SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1995 Commission File Number 0-15734
REPUBLIC BANCORP INC.
(Exact name of registrant as specified in its charter)
Michigan 38-260-4669
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1070 East Main Street, Owosso, Michigan 48867
(Address of principal executive offices)
(517) 725-7337
(Registrant's telephone number, including area code)
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 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 August 9, 1995:
Common Stock, $5 Par Value ............................... 14,932,312 Shares
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 1995
and December 31, 1994 ....................................... 1
Consolidated Statements of Income for the Three
Months and Six Months Ended June 30, 1995
and 1994..................................................... 2
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1995 and 1994.......................... 3
Notes to Unaudited Consolidated Financial
Statements................................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 21
Item 2. Changes in Securities........................................ 21
Item 3. Defaults upon Senior Securities.............................. 21
Item 4. Submission of Matters to a Vote of Security Holders.......... 21
Item 5. Other Information............................................ 21
Item 6. Exhibit and Reports on Form 8-K.............................. 21
SIGNATURE ............................................................. 22
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in thousands)
June 30, Dec. 31
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks .................................... $ 25,282 $ 22,518
Federal funds sold ......................................... 2,000 --
Other cash investments ..................................... 5,852 779
-------------- --------------
Cash and cash equivalents .................................. 33,134 23,297
Mortgage loans held for sale ............................... 300,274 152,138
Securities:
Held-to-maturity (aggregate market value of
$254,996, 1994) ...................................... -- 269,701
Available-for-sale (amortized cost of
$419,736, 1995 and $204,614, 1994 .................... 416,223 196,502
Loans ...................................................... 576,831 605,089
Less allowance for loan losses ......................... 5,068 5,544
-------------- --------------
Net loans .................................................. 571,763 599,545
Premises and equipment, net ................................ 15,372 15,484
Purchased mortgage servicing rights ........................ 48,647 57,183
Other assets ............................................... 54,843 49,764
-------------- --------------
Total assets ......................................... $ 1,440,256 $ 1,363,614
============== ==============
LIABILITIES
Deposits:
Non-interest bearing ................................... $ 152,951 $ 111,425
Interest bearing ....................................... 765,618 707,317
-------------- --------------
Total deposits ....................................... 918,569 818,742
Federal funds purchased and reverse
repurchase agreements .................................. 145,355 217,124
Short-term borrowings ...................................... 100,683 39,822
FHLB advances .............................................. 35,000 69,950
Accrued and other liabilities .............................. 51,327 43,077
Long-term debt ............................................. 66,707 56,379
-------------- --------------
Total liabilities .................................... 1,317,641 1,245,094
-------------- --------------
Minority Interest .......................................... 1,023 606
-------------- --------------
SHAREHOLDERS' EQUITY
Preferred stock, $25 stated value;
5,000,000 shares authorized, none issued
and outstanding ........................................ -- --
Common stock, $5 par value, 20,000,000 shares
authorized; 14,924,823 and 15,246,134 shares
issued and outstanding, respectively ................... 74,624 76,231
Capital surplus ............................................ 32,507 35,636
Market value adjustment for securities available-for-sale .. (2,283) (5,273)
Retained earnings .......................................... 16,744 11,320
-------------- --------------
Total shareholders' equity ............................. 121,592 117,914
-------------- --------------
Total liabilities and shareholders' equity ........... $ 1,440,256 $ 1,363,614
============== ==============
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Uunaudited)
(Dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees ................................ $ 16,529 $ 12,952 $ 32,078 $ 25,842
Securities:
Held-to-maturity ................................. 4,049 3,282 8,084 4,639
Available-for-sale ............................... 2,462 3,056 5,316 4,413
Money market investments ............................. 369 42 471 334
----------- ----------- ----------- -----------
Total interest income .......................... 23,409 19,332 45,949 35,228
----------- ----------- ----------- -----------
INTEREST EXPENSE
Demand deposits ...................................... 399 601 834 1,194
Savings and time deposits ............................ 9,424 5,911 17,528 11,761
Short-term borrowings ................................ 4,320 2,545 8,753 3,704
FHLB advances ........................................ 280 691 866 993
Long-term debt ....................................... 1,450 915 2,656 1,374
----------- ----------- ----------- -----------
Total interest expense ......................... 15,873 10,663 30,637 19,026
----------- ----------- ----------- -----------
Net interest income .................................. 7,536 8,669 15,312 16,202
Provision for loan losses ............................ 12 17 24 64
----------- ----------- ----------- -----------
Net interest income after provision for loan losses .. 7,524 8,652 15,288 16,138
----------- ----------- ----------- -----------
NON-INTEREST INCOME
Service charges ...................................... 322 317 625 669
Mortgage banking ..................................... 17,648 16,587 33,002 44,410
Gain(loss) on sale of securities ..................... 8 36 (82) 519
Gain on sale of SBA loans ............................ 369 147 599 381
Other ................................................ 306 670 539 1,178
----------- ----------- ----------- -----------
Total non-interest income ...................... 18,653 17,757 34,683 47,157
----------- ----------- ----------- -----------
NON-INTEREST EXPENSE
Salaries and employee benefits ....................... 11,384 9,850 20,864 26,722
Occupancy expense of premises ........................ 1,266 1,344 2,546 2,643
Equipment expense .................................... 1,047 1,034 2,099 2,078
Other ................................................ 5,885 6,892 11,040 15,148
Minority interest .................................... 330 -- 528 --
----------- ----------- ----------- -----------
Total non-interest expense ..................... 19,912 19,120 37,077 46,591
----------- ----------- ----------- -----------
Income before income taxes ........................... 6,265 7,289 12,894 16,704
Provision for income taxes ........................... 2,340 2,282 4,764 5,615
----------- ----------- ----------- -----------
NET INCOME ........................................... $ 3,925 $ 5,007 $ 8,130 $ 11,089
=========== =========== =========== ===========
Net income per common share outstanding
- primary and fully diluted ...................... $ .26 $ .32 $ .53 $ .71
=========== =========== =========== ===========
Average common shares outstanding - fully diluted .... 15,371 15,732 15,440 15,728
=========== =========== =========== ===========
Cash dividend declared per common share .............. $ .09 $ .08 $ .18 $ .16
=========== =========== =========== ===========
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Six Months Ended
June 30,
------------------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................. $ 8,130 $ 11,089
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation and amortization ......................... 2,269 2,135
Amortization of purchased mortgage servicing rights ... 3,465 2,361
Provision for loan losses ............................. 24 64
(Gain)/loss on sale of securities available-for-sale .. 82 (519)
Gain on sale of mortgage servicing rights ............. (14,287) (24,122)
Gain on sale of loans ................................. (867) (850)
Increase in interest receivable ....................... (657) (3,063)
Increase in interest payable .......................... 1,177 263
Decrease in deferred loans fees ....................... (256) (688)
Net premium amortization on securities ................ 254 201
Increase in other assets .............................. (7,456) (7,967)
