------------------------------- ---- Report of Independent Auditors 31 Consolidated balance sheets - December 31, 1999 and 1998 32 Consolidated statements of income and comprehensive income - years ended December 31 1999, 1998, and 1997 33 Consolidated statements of changes in stockholders' equity - years ended December 31, 1999, 1998 and 1997 34-35 Consolidated statements of cash flows - years ended December 31, 1999, 1998 and 1997 36 Notes to consolidated financial statements 37-56 (a)(2) Financial Statements Schedules: Schedules are omitted because the information is not applicable. (a)(3) Exhibits: The Exhibit Index on page 22 of this report is incorporated herein by reference. The management contracts and compensatory plans or arrangements required to be filed as exhibits to this Form 10-K pursuant to Item 14(c) are noted by asterisk in the Exhibit Index. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the fourth quarter of 1999. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REPUBLIC BANCORP, INC. March 29, 2000 By: /s/ Steven E. Trager -------------------- Steven E. Trager President & Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated. /s/ Bernard M. Trager Chairman of the Board March 29, 2000 - --------------------- & Director -------------- Bernard M. Trager /s/ Steven E. Trager President, Chief Executiv March 29, 2000 - -------------------- Officer & Director -------------- Steven E. Trager /s/ Scott Trager Vice Chairman & Director March 29, 2000 - ---------------- -------------- Scott Trager /s/Bill Petter Vice Chairman, Chief Operating March 29, 2000 - -------------- Officer & Director -------------- Bill Petter /s/ Mark A. Vogt Chief Financial Officer March 29, 2000 - ---------------- -------------- Mark A. Vogt /s/ Kevin Sipes Principal Accounting Officer March 29, 2000 - --------------- -------------- Kevin Sipes /s/ R. Wayne Stratton Director March 29, 2000 - --------------------- -------------- R. Wayne Stratton /s/ Larry M. Hayes Director March 29, 2000 - ------------------ -------------- Larry M. Hayes /s/ Samuel G. Swope Director March 29, 2000 - ------------------- -------------- Samuel G. Swope /s/ Sandra Metts Snowden Director March 29, 2000 - ------------------------ -------------- Sandra Metts Snowden /s/ Charles E. Anderson Director March 29, 2000 - ----------------------- -------------- Charles E. Anderson INDEX TO EXHIBITS No. Description 2.1 Agreement to Purchase Assets and Assume Liabilities dated April 1, 1997 by and between United Commonwealth Bank, FSB and Republic Bank & Trust Company (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of Registrant as of November 7, 1997 (Commission File Number: 33-77324)) 2.2 Purchase and Assumption Agreement dated July 18, 1997 between The Paducah Bank & Trust Company and Republic Bank & Trust Company (Incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K of Registrant as of November 7, 1997 (Commission File Number: 33-77324)) 2.3 Purchase and Assumption Agreement dated July 21, 1997 between Peoples First National Bank & Trust Company and Republic Bank & Trust Company (Incorporated by reference to Exhibit 2.3 to the Current Report on Form 8-K of Registrant as of November 7, 1997 (Commission File Number: 33-77324)) 2.4 Purchase and Assumption Agreement dated September 12, 1997 between First Federal Savings Bank of Leitchfield and Republic Bank & Trust Company (Incorporated by reference to Exhibit 2.4 to the Current Report on Form 8-K of Registrant as of November 7, 1997 (Commission File Number: 33-77324)) 3(i) Articles of Incorporation of Registrant, as amended (Incorporated by reference to Exhibit 3(i) to the Registration Statement on Form S-1 of Registrant (Registration No. 333-56583)) 3(ii) Bylaws of Registrant, as amended (Incorporated by reference to Exhibit 3(ii) to the Registration Statement on Form S-1 of Registrant (Registration No. 333-56583)) 4.1 Provisions of Articles of Incorporation of Registrant defining rights of security holders (see Articles of Incorporation, as amended, of Registrant incorporated as Exhibit 3(i) herein) 4.2 Agreement Pursuant to Item 601 (b)(iii) of Regulation S-K (Incorporated by reference to Exhibit 4.2 of the Annual Report on Form 10-K of Registrant for the year ended December 31, 1997 (Commission File Number: 33-77324)) 10.1* Officer Compensation Continuation Agreement with Steven E. Trager, dated January 12, 1995 (Incorporated by reference to Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 (Commission File Number: 33-77324)) 10.2* Stock Option Plan Agreement with Steven E. Trager, dated January 12, 1996 (Incorporated by reference to Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 (Commission File Number: 33-77324)) 10.5* Officer Compensation Continuation Agreement with A. Scott Trager, dated January 12, 1995 (Incorporated by reference to Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 (Commission File Number: 33-77324)) 10.6* Stock Option Plan Agreement with A. Scott Trager dated January 12, 1996 (Incorporated by reference to Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 (Commission File Number: 33-77324)) 10.7* Officer Compensation Continuation Agreement with E. William Petter, Jr., dated January 12, 1995 (Incorporated by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 (Commission File Number: 33-77324)) 10.8* Stock Option Plan Agreement with E. William Petter, Jr., dated January 12, 1996 (Incorporated by reference to Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 (Commission File Number: 33-77324)) 10.9* Death Benefit Agreement with Bernard M. Trager dated September 10, 1996 (Incorporated by reference to Exhibit 10.9 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 (Commission File Number: 33-77324)) 10.10 Lease between Republic Bank & Trust Company and TEECO Properties dated October 1, 1996, relating to 601 West Market Street, Louisville (Incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1 of Registrant (Registration No. 333-56583)) 10.11 Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 1, 1982, relating to 2801 Bardstown Road, Louisville (Incorporated by reference to Exhibit 10.11 of Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 (Commission File Number: 33-77324)) 10.12 Lease between Republic Bank & Trust Company and Jaytee Properties, dated February 3, 1993, as amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to Exhibit 10.12 of Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 (Commission File Number: 33-77324)) 10.13 Lease between Republic Bank & Trust Company and Jaytee Properties, dated November 17, 1997, relating to 9600 Brownsboro Road, Louisville (Incorporated by reference to Exhibit 10.13 of Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 (Commission File Number: 33-77324)) 10.14* Officer Compensation Continuation Agreement with Mark A. Vogt, dated October 16, 1997 (Incorporated by reference to Exhibit10.14 to the Registration Statement on Form S-1 of Registrant (Registration No. 333-56583)) 10.15* Stock Option Plan Agreement with Mark Vogt, dated April 15, 1996 (Incorporated by reference to Exhibit10.15 to the Registration Statement on Form S-1 of Registrant (Registration No. 333-56583)) 10.16* Summary of Directors Stock Options (Incorporated by reference to Exhibit 10.16 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (Commission File Number: 000-24649)) 10.17 Lease between Republic Bank & Trust Company and Jaytee Properties, dated February 1, 1999, as amended, relating to 661 South Hurstbourne Parkway (Incorporated by reference to Exhibit 10.17 of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (Commission File Number: 33-77324)) 10.18 Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 1, 1999, as amended, relating to 9600 Brownsboro Road (Incorporated by reference to Exhibit 10.18 of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (Commission File Number: 33-77324)) 10.19 Lease between Republic Bank & Trust Company and Jaytee Properties, dated May 1, 1999, as amended, relating to 610 Eastern Boulevard, Clarksville, Indiana (Incorporated by reference to Exhibit 10.19 of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (Commission File Number: 33-77324)) 10.20 Lease between Republic Bank & Trust Company and Jaytee Properties, dated October 30, 1999, as amended, relating to 9600 Brownsboro Road 10.21 Lease between Republic Bank & Trust Company and Jaytee Properties, dated February 1, 2000, as amended, relating to 661 South Hurstbourne Parkway 10.22 Lease between Republic Bank & Trust Company and Jaytee Properties, dated February 1, 2000, as amended, relating to 9600 Brownsboro Road 11 Statement regarding Computation of Per Share Earnings 13 Excerpts from the 1999 Annual Report to Shareholders incorporated by reference 21 Subsidiaries of the Registrant 23 Consent of Crowe, Chizek & Company LLP 27 Financial Data Schedule * Denotes management contracts and compensatory plans or arrangements required to be filed as exhibits to this Form 10-K pursuant to Item 14(c). EX-10.20 2 EX-10.20 AMENDMENT TO REPUBLIC BANK BUILDING LEASE This Amendment dated October 30, 1999, is made to the Republic Bank Building Lease dated August 1, 1999 between Jaytee Properties, a Kentucky general partnership, hereinafter referred to as "Landlord" and Republic Bank & Trust Company, hereinafter referred to as the "Tenant". As parties hereto, Landlord and Tenant hereby agree to modify and amend their original Lease Agreement as hereafter set forth. Article II, TERM, is hereby amended to include the following: Tenant shall have two options to renew the Lease for an additional five-year period each. The first option shall be for the sum of Thirteen thousand four hundred ninety-four and 00/100 ($13,494.00) per month plus a rent adjustment proportionate to the increase in the Consumer Price Index for all urban consumers during the initial five-year term of the Lease. If Tenant subsequently elects to exercise the second option, the rent shall be equal to the amount paid during the first option period plus a rent adjustment proportionate to the increase in the Consumer Price Index for all urban consumers during the second five year term (first term of the option). Tenant shall notify Landlord of Tenant's intent to exercise any option herein provided within 90 days of the expiration of the immediately preceding five-year term. The terms and provisions of the lease shall continue in full force and effect except as modified and amended herein. ATTEST: JAYTEE PROPERTIES BY:/s/ M.A. Ringswald BY:/s/ Steve Trager ------------------ ---------------- REPUBLIC BANK & TRUST COMPANY BY:/s/ Bill Petter --------------- EX-10.21 3 EX-10.21 Sixth Amendment to Lease (Hurstbourne Lane) This Amendment to Lease dated this 1st day of February, 2000 shall further amend the terms of a lease dated February 3, 1993, as amended, ("Lease") by and between Jaytee Properties ("Landlord") and Republic Bank & Trust Company ("Tenant") at Republic Bank Place and any other amendments to such lease. Landlord and Tenant agree that the following terms of the Lease shall be amended to increase the Tenant's square footage by 3,464 square feet. The Tenant's rent shall be increased by $6000.00, ($20.78 per square foot) per month effective February 1, 2000 and continue in accordance with the terms of that original lease, as amended, referenced herein. ARTICLE I. PREMISES SECTION 1. Tenant leases from Landlord and Landlord leases to Tenant the following additional premises (hereinafter called the "Premises"): Being an additional 3,464 square feet of office space located on the first floor in the Republic Bank Building (hereinafter called "the Building") located at Hurstbourne Parkway and Stone Creek Parkway in Jefferson County, Kentucky. ARTICLE II. TERM The Term of this lease, as amended, shall remain in effect to 6/31/03. ARTICLE III. RENT AND OPERATING EXPENSES SECTION 1. Tenant shall pay to Landlord, at Landlord's office in the Building or at such place as Landlord may from time to time designate, as monthly rental for the Premises as of the effective date of this Amendment, the sum of $33,940. JAYTEE PROPERTIES By: /s/ Steve Trager ---------------- REPUBLIC BANK & TRUST COMPANY By: /s/ Bill Petter --------------- EX-10.22 4 EX-10.22 SECOND AMENDMENT TO REPUBLIC BANK BUILDING LEASE This Amendment dated February 1, 2000, is made to the Republic Bank Building Lease dated August 1, 1999 between Jaytee Properties, a Kentucky general partnership, hereinafter referred to as "Landlord" and Republic Bank & Trust Company, hereinafter referred to as the "Tenant". As parties hereto, Landlord and Tenant hereby agree to further modify and amend their original Lease Agreement, as amended, as hereafter set forth. Landlord and Tenant agree that the following terms of the Lease shall be amended to increase the Tenant's square footage by 3,990 square feet. The Tenant's rent shall be increased by $3,325.00, ($10.00 per square foot) per month effective February 1, 2000 and continue in accordance with the terms of that original lease, as amended, referenced herein. ARTICLE I. PREMISES SECTION 1. Tenant leases from Landlord and Landlord leases to Tenant the following additional premises (hereinafter called the "Premises"): Being an additional 3,990 square feet of office space located on the lower floor in the Republic Bank Building (hereinafter called "the Building") located at 9600 Brownsboro Road, Jefferson County, Ky. ARTICLE III. RENT AND OPERATING EXPENSES SECTION 1. Tenant shall pay to Landlord, at Landlord's office in the Building or at such place as Landlord may from time to time designate, as monthly rental for the Premises as of the effective date of this Second Amendment, the sum of $16,819. The terms and provisions of the original lease, as amended, shall continue in full force and effect except as modified and amended herein. REPUBLIC BANK & TRUST COMPANY JAYTEE PROPERTIES BY:/s/ Bill Petter BY:/s/ Steve Trager --------------- ---------------- EX-11 5 EX-11 Exhibit 11. Statement Regarding Computation of Per Share Earnings See Item 8 Note 12 "Earnings Per Share" for calculations. EX-13 6 EX-13 SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth Republic's selected historical financial information from 1995 through 1999. This information should be read in conjunction with the Consolidated Financial Statements and the related Notes. Factors affecting the comparability of certain indicated periods are discussed in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Years Ended December 31, (dollars in thousands, except per share data) Income Statement Data: Interest income .............................. $ 97,157 $ 92,667 $ 91,194 $ 81,986 $ 71,133 Interest expense ............................. 49,552 50,174 50,856 43,855 37,720 Net interest income .......................... 47,605 42,493 40,338 38,131 33,413 Provision for loan losses .................... 1,806 3,110 7,251 9,149 4,268 Non-interest income .......................... 10,084 11,396 7,743 7,097 7,520 Gain on sale of deposits ..................... 4,116 7,527 Gain on sale of Bankcard ..................... 3,660 Non-interest expense ......................... 37,383 33,533 32,880 31,409 24,505 Income before taxes .......................... 18,500 21,362 19,137 4,670 12,160 Net income ................................... 12,252 13,756 12,259 2,727 7,788 Balance Sheet Data: Total assets ................................. $1,368,983 $1,207,684 $1,054,950 $1,140,882 $ 891,347 Total securities ............................. 214,558 216,921 192,372 281,855 114,654 Total loans, net ............................. 1,031,512 870,031 794,939 759,424 668,193 Allowance for loan losses .................... 7,862 7,862 8,176 6,241 3,695 Total deposits ............................... 800,909 747,147 731,598 783,141 734,443 Repurchase agreements and other short-term borrowings ..................... 215,718 148,659 111,137 181,634 21,729 Other borrowed funds ......................... 231,383 190,222 124,405 106,974 68,063 Total stockholders' equity ................... 103,770 103,842 68,386 59,019 58,502 Per Share Data:(1) Basic Class A common earnings per share ................................. $ 0.73 $ 0.87 $ 0.82 $ 0.16 $ N/A Basic Class B common earnings per share ................................. 0.72 0.86 0.81 0.15 N/A Basic common earnings per share .............. N/A N/A N/A N/A 0.52 Book value (2) ............................... 6.46 6.03 4.58 3.74 3.71 Cash dividends per Class A common ............ 0.12 0.11 0.11 0.11 N/A Cash dividends per Class B common ............ 0.11 0.10 0.10 0.10 N/A Cash dividend per common ..................... N/A N/A N/A N/A 0.09 Performance ratios: Return on average assets ..................... 0.98% 1.20% 1.12% .29% .95% Return on average common equity .............. 11.90 15.82 18.81 4.57 14.46 Net interest margin .......................... 3.96 3.84 3.85 4.21 4.25 Efficiency ratio ............................. 65 62(3) 68(4) 64(5) 60 Asset quality ratios: Non-performing assets to total loans ..................................... 0.38% 0.63% 0.90% 1.06% 0.41% Net loan charge-offs to average loans ..................................... 0.19 0.40 0.66 0.91 0.38 Allowance for loan losses to total loans ............................... 0.76 0.89 1.02 0.81 0.55 Allowance for loan losses to non-performing loans ...................... 213 158 115 78 168 Capital ratios: Leverage ratio ............................... 8.61% 9.29% 6.99% 5.76% 6.62% Average stockholders' equity to average total assets ...................... 8.27 7.58 5.97 6.30 6.56 Tier 1 risk-based capital ratio .............. 13.36 14.63 10.57 9.14 10.29 Total risk-based capital ratio ............... 14.28 15.68 11.73 10.10 10.96 Dividend payout ratio ........................ 16 13 13 68 16 Other key data: End-of-period full-time equivalent employees ...................... 467 425 418 419 363 Number of bank offices ....................... 20 19 18 21 17
- ----------- (1) In 1996 the Company's common stock was replaced by Class A Common Stock and Class B Common Stock. (2) Exclusive of accumulated other comprehensive income. (3) Excludes pre-tax gain on sale of deposits of $4.1 million. (4) Excludes pre-tax gain on sale of deposits of $7.5 million and pre-tax gain on sale of Bankcard of $3.7 million. (5) Excludes one-time Savings Association Insurance Fund ("SAIF") assessment of $2.3 million. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 balance sheets and statements of income. Republic, a bank holding company headquartered in Louisville, Kentucky, is the parent of Republic Bank & Trust Company (the "Bank"). This section should be read in conjunction with the Company's Consolidated Financial Statements and accompanying Notes and other detailed information. This discussion includes various forward-looking statements with respect to credit quality (including delinquency trends and the allowance for loan losses), corporate objectives and other financial and business matters. When used in this discussion the words "anticipate," "project," "expect," "believe," and similar expressions are intended to identify forward-looking statements. Republic cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, all of which may change over time. Actual results could differ materially from forward-looking statements. In addition to factors disclosed by Republic elsewhere in this Annual Report, the following factors, among others, could cause actual results to differ materially from such forward-looking statements: pricing pressures on loan and deposit products; competition; changes in economic conditions both nationally and in the Bank's markets; the extent and timing of actions of the Federal Reserve Board; clients' acceptance of the Bank's products and services; and the extent and timing of legislative and regulatory actions and reforms. HIGHLIGHTS Republic reported earnings of $12.3 million during 1999 compared with $13.8 million for 1998. Excluding a one-time gain on sale of deposits during 1998, net income increased by 11% during 1999. Republic's 1999 performance was supported by steady increases in net interest income and continued declining provisions due to reduced loan losses. These improvements more than offset a reduction in gains on sales of loans in the secondary market, due to rising interest rates, and increases in non-interest expenses arising from banking center expansion. Republic's book value per common share, exclusive of accumulated other comprehensive income, increased from $6.03 at December 31, 1998 to $6.46 per share at December 31, 1999. The following table summarizes selected financial information regarding Republic's financial performance.
