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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 [No Fee Required]
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the Transition Period From __________ to ___________
Commission File Number: 0-15734
REPUBLIC BANCORP INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2604669
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1070 East Main Street, Owosso, Michigan 48867
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (517) 725-7337
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $5.00 Par Value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the Registrant's common stock held by
non-affiliates, based on the closing price on March 6, 1998 of $19.00, was
$313.8 million.
Number of shares of Registrant's common stock outstanding as of March 6,
1998: 18,678,846
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of Registrant's definitive proxy statement dated March 18, 1998
("1998 Proxy Statement") filed with the Commission (Part III).
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FORM 10-K TABLE OF CONTENTS
Part I Page
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Item 1 - Business................................................. 2
General Description.................................... 2
Business Segments...................................... 3
Competition............................................ 4
Employees.............................................. 5
Principal Sources of Revenue........................... 5
Monetary Policy and Economic Controls.................. 5
Supervision and Regulation............................. 5
Forward-Looking Statements............................. 9
Executive Officers of the Registrant................... 9
Item 2 - Properties............................................... 10
Item 3 - Legal Proceedings........................................ 10
Item 4 - Submission of Matters to a Vote of Security Holders...... 10
Part II
Item 5 - Market for Registrant's Common Stock and Related
Stockholder Matters.................................... 10
Item 6 - Selected Financial Data.................................. 11
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 12
Item 7A- Quantitative and Qualitative Disclosures
about Market Risk...................................... 31
Item 8 - Financial Statements and Supplementary Data.............. 32
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 62
Part III
Item 10 - Directors and Executive Officers of the Registrant....... 62
Item 11 - Executive Compensation................................... 62
Item 12 - Security Ownership of Certain Beneficial Owners
and Management......................................... 62
Item 13 - Certain Relationships and Related Transactions........... 62
Part IV
Item 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8-K............................................ 63
Signatures.......................................................... 65
1
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PART I
ITEM 1. BUSINESS
General Description
Republic Bancorp Inc. (the "Company") is a bank holding company incorporated
under the laws of the State of Michigan in 1986. The Company's principal
office is located in Ann Arbor, Michigan. Currently, the Company has 112
banking and mortgage banking offices in 21 states.
Through its two wholly-owned banking subsidiaries--Republic Bank and
Republic Savings Bank--the Company provides commercial and retail banking
products and services. Together, the subsidiary banks operate 35 commercial
and retail banking offices and 9 mortgage loan production offices in
Michigan, Ohio and Indiana. Republic Bank, a state-chartered bank
headquartered in Ann Arbor, Michigan, exercises the powers of a full-service
commercial bank and operates 26 offices in seven market areas in Michigan. At
December 31, 1997, Republic Bank had $1.3 billion in assets and $894 million
in deposits. Republic Savings Bank, a state-chartered savings bank
headquartered in Pepper Pike, Ohio, exercises the powers of a full-service
savings bank and operates 18 offices primarily in the greater Cleveland area
as well as Columbus, Dayton and Cincinnati, Ohio and Indianapolis, Indiana.
At December 31, 1997, Republic Savings Bank had $492 million in assets and
$320 million in deposits.
To complement its commercial and retail banking activities, the Company
has grown a nationwide mortgage lending network through various nonbank
companies engaged in the mortgage banking business. Market Street Mortgage
Corporation ("Market Street Mortgage") is an 80% majority-owned mortgage
banking subsidiary of Republic Bank with headquarters in Clearwater, Florida,
and 44 offices in 13 states. Republic Bancorp Mortgage Inc. ("Republic
Bancorp Mortgage") is a wholly-owned mortgage banking subsidiary of Republic
Bank with headquarters in Farmington Hills, Michigan, and 17 offices in 5
states. CUB Funding Corporation ("CUB Funding") is a wholly-owned mortgage
banking subsidiary of Republic Bank with headquarters in Clearwater, Florida,
and 7 offices in 3 states.
The Company, on an ongoing basis, evaluates its existing business
operations and organizational structures and routinely explores opportunities
to acquire financial institutions and other financial services-related
businesses, particularly mortgage origination networks and related assets. In
September 1997, the Company acquired certain assets and the mortgage
origination network of Exchange Mortgage Corporation of Southfield, Michigan,
including its sub-prime mortgage lending division, Union Mortgage Services,
Inc. In July 1997, the parent company transferred its 80% ownership interest
in Market Street Mortgage to Republic Bank, effectively reducing funding
costs. In May 1997, the Company completed the sale of four southern Michigan
branches of Republic Bank to concentrate the expansion of its
deposit-gathering capabilities in more growth-oriented areas of the state.
Also, in 1997, Market Street Mortgage assumed responsibility for the
management of CUB Funding Corporation to allow for the sharing of best
practices between the two organizations, marketing synergies, enhanced sales
efforts, and improved operating results.
At December 31, 1997, the Company had consolidated total assets of $1.9
billion, total deposits of $1.2 billion and shareholders' equity of $131.1
million. For the year ended December 31, 1997, the Company reported net
income of $18.8 million, compared to $14.7 million for 1996. Residential
mortgage loan closings totaled $3.9 billion in 1997, compared to $3.6 billion
in 1996. Commercial loan closings totaled $178 million in 1997 versus $122
million in 1996. Small Business Administration (SBA) loan closings totaled
$28 million in 1997, compared to $24 million in 1996. At December 31, 1997,
the Company's mortgage loan servicing portfolio was $3.1 billion, compared to
$2.7 billion at year-end 1996.
2
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Business Segments
The Company engages in two lines of business--Commercial and Retail Banking
and Mortgage Banking.
Commercial and Retail Banking
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Commercial and retail banking is conducted at 35 branches of Republic
Bank and Republic Savings Bank by providing traditional commercial and retail
banking products and services to consumers and small- to medium-size
businesses. Products and services offered include commercial loans; small
business loans; mortgage portfolio loans; home equity loans and lines of
credit; other types of installment loans; and demand, savings and time
deposit accounts. Lending activity at the banking subsidiaries is primarily
focused on real estate-secured lending to minimize credit risk (e.g., fixed
rate and variable rate residential mortgage loans; residential construction
loans; commercial real estate mortgage loans; and commercial real estate
construction loans). In addition, emphasis is placed on loans that are
government guaranteed or insured, such as Small Business Administration (SBA)
loans, United States Department of Agriculture (USDA) loans, and FHA/VA
loans. Commercial and industrial loans are made to a lesser extent and are
typically secured by the customer's assets at a 75% or less loan-to-value
ratio and by personal guarantees.
The Company's banking subsidiaries target their marketing efforts toward
a particular segment of the consumer population that is interested in
receiving personalized banking service and attention when handling
transactions related to their deposit accounts. The Company's deposit base
consists primarily of retail deposits gathered from within local markets
served. At December 31, 1997, retail deposits comprised 83% of total
deposits.
Mortgage Banking
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Mortgage banking activities encompass two areas: mortgage loan production
and mortgage loan servicing. Mortgage loan production involves the
origination and sale of single-family residential mortgage loans. Mortgage
lending is conducted by all of the Company's affiliates. All mortgage loan
originations are funded by the Company's banking subsidiaries.
Retail residential mortgage loans are originated by the Company's own
sales staff through 76 retail mortgage loan production offices and 35 retail
banking offices located in Michigan, Alabama, Arizona, California, Colorado,
Connecticut, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts,
Missouri, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Texas, Utah
and Virginia. Each retail loan production office is responsible for
processing loan applications received and preparing loan documentation. Loan
applications are then evaluated by the underwriting departments of either the
Company's banking or mortgage banking affiliates for compliance with the
Company's underwriting criteria, including loan-to-value ratios, borrower
qualifications and required insurance. The Company also maintains a wholesale
production office in California that engages in the purchase of residential
loans from brokers. Residential loans purchased through the wholesale
operation are processed and prepared by the brokers. The Company's quality
control personnel subsequently review these loans using certain verification
procedures.
The Company originates primarily conventional mortgage loans secured by
residential properties which conform to the underwriting guidelines for sale
to the Federal National Mortgage Association (FNMA) and the Federal Home Loan
Mortgage Corporation (FHLMC). Loans guaranteed by the Department of Veterans
Affairs (VA) and insured through the Federal Housing Administration (FHA) are
originated in compliance with their underwriting guidelines permitting
conversion of such loans into mortgage-backed securities issued by the
Government National Mortgage Association (GNMA).
Growth in the Company's residential mortgage origination business during
1997 was funded primarily with the subsidiary banks' retail deposits and
short-term borrowings, including federal funds purchased and Federal Home
Loan Bank (FHLB) advances. The majority of all mortgage loans originated are
held for a short period of time (generally less than 60 days) with the intent
of selling them to investors in the secondary market. These loans are
classified as mortgage loans held for sale in the Company's consolidated
balance sheet. Mortgage loans held for sale consist of loans that will be
sold directly to secondary market investors or loans that are being prepared
for securitization into mortgage-backed securities; however, the
mortgage-backed security has not yet been formed and issued. These mortgage
loans held for sale are typically sold without recourse to the Company in the
event of default by the borrowers. To minimize interest rate risk, the
Company obtains mandatory purchase commitments from investors prior to
funding the loans.
3
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Consistent with the Company's strategy of managing interest rate risk,
substantially all long-term fixed rate mortgages originated are typically
securitized and sold or sold directly to secondary market investors. The
majority of short-term fixed rate mortgages and variable rate mortgages are
typically securitized and sold or sold directly to secondary market
investors, although a portion of the variable rate mortgages may be retained
in the loan portfolios of Republic Bank and Republic Savings Bank for
investment purposes. Portfolio loans may be securitized and reclassified as
securities available for sale.
When the Company sells originated or purchased residential mortgage loans
to investors, it makes a determination to either retain or sell the rights to
service those loans. Servicing rights may also be acquired through bulk
purchases of loans. While there is an active market for selling servicing
rights (which are generally valued in relation to the present value of the
anticipated cash flow generated by the servicing rights), the aggregation of
a servicing portfolio creates a substantial continuing source of income and
enables the Company to reduce the sensitivity of its earnings to changes in
interest rates.
Mortgage loan servicing is conducted primarily by Market Street Mortgage,
which receives servicing fees ranging from 25 to 45 basis points per annum on
its servicing portfolio. The mortgage loan servicing function involves the
administration of loans; collection and remittance of loan payments; receipt
of escrow funds for payment of taxes and insurance; counseling of delinquent
mortgagors and supervision of foreclosures and property dispositions in the
event of unremedied defaults.
The Company's current operating strategy for the mortgage banking segment
is to continue growing mortgage banking revenue and related interest income
while managing interest rate and liquidity risks. To help accomplish this
objective, the Company expanded its target market for mortgage customers
during 1997 by opening 13 new mortgage loan production offices and by
entering the sub-prime mortgage lending market in the Midwest. (All sub-prime
mortgage loans originated are sold to the secondary market.) Selling mortgage
loans to investors in the secondary market provides additional revenue,
although the level of this activity is dependent upon market conditions at
the time of sale. The Company also earns fees for originating and servicing
loans. In addition, the mortgage banking segment effectively earns long-term
interest rates on mortgage loans held for sale which helps the Company to
minimize interest rate risk.
Competition
Commercial and Retail Banking and Mortgage Banking are highly competitive
businesses in which the Company faces numerous banking and non-banking
institutions as competitors. By reason of changes in Federal law (which
became effective on September 29, 1995) and Michigan law (which became
effective on November 29, 1995) the number and types of potential depository
institution competitors have substantially increased.
In addition to competition from other banks, the Company continues to
face increased competition from other types of financial services
organizations. Competition from finance companies and credit unions has
increased in the areas of consumer lending and deposit gathering. The
Company's mortgage banking affiliates also face significant competition from
numerous bank and non-bank companies in the area of mortgage lending.
Generally, other financial institutions have greater resources to use in
making acquisitions and higher lending limits than those of the Company's
banking subsidiaries or any banking institution that the Company could
acquire. Such institutions may also provide certain non-traditional financial
products and services to their customers which the Company's banking
subsidiaries currently do not offer (e.g., trust services, brokerage services
and insurance products).
The principal factors of competition in the markets for deposits and
loans are price (interest rates paid and/or fees charged) and customer
service. The Company's banking subsidiaries compete for deposits by offering
depositors a variety of checking and savings accounts, time deposits,
convenient office locations and personalized customer services. The Company
competes for loans through the efficiency and quality of the services it
provides to borrowers, real estate brokers and home builders. The Company
seeks to compete for loans primarily on the basis of customer service,
including prompt underwriting decisions and funding of loans, and by offering
a variety of loan programs as well as competitive interest rates.
4
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Employees
As of December 31, 1997, the Company and its subsidiaries had 1,426 full-time
equivalent employees.
Principal Sources of Revenue
The principal sources of revenue for the Company are interest income from
interest and fees on loans and mortgage banking revenue. Interest and fees on
loans totaled $105.8 million in 1997, an increase of 32% from $80.4 million
in 1996 and up 48% from $71.5 million in 1995. In 1997, interest and fees on
loans accounted for 48% of total revenues, compared to 42% of total revenues
in both 1996 and 1995. Mortgage banking revenue, the largest component of
noninterest income, totaled $93.7 million in 1997, an increase of 8% from
$86.4 million in 1996 and up 32% from $71.0 million in 1995. Mortgage banking
revenue represented 42% of total revenues in 1997, compared to 45% in 1996
and 42% in 1995.
Monetary Policy and Economic Controls
The earnings of the banking subsidiaries, and, therefore, the earnings of the
Company, are affected by the policies of regulatory authorities, including
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). An important function of the Federal Reserve Board is to promote
orderly economic growth by influencing interest rates and the supply of money
and credit. Among the methods that have been used to achieve this objective
are open market operations in U.S. government securities, changes in the
discount rate on member bank borrowings, and changes in reserve requirements
against bank deposits. These methods are used in varying combinations to
influence overall growth and distribution of bank loans, investments and
deposits, interest rates on loans and securities, and rates paid for
deposits.
The Federal Reserve Board's monetary policies strongly influence the
behavior of interest rates and can have a significant effect on the operating
results of commercial banks and mortgage banking companies. Continued
moderate price inflation in 1997 contributed to the decision of the Federal
Reserve Board to hold short-term interest rates stable. The effects of the
various Federal Reserve Board policies on the future business and earnings of
the Company cannot be predicted. Other economic controls also have affected
the Company's operations in the past. The Company cannot predict the nature
or extent of any effects that possible future governmental controls or
legislation may have on its business and earnings.
Supervision and Regulation
General
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Bank holding companies, banks and savings banks are highly regulated at both
the state and federal level. As a bank holding company, the Company is
subject to supervision and regulation by the Federal Reserve Board under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). Under the BHC
Act, the Company is prohibited from engaging in activities other than those
of banking or of managing or controlling banks and from acquiring or
retaining direct or indirect ownership or control of voting shares of any
company which is not a bank or bank holding company, unless the activities
engaged in by the Company or the company whose voting shares are acquired by
the Company are activities which the Federal Reserve Board determines to be
so closely related to the business of banking as to be a proper incident
thereto.
Republic Bank is chartered by the State of Michigan and is supervised and
regulated by the Financial Institutions Bureau of the State of Michigan (the
"FIB"). Republic Savings Bank is chartered by the State of Ohio and is
supervised and regulated by the Ohio Superintendent of the Division of
Financial Institutions. As insured state banks, Republic Bank and Republic
Savings Bank are also regulated by the Federal Deposit Insurance Company
("FDIC").
The Company is a legal entity separate and distinct from its banking
subsidiaries. Most of the Company's revenues result from dividends paid to it
by its bank subsidiaries. There are statutory and regulatory requirements
applicable to the payment of dividends by subsidiary banks to the Company as
well as by the Company to its shareholders.
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Under Federal Reserve Board policy, the Company is expected to act as a
source of financial and managerial strength to Republic Bank and to Republic
Savings Bank and to commit resources to support them. This support may be
required at times when, in the absence of such Federal Reserve Board policy,
the Company would not otherwise be required to provide it.
Interstate Banking and Branching
- --------------------------------
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act"), among other things: (i) permits bank holding companies to
acquire control of banks in any state, subject to (a) specified maximum
national state deposit concentration limits; (b) any applicable state law
provisions requiring the acquired bank to be in existence for a specified
period of up to five years; (c) any applicable nondiscriminatory state
provisions that make an acquisition of a bank contingent upon a requirement
to hold a portion of such bank's assets available for call by a state
sponsored housing entity; and (d) applicable anti-trust laws; (ii) authorizes
interstate mergers by banks in different states (and retention of interstate
branches resulting from such mergers) beginning June 1, 1997, subject to the
provisions noted in (i) and to any state laws that "opt-out" of the provision
entirely; and (iii) authorizes states to enact legislation permitting
interstate de novo branching.
The Michigan Banking Code permits, in appropriate circumstances and with
notice to, or the approval of the Commissioner of the FIB, (i) acquisition of
Michigan-chartered banks (such as Republic Bank) by FDIC-insured banks,
savings banks or savings and loan associations located in other states, (ii)
the sale by a Michigan-chartered bank of one or more of its branches (not
comprising all or substantially all of its assets) to an FDIC-insured bank,
savings bank or savings and loan association located in a state in which a
Michigan-chartered bank could purchase one or more branches of the purchasing
entity, (iii) the acquisition by a Michigan-chartered bank of an FDIC-insured
bank, savings bank or savings and loan association located in another state,
(iv) the acquisition by a Michigan-chartered bank of one or more branches
(not comprising all or substantially all of the assets) of an FDIC-insured
bank, savings bank or savings and loan association located in another state,
(v) the consolidation of one or more Michigan-chartered banks and
FDIC-insured banks, savings banks or savings and loan associations located in
other states with the resulting organization chartered either by Michigan or
one of such other states, (vi) the establishment by Michigan-chartered banks
of branches located in other states, the District of Columbia, or U.S.
territories or protectorates, (vii) the establishment of branches in Michigan
by FDIC-insured banks located in other states, the District of Columbia, or
U.S. territories or protectorates having laws permitting a Michigan-chartered
bank to establish a branch in such jurisdiction, and (viii) the establishment
by foreign banks of branches located in Michigan.
Dividends
- ---------
Michigan and Ohio law, respectively, place specific limits on the source and
amount of dividends which may be paid by Republic Bank and Republic Savings
Bank, respectively. The payment of dividends by the Company and its bank
subsidiaries is also affected by various regulatory requirements and
policies, such as the requirement to maintain adequate capital above
regulatory guidelines. The "prompt corrective action" provisions of the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
impose further restrictions on the payment of dividends by insured banks
which fail to meet specified capital levels and, in some cases, their parent
bank holding companies. FDICIA generally prohibits a depository institution
from making any capital distribution (including payment of a dividend) or
paying any management fee to its holding company if the depository
institution would thereafter be undercapitalized.
The FDIC may prevent an insured bank from paying dividends if the bank is
in default of payment of any assessment due to the FDIC. In addition, payment
of dividends by a bank may be prevented by the applicable federal regulatory
authority if such payment is determined, by reason of the financial condition
of such bank, to be an unsafe and unsound banking practice. The Federal
Reserve Board has issued a policy statement providing that bank holding
companies and insured banks should generally only pay dividends out of
current operating earnings.
These regulations and restrictions may limit the Company's ability to
obtain funds from its subsidiaries for its cash needs, including funds for
acquisitions, payment of dividends and interest and the payment of operating
expenses.
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FIRREA
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Banking legislation, including the Financial Institutions Reform and Recovery
and Enforcement Act of 1989 ("FIRREA") and FDICIA, has broadened the
regulatory powers of the federal bank regulatory agencies. Under FIRREA, a
depository institution insured by the FDIC shall be liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with (i) the default of a commonly controlled FDIC-insured depository
institution, or (ii) any assistance provided by the FDIC to any commonly
controlled FDIC-insured depository institution "in danger of default."
"Default" is defined generally as the appointment of a conservator or
receiver and "in danger of default" is defined as the existence of certain
conditions indicating that a default is likely to occur in the absence of
regulatory assistance.
FDICIA
- ------
In December 1991, FDICIA was enacted, substantially revising the bank
regulatory and funding provisions of the Federal Deposit Insurance Act and
making revisions to several other federal banking statutes. Among other
things, FDICIA requires the federal banking agencies to take "prompt
corrective action" in respect of depository institutions that do not meet
minimum capital requirements. FDICIA establishes five capital tiers:
"well-capitalized," "adequately capitalized," "undercapitalized,"
"significantly under capitalized" and "critically undercapitalized." A
depository institution's capital tier will depend upon where its capital
levels are in relation to various relevant capital measures, which will
include a risk-based capital measure and a leverage ratio capital measure,
and certain other factors.
Regulations establishing the specific capital tiers provide that, for an
institution to be well capitalized it must have a total risk-based capital
ratio of at least 10 percent, a Tier 1 risk-based capital ratio of at least 6
percent, a Tier 1 leverage ratio of at least 5 percent, and not be subject to
any specific capital order or directive. For an institution to be adequately
capitalized it must have a total risk-based capital ratio of at least 8
percent, a Tier 1 risk-based capital ratio of at least 4 percent, and a Tier
1 leverage ratio of at least 4 percent (and in some cases 3 percent). Under
these regulations, the banking subsidiaries of the Company would be
considered to be well capitalized as of December 31, 1997.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating
to internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, asset quality, earnings, stock valuation and other standards as
they deem appropriate. Such standards were issued jointly by the agencies on
August 9, 1995, in guideline form.
FDICIA also contains a variety of other provisions that may affect the
operations of depository institutions including new reporting requirements,
regulatory standards for real estate lending, "truth in savings" provisions,
the requirement that a depository institution give 90 days prior notice to
customers and regulatory authorities before closing any branch and a
prohibition on the acceptance or renewal of brokered deposits by depository
institutions that are not well capitalized or are adequately capitalized and
have not received a waiver from the FDIC. Under regulations relating to the
brokered deposit prohibition, the Company's subsidiary banks are all
well-capitalized and may accept brokered deposits without restriction.
FDIC Insurance Assessments
- --------------------------
Republic Bank is generally subject to FDIC deposit insurance assessments paid
to the Bank Insurance Fund ("BIF"). Republic Savings is subject to FDIC
deposit insurance assessments paid to the Savings Association Insurance Fund
("SAIF"). Pursuant to FDICIA, the FDIC has implemented a risk-based
assessment scheme. Under this arrangement, each depository institution is
assigned to one of nine categories (based upon three categories of capital
adequacy and three categories of perceived risk to the applicable insurance
fund). Pursuant to the Omnibus Consolidated Appropriations Act, 1997
("OCAA"), a special one-time assessment was made by the FDIC in October 1996,
on SAIF-insured deposits to bring the SAIF to its mandated reserve ratio of
1.25% of aggregate SAIF-insured deposits by January 1, 1997. OCAA
contemplates the merger of the BIF and SAIF into a single Deposit Insurance
Fund ("DIF") on January 1, 1999, under certain conditions.
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Mortgage Banking Affiliates
- ---------------------------
The Company's non-depository mortgage banking affiliates, Market Street
Mortgage, Republic Bancorp Mortgage and CUB Funding (collectively referred to
as the "mortgage companies") are engaged in the business of originating,
selling and servicing mortgage loans secured by residential real estate. In
the origination of mortgage loans, the mortgage companies are subject to
State usury and licensing laws and to various federal statutes, such as the
Equal Credit Opportunity Act, Fair Credit Reporting Act, Truth in Lending
Act, Real Estate Settlement Procedures Act, and Home Mortgage Disclosure Act,
and the regulations promulgated thereunder, which prohibit discrimination,
specify disclosures to be made to borrowers regarding credit and settlement
costs, and regulate the mortgage loan servicing activities of such entities,
including the maintenance and operation of escrow accounts and the transfer
of mortgage loan servicing.
CUB Funding purchases mortgage loans from approved brokers after they
perform their own underwriting review of the mortgage loans. Brokers qualify
to participate in CUB Funding's wholesale program only after a review of
their financial condition, including a review of references and financial
statements. In such activities, CUB Funding is also subject to applicable
usury and other state and federal laws, including various states' licensing
statutes.
As sellers and servicers of mortgage loans, the mortgage companies are
participants in the secondary mortgage market with some or all of the
following: private institutional investors, FNMA, GNMA, FHLMC, VA and FHA. In
their dealings with these agencies, the mortgage companies are subject to
various eligibility requirements prescribed by the agencies, including but
not limited to net worth, quality control, bonding, financial reporting and
compliance reporting requirements. The mortgage loans which they originate
and purchase are subject to agency-prescribed procedures, including, without
limitation, inspection and appraisal of properties, maximum loan-to-value
ratios, and obtaining credit reports on prospective borrowers. On some types
of loans, the agencies prescribe maximum loan amounts, interest rates and
fees. When selling mortgage loans to FNMA, FHLMC, GNMA, VA and FHA, each of
the mortgage companies represents and warrants that all such mortgage loans
sold by it conform to their requirements. If the mortgage loans sold are
found to be non-conforming mortgage loans, such agency may require the seller
(i.e., Republic Bancorp Mortgage, Market Street Mortgage or CUB Funding) to
repurchase the non-conforming mortgage loans. Additionally, FNMA, FHLMC,
GNMA, VA and FHA may require the mortgage companies to indemnify them against
all losses arising from their failure to perform their contractual
obligations under the applicable selling or servicing contract. Certain
provisions of the Housing and Community Development Act of 1992, and
regulations adopted thereunder may affect the operations and programs of FNMA
and FHLMC.
Regulation of Proposed Acquisitions
- -----------------------------------
In general, any direct or indirect acquisition by the Company of any voting
shares of any bank which would result in the Company's direct or indirect
ownership or control of more than 5% of any class of voting shares of such
bank, and any merger or consolidation of the Company with another bank
holding company, will require the prior written approval of the Federal
Reserve Board under the BHC Act. In acting on such applications, the Federal
Reserve Board must consider various statutory factors, including among
others, the effect of the proposed transaction on competition in relevant
geographic and product markets, and each party's financial condition,
managerial resources, and record of performance under the Community
Reinvestment Act.
The merger or consolidation of an existing bank subsidiary of the Company
with another bank, or the acquisition by such a subsidiary of assets of
another bank, or the assumption of liability by such a subsidiary to pay any
deposits in another bank, will require the prior written approval of the
responsible Federal depository institution regulatory agency under the Bank
Merger Act, based upon a consideration of statutory factors similar to those
outlined above with respect to the BHC Act. In addition, an application to,
and the prior approval of, the Federal Reserve Board may be required under
the BHC Act, in certain such cases.
Each of the foregoing types of applications is subject to public notice
and comment procedures, and, in many cases, to prior notice and/or approval
of Federal and State bank regulatory authorities. Adverse public comments
received, or adverse considerations raised by the regulatory agencies, may
delay or prevent consummation of the proposed transaction.
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Forward-Looking Statements
Certain statements contained in this Annual Report on Form 10-K which are not
statements of historical fact constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act (the "Act"),
including, without limitation, the statements specifically identified as
forward-looking statements within this document. In addition, certain
statements in future filings by the Company with the Securities and Exchange
Commission, in press releases, or in oral and written statements made by or
with the approval of the Company which are not statements of historical fact
constitute forward-looking statements within the meaning of the Act. Examples
of forward-looking statements include, but are not limited to: (i)
projections of revenues, income or loss, earnings or loss per share, the
payment or non-payment of dividends, capital structure and other financial
items, (ii) statements of plans and objectives of the Company or its
management or Board of Directors, including those relating to products or
services, (iii) statements of future economic performance and (iv) statements
of assumptions underlying such statements. Words such as "believes",
"anticipates", "expects", "intends", "plans", "targets" and similar
expressions are intended to identify forward-looking statements but are not
the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties which may
cause actual results to differ materially from those in such statements.
Factors that could cause actual results to differ from those discussed in the
forward-looking statements include, but are not limited to: (i) the strength
of the U.S. economy in general and the strength of the local economies in
which operations are conducted; (ii) the effects of and changes in trade,
monetary and fiscal policies and laws, including interest rate policies of
the Federal Reserve Board; (iii) inflation, interest rate, market and
monetary fluctuations; (iv) the timely development of and acceptance of new
products and services and perceived overall value of these products and
services by users; (v) changes in consumer spending, borrowing and saving
habits; (vi) technological changes; (vii) acquisitions; (viii) the ability to
increase market share and control expenses; (ix) the effect of changes in
laws and regulations (including laws and regulations concerning taxes,
banking, and securities) with which the Company and its subsidiaries must
comply; (x) the effect of changes in accounting policies and practices, as
may be adopted by the regulatory agencies as well as the Financial Accounting
Standards Board, (xi) changes in the Company's organization, compensation and
benefit plans; (xii) the costs and effects of litigation and of unexpected or
adverse outcomes in such litigation; and (xiii) the success of the Company at
managing risks involved in the foregoing.
Such forward-looking statements speak only as of the date on which such
statements are made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date
on which such statement is made to reflect the occurrence of unanticipated
events.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of all the executive officers (5) of the Company
as of December 31, 1997. All of these officers are elected annually by the
Board of Directors. Excluding Mr. Parker, each of the executive officers has
served as an officer of the Company for more than five years. Prior to
joining the Company in 1997, Mr. Parker was a principal in the law firm of
Miller, Canfield, Paddock & Stone, PLC, Detroit, Michigan, for more than
twenty-five years. There are no family relationships among any of the
executive officers.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Jerry D. Campbell.................. 57 Chairman of the Board and Chief
Executive Officer (Since 1985)
Dana M. Cluckey, CPA............... 38 President and Chief Operating
Officer (Since 1986)
Barry J. Eckhold................... 51 Vice President and Chief Credit
Officer (Since 1990)
Thomas F. Menacher, CPA............ 41 Senior Vice President, Treasurer
and Chief Financial Officer
(Since 1992)
George E. Parker III............... 63 General Counsel and Corporate
Secretary (Since 1997)
</TABLE>
9
<PAGE>
ITEM 2. PROPERTIES
The Company's executive offices are located at 1070 East Main Street,
Owosso, Michigan 48867. At December 31, 1997, the Company had 35 banking
locations, of which eight were owned and 27 were leased, and 77 mortgage loan
production offices, all of which were leased. All of these offices are
considered by management to be well maintained and adequate for the purpose
intended. See Note 7 of the Notes to Consolidated Financial Statements
included under Item 8 of this document for further information on properties.
ITEM 3. LEGAL PROCEEDINGS
The information required by this Item is set forth in Note 17 of the
Notes to Consolidated Financial Statements included under Item 8 of this
document and is expressly incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Quarterly Dividends and Market Price Summary
<TABLE>
<CAPTION>
Common Stock
Dividends Price Range (1)
Declared ----------------
Per Share (1) High Low
------------- ---- ---
<S> <C> <C> <C>
1997
Fourth quarter .......... $ 0.100 $21.375 $15.250
Third quarter ........... 0.091 15.000 13.000
Second quarter .......... 0.091 13.250 11.500
First quarter ........... 0.091 12.375 10.750
-------
Year ................ $ 0.373 $21.375 $10.750
=======
1996
Fourth quarter .......... $ 0.091 $11.250 $ 9.875
Third quarter ........... 0.083 10.000 9.000
Second quarter .......... 0.083 9.750 9.125
First quarter ........... 0.083 9.875 8.750
-------
Year ................ $ 0.340 $11.250 $ 8.750
=======
<FN>
- ---------
(1) Dividends and market price data have been restated to reflect the
issuance of stock dividends.
</TABLE>
The principal market for the quotations of stock prices of the Company's
common stock is The Nasdaq Stock Market. The Company's common stock trades
under the symbol RBNC. There were approximately 13,800 shareholders of record
of the Company's common stock as of March 6, 1998.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings Summary (in thousands)
Interest income $118,852 $ 99,147 $ 95,597 $ 78,219 $ 78,831
Interest expense 71,912 62,427 65,192 44,999 42,268
Net interest income 46,940 36,720 30,405 33,220 36,563
Provision for loan losses 3,031 290 24 94 603
Mortgage banking revenue 93,700 86,377 70,960 69,899 85,128
Other noninterest income 8,815 4,469 4,241 5,762 6,992
Noninterest expense 117,742 104,492(1) 83,152 85,021 93,539
Income before cumulative effect
of a change in accounting principle
and extraordinary item 18,789 15,066 14,264 15,719 22,233
Net income 18,789 14,678 14,264 15,719 23,183
-------- -------- -------- -------- --------
Per Common Share(2)
Basic earnings $ 1.01 $ .76 $ .71 $ .77 $ 1.19
Diluted earnings .99 .74 .69 .75 1.13
Cash dividends declared .37 .34 .28 .22 .15
Book value (year-end) 7.02 6.47 6.34 5.78 5.54
Closing price of common stock (year-end) 21.38 10.57 8.88 7.42 9.39
Dividend payout ratio 37% 46% 40% 30% 13%
-------- -------- -------- -------- --------
Operating Data (in millions)
Loan closings:
Residential mortgage loans $ 3,892 $ 3,581 $ 2,847 $ 2,837 $ 4,911
Commercial loans 175 122 50 27 20
SBA loans 28 24 17 12 7
Mortgage loan servicing portfolio (year-end) 3,113 2,706 3,967 4,669 3,023
-------- -------- -------- -------- --------
Year-End Balances (in millions)
Total assets $ 1,873 $ 1,490 $ 1,473 $ 1,364 $ 1,171
Total earning assets 1,731 1,349 1,323 1,224 1,078
Mortgage loans held for sale 514 329 423 152 508
Total portfolio loans 1,096 785 578 605 407
Total deposits 1,177 1,014 905 819 834
Total short-term borrowings and
FHLB advances 425 255 344 327 160
Long-term debt 48 49 52 56 20
Shareholders' equity 131 122 126 118 111
-------- -------- -------- -------- --------
Ratios
Return on average assets 1.16% 1.02% 1.00% 1.23% 1.94%
Return on average equity 15.09 11.95 11.71 13.43 23.72
Net interest margin (3) 3.16 2.88 2.38 2.88 3.29
Net loan charge-offs to average
total loans (4) .03 .06 .06 .20 .06
Allowance for loan losses as a percentage
of year-end portfolio loans .67 .60 .87 .92 1.77
Non-performing assets as a percentage
of year-end total assets .68 .44 .20 .30 .45
Average shareholders' equity to
average assets 7.69 8.52 8.56 9.14 8.16
Tier 1 risk-based capital 9.75 13.30 15.72 17.57 16.35
Total risk-based capital 10.35 13.84 18.63 21.05 20.19
Tier 1 leverage 6.58 8.16 8.31 8.43 8.43
-------- -------- -------- -------- --------
<FN>
- ---------
(1) Includes a one-time assessment of $1.5 million ($975,000 after tax, or
$.05 per share) for the recapitalization of the SAIF.
(2) The basic earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards No.
128, Earnings Per Share. For further discussion of earnings per share and
the impact of Statement No. 128, see the Notes to the Consolidated
Financial Statements beginning on page 37. All per share amounts
presented have been adjusted to reflect the issuance of stock dividends.
(3) Net interest income (FTE) expressed as a percentage of average
interest-earning assets.
(4) Includes mortgage loans held for sale.
</TABLE>
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Net income for 1997 was $18.8 million, an increase of 28% from net income of
$14.7 million in 1996. Diluted earnings per share rose 34% during the year to
$.99 from $.74 in 1996. In 1995, net income was $14.3 million, or $.69 per
common share. Return on average assets was 1.16% in 1997, compared with 1.02%
in 1996 and 1.00% in 1995. Return on average equity for 1997 was 15.09%,
compared with 11.95% in 1996 and 11.71% in 1995.
Net income for 1996 included an extraordinary loss from the early
redemption of Subordinated Notes of $388,000, after tax, and the after-tax
charge of $975,000 for a one-time special FDIC assessment. Excluding these
items, operating earnings for 1996 were $16.0 million, or $.79 per share.
Return on average assets and return on average equity, excluding these
charges, would have been 1.11% and 13.06%, respectively.
The Company's 1997 results of operations reflected the following trends
in earnings:
o Net interest income increased 28% during 1997 following an increase
of 21% in 1996. Increasing average earning asset balances during
these periods contributed to the growth in net interest income.
o The net interest margin expanded further to 3.16% in 1997, compared
to 2.88% in 1996 and 2.38% in 1995. A shift in average earning assets
away from investment securities and toward higher-yielding loans over
the past two years helped widen the net interest margin.
o Mortgage banking revenue grew 8% during 1997 after climbing 22% in
1996, as a result of record retail lending production volumes.
Shareholders' equity totaled $131.1 million at December 31, 1997. Market
capitalization, which is computed by multiplying the number of shares
outstanding by the closing price of the Company's common stock at year-end,
was $399.2 million at December 31, 1997, a 100% increase from a year earlier.
Capital ratios, by all measures, remain in excess of regulatory requirements.
Acquisitions and Divestitures
In May 1997, the Company completed the sale of four southern Michigan
branches of Republic Bank. The sale included the fixed assets of the
Hillsdale, Litchfield, Somerset Center and Spring Arbor branch offices and
deposits totaling $52 million. The Company recognized a gain of $4.4 million
on the sale.