Increase/(decrease) in other liabilities .............. 7,073 (6,196)
Proceeds from sale of loans held for sale ............. 798,454 2,033,456
Origination of loans held for sale .................... (961,326) (1,739,208)
Other, net ............................................ 286 (573)
------------- -------------
Total adjustments .................................. (171,765) 255,294
------------- -------------
Net cash provided by/(used in) operating activities ......... (163,635) 266,383
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mortgage servicing rights ....................... (13,694) (16,354)
Proceeds from sale of mortgage servicing rights ............. 33,052 33,840
Proceeds from sale of securities available-for-sale ......... 49,777 32,648
Proceeds from maturities/principal payments of
securities available-for-sale ........................... 6,257 28,463
Proceeds from maturities/principal payments of
securities held-to-maturity ............................. 13,310 11,026
Purchase of securities available-for-sale ................... (14,959) (219,913)
Purchase of securities held-to-maturity ..................... -- (241,486)
Proceeds from sale of loans ................................. 156,034 14,377
Net increase in loans made to customers ..................... (112,454) (115,741)
Premises and equipment expenditures ......................... (1,469) (1,311)
Payment for the purchase of AmeriFirst Financial Corp. ...... (177) --
------------- -------------
Net cash provided by/(used in) investing activities ......... 115,677 (474,451)
------------- -------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Six Months Ended
June 30,
-------------------------
(continued) 1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase/(decrease) in demand deposits,
NOW accounts and savings accounts ...................... 14,514 (3,356)
Net increase/(decrease) in certificates of deposit ......... 64,817 (23,748)
Purchase of Standard Federal Bank demand deposits,
NOW accounts and savings accounts ...................... 6,701 --
Purchase of Standard Federal Bank certificates of deposit .. 13,796 --
Net increase/(decrease) in short-term borrowings ........... (42,055) 203,406
Net proceeds from issuance of common shares ................ 117 949
Repurchase of common shares ................................ (3,914) --
Dividends paid ............................................. (2,706) (2,209)
Payments on long-term debt ................................. (5,374) (413)
Increase in long-term debt ................................. 11,899 --
Proceeds from issuance of senior debentures, net of
issuance cost .......................................... -- 24,713
---------- ----------
Net cash provided by financing activities .................. 57,795 199,342
---------- ----------
Net increase/(decrease) in cash and cash equivalents ....... 9,837 (8,726)
Cash and cash equivalents at beginning of period ........... 23,297 28,025
---------- ----------
Cash and cash equivalents at end of period ................. $ 33,134 $ 19,299
========== ==========
Cash paid during the period for:
Interest ............................................... $ 30,785 $ 18,764
Income taxes ........................................... $ 3,900 $ 5,814
<FN>
Non-cash investing activities:
-During the six months ended June 30, 1995 and 1994, the Company incurred
charge-offs on portfolio loans of $691,000 and $1,185,000, respectively.
-During the six months ended June 30, 1995, the Company securitized
residential real estate portfolio loans into mortgage-backed securities
of $48.0 million.
</TABLE>
4
<PAGE>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Six Months Ended June 30, 1995 and 1994
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements of Republic Bancorp Inc.
("Republic" or the "Company") and subsidiaries are prepared in accordance with
generally accepted accounting principles for interim financial information,
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all normal, recurring adjustments necessary to
present fairly the consolidated operating results of the Company and its
subsidiaries for the three months ended June 30, 1995 and 1994 and for the six
months ended June 30, 1995 and 1994 as well as the financial position at June
30, 1995 and cash flows for the six months ended June 30, 1995 and 1994.
Certain reclassifications have been made in the consolidated financial
statements for 1994 to conform with the 1995 presentation.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Republic Bancorp
Inc., and the accounts of three wholly owned subsidiaries: Republic Bank,
Republic Bancorp Mortgage Inc. and Republic Savings Bank (formerly Horizon
Savings Bank). The consolidated financial statements also include the accounts
of Market Street Mortgage Corporation and CUB Funding Corporation, of which
the Company owns an 80% majority interest in both entities. Republic Bancorp
Mortgage Inc. operates Home Funding, Inc., which was acquired in October 1994,
and AmeriFirst Home Mortgage, which was acquired in February 1995, as
divisions. All significant intercompany transactions and balances have been
eliminated in consolidation.
3. ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 115, "Accounting for
Certain Investments in Debt and Equity Securities," effective for fiscal years
beginning after December 15, 1993. Under SFAS 115, all affected debt and
equity securities must be classified as held-to-maturity, trading or
available-for-sale. Classification is critical because it affects the carrying
amount of the security, as well as the timing of gain or loss recognition in
the income statement. The Company does not currently maintain a trading
account classification. The Company adopted SFAS 115 for the financial period
beginning January 1, 1994.
Management determines the appropriate classification for debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. In accordance with SFAS 115, securities held-to- maturity include only
those securities which the Company has the positive intent and ability to hold
until maturity. Such securities are carried at cost adjusted for amortization
of premium and accretion of discount, computed in a manner which approximates
the effective interest method. In order to more effectively respond to
liquidity needs primarily related to funding mortgage loans held for sale, the
Company reclassified the entire held-to-maturity investment portfolio to
available-for-sale at June 30, 1995. Appropriate mark-to-market adjustments
are reflected in the shareholders' equity section of the consolidated balance
sheet at June 30, 1995.
5
<PAGE>
In July 1995, subsequent to the reclassification of the held-to-maturity
investment portfolio to available-for-sale status at June 30, 1995, the
Company sold $143.4 million of U.S. Treasury obligations, U.S. Government
Agency obligations and collateralized mortgage obligations resulting in a
realized gain on sale of $677,000 net of tax. Proceeds from the sale will be
used primarily to fund the increased levels of mortgage loans held for sale,
portfolio loans, or to reduce short-term borrowings, primarily reverse
repurchase agreements.
The available-for-sale securities portfolio is stated at fair value, with
the market value adjustment, net of tax, reported as a separate component
of shareholders' equity. The amortized cost of debt securities classified
as available-for-sale is adjusted for amortization of premiums and
accretion of discounts to maturity, or in the case of mortgage-backed
securities and collateralized mortgage obligations, over the estimated
life of the security. Interest and dividends are included in interest
income from investments. Realized gains and losses, and declines in value
judged to be other-than-temporary are included in net securities gains
(losses). The cost of securities sold is based on the specific
identification method.
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
Available-for-Sale Securities
-----------------------------------------
June 30, 1995 Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury Obligations ............. $ 81,432 $ 521 $ 205 $ 81,748
U.S. Government Agency Obligations .... 80,662 776 293 81,145
Collateralized Mortgage Obligations ... 105,813 8 2,038 103,783
Mortgage-Backed Securities ............ 131,269 102 1,690 129,681
Other Securities ...................... 1,059 13 6 1,066
-------- -------- -------- --------
Total Debt Securities ................. 400,235 1,420 4,232 397,423
Equity Securities ..................... 19,501 -- 701 18,800
-------- -------- -------- --------
Total Available-for-Sale Securities ... $419,736 $ 1,420 $ 4,933 $416,223
======== ======== ======== ========
</TABLE>
The gross realized gains and losses on sales of available-for-sale securities
totaled $21,000 and $13,000, respectively, for the quarter ended June 30,
1995, and $21,000 and $103,000, respectively, for the six months ended June
30, 1995.