TABLE 1 - SUMMARY Years Ended December 31, (dollars in thousands) 1999 1998 1997 Net income $ 12,252 $ 13,756 $ 12,259 Net income excluding asset dispositions 12,252 11,122 5,099 Diluted Class A earnings per share 0.71 0.83 0.79 Diluted Class A earnings per share excluding asset dispositions 0.71 0.68 0.32 ROA 0.98% 1.20% 1.12% ROA excluding asset dispositions 0.98 0.97 0.47 ROE 11.90 15.82 18.81 ROE excluding asset dispositions 11.90 13.19 8.11
Republic's total assets at December 31, 1999 grew more than 13% over 1998 to approximately $1.4 billion. Net loans increased $161 million from December 31, 1998 to over $1 billion at December 31, 1999. The residential real estate portfolio grew $115 million while the commercial real estate portfolio increased $45 million. This growth was attributable to continued loan demand in Republic's markets and the further development of Republic's commercial and business banking services. While loan growth remained strong, the Bank's level of delinquent loans declined favorably to 1.29% at December 31, 1999, compared to 2.29% at December 31, 1998. Funding for the growth in the loan portfolio was derived from deposits, repurchase agreements and Federal Home Loan Bank advances. Deposits and repurchase agreements increased to over $1.0 billion as of December 31, 1999 compared to $896 million at year-end 1998. A significant portion of this increase was in lower cost deposits such as demand and money market accounts. Republic's Internet banking (Republicbank.com) accounted for $42 million of the increase in deposits, while Republic's corporate cash management accounts reflected a 43% increase in balances over year-end 1998. FHLB advances increased from $190 million at December 31, 1998 to $231 million at December 31, 1999. During 1999 Republic continued to expand its banking centers. Republic moved into newly completed facilities in the Springhurst and Fern Creek areas in Louisville. The Bank also opened a loan production office in Southern Indiana, its first location outside of Kentucky. Republic continues to expand its product lines and service delivery through Republicbank.com. Sixteen percent of the Bank's checking account clients now utilize Republic's Internet banking services. Republicbank.com has deposits from 44 states and the District of Columbia as of December 31, 1999. During 2000 Republic intends to make available on-line tax preparation and on-line brokerage. During 1999, Republic began offering investment management and personal trust services. During 1999, Republic was awarded an $800 million custodial account relationship. In less than a year of operation, this division now has in excess of $850 million in trust assets under management REFUNDS NOW(R) During November 1998, a wholly owned subsidiary of the Bank acquired Refunds Now, Inc. Republic exchanged 230,000 shares of Class B Common Stock for the stock of Refunds Now, Inc. in a business combination accounted for as a pooling of interest. Refunds Now(R) is a rapid refund tax processing service for taxpayers receiving both federal and state tax refunds through a nationwide network of tax preparers. Refund anticipation loans ("RALs") are made to taxpayers filing income tax returns electronically. The RALs are repaid by the taxpayer when the taxpayer's refunds are electronically received by the Bank from governmental taxing authorities. Refunds Now(R) also provides electronic refund checks ("ERCs") to taxpayers. After receiving refunds electronically from governmental taxing authorities, checks are issued to taxpayers for the amount of their refund, less fees. During 1999, Refunds Now(R) generated $944,000 in electronic tax refund loan fees and $1.2 million in electronic tax refund check fees. During 1999, Republic successfully marketed its products to new tax preparers for the year 2000. These additional relationships are projected to increase revenues for Refunds Now(R) during 2000. The projected increase in Refunds Now(R) earnings is not expected to materially impact the earnings of Republic in 2000. DISPOSITION OF ASSETS During 1997, Republic elected to focus its resources on its North Central and Central Kentucky markets. Consistent with this focus, Republic sold its banking centers in the Western Kentucky cities of Murray, Benton, Paducah, and Mayfield. The Murray, Benton and Paducah sales were closed in the second half of 1997, of which Republic realized a net gain of approximately $7.5 million. During 1998, Republic completed the sale of deposits and fixed assets at the Mayfield banking center. Republic realized a pre-tax gain of approximately $4.1 million from the Mayfield banking center sale. Republic retained substantially all of its Western Kentucky banking center loan portfolios in those transactions. The Mayfield transaction represented the final Western Kentucky banking center sale. Management funded these transactions with additional advances from the Federal Home Loan Bank, deposits at its existing retail banking centers and liquidation of selected investment securities and overnight federal funds. Also during 1997, Republic sold its $17 million Bankcard portfolio, its merchant processing assets and its $6 million, 50% interest in a joint venture Bankcard arrangement. Collectively, these asset sales resulted in a pre-tax gain of $3.7 million. RESULTS OF OPERATIONS NET INTEREST INCOME The principal source of Republic's revenue is net interest income. Net interest income is 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 and market interest rates. The change in net interest income is typically measured by changes in net interest spread and net interest margin. Net interest spread is the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. Net interest margin is determined by dividing net interest income by average interest-earning assets. Average interest-earning assets increased 9% in 1999, compared to a 6% increase in 1998. The 1999 and 1998 growth resulted from increased loan volume coupled with an increase in investment securities. During 1999, average interest-bearing liabilities grew $77 million to $1.0 billion, an increase of 8% over 1998. The increase was primarily in transaction accounts, money market accounts and other borrowings. In 1998, average interest-bearing liabilities grew 2% over 1997. The increase of $20 million during 1998 was primarily in certificates of deposit, other time deposits and overnight repurchase agreements. For 1999, net interest income was $48 million, up $6 million over the $42 million attained during 1998. Overall, the net interest rate spread increased from 3.18% during 1998 to 3.34% in 1999. The Bank's net interest margin also increased from 3.84% in 1998 to 3.96% in 1999. The increase in the net interest spread and margin in 1999 occurred because the yield on interest earning assets decreased 29 basis points while the rate paid on liabilities decreased 45 basis points. As a result, the average rate on earning assets decreased slower than the average rate paid on liabilities as Republic continues to focus efforts on attracting additional lower-cost transaction accounts, Internet banking and cash management accounts. Net interest margin also grew because during 1999 Republic funded a greater portion of its interest earning assets through equity and non-interest bearing deposits. Net interest income increased 5% in 1998 over 1997. The increase in 1998 was attributable to Republic's loan growth, particularly residential and commercial lending. Table 2 provides detailed information as to average balances, interest income/expense, and rates by major balance sheet category for 1997 through 1999. Table 3 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.
TABLE 2 - AVERAGE BALANCE SHEETS AND RATES FOR DECEMBER 31, 1999, 1998 AND 1997 1999 1998 1997 ---- ---- ---- Average Average Average Average Average Average Balance Interest Rate Balance Interest Rate Balance Interest Rate (dollars in thousands) ASSETS Earning assets: U.S. Treasury and U.S. Government Agency Securities ............... $ 127,492 $ 6,938 5.44% $ 168,862 $ 9,798 5.80% $ 209,599 $12,473 5.95% State and political subdivision securities ...................... 3,915 339 8.66 4,195 368 8.77 4,447 381 8.57 Mortgage-backed securities ......... 32,781 2,104 6.42 42,572 2,591 6.09 4,415 263 5.96 Other investments .................. 65,493 4,015 6.13 15,365 1,061 6.91 6,952 497 7.15 Federal funds sold ................. 3,487 180 5.16 16,472 930 5.65 12,452 691 5.55 Total loans and fees(1)(2) ......... 967,751 83,581 8.64 858,420 77,919 9.08 809,700 76,889 9.50 Total earning assets ............... 1,200,919 97,157 8.09 1,105,886 92,667 8.38 1,047,565 91,194 8.71 Less: Allowance for loan losses .... (7,911) (8,150) (6,278) Non-earning assets: Cash and due from banks ............ 20,931 19,942 20,338 Bank premises and equipment, net ... 17,597 14,123 16,793 Other assets ....................... 13,552 14,934 13,198 Total assets ....................... $ 1,245,088 $ 1,146,735 $ 1,091,616 LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing liabilities: Transaction accounts ............... $ 124,435 $ 3,311 2.66% $ 102,231 $ 3,263 3.19% $ 124,062 $ 4,250 3.43% Money market accounts .............. 139,567 6,285 4.50 105,668 4,977 4.71 47,036 2,329 4.95 Individual retirement accounts ..... 26,359 1,407 5.34 22,549 1,316 5.84 35,641 2,090 5.86 Certificates of deposits and other time deposits ................... 414,406 21,683 5.23 425,721 24,665 5.79 512,260 30,271 5.91 Repurchase agreements and other borrowings ...................... 337,590 16,866 5.00 308,744 15,953 5.17 226,400 11,916 5.26 Total interest bearing liabilities . 1,042,357 49,552 4.75 964,913 50,174 5.20 945,399 50,856 5.38 Non-interest bearing liabilities: Non-interest bearing deposits ...... 87,760 79,636 68,184 Other liabilities .................. 12,002 15,218 12,875 Stockholders' equity ............... 102,969 86,968 65,158 Total liabilities and stockholders' equity .......................... $ 1,245,088 $ 1,146,735 $ 1,091,616 Net interest income ................ $47,605 $42,493 $40,338 Net interest spread ................ 3.34% 3.18% 3.33% Net interest margin ................ 3.96% 3.84% 3.85%
- ----------- (1) The amount of fee income included in interest on loans was $2,050,000, $1,367,000, and $837,000 for the years ended December 31, 1999, 1998, and 1997, respectively. (2) Calculations include non-accruing loans in the average loan amounts outstanding The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities 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 Year Ended December 31, 1999 Year Ended December 31, 1998 compared to compared to Year Ended December 31, 1998 Year Ended December 31, 1997 INCREASE/(DECREASE) INCREASE/(DECREASE) Due to Due to Total Net Total Net Change Volume Rate Change Volume Rate (dollars in thousands) Interest income: U.S. Treasury and Government Agency Securities ....... $(2,860) $(2,400) $ (460) $(2,675) $(2,424) $ (251) State and political subdivision securities ........... (29) (25) (4) (13) (22) 9 Mortgage backed securities ........................... (487) (596) 109 2,328 2,273 55 Other investments .................................... 2,954 3,461 (507) 564 601 (37) Federal funds sold ................................... (750) (733) (17) 239 223 16 Total loans and fees(1)(2) ........................... 5,662 9,924 (4,262) 1,030 4,626 (3,596) Total increase (decrease) in interest income ......... 4,490 9,631 (5,141) 1,473 5,277 (3,804) Interest expense: Interest bearing transaction accounts ................ 48 709 (661) (987) (748) (239) Money market accounts ................................ 1,308 1,597 (289) 2,648 2,903 (255) Individual retirement accounts ....................... 91 222 (131) (774) (768) (6) Certificates of deposit and other time deposits ...... (2,982) (656) (2,326) (5,606) (5,114) (492) Repurchase agreements and other borrowings ........... 913 1,490 (577) 4,037 4,334 (297) Total increase (decrease) in interest expense ........ (622) 3,362 (3,984) (682) 607 (1,289) Increase (decrease) in net interest income ........... $ 5,112 $ 6,269 $(1,157) $ 2,155 $ 4,670 $(2,515)
- ----------- (1) Interest income for loans on non-accrual status has been excluded from interest income. (2) The amount of fee income included in interest on loans was $2,050,000, $1,367,000, and $837,000 for the years ended December 31, 1999, 1998, and 1997, respectively. NON-INTEREST INCOME Non-interest income was $10.1 million during 1999, $15.5 million during 1998, and $18.9 million during 1997. The decrease from 1997 and 1998 was primarily due to the gains from the sale of deposits and Bankcard. Also during 1998 Republic benefited from gains generated from sales of loans into the secondary market and sales of investment securities.
