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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 __
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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 16, 2000 of $10.188, was $460.7
million.
Number of shares of Registrant's common stock outstanding as of March 8, 2000:
45,223,330.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of Registrant's definitive proxy statement for its 2000 Annual
Meeting of Stockholders.
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FORM 10-K TABLE OF CONTENTS
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Part I
Item 1 - Business...................................................................... 2
General Description........................................................ 2
Business Segments.......................................................... 3
Competition................................................................ 4
Employees.................................................................. 4
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.................... 32
Item 8 - Financial Statements and Supplementary Data................................... 33
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................... 66
Part III
Item 10 - Directors and Executive Officers of the Registrant............................ 66
Item 11 - Executive Compensation........................................................ 66
Item 12 - Security Ownership of Certain Beneficial Owners and Management................ 66
Item 13 - Certain Relationships and Related Transactions................................ 66
Part IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K............... 67
Signatures.............................................................................. 71
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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
178 banking and mortgage banking offices in 22 states.
On May 17, 1999, the company merged with D&N Financial Corporation ("D&N
Financial"). Under terms of the merger agreement, D&N Financial shareholders
received 1.82 shares of Republic Bancorp Inc. common stock for each D&N
Financial share owned. The merger was accounted for as a pooling of interests,
therefore, all prior period data presented have been restated to include the
results of operations and financial position of D&N Financial.
Through its wholly-owned banking subsidiaries, Republic Bank, a state-
chartered banking corporation, and D&N Bank, a state chartered savings bank,
collectively, ("the Banks"), the Company provides commercial and retail banking
products and services. Republic Bank is headquartered in Lansing, Michigan and
D&N Bank is headquartered in Troy and Hancock, Michigan. The Banks exercise the
powers of full-service banks and operate 87 offices in 14 market areas in
Michigan, in the greater Cleveland, Ohio area, as well as Indianapolis, Indiana.
At December 31, 1999, Republic Bank had $2.6 billion in assets and $1.4 billion
in deposits. D&N Bank had $1.8 billion in assets and $1.2 billion in deposits at
December 31, 1999.
To complement its commercial and retail banking network, the Company has
grown a nationwide mortgage lending network through various nonbank companies
engaged in the mortgage banking business. Republic Banc Mortgage Corporation
("Republic Banc Mortgage") is a wholly-owned mortgage banking subsidiary of
Republic Bank with headquarters in Farmington Hills, Michigan, and 80 offices in
9 states. Market Street Mortgage Corporation ("Market Street Mortgage") is an
80% majority-owned mortgage banking subsidiary of Republic Bank with
headquarters in Clearwater, Florida, and 49 offices in 16 states.
D&N Bank also provides investment and insurance services through its
wholly-owned subsidiary, Quincy Investment Services, Inc., a licensed insurance
agency, headquartered in Hancock, Michigan. D&N Bank has a wholly-owned
subsidiary, D&N Capital Corporation ("D&N Capital"), that was created for the
purpose of acquiring and holding real estate assets and is a real estate
investment trust ("REIT"). In 1997, D&N Capital issued 9.0% noncumulative
preferred stock, Series A, $25 par value, which is traded on The Nasdaq Stock
Market(R) under the symbol "DNFCP". The preferred stock is treated as Tier-1
capital by the Company.
At December 31, 1999, the Republic Bancorp Inc. had consolidated total
assets of $4.3 billion, total deposits of $2.6 billion and shareholders' equity
of $266.4 million. For the year ended December 31, 1999, the Company reported
net income of $14.9 million, including the one-time after tax charge of $30.2
million related to the merger with D&N Financial, compared to $39.0 million for
1998. Residential mortgage loan closings totaled $5.2 billion in 1999, compared
to $6.6 billion in 1998. Commercial loan closings totaled $461 million in 1999
versus $409 million in 1998. Small Business Administration (SBA) loan closings
totaled $44 million in 1999, compared to $39 million in 1998. At December 31,
1999, the Company's mortgage loan servicing portfolio was $3.1 billion, compared
to $3.5 billion at year-end 1998.
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Business Segments
The Company engages in two lines of business--Commercial and Retail
Banking and Mortgage Banking. See Note 22 to the Consolidated Financial
Statements.
Commercial and Retail Banking
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Commercial and retail banking is conducted at 87 branches of Republic Bank
and D&N 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 loans;
home equity loans and lines of credit; other types of installment loans; and
demand, savings and time deposit accounts. Lending activity at the Banks 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 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 marketing effort of the Company's bank subsidiaries targets 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, 1999, retail
deposits comprised 82% 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 and is conducted by
Republic Banc Mortgage and Market Street Mortgage. All mortgage loan
originations are funded by Republic Bank.
Retail residential mortgage loans are originated by the Company's own sales
staff at retail mortgage loan production offices and retail banking offices
located in Michigan, Alabama, Arizona, California, Colorado, Connecticut,
Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts,
Missouri, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island
and Virginia. Retail loan production offices are responsible for processing loan
applications received and preparing loan documentation. Loan applications are
then evaluated by the underwriting departments for compliance with the Company's
underwriting criteria, including loan-to-value ratios, borrower qualifications
and required insurance.
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 Freddie Mac. 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).
The Company's residential mortgage origination business during 1999 was
funded primarily with Republic Bank's 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
by the Company in the event of default by the borrowers. To minimize interest
rate risk, the Company obtains mandatory purchase commitments from investors
prior to funding the loans.
Consistent with the Company's strategy of managing interest rate risk,
substantially all long-term fixed rate mortgages originated are typically
securitized and sold or sold directly to secondary market investors. The
majority of short-term fixed rate mortgages and variable rate mortgages are
typically securitized and sold or sold directly to secondary market investors,
although a portion of the variable rate mortgages may be retained in the loan
portfolio of Republic Bank or D&N Bank. Portfolio loans may be securitized at a
later date and either sold or held as securities available for sale.
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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 increases 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
1999 by increasing the number of loan originators and entering new growth
markets in Kansas, Kentucky and Rhode Island. Selling mortgage loans to
investors in the secondary market provides additional revenue and liquidity. 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 as these loans will typically be sold within 60 days.
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 March 11, 2000, respectively) and Michigan
law (which became effective on November 29, 1995) the number and types of
potential depository institution competitors have substantially increased. (See
Interstate Banking and Branching and Gramm-Leach-Bliley on page 6.)
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. Other financial institutions may have
greater resources to use in making acquisitions and higher lending limits than
those of the Company's bank 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 bank subsidiaries currently do not offer (e.g., full service
brokerage).
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 bank 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.
Employees
As of December 31, 1999, the Company and its subsidiaries had 2,212 full-
time equivalent employees.
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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 $268.6 million in 1999, an increase of 9% from $247.3 million in
1998 and up 31% from $204.4 million in 1997. In 1999, interest and fees on loans
accounted for 61% of total revenues, compared to 57% of total revenues in 1998
and 1997. Mortgage banking revenue, the largest component of noninterest income,
totaled $131.5 million in 1999, a decrease of 5% from $138.0 million in 1998 and
up 36% from $96.4 million in 1997. Mortgage banking revenue represented 30% of
total revenues in 1999, compared to 32% in 1998 and 27% in 1997.
Monetary Policy and Economic Controls
The earnings of the bank 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. The continued strong
growth of the U.S. economy in 1999 contributed to the decision of the Federal
Reserve Board to increase short-term interest rates. 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 and 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. Subject to the provisions of Gramm-Leach-
Bliley, a bank holding company may elect to become a financial holding company
and thereby engage in a broader range of financially oriented products and
services (see Gramm-Leach-Bliley on page 6).
Republic Bank and D&N Bank are chartered by the State of Michigan and are
supervised and regulated by the Financial Institutions Bureau of the State of
Michigan (the "FIB"). As insured banks chartered by state regulatory
authorities, Republic Bank and D&N Bank are also regulated by the Federal
Deposit Insurance Company ("FDIC"). Effective July 2, 1999, D&N Bank converted
from a federally chartered stock savings bank subject to the supervision by the
Office of Thrift Supervision and the FDIC, to a state chartered savings bank.
The Company is a legal entity separate and distinct from its banking
subsidiaries. Most of the Company's revenues result from interest earned on
deposits maintained at its subsidiary banks and from dividends paid to it by its
bank subsidiaries. There are statutory and regulatory requirements applicable to
the payment of dividends by the subsidiary banks to the Company as well as by
the Company to its shareholders.
Under Federal Reserve Board policy, the Company is expected to act as a
source of financial and managerial strength to Republic Bank and D&N Bank and to
commit resources to support it. 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.
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Interstate Banking and Branching
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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, subject to the provisions noted above 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
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Michigan law places specific limits on the source and amount of dividends
which may be paid by Republic Bank and D&N Bank. The payment of dividends by the
Company and its bank subsidiaries are 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.
Gramm-Leach-Bliley
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Enacted late in 1999, the Gramm-Leach-Bliley Act ("Gramm-Leach-Bliley"),
provides some new consumer protections with respect to privacy issues and ATM
usage fees, and broadens the scope of financial services that banks may offer to
consumers, essentially removing the barriers erected during the Depression that
separated banks and securities firms. Gramm-Leach-Bliley permits affiliations
between banks, securities firms and insurance companies. A bank holding company
may qualify as a financial holding company and thereby offer an expanded range
of financial oriented products and services. To qualify as a financial holding
company, a bank holding company's subsidiary depository institutions must be
well-managed, well-capitalized and have received a "satisfactory" rating on its
latest examination under the Community Reinvestment Act. Gramm-Leach-Bliley
provides for some regulatory oversight by the Securities and Exchange Commission
for bank holding companies
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engaged in certain activities, and reaffirms that insurance activities are not
to be regulated on the state level. States, however, may not prevent depository
institutions and their affiliates from engaging in insurance activities.
Commercial enterprises are no longer able to establish or acquire a thrift
institution and thereby become a unitary thrift holding company. Thrift
institutions may only be established or acquired by nonfinancial organizations.
Gramm-Leach-Bliley provides new consumer protections with respect to the
transfer and use of their nonpublic personal information and generally enables
financial institution customers to "opt-out" of the dissemination of their
personal financial information to unaffiliated third parties. ATM operators who
charge a fee to noncustomers for use of its ATMs must disclose the fee on a sign
placed on the ATM and before the transaction is made as part of the on-screen
display or by paper notice issued by the machine. The Company is reviewing the
implications of this new legislation and has not yet determined if it will apply
for financial bank holding company status.
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
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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 bank subsidiaries of the Company are considered to be well
capitalized as of December 31, 1999.
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 well-capitalized and may accept
brokered deposits without restriction.
FDIC Insurance Assessments
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Republic Bank and D&N Bank are generally subject to FDIC deposit insurance
assessments paid to the Bank Insurance Fund ("BIF") and Savings Association
Insurance Fund ("SAIF"), respectively. Republic Bank is also subject to FDIC
deposit insurance assessments paid to the SAIF with respect to deposits acquired
from thrift
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institutions, including those deposits held by Republic Savings Bank prior to
the January 1, 1999 merger of Republic Savings Bank with and into Republic Bank.
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).
Mortgage Banking Affiliates
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The Company's non-depository mortgage banking affiliates, Republic Banc
Mortgage and Market Street Mortgage (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.
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, Freddie Mac, 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, Freddie Mac, 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
Banc Mortgage or Market Street Mortgage) to repurchase the non-conforming
mortgage loans. Additionally, FNMA, Freddie Mac, 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 Freddie Mac.
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.
8
<PAGE>
Forward-Looking Statements
From time to time, we may publish forward-looking statements relating to
such matters as possible or assumed future results of our operations,
anticipated financial performance, business prospects, new products, and similar
matters. These forward-looking statements are subject to risks and
uncertainties. Also, when we use any of the words "believes," "expects,"
"plans," "anticipates," "estimates" or similar expressions we are making
forward-looking statements.
We claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995 for all of our
forward-looking statements. We believe that our forward-looking statements are
reasonable. You should not place undue reliance on any such forward-looking
statements, which speak only as of the date made. You should understand that the
following important factors, in addition to those discussed elsewhere in this
Annual Report on Form 10-K, in our press releases, and in our public documents
to which we refer, could affect our future results and performance. This could
cause those results to differ materially from those expressed in our forward-
looking statements. Factors that might cause such a difference include the
following:
. significantly increased competition among depository and other
financial institutions;
. inflation and changes in the interest rate environment that reduce
our margins or reduce the fair value of financial instruments;
. general economic conditions, either nationally or in our market
areas, that are worse than expected;
. adverse changes in the securities markets;
. legislative or regulatory changes that adversely affect our
business;
. the ability to enter new markets successfully and capitalize on
growth opportunities;
. effects of and changes in trade, monetary and fiscal policies and
laws, including interest rate policies of the Federal Reserve
Board;
. timely development of and acceptance of new products and services;
. changes in consumer spending, borrowing and savings habits;
. effect of changes in accounting policies and practices, as may be
adopted by the bank regulatory agencies and the Financial
Accounting Standards Board;
. changes in our organization, compensation and benefit plans;
. costs and effects of litigation and unexpected or adverse outcomes
in such litigation; and
. our success and managing risks involved in the foregoing.
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, 1999. 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........ 59 Chairman of the Board (Since 1985)
Dana M. Cluckey, CPA..... 39 President and Chief Executive Officer (Since 1986)
Barry J. Eckhold......... 53 Senior Vice President and Chief Credit Officer (Since 1990)
Thomas F. Menacher, CPA.. 43 Executive Vice President, Treasurer and Chief Financial
Officer (Since 1992)
George E. Parker III..... 65 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, 1999, the Company had 87 banking
locations and six agency offices, of which 20 were owned and 73 were leased, and
85 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 9 to the 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 20 to the
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 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Quarterly Dividends and Market Price Summary
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Dividends Common Stock
Declared Price Range (1)
----------------
Per Share (1) High Low
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
Fourth quarter........................... $ 0.085 $ 13.281 $ 10.453
Third quarter............................ 0.082 13.641 10.344
Second quarter........................... 0.082 13.813 10.906
First quarter............................ 0.082 12.844 10.859
-----
Year.................................. $ 0.331 $ 13.813 $ 10.344
=====
1998
Fourth quarter........................... $ 0.073 $ 15.563 $ 10.906
Third quarter............................ 0.073 14.234 11.906
Second quarter........................... 0.073 15.406 13.453
First quarter............................ 0.073 15.094 13.453
-----
Year.................................. $ 0.292 $ 15.563 $ 10.906
=====
------------------------------------------------------------------------------
</TABLE>
(1) Dividends and market price data have been restated to reflect the issuance
of stock dividends.
The Company's common stock is traded on The Nasdaq Stock Market(R) under
the symbol RBNC. There were approximately 19,800 shareholders of record of the
Company's common stock as of March 8, 2000.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998(1) 1997(1) 1996(1) 1995(1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings Summary (in thousands)
Interest income $ 299,662 $ 285,979 $ 244,545 $ 203,456 $ 186,362
Interest expense 171,396 173,649 148,666 123,973 121,207
Net interest income 128,266 112,330 95,879 79,483 65,155
Provision for loan losses /(3)/ 11,650 6,500 4,381 1,390 2,424
Mortgage banking revenue 131,517 137,971 96,368 89,322 73,724
Other noninterest income /(3)/ 6,214 13,290 15,067 8,748 8,389
Noninterest expense /(3)/ 225,968 194,789 150,965 144,035 113,672
Income before preferred stock and
extraordinary item 17,634 41,675 34,332 24,061 24,681
Income before extraordinary item 14,911 38,952 33,114 24,061 24,681
Net income 14,911 38,952 33,114 23,673 24,681
- ----------------------------------------------------------------------------------------------------------------------------------
Per Common Share/(2)/
Basic earnings $ .33 $ .88 $ .75 $ .55 $ .55
Diluted earnings .33 .86 .74 .54 .52
Operating diluted earnings /(4)/ .99 .86 .74 .54 .52
Cash dividends declared .33 .29 .27 .25 .20
Book value (year-end) 5.88 5.94 5.84 5.67 5.67
Closing price of common stock (year-end) 12.14 12.39 15.55 7.69 6.47
Dividend payout ratio 33% 33% 37% 46% 40%
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Data (in millions)
Loan closings:
Residential mortgage loans $ 5,200 $ 6,614 $ 4,225 $ 3,924 $ 3,133
Commercial loans 461 409 267 167 71
SBA loans 44 39 28 24 17
Installments loans 505 344 324 272 195
Mortgage loan servicing portfolio (year-end) 3,089 3,517 3,632 3,121 3,967
- -----------------------------------------------------------------------------------------------------------------------------------
Year-End Balances (in millions)
Total assets $ 4,302 $ 4,214 $ 3,688 $ 2,963 $ 2,701
Total earning assets 4,052 3,999 3,530 2,662 2,472
Mortgage loans held for sale 459 770 519 334 445
Total portfolio loans 3,373 2,544 2,402 1,846 1,498
Total deposits 2,613 2,643 2,220 1,978 1,828
Total short-term borrowings and FHLB advances 1,229 1,084 1,038 651 550
Long-term debt 48 52 54 57 62
Shareholders' equity 266 266 229 208 198
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios
Return on average assets /(4)/ 1.10% 1.00% 1.02% .86% .94%
Return on average equity /(4)/ 17.07 15.73 15.37 11.81 13.21
Net interest margin /(5)/ 3.29 3.05 3.11 3.04 2.69
Net loan charge-offs to average total loans /(6)/ .17 .09 .09 .04 .07
Allowance for loan losses as a percentage
of year-end portfolio loans .80 .84 .74 .85 1.01
Non-performing assets as a percentage
of year-end total assets .52 .61 .48 .50 .47
Operating efficiency ratio 71.14 74.61 74.43 81.56 78.16
Net interest income to operating expenses 65.96 57.67 63.51 55.18 57.32
Average shareholders' equity to average assets 6.46 6.37 6.64 7.19 7.14
Tier 1 risk-based capital 9.67 9.80 10.35 11.00 12.24
Total risk-based capital 10.60 10.55 11.12 11.89 14.35
Tier 1 leverage 6.59 6.54 6.56 6.59 6.86
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ All prior year amounts have been restated for the merger with D&N
Financial in May 1999, which was accounted for as a pooling of interests.
/(2)/ All per share amounts presented have been adjusted to reflect the
issuance of stock dividends or stock splits effected in the form of stock
dividends.
/(3)/ Amount for 1999 includes a one-time pre-tax charge of $31.5 million of
merger integration and restructuring charges related to the merger with
D&N Financial, a $7.6 million pre-tax loss on the sale of low-yielding
fixed rate securities, and an additional $5.0 million pre-tax provision
for loan losses. Amount for 1996 includes a one-time pre-tax assessment
of $7.0 million ($4.5 million after tax) for the recapitalization of the
SAIF.
/(4)/ Amounts for 1999 exclude the after tax impact of a $22.0 million one-time
merger integration and restructuring charge related to the merger with
D&N Financial, a $4.9 million after tax loss on the sale of low-yielding
fixed rate securities, and an additional $3.3 million after tax provision
for loan losses. Including the charges, return on average assets was .36%
and return on average equity was 5.64% in 1999.
/(5)/ Net interest income (FTE) expressed as a percentage of average interest-
earnings assets.
/(6)/ Includes mortgage loans held for sale.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Net income for 1999 was $14.9 million compared to net income of $39.0
million in 1998. Diluted earnings per share were $.33 in 1999 compared to $.86
in 1998. The results for 1999 include one-time after tax charges relating to the
merger with D&N Financial Corporation in the second quarter. These one-time
charges include a $22.0 million after tax merger integration and restructuring
charge, a $4.9 million after tax loss on the sale of low yielding fixed rate
securities, and an additional $3.3 million after tax provision for loan losses.
Excluding these charges, the Company reported record net operating income of
$45.1 million in 1999, a 16% increase over the $39.0 million earned in 1998.
Diluted operating earnings per share rose 15% during the year to $.99 from $.86
in 1998. In 1997, net income was $33.1 million, or $.74 per common share. Net
operating income for 1999 generated return on average assets of 1.10% and return
on equity of 17.07%. These compare with return on average assets of 1.00% in
1998 and 1.02% in 1997 and return on average equity of 15.73% in 1998 and 15.37%
in 1997.
In order to properly reflect the comparable 1999 results of operations for
the Company against 1998 and 1997, the remaining Management's Discussion and
Analysis of Financial Condition and Results of Operations is based upon the net
operating earnings reported for 1999, which excludes the merger integration and
restructuring charge. The following table summarizes the effect of the merger
integration and restructuring charge.
Table 1
Operating Results
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Effect of
Year Ended December 31, 1999 Operating One-Time Reported
(In thousands, except per share amounts) Results Charge Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for loan losses $ 6,650 $ 5,000 $ 11,650
Investment securities gains (losses) 207 (7,552) (7,345)
Noninterest expense 194,447 31,521 225,968
Income before taxes 72,452 (44,073) 28,379
Income tax expense 24,621 (13,876) 10,745
Net income 45,109 (30,198) 14,911
Basic earnings per share $ 1.00 $ (.67) $ .33
Diluted earnings per share $ .99 $ (.66) $ .33
- --------------------------------------------------------------------------------
</TABLE>
The Company's 1999 results of operations reflected the following trends in
earnings:
. Net interest income increased 14% during 1999 following an increase of
17% in 1998. Increasing average earning asset balances during these
periods contributed to the growth in net interest income.