The following table details the components of the securities
available-for-sale portfolio and the amortized cost and market value of the
portfolio classified by maturity at June 30, 1995. Expected maturities will
differ from contractual maturities because the issuers of the securities may
have the right to prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE
Maturity Distribution
(Dollars in thousands)
June 30, 1995
Due Within One to Five to After
One Year Five Years Ten Years Ten Years Total
------------------- ------------------- -------------------- ------------------ -------------------
Estimated Estimated Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value Cost Value
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and Government
Agency Obligations......... $13,462 $13,389 $132,774 $133,638 $ 572 $ 565 $ 15,286 $ 15,301 $162,094 $162,893
Mortgage-Backed Securities... 828 843 3,514 3,458 7,399 7,253 119,528 118,127 131,269 129,681
Collateralized Mortgage
Obligations................ -- -- 3,654 3,637 8,197 8,103 93,962 92,043 105,813 103,783
Other Debt Securities........ 336 336 241 247 162 170 320 313 1,059 1,066
------- ------- -------- -------- -------- -------- -------- -------- -------- --------
Total Available-For-Sale
Debt Securities.......... 14,626 14,568 140,183 140,980 16,330 16,091 229,096 225,784 400,235 397,423
Equity Securities............ 19,501 18,800 -- -- -- -- -- -- 19,501 18,800
------- ------- -------- -------- -------- -------- -------- -------- -------- --------
Total Available-for-Sale
Securities............... $34,127 $33,368 $140,183 $140,980 $ 16,330 $ 16,091 $229,096 $225,784 $419,736 $416,223
======= ======= ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
6
<PAGE>
4. LOANS
<TABLE>
<CAPTION>
Loans consist of the following:
(In thousands)
June 30, December 31,
1995 1994
-------- -----------
<S> <C> <C>
Commercial loans:
Secured by real estate ............... $ 83,560 $ 81,922
Other (generally secured) ............ 22,756 15,989
----------- -----------
Total Commercial loans ........... 106,316 97,911
Residential real estate mortgages .... 413,656 457,755
Installment loans .................... 56,859 49,423
----------- -----------
Total loans ...................... 576,831 605,089
Allowance for estimated loan losses .. (5,068) (5,544)
----------- -----------
Net loans ........................ $ 571,763 $ 599,545
=========== ===========
</TABLE>
The company adopted SFAS 114, "Accounting by Creditors for Impairment of a
Loan," and SFAS 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures," on January 1, 1995. Accordingly, loans
are classified as impaired when, based on current information and events, it
is probable that the Company will be unable to collect all principal and
interest due under the contractual terms of the loan agreement. Impaired loans
are measured based on the present value of expected future cash flows
discounted at the loans effective interest rate or, as a practical expedient,
at a loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. Impairment is recognized by adjusting the
allowance for estimated loan losses for the impaired loan with a corresponding
charge to provision for estimated loan losses. The adoption of SFAS 114 by the
Company did not result in any additional charge to the allowance for estimated
loan losses or provision for estimated loan losses. Additionally, adoption of
SFAS 118 did not result in any change to the recognition of income on impaired
loans.
SFAS 114 amends SFAS 15, "Accounting by Debtors and Creditors for Troubled
Debt Restructuring," to clarify that substantive repossession accounting is
applicable in circumstances where the debtor surrenders the collateral to the
creditor and the creditor receives physical possession of the collateral.
Therefore, a loan for which foreclosure is probable, as in the case of
in-substance foreclosed (ISF) assets, should continue to be accounted for as a
loan. The impact of this change did not result in any reclassifications of ISF
assets.
<TABLE>
<CAPTION>
Impaired Loans: (In Thousands)
June 30,
1995
--------
<S> <C>
Gross recorded investment in impaired loans .... $ 1,429
Specific allowance for estimated loan losses ... (614)
-------
Total net impaired loans ....................... $ 815
=======
(In Thousands)
Average impaired loans outstanding ............. $ 2,108
=======
Interest income recognized ..................... $ 28
=======
</TABLE>
7
<PAGE>
5. MORTGAGE BANKING
In May, 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 122, "Accounting for
Mortgage Servicing Rights," amending SFAS No. 65, "Accounting for Certain
Mortgage Banking Activities." This statement eliminates the accounting
distinction between rights to service mortgage loans that are acquired
through origination activities and those acquired through purchase. The
Company adopted this Standard effective April 1, 1995 and capitalized
mortgage servicing rights, the effect of which was not material to
consolidated net income.
8
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MORTGAGE BANKING
During the second quarter and first half of 1995, the Company closed $647
million and $1.0 billion, respectively, in single-family, owner occupied,
residential mortgage loans, compared to $757 million and $1.8 billion
closed during the second quarter of 1994 and first half of 1994,
respectively. The decrease in mortgage loan closings in 1995 was
primarily attributable to the higher interest rate environment which has
significantly reduced the number of refinanced mortgages from 1994 levels.
The decrease in mortgage loan volume resulted in a decrease of mortgage
banking income of $11.4 million, from $44.4 million in the first half of 1994
to $33.0 million in 1995. During the second quarter of 1995, mortgage banking
income increased $1.1 million. This increase was primarily due to improved
margins, higher mortgage loan servicing fees resulting from a larger mortgage
loan servicing portfolio, offset by decreased gains from sale of servicing for
the comparable period. A breakdown of income from mortgage banking activities
is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net mortgage loan servicing fees .... $ 2,456 $ 1,537 $ 5,187 $ 2,990
Origination fee income .............. 6,608 6,516 10,697 15,135
Gain on sale of mortgages ........... 1,677 167 2,831 2,164
Gain on sale of servicing ........... 6,907 8,367 14,287 24,121
------- ------- ------- -------
Total mortgage banking income .. $17,648 $16,587 $33,002 $44,410
======= ======= ======= =======
</TABLE>
The Company generates origination fee income primarily through its retail
mortgage loan operation. The Company's retail mortgage loan closings were $765
million for the first half of 1995 compared to $1.0 billion for 1994,
resulting in lower origination fee income of $4.4 million over the first half
of 1994. Retail mortgage loan closings for the second quarter of 1995 were
$477 million, compared to $491 million for the second quarter of 1994,
resulting in a consistent level of origination fee income.
The majority of the Company's residential mortgage production during 1995 has
been long-term fixed rate mortgages. The Company typically sells all of its
long-term fixed rate and a significant portion of its variable rate mortgages
to the secondary market. During the second quarter and first half of 1995, the
Company's gain on sale of mortgages totaled $1.7 million and $2.8 million,
respectively, compared to $167,000 and $2.2 million, respectively, for the
same periods in 1994. The increase in the gain on sale of mortgages was due to
the improvement in margins.
During the second quarters of 1995 and 1994, the Company sold both purchased
and originated mortgage servicing rights on loans with principal balances of
$1.2 billion and $1.3 billion, respectively, resulting in gains of $6.9
million and $8.4 million, respectively. During the first half of 1995 and
1994, the Company sold mortgage servicing rights on loans with principal
balances of $2.9 billion and $3.4 billion, respectively, resulting in gains of
$14.3 million and $24.1 million, respectively.
In May, 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 122, "Accounting for Mortgage
Servicing Rights," amending SFAS No. 65, "Accounting for Certain Mortgage
Banking Activities." This statement eliminates the accounting distinction
between rights to service mortgage loans that are acquired through origination
activities and those acquired through purchase. The Company adopted this
Standard effective April 1, 1995 and capitalized mortgage servicing rights,
the effect of which was not material to consolidated net income.
