The steady rise in mortgage rates since February and consequent fall in loan originations have pulled shares of Republic Bancorp, Owosso, Mich., into a holding pattern.

After peaking in January, before the Federal Reserve Board began lifting interest rates, the shares have recently traded in a narrow range near their yearend price level. They were up 25 cents to $13.25 on Monday.

Republic is probably more involved in mortgage banking than any other bank in the country. Mortgage-related revenues were 75% of total revenues last year, according to Keefe, Bruyette & Woods Inc.

"The stock hasn't made it very far, but yet it hasn't fallen out of bed either," said Frank J. Barkocy, senior bank analyst at Advest Inc.

"While the mortgage refinance business has been drying up, Republic has been been aggressive in building market share, and its managment has a solid track record."

If consolidation activity begins to stir in the region, shares of Republic, might quickly move up, he said. Advest rates the stock a "buy."

Low P/E Ratio

Republic shares trade at only 7.6 times 1995 estimated earnings of $1.75 per share, said Kay C. Lister of Keefe Bruyette. That is the lowest price/earnings ratio of any Midwestern bank the firm follows.

PNC Bank Corp., which bought Sears Roebuck & Co.'s big mortgage bank, sells at 8.6-times earnings, slightly below average for a commercial bank.

But Republic still carries a premium multiple in contrast to several pure mortgage banking companies. Countrywide Credit Industries sells at 6.5 times 1995 estimated earnings, and Fleet Mortgage Corp. at 7.1 times.

"We are cautious on the outlook for the shares in the short term, but we rate them an attractive long-term holding," Ms. Lister said of Republic.

Republic, chartered in 1985, runs one commercial bank, three mortgage banks, and a savings bank in Ohio. It has enjoyed strong profitability, with a 1.9% return on assets and a 23% return on equity last year.

The boom in refinancing helped provide a huge boost to mortgage revenues. They grew from $2.4 million in 1989 to $85 million in 1993.

But refinancings -- 65% of Republic's originations last year -- have been halted by rising rates. Ms. Lister thinks the bank will originate 20% fewer home loans this year.

The company hopes to offset this, she said, by aggressively seeking greater market share in mortgages involving home buyers with a recently expanded network of retail office and a salesoriented workforce.

Republic has plans to open 18 new loan origination offices this year and will then have 108 outlets in 20 states. Meanwhile 75% of employees "have some portion of compensation tied to performance."


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