UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) | ||
| þ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
|
| For the quarterly period ended March 31, 2003 | ||
| Or | ||
| o |
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: 0-15734 | ||
REPUBLIC BANCORP INC.
| Michigan | 38-2604669 | |
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 1070 East Main Street, Owosso, Michigan | 48867 | |
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| (Address of principal executive offices) | (Zip Code) |
(989) 725-7337
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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.
þ Yes o No
Indicate by check whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
þ Yes o No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Common Stock Outstanding as of April 30, 2003: | ||
| Common Stock, $5 Par Value | 57,527,143 Shares |
INDEX
| PART I. | FINANCIAL INFORMATION | |||||
| Item 1. | Financial Statements (Unaudited) | |||||
| Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002 | 3 | |||||
| Consolidated Statements of Income for the Three Months Ended March 31, 2003 and 2002 | 4 | |||||
| Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002 | 5 | |||||
| Notes to Consolidated Financial Statements | 6-8 | |||||
| Item 2. | Management’s Discussion and Analysis of Results of Operations and Financial Condition | 9-17 | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 18-19 | ||||
| Item 4. | Controls and Procedures | 19 | ||||
| PART II. | OTHER INFORMATION | |||||
| Item 1. | Legal Proceedings | 19 | ||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 20 | ||||
| Item 5. | Other Information | 20 | ||||
| Item 6. | Exhibits and Reports on Form 8-K | 21 | ||||
| SIGNATURE | 22 | |||||
| CERTIFICATIONS | 23-24 | |||||
2
PART I — FINANCIAL INFORMATION
ITEM 1 — Financial Statements
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| March 31, | December 31, | ||||||||||
| (Dollars in thousands) | 2003 | 2002 | |||||||||
| (Unaudited) | |||||||||||
ASSETS |
|||||||||||
Cash and cash equivalents |
$ | 77,281 | $ | 75,625 | |||||||
Mortgage loans held for sale |
324,444 | 660,999 | |||||||||
Securities available for sale (amortized cost of
$317,879 and $247,573, respectively) |
318,862 | 248,931 | |||||||||
Loans |
3,857,837 | 3,656,543 | |||||||||
Less allowance for loan losses |
(37,185 | ) | (36,077 | ) | |||||||
Net loans |
3,820,652 | 3,620,466 | |||||||||
Premises and equipment |
27,452 | 27,790 | |||||||||
Bank owned life insurance |
88,193 | 87,192 | |||||||||
Other assets |
55,383 | 57,192 | |||||||||
Total assets |
$ | 4,712,267 | $ | 4,778,195 | |||||||
LIABILITIES |
|||||||||||
Noninterest-bearing deposits |
$ | 274,956 | $ | 260,634 | |||||||
Interest-bearing deposits: |
|||||||||||
NOW accounts |
176,454 | 176,366 | |||||||||
Savings and money market accounts |
968,591 | 910,863 | |||||||||
Certificates of deposit |
1,442,928 | 1,440,409 | |||||||||
Total interest-bearing deposits |
2,587,973 | 2,527,638 | |||||||||
Total deposits |
2,862,929 | 2,788,272 | |||||||||
Federal funds purchased and other short-term borrowings |
225,910 | 209,070 | |||||||||
Short-term FHLB advances |
125,000 | 305,000 | |||||||||
Long-term FHLB advances |
1,025,668 | 1,002,943 | |||||||||
Accrued expenses and other liabilities |
81,698 | 76,682 | |||||||||
Long-term debt |
— | 13,500 | |||||||||
Total liabilities |
4,321,205 | 4,395,467 | |||||||||
Trust preferred securities |
50,000 | 50,000 | |||||||||
SHAREHOLDERS’ EQUITY |
|||||||||||
Preferred stock, $25 stated value: $2.25 cumulative
and convertible; 5,000,000 shares authorized,
none issued and outstanding |
— | — | |||||||||
Common stock, $5 par value, 75,000,000 shares
authorized; 57,560,000 and 57,441,000, issued and
outstanding, respectively |
287,802 | 287,207 | |||||||||
Capital surplus |
40,669 | 40,633 | |||||||||
Unearned compensation— restricted stock |
(2,682 | ) | (368 | ) | |||||||
Retained earnings |
14,634 | 4,373 | |||||||||
Accumulated other comprehensive income |
639 | 883 | |||||||||
Total shareholders’ equity |
341,062 | 332,728 | |||||||||
Total liabilities and shareholders’ equity |
$ | 4,712,267 | $ | 4,778,195 | |||||||
See notes to consolidated financial statements.