9
<PAGE>
The remainder of the Management's Discussion and Analysis provides various
disclosures and analyses relating principally to the commercial banking
segment.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income totaled $7.5 million and $15.3 million for the second
quarter and first half of 1995, respectively, compared to $8.7 million and
$16.2 million, respectively, for the same periods in 1994. The decrease in net
interest income was comprised of increases in interest income with larger
offsetting increases in interest expense for both periods. The increase in
both interest income and interest expense was due to general increases in
interest rates earned on interest earning assets and interest rates paid on
interest bearing liabilities over the last twelve months. In addition to an
increase in interest bearing deposits, the mix in interest bearing liabilities
shifted to a higher percentage of time deposits, which had an average rate
paid of 5.95% versus 4.52%. The net interest margin for the second quarter and
first half of 1995 decreased to 2.41% and 2.47%, respectively, from 3.00% and
3.04%, for the same periods in 1994.
During the second quarter of 1995 average earning balances increased $97.4
million, or 8.4%, to $1.253 billion from $1.155 billion during the 1994 second
quarter. Also impacting interest income growth was an increase in the yield on
interest earning assets to 7.47% during the 1995 second quarter from 6.69%
during second quarter 1994. The most significant improvements to the increase
in yield on interest earning assets were the 116 basis points increase in
average rates earned on mortgage loans held for sale, the 64 basis points
increase in average rates earned on the securities portfolio and the 81 basis
points increase in average rates earned on real estate mortgage loans, which
reprice annually based primarily on the one year constant maturity treasury
index.
Average earning balances increased 16.0%, or $170.6 million, to $1.238 billion
during the first six months of 1995, from $1.067 billion during the first six
months of 1994. In addition, the yield on average earning assets increased to
7.42% from 6.60%, resulting in a net increase of $10.7 million in interest
income. Primary factors in the increase in yield on interest earning assets
were the 157 basis points increase in average rates earned on mortgage loans
held for sale, the 84 basis points increase in average rates earned on the
securities portfolio and the 69 basis points increase in average rates earned
on real estate mortgage loans, which reprice annually based primarily on the
one year constant maturity treasury index.
The cost of funding assets in second quarter 1995 increased to 5.74% from
4.29% in second quarter 1994, with the average balance of interest bearing
liabilities increasing $110.9 million, or 11.1%, to 1.106 billion from $995
million in the 1994 second quarter. Short-term borrowings, used primarily to
fund mortgage loans held for sale, and time deposits represented the largest
growth categories growing by $49.7 million and $134.7 million, respectively,
with the average rate increasing by 180 basis points and 143 basis points,
respectively.
Interest expense for the six months ended June 30, 1995 increased $11.6
million over the same period in 1994. The increase was primarily the result of
the increase in the average balance of short-term borrowings and time deposits
which increased $119.5 million and $101.9 million and the increase in the
average rate paid on short-term borrowings and time deposits from 4.92% and
4.51% in 1994, respectively, to 6.48% and 5.65%, respectively, in 1995.
The following table presents an analysis of average balances and rates for the
three month and six month periods ended June 30, 1995 and 1994.
10
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1994
--------------------------------- --------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE(1) INTEREST RATE BALANCE(1) INTEREST RATE
---------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ASSETS:
Money market investments ................. $ 26,555 $ 361 5.44% $ 4,425 $ 42 3.79%
Mortgage loans held for sale ............. 178,162 3,742 8.40 233,587 4,229 7.24
Securities ............................... 422,901 6,520 6.17 458,817 6,338 5.53
Commercial loans ......................... 106,749 2,625 9.84 117,736 2,778 9.44
Real estate mortgage loans ............... 464,570 8,735 7.52 291,811 4,896 6.71
Installment Loans ........................ 53,807 1,426 10.60 48,998 1,049 8.56
------------ -------- ----- ------------ -------- ----
Total loans, net of unearned income .. 625,126 12,786 8.18 458,545 8,723 7.61
------------ -------- ----- ------------ -------- ----
Total interest earning assets ........ 1,252,744 23,409 7.47 1,155,374 19,332 6.69
-------- ----- -------- ----
Allowance for loan losses ................ (5,401) (6,490)
Cash and due from banks .................. 23,992 28,862
Other assets ............................. 130,114 92,961
------------ ------------
Total assets ......................... $ 1,401,449 $ 1,270,707
============ ============
AVERAGE LIABILITIES AND
SHAREHOLDERS' EQUITY:
Deposits:
Interest bearing demand deposits ..... $ 63,682 399 2.51 $ 91,343 601 2.63
Savings deposits ..................... 175,442 1,656 3.78 197,326 1,532 3.11
Time deposits ........................ 521,799 7,768 5.95 387,148 4,379 4.52
------------ -------- ----- ------------ -------- ----
Total interest bearing deposits .. 760,923 9,823 5.16 675,817 6,512 3.85
Short-term borrowings .................... 264,764 4,320 6.53 215,109 2,545 4.73
FHLB advances ............................ 18,233 281 6.16 59,505 691 4.64
Long-term debt ........................... 62,226 1,449 9.31 44,852 915 8.16
------------ -------- ----- ------------ -------- ----
Total interest bearing liabilities ... 1,106,146 15,873 5.74 995,283 10,663 4.29
-------- ----- -------- ----
Non-interest bearing deposits ............ 130,351 129,098
Other liabilities ........................ 44,273 28,219
------------ ------------
Total liabilities .................... 1,280,770 1,152,600
------------ ------------
Shareholders' equity ..................... 120,679 118,107
------------ ------------
Total liabilities and shareholders'
equity ............................. $ 1,401,449 $ 1,270,707
============ ============
Net interest income ...................... $ 7,536 $ 8,669
======== ========
Net interest spread ...................... 1.73% 2.40%
===== ====
Net interest margin ...................... 2.41% 3.00%
===== ====
<FN>
(1) Non-accrual loans and overdrafts are included in average balances. No
significant amounts of tax-exempt income were earned by the Company or
its subsidiaries during 1995 or 1994.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1994
--------------------------------- ----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE(1) INTEREST RATE BALANCE(1) INTEREST RATE
---------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Average Assets:
Money market investments ................. $ 16,680 $ 457 5.48% $ 21,032 $ 334 3.18%
Mortgage loans held for sale ............. 150,133 6,337 8.44 268,457 9,224 6.87
Securities ............................... 438,399 13,415 6.12 342,702 9,052 5.28
Commercial loans ......................... 103,928 5,098 9.81 123,156 5,551 9.01
Real estate mortgage loans ............... 476,638 17,932 7.52 263,533 8,994 6.83
Installment loans ........................ 52,254 2,710 10.37 48,533 2,073 8.53
------------ -------- ----- ------------- --------- ----
Total loans, net of unearned income .. 632,820 25,740 8.14 435,222 16,618 7.64
------------ -------- ----- ------------- --------- ----
Total interest earning assets ........ 1,238,032 45,949 7.42 1,067,413 35,228 6.60
-------- ----- --------- ----
Allowance for loan losses ................ (5,489) (6,828)
Cash and due from banks .................. 24,915 26,272
Other assets ............................. 131,358 94,533
------------ -------------
Total assets ......................... $ 1,388,816 $ 1,181,390
============ =============
Average Liabilities and
Shareholders' Equity:
Deposits:
Interest bearing demand deposits ..... $ 65,880 834 2.53 $ 90,545 1,194 2.64
Savings deposits ..................... 179,114 3,355 3.75 182,160 2,741 3.01
Time deposits ........................ 502,026 14,174 5.65 400,162 9,020 4.51
------------ -------- ----- ------------- --------- ----
Total interest bearing deposits .......... 747,020 18,363 4.92 672,867 12,955 3.85
Short-term borrowings .................... 270,189 8,753 6.48 150,658 3,704 4.92
FHLB advances ............................ 27,759 866 6.24 41,950 993 4.73
Long-term debt ........................... 59,504 2,655 8.92 32,110 1,374 8.56
------------ -------- ----- ------------- --------- ----
Total interest bearing liabilities ... 1,104,472 30,637 5.55 897,585 19,026 4.24
-------- ----- --------- ----
Non-interest bearing deposits ............ 122,780 126,787
Other liabilities ........................ 42,565 41,151
------------ -------------
Total liabilities .................... 1,269,817 1,065,523
------------ -------------
Shareholders' equity ..................... 118,999 115,867
------------ -------------
Total liabilities and
shareholders' equity ................. $ 1,388,816 $ 1,181,390
============ =============
Net interest income ...................... $ 15,312 $ 16,202
======== =========
Net interest spread ...................... 1.87% 2.36%
===== ====
Net interest margin ...................... 2.47% 3.04%
===== ====
<FN>
(1) Non-accrual loans and overdrafts are included in average balances. No
significant amounts of tax-exempt income were earned by the Company or its
subsidiaries during 1995 or 1994.