TABLE 4 - ANALYSIS OF NON-INTEREST INCOME Percent Increase (Decrease) Years Ended December 31, (dollars in thousands) 1999 1998 1997 1999/98 1998/97 ---- ---- ---- ------- ------- Service charges on deposit accounts ................ $ 3,653 $ 3,255 $ 3,284 12% (1%) Electronic refund check fees ....................... 1,238 380 247 226 54 Other service charges and fees ..................... 489 441 414 11 7 Bankcard services .................................. 508 NM NM Net gain on available for sale securities .......... 184 1,139 81 (84) 1,306 Net gain on sale of mortgage loans ................. 2,974 4,326 1,852 (31) 134 Loan servicing income .............................. 455 598 734 (24) (19) Other .............................................. 1,091 1,257 623 (13) 102 Subtotal ........................................ 10,084 11,396 7,743 (12) 47 Net gain on sale of deposits ....................... 4,116 7,527 NM (45) Net gain on sale of Bankcard ....................... 3,660 NM NM Total ........................................... $10,084 $15,512 $18,930 (35%) (18%)
Service charges on deposit accounts were $3.7 million for 1999, compared with $3.3 million for 1998. Electronic refund check fees increased by $858,000 due to Republic's acquisition of Refunds Now, Inc., and increased volume following the acquisition. The interest rate environment heavily influences revenue from mortgage banking activities. This revenue during early 1999, 1998 and 1997 reflected increases in secondary market originations, sales volume, and the sale of most loans with servicing released. This period generally had low, stable interest rates. During mid to late 1999, the increase in rates led to fewer secondary market loan originations resulting in reduced mortgage banking revenue. Proceeds from sales of loans were $211 million, $272 million, and $124 million in 1999, 1998, and 1997, respectively. Net gains from sales of loans closely track secondary market loan origination volume. Net gains as a percentage of loans sold were 1.43%, 1.59%, and 1.49% in 1999, 1998, and 1997, respectively. As of December 31, 1999, Republic was servicing $199 million in mortgage loans for other investors, compared to $220 million at December 31, 1998. NON-INTEREST EXPENSE Total non-interest expense increased by 11% to $37.4 million in 1999, compared to $33.5 million in 1998, and $32.9 million in 1997. Republic received the benefit from reduced non-interest expenses during 1998 following the Western Kentucky banking center sales. However, the costs, including related salary expense, associated with Republic's addition of three new banking centers since 1997, opening the Indiana loan production office, expanded facilities at two locations and continued technology enhancements resulted in an overall increase in non-interest expense during 1998 and 1999. Non-interest expense levels are often measured using an efficiency ratio (non-interest expense divided by the sum of net interest income and non-interest income). Excluding its one-time gains from the sale of deposits and related fixed assets and Bankcard, Republic's efficiency ratio was 65% in 1999 compared to 62% in 1998 and 68% in 1997.
TABLE 5 - ANALYSIS OF NON-INTEREST EXPENSE Percent Increase/(Decrease) Years Ended December 31, (dollars in thousands) 1999 1998 1997 1999/98 1998/97 ---- ---- ---- ------- ------- Salaries and employee benefits ..................... $20,661 $16,968 $15,444 22% 10% Occupancy and equipment ............................ 7,632 7,423 8,562 3 (13) Communication and transportation ................... 1,716 1,703 1,796 1 (5) Marketing and development .......................... 1,266 1,372 1,299 (8) 6 Supplies ........................................... 940 1,066 1,013 (12) 5 Other .............................................. 5,168 5,001 4,766 3 5 Total .............................................. $37,383 $33,533 $32,880 11% 2%
Salary and employee benefits expense increased approximately 22% and 10% in 1999 and 1998, respectively. Republic's overall staffing level increased to 467 full-time equivalent employees ("FTE's") at December 31, 1999, compared to 425 FTE's at December 31, 1998. The increases in salaries and employee benefits during 1999 were attributable to several factors. Republic opened a new banking center, loan production office and moved into permanent facilities in Springhurst banking center, while also expanding its commercial lending, cash management and trust activities. Annual merit salary increases were also awarded during the year. Additional expense was also recognized as a result of the formation of the Employee Stock Ownership Plan ("ESOP"). The rise in 1998 was primarily due to increased staffing and commissions paid for Republic's mortgage banking activities as a result of higher loan volumes. Also in 1998 Republic had increases in the number of higher salaried technical and lending staff additions and annual merit salary increases. Occupancy and equipment expenses increased 3% in 1999 following a 13% decrease during 1998. The 1998 decrease was primarily due to reduced depreciation and maintenance expenses resulting from the sale of western Kentucky banking centers. The increase in 1999 is largely attributable to the costs associated with Republic's continued banking center expansion. These expenses may continue to increase in the near term as the Bank intends to open an additional location during 2000. FINANCIAL CONDITION LOAN PORTFOLIO Republic experienced record loan growth and healthy loan demand throughout its markets in 1999. During 1999 residential loan demand shifted from longer term fixed rate secondary market products to the Bank's portfolio products. The shift in demand was prompted by increases in rates for longer term fixed rate products. As a result, total portfolio loans increased 18% to over $1.0 billion at December 31, 1999 compared to $879 million at December 31, 1998. Republic also experienced strong loan demand for its commercial loan products. The residential real estate lending portfolio increased 22% to $636 million at December 31, 1999. The increase in the residential real estate portfolio was a result of a strong demand for the Bank's adjustable-rate mortgage products. Republic's adjustable rate mortgage products consist of 3,5,7 and 10 year initial fixed rate terms. At December 31, 1999 Republic had $216 million outstanding in these products. These portfolio products were specifically designed to compete effectively with long term fixed rate secondary market products. Republic's commercial real estate loan portfolio increased by 38% to $163 million at December 31, 1999. Republic's commercial banking initiatives are targeted principally toward the Bank's existing customer base. As a result of increased client demand, Republic allocated additional resources to the commercial lending function. Commercial real estate lending remains primarily concentrated within the Bank's existing markets, and are principally comprised of loans secured by multifamily investment properties, medical facilities, small business owner-occupied office and retail properties. In conjunction with its commercial real estate lending, emphasis has also been placed on acquiring the associated deposit relationships from these loan clients. By design, Republic's consumer loans decreased from $60 million at December 31, 1998 to $42 million at December 31, 1999. The consumer loan portfolio consists of both secured and unsecured loans. Republic's consumer portfolio also includes the "All Purpose" and "Pre Approved" unsecured loan products. Republic is currently not originating these unsecured products and has elected to allow the remaining portfolios to paydown. These portfolios had $20 million outstanding at December 31, 1998 compared to $8 million at December 31, 1999. Republic anticipates that the loan portfolio retained from the Western Kentucky deposit sales will continue to be subjected to a higher level of prepayments than its overall loan portfolio in general. During 1999, loans associated with Republic's Western Kentucky banking centers decreased from $87 million at December 31, 1998 to $58 million at December 31, 1999. Republic continues to provide service to these clients through its centralized loan operations, but expects a number of these clients will elect to refinance with other local institutions. Republic is not able to predict the rate at which the Western Kentucky loan portfolio will pre-pay.
TABLE 6 - LOANS BY TYPE As of December 31, (dollars in thousands) 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Real estate: Residential .................... $ 636,012 $520,583 $480,874 $457,204 $371,846 Commercial ..................... 163,064 118,293 76,306 59,086 75,648 Construction ................... 63,928 47,396 37,940 32,130 31,230 Commercial ........................ 31,411 26,381 21,552 25,115 21,042 Consumer .......................... 42,408 59,874 86,061 124,974 127,735 Home Equity ....................... 103,833 106,845 102,512 69,572 48,244 Total Loans ....................... $1,040,656 $879,372 $805,245 $768,081 $675,745
The mortgage banking operation provides for the origination and the sale of first mortgage residential loans into the secondary market. This operation primarily sells fixed rate originations in the secondary market without recourse. During 1999, Republic sold $208 million of residential mortgage loans into the secondary market compared to $268 million in 1998. At the end of 1999, Republic was servicing $199 million in mortgage loans for other investors compared to $220 million in 1998 and $263 million in 1997. The decline in the mortgage banking servicing portfolio from 1997 to 1999 resulted from management's election to sell a majority of its originations on a servicing released basis combined with regular loan principal paydowns. Table 7 illustrates Republic's fixed rate maturities and repricing frequency for the loan portfolio:
TABLE 7 - SELECTED LOAN DISTRIBUTION One Over One Over Year Through Five Five As of December 31, 1999 (dollars in thousands) Total Or Less Years Years Fixed rate maturities ............................ $ 131,551 $ 70,171 $ 37,730 $ 23,650 Variable rate repricing frequency ................ 909,105 477,017 348,531 83,557 Total ............................................ $1,040,656 $547,188 $386,261 $107,207
ALLOWANCE AND PROVISION FOR LOAN LOSSES The provision for loan losses was $1.8 million for the year ended December 31, 1999, compared to $3.1 million for 1998 and $7.3 million for 1997. Net charge-offs were $1.8 million during 1999 compared to $3.4 million and $5.3 million for 1998 and 1997, respectively. Republic's unsecured consumer loan portfolio accounted for 34% of total net charge-offs for the year ended December 31, 1999. The allowance for loan losses remained constant at $7.9 million for both December 31, 1999 and 1998. Republic's allowance to total loan ratio was .76% at December 31, 1999 compared to .89% at December 31, 1998. This change in the allowance reflects a reduction in overall portfolio risk due to the decreased outstandings in the Bank's unsecured consumer loan portfolio. As the overall loan portfolio outstandings have increased, higher risk unsecured consumer loans have been principally replaced by lower risk, secured residential real estate loans. There has also been an increase in commercial real estate lending, which is generally considered to carry greater risk of loss than residential real estate. Management is monitoring this portfolio closely, and believes it has provided an adequate component within the allowance for this expanded activity. The allowance for loan losses is regularly evaluated by management and maintained at a level believed to be adequate to absorb loan losses in the Bank's lending portfolios. Periodic provisions to the allowance are made as needed. The amount of the provision for loan losses necessary to maintain an adequate allowance is based upon an assessment of current economic conditions, analysis of periodic internal loan reviews, delinquency trends and ratios, changes in the mixture and levels of the various categories of loans, historical charge-offs, recoveries, and other information. Management believes, based on information presently available, that it has adequately provided for loan losses at December 31, 1999. Although management believes it uses the best information available to make allowance provisions, future adjustments which could be material may be necessary if management's assumptions differ significantly from the loan portfolio's actual performance.
TABLE 8 - SUMMARY OF LOAN LOSS EXPERIENCE Years Ended December 31, (dollars in thousands) 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Allowance for loan losses at beginning of year .................... $ 7,862 $ 8,176 $ 6,241 $ 3,695 $ 1,827 Charge-offs: Real estate .................................................... (593) (1,017) (358) (242) (313) Commercial ..................................................... (97) (79) (43) (22) (107) Consumer ....................................................... (1,708) (2,828) (5,458) (6,865) (2,069) Total ..................................................... (2,398) (3,924) (5,859) (7,129) (2,489) Recoveries: Real estate .................................................... 15 7 23 290 22 Commercial ..................................................... 8 4 25 Consumer ....................................................... 569 489 520 236 42 Total ..................................................... 592 500 543 526 89 Net loan charge-offs .............................................. (1,806) (3,424) (5,316) (6,603) (2,400) Provision for loan losses ......................................... 1,806 3,110 7,251 9,149 4,268 Allowance for loan losses at end of year .......................... $ 7,862 $ 7,862 $ 8,176 $ 6,241 $ 3,695 Ratios: Allowance for loan losses to total loans ....................... .76% .89% 1.02% .81% .55% Net loan charge-offs to average loans outstanding for the period .19 .40 .66 .91 .38 Allowance for loan losses to non-performing loans .............. 213 158 115 78 168
The following table is management's allocation of the allowance for loan losses by loan type. Allowance funding and allocation is based on management's assessment of economic conditions, past loss experience, loan volume, past due history and other factors. Since these factors are subject to change, the allocation is not necessarily indicative of future portfolio performance.
TABLE 9 - MANAGEMENT'S ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES As of December 31, (dollars in thousands) 1999 1998 1997 ---- ---- ---- Percent Percent Percent of Loans of Loans of Loans to Total to Total to Total Allowance Loans Allowance Loans Allowance Loans Real estate ........................ $6,235 83% $5,729 78% $3,590 74% Commercial ......................... 483 3 265 3 46 3 Consumer ........................... 1,144 14 1,868 19 4,540 23 Total .............................. $7,862 100% $7,862 100% $8,176 100%
ASSET QUALITY Loans (including impaired loans under SFAS 114 and 118 but excluding consumer loans) are placed on non-accrual status when they become past due 90 days or more as to principal or interest, unless they are adequately secured and in the process of collection. When loans are placed on non-accrual status, all unpaid accrued interest is reversed. These loans remain on non-accrual status until the borrower demonstrates the ability to remain current or the loan is deemed uncollectible and is charged off. Consumer loans are not placed on non-accrual status, but are reviewed and charged off when they reach 120 days past due. At December 31, 1999, Republic had $97,000 in consumer loans 90 days or more past due compared to $256,000 at December 31, 1998. Total non-performing loans decreased from $5.0 million at December 31, 1998, to $3.7 million at December 31, 1999. These loans are primarily secured 1-4 family residential loans. Should the underlying collateral be determined to be insufficient to satisfy the obligation, the loan is classified as non-performing and the Bank's allowance is increased accordingly. Historically, Republic's security in residential loans has been generally adequate and has acted to limit the Bank's exposure to loss.