3
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
| Three Months Ended | ||||||||||
| March 31, | ||||||||||
| (In thousands, except per share data) | 2003 | 2002 | ||||||||
Interest Income: |
||||||||||
Loans, including fees |
$ | 62,936 | $ | 69,027 | ||||||
Investment securities |
2,814 | 4,508 | ||||||||
Total interest income |
65,750 | 73,535 | ||||||||
Interest Expense: |
||||||||||
Deposits |
15,494 | 20,640 | ||||||||
Short-term borrowings |
818 | 783 | ||||||||
FHLB advances |
13,799 | 14,208 | ||||||||
Long-term debt |
39 | 242 | ||||||||
Total interest expense |
30,150 | 35,873 | ||||||||
Net interest income |
35,600 | 37,662 | ||||||||
Provision for loan losses |
3,000 | 2,400 | ||||||||
Net interest income after provision for loan losses |
32,600 | 35,262 | ||||||||
Noninterest Income: |
||||||||||
Mortgage banking income |
9,736 | 7,246 | ||||||||
Service charges |
2,652 | 1,989 | ||||||||
Gain on sale of securities |
448 | 401 | ||||||||
Income from bank owned life insurance |
1,295 | — | ||||||||
Other noninterest income |
730 | 941 | ||||||||
Total noninterest income |
14,861 | 10,577 | ||||||||
Noninterest Expense: |
||||||||||
Salaries and employee benefits |
14,415 | 13,927 | ||||||||
Occupancy expense of premises |
2,643 | 2,487 | ||||||||
Equipment expense |
1,705 | 1,680 | ||||||||
Other noninterest expense |
5,619 | 5,703 | ||||||||
Dividends on trust preferred securities and
preferred stock of subsidiary |
1,075 | 1,756 | ||||||||
Total noninterest expense |
25,457 | 25,553 | ||||||||
Income before income taxes |
22,004 | 20,286 | ||||||||
Provision for income taxes |
6,851 | 6,168 | ||||||||
Net income |
$ | 15,153 | $ | 14,118 | ||||||
Basic earnings per share |
$ | .26 | $ | .24 | ||||||
Diluted earnings per share |
$ | .26 | $ | .24 | ||||||
Average common shares outstanding— diluted |
58,302 | 59,170 | ||||||||
Cash dividends declared per common share |
$ | .085 | $ | .077 | ||||||
See notes to consolidated financial statements.
4
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| Three Months Ended March 31 (In thousands) | 2003 | 2002 | |||||||||
Cash Flows From Operating Activities: |
|||||||||||
Net income |
$ | 15,153 | $ | 14,118 | |||||||
Adjustments to reconcile net income to net cash provided by
(used in) operating activities: |
|||||||||||
Depreciation and amortization |
3,306 | 2,119 | |||||||||
Net gains on sale of securities available for sale |
(448 | ) | (401 | ) | |||||||
Net gains on sale of commercial and residential real estate loans |
(595 | ) | (802 | ) | |||||||
Proceeds from sale of mortgage loans held for sale |
860,165 | 841,719 | |||||||||
Origination of mortgage loans held for sale |
(523,610 | ) | (504,118 | ) | |||||||
Net (increase) decrease in other assets |
(6,100 | ) | 11,493 | ||||||||
Net increase (decrease) in other liabilities |
5,016 | (40,556 | ) | ||||||||
Other, net |
(120 | ) | (197 | ) | |||||||
Total adjustments |
337,614 | 309,257 | |||||||||
Net cash provided by operating activities |
352,767 | 323,375 | |||||||||
Cash Flows From Investing Activities: |
|||||||||||
Proceeds from sale of securities available for sale |
13,564 | 40,275 | |||||||||
Proceeds from maturities/payments of securities available for sale |
22,461 | 7,111 | |||||||||
Purchases of securities available for sale |
(106,352 | ) | (75,618 | ) | |||||||
Proceeds from sale of commercial and residential real estate loans |
20,079 | 42,634 | |||||||||
Net increase in loans made to customers |
(217,327 | ) | (50,496 | ) | |||||||
Net cash used in investing activities |
(267,575 | ) | (36,094 | ) | |||||||
Cash Flows From Financing Activities: |
|||||||||||
Net increase (decrease) in total deposits |
74,657 | (53,808 | ) | ||||||||
Net increase (decrease) in short-term borrowings |
16,840 | (13,952 | ) | ||||||||
Net decrease in short-term FHLB advances |
(180,000 | ) | (280,000 | ) | |||||||
Proceeds from long-term FHLB advances |
75,000 | 49,000 | |||||||||
Payments on long-term FHLB advances |
(52,275 | ) | — | ||||||||
Payments on long-term debt |
(13,500 | ) | — | ||||||||
Net proceeds from issuance of common shares |
4,720 | 2,930 | |||||||||
Repurchase of common shares |
(4,088 | ) | (3,706 | ) | |||||||
Dividends paid on common shares |
(4,890 | ) | (4,543 | ) | |||||||
Net cash used in financing activities |
(83,536 | ) | (304,079 | ) | |||||||
Net increase (decrease) in cash and cash equivalents |
1,656 | (16,798 | ) | ||||||||
Cash and cash equivalents at beginning of period |
75,625 | 76,734 | |||||||||
Cash and cash equivalents at end of period |
$ | 77,281 | $ | 59,936 | |||||||
See notes to consolidated financial statements.