. The net interest margin expanded to 3.29% in 1999, compared to 3.05% in
1998 and 3.11% in 1997. A shift in average earning assets away from low-
yielding fixed-rate investment securities and toward higher-yielding
commercial real estate and residential mortgage loans and a decline in
the cost of funds over the past two years helped widen the net interest
margin.
. The commercial loan portfolio balance increased 40% in 1999 to $888
million after increasing 35% in 1998, reflecting continued strong demand
for commercial real estate lending in the Company's markets.
Shareholders' equity totaled $266.4 million at December 31, 1999. 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
$549.8 million at December 31, 1999. Capital ratios, by all measures, remain in
excess of regulatory requirements for a well-capitalized financial institution.
12
<PAGE>
Acquisitions
On May 17, 1999, the Company merged with D&N Financial Corporation ("D&N
Financial"), headquartered in Troy and Hancock, Michigan, whereby each share of
D&N Financial common stock was converted into 1.82 shares of the Company's
common stock. D&N Financial was a financial services holding company with
approximately $2.0 billion in assets and $119.8 million in stockholders' equity
at May 17, 1999. The merger constitutes a tax-free reorganization and has been
accounted for as a pooling of interests.
In connection with the merger, the Company recorded $31.5 million ($22.0
million after tax) in merger integration and restructuring charges in 1999.
Actions incorporated in the business combination and restructuring plan are
targeted for implementation over a 12 - 18 month period following the merger.
The merger integration and restructuring costs include appropriate accruals,
reserves and charges for severance and employee benefit accruals, professional
fees, branch closings and real estate transactions, systems and other charges.
Severance and employee benefit accruals consisted primarily of severance
and benefits costs for separated employees that resulted from the elimination of
duplicate functions such as finance, investor relations, human resources,
operations and marketing. The expected net reduction of approximately 125 full-
time positions represents 14% of the combined workforce of Republic Bank and D&N
Bank. As of December 31, 1999, 51 positions had been eliminated under the merger
integration and restructuring plan. Professional fees represent investment
banking fees and accounting and legal fees associated with the merger
transaction. Branch closings and real estate transactions primarily represent
the costs associated with the closing of 7 offices and the divestiture of
identified banking facilities related to the consolidation of operations. The
Company also recorded write-downs of certain fixed assets in conjunction with
the merger. The impairment of these assets was included in the $8.7 million
charge for branch closings and real estate transactions. Systems charges include
the expenses expected from the integration of the two banking systems which is
expected to be completed in the fourth quarter of 2000. Other merger-related
costs include various transaction costs.
The following table provides details of the pre-tax merger integration and
restructuring charge by type of cost recorded in 1999 and the reserve balance
remaining at December 31, 1999:
Table 2
Merger Integration and Restructuring Charge
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Initial Amount Reserve
(In thousands) Reserve Utilized Balance
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Type of Costs:
Severance and employee benefit accruals $10,446 $ 7,986 $2,460
Professional fees 5,133 4,963 170
Branch closings and real estate transactions 8,652 6,140 2,512
Systems 2,201 26 2,175
Other 5,089 5,089 -
------- ------- ------
Total merger integration and restructuring charge $31,521 $24,204 $7,317
======= ======= ======
- -----------------------------------------------------------------------------------
</TABLE>
Business Segments
The Company's operations are managed as two major business segments: (1)
commercial and retail banking and (2) mortgage 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; installment lending; and
the deposit-gathering function. Deposits and loan products are offered through
the 87 retail branch offices of Republic Bank and D&N Bank, which are staffed by
personal bankers and loan originators.
The Mortgage Banking segment is comprised of mortgage loan production and
mortgage loan servicing. Mortgage loan production is conducted in the 130
offices of Republic Banc Mortgage and Market Street Mortgage. The majority of
the Company's mortgage loan servicing is performed by Market Street Mortgage.
See Note 22 to the Consolidated Financial Statements for further discussion of
business segments.
13
<PAGE>
Mortgage Banking
The Mortgage Banking segment is comprised of mortgage loan production and
mortgage loan servicing.
Table 3
Residential Mortgage Loan Closings
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31
(Dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total closings $ 5,200,051 $ 6,614,183 $ 4,225,395
Retail loans percentage 96% 94% 86%
Wholesale loans percentage 4 6 14
- --------------------------------------------------------------------------------
</TABLE>
The Company's total closings of single-family residential mortgage loans
decreased $1.4 billion, or 21%, to $5.2 billion in 1999. The decrease in
origination volumes in 1999 was primarily the result of an increasing interest
rate environment during 1999 which resulted in a lower level of refinance
activity. Refinances totaled $1.2 billion, or 23% of total closings in 1999,
compared to $2.9 billion, or 44% of total closings in 1998. In 1998, total
mortgage loan closings rose $2.4 billion, or 57%, to $6.6 billion compared to
$4.2 billion in 1997, reflecting the dual impact on production of a relatively
low interest rate environment and strong retail lending efforts. Retail
mortgage loan closings totaled $5.0 billion in 1999, down 19% from 1998. Retail
mortgage loan closings totaled $6.2 billion in 1998, a 70% increase from 1997.
Wholesale mortgage loan volume continued to decline since 1997 as the Company
placed more emphasis on its more profitable retail mortgage lending. The
Company's pipeline of mortgage loan applications in process was $1.1 billion at
December 31, 1999, compared to $1.5 billion at December 31, 1998.
Table 4
Mortgage Banking Revenue
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage loan production revenue /(1)/ $ 125,416 $ 138,035 $ 87,356
Net mortgage loan servicing revenue (expense) /(2)/ 6,101 (299) 7,395
Gain on bulk sales of mortgage servicing rights - 235 1,617
--------- --------- -------
Total mortgage banking revenue $ 131,517 $ 137,971 $ 96,368
========= ========= =======
- --------------------------------------------------------------------------------
</TABLE>
/(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.
Mortgage banking revenue, the largest component of total noninterest
income, decreased $6.5 million, or 5%, to $131.5 million in 1999, after
increasing 43%, to $138.0 million in 1998. The decrease in 1999 was the result
of a decrease in mortgage loan production revenue that was partially offset by
an increase in net mortgage loan servicing revenue. The increase in 1998
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 decreased $12.6 million, or 9%, in 1999.
This decrease resulted from the $1.4 billion decrease in mortgage loan volume.
The Company sold $4.6 billion of single-family residential mortgages in 1999,
compared to $5.6 billion and $3.4 billion in 1998 and 1997, respectively. The
ratio of mortgage production revenue to mortgage loans sold was 2.70% in 1999,
compared to 2.46% in 1998 and 2.55% in 1997.
Net mortgage loan servicing revenue was $6.1 million in 1999, compared to
net servicing expense of $299,000 in 1998. The increase in 1999 was primarily
the result of a decrease of $5.9 million in amortization expense and reserves
for impairment of mortgage servicing rights. In 1998, the Company reported
$299,000 in net servicing expense compared to $7.4 million of net servicing
revenue in 1997. The decrease in 1998 was primarily the result of an increase of
$10.6 million in amortization expense and reserves for impairment of mortgage
servicing rights, which was partially offset by an increase in the average loans
serviced compared to 1997. Loans serviced for others averaged $3.3 billion in
1999, a 5% decrease from a year earlier. In 1998, average loans serviced for
others totaled $3.5 billion, which was 17% higher than the 1997 average.
14
<PAGE>
Amortization of mortgage servicing rights totaled $12.2 million in 1999,
compared to $18.0 million in 1998 and $7.5 million in 1997. The Company
evaluates its mortgage servicing rights for impairment on a monthly basis. 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's impairment reserve as of December 31, 1999 was
$2.4 million compared to $2.5 million at December 31, 1998. The impairment
reserve at December 31, 1997 was $491,000. One of the most significant
assumptions used in the valuation of the mortgage servicing rights is the change
in the prepayment speed assumption (PSA). An increase or a decrease in the PSA
will result in a shorter or longer expected life in mortgage servicing rights
and accordingly affect the fair value of the mortgage servicing rights. At
December 31, 1999, the weighted average PSA was 166, or a 19% decrease from the
1998 weighted average PSA of 205, which was 13% higher compared to 182 at
December 31, 1997. The decrease in the PSA was a result of the decrease in
residential mortgage loan refinance activity in 1999 compared to 1998.
Therefore, the Company reduced its valuation allowance of mortgage servicing
rights $88,000 in 1999.
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 1999, the Company did not have any bulk sales of mortgage
servicing rights. In 1998 and 1997, bulk sales of mortgage servicing rights for
loans with principal balances of $492.6 million and $345.2 million,
respectively, resulted in gains of $235,000 and $1.6 million, respectively.
Commercial and Retail Banking
The remaining disclosures and analyses within this Management's Discussion
and Analysis of the Company's financial condition and results of operations
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 based on a 35% tax rate 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 14% to $128.3 million in 1999, compared to
$112.3 million in 1998, primarily due to growth in average earning assets, an
improved mix of earning assets and a decline in the Company's cost of funds.
Average earning assets rose $219.0 million, or 6%, to $3.9 billion in 1999, as
the increase in average portfolio loans more than offset a reduction in average
investment securities and 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 $181.0
million, or 5%, increase in interest-bearing liabilities.
The net interest margin widened by 24 basis points to 3.29% in 1999,
compared to 3.05% in 1998. During 1999, the Company sold $400 million of low-
yielding fixed rate securities with proceeds redeployed into higher yielding
commercial, residential and installment loan balances. This better mix of
earning assets and a decrease in the Company's cost of funds in 1999 of 33 basis
points resulted in the improved margin. The decrease in the Company's cost of
funds was a result of a decrease in rates paid on short-term borrowings, FHLB
advances, certificates of deposit and savings accounts.
15
<PAGE>
Table 5
Analysis of Net Interest Income (FTE)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
(Dollar amounts in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ 12,039 $ 661 5.49% $ 22,673 $ 1,151 5.08% $ 9,246 $ 451 4.88%
Mortgage loans held for
sale 508,415 37,106 7.30 603,126 43,940 7.29 320,454 24,501 7.65
Investment securities 463,828 30,521 6.58 570,178 37,588 6.59 594,159 40,048 6.74
Portfolio loans: /(1)/
Commercial loans 729,729 64,051 8.78 552,351 50,713 9.18 375,758 36,660 9.76
Real estate mortgage loans 1,527,618 109,922 7.20 1,350,188 100,311 7.43 1,308,825 99,443 7.60
Installment loans 665,591 57,473 8.63 589,731 52,350 8.88 481,729 43,775 9.09
---------- -------- ---- ---------- -------- ------ ---------- -------- -----
Total loans, net of
unearned income 2,922,938 231,446 7.92 2,492,270 203,374 8.16 2,166,312 179,878 8.30
---------- -------- ---- ---------- -------- ------ ---------- -------- -----
Total interest-earning
assets 3,907,220 299,734 7.67 3,688,247 286,053 7.76 3,090,171 244,878 7.92
Allowance for loan losses (23,988) (19,967) (17,204)
Cash and due from banks 43,867 38,864 30,788
Other assets 165,832 178,518 142,271
---------- ---------- ----------
Total assets $4,092,931 $3,885,662 $3,246,026
========== ========== ==========
Average Liabilities and
Shareholders' Equity:
Interest-bearing demand
deposits $ 98,117 1,722 1.76 $ 101,717 1,702 1.67 $ 106,549 1,901 1.78
Savings deposits 776,648 22,701 2.92 731,901 25,283 3.45 543,643 20,793 3.82
Time deposits 1,517,590 82,150 5.41 1,435,331 83,315 5.81 1,276,772 74,253 5.83
---------- -------- ---- ---------- -------- ------ ---------- -------- ------
Total interest bearing
deposits 2,392,355 106,573 4.45 2,268,949 110,300 4.86 1,926,964 96,947 5.04
Short-term borrowings 63,158 3,462 5.40 124,566 6,984 5.57 205,741 11,752 5.71
FHLB advances 1,024,004 57,616 5.63 903,045 52,370 5.79 608,421 36,497 5.88
Long-term debt 52,121 3,745 7.19 54,053 3,995 7.51 55,941 3,470 7.53
---------- -------- ---- ---------- -------- ------ ---------- -------- ------
Total interest bearing
liabilities 3,531,638 171,396 4.85 3,350,613 173,649 5.18 2,797,067 148,666 5.32
Noninterest-bearing
deposits 176,789 153,121 156,347
Other liabilities 91,511 105,652 64,229
---------- ---------- ----------
Total liabilities 3,799,938 3,609,386 3,017,643
Preferred stock in
subsidiary 28,719 28,719 12,907
Shareholders' equity 264,274 247,557 215,476
---------- ---------- ----------
Total liabilities and
shareholders' equity $4,092,931 $3,885,662 $3,246,026
========== ========== ==========
Net interest income/
Rate spread (FTE) $128,338 2.82% $112,404 2.58% $ 96,212 2.60%
======== ======== ========
FTE adjustment $ 72 $ 74 $ 333
======== ======== ========
Impact of net noninterest-
bearing sources of funds .47 .47 .51
---- ------ ------
Net interest margin (FTE) 3.29% 3.05% 3.11%
==== ====== ======
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ Non-accrual loans and overdrafts are included in average balances.
16
<PAGE>
Table 6
Rate/Volume Analysis (FTE)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
1999/1998 1998/1997
- ---------------------------------------------------------------------------------------------------------------
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 $ (577) $ 87 $ (490) $ 681 $ 19 $ 700
Mortgage loans held for sale (6,894) 60 (6,834) 20,645 (1,206) 19,439
Investment securities (7,010) (57) (7,067) (1,586) (874) (2,460)
Loans, net of unearned income /(2)/ 35,062 (6,990) 28,072 29,068 (5,572) 23,496
------- -------- ------- ------- ---------- -------
Total interest income 20,581 (6,900) 13,681 48,808 (7,633) 41,175
Interest Expense:
Interest-bearing demand deposits (65) 85 20 (84) (115) (199)
Savings deposits 1,474 (4,056) (2,582) 6,652 (2,162) 4,490
Time deposits 4,687 (5,852) (1,165) 9,315 (253) 9,062
------- -------- ------- ------- ---------- -------
Total interest-bearing deposits 6,096 (9,823) (3,727) 15,883 (2,530) 13,353
Short-term borrowings (3,364) (158) (3,522) (4,565) (203) (4,768)
FHLB advances 6,745 (1,499) 5,246 16,449 (576) 15,873
Long-term debt (114) (136) (250) 486 39 525
------- -------- ------- ------- ---------- -------
Total interest expense 9,363 (11,616) (2,253) 28,253 (3,270) 24,983
------- -------- ------- ------- ---------- -------
Net interest income (FTE) $11,218 $ 4,716 $15,934 $20,555 $ (4,363) $16,192
======= ======== ======= ======= ========== =======
- --------------------------------------------------------------------------------------------------------------
</TABLE>
/(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 and overdrafts are included in average balances.
In 1998, net interest income (FTE) increased 17% to $112.4 million from
$96.2 million in 1997, primarily due to growth in average earning assets.
Average earning assets rose $598 million, or 19%, to $3.7 billion in 1998, as a
$609 million increase in average mortgage loans held for sale and portfolio
loans more than offset a reduction in average investment securities. Partially
offsetting the increase in net interest income was the incremental interest
expense associated with a $554 million, or 20%, increase in interest-bearing
liabilities in 1998 compared to 1997. Net interest margin decreased 6 basis
points in 1998 compared to 1997 reflecting a 16 basis point decrease in the
average rate on earning assets compared to a 14 basis point decrease in the
average rate paid on interest bearing liabilities.
Noninterest Income
Noninterest income is a significant source of revenue for the Company,
contributing 31% of total revenues in 1999, compared to 35% in 1998 and 31% in
1997. Details of the largest component of noninterest income are presented in
the "Mortgage Banking" section. Exclusive of mortgage banking revenue,
noninterest income decreased to $6.2 million in 1999 from $13.3 million in 1998,
primarily due to the $7.6 million one-time loss on the sale of low-yielding
fixed-rate investment securities during 1999.
Table 7
Noninterest Income
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Year Ended December 31
(In thousands) 1999 1998 1997
- -------------------------------------- --------- -------- --------
<S> <C> <C> <C>
Mortgage banking revenue $131,517 $137,971 $ 96,368
Service charges 7,327 5,902 5,526
Investment securities gains (losses) (7,345) 2,525 42
Other noninterest income 6,232 4,863 9,499
-------- -------- --------
Total noninterest income $137,731 $151,261 $111,435
======== ======== ========
- ---------------------------------------------------------------------
</TABLE>
17
<PAGE>
In order to reduce interest rate risk on D&N Bank's balance sheet, during
1999, the Company sold low-yielding fixed rate investment securities with the
proceeds redeployed into higher yielding portfolio loans. In 1999, the Company
sold a total of $498.1 million of investment securities for a net loss of $7.3
million. In 1998, the Company sold $171.2 million of investment securities,
compared to $213.3 million in 1997.
The guaranteed portion of Small Business Administration (SBA) loans are
regularly sold to investors. In 1999, the Company sold $17.4 million of the
guaranteed portion of SBA loans, compared to $28.1 million in 1998 and $13.8
million in 1997, resulting in gains of $750,000, $2.1 million and $1.1 million,
respectively, included in noninterest income.
Noninterest Expense
Noninterest expense increased 16% in 1999 to $226.0 million, after rising
29% in 1998. Noninterest expense includes a one-time pre-tax merger integration
and restructuring charge recorded in the second quarter of 1999 related to the
merger with D&N Financial Corporation as discussed on page 12. Excluding this
one-time charge, noninterest expense would have decreased $342,000 compared to
1998. Salaries and employee benefits expense increased $7 million, or 10%, in
1999, following an increase of $4.2 million, or 6%, in 1998. The increase in
salaries and employee benefits expense in 1999 reflects the 6% increase in
average number of hourly and salaried employees and normal wage increases.
Mortgage loan commissions and other incentives paid to mortgage loan originators
and processors decreased $7.9 million, or 14%, after increasing $26.5 million,
or 89%, in 1998. The decrease in mortgage loan commissions and incentives
resulted from the 19% decrease in the volume of retail mortgage loans originated
during 1999 over 1998. The increase in mortgage loan commissions and incentives
in 1998 reflects the increase in retail mortgage loan closings from 1997.
Table 8
Noninterest Expense
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Year Ended December 31
(In thousands) 1999 1998 1997
- ------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Salaries and employee benefits $ 77,433 $ 70,430 $ 66,239
Mortgage loan commissions and other incentives 48,362 56,297 29,767
Net occupancy expense of premises 13,594 11,612 10,132
Equipment expense 7,809 7,192 6,148
Merger integration and restructuring 31,521 - -
Other noninterest expense 47,249 49,258 38,679
-------- -------- --------
Total noninterest expense $225,968 $194,789 $150,965
======== ======== ========
- ------------------------------------------------------------------------------
</TABLE>
Net occupancy expense increased 17% in 1999, following a 15% increase in
1998, due to the addition of 21 offices during 1999. Equipment expense increased
9% in 1999, following a 17% increase in 1998. These increases reflect an
increased level of expenses related to the expansion of the Company's retail
bank and mortgage loan production offices during 1999 and 1998.
Income Taxes
The provision for income taxes was $10.7 million in 1999, compared to $20.6
million in 1998 and $17.6 million in 1997. The effective tax rate, computed by
dividing the provision for income taxes by income before taxes less the
dividends on preferred stock, was 41.9% for 1999, compared to 34.6% for 1998 and
34.8% for 1997. The effective tax rate in 1999 increased primarily as a result
of $4.4 million of non-deductible professional fees included in the merger
integration and restructuring charge.
Financial Condition
Total assets were $4.3 billion at December 31, 1999 and $4.2 billion at
December 31, 1998. Average total assets rose $207.3 million, or 5%, to $4.1
billion during the year. This increase primarily reflects the growth in
portfolio loans, which was funded by a reduction in investment securities as
well as an increase in FHLB advances.
18
<PAGE>
Assets
- ------
Portfolio Loans
The Company's loan portfolio is comprised of domestic loans to businesses
and consumers. At December 31, 1999 and 1998, 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 are made for various purposes, primarily
automobile purchases and home equity loans.
Table 9
Loan Portfolio Analysis
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
December 31
(Dollars in thousands) 1999 1998 1997 1996 1995
- --------------------------- ----------------- ------------------- ----------------- ------------------- -------------------
Amount % Amount % Amount % Amount % Amount %
- --------------------------------------- ----- ----------- ------- ---------- ----- ----------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans:
Commercial and
industrial $ 88,370 2.6% $ 83,089 3.3% $ 79,497 3.3% $ 41,828 2.2% $ 30,292 2.0%
Real estate
construction 149,480 4.4 112,588 4.4 75,416 3.1 53,235 2.9 28,220 1.9
Commercial real
estate mortgages 650,642 19.3 437,014 17.2 314,329 13.1 217,492 11.8 186,407 12.4
---------- ----- ---------- ------- ---------- ------- ----------- ------- ---------- -------
Total commercial
loans 888,492 26.3 632,691 24.9 469,242 19.5 312,555 16.9 244,919 16.3
Residential real
estate mortgages 1,773,795 52.6 1,295,484 50.9 1,378,312 57.4 1,111,288 60.2 949,194 63.4
Installment loans 711,138 21.1 615,597 24.2 554,423 23.1 422,447 22.9 303,405 20.3
---------- ----- ---------- ------- ---------- ------- ----------- ------- ---------- -------
Total portfolio
Loans $3,373,425 100.0% $2,543,772 100.0% $2,401,977 100.0% $1,846,290 100.0% $1,497,518 100.0%
========== ===== ========== ======= ========== ===== ========== ======= ========== =======
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The total portfolio loans balance grew $829.7 million, or 33%, to $3.4
billion at December 31, 1999, after increasing 6% in 1998. Lending remained
strong across all major categories in 1999. Commercial real estate growth was
strong in local markets served by the Company and marketing efforts directed at
existing customers yielded additional home equity and auto 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.