TABLE 10 - NON-PERFORMING ASSETS As of December 31, (dollars in thousands) 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Loans on non-accrual status(1)(2) ............................ $2,721 $3,258 $2,676 $3,055 $ 742 Loans past due 90 days or more ............................... 968 1,731 4,459 4,955 1,463 Total non-performing loans ................................... 3,689 4,989 7,135 8,010 2,205 Other real estate owned ...................................... 218 540 22 104 552 Total non-performing assets .................................. $3,907 $5,529 $7,157 $8,114 $2,757 Percentage of non-performing loans to total loans ............ .35% .57% .90% 1.04% .33% Percentage of non-performing assets to total loans ........... .38 .63 .90 1.06 .41
- ------------- (1) Loans on non-accrual status include impaired loans. See note 4 to the Consolidated Financial Statements for additional discussion on impaired loans. (2) The interest income that would have been earned and received on non-accrual loans was not material. Republic defines impaired loans to be those commercial real estate and other commercial loans greater than $499,999 that management has classified as doubtful (collection of all amounts due is highly questionable or improbable) or loss (all or a portion of the loan has been written off or a specific allowance for loss has been provided). Republic's policy is to charge off all or that portion of its investment in an impaired loan upon a determination that it is probable the full amount will not be collected. Impaired loans, consisting of one commercial real estate loan, decreased slightly from December 31, 1998 to $1.1 million at December 31, 1999. INVESTMENT SECURITIES
TABLE 11 - SECURITIES PORTFOLIO As of December 31, (dollars in thousands) 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Securities Available for Sale: U.S. Treasury and government agencies ............ $ 97,029 $123,976 $ 44,559 $107,937 Agency mortgage-backed securities ................ 66,340 47,806 49,267 Corporate bonds .................................. 18,258 15,154 Total Securities Available for Sale ........ 181,627 186,936 93,826 107,937 Securities Held to Maturity: U.S. Treasury and government agencies ............ 25,353 25,422 93,693 168,797 $109,282 States and political subdivisions ................ 3,775 4,077 4,270 4,458 4,629 Agency mortgage-backed securities ................ 3,803 486 583 663 743 Total Securities Held to Maturity .......... 32,931 29,985 98,546 173,918 114,654 Total ................................... $214,558 $216,921 $192,372 $281,855 $114,654
The investment portfolio primarily consists of U.S. Treasury and U.S. Government Agency obligations, corporate bonds and mortgage-backed securities. The mortgage-backed securities (MBS's) consist of 15-year fixed and 7.5-year balloon mortgage securities, underwritten and guaranteed by FNMA, a government-sponsored agency. Securities available for sale decreased slightly from $187 million at December 31, 1998 to $182 million at December 31, 1999. Securities available for sale have a weighted average maturity of 6.1 years. Securities to be held to maturity increased slightly from $30 million at December 31, 1998 to $33 million at December 31, 1999. Securities to be held to maturity have a weighted average maturity of 3.6 years.
TABLE 12 - INVESTMENT SECURITIES AVAILABLE FOR SALE Average Weighted Amortized Maturity Average As of December 31, 1999 (dollars in thousands) Cost Fair Value in Years Yield ---- ---------- -------- ----- U.S. Treasury and U.S. Government Agencies: Within one year ......................................... $ 24,029 $ 23,876 0.6 5.12% Over one through five years ............................. 74,989 73,153 2.4 5.33 Total U.S. Treasury and Government Agencies ............. 99,018 97,029 2.0 5.28 Corporate Bonds Over one through five years ............................. 19,267 18,258 3.7 5.64 Total corporate bonds ................................... 19,267 18,258 3.7 5.64 Total mortgage-backed securities ........................ 69,292 66,340 6.05 Total available for sale investment securities ............. $187,577 $181,627 6.1 5.60
TABLE 13 -INVESTMENT SECURITIES HELD TO MATURITY Average Weighted Amortized Maturity Average As of December 31, 1999 (dollars in thousands) Cost Fair Value in Years Yield ---- ---------- -------- ----- U.S. Treasury and U.S. Government Agencies: Within one year ......................................... $ 6,300 $ 6,280 0.2 4.96% Over one through five years ............................. 19,053 18,939 2.0 6.19 Total U.S. Treasury and Government Agencies ............. 25,353 25,219 1.6 5.89 Obligations of states and political subdivision: Within one year ......................................... 225 228 0.5 9.38 Over one through five years ............................. 276 277 2.7 7.90 Over five through ten years ............................. 824 909 6.5 11.26 Over ten years .......................................... 2,450 2,450 16.4 10.00 Total obligations of state and political subdivisions ... 3,775 3,864 12.3 10.09 Total mortgage-backed securities ........................ 3,803 3,753 6.97 Total held to maturity investment securities ............... $32,931 $32,836 3.6 6.49
DEPOSITS Total deposits were $801 million at December 31, 1999 compared to $747 million at December 31, 1998. Republic was also successful in changing its deposit mix by increasing its low cost deposits (Checking, NOW and Money Market). Republic's growth in deposits was the result of management's emphasis on retail deposit gathering and its commercial cash management program.
TABLE 14 - DEPOSITS As of December 31, (dollars in thousands) 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Demand (NOW, SuperNOW and Money Market) ............ $204,071 $179,804 $118,870 $116,180 $103,744 Savings ............................................ 12,158 12,330 12,165 14,840 15,395 Money market certificates of deposit ............... 43,152 35,139 41,307 63,423 58,599 Individual retirement accounts ..................... 29,380 23,353 30,167 35,845 34,275 Certificates of deposit, $100,000 and over ......... 91,848 77,365 63,045 60,890 55,708 Other certificates of deposit ...................... 319,558 309,938 352,478 374,864 355,344 Brokered deposits .................................. 16,486 28,873 47,653 50,130 48,074 Total interest bearing deposits .................... 716,653 666,802 665,685 716,172 671,139 Total non-interest bearing deposits ................ 84,256 80,345 65,913 66,969 63,304 Total .............................................. $800,909 $747,147 $731,598 $783,141 $734,443
Republic's $16 million in brokered deposits at the end of 1999 decreased $12 million from 1998 due to maturities. Republic did not solicit or add any additional brokered deposits during 1999. The brokered deposits have stated rates ranging from 5.35% to 6.15% and original contractual maturities ranging from 3 to 5 years. The entire balance of brokered deposits matures in 2000. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM BORROWINGS Short-term borrowings consist of repurchase agreements and overnight liabilities to deposit clients arising from Republic's cash management program. While effectively deposit equivalents, these arrangements consist of securities sold under agreements to repurchase and liabilities secured by private insurance. Short-term borrowings increased from $149 million at December 31, 1998, to $215 million at December 31, 1999. Included in December 31, 1999 balances are approximately $28 million in deposits from public funds entities which are expected to be withdrawn during the first quarter of 2000. OTHER BORROWED FUNDS Other borrowed funds, which consist principally of FHLB advances, increased from $190 million at December 31, 1998 to $231 million at December 31, 1999. Additional borrowings were also used to fund loan growth and purchase investment securities that were used to collateralize deposits due to the bank's growth in public funds and high balance commercial accounts. Republic's management expects to continue to use FHLB borrowings as a source of funds in addition to retail deposits. The need for additional FHLB borrowings above current levels will be evaluated by management, with consideration given to the growth of the Bank's loan portfolio, liquidity needs, cost of deposits, market conditions and other factors. As of December 31, 1999, Republic had the capacity to increase its borrowings from the FHLB an additional $103 million. LIQUIDITY Republic maintains sufficient liquidity in order to fund loan demand and routine deposit withdrawal activity. Liquidity is managed by retaining sufficient liquid assets in the form of investment securities and core deposits to meet demand. Funding and cash flows can also be realized from the available-for-sale portion of the securities portfolio and paydowns from the loan portfolio. Republic's banking centers also provide access to their retail deposit markets. Approximately $102 million of repurchase agreements are attributable to three customer relationships at December 31, 1999. These funds are short-term in nature and subject to immediate withdrawal by these entities. Should these funds be removed, Republic has the ability to replenish these funds through various funding sources. Republic has established lines of credit with other financial institutions, the FHLB and brokerage firms. While Republic utilizes numerous funding sources in order to meet liquidity requirements, FHLB borrowings remain a material component of management's balance sheet strategy. CAPITAL On January 29, 1999, Republic formed an Employee Stock Ownership Plan (ESOP) for the benefit of its employees. The ESOP borrowed $3.9 million from the Parent Company and purchased 300,000 shares of Class A Common Stock. The transaction led to a reduction in capital of $3.6 million during 1999. In July of 1998 Republic sold 2 million shares of its Class A Common Stock at an initial offering price of $13 per share and received approximately $23.6 million in proceeds. The stock offering proceeds strengthened Republic's capital base and are being utilized for continued banking center expansion, broadening existing business lines and other general corporate purposes. Republic's board of directors approved a Class A share repurchase program of 500,000 shares during the fourth quarter of 1998 and throughout 1999 Under the repurchase program Republic has repurchased approximately 299,000 shares as of December 31, 1999 with a weighted average cost of $11.42, totaling $3.4 million. On December 31, 1997, Republic redeemed its $5 million outstanding Series A Convertible Preferred stock. At the option of each shareholder, each security was either convertible into 10 shares of Class A Common Stock and 2 shares of Class B Common Stock, or redeemable in cash for the initial offering price of $100 per share plus a 20% premium. As a result of this redemption approximately 80% of the outstanding securities were converted to Common Stock. The remaining securities were redeemed for cash. The $1.2 million payout to those shareholders included the 20% premium of $203,000, which was charged to retained earnings. Regulatory agencies measure capital adequacy within a framework that makes capital requirements, in part, dependent on the individual risk profiles of financial institutions. Republic improved its capital position in 1998 due to capital raised during the offerings mentioned above and increased retained earnings achieved during the period. Republic's capital decreased slightly in 1999 due to net unrealized depreciation on securities available for sale of $3.9 million, and the ESOP plan shares totalling $3.6 million. These reductions were largely offset by an increase of $8.1 million in retained earnings in 1999 compared to 1998. Republic's capital to average assets ratio increased to 8.27% at December 31, 1999 compared to 7.58% and 5.97% at year end 1998 and 1997. Republic continues to exceed the regulatory requirements for Tier I, Tier I leverage and total risk-based capital. The Bank intends to maintain a capital position that meets or exceeds the "well capitalized" requirements as defined by the FDIC. See Note 13 to the Consolidated Financial Statements. 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. Management considers interest rate risk to be Republic's most significant market risk. Interest rate risk is the exposure to adverse changes in the net interest income as a result of market fluctuations in interest rates. Management regularly monitors interest rate risk in relation to prospective market and business conditions. The Bank's board of directors sets policy guidelines establishing maximum limits on the Bank's interest rate risk exposure. Republic's management monitors and adjusts exposure to interest rate fluctuations as influenced by the Bank's loan and deposit portfolios. Republic uses an earnings simulation model to analyze net interest income sensitivity. Potential changes in market interest rates and their subsequent effect on interest income are then evaluated. The model projects the effect of instantaneous movements in interest rates of both 100 and 200 basis points. Assumptions based on the historical behavior of Republic's deposit rates and balances in relation to changes in interest rates are also incorporated into the model. These assumptions are inherently uncertain and, as a result, the model cannot precisely measure 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 of various management strategies. Interest rate risk management focuses on maintaining acceptable net interest income within policy limits approved by the board of directors. The Bank's Asset/Liability Management Committee monitors and manages interest rate risk to maintain an acceptable level of change to net interest income resulting from market interest rate changes. Tables 15 & 16 illustrate Republic's estimated annualized earnings sensitivity profile based on the asset/liability model as of year-end 1999 and year-end 1998:
TABLE 15 - INTEREST RATE SENSITIVITY FOR 1999 Decrease in Rates Increase in Rates ----------------- ----------------- 200 100 100 200 As of December 31, 1999 (dollars in thousands) Basis Points Basis Points BASE Basis Points Basis Points Projected interest income Loans ................................ $ 82,805 $ 87,101 $ 92,825 $ 97,350 $101,418 Investments .......................... 13,311 13,862 14,191 14,565 14,914 Short-term investments ............... 353 871 585 613 631 Total interest income ................ 96,469 101,834 107,601 112,528 116,963 Projected interest expense Deposits ............................. 28,261 31,367 34,736 38,277 41,834 Other borrowings ..................... 16,622 20,047 23,661 27,256 30,866 Total interest expense ............... 44,883 51,414 58,397 65,533 72,700 Net interest income .................. $ 51,586 $ 50,420 $ 49,204 $ 46,995 $ 44,263 Change from base ..................... $ 2,382 $ 1,216 $ (2,209) $ (4,941) % Change from base ................... 4.84% 2.47% (4.49)% (10.04)%
TABLE 16 - INTEREST RATE SENSITIVITY FOR 1998 Decrease in Rates Increase in Rates ----------------- ----------------- 200 100 100 200 As of December 31, 1999 (dollars in thousands) Basis Points Basis Points BASE Basis Points Basis Points Projected interest income Loans ................................ $ 63,043 $ 68,835 $ 75,394 $ 81,537 $ 86,959 Investments .......................... 11,111 12,011 13,060 13,583 14,102 Short-term investments ............... 240 354 493 635 773 Total interest income ................ 74,394 81,200 88,947 95,755 101,834 Projected interest expense Deposits ............................. 27,287 29,197 31,126 33,111 35,446 Other borrowings ..................... 12,368 14,366 16,364 18,361 20,359 Total interest expense ............... 39,655 43,563 47,490 51,472 55,805 Net interest income .................. $ 34,739 $ 37,637 $ 41,457 $ 44,283 $ 46,029 Change from base ..................... $ (6,718) $ (3,820) $ 2,826 $ 4,572 % Change from base ................... (16.20)% (9.21)% 6.82% 11.03%
