CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995
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REPUBLIC BANCORP INC.
(Exact name of registrant as specified in its charter)
Commission File Number 0-15734
Michigan 38-2604669
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1070 East Main Street, Owosso, Michigan 48867
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (517) 725-7337
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $5.00 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock (which consists solely of
shares of Common Stock) held by non-affiliates of the registrant as of
February 29, 1996, based on the last reported sale price on that date of
$11.875 of the registrant's Common Stock outstanding: $194.2 million.
Number of shares of the registrant's Common Stock outstanding as of
February 29, 1996: 16,352,119
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
PART II: Certain portions of the registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1995.
PART III: Certain portions of the registrant's definitive Proxy Statement
in connection with the Annual Meeting of Shareholders of the
registrant to be held on April 24, 1996.
<PAGE>
PART I
Item 1. BUSINESS
General
Republic Bancorp Inc. (the "Company") is a bank holding company headquartered
in Ann Arbor, Michigan which offers retail, commercial and mortgage banking
services through its bank subsidiary, Republic Bank, and its savings bank
subsidiary, Republic Savings Bank ("Republic Savings"), and mortgage banking
services through its non-depository mortgage banking subsidiaries, Republic
Bancorp Mortgage Inc. ("Republic Mortgage"), Market Street Mortgage
Corporation ("Market Street") and CUB Funding Corporation ("CUB Funding"). The
Company's mortgage banking services include the origination or purchase,
short-term funding, sale and servicing of residential first mortgage loans,
and the purchase and sale of servicing rights associated with such loans.
At December 31, 1995, the Company had consolidated total assets of $1.5
billion, total deposits of $905 million and shareholders' equity of $126
million. For the year ended December 31, 1995, the Company reported net income
of $14.3 million versus $15.7 million for 1994 and originated or purchased
$2.8 billion of residential mortgage loans, a slight increase over the prior
year. At December 31, 1995, the Company had a mortgage loan servicing
portfolio of $4.0 billion.
The Company's current operating strategy is to grow its mortgage banking fee
income and related interest income while managing its liquidity needs and the
interest rate risks of its balance sheet. The Company's mortgage banking
operations earn origination and loan servicing fees and typically sell their
mortgage loan originations into the secondary market. Between the time the
Company funds its mortgage loans and their delivery into the secondary market,
the mortgage loans are held for sale. The Company can thereby, in effect, earn
long-term interest rates on short-term investments while minimizing interest
rate risk. Consistent with a strategy of managing interest rate risk, the
Company typically securitizes and sells all short-term and long-term
fixed-rate mortgages and retains a portion of variable rate mortgages. The
growth of the Company's residential mortgage origination business has been
funded primarily with Republic Bank's and Republic Savings' retail deposits
and short-term borrowings, and the mortgage subsidiaries' warehousing lines of
credit.
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Mortgage Banking
The Company originates residential mortgage loans through 96 retail offices
located in Michigan, Alabama, Arizona, California, Colorado, Connecticut,
Florida, Georgia, Idaho, Illinois, Indiana, Maryland, Massachusetts, Nevada,
New York, North Carolina, Ohio, Oregon, Virginia and Washington, and through
its wholesale operations. The Company's wholesale operations are conducted
from 10 offices (one each in Arizona, Idaho, Nevada, Oregon and Washington,
and five in California), and involve the purchase of residential loans from
approximately 200 participating correspondent institutions and brokers.
Each retail office is responsible for processing loan applications and
preparing loan documentation. Residential loans purchased through the
wholesale operation are processed and prepared by the correspondent
institutions and brokers. Quality control personnel then review loans to be
purchased through the wholesale operation using certain verification
procedures. Loan applications are then evaluated by the underwriting
departments of either the Company's mortgage or banking subsidiaries for
compliance with the Company's underwriting criteria, including loan to value
ratios, borrower qualifications and required insurance.
The substantial majority of the loans are conventional mortgage loans which
are secured by residential properties and comply with the requirements for
sale to, or conversion to mortgage-backed securities issued by, the Federal
National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC"). The Company also originates Federal Housing
Administration ("FHA") insured and Department of Veterans Affairs ("VA")
guaranteed mortgage loans for sale in the form of modified pass-through
mortgage-backed securities guaranteed by the Government National Mortgage
Association ("GNMA").
The residential loans originated or purchased by the Company are funded by
either: (1) Republic Bank or Republic Savings retail deposits or short-term
funding sources such as Federal Home Loan Bank ("FHLB") advances or reverse
repurchase agreements; or (2) Republic Mortgage, Market Street and CUB Funding
through borrowings under various warehousing lines of credit and revolving
repurchase agreements. While some variable rate residential loans may be
retained by Republic Bank and Republic Savings, the majority of all
residential loans are held for a short period of time (generally less than 60
days) and are then sold to secondary market investors either directly or by
pooling them and selling the resulting mortgage-backed securities. Such
residential loans and mortgage-backed securities are sold without recourse to
the Company in the event of default by the borrowers. To minimize any interest
rate risk, the Company typically enters into commitments to sell forward
mortgage-backed securities to investors at the time the customer agrees upon
an interest rate.
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When the Company sells the residential loans it has originated or purchased,
it may either retain or sell the rights to service those loans and to receive
the related fees. While there is an active market for selling servicing rights
(which are generally valued in relation to the present value of the
anticipated cash flow generated by the servicing rights), the aggregation of a
servicing portfolio can also create a substantial continuing source of income.
Republic Mortgage, Market Street and CUB Funding receive servicing fees
ranging generally from 25 to 45 basis points (of the mortgage amount) per
annum on their respective servicing portfolios.
Commercial and Retail Banking
The Company's bank subsidiary, Republic Bank, is a Michigan chartered bank
which engages in the business of commercial banking and exercises the powers
of a full service commercial bank. See "Regulation." Republic Bank operates in
six distinct market areas in Michigan. At December 31, 1995, the subsidiary
bank had assets of $833 million, deposits of $672 million, and 25 offices.
The Company's savings bank subsidiary, Republic Savings Bank, is an Ohio
chartered savings bank which engages in the business and exercises the powers
of a savings bank. See "Regulation." Republic Savings operates primarily in
the greater Cleveland, Ohio area and at December 31, 1995, had assets of $391
million, deposits of $236 million and 11 offices.
Republic Bank and Republic Savings offer checking, savings and time deposits,
loans to individuals, commercial enterprises and governmental agencies,
installment credit to consumers and small businesses, and other banking
services. While Republic Bank's and Republic Savings' lending activities focus
primarily on residential real estate mortgages, they also emphasize loans to
small and medium-sized businesses through the Small Business Administration
("SBA"). The Company's general policy is to originate SBA-secured loans or
real estate secured commercial loans with loan to value ratios of 70% or less.
Republic Bank and Republic Savings target that segment of the banking market
which is interested in personalized service for their deposits. The deposits
are primarily retail deposits from within their market areas. At December 31,
1995, the subsidiaries' combined interest-bearing deposits comprised 86% of
total deposits, and time deposits of $100,000 or more comprised 21% of
interest-bearing deposits.
Revenues
The principal sources of revenue for the Company are interest income and fees
on loans and mortgage banking income. On a consolidated basis, interest and
fees on loans accounted for approximately 42%, 35% and 39% of total revenues
in 1995, 1994 and 1993, respectively. Non-interest income, primarily
consisting of mortgage banking income (i.e., gain on sales of mortgage loans
and mortgage servicing rights, origination fee income and mortgage loan
servicing fees, net of amortization), gain on sale of securities, and service
charges accounted for approximately 44%, 49% and 54% of total revenues in
1995, 1994 and 1993, respectively.
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Interest income from securities, money market investments and interest earning
deposits accounted for approximately 14%, 16% and 7% of total revenues during
1995, 1994 and 1993, respectively.
For further information, see the Company's financial statements incorporated
herein by reference.
Competition
Mortgage banking and commercial and retail banking are highly competitive
businesses, in which the Company faces numerous banking and non-banking
institutions as competitors. By reason of changes in Federal law (which became
effective on September 29, 1995) and Michigan law (which became effective on
November 29, 1995), the number of types of potential depository institution
competitors have substantially increased. See "Recently Enacted and Proposed
Legislation". Generally, financial institutions have greater resources to use
in making acquisitions and higher lending limits than those of the Company's
bank or savings bank or any banking institution that the Company could
acquire. Such institutions can perform certain functions for their customers
which the Company or its subsidiary bank or savings bank may not offer.
The principal factors in the markets for deposits and loans are price
(interest rates paid and charged) and customer service. Republic Bank and
Republic Savings compete for deposits by offering depositors a variety of
savings accounts, checking accounts, convenient office locations and other
miscellaneous services. The Company competes for loans through the efficiency
and quality of the services it provides to borrowers, real estate brokers and
home builders. The Company seeks to compete for mortgages primarily on the
basis of customer service including prompt underwriting decisions and funding
of loans and by offering a variety of loan programs as well as competitive
interest rates.
Regulation
Bank holding companies, banks and savings banks are subject to extensive
regulation under both federal and state law. To the extent the following
material describes statutory and regulatory provisions, it is qualified in its
entirety by reference to the particular statutory and regulatory provisions. A
change in applicable law or regulation could have a material effect on the
business of the Company.
1. Bank Holding Company
The Company, as a bank holding company, is regulated under the Bank
Holding Company Act of 1956, as amended ("BHC Act"), and is subject to
the supervision of the Board of Governors of the Federal Reserve
System ("Federal Reserve Board"). The Company is registered as a bank
holding company with the Federal Reserve Board and is required to file
with the Federal Reserve Board an annual report and such additional
information as the Federal Reserve Board may require pursuant to the
BHC Act. The Federal Reserve Board may also make inspections and
examinations of the Company and its subsidiaries.
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Under the BHC Act, bank holding companies such as the Company are
prohibited, with certain limited exceptions, from engaging in
activities other than those of banking or of managing or controlling
banks and from acquiring or retaining direct or indirect ownership or
control of voting shares or assets of any company which is not a bank
or bank holding company, other than subsidiary companies furnishing
services to or performing services for its subsidiaries, and other
subsidiaries engaged in activities which the Federal Reserve Board
determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Since September
29, 1995, the BHC Act has permitted the Federal Reserve Board under
specified circumstances to approve the acquisition, by a bank holding
company located in one State (such as the Company), of a bank or bank
holding company located in another State without regard to any
prohibition contained in State law. See "Recently Enacted and Proposed
Legislation."
The Company is a corporation which is separate and distinct from its
depository institutions and other subsidiaries. Most of the Company's
revenues are received by it in the form of dividends or interest paid
by its subsidiaries. There are statutory and regulatory limitations on
the timing and amount of dividends which may be paid to the Company by
it subsidiaries.
Under Federal Reserve Board policy, the Company is expected to act as
a source of financial strength to Republic Bank and Republic Savings
and to commit resources to support them. This support may be required
at times when, in the absence of such Federal Reserve Board policy,
the Company would not otherwise be required to provide it. In
addition, in certain circumstances a Michigan chartered bank having
impaired capital may be required by the Commissioner of the Michigan
Financial Institutions Bureau ("FIB") either to restore the bank's
capital by a special assessment upon its shareholders, or to initiate
the liquidation of the bank.
Any capital loans by a bank holding company to a subsidiary bank are
subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a
federal bank regulatory agency to maintain the capital of a subsidiary
bank will be assumed by the bankruptcy trustee and entitled to a
priority of payment. This priority would apply to guarantees of
capital plans under the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA").
The Federal Reserve Board has adopted capital adequacy guidelines to
provide a framework for supervisory evaluation of the capital adequacy
of bank holding companies. The capital adequacy guidelines establish
minimum levels of capital, measured in several different manners
(including as a function of risk-adjusted assets) described in
detailed regulations, which must be maintained by a bank holding
company.
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FDICIA requires the federal bank regulatory agencies biennially to
review risk-based capital standards to ensure that they adequately
address interest rate risk, concentration of credit risk and risks
from non-traditional activities and, since adoption of the Riegle
Community Development and Regulatory Improvement Act of 1994 (the
"Riegle Act"), to do so taking into account the size and activities of
depository institutions and the avoidance of undue reporting burdens.
See "Recently Enacted and Proposed Legislation." In 1995, the agencies
adopted regulations requiring as part of the assessment of an
institution's capital adequacy the consideration of (i); identified
concentrations of credit risks, (ii) the exposure of the institution
to a decline in the value of its capital due to changes in interest
rates, and (iii) the application of revised conversion factors and
netting rules on the institution's potential future exposure from
derivative transactions. In addition, the agencies proposed (i);
additional required data submissions on periodic Reports of Condition
and Income ("Call Reports") regarding interest rate exposure, to
furnish a basis for future regulations imposing explicit minimum
capital charges for interest rate risk, and (ii) incorporation in the
capital adequacy regulations of a measure for market risk in, among
other things, the trading of debt instruments.
2. Bank Subsidiaries
The Company's commercial bank subsidiary, Republic Bank, is subject to
regulation and examination primarily by the FIB. The Company's savings
bank subsidiary, Republic Savings, is subject to regulation and
examination primarily by the Ohio Superintendent of the Division of
Financial Institutions. As insured state banks, Republic Bank and
Republic Savings are also subject to regulation and examination by the
Federal Deposit Insurance Corporation ("FDIC").
These agencies and federal and state law extensively regulate various
aspects of the banking business including, among other things,
permissible types and amounts of loans, investments and other
activities, capital adequacy, branching, interest rates on loans and
on deposits, the maintenance of non-interest bearing reserves on
deposit accounts, and the safety and soundness of banking practices.
The FDIC imposes capital adequacy guidelines on Republic Bank and
Republic Savings. Subject to certain variations and exceptions, these
guidelines are generally similar to those of the Federal Reserve Board
discussed above with respect to bank holding companies.
As insured banks, Republic Bank and Republic Savings are subject to
uniform real estate lending regulations adopted by the Federal
depository institution regulatory agencies. These regulations require
each institution to adopt comprehensive and appropriate real estate
lending policies, including underwriting standards and measurable loan
to value ratios which are consistent with safe and sound banking
practice, and documentation, approval and administration standards,
all of which are reviewed and approved annually by the institution's
board of directors. The regulations provide specific guidance on loan
to value ratios which are acceptable, ranging from a maximum of 65%
for loans secured by raw land up to 85% for loans secured by 1-4
family residential construction or improved property.
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Although no maximum is prescribed for home equity or 1-4 family
permanent mortgage loans, the regulations indicate that such loans
equal to or in excess of a 90% ratio would be expected to be supported
by private mortgage insurance or readily marketable collateral.
Banking laws and regulations also restrict transactions by insured
banks owned by a bank holding company, including loans to and certain
purchases from the parent holding company, non-bank and bank
subsidiaries of the parent holding company, principal shareholders,
officers, directors and their affiliates, and investments by the
subsidiary bank in the shares or securities of the parent holding
company (or of any other non-bank or bank affiliates), and acceptance
of such shares or securities as collateral security for loans to any
borrower. The bank's regulators also review other payments, such as
management fees, made by the subsidiary bank to affiliated companies.
The Company's bank subsidiaries are also subject to legal limitations
on the frequency and amount of dividends that can be paid to the
Company. A Michigan state bank may not declare a cash dividend or a
dividend in kind except out of net profits then on hand after
deducting all losses and bad debts, and then only if it will have a
surplus amounting to not less than 20% of its capital after the
payment of the dividend. Moreover, a Michigan state bank may not
declare or pay any cash dividend or dividend in kind until the
cumulative dividends on its preferred stock, if any, have been paid in
full. Further, if the surplus of a Michigan state bank is at any time
less than the amount of its capital, before the declaration of a cash
dividend or dividend in kind, it must transfer to surplus not less
than 10% of its net profits for the preceding half-year (in the case
of quarterly or semi-annual dividends) or the preceding two
consecutive half-year periods (in the case of annual dividends).
An Ohio savings bank must pay all its expenses each year only out of
its gross earnings. Only after provision has been made for the payment
of such expenses, interest, and the maintenance of a reserve for
absorption of bad debts and other losses and other net worth accounts
at levels required by Ohio law and regulations of the Ohio
Superintendent of the Division of Financial Institutions, may an Ohio
savings bank declare and pay dividends. Such dividends may be declared
and paid out of current earnings and undivided profits.
The payment of dividends by the Company and its bank subsidiaries is
also affected by various regulatory requirements and policies, such as
the requirement to maintain adequate capital above regulatory
guidelines. The "prompt corrective action" provisions of FDICIA impose
further restrictions on the payment of dividends by insured banks
which fail to meet specified capital levels and, in some cases, their
parent bank holding companies.
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FDICIA establishes five capital categories, and the federal depository
institution regulators, as directed by FDICIA, have adopted, subject
to certain exceptions, the following minimum requirements for each of
such categories:
<TABLE>
<CAPTION>
Total Tier 1
Risk-Based Risk-Based Leverage
Capital Ratio Capital Ratio Ratio
------------- ------------- --------
<S> <C> <C> <C>
Well capitalized 10% or above 6% or above 5% or above
Adequately capitalized 8% or above 4% or above 4% or above
Undercapitalized Less than 8% Less than 4% Less than 4%
Significantly undercapitalized Less than 6% Less than 3% Less than 3%
Critically undercapitalized -- -- A ratio of
tangible equity
to total assets
of 2% or less
</TABLE>
Subject to certain exceptions, these capital ratios are generally
determined on the basis of Call Reports submitted by each depository
institution and the reports of examination by each institution's
appropriate federal depository institution regulatory agency.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any
management fee to its holding company if the depository institution
would thereafter be undercapitalized.
The FDIC may prevent an insured bank from paying dividends if the bank
is in default of payment of any assessment due to the FDIC. In
addition, payment of dividends by a bank may be prevented by the
applicable federal regulatory authority if such payment is determined,
by reason of the financial condition of such bank, to be an unsafe and
unsound banking practice. The Federal Reserve Board has issued a
policy statement providing that bank holding companies and insured
banks should generally only pay dividends out of current operating
earnings.
These regulations and restrictions may limit the Company's ability to
obtain funds from its subsidiaries for its cash needs, including funds
for acquisitions, payment of dividends and interest and the payment of
operating expenses.
The Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA") provides for cross-guarantees of the liabilities of
insured depository institutions pursuant to which any insured bank
subsidiary of a holding company may be required to reimburse the FDIC
for any loss incurred or reasonably anticipated to be incurred by the
FDIC after August 9, 1989 in connection with a default of any of such
holding company's other insured subsidiary banks or from assistance
provided to such other subsidiaries in danger of default. This right
of recovery by the FDIC generally is superior to any claim of the
shareholders of the depository institution that is liable or any
affiliate of such institution. The bank and savings bank subsidiaries
of the Company are subject to such cross-guarantees.
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Among other things, FDICIA requires the federal depository institution
regulators to take prompt corrective action in respect of depository
institutions that do not meet minimum capital requirements. The scope
and degree of regulatory intervention is linked to the capital
category to which a depository institution is assigned.
In general, a depository institution may be reclassified to a lower
category than is indicated by its capital position if the appropriate
federal depository institution regulatory agency determines the
institution to be otherwise in an unsafe or unsound condition or to be
engaged in an unsafe or unsound practice. This could include a failure
by the institution, following receipt of a less-than-satisfactory
rating on its most recent examination report, to correct the
deficiency.
Among other things, undercapitalized depository institutions are
subject to growth limitations and are required to submit capital
restoration plans. A depository institution's holding company must
guarantee a capital restoration plan, up to an amount equal to the
lesser of 5% of the depository institution's assets at the time it
becomes undercapitalized or the amount of the capital deficiency when
the institution fails to comply with the plan. The Federal depository
institution agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic
assumptions and is likely to succeed in restoring the depository
institution's capital. If a depository institution fails to submit an
acceptable plan, or fails in any material respect to implement an
approved plan, it is treated as if it is significantly
undercapitalized.
In addition to these restrictions applicable to undercapitalized
institutions, significantly undercapitalized depository institutions
may be subject to a number of requirements and restrictions, including
orders to sell sufficient voting stock to become adequately
capitalized, make changes in management personnel, and require the
parent holding company to divest or liquidate any affiliate of the
institution or the institution itself under certain circumstances.
Subject to certain exceptions, critically undercapitalized depository
institutions are required to be placed in conservatorship or
receivership, generally within 90 days.
Republic Bank is subject to FDIC deposit insurance assessments paid to
the Bank Insurance Fund ("BIF"). Republic Savings is subject to FDIC
deposit insurance assessments paid to the Savings Association
Insurance Fund ("SAIF"). Pursuant to FDICIA, the FDIC has implemented
a risk-based assessment scheme. Under this arrangement, each
depository institution is assigned to one of nine categories (based
upon three categories of capital adequacy and three categories of
perceived risk to the applicable insurance fund).
The FDIC is further required by FDICIA to establish the BIF and SAIF
deposit insurance assessment rates, respectively, at a level which
will maintain, or restore over a period of not more than 15 years, the
mandated reserve ratios of 1.25%. In November, 1995, the FDIC
determined that the BIF had reached the required ratio by June 30,
1995. The FDIC does not expect the SAIF to reach the mandated
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reserve ratio until 2002. FDICIA also grants the FDIC the power to
impose special deposit insurance assessments in addition to the
regular assessments.
FDICIA added numerous other provisions, including new accounting,
audit and reporting requirements, new regulatory standards in areas
such as asset quality, earnings and compensation, and revised
regulatory standards for, among other things, powers of state
chartered banks, branch closures, and reduction of systemic risk in
the payments system.
4. Mortgage Subsidiaries
The Company's non-depository mortgage banking subsidiaries, Republic
Mortgage, Market Street, and CUB Funding are engaged in the business
of originating or purchasing, selling and servicing mortgage loans
secured by residential real estate. In the origination of mortgage
loans, Republic Mortgage, Market Street and CUB Funding are subject to
State usury and licensing laws and to various federal statutes, such
as the Equal Credit Opportunity Act, Fair Credit Reporting Act, Truth
in Lending Act, Real Estate Settlement Procedures Act, and Home
Mortgage Disclosure Act, and the regulations promulgated thereunder,
which prohibit discrimination, specify disclosures to be made to
borrowers regarding credit and settlement costs, and regulate the
mortgage loan servicing activities of such entities, including the
maintenance and operation of escrow accounts and the transfer of
mortgage loan servicing. The Riegle Act imposed new escrow
requirements on depository and non-depository mortgage lenders and
servicers under the National Flood Insurance Program. See "Recently
Enacted and Proposed Legislation."
Market Street and CUB Funding purchase mortgage loans from approved
correspondents and brokers. In addition to the underwriting done by
the correspondent, each of the mortgage companies performs its own
underwriting review of the mortgage loans it purchases. Correspondents
and brokers qualify to participate in Market Street and CUB Funding's
wholesale program only after a review of their reputation, mortgage
lending experience and financial condition, including a review of
references and financial statements. In such activities, the mortgage
companies are also subject to applicable usury and other state and
federal laws, including various states' licensing statutes. As sellers
and servicers of mortgage loans, Republic Mortgage, Market Street and
CUB Funding are participants in the secondary mortgage market with
some or all of the following: private institutional investors, FNMA,
FHLMC, GNMA, VA and FHA. In their dealings with these agencies,
Republic Mortgage, Market Street and CUB Funding are subject to
various eligibility requirements prescribed by the agencies, including
but not limited to net worth, quality control, bonding, financial
reporting and compliance reporting requirements. The mortgage loans
which they originate and purchase are subject to agency-prescribed
procedures, including without limitation inspection and appraisal of
properties, maximum loan-to-value ratios, and obtaining credit reports
on prospective borrowers. On some types of loans, the agencies
prescribe maximum loan amounts, interest rates and fees. When selling
mortgage loans to FNMA, FHLMC, GNMA, VA and FHA, each of Republic
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Mortgage, Market Street and CUB Funding represents and warrants that
all such mortgage loans sold by it conform to their requirements. If
the mortgage loans sold are found to be non-conforming mortgage loans,
such agency may require the seller (i.e., Republic Mortgage, Market
Street or CUB Funding) to repurchase the non-conforming mortgage
loans. Additionally, FNMA, FHLMC, GNMA, VA and FHA may require
Republic Mortgage, Market Street or CUB Funding to indemnify them
against all losses arising from their failure to perform their
contractual obligations under the applicable selling or servicing
contract. Certain provisions of the Housing and Community Development
Act of 1992, and regulations adopted thereunder may affect the
operations and programs of FNMA and FHLMC. See "Recently Enacted and
Proposed Legislation."
5. Recently Enacted and Proposed Legislation
The Housing and Community Development Act of 1992 ("HCDA") amended (i)
the Real Estate Settlement Procedures Act ("RESPA") to extend its
coverage to loans made to refinance existing residential loans and to
residential loans secured by junior liens, and (ii) the Home Mortgage
Disclosure Act ("HMDA") to require that covered lenders make a
modified form of their mortgage loan application registers available
for public inspection on request, and more rapidly make available to
the public their mortgage loan disclosure statements. The Federal
Reserve Board and the Department of Housing and Urban Development
("HUD") have adopted regulations generally implementing those changes.
HCDA established housing goals for FNMA and FHLMC for low- and
moderate-income housing, special affordable housing, and central
cities, rural areas, and other under-served areas, each as defined by
the Act. Each of FNMA and FHLMC is required to (i) review its
underwriting guidelines, (ii) take affirmative steps to assist primary
lenders such as the Company in making housing credit available in
areas with concentrations of low income and minority families, (iii)
collect expanded data from seller servicers on mortgage loans
(including race, gender and income of mortgagors), and (iv) assist
governmental agencies in investigations of, and take remedial actions
against, mortgage lenders violating the Fair Housing Act or Equal
Credit Opportunity Act. The Secretary of HUD is required to issue
implementing regulations, and to monitor and enforce compliance by
FNMA and FHLMC with those goals and provisions.
Effective January 2, 1996, the Secretary of HUD has adopted
regulations governing FNMA and FHLMC, including the establishment of
housing goals. In general, the annual goals are stated as a percentage
of the number of dwelling units financed by each agency's mortgage
purchases during the year. The aggregate of the goals for the HCDA
established categories for each of FNMA and FHLMC under the proposed
regulations are 73% for 1996, 80% for each of the years 1997 through
1999, with new annual goals to be adopted for 2000 and subsequent
years (pending such adoption the 1999 standards would continue on an
interim basis).
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HCDA also established the Office of Federal Housing Enterprise
Oversight ("OFHEO"), a new supervisory authority over FNMA and FHLMC.
Among other things, the Director of OFHEO is required to adopt
regulations within 18 months of appointment prescribing minimum
risk-based capital levels for FNMA and FHLMC, to take supervisory
action against such an enterprise which fails to meet required capital
levels (including the adoption of a capital restoration plan and
restrictions on capital distributions by the enterprise to its
shareholders such as the Company), and, in the Director's discretion,
to take other supervisory action, including appointment of a
conservator for an enterprise which becomes significantly or
critically undercapitalized. The OFHEO has requested public comment on
minimum risk-based capital levels in advance of issuing proposed
regulations on that subject. In addition, OFHEO has informally
established interim minimum capital and capital classification
provisions not reflecting risk-adjustment, and in June, 1995 published
proposed regulations which would formally adopt minimum capital and
capital classification standards. It is not possible to predict the
potential impact upon the Company, if any, of compliance by FNMA and
FHLMC with the requirements of HCDA and such regulations.
As part of the Omnibus Budget Reconciliation Act of 1993, Congress
amended the Federal Deposit Insurance Act ("FDIA") to require
receivers of failed depository institutions to give priority to
depositors over general creditors, subordinated creditors and
shareholders when distributing assets of a failed institution. This
depositor preference will apply on a nationwide basis.
In 1994, the Congress enacted two major pieces of banking legislation,
the Riegle Act and the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act"). The Riegle Act
addressed such varied issues as the promotion of economic
revitalization of defined urban and rural "qualified distressed
communities" through special purpose "Community Development Financial
Institutions", the expansion of consumer protection with respect to
certain loans secured by a consumer's home and reverse mortgages, and
reductions in compliance burdens regarding Currency Transaction
Reports, in addition to reform of the National Flood Insurance
Program, the promotion of a secondary market for small business loans
and leases, and mandating specific changes to reduce regulatory
impositions on depository institutions and holding companies.
The Riegle-Neal Act substantially changed the geographic constraints
applicable to the banking industry. Effective September 29, 1995, the
application of a bank holding company located in one State (the "home
State") to acquire a bank located in any other State (the "host
State") may be approved by the Federal Reserve Board under the BHC Act
notwithstanding any prohibition of such acquisition in the law of any
State. The Riegle-Neal Act permits States to require that a target
bank have been in operation for a minimum period, up to five years,
and to impose non-discriminatory limits on the percentage of the total
amount of deposits with insured depository institutions in the State
which may be controlled by a single bank or bank holding company. In
addition, the new Act imposes Federal deposit concentration limits
(10% of nationwide total deposits, and 30% of total deposits
14
<PAGE>
in the host State on applications subsequent to the applicant's
initial entry to the host State, subject to waiver of the State
deposit concentration limit in certain circumstances by the host
State), and adds new statutory conditions to Federal Reserve Board
approval, i.e., that the applicant meets or exceeds all applicable
Federal regulatory capital standards and is "adequately managed."
Also effective September 29, 1995, any bank subsidiary (and, in
certain circumstances thrift subsidiary) of a bank holding company may
receive deposits to existing accounts, renew time deposits, and close,
service and receive payments on (but not disburse proceeds of) loans,
as an agent for its depository institution affiliates without being
considered a branch of the affiliate under any otherwise applicable
law. Such agency activities must be conducted on terms consistent with
safe and sound banking practices.
The Riegle-Neal Act also authorizes, effective June 1, 1997, the
responsible Federal banking agency to approve applications for the
interstate acquisition of branches or mergers of depository
institutions across State lines without regard to whether such
activity is contrary to State law. Any State may, however, by adoption
of a non-discriminatory law after September 29, 1994 and before June
1, 1997, either elect to have this provision take effect before June
1, 1997 (as Michigan and a number of other States have already done)
or opt-out of the provision. The effect of opting out is to prevent
banks chartered by, or having their main office located in, such State
from participating in any interstate branch acquisition or merger.
Each State is permitted to prohibit interstate branch acquisitions
(i.e., acquisition of a branch without acquisition of the entire
target bank), to examine acquired or de novo branches of out-of-State
banks with respect to compliance with certain host State laws, and to
retain a minimum age requirement of up to five years, a
non-discriminatory deposit cap, and non-discriminatory notice or
filing requirements. The responsible Federal agency will apply the
same Federal concentration limits and capital and management adequacy
requirements noted above with respect to BHC Act applications.
Branches acquired in a host State by a State-chartered bank will be
subject to the activity limits and other laws of the host State to the
same extent as a branch of a bank chartered by the host State.
Branches acquired in a host State by an out-of-State national bank
will be subject to community reinvestment, consumer protection, fair
lending and intrastate branching laws of the host State (except to the
extent the application of such laws to national banks is preempted by
Federal law or is determined by the Comptroller of the Currency to be
discriminatory), and to other non-tax laws of the host State to the
same extent as branches of a national bank having its main office in
the host State. The establishment of de novo branches by an out-of
State bank will continue to require express statutory authority under
the law of the host State and of the chartering jurisdiction.
15
<PAGE>
Among other things, the Riegle-Neal Act also preserves State taxation
authority, prohibits the operation by out-of-State banks of interstate
branches as deposit production offices, imposes additional notice
requirements upon interstate banks proposing to close branch offices
in a low or moderate-income area, and creates new Community
Reinvestment Act evaluation requirements for interstate depository
institutions. The Act mandates new restrictions on interstate
activities of foreign banks, and requires public notice of, and
opportunity to comment on, any proposed ruling by a Federal banking
agency which would preempt certain State laws.
In November, 1995, Michigan exercised its right to opt-in early to the
Riegle-Neal Act, and permitted non-U.S. banks to establish branch
offices in Michigan. Effective November 29, 1995, the Michigan Banking
Code was amended to permit, in appropriate circumstances and with the
approval of the Commissioner of the FIB, (i) the acquisition of
Michigan-chartered banks (such as Republic Bank) by FDIC-insured
banks, savings banks, or savings and loan associations located in
other states, (ii) the sale by a Michigan-chartered bank of one or
more of its branches (not comprising all or substantially all of its
assets) to an FDIC-insured bank, savings bank or savings and loan
association located in a State in which a Michigan-chartered bank
could purchase one or more branches of the purchasing entity, (iii)
the acquisition by a Michigan-chartered bank of an FDIC-insured bank,
savings bank or savings and loan association located in another State,
(iv) the acquisition by a Michigan-chartered bank of one or more
branches (not comprising all or substantially all of the assets) of an
FDIC-insured bank, savings bank or savings and loan association
located in another State, (v) the consolidation of one or more
Michigan-chartered banks and FDIC-insured banks, savings banks or
savings and loan associations located in other States having laws
permitting such consolidation, with the resulting organization
chartered either by Michigan or one of such other States, (vi) the
establishment by Michigan-chartered banks of branches located in other
States, the District of Columbia, or U.S. territories or
protectorates, (vii) the establishment of branches in Michigan by
FDIC-insured banks located in other States, the District of Columbia
or U.S. territories or protectorates having laws permitting a
Michigan-chartered bank to establish a branch in such jurisdiction,
and (viii) the establishment by foreign banks of branches located in
Michigan. The amending legislation also expanded the regulatory
authority of the Commissioner of the FIB and made certain other
changes.