Commercial loans increased $255.8 million, or 40%, to $888.5 million at
December 31, 1999, after climbing 35% in 1998. This growth, which was
concentrated primarily in commercial real estate loans, reflects the Company's
efforts to complement traditional residential mortgage lending with commercial
real estate lending. Residential real estate mortgage loans increased $478.3
million, or 37%, to $1.8 billion at December 31, 1999, after declining 6% a year
earlier. During 1999, the Company redeployed proceeds from the sales of low-
yielding fixed rate investment securities into higher yielding residential
mortgage loans. The Company also retained a higher percentage of adjustable rate
mortgages in its portfolio during 1999 rather than selling the loans in the
secondary market. Installment loans increased $95.5 million, or 16%, to $711.1
million at December 31, 1999, after rising 11% a year ago, reflecting the
continued success of specifically targeted sales and marketing efforts in home
equity lending and continued strength in auto lending.
19
<PAGE>
Table 10
Maturity Distribution and Interest Rate Sensitivity of Commercial Loans
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
After One
December 31, 1999 Within But Within After
(In thousands) One Year Five Years Five Years Total
- ------------------------------------------------ -------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Commercial loans:
Commercial and industrial $ 39,930 $ 35,636 $ 12,804 $ 88,370
Real estate construction 65,679 57,111 26,690 149,480
Commercial real estate mortgages 42,636 342,737 265,269 650,642
-------- -------- -------- --------
Total commercial loans $148,245 $435,484 $304,763 $888,492
======== ======== ======== ========
Commercial Loans Maturing After One Year With:
Predetermined rates $314,033 $ 92,266
Floating or adjustable rates 121,451 212,497
-------- --------
Total $435,484 $304,763
======== ========
- --------------------------------------------------------------------------------------------
</TABLE>
The commercial loan portfolio contained no aggregate loans to any one
industry that exceeded 10% of total portfolio loans outstanding at December 31,
1999. The Company's total loan portfolio is geographically concentrated
primarily in Michigan and Ohio as shown in the following table.
Table 11
Geographic Distribution of Loan Portfolio
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
December 31, 1999 Percent
(Dollars in thousands) Amount of Total
- ------------------------ ---------- --------
<S> <C> <C>
Michigan $2,424,577 72%
Ohio 511,450 15
Indiana 71,972 2
Other states 365,426 11
----------
Total $3,373,425 100%
==========
- ---------------------------------------------------------------------------
</TABLE>
Mortgage Loans Held for Sale
Mortgage loans held for sale decreased $311.0 million, or 40%, to $459.1
million at December 31, 1999, after increasing 48% to $770.0 million at December
31, 1998. The decrease in 1999 was due to an increase in interest rates which
resulted in a decreased level of mortgage origination volumes in the fourth
quarter of 1999 compared to 1998. The increase in 1998 was due to strong
mortgage loan production volumes. The average mortgage loans held for sale
balance in 1999 decreased 16% compared to 1998 reflecting the Company's
decreased level of mortgage loan production volumes during 1999.
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 any
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 conducts ongoing, independent reviews of the lending
process to ensure adherence to established policies and procedures, monitors
compliance with applicable laws and regulations, provides objective measurement
of the risk inherent in the loan portfolio, and ensures that proper
documentation exists.
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.
20
<PAGE>
Commercial Loans
Credit risk associated with commercial loans is primarily influenced by
prevailing 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, 1999 and 1998, commercial real estate loans accounted for 90% and
87%, 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 the company's 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, 1999 and 1998, these loans accounted for 53% and 51%, respectively,
of total portfolio loans. Credit risk exposure in this area of lending is
minimized by the assessment of the creditworthiness of the borrower, including
debt to equity ratios 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 or state government. Credit risk is further reduced since
the majority of the Company's fixed rate, mortgage loan production and all of
its sub-prime mortgage loan production is sold to investors in the secondary
market without recourse.
Installment Loans
Credit risk in the installment loan portfolio is controlled through
consistent adherence to conservative underwriting standards that consider debt
to income levels, the creditworthiness of the borrower, and Fair Isaac Company
scores. For home equity lending, loan-to-value ratios generally are limited to
80% of collateral value. The Company may lend in excess of 80% of collateral
value, however, often utilizing an unaffiliated insurance company to minimize
the risk of the higher loan to value ratio loans.
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.
21
<PAGE>
Table 12
Non-Performing Assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
December 31
(Dollars in thousands) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial $ 4,651 $ 6,141 $ 1,705 $ 4,045 $ 4,352
Residential real estate mortgages 10,449 12,011 11,327 7,016 4,471
Installment 2,419 1,826 1,111 707 602
------- ------- ------- ------- -------
Total non-accrual loans 17,519 19,978 14,143 11,768 9,425
Restructured loans - - - - 688
------- ------- ------- ------- -------
Total non-performing loans 17,519 19,978 14,143 11,768 10,113
Other real estate owned 4,743 5,648 3,535 2,912 2,524
------- ------- ------- ------- -------
Total non-performing assets $22,262 $25,626 $17,678 $14,680 $12,637
======= ======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------
Non-performing assets as a percentage of:
Portfolio loans and OREO .66% 1.01% .73% .79% .83%
Portfolio loans, mortgage loans held
for sale and OREO .58 .77 .60 .67 .64
Total assets .52 .61 .48 .50 .47
---------------------------------------------------------------------------------------------------------
Loans past due 90 days or more
and still accruing interest:
Commercial $ 100 $ 74 $ 274 $ - $ 233
Residential real estate mortgages - - 228 548 42
Installment - - 6 22 94
------- ------- ------- ------- -------
Total loans past due 90 days or more $ 100 $ 74 $ 508 $ 570 $ 369
======= ======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Non-performing assets totaled $22.3 million at December 31, 1999, down $3.3
million from $25.6 million at December 31, 1998. The overall decrease in total
non-performing assets is attributable to the decreases in non-accrual commercial
loans, residential real estate mortgage loans and other real estate owned.
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 $34.5 million, or 1.02%, of the loans in the loan portfolio
at December 31, 1999, were 30 to 89 days delinquent, compared to $23.4 million,
or .92% of portfolio loans, at December 31, 1998. 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, 1999, total loans on the watch list, excluding
those categorized as non-accrual loans and loans past due 90 days and still
accruing interest, were $20.4 million, or .6% of total portfolio loans, compared
to $21.8 million, or .9% of total portfolio loans, at December 31, 1998.
The following table presents the amount of interest income that would have
been earned on non-performing loans outstanding at December 31, 1999, 1998 and
1997 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.
22
<PAGE>
Table 13
Forgone Interest on Non-Performing Loans
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
For the Year Ended December 31
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Non-Accrual Restructured Non-Accrual Restructured Non-Accrual Restructured
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pro forma interest income $1,326 $ - $1,182 $ - $1,225 $ -
Interest income earned 249 - 247 - 530 -
------ ------- ------ ------- ------ -------
Forgone interest income $1,077 $ - $ 935 $ - $ 695 $ -
====== ======= ====== ======= ====== =======
-----------------------------------------------------------------------------------------------------------
</TABLE>
Impaired Loans
At December 31, 1999 and 1998, the gross recorded investment in impaired loans
totaled $4.7 million and $6.1 million, respectively. Similar to non-accrual
loans, interest payments subsequently received on impaired loans (with the
exception of residential mortgage and consumer installment loans) are applied
against the principal balance. See Note 7 to the Consolidated Financial
Statements for further discussion of impaired loans.
Provision and Allowance for Loan Losses
The allowance for loan losses represents the Company's estimate of probable
credit losses related to specifically identified loans as well as probable
credit losses inherent in the remainder of the loan portfolio that have been
incurred as of the balance sheet date. The allowance for loan losses is
maintained at an adequate level through additions to the provision for loan
losses. An appropriate level of the general allowance is determined based on
the application of projected risk percentages to graded loans by categories. In
addition, specific reserves are established for individual loans when deemed
necessary by management. Management also considers other factors when
determining the unallocated allowance, including loan quality, changes in the
size and character of the loan portfolio, consultation with regulatory
authorities, amount of nonperforming loans, delinquency trends and economic
conditions and industry trends.
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. 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.
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 increased $3.9 million to $7.4 million in 1999,
compared to $3.5 million in 1998 and $2.8 million in 1997. The increase in 1999
was primarily the result of additional charge-offs on certain commercial loans
of D&N Bank at the time of the Company's merger with D&N Financial. The ratio
of net loan charge-offs to average loans, including loans held for sale, was
.17% for 1999, compared to .09% for both 1998 and 1997. Commercial loan net
charge-offs as a percentage of average commercial loans was .38% for 1999,
compared to .04% for 1998 and .17% for 1997. Residential real estate mortgage
loan net charge-offs as a percentage of average residential mortgage loans,
including loans held for sale, was .03% in both 1999 and 1998 and .02% for 1997.
Installment loan net charge-offs as a percentage of average installment loans
was .40% for 1999, compared to .35% for 1998 and .28% for 1997.
23
<PAGE>
Table 14
Analysis of the Allowance for Loan Losses
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Year Ended December 31
(Dollars in thousands) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $21,446 $17,883 $15,751 $15,083 $13,893
Loan charge-offs:
Commercial loans 3,452 302 745 494 1,680
Residential real estate mortgage loans 572 678 303 325 203
Installment loans 3,376 2,539 1,743 1,469 1,149
------- ------- ------- ------- -------
Total loan charge-offs 7,400 3,519 2,791 2,288 3,032
Recoveries:
Commercial loans 691 83 115 1,210 434
Residential real estate mortgage loans 27 52 20 5 964
Installment loans 714 447 407 351 400
------- ------- ------- ------- -------
Total recoveries 1,432 582 542 1,566 1,798
------- ------- ------- ------- -------
Net loan charge-offs 5,968 2,937 2,249 722 1,234
Provision charged to expense 11,650 6,500 4,381 1,390 2,424
------- ------- ------- ------- -------
Balance at end of year $27,128 $21,446 $17,883 $15,751 $15,083
======= ======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------
Allowance for loan losses as a percentage of
year-end portfolio loans .80% .84% .74% .85% 1.01%
Allowance for loan losses as a percentage of
year-end non-performing loans 154.85 107.35 126.44 133.85 149.14
Net charge-offs as a percentage of average
total loans (including loans held for sale) .17 .09 .09 .04 .07
- -----------------------------------------------------------------------------------------------------
</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 for general, specific and unallocated allowances by loan type and
the percentage of each loan type of total portfolio loans. The entire
allowance, however, is available for use against any type of loan loss deemed
necessary.
24
<PAGE>
Table 15
Allocation of the Allowance for Loan Losses
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
December 31
(Dollars in thousands) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
% 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>
General allowances:
Commercial loans $ 4,705 26% $ 2,339 25% $ 2,940 20% $ 3,170 17% $1,814 16%
Residential real estate
mortgage loans 5,643 53 4,489 51 3,795 57 1,536 60 3,633 64
Installment loans 8,717 21 4,616 24 3,735 23 2,988 23 1,828 20
------- ------- ------- ------- -------
Total general
allowances 19,065 11,444 10,470 7,694 7,275
Specific allowances:
Commercial loans - - 1,145 - 145 - 463 - 350 -
Residential real estate
mortgage loans - - - - - - 18 - 18 -
Installment loans - - - - - - - - - -
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total specific
allowances - - 1,145 - 145 - 481 - 368 -
Unallocated allowances 8,063 - 8,857 - 7,268 - 7,576 - 7,440 -
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total allowance for
loan losses $27,128 100% $21,446 100% $17,883 100% $15,751 100% $15,083 100%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes the graded loan categories used by the Company
to determine the adequacy of the general allowance for loan losses at December
31, 1999, 1998 and 1997.
Table 16
Graded Loan Categories Used in the
Allocation of the Allowance for Loan Losses
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
December 31
(Dollar amounts in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
Loan Loan Loan
Amount/(1)/ Amount/(1)/ Amount/(1)/
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Graded loan categories:
Pass (Superior, High and Satisfactory) $4,127,646 $3,522,970 $3,032,501
Special mention 25,934 16,238 27,624
Substandard 24,482 29,196 22868
Doubtful 72 73 252
Loss 2 1,145 145
---------- ---------- ----------
Total loans $4,178,136 $3,569,622 $3,083,390
========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/Loan amounts include mortgage loans held for sale and unfunded commitments
of $346 million, $256 million and $163 million at December 31, 1999, 1998
and 1997, respectively.
Each element of the general allowance for December 31, 1999, 1998 and 1997
was determined by applying the following risk percentages to each grade of loan:
Pass - .10% to 1.25%, depending on category of loans classified as Superior,
High and Satisfactory; Special mention - 5%; Substandard - 20%; Doubtful - 50%;
and Loss - 100%. The risk percentages are developed by the Company in
consultation with regulatory authorities, actual loss experience, peer group
loss experience and are adjusted for current economic conditions. The risk
percentages are considered a prudent measurement of the risk of the Company's
loan portfolio. Such risk percentages are applied to individual loans based on
loan type.
25
<PAGE>
The Company reviews each delinquent commercial loan on a bi-weekly basis
and assigns a grade based on loan type, collateral value, financial condition of
the borrower and payment history. Delinquent mortgage and installment loans are
reviewed monthly and assigned a rating based on their payment history, financial
condition of the borrower and collateral values. Specific mortgage and
installment loans are also reviewed in conjunction with the previously described
review of any related commercial loan.
Based upon these reviews, the Company determines the grades for its loan
portfolio on a quarterly basis and computes the allowance for loan losses.
Management believes this periodic review provides a mechanism that results in
loans being graded in the proper category and accordingly, assigned the proper
risk loss percentage in computing the general or specific reserve.
The unallocated allowance for loan losses decreased slightly to $8.1
million at December 31, 1999 from $8.9 million at December 31, 1998. The
decrease is primarily a result of the 17% increase in the total graded loans
used in the allocation.
The provision for loan losses increased to $11.7 million during 1999 from
$6.5 million in 1998. General provisions were necessary as a result of the $3.9
million increase in charge-offs, the increase in the commercial loan portfolio
and the increase in loans 30 to 89 days delinquent in 1999. In 1998, the
provision for loan losses increased $2.1 million from $4.4 million in 1997.
General provisions were necessary as a result of the growth in the commercial,
residential real estate mortgages and installment loan balances and the 41%
increase in non-accrual loans during 1998. Non-accrual loans are included in the
"substandard" classification in the Company's risk rating methodology.
There have been no changes in the Company's estimation methods since 1996.
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, 1999, fixed rate investment securities within
the portfolio, excluding municipal securities, totaled $122.9 million compared
to $595.4 million at December 31, 1998.
Investment securities available for sale totaled $206.5 million at December
31, 1999, a $395.0 million, or 66%, decrease from $601.4 million at December 31,
1998. This decrease reflects sales and maturities of low-yielding fixed-rate
securities primarily to fund growth in higher-yielding portfolio loans. The
investment securities portfolio constituted 4.8% of the Company's assets at
year-end 1999, compared to 14.3% a year earlier.
The following table summarizes the composition of the Company's investment
securities portfolio at December 31, 1999, 1998 and 1997.
Table 17
Securities Available For Sale Portfolio
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
December 31
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury and Government agency securities $ 44,548 $ 15,334 $ 85,666
Commercial paper - 89,851 -
Collateralized mortgage obligations 65,903 356,075 94,390
Interest-only certificates 78 622 1,422
Mortgage-backed securities 16,152 103,822 112,251
Municipal and other securities 3,211 4,487 4,437
Equity securities and investment in FHLB 76,567 31,238 28,073
-------- -------- --------
Total securities available for sale $206,459 $601,429 $326,239
======== ======== ========
- -------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
The maturity distribution of and average yield information for investment
securities held as of December 31, 1999 is provided in the following table.
Table 18
Maturity Distribution of Securities Available for Sale Portfolio
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 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 $ - -% $ - -% $31,337 7.35% $13,211 8.22% $ 44,548 7.61%
Collateralized mortgage
obligations /(2) (3)/ - - - - - - 65,903 6.40 65,903 6.40
Mortgage-backed
securities /(2) (3)/ - - 33 8.20 - - 16,119 6.89 16,152 6.86
Interest-only 78 - - - - - - - 78 -
certificates
Municipal and other
securities (1) 40 9.57 96 9.54 1,348 7.31 1,727 7.97 3,211 7.76
Equity securities 76,567 7.77 - - - - - - 76,567 7.77
------- ---- ----- ----- -------- ------ ------- ------ ------- ------
Total securities
available for sale $76,685 7.76% $ 129 9.20% $32,685 7.35% $96,960 6.76% $206,459 7.23%
======= ==== ===== ===== ======== ====== ======= ====== ======= ======
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(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 have estimated average lives of less than
5.6 years. The average yield presented represents the current yield on
these securities.
Securities Held to Maturity
At December 31, 1998, the Company had $70.1 million of securities held to
maturity. In conjunction with the merger with D&N Financial, the securities held
to maturity portfolio held by D&N Financial was reclassified to securities
available for sale. At the time of the merger, the securities held to maturity
were transferred to securities available for sale at amortized cost of $58.5
million with the unrealized gains and losses, net of income taxes, of $218,000
reported as a component of shareholders' equity. During 1999, $29.6 million of
these securities were sold.
Liabilities
- -----------
Deposits
Total deposits, the Company's primary source of funding, decreased 1% to
$2.61 billion at December 31, 1999, after increasing 19% 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 1999, core deposits totaled $2.13 billion,
a 7% decrease when compared to $2.30 billion at year-end 1998.
Table 19
Maturity Distribution of Certificates of Deposit of $100,000 or More
- --------------------------------------------------------------------------------
December 31
(In thousands) 1999
- --------------------------------------------------------------------------------
Three months or less $366,734
Over three months through six months 173,243
Over six months through twelve months 99,861
Over twelve months 74,223
--------
Total $714,061
========
- --------------------------------------------------------------------------------
27
<PAGE>
The Company also funds its loans with brokered certificates of deposit and
municipal certificates of deposit. At December 31, 1999, these deposits totaled
$72.7 million and $409.2 million, respectively, and represented 18% of total
deposits on a combined basis. At December 31, 1998, brokered certificates of
deposit totaled $34.7 million and municipal certificates of deposit totaled
$304.8 million, representing 13% of total deposits on a combined basis.
Short-Term Borrowings
Short-term borrowings decreased $39.7 million, or 41%, to $57.2 million at
December 31, 1999, following a 53% decline to $96.9 million a year earlier.
Included in short-term borrowings at year-end 1999 were federal funds purchased
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 short- and
long-term FHLB advances and total deposits. See Note 10 to the Consolidated
Financial Statements for further information regarding short-term borrowings.
FHLB Advances
The Company's bank 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 $1.17 billion at December 31, 1999
compared to $986.6 million at December 31, 1998, representing a 19% increase.
This increase was primarily attributable to the utilization of short-term FHLB
advances to fund mortgage loan originations. See Note 11 to the Consolidated
Financial Statements for further information regarding FHLB advances.
Long-Term Debt
Long-term debt totaled $47.5 million and $52.2 million at December 31, 1999
and 1998, respectively. See Note 12 to the Consolidated Financial Statements
for further information regarding long-term debt.
Capital
- --------
Shareholders' equity increased slightly to $266.4 million at December 31,
1999, after increasing 16% to $265.9 million a year earlier. The increase in
shareholders' equity during 1999 resulted primarily from net income after the
merger integration and restructuring charge of $14.9 million being offset by
$13.6 million in cash dividends to shareholders in 1999. The total cash
dividend paid in 1999 represented a 48% increase over the amount declared in
1998, reflecting the increase in the shares outstanding that resulted from the
merger with D&N Financial.
On December 1, 1998, prior to the announcement of the Company's merger with
D&N Financial, the Board of Directors formally rescinded the Company's stock
repurchase program. On November 18, 1999, the Board of Directors approved a new
plan allowing for the repurchase of up to 1,100,000 shares of the Company's
outstanding common stock. Repurchases will be made from time to time as market
and business conditions warrant, in the open market, negotiated, or block
transactions, and will be funded from available working capital and cash flow
from operations. Repurchased shares will be used for employee benefit plans,
stock dividends and other general business purposes, including potential
acquisitions.
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 10.60% at December
31, 1999, compared to 10.55% a year ago. For further information regarding
regulatory capital requirements, see Note 25 to the 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.
28
<PAGE>
Short-term liquidity is available from federal funds purchased, securities
sold under agreement to repurchase, core deposit growth, brokered and municipal
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.
As of December 31, 1999, the Company's balance of certificates of deposit
maturing within the next twelve months was $1.31 billion. The Company expects
that a significant portion of these certificates of deposit will be renewed
based on the Company's success at establishing long lasting customer
relationships. However, the Company will use its other available funding
sources to replace those deposits which are not renewed.
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, 1999, $158.2 million was available within the bank subsidiaries
for payment of dividends to the parent company without prior regulatory
approval, compared to $111.6 million at December 31, 1998. Also, at December
31, 1999, the parent company had interest-earning deposits of $21.8 million at
Republic Bank to meet any liquidity requirements.