</TABLE>
12
<PAGE>
Net interest income can be analyzed in terms of the impact of changing rates
and changing volumes of interest earning assets and interest bearing
liabilities. The following table sets forth certain information regarding
changes in net interest income due to changes in the average balance of
interest earning assets and interest bearing liabilities and due to changes in
average rates for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1995 VERSUS 1994 1995 VERSUS 1994
INC/(DEC) DUE TO CHANGE IN: INC/(DEC) DUE TO CHANGE IN:
------------------------------------ -----------------------------------
AVERAGE AVERAGE NET AVERAGE AVERAGE NET
BALANCE(1) RATE(1) CHANGE BALANCE(1) RATE(1) CHANGE
--------- ------- ------ --------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Money market investments ............. $ 293 $ 26 $ 319 $ (188) $ 311 $ 123
Mortgage loans held for sale ......... (3,526) 3,039 (487) (7,452) 4,565 (2,887)
Securities ........................... (2,296) 2,478 182 2,779 1,584 4,363
Loans, net of unearned income (2) .... 3,368 695 4,063 7,973 1,149 9,122
--------- --------- -------- -------- --------- --------
Total interest income ............ (2,161) 6,238 4,077 3,112 7,609 10,721
--------- --------- -------- -------- --------- --------
Interest expense:
Interest bearing demand deposits ..... (176) (26) (202) (312) (48) (360)
Savings deposits ..................... (856) 980 124 (133) 747 614
Time deposits ........................ 1,775 1,614 3,389 2,586 2,568 5,154
--------- --------- -------- -------- --------- --------
Total interest bearing deposits .. 743 2,568 3,311 2,141 3,267 5,408
Short-term borrowings ................ 670 1,105 1,775 3,607 1,442 5,049
FHLB advances ........................ (1,507) 1,097 (410) (717) 590 (127)
Long-term debt ....................... 392 142 534 1,221 60 1,281
--------- --------- -------- -------- --------- --------
Total interest expense ........... 298 4,912 5,210 6,252 5,359 11,611
--------- --------- -------- -------- --------- --------
Net interest income .............. $ (2,459) $ 1,326 $ (1,133) $ (3,140) $ 2,250 $ (890)
========= ========= ======== ======== ========= ========
<FN>
(1) Any variance attributable jointly to volume and rate changes is
allocated to volume and rate in proportion to the relationship of the
absolute dollar amount of the change in each.
(2) Non-accrual loans are included in average balances.
</TABLE>
13
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense in the second quarter and first half of 1995 was $19.9
million and $37.1 million, respectively, compared to $19.1 million and $46.6
million, respectively, for the same periods in 1994. Salaries and employee
benefits are the largest portion of non-interest expense totaling $11.4
million and $20.9 million for the three month and six month periods of 1995,
respectively. Salaries and employee benefits increased $1.5 million from $9.9
million in the second quarter of 1994. Salaries and employee benefits
decreased $5.9 million for the first half of 1995 compared to the first half
of 1994, primarily as a result of lower commissions and incentives paid on
decreased mortgage loan volume for the first half of 1995 as compared to 1994.
FINANCIAL CONDITION
ASSETS
Total assets at June 30, 1995 were $1.44 billion, which represents an increase
of $77 million over the $1.36 billion at December 31, 1994. The increase in
assets since December 31, 1994 was primarily in mortgage loans held for sale,
partially offset by a decline in securities and portfolio mortgage loans. The
increase in mortgage loans held for sale was primarily a result of an increase
in residential loan closings for the quarter ended June 30, 1995 compared to
the quarter ended December 31, 1994. The corresponding decrease in securities
and portfolio mortgage loans was mainly a result of selling a portion of lower
interest earning assets in order to fund shorter-term, higher interest earning
mortgage loans held for sale balances.
LOANS
Total loans, excluding loans held for sale, at June 30, 1995 decreased $28.3
million to $576.8 million from $605.1 million at December 31, 1994.
Residential real estate loans decreased $44.1 million to 71.7% of total loans
at June 30, 1995, from 75.7% at December 31, 1994, due primarily to the
Company selling a portion of lower interest earning assets in order to fund
shorter-term, higher interest earning mortgage loans held for sale balances.
Commercial loans, including commercial loans secured by real estate, increased
to $106.3 million, or 18.4%, of total loans at June 30, 1995. The increase was
due to an emphasis by the Company on origination of high quality commercial
credits. Mortgage loans held for sale increased to $300.3 million at June 30,
1995 from $152.1 million at December 31, 1994.
During the second quarter and first half of 1995, the Company closed $3.7
million and $9.8 million, respectively, of Small Business Administration (SBA)
loans. The Company sold $4.2 million of SBA loans during the first six months
of the year, resulting in gains of $599,000.
The Company attempts to minimize credit risk in its loan portfolio by focusing
primarily on residential real estate mortgages and real estate-secured
commercial lending. As of June 30, 1995, these loans comprised 86.2% of the
total loan portfolio, excluding loans held for sale. The Company's general
policy is to originate conventional residential real estate mortgages with
loan to value ratios of 80% or less and real estate-secured commercial loans
with loan to value ratios of 70% or less. The substantial majority of the
Company's mortgage loans comply with the requirements for sale to or
conversion to mortgage-backed securities issued by the Federal Home Loan
Mortgage Corporation ("FHLMC"), Federal National Mortgage Association ("FNMA")
or Government National Mortgage Association ("GNMA").
The majority of the Company's commercial loans are secured by real estate and
are made to small and medium-sized businesses. These loans or lines of credit
are generally made at rates based on the prevailing prime interest rates of
the subsidiary banks and are adjusted periodically. The focus of the Company
on real estate-secured lending with lower loan to value ratios is generally
reflected in the low net charge-off ratio percentages.