Republic's interest sensitivity profile changed from 1998 to 1999 as a result of the increase in longer term adjustable rate mortgage (ARM) loan products. In a rising interest rate environment these longer term ARM loans reduce net interest income, due to the fact that the rates during the initial term on the five-, seven-, and ten-year products are fixed. Given a sustained 200 basis point downward shock to the interest rate yield curve used in the simulation model, Republic's base net interest income would decrease by an estimated 16.20% in 1998 compared to an increase of 9.84% for 1999. Given a 200 basis point rise in the yield curve Republic's base net interest income would increase by an estimated 11.03% in 1998 compared to a decrease of 10.04% for 1999. The interest rate 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 repricing schedules. The tables above may not be a precise measurement of the effect of changing interest rates on Republic in the future. YEAR 2000 Republic undertook a project (the "Year 2000 Project") to identify and assess the readiness of its computer systems, programs and other infrastructure that could be affected by the Year 2000 issue and to remedy any problems identified. Republic's Year 2000 Project also included an assessment of the Year 2000 readiness of key third parties on whom the Company's operations depend, as well as customers Republic deemed to have material Year 2000 issues. Republic also developed contingency plans permitting the Company to continue operations, consistent with the highest quality standards, in the event Year 2000 problems arose. Management believes that its Year 2000 Project proceeded successfully as all operating systems performed well during the year change. While management does not expect future problems resulting from the Year 2000 issue, it is possible that other dates in the year 2000 may further affect computer software or systems, or cause a Year 2000 problem relating to the Company's own systems or to those of key third parties with whom Republic conducts business that could adversely affect its financial condition. Republic has incurred costs of approximately $760,000 attributable to year 2000 remediation and anticipates total costs and charges to be in an approximate range of $1.2 to $1.5 million. A large proportion of the remaining budgeted costs to be incurred are related to the Year 2000 employee retention program, with the majority not being fully earned until the end of 2000. Actual expenses could vary from management's estimates if unforeseen circumstances were to arise. Monitoring of computer date-sensitive issues will continue at least through the first quarter of 2000. Corrective action will be taken if management encounters any previously unidentified Year 2000 problems internally or in interfacing with third parties, and the Company's contingency plans remain available. Management has determined that if an unlikely business interruption as a result of computer date-sensitive issues occurred, such an interruption could be material to Republic's overall financial performance. MARKET AND DIVIDEND INFORMATION Republic's Class A common stock is traded on the Nasdaq National Market System (NASDAQ) under the symbol "RBCAA". The following table sets forth the high and low prices of the Class A common stock since July 21, 1998, the date the Class A common stock began trading on NASDAQ. 1998 Quarter Ended High Low - ------------------------------------------------------------------ September 30 $ 16.44 $ 12.63 December 31 14.13 11.88 1999 Quarter Ended High Low - ------------------------------------------------------------------ March 31 $ 13.00 $ 11.00 June 30 12.00 10.63 September 30 11.63 9.00 December 31 9.94 8.31 There is no established public trading market for the Class B common stock, and there was no established public trading market for the Class A common stock prior to July 22, 1998. At February 25, 2000, the Class A common stock was held by 825 shareholders of record, and the Class B common stock was held by 227 shareholders of record. Note 24 to Republic's Consolidated Financial Statements provides the amount of quarterly cash dividends paid on the Class A and Class B Common Stock for both 1999 and 1998. The Company currently intends to continue its policy of paying quarterly cash dividends although there is no assurance that such dividends will continue to be paid in the future. The payment of dividends is subject to the discretion of the board of directors. The payment of dividends in the future is dependent on future income, financial position, capital requirements and other considerations. In addition, the payment of dividends is subject to the restrictions described in note 13 to the Company's consolidated financial statements. REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders of Republic Bancorp, Inc. We have audited the accompanying consolidated balance sheets of Republic Bancorp, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of Republic's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Republic Bancorp, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ending December 31, 1999, in conformity with generally accepted accounting principles. /s/ Crowe, Chizek and Company LLP Louisville, Kentucky January 14, 2000
REPUBLIC BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 1999 and 1998 (dollars in thousands) 1999 1998 ASSETS: Cash and cash equivalents: Cash and due from banks $ 20,827 $ 37,446 Federal funds sold 46,700 2,500 ----------- ----------- Total cash and cash equivalents 67,527 39,946 Securities available for sale 181,627 186,936 Securities to be held to maturity 32,931 29,985 Mortgage loans held for sale 7,408 38,167 Loans, less allowance for loan losses of $7,862 (1999 and 1998) 1,031,512 870,031 Federal Home Loan Bank stock 15,054 14,036 Accrued interest receivable 9,162 8,825 Premises and equipment, net 18,986 15,870 Other assets 4,776 3,888 ----------- ----------- TOTAL $ 1,368,983 $ 1,207,684 =========== =========== LIABILITIES: Deposits: Non-interest bearing $ 84,256 $ 80,345 Interest bearing 716,653 666,802 Securities sold under agreements to repurchase and other short-term borrowings 215,718 148,659 Other borrowed funds 231,383 190,222 Accrued interest payable 3,942 3,769 Guaranteed preferred beneficial interests in Republic's subordinated debentures 6,352 6,402 Other liabilities 6,909 7,643 ----------- ----------- Total liabilities 1,265,213 1,103,842 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, no par value, 100,000 shares authorized Series A 8.5% noncumulative convertible Class A common stock, no par value, 30,000,000 shares authorized, 14,536,337 shares (1999) and 14,868,741 shares (1998) issued and outstanding; Class B common stock, no par value, 5,000,000 shares authorized, 2,142,149 shares (1999) and 2,304,928 shares (1998) issued and outstanding 4,099 4,149 Additional paid-in capital 33,617 34,014 Retained earnings 73,600 65,469 Unearned employee stock ownership plan shares (3,620) Accumulated other comprehensive income (loss) (3,926) 210 ----------- ----------- Total stockholders' equity 103,770 103,842 ----------- ----------- TOTAL $ 1,368,983 $ 1,207,684 =========== ===========
See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Years Ended December 31, 1999, 1998 and 1997 (in thousands, except per share data) 1999 1998 1997 INTEREST INCOME: Loans, including fees $83,581 $77,919 $76,889 Securities available for sale - taxable 10,965 8,816 5,748 Securities to be held to maturity: Taxable 1,295 4,035 7,249 Non-taxable 95 112 123 FHLB dividends 1,041 855 494 Other 180 930 691 ------- ------- ------- Total interest income 97,157 92,667 91,194 ------- ------- ------- INTEREST EXPENSE: Deposits 32,686 34,221 38,940 Securities sold under agreements to repurchase and short-term borrowings 5,656 4,869 4,533 Other borrowed funds 11,210 11,084 7,383 ------- ------- ------- Total interest expense 49,552 50,174 50,856 ------- ------- ------- NET INTEREST INCOME 47,605 42,493 40,338 PROVISION FOR LOAN LOSSES 1,806 3,110 7,251 ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 45,799 39,383 33,087 ------- ------- ------- NON-INTEREST INCOME: Service charges on deposit accounts 3,653 3,255 3,284 Electronic refund check fees 1,238 380 247 Other service charges and fees 489 441 414 Loan servicing income 455 598 734 Net gain on sale of mortgage loans 2,974 4,326 1,852 Net gain on sale of securities 184 1,139 81 Net gain on sale of deposits 4,116 7,527 Net gain on sale of Bankcard 3,660 Other 1,091 1,257 1,131 ------- ------- ------- Total non-interest income 10,084 15,512 18,930 ------- ------- ------- NON-INTEREST EXPENSE: Salaries and employee benefits 20,661 16,968 15,444 Occupancy and equipment 7,632 7,423 8,562 Communication and transportation 1,716 1,703 1,796 Marketing and development 1,266 1,372 1,299 Supplies 940 1,066 1,013 Other 5,168 5,001 4,766 ------- ------- ------- Total non-interest expense 37,383 33,533 32,880 ------- ------- ------- INCOME BEFORE INCOME TAXES 18,500 21,362 19,137 INCOME TAXES 6,248 7,606 6,878 ------- ------- ------- NET INCOME $12,252 $13,756 $12,259 ======= ======= ======= OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: Change in unrealized gain (loss) on securities $(4,015) $ 1,004 $ 218 Reclassification of realized amount (121) (740) (53) ------- ------- ------- Net unrealized gain (loss) recognized in comprehensive income (4,136) 264 165 ------- ------- ------- COMPREHENSIVE INCOME $ 8,116 $14,020 $12,424 ======= ======= ======= EARNINGS PER SHARE, BASIC Class A $ .73 $ .87 $ .82 Class B .72 .86 .81 EARNINGS PER SHARE ASSUMING DILUTION Class A .71 .83 .79 Class B .69 .82 .78
See accompanying notes.
REPUBLIC BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 1999, 1998 and 1997 (in thousands, except per share data) Unearned Accumu- Employee lated Stock Other Total Common Stock Additional Ownership Compre- Stock- Preferred Stock Class A Class B Paid-In Retained Plan hensive holders' Shares Amount Shares Shares Amount Capital Earnings Shares Income(Loss) Equity BALANCE, January 1, 1997 50 $ 5,000 12,104 2,340 $3,491 $ 6,817 $43,930 $ (219) $ 59,019 Exercise of Common Stock options 27 7 146 153 Redemption of preferred stock (10) (1,015) (203) (1,218) Conversion of preferred stock into Common Stock (40) (3,985) 398 80 115 3,870 Conversion of Class B Common to Class A Common 2 (2) Dividends declared: Preferred ($8.50 per share) (425) (425) Common: Class A ($ .11 per share) (1,335) (1,335) Class B ($ .10 per share) (232) (232) Net changes in unrealized appreciation (depreciation) on securities available for sale, net of tax 165 165 Net income 12,259 12,259 --- ------- ------ ------ ------ ------- ------- --------- ------- -------- BALANCE, December 31, 1997 12,531 2,418 $3,613 $10,833 $53,994 $ (54) $ 68,386 Exercise of Common Stock options 34 5 7 148 155 Issuance of Class A Common 2,000 484 23,097 23,581 Repurchase of Class A Common (52) (12) (100) (574) (686) Acquisition of Refunds Now 230 55 (53) 30 32 Employee stock grant 3 1 40 41 Conversion of Class B Common to Class A Common 348 (348) Conversion of Capital Trust Preferred to Class A Common 5 1 49 50 Dividends declared Common: Class A ($ .11 per share) (1,501) (1,501) Class B ($ .10 per share) (236) (236) Net changes in unrealized appreciation (depreciation) on securities available for sale, net of tax 264 264 Net income 13,756 13,756 --- ------- ------ ------ ------ ------- ------- --------- ------- -------- BALANCE, December 31, 1998 14,869 2,305 $4,149 $34,014 $65,469 $ 210 $103,842 Exercise of Common Stock options 22 4 6 91 97 Repurchase of Class A Common (247) (57) (489) (2,167) (2,713) Conversion of Class B Common to Class A Common 167 (167) Conversion of Capital Trust Preferred to Class A Common 5 1 49 50 Purchase of 300,000 shares under the Employee Stock Ownership Plan (300) $(3,873) (3,873) Commitment of 19,612 shares to be released under the Employee Stock Ownership Plan 20 (48) 253 205 Dividends declared Common: Class A ($ .11825 per share) (1,721) (1,721) Class B ($ .10750 per share) (233) (233) Net changes in unrealized appreciation (depreciation) on securities available for sale, net of tax (4,136) (4,136) Net income 12,252 12,252 --- ------- ------ ------ ------ ------- ------- ------- ------- -------- BALANCE, December 31, 1999 14,536 2,142 $4,099 $33,617 $73,600 $(3,620) $(3,926) $103,770 === ======= ====== ====== ====== ======= ======= ======= ======= ========
See accompanying notes.
REPUBLIC BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1999, 1998 and 1997 (in thousands) 1999 1998 1997 OPERATING ACTIVITIES: Net income $ 12,252 $ 13,756 $ 12,259 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of premises and equipment 3,608 3,313 4,683 Amortization and accretion of securities 341 331 606 FHLB stock dividends (1,018) (855) (456) Provision for loan losses 1,806 3,110 7,251 Net gain on sale of deposits (4,116) (7,527) Net gain on sale of Bankcard (3,660) Net gain on sale of mortgage loans (2,974) (4,326) (1,852) Net gain on sale of securities (184) (1,139) (81) Proceeds from sale of mortgage loans held for sale 210,747 272,080 123,909 Origination of mortgage loans held for sale (177,014) (295,951) (124,403) Employee stock grant 41 Employee Stock Ownership Plan expense 205 Changes in assets and liabilities: Accrued interest receivable and other assets 3,273 595 899 Accrued interest payable and other liabilities (684) (1,623) 2,858 --------- --------- --------- Net cash provided by (used in) operating activities 50,358 (14,784) 14,486 INVESTING ACTIVITIES: Purchases of securities available for sale (89,042) (235,129) (69,355) Purchases of securities to be held to maturity (61,354) (11,189) Purchases of FHLB stock (5,057) (2,120) Proceeds from maturities of securities to be held to maturity 58,544 68,827 86,746 Proceeds from maturities and paydowns of securities available for sale 67,546 9,094 Proceeds from sales of securities available for sale 20,244 133,867 83,006 Proceeds from sale of Bankcard 26,590 Net increase in loans (165,653) (79,421) (66,654) Purchases of premises and equipment (6,733) (7,394) (3,364) Proceeds from sales of premises and equipment 9 985 3,416 Cash acquired in acquisition of Refunds Now 32 --------- --------- --------- Net cash provided by (used in) investing activities (176,439) (114,196) 47,076 FINANCING ACTIVITIES: Net increase in deposits 53,762 81,229 63,593 Sale of deposits (61,564) (107,609) Net increase (decrease) in securities sold under agree- ments to repurchase and other short-term borrowings 67,059 37,522 (70,497) Payments on other borrowed funds (93,839) (336,453) (296,819) Proceeds from other borrowed funds 135,000 402,270 314,250 Proceeds from issuance of Class A common stock 23,581 Repurchase of Class A common stock (2,713) (686) Proceeds from issuance of guaranteed preferred beneficial interests in Republic's subordinated debentures 6,452 Proceeds from common stock options exercised 97 155 153 Redemption of preferred stock (1,218) Purchase of shares for Employee Stock Ownership Plan (3,873) Cash dividends paid (1,831) (1,674) (1,992) --------- --------- --------- Net cash provided by (used in) financing activities 153,662 144,380 (93,687) --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 27,581 15,400 (32,125) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 39,946 24,546 56,671 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 67,527 $ 39,946 $ 24,546 ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 49,379 $ 52,638 $ 50,266 Income taxes 5,949 8,379 6,095 Transfers from loans to other real estate owned 2,366 1,219 958