In July 1993, the President requested the Federal depository
institution regulatory agencies to re-focus their implementation of
the Community Reinvestment Act ("CRA") on more objective,
performance-based assessment standards that would minimize compliance
burdens while stimulating improved performance. Following a two-year
process of development, proposals, and public comment, the agencies
jointly issued completely revised CRA regulations in July 1995.
16
<PAGE>
The new regulations will be applied in phases over a two-year
transition period. In general, the new require an evaluation of a
bank's actual performance in making home mortgage, small business,
small farm, and community development loans and qualified community
development investments, and in effectively delivering retail banking
services, or, at the option of the bank, the bank's accomplishment of
a strategic plan developed by the bank and previously approved by the
responsible Federal agency. The new regulations also alter
record-keeping, reporting and disclosure requirements, provide
procedures for consideration of loans made by affiliates, and provide
more detailed, uniform definitions of the performance ratings assigned
to each institution by the responsible Federal agency.
On March 8, 1994, the Interagency Task Force on Fair Lending, a body
consisting of the Federal depository institution regulators, the
Departments of Justice and Housing and Urban Development and four
other Federal agencies (including the OFHEO), issued a joint policy
statement on discrimination in lending. The policy statement applies
to all lenders, and provides an agreed basis for future agency
rule-making and administrative enforcement of various federal laws
prohibiting lending discrimination.
Bills which would repeal certain of the investment banking
restrictions applicable to commercial banks under the Banking Act of
1933, commonly known as the Glass-Steagall Act are currently pending
in Congress. There can be no assurance whether, or in what form, any
of these bills will become law.
6. Regulation of Proposed Acquisitions
In general, any direct or indirect acquisition by the Company of any
voting shares of any bank which would result in the Company's direct
or indirect ownership or control of more than 5% of any class of
voting shares of such bank, and any merger or consolidation of the
Company with another bank holding company, will require the prior
written approval of the Federal Reserve Board under the BHC Act. In
acting on such applications, the Federal Reserve Board must consider
various statutory factors, including among others, the effect of the
proposed transaction on competition in relevant geographic and product
markets, and each party's financial condition, managerial resources,
and record of performance under the Community Reinvestment Act.
Effective September 29, 1995, the BHC Act no longer prevents the
Federal Reserve Board from approving the acquisition of a bank because
of contrary State law. See "Recently Enacted and Proposed
Legislation."
The merger or consolidation of an existing bank subsidiary of the
Company with another bank, or the acquisition by such a subsidiary of
assets of another bank, or the assumption of liability by such a
subsidiary to pay any deposits in another bank, will require the prior
written approval of the responsible Federal depository institution
regulatory agency under the Bank Merger Act, based upon a
consideration of statutory factors similar to those outlined above
with respect to the BHC Act. In addition, an application to, and the
prior approval of, the Federal Reserve Board may be required under the
BHC Act, in certain such cases.
17
<PAGE>
Each of the foregoing types of applications are subject to public
notice and comment procedures, and, in many cases, to prior notice
and/or approval of State bank regulatory authorities. Adverse public
comments received, or adverse considerations raised by the regulatory
agencies, may delay or prevent consummation of the proposed
transaction. In addition, such a transaction generally may not be
consummated before the thirtieth calendar day (or if the Attorney
General has made no adverse comment to the Federal Reserve Board
thereon, such shorter period not less than 15 calendar days as the
Board may specify with the concurrence of the Attorney General) after
final approval of the transaction by the Federal depository
institution regulatory agency.
With certain limited exceptions, the BHC Act prohibits bank holding
companies, such as the Company, from acquiring direct or indirect
ownership or control of voting shares or assets of any company other
than a bank, unless the company involved is engaged solely in one or
more activities which the Federal Reserve Board has determined to be
so closely related to banking or managing or controlling banks as to
be a proper incident thereto. Any such acquisition will require,
except in certain limited cases, at least 60 days' prior written
notice to the Federal Reserve Board.
In evaluating a written notice of such an acquisition, the Federal
Reserve Board will consider various factors, including among others
the financial and managerial resources of the notificant, and the
relative public benefits and adverse effects which may be expected to
result from the performance of the activity by an affiliate of the
Company. The Board may apply different standards to activities
proposed to be commenced de novo and activities commenced by
acquisition, in whole or in part, of a going concern. The required
notice period may be extended by the Board under certain
circumstances, including a notice for acquisition of a company engaged
in activities not previously approved by regulation of the Board. This
required regulatory written notice is subject to public notice and
comment procedures, and adverse public comments received, or adverse
considerations raised by regulatory agencies, may delay or prevent
consummation of such an acquisition. If such a proposed acquisition is
not disapproved or subjected to conditions by the Board within the
applicable notice period, it is deemed approved by the Board. Such an
acquisition may also require 30 days' prior notice to the Department
of Justice and the Federal Trade Commission.
18
<PAGE>
Item 2. PROPERTIES AND EMPLOYEES
The executive offices of the Company are located at 1070 East Main Street,
Owosso, Michigan, a two-story building which is also occupied by the Owosso
branch of Republic Bank. This building is owned by Republic Bank. The Company
also maintains administrative offices at the principal office of Republic Bank
in Ann Arbor, Michigan.
Currently, the Company's bank subsidiary Republic Bank, operates 25 offices,
including two loan production offices within the State of Michigan, of which
fourteen are owned and eleven are leased. The Company's state savings bank
operates 10 offices within the state of Ohio, of which two are owned and eight
are leased and one office in Indiana which is leased.
Currently, the Company's mortgage banking subsidiaries operate seven offices
in Michigan, thirteen offices in Florida, nine offices in California, five
offices each in Arizona and Virginia, three offices each in Colorado and New
York, two offices each in Alabama, Connecticut, Georgia, and Maryland, and one
office each in Idaho, Illinois, Massachusetts, Nevada, North Carolina, Oregon,
and Washington. All of the Company's mortgage banking offices are leased, with
the exception of Republic Mortgage's corporate office located in Farmington
Hills, Michigan.
At December 31, 1995, total annual rental expense under real estate lease
obligations of the Company and its subsidiaries, other than inter-company
items, was approximately $3.4 million.
The Company had approximately 1,270 full-time equivalent employees at December
31, 1995.
Item 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to certain ordinary, routine
litigation incidental to the Company's business. Management considers that the
aggregate liability, if any, arising from such actions would not have a
material adverse effect on the consolidated financial position of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
19
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The information set forth under caption "Summary of Common Share Market Data"
on Page 47 of the 1995 Annual Report of the Company is incorporated herein by
reference.
Item 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Five Year Summary of Selected
Financial Data" on Page 6 of the 1995 Annual Report of the Company is
incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
The information set forth under the caption "Management's Discussion and
Analysis" on Pages 7 through 20 of the 1995 Annual Report of the Company is
incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth on Pages 21 through 44, and Pages 46 and 47 of
the 1995 Annual Report of the Company is incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Not Applicable
20
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of March 1, 1996 are as follows:
<TABLE>
<CAPTION>
Position
Name Position Held Since Age
---- -------- ---------- ---
<S> <C> <C> <C>
Jerry D. Campbell Chairman of the Board 1985 55
and Chief Executive Officer
Dana M. Cluckey President, Chief Operating Officer 1986 36
and Assistant Secretary
Barry J. Eckhold Vice President, Chief Credit 1990 49
Officer and Secretary
Thomas F. Menacher Senior Vice President, Treasurer and 1992 39
Chief Financial Officer
</TABLE>
The information set forth under the caption "Directors" on Pages 5 through 7
of the definitive Proxy Statement of the Company dated March 20, 1996 filed
with the Securities and Exchange Commission pursuant to Regulation 14A is
incorporated herein by reference for information as to directors of the
Company.
Item 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Compensation of Executive
Officers" on Pages 10 through 14 of the definitive Proxy Statement of the
Company dated March 20, 1996 filed with the Securities and Exchange Commission
pursuant to Regulation 14A is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information set forth under the caption "Principal Holders of the
Company's Common Stock" on Pages 2 through 4 of the definitive Proxy Statement
of the Company dated March 20, 1996 filed with the Securities and Exchange
Commission pursuant to Regulation 14A is incorporated herein by reference.
21
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Related Transactions" on Page 9
of the definitive Proxy Statement of the Company dated March 20, 1996 filed
with the Securities and Exchange Commission pursuant to Regulation 14A is
incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements:
<TABLE>
<CAPTION>
Page *
------
<S> <C>
Consolidated Balance Sheets - December 31, 1995 and 1994..................... 21
Consolidated Statements of Income - Three Years Ended
December 31, 1995.......................................................... 22
Consolidated Statements of Shareholders' Equity -
Three Years Ended December 31, 1995........................................ 23
Consolidated Statement of Cash Flows - Three
Years Ended December 31, 1995.............................................. 24-25
Notes to Consolidated Financial Statements................................... 26-44
Independent Auditors' Report................................................. 46
<FN>
*Refers to page number of 1995 Annual Report of the Company.
</TABLE>
2. Schedules:
I - Indebtedness to Related Parties (Not Applicable)
II - Guarantees of Securities of Other Issuers (Not Applicable)
(b) Reports on Form 8-K:
Not Applicable
(c) Exhibits:
3(a) Articles of Incorporation, are incorporated herein by reference to
Exhibit 3(a) to Form 10K filed March 17, 1994.
3(b) Bylaws, as amended, are incorporated herein by reference to Exhibit
3(b) to Registration Statement on Form S-4 filed March 1, 1990,
Registration No. 33-33811.
22
<PAGE>
4(a) Indenture dated as of February 1, 1993, between the Company and NBD
Bank, N.A., as Trustee, relating to 9% Subordinated Notes due 2003,
including Form of 9% Subordinated Note due 2003: filed as Exhibit
4(d) to Amendment No. 1 to Form S-4 filed January 28, 1993,
Registration No. 33-56112, and incorporated herein by reference.
4(b) Debenture Purchase Agreement dated as of March 30, 1994, between the
Company and Scudder, Stevens & Clark, Inc., Business Men's Assurance
Company of America, Columbus Life Insurance Company and Mutual of
America Life Insurance Company, related to 7.17% Senior Debentures
due 2001, filed as Exhibit 4(p) to Form 10-K filed March 27, 1995,
and incorporated herein by reference.
4(c) Debenture Purchase Agreement dated as of January 29, 1996, between
the Company and American United Life Insurance, State Life Insurance
Co., Mutual of America Life Insurance Co., GNA, Mega Life & Health
Insurance Co. and Provident Mutual Life Insurance Company, related to
6.75% Senior Debentures due January 15, 2001 and 6.95% Senior
Debentures due January 15, 2003.
10(a) Non-Qualified Stock Option Plan of the Company, effective March 24,
1986, as amended and restated: filed as Exhibit 10(b) to Form 10-K,
filed March 23, 1993 and incorporated herein by reference.
10(b) Restricted Stock Plan of the Company, effective March 24, 1986, as
amended and restated: filed as Exhibit 10(c) to Form 10-K, filed
March 23, 1993 and incorporated herein by reference.
10(c) Form of Indemnity Agreement and Schedule of officers and directors of
the Company who executed such agreements: filed as Exhibit 10(e) to
Form S-2 filed February 28, 1992, Registration No. 33-46069, and
incorporated herein by reference.
10(d) Directors Compensation Plan of the Company, adopted by the Board of
Directors on October 15, 1992: filed as Exhibit 10(e) to Form 10-K,
filed March 23, 1993 and incorporated herein by reference.
10(e) Deferred Compensation Plan of the Company, adopted by the Board of
Directors on December 16, 1993: filed as Exhibit 10(e) to Form 10-K,
filed March 17, 1994 and incorporated herein by reference.
10(f) First Amended and Restated Agreement and Plan of Reorganization,
dated as of October 29, 1992, by and between the Company and Horizon
Financial Services, Inc.: filed as Exhibit 2 to Form 8-K filed
November 6, 1992, and incorporated herein by reference.
10(g) Agreement and Plan of Merger between the Company and Premier
Bancorporation, Inc., dated as of March 31, 1993: filed as Exhibit
28(c) to Form 10-K, filed March 17, 1994 and incorporated herein by
reference.
23
<PAGE>
10(h) Purchase and Sale Agreement by and between Republic Bancorp Inc.
("Purchaser") and California United Bank, National Association
("Seller"), dated October 22, 1993: filed as Exhibit 28(e) to Form
10-K, filed March 17, 1994 and incorporated herein by reference.
10(i) Purchase and Sale Agreement by and between Republic Bank ("Seller")
and CB North ("Purchaser"), dated as of September 27, 1994: filed as
Exhibit 28(g) to Form 10-K, filed March 27, 1995 and incorporated
herein by reference.
10(j) Form of servicing and Disposition Agreement for Inventory and
Construction Loan Portfolio, dated November 21, 1992 between Market
Street Mortgage Corporation and the Company: filed as Exhibit 2(b) to
Form 8-K filed November 23, 1992, and incorporated herein by
reference.
11. Statement Re: Computation of per share earnings is incorporated by
reference to Note 14 of the Notes to Consolidated Financial
Statements, filed herewith as Exhibit 13.
13. 1995 Annual Report of the Company and Independent Auditors' Report on
the Company's December 31, 1995, 1994, and 1993 Financial Statements.
21. Subsidiaries of the Registrant are incorporated by reference to Note
1 of the Notes to Consolidated Financial Statements, filed herewith
as Exhibit 13.
23. Consent of Deloitte & Touche LLP to incorporation by reference of its
report dated January 18, 1996 appearing in the Company's Form 10-K
for the year ended December 31, 1995, and into the following
Registration Statements of the Company: Form S-8 dated December 4,
1992, Registration No. 33-55336, and Form S-8 dated December 4, 1992,
Registration No. 33-55304, and Form S-8 dated May 10, 1993,
Registration No. 33-62508, and Form S-3 dated May 26, 1993,
Registration No. 33-61842.
27. Financial Data Schedule containing summary financial information
extracted from the consolidated balance sheet as of December 31, 1995
and consolidated statement of income for the twelve months ended
December 31, 1995.
NOTE: Items 1, 2, 5, 6, 7, 8, 9, 12, 14, 15, 16, 17, 18, 19, 20, 22,
24, 25, 26, 28 and 99 are not applicable.
24
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 22nd day
of March, 1996.
/s/ JERRY D. CAMPBELL /s/ THOMAS F. MENACHER
- ------------------------------- --------------------------------------
Jerry D. Campbell Thomas F. Menacher
Chief Executive Officer Chief Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in their capacity as Directors of the Company on the 22nd day
of March, 1996.
/s/ JERRY D. CAMPBELL /s/ STEPHEN M. KLEIN
- ------------------------------- --------------------------------------
Jerry D. Campbell Stephen M. Klein
/s/ DANA M. CLUCKEY /s/ JOHN J. LENNON
- ------------------------------- --------------------------------------
Dana M. Cluckey John J. Lennon
/s/ SAM H. MCGOUN
- ------------------------------- --------------------------------------
Bruce L. Cook Sam H. McGoun
/s/ RICHARD J. CRAMER
- ------------------------------- --------------------------------------
Richard J. Cramer Kelly E. Miller
/s/ GEORGE A. EASTMAN /s/ JOE D. PENTECOST
- ------------------------------- --------------------------------------
George A. Eastman Joe D. Pentecost
/s/ HOWARD J. HULSMAN /s/ GEORGE B. SMITH
- ------------------------------- --------------------------------------
Howard J. Hulsman George B. Smith
/s/ GARY HURAND /s/ JEOFFREY K. STROSS
- ------------------------------- --------------------------------------
Gary Hurand Jeoffrey K. Stross
/s/ DENNIS J. IBOLD
- -------------------------------
Dennis J. Ibold
25
EXHIBIT 4(C)
DEBENTURE PURCHASE AGREEMENT
DATED AS OF JANUARY 29, 1996
<PAGE>
==============================================================================
REPUBLIC BANCORP INC.
$9,000,000
6.75% SENIOR DEBENTURES DUE
January 15, 2001
AND
$13,500,000
6.95% SENIOR DEBENTURES DUE
January 15, 2003
----------------------------
DEBENTURE PURCHASE AGREEMENT
----------------------------
Dated as of January 29, 1996
==============================================================================
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
Page
----
1. AUTHORIZATION OF ISSUE OF DEBENTURES......................... 1
2. PURCHASE AND SALE OF DEBENTURES.............................. 1
3. CONDITIONS OF CLOSING........................................ 2
4. NO PREPAYMENTS............................................... 3
5. COVENANTS.................................................... 3
6. EVENTS OF DEFAULT............................................ 4
7. REPRESENTATIONS, COVENANTS AND WARRANTIES.................... 7
8. REPRESENTATIONS OF THE PURCHASERS............................ 10
9. SUBSEQUENT OFFERS AND RESALES OF THE SECURITIES.............. 10
10. DEFINITIONS.................................................. 12
11. MISCELLANEOUS................................................ 15
PURCHASER SCHEDULE
EXHIBIT A -- FORM OF DEBENTURE
EXHIBIT B -- FORM OF OPINION OF COMPANY'S COUNSEL
EXHIBIT C -- LIST OF AGREEMENTS RESTRICTING DEBT
<PAGE>
REPUBLIC BANCORP INC.
1070 East Main Street
Owosso, Michigan 48867
As of January 29, 1996
American United Life Insurance
1 American Square
Indianapolis, IN 46206
State Life Insurance Co.
c/o American United Life Insurance
1 American Square
Indianapolis, IN 46206
Mutual of America Life Insurance Co.
320 Park Avenue
9th Floor
New York, NY 10022
Great Northern Insured Annuity Corporation
Two Union Square
Suite 5600
Seattle, WA 98101
Mega Life & Health Insurance Co.
100 Chetwynd Drive
Suite 202
Rosemont, PA 19010
Provident Mutual Life Insurance Company
1600 Market Street
4th Floor
Philadelphia, PA 19101
Gentlemen:
The undersigned, Republic Bancorp Inc. (herein called the "Company"),
hereby agrees with you as follows:
1. AUTHORIZATION OF ISSUE OF DEBENTURES. The Company will authorize
the issue of its Senior Debentures to be issued in global form, in the
aggregate principal amount of $22,500,000, to be dated the date of issue
thereof, $9,000,000 of which Debentures will mature on January 15, 2001 (the
"2001 Debentures)
<PAGE>
and $13,500,000 of which Debentures will mature on January 15, 2003 (the "2003
Debentures") and, collectively with the 2001 Debentures, the "Debentures") as
the case may be. The 2001 Debentures and the 2003 Debentures shall bear
interest on the unpaid balance thereof from January 29, 1996 until the
principal thereof shall have become due and payable at the rate of 6.75% and
6.95% per annum, respectively, and paid semiannually beginning October 1,
1996, respectively. The Debentures will be substantially in the forms of
Exhibit A-1 and A-2 attached hereto. The term "Debentures" as used herein
shall include the global Debenture delivered pursuant to any provision of this
Agreement and each Debenture delivered in substitution or exchange for any
such Debenture pursuant to any such provision. The 2001 Debentures and the
2003 Debentures shall be treated for purposes of this Debenture Purchase
Agreement as a single series and class of Debentures, except to the extent
expressly set forth herein.
2. PURCHASE AND SALE OF DEBENTURES. The Company hereby agrees to sell
to you and, subject to the terms and conditions herein set forth, you agree to
purchase from the Company the aggregate principal amount of 2001 Debentures or
2003 Debentures set forth opposite your name in the Purchaser Schedule
attached hereto at 100% of such aggregate principal amount.
Payment of the purchase price for and delivery of the Debentures to be
purchased by the Purchasers shall be made through the systems of the
Depository Trust Company, with delivery of the Debentures to the accounts of
the Purchasers to be made against payment for the Debentures in same day
funds, or in such other manner as shall be agreed upon by the Purchasers and
the Company, at 10:00 A.M. on the date hereof.
3. CONDITIONS OF CLOSING. Your obligation to purchase and pay for the
Debentures to be purchased by you hereunder is subject to the satisfaction, on
or before the date of closing, of the following conditions:
3A. Opinion of Purchasers' Special Counsel. You shall have received
from Brown & Wood, who is acting as special counsel for you in connection with
this transaction, a favorable opinion satisfactory to you as to: (i) the due
organization, existence and good standing of the Company; (ii) the due
authorization by all requisite corporate action, execution and delivery and
the validity, legally binding character and enforceability of this Agreement
and the Debentures; (iii) the absence of any requirement to register the
Debentures under the Securities Act or to qualify an indenture under the Trust
Indenture Act of 1939, as amended; and (iv) such other matters incident to the
matters herein contemplated as you may reasonably request. In rendering
2
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such opinion, such counsel may rely, as to matters of Michigan law and the
matters specified in clause (i) above, upon the opinion referred to in
paragraph 3B. Such opinion shall also state that, based upon such
investigation and inquiry as is deemed relevant and appropriate by such
counsel, the opinion referred to in paragraph 3B is satisfactory in form and
scope to such counsel and, while such investigation and inquiry into the
matters covered by such opinion (other than the matters specified in clauses
(ii) and (iii) above) were not sufficient to enable such counsel independently
to render such opinion, nothing has come to the attention of such counsel
which has caused it to question the legal conclusions expressed in the opinion
referred to in paragraph 3B and such counsel believe that you are justified in
relying on such opinion.
3B. Opinion of Company's Counsel. You shall have received from
Dickinson, Wright, Moon, Van Dusen & Freeman, special counsel for the Company,
a favorable opinion satisfactory to you and substantially in the form of
Exhibit B attached hereto.
3C. Representations and Warranties; No Default. The representations
and warranties contained in Section 7 shall be true on and as of the date of
closing, except to the extent of changes caused by the transactions herein
contemplated; there shall exist on the date of closing no Event of Default or
Default; and the Company shall have delivered to you an Officer's Certificate,
dated the date of closing, to both such effects.
3D. Proceedings. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby and all
documents incident thereto shall be satisfactory in substance and form to you,
and you shall have received all such counterpart originals or certified or
other copies of such documents as you may reasonably request.
4. NO PREPAYMENTS. The Company shall not, and shall not permit any of
its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in
part prior to their stated final maturity (other than upon acceleration of
such final maturity pursuant to paragraph 6A), or purchase or otherwise
acquire, directly or indirectly, Debentures held by any holder.
5. COVENANTS.
5A. Limitation on Funded Indebtedness and Indebtedness. The Company
will not, and will not permit any Subsidiary to create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable in
respect of any:
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(i) Funded Indebtedness unless, after giving effect thereto,
Funded Indebtedness shall not exceed 70% of Consolidated Net
Worth;
(ii) Indebtedness unless, after giving effect thereto,
Indebtedness shall not exceed 75% of Consolidated Net Worth.
5B. Consolidated Tangible Equity Capital. The Company will at all
times maintain Consolidated Tangible Equity Capital in an amount no less than
the greater of $95 million or 7.0% of Consolidated Assets during the term
ending December 31, 1996 and 6.5% of Consolidated Assets thereafter.
5C. Restrictions as to Dividends and Certain Other Payments. So long
as the Debentures are outstanding, the Company will not declare or pay any
dividend or make any other distribution on its capital stock (other than
dividends or distributions payable in its capital stock), if at the time of
such action (i) there exists a default in the payment of interest on the
Debentures which has continued for 15 days or more (except that dividends
declared prior to such a default may be paid) or if such a default has
occurred during the preceding 12 months or such shorter period as the
Debentures have been outstanding or (ii) immediately after, and after giving
effect to such restricted payment, the aggregate amount of all restricted
payments declared or made after December 31, 1995 would not exceed the sum of
a) $6,000,000, plus b) 50% (or 100% in the case of a deficit) of Consolidated
Net Income for the period commencing December 31, 1995 and ending on and
including the date such restricted payment is declared or made, plus c) 100%
of the proceeds of issuances of equity securities after December 31, 1995.
5D. Nonperforming Assets. The ratio of Nonperforming Assets to loans,
excluding loans held for sale, and other real estate owned will not exceed
4.0%.
5E. Double Leverage Ratio. The Double Leverage Ratio shall not exceed
125%.
5F. Merger, Consolidation or Sale of Assets; Successor Corporations.
The Company will not merge or consolidate with, or sell all or substantially
all of its assets to any person, firm or corporation unless it is the
continuing corporation in such transaction and, immediately thereafter, it is
not in default under this Agreement or, if it is not the successor, the
successor corporation expressly assumes the Company's obligations under this
Agreement and immediately after such transaction, it is not in default under
this Agreement. Any successor corpora-
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tion shall succeed to and be substituted for the Company as if such successor
corporation had been named as the Company in this Agreement.
5G. Modification of the Debentures or the Debenture Purchase
Agreement. With the consent of the holders of not less than 66-2/3% in
principal amount of the Debentures, any term, covenant, agreement, or
condition of the Debentures or this Agreement may be amended or compliance
therewith waived, provided that no amendment or waiver shall, without the
consent of the holders of all the Debentures: (i) change the principal
amount of any Debenture or the maturity of the principal of any Debenture
or (ii) reduce the rate or extend the time of payment of interest on any
Debenture or (iii) reduce the percentage of holders of Debentures required
to consent to any such amendment or waiver.
5H. Line of Business. So long as the Debentures are outstanding, the
Company will remain principally engaged in the business of banking or mortgage
banking.
5I. Financial Information. The Company shall deliver or cause to be
delivered to each holder of the Debentures:
(i) as soon as practicable after the end of each quarterly fiscal
period in each fiscal year of the Company (other than the last
quarterly fiscal period of each such fiscal year), and in any
event within 45 days thereafter: (a) a consolidated statement of
financial condition of the Company and its subsidiaries, as at the
end of such quarter, and (b) shareholders' equity of the Company
and its subsidiaries, for such quarter and (in the case of the
second and third quarters) for the portion of the fiscal year
ending with such quarter, setting forth in each case, in
comparative form, the figures for the corresponding periods in the
previous fiscal year, all in reasonable detail, prepared in
accordance with generally accepted accounting principles, but in
such detail as is customarily applied to quarterly financial
statements, and certified as complete and correct, subject to
changes resulting from year-end adjustments, by a Senior Financial
Officer, and accompanied by the certificate required by Section
5J; and
(ii) as soon as practicable after the end of each fiscal year of
the Company, and in any event within 90 days thereafter (a)
audited consolidated statements of financial condition of the
Company and its subsidiaries, as at the end of such year, and (b)
audited consolidated statements of operations, cash
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flows and shareholders' equity of the Company and its
subsidiaries, for such year, setting forth in the case of each
audited consolidated financial statement, in comparative form, the
figures for the previous fiscal year, all in reasonable detail,
prepared in accordance with generally accepted accounting
principles.
5J. Officer's Certificates. Each set of financial statements delivered
to each holder of the Debentures pursuant to Section 5I(i) or 5I(ii) shall be
accompanied by a certificate of a Senior Financial Officer, setting forth the
information (including detailed calculations) required in order to establish
whether the Company was in compliance with the requirements of Section 5A
through Section 5E, inclusive, and Section 5I as of the end of the period
covered by the financial statements then being furnished (including with
respect to each such section, where applicable, the calculations of the
maximum or minimum amount, ratio or percentage, as the case may be,
permissible under the terms of such sections, and the calculation of the
amount, ratio or percentage then in existence).
5K. Inspections. If an Event of Default (as defined herein) shall have
occurred and be continuing, the Company shall permit any officer, employee or
agent designated in writing by any holder, at such holder's expense, to
examine with an officer of the Company, its books of record and accounts, all
at such reasonable times as a holder may request. Prior to any inspection or
examination, each holder shall agree in writing that it will treat as
confidential, any information obtained during any such visit, inspection or
examination that is not publicly available and not disclose any such
information unless legally required to do so.
6. EVENTS OF DEFAULT.
6A. Acceleration. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) default in the payment of the principal of or premium, if any,
on any Debenture when the same becomes due and payable at
maturity, upon redemption or otherwise;
(ii) default in the payment of interest on the Debentures when the
same becomes due and payable and the continuance of such default
for a period of 5 days;
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(iii) failure to comply with any agreement or covenant of the
Company in, or provisions of, the Debentures or this Debenture
Purchase Agreement and the continuance of such default for a
period of 30 days;
(iv) an event of default occurs under any mortgage, bond,
indenture, loan agreement or other evidence of indebtedness under
which there may be issued or by which there may be secured or
evidenced any Indebtedness (other than non-recourse Indebtedness)
for money borrowed by the Company or any Subsidiary thereof (or
the payment of which is guaranteed by the Company or any
Subsidiary), whether such Indebtedness or guarantee now exists or
shall be created hereafter; provided, however, that no such event
of default shall constitute an Event of Default unless the effect
of such Event of Default is to cause the acceleration of such
Indebtedness prior to its stated maturity, which, together with
the principal amount of any other such Indebtedness so caused to
be accelerated, aggregates $2,000,000 or more at any time;
(v) a final judgment or final judgments for the payment of money
are entered by a court or courts of competent jurisdiction against
the Company or any Subsidiary thereof which remains or remain
undischarged for a period (during which execution shall not be
effectively stayed) for 45 days, provided that the aggregate of
all such judgments is $5,000,000 or more at any time;
(vi) any representation or warranty made by the Company in this
Agreement, or made by the Company in any written statement or
certificate furnished by the Company in connection with the
issuance and sale of the Debentures or furnished by the Company
pursuant to this Agreement proves false in any material respect as
of the date of the issuance or making thereof and, if susceptible
of cure, is not cured within 60 days of notice thereof;
(vii) the Company or any Subsidiary thereof shall institute
proceedings to be adjudicated insolvent, or shall consent to the
filing of an insolvency proceeding against it, or shall file a
petition or answer or consent seeking reorganization,
readjustment, arrangement, composition, appointment of a receiver
or similar relief under the federal insolvency laws, or any other
similar applicable law of any governmental unit, domestic or
foreign, or shall consent to the appointment of
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a receiver or conservator or liquidator or trustee or assignee in
insolvency of it or of a substantial part of its property, or
shall make an assignment for the benefit of creditors, or shall
admit in writing its inability to pay its debts generally as they
become due, or if the Company shall voluntarily suspend
transaction of its business, or if corporate action shall be taken
by the Company or any Subsidiary thereof in furtherance of any of
the aforesaid purposes;
then in the cases of (i), (ii), (iv) (v), (vi) and (vii) above,
unless the principal of the Debentures shall have already become
due and payable, holders of no less than 51% in aggregate
principal amount of the Debentures then outstanding may declare
the principal of the Debentures to be immediately due and payable,
anything in this Agreement or in the Debentures to the contrary
notwithstanding. In the case of (iii) above, unless the principal
of the Debentures shall have already become due and payable,
holders of no less than 51% in aggregate principal amount of the
Debentures then outstanding may declare the principal of the
Debentures to be due and payable, along with all accumulated
interest, 30 days after the Company has been in default under
(iii) above and the applicable grace period set forth therein has
expired. Holders of 66-2/3 of the aggregate principal amount of the
Debenture, by written notice to the Company, may waive all
defaults and rescind such acceleration and its consequences as to
the Debentures held by such Debenture holders; but no such waiver
or rescission and annulment shall extend to or shall affect any
subsequent default or shall impair any right consequent upon any
subsequent default.
The Company shall deliver to the Purchasers, within 5 days after
it becomes aware of the occurrence thereof, written notice of any
event which with the giving of notice and the lapse of time or
both would become an Event of Default under (iv) or (v) above, its
status and what action the Company is taking or proposes to take
with respect thereto.
In the event Debenture holders shall have proceeded to enforce any
right under this Agreement and such proceeding shall have been
discontinued or abandoned or shall have been determined adversely
to the holders, then in every such case the Company and the
Debenture holders shall be restored, respectively, to their former
positions under the Debentures and this Agree-
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ment, and all other rights, remedies and powers of the Company and
the Debenture holders, respectively, under the Debentures and this
Agreement shall continue as though no such proceedings had been
undertaken.
