Rate/Volume
Table
|
|
Nine
months ended September 30, 2007
|
|
|
|
versus
September 30, 2006
|
|
|
|
(dollars
in thousands)
|
|
|
|
Due
to change in:
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
Interest
earned on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
funds sold
|
|
$
|
(401
|
)
|
|
$
|
44
|
|
|
$
|
(357
|
)
|
Securities
(1)
|
|
|
2,256
|
|
|
|
173
|
|
|
|
2,429
|
|
Loans
|
|
|
6,019
|
|
|
|
(1,626
|
)
|
|
|
4,393
|
|
Total
interest-earning assets (1)
|
|
|
7,874
|
|
|
|
(1,409
|
)
|
|
|
6,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense of deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
demand deposits
|
|
|
119
|
|
|
|
(67
|
)
|
|
|
52
|
|
Money
market and savings
|
|
|
(1,331
|
)
|
|
|
(1,658
|
)
|
|
|
(2,989
|
)
|
Time
deposits
|
|
|
(2,391
|
)
|
|
|
(1,759
|
)
|
|
|
(4,150
|
)
|
Total
deposit interest expense
|
|
|
(3,603
|
)
|
|
|
(3,484
|
)
|
|
|
(7,087
|
)
|
Other
borrowings
|
|
|
(2,151
|
)
|
|
|
18
|
|
|
|
(2,133
|
)
|
Total
interest expense
|
|
|
(5,754
|
)
|
|
|
(3,466
|
)
|
|
|
(9,220
|
)
|
Net
interest income (1)
|
|
$
|
2,120
|
|
|
$
|
(4,875
|
)
|
|
$
|
(2,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
As adjusted for tax equivalency for tax exempt municipal securities
income
|
|
|
|
|
|
The
Company’s tax equivalent net interest margin decreased 107 basis points to 3.31%
for the nine months ended September 30, 2007, versus 4.38% in the prior year
comparable period. Excluding the impact of tax refund loans, which
are substantially all a first quarter 2006 event, the net interest margin was
3.31% in the first nine months of 2007 and 4.15% in the prior year comparable
period.
While
yields on interest-bearing assets decreased 27 basis points to 7.48% in the
first nine months of 2007 from 7.75% in the prior year comparable period, the
yield on total deposits and other borrowings increased 87 basis points to 4.42%
from 3.55% between those respective periods. The decrease in yields on assets
resulted primarily from the high yield tax refund loans recorded in the first
nine months of 2006 as well as interest reductions due to the increase in non
accrual loans in the first nine months of 2007. The increase in
yields on deposits was due to the repricing of maturing time deposits at higher
rates and increases in rates on money market and savings deposits.
The
Company's tax equivalent net interest income decreased $2.8 million, or 10.7%,
to $23.1 million for the nine months ended September 30, 2007, from $25.8
million for the prior year comparable period. As shown in the Rate Volume table
above, the decrease in net interest income was due primarily to higher rates
on
deposits and lower rates on loans as discussed in the previous
paragraph. These factors more than offset the impact of the growth in
average interest-earning assets, primarily loans. Average interest-earning
assets amounted to $932.2 million for the first nine months of 2007 and $788.0
million for the comparable prior year period. The $144.2 million
increase resulted from loan growth of $104.5 million and securities growth
of
$50.3 million.
The
Company’s total tax equivalent interest income increased $6.5 million, or 14.2%,
to $52.1 million for the nine months ended September 30, 2007, from $45.7
million for the prior year comparable
period. Interest
and fees on loans increased $4.4 million, or 10.3%, to $47.2 million for the
nine months ended September 30, 2007, from $42.8 million for the prior year
comparable period. The increase in interest and fees on loans of $4.4
million resulted from a 14.6% increase in average loans outstanding less
interest reductions due to an increase in non-performing loans in the first
nine
months of 2007. Also, $1.9 million in interest on tax refund loans
was realized in 2006. Interest and dividends on investment
securities increased $2.4 million to $4.4 million for the nine months ended
September 30, 2007, from $2.0 million for the prior year comparable
period. This increase reflected an increase in average securities
outstanding of $50.3 million, or 104.1%, to $98.6 million from $48.3 million
for
the prior year comparable period. Interest on federal funds sold and
other interest-earning assets decreased $357,000 or 39.7%, as increases in
short-term market interest rates were more than offset by the $10.6 million
decrease in average balances to $14.4 million for the first nine months of
2007
from $25.0 million for the comparable prior year period.