See accompanying notes. REPUBLIC BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1999, 1998, AND 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION AND BUSINESS - The consolidated financial statements include the accounts of Republic Bancorp, Inc. (Parent Company) and its wholly-owned subsidiaries; Republic Bank & Trust Company (Bank), and its subsidiary Republic Financial Services (d/b/a Refunds Now), Republic Capital Trust, Republic Mortgage Company and Republic Insurance Agency, Inc. (collectively Republic). All significant intercompany balances and transactions have been eliminated. Republic operates 21 banking centers primarily in the retail banking industry and conducts its operations predominately in metropolitan Louisville and in Central Kentucky. During 1999, Republic began offering services through an internet banking software application. Republic's consolidated results of operations are dependent upon net interest income, which is the difference between the interest income on interest-earning assets and the interest expense on interest-bearing liabilities. Principal interest-earning assets are securities and real estate mortgage, commercial, and consumer loans. Interest-bearing liabilities consist of interest-bearing deposit accounts and short-term and long-term borrowings. Other sources of income include fees charged to customers for a variety of banking services such as transaction deposit accounts, and trust services. Republic also generates revenue from its mortgage banking activities, which include the origination and sale of loans in the secondary market and servicing loans for others, and through electronic tax return filing services. Republic's operating expenses consist primarily of salaries and employee benefits, occupancy and equipment expenses, marketing and development, communications and transportation costs and other general and administrative expenses. Republic's results of operations are significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies and actions of regulatory agencies. USE OF ESTIMATES - Financial statements prepared in conformity with generally accepted accounting principles require management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Estimates that are particularly subject to change include the allowance for loan losses and fair value of financial instruments. Actual results could differ from these estimates. CASH FLOWS - Cash and cash equivalents includes cash, deposits with other financial institutions under 90 days, and federal funds sold. Net cash flows are reported for loan, deposit and other borrowing transactions. SECURITIES - Securities to be held to maturity are those which Republic has the positive intent and ability to hold to maturity and are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity. Securities available for sale, carried at fair value, consist of securities not classified as trading securities nor as held to maturity securities. Unrealized holding gains and losses, net of tax, on securities available for sale are reported as a separate component of stockholders' equity until realized. Gains and losses on the sale of available for sale securities are determined using the specific-identification method. Premiums and discounts are recognized in interest income using the interest method over the period to maturity. Declines in the fair value of individual securities below their cost that are other than temporary result in write-downs of the individual securities to their fair value. The related write-downs are included in earnings as realized losses. Federal Home Loan Bank stock is carried at cost. MORTGAGE BANKING ACTIVITIES - Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market value. Republic controls its interest rate risk with respect to mortgage loans held for sale and loan commitments expected to close by entering into agreements to sell loans. The aggregate market value of mortgage loans held for sale considers the sales prices of such agreements. Republic also provides currently for any losses on uncovered commitments to lend or sell. Servicing rights are recognized as assets for purchased rights and for the allocated value of retained servicing rights on loans sold. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans as to interest rates and then, secondarily, as to geographic and prepayment characteristics. Any impairment of a grouping is reported as a valuation allowance. Republic's loans sold in the secondary market have been primarily servicing released. Accordingly, servicing rights have not had a material impact on Republic's financial position or results of operations. Loan servicing income is recorded as principal payments are collected and includes servicing fees from investors and certain charges collected from borrowers, such as late payment fees. Costs of loan servicing are charged to expense as incurred. LOANS - Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest on loans is computed on the principal balance outstanding. Loan origination fees and certain direct loan origination costs relating to successful loan origination efforts are deferred and recognized over the lives of the related loans as an adjustment to yield. Generally, the accrual of interest on loans, including impaired loans, is discontinued when it is determined that the collection of interest or principal is doubtful, or when a default of interest or principal has existed for 90 days or more, unless such loan is well secured and in the process of collection. Interest received on non-accrual loans generally is either applied against principal or reported as interest income, according to management's judgment as to the collectibility of principal. When loans are placed on non-accrual status, all unpaid accrued interest is reversed. Such loans remain on non-accrual status until the borrower demonstrates the ability to remain current or the loan is deemed uncollectible and is charged off. Consumer loans generally are not placed on non-accrual status but are reviewed periodically and charged off when deemed uncollectible. Republic recognizes interest income on an impaired loan when earned, unless the loan is on non-accrual status, in which case interest income is recognized when received. ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is an amount that management believes will be adequate to absorb probable credit losses on existing loans, based on evaluations of the collectibility of loans and prior loan loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrowers' ability to pay. Although management believes it uses the best information available to make determinations with respect to Republic's allowance for loan losses, future adjustments, which could be material, may be necessary if original assumptions differ from actual performance. A loan is defined as "impaired" when it is probable that a creditor will be unable to collect all principal and interest due according to the contractual terms of the loan agreement. Republic has defined its population of impaired loans to be those commercial real estate and commercial loans over $499,999 that management has classified as doubtful (collection of all amounts due under the terms of the loan is highly questionable or improbable) or loss (all or a portion of the loan has been written off or a specific allowance for loss has been provided). Republic's policy is to charge off all or that portion of its investment in an impaired loan upon determination that it is probable the amount will not be collected. Impairment of smaller balance, homogeneous loans (commercial real estate and commercial loans less than $500,000, residential real estate, consumer, home equity, and credit card loans) is measured on an aggregate basis giving consideration to historical charge-off experience of the related portfolios. PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed over the estimated useful lives of the related assets on the straight-line method. Estimated lives are 25 to 31 1/2 years for buildings and improvements, 3 to 5 years for furniture, fixtures and equipment and 3 to 9 years for leasehold improvements. LONG LIVED ASSETS - Long lived assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at discounted amounts. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM BORROWINGS - Substantially all repurchase agreement liabilities represent amounts advanced by various customers. Securities are pledged to cover most of these liabilities, not covered by federal deposit insurance. Certain of these liabilities, which are not covered by federal deposit insurance, are secured by private insurance purchased by Republic rather than by a pledge of securities. STOCK OPTION PLANS - Employee compensation expense under stock option plans is reported if options are granted below market price at grant date. Pro-forma disclosures of net income and earnings per share are shown using the fair value method of SFAS No. 123 to measure expense for options granted after 1994, using an option pricing model to estimate fair value. INCOME TAXES - Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. EMPLOYEE STOCK OWNERSHIP PLAN- The cost of shares held by the ESOP, but not yet allocated to participants, is shown as a reduction of stockholders' equity. Compensation expense is based on the market price of shares as they are committed to be released to participant accounts. Dividends on allocated ESOP shares reduce retained earnings; dividends on unearned ESOP shares reduce debt and accrued interest. FINANCIAL INSTRUMENTS - Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and standby letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. EARNINGS PER SHARE - Earnings per share is based on income less preferred stock dividends (and, in the case of Class B Common Stock, less the dividend preference on Class A Common Stock) divided by the weighted average number of shares outstanding during the period. Earnings per share assuming dilution shows the effect of additional common shares issuable under stock options, convertible preferred stock and guaranteed preferred beneficial interests in Republic's subordinated debentures. All per share amounts have been restated to reflect the stock splits occurring during the periods presented. COMPREHENSIVE INCOME - Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale which are also recognized as separate components of equity. SEGMENT INFORMATION - Segments are parts of a company evaluated by management with separate financial information. Republic's internal information is primarily reported and evaluated in two lines of business - banking and mortgage banking. ACQUISITION - During 1998, Republic acquired Refunds Now, Inc. for 230,000 shares of Class B Common Stock. Refunds Now(R) provides electronic tax return filing and refund anticipation loan services through approximately 1,000 locations nationwide. The transaction was accounted for using the pooling of interests method. As reflected in the consolidated statements of stockholders' equity and cash flows, prior periods have not been restated for the acquisition as the impact to those periods is not material. As of and for the year ended 1998, Refunds Now had $507,000 in total assets and net income of $169,000. CURRENT ACCOUNTING ISSUES - Beginning January 1, 2001, a new accounting standard will require all derivatives to be recorded at fair value. Unless designated as hedges, changes in these fair values will be recorded in the income statement. Fair value changes involving hedges will generally be recorded by offsetting gains and losses on the hedge and on the hedged item, even if the fair value of the hedged item is not otherwise recorded. This is not expected to have a material effect, but the effect will depend on derivative holdings when this standard applies. RECLASSIFICATIONS - Certain amounts presented in prior periods have been restated to conform with 1999 presentation. 2. RESTRICTIONS ON CASH AND DUE FROM BANKS Republic is required by the Federal Reserve Bank to maintain average reserve balances. Cash and due from banks in the consolidated balance sheet includes $5.8 million of reserve balances at December 31, 1999. 3. SECURITIES
Securities available for sale: Gross Gross Amortized Unrealized Unrealized As of December 31, 1999 (in thousands) Cost Gains Losses Fair Value U.S. Treasury securities and U.S. government agencies $ 99,019 $ 3 $ (1,993) $ 97,029 Mortgage-backed securities 69,292 (2,952) 66,340 Corporate bonds 19,266 (1,008) 18,258 -------- -------- -------- -------- Total securities available for sale $187,577 $ 3 $ (5,953) $181,627 ======== ======== ======== ========
Gross Gross Amortized Unrealized Unrealized As of December 31, 1998 (in thousands) Cost Gains Losses Fair Value U.S. Treasury securities and U.S. government agencies $123,520 $ 532 $ (76) $123,976 Mortgage-backed securities 47,771 185 (150) 47,806 Corporate bonds 15,326 (172) 15,154 -------- -------- -------- -------- Total securities available for sale $186,617 $ 717 $ (398) $186,936 ======== ======== ======== ========
Securities to be held to maturity: Gross Gross Amortized Unrealized Unrealized As of December 31, 1999 (in thousands) Cost Gains Losses Fair Value U.S. Treasury securities and U.S. government agencies $ 25,353 $ $ (134) $ 25,219 Obligations of state and political subdivisions 3,775 89 3,864 Mortgage-backed securities 3,803 (50) 3,753 -------- -------- -------- -------- Total securities to be held to maturity $ 32,931 $ 89 $ (184) $ 32,836 ======== ======== ======== ========
Gross Gross Amortized Unrealized Unrealized As of December 31, 1998 (in thousands) Cost Gains Losses Fair Value U.S. Treasury securities and U.S. government agencies $ 25,422 $ 32 $ (111) $ 25,343 Obligations of state and political subdivisions 4,077 159 4,236 Mortgage-backed securities 486 (26) 460 -------- -------- -------- -------- Total securities to be held to maturity $ 29,985 $ 191 $ (137) $ 30,039 ======== ======== ======== ========
Securities having an amortized cost of $164.7 million and $168.1 million and fair value of $160.6 million and $168.4 million at December 31, 1999 and 1998, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes, as required or permitted by law. Gross gains of $185,000 and losses of $1,000 were recognized in 1999 from proceeds of $20 million on sales of available for sale securities. In 1998, gross gains of $1.1 million and losses of $2,000 were recognized from proceeds of $134 million on sales of available for sale securities. The amortized cost and fair value of securities, by contractual maturity, are as follows:
Securities to be Securities held to maturity available for sale Amortized Amortized As of December 31, 1999 (in thousands) Cost Fair Value Cost Fair Value Due in one year or less $ 6,525 $ 6,508 $ 24,029 $ 23,876 Due after one year through five years 19,329 19,216 94,256 91,411 Due after five through ten years 824 909 Due after ten years 2,450 2,450 Mortgage-backed securities 3,803 3,753 69,292 66,340 -------- -------- -------- -------- Total $ 32,931 $ 32,836 $187,577 $181,627 ======== ======== ======== ========
4. LOANS
As of December 31, (in thousands) 1999 1998 Residential real estate $ 636,012 $ 520,583 Commercial real estate 163,064 118,293 Real estate construction 63,928 47,396 Commercial 31,411 26,381 Consumer 39,435 56,728 Home equity 103,833 106,845 Other 2,973 3,146 ---------- ---------- Total loans 1,040,656 879,372 Less: Unearned interest income and unamortized loan fees 1,282 1,479 Allowance for loan losses 7,862 7,862 ---------- ---------- Loans, net $1,031,512 $ 870,031 ========== ==========
Activity in the allowance for loan losses is summarized as follows:
As of December 31, (in thousands) 1999 1998 1997 Balance, beginning of year $ 7,862 $ 8,176 $ 6,241 Provision for loan losses charged to income 1,806 3,110 7,251 Charge-offs (2,398) (3,924) (5,859) Recoveries 592 500 543 -------------- --------------- -------------- Balance, end of year $ 7,862 $ 7,862 $ 8,176 ============== =============== ==============
The level of charge-offs in 1997 exceeded losses incurred in subsequent periods and were directly related to two unsecured credit programs initiated in 1995. The net charge-offs related to loans arising under these programs were $610,000, $1.9 million and $4.2 million in 1999, 1998 and 1997, and accounted for 34%, 57% and 71% of net charge offs in each of those years. Originations of loans under these programs were significantly reduced in 1997 and 1996, with no originations in 1998 and 1999. Information about Republic's investment in impaired loans is as follows:
