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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 [No Fee Required]
For the Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the Transition Period From __________ to ___________
Commission File Number: 0-15734
REPUBLIC BANCORP INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2604669
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes __X__ No _____
Indicate 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. [ ]
The aggregate market value of the registrant's common stock held by
non-affiliates, based on the closing price on March 7, 1997 of $13.50, was
$204.5 million.
Number of shares of registrant's common stock outstanding
as of March 7, 1997: 17,124,642
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of registrant's Proxy Statement dated March 19, 1997 ("1997
Proxy Statement") filed with the Commission (Part III).
(2) Registrant's 1996 Annual Report Supplement to the 1997 Proxy Statement
(Part II and Part IV).
(3) Portions of registrant's 1996 Annual Report to Shareholders (Part II and
Part IV).
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FORM 10-K TABLE OF CONTENTS
Page
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Part I
Item 1 - Business............................................... 1 - 9
Item 2 - Properties............................................. 10
Item 3 - Legal Proceedings...................................... 10
Item 4 - Submission of Matters to a Vote of Security Holders.... 10
Part II
Item 5 - Market for Registrant's Common Stock and
Related Stockholder Matters............................ 10
Item 6 - Selected Financial Data................................ 10
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 10
Item 8 - Financial Statements and Supplementary Data............ 11
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 11
Part III
Item 10 - Directors and Executive Officers of the Registrant..... 11
Item 11 - Executive Compensation................................. 11
Item 12 - Security Ownership of Certain Beneficial Owners and
Management............................................. 12
Item 13 - Certain Relationships and Related Transactions......... 12
Part IV
Item 14 - Exhibits, Financial Statement Schedules and Report on
Form 8-K...............................................12 - 13
Signatures........................................................ 14
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PART I
ITEM 1. BUSINESS
General
Republic Bancorp Inc. (the "Company") is a bank holding company incorporated
under the laws of the State of Michigan in 1986. The Company's principal
office is located in Ann Arbor, Michigan. The Company currently operates 106
banking and mortgage banking offices in 19 states. Commercial and retail
banking products are offered through its two banking subsidiaries: Republic
Bank and Republic Savings Bank. The subsidiary banks operate 42 retail
banking and loan production offices in primarily Michigan and Ohio.
To complement its commercial and retail banking activities, the Company
has grown a nationwide mortgage banking business with Market Street Mortgage
Corporation ("Market Street"), an 80% majority-owned mortgage banking
subsidiary headquartered in Clearwater, Florida, with 35 offices in 10
states; Republic Bancorp Mortgage Inc. ("Republic Bancorp Mortgage"), a
mortgage company located in Farmington Hills, Michigan, with 13 offices in 5
states; and CUB Funding Corporation ("CUB Funding"), a mortgage company based
in Calabasas, California, with 16 offices in 4 states. Republic Bancorp
Mortgage is a wholly owned subsidiary of Republic Bank and CUB Funding is an
80% majority-owned subsidiary of Republic Bank.
At December 31, 1996, the Company had consolidated total assets of $1.5
billion, total deposits of $1.0 billion and shareholders' equity of $121.8
million. For the year ended December 31, 1996, the Company reported net
income of $14.7 million, compared to $14.3 million for 1995. Mortgage loan
originations totaled $3.6 billion in 1996, compared to $2.8 billion in 1995.
At year-end 1996, the Company's mortgage loan servicing portfolio was $2.7
billion, compared to $4.0 billion at year-end 1995.
Business Segments
Commercial and Retail Banking
The Company has two banking subsidiaries: Republic Bank and Republic
Savings Bank. Republic Bank, a state-chartered bank headquartered in Ann
Arbor, Michigan, exercises the powers of a full-service commercial bank,
excluding trust powers, and operates 26 offices in six market areas in
Michigan. At December 31, 1996, Republic Bank had $976 million in assets and
$735 million in deposits. Republic Savings Bank, a state-chartered savings
bank headquartered in Pepper Pike, Ohio, exercises the powers of a
full-service savings bank and operates 16 offices primarily in the greater
Cleveland area as well as Columbus, Dayton and Cincinnati, Ohio and
Indianapolis, Indiana. At December 31, 1996, Republic Savings Bank had $467
million in assets and $285 million in deposits.
The commercial and retail banking segment consists of commercial and
Small Business Administration (SBA) lending, mortgage portfolio lending, home
equity lending and the deposit-gathering function. Lending activity at the
banking subsidiaries is primarily focused on real estate-secured lending to
minimize credit risk. While fixed rate and variable rate residential mortgage
loans secured by the underlying 1-4 family residential property represent the
main types of loans originated, efforts are also concentrated on generating
commercial real estate loans. In addition, emphasis is placed on loans that
are government guaranteed, such as SBA loans. Commercial and industrial loans
made are generally secured by company assets at a 75% or less loan-to-value
ratio and by personal guarantees.
The banking subsidiaries target the customer market segment that is
interested in receiving personalized banking service when opening a deposit
account. Deposits consist primarily of retail deposits gathered from within
the local markets served. At December 31, 1996, interest-bearing deposits
constituted 87% of consolidated total deposits, and retail time deposits of
$100,000 or more comprised 18% of interest-bearing deposits.
Mortgage Banking
Mortgage banking activities are concentrated in two areas: mortgage loan
production and mortgage loan servicing. Mortgage loan production involves the
origination, purchase and sale of single-family residential mortgage loans.
As a mortgage loan servicer, the Company administers loans, collects and
remits loan payments, holds funds in escrow for payment of taxes and
insurance, counsels delinquent mortgagors and supervises foreclosures and
property dispositions in the event of unremedied defaults. Mortgage lending
is conducted by all of the Company's subsidiaries and affiliates, while
mortgage loan servicing is conducted by the Company's three mortgage
companies. All mortgage loan originations or purchases are funded by the
Company's banking subsidiaries.
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Residential mortgage loans are originated through 100 retail mortgage
loan production offices located in Michigan, Alabama, Arizona, California,
Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Maryland,
Massachusetts, New York, North Carolina, Ohio, Utah and Virginia, as well as
through wholesale operations conducted from 6 offices (one each in Arizona
and Oregon and four in California). Wholesale originations involve the
purchase of residential loans from approximately 600 participating brokers
and correspondents.
Each retail loan production office is responsible for processing loan
applications received and preparing loan documentation. Loan applications are
then evaluated by the underwriting departments of either the Company's
banking subsidiaries or mortgage banking subsidiary for compliance with the
Company's underwriting criteria, including loan to value ratios, borrower
qualifications and required insurance. Residential loans purchased through
the wholesale operation are processed and prepared by the brokers. These
loans are subsequently reviewed by the Company's quality control personnel
using certain verification procedures.
The Company originates primarily conventional mortgage loans secured by
residential properties which conform to the underwriting guidelines for sale
to the Federal National Mortgage Association (FNMA) and the Federal Home Loan
Mortgage Corporation (FHLMC). Loans guaranteed by the Department of Veterans
Affairs (VA) and insured through the Federal Housing Administration (FHA) are
originated in compliance with their underwriting guidelines permitting
conversion of such loans into mortgage-backed securities issued by the
Government National Mortgage Association (GNMA).
Growth in the Company's residential mortgage origination business during
1996 was funded primarily with the subsidiary banks' retail deposits and
short-term borrowings, including Federal Home Loan Bank (FHLB) advances and
securities sold under agreement to repurchase. The majority of all mortgage
loans originated are held for a short period of time (generally less than 60
days) with the intent of selling them into the secondary market. These loans
are classified as mortgage loans held for sale in the Company's consolidated
balance sheet. Mortgage loans held for sale consist of loans that will be
sold directly to secondary market investors and loans that are being prepared
for securitization into mortgage-backed securities, however, the
mortgage-backed security has not yet been formed and issued. These mortgage
loans and resulting mortgage-backed securities are typically sold without
recourse to the Company in the event of default by the borrowers. To minimize
interest rate risk, the Company obtains mandatory purchase commitments from
investors prior to funding the loans.
Consistent with the Company's strategy of managing interest rate risk,
substantially all long-term fixed rate mortgages originated are typically
securitized and sold or sold directly to secondary market investors. The
majority of short-term fixed rate mortgages and variable rate mortgages are
typically securitized and sold or sold directly to secondary market
investors, although a portion of the mortgage originations my be retained in
the loan portfolios of Republic Bank and Republic Savings Bank. Portfolio
loans may be securitized and reclassified as available for sale.
When the Company sells residential mortgage loans originated or
purchased, it may either retain or sell the rights to service those loans and
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. Market Street, Republic Bancorp Mortgage and CUB Funding
receive servicing fees ranging generally from 25 to 45 basis points per annum
on their respective servicing portfolios.
The Company's current operating strategy for the mortgage banking segment
is to continue growing mortgage banking fee income and related interest
income while managing interest rate and liquidity risks. The Company's
mortgage banking segment earn fees for originating and servicing loans.
Selling mortgage loan originations into the secondary market provides
additional revenue, the level of which is dependent upon market conditions at
the time of sale. In addition, the mortgage banking segment effectively earns
long-term interest rates on short-term investments (i.e., mortgage loans held
for sale), which helps the Company to minimize interest rate risk.
Principal Sources of Revenue
The principal sources of revenue for the Company are interest income from
interest and fees on loans and mortgage banking income. Interest and fees on
loans totaled $80 million in 1996, an increase of 13% from $71 million in
1995 and up 50% from $54 million in 1994. In 1996 and 1995, interest and fees
on loans accounted for 42% of total revenues, compared to 35% in 1994.
Mortgage banking income, the largest component of noninterest income, totaled
$86 million in 1996, an increase of 22% from $71 million in 1995 and up 24%
from $70 million in 1994. Mortgage banking income represented 45% of total
revenues in 1996, compared to 42% in 1995 and 45% in 1994.
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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 and types of potential depository
institution competitors have substantially increased. See "Recently Enacted
and Proposed Legislation."
In addition to competition from other banks, the Company continues to
face increased competition from other financial services organizations.
Competition from finance companies and credit unions has increased in the
areas of consumer lending and deposit gathering. The Company's mortgage
banking subsidiary and affiliates also face significant competition from
numerous bank and non-bank companies. Generally, other financial institutions
have greater resources to use in making acquisitions and higher lending
limits than those of the Company's banking subsidiaries or any banking
institution that the Company could acquire. Such institutions can also
provide certain non-traditional financial products and services to their
customers which the Company's banking subsidiaries may not offer (e.g.,
brokerage services and insurance products).
The principal factors of competition in the markets for deposits and
loans are price (interest rates paid and charged) and customer service. The
Company's banking subsidiaries compete for deposits by offering depositors a
variety of checking and savings accounts, time deposits, convenient office
locations and other 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 loans 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.
Supervision and 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.
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 (such as the Company) located in
one State, 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.
3
<PAGE>
Under Federal Reserve Board policy, the Company is expected to act as
a source of financial and managerial 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.
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
September 1996, the agencies adopted regulations requiring each bank
holding company having trading activity equal to (a) 10% or more of its
consolidated total assets or (b) $1 billion, to measure, and to hold
amounts of capital commensurate with, the market risk of its trading
activities. Market risk refers to the risk of loss resulting from
movements in market prices, which can occur both from broad market
movements such as the general level of interest rates, and from changes
in the market value of specific positions, such as the credit risk of the
issuer of a specific instrument. The new regulations took effect for
voluntary compliance on January 1, 1997, with mandatory compliance
commencing January 1, 1998.
2. Banking 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.
4
<PAGE>
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 in writing 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. 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.
Michigan and Ohio law, respectively, place specific limits on the
source and amount of dividends which may be paid by Republic Bank and
Republic Savings, respectively. 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.
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.
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.
Republic Bank is generally 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). Pursuant to the Omnibus
Consolidated Appropriations Act, 1997 ("OCAA"), a special one-time
assessment was made by the FDIC in October 1996, on SAIF-insured deposits
to bring the SAIF to its mandated reserve ratio of 1.25% of aggregate
SAIF-insured deposits by January 1, 1997. OCAA contemplates the merger of
the BIF and SAIF into a single Deposit Insurance Fund ("DIF") on January
1, 1999, under certain conditions. See "Recently Enacted and Proposed
Legislation."
5<PAGE>
3. Mortgage Subsidiary and Affiliates
The Company's non-depository mortgage banking subsidiary, Market Street,
and mortgage company affiliates, Republic Bancorp Mortgage and CUB
Funding, (collectively referred to as "the mortgage companies") 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, the mortgage companies 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.
OCAA amended each of the foregoing federal statutes. See "Recently
Enacted and Proposed Legislation."
Market Street and CUB Funding purchase mortgage loans from approved
correspondents and brokers. They each perform their own underwriting
review of the mortgage loans purchased. 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, the mortgage companies
are participants in the secondary mortgage market with some or all of the
following: private institutional investors, FNMA, GNMA, FHLMC, VA and
FHA. In their dealings with these agencies, the mortgage companies 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 the mortgage companies
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 Bancorp Mortgage, Market Street or CUB Funding) to repurchase
the non-conforming mortgage loans. Additionally, FNMA, FHLMC, GNMA, VA
and FHA may require the mortgage companies 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."
4. Recently Enacted and Proposed Legislation
The Housing and Community Development Act of 1992 ("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.
Effective January 2, 1996, the Secretary of Housing and Urban
Development 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 which 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. In
July 1996, OFHEO adopted final regulations implementing the minimum
capital and capital classification provisions of HCDA applicable to FNMA
and FHLMC. OFHEO is currently developing the components of a risk-based
capital regulation to be applied to the two companies. 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.
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 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.
7<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 also permitted non-U.S. banks to establish branch
offices in Michigan. As further amended in 1996, the Michigan Banking
Code permits, in appropriate circumstances and with notice to, or 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 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 protec-
torates, (vii) the establishment of branches in Michigan by FDIC-insured
banks located in other States, the District of Columbia or U.S. terri-
tories 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. In 1996, the Michigan
Legislature enacted legislation authorizing formation of savings banks
chartered by the Commissioner of the FIB.
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.
The new regulations will be applied in phases over a two-year
transition period. In general, the new rules 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.
As part of the Omnibus Consolidated Appropriations Act ("OCAA"),
Congress (a) imposed a one-time special assessment on all SAIF-insured
deposits, (b) imposed on BIF-insured deposits a continuing assessment to
defray a portion of the cost of retiring bonds issued by the Financing
Corporation, and (c) upon satisfaction of certain conditions, mandated
the merger of the BIF and SAIF as a single fund (the "DIF") on January 1,
1999. OCAA also amended numerous federal laws regarding consumer credit,
including the Truth-In-Lending Act and the Real Estate Settlement
Procedures Act (to simplify consumer disclosures with respect to home
mortgage loans) and, effective September 30, 1997, the Fair Credit
Reporting Act (to permit bank holding companies and their subsidiaries to
share information concerning their customers, and also imposing duties on
businesses reporting information to credit bureaus).
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.
8<PAGE>
5. 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 by a bank holding company of a bank located in
another State 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.
Each of the foregoing types of applications is 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.
As amended by OCAA in 1996, the BHC Act now permits bank holding
companies (such as the Company) which satisfy statutory criteria as
well-managed and well-capitalized and which own well-capitalized and
well-managed depository institution subsidiaries, subject to certain
limitations based upon a percentage of assets and capital and without
prior notice to or approval of the Federal Reserve Board, to engage de
novo in activities previously determined by regulation of the Board to be
so clearly related to banking as to be a proper incident thereto. Such
bank holding companies must provide a written notice to the Board within
10 days of commencing such an activity. In addition, such bank holding
companies may, subject to similar limitations, engage de novo in
non-banking activities already approved by the Board by order, or acquire
companies engaged in any such non-banking activity, upon 12 business
days' prior written notice to the Board.
Bank holding companies not satisfying the statutory criteria, and any
bank holding company proposing a transaction not meeting the asset and
capital limitations or involving a non-banking activity not yet approved
by regulation or order of the Federal Reserve Board, must provide prior
written notice to the Board, generally 60 days in advance of the proposed
transaction.
In evaluating a written notice of such a transaction, 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.
9
<PAGE>
ITEM 2. PROPERTIES
The executive offices of the Company are located in a two-story building
at 1070 East Main Street in Owosso, Michigan. At December 31, 1996, the
Company had 36 banking locations, of which 17 are owned and 19 are leased,
and 70 mortgage loan production offices, all of which are leased except one
which is owned. All of these offices are considered by management to be well
maintained and adequate for the purpose intended. Refer to Notes
7 and 17 in the Notes to Consolidated Financial Statements incorporated by
reference into Item 8 of this document for further information on properties.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to certain ordinary, routine
legal actions and proceedings in the normal course of business. Although
litigation is subject to many uncertainties and the ultimate outcome with
respect to these matters cannot be ascertained, management does not believe
that the aggregate liability, if any, resulting from such actions would have
a material adverse affect on the Company's financial condition, results of
operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
For information regarding the Company's Common Stock, including the
quarterly high and low sales price as reported on the Nasdaq Stock Market and
cash dividends declared and paid, refer to the "Summary of Common Share
Market Data," on page 27 of the registrant's 1996 Annual Report to
Shareholders and "Table 1. Five Year Summary of Selected Financial Data," on
page S-1 of the registrant's 1996 Annual Report Supplement to the 1997 Proxy
Statement, herein incorporated by reference. There were 4,785 shareholders of
record of the Company's common stock and approximately 13,500 total
shareholders as of March 7, 1997.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth in "Table 1. Five Year Summary of Selected
Financial Data," on page S-1 of the registrant's 1996 Annual Report
Supplement to the 1997 Proxy Statement is herein incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages S-2 to S-19 of the
registrant's 1996 Annual Report Supplement to the 1997 Proxy Statement is
herein incorporated by reference.
10
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth in the Consolidated Financial Statements and
the Notes to the Consolidated Financial Statements, together with the report
thereon by Deloitte & Touche LLP, on pages S-20 to S-47 of the registrant's
1996 Annual Report Supplement to the 1997 Proxy Statement is herein
incorporated by reference.
The unaudited information presented in the "Quarterly Data" table on page
27 of the registrant's 1996 Annual Report to Shareholders is herein
incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting
and financial disclosure as defined by Item 304 of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The information set forth under the caption "Board of Directors" on pages
10 to 11 of the registrant's 1997 Proxy Statement is herein incorporated by
reference.
Executive Officers
The following is a list of all the executive officers (5) of the Company
as of March 1, 1997. There are no family relationships between any of the
executive officers.
<TABLE>
<CAPTION>
Officer
Name Age Title Since
- ---- --- ----- -------
<S> <C> <C> <C>
Jerry D. Campbell.................. 56 Chairman of the Board and 1985
Chief Executive Officer
Dana M. Cluckey.................... 37 President and Chief Operating Officer 1986
Barry J. Eckhold................... 50 Vice President and Chief Credit Officer 1990
Thomas F. Menacher................. 40 Senior Vice President, Treasurer and
Chief Financial Officer 1992
George E. Parker, III.............. 62 General Counsel and Corporate Secretary 1997
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Personnel, Compensation and
Nominating Committee Report" on pages 13 to 16 and "Compensation of Executive
Officers" on pages 17 to 18 of the registrant's 1997 Proxy Statement is
herein incorporated by reference.
11
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Voting Securities" on pages
7 to 9 of the registrant's 1997 Proxy Statement is herein incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and
Related Transactions" on page 19 of the registrant's 1997 Proxy Statement is
herein incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Data incorporated by reference from the registrant's 1996 Annual
Report Supplement to the 1997 Proxy Statement:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets, December 31, 1996 and 1995 S - 20
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 S - 21
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994 S - 22
Consolidated Statements of Cash Flows for the years ended
December 31, 1996,1995 and 1994 S - 23 to S - 24
Notes to Consolidated Financial Statements S - 25 to S - 45
Independent Auditors' Report S - 47
</TABLE>
2. All financial statement schedules required by Article 9 of Regulation
S-X have been included in the consolidated financial statements or
are either not required or not applicable.
3. All applicable exhibits are included in (c) below.
(b) No reports on Form 8-K were filed during the fourth quarter of 1996.
(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.
4(a) 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,
is incorporated herein by reference.
4(b) 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, filed as Exhibit 4(c) to Form 10-K
filed March 29, 1996, is incorporated herein by reference.
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, is incorporated herein by reference.
12
<PAGE>
10(b)1997 Stock Option Plan of the Company, effective January 16, 1997,
subject to shareholder approval.
10(c)Restricted Stock Plan of the Company, effective March 24, 1986, as
amended and restated.
10(d)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, is
incorporated herein by reference.
10(e)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, is incorporated herein by reference.
10(f)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, is incorporated herein by reference.
10(g)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, is incorporated herein by reference.
10(h)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, is incorporated herein by
reference.
10(i)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, is incorporated herein by reference.
10(j)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, is incorporated
herein by reference.
10(k)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, is incorporated herein by
reference.
11. Statement re: computation of per share earnings is herein
incorporated by reference to Note 12 of the Notes to Consolidated
Financial Statements included in the Company's 1996 Annual Report
Supplement to the 1997 Proxy Statement, filed herewith as Exhibit
13.
13. 1996 Annual Report to Shareholders and 1996 Annual Report Supplement
to the 1997 Proxy Statement.
21. Subsidiaries of the Registrant are herein incorporated by reference
to Note 1 of the Notes to Consolidated Financial Statements included
in the Company's 1996 Annual Report Supplement to the 1997 Proxy
Statement, filed herewith as Exhibit 13.
23. Consent of Deloitte & Touche LLP, independent auditors, to
incorporation by reference to its report dated January 16, 1997
appearing in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and into the Company's Registration
Statements on 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 the Company's Registration Statement on 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,
1996, consolidated statement of income for the year ended December
31, 1996, and accompanying notes thereto, as well as Management's
Discussion and Analysis included in the registrant's 1996 Annual
Report Supplement to the 1997 Proxy Statement.
13
<PAGE>
SIGNATURES
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 21st day
of March 1997.
/s/ Jerry D. Campbell /s/ Thomas F. Menacher
- --------------------- ----------------------
Jerry D. Campbell Thomas F. Menacher, CPA
Chairman of the Board Senior Vice President, Treasurer
and Chief Executive Officer and Chief Financial 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 the capacity of Directors of the Company on the 21st day of
March 1997.
/s/ Jerry D. Campbell
- ---------------------------- ---------------------------
Jerry D. Campbell Stephen M. Klein
/s/ Dana M. Cluckey /s/ John J. Lennon
- ---------------------------- ---------------------------
Dana M. Cluckey John J. Lennon
/s/ Bruce L. Cook /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/ Jeoffrey K. Stross
- ---------------------------- ---------------------------
Gary Hurand Jeoffrey K. Stross
/s/ Dennis J. Ibold
- ----------------------------
Dennis J. Ibold
14
<PAGE>
[Intentionally Left Blank]
EXHIBIT 10(B)
REPUBLIC BANCORP INC.
1997 STOCK OPTION PLAN
A. PURPOSE AND SCOPE
1. The purposes of this 1997 Stock Option Plan are to encourage stock
ownership by key management employees of the Company and its Subsidiaries, to
provide an incentive for such employees to expand and improve the profits and
prosperity of the Company and its Subsidiaries, and to assist the Company and
its Subsidiaries in attracting and retaining key personnel through the grant
of Options to purchase shares of the Company's common stock.
2. The Plan is intended to comply with Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as such
Rule may be amended from time to time ("Rule 16b-3") and shall be construed
to so comply.
B. DEFINITIONS
Unless otherwise required by the context:
1. "Board" shall mean the Board of Directors of the Company.
2. "Committee" shall mean the Personnel, Nominating and
Compensation Committee, which is appointed by the Board and which shall be
composed of at least two members of the Board, each of whom is a
"Non-Employee Director" as defined in Rule 16b-3. Unless the Board determines
otherwise, the Committee shall be comprised solely of "outside" directors
within the meaning of Code Section 162(m)(4)(C)(i).
3. "Company" shall mean REPUBLIC BANCORP INC., a Michigan
corporation.
4. "Code" shall mean the Internal Revenue Code of 1986, as amended.
5. "Fair Market Value" shall be the closing price per share of
Stock on the date in question in the over-the-counter market, as such price
is reported by the National Association of Securities Dealers through its
Nasdaq system or any successor system. If there is no reported closing price
for the Stock on the date in question, then the closing price on the last
preceding date for which such quotation exists shall be determinative of fair
market value.
1
<PAGE>
6. "Incentive Stock Option" means an Option meeting the
requirements and containing the limitations and restrictions set forth in
Code Section 422.
7. "Non-Qualified Stock Option" means an Option other than an
Incentive Stock Option.
8. "Option" shall mean a right to purchase Stock granted pursuant
to the Plan. An Option may be either an Incentive Stock Option or a
Non-Qualified Stock Option.
9. "Option Price" shall mean the purchase price for Stock under
an Option, as determined in Section F below.
10. "Participant" shall mean an employee of the Company, or of any
Subsidiary of the Company, to whom an Option is granted under the Plan.
11. "Plan" shall mean this REPUBLIC BANCORP INC. 1997 Stock Option
Plan.
12. "Stock" shall mean the common stock of the Company, $5.00 par
value.
13. "Subsidiary" shall mean a subsidiary corporation of the
Company, as defined in Code Sections 425(f) and 425(g).
14. "Ten-Percent Shareholder" means an individual who "owns" (as
defined in Code Section 425) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or a
Subsidiary.
C. STOCK TO BE OPTIONED
1. Subject to the provisions of Section L of the Plan, the
maximum number of shares of Stock that may be optioned or sold under the Plan
is 750,000 shares. Such shares may be authorized but unissued shares of Stock
of the Company or issued shares that were reacquired by the Company.
2. The maximum number of shares of Stock with respect to which
Options may be granted during any fiscal year to any Participant shall not
exceed 37,500 subject to adjustments noted in paragraph L, herein.
2
<PAGE>
D. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
make all decisions with respect to participation in the Plan by employees of
the Company and its Subsidiaries, and with respect to the extent of that
participation. The interpretation and construction of any provision of the
Plan by the Committee shall be final. No member of the Committee shall be
liable for any action or determination made by him in good faith.
E. ELIGIBILITY
The Committee may grant Options to any key employee (including an
employee who is a director or an officer) of the Company or its Subsidiaries.
Options may be awarded by the Committee at any time and from time to time to
new Participants, or to then Participants, or to a greater or lesser number
of Participants, and may include or exclude previous Participants as the
Committee shall determine. Options granted at different times need not
contain similar provisions.
F. OPTION PRICE
The purchase price for Stock under each Option shall be one hundred
per cent (100%) of the Fair Market Value of the Stock on the date the Option
is granted, but in no event less than the par value of the Stock.
Notwithstanding anything herein to the contrary, in the event an Incentive
Stock Option is granted to a Participant who, at the time such Incentive
Stock Option is granted, is a Ten-Percent Shareholder, then the Option price
per share of such Incentive Stock Option shall not be less than one hundred
ten percent (110%) of the Fair Market Value of the shares covered by the
Incentive Stock Option on the date the Incentive Stock Option is granted.
3
<PAGE>
G. TERMS AND CONDITIONS OF OPTIONS.
Options granted pursuant to the Plan shall be authorized by the
Committee and shall be evidenced by agreements in such form as the Committee
shall from time to time approve. Such agreements shall comply with and be
subject to the following terms and conditions.
1. Condition of Employment. The Committee may, in its discretion,
include in any Option granted under the Plan a condition that the Participant
shall agree to remain in the employ, and to render services to, the Company
or any of its Subsidiaries for a period of time (specified in the agreement)
following the date the Option is granted. No such agreement shall impose upon
the Company or any of its Subsidiaries, however, any obligation to employ the
Participant for any period of time.
2. Types of Options. Options granted under this Plan may be (a)
Incentive Stock Options, (b) Non-Qualified Stock Options, or (c) a
combination of the foregoing. The Option Agreement shall designate whether an
Option is an Incentive Stock Option or a Non-Qualified Stock Option. Any
Option which is designated as a Non-Qualified Stock Option shall not be
treated by the Company or the Participant to whom the Option is granted as an
Incentive Stock Option for federal income tax purposes.
3. Method of Exercise. To exercise an Option, a Participant (or
in the case of an exercise after a Participant's death, such Participant's
executor, administrator, heir or legatee, as the case may be) must take the
following action:
(a) execute and deliver to the Company a written notice of
exercise signed in writing by the person exercising the Option specifying the
number of shares of Stock with respect to which the Option is being
exercised;
(b) pay the aggregate Option Price in one of the alternate
forms as set forth in Section G.4 below; and
(c) furnish appropriate documentation that the person or
persons exercising the Option (if other than the Participant) has the right
to exercise such Option.