The
Company's total interest expense increased $9.2 million, or 46.5%, to $29.1
million for the nine months ended September 30, 2007, from $19.8 million for
the
prior year comparable period. Interest-bearing liabilities averaged $801.5
million for the nine months ended September 30, 2007, versus $663.6 million
for
the prior year comparable period, or an increase of $137.9 million. The increase
reflected additional funding utilized for loan and securities growth. Average
deposit balances increased $80.6 million while there was a $52.6 million
increase in average other borrowings. The average rate paid on interest-bearing
liabilities increased 85 basis points to 4.85% for the nine months ended
September 30, 2007. Interest expense on time deposit balances increased $4.2
million to $13.7 million in the first nine months of 2007, from $9.5 million
in
the comparable prior year period. Money market and savings interest
expense increased $3.0 million to $9.4 million in the first nine months of
2007,
from $6.4 million in the comparable prior year period. The majority of the
increase in interest expense on deposits reflected the higher average deposit
balances as well as the higher short-term interest rate environment. The 50
basis point decrease in short term interest rates in September 2007 had minimal
effect on deposit rates in 2007. Accordingly, rates on total
interest-bearing deposits increased 95 basis points in the first nine months
of
2007 compared to the comparable prior year period.
Interest
expense on other borrowings increased $2.1 million to $5.7 million in the first
nine months of 2007, as a result of increased average balances. Average other
borrowings, primarily overnight FHLB borrowings, increased $52.6 million, or
60.7%, between those respective periods. Increases in balances were utilized
to
fund loan growth. Rates on overnight borrowings, partially due to the
50 basis point decrease in short-term interest rates in September 2007,
decreased to 5.47% the first nine months of 2007, from 5.50% in the comparable
prior year period. Interest expense on other borrowings also includes the impact
of $11.3 million of average trust preferred securities.
Provision
for Loan Losses
The
provision for loan losses is charged to operations in an amount necessary to
bring the total allowance for loan losses to a level that reflects the known
and
estimated inherent losses in the portfolio. The provision for loan losses
amounted to $1.4 million in the first nine months of 2007 compared to $1.4
million in for the comparable prior year period. The first nine
months of 2006 provision reflected $646,000 for net charge-offs of tax refund
loans, which were more than offset by $1.6 million in related net
revenues. The comparable 2007 provision reflected $256,000 for net
recoveries on tax refund loans. This favorable variance was offset by
an increase in the 2007 provision for loan losses of $952,000 for loans
transferred to non accrual status in third quarter 2007 and $546,000 for
increases in reserves on certain loans due to a downturn in the housing
market. The remaining provision in both periods also reflected
amounts required to increase the allowance for loan growth in accordance with
the Company’s methodology. Non-accrual loans increased from $6.9
million at December 31, 2006 to $25.4 million at September 30,
2007.
Non-Interest
Income
Total
non-interest income decreased $678,000 to $2.2 million for the first nine months
of 2007 compared to $2.8 million for the comparable prior year period, primarily
due to a decrease of $307,000 in the first nine months of 2007 related to loan
advisory and servicing fees, a $296,000 decrease in service fees on deposit
accounts, and a $169,000 decrease in other income. The decrease in
loan advisory and servicing fees resulted from lower volume. The
decrease in service fees on deposit accounts reflected the termination of
services to several large customers. In addition, a $185,000 gain on
the sale of OREO property in 2007 was partially offset by a $130,000 gain on
the
sale of OREO property in 2006.