As of and for the Year Ended December 31, (in thousands) 1999 1998 1997 Gross impaired loans which have allowances $ 1,043 $ 1,116 $ 1,640 Less: related allowances for loan losses 700 100 240 -------------- --------------- -------------- Net impaired loans with related allowances 343 1,016 1,400 Impaired loans with no related allowances 0 0 0 -------------- --------------- -------------- Total $ 343 $ 1,016 $ 1,400 ============== =============== ============== Average impaired loans outstanding $ 1,043 $ 1,116 $ 1,639 ============== =============== ============== Interest income recognized 92 100 93 Interest income received 92 100 93 Nonperforming loans were as follows: Loans past due 90 days still on accrual 968 1,731 4,459 Nonaccrual loans 2,721 3,258 2,676
Nonperforming loans includes impaired loans and smaller balance homogeneous loans as defined in note 1. Loans made to executive officers and directors of Republic and their related interests in the ordinary course of business, subject to substantially the same credit policies as other loans and current in their terms, are as follows:
Balance, Change in Balance, Beginning Related Party New End Period Of Period Status Loans Repayments Of Period (in thousands) Year ended December 31, 1999 $ 3,520 $ (118) $ 4,167 $ (1,043) $ 6,526 ============= ============ ============= ============= =============
5. LOAN SERVICING Republic was servicing loans for others (primarily FHLMC) totaling $199 million and $220 million at December 31, 1999 and 1998, respectively. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and processing foreclosures. 6. PREMISES AND EQUIPMENT
As of December 31, (in thousands) 1999 1998 Land $ 1,502 $ 1,502 Office buildings and improvements 11,348 9,458 Furniture, fixtures and equipment 20,666 18,322 Leasehold improvements 1,994 960 --------------- -------------- Total premises and equipment 35,510 30,242 Less accumulated depreciation and amortization 16,524 14,372 --------------- -------------- Net premises and equipment $ 18,986 $ 15,870 =============== ==============
7. DEPOSITS Time deposits of $100,000 or more were approximately $92 million and $77 million at year-end 1999 and 1998. At December 31, 1999, the scheduled maturities of time deposits of $100,000 or more are as follows:
Weighted (dollars in thousands) Average Rate Less than 1 year $ 61,440 5.55% Over 1 year through 3 years 24,306 5.18 Over 3 years through 5 years 6,102 6.91 --------------- $ 91,848
8. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT TERM BORROWINGS These borrowings consist of short-term excess funds from correspondent banks, repurchase agreements and overnight liabilities to deposit customers arising from a cash management program offered by Republic. While effectively deposit equivalents, such arrangements are in the form of repurchase agreements or liabilities secured by insurance policies purchased by Republic. Repurchase agreements secured by securities are treated as financings; accordingly, the securities involved with the agreements are recorded as assets and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. All securities underlying the agreements were under Republic's control. Information concerning securities sold under agreements to repurchase and liabilities secured by insurance policies at year end 1999 and 1998 is as follows:
As of December 31, (in thousands) 1999 1998 Average outstanding balance during the year $ 129,903 $ 115,280 Average interest rate during the year 4.35% 4.21% Maximum month end balance during the year $ 217,143 $ 148,659
Included in December 31, 1999 balances are $28 million from public funds entities, which are expected to be withdrawn during the first quarter of 2000, and $102 million related to three major customer relationships. 9. OTHER BORROWED FUNDS
As of December 31, (in thousands) 1999 1998 Federal Home Loan Bank convertible fixed rate advance (see comment below) $ 10,000 $ 50,000 Federal Home Loan Bank variable interest rate advances, with weighted average interest rate of 6.42% at December 31, 1999, due through 2001 110,000 52,800 Federal Home Loan Bank fixed interest rate advances, with weighted average interest rate of 5.61% at December 31, 1999, due through 2003 111,383 87,422 --------------- -------------- $ 231,383 $ 190,222 =============== ==============
Republic has entered into a convertible fixed rate advance maturing in 9 years with the Federal Home Loan Bank (FHLB) totaling $10 million. The advance is fixed for 2 years at 4.61%. At the end of the fixed term, the FHLB has the right to convert the fixed rate advance on a quarterly basis to a variable rate advance tied to the three month LIBOR index. The advance can be prepaid at any quarterly date without penalty, but may not be prepaid at any time during the fixed rate term. The Federal Home Loan Bank advances are collateralized by a blanket pledge of eligible real estate loans with an unpaid principal balance of greater than 150% of the total commitment. Republic has available collateral to borrow an additional $102.6 million from the Federal Home Loan Bank. Republic also has unsecured lines of credit totaling $40 million and secured lines of credit of $100 million available through various financial institutions. Aggregate future principal payments on borrowed funds as of December 31, 1999 are as follows:
Year (in thousands) 2000 $ 51,099 2001 110,284 2002 2003 60,000 2004 and thereafter 10,000 --------- $ 231,383 =========
10. GUARANTEED PREFERRED BENEFICIAL INTERESTS In February 1997, Republic Capital Trust (RCT), a trust subsidiary of Republic Bancorp, Inc., completed the private placement of 64,520 shares of cumulative trust preferred securities (Trust Preferred Securities) with a liquidation preference of $100 per security. Each security can be converted into ten shares of Class A Common Stock at the option of the holder. The proceeds of the offering were loaned to Republic Bancorp, Inc. in exchange for subordinated debentures with terms that are similar to the Trust Preferred Securities. Distributions on the securities are payable quarterly at the annual rate of 8.5% of the liquidation preference and are included in interest expense in the consolidated financial statements. The Trust Preferred Securities are subject to mandatory redemption, in whole or in part, upon repayment of the subordinated debentures at maturity or their earlier redemption at the liquidation preference. The subordinated debentures are redeemable prior to the maturity date of April 1, 2027 at the option of Republic on or after April 1, 2002, or upon the occurrence of specific events, defined within the trust indenture. Republic has the option to defer distributions on the subordinated debentures from time to time for a period not to exceed 20 consecutive quarters. If distributions are deferred, Republic is prohibited from paying dividends to its Class A and Class B Common stockholders. 11. INCOME TAXES Income tax expense is summarized as follows:
Years Ended December 31, (in thousands) 1999 1998 1997 Current $ 5,692 $ 6,918 $ 7,587 Deferred expense (benefit) 556 688 (709) --------------- -------------- -------------- Total $ 6,248 $ 7,606 $ 6,878 =============== ============== ==============
The provision for income taxes differs from the amount computed at the statutory rate as follows:
Years Ended December 31, 1999 1998 1997 Federal statutory rate 35.0% 35.0% 35.0% Increase (decrease) resulting from: Tax-exempt interest income (0.2) (0.1) (0.3) Other (1.0) 0.7 1.2 ---- ---- ---- Effective rate 33.8% 35.6% 35.9% ==== ==== ====
The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are as follows:
Years Ended December 31, (in thousands) 1999 1998 Deferred tax assets: Depreciation $ 691 $ 511 Allowance for loan losses 1,829 1,802 Unrealized securities losses 2,023 -------------- -------------- Total deferred tax assets 4,543 2,313 -------------- -------------- Deferred tax liabilities: FHLB dividends 1,276 920 Unrealized securities gains 197 Loan fees 210 Mortgage servicing 182 Other 491 476 -------------- -------------- Total deferred tax liabilities 2,159 1,593 -------------- -------------- Net deferred tax asset, included in other assets $ 2,384 $ 720 ============== ==============
12. EARNINGS PER SHARE A reconciliation of the combined Class A and B Common Stock numerators and denominators of the earnings per share and earnings per share assuming dilution computations is presented below. Class A and B shares participate equally in undistributed earnings. The difference in earnings per share between the two classes of common stock results solely from the 10% per share dividend premium paid to Class A Common Stock over that paid to Class B Common Stock as discussed in Note 13. The aggregate dividend premium paid to Class A Common Stock for 1999, 1998 and 1997 was $156,000, $136,000 and $121,000, or approximately one cent on basic earnings per share.
Years Ended December 31, (in thousands) 1999 1998 1997 Earnings Per Share Net Income $ 12,252 $ 13,756 $ 12,259 Less: Dividends declared on preferred stock (425) --------------- -------------- -------------- Net Income available to common shares outstanding $ 12,252 $ 13,756 $ 11,834 =============== ============== ============== Weighted average shares outstanding 16,769 15,886 14,450 =============== ============== ============== Earnings Per Share, Basic Class A $ .73 $ .87 $ .82 Class B .72 .86 .81
Years Ended December 31, (in thousands) 1999 1998 1997 Earnings Per Share Assuming Dilution Net Income $ 12,252 $ 13,756 $ 12,259 Add: Interest expense, net of tax benefit, on assumed conversion of guaranteed preferred beneficial interests in Republic's subordinated debentures 354 356 320 --------------- -------------- -------------- Net Income available to common shareholder assuming conversion $ 12,606 $ 14,112 $ 12,579 =============== ============== ============== Earnings Per Share, Diluted Class A $ .71 $ .83 $ .79 Class B .69 .82 .78
Years Ended December 31, (in thousands) 1999 1998 1997 Weighted average shares outstanding 16,769 15,886 14,450 Add dilutive effects of assumed conversion and exercise: Convertible preferred stock 600 Convertible guaranteed preferred beneficial interest in Republic's subordinated debentures 635 645 564 Stock options 496 498 320 --------------- -------------- -------------- Weighted average shares and dilutive potential shares outstanding 17,900 17,029 15,934 =============== ============== ==============
Stock options for 238,000 shares of Class A Common Stock were excluded from the 1999 earnings per share assuming dilution because their impact was antidilutive. The difference in earnings per share between the two classes of common stock result solely from the dividend premium paid to Class A over Class B Common Stock. 13. STOCKHOLDERS' EQUITY COMMON STOCK - The Class A shares are entitled to cash dividends equal to 110% of the cash dividend paid per share on the Class B Common Stock. Class A shares have one vote per share and Class B shares have ten votes per share. Class B Common Stock may be converted, at the option of the holder, to Class A stock on a share-for-share basis. The Class A Common Stock is not convertible into any other class of Republic's capital stock. On June 30, 1998, the shareholders approved an amendment to Republic's Articles of Incorporation to increase the authorized Class A Common Stock to 30,000,000 shares and the authorized Class B Common Stock to 5,000,000 shares. Concurrently, the shareholders approved a 2-for-1 stock split affecting both classes of Common Stock. All per share amounts have been retroactively restated to reflect the split. On July 21, 1998, Republic issued 2 million shares of Class A Common Stock in an initial public offering at $13.00 per share. PREFERRED STOCK - On December 31, 1997, Republic redeemed the $5 million outstanding Series A Convertible Preferred stock. At the option of shareholder, each security was either convertible into 10 shares of Class A Common Stock and 2 shares of Class B Common Stock, or redeemable in cash for the initial offering price of $100 per share plus a 20% premium. DIVIDEND LIMITATIONS - Banking regulations limit the amount of dividends that may be paid to the Parent Company without prior approval of the Bank's regulatory agency. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year's net profits, as defined, combined with the retained net profits of the preceding two years, less any dividends declared during those periods. At December 31, 1999, the Bank had $23 million of retained earnings available for such purposes. REGULATORY CAPITAL REQUIREMENTS - The Parent 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 Parent Company and the Bank must meet specific capital guidelines that involve quantitative measures of the bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Parent Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) 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). Management believes, as of December 31, 1999, that the Parent Company and the Bank meet all capital adequacy requirements to which it is subject. The most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the 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 Bank's category.
Minimum Minimum Requirement Requirement To Be Well For Capital Capitalized Under Adequacy Prompt Corrective Actual Purposes Action Provisions ---------------------------------------------------------------------------- Amount Ratio Amount Ratio Amount Ratio (dollars in thousands) As of December 31, 1999 Total Risk Based Capital (to Risk Weighted Assets) Consolidated $ 121,892 14.28% $ 68,285 8% $ 85,356 10% Bank only 117,665 13.79 68,281 8 85,351 10 Tier I Capital (to Risk Weighted Assets) Consolidated 114,030 13.36 34,142 4 51,213 6 Bank only 109,803 12.86 34,140 4 51,211 6 Tier I Leverage Capital (to Average Assets) Consolidated 114,030 8.61 49,804 4 62,254 5 Bank only 109,803 8.29 49,799 4 62,249 5 As of December 31, 1998 Total Risk Based Capital (to Risk Weighted Assets) Consolidated $ 117,878 15.68% $ 60,146 8% $ 75,192 10% Bank only 117,528 15.63 60,144 8 75,181 10 Tier I Capital (to Risk Weighted Assets) Consolidated 110,016 14.63 30,073 4 45,109 6 Bank only 109,666 14.59 30,072 4 45,108 6 Tier I Leverage Capital (to Average Assets) Consolidated 110,016 9.29 47,374 4 59,217 5 Bank only 109,666 9.26 47,368 4 59,211 5
14. STOCK OPTION PLAN Under a stock option plan, certain key employees and directors are granted options to purchase shares of Republic's common stock at fair value at the date of the grant. Options granted become fully exercisable at the end of two to six years of continued employment and must be exercised within one year. A summary of Republic's stock option activity, and related information for the years ended December 31 follows:
1999 1998 --------------------------------------------------- -------------------------------------------------- Options Weighted Options Weighted Options Weighted Options Weighted Class A Average Class B Average Class A Average Class B Average Shares Exercise Shares Exercise Shares Exercise Shares Exercise Price Price Price Price Outstanding beginning of year 1,217,500 $ 7.03 52,500 $ 3.83 993,000 $ 5.36 57,000 $ 3.81 Granted 7,000 10.63 281,000 12.52 Exercised (22,500) 3.61 (4,500) 3.61 (32,500) 4.34 (4,500) 3.61 Forfeited (76,000) 7.52 (24,000) 5.97 --------- --------- --------- Outstanding year end 1,126,000 7.08 48,000 3.84 1,217,500 7.03 52,500 3.83 ========= ========= ========= ========= Exercisable (vested) end of year -- -- -- --
1997 --------------------------------------------------- Options Weighted Options Weighted Class A Average Class B Average Shares Exercise Shares Exercise Price Price Outstanding beginning of year 937,000 $ 5.16 68,000 $ 3.73 Granted 227,000 6.00 Exercised (27,000) 5.54 (1,000) 3.61 Forfeited (144,000) 5.04 (10,000) 3.28 --------- --------- Outstanding year end 993,000 5.36 57,000 3.81 ========= ========= Exercisable (vested) end of year -- --
Options outstanding at year-end 1999 were as follows.