14
<PAGE>
The Company has not emphasized installment loans and, excluding home equity
loans, does not intend to emphasize these loans in the future. The following
table summarizes the composition of the Company's loan portfolio:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------------- -----------------
(Dollars in thousands) Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial loans:
Secured by real estate ......... $ 83,560 14.5% $ 81,922 13.5%
Other (generally secured) ...... 22,756 3.9 15,989 2.6
-------- ----- -------- -----
Total commercial loans ..... 106,316 18.4 97,911 16.1
Residential real estate mortgages .. 413,656 71.7 457,755 75.7
Installment loans .................. 56,859 9.9 49,423 8.2
-------- ----- -------- -----
Total portfolio loans ...... $576,831 100.0% $605,089 100.0%
======== ===== ======== =====
</TABLE>
At June 30, 1995, the Company had commitments to fund residential real estate
loans of $436.5 million. These commitments are expected to result in mortgage
loan closings during the next 30 to 60 days. Offsetting the interest rate risk
associated with these commitments, as well as mortgage loans held for sale of
$300.3 million, the Company had firm commitments to sell forward $436.9
million of residential real estate loans. These commitments to sell forward,
which are expected to settle in the third quarter of 1995, will not produce
any material gain or loss.
NON-PERFORMING ASSETS
Loans held in portfolio are reviewed on a regular basis and are placed on
non-accrual status when, in the opinion of management, reasonable doubt exists
as to the full, timely collection of interest or principal. Real estate
acquired by the Company as a result of foreclosure or by deed in lieu of
foreclosure is classified as other real estate owned ("OREO") until such time
as it is sold. The following table provides information with respect to the
Company's past due loans and the components of non-performing assets at the
dates indicated.
<TABLE>
<CAPTION>
(Dollars in thousands) June 30, Dec. 31, June 30,
1995 1994 1994
-------- -------- --------
<S> <C> <C> <C>
Loans past due 90 days or more and still
accruing interest:
Commercial ............................. -- $ 104 $ 505
Residential real estate mortgages ...... -- -- 113
Installment ............................ $ 40 35 80
------ ------ ------
Total .............................. $ 40 $ 139 $ 698
====== ====== ======
Non-accrual loans:
Commercial ............................. $1,137 $ 982 $1,032
Residential real estate mortgages ...... 984 1,304 1,103
Installment ............................ 100 79 133
------ ------ ------
Total .............................. 2,221 2,365 2,268
Restructured loans ..................... 794 1,130 1,788
Other real estate owned ................ 1,121 586 1,131
------ ------ ------
Total non-performing assets ........ $4,136 $4,081 $5,187
====== ====== ======
Non performing assets as a percentage of:
Total loans and OREO (1) ............... .72% .67% 1.02%
Total loans and OREO (2) ............... .47% .54% .72%
Total assets ........................... .29% .30% .38%
<FN>
(1) Excluding mortgage loans held for sale.
(2) Including mortgage loans held for sale.
</TABLE>
At June 30, 1995, approximately $3.6 million, or .63% of portfolio loans were
30-89 days delinquent.
15
<PAGE>
ALLOWANCE FOR ESTIMATED LOAN LOSSES
Management is responsible for maintaining an adequate allowance for estimated
loan losses. The appropriate level of the allowance for estimated loan losses
is determined by systematically reviewing the loan portfolio quality,
analyzing economic changes, consulting with regulatory agencies and reviewing
historical loan loss experience. Actual net losses are charged against this
allowance. If actual circumstances and losses differ substantially from
management's assumptions and estimates, such reserves for loan losses may not
be sufficient to absorb all future losses, and net earnings could be
significantly and adversely affected.
Management is of the opinion that the allowance for estimated loan losses is
adequate to meet potential losses in the loan portfolio. It must be
understood, however, that there are inherent risks and uncertainties related
to the operation of a financial institution. By necessity, the Company's
financial statements are dependent upon estimates, appraisals and evaluations
of loans. Therefore, the possibility exists that abrupt changes in such
estimates, appraisals and evaluations might be required because of changing
economic conditions and the economic prospects of borrowers.
As of June 30, 1995, the allowance for estimated loan losses was $5.1 million,
or .88%, of total loans, excluding mortgage loans held for sale, compared with
$5.5 million, or .92%, as of December 31, 1994. The allowance for estimated
loan losses as a percentage of non-performing loans was 168.12% at June 30,
1995 versus 158.61% at December 31, 1994.
An analysis of the allowance for estimated loan losses, the amount of loans
charged off, and the recoveries on loans previously charged off is summarized
in the following table:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------
1995 1994
---- ----
<S> <C> <C>
Allowance for estimated loan losses:
Balance at January 1 ............................ $ 5,544 $ 7,214
Loans charged off ........................... (691) (1,185)
Recoveries of loans previously charged off .. 191 153
------- -------
Net charge offs ................................. (500) (1,032)
Provision charged to expense .................... 24 64
Reduction due to sale of commercial loans ....... -- (350)
------- -------
Balance at June 30 .............................. $ 5,068 $ 5,896
======= =======
</TABLE>
SECURITIES
The securities portfolio serves as a source of earnings with relatively
minimal principal risk. As a result, the Company's portfolio is comprised
primarily of U.S. Treasuries, U.S. Government agency obligations and
obligations collateralized by U.S. Government agencies, primarily in the form
of collateralized mortgage obligations and mortgage-backed securities. The
maturity structure of the portfolio is generally short-term, with an estimated
average maturity of less than three years, or at adjustable rates. The
securities portfolio, constituted 28.9% of the Company's assets at June 30,
1995, compared to 34.2% at December 31, 1994. The decrease in the securities
portfolio is primarily a result of selling available-for-sale securities to
provide liquidity to fund higher interest earning asset balances, mainly in
the form of mortgage loans held for sale. In order to more effectively respond
to liquidity needs primarily related to funding mortgage loans held for sale,
the Company reclassified the entire held-to-maturity investment portfolio to
available-for-sale at June 30, 1995. Appropriate mark-to-market adjustments
are reflected in the shareholders' equity section of the consolidated balance
sheet at June 30, 1995.
16
<PAGE>
Certain securities, with a carrying value of approximately $172.9 million and
$235.3 million at June 30, 1995 and December 31, 1994, respectively, were
pledged to secure reverse repurchase agreements and other deposits as required
by law.
See Note 3 to the consolidated financial statements for further discussion of
the securities portfolio.
LIABILITIES
DEPOSITS
Non-interest bearing deposits increased $41.5 million, or 37.3%, from $111.4
million at December 31, 1994 to $152.9 million at June 30, 1995, primarily due
to an increase in mortgage escrow balances of $19.9 million and official
checks outstanding used to fund mortgage loans held for sale of $15.0 million.
Interest bearing deposits increased $58.3 million, or 8.2% , from $707.3
million at December 31, 1994, to $765.6 million at June 30, 1995, due
primarily to an increase of $64.8 million in certificates of deposit as well
as the acquisition of $20.2 million in interest bearing deposits through the
acquisition of deposits of three Michigan based Standard Federal Bank branches
in February 1995. These increases were partially offset by a decrease in other
interest bearing deposit accounts of $26.7 million.
On February 24, 1995, the Company completed the acquisition of the Standard
Federal Bank branches in Owosso and Flushing, Michigan, as well as the deposit
accounts of the Flint branch of Standard Federal Bank. Through the
acquisition, the Company added $20.2 million of interest bearing and $300,000
of non-interest bearing deposits. The Owosso and Flushing branches were opened
as Republic Bank offices on February 27, 1995.
SHORT-TERM BORROWINGS
As of June 30, 1995, the Company had $145.4 million of securities sold under
agreements to repurchase at an average rate for the quarter of 6.27%. Such
agreements, which have stated maturities of 30 days to one year are secured by
certain securities with a carrying value of $154.4 million. The proceeds from
the reverse repurchase agreements are used to fund mortgage loans held for
sale.