Non-Interest
Expenses
Total
non-interest expenses increased $100,000 or 0.6% to $15.8 million for the nine
months ended September 30, 2007, from $15.7 million for the prior year
comparable period. Salaries and employee benefits decreased $1.1 million or
11.9%, to $7.9 million for the nine months ended September 30, 2007, from $8.9
million for the prior year comparable period. That decrease reflected a
reduction in bonus and incentive expense of $914,000 which was partially offset
by $100,000 in one-time costs related to staff reductions.
Occupancy
expense increased $482,000, or 35.8%, to $1.8 million in the first nine months
of 2007, compared to $1.3 million for the comparable prior year period. The
increase reflected two additional branches which opened in the second and third
quarters of 2006 as well as the corporate headquarters move in second quarter
2007 and an additional branch which opened in the third quarter of
2007.
Depreciation
expense increased $375,000 or 56.7% to $1.0 million for the nine months ended
September 30, 2007, versus $661,000 for the prior year comparable
period. The increase was primarily due to the impact of the three
additional branch locations and the corporate headquarters move.
Legal
fees decreased $12,000, or 2.7%, to $438,000 in the first nine months of 2007,
compared to $450,000 for the comparable prior year period, resulting from
reduced fees on a number of different matters.
Advertising
expense increased $24,000, or 6.6%, to $385,000 in the first nine months of
2007, compared to $361,000 for the comparable prior year period. The
increase was primarily due to higher levels of print advertising.
Data
processing expense increased $135,000, or 38.5%, to $486,000 in the first nine
months of 2007, compared to $351,000 for the comparable prior year period,
primarily due to Check 21 related expenses and other system
enhancements.
Insurance
expense increased $32,000, or 12.3%, to $293,000 in the first nine months of
2007, compared to $261,000 for the comparable prior year period, resulting
from
the overall growth of the Company.
Professional
fees decreased $31,000, or 7.6%, to $379,000 in the first nine months of 2007,
compared to $410,000 for the comparable prior year period, reflecting decreases
in recruiting expenses
Taxes,
other increased $51,000, or 9.0%, to $618,000 for the nine months ended
September 30, 2007, versus $567,000 for the comparable prior year
period. The increase reflected an increase in Pennsylvania shares
tax, which is assessed at an annual rate of 1.25% on a 6 year moving average
of
regulatory capital. The full amount of the increase resulted from
increased capital.
Other
expenses increased $88,000, or 3.8% to $2.4 million for the nine months ended
September 30, 2007, from $2.3 million for the prior year comparable period,
which reflected the impact of the three additional branch
locations.
Provision
for Income Taxes
The
provision for income taxes decreased $1.4 million, to $2.5 million for the
nine
months ended September 30, 2007, from $4.0 million for the prior year comparable
period. That decrease was primarily the result of the decrease in pre-tax
income. The effective tax rates in those periods were 32% and 34%
respectively.
Commitments,
Contingencies and Concentrations
Financial
instruments whose contract amounts represent potential credit risk are
commitments to extend credit of approximately $182.6 million and $163.2 million
and standby letters of credit of approximately $4.8 million and $7.3 million
at
September 30, 2007, and December 31, 2006, respectively.
Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and many require the
payment of a fee. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. Republic evaluates each customer’s creditworthiness on
a case-by-case basis. The amount of collateral obtained upon extension of credit
is based on management’s credit evaluation of the customer. Collateral held
varies but may include real estate, marketable securities, pledged deposits,
equipment and accounts receivable.
Standby
letters of credit are conditional commitments that guarantee the performance
of
a customer to a third party. The credit risk and collateral policy involved
in
issuing letters of credit is essentially the same as that involved in extending
loan commitments. The amount of collateral obtained is based on management’s
credit evaluation of the customer. Collateral held varies but may include real
estate, marketable securities, pledged deposits, equipment and accounts
receivable. Management believes that the proceeds obtained through a liquidation
of such collateral would be sufficient to cover the maximum potential amount
of
future payments required under the corresponding guarantees.