Outstanding Class A Class B --------------------------- ---------------------------- Weighted Weighted Average Average Remaining Remaining Contractual Contractual Number Life Number Life Range of Exercise Prices $3.28 - $5.97 681,000 2.38 48,000 1.63 $6.00 - $13.00 445,000 4.46 --------- ------------- --------- ------------- Outstanding 1,126,000 3.21 48,000 1.63 ========= ============= ========= =============
Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if Republic had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model. The weighted average assumptions for options granted during the year and the resulting estimated weighted average fair values per share used in computing pro forma disclosures are as follows:
December 31, 1999 1998 1997 Assumptions: Risk-free interest rate 5.08% 5.53% 6.25% Expected dividend yield 1.03 .89 1.84 Expected life (years) 6.00 5.94 5.78 Expected common stock market price volatility 17 13 13 Estimated fair value per share $ 2.78 $ 3.21 $ 1.38
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period on an accelerated basis. Republic's pro forma information follows (in thousands except for earnings per share information):
Years Ended December 31, 1999 1998 1997 Pro forma net income $ 11,874 $ 13,461 $ 12,058 Pro forma earnings per share Class A .71 .85 .81 Class B .70 .84 .80 Pro forma earnings per share assuming dilution Class A .69 .81 .79 Class B .68 .80 .78
Future pro forma net income will be negatively impacted should Republic choose to grant additional options. 15. EMPLOYEE BENEFIT PLANS Republic maintains a 401(k) plan for full-time employees who have been employed for 1,000 hours in a plan year and have reached the age of 21. Participants in the plan may elect to contribute from 1% to 15% of their annual compensation. Republic matches 50% of participant contributions up to 5% of each participant's annual compensation. Republic's contribution may increase if certain operating ratios are achieved. Republic's matching contributions were $446,000, $372,000, and $313,000 for the years ended December 31, 1999, 1998 and 1997, respectively. On January 29, 1999, Republic formed an Employee Stock Ownership Plan (ESOP) for the benefit of its employees. The ESOP borrowed $3.9 million from the Parent Company and directly and indirectly purchased 300,000 shares of Class A Common Stock from Republic's largest beneficial owner at a market value of $12.91 per share. The purchase price, determined by an independent pricing committee, was the average closing price for the thirty trading days immediately prior to the transaction. Shares in the ESOP are allocated to eligible employees based on principal payments over the term of the loan, which is ten years. Participants become fully vested in allocated shares after five years of credited service and may receive their distributions in the form of cash or stock. During 1999, 19,612 shares of stock were allocated, resulting in ESOP compensation expense of approximately $205,000. As of December 31, 1999, 280,388 shares were unallocated. The fair value of the unallocated shares was approximately $2.4 million. The cost of shares issued to the employee stock ownership plan but not yet committed to be released to participants is presented in the consolidated balance sheet as a reduction of shareholders equity. Compensation expense is recorded based on the market price of the shares as they are committed to be released for allocation to participant accounts. The difference between market price and the cost of shares committed to be released is recorded as an adjustment to be paid in capital. 16. LEASES AND TRANSACTIONS WITH AFFILIATES Republic leases office facilities from Republic's Chairman and from partnerships in which Republic's Chairman and Chief Executive Officer are partners under operating leases. Rent expense for the years ended December 31, 1999, 1998 and 1997 under these leases was $1,320,000, $1,251,000 and $1,064,000, respectively. Total rent expense on all operating leases was $1,747,000, $1,563,000 and $1,533,000, for the years ended December 31, 1999, 1998 and 1997, respectively. The total minimum lease commitments under noncancelable operating leases are as follows:
December 31, 1999 Year Affiliate Other Total (in thousands) 2000 $ 1,367 $ 485 $ 1,852 2001 1,147 429 1,576 2002 522 423 945 2003 355 393 748 Thereafter 207 1,510 1,717 --------- --------- --------- $ 3,598 $ 3,240 $ 6,838 ========= ========= =========
Republic made payments to companies owned by directors of the Bank for the construction of branches totaling $245,000 for the year ended December 31, 1997. A director of the Bank is a partner in a law firm. Fees paid by Republic to this firm totaled $155,000, $207,000, and $88,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Banker's Insurance Agency (BIA), a company beneficially owned by Republic's chairman and CEO, sells title insurance to most of the company's mortgage borrowers. Under an agreement between BIA and Republic, Republic personnel perform certain functions for issuance of the policies. BIA recorded title insurance revenues of $1.1 million, $1.0 million and $496,000 from Republic loan clients in 1999, 1998 and 1997, respectively. BIA paid Republic $61,000, $27,000 and $27,000 for services performed by Republic employees during the same periods. 17. SALE OF DEPOSITS AND BANKING CENTERS During 1997, Republic entered into agreements to sell deposits totaling $180 million and fixed assets of $3.7 million associated with its Western Kentucky banking centers. Substantially all loans originated by these banking centers were retained by Republic at the time of sale. Sales of four of the five banking centers were finalized during 1997, resulting in a pretax gain of $7.5 million. The sale of the remaining banking center was finalized during January 1998 for a pretax gain of $4.1 million. 18. OFF-BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES Republic is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments primarily include commitments to extend credit and standby letters of credit. The contract or notional amounts of these instruments reflect the extent of involvement Republic has in particular classes of financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with Republic's credit policies. Collateral, if deemed necessary, is based on management's credit evaluation of the counterparty and may include business assets of commercial borrowers as well as personal property and real estate of individual borrowers or guarantors. Republic extends binding commitments to prospective customers. Such commitments assure the borrower of financing for a specified period of time at a specified rate. The risk to Republic under such loan commitments is limited by the terms of the contract. For example, Republic may not be obligated to advance funds if the customer's financial condition deteriorates or if the customer fails to meet specific covenants. An approved, but undrawn, loan commitment represents a potential credit risk once the funds are advanced to the customer, a liquidity risk since the customer may demand immediate cash that would require a funding source, and an interest rate risk since interest rates may rise above the rate committed to the customer. Republic's current liquidity position continues to meet its need for funds. In addition, since a portion of these loan commitments normally expire unused, the total amount of outstanding commitments at any point in time will not require a funding source. As of December 31, 1999, Republic had outstanding loan commitments totaling $143 million which includes unused home equity lines of credit totaling $93 million. These commitments are substantially all at variable rates. At December 31, 1999, Republic's mortgage banking activities included commitments to extend credit, primarily representing fixed rate mortgage loans, totaling $20 million. Of commitments to originate loans, borrowers with commitments totaling $7 million have elected to wait until closing to lock the rate on the loan. Republic has also entered into forward commitments to deliver loans into the secondary market of $13 million at December 31, 1999. Standby letters of credit are conditional commitments issued by Republic to guarantee the performance of a customer to a third party. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing loan commitments and extending credit. Commitments outstanding under standby letters of credit totaled $3.9 million for December 31, 1999 and $2.0 million for December 31, 1998. 19. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value amounts have been determined by Republic using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts Republic could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
December 31, 1999 December 31, 1998 ---------------------------- --------------------------- (in thousands) Carrying Fair Carrying Fair Amount Value Amount Value Assets: Cash and cash equivalents $ 67,527 $ 67,527 $ 39,946 $ 39,946 Securities available for sale 181,627 181,627 186,936 186,936 Securities to be held to maturity 32,931 32,836 29,985 30,039 Mortgage loans held for sale 7,408 7,462 38,167 38,525 Loans, net 1,031,512 1,025,216 870,031 874,253 Federal Home Loan Bank stock 15,054 15,054 14,036 14,036 Liabilities: Deposits: Certificate of deposit and individual retirement accounts $ 457,272 $ 459,575 $ 439,529 $ 442,962 Non interest-bearing accounts 84,256 84,256 80,345 80,345 Transaction accounts 259,381 259,381 227,273 227,279 Securities sold under agreements to repurchase and other short-term borrowings 215,718 215,738 148,659 148,659 Other borrowed funds 231,383 227,737 190,222 190,608 Guaranteed preferred beneficial interests in Republic's subordinated debentures 6,352 6,352 6,402 6,402
CASH AND CASH EQUIVALENTS - The carrying amount is a reasonable estimate of fair value. SECURITIES AVAILABLE FOR SALE, SECURITIES TO BE HELD TO MATURITY AND FEDERAL HOME LOAN BANK STOCK - Fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. For Federal Home Loan Bank stock, the carrying amount is a reasonable estimate of fair value. LOANS - The fair value is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. MORTGAGE LOANS HELD FOR SALE - Estimated fair value is defined as the current quoted secondary market price for such loans without regard to Republic's other commitments to make and sell loans. DEPOSITS - The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM BORROWINGS - The carrying amount is a reasonable estimate of fair value. GUARANTEED PREFERRED BENEFICIAL INTERESTS - The fair value is estimated based on the estimated present value of future cash flows using the current rates at which similar financings with the same remaining maturities could be obtained. OTHER BORROWED FUNDS - The fair value is estimated based on the estimated present value of future cash outflows using the current rates at which similar loans with the same remaining maturities could be obtained. COMMITMENTS TO EXTEND CREDIT - The fair value of commitments to extend credit is based upon the difference between the interest rate at which Republic is committed to make the loans and the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, adjusted for the estimated volume of loan commitments actually expected to close. The fair value of such commitments is not material. COMMITMENTS TO SELL LOANS - The fair value of commitments to sell loans is based upon the difference between the interest rates at which Republic is committed to sell the loans and the current quoted secondary market price for similar loans. The fair value of such commitments is not material. The fair value estimates presented herein are based on pertinent information available to management as of December 31, 1999 and 1998. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein. 20. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS As of December 31, (in thousands) 1999 1998 Assets: Cash and cash equivalents $ 1,517 $ 1,238 Due from subsidiaries 4,293 1,493 Investment in subsidiaries 106,219 110,217 Other 46 19 -------------- -------------- Total assets $ 112,075 $ 112,967 ============== ============== Liabilities: Long-term debt $ 6,652 $ 6,702 Other 1,653 2,423 -------------- -------------- Total liabilities 8,305 9,125 -------------- -------------- Stockholders' equity: Common stock 4,099 4,149 Additional paid-in capital 33,617 34,014 Retained earnings 73,600 65,469 Unearned employees stock ownership plan shares (3,620) Accumulated other comprehensive income (loss) (3,926) 210 --------------- -------------- Total stockholders' equity 103,770 103,842 -------------- -------------- Total $ 112,075 $ 112,967 ============== ==============
STATEMENTS OF INCOME Years Ended December 31, (in thousands) 1999 1998 1997 Income: Dividends from subsidiary $ 8,699 $ 2,826 $ 4,446 Interest 281 24 38 -------------- -------------- -------------- Total income 8,980 2,850 4,484 -------------- -------------- -------------- Expenses: Interest expense 567 574 590 Other expense 165 73 67 -------------- -------------- -------------- Total expenses 732 647 657 -------------- -------------- -------------- Income before income taxes 8,248 2,203 3,827 Income tax benefit 220 222 283 -------------- -------------- -------------- Income before equity in undistributed net income of subsidiaries 8,468 2,425 4,110 Equity in undistributed net income of subsidiaries 3,784 11,331 8,149 -------------- -------------- -------------- Net income $ 12,252 $ 13,756 $ 12,259 ============== ============== ==============
STATEMENTS OF CASH FLOWS Years Ended December 31, (in thousands) 1999 1998 1997 Operating activities: Net income $ 12,252 $ 13,756 $ 12,259 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed net income of subsidiaries (3,784) (11,331) (8,149) Change in due from subsidiary (2,800) 727 (1,678) Change in other assets (27) 1 (38) Change in other liabilities (893) (609) 1,480 -------------- -------------- -------------- Net cash provided by operating activities 4,748 2,544 3,874 -------------- -------------- -------------- Investment activities: Dividends on unallocated ESOP shares (22) Purchase of common stock of subsidiary bank (23,278) (6,775) Proceeds from maturities of repurchase agreements 889 -------------- -------------- -------------- Net cash used in investing activities (22) (23,278) (5,886) -------------- -------------- -------------- Financing activities: Dividends paid (1,831) (1,674) (1,992) Proceeds from stock options exercised 97 155 153 Proceeds from issuance of guaranteed preferred beneficial interests in Republic's subordinated debentures 6,752 Proceeds from issuance of Class A common stock 23,581 Repurchase of Class A common stock (2,713) (686) Payments on long-term debt (1,638) Redemption of preferred stock (1,218) -------------- -------------- -------------- Net cash provided by (used in) financing activities (4,447) 21,376 2,057 -------------- -------------- -------------- Net increase (decrease) in cash and cash equivalents 279 642 45 Cash and cash equivalents, beginning of year 1,238 596 551 -------------- -------------- -------------- Cash and cash equivalents, end of year $ 1,517 $ 1,238 $ 596 ============== ============== ==============
21. SEGMENT INFORMATION The reportable segments are determined by the products and services offered, primarily distinguished between banking and mortgage banking operations. Loans, investments, and deposits provide the revenues in the banking operation, and servicing fees and loan sales provide the revenues in mortgage banking. All operations are domestic. The accounting policies used are the same as those described in the summary of significant accounting policies. Income taxes are allocated and indirect expenses are allocated on revenue. Transactions among segments are made at fair value. Information reported internally for performance assessment follows.
1999 Mortgage Consolidated Banking Banking Totals (in thousands) Net interest income $ 47,285 $ 320 $ 47,605 Provision for loan loss 1,806 1,806 Net gain on sale of loans 2,974 2,974 Other revenues 7,110 7,110 Income tax expense 5,861 387 6,248 Segment profit 11,501 751 12,252 Segment assets 1,358,679 10,304 1,368,983
1998 Mortgage Consolidated Banking Banking Totals (in thousands) Net interest income $ 42,126 $ 367 $ 42,493 Provision for loan loss 3,110 3,110 Net gain on sale of loans 4,326 4,326 Other revenues 11,186 11,186 Income tax expense 6,758 848 7,606 Segment profit 12,111 1,645 13,756 Segment assets 1,168,562 39,122 1,207,684
1997 Mortgage Consolidated Banking Banking Totals (in thousands) Net interest income $ 40,114 $ 224 $ 40,338 Provision for loan loss 7,251 7,251 Net gain on sale of loans 1,852 1,852 Other revenues 17,078 17,078 Income tax expense 6,470 408 6,878 Segment profit 11,466 793 12,259 Segment assets 1,044,396 10,554 1,054,950
22. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED) Presented below is a summary of the consolidated quarterly financial data for the years ended December 31, 1999 and 1998.
Fourth Third Second First (dollars in thousands) Quarter Quarter Quarter Quarter 1999: Interest income $25,724 $24,192 $23,386 $23,855 Net interest income 12,233 11,626 11,603 12,143 Provision for loan losses 329 204 419 854 Income before income taxes 4,746 4,475 4,211 5,068 Net income 3,113 3,007 2,768 3,364 Earnings per share: Class A Common .19 .18 .17 .20 Class B Common .18 .18 .16 .20 Earnings per share assuming dilution: Class A Common .18 .17 .16 .19 Class B Common .18 .17 .16 .19 Weighted average common shares outstanding: Basic Common 16,675 16,708 16,764 16,934 Diluted Common 17,696 17,814 17,925 18,137 Cash Dividends declared Class A Common .03575 .0275 .0275 .0275 Class B Common .03250 .0250 .0250 .0250 1998: Interest income $23,336 $23,517 $23,029 $22,785 Net interest income 11,096 10,710 10,317 10,370 Provision for loan losses 1,423 303 741 643 Income before income taxes 4,334 4,409 4,054 8,565 Net income 2,830 2,800 2,602 5,524 Earnings per share: Class A Common 0.17 0.17 0.17 0.37 Class B Common 0.16 0.17 0.17 0.37 Earnings per share assuming dilution: Class A Common 0.16 0.16 0.17 0.35 Class B Common 0.16 0.16 0.17 0.35 Weighted average common shares outstanding: Basic Common 17,116 16,480 14,959 14,958 Diluted Common 18,382 17,751 15,873 15,898 Cash Dividends declared Class A Common .0275 .0275 .0275 .0275 Class B Common .0250 .0250 .0250 .0250
EX-21 7 EX-21 EXHIBIT 21 Subsidiaries of Republic Bancorp, Inc Subsidiaries of Republic Bancorp, Inc.* Name of Subsidiary State in Which Organized Republic Bank & Trust Company Kentucky Republic Capital Trust Delaware Subsidiaries of Republic Bank & Trust Company Republic Finacial Services d/b/a Refunds Now Inc Kentucky *Certain subsidiaries are not listed since, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary at December 31, 1999. EX-23 8 CONSENT OF CROWE CHIZEK & COMPANY LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Form S-8 Registration Statement No. 333-914511 of Republic Bancorp, Inc., of our report dated January 14, 2000 on the consolidated financial statements of Republic Bancorp, Inc. as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999 as included in the registrant's annual report on Form 10-K. Crowe, Chizek and Company LLP Louisville, Kentucky March 28, 2000 EX-27 9 FDS --
9 This schedule contains summary financial information extracted from the consolidated balance sheet, the consolidated statement of income and bank records and is qualified in its entirety by reference to such report on Form 10-K. 1,000 U.S. Dollars 12-MOS 12-MOS DEC-31-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 DEC-31-1999 DEC-31-1998 1.000 1.000 20,827 37,446 0 0 46,700 2,500 0 0 181,627 186,936 32,931 29,985 32,836 30,039 1,031,512 870,031 7,862 7,862 1,368,983 1,207,684 800,909 747,147 215,718 148,659 17,203 17,814 231,383 190,222 0 0 0 0 4,099 4,149 99,671 99,693 1,368,983 1,207,684 83,581 77,919 13,396 13,818 180 930 97,157 92,667 32,686 34,221 49,552 50,174 47,605 42,493 1,806 3,110 184 1,139 5,168 5,001 18,500 21,362 12,252 13,756 0 0 0 0 12,252 13,756 .73 .87 .71 .83 3.96 3.84 2,721 3,258 968 1,731 1,043 1,116 0 0 7,862 8,176 2,398 3,924 592 500 7,862 7,862 7,862 7,862 0 0 0 0
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