SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1997 Commission File Number 0-15734
REPUBLIC BANCORP INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2604669
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1070 East Main Street, Owosso, Michigan 48867
(Address of principal executive offices)
(517) 725-7337
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES__ X____ NO _______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock Outstanding as of July 31, 1997:
Common Stock, $5 Par Value ........................... 16,913,205 Shares
<PAGE>
INDEX
PART I...FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 ................................. 3
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1997 and 1996.................... 4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1997 and 1996.................... 5
Notes to Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition........... 7 - 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................... 19
Item 2. Changes in Securities............................... 19
Item 6. Exhibits and Reports on Form 8-K.................... 19
SIGNATURE .................................................... 20
EXHIBITS............................................................ 21 - 50
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in thousands) 1997 1996
-------- ------------
ASSETS
<S> <C> <C>
Interest Income:
Cash and cash equivalents ............................ $ 22,508 $ 40,114
Mortgage loans held for sale ......................... 367,190 329,157
Securities available for sale (amortized cost of
$224,265 and $232,388, respectively) .............. 221,855 228,621
Loans ................................................ 958,497 784,628
Less allowance for loan losses .................... (7,142) (4,709)
----------- -----------
Net loans ............................................ 951,355 779,919
----------- -----------
Premises and equipment, net of depreciation .......... 11,716 15,008
Mortgage servicing rights ............................ 50,322 44,398
Other assets ......................................... 46,662 53,148
---------- -----------
Total assets .................................... $ 1,671,608 $ 1,490,365
=========== ===========
LIABILITIES
Noninterest-bearing deposits ......................... $ 139,200 $ 126,940
Interest-bearing deposits ............................ 909,973 886,767
----------- -----------
Total deposits .................................. 1,049,173 1,013,707
Federal funds purchased and securities sold under
agreements to repurchase ........................ 160,788 115,156
Other short-term borrowings .......................... 6,649 5,986
Short-term FHLB advances ............................. 115,483 39,000
Long-term FHLB advances .............................. 117,632 95,200
Accrued expenses and other liabilities ............... 51,127 49,243
Long-term debt ....................................... 47,500 49,189
----------- -----------
Total liabilities ............................... 1,548,352 1,367,481
Minority interest .................................... 1,015 1,069
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, $25 stated value: $2.25 cumulative
and convertible; 5,000,000 shares authorized,
none issued and outstanding ....................... -- --
Common stock, $5 par value, 30,000,000 shares
authorized; 16,898,895 and 17,129,142 shares
issued and outstanding, respectively .............. 84,495 85,646
Capital surplus ...................................... 32,959 37,538
Retained earnings .................................... 6,354 1,079
Net unrealized losses on securities available for sale (1,567) (2,448)
---------- -----------
Total shareholders' equity ...................... 122,241 121,815
----------- -----------
Total liabilities and shareholders' equity ...... $ 1,671,608 $ 1,490,365
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands, except per share data) 1997 1996 1997 1996
------------------ ----------------
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees ................................... $ 24,389 $ 19,322 $ 45,919 $ 38,396
Investment securities ................................... 3,769 4,852 7,135 9,672
Money market investments ................................ 44 42 194 310
-------- -------- -------- --------
Total interest income ............................ 28,202 24,216 53,248 48,378
-------- -------- -------- --------
Interest Expense:
Demand deposits ......................................... 290 347 601 698
Savings and time deposits ............................... 11,310 9,884 22,066 19,972
Short-term borrowings ................................... 1,816 2,844 3,070 6,151
FHLB advances ........................................... 2,745 1,372 4,592 2,618
Long-term debt .......................................... 857 892 1,746 1,961
-------- -------- -------- --------
Total interest expense ........................... 17,018 15,339 32,075 31,400
-------- -------- -------- --------
Net interest income ..................................... 11,184 8,877 21,173 16,978
Provision for loan losses ............................... 2,188 45 2,485 110
-------- -------- -------- --------
Net interest income after provision for loan losses ..... 8,996 8,832 18,688 16,868
-------- -------- -------- --------
Noninterest Income:
Service charges ......................................... 359 287 711 606
Mortgage banking ........................................ 21,241 20,909 40,191 40,353
Gains (losses) on sales of securities ................... (682) (7) (645) 428
Gains on sales of SBA loans ............................. 291 255 475 475
Gain on sale of bank branches and deposits .............. 4,442 -- 4,442 --
Other noninterest income ................................ 454 291 1,267 536
-------- -------- -------- --------
Total noninterest income ......................... 26,105 21,735 46,441 42,398
-------- -------- -------- --------
Noninterest Expense:
Salaries and employee benefits .......................... 11,524 9,680 21,557 19,852
Mortgage loan commissions ............................... 7,008 6,207 12,124 11,753
Occupancy expense of premises ........................... 1,805 1,485 3,538 2,936
Equipment expense ....................................... 1,097 1,145 2,198 2,315
Other noninterest expense ............................... 6,498 5,733 12,668 11,582
-------- -------- -------- --------
Total noninterest expense ........................ 27,932 24,250 52,085 48,438
-------- -------- -------- --------
Income before income taxes and extraordinary item ....... 7,169 6,317 13,044 10,828
Provision for income taxes .............................. 2,456 2,171 4,375 3,667
-------- -------- -------- --------
Income before extraordinary item ........................ 4,713 4,146 8,669 7,161
Extraordinary item (early redemption of debt, net of tax) -- -- -- (388)
-------- -------- -------- --------
Net Income .............................................. $ 4,713 $ 4,146 $ 8,669 $ 6,773
======== ======== ======== ========
Income per common share before extraordinary item ....... $ .27 $ .23 $ .50 $ .39
Extraordinary item ...................................... -- -- -- (.02)
-------- -------- -------- --------
Net income per common share - primary and fully diluted . $ .27 $ .23 $ .50 $ .37
======== ======== ======== ========
Average common shares outstanding - fully diluted ....... 17,258 18,208 17,400 18,336
======== ======== ======== ========
Cash dividends declared per common share ................ $ .10 $ .09 $ .20 $ .18
======== ======== ======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30 (In thousands) 1997 1996
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income .......................................................... $ 8,669 $ 6,773
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .................................. 2,431 2,716
Amortization of mortgage servicing rights ...................... 2,996 4,279
Net (gains) losses on sale of securities available for sale .... 645 (428)
Net gains on sale of mortgage servicing rights ................. (8,857) (15,747)
Net gains on sale of loans ..................................... (2,011) (2,390)
Origination of mortgage loans held for sale .................... (1,496,661) (1,718,181)
Proceeds from sales of mortgage loans held for sale ............ 1,458,628 1,764,724
(Increase) decrease in other assets ............................ 5,798 (1,111)
Increase in other liabilities .................................. 1,883 16,469
Other, net ..................................................... 1,020 (729)
----------- -----------
Total adjustments ............................................ (34,128) 49,602
----------- -----------
Net cash provided by (used in) operating activities ...... (25,459) 56,375
----------- -----------
Cash Flows From Investing Activities:
Proceeds from sale of securities available for sale ................. 93,901 71,492
Proceeds from maturities/prepayments of securities available for sale 11,574 16,084
Purchases of securities available for sale .......................... (98,269) (99,361)
Proceeds from sale of loans ......................................... 88,953 75,598
Net increase in loans made to customers ............................. (259,074) (113,853)
Proceeds from sale of fixed assets .................................. 4,136 --
Proceeds from sale of mortgage servicing rights ..................... 8,105 20,994
Additions to mortgage servicing rights .............................. (11,903) (6,464)
----------- -----------
Net cash used in investing activities .................... (162,577) (35,510)
----------- -----------
Cash Flows From Financing Activities:
Net increase in deposits ............................................ 87,603 19,476
Sale of bank branch deposits ........................................ (52,136) --
Net increase (decrease) in short-term borrowings .................... 46,295 (59,132)
Net increase in short-term FHLB advances ............................ 76,483 19,000
Net increase in long-term FHLB advances ............................. 37,432 8,500
Payments on long-term FHLB advances ................................. (15,000) --
Proceeds from issuance of senior debentures, net of issuance costs .. -- 22,233
Payments on long-term debt .......................................... (1,689) (24,900)
Net proceeds from issuance of common shares ......................... 1,190 553
Repurchase of common shares ......................................... (6,319) (7,138)
Dividends paid ...................................................... (3,429) (3,121)
----------- -----------
Net cash provided by (used in) financing activities ...... 170,430 (24,529)
----------- -----------
Net decrease in cash and cash equivalents ........................... (17,606) (3,664)
Cash and cash equivalents at beginning of period .................... 40,114 39,641
----------- -----------
Cash and cash equivalents at end of period .......................... $ 22,508 $ 35,977
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
REPUBLIC BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements of Republic
Bancorp Inc. and Subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes necessary for a comprehensive presentation of financial
position, results of operations and cash flow activity required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all normal recurring adjustments necessary for a fair
presentation of results have been included. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Certain amounts in prior periods have been reclassified to conform to the
current year's presentation.
Note 2 - Principles of Consolidation
The consolidated financial statements include the accounts of the parent
company, Republic Bancorp Inc., two wholly-owned subsidiaries, Republic Bank
and Republic Savings Bank ("Republic Savings"), and Market Street Mortgage
Corporation ("Market Street"), of which the Company owns an 80% majority
interest. Republic Bank operates two wholly-owned subsidiaries: Republic
Bancorp Mortgage Inc. ("Republic Mortgage"), including its two divisions,
Home Funding, Inc. and Unlimited Mortgage Services, Inc., and CUB Funding
Corporation ("CUB Funding"), including its two divisions, RSL Mortgage and
Leader Financial. All material intercompany transactions and balances have
been eliminated in consolidation. On July 1, 1997, the Company transferred
its 80% majority ownership interest in Market Street to Republic Bank.
Note 3 - Consolidated Statements of Cash Flows
Supplemental disclosures of cash flow information for the six months ended
June 30, include:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -------------- ---- ----
<S> <C> <C>
Cash paid during the period for:
Interest .................. $32,201 $33,040
Income taxes .............. $ -- $ 3,205
Non-cash investing activities:
Loan charge-offs .......... $ 142 $ 381
</TABLE>
6
<PAGE>
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
EARNINGS PERFORMANCE
The Company reported net income of $4.7 million for the quarter ended June
30, 1997, an increase of 14% when compared to $4.1 million earned in the
second quarter of 1996. Fully diluted earnings per share for the quarter were
$0.27, up 17% from $0.23 for the same period last year. Return on average
shareholders' equity was 15.62% and return on average assets was 1.22% for
the quarter, compared to 13.56% and 1.13%, respectively, in 1996.
For the six months ended June 30, 1997, the Company earned $8.7 million, an
increase of 28% over the $6.8 million reported for the corresponding period
in 1996. Fully diluted earnings per share were $.50, up 35% from $.37 for the
first six months of 1996. Return on average shareholders' equity was 14.32%
and return on average assets was 1.17% for the first half of 1997, compared
to 10.90% and .93%, respectively, in 1996.
RESULTS OF OPERATIONS
Mortgage Banking
The following discussion provides information that relates specifically to
the Company's mortgage banking line of business, which generates revenue from
mortgage loan production and mortgage loan servicing activities. Mortgage
banking revenue represents the largest component of the Company's total
noninterest income.
The Company closed $960 million in single-family residential mortgage loans
in the second quarter of 1997, compared to $936 million closed in the same
period last year. Mortgage loan closings remained relatively stable over the
past year as a 14% increase in retail production was largely offset by a
reduction in the Company's wholesale mortgage production activities. A
gradual decline in market interest rates during the second quarter of 1997
also favorably impacted mortgage loan volumes. During the first half of 1997,
mortgage loan closings were $1.7 billion, compared to $1.8 billion for the
comparable period in 1996.