In September 1997, the Company acquired certain assets and the mortgage
origination network of Exchange Mortgage Corporation of Southfield, Michigan.
The mortgage operation has three offices in Michigan, including a sub-prime
mortgage lending division, Union Mortgage Services. Exchange Mortgage
operates as a division of Republic Bancorp Mortgage Inc. The purchase price
for the assets of Exchange Mortgage was not significant.
Business Segments
The Company's operations are managed as two major business segments: (1)
commercial and retail banking and (2) mortgage banking. Table 1 presents the
financial results of each business segment for the last three years. Business
segment performance is determined based on the Company's management
accounting process, which assigns revenue, expenses and assets to a business
segment using specific identification and an allocation methodology. This
process is somewhat subjective; therefore, the information presented is not
necessarily comparable with similar information for any other financial
institution. Changes in the allocation methodology may result in changes in
allocations and assignments. In that case, however, results for prior periods
would be restated to allow comparability between periods.
The Company's internal management reporting system allocates interest
income and interest expense items by matching the earning asset with the
related funding source. Noninterest income and expenses directly attributable
to a business segment's operations are assigned to that business segment.
Expenses supporting more than one business segment are allocated to each
segment based on the number of employees dedicated to the segment's
operations.
12
<PAGE>
Table 1
Business Segment Results
<TABLE>
<CAPTION>
Commercial and
Retail Banking Mortgage Banking Consolidated
------------------------------ ------------------------------ -----------------------------
(In thousands) 1997 1996 1995 1997 1996 1995 1997 1996 1995
- -------------- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 93,730 $ 72,706 $ 74,496 $ 25,122 $ 26,441 $ 21,101 $118,852 $ 99,147 $ 95,597
Interest expense 49,052 40,812 43,831 22,860 21,615 21,361 71,912 62,427 65,192
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net interest income(1) 44,678 31,894 30,665 2,262 4,826 (260) 46,940 36,720 30,405
Provision for loan
losses 3,031 290 24 -- -- -- 3,031 290 24
Noninterest
income (3) 8,102 4,469 4,241 94,413 86,377 70,960 102,515 90,846 75,201
Noninterest
expense(2) 28,585 21,221 16,410 89,157 83,271 66,742 117,742 104,492 83,152
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before taxes $ 21,164 $ 14,852 $ 18,472 $ 7,518 $ 7,932 $ 3,958 $ 28,682 $ 22,784 $ 22,430
======== ======== ======== ======== ======== ======== ======== ======== ========
Depreciation and
amortization $ 2,422 $ 2,265 $ 2,484 $ 9,595 $ 10,609 $ 10,036 $ 12,017 $ 12,874 $ 12,520
Capital expenditures $ 1,640 $ 2,298 $ 2,294 $ 2,360 $ 1,544 $ 1,265 $ 4,000 $ 3,842 $ 3,559
(In millions)
Identifiable assets $ 1,261 $ 1,072 $ 951 $ 612 $ 418 $ 522 $ 1,873 $ 1,490 $ 1,473
<FN>
- ---------
(1) Net interest income for the mortgage banking segment is generated from
the interest earned on mortgage loans held for sale, less the interest
expense incurred on short-term borrowings used to fund loan production
and servicing acquisitions.
(2) Noninterest expense for the commercial and retail banking segment in 1996
includes the $1.5 million, pre-tax, SAIF assessment.
(3) Noninterest income for the commercial and retail banking segment in 1997
includes a gain of $4.4 million on the sale of bank branches and
deposits.
</TABLE>
Mortgage Banking
The Mortgage Banking segment is comprised of mortgage loan production and
mortgage loan servicing.
Table 2
Residential Mortgage Loan Closings
<TABLE>
<CAPTION>
Year Ended December 31
(Dollars in thousands) 1997 1996 1995
- ---------------------- ---------- --------- ----------
<S> <C> <C> <C>
Total closings $3,891,894 $3,580,700 $2,847,490
Retail loans percentage 88% 76% 68%
Wholesale loans percentage 12 24 32
</TABLE>
The Company's total closings of single-family residential mortgage loans
increased $311.2 million, or 9%, to $3.9 billion in 1997. The retail portion
of this volume reached a record $3.4 billion in 1997, up 25% from 1996.
Successful sales efforts by our mortgage loan originators and a declining
interest rate environment were major contributors to the growth in retail
loan closings. In addition, total closings for 1997 reflected a full year of
operations for Unlimited Mortgage Services, which was acquired in July 1996.
In 1996, total mortgage loan closings rose $733.2 million, or 26%, to $3.6
billion, reflecting the dual impact on production of a relatively low
interest rate environment and strong retail lending efforts. Retail mortgage
loan closings totaled $2.7 billion in 1996, a 42% increase from 1995.
Wholesale mortgage loan volume declined 43% since 1996 as the Company placed
more emphasis on its more profitable retail mortgage lending. Refinances
totaled $950.3 million, or 24% of total closings in 1997, compared to $937.3
million, or 26% of total closings, a year earlier. The Company's pipeline of
mortgage loan applications in process was $895.1 million at December 31,
1997, compared to $930.4 million at December 31, 1996.
13
<PAGE>
Table 3
Mortgage Banking Revenue
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1997 1996 1995
- -------------- ---- ---- ----
<S> <C> <C> <C>
Mortgage loan production revenue (1) $85,655 $70,499 $49,656
Net mortgage loan servicing revenue (2) 6,428 8,220 9,596
Gain on bulk sales of mortgage servicing rights 1,617 7,658 11,708
------- ------- -------
Total mortgage banking revenue $93,700 $86,377 $70,960
======= ======= =======
<FN>
- ---------
(1) Includes fee revenue derived from the loan origination process (i.e.,
points collected), gains on the sale of mortgage loans and the related
mortgage servicing rights released concurrently with the underlying loans
sold.
(2) Includes servicing fees, late fees and other ancillary charges, net of
amortization and charges for impairment of mortgage servicing rights, if
any.
</TABLE>
Mortgage banking revenue, the largest component of total noninterest
income, rose $7.3 million, or 8%, to $93.7 million in 1997, after increasing
22% in 1996. This increase resulted as growth in mortgage loan production
revenue more than offset declines in net mortgage loan servicing revenue and
gains on bulk sales of mortgage servicing rights.
Mortgage loan production revenue increased $15.2 million, or 21%, in
1997. This increase resulted primarily as volume and profitability levels
improved in retail mortgage production activities, but was partially offset
by a decline in wholesale mortgage production volume. The Company sold $3.55
billion of single-family residential mortgages in both 1997 and 1996,
compared to $2.65 billion in 1995. The ratio of mortgage production revenue
to mortgage loans sold rose 43 basis points to 2.42% in 1997, compared to
1.99% in 1996 and 1.87% in 1995.
Net mortgage loan servicing revenue decreased 22% to $6.4 million in
1997, after declining 14% in 1996. These declines correspond to a decrease in
the average size of the mortgage servicing portfolio over the past two years.
Loans serviced for others averaged $2.9 billion in 1997, down 17% from a year
earlier. In 1996, average loans serviced for others totaled $3.5 billion,
which was 11% lower than the 1995 average. This reduction in the mortgage
servicing portfolio resulted primarily from the sale of servicing rights at
Republic Bancorp Mortgage and CUB Funding as the Company focused all
servicing activity at Market Street Mortgage.
Amortization of mortgage servicing rights totaled $6.9 million in 1997,
compared to $7.6 million in 1996 and $7.0 million in 1995. The Company
evaluates its mortgage servicing rights for impairment on a quarterly basis.
No impairment reserves were required in 1997 and 1996 in accordance with
Statement of Financial Accounting Standards (SFAS) No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities.
The Company may elect to sell mortgage servicing rights concurrently with
the sale of the underlying loans or retain the servicing rights. Any
servicing rights retained may subsequently be sold in bulk form. The level of
bulk servicing sales is dependent upon the Company's strategy to either build
or reduce the servicing portfolio and is further based upon current market
conditions. In 1997, bulk sales of mortgage servicing rights for loans with
principal balances of $345.2 million resulted in gains of $1.6 million. In
1996 and 1995, bulk sales of mortgage servicing rights for loans with
principal balances of $2.3 billion and $2.5 billion, respectively, resulted
in gains of $7.7 million and $11.7 million, respectively.
14
<PAGE>
Commercial and Retail Banking
The Commercial and Retail Banking segment consists of commercial lending to
small- and medium-sized companies, primarily in the form of commercial real
estate and Small Business Administration (SBA) loans; mortgage portfolio
lending; home equity lending; and the deposit-gathering function. Deposits
and loan products are offered through the 35 retail branch offices of
Republic Bank and Republic Savings Bank, which are staffed by personal
bankers and loan originators. The remaining disclosures and analyses within
this Management's Discussion and Analysis of the Company's results of
operations and financial condition relate principally to the commercial and
retail banking segment.
Results of Operations
Net Interest Income
Net interest income is defined as the difference between total interest
income generated by earning assets and the cost of funding those assets. To
permit the comparable analysis of tax-exempt and fully taxable income, net
interest income is stated on a fully taxable equivalent (FTE) basis,
reflecting adjustments made to the yields of tax-exempt investment securities
included in earning assets. The net interest margin is net interest income
(FTE) expressed as a percentage of average earning assets and measures how
effectively the Company utilizes its earning assets in relationship to the
interest cost of funding them.
Net interest income (FTE) rose 26% to $47.3 million in 1997, compared to
$37.5 million in 1996, primarily due to growth in average earning assets.
Average earning assets rose $196.0 million, or 15%, to $1.5 billion in 1997,
as a $324.9 million increase in average portfolio loans more than offset a
reduction in average investment securities and a slight decrease in average
mortgage loans held for sale. Net interest income growth also benefited as
the mix of earning assets continued to favor higher-yielding commercial,
residential and installment loan balances rather than lower-yielding
investment securities. Partially offsetting the increase in net interest
income was the incremental interest expense associated with a $197.1 million,
or 17%, increase in interest-bearing liabilities.
The net interest margin widened by 28 basis points to 3.16% in 1997,
compared to 2.88% in 1996. The improved margin was largely attributable to
the continued shift in the mix of earning assets to higher-yielding
commercial, residential and installment loan balances during 1997. This
strategy led to a 28 basis point rise in the yield on average earning assets.
The net interest margin also benefited from a decline in short-term interest
rates during much of 1997, which contributed to a 10 basis point decrease in
the average cost of funds.
In 1996, net interest income (FTE) increased 23% to $37.5 million from
$30.4 million in 1995, primarily due to growth in average earning assets with
higher yields and a decline in average short-term borrowings. Average earning
assets rose $24.7 million, or 2%, to $1.3 billion. Average short-term
borrowings decreased $99.7 million, or 36%, to $174.7 million, reflecting the
replacement of third-party warehousing lines of credit with less expensive
interest-bearing deposits and short-term borrowings as funded by the
Company's banking subsidiaries. This switch from external to internal
funding, along with a shift in the mix of earning assets toward
higher-yielding portfolio loan balances, led to a 50 basis point increase in
the net interest margin to 2.88% in 1996 from 2.38% in 1995.
15
<PAGE>
Table 4
Analysis of Net Interest Income (FTE)
<TABLE>
<CAPTION>
Year Ended December 31
(Dollar amounts in thousands) 1997 1996 1995
- ----------------------------- ------------------------------ ---------------------------- -----------------------------
Average Avg. Average Avg. Average Avg.
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Assets:
Short-term investments $ 5,917 $ 264 4.46% $ 9,155 $ 438 4.78% $ 16,801 $ 954 5.68%
Mortgage loans held for sale 317,114 24,235 7.64 340,375 26,392 7.75 268,788 21,100 7.85
Investment securities 198,946 13,102 6.59 301,338 19,054 6.32 382,242 23,155 6.06
Portfolio loans: (1)
Commercial loans 251,299 24,139 9.61 162,463 15,183 9.35 109,063 10,843 9.94
Real estate mortgage loans 631,638 48,065 7.61 415,981 31,521 7.58 443,928 33,633 7.58
Installment loans 92,963 9,380 10.09 72,565 7,340 10.12 56,370 5,912 10.49
---------- -------- ---- ---------- ------- ----- ---------- ------- ----
Total loans, net of
unearned income 975,900 81,584 8.36 651,009 54,044 8.30 609,361 50,388 8.27
---------- -------- ---- ---------- ------- ----- ---------- ------- ----
Total interest-earning assets 1,497,877 119,185 7.96 1,301,877 99,928 7.68 1,277,192 95,597 7.48
Allowance for loan losses (6,281) (4,819) (5,264)
Cash and due from banks 22,270 26,213 24,460
Other assets 106,038 118,782 126,339
---------- --------- ----------
Total assets $1,619,904 $1,442,053 $1,422,727
========== ========== ==========
Average Liabilities and
Shareholders' Equity:
Interest-bearing demand
deposits $ 44,933 993 2.21 $ 57,754 1,358 2.35 $ 63,516 1,554 2.45
Savings deposits 298,104 12,331 4.14 215,357 8,882 4.12 177,978 6,677 3.75
Time deposits 619,371 35,662 5.76 545,151 32,028 5.88 517,663 30,567 5.90
---------- -------- ---- ---------- ------- ----- ----------- ------- ----
Total interest-bearing
deposits 962,408 48,986 5.09 818,262 42,268 5.17 759,157 38,798 5.11
Short-term borrowings 107,271 6,181 5.76 174,734 10,322 5.91 274,454 18,396 6.70
FHLB advances 226,634 13,275 5.86 103,244 6,094 5.90 40,004 2,431 6.08
Long-term debt 47,948 3,470 7.23 50,873 3,743 7.36 63,256 5,567 8.80
---------- -------- ---- ---------- ------- ----- ----------- ------- ----
Total interest-bearing
liabilities 1,344,261 71,912 5.34 1,147,113 62,427 5.44 1,136,871 65,192 5.73
Noninterest-bearing deposits 108,667 124,976 128,640
Other liabilities 42,452 47,172 35,435
---------- ---------- ---------
Total liabilities 1,495,380 1,319,261 1,300,946
Shareholders' equity 124,524 122,792 121,781
---------- ---------- ----------
Total liabilities and
shareholders' equity $1,619,904 $1,442,053 $1,422,727
========== ========== ==========
Net interest income/
Rate spread (FTE) $ 47,273 2.60% $37,501 2.24% $30,405 1.75%
-------- ======= =======
FTE adjustment(2) $ 333 $ 781 $ --
======== ======= =======
Impact of net noninterest-
bearing sources of funds .56 .64 .63
---- ----- ----
Net interest margin (FTE) 3.16% 2.88% 2.38%
==== ===== =====
<FN>
- ---------
(1) Non-accrual loans and overdrafts are included in average balances.
(2) The amount of tax-exempt income earned in 1995 was not material.
</TABLE>
16
<PAGE>
Table 5
Rate/Volume Analysis (FTE)
<TABLE>
<CAPTION>
1997/1996 1996/1995
--------------------------------- ---------------------------------
Increase/(Decrease) Increase/(Decrease)
Due to Change in: Due to Change in:
--------------------------------- ---------------------------------
Average Average Net Average Average Net
(In thousands) Balance(1) Rate(1) Change Balance(1) Rate(1) Change
- -------------- --------- ------- ------ ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Short-term investments $ (147) $ (27) $ (174) $ (383) $ (133) $ (516)
Mortgage loans held for sale (1,786) (371) (2,157) 5,563 (271) 5,292
Investment securities (6,733) 781 (5,952) (5,062) 961 (4,101)
Loans, net of unearned income (2) 27,003 537 27,540 3,472 184 3,656
-------- -------- -------- -------- -------- ---------
Total interest income 18,337 920 19,257 3,590 741 4,331
Interest Expense:
Interest-bearing demand deposits (288) (77) (365) (135) (61) (196)
Savings deposits 3,406 43 3,449 1,500 705 2,205
Time deposits 4,298 (664) 3,634 1,568 (107) 1,461
-------- -------- -------- -------- -------- ---------
Total interest-bearing deposits 7,416 (698) 6,718 2,933 537 3,470
Short-term borrowings (3,886) (255) (4,141) (6,096) (1,978) (8,074)
FHLB advances 7,222 (41) 7,181 3,737 (74) 3,663
Long-term debt (209) (64) (273) (994) (830) (1,824)
-------- -------- -------- -------- -------- ---------
Total interest expense 10,543 (1,058) 9,485 (420) (2,345) (2,765)
-------- -------- -------- -------- -------- ---------
Net interest income (FTE) $ 7,794 $ 1,978 $ 9,772 $ 4,010 $ 3,086 $ 7,096
======== ======== ======== ======== ======== ========
<FN>
- ---------
(1) Variances attributable jointly to volume and rate changes are allocated
to volume and rate in proportion to the relationship of the absolute
dollar amount of the change in each.
(2) Non-accrual loans are included in average balances.
</TABLE>
Noninterest Income
Noninterest income is a significant source of revenue for the Company,
contributing 46% of total revenues in 1997, compared to 48% in 1996 and 44%
in 1995. Details of the largest component of noninterest income are presented
in the "Mortgage Banking" section, beginning on page 13. Exclusive of
mortgage banking revenue, noninterest income increased to $8.8 million in
1997 from $4.5 million in 1996, primarily due to the $4.4 million pre-tax
gain on the sale of four Republic Bank branches and the related deposits in
the second quarter of 1997.
Table 6
Noninterest Income
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1997 1996 1995
- -------------- ---- ---- ----
<S> <C> <C> <C>
Mortgage banking revenue $ 93,700 $86,377 $70,960
Service charges 1,446 1,218 1,297
Investment securities gains (losses) (497) 766 1,061
Gain on sale of bank branches and deposits 4,442 -- --
Gain on sale of SBA loans 1,065 1,242 873
Other noninterest income 2,359 1,243 1,010
-------- ------- -------
Total noninterest income $102,515 $90,846 $75,201
======== ======= =======
</TABLE>
17
<PAGE>
As part of management's strategy to support further loan growth, efforts
have been made to reduce the investment securities portfolio through sales
and maturities. In 1997, the Company sold $189.7 million of investment
securities for a net loss of $497,000. This activity included $47.1 million
of lower-yielding securities that were sold during the second quarter of 1997
at a loss of $850,000. In 1996, the Company sold $144.7 million of investment
securities, compared to $232.0 million in 1995.
The guaranteed portions of Small Business Administration (SBA) loans are
regularly sold to investors. In 1997, the Company sold $13.8 million of the
guaranteed portion of SBA loans, compared to $17.9 million in 1996 and $10.8
million in 1995.
Noninterest Expense
Noninterest expense increased 13% in 1997 to $117.7 million, after rising 26%
in 1996. Salaries and employee benefits expense increased $5.8 million, or
14%, in 1997, following an increase of $10.5 million, or 33%, in 1996. This
year's increase resulted primarily from the net addition of 69 employees to
the Company's payroll. Mortgage loan commissions paid to mortgage loan
originators and processors rose $5.2 million, or 21%, after increasing $6.9
million, or 39%, in 1996. The increase in mortgage loan commissions
corresponds to the 25% growth rate in the volume of retail mortgage loans
originated during 1997, compared to a 42% growth rate in 1996. The commission
rate paid on retail loan closings, which make up a substantial majority of
total closings, is significantly higher than the commission rate paid on
wholesale closings.
Table 7
Noninterest Expense
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1997 1996 1995
- -------------- ---- ---- ----
<S> <C> <C> <C>
Salaries and employee benefits $ 48,358 $ 42,589 $32,081
Mortgage loan commissions 29,767 24,590 17,710
Net occupancy expense of premises 7,022 6,145 5,274
Equipment expense 4,538 4,626 4,395
SAIF assessment fee -- 1,500 --
Other noninterest expense 28,057 25,042 23,692
-------- -------- -------
Total noninterest expense $117,742 $104,492 $83,152
======== ======== =======
</TABLE>
Net occupancy expense increased 14% in 1997, following a 17% increase in
1996, due to the net addition of 19 retail bank and mortgage loan production
offices during 1997, most of which are leased. Equipment expense has remained
relatively stable over the past several years, reflecting consistent levels
of purchasing activity.
Included in noninterest expense for 1996 was a one-time pre-tax
assessment of $1.5 million levied on the Company's banking subsidiaries by
the Federal Deposit Insurance Corporation (FDIC) as a result of legislation
passed by Congress to recapitalize the Savings Association Insurance Fund
(SAIF). This one-time charge related to $212 million in SAIF-insured deposits
at Republic Savings Bank and $17 million in SAIF-insured deposits at Republic
Bank.
Income Taxes
The provision for income taxes was $9.9 million in 1997, compared to $7.5
million in 1996 (inclusive of the tax benefit arising from the extraordinary
item) and $8.2 million in 1995. The effective tax rate, computed by dividing
the provision for income taxes by pre-tax income, was 34.5% for 1997,
compared to 33.8% for 1996 and 36.4% for 1995. Pre-tax income in 1997
contained a lower amount of tax-exempt interest income on bank-qualified
municipal securities than in 1996. Pre-tax income in 1995 contained a higher
amount of non-deductible expenses than in 1997 and 1996.
18
<PAGE>
Financial Condition
Total assets were $1.9 billion at December 31, 1997, an increase of 26% from
$1.5 billion at December 31, 1996. Average total assets rose $177.9 million,
or 12%, to $1.6 billion during the year. This increase primarily reflects
strong growth in the portfolio loan balance, which was funded by a reduction
in investment securities as well as increases in deposits and FHLB advances.
Assets
- ------
Portfolio Loans
The Company's loan portfolio is comprised of domestic loans to businesses and
consumers. At December 31, 1997 and 1996, there were no loans to foreign
debtors outstanding and the amount of agribusiness loans outstanding were
insignificant. Loans to businesses are classified as commercial loans and are
further segregated as commercial and industrial loans and commercial real
estate loans. Commercial and industrial loans are made to local small- and
medium-sized corporations primarily to finance working capital and equipment
purchases.
Commercial real estate loans represent loans secured by real estate and
consist of real estate construction loans and commercial real estate mortgage
loans. Real estate construction loans are made to builders or developers of
real estate properties and are typically refinanced at completion, becoming
either income-producing or owner-occupied properties. Commercial real estate
mortgage loans are secured by owner-occupied or income-producing properties.
For owner-occupied property loans, the primary source of repayment is the
cash flow of the owner with the real estate serving as a secondary repayment
source. Income-producing property loans are made to entities or individuals
engaged in real estate investment, and the primary source of repayment is
derived from the rental or sale of the property.
Loans to consumers include residential real estate mortgage loans and
installment loans. Installment loans, predominantly home equity loans, are
made for various purposes, including home improvement, automobile purchases
and college tuition. The Company emphasizes home equity lending above all
other installment lending. Other types of installment loans are generally
made to accommodate customers who have an existing banking relationship with
the Company.
Table 8
Loan Portfolio Analysis
<TABLE>
<CAPTION>
December 31
(Dollars in thousands) 1997 1996 1995 1994 1993
- ---------------------- ----------------- --------------- ------------- --------------- ----------------
Amount % Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans:
Commercial and
industrial $ 41,095 3.7% $ 29,483 3.8% $ 22,523 3.9% $ 20,556 3.4% $ 27,025 6.6%
Real estate
construction 48,346 4.4 32,946 4.2 11,625 2.0 11,259 1.9 28,509 7.0
Commercial real
estate mortgages 233,078 21.3 132,763 16.9 98,285 17.0 66,096 10.8 71,008 17.5
---------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Total commercial
loans 322,519 29.4 195,192 24.9 132,433 22.9 97,911 16.1 126,542 31.1
Residential real
estate mortgages 669,203 61.1 506,944 64.6 381,803 66.0 457,755 75.7 229,203 56.3
Installment loans 104,022 9.5 82,492 10.5 63,876 11.1 49,423 8.2 51,372 12.6
---------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Total portfolio
loans $1,095,744 100.0% $784,628 100.0% $578,112 100.0% $605,089 100.0% $407,117 100.0%
========== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
The total portfolio loans balance grew $311.1 million, or 40%, to $1.1
billion at December 31, 1997, after increasing 36% in 1996. Lending remained
strong across all major categories in 1997 as more residential mortgage loans
were originated and retained in the loan portfolio. Also, commercial lending
programs were successful in local markets served by the Company and marketing
efforts directed at existing customers yielded additional home equity loans.
The overall growth of the loan portfolio stems from the Company's efforts to
enhance long-term profitability by improving the mix of earning assets on the
balance sheet.
19
<PAGE>
Commercial loans increased $127.3 million, or 65%, to $322.5 million at
December 31, 1997, after climbing 47% in 1996. This growth, which was
concentrated primarily in commercial real estate loans, reflects the
Company's efforts to complement traditional residential mortgage lending with
commercial lending. Residential real estate mortgage loans rose $162.3
million, or 32%, to $669.2 million at December 31, 1997, after growing 33% a
year earlier, as the Company retained a higher percentage of variable rate
residential real estate loans compared to prior years. Installment loans
increased $21.5 million, or 26%, to $104.0 million at December 31, 1997,
after rising 29% a year ago, reflecting the continued success of specifically
targeted sales and marketing efforts in home equity lending.
Table 9
Maturity Distribution and Interest Rate Sensitivity of Commercial Loans
<TABLE>
<CAPTION>
After One
December 31, 1997 Within But Within After
(In thousands) One Year Five Years Five Years Total
- ----------------- -------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Commercial loans:
Commercial and industrial $ 9,260 $ 15,035 $ 16,800 $ 41,095
Real estate construction 17,190 27,815 3,341 48,346
Commercial real estate mortgages 37,008 117,195 78,875 233,078
-------- --------- --------- ---------
Total commercial loans $ 63,458 $ 160,045 $ 99,016 $ 322,519
======== ========= ========= =========
<CAPTION>
Commercial Loans Maturing After
One Year With:
<S> <C> <C>
Predetermined rates $ 111,694 $ 15,052
Floating or adjustable rates 48,351 83,964
--------- ---------
Total $ 160,045 $ 99,016
========= =========
</TABLE>
The commercial loan portfolio contained no aggregate loans to any one
industry that exceeded 10% of total portfolio loans outstanding at December
31, 1997. The Company's total loan portfolio is geographically concentrated
primarily in Michigan and Ohio as shown in the following table.
Table 10
Geographic Distribution of Loan Portfolio
<TABLE>
<CAPTION>
December 31, 1997 Percent
(Dollars in thousands) Amount of Total
- ---------------------- ------ --------
<S> <C> <C>
Michigan $ 635,000 58%
Ohio 375,825 34
Indiana 27,563 3
Other states 57,356 5
---------- ---
Total $1,095,744 100%
========== ===
</TABLE>
Mortgage Loans Held for Sale
Mortgage loans held for sale increased $184.4 million, or 56%, to $513.5
million at December 31, 1997, after decreasing 22% to $329.2 million at
December 31, 1996, primarily due to strong fourth quarter 1997 mortgage loan
production volumes. Decreasing just 7% from the average balance a year
earlier, average mortgage loans held for sale remained relatively consistent
as the Company retained a higher percentage of residential mortgage loans in
the loan portfolio.
20
<PAGE>
Credit Risk Management
Extending credit to businesses and consumers exposes the Company to credit
risk. Credit risk is the risk that the principal balance of a loan and/or the
related interest will not be collected due to the inability of the borrower
to repay the loan. The Company manages credit risk in the loan portfolio
through adherence to consistent standards, guidelines and limitations
established by senior management. Written loan policies establish
underwriting standards, lending limits and other standards or limits as
deemed necessary and prudent. Various approval levels, based on the amount of
the loan and whether the loan is secured or unsecured, have also been
established. Loan approval authority ranges from the individual loan officer
to the Board of Directors' Loan Committee.
The Loan Review group within the Company's Internal Audit Department
conducts ongoing, independent reviews of the lending process to ensure
adherence to established policies and procedures, monitor compliance with
applicable laws and regulations, provide objective measurement of the risk
inherent in the loan portfolio, and ensure proper documentation exists. The
results of these periodic reviews are reported to the Audit Committee of the
Company's Board of Directors.
The following discussion summarizes the underwriting policies and
procedures for the major categories within the loan portfolio and addresses
the Company's strategies for managing the related credit risk.
Commercial Loans
Credit risk associated with commercial loans is primarily influenced by
prevailing and expected economic conditions and the level of underwriting
risk the Company is willing to assume. To manage credit risk when extending
commercial credit, the Company focuses on adequately assessing the borrower's
ability to repay and on obtaining sufficient collateral. To minimize credit
risk, the Company concentrates its commercial lending efforts on commercial
real estate loans. At December 31, 1997 and 1996, commercial real estate
loans accounted for 87% and 85%, respectively, of total commercial loans.
Emphasis is also placed on loans that are government guaranteed, such as SBA
loans. Commercial and industrial loans are generally secured by company
assets at a 75% or less loan-to-value ratio and by personal guarantees.
Management closely monitors the composition and quality of the total
commercial loan portfolio to ensure that significant credit concentrations by
borrower or industry do not exist.
Residential Real Estate Mortgage Loans
The Company originates fixed rate and variable rate residential mortgage
loans which are secured by the underlying 1-4 family residential property. At
December 31, 1997 and 1996, these loans accounted for 61% and 65%,
respectively, of total portfolio loans. Credit risk exposure in this area of
lending is minimized by the assessment of the creditworthiness of the
borrower and adherence to underwriting policies that emphasize conservative
loan-to-value ratios of generally no more than 80%. Residential mortgage
loans granted in excess of the 80% loan-to-value ratio criterion are
generally insured by private mortgage insurance, unless otherwise guaranteed
or insured by the Federal, state or local government. Credit risk is further
reduced since the majority of the Company's fixed rate, long- and short-term
mortgage loan production and all of its sub-prime mortgage loan production
are sold to investors in the secondary market.
Installment Loans
Credit risk in the installment loan portfolio is controlled through
consistent adherence to conservative underwriting standards that consider
debt to income levels and the creditworthiness of the borrower. In the home
equity lending category, loan-to-value ratios generally are limited to 80% of
collateral value. However, the Company may lend in excess of 80% of
collateral value and often utilizes an unaffiliated insurance company to
minimize the risk.
21
<PAGE>
Asset Quality
Non-Performing Assets
Non-performing assets consist of non-accrual loans, restructured loans
and other real estate owned (OREO). OREO represents real estate properties
acquired by the Company through foreclosure or by deed in lieu of
foreclosure. Commercial loans, residential real estate mortgage loans and
installment loans are generally placed on non-accrual status when principal
or interest is 90 days or more past due, unless the loans are well-secured
and in the process of collection. In all cases, loans may be placed on
non-accrual status earlier when, in the opinion of management, reasonable
doubt exists as to the full, timely collection of interest or principal. When
a loan is placed on non-accrual status, interest accruals cease and any
uncollected interest is charged against current income. Interest subsequently
received on non-accrual loans is applied against the principal balance.
Table 11
Non-Performing Assets
<TABLE>
<CAPTION>
December 31
(Dollars in thousands) 1997 1996 1995 1994 1993
- ---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial $ 1,457 $ 1,321 $ 848 $ 982 $ 1,812
Residential real estate
mortgages 9,217 3,968 313 1,304 803
Installment 307 50 131 79 108
------- ------- ------- ------- -------
Total non-accrual loans 10,981 5,339 1,292 2,365 2,723
Restructured loans -- -- 688 1,130 2,140
------- ------- ------- ------- -------
Total non-performing loans 10,981 5,339 1,980 3,495 4,863
Other real estate owned 1,671 1,250 980 586 405
------- ------- ------- ------- -------
Total non-performing assets $12,652 $ 6,589 $ 2,960 $ 4,081 $ 5,268
======= ======= ======= ======= =======
Non-performing assets as a
percentage of:
Portfolio loans and OREO 1.15% .84% .51% .67% 1.29%
Portfolio loans, mortgage
loans held for sale
and OREO .79 .59 .30 .54 .58
Total assets .68 .44 .20 .30 .45
Loans past due 90 days or more
and still accruing interest:
Commercial $ -- $ -- $ 209 $ 104 $ 217
Residential real estate
mortgages 228 548 42 -- --
Installment 6 22 94 35 93
------- ------- ------- ------- -------
Total loans past due 90 days
or more $ 234 $ 570 $ 345 $ 139 $ 310
======= ======= ======= ======= =======
</TABLE>
Non-performing assets totaled $12.7 million at December 31, 1997, up $6.1
million from $6.6 million at December 31, 1996. The increase in non-accrual
residential real estate mortgage loans accounted for 87% of the overall
increase in total non-performing assets. The primary cause for the rise in
non-accrual residential mortgages was growth in portfolio residential
mortgage loans. Historically, credit losses on loans secured by residential
property have been minimal as demonstrated by the Company's low level of net
loan charge-offs. The Company's actual losses have, generally, been limited
to forgone interest and costs related to the foreclosure process, which may
take several months to complete.
Approximately $8.2 million, or .75%, of the loans in the loan portfolio
at December 31, 1997, were 30 to 89 days delinquent, compared to $4.8
million, or .61% of portfolio loans, at December 31, 1996. The Company also
maintains a watch list for loans identified as requiring a higher level of
monitoring by management because of one or more characteristics, such as
economic conditions, industry trends, nature of collateral, collateral
margin, payment history or other factors. As of December 31, 1997, total
loans on the watch list, excluding those categorized as non-performing loans
and loans past due 90 days and still accruing interest, were $3.7 million, or
.3% of total portfolio loans, compared to $2.2 million, or .3% of total
portfolio loans, at December 31, 1996.
22
<PAGE>
The following table presents the amount of interest income that would
have been earned on non-performing loans outstanding at December 31, 1997,
1996 and 1995 had those loans been accruing interest in accordance with the
original terms of the loan agreement, as well as the amount of interest
income earned and included in net interest income for each of those years.
Table 12
Forgone Interest on Non-Performing Loans
<TABLE>
<CAPTION>
For the Year Ended
December 31
(In thousands) 1997 1996 1995
- ------------------ ------------------------- ------------------------- ------------------------
Non-Accrual Restructured Non-Accrual Restructured Non-Accrual Restructured
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Pro forma interest income $ 856 $ -- $ 259 $ -- $ 135 $ 67
Interest income earned 478 -- 34 -- 44 38
------ ----- ----- ------ ----- -----
Forgone interest income $ 378 $ -- $ 225 $ -- $ 91 $ 29
====== ===== ===== ====== ===== =====
</TABLE>
Impaired Loans
In accordance with SFAS No. 114, Accounting by Creditors for Impairment of
Loans (SFAS No. 114), impaired loans are those loans for which it is probable
that payment of principal and interest will not be collected in accordance
with the contractual terms of the original loan agreement. Consistent with
this definition, all non-accrual and restructured loans (with the exception
of residential mortgage and consumer installment loans) are impaired. At
December 31, 1997 and 1996, the gross recorded investment in impaired loans
totaled $1.5 million and $1.4 million, respectively. Similar to non-accrual
loans, interest payments subsequently received on impaired loans are applied
against the principal balance. See Note 5 of the Notes to Consolidated
Financial Statements for further discussion of impaired loans.
Provision and Allowance for Loan Losses
The allowance for loan losses represents management's assessment of the
potential losses inherent in the Company's loan portfolio. An appropriate
level of the allowance is determined based on the application of projected
loss percentages to risk-rated loans, both individually and by category. The
projected loss percentages were developed giving consideration to actual loan
loss experience, adjusted for current and prospective economic conditions.
Management also considers other factors when assessing the adequacy of the
allowance for loan losses, including loan quality, changes in the size and
character of the loan portfolio, and consultation with regulatory
authorities. In addition, specific reserves are established for individual
loans when deemed necessary by management.
Management believes that the allowance for loan losses is adequate to
meet potential losses in the loan portfolio. It must be understood, however,
that inherent risks and uncertainties related to the operation of a financial
institution require management to depend on estimates, appraisals and
evaluations of loans to prepare the Company's financial statements. Changes
in economic conditions and the financial prospects of borrowers may result in
abrupt changes to the estimates, appraisals or evaluations used. In addition,
if actual circumstances and losses differ substantially from management's
assumptions and estimates, the allowance for loan losses may not be
sufficient to absorb all future losses, and net income could be significantly
impacted.
Gross loan charge-offs declined $150,000 to $608,000 in 1997, compared to
$758,000 in 1996 and $845,000 in 1995. The ratio of net loan charge-offs to
average loans, including loans held for sale, was .03% for 1997, compared to
.06% for both 1996 and 1995. Commercial loan net charge-offs as a percentage
of average commercial loans was .14% for 1997, compared to .24% for 1996 and
.43% for 1995. Residential real estate mortgage loan net charge-offs as a
percentage of average residential mortgage loans, including loans held for
sale, was zero for 1997 and .001% for 1996, versus a net recovery of (.002)%
for 1995. Installment loan net charge-offs as a percentage of average
installment loans was .06% for 1997, compared to .26% for 1996 and .19% for
1995.