6B. Other Remedies. If any Event of Default or Default shall occur and
be continuing, the holder of any Debenture may proceed to protect and enforce
its rights under this Agreement and such Debenture by exercising such remedies
as are available to such holder in respect thereof under applicable law,
either by suit in equity or by action at law, or both, whether for specific
performance of any covenant or other agreement contained in this Agreement or
in aid of the exercise of any power granted in this Agreement. No remedy
conferred in this Agreement upon the holder of any Debenture is intended to be
exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein or
now or hereafter existing at law or in equity or by statute or otherwise.
7. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents,
covenants and warrants:
7A. Organization. The Company is a corporation duly organized and
existing in good standing under the laws of the State of Michigan, each
Subsidiary is duly organized and existing in good standing under the laws of
the jurisdiction in which it is incorporated, and the Company has and each
Subsidiary has the corporate power to own its respective property and to carry
on its respective business as now being conducted.
7B. Financial Statements. The consolidated financial statements of the
Company and its subsidiaries included in the Private Placement Memorandum,
dated December 1, 1995 (including all appendices thereto and as updated by the
press release dated January 19, 1996, the "Private Placement Memorandum")
present fairly the consolidated financial position of the Company and its
subsidiaries as of and at the dates indicated and the consolidated results of
their operations for the periods specified and said consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a basis consistent in all material respects during the
periods involved and the independent certified public accountants who
certified the financial statements included in the Private Placement
Memorandum are independent public accountants as required by the Securities
Act of 1933 and the rules and regulations thereunder.
7C. Actions Pending. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company,
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threatened against the Company or any of its Subsidiaries, or any properties
or rights of the Company or any of its Subsidiaries, by or before any court,
arbitrator or administrative or governmental body which has not been
previously disclosed to the Purchasers and which might result in any material
adverse change in the business, condition or operations of the Company and its
Subsidiaries, taken as a whole.
7D. Outstanding Debt. Neither the Company nor any of its Subsidiaries
has outstanding any debt with a term in excess of one year except as disclosed
in the Private Placement Memorandum. There exists no default under the
provisions of any instrument evidencing such Debt or of any agreement relating
thereto.
7E. Title to Properties. The Company has and each of its Subsidiaries
has good and indefeasible title to its respective real properties (other than
properties which it leases) and good title to all of its other respective
properties and assets, subject to no Lien of any kind, other than (i) a lien
held by Firstar Bank Milwaukee, N.A. pursuant to a security agreement dated
October 1, 1993 and (ii) a mortgage loan on Republic Bancorp Mortgage Inc.'s
office pursuant to documents dated September 27, 1993 and except for any
liens, encumbrances or defects in title which are not material to the Company
and its Subsidiaries, taken as whole. All leases necessary in any material
respect for the conduct of the respective businesses of the Company and its
Subsidiaries are valid and subsisting and are in full force and effect.
7F. Taxes. The Company has and each of its Subsidiaries has filed all
Federal, State and other income tax returns which, to the best knowledge of
the officers of the Company, are required to be filed, and each has paid all
taxes as shown on such returns and on all assessments received by it to the
extent that such taxes have become due, except such taxes as are being
contested in good faith by appropriate proceedings for which adequate reserves
have been established in accordance with generally accepted accounting
principles.
7G. Conflicting Agreements and Other Matters. Neither the Company nor
any of its Subsidiaries is a party to any contract or agreement or subject to
any charter or other corporate restriction which materially and adversely
affects its business, property or assets, or financial condition. Neither the
execution nor delivery of this Agreement or the Debentures, nor the offering,
issuance and sale of the Debentures, nor fulfillment of nor compliance with
the terms and provisions hereof and of the Debentures will conflict with, or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, or result in any violation of, or result in the creation
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of any Lien upon any of the properties or assets of the Company or any of its
Subsidiaries pursuant to, the charter or by-laws of the Company or any of its
Subsidiaries, any award of any arbitrator or any agreement (including any
agreement with stockholders), instrument, order, judgment, decree, statute,
law, rule or regulation to which the Company or any of its Subsidiaries is
subject. Neither the Company nor any of its Subsidiaries is a party to, or
otherwise subject to any provision contained in, any instrument evidencing
indebtedness of the Company or such Subsidiary, any agreement relating thereto
or any other contract or agreement (including its charter) which limits the
amount of, or otherwise imposes restrictions on the incurring of, Debt of the
Company of the type to be evidenced by the Debentures except as set forth in
the agreements listed in Exhibit C attached hereto.
7H. Offering of Debentures. Neither the Company nor, to the Company's
knowledge, any agent acting on its behalf has, directly or indirectly, offered
the Debentures or any similar security of the Company for sale to, or
solicited any offers to buy the Debentures or any similar security of the
Company from, or otherwise approached or negotiated with respect thereto with,
any Person other than institutional investors, and neither the Company nor any
agent acting on its behalf has taken or will take any action which would
subject the issuance or sale of the Debentures to the provisions of section 5
of the Securities Act or to the provisions of any securities or Blue Sky law
of any applicable jurisdiction.
7I. Governmental Consent. Neither the nature of the Company or of any
Subsidiary, nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor
any circumstance in connection with the offering, issuance, sale or delivery
of the Debentures is such as to require any authorization, consent, approval,
exemption or other action by or notice to or filing with any court or
administrative or governmental body (other than routine filings after the date
of closing with the Securities and Exchange Commission and/or any state
securities commissions) in connection with the execution and delivery of this
Agreement, the offering, issuance, sale or delivery of the Debentures or
fulfillment of or compliance with the terms and provisions hereof or of the
Debentures.
7J. Disclosure. Neither this Agreement nor any other document,
certificate or statement furnished to you by or on behalf of the Company in
connection herewith contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein and therein not misleading. There is no fact peculiar to the Company
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or any of its Subsidiaries which materially adversely affects the business,
business prospects, property or assets, or financial condition of the Company
or any of its Subsidiaries and which has not been set forth in this Agreement
or in the other documents, certificates and statements furnished to you by or
on behalf of the Company prior to the date hereof in connection with the
transactions contemplated hereby.
7K. Rule 144A Eligibility. The Debentures are eligible for resale
pursuant to Rule 144A and will not be, at the Closing Time, of the same class
as securities listed on a national securities exchange registered under
Section 6 of the U.S. Securities Exchange Act of 1934, as amended (the "1934
Act"), or quoted in a U.S. automated interdealer quotation system.
7L. No General Solicitation. None of the Company, its affiliates (as
defined in Rule 501(b) under the 1933 Act) or any person (other than the
Purchasers, as to whom the Company makes no representation) acting on its
behalf has engaged, in connection with the offering of the Securities, in any
form of general solicitation or general advertising within the meaning of Rule
502(c) under the 1933 Act.
7M. No Registration Required. Subject to compliance by the Purchasers
with the representations and warranties set forth in Section 8 and the
procedures set forth in Section 9 hereof, it is not necessary in connection
with the offer, sale and delivery of the Securities to the Purchasers and to
each Subsequent Purchaser in the manner contemplated by this Agreement and the
Private Placement Memorandum to register the Debentures under the 1933 Act.
8. REPRESENTATIONS OF THE PURCHASERS.
8A. Each Purchaser hereby represents and warrants to, and agrees with,
the Company that it (i) is a "qualified institutional buyer" within the
meaning of Rule 144A under the 1933 Act and an "accredited investor" within
the meaning of Regulation D under the 1933 Act; (ii) has not and will not
solicit offers for, or offer or sell, Debentures by means of any general
solicitation or general advertising within the meaning of Rule 502(c) under
Regulation D under the 1933 Act; and (iii) will otherwise act in accordance
with the terms and conditions set forth in this Agreement, including Section 9
hereof, in connection with the placement of the Debentures contemplated
hereby.
9. SUBSEQUENT OFFERS AND RESALES OF THE SECURITIES.
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Each of the Purchasers and the Company hereby establish and agree to
observe the following procedures in connection with the offer and sale by the
Purchasers of the Debentures.
9A. Offers and Sales Only to Institutional Accredited Investors or
Qualified Institutional Buyers. Offers and sales of the Debentures will be
made by the Purchasers only to (i) institutional investors that are reasonably
believed to qualify as accredited investors (as defined in Rule 501(a) under
the 1933 Act) (each such institutional investor being hereinafter referred to
as an "institutional accredited investor"), and (ii), in the case of
Debentures resold or otherwise transferred pursuant to Rule 144A, to
institutional investors that are reasonably believed to qualify as qualified
institutional buyers (as therein defined) (each such institutional investor
being hereinafter referred to as a "qualified institutional buyer").
9B. No General Solicitation. The Debentures will be offered by the
Purchasers only by approaching prospective purchasers on an individual basis.
No general solicitation or general advertising (as such terms are used in
Regulation D under the 1933 Act) will be used in connection with the offering
of the Debentures.
9C. Purchases by Non-Bank Fiduciaries. In the case of a non-bank
purchaser of a Security acting as a fiduciary for one or more third parties,
in connection with an offer and sale to such purchaser pursuant to clause (A)
above, each third party shall, in the judgment of the applicable Purchaser, be
an institutional accredited investor or a qualified institutional buyer.
9D. Minimum Principal Amount. No sale of the Debentures to any one
purchaser will be for less than U.S. $100,000 principal amount and no Security
will be issued in a smaller principal amount. If the purchaser is a non-bank
fiduciary acting on behalf of others, each person for whom it is acting must
purchase at least U.S. $100,000 principal amount of the Debentures.
9E. Restrictions on Transfer. The transfer restrictions and the other
provisions set forth in the Debentures shall apply to the Debentures except as
otherwise agreed by the Company and the Purchasers. Following the sale of the
Debentures by the Purchasers to subsequent purchasers pursuant to the terms
hereof, no Purchaser shall be liable or responsible to the Company for any
losses, damages or liabilities suffered or incurred by the Company, including
any losses, damages or liabilities under the 1933 Act, arising from or
relating to any resale or transfer of any Debenture.
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9F. Company to Provide Certain Information. The Company will make
available, upon request, to any seller of the Debentures the information
specified in Rule 144A(d)(4) under the Securities Act.
10. DEFINITIONS. For the purpose of this Agreement the following terms
shall have the meanings specified with respect thereto below:
"Affiliate" means any Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, the Company, (ii) which beneficially owns or holds 5% or
more of any class of the voting stock of the Company or (iii) which
beneficially owns or holds 5% or more of the voting stock (or in the case of a
Person which is not a corporation, 5% or more of the equity interest) of the
Company or a Subsidiary thereof. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Capitalized Lease" shall mean any rental obligation which, under
generally accepted accounting principles, is or will be required to be
capitalized on the books of the Company or any Subsidiary, taken at the amount
thereof accounted for as indebtedness (net of interest expense) in accordance
with such principles.
"Consolidated Net Worth", shall mean Stockholders' Equity plus the
unallocated Allowance for Loan Losses plus Deferred Loan Fees exclusive of any
unrealized gains or losses in the available for sale security portfolios.
"Consolidated Tangible Equity Capital", shall mean Consolidated
Net Worth minus Goodwill.
"Double Leverage Ratio", shall mean period-end investments in
Subsidiaries plus period-end parent company goodwill all divided by period-end
total Stockholders' Equity.
"Event of Default" shall mean any of the events specified in
paragraph 6A, provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time, or
the happening of any further condition, event or act, and "Default" shall mean
any of such events, whether or not any such requirement has been satisfied.
"Funded Indebtedness" shall mean all Indebtedness that matures
more than one year from the date of creation thereof, or
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that is extendible or renewable at the option of any party thereto to a date
more than one year from the date of creation thereof (whether or not renewed
or extended).
"Indebtedness" shall mean all indebtedness, liabilities and
other obligations, direct or contingent (other than deferred income taxes and
other credits, outside minority interests and items of Stockholders' Equity)
which would, in accordance with generally accepted accounting principles, be
classified upon the consolidated balance sheet of the Company as liabilities,
such as:
1) all guarantees, other than guarantees on secured
indebtedness; and
2) all indebtedness, liabilities and other obligations arising
under any conditional sale or other title retention agreement,
whether or not the rights and remedies of the seller or lender
under such agreement in the event of default are limited to
repossession or sale of such property; provided, however, that
the terms "Funded Indebtedness" and "Indebtedness" shall not
include any obligation of the Company or of any Subsidiary
incurred in the ordinary course of its banking, mortgage
banking or trust business, with respect to:
a) any deposits with it or funds collected by it;
b) any banker's acceptance, commercial paper or letter of
credit issued by it;
c) any check, note, certificate of deposit, money order,
traveler's check, draft or bill of exchange issued, accepted
or endorsed by it;
d) any discount with, borrowing from, or other obligation to
any Federal Reserve Bank, the FDIC or any Federal Home Loan
Bank (or successor organization) which discount or borrowing is
in the ordinary course of its banking business and not incurred
in connection with any unusual or extraordinary "rescue loan"
or substantially similar investment by such Federal Reserve
Bank, the FDIC or the Federal Home Loan Bank (or successor
organization);
e) any agreement, made by it in the ordinary course of its
banking business, to purchase or repurchase securities, loans
or federal funds, or to participate in any such purchase or
repurchase;
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f) any transaction made by it in the ordinary course of its
banking business in the nature of any extension of credit,
whether in the form of a commitment, guarantee or otherwise,
undertaken by it for the account of a third party with the
application by it of the same banking considerations and legal
lending limits that would be applicable if the transaction were
a loan to such party;
g) any transaction in which it acts solely in a fiduciary or
agency capacity;
h) other obligations incurred by it in the ordinary course of
its banking, mortgage banking or trust business to its
customers solely in their capacities as such;
i) any other liability or obligation of such Subsidiary
incurred in the ordinary course of its banking and mortgage
banking business not involving any obligation for borrowed
money;
j) Capitalized Leases;
k) any borrowing under mortgage warehousing lines of credit,
including revolving repurchase agreements utilized pending
securitization of pledged loans;
l) any borrowings under any revolving line of credit with a
maturity date of less than one year up to an aggregate amount
at any time outstanding equal to 30% of Consolidated Net Worth;
m) drafts outstanding or official bank checks outstanding used
to fund mortgage loan volume; and
n) indebtedness ranking junior to the Debentures in right of
payment or on liquidation;
provided, however, that notwithstanding the foregoing,
Indebtedness shall not be deemed to include the guaranty by the
Company of any secured Indebtedness of any Subsidiary which is
permitted to be incurred pursuant to subsection 2(d) and (k).
"Nonperforming Assets" shall mean and include non-accrual and
restructured loans and other real estate owned.
"Person" shall mean and include an individual, a partnership, a
joint venture, a corporation, a trust, an
16
<PAGE>
unincorporated organization and a government or any department or agency
thereof.
"Stockholders' Equity", "Allowance for Loan Losses", "Deferred
Loan Fees", "Consolidated Assets", "Net Income", "Consolidated Net Loss", and
"Goodwill" shall be defined according to generally accepted accounting
principles applicable to the Company and in effect on the date the Debentures
are issued.
"Subsidiary" shall mean: any entity (i) that is organized under
the laws of the United States of America or any state hereof or the District
of Columbia and (ii) of which at least 50% (by number of votes) of the voting
stock of such entity and all outstanding shares of preferred stock, all
outstanding securities convertible into or exchangeable for shares of capital
stock and all outstanding warrants, rights or options to purchase shares of
capital stock of such entity are owned directly by the Company or by another
Subsidiary.
11. MISCELLANEOUS.
11A. Debenture Payments. The Company agrees that, so long as you
shall hold any Debenture, it will make payments of principal thereof and
premium, if any, and interest thereon, which comply with the terms of this
Agreement, by wire transfer of immediately available funds for credit to your
account or accounts as specified in the Purchaser Schedule attached hereto, or
such other account or accounts in the United States as you may designate in
writing, notwithstanding any contrary provision herein or in any Debenture
with respect to the place of payment. You agree that, before disposing of any
Debenture, you will make a notation thereon (or on a schedule attached
thereto) of all principal payments previously made thereon and of the date to
which interest thereon has been paid. The Company agrees to afford the
benefits of this paragraph 11A to any Transferee which shall have made the
same agreement as you have made in this paragraph 11A.
11B. Indemnification. The Company agrees to pay and save you and any
Transferee harmless against liability for the payment of the costs and
expenses, including attorneys' fees, incurred by you or any Transferee in
enforcing any rights under this Agreement or the Debentures or in responding
to any subpoena or other legal process issued in connection with this
Agreement or the transactions contemplated hereby or by reason of your or any
Transferee's having acquired any Debenture, including without limitation costs
and expenses incurred in any bankruptcy case. The obligations of the Company
under this paragraph 11B shall survive the transfer of any Debenture or
portion thereof or
17
<PAGE>
interest therein by you or any Transferee and the payment of any Debenture.
11C. Survival of Representations and Warranties; Entire Agreement.
All representations and warranties contained herein or made in writing by or
on behalf of the Company in connection herewith shall survive the execution
and delivery of this Agreement and the Debentures, the transfer by you of any
Debenture or portion thereof or interest therein and the payment of any
Debenture, and may be relied upon by any subsequent purchaser, regardless of
any investigation made at any time by or on behalf of you or any subsequent
purchaser. Subject to the preceding sentence, this Agreement and the
Debentures embody the entire agreement and understanding between you and the
Company and supersede all prior agreements and understandings relating to the
subject matter hereof.
11D. Successors and Assigns. All covenants and other agreements in
this Agreement contained by or on behalf of either of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto (including, without limitation, any Transferee) whether so
expressed or not.
11E. Notices. All written communications provided for hereunder shall
be sent by first class mail or nationwide overnight delivery service (with
charges prepaid) and (i) if to you, addressed to you at the address specified
for such communications in the Purchaser Schedule attached hereto, or at such
other address as you shall have specified to the Company in writing, (ii) if
to any other holder of any Debenture, addressed to such other holder at such
address as such other holder shall have specified to the Company in writing
or, if any such other holder shall not have so specified an address to the
Company, then addressed to such other holder in care of the last holder of
such Debenture which shall have so specified an address to the Company, and
(iii) if to the Company, addressed to it at 1070 East Main Street, Owosso,
Michigan 48867, Attention: Thomas F. Menacher, or at such other address as the
Company shall have specified to the holder of each Debenture in writing;
provided, however, that any such communication to the Company may also, at the
option of the holder of any Debenture, be delivered by any other means either
to the Company at its address specified above or to any officer of the
Company.
11F. Descriptive Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
18
<PAGE>
11G. Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the law
of the State of New York.
11H. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
19
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to
the Company, whereupon this letter shall become a binding agreement between
you and the Company.
Very truly yours,
REPUBLIC BANCORP INC.
By /s/ THOMAS F. MENACHER
-------------------------
Title:
Senior Vice President and
Chief Financial Officer
The foregoing Agreement is
hereby accepted as of the
date first above written.
AMERICAN UNITED LIFE INSURANCE
By: /s/ KENNETH ADAMS
---------------------
Title: Vice President
STATE LIFE INSURANCE CO.
By: /s/ KENNETH ADAMS
---------------------
Title: Vice President
MUTUAL OF AMERICA LIFE INSURANCE CO.
By: Mutual of America Capital Management Corp.
By: /s/ NANCY MCAVEY
----------------------------
Title: Senior Vice President
Great Northern Insured Annuity Corporation
By: /s/ JEROME R. POWERS
-----------------------------------
Title: Vice President - Investments
20
<PAGE>
MEGA LIFE & HEALTH INSURANCE CO.
By: /s/ PATRICK MCLAUGHLIN
-------------------------------------------------
Title: Emerald Capital Corp, Ltd, Advisor to MEGA
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
By: /s/ JAMES D. KESTNER
-------------------------------------------------
Title: Vice President
21
<PAGE>
<TABLE>
<CAPTION>
PURCHASER SCHEDULE
Aggregate Aggregate
Principal Principal
Amount of 2001 Amount of 2003
Debentures to Debentures to
be Purchased be Purchased
-------------- --------------
<S> <C> <C>
AMERICAN UNITED LIFE INSURANCE $8,000,000
<FN>
(1) Address for all notices relating to payments:
American United Life Insurance
1 American Square
Indianapolis, IN 46206
Attention: Securities Department
(2) Address for all other communications and notices:
American United Life Insurance
1 American Square
Indianapolis, IN 46206
Attention: Securities Department
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PURCHASER SCHEDULE
Aggregate Aggregate
Principal Principal
Amount of 2001 Amount of 2003
Debentures to Debentures to
be Purchased be Purchased
-------------- --------------
<S> <C> <C>
STATE LIFE INSURANCE CO. $1,000,000
<FN>
(1) Address for all notices relating to payments:
State Life Insurance Co.
c/o American United Life Insurance
1 American Square
Indianapolis, IN 46206
Attention: Securities Department
(2) Address for all other communications and notices:
State Life Insurance Co.
c/o American United Life Insurance
1 American Square
Indianapolis, IN 46206
Attention: Securities Department
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PURCHASER SCHEDULE
Aggregate Aggregate
Principal Principal
Amount of 2001 Amount of 2003
Debentures to Debentures to
be Purchased be Purchased
-------------- --------------
<S> <C> <C>
MUTUAL OF AMERICA LIFE
INSURANCE CO. $___________ $2,500,000
<FN>
(1) Address for all notices relating to payments:
Mutual of America Life Insurance Co.
320 Park Avenue
9th Floor
New York, NY 10022
Attention: Mutual of America Capital Management Corp.
(2) Address for all other communications and notices:
Mutual of America Life Insurance Co.
320 Park Avenue
9th Floor
New York, NY 10022
Attention: Mutual of America Capital Management Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PURCHASER SCHEDULE
Aggregate Aggregate
Principal Principal
Amount of 2001 Amount of 2003
Debentures to Debentures to
be Purchased be Purchased
-------------- --------------
<S> <C> <C>
GREAT NORTHERN INSURED $___________ $5,000,000
ANNUITY CORPORATION
<FN>
(1) Address for all notices relating to payments:
Great Northern Insured Annuity Corporation
Two Union Square
Suite 5600
Seattle, WA 98101
Attention: Tami Henrickson
(2) Address for all other communications and notices:
Great Northern Insured Annuity Corporation
Two Union Square
Suite 5600
Seattle, WA 98101
Attention: Tami Henrickson
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PURCHASER SCHEDULE
Aggregate Aggregate
Principal Principal
Amount of 2001 Amount of 2003
Debentures to Debentures to
be Purchased be Purchased
-------------- --------------
<S> <C> <C>
MEGA LIFE & HEALTH $___________ $3,000,000
INSURANCE CO.
<FN>
(1) Address for all notices relating to payments:
Mega Life & Health Insurance Co.
100 Chetwynd Drive
Suite 202
Rosemont, PA 19010
Attention: Patrick McLaughlin
(2) Address for all other communications and notices:
Mega Life & Health Insurance Co.
100 Chetwynd Drive
Suite 202
Rosemont, PA 19010
Attention: Patrick McLaughlin
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PURCHASER SCHEDULE
Aggregate Aggregate
Principal Principal
Amount of 2001 Amount of 2003
Debentures to Debentures to
be Purchased be Purchased
-------------- --------------
<S> <C> <C>
PROVIDENT MUTUAL LIFE $___________ $3,000,000
INSURANCE COMPANY
<FN>
(1) Address for all notices relating to payments:
Provident Mutual Life Insurance Company
1600 Market Street
Philadelphia, PA 19101
Attention: Treasurer
(2) Address for all other communications and notices:
Provident Mutual Life Insurance Company
1600 Market Street
4th Floor
Philadelphia, PA 19101
Attention: Treasurer
</TABLE>
<PAGE>
EXHIBIT A-1
FORM OF DEBENTURE
THIS DEBENTURE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE DEBENTURE
PURCHASE AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), OR A NOMINEE
THEREOF. THIS GLOBAL SECURITY MAY NOT BE EXCHANGED, IN WHOLE OR IN PART, FOR A
SECURITY REGISTERED IN THE NAME OF ANY PERSON OTHER THAN DTC OR A NOMINEE
THEREOF, AND MAY NOT BE TRANSFERRED, IN WHOLE OR IN PART, EXCEPT IN ACCORDANCE
WITH THE RESTRICTIONS SET FORTH IN THE DEBENTURE PURCHASE AGREEMENT. UNLESS
THIS DEBENTURE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO REPUBLIC
BANCORP INC. (THE "COMPANY") OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IN EXCHANGE FOR THIS DEBENTURE
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY ITS
ACCEPTANCE HEREOF, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS
DEBENTURE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) TO
THE COMPANY, (2) SO LONG AS THIS DEBENTURE IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER, AS DEFINED IN RULE 144A, THAT IS PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (3) PURSUANT TO AN EXEMPTION FROM
REGISTRATION IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), (4) TO AN INSTITUTIONAL INVESTOR THAT IS AN "ACCREDITED
INVESTOR" AS DEFINED IN RULE 501(a)(1),(2),(3) OR (7) UNDER THE
SECURITIES ACT ("INSTITUTIONAL ACCREDITED INVESTOR") THAT IS ACQUIRING
THIS DEBENTURE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER
INSTITUTIONAL ACCREDITED INVESTOR FOR INVESTMENT PURPOSES AND NOT FOR
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, AND A SIGNED
CERTIFICATION LETTER (A FORM OF WHICH MAY BE
<PAGE>
OBTAINED FROM THE COMPANY) IS DELIVERED BY THE TRANSFEREE TO THE
COMPANY OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. BY PURCHASING THIS
DEBENTURE, THE HOLDER HEREOF AGREES AND REPRESENTS FOR THE BENEFIT OF
THE COMPANY THAT (A) IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN
THE MEANING OF RULE 144A OR (2) AN INSTITUTION THAT IS AN
INSTITUTIONAL ACCREDITED INVESTOR ACQUIRING THIS DEBENTURE FOR
INVESTMENT PURPOSES FOR ITS OWN ACCOUNT OR THE ACCOUNT OF ANOTHER
INSTITUTIONAL ACCREDITED INVESTOR FOR INVESTMENT PURPOSES AND NOT FOR
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT AND (B) IT WILL NOTIFY
ANY PURCHASER OF THIS DEBENTURE FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO ABOVE. THIS LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF
THREE YEARS FROM THE ORIGINAL ISSUANCE OF THE DEBENTURE EVIDENCED
HEREBY.
REPUBLIC BANCORP INC.
6.75% SENIOR DEBENTURE DUE JANUARY 15, 2001
January 29, 1996
FOR VALUE RECEIVED, the undersigned, REPUBLIC BANCORP INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Michigan, hereby promises to pay to Cede & Co., as nominee for
the Depository Trust Company, or registered assigns the principal sum of
$9,000,000 on January 15, 2001, ("Maturity") with interest (computed on the
basis of a 360-day year--30-day month) on the unpaid balance thereof at the
rate of 6.75% per annum from the date hereof, payable semiannually on the 1st
day of April and October in each year (each, an "Interest Payment Date"),
commencing with the October 1 next succeeding the date hereof, until the
principal hereof shall have become due and payable.
In the case where the applicable Interest Payment Date or Maturity
with respect hereto, as the case may be, does not fall on a Business Day,
payment of principal or interest otherwise payable on such day need not be
made on such day, but may be made on the next succeeding Business Day with the
same force and effect as if made on the Interest Payment Date or at Maturity
and no interest shall accrue with respect to such payment for the period from
and after the Interest Payment Date or such Maturity, as the case may be, to
the date of payment.
<PAGE>
The Debentures (including all of the obligations of the Company
hereunder) are direct, unconditional obligations of the Company and rank
without preference or priority among themselves and at least pari passu with
all other existing and future unsecured and unsubordinated indebtedness of the
Company.
The Debentures will not be subject to any sinking fund and, except as
described below, will not be redeemable or repayable prior to their Stated
Maturity.
Payments of principal, premium, if any, and interest are to be made at
such other place as the holder hereof shall designate to the Company in
writing, in lawful money of the United States of America.
This global Debenture is issued pursuant to a Debenture Purchase
Agreement, dated as of January 29, 1996 (the "Debenture Purchase Agreement")
between the Company and the respective original purchasers of the Debentures
named in the Purchaser Schedule attached thereto and is entitled to the
benefits thereof. This Debenture, together with the global Debenture or
definitive Debentures constituting the Company's 6.95% Senior Debentures Due
January 15, 2003 shall be deemed to constitute a single series and class of
Debentures for purposes of determining all rights and remedies available to
holders of Debentures under the Debenture Purchase Agreement, except as
otherwise expressly provided herein. All terms not defined in this Global
Debenture shall have the meanings set forth for such defined terms in the
Debenture Purchase Agreement.
In case an Event of Default, as defined in the Debenture Purchase
Agreement, shall occur and be continuing, the principal of this Debenture may
be declared or otherwise become due and payable in the manner and with the
effect provided in the Debenture Purchase Agreement.
The Debenture Purchase Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of Holders of the Debentures to be
affected thereby by the Company with the consent of the Holders of 66 2/3% of
the aggregate principal amount of Debentures at the time outstanding. Any such
consent or waiver by or behalf of the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration or transfer hereof
or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Security.
<PAGE>
No provision of this Debenture or of the Debenture Purchase Agreement
shall alter or impair the obligations of the Company, which are absolute and
unconditional, to pay the principal of and interest on this Security at the
time, place, and rate herein prescribed.
This Debenture shall be construed and enforced in accordance with the
law of the State of New York.
REPUBLIC BANCORP INC.
By _____________________________________
Senior Vice President and Chief
Financial Officer
By _____________________________________
President and Chief Operating Officer
<PAGE>
EXHIBIT A-2
FORM OF DEBENTURE
THIS DEBENTURE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE DEBENTURE
PURCHASE AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), OR A NOMINEE
THEREOF. THIS GLOBAL SECURITY MAY NOT BE EXCHANGED, IN WHOLE OR IN PART, FOR A
SECURITY REGISTERED IN THE NAME OF ANY PERSON OTHER THAN DTC OR A NOMINEE
THEREOF, AND MAY NOT BE TRANSFERRED, IN WHOLE OR IN PART, EXCEPT IN ACCORDANCE
WITH THE RESTRICTIONS SET FORTH IN THE DEBENTURE PURCHASE AGREEMENT. UNLESS
THIS DEBENTURE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO REPUBLIC
BANCORP INC. (THE "COMPANY") OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IN EXCHANGE FOR THIS DEBENTURE
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY ITS
ACCEPTANCE HEREOF, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS
DEBENTURE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) TO
THE COMPANY, (2) SO LONG AS THIS DEBENTURE IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER, AS DEFINED IN RULE 144A, THAT IS PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (3) PURSUANT TO AN EXEMPTION FROM
REGISTRATION IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), (4) TO AN INSTITUTIONAL INVESTOR THAT IS AN "ACCREDITED
INVESTOR" AS DEFINED IN RULE 501(a)(1),(2),(3) OR (7) UNDER THE
SECURITIES ACT ("INSTITUTIONAL ACCREDITED INVESTOR") THAT IS ACQUIRING
THIS DEBENTURE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER
<PAGE>
INSTITUTIONAL ACCREDITED INVESTOR FOR INVESTMENT PURPOSES AND NOT FOR
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, AND A SIGNED
CERTIFICATION LETTER (A FORM OF WHICH MAY BE OBTAINED FROM THE
COMPANY) IS DELIVERED BY THE TRANSFEREE TO THE COMPANY OR (5) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES. BY PURCHASING THIS DEBENTURE, THE HOLDER
HEREOF AGREES AND REPRESENTS FOR THE BENEFIT OF THE COMPANY THAT (A)
IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE
144A OR (2) AN INSTITUTION THAT IS AN INSTITUTIONAL ACCREDITED
INVESTOR ACQUIRING THIS DEBENTURE FOR INVESTMENT PURPOSES FOR ITS OWN
ACCOUNT OR THE ACCOUNT OF ANOTHER INSTITUTIONAL ACCREDITED INVESTOR
FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT AND (B) IT WILL NOTIFY ANY PURCHASER OF THIS DEBENTURE
FROM IT OF THE RESALE RESTRICTIONS REFERRED TO ABOVE. THIS LEGEND WILL
BE REMOVED AFTER THE EXPIRATION OF THREE YEARS FROM THE ORIGINAL
ISSUANCE OF THE DEBENTURE EVIDENCED HEREBY.
REPUBLIC BANCORP INC.
6.95% SENIOR DEBENTURE DUE JANUARY 15, 2003
January 29, 1996
FOR VALUE RECEIVED, the undersigned, REPUBLIC BANCORP INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Michigan, hereby promises to pay to Cede & Co., as nominee for
the Depository Trust Company, or registered assigns the principal sum of
$13,500,000 on January 15, 2003, ("Maturity") with interest (computed on the
basis of a 360-day year--30-day month) on the unpaid balance thereof at the
rate of 6.95% per annum from the date hereof, payable semiannually on the 1st
day of April and October in each year (each, an "Interest Payment Date"),
commencing with the October 1 next succeeding the date hereof, until the
principal hereof shall have become due and payable.