Regulatory
Matters
The
following table presents the Company’s and Republic’s capital regulatory ratios
at September 30
, 2007,
and
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
For
Capital
Adequacy
purposes
|
|
To
be well
capitalized
under FRB
capital
guidelines
|
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
At
September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
risk based capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
$97,993
|
|
10.84%
|
|
$72,290
|
|
8.00%
|
|
$90,362
|
|
10.00%
|
|
|
Company
|
|
98,374
|
|
10.87%
|
|
72,393
|
|
8.00%
|
|
-
|
|
N/A
|
|
Tier
one risk based capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
89,202
|
|
9.87%
|
|
36,145
|
|
4.00%
|
|
54,217
|
|
6.00%
|
|
|
Company
|
|
89,583
|
|
9.90%
|
|
36,197
|
|
4.00%
|
|
-
|
|
N/A
|
|
Tier
one leveraged capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
89,202
|
|
9.12%
|
|
48,886
|
|
5.00%
|
|
48,886
|
|
5.00%
|
|
|
Company
|
|
89,583
|
|
9.16%
|
|
48,889
|
|
5.00%
|
|
-
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
For
Capital
Adequacy
purposes
|
|
To
be well
capitalized
under FRB
capital
guidelines
|
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
At
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
risk based capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
$88,256
|
|
10.28%
|
|
$61,009
|
|
8.00%
|
|
$76,261
|
|
10.00%
|
|
|
Company
|
88,510
|
|
10.30%
|
|
61,098
|
|
8.00%
|
|
-
|
|
N/A
|
|
Tier
one risk based capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
80,198
|
|
9.34%
|
|
30,505
|
|
4.00%
|
|
45,757
|
|
6.00%
|
|
|
Company
|
80,452
|
|
9.36%
|
|
30,549
|
|
4.00%
|
|
-
|
|
N/A
|
|
Tier
one leveraged capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
80,198
|
|
8.72%
|
|
45,989
|
|
5.00%
|
|
45,989
|
|
5.00%
|
|
|
Company
|
80,452
|
|
8.75%
|
|
45,990
|
|
5.00%
|
|
-
|
|
N/A
|
Dividend
Policy
The
Company has not paid any cash dividends on its common stock, but may consider
dividend payments in the future.
Liquidity
Financial
institutions must maintain liquidity to meet day-to-day requirements of
depositors and borrowers, time investment purchases to market conditions and
provide a cushion against unforeseen needs. Liquidity needs can be met by either
reducing assets or increasing liabilities. The most liquid assets
consist of cash, amounts due from banks and federal funds sold.
Regulatory
authorities require the Company to maintain certain liquidity ratios such that
Republic maintains available funds, or can obtain available funds at reasonable
rates, in order to satisfy commitments to borrowers and the demands of
depositors. In response to these requirements, the Company has formed
an Asset/Liability Committee (“ALCO”), comprised of selected members of the
board of directors and senior management, which monitors such
ratios. The purpose of the Committee is in part, to monitor
Republic’s liquidity and adherence to the ratios in addition to managing
relative interest rate risk. The ALCO meets at least
quarterly.
Republic’s
most liquid assets, consisting of cash due from banks, deposits with banks
and
federal funds sold, totaled $76.9 million at September 30, 2007, compared to
$83.1 million at December 31, 2006, due primarily to a decrease in cash and
due from banks. Loan maturities and repayments, if not reinvested in loans,
also
are immediately available for liquidity. At September 30, 2007, Republic
estimated that in excess of $50.0 million of loans would mature or be repaid
in
the six month period that will end March 31, 2008. Additionally, the majority
of
its securities are available to satisfy liquidity requirements through pledges
to the FHLB to access Republic’s line of credit.
Funding
requirements have historically been satisfied primarily by generating
transaction accounts and certificates of deposit with competitive rates, and
utilizing the facilities of the FHLB. At September 30, 2007 Republic had
$63.1 million in unused lines of credit readily available under
arrangements with the FHLB and correspondent banks compared to $82.7 million
at
December 31, 2006. These lines of credit enable Republic to purchase funds
for short or long-term needs at rates often lower than other sources and require
pledging of securities or loan collateral. The amount of available credit has
been decreasing with the prepayment of mortgage backed loans and
securities.