On May 22, 1995, Market Street Mortgage Corporation entered into a $75 million
warehousing line of credit agreement with Residential Funding Corporation used
for the purpose of funding the purchase or origination of mortgage loans by
Market Street. The line of credit, which is payable on demand, is secured by
various real estate mortgage loans and expires August 31, 1996. Market Street
is required to pay interest on the unpaid principal amount of each advance at
1.50% above the monthly average LIBOR rate. Borrowings under this warehousing
line of credit at June 30, 1995, totaled $40.1 million. Prior to the $75
million warehousing line of credit agreement with Residential Funding
Corporation, Market Street Mortgage Corporation had a $75 million warehousing
line of credit agreement with G.E. Capital Mortgage Services Inc. used for the
purpose of funding the purchase or origination of mortgage loans by Market
Street. Interest was calculated at a rate equal to the lower of 2.0% above the
lender's one month commercial paper rate or the LIBOR rate. During the second
quarter of 1995, the combined average borrowings and interest rate paid on
these two warehousing lines was $39.0 million and 8.13%, respectively.
Republic Bancorp Mortgage Inc. has a $20 million warehousing line of credit
with NBD Bank, N.A. used to fund the acquisition or origination of mortgage
loans by Republic Bancorp Mortgage. The line of credit, which is payable on
demand, is secured by various real estate mortgage loans and expires in July
1995. Republic Mortgage is required to pay interest on the unpaid principal
amount of each advance in a range of federal funds sold plus 1.50%, to Wall
Street Journal Prime, based on the document status of each loan as applicable
to such advance. Borrowings under this warehousing line of credit at June 30,
1995 totaled $5.4 million. During the second quarter of 1995, the average
borrowings and interest rate paid on this warehousing line was $622,000 and
9.00%, respectively.
17
<PAGE>
CUB Funding Corporation has a $16 million warehousing line of credit
agreement with Prudential Home Mortgage Company used for funding the
purchase or origination of mortgage loans by CUB Funding. Interest, which
is payable monthly, is computed based upon the 30 day commercial paper
index plus various spreads ranging from 1.00% to 2.75% based on the
document status of each loan. Borrowings under this line of credit were
$9.5 million at June 30, 1995. During the second quarter of 1995 the
average interest rate was 7.41% and the average balance outstanding was
$6.1 million. The line of credit, which is payable on demand, is secured
by various real estate mortgage loans and expires in May, 1996.
On May 22, 1995, Market Street Mortgage Corporation entered into a $4 million
working capital revolving line of credit with Residential Funding Corporation.
Interest is calculated at a floating rate of interest which is equal to 1.0%
over the prime lending rate. Borrowings under this revolving line of credit at
June 30, 1995, were $3.8 million at a borrowing rate of 10.0%. The working
capital revolving credit agreement expires August 31, 1996.
In May 1995, CUB Funding Corporation entered into a $2 million mortgage
servicing acquisition line of credit with Prudential Home Mortgage Company
used for the acquisition of mortgage servicing rights. Interest is calculated
based on the 30-day commercial paper index plus 2.75%. At June 30, 1995, $2.0
million was outstanding under this line of credit at a borrowing rate of
8.80%. The line of credit expires May, 1996.
In March 1995, CUB Funding Corporation entered into a revolving gestation
repurchase agreement with Paine Webber Inc. as a funding source for mortgage
loan originations. Security for this borrowing agreement includes various real
estate mortgage notes and expires at the option of either party. Interest is
calculated at various rates depending on loan document status and ranges from
federal funds plus .60% to 30 day LIBOR plus .90% to 1.75%. Borrowings under
this agreement at June 30, 1995, were $22.8 million at an average borrowing
rate of 7.23%. During the second quarter of 1995, the average borrowings and
interest rate paid for this borrowing agreement were $12.3 million and 6.97%,
respectively.
The Company has an $18 million revolving Credit Agreement with Firstar Bank
Milwaukee, N.A. with proceeds to be utilized for working capital purposes. The
agreement provides for borrowings with interest at the prime rate, less .25%,
or LIBOR plus 1.75%. At June 30, 1995, $17.0 million was outstanding under
this Credit Agreement. During the second quarter of 1995, the average
borrowings and interest rate paid for this credit agreement were $8.7 million
and 8.62%, respectively.
FHLB ADVANCES
Republic Savings Bank has outstanding four advances with the Federal Home Loan
Bank ("FHLB"), a $10 million advance with an interest rate of 7.15%, maturing
in February 1997, a $5 million advance with an interest rate of 4.45%,
maturing in December 1995, a $5 million advance with an interest rate of 6.0%,
maturing in June 1997, and a $5 million advance with a floating interest rate
flat to the three month LIBOR index and adjusting quarterly, maturing in June
2000. These advances are secured by first mortgage loans equal to at least
150% of the advances under a blanket security agreement and investment
securities equal to at least 110% of the advances under a specific security
agreement with interest payable monthly for all advances.
In order to provide liquidity needs for mortgage loan originations, Republic
Savings also has a $50 million line of credit with the FHLB. As of June 30,
1995, borrowing under this line totaled $10 million with an average interest
rate paid of 6.06%.
18
<PAGE>
LONG-TERM DEBT
Republic Bancorp Mortgage has a mortgage loan in the amount of $2.0 million
with Firstar Bank Milwaukee, N.A. Principal and interest with a fixed rate of
6.99% is payable quarterly, with a final maturity date of October 1, 2000. As
of June 30, 1995, $93,000 of the total $2.0 million is classified as
short-term borrowings.
On May 22, 1995, Market Street Mortgage Corporation entered into a $26 million
term loan agreement with Residential Funding Corporation used for the purpose
of (1) refinancing then existing term loans to Market Street from G.E. Capital
Mortgage Services, Inc., Bank United of Texas, F.S.B. and Poughkeepsie Savings
Bank, and (2) to finance mortgage loan servicing acquisitions. Interest is
calculated at a floating rate which is equal to 1.0% over the prime lending
rate. The outstanding principal balance of all term loan advances outstanding
as of August 31, 1996 will be due in quarterly installments, on the last day
of each November, February, May and August, beginning with November 1996, each
in an amount equal to five percent of the outstanding principal amount of term
loan advances. The final payment of any remaining principal amount outstanding
will be due on August 31, 2000. Borrowings under this line of credit at June
30, 1995 were $22.6 million at a borrowing rate of 10.0%.
During second quarter 1995, Market Street Mortgage Corporation repaid a note
payable with Poughkeepsie Savings Bank, F.S.B. of $558,000, which was secured
by the servicing rights underlying the Poughkeepsie mortgages which are
serviced by Market Street. Interest was payable at the prime rate plus 2%, and
was payable in twelve equal quarterly installments with stated final maturity
of November 30, 1995.
During second quarter 1995, Market Street Mortgage Corporation repaid balances
outstanding under a $10 million revolving credit agreement with Bank United of
Texas, F.S.B. used for the acquisition of mortgage servicing rights. Interest,
which was payable monthly, was calculated at a floating rate of interest equal
to 3.75% over the monthly average LIBOR rate. Upon repayment of the
outstanding principal balance the credit agreement was terminated.
Also during the 1995 second quarter, Market Street Mortgage Corporation repaid
balances outstanding under a $16 million revolving credit agreement with G. E.