As discussed in Item 1 of the Company's 1999 Annual Report on Form 10-K,
Republic Bank and D&N 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, 1999, Republic Bank and D&N Bank had available $97.8 million
in unused lines of credit with third parties for federal funds purchased and
$203.1 million available in unused borrowings with the FHLB.
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 1999 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.
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 the Company's Asset and Liability Management Committee (ALCO) and consistent
with projected liquidity needs and capital adequacy requirements.
Interest Rate Risk Management
- -----------------------------
The Company's 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.
During 1999, short-term and long-term interest rates increased fairly
significantly. The three-month treasury-bill increased 86 basis points from
December 31, 1998 to December 31, 1999, while the 30-year treasury bond
increased 139 basis points and the prime lending rate increased 75 basis points
during 1999. As a result of these rate increases, the demand for residential
loans decreased during 1999. Despite the increase in interest rates, commercial
lending increased due to the successful sales efforts by our increased team of
commercial lenders. Portfolio loan growth was funded primarily with short-term
FHLB borrowings and the sale of low-yielding fixed rate securities. The Company
was able to increase its net interest margin 24 basis points to 3.29% during
1999 because the Company improved the mix of its average earning assets to
offset the increase in short-term and long-term borrowing costs.
29
<PAGE>
The mortgage loans held for sale balance is the Company's most interest rate
sensitive asset. It is also short-term in nature as the majority of loans in
this balance are sold within 60 days. By funding this balance with primarily
short-term borrowings, the Company is able to both closely match its liquidity
needs as this balance will generally increase in a declining interest rate
environment and decrease in a rising interest rate environment, and maintain a
consistent interest rate spread when the yield curve moves in parallel shifts.
As is discussed in Note 23 to the Consolidated Financial Statements, 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 market risk during the period after the loans close but before they are sold
to investors. To minimize this exposure to market risk, the Company enters into
firm commitments to sell such mortgage loans at specified future dates to
various third parties.
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: Static 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,
1999, the cumulative one-year gap was a negative 7.32% of total earning assets.
At December 31, 1998, the cumulative one-year gap was a positive 8.86% 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.
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, 1999, the earnings simulation model projects net interest
income would decrease by 11% of base net interest income for 2000, 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 increase by 11%. These projected levels are well within the
Company's policy limits. These results portray the Company's interest rate risk
position as liability-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.
30
<PAGE>
Table 20
Static Gap Analysis/(1)/
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
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>
December 31, 1999
Interest-Earning Assets:
Federal funds sold and other money market
investments $ 9,338 $ - $ - $ - $ 9,338
Mortgage loans held for sale 459,059 - - - 459,059
Securities available for sale 92,283 19,345 50,015 48,742 210,385
Loans, net of unearned income 937,242 623,306 1,328,569 484,308 3,373,425
---------- ---------- ---------- ---------- ----------
Total interest-earning assets 1,497,922 $ 642,651 $1,378,584 $ 533,050 $4,052,207
========== ========== ========== ========== ==========
Interest-Bearing Liabilities:
Deposits:
Savings and NOW accounts $ - $ - $ 499,750 $ 124,935 $ 624,685
Money market accounts - 86,444 86,444 - 172,888
Certificates of deposit:
Under $100,000 272,852 401,760 201,675 18,139 894,426
$100,000 or more 366,734 273,104 73,008 1,215 714,061
---------- ---------- ---------- ---------- ----------
Total certificates of deposit 639,586 674,864 274,683 19,354 1,608,487
---------- ---------- ---------- ---------- ----------
Total interest-bearing deposits 639,586 761,308 860,877 144,289 2,406,060
Short-term borrowings /(2)/ 57,243 - - - 57,243
FHLB advances 874,000 105,000 187,808 5,403 1,172,211
Long-term debt - - 47,500 - 47,500
---------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities 1,570,829 $ 866,308 $1,096,185 $ 149,692 $3,683,014
========== ========== ========== ========== ==========
Interest rate sensitivity gap $ (72,907) $ (223,657) $ 282,399 $ 383,358 $ 369,193
As a percentage of total interest-earning assets (1.80)% (5.52)% 6.97% 9.46% 9.11%
Cumulative interest rate sensitivity gap $ (72,907) $ (296,564) $ (14,165) $ 369,193
As a percentage of total interest-earning assets (1.80)% (7.32)% (.35)% 9.11%
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1998
Interest-Earning Assets:
Federal funds sold and other money market
investments $ 14,140 $ - $ - $ - $ 14,140
Mortgage loans held for sale 770,028 - - - 770,028
Securities available for sale 177,833 104,199 268,146 51,251 601,429
Securities held to maturity - - - 70,124 70,124
Loans, net of unearned income 614,281 578,773 1,030,756 319,962 2,543,772
---------- ---------- ---------- ---------- ----------
Total interest-earning assets $1,576,282 $ 682,972 $1,298,902 $ 441,337 $3,999,493
========== ========== ========== ========== ==========
Interest-Bearing Liabilities:
Deposits:
Savings and NOW accounts $ - $ - $ 559,689 $ 139,922 $ 699,611
Money market accounts - 104,738 104,739 - 209,477
Certificates of deposit:
Under $100,000 354,854 442,337 182,592 19,519 999,302
$100,000 or more 256,276 217,027 47,576 - 520,879
---------- ---------- ---------- ---------- ----------
Total certificates of deposit 611,130 659,364 230,168 19,519 1,520,181
---------- ---------- ---------- ---------- ----------
Total interest-bearing deposits 611,130 764,102 894,596 159,441 2,429,269
Short-term borrowings (2) 96,938 - - - 96,938
FHLB advances 198,000 234,700 538,871 15,000 986,571
Long-term debt - - 47,500 4,694 52,194
---------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities $ 906,068 $ 998,802 $1,480,967 $ 179,135 $3,564,972
========== ========== ========== ========== ==========
Interest rate sensitivity gap $ 670,214 $ (315,830) $ (182,065) $ 262,202 $ 434,521
As a percentage of total interest-earning assets 16.76% (7.90)% (4.55)% 6.56% 10.86%
Cumulative interest rate sensitivity gap $ 670,214 $ 354,384 $ 172,319 $ 434,521
As a percentage of total interest-earning assets 16.76% 8.86% 4.31% 10.86%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ 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.
/(2/) Includes federal funds purchased, securities sold under agreements to
repurchase and other short-term borrowings.
31
<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 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 and fee income may be much larger than
would implied by a simple linear extrapolation of the results generated by the
earnings simulation model. The Company's fair value of its mortgage servicing
portfolio does increase, however, in a rising interest rate environment.
Significant decreases in interest rates typically result in higher loan
prepayment activity, which reduces interest 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 or hardware that have date-sensitive software or embedded
chips could have recognized a date using "00" as the year 1900 rather than 2000.
The Company did not experience any Year 2000 problems of significance. The total
Year 2000 project cost for the Company was $830,000 and was funded through
operating cash flows.
Accounting and Financial Reporting Developments
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which was
amended in June 1999 by Statement No. 137, Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133, and is required to be adopted by the Company in years beginning after June
15, 2000. The Statement will require the Company to recognize all derivatives
on the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company has not yet determined what the effect of Statement 133 will be on
the earnings and financial position of the Company.
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.
32
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Republic Bancorp Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
December 31
(Dollars in thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 74,423 $ 33,572
Interest-earning deposits with banks 9,338 14,140
---------- ----------
Cash and cash equivalents 83,761 47,712
Mortgage loans held for sale 459,059 770,028
Securities available for sale 206,459 601,429
Securities held to maturity - 70,124
Loans, net of unearned income 3,373,425 2,543,772
Less allowance for loan losses (27,128) (21,446)
---------- ----------
Net loans 3,346,297 2,522,326
Premises and equipment 40,025 37,185
Mortgage servicing rights 67,290 64,267
Other assets 98,724 100,695
---------- ----------
Total assets $4,301,615 $4,213,766
========== ==========
Liabilities
Noninterest-bearing deposits $ 206,990 $ 213,562
Interest bearing deposits:
NOW accounts 110,393 118,374
Savings and money market accounts 687,180 790,714
Certificates of deposit 1,608,487 1,520,181
---------- ----------
Total interest-bearing deposits 2,406,060 2,429,269
---------- ----------
Total deposits 2,613,050 2,642,831
Federal funds purchased, securities sold
under agreements to repurchase and
other short-term borrowings 57,243 96,938
FHLB advances 1,172,211 986,571
Accrued expenses and other liabilities 115,356 139,709
Long-term debt 47,500 52,194
---------- ----------
Total liabilities 4,005,360 3,918,243
Minority interest 1,095 927
Preferred stock of subsidiary 28,719 28,719
Shareholders' Equity
Preferred stock, $25 stated value; $2.25 cumulative
and convertible; 5,000,000 shares authorized,
none issued and outstanding - -
Common stock, $5 par value; 75,000,000 shares
authorized; 45,285,745 and 44,783,296 shares
issued and outstanding in 1999 and 1998, respectively 226,429 203,560
Capital surplus 39,163 22,130
Retained earnings 3,401 38,697
Accumulated other comprehensive income (loss) (2,552) 1,490
---------- ----------
Total shareholders' equity 266,441 265,877
---------- ----------
Total liabilities and shareholders' equity $4,301,615 $4,213,766
========== ==========
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
33
<PAGE>
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Years Ended December 31
(Dollars in thousands, except per share data) 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Interest and fees on loans $268,552 $247,314 $204,379
Interest on investment securities 31,110 38,665 40,166
-------- -------- --------
Total interest income 299,662 285,979 244,545
-------- -------- --------
Interest Expense
Interest on deposits:
NOW accounts 1,722 1,702 1,901
Savings and money market accounts 22,701 25,283 20,793
Certificates of deposits 82,150 83,315 74,253
-------- -------- --------
Total interest expense on deposits 106,573 110,300 96,947
Federal funds purchased, securities sold under agreements
to repurchase and other short-term borrowings 3,462 6,984 11,752
Interest on FHLB advances 57,616 52,370 36,497
Interest on long-term debt 3,745 3,995 3,470
-------- -------- --------
Total interest expense 171,396 173,649 148,666
-------- -------- --------
Net interest income 128,266 112,330 95,879
Provision for loan losses 11,650 6,500 4,381
-------- -------- --------
Net interest income after provision for loan losses 116,616 105,830 91,498
-------- -------- --------
Noninterest Income
Mortgage banking revenue 131,517 137,971 96,368
Service charges 7,327 5,902 5,526
Investment securities gains (losses) (7,345) 2,525 42
Other noninterest income 6,232 4,863 9,499
-------- -------- --------
Total noninterest income 137,731 151,261 111,435
-------- -------- --------
Noninterest Expense
Salaries and employee benefits 77,433 70,430 66,239
Mortgage loan commissions and other incentives 48,362 56,297 29,767
Occupancy expense of premises 13,594 11,612 10,132
Equipment expense 7,809 7,192 6,148
Merger integration and restructuring 31,521 - -
Other noninterest expenses 47,249 49,258 38,679
-------- -------- --------
Total noninterest expense 225,968 194,789 150,965
-------- -------- --------
Income before income taxes 28,379 62,302 51,968
Provision for income taxes 10,745 20,627 17,636
-------- -------- --------
Income before preferred stock dividends 17,634 41,675 34,332
Dividends on preferred stock 2,723 2,723 1,218
-------- -------- --------
Net Income $ 14,911 $ 38,952 $ 33,114
======== ======== ========
Basic earnings per share $ .33 $ .88 $ .75
======== ======== ========
Diluted earnings per share $ .33 $ .86 $ .74
======== ======== ========
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
34
<PAGE>
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Number of Other Total
(In thousands, except per Common Common Capital Treasury Retained Comprehensive Shareholders'
share data) Shares Stock Surplus Stock Earnings Income (loss) Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1997 32,362 $161,812 $ 16,908 $ (226) $ 30,647 $(1,205) $207,936
Comprehensive Income:
Net Income 33,114 33,114
Unrealized holding gains
on securities, net of
$1,014 income tax expense 1,938 1,938
Reclassification
adjustment for gains
included in net income,
net of $15
income tax expense (27) (27)
------- --------
Net unrealized gains on
securities, net of tax 1,911 1,911
--------
Comprehensive income 35,025
Cash dividends declared
($.27 per share) (7,776) (7,776)
Awards of common shares under
Restricted Stock Plan (1,575) (1,575)
Amortization of restricted
stock 824 824
10% common share dividend 3,199 15,994 17,652 (33,669) (23)
Issuance of common shares:
Through exercise of stock
options 289 1,446 1,311 2,757
Through exercise of stock
warrants 53 264 (70) 194
Through employee stock awards 138 690 1,196 1,886
Tax benefit relating to
exercise of stock options 1,123 1,123
Reissuance of treasury shares (1,640) 1,640 -
Repurchase of common shares (624) (3,121) (5,085) (2,995) (11,201)
-------- ------- -------- ------- -------- ------- --------
Balances at December 31, 1997 35,417 177,085 30,644 (1,581) 22,316 706 229,170
Comprehensive Income:
Net Income 38,952 38,952
Unrealized holding losses
on securities, net of
$461 income tax benefit 2,425 2,425
Reclassification adjustment
for gains included in net
income, net of $884
income tax expense (1,641) (1,641)
------- --------
Net unrealized gains on
securities, net of tax 784 784
--------
Comprehensive income 39,736
Cash dividends declared
($.29 per share) (9,388) (9,388)
Awards of common shares
under Restricted Stock Plan (1,640) (1,640)
Amortization of restricted stock 979 979
5 for 4 stock split 4,737 23,685 (10,538) (13,183) (36)
Issuance of common shares:
Through exercise of stock
options 337 1,685 2,569 4,254
Through exercise of stock
warrants 135 673 (215) 458
Through employee stock awards 163 818 2,255 3,073
Tax benefit relating to
exercise of stock
options and warrants and
vesting of restricted stock 873 873
Reissuance of treasury shares (1,964) 1,964 -
Repurchase of common shares (77) (386) (833) (383) (1,602)
-------- ------- -------- ------- -------- ------- --------
Balances at December 31, 1998 40,712 203,560 22,130 - 38,697 1,490 265,877
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
35
<PAGE>
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity (Continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Number of Other Total
(In thousands, except per share Common Common Capital Treasury Retained Comprehensive Shareholders'
data) Shares Stock Surplus Stock Earnings Income (loss) Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998 40,712 $203,560 $22,130 - $ 38,697 $ 1,490 $265,877
Comprehensive Income:
Net Income 14,911 14,911
Unrealized holding losses on
securities, net of $4,747 income tax benefit (8,816) (8,816)
Reclassification adjustment for losses
included in net income, net of $2,571
income tax benefit 4,774 4,774
------- ------
Net unrealized losses on securities,
net of tax (4,042) (4,042)
--------
Comprehensive income 10,869
Cash dividends declared ($.33 per share) (13,876) (13,876)
Awards of common share under
Restricted Stock Plan (545) (545)
Amortization of restricted stock 1,012 1,012
10% common share dividend 4,121 20,605 15,703 (36,331) (23)
Issuance of common shares:
Through exercise of stock options 470 2,347 564 2,911
Through exercise of stock warrants 30 152 (71) 81
Through employee stock awards 193 965 1,495 2,460
Tax benefit relating to exercise
of stock options and warrants and
vesting of restricted stock 723 723
Repurchase of common shares (240) (1,200) (1,848) (3,048)
-------- -------- ------- ------ -------- ------- --------
Balances at December 31, 1999 45,286 $226,429 $39,163 - $ 3,401 $(2,552) $266,441
======== ======== ======= ------ ======== ======= ========
</TABLE>
See accompanying notes.
36
<PAGE>
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Year Ended December 31
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 14,911 $ 38,952 $ 33,114
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 9,302 7,405 6,161
Amortization and impairment of mortgage servicing rights 12,157 18,038 7,461
Net gains on sale of mortgage servicing rights (37,158) (37,779) (29,398)
Net losses (gains) on sale of securities available for sale 7,345 (2,525) (42)
Net gains on sale of loans (3,883) (5,602) (4,568)
Proceeds from sale of mortgage loans held for sale 4,643,117 5,620,400 3,429,156
Origination of mortgage loans held for sale (4,332,148) (5,743,164) (3,573,299)
Increase in other assets (1,473) (35,123) (752)
Increase (decrease) in other liabilities (24,353) 14,947 42,735
Other, net (4,369) (4,055) 2,063
----------- ----------- -----------
Total adjustments 268,537 (167,458) (120,483)
----------- ----------- -----------
Net cash (used in) provided by operating activities 283,448 (128,506) (87,369)
Cash Flows From Investing Activities:
Proceeds from sale of mortgage servicing rights 75,953 65,419 37,626
Additions to mortgage servicing rights (53,975) (49,396) (30,397)
Proceeds from sale of securities available for sale 498,089 171,201 213,275
Proceeds from maturities/principal payments of
securities available for sale 325,183 197,062 96,023
Proceeds from maturities/principal payments of
securities held to maturity - 231,353 202,066
Purchase of securities available for sale (251,959) (345,122) (218,509)
Purchase of securities held to maturity (121,561) (259,044) (184,903)
Proceeds from sale of loans 174,249 260,316 207,817
Net increase in loans made to customers (995,420) (609,147) (882,681)
Proceeds from sale of fixed assets 82 208 4,194
----------- ----------- -----------
Net cash used in investing activities (349,359) (337,150) (555,489)
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
37
<PAGE>
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year Ended December 31
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Net increase in total deposits $ (29,781) $ 350,890 $ 294,349
Purchase of bank branch deposits - 71,888 -
Sale of bank branch deposits - - (52,136)
Net decrease in short-term borrowings (39,695) (110,566) 28,136
Net increase in short-term FHLB advances 549,000 12,000 87,000
Proceeds from long-term FHLB advances 35,000 350,000 493,432
Payments on long-term FHLB advances (398,360) (206,064) (222,000)
Payments on long-term debt (4,694) (1,734) (3,358)
Proceeds from issuance of senior debentures and
subsidiary preferred stock, net of issuance costs - - 28,689
Net proceeds from issuance of common shares 5,452 7,785 4,837
Repurchase of common shares (3,048) (1,602) (11,201)
Dividends paid (11,914) (9,394) (7,628)
--------- --------- ---------
Net cash provided by financing activities 101,960 463,203 640,120
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 36,049 (2,453) (2,738)
Cash and cash equivalents at beginning of year 47,712 50,165 52,903
--------- --------- ---------
Cash and cash equivalents at end of year $ 83,761 $ 47,712 $ 50,165
========= ========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 169,692 $ 172,294 $ 147,420
Income taxes $ 13,607 $ 13,482 $ 8,180
Supplemental Schedule of Non-Cash Investing Activities:
Portfolio loan charge-offs $ 7,400 $ 3,519 $ 2,791
Securitization of loans into mortgage-backed securities $ - $ 82,856 $ 86,066
Transfer of securities held to maturity to securities
available for sale $ 58,476 $ - $ -
- ---------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
38
<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 87 retail
bank branches of its banking subsidiaries located in Michigan, Ohio and Indiana.
The Company also maintains a nationwide mortgage banking network of 178 offices
located in 22 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 wholly-owned banking subsidiaries, Republic Bank (including
its subsidiaries Republic Banc Mortgage Corporation and Market Street Mortgage
Corporation) and D&N Bank (including its wholly-owned subsidiaries, D&N Capital
Corporation and Quincy Investment Services, Inc.). Republic Banc Mortgage
Corporation, including its division, Home Banc Mortgage Corporation, is a
wholly-owned mortgage company subsidiary and Market Street Mortgage Corporation,
including its division, Leader Financial, is an 80% majority-owned mortgage
company subsidiary. 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 accompanying notes. Actual results could differ from
these estimates.
Securities Available for Sale
The Company's investment securities classified as available for sale are
stated at fair market 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 Held to Maturity
The Company's investment securities classified as held to maturity are
stated at amortized cost.
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.
39
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Nature of Operations and Summary of Significant Accounting Policies
(Continued)
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at the lower of aggregate cost or
market. The cost basis of mortgage loans held for sale is adjusted by any gains
or losses generated from corresponding forward commitments to sell the loans to
investors in the secondary market. Such commitments are generally entered into
at the time when applications are taken 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.
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 represents the Company's estimate of probable
credit losses related to specifically identified loans as well as probable
credit losses inherent in the remainder of the loan portfolio that have been
incurred as of the balance sheet date. The allowance for loan losses is
maintained at an adequate level through additions to the provision for loan
losses. An appropriate level of the general allowance is determined based on
the application of projected risk percentages to graded loans by categories. In
addition, specific reserves are established for individual loans when deemed
necessary by management. Management also considers other factors when
determining the unallocated allowance, including loan quality, changes in the
size and character of the loan portfolio, consultation with regulatory
authorities, amount of nonperforming loans, delinquency trends and economic
conditions and industry trends.
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. 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.
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.
40
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Nature of Operations and Summary of Significant Accounting Policies
(Continued)
Each element of the general allowance for December 31, 1999, 1998 and 1997
was determined by applying the following risk percentages to each grade of loan:
Pass - .10% to 1.25%, depending on category of loans classified as Superior,
High and Satisfactory; Special mention - 5%; Substandard - 20%; Doubtful - 50%;
and Loss - 100%. The risk percentages are developed by the Company in
consultation with regulatory authorities, actual loss experience, peer group
loss experience and are adjusted for current economic conditions. The risk
percentages are considered a product measurement of the risk of the Company's
loan portfolio. Such risk percentages are applied to individual loans based on
loan type.