At
September 30, 2007, Republic had aggregate outstanding commitments (including
unused lines of credit and letters of credit) of $187.4 million. Certificates
of
deposit scheduled to mature in one year totaled $394.2 million at September
30,
2007. There were no FHLB advances outstanding at September 30, 2007, and
short-term borrowings of $148.4 million consisted wholly of overnight FHLB
borrowings. The Company anticipates that it will have sufficient funds available
to meet its current commitments.
Republic’s
target and actual liquidity levels are determined by comparisons of the
estimated repayment and marketability of its interest-earning assets and
projected future outflows of deposits and other liabilities. Republic has
established a line of credit with a correspondent bank to assist in managing
Republic’s liquidity position. That line of credit totaled $15.0
million and was unused at September 30, 2007. Republic has
established a line of credit with the Federal Home Loan Bank of Pittsburgh
with
a maximum borrowing capacity of approximately $211.5 million. As
of September 30, 2007, Republic had borrowed $148.4 million under that line
of
credit. Securities also represent a primary source of liquidity. Accordingly,
investment decisions generally reflect liquidity over other
considerations. Additionally, Republic has uncollateralized overnight
advances with PNC. As of September 30, 2007 and December 31, 2006,
there were $20.0 million of such overnight advances outstanding.
Republic’s
primary short-term funding sources are certificates of deposit and its
securities portfolio. The circumstances that are reasonably likely to affect
those sources are as follows. Republic has historically been able to generate
certificates of deposit by matching Philadelphia market rates or paying a
premium rate of 25 to 50 basis points over those market rates. It is anticipated
that this source of liquidity will continue to be available; however, its
incremental cost may vary depending on market conditions. Republic’s securities
portfolio is also available for liquidity, usually as collateral for FHLB
advances. Because of the FHLB’s AAA rating, it is unlikely those advances would
not be available. But even if they are not, numerous investment companies would
likely provide repurchase agreements up to the amount of the market value of
the
securities.
Republic’s
ALCO is responsible for managing its liquidity position and interest
sensitivity. That committee’s primary objective is to maximize net interest
income while configuring interest-sensitive assets and liabilities to manage
interest rate risk and provide adequate liquidity.
Investment
Securities Portfolio
At
September 30, 2007, the Company had identified certain investment securities
that are being held for indefinite periods of time, including securities that
will be used as part of the Company’s asset/liability management strategy and
that may be sold in response to changes in interest rates, prepayments and
similar factors. These securities are classified as available for
sale and are intended to increase the flexibility of the Company’s
asset/liability management. Available for sale securities consisted
of U.S. Government Agency securities and other investments. The book and market
values of
investment
securities available for sale were $80.9 million and $80.5 million as of
September 30, 2007, respectively. The net unrealized loss on
investment securities available for sale as of that date was approximately
$321,000.
Loan
Portfolio
The
Company’s loan portfolio consists of secured and unsecured commercial loans
including commercial real estate loans, loans secured by one-to-four family
residential property, commercial construction and residential construction
loans
as well as residential mortgages, home equity loans, short-term consumer and
other consumer loans. Commercial loans are primarily term loans made to small
to
medium-sized businesses and professionals for working capital, asset acquisition
and other purposes. Commercial loans are originated as either fixed or variable
rate loans with typical terms of 1 to 5 years. Republic’s commercial loans
typically range between $250,000 and $5,000,000 but customers may borrow
significantly larger amounts up to Republic’s combined legal lending limit of
approximately $13.3 million at September 30, 2007. Individual customers may
have
several loans often secured by different collateral.
Net
loans
increased $49.0 million, to $833.0 million at September 30, 2007, from $784.0
million at December 31, 2006. Commercial and construction growth comprised
substantially all of that increase.