Capital Mortgage Services, Inc. used for the acquisition of mortgage servicing
rights. Interest was payable monthly and calculated at 3.75% above the
lender's one month commercial paper rate. Principal was payable in monthly
installments commencing January 1995 with a balloon payment equal to the
unpaid principal balance required in the 48th month (December 1, 1998). Upon
repayment of the outstanding principal balance the credit agreement was
terminated.
The Company has $17.25 million of 9% Subordinated Notes outstanding which
mature February 1, 2003. Interest on the notes is payable monthly at 9%. The
notes are redeemable in whole or in part by the Company, subject to Federal
Reserve Board approval at par plus accrued interest at any time after February
1, 1996. The Subordinated Notes qualify as Tier 2 Capital for the calculation
of Total Risk-Based Capital under Federal Reserve Board guidelines. Republic
also has $25 million of 7.17% senior debentures which mature April 2001 with
interest on the notes payable semiannually.
CAPITAL RESOURCES
Total shareholders' equity at June 30, 1995 was $121.6 million compared to
$117.9 million at December 31, 1994. The increase of $3.7 million during the
first half of 1995 was due to earnings net of dividends, the unrealized gain
in market valuation adjustment on securities available-for-sale, and the
repurchase of 434,000 Republic Bancorp Inc. common shares under the stock
repurchase program.
19
<PAGE>
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies. At June 30, 1995, Republic's Tier 1 Capital and Total
risk-based capital ratios were 17.20% and 20.51%, respectively, versus 17.65%
and 21.14%, respectively at December 31, 1994. These ratios exceed minimum
guidelines prescribed by regulatory agencies. As of June 30, 1995, total
risk-based capital was $138.3 million, an excess of $84.4 million over the
minimum guidelines prescribed by regulatory agencies.
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. Republic's Tier 1 Capital leverage
ratio at June 30, 1995 was 8.33%, versus 8.47% at December 31, 1994.
The Company is committed to maintaining a strong capital position. As of June
30, 1995, Republic Bank and Republic Savings Bank's Total capital to
risk-weighted assets ratio, and Tier 1 Capital to risk-weighted assets ratio
were in excess of all minimum regulatory requirements. It is management's
opinion that the Company and its subsidiaries' capital structure is adequate
and the Company does not anticipate any difficulty in meeting these
requirements on an ongoing basis.
20
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Republic and its subsidiaries are parties to certain ordinary routine
litigation incidental to Republic's business. In the opinion of
management, liabilities arising from such litigation would not have a
material effect on Republic's consolidated financial statements.
Item 2. Changes in Securities
At the May 18, 1995 meeting, the Board of Directors declared a
quarterly cash dividend of $.09 per share on common stock, payable on
July 7, 1995 to shareholders of record on June 9, 1995.
Item 3. Defaults upon Senior Securities
During the interim period covered by this report, there were no
defaults upon senior securities.
Item 4. Submission of Matters to Vote of Security Holders
During the interim period covered by this report, there were no
matters submitted to a vote of security holders. However, pursuant to
the Company's proxy statement dated March 27, 1995, shareholders at
the Company's April 26, 1995 annual meeting elected the following
directors of the Company:
<TABLE>
<CAPTION>
Name Position Director Since
---- -------- --------------
<S> <S> <C>
Jerry D. Campbell Chairman of the Board, 1985
Chief Executive Officer
and President
Dana M. Cluckey Executive Vice President, 1995
Treasurer and Director
Bruce L. Cook Director 1985
Richard J. Cramer Director 1991
George A. Eastman Director 1990
Howard J. Hulsman Director 1985
Gary Hurand Director 1990
Dennis J. Ibold Director 1993
Stephen M. Klein Director 1988
John J. Lennon Director 1993
Sam H. McGoun Director 1990
Kelly E. Miller Director 1990
Joe D. Pentecost Director 1985
George B. Smith Director 1987
Jeoffrey K. Stross Director 1993
</TABLE>
Item 5. Other Information
Not applicable.
Item 6. Exhibit and Reports on Form 8-K
(a) Exhibits
11. Statement RE: Computation of per share earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
During the interim period covered by this report, there were no
reports filed by the Company on Form 8-K.
21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REPUBLIC BANCORP INC.
-------------------------
(Registrant)
Date: August 11, 1995 By: /s/Thomas F. Menacher
-------------------------------
Thomas F. Menacher,
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
22
EXHIBIT 11
STATEMENT RE COMPUTATION OF
PER SHARE EARNINGS
Primary earnings per common share are computed by dividing net income by the
weighted average number of common shares outstanding and common equivalent
shares with a dilutive effect. Common equivalent shares are shares which may be
issuable upon exercise of outstanding stock options and warrants. Stock options
and warrants were included in earnings per primary common share computed for
both periods presented.
Fully diluted earnings per common share are determined on the assumption that
the weighted average number of common shares and common equivalent shares
outstanding is further increased by the effect of the end of period market
price on stock options and stock warrants. Stock options and stock warrants
were included in earnings per fully diluted common share computations for 1995
and 1994.
The following table presents information necessary for the computation of
earnings per share, on both primary and fully diluted basis, for the three and
six months ended June 30, 1995 and 1994.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average number of
common shares
outstanding .......................... 14,914,078 15,221,413 14,993,647 15,182,438
Common share equivalents
on stock options and stock
warrants based on average
market price ......................... 453,520 506,145 440,667 543,282
---------- ---------- ---------- ----------
Average number of common
shares outstanding to compute
primary earnings per share ........... 15,367,598 15,727,558 15,434,314 15,725,720
Incremental common share
equivalent on stock options
and stock warrants based on
end of period market price ........... 3,838 4,611 5,385 2,319
---------- ---------- ---------- ----------
Average number of common
shares outstanding to compute
fully diluted earnings per share ..... 15,371,436 15,732,169 15,439,699 15,728,039
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from
the consolidated balance sheet as of June 30, 1995 and consolidated
statements of income for the six months ended June 30, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 25,282
<INT-BEARING-DEPOSITS> 5,852
<FED-FUNDS-SOLD> 2,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 416,223
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 877,105
<ALLOWANCE> 5,068
<TOTAL-ASSETS> 1,440,256
<DEPOSITS> 918,569
<SHORT-TERM> 260,945
<LIABILITIES-OTHER> 51,002
<LONG-TERM> 86,800
0
0
<COMMON> 74,624
<OTHER-SE> 46,968
<TOTAL-LIABILITIES-AND-EQUITY> 1,440,256
<INTEREST-LOAN> 32,078
<INTEREST-INVEST> 13,871
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 45,949
<INTEREST-DEPOSIT> 18,362
<INTEREST-EXPENSE> 30,637
<INTEREST-INCOME-NET> 15,312
<LOAN-LOSSES> 24
<SECURITIES-GAINS> (82)
<EXPENSE-OTHER> 37,077
<INCOME-PRETAX> 12,894
<INCOME-PRE-EXTRAORDINARY> 12,894
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,130
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
<YIELD-ACTUAL> 2.47
<LOANS-NON> 2,221
<LOANS-PAST> 40
<LOANS-TROUBLED> 794
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,544
<CHARGE-OFFS> 691
<RECOVERIES> 191
<ALLOWANCE-CLOSE> 5,068
<ALLOWANCE-DOMESTIC> 2,743
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,325
</TABLE>