The Company reviews each delinquent commercial loan on a bi-weekly basis
and assigns a grade based on loan type, collateral value, financial condition of
the borrower and payment history. Delinquent mortgage and installment loans are
reviewed monthly and assigned a rating based on their payment history, financial
condition of the borrower and collateral values. Specific mortgage and
installment loans are also reviewed in conjunction with the previously described
review of any related commercial loan.
Based upon these reviews, the Company determines the grade for its loan
portfolio on a quarterly basis and computes the allowance for loan losses.
Management believes the periodic review provides a mechanism that results in
loans being graded in the proper category and accordingly, assigned the proper
risk loss percentage in computing the general or specific reserve.
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 speeds,
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 to 15 years.
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.
41
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Nature of Operations and Summary of Significant Accounting Policies
(Continued)
Earnings Per Share
Basic earnings per share is calculated by dividing income available to
common shareholders by the weighted-average number of common shares outstanding.
Diluted earnings per share include any dilutive effects of options and warrants.
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. See Note 16 to the Consolidated Financial Statements.
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
The Company completed the following acquisitions in the years indicated.
During 1998:
In May 1998, the Company acquired certain assets and the mortgage
origination network of World Class Mortgage Corporation of Naperville, Illinois.
The mortgage operation has one office and operates as a loan production office
of Republic Banc Mortgage Corporation. The purchase price of this acquisition
was immaterial and was accounted for under the purchase method of accounting.
During 1999:
On May 17, 1999, the Company merged with D&N Financial Corporation ("D&N
Financial"), headquartered in Troy and Hancock, Michigan, whereby each share of
D&N Financial common stock was converted into 1.82 shares of the Company's
common stock. D&N Financial was a financial services holding company with
approximately $2.0 billion in assets and $119.8 million in stockholders' equity
at May 17, 1999. The merger constitutes a tax-free reorganization and has been
accounted for as a pooling of interests.
42
<PAGE>
Notes to Consolidated Financial Statements
Note 2. Acquisitions (Continued)
The effect on the results of operations for the periods prior to the
combination is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Three Months
Ended
March 31, Year Ended December 31,
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Total Revenue:
Republic Bancorp Inc. $ 72,291 $283,446 $221,367
D&N Financial Corporation 39,312 153,794 134,613
-------- -------- --------
Total $111,603 $437,240 $355,980
======== ======== ========
Net Income:
Republic Bancorp Inc. $ 6,136 $ 22,890 $ 18,789
D&N Financial Corporation 4,019 16,062 14,325
-------- -------- --------
Total $ 10,155 $ 38,952 $ 33,114
======== ======== ========
Basic earnings per share:/(1)/
Republic Bancorp Inc. $ .23 $ .88 $ .73
D&N Financial Corporation .43 1.75 1.58
Diluted earnings per share:/(1)/
Republic Bancorp Inc. $ .23 $ .87 $ .72
D&N Financial Corporation .42 1.69 1.53
- ------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ All per share amounts presented have been adjusted to reflect the issuance
of stock dividends or splits effected in the form of stock dividends.
Note 3. Merger Integration and Restructuring Charge
Prior to the merger with D&N Financial Corporation on May 17, 1999, the
Company formulated a merger integration and restructuring plan. In connection
with this plan, the Company recorded $31.5 million ($22.0 million after tax) in
merger integration and restructuring charges. Actions incorporated in the
business combination and restructuring plan are targeted for implementation over
a 12 - 18 month period following the merger. The merger integration and
restructuring costs include appropriate accruals, reserves and charges for
severance and employee benefit accruals, professional fees, branch closings and
real estate transactions, systems and other charges.
Severance and employee benefit accruals consisted primarily of severance
and benefits costs for separated employees that resulted from the elimination of
duplicate functions such as finance, investor relations, human resources,
operations and marketing. The expected net reduction of approximately 125 full-
time positions represents 14% of the combined workforce of Republic Bank and D&N
Bank. As of December 31, 1999, 51 positions had been eliminated under the merger
integration and restructuring plan. Professional fees represent investment
banking fees, and accounting and legal fees associated with the merger
transaction. Branch closings and real estate transactions primarily represent
the costs associated with the closing of 7 offices and the divestiture of
identified banking facilities related to the consolidation of operations. The
Company also recorded write-downs of certain fixed assets in conjunction with
the merger. The impairment of these assets was included in the $8.7 million
charge for branch closings and real estate transactions. Systems charges include
the expenses expected from the integration of the two banking systems which is
expected to be completed in the fourth quarter of 2000. Other merger-related
costs include various transaction costs.
43
<PAGE>
Notes to Consolidated Financial Statements
Note 3. Merger Integration and Restructuring Charge (Continued)
The following table provides details of the pre-tax merger integration and
restructuring charge by type of cost recorded in 1999 and the reserve balance
remaining at December 31, 1999:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Initial Amount Reserve
(In thousands) Reserve Utilized Balance
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Type of Costs:
Severance and employee benefit accruals $10,446 $ 7,986 $2,460
Professional fees 5,133 4,963 170
Branch closings and real estate transactions 8,652 6,140 2,512
Systems 2,201 26 2,175
Other 5,089 5,089 -
------- ------- ------
Total merger integration and restructuring charge $31,521 $24,204 $7,317
======= ======= ======
----------------------------------------------------------------------------------------------------------
</TABLE>
Note 4. 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, 1999:
U.S. Treasury and Government agency securities $ 45,607 $ - $1,059 $ 44,548
Collateralized mortgage obligations 68,150 - 2,247 65,903
Interest-only certificates 78 - - 78
Mortgage-backed securities 16,792 - 640 16,152
Municipal and other securities 3,196 34 19 3,211
-------- ------ ------ --------
Total debt securities 133,823 34 3,965 129,892
Equity securities and investment in FHLB 76,562 5 - 76,567
-------- ------ ------ --------
Total securities available for sale $210,385 $ 39 $3,965 $206,459
======== ====== ====== ========
December 31, 1998:
U.S. Treasury and Government agency securities $ 15,398 $ 9 $ 73 $ 15,334
Commercial paper 89,851 - - 89,851
Collateralized mortgage obligations 354,948 1,342 215 356,075
Interest-only certificates 155 467 - 622
Mortgage-backed securities 102,859 1,028 65 103,822
Municipal and other securities 4,291 196 - 4,487
-------- ------ ------ --------
Total debt securities 567,502 3,042 353 570,191
Equity securities and investment in FHLB 31,634 - 396 31,238
-------- ------ ------ --------
Total securities available for sale $599,136 $3,042 $ 749 $601,429
======== ====== ====== ========
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated market value of securities available for
sale at December 31, 1999, by contractual maturity, are shown on the following
table. 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 are approximately 5.5 years. Collateral
for all mortgage-backed securities and collateralized mortgage obligations is
guaranteed by U.S. Government agencies.
44
<PAGE>
Notes to Consolidated Financial Statements
Note 4. Securities Available for Sale (Continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 Due Within One to Five to
(Dollars in thousands) One Year Five Years Ten Years
- ----------------------------------------------------------------------------------------------------------------------------------
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
Government agency securities $ - $ - $ - $ - $32,155 $31,337
Collateralized mortgage obligations - - - - - -
Mortgage-backed securities 78 78 33 33 - -
Municipal and other securities 40 40 95 96 1,344 1,348
Equity securities 76,562 76,567 - - - -
------- ------- ---- ---- ------- -------
Total securities available for sale $76,680 $76,685 $128 $129 $33,499 $32,685
======= ======= ==== ==== ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
After
Ten Years Total
- ------------------------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and
Government agency securities $ 13,452 $13,211 $ 45,607 $ 44,548
Collateralized mortgage obligations 68,150 65,903 68,150 65,903
Mortgage-backed securities 16,759 16,119 16,870 16,230
Municipal and other securities 1,717 1,727 3,196 3,211
Equity securities - - 76,562 76,567
--------- -------- --------- ---------
Total securities available for sale $100,078 $96,960 $210,385 $206,459
========= ======== ========= =========
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Sales of investment securities resulted in the following realized gains and
losses:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Year Ended December 31
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales $498,089 $171,201 $213,275
Realized gains (losses):
Securities gains $ 2,420 $ 3,220 $ 1,285
Securities losses (9,765) (695) (1,243)
-------- -------- --------
Net securities gains (losses) $ (7,345) $ 2,525 $ 42
======== ======== ========
- ------------------------------------------------------------------------------------------
</TABLE>
Securities with a carrying value of approximately $25.3 million and $117.9
million at December 31, 1999 and 1998, respectively, were pledged to secure
certain securities sold under agreements to repurchase and public deposits as
required by law.
Note 5. Securities Held to Maturity
Information regarding the Company's securities held to maturity follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1998:
U.S. Treasury and Government agency securities $ 5,665 $167 $ - $ 5,832
Collateralized mortgage obligations 35,781 422 8 36,195
------- ---- ---- -------
Total debt securities 41,446 589 8 42,027
Equity securities and investment in FHLB 28,678 - - 28,678
------- ---- ---- -------
Total securities held to maturity $70,124 $589 $ 8 $70,705
======= ==== ==== =======
- -------------------------------------------------------------------------------------------------------
</TABLE>
In conjunction with the merger with D&N Financial, the securities held to
maturity portfolio held by D&N Financial was reclassified to securities
available for sale. At the time of the merger, the securities held to maturity
were transferred to securities available for sale at amortized cost of $58.5
million with the unrealized gains, net of income taxes, of $218,000 reported as
a component of shareholders' equity. During 1999, $29.6 million of these
securities were sold.
45
<PAGE>
Notes to Consolidated Financial Statements
Note 6. Loans
Information regarding the Company's loan portfolio follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial:
Commercial and industrial $ 88,370 $ 83,089
Real estate construction 149,480 112,588
Commercial real estate mortgages 650,642 437,014
---------- ----------
Total commercial loans 888,492 632,691
Residential real estate mortgages 1,773,795 1,295,484
Installment loans 711,138 615,597
---------- ----------
Total loans, net of unearned income $3,373,425 $2,543,772
========== ==========
- --------------------------------------------------------------------------------
</TABLE>
A geographic concentration exists within the Company's loan portfolio since
most portfolio lending activity is conducted in Michigan and Ohio. At December
31, 1999, approximately 72% of outstanding portfolio loans were concentrated in
Michigan and 15% in Ohio. At December 31, 1999, there were no aggregate loan
concentrations of 10% or more of total portfolio loans to any particular
industry.
Note 7. 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) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $21,446 $17,883 $15,751
Loans charged off (7,400) (3,519) (2,791)
Recoveries on loans previously charged off 1,432 582 542
------- ------- -------
Net loans charged off (5,968) (2,937) (2,249)
Provision for loan losses 11,650 6,500 4,381
------- ------- -------
Balance at end of year $27,128 $21,446 $17,883
======= ======= =======
Amount of balance at end of year:
Related to impaired loans $ - $ 1,145 $ 145
Related to all other loans $27,128 $20,301 $17,738
- ----------------------------------------------------------------------------------------------------------
</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.
46
<PAGE>
Notes to Consolidated Financial Statements
Note 7. Allowance for Loan Losses and Impaired Loans (Continued)
The following impaired loans were included in non-performing loans, which
totaled $17.5 million and $20.0 million at December 31, 1999 and 1998,
respectively:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
December 31
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average recorded investment in impaired loans for the year $4,378 $6,368 $2,969
Gross recorded investment in impaired loans (year-end) $4,651 $6,141 $1,705
Impaired loans requiring a specific allowance - 3,541 145
Impairment allowance - 1,145 145
Interest income recognized on impaired loans $ 249 $ 18 $ 74
- -------------------------------------------------------------------------------------------------------
</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.
Note 8. Mortgage Servicing Rights
Activity related to the Company's mortgage servicing rights is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended December 31
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 64,267 $ 60,549 $45,841
Additions 53,975 49,396 30,397
Sales (38,795) (27,640) (8,228)
Amortization expense (12,245) (16,046) (6,970)
Impairment reserve 88 (1,992) (491)
-------- -------- -------
Balance at end of year $ 67,290 $ 64,267 $60,549
======== ======== =======
Estimated fair value at end of year $ 70,783 $ 64,342 $61,963
======== ======== =======
- -----------------------------------------------------------------------------------------------
</TABLE>
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, 1999 and
consisted of approximately 40,000 loans. At December 31, 1998, the mortgage
servicing portfolio was $3.5 billion and consisted of approximately 44,000
loans.
At December 31, 1999 and 1998, the Company was responsible for $69.1
million and $137.5 million, respectively, of escrow funds on behalf of
mortgagors. Escrow funds are generally held in custody at Republic Bank and D&N
Bank and are included in noninterest-bearing deposits on the consolidated
balance sheets.
47
<PAGE>
Notes to Consolidated Financial Statements
Note 9. Premises and Equipment
Premises and equipment consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 4,062 $ 3,874
Furniture, fixtures and equipment 54,181 46,210
Buildings and improvements 30,810 31,003
-------- --------
89,053 81,087
Less accumulated amortization and depreciation (49,028) (43,902)
-------- --------
Premises and equipment $ 40,025 $ 37,185
======== ========
- --------------------------------------------------------------------------------
</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 during the years ended
December 31, 1999, 1998 and 1997 totaled $9.9 million, $8.3 million and $6.6
million, respectively.
As of December 31, 1999, the future aggregate minimum lease payments
required under noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Operating
Year Ending Lease Payments
- ---------------------------------------------------------------------
<S> <C>
2000 $ 7,130
2001 5,661
2002 4,026
2003 2,716
2004 1,671
2005 and thereafter 6,807
-------
Total minimum lease payments required $28,011
=======
- ---------------------------------------------------------------------
</TABLE>
Note 10. 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, 1999
Federal funds purchased $54,700 5.87% $ 61,320 5.41% $ 75,600
Other short-term borrowings 2,543 5.16 1,838 5.06 5,353
------- ---- -------- ---- --------
Total short-term borrowings $57,243 5.84% $ 63,158 5.40% $ 80,953
======= ==== ======== ==== ========
- -------------------------------------------------------------------------------------------------------------
December 31, 1998
Federal funds purchased $73,285 5.30% $ 35,990 5.57% $115,285
Securities sold under agreements
to repurchase 18,153 5.50 85,499 5.58 168,487
Other short-term borrowings 5,500 4.29 3,077 5.03 8,000
------- ---- -------- ---- --------
Total short-term borrowings $96,938 5.28% $124,566 5.57% $291,772
======= ==== ======== ==== ========
- -------------------------------------------------------------------------------------------------------------
</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, 1999, the Company's bank
subsidiaries had $97.8 million of unused lines of credit available with third
parties for federal funds purchased. Other short-term borrowings at December 31,
1999 and 1998 were comprised of treasury, tax and loan demand notes.
48
<PAGE>
Notes to Consolidated Financial Statements
Note 11. FHLB Advances
FHLB advances outstanding as of December 31, 1999 and 1998 are presented
below. Classifications are based on original maturities.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
December 31
(Dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------------------
Average Average
Ending Rate at Ending Rate at
Balance Year-End Balance Year-End
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-term FHLB advances $ 757,000 5.52% $208,000 5.01%
Long-term FHLB advances 415,211 5.69 778,571 5.75
---------- ---- -------- ------
Total FHLB advances $1,172,211 5.58% $986,571 5.59%
========== ==== ======== ======
</TABLE>
Republic Bank and D&N 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 D&N Bank had $50.0 million and $153.1 million,
respectively, available in unused borrowings with the Federal Home Loan Bank at
December 31, 1999.
The principal maturities of long-term FHLB advances outstanding at December
31, 1999 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
(In thousands) Amount
- --------------------------------------------------------------------------
<S> <C>
2000 $192,000
2001 172,808
2002 30,000
2003 5,000
2004 -
2005 and thereafter 15,403
--------
Total $415,211
========
</TABLE>
- --------------------------------------------------------------------------
Note 12. Long-Term Debt
Obligations with original maturities of more than one year consisted of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
December 31
(Dollars in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------
<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
7.27% Collateralized Mortgage Obligation - 4,694
------- -------
Total long-term debt $47,500 $52,194
======= =======
- ---------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
Notes to Consolidated Financial Statements
Note 12. Long-Term Debt (Continued)
7.17% Senior Debentures Due 2001
These senior debentures were issued through a private offering in March
1994 and mature April 1, 2001. Interest is payable at a stated rate semi-
annually on April 1 and October 1 of each year.
6.75% and 6.95% Senior Debentures Due 2001 and 2003
In January 1996, the Company completed a private offering of $22.5 million
of Senior Debentures with $9.0 million maturing on January 15, 2001 and $13.5
million maturing on January 15, 2003. Interest is payable at the stated rate
semi-annually on April 1 and October 1 of each year.
7.27% Collateralized Mortgage Obligation
The collateralized mortgage obligation ("CMO") was issued through a special
purpose finance subsidiary of D&N Financial Corporation established in 1986. The
CMO was secured by mortgage-backed securities with unpaid principal balances of
$5.2 million at December 31, 1998. During 1999, the CMO was repaid from
operating funds and the special purpose finance subsidiary was dissolved.
The principal maturities of long-term debt outstanding at December 31, 1999
are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
(In thousands) Amount
- ---------------------------------------------------------------------------
<S> <C>
2000 $ -
2001 34,000
2002 -
2003 13,500
2004 and thereafter -
-------
Total $47,500
=======
- ---------------------------------------------------------------------------
</TABLE>
Note 13. Preferred Stock of Subsidiary
D&N Capital Corporation, a subsidiary of D&N Bank, is a Delaware
corporation incorporated on March 18, 1997 for the purpose of acquiring and
holding real estate assets and is a Real Estate Investment Trust. D&N Bank owns
all shares of common stock of D&N Capital Corporation. On July 17, 1997, D&N
Capital Corporation sold 1.21 million shares of its 9.0% noncumulative preferred
stock, Series A with a liquidation preference of $25.00 per share. The Series A
preferred shares are generally not redeemable prior to July 21, 2002. On or
after July 21, 2002, the Series A preferred shares may be redeemed for cash at
the option of the Company, in whole or in part, at a redemption price of $25.00
per share. The preferred shares are treated as Tier 1 Capital by the Company and
are traded on The Nasdaq Stock Market under the symbol DNFCP. During both 1999
and 1998, D&N Capital Corporation declared and paid preferred dividends totaling
$2.72 million.
Note 14. Shareholders' Equity
On November 18, 1999 the Board of Directors declared a 10% stock dividend
distributed on January 7, 2000 to shareholders of record December 3, 1999. On
July 17, 1998, the Board of Directors declared a 5 for 4 stock split (in the
form of a stock dividend) distributed on September 11, 1998 to shareholders of
record on August 14, 1998. 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.
The Company repurchased 240,000, 77,250, and 624,100 shares of common stock
in 1999, 1998 and 1997, respectively.
On November 18, 1999, the Board of Directors approved a stock repurchase
program authorizing the repurchase of up to 1,100,000 shares of the Company's
outstanding common shares.
50
<PAGE>
Notes to Consolidated Financial Statements
Note 15. 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) 1999/(1)/ 1998/(1)/ 1997/(1)/
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator for basic and diluted earnings per share:
Net income $ 14,911 $ 38,952 $ 33,114
=========== =========== ===========
Denominator:
Denominator for basic earnings per share-
weighted-average shares 45,158,358 44,277,783 43,890,245
Effect of dilutive securities:
Employee stock options 556,732 930,776 848,586
Warrants 44,702 107,949 229,987
----------- ----------- -----------
Dilutive potential common shares 601,434 1,038,725 1,078,573
Denominator for diluted earnings per share-
adjusted weighted-average shares for
assumed conversions 45,759,792 45,316,508 44,968,818
=========== =========== ===========
Basic earnings per share $ .33 $ .88 $ .75
=========== =========== ===========
Diluted earnings per share $ .33 $ .86 $ .74
=========== =========== ===========
- ----------------------------------------------------------------------------------------------
</TABLE>
/(1)/ Share amounts for all periods presented have been adjusted to reflect the
issuance of stock dividends.
Note 16. 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 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 1998
Stock Option Plan (1998 Plan) and the 1997 Stock Option Plan (1997 Plan). The
1998 Plan, which was adopted effective February 19, 1998, authorizes the
issuance of up to 1,375,000 options to purchase common shares at exercise prices
equal to the market value of the Company's common stock on the date of grant. Of
the 1,375,000 options to purchase common shares under the 1998 Stock Option
Plan, up to 1,100,000 options may be issued pursuant to options which may be
granted under the Voluntary Management Stock Accumulation Program which was also
adopted effective February 19, 1998. Options are exercisable according to a four
year vesting schedule whereby 25% vest annually, based on the one through four
year anniversary of the grant date. Options granted pursuant to the Voluntary
Management Stock Accumulation Program fully vest after the third anniversary
date of the option grant date. All options have a maximum contractual life of
ten years from the date of grant. At December 31, 1999 and 1998, options
available for future grant under the 1998 Stock Option Plan totaled 278,263 and
1,157,121, respectively. Options available for future grant under the 1997 Stock
Option Plan totaled 457,281 and 577,954 at December 31, 1999 and 1998,
respectively. At December 31, 1997, options available for future grant under the
1997 Stock Option Plan totaled 823,253. D&N Bank previously had stock option
plans authorizing the issuance of up to 2,430,428 options to purchase common
shares. Options are generally exercisable according to a two year vesting period
from the date of grant. The term on any option does not exceed ten years from
the date of grant. At the merger consummation date of May 17, 1999, 1,475,732
issued options, adjusted for the exchange, remained outstanding under the plans.