23
<PAGE>
Table 13
Analysis of the Allowance for Loan Losses
<TABLE>
<CAPTION>
Year Ended December 31
(Dollars in thousands) 1997 1996 1995 1994 1993
- ---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 4,709 $ 5,002 $ 5,544 $ 7,214 $ 7,684
Loan charge-offs:
Commercial loans 468 494 661 1,521 612
Residential real estate mortgage loans 13 11 34 70 49
Installment loans 127 253 150 114 101
------- -------- ------- ----- -------
Total loan charge-offs 608 758 845 1,705 762
Recoveries:
Commercial loans 115 112 189 219 170
Residential real estate mortgage loans 20 2 47 -- 36
Installment loans 67 61 43 72 73
------- -------- ------- ----- -------
Total recoveries 202 175 279 291 279
------- -------- ------- ----- -------
Net loan charge-offs 406 583 566 1,414 483
Provision charged to expense 3,031 290 24 94 603
Allowance for commercial loans sold -- -- -- (350) (590)
------- -------- ------- ----- -----
Balance at end of year $ 7,334 $ 4,709 $ 5,002 $ 5,544 $ 7,214
======= ======== ======= ======= =======
Allowance for loan losses as a
percentage of year-end portfolio loans .67% .60% .87% .92% 1.77%
Allowance for loan losses as a
percentage of year-end non-performing
loans 66.79 88.18 252.64 158.61 148.34
Net charge-offs as a percentage of
average total loans (including loans
held for sale) .03 .06 .06 .20 .06
</TABLE>
The Company's policy for charging off loans varies with respect to the
category of and specific circumstances surrounding each loan under
consideration. Installment loans are generally charged off when deemed to be
uncollectible or 180 days past due, whichever comes first. Charge-offs of
commercial loans and residential real estate mortgage loans are made on the
basis of management's ongoing evaluation of non-performing loans.
The following table summarizes the Company's allocation of the allowance
for loan losses by loan type and the percentage of each loan type to total
portfolio loans. The entire allowance, however, is available for use against
any type of loan charge-off deemed necessary.
Table 14
Allocation of the Allowance for Loan Losses
<TABLE>
<CAPTION>
December 31
(Dollars in thousands) 1997 1996 1995 1994 1993
- ---------------------- --------------- --------------- --------------- -------------- ---------------
% of % of % of % of % of
total total total total total
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans $2,173 29% $1,973 25% $1,522 23% $2,221 16% $3,382 31%
Residential real
estate mortgage
loans 3,795 61 1,543 65 971 66 598 76 1,298 56
Installment loans 432 10 307 10 212 11 501 8 559 13
Unallocated 934 n/a 886 n/a 2,297 n/a 2,224 n/a 1,975 n/a
------ --- ------ --- ------ --- ------ --- ------ ---
Total allowance
for loan losses $7,334 100% $4,709 100% $5,002 100% $5,544 100% $7,214 100%
====== === ====== === ====== === ====== === ====== ===
<FN>
- ---------
n/a -- Not applicable.
</TABLE>
24
<PAGE>
Securities Available for Sale
The Company's investment securities portfolio, while serving as a secondary
source of earnings, carries relatively minimal principal risk and contributes
to the management of interest rate risk and liquidity risk. The portfolio is
comprised principally of U.S. Government agency obligations, obligations
collateralized by U.S. Government-sponsored agencies, mainly in the form of
collateralized mortgage obligations and mortgage-backed securities. The
maturity structure of the portfolio is generally short-term in nature or
indexed to variable rates. At December 31, 1997, the estimated average
maturity of fixed rate investment securities within the portfolio, excluding
municipal securities, ranged from 1.5 years to 2.3 years.
Investment securities totaled $119.9 million at December 31, 1997, a
$108.7 million, or 48%, decrease from $228.6 million at December 31, 1996.
This decrease reflects sales and maturities of securities primarily to fund
growth in higher-yielding portfolio loans. The investment securities
portfolio constituted 6.4% of the Company's assets at year-end 1997, compared
to 15.3% a year earlier.
The following table summarizes the composition of the Company's
investment securities portfolio at December 31, 1997 and 1996.
Table 15
Securities Available For Sale Portfolio
<TABLE>
<CAPTION>
December 31
(In thousands) 1997 1996
- -------------- ---- ----
<S> <C> <C>
U.S. Treasury and Government agency securities $ 40,806 $ 35,806
Collateralized mortgage obligations 24,249 81,539
Mortgage-backed securities 23,568 60,233
Municipal and other securities 3,185 31,823
Equity securities 28,073 19,220
-------- --------
Total securities available for sale $119,881 $228,621
======== ========
</TABLE>
The maturity distribution of and average yield information for investment
securities held as of December 31, 1997 is provided in the following table.
Table 16
Maturity Distribution of Securities Available for Sale Portfolio
<TABLE>
<CAPTION>
December 31, 1997 Due Within One to Five to After
(Dollars in thousands) One Year Five Years Ten Years Ten Years Total
- ---------------------- ---------------- ---------------- ---------------- ----------------- -----------------
Estimated Estimated Estimated Estimated Estimated
Market Avg. Market Avg. Market Avg. Market Avg. Market Avg.
Value Yield Value Yield Value Yield Value Yield Value Yield
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
Government agency
securities $ 21 8.95% $ -- --% $ -- --% $40,785 6.47% $ 40,806 6.47%
Collateralized mortgage
obligations (2) (3) -- -- -- -- -- -- 24,249 6.80 24,249 6.80
Mortgage-backed
securities (2) (3) -- -- 129 8.35 -- -- 23,439 5.95 23,568 5.96
Municipal and other
securities (1) 30 9.95 148 9.95 417 7.25 2,590 7.63 3,185 7.71
Equity securities 28,073 6.91 -- -- -- -- -- -- 28,073 6.91
------- ---- ----- ---- ----- ---- ------- ---- -------- ----
Total securities
available for sale $28,124 6.91% $ 277 9.20% $ 417 7.25% $91,063 6.46% $119,881 6.57%
======= ==== ===== ==== ===== ==== ======= ==== ======== ====
<FN>
- ---------
(1) Average yields on tax-exempt obligations have been computed on a tax
equivalent basis, based on a 35% federal tax rate.
(2) Collateral guaranteed by U.S. Government agencies.
(3) All maturities beyond ten years are at variable rates or have estimated
average lives of less than 2.3 years. The average yield presented
represents the current yield on these securities.
</TABLE>
25
<PAGE>
Liabilities
- -----------
Deposits
Total deposits, the Company's primary source of funding, grew 16% to nearly
$1.18 billion at December 31, 1997, after increasing 12% a year earlier. The
Company's core deposits represent the largest and most stable component of
total deposits and consist of demand deposits, NOW accounts, regular savings
accounts, money market accounts, Individual Retirement Accounts (IRAs) and
retail certificates of deposit. At year-end 1997, core deposits totaled
$976.8 million, a 6% increase when compared to $922.5 million at year-end
1996.
The Company also funds mortgage loans with brokered certificates of
deposit and municipal certificates of deposit. At December 31, 1997, these
deposits totaled $83.5 million and $117.0 million, respectively, and
represented 17% of total deposits on a combined basis. At December 31, 1996,
brokered certificates of deposit totaled $56.9 million and municipal
certificates of deposit totaled $34.3 million, representing 9% of total
deposits on a combined basis.
Table 17
Maturity Distribution of Certificates of Deposit of $100,000 or More
<TABLE>
<CAPTION>
December 31
(In thousands) 1997
- -------------- ----
<S> <C>
Three months or less $154,919
Over three months through six months 93,407
Over six months through twelve months 34,669
Over twelve months 47,449
--------
Total $330,444
========
</TABLE>
Short-Term Borrowings
Short-term borrowings decreased $62.9 million, or 52%, to $58.3 million at
December 31, 1997, following a 54% decline to $121.1 million a year earlier.
Included in short-term borrowings at year-end 1997 were federal funds
purchased, securities sold under agreements to repurchase, and treasury, tax
and loan demand notes. The amount provided by these funding sources has
declined over the past two years due to increases in total deposits and
short- and long-term FHLB advances. See Note 8 to the Consolidated Financial
Statements for further information regarding short-term borrowings.
FHLB Advances
The Company's banking subsidiaries routinely utilize FHLB advances, both on a
short-term and long-term basis, to provide funding for mortgage loan
production and to minimize the interest rate risk associated with certain
fixed rate commercial and residential mortgage portfolio loans. These
advances are generally secured under a blanket security agreement by first
mortgage loans or investment securities with an aggregate book value equal to
at least 150% of the total advances. Total FHLB advances were $366.6 million
at December 31, 1997 compared to $134.2 million at December 31, 1996,
representing a 173% increase. This increase was primarily attributable to the
utilization of short-term FHLB advances to fund mortgage loan originations.
See Note 9 to the Consolidated Financial Statements for further information
regarding FHLB advances.
Long-Term Debt
Long-term debt totaled $47.5 million at December 31, 1997, compared to $49.2
million at December 31, 1996. In the first quarter of 1997, the Company paid
off a $1.8 million 6.99% Mortgage Loan maturing in the year 2000 as a result
of the sale of an office building that housed the corporate offices and
operations of Republic Bancorp Mortgage. A portion of the space in this
building was subsequently leased from the new owners. See Note 10 to the
Consolidated Financial Statements for further information regarding long-term
debt.
26
<PAGE>
Capital
Shareholders' equity increased $9.3 million, or 8%, to $131.1 million at
December 31, 1997, after declining 4% to $121.8 million a year earlier. The
increase in shareholders' equity during 1997 resulted primarily from the
retention of $11.8 million in net income after dividends and a $1.7 million
decrease in net unrealized losses on securities available for sale. In
addition, fewer common shares were repurchased during the year under the
Company's stock repurchase plan--486,100 shares in 1997 versus 1,128,400
shares in 1996. The Company declared $7.0 million in cash dividends to
shareholders in 1997, an 6% increase over the amount declared in 1996.
The Company is subject to risk-based capital adequacy guidelines that
measure capital relative to risk-weighted assets and off-balance sheet
financial instruments. Capital adequacy guidelines issued by the Federal
Reserve Board require bank holding companies to have a minimum Total
risk-based capital ratio of 8.00%, with at least half of total capital in the
form of Tier 1, or core capital. The Company's Total risk-based capital ratio
was 10.35% at December 31, 1997, compared to 13.84% a year ago. The decline
in this ratio resulted primarily from an increase in risk-weighted assets due
to growth in the loan portfolio. For further information regarding regulatory
capital requirements, see Note 22 of the Notes to Consolidated Financial
Statements.
Liquidity Management
The objective of liquidity management is to provide funds at an acceptable
cost to meet mortgage and commercial loan demand and deposit withdrawals and
to service other liabilities as they become due. Managing liquidity also
enables the Company to take advantage of opportunities for business
expansion. Funds are available from a number of sources, including, but not
limited to, cash and money market investments, the investment securities
portfolio, mortgage loans held for sale and portfolio loan repayments and
maturities.
In addition, short-term liquidity is available from federal funds
purchased, securities sold under agreement to repurchase, core deposit
growth, brokered certificates of deposit and FHLB advances. Long-term
liquidity is generated from securities sold under agreement to repurchase,
deposit growth, the maturity structure of time deposits, brokered
certificates of deposit and FHLB advances.
The parent company has two major funding sources to meet its liquidity
requirements: dividends from its subsidiaries and access to the capital
markets. On December 31, 1997, $35.5 million was available within the bank
subsidiaries for payment of dividends to the parent company without prior
regulatory approval, compared to $30.9 million at December 31, 1996. Also, at
December 31, 1997, the parent company had interest-earning deposits of $35.2
million at Republic Bank to meet any liquidity requirements.
As discussed in Item 1 of the Company's Form 10-K on page 6, Republic
Bank and Republic Savings Bank are subject to statutory and regulatory
requirements and, among other things, may be limited in their ability to pay
dividends to the parent company. These statutory and regulatory restrictions
have not had, and are not expected to have, a material effect on the
Company's ability to meet its cash obligations.
At December 31, 1997, the parent company and its subsidiaries had
available the following lines of credit or borrowing opportunities:
-- Republic Bank had $62.9 million available in unused lines of credit
with third parties for federal funds purchased; $123.1 million
available in unused borrowings with the FHLB; and $3.0 million in
borrowings available through securities sold under agreement to
repurchase.
-- Republic Savings Bank had $47.0 million available in unused lines of
credit with third parties for federal funds purchased and $6.8 million
available in unused borrowings with the FHLB. In addition, effective
January 1, 1998, Republic Savings Bank had an additional $10.0 million
federal funds purchased line of credit available with a third party.
27
<PAGE>
Forward-Looking Statements
The sections that follow entitled "Market Risk Management" and "Impact of
Year 2000" contain certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve certain risks, uncertainties, estimates and assumptions by
management, which may cause actual results to differ materially from those
contemplated by such statements. For a discussion of certain factors that may
cause such forward-looking statements to differ materially from actual
results, see Item 1 of the Company's 1997 Annual Report on Form 10-K.
Market Risk Management
Market risk is the risk of loss arising from adverse changes in the fair
value of financial instruments due to changes in interest rates, foreign
exchange rates and equity prices. The Company's market risk exposure is
composed entirely of interest rate risk. Interest rate risk arises in the
normal course of business to the extent that there is a difference between
the amount of the Company's interest-earning assets and the amount of
interest-bearing liabilities that are prepaid/withdrawn, reprice or mature in
specified periods.
The Company's Asset and Liability Management Committee (ALCO), which
meets weekly, is responsible for reviewing the interest rate sensitivity
position of the Company and establishing policies to monitor and limit
exposure to interest rate risk. Senior management at each of the Company's
subsidiaries is responsible for ensuring that the subsidiary asset and
liability management procedures adhere to corporate policies and risk limits
established by its respective board of directors.
Asset and Liability Management
The primary objective of asset and liability management is to maintain
stability in the level of net interest income by producing the optimal yield
and maturity mix of assets and liabilities within the interest rate risk
limits set by ALCO and consistent with projected liquidity needs and capital
adequacy requirements.
Interest Rate Risk Measurement
- ------------------------------
The Company utilizes two complementary quantitative tools to measure and
monitor interest rate risk: static gap analysis and earnings simulation
modeling. Each of these interest rate risk measurements has limitations, but
when evaluated together, they provide a reasonably comprehensive view of the
exposure the Company has to interest rate risk.
Static Gap Analysis: Gap analysis is utilized at the end of each month to
measure the amount of interest rate risk embedded in the balance sheet as of
a point in time. It does this by comparing the differences in the repricing
characteristics of interest-earning assets and interest-bearing liabilities.
A gap is defined as the difference between the principal amount of
interest-earning assets and interest-bearing liabilities that reprice within
a specified time period. This gap provides a general indication of the
sensitivity of the Company's net interest income to interest rate changes.
Consequently, if more assets than liabilities reprice or mature in a given
period, resulting in an asset sensitive position or positive gap, increases
in market interest rates will generally benefit net interest income because
earning asset rates will reflect the changes more quickly. Alternatively,
where interest-bearing liabilities reprice more quickly than interest-earning
assets, resulting in a liability sensitive position or negative gap,
increases in market interest rates will generally have an adverse impact on
net interest income. At December 31, 1997, the cumulative one-year gap was a
positive 4.25% of total earning assets.
The Company's current policy is to maintain a mix of asset and
liabilities with repricing and maturity characteristics that permit a
moderate amount of short-term interest rate risk based on current interest
rate projections, customer credit demands and deposit preferences. The
Company generally operates in a range of plus or minus 10% of total earning
assets for the cumulative one-year gap. Management believes that this range
reduces the vulnerability of net interest income to large shifts in market
interest rates while allowing the Company to take advantage of fluctuations
in current short-term rates.
28
<PAGE>
Static Gap Analysis
<TABLE>
<CAPTION>
December 31, 1997 Within 4 Months 1 to 5 Years
(Dollars in thousands) 3 Months to 1 Year 5 Years or Over Total
- ---------------------- -------- --------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Federal funds sold and other
money market investments $ 2,210 $ -- $ -- $ -- $ 2,210
Mortgage loans held for sale 513,533 -- -- -- 513,533
Securities available for sale 101,150 4,213 1,877 12,641 119,881
Loans, net of unearned income 268,562 261,426 378,422 187,334 1,095,744
-------- --------- --------- -------- ----------
Total interest-earning assets $885,455 $ 265,639 $ 380,299 $199,975 $1,731,368
======== ========= ========= ======== ==========
Interest-Bearing Liabilities:
Deposits:
Savings and NOW accounts $ -- $ 155,148 $ 135,914 $ -- $ 291,062
Money market accounts -- 55,635 42,026 -- 97,661
Certificates of deposit:
Under $100,000 62,172 185,255 113,718 337 361,482
$100,000 or more 154,919 128,076 47,449 -- 330,444
-------- --------- --------- -------- ----------
Total certificates of deposit 217,091 313,331 161,167 337 691,926
-------- --------- --------- -------- ----------
Total interest-bearing deposits 217,091 524,114 339,107 337 1,080,649
Short-term borrowings (1) 57,315 959 -- -- 58,274
FHLB advances 216,000 62,000 88,632 -- 366,632
Long-term debt -- -- 34,000 13,500 47,500
-------- --------- --------- -------- ----------
Total interest-bearing liabilities $490,406 $ 587,073 $ 461,739 $ 13,837 $1,553,055
======== ========= ========= ======== ==========
Interest rate sensitivity gap $395,049 $(321,434) $(81,440) $186,138 $ 178,313
As a percentage of total
interest-earning assets 22.82% (18.57)% (4.70)% 10.75% 10.30%
Cumulative interest rate
sensitivity gap $395,049 $ 73,615 $ (7,825) $178,313
As a percentage of total
interest-earning assets 22.82% 4.25% (0.45)% 10.30%
<FN>
- ---------
(1) Includes federal funds purchased, securities sold under agreements to
repurchase and other short-term borrowings.
</TABLE>
Actual maturity or repricing dates are used for investment securities,
certificates of deposit and short-term borrowings. Assumptions and estimates
have been made for NOW accounts, savings, and money market accounts to more
accurately reflect repricing and retention.
Earnings Simulation: On a quarterly basis, the earnings simulation model
is used to quantify the effects of various hypothetical changes in interest
rates on the Company's projected net interest income over the ensuing
twelve-month period. The model permits management to evaluate the effects of
various parallel shifts of the U.S. Treasury yield curve, upward and
downward, on net interest income expected in a stable interest rate
environment (i.e., base net interest income).
As of December 31, 1997, the earnings simulation model projects net
interest income would increase by 12.3% of base net interest income for 1998,
assuming an immediate parallel shift upward in market interest rates by 200
basis points. If market interest rates fall by 200 basis points, the model
projects net interest income would decrease by 6.4%. These projected levels
are well within the Company's policy limits. These results portray the
Company's interest rate risk position as asset-sensitive for the one-year
horizon. The earnings simulation model assumes that current balance sheet
totals remain constant and all maturities and prepayments of interest-earning
assets and interest-bearing liabilities are reinvested at current market
rates.
<PAGE>
Impact of Interest Rate Fluctuations and Inflation on Earnings
Unlike most industrial companies, substantially all the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rate fluctuations generally have a more significant and direct
impact on a financial institution's performance than do the effects of
inflation. To the extent inflation affects interest rates, real estate values
and other costs, the Company's lending activities may be adversely impacted.
Significant increases in interest rates beyond those reflected in the
earnings simulation model typically make it more difficult for potential
borrowers to purchase residential property and to qualify for mortgage loans.
As a result, the Company's volume of loans originated may be reduced and the
potential reduction in the related interest income may be much larger than
would implied by a simple linear extrapolation of the results generated by
the earnings simulation model. Significant decreases in interest rates
typically result in higher loan prepayment activity, which reduces interest
29
<PAGE>
income and causes the Company's mortgage servicing rights to decrease in
value. However, a lower interest rate environment would enable more potential
borrowers to reduce their mortgage interest rate and qualify for relatively
higher mortgage loan balances, therefore resulting in higher mortgage loan
production activity as well as interest income.
Impact of Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company initiated the process of preparing its computer systems and
applications for the year 2000 in June 1997. A Year 2000 Compliance Plan has
been developed by management and reviewed by the Company's Board of
Directors. This Plan contains requirements for assessing the impact of the
Year 2000 on critical computer systems and applications and for modifying,
replacing and testing certain hardware and software maintained by the Company
so that its computer systems will function properly with respect to dates in
the year 2000 and thereafter.
Management believes that with modifications to existing software and
conversions to new software, the Year 2000 will not pose significant
operational problems for its computer systems. However, if such modifications
and conversions are not made or are not completed on a timely basis, the Year
2000 could have a material impact on the operations of the Company. The
Company has also initiated formal communications with its significant
suppliers and large customers as well as other financial institutions to
determine the extent to which the Company's interface systems are vulnerable
to those third parties' failure to remediate their own Year 2000 issues.
There is no guarantee that the systems of other companies on which the
Company's systems rely will be converted on a timely basis and would not have
an adverse effect on the Company's systems.
The Company will utilize both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications. The
total Year 2000 project cost for the Company is estimated at approximately
$1.5 million and is not expected to have a material effect on the Company's
results of operations, financial position, liquidity or capital resources.
The project is expected to be completed not later than June 30, 1999, which
is prior to any anticipated impact on the Company's operating systems. The
cost of the project and the expected completion date are based on
management's best estimates.
Accounting and Financial Reporting Developments
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. The Statement provides standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
It also extends the treatment of mortgage servicing rights to all servicing
assets. On January 1, 1997, the Company prospectively adopted the provisions
of SFAS No. 125 related to the following types of transactions:
securitizations, recognition of servicing assets and liabilities, transfers
of receivables with recourse, loan participations, and extinguishments of
liabilities. Certain provisions of SFAS No. 125, relating to repurchase
agreements, securities lending and other similar transactions, and pledged
collateral, were deferred for one year by SFAS No. 127, and were adopted
prospectively as of January 1, 1998. The adoption of these Statements did not
have a material impact on the Company's financial position or results of
operations.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. This Statement establishes standards for reporting the components of
comprehensive income and requires that all items recognized as components of
comprehensive income be included in a financial statement that is displayed
with the same prominence as other financial statements. Comprehensive income
includes net income as well as certain items that are reported as a separate
component of shareholders' equity and bypass net income. The provisions of
this Statement are effective beginning with 1998 interim reporting. The
disclosure requirements will not have an impact on the Company's financial
position or results of operations.
30
<PAGE>
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. The Statement's new "management
approach" to segment reporting requires disclosure of financial and
descriptive information about an enterprise's operating segments in both
annual and interim financial reports issued to shareholders. An operating
segment is defined as a revenue-producing component of an enterprise for
which separate financial information is produced internally and is subject to
evaluation by the chief operating decision maker for purposes of determining
resource allocation and performance. The Statement is effective beginning
January 1, 1998, however, it is not required to be applied to interim
reporting in the initial year of application. The Company is currently
evaluating the impact of the Statement's provisions relating to financial and
descriptive information on current disclosures in the Company's annual and
interim financial reports. The composition of the Company's segments is not
expected to change as a result of adopting the Statement.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is set forth in the section
entitled "Market Risk Management" included under Item 7 of this document and
is incorporated herein by reference.
31
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Republic Bancorp Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
(Dollars in thousands) 1997 1996
- ---------------------- ---------- ----------
<S> <C> <C>
Assets
Cash and due from banks $ 27,458 $ 33,590
Interest-earning deposits with banks 2,210 6,524
---------- ----------
Cash and cash equivalents 29,668 40,114
Mortgage loans held for sale 513,533 329,157
Securities available for sale 119,881 228,621
Loans, net of unearned income 1,095,744 784,628
Less allowance for loan losses (7,334) (4,709)
---------- ----------
Net loans 1,088,410 779,919
Premises and equipment 12,505 15,008
Mortgage servicing rights 58,413 44,398
Other assets 50,483 53,148
---------- ----------
Total assets $1,872,893 $1,490,365
========== ==========
Liabilities
Noninterest-bearing deposits $ 96,644 $ 126,940
Interest-bearing deposits:
NOW accounts 29,561 48,472
Savings and money market accounts 359,162 258,276
Certificates of deposit 691,926 580,019
---------- ----------
Total interest-bearing deposits 1,080,649 886,767
---------- ----------
Total deposits 1,177,293 1,013,707
Federal funds purchased, securities sold
under agreements to repurchase and
other short-term borrowings 58,274 121,142
FHLB advances 366,632 134,200
Accrued expenses and other liabilities 91,142 49,243
Long-term debt 47,500 49,189
---------- ----------
Total liabilities 1,740,841 1,367,481
Minority interest 964 1,069
Shareholders' Equity
Preferred stock, $25 stated value;
$2.25 cumulativeand convertible;
5,000,000 shares authorized,
none issued and outstanding -- --
Common stock, $5 par value;
30,000,000 shares authorized;
18,678,242 and 18,842,056 shares
issued and outstanding in 1997 and
1996, respectively 93,391 85,646
Capital surplus 37,221 37,538
Retained earnings 1,274 1,079
Net unrealized losses on securities
available for sale, net of tax (798) (2,448)
---------- ----------
Total shareholders' equity 131,088 121,815
---------- ----------
Total liabilities and shareholders' equity $1,872,893 $1,490,365
========== ==========
</TABLE>
See accompanying notes.
32
<PAGE>
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31
(Dollars in thousands, except per share data) 1997 1996 1995
- --------------------------------------------- -------- ------- -------
<S> <C> <C> <C>
Interest Income
Interest and fees on loans $105,819 $ 80,436 $71,488
Interest on investment securities 12,769 18,273 23,155
Interest on federal funds sold 141 282 573
Interest on interest-earning deposits with banks 123 156 381
-------- -------- -------
Total interest income 118,852 99,147 95,597
-------- -------- -------
Interest Expense
Interest on deposits:
NOW accounts 993 1,358 1,554
Savings and money market accounts 12,331 8,882 6,677
Certificates of deposits 35,662 32,028 30,567
-------- -------- -------
Total interest expense on deposits 48,986 42,268 38,798
Federal funds purchased and securities sold
under agreements to repurchase 5,715 8,378 10,436
Other short-term borrowings 466 1,944 7,960
Interest on FHLB advances 13,275 6,094 2,431
Interest on long-term debt 3,470 3,743 5,567
-------- -------- -------
Total interest expense 71,912 62,427 65,192
-------- -------- -------
Net interest income 46,940 36,720 30,405
Provision for loan losses 3,031 290 24
-------- -------- -------
Net interest income after provision
for loan losses 43,909 36,430 30,381
-------- -------- -------
Noninterest Income
Mortgage banking revenue 93,700 86,377 70,960
Service charges 1,446 1,218 1,297
Investment securities gains (losses) (497) 766 1,061
Gain on sale of SBA loans 1,065 1,242 873
Gain on sale of bank branches and deposits 4,442 -- --
Other noninterest income 2,359 1,243 1,010
-------- -------- -------
Total noninterest income 102,515 90,846 75,201
-------- -------- -------
Noninterest Expense
Salaries and employee benefits 48,358 42,589 32,081
Mortgage loan commissions 29,767 24,590 17,710
Occupancy expense of premises 7,022 6,145 5,274
Equipment expense 4,538 4,626 4,395
SAIF assessment fee -- 1,500 --
Other noninterest expenses 28,057 25,042 23,692
-------- -------- -------
Total noninterest expense 117,742 104,492 83,152
-------- --------- -------
Income before income taxes and extraordinary item 28,682 22,784 22,430
Provision for income taxes 9,893 7,718 8,166
-------- -------- -------
Income before extraordinary item 18,789 15,066 14,264
Extraordinary item - loss on early redemption of
debt, net of tax -- (388) --
-------- -------- -------
Net Income $ 18,789 $ 14,678 $14,264
======== ======== =======
Basic Earnings Per Share:
Income before extraordinary item $ 1.01 $ .78 $ .71
Extraordinary item -- (.02) --
-------- -------- -------
Net income per share--basic $ 1.01 $ .76 $ .71
======== ======== =======
Diluted Earnings Per Share:
Income before extraordinary item $ .99 $ .76 $ .69
Extraordinary item -- (.02) --
-------- --------- -------
Net income per share--assuming dilution $ .99 $ .74 $ .69
======== ======== =======
</TABLE>
See accompanying notes.
33
<PAGE>
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Number of Net Unrealized Total
Common Common Capital Retained Gains/(Losses) Shareholders'
(In thousands, except per share data) Shares Stock Surplus Earnings on Securities Equity
- ------------------------------------- --------- ------ ------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1995 15,246 $76,231 $ 35,636 $ 11,320 $(5,273) $ 117,914
Net Income 14,264 14,264
Cash dividends declared
($.28 per share) (5,536) (5,536)
Awards of common share under
Restricted Stock Plan (1,318) (1,318)
Amortization of restricted stock 672 672
10% common share dividend 1,504 7,521 10,342 (17,876) (13)
Issuance of common shares:
Through exercise of stock options 177 885 241 1,126
Through exercise of stock warrants 12 58 11 69
Tax benefit relating to exercise of
stock options 405 405
Change in unrealized gains/(losses)
on securities available for sale,
net of income taxes of $2,105 3,910 3,910
Repurchase of common shares (461) (2,305) (2,812) (5,117)
------ ------- -------- -------- ------- ---------
Balances at December 31, 1995 16,478 82,390 43,177 2,172 (1,363) 126,376
Net Income 14,678 14,678
Cash dividends declared
($.34 per share) (6,531) (6,531)
Awards of common shares under
Restricted Stock Plan (790) (790)
Amortization of restricted stock 648 648
10% common share dividend 1,565 7,827 1,398 (9,240) (15)
Issuance of common shares:
Through exercise of stock options 212 1,062 (28) 1,034
Through exercise of stock warrants 2 9 (3) 6
Tax benefit relating to exercise of
stock options 514 514
Change in unrealized gains/(losses) on
securities available for sale,
net of income tax benefit of $584 (1,085) (1,085)
Repurchase of common shares (1,128) 5,642) (7,378) (13,020)
------ ------- -------- -------- ------- ---------
Balances at December 31, 1996 17,129 85,646 37,538 1,079 (2,448) 121,815
Net Income 18,789 18,789
Cash dividends declared
($.37 per share) (6,950) (6,950)
Awards of common shares under
Restricted Stock Plan (1,575) (1,575)
Amortization of restricted stock 824 824
10% common share dividend 1,693 8,466 3,155 (11,644) (23)
Issuance of common shares:
Through exercise of stock options 289 1,446 115 1,561
Through exercise of stock warrants 53 264 (70) 194
Tax benefit relating to stock-based
awards 1,123 1,123
Change in unrealized gains/(losses) on
securities available for sale,
net of income tax of $888 1,650 1,650
Repurchase of common shares (486) (2,431) (3,889) (6,320)
------ ------- -------- -------- ------- ---------
Balances at December 31, 1997 18,678 $93,391 $ 37,221 $ 1,274 $ (798) $ 131,088
====== ======= ======== ======== ======= =========
</TABLE>
See accompanying notes.
34
<PAGE>
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1997 1996 1995
- ---------------------- ---------- --------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 18,789 $ 14,678 $ 14,264
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,099 5,258 5,521
Amortization of mortgage servicing rights 6,918 7,616 6,999
Net gains on sale of mortgage servicing rights (29,398) (33,041) (25,279)
Net (gains) losses on sale of securities
available for sale 497 (766) (1,061)
Net gains on sale of loans (4,568) (5,488) (3,037)
Proceeds from sale of mortgage loans
held for sale 3,340,995 3,244,436 2,408,751
Origination of mortgage loans held for sale (3,525,371) (3,150,229) (2,695,917)
(Increase) decrease in other assets 8,855 (5,205) 3,137
Increase in other liabilities 41,899 5,928 1,729
Other, net (1,842) (3,292) (5,254)
---------- --------- -----------
Total adjustments (156,916) 65,217 (304,411)
---------- --------- -----------
Net cash provided by (used in)
operating activities (138,127) 79,895 (290,147)
Cash Flows From Investing Activities:
Proceeds from sale of mortgage servicing rights 26,483 53,182 48,918
Additions to mortgage servicing rights (29,161) (19,638) (31,720)
Proceeds from sale of securities available for sale 189,161 145,422 233,082
Proceeds from maturities/principal payments of
securities available for sale 31,873 57,139 67,192
Purchase of securities available for sale (111,109) (115,115) (157,537)
Proceeds from maturities/principal payments of
securities held to maturity -- -- 11,881
Proceeds from sale of loans 207,817 215,636 253,310
Net increase in loans made to customers (511,641) (415,126) (208,034)
Proceeds from sale of fixed assets 4,194 -- --
---------- --------- -----------
Net cash (used in) provided by investing
activities (192,383) (78,500) 217,092
</TABLE>
See accompanying notes.
35
<PAGE>
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1997 1996 1995
- ---------------------- ---------- --------- -----------
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Net increase in total deposits $ 215,722 $ 81,973 $ 65,490
Purchase of bank branch deposits -- 27,005 20,497
Sale of bank branch deposits (52,136) -- --
Net increase (decrease) in short-term borrowings (62,765) (141,899) 6,505
Net increase (decrease) in short-term FHLB advances 242,000 4,500 (34,950)
Increase in long-term FHLB advances 31,432 49,200 70,500
Payments on long-term FHLB advances (41,000) -- (25,000)
Increase in long-term debt -- -- 13,464
Payments on long-term debt (1,792) (25,649) (17,915)
Proceeds from issuance of senior debentures and
subordinated notes, net of issuance costs (30) 22,233 --
Net proceeds from issuance of common shares 1,755 1,040 1,195
Repurchase of common shares (6,320) (13,020) (5,117)
Dividends paid (6,802) (6,305) (5,270)
---------- --------- ---------
Net cash provided (used in) by financing
activities 320,064 (922) 89,399
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents (10,446) 473 16,344
Cash and cash equivalents at beginning of year 40,114 39,641 23,297
---------- --------- ---------
Cash and cash equivalents at end of year $ 29,668 $ 40,114 $ 39,641
========== ========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 72,004 $ 63,233 $ 62,562
Income taxes $ 6,153 $ 8,576 $ 5,782
Supplemental Schedule of Non-Cash
Investing Activities:
Portfolio loan charge-offs $ 608 $ 758 $ 845
Reclassification of investment securities held
to maturity to the investment securities
available for sale category $ -- $ -- $ 257,200
</TABLE>
See accompanying notes.
36
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Republic Bancorp Inc. and Subsidiaries (the "Company") is a bank holding
company headquartered in Ann Arbor, Michigan. The Company has two primary
lines of business: (1) commercial and retail banking and (2) mortgage
banking. Financial products are offered to consumers and businesses through
the Company's two banking subsidiaries' 35 retail bank branches located in
Michigan and Ohio. The Company also maintains a nationwide mortgage banking
network of 112 offices located in 21 states. In addition, the Company
performs residential mortgage loan servicing for the benefit of others with
responsibilities ranging from collecting and remitting loan payments to
supervising foreclosure proceedings.
Principles of Consolidation
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and include the accounts of
Republic Bancorp Inc.; its two wholly-owned banking subsidiaries: Republic
Bank (including its wholly-owned mortgage company subsidiaries, Republic
Bancorp Mortgage Inc. and CUB Funding Corporation, and its 80% majority-owned
mortgage company subsidiary, Market Street Mortgage Corporation) and Republic
Savings Bank. In July 1997, the parent company transferred its ownership
interest in Market Street Mortgage to Republic Bank. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to current year
presentations.
Use of Estimates
Management makes estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the financial statements and accompanying
notes, as well as the amounts of revenues and expenses reported during the
periods covered by those financial statements and notes. Actual results could
differ from these estimates.
Securities Available for Sale
The Company's investment securities are classified as available for sale
and stated at fair value with unrealized gains and losses, net of income
taxes, reported as a component of shareholders' equity. Gains and losses on
sales of securities are computed based on specific identification of the
adjusted cost of each security and included in investment securities gains
(losses).
For mortgage portfolio loans securitized and retained as investment
securities, the remaining net deferred fees or costs are treated as a
discount or premium and recognized as an adjustment to the yield over the
life of the security using the effective interest method. If the security is
subsequently sold, any remaining net deferred fees or costs are treated as
part of the cost basis in determining the gain or loss on sale of the
security.
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are treated as
collateralized borrowing transactions and are recorded at the amount at which
the securities were sold plus accrued interest. The securities sold represent
the underlying collateral in these transactions and are recorded on the
balance sheet at fair value.
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at the lower of aggregate cost
or market. The cost of mortgage loans held for sale is adjusted by gains and
losses generated from corresponding forward commitments to sell the loans to
investors in the secondary market. Such commitments are generally entered
into prior to closing to protect the value of the mortgage loans from
increases in interest rates during the period held. Mortgage loans originated
are generally sold within a period of 30 to 60 days after closing, therefore,
the related fees and costs are not amortized during that period.
37
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Nature of Operations and Summary of Significant Accounting Policies
(Continued)
Loans
Loans are stated at the principal amount outstanding, net of unearned
income. Interest income earned on all loans is accrued daily. Loans for which
the accrual of interest has been discontinued are designated as non-accrual
loans. Commercial loans, residential real estate mortgage loans and
installment loans are placed on non-accrual status at the time the loan is 90
days past due, unless the loan is well-secured and in the process of
collection. In all cases, loans may be placed on non-accrual status when, in
the opinion of management, reasonable doubt exists as to the full, timely
collection of interest or principal. All interest accrued but not collected
for loans that are placed on non-accrual status is reversed and charged
against current income. Any interest payments subsequently received on
non-accrual loans are applied against the principal balance. Loans are
considered restructured when the Company makes certain concessions to a
financially troubled debtor that would not normally be considered. Loan
origination and commitment fees and certain direct loan origination costs are
deferred and recognized over the life of the related loan as an adjustment to
the yield on the loan.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level adequate to
provide for potential loan losses through additions to the provision for loan
losses. An appropriate level of the allowance for loan losses is determined
based on a continuing review of the loan portfolio giving consideration to
loan quality, actual loan loss experience, changes in the size and character
of the loan portfolio, an analysis of current economic conditions and
consultation with regulatory authorities. With respect to loans which are
deemed impaired, the calculation of an allowance for loan losses typically is
based upon collateral values.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is computed on a straight-line basis over the
estimated useful lives of the related assets. Amortization of leasehold
improvements is computed on a straight-line basis over the shorter of the
estimated useful lives of the related assets or the remaining lease terms.
Mortgage Servicing Rights
The total cost of mortgage loans originated with the intent to sell is
allocated between the loan and the mortgage servicing rights ("MSRs") based
on their relative fair values at the date of origination. The capitalized
cost of MSRs is amortized in proportion to and over the period of the
estimated future net servicing income. Mortgage servicing rights are
periodically evaluated for impairment, which represents the excess of cost of
an individual MSR stratum over its fair value. Impairment is recognized
through a valuation allowance. For purposes of measuring impairment, MSRs are
stratified on the basis of loan type (e.g., fixed, balloon or adjustable) and
interest rate.
Fair values for individual stratum are based on the present value of
estimated future cash flows using a discount rate commensurate with the risks
involved. Estimates of fair value include assumptions about prepayment,
default and interest rates, and other factors which are subject to change
over time. Changes in these underlying assumptions could cause the fair value
of MSRs, and the related valuation allowance, to change significantly in the
future.
Goodwill
The excess of cost over the fair value of net assets acquired is included
in other assets and is amortized using the straight-line method over a period
of 15 years. Core deposit intangible assets are amortized on a straight-line
basis over a period of 10 years.
38
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Nature of Operations and Summary of Significant Accounting Policies
(Continued)
Income Taxes
Deferred income taxes are recognized for the future tax consequences
attributable to temporary differences between the tax and financial statement
basis of assets and liabilities. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. A valuation allowance is established to the extent current available
evidence about future events raise doubt about the future realization of a
deferred tax asset. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enacted date.
Earnings Per Share
In February 1997, the FASB issued Statement No. 128, Earnings Per Share,
which became effective for the Company for reporting periods ending after
December 15, 1997. The provisions of the Statement replaced the calculation
of primary and fully diluted earnings per share with basic and diluted
earnings per share in an effort to simplify the computation of these measures
and align them more closely with the methodology used internationally. Basic
earnings per share is calculated by dividing income available to common
shareholders by the weighted-average number of common shares outstanding.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share equates to what would have been reported as fully diluted
earnings per share. For purposes of comparability, all basic earnings per
share amounts for prior periods have been restated to conform to the
requirements of SFAS No. 128.
Stock-Based Compensation
Effective January 1, 1996, the Company adopted SFAS No. 123, Accounting
for Stock-Based Compensation. As permitted by the Statement, the Company
continues to use the intrinsic value method prescribed by Accounting
Principles Board (APB) Opinion No. 25 when accounting for its employee stock
compensation plans. Therefore, no compensation costs are charged against
income for stock option grants. Accordingly, the Company is required to
disclose pro forma net income and earnings per share information as if
compensation expense had been recognized for stock options granted based on
the fair value method prescribed by SFAS No.
123.
The Company continues to recognize compensation expense for restricted
stock over the vesting period in accordance with APB Opinion No. 25. Such
expense is included in salaries and employee benefits expense on the
consolidated statements of income. The unamortized portion of restricted
stock is included as a component of shareholders' equity.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, interest-earning deposits with banks,
federal funds sold and other short-term investments with maturities less than
90 days.
Note 2. Acquisitions and Divestitures
The Company completed the following acquisitions and divestitures in the
years indicated. The purchase price for each acquisition was immaterial,
unless otherwise noted, and all acquisitions were accounted for under the
purchase method of accounting. With the exception of the sale of bank
branches, these transactions did not have a significant impact on the
Company's results of operations.
During 1997:
In May 1997, the Company completed the sale of four southern Michigan
branches of Republic Bank. The sale included the fixed assets of the
Hillsdale, Litchfield, Somerset Center and Spring Arbor offices and deposits
totaling $52 million. The Company recognized a $4.4 million gain on the sale.
39
<PAGE>
Notes to Consolidated Financial Statements
Note 2. Acquisitions and Divestitures (Continued)
In September 1997, the Company acquired certain assets and the mortgage
origination network of Exchange Mortgage Corporation of Southfield, Michigan.
The mortgage operation has three offices in Michigan, including a sub-prime
mortgage lending division, Union Mortgage Services. Exchange Mortgage
operates as a division of Republic Bancorp Mortgage Inc.
During 1996:
In April 1996, the Company completed the purchase of certain assets and
the mortgage origination network of First of America in St. Louis, Missouri
and southern Illinois. The mortgage operation has seven offices in the
greater St. Louis, Missouri area operating under the name Leader Financial
and is a division of CUB Funding Corporation.
In July 1996, the Company completed the purchase of certain assets and
the mortgage origination network of Unlimited Mortgage Services, Inc., of
Columbus, Ohio. The mortgage operation has an office in Columbus, Ohio and
operates as a division of Republic Bancorp Mortgage Inc.
In December 1996, the Company acquired certain fixed assets and deposits
of three branch offices located in the greater Cleveland, Ohio area. The
three branch offices are located in Middleburg Heights, Shaker Heights and
Hudson and had combined deposits of approximately $27 million. The purchase
price for these offices totaled $2.9 million.
Note 3. Securities Available for Sale
Information regarding the Company's securities available for sale portfolio
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- -------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1997:
U.S. Treasury and Government agency securities $ 40,900 $ 119 $ 213 $ 40,806
Collateralized mortgage obligations 24,283 34 68 24,249
Mortgage-backed securities 24,020 3 455 23,568
Municipal and other securities 3,051 134 -- 3,185
-------- -------- -------- --------
Total debt securities 92,254 290 736 91,808
Equity securities 28,855 -- 782 28,073
-------- -------- -------- --------
Total securities available for sale $121,109 $ 290 $ 1,518 $119,881
======== ======== ======== ========
December 31, 1996:
U.S. Treasury and Government agency securities $ 36,030 $ 36 $ 260 $ 35,806
Collateralized mortgage obligations 82,804 4 1,269 81,539
Mortgage-backed securities 61,602 6 1,375 60,233
Municipal and other securities 31,970 110 257 31,823
-------- -------- -------- --------
Total debt securities 212,406 156 3,161 209,401
Equity securities 19,982 -- 762 19,220
-------- -------- -------- --------
Total securities available for sale $232,388 $ 156 $ 3,923 $228,621
======== ======== ======== ========
</TABLE>
The amortized cost and estimated market value of securities available for
sale at December 31, 1997, by contractual maturity, are shown on the
following page. Variable rate mortgage-backed securities are indexed to the
11th District Cost of Funds. Expected maturities for mortgage-backed
securities and collateralized mortgage obligations will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations. Based upon prepayment assumptions, estimated lives of fixed rate
mortgage-backed securities and fixed rate collateralized mortgage obligations
range from 1.5 to 2.3 years. Collateral for all mortgage-backed securities
and collateralized mortgage obligations is guaranteed by U.S. Government
agencies.
40
<PAGE>
Notes to Consolidated Financial Statements
Note 3. Securities Available for Sale (Continued)
<TABLE>
<CAPTION>
December 31, 1997 Due Within One to Five to After
(Dollars in thousands) One Year Five Years Ten Years Ten Years Total
- ------------------------------------------ -------------------- -------------------- -------------------- ---------------------
Estimated Estimated Estimated Estimated Estimated
Amortized Marke Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value Cost Value
--------- --------- --------- --------- --------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
Government agency
securities $ 20 $ 21 $ -- $ -- $ -- $ -- $ 40,880 $ 40,785 $ 40,900 $ 40,806
Collateralized
mortgage
obligations -- -- -- -- -- -- 24,283 24,249 24,283 24,249
Mortgage-backed
securities -- -- 126 129 -- -- 23,894 23,439 24,020 23,568
Municipal and other
securities 30 30 145 148 405 417 2,471 2,590 3,051 3,185
Equity securities 28,855 28,073 -- -- -- -- -- -- 28,855 28,073
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total securities
available
for sale $ 28,905 $ 28,124 $ 271 $ 277 $ 405 $ 417 $ 91,528 $ 91,063 $121,109 $119,881
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Sales of investment securities resulted in the following realized gains and
losses:
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales $ 189,161 $145,422 $233,082
Realized gains (losses):
Securities gains $ 742 $ 824 $ 1,524
Securities losses (1,239) (58) (463)
--------- -------- --------
Net securities gains (losses) $ (497) $ 766 $ 1,061
========= ======== ========
</TABLE>
Securities with a carrying value of approximately $30.9 million and $65.0
million at December 31, 1997 and 1996, respectively, were pledged to secure
certain securities sold under agreements to repurchase and public deposits as
required by law.
Note 4. Loans
Information regarding the Company's loan portfolio follows:
<TABLE>
<CAPTION>
December 31
(In thousands) 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C>
Commercial:
Commercial and industrial $ 41,095 $ 29,483
Real estate construction 48,346 32,946
Commercial real estate mortgages 233,078 132,763
---------- --------
Total commercial loans 322,519 195,192
Residential real estate mortgages 669,203 506,944
Installment loans 104,022 82,492
---------- --------
Total loans, net of unearned income $1,095,744 $784,628
========== ========
</TABLE>
41
<PAGE>
Notes to Consolidated Financial Statements
Note 4. Loans (Continued)
A geographic concentration exists within the Company's loan portfolio since
most portfolio lending activity is conducted in Michigan and Ohio. At
December 31, 1997, approximately 58% of outstanding portfolio loans was
concentrated in Michigan and 34% in Ohio. At December 31, 1997, there were no
aggregate loan concentrations of 10% or more of total portfolio loans to any
particular industry.
Note 5. Allowance for Loan Losses and Impaired Loans
An analysis of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 4,709 $ 5,002 $ 5,544
Loans charged off (608) (758) (845)
Recoveries on loans previously charged off 202 175 279
------- ------- -------
Net loans charged off (406) (583) (566)
Provision for loan losses 3,031 290 24
------- ------- -------
Balance at end of year $ 7,334 $ 4,709 $ 5,002
======= ======= =======
Amount of balance at end of year:
Related to impaired loans $ -- $ 96 $ 368
Related to all other loans $ 7,334 $ 4,613 $ 4,634
</TABLE>
SFAS No. 114, Accounting By Creditors for Impairment of a Loan, as amended by
SFAS No. 118, considers a loan impaired when it is probable that payment of
principal and interest will not be collected in accordance with the
contractual terms of the original loan agreement. Consistent with this
definition, all non-accrual and restructured loans (with the exception of
residential mortgage and consumer installment loans) are impaired.
The following impaired loans were included in non-performing loans, which
totaled $11.0 million and $5.3 million at December 31, 1997 and 1996,
respectively:
<TABLE>
<CAPTION>
December 31
(In thousands) 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
Average recorded investment in impaired loans for the year $1,483 $1,545
Gross recorded investment in impaired loans (year-end) $1,457 $1,356
Impaired loans requiring a specific allowance -- 336
Impairment allowance -- 96
Interest income recognized on impaired loans $ 22 $ 16
</TABLE>
An impaired loan for which it is deemed necessary to record a specific
allowance is, typically, written down to the fair value of the underlying
collateral at the time it is placed on non-accrual status via a direct
charge-off against the allowance for loan losses. Consequently, those
impaired loans not requiring a specific allowance represent loans for which
the fair value of the underlying collateral equaled or exceeded the recorded
investment in the loan. All impaired loans were evaluated using the fair
value of the underlying collateral as the measurement method.
42
<PAGE>
Notes to Consolidated Financial Statements
Note 6. Mortgage Servicing Rights
Activity related to the Company's mortgage servicing rights is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $44,398 $58,265 $57,183
Additions 29,161 19,638 31,720
Sales (8,228) (25,889) (23,639)
Amortization (6,918) (7,616) (6,999)
------- ------- -------
Balance at end of year $58,413 $44,398 $58,265
======= ======= =======
Estimated fair value at end of year $59,574 $50,869 $63,000
======= ======= =======
</TABLE>
In 1995, the Company adopted SFAS No. 122, Accounting for Mortgage
Servicing Rights, which was superseded by SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, in 1997. Income before taxes in 1995 increased approximately
$3.4 million as a result of adopting this Statement.
Mortgage Servicing Activity
Mortgage loans secured principally by single-family residential properties
are originated and sold to investors without recourse. The Company retains
the servicing rights to certain loans sold. As a loan servicer, the Company
is responsible for collecting and remitting monthly principal and interest
payments, performing certain escrow services and conducting other duties
related to the administration of the loans within the servicing portfolio.
The Company's mortgage servicing portfolio totaled $3.1 billion at December
31, 1997 and consisted of approximately 39,000 loans. At December 31, 1996,
the mortgage servicing portfolio was $2.7 billion and consisted of
approximately 36,000 loans.
At December 31, 1997 and 1996, the Company was responsible for $59.9
million and $47.0 million, respectively, of escrow funds on behalf of
mortgagors. Escrow funds are generally held in custody at Republic Bank and
are included in noninterest-bearing deposits on the consolidated balance
sheets.
Note 7. Premises and Equipment
Premises and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31
(In thousands) 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,289 $ 1,605
Furniture, fixtures and equipment 22,899 20,621
Buildings and improvements 8,685 11,111
-------- -------
32,873 33,337
Less accumulated amortization and depreciation (20,368) (18,329)
-------- -------
Premises and equipment $ 12,505 $15,008
======== =======
</TABLE>
The Company leases certain office facilities under lease agreements that
expire at various dates. In some cases, these leases offer renewal options
and require that the Company pay for insurance, maintenance and taxes. Rental
expense under all operating leases charged to operations in 1997, 1996 and
1995 totaled $5.4 million, $4.6 million, and $3.6 million, respectively.
43
<PAGE>
Notes to Consolidated Financial Statements
Note 7. Premises and Equipment (Continued)
As of December 31, 1997, the future aggregate minimum lease payments
required under noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
Operating
Year Ending Lease Payments
- ----------------------------------------------------------
<S> <C>
1998 $ 4,202
1999 2,699
2000 1,823
2001 964
2002 553
2003 and thereafter 941
--------
Total minimum lease payments required $ 11,182
========
</TABLE>
Note 8. Short-Term Borrowings
Short-term borrowings were as follows:
<TABLE>
<CAPTION>
Average Average Maximum
Ending Rate Average Rate Month-End
(Dollars in thousands) Balance At Year-End Balance During Year Balance
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1997
Federal funds purchased $ 32,000 6.61% $ 38,091 5.75% $ 70,900
Securities sold under agreements
to repurchase 20,770 5.89 62,163 5.67 106,596
Other short-term borrowings 5,504 5.27 7,017 6.64 7,205
-------- ---- -------- ---- --------
Total short-term borrowings $ 58,274 6.23% $107,271 5.76% $184,701
======== ==== ======== ==== ========
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1996
Federal funds purchased $ 67,900 6.76% $ 25,312 5.71% $ 76,900
Securities sold under agreements
to repurchase 47,256 5.66 122,298 5.67 188,187
Other short-term borrowings 5,986 6.16 27,124 7.17 96,919
-------- ---- -------- ---- --------
Total short-term borrowings $121,142 6.19% $174,734 5.91% $362,006
======== ==== ======== ==== ========
</TABLE>
Federal funds purchased mature within one day following the transaction
date and securities sold under agreements to repurchase generally mature
within ninety days from the transaction date. At December 31, 1997, Republic
Bank and Republic Savings Bank had $62.9 million and $47.0 million,
respectively, of unused lines of credit available with third parties for
federal funds purchased. Effective January 1, 1998, Republic Savings Bank had
an additional $10.0 million federal funds line of credit available under an
agreement with a third party. With respect to securities sold under
agreements to repurchase, Republic Bank had $3.0 million in borrowings
available at December 31, 1997.
Other short-term borrowings at December 31, 1997 were comprised of
treasury, tax and loan demand notes. At December 31, 1996, other short-term
borrowings consisted of treasury, tax and loan demand notes, amounts owed by
the parent company under a revolving credit agreement, and the current
portion of long-term debt.
44
<PAGE>
Notes to Consolidated Financial Statements
Note 8. Short-Term Borrowings (Continued)
The parent company had an $18.0 million revolving credit agreement with
Firstar Bank Milwaukee, N.A. The proceeds received under this agreement were
used for general working capital purposes. This credit facility was secured
by the common and preferred stock of Republic Bank. Interest on borrowings
was computed at the prime rate (8.50% at December 31, 1997) minus .50%. The
agreement contained certain restrictive covenants which required Republic
Bank and the Company to maintain certain minimum capital, loan quality and
financial performance ratios as well as a minimum net worth. This agreement
expired in January 1998 and has not been renewed.
Note 9. FHLB Advances
FHLB advances outstanding as of December 31, 1997 and 1996 are presented
below. Classifications are based on original maturities.
<TABLE>
<CAPTION>
December 31
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------
Average Average
Ending Rate at Ending Rate at
Balance Year-End Balance Year-End
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-term FHLB advances $281,000 5.74% $ 39,000 5.59%
Long-term FHLB advances 85,632 6.09 95,200 6.02
-------- ---- --------- ----
Total FHLB advances $366,632 5.83% $ 134,200 5.89%
======== ==== ========= ====
</TABLE>
Republic Bank and Republic Savings Bank routinely borrow short-term and
long-term advances from the Federal Home Loan Bank (FHLB) to fund mortgage
loan originations and to minimize the interest rate risk associated with
certain fixed rate commercial and residential mortgage portfolio loans. These
advances are generally secured under a blanket security agreement by first
mortgage loans or investment securities with an aggregate book value equal to
at least 150% of the advances. Republic Bank and Republic Savings Bank had
$123.1 million and $6.8 million, respectively, available in unused borrowings
with the Federal Home Loan Bank at December 31, 1997.
The principal maturities of long-term FHLB advances outstanding at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(In thousands) Amount
- --------------------------------
<S> <C>
1998 $ 27,000
1999 36,200
2000 12,000
2001 10,432
--------
Total $ 85,632
========
</TABLE>
45
<PAGE>
Notes to Consolidated Financial Statements
Note 10. Long-Term Debt
Obligations with original maturities of more than one year consisted of the
following:
<TABLE>
<CAPTION>
December 31
(Dollars in thousands) 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 Note 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>
7.17% Senior Debentures Due 2001
These senior debentures were issued through a private offering in March
1994 and mature April 1, 2001. Interest is payable at a stated rate
semi-annually on April 1 and October 1 of each year.
6.75% and 6.95% Senior Debentures Due 2001 and 2003
In January 1996, the Company completed a private offering of $22.5
million of Senior Debentures with $9.0 million maturing on January 15, 2001
and $13.5 million maturing on January 15, 2003. Interest is payable at the
stated rate semi-annually on April 1 and October 1 of each year. Proceeds of
the offering were used to redeem $17.25 million of 9.0% Subordinated Notes
and for general corporate purposes. The early redemption of the 9.0%
Subordinated Notes resulted in the recognition of an extraordinary loss of
$388,000 after the related income tax effect of $209,000.
6.99% Mortgage Note Due 2000
In September 1993, Republic Bancorp Mortgage Inc. financed the
acquisition of its corporate office with a mortgage note in the amount of
$2.1 million with Firstar Bank Milwaukee, N.A. Principal and interest at a
fixed rate of 6.99% were payable quarterly. At December 31, 1996, $103,000 of
the amount outstanding was classified as short-term borrowings. The note,
which was originally due on October 1, 2000, was paid in full in March 1997
due to the sale of the office building.
The principal maturities of long-term debt outstanding at December 31, 1997
are as follows:
<TABLE>
<CAPTION>
(In thousands) Amount
- -----------------------------------
<S> <C>
1999 $ --
2000 --
2001 34,000
2002 13,500
2003 and thereafter --
-------
Total $47,500
=======
</TABLE>
46
<PAGE>
Notes to Consolidated Financial Statements
Note 11. Shareholders' Equity
On September 21, 1997, the Board of Directors declared a 10% stock dividend
distributed on December 5, 1997 to shareholders of record on November 7,
1997. Similar stock dividends were distributed on December 2, 1996 to
shareholders of record November 4, 1996 and December 1, 1995 to shareholders
of record November 3, 1995.
The Company repurchased 486,100 shares of common stock in 1997. None of
these shares were reissued in conjunction with the 1997 10% stock dividend.
In 1996, repurchases totaled 1,128,000 shares, of which 1,049,000 shares were
reissued in conjunction with the 1996 10% stock dividend. In 1995, the
Company repurchased 461,000 shares, of which 429,000 shares were reissued in
conjunction with the 1995 10% stock dividend.
Note 12. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Year Ended December 31
(Dollars in thousands, except per share data) 1997(1) 1996(1) 1995(1)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator for basic and diluted earnings per share:
Income before extraordinary item $ 18,789 $ 15,066 $ 14,264
Extraordinary item -- (388) --
------------ ------------ ------------
Net income $ 18,789 $ 14,678 $ 14,264
============ ============ ============
Denominator:
Denominator for basic earnings per share --
weighted-average shares 18,679,777 19,347,146 19,970,129
Effect of dilutive securities:
Employee stock options 222,298 348,930 445,823
Warrants 167,263 139,130 135,191
------------ ------------ ------------
Dilutive potential common shares 389,561 488,060 581,014
Denominator for diluted earnings per share --
adjusted weighted-average shares for
assumed conversions 19,069,338 19,835,206 20,551,143
============ ============ ============
Basic earnings per share $ 1.01 $ .76 $ .71
============ ============ ============
Diluted earnings per share $ .99 $ .74 $ .69
============ ============ ============
<FN>
(1) Share amounts for all periods presented have been adjusted to reflect the
issuance of stock dividends.
</TABLE>
Note 13. Stock-Based Compensation
The Company maintains various stock-based compensation plans that provide for
its ability to grant stock options, stock warrants and restricted shares to
selected employees and directors. See Note 1 on page 39 for the Company's
accounting policies relating to stock-based compensation.
Stock Options
The Company awards stock options to officers and key employees under the
1997 Stock Option Plan, which was adopted effective January 16, 1997. This
Plan authorizes the issuance of up to 825,000 options to purchase common
shares at exercise prices equal to the market value of the Company's common
stock on the date of grant. Options are exercisable immediately upon grant
and have a maximum contractual life of 10 years from the date of grant. At
December 31, 1997, options available for future grant under the 1997 Stock
Option Plan totaled 598,730. There were no options available for grant at
December 31, 1996 and 920 options were available at December 31, 1995 under
the previous Non-Qualified Stock Option Plan, which concluded in accordance
with its terms in 1996.
47
<PAGE>
Notes to Consolidated Financial Statements
Note 13. Stock-Based Compensation (Continued)
The following table presents stock option activity for the years
indicated:
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- ----------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Options Price Options Price Options Price
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 587,371 $ 4.84 858,560 $ 4.20 1,068,456 $ 3.71
Granted 226,270 11.84 -- -- 32,222 7.96
Exercised (316,726) 4.92 (249,697) 3.84 (234,286) 4.01
Canceled -- -- (21,492) 8.46 (7,832) 8.31
-------- -------- -------- -------- --------- --------
Outstanding at
end of year 496,915 $ 8.54 587,371 $ 4.84 858,560 $ 4.20
======== ======== ======== ======== ========= ========
</TABLE>
Additional information regarding stock options outstanding and
exercisable at December 31, 1997 is provided in the following table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Options Outstanding and Exercisable
---------------------------------------------
Weighted
Average Weighted
Remaining Average
Contractual Exercise
Range of Exercise Prices Shares Life (Years) Price
- --------------------------------------------------------------------------
<S> <C> <C> <C>
$ 3.00 - $ 6.00 125,891 2.5 $ 3.30
$ 6.00 - $ 9.00 101,179 6.5 7.66
$ 9.00 - $12.00 255,765 8.8 11.18
$12.00 - $18.00 14,080 9.4 13.82
<CAPTION>
- -------------------------------------------------------------------------
<S> <C> <C> <C>
$ 3.00 - $18.00 496,915 6.8 $ 8.54
==========================================================================
</TABLE>
Stock Warrants
The Company has a Director Compensation Plan that provides for its ability to
issue 1,500 warrants annually to each of the Company's outside directors.
Stock warrants granted are immediately exercisable and have maximum
contractual lives of ten years. In 1997, 19,800 warrants were issued,
compared to 21,780 warrants in 1996 and 15,972 warrants in 1995. At December
31, 1997, 234,268 warrants were outstanding with exercise prices ranging from
$3.15 to $11.70.
Restricted Stock Plan
The Company's Restricted Stock Plan authorizes the grant of 331,301
common shares to key officers and employees. Restriction periods for these
shares exist for a period of three or four years, depending on whether the
shares were issued before or after January 16, 1997. Restricted shares are
forfeited if employment is terminated before the restriction period expires.
As of December 31, 1997 and 1996, 242,035 and 266,632 shares have been
awarded and are still subject to restrictions under the Restricted Stock
Plan. Compensation expense is recognized over the restriction period and
included in salaries and employee benefits expense in the consolidated
statements of income. Compensation expense for restricted stock totaled
$632,000 in 1997, $513,000 in 1996, and $313,000 in 1995. The unamortized
portion of restricted stock is included as a component of shareholders'
equity in the consolidated balance sheets. In 1997, 126,889 restricted shares
were issued, compared to 87,780 in 1996 and 98,857 in 1995. The weighted
average grant-date fair value of restricted shares issued in 1997 was $12.41.
48
<PAGE>
Notes to Consolidated Financial Statements
Note 13. Stock-Based Compensation (Continued)
Pro Forma Disclosures
For purposes of providing the pro forma disclosures of net income and
earnings per share required by SFAS No. 123, the fair value of stock options
and stock warrants was estimated as of the grant date using the Black-Scholes
option pricing model. The following weighted average assumptions were used in
the option pricing model: an expected volatility factor of 23.3%; an expected
dividend yield of 2.61%; a risk-free interest rate of 6.69%; and an expected
life of the option of 5.2 years. The weighted average grant-date fair value
of stock options and stock warrants granted during each of the years 1997,
1996 and 1995 was $2.76.
Had compensation cost for the Company's stock-based compensation plans been
determined in accordance with SFAS No. 123, net income and earnings per share
would have been as summarized below:
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands, except per share data) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (as reported) $18,789 $ 14,678 $14,264
Net income (pro forma) 18,347 14,639 14,194
Basic earnings per share (as reported) $ 1.01 $ .76 $ .71
Basic earnings per share (pro forma) .98 .76 .71
Diluted earnings per share (as reported) $ .99 $ .74 $ .69
Diluted earnings per share (pro forma) .96 .74 .69
</TABLE>
Note 14. Employee Benefit Plans
The Company maintains a 401(k) plan for its employees. The employer
contributions to the plan are determined annually by the Board of Directors.
Contribution expenses for the 401(k) plan for the years ended December 31,
1997, 1996 and 1995 totaled $1.2 million, $693,000, and $644,000,
respectively.
Note 15. Other Noninterest Expense
The three largest components of other noninterest expense were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Telephone $ 3,379 $ 3,120 $ 2,708
Computer service fees 1,859 1,737 1,556
Advertising 1,833 1,679 1,487
</TABLE>
49
<PAGE>
Notes to Consolidated Financial Statements
Note 16. Income Taxes
The current and deferred components of the provision for Federal income tax
expense for the years ended December 31, 1997, 1996, and 1995 are as follows.
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Current income tax expense $ 6,906 $ 7,315 $ 5,127
Deferred income tax expense 2,987 194 3,039
------- ------- ---------
Total income tax expense $ 9,893 $ 7,509 $ 8,166
======= ======= =======
</TABLE>
A deferred tax asset or liability is recognized to reflect the net tax
effects of temporary differences between the carrying amounts of existing
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes, as well as operating loss and tax credit
carryforwards. Significant temporary differences that gave rise to the
deferred tax assets and liabilities as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------
Deferred Deferred
Asset Liability Asset Liability
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for loan losses $ 1,869 $ -- $ 392 $ --
Mortgage servicing rights amortization 997 -- 788 --
Originated mortgage servicing rights -- 6,159 -- 2,506
Deferred loan origination fees and costs, net -- 2,811 -- 2,106
Non-deductible accruals -- -- 177 --
Depreciation/amortization 717 -- 373 --
Cash dividends on FHLB stock -- 777 -- 649
Purchase accounting adjustment amortization 719 -- 675 --
Unrealized loss on securities available for sale 430 -- 1,318 --
Loan mark-to-market adjustment 752 -- 994 --
Other temporary differences 1,240 683 1,114 158
------- ------- ------- -------
Total deferred taxes $ 6,724 $10,430 $ 5,831 $ 5,419
======= ======= ======= =======
</TABLE>
Items causing differences between the statutory tax rate and the
effective tax rate are summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31
(Dollars in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory tax rate $10,039 35.0% $ 7,765 35.0% $ 7,851 35.0%
Amortization of goodwill 87 .3 88 .4 88 .4
Net tax exempt interest income (240) (.8) (521) (2.4) (36) (.2)
Other, net 7 -- 177 .8 263 1.2
-------- --- ------- ---- ------- -----
Provision for income taxes $ 9,893 34.5% $ 7,509 33.8% $ 8,166 36.4%
======= ==== ======= ==== ======= ====
</TABLE>
50
<PAGE>
Notes to Consolidated Financial Statements
Note 17. Contingencies
The Company and its subsidiaries are subject to certain legal actions and
proceedings in the normal course of business. Management believes that the
aggregate liability, if any, resulting from such actions would not have a
material adverse affect on the Company's financial condition, results of
operations or liquidity.
Note 18. Transactions With Related Parties
Republic Bank and Republic Savings Bank have, in the normal course of
business, made loans to certain directors and officers and to organizations
in which certain directors and officers have an interest. Other transactions
with related parties include noninterest-bearing and interest-bearing
deposits. In the opinion of management, such loans and other transactions
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated parties and did not involve more than normal risk of
collectibility.
A summary of related party loan activity follows:
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 1,685 $ 2,596
Loans and advances to employees 1,211 --
Loans to current directors and officers 937 379
Repayments (824) (1,290)
-------- --------
Balance at end of year $ 3,009 $ 1,685
======== ========
</TABLE>
Note 19. Segment Information
The Company operates in two industry segments, as defined by SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise. Those segments are
commercial and retail banking and mortgage banking. Table 1 of Management's
Discussion and Analysis of Financial Condition and Results of Operations on
page 13, incorporated herein by reference, presents the financial results of
these segments for the years ending December 31, 1997, 1996, and 1995.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. The Statement's provisions require
enterprises to disclose in their annual and interim reports to shareholders
financial and descriptive information about their operating segments using a
new "management approach." The Statement is effective for the Company
beginning January 1, 1998, however, it is not required to be applied to
interim reporting in the initial year of application.
Note 20. Off-Balance Sheet Transactions
In the normal course of business, the Company becomes a party to transactions
involving financial instruments with off-balance sheet risk to meet the
financing needs of its customers and to manage its own exposure to interest
rate risk. These financial instruments include commitments to extend credit,
standby letters of credit and forward commitments to sell mortgage loans that
are not reflected in the consolidated financial statements. The contractual
amounts of these instruments express the extent of the Company's involvement
in these transactions as of the balance sheet date. These instruments
involve, to varying degrees, elements of credit risk, market risk and
liquidity risk in excess of the amount recognized in the consolidated balance
sheets. However, they do not represent unusual risks for the Company and
management does not anticipate any significant losses to arise from these
transactions.
51
<PAGE>
Notes to Consolidated Financial Statements
Note 20. Off-Balance Sheet Transactions (Continued)
Commitments to extend credit are legally binding agreements to lend cash
to a customer as long as there is no breach of any condition established in
the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require the payment of a fee. Commitments to fund
loan applications with agreed-upon rates subject the Company to market risk
due to fluctuations in interest rates. Standby letters of credit guarantee
the performance of a customer to a third party. The Company issues these
guarantees primarily to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions.
The credit risk associated with commitments to extend credit and standby
letters of credit is essentially the same as that involved with direct
lending. Therefore, these instruments are subject to the Company's loan
review and approval procedures and credit policies. Based upon management's
credit evaluation of the counterparty, the Company may require the
counterparty to provide collateral as security for the agreement, including
real estate, accounts receivable, inventories, and investment securities. The
maximum credit risk associated with these instruments equals their
contractual amounts and assumes that the counterparty defaults and the
collateral proves to be worthless. The total contractual amounts of
commitments to extend credit and standby letters of credit do not necessarily
represent future cash requirements, since many of these agreements may expire
without being drawn upon.
At December 31, 1997, the Company had outstanding $220.9 million of
commitments to fund residential real estate loan applications with
agreed-upon rates, including $50.3 million of portfolio residential mortgage
loans. Committing 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
after the loans close but before they 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 December 31, 1997, the Company had outstanding mandatory forward
commitments to sell $536.1 million of residential mortgage loans, of which
$389.8 million covered the mortgage loans held for sale balance and $146.3
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 first quarter of 1998 without
producing any material gains or losses. At December 31, 1997, the mortgage
loans held for sale balance included $123.7 million of loan products for
which the Company did not enter into mandatory forward commitments. The
Company's exposure to market risk was not significantly increased, however,
since $78.9 million, or 64%, of these loans were loans that had been
committed for bulk sale to third parties prior to year-end or were floating
rate residential construction loans.
At December 31, 1996, outstanding forward commitments to sell mortgage
loans totaled $438.1 million, of which $329.2 million covered the mortgage
loans held for sale balance and $108.9 million related to commitments to fund
residential real estate loan applications with agreed-upon rates.
The following table presents the contractual amounts of the Company's
off-balance sheet financial instruments outstanding at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
December 31
(In thousands) 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to fund residential real estate loans $575,005 $229,755
Commitments to fund commercial real estate loans 101,531 94,188
Other unused commitments to extend credit 41,116 33,224
Standby letters of credit 3,254 228
Financial instruments subject to interest rate risk:
Residential real estate loan applications with agreed-upon rates $220,919 $145,945
Forward commitments to sell residential real estate mortgage loans 536,120 438,112
</TABLE>
52
<PAGE>
Notes to Consolidated Financial Statements
Note 21. Estimated Fair Value of Financial Instruments
Fair value estimates of financial instruments are made at a specific point in
time based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could
result from offering for sale the Company's entire holdings of a particular
financial instrument. Since no ready market exists for a significant portion
of the Company's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and other
factors. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are determined for existing on- and off-balance
sheet financial instruments without attempting to estimate the value of
anticipated future business and value of assets and liabilities that are not
considered financial instruments. Tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect
on the fair value of financial instruments and have not been considered in
these estimates.
The methods and assumptions used to estimate the fair value of each class
of financial instruments for which determination of such an estimate was
practicable are as follows:
Cash and Cash Equivalents:
The carrying amount is a reasonable estimate of fair value for these
instruments.
Mortgage Loans Held for Sale:
The fair value of mortgage loans held for sale, including the fair value
of associated mortgage servicing rights, is estimated based on the present
value of estimated future cash flows of the loan and related servicing
rights.
Securities Available for Sale:
The fair value of securities available for sale is estimated based on
quoted market prices or dealer quotes.
Loans:
Fair values are estimated for portfolio loans based on the present value
of future estimated cash flows using discount rates which incorporate a
premium commensurate with normal credit and interest rate risks involved.
Loans are segregated by type such as commercial and industrial, commercial
real estate, residential mortgage and installment.
Fair value for non-performing loans is based on the premise that
management has allocated adequate reserves for loan losses. As a result, the
fair value of non-performing loans approximate their carrying value.
Deposits:
The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings, money market and NOW accounts,
is equal to the amount payable on demand. The estimated fair value of
certificates of deposit is based on the present value of future estimated
cash flows using the rates currently offered for deposits of similar
remaining maturities.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase:
Fair value approximates the carrying value since the majority of these
instruments were entered into at or near December 31, 1997 and 1996.
53
<PAGE>
Notes to Consolidated Financial Statements
Note 21. Estimated Fair Value of Financial Instruments (Continued)
Other Short-Term Borrowings:
The carrying amount is a reasonable estimate of fair value of other
short-term borrowings as these financial instruments are tied to floating
rate indices such as prime and LIBOR, and reprice frequently.
FHLB Advances and Long-Term Debt:
Fair value is estimated based on the present value of future estimated
cash flows using current rates offered to the Company for debt with similar
terms.
Off-Balance Sheet Financial Instruments:
The Company's off-balance sheet financial instruments are detailed in
Note 20 in the Notes to Consolidated Financial Statements. The Company's
commitments to fund residential real estate loan applications with
agreed-upon interest rates may result in a gain or loss upon the sale of the
funded residential real estate loans. Additionally, the Company's forward
commitments to sell residential real estate loans may result in a gain or
loss. The aggregated fair value of these off-balance sheet financial
instruments at December 31, 1997 and 1996 were not material.
The following table presents the estimated fair values of the Company's
financial instruments:
<TABLE>
<CAPTION>
1997 1996
December 31 Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 29,668 $ 29,668 $ 40,114 $ 40,114
Mortgage loans held for sale 513,533 515,683 329,157 333,271
Securities available for sale 119,881 119,881 228,621 228,621
Loans, net of the allowance for loan losses 1,088,409 1,111,414 779,919 784,346
Liabilities:
Noninterest-bearing deposits 96,644 96,644 126,940 126,940
NOW, savings and money market accounts 388,724 388,724 306,748 306,748
Certificates of deposit maturing in:
Six months or less 327,517 328,312 260,455 260,893
Over six months to one year 70,039 70,235 220,096 221,250
Over one year to three years 175,627 176,600 78,394 78,903
Over three years 118,742 119,617 21,074 21,202
---------- ---------- ---------- ----------
Total deposits 1,177,293 1,180,132 1,013,707 1,015,936
Federal funds purchased and securities sold
under agreements to repurchase 52,770 52,770 115,156 115,156
Other short-term borrowings 5,504 5,504 5,986 5,986
FHLB advances 366,632 365,431 134,200 134,720
Long-term debt 47,500 48,890 49,189 50,206
</TABLE>
54
<PAGE>
Notes to Consolidated Financial Statements
Note 22. Regulatory Matters
The Company's banking subsidiaries are required by law to maintain average
cash reserve balances with the Federal Reserve Bank based on a percentage of
deposits. At December 31, 1997 and 1996, these reserves totaled $3.5 million
and $10.6 million, respectively.
The principal source of cash flows for the parent company is dividends
from Republic Bank and Republic Savings Bank. The banking regulatory agencies
limit the amount of dividends these state chartered financial institutions
may declare to the parent company in any calendar year. On December 31, 1997,
$35.5 million was available for payment of dividends.
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 4.00% (and in some cases 3.00%) for Tier 1 leverage.
Under the framework for prompt corrective action, all financial institutions
must meet capital guidelines that involve quantitative measures of the
Company's assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. To be considered well
capitalized under the regulatory framework for prompt corrective action,
minimum capital ratios of 10.00% for Total risk-based capital, 6.00% for Tier
1 risk-based capital and 5.00% for Tier 1 leverage must be maintained. The
Company's capital amounts and classification are also subject to qualitative
judgments by the regulators with respect to components, risk weightings and
other factors.
Management believes, as of December 31, 1997, that the Company met all
capital adequacy requirements to which it is subject. In addition, each bank
subsidiary had regulatory capital ratios in excess of the levels established
for well capitalized institutions.
As of December 31, 1997, the Federal Reserve Bank of Chicago considers
the Company to be "well capitalized" under the regulatory framework for
prompt corrective action. There are no conditions or events since that
notification that management believes have changed the Company's category.
55
<PAGE>
Notes to Consolidated Financial Statements
Note 22. Regulatory Matters (Continued)
Presented in the table below are the capital amounts and ratios for the
Company and each of its banking subsidiaries, Republic Bank and Republic
Savings Bank, along with a comparison to the year-end capital amounts and
ratios established by the regulators.
<TABLE>
<CAPTION>
(Dollars in thousands) Actual Adequately Capitalized Well Capitalized
- ---------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total capital
(to risk weighted assets)(1):
Consolidated $126,519 10.35% $ 97,541 8.00% $121,926 10.00%
Republic Bank 104,182 11.52 72,353 8.00 90,441 10.00
Republic Savings Bank 38,086 12.49 24,400 8.00 30,501 10.00
Tier 1 capital
(to risk weighted assets)(1):
Consolidated $118,825 9.75% $ 48,771 4.00% $ 73,156 6.00%
Republic Bank 99,294 10.98 36,176 4.00 54,265 6.00
Republic Savings Bank 33,139 10.87 12,200 4.00 18,300 6.00
Tier 1 capital
(to average assets)(1):
Consolidated $118,825 6.58% $ 54,208 3.00% $ 90,346 5.00%
Republic Bank 99,294 8.12 36,689 3.00 61,149 5.00
Republic Savings Bank 33,139 6.59 15,096 3.00 25,159 5.00
<CAPTION>
- ---------------------------------------------------------------------------------------------------
As of December 31, 1996
Total capital
(to risk weighted assets)(1):
<S> <C> <C> <C> <C> <C> <C>
Consolidated $120,120 13.84% $ 69,439 8.00% $ 86,799 10.00%
Republic Bank 79,232 14.01 45,252 8.00 56,566 10.00
Republic Savings Bank 32,434 13.31 19,248 8.00 24,061 10.00
Tier 1 capital
(to risk weighted assets)(1):
Consolidated $115,411 13.30% $ 34,720 4.00% $ 52,079 6.00%
Republic Bank 76,469 13.52 22,626 4.00 33,939 6.00
Republic Savings Bank 30,489 12.51 9,624 4.00 14,436 6.00
Tier 1 capital
(to average assets)(1):
Consolidated $115,411 8.16% $ 42,454 3.00% $ 70,756 5.00%
Republic Bank 76,469 7.88 29,104 3.00 48,506 5.00
Republic Savings Bank 30,489 6.93 13,198 3.00 21,996 5.00
<FN>
(1) As defined in the regulations
</TABLE>
56
<PAGE>
Notes to Consolidated Financial Statements
Note 23. Parent Company Financial Information
The condensed financial statements of Republic Bancorp Inc. (Parent Company
only) are as follows:
<TABLE>
<CAPTION>
Parent Company Only Balance Sheets
December 31 (In thousands) 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and due from banks $ 743 $ 743
Interest earning deposits 35,154 1,771
-------- ---------
Cash and cash equivalents 35,897 2,514
Investment in subsidiaries 144,274 132,258
Notes and advances receivable from subsidiaries 3,147 38,384
Furniture and equipment 130 88
Other assets 4,588 4,539
-------- ---------
Total assets $188,036 $ 177,783
======== =========
Liabilities and Shareholders' Equity:
Accrued expenses and other liabilities $ 9,448 $ 6,593
Short-term borrowings -- 1,875
Long-term debt 47,500 47,500
-------- ---------
Total liabilities 56,948 55,968
Total shareholders' equity 131,088 121,815
-------- ---------
Total liabilities and shareholders' equity $188,036 $ 177,783
======== =========
</TABLE>
<TABLE>
<CAPTION>
Parent Company Only Income Statements
Year Ended December 31 (In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 2,544 $ 3,323 $ 2,751
Dividends from subsidiaries 13,646 12,579 23,586
Other income -- -- 4
-------- -------- --------
Total income 16,190 15,902 26,341
Interest expense 3,739 3,637 4,365
Salaries and employee benefits 4,305 2,229 1,058
Other expenses 1,824 1,382 1,260
-------- -------- --------
Total expenses 9,868 7,248 6,683
-------- -------- --------
Income before income taxes, extraordinary item and
excess (deficiency) of undistributed earnings of
subsidiaries over dividends 6,322 8,654 19,658
Income tax credits (2,532) (1,307) (1,272)
-------- -------- --------
Income before extraordinary item and excess
(deficiency) of undistributed earnings of
subsidiaries over dividends 8,854 9,961 20,930
Extraordinary item - loss on early redemption
of debt, net of tax -- (388) --
Excess (deficiency) of undistributed earnings of
subsidiaries over dividends 9,935 5,105 (6,666)
-------- -------- --------
Net income $ 18,789 $ 14,678 $ 14,264
======== ======== ========
</TABLE>
57
<PAGE>
Notes to Consolidated Financial Statements
Note 23. Parent Company Financial Information (Continued)
<TABLE>
<CAPTION>
Parent Company Only Statements of Cash Flows
Year Ended December 31 (In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 18,789 $ 14,678 $ 14,264
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 557 475 598
(Excess) deficiency of undistributed
earnings of subsidiaries over
dividends (9,935) (5,105) 6,666
(Increase) decrease in other assets (382) (3,495) 1,959
Increase in other liabilities 2,708 1,590 312
Other, net -- 1,389 (21)
-------- -------- --------
Total adjustments (7,052) (5,146) 9,514
-------- -------- --------
Net cash provided by operating activities 11,737 9,532 23,778
Cash Flows from Investing Activities:
Return of capital from (capital investment in)
subsidiaries (430) 4,000 (3,547)
Equipment expenditures (74) -- --
(Increase) decrease in notes and advances
receivable from subsidiaries 35,422 6,062 (22,635)
-------- -------- --------
Net cash provided by (used in)
investing activities 34,918 10,062 (26,182)
Cash Flows from Financing Activities:
Net proceeds from issuance of common shares
through exercise of stock options and
stock warrants 1,755 1,040 1,195
Repurchase of common shares (6,320) (13,020) (5,117)
Dividends paid on common shares (6,802) (6,305) (5,270)
Net increase (decrease) in short-term borrowings (1,875) (6,250) 8,125
Issuance of senior debentures, net of
issuance costs (30) 22,233 --
Repayment of subordinated notes -- (17,250) --
-------- -------- --------
Net cash (used in) provided by
financing activities (13,272) (19,552) (1,067)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 33,383 42 (3,471)
Cash and cash equivalents at beginning of year 2,514 2,472 5,943
-------- -------- --------
Cash and cash equivalents at end of year $ 35,897 $ 2,514 $ 2,472
======== ======== ========
</TABLE>
58
<PAGE>
Report of Management
The management of Republic Bancorp Inc. is responsible for the preparation of
the financial statements and other related financial information included in
the Annual Report on Form 10-K. The financial statements have been prepared
in accordance with generally accepted accounting principles and include the
amounts based on management's estimates and judgments where appropriate.
Financial information appearing throughout the Annual Report on Form 10-K is
consistent with the financial statements.
Management is responsible for the integrity and objectivity of the
consolidated financial statements. Established accounting procedures are
designed to provide financial records and accounts which fairly reflect the
transactions of the Company. The training of qualified personnel and the
assignment of duties are intended to provide an internal control structure at
a cost consistent with management's evaluation of the risks involved. Such
controls are monitored by an internal audit staff to provide reasonable
assurances that transactions are executed in accordance with management's
authorization and that adequate accountability for the Company's assets is
maintained.
The 1997 financial statements have been audited by Ernst & Young LLP,
independent auditors, and their report follows.
The Audit Committee of the Board of Directors is composed of outside
directors who meet with management, internal auditors, independent auditors
and regulatory examiners to review matters relating to financial reporting
and internal controls. The internal auditors, independent auditors and
regulatory examiners have direct access to the Audit Committee.
/s/ Jerry D. Campbell /s/ Thomas F. Menacher
- --------------------- -----------------------
Jerry D. Campbell Thomas F. Menacher, CPA
Chairman of the Board and Senior Vice President, Treasurer and
Chief Executive Officer Chief Financial Officer
59
<PAGE>
Independent Auditors' Report
Republic Bancorp Inc. Board of Directors
We have audited the accompanying consolidated balance sheet of Republic
Bancorp Inc. and subsidiaries as of December 31, 1997 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The financial
statements of Republic Bancorp Inc. for each of the two years in the period
ended December 31, 1996, were audited by other auditors whose report dated
January 16, 1997, expressed an unqualified opinion on those statements and
included an explanatory paragraph that disclosed the change in the Company's
method of accounting for mortgage servicing rights discussed in Note 6 to
these financial statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Republic Bancorp Inc. and subsidiaries at December 31, 1997 and the
consolidated results of their operations and their cash flows for the year
then ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Detroit, Michigan
January 15, 1998
60
<PAGE>
Quarterly Data (Unaudited)
The following is a summary of unaudited quarterly results of operations for
the years 1997 and 1996:
<TABLE>
<CAPTION>
Full
(Dollars in thousands, except per share data) 1Q 2Q 3Q 4Q Year
- ----------------------------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C> <C>
Earnings Summary
Interest income $25,046 $ 28,191 $31,689 $33,926 $118,852
Interest expense 15,057 17,007 19,375 20,473 71,912
Net interest income 9,989 11,184 12,314 13,453 46,940
Provision for loan losses 297 2,188 136 410 3,031
Mortgage banking revenue 18,950 21,241 26,041 27,468 93,700
Other noninterest income 1,386 4,864 1,347 1,218 8,815
Noninterest expense 24,153 27,933 31,217 34,439 117,742
Income before taxes 5,875 7,168 8,349 7,290 28,682
Net income 3,956 4,712 5,375 4,746 18,789
Per Common Share
Basic earnings $ .21 $ .26 $ .29 $ .25 $ 1.01
Diluted earnings .21 .25 .28 .25 .99
Cash dividends declared .09 .09 .09 .10 .37
<CAPTION>
- ----------------------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C> <C>
Earnings Summary
Interest income $24,162 $ 24,216 $25,608 $25,161 $99,147
Interest expense 16,060 15,339 15,659 15,369 62,427
Net interest income 8,102 8,877 9,949 9,792 36,720
Provision for loan losses 65 45 90 90 290
Mortgage banking revenue 19,444 21,939 22,225 22,769 86,377
Other noninterest income 1,219 826 1,350 1,074 4,469
Noninterest expense 24,189 25,280 27,691 27,332 104,492
Income before taxes and
extraordinary item 4,511 6,317 5,743 6,213 22,784
Income before extraordinary item 3,015 4,146 3,754 4,151 15,066
Net income 2,627 4,146 3,754 4,151 14,678
Per Common Share
Basic earnings $ .13 $ .21 $ .20 $ .22 $ .76
Diluted earnings .13 .21 .19 .21 .74
Cash dividends declared .08 .08 .09 .09 .34
</TABLE>
61
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by this Item relating to a change in accountants
was previously reported in the Registrant's Form 8-K/A dated June 20, 1997
filed with the Securities and Exchange Commission.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The information set forth under the caption "Board of Directors" on pages
13 to 14 of the Registrant's 1998 Proxy Statement is incorporated herein by
reference.
The executive officers of Republic Bancorp Inc. are listed under Item 1
of this document.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Personnel, Compensation and
Nominating Committee Report" on pages 16 to 17 and "Compensation of Executive
Officers" on pages 19 to 21 of the Registrant's 1998 Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Voting Securities" on pages
10 to 12 of the Registrant's 1998 Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and
Related Transactions" on page 22 of the Registrant's 1998 Proxy Statement is
incorporated herein by reference.
62
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Financial Statements
The following financial statements of the Company are filed as a part
of this document under Item 8. Financial Statements and Supplementary
Data:
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Income for the Years Ended December 31,
1997, 1996 and 1995
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December
31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Independent Auditors' Report
2. Financial Statement Schedules
All financial statement schedules required by Article 9 of Regulation
S-X have been included in the consolidated financial statements or
are either not applicable or not significant.
3. Exhibits
3(a) Articles of Incorporation are incorporated herein by reference
to Exhibit 3(a) to Form 10-K filed March 17, 1994.
3(b) Bylaws, as amended, are incorporated herein by reference to
Exhibit 3(b) to Registration Statement on Form S4 filed March 1,
1990, Registration No. 3333811.
4(a) Debenture Purchase Agreement dated as of March 30, 1994, between
the Company and Scudder, Stevens & Clark, Inc., Business Men's
Assurance Company of America, Columbus Life Insurance Company
and Mutual of America Life Insurance Company, related to 7.17%
Senior Debentures due 2001, filed as Exhibit 4(p) to Form 10-K
filed March 27, 1995, is incorporated herein by reference.
4(b) Debenture Purchase Agreement dated as of January 29, 1996,
between the Company and American United Life Insurance, State
Life Insurance Co., Mutual of America Life Insurance Co., GNA,
Mega Life & Health Insurance Co. and Provident Mutual Life
Insurance Company, related to 6.75% Senior Debentures due
January 15, 2001 and 6.95% Senior Debentures due January 15,
2003, filed as Exhibit 4(c) to Form 10-K filed March 29, 1996,
is incorporated herein by reference.
10(a) 1998 Stock Option Plan of the Company, effective February 19,
1998, subject to shareholder approval.
10(b) 1997 Stock Option Plan of the Company, effective January 16,
1997, filed as Exhibit 10(b) to Form 10-K filed March 28, 1997,
is incorporated herein by reference.
10(c) Non-Qualified Stock Option Plan of the Company, effective March
24, 1986, as amended and restated, filed as Exhibit 10(b) to
Form 10-K filed March 23, 1993, is incorporated herein by
reference.
10(d) Restricted Stock Plan of the Company as amended.
63
<PAGE>
10(e) Voluntary Management Stock Accumulation Program, effective
February 19, 1998, subject to shareholder approval.
10(f) Directors Compensation Plan of the Company, adopted by the Board
of Directors on October 15, 1992, filed as Exhibit 10(e) to Form
10-K filed March 23, 1993, is incorporated herein by reference.
10(g) Deferred Compensation Plan of the Company, adopted by the Board
of Directors on December 16, 1993, filed as Exhibit 10(e) to
Form 10-K filed March 17, 1994, is incorporated herein by
reference.
10(h) Form of Indemnity Agreement and schedule of officers and
directors of the Company who executed such agreements, filed as
Exhibit 10(e) to Form S2 filed February 28, 1992, Registration
No. 3346069, is incorporated herein by reference.
10(i) First Amended and Restated Agreement and Plan of Reorganization,
dated as of October 29, 1992, by and between the Company and
Horizon Financial Services, Inc., filed as Exhibit 2 to Form 8-K
filed November 6, 1992, is incorporated herein by reference.
10(j) Agreement and Plan of Merger between the Company and Premier
Bancorporation, Inc., dated as of March 31, 1993, filed as
Exhibit 28(c) to Form 10-K filed March 17, 1994, is incorporated
herein by reference.
10(k) Purchase and Sale Agreement by and between Republic Bancorp Inc.
("Purchaser") and California United Bank, National Association
("Seller"), dated October 22, 1993, filed as Exhibit 28(e) to
Form 10-K filed March 17, 1994, is incorporated herein by
reference.
10(l) Purchase and Sale Agreement by and between Republic Bank
("Seller") and CB North ("Purchaser"), dated as of September 27,
1994, filed as Exhibit 28(g) to Form 10-K filed March 27, 1995,
is incorporated herein by reference.
10(m) Form of Servicing and Disposition Agreement for Inventory and
Construction Loan Portfolio, dated November 21, 1992 between
Market Street Mortgage Corporation and the Company, filed as
Exhibit 2(b) to Form 8-K filed November 23, 1992, is
incorporated herein by reference.
13. 1997 Annual Report to Shareholders.
21. Subsidiaries of the Registrant are incorporated herein by
reference to Note 1 of the Notes to Consolidated Financial
Statements included under Item 8 of this document.
23(a) Consent of Ernst & Young LLP, independent auditors, to
incorporation by reference to its report dated January 15, 1998
appearing in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
23(b) Consent of Deloitte & Touche LLP, independent auditors, to
incorporation by reference to its report dated January 16, 1997
appearing in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and into the Company's Registration
Statements on Form S-8 dated May 5, 1997, Registration No.
333-26515; Form S-8 dated December 4, 1992, Registration No.
33-55336; Form S-8 dated December 4, 1992, Registration No.
33-55304; and Form S-8 dated May 10, 1993, Registration No.
33-62508 and into the Company's Registration Statement on Form
S-3 dated May 26, 1993, Registration No. 33-61842.
24. Powers of Attorney
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1997.
64
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 18th day
of March 1998.
REPUBLIC BANCORP INC.
By: /s/ JERRY D. CAMPBELL
-------------------------
Jerry D. Campbell
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities indicated, on the 18th day of March 1998.
Signature Title Date
--------- ----- ----
/s/ JERRY D. CAMPBELL Chairman of the Board and March 18, 1998
- ------------------------- Chief Executive Officer
Jerry D. Campbell
/s/ THOMAS F. MENACHER Senior Vice President, Treasurer March 18, 1998
- ------------------------- and Chief Financial Officer
Thomas F. Menacher (Principal Financial Officer and
Principal Accounting Officer)
DIRECTORS *
Dana M. Cluckey Howard J. Hulsman John J. Lennon George B. Smith
Bruce L. Cook Gary Hurand Sam H. McGoun Jeoffrey K. Stross
Richard J. Cramer Dennis J. Ibold Kelly E. Miller
George A. Eastman Stephen M. Klein Joe D. Pentecost
* By: /s/ THOMAS F. MENACHER
----------------------
Attorney in Fact
65
<PAGE>
SKU #: REPCO-PS98
EXHIBIT 10(a)
1998 STOCK OPTION PLAN
<PAGE>
EXHIBIT 10(a)
REPUBLIC BANCORP INC.
1998 STOCK OPTION PLAN
A. PURPOSE AND SCOPE
1. The purposes of this 1998 Stock Option Plan are to encourage
stock ownership by key management employees of the Company and its
Subsidiaries, to provide an incentive for such employees to expand and
improve the profits and prosperity of the Company and its Subsidiaries, and
to assist the Company and its Subsidiaries in attracting and retaining key
personnel through the grant of Options to purchase shares of the Company's
common stock.
2. The Plan is intended to comply with Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as such
Rule may be amended from time to time ("Rule 16b-3") and shall be construed
to so comply.
B. DEFINITIONS
Unless otherwise required by the context:
1. "Board" shall mean the Board of Directors of the Company.
2. "Committee" shall mean the Personnel, Nominating and Compensation
Committee, which is appointed by the Board and which shall be composed of at
least two members of the Board, each of whom is a "Non-Employee Director" as
defined in Rule 16b-3. Unless the Board determines otherwise, the Committee
shall be comprised solely of "outside" directors within the meaning of Code
Section 162(m)(4)(C)(i).
3. "Company" shall be REPUBLIC BANCORP INC., a Michigan corporation.
4. "Code" shall mean the Internal Revenue Code of 1986, as amended.
5. "Disability" shall mean the inability of a Participant to perform
the duties of his position for a continuous period of more than six months by
reason of any medically determinable physical or mental impairment.
6. "Fair Market Value" shall be the closing price per share of Stock
on the date in question in the over-the-counter market, as such price is
reported by the National Association of Securities Dealers through its Nasdaq
system or any successor system. If there is no reported closing price for the
Stock on the date in question, then the closing price on the last preceding
date for which such quotation exists shall be determinative of fair market
value.
<PAGE>
7. "Incentive Stock Option" means an Option meeting the requirements
and containing the limitations and restrictions set forth in Code Section
422.
8. "Non-Qualified Stock Option" means an Option other than an
Incentive Stock Option.
9. "Option" shall mean a right to purchase Stock granted pursuant
to the Plan. An Option may be either an Incentive Stock Option or a
Non-Qualified Stock Option.
10. "Option Price" shall mean the purchase price for Stock under an
Option, as determined in Section F below.
11."Participant" shall mean an employee of the Company, or of any
Subsidiary of the Company, to whom an Option is granted under the Plan.
12."Plan" shall mean this REPUBLIC BANCORP INC. 1998 Stock Option
Plan.
13. "Stock" shall mean the common stock of the Company, $5.00 par
value.
14."Subsidiary" shall mean a subsidiary corporation of the Company,
as defined in Code Sections 424(f) and 424(g).
15."Ten-Percent Shareholder" means an individual who "owns" (as
defined in Code Section 424) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or a
Subsidiary.
16."Voluntary Management Stock Accumulation Program" means that
program, administered by the Committee, under which employees identified by
the Committee are authorized to purchase Stock at Fair Market Value, subject
to restrictions as established by the Committee, and are granted tandem
options to purchase Stock pursuant to this Plan.
C. STOCK TO BE OPTIONED
1. Subject to the provisions of Section L of the Plan, the maximum
number of shares of Stock that my be optioned or sold under the Plan is
1,000,000 shares. Such shares may be authorized but unissued shares of Stock
of the Company or issued shares that were reacquired by the Company.
2. The maximum number of shares of Stock with respect to which
Options may be granted during any fiscal year to any Participant shall not
exceed 50,000 subject to adjustments noted in Section L, herein (provided
that such annual maximum shall not include tandem options issued under the
Voluntary Management Stock Accumulation Program, which are subject to maximum
limits established by the terms of that Program).
2
<PAGE>
D. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
make all decisions with respect to participation in the Plan by employees of
the Company and its Subsidiaries, and with respect to the extent of that
participation. The interpretation and construction of any provision of the
Plan by the Committee shall be final. No member of the Committee shall be
liable for any action or determination made by him in good faith. Each member
of the Committee shall be indemnified and held harmless by the Company from
and against any cost, liability or expense imposed or incurred in connection
with such person's or the Committee's taking or failing to take any action
under the Plan.
E. ELIGIBILITY
The Committee may grant Options to any employee (including an
employee who is a director) of the Company or its Subsidiaries. Options may
be awarded by the Committee at any time and from time to time to new
Participants, or to then Participants, or to a greater or lesser number of
Participants, and may include or exclude previous Participants as the
Committee shall determine. Options granted at different times need not
contain similar provisions.
F. OPTION PRICE
The purchase price for Stock under each Option shall be one hundred
percent (100%) of the Fair Market Value of the Stock on the date the Option
is granted, but in no event less than the par value of the Stock.
Notwithstanding anything herein to the contrary, in the event an Incentive
Stock Option is granted to a Participant who, at the time such Incentive
Stock Option is granted, is a Ten-Percent Shareholder, then the Option price
per share of such Incentive Stock Option shall not be less than one hundred
ten percent (110%) of the Fair Market Value of the shares covered by the
Incentive Stock Option on the date the Incentive Stock Option is granted.
G. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by the
Committee and shall be evidenced by agreements in such form as the Committee
shall from time to time approve. Such agreements shall comply with and be
subject to the following terms and conditions.
1. Condition of Employment. The Committee may, in its discretion,
include in any Option granted under the Plan a condition that the Participant
shall agree to remain in the employ, and to render services to, the Company
or any of its Subsidiaries for a period of time (specified in the agreement)
following the
3
<PAGE>
date the Option is granted. No such agreement shall impose upon the Company
or any of its Subsidiaries, however, any obligation to employ the Participant
for any period of time.
2. Types of Options. Options granted under this Plan may be (a)
Incentive Stock Options, (b) Non-Qualified Stock Options, or (c) a
combination of the foregoing. The Option Agreement shall designate whether an
Option is an Incentive Stock Option or a Non-Qualified Stock Option. Any
Option which is designated as a Non-Qualified Stock Option shall not be
treated by the Company or the Participant to whom the Option is granted as an
Incentive Stock Option for federal income purposes.
3. Method of Exercise. To exercise an Option, a Participant (or in
the case of an exercise after a Participant's death, such Participant's
personal representative, heir or legatee, as the case may be) must take the
following action:
(a) execute and deliver to the Company a written notice of
exercise signed in writing by the person exercising the Option specifying the
number of shares of Stock with respect to which the Option is being
exercised;
(b) pay the aggregate Option Price in one of the alternate
forms as set forth in Section G.4 below, and
(c) furnish appropriate documentation that the person or
persons exercising the Option (if other than the Participant) has the right
to exercise such Option.
As soon as practical after the exercise date, the Company will mail or
deliver to or on behalf of the Participant (or any other person or persons
exercising this Option under the Plan) a certificate or certificates
representing the Stock acquired upon exercise of the Option. A Participant
shall have none of the rights of a shareholder until shares are issued to
him, and no adjustment will be made for dividends or other rights for which
the record date is prior to the date such stock certificate is issued, except
as noted in Section L, herein.
4. Payment Price. The aggregate Option Price shall be payable in one
of the alternative forms specified below:
(a) Full payment in cash or check made payable to the
Company's order, or
(b) Full payment through a sale and remittance procedure
pursuant to which the Participant (i) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of
the Stock to be purchased and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the Stock to be purchased and (ii) shall
concurrently provide written directives to the Company to deliver the
certificates for
4
<PAGE>
the Stock to be purchased directly to such brokerage firm in order to
complete the sale transaction.
5. Number of Shares. Each Option agreement shall state the total
number of shares of Stock to which it pertains, the exercise price for the
shares covered by the Option, the time at which the Option vests and become
exercisable, the Option's scheduled expiration date, and such other terms and
conditions not inconsistent with the Plan as the Committee shall determine.
6. Option Period and Limitations on Exercise of Options. The
Committee may, in its discretion, provide that an Option may not be exercised
in whole or in part for any period or periods of time specified in the Option
Agreement. The following additional conditions shall pertain to Options
granted under this Plan:
(a) Except as to Options granted pursuant to the Voluntary
Management Stock Accumulation Program, the right to purchase Stock pursuant
to an Option Agreement shall become vested in accordance with the following
schedule:
<TABLE>
<CAPTION>
Percentage of Shares Covered Time Elapsed Since
By the Option Agreement Option Grant Date
--------------------------- -----------------
<S> <C>
0 % Less than 1 year
25 % 1 but less than 2 years
50 % 2 but less than 3 years
75 % 3 but less than 4 years
100 % 4 years or more;
</TABLE>
provided, that the Committee may vary or omit the above vesting
requirements in its discretion.
(b) Options granted pursuant to the Voluntary Management Stock
Accumulation Program shall first vest and become fully exercisable on the
third anniversary of the Purchase Date (as defined under such Program),
except as otherwise provided under the terms of such Program.
(c) All Option granted hereunder may be exercised, to the extent
vested, in whole or in part, at any time during its term. No Option may be
exercised after the expiration of ten (10) years from the date it is granted.
Notwithstanding anything herein to the contrary, in the event an Incentive
Stock Option is granted to a Participant who, at the time such Incentive
Stock Option is granted, is a Ten-Percent Shareholder, then such Incentive
Stock Option shall not be exercisable more than five (5) years from the date
of grant and shall be subject to earlier termination as hereinafter provided.
No Option may be exercised for a fractional share of Stock.
5
<PAGE>
7. Limit on Fair Market Value of Incentive Stock Options. In any
calendar year, no Participant may be granted an Incentive Stock Option
hereunder to the extent that the aggregate Fair Market Value (such Fair
Market value being determined as of the date of grant of the Option in
question) of the Stock with respect to which Incentive Stock Options first
become exercisable by the Participant during any calendar year (under all
such plans of the Participant's employer corporation, its parent, if any, and
its Subsidiaries, if any) exceeds the sum of One Hundred Thousand Dollars
($100,000). For purposes of the preceding sentence, Options shall be taken
into account in the order in which they were granted. Any Option granted
under the Plan which is intended to be an Incentive Stock Option, but which
exceeds the limitation set forth in this Section G.7, shall be a
Non-Qualified Stock Option to the extent that a portion of the Option exceeds
this limitation.
8. Option Modification. The Committee may amend, modify or terminate
any outstanding Option held by a Participant, including substituting therefor
another Option of the same or different type, changing the date of exercise
or vesting and converting an Incentive Stock Option to a Non-Qualified Stock
Option, provided that the Participant's consent to such action shall be
required unless the Committee determines in its sole discretion that the
action, taking into account any related action, would not materially and
adversely affect the Participant.
H. TERMINATION OF EMPLOYMENT
Except as provided in this Section and in Section I below, if a
Participant ceases to be employed by the Company or any of its Subsidiaries,
his Options shall terminate immediately. If a Participant's cessation of
employment with the Company and its Subsidiaries is due to his retirement
after attaining age 65 (or prior to age 65 with the consent of the
Committee), the Participant may, at any time within three (3) months after
such cessation of employment, exercise his Options to the extent that he was
entitled to exercise them on the date of cessation of employment, but in no
event shall any Option be exercisable more than ten (10) years from the date
it was granted. If a Participant's cessation of employment with the Company
and its Subsidiaries is due to Disability, the Participant will have three
(3) months after the date of termination of employment, but in no event after
the stated expiration date of the Participant's Options, to exercise Options
that the Participant was entitled to exercise on the date the Participant's
employment terminated as a result of the Disability. The Committee may cancel
an Option during the three (3) month periods referred to in this Section, if
the Participant engaged in employment or activities contrary, in the opinion
of the Committee, to the best interests of the Company or any of its
Subsidiaries. The Committee shall determine in each case whether a
termination of employment shall be considered a retirement with the consent
of the Company or a Subsidiary, whether a Disability exists and, subject to
applicable law, whether a leave of absence shall constitute a
6
<PAGE>
termination of employment. Any such determination of the Committee
shall be final and conclusive.
I. RIGHTS IN EVENT OF DEATH
If a Participant dies while employed by the Company or any of its
Subsidiaries or within six (6) months after having retired after attaining
age 65 or with the consent of the Company or any of its Subsidiaries, and
without having fully exercised his Options, the personal representative,
legatees or heirs, of his estate shall have the right to exercise such
Options during the six (6) month period following the Participant's date of
death, to the extent that such deceased Participant was entitled to exercise
the Options on the date of his death; provided, however, that in no event
shall the Options be exercisable more than ten (10) years from the date they
were granted.
J. NO OBLIGATIONS TO EXERCISE OPTION
The granting of an Option shall impose no obligation upon the
Participant to exercise such Option.
K. NONASSIGNABILITY
Options shall not be transferable other than by will or by the laws
of descent and distribution, and during a Participant's lifetime shall be
exercisable only by such Participant.
L. EFFECT OF CHANGE IN STOCK SUBJECT TO THE PLAN
The aggregate number of shares of Stock available for Options under
the Plan, the shares subject to any Option, and the price per share shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock subsequent to the effective date of the Plan resulting from
(1) a subdivision or consolidation of shares or any other capital adjustment,
(2) the payment of a stock dividend, or (3) other increase or decrease in
such shares effected without receipt of consideration by the Company. If the
Company shall be the surviving corporation in any merger or consolidation,
any Option shall pertain, apply and relate to the securities to which a
holder of the number of shares of Stock subject to the Option would have been
entitled after the merger or consolidation. Upon dissolution or liquidation
of the Company, all Options outstanding under the Plan shall terminate;
provided, however, that each Participant (and each other person entitled
under Section I to exercise an Option) shall have the right, immediately
prior to such dissolution or liquidation, to exercise such Participant's
Options in whole or in part, but only to the extent that such Options are
otherwise exercisable under the terms of the Plan.
7
<PAGE>
M. AMENDMENT AND TERMINATION
The Board, by resolution, may terminate, amend or revise the Plan
with respect to any shares as to which Options have not been granted,
provided, that no amendment without the approval of the stockholders of the
Company shall be made if stockholder approval under Code Section 422 or Rule
16b-3 would be required. Neither the Board nor the Committee may, without the
consent of the holder of an Option, alter or impair any Option previously
granted under the Plan, except as authorized herein. Unless sooner
terminated, the Plan shall remain in effect for a period of ten (10) years
from the date the Plan was originally adopted by the Board. Termination of
the Plan shall not affect any Option previously granted.
N. WITHHOLDING FOR TAXES
The Company shall, before any payment is made or a certificate for
any Stock is delivered or any Stock is credited to any brokerage account,
deduct or withhold from any payment under the Plan any Federal, state, local
or other taxes, including transfer taxes, required by law to be withheld or
to require the Participant or his beneficiary or estate, as the case may be,
to pay any amount, or the balance of any amount, required to be withheld. The
Company may elect to deduct such taxes from any amounts payable then or any
time thereafter in cash to the Participant and, in the Participant's sole
discretion, the payment of such taxes may be made from Stock previously held
by such Participant. If the Participant disposes of Stock acquired pursuant
to an Incentive Stock Option in any transaction considered to be a
disqualifying transaction under Code Sections 421 and 422, the Participant
must give the Company written notice of such transfer and the Company shall
have the right to deduct any taxes required by law to be withheld from any
amounts otherwise payable to the Participant.
O. AGREEMENT AND REPRESENTATION OF EMPLOYEES
As a condition to the exercise of any portion of an Option, the
Company may require the person exercising such Option to represent and
warrant at the time of such exercise that any shares of Stock acquired at
exercise are being acquired only for investment and without any present
intention to sell or distribute such shares, if, in the opinion of counsel
for the Company, such a representation is required under the Securities Act
of 1933 or any other applicable law, regulation or rule of any governmental
agency.
P. RESERVATION OF SHARES OF STOCK
The Company, during the term of this Plan, will at all times reserve
and keep available, and will seek or obtain from any
8
<PAGE>
regulatory body having jurisdiction any requisite authority necessary to
issue and to sell, the number of shares of Stock that shall be sufficient to
satisfy the requirements of this Plan. The inability of the Company to obtain
from any regulatory body having jurisdiction the authority deemed necessary
by counsel for the Company for the lawful issuance and sale of its Stock
hereunder shall relieve the Company of any liability in respect of the
failure to issue or sell Stock as to which the requisite authority has not
been obtained.
Q. EFFECTIVE DATE OF PLAN
The Plan is effective on February 19, 1998. The Plan shall
thereafter be submitted to the Company's stockholders for approval and unless
the Plan is approved by the affirmative votes of the holders of shares having
a majority of the voting power of all shares represented at a meeting duly
held in accordance with Michigan law within twelve (12) months after being
approved by the Board, the Plan and all awards made under it shall be void
and of no force and effect.
R. GOVERNING LAW
This Plan and the rights of all persons claiming hereunder shall be
construed in accordance with the laws of the State of Michigan without giving
effect to the conflicts of laws principles thereof, except to the extent that
such laws are preempted by federal law.
9
EXHIBIT 10(d)
RESTRICTED STOCK PLAN, AS AMENDED
<PAGE>
EXHIBIT 10(d)
REPUBLIC BANCORP INC.
INCENTIVE STOCK PLAN, AS AMENDED
(Formerly known as the Restricted Stock Plan)
WITNESSETH:
WHEREAS, the Board of Directors of Republic Bancorp Inc.
(the "Corporation") adopted a Restricted Stock Plan on March 24, 1986, which
has been amended from time to time by the Board of Directors, most recently
amended February 19, 1998; and
WHEREAS, the name of the Restricted Stock Plan has been
changed to the "Incentive Stock Plan" (the "Plan"); and
WHEREAS, a restatement of the Plan has been authorized;
NOW, THEREFORE, the Plan is hereby restated in its entirety
as follows:
SECTION 1
Purpose
1.1 The purpose of this Plan is to provide an
opportunity for certain key employees of REPUBLIC BANCORP INC. (the
"Corporation") or its subsidiaries to acquire shares of Capital Stock of the
Corporation and thereby to have an additional incentive to contribute to the
prosperity of the Corporation.
SECTION 2
Definitions
The following words have the following meanings unless a
different meaning is plainly required by the context:
2.1 "Corporation" means Republic Bancorp Inc.
2.2 "Plan" means the Incentive Stock Plan of the
Corporation as from time to time in effect.
2.3 "Capital Stock" means the Common Stock (par value
$5.00 per share) of the Corporation.
<PAGE>
2.4 "Employee" means any regular salaried or
commissioned employee, including any officer in the service of the
Corporation or any of its subsidiaries. An individual's status as a regular
salaried or commissioned employee shall not be affected by a leave of absence
without pay.
2.5 "Compensation Committee" means the Personnel,
Nominating and Compensation Committee named under Section 3 to administer the
Plan.
2.6 "Incentive Stock" means Capital Stock awarded to
an Employee under Section 3 of the Plan.
2.7 "Restricted Period" shall mean a period of three
(3) years following the date of the award of the Incentive Stock for all
awards made prior to January 16, 1997 and shall mean a period of four (4)
years following the date of the Agreement referenced in Section 4.3 of this
Plan for all awards made on and after January 16, 1997.
2.8 "Recipient" means an Employee to whom Incentive
Stock has been awarded under Section 3 of the Plan.
2.9 "Board" means the Board of Directors of the
Corporation.
2.10 "Subsidiary" means any corporation of which a
majority of the outstanding voting stock is directly or indirectly owned or
controlled by the Corporation, or by one or more subsidiaries.
SECTION 3
Administration
3.1 The Plan shall be administered by its Personnel,
Nominating and Compensation Committee, which shall have authority to award
Incentive Stock under the Plan to any Employee, and to determine all
questions arising in connection with the Plan, including its interpretation.
The Compensation Committee shall be composed of at least two members of the
Board who are disinterested persons. For the purpose of this Plan, a
"disinterested person" shall mean a director who is not, during the one year
prior to service as a member of the Compensation Committee, or during such
service, granted or awarded equity securities pursuant to the Plan or any
other plan of the Corporation or any of its affiliates, except as permitted
by Rule 16b-3(c)(2)(i).
2
<PAGE>
All decisions and selections made by the
Compensation Committee shall be final, provided, however, that the
Compensation Committee may not award Incentive Stock to any member of the
Compensation Committee. No member of the Compensation Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any Incentive Stock awarded under it.
3.2 The awarding of Incentive Stock pursuant to this
Plan shall be entirely within the discretion of the Compensation Committee,
and nothing herein contained shall be construed to give Employee any right to
participate under this Plan or receive any Incentive Stock under it.
SECTION 4
Stock
4.1 The total number of shares of Incentive Stock that
may be awarded under the Plan shall not exceed five per cent (5%) of the
issued and outstanding Capital Stock of the Corporation, except to the extent
of adjustments authorized by Section 4.5, and subject to like adjustments.
4.2 Incentive Stock awarded under the Plan shall be
subject to the restrictions set forth in Section 5.
4.3 The award of Incentive Stock under the Plan shall
be evidenced by an Agreement between the Corporation and the Recipient
containing the terms and conditions of the award as described in Section 5
and such other provisions as the Compensation Committee may deem appropriate.
4.4 Any certificates evidencing shares of Incentive
Stock awarded pursuant to the Plan made prior to January 16, 1997 shall bear
the following legend:
"This certificate is held subject to the terms and
conditions contained in an Agreement dated ______________,
19___, which includes a prohibition against the sale or
transfer of this stock for a period of three (3) years from
the date of issuance."
3
<PAGE>
Any cetificate evidencing shares of Incentive Stock awarded pursuant to the
Plan made on or after January 16, 1997 shall bear the following legend:
"This certificate is held subject to the terms and
conditions contained in an Agreement dated
________________, 19____, which includes a prohibition
against the sale or transfer of this stock for a period of
four (4) years from the date of said Agreement. "
4.5 If as a result of a stock dividend, stock split,
reverse stock split, recapitalization or other adjustment in the Capital
Stock of the Corporation or as a result of a merger, consolidation or other
reorganization of Corporation, there shall be any increase, decrease or
adjustment in the Capital Stock of the Corporation, an appropriate adjustment
shall be made by the Board in the aggregate number of shares subject to the
Plan, and the maximum number of shares which may be awarded to any person;
provided, however, that any fractional shares resulting from any such
adjustment shall be eliminated.
SECTION 5
Terms and Conditions of Incentive Stock
5.1 The award of Incentive Stock under the Plan shall
be subject to the following terms and conditions, which shall be contained in
the Agreement referred to in Section 4.3:
(a) The Incentive Stock shall be awarded on the
condition that the Recipient remain in the employ of the
Corporation or one or more of its subsidiaries during the
Restricted Period, but such condition shall have no effect
on the right of the Corporation or any such subsidiary to
terminate the Recipient's employment at any time. In
addition, the award of Incentive Stock may be conditioned
upon certain other terms as the Compensation Committee may
require and as set forth in the Agreement referred to in
Section 4.3.
(b) In the event of termination of employment
during the Restricted Period for any reason other than
death, the Recipient's right to the Incentive Stock shall
cease and terminate as of the date of termination and the
Recipient shall surrender to the Corporation such Incentive
Stock.
4
<PAGE>
In the event of termination of employment during
the Restricted Period by reason of death, permanent
disability (as defined in Internal Revenue Code Section
22(e)(3)), or normal retirement (defined as retirement age
65 or at an earlier age with the consensus of the
Compensation Committee and ten years service as an
employee), the participant on termination shall be entitled
to that fraction of each Incentive Stock award, the
numerator of which is the number of full calendar months
elapsed from the date of award to the date of termination
and the denominator of which is the number of full calendar
months in the applicable Restriction Period.
A new certificate for such number of shares to
which the participant is entitled shall be issued to the
participant and such shares may be transferred free of the
restrictions under the Plan, except for those described in
Subsection (f) hereof. All remaining Incentive Stock in the
name of the participant shall be surrendered to the
Corporation and the participant's rights to such remaining
Incentive Stock shall cease and terminate as of the date of
termination.
(c) The shares of Incentive Stock shall not be
sold, exchanged, transferred, pledged or otherwise disposed
of by the Employee during the Restricted Period other than
to the Corporation.
(d) If any assignment, pledge, transfer or other
disposition, voluntary or involuntary, of the Incentive
Stock shall be made during the Restricted Period except as
provided above in subsection (b) hereof, the Recipient's
right to the Incentive Stock shall immediately cease and
terminate and the Recipient shall surrender to the
Corporation all such Incentive Stock.
(e) During the Restricted Period, the Recipient
shall have all rights of a stockholder with respect to the
Incentive Stock, including (i) the right to vote any shares
at stockholders' meetings, (ii) the right to receive all
cash dividends paid with respect to such Incentive Stock,
and (iii) the right to participate with respect to such
Incentive Stock in any stock dividend, stock split,
recapitalization, or other adjustment in the Capital Stock
of the Corporation or any merger, consolidation or other
reorganization involving an increase or decrease or
adjustment in the Capital Stock of the Corporation. Any
new, additional or different shares or other security
received by the Recipient pursuant to any such stock
dividend, stock split, recapitalization or reorganization
shall be subject to the same terms, conditions and
restrictions as those relating to the Incentive Stock for
which such shares were received.
5
<PAGE>
(f) The Recipient shall represent and warrant that
the Recipient is acquiring the Incentive Stock for the
Recipient's own account and investment and without any
intention to resell or distribute the Incentive Stock. The
Recipient shall agree not to resell or distribute such
Incentive Stock after the Restricted Period except upon
such conditions as the Corporation may reasonably specify
to insure compliance with federal and state securities
laws.
(g) All shares awarded under the Incentive Stock
Bonus Agreements shall be deemed a part of and subject to
the terms of this Plan as of the date this amended and
restated Plan is adopted by the Board.
SECTION 6
Effective Date of the Plan
This Plan was effective on March 24, 1986, when it was
first approved by the Board of Directors of the Corporation.
SECTION 7
Amendment of Plan
The Board may amend the Plan at any time.
SECTION 8
Term of Plan
The Board of Directors may terminate the Plan at any time;
provided, however, that such termination shall not affect any awarded
Incentive Stock then outstanding under the Plan.
6
<PAGE>
SECTION 9
Notices
Any notice or other communication required or permitted to
be made or given hereunder shall be sufficiently made or given if sent by
certified mail addressed to the Recipient at the Recipient's address as set
forth in the regular books and records of the Corporation, and if to the
Corporation, addressed to it at its principal office.
Last amended by the Board of Directors on February 19,
1998.
REPUBLIC BANCORP INC.
By: /s/ Dana M. Cluckey
----------------------------
Dana M. Cluckey
President and
Chief Operating Officer
EXHIBIT 10 (e)
VOLUNTARY MANAGEMENT STOCK
ACCUMULATION PROGRAM
<PAGE>
EXHIBIT 10 (e)
Republic Bancorp Inc.
Voluntary Management Stock Accumulation Program
Section 1
Establishment of Plan; Purposes of Plan
---------------------------------------
1.1 Establishment of Plan. The Company hereby establishes the Voluntary
Management Stock Accumulation Program (the "Plan") for corporate and
Subsidiary officers and other key employees.
1.2 Purposes of Plan. The purposes of the Plan are to provide officers and
key management employees of the Company and its Subsidiaries with
opportunities for increased stock ownership and to attract and retain
officers and key employees of exceptional abilities.
Section 2
---------
Definitions
-----------
The following words have the following meanings unless a different meaning is
plainly required by the context:
2.1 "Act" means the Securities Exchange Act of 1934, as amended.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Committee" means the Personnel, Compensation & Nominating Committee of
the Board or such other committee as the Board shall designate to administer
the Plan. The Committee shall consist of at least two members of the Board
and all of its members shall be "non-employee directors" as defined in Rule
16b-3 issued under the Act and "outside directors" as defined in the
regulations under Section 162(m)(4)(C)(i) of the Code.
2.5 "Common Stock" means the Common Stock of the Company, par value $5 per
share.
2.6 "Company" means Republic Bancorp Inc., a Michigan corporation, and its
successors and assigns.
2.7 "Disability" means the inability of a Participant to perform the duties
of his position for a continuous period of more than six months by reason of
any medically determinable physical or mental impairment.
2.8 "Market Value" shall mean the closing price per share of Common Stock, on
the grant or purchase date in question, in the over-the-counter market, as
such price is reported by the National Association of Securities Dealers
through its Nasdaq system or any successor system. If there is no reported
closing price for the
<PAGE>
Stock on the date in question, then the closing price on the last preceding
date for which such quotation exists shall be determinative of fair market
value.
2.9 "Participant" means a corporate officer or any key employee of the
Company or a Subsidiary who is selected by the Committee for participation in
the Plan, pursuant to Section 3.1.
2.10 "Program Shares" means restricted shares of Common Stock purchased by a
Participant under Section 5 of the Plan.
2.11 "RBI Stock Option Plan" means the Republic Bancorp Inc. 1998
Stock Option Plan.
2.12 "Retirement" means the voluntary termination of all employment by the
Participant after the Participant has attained 65 years of age, or prior to
age 65 with the consent of the Committee.
2.13 "Subsidiary" means a subsidiary corporation of the Company, as defined
in Code Sections 424(f) and 424(g).
2.14 "Tandem Option" means an option granted to a Participant under Section 6
of the Plan as the result of a Participant's acquisition of Program Shares.
Section 3
---------
Administration
--------------
3.1 Power and Authority. The Committee shall administer the Plan. The
Committee may delegate record keeping, calculation, payment and other
ministerial administrative functions to individuals designated by the
Committee, who may be employees of the Company or a Subsidiary. Except as
limited in the Plan or as may be necessary to assure that the Plan provides
performance-based compensation under Section 162(m) of the Code, the
Committee shall have all of the express and implied powers and duties set
forth in the Plan, shall have full power and authority to interpret the
provisions of the Plan and any related documents (such as option agreements)
issued pursuant to the Plan and shall have full power and authority to
supervise the administration of the Plan and Tandem Options granted under the
Plan and to make all other determinations considered necessary or advisable
for the administration of the Plan. All determinations, interpretations and
selections made by the Committee regarding the Plan shall be final and
conclusive. The Committee shall hold its meetings at such times and places as
it deems advisable. Action may be taken by a written instrument signed by a
majority of the members of the Committee and any action so taken shall be
fully as effective as if it had been taken at a meeting duly called and held.
The Committee shall make such rules and regulations for the conduct of its
business as it deems advisable.
-2-
<PAGE>
3.2 Eligibility of Participants. In accordance with and subject to the
provisions of the Plan, the Committee shall have the authority to determine
the persons who shall be selected as Participants. The Committee may delegate
this authority to its Chairperson on such terms as the Committee determines,
and may withdraw or limit such delegation at any time.
3.3 Indemnification of Committee Members. Neither any member or former member
of the Committee nor any individual to whom authority is or has been
delegated shall be personally responsible or liable for any act or omission
in connection with the performance of powers or duties or the exercise of
discretion or judgment in the administration and implementation of the Plan.
Each person who is or shall have been a member of the Committee shall be
indemnified and held harmless by the Company from and against any cost,
liability or expense imposed or incurred in connection with such person's or
the Committee's taking or failing to take any action under the Plan. Each
such person shall be justified in relying on information furnished in
connection with the Plan's administration by any appropriate person or
persons.
Section 4
---------
Shares Subject to the Plan
--------------------------
4.1 Number of Shares. Subject to adjustment as provided in Section 4.2 of the
Plan, and subject to lower annual limits that may be established and
announced by the Committee, an annual aggregate maximum of 100,000 shares of
Common Stock shall be available to be purchased by Participants as Program
Shares under the Plan and a total Plan maximum of 400,000 shares of Common
Stock shall be available to be purchased as Program Shares under the Plan. In
consequence, an annual aggregate maximum of 200,000 shares of Common Stock
may be made subject to Tandem Options and a total Plan maximum of 800,000
shares of Common Stock may be made subject to Tandem Options. Additionally,
an annual maximum of 10,000 shares of Common Stock shall pertain to purchases
by a single Participant as Program Shares under the Plan, with a
corresponding annual maximum of 20,000 shares of Common Stock that may be
made subject to Tandem Options granted to a single Participant. All such
shares shall be authorized and may be unissued shares.
4.2 Adjustments; Fractional Shares. If the number of shares of Common Stock
outstanding changes by reason of a stock dividend, stock split,
recapitalization, merger, consolidation, combination, exchange of shares or
any other change in the corporate structure or shares of the Company, the
number and kind of securities subject to and reserved under the Plan,
together with applicable exercise prices, shall be appropriately adjusted. No
fractional shares shall be issued pursuant to the Plan and any fractional
shares resulting from adjustments shall be eliminated from the respective
Tandem Options.
-3-
<PAGE>
Section 5
---------
Acquisition of Restricted Stock
-------------------------------
5.1 General Operation of Voluntary Program. Each year while the Plan is in
effect, the Committee may extend to Participants the opportunity, on the
terms herein set forth, to elect to purchase Program Shares from the Company.
If the opportunity results in the purchase of Program Shares by the
Participant, then he or she shall also be granted a Tandem Option as
hereinafter provided.
5.2 Election Procedures.
(a) Election periods. A Participant's election to purchase Program
Shares must be made during an annual election period. The election
period for 1998 shall begin on the second business day following the
close of the Company's annual meeting of shareholders scheduled for
April 22, 1998, provided the Company's earnings for the first
quarter of 1998 have then been released to the public for at least
two business days prior to such annual meeting (otherwise on the
second business day following such release date). Such period shall
continue for a period of at least ten business days, as determined
by the Committee and announced to Participants. The election period
for 1999 and subsequent years shall begin on the second business day
after the Company's earnings for the preceding year have been
released to the public and shall continue for a period of at least
ten business days, as determined by the Committee and announced to
Participants. However, if during any election period there is, in
the judgment of the Company's Chief Executive Officer, material
information regarding the Company that has not been publicly
disclosed, then (i) elections shall be suspended until a date
selected by the Committee which follows public disclosure of such
information, and (ii) the election period shall be extended for the
number of business days encompassed by the suspension; provided that
the Committee may determine to delay commencement of the election
period until after public release of the Company's earnings for a
subsequent calendar quarter. Notwithstanding any other provision of
the Plan, all purchases of Stock under the Plan (whether purchase of
Program Shares or exercise of Tandem Options) shall be subject to
the Company's established policies on confidentiality and insider
trading.
(b) Elections. An election to purchase Program Shares shall be made
in writing on a form prescribed by the Committee, specifying the
dollar amount of the purchase price that Participant wishes to pay,
and providing such additional information and setting such
additional conditions as the Committee shall prescribe. The
completed election form shall be delivered to the Company's
President or its Vice President, Corporate Human Resources (or such
other officer as the Committee may specify) and once so delivered
shall be irrevocable. The Committee may establish rules and
procedures
-4-
<PAGE>
regarding elections, including the minimum number of Program
Shares to be purchased.
5.3 Number of Program Shares to be Received. Subject to adjustment pursuant
to Section 5.4, if a Participant timely delivers a proper election to
purchase Program Shares, the number of Program Shares the Participant shall
receive shall be the dollar amount designated in his/her election form
divided by the Market Value of the Program Shares on the second business day
following the close of the election period (hereinafter, the "Purchase
Date"). However, no fractional Program Shares may be purchased under the
Plan, so any fraction resulting from application of the above formula shall
be multiplied by the Market Value used in applying the formula, and the
resulting dollar amount shall be returned to the Participant.
5.4 Adjustments Due to Limits on Number of Shares. If the aggregate number of
Program Shares that electing Participants otherwise would be entitled to
purchase during any election period exceeds the overall limit on Program
Shares available under Section 4.1, the number of Program Shares which each
Participant may purchase shall be adjusted downward so as to be equal to the
product (rounded downward to the nearest whole share) of: (a) the number of
shares resulting from the Participant's election, multiplied by (b) a
fraction, the numerator of which is the established annual maximum number and
the denominator of which is the aggregate number of Program Shares resulting
from all Participant elections during the election period.
5.5 Payment. The purchase price for Program Shares that a Participant has
elected to purchase under Section 5.3 (adjusted, if applicable, under Section
5.4) shall be the Market Value of such shares on the Purchase Date. The
purchase price shall be payable in full when the election form is filed
pursuant to Section 5.2.
5.6 Restrictions; Certificates for Program Shares; Dividend and Voting
Rights. Program Shares purchased by a Participant shall not be subject to
forfeiture but shall be subject to restrictions as described below until the
earlier of (a) the third anniversary of the Purchase Date, (b) the
Participant's termination of employment for any reason, or (c) the
Committee's determination (upon application by the Participant) that a
"hardship" situation exists in respect of that Participant. (As used in the
Plan, "hardship" means an unanticipated emergency situation in the
Participant's financial affairs, beyond the Participant's control, including
illness or an accident involving the Participant, his/her dependents or other
family members, or any other significant financial emergency, as determined
by the Committee in its sole discretion.) Notwithstanding any other Plan
provision, any restrictions required in the opinion of the Company's counsel
to assure compliance with applicable securities laws shall continue to apply,
notwithstanding lapse of the other restrictions described in this Plan. The
following restrictions shall apply: No Program Shares and none of the rights
and privileges associated with such
-5-
<PAGE>
shares may be sold, assigned, pledged, hypothecated, or otherwise transferred
in any manner whatsoever, whether voluntarily, by operation of law, or
otherwise, except pursuant to the laws of descent and distribution or by will
or transfer to a trust for the benefit of the Participant and/or his
immediate family. Any attempt to do any of the foregoing contrary to the
provisions of the Plan shall be void and unenforceable against the Company. A
certificate evidencing a Participant's Program Shares shall be issued in the
Participant's name as soon as practicable after payment for the shares, and
upon issuance of such certificate the Participant shall have all the rights
of a record holder of the shares evidenced thereby, including dividend and
voting rights, subject to the foregoing transfer restrictions. However, in
order to enforce such restrictions, the Company shall retain and hold the
certificate issued to evidence the Participant's Program Shares for so long
as such restrictions continue in effect, and may place a legend noting such
restrictions upon the certificate. As soon as practicable following the lapse
of such restrictions, a certificate evidencing the Program Shares, free of
any legend concerning such restrictions, shall be delivered to the
Participant or, in the case of the Participant's prior death, to his or her
beneficiary or personal representative.
5.7 Election as Consent. Delivery of a Participant's election to purchase
Program Shares shall constitute the Participant's written consent to the
transfer restrictions contemplated by the Plan upon all Program Shares
purchased pursuant to such election and to possession by the Company of the
certificate for such shares, pending the lapse of such restrictions.
5.8 Designation of Beneficiary. Each Participant may designate one or more
beneficiaries to succeed to his/her rights under the Plan in the event of
such Participant's death. Such designation shall be upon a form provided by
the Committee and shall be filed with the Committee prior to the
Participant's death. Any such designation may be rescinded by a Participant
through written notice to the Committee or by the filing of a new
designation. Upon a Participant's death, his/her designated beneficiary shall
succeed to the Participant's rights as owner of Program Shares and holder of
Tandem Options, subject to all restrictions and conditions provided in the
Plan.
Section 6
---------
Tandem Options
--------------
6.1 Grant of Tandem Options. Whenever a Participant purchases Program Shares
under the Plan, the Participant shall also automatically be granted a Tandem
Option under the RBI Stock Option Plan. Such option shall cover twice the
number of shares purchased as Program Shares, shall have a per share exercise
price equal to the Market Value of a share of Common Stock on the
Participant's Purchase Date, shall first become fully exercisable on the
third anniversary of the Purchase Date and (if not sooner exercised,
-6-
<PAGE>
terminated, canceled or forfeited as elsewhere provided in the Plan) shall
expire on the date provided in the Tandem Option Agreement, which shall in no
event be later than the tenth anniversary of the Purchase Date.
6.2 Tandem Option Agreements. Tandem Options shall be evidenced by agreements
containing such terms and conditions, consistent with the provisions of the
Plan, as the Committee shall from time to time determine. To the extent not
covered by the agreement, the terms and conditions of the RBI Stock Option
Plan and this Section 6 shall govern.
6.3 Medium and Time of Payment. The exercise price for each share purchased
pursuant to a Tandem Option granted under the Plan shall be payable in cash.
6.4 Termination of Employment.
(a) General. If a Participant is no longer employed by the Company
or a Subsidiary for any reason other than the Participant's
Retirement, death or Disability, his/her Tandem Options shall
terminate immediately. For purposes of the Plan: (i) a transfer of a
Participant from the Company to a Subsidiary, from a Subsidiary to
the Company or between Subsidiaries or (ii) a leave of absence, duly
authorized in writing by the Company and approved by the Committee
shall not be deemed a termination of employment. For purposes of the
Plan, termination of employment shall be considered to occur on the
date on which the Participant is no longer obligated to perform
services for the Company or any of its Subsidiaries and the
Participant's right to reemployment is not guaranteed either by
statute or contract, regardless of whether the Participant continues
to receive compensation from the Company or any of its Subsidiaries
after such date.
(b) Retirement. If a Participant ceases to be employed by the
Company or one of its Subsidiaries due to Retirement, the
Participant may exercise his or her Tandem Options in accordance
with their terms for a period of three months after such termination
of employment unless such Tandem Options earlier expire by their
terms, to the extent that the Participant was entitled to exercise
the Tandem Options on the date of termination. However, in the case
of Retirement of a Participant who has (at the time of Retirement)
completed ten years of service with the Company and/or its
Subsidiaries but has not become entitled to exercise Tandem Options
because three years have not elapsed since the applicable Purchase
Date, such Participant may exercise a fractional share (A divided
by 36) of those Tandem Options, where "A" represents the number of
full months elapsed between the Purchase Date and the date of
termination.
(c) Disability. If a Participant ceases to be employed by
the Company or one of its Subsidiaries due to the
-7-
<PAGE>
Participant's Disability, he or she may exercise his or her Tandem
Options in accordance with their terms for three months after he or
she ceases to be employed unless such Tandem Options earlier expire
by their terms, to the extent that the Participant was entitled to
exercise the Tandem Options on the date of such termination.
However, in the case of Disability of a Participant who has not
become entitled to exercise Tandem Options because three years have
not elapsed since the applicable Purchase Date, such Participant may
exercise a fractional share (A divided by 36) of those Tandem
Options, where "A" represents the number of full months elapsed
between the Purchase Date and the date of termination.
(d) Death. If a Participant dies either while an employee or
otherwise during a time when the Participant could have exercised
Tandem Options, the Tandem Options issued to such Participant shall
be exercisable in accordance with their terms by the beneficiary or
personal representative of such Participant for a period of six
months following the date of Participant's death, to the extent that
the Participant was entitled to exercise the Tandem Options on the
date of death. However, in the case of death of a Participant who
has not become entitled to exercise Tandem Options because three
years have not elapsed since the applicable Purchase Date, such
Participant's beneficiary or personal representative may exercise a
fractional share (A divided by 36) of those Tandem Options, where
"A" represents the number of full months elapsed between the
Purchase Date and the date of death.
Section 7
---------
General Provisions
------------------
7.1 Compliance With Laws; Listing and Registration of Shares. All issuances
of Common Stock under the Plan and all Tandem Options granted under the Plan
shall be subject to applicable laws, rules and regulations and to the
requirement that if at any time the Committee shall determine, in its
discretion, that the listing, registration or qualification of the shares
covered thereby upon any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the issue or
purchase (or subsequent sale) of shares or the grant or exercise of such
Tandem Options, then the restrictions on sale of Common Stock shall not lapse
and/or such Tandem Options shall not be exercised in whole or in part, unless
and until such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Committee.
7.2 No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Subsidiary from adopting or continuing
in effect other or additional compensation arrangements, including the grant
of options and other
-8-
<PAGE>
stock-based awards and such arrangements may be either generally applicable
or applicable only in specific cases.
7.3 No Right to Employment. Participation in this Plan shall not be construed
as giving a Participant the right to be retained in the employ of the Company
or any Subsidiary. The Company or any Subsidiary may at any time dismiss a
Participant from employment, free from any liability or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any written
agreement with a Participant.
7.4 Governing Law. The validity, construction and effect of the Plan and any
rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Michigan and applicable federal law.
7.5 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining provisions of the Plan and the Plan shall be construed
and enforced as if the illegal or invalid provision had not been included.
Section 8
---------
Termination and Amendment
-------------------------
The Board may terminate the Plan at any time, or may from time to time amend
the Plan as it deems proper and in the best interests of the Company,
provided that no such amendment may impair any outstanding Tandem Option
without the consent of the Participant, except according to the terms of the
Plan or the Tandem Option. No termination, amendment or modification of the
Plan shall become effective with respect to any Tandem Option previously
granted under the Plan without the prior written consent of the Participant
holding such Tandem Option unless such amendment or modification operates
solely to the benefit of the Participant.
Section 9
---------
Effective Date and Duration of the Plan
---------------------------------------
This Plan shall take effect February 19, 1998, subject to approval by the
Company's shareholders at the 1998 Annual Meeting of Shareholders or any
adjournment thereof or at a Special Meeting of Shareholders. No Program
Shares shall be purchased and no Tandem Options shall be granted under the
Plan after February 18, 2008.
-9-
EXHIBIT 13
1997 ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
EXHIBIT 13
Table of
Contents
Shareholder Highlights
I
To Our Shareholders
2
Financial Highlights
6
Our Corporate Culture
8
Commercial and Retail Banking
10
Mortgage Banking
14
Our Products and Services
18
Our Marketplace
19
Republic Bank
20
Republic Savings Bank
22
Republic Bancorp Mortgage Inc.
24
Market Street Mortgage Corporation
and CUB Funding Corporation
26
Republic Bancorp Inc.
Directors and Officers
28
Five-Year Summary of Selected Financial Data
29
Condensed Consolidated Financial Statements
30
Corporate Information
32
Corporate Profile
Republic Bancorp Inc. is a $1.9 billion bank holding company headquartered in
Ann Arbor, Michigan with 112 offices in 21 states. The Company engages
primarily in the following Lines of business: Commercial and Retail Banking
and Mortgage Banking. We provide commercial, home equity and other consumer
loans, deposit products and retail banking services to customers through 35
retail bank branches located in Michigan and Ohio. We also offer residential
mortgage and construction loans to homebuyers through our nationwide mortgage
origination network of 112 offices.
The Company's subsidiaries include Republic Bank (including its subsidiaries
Republic Bancorp Mortgage Inc., Market Street Mortgage Corporation and CUB
Funding Corporation) and Republic Savings Bank.
Cover Story
The cover of this year's annual report illustrates the nature of Republic
Bancorp's business - growing our real estate-secured commercial and mortgage
lending, the cultivation of a strong sales culture, and adherence to a firmly
planted belief in providing the highest quality of personalized service to
our customers. Our business philosophy will continue to be guided by these
fundamental characteristics as we pursue our vision of Financing the American
Dream.
<PAGE>
Shareholder Highlights
o Earnings per share increased 34% for the year.
o Net income rose 28% in 1997.
o Republic Bancorp's stock price appreciated 102% during 1997, compared
to 31% for the S&P 500 Index.
o The cumulative total return on Republic Bancorp's stock, including the
reinvestment of dividends, over the past seven years was 1048%, compared
to 253% for the S&P 500 Index.
o Over the same seven-year period, our market capitalization increased
$380 million.
o 1997 marked the twelfth consecutive year in which Republic Bancorp has
paid a 10% stock dividend.
o Republic Bancorp is the #1 Small Business Administration (SBA) lender
in the State of Michigan.
o Republic Bancorp is the 17th largest retail mortgage lender in the
country.
Graph #1
Increase in Shareholder Value
1/1/91 = $10,000
12/31/97 = $114,812
If an investor had purchased $10,000 in Republic Bancorp common stock on
January 1, 1991, their investment would have grown to $114,812 by December
31, 1997.
1
<PAGE>
To Our Shareholders
We are proud to report that the Company had an outstanding year in 1997. Net
income was $18.8 million, up 28% over 1996. Earnings per share grew 34% to
$.99. We earned 1.16% on average assets (ROA), compared to 1.02% in 1996.
Return on average shareholders' equity (ROE) increased to 15.09% in 1997. In
addition, the Company's stock price increased 102% during the year.
Strong Revenue Growth
Net revenues grew 17% in 1997, reflecting solid increases in both net
interest income and noninterest income. Noninterest income, excluding
securities transactions and a gain on the sale of bank branches and deposits,
rose 9% to $99 million. This increase was supported by the achievement of a
record level of retail residential mortgage loan closings during the year.
In 1997, the Company continued to build on its strength in the mortgage
banking business-- residential mortgage lending, sales of mortgages to
secondary market participants, and mortgage loan servicing. In addition, we
have executed our strategic plan to augment the mortgage banking business by
growing our portfolio of residential mortgage loans and real estate-secured
commercial loans. Through effective implementation of this strategy, we
achieved an increase in total interest income of 20% during 1997. This
increase was the driving force behind a 28% rise in net interest income to
$47 million.
Asset Growth
Total assets grew 26% to $1.9 billion at December 31, 1997, reflecting
significant growth in portfolio loans. The portfolio loans balance grew $311
million, or 40%, during the year to $1.1 billion. Commercial loans increased
$127 million to $323 million, reflecting our lending emphasis on real-estate
secured commercial loans. As the Company retained more variable rate
residential mortgage loans, residential real estate loans rose $162 million
to $669 million. Installment loans, which are primarily home equity loans,
increased $22 million to $104 million, as we targeted the marketing of home
equity loans to our existing customer base. This growth in the loan portfolio
enabled us to widen the net interest margin by 28 basis points.
Graph #2 Graph #3
Total Interest Income Total Assets
($ in Millions) ($ in Millions)
1995 = $95.6 1995 = $1,473
1996 = $99.1 1996 = $1,490
1997 = $118.9 1997 = $1,873
2
<PAGE>
Superior Asset Quality
The Company's asset quality remains exceptionally strong and continues to
rank among the best in the nation. This is evidenced by our historically low
levels of net loan charge-offs, which totaled only .03% of average total
loans in 1997, compared to .06% of average total loans a year ago. The
average net loan charge-offs ratio for our peer group of bank holding
companies with assets between $1 billion and $3 billion was .28% for both
1997 and 1996. The quality of the Company's loan portfolio remains high
because of our focus on real estate-secured lending and our adherence to
conservative underwriting standards.
Capital Management
In 1997, we continued to actively manage capital, thereby, enhancing
shareholder value. We used capital to open three new bank branches and 13 new
mortgage loan origination offices in attractive markets.
The Company adheres to a disciplined approach to acquisitions, emphasizing
management talent, market share, operational synergies, and potential revenue
growth. In the third quarter of 1997, we completed the purchase of certain
assets and the mortgage origination network of Exchange Mortgage Corporation
based in Southfield, Michigan. This purchase added three new loan production
offices to our nationwide network. The acquisition of Exchange Mortgage also
represented our entrance into the Midwest sub-prime mortgage lending market.
Our strong capital position permitted the repurchase of over 486,000 shares
of common stock. In addition, the Company paid a 10% stock dividend in 1997.
This was the twelfth consecutive year in which a stock dividend was paid, and
resulted in an effective increase in the cash dividend of 10% over the prior
year.
At December 31, 1997, the Company's total risk-based capital ratio was
10.35%. All of the Company's capital ratios remain in excess of minimum
regulatory requirements for a well-capitalized financial institution.
Graph #4 Graph #5
Portfolio Loans Net Loan Charge-Offs to Average Loans
($ in Millions)
Republic Bancorp Peer Group Average
---------------- ------------------
1995 = $578 1995 = 0.06% 1995 = 0.27%
1996 = $785 1996 = 0.06% 1996 = 0.28%
1997 = $1,096 1997 = 0.03% 1997 = 0.28%
3
<PAGE>
To Our Shareholders (CONT.)
Distinctive Approach to Banking
Other financial institutions have adopted cost-cutting strategies or business
line diversification strategies to increase revenues. Republic Bancorp has
chosen to concentrate primarily on real estate-secured lending and
personalized customer service to grow our business. In addition to
traditional deposit products, we offer a select group of mortgage and other
financial products to people desiring home ownership and to companies seeking
capital to start or expand a business or to develop residential or commercial
properties.
Our approach to banking has been successful for two primary reasons. First,
we believe in the importance of providing our customers with the highest
quality of personalized service. Second, we have always been committed to
maintaining a strong sales culture in which our employees can grow. These
characteristics truly distinguish Republic Bancorp.
Creating Shareholder Value
Our commitment to increasing shareholder value guides the decisions made
throughout the organization, from employees interacting with customers to
members of the board of directors. This strong commitment exists because the
interests of our employees and management are aligned with the interests of
shareholders. In fact, each full-time employee of the Company is a
shareholder through a stock award program. Additionally, eighty-two percent
of eligible employees participate in the company-sponsored 401(k) plan, which
includes a Republic Bancorp stock investment option. The Company also matches
a portion of employee 401(k) contributions in Republic Bancorp stock.
Furthermore, directors receive 100% of their fees for serving the Company in
the form of common stock and stock warrants. We believe the information
provided throughout this annual report reflects the efforts our employees,
management and directors have made over the years to build exceptional value
for our shareholders.
Outlook for 1998
We believe significant opportunities exist to profitably grow our Company,
thereby creating additional value for our shareholders. In 1998, we plan to
grow Republic Bancorp by concentrating on several initiatives, including:
o Enhancing our internal sales culture and improving customer service and
marketing programs in an effort to cross-sell more products to existing
and potential customers.
o Expanding our commercial and retail banking franchise in growing markets
in the Midwest.
o Further developing our nationwide mortgage lending capabilities,
including sub-prime mortgage lending, in existing and new loan production
offices.
4
<PAGE>
The year ahead is filled with the promise of new opportunities. We have the
talent, focus and momentum to create additional value for our shareholders by
providing the highest quality of personalized customer service while
fulfilling our vision of Financing the American Dream.
We wish to thank Republic Bancorp's employees, whose skill, hard work, and
dedication have enabled us to grow the Company and achieve our business
goals. We appreciate our directors for sharing their knowledge and experience
in the guidance of the Company. Finally, we thank you, our shareholders, for
your continued support.
/s/ Jerry D. Campbell
Jerry D. Campbell
Chairman and Chief Executive Officer
/s/ Dana M. Cluckey
Dana M. Cluckey, CPA
President and Chief Operating Officer
Photograph #1
Dana M. Cluckey, CPA Jerry D. Campbell
President and Chief Chairman and Chief
Operating Officer Executive Officer
5
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) 1997 1996 % Change
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $ 18,789 $ 14,678 28%
Per Common Share (1)
Diluted earnings $ .99 $ .74 34%
Cash dividends declared .37 .34 10
Book value (year-end) 7.02 6.47 9
Closing price of common stock (year-end) 21.38 10.57 102
Average common shares outstanding 19,069 19,835 (4)
Operating Data
Residential mortgage loan closings $3,891,894 $3,580,700 9%
Commercial loan closings 175,062 121,865 44
SBA loan closings 28,205 24,438 15
Mortgage servicing portfolio (year-end) 3,113,372 2,706,018 15
Year-End Balances
Total assets $1,872,893 $1,490,365 26%
Total loans:
Mortgage loans held for sale 513,533 329,157 56
Portfolio loans, net of unearned income 1,095,744 784,628 40
Deposits 1,177,293 1,013,707 16
Short-term borrowings and FHLB advances 424,906 255,342 66
Long-term debt 47,500 49,189 (3)
Shareholders' equity 131,088 121,815 8
Average Balances
Total assets $1,619,904 $1,442,053 12%
Total loans:
Mortgage loans held for sale 317,114 340,375 (7)
Portfolio loans, net of unearned income 975,900 651,009 50
Deposits 1,071,075 943,238 14
Short-term borrowings and FHLB advances 333,905 277,978 20
Long-term debt 47,948 50,873 (6)
Shareholders' equity 124,524 122,792 1
Selected Ratios
Return on average assets 1.16% 1.02% 14%
Return on average equity 15.09 11.95 26
Net interest margin 3.16 2.88 10
Net charge-offs to average total loans .03 .06 (50)
Average equity to average assets 7.69 8.52 (10)
<FN>
(1) All per share amounts presented have been adjusted to reflect the
issuance of stock dividends.
</TABLE>
<PAGE>
Graph #6
Earnings per Common Share
1995 = $0.69
1996 = $0.74
1997 = $0.99
Graph #7
Net Interest Income
($ in Millions)
1995 = $30.4
1996 = $36.7
1997 = $46.9
Graph #8
Noninterest Income
($ in Millions)
1995 = $75.2
1996 = $90.8
1997 = $102.5
7
<PAGE>
Our Corporate Culture
Our sales orientation attracts people who are motivated to give 100% to
selling our products and providing exceptional customer service everyday. We
recognize the importance of hiring talented individuals with positive
attitudes. Our Human Resources team continually works to create, organize and
assess programs that will attract, motivate, develop and reward people with
these attributes.
Our "Pay for Performance" compensation structure, which includes competitive
base salaries and emphasizes incentive-based compensation, is attractive to
people who are motivated--like our more than 360 commissioned Mortgage Loan
Originators. We measure our employees' work performance on a regular basis to
provide consistent and meaningful feedback. This performance measurement
system links employee compensation to our financial objectives and individual
performance goals. As a result, employees are encouraged to help the Company
meet its overall financial goals through teamwork and personal
accomplishments.
We work together to recruit the best people in the industry. Republic
Bancorp's "Pay for Performance" compensation programs are partnered with the
additional opportunities our Company provides, including:
o Comprehensive, flexible employee benefits programs
o Quarterly and annual recognition awards
o Product "Stars" travel and stock awards
o Local lending support, including processing and closing
o Personal relationship banking philosophy
o Opportunities for personal growth and advancement
Current and prospective employees may also access our web site on the
Internet at www.republicbancorp.com to review career opportunities available
throughout the Company.
We have established several educational programs that underscore our
commitment to the professional growth and development of our sales, retail
banking and support staff. Our programs are designed to recruit and retain
top performers nationwide, as well as help current employees develop new
skills. The following programs are included in these professional development
opportunities:
Fast Track Management Training Program
Each year we conduct extensive college recruiting to identify and recruit
outstanding college graduates for our distinguished program. The program
offers departmental rotations, participation in management training and
meetings, individual mentors and accelerated performance review and salary
consideration. The "Fast Track" program is a unique opportunity for recent
college graduates who want to become an integral part of a growing financial
institution and work directly with top sales and management professionals.
Mortgage Loan Officer Training Program
Republic Bancorp conducts in-house training for individuals seeking to
explore career growth as a Mortgage Loan Originator. Many of our most
successful loan originators are graduates of our extensive classroom and
field instruction programs.
Career Planning and Development
Republic Bancorp supports the drive and energy of our employees who want to
grow with the Company. Our Salary Administration and Compensation program
shows employees the career path and
Illustration
[ Art ]
Symbol: "Republic Bancorp - A Great Place to Work"
8
<PAGE>
requirements for progression in each functional area of the Company. Our
Human Resources team and sales managers continually search for external
conferences and seminars, as well as develop internal programs for employees
interested in professional growth. We also strongly believe in promoting from
within the Company.
Ultimately, our corporate culture thrives because of our commitment to
consistent communication and prompt feedback at all levels throughout the
Company. This type of communication allows us to share our goals and
expectations with one another. For example, monthly accountability meetings
permit employees to discuss their achievements and develop short-term goals
with their supervisors. Regular corporate conference calls with the Company's
Chief Executive Officer, known as "TeleRap" sessions, provide employees with
updates on the Company's financial and operating results. In addition, each
employee in a management position at Republic Bancorp maintains an "open
door" management philosophy.
Effective communication of our philosophies and the existence of many
opportunities for both personal and professional growth within our corporate
culture make Republic Bancorp "A Great Place to Work" for our employees.
From Left to Right:
Debra A. Hanses, PHR, Vice President, Corporate Human Resources, Republic
Bancorp Inc.; Denise M. Kiepper, Vice President, Human Resources, Republic
Bancorp Mortgage Inc.; Bethany L. Barker, SPHR, Vice President, Human
Resources, Republic Bank; Nancy J. Weaver, Vice President, Human Resources
and Marketing, Market Street Mortgage Corporation and CUB Funding
Corporation; Michelle J. Dubblestyne, Vice President, Human Resources,
Republic Savings Bank
Photograph #2
9
<PAGE>
Commercial and Retail Banking
Commercial Lending
The commercial lending group strives to achieve the highest level of customer
satisfaction by providing expertise, extraordinary service and fast loan
approvals. To consistently reach this goal, our Commercial Loan Officers take
the time to build lasting relationships with their customers. This involves
personally meeting with business owners and commercial developers at their
place of business or project site in order to learn about the business
venture and gather the necessary information to process the loan request. Our
customers appreciate this approach, because it affords them the opportunity
to discuss various issues at length, on a one-on-one basis.
Our Commercial Loan Officers bring knowledge, skill and experience to the
Republic Bancorp commercial lending team and ensure that our customers'
transactions are handled in a friendly and timely manner. In addition, they
cultivate relationships with attorneys, accountants, commercial brokers and
other professionals in their communities to strengthen their customer
referral database.
Graph #9
Commerical Loan Closings
($ in Millions)
1995 = $50
1996 = $122
1997 = $175
As a result of the commercial lending group's effort, the Company has
experienced significant growth in the volume of commercial loans. In 1997,
the commercial lending group grew commercial loan closings 44% to $175
million, compared to $122 million in 1996.
Republic Bancorp is the #1 SBA Lender in the State of Michigan
Republic Bancorp's banking subsidiary, Republic Bank, approved more small
business loans than any other SBA lender in Michigan and, once again, was
recognized by the Small Business Administration as the top provider of SBA
loans to Michigan businesses. This marks the fourth consecutive year in which
Republic Bank has achieved this honor. During the year, Republic Bank was
also designated as a Preferred Lender by the Small Business Administration in
the State of Michigan. The Preferred Lender status allows Republic Bank to
provide direct approval on small business loans, thus enabling our Commercial
Loan Officers to respond quickly to small business owners' requests for
financing.
Consistent with our emphasis on personal service, every small business
customer is assigned an SBA specialist, in addition to their Commercial Loan
Officer, to handle the loan application and to ensure that their specific
needs are addressed. The SBA-guaranteed loans have no short balloon
maturities and offer small businesses longer terms. These features give small
business owners a greater chance to succeed by lowering monthly payments and
enhancing cash flow. In 1997,
10
<PAGE>
Republic Bancorp expanded its small-business lending program to include small
businesses in rural areas. These loans are guaranteed by the United States
Department of Agriculture (USDA).
As a result of the efforts and accomplishments of our Commercial Loan
Officers and SBA specialists, the volume of SBA loans closed in 1997
increased 15% to $28 million, compared to $24 million in 1996.
Graph #10
SBA Loan Closings
($ in Millions)
1995 = $17
1996 = $24
1997 = $28
Top photo:
Daniel G. Merkel (left) and Carl F. Moraw (right); Vice Presidents,
Commercial Lending, Republic Savings Bank
Bottom photo:
Dwight G. Reynolds (left), Michigan District Director, Small Business
Administration and Barry J. Eckhold (right), Vice Chairman and Chief
Executive Officer, Republic Bank
Photograph #3
Photograph #4
11
<PAGE>
Commercial and
Retail Banking (cont.)
Retail Banking
Deposit products and personal banking services are delivered to customers
through 35 retail bank branches in Michigan and Ohio. We are committed to
providing a pleasant environment in which our customers will feel comfortable
handling their banking needs. Therefore, each branch is designed to allow
individuals to conduct their banking transactions face to face with their own
Personal Banker. As a result, many of these branches function without
drive-through windows, teller windows or automated teller machines.
Our Personal Bankers are knowledgeable people who are trained to manage
retail banking transactions and focus on providing one-on-one service to
customers. They greet each customer with a smile and a willingness to help.
In fact, each customer is assigned a Personal Banker they can turn to for
assistance during each and every visit. And unlike other financial
institutions that may assess fees on customers for providing personal
service, our Personal Bankers help our customers free of charge. Our
customers can see by the attitudes and behaviors exhibited by our Personal
Bankers that we care about treating them well and going the extra mile to
meet their needs.
During 1997, the retail banking group grew total deposits to nearly $1.2
billion from $1.0 billion in 1996, an increase of 16%.
Home Equity Lending
Republic Bancorp's retail lending efforts are concen- trated primarily on
home equity lending. This lending area complements our residential mortgage
lending business since it involves offering home equity products to
Graph #11 Graph #12
Deposits Installment Loan Closings
($ in Millions) ($ in Millions)
1995 = $905 1995 = $41
1996 = $1,014 1996 = $69
1997 = $1,177 1997 = $92
12
<PAGE>
Photograph #5
Michelle A. Olechnowicz, a Personal Banker at our Republic Bank - Ann Arbor
office, assists a customer.
existing retail banking and mortgage customers. Personal Bankers offer these
products directly to retail banking customers and receive mortgage customer
referrals from Mortgage Loan Originators. Each mortgage applicant receives
information describing our home equity products and our deposit products.
Our home equity product line includes single-purpose loans, lines of credit,
and up to 125% loan-to-value home equity loans. During 1997, the retail
lending group increased installment loan closings, which are predominantly
comprised of home equity loans, by 34% to $92 million.
13
<PAGE>
Mortgage Banking
Residential Mortgage Lending
Purchasing a home is one of the most important financial decisions our
customers will ever make. Therefore, Republic Bancorp offers mortgage
products with terms suitable for a variety of homebuyers and employs
experienced loan originators who provide personalized service and valuable
guidance throughout the application and closing process. The residential
mortgage lending group focuses on simplifying the mortgage process and making
it possible for each one of our customers to achieve their dream of home
ownership.
Homebuyers have access to our more than 360 Mortgage Loan Originators through
the Company's nationwide network of offices. They can also arrange for an
in-home appointment. Prospective borrowers meet one-on-one with a Mortgage
Loan Originator to pre-qualify for a mortgage loan prior to beginning the
house search. Interested homebuyers may also complete and submit a
pre-qualification form directly over the Internet by visiting our web site at
www.republicbancorp.com. In addition, we are expediting the mortgage
application process by providing our Mortgage Loan Originators with laptop
computers to use in the field. This capability adds value to the customer's
home buying experience by reducing the time required for loan approvals.
In 1997, Republic Bancorp implemented a new program for first-time homebuyers
called "Home At Last." This program is designed to make the transition from
renting to owning a home easier.
It includes a number of benefits for homebuyers, including a low
down-payment; a quick pre-qualification interview to determine
affordability; and a "pre-approval letter" that gives buyers a bargaining
advantage. In addition, our Mortgage Loan Originators regularly conduct
educational seminars for first-time homebuyers seeking to more fully
understand the home buying process.
Graph #13
Residential Mortgage Loan Closings
($ in Billions)
1995 = $2.8
1996 = $3.6
1997 = $3.9
During 1997, the residential mortgage lending team completed $3.9 billion in
mortgage loan closings, compared to $3.6 billion in 1996. We reached a
record $3.4 billion in retail mortgage loan closings in 1997, or 88% of total
closings, an increase of $700 million when compared to 1996.
14
<PAGE>
Photograph #6
Timothy B. Smith, Vice President, Republic Bancorp Mortgage
Inc., and his Loan Processor, Maureen M. Carleton, assist
residential mortgage loan customers with their application.
15
<PAGE>
Mortgage Banking (cont.)
As a result, Republic Bancorp is the 17th largest retail mortgage lender in
the country. We are also proud to be the largest Michigan-based retail
mortgage lender and the largest retail mortgage lender in the Tampa, Florida
area.
Republic Bancorp's Mortgage Loan Originators rank among the top lenders in
the markets we serve. They are dedicated to building personal relationships
with real estate agents and brokers in the communities they serve.
Cultivation of these relationships helps strengthen our existing referral
programs and permits the development of new ones, thereby supporting loan
growth. Most importantly, our Mortgage Loan Originators, along with their
dedicated Loan Processors, are motivated to provide the highest level of
personalized service so that customers can receive quick responses to
questions, timely loan approvals and efficient closings.
Mortgage Loan Sales to the
Secondary Market
Approximately 63% of Republic Bancorp's total mortgage loan closings are
conventional mortgage loans. Another 16% represent government loans either
guaranteed by the Department of Veterans Affairs (VA) or insured by the
Federal Housing Administration (FHA). The remaining 21% are comprised of
portfolio and jumbo loans. We regularly originate conventional mortgages in
conformity with underwriting guidelines permitting their sale directly to the
Federal National Mortgage Association (FNMA) and the Federal Home Loan
Mortgage Corporation (FHLMC). In addition, we originate government loans in
compliance with underwriting guidelines permitting their conversion into
mortgage-backed securities issued by the Government National Mortgage
Association (GNMA).
Mortgage Loan Servicing
At December 31, 1997, the Company serviced $3.1 billion in mortgage loans for
the benefit of others, representing over 39,000 loans. At year-end 1996,
loans serviced for others totaled $2.7 billion or more than 36,000 loans.
Mortgage loans serviced have been originated through our retail bank and
mortgage loan production offices or acquired through bulk purchases.
As a loan servicer, Republic Bancorp performs the servicing function by
collecting and remitting loan payments, holding custodial funds for payment
of taxes and insurance, counseling delinquent mortgagors, supervising
foreclosures and property dispositions in the event of unremedied defaults,
and performing other loan administrative duties. In return, the Company
receives a fee from the investor, ranging from 25 to 45 basis points per year
on the unpaid principal balance of loans in the servicing portfolio. In
addition, the Company retains late fees and other ancillary charges
associated with the administration of the mortgage loan servicing portfolio.
Providing outstanding customer service is the main focus of each servicing
employee at Republic Bancorp. This commitment is demonstrated each time an
employee speaks with a customer over the phone or processes a transaction
that affects a homeowner.
16
<PAGE>
Photograph #7
Our servicing employees also concentrate on the accurate and efficient
processing of transactions and information. Technological advancements have
been integrated into various processes to improve accuracy and reduce the
cost of mortgage loan servicing activities. Our efforts are paying off as
evidenced by an increase in the number of loans serviced per servicing
employee, an indicator of efficiency.
Left to right:
Nancy A. Jones, Senior Vice President, Market Street Mortgage Corporation and
CUB Funding Corporation; T. Donnell Smith, CMB, Executive Vice President,
Market Street Mortgage Corporation and CUB Funding Corporation; Marcetta
Nelson-Rhodes, Senior Vice President, Republic Bancorp Mortgage Inc.; Michael
H. Dillon, CPA, Executive Vice President, Market Street Mortgage Corporation
and CUB Funding Corporation
17
<PAGE>
Our Products and Services
Commercial Lending Products
Commercial Loans
Republic Bank and Republic Savings Bank provide financing primarily for
commercial real estate in Michigan, Ohio and Indiana. The types of projects
financed typically involve small- to medium-size manufacturing facilities,
retail shopping centers, apartment complexes and office buildings.
SBA Loans
Republic Bank and Republic Savings Bank provide loans guaranteed by the Small
Business Administration to small businesses for owner-occupied commercial
properties; the purchase, construction or expansion of buildings; working
capital; and for machinery and equipment.
USDA Guaranty Loans
For-profit and non-profit organizations and small businesses in rural areas
can apply for a loan through this program offered by Republic Bank in
Michigan and sponsored by the United States Department of Agriculture.
Retail Banking Products
Checking
Republic Bancorp has a wide selection of personal checking accounts available
for customers. Our Signature Plus Checking interest-bearing account rewards
individuals for maintaining multiple accounts with us and automatically
qualifies customers for a higher rate of interest on certificates of deposit.
Our classic Pathfinders Checking account is a financial as well as a social
club that permits individuals age 50 and over to participate in a variety of
active, enjoyable and informative programs. We also offer various checking
accounts specifically for businesses, including business checking accounts
and sweep accounts that contain features such as unlimited deposit and check
writing privileges, money market equivalent rates, and earnings credits.
Savings
Republic Bancorp offers three types of savings vehicles for individuals. Our
Diamond Savings account is a tiered, variable rate account aimed at people
with higher balances seeking competitive rates of return. Our Diamond
Investment money market account is a variable rate account designed to
compete with money market mutual funds. Our Personal Savings account is
designed to help individuals seeking to begin a savings program.
Retail Certificates of Deposit
Republic Bancorp's Retail Certificates of Deposit offer maturities ranging
from two months to eight years with competitive interest rates that will help
individuals meet their investment goals. We also offer various Individual
Retirement Accounts in the form of certificates of deposit that have
competitive rates, an attractive tax-deferral feature, a low initial deposit
requirement, and additional deposit opportunities.
Public Funds
In Michigan and Ohio, Republic Bancorp provides a variety of accounts
tailored to meet the needs of municipalities and educational institutions.
Our Public Fund Certificates of Deposit are available in denominations over
$100,000 and offer competitive rates and flexible terms. Our Public Fund
Money Market Checking account is a variable rate money market account with
unlimited deposit and check writing privileges. Our Public Fund Checking
account features unlimited deposit and check writing privileges, as well as
an earnings credit. We also offer Public Fund Installment Purchase Contracts
that allow governmental organizations to borrow funds at competitive rates
and with flexible terms.
Mortgage Lending Products
Republic Bancorp offers a variety of residential mortgage loan products,
including the following:
o Conventional, fixed-rate 15- and 30-year mortgages;
o One-, three- and five-year adjustable rate mortgages;
o Five- and seven-year balloon mortgages;
o Jumbo mortgages;
o FHA and VA mortgage loans;
o New construction loans;
o Bridge loans;
o Second mortgages;
o Home equity loans;
o Sub-prime mortgage loans; and
o Portfolio loans.
<PAGE>
For more information regarding our products and services, please refer to the
map and detail list of offices on the following pages to locate the office
nearest you.
18
<PAGE>
Our Marketplace
MAP OF UNITED STATES
Financing the American Dream
Republic Bancorp Inc. has 112 Offices in 21 States.
Commercial, Retail and
Mortgage Banking States (54 Offices)
Michigan-36
Ohio-17
Indiana-1
Mortgage Banking States (58 Offices)
Florida-14 Georgia-4 North Carolina-1
Alabama-1 Illinois-5 Oklahoma-3
Arizona-4 Maryland-2 Pennsylvania-1
California-3 Massachusetts-1 Texas-1
Colorado-4 Missouri-5 Utah-1
Connecticut-2 New York-3 Virginia-3
19
<PAGE>
Republic Bank
Highlights
Republic Bank is a state-chartered bank headquartered in Ann Arbor, Michigan.
In 1997, Republic Bank was named a Preferred Lender by the Small Business
Administration (SBA), the highest designation attainable by lending
institutions. Additionally, Republic Bank was recognized as the Number One
SBA Lender in the State of Michigan for the fourth consecutive year.
At December 31, 1997, Republic Bank had total assets of $1.3 billion. Total
deposits grew 22% to $894 million at December 31, 1997. Commercial loan
closings reached $119 million, up 47% from 1996. SBA loan closings were $21
million, up 16% over the prior year. Republic Bank closed $490 million in
residential mortgage loans in 1997, representing a 24% increase over 1996.
Board of Directors
Howard J. Hulsman
Chairman of the Board;
Chairman, Ross
Learning Center
Barry J. Eckhold
Vice Chairman and Chief
Executive Officer, Republic
Bank; Vice Chairman,
Republic Savings Bank
Lee E. Benz
President, Benz
Insurance Company
George L. Burkitt
Certified Public Accountant
Robert G. Edgar
President, R. G.
Edgar & Associates
D. Wayne Fate
Pharmacist
Lloyd G. Ganton
President, Ganton
Retirement Centers, Inc.
Craig L. Johnson
President and Chief Operating
Officer, Republic Bank;
President and Chief
Executive Officer,
Republic Savings Bank
Jack R. Lousma
Consultant
Milton F. Lutz, II
President, Midbrook
Products, Inc.
Robert L. McNaughton
President, McNaughton &
Gunn Printers and
Lithographers
Robert C. Manutes
Retired Pharmacist
William G. Milliken, Jr.
Owner, Milliken
Realty Company
William C. Rands, III
Managing Partner,
Sagres Partners
Milton J. Rosenbaum
Physician
John E. VanderPoel
Regional Bank President,
Republic Bank
David W. Wright
President and Chief
Executive Officer, Durakon
Industries, Inc.
Michael D. Young
President, Michael D. Young
Olds, Pontiac, GMC
Trucks, Inc.
Officers
Barry J. Eckhold
Vice Chairman and Chief
Executive Officer
Craig L. Johnson
President and Chief
Operating Officer
John E. VanderPoel
Regional Bank President
David G. Stickel
Regional President
Constance A. Deneweth
Community Bank
President-Traverse City
Dennis A. Hill
Community Bank
President-Jackson
Richard P. Lupkes
Community Bank
President-Ann Arbor
Thomas G. Zernick
Community Bank
President-Lansing
Theodore J. Carlson
Executive Vice President,
Director of Facilities
Craig C. Foust
Senior Vice President and
Chief Credit Officer
Jeffrey D. Saunders, CPA
Senior Vice President and
Chief Financial Officer
Bethany L. Barker, SPHR
Vice President,
Human Resources
Commercial Lending
Senior Vice Presidents
Ronald L. Clingerman
Thomas A. Creswell
Stuart A. Forsyth
Vice Presidents
Douglas T. Allor
Vincent G. Cassisa
Donald F. Chamberlain
Matthew J. Chrome
Linda S. Crawford
Craig A. Criswell
Larry R. Daniel
John C. Deming
Pamela J. Foster
D. Scott Hannah
E. James Houston, Jr.
Karl C. Jones
Patricia K. Julien
Thomas P. McFadden
Darlene A. Nowak-Baker
Joann M. Roche
Andrew P. Sabatine
David J. Skaff
Gloria A. Tomaszewski
Jeffrey S. Williams
Karl D. Zachmann
Mortgage Lending
Senior Vice Presidents
Lawrence D. Corbett
Michael J. Gleason
Daniel F. MacKenzie
David B. Randall
Diana L. Wallace
Vice Presidents
Rosalee M. Bailey
Sheila G. Brigham
Michael J. Charlow
Teresa A. Damman
Suzanne M. Lieder
Heidi H. McNaughton
20
<PAGE>
Vice Presidents (cont.)
Gregory B. Smith
Julie M. Q. Smith
David W. Stellin
Holly G. Tegel
Retail Banking,
Consumer Lending
and Operations
Vice Presidents
Sharon M. Bollinger
Paul C. Fuller
Jack S. Harris
Lorraine A. Jackman
Douglas A. Liverance
Richard A. Roty
Cheryl M. Schantz
Barbara J. Schmit
James L. Stotz
Russell J. Thomas
Joanne M. Wrozek
Office Locations
Ann Arbor Region
Main Office
122 South Main Street
Ann Arbor, MI 48104
(313) 665-4030
2100 South Main Street
Ann Arbor, MI 48103
(313) 665-4080
Flint Region
G-3200 Beecher Road
Flint, MI 48532
(810) 732-3300
20 South Main Street
Clarkston, MI 48346
(248) 922-1200
2050 South Linden Road
Flint, MI 48532
(810) 733-7500
220 East Main Street
Flushing, MI 48433
(810) 659-7712
G-8455 South Saginaw Road
Grand Blanc, MI 48439
(810) 694-8222
1070 East Main Street
Owosso, MI 48867
(517) 723-7800
1345 North Shiawassee Street
Owosso, MI 48867
(517) 723-5101
Jackson Region
306 West Michigan Avenue
Jackson, MI 49201
(517) 789-4300
2201 East Michigan Avenue
Jackson, MI 49202
(517) 789-4330
2030 Fourth Street
Jackson, MI 49203
(517) 789-4335
904 North Wisner Street
Jackson, MI 49202
(517) 789-4326
Loan Production Office
4205 South Westnedge Avenue
Kalamazoo, MI 49008
(616) 344-0011
Lansing Region
500 North Homer Street
Lansing, MI 48912
(517) 351-7300
601 West Grand River
Okemos, MI 48864
(517) 349-1930
127 East Grand River
Webberville, MI 48892
(517) 521-3122
105 West Middle Street
Williamston, MI 48895
(517) 655-4371
Southeastern
Michigan Region
1700 North Woodward,
Suite B
Bloomfield Hills, MI 48304
(248) 258-5300
31155 Northwestern Highway
Farmington Hills, MI 48334
(248) 737-0444
18720 Mack Avenue
Grosse Pointe Farms, MI 48236
(313) 882-6400
Traverse City Region
534 East Front Street
Traverse City, MI 49686
(616) 933-4400
3600 Veterans Drive
Traverse City, MI 49864
(616) 933-5626
Loan Production Office
616 Petoskey Street
Petoskey, MI 49770
(616) 347-0290
Western Michigan
100 E. 8th Street
Holland, MI 49423
(616) 395-2585
Loan Production Office
1500 East Beltline,
Suite 160
Grand Rapids, MI 49506
(616) 977-5907
Photograph #8
Barry J. Eckhold, Vice Chairman and Chief Executive Officer, Republic Bank
21
<PAGE>
Republic Savings Bank
Highlights
Republic Savings Bank is a state-chartered savings bank headquartered in
Pepper Pike, Ohio, that offers commercial, retail and mortgage loans in
addition to a variety of checking and deposit products primarily to
individual and business customers in the greater Cleveland, Ohio area and
Indianapolis, Indiana. Republic Savings Bank also originates mortgage loans
through offices in Columbus, Dayton, and Cincinnati, Ohio as well as in
Indiana.
Republic Savings Bank was the top SBA lender in the Cleveland District for
the fourth quarter of 1997. At December 31, 1997, Republic Savings Bank had
assets of $492 million. Total deposits grew 12% to $320 million from $285
million last year. Commercial loan closings were $56 million, an increase of
36% from 1996. SBA loan closings improved to $7 million in 1997. Republic
Savings Bank closed $557 million in residential mortgage loans, representing
a 65% increase from 1996.
Board of Directors
Dennis J. Ibold
Chairman of the Board;
President, Petersen & Ibold, Attorneys at Law
Albert P. Blank
Executive Vice President, Republic Savings Bank
Dana M. Cluckey
President and Chief Operating Officer,
Republic Bancorp Inc.
Paul C. Drueke
First Vice President, Stifel, Nicolaus & Company, Inc.
Barry J. Eckhold
Vice Chairman, Republic Savings Bank; Vice Chairman
and Chief Executive Officer, Republic Bank
Craig L. Johnson
President and Chief Executive Officer, Republic Savings Bank;
President and Chief Operating Officer, Republic Bank
John J. Lennon
Retired Chairman and Chief Executive Officer,
White Engines, Inc.
John L. Macklin
President, Investment Advisors International, Inc.
Lyman H. Treadway
Consultant, Retired Chairman and Chief Executive Officer,
Bancapital Corporation
Officers
Craig L. Johnson
President and Chief Executive Officer
Albert P. Blank
Executive Vice President
Gregory T. Cook
Senior Vice President, Retail Banking
Michelle J. Dubblestyne
Vice President, Human Resources
Michelle T. Ferri, CPA
Vice President, Controller and Treasurer
Jacqueline W. Goler
Vice President, Marketing
Leeanne M. Wright
Vice President, Loan Servicing
22
<PAGE>
Commercial Lending
Vice Presidents
E. Christian Barham
Thomas P. Krumel
Daniel G. Merkel
Carl F. Moraw
Neil T. Young
Mortgage Lending
Vice Presidents
Timothy B. Atkinson
Anthony P. Corrao
Davida F. Henson
Darrin L. Kresevic
Marianne McCarty
Edward M. McRitchie
John L. Mlakar
Kathy A. Shaw
Office Locations
Main Office
29225 Chagrin Blvd.
Pepper Pike, OH 44122
(216) 514-3484
17800 Chillicothe Rd.
Chagrin Falls, OH 44023
(440) 543-8237
8389 Mayfield Rd.
Chesterland, OH 44026
(440) 729-1636
80 Severance Circle Drive
Cleveland Heights, OH 44118
(216) 291-3171
5 Aurora Street
Hudson, OH 44236
(330) 653-5111
Greens of Lyndhurst
5710 Mayfield Rd.
Lyndhurst, OH 44124
(440) 461-7300
8382 Mentor Avenue
Mentor, OH 44060
(440) 918-0800
7220 Pearl Rd.
Middleburg Heights, OH 44130
(440) 845-7945
26777 Lorain Rd.
North Olmsted, OH 44070
(440) 779-9922
26301 Curtiss Wright Pkwy.
Richmond Heights, OH 44143
(216) 289-0999
3505 Lee Rd.
Shaker Heights, OH 44120
(216) 991-2800
13991 Cedar Road
South Euclid, OH 44118
(216) 932-7774
201 South Capital, Suite 650
Indianapolis, IN 46225
(317) 237-5300
Loan Production Office
7333 Paragon Rd., Suite 160
Centerville, OH 45459
(937) 438-4663
Loan Production Office
8178 Beechmont Avenue
Cincinnati, OH 45255
(513) 474-1188
Loan Production Office
6551 South Main St., Suite 100
North Kingsville, OH 44068
(440) 224-2114
Loan Production Office
500 W. Wilson Bridge Rd.
Suite 100
Worthington, OH 43085
(614) 888-9582
Loan Production Office
4665 Douglas Circle, Suite 100
Canton, OH 44718
(330) 966-7072
Photograph #9
Craig L. Johnson, President
and Chief Executive Officer,
Republic Savings Bank
23
<PAGE>
Republic Bancorp
Mortgage Inc.
Highlights
Republic Bancorp Mortgage Inc. is a mortgage company with headquarters in
Farmington Hills, Michigan. Republic Bancorp Mortgage offers a variety of
mortgage loans, including conventional, construction, FHA/VA government-
insured, jumbo and sub-prime, as well as home equity products. These
products are available through 17 offices located in Michigan, Connecticut,
Massachusetts, New York and Ohio. Republic Bancorp Mortgage has three
divisions: Home Funding Inc., Unlimited Mortgage Services and Exchange
Mortgage Corporation.
Exchange Mortgage Corporation, including its sub-prime lending division,
Union Mortgage Services, was acquired in September 1997. This acquisition
provided Republic Bancorp Mortgage with an opportunity to expand the
Company's mortgage lending activities into the more profitable sub-prime
mortgage lending market. The establishment of a sub-prime lending division
within the Company is expected to enhance the volume of mortgage loans
originated to applicants with less-than-perfect credit histories.
Republic Bancorp Mortgage's Southeast Michigan region has consistently been
recognized as one of the top five mortgage origination groups in the State of
Michigan. Republic Bancorp Mortgage originated $917 million of residential
mortgage loans in 1997, an increase of 31% from 1996.
Board of Directors
George B. Smith
Chairman of the Board
Charles W. Adams
Consultant
Douglas E. Brandewie
President and Chief Executive
Officer, Republic Bancorp
Mortgage Inc.
Jerry D. Campbell
Chairman and Chief Executive
Officer, Republic Bancorp Inc.
Dana M. Cluckey
President and Chief Operating
Officer, Republic Bancorp Inc.
Barry J. Eckhold
Vice Chairman and
Chief Executive Officer,
Republic Bank
and Vice Chairman,
Republic Savings Bank
William C. Rands, III
Managing Partner,
Sagres Partners
Arthur F. Vine
Retired Director of
Mortgage Servicing,
Michigan State Housing
Development Authority
Officers
George B. Smith
Chairman of the Board
Douglas E. Brandewie
President and Chief Executive
Officer
Teresa E. Fagan
Executive Vice President,
Unlimited Mortgage
Services, Inc.
Sandra J. Nickol
Senior Vice President
Kristin L. Ouellette
Senior Vice President
Kathleen Quinn
Division President,
Home Funding Inc.
Marcetta Nelson-Rhodes
Senior Vice President
Lawrence Rosenberg, CPA
Senior Vice President and
Chief Financial Officer
W. Eric Stone
Division President, Unlimited
Mortgage Services, Inc.
Edward A. Tilk
Executive Vice President,
Exchange Mortgage
Corporation
Michael J. Walsh
Division President, Exchange
Mortgage Corporation
William A. Zablocki
Senior Vice President
Denise M. Kiepper
Vice President,
Human Resources
Vice Presidents
Patricia Cook-Anderson
Barbara J. Bartus
Robert L. Borkowski
Koleen M. Cook
Charles W. Cracraft
Robert D. Decraene
Thomas E. Dodrill
Deborah L. Dupilka
Erik C. Eriksen
Susan A. Farrar
Debra J. Gouin
Deborah E. Herman
Wendy L. Hunt
C. Ann Jeffares
Alex N. Masterpole
Carrie E. Meacham
Mary D. Mitchell
Raquel R. Moore
Ross G. Ritter
Barbara Jo Smith
Daniel B. Smith
Thomas B. Smith
Timothy B. Smith
Linda C. Stafford
Michael G. Taormino
Peter D. Tull
Kimberly L. Visniski
William D. Wilhammer
24
<PAGE>
Office Locations
Main Office
31155 Northwestern Hwy.
Farmington Hills, MI 48334
(248) 932-4701
1919 West Stadium Blvd., Suite 4
Ann Arbor, MI 48103
(734) 995-4499
1700 North Woodward Avenue,
Suite B
Bloomfield Hills, MI 48304
(248) 646-7050
322 West Grand River
Brighton, MI 48116
(810) 229-7440
836 Centennial Way
Lansing, MI 48917
(517) 886-2816
186 South Main Street
Plymouth, MI 48170
(734) 459-7800
315 Water Street
Rochester, MI 48307
(248) 656-4200
24370 Northwestern Hwy.,
Southfield, MI 48075
(248) 357-8360
14405 Northline Rd.
Southgate, MI 48195
(734) 283-6200
13219 Eureka
Southgate, MI 48195
(734) 246-9900
457 Main Street
Danbury, CT 06811
(800) 767-4787
141 Orange Street
New Haven, CT 06510
(203) 776-3980
Two Meeting House Road
Chelmsford, MA 01824
(978) 250-2700
1407 Route 9
Clifton Park, NY 12065
(800) 724-0969
6701 Manlius Center Rd.
East Syracuse, NY 13057
(800) 860-8207
Two Summit Court, Suite 306
Fishkill, NY 12524
(800) 724-2111
450 West Wilson Bridge Road, Suite 370
Worthington, OH 43085
(614) 785-1730
Photograph #10
Douglas E. Brandewie, President
and Chief Executive Officer,
Republic Bancorp Mortgage Inc.
25
<PAGE>
Market Street Mortgage
Corporation and
CUB Funding Corporation
Highlights
Market Street Mortgage Corporation and CUB Funding Corporation are mortgage
companies with headquarters in Clearwater, Florida. Market Street Mortgage
and CUB Funding offer a range of mortgage loan products, including
conventional, construction, FHA/VA government-insured, jumbo and sub-prime,
as well as home equity products. These products are offered through a total
of 49 offices in Florida, California, Alabama, Arizona, Colorado, Georgia,
Illinois, Maryland, Missouri, North Carolina, Oklahoma, Pennsylvania, Texas,
Utah and Virginia.
In 1997, Market Street Mortgage was awarded one of two national contracts to
be a master servicer of government loans for the Government National Mortgage
Association (GNMA). Also, Market Street Mortgage was the Number One
originator of mortgages for home purchases in the Tampa, Florida area for the
eighth year in a row.
Market Street Mortgage closed $1.3 billion in residential mortgage loans in
1997, an increase of 15% from 1996. CUB Funding's residential mortgage
closings were $632 million in 1997.
Market Street
Mortgage
Corporation
Board of Directors
Randall C. Johnson, CMB
Chairman of the Board,
President and Chief
Executive Officer
Jerry D. Campbell
Chairman and Chief Executive
Officer, Republic Bancorp Inc.
Dana M. Cluckey, CPA
President and Chief
Operating Officer,
Republic Bancorp Inc.
Michael H. Dillon, CPA
Executive Vice President
T. Donnell Smith, CMB
Executive Vice President
Officers
Randall C. Johnson, CMB
Chairman of the Board,
President and Chief Executive
Officer
T. Donnell Smith, CMB
Executive Vice President
Michael H. Dillon, CPA
Executive Vice President
James B. Capps
Senior Vice President
Tracy S. Jackson, CPA
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
Nancy A. Jones
Senior Vice President
Barbara VanAntwerp
Senior Vice President
Nancy J. Weaver
Vice President
Robert W. Johnson, Esq.
Legal Counsel and
Chief Compliance Officer
Vice Presidents
Betty Ann Armstrong
Anna Y. Agee
Anthony J. Agliardi, CPA
Ross G. Bennett, CMB
Barry W. Carroll
Thomas J. Chess
Jerry F. Cobbe
Joy C. Douglas
Deborah L. Drake
Michael A. Dulla
Charles D. Feisal
Timothy J. Hawkes
Barbara J. Jenkins
Bruce W. Kates
Patricia K. McCabe
Stephen H. McLaughlin
Richard A. Munch
Brian J. Murphy
JoAnn Schuler Perry
Sandra K. Pettinger
Brian W. Prentice
Lauren C. Reed
Charles W. Richardson
Clarence P. Rideout
Neal B. Saxon, Jr.
Timothy A. Slone
Gene F. Swindle
John M. Welsh
Frank L. Wolff
Office Locations
Main Office
2650 McCormick Drive,
Suite 200
Clearwater, FL 33759
(813) 724-7000
28341 S. Tamiami Trail
Bonita Springs, FL 34134
(941) 495-5454
1375 Oakfield Drive
Brandon, FL 33511
(813) 681-7700
3620 NW 43rd Street, Unit F
Gainesville, FL 32606
(352) 336-7766
100 South Lawrence Blvd.
Keystone Heights, FL 32656
(352) 473-1020
11701 Belcher Rd. South,
Largo, FL 33773
(813) 539-8300
2500 Maitland Center Pkwy.
Maitland, FL 32751
(407) 875-6900
11440 N. Kendall Dr.,
Miami, FL 33176
(305) 596-1640
9050 Pines Blvd.,
Pembroke Pines, FL 33024
(954) 438-6600
698 Brent Lane
Pensacola, FL 32503
(904) 479-7991
300 31st Street, N.,
St. Petersburg, FL 33713
(813) 321-4439
3550 Buschwood Park Dr.
Tampa, FL 33618
(813) 932-4578
3802 Ehrlich Road,
Tampa, FL 33624
(813) 961-6694
205 S. Hoover St.,
Tampa, FL 33609
(813) 286-8700
6719 Taylor Circle,
Montgomery, AL 36117
(334) 277-9011
1255 Baseline Road
Mesa, AZ 85202
(602) 897-7447
8800 N. Gainey Center Dr.
Scottsdale, AZ 85258
(602) 596-0735
500 E. Fry Blvd.
Sierra Vista, AZ 85635
(520) 458-8523
6303 E. Tanque Verde
Tucson, AZ 85715
(520) 751-0071
7850 Vance Drive
Arvada, CO 80003
(303) 424-6993
6025 S. Quebec
Englewood, CO 80111
(303) 721-1120
26
<PAGE>
214 8th Street
Glenwood Springs, CO 81601
(970) 945-7200
606 Mountain View Ave.
Longmont, CO 80501
(303) 772-4400
5669 Whitesville Rd.
Columbus, GA 31904
(706) 324-0074
300 Chastain Center Blvd.
Kennesaw, GA 30144
(770) 795-0886
23 Eastbrook Bend
Peachtree City, GA 30269
(770) 631-4000
344 Corder Road
Warner Robins, GA 31088
(912) 328-6660
1211 West 22nd Street
Oak Brook, IL 60523
(630) 990-1310
8752-3 West 159th Street
Orland Park, IL 60462
(708) 403-5663
1375 E. Woodfield Rd.
Schaumburg, IL 60173
(847) 706-9411
3901 National Dr.
Burtonsville, MD 20866
(301) 989-8500
18215-D Flower Hill Way
Gaithersburg, MD 20879
(301) 670-5660
2701 Coltsgate Rd.
Charlotte, NC 28211
(704) 365-9044
1320 N.W. Homestead Dr.
Lawton, OK 73505
(580) 248-3448
4200 Perimeter Center
Oklahoma City, OK 73112
(405) 942-1200
217 West 5th Street
Stillwater, OK 74074
(405) 377-2754
RD1, Box 1020
New Freedom, PA 17349
(717) 235-8889
8200 Brook River Center
Dallas, TX 75247
(214) 631-1810
917 East Country Hills Drive
South Ogden City, UT 84403
(801) 392-6160
7611 Little River Turnpike
Annandale, VA 22003
(703) 941-6600
3998 Fair Ridge Dr.
Fairfax, VA 22033
(703) 359-0100
8700 Centreville Road
Manassas, VA 20110
(703) 331-0300
CUB Funding
Corporation
Officers
Randall C. Johnson, CMB
Chairman of the Board and
Chief Executive Officer
Daniel M. LuVisi
Vice Chairman and President
T. Donnell Smith, CMB
Executive Vice President
Michael H. Dillon, CPA
Executive Vice President
Harry A. "Bud" Blank
President, Leader
Financial Division
Tracy S. Jackson, CPA
Senior Vice President
Chief Financial Officer,
Treasurer and Secretary
Nancy A. Jones
Senior Vice President
Barbara J. Jenkins
Vice President
Nancy J. Weaver
Vice President
Office Locations
26565 West Agoura Road
Calabasas, CA 91302-1958
(818) 880-4400
702 East Highway 50
O'Fallon, IL 62269
(618) 632-1010
112 West Homer
Adams Parkway,
Alton, IL 62002
(618) 467-5626
1659 Clarkson
Chesterfield, MO 63017
(314) 530-9494
386 Festus Center Drive
Festus, MO 63028
(314) 931-5626
423 S. Kirkwood Road
Kirkwood, MO 63122
(314) 965-9940
13723 Riverport Dr., Suite 104
Maryland Heights, MO 63043
(314) 770-0288
Photograph #11
Randall C. Johnson, CMB, Chairman of the Board, President and Chief Executive
Officer, Market Street Mortgage Corporation and CUB Funding Corporation
27
<PAGE>
Republic Bancorp Inc.
Directors and Officers
<TABLE>
<CAPTION>
Board of Directors
<S> <C>
Jerry D. Campbell Chairman and Chief Executive Officer
Dana M. Cluckey, CPA President and Chief Operating Officer
Bruce L. Cook Chairman, Wolverine Sign Works
Richard J. Cramer, Sr. President, Dee Cramer, Inc.
Dr. George A. Eastman Orthodontic Consultant
Howard J. Hulsman Chairman, Ross Learning Inc.
Gary Hurand President, Dawn Donut Systems, Inc.
Dennis J. Ibold President, Petersen & Ibold, Attorneys at Law
Stephen M. Klein Chairman and Chief Executive Officer, Omni Financial Services Inc.
John J. Lennon Retired Chairman and CEO, White Engines, Inc.
Sam H. McGoun President and CEO, Willis Corroon Corporation of Michigan, Inc.
Kelly E. Miller President and CEO, Miller Exploration Company
Joe D. Pentecost President, Better Properties, Inc.
George B. Smith Chairman of the Board, Republic Bancorp Mortgage Inc.
Dr. Jeoffrey K. Stross Professor of Internal Medicine, University Medical Center, The University of Michigan
Directors-Emeriti
Myer N. Franklin
David Laro
John F. Northway
Lyman H. Treadway
Executive Officers
Jerry D. Campbell Chairman and Chief Executive Officer
Dana M. Cluckey, CPA President and Chief Operating Officer
Barry J. Eckhold Vice President and Chief Credit Officer
Thomas F. Menacher, CPA Senior Vice President, Treasurer and Chief Financial Officer
George E. Parker, III General Counsel and Corporate Secretary
Corporate Officers
Vivian N. Bennett, CPA Financial Reporting and Investor Relations Officer
Gregory R. Bixby Vice President, Chief Information Officer
Timothy G. Blazejewski, CPA Vice President, Chief Investment Officer
Debra A. Hanses, PHR Vice President, Corporate Human Resources
Travis D. Jones, CPA Vice President, Corporate Controller
Jack D. Speckmann Director of Loan Review and Internal Audit
Pamela E. Taiariol Director of Compliance
Executive Office Principal Office
1070 East Main Street 122 South Main Street
Owosso, MI 48867 Ann Arbor, MI 48104
(517) 725-7337 (313) 665-4030
</TABLE>
28
<PAGE>
Five-Year Summary of
Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
Earnings Summary (in thousands)
<S> <C> <C> <C> <C> <C>
Interest income $118,852 $ 99,147 $ 95,597 $ 78,219 $ 78,831
Interest expense 71,912 62,427 65,192 44,999 42,268
Net interest income 46,940 36,720 30,405 33,220 36,563
Provision for loan losses 3,031 290 24 94 603
Mortgage banking income 93,700 86,377 70,960 69,899 85,128
Other noninterest income 8,815 4,469 4,241 5,762 6,992
Noninterest expense 117,742 104,492(1) 83,152 85,021 93,539
Income before cumulative effect of a
change in accounting principle and
extraordinary item 18,789 15,066 14,264 15,719 22,233
Net income 18,789 14,678 14,264 15,719 23,183
Per Common Share(2)
Basic earnings $ 1.01 $ .76 $ .71 $ .77 $ 1.19
Diluted earnings .99 .74 .69 .75 1.13
Cash dividends declared .37 .34 .28 .22 .15
Book value (year-end) 7.02 6.47 6.34 5.78 5.54
Closing stock price (year-end) 21.38 10.57 8.88 7.42 9.39
Dividend payout ratio 37% 46% 40% 30% 13%
Operating Data (in millions)
Closings:
Residential mortgage loans $ 3,892 $ 3,581 $ 2,847 $ 2,837 $ 4,911
Commercial loans 175 122 50 27 20
SBA loans 28 24 17 12 7
Mortgage loan servicing portfolio 3,113 2,706 3,967 4,669 3,023
Year-End Balances (in millions)
Total assets $ 1,873 $ 1,490 $ 1,473 $ 1,364 $ 1,171
Total earning assets 1,731 1,349 1,323 1,224 1,078
Mortgage loans held for sale 514 329 423 152 508
Portfolio loans 1,096 785 578 605 407
Deposits 1,177 1,014 905 819 834
Short-term borrowings and FHLB advances 425 255 344 327 160
Long-term debt 48 49 52 56 20
Shareholders' equity 131 122 126 118 111
Ratios
Return on average assets 1.16% 1.02% 1.00% 1.23% 1.94%
Return on average equity 15.09 11.95 11.71 13.43 23.72
Net interest margin (3) 3.16 2.88 2.38 2.88 3.29
Net loan charge-offs to average total loans (4) .03 .06 .06 .20 .06
Allowance for loan losses as a percentage
of year-end portfolio loans .67 .60 .87 .92 1.77
Non-performing assets as a percentage
of year-end total assets .68 .44 .20 .30 .45
Average shareholders' equity to average assets 7.69 8.52 8.56 9.14 8.16
Tier 1 risk-based capital 9.75 13.30 15.72 17.57 16.35
Total risk-based capital 10.35 13.84 18.63 21.05 20.19
Tier 1 leverage 6.58 8.16 8.31 8.43 8.43
<FN>
(1) Includes a one-time assessment of $1.5 million ($975,000 after tax, or
$.05 per share) for the recapitalization of the Savings Association
Insurance Fund.
(2) The basic earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards No.
128, Earnings Per Share. All per share amounts presented have been
adjusted to reflect the issuance of stock dividends.
(3) Net interest income (FTE) expressed as a percentage of average
interest-earning assets.
(4) Includes mortgage loans held for sale.
</TABLE>
29
<PAGE>
Condensed Consolidated Financial Statements
<TABLE>
<CAPTION>
Condensed Consolidated Balance Sheets
December 31 (Dollars in thousands) 1997 1996
- ---------------------------------------------------------------------------------------
Assets:
<S> <C> <C>
Cash and due from banks $ 27,458 $ 33,590
Interest-earning deposits with banks 2,210 6,524
Mortgage loans held for sale 513,533 329,157
Securities available for sale 119,881 228,621
Loans, net of unearned income 1,095,744 784,628
Less allowance for loan losses (7,334) (4,709)
----------- -----------
Net loans 1,088,410 779,919
----------- -----------
Premises and equipment, net 12,505 15,008
Mortgage servicing rights 58,413 44,398
Other assets 50,483 53,148
----------- -----------
Total Assets $ 1,872,893 $ 1,490,365
=========== ===========
Liabilities and Shareholders' Equity:
Deposits $ 1,177,293 $ 1,013,707
Federal funds purchased, securities sold under
agreement to repurchase and other short-term borrowings 58,274 121,142
FHLB advances 366,632 134,200
Accrued expenses and other liabilities 91,142 49,243
Long-term debt 47,500 49,189
----------- -----------
Total Liabilities 1,740,841 1,367,481
Minority Interest 964 1,069
Shareholders' Equity 131,088 121,815
----------- -----------
Total Liabilities and Shareholders' Equity $ 1,872,893 $ 1,490,365
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Income
Year Ended December 31
(Dollars in thousands, except per share data) 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
Interest income $ 118,852 $ 99,147
Interest expense 71,912 62,427
--------- ---------
Net interest income 46,940 36,720
Provision for loan losses 3,031 290
--------- ---------
Net interest income after provision for loan losses 43,909 36,430
Noninterest income 102,515 90,846
Noninterest expense 117,742 104,492
--------- ---------
Income before income taxes and extraordinary item 28,682 22,784
Income taxes 9,893 7,718
--------- ---------
Income before extraordinary item 18,789 15,066
Extraordinary item - early redemption of debt, net of tax -- (388)
--------- ---------
Net income $ 18,789 $ 14,678
========= =========
Net income per common share:
Basic $ 1.01 $ .76
Diluted $ .99 $ .74
--------- ---------
</TABLE>
30
<PAGE>
Condensed Consolidated Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Net
Unrealized
Gains (Losses)
Number of on Securities Total
Common Common Capital Retained Available Shareholders'
(In thousands) Shares Stock Surplus Earnings for Sale Equity
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1997 17,129 $ 85,646 $ 37,538 $ 1,079 $ (2,448) $ 121,815
Net income 18,789 18,789
Cash dividends declared (6,950) (6,950)
($0.37 per common share)
Awards of shares under
restricted stock plan (1,575) (1,575)
Amortization of restricted
shares issued 824 824
Issuance of common shares:
10% stock dividend 1,693 8,466 3,155 (11,644) (23)
Exercise of stock options
and stock warrants 342 1,710 45 1,755
Tax benefit related to
stock-based awards 1,123 1,123
Common shares repurchased (486) (2,431) (3,889) (6,320)
Change in net unrealized losses
on securities available
for sale 1,650 1,650
------ -------- --------- --------- -------- -----------
Balances at December 31, 1997 18,678 $ 93,391 $ 37,221 $ 1,274 $ (798) $ 131,088
====== ======== ========= ========= ======== ===========
</TABLE>
Report of Independent Auditors
We have audited, in accordance with generally accepted auditing standards,
the consolidated balance sheet of Republic Bancorp Inc. and subsidiaries as
of December 31, 1997 and the related statements of income, changes in
shareholders' equity, and cash flows for the year ended December 31, 1997
(not presented separately herein) and in our report dated January 15, 1998,
we expressed an unqualified opinion on those consolidated financial
statements.
In our opinion, the information set forth in the accompanying condensed
consolidated financial statements is fairly stated, in all material respects,
in relation to the consolidated financial statements from which it has been
derived. The financial statements of Republic Bancorp Inc. for the year ended
December 31, 1996, were audited by other auditors whose report dated January
16, 1997 expressed an unqualified opinion on those statements and included an
explanatory paragraph that disclosed the change in the Company's method of
accounting for mortgage servicing rights.
/s/ Ernst & Young LLP
Detroit, Michigan
January 15, 1998
31
<PAGE>
Corporate Information
Annual Meeting
The Annual Meeting of Shareholders
of Republic Bancorp Inc. will be held
Wednesday, April 22, 1998 at 9:00 a.m. at
the Novi Hilton, 21111 Haggerty Road,
Novi, Michigan.
Common Stock
Republic Bancorp Inc. common stock is
listed on the National Market Tier of the
Nasdaq Stock Market and is traded under
the symbol RBNC.
Principal Market Makers
A.G. Edwards & Sons, Inc.
St. Louis, Missouri 63103
Allen & Company, Inc.
New York, New York 10022
Robert W. Baird & Co., Inc.
Milwaukee, Wisconsin 53202
Dean Witter Reynolds, Inc.
New York, New York 10048
First Albany Corporation
Albany, New York 12207
First of Michigan Corporation
Detroit, Michigan 48226
Herzog, Heine, Geduld, Inc.
Jersey City, New Jersey 07310
Howe Barnes Investment, Inc.
Chicago, Illinois 60603
Keefe, Bruyette & Woods, Inc.
New York, New York 10048
MacAllister Pitfield MacKay
New York, New York 10004
Mayer & Schweitzer Inc.
Jersey City, New Jersey 07302
Nash Weiss
Jersey City, New Jersey 07302
Paine Webber Inc.
New York, New York 10019
Roney & Co.
Detroit, Michigan 48226
Smith Barney Shearson, Inc.
New York, New York 10105
Spencer Clarke L.P.
New York, New York 10022
Stifel Nicolaus & Co., Inc.
St. Louis, Missouri 63102
Troster Singer Corporation
Jersey City, New Jersey 07302
Stock Transfer Agent
and Registrar
Shareholders requiring a change of name, address or ownership of stock, as
well as information about shareholder records, lost or stolen certificates or
dividend checks should contact:
State Street Bank and Trust Company
c/o Boston EquiServe
P.O. Box 8200
Boston, MA 02266-8200
(800) 257-1770
Independent Auditors
Ernst & Young LLP
500 Woodward Avenue, Suite 1700
Detroit, Michigan 48226-3426
Stock Price and Trading Volume Information
<TABLE>
<CAPTION>
Quarterly
Trading Volume
Date Closing Price (In thousands)
- -------------------------------------------------------------------
<S> <C> <C>
December 31, 1997 $21.38 3,990
September 30, 1997 $15.00 3,150
June 30, 1997 $12.95 3,440
March 31, 1997 $11.81 3,390
December 31, 1996 $10.57 4,050
- ---------------------------------------------------------------
</TABLE>
32
<PAGE>
Shareholder Information
Dividend Payment Dates
Subject to approval of the Board of Directors, quarterly cash dividend
payments are made during January, April, July and October.
Dividend Reinvestment Plan
Through the Republic Bancorp Inc. Dividend Reinvestment Plan,
shareholders with common stock registered in their names can reinvest
their dividends in additional shares of common stock. In addition,
participating shareholders may purchase common stock with supplemental
cash payments of $10 to $5,000 each quarter. The Company assumes all
costs associated with the purchase of shares under the Plan.
Participating shareholders also have the option to deposit stock
certificates into their Dividend Reinvestment Plan account. For a
brochure, authorization card or further information, please contact
Vivian N. Bennett at the address or telephone number listed below.
Account Consolidation and Elimination of Duplicate Mailings
If you receive duplicate mailings of Republic Bancorp materials at one
address, and you wish to discontinue such mailings, or you would like to
consolidate your registered shareholder accounts, write or call our
stock transfer agent at the address or telephone number provided,
providing your full name and address the way it appears on your account
statements.
Form 10-K and Other Financial Reports
Copies of Republic Bancorp's 1997 Annual Report on Form 10-K filed with
the Securities and Exchange Commission, Quarterly Form 10-Q's, and
Quarterly Earnings Releases may be obtained by calling or writing the
Investor Contact identified below.
Internet Address
Information on Republic Bancorp's financial results and its products and
services can be accessed on the Internet at
http://www.republicbancorp.com.
Photograph #12 Photograph #13
Analyst and Media Contact Investor Contact
Thomas F. Menacher, CPA Vivian N. Bennett, CPA
Senior Vice President, Treasurer Financial Reporting and
and Chief Financial Officer Investor Relations Officer
1070 East Main Street 1070 East Main Street
Owosso, Michigan 48867 Owosso, Michigan 48867
(517) 725-7337 (517) 725-7004
EXHIBIT 23(a)
CONSENT OF ERNST & YOUNG LLP
<PAGE>
EXHIBIT 23(a)
Ernst & Young LLP Letterhead
Consent of Independent Auditors
We consent to the incorporation by reference in (1) the Registration
Statement (Form S-8 No. 33-55336) pertaining to the Republic Bancorp Inc.
Tax-Deferred Savings Plan; (2) the Registration Statement (Form S-8 No.
33-55304) pertaining to the Republic Bancorp Inc. Non-Qualified Stock Option
Plan; (3) the Registration Statement (Form S-8 No. 33-62508) pertaining to
the Republic Bancorp Inc. Directors' Compensation Plan; (4) the Registration
Statement (Form S-3 No. 33-61842); and (5) the Registration Statement (Form
S-8 No. 333-26515) pertaining to the Republic Bancorp Inc. 1997 Stock Option
Plan in the related Prospectus of our report dated January 15, 1998, with
respect to the consolidated financial statements of Republic Bancorp Inc.
included in the annual report (Form 10-K) for the year ended December 31,
1997.
/s/ Ernst & Young LLP
Detroit, Michigan
March 20, 1998
EXHIBIT 23(b)
CONSENT OF DELOITTE & TOUCHE LLP
<PAGE>
EXHIBIT 23(b)
Deloitte & Touche LLP Letterhead
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated January 16,
1997, appearing in the Annual Report on Form 10-K of Republic Bancorp Inc.
for the year ended December 31, 1996 and into the following registration
statements:
No. 33-55336 on Form S-8
No. 33-55304 on Form S-8
No. 33-62508 on Form S-8
No. 33-61842 on Form S-3
No. 333-26515 on Form S-8
/s/ Deloitte & Touche LLP
March 20, 1998
EXHIBIT 24
POWERS OF ATTORNEY
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1997
FOR REPUBLIC BANCORP INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the
Board of Directors of Republic Bancorp Inc. (the "Company"), hereby appoints
Dana M. Cluckey, President and Chief Operating Officer, and Thomas F.
Menacher, Senior Vice President and Chief Financial Officer of the Company,
and each of them, as the undersigned's agents and attorneys in fact to act
for and on behalf of the undersigned in signing and executing the Securities
and Exchange Commission Form 10K 1997 Annual Report for the Company, and any
amendment thereto, in delivering and filing the same with the Securities and
Exchange Commission and in distributing the 1997 Annual Report to the
shareholders of the Company and other interested parties.
IN WITNESS WHEREOF the undersigned has caused these presents to be
executed this 19th day of February, 1998.
/s/ Jerry D. Campbell
-----------------------
Jerry D. Campbell
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1997
FOR REPUBLIC BANCORP INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the
Board of Directors of Republic Bancorp Inc. (the "Company"), hereby appoints
Dana M. Cluckey, President and Chief Operating Officer, and Thomas F.
Menacher, Senior Vice President and Chief Financial Officer of the Company,
and each of them, as the undersigned's agents and attorneys in fact to act
for and on behalf of the undersigned in signing and executing the Securities
and Exchange Commission Form 10K 1997 Annual Report for the Company, and any
amendment thereto, in delivering and filing the same with the Securities and
Exchange Commission and in distributing the 1997 Annual Report to the
shareholders of the Company and other interested parties.
IN WITNESS WHEREOF the undersigned has caused these presents to be
executed this 19th day of February, 1998.
/s/ Dana M. Cluckey
-----------------------
Dana M. Cluckey
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1997
FOR REPUBLIC BANCORP INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the
Board of Directors of Republic Bancorp Inc. (the "Company"), hereby appoints
Dana M. Cluckey, President and Chief Operating Officer, and Thomas F.
Menacher, Senior Vice President and Chief Financial Officer of the Company,
and each of them, as the undersigned's agents and attorneys in fact to act
for and on behalf of the undersigned in signing and executing the Securities
and Exchange Commission Form 10K 1997 Annual Report for the Company, and any
amendment thereto, in delivering and filing the same with the Securities and
Exchange Commission and in distributing the 1997 Annual Report to the
shareholders of the Company and other interested parties.
IN WITNESS WHEREOF the undersigned has caused these presents to be
executed this 19th day of February, 1998.
/s/ Bruce L. Cook
-----------------------
Bruce L. Cook
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1997
FOR REPUBLIC BANCORP INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the
Board of Directors of Republic Bancorp Inc. (the "Company"), hereby appoints
Dana M. Cluckey, President and Chief Operating Officer, and Thomas F.
Menacher, Senior Vice President and Chief Financial Officer of the Company,
and each of them, as the undersigned's agents and attorneys in fact to act
for and on behalf of the undersigned in signing and executing the Securities
and Exchange Commission Form 10K 1997 Annual Report for the Company, and any
amendment thereto, in delivering and filing the same with the Securities and
Exchange Commission and in distributing the 1997 Annual Report to the
shareholders of the Company and other interested parties.
IN WITNESS WHEREOF the undersigned has caused these presents to be
executed this 19th day of February, 1998.
/s/ Richard J. Cramer
-----------------------
Richard J. Cramer
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1997
FOR REPUBLIC BANCORP INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the
Board of Directors of Republic Bancorp Inc. (the "Company"), hereby appoints
Dana M. Cluckey, President and Chief Operating Officer, and Thomas F.
Menacher, Senior Vice President and Chief Financial Officer of the Company,
and each of them, as the undersigned's agents and attorneys in fact to act
for and on behalf of the undersigned in signing and executing the Securities
and Exchange Commission Form 10K 1997 Annual Report for the Company, and any
amendment thereto, in delivering and filing the same with the Securities and
Exchange Commission and in distributing the 1997 Annual Report to the
shareholders of the Company and other interested parties.
IN WITNESS WHEREOF the undersigned has caused these presents to be
executed this 19th day of February, 1998.
/s/ George A. Eastman
-----------------------
George A. Eastman
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1997
FOR REPUBLIC BANCORP INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the
Board of Directors of Republic Bancorp Inc. (the "Company"), hereby appoints
Dana M. Cluckey, President and Chief Operating Officer, and Thomas F.
Menacher, Senior Vice President and Chief Financial Officer of the Company,
and each of them, as the undersigned's agents and attorneys in fact to act
for and on behalf of the undersigned in signing and executing the Securities
and Exchange Commission Form 10K 1997 Annual Report for the Company, and any
amendment thereto, in delivering and filing the same with the Securities and
Exchange Commission and in distributing the 1997 Annual Report to the
shareholders of the Company and other interested parties.
IN WITNESS WHEREOF the undersigned has caused these presents to be
executed this 19th day of February, 1998.
/s/ Howard J. Hulsman
-----------------------
Howard J. Hulsman
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1997
FOR REPUBLIC BANCORP INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the
Board of Directors of Republic Bancorp Inc. (the "Company"), hereby appoints
Dana M. Cluckey, President and Chief Operating Officer, and Thomas F.
Menacher, Senior Vice President and Chief Financial Officer of the Company,
and each of them, as the undersigned's agents and attorneys in fact to act
for and on behalf of the undersigned in signing and executing the Securities
and Exchange Commission Form 10K 1997 Annual Report for the Company, and any
amendment thereto, in delivering and filing the same with the Securities and
Exchange Commission and in distributing the 1997 Annual Report to the
shareholders of the Company and other interested parties.
IN WITNESS WHEREOF the undersigned has caused these presents to be
executed this 19th day of February, 1998.
/s/ Gary Hurand
-----------------------
Gary Hurand
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1997
FOR REPUBLIC BANCORP INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the
Board of Directors of Republic Bancorp Inc. (the "Company"), hereby appoints
Dana M. Cluckey, President and Chief Operating Officer, and Thomas F.
Menacher, Senior Vice President and Chief Financial Officer of the Company,
and each of them, as the undersigned's agents and attorneys in fact to act
for and on behalf of the undersigned in signing and executing the Securities
and Exchange Commission Form 10K 1997 Annual Report for the Company, and any
amendment thereto, in delivering and filing the same with the Securities and
Exchange Commission and in distributing the 1997 Annual Report to the
shareholders of the Company and other interested parties.
IN WITNESS WHEREOF the undersigned has caused these presents to be
executed this 19th day of February, 1998.
/s/ Dennis J. Ibold
-----------------------
Dennis J. Ibold
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1997
FOR REPUBLIC BANCORP INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the
Board of Directors of Republic Bancorp Inc. (the "Company"), hereby appoints
Dana M. Cluckey, President and Chief Operating Officer, and Thomas F.
Menacher, Senior Vice President and Chief Financial Officer of the Company,
and each of them, as the undersigned's agents and attorneys in fact to act
for and on behalf of the undersigned in signing and executing the Securities
and Exchange Commission Form 10K 1997 Annual Report for the Company, and any
amendment thereto, in delivering and filing the same with the Securities and
Exchange Commission and in distributing the 1997 Annual Report to the
shareholders of the Company and other interested parties.
IN WITNESS WHEREOF the undersigned has caused these presents to be
executed this 19th day of February, 1998.
/s/ Stephen M. Klein
-----------------------
Stephen M. Klein
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1997
FOR REPUBLIC BANCORP INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the
Board of Directors of Republic Bancorp Inc. (the "Company"), hereby appoints
Dana M. Cluckey, President and Chief Operating Officer, and Thomas F.
Menacher, Senior Vice President and Chief Financial Officer of the Company,
and each of them, as the undersigned's agents and attorneys in fact to act
for and on behalf of the undersigned in signing and executing the Securities
and Exchange Commission Form 10K 1997 Annual Report for the Company, and any
amendment thereto, in delivering and filing the same with the Securities and
Exchange Commission and in distributing the 1997 Annual Report to the
shareholders of the Company and other interested parties.
IN WITNESS WHEREOF the undersigned has caused these presents to be
executed this 19th day of February, 1998.
/s/ John J. Lennon
-----------------------
John J. Lennon
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1997
FOR REPUBLIC BANCORP INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the
Board of Directors of Republic Bancorp Inc. (the "Company"), hereby appoints
Dana M. Cluckey, President and Chief Operating Officer, and Thomas F.
Menacher, Senior Vice President and Chief Financial Officer of the Company,
and each of them, as the undersigned's agents and attorneys in fact to act
for and on behalf of the undersigned in signing and executing the Securities
and Exchange Commission Form 10K 1997 Annual Report for the Company, and any
amendment thereto, in delivering and filing the same with the Securities and
Exchange Commission and in distributing the 1997 Annual Report to the
shareholders of the Company and other interested parties.
IN WITNESS WHEREOF the undersigned has caused these presents to be
executed this 19th day of February, 1998.
/s/ Sam H. McGoun
-----------------------
Sam H. McGoun
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1997
FOR REPUBLIC BANCORP INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the
Board of Directors of Republic Bancorp Inc. (the "Company"), hereby appoints
Dana M. Cluckey, President and Chief Operating Officer, and Thomas F.
Menacher, Senior Vice President and Chief Financial Officer of the Company,
and each of them, as the undersigned's agents and attorneys in fact to act
for and on behalf of the undersigned in signing and executing the Securities
and Exchange Commission Form 10K 1997 Annual Report for the Company, and any
amendment thereto, in delivering and filing the same with the Securities and
Exchange Commission and in distributing the 1997 Annual Report to the
shareholders of the Company and other interested parties.
IN WITNESS WHEREOF the undersigned has caused these presents to be
executed this 19th day of February, 1998.
/s/ Kelly E. Miller
-----------------------
Kelly E. Miller
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1997
FOR REPUBLIC BANCORP INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the
Board of Directors of Republic Bancorp Inc. (the "Company"), hereby appoints
Dana M. Cluckey, President and Chief Operating Officer, and Thomas F.
Menacher, Senior Vice President and Chief Financial Officer of the Company,
and each of them, as the undersigned's agents and attorneys in fact to act
for and on behalf of the undersigned in signing and executing the Securities
and Exchange Commission Form 10K 1997 Annual Report for the Company, and any
amendment thereto, in delivering and filing the same with the Securities and
Exchange Commission and in distributing the 1997 Annual Report to the
shareholders of the Company and other interested parties.
IN WITNESS WHEREOF the undersigned has caused these presents to be
executed this 19th day of February, 1998.
/s/ Joe D. Pentecost
-----------------------
Joe D. Pentecost
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1997
FOR REPUBLIC BANCORP INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the
Board of Directors of Republic Bancorp Inc. (the "Company"), hereby appoints
Dana M. Cluckey, President and Chief Operating Officer, and Thomas F.
Menacher, Senior Vice President and Chief Financial Officer of the Company,
and each of them, as the undersigned's agents and attorneys in fact to act
for and on behalf of the undersigned in signing and executing the Securities
and Exchange Commission Form 10K 1997 Annual Report for the Company, and any
amendment thereto, in delivering and filing the same with the Securities and
Exchange Commission and in distributing the 1997 Annual Report to the
shareholders of the Company and other interested parties.
IN WITNESS WHEREOF the undersigned has caused these presents to be
executed this 19th day of February, 1998.
/s/ George B. Smith
-----------------------
George B. Smith
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1997
FOR REPUBLIC BANCORP INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the
Board of Directors of Republic Bancorp Inc. (the "Company"), hereby appoints
Dana M. Cluckey, President and Chief Operating Officer, and Thomas F.
Menacher, Senior Vice President and Chief Financial Officer of the Company,
and each of them, as the undersigned's agents and attorneys in fact to act
for and on behalf of the undersigned in signing and executing the Securities
and Exchange Commission Form 10K 1997 Annual Report for the Company, and any
amendment thereto, in delivering and filing the same with the Securities and
Exchange Commission and in distributing the 1997 Annual Report to the
shareholders of the Company and other interested parties.
IN WITNESS WHEREOF the undersigned has caused these presents to be
executed this 19th day of February, 1998.
/s/ Jeoffrey K. Stross, M.D.
----------------------------
Jeoffrey K. Stross, M.D.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
Republic Bancorp Inc.'s consolidated balance sheet as of December 31,
1997 and its consolidated statement of income for the year then ended, as
well as financial schedules and other required disclosures and is
qualified in its entirety by reference to the Company's 1997 Annual
Report on Form 10-K.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> $ 27,458
<INT-BEARING-DEPOSITS> 2,210
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 119,881
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,609,277
<ALLOWANCE> 7,334
<TOTAL-ASSETS> 1,872,893
<DEPOSITS> 1,177,293
<SHORT-TERM> 58,274
<LIABILITIES-OTHER> 458,738
<LONG-TERM> 47,500
0
0
<COMMON> 93,391
<OTHER-SE> 37,697
<TOTAL-LIABILITIES-AND-EQUITY> 1,872,893
<INTEREST-LOAN> 105,819
<INTEREST-INVEST> 12,769
<INTEREST-OTHER> 264
<INTEREST-TOTAL> 118,852
<INTEREST-DEPOSIT> 48,986
<INTEREST-EXPENSE> 71,912
<INTEREST-INCOME-NET> 46,940
<LOAN-LOSSES> 3,031
<SECURITIES-GAINS> (497)
<EXPENSE-OTHER> 117,742
<INCOME-PRETAX> 28,682
<INCOME-PRE-EXTRAORDINARY> 18,789
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,789
<EPS-PRIMARY> 1.01
<EPS-DILUTED> .99
<YIELD-ACTUAL> 3.16
<LOANS-NON> 10,981
<LOANS-PAST> 234
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,682
<ALLOWANCE-OPEN> 4,709
<CHARGE-OFFS> 608
<RECOVERIES> 202
<ALLOWANCE-CLOSE> 7,334
<ALLOWANCE-DOMESTIC> 7,334
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 934
</TABLE>