5
REPUBLIC BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 — Basis of Presentation
The accompanying unaudited consolidated financial statements of Republic Bancorp Inc. and Subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial position, results of operations and cash flow activity required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of results have been included. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.
Note 2 — Principles of Consolidation
The consolidated financial statements include the accounts of the parent company, Republic Bancorp Inc., its wholly-owned banking subsidiary, Republic Bank (including its wholly-owned subsidiaries Quincy Investment Services, Inc., CAS Properties, Inc., Republic Bank Real Estate Finance, LLC and Republic Management Company, Inc.) and Republic Capital Trust I. The consolidated financial statements as of March 31, 2002, also include the accounts of Republic Bank’s wholly-owned subsidiary, D&N Capital Corporation. On July 22, 2002, the Company redeemed all 1,210,000 issued and outstanding shares of D&N Capital Corporation’s 9.0% Noncumulative Preferred Stock, Series A (liquidation preference $25.00 per share) at a redemption price of $25.00 per share, plus accrued dividends of $0.1375 per share, for cash. Therefore, the consolidated balance sheet as of March 31, 2003 does not include D&N Capital Corporation. All significant intercompany accounts and transactions have been eliminated in consolidation.
Mortgage servicing rights totaling $2.3 million at March 31, 2002 have been reclassified to other assets to conform to the current year presentation. In addition, dividends on trust preferred securities and preferred stock of subsidiary for the three months ended March 31, 2002 have been reclassified to noninterest expense.
Note 3 — Consolidated Statements of Cash Flows
Supplemental disclosures of cash flow information for the three months ended March 31, include:
| (In thousands) | 2003 | 2002 | |||||||
Cash paid during the period for: |
|||||||||
Interest |
$ | 30,115 | $ | 36,970 | |||||
Income taxes |
$ | 1,200 | — | ||||||
Non-cash investing activities: |
|||||||||
Loan charge-offs |
$ | 2,278 | $ | 2,583 | |||||
Note 4 — Comprehensive Income
The following table sets forth the computation of comprehensive income:
| Three Months Ended | ||||||||||||
| March 31, | ||||||||||||
| (In thousands) | 2003 | 2002 | ||||||||||
Net income |
$ | 15,153 | $ | 14,118 | ||||||||
Unrealized holding gains on securities, net of tax |
$ | 47 | $ | 885 | ||||||||
Reclassification adjustment for gains included in net
income, net of tax of $157 and $141, respectively |
(291 | ) | (261 | ) | ||||||||
Net unrealized gains (losses) on securities, net of tax |
(244 | ) | 624 | |||||||||
Comprehensive income |
$ | 14,909 | $ | 14,742 | ||||||||
Note 5 — Intangible Assets
The following table summarizes the Company’s core deposit intangible asset which is subject to amortization:
| (Dollars in thousands) | March 31, 2003 | Dec. 31, 2002 | ||||||||
Core Deposit Intangible Asset: |
||||||||||
Gross carrying amount |
$ | 10,475 | $ | 10,475 | ||||||
Accumulated amortization |
(5,154 | ) | (4,907 | ) | ||||||
Net book value |
$ | 5,321 | $ | 5,568 | ||||||
6
Note 5 — Intangible Assets (Continued)
Amortization expense on the core deposit intangible asset totaled $247,500 for each of the quarters ended March 31, 2003 and 2002, and $990,000 for the year ended December 31, 2002. The Company expects core deposit intangible amortization expense to be $990,000 for each of the years ending December 31, 2003 and 2004. The Company expects core deposit intangible amortization expense for the year ended December 31, 2005 to be $936,000 and for each of the years ended December 31, 2006 and 2007 to be $823,000, respectively.
Note 6 — Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
| Three Months Ended March 31, | ||||||||||||
| (Dollars in thousands, except per share data) | 2003 | 2002 | ||||||||||
Numerator for basic and dilut | ||||||||||||