The
following table sets forth the Company's gross loans by major categories for
the
periods indicated:
(Dollars
in thousands)
|
|
As
of September 30, 2007
|
|
|
As
of December 31, 2006
|
|
|
|
Balance
|
|
|
%
of Total
|
|
|
Balance
|
|
|
%
of Total
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate secured
|
|
$
|
482,242
|
|
|
|
57.3
|
%
|
|
$
|
465,506
|
|
|
|
58.8
|
%
|
Construction
and land development
|
|
|
245,905
|
|
|
|
29.2
|
|
|
|
218,671
|
|
|
|
27.6
|
|
Non
real estate secured
|
|
|
80,109
|
|
|
|
9.5
|
|
|
|
71,816
|
|
|
|
9.1
|
|
Non
real estate unsecured
|
|
|
7,316
|
|
|
|
0.9
|
|
|
|
8,598
|
|
|
|
1.1
|
|
|
|
|
815,572
|
|
|
|
96.9
|
|
|
|
764,591
|
|
|
|
96.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
|
6,006
|
|
|
|
0.7
|
|
|
|
6,517
|
|
|
|
0.8
|
|
Consumer
& other
|
|
|
20,196
|
|
|
|
2.4
|
|
|
|
20,952
|
|
|
|
2.6
|
|
Total
loans, net of unearned income
|
|
|
841,774
|
|
|
|
100.0
|
%
|
|
|
792,060
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
allowance for loan losses
|
|
|
(8,791
|
)
|
|
|
|
|
|
|
(8,058
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loans
|
|
$
|
832,983
|
|
|
|
|
|
|
$
|
784,002
|
|
|
|
|
|
Credit
Quality
Republic’s
written lending policies require specified underwriting, loan documentation
and
credit analysis standards to be met prior to funding, with independent credit
department approval for the majority of new loan balances. A committee of the
Board of Directors oversees the loan approval process to monitor that proper
standards are maintained and approves the majority of commercial
loans.
Loans,
including impaired loans, are generally classified as non-accrual if they are
past due as to maturity or payment of interest or principal for a period of
more
than 90 days, unless such loans are
well-secured
and in the process of collection. Loans that are on a current payment status
or
past due less than 90 days may also be classified as non-accrual if repayment
in
full of principal and/or interest is in doubt.
Loans
may
be returned to accrual status when all principal and interest amounts
contractually due are reasonably assured of repayment within an acceptable
period of time, and there is a sustained period of repayment performance by
the
borrower, in accordance with the contractual terms.
While
a
loan is classified as non-accrual or as an impaired loan and the future
collectibility of the recorded loan balance is doubtful, collections of interest
and principal are generally applied as a reduction to principal outstanding.
When the future collectibility of the recorded loan balance is expected,
interest income may be recognized on a cash basis. In the case where a
non-accrual loan had been partially charged off, recognition of interest on
a
cash basis is limited to that which would have been recognized on the recorded
loan balance at the contractual interest rate. Cash interest receipts in excess
of that amount are recorded as recoveries to the allowance for loan losses
until
prior charge-offs have been fully recovered.
The
following summary shows information concerning loan delinquency and other
non-performing assets at the dates indicated.
|
|
September
30,
2007
|
|
|
December
31,
2006
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
Loans
accruing, but past due 90 days or more
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-accrual
loans
|
|
|
25,435
|
|
|
|
6,916
|
|
Total
non-performing loans (1)
|
|
|
25,435
|
|
|
|
6,916
|
|
Other
real estate owned
|
|
|
42
|
|
|
|
572
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets (2)
|
|
$
|
25,477
|
|
|
$
|
7,488
|
|
|
|
|
|
|
|
|
|
|
Non-performing
loans as a percentage of total loans net of unearned
|
|
|
|
|
|
|
|
|
income
|
|
|
3.02
|
%
|
|
|
0.87
|
%
|
Non-performing
assets as a percentage of total assets
|
|
|
2.45
|
%
|
|
|
0.74
|
%
|
(1)
|
Non-performing
loans are comprised of (i) loans that are on a nonaccrual basis;
(ii) accruing loans that are 90 days or more past due and
(iii) restructured loans.
|
(2)
|
Non-performing
assets are composed of non-performing loans and other real estate
owned
(assets acquired in foreclosure).