The following table summarizes the Company's income from mortgage banking
activities:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 1997 1996 1997 1996
------------------ ----------------
<S> <C> <C> <C> <C>
Mortgage loan production income (1) ..... $18,318 $18,299 $35,541 $35,846
Net mortgage loan servicing income ...... 1,819 2,082 3,546 4,099
Gains on bulk sales of mortgage servicing 1,104 528 1,104 408
------- ------- ------- -------
Total mortgage banking income ..... $21,241 $20,909 $40,191 $40,353
======= ======= ======= =======
<FN>
(1) Includes fee income derived from the loan origination process (i.e.,
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.
</TABLE>
For the three months ended June 30, 1997, mortgage banking income increased
slightly to $21.2 million from $20.9 million a year earlier, as a decrease in
mortgage loan servicing income was offset by increased gains from the sale of
mortgage loans and mortgage servicing rights. The Company sold $807 million
of single-family mortgage loans in the second quarter of 1997 versus $938
million in the second quarter of 1996. An increase in retail production as a
percentage of total mortgage loan origination volume over the past year
resulted in improved margins on the sale of these mortgage loans. As a
result, the ratio of mortgage loan production
7
<PAGE>
income to mortgage loans sold increased 21 basis points to 227 basis points
for the three months ended June 30, 1997, from 206 basis points for the
corresponding quarter in 1996.
For the six months ended June 30, 1997, mortgage banking income remained
relatively consistent compared to the same period a year ago, reflecting the
net result of a decrease in mortgage loan servicing income and an increase in
gains on the sale of mortgage loans and mortgage servicing rights. Mortgage
loan sales totaled $1.5 billion for the first half of 1997, compared to $1.8
billion in 1996. Profitability levels increased as the ratio of mortgage
production income to mortgage loans sold rose 30 basis points to 231 basis
points for the six months ended June 30, 1997 from 201 basis points for the
year-earlier period.
Loans serviced for the benefit of others totaled $2.9 billion at June 30,
1997, compared to $2.7 billion at December 31, 1996 and $3.3 billion at June
30, 1996. Net mortgage loan servicing income declined 13% for both the
quarter and six months ended June 30, 1997, reflecting the overall reduction
in the size of the servicing portfolio over the past year as the Company
centralized its mortgage servicing activities at Market Street.
The Company periodically sells mortgage servicing rights (MSRs) from its
servicing portfolio through bulk sales. For the quarter and six months ended
June 30, 1997, MSRs for loans with a principal balance of $247.2 million were
sold, resulting in a net gain of $1.1 million. In the second quarter of 1996,
bulk sales of MSRs for loans with a principal balance of $475.5 million
resulted in gains totaling $528,000. During the first half of 1996, MSRs for
loans with a principal balance of $694.1 million were sold in bulk form,
resulting in gains totaling $408,000.
Commercial and Retail Banking
The remaining disclosures and analyses within Management's Discussion and
Analysis regarding the Company's results of operations and financial
condition relate principally to the commercial and retail banking line of
business.
Net Interest Income
The following discussion should be read in conjunction with Tables I and II
on the following pages, which provide detailed analyses of the components
impacting net interest income for the three months and six months ended June
30, 1997 and 1996.
Net interest income, on a fully taxable equivalent (FTE) basis, was $11.3
million for the second quarter of 1997, an increase of $2.2 million, or 24%,
over the second quarter of 1996. The increase in net interest income was
driven by strong loan growth. Average portfolio loans for the second quarter
of 1997 rose $333.6 million, or 57%, over the comparable quarter last year,
reflecting growth across all lending categories. This growth was partially
funded by reductions in the average balances of investment securities and
mortgage loans held for sale, as well as a $107.1 million increase in average
interest-bearing deposits.
The net interest margin (FTE) was 3.17% for the quarter ended June 30, 1997,
an increase of 35 basis points from 2.82% in 1996. The expansion in the
margin was primarily due to growth in higher-yielding portfolio loan
categories, coupled with a reduction in lower-yielding investment securities.
This favorable shift in the mix of earning assets was principally responsible
for a 40 basis point increase in the yield on average earning assets. Also
contributing to the improved margin was a slight shift in the mix of
interest-bearing liabilities toward lower-costing deposits.
8
<PAGE>
Table I - Quarterly Net Interest Income and Rate/Volume Analysis (FTE)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
------------------ ------------------
Average Average Average Average
(Dollars in thousands) Balance(1) Interest Rate Balance(1) Interest Rate
- ---------------------- ---------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Money market investments.......................... $ 4,508 $ 44 3.91% $ 3,176 $ 42 5.29%
Mortgage loans held for sale...................... 258,986 5,087 7.86 377,986 7,163 7.58
Investment securities available for sale.......... 237,356 3,893 6.56 320,663 5,063 6.32
Commercial loans.................................. 230,609 5,579 9.70 155,738 3,597 9.24
Residential real estate mortgage loans............ 602,860 11,464 7.61 363,834 6,807 7.48
Installment loans................................. 89,198 2,259 10.16 69,542 1,755 10.09
----------- -------- ----- ----------- -------- -----
Loans, net of unearned income.................. 922,667 19,302 8.38 589,114 12,159 8.26
----------- -------- ----- ----------- -------- -----
Total interest-earning assets................ 1,423,517 28,326 7.97 1,290,939 24,427 7.57
Allowance for loan losses......................... (5,794) (4,903)
Cash and due from banks........................... 22,283 27,583
Other assets...................................... 99,888 156,972
----------- -----------
Total assets................................. $ 1,539,894 $ 1,470,591
=========== ===========
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits.................. $ 53,115 290 2.19 $ 59,042 347 2.35
Savings deposits and money market accounts........ 266,867 3,018 4.54 212,893 2,164 4.07
Time deposits..................................... 585,889 8,292 5.68 526,808 7,720 5.86
----------- -------- ----- ----------- ------- -----
Total interest-bearing deposits................ 905,871 11,600 5.14 798,743 10,231 5.12
Warehouse lines of credit......................... -- -- -- 4,056 60 5.92
Federal funds purchased and securites sold
under agreement to repurchase.................. 111,400 1,586 5.71 184,885 2,764 6.00
Other short-term borrowings....................... 12,992 230 7.10 1,035 20 7.75
FHLB advances.................................... 188,815 2,744 5.83 94,602 1,372 5.82
Long-term debt.................................... 47,500 858 7.23 49,359 892 7.23
----------- -------- ----- ----------- ------- -----
Total interest-bearing liabilities........... 1,266,578 17,018 5.39 1,132,680 15,339 5.42
-------- ----- ------- -----
Noninterest-bearing deposits...................... 119,786 131,857
Other liabilities................................. 32,805 83,733
----------- -----------
Total liabilities............................ 1,419,169 1,348,270
Shareholders' equity.............................. 120,725 122,321
----------- -----------
Total liabilities and shareholders' equity... $ 1,539,894 $ 1,470,591
=========== ===========
Net interest income/Rate spread (FTE)............. $ 11,308 2.58% $ 9,088 2.15%
======== ==== ======= ====
Net interest margin (FTE)......................... 3.17% 2.82%
==== ====
<CAPTION>
Increase (decrease) due to change in: Volume(2) Rate(2) Net Inc(Dec)
------------------------------------- --------- ------- ------------
<S> <C> <C> <C>
Money market investments................. $ 15 $ (13) $ 2
Mortgage loans held for sale............. (2,332) 256 (2,076)
Investment securities available for sale. (1,356) 186 (1,170)
Commercial loans......................... 1,796 186 1,982
Residential real estate mortgage loans... 4,537 120 4,657
Installment loans........................ 492 12 504
------- ------ ---------
Loans, net of unearned income.......... 6,825 318 7,143
------- ------ ---------
Total interest income............... 3,152 747 3,899
Interest-bearing demand deposits......... (34) (23) (57)
Savings deposits......................... 587 267 854
Time deposits............................ 821 (249) 572
------- ------ ---------
Total interest-bearing deposits........ 1,374 (5) 1,369
Warehousing lines of credit.............. (60) -- (60)
Federal funds purchased and securities sold
under agreement to repurchase.......... (1,050) (128) (1,178)
Other short-term borrowings.............. 212 (2) 210
FHLB advances............................ 1,371 2 1,373
Long-term debt........................... ( 35) -- (35)
------- ------ ---------
Total interest expense............. 1,812 (133) 1,679
------- ------ ---------
Net interest income................. $ 1,340 $ 880 $ 2,220
======= ====== =========
<FN>
(1) Non-accrual loans and overdrafts are included in average balances.
(2) Rate/volume variances are proportionately allocated to rate and volume
based on the absolute value of the change in each.
</TABLE>
9
Table II - Year-to-Date Net Interest Income and Rate/Volume Analysis (FTE)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
Average Average Average Average
(Dollars in thousands) Balance(1) Interest Rate Balance(1) Interest Rate
- ---------------------- ---------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Money market investments.......................... $ 9,029 $ 194 4.36% $ 11,538 $ 310 5.37%
Mortgage loans held for sale...................... 249,079 9,747 7.83 374,376 14,096 7.53
Securities........................................ 230,781 7,409 6.39 317,725 10,041 6.32
Commercial loans.................................. 214,446 10,300 9.69 148,476 6,983 9.41
Residential real estate mortgage loans............ 569,968 21,545 7.56 369,354 13,939 7.55
Installment loans................................. 86,866 4,327 10.05 67,911 3,378 9.95
------------- --------- ----- ----------- --------- ----
Loans, net of unearned income.................. 871,280 36,172 8.33 585,741 24,300 8.30
------------- --------- ----- ----------- --------- ----
Total interest-earning assets................ 1,360,169 53,522 7.88 1,289,380 48,747 7.56
Allowance for loan losses......................... (5,301) (4,926)
Cash and due from banks........................... 21,436 25,038
Other assets...................................... 103,076 140,164
------------- -----------
Total assets................................. $ 1,479,380 $ 1,449,656
============= ===========
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits.................. $ 55,291 601 2.19 $ 59,622 698 2.34
Savings deposits.................................. 265,358 5,830 4.43 204,338 4,037 3.95
Time deposits..................................... 576,548 16,236 5.68 537,011 15,935 5.93
------------- --------- ----- ----------- --------- ----
Total interest-bearing deposits................ 897,197 22,667 5.09 800,971 20,670 5.16
Warehousing lines of credit....................... -- -- -- 45,834 1,561 6.81
Federal funds purchased and securities sold
under agreement to repurchase.................. 95,338 2,684 5.68 151,018 4,471 5.97
Other short-term borrowings....................... 10,937 386 7.12 3,096 119 7.75
FHLB advances.................................... 158,207 4,592 5.85 90,360 2,618 5.79
Long-term debt.................................... 48,396 1,746 7.22 52,423 1,961 7.48
------------- --------- ----- ----------- --------- ----
Total interest-bearing liabilities........... 1,210,075 32,075 5.34 1,143,702 31,400 5.49
--------- ----- --------- ----
Noninterest-bearing deposits...................... 115,468 127,941
Other liabilities................................. 32,739 53,744
------------- -----------
Total liabilities............................ 1,358,282 1,325,387
Shareholders' equity.............................. 121,098 124,269
------------- -----------
Total liabilities and shareholders' equity... $ 1,479,380 $ 1,449,656
============= ===========
Net interest income/Rate spread (FTE)............. $ 21,447 2.54% $ 17,347 2.07%
========= ==== ========= ====
Net interest margin............................... 3.15% 2.69%
==== ====
<CAPTION>
Increase (decrease) due to change in: Volume(2) Rate(2) Net Inc(Dec)
------------------------------------- --------- ------- ------------
<S> <C> <C> <C>
Money market investments................. $ (63) $ (53) $ (116)
Mortgage loans held for sale............. (4,890) 541 (4,349)
Securities............................... (2,743) 111 (2,632)
Commercial loans......................... 3,109 208 3,317
Residential real estate mortgage loans... 7,588 18 7,606
Installment loans........................ 916 33 949
--------- ------ ---------
Loans, net of unearned income.......... 11,613 259 11,872
--------- ------ ---------
Total interest income............... 3,917 858 4,775
Interest-bearing demand deposits......... (50) (47) (97)
Savings deposits......................... 1,275 518 1,793
Time deposits............................ 1,045 (744) 301
--------- ------ ---------
Total interest-bearing deposits........ 2,270 (273) 1,997
Warehousing lines of credit.............. (1,561) -- (1,561)
Federal funds purchased and securities sold
under agreement to repurchase.......... (1,579) (208) (1,787)
Other short-term borrowings.............. 278 (11) 267
FHLB advances............................ 1,947 27 1,974
Long-term debt........................... (148) (67) (215)
--------- ------ ---------
Total interest expense............. 1,207 (532) 675
--------- ------ ---------
Net interest income................. $ 2,710 $1,390 $ 4,100
========= ====== =========
10
<PAGE>
<FN>
(1) Non-accrual loans and overdrafts are included in average balances.