At December 31, 1999, there were no options available for future grant as the
D&N Bank plans were discontinued upon consummation of the merger with the
Company.
51
<PAGE>
Notes to Consolidated Financial Statements
Note 16. Stock-Based Compensation (Continued)
The following table presents stock option activity for the years indicated:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- -------------------------------------------------------------------------------------------------------
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 2,602,656 $ 8.09 2,600,338 $ 6.08 2,467,652 $4.28
Granted 1,234,167 11.16 625,535 13.50 833,818 9.33
Exercised (516,452) 5.66 (604,632) 5.00 (633,058) 3.87
Canceled (72,309) 12.08 (18,585) 11.31 (68,074) 6.13
--------- ------ --------- ------ --------- -----
Outstanding at end of year 3,248,062 $ 9.56 2,602,656 $ 8.09 2,600,338 $6.08
========= ====== ========= ====== ========= =====
- -------------------------------------------------------------------------------------------------------
</TABLE>
Additional information regarding stock options outstanding and exercisable at
December 31, 1999 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>
$ 2.19 - $ 3.55 344,389 3.0 $ 3.08
$ 3.80 - $ 6.02 353,151 5.5 5.47
$ 6.35 - $ 8.17 356,111 6.6 7.68
$ 8.51 - $10.71 466,192 8.2 9.55
$11.02 - $11.36 997,054 9.2 11.23
$11.48 - $12.74 330,616 8.2 12.37
$13.73 - $15.57 400,549 8.2 13.93
- ------------------------------------------------------------------------
$ 2.19 - $15.57 3,248,062 7.5 $ 9.56
========================================================================
</TABLE>
Voluntary Management Stock Accumulation Program
Under the Voluntary Management Stock Accumulation Program, which was adopted
by the Company on February 19, 1998, the Company offers to officers and key
employees the right to acquire shares of the Company's common stock at fair
market value; and if shares are so acquired under the Program, the officer or
key employee is granted two tandem stock options, exercisable at the current
fair market value, for every one share purchased. This Program authorizes up to
137,500 common shares per year for sale as program shares, subject to an overall
maximum of 550,000 shares while the Program is in effect. Consequently, an
annual maximum of 275,000 common shares is authorized for tandem stock options
(subject to an overall maximum of 1,100,000 stock option shares). The
participant's purchased shares may not be sold, transferred, encumbered or
otherwise disposed of for a three year period so long as employed by the
Company. Options granted pursuant to the Voluntary Management Stock Accumulation
Program fully vest and are exercisable only after the lapsing of the third
anniversary of the option grant date. All options have a maximum contractual
life of ten years form the date of grant. At December 31, 1999, common shares
and tandem stock options available for future grant totaled 342,476 and 684,952,
respectively. At December 31, 1998, common shares and tandem stock options
available for future grant totaled 478,549 and 957,098, respectively.
52
<PAGE>
Notes to Consolidated Financial Statements
Note 16. Stock-Based Compensation (Continued)
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 1999, 34,650 warrants were issued, compared to 26,812
warrants in 1998 and 27,225 warrants in 1997. At December 31, 1999, 175,883
warrants were outstanding with exercise prices ranging from $2.29 to $15.41.
Incentive Stock Plan
The Company's Incentive Stock Plan authorizes the grant of restricted common
shares so that the total number of restricted shares that may be outstanding at
any time under the Plan shall not exceed five percent of the issued and
outstanding common stock of the Company. At December 31, 1999, the maximum
number of authorized shares allowed for grant totaled 2,264,287. 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, 1999 and 1998, 320,375 and 392,838 common shares
have been awarded and are still subject to restrictions under the incentive
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 $838,000
in 1999, $982,000 in 1998 and $632,000 in 1997. The unamortized portion of
restricted stock is included as a component of shareholders' equity in the
consolidated balance sheets. In 1999, 49,331 restricted shares were issued,
compared to 119,080 in 1998 and 174,472 in 1997. The weighted average grant-date
fair value of restricted shares issued in 1999 was $11.26.
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 25.8%; an expected
dividend yield of 4.02%; a risk-free interest rate of 5.00%; and an expected
life of the option of 4.4 years. The weighted average grant-date fair value of
stock options and stock warrants granted during each of the years 1999, 1998 and
1997 was $2.14, $2.74 and $2.01, respectively.
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) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (as reported) $14,911 $38,952 $33,114
Net income (pro forma) 13,146 37,173 31,911
Basic earnings per share (as reported) $ .33 $ .88 $ .75
Basic earnings per share (pro forma) .29 .84 .73
Diluted earnings per share (as reported) $ .33 $ .86 $ .74
Diluted earnings per share (pro forma) .29 .82 .71
- --------------------------------------------------------------------------------
</TABLE>
53
<PAGE>
Notes to Consolidated Financial Statements
Note 17. Employee Benefit Plans
The Company maintains a 401(k) plan for its employees. The employer
contributions to the plan are determined annually by the Board of Directors.
Contribution expenses for the 401(k) plan for the years ended December 31, 1999,
1998 and 1997 totaled $2.3 million, $2.4 million, and $1.9 million,
respectively.
Note 18. Other Noninterest Expense
The three largest components of other noninterest expense were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Voice and data communications $6,188 $4,828 $4,190
Computer fees 5,684 5,062 4,274
Advertising 2,811 4,221 3,047
- --------------------------------------------------------------------------------
</TABLE>
Note 19. Income Taxes
The current and deferred components of the provision for Federal income tax
expense for the years ended December 31, 1999, 1998, and 1997 are as follows.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current income tax expense $19,083 $16,833 $11,540
Deferred income tax expense (benefit) (8,338) 3,794 6,096
------- ------- -------
Total income tax expense $10,745 $20,627 $17,636
======= ======= =======
- --------------------------------------------------------------------------------
</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, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(In thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------
Deferred Deferred
Asset Liability Asset Liability
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merger integration and restructuring charge accrual $ 5,569 $ - $ - $ -
Allowance for loan losses 8,937 - 6,773 -
Mortgage servicing rights amortization 449 - 454 -
Originated mortgage servicing rights - 10,357 - 9,850
Deferred loan origination fees and costs, net - 5,174 - 4,724
Impairment reserve for mortgage servicing rights 660 - 691 -
Deferred compensation contributions 1,802 - 1,145 -
Restricted stock amortization 605 - 575 -
Depreciation/amortization - 500 - 629
Stock dividends on FHLB stock - 2,230 - 2,032
Purchase accounting adjustment amortization - 60 - 101
Unrealized loss on securities available for sale 893 - 128 -
Loan mark-to-market adjustment 1,044 - 1,851 -
Other temporary differences 1,366 312 432 1,124
------- ------- ------- -------
Total deferred taxes $21,325 $18,633 $12,049 $18,460
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE>
Notes to Consolidated Financial Statements
Note 19. Income Taxes (Continued)
Items causing differences between the statutory tax rate and the effective
tax rate are summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Year ended December 31
(Dollars in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory tax rate $ 8,980 35.0% $20,853 35.0% $17,763 35.0%
Amortization of goodwill 87 .3 88 .1 87 .2
Net tax exempt interest income (142) (.6) (200) (.3) (251) (.5)
Merger integration and
restructuring charge 1,550 6.1 - - - -
Other, net 270 1.1 (114) (.2) 37 .1
------- ---- ------- ----- -------- -----
Provision for income taxes $10,745 41.9% $20,627 34.6% $17,636 34.8%
======= ==== ======= ===== ======== =====
- ------------------------------------------------------------------------------------------------
</TABLE>
Note 20. 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.
D&N Bank is a plaintiff, along with approximately 120 other institutions, in
a currently pending claim in the United States Court of Federal Claims seeking
substantial damages as a result of the 1989 Financial Institutions Reform,
Recovery and Enforcement Act's mandatory phase-out of the regulatory capital
treatment of supervisory goodwill. The ultimate outcome of this matter as it
relates to D&N cannot be determined at this time.
Note 21. Transactions With Related Parties
Republic Bank and D&N 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.
Note 22. Segment Information
The Company's operations are managed as two major business segments: (1)
commercial and retail banking and (2) mortgage 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 87 retail branch offices of Republic Bank and D&N Bank, which are staffed by
personal bankers and loan originators. The Mortgage Banking segment is comprised
of mortgage loan production and mortgage loan servicing. Mortgage loan
production is conducted by Republic Banc Mortgage and Market Street Mortgage.
The majority of the Company's mortgage loan servicing is performed by Market
Street Mortgage Corporation. The Company evaluates performance and allocates
resources based on profit or loss from operations before income taxes. Business
segment performance is determined based on the Company's management accounting
process, in which the accounting policies of the reportable segments are
primarily the same as those described in the summary of significant accounting
policies. The accounting process assigns revenue, expenses and assets to a
business segment using specific identification and an allocation methodology.
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.
55
<PAGE>
Notes to Consolidated Financial Statements
Note 22. Segment Information (Continued)
The Company's internal management reporting system allocates interest income
and interest expense items by matching the earning asset with the related
funding source. In addition, Republic Bank provides funding to its mortgage
banking subsidiaries by granting operating lines of credit and lines of credit
to fund mortgage loans held for sale. The commercial and retail banking segment
receives interest income on these lines of credit by charging interest rates
based on LIBOR and prime lending rates. 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.
The following table presents the financial results of each business segment
for the last three years.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Commercial and
Retail Banking Mortgage Banking Consolidated
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands) 1999/(1)/ 1998 1997 1999/(1)/ 1998 1997 1999/(1)/ 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $261,940 $241,812 $219,423 $ 37,722 $ 44,167 $25,122 $299,662 $285,979 $244,545
Interest expense 140,016 134,869 125,806 31,380 38,780 22,860 171,396 173,649 148,666
-------- -------- -------- -------- -------- ------- -------- -------- --------
Net interest income/(2)/ 121,924 106,943 93,617 6,342 5,387 2,262 128,266 112,330 95,879
Provision for loan losses 6,650 6,500 4,381 - - - 6,650 6,500 4,381
Noninterest income/(3)/ 13,766 13,290 15,067 131,517 137,971 96,368 145,283 151,261 111,435
Noninterest expense/(2)/ 70,253 67,145 60,053 124,194 127,644 90,912 194,447 194,789 150,965
-------- -------- -------- -------- -------- ------- -------- -------- --------
Operating income
before taxes $ 58,787 $ 46,588 $ 44,250 $ 13,665 $ 15,714 $ 7,718 $ 72,452 $ 62,302 $ 51,968
======== ======== ======== ======== ======== ======= ======== ======== ========
Preferred stock dividend $ 2,723 $ 2,723 $ 1,218 $ - $ - $ - $ 2,723 $ 2,723 $ 1,218
Income taxes $ 19,797 $ 15,186 $ 14,954 $ 4,824 $ 5,441 $ 2,682 $ 24,621 $ 20,627 $ 17,636
Depreciation and
amortization $ 6,015 $ 4,234 $ 3,384 $ 15,443 $ 21,452 $10,239 $ 21,458 $ 25,686 $ 13,623
Capital expenditures $ 5,323 $ 10,039 $ 4,164 $ 4,715 $ 4,910 $ 2,660 $ 10,038 $ 14,949 $ 6,824
Identifiable assets
(in millions) $ 3,727 $ 3,328 $ 3,074 $ 575 $ 886 $ 614 $ 4,302 $ 4,214 $ 3,688
Efficiency ratio 51.85% 57.04% 57.63% 90.09% 89.04% 92.17% 71.14% 74.61% 74.43%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts for 1999 exclude $31.5 million of pre-tax merger integration and
restructuring charges related to the merger with D&N Financial Corporation
as discussed in Note 3, a $7.6 million pre-tax loss on the sale of low-
yielding fixed rate securities, and an additional $5 million pre-tax
provision for loan losses.
(2) 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.
(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.
Note 23. Off-Balance Sheet Transactions
In the normal course of business, the Company becomes a party to transactions
involving financial instruments with off-balance sheet risk to meet the
financing needs of its customers and to manage its own exposure to interest rate
risk. These financial instruments include commitments to extend credit, standby
letters of credit and forward commitments to sell mortgage loans that are not
reflected in the consolidated financial statements. The contractual amounts of
these instruments express the extent of the Company's involvement in these
transactions as of the balance sheet date. These instruments involve, to varying
degrees, elements of credit risk, market risk and liquidity risk in excess of
the amount recognized in the consolidated balance sheets. However, they do not
represent unusual risks for the Company and management does not anticipate any
significant losses to arise from these transactions.
Commitments to extend credit are legally binding agreements to lend cash to a
customer as long as there is no breach of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require the payment of a fee. Commitments to fund loan
applications with agreed-upon rates subject the Company to market risk due to
fluctuations in interest rates. Standby letters of credit guarantee the
performance of a customer to a third party. The Company issues these guarantees
primarily to support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions.
56
<PAGE>
Notes to Consolidated Financial Statements
Note 23. Off-Balance Sheet Transactions (Continued)
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, 1999, the Company had outstanding $373.2 million of
commitments to fund residential real estate loan applications with agreed-upon
rates, including $114.3 million of portfolio residential mortgage loans.
At December 31, 1999, the Company had outstanding mandatory forward
commitments to sell $603.0 million of residential mortgage loans, of which
$374.4 million covered the mortgage loans held for sale balance and $228.6
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 2000 without producing any
material gains or losses. At December 31, 1999, the mortgage loans held for sale
balance included $84.7 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 $60.7 million, or 72%, 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, 1998, outstanding forward commitments to sell mortgage loans
totaled $937.3 million, of which $719.3 million covered the mortgage loans held
for sale balance and $218.0 million related to commitments to fund residential
real estate loan applications with agreed-upon rates.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which was
amended in June 1999 by Statement No. 137, Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133, and is required to be adopted by the Company in years beginning after June
15, 2000. The Statement will require the Company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company has not yet determined what the effect of Statement 133 will be on
the earnings and financial position of the Company.
The following table presents the contractual amounts of the Company's off-
balance sheet financial instruments outstanding at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
December 31
(In thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to fund residential real estate loans $665,154 $918,501
Commitments to fund commercial real estate loans 245,660 125,992
Other unused commitments to extend credit 179,572 156,570
Standby letters of credit 7,570 5,251
Loans sold with recourse 790 921
Financial instruments subject to interest rate risk:
Residential real estate loan applications with agreed-upon rates $373,170 $338,473
Forward commitments to sell residential real estate mortgage loans 603,003 937,282
- -------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
Notes to Consolidated Financial Statements
Note 24. 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 and Held to Maturity:
The fair value of securities available for sale and held to maturity are
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, 1999 and 1998.
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.
58
<PAGE>
Notes to Consolidated Financial Statements
Note 24. Estimated Fair Value of Financial Instruments (Continued)
Off-Balance Sheet Financial Instruments:
The Company's off-balance sheet financial instruments are detailed in Note 23
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, 1999 and 1998 were not
material.
The following table presents the estimated fair values of the Company's
financial instruments:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
1999 1998
December 31 Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 83,761 $ 83,761 $ 47,712 $ 47,712
Mortgage loans held for sale 459,059 462,043 770,028 775,740
Securities available for sale 206,459 206,459 601,429 601,429
Securities held to maturity - - 70,124 70,703
Loans, net of the allowance for loan losses 3,346,297 3,304,434 2,522,326 2,571,473
Liabilities:
Noninterest-bearing deposits 206,990 206,990 213,562 213,562
NOW, savings and money market accounts 797,573 797,573 909,088 909,088
Certificates of deposit maturing in:
Six months or less 333,060 333,156 846,208 850,341
Over six months to one year 160,571 160,045 425,005 428,762
Over one year to three years 335,263 336,009 191,626 195,707
Over three years 779,593 782,512 57,342 60,444
---------- ---------- ---------- ----------
Total deposits 2,613,050 2,616,285 2,642,831 2,657,904
Federal funds purchased and securities sold
under agreements to repurchase and other
short-term borrowings 57,243 57,243 96,938 96,938
FHLB advances 1,172,211 1,168,693 986,571 993,114
Long-term debt 47,500 47,495 52,194 54,772
- ---------------------------------------------------------------------------------------------
</TABLE>
Note 25. 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, 1999 and 1998, these reserves totaled $4.2 million and
$7.0 million, respectively.
The principal source of cash flows for the parent company is dividends from
Republic Bank and D&N 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, 1999, $158.2 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.
59
<PAGE>
Notes to Consolidated Financial Statements
Note 25. Regulatory Matters (Continued)
Management believes, as of December 31, 1999, that the Company met all
capital adequacy requirements to which it is subject. In addition, the bank
subsidiary had regulatory capital ratios in excess of the levels established for
well capitalized institutions.
As of December 31, 1999, the Federal Reserve Bank of Chicago considers the
Company to be "well capitalized" under the regulatory framework for prompt
corrective action. There are no conditions or events since that notification
that management believes have changed the Company's category.
Presented in the table below are the capital amounts and ratios for the
Company and each of its banking subsidiaries, Republic Bank and D&N Bank at
December 31, 1999, 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, 1999
Total capital
(to risk weighted assets)/(1)/:
Consolidated $308,852 10.60% $233,049 8.00% $291,311 10.00%
Republic Bank 198,641 11.49 138,248 8.00 172,810 10.00
D&N Bank 142,881 11.87 96,259 8.00 120,324 10.00
Tier 1 capital
(to risk weighted assets)/(1)/:
Consolidated $281,724 9.67% $116,525 4.00% $174,787 6.00%
Republic Bank 186,060 10.77 69,124 4.00 103,686 6.00
D&N Bank 128,335 10.67 48,129 4.00 72,194 6.00
Tier 1 capital
(to average assets)/(1)/:
Consolidated $281,724 6.59% $128,168 3.00% $213,613 5.00%
Republic Bank 186,060 7.36 75,878 3.00 126,463 5.00
D&N Bank 128,335 6.95 55,358 3.00 92,263 5.00
- ----------------------------------------------------------------------------------------------------------
As of December 31, 1998
Total capital
(to risk weighted assets)/(1)/:
Consolidated $287,694 10.55% $218,217 8.00% $272,772 10.00%
Republic Bank 174,900 12.00 116,638 8.00 145,797 10.00
D&N Bank 139,380 10.94 101,933 8.00 127,416 10.00
Tier 1 capital
(to risk weighted assets)/(1)/:
Consolidated $267,393 9.80% $109,109 4.00% $163,663 6.00%
Republic Bank 161,949 11.11 58,319 4.00 87,479 6.00
D&N Bank 129,530 10.17 50,966 4.00 76,450 6.00
Tier 1 capital
(to average assets)/(1)/:
Consolidated $267,393 6.54% $122,689 3.00% $204,482 5.00%
Republic Bank 161,949 7.02 69,166 3.00 61,149 5.00
D&N Bank 129,530 6.53 59,477 3.00 99,128 5.00
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) As defined in the regulations
60
<PAGE>
Notes to Consolidated Financial Statements
Note 26. 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) 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and due from banks $ 372 $ 835
Interest earning deposits 21,813 27,987
-------- --------
Cash and cash equivalents 22,185 28,822
Investment in subsidiaries 299,147 286,107
Notes and advances receivable from subsidiaries 2,485 6,259
Furniture and equipment 202 196
Other assets 9,175 5,996
-------- --------
Total assets $333,194 $327,380
======== ========
Liabilities and Shareholders' Equity:
Accrued expenses and other liabilities $ 19,253 $ 14,003
Long-term debt 47,500 47,500
-------- --------
Total liabilities 66,753 61,503
Total shareholders' equity 266,441 265,877
-------- --------
Total liabilities and shareholders' equity $333,194 $327,380
======== ========
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Parent Company Only Income Statements
Year Ended December 31 (In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 864 $ 1,732 $ 2,772
Dividends from subsidiaries 8,000 612 13,646
Other income 1,288 - -
-------- -------- --------
Total income 10,152 2,344 16,418
Interest expense 3,435 3,435 3,739
Salaries and employee benefits 5,601 4,816 4,315
Merger integration and restructuring 6,620 - -
Other expenses 643 3,301 2,105
-------- -------- --------
Total expenses 16,299 11,552 10,159
-------- -------- --------
Income (loss) before income taxes and
excess (deficiency) of undistributed earnings of
subsidiaries over dividends (6,147) (9,208) 6,259
Income tax credits (4,186) (3,270) (2,532)
-------- -------- --------
Income (loss) before excess (deficiency) of
undistributed earnings of subsidiaries over dividends (1,961) (5,938) 8,791
Excess of undistributed earnings of
subsidiaries over dividends 16,872 44,890 24,323
-------- -------- --------
Net income $ 14,911 $ 38,952 $ 33,114
======== ======== ========
- -------------------------------------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
Notes to Consolidated Financial Statements
Note 26. Parent Company Financial Information (Continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Parent Company Only Statements of Cash Flows
Year Ended December 31 (In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 14,911 $ 38,952 $ 33,114
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 562 573 557
Excess of undistributed earnings of
subsidiaries over dividends (16,872) (44,890) (24,323)
Increase in other assets (2,649) (1,719) (382)
Increase in other liabilities 3,756 4,039 2,708
Other, net (546) (1,117) 109
-------- -------- --------
Total adjustments (15,749) (43,114) (21,331)
-------- -------- --------
Net cash (used in) provided by operating activities (838) (4,162) 11,783
Cash Flows from Investing Activities:
Capital investment in subsidiaries - - (430)
Equipment expenditures (63) (115) (74)
Decrease in notes and advances receivable
from subsidiaries 3,774 411 38,003
-------- -------- --------
Net cash provided by investing activities 3,711 296 37,499
Cash Flows from Financing Activities:
Net proceeds from issuance of common shares through
exercise of stock options and stock warrants 5,452 7,785 4,837
Repurchase of common shares (3,048) (1,602) (11,201)
Dividends paid on common shares (11,914) (9,394) (7,628)
Net decrease in short-term borrowings - - (1,875)
Issuance of senior debentures, net of issuance costs - - (30)
-------- -------- --------
Net cash used in financing activities (9,510) (3,211) (15,897)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (6,637) (7,077) 33,385
Cash and cash equivalents at beginning of year 28,822 35,899 2,514
-------- -------- --------
Cash and cash equivalents at end of year $ 22,185 $ 28,822 $ 35,899
======== ======== ========
- ------------------------------------------------------------------------------------------
</TABLE>
62
<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 1999 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/ Dana M. Cluckey /s/ Thomas F. Menacher
- ---------------------------- ----------------------------
Dana M. Cluckey, CPA Thomas F. Menacher, CPA
President and Chief Executive Executive Vice President, Treasurer and
Officer Chief Financial Officer
63
<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, 1999 and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for the
year ended December 31, 1999. 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.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Republic Bancorp
Inc. and subsidiaries at December 31, 1999 and the consolidated results of their
operations and their cash flows for the year ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
We previously audited and reported on the consolidated balance sheet at December
31, 1998 and the related consolidated statements of income, changes in
shareholders' equity, and cash flows of Republic Bancorp Inc. and subsidiaries
for the each of the two years in the period ended December 31, 1998 prior to
their restatement for the 1999 pooling of interests as described in Note 2. The
contribution of Republic Bancorp Inc. to total assets, revenues, and net income
represented 52%, 75% and 59% of the 1998 restated totals and the contribution to
revenue and net income represented 72% and 57% of the 1997 restated totals.