In the case where the applicable Interest Payment Date or Maturity
with respect hereto, as the case may be, does not fall on a Business Day,
payment of principal or interest otherwise payable on such day need not be
made on such day, but may be made on the next
<PAGE>
succeeding Business Day with the same force and effect as if made on the
Interest Payment Date or at Maturity and no interest shall accrue with respect
to such payment for the period from and after the Interest Payment Date or
such Maturity, as the case may be, to the date of payment.
The Debentures (including all of the obligations of the Company
hereunder) are direct, unconditional obligations of the Company and rank
without preference or priority among themselves and at least pari passu with
all other existing and future unsecured and unsubordinated indebtedness of the
Company.
The Debentures will not be subject to any sinking fund and, except as
described below, will not be redeemable or repayable prior to their Stated
Maturity.
Payments of principal, premium, if any, and interest are to be made at
such other place as the holder hereof shall designate to the Company in
writing, in lawful money of the United States of America.
This global Debenture is issued pursuant to a Debenture Purchase
Agreement, dated as of January 29, 1996 (the "Debenture Purchase Agreement")
between the Company and the respective original purchasers of the Debentures
named in the Purchaser Schedule attached thereto and is entitled to the
benefits thereof. This Debenture, together with the global Debenture or
definitive Debentures constituting the Company's 6.75% Senior Debentures Due
January 15, 2001 shall be deemed to constitute a single series and class of
Debentures for purposes of determining all rights and remedies available to
holders of Debentures under the Debenture Purchase Agreement, except as
otherwise expressly provided herein. All terms not defined in this Global
Debenture shall have the meanings set forth for such defined terms in the
Debenture Purchase Agreement.
In case an Event of Default, as defined in the Debenture Purchase
Agreement, shall occur and be continuing, the principal of this Debenture may
be declared or otherwise become due and payable in the manner and with the
effect provided in the Debenture Purchase Agreement.
The Debenture Purchase Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of Holders of the Debentures to be
affected thereby by the Company with the consent of the Holders of 66 2/3% of
the aggregate principal amount of Debentures at the time outstanding. Any such
consent or waiver by or behalf of the Holder of this Security shall be
conclusive and binding upon such
<PAGE>
Holder and upon all future Holders of this Security and of any Security issued
upon the registration or transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
No provision of this Debenture or of the Debenture Purchase Agreement
shall alter or impair the obligations of the Company, which are absolute and
unconditional, to pay the principal of and interest on this Security at the
time, place, and rate herein prescribed.
This Debenture shall be construed and enforced in accordance with the
law of the State of New York.
REPUBLIC BANCORP INC.
By _____________________________________
Senior Vice President and Chief
Financial Officer
By _____________________________________
President and Chief Operating Officer
<PAGE>
EXHIBIT B
FORM OF OPINION OF COMPANY'S COUNSEL
January 29, 1996
Names of purchasers
Re: $9,000,000 of 6.75% Senior Debentures Due
January 15, 2001 and $13,500,00 of 6.95% Senior
Debentures Due January 15, 2003; Debenture Purchase
Agreement dated as of January 29, 1996
Ladies and Gentlemen:
We have acted as counsel for Republic Bancorp Inc. ("Company") in
connection with the captioned Debenture Purchase Agreement ("Agreement"),
pursuant to which the Company has issued to you today $9,000,000 aggregate
principal amount of 6.75% Senior Debentures due January 15, 2001 (the "2001
Debentures" and $13,500,000 aggregate principal amount of 6.95% senior
debentures of the Company due January 15, 2003 (the "2003 Debentures" and,
collectively with the 2001 Debentures, the "Debentures"). We are rendering
this opinion at the request of the Company and you pursuant to Section 3B of
the Agreement.
This opinion letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord ("Accord") of the American Bar
Association Section of Business Law (1991). As a consequence, it is subject to
a number of qualifications, exceptions, definitions, limitations on coverage
and other limitations, all as more particularly described in the Accord, and
this opinion should be read in conjunction therewith. The Law covered by the
opinion expressed herein is limited to Federal Law of the United States and
the Law of the State of Michigan. Capitalized terms not otherwise defined in
this letter shall have the meanings ascribed to them in the Agreement or the
Accord, as applicable.
<PAGE>
We have also examined copies of such records of the Company,
certificates of officers of the Company, certificates of transfer agents and
public officials and such other documents as we have deemed relevant and
necessary as the basis for our opinions set forth in paragraphs numbered 1
through 5 below. We have also relied upon the factual representations made by
the Company in the Agreement. We note that various issues and matters are
addressed in the opinion of even date of Brown & Wood.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Michigan. Mayflower
Mortgage Corporation d/b/a Republic Bancorp Mortgage Inc. ("RBMI") and Market
Street Mortgage Corporation ("Market Street"), both Michigan corporations and
subsidiaries of the Company, have each been duly incorporated and are validly
existing as corporations in good standing under the laws of the State of
Michigan. Republic Bank ("Bank"), also a subsidiary of the Company, has been
duly organized and is validly existing as a validly existing state chartered
bank under the laws of the State of Michigan. Each of the Company, RBMI,
Market Street and Bank has full corporate power and authority to carry on its
respective businesses as now being conducted.
2. The Agreement and the global Debenture representing each of
the 2001 Debentures and the 2003 Debentures initially delivered pursuant
thereto have each been duly authorized, executed and delivered by the Company.
3. The execution, delivery and performance by the Company of
its agreements and obligations in the Agreement and the Global Debenture
initially delivered thereunder do not (i) violate the Company's Constituent
Documents, or (ii) to the best of our knowledge based solely upon the
Officers' Certificate of even date herewith, breach or result in a default
under any existing obligation of the Company under any documents or other
agreements required to be or actually filed by the Company with the Securities
and Exchange Commission in accordance with the Company's obligations under the
Securities Exchange Act of 1934 or breach or otherwise violate any existing
obligation of the Company under any Court Order.
4. The execution, delivery and performance by the Company of
its agreements in the Agreement and the initial Global Debenture delivered
thereunder do not violate applicable
<PAGE>
provisions of statutory law or regulations thereunder, except that no opinion
is expressed with respect to state or federal securities or blue sky laws.
5. No consent, approval, authorization, order, decree,
registration or qualification of or filing with any court or governmental
authority or agency is necessary or required for the performance by the
Company of its obligations under the Agreement or the initial global Debenture
delivered thereunder, except such as may be required by state or federal
securities or Blue Sky law.
The General Qualifications apply to the opinions expressed
herein.
This Opinion Letter may be relied upon by you only in
connection with the transaction anticipated by the Transaction Documents and
may not be used or relied upon by you or any other person for any purpose
whatsoever, except to the extent authorized in the Accord, without in each
instance our prior written consent.
Very truly yours,
<PAGE>
EXHIBIT C
LIST OF AGREEMENTS RESTRICTING DEBT
1. $25,000,000 7.17% SENIOR DEBENTURES DUE 2001
DEBENTURE PURCHASE AGREEMENT
EXHIBIT 13
ANNUAL REPORT OF THE REGISTRANT TO ITS STOCKHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1995
<PAGE>
Company Profile
Republic Bancorp Inc. is a bank holding company established in 1986 which
currently operates 96 banking and mortgage banking offices in 20 states. The
Company owns Republic Bank based in Ann Arbor, Michigan, with 25 offices in
Michigan, and Republic Savings Bank with 11 offices primarily in the greater
Cleveland, Ohio area. The Company's two banking entities engage in the
business of commercial banking and exercise the powers of a full-service
commercial bank and savings bank.
To complement its retail banking activities, the Company maintains a
nationwide mortgage banking presence with Republic Bancorp Mortgage Inc.,
located in Farmington Hills, Michigan, which operates its retail mortgage
operations in 13 offices located in 4 states; Market Street Mortgage
Corporation, a retail mortgage company based in Clearwater, Florida with 33
locations in 9 states; and CUB Funding Corporation, a retail and wholesale
mortgage company, headquartered in Calabasas, California with 14 offices in 6
states. During 1995 the Company originated or purchased $2.85 billion in
residential mortgage loans. The Company also performs servicing of mortgage
loans, which includes the processing and administration of mortgage loan
payments. At December 31, 1995, the mortgage loan servicing portfolio was $4.0
billion.
1
<PAGE>
Table of Contents
Financial Highlights .................................... 3
Letter to Shareholders .................................. 4
Five Year Summary of Selected Financial Data ............ 6
Management's Discussion and Analysis .................... 7
Consolidated Financial Statements ....................... 21
Notes to Consolidated Financial Statements .............. 26
Report of Management .................................... 45
Independent Auditors' Report ............................ 46
Summary of Common Share Market Data and Quarterly Data .. 47
Republic Affiliates ..................................... 48
Republic Bancorp Inc. Board of Directors and Officers ... 56
Corporate Information ................................... 57
2
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
%
(Dollars in thousands, except per share data) 1995 1994 Change
---- ---- ------
<S> <C> <C> <C>
Net Income ............................................ $ 14,264 $ 15,719 (9)%
Per Common Share Data: (1)
Net income - primary and fully diluted .......... 0.84 0.91 (8)
Cash dividends declared ......................... 0.34 .0.27 26
Book value per common share outstanding ......... 7.67 7.03 9
Average shares outstanding (000s) - fully diluted 16,996 17,326 (2)
Operating Data (in millions):
Residential mortgage loan closings .............. $ 2,847 $ 2,837 --
Mortgage loan servicing portfolio ............... 3,967 4,669 (15)%
Year-End Balances:
Total assets .................................... $1,472,690 $1,363,614 8%
Mortgage loans held for sale .................... 423,364 152,138 178
Portfolio loans, net ............................ 573,110 599,545 (4)
Total deposits .................................. 904,729 818,742 11
Shareholders' equity ............................ 126,376 117,914 7
Financial Ratios:
Return on average assets ........................ 1.00% 1.23% (19)%
Return on average equity ........................ 11.71 13.43 (13)
Total shareholders' equity to assets ............ 8.58 8.65 (1)
Total risk-based capital ........................ 18.63 21.05 (11)
Asset Quality Ratios:
Non-performing assets to loans and other
real estate owned ............................ 0.30% 0.54% (44)%
Non-performing assets to total assets ........... 0.20 0.30 (33)
<FN>
(1) All per share amounts have been restated to reflect stock dividends.
</TABLE>
3
<PAGE>
Letter to Shareholders
Results
We are pleased to report your Company earned net income of $14.3 million in
1995, which was the second highest earnings year in the Company's history when
comparing income from operations. Fully diluted earnings per share were $0.84
for the year ended December 31, 1995 compared to $0.76 in 1994, excluding the
gain on sale of bank branches. Earnings per share amounts are restated to
reflect the 10% stock dividend issued December 1, 1995. Our return on average
assets was 1.00% in 1995 and our return on average equity was 11.71%. Mortgage
loan closings were $2.85 billion for the year ended December 31, 1995, a
slight increase from the $2.84 billion in closings for 1994.
[ PHOTO ]
Jerry D. Campbell
Chairman and
Chief Executive Officer
Strength of Asset Quality and Capital
The Company's total assets increased to $1.47 billion at December 31, 1995,
compared with $1.36 billion reported at December 31, 1994. Republic's asset
quality ratios continue to be among the best in the country. Net charge-offs
in 1995 were only .06% of average total loans and non-performing assets were
only .20% of total assets at December 31, 1995. These ratios reflect the
Company's emphasis on conservative lending policies. At December 31, 1995,
approximately 85% of the Company's loan portfolio consisted of residential
real estate mortgages and commercial loans secured by real estate.
The Company also continues to enjoy very strong capital levels with
total shareholders' equity increasing to $126 million at December 31, 1995,
from $118 million at December 31, 1994. The Company's capital ratios are
significantly higher than the regulatory requirements of a well-capitalized
financial institution, with a Total risk-based capital ratio of 18.63% at
December 31, 1995.
[ PHOTO ]
Dana M. Cluckey
President and
Chief Operating Officer
1995 Overview
While the Company had consistent levels of mortgage loan originations in 1995
compared to 1994, our December 31, 1995 pipeline of mortgage loan applications
in process was $794 million, or more than double the pipeline at December 31,
1994. Considering the current interest rate outlook and our significant
mortgage loan pipeline, the Company is entering 1996 with significant
momentum.
In August 1995, the Company acquired the six western mortgage
division offices of Railroad Savings Bank, F.S.B. Since their acquisition, RSL
Mortgage has originated $160 million in mortgage loan closings. This move
increased our presence in the western United States and has been profitable in
a very short time period.
The Company's Small Business Administration (SBA) lending emphasis
continued to grow in 1995. Republic Bank was the Number One SBA lender in the
state of Michigan for the second year in a row. The Company closed over $17
million in SBA loans during the year and has a strong pipeline of loans in
process.
The year ending December 31, 1995 also saw a 20% increase in the market
value of the Company's stock. The Company's five year average annual return on
its common stock of 35% continues to exceed that of the NASDAQ stock Market
composite for all U.S. companies and the NASDAQ bank stocks composite.
4
<PAGE>
Promotion
In recognition of his many contributions to the Company, Dana M. Cluckey was
recently promoted to President and Chief Operating Officer of the Company. Mr.
Cluckey joined Republic in 1986, when total assets were approximately $15
million. Since that time the Company has grown one hundred-fold in less than
ten years.
Outlook
Republic Bancorp Inc. begins the year in an excellent position to take
advantage of the opportunities before us. We are a nationwide mortgage lender
with 96 offices in 20 states, with a focus on mortgage lending, SBA lending
and personal banking. The following actions recently taken by the Company
contribute to our enthusiasm for increased returns to our shareholders:
o In January 1996, the Company completed a $22.5 million Senior
Debenture offering, with an interest rate of 6.87%. The proceeds were
used to redeem the existing $17.25 million of 9% Subordinated Notes,
which will result in annual pre-tax savings of approximately $400,000
in interest expense. The remaining proceeds from this debt offering
will be used for working capital, including possible acquisitions.
o In February 1996, your Board of Directors approved an increase in the
quarterly dividend to $.10 per share as a result of the Company's
strong capital position and positive outlook for 1996. This is the
fourth increase in Republic's regular quarterly dividend in the last
four years and represents a cumulative increase of 193% over this
period. Additionally, the Company has acquired approximately 350,000
shares of common stock under the previously announced Stock Repurchase
Program.
o Effective March 1, 1996, Republic Bancorp Mortgage Inc. and CUB
Funding Corporation became subsidiaries of Republic Bank. This
consolidation will allow the mortgage companies to utilize Republic
Bank's lower cost of funds for the financing of their mortgage loan
closings, thereby increasing our net interest margin.
With the talent of Republic employees and a clear vision of our goals
and objectives, we will continue to create value for our shareholders. The
directors, officers and staff look forward to 1996 and want to thank you for
your continued support.
Sincerely,
/s/ JERRY D. CAMPBELL
Jerry D. Campbell
Chairman and Chief Executive Officer
/s/ DANA M. CLUCKEY
Dana M. Cluckey
President and Chief Operating Officer
5
<PAGE>
Five Year Summary of Selected Financial Data
The selected consolidated financial information for the Company and its
subsidiaries presented below for each of the five years in the period ended
December 31, 1995 has been derived from the Consolidated Financial Statements
of the Company and the related notes to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statements of Income Information (Dollars in thousands):
Total interest income .......................................... $ 95,597 $ 78,219 $ 78,831 $ 74,068 $ 70,886
Total interest expense ......................................... 65,192 44,999 42,268 40,339 43,990
Net interest income before provision for loan losses ........... 30,405 33,220 36,563 33,729 26,896
Provision for loan losses ...................................... 24 94 603 3,967 2,135
Mortgage banking income ........................................ 70,960 69,899 85,128 30,697 8,985
Other non-interest income ...................................... 4,241 5,762 6,992 6,113 4,482
Non-interest expense ........................................... 83,152 85,021 93,539 47,811 29,325
Provision for income taxes ..................................... 8,166 8,047 12,308 7,339 3,342
-------- -------- -------- -------- --------
Net income before cumulative effect of
change in accounting principle ............................ 14,264 15,719 22,233 11,422 5,561
Cumulative effect of change in accounting principle ............ -- -- (950) -- --
-------- -------- -------- -------- --------
Net Income ................................................ $ 14,264 $ 15,719 $ 23,183 $ 11,422 $ 5,561
======== ======== ======== ======== ========
Per Common Share Data: (1)
Net income (primary) ........................................... $ .84 $ .91 $ 1.37 $ .76 $ .41
Net income (fully diluted) ..................................... .84 .91 1.37 .73 .41
Cash dividends declared ........................................ .34 .27 .18 .14 --
Dividend payout ratio .......................................... 40% 30% 13% 19% --
Book value per common share outstanding ........................ $ 7.67 $ 7.03 $ 6.70 $ 5.39 $ 5.14
Operating data (Dollars in millions):
Residential mortgage loan closings ............................. $ 2,847 $ 2,837 $ 4,911 $ 2,078 $ 528
SBA loan closings .............................................. 17 12 7 1 --
Mortgage loan servicing portfolio .............................. 3,967 4,669 3,023 2,049 284
Year-End Balances (Dollars in millions):
Total assets ................................................... $ 1,473 $ 1,364 $ 1,171 $ 1,126 $ 838
Total earning assets ........................................... 1,323 1,224 1,078 1,041 801
Mortgage loans held for sale ................................... 423 152 508 245 67
Net loans ...................................................... 573 600 400 519 459
Total deposits ................................................. 905 819 834 898 686
Long-term debt ................................................. 52 56 20 5 7
Shareholders' equity ........................................... 126 118 111 84 65
Performance Ratios:
Return on average assets ....................................... 1.00% 1.23% 1.94% 1.20% .71%
Return on average common equity ................................ 11.71 13.43 23.72 15.05 8.91
Net interest margin ............................................ 2.38 2.88 3.29 3.70 3.62
Asset Quality Ratios:
Non-performing assets to loans and other real estate owned (2) . .30% .54% .58% 1.01% 1.68%
Non-performing assets to total assets .......................... .20 .30 .45 .69 1.07
Allowance for estimated loan losses to non-performing loans .... 252.64 158.61 148.34 163.73 78.41
Allowance for estimated loan losses to loans ................... .87 .92 1.77 1.46 1.16
Net charge-offs to average loans outstanding (2) ............... .06 .20 .06 .26 .23
Capital Ratios:
Total shareholders' equity to assets ........................... 8.58% 8.65% 9.52% 7.48% 7.74%
Tier 1 risk-based capital ...................................... 15.72 17.57 16.35 12.97 13.07
Total risk-based capital ....................................... 18.63 21.05 20.19 14.23 14.54
Tier 1 leverage ................................................ 8.31 8.43 8.43 7.51 8.02
<FN>
(1) All per common share amounts have been restated to reflect stock
dividends and stock splits.
(2) Includes mortgage loans held for sale.
</TABLE>
6
<PAGE>
Management's Discussion and Analysis
Overview
Financial Condition and Results of Operations
Net income in 1995 totaled $14.3 million, compared to $15.7 million earned in
1994. This decrease in earnings was due primarily to a gain on sale of bank
branches in 1994 and a decrease in net interest income. Net income per common
share, fully diluted, was $0.84 for 1995, compared to $0.91 earned in 1994.
Return on average assets in 1995 was 1.00%, while return on average equity was
11.71%.
Republic Bancorp Inc. has five subsidiaries engaged in two business
segments, mortgage banking and commercial banking. The subsidiaries in the
mortgage banking segment include: Republic Bancorp Mortgage Inc. ("Republic
Mortgage"), Market Street Mortgage Corporation ("Market Street") and CUB
Funding Corporation ("CUB Funding"), while the commercial banking segment
includes Republic Bank and Republic Savings Bank ("Republic Savings").
Mortgage Banking
During 1995, the Company closed $2.85 billion in single-family, residential
mortgage loans, a slight increase over the $2.84 billion closed in 1994. A
breakdown of income from mortgage banking activities is summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Net mortgage loan servicing fees ...... $ 9,596 $ 7,439 $ 4,558
Origination fee income ................ 26,037 25,054 34,044
Gain on sale of mortgages ............. 10,048 4,968 33,190
Gain on sale of servicing ............. 25,279 32,438 13,336
------- ------- -------
Total mortgage banking income ... $70,960 $69,899 $85,128
======= ======= =======
</TABLE>
Net mortgage loan servicing fees rose to $9.6 million for 1995, compared with
$7.4 million in 1994. This was the result of higher average servicing
portfolio balances during the year, and the shift toward a greater percentage
of government servicing, which has a higher servicing fee than conventional
servicing. The servicing fees are net of the amortized cost of originated and
purchased servicing rights of $7.0 million in 1995, and net of the amortized
cost of purchased servicing rights of $5.0 million and $4.6 million in 1994
and 1993, respectively.
The Company generates origination fee income primarily through its
retail mortgage loan operation. The Company's retail mortgage loan closings
were $1.93 billion in 1995 compared to $1.77 billion for 1994. This increase
in retail mortgage closings resulted in an increase in origination fee income
of $1.0 million, from $25.0 million in 1994 to $26.0 million in 1995.
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 1995, the Company's gain on sale of mortgages totaled $10.0 million
compared to $5.0 million for 1994. The increase in the gain on sale of
mortgages was due to higher margins and a greater mix of retail production in
1995.
During 1995 and 1994 the Company sold both purchased and originated
mortgage servicing rights of $3.9 billion and $4.5 billion, respectively,
resulting in gains of $25.3 million and $32.4 million, respectively.
For a further discussion of the mortgage banking segment, please refer
to Notes 4 and 19 of the Notes to the Consolidated Financial Statements. The
remainder of the Management's Discussion and Analysis provides various
disclosures and analysis relating principally to the commercial banking
segment.
7
<PAGE>
Management's Discussion and Analysis (continued)
Results of Operations
Net Interest Income
Net interest income declined by 8.5% in 1995, to $30.4 million. This decrease
was primarily the result of a 50 basis point decrease in the net interest
margin to 2.38% in 1995, as rates on interest bearing liabilities rose
proportionately faster than the increase in rates on interest earning assets.
Interest income grew by 22.2% in 1995, to $95.6 million. Average
balances on interest earning assets rose by 10.8% during 1995, to $1.28
billion, while average rates earned on those assets also rose, to 7.48% from
6.78% in 1994. The largest contributors to the rise in interest income were
mortgages held for sale and portfolio loans, which increased by $5.8 million
and $12.1 million, respectively. These increases were primarily due to higher
levels of mortgage and commercial loan production.
Interest expense rose $20.2 million to $65.2 million in 1995, a 44.9%
increase over the previous year. Average interest bearing liabilities climbed
by 13.9%, to $1.14 billion in 1995. Average balances of time deposits rose by
23.0%, while the average rate paid increased by 121 basis points. This
combination resulted in an increase in time deposit interest expense of $10.8
million, to $30.6 million in 1995. Another significant factor in the overall
rise in interest expense was a 116% increase in average warehousing lines of
credit outstanding and a 47 basis point increase in the average rate paid on
the lines. As a result, interest expense on warehousing lines of credit
increased by $4.5 million over the previous year. In addition, while average
other short-term borrowing remained fairly consistent from 1994 to 1995,
interest expense was impacted by a 176 basis point increase in the average
cost of funds for these borrowings, resulting in $3.0 million in additional
interest expense in 1995.
Net interest income totaled $33.2 million in 1994, a decrease of 9.1%
from the $36.6 million earned during 1993. The decrease in the net interest
margin was a result of a decrease in mortgage loans held for sale and a
subsequent redeployment of assets into lower yielding securities as well as a
significant increase in short-term borrowing costs.
8
<PAGE>
Management's Discussion and Analysis(continued)
The following table presents an analysis of average balances and rates for
each of the three years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------
1995 1994 1993
---------------------------- -------------------------- ---------------------------
Average Avg. Average Avg. Average Avg.
Balance(1) Interest Rate Balance(1) Interest Rate Balance(1) Interest Rate
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Assets:
Money market investments ....... $ 16,801 $ 954 5.68% $ 13,163 $ 474 3.60% $ 50,541 $ 1,473 2.91%
Mortgage loans held for sale ... 268,788 21,100 7.85 213,593 15,317 7.17 382,196 27,361 7.16
Investment securities .......... 382,242 23,155 6.06 434,440 24,128 5.56 213,984 10,823 5.06
Commercial loans ............... 109,063 10,843 9.94 114,954 10,599 9.22 148,707 13,213 8.89
Real estate mortgage loans ..... 443,928 33,633 7.58 326,902 23,243 7.11 270,537 21,520 7.95
Installment loans .............. 56,370 5,912 10.49 50,120 4,458 8.89 46,830 4,441 9.48
---------- ------- ----- ---------- ------- ---- ---------- ------- ----
Total loans, net of
unearned income .......... 609,361 50,388 8.27 491,976 38,300 7.78 466,074 39,174 8.41
---------- ------- ----- ---------- ------- ---- ---------- ------- ----
Total interest earning
assets ................... 1,277,192 95,597 7.48 1,153,172 78,219 6.78 1,112,795 78,831 7.08
---------- ------- ----- ---------- ------- ---- ---------- ------- ----
Allowance for loan losses ...... (5,264) (6,360) (7,594)
Cash and due from banks ........ 24,460 25,758 20,467
Other assets ................... 126,339 108,549 71,892
---------- ---------- ----------
Total assets ................ $1,422,727 $1,281,119 $1,197,560
========== ========== ==========
Average Liabilities and
Shareholders' Equity:
Deposits:
Interest bearing demand
deposits ................. $ 63,516 1,554 2.45 $ 86,965 2,295 2.64 $ 65,392 1,846 2.82
Savings deposits ............ 177,978 6,677 3.75 188,267 6,212 3.30 179,988 5,093 2.83
Time deposits ............... 517,663 30,567 5.90 420,995 19,754 4.69 512,666 25,346 4.94
---------- ------- ----- ---------- ------- ---- ---------- ------- ----
Total interest bearing
deposits ................. 759,157 38,798 5.11 696,227 28,261 4.06 758,046 32,285 4.26
Warehousing lines of credit .... 106,028 7,958 7.51 49,042 3,455 7.04 117,784 5,587 4.74
Other short-term borrowings .... 168,426 10,438 6.20 167,621 7,447 4.44 23,625 892 3.78
FHLB advances .................. 40,004 2,431 6.08 42,796 2,237 5.23 28,008 1,781 6.36
Long-term debt ................. 63,256 5,567 8.80 42,499 3,599 8.47 18,833 1,723 9.15
---------- ------- ----- ---------- ------- ---- ---------- ------- ----
Total interest bearing
liabilities.............. 1,136,871 65,192 5.73 998,185 44,999 4.51 946,296 42,268 4.47
---------- ------- ----- ---------- ------- ---- ---------- ------- ----
Non-interest bearing deposits .. 128,640 121,594 127,562
Other liabilities .............. 35,435 44,273 25,951
---------- ---------- ----------
Total liabilities .............. 1,300,946 1,164,052 1,099,809
---------- ---------- ----------
Shareholders' equity ........... 121,781 117,067 97,751
---------- ---------- ----------
Total liabilities and
shareholders' equity ........ $1,422,727 $1,281,119 $1,197,560
========== ========== ==========
Net interest income ............ $30,405 $33,220 $36,563
======= ======= =======
Net interest spread ............ 1.75% 2.27% 2.61%
===== ==== ====
Net interest margin ............ 2.38% 2.88% 3.29%
===== ==== ====
<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, 1994 or 1993.
</TABLE>
9
<PAGE>
Management's Discussion and Analysis (continued)
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 balances of
interest earning assets and interest bearing liabilities and due to changes in
average rates for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1995 versus 1994 1994 versus 1993
--------------------------------- -----------------------------------
Increase/(Decrease) Increase/(Decrease)
Due to Change in: 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 ........... $ 155 $ 325 $ 480 $ (1,285) $ 286 $ (999)
Mortgage loans held for sale ....... 4,232 1,551 5,783 (12,082) 38 (12,044)
Investment securities .............. (3,049) 2,076 (973) 12,140 1,165 13,305
Loans, net of unearned income (2) .. 9,589 2,499 12,088 2,129 (3,003) (874)
-------- -------- -------- -------- -------- --------
Total interest income ......... 10,927 6,451 17,378 902 (1,514) (612)
-------- -------- -------- -------- -------- --------
Interest expense:
Interest bearing demand deposits ... (583) (158) (741) 573 (124) 449
Savings deposits ................... (353) 818 465 243 876 1,119
Time deposits ...................... 5,087 5,726 10,813 (4,358) (1,234) (5,592)
-------- -------- -------- -------- -------- --------
Total interest bearing deposits 4,151 6,386 10,537 (3,542) (482) (4,024)
-------- -------- -------- -------- -------- --------
Warehousing lines of credit ........ 4,263 240 4,503 (4,125) 1,993 (2,132)
Other short-term borrowings ........ 36 2,955 2,991 6,370 185 6,555
FHLB advances ...................... (153) 347 194 815 (359) 456
Long-term debt ..................... 1,822 146 1,968 2,007 (131) 1,876
-------- -------- -------- -------- -------- --------
Total interest expense ........ 10,119 10,074 20,193 1,525 1,206 2,731
-------- -------- -------- -------- -------- --------
Net interest income ........... $ 808 $ (3,623) $ (2,815) $ (623) $ (2,720) $ (3,343)
======== ======== ======== ======== ======== ========
<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>
Non-Interest Income
Non-interest income decreased to $75.2 million in 1995, compared to $75.7
million in 1994. The largest component of non-interest income is mortgage
banking income, which is discussed previously in the mortgage banking section
of Management's Discussion and Analysis. Certain non-recurring items had a
impact on non-interest income for the Company in the previous year. In
December 1994, the Company completed the sale of its three northern Michigan
branch offices with total deposits of $43.7 million, resulting in a gain of
$4.0 million. In addition, during the fourth quarter of 1994 the Company sold
approximately $47.0 million of low yielding mortgage-backed securities,
resulting in a loss of $2.0 million and an overall loss on sale of securities
of $1.4 million for the year. During 1995, the Company's gain on sale of
securities was $1.1 million.
Non-Interest Expense
During 1995, non-interest expense decreased to $83.2 million, or 5.8% of
average assets, compared to $85.0 million, or 6.6% of average assets for 1994.
The decease in non-interest expense was due primarily to a reduction in
operating expenses other than salaries. These expenses decreased from $37.4
million in 1994 to $33.4 million in 1995, a decrease of 10.7%. This decrease
is largely attributable to decreases in mortgage loan closing costs, deposit
insurance premiums, and state taxes. Salaries and employee benefits increased
to $49.8 million in 1995, or 59.9% of non-interest expense, compared with
$47.6 million in 1994, or 56% of non-interest expense.
Non-interest expense decreased from $93.5 million in 1993, or 7.8% of
average assets, to $85.0 million, or 6.6% of average assets in 1994. The
decrease in non-interest expense was due primarily to a reduction in salaries
and employee benefits of $7.4 million, including commissions paid on
residential loan closings.
10<PAGE>
Management's Discussion and Analysis(continued)
Income Taxes
Federal income tax expense was $8.2 million in 1995, compared to $8.0 million
in 1994, and $12.3 million in 1993. The effective tax rate in 1995 was 36.4%,
compared with 33.9% in 1994, and 35.6% in 1993. The increase in 1995 is due to
a higher amount of non-deductible expenses.
The Company adopted Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting for Income Taxes," effective January 1, 1993. Included
in earnings for the year ended December 31, 1993 is a cumulative adjustment of
$950,000, or $.06 per share, relating to the adoption of SFAS 109.
Financial Condition
Assets
Total assets at December 31, 1995 were $1.47 billion, compared to $1.36
billion at December 31, 1994, an increase of 8%. The increase in assets during
1995 was due primarily to an increase in mortgage loans held for sale, which
increased by $271.2 million. This increase was funded by increased levels of
deposits and short-term borrowings, as well as net proceeds from sales of
securities. Average earning assets totaled $1.28 billion for 1995, compared
with $1.15 billion for 1994.
Loans
Total loans, excluding loans held for sale, at December 31, 1995 were $578.1
million. This represents a decrease of $27.0 million from the $605.1 million
reported at December 31, 1994. Residential real estate loans decreased $76.0
million to $381.8 million at December 31, 1995, from $457.8 million at
December 31, 1994, due primarily to sales or securitizations of adjustable and
fixed rate loans that were identified as having a higher level of prepayment
risk. The Company will continue its emphasis on originating fixed rate
residential real estate loans to be sold into the secondary market, and on
generating adjustable rate, real estate-secured portfolio loans. Commercial
loans, including commercial loans secured by real estate, increased from $97.9
million to $132.4 million, or 22.9% of total loans at December 31, 1995. The
increase of $34.5 million from 1994 was due to increased originations and SBA
and FMHA loan purchases of $6.6 million and $3.6 million, respectively.
Mortgage loans held for sale increased from $152.1 million at December
31, 1994 to $423.4 million at December 31, 1995. During 1995, the Company
closed $2.85 billion in residential real estate mortgage loans, a slight
increase over the $2.84 billion closed in 1994. The substantial majority of
all mortgage loans closed were committed for sale into the secondary market.
The Company attempts to minimize credit risk in its loan portfolio by
focusing primarily on residential real estate mortgages and real
estate-secured commercial loans. As of December 31, 1995, these loans comprise
84.7% of the total loan portfolio, excluding mortgage loans held for sale. The
Company's general policy is to originate conventional real estate mortgages
with loan to value ratios of 80% or less and SBA-secured loans or real
estate-secured commercial loans with loan to value ratios of 70% or less. The
substantial majority of the Company's loans are conventional mortgage loans
which are secured by residential properties and which comply with the
requirements for sale to or conversion to mortgage-backed securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal National
Mortgage Association ("FNMA"), or the 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 are
generally made at rates based on the prevailing prime interest rates of
Republic Bank and Republic Savings 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.
Installment loans increased by $14.5 million from 1994, due to an
increased emphasis on home equity loans and lines of credit. The Company has
not emphasized other installment loans and does not intend to emphasize these
loans in the future. To the extent made, these loans generally result from
accommodations to customers related to other banking activities. The Company
has insignificant amounts of agribusiness loans outstanding, and has no loans
to foreign debtors. The table on the following page summarizes the composition
of the Company's loan portfolio.
11
<PAGE>
Management's Discussion and Analysis (continued)
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------------- ---------------- --------------- --------------- --------------
Amount % Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ - ------ -
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans:
Secured by real
estate ........ $108,108 18.7% $ 81,922 13.5% $ 94,428 23.2% $147,790 28.1% $144,832 31.2%
Other (generally
secured) ...... 24,325 4.2 15,989 2.6 32,114 7.9 44,538 8.5 48,238 10.4
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total commercial
loans ......... 132,433 22.9 97,911 16.1 126,542 31.1 192,328 36.6 193,070 41.6
Residential loans:
Real estate
mortgages .. 381,803 66.0 457,755 75.7 229,203 56.3 286,502 54.4 224,478 48.3
Installment loans 63,876 11.1 49,423 8.2 51,372 12.6 47,563 9.0 46,955 10.1
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans ... $578,112 100.0% $605,089 100.0% $407,117 100.0% $526,393 100.0% $464,503 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
The following table sets forth information regarding the maturity and
sensitivity to interest rates of the Company's commercial loan portfolio.
<TABLE>
<CAPTION>
December 31, 1995
----------------------
(Dollars in thousands)
<S> <C>
Commercial Loan Maturity:
Due within one year........................... $ 31,681
One year through five years................... 70,874
After five years.............................. 29,878
---------
Total commercial loans..................... $ 132,433
=========
Commercial Loans Maturing After One Year:
With predetermined rates...................... $ 52,453
With floating rates........................... 48,299
---------
Total commercial loans..................... $ 100,752
=========
</TABLE>
The following table sets forth information regarding the geographic
distribution of the Company's loan portfolio as of December 31, 1995. As noted
below, the majority of loans have been originated in Michigan and Ohio.
<TABLE>
<CAPTION>
December 31, Percent of Total
1995 Outstanding
------------ ----------------
(Dollars in thousands)
<S> <C> <C>
Michigan................... $389,920 67.4%
Ohio....................... 129,540 22.4
Florida.................... 21,793 3.8
Other...................... 36,859 6.4
-------- -----
Total................... $578,112 100.0%
======== =====
</TABLE>
There are no loans outstanding which would be considered a concentration of
lending in any particular industry or group of industries.
Non-Performing Assets
Loans held in portfolio are reviewed on a regular basis and are placed in
non-accrual status when, in the opinion of management, reasonable doubt exists
as to the full, timely collection of interest or principal. Generally, loans
are placed in non-accrual status when either principal or interest is 90 days
or more past due. Furthermore, at the time such loans are placed in
non-accrual status, uncollected accrued interest is charged against current
income. At December 31, 1995 approximately $8.0 million, or 1.4% of the loans
in the Company's portfolio were 30-89 days delinquent.
12
<PAGE>
Management's Discussion and Analysis (continued)
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. When such property is acquired, it is recorded at the
lower of the unpaid principal balance of the related loan or its net
realizable value. Any further write down of the property is charged to
expense. 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>
December 31,
-------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans past due 90 days or more and still
accruing interest:
Commercial ........................... $ 209 $ 104 $ 217 -- --
Residential real estate mortgages .... 42 -- -- $ 90 --
Installment .......................... 94 35 93 31 $ 3
------ ------ ------ ------ ------
Total .............................. $ 345 $ 139 $ 310 $ 121 $ 3
====== ====== ====== ====== ======
Non-accrual loans:
Commercial ........................... $ 500 $ 982 $1,812 $1,386 $3,332
Residential real estate mortgages .... 661 1,304 803 1,085 1,223
Installment .......................... 131 79 108 82 163
------ ------ ------ ------ ------
Total ............................. 1,292 2,365 2,723 2,553 4,718
Restructured loans ................... 688 1,130 2,140 2,140 2,181
Other real estate owned .............. 980 586 405 3,117 2,078
------ ------ ------ ------ ------
Total non-performing assets ....... $2,960 $4,081 $5,268 $7,810 $8,977
====== ====== ====== ====== ======
Non-performing assets as a percentage of:
Portfolio loans and OREO (1) ......... .51% .67% 1.29% 1.47% 1.92%
Total loans and OREO (2) ............. .30 .54 .58 1.01 1.68
Total assets ......................... .20 .30 .45 .69 1.07
<FN>
(1) Excluding loans held for sale.
(2) Including loans held for sale.
</TABLE>
Gross interest income that would have been recorded in 1995 for loans
that were classified as non-accrual on December 31, 1995, assuming they had
been accruing interest throughout the year in accordance with their original
terms, was approximately $135,000. The amount of interest collected on these
loans and included in income for 1995 was approximately $44,000. Therefore, on
a net basis, total income foregone in 1995 due to these loans was
approximately $91,000. Furthermore, gross interest income that would have been
recorded on restructured loans throughout the year, in accordance with their
original terms, was $67,000, versus $38,000, the amount actually collected
under the new loan terms, resulting in lost interest of approximately $29,000.
The Company also maintains a watch list for loans identified as
requiring a higher level of monitoring by management. These are loans which,
because of one or more characteristics, such as economic conditions, industry
trends, nature of collateral, collateral margin or other factors, require more
than normal monitoring by the Company. As of December 31, 1995, total loans on
the watch list of the Company were $6.7 million, or 1.16% of total portfolio
loans, compared to $9.2 million, or 1.52% of the total loan portfolio at
December 31, 1994.
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 loan 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 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 December 31, 1995, the allowance for estimated loan losses
was $5.0 million, or .87% of total loans, excluding mortgage loans held
13<PAGE>
Management's Discussion and Analysis (continued)
for sale, compared with $5.5 million, or .92%, as of December 31, 1994, and
$7.2 million, or 1.77% as of December 31, 1993. The provision for loan losses
for the years ended December 31, 1995, 1994, and 1993 was $24,000, $94,000 and
$603,000, respectively.
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>
Year Ended December 31,
------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for estimated loan losses:
Balance at beginning of period .................... $ 5,544 $ 7,214 $ 7,684 $ 5,410 $ 4,426
Loan charge-offs ............................ (845) (1,705) (762) (2,079) (1,350)
Recoveries of loans previously charged off .. 279 291 279 386 199
------- ------- ------- ------- -------
Net charge-offs ................................... (566) (1,414) (483) (1,693) (1,151)
------- ------- ------- ------- -------
Provision charged to expense ...................... 24 94 603 3,967 2,135
Reduction due to sale of commercial loans ......... -- (350) (590) -- --
------- ------- ------- ------- -------
Balance at end of period .......................... $ 5,002 $ 5,544 $ 7,214 $ 7,684 $ 5,410
======= ======= ======= ======= =======
Analysis of charge-offs and recoveries:
Charge-offs:
Commercial loans ............................ $ 661 $ 1,521 $ 612 $ 1,778 $ 860
Residential real estate mortgage loans ...... 34 70 49 69 291
Installment loans ........................... 150 114 101 232 199
------- ------- ------- ------- -------
Total charge-offs ........................... 845 1,705 762 2,079 1,350
------- ------- ------- ------- -------
Recoveries:
Commercial loans ............................ 189 219 170 262 81
Residential real estate mortgage loans ...... 47 -- 36 4 39
Installment loans ........................... 43 72 73 120 79
------- ------- ------- ------- -------
Total recoveries ............................ 279 291 279 386 199
------- ------- ------- ------- -------
Net charge-offs ................................... $ 566 $ 1,414 $ 483 $ 1,693 $ 1,151
======= ======= ======= ======= =======
Net charge-offs as a percentage of
average portfolio loans
outstanding ................................. .09% .29% .10% .34% .25%
Allowance for estimated loan
losses at end of year
as a percentage of portfolio
loans outstanding ........................... .87 .92 1.77 1.46 1.16
Allowance for estimated loan
losses at end of year
as a percentage of non-performing loans ..... 252.64 158.61 148.34 163.73 78.41
</TABLE>
The following table summarizes the allocation of the loan loss reserve by loan
type. The entire loan loss reserve is available for use against any loan
charge-offs:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in thousands)
% of % of % of % of % of
related related related related related
loans loans loans loans loans
Dollar to total Dollar to total Dollar to total Dollar to total Dollar to total
Amount loans Amount loans Amount loans Amount loans Amount loans
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans ........ $1,522 23% $2,221 16% $3,382 31% $4,738 37% $3,454 42%
Residential real estate
mortgage loans ........ 971 66 598 76 1,298 56 906 54 508 48
Installment loans ....... 212 11 501 8 559 13 481 9 513 10
Unallocated ............. 2,297 -- 2,224 -- 1,975 -- 1,559 -- 935 --
------ --- ------ --- ------ --- ------ --- ------ ---
Total allowance for
estimated loan losses $5,002 100% $5,544 100% $7,214 100% $7,684 100% $5,410 100%
====== === ====== === ====== === ====== === ====== ===
</TABLE>
14
<PAGE>
Management's Discussion and Analysis (Continued)
Investment Securities
The investment securities portfolio serves as a source of earnings with
relatively minimal principal risk. As a result, the Company's portfolio
includes a large portion of U.S. Treasury and Government agency obligations,
obligations collateralized by U.S. Government agencies, primarily in the form
of collateralized mortgage obligations and mortgage-backed securities, and
obligations of state and political subdivisions. With the exception of
municipal obligations, the maturity structure of the portfolio is generally
short-term (with estimated average maturities of 0.2 to 4.2 years) or at
variable rates. The investment securities portfolio constituted 21.6% of the
Company's assets at December 31, 1995. The held-to-maturity investment
securities portfolios at December 31, 1994 and 1993, constituted 19.8% and
9.2%, respectively, of the Company's assets, while the available-for-sale and
held-for-sale investment securities portfolios constituted 14.4% and 4.4%
respectively. In order to more effectively respond to liquidity needs,
primarily related to funding the substantial increase in mortgage loans held
for sale, the Company reclassified the entire held-to-maturity investment
portfolio to available-for-sale at June 30, 1995, and sold $143.4 million of
U.S. Treasury and U.S. Government agency obligations in July, 1995. As such,
all investment securities are now reported in the balance sheet at their
estimated fair value. The following schedule sets forth the amortized cost of
the held-to-maturity, available-for-sale and held-for sale investment
portfolios at December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
1995 1994 1993
----------------------- ------------------------ -----------------------
Held-To Available Held-To Available Held-To Held-For
Maturity For-Sale Maturity For-Sale Maturity Sale
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury ........................ $ -- $ 32,456 $ 81,395 -- $ 3,121 --
U.S. Government agency obligations ... -- 39,298 70,106 $ 3,708 9,637 --
Collateralized mortgage obligations .. -- 86,481 104,667 4,811 21,026 $ 9,002
Mortgage-backed securities ........... -- 118,681 12,436 176,798 68,145 42,042
Municipal and other securities ....... -- 23,292 1,097 -- 2,084 --
Equity securities .................... -- 19,657 -- 19,297 3,385 --
------ -------- -------- -------- -------- -------
Total securities ............... $ -- $319,865 $269,701 $204,614 $107,398 $51,044
====== ======== ======== ======== ======== =======
</TABLE>
The maturity distribution and average yields, on a fully taxable equivalent
basis, of the major components of the investment securities portfolio at
December 31, 1995 are shown below:
<TABLE>
<CAPTION>
U.S. Treasury Collateralized Mortgage- Municipal
and Agency Mortgage Backed and Other Equity
Obligations Obligations(2)(3) Securities(2)(3) Securities (1) Securities
-------------- ---------------- ---------------- -------------- ---------------
Book Avg. Book Avg. Book Avg. Book Avg. Book Avg.
Value Yield Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maturities:
Due within one year $32,456 5.50% -- -- $ 923 8.50% $ 240 8.63% $19,657 6.38%
One to five years . 2,503 4.59 -- -- 3,256 5.34 120 9.95 -- --
Five to ten years . 424 6.47 $ 8,081 6.26% 6,878 6.08 156 9.24 -- --
After ten years ... 36,371 8.01 78,400 5.88 107,624 6.60 22,776 7.52 -- --
------- ---- ------- ---- -------- ---- ------- ---- ------- ----
$71,754 6.75% $86,481 5.91% $118,681 6.55% $23,292 7.56% $19,657 6.38%
======= ==== ======= ==== ======== ==== ======= ==== ======= ====
<FN>
(1) Average yields on tax-exempt obligations have been computed on a tax
equivalent basis, based on a 35% federal tax rate.
(2) Collateral guaranteed by U.S. Government agencies.
(3) All maturities beyond ten years are at variable rates or have estimated
average lives of less than 4.2 years. The average yield presented is the
current yield on these securities.
</TABLE>
Liabilities
Deposits
The Company's primary funding sources are non-interest bearing and interest
bearing deposits. Interest bearing deposits increased 10.0% to $778.3 million
in 1995, from $707.3 million in 1994. Non-interest bearing deposits increased
$15.0 million to $126.4 million at December 31, 1995 from $111.4 million at
December 31, 1994. The increase in non-interest bearing deposits was primarily
due to a increase in official checks outstanding of $6.9 million.
15
<PAGE>
Management's Discussion and Analysis (continued)
The following table sets forth the average deposits of the Company for the
years indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------- ------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Non-interest bearing $ 128,640 -- $ 121,594 -- $ 127,562 --
Interest bearing ... 63,516 2.45% 86,965 2.64% 65,392 2.82%
Savings Deposits ......... 177,978 3.75 188,267 3.30 179,988 2.83
Time deposits ............ 517,663 5.90 420,995 4.69 512,666 4.94
----------- ----------- -----------
Total .............. $ 887,797 $ 817,821 $ 885,608
=========== =========== ===========
</TABLE>
The maturity distribution of time deposits of $100,000 or more is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Three months or less.............. $ 50,829 $111,707 $28,446
Four through six months........... 52,282 24,133 21,257
Seven through twelve months....... 32,353 17,337 22,466
Over twelve months................ 24,813 16,773 19,825
-------- -------- -------
Total....................... $160,277 $169,950 $91,994
======== ======== =======
</TABLE>
Approximately $19.5 million of time deposits of $100,000 or more at December
31, 1995, were from brokers with the remaining being originated primarily in
the Republic Bank and Republic Savings local markets.
Federal Funds Purchased and Reverse Repurchase Agreements
As of December 31, 1995, the Company had federal funds purchased of $16.0
million that had a weighted average interest rate of 6.00% and matured January
2, 1996. The Company also had $118.2 million of reverse repurchase agreements
at an average rate of 6.10%. Such agreements are secured by certain securities
with a carrying value of $121 million, with $87.5 million of the reverse
repurchase agreements maturing during the first six months of 1996, and $20.7
million maturing during the final six months of 1996. The remaining $10.0
million of the reverse repurchase agreements mature in June 1997. The proceeds
from both the federal funds purchased and the reverse repurchase agreements
were used to fund mortgage loans held for sale.
Short-Term Borrowings
Market Street has a $75 million warehousing line of credit agreement with
Residential Funding Corporation used for the purpose of funding the
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 in August 1996. Interest, which is payable monthly, is calculated at a
rate equal to 1.50% above the monthly average LIBOR rate. Due to the increased
mortgage loan origination volume, borrowings under Market Street's warehousing
line of credit increased to $53.8 million at December 31, 1995, from $22.8
million at December 31, 1994. During 1995, the average borrowings and interest
rate on this line were $39.0 million and 7.53%, respectively.
Republic Mortgage has a $25 million warehousing line of credit with NBD
Bank, N.A. used to fund the acquisition or origination of mortgage loans by
Republic Mortgage. The line of credit, which is payable on demand is secured
by various real estate mortgage loans and expires in July, 1996. 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. At December 31, 1995, borrowings under this warehousing line of
credit were $21.1 million. During 1995, the average borrowings and interest
rate on this line were $11.9 million and 7.09%, respectively. No borrowings
under this line were outstanding at December 31, 1994.
During 1995, Republic Mortgage entered into a revolving repurchase
agreement with Paine Webber, Inc., as a source of funding for mortgage loan
originations. Security for the agreement includes various real estate mortgage
notes, and expires at the option of either party. Interest is calculated at
LIBOR plus .90%. Borrowings under this
16
<PAGE>
Management's Discussion and Analysis (continued)
agreement at December 31, 1995, were $1.9 million. The average borrowings and
interest rate paid on this agreement for 1995 were $2.6 million and 6.77%,
respectively.
CUB Funding has a $16 million warehousing line of credit agreement with
Prudential Home Mortgage Company used for the purpose of funding the purchase
or origination of mortgage loans by CUB Funding. The line of credit, which is
payable on demand, is secured by various real estate mortgage loans and
expires in May 1996. Interest, which is payable monthly, is computed based on
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
warehousing line of credit at December 31, 1995 totaled $13.9 million. During
1995, the average borrowings and interest rate on this line were $12.4 million
and 7.22%, respectively.
During 1995, CUB Funding also entered into a revolving 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 December 31, 1995, were $25.9 million. During 1995, the
average borrowing and interest rate paid for this agreement were $23.3 million
and 7.08%, respectively..
During 1995, CUB Funding entered into a $4 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 December 31, 1995, $4.0 million
was outstanding under this line of credit, at a borrowing rate of 8.60%. The
line of credit expires May, 1996.
In May, 1995, Market Street 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. At December 31, 1995, no amounts were outstanding under
this revolving line of credit, which expires in August, 1996.
The Company has an $18 million Revolving Credit Agreement with Firstar
Bank Milwaukee, N.A. with loan proceeds being utilized for working capital
purposes. The credit facility is secured by the common and preferred stock of
Republic Bank and expires in January 1997. The agreement provides for
borrowings with interest at the prime rate less .50% or LIBOR rate plus 1.40%.
At December 31, 1995, $8.1 million was outstanding under this credit
agreement. During 1995, the average borrowings and interest rate paid for the
credit agreement were $10.2 million and 8.54%, respectively. At December 31,
1994, no amounts were outstanding under this credit agreement.
FHLB Advances
Republic Savings has six outstanding advances with the Federal Home Loan Bank
("FHLB"); a $14.5 million advance with a fixed interest rate of 5.90%,
maturing in February 1996, a $5 million advance with a fixed interest rate of
5.75%, maturing in March 1996, a $10 million advance with a fixed interest
rate of 7.15%, maturing in February 1997, a $5 million advance with a fixed
interest rate of 6.0%, maturing in June 1997, and two $5 million advances with
floating interest rates flat to the three month LIBOR index and adjusting
quarterly, maturing in June and September 2000, respectively. The interest
rate on these advances was 5.87% at December 31, 1995. Republic Bank has
outstanding three FHLB advances; a $15 million advance with a fixed interest
rate of 5.67%, maturing in October 1996, a $10 million advance with a fixed
rate of 5.56%, maturing in November 1996, and a $11 million advance with a
fixed interest rate of 5.79%, maturing in July 1997. These advances are
generally secured by first mortgage loans equal to at least 150% of the
advances under a blanket security agreement or 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.
Borrowings under the line are secured by first mortgages. As a result of
Republic Savings' other secured borrowings, $3 million was available to be
borrowed under this line; however, no amounts were outstanding under this line
at December 31, 1995.
Long-Term Debt
During January 1996, the Company completed a private offering of $22.5 million
principal amount of 6.87% Senior Debentures with $9.0 million and $13.5
million maturing in January 2001 and 2003, respectively. Interest on the notes
is payable semi-annually. Proceeds from the offering were used to redeem the
Company's $17.25 million of 9% Subordinated Notes on February 28, 1996 at par,
with the remaining proceeds to be used for general corporate purposes,
including possible future acquisitions.
In May, 1995, Market Street entered into a $26 million term loan
agreement with Residential Funding
17
<PAGE>
Management's Discussion and Analysis (continued)
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 are 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 term loan agreement at December 31, 1995 were $8.3 million at an interest
rate of 9.50%. As of December 31, 1995, $415,000 of the total $8.3 million
outstanding is classified as short-term borrowings.
During March 1994, the Company completed a private offering of $25.0
million principal amount of 7.17% Senior Debentures which mature April 1,
2001. Interest on the notes is payable semiannually at 7.17%. The net proceeds
were used to fund the purchase of mortgage servicing rights and expand the
Company's mortgage banking network.
During September 1993, Republic Mortgage financed the acquisition of its
new corporate office with a mortgage loan in the amount of $2.1 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
December 31, 1995, $91,000 of the total $1.8 million outstanding is classified
as short-term borrowings.
During January 1993, the Company completed a public offering of $17.25
million of 9% Subordinated Notes which mature in 2003. The Subordinated Notes
qualify as Tier 2 capital for the calculation of Total Risk-Based capital
under Federal Reserve Board guidelines. These notes were redeemed at par on
February 28, 1996.
Capital Resources
Total shareholders' equity at December 31, 1995 was $126.4 million compared to
$117.9 million at December 31, 1994, and $111.4 million at December 31, 1993.
The increase of $8.5 million in 1995 was due primarily to earnings, net of
dividends and repurchased shares, and the decrease in the market value
adjustment for securities available-for-sale. The increase of $6.5 million in
1994 was due primarily to earnings, net of dividends and the market value
adjustment for securities available-for-sale.
The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies. At December 31, 1992 the minimum guidelines for the
ratio of Total capital to risk-weighted assets (including certain
off-balance-sheet activities, such as standby letters of credit) became 8%.
The Federal Reserve capital guidelines require at least 50% of the Total
capital to be composed of Tier 1 capital; i.e., common shareholders' equity,
minority interests in the equity accounts of consolidated subsidiaries and a
limited amount of perpetual preferred stock, less goodwill and certain other
intangibles. The remainder of Total capital, called Tier 2 capital may consist
of certain subordinated debt, other preferred stock and a limited amount of
loan loss reserves. Tier 2 capital is subject to an aggregate maximum amount
equal to 100% of Tier 1 capital. At December 31, 1995, the Company's Tier 1
and Total capital ratios were 15.72% and 18.63%, respectively. These ratios
exceed minimum guidelines prescribed by regulatory agencies. As of December
31, 1995, Total qualifying capital for the risk-based capital ratio was $142.4
million, an excess of $81.3 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. The Tier 1 Leverage ratio is
calculated by dividing Tier 1 capital by average total consolidated assets
minus goodwill and certain other intangibles. The guidelines establish a
minimum Tier 1 Leverage ratio of 3% for bank holding companies that meet
certain specified criteria. All other bank holding companies will generally be
required to maintain a minimum Tier 1 Leverage ratio of 3% plus an additional
cushion of 100 to 200 basis points. The guidelines also provide that bank
holding companies experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the guidelines indicated that the Federal Reserve Board will
continue to consider a "tangible Tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activities. The
Federal Reserve Board has not advised the Company of any specific minimum Tier
1 Leverage ratio applicable to it. The Company's Tier 1 Leverage ratio at
December 31, 1995 was 8.31%.
The following table sets forth the Total risk-based capital ratio, the Tier 1
to risk-based capital ratio, and the Tier 1 Leverage ratios for the Company.
<TABLE>
<CAPTION>
At December 31,
-------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Total risk-based capital ratio........ 18.63% 21.05% 20.19%
Tier 1 to risk-based capital ratio.... 15.72 17.57 16.35
Tier 1 Leverage ratio................. 8.31 8.43 8.43
</TABLE>
18
<PAGE>
Management's Discussion and Analysis (continued)
The Company is committed to maintaining a strong capital position at Republic
Bank and Republic Savings. As of December 31, 1995, the Total risk-based
capital ratio, and Tier 1 to risk-based capital ratio for Republic Bank and
Republic Savings were in excess of 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 guidelines on an
ongoing basis.
Interest Rate Sensitivity and Liquidity
Asset/Liability Management. The primary objective of interest rate management
is to maintain an appropriate balance between the stability of net interest
income and the risks associated with significant changes in market interest
rates. Interest rate risk arises when assets and liabilities reprice, or
mature, at different times. If more assets than liabilities reprice in a given
period (an asset sensitive position or "positive gap"), market interest rate
changes will be reflected more quickly in asset rates and increases in
interest rates will generally benefit net interest income. Alternatively,
where liabilities reprice more quickly than assets in a given period (a
liability sensitive position or "negative gap"), an increase in market rates
will generally have an adverse impact on net interest income. The Company's
current policy is to maintain a mix of asset and liability maturities that
permits a moderate amount of short-term interest rate risk based on current
interest rate projections, customer credit demands and deposit preferences.
Management believes that this policy reduces the vulnerability to large shifts
in market interest rates while allowing the Company to take advantage of
fluctuations in current short-term rates. The interest rate sensitivity table
below presents the repricing structure of the Company's balance sheet as of
December 31, 1995.
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------------------------
Within 4 Months Total Within 1 to 5 Years
3 Months to 1 Year One Year 5 Years or Over Total
-------- --------- ----------- ------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets:
Other cash investments.......................... $ 3,381 -- $ 3,381 -- -- $ 3,381
Mortgage loans held for sale.................... 423,364 -- 423,364 -- -- 423,364
Investment securities........................... 170,912 $ 35,727 206,639 $ 45,618 $ 65,512 317,769
Loans........................................... 154,994 134,241 289,235 222,590 66,287 578,112
-------- --------- -------- -------- -------- ----------
Total rate sensitive assets............... 752,651 169,968 922,619 268,208 131,799 1,322,626
-------- --------- -------- -------- -------- ----------
Rate Sensitive Liabilities:
Interest bearing deposits:
Demand deposits........................... -- 32,916 32,916 21,943 -- 54,859
Savings deposits.......................... -- 59,585 59,585 127,499 -- 187,084
Certificates of deposit:
Under $100,000............................ 66,037 210,959 276,996 98,571 515 376,082
Over $100,000............................. 50,829 84,635 135,464 24,813 -- 160,277
-------- --------- -------- -------- -------- ----------
Total interest bearing deposits........... 116,866 388,095 504,961 272,826 515 778,302
-------- --------- -------- -------- -------- ----------
Short-term borrowings (1)....................... 225,096 -- 225,096 38,355 -- 263,451
FHLB advances................................... 19,500 25,000 44,500 36,000 -- 80,500
Long-term debt.................................. 7,814 73 7,887 1,791 42,250 51,928
-------- --------- -------- -------- -------- ----------
Total rate sensitive liabilities.......... 369,276 413,168 782,444 348,972 42,765 1,174,181
-------- ---------- -------- -------- -------- ----------
Interest rate sensitivity gap (2)............... $383,375 $(243,200) $140,175 $(80,764) $ 89,034 $ 148,445
======== ========= ======== ======== ======== ==========
Interest rate sensitivity gap as percentage
of total rate sensitive assets............ 28.99% (18.39)% 10.60% (6.11)% 6.73% 11.22%
======== ========= ======== ========= ======== ==========
<FN>
(1) Includes warehousing lines of credit, federal funds purchased, reverse
repurchase agreements, and the current portion of long-term debt.
(2) Interest rate sensitivity gap is the difference between interest rate
sensitive assets and interest rate sensitive liabilities within the above
time frames.
</TABLE>
This table incorporates a number of estimation techniques and
assumptions and represents only a one day position at the date presented. It
shows the interval of time in which given volumes of interest earning assets
and interest bearing liabilities will be responsive to changes in market
interest rates. The Company adjusts its interest rate sensitivity throughout
the year. As a result, there may be considerable day-to-day variations in the
interest rate sensitivity gap. The table indicates that as of December 31,
1995, the Company was in a position to benefit in the next
19
<PAGE>
Management's Discussion and Analysis (continued)
year from increasing short-term interest rates. Interest margins would widen
because assets would reprice more quickly than liabilities. Of those assets
identified as interest sensitive within 3 months, the largest category is
mortgage loans held for sale, which are primarily fixed rate loans and
generally held by the Company less than 60 days, as outstanding commitments
are generally obtained to sell the loans to investors prior to the loan
closing. Therefore, the Company can earn long-term interest rates on
short-term assets while reducing interest rate risk. Additionally, $289.2
million of total portfolio loans reprice within one year, of which
approximately 75% are adjustable rate mortgages and have maximum adjustments,
or caps, of 2% in one year and 6% over their terms. These loans, therefore,
are not totally interest sensitive in that a significant change in interest
rates would only be reflected up to the maximum of the rate cap in any one
year. Consistent with its strategy of managing interest rate risk, the Company
typically securitizes and sells all short-term and long-term fixed rate
mortgages and retains a portion of variable rate mortgages.
Liquidity Management. The objectives of liquidity management are to
provide funds at an acceptable cost to meet mortgage and commercial loan
demand, deposit withdrawals and service other liabilities as they become due,
as well as to capitalize on opportunities for business expansion. Asset
liquidity sources consist of cash and due from banks, mortgage loans held for
sale, repayments and maturities of portfolio loans, money market investments,
and investment securities. Also, liquidity is generated from liabilities
through deposit growth, the maturity structure of time deposits and the
accessibility to market sources of funds through warehousing lines of credit,
FHLB advances, federal funds purchased, reverse repurchase agreements, and
brokered certificates of deposit.
At December 31, 1995, Republic Bank had available $35.9 million in
unused lines for federal funds borrowing. Additionally, Republic Savings had
available $50.0 million in unused borrowings on its line of credit with the
FHLB. The mortgage companies had unused capacity of $31.2 million on
warehousing lines of credit to fund mortgage loan origination volume. The
Company has $9.9 million available on its $18 million revolving line of credit
with Firstar Bank Milwaukee, N.A. for borrowings to be used for general
corporate purposes.
Republic is a legal entity separate and distinct from its subsidiaries.
A portion of Republic's revenues result from dividends paid to it by its
subsidiaries as well as earnings on investments. There are statutory and
regulatory requirements applicable to the payment of dividends by Republic
Bank and Republic Savings as well as by Republic to its shareholders. Such
restrictions have not had, and are not expected to have, a material effect on
the Company's ability to meet its cash obligations.
Impact of Interest Rate Fluctuations and Inflation
Unlike most industrial companies, substantially all the assets and liabilities
of a financial institution are monetary in nature. As a result, interest rate
fluctuations generally have a more significant and direct impact on a
financial institution's performance than do the effects of inflation. To the
extent inflation affects interest rates, real estate values and other costs,
the Company's lending activities are impacted. Significant increases in
interest rates make it more difficult for potential borrowers to purchase
residential property and to qualify for mortgage loans. As a result, the
volume and related income on loan originations may be reduced. Significant
decreases in interest rates result in higher loan prepayment activity although
such conditions may enable potential borrowers to qualify for a relatively
higher mortgage loan balance.
Accounting and Reporting Developments
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of, effective for fiscal years beginning after December 15,
1995. This statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable tangibles to be disposed of. The statement requires that
long-lived assets for certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In addition, the statement requires that certain long-lived
assets and intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell. The Company will adopt this accounting
standard effective January 1, 1996 and does not expect its adoption to have a
material effect on the financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
Republic Bancorp Inc. and Subsidiaries
December 31,
------------------------
Consolidated Balance Sheets 1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Assets:
Cash and due from banks (Note 3) ............................................ $ 36,260 $ 22,518
Other cash investments ...................................................... 3,381 779
---------- ----------
Cash and cash equivalents ................................................... 39,641 23,297
Mortgage loans held for sale ................................................ 423,364 152,138
Securities (Note 5):
Held-to-maturity (aggregate market value of approximately
$254,996) .......................................................... -- 269,701
Available-for-sale (amortized cost of approximately
$319,865, 1995 and $204,614, 1994) ................................. 317,769 196,502
Loans (Note 6) .............................................................. 578,112 605,089
Less allowance for estimated loan losses (Note 7) ..................... 5,002 5,544
---------- ----------
Net loans ................................................................... 573,110 599,545
Premises and equipment, net (Note 8) ........................................ 14,724 15,484
Mortgage servicing rights (Note 4) .......................................... 58,265 57,183
Other assets ................................................................ 45,817 49,764
---------- ----------
Total assets .......................................................... $1,472,690 $1,363,614
========== ==========
Liabilities:
Deposits:
Non-interest bearing .................................................. $ 126,427 $ 111,425
Interest bearing ...................................................... 778,302 707,317
---------- ----------
Total deposits ..................................................... 904,729 818,742
Federal funds purchased and reverse repurchase agreements (Note 9) .......... 134,237 217,124
Short-term borrowings (Note 9) .............................................. 129,214 39,822
FHLB advances (Note 10) ..................................................... 80,500 69,950
Accrued and other liabilities ............................................... 44,806 43,077
Long-term debt (Note 11) .................................................... 51,928 56,379
---------- ----------
Total Liabilities ..................................................... 1,345,414 1,245,094
Minority interest ........................................................... 900 606
---------- ----------
Commitment and contingencies (Notes 18 and 20)
Shareholders' Equity (Notes 13, 14 and 22):
Preferred stock, $25 stated value; $2.25 cumulative and convertible;
5,000,000 shares authorized, none issued and outstanding .............. -- --
Common stock, $5 par value; 20,000,000 shares authorized; 16,477,981 and
15,246,134 shares issued and outstanding in 1995 and 1994, respectively 82,390 76,231
Capital surplus ............................................................. 43,177 35,636
Market value adjustment for securities available-for-sale, net .............. (1,363) (5,273)
Retained earnings ........................................................... 2,172 11,320
---------- ----------
Total shareholders' equity ............................................ 126,376 117,914
---------- ----------
Total liabilities and shareholders' equity ......................... $1,472,690 $1,363,614
========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Income Year Ended December 31,
------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Interest Income:
Loans, including fees ........................................... $71,488 $ 53,617 $ 66,535
Securities;
Held-to-maturity .......................................... 8,084 12,878 8,556
Available-for-sale ........................................ 15,071 11,250 --
Held-for-sale ............................................. -- -- 2,267
Money market investments:
Federal funds sold ........................................ 573 277 1,282
Other ..................................................... 381 197 191
------- -------- --------
Total interest income ..................................... 95,597 78,219 78,831
------- -------- --------
Interest Expense:
Demand deposits ................................................. 1,554 2,295 1,846
Savings and time deposits ....................................... 37,244 25,966 30,439
Short-term borrowings ........................................... 18,396 10,902 6,479
FHLB advances ................................................... 2,431 2,237 1,781
Long-term debt .................................................. 5,567 3,599 1,723
------- -------- --------
Total interest expense .................................... 65,192 44,999 42,268
------- -------- --------
Net interest income ............................................. 30,405 33,220 36,563
Provision for loan losses (Note 7) .............................. 24 94 603
------- -------- --------
Net interest income after provision for loan losses ............. 30,381 33,126 35,960
------- -------- --------
Non-Interest Income:
Service charges ................................................. 1,297 1,337 1,431
Mortgage banking ................................................ 70,960 69,899 85,128
Gain/(loss) on sale of securities ............................... 1,061 (1,392) 2,014
Gain on sale of commercial loans ................................ 873 1,135 2,224
Gain on sale of bank branches ................................... -- 4,034 --
Other ........................................................... 1,010 648 1,323
------- -------- --------
Total non-interest income ................................. 75,201 75,661 92,120
------- -------- --------
Non-Interest Expense:
Salaries and employee benefits .................................. 49,791 47,586 55,028
Occupancy expense of premises ................................... 5,274 5,807 4,540
Equipment expense ............................................... 4,395 4,090 3,133
Other (Note 16) ................................................. 23,042 27,538 30,453
Minority interest ............................................... 650 - 385
------- -------- --------
Total non-interest expense ................................ 83,152 85,021 93,539
------- -------- --------
Income before income taxes ...................................... 22,430 23,766 34,541
Provision for income taxes (Note 12) ............................ 8,166 8,047 12,308
------- -------- --------
Net income before cumulative effect of change in accounting
principle .................................................... 14,264 15,719 22,233
Cumulative effect of change in accounting principle (Note 12) ... -- -- (950)
------- -------- --------
Net Income ...................................................... $14,264 $ 15,719 $ 23,183
======= ======== ========
Net Income Per Common Share (Note 14):
Income before cumulative effect of change in accounting
principle .................................................... $ 0.84 $ 0.91 $ 1.31
Cumulative effect of change in accounting principle ............. -- -- 0.06
------- -------- --------
Net income per common share, primary ............................ 0.84 0.91 1.37
Net income per common share, fully diluted ...................... 0.84 0.91 1.37
<FN>
See notes to consolidated financial statements
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity Market
Valuation
Number Adjustment Total
of for Securities Share-
Common Common Capital Available- Retained holders'
Shares Stock Surplus For-Sale Earnings Equity
------ ------ ------- -------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1993 ................... 11,738 $58,692 $12,962 -- $ 12,552 $ 84,206
Net income .............................. 23,183 23,183
Cash dividends declared on
common shares ($.18 per share) ....... (2,746) (2,746)
Amortization of restricted stock ........ 119 119
Awards of common shares under
Restricted Stock Plan ................ (328) (328)
10% common share dividend ............... 1,219 6,093 11,423 (17,524) (8)
Issuance of common shares:
Through exercise of stock options .... 752 3,757 757 4,514
Through exercise of stock warrants ... 39 197 38 235
Tax benefit relating to
exercise of stock options ............ 2,258 2,258
------ ------- ------- ------- -------- --------
Balances at December 31, 1993 ................. 13,748 $68,739 $27,229 -- $ 15,465 $111,433
Net income .............................. 15,719 15,719
Cash dividends declared on common
shares ($.27 per share) .............. (4,542) (4,542)
Amortization of restricted stock ........ 109 109
10% common share dividend ............... 1,392 6,961 8,353 (15,322) (8)
Issuance of common shares:
Through exercise of stock options .... 104 522 130 652
Through exercise of stock warrants ... 82 409 10 419
Tax benefit relating to exercise
of stock options ..................... 243 243
Adjustment to beginning balance for
change in accounting method for
securities available-for-sale, net of
income taxes of $453 ................. $ 840 840
Change in market valuation for
securities available-for-sale, net of
income tax benefit of $3,292 ......... (6,113) (6,113)
Repurchase of common shares ............. (80) (400) (438) -- (838)
------ ------- ------- ------- -------- --------
Balances at December 31, 1994 ................. 15,246 $76,231 $35,636 $(5,273) $ 11,320 $117,914
Net Income .............................. 14,264 14,264
Cash dividends declared on common
shares ($.34 per share) .............. (5,536) (5,536)
Awards of common shares under
Restricted Stock Plan ................ (1,318) (1,318)
Amortization of restricted stock ........ 672 672
10% Common share dividend ............... 1,504 7,521 10,342 (17,876) (13)
Issuance of common shares:
Through exercise of stock options .... 177 885 241 1,126
Through exercise of stock warrants ... 12 58 11 69
Tax benefit relating to exercise of stock
options ............................. 405 405
Change in market valuation for securities
available-for-sale, net of income tax
of $2,105 ............................ 3,910 3,910
Repurchase of common shares ................... (461) (2,305) (2,812) (5,117)
------ ------- ------- ------- ------- --------
Balances at December 31, 1995 ................. 16,478 $82,390 $43,177 $(1,363) $ 2,172 $126,376
====== ======= ======= ======= ======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Cash Flows Year Ended December 31,
---------------------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income........................................................... $ 14,264 $ 15,719 $ 23,183
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation and amortization.................................. 5,521 5,107 4,236
Amortization of mortgage servicing rights...................... 6,999 5,008 4,607
Decrease in net deferred income taxes.......................... 3,039 1,039 317
Gain on sale of mortgage servicing rights...................... (25,279) (32,438) (13,336)
Gain on sale of securities held-for-sale....................... -- -- (2,014)
(Gain)/loss on sale of securities available-for-sale........... (1,061) 1,392 --
Gain on sale of loans.......................................... (3,037) (2,793) (3,869)
Gain on sale of bank branches.................................. -- (4,034) --
(Increase)/decrease in other assets............................ 98 (13,935) (5,953)
Increase/(decrease) in other liabilities....................... 1,729 (4,616) 1,016
Proceeds from sale of mortgage loans held for sale............ 2,408,751 3,002,993 4,578,910
Origination of mortgage loans held for sale.................... (2,695,917) (2,640,165) (4,841,731)
Other, Net..................................................... (5,077) (2,939) (3,193)
----------- ----------- -----------
Total adjustments.................................................... (304,234) 314,619 (281,010)
----------- ----------- -----------
Net cash provided by/(used in) operating activities.................. (289,970) 330,338 (257,827)
----------- ----------- -----------
Cash Flows From Investing Activities:
Additions to mortgage servicing rights............................... (31,720) (52,604) (19,454)
Proceeds from sale of mortgage servicing rights...................... 48,918 45,676 20,070
Proceeds from sale of securities held-for-sale....................... -- -- 84,150
Proceeds from sale of securities available-for-sale.................. 233,082 106,470 --
Proceeds from maturities/principal payments of securities held-
to-maturity and held-for-sale and interest earning deposits.... 11,881 16,728 82,119
Proceeds from maturities/principal payments of securities
available-for-sale............................................. 67,192 48,808 --
Purchase of securities held-for-sale................................. -- -- (21,413)
Purchase of securities available-for-sale............................ (157,537) (238,926) --
Purchase of securities held-to-maturity.............................. -- (250,958) (53,061)
Proceeds from sale of loans related to bank branch sale.............. -- 28,933 --
Proceeds from sale of loans.......................................... 253,310 82,742 92,096
Net increase in loans made to customers.............................. (208,034) (307,793) (10,937)
Purchase of acquisitions............................................. (177) (2,450) (3,390)
---------- ----------- -----------
Net cash provided by/(used in) investing activities.................. 216,915 (523,374) 170,180
---------- ----------- -----------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued) Year Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Net increase/(decrease) in total deposits .............. $ 65,490 $ 32,791 $(63,921)
Purchase of bank branch deposits ....................... 20,497 -- --
Sale of bank branch deposits ........................... -- (43,749) --
Net increase in short-term borrowings .................. 6,505 120,094 69,238
Net increase/(decrease) in short-term FHLB advances .... (34,950) 26,950 8,000
Increase in long-term debt ............................. 13,464 12,244 1,976
Increase in FHLB advances .............................. 70,500 20,000 5,000
Net proceeds from issuance of common shares ............ 1,195 1,072 4,741
Repurchase of common shares ............................ (5,117) (838) --
Dividends paid ......................................... (5,270) (4,141) (2,341)
Payments on long-term debt ............................. (17,915) (827) (4,368)
Payments on FHLB advances .............................. (25,000) -- (17,000)
Issuance of senior and subordinated debt,
net of issuance costs ................................ -- 24,712 16,492
-------- -------- --------
Net cash provided by financing activities .............. 89,399 188,308 17,817
-------- -------- --------
Net increase/(decrease) in cash and cash equivalents ... 16,344 (4,728) (69,830)
Cash and cash equivalents at beginning of year ......... 23,297 28,025 97,855
-------- -------- --------
Cash and cash equivalents at end of year (1) ........... $ 39,641 $ 23,297 $ 28,025
======== ======== ========
Cash paid during the year for:
Interest ......................................... $ 62,562 $ 44,206 $ 41,906
Income taxes ..................................... $ 5,782 $ 9,980 $ 9,873
<FN>
Non-cash investing activities:
o During the years ended December 31, 1995 and 1993, the Company securitized
residential real estate portfolio loans into investment securities
available-for-sale and held-for-sale of $107.6 million and $42.0 million,
respectively.
o At June 30, 1995, the Company transferred $257.2 million of
held-to-maturity securities into the available-for-sale category.
(1) For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, federal funds sold and other
short-term money market investments with maturities less than 30 days.
Generally, federal funds are purchased and sold for one-day periods.
See notes to consolidated financial statements.
</TABLE>
25
<PAGE>
Notes to Consolidated Financial Statements
Note 1: Summary of Significant Accounting Policies
NATURE OF OPERATIONS
Republic Bancorp Inc. ("Republic" or the "Company") is a bank holding company
established in 1986 which currently operates 96 banking and mortgage banking
offices in 20 states. The Company owns Republic Bank based in Ann Arbor,
Michigan, with 25 offices in Michigan, and Republic Savings Bank ("Republic
Savings") with 11 offices primarily in the greater Cleveland, Ohio area. The
Company's two banking entities engage in the business of commercial banking
and exercise the powers of a full-service commercial bank and savings bank.
To complement its retail banking activities, the Company maintains a
nationwide mortgage banking presence with Republic Bancorp Mortgage Inc.
("Republic Mortgage"), located in Farmington Hills, Michigan, which operates
its retail mortgage operations in 13 offices located in 4 states; Market
Street Mortgage Corporation ("Market Street"), a retail mortgage company based
in Clearwater, Florida with 33 offices in 9 states; and CUB Funding
Corporation ("CUB Funding"), a retail and wholesale mortgage company,
headquartered in Calabasas, California with 14 offices in 6 states. During
1995 the Company originated or purchased $2.8 billion in residential mortgage
loans. The Company also performs servicing of mortgage loans, which includes
the processing and administration of mortgage loan payments. At December 31,
1995, the mortgage loan servicing portfolio was $4.0 billion.
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 Mortgage, and Republic Savings; and
Market Street and CUB Funding, of which the Company owns an 80% majority
interest in each subsidiary. Republic Mortgage operates Home Funding, Inc.,
which was acquired in October 1994, as a division, and CUB Funding operates
RSL Mortgage, which was acquired in August 1995, as a division. CUB Funding
also owns a 50.1% interest in two joint ventures, Premier Partners - James R.
Gary Realtors and Premier Partners - Todd C. Olson Estate Brokerage, Inc. All
significant intercompany transactions and balances have been eliminated in
consolidation.
SECURITIES: 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.
Management determines the appropriate classification for debt securities
at the time of purchase. Debt securities are classified as held-to-maturity
when the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities consisted primarily of U.S. Treasuries,
U.S. Government Agency obligations, fixed rate mortgage-backed securities and
fixed rate collateralized mortgage obligations and were stated at amortized
cost.
Debt securities not classified as held-to-maturity and marketable equity
securities are classified as available-for-sale. Such securities are 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 held-to-maturity or
available-for-sale is adjusted for amortization of premium 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 securities.
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.
MORTGAGE BANKING ACTIVITIES: Mortgage loans held for sale are valued at the
lower of cost or market as determined by outstanding commitments to sell loans
to investors. Mortgage loans held for sale balances are committed for sale to
secondary market investors under firm agreements at or prior to closing date
of the individual loan. Since mortgage loans originated or acquired are
generally sold within 60 to 90 days, the related fees and costs are not
amortized during that period. For mortgage portfolio loans which later become
securitized and retained as investment securities, the net remaining deferred
fees or costs are treated as discount or premium, and recognized as an
adjustment to yield over the life of the security using the effective interest
method. If the security is sold, the net deferred balance is treated as part
of the cost basis in calculating the gain or loss on sale of security.
MORTGAGE SERVICING RIGHTS: The Company purchases and originates mortgage loans
for sale to the secondary market, and sells the loans on either a servicing
retained or servicing released basis. Effective April 1, 1995, the Company
adopted FASB Statement No. 122 (SFAS 122) "Accounting for Mortgage Servicing
Rights." Prior to adoption of SFAS 122, only purchased loan servicing rights
were capitalized. Under the statement, the
26
<PAGE>
Notes to Consolidated Financial Statements (continued)
total cost of mortgage loans purchased or originated with the intent to sell
is allocated between the loan servicing right and the mortgage loan without
servicing, based on their relative fair values at the date of purchase or
origination. The capitalized cost of loan servicing rights is amortized in
proportion to, and over the period of, estimated net future servicing revenue.
Mortgage servicing rights are periodically evaluated for impairment. For
purposes of measuring impairment, mortgage servicing rights are stratified
based on predominant risk characteristics of the underlying serviced loans.
These risk characteristics include loan type (conventional or government,
fixed or adjustable rate), term (15 year or 30 year), and note rate.
Impairment represents the excess of cost of an individual mortgage servicing
rights stratum over its fair value, and is recognized through a valuation
allowance.
Fair values for individual stratum are based on the present value of
estimated future cash flows using a discount rate commensurate with the risks
involved. Estimates of fair value include assumptions about prepayment,
default and interest rates, and other factors which are subject to change over
time. Changes in these underlying assumptions could cause the fair value of
mortgage servicing rights, and the related valuation allowance, to change
significantly in the future.
LOANS: Loans are stated at the principal amount outstanding and the related
interest on loans is generally accrued daily. Loans on which the accrual of
interest has been discontinued are designated as non-accrual loans. Accrual of
interest on loans is discontinued when, in the opinion of management,
reasonable doubt exists as to the full, timely collection of interest or
principal. Further, uncollected accrued interest is charged against current
income at the time such loans are placed in a non-accrual status. Loan
origination fees are deferred, along with incremental direct costs and are
amortized over the term of the loan as an adjustment to yield.
In May 1993, the FASB issued SFAS 114, "Accounting by Creditors for
Impairment of a Loan." In October 1994, the FASB issued SFAS 118, "Accounting
by Creditors for Impairment of a Loan-Income Recognition and Disclosures,"
that amended SFAS 114 and eliminated its provisions regarding how a creditor
should report income on an impaired loan. SFAS 114 provides guidance in
measuring and accounting for impaired loans. The Statements were effective for
fiscal years beginning after December 15, 1994. The impact of these Statements
on the Company's financial statements were not material.
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
loan 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 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.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets.
Amortization of leasehold improvements is computed using the straight-line
method over the shorter of the estimated useful lives of the related assets or
the remaining lease terms.
GOODWILL: The excess of cost over the fair value of net assets acquired is
amortized using the straight-line method over fifteen years.
INCOME TAXES: Income taxes are accounted for under SFAS 109. Under the asset
and liability method of SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax basis. To the extent that current available evidence
about future events raise doubt about the future realization of a deferred tax
asset, a valuation allowance must be established. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enacted date.
27<PAGE>
Notes to Consolidated Financial Statements (continued)
Effective January 1, 1993, the Company adopted SFAS 109 which resulted in a
cumulative adjustment of $950,000 or $.06 per share.
PER COMMON SHARE AMOUNTS: All per common share amounts have been restated to
reflect stock dividends.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
RECLASSIFICATIONS: Certain reclassifications have been made to the 1994 and
1993 financial statements, to conform with the classifications used in 1995.
Note 2: Acquisitions
On November 1, 1994, pursuant to an agreement with Home Funding, Inc. of
Hopewell Junction, New York, the Company's subsidiary, Republic Mortgage,
purchased the assets and mortgage origination network of Home Funding, Inc.
The purchase included the acquisition of Home Funding's $130 million mortgage
servicing portfolio. The total purchase price was approximately $2.5 million,
of which $1.2 million was goodwill. The purchased assets and results of
operations of Home Funding, Inc. are included in the consolidated financial
statements from November 1, 1994, the effective date of the acquisition.
On November 10, 1993, pursuant to an agreement with California United
Bank, N.A. ("C.U.B."), of Encino, California, the Company purchased C.U.B.'s
mortgage origination network, loan production offices and certain other
assets. The total purchase price was approximately $4 million, of which $2.25
million was goodwill. This mortgage banking acquisition operates under the
name of CUB Funding Corporation. The purchased assets and results of
operations of CUB Funding are included in the consolidated financial
statements from November 10, 1993, the effective date of acquisition.
The acquisition of the assets of Home Funding, Inc. and CUB Funding did
not have a significant impact on the results of operations of the Company.
Note 3: Cash Reserve Requirements
Republic Bank and Republic Savings are required by the Federal Reserve Bank to
maintain an average reserve balance. Such reserve amounted to approximately
$11.9 million and $9.6 million at December 31, 1995 and 1994, respectively.
Note 4: Mortgage Banking
Mortgage Servicing Rights
As discussed in Note 1, the Company adopted SFAS 122 on April 1, 1995. The
effect of the adoption on income was approximately $3.4 million before taxes
for 1995.
The following table summarizes the Company's activity related to mortgage
servicing rights:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Balance at January 1 ................... $ 57,183 $ 18,428 $ 16,126
Additions .............................. 31,720 52,604 19,454
Mortgage loan servicing rights acquired
through the purchase of the assets
of Home Funding, Inc. ............ -- 1,388 --
Sales .................................. (23,639) (10,229) (12,545)
Amortization ........................... (6,999) (5,008) (4,607)
-------- -------- --------
Balance at December 31 ................. $ 58,265 $ 57,183 $ 18,428
======== ======== ========
</TABLE>
The estimated fair value of mortgage servicing rights as of December 31, 1995
was $63 million.
28
<PAGE>
Notes to Consolidated Financial Statements (continued)
Servicing of Mortgage Loans
The Company originates, purchases and sells to investors, without recourse,
loans secured by mortgages, principally on single-family residential
properties. The Company retains the servicing of certain loans sold to
investors and collects the monthly principal and interest payments and
performs certain escrow services. The aggregate mortgage servicing portfolio
was approximately $4.0 billion and $4.7 billion at December 31, 1995 and 1994,
respectively, representing approximately 51,000 and 59,000 mortgages,
respectively.
The Company is accountable for related escrow funds aggregating $55.4
million and $59.8 million at December 31, 1995 and 1994, respectively. At
December 31, 1995 and 1994, $55.4 million and $58.1 million, respectively of
these funds are included in the consolidated non-interest bearing deposit
accounts of Republic Bank and Republic Savings. The remaining $1.7 million at
December 31, 1994 are on deposit at financial institutions not affiliated with
the Company, and are not included in the consolidated balance sheet totals.
Note 5: Investments
The following is a summary of the Company's securities portfolio:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
Available-for-Sale Securities (Dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1995:
Obligations of U.S. Treasury and U.S. Government
agencies $ 71,754 $273 $ 159 $ 71,868
Mortgage-backed securities .............................. 118,681 116 747 118,050
Collateralized mortgage obligations ..................... 86,481 -- 1,122 85,359
Municipal and other securities .......................... 23,292 269 54 23,507
-------- ---- ------ --------
Total debt securities ................................ 300,208 658 2,082 298,784
Equity securities ....................................... 19,657 -- 672 18,985
-------- ---- ------ --------
Total available-for-sale securities .................. $319,865 $658 $2,754 $317,769
======== ==== ====== ========
Available-for-Sale Securities
December 31, 1994:
Obligations of U.S. Government agencies ................. $ 3,708 -- $ 343 $ 3,365
Mortgage-backed securities .............................. 176,798 -- 6,631 170,167
Collateralized mortgage obligations ..................... 4,811 -- 316 4,495
-------- --- ------- --------
Total debt securities ................................ 185,317 -- 7,290 178,027
Equity securities ....................................... 19,297 -- 822 18,475
-------- --- ------- --------
Total available-for-sale securities .................. $204,614 -- $ 8,112 $196,502
======== === ======= ========
Held-to-Maturity Securities
December 31, 1994:
U.S. Treasury securities and obligations
of U.S. Government agencies .......................... $151,501 -- $ 6,023 $145,478
Mortgage-backed securities .............................. 12,436 $11 836 11,611
Collateralized mortgage obligations ..................... 104,667 -- 7,832 96,835
Other debt securities ................................... 1,097 9 34 1,072
-------- --- ------- --------
Total held-to-maturity securities .................... $269,701 $20 $14,725 $254,996
======== === ======= ========
</TABLE>
The Company adopted SFAS 115 as of January 1, 1994. The market valuation
adjustment of $1.4 million and $5.3 million on available-for-sale securities,
net of tax, is reported as a separate component in shareholders' equity at
December 31, 1995 and 1994, respectively.
In order to respond more effectively to liquidity needs, primarily
related to funding the increase in mortgage loans held for sale, the Company
reclassified the entire held-to-maturity security portfolio to
available-for-sale on June 30, 1995. The amortized cost and estimated market
value of available-for-sale securities at December 31, 1995, by contractual
maturity, are shown on the following page. Expected maturities for
mortgage-backed securities and collateralized mortgage obligations will differ
from contractual maturities because borrowers may have the right to
29<PAGE>
Notes to Consolidated Financial Statements (continued)
call or prepay obligations. Based upon prepayment assumptions, estimated lives
of the fixed rate mortgage-backed securities range from 0.3 to 3.4 years. The
variable rate mortgage-backed securities are primarily indexed to the one-year
Constant Maturity Treasury and 11th District Cost of Funds. Estimated average
remaining lives of the Company's collateralized fixed rate mortgage
obligations range from 0.5 to 4.2 years. Collateral for all mortgage-backed
securities and collateralized mortgage obligations is guaranteed by U.S.
Government agencies.
<TABLE>
<CAPTION>
Available-for-Sale Securities
-------------------------------------------------------------------
U.S. Treasury Collateralized
and Government Mortgage-Backed Mortgage
Agency Obligations Securities Obligations
--------------------- --------------------- --------------------
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- --------- -------- --------- --------- ---------
Maturities:
Due within one year..... $32,456 $32,454 $ 923 $ 928 -- --
One to five years....... 2,503 2,438 3,256 3,202 -- --
Five to ten years....... 424 423 6,878 6,826 $ 8,081 $ 8,041
After ten years......... 36,371 36,553 107,624 107,094 78,400 77,318
------- ------- -------- -------- ------- -------
Total................ $71,754 $71,868 $118,681 $118,050 $86,481 $85,359
======= ======= ======== ======== ======= =======
<CAPTION>
Available-for-Sale Securities
-------------------------------------------------------------------
Municipal Total
and Other Available-for-Sale
Securities Equity Securities Securities
--------------------- --------------------- --------------------
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Maturities:
Due within one year..... $ 240 $ 241 $19,657 $18,985 $ 53,276 $ 52,608
One to five years....... 120 125 -- -- 5,879 5,765
Five to ten years....... 156 163 -- -- 15,539 15,453
After ten years......... 22,776 22,978 -- -- 245,171 243,943
------- ------- ------- ------- -------- --------
Total................ $23,292 $23,507 $19,657 $18,985 $319,865 $317,769
======= ======= ======= ======= ======== ========
</TABLE>
Proceeds from the sale of securities available-for-sale during 1995 and 1994
were $233.1 million and $106.5 million, respectively. The gross realized gains
on these sales were $1.5 million and $587,000, respectively, while gross
realized losses totaled $463,000 and $2.0 million. Proceeds from sale of
securities held-for-sale during 1993 were $84.2 million. The gross realized
gains on such sales totaled $2.2 million and the gross realized losses totaled
$184,000.
Certain securities, with a carrying value of approximately $164.3 million and
$235.3 million at December 31,1995 and 1994, respectively, were pledged to
secure certain short-term borrowings, FHLB advances and public and other
deposits as required by law.
Note 6: Loans
Loans consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Commercial loans:
Secured by real estate ............. $108,108 $ 81,922
Other (generally secured) .......... 24,325 15,989
-------- --------
Total commercial loans .......... 132,433 97,911
Residential real estate mortgages ........ 381,803 457,755
Installment loans ........................ 63,876 49,423
-------- --------
Net loans .......................... $578,112 $605,089
======== ========
</TABLE>
The commercial loan portfolio is well diversified as to industry concentration
with no aggregate loans to any one specific industry exceeding 10% of total
commercial loans outstanding at December 31, 1995. Approximately 67% and 22%
of the Company's loan portfolio at December 31, 1995 has been originated in
the states of Michigan and Ohio, respectively.
The following table is a summary of the Company's impaired loans as of
December 31, 1995:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Gross recorded investment in impaired loans ........ $ 865
Specific allowance for estimated loan losses ....... (368)
------
Total net impaired loans ........................... 497
======
Average impaired loans outstanding ................. 1,569
======
Interest income recognized ......................... $ 185
======
</TABLE>
30
<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 7: Allowance for Estimated Loan Losses
Changes in the allowance for estimated loan losses are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Balance at January 1 ........................... $5,544 $ 7,214 $7,684
Loans charged off .............................. (845) (1,705) (762)
Recoveries on loans previously charged off ..... 279 291 279
Provision for loan losses ...................... 24 94 603
Reduction due to sale of commercial loans at
Republic Savings Bank ....................... -- (350) (590)
------ ------- ------
Balance at December 31 ......................... $5,002 $ 5,544 $7,214
====== ======= ======
</TABLE>
Note 8: Premises and Equipment
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Land ............................................... $ 2,065 $ 2,038
Furniture and equipment ............................ 18,522 16,195
Buildings and improvements ......................... 9,216 9,664
------- ------
29,803 27,897
Less accumulated amortization and depreciation ..... 15,079 12,413
------- -------
Net premises and equipment ......................... $14,724 $15,484
======= =======
</TABLE>
Note 9: Short-Term Borrowings
Short-term borrowings, including Federal funds purchased and reverse
repurchase agreements, consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1995 1994
-------------------- -------------------
Interest Interest
Balance Rate Balance Rate
------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Federal funds purchased and reverse repurchase agreements.................... $134,237 6.09% $217,124 5.97%
======== ========
Short-term borrowings:
Mortgage banking warehousing line of credit for
Market Street, variable rate........................................ $ 53,822 7.25 $ 22,806 7.98
Mortgage banking warehousing line of credit for
Republic Mortgage, variable rate.................................... 21,055 7.48 -- --
Mortgage banking warehousing line of credit for
CUB Funding, variable rate.......................................... 13,902 7.18 11,984 7.57
Revolving repurchase agreement for Republic Mortgage, variable rate.... 1,884 6.40 -- --
Revolving repurchase agreement for CUB Funding, variable rate.......... 25,913 7.45 -- --
Mortgage servicing acquisition line of credit for CUB Funding,
variable rate....................................................... 4,000 8.59 -- --
Revolving credit agreement for Republic Bancorp Inc. variable rate..... 8,125 7.80 -- --
Repurchase agreement for CUB Funding, fixed rate....................... -- -- 1,136 6.98
Short-term portion of long-term debt (See Note 11)..................... 513 9.02 3,896 9.80
-------- --------
Total short-term borrowings.................................................. $129,214 $ 39,822
======== ========
</TABLE>
31
<PAGE>
Notes to Consolidated Financial Statements (continued)
In May 1995, Market Street entered into a $75 million warehousing line of
credit agreement with Residential Funding Corporation used for the purpose of
funding the 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 in August, 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. At December 31, 1995 the balance outstanding was $53.8
million. The provisions of the warehousing line of credit include various
financial covenants for Market Street. Prior to this warehousing line of
credit, Market Street funded its mortgage originations through a $75 million
mortgage warehousing line of credit with G.E. Capital Mortgage Services, Inc.
Security for this warehousing line of credit, which was payable on demand,
included various real estate mortgage loans. Interest, which was payable
monthly, was computed at the lower of 2.00% above the lower of the lender's
one month commercial paper rate, or the LIBOR rate. During 1995, the average
interest rate paid on this agreement was 7.53%. The average aggregate amounts
outstanding under such agreements were $39.0 million and $35.4 million in 1995
and 1994, respectively. The maximum amount outstanding at any month-end during
1995 under this agreement was $53.8 million.
In July 1995, Republic Mortgage entered into a $25 million warehousing
line of credit with NBD Bank, N.A. used for the purpose of funding the
acquisition or origination of mortgage loans. The line of credit, which is
payable on demand, is secured by various real estate mortgage loans and
expires in July, 1996. 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. During 1995, the average interest
rate paid on this line of credit was 7.09%. The provisions of the warehousing
line of credit include various financial covenants for Republic Mortgage.
The average aggregate amounts outstanding under such agreement were $11.9
million and $4.5 million in 1995 and 1994, respectively. The maximum amount
outstanding at any month-end during 1995 under this agreement was $24.6
million.
In May 1995, CUB Funding Corporation entered into a $25 million
warehousing line of credit agreement with Prudential Home Mortgage Company,
used for funding the purchase or origination of mortgage loans by CUB Funding.
This warehousing line was subsequently changed to $16 million in November,
1995. Interest, which is payable monthly, is computed based upon the 30-day
commercial paper index plus various indexes ranging from 1.00% to 2.75% based
on the document status of each loan. During 1995, the average interest rate
paid on the line of credit was 7.22%. At December 31, 1995 the balance
outstanding was $13.9 million. The line of credit, which is payable on demand,
is secured by various real estate mortgage loans and expires in May, 1996. The
provisions of the warehousing line of credit include various financial
covenants for CUB Funding. The average aggregate amounts outstanding under
such agreement were $12.4 million and $10.2 million in 1995 and 1994,
respectively. The maximum amount outstanding at any month-end during 1995
under this agreement was $24.5 million.
In August, 1995, Republic Mortgage, entered into a revolving gestation
repurchase agreement with Paine Webber, as a source of funding for mortgage
loan originations. Security for the agreement includes various real estate
mortgage notes, and expires at the option of either party. Interest is
calculated at LIBOR plus .90%. Borrowings under this agreement at December 31,
1995, were $1.9 million. The average borrowings and interest rate paid on this
agreement for 1995 were $2.6 million and 6.77%, respectively. The maximum
amount outstanding at any month-end during 1995 under this agreement was $9.6
million.
In March 1995, CUB Funding entered into a revolving 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 December 31, 1995, were $25.9 million. During 1995, the
average borrowings and interest rate paid for this agreement were $23.3
million and 7.08%, respectively. The maximum amount outstanding at any
month-end during 1995 under this agreement was $74.0 million.
In May 1995, CUB Funding entered into a $4 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 December 31, 1995, $4.0 million
was outstanding under this line of credit. The line of credit expires May,
1996.
The Company has an $18 million Revolving Credit Agreement with Firstar
Bank Milwaukee, N.A. with loan proceeds available to be utilized for working
capital purposes. The credit facility is secured by the common and preferred
stock of Republic Bank and expires in January 1997. The agreement provides for
borrowings with interest at the prime rate, less 50%, or LIBOR plus 1.40% for
borrowings up to $18 million. At December 31, 1995,
32
<PAGE>
Notes to Consolidated Financial Statements (continued)
$8.1 million was outstanding under this credit agreement. During 1995, the
average borrowings and interest rate paid for the credit agreement were $10.2
million and 8.54%, respectively. No amounts were outstanding under this Credit
Agreement at December 31, 1994. The maximum amount outstanding at any
month-end during 1995 under this agreement was $17.0 million.
In May 1995, Market Street entered into a $4 million working capital
revolving line of credit with Residential Funding Corporation, collateralized
by the assets of Market Street. Interest is calculated at a floating rate of
interest which is equal to 1.0% over the prime lending rate. At December 31,
1995, no amounts were outstanding under this revolving line of credit. The
working capital revolving credit agreement expires in August, 1996. The
maximum amount outstanding at any month-end during 1995 under this agreement
was $3.9 million. Federal funds purchased mature the day following the date of
purchase while reverse repurchase agreements generally mature within one year
from the date of the transaction. Federal funds purchased and reverse
repurchase agreements are detailed as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------------------------------------ -------------------------------------------------------
Maximum Maximum
Balance Interest Average Average Amount Balance Interest Average Average Amount
at Rate at Balance Rate Outstanding at Rate at Balance Rate Outstanding
December December during during at any December December during during at any
31 31 the Year the Year Month 31 31 the Year the Year Month End
-------- -------- -------- -------- ----------- -------- -------- -------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal
funds
purchased .. $ 16,000 6.00% $ 9,427 5.95% $ 19,000 $ 21,000 6.13% $ 11,873 4.63% $ 37,900
Reverse
repurchase
agreements . 118,237 6.10% 158,999 6.21% 220,612 196,124 5.96% 155,748 4.43% 251,601
</TABLE>
At December 31, 1993, the Company had reverse repurchase agreements of $19.6
million with an interest rate of 3.44%. The average amount outstanding during
the year ended December 31, 1993 was $17.5 million and the maximum amounts
outstanding at any month end was $65.7 million.
Note 10: FHLB Advances
Republic Savings has six outstanding advances with the Federal Home Loan Bank
("FHLB"); a $14.5 million advance with a fixed interest rate of 5.90%,
maturing in February 1996, a $5 million advance with a fixed interest rate of
5.75% maturing in March 1996, a $10 million advance with a fixed interest rate
of 7.15%, maturing in February 1997, a $5 million advance with a fixed
interest rate of 6.0%, maturing in June 1997, and two $5 million advances with
floating interest rates flat to the three month LIBOR index and adjusting
quarterly, maturing in June and September, 2000, respectively. The interest
rate on these advances was 5.87% at December 31, 1995. Republic Bank has
outstanding three FHLB advances; a $15 million advance with a fixed interest
rate of 5.67%, maturing in October 1996, a $10 million advance with a fixed
rate of 5.56%, maturing in November 1996, and an $11 million advance with a
fixed interest rate of 5.79%, maturing in July 1997. These advances generally
are secured by first mortgage loans equal to at least 150% of advances under a
blanket security agreement or investment securities equal to at least 110% of
the advance under a specific collateral agreement, with interest payable
monthly for all advances.
In order to provide liquidity needs for mortgage loan originations,
Republic Savings entered into a $50 million line of credit with the FHLB in
September 1994. The line of credit is payable on demand and is secured by
various real estate mortgage loans and expires in September 1996. At December
31, 1995, no amounts were outstanding under this line. At December 31, 1994,
borrowings under this line totaled $34.95 million.
At December 31, 1994, Republic Savings had outstanding two advances from
the FHLB, a $10 million advance due February 1997, and a $5 million advance
due December 1995, with interest rates at 7.15% and 4.45%, respectively.
Republic Bank had one advance outstanding at December 31, 1994, a $20 million
advance with an interest rate of 6.25% maturing in March 1995.
33
<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 11: Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Senior notes, interest at 7.17%, interest payable semi-annually, maturing 2001 ... $25,000 $25,000
Subordinated notes, interest at 9%, interest payable monthly, maturing 2003 ...... 17,250 17,250
Mortgage loan, interest at 6.99%, principal and interest
payable quarterly, maturing October 1, 2000 ................................ 1,887 1,977
Note payable under term loan agreement, interest at prime
plus 1.00%, principal and interest payable quarterly, maturing
August 31, 2000 ............................................................ 8,304 --
Note payable under term loan agreement, interest at one month commercial
paper rate plus 3.75%, principal and interest payable monthly, maturing
December 1, 1998 ........................................................... -- 15,304
Note payable with bank, interest at prime plus 2%, principal and
interest payable quarterly, maturing November 30, 1995 ..................... -- 744
------- -------
Total ............................................................................ 52,441 60,275
Less maturities included as short-term borrowings (Note 9) ................. (513) (3,896)
------- -------
Total ............................................................................ $51,928 $56,379
======= =======
</TABLE>
During March 1994, the Company completed a private offering of $25.0 million
principal amount of 7.17% Senior Debentures which mature April 1, 2001 with
interest on the notes payable semiannually. A portion of the net proceeds from
the sale of the Debentures has been used to fund the purchase of mortgage
servicing rights and to expand the Company's mortgage banking network.
During January 1993, the Company completed a public offering of $17.25
million principal amount of 9% Subordinated Notes 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, 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 guidelines.
On September 27, 1993, Republic Mortgage financed the acquisition of its
new corporate office with a mortgage loan in the amount of $2.1 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 December 31, 1995, $98,000 of the amount outstanding is classified as
short-term borrowings.
On May 22, 1995, Market Street 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
are 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 agreement at December 31, 1995 were $8.3
million at a borrowing rate of 9.50%. The borrowings are collateralized by
Market Street's mortgage loan servicing portfolio. As of December 31, 1995,
$415,000 of the total $8.3 million outstanding is classified as short-term
borrowings.
On April 29, 1994, Market Street entered into a Term Loan Agreement with
G.E. Capital Mortgage Services, Inc. to finance the acquisition of mortgage
loan servicing rights. At December 31, 1994, $15.3 million had been borrowed
under this agreement. Interest on borrowings under the Term Loan Agreement was
payable monthly at a rate of 3.75% above the lender's one month commercial
paper rate. As of December 31, 1994, $3.1 million of the amount outstanding
was classified as short-term borrowings.
On December 29, 1992, to finance a portion of the purchase of the assets
of Market Street Mortgage Corporation, Market Street entered into a $2.2
million note payable with Poughkeepsie Savings Bank. Interest was payable at
the prime rate plus 2%. As of December 31, 1994, the entire amount outstanding
of $744,000 was classified as short-term borrowings. This balance was paid in
full during 1995.
34<PAGE>
Notes to Consolidated Financial Statements (continued)
The following table indicates the remaining principal maturities of
long-term debt at December 31, 1995 (excludes short-term portion detailed in
Note 9):
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
1997................................ $ 1,764
1998................................ 1,772
1999................................ 1,780
2000................................ 4,362
2001................................ 25,000
2002 and thereafter................. 17,250
-------
Total............................... $51,928
=======
</TABLE>
Note 12: Income Taxes
As discussed in Note 1, the Company adopted SFAS 109 as of January 1, 1993.
The cumulative effect of this change in accounting for income taxes of
$950,000 is reported separately in the consolidated statement of income for
the year ended December 31, 1993.
The following is a summary of the components of the provision for income tax
expense for the years ended December 31, 1995, 1994 and 1993. During the years
ended December 31, 1995, 1994, 1993, the Company's state taxes on income were
insignificant.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Current expense........................ $5,127 $7,008 $11,991
Deferred income tax.................... 3,039 1,039 317
------ ------ -------
Total income tax expense......... $8,166 $8,047 $12,308
====== ====== =======
</TABLE>
Deferred taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant temporary differences which give rise to the deferred tax assets
and liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------- ------------------
Asset Liability Asset Liability
----- --------- ----- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Allowance for estimated loan losses............................. $ 492 -- $1,020 --
Purchased mortgage servicing rights amortization................ 1,526 -- 1,393 --
Originated mortgage servicing rights............................ -- $1,196 -- --
Deferred loan fees and costs, net............................... -- 1,860 -- $ 162
Non-deductible accruals......................................... 156 -- 195 --
Depreciation/amortization....................................... -- -- -- 399
Cash dividends on FHLB stock.................................... -- 535 -- 431
Purchase accounting adjustment amortization..................... 617 -- 558 --
Market value adjustment for securities available-for-sale....... 734 -- 2,839 --
Loan mark-to-market adjustment.................................. -- 352 -- 344
Other ....................................................... 542 102 580 83
------ ------ ------ ------
Total deferred taxes...................................... $4,067 $4,045 $6,585 $1,419
====== ====== ====== ======
</TABLE>
35
<PAGE>
Notes to Consolidated Financial Statements (continued)
Items causing differences between the statutory tax rate and the effective tax
rate are summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------
1995 1994 1993
---------------- ----------------- ----------------
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statutory tax rate....................... $7,851 35.0% $8,318 35.0% $12,089 35.0%
Amortization of goodwill................. 88 .4 88 .4 77 .2
Other, net............................... 227 1.0 (359) (1.5) 142 .4
------ ---- ------ ---- ------- -----
Provision for income taxes......... $8,166 36.4% $8,047 33.9% $12,308 35.6%
====== ===== ====== ===== ======= =====
</TABLE>
Note 13: Common Stock
Stock Options
The Company has an incentive stock option plan for key employees which
currently provides for granting options to purchase up to 1,815,000 common
shares during a ten-year period, at exercise prices equal to the fair market
value at date of grant.
Activity and price information for 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1995 1994 1993
----------------------- ----------------------- ------------------------
Number of Option Number of Option Number of Option
Options Price Options Price Options Price
-------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year... 883,038 $ 2.64-11.77 949,322 $2.64-11.36 1,595,401 $2.64- 8.83
Granted...................... 26,630 10.57-10.75 57,239 8.98-11.77 184,192 8.07-11.36
Exercised.................... (193,625) 2.64-11.08 (114,928) 3.81- 8.88 (826,611) 4.03- 8.88
Canceled..................... (6,473) 8.07-11.77 (8,595) 5.01-12.19 (3,660) 4.44
-------- ------------ -------- ---------- --------- -----------
Outstanding at end of year......... 709,570 $3.65-11.77 883,038 $2.64-11.77 949,322 $2.64-11.36
======= =========== ======= =========== ========= ===========
Available for future grant......... 760 20,941 80,562
</TABLE>
Stock Warrants
The Company has awarded warrants to purchase common shares during exercise
periods ranging from three to ten years to key executive officers and certain
directors of the Company and its affiliates. In addition, the Company has a
Director Compensation Plan that awards 1,000 warrants annually to each of the
Company's non-employee directors.
Activity and price information for 1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------
1995 1994 1993
------------------------ ------------------------ ------------------------
Number of Warrant Number of Warrant Number of Warrant
Warrants Price Warrants Price Warrants Price
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.... 206,096 $3.66-10.85 279,133 $3.66- 8.26 307,938 $3.66- 4.55
Granted....................... 13,200 10.57 16,940 10.85 14,520 8.26- 9.09
Exercised..................... (12,723) 4.24-10.85 (89,977) 4.19 - 4.66 (43,325) 4.38-10.00
Expired....................... -- -- -- -- -- --
------- ------------- ------- ----------- ------- -----------
Outstanding at end of year.......... 206,573 $3.66 - 10.85 206,096 $3.66-10.85 279,133 $3.66- 8.26
======= ============= ======= =========== ======= ===========
</TABLE>
Restricted Stock Plan
Under the Restricted Stock Plan, 226,490 common shares are authorized to be
granted to certain key employees. Such shares must be forfeited if employment
terminates within three years of issuance. In 1995 and 1993, 132,966 and
43,524 shares were issued under this plan, respectively. In 1994 no shares
were issued under this plan. At December 31, 1995, 164,268 shares were
outstanding under this plan. The Company amortizes the share issuance price
over the restriction period of the agreement.
36
<PAGE>
Notes to Consolidated Financial Statements (continued)
Stock Dividends
On September 21, 1995, Republic's Board of Directors declared a 10% stock
dividend distributed on December 1, 1995 to shareholders to record on November
3, 1995. Similar stock dividends were distributed on December 2, 1994 to
shareholders of record on November 4, 1994 and on October 29, 1993 to
shareholders of record October 1, 1993.
Common Stock Repurchased
During 1995 and 1994, the Company repurchased 461,000 and 80,000 shares,
respectively, of its common stock. In 1995, 429,000 of these shares were
reissued in conjunction with the 10% stock dividend.
Note 14: Earnings Per Common Share
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.
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 effects, if any, of an ending market
price of the Company's common stock which is higher than the average price for
the period.
The following table presents information necessary for the computation
of earnings per share, on both a primary and fully diluted basis, for the
years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Average number of common shares outstanding..................... 16,504,390 16,772,291 16,069,313
Common share equivalents on stock options and stock
warrants based on average market price.................... 480,179 552,213 867,278
---------- ----------- ----------
Average number of common shares outstanding to
compute primary earnings per share........................ 16,984,569 17,324,504 16,936,591
Incremental common share equivalents on stock options
and stock warrants based on end of period market price.... 11,538 1,265 43,949
---------- ---------- ----------
Average number of common shares outstanding to
compute fully diluted earnings per share.................. 16,996,107 17,325,769 16,980,540
========== ========== ==========
</TABLE>
Note 15: Transactions With Related Parties
Republic Bank and Republic Savings have, in the normal course of business,
made loans to certain directors and officers and to organizations in which
certain directors and officers have an interest. Other transactions with
related parties include non-interest bearing and interest bearing deposits. In
the opinion of management, such loans and other transactions were made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with unrelated
parties and did not involve more than normal risk of collectibility.
A summary of related party loan activity for the years ended December 31, 1995
and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Balance at January 1........................ $ 3,978 $ 4,508
New loans and advances................ 100 557
New directors and officers............ -- --
Repayments............................ (1,482) (1,087)
Former directors and officers......... -- --
------- -------
Balance at December 31...................... $ 2,596 $ 3,978
======= =======
</TABLE>
37
<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 16: Other Non-Interest Expense
For 1995, 1994 and 1993, the other non-interest expense category contained
certain types of expenses which exceeded 1% of total interest income and other
non-interest income. For 1995, telephone expense of $2.7 million exceeded this
threshold. Telephone expense, advertising, travel and auto and FDIC insurance
premiums of $2.7 million, $1.6 million, $1.7 million and $1.9 million,
respectively, during 1994, exceeded the 1% threshold. Telephone expense and
FDIC insurance premiums of $2.2 million and $2.0 million, respectively, during
1993, exceeded the 1% threshold.
Note 17: Employee Benefit Plans
The Company maintains a 401(k) plan for its employees. The employer
contributions to the plan are determined annually by the Board of Directors.
Expenses under the plan for the years ended December 31, 1995, 1994 and 1993
aggregated $644,000, $669,000 and $353,000, respectively.
Note 18: Commitments and Contingencies
The Company leases certain office facilities under lease agreements that
expire at various dates. In some cases, these leases offer renewal options and
provide that the Company pay for insurance, maintenance and taxes. Rental
expense under all operating leases charged to operations in 1995, 1994 and
1993 approximated $3.6 million, $3.7 million and $2.5 million, respectively.
As of December 31, 1995, the future aggregate minimum lease payments required
under noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
Year Ending
1996............................ $3,116
1997............................ 2,271
1998............................ 1,334
1999............................ 568
2000............................ 340
2001 and thereafter............. 10
------
Total minimum payments required....... $7,639
======
</TABLE>
In the ordinary course of business, there are various legal proceedings
pending against Republic and its subsidiaries. Management considers that the
aggregate liabilities, if any, arising from such actions would not have a
material adverse effect on the consolidated financial position of the Company.
Note 19: Segment Information
The Company operates in two industry segments (as defined by SFAS 14.
"Financial Reporting for Segments of a Business Enterprise"). The two industry
segments are mortgage banking and commercial banking. Following is a
presentation of the revenues, operating profits and identifiable assets for
the years ended December 31, 1995, 1994 and 1993. The intercompany
income/(expense) presented on the following page consists of interest expense
incurred by the mortgage banking subsidiaries on their notes payable with the
parent company, less amounts paid to the mortgage banking subsidiaries by
Republic Bank for servicing their mortgage loans. Intercompany assets included
in the commercial banking total identifiable assets consist primarily of notes
receivable of the parent company from the mortgage banking subsidiaries.
38
<PAGE>
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
Commercial Banking Mortgage Banking Consolidated
-------------------------- ----------------------------- ---------------------------
Year ended December 31, 1995 1994 1993 1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income after provision
for loan losses..................... $35,091 $35,617 $34,949 $ (4,710) $(2,491) $ 1,011 $30,381 $33,126 $35,960
Non-interest income................... 4,241 5,762 6,992 -- -- -- 4,241 5,762 6,992
Mortgage banking income (1)........... -- -- -- 70,960 69,899 85,128 70,960 69,899 85,128
Depreciation and amortization......... 2,152 2,051 1,771 2,476 2,217 1,319 4,628 4,268 3,090
Non-interest expense.................. 21,988 23,582 28,682 56,536 57,171 61,767 78,524 80,753 90,449
------- ------- ------- ------- ------ ------- ------- ------- -------
Income before taxes................... $15,192 $15,746 $11,488 $ 7,238 $8,020 $23,053 $22,430 $23,766 $34,541
======= ======= ======= ======= ====== ======= ======= ======= =======
Intercompany income/(expense)
included in income before taxes..... $ 1,796 $ 1,111 $ 1,015 $ (1,796) $(1,111) $(1,015) -- -- --
======= ======= ======= ======== ======= ======= ======= ======= =======
<CAPTION>
(Dollars in millions)
At December 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total identifiable assets............ $1,273 $1,235 $1,003 $ 255 $ 155 $ 181 $1,528 $ 1,390 $ 1,184
Intercompany assets included in
total identifiable assets......... (55) (26) (12) -- -- (1) (55) (26) (13)
----- ----- ----- ----- ------ ----- ------ ------- ------
Assets after intercompany
eliminations...................... $1,218 $1,209 $ 991 $ 255 $ 155 $ 180 $1,473 $ 1,364 $ 1,171
====== ====== ====== ===== ====== ===== ====== ======= =======
<FN>
(1) Included in mortgage banking income is amortization of mortgage servicing
rights of $7.0 million, $5.0 million and $4.6 million in 1995, 1994 and
1993, respectively.
</TABLE>
Note 20: Off-Balance Sheet Transactions
In the normal course of business, Republic is a party to financial instruments
with off-balance sheet risk to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby letters of
credit. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
balance sheet. The contract or notional amounts of those instruments reflect
the involvement Republic has in particular classes of financial instruments.
Commitments to extend credit are agreements to lend cash to a customer
as long as there is no breach of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require the payment of a fee. Certain of the commitments may expire
without being drawn upon, therefore the total commitment amounts do not
necessarily represent future cash requirements. The exposure to credit loss in
the event of nonperformance by the other party to the financial instrument for
these commitments is represented by the contractual notional amount. Loan
commitments are subject to market risk resulting from fluctuations in interest
rates. Republic applies the same credit policies in making commitments as it
does for on-balance sheet instruments, mainly by evaluating each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by Republic upon extension of credit, is based on
management's credit evaluation of the counter party. Collateral held varies
but may include residential properties, accounts receivable, inventories,
investments, property, plant and equipment, and income-producing commercial
properties.
Standby letters of credit guarantee the performance of a customer to a
third party. These guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond financing,
and similar transactions. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan commitments
to customers. Republic uses the same credit policies in making these
conditional obligations as it does for on-balance sheet instruments.
Collateral held for those commitments in which it is deemed necessary varies
but may include accounts receivable, inventories, investments and real estate.
39
<PAGE>
Notes to Consolidated Financial Statements (continued)
The following table outlines Republic's off-balance sheet exposure to credit
and interest rate risk at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Outstanding at December 31,
---------------------------
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Unused commitments to extend credit........................................ $38,835 $18,905
Standby letters of credit.................................................. 206 450
Commitments to fund residential real estate loans.......................... 277,425 195,472
Commitments to fund commercial real estate loans........................... 20,368 43,391
Financial instruments whose contract amounts represent interest rate risk:
Residential real estate loan applications with agreed-upon rates........... 134,039 129,640
Commitments to sell residential real estate loans.......................... 532,442 213,569
</TABLE>
To offset the risk associated with the commitments to fund residential
real estate loan applications with agreed-upon rates, as well as mortgage
loans held for sale, Republic has entered into firm commitments to sell
forward $532.4 million of residential mortgage loans to various third parties
of which $423.4 million related to the balances of mortgage loans held for
sale at December 31, 1995 with the remaining $109.0 million relating to those
commitments for real estate loan applications with agreed-upon interest rates.
The commitments to sell forward, which are expected to settle in the first
quarter of 1996, are not expected to produce any material gains or losses. At
December 31, 1994, Republic had entered into firm commitments to sell forward
$213.6 million of residential mortgage loans of which $152.1 million related
to the balances of mortgage loans held for sale with the remaining $61.5
million relating to those commitments for residential real estate loan
applications with agreed-upon interest rates.
Note 21: Disclosures About Fair Value of Financial Instruments
Fair value estimates of financial instruments are made at a specific point in
time, based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire holdings of a
particular financial instrument. Since no ready market exists for a
significant portion of the Company's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and value of assets and liabilities that are not considered
financial instruments. Tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimated and have not been considered in these estimates.
40
<PAGE>
Notes to Consolidated Financial Statements (continued)
The estimated fair values of the Company's financial instruments as of
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
------------------- --------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ------ ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents.................................... $ 39,641 $ 39,641 $ 23,297 $ 23,297
Mortgage loans held for sale................................. 423,364 428,737 152,138 152,064
Held-to-maturity securities.................................. -- -- 269,701 254,996
Available-for-sale securities................................ 317,769 317,769 196,502 196,502
Loans, net of the allowance for estimated loan losses........ 573,110 575,962 599,545 580,911
Liabilities:
Deposits:
Non-interest bearing demand deposits................... 126,427 126,427 111,425 111,425
Interest bearing demand and savings deposits........... 241,943 241,943 256,528 256,528
Certificates of deposit:
Maturing in six months or less...................... 289,204 290,612 218,475 218,348
Maturing between six months and one year............ 123,154 123,947 108,266 107,817
Maturing between one and three years................ 108,490 110,241 103,090 102,590
Maturing beyond three years......................... 15,511 15,652 20,958 20,615
-------- -------- -------- --------
Total deposits...................................... 904,729 908,822 818,742 817,323
Federal funds purchased and reverse repurchase agreements.... 134,237 134,237 217,124 217,124
Short-term borrowings........................................ 129,214 129,214 39,822 39,821
FHLB advances................................................ 80,500 80,713 69,950 69,605
Long-term debt............................................... 51,928 54,474 56,379 52,094
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents:
The carrying amount is a reasonable estimate of fair value for these
instruments.
Mortgage Loans Held for Sale:
The fair value of mortgage loans held for sale, including the fair value of
mortgage servicing rights, is estimated based on the present value of
estimated future cash flows using a discount rate commensurate with the risks
associated with the financial instrument.
Investments:
The fair value of held-to-maturity securities and available-for-sale
securities is estimated based on quoted market prices or dealer quotes for
those investments.
Loans:
Fair values are estimated for portfolio loans based on the present value of
future expected cash flows using discount rates which incorporate a premium
commensurate with normal credit and interest rate risks involved. Loans are
segregated by type such as commercial, commercial real estate, residential
mortgage and installment.
Fair value for nonperforming loans is based on the premise that
management has allocated adequate reserves for loan losses. As a result, the
fair value of nonperforming loans are reported at carrying value.
41
<PAGE>
Notes to Consolidated Financial Statements (continued)
Deposits:
The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposits, savings, money market, checking and NOW accounts, is
equal to the amount payable on demand. The estimated fair value of
certificates of deposit is based on the present value of future estimated cash
flows using the rates currently offered for deposits of similar remaining
maturities.
Federal Funds Purchased and Reverse Repurchase Agreements:
The carrying amount is a reasonable estimate of fair value as the majority of
such borrowings were negotiated at or near December 31, 1995 and 1994.
Short-Term Borrowings:
The fair value is estimated based on the present value of future estimated
cash flows using current rates offered to the Company for debt with similar
terms. Since borrowings classified short-term generally float based on indexes
such as prime, LIBOR and commercial paper, the carrying amount will generally
approximate fair value as the rates on such notes reprice frequently.
FHLB Advances and Long-Term Debt:
The fair value is estimated based on the present value of future estimated
cash flows using current rates offered to the Company for debt with similar
terms.
Off-Balance Sheet Financial Instruments:
The Company's off-balance sheet financial instruments are detailed in Note 20
in the Notes to Consolidated Financial Statements. The Company's residential
real estate loan applications with agreed-upon interest rates may result in a
gain or loss upon the sale of the funded residential real estate loans.
Additionally, the Company's forward commitments to sell residential real
estate loans may result in a gain or loss. The aggregated fair value of these
off-balance sheet financial instruments at December 31, 1995 and 1994 were not
material.
Note 22: Dividend Restrictions:
The Company's state chartered bank and state chartered savings bank regulatory
agencies limit the amount of dividends these financial institutions can
declare to the parent company in any calendar year. The limitations of the
subsidiary bank and the state savings bank for 1995 were approximately $28.5
million and $4.7 million, respectively. Market Street is restricted by its
Term Loan Agreement debt covenant with Residential Funding Corporation, such
that dividends may not exceed their annual net income.
42
<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 23: Parent Company Financial Information
The condensed financial statements of Republic Bancorp Inc. (Parent Company
only) are as follows:
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31,
---------------------
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Assets:
Cash and due from banks ................................... $ 339 $ 199
Interest earning deposits ................................. 2,133 5,744
-------- --------
Cash and cash equivalents ................................. 2,472 5,943
Investment in subsidiaries ................................ 132,237 131,446
Notes and advances receivable from non-bank subsidiaries .. 44,446 21,811
Furniture and equipment ................................... 101 109
Other assets .............................................. 2,264 5,312
-------- --------
Total assets ........................................ $181,520 $164,621
======== ========
Liabilities and Shareholders' Equity:
Accrued and other liabilities ............................. $ 4,769 $ 4,457
Short-term borrowings ..................................... 8,125 --
Long-term debt ............................................ 42,250 42,250
-------- --------
Total liabilities ................................... 55,144 46,707
-------- --------
Total shareholders' equity ................................ 126,376 117,914
-------- --------
Total liabilities and shareholders' equity .......... $181,520 $164,621
======== ========
<CAPTION>
STATEMENTS OF INCOME
Year Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Interest income .................................................. $ 2,751 $ 1,653 $ 1,182
Dividends from subsidiaries ...................................... 23,586 7,242 5,392
Other income ..................................................... 4 19 108
-------- -------- --------
Total income ............................................... 26,341 8,914 6,682
-------- -------- --------
Interest expense ................................................. 4,365 3,107 1,705
Salaries and employee benefits and other expenses ................ 2,318 2,713 3,884
-------- -------- --------
Total expense .............................................. 6,683 5,820 5,589
-------- -------- --------
Income before income taxes and excess (deficiency) of
undistributed earnings of subsidiaries over dividends....... 19,658 3,094 1,093
Income tax credits ............................................... (1,272) (1,615) (1,433)
-------- -------- --------
Income before excess (deficiency) of undistributed earnings of
subsidiaries over dividends and cumulative effect of
change in accounting principle ............................. 20,930 4,709 2,526
Cumulative effect of change in account principle ................. -- -- (50)
Excess (deficiency) of undistributed earnings of subsidiaries
over dividends ............................................. (6,666) 11,010 20,607
-------- -------- --------
Net income ....................................................... $ 14,264 $ 15,719 $ 23,183
======== ======== ========
</TABLE>
43
<PAGE>
Notes to Consolidated Financial Statements (continued)
Parent Company Financial Information (continued)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................... $ 14,264 $ 15,719 $ 23,183
Adjustments to reconcile net income to net cash (used in)/provided
by operating activities:
Depreciation and amortization ................................................ 598 498 444
Excess (deficiency) of undistributed earnings of subsidiaries over dividends . 6,666 (11,010) (20,607)
(Increase)/decrease in other assets .......................................... 1,959 (977) 982
Increase in other liabilities ................................................ 312 2,616 754
Other, net ................................................................... (21) (45) (54)
-------- -------- --------
Total adjustments ............................................................ 9,514 (8,918) (18,481)
-------- -------- --------
Net cash provided by operating activities ....................................... 23,778 6,801 4,702
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of mortgage-backed securities .......................... -- -- 416
Capital investments in subsidiaries ............................................. (3,547) (9,779) --
Increase in notes and advances receivable from non-bank subsidiaries ............ (22,635) (13,729) (4,072)
Acquisition of minority interest in bank subsidiary ............................. -- -- (74)
Acquisition of increased ownership interest under stock purchase
agreement with Premier Bancorporation, Inc. ............................... -- -- (668)
-------- -------- --------
Net cash used in investing activities ........................................... (26,182) (23,508) (4,398)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt of Premier Bancorporation, Inc.
upon acquisition of remaining minority interest ........................... -- -- (3,756)
Net proceeds from issuance of common shares through exercise of stock
options and stock warrants ................................................ 1,195 1,072 4,749
Repurchase of common shares ..................................................... (5,117) (838) --
Dividends paid on common shares ................................................. (5,270) (4,141) (2,341)
Net increase/(decrease) in short-term borrowings ................................ 8,125 -- (15,000)
Issuance of subordinated debt, net of issuance costs ............................ -- -- 16,492
Issuance of senior debt, net of issuance costs .................................. -- 24,712 --
-------- -------- --------
Net cash (used in)/provided by financing activities ............................. (1,067) 20,805 144
-------- -------- --------
Net increase/(decrease) in cash and cash equivalents ............................ (3,471) 4,098 448
Cash and cash equivalents at beginning of year .................................. 5,943 1,845 1,397
-------- -------- --------
Cash and cash equivalents at end of year ........................................ $ 2,472 $ 5,943 $ 1,845
======== ======== ========
Cash paid during the year for:
Interest .................................................................. $ 4,030 $ 2,758 $ 1,581
Income taxes .............................................................. -- -- --
<FN>
Noncash investing activities:
o During the year ended December 31, 1994, Republic Bancorp Inc. reclassified
$3.4 million of an advance to Market Street for the purchase of CUB Funding
to investment in subsidiaries upon the spin-off of CUB Funding into
a separate subsidiary.
</TABLE>
44
<PAGE>
Report of Management
The management of Republic Bancorp Inc. is responsible for the preparation of
the financial statements and other related financial information included in
this annual report. The financial statements have been prepared in accordance
with generally accepted accounting principles and include the amounts based on
management's estimates and judgments where appropriate. Financial information
appearing throughout this annual report is consistent with the financial
statements.
Management is responsible for the integrity and objectivity of the
consolidated financial statements. Established accounting procedures are
designed to provide financial records and accounts which fairly reflect the
transactions of the Company. The training of qualified personnel and the
assignment of duties are intended to provide an internal control structure at
a cost consistent with management's evaluation of the risks involved. Such
controls are monitored by an internal audit staff to provide reasonable
assurances that transactions are executed in accordance with management's
authorization and that adequate accountability for the Company's assets is
maintained.
The financial statements have been audited by Deloitte & Touche LLP
independent auditors, and their report follows.
The Audit Committee of the Board of Directors is composed of outside
directors who meet with management, internal auditors, independent auditors
and regulatory examiners to review matters relating to financial reporting and
internal controls. The internal auditors, independent auditors and regulatory
examiners have direct access to the Audit Committee.
/s/ JERRY D. CAMPBELL /s/ THOMAS F. MENACHER
Jerry D. Campbell Thomas F. Menacher, C.P.A.
Chairman of the Board and Senior Vice President, Treasurer and
Chief Executive Officer Chief Financial Officer
45
<PAGE>
[Letterhead of Deloitte & Touche LLP]
Deloitte &
Touche LLP
____________
Independent Auditors' Report
To the Shareholders and Board of Directors
Republic Bancorp Inc.
We have audited the accompanying consolidated balance sheets of Republic
Bancorp Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Republic Bancorp Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 4 to the consolidated financial statements,
Republic Bancorp Inc. adopted recently issued Statements of Financial
Accounting Standards and, accordingly changed its method of accounting for
mortgage servicing rights effective April 1, 1995, and its method of
accounting for income taxes effective January 1, 1993.
/s/ DELOITTE & TOUCHE LLP
January 18, 1996
Detroit, Michigan
46
<PAGE>
Summary of Common Share Market Data
<TABLE>
<CAPTION>
Market Price on Common Shares
------------------------------------------------
1995 1994
------------------- --------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First quarter............ 10 5/8 9 12 3/4 10 1/8
Second quarter........... 11 1/2 10 11 5/8 10 1/8
Third quarter............ 12 7/8 10 1/2 12 3/8 10 5/8
Fourth quarter........... 12 7/8 10 11 3/8 8 5/8
</TABLE>
The Company had 4,448 common shareholders of record and approximately 13,000
total common shareholders as of February 19, 1996. The Common Stock is traded
on the NASDAQ Stock Market under the symbol "RBNC". The prices shown above are
the high and low sales prices of the common stock reported during the periods
indicated and have been restated to reflect all stock dividends.
Payment of cash dividends by the Company on its common stock will depend
upon the receipt of dividends from its subsidiaries, on the consolidated
earnings and financial condition of the Company, on legal restrictions and on
such other factors as the Board of Directors may consider relevant at the
time. The Board of Directors of Republic Bancorp Inc., on February 15, 1996,
declared a quarterly cash dividend of $.10 per share on Common Stock, payable
on April 5, 1996 to shareholders of record on March 8, 1996. It is the current
intent of the Company's Board of Directors to continue to distribute quarterly
cash dividends to common shareholders at the rate of $.10 per share and to
retain the balance of earnings and surplus to provide operating capital and to
finance the growth and development of the Company.
The Company has historically declared stock dividends and stock splits
effected in the form of dividends on its Common Stock. Payment of such stock
dividends in the future will be dependent upon the consolidated earnings and
financial condition of the Company, legal restrictions and other such factors
as the Board of Directors may consider relevant at the time.
Quarterly Data
Selected unaudited quarterly financial information for the latest eight
quarters is shown in the table below. All amounts are in thousands, except per
common share amounts. Per share amounts have been restated for all applicable
stock dividends.
<TABLE>
<CAPTION>
1995 1994
---------------------------------- -------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr
---- --- --- --- --- --- --- ---
(Dollars in thousands, except per share data) (Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total income....................... $38,570 $42,062 $45,818 $44,348 $45,296 $37,089 $36,036 $35,459
Total interest income.............. 22,540 23,409 24,608 25,040 15,896 19,332 21,620 21,371
Total interest expense............. 14,764 15,873 17,237 17,318 8,363 10,663 12,530 13,443
Provision for loan losses.......... 12 12 -- -- 47 17 20 10
Net income......................... 4,205 3,925 4,114 2,020 6,082 5,007 3,025 1,605
Net income per common share:
Primary and fully diluted.... .25 .23 .24 .12 .35 .29 .17 .09
</TABLE>
47
<PAGE>
Republic Affiliates
<TABLE>
<CAPTION>
Republic Bank
- ----------------------------------------- Directors ----------------------------------------------------
<S> <C> <C>
Lee E. Benz Frederick H. Marx John E. VanderPoel
President President Chief Executive Officer
Benz Insurance Agency Marx, Layne & Company Jackson Iron & Metal, Inc.
Barry J. Eckhold Alan R. Pfaff, Jr.
Chairman of the Board President Giorgio Vozza
President and Chief Atlantic Eagle Inc. President
Executive Officer Grant C. Putman Adventure Golf and Design
D. Wayne Fate Farmer
Pharmacist William C. Rands, III David W. Wright
Jack R. Lousma Managing Partner Owner
Consultant Rands Investment Company Wright Ventures
Milton F. Lutz, II David G. Stickel
President Regional President Michael D. Young
Midbrook Products, Inc. Secretary to the Board President, Michael D. Young
and Community Bank Olds, Pontiac, GMC Trucks, Inc.
President - Flint
<CAPTION>
- ----------------------------------------- Officers -----------------------------------------------------
<S> <C> <C>
Barry J. Eckhold Donald F. Chamberlain Michael J. Charlow
Chairman of the Board Vice President Vice President
President and Chief Ronald L. Clingerman Jonathan J. Cousins
Executive Officer Vice President Vice President
David G. Stickel John C. Deming Suzanne A. Lieder
Regional President, Vice President Vice President
Secretary to the Board and Todd A. Endresen Daniel F. Mackenzie
Community Bank President - Vice President Vice President
Flint Pamela J. Foster Heidi H. McNaughton
Constance A. Deneweth Vice President Vice President
Community Bank President - Stephen A. Horton Gregory B. Smith
Traverse City Vice President Vice President
Dennis A. Hill E. James Houston, Jr. Holly G. Tegel
Community Bank President - Vice President Vice President
Jackson Mary E. Kropp
Richard P. Lupkes Vice President Retail Banking & Consumer Lending
Community Bank President - Joann M. Roche Theodore J. Carlson
Ann Arbor Vice President Executive Vice President
David C. Williams Andrew P. Sabatine and Cashier
Community Bank President - Vice President Ian T. Glassford
Southeastern Michigan David J. Skaff Vice President
Thomas G. Zernick Vice President Jack S. Harris
Community Bank President - James L. Stotz Vice President
Lansing Vice President Douglas A. Liverance
Kenneth W. Faupel Robert K. Sission Vice President
Senior Vice President and Vice President Barbara J. Schmidt
Senior Operations Officer Vice President
Jeffrey D. Saunders C.P.A. Mortgage Lending Joanne M. Wrozek
Chief Financial Officer Lawrence D. Corbett Vice President
Commercial Lending Senior Vice President
Craig Foust Michael J. Gleason
Senior Vice President and Senior Vice President
Chief Credit Officer David B. Randall
Vincent G. Cassisa Senior Vice President
Vice President
</TABLE>
48
<PAGE>
Republic Affiliates
<TABLE>
<CAPTION>
Republic Bank (continued)
- --------------------------------------------- Offices ---------------------------------------------------------
<S> <C> <C>
Ann Arbor 2201 East Michigan Avenue 127 East Grand River
122 South Main Street Jackson, Michigan 49202 Webberville, Michigan 48892
Ann Arbor, Michigan 48104 (517) 789-4330 (517) 521-3122
(313) 665-4030
2030 Fourth Street 105 West Middle Street
2100 South Main Street, Suite E Jackson, Michigan 49203 Williamston, Michigan 48895
Ann Arbor, Michigan 48103 (517) 789-4335 (517) 655-4371
(313) 665-4080
904 North Wisner Street Southeastern Michigan
Flint Jackson, Michigan 49202 1700 North Woodward Avenue
3200 Beecher Road (517) 789-4326 Suite B
Flint, Michigan 48532 Bloomfield Hills, Michigan 48304
(810) 732-3300 Loan Production Office (810) 258-5300
4205 South Westnedge Avenue
220 E. Main Street Kalamazoo, Michigan 49008 31155 Northwestern Highway
Flushing, Michigan 48433 (616) 344-0011 Farmington Hills, Michigan 48334
(810) 659-7712 (810) 737-0444
112 Jonesville Street
G-8455 South Saginaw Road Litchfield, Michigan 49252 18720 Mack Avenue
Grand Blanc, Michigan 48439 (517) 542-2931 Grosse Pointe Farms, Michigan 48236
(810) 694-8222 (313) 882-6400
12811 East Chicago Road
1070 East Main Street P.O. Box 9 Traverse City
Owosso, Michigan 48867 Somerset Center, Michigan 49282 534 E. Front Street
(517) 723-7800 (517) 688-4433 Traverse City, Michigan 49686
(616) 933-5626
1345 N. Shiawassee Street 119 West Main Street
Owosso, Michigan 48867 Spring Arbor, Michigan 49283 Loan Production Office
(517) 723-5101 (517) 789-4340 616 Petoskey Street, Suite 306
Petoskey, Michigan 49770
Jackson Lansing (616) 347-0290
306 West Michigan Avenue 500 North Homer Street
Jackson, Michigan 49201 Lansing, Michigan 48912
(517) 789-4300 (517) 351-7300
125 West Main Street 601 West Grand River
Hanover, Michigan 49241 Okemos, Michigan 48864
(517) 563-8332 (517) 349-1930
</TABLE>
49
<PAGE>
Republic Affiliates
<TABLE>
<CAPTION>
Republic Bank Community Boards
- ----------------------------------- Directors ---------------------------------------
<S> <C> <C>
Ann Arbor Jackson Southeastern Michigan
Lee E. Benz G. Mark Alyea Peter A. Dow
Jack R. Lousma Theodore J. Carlson Robert G. Edgar
Richard P. Lupkes Frank A. Denbrock Frederick H. Marx
Robert L. McNaughton Lloyd G. Ganton Sam H. McGoun
William G. Milliken, Jr. Dennis A. Hill Alan R. Pfaff, Jr.
David G. Stickel Gary Hurand William C. Rands, III
James D. Shortt, Jr., Ph.D. William C. Koons Richard H. Turner
Jeoffrey K. Stross, M.D. Milton F. Lutz, II Robert C. Valade
George D. Zuidema, M.D. Phillip O. Richards, M.D. David C. Williams
Jo-Anne Rosenfeld
Flint Lawrence Schultz
Bruce L. Cook John E. VanderPoel
Richard J. Cramer
Dr. George A. Eastman Lansing
Barry J. Eckhold George L. Burkitt
Howard J. Hulsman A. Gregory Eaton
Gary Hurand Barry J. Eckhold
Robert C. Manutes D. Wayne Fate
Dr. Milton Rosenbaum Joe D. Pentecost
David G. Stickel Grant C. Putman
David W. Wright Thomas G. Zernick
Michael D. Young
</TABLE>
50
<PAGE>
Republic Affiliates
<TABLE>
<CAPTION>
Republic Savings Bank
- ------------------------------------------ Directors --------------------------------------------------
<S> <C> <C>
Albert P. Blank Dennis J. Ibold John L. Macklin
Executive Vice President Chairman of the Board President
Partner Investment Advisors
Dana M. Cluckey, C.P.A. Petersen & Ibold International, Inc.
President and Attorneys at Law
Chief Operating Officer Lyman H. Treadway
Republic Bancorp Inc. Craig L. Johnson Consultant
President and Retired Chairman and
Paul C. Drueke Chief Executive Officer Chief Executive Officer
First Vice President Bancapital Corporation
Stifel Nicolaus & Company, Inc. John J. Lennon
Retired Chairman and
Chief Executive Officer
White Engines, Inc.
<CAPTION>
- ------------------------------------------ Officers ----------------------------------------------------
<S> <C> <C>
Craig L. Johnson Brian R. Ludtke, C.P.A. Thomas P. Krumel
President and Chief Financial Officer Vice President
Chief Executive Officer and Treasurer
Daniel G. Merkel
Albert P. Blank Laurie Ellen Bonos Vice President
Executive Vice President Vice President
John L. Mlakar
Terry G. Robbins Michelle J. Dubblestyne Vice President
First Vice President and Secretary Vice President
Leeanne M. Wright
Vice President
<CAPTION>
- ------------------------------------------ Offices -----------------------------------------------------
<S> <C> <C>
26301 Curtiss Wright Parkway 8382 Mentor Avenue Loan Production Office
Richmond Heights, Ohio 44143 Mentor, Ohio 44060 500 W. Wilson Bridge Road
(216) 289-0999 (216) 918-0800 Suite 100
Worthington, Ohio 43085
17800 Chillicothe Road 26777 Lorain Road (614) 888-9582
Chagrin Falls, Ohio 44023 North Olmsted, Ohio 44070
(216) 543-8237 (216) 779-9922 Loan Production Office
201 South Capital, Suite 650
8389 Mayfield Road 2104Warrensville Center Road Indianapolis, Indiana 46225
Chesterland, Ohio 44026 South Euclid, Ohio 44121 (317) 237-5300
(216) 729-1636 (216) 932-7774
Loan Production Office
80 Severance Circle Drive Loan Production Office 500 W. Wilson Bridge Road
Cleveland Heights, Ohio 44118 7333 Paragon Road, Suite 160 Suite 100
(216) 291-3171 Centerville, Ohio 45459 Worthington, Ohio 43085
(513) 438-4663 (614) 888-9582
5710 Mayfield Road
Greens of Lyndhurst
Lyndhurst, Ohio 44124
(216) 461-7300
</TABLE>
51
<PAGE>
Republic Affiliates
<TABLE>
<CAPTION>
Republic Bancorp Mortgage Inc.
(and its division Home Funding, Inc.)
- -------------------------------------------------- Directors ---------------------------------------------------
<S> <C> <C>
George B. Smith Jerry D. Campbell Dana M. Cluckey, C.P.A.
Chairman of the Board Chairman and President and
Republic Bancorp Mortgage Inc. Chief Executive Officer Chief Executive Officer
Republic Bancorp Inc.
Barry J. Eckhold Richard H. Shaffner Charles W. Adams
Chairman, President and Consultant Consultant
Chief Executive Officer
Republic Bank
<CAPTION>
- -------------------------------------------------- Officers -----------------------------------------------------
<S> <C> <C>
George B. Smith Charles W. Cracraft Daniel B. Smith
Chairman of the Board Vice President Vice President
Dana M. Cluckey, C.P.A. Alfred E. Davis Thomas B. Smith
President and Vice President Vice President
Chief Executive Officer
Debra J. Gouin Timothy B. Smith
Diana L. Wallace Vice President Vice President
Senior Vice President
Thomas R. Henaughen Michael G. Taormino
William A. Zablocki Vice President Vice President
Senior Vice President
Deborah E. Harman Gail T. Thomas
Sandra J. Nickol Vice President Vice President
Senior Vice President
C. Ann Jeffares Lisa A. Wickham
Lawrence Rosenberg, C.P.A. Vice President Vice President
Chief Financial Officer
Howard M. Nathan William D. Wilhammer
Barbara J. Bartus Controller Vice President
Vice President
Marcetta Nelson - Rhodes Joseph A. Cilento
Greg R. Bixby Vice President President, Home Funding Inc. Division
Vice President
Barbara Jo Smith Kathleen Quinn
Robert L. Borkowski Vice President Executive Vice President,
Vice President Home Funding Inc. Division
<CAPTION>
- -------------------------------------------------- Offices -----------------------------------------------------
<S> <C> <C>
31155 Northwestern Highway 186 South Main Street 195 Farmington Avenue, Suite 310
Farmington Hills, Michigan 48334 Plymouth, Michigan 48170 Farmington, Connecticut 06032
(810) 932-6500 (313) 459-7800 (203) 678-1778
1919 West Stadium, Suite 4 543 Main Street 1407 Route 9
Ann Arbor, Michigan 48103 Suite 213 Clifton Park, New York 12065
(313) 995-4499 Rochester, Michigan 48307 (518) 373-0814
(810) 656-4200
1700 North Woodward Avenue 6701 Manlius Center Road
Bloomfield Hills, Michigan 48304 14715 Northline Road East Syracuse, New York 13057
(810) 646 7050 Southgate, Michigan 48195 (315) 431-4100
(313) 283-6200
322 West Grand River Two Meeting House Road
Brighton, Michigan 48116 457 Main Street Chelmsford, Massachusetts 01824
(810) 229-7440 Danbury, Connecticut 06811 (508) 250-2700
(203) 791-1736
Two Summit Court, Suite 202
Fishkill, NY 12524
(914) 896-1800
</TABLE>
52
<PAGE>
Republic Affiliates
<TABLE>
<CAPTION>
Market Street Mortgage Corporation
- --------------------------------------- Directors ----------------------------------------
<S> <C>
Randall C. Johnson, CMB Jerry D. Campbell
Chairman of the Board Chairman and
President and Chief Executive Officer
Chief Executive Officer Republic Bancorp Inc.
T. Donnell Smith, CMB Dana M. Cluckey, C.P.A.
Executive Vice President President and
Chief Operating Officer
Michael H. Dillon, C.P.A. Republic Bancorp Inc.
Executive Vice President
<CAPTION>
- --------------------------------------- Officers -----------------------------------------
<S> <C> <C>
Randall C. Johnson, CMB Anthony J. Agliardi, C.P.A. Brian W. Prentice
Chairman of the Board, Vice President Vice President
President and and Controller
Chief Executive Officer Lauren C. Reed
Michael T. Alea Vice President
T. Donnell Smith, CMB Vice President
Executive Vice President Charles W. Richardson
Ross G. Bennett Vice President
Michael H. Dillon, C.P.A. Vice President
Executive Vice President Timothy A. Slone
Barry W. Carroll Vice President
James B. Capps Vice President
Senior Vice President Nancy K. Smith
Jerry F. Cobbe Vice President
Tracy S. Jackson, C.P.A. Vice President
Senior Vice President Gene F. Swindle
Chief Financial Officer, Barbara Jan Jenkins Vice President
Treasurer and Secretary Vice President
Nancy J. Weaver
Nancy A. Jones Bruce W. Kates Vice President
Senior Vice President Vice President
John M. Welsh
Barbara V. VanAntwerp Patricia K. McCabe Vice President
Senior Vice President Vice President
Frank L. Wolff
Vickey L. Adkins Brian J. Murphy Vice President
Vice President Vice President
Anna Y. Agee John C. Pacini
Vice President Vice President
</TABLE>
53
<PAGE>
Republic Affiliates
<TABLE>
<CAPTION>
Market Street Mortgage Corporation (continued)
- -------------------------------------------- Offices --------------------------------------------------------------
<C> <C> <C>
2650 McCormick Drive, Suite 200 1715 North Westshore Boulevard 3901 National Drive, Suite 210
Clearwater, Florida 34619 Suite 552 Burtonsville, Maryland 20866
(800) 669-3210 Tampa, Florida 33607 (301) 989-8500
(813) 724-7000 (813) 286-8700
18215-D Flower Hill Way
9240 Bonita Beach Road, Suite 2209 111 Hidden Glen Way Gaithersburg, Maryland 20879
Bonita Springs, Florida 33923 Dothan, Alabama 36303 (301) 670-5660
(941) 495-5454 (334) 794-7660
2701 Coltsgate Road, Suite #101
1375 Oakfield Drive 6719 Taylor Circle, Unit B Charlotte, North Carolina 28211
Brandon, Florida 33511 Montgomery, Alabama 36117 (704) 365-9044
(813) 681-7700 (334) 277-9011
7611 Little River Turnpike
1401 S. Florida Avenue #204 2222 S. Dobson Road, Suite 102 Suite 502W
Lakeland, Florida 33803 Mesa, Arizona 85202 Annandale, Virginia 22003
(941) 688-6211 (602) 897-7447 (703) 941-6600
Cross Bayou Commerce Center 4222 E. Camelback Road 3998 Fair Ridge Drive, Suite 200
11701 Belcher Road South, Suite 110 Suite H100 Fairfax, Virginia 22033
Largo, Florida 34643 Phoenix, Arizona 85018 (703) 359-0100
(813) 539-8300 (602) 840-4434
8700 Centreville Road
2500 Maitland Center Parkway 500 E. Fry Boulevard, Suite L9 Suite 310
Suite 402 Sierra Vista, Arizona 85635 Manassas, Virginia 22110
Maitland, Florida 32751 (520) 458-8523 (703) 331-0300
(407) 875-6900
7850 Vance Drive, Suite 190 3102 Tyre Neck Road
11440 North Kendall Drive Arvada, Colorado 80003 Portsmouth Virginia 23703
Suite 301-305 (303) 424-6993 (804) 686-0022
Miami, Florida 33176
(305) 596-1640 Plaza Quebec 4510 Holland Office Park
6025 South Quebec, Suite 120 Suite 503
9050 Pines Blvd. Suite 100 Englewood, Colorado 80111 Virginia Beach, Virginia 23452
Pembroke Pines, Florida 33024 (303) 721-1120 (804) 497-0022
(954) 438-6600
214 8th Street, Suite 210
5700 North David Highway, Suite 4 Glenwood Springs, Colorado 81601
Pensacola, Florida 32504 (970) 945-7200
(904) 479-7991
5669 Whitesville Road, Suite B
1800 Second Street, Suite 952 Columbus, Georgia 31904
Sarasota, Florida 34236 (706) 324-0074
(941) 954-8880
300 Chastain Center Blvd., Suite 335
3160 Fifth Avenue North, Suite 140 Kennesaw, Georgia 30144
St. Petersburg, Florida 33713 (770) 795-0886
(813) 539-8300
Woodfield Financial Center
3550 Bushwood Park Drive, Suite 150 1375 E. Woodfield Road, Suite 250
Tampa, Florida 33618 Schaumburg, Illinois 60173
(813) 932-4578
</TABLE>
54
<PAGE>
Republic Affiliates
<TABLE>
<CAPTION>
CUB Funding Corporation
(and its division RSL Mortgage)
- ---------------------------------------------- Directors -----------------------------------------------------
<S> <C> <C>
Douglas E. Jones Jerry D. Campbell Dana M. Cluckey, C.P.A.
Chairman of the Board and Chairman and President and
Chief Executive Officer Chief Executive Officer Chief Operating Officer
Republic Bancorp Inc. Republic Bancorp Inc.
Daniel M. LuVisi
Vice Chairman and President Barry J. Eckhold
Chairman, President
and Chief Executive Officer
Republic Bank
<CAPTION>
- ----------------------------------------------- Officers ------------------------------------------------------
<S> <C> <C>
Douglas E. Jones John Gunther John P. Dixon
Chairman of the Board and Senior Vice President - CUB Vice President
Chief Executive Officer President - RSL Division
Daniel M. LuVisi Judy L. Smith Dennece Bickley
Vice Chairman and President Vice President and Controller Vice President
Anne L. Elliott
Senior Vice President
<CAPTION>
- ----------------------------------------------- Offices --------------------------------------------------------
<S> <C> <C>
26565 West Agoura Road, Suite 305 1265 S. Bascom Avenue, Suite 110 1199 Shoreline Drive, Suite 250
Calabasas, California 91302-1958 San Jose, California 95128 Boise, Idaho 83702
(818) 880-4400 (800) 559-4775 (209) 331-0285
100 Pacifica, Suite 340 1164 N. Monte Vista Avenue, Suite 4 601 S. Rancho Drive, Suite D-29
Irvine, California 92718 Upland, California 91786 Las Vegas, Nevada 89106
(714) 753-7424 (909) 920-5252 (702) 382-2829
23332 Mill Creek Drive, Suite 225 2590 E. Main Street, Suite 200 10260 SW Greenburg Road,
Laguna Hills, California 92653 Ventura, California 93003 Suite 535
(800) 966-4775 (800) 577-4775 Portland, Oregon 97223
(503) 293-7390
1670 Hillhurst Avenue, Suite 204 21241 Ventura Blvd., Suite 253
Los Angeles, California 90027 Woodland Hills, California 91302 320 108th Avenue, N.E., Suite 600
(213) 953-7133 (818) 227-8360 Bellevue, Washington 98004
(206) 646-2808
3140 Gold Camp Drive 2390 East Camelback Road, Suite 300
Suite 150 Phoenix, Arizona 85016
Rancho Cordova, California 95670 (602) 553-1009
(916) 631-1304
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Republic Bancorp Inc.
- -------------------------------------------------- Directors ----------------------------------------------------------
<S> <C> <C>
Jerry D. Campbell Gary Hurand Kelly E. Miller
Chairman and President President
Chief Executive Officer Dawn Donut Systems, Inc. Miller Oil Corporation
Dana M. Cluckey, C.P.A. Dennis J. Ibold Joe D. Pentecost
President, Partner President
Chief Operating Officer and Petersen & Ibold Better Properties, Inc.
Assistant Secretary Attorneys at Law
George B. Smith
Bruce L. Cook Stephen M. Klein Chairman of the Board
Chairman Chairman and Republic Bancorp Mortgage Inc.
Wolverine Sign Works Chief Executive Officer
Omni Funding Corporation Dr. Jeoffrey K. Stross
Richard J. Cramer Professor, Internal Medicine
President John J. Lennon Associate Chief of Clinical Affairs
Dee Cramer, Inc. Retired Chairman and University Medical Center
Chief Executive Officer
Dr. George A. Eastman White Engines, Inc. Directors - Emeriti
Orthodontic Consultant Myer N. Franklin
Sam H. McGoun David Laro
Howard J. Hulsman President and John F. Northway
Chairman. Chief Executive Officer Lyman H. Treadway
Ross Learning Inc. Willis Corroon Corporation
of Michigan, Inc.
<CAPTION>
- -------------------------------------------------- Officers -----------------------------------------------------------
<S> <C> <C>
Jerry D. Campbell Barry J. Eckhold Travis D. Jones, C.P.A.
Chairman and Vice President Vice President and
Chief Executive Officer Chief Credit Officer and Controller
Secretary
Dana M. Cluckey, C.P.A. Mary Lou Scriba
President, Timothy G. Blazejewski, C.P.A. Investment Relations Manager
Chief Operating Officer and Vice President and and Assistant Secretary
Assistant Secretary Chief Investment Officer
Pamela E. Taiariol
Thomas F. Menacher, C.P.A. Debra A. Hanses, PHR Corporate Internal Audit and
Senior Vice President, Treasurer and Vice President Compliance Officer
Chief Financial Officer Corporate Human Resources
<CAPTION>
- -------------------------------------------------- Offices ------------------------------------------------------------
<S> <C>
1070 East Main Street 122 South Main Street
P.O. Box 70 Ann Arbor, Michigan 48104
Owosso, Michigan 48867 (313) 665-4030
(517) 725-7337
</TABLE>
56
<PAGE>
Corporate Information
Annual Meeting
The Annual Meeting of Shareholders of Republic Bancorp Inc. will be held on
April 24, 1996 at 9:00 a.m. at the Novi Hilton, 21111 Haggerty Road, Novi,
Michigan.
Additional Shareholder Information
Those seeking general information about the Company or a copy of the Form 10-K
filed with the Securities and Exchange Commission may contact:
Thomas F. Menacher, C.P.A.
Senior Vice President, Treasurer and Chief Financial Officer
P.O. Box 70
Owosso, Michigan 48867
(517) 725-7337
Independent Auditors
Deloitte & Touche, LLP
Detroit, Michigan
Legal Counsel
Dickinson, Wright, Moon, Van Dusen & Freeman
Detroit, Michigan
Miller, Canfield, Paddock and Stone
Detroit, Michigan
Stock Transfer Agent and Register
State Street Bank and Trust Company
c/o Boston EquiServe
P.O. Box 1865
Boston, Massachusetts 02105
(800) 257-1770
57
<PAGE>
Corporate Information (continued)
Dividend Reinvestment Plan
Republic Bancorp Inc. shareholders of record may elect to have dividends
automatically reinvested in additional shares of Republic stock through its
Dividend Reinvestment Plan (Plan). The Plan offers you the opportunity to
reinvest your quarterly cash dividends, as well as make supplemental cash
contributions toward the purchase of additional Republic Bancorp common stock.
The Plan is voluntary and there are no service charges or brokerage fees for
purchases under the Plan. We are pleased to make this Plan available to
Republic shareholders, and we invite you to participate.
Requests for additional information about this Plan, or any questions
about stock holdings should be directed to:
Mary Lou Scriba
Investor Relations
Manager P.O. Box 70
Owosso, Michigan 48867
(517) 725-7337
Common Stock
The common stock of Republic Bancorp Inc. is traded on The NASDAQ Stock Market
under the symbol RBNC. The following 22 brokerage firms make a market in the
common stock of Republic Bancorp Inc.
<TABLE>
<S> <C> <C>
A.G. Edwards & Sons, Inc. Gruntal & Co. Incorporated Pauli & Company, Inc.
St. Louis, Missouri 63103 New York, New York 10005 St. Louis, Missouri 63105
Allen & Company, Inc. Herzog, Heine, Geduld, Inc. RFB Investments Inc.
New York, New York 10022 New York, New York 10004 New York, New York 10022
Robert W. Baird & Co., Inc. Howe Barnes Investments, Inc. Roney & Co.
Milwaukee, Wisconsin 53202 Chicago, Illinois 60603 Detroit, Michigan 48226
The Chicago Corporation Keefe, Bruyette & Woods, Inc. Sherwood Securities Corp.
Chicago, Illinois 60604 New York, New York 10048 New York, New York 10285
Dean Witter Reynolds, Inc. MacAllister Pitfield MacKay Smith Barney Shearson, Inc.
New York, New York 10048 New York, New York 10004 New York, New York 10105
Everen Securities Inc. Mayer & Schweitzer Inc. Stifel Nicolaus & Co., Inc.
Chicago, Illinois 60601 Jersey City, New Jersey 07302 St. Louis, Missouri 63102
First of Michigan Corporation McDonald & Company Securities,Inc. Troster Singer Corp.
Detroit, Michigan 48226 Cleveland, Ohio 44114 Jersey City, New Jersey 07302
Nash Weiss
Jersey City, New Jersey 07302
</TABLE>
58
EXHIBIT 23
[Letterhead of Deloitte & Touche LLP]
Deloitte &
Touche LLP
____________
Independent Auditors' Consent
We consent to the incorporation by reference of our report dated January 18,
1996, appearing in the Annual Report on Form 10-K of Republic Bancorp Inc. for
the year ended December 31, 1995 and into the following registration
statements:
No. 33-55336 on Form S-8
No. 33-55304 on Form S-8
No. 33-62508 on Form S-8
No. 33-61842 on Form S-3
/s/ DELOITTE & TOUCHE LLP
March 26, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information
extracted from the consolidated balance sheet as of
December 31, 1995 and consolidated statements of income
for the twelve months ended December 31, 1995.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> $ 36,260
<INT-BEARING-DEPOSITS> 3,381
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 317,769
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,001,476
<ALLOWANCE> 5,002
<TOTAL-ASSETS> 1,472,690
<DEPOSITS> 904,729
<SHORT-TERM> 307,951
<LIABILITIES-OTHER> 44,806
<LONG-TERM> 87,928
0
0
<COMMON> 82,390
<OTHER-SE> 43,986
<TOTAL-LIABILITIES-AND-EQUITY> 1,472,690
<INTEREST-LOAN> 71,488
<INTEREST-INVEST> 24,109
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 95,597
<INTEREST-DEPOSIT> 38,798
<INTEREST-EXPENSE> 65,192
<INTEREST-INCOME-NET> 30,405
<LOAN-LOSSES> 24
<SECURITIES-GAINS> 1,061
<EXPENSE-OTHER> 83,152
<INCOME-PRETAX> 22,430
<INCOME-PRE-EXTRAORDINARY> 22,430
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,264
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.84
<YIELD-ACTUAL> 2.38
<LOANS-NON> 1,292
<LOANS-PAST> 345
<LOANS-TROUBLED> 688
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,544
<CHARGE-OFFS> 845
<RECOVERIES> 279
<ALLOWANCE-CLOSE> 5,002
<ALLOWANCE-DOMESTIC> 2,705
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,297
</TABLE>