(2) Rate/volume variances are proportionately allocated to rate and volume
based on the absolute value of the change in each.
</TABLE>
For the six months ended June 30, 1997, net interest income (FTE) was $21.4
million, an increase of $4.1 million, or 24%, over the first half of 1996.
This increase was fueled primarily by a $285.5 million, or 49%, increase in
average portfolio loans. Partly funding the growth in portfolio loans were
reductions in the average balances of investment securities and mortgage
loans held for sale. Net interest income growth was partially offset by the
expense associated with a $96.2 million, or 12%, increase in average
interest-bearing deposits.
The net interest margin (FTE) for the six months ended June 30, 1997, rose 46
basis points to 3.15% from 2.69% for the comparable period in 1996, primarily
due to a favorable shift in the mix of earning assets toward higher-yielding
loan products. This shift was largely responsible for a 32 basis point
increase in the yield on average earning assets. Also, contributing to the
improved margin for the first half of 1997 was a 15 basis point decline in
the average rate paid on interest-bearing liabilities. This resulted from
growth in the Company's average interest-bearing deposits and a decline in
the average balances of higher-costing sources of funds.
Noninterest Income
As previously announced, in May 1997, the Company completed the sale of four
southern Michigan branches of Republic Bank. The sale included the premises
and deposits of the Hanover, Litchfield, Somerset Center and Spring Arbor
offices, which had total deposits of $52 million. The pre-tax gain on the
sale was $4.4 million.
Noninterest Expense
For the quarter ended June 30, 1997, total noninterest expense increased $3.7
million, or 15%, to $27.9 million from $24.3 million a year earlier. On a
year-to-date basis, total noninterest expense was $52.1 million, up $3.6
million, or 8%, over the first six months of 1996. The rise in noninterest
expense reflects both an increase in salaries and employee benefits as new
employees have been hired and an increase in commissions expense as a result
of higher retail mortgage loan originations.
BALANCE SHEET ANALYSIS
ASSETS
At June 30, 1997, the Company had $1.67 billion in total assets, an increase
of $181.2 million, or 12%, from $1.49 billion at December 31, 1996. Asset
growth was primarily the result of an increase in portfolio loans and
mortgage loans held for sale.
Securities
Investment securities available for sale declined $6.7 million, or 3%, to
$221.9 million, representing 13.3% of total assets, at June 30, 1997. At
December 31, 1996, the investment securities portfolio totaled $228.6
million, or 15.3% of total assets. During the second quarter of 1997, the
Company sold $46.6 million of lower-yielding securities and reinvested the
proceeds in higher-yielding portfolio loans and securities. Gross realized
gains and losses on sales of available-for-sale securities were $168,000 and
$850,000, respectively, for the quarter ended June 30, 1997. For the first
six months of 1997, gross realized gains and losses totaled $216,000 and
$861,000, respectively.
The Company's securities portfolio serves as a source of liquidity and
earnings, carries relatively minimal principal risk and contributes to the
management of interest rate risk. The portfolio is comprised primarily of
U.S. Government agency obligations, obligations collateralized by U.S.
Government agencies, mainly in the form of mortgage-backed securities and
collateralized mortgage obligations, and municipal obligations. With the
exception of municipal obligations, the maturity structure of the securities
portfolio is generally short-term in nature or indexed to variable rates.
11
<PAGE>
The following table details the composition, amortized cost and fair value of
the Company's available-for-sale securities portfolio at June 30, 1997:
<TABLE>
<CAPTION>
Available-for-Sale Securities
-----------------------------
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- -------------- --------- ---------- ----------- -----
<S> <C> <C> <C> <C>
Debt Securities:
U.S. Government agency obligations................ $ 52,251 $ 73 $ 295 $ 52,029
Collateralized mortgage obligations............... 76,594 32 354 76,272
Mortgage-backed securities........................... 59,659 5 1,608 58,056
Mortgage-backed securities........................ 53,015 3 1,272 51,746
Municipal and other securities.................... 20,944 154 30 21,068
-------- ---- ------ --------
Total Debt Securities........................... 202,804 262 1,951 201,115
Equity securities.................................... 21,461 - 721 20,740
-------- ---- ------ --------
Total Available-for-Sale Securities............. $224,265 $262 $2,672 $221,855
======== ==== ====== ========
</TABLE>
Certain securities having a carrying value of approximately $106.4 million
and $65.0 million at June 30, 1997 and December 31, 1996, respectively, were
pledged to secure repurchase agreements, FHLB advances, public and other
deposits as required by law.
Mortgage Loans Held for Sale
Mortgage loans held for sale were $367.2 million at June 30, 1997, an
increase of $38.0 million, or 12%, from $329.2 million at December 31, 1996.
This growth was caused by an increase in the volume of loans originated
near the end of the second quarter.
Portfolio Loans
Total portfolio loans were $958.5 million at June 30, 1997, an increase of
$173.9 million, or 22%, from $784.6 million at December 31, 1996, reflecting
growth in all lending areas. The residential mortgage portfolio loan balance
rose $114.1 million, or 23%, since year-end 1996 to $621.1 million at June
30, 1997, in response primarily to increased consumer demand for adjustable
rate mortgage loans. The installment loan portfolio balance, which is
predominantly comprised of home equity loans, grew $9.9 million, or 12%,
since year-end 1996 to $92.4 million at June 30, 1997, reflecting successful
marketing and sales efforts.
The commercial loan balance was $245.1 million at June 30, 1997, an increase
of $49.9 million, or 26%, from $195.2 million at December 31, 1996,
reflecting continued strong demand for real estate-secured lending in markets
served by the Company. During the second quarter of 1997, the Company closed
$6.0 million in Small Business Administration (SBA) loans, a 9% increase from
the $5.5 million closed in the second quarter of 1996. For the first six
months of 1997 and 1996, SBA loan closings were $10.2 million and $10.8
million, respectively. The Company sold $5.9 million and $5.8 million of the
guaranteed portion of SBA loans in the first six months of 1997 and 1996,
respectively, resulting in gains of $475,000 in both periods.
12
<PAGE>
The following table provides further information regarding the Company's loan
portfolio:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------------- --------------------
(Dollars in thousands) Amount Percent Amount Percent
- ---------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial loans:
Commercial and industrial......................... $ 30,411 3.2% $ 29,483 3.8%
Real estate construction.......................... 44,997 4.7 32,946 4.2
Commercial real estate mortgage .................. 169,650 17.7 132,763 16.9
-------- ----- -------- -----
Total commercial loans....................... 245,058 25.6 195,192 24.9
Residential real estate mortgages.................... 621,084 64.8 506,944 64.6
Installment loans.................................... 92,355 9.6 82,492 10.5
-------- ----- -------- -----
Total portfolio loans......................... $958,497 100.0% $784,628 100.0%
======== ===== ======== =====
</TABLE>
Credit Quality
The Company attempts to minimize credit risk in the loan portfolio by
focusing primarily on residential real estate mortgage lending, real
estate-secured commercial lending and home equity lending. As of June 30,
1997, such loans comprised approximately 94.6% of total portfolio loans. The
Company's general policy is to originate conventional residential real estate
mortgages with loan-to-value ratios of 80% or less and SBA-secured loans or
real estate-secured commercial loans with loan-to-value ratios of 70% or
less.
The substantial majority of the Company's residential mortgage loan
production is underwritten in compliance with the requirements for sale to or
conversion to mortgage-backed securities issued by the Federal Home Loan
Mortgage Corporation (FHLMC), the Federal National Mortgage Association
(FNMA), or the Government National Mortgage Association (GNMA). The majority
of the Company's commercial loans are secured by real estate and are
generally made to small and medium-size businesses. These loans are made at
rates based on the prevailing prime interest rates of Republic Bank and
Republic Savings Bank, as well as fixed rates for terms generally ranging
from three to five years. Management's emphasis on real estate-secured
lending with conservative loan-to-value ratios is reflected in the Company's
historically low net charge-off ratio percentages.
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 through foreclosure or by deed in lieu of foreclosure and is
classified as other assets on the balance sheet until such time as the
property is sold. 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. 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.
13
<PAGE>
The following table summarizes the Company's non-performing assets and 90-day
past due loans:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(Dollars in thousands) 1997 1996 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-Performing Assets:
Non-accrual loans:
Commercial...................................... $1,475 $1,321 $1,824
Residential real estate mortgages............... 5,689 3,968 1,686
Installment..................................... 47 50 157
------ ------ ------
Total non-accrual loans....................... 7,211 5,339 3,667
Restructured loans................................ -- -- --
------ ------ ------
Total non-performing loans.................... 7,211 5,339 3,667
Other real estate owned........................... 1,907 1,250 637
------ ------ ------
Total non-performing assets................... $9,118 $6,589 $4,304
====== ====== ======
Loans past due 90 days or more and still accruing interest:
Commercial........................................ $ 462 $ -- $ 327
Residential real estate mortgages................. -- 548 706
Installment....................................... 82 22 44
------ ------ ------
Total loans past due 90 days or more.......... $ 544 $ 570 $1,077
====== ====== ======
Non-performing assets as a percentage of:
Total portfolio loans and OREO (1).............. .95% .84% .69%
Total loans and OREO (2)........................ .69% .59% .43%
Total assets.................................... .55% .44% .29%
<FN>
(1) Excludes mortgage loans held for sale.
(2) Includes mortgage loans held for sale.
</TABLE>
At June 30, 1997, approximately $7.4 million, or .77% of total portfolio
loans were 30-89 days delinquent, compared to $4.8 million, or .61%, at
December 31, 1996 and $6.0 million, or .97% at June 30, 1996.
Allowance for Loan Losses
Management is responsible for maintaining an adequate allowance for loan
losses. 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 agencies. In addition, specific reserves are
established for individual loans when deemed necessary by management.
14
<PAGE>
Management believes the allowance for loan losses is adequate to meet
potential losses in the loan portfolio that can be reasonably anticipated
based on current conditions. In addition, 94.6% of the total loan portfolio
at June 30, 1997, was secured by real estate, thereby, reducing potential
losses. 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 and adversely
affected.
The following table provides an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
(Dollars in thousands) 1997 1996
- ---------------------- ---- ----
<S> <C> <C>
Allowance for loan losses:
Balance at January 1 .................................... $4,709 $5,002
Loans charged off .................................. (142) (381)
Recoveries of loans previously charged off ......... 90 65
------ ------
Net charge-offs..................................... (52) (316)
Provision charged to expense.......................... 2,485 110
------ -------
Balance at June 30 ...................................... $7,142 $4,796
====== ======
Net charge-offs as a percentage of average portfolio
loans outstanding .................................. .01% .11%
Allowance for loan losses as a percentage of total
portfolio loans outstanding at period-end........... .75 .77
Allowance for loan losses as a percentage of
non-performing loans............................... 99.04 130.80
</TABLE>
Off-Balance Sheet Instruments
Unused commitments to extend credit totaled $397.3 million for residential
real estate loans and $103.3 million for commercial real estate loans at June
30, 1997.
At June 30, 1997, the Company had outstanding $229.8 million of commitments
to fund residential real estate loan applications with agreed-upon rates,
including $40.6 million of residential portfolio loans. Agreeing to fund
residential real estate loan applications at specified rates and holding
residential mortgage loans for sale to the secondary market exposes the
Company to interest rate risk during the period before the loans are sold to
investors. To minimize this exposure to interest rate risk, the Company
enters into firm commitments to sell such mortgage loans at specified future
dates to various third parties. At June 30, 1997, the Company had outstanding
mandatory forward commitments to sell $502.8 million of residential mortgage
loans, of which $348.9 million covered mortgage loans held for sale and
$153.9 million covered commitments to fund residential real estate loan
applications with agreed-upon rates. These outstanding forward commitments to
sell mortgage loans are expected to settle in the third quarter of 1997
without producing any material gains or losses.
15
<PAGE>
LIABILITIES.
Total liabilities were $1.55 billion, an increase of $180.9 million from
$1.37 billion at December 31, 1996, reflecting increases in FHLB advances and
deposits, which were partially offset by declines in short-term borrowings
and long-term debt.
Deposits
As discussed earlier, in May 1997 the Company completed the sale of four
southern Michigan branches of Republic Bank which had deposits of $52 million.
Net of this sale of branch deposits, total deposits increased $35.5 million,
or 3%, since year-end 1996 to $1.05 billion at June 30, 1997.
Noninterest-bearing deposits rose $12.3 million, or 10%, to $139.2 million
from $126.9 million at year-end 1996. Interest-bearing deposits grew $23.2
million, or 3%, since year-end 1996 to $910.0 million at June 30, 1997, as
consumers responded to special promotions on savings accounts and
certificates of deposit.
Short-Term Borrowings
Short-term borrowings with maturities of less than one year, along with the
related average balances and interest rates for the six months ended June 30,
1997 and the year ended December 31, 1996, were as follows:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
Average Average
Ending Average Rate During Ending Average Rate During
(Dollars in thousands) Balance Balance Period Balance Balance Period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds purchased..................... $ 70,900 $ 30,434 5.88% $ 67,900 $ 25,312 5.71%
Securities sold under agreements
to repurchase............................ 89,888 64,904 5.56 47,256 122,298 5.67
Other short-term borrowings................. 6,649 10,937 7.12 5,986 27,124 7.17
-------- -------- ---- -------- -------- ----
Total short-term borrowings.............. $167,437 $106,275 5.82% $121,142 $174,734 5.91%
======== ======== ==== ======== ======== ====
</TABLE>
At June 30, 1997, other short-term borrowings consisted of $5.5 million in
treasury, tax and loan demand notes (TT&L) and $1.1 million in borrowings
outstanding under a revolving credit agreement with an unaffiliated financial
institution. At December 31, 1996, other short-term borrowings were comprised
of $4.0 million in TT&Ls, $1.9 million in borrowings outstanding under the
revolving credit agreement and the current portion of long-term debt.
FHLB Advances
Republic Bank and Republic Savings Bank routinely borrow short- 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.
FHLB advances outstanding at June 30, 1997 and December 31, 1996, were as
follows:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------------------ --------------------
Average Average
Ending Rate At Ending Rate At
(Dollars in thousands) Balance Period-End Balance Period-End
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-term FHLB advances............... $115,483 6.15% $ 39,000 5.73%
Long-term FHLB advances................. 117,632 5.85 95,200 6.02
-------- ---- -------- ----
Total.............................. $233,115 6.00% $134,200 5.89%
======== ==== ======== ====
</TABLE>
The long-term FHLB advances have original maturities ranging from July 1997
to May 2002.
16
<PAGE>
Long-Term Debt
Obligations with original maturities of more than one year consisted of the
following:
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
7.17% Senior Debentures due 2001............... $25,000 $25,000
6.75% Senior Debentures due 2001............... 9,000 9,000
6.95% Senior Debentures due 2003............... 13,500 13,500
6.99% Mortgage Loan due 2000................... -- 1,792
------- -------
47,500 49,292
Less current maturities included in other
short-term borrowings...................... -- (103)
------- -------
Total long-term debt...................... $47,500 $49,189
======= =======
</TABLE>
CAPITAL
Shareholders' equity was $122.2 million at June 30, 1997, compared to $121.8
million at December 31, 1996. This increase resulted as a $5.3 million
increase in the amount of earnings retained by the Company since year-end
1996 and an $882,000 decrease in net unrealized losses on securities
available for sale were partially offset by the repurchase of 569,000 shares
of the Company's common stock.
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. 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.
As of June 30, 1997, the Company met all capital adequacy requirements to
which it is subject and management does not anticipate any difficulty in
meeting these requirements on an ongoing basis. The Company's capital ratios
were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Total capital to risk-weighted assets (1)............. 12.16% 13.84%
Tier 1 capital to risk-weighted assets (1)............ 11.45 13.30
Tier 1 capital to average assets (1).................. 7.55 8.16
<FN>
(1) As defined by the regulations.
</TABLE>
As of June 30, 1997, the Company's Total risk-based capital was $122.8
million and Tier 1 risk-based capital was $115.6 million, an excess of $21.9
million and $55.1 million, respectively, over the minimum guidelines
prescribed by regulatory agencies for a well-capitalized institution. In
addition, Republic Bank and Republic Savings Bank had regulatory capital
ratios in excess of the minimum levels established for well-capitalized
institutions.
17
<PAGE>
Accounting Developments
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Informaton, which supersedes current
accounting literature regarding segment reporting. According to the
Statement's new "management approach" to segment reporting, companies would
report financial and descriptive information about their operating segments
in both annual financial statements and interim financial reports. Operating
segments are revenue-producing components of the enterprise for which
separate financial information is produced internally and are subject to
evaluation by the chief operating decision maker in deciding how to allocate
resources to segments. SFAS No. 131 is effective for financial statements for
fiscal years beginning after December 15, 1997, with early adoption
encouraged. The Statement is not expected to significantly alter the nature
of the Company's segment disclosures in its annual report; however, the
Company's segment disclosures in Form 10-Q's filed with the Securities and
Exchange Commissions in 1998 will be expanded to encompass the required
financial information.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements. Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactons and other events and
circumstances, except those resulting from investments by owners and
distributions to owners. Net income plus other comprehensive income (e.g.,
unrealized holding gains and losses on available-for-sale securities)
represent the total of all components of comprehensive income. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997, with earlier
application permitted. The Company expects that adoption of this Statement
will result in expanded disclosures in the consolidated statement of changes
in shareholders' equity.
In February 1997, the FASB issued SFAS No. 129, Disclosure of Information
about Capital Structure, which consolidates existing accounting guidance
relating to a company's capital structure and is effective for financial
statements for period ending after December 15, 1997. Adoption of the
Statement is not expected to have any impact on the Company's disclosures
about its financial position, results of operations, liquidity or capital
position.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which
simplifies the calculation of earnings per share (EPS). Under SFAS No. 128,
primary EPS currently computed in accordance with APB Opinion No. 15 will be
replaced with a new simpler calculation called basic EPS. Basic EPS will be
calculated by dividing income available to common shareholders by the
weighted average common shares outstanding. Thus, options, warrants and other
common stock equivalents will be excluded from the calculation. Fully diluted
EPS will not change significantly but has been renamed diluted EPS. SFAS No.
128 is effective for both interim and annual financial statements for periods
ending after December 15, 1997, with earlier application prohibited. The
impact of SFAS No. 128 will result in a $0.01 increase in the Company's
primary earnings per share for each of the second quarters ended June 30,
1997 and 1996.
On January 1, 1997, the Company adopted the provisions of SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, issued by the FASB in June 1996, pertaining
to sales, securitizations and servicing of receivables and other financial
assets and the extinguishment of liabilities without material impact to
financial position and results of operations. The effective date for
provisions of the Statement relating to repurchase agreements, securities
lending and other similar transactions and pledged collateral was delayed
until after December 31, 1997 through the issuance by the FASB of SFAS No.
127, Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125, an amendment to FASB Statement No. 125. The adoption of SFAS No. 127
is not expected to have a material impact on the Company's financial position
and results of operations.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, the Company and its
subsidiaries are parties to certain routine litigation. In the
opinion of management, the aggregate liabilities, if any,
arising from such legal proceedings would not have a material
adverse effect on the Company's consolidated financial
position, results of operations and liquidity.
Item 2. Changes in Securities
On May 22, 1997, the Board of Directors declared a quarterly
cash dividend of $0.10 per share of common stock, payable on
July 3, 1997 to shareholders of record June 6, 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3)(i) Articles of Incorporation
(11) Statement Re: Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K
During the second quarter of 1997, the Company filed a Form
8-K dated June 20, 1997, amended by Form 8-K/A dated July
3, 1997, relating to the dismissal of Deloitte & Touche LLP
and the appointment of Ernst & Young LLP as the
registrant's certifying accountants. The filing stated
there were no disagreements with Deloitte & Touche LLP
regarding accounting principles or practices, financial
statement disclosures, or auditing scope and procedures in
connection with their audits and included a letter from
Deloitte & Touche LLP expressing their agreement with that
statement.
19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REPUBLIC BANCORP INC.
(Registrant)
Date: August 14, 1997 BY: /s/ Thomas F. Menacher
-------------------------------------
Thomas F. Menacher
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
20
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit Number Exhibit Page Number
3(i) Articles of Incorporation 22 - 48
11 Statement Re: Computation of
Earnings Per Share 49
27 Financial Data Schedule 50
21
EXHIBIT 3(i) - Articles of Incorporation
George E. Parker III, Esq.
Republic Bancorp, Inc.
18720 Mack Avenue
Grosse Pointe Farms, MI 48238
(Document will be returned to
name and address indicated above)
FIRST RESTATED ARTICLES OF INCORPORATION
OF
REPUBLIC BANCORP INC.
Pursuant to the provisions of Act 284, Public Acts of 1972, the
undersigned corporation executes the following Restated Articles of
Incorporation:
1. The present name of the corporation is: Republic Bancorp Inc.
2. The corporation identification number (CID) assigned by the
Bureau is: 354-159.
3. All former names of the corporation are: Republic Bancorp Inc.
4. The date of filing the original Articles of Incorporation
was: March 8, 1985.
The following First Restated Articles of Incorporation supersede the
Articles of Incorporation as amended and shall be the Articles of
Incorporation for the corporation:
Article I. The name of the corporation is Republic Bancorp Inc.
Article II. The purpose of the corporation is to engage in any lawful
act or activity for which corporations may be organized under the Business
Corporation Act of Michigan.
Article III. The total authorized capital stock of the corporation is
30,000,000 shares of Common Stock of the par value of $5.00 per share
(hereinafter called the "Common Stock") and 5,000,000 shares of Preferred
Stock of no par value per share, issuable in series (hereinafter called the
"Preferred Stock").
A statement of all or any of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions of the Common
Stock and the Preferred Stock of the corporation is as follows:
<PAGE>
A. Common Stock.
(1) Dividends. The holders of Common Stock shall be entitled
to receive when and as declared by the Board of Directors, out of the
assets of the corporation which by law are available therefor, dividends
payable either in cash, in property, or in Common Stock. No dividends
(other than dividends payable in Common Stock) shall be paid on Common
Stock unless cash dividends in full on all outstanding Preferred Stock
to which the holders thereof are entitled shall have been paid or
declared and set apart for payment or if any sinking fund for the
Preferred Stock is in arrears.
(2) Voting Rights. At every meeting of shareholders the
holders of Common Stock shall have the right to vote with the holders of
each series of Preferred Stock which has voting rights in the election
of directors and upon each other matter coming before any meeting of the
shareholders on the basis of one vote for each share of Common Stock
held. Except as otherwise provided by law, the holders of Common Stock
and the holders of such Preferred Stock shall vote together as one
class. At an election for directors each holder of Common Stock may
vote, in person or by proxy, the number of shares of Common Stock owned
by him for as many persons as there are directors to be elected and for
whose election he has a right to vote, or may cumulate his votes by
giving one candidate as many votes as the number of such directors
multiplied by the number of his shares, or by distributing his votes on
the same principle among any number of the candidates.
(3) Liquidation Rights. In the event of any liquidation,
dissolution or winding up of the corporation, the holders of Common
Stock shall be entitled, after payment or provisions for payment of the
debts and other liabilities of the corporation and the amounts to which
the holders of the Preferred Stock shall be entitled, to share ratably
in the remaining net assets of the corporation.
(4) Preemptive Rights. The holders of shares of Preferred
Stock shall have no preemptive right to subscribe for any additional
shares of capital stock or other obligations convertible into shares of
capital stock which may hereafter be issued by the corporation.
B. Preferred Stock
(1) Issuance of Preferred Stock in Series. The Board of
Directors shall have authority to divide and issue shares of Preferred
Stock into series and, within the limitations set forth in the
corporation's Articles of Incorporation, to fix and determine the
relative rights and preferences of the shares of any series so
established. Each series of Preferred Stock shall be so designated by
the Board
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<PAGE>
of Directors as to distinguish the shares thereof from the shares of all
other series of Preferred Stock and other classes of stock of the
corporation. All shares of Preferred Stock will be identical, except as
to the following rights and preferences as to which there may be
variations between different series as fixed and determined by the Board
of Directors: (a) the right to vote, if any, which may be limited or
unlimited; (b) the rate of dividend, the priority of payment thereof,
the right to cumulation thereof, if any, and the extent of further
participation in dividend distribution, if any; (c) the right to
redemption, if any, and the terms and conditions thereof; (d) the amount
payable upon shares in event of voluntary or involuntary liquidation,
and the priority of payment thereof; (e) sinking fund provisions, if
any, for the redemption or purchase of shares and (f) the right to
conversion, if any, and the terms and conditions thereof.
(2) Dividends. The holders of Preferred Stock of each series
shall be entitled to receive out of any funds legally available
therefor, when and as declared by the Board of Directors, cash dividends
in such amount as may be fixed by the Board of Directors in its
resolution providing for the issuance of such series before any dividend
(other than dividends payable in Common Stock) shall be paid on the
Common Stock or other stock ranking junior to the Preferred Stock.
Dividends on cumulative Preferred Stock, if any, shall be cumulative
from the date or dates fixed by the Board of Directors in its resolution
providing for the issuance thereof. Accumulations shall not bear
interest.
(3) Voting Rights. At every meeting of shareholders the
holders of Preferred Stock of each series which has voting rights in the
election of directors and upon each other matter coming before any
meeting of the shareholders shall have the right to vote with the
holders of Common Stock to vote in the election of directors and upon
each other matter coming before any meeting of the shareholders on the
basis of one vote for each share of Preferred Stock held. Except as
otherwise provided by law, the holders of Preferred Stock with such
right to vote and the holders of Common Stock shall vote together as one
class.
(4) Preemptive Rights. The holders of shares of Preferred
Stock shall have no preemptive right to subscribe for any additional
shares of capital stock or other obligations convertible into shares of
capital stock which may hereafter be issued by the corporation.
Prior to the date of filing of these First Restated Articles of
Incorporation, and pursuant to Section 302(4) of the Business
Corporation Act, as amended, three separate series of Preferred Stock
had been established. A conformed copy of the certificate establishing
and designating each of
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<PAGE>
those series of Preferred Stock and prescribing the relative rights and
preferences thereof are attached to these First Restated Articles of
Incorporation and incorporated herein by this reference.
Article IV. The address of its registered office in the State
of Michigan is 122 South Main Street, Ann Arbor, Michigan 48104.
The name of its registered agent at such address is Dana M. Cluckey.
Article V. The name and mailing address of the incorporator are as
follows:
Name Mailing Address
Jerry D. Campbell 3200 Beecher Road, Suite 1
Flint, Michigan 48504
Article VI. When a compromise or arrangement or a plan of reorganization
of this corporation is proposed between this corporation and its creditors or
any class of them or between this corporation and its shareholders or any
class of them, a court of equity jurisdiction within the state, on
application of this corporation or of a creditor or shareholder thereof, or
on application of a receiver appointed for the corporation, may order a
meeting of the creditors or class of creditors or of the shareholders or a
class of shareholders to be affected by the proposed compromise or
arrangement or reorganization, to be summoned in such manner as the court
directs. If a majority in number representing 3/4 in value of the creditors
or class of creditors, or of the shareholders or class of shareholders to be
affected by the proposed compromise or arrangement or a reorganization, agree
to a compromise or arrangement or a reorganization of this corporation as a
consequence of the compromise or arrangement, the compromise or arrangement
and the reorganization, if sanctioned by the court to which the application
has been made, shall be binding on all the creditors or class of creditors,
or on all the shareholders or class of shareholders and also on this
corporation.
Article VII. Any action required or permitted by this act to be taken at
an annual or special meeting of shareholders may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting
forth the action so taken, is signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take the action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent
shall be given to shareholders who have not consented in writing.
Article VIII. (a) The corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any
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<PAGE>
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonable believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only
to the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which such court shall
deem proper. Any person entitled to indemnification against expenses under
this paragraph (b) shall, to the extent not prohibited by the laws of
Michigan and any other applicable law, also be entitled to indemnification,
and the corporation shall indemnify him, against judgments and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action or suit, upon the same terms and conditions and subject to the same
limitations as provided with respect to expenses.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or
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<PAGE>
otherwise in defense of any action, suit or proceeding referred to
in paragraphs (a) and (b) of this Article or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him
in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) of this
Article (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in paragraphs
(a) and (b). Such determination shall be made (i) by the Board of Directors
by a majority vote of a quorum (as defined in the Bylaws of the corporation)
consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable
a quorum of disinterested directors so directs, by independent legal counsel
in a written opinion, or (iii) by the shareholders. Notwithstanding the
failure or refusal of the directors, counsel and shareholders to make
provision therefor, such indemnification shall be made if a court of
competent jurisdiction makes a determination that the director, officer,
employee or agent has a right to indemnification hereunder in any specific
case upon the application of such director, officer, employee or agent.
(e) Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the Board of
Directors in the specific case upon receipt of an undertaking by or on behalf
of the director, officer, employee or agent to repay such amount unless it
shall ultimately be determined that he is entitled to be indemnified by the
corporation.
(f) The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any statute, bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(g) The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the corporation
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<PAGE>
would have the power to indemnify him against such liability under the
provisions of this Article.
(h) For the purposes of this Article, references to "the
corporation" include all constituent corporations absorbed in a consolidation
or merger as well as the resulting or surviving corporation so that any
person who is or was a director, officer, employee or agent of such a
constituent corporation or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise shall
stand in the same position under the provisions of this Article with respect
to the resulting or surviving corporation as he would if he had served the
resulting or surviving corporation in the same capacity.
(i) Neither the corporation nor its directors or officers nor any
person acting on its behalf shall be liable to anyone for any determination
as to the existence or absence of conduct which would provide a basis for
making or refusing to make any payment under this Article or for taking or
omitting to take any other action under this Article, in reliance upon the
advice of counsel.
Article VIII. The corporation reserves the right to amend, alter, change
or repeal any provisions contained in these Articles of Incorporation, in the
manner now or hereafter prescribed by the laws of Michigan, and all rights
conferred herein upon shareholders are granted subject to this reservation.
Article IX. A director of the corporation shall not be personally liable
to the corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or
a knowing violation of law, (iii) a violation of Section 551(1) of the
Michigan Business Corporation Act, or (iv) for any transaction from which the
director derived any improper personal benefit. If the Michigan Business
Corporation Act is amended after approval by the shareholders of this
provision to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Michigan Business Corporation Act, as so amended.
Any repeal or modification of the foregoing paragraph by the
shareholders of the corporation shall not adversely affect any
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<PAGE>
right or protection of a director of the corporation existing at
the time of such repeal or modification.
* * * * *
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<PAGE>
These Restated Articles of Incorporation were duly adopted on the 23rd
day of April, 1997, in accordance with the provisions of Section 642 of the
Act and were duly adopted bythe Board of Directors without a vote of the
shareholders. TheseRestated Articles of Incorporation only restate and
integrate anddo not further amend the provisions of the Articles of
Incorporation as heretofore amended and there is no material discrepancy
between those provisions and the provisions of these Restated Articles.
Signed this 8th day of August, 1997.
By: /s/ Dana M. Cluckey
-----------------------
Name: Dana M. Cluckey
Title: President
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<PAGE>
(Series A Preferred Stock - Originally filed with
the Michigan Department of Commerce on July 28, 1986)
CERTIFICATE PURSUANT TO SECTION 302(4) OF THE BUSINESS
CORPORATIONS ACT CONTAINING THE RESOLUTIONS OF THE BOARD OF
DIRECTORS OF REPUBLIC BANCORP INC. ESTABLISHING AND
DESIGNATING A SERIES OF PREFERRED STOCK AND PRESCRIBING THE
RELATIVE RIGHTS AND PREFERENCES THEREOF
WHEREAS, the Board of Directors of Republic Bancorp Inc. (the "Company")
has previously considered an intrastate public offering of approximately
$2,700,000 of convertible subordinated debentures, and 100,000 shares of its
convertible preferred stock, no par value, $25 stated value, in order to
obtain funds for its corporate purposes and has previously entered into a
preliminary letter of intent with First of Michigan Corporation ("FOM") dated
June 12, 1986 (the "Letter of Intent"); and
WHEREAS, subsequent to the Letter of Intent the Board of Directors has
considered and now wishes to expand and approve the public offering to
include up to 184,000 shares of convertible preferred stock, 86,250 shares of
common stock, $5 par value ("Common Stock"), and $1,840,000 convertible
subordinated debentures, and also approve the execution of all instruments,
agreements, applications and other documents, and the performance of all acts
appropriate to effectuate such offerings; and
WHEREAS, in conjunction with said public offering the Board of Directors
is required to specifically authorize the series of preferred stock to be
issued and designate the rights, preferences and characteristics thereof;
1. NOW, THEREFORE, BE IT RESOLVED that the Company be and hereby is
authorized to issue a series of convertible preferred stock to be designated
the "Series A Convertible Preferred Stock" (hereinafter referred to as the
"Series A Preferred Stock"), having the following rights, preferences and
characteristics:
a. Number of Shares; Stated Value.
The authorized number of Series A Preferred Stock is 184,000
shares, having no par value and having a stated value of $25 per share.
b. Dividends.
Holders of shares of the Series A Preferred Stock shall be entitled
to receive, when and if declared by the Board of Directors out of funds of
the Company legally available therefor, an annual cash dividend of $2.25 per
share, payable in quarterly installments on April 15, July 15, October 15 and
January 15 of
A-1
<PAGE>
each year commencing October 15, 1986. Dividends on the Series A Preferred
Stock shall be cumulative. Dividends shall be payable to holders of record as
they appear on the stock books of the Company on such record dates, not more
than 60 days nor less than 10 days preceding the payment dates, as shall be
fixed by the Board of Directors.
When dividends are not paid in full upon the Series A Preferred
Stock and any other preferred stock ranking on a parity as to dividends with
the Series A Preferred Stock, all dividends declared upon shares of Series A
Preferred Stock and such other preferred stock will be declared pro rata so
that in all cases the amount of dividends declared per share on the Series A
Preferred Stock and such other preferred stock bear to each other the same
ratio that accumulated dividends per share on the shares of Series A
Preferred Stock and such other preferred stock bear to each other. Unless
full cumulative dividends on the Series A Preferred Stock have been paid, no
dividends (other than in Common Stock or any other stock ranking junior to
the Series A Preferred Stock as to dividends) may be paid or declared and set
aside for payment or other distribution made upon the Common Stock or on any
other stock of the Company ranking junior to the Series A Preferred Stock as
to dividends, nor shall any Common Stock or any other stock of the Company
ranking junior to the Series A Preferred Stock as to dividends be redeemed,
purchased or otherwise acquired for any consideration (or any payment made to
or available for a sinking fund for the redemption of any shares of such
stock) by the Company (except by conversion into or exchange for stock of the
Company ranking junior to the Series A Preferred Stock as to dividends).
c. Conversion Privilege.
Each share of Series A Preferred Stock shall be convertible, unless
previously redeemed, at any time at the option of the holder upon written
notice to the Company in form satisfactory to the Company into 1.852 shares
of the Company's Common Stock, $5 par value (the "Common Stock") (equivalent
to a conversion price of $13.50 per share of Common Stock), except that, if
shares of Series A Preferred Stock are called for redemption, the conversion
rights will terminate at the close of business on the business day prior to
the date fixed for redemption. This conversion rate is subject to adjustment
upon the issuance of Common Stock as a stock dividend, the combination or
subdivision of the Common Stock, or the issuance to all holders of Common
Stock of rights or warrants entitling them (for a period expiring within 45
days of the record date for determination of holders entitled to receive such
rights or warrants) to subscribe for or purchase Common Stock at less than
the current Market Value (as defined below) at such record date, such
adjustment to be that adjustment which the Board of Directors deems necessary
to permit the holder of any shares of Series A Preferred Stock thereafter
converted to be entitled to receive the number of shares of Common Stock
after the happening of any event described above which he would have
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<PAGE>
received had his Series A Preferred Stock been converted immediately prior to
such event. No adjustment of the conversion price shall be required unless
such adjustment would require a change of at least 1% in the price then in
effect; however, any such adjustment that would otherwise be required to be
made shall be carried forward and taken into account in any subsequent
adjustment. Except as stated above, the conversion price will not be adjusted
for the issuance of Common Stock or any securities convertible into or
exchangeable for Common Stock, or carrying the right to purchase any of the
foregoing, in exchange for cash, property or services.
The term Market Value shall mean that price per share which the
Company's Board of Directors determines to be the then current market price
per share of the Common Stock based upon the most recent arms length trade
reported to the Board of Directors if, in the Board's judgment, there exists
an established trading market in the Company's Common Stock or if, in the
Board's judgment, no such trading market then exists, upon such other factors
the Board deems relevant and appropriate. Once established the Market Value
will continue until such time as the Board determines a new Market Value. The
Board will endeavor, but shall not be obligated, to review and establish the
Market Value once each quarter.
In case of any reclassification or change of outstanding shares of
the class of Common Stock issuable upon conversion of the Series A Preferred
Stock (other than a change in par value, or from par value to no par value,
or from no par value to par value, or as a result of a subdivision or
combination), or in case of any merger or consolidation of the Company with
one or more other corporations (other than a merger or consolidation in which
the Company is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of Common Stock issuable
upon conversion of the Series A Preferred Stock), or in case of the merger of
the Company into another corporation, or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, the holder of each share of Series A Preferred
Stock then outstanding shall have the right to convert such share into the
kind and amount of shares of capital stock or other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock into which
such share of Series A Preferred Stock might have been converted immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance. In the case of a cash merger of the Company into another
corporation or any other cash transaction of the type mentioned above, the
effect of these provisions would be that the conversion features of the
Series A Preferred Stock would thereafter be limited to converting the Series
A Preferred Stock at the conversion price in effect at such time into the
same amount of cash per share that such holder would have received had such
holder converted the Series A Preferred Stock into Common Stock
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<PAGE>
immediately prior to the effective date of such cash merger or transaction.
No fractional shares or securities representing fractional shares
of Common Stock shall be issued upon conversion; any fractional interest
resulting from conversion shall be paid in cash based on the current Market
Value of the Common Stock at the close of business on the business day next
preceding the date of conversion.
Shares of Series A Preferred Stock surrendered for conversion after
the record date for a dividend payment but before such dividend is paid must
be accompanied by payment of an amount equal to the dividend thereon which
the holder of record is to receive on such dividend payment date.
d. Liquidation Rights.
In the event of any liquidation, dissolution or winding up of the
Company, the holders of shares of Series A Preferred Stock shall be entitled
to receive out of assets of the Company available for distribution to
shareholders, before any distribution of assets is made to holders of Common
Stock or preferred stock ranking junior to the Series A Preferred Stock in
liquidation rights, liquidating distributions in the amount of $25 per share
plus accumulated and unpaid dividends. If upon any liquidation, dissolution
or winding up of the Company, the amounts payable with respect to the Series
A Preferred Stock and any other preferred stock ranking as to any such
distribution on a parity with the Series A Preferred Stock are not paid in
full, the holders of the Series A Preferred Stock and of such other preferred
stock shall share ratably in any such distribution of assets in proportion to
the full respective preferential amounts to which they are entitled. After
payment of the full amount of the liquidating distribution to which they are
entitled, the holders of shares of Series A Preferred Stock shall not be
entitled to any further participation in any distribution of assets by the
Company.
e. Redemption.
The Series A Preferred Stock may be redeemed on at least 30 and not
more than 60 days' prior written notice by first class mail addressed to the
holder at his address shown on the register maintained by the registrar at
the option of the Company, in whole or in part, at any time or from time to
time on or after July 15, 1989. Series A Preferred Stock redeemed during the
12-month period beginning July 15 in each of the years set forth below, shall
be redeemed at the prices per share as follows:
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<PAGE>
<TABLE>
<CAPTION>
Year Price
---- -----
<S> <C>
1989 . . . . . . . . $26.75
1990 . . . . . . . . 26.50
1991 . . . . . . . . 26.25
1992 . . . . . . . . 26.00
1993 . . . . . . . . 25.75
1994 . . . . . . . . 25.50
1995 . . . . . . . . 25.25
1996 and thereafter. 25.00
</TABLE>
together in each case with accumulated and unpaid dividends to the date fixed
for redemption. If full cumulative dividends on the Series A Preferred Stock
have not been paid, the Series A Preferred Stock shall not be redeemed in
part and the Company shall not purchase or acquire any share of Series A
Preferred Stock otherwise than pursuant to a purchase or exchange offer made
on the same terms to all holders of the Series A Preferred Stock. If less
than all the outstanding shares of Series A Preferred Stock are to be
redeemed, the Company will select those to be redeemed by lot or a
substantially equivalent method. Holders of Series A Preferred Stock called
for redemption will not be entitled to any dividends payable to holders of
record on and after the redemption date.
f. Voting Rights.
Except as indicated below, the holders of shares of Series A
Preferred Stock have no voting rights. If the equivalent of six quarterly
dividends payable on the Series A Preferred Stock, or on any other preferred
stock ranking on a parity with the Series A Preferred Stock as to dividends,
is in arrears, the number of directors of the Company will be increased by
two and the holders of all outstanding shares of such preferred stock, voting
as a single class without regard to series, shall be entitled to elect the
additional two directors until all dividends in arrears have been paid or
declared and set apart for payment.
Without the vote or consent of the holders of at least two-thirds
of the number of shares of the Series A Preferred Stock and all other
outstanding preferred stock ranking on a parity with the Series A Preferred
Stock as to dividends, the Company shall not, except for the series of
preferred stock anticipated to be authorized and issued in connection with
the Company's acquisition of the Bellaire State Bank as described in the
Preliminary Prospectus dated June 19, 1986 (defined therein as the "Series B
Preferred Stock"), (i) create any class or classes of stock or additional
series of preferred stock ranking equal or prior to the Series A Preferred
Stock either as to dividends or upon liquidation or increase the authorized
number of shares of any class or classes of stock ranking equal or prior to
the Series A Preferred Stock either as to dividends or upon liquidation, (ii)
amend, alter or repeal any of the provisions of the Articles of Incorporation
of the Company or the resolutions of the Board creating the Series A
Preferred Stock so as to affect adversely the preferences or rights
A-5
<PAGE>
of the Series A Preferred Stock, or (iii) authorize any reclassification of
the Series A Preferred Stock. In addition, without the vote or consent of the
holders of at least two-thirds of the number of shares of the Series A
Preferred Stock and all other outstanding preferred stock ranking on a parity
with the Series A Preferred Stock as to dividends then outstanding, the
Company shall not increase the authorized number of shares of the Series A
Preferred Stock.
Upon the date of conversion of Series A Preferred Stock for Common
Stock, the rights of the holders of the Series A Preferred Stock as holders
of the Series A Preferred Stock of the Company shall terminate, including all
voting rights, and holders shall have only those rights afforded to holders
of Common Stock. Shares of Series A Preferred Stock which have been converted
shall be restored to the status of authorized but unissued preferred stock.
g. No Preemptive Rights.
The holders of the Series A Preferred Stock shall not be entitled,
as of right, to purchase or subscribe for any shares of capital stock of the
Company, or to purchase or subscribe for any of its bonds, certificates of
indebtedness, debentures or other securities of any kind of the Company.
The undersigned, John M. Creighton, Vice President, Secretary and
Treasurer of Republic Bancorp Inc., does hereby certify that the foregoing
Certificate contains the resolutions of the Board of Directors of Republic
Bancorp Inc. establishing and designating its Series A Convertible Preferred
Stock and prescribing the relative rights and preferences thereof which were
duly adopted by the Board of Directors of Republic Bancorp Inc. at a duly
convened meeting thereof held on the 14th and 21st day of July, 1986, at
which a quorum was present and voting, and that the same have never been
rescinded and modified and that the same are in full force and in effect at
the date hereof.
Adopted July 14, 1986 and July 21, 1986.
/s/ John M. Creighton
----------------------------------
John M. Creighton, Vice President,
Secretary and Treasurer
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<PAGE>
(Series B Preferred Stock - Originally filed with
the Michigan Department of Commerce on September 29, 1988)
CERTIFICATE PURSUANT TO SECTION 302(4) OF THE BUSINESS
CORPORATION ACT CONTAINING RESOLUTIONS OF THE BOARD OF
DIRECTORS OF REPUBLIC BANCORP INC. ESTABLISHING AND
DESIGNATING A SERIES OF PREFERRED STOCK AND PRESCRIBING ITS
RELATIVE RIGHTS AND PREFERENCES
RESOLVED that the Company is authorized to issue a series of convertible
preferred stock to be designated the "Series B Convertible Preferred Stock,"
having the following rights, preferences and characteristics:
a. Number of Shares; Stated Value
The authorized number of Series B Preferred Stock is 150,000
shares, having no par value and having a stated value of $25.00 per share.
b. Dividends
Subject to the priority right of holders of the Series A Preferred
Stock to be paid all accumulated dividends payable thereon prior to any
dividends being paid on the Series B Preferred Stock, holders of shares of
the Series B Preferred Stock will be entitled to receive, when and if
declared By the Board of Directors, an annual cash dividend of $2.25 per
share, payable in quarterly installments on April 15, July 15, October 15 and
January 15 of each year commencing October 15, 1988. Dividends on the Series
B Preferred Stock are cumulative. Dividends will be payable to holders of
record as they appear on the stock books of the Company on such record dates,
not more than 60 days nor less than 10 days preceding the payment dates, as
shall be fixed by the Board of Directors.
When dividends are not paid in full upon the Series B Preferred
Stock and any other preferred stock ranking on a parity as to dividends with
the Series B Preferred Stock, all dividends declared upon shares of Series B
Preferred Stock and such other preferred stock will be declared pro rata so
that in all cases the amount of dividends declared per share on the Series B
Preferred Stock and such other preferred stock bear to each other the same
ratio that accumulated dividends per share on the shares of Series B
Preferred Stock and such other preferred stock bear to each other. Unless
full cumulative dividends on the Series B Preferred Stock have been paid, no
dividends (other than in Common Stock or any other stock ranking junior to
the Series B Preferred Stock as to dividends) may be paid or declared and set
aside for payment or other distribution made upon the Common Stock or on any
other stock of the Company ranking junior to the Series B Preferred Stock as
to dividends, nor may any Common Stock or any other stock
B-1
<PAGE>
of the Company ranking junior to the Series B Preferred Stock as to dividends
be redeemed, purchased or otherwise acquired for any consideration (or any
payment made to or available for a sinking fund for the redemption of any
shares of such stock) by the Company (except by conversion into or exchange
for stock of the Company ranking junior to the Series B Preferred Stock as to
dividends).
The payment of dividends on the Series B Preferred Stock is subject
to the same restrictions as the payment of dividends on the Common Stock.
c. Conversion Privilege
Each share of Series B Preferred Stock will initially be
convertible, unless previously redeemed, at any time at the option of the
holder upon written notice to the Company in form satisfactory to the Company
into 2.5 shares of Common Stock (equivalent to a conversion price of $10.00
per share of Common Stock). If any shares of Series B Preferred Stock are
called for redemption, the conversion rights terminate at the close of
business on the business day prior to the date fixed for redemption. The
conversion rate for the Series B Preferred Stock is subject to adjustment in
certain cases, including the issuance of Common Stock as a stock dividend;
the combination or subdivision of the Common Stock; or the issuance to all
holders of Common Stock of rights or warrants entitling them (for a period
expiring within 45 days of the record date for determination of holders
entitled to receive such rights or warrants) to subscribe for or purchase
Common Stock at less than the current Market Value (as defined below) at such
record date. No adjustment of the conversion price will be required unless
such adjustment would require a change of at least 1% in the price then in
effect; however, any such adjustment that would otherwise be required to be
made will be carried forward and taken into account in any subsequent
adjustment. Except as stated above, the conversion price will not be adjusted
for the issuance of Common Stock or any securities convertible into or
exchangeable for Common Stock, or carrying the right to purchase any of the
foregoing, in exchange for cash, property or services.
The term Market Value shall mean that price per share which the
Company's Board of Directors determines to be the then current market price
per share of the Common Stock based upon the most recent arms length trade
reported to the Board of Directors if, in the Board's judgment, there exists
an established trading market in the Company's Common Stock or if, in the
Board's judgment, no such trading market then exists, upon such other factors
the Board deems relevant and appropriate. Once established the Market Value
will continue until such time as the Board determines a new Market Value. The
Board will endeavor, but shall not be obligated, to review and establish the
Market Value once each quarter.
B-2
<PAGE>
In case of any reclassification or change of outstanding shares of
the class of Common Stock issuable upon conversion of the Series B Preferred
Stock (other than a change in par value, or from par value to no par value,
or from no par value to par value, or as a result of a subdivision or
combination), or in case of any merger or consolidation of the Company with
one or more other corporations (other than a merger or consolidation in which
the Company is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of Common Stock issuable
upon conversion of the Series B Preferred Stock), or in case of the merger of
the Company into another corporation, or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, the holder of each share of Series B Preferred
Stock then outstanding shall have the right to convert such share into the
kind and amount of shares of capital stock or other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock into which
such share of Series B Preferred Stock might have been converted immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance. In the case of a cash merger of the Company into another
corporation or any other cash transaction of the type mentioned above, the
effect of these provisions would be that the conversion features of the
Series B Preferred Stock would thereafter be limited to converting the Series
B Preferred Stock at the conversion price in effect at such time into the
same amount of cash per share that such holder would have received had such
holder converted the Series B Preferred Stock into Common Stock immediately
prior to the effective date of such cash merger or transaction. Depending
upon the terms of such cash merger or transaction, the aggregate amount of
cash so received on conversion could be more or less than the liquidation
preference of the Series B Preferred Stock.
No fractional shares or securities representing fractional shares
of Common Stock will be issued upon conversion; any fractional interest
resulting from conversion will be paid in cash based on the current Market
Value of the Common Stock at the close of business on the business day
next preceding the date of conversion.
Shares of Series B Preferred Stock surrendered for conversion after
the record date for a dividend payment but before such dividend is paid must
be accompanied by payment of an amount equal to the dividend thereon which
the holder of record is to receive on such dividend payment date. Therefore,
if a holder exercises conversion privileges between a record date and a
payment date for a Series B Preferred Stock dividend, such holder will forego
such dividend and will only be entitled to dividends paid on the Common Stock
the record date of which is on or after the conversion date.
B-3
<PAGE>
d. Liquidation Rights
In the event of any liquidation, dissolution or winding up of the
Company, subject to the prior payment of liquidating distributions in the
amount of $25.00 per share of Series APreferred Stock plus all accumulated
and unpaid dividends thereon, the holders of shares of Series B Preferred
Stock will be entitled to receive out of assets of the Company available for
distribution to shareholders, before any distribution of assets is made to
holders of Common Stock or preferred stock ranking junior to the Series B
Preferred Stock in liquidation rights, liquidating distributions in the
amount of $25.00 per share plus accumulated and unpaid dividends. If upon any
liquidation, dissolution or winding up of the Company, the amounts payable
with respect to the Series B Preferred Stock and any other preferred stock
ranking as to any such distribution on a parity with the Preferred Stock are
not paid in full, the holders of the Series B Preferred Stock and of such
other preferred stock will share ratably in any such distribution of assets
in proportion to the full respective preferential amounts to which they are
entitled. After payment of the full amount of the liquidating distribution to
which they are entitled, the holders of shares of Series B Preferred Stock
will not be entitled to any further participation in any distribution of
assets by the Company.
e. Redemption
Provided no Series A Preferred Stock is then outstanding, Series B
Preferred Stock may be redeemed on at least 30 and not more than 60 days'
prior written notice by first class mail addressed to the holder at his
address shown on the register maintained by the registrar at the option of
the Company, in whole or in part, at any time or from time to time on or
after July 15, 1991. Series B Preferred Stock redeemed during the 12-month
period beginning July 15 in each of the years set forth below, shall be
redeemed at the prices per share as follows:
<TABLE>
<CAPTION>
Series B Preferred Stock
Redemption Price
--------------------------
Year Price
---- -----
<S> <C>
1991 $26.75
1992 26.50
1993 26.25
1994 26.00
1995 25.75
1996 25.50
1997 25.25
1998 and thereafter 25.00
</TABLE>
together in each case with accumulated and unpaid dividends to the date fixed
for redemption. If full cumulative dividends on the Series B Preferred Stock
have not been paid, the Series B Preferred
B-4
<PAGE>
Stock may not be redeemed in part and the Company may not purchase or acquire
any share of Series B Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders of the Series B
Preferred Stock. If less than all the outstanding shares of Series B
Preferred Stock are to be redeemed, the Company will select those to be
redeemed by lot or a substantially equivalent method. Holders of Series B
Preferred Stock called for redemption will not be entitled to any dividends
payable to holders of record on and after the redemption date.
f. Voting Rights
Except as indicated below, the holders of shares of Series B
Preferred Stock have no voting rights. If the equivalent of six quarterly
dividends payable on the Series B Preferred Stock or on any other preferred
stock ranking on a parity with the Series B Preferred Stock as to dividends,
is in arrears, the number of directors of the Company will be increased by
two and the holders of all outstanding shares of such preferred stock, voting
as a single class without regard to series, will be entitled to elect the
additional two directors until all dividends in arrears have been paid or
declared and set apart for payment.
Without the vote or consent of the holders of at least two-thirds
of the number of shares of the Series B Preferred Stock and all other
outstanding preferred stock ranking on a parity with the Series B Preferred
Stock as to dividends, the Company shall not (i) create any class or classes
of stock or additional series of preferred stock ranking prior to the Series
B Preferred Stock either as to dividends or upon liquidation or increase the
authorized number of shares of any class or classes of stock ranking prior to
the Series B Preferred Stock either as to dividends or upon liquidation, (ii)
amend, alter or repeal any of the provisions of the Articles of Incorporation
of the Company or the resolutions of the Board creating the Series B
Preferred Stock so as to affect adversely the preferences or rights of the
Series B Preferred Stock, or (iii) authorize any reclassification of the
Series B Preferred Stock. In addition, without the vote or consent of the
holders of at least two-thirds of the number of shares of the Series B
Preferred Stock and all other outstanding preferred stock ranking on a parity
with the Series B Preferred Stock as to dividends then outstanding, the
Company shall not increase the authorized number of shares of the Preferred
Stock. The Company reserves the right to issue additional classes of stock or
series of preferred stock ranking pari passu with the Series B Preferred
Stock as to dividends or upon liquidation up to the full amount of the
authorized but unissued preferred stock of the Company existing as of the
date hereof.
Upon the date of conversion of Series B Preferred Stock for Common
Stock, the rights of the holders of the Series B Preferred Stock as holders
of the Series B Preferred Stock of the Company shall terminate, including all
voting rights, and holders shall have only those rights afforded to holders
of Common Stock.
B-5
<PAGE>
Shares of Series B Preferred Stock which have been converted shall be
restored to the status of authorized but unissued preferred stock.
g. No Preemptive Rights
The holders of the Series B Preferred Stock shall not be entitled,
as of right, to purchase, or subscribe for any shares of capital stock of the
Company, or to purchase or subscribe for any of its bonds, certificates of
indebtedness, debentures or other securities of any kind of the Company.
The undersigned, John M. Creighton, Secretary of Republic Bancorp
Inc., does hereby certify that the foregoing Certificate contains the
Resolutions of the Board of Directors of Republic Bancorp Inc. establishing
and designating its Series B Convertible Preferred Stock and prescribing the
relative rights and preferences thereof which were duly authorized by the
Board of Directors of Republic Bancorp Inc. at duly convened meetings held on
July 15, 1988 and August 11, 1988 at which a quorum was present and voting,
and that the same have never been rescinded and modified and are in full
force and in effect at the date hereof.
/s/ John M. Creighton
----------------------------
John M. Creighton, Secretary
Dated: September 23, 1988
B-6
<PAGE>
(Series C Preferred Stock - Originally filed with the
Michigan Department of Commerce on September 30, 1988)
CERTIFICATE PURSUANT TO SECTION 302(4) OF THE BUSINESS
CORPORATION ACT CONTAINING RESOLUTIONS OF THE BOARD OF
DIRECTORS OF REPUBLIC BANCORP INC. ESTABLISHING AND
DESIGNATING A SERIES OF PREFERRED STOCK AND PRESCRIBING ITS
RELATIVE RIGHTS AND PREFERENCES
RESOLVED that the Company is authorized to issue a series of
convertible preferred stock to be designated the "Series C Convertible
Preferred Stock," having the following rights, preferences and
characteristics:
a. Number of Shares; Stated Value
The authorized number of Series C Preferred Stock is 80,000 shares,
having no par value and having a stated value of $25.00 per share.
b. Dividends
Subject to the priority right of holders of the Series A and Series
B Preferred Stock to be paid all accumulated dividends payable thereon prior
to any dividends being paid on the Series C Preferred Stock, holders of
shares of the Series C Preferred Stock will be entitled to receive, when
and if declared by the Board of Directors, an annual cash dividend of $2.25
per share, payable in quarterly installments on April 15, July 15, October 15
and January 15 of each year commencing October 15, 1988. Dividends on the
Series C Preferred Stock are cumulative. Dividends will be payable to
holders of record as they appear on the stock books of the Company on
such record dates, not more than 60 days nor less than 10 days preceding
the payment dates, as shall be fixed by the Board of Directors.
When dividends are not paid in full upon the Series C Preferred
Stock and any other preferred stock ranking on a parity as to dividends with
the Series C Preferred Stock, all dividends declared upon shares of Series C
Preferred Stock and such other preferred stock will be declared pro rata so
that in all cases the amount of dividends declared per share on the Series C
Preferred Stock and such other preferred stock bear to each other the same
ratio that accumulated dividends per share on the shares of Series C
Preferred Stock and such other preferred stock bear to each other. Unless
full cumulative dividends on the Series C Preferred Stock have been paid, no
dividends (other than in Common Stock or any other stock ranking junior to
the Series C Preferred Stock as to dividends) may be paid or declared and set
aside for payment or other distribution made upon the Common Stock or on any
other stock of the Company ranking junior to the Series C Preferred Stock as
to dividends, nor may any Common Stock or any other stock
C-1
<PAGE>
of the Company ranking junior to the Series C Preferred Stock as to dividends
be redeemed, purchased or otherwise acquired for any consideration (or any
payment made to or available for a sinking fund for the redemption of any
shares of such stock) by the Company (except by conversion into or exchange
for stock of the Company ranking junior to the Series C Preferred Stock as to
dividends).
The payment of dividends on the Series C Preferred Stock is subject
to the same restrictions as the payment of dividends on the Common Stock.
c. Conversion Privilege
Each share of Series C Preferred Stock will initially be
convertible, unless previously redeemed, at any time at the option of the
holder upon written notice to the Company in form satisfactory to the Company
into 2.5 shares of Common Stock (equivalent to a conversion price of $10.00
per share of Common Stock). If any shares of Series C Preferred Stock are
called for redemption, the conversion rights terminate at the close of
business on the business day prior to the date fixed for redemption. The
conversion rate for the Series C Preferred Stock is subject to adjustment in
certain cases, including the issuance of Common Stock as a stock dividend;
the combination or subdivision of the Common Stock; or the issuance to all
holders of Common Stock of rights or warrants entitling them (for a period
expiring within 45 days of the record date for determination of holders
entitled to receive such rights or warrants) to subscribe for or purchase
Common Stock at less than the current Market Value (as defined below) at such
record date. No adjustment of the conversion price will be required unless
such adjustment would require a change of at least 1% in the price then in
effect; however, any such adjustment that would otherwise be required to be
made will be carried forward and taken into account in any subsequent
adjustment. Except as stated above, the conversion price will not be adjusted
for the issuance of Common Stock or any securities convertible into or
exchangeable for Common Stock, or carrying the right to purchase any of the
foregoing, in exchange for cash, property or services.
The term Market Value shall mean that price per share which the
Company's Board of Directors determines to be the then current market price
per share of the Common Stock based upon the most recent arms length trade
reported to the Board of Directors if, in the Board's judgment, there exists
an established trading market in the Company's Common Stock or if, in the
Board's judgment, no such trading market then exists, upon such other factors
the Board deems relevant and appropriate. Once established the Market Value
will continue until such time as the Board determines a new Market Value. The
Board will endeavor, but shall not be obligated, to review and establish the
Market Value once each quarter.
C-2
<PAGE>
In case of any reclassification or change of outstanding shares of
the class of Common Stock issuable upon conversion of the Series C Preferred
Stock (other than a change in par value, or from par value to no par value,
or from no par value to par value, or as a result of a subdivision or
combination), or in case of any merger or consolidation of the Company with
one or more other corporations (other than a merger or consolidation in which
the Company is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of Common Stock issuable
upon conversion of the Series C Preferred Stock), or in case of the merger of
the Company into another corporation, or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, the holder of each share of Series C Preferred
Stock then outstanding shall have the right to convert such share into the
kind and amount of shares of capital stock or other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock into which
such share of Series B Preferred Stock might have been converted immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance. In the case of a cash merger of the Company into another
corporation or any other cash transaction of the type mentioned above, the
effect of these provisions would be that the conversion features of the
Series C Preferred Stock would thereafter be limited to converting the Series
C Preferred Stock at the conversion price in effect at such time into the
same amount of cash per share that such holder would have received had such
holder converted the Series C Preferred Stock into Common Stock immediately
prior to the effective date of such cash merger or transaction. Depending
upon the terms of such cash merger or transaction, the aggregate amount of
cash so received on conversion could be more or less than the liquidation
preference of the Series C Preferred Stock.
No fractional shares or securities representing fractional shares
of Common Stock will be issued upon conversion; any fractional interest
resulting from conversion will be paid in cash based on the current Market
Value of the Common Stock at the close of business on the business day next
preceding the date of conversion.
Shares of Series C Preferred Stock surrendered for conversion after
the record date for a dividend payment but before such dividend is paid must
be accompanied by payment of an amount equal to the dividend thereon which
the holder of record is to receive on such dividend payment date. Therefore,
if a holder exercises conversion privileges between a record date and a
payment date for a Series C Preferred Stock dividend, such holder will forego
such dividend and will only be entitled to dividends paid on the Common Stock
the record date of which is on or after the conversion date.
C-3
<PAGE>
d. Liquidation Rights
In the event of any liquidation, dissolution or winding up of the
Company, subject to the prior payment of liquidating distributions in the
amount of $25.00 per share of Series A and Series B Preferred Stock plus all
accumulated and unpaid dividends thereon, the holders of shares of Series C
Preferred Stock will be entitled to receive out of assets of the Company
available for distribution to shareholders, before any distribution of assets
is made to holders of Common Stock or preferred stock ranking junior to the
Series C Preferred Stock in liquidation rights, liquidating distributions in
the amount of $25.00 per share plus accumulated and unpaid dividends. If upon
any liquidation, dissolution or winding up of the Company, the amounts
payable with respect to the Series C Preferred Stock and any other preferred
stock ranking as to any such distribution on a parity with the Series C
Preferred Stock are not paid in full, the holders of the Series C Preferred
Stock and of such other preferred stock will share ratably in any such
distribution of assets in proportion to the full respective preferential
amounts to which they are entitled. After payment of the full amount of the
liquidating distribution to which they are entitled, the holders of shares of
Series C Preferred Stock will not be entitled to any further participation in
any distribution of assets by the Company.
e. Redemption
The Series C Preferred Stock may be redeemed on at least 30 and not
more than 60 days' prior written notice by first class mail addressed to the
holder at his address shown on the register maintained by the registrar at
the option of the Company, in whole or in part, at any time or from time to
time, provided full cumulative dividends on the Series A and Series B
Preferred Stock have been paid. Each share of Series C Preferred Stock
redeemed shall be redeemed at its stated value plus all accumulated and
unpaid dividends to the date fixed for redemption. If full cumulative
dividends on the Series C Preferred Stock have not been paid, the Series C
Preferred Stock may not be redeemed in part and the Company may not purchase
or acquire any share of Series C Preferred Stock otherwise than pursuant to a
purchase or exchange offer made on the same terms to all holders of the
Series C Preferred Stock. If less than all the outstanding shares of Series C
Preferred Stock are to be redeemed, the Company will select those to be
redeemed by lot or a substantially equivalent method. Holders of Series C
Preferred Stock called for redemption will not be entitled to any dividends
payable to holders of record on and after the redemption date.
f. Voting Rights
Except as indicated below, the holders of shares of Series C
Preferred Stock have no voting rights. If the equivalent of six quarterly
dividends payable on the Series C Preferred Stock or on any other preferred
stock ranking on a parity with the
C-4
<PAGE>
Series C Preferred Stock as to dividends, is in arrears, the number of
directors of the Company will be increased by two and the holders of all
outstanding shares of such preferred stock, voting as a single class without
regard to series, will be entitled to elect the additional two directors
until all dividends in arrears have been paid or declared and set apart for
payment.
Without the vote or consent of the holders of at least two-thirds
of the number of shares of the Series C Preferred Stock and all other
outstanding preferred stock ranking on a parity with the Series C Preferred
Stock as to dividends, the Company shall not (i) create any class or classes
of stock or additional series of preferred stock ranking prior to the Series
C Preferred Stock either as to dividends or upon liquidation or increase the
authorized number of shares of any class or classes of stock ranking prior to
the Series C Preferred Stock either as to dividends or upon liquidation, (ii)
amend, alter or repeal any of the provisions of the Articles of Incorporation
of the Company or the resolutions of the Board creating the Series C
Preferred Stock so as to affect adversely the preferences or rights of the
Series C Preferred Stock, or (iii) authorize any reclassification of the
Series C Preferred Stock. The Company reserves the right to issue additional
classes of stock or series of preferred stock ranking pari passu with the
Series C Preferred Stock as to dividends or upon liquidation up to the full
amount of the authorized but unissued preferred stock of the Company existing
as of the date hereof.
Upon the date of conversion of Series C Preferred Stock for Common
Stock, the rights of the holders of the Series C Preferred Stock as holders
of the Series C Preferred Stock of the Company shall terminate, including all
voting rights, and holders shall have only those rights afforded to holders
of Common Stock. Shares of Series C Preferred Stock which have been converted
shall be restored to the status of authorized but unissued preferred stock.
g. No Preemptive Rights
The holders of the Series C Preferred Stock shall not be entitled,
as of right, to purchase or subscribe for any shares of capital stock of the
Company, or to purchase or subscribe for any of its bonds, certificates of
indebtedness, debentures or other securities of any kind of the Company.
C-5
<PAGE>
The undersigned, John M. Creighton, Secretary of Republic Bancorp
Inc., does hereby certify that the foregoing Certificate contains the
Resolutions of the Board of Directors of Republic Bancorp Inc. establishing
and designating its Series C Convertible Preferred Stock and prescribing the
relative rights and preferences thereof which were duly authorized by the
Board of Directors of Republic Bancorp Inc. at a duly convened meeting held
on September 15, 1988 at which a quorum was present and voting, and that the
same have never been rescinded and modified and are in full force and in
effect at the date hereof.
/s/ John M. Creighton
----------------------------
John M. Creighton, Secretary
Dated: September 29, 1988
C-6
EXHIBIT 11 - Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 1997 1996(1) 1997 1996(1)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary
Average shares outstanding ...... 16,912 17,762 17,036 17,886
Common stock equivalents:
Net effect of the assumed
exercise of stock options and
stock warrants based on
average market price ........ 311 446 346 448
------- ------- ------- -------
Primary average shares ............... 17,223 18,208 17,382 18,334
======= ======= ======= =======
Net income applicable to common
shares .......................... $ 4,713 $ 4,146 $ 8,669 $ 6,773
Primary net income per share ......... $ .27 $ .23 $ .50 $ .37
<CAPTION>
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fully diluted
Average shares outstanding ...... 16,912 17,762 17,036 17,886
Common stock equivalents:
Net effect of the assumed
exercise of stock options and
stock warrants based on end
of period market price ...... 346 446 364 450
------- ------- ------- -------
Fully diluted average shares ......... 17,258 18,208 17,400 18,336
======= ======= ======= =======
Net income applicable to common
shares .......................... $ 4,713 $ 4,146 $ 8,669 $ 6,773
Fully diluted net income per share ... $ .27 $ .23 $ .50 $ .37
<FN>
(1) Share figures for 1996 have been restated for the 10% stock dividend
issued in December 1996.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet as of June 30, 1997, consolidated statement of
income for the six months ended June 30, 1997, schedules and other
required disclosures and is qualified in its entirety by reference to the
Company's June 30, 1997 Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> $ 22,052
<INT-BEARING-DEPOSITS> 456
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 221,855
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,325,687
<ALLOWANCE> 7,142
<TOTAL-ASSETS> 1,671,608
<DEPOSITS> 1,049,173
<SHORT-TERM> 282,920
<LIABILITIES-OTHER> 51,127
<LONG-TERM> 165,132
0
0
<COMMON> 84,495
<OTHER-SE> 37,746
<TOTAL-LIABILITIES-AND-EQUITY> 1,671,608
<INTEREST-LOAN> 45,919
<INTEREST-INVEST> 7,135
<INTEREST-OTHER> 194
<INTEREST-TOTAL> 53,248
<INTEREST-DEPOSIT> 22,667
<INTEREST-EXPENSE> 32,075
<INTEREST-INCOME-NET> 21,173
<LOAN-LOSSES> 2,485
<SECURITIES-GAINS> (645)
<EXPENSE-OTHER> 52,085
<INCOME-PRETAX> 13,044
<INCOME-PRE-EXTRAORDINARY> 8,669
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,669
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
<YIELD-ACTUAL> 3.15
<LOANS-NON> 7,211
<LOANS-PAST> 544
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,994
<ALLOWANCE-OPEN> 4,709
<CHARGE-OFFS> 142
<RECOVERIES> 90
<ALLOWANCE-CLOSE> 7,142
<ALLOWANCE-DOMESTIC> 4,970
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,172
</TABLE>