Financial statements of the other pooled company included in the 1998 and 1997
restated consolidated statements were audited and reported on separately by
other auditors. We also have audited, as to combination only, the accompanying
consolidated balance sheet as of December 31, 1998 and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the two years in the period ended December 31, 1998, after restatement for
the 1999 pooling of interests; in our opinion, such consolidated financial
statements have been properly combined on the basis described in the notes to
the consolidated financial statements.
/s/ Ernst & Young LLP
Detroit, Michigan
January 14, 2000
64
<PAGE>
Quarterly Data (Unaudited)
The following is a summary of unaudited quarterly results of operations for the
years 1999 and 1998:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Full
(Dollars in thousands, except per share data) 1Q 2Q 3Q 4Q Year
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Earnings Summary
Interest income $71,017 $ 71,034 $76,342 $81,269 $299,662
Interest expense 42,133 40,425 42,537 46,301 171,396
Net interest income 28,884 30,609 33,805 34,968 128,266
Provision for loan losses 1,525 6,575/(1)/ 1,575 1,975 11,650
Mortgage banking revenue 37,137 37,118 30,054 27,208 131,517
Investment securities gains (losses) 649 (7,237)/(1)/ 10 (767) (7,345)
Other non-interest income 2,800 2,961 3,286 4,512 13,559
Non-interest expense 51,580 82,168/(1)/ 45,694 46,526 225,968
Income (loss) before taxes 16,365 (25,292)/(1)/ 19,886 17,420 28,379
Net income (loss) 10,155 (18,508)/(1)/ 12,455 10,809 14,911
Per Common Share
Basic earnings $ .23 $ (.40) $ .28 $ .24 $.33
Diluted earnings .22 (.40) .27 .24 .33
Cash dividends declared .08 .08 .08 .09 .33
- ---------------------------------------------------------------------------------------------------------
1998
Earnings Summary
Interest income $68,422 $ 70,845 $72,456 $74,256 $285,979
Interest expense 42,015 42,680 44,412 44,542 173,649
Net interest income 26,407 28,165 28,044 29,714 112,330
Provision for loan losses 1,750 2,050 1,400 1,300 6,500
Mortgage banking revenue 29,120 33,558 36,524 38,769 137,971
Investment securities gains (losses) (98) (46) 1,283 1,386 2,525
Other non-interest income 3,285 2,776 3,128 1,576 10,765
Non-interest expense 41,817 46,903 50,874 55,195 194,789
Income before taxes 15,147 15,500 16,705 14,950 62,302
Net income 9,306 9,882 10,314 9,450 38,952
Per Common Share
Basic earnings $ .21 $ .22 $ .24 $ .21 $.88
Diluted earnings .21 .21 .23 .21 .86
Cash dividends declared .07 .07 .07 .08 .29
- ---------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ Amounts include the impact of one-time pre-tax charges related to the
merger with D&N Financial Corporation, consisting of $31.5 million ($22.0
million after tax) one-time merger integration and restructuring charges,
a $7.6 million ($4.9 million after tax) loss on the sale of low-yielding
fixed rate securities, and an additional $5.0 million ($3.3 million after
tax) provision for loan losses.
65
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There is no information required by this Item relating to a change in
accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The information set forth under the caption "Board of Directors" of the
Registrant's 2000 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 "Compensation Committee Report"
and "Summary Compensation Table" of the Registrant's 2000 Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Stock Ownership" of the
Registrant's 2000 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" of the Registrant's 2000 Proxy Statement is incorporated
herein by reference.
66
<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, 1999 and 1998
Consolidated Statements of Income for the Years Ended December 31, 1999,
1998 and 1997
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
Independent Auditors' Reports
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
(2)(a)/(10)(a) Agreement and Plan of Merger dated as of December 1,
1998 by and between the Company and D&N Financial
Corporation (incorporated by reference to Exhibit 2 of
the Company's Current Report on Form 8-K dated December
4, 1998 filed with the Securities and Exchange
Commission on December 4, 1998 (file no. 0-15734)).
(3)(a)/(4)(a) Second Restated Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 of
the registrant's Current Report on Form 8-K dated May
17, 1999 filed with the Securities and Exchange
Commission on or about May 28, 1999 (file no. 0-
15734)).
(3)(b)/(4)(b) Bylaws, as amended, of the Company (incorporated by
reference to Exhibit 3.2 of the registrant's Current
Report on Form 8-K dated may 17, 1999 filed with the
Securities and Exchange Commission on or about May 28,
1999 (file no. 0-15734)).
(4)(c) Debenture Purchase Agreement dated as of March 30,
1994, between the Company and Scudder, Steven & 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 20001 (incorporated by reference to
Exhibit 4(p) of the Company's Annual Report on Form 10-
K for the year ended December 31, 1994 filed with the
Securities and Exchange Commission on March 27, 1995
(file no. 0-15734)).
(4)(d) 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,
(incorporated by reference to Exhibit 4(c) of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 filed with the Securities and
Exchange Commission on March 29, 1996 (file no. 0-
15734)).
67
<PAGE>
(10)(b) 1998 Stock Option Plan of the Company, (incorporated by
reference to Exhibit 10(a) of the Company's Annual
Report on Form 10-K for the year ended December 31,
1997 filed with the Securities and Exchange Commission
on March 20, 1998 (file no. 0-15734)).
(10)(c) First Amendment to the 1998 Stock Option Plan of the
Company dated October 21, 1999.*
(10)(d) 1997 Stock Option Plan of the Company, (incorporated by
reference to Exhibit 10(b) of the Company's Annual
Report on Form 10-K for the year ended December 31,
1996 filed with the Securities and Exchange Commission
on March 28, 1997 (file no. 0-15734)).
(10)(e) First Amendment to the 1997 Stock Option Plan of the
Company dated February 19, 1998.*
(10)(f) Second Amendment to the 1997 Stock Option Plan of the
Company dated October 21, 1999.*
(10)(g) Non-Qualified Stock Option Plan of the Company,
(incorporated by reference to Exhibit 10(b) of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992 filed with the Securities and
Exchange Commission on March 23, 1993 (file no. 0-
15734)).
(10)(h) Incentive Stock Plan, as Amended, of the Company dated
February 19, 1998.*
(10)(i) Amendment to the Incentive Stock Plan, as Amended, of
the Company dated October 21, 1999.*
(10)(j) Voluntary Management Stock Accumulation Program of the
Company, (incorporated by reference to Exhibit 10(e) of
the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 filed with the Securities and
Exchange Commission on March 20, 1998 (file no. 0-
15734)).
(10)(k) First Amendment to the Voluntary Management Stock
Accumulation Program of the Company dated October 21,
1999.*
(10)(l) Directors Compensation Plan of the Company,
(incorporated by reference to Exhibit 10(e) of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992 filed with the Securities and
Exchange Commission on March 23, 1993 (file no. 0-
15734)).
(10)(m) Deferred Compensation Plan of the Company, as Amended
and Restated Effective June 17, 1999.*
(10)(n) Form of Indemnity Agreement and schedule of officers
and directors of the Company who executed such
agreements, (incorporated by reference to Exhibit 10(e)
of the Company's Registration Statement Form S-2 filed
with the Securities and Exchange Commission on February
12, 1992 (file no. 33-46069)).
(10)(o) D&N Financial Corporation 1984 Stock Option and
Incentive Plan (incorporated by reference to the
registrant's Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on July 20,
1999 (file no. 333-83267)).
(10)(p) D&N Financial Corporation 1994 Management Stock
Incentive Plan (incorporated by reference to the
registrant's Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on July 20,
1999 (file no. 333-83265)).
(11) No statement is required to be filed because the
computations can be clearly determined from the
materials contained in the Annual Report on Form 10-K.
68
<PAGE>
(12) No statement is required to be filed because the
computations can be clearly determined from the
materials contained in the Annual Report on Form 10-K.
(21) Subsidiaries of the Company.*
(23)(a) Consent of independent auditors, Ernst & Young LLP.*
(23)(b) Consent of independent auditors,
PricewaterhouseCoopers, LLP.*
(24) Powers of Attorney.*
(27) Financial Data Schedule.*
(99) Report of independent auditors, PricewaterhouseCoopers
LLP.*
*Filed herewith
Management contracts and compensatory plans or arrangements:
The management contracts and compensatory plans or arrangements required
to be filed as exhibits and included in such list of exhibits are as
follows:
(10)(b) 1998 Stock Option Plan of the Company, (incorporated by
reference to Exhibit 10(a) of the Company's Annual
Report on Form 10-K for the year ended December 31,
1997 filed with the Securities and Exchange Commission
on March 20, 1998 (file no. 0-15734)).
(10)(c) First Amendment to the 1998 Stock Option Plan of the
Company dated October 21, 1999.*
(10)(d) 1997 Stock Option Plan of the Company, (incorporated by
reference to Exhibit 10(b) of the Company's Annual
Report on Form 10-K for the year ended December 31,
1996 filed with the Securities and Exchange Commission
on March 28, 1997 (file no. 0-15734)).
(10)(e) First Amendment to the 1997 Stock Option Plan of the
Company dated February 19, 1998.*
(10)(f) Second Amendment to the 1997 Stock Option Plan of the
Company dated October 21, 1999.*
(10)(g) Non-Qualified Stock Option Plan of the Company,
(incorporated by reference to Exhibit 10(b) of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992 filed with the Securities and
Exchange Commission on March 23, 1993 (file no. 0-
15734)).
(10)(h) Incentive Stock Plan, as Amended, of the Company dated
February 19, 1998.*
(10)(i) Amendment to the Incentive Stock Plan, as Amended, of
the Company dated October 21, 1999.*
(10)(j) Voluntary Management Stock Accumulation Program of the
Company, (incorporated by reference to Exhibit 10(e) of
the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 filed with the Securities and
Exchange Commission on March 20, 1998 (file no. 0-
15734)).
(10)(k) First Amendment to the Voluntary Management Stock
Accumulation Program of the Company dated October 21,
1999.*
69
<PAGE>
(10)(l) Directors Compensation Plan of the Company,
(incorporated by reference to Exhibit 10(e) of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992 filed with the Securities and
Exchange Commission on March 23, 1993 (file no. 0-
15734)).
(10)(m) Deferred Compensation Plan of the Company, as Amended
and Restated Effective June 17, 1999.*
(10)(n) Form of Indemnity Agreement and schedule of officers
and directors of the Company who executed such
agreements, (incorporated by reference to Exhibit 10(e)
of the Company's Registration Statement Form S-2 filed
with the Securities and Exchange Commission on February
12, 1992 (file no. 33-46069)).
(10)(o) D&N Financial Corporation 1984 Stock Option and
Incentive Plan (incorporated by reference to the
registrant's Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on July 20,
1999 (file no. 333-83267)).
(10)(p) D&N Financial Corporation 1994 Management Stock
Incentive Plan (incorporated by reference to the
registrant's Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on July 20,
1999 (file no. 333-83265)).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1999.
70
<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 17th day of
March 2000.
REPUBLIC BANCORP INC.
By: /s/ Dana M. Cluckey
------------------------------------------
Dana M. Cluckey
President 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 17th day of March 2000.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dana M Clukey President and Chief Executive Officer March 17, 2000
- -------------------------
Dana M. Cluckey
/s/ Thomas F Menacher Executive Vice President, Treasurer March 17, 2000
- --------------------------
Thomas F. Menacher and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS *
<S> <C> <C> <C>
Jerry D. Campbell Richard J. Cramer Sr. John J. Lennon Kenneth D. Seaton
Joseph C. Bromley George A. Eastman Sam H. McGoun B. Thomas M. Smith Jr.
George J. Butvilas Howard J. Hulsman Kelly E. Miller George B. Smith
Mary P. Cauley Gary Hurand Joe D. Pentecost Jeoffrey K. Stross
Steven Coleman Dennis J. Ibold Randolph P. Piper Peter Van Pelt
Bruce L. Cook Stanley A. Jacobson Isaac J. Powell Steven E. Zack
</TABLE>
* By: /s/ Thomas F. Menacher
------------------------------
Attorney in Fact
71
<PAGE>
EXHIBIT INDEX
(10)(c) First Amendment to the 1998 Stock Option Plan of the Company
dated October 21, 1999
(10)(e) First Amendment to the 1997 Stock Option Plan of the Company
dated February 19, 1998
(10)(f) Second Amendment to the 1997 Stock Option Plan of the
Company dated October 21, 1999
(10)(h) Incentive Stock Plan, as Amended, of the Company dated
February 19, 1998
(10)(i) Amendment to the Incentive Stock Plan, as Amended, of the
Company dated October 21, 1999
(10)(k) First Amendment to the Voluntary Management Stock
Accumulation Program of the Company dated October 21, 1999
(10)(m) Deferred Compensation Plan of the Company, as Amended and
Restated Effective June 17, 1999
(21) Subsidiaries of the Company
(23)(a) Consent of Ernst & Young LLP
(23)(b) Consent of PricewaterhouseCoopers LLP
(24) Powers of Attorney
(27) Financial Data Schedule
(99) Report of Independent Auditors', PricewaterhouseCoopers LLP
<PAGE>
EXHIBIT 10(c)
FIRST AMENDMENT TO
REPUBLIC BANCORP INC. 1998 STOCK OPTION PLAN
WHEREAS, REPUBLIC BANCORP INC., a Michigan corporation (the "Company"),
has previously adopted the Republic Bancorp Inc. 1998 Stock Option Plan (the
"Plan");
WHEREAS, pursuant to Article M of the Plan, the Company's Board of
Directors may amend the Plan; and
WHEREAS, the Company's Board of Directors now desires to amend the
Plan.
NOW, THEREFORE, IN CONSIDERATION of the premises and by resolution of
the Company's Board of Directors, the Plan is hereby amended as follows:
1. A new Section 9 of Article G shall be added to the Plan and
shall read in its entirety as follows:
"9. Change in Control. In the event of any "Change in Control"
(as defined below):
(a) the vesting period of all unvested and partially
vested Options held by Participants who are then designated by the
Committee as "senior management" personnel of the Company shall
automatically be accelerated, and all such Options shall be exercisable
in full immediately from and after the time of such Change in Control;
(b) if the employment of any Participant who is not at the
time of such Change in Control designated by the Committee as "senior
management" of the Company shall be terminated by the Company without
cause within one (1) year following such Change in Control, then the
vesting period of all unvested and partially vested Options held by
such Participant shall automatically be accelerated, and all such
Options shall be exercisable in full immediately upon, from and after
the date of termination of employment
For purposes of this Plan, a "Change in Control" occurs on the first
day any one or more of the following occurs:
(A) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), together with all affiliates and associates of such
person (as such terms are defined in Rule 12b-2 under the Exchange Act)
becomes the direct or indirect beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of securities of the Company
representing (x) 40% or more of the combined voting power of all of the
Company's outstanding securities entitled to vote generally in the
election of the Company's directors, or (y) 40% or more of the combined
shares of the Company's capital stock then outstanding, all except in
connection with any merger, consolidation, reorganization or share
exchange involving the Company;
(B) the consummation of any merger, consolidation,
reorganization or share exchange involving the Company, unless the
holders of the Company's capital stock outstanding immediately before
such transaction own more than 50% of the combined outstanding shares
of capital stock and have more than 50% of the combined voting power in
the surviving entity after such transaction and they own such
securities in substantially the same proportions (relative to each
other) as they owned the Company's capital stock immediately before
such transaction; or
(C) the consummation of any sale or other disposition (in
one transaction or a series of related transactions) of all, or
substantially all, of the Company's assets to a person whose
acquisition of 40% or more of the combined shares of the Company's
capital stock then outstanding would have caused a Change in Control
under paragraph (A)."
<PAGE>
2. Article I of the Plan is hereby amended by (a) changing the
title of such Article to "RIGHTS IN EVENT OF DEATH OR CHANGE IN CONTROL," (b)
inserting the subheading "1. Death." prior to the existing text of Article I,
and (c) adding the following to the end of Article I:
"2. Change in Control. If the employment of a Participant is
terminated by the Company within one (1) year following a "Change in
Control" (as defined in Section G.9), the Participant's Options, to the
extent the same are exercisable upon the date of the termination of
employment, shall be exercisable for a period of ninety (90) days
following the date of the termination of the Participant's employment;
provided, however, that in no event shall the Options be exercisable
more than ten (10) years from the date they were granted."
The foregoing First Amendment was approved by the Company's
Board of Directors on October 21, 1999.
ATTEST
/s/ Dana M. Cluckey
-------------------------------
Dana M. Cluckey, President
<PAGE>
EXHIBIT 10(e)
FIRST AMENDMENT TO REPUBLIC BANCORP INC.
1997 STOCK OPTION PLAN
As authorized in Section M of the REPUBLIC BANCORP INC. 1997 STOCK
OPTION PLAN ("Plan"), Republic Bancorp Inc. ("Company") amends the Plan
effective February 19, 1998, as described below:
1. Subsections 14 and 15 of Section B of the Plan are amended to read:
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.
2. Section D of the Plan is amended to read:
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.
3. Sections H and I of the Plan are amended to read:
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
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
<PAGE>
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.
4. Except as amended above, the Plan continues in full force and effect.
The foregoing Amendment was approved by the Company's Board of Directors on
February 19, 1998.
ATTEST:
/s/ George E. Parker
----------------------------------------
General Counsel and Corporate Secretary
<PAGE>
EXHIBIT 10(f)
SECOND AMENDMENT TO
REPUBLIC BANCORP INC. 1997 STOCK OPTION PLAN
WHEREAS, REPUBLIC BANCORP INC., a Michigan corporation (the "Company"),
has previously adopted the Republic Bancorp Inc. 1997 Stock Option Plan, as
amended (the "Plan");
WHEREAS, pursuant to Article M of the Plan, the Company's Board of
Directors may amend the Plan; and
WHEREAS, the Company's Board of Directors now desires to amend the
Plan.
NOW, THEREFORE, IN CONSIDERATION of the premises and by resolution of
the Company's Board of Directors, the Plan is hereby amended as follows:
1. A new Section 9 of Article G shall be added to the Plan and
shall read in its entirety as follows:
"9. Change in Control. In the event of any "Change in
Control" (as defined below):
(a) the vesting period of all unvested and partially
vested Options held by Participants who are then designated by the
Committee as "senior management" personnel of the Company shall
automatically be accelerated, and all such Options shall be exercisable
in full immediately from and after the time of such Change in Control;
(b) if the employment of any Participant who is not
at the time of such Change in Control designated by the Committee as
"senior management" of the Company shall be terminated by the Company
without cause within one (1) year following such Change in Control,
then the vesting period of all unvested and partially vested Options
held by such Participant shall automatically be accelerated, and all
such Options shall be exercisable in full immediately upon, from and
after the date of termination of employment
For purposes of this Plan, a "Change in Control" occurs on the
first day any one or more of the following occurs:
(A) any person (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), together with all affiliates and associates of
such person (as such terms are defined in Rule 12b-2 under the Exchange
Act) becomes the direct or indirect beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of securities of the
Company representing (x) 40% or more of the combined voting power of
all of the Company's outstanding securities entitled to vote generally
in the election of the Company's directors, or (y) 40% or more of the
combined shares of the Company's capital stock then outstanding, all
except in connection with any merger, consolidation, reorganization or
share exchange involving the Company;
(B) the consummation of any merger, consolidation,
reorganization or share exchange involving the Company, unless the
holders of the Company's capital stock outstanding immediately before
such transaction own more than 50% of the combined outstanding shares
of capital stock and have more than 50% of the combined voting power in
the surviving entity after such transaction and they own such
securities in substantially the same proportions (relative to each
other) as they owned the Company's capital stock immediately before
such transaction; or
(C) the consummation of any sale or other disposition
(in one transaction or a series of related transactions) of all, or
substantially all, of the Company's assets to a person whose
acquisition of 40% or more of the combined shares of the Company's
capital stock then outstanding would have caused a Change in Control
under paragraph (A)."