4
<PAGE>
As soon as practical after the exercise date, the Company will mail or
deliver to or on behalf of the Participant (or any other person or persons
exercising this Option under the Plan) a certificate or certificates
representing the Stock acquired upon exercise of the Option. A Participant
shall have none of the rights of a shareholder until shares are issued to
him, and no adjustment will be made for dividends or other rights for which
the record date is prior to the date such stock certificate is issued, except
as noted in paragraph L, herein.
4. Payment Price. The aggregate Option Price shall be payable in
one of the alternative forms specified below:
(a) Full payment in cash or check made payable to the
Company's order; or
(b) Full payment through a sale and remittance procedure
pursuant to which the Participant (i) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of
the Stock to be purchased and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the Stock to be purchased and (ii) shall
concurrently provide written directives to the Company to deliver the
certificates for the Stock to be purchased directly to such brokerage firm in
order to complete the sale transaction.
5. Number of Shares. Each Option agreement shall state the total
number of shares of Stock to which it pertains, the exercise price for the
shares covered by the Option, the time at which the Option vests and becomes
exercisable, the Option's scheduled expiration date, and such other terms and
conditions not inconsistent with the Plan as the Committee shall determine.
6. Option Period and Limitations on Exercise of Options. The
Committee may, in its discretion, provide that an Option may not be exercised
in whole or in part for any period or periods of time specified in the Option
agreement. Except as provided in the Option agreement, an Option may be
exercised in whole or in part at any time during its term. No Option may be
exercised after the expiration of ten (10) years from the date it is granted.
Notwithstanding anything herein to the contrary, in the event an Incentive
Stock Option is granted to a Participant who, at the time such Incentive
Stock Option is granted, is a Ten-Percent Shareholder, then such Incentive
Stock Option shall not be exercisable more than five (5) years from the date
of grant and shall be subject to earlier termination as hereinafter provided.
No Option may be exercised for a fractional share of Stock.
5
<PAGE>
7. Limit on Fair Market Value of Incentive Stock Options. In any
calendar year, no Participant may be granted an Incentive Stock Option
hereunder to the extent that the aggregate Fair Market Value (such Fair
Market Value being determined as of the date of grant of the Option in
question) of the Stock with respect to which Incentive Stock Options first
become exercisable by the Participant during any calendar year (under all
such plans of the Participant's employer corporation, its parent, if any, and
its Subsidiaries, if any) exceeds the sum of One Hundred Thousand Dollars
($100,000). For purposes of the preceding sentence, Options shall be taken
into account in the order in which they were granted. Any Option granted
under the Plan which is intended to be an Incentive Stock Option, but which
exceeds the limitation set forth in this Section G.7, shall be a
Non-Qualified Stock Option to the extent that a portion of the Option exceeds
this limitation.
8. Option Modification. The Committee may amend, modify or
terminate any outstanding Option held by a Participant, including
substituting therefor another Option of the same or a different type,
changing the date of exercise or vesting and converting an Incentive Stock
Option to a Non-Qualified Stock Option, provided that the Participant's
consent to such action shall be required unless the Committee determines in
its sole discretion that the action, taking into account any related action,
would not materially and adversely affect the Participant.
H. TERMINATION OF EMPLOYMENT.
Except as provided in this paragraph and in Section I below, if a
Participant ceases to be employed by the Company or any of its Subsidiaries,
his Options shall terminate immediately. If a Participant's cessation of
employment with the Company and its Subsidiaries is due to his retirement
with the consent of the Company or any of its Subsidiaries, the Participant
may, at any time within three (3) months after such cessation of employment,
exercise his Options to the extent that he was entitled to exercise them on
the date of cessation of employment, but in no event shall any Option be
exercisable more than ten (10) years from the date it was granted. If a
Participant's cessation of employment with the Company and its Subsidiaries
is due to permanent disability (within the meaning of Code Section 22(e)(3)),
the Participant will have twelve (12) months after the date of termination of
employment, but in no event after the stated expiration date of the
Participant's Options, to exercise Options that the Participant was entitled
to exercise on the date the Participant's employment terminated as a result
of the disability. The Committee may cancel an Option during the three (3) or
twelve (12) month periods
6
<PAGE>
referred to in this paragraph, if the Participant engaged in employment or
activities contrary, in the opinion of the Committee, to the best interests
of the Company or any of its Subsidiaries. The Committee shall determine in
each case whether a termination of employment shall be considered a
retirement with the consent of the Company or a Subsidiary, whether a
disability is "permanent" and, subject to applicable law, whether a leave of
absence shall constitute a termination of employment. Any such determination
of the Committee shall be final and conclusive.
I. RIGHTS IN EVENT OF DEATH
If a Participant dies while employed by the Company or any of its
Subsidiaries or within three (3) months after having retired with the consent
of the Company or any of its Subsidiaries, and without having fully exercised
his Options, the executors or administrators, or legatees or heirs, of his
estate shall have the right to exercise such Options to the extent that such
deceased Participant was entitled to exercise the Options on the date of his
death; provided, however, that in no event shall the Options be exercisable
more than ten (10) years from the date they were granted.
J. NO OBLIGATIONS TO EXERCISE OPTION
The granting of an Option shall impose no obligation upon the
Participant to exercise such Option.
K. NONASSIGNABILITY
Options shall not be transferable other than by will or by the laws
of descent and distribution, and during a Participant's lifetime shall be
exercisable only by such Participant.
L. EFFECT OF CHANGE IN STOCK SUBJECT TO THE PLAN
The aggregate number of shares of Stock available for Options under
the Plan, the shares subject to any Option, and the price per share shall all
be proportionately adjusted for any increase or decrease in the number of
issued shares of Stock subsequent to the effective date of the Plan resulting
from (1) a subdivision or consolidation of shares or any
7
<PAGE>
other capital adjustment, (2) the payment of a stock dividend, or (3) other
increase or decrease in such shares effected without receipt of consideration
by the Company. If the Company shall be the surviving corporation in any
merger or consolidation, any Option shall pertain, apply and relate to the
securities to which a holder of the number of shares of Stock subject to the
Option would have been entitled after the merger or consolidation. Upon
dissolution or liquidation of the Company, all Options outstanding under the
Plan shall terminate; provided, however, that each Participant (and each
other person entitled under Section I to exercise an Option) shall have the
right, immediately prior to such dissolution or liquidation, to exercise such
Participant's Options in whole or in part, but only to the extent that such
Options are otherwise exercisable under the terms of the Plan.
M. AMENDMENT AND TERMINATION
The Board, by resolution, may terminate, amend or revise the Plan
with respect to any shares as to which Options have not been granted,
provided, that no amendment without the approval of the stockholders of the
Company shall be made if stockholder approval under Code Section 422 or Rule
16b-3 would be required. Neither the Board nor the Committee may, without the
consent of the holder of an Option, alter or impair any Option previously
granted under the Plan, except as authorized herein. Unless sooner
terminated, the Plan shall remain in effect for a period of ten (10) years
from the date the Plan was originally adopted by the Board. Termination of
the Plan shall not affect any Option previously granted.
N. WITHHOLDING FOR TAXES
The Company shall, before any payment is made or a certificate for
any Stock is delivered or any Stock is credited to any brokerage account,
deduct or withhold from any payment under the Plan any Federal, state, local
or other taxes, including transfer taxes, required by law to be withheld or
to require the Participant or his beneficiary or estate, as the case may be,
to pay any amount, or the balance of any amount, required to be withheld. The
Company may elect to deduct such taxes from any amounts payable then or any
time thereafter in cash to the Participant and, in the Participant's sole
discretion, the payment of such taxes may be made from Stock previously held
by such Participant. If the
8
<PAGE>
Participant disposes of Stock acquired pursuant to an Incentive Stock Option
in any transaction considered to be a disqualifying transaction under Code
Sections 421 and 422, the Participant must give the Company written notice of
such transfer and the Company shall have the right to deduct any taxes
required by law to be withheld from any amounts otherwise payable to the
Participant.
O. AGREEMENT AND REPRESENTATION OF EMPLOYEES
As a condition to the exercise of any portion of an Option, the
Company may require the person exercising such Option to represent and
warrant at the time of such exercise that any shares of Stock acquired at
exercise are being acquired only for investment and without any present
intention to sell or distribute such shares, if, in the opinion of counsel
for the Company, such a representation is required under the Securities Act
of 1933 or any other applicable law, regulation or rule of any governmental
agency.
P. RESERVATION OF SHARES OF STOCK
The Company, during the term of this Plan, will at all times reserve
and keep available, and will seek or obtain from any regulatory body having
jurisdiction any requisite authority necessary to issue and to sell, the
number of shares of Stock that shall be sufficient to satisfy the
requirements of this Plan. The inability of the Company to obtain from any
regulatory body having jurisdiction the authority deemed necessary by counsel
for the Company for the lawful issuance and sale of its Stock hereunder shall
relieve the Company of any liability in respect of the failure to issue or
sell Stock as to which the requisite authority has not been obtained.
Q. EFFECTIVE DATE OF PLAN
The Plan was effective on January 16, 1997, the date that the Plan
was approved by the Board. The Plan shall thereafter be submitted to the
Company's stockholders for approval and unless the Plan is approved by the
affirmative votes of the holders of shares having a majority of the voting
power of all shares represented at a meeting duly held in accordance with
Michigan law within twelve (12) months after being approved by the Board, the
Plan and all awards made under it shall be void and of no force and effect.
9
<PAGE>
R. GOVERNING LAW
This Plan and the rights of all persons claiming hereunder shall be
construed in accordance with the laws of the State of Michigan without giving
effect to the conflicts of laws principles thereof, except to the extent that
such laws are preempted by federal law.
10
<PAGE>
To record the adoption of the Plan by the Board on January 16, 1997,
the Company has caused its authorized officer to affix the corporate name and
seal hereto.
REPUBLIC BANCORP INC.
By: /s/Jerry D. Campbell
----------------------------
Jerry D. Campbell
Chief Executive Officer &
Chairman of the Board
EXHIBIT 10(C)
AMENDED AND RESTATED RESTRICTED STOCK PLAN
OF
REPUBLIC BANCORP INC.
WITNESSETH:
WHEREAS, the Board of Directors of Republic Bancorp Inc. (the
"Corporation") adopted a Restricted Stock Plan (the "Plan") on March 24,
1986, which was approved by the Corporation's shareholders on April 21, 1986;
and which was subsequently amended by the Board on February 17, 1989,
February 19, 1993 and January 16, 1997; and
WHEREAS, the Board of Directors deems it in the best interest
of the Corporation to amend this Plan to increase the number of authorized
shares under the Plan; and
WHEREAS, the Board reserved the right to amend the Plan
pursuant to Section 7.
RESOLVED, THEREFORE, that the Board of Directors approves an
amendment to the Restricted Stock Plan in order to increase the authorized
shares.
RESOLVED FURTHER, that the Plan is amended and restated in its
entirety as follows:
SECTION 1
Purpose
1.1 The purpose of this Plan is to provide an opportunity for
certain key employees of REPUBLIC BANCORP INC. (the "Corporation") or its
subsidiaries to acquire shares of Capital Stock of the Corporation and
thereby to have an additional incentive to contribute to the prosperity of
the Corporation.
<PAGE>
SECTION 2
Definitions
The following words have the following meanings unless a
different meaning is plainly required by the context:
2.1 "Corporation" means Republic Bancorp Inc.
2.2 "Plan" means the Restricted Stock Plan of the Corporation
as from time to time in effect.
2.3 "Capital Stock" means the Common Stock (par value $5.00
per share) of the Corporation.
2.4 "Employee" means any regular salaried or commissioned
employee, including any officer in the service of the Corporation or any of
its subsidiaries. An individual's status as a regular salaried or
commissioned employee shall not be affected by a leave of absence without
pay.
2.5 "Committee" means the Personnel, Nominating and
Compensation Committee named under Section 3 to administer the Plan.
2.6 "Restricted Stock" means Capital Stock awarded to an
Employee under Section 3 of the Plan.
2.7 "Restricted Period" shall mean a period of four (4) years
following the date of the award of the Restricted Stock.
2.8 "Recipient" means an Employee to whom Restricted Stock has
been awarded under Section 3 of the Plan.
2.9 "Board" means the Board of Directors of the Corporation.
2.10 "Subsidiary" means any corporation of which a majority of
the outstanding voting stock is directly or indirectly owned or controlled by
the Corporation, or by one or more subsidiaries.
2
<PAGE>
SECTION 3
Administration
3.1 The Plan shall be administered by its Personnel,
Nominating and Compensation Committee, which shall have authority to award
Restricted Stock under the Plan to any Employee, and to determine all
questions arising in connection with the Plan, including its interpretation.
The Committee shall be composed of at least two members of the Board who are
disinterested persons. For the purpose of this Plan, a "disinterested person"
shall mean a director who is not, during the one year prior to service as a
member of the Committee, or during such service, granted or awarded equity
securities pursuant to the Plan or any other plan of the Corporation or any
of its affiliates, except as permitted by Rule 16b-3(c)(2)(i).
All decisions and selections made by the Committee shall
be final, provided, however, that the Committee may not award Restricted
Stock to any member of the Committee. No member of the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any Restricted Stock awarded under it.
3.2 The awarding of Restricted Stock pursuant to this Plan
shall be entirely within the discretion of the Committee, and nothing herein
contained shall be construed to give Employee any right to participate under
this Plan or receive any Restricted Stock under it.
SECTION 4
Stock
4.1 The total number of shares of Capital Stock that may be
awarded under the Plan shall not exceed 301,183 shares except to the extent
of adjustments authorized by Section 4.5, and subject to like adjustments.
Shares of Capital Stock that may be awarded under the Plan may either be
authorized and unissued shares or issued shares that have been reacquired by
the Corporation.
4.2 Restricted Stock awarded under the Plan shall be subject
to the restrictions set forth in Section 5.
4.3 The award of Restricted Stock under the Plan shall be
evidenced by an Agreement between the Corporation and the Recipient
containing the terms and conditions of the award as described in Section 5
and such other provisions as the Committee may deem appropriate.
3
<PAGE>
4.4 Any certificates evidencing shares of Restricted Stock
awarded pursuant to the Plan shall bear the following legend:
"This certificate is held subject to the terms and conditions
contained in an Agreement dated ______________, 19___, which
includes a prohibition against the sale or transfer of this
stock for a period of four (4) years from the date of
issuance."
4.5 If as a result of a stock dividend, stock split, reverse
stock split, recapitalization or other adjustment in the Capital Stock of the
Corporation or as a result of a merger, consolidation or other reorganization
of Corporation, there shall be any increase, decrease or adjustment in the
Capital Stock of the Corporation, an appropriate adjustment shall be made by
the Board in the aggregate number of shares subject to the Plan, and the
maximum number of shares which may be awarded to any person; provided,
however, that any fractional shares resulting from any such adjustment shall
be eliminated.
SECTION 5
Terms and Conditions of Restricted Stock
5.1 The award of Restricted Stock under the Plan shall be
subject to the following terms and conditions, which shall be contained in
the Agreement referred to in Section 4.3:
(a) The Restricted Stock shall be awarded on the
condition that the Recipient remain in the employ of the
Corporation or one or more of its subsidiaries during the
Restricted Period, but such condition shall have no effect on
the right of the Corporation or any such subsidiary to
terminate the Recipient's employment at any time. In addition,
the award of Restricted Stock may be conditioned upon certain
other terms as the Committee may require and as set forth in
the Agreement referred to in Section 4.3.
(b) In the event of termination of employment during
the Restricted Period for any reason other than death, the
Recipient's right to the Restricted Stock shall cease and
terminate as of the date of termination and the Recipient
shall surrender to the Corporation such Restricted Stock.
In the event of termination of employment during the
Restricted Period by reason of death, the Recipient's right to
all of the Recipient's Stock shall vest as of the date of
termination of employment, provided the Employee shall have
been employed by the Corporation or one of its subsidiaries
for more than the Restricted Period, and the Recipient's
Restricted Stock may be
4
<PAGE>
transferred free of the restriction under this Plan, except
for those described in subsection (f) hereof.
(c) The shares of Restricted Stock shall not be sold,
exchanged, transferred, pledged or otherwise disposed of by
the Employee during the Restricted Period other than to the
Corporation.
(d) If any assignment, pledge, transfer or other
disposition, voluntary or involuntary, of the Restricted Stock
shall be made during the Restricted Period except as provided
above in subsection (b) hereof, the Recipient's right to the
Restricted Stock shall immediately cease and terminate and the
Recipient shall surrender to the Corporation all such
Restricted Stock.
(e) During the Restricted Period, the Recipient shall
have all rights of a stockholder with respect to the
Restricted Stock, including (i) the right to vote any shares
at stockholders' meetings, (ii) the right to receive all cash
dividends paid with respect to such Restricted Stock, and
(iii) the right to participate with respect to such Restricted
Stock in any stock dividend, stock split, recapitalization, or
other adjustment in the Capital Stock of the Corporation or
any merger, consolidation or other reorganization involving an
increase or decrease or adjustment in the Capital Stock of the
Corporation. Any new, additional or different shares or other
security received by the Recipient pursuant to any such stock
dividend, stock split, recapitalization or reorganization
shall be subject to the same terms, conditions and
restrictions as those relating to the Restricted Stock for
which such shares were received.
(f) The Recipient shall represent and warrant that the
Recipient is acquiring the Restricted Stock for the
Recipient's own account and investment and without any
intention to resell or distribute the Restricted Stock. The
Recipient shall agree not to resell or distribute such
Restricted Stock after the Restricted Period except upon such
conditions as the Corporation may reasonably specify to insure
compliance with federal and state securities laws.
(g) All shares awarded under the Bonus Stock Agreements
shall be deemed a part of and subject to the terms of this
Plan as of the date this amended and restated Plan is adopted
by the Board.
5
<PAGE>
SECTION 6
Effective Date of the Plan
This Plan was effective on March 24, 1986, when it was
approved by the Board of Directors of the Corporation.
SECTION 7
Amendment of Plan
The Board may amend the Plan at any time.
SECTION 8
Term of Plan
The Board of Directors may terminate the Plan at any time;
provided, however, that such termination shall not affect any awarded
Restricted Stock then outstanding under the Plan.
SECTION 9
Notices
Any notice or other communication required or permitted to be
made or given hereunder shall be sufficiently made or given if sent by
certified mail addressed to the Recipient at the Recipient's address as set
forth in the regular books and records of the Corporation, and if to the
Corporation, addressed to it at its principal office.
Adopted by the Board of Directors on January 16, 1997.
REPUBLIC BANCORP INC.
By: /s/ Dana M.Cluckey
-------------------
Dana M. Cluckey
President and
Secretary to the Board
6
EXHIBIT 13
[FRONT COVER]
1996 Annual Report
REPUBLIC
BANCORP
INC.
[INSIDE FRONT COVER]
Contents
Financial Highlights & Description of Company
Page 1
Letter to Our Stockholders
Page 2
The Employees of Republic - Our Greatest Asset
Page 6
Republic Bancorp Inc. Affiliates
Page 10
Five Year Summary of Selected Financial Data
Page 20
Condensed Financial Review
Page 21
Condensed Consolidated Financial Statements
Page 24
Independent Auditors' Report
Page 25
Republic Bancorp Inc. Board of Directors, Officers and Locations
Page 26
Shareholder Information
Page 27
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
1996 1995 % Change
------- ------- --------
<S> <C> <C> <C>
NET INCOME (in thousands) $14,678 $14,264 3%
NET INCOME, excluding SAIF assessment
charge and extraordinary item (in thousands) 16,041 14,264 12
PER COMMON SHARE DATA (1):
Net Income 0.81 0.76 7
Cash dividends 0.37 0.31 19
Book value at year end 7.11 6.97 2
Market Price of Common Stock at year end 11.625 9.75 19
Shares outstanding at year end (in thousands) 17,129 18,126 (6)
------- ------- --------
OPERATING DATA (in millions):
Residential mortgage loan closings $ 3,581 $ 2,847 26%
Commercial loan closings 122 50 144
SBA loan closings 24 17 41
------- ------- --------
YEAR END BALANCES (in millions):
Total assets $ 1,490 $ 1,473 1%
Portfolio loans 785 578 36
Total deposits 1,014 905 12
------- ------- --------
RATIOS:
Return on average assets (2) 1.11% 1.00% 11%
Return on average equity (2) 13.06 11.71 12
Net interest margin 2.88 2.38 21
Average shareholders' equity to assets 8.52 8.56 --
------- ------- --------
<FN>
(1) All per share amounts have been restated to reflect stock dividends.
(2) 1996 excludes the one-time SAIF assessment charge and extraordinary item
of $975,000 and $388,000, respectively. Including the SAIF assessment and
extraordinary item, return on average assets and return on average equity
were 1.02% and 11.95%, respectively.
</TABLE>
Description of Company
Republic Bancorp Inc. is a bank holding company with total assets of $1.5
billion and 106 offices in 19 states. Republic is one of the top 35 mortgage
lenders in the country and has been the Number One SBA lender in Michigan for
three consecutive years.
The Company's mortgage banking strategy is to offer mortgage products through
a retail mortgage and bank branch network. We work closely with realtors,
builders and brokers to deliver timely and professional service to our
customers.
Our commercial banking business focus is to provide small to medium size
businesses with a number of loan and deposit products. The Company attracts
deposit customers who are interested in personalized service, as each of our
customers have a personal banker assigned to serve their banking needs.
1
<PAGE>
To Our Stockholders
We are pleased to report that your Company had the second highest operating
earnings in its history during 1996. Republic's earnings performance and
record of consistent cash and stock dividends have served to further our goal
of increasing shareholder value.
Republic's financial performance for 1996 is highlighted below:
o Net income was $14.7 million and earnings per common share was $.81.
o Excluding the SAIF assessment and extraordinary item, net income was
$16.0 million, an increase of 12% over the $14.3 million earned in
1995, and earnings per share was $.89, an increase of 17% over the
$.76 earnings per share in 1995.
o The Company's return on average assets was 1.11% in 1996 compared to
1.00% in 1995. The return on average equity was 13.06% for 1996
versus 11.71% in 1995. Both ratios for 1996 exclude the SAIF
assessment and extraordinary item.
o Residential mortgage loan closings were $3.6 billion during 1996, an
increase of 26% over 1995 closings. At December 31, 1996, the
Company had mortgage loans in process of $930 million.
o The Company's net interest margin for the year ended December 31,
1996 was 2.88%, up 21% from the 1995 net interest margin of 2.38%.
o Republic's commercial and Small Business Administration (SBA)
lending had strong growth during 1996, with $122 million in
commercial loan closings and $24 million in SBA loan closings.
o The Company distributed a 10% stock dividend in November 1996, the
eleventh consecutive year in which a stock dividend was distributed.
2
<PAGE>
Nationwide Mortgage
Banking Network
Republic Bancorp is one of the top 35 mortgage lenders in the country and we
continue to play a major role in Financing the American Dream of home
ownership. During 1996, the Company financed the ownership of over 32,000
homes.
Our strategy of expanding the mortgage delivery system was very successful in
1996. In April 1996, the Company purchased the mortgage origination network
of First of America in St. Louis, Missouri and southern Illinois. The
mortgage operation has seven offices operating under the name Leader
Financial and is a division of CUB Funding Corporation. Leader Financial
closed over $136 million in residential mortgage loans since its acquisition.
Additionally, in July 1996, the Company purchased Unlimited Mortgage
Services, Inc. of Columbus, Ohio. Unlimited Mortgage operates as a division
of Republic Bancorp Mortgage Inc. and closed over $100 million on an
annualized basis in residential mortgage loans.
Growth In Commercial
And Retail Banking
The Company's continued focus on the needs of small to medium size businesses
resulted in a significant increase in commercial lending in 1996. Commercial
loan balances, secured primarily by commercial real estate, increased $63
million, or 47%, for the year. The Company's strong SBA lending presence was
again recognized in 1996 when Republic Bank was named the Number One SBA
lender in the State of Michigan for the third year in a row.
[GRAPH]
<TABLE>
<CAPTION>
Mortgage Loan Closings
($ in Billions)
- ----------------------
<S> <C>
1994 at $2,837
1995 at $2,847
1996 at $3,581
</TABLE>
[GRAPH]
<TABLE>
<CAPTION>
Commercial Loan Balances
($ in Millions)
- ------------------------
<S> <C>
1994 at $ 97,911
1995 at $132,433
1996 at $195,192
</TABLE>
3
<PAGE>
Republic Bancorp offers retail banking services to its customers through 36
banking offices in Michigan and Ohio. Our commitment to personalized customer
service is supported by the assignment of a personal banker to every banking
customer. We want our personal bankers to anticipate the banking needs of our
customers, ranging from savings and checking accounts to consumer loans. In
this age of consolidation and electronic banking, Republic is committed to
personal service of the highest quality.
Commitment To Increasing
Shareholder Value
During 1996, our shareholders saw a 23% increase in the market value of
Republic common stock, including reinvestment of dividends. Additionally, the
Company's five year cumulative total return on its common stock of 216%
continues to exceed that of the Nasdaq Stock Market composite for all U.S.
companies. Further, if a shareholder had invested $10,000 in Republic common
stock on January 1, 1991, their investment would be worth over $63,000 today.
This represents an increase of 539% over that period.
The Company's annual cash dividend currently represents a yield of 3% to our
shareholders. The Company has also managed its level of capital during 1996
through the repurchase of 1.1 million shares of its common stock under the
previously announced Stock Repurchase Program. When considering whether to
use capital for additional stock repurchases, dividends, or to support
additional growth opportunities, the Board of Directors and management will
continue their focus on increasing shareholder value.
[GRAPH]
<TABLE>
<CAPTION>
SBA Loan Closings
($ in Millions)
- -----------------
<S> <C>
1994 at $12
1995 at $17
1996 at $24
</TABLE>
[GRAPH]
<TABLE>
<CAPTION>
Increase in Shareholder Value
- -----------------------------
<S> <C>
January 1991 at $10,000
February 1997 at $63,897
<FN>
Example Investment
</TABLE>
4
<PAGE>
Outlook For 1997
Republic Bancorp begins the year positioned to grow our mortgage, commercial
and retail banking businesses. Our nationwide mortgage presence of 106
offices in 19 states and over 325 mortgage loan originators provides us with
the momentum and magnitude to increase our share of the mortgage market. Our
banks in Michigan and Ohio will continue to build upon their expertise in
commercial real estate and SBA lending, and in offering personalized deposit
products and consumer lending to our expanding customer base.
With the talent and experience of our officers and employees, we will strive
to create additional value for our shareholders in 1997. On behalf of our
officers, directors and employees, we wish to thank you for your continued
support.
[PHOTO] [PHOTO]
JERRY D. CAMPBELL DANA M. CLUCKEY
Chairman and Chief Executive Officer President and Chief Operating Officer
5
<PAGE>
The Employees of Republic -
Our Greatest Asset
1996 was a year of continued energy and excitement for the employees of
Republic Bancorp Inc. The Company's continued growth and success fosters a
sales and customer-focused culture which creates outstanding opportunities
for individuals truly committed to these ideals.
Sales Culture
All customer contact employees are trained, measured, recognized for
achievement and financially rewarded on their sales efforts. Our
organizational structure of five separate subsidiaries with local management
teams supports the goal-oriented basis for successful sales companies.
Customer Focused
We believe in providing exceptional, personalized service. This is
exemplified by The Republic "Sunset" Commitment which is signed by every
employee and states, "I am committed to complete customer satisfaction. I
will strive to resolve any problems or questions immediately. If this is not
possible, I will get back to you before the sun sets."
Employee Ownership
Every full-time employee of Republic is a shareholder of Republic Bancorp
Inc. We grant monthly stock awards to our employees to reward work
performance, as well as to build and reinforce the sales and customer-focused
culture and shareholder orientation which has been critical to our success.
[PHOTO} [PHOTO]
Debra A. Hanses, PHR Michelle J. Dubblestyne
Vice President Vice President
Corporate Human Resources Human Resources
Republic Bancorp Inc. Republic Savings Bank
6
<PAGE>
Compensation
In addition to competitive base salaries, all Republic employees have an
incentive component to their financial package. We believe that consistent,
successful performers will have greater opportunity working at Republic and
we are pleased to reward these individuals for their efforts.
Individual Development
A commitment to the growth and development of our staff is a key factor in
the retention and recruitment of top performers nationwide. Some of these
personal development opportunities include:
o Mortgage Loan Officer Training Program
Republic conducts in-house training for individuals seeking to explore
career growth as a Mortgage Loan Originator. Many of our most successful Loan
Originators are graduates of our classroom and field instruction programs.
o Fast Track Management Training Program
Each year we conduct extensive college recruiting to identify and recruit
outstanding college graduates for our distinguished Fast Track Management
Training Program. The program offers departmental rotations, participation in
management training and meetings, individual mentors and accelerated
performance review and salary consideration. The Fast Track Program is a
unique opportunity for recent college graduates to be an integral part of a
growing financial services company and to work directly with top sales and
management professionals.
[PHOTO} [PHOTO]
Denise M. Kiepper Nancy J. Weaver
Vice President Vice President
Human Resources Human Resources and Marketing
Republic Bancorp Mortgage Inc. Market Street Mortgage Corporation
7
<PAGE>
o Career Planning and Development
Republic supports the drive and energy of our employees who want to grow
with the Company. Our Salary Administration and Compensation program shows
employees the career path and requirements for progression in each functional
area of the Company. External conferences, seminars and internal programs are
coordinated by our Human Resources and Sales professionals. We also strongly
believe in promoting from within the Company.
Communication
At Republic, we believe that sharing our business plan, goals and
expectations with employees goes hand in hand with recognizing individual and
team efforts and their accomplishments. Regular staff meetings, monthly
"TeleRap" corporate conference calls with the Company's Chief Executive
Officer, and an open-door management philosophy are examples of our
commitment to honest, timely communication and feedback.
Opportunity
We work together to recruit the best people in the industry. Our people will
tell you that Republic is a great place to work because of the many
opportunities our culture provides, including:
o Lucrative income potential based on individual and team performance
o Comprehensive, flexible employee benefits programs
o Opportunities for personal growth and advancement
o Quarterly and annual awards
o "Mortgage Stars" trips and events
o Local lending support, including processing and closing
o Relationship banking philosophy
o Community service and support
[PHOTO} [PHOTO]
Bethany L. Barker, SPHR Lynne Longstreet
Human Resources Officer Vice President
Republic Bank Human Resources
CUB Funding Corporation
8
<PAGE>
o Extensive mortgage, commercial and retail banking product lines,
including SBA lending, mortgage portfolio lending, consumer loans and
public funds
o Corporate financial strength
o Philosophy that promotes excellence and goal achievement in our
employees
Recruiting and retaining the best people to serve our customers and
shareholders, while encouraging personal growth and financial success,
continues to be our goal.
[PHOTO}
Sitting left, Lorraine A. Jackman, Vice President, Public Funds, Republic
Bank; T. Donnell Smith, CMB, Executive Vice President, Market Street Mortgage
Corporation; Michael J. Gleason, Senior Vice President - Mortgage Sales
Manager, Republic Bank. Standing left, Thomas F. Menacher, C.P.A., Senior
Vice President, Treasurer and Chief Financial Officer, Republic Bancorp Inc.;
Sandra J. Nickol, Senior Vice President, Mortgage Originations and Retail
Administration, Republic Bancorp Mortgage Inc.; and Vivian N. Bennett,
C.P.A., Financial Reporting and Investor Relations Manager, Republic Bancorp
Inc.
9
<PAGE>
Republic Bank
Republic Bank, a state chartered bank with its headquarters in Ann Arbor,
Michigan, has 26 offices. Republic Bank serves six markets in Michigan,
including Ann Arbor, Southeastern Michigan, Flint, Lansing, Jackson and
Traverse City.
Republic Bank offers mortgage and commercial loan products through its retail
banking and loan production offices. Republic Bank's expertise in serving the
small to medium size business owner is demonstrated by its recognition as the
Number One SBA lender in Michigan for the third consecutive year. Republic
Bank offers deposit products and consumer loans to its customers through its
retail banking network, utilizing personal bankers who are assigned to meet
our customer needs.
As of December 31, 1996, Republic Bank had total assets of approximately $1.0
billion and total deposits of $735 million. In 1996, the Bank had mortgage
loan closings of $396 million, commercial loan closings of $81 million and
SBA loan closings of $18 million.
<TABLE>
<CAPTION>
BOARD OF DIRECTORS..........................................................................
<S> <C> <C>
Howard J. Hulsman William C. Koons Milton J. Rosenbaum
Chairman of the Board Personal Financial Planner Physician
Chairman, American Express Financial JoAnne Rosenfeld
Ross Learning Center Services, Inc. Attorney
Lee E. Benz Jack R. Lousma David G. Stickel
President Consultant Regional President,
Benz Insurance Agency Secretary to the
Milton F. Lutz, II Board
George L. Burkitt President and Community Bank
C.P.A. Midbrook Products, Inc. President-Flint
Barry J. Eckhold Robert L. McNaughton John E. VanderPoel
President and Chief President Chief Executive
Officer McNaughton & Gunn Jackson Iron & Metal,
Executive Officer Printers and Lithographers Inc.
Robert G. Edgar Robert C. Manutes David W. Wright
President Retired President and
R.G. Edgar & Associates Chief Executive
Officer
Durakon Industries, Inc.
D. Wayne Fate William G. Milliken, Jr. Michael D. Young
Pharmacist Owner President, Michael D. Young
Milliken Realty Company Olds, Pontiac, GMC
Trucks, Inc.
Lloyd G. Ganton William C. Rands, III
President Managing Partner
Ganton Retirement Sagres Partners
Centers, Inc.
</TABLE>
[PHOTO]
Barry J. Eckhold
President and
Chief Executive Officer
10
<PAGE>
<TABLE>
<CAPTION>
Republic Bank Officers & Locations
OFFICERS................................................................................
<S> <C> <C>
Barry J. Eckhold Jeffrey D. Saunders, C.P.A. MORTGAGE LENDING
President and Vice President and Senior Vice
Chief Executive Officer Chief Financial Officer Presidents
David G. Stickel Lucinda L. Stanton Lawrence D. Corbett
Regional President, Vice President and Michael J. Gleason
Secretary to the Board and Marketing Director Daniel F. Mackenzie
Community Bank President - Bethany L. Barker, SPHR David B. Randall
Flint Human Resources Officer Diana L. Wallace
Constance A. Deneweth COMMERCIAL LENDING Vice Presidents
Community Bank President - Senior Vice Presidents Sheila G. Brigham
Traverse City Ronald L. Clingerman Michael J. Charlow
Dennis A. Hill Stuart A. Forsyth Theresa A. Damman
Community Bank President - Vice Presidents Paul H. Herndon
Jackson Douglas T. Allor Suzanne M. Lieder
Richard P. Lupkes Vincent G. Cassisa Heidi H. McNaughton
Community Bank President - Donald F. Chamberlain Gregory B. Smith
Ann Arbor Matthew J. Chrome Holly G. Tegel
David C. Williams Craig A. Criswell RETAIL BANKING,
Community Bank President - John C. Deming CONSUMER LENDING,
Southeastern Michigan Anthony W. Devine AND OPERATIONS
Thomas G. Zernick Pamela J. Foster Vice Presidents
Community Bank President - D. Scott Hannah Sharon M. Bollinger
Lansing E. James Houston, Jr. Paul C. Fuller
Theodore J. Carlson Karl C. Jones Jack S. Harris
Executive Vice President Thomas P. McFadden Lorraine A. Jackman
Retail Banking Joann M. Roche Douglas A. Liverance
Craig C. Foust Andrew P. Sabatine Richard A. Roty
Senior Vice President and Robert C. Sisson Cheryl M. Schantz
Chief Credit Officer David J. Skaff Barbara J. Schmidt
Gloria A. Tomaszewski James L. Stotz
Karl D. Zachmann Joanne M. Wrozek
<CAPTION>
LOCATIONS......................................................................................
<S> <C> <C> <C>
Ann Arbor 1345 North Shiawassee St. 112 Jonesville St. Southeastern Michigan
122 South Main St. Owosso, MI 48867 Litchfield, MI 49252 1700 North Woodward Ave.
Ann Arbor, MI 48104 (517) 723-5101 (517) 542-2931 Bloomfield Hills, MI 48304
(313) 665-4030 (810) 258-5300
Jackson 12811 East Chicago Rd.
2100 South Main St. 306 West Michigan Ave. Somerset Center, MI 49282 31155 Northwestern Hwy.
Ann Arbor, MI 48103 Jackson, MI 49201 (517) 688-4433 Farmington Hills, MI 48334
(313) 665-4080 (517) 789-4300 (810) 737-0444
119 West Main St.
Flint 125 West Main St. Spring Arbor, MI 49283 18720 Mack Ave.
G-3200 Beecher Rd. Hanover, MI 49241 (517) 789-4340 Grosse Pointe Farms, MI 48236
Flint, MI 48532 (517) 563-8332 (313) 882-6400
(810) 732-3300
Lansing
2050 South Linden Rd. 2201 East Michigan Ave. 500 North Homer St. Traverse City
Flint, MI 48501 Jackson, MI 49202 Lansing, MI 48912 534 East Front St.
(810) 733-7500 (517) 789-4330 (517) 351-7300 Traverse City, MI 49686
(616) 933-5626
220 East Main St. 2030 Fourth St. 601 West Grand River
Flushing, MI 48433 Jackson, MI 49203 Okemos, MI 48864 Loan Production Office
(810) 659-7712 (517) 789-4335 (517) 349-1930 616 Petoskey St.
Petoskey, MI 49770
(616) 347-0290
G-8455 South 904 North Wisener St. 127 East Grand River
Saginaw Rd. Jackson, MI 49202 Webberville, MI 48892
Grand Blanc, MI 48439 (517) 789-4326 (517) 521-3122
(810) 694-8222
Loan Production Office
1070 East Main St. 4205 South Westnedge Ave. 105 West Middle St.
Owosso, MI 48867 Kalamazoo, MI 49008 Williamston, MI 48895
(517) 723-7800 (616) 344-0011 (517) 655-4371
</TABLE>
11
Republic Savings Bank
Republic Savings Bank, a state chartered savings bank with its headquarters
in Pepper Pike, Ohio, has 16 offices. Republic Savings Bank serves the
greater Cleveland, Ohio banking market and has loan production offices in
Columbus, Dayton and Cincinnati, Ohio and Indianapolis, Indiana.
Republic Savings Bank offers mortgage and commercial loan products through
its retail banking and loan production offices. Republic Savings Bank offers
deposit products and consumer loans to its customers through its retail
banking network, utilizing personal bankers who are assigned to meet our
customer needs.
At December 31, 1996, Republic Savings Bank had total assets of $467 million
and total deposits of $285 million. In 1996, Republic Savings had mortgage
loan closings of $338 million, commercial loan closings of $41 million and
SBA loan closings of $6 million.
<TABLE>
<CAPTION>
BOARD OF DIRECTORS......................................................................
<S> <C> <C>
Dennis J. Ibold Paul C. Drueke John L. Macklin
Chairman of the Board First Vice President President
Partner Stifel Nicolaus & Company, Inc. Investment Advisors
Petersen & Ibold International, Inc.
Attorneys at Law
Craig L. Johnson Lyman H. Treadway
President and Consultant
Chief Executive Officer Retired Chairman and
Albert P. Blank Chief Executive Officer
Executive Vice President Bancapital Corporation
John J. Lennon
Dana M. Cluckey Retired Chairman and
President and Chief Executive Officer
Chief Operating Officer White Engines, Inc.
Republic Bancorp Inc.
</TABLE>
[PHOTO]
Craig L. Johnson
President and
Chief Executive Officer
12
<PAGE>
Republic Savings Bank Officers & Locations
<TABLE>
<CAPTION>
OFFICERS
<S> <C>
Craig L. Johnson COMMERCIAL LENDING
President and Vice Presidents
Chief Executive Officer Thomas P. Krumel
Daniel F. Merkel
Albert P. Blank Carl F. Moraw
Executive Vice President Neil T. Young
MORTGAGE LENDING
Michelle J. Dubblestyne Vice Presidents
Vice President Davida F. Henson
Human Resources Darrin L. Kresevic
Marianne McCarty
Gregory T. Cook Edward M. McRitchie
Vice President John L. Mlakar
Retail Banking RETAIL BANKING,
CONSUMER LENDING
Michelle T. Ferri, C.P.A. AND OPERATIONS
Controller Vice President
Leeanne M. Wright
Terry G. Robbins
First Vice President and
Secretary
<CAPTION>
LOCATIONS............................................................................
<S> <C> <C>
29225 Chagrin Blvd. 5710 Mayfield Rd. Loan Production Office
Pepper Pike, OH 44122 Greens of Lyndhurst 7333 Paragon Rd.
(216) 514-3484 Lyndhurst, OH 44124 Centerville, OH 45459
(216) 461-7300 (513) 438-4663
26301 Curtiss Wright Pkwy.
Richmond Heights, OH 44143 8382 Mentor Avenue Loan Production Office
(216) 289-0999 Mentor, OH 44060 500 W. Wilson Bridge Rd.
(216) 918-0800 Worthington, OH 43085
17800 Chillicothe Rd. (614) 888-9582
Chagrin Falls, OH 44023 7220 Pearl Rd.
(216) 543-8237 Middleburg Heights, OH 44130 Loan Production Office
(216) 845-7945 201 South Capital
8389 Mayfield Rd. Indianapolis, IN 46225
Chesterland, OH 44026 26777 Lorain Rd. (317) 237-5300
(216) 729-1636 North Olmsted, OH 44070
(216) 779-9922 Loan Production Office
80 Severance Circle Dr. 8178 Beechmont Ave.
Cleveland Heights, OH 44118 3505 Lee Rd. Cincinnati, OH 45255
(216) 291-3171 Shaker Heights, OH 44120 (513) 474-1188
(216) 991-2800
5 Aurora St.
Hudson, OH 44236 2104 Warrensville Center Rd.
(216) 653-5111 South Euclid, OH 44121
(216) 932-7774
</TABLE>
13
<PAGE>
Republic Bancorp Mortgage Inc.
Republic Bancorp Mortgage Inc., a mortgage company with its headquarters in
Farmington Hills, Michigan, has 13 offices in Michigan, Ohio, Connecticut,
Massachusetts and New York. Republic Mortgage operates two divisions: Home
Funding Inc. serving the Northeast and Unlimited Mortgage Services, Inc.
serving Columbus, Ohio.
Unlimited Mortgage Services, Inc. was acquired in July 1996 and is
anticipated to add over $100 million in mortgage loan closings in 1997.
Republic Mortgage offers a variety of mortgage products, including
conventional, construction, FHA/VA government insured and jumbo products.
Republic Mortgage also offers home equity loans and lines of credit. Republic
Mortgage's Southeast Michigan region has consistently been recognized as one
of the top five mortgage origination groups in the state.
Republic Bancorp Mortgage Inc. had mortgage closings of $701 million during
1996.
<TABLE>
<CAPTION>
BOARD OF DIRECTORS.............................................................
<S> <C> <C>
George B. Smith Jerry D. Campbell Barry J. Eckhold
Chairman of the Board Chairman and President and
Chief Executive Officer Chief Executive Officer
Charles W. Adams Republic Bancorp Inc. Republic Bank
Consultant
Dana M. Cluckey William C. Rands, III
Douglas E. Brandewie President and Managing Partner
President and Chief Operating Officer Sagres Partners
Chief Executive Officer Republic Bancorp Inc.
</TABLE>
[PHOTO]
Douglas E. Brandewie
President and
Chief Executive Officer
14
<PAGE>
<TABLE>
<CAPTION>
Republic Bancorp Mortgage Inc.
Officers & Locations
OFFICERS...............................................................................
<S> <C> <C>
George B. Smith Lawrence Rosenberg, C.P.A. Vice Presidents
Chairman of the Board Chief Financial Officer Patricia L. Anderson
and Secretary Barbara J. Bartus
Douglas E. Brandewie Robert L. Borkowski
President and Kathleen Quinn Koleen M. Cook
Chief Executive Officer President, Home Funding Charles W. Cracraft
Inc. Division Dayna M. DiNardo, C.P.A.
William A. Zablocki Alfred E. Davis
Senior Vice President W. Eric Stone Robert D. Decraene
President, Unlimited Susan A. Farrar
Sandra J. Nickol Mortgage Services, Inc. Division Debra J. Gouin
Senior Vice President Deborah E. Herman
Teresa E. Fagan C. Ann Jeffares
Denise M. Kiepper Executive Vice President Raquel R. Moore
Vice President Unlimited Mortgage Marcetta Nelson-Rhodes
Human Resources Services, Inc. Division Barbara Jo Smith
Daniel B. Smith
Thomas B. Smith
Timothy B. Smith
Michael G. Taormino
William D. Wilhammer
<CAPTION>
LOCATIONS..............................................................................
<S> <C> <C>
31155 Northwestern Hwy. 186 South Main St. Two Meeting House Rd.
Farmington Hills, MI 48334 Plymouth, MI 48170 Chelmsford, MA 01824
(810) 932-6500 (313) 459-7800 (508) 250-2700
(810) 932-4701
543 Main St. 6701 Manlius Center Rd.
1919 West Stadium Blvd. Rochester, MI 48307 East Syracuse, NY 13057
Ann Arbor, MI 48103 (810) 656-4200 (315) 431-4100
(313) 995-4499
14715 Northline Rd. 1407 Route 9
1700 North Woodward Ave. Southgate, MI 48195 Clifton Park, NY 12065
Bloomfield Hills, MI 48304 (313) 283-6200 (518) 373-0814
(810) 646-7050
457 Main St. Two Summit Ct.
322 West Grand River Danbury, CT 06811 Fishkill, NY 12524
Brighton, MI 48116 (203) 791-1736 (914) 896-1800
(810) 229-7440
450 W. Wilson Bridge Rd.
Worthington, OH 43085
(614) 785-1730
</TABLE>
15
<PAGE>
Market Street Mortgage Corporation
Market Street Mortgage Corporation, a mortgage company with headquarters in
Clearwater, Florida, has 35 offices in Florida, Alabama, Arizona, Colorado,
Georgia, Illinois, Maryland, North Carolina, Virginia and Utah. Market Street
has a mortgage loan servicing portfolio of $2.5 billion with over 35,000
mortgage loans.
Market Street Mortgage offers a variety of mortgage products, including
conventional, construction, FHA/VA government insured and jumbo products. In
the Tampa Bay area, Market Street was the Number One originator of mortgages
for home purchases for the seventh year in a row. For the second consecutive
year, Market Street was named one of the nation's top-five performing
mortgage banking companies by a national research firm.
Market Street Mortgage had mortgage loan closings of $1.1 billion during
1996.
<TABLE>
<CAPTION>
BOARD OF DIRECTORS................................................................
<S> <C> <C>
Randall C. Johnson, CMB Dana M. Cluckey T. Donnell Smith, CMB
Chairman of the Board President and Executive Vice President
President and Chief Operating Officer
Chief Executive Officer Republic Bancorp Inc.
Jerry D. Campbell Michael H. Dillon, C.P.A.
Chairman and Executive Vice President
Chief Executive Officer
Republic Bancorp Inc.
</TABLE>
[PHOTO]
Randall C. Johnson, CMB
Chairman, President and
Chief Executive Officer
17
<PAGE>
Market Street Mortgage Corporation
Officers & Locations
<TABLE>
<CAPTION>
OFFICERS..............................................................................
<S> <C> <C>
Randall C. Johnson, CMB Nancy A. Jones Joy C. Douglas
Chairman of the Board Senior Vice President Deborah L. Drake
President and Tammy J. Hawkes
Chief Executive Officer Barbara V. VanAntwerp Bruce W. Kates
Senior Vice President Patricia K. McCabe
T. Donnell Smith, CMB Brian J. Murphy
Executive Vice President Nancy J. Weaver Brian W. Prentice
Vice President Lauren C. Reed
Michael H. Dillon, C.P.A. Human Resources and Charles W. Richardson
Executive Vice President Marketing Neal B. Saxon, Jr.
Timothy A. Slone
James B. Capps Vice Presidents Gene F. Swindle
Senior Vice President Betty Ann Armstrong John M. Welsh
Anna Y. Agee Frank L. Wolff
Tracy S. Jackson, C.P.A. Anthony J. Agliardi, C.P.A.
Senior Vice President Michael T. Alea
Chief Financial Officer, Ross G. Bennett, CMB
Treasurer and Secretary Barry W. Carroll
Jerry F. Cobbe
<CAPTION>
LOCATIONS..............................................................................................
<S> <C> <C> <C>
2650 McCormick Dr. 1800 Second St. 500 E. Fry Blvd. Woodfield Financial Ctr.
Clearwater, FL 34619 Sarasota, FL 34236 Sierra Vista, AZ 85635 1375 E. Woodfield Rd.
(800) 669-3210 (941) 954-8880 (520) 458-8523 Shaumburg, IL 60173
(813) 724-7000 (847) 706-9411
28341 S. Tamiami Trail 3160 Fifth Ave. North 6303 E. Tanque Verde 3901 National Dr.
Bonita Springs, FL 34134 St.Petersburg, FL 33713 Tucson, AZ 85715 Burtonsville, MD 20866
(941) 495-5454 (813) 539-8300 (520) 751-0071 (301) 989-8500
1375 Oakfield Dr. 13920 North Dale Mabry Hwy. 7850 Vance Dr. 18215-D Flower Hill Way
Brandon, FL 33511 Tampa, FL 33618 Arvada, CO 80003 Gaithersburg, MD 20879
(813) 681-7700 (813) 968-8766 (303) 424-6993 (301) 670-5660
Plaza Quebec
3620 NW 43rd St. 1715 N. Westshore Blvd. 6025 South Quebec 2701 Coltsgate Rd.
Gainesville, FL 32606 Tampa, FL 33607 Englewood, CO 80111 Charlotte, NC 28211
(352) 336-7766 (813) 286-8700 (303) 721-1120 (704) 365-9044
Cross Bayou Commerce Ctr. North Village Professional 214 8th St.
11701 Belcher Rd. South Ctr. Glenwood Springs,CO 81601 7611 Little River Turnpike
Largo, FL 33773 3802 Ehrlich Road (970) 945-7200 Annandale, VA 22003
(813) 539-8300 Tampa, FL 33624 (703) 941-6600
(813) 961-6694
2500 Maitland 3550 Buschwood Park Dr. 5669 Whitesville Rd. 3998 Fair Ridge Dr.
Center Pkwy. Tampa, FL 33618 Columbus, GA 31904 Fairfax, VA 22033
Maitland, FL 32751 (813) 932-45786719 (706) 324-0074 (703) 359-0100
(407) 875-6900
11440 N. Kendall Dr. Taylor Circle 300 Chastain Center Blvd. 8700 Centreville Rd.
Miami, FL 33176 Montgomery, AL 36117 Kennesaw, GA 30144 Manassas, VA 20110
(305) 596-1640 (334) 277-9011 (770) 795-0886 (703) 331-0300
9050 Pines Blvd. 2222 S. Dobson Rd. 23 Eastbrook Bend 917 East Country Hills Dr.
Pembroke Pines, FL 33024 Mesa, AZ 85202 Peachtree City, GA 30269 South Ogden City, UT 84403
(954) 438-6600 (602) 897-7447 (770) 631-4000 (801) 392-6160
698 Brent Ln. 4222 East Camelback Rd. 8752-3 West 159th St.
Pensacola, FL 32503 Phoenix, AZ 85018 Orland Park, IL 60462
(904) 479-7991 (602) 840-4434 (708) 403-5663
</TABLE>
17
<PAGE>
CUB Funding Corporation
CUB Funding Corporation, a mortgage company with headquarters in Calabasas,
California, has 16 offices in California, Illinois, Missouri and Oregon. CUB
Funding Corporation operates two divisions: Leader Financial serving Illinois
and Missouri and RSL Mortgage serving California markets.
Leader Financial was acquired in April 1996 and closed over $136 million in
mortgage loans during the year.
CUB Funding offers a variety of mortgage products, including conventional,
FHA/VA government insured and jumbo products. CUB Funding also offers various
types of home equity loans and lines of credit.
CUB Funding had mortgage loan closings of $1.0 billion during 1996.
<TABLE>
<CAPTION>
BOARD OF DIRECTORS........................................................................
<S> <C> <C>
Douglas E. Jones Barry J. Eckhold Brian R. Ludtke, C.P.A.
Chairman of the Board and President and Executive Vice President
Chief Executive Officer Chief Executive Officer and Chief Financial Officer
Republic Bank
Jerry D. Campbell Daniel M. LuVisi John E. VanderPoel
Chairman and Vice Chairman Chief Executive Officer
Chief Executive Officer and President Jackson Iron & Metal, Inc.
Republic Bancorp Inc.
Dana M. Cluckey
President and
Chief Operating Officer
Republic Bancorp Inc.
</TABLE>
[PHOTO]
Douglas E. Jones
Chairman of the Board and
Chief Executive Officer
18
<PAGE>
CUB Funding Corporation
Officers & Locations
<TABLE>
<CAPTION>
OFFICERS.........................................................................
<S> <C> <C>
Douglas E. Jones John P. Dixon Lynne Longstreet
Chairman of the Board and Senior Vice President Vice President,
Chief Executive Officer Human Resources
Anne L. Elliott
Daniel M. LuVisi Senior Vice President Dennece L. Bickley
Vice Chairman and President Vice President
John P. Gunther
Brian R. Ludtke, C.P.A. President, RSL Division Susan M. Porta
Executive Vice President Quality Control and
and Chief Financial Officer Harry A. "Bud" Blank Compliance Officer
President,
Leader Financial Division
<CAPTION>
LOCATIONS...........................................................................
<S> <C> <C>
26565 West Agoura Rd. 2580 E. Main St. 1659 Clarkson Rd.
Calabasas, CA 91302 Ventura, CA 93003 Chesterfield, MO 63017
(800) 729-7334 (800) 577-4775 (314) 530-9494
26560 West Agoura Rd. 21241 Ventura Blvd. 386 Festus Center Dr.
Calabasas, CA 91302 Woodland Hills, CA 91364 Festus, MO 63028
(818) 878-5959 (818) 227-8360 (314) 931-5626
24411 Ridge Route Dr. 25115 Avenue Stanford 423 South Kirkwood Rd.
Laguna Hills, CA 92653 Valencia, CA 91355 Kirkwood, MO 63122
(800) 966-4775 (805) 294-8844 (314) 965-9940
3140 Gold Camp Dr. 702 E. Highway 50 13723 Riverport Dr.
Rancho Cordova, CA 95670 O'Fallon, IL 62269 Maryland Heights, MO 63043
(800) 900-4284 (618) 632-1010 (314) 770-0288
1265 S. Bascom Ave. 112 W. Homer Adams Pkwy. 713 Salem Ave.
San Jose, CA 95128 Alton, IL 62002 Rolla, MO 65401
(800) 559-4775 (618) 467-5626 (573) 368-2992
4000 S.W. Kruse Way Place
Lake Oswego, OR 97035
(800) 769-9899
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Five Year Summary of Selected Financial Data
Year Ended December 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Statements of Income Information
(Dollars in Thousands)
Net interest income $ 36,720 $ 30,405 $ 33,220 $ 36,563 $ 33,729
Provision for loan losses 290 24 94 603 3,967
Mortgage banking income 86,377 70,960 69,899 85,128 30,697
Noninterest expense 104,492(1) 83,152 85,021 93,539 47,811
Net income before cumulative
effect of change in accounting
principle and extraordinary item 15,066 14,264 15,719 22,233 11,422
Cumulative effect of a change in
accounting principle -- -- -- 950 --
Extraordinary item, loss on early
redemption of debt (388) -- -- -- --
-------- -------- -------- -------- ----------
Net Income $ 14,678 $ 14,264 $ 15,719 $ 23,183 $ 11,422
-------- -------- -------- -------- ----------
Per Common Share(2)
Net income (before change in
accounting principle and
extraordinary item) $ .83 $ .76 $ .82 $ 1.19 $ .66
Net income (fully diluted) .81 .76 .82 1.24 .66
Cash dividends declared .37 .31 .25 .16 .13
Dividend payout ratio 46% 40% 30% 13% 19%
Book value $ 7.11 $ 6.97 $ 6.39 $ 6.09 $ 4.90
Operating Data
(Dollars in millions)
Residential mortgage loan
closings $ 3,581 $ 2,847 $ 2,837 $ 4,911 $ 2,078
SBA loan closings 24 17 12 7 1
Mortgage loan servicing portfolio 2,706 3,967 4,669 3,023 2,049
Year-End Balances
(Dollars in millions)
Assets $ 1,490 $ 1,473 $ 1,364 $ 1,171 $ 1,126
Total portfolio loans 785 578 605 407 526
Total deposits 1,014 905 819 834 898
Long-term debt 49 52 56 20 5
Shareholders' equity 122 126 118 111 84
Ratios
Return on average assets(3) 1.11% 1.00% 1.23% 1.94% 1.20%
Return on average equity(3) 13.06 11.71 13.43 23.72 15.05
Net interest margin 2.88 2.38 2.88 3.29 3.70
Non-performing assets to
total assets .44 .20 .30 .45 .69
Allowance for estimated loans losses
to portfolio loans .60 .87 .92 1.77 1.46
Net charge-offs to average loans
outstanding(4) .06 .06 .20 .06 .26
Capital Ratios
Average shareholders'
equity to assets 8.52% 8.56% 9.14% 8.16% 8.15%
Tier 1 risk-based capital 13.30 15.72 17.57 16.35 12.97
Total risk-based capital 13.84 18.63 21.05 20.19 14.23
Tier 1 leverage 8.16 8.31 8.43 8.43 7.51
<FN>
(1) Includes a one-time assessment of $1.5 million ($975,000 after tax or
$.06 per share) for the recapitalization of the Savings Association
Insurance Fund (SAIF).
(2) All per common share amounts have been restated to reflect stock
dividends.
(3) Excludes one-time SAIF assessment charge and the extraordinary item for
the year ended December 31, 1996. Including the SAIF assessment charge
and the extraordinary item, return on average assets and return on
average equity were 1.02% and 11.95%, respectively.
(4) Includes mortgage loans held for sale.
</TABLE>
20
<PAGE>
Condensed Financial Review
OVERVIEW
Republic Bancorp Inc. (the "Company") earned net income of $14.7 million in
1996. Excluding the extraordinary item of $388,000 for the early redemption
of debt in February 1996 and the one-time assessment for the recapitalization
of the SAIF of $975,000, net income for 1996 was $16.0 million, an increase
of 12% over the $14.3 million earned in 1995. Fully diluted earnings per
share was $.81 for the year ended December 31, 1996. Excluding the
extraordinary item and SAIF assessment, earnings per share in 1996 was $.89,
an increase of 17% over the $.76 earnings per share in 1995.
The improved 1996 results reflect significant increases in mortgage banking
income and net interest income. Mortgage banking income in 1996 was $86.4
million, an increase of 22% from 1995, due primarily to increased mortgage
loan closings. Net interest income, on a fully taxable equivalent basis, was
$37.5 million, an increase of 23% over 1995. The net interest margin
increased to 2.88% during 1996 from 2.38% in 1995.
MORTGAGE BANKING
The mortgage banking line of business concentrates on two activities:
mortgage loan production and mortgage loan servicing. Mortgage loans are
originated through the Company's 70 retail and wholesale mortgage loan
production offices and 36 retail bank branch offices of Republic Bank and
Republic Savings Bank. The substantial majority of the Company's mortgage
loan originations are conventional mortgage loans secured by residential
properties which comply with the requirements for sale 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 following table reflects the Company's mortgage loan closings over the
past three years:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995 1994
------ ----- -----
(Dollars in millions)
<S> <C> <C> <C>
Total residential mortgage loan closings $ 3,581 $2,847 $2,837
Retail loans originated percentage 76% 68% 63%
Wholesale loans originated percentage 24% 32% 37%
</TABLE>
The Company's originations of single-family residential mortgage loans
increased $734 million in 1996 to $3.58 billion. The primary factors
affecting the increased volume of originations include the Company's expanded
mortgage delivery system and the overall lower interest rate environment. The
Company's mortgage loans in process were $930 million at December 31, 1996
compared to $794 million at December 31, 1995.
The following table presents the Company's mortgage banking income:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1996 1995 1994
------ ----- -----
(Dollars in thousands)
<S> <C> <C> <C>
Mortgage loan production income $ 70,499 $49,656 $36,528
Net mortgage loan servicing income 8,220 9,596 7,439
Gain on sale of bulk mortgage servicing rights 7,658 11,708 25,932
-------- -------- -------
Total mortgage banking income $ 86,377 $70,960 $69,899
======== ======= =======
</TABLE>
Mortgage banking income, the largest component of total noninterest income,
rose 22% to $86.4 million in 1996, after increasing 2% in 1995. The increase
in 1996 was primarily due to growth in mortgage loan production income which
includes loan origination fees (e.g., points collected), gain on the sale of
mortgage loans and gain on the sale of mortgage servicing rights released
concurrently with the underlying loans sold. In 1996, mortgage loan
production income increased $20.8 million, or 42%, to $70.5 million. The
increase in 1996 is attributable to the higher level of loan originations as
well as improved margins due to a higher percentage mix of retail loan
originations.
(continued)
21
<PAGE>
The ratio of mortgage loan production income to mortgage loans sold rose 12
basis points in 1996 to 1.99% compared to 1.87% in 1995 and 1.23% in 1994.
The Company may elect to sell mortgage servicing rights concurrently with the
sale of the underlying mortgage loans or retain the servicing rights. Any
servicing rights retained may subsequently be sold in bulk form. The level of
bulk servicing sales is dependent upon the Company's strategy to either build
or reduce the servicing portfolio and is further based upon current market
conditions. In 1996, sales of bulk servicing for loans with principal
balances of $2.3 billion resulted in gains of $7.7 million, substantially
lower than gains from 1995 and 1994.
NET INTEREST INCOME
Net interest income stated on a fully taxable equivalent (FTE) basis rose 23%
to $37.5 million in 1996 from $30.4 million in 1995, primarily due to growth
in average earning assets with higher yields and a decline in rates paid on
short-term borrowings, FHLB advances and long term debt. Average
interest-earning assets rose $24.7 million to $1.3 billion in 1996, as a
decline in average investment securities of $80.9 million was more than
offset by increases in average mortgage loans held for sale and average
portfolio loans totaling $113.2 million. Interest income growth also
benefited from a shift in the mix of earning assets from lower-yielding
investment securities to higher-yielding commercial and installment loan
balances. Net interest income growth also resulted from a decrease in
interest expense as average short-term borrowings declined $99.7 million, or
36% to $174.7 million, reflecting the replacement of more expensive
third-party warehousing lines of credit to fund mortgage loan originations
with less expensive Republic Bank and Republic Savings Bank interest bearing
deposits and short-term borrowings. In addition, the Company's first quarter
1996 redemption of the $17.25 million 9% Subordinated Notes through a private
placement of $22.5 million 6.87% Senior Debentures contributed to the
decrease in the average cost of funds. As a result, the net interest margin
increased 50 basis points to 2.88% for 1996 from 2.38% in 1995.
NON INTEREST EXPENSE
During the quarter ended September 30, 1996, the Company recorded a one time
assessment of $1.5 million as required by the Federal Deposit Insurance
Corporation to recapitalize the Savings Association Insurance Fund (SAIF).
The one-time assessment related to $212 million in SAIF insured deposits at
Republic Savings Bank and $17 million in SAIF insured deposits at Republic
Bank.
BALANCE SHEET ANALYSIS
Total assets were $1.49 billion at December 31, 1996 compared to $1.47
billion at December 31, 1995. This change primarily reflects an increase in
portfolio loans which were funded by declines in investment securities and
mortgage loans held for sale.
Total loans, excluding loans held for sale, at December 31, 1996 were $784.6
million. This represents an increase of $206.5 million, or 36%, from the
$578.1 million reported at December 31, 1995. Residential real estate loans
increased $125.1 million to $506.9 million, at December 31, 1996, from $381.8
million, at December 31, 1995, primarily due to the Company retaining a
higher percentage of variable rate residential real estate loans in 1996 over
prior years. 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 increased from $132.4 million to $195.2 million at December 31, 1996.
The increase of $62.8 million from the prior year was due to the Company's
focus on serving the needs of the small to medium size business owners.
Installment loans, primarily home equity loans, increased by $18.6 million
from 1995, reflecting the Company's success of expanded sales and marketing
efforts in home equity lending.
(continued)
22
<PAGE>
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, 1996, these loans
comprised 85.7% of the total loan portfolio. 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. In 1996 and 1995, net
charge-offs as a percentage of average total loans outstanding was .06%,
which is significantly below peer group.
Investment securities totaled $228.6 million at December 31, 1996, a decrease
of $89.1 million from December 31, 1995, reflecting sales of securities
primarily to fund growth in higher-yielding portfolio loans. The investment
securities portfolio represented 15.3% of the Company's total assets at
year-end 1996, compared to 21.6% at December 31, 1995.
Total deposits, the Company's primary source of funding, grew 12% to $1.0
billion at December 31, 1996 from $904.7 million at December 31, 1995. Retail
deposits represent the largest and most stable component of total deposits
and consist of demand deposits, NOW accounts, savings accounts, money market
accounts, Individual Retirement Accounts (IRA's) and retail certificates of
deposit. At year-end 1996, retail deposits totaled $800.5 million, an
increase of $63.5 million, or 9% from $737.0 million at year-end 1995. This
increase primarily reflected the Company's success of expanded sales and
marketing efforts of savings and money market accounts. Non-interest bearing
deposits totaled $126.9 million at December 31, 1996, comparable with the
balance at the end of 1995, and represents 13% of the Company's total
deposits at year-end 1996.
Short-term borrowings at year-end 1996 include federal funds purchased and
securities sold under agreements to repurchase. At December 31, 1996,
short-term borrowings totaled $121.1 million, a decrease of $142.3 million,
or 54%, from $263.5 million at December 31, 1995. This decline resulted from
the Company's replacement of warehousing lines of credit at the mortgage
companies with interest bearing deposits, short-term borrowings and Federal
Home Loan Bank (FHLB) advances. FHLB advances totaled $134.2 million at
December 31, 1996, up $53.7 million, or 67%, from $80.5 million at December
31, 1995. Long-term debt totaled $49.2 million at December 31, 1996, compared
to $51.9 million at December 31, 1995.
CAPITAL RESOURCES
Shareholders' equity decreased $4.6 million, or 4%, to $121.8 million at
December 31, 1996, from $126.4 million at December 31, 1995. Shareholders'
equity declined as the retention of $8.1 million in net income after
dividends was offset by the repurchase and retirement of 1,128,400 shares of
common stock and a $1.1 million increase in unrealized losses on securities
available for sale.
The following table sets forth the Company's Total risk-based capital ratios,
Tier 1 to risk-based capital ratios and Tier 1 leverage ratios:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Total risk-based capital ratios 13.84% 18.63%
Tier 1 to risk-based capital ratios 13.30% 15.72%
Tier 1 leverage ratios 8.16% 8.31%
</TABLE>
The Company is committed to maintaining a strong capital position at Republic
Bank and Republic Savings. As of December 31, 1996, the Total risk-based
capital ratio, Tier 1 to risk-based capital ratio and Tier 1 leverage ratio
for Republic Bank and Republic Savings were substantially in excess of
regulatory requirements for well capitalized financial institutions.
23
<PAGE>
<TABLE>
<CAPTION>
Condensed Consolidated
Financial Statements
December 31,
----------------------------
Consolidated Balance Sheets 1996 1995
----------- -------------
(Dollars in thousands)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 33,590 $ 36,260
Interest-bearing deposits with banks 6,524 3,381
Mortgage loans held for sale 329,157 423,364
Securities available-for-sale 228,621 317,769
Loans, net of unearned income 784,628 578,112
Less allowance for loan losses (4,709) (5,002)
----------- -----------
Net loans 779,919 573,110
Premises and equipment 15,008 14,724
Mortgage servicing rights 44,398 58,265
Other assets 53,148 45,817
----------- -----------
Total assets $ 1,490,365 $ 1,472,690
----------- -----------
LIABILITIES:
Non-interest bearing deposits $ 126,940 $ 126,427
Interest bearing deposits 886,767 778,302
----------- -----------
Total deposits 1,013,707 904,729
Federal funds purchased and securities
sold under agreements to repurchase 115,156 134,237
Other short-term borrowings 5,986 129,214
FHLB advances 134,200 80,500
Accrued expenses and other liabilities 49,243 44,806
Long-term debt 49,189 51,928
----------- -----------
Total liabilities 1,367,481 1,345,414
Minority interest 1,069 900
SHAREHOLDERS' EQUITY
Common stock, $5 par value; 20,000,000
shares authorized: 17,129,142 and
18,125,779 shares issued and outstanding
in 1996 and 1995, respectively 85,646 82,390
Capital surplus 37,538 43,177
Retained earnings 1,079 2,172
Net unrealized losses on securities
available-for-sale (2,448) (1,363)
----------- -----------
Total shareholders' equity 121,815 126,376
----------- -----------
Total liabilities and shareholders' equity $ 1,490,365 $ 1,472,690
=========== ===========
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
Consolidated Statements of Income 1996 1995 1994
--------- --------- ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Total interest income $ 99,147 $ 95,597 $ 78,219
Total interest expense 62,427 65,192 44,999
--------- --------- ---------
Net interest income 36,720 30,405 33,220
Provision for loan losses 290 24 94
--------- --------- ---------
Net interest income after
provision for loan losses 36,430 30,381 33,126
Total noninterest income 90,846 75,201 75,661
Total noninterest expense 104,492 83,152 85,021
--------- --------- ---------
Income before income taxes and
extraordinary item 22,784 22,430 23,766
Provision for income taxes 7,718 8,166 8,047
--------- --------- ---------
Income before extraordinary item 15,066 14,264 15,719
Extraordinary item, early redemption
of debt, net of tax (388) -- --
Net Income $ 14,678 $ 14,264 $ 15,719
--------- --------- ---------
PER COMMON SHARE:
Income before extraordinary item $ 0.83 $ 0.76 $ 0.82
Extraordinary item, early redemption
of debt, net of tax (.02) -- --
--------- --------- ---------
Net income per common share (primary and
fully diluted) $ 0.81 $ 0.76 $ 0.82
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statement of Shareholders' Equity
Unrealized
Losses on
Number of Securities Total
Common Common Capital Retained Available Shareholders'
Shares Stock Surplus Earnings For Sale Equity
--------- ------- ------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996 16,478 $82,390 $43,177 $ 2,172 $(1,363) $126,376
Net Income 14,678 14,678
Cash dividends declared (6,531) (6,531)
Awards of common shares
under Restricted Stock Plan (790) (790)
Amortization of restricted stock 648 648
10% Common share dividend 1,565 7,827 1,398 (9,240) (15)
Issuance of common shares for:
Exercise of stock options 214 1,071 (31) 1,040
Tax benefit relating to exercise
of stock options 514 514
Change in unrealized losses on
securities available-for-sale (1,085) (1,085)
Repurchase of common shares (1,128) (5,642) (7,378) (13,020)
------ ------- ------- ------- ------- --------
Balances at December 31, 1996 17,129 $85,646 $37,538 $ 1,079 $(2,448) $121,815
====== ======= ======= ======= ======= ========
</TABLE>
Independent Auditors' Report
Republic Bancorp Inc.
We have audited the consolidated balance sheets of Republic Bancorp Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. Such consolidated
financial statements and our report thereon dated January 16, 1997,
expressing an unqualified opinion (which are not included herein) are
included in Appendix A to the proxy statement for the annual meeting of
stockholders. The accompanying condensed consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on such condensed consolidated financial statements in
relation to the complete consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated financial statements of Republic Bancorp Inc. on page 24 and 25
is fairly stated in all material respects, in relation to the basic
consolidated statements from which it has been derived.
/s/ Deloitte & Touche LLP
- -------------------------
January 16, 1997
Detroit, Michigan
25
<PAGE>
Republic Bancorp Inc.
Board of Directors, Officers & Locations
<TABLE>
<CAPTION>
BOARD OF 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 and Partner President
Chief Operating Officer Petersen & Ibold Better Properties, Inc.
Attorneys at Law
Bruce L. Cook George B. Smith
President Stephen M. Klein Chairman of the Board
Wolverine Sign Works Chairman and Republic Bancorp Mortgage Inc.
Chief Executive Officer
Richard J. Cramer Omni Financial Services, Inc. Dr. Jeoffrey K. Stross
President Professor of Internal Medicine
Dee Cramer, Inc. John J. Lennon Associate Chief of
Retired Chairman and Clinical Affairs
Dr. George A. Eastman Chief Executive Officer University Medical Center,
Orthodontic Consultant White Engines, Inc The University of Michigan.
Howard J. Hulsman Sam H. McGoun DIRECTORS - EMERITI
Chairman President and Myer N. Franklin
Ross Learning Inc. Chief Executive Officer David Laro
Willis Corroon Corporation John F. Northway
of Michigan, Inc. Lyman H. Treadway
<CAPTION>
OFFICERS...................................................................................
<S> <C> <C>
Jerry D. Campbell Thomas F. Menacher, C.P.A. Travis D. Jones, C.P.A.
Chairman and Senior Vice President, Vice President and
Chief Executive Officer Treasurer and Controller
Chief Financial Officer
Dana M. Cluckey, C.P.A. Gregory R. Bixby
President and Timothy G. Blazejewski, C.P.A. Vice President
Chief Operating Officer Vice President and Chief Information Officer
Chief Investment Officer
Barry J. Eckhold Pamela E. Taiariol
Vice President Debra H. Hanses, PHR Corporate Internal Audit
Chief Credit Officer Vice President and Compliance Officer
Corporate Human Resources
George E. Parker, III
General Counsel and
Corporate Secretary
<CAPTION>
LOCATIONS..................................................................................
<S> <C>
1070 East Main St. 122 South Main St.
Owosso, MI 48867 Ann Arbor, MI 48104
(517) 725-7337 (313) 665-4030
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Shareholder Information
SUMMARY OF COMMON SHARE MARKET DATA
Market Price on Common Shares
--------------------------------------
1996 1995
---- ----
High Low High Low
------ ------ ------ -------
<S> <C> <C> <C> <C>
First quarter 10 7/8 9 5/8 9 5/8 8 1/4
Second quarter 10 5/8 10 10 1/2 9 1/8
Third quarter 11 9 7/8 11 3/4 9 1/2
Fourth quarter 12 3/8 10 7/8 11 3/4 9 1/8
</TABLE>
The Company had 4,785 common shareholders of record and approximately 13,500
total common shareholders as of February 28, 1997. 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.
The Board of Directors of Republic Bancorp Inc., on February 21, 1997,
declared a quarterly cash dividend of $.10 per share on Common Stock, payable
on April 4, 1997 to shareholders of record on March 7, 1997. 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 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 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>
1996 1995
------------------------------- --------------------------------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- -------- ------- ------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total income $44,825 $46,981 $49,183 $49,004 $38,570 $42,062 $45,818 $44,348
Total interest income 24,162 24,216 25,608 25,161 22,540 23,409 24,608 25,040
Total interest expense 16,060 15,339 15,659 15,369 14,764 15,873 17,237 17,318
Provision for loan losses 65 45 90 90 12 12 - -
Net income 2,627 4,146 3,754 4,151 4,205 3,925 4,114 2,020
Net income per common share:
Primary and fully diluted $ .14 .22 .21 .24 .22 .21 .22 .11
</TABLE>
27
<PAGE>
ANNUAL MEETING
The Annual Meeting of Shareholders of Republic Bancorp Inc. will be held on
April 23, 1997 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 Mr. Thomas
F. Menacher, C.P.A., Senior Vice President, Treasurer and Chief Financial
Officer or Ms. Vivian N. Bennett, C.P.A., Financial Reporting and Investor
Relations Manager, at 1070 E. Main Street, Owosso, Michigan 48867, (517)
725-7004.
DIVIDEND REINVESTMENT PLAN
Republic Bancorp Inc. shareholders of record may elect to have dividends
automatically reinvested in additional shares of Republic Bancorp Inc. 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 Ms. Vivian N. Bennett C.P.A., Financial
Reporting and Investor Relations Manager, at 1070 E. Main Street, Owosso,
Michigan 48867, (517) 725-7004.
STOCK TRANSFER AGENT AND REGISTRAR
Request for information from the Company's stock transfer agent and registrar
should be directed to State Street Bank and Trust Company, c/o Boston
EquiServe, P.O. Box 8200, Boston, Massachusetts, 02266, (800) 257-1770.
COMMON STOCK
The common stock of Republic Bancorp Inc. trades on the Nasdaq National
Market tier of the Nasdaq Stock Market under the symbol RBNC. The following
23 brokerage firms make a market in the common stock of Republic Bancorp Inc.
<TABLE>
<CAPTION>
<S> <C> <C>
A. G. Edwards & Sons, Inc. Herzog, Heine, Geduld, Inc. Mayer & Schweitzer Inc.
St. Louis, Missouri 63103 New York, New York 10004 Jersey City, New Jersey 07302
Allen & Company, Inc. Howe Barnes Investments, Inc. Nash Weiss
New York, New York 10022 Chicago, Illinois 60603 Jersey City, New Jersey 07302
Robert W. Baird & Co., Inc. Knight Securities L.P. Northeast Securities Inc.
Milwaukee, Wisconsin 53202 Jersey City, New Jersey 07310 Westbury, New York 11553
The Chicago Corporation J.W. Barclay & Co., Inc. Paine Webber Inc.
Chicago, Illinois 60604 New York, New York 10004 New York, New York 10019
Dean Witter Reynolds, Inc. J.W. Charles Securities, Inc. RFB Investments Inc.
New York, New York 10048 Boca Raton, Florida 33431 New York, New York 10022
Everen Securities Inc. J.B. Oxford & Company Roney & Co.
Chicago, Illinois 60601 Beverly Hills, California 90212 Detroit, Michigan 48226
First of Michigan Keefe, Bruyette & Woods, Inc. Smith Barney Shearson, Inc.
Corporation New York, New York 10048 New York, New York 10105
Detroit, Michigan 48226
MacAllister Pitfield MacKay Stifel Nicolaus & Co., Inc.
New York, New York 10004 St. Louis, Missouri 63102
28
<PAGE>
[BACKCOVER]
122 South Main Street
Ann Arbor, Michigan 48104
313-665-4030<PAGE>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
1996 Annual Report Supplement
TABLE OF CONTENTS
Five Year Summary of Selected Financial Data.........................S - 1
Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................S - 2
Consolidated Financial Statements....................................S - 20
Notes to Consolidated Financial Statements...........................S - 25
Report of Management.................................................S - 46
Independent Auditors' Report.........................................S - 47
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Table 1: Five Year Summary of Selected Financial Data
At or For the Year Ended December 31 1996 1995 1994 1993 1992
- ------------------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings Summary (in thousands)
Interest income $99,147 $ 95,597 $78,219 $78,831 $74,068
Interest expense 62,427 65,192 44,999 42,268 40,339
------- -------- ------- ------- -------
Net interest income 36,720 30,405 33,220 36,563 33,729
Provision for loan losses 290 24 94 603 3,967
Mortgage banking income 86,377 70,960 69,899 85,128 30,697
Other noninterest income 4,469 4,241 5,762 6,992 6,113
Noninterest expense 104,492(1) 83,152 85,021 93,539 47,811
Provision for income taxes 7,718 8,166 8,047 12,308 7,339
------- -------- ------- ------- ------
Income before cumulative effect of
a change in accounting principle and
extraordinary item 15,066 14,264 15,719 22,233 11,422
Cumulative effect of a change in
accounting for income taxes -- -- -- 950 --
Extraordinary item, loss on early
redemption of debt (388) -- -- -- --
------- -------- ------- ------- -------
Net income $14,678 $ 14,264 $15,719 $23,183 $11,422
======= ======== ======= ======= =======
Per Common Share(2)
Net income (primary) $ .81 $ .76 $ .82 $ 1.24 $ .71
Net income (fully diluted) .81 .76 .82 1.24 .66
Cash dividends declared .37 .31 .25 .16 .13
Dividend payout ratio 46% 40% 30% 13% 19%
Book value at year-end $ 7.11 $ 6.97 $ 6.39 $ 6.09 $ 4.90
Operating Data (in millions)
Closings:
Residential mortgage loans $ 3,581 $ 2,847 $ 2,837 $ 4,911 $ 2,078
SBA loans 24 17 12 7 1
Mortgage loan servicing portfolio 2,706 3,967 4,669 3,023 2,049
Year-End Balances (in millions)
Total assets $ 1,490 $ 1,473 $ 1,364 $ 1,171 $ 1,126
Total earning assets 1,349 1,323 1,224 1,078 1,041
Mortgage loans held for sale 329 423 152 508 245
Total portfolio loans 785 578 605 407 526
Total deposits 1,014 905 819 834 898
Total short-term borrowings and FHLB
advances 255 344 327 160 95
Long-term debt 49 52 56 20 5
Shareholders' equity 122 126 118 111 84
Ratios
Return on average assets(3) 1.11% 1.00% 1.23% 1.94% 1.20%
Return on average common equity(3) 13.06 11.71 13.43 23.72 15.05
Net interest margin (4) 2.88 2.38 2.88 3.29 3.70
Non-performing assets as a percentage
of period-end total assets .44 .20 .30 .45 .69
Allowance for loan losses as a percentage
of period-end portfolio loans .60 .87 .92 1.77 1.46
Net charge-offs to average total loans(5) .06 .06 .20 .06 .26
Average shareholders' equity to average
assets 8.52 8.56 9.14 8.16 8.15
Tier 1 risk-based capital 13.30 15.72 17.57 16.35 12.97
Total risk-based capital 13.84 18.63 21.05 20.19 14.23
Tier 1 leverage 8.16 8.31 8.43 8.43 7.51
<FN>
(1) Includes a one-time assessment of $1.5 million ($975,000 after tax or
$.06 per share) for the recapitalization of the Savings Association
Insurance Fund (SAIF).
(2) All per common share amounts have been restated to reflect stock
dividends.
(3) Excludes the one-time SAIF assessment charge and the extraordinary item
for the year ended December 31, 1996. Including the SAIF assessment
charge and the extraordinary item, return on average assets and return on
average equity were 1.02% and 11.95%, respectively.
(4) Net interest income (FTE) expressed as a percentage of average
interest-earning assets.
(5) Includes mortgage loans held for sale.
</TABLE>
S - 1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Company Profile
Republic Bancorp Inc. (the "Company") is a bank holding company established
in 1986 which currently operates 106 banking and mortgage banking offices in
19 states. The Company has two banking subsidiaries: Republic Bank and
Republic Savings Bank. Republic Bank, headquartered in Ann Arbor, Michigan,
exercises the powers of a full-service commercial bank and has 26 offices in
Michigan. Republic Savings Bank, headquartered in Pepper Pike, Ohio,
exercises the powers of a full-service savings bank and has 15 offices in
Ohio and one office in Indiana.
To complement its commercial and retail banking activities, the Company
has grown a nationwide mortgage banking business with Market Street Mortgage
Corporation ("Market Street"), a mortgage company headquartered in
Clearwater, Florida, with 35 offices in 10 states; Republic Bancorp Mortgage
Inc., a mortgage company located in Farmington Hills, Michigan, with 13
offices in 5 states; and CUB Funding Corporation, a mortgage company,
headquartered in Calabasas, California, with 16 offices in 4 states. Republic
Bancorp Mortgage Inc. and CUB Funding Corporation are subsidiaries of
Republic Bank.
Overview
The Company earned $14.7 million in 1996, an increase of 3% from $14.3
million in 1995. On a per share basis, earnings rose 7% in 1996 to $.81 from
$.76 in 1995. Return on average common equity increased to 11.95% in 1996
from 11.71% in 1995. Return on average assets also increased to 1.02% in 1996
from 1.00% in 1995.
Excluding the impact on 1996 earnings of an extraordinary item from the
early redemption of Subordinated Notes and a one-time assessment for the
recapitalization of the Savings Association Insurance Fund (SAIF), earnings
for the year increased 12% to $16.0 million and earnings per share increased
17% to $.89. The returns on average equity and average assets in 1996,
excluding the extraordinary item and one-time SAIF assessment, were 13.06%
and 1.11%, respectively.
The improved 1996 results reflect an increase in net interest income and
growth in noninterest income. Net interest income, on a fully taxable
equivalent basis, was $37.5 million, up $7.1 million, or 23%, from 1995. The
net interest margin climbed 50 basis points to 2.88% for 1996 from 2.38% for
1995, as average loan balances increased and rates paid on short-term
borrowings, Federal Home Loan Bank (FHLB) advances and long-term debt
declined. Noninterest income in 1996 increased $15.6 million, or 21%, to
$90.8 million as a result of strong growth in mortgage banking income.
Acquisitions
The Company geographically expanded its mortgage production capabilities and
retail banking network through the following strategic acquisitions:
In April 1996, the Company completed the purchase of certain assets and
the mortgage origination network of First of America in St. Louis, Missouri
and southern Illinois. The mortgage operation has seven offices operating
under the name Leader Financial and is a division of CUB Funding Corporation.
Leader Financial closed over $136 million in residential mortgage loans in
1996 since the acquisition.
In July 1996, the Company completed the purchase of certain assets and
the mortgage origination network of Unlimited Mortgage Services, Inc., of
Columbus, Ohio. The mortgage operation has an office in Columbus, Ohio and
operates as a division of Republic Bancorp Mortgage Inc. Unlimited Mortgage
Services, Inc. closed over $53 million in residential mortgage loans in 1996
since the acquisition.
The Company also acquired certain fixed assets and deposits of three
branch offices located in the greater Cleveland, Ohio area in December 1996.
The three branch offices are located in Middleburg Heights, Shaker Heights
and Hudson and had combined deposits of approximately $27 million.
S - 2
<PAGE>
Business Segments
The Company's operations are managed along two major business segments: (1)
commercial and retail banking and (2) mortgage banking. The financial results
of the business segments are presented in Table 2. Business segment
performance is determined based on the Company's management accounting
process, which assigns revenue, expenses and assets to a business segment
using specific identification and an allocation methodology. This process is
somewhat subjective; therefore, the information presented is not necessarily
comparable with similar information for any other financial institution.
Changes in the allocation methodology may result in changes in allocations
and assignments. In that case, however, results for prior periods would be
restated to allow comparability between periods.
The Company's internal management reporting system allocates interest
income and interest expense items by matching the earning asset with the
related funding source. Noninterest income and expenses directly attributable
to a business segment's operations are assigned to that business segment.
Expenses supporting more than one business segment are allocated to each
segment based on the number of employees dedicated to the segment's
operations.
<TABLE>
<CAPTION>
Table 2: Business Segments Results
Commercial and
Retail Banking Mortgage Banking Consolidated
------------------------ ----------------------- -----------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
Interest income $72,706 $74,496 $62,902 $26,441 $21,101 $15,317 $ 99,147 $95,597 $78,219
Interest expense 39,554 42,366 32,504 22,873 22,826 12,495 62,427 65,192 44,999
------- ------- ------- ------- ------- ------- -------- ------- -------
Net interest income(1) 33,152 32,130 30,398 3,568 (1,725) 2,822 36,720 30,405 33,220
Provision for loan
losses 290 24 94 -- -- -- 290 24 94
Noninterest income 4,469 4,241 5,762 86,377 70,960 69,899 90,846 75,201 75,661
Noninterest expense(2) 21,221 16,410 17,267 83,271 66,742 67,754 104,492 83,152 85,021
------- ------- ------- ------- ------- ------- -------- ------- -------
Income before taxes $16,110 $19,937 $18,799 $ 6,674 $ 2,493 $ 4,967 $ 22,784 $22,430 $23,766
======= ======= ======= ======= ======= ======= ======== ======= =======
Depreciation and
amortization $ 2,265 $ 2,484 $ 2,890 $10,609 $10,036 $ 7,225 $ 12,874 $12,520 $10,115
Capital expenditures $ 2,298 $ 2,294 $ 1,370 $ 1,544 $ 1,265 $ 3,929 $ 3,842 $ 3,559 $ 5,299
(In millions)
Identifiable assets $ 1,072 $ 951 $ 1,111 $ 418 $ 522 $ 253 $ 1,490 $ 1,473 $ 1,364
<FN>
(1) Net interest income for the mortgage banking segment is generated from
the interest earned on mortgage loans held for sale, less the interest
expense incurred on short-term borrowings used to fund loan production
and servicing acquisitions.
(2) Noninterest expense for the commercial and retail banking segment in 1996
includes the $1.5 million SAIF assessment.
</TABLE>
Mortgage Banking
The mortgage banking segment concentrates on two activities: mortgage loan
production and mortgage loan servicing. Mortgage lending is conducted by all
of the Company's subsidiaries and affiliates, while mortgage loan servicing
is conducted by the Company's three mortgage companies. Republic Bank and
Republic Savings Bank fund all of the Company's mortgage loan originations.
The Company originates conventional mortgage loans which conform to the
underwriting guidelines for sale to the Federal National Mortgage Association
(FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). Loans insured
through the Veterans' Administration (VA) or Federal Housing Administration
(FHA) are originated in compliance with the underwriting guidelines
permitting conversion of such loans into mortgage-backed securities issued by
the Government National Mortgage Association (GNMA).
S - 3
<PAGE>
The Company services originated loans that are subsequently sold to
investors in the form of a mortgage- backed security with the servicing
rights retained. Servicing rights may also be acquired through bulk
purchases. As a loan servicer, the Company administers the loans, collects
and remits loan payments, holds funds in escrow for payment of taxes and
insurance, counsels delinquent mortgagors and supervises foreclosures and
property dispositions in the event of unremedied defaults. The Company is
able to reduce the sensitivity of its earnings to changes in interest rates
by maintaining both a strong production capability and a significant
servicing portfolio, because the impact of interest rate changes on mortgage
loan production income may be offset by the change in the fair market value
of the Company's mortgage servicing portfolio.
<TABLE>
<CAPTION>
Table 3: Residential Mortgage Loan Closings
Year Ended December 31
(Dollars in thousands) 1996 1995 1994
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Total closings $3,580,700 $2,847,490 $2,836,552
Retail loans percentage 76% 68% 63%
Wholesale loans percentage 24 32 37
</TABLE>
The Company's originations of single-family residential mortgage loans
increased $733.2 million, or 26%, in 1996 to $3.58 billion from $2.85 billion
in 1995. This increase was primarily the result of operating in a relatively
low interest rate environment and expanding the Company's mortgage banking
network through the acquisitions of Leader Financial and Unlimited Mortgage
Services, Inc. in 1996. In addition, the Company's results of operations for
1996 reflected one full year of operations for RSL Mortgage which was
acquired in the third quarter of 1995. Refinancings totaled $937.3 million,
or 26% of total closings, compared to $711.2 million, or 25% of total
closings a year ago. The pipeline of loan applications in process was $930.4
million at December 31, 1996, compared to $794.1 million at December 31,
1995.
Mortgage loan production volume for 1995 was relatively flat compared to
1994, reflecting the impact of rising interest rates throughout the year on
mortgage loan refinancing activity. In 1995, mortgage loan originations
increased slightly to $2.85 billion from $2.84 billion in 1994. Refinancings
declined to $711.2 million, or 25% of total closings,
from $911.4 million, or 32% of total closings, in 1994. The Company's
pipeline of mortgage loan applications in process was $794.1 million at
December 31, 1995, compared to $399.9 million at December 31, 1994.
<TABLE>
<CAPTION>
Table 4: Mortgage Banking Income
Year Ended December 31
(In thousands) 1996 1995 1994
- -------------- ---- ---- ----
<S> <C> <C> <C>
Mortgage loan production income $70,499 $49,656 $36,528
Net mortgage loan servicing income 8,220 9,596 7,439
Gain on sale of bulk mortgage
servicing rights 7,658 11,708 25,932
------- -------- -------
Total mortgage banking income $86,377 $70,960 $69,899
======= ======= =======
</TABLE>
Mortgage banking income, the largest component of total noninterest
income, rose 22% to $86.4 million in 1996, after increasing 2% in 1995 and
decreasing 18% in 1994. The increase in 1996 was primarily due to growth in
mortgage loan production income, which includes loan origination fees (e.g.,
points collected), gains on the sale of mortgage loans and gains on the sale
of mortgage servicing rights released concurrently with the underlying loans
sold. In 1996, mortgage loan production income increased $20.8 million, or
42%, to $70.5 million from $49.7 million in 1995 and $36.5 million in 1994.
The increase in 1996 was attributable to the higher level of loan
originations as well as improved margins due to a higher percentage mix of
retail loan closings. The Company sold $3.55 billion of single-family
residential mortgages in 1996, compared to $2.65 billion in 1995 and $2.96
billion in 1994. The ratio of mortgage production income to mortgage loans
sold rose to 1.99% in 1996, an increase of 12 basis points compared to 1.87%
in 1995 and 1.23% in 1994.
S - 4
<PAGE>
Mortgage loan servicing income is comprised of servicing fees, late fees
and other ancillary charges, and is reduced by charges for the amortization
and impairment, if any, of mortgage servicing rights. Servicing income
declined 14% to $8.2 million in 1996, after increasing 29% in 1995 and 63% in
1994. The decrease in 1996 principally resulted from a reduction in the
mortgage loan servicing portfolio due to bulk servicing sales. At December
31, 1996, the Company serviced $2.7 billion of mortgage loans for the benefit
of others, compared to $4.0 billion at December 31, 1995. The Company
serviced 36,267 loans at year-end 1996, with an average loan size of $74,614,
compared to 51,402 loans at year-end 1995, with an average loan size of
$77,169.
Amortization of mortgage servicing rights totaled $7.6 million in 1996,
compared to $7.0 million in 1995 and $5.0 million in 1994. The Company
evaluates its mortgage servicing rights for impairment on a quarterly basis.
No impairment was required to be recorded in 1996 or 1995 in accordance with
Statement of Financial Accounting Standards (SFAS) No. 122, Accounting for
Mortgage Servicing Rights, since the fair value of the Company's capitalized
mortgage servicing rights exceeded their carrying amount.
The Company may elect to sell mortgage servicing rights concurrently with
the sale of the underlying loans or retain the servicing rights. Any
servicing rights retained may subsequently be sold in bulk form. The level of
bulk servicing sales is dependent upon the Company's strategy to either build
or reduce the servicing portfolio and is further based upon current market
conditions. In 1996, sales of bulk mortgage servicing rights for loans with
principal balances of $2.3 billion resulted in gains of $7.7 million. In 1995
and 1994, sales of bulk mortgage servicing rights for loans with principal
balances of $2.5 billion and $3.0 billion, respectively, resulted in gains of
$11.7 million and $25.9 million, respectively.
Commercial and Retail Banking
The commercial and retail banking segment consists of commercial and
Small Business Administration (SBA) lending to small- and medium-sized
companies, mortgage portfolio lending, home equity lending and the
deposit-gathering function. A variety of deposit and loan products are
offered through the 36 retail branch offices of Republic Bank and Republic
Savings Bank, which are staffed by personal bankers and loan originators. The
remaining disclosures and analyses within this Management's Discussion and
Analysis regarding the Company's results of operations and financial
condition relate principally to the commercial and retail banking segment.
Results of Operations
Net Interest Income
Net interest income is defined as the difference between total interest
income generated by earning assets and the cost of funding those assets. To
permit the comparable analysis of tax-exempt and fully taxable income, net
interest income is stated on a fully taxable equivalent (FTE) basis,
reflecting adjustments made to the yields of tax-exempt investment securities
included in earning assets. The net interest margin is net interest income
(FTE) expressed as a percentage of average earning assets and measures how
effectively the Company utilizes its earning assets in relationship to the
interest cost of funding them.
Net interest income (FTE) rose 23% to $37.5 million in 1996 from $30.4
million in 1995, primarily due to growth in average earning assets with
higher yields and a decline in rates paid on short-term borrowings, FHLB
advances and long-term debt. Average earning assets rose $24.7 million, or
2%, to $1.3 billion in 1996, as a decline in average investment securities of
$80.9 million was more than offset by increases in average mortgage loans
held for sale and average portfolio loans totaling $113.2 million. Interest
income growth also benefited from a shift in the mix of earning assets from
lower-yielding investment securities to higher-yielding commercial and
installment loan balances. Net interest income growth also resulted from a
decrease in interest expense as average short-term borrowings declined $99.7
million, or 36%, to $174.7 million, reflecting the replacement of more
expensive third-party warehousing lines of credit used to fund mortgage loan
originations with less expensive Republic Bank and Republic Savings Bank
interest-bearing deposits and short-term borrowings.
S - 5
<PAGE>
<TABLE>
<CAPTION>
Table 5: Analysis of Net Interest Income (FTE)
Year Ended December 31
(Dollar amounts in thousands 1996 1995 1994
- ---------------------------- --------------------------- -------------------------- ----------------------------
Average Avg. Average Avg. Average Avg.
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Assets:
Short-term investments $ 9,155 $ 438 4.78% $ 16,801 $ 954 5.68% $ 13,163 $ 474 3.60%
Mortgage loans held for sale 340,375 26,392 7.75 268,788 21,100 7.85 213,593 15,317 7.17
Investment securities 301,338 19,054 6.32 382,242 23,155 6.06 434,440 24,128 5.56
Commercial loans 162,463 15,183 9.35 109,063 10,843 9.94 114,954 10,599 9.22
Real estate mortgage loans 415,981 31,521 7.58 443,928 33,633 7.58 326,902 23,243 7.11
Installment loans 72,565 7,340 10.12 56,370 5,912 10.49 50,120 4,458 8.89
---------- ------ ---- --------- ------ ---- --------- ------ ----
Total loans, net of
unearned income(1) 651,009 54,044 8.30 609,361 50,388 8.27 491,976 38,300 7.78
---------- ------ ---- --------- ------ ---- --------- ------ ----
Total interest-earning
assets $1,301,877 99,928 7.68 1,277,192 95,597 7.48 1,153,172 78,219 6.78
Allowance for loan losses (4,819) (5,264) (6,360)
Cash and due from banks 26,213 24,460 25,758
Other assets 118,782 126,339 108,549
---------- ---------- ----------
Total assets $1,442,053 $1,422,727 $1,281,119
========== ========== ==========
Average Liabilities and
Shareholders' Equity:
Interest-bearing demand
deposits $ 57,754 1,358 2.35 $ 63,516 1,554 2.45 $ 86,965 2,295 2.64
Savings deposits 215,357 8,882 4.12 177,978 6,677 3.75 188,267 6,212 3.30
Time deposits 545,151 32,028 5.88 517,663 30,567 5.90 420,995 19,754 4.69
---------- ------ ---- --------- ------ ---- --------- ------ ----
Total interest-bearing
deposits 818,262 42,268 5.17 759,157 38,798 5.11 696,227 28,261 4.06
Short-term borrowings 174,734 10,322 5.91 274,454 18,396 6.70 216,663 10,902 5.03
FHLB advances 103,244 6,094 5.90 40,004 2,431 6.08 42,796 2,237 5.23
Long-term debt 50,873 3,743 7.36 63,256 5,567 8.80 42,499 3,599 8.47
---------- ------ ---- --------- ------ ---- --------- ------ ----
Total interest-bearing
liabilities 1,147,113 62,427 5.44 1,136,871 65,192 5.73 998,185 44,999 4.51
Noninterest-bearing
deposits 124,976 128,640 121,594
Other liabilities 47,172 35,435 44,273
---------- ---------- ----------
Total liabilities 1,319,261 1,300,946 1,164,052
Shareholders' equity 122,792 121,781 117,067
---------- ---------- ----------
Total liabilities and
shareholders' equity $1,442,053 $1,422,727 $1,281,119
========== ========== ==========
Net interest income/
Rate spread (FTE) $37,501 2.24% $30,405 1.75% $33,220 2.27%
======= ======= =======
FTE adjustment(2) $ 781 $ -- $ --
======= ======= =======
Impact of net noninterest-
bearing sources of funds .64 .63 .61
---- ---- ----
Net interest margin (FTE) 2.88% 2.38% 2.88%
==== ==== ====
<FN>
(1) Non-accrual loans and overdrafts are included in average balances.
(2) No significant amounts of tax-exempt income were earned by the Company in
1995 and 1994.
</TABLE>
S - 6
<PAGE>
<TABLE>
<CAPTION>
Table 6: Rate/Volume Analysis (FTE)
1996/1995 1995/1994
----------------------------- -------------------------------
Increase/(Decrease) Increase/(Decrease)
Due to Change in: Due to Change in:
----------------------------- -------------------------------
Average Average Net Average Average Net
(In thousands) Balance(1) Rate(1) Change Balance(1) Rate(1) Change
- -------------- ---------- ------- ------ ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Short-term investments $ (383) $ (133) $ (516) $ 155 $ 325 $ 480
Mortgage loans held for sale 5,563 (271) 5,292 4,232 1,551 5,783
Investment securities (5,062) 961 (4,101) (3,049) 2,076 (973)
Loans, net of unearned income (2) 3,472 184 3,656 9,589 2,499 12,088
------ ------ ------ -------- ------- -------
Total interest income (FTE) 3,590 741 4,331 10,927 6,451 17,378
Interest-bearing demand deposits (135) (61) (196) (583) (158) (741)
Savings deposits 1,500 705 2,205 (353) 818 465
Time deposits 1,568 (107) 1,461 5,087 5,726 10,813
------ ------ ------ -------- ------- -------
Total interest-bearing deposits 2,933 537 3,470 4,151 6,386 10,537
Short-term borrowings (6,096) (1,978) (8,074) 3,339 4,155 7,494
FHLB advances 3,737 (74) 3,663 (153) 347 194
Long-term debt (994) (830) (1,824) 1,822 146 1,968
------ ------ ------ ------- --------- -------
Total interest expense (420) (2,345) (2,765) 9,159 11,034 20,193
------ ------ ------ ------- ------- -------
Net interest income (FTE) $4,010 $3,086 $7,096 $ 1,768 $(4,583) $(2,815)
====== ====== ====== ======= ======= =======
<FN>
(1) Variances attributable jointly to volume and rate changes are 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>
The net interest margin increased 50 basis points to 2.88% for 1996 from
2.38% last year. This expansion in the margin was partially attributable to a
shift in the mix of earning assets to higher-yielding commercial and
installment loan balances during 1996. This strategy led to a 20 basis point
rise in the yield on average earning assets. The Company's elimination of
external warehousing lines of credit at the mortgage companies, as well as
the first quarter 1996 redemption of the $17.25 million 9% Subordinated Notes
through a private placement of $22.5 million 6.87% Senior Debentures
contributed to the 29 basis point decrease in the average cost of funds.
In 1995, net interest income (FTE) declined 8% to $30.4 million from
$33.2 million in 1994, primarily reflecting the impact of rising interest
rates paid on time deposits. Average time deposits rose $97 million, or 23%,
and the related average rate paid rose 121 basis points. The net interest
margin decreased 50 basis points to 2.38% from 2.88% in 1994.
Noninterest Income
Noninterest income is a significant source of revenue for the Company,
contributing 48% of total revenues in 1996, compared to 44% in 1995 and 49%
in 1994. Excluding mortgage banking income, noninterest income increased 5%
to $4.5 million in 1996, compared to $4.2 million in 1995 primarily due to an
increase in gain on sale of SBA loans.
In 1996, the Company sold $144.7 million of investment securities,
compared to $232.0 million in 1995. Included in the net loss on sales of
investment securities in 1994 was the sale of $47.0 million of low-yielding
mortgage-backed securities at a loss of $2.0 million. In 1996, the Company
sold $17.9 million of the guaranteed portion of SBA loans, compared to $10.8
million and $9.4 million in 1995 and 1994, respectively. Noninterest income
in 1994 included the gain on the sale of three northern Michigan branch
offices in the amount of $4.0 million.
S - 7
<PAGE>
<TABLE>
<CAPTION>
Table 7: Noninterest Income
Year Ended December 31
(In thousands) 1996 1995 1994
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Mortgage banking income $86,377 $70,960 $ 69,899
Service charges 1,218 1,297 1,337
Investment securities gains (losses) 766 1,061 (1,392)
Gain on sale of bank branches -- -- 4,034
Gain on sale of SBA loans 1,242 873 667
Other noninterest income 1,243 1,010 1,116
------- ------- --------
Total noninterest income $90,846 $75,201 $ 75,661
======= ======= ========
</TABLE>
Noninterest Expense
Noninterest expense increased 26% to $104.5 million in 1996, compared to
$83.2 million in 1995 and $85.0 million in 1994. Salaries and employee
benefits expense increased $10.5 million, or 33%, in 1996 after decreasing
$1.9 million, or 6%, in 1995, due to the acquisition of Leader Financial and
Unlimited Mortgage Services, Inc., and an increased level of bonus payments.
Mortgage loan commissions paid to mortgage loan originators and processors
rose $6.9 million, or 39%, in 1996, compared to an increase of $4.1 million,
or 30%, in 1995. The increase in mortgage loan commissions reflects growth in
the volume of mortgage loans originated and a 42% increase in retail loan
closings over 1995. The commission rate paid on retail loan closings is
substantially higher than the commission amount paid on wholesale closings.
Net occupancy expense increased 17% in 1996, after decreasing 9% in 1995,
as a result of adding 10 branch offices during 1996. Equipment expense has
remained relatively stable since 1994, increasing 5% in 1996 and 7% in 1995,
reflecting consistent levels of purchasing activity.
Included in noninterest expense for 1996 is a one-time assessment of $1.5
million levied on the Company's banking subsidiaries by the Federal Deposit
Insurance Corporation (FDIC) as a result of legislation passed by Congress to
recapitalize the SAIF. This one-time assessment is related to $212 million in
SAIF-insured deposits at Republic Savings Bank and $17 million in
SAIF-insured deposits at Republic Bank. Other noninterest expense rose $1.4
million, or 6%, to $25.0 million in 1996 after decreasing $3.8 million, or
14%, in 1995.
<TABLE>
<CAPTION>
Table 8: Noninterest Expense
Year Ended December 31
(In thousands) 1996 1995 1994
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Salaries and employee benefits $ 42,589 $ 32,081 $ 33,984
Mortgage loan commissions 24,590 17,710 13,602
Net occupancy expense of premises 6,145 5,274 5,807
Equipment expense 4,626 4,395 4,090
SAIF assessment fee 1,500 -- --
Other noninterest expense 25,042 23,692 27,538
--------- --------- ---------
Total noninterest expense $ 104,492 $ 83,152 $ 85,021
========= ========= =========
</TABLE>
Income Taxes
The provision for income taxes, inclusive of the tax effect of the
extraordinary item, was $7.5 million in 1996, compared to $8.2 million in
1995 and $8.0 million in 1994. The effective tax rate, computed by dividing
the provision for income taxes by pre-tax income, was 33.8% for 1996, down
from 36.4% for 1995 but consistent with the 33.9% effective tax rate for
1994. Pre-tax income in 1996 contained a higher amount of tax-exempt interest
income on bank-qualified municipal securities than in 1995 and 1994. Pre-tax
income in 1995 contained a higher amount of non-deductible expenses than in
1996 and 1994.
S - 8
<PAGE>
Financial Condition
Total assets were $1.49 billion at December 31, 1996, an increase of 1% from
$1.47 billion at December 31, 1995. Average total assets rose $19.3 million
to $1.44 billion from $1.42 billion in 1995. This increase primarily reflects
growth in portfolio loans which was funded by a decline in investment
securities, as well as increases in deposits and FHLB advances.
Assets
Loans
The Company's loan portfolio is comprised of domestic loans to businesses and
consumers. At December 31, 1996 and 1995, there were no loans to foreign
debtors outstanding and the amount of agribusiness loans outstanding were
insignificant. Loans to businesses are classified as commercial loans and are
further segmented into commercial and industrial loans and commercial real
estate loans. Commercial and industrial loans are made to local small- and
medium-sized corporations primarily to finance working capital and equipment
purchases.
Commercial real estate loans represent loans secured by real estate and
consist of real estate construction loans and commercial real estate
mortgage loans. Real estate construction loans are made to builders or
developers of real estate properties and are typically refinanced at
completion, becoming either income-producing or owner-occupied properties.
Commercial real estate mortgage loans are secured by owner-occupied or
income-producing properties. For owner-occupied property loans, the primary
source of repayment is the cash flow of the owner with the real estate
serving as a secondary repayment source. Income-producing property loans are
made to entities or individuals engaged in real estate investment, and the
primary source of repayment is derived from the rental or sale of the
property.
Loans to consumers include residential real estate mortgage loans and
installment loans. Installment loans, primarily home equity loans, are made
for various purposes, including home improvement, automobile purchases and
college tuition. The Company emphasizes home equity lending above all other
installment lending. Other types of installment loans are generally made to
accommodate customers who have an existing banking relationship with the
Company.
The loan portfolio totaled $784.6 million at year-end 1996, an increase
of $206.5 million, or 36%, over year-end 1995. Lending was strong across all
major categories in 1996 as more residential mortgage loans were originated
and the Company began emphasizing higher-yielding commercial and installment
loan products. Residential real estate mortgage loans, the largest category
of portfolio loans, rose $125.1 million, or 33%, to $506.9 million at
December 31, 1996, as the Company retained a higher percentage of variable
rate residential real estate loans compared to prior years. Commercial loans
increased $62.8 million, or 47%, to $195.2 million at December 31, 1996, due
to the Company's focus on serving the needs of small- to medium-sized
businesses. Installment loans increased $18.6 million, or 29%, to $82.5
million at year-end 1996, reflecting the success of expanded sales and
marketing efforts in home equity lending.
<TABLE>
<CAPTION>
Table 9: Loan Portfolio Analysis
December 31
(Dollars in thousands) 1996 1995 1994 1993 1992
-------------- -------------- -------------- ------------- --------------
Amount % Amount % Amount % Amount % Amount %
------ --- ------ --- ------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans:
Commercial and
industrial $ 29,483 3.8% $22,523 3.9% $20,556 3.4% $ 27,025 6.6% $ 25,004 4.8%
Real estate
construction 32,946 4.2 11,625 2.0 11,259 1.9 28,509 7.0 36,696 7.0
Commercial real
estate mortgage 132,763 16.9 98,285 17.0 66,096 10.8 71,008 17.5 130,628 24.8
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total commercial
loans 195,192 24.9 132,433 22.9 97,911 16.1 126,542 31.1 192,328 36.6
Residential real
estate mortgages 506,944 64.6 381,803 66.0 457,755 75.7 229,203 56.3 286,502 54.4
Installment loans 82,492 10.5 63,876 11.1 49,423 8.2 51,372 12.6 47,563 9.0
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans $784,628 100.0% $578,112 100.0% $605,089 100.0% $407,117 100.0% $526,393 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
S - 9
<PAGE>
<TABLE>
<CAPTION>
Table 10: Maturity and Sensitivity to Interest Rates - Commercial Loans
After One
December 31, 1996 Within But Within After
(Dollars in thousands) One Year Five Years Five Years Total
- ---------------------- -------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Commercial loans:
Commercial and industrial $ 4,566 $21,721 $ 3,196 $ 29,483
Real estate construction 12,158 15,082 5,706 32,946
Commercial real estate mortgage 33,969 59,299 39,495 132,763
------- ------- ------- --------
Total commercial loans $50,693 $96,102 $48,397 $195,192
======= ======= ======= ========
Commercial Loans Maturing After
One Year With:
Predetermined rates $50,727 $24,438
Floating or adjustable rates 45,375 23,959
------- -------
Total $96,102 $48,397
======= =======
</TABLE>
The commercial loan portfolio is well diversified as to industry
concentration with no aggregate loans to any one industry exceeding 10% of
total portfolio loans outstanding at December 31, 1996. As shown in Table 11,
the Company's total loan portfolio is geographically concentrated primarily
in Michigan and Ohio.
<TABLE>
<CAPTION>
Table 11: Geographic Distribution of Loan Portfolio
December 31, 1996 Percent
(Dollars in thousands) Amount of Total
- ---------------------- ------ --------
<S> <C> <C>
Michigan $492,096 62.7%
Ohio 209,081 26.7
Florida 19,151 2.4
Indiana 17,193 2.2
Other states 47,107 6.0
-------- -----
Total $784,628 100.0%
======== =====
</TABLE>
Mortgage loans held for sale decreased $94.2 million, or 22%, to $329.2
million at December 31, 1996 from $423.4 million at December 31, 1995,
primarily due to the Company retaining a higher percentage of variable rate
residential real estate loans compared to prior years.
Credit Risk Management
Extending credit to businesses and consumers exposes the Company to credit
risk. Credit risk is the risk that the principal balance of a loan and/or the
related interest will not be collected due to the inability of the borrower
to repay the loan. The Company manages credit risk in the loan portfolio
through adherence to consistent standards, guidelines and limitations
established by senior management. Written loan policies establish
underwriting standards, lending limits and other standards or limits as
deemed necessary and prudent. Various approval levels, based on the amount of
the loan and whether the loan is secured or unsecured, have also been
established. Loan approval authority ranges from the individual loan officer
to the Board of Directors' Loan Committee.
The Company's Loan Review Department conducts ongoing, independent
reviews of the lending process to ensure adherence to established policies
and procedures, monitor compliance with applicable laws and regulations,
provide objective measurement of the risk inherent in the loan portfolio and
ensure proper documentation exists. The results of these periodic reviews are
reported to the Audit Committee of the Company's Board of Directors.
S - 10
<PAGE>
The following discussion summarizes the Company's underwriting policies
and procedures for the major categories within the loan portfolio and
addresses management's strategies for managing the related credit risk.
Commercial Loans
Credit risk associated with commercial loans is primarily influenced by
prevailing and expected economic conditions and the level of underwriting
risk the Company is willing to assume. To manage credit risk when extending
commercial credit, the Company focuses on adequately assessing the borrower's
ability to repay and on obtaining sufficient collateral. To minimize credit
risk, the Company concentrates its commercial lending efforts on commercial
real estate loans. At December 31, 1996 and 1995, commercial real estate
loans accounted for 85% and 83%, respectively, of total commercial loans.
Emphasis is also placed on loans that are government guaranteed, such as SBA
loans. Commercial and industrial loans are generally secured by company
assets at a 75% or less loan-to-value ratio and by personal guarantees.
Management closely monitors the composition and quality of the total
commercial loan portfolio to ensure that significant credit concentrations by
borrower or industry do not exist.
Residential Real Estate Mortgage Loans
The company originates fixed rate and variable rate residential mortgage
loans which are secured by the underlying 1-4 family residential property. At
December 31, 1996 and 1995, these loans accounted for 65% and 66%,
respectively, of total portfolio loans. Credit risk exposure in this area of
lending is minimized by the assessment of the creditworthiness of the
borrower and adherence to underwriting policies that emphasize conservative
loan-to-value ratios of generally no more than 80%. Residential mortgage
loans granted in excess of the 80% loan-to-value ratio criterion are
generally insured by private mortgage insurance, unless otherwise guaranteed
or insured by the Federal, state or local government. Credit risk is further
reduced since the majority of the Company's fixed rate, long-term mortgage
loan production is sold in the secondary market.
Installment Loans
Credit risk in the installment loan portfolio is controlled through
consistent adherence to conservative underwriting standards that consider
debt to income levels and the creditworthiness of the borrower. In the home
equity lending category, loan-to-value ratios generally are limited to 80% of
collateral value. However, the Company may lend in excess of 80% of
collateral value and often utilizes an unaffiliated insurance company to
minimize the risk.
Asset Quality
Non-Performing Assets
Non-performing assets consist of non-accrual loans, restructured loans
and other real estate owned (OREO). OREO represents real estate properties
acquired by the Company through foreclosure or by deed in lieu of
foreclosure. Commercial loans, residential real estate mortgage loans and
installment loans are generally placed on non-accrual status when principal
or interest is 90 days or more past due, unless the loans are well-secured
and in the process of collection. In all cases, loans may be placed on
non-accrual status earlier when, in the opinion of management, reasonable
doubt exists as to the full, timely collection of interest or principal. When
a loan is placed on non-accrual status, interest accruals cease and
uncollected interest is reversed and charged against current income. Interest
subsequently received on non-accrual loans is applied against the principal
balance.
Non-performing assets totaled $6.6 million at December 31, 1996, up $3.6
million from $3.0 million at December 31, 1995, primarily reflecting an
increase in real estate-secured non-accrual loans as a result of a 33%
increase in the residential mortgage balance at December 31, 1996 over the
prior year.
S -11
<PAGE>
<TABLE>
<CAPTION>
Table 12: Non-Performing Assets
December 31
(Dollars in thousands) 1996 1995 1994 1993 1992
- ---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial $1,321 $ 848 $ 982 $1,812 $1,386
Residential real estate
mortgages 3,968 313 1,304 803 1,085
Installment 50 131 79 108 82
------ ------ ------ ------ ------
Total non-accrual loans 5,339 1,292 2,365 2,723 2,553
Restructured loans -- 688 1,130 2,140 2,140
------ ------ ------ ------ ------
Total non-performing loans 5,339 1,980 3,495 4,863 4,693
Other real estate owned 1,250 980 586 405 3,117
------ ------ ------ ------ ------
Total non-performing assets $6,589 $2,960 $4,081 $5,268 $7,810
====== ====== ====== ====== ======
Non-performing assets as a
percentage of:
Portfolio loans and OREO .84% .51% .67% 1.29% 1.47%
Portfolio loans, mortgage
loans held for sale and OREO .59 .30 .54 .58 1.01
Total assets .44 .20 .30 .45 .69
Loans past due 90 days or more
and still accruing interest:
Commercial $ -- $ 209 $ 104 $ 217 $ --
Residential real estate
mortgages 548 42 -- -- 90
Installment 22 94 35 93 31
------ ------ ------ ------ ------
Total loans past due
90 days or more $ 570 $ 345 $ 139 $ 310 $ 121
====== ====== ====== ====== ======
</TABLE>
Approximately $4.8 million, or .61%, of the loans in the loan portfolio
at December 31, 1996, were 30 to 89 days delinquent. Table 13 presents the
interest income that would have been earned on non-performing loans
outstanding at December 31, 1996, 1995 and 1994 had those loans been accruing
interest in accordance with the original terms of the loan agreement (pro
forma interest) and the amount of interest income actually included in net
interest income for those years.
<TABLE>
<CAPTION>
Table 13: Forgone Interest on Non-Performing Loans
For the Year Ended
December 31
(In thousands) 1996 1995 1994
- ------------------ ------------------------- ------------------------- ------------------------
Non-Accrual Restructured Non-Accrual Restructured Non-Accrual Restructured
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Pro forma interest $259 $ -- $135 $67 $214 $114
Interest earned 34 -- 44 38 75 77
---- ----- ---- --- ---- ----
Forgone interest
income $225 $ -- $ 91 $29 $139 $ 37
==== ===== ==== === ==== ====
</TABLE>
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, payment history or other factors,
require more than normal monitoring by the Company. As of December 31, 1996,
total loans on the watch list of the Company, excluding those categorized as
non-performing loans and loans past due 90 days and still accruing interest,
were $2.2 million, or .3% of total portfolio loans, compared to $5.1 million,
or .9% of the total loan portfolio at December 31, 1995.
S-12
<PAGE>
Impaired Loans
In accordance with SFAS No. 114, Accounting by Creditors for Impairment of
Loans (SFAS No. 114), impaired loans are individually reviewed loans for
which it is probable that payment of principal and interest will not be
collected in accordance with the contractual terms of the original loan
agreement. At December 31, 1996 and 1995, the gross recorded investment in
impaired loans totaled $1.4 million and $1.6 million, respectively. Similar
to non-accrual loans, interest payments subsequently received are applied
against the principal balance. Refer to Note 5 in the Notes to Consolidated
Financial Statements for further discussion of impaired loans.
Provision and Allowance for Loan Losses
The allowance for loan losses represents management's assessment of the
potential losses inherent in the Company's loan portfolio. An appropriate
level of the allowance is determined based on the application of projected
loss percentages to risk-rated loans, both individually and by category. The
projected loss percentages were developed giving consideration to actual loan
loss experience, adjusted for current and prospective economic conditions.
Management also considers other factors when assessing the adequacy of the
allowance for loan losses, including loan quality, changes in the size and
character of the loan portfolio, and consultation with regulatory
authorities. In addition, specific reserves are established for individual
loans when deemed necessary by management.
Management believes that the allowance for loan losses is adequate to
meet potential losses in the loan portfolio. Real estate-secured loans
comprised 85.7% of the total loan portfolio at December 31, 1996. It must be
understood, however, that inherent risks and uncertainties related to the
operation of a financial institution require management to depend on
estimates, appraisals and evaluations of loans to prepare the Company's
financial statements. Changes in economic conditions and the financial
prospects of borrowers may result in abrupt changes to the estimates,
appraisals or evaluations used. In addition, if actual circumstances and
losses differ substantially from management's assumptions and estimates, the
allowance for loan losses may not be sufficient to absorb all future losses,
and net income could be significantly impacted.
The following table presents an analysis of the change in the allowance
for loan losses over the past five years.
<TABLE>
<CAPTION>
Table 14: Analysis of the Allowance for Loan Losses
Year Ended December 31
(Dollars in thousands) 1996 1995 1994 1993 1992
- ---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 5,002 $ 5,544 $ 7,214 $ 7,684 $ 5,410
Loan charge-offs:
Commercial loans 494 661 1,521 612 1,778
Residential real estate mortgage loans 11 34 70 49 69
Installment loans 253 150 114 101 232
------- -------- ------- ------- -------
Total loan charge-offs 758 845 1,705 762 2,079
Recoveries:
Commercial loans 112 189 219 170 262
Residential real estate mortgage loans 2 47 -- 36 4
Installment loans 61 43 72 73 120
------- -------- ------- ------- -------
Total recoveries 175 279 291 279 386
------- -------- ------- ------- -------
Net loan charge-offs 583 566 1,414 483 1,693
Provision charged to expense 290 24 94 603 3,967
Allowance for commercial loans sold -- -- (350) (590) --
------- -------- ------- ------- -------
Balance at end of period $ 4,709 $ 5,002 $ 5,544 $ 7,214 $ 7,684
======= ======== ======= ======= =======
Allowance for loan losses as a percentage
of period-end portfolio loans .60% .87% .92% 1.77% 1.46%
Allowance for loan losses as a percentage
of period-end non-performing loans 88.18 252.64 158.61 148.34 163.73
Net charge-offs as a percentage of average
total loans (including loans held
for sale) .06 .06 .20 .06 .26
</TABLE>
S - 13
<PAGE>
Gross loan charge-offs declined $87,000 to $758,000 in 1996, compared to
$845,000 in 1995 and $1.7 million in 1994. The ratio of net charge-offs to
average loans, including loans held for sale, was .06% for both 1996 and 1995
and .20% in 1994. Commercial loan net charge-offs as a percentage of average
commercial loans was .24% for 1996, compared to .43% for 1995 and 1.13% for
1994. Residential real estate mortgage loan net charge-offs as a percentage
of average residential mortgage loans, including loans held for sale, was
.001% for 1996, (.002)% for 1995 and .013% for 1994. Installment loan net
charge-offs as a percentage of average installment loans was .26% for 1996,
.19% for 1995 and .08% for 1994.
The Company's policy for charging off loans varies with respect to the
category of and specific circumstances surrounding each loan under
consideration. Installment loans are generally charged off when deemed to be
uncollectible or 180 days past due, whichever comes first. Charge-offs of
commercial loans and residential real estate mortgage loans are made on the
basis of management's ongoing evaluation of non-performing loans.
The following table summarizes the allocation of the allowance for loan
losses by loan type. The entire allowance is available for use against any
loan charge-offs.
<TABLE>
<CAPTION>
Table 15: Allocation of the Allowance for Loan Losses
December 31
(Dollars in thousands) 1996 1995 1994 1993 1992
- ---------------------- -------------- -------------- -------------- -------------- --------------
% of % of % of % of % of
total total total total total
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans $1,973 25% $1,522 23% $2,221 16% $3,382 31% $4,738 37%
------ --- ------ --- ------ --- ------ --- ------ ---
Residential real
estate mortgage loans 1,543 65 971 66 598 76 1,298 56 906 54
Installment loans 307 10 212 11 501 8 559 13 481 9
Unallocated 886 -- 2,297 -- 2,224 -- 1,975 -- 1,559 --
------ --- ------ --- ------ --- ------ --- ------ ---
Total allowance for
loan losses $4,709 100% $5,002 100% $5,544 100% $7,214 100% $7,684 100%
====== === ====== === ====== === ====== === ====== ===
</TABLE>
Securities Available for Sale
The Company's investment securities portfolio, while serving as a secondary
source of earnings, carries relatively minimal principal risk and contributes
to the management of interest rate risk and liquidity risk. The portfolio is
comprised principally of U.S. Government agency obligations, obligations
collateralized by U.S. Government-sponsored agencies, mainly in the form of
collateralized mortgage obligations and mortgage-backed securities, and
municipal obligations. With the exception of municipal obligations, the
maturity structure of the portfolio is generally short-term in nature or
indexed to variable rates. At December 31, 1996, the estimated average
maturity of fixed rate investment securities within the portfolio, excluding
municipal securities, ranged from 0.5 years to 4.7 years.
Investment securities totaled $228.6 million at December 31, 1996, a
decrease of $89.1 million, or 28%, since December 31, 1995, reflecting sales
of securities primarily to fund growth in higher-yielding portfolio loans.
The investment securities portfolio constituted 15.3% of the Company's assets
at year-end 1996, compared to 21.6% at year-end 1995.
In 1995, the Company reclassified all held-to-maturity investment
securities as available-for-sale to more effectively respond to liquidity
needs associated with funding mortgage loans held for sale. Therefore, all
investment securities held at December 31, 1996 and 1995 are stated at their
estimated fair values in the consolidated balance sheets. Table 16 summarizes
the composition of the Company's investment securities portfolio at December
31, 1996 and 1995. The maturity distribution of and average yield information
for investment securities held at December 31, 1996 is provided in Table 17.
S - 14
<PAGE>
<TABLE>
<CAPTION>
Table 16: Securities Available For Sale Portfolio
December 31
(In thousands) 1996 1995
- -------------- ---- ----
<S> <C> <C>
U.S. Treasury securities $ -- $ 32,454
U.S. Government agency obligations 35,806 39,414
Collateralized mortgage obligations 81,539 85,359
Mortgage-backed securities 60,233 118,050
Municipal and other securities 31,823 23,507
Equity securities 19,220 18,985
-------- --------
Total securities available for sale $228,621 $317,769
======== ========
</TABLE>
<TABLE>
<CAPTION>
Table 17: Maturity Distribution of Securities Available for Sale Portfolio
December 31, 1996 Due Within One to Five to After
(Dollars in thousands) One Year Five Years Ten Years Ten Years Total
- --------------------- ------------------ ----------------- ----------------- ------------------- ------------------
Estimated Estimated Estimated Estimated Estimated
Market Avg. Market Avg. Market Avg. Market Avg. Market Avg.
Value Yield Value Yield Value Yield Value Yield Value Yield
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
Government agency
securities $ 2,042 4.61% $ 9,959 6.96% $ -- -- $ 23,805 7.22% $ 35,806 7.00%
Collateralized mortgage
obligations (2) (3) -- -- -- -- 4,010 6.17% 77,529 5.87 81,539 5.88
Mortgage-backed
securities (2) (3) -- -- 8,451 5.70 -- -- 51,782 6.02 60,233 5.98
Municipal and other
securities (1) 25 9.95 140 9.95 243 9.95 31,415 7.53 31,823 7.56
Equity securities 19,220 6.62 -- -- -- -- -- -- 19,220 6.62
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total securities
available for sale $ 21,287 6.43% $ 18,550 6.41% $ 4,253 6.39% $184,531 6.37% $228,621 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 3.7 years. The average yield presented is the
current yield on these securities.
</TABLE>
Liabilities
Deposits
Total deposits, the Company's primary source of funding, grew 12% to over
$1.0 billion at December 31, 1996 from $904.7 million at December 31, 1995.
Core deposits represent the largest and most stable component of total
deposits and consist of demand deposits, NOW accounts, regular savings
accounts, money market accounts, Individual Retirement Accounts (IRAs) and
retail certificates of deposit of less than $100,000. At year-end 1996, core
deposits totaled $800.5 million, an increase of $63.5 million, or 9%, from
$737.0 million at year-end 1995. This increase primarily reflected the
success of expanded sales and marketing efforts for savings and money market
accounts.
The Company also funds mortgage loan originations with brokered
certificates of deposit which totaled $56.9 million, or 6% of total deposits,
at December 31, 1996, compared to $26.9 million, or 3% of total deposits, at
December 31, 1995.
S-15
<PAGE>
<TABLE>
<CAPTION>
Table 18: Maturity Distribution of Retail and Brokered Certificates of
Deposit of $100,000 or More
December 31
(In thousands) 1996
- ------------- ----
<S> <C>
Three months or less $ 78,483
Over three months through six months 49,046
Over six months through twelve months 60,905
Over twelve months 18,972
--------
Total $207,406
========
</TABLE>
Short-Term Borrowings
Short-term borrowings at year-end 1996 included federal funds purchased,
securities sold under agreements to repurchase, treasury, tax and loan notes
and borrowings outstanding under a revolving credit agreement. At December
31, 1996, short-term borrowings totaled $121.1 million, a decrease of $142.3
million, or 54%, from $263.4 million at December 31, 1995. This decline
resulted from the Company's replacement of more expensive third-party
warehousing lines of credit at the mortgage companies used to fund mortgage
loan originations with less expensive Republic Bank and Republic Savings Bank
interest-bearing deposits and short-term borrowings. Included in short-term
borrowings at December 31, 1996 was $1.9 million outstanding under an $18.0
million revolving credit agreement at the parent company with Firstar Bank
Milwaukee, N.A.
FHLB Advances
The Company's banking subsidiaries routinely utilize FHLB advances, both on a
short-term and long-term basis, to provide liquidity for mortgage loan
originations and to minimize the interest rate risk associated with certain
fixed rate commercial and residential mortgage portfolio loans. These
advances are generally secured under a blanket security agreement by first
mortgage loans or investment securities with an aggregate book value equal to
at least 150% of the total advances. FHLB advances totaled $134.2 million at
December 31, 1996, up $53.7 million, or 67%, from $80.5 million at December
31, 1995. This increase was primarily attributable to an increase in fixed
rate commercial and residential mortgage loans which are generally funded by
FHLB advances.
Long-Term Debt
Long-term debt totaled $49.2 million at December 31, 1996, compared to $51.9
million at December 31, 1995. In the first quarter of 1996, the Company
redeemed the $17.25 million of 9.0% Subordinated Notes through the use of
proceeds received from the private placement of $22.5 million of 6.87% Senior
Debentures, of which $9.0 million is due in the year 2001 and $13.5 million
is due in the year 2003. The Company recorded an extraordinary item of
$388,000, after tax, to write-off the remaining debt issue costs of the
Subordinated Notes.
Capital Resources
Shareholders' equity decreased $4.6 million, or 4%, to $121.8 million at
December 31, 1996 from $126.4 million at December 31, 1995. Shareholders'
equity declined as the retention of $8.1 million in net income after
dividends was offset by the repurchase of 1,128,400 shares of common stock
and a $1.1 million increase in unrealized losses on securities available for
sale. The Company paid $6.3 million in cash dividends to shareholders in
1996, a 20% increase over the amount paid in 1995.
The Company is subject to risk-based capital adequacy guidelines that
measure capital relative to risk-weighted assets and off-balance sheet
financial instruments. Capital adequacy guidelines issued by the Federal
Reserve Board require bank holding companies to have a minimum Total
risk-based capital ratio of 8.00%, with at least half of total capital in the
form of Tier 1, or core capital. The Company's Total risk-based capital ratio
was 13.84% at December 31, 1996, compared to 18.63% a year ago. The decline
in this ratio resulted primarily from the early redemption of the parent
company's $17.25 million 9% Subordinated Notes in 1996 which qualified as
Tier 2, or supplemental capital, and an increase in risk-weighted assets due
to growth in the loan portfolio. For further information regarding regulatory
capital requirements, refer to Note 22 in the Notes to Consolidated Financial
Statements.
S-16
<PAGE>
Asset/Liability Management
The Corporate Asset and Liability Management Committee (ALCO) meets regularly
to monitor the composition of assets and liabilities and to manage the
Company's exposure to changes in interest rates. Its primary objective is to
maintain stability in the level of net interest income by producing the
optimal yield and maturity mix of assets and liabilities consistent with
interest rate expectations, projected liquidity needs and capital adequacy
requirements. Senior management at each banking subsidiary is responsible for
ensuring that the subsidiary's asset and liability management procedures
adhere to corporate policies and risk limits established by its respective
board of directors.
Interest Rate Risk Management
Interest rate risk arises in the normal course of business when
interest-earning assets and interest-bearing liabilities reprice or mature at
different times. If more assets than liabilities reprice or mature in a given
period (an asset sensitive position or positive gap), market interest rate
changes will be reflected more quickly in earning asset rates and increases
in interest rates will generally benefit net interest income. Alternatively,
where interest-bearing liabilities reprice more quickly than earning 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 primary focus of interest rate risk management is to maximize net
interest income while managing, within corporate policy and risk limits,
interest sensitivity to changes in interest rates. The Company's current
policy is to maintain a mix of asset and liabilities with repricing and
maturity characteristics that permit a moderate amount of short-term interest
rate risk based on current interest rate projections, customer credit demands
and deposit preferences. The Company generally operates in a range of plus or
minus 10% for the one-year gap. Management believes that this range reduces
the vulnerability of net interest income to large shifts in market interest
rates while allowing the Company to take advantage of fluctuations in current
short-term rates.
Management uses an interest rate risk measurement tool known as the
interest rate sensitivity analysis to provide a general indication of the
Company's level of exposure to interest sensitivity at a specific point in
time.
<TABLE>
<CAPTION>
Table 19: Interest Rate Sensitivity Analysis
December 31, 1996 Within 4 Months 1 to 5 Years
(Dollars in thousands) 3 Months to 1 Year 5 Years or Over Total
- ---------------------- -------- --------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Interest-earning Assets:
Interest-bearing deposits
with banks $ 6,524 $ -- $ -- $ -- $ 6,524
Mortgage loans held for sale 329,157 -- -- -- 329,157
Investment securities available
for sale 106,923 22,311 44,583 54,804 228,621
Loans, net of unearned income 210,573 188,752 263,035 122,268 784,628
-------- --------- --------- -------- ----------
Total earning assets $653,177 $ 211,063 $ 307,618 $177,072 $1,348,930
======== ========= ========= ======== ==========
Interest-bearing Liabilities:
Savings and NOW accounts $ -- $ 117,398 $ 108,528 $ -- $ 225,926
Money market accounts -- 48,493 32,329 -- 80,822
Certificates of deposit:
Under $100,000 67,413 224,704 79,989 507 372,613
$100,000 or more 78,483 109,951 18,972 -- 207,406
-------- --------- --------- -------- ----------
Total interest-bearing
deposits 145,896 500,546 239,818 507 886,767
Short-term borrowings (1) 98,561 22,581 -- -- 121,142
FHLB advances 49,000 36,000 49,200 -- 134,200
Long-term debt -- -- 35,689 13,500 49,189
-------- --------- --------- -------- ----------
Total interest-bearing liabilities $293,457 $ 559,127 $ 324,707 $ 14,007 $1,191,298
======== ========= ========= ======== ==========
Interest rate sensitivity gap $359,720 $(348,064) $ (17,089) $163,065 $ 157,632
As a percentage of total interest-
earning assets 26.67% (25.80)% (1.27)% 12.09% 11.69%
Cumulative interest rate
sensitivity gap $359,720 $ 11,656 $ (5,433) $157,632
As a percentage of total interest-
earning assets 26.67% .87% (.40)% 11.69%
<FN>
(1) Includes federal funds purchased, securities sold under agreements to
repurchase and other short-term borrowings.
</TABLE>
S - 17
<PAGE>
The interest sensitivity analysis identifies the difference between the
amount of interest-earning assets and interest-bearing liabilities at
December 31, 1996 repricing or maturing within specified time periods. The
resulting gaps measure the sensitivity of net interest income to changes in
interest rates. With the exception of fixed rate collateralized mortgage
obligations and mortgage-backed securities, actual maturity or repricing
dates are used for investment securities, certificates of deposit and
borrowings. Estimated maturities, based on market consensus prepayment speed
assumptions, are used for fixed rate collateralized mortgage obligations and
mortgage-backed securities. Assumptions and estimates have been made for
savings and NOW accounts and money market accounts to more accurately reflect
repricing and retention.
As of December 31, 1996, the Company was slightly asset sensitive by
$11.7 million, or .87% of interest-earning assets. This measurement of
interest sensitivity indicates that over the course of one year, an increase
in short-term interest rates would positively impact both net interest income
and the net interest margin since interest-earning assets would reprice
faster than interest-bearing liabilities.
Liquidity Management
The objective of liquidity management is to provide funds at an
acceptable cost to meet mortgage and commercial loan demand and deposit
withdrawals and to service other liabilities as they become due. Managing
liquidity also enables the Company to take advantage of opportunities for
business expansion. Asset liquidity is available from a number of sources,
including cash and due from banks, money market investments, the investment
securities portfolio, mortgage loans held for sale, and repayments and
maturities of portfolio loans.
Short-term liquidity is available from federal funds purchased,
securities sold under agreement to repurchase, core deposit growth, brokered
certificates of deposit and FHLB advances. Long-term liquidity is generated
from securities sold under agreement to repurchase, deposit growth, the
maturity structure of time deposits, brokered certificates of deposit and
FHLB advances. The Company also has the capability to raise funds through
public and private issuances of common stock and debt.
At December 31, 1996, the parent company and its subsidiaries had
available the following lines of credit or borrowing opportunities:
- Republic Bank had $5.0 million available in unused lines of credit for
federal funds purchased; $84.3 million available in unused borrowings
with the FHLB; and approximately $53.0 million in borrowings available
through securities sold under agreement to repurchase.
- Republic Savings Bank had a total of $14.0 million available in unused
borrowings with the FHLB.
- Market Street had $10.0 million available on its revolving line of
credit with Residential Funding Corporation, and
- The parent company had $16.1 million available on its $18.0 million
revolving line of credit with Firstar Bank Milwaukee, N.A.
The parent company of Republic Bancorp Inc. is a legal entity, separate
and distinct from its subsidiaries. A portion of the parent company's
revenues result from dividends received from subsidiaries as well as earnings
on short-term investments. There are statutory and regulatory requirements
applicable to the payment of dividends by Republic Bank and Republic Savings
Bank to the parent company, as well as by Republic Bancorp Inc. 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.
S - 18
<PAGE>
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 may be adversely 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 Company's volume of loan originations and the related income
may be reduced. Significant decreases in interest rates typically result in
higher loan prepayment activity which, in turn, causes the Company's mortgage
servicing rights to decrease in value. However, a lower interest rate
environment may enable more potential borrowers to qualify for relatively
higher mortgage loan balances and, therefore, result in higher mortgage loan
production activity.
Accounting and Reporting Developments
On January 1, 1996, the Company adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
issued by the Financial Accounting Standards Board (FASB) in March 1995,
without impact to financial position or results of operations.
In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This
Statement provides new accounting and reporting standards for sales,
securitizations and servicing of receivables and other financial assets,
secured borrowing and collateral transactions, and the extinguishments of
liabilities. The provisions of the Statement are effective for transactions
occurring after December 31, 1996, except those provisions relating to
repurchase agreements, securities lending and other similar transactions and
pledged collateral. The FASB has delayed the effective date for the
provisions relating to these items until after December 31, 1997 through the
issuance of SFAS No. 127, Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125, an amendment of FASB Statement No. 125.
The Company expects the adoption of these Statements will not have a material
impact on financial position and results of operations.
S - 19
<PAGE>
<TABLE>
<CAPTION>
Republic Bancorp Inc. and Subsidiaries
Consolidated Balance Sheets
December 31
(Dollars in thousands) 1996 1995
- ---------------------- ---- ----
<S> <C> <C>
Assets
Cash and due from banks (Note 22) $ 33,590 $ 36,260
Interest-earning deposits with banks 6,524 3,381
---------- ----------
Cash and cash equivalents 40,114 39,641
Mortgage loans held for sale 329,157 423,364
Securities available for sale (Note 3) 228,621 317,769
Loans, net of unearned income (Notes 4 and 18) 784,628 578,112
Less allowance for loan losses (Note 5) (4,709) (5,002)
---------- ----------
Net loans 779,919 573,110
Premises and equipment (Note 7) 15,008 14,724
Mortgage servicing rights (Note 6) 44,398 58,265
Other assets 53,148 45,817
---------- ----------
Total assets $1,490,365 $1,472,690
========== ==========
Liabilities
Noninterest-bearing deposits $ 126,940 $ 126,427
Interest-bearing deposits 886,767 778,302
---------- ----------
Total deposits 1,013,707 904,729
Federal funds purchased and securities sold
under agreements to repurchase (Note 8) 115,156 134,237
Other short-term borrowings (Note 8) 5,986 129,214
FHLB advances (Note 9) 134,200 80,500
Accrued expenses and other liabilities 49,243 44,806
Long-term debt (Note 10) 49,189 51,928
---------- ----------
Total liabilities 1,367,481 1,345,414
Minority interest 1,069 900
---------- ----------
Commitments and contingencies (Notes 17 and 20)
Shareholders' Equity (Notes 11, 12, 13, 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; 17,129,142 and 18,125,779 shares
issued and outstanding in 1996 and 1995,
respectively 85,646 82,390
Capital surplus 37,538 43,177
Retained earnings 1,079 2,172
Net unrealized losses on
securities available for sale (2,448) (1,363)
---------- ----------
Total shareholders' equity 121,815 126,376
---------- ----------
Total liabilities and shareholders' equity $1,490,365 $1,472,690
========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
S - 20
<PAGE>
<TABLE>
<CAPTION>
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Income
Years Ended December 31
(Dollars in thousands, except per share data) 1996 1995 1994
- --------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Interest Income
Interest and fees on loans $ 80,436 $71,488 $ 53,617
Interest on investment securities 18,273 23,155 24,128
Interest on federal funds sold 282 573 277
Interest on interest-earning deposits with banks 156 381 197
--------- ------- --------
Total interest income 99,147 95,597 78,219
--------- ------- --------
Interest Expense
Interest on deposits:
Interest-bearing demand deposits 1,358 1,554 2,295
Savings and money market accounts 8,882 6,677 6,212
Time deposits 32,028 30,567 19,754
Interest on short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 8,378 10,436 7,642
Other short-term borrowings 1,944 7,960 3,260
Interest on FHLB advances 6,094 2,431 2,237
Interest on long-term debt 3,743 5,567 3,599
--------- ------- --------
Total interest expense 62,427 65,192 44,999
--------- ------- --------
Net interest income 36,720 30,405 33,220
Provision for loan losses (Note 5) 290 24 94
--------- ------- --------
Net interest income after provision
for loan losses 36,430 30,381 33,126
--------- ------- --------
Noninterest Income
Mortgage banking income 86,377 70,960 69,899
Service charges 1,218 1,297 1,337
Investment securities gains (losses) (Note 3) 766 1,061 (1,392)
Gain on sale of bank branches -- -- 4,034
Gain on sale of SBA loans 1,242 873 667
Other noninterest income 1,243 1,010 1,116
--------- ------- --------
Total noninterest income 90,846 75,201 75,661
--------- ------- --------
Noninterest Expense
Salaries and employee benefits (Notes 13 and 14) 42,589 32,081 33,984
Mortgage loan commissions 24,590 17,710 13,602
Net occupancy expense of premises 6,145 5,274 5,807
Equipment expense 4,626 4,395 4,090
SAIF assessment fee 1,500 -- --
Other noninterest expenses (Note 15) 25,042 23,692 27,538
--------- ------- --------
Total noninterest expense 104,492 83,152 85,021
--------- ------- --------
Income before income taxes and extraordinary item 22,784 22,430 23,766
Provision for income taxes (Note 16) 7,718 8,166 8,047
--------- ------- --------
Income before extraordinary item 15,066 14,264 15,719
Extraordinary item - loss on early
redemption of debt, net of tax (Note 10) (388) -- --
--------- ------- --------
Net Income $ 14,678 $14,264 $ 15,719
========= ======= ========
Per Common Share:
Income before extraordinary item $ .83 $ .76 $ .82
Extraordinary item, net of tax - early
redemption of debt (.02) -- --
--------- ------- --------
Net income (primary and fully diluted) $ .81 $ .76 $ .82
========= ======= ========
Average common shares outstanding (fully
diluted) (Note 12) 18,039 18,696 19,058
<FN>
See notes to consolidated financial statements.
</TABLE>
S - 21
<PAGE>
<TABLE>
<CAPTION>
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Number of Unrealized Total
Common Common Capital Retained Gains/(Losses) Shareholders'
(In thousands, except per share data) Shares Stock Surplus Earnings on Securities Equity
- ------------------------------------- ------ ----- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1994 13,748 $ 68,739 $ 27,229 $ 15,465 $ -- $111,433
Net Income 15,719 15,719
Cash dividends declared ($.25 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 unrealized gains/(losses) on
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 $ 11,320 $ (5,273) $117,914
Net Income 14,264 14,264
Cash dividends declared ($.31 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 unrealized gains/(losses) on
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 $ 2,172 $ (1,363) $126,376
Net Income 14,678 14,678
Cash dividends declared ($.37 per share) (6,531) (6,531)
Awards of common shares under
Restricted Stock Plan (790) (790)
Amortization of restricted stock 648 648
10% common share dividend 1,565 7,827 1,398 (9,240) (15)
Issuance of common shares:
Through exercise of stock options 212 1,062 (28) 1,034
Through exercise of stock warrants 2 9 (3) 6
Tax benefit relating to exercise of
stock options 514 514
Change in unrealized gains/(losses) on
securities available for sale,
net of income tax benefit of $584 (1,085) (1,085)
Repurchase of common shares (1,128) (5,642) (7,378) (13,020)
-------- -------- -------- -------- -------- --------
Balances at December 31, 1996 17,129 $ 85,646 $ 37,538 $ 1,079 $ (2,448) $121,815
======== ======== ======== ======== ======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
S - 22
<PAGE>
<TABLE>
<CAPTION>
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended December 31
(In thousands) 1996 1995 1994
- -------------- ---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 14,678 $ 14,264 $ 15,719
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,258 5,521 5,107
Amortization of mortgage servicing rights 7,616 6,999 5,008
Net gains on sale of mortgage servicing rights (33,041) (25,279) (32,438)
Net (gains) losses on sale of securities
available for sale (766) (1,061) 1,392
Net gains on sale of loans (5,488) (3,037) (2,793)
Gain on sale of bank branches -- -- (4,034)
Proceeds from sale of mortgage loans
held for sale 3,244,436 2,408,751 3,002,993
Origination of mortgage loans held for sale (3,150,229) (2,695,917) (2,640,165)
(Increase) decrease in other assets (5,205) 3,137 (12,896)
Increase (decrease) in other liabilities 5,928 1,729 (4,616)
Other, net (3,292) (5,077) (2,939)
----------- ----------- -----------
Total adjustments 65,217 (304,234) 314,619
----------- ----------- -----------
Net cash provided by (used in)
operating activities 79,895 (289,970) 330,338
----------- ----------- -----------
Cash Flows From Investing Activities:
Proceeds from sale of mortgage servicing rights 53,182 48,918 45,676
Additions to mortgage servicing rights (19,638) (31,720) (52,604)
Proceeds from sale of securities available for sale 145,422 233,082 106,470
Proceeds from maturities/principal payments of
securities available for sale 57,139 67,192 48,808
Purchase of securities available for sale (115,115) (157,537) (238,926)
Proceeds from maturities/principal payments of
securities held to maturity -- 11,881 16,728
Purchase of securities held to maturity -- -- (250,958)
Proceeds from sale of loans related to bank
branch sale -- -- 28,933
Proceeds from sale of loans 215,636 253,310 82,742
Net increase in loans made to customers (415,126) (208,034) (307,793)
Purchase acquisitions -- (177) (2,450)
----------- ----------- -----------
Net cash (used in) provided by
investing activities $ (78,500) $ 216,915 $ (523,374)
----------- ----------- -----------
<FN>
See notes to consolidated financial statements.
</TABLE>
S - 23
<PAGE>
<TABLE>
<CAPTION>
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Year Ended December 31
(In thousands) 1996 1995 1994
- -------------- ---- ---- ----
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Net increase in total deposits $ 81,973 $ 65,490 $ 32,791
Purchase of bank branch deposits 27,005 20,497 --
Sale of bank branch deposits -- -- (43,749)
Net increase (decrease) in short-term borrowings (141,899) 6,505 120,094
Net increase (decrease) in short-term FHLB advances 4,500 (34,950) 26,950
Increase in long-term FHLB advances 49,200 70,500 20,000
Increase in long-term debt -- 13,464 12,244
Payments on long-term debt (25,649) (17,915) (827)
Payments on long-term FHLB advances -- (25,000) --
Proceeds from issuance of senior debentures and
subordinated notes, net of issuance costs 22,233 -- 24,712
Net proceeds from issuance of common shares 1,040 1,195 1,072
Repurchase of common shares (13,020) (5,117) (838)
Dividends paid (6,305) (5,270) (4,141)
--------- --------- ---------
Net cash (used in) provided by financin
activities (922) 89,399 188,308
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 473 16,344 (4,728)
Cash and cash equivalents at beginning of year 39,641 23,297 28,025
--------- --------- ---------
Cash and cash equivalents at end of year $ 40,114 $ 39,641 $ 23,297
========= ========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 63,233 $ 62,562 $ 44,206
Income taxes $ 8,576 $ 5,782 $ 9,980
Supplemental Schedule of Non-Cash Investing
Activities:
Portfolio loan charge-offs $ 758 $ 845 $ 1,705
Reclassification of investment securities held
to maturity to the investment securities
available for sale category $ -- $ 257,200 $ --
<FN>
See notes to consolidated financial statements.
</TABLE>
S - 24
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Republic Bancorp Inc. and Subsidiaries (the "Company") is a bank holding
company headquartered in Ann Arbor, Michigan. The Company has two primary
lines of business: (1) commercial and retail banking and (2) mortgage
banking. Financial products are offered to consumers and businesses through
the Company's two banking subsidiaries' 36 retail branch offices located in
Michigan and Ohio. The Company also maintains a nationwide mortgage banking
network with mortgage loan origination offices located in 19 states,
including Michigan, Florida, Ohio and California. In addition, the Company
acts as a servicer of residential mortgage loans for the benefit of others
with responsibilities ranging from collecting and remitting loan payments to
supervising foreclosure proceedings.
Principles of Consolidation
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and include the accounts of
Republic Bancorp Inc.; its two wholly-owned banking subsidiaries: Republic
Bank (and its wholly owned subsidiaries Republic Bancorp Mortgage Inc. and
CUB Funding Corporation of which Republic Bank has an 80% majority interest)
and Republic Savings Bank ("Republic Savings"); and Market Street Mortgage
Corporation ("Market Street"), its mortgage banking subsidiary of which the
Company has an 80% majority interest. During 1996, the Company contributed
its ownership in Republic Bancorp Mortgage Inc. and CUB Funding Corporation
to Republic Bank. All significant intercompany accounts and transactions have
been eliminated in consolidation. Certain prior year amounts have been
reclassified to conform to current year presentations.
Use of Estimates
Management makes estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the financial statements and accompanying
footnotes, as well as the amounts of revenues and expenses reported during
the periods covered by those financial statements and footnotes.
Actual results could differ from these estimates.
Securities Available for Sale
The Company's investment securities are classified as available for sale
and stated at fair value with unrealized gains and losses, net of income
taxes, reported as a component of shareholders' equity. Gains and losses on
sales of securities are computed based on specific identification of the
adjusted cost of each security and included in investment securities gains
(losses).
For mortgage portfolio loans securitized and retained as investment
securities, the remaining net deferred fees or costs are treated as a
discount or premium and recognized as an adjustment to the yield over the
life of the security using the effective interest method. If the security is
subsequently sold, any remaining net deferred fees or costs are treated as
part of the cost basis in determining the gain or loss on sale of the
security.
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at the lower of aggregate cost
or market. The cost of mortgage loans held for sale is adjusted by gains and
losses generated from corresponding forward commitments to sell the loans to
investors in the secondary market. Such commitments are generally entered
into prior to closing to protect the value of the mortgage loans from
increases in interest rates during the period held. Mortgage loans originated
are generally sold within a period of 30 to 60 days after closing, therefore,
the related fees and costs are not amortized during that period.
S - 25
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Nature of Operations and Summary of Significant Accounting Policies
(Continued)
Loans
Loans are stated at the principal amount outstanding, net of unearned
income. Interest income earned on all loans is accrued daily. Loans for which
the accrual of interest has been discontinued are designated as non-accrual
loans. Commercial loans, residential real estate mortgage loans and
installment loans are placed on non-accrual status at the time the loan is 90
days past due, unless the loan is well-secured and in the process of
collection. In all cases, loans may be placed on non-accrual status when, in
the opinion of management, reasonable doubt exists as to the full, timely
collection of interest or principal. All interest accrued but not collected
for loans that are placed on non-accrual status is charged against current
income. Any interest payments subsequently received on non-accrual loans are
applied against the principal balance. Loans are considered restructured when
the Company makes certain concessions to a financially troubled debtor that
would not normally be considered.
Loan origination and commitment fees and certain direct loan origination
costs are deferred and recognized over the life of the related loan or over
the commitment period as an adjustment to yield.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level adequate to
provide for potential loan losses through additions to the provision for loan
losses. An appropriate level of the allowance for loan losses is determined
based on a continuing review of the loan portfolio giving consideration to
loan quality, actual loan loss experience, changes in the size and character
of the loan portfolio, an analysis of current economic conditions and
consultation with regulatory authorities. With respect to loans which are
deemed impaired, the calculation of an allowance for loan losses is based
upon collateral values, market prices or the discounted present value of
expected cash flows received from the debtor.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is computed on a straight-line basis over the
estimated useful lives of the related assets. Amortization of leasehold
improvements is computed on a straight-line basis over the shorter of the
estimated useful lives of the related assets or the remaining lease terms.
Mortgage Servicing Rights
The total cost of mortgage loans originated with the intent to sell is
allocated between the loan and the mortgage servicing rights ("MSRs") based
on their relative fair values at the date of origination. The capitalized
cost of MSRs is amortized in proportion to and over the period of the
estimated future net servicing income. Mortgage servicing rights are
periodically evaluated for impairment, which represents the excess of cost of
an individual MSR stratum over its fair value. Impairment is recognized
through a valuation allowance. For purposes of measuring impairment, MSRs are
stratified on the basis of loan type (conventional or governmental, fixed or
adjustable), loan term (15-year or 30-year), and note rate.
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 MSRs, and the related valuation allowance, to change significantly in the
future.
Goodwill
The excess of cost over the fair value of net assets acquired is included
in other assets and is amortized using the straight-line method over a period
of 15 years. Core deposit intangible assets are amortized on a straight-line
basis over a period of 10 years.
S - 26
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Nature of Operations and Summary of Significant Accounting Policies
(Continued)
Income Taxes
Deferred income taxes are recognized for the future tax consequences
attributable to temporary differences between the tax and financial statement
basis of assets and liabilities. 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. A valuation allowance is established to the extent current available
evidence about future events raise doubt about the future realization of a
deferred tax asset. 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.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, interest-earning deposits with banks,
federal funds sold and other short-term investments with maturities less than
90 days.
Note 2. Acquisitions
The Company made the following acquisitions, all of which were accounted for
under the purchase method of accounting:
During 1996:
In April 1996, the Company completed the purchase of certain assets and
the mortgage origination network of First of America in St. Louis, Missouri
and southern Illinois. The mortgage operation has seven offices in the
greater St. Louis, Missouri area operating under the name Leader Financial
and is a division of CUB Funding Corporation. The purchase price for Leader
Financial was not material.
In July 1996, the Company completed the purchase of certain assets and
the mortgage origination network of Unlimited Mortgage Services, Inc., of
Columbus, Ohio. The mortgage operation has an office in Columbus, Ohio and
operates as a division of Republic Bancorp Mortgage Inc. The purchase price
for Unlimited Mortgage was not material.
In December 1996, the Company acquired certain fixed assets and deposits
of three branch offices located in the greater Cleveland, Ohio area. The
three branch offices are located in Middleburg Heights, Shaker Heights and
Hudson and had combined deposits of approximately $27 million.
During 1995:
In August 1995, the Company completed the purchase of certain assets and
the mortgage origination network of the western division of Railroad Savings
Bank, F.S.B. The mortgage operation has five offices in California operating
under the name RSL Mortgage and is a division of CUB Funding Corporation. The
purchase price for RSL Mortgage was not material.
During 1994:
In November 1994, the Company purchased the assets and mortgage
origination network of Home Funding, Inc. of Hopewell Junction, New York, for
a total purchase price of approximately $2.5 million, of which $1.2 million
was goodwill. The transaction included the acquisition of Home Funding,
Inc.'s $130 million mortgage servicing portfolio.
The above acquisitions did not have a significant impact on the results of
operations of the Company.
S - 27
<PAGE>
Notes to Consolidated Financial Statements
Note 3. Securities Available for Sale
Information regarding the Company's available-for-sale securities portfolio
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- -------------- --------- ---------- ---------- --------
December 31, 1996:
<S> <C> <C> <C> <C>
U.S. Treasury and Government agency
securities $ 36,030 $ 36 $ 260 $ 35,806
Collateralized mortgage securities 82,804 4 1,269 81,539
Mortgage-backed obligations 61,602 6 1,375 60,233
Municipal and other securities 31,970 110 257 31,823
-------- ---- ------ --------
Total debt securities 212,406 156 3,161 209,401
Equity securities 19,982 -- 762 19,220
-------- ---- ------ --------
Total securities available for sale $232,388 $156 $3,923 $228,621
======== ==== ====== ========
December 31, 1995:
U.S. Treasury and Government agency
securities $ 71,754 $ 273 $ 159 $ 71,868
Collateralized mortgage obligations 86,481 -- 1,122 85,359
Mortgage-backed securities 118,681 116 747 118,050
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 securities available for sale $319,865 $ 658 $ 2,754 $317,769
======== ======== ======== ========
</TABLE>
In order to respond more effectively to liquidity needs, primarily
related to funding mortgage loans held for sale, the Company reclassified the
entire held-to-maturity security portfolio to the available-for-sale category
on June 30, 1995.
The amortized cost and estimated market value of available-for-sale
securities at December 31, 1996, by contractual maturity, are shown in the
following table. The variable rate mortgage-backed securities are primarily
indexed to the one-year Constant Maturity Treasury and 11th District Cost of
Funds. Expected maturities for mortgage-backed securities and collateralized
mortgage obligations will differ from contractual maturities because
borrowers may have the right to call or prepay obligations. Based upon
prepayment assumptions, estimated lives of the fixed rate mortgage-backed
securities range from 1.5 to 3.0 years. Estimated average remaining lives of
the Company's fixed rate collateralized mortgage obligations range from 0.5
to 3.7 years. Collateral for all mortgage-backed securities and
collateralized mortgage obligations is guaranteed by U.S. Government
agencies.
<TABLE>
<CAPTION>
December 31, 1996 Due Within One to Five to After
(Dollars in thousands) One Year Five Years Ten Years Ten Years Total
- --------------------- -------------------- -------------------- ------------------- ------------------- ------------------
Estimated Estimated Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value Cost Value
--------- --------- --------- -------- --------- -------- --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
Government agency
securities $ 2,053 $ 2,042 $10,057 $ 9,959 $ -- $ -- $ 23,920 $ 23,805 $ 36,030 $ 35,806
Collateralized
mortgage obligations -- -- -- -- 4,044 4,010 78,760 77,529 82,804 81,539
Mortgage-backed
securities -- -- 8,595 8,451 -- -- 53,007 51,782 61,602 60,233
Municipal and other
securities 25 25 135 140 243 243 31,567 31,415 31,970 31,823
Equity securities 19,982 19,220 -- -- -- -- -- -- 19,982 19,220
------- ------- ------- ------- ------ ------ -------- -------- -------- --------
Total securities
available for sale $22,060 $21,287 $18,787 $18,550 $4,287 $4,253 $187,254 $184,531 $232,388 $228,621
======= ======= ======= ======= ====== ====== ======== ======== ======== ========
</TABLE>
S - 29
<PAGE>
Notes to Consolidated Financial Statements
Note 3. Securities Available for Sale (Continued)
Sales of investment securities resulted in the following proceeds and
realized gains and losses:
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1996 1995 1994
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Proceeds from sales $ 145,422 $ 233,082 $ 106,470
Securities gains $ 824 $ 1,524 $ 587
Securities losses (58) (463) (1,979)
--------- --------- ---------
Net securities gains (losses) $ 766 $ 1,061 $ (1,392)
========= ========= =========
</TABLE>
Securities with a carrying value of approximately $65.0 million and $164.3
million at December 31, 1996 and 1995, respectively, were pledged to secure
certain short-term borrowings, FHLB advances and public and other deposits as
required by law.
The Company adopted SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities, as of January 1, 1994. The market valuation
adjustment of $2.4 million and $1.4 million on available-for-sale securities,
net of tax, is reported as a separate component of shareholders' equity at
December 31, 1996 and 1995, respectively.
Note 4. Loans
Information regarding the Company's loan portfolio follows:
<TABLE>
<CAPTION>
December 31
(In thousands) 1996 1995
- -------------- ---- ----
<S> <C> <C>
Commercial:
Commercial and industrial $ 29,483 $ 22,523
Real estate construction 32,946 11,625
Commercial real estate mortgage 132,763 98,285
-------- --------
Total commercial loans 195,192 132,433
Residential real estate mortgage 506,944 381,803
Installment 82,492 63,876
-------- --------
Total loans, net of unearned income $784,628 $578,112
======== ========
</TABLE>
A geographic concentration exists within the Company's loan portfolio since
most portfolio lending activity is with customers located in Michigan and
Ohio. At December 31, 1996, approximately 63% and 27%, respectively, of total
portfolio loans had been originated in these states. The commercial loan
portfolio is well diversified by borrower and industry. At December 31, 1996,
there were no aggregate loan concentrations of 10% or more of total loans in
any particular industry.
S - 29
<PAGE>
Notes to Consolidated Financial Statements
Note 5. Allowance for Loan Losses
An analysis of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1996 1995 1994
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 5,002 $ 5,544 $ 7,214
Loans charged off (758) (845) (1,705)
Recoveries on loans previously charged off 175 279 291
------- ------- -------
Net loans charged off (583) (566) (1,414)
Provision for loan losses 290 24 94
Allowance for commercial loans sold -- -- (350)
------- ------- -------
Balance at end of year $ 4,709 $ 5,002 $ 5,544
Related to impaired loans 96 368 --
Related to all other loans 4,613 4,634 5,544
======= ======= =======
</TABLE>
As defined by SFAS No. 114, Accounting By Creditors for Impairment of Loans
(SFAS No. 114), impaired loans are individually reviewed loans for which it
is probable that payment of principal and interest will not be collected in
accordance with the contractual terms of the original loan agreement. The
following impaired loans were included in non-performing loans, which totaled
$5.3 million and $2.0 million at December 31, 1996 and 1995, respectively:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- -------------- ---- ----
<S> <C> <C>
Gross recorded investment in impaired loans $1,356 $1,572
Impaired loans with a specific allowance 336 865
Impaired loans without a specific allowance 1,020 707
Average recorded investment in impaired loans $1,545 $1,075
Interest income recognized $ 16 $ 40
</TABLE>
Substantially all loans deemed impaired were evaluated using the fair value
of the underlying collateral as the measurement method. Of the $1.4 million
of impaired loans at December 31, 1996, $336,000 required a specific
valuation allowance of $96,000 in accordance with SFAS No. 114. Of the $1.6
million of impaired loans at December 31, 1995, $865,000 required a specific
SFAS No. 114 allowance of $368,000. No specific valuation allowance was
required for the remaining $1.0 million and $707,000 of impaired loans at
December 31, 1996 and 1995, respectively, because the fair value of each loan
in that group exceeded the recorded investment in the loan.
S - 30
<PAGE>
Notes to Consolidated Financial Statements
Note 6. Mortgage Servicing Rights
Activity related to the Company's mortgage servicing rights is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1996 1995 1994
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 58,265 $ 57,183 $ 18,428
Additions 19,638 31,720 52,604
Acquired through purchase of asset
of mortgage companies -- -- 1,388
Sales (25,889) (23,639) (10,229)
Amortization (7,616) (6,999) (5,008)
-------- -------- --------
Balance at end of year $ 44,398 $ 58,265 $ 57,183
======== ======== ========
Estimated fair value at end of year $ 50,869 $ 63,000 $ n/a
<FN>
n/a - Not Applicable
</TABLE>
In 1995, the Company adopted SFAS No. 122, Accounting for Mortgage
Servicing Rights. Income before taxes in 1995 increased approximately $3.4
million as a result of adopting this Statement.
Mortgage Servicing Activity
Mortgage loans secured principally by single-family residential properties
are originated and sold to investors without recourse. The Company retains
the servicing rights to certain loans sold. As a loan servicer, the Company
is responsible for collecting and remitting monthly principal and interest
payments, performing certain escrow services and conducting other duties
related to the administration of the loans within the servicing portfolio.
The Company's mortgage servicing portfolio totaled $2.7 billion at December
31, 1996 and consisted of approximately 36,000 loans. At December 31, 1995,
the mortgage servicing portfolio was $4.0 billion and consisted of
approximately 51,000 loans.
At December 31, 1996 and 1995, the Company was responsible for $47.0
million and $55.4 million, respectively, of escrow funds on behalf of
mortgagors. Escrow funds are generally held in custody at Republic Bank and
Republic Savings Bank and are included in noninterest-bearing deposits in the
consolidated balance sheets.
Note 7. Premises and Equipment
Premises and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31
(In thousands) 1996 1995
- -------------- ---- ----
<S> <C> <C>
Land $ 1,605 $ 2,065
Furniture, fixtures and equipment 20,621 18,522
Buildings and improvements 11,111 9,216
-------- --------
33,337 29,803
Less accumulated amortization and
depreciation (18,329) (15,079)
-------- --------
Premises and equipment $ 15,008 $ 14,724
======== ========
</TABLE>
S - 31
<PAGE>
Notes to Consolidated Financial Statements
Note 8. Short-Term Borrowings
Short-term borrowings were as follows:
<TABLE>
<CAPTION>
Average Average Maximum
Ending Rate Average Rate Month-End
(Dollars in thousands) Balance At Year-End Balance During Year Balance
- ---------------------- ------- ----------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1996
Federal funds purchased $ 67,900 6.76% $ 25,312 5.71% $ 76,900
Securities sold under agreements
to repurchase 47,256 5.66 122,298 5.67 188,187
Other short-term borrowings 5,986 6.16 27,124 7.17 96,919
-------- ---- -------- ---- --------
Total short-term borrowings $121,142 6.19% $174,734 5.91% $362,006
======== ==== ======== ==== ========
December 31, 1995
Federal funds purchased $ 16,000 6.00% $ 9,427 5.95% $ 19,000
Securities sold under agreements
to repurchase 118,237 6.10 158,999 6.21 220,612
Other short-term borrowings 129,214 7.39 106,028 7.51 202,296
-------- ---- -------- ---- --------
Total short-term borrowings $263,451 6.73% $274,454 6.70% $441,908
======== ==== ======== ==== ========
</TABLE>
Federal funds purchased mature within one day following the transaction
date and securities sold under agreements to repurchase generally mature
within ninety days from the transaction date. Other short-term borrowings at
December 31, 1996 consisted of $4.0 million of treasury, tax and loan demand
notes, $1.9 million outstanding under a revolving credit agreement at the
parent company and the current portion of long-term debt of $103,000.
The parent company has an $18.0 million revolving credit agreement with
Firstar Bank Milwaukee, N.A. The proceeds received under this agreement are
used for general working capital purposes. This credit facility is secured by
the common and preferred stock of Republic Bank and expires in January 1998.
Interest on borrowings is computed at the prime rate (8.25% at December 31,
1996) minus .50%. The agreement contains certain restrictive covenants which
require Republic Bank and the Company to maintain certain minimum capital,
loan quality and financial performance ratios as well as a minimum net worth.
Market Street has a $10.0 million warehouse line of credit available with
Residential Funding Corporation (RFC). Proceeds from this credit facility
would be secured primarily by mortgage loans held for sale. There were no
borrowings outstanding under this line at December 31, 1996. The warehouse
line of credit agreement contains restrictive covenants which require Market
Street to, among other things, maintain certain minimum financial ratios and
a minimum tangible net worth.
In addition, Republic Bank had $5.0 million available in unused lines of
credit for federal funds purchased at year-end 1996 and $53.0 million in
borrowings available through securities sold under agreements to repurchase.
At December 31, 1995, other short-term borrowings consisted primarily of
warehousing lines of credit and revolving repurchase agreements used by the
mortgage companies to fund loan production activities and mortgage servicing
acquisitions. Interest rates on these borrowing agreements ranged from 6.40%
to 8.59% at December 31, 1995. All of these agreements expired in 1996 and
were not renewed.
S - 32
<PAGE>
Notes to Consolidated Financial Statements
Note 9. FHLB Advances
FHLB advances outstanding as of the periods indicated were as follows:
<TABLE>
<CAPTION>
December 31
(Dollars in thousands) 1996 1995
- --------------------- --------------------- ---------------------
Average Average
Ending Rate at Ending Rate at
Balance Year-End Balance Year-End
------- -------- ------- --------
<S> <C> <C> <C> <C>
Short-term FHLB advances $ 39,000 5.59% $ 44,500 5.73%
Long-term FHLB advances 95,200 6.02 36,000 6.22
-------- ---- -------- ----
Total FHLB advances $134,200 5.89% $ 80,500 5.95%
======== ==== ======== ====
</TABLE>
Republic Bank and Republic Savings Bank routinely borrow short-term and
long-term advances from the Federal Home Loan Bank (FHLB) to provide
liquidity for mortgage loan originations and to minimize the interest rate
risk associated with certain fixed rate commercial and residential mortgage
portfolio loans. These advances are generally secured under a blanket
security agreement by first mortgage loans or investment securities with an
aggregate book value equal to at least 150% of the advances. Republic Bank
and Republic Savings Bank had $84.3 million and $14.0 million, respectively,
available in unused borrowings with the Federal Home Loan Bank at December
31, 1996.
The principal maturities of long-term FHLB advances outstanding at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(In thousands) Amount
-------------- ------
<S> <C>
1997 $26,000
1998 7,000
1999 41,700
2000 10,000
2001 and thereafter 10,500
-------
Total $95,200
=======
</TABLE>
Note 10. Long-Term Debt
Obligations with original maturities of more than one year consisted of the
following:
<TABLE>
<CAPTION>
December 31
(Dollars in thousands) 1996 1995
- ---------------------- ---- ----
<S> <C> <C>
7.17% Senior Debentures due 2001 $ 25,000 $ 25,000
6.75% Senior Debentures due 2001 9,000 --
6.95% Senior Debentures due 2003 13,500 --
9.00% Subordinated Notes due 2003 -- 17,250
6.99% Mortgage Note due 2000 1,792 1,887
Note payable under term loan agreement,
interest at prime (8.50% at 12/31/95) plus
1.00% due 2000 -- 8,304
-------- --------
$ 49,292 $ 52,441
Less current maturities included in other
short-term borrowings (103) (513)
-------- --------
Total long-term debt $ 49,189 $ 51,928
======== ========
</TABLE>
S - 33
<PAGE>
Notes to Consolidated Financial Statements
Note 10. Long-Term Debt (Continued)
7.17% Senior Debentures Due 2001
These senior debentures were issued through a private offering in March
1994 and mature April 1, 2001. Interest is payable at a stated rate
semi-annually on April 1 and October 1 of each year.
6.75% and 6.95% Senior Debentures Due 2001 and 2003
In January 1996, the Company completed a private offering of $22.5
million of Senior Debentures with $9.0 million maturing on January 15, 2001
and $13.5 million maturing on January 15, 2003. Interest is payable at the
stated rate semi-annually on April 1 and October 1 of each year. Proceeds of
the offering were used to redeem the $17.25 million of 9.0% Subordinated
Notes and for general corporate purposes. The early redemption of the 9.0%
Subordinated Notes resulted in the recognition of an extraordinary loss of
$388,000 after the related income tax effect of $209,000.
6.99% Mortgage Note Due 2000
In September 1993, Republic Bancorp Mortgage Inc. financed the
acquisition of its corporate office with a mortgage note in the amount of
$2.1 million with Firstar Bank Milwaukee, N.A. Principal and interest at a
fixed rate of 6.99% are payable quarterly. The note is due on October 1,
2000. At December 31, 1996, $103,000 of the amount outstanding is classified
as short-term borrowings.
The principal maturities of long-term debt outstanding at December 31, 1996
are as follows:
<TABLE>
<CAPTION>
(In thousands) Amount
-------------- ------
<S> <C>
1998 $ 111
1999 119
2000 1,459
2001 34,000
2002 and thereafter 13,500
-------
Total $49,189
=======
</TABLE>
Note 11. Shareholders' Equity
On September 20, 1996, the Board of Directors declared a 10% stock dividend
distributed on December 2, 1996 to shareholders of record on November 4,
1996. Similar stock dividends were distributed on December 1, 1995 and
December 2, 1994 to shareholders of record on November 3, 1995 and November
4, 1994, respectively.
The Company repurchased 1,128,000 shares of common stock in 1996,
compared to 461,000 shares in 1995 and 80,000 shares in 1994. In 1996 and
1995, 1,049,000 and 429,000 of these shares, respectively, were reissued in
conjunction with the respective 10% stock dividend.
Note 12. Net Income Per Common Share
Primary net income per common share is computed by dividing net income by the
weighted average number of shares of common shares and dilutive common stock
equivalents outstanding during the period. Common equivalent shares consist
of shares issuable under the assumed exercise of outstanding stock options
and warrants.
Fully diluted net income per common share is computed assuming the
weighted average number of common and common equivalent shares outstanding
during the period is increased by the effects, if any, of an ending market
price of the Company's common stock that is higher than the average price for
the period.
S - 34
<PAGE>
Notes to Consolidated Financial Statements
Note 12. Net Income Per Common Share (Continued)
A computation of net income per common share follows:
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands, except per share data) 1996 1995(1) 1994(1)
- ------------------------------------- ---- ------- -------
<S> <C> <C> <C>
Primary
Average shares outstanding 17,588 18,155 18,450
Common stock equivalents:
Net effect of the assumed exercise of
stock options and stock warrants based
on average market price 444 528 607
------- ------- -------
Primary average shares 18,032 18,683 19,057
======= ======= =======
Net income applicable to common shares $14,678 $14,264 $15,719
Primary net income per share $ .81 $ .76 $ .82
Fully diluted
Average shares outstanding 17,588 18,155 18,450
Common stock equivalents:
Net effect of the assumed exercise of
stock options and stock warrants based
on end of period market price 451 541 608
------- ------- -------
Fully diluted average shares 18,039 18,696 19,058
======= ======= =======
Net income applicable to common shares $14,678 $14,264 $15,719
Fully diluted net income per share $ .81 $ .76 $ .82
<FN>
(1) Share amounts for prior years have been restated to reflect the stock
dividends.
</TABLE>
Note 13. Stock-Based Compensation
The Company maintains various incentive and non-qualified stock-based
compensation plans that allow for the granting of restricted shares, stock
options or other stock-based awards to eligible employees and directors. SFAS
No. 123, Accounting for Stock-Based Compensation, issued by the FASB in
October of 1995, encourages but does not require companies to use a new fair
value based method of accounting for stock options and similar equity awards.
The Company has elected not to adopt the recognition provisions of the
Statement and will continue to follow Accounting Principles Board No. 25,
Accounting for Stock Issued to Employees (APB No. 25), and related
Interpretations in accounting for its stock-based compensation plans.
Companies electing to remain under APB No. 25 must comply with the new
disclosure requirements of SFAS No. 123, including the pro forma disclosures
of net income and earnings per share determined as if the Company had
accounted for stock options and similar equity awards granted in 1996 and
1995 using the new fair value based accounting method. The difference between
the amount of compensation expense recognized by the Company under APB No. 25
in 1996 and 1995 and the amount of compensation expense resulting from
application of the SFAS No. 123 fair value based accounting method is
immaterial.
S - 35
<PAGE>
Notes to Consolidated Financial Statements
Note 13. Stock-Based Compensation (Continued)
Stock Options
The Company's Non-Qualified Stock Option Plan for key employees authorizes
the issuance of up to 1,815,000 options to purchase common stock at exercise
prices equal to the market price of the shares at the date of grant. These
options become exercisable immediately upon grant and expire not later than
10 years from the date of grant. During 1996 the Non-Qualified Stock Option
Plan concluded in accordance with its terms. There were no options available
for grant at December 31, 1996, compared to 836 options at year-end 1995 and
23,035 options at year-end 1994. The exercise prices of options outstanding
at December 31, 1996 ranged from $3.32 to $10.70.
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- ---------------------- -------------------- --------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Options Price Options Price Options Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 780,527 $ 4.62 971,342 $ 4.08 1,051,546 $ 3.90
Granted -- - - 29,293 8.76 69,259 7.40
Exercised (226,997) 4.22 (212,988) 4.41 (139,063) 3.54
Canceled (19,538) 9.31 (7,120) 9.14 (10,400) 6.98
-------- ----- ------- ------ -------- -----
Outstanding at end of
year 533,992 $ 5.32 780,527 $ 4.62 971,342 $ 4.08
======== ===== ======== ====== ======== =====
</TABLE>
On January 16, 1997, the Board of Directors adopted the 1997 Stock Option
Plan, subject to the approval of the Company's shareholders. The 1997 Stock
Option Plan authorizes the issuance of 750,000 options to purchase common
stock at exercise prices equal to the market price of the shares at the date
of grant. These options become exercisable immediately upon grant and expire
not later than ten years from the date of grant.
Stock Warrants
The Company has awarded warrants to purchase common shares with 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 provides for the issuance of 1,500 warrants
annually to each of the Company's outside directors. These warrants may be
exercised at any time from the date of issuance. In 1996, 19,800 warrants
were issued, compared to 14,520 warrants in 1995 and 18,634 warrants in 1994.
Restricted Stock Plan
Under the Company's Restricted Stock Plan, 301,183 common shares are
authorized to be granted to certain key employees. Restricted stock issued
prior to January 16, 1997 have a restriction period of three years, while
restricted stock issued on or after January 16, 1997 have a restriction
period of four years. Shares are forfeited if employment terminates before
the restriction period expires. At December 31, 1996, 242,393 shares were
outstanding under this Plan. The Company recognizes compensation expense over
the restriction period as part of salaries and employee benefits expense in
the consolidated statements of income. Net compensation expense recognized in
1996, 1995 and 1994 totaled $513,000, $313,000 and $116,000, respectively,
for shares issued under this plan. The unamortized portion of restricted
stock issued is included as a component of shareholders' equity in the
consolidated balance sheets. In 1996, 79,800 restricted shares were issued,
compared to 89,870 restricted shares in 1995 and 75,173 restricted shares in
1994.
Note 14. 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, 1996, 1995 and 1994
totaled $693,000, $644,000 and $669,000, respectively.
S - 36
<PAGE>
Notes to Consolidated Financial Statements
Note 15. Other Noninterest Expenses
The largest components of other noninterest expenses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1996 1995 1994
- -------------- ---- ---- ----
<S> <C> <C> <C>
Telephone $3,120 $2,708 $2,697
Advertising 1,679 1,487 1,595
Travel and automobile 1,354 1,511 1,726
Computer technology and fees 1,737 1,556 1,471
FDIC deposit insurance 683 1,282 1,858
</TABLE>
Note 16. Income Taxes
The current and deferred components of the provision for Federal income tax
expense for the years ended December 31, 1996, 1995 and 1994 are as follows.
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- -------------- ---- ---- ----
<S> <C> <C> <C>
Current income tax expense $7,315 $5,127 $7,008
Deferred income tax expense 194 3,039 1,039
------ ------ ------
Total income tax expense $7,509 $8,166 $8,047
====== ====== ======
</TABLE>
A deferred tax asset or liability is recognized to reflect the net tax
effects of temporary differences between the financial statement carrying
amounts and the tax basis of existing assets and liabilities. The temporary
differences which gave rise to these deferred tax assets or liabilities at
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- ------------- ---------------- ----------------
Deferred Deferred
Asset Liability Asset Liability
----- --------- ----- ---------
<S> <C> <C> <C> <C>
Allowance for loan losses $ 392 $ -- $ 492 $ --
Mortgage servicing rights amortization 788 -- 1,526 --
Originated mortgage servicing rights -- 2,506 -- 1,196
Deferred loan origination fees and
costs, net -- 2,106 -- 1,860
Non-deductible accruals 177 -- 156 --
Depreciation/amortization 373 -- -- --
Cash dividends on FHLB stock -- 649 -- 535
Purchase accounting adjustment
amortization 675 -- 617 --
Unrealized loss on securities available
for sale 1,318 -- 734 --
Loan mark-to-market adjustment 994 -- -- 352
Other temporary differences 1,114 158 542 102
------ ------ ------ ------
Total deferred taxes $5,831 $5,419 $4,067 $4,045
====== ====== ====== ======
</TABLE>
S - 37
<PAGE>
Notes to Consolidated Financial Statements
Note 16. Income Taxes (Continued)
Items causing differences between the statutory tax rate and the effective
tax rate are summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31
(Dollars in thousands) 1996 1995 1994
- ---------------------- ------------- --------------- -----------------
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Statutory tax rate $ 7,765 35.0% $ 7,851 35.0% $ 8,318 35.0%
Amortization of goodwill 88 .4 88 .4 88 .4
Net tax exempt interest
income (521) (2.4) (36) (.2) (18) (.1)
Other, net 177 .8 263 1.2 (341) (1.4)
------- --- ------- ---- -------- -----
Provision for income
taxes $ 7,509 33.8% $ 8,166 36.4% $ 8,047 33.9%
======= ==== ======= ==== ======= ====
</TABLE>
Note 17. 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 1996, 1995 and
1994 approximated $4.6 million, $3.6 million and $3.7 million, respectively.
As of December 31, 1996, the future aggregate minimum lease payments required
under noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
Operating
Year Ending Leases
----------- ------
<S> <C>
1997 $ 3,326
1998 2,098
1999 1,059
2000 600
2001 and thereafter 728
--------
Total minimum payments required $ 7,811
========
</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, results of
operations and liquidity of the Company.
Note 18. Transactions With Related Parties
Republic Bank and Republic Savings Bank 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 noninterest-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.
S - 38
<PAGE>
Notes to Consolidated Financial Statements
Note 18. Transactions With Related Parties (Continued)
A summary of related party loan activity follows:
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1996 1995
- -------------- ---- ----
<S> <C> <C>
Balance at beginning of year $ 2,596 $ 3,978
Loans and advances to employees -- 100
Loans to current directors and officers 379 --
Repayments (1,290) (1,482)
------- -------
Balance at end of year $ 1,685 $ 2,596
======= =======
</TABLE>
Note 19. Segment Information
The Company operates in two industry segments, as defined by SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise. Those segments are
commercial and retail banking and mortgage banking. Table 2 of Management's
Discussion and Analysis of Financial Condition and Results of Operations,
hereby incorporated by reference, presents the financial results of these
segments for the years ending December 31, 1996, 1995 and 1994.
Note 20. Off-Balance Sheet Transactions
In the normal course of business, the Company becomes a party to transactions
involving financial instruments with off-balance sheet risk to meet the
financing needs of its customers and to manage its own exposure to interest
rate risk. These financial instruments include commitments to extend credit,
standby letters of credit and forward commitments to sell mortgage loans that
are not reflected in the consolidated financial statements. The contractual
amounts of these instruments express the extent of the Company's involvement
in these transactions as of the balance sheet date. These instruments
involve, to varying degrees, elements of credit risk, market risk and
liquidity risk in excess of the amount recognized in the consolidated balance
sheets. However, they do not represent unusual risks for the Company and
management does not anticipate any significant losses to arise from these
transactions.
Commitments to extend credit are legally binding 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. Commitments to fund
loan applications with agreed-upon rates subject the Company to market risk
due to fluctuations in interest rates. Standby letters of credit guarantee
the performance of a customer to a third party. The Company issues these
guarantees primarily to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions.
The credit risk associated with commitments to extend credit and standby
letters of credit is essentially the same as that involved with direct
lending. Therefore, these instruments are subject to the Company's loan
review and approval procedures and credit policies. Based upon management's
credit evaluation of the counterparty, the Company may require the
counterparty to provide collateral as security for the agreement, including
real estate, accounts receivable, inventories, investment securities, and
property, plant and equipment. The maximum credit risk associated with these
instruments equals their contractual amounts and assumes that the
counterparty defaults and the collateral proves to be worthless.
The total contract amounts of commitments to extend credit and standby
letters of credit do not necessarily represent future cash requirements,
since many of these agreements may expire without being drawn upon.
S - 39
<PAGE>
Notes to Consolidated Financial Statements
Note 20. Off-Balance Sheet Transactions (Continued)
The Company also enters into firm commitments to sell mortgage loans at
specified future dates to various third parties. These forward commitments
allow the Company to reduce its exposure to interest rate risk as a result of
committing to fund residential real estate loan applications with agreed-upon
rates, as well as holding mortgage loans held for sale prior to their sale to
the secondary market. At December 31, 1996, the Company had outstanding
forward commitments to sell $438.1 million of residential mortgage loans, of
which $329.2 million covered the mortgage loans held for sale balance and
$108.9 million related to commitments to fund residential real estate loan
applications with agreed-upon rates. These forward commitments to sell
mortgage loans are expected to settle in the first quarter of 1997 without
producing any material gains or losses. At December 31, 1995, outstanding
forward commitments to sell mortgage loans totaled $532.4 million, of which
$423.4 million covered the mortgage loans held for sale balance and $109.0
million related to commitments to fund residential real estate loan
applications with agreed-upon rates.
The following table presents the contractual amounts of the Company's
off-balance sheet financial instruments outstanding at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
December 31
(In thousands) 1996 1995
- -------------- ---- ----
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to fund residential real estate loans $229,755 $277,425
Commitments to fund commercial real estate loans 94,188 20,368
Other unused commitments to extend credit 33,224 38,835
Standby letters of credit 228 206
Financial instruments subject to interest
rate risk:
Residential real estate loan applications
with agreed-upon rates $145,945 $134,039
Forward commitments to sell residential
real estate mortgage loans 438,112 532,442
</TABLE>
Note 21. Estimated 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 the fair value
of financial instruments and have not been considered in these estimates.
S - 40
<PAGE>
Notes to Consolidated Financial Statements
Note 21. Estimated Fair Value of Financial Instruments (Continued)
The methods and assumptions used to estimate the fair value of each class
of financial instruments for which determination of such an estimate was
practicable are as follows:
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 associated mortgage servicing rights, is estimated based on the present
value of estimated future cash flows of the loan and related servicing rights
using a discount rate commensurate with the risks associated with the
respective financial instruments.
Securities Available for Sale:
The fair value of securities available for sale is estimated based on
quoted market prices or dealer quotes.
Loans:
Fair values are estimated for portfolio loans based on the present value
of future estimated 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 and industrial, commercial
real estate, residential mortgage and installment.
Fair value for non-performing loans is based on the premise that
management has allocated adequate reserves for loan losses. As a result, the
fair value of non-performing loans approximate their carrying value.
Deposits:
The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings, money market 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 Securities Sold Under Agreements to Repurchase:
Fair value approximates the carrying value since the majority of these
instruments were entered into at or near December 31, 1996 and 1995.
Other Short-Term Borrowings:
The carrying amount is a reasonable estimate of fair value of other
short-term borrowings as these financial instruments are tied to floating
rate indices such as prime and LIBOR, and reprice frequently.
FHLB Advances and Long-Term Debt:
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
commitments to fund 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, 1996 and 1995 were not material.
S - 41
<PAGE>
Notes to Consolidated Financial Statements
Note 21. Estimated Fair Value of Financial Instruments (Continued)
The following table presents the estimated fair values of the Company's
financial instruments:
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
December 31 Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
- -------------- --------- -------- --------- ------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 40,114 $ 40,114 $ 39,641 $ 39,641
Mortgage loans held for sale 329,157 333,271 423,364 428,737
Securities available for sale 228,621 228,621 317,769 317,769
Loans, net of the allowance for loan
losses 779,919 784,346 573,110 575,962
Liabilities:
Noninterest-bearing deposits 126,940 126,940 126,427 126,427
NOW, savings and money market accounts 306,748 306,748 241,943 241,943
Certificates of deposit maturing in:
Six months or less 260,455 260,893 289,204 290,612
Over six months to one year 220,096 221,250 123,154 123,947
Over one year to three years 78,394 78,903 108,490 110,241
Over three years 21,074 21,202 15,511 15,652
--------- --------- --------- ---------
Total deposits 1,013,707 1,015,936 904,729 908,822
Federal funds purchased and securities
sold under agreements to repurchase 115,156 115,156 134,237 134,237
Other short-term borrowings 5,986 5,986 129,214 129,214
FHLB advances 134,200 134,720 80,500 80,713
Long-term debt 49,189 50,206 51,928 54,474
</TABLE>
Note 22. Regulatory Matters
The Company's banking subsidiaries are required by law to maintain average
cash reserve balances with the Federal Reserve Bank based on a percentage of
deposits. At December 31, 1996 and 1995, these reserves totaled $10.6 million
and $11.9 million, respectively.
The principal source of cash flows for the parent company is dividends
from Republic Bank and Republic Savings Bank. The banking regulatory agencies
limit the amount of dividends these state chartered financial institutions
may declare to the parent company in any calendar year. On December 31, 1996,
$30.9 million was available for payment of dividends. The parent company also
receives dividend payments from Market Street.
The Company is subject to regulatory capital requirements administered by
federal banking agencies. Failure to meet minimum capital requirements can
initiate actions by regulators that, if undertaken, could have an effect on
the Company's financial statements. Capital adequacy guidelines require
minimum capital ratios of 8.00% for Total risk-based capital, 4.00% for Tier
1 risk-based capital and 3.00% for Tier 1 leverage. Under the framework for
prompt corrective action, all financial institutions must meet capital
guidelines that involve quantitative measures of the Company's assets,
liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. To be considered well capitalized under the
regulatory framework for prompt corrective action, minimum capital ratios of
10.00% for Total risk-based capital, 6.00% for Tier 1 risk-based capital and
5.00% for Tier 1 leverage must be maintained. The Company's capital amounts
and classification are also subject to qualitative judgments by the
regulators with respect to components, risk weightings and other factors.
Management believes, as of December 31, 1996, that the Company met all
capital adequacy requirements to which it is subject. In addition, each bank
subsidiary had regulatory capital ratios in excess of the levels established
for well capitalized institutions.
S - 42
<PAGE>
Notes to Consolidated Financial Statements
Note 22. Regulatory Matters (Continued)
As of December 31, 1996, the Federal Reserve Bank of Chicago considers
the Company to be "well capitalized" under the regulatory framework for
prompt corrective action. There are no conditions or events since that
notification that management believes have changed the Company's category.
Presented in the table below are the capital amounts and ratios for the
Company and each of its banking subsidiaries, Republic Bank and Republic
Savings Bank, along with a comparison to the period-end capital amounts and
ratios established by the regulators.
<TABLE>
<CAPTION>
(Dollars in thousands) Actual Adequately Capitalized Well Capitalized
- --------------------- ----------------- ---------------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total capital (to risk
weighted assets)(1):
Consolidated $120,120 13.84% $ 69,439 8.00% $86,799 10.00%
Republic Bank 79,232 14.01 45,252 8.00 56,566 10.00
Republic Savings Bank 32,434 13.31 19,248 8.00 24,061 10.00
Tier 1 capital (to risk
weighted assets)(1):
Consolidated $115,411 13.30% $ 34,720 4.00% $52,079 6.00%
Republic Bank 76,469 13.52% 22,626 4.00 33,939 6.00
Republic Savings Bank 30,489 12.51% 9,624 4.00 14,436 6.00
Tier 1 capital (to average
assets)(1):
Consolidated $115,411 8.16% $ 42,454 3.00% $70,756 5.00%
Republic Bank 76,469 7.88 29,104 3.00 48,506 5.00
Republic Savings Bank 30,489 6.93 13,198 3.00 21,996 5.00
As of December 31, 1995
Total capital (to risk
weighted assets)(1):
Consolidated $142,437 18.63% $ 61,177 8.00% $76,472 10.00%
Republic Bank 64,479 14.51 35,560 8.00 44,451 10.00
Republic Savings Bank 32,535 18.08 14,396 8.00 17,995 10.00
Tier 1 capital (to risk
weighted assets)(1):
Consolidated $120,185 15.72% $ 30,589 4.00% $45,883 6.00%
Republic Bank 61,360 13.80 17,780 4.00 26,670 6.00
Republic Savings Bank 30,653 17.03 7,198 4.00 10,797 6.00
Tier 1 capital (to average
assets)(1):
Consolidated $120,185 8.31% $ 43,375 3.00% $72,291 5.00%
Republic Bank 61,360 7.47 24,643 3.00 41,071 5.00
Republic Savings Bank 30,653 8.13 11,315 3.00 18,859 5.00
<FN>
(1) As defined in the regulations
</TABLE>
S - 43
<PAGE>
Notes to Consolidated Financial Statements
Note 23. Parent Company Financial Information
The condensed financial statements of Republic Bancorp Inc. (Parent Company
only) are as follows:
<TABLE>
<CAPTION>
Parent Company Only Balance Sheets
December 31
(In thousands) 1996 1995
- -------------- ---- ----
<S> <C> <C>
Assets:
Cash and due from banks $ 743 $ 339
Interest earning deposits 1,771 2,133
-------- --------
Cash and cash equivalents 2,514 2,472
Investment in subsidiaries 132,258 132,237
Notes and advances receivable from subsidiaries 38,384 44,446
Furniture and equipment 88 101
Other assets 4,539 2,264
-------- --------
Total assets $177,783 $181,520
======== ========
Liabilities and Shareholders' Equity:
Accrued expenses and other liabilities 6,593 $ 4,769
Short-term borrowings 1,875 8,125
Long-term debt 47,500 42,250
-------- --------
Total liabilities 55,968 55,144
Total shareholders' equity 121,815 126,376
-------- --------
Total liabilities and shareholders' equity $177,783 $181,520
======== ========
</TABLE>
<TABLE>
<CAPTION>
Parent Company Only Income Statements
Year Ended December 31
(In thousands) 1996 1995 1994
- -------------- ---- ---- ----
<S> <C> <C> <C>
Interest income $ 3,323 $ 2,751 $ 1,653
Dividends from subsidiaries 12,579 23,586 7,242
Other income -- 4 19
-------- -------- --------
Total income 15,902 26,341 8,914
-------- -------- --------
Interest expense 3,637 4,365 3,107
Salaries and employee benefits 2,229 1,058 1,120
Other expenses 1,382 1,260 1,593
-------- -------- --------
Total expenses 7,248 6,683 5,820
-------- -------- --------
Income before income taxes, extraordinary
item and excess (deficiency) of
undistributed earnings of subsidiaries
over dividends 8,654 19,658 3,094
Income tax credits (1,307) (1,272) (1,615)
-------- -------- --------
Income before extraordinary item and excess
(deficiency) of undistributed earnings of
subsidiaries over dividends 9,961 20,930 4,709
Extraordinary item - loss on early redemption
of debt, net of tax (388) -- --
Excess (deficiency) of undistributed earnings
of subsidiaries over dividends 5,105 (6,666) 11,010
-------- -------- --------
Net income $ 14,678 $ 14,264 $ 15,719
======== ======== ========
</TABLE>
S - 44
<PAGE>
Notes to Consolidated Financial Statements
Note 23. Parent Company Financial Information (Continued)
<TABLE>
<CAPTION>
Parent Company Only Statements of Cash Flows
Year Ended December 31
(In thousands) 1996 1995 1994
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 14,678 $ 14,264 $ 15,719
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 475 598 498
(Excess) deficiency of undistributed
earnings of subsidiaries over
dividends (5,105) 6,666 (11,010)
(Increase) decrease in other assets (3,495) 1,959 (977)
Increase in other liabilities 1,590 312 2,616
Other, net 1,389 (21) (45)
-------- -------- --------
Total adjustments (5,146) 9,514 (8,918)
-------- -------- --------
Net cash provided by operating activities 9,532 23,778 6,801
Cash Flows from Investing Activities:
Return of capital from (capital investment in)
subsidiaries 4,000 (3,547) (9,779)
(Increase) decrease in notes and advances
receivable from subsidiaries 6,062 (22,635) (13,729)
Net cash provided by (used in)
investing activities 10,062 (26,182) (23,508)
Cash Flows from Financing Activities:
Net proceeds from issuance of common shares
through exercise of stock options and
stock warrants 1,040 1,195 1,072
Repurchase of common shares (13,020) (5,117) (838)
Dividends paid on common shares (6,305) (5,270) (4,141)
Net increase (decrease) in short-term
borrowings (6,250) 8,125 --
Issuance of senior debentures, net of issuance
costs 22,233 -- 24,712
Repayment of subordinated notes (17,250) -- --
-------- -------- --------
Net cash (used in) provided by financing
activities (19,552) (1,067) 20,805
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents 42 (3,471) 4,098
Cash and cash equivalents at beginning of year 2,472 5,943 1,845
-------- -------- --------
Cash and cash equivalents at end of year $ 2,514 $ 2,472 $ 5,943
======== ======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 3,442 $ 4,030 $ 2,758
Income taxes $ -- $ -- $ --
</TABLE>
Supplemental Schedule of Non-Cash 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.
S - 45
<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, CPA
Chairman of the Board and Senior Vice President, Treasurer and
Chief Executive Officer Chief Financial Officer
S - 46
<PAGE>
Deloitte & Touche LLP
[ogo]
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, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996.
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, 1996 and 1995, and the results of operations
and cash flows for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
As discussed in Note 6 to the consolidated financial statements,
effective April 1, 1995, Republic Bancorp Inc. changed its method of
accounting for mortgage servicing rights.
/s/ Deloitte & Touche LLP
January 16, 1997
Detroit, Michigan
S - 47
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated January 16,
1997, appearing in the Annual Report on Form 10-K of Republic Bancorp Inc.
for the year ended December 31, 1996 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
- -------------------------
DELOITTE & TOUCHE LLP
March 28, 1997
Detroit, Michigan
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted
from the consolidated balance sheet as of December 31, 1996,
consolidated statement of income for the year ended December
31, 1996, and accompanying notes thereto, as well as
Management's Discussion and Analysis included in the
registrant's 1996 Annual Report Supplement to the 1997 Proxy
Statement and is qualified in its entirety by reference to
such document.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> $ 33,590
<INT-BEARING-DEPOSITS> 6,524
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 228,621
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,113,785
<ALLOWANCE> 4,709
<TOTAL-ASSETS> 1,490,365
<DEPOSITS> 1,013,707
<SHORT-TERM> 160,142
<LIABILITIES-OTHER> 49,243
<LONG-TERM> 144,389
0
0
<COMMON> 85,646
<OTHER-SE> 36,169
<TOTAL-LIABILITIES-AND-EQUITY> 1,490,365
<INTEREST-LOAN> 80,436
<INTEREST-INVEST> 18,711
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 99,147
<INTEREST-DEPOSIT> 42,268
<INTEREST-EXPENSE> 62,427
<INTEREST-INCOME-NET> 36,720
<LOAN-LOSSES> 290
<SECURITIES-GAINS> 766
<EXPENSE-OTHER> 104,492
<INCOME-PRETAX> 22,784
<INCOME-PRE-EXTRAORDINARY> 15,066
<EXTRAORDINARY> (388)
<CHANGES> 0
<NET-INCOME> 14,678
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
<YIELD-ACTUAL> 2.88
<LOANS-NON> 5,339
<LOANS-PAST> 570
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,178
<ALLOWANCE-OPEN> 5,002
<CHARGE-OFFS> 758
<RECOVERIES> 175
<ALLOWANCE-CLOSE> 4,709
<ALLOWANCE-DOMESTIC> 3,823
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 886
</TABLE>