|
Non
accrual loans increased $18.5 million, to $25.4 million at September 30, 2007,
from $6.9 million at December 31, 2006. The increase reflected the
transfer of one loan totaling $2.5 million to non accrual status in first
quarter 2007 from 60 to 89 days past due at December 31, 2006, the transfer
of
loans to two additional customers totaling $10.5 million to non accrual status
in second quarter 2007, and transfer of loans to an additional customer totaling
$13.3 million to non accrual status in third quarter 2007. These
increases were partially offset by the payoff of one loan totaling $1.9 million
in second quarter 2007, the charge-off and pay down of loans to one customer
totaling $1.0 million in the first and second quarters of 2007, the payoff
of
one loan totaling $2.4 million in third quarter 2007, and the pay down and
transfer to substandard of one loan totaling $2.0 million in third quarter
2007.
Problem
loans consist of loans that are
included in performing loans, but for which potential credit problems of the
borrowers have caused management to have serious doubts as to the ability of
such
borrowers
to continue to comply with
present repayment terms. At September 30, 2007, all identified problem loans
are
included in the preceding table or are classified as substandard or doubtful,
with a specific reserve allocation in the allowance for loan losses (see
“Allowance For Loan Losses”). Management believes that the appraisals and other
estimates of the value of the collateral pledged against the non-accrual loans
generally exceed the amount of its outstanding balances
.
The
recorded investment in loans which are impaired totaled $34.9 million at
September 30, 2007, and $10.0 million at December 31, 2006, and the amount
of
related valuation allowances were $2.6 million and $1.9 million respectively
at
those dates. The recorded investment in non accrual loans included in those
totals totaled $25.4 million at September 30, 2007, and $6.9 million at December
31, 2006, and the amount of related valuation allowances were $2.0 million
and
$1.8 million respectively at those dates. The primary reason for the increase
was the related valuation allowances on the loans transferred to non-accrual
status in 2007 partially offset by the elimination of the impairment on the
second quarter 2007 charge-offs. At September 30, 2007, compared to
December 31, 2006 accruing impaired loans had increased to $9.5 million
from $3.1 million due to transfer of three related loans totaling $8.4 million
partially offset by the payoff of one loan totaling $2.5 million. The
related valuation allowances were $614,000 and $88,000 respectively at those
dates. There were no commitments to extend credit to any borrowers
with impaired loans as of the end of the periods presented herein.
Republic
had delinquent loans as follows: (i) 30 to 59 days past due, in the aggregate
principal amount of $1.8 million at September 30, 2007 and $40,000 at December
31, 2006; and (ii) 60 to 89 days past due, at September 30, 2007 and December
31, 2006, in the aggregate principal amount of $0 and $2.5 million,
respectively. The increase in the loans delinquent 30 to 59 days reflects $1.8
million in loans that remain at full accrual status. The decrease in
the loans delinquent 60 to 89 days reflects the $2.5 million loan transferred
to
non accrual status in the first quarter of 2007.
Other
Real Estate Owned:
The
balance of other real estate owned decreased to $42,000 at September 30, 2007
from $572,000 at December 31, 2006 due to the sale of two properties in the
second and third quarters of 2007, respectively.
At
September 30, 2007, the Company had no credit exposure to "highly leveraged
transactions" as defined by the Federal Reserve Bank.
Allowance
for Loan Losses
An
analysis of the allowance for loan losses for the nine months ended September
30, 2007, and 2006, and the twelve months ended December 31, 2006 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
For
the
nine months
ended
|
|
|
For
the
twelve
months
ended
|
|
|
For
the
nine months
ended
|
|
(dollars
in thousands)
|
|
September
30, 2007
|
|
|
December
31, 2006
|
|
|
September
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$
|
8,058
|
|
|
$
|
7,617
|
|
|
$
|
7,617
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and construction
|
|
|
1,028
|
|
|
|
601
|
|
|
|
445
|
|
Tax
refund loans
|
|
|
-
|
|
|
|
1,286
|
|
|
|
1,286
|
|
Consumer
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
charge-offs
|
|
|
1,030
|
|
|
|
1,887
|
|
|
|
1,731
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and construction
|
|
|
81
|
|
|
|
37
|
|
|
|
35
|
|
Tax
refund loans
|
|
|
256
|
|
|
|
927
|
|
|
|
639
|
|
Consumer
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
recoveries
|
|
|
338
|
|
|
|
964
|
|
|
|
674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs
|
|
|
692
|
|
|
|
923
|
|
|
|
1,057
|
|
Provision
for loan losses
|
|
|
1,425
|
|
|
|
1,364
|
|
|
|
1,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of
period
|
|
$
|
8,791
|
|
|
$
|
8,058
|
|
|
$
|
7,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
loans outstanding
(1)
|
|
$
|
819,243
|
|
|
$
|
728,754
|
|
|
$
|
714,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
a percent of average loans (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs
(annualized)
|
|
|
0.11
|
%
|
|
|
0.13
|
%
|
|
|
0.20
|
%
|
Provision
for loan losses
(annualized)
|
|
|
0.23
|
%
|
|
|
0.19
|
%
|
|
|
0.26
|
%
|
Allowance
for loan
losses
|
|
|
1.07
|
%
|
|
|
1.11
|
%
|
|
|
1.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans, net of unearned
income at period end
|
|
|
1.04
|
%
|
|
|
1.02
|
%
|
|
|
1.04
|
%
|
Total
non-performing loans at
period end
|
|
|
34.56
|
%
|
|
|
116.51
|
%
|
|
|
79.56
|
%
|
(1)
Includes nonaccruing loans.
Management
makes at least a quarterly determination as to an appropriate provision from
earnings to maintain an allowance for loan losses that is management’s best
estimate of known and inherent losses. The Company’s Board of Directors
periodically reviews the status of all non-accrual and impaired loans and loans
classified by the Republic’s regulators or internal loan review officer, who
reviews both the loan portfolio and overall adequacy of the allowance for loan
losses. The Board of Directors also considers specific loans, pools of similar
loans, historical charge-off activity, economic conditions and other relevant
factors in reviewing the adequacy of the loan loss reserve. Any additions deemed
necessary to the allowance for loan losses are charged to operating
expenses.
The
Company has an existing loan review program, which monitors the loan portfolio
on an ongoing basis. Loan review is conducted by a loan review officer who
reports quarterly, directly to the Board of Directors.
Estimating
the appropriate level of the allowance for loan losses at any given date is
difficult, particularly in a continually changing economy. In management’s
opinion, the allowance for loan losses is appropriate at September 30, 2007.
However, there can be no assurance that, if asset quality deteriorates in future
periods, additions to the allowance for loan losses will not be
required.
Republic’s
management is unable to determine in which loan category future charge-offs
and
recoveries may occur. The entire allowance for loan losses is available to
absorb loan losses in any loan
category. The
majority of the Company's loan portfolio represents loans made for commercial
purposes, while significant amounts of residential property may serve as
collateral for such loans. The Company attempts to evaluate larger loans
individually, on the basis of its loan review process, which scrutinizes loans
on a selective basis and other available information. Even if all commercial
purpose
loans could be reviewed, there is no
assurance that information on potential problems would be available. The
Company's portfolios of loans made for purposes of financing residential
mortgages and consumer loans are evaluated in groups. At September 30, 2007,
loans made for commercial and construction, residential mortgage and consumer
purposes, respectively, amounted to $815.6 million, $6.0 million and $20.2
million.
Effects
of Inflation
The
majority of assets and liabilities of a financial institution are monetary
in
nature. Therefore, a financial institution differs greatly from most commercial
and industrial companies that have significant investments in fixed assets
or
inventories. Management believes that the most significant impact of
inflation on financial results is the Company’s need and ability to react to
changes in interest rates. As discussed previously, management attempts to
maintain an essentially balanced position between rate sensitive assets and
liabilities over a one year time horizon in order to protect net interest income
from being affected by wide interest rate fluctuations.