<PAGE>
2. Article I of the Plan is hereby amended by (a) changing the
title of such Article to "RIGHTS IN EVENT OF DEATH OR CHANGE IN CONTROL," (b)
inserting the subheading "1. Death." prior to the existing text of Article I,
and (c) adding the following to the end of Article I:
"2. Change in Control. If the employment of a
Participant is terminated by the Company within one (1) year following
a "Change in Control" (as defined in Section G.9), the Participant's
Options, to the extent the same are exercisable upon the date of the
termination of employment, shall be exercisable for a period of ninety
(90) days following the date of the termination of the Participant's
employment; provided, however, that in no event shall the Options be
exercisable more than ten (10) years from the date they were granted."
3. Section G, "Terms and Conditions of Option", paragraph 6
thereof, is amended to provide as follows:
"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 subsequent to July 15,
1999:
(a) Except as otherwise provided in the Option
Agreement, the right to purchase Stock pursuant to an Option Agreement shall
become vested in accordance with the following schedule:
Percentage of Shares Covered Time Elapsed Since
By the Option Agreement Option Grant Date
----------------------- -----------------
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;
provided, that the Committee may vary or omit the
above vesting requirements in its discretion.
(b) 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."
The foregoing Second Amendment was approved by the Company's Board of
Directors on October 21, 1999.
ATTEST
/s/ Dana M. Cluckey
------------------------------------
Dana M. Cluckey, President
<PAGE>
EXHIBIT 10(h)
REPUBLIC BANCORP INC.
INCENTIVE STOCK PLAN, AS AMENDED
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
January 16, 1997 and February 19, 1998; and
WHEREAS, the name of the Restricted Stock Plan has been
changed to the "Incentive Stock Plan" (the "Plan"); and
WHEREAS, an amendment of the Plan has been authorized.
NOW, THEREFORE, the Plan is hereby amended 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.
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.
<PAGE>
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).
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 four (4) years from the date of said
Agreement."
<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.
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
<PAGE>
(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.
(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.
<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
<PAGE>
EXHIBIT 10(i)
AMENDMENT TO
REPUBLIC BANCORP INC. INCENTIVE STOCK PLAN
WHEREAS, REPUBLIC BANCORP INC., a Michigan corporation (the "Company"),
has previously adopted the Republic Bancorp Inc. Incentive Stock Plan, as
amended (the "Plan");
WHEREAS, pursuant to Article 7 of the Plan, the Company's Board of
Directors may amend the Plan; and
WHEREAS, the Company's Board of Directors now desires to amend the
Plan.
NOW, THEREFORE, IN CONSIDERATION of the premises and by resolution of
the Company's Board of Directors, the Plan is hereby amended as follows:
1. A new Section 5.2 shall be added to the Plan and shall read in
its entirety as follows:
"5.2. In the event of any "Change in Control" (as defined
below):
(a) the Restricted Period of all Incentive Stock held
by Recipients who are then designated by the Compensation Committee as
"senior management" personnel of the Corporation shall automatically
terminate at the time of such Change in Control;
(b) if the employment of any Recipient who is not at
the time of such Change in Control designated by the Compensation
Committee as "senior management" of the Corporation shall be terminated
by the Corporation without cause within one (1) year following such
Change in Control, then the Restricted Period of all Incentive Stock
held by such Recipient shall automatically terminate on the date of
termination of employment, and notwithstanding anything contained in
Section 5.1(b) to the contrary, the Recipient shall be entitled to such
Incentive Stock.
For purposes of this Plan, a "Change in Control" occurs on the
first day any one or more of the following occurs:
(A) any person (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), together with all affiliates and associates of
such person (as such terms are defined in Rule 12b-2 under the Exchange
Act) becomes the direct or indirect beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of securities of the
Corporation representing (x) 40% or more of the combined voting power
of all of the Corporation's outstanding securities entitled to vote
generally in the election of the Corporation's directors, or (y) 40% or
more of the combined shares of the Corporation's capital stock then
outstanding, all except in connection with any merger, consolidation,
reorganization or share exchange involving the Corporation;
(B) the consummation of any merger, consolidation,
reorganization or share exchange involving the Corporation, unless the
holders of the Corporation's capital stock outstanding immediately
before such transaction own more than 50% of the combined outstanding
shares of capital stock and have more than 50% of the combined voting
power in the surviving entity after such transaction and they own such
securities in substantially the same proportions (relative to each
other) as they owned the Corporation's capital stock immediately before
such transaction; or
(C) the consummation of any sale or other disposition
(in one transaction or a series of related transactions) of all, or
substantially all, of the Corporation's assets to a person whose
acquisition of 40% or more of the combined shares of the Corporation's
capital stock then outstanding would have caused a Change in Control
under paragraph (A)."
<PAGE>
The foregoing Amendment was approved by the Company's Board of
Directors on October 21, 1999.
ATTEST
/s/ Dana M. Cluckey
---------------------------
Dana M. Cluckey, President
<PAGE>
EXHIBIT 10(k)
FIRST AMENDMENT TO
REPUBLIC BANCORP INC.
VOLUNTARY MANAGEMENT STOCK ACCUMULATION PROGRAM
WHEREAS, REPUBLIC BANCORP INC., a Michigan corporation (the "Company"),
has previously adopted the Republic Bancorp Inc. Voluntary Management Stock
Accumulation Program (the "Plan");
WHEREAS, pursuant to Section 8 of the Plan, the Company's Board of
Directors may amend the Plan; and
WHEREAS, the Company's Board of Directors now desires to amend the
Plan.
NOW, THEREFORE, IN CONSIDERATION of the premises and by resolution of
the Company's Board of Directors, the Plan is hereby amended as follows:
1. A new Section 6.6 shall be added to the Plan and shall read in
its entirety as follows:
"6.6 Change in Control. In the event of any "Change in
Control" (as defined below):
(a) the vesting period of all unvested and partially
vested Tandem Options held by Participants who are then designated by
the Committee as "senior management" personnel of the Company shall
automatically be accelerated, and all such Tandem Options shall be
exercisable in full immediately from and after the time of such Change
in Control;
(b) if the employment of any Participant who is not
at the time of such Change in Control designated by the Committee as
"senior management" of the Company shall be terminated by the Company
without cause within one (1) year following such Change in Control,
then the vesting period of all unvested and partially vested Tandem
Options held by such Participant shall automatically be accelerated,
and all such Tandem Options shall be exercisable in full immediately
upon, from and after the date of termination of employment
For purposes of this Plan, a "Change in Control"
occurs on the first day any one or more of the following occurs:
(A) any person (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), together with all affiliates and associates of
such person (as such terms are defined in Rule 12b-2 under the Exchange
Act) becomes the direct or indirect beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of securities of the
Company representing (x) 40% or more of the combined voting power of
all of the Company's outstanding securities entitled to vote generally
in the election of the Company's directors, or (y) 40% or more of the
combined shares of the Company's capital stock then outstanding, all
except in connection with any merger, consolidation, reorganization or
share exchange involving the Company;
(B) the consummation of any merger, consolidation,
reorganization or share exchange involving the Company, unless the
holders of the Company's capital stock outstanding immediately before
such transaction own more than 50% of the combined outstanding shares
of capital stock and have more than 50% of the combined voting power in
the surviving entity after such transaction and they own such
securities in substantially the same proportions (relative to each
other) as they owned the Company's capital stock immediately before
such transaction; or
(C) the consummation of any sale or other disposition
(in one transaction or a series of related transactions) of all, or
substantially all, of the Company's assets to a person whose
acquisition of 40% or more of the combined shares of the Company's
capital stock then outstanding would have caused a Change in Control
under paragraph (A)."
<PAGE>
2. Section 6.4 of the Plan is hereby amended by (a) adding the phrase
", except following a Change in Control (as defined in Section 6.6) as provided
in subsection (e), below" after the word "Disability" in the third line of
subsection (a), and (b) adding the following subsection (e):
"(e) Change in Control. If the employment of a
Participant is terminated by the Company within one (1) year following
a "Change in Control" (as defined in Section 6.4), the Participant's
Tandem Options, to the extent the same are exercisable upon the date of
the termination of employment, shall be exercisable for a period of
ninety (90) days following the date of the termination of the
Participant's employment; provided, however, that in no event shall the
Tandem Options be exercisable more than ten (10) years from the date
they were granted."
The foregoing First Amendment was approved by the Company's Board of
Directors on October 21, 1999.
ATTEST
/s/ Dana M. Cluckey
------------------------------
Dana M. Cluckey, President
<PAGE>
EXHIBIT 10(m)
REPUBLIC BANCORP INC.
DEFERRED COMPENSATION PLAN
(as amended and restated effective June 17, 1999)
INDEX
PAGE
Article 1 PLAN PURPOSE..................................................1
Article 2 DEFINITIONS...................................................1
Article 3 ELIGIBILITY...................................................2
Article 4 PARTICIPATION.................................................3
Article 5 GENERAL PROVISIONS............................................3
Article 6 DEFERRED COMPENSATION ACCOUNTS................................4
Article 7 PARTICIPANTS' RIGHTS UNSECURED................................5
Article 8 PAYMENT OF DEFERRED COMPENSATION..............................6
Article 9 VALUATION DATE................................................7
Article 10 DEATH OF PARTICIPANT..........................................8
Article 11 ALIENATION....................................................8
Article 12 TAX WITHHOLDING...............................................8
Article 13 PARTICIPANT CONSENT...........................................8
Article 14 SEVERABILITY..................................................9
Article 15 AMENDMENT AND TERMINATION.....................................9
Article 16 CLAIMS AND DISPUTES; ARBITRATION..............................9
Article 17 PLAN ADMINISTRATION..........................................12
<PAGE>
ARTICLE 1
PLAN PURPOSE
1.1 The purpose of this Republic Bancorp Inc. Deferred
Compensation Plan (the "Plan") is to provide eligible key employees (herein
together called "Key Employees") of Republic Bancorp Inc. and its subsidiary
corporations (herein together called "Republic") with the opportunity to defer
compensation. The Plan is also intended to establish a method of attracting and
retaining persons whose abilities, experience and judgement can contribute to
the long-term objectives of Republic.
1.2 The Committee intends that the Plan be an unfunded, non-
qualified deferred compensation plan maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees of Republic, and that contributions to or payments under
the Plan shall be, when paid or otherwise made available to Participants,
deductible by Republic pursuant to Sections 162 and 404(a)(5) of the Internal
Revenue Code of 1986, as amended (the "Code").
ARTICLE 2
DEFINITIONS
As used in this Plan, the following terms shall have the meanings
hereinafter set forth:
2.1 "Base Salary" means the annual salary which is paid bi-weekly
(or at other regular intervals) and any commission income and incentive payments
which are paid at regular intervals to Republic Key Employees during the
calendar year.
2.2 "Beneficiary" means any person(s) or legal entity(ies)
designated by the Participant or otherwise determined in accordance with
ARTICLE 5.
2.3 "Board of Directors" means the Board of Directors of Republic
Bancorp Inc.
2.4 "Bonus" means the bonus or bonuses, if any, paid to Key
Employees for a calendar year.
2.5 "Committee" means the Personnel, Compensation and Nominating
Committee of the Board of Directors.
2.6 "Company" means Republic Bancorp Inc., a Michigan corporation,
and its successors and assigns.
2.7 "Compensation" means Base Salary and Bonus paid or otherwise
payable by Republic.
2.8 "Deferred Compensation" means Compensation deferred pursuant
to the Plan.
2.9 "Deferred Compensation Account" means the individual account
maintained under the Plan for a Participant as determined under ARTICLE 6.
2.10 "Deferred Compensation Election Form" means the standardized
election form that each Participant must execute in accordance with ARTICLE 6 in
order to participate in the Plan. An example of the initial Deferred
Compensation Election Form is attached hereto as EXHIBIT 1.
2.11 "Director" means a member of the Board of Directors.
2.12 "Eligible Participant" means a Key Employee of Republic
designated by the Committee as eligible to participate in the Plan.
2.13 "Key Employee" means any management or highly compensated
employee of Republic whom the Committee in its sole discretion decides is
sufficiently important to the ongoing business objectives of Republic.
<PAGE>
2.14 "Participant" for any Plan Year means an Eligible Participant,
for whom the Company establishes a separate Deferred Compensation Account solely
for the benefit of such Eligible Participant, who elects to defer Compensation
in accordance with the procedures set forth in ARTICLE 4.
2.15 "Plan" means the Republic Bancorp Inc. Deferred Compensation
Plan as embodied herein and as amended from time to time by the Board of
Directors (or as amended prior to March 31, 1994 by the Committee).
2.16 "Plan Year" means the twelve (12) month calendar year
beginning January 1 and ending December 31, or such shorter period, as the case
may be, in the year the Plan is adopted or terminated.
2.17 "Republic" means Republic Bancorp Inc., its majority or wholly
owned subsidiaries, Republic Bank, a Michigan corporation, Republic Bancorp
Mortgage Inc., a Michigan corporation, Market Street Mortgage Corporation, a
Michigan corporation, CUB Funding Corporation, a California corporation, and all
additional majority or wholly owned subsidiaries designated by the Committee or
the Board of Directors.
2.18 "Valuation Date" means the last business day of each calendar
quarter.
2.19 The masculine pronoun shall be deemed to include the feminine,
and the singular number shall be deemed to include the plural, unless a
different meaning is plainly required by the context.
ARTICLE 3
ELIGIBILITY
3.1 Each Key Employee who receives Compensation as an employee of
Republic shall be eligible to participate in the Plan if selected by the
Committee. The Committee has total discretion to determine who is eligible to
participate on a Plan Year by Plan Year basis.
3.2 Directors, who are not also employees of Republic, are not
eligible to participate in the Plan.
ARTICLE 4
PARTICIPATION
4.1 Subject to Section 4.2, to participate in the Plan and defer
Base Salary and/or Bonus for a particular Plan Year, an Eligible Participant
must make a valid election by executing and filing with the Committee, before
the commencement of such Plan Year, a Deferred Compensation Election Form.
4.2 Notwithstanding Section 4.1, a newly hired Key Employee who
becomes an Eligible Participant after the first day of the Plan Year in which
he/she is hired, may elect to participate in the Plan for such Plan Year with
respect to future Compensation by filing a Deferred Compensation Election Form
within 30 days after his/her initial date of employment.
4.3 A Deferred Compensation Election Form, once executed and filed
with the Committee, cannot be revoked for such current Plan Year's Compensation
elected to be deferred pursuant to such form.
4.4 A Participant will be vested in his/her entire Deferred
Compensation Account balance, including any cumulative interest equivalent
credited to such Account, at all times and will not be subject to forfeiture for
any reason.
4.5 A Participant is not required to defer Compensation for any
subsequent Plan Year by reason of electing to defer Compensation for the current
Plan Year or for elections already made for prior Plan Years. Compensation
payable in future Plan Years can only be deferred by filing a Deferred
Compensation Election Form for the appropriate Plan Year.
4.6 The minimum amount of Compensation which may be deferred by an
Eligible Participant for any Plan Year is $5,000 of Base Salary and $5,000 of
Bonus. The maximum amount of Compensation which may be deferred for any Plan
Year is 100% of an Eligible Participant's Bonus and 90% of his or her Base
Salary for such Plan Year.
<PAGE>
4.7 Subject to the minimum deferral requirement of Section 4.6, if
a Participant elects to defer less than 100% of his or her Base Salary or Bonus
for such Plan Year, such deferral will be limited to even dollar amounts rounded
to the closest $1,000 increment. In situations where the dollar amount of such
particular type of Compensation is not yet fixed or determinable at the time an
election to defer Compensation is made, Participants can elect to defer a stated
percentage of such Compensation in 5% increments. Such percentage selected will,
in turn, be rounded to the closest $1,000 increment when and if such
Compensation amount becomes fixed and determinable.
ARTICLE 5
GENERAL PROVISIONS
5.1 No Participant, Eligible Participant or Beneficiary, shall
have any right to any payment or benefit hereunder except to the extent provided
in the Plan.
5.2 The employment rights of any Participant or other Eligible
Participant shall not be enlarged, guaranteed or affected by reason of the
provisions of the Plan.
5.3 If the Committee determines that any person to whom a payment
is due hereunder is a minor, or is adjudicated incompetent by reason of physical
or mental disability, the Committee shall have the power to cause the payments
becoming due to such person to be made to the legal guardian for the benefit of
the minor or incompetent, without responsibility of Republic or the Committee to
see to the application of such payment, unless prior to such payment claim is
made therefor by a duly appointed legal representative. Payments made pursuant
to such power shall operate as a complete discharge of Republic, the Board of
Directors and the Committee.
5.4 Each Participant may designate any person(s) or legal
entity(ies), including his/her estate, as his/her Beneficiary under the Plan in
writing to the Committee. A Participant may at any time revoke or change his/her
designation of Beneficiary by writing to the Committee. If no person or legal
entity shall be designated by a Participant as his/her Beneficiary, or if no
designated Beneficiary survives him/her, his/her estate shall be his/her
Beneficiary.
5.5 Any election made or notice given by a Participant pursuant to
the Plan shall be in writing to the Committee, or to such representative as may
be designated by the Committee for such purpose. Notice shall be deemed to have
been made or given on the date received by the Committee or its designated
representative.
5.6 The validity of the Plan or any of its provisions shall be
determined under, and it shall be construed and administered according to, the
laws of the State of Michigan.
ARTICLE 6
DEFERRED COMPENSATION ACCOUNTS
6.1 Upon receipt of a Participant's valid Deferred Compensation
Election Form, the Committee shall establish, as a bookkeeping entry only, a
Deferred Compensation Account for the Participant. The Committee shall
thereafter record in each Participant's Deferred Compensation Account for a
particular Plan Year, the amount(s) which he/she elected to defer in accordance
with ARTICLE 4, which would have otherwise been paid to the Participant during
the subsequent Plan Year or Plan Years, as the case may be. Amounts of Base
Salary deferred under the Plan shall be credited to the Deferred Compensation
Accounts of Participants as of the first business day of the month following the
date such amounts would have been paid to the Participants had they not been
deferred. Amounts of Bonuses deferred under the Plan shall be credited to the
Deferred Compensation Accounts of Participants as of the date such amounts would
have been paid to the Participants had they not been deferred.
6.2 The balance in a Participant's Deferred Compensation Account
at any time will be calculated on a daily basis by: (i) aggregating all current
and prior Plan Years' Deferred Compensation elected pursuant to ARTICLE 4; (ii)
adding (subtracting) thereto the cumulative interest equivalent, whether
positive or negative, earned on such Deferred Compensation computed in
accordance with the rules of Sections 6.3; and (iii) from such total obtained,
subtracting the aggregate payments made to the Participant in current and prior
Plan Years in accordance with ARTICLE 8 and ARTICLE 10.
<PAGE>
6.3 Investment Options. A Participant's Deferred Compensation
Account shall be deemed invested in one or more Investment Options selected by
the Participant from a group of alternative investments designated by the
Committee. If more than one Investment Option is selected, the allocation may
not be less than $1,000 to any one Investment Option. The Committee shall
establish a sub-account for each Investment Option selected and such sub-account
shall be credited with earnings, losses and/or expenses of the selected
investment.
6.4 Transferring Deferred Compensation Account Balances. A
Participant's Deferred Compensation Account balance may be transferred among
Investment Options by filing an election with the Committee at least ten days
prior to the end of a calendar quarter or at least ten days prior to other (more
frequent) transfer dates established by the Committee. Any such election shall
be effective on the first business day following the end-of-calendar-quarter or
other transfer date, as the case may be. Any change in Investment Options
elected by a Participant shall apply to the balance of his or her Account at the
time of the election and also to subsequent Compensation deferrals credited to
such Account. The Committee shall have no obligation to "re-balance" any Account
to maintain particular ratios. For example, if a Participant elects to invest
his/her account 50% in Option A and 50% in Option B, then the Account shall be
allocated in that manner as of the effective date described above. Subsequent
Compensation deferrals shall also be allocated 50% to Option A and 50% to Option
B, notwithstanding a different ratio in values of the two sub-accounts at the
time of the subsequent deferral.
6.5 New Investment Options; Committee Discretion Limited. The
Committee may at any time in its sole discretion add an Investment Option or
Options. Further, the Committee may eliminate or modify the terms of an existing
Investment Option on a prospective basis, so long as the dollar value of a
Participant's Plan benefits accrued prior to such modification is not adversely
affected thereby. If the Committee decides to eliminate or materially modify the
terms of an existing Investment Option, it shall promptly notify Participants
regarding the details of such decision. Following receipt of such notice, each
Participant shall have a period of not less than ten business days within which
to elect to convert all or a portion (in dollar or percentage increments as
established by the Committee) of the affected sub-account(s) to any other
Investment Option(s) then offered under the Plan, such election to take effect
as of the effective date of the elimination or material modification.
ARTICLE 7
PARTICIPANTS' RIGHTS UNSECURED
7.1 Amounts credited to Deferred Compensation Accounts shall be
dealt with in all respects as working capital of Republic. Therefore, the right
of a Participant to receive any distribution hereunder shall be an unsecured
claim against the general assets of Republic.
7.2 No assets of Republic shall in any way be held in trust for,
or be subject to, any claim by a Participant or his/her Beneficiary under the
Plan. Further, neither Republic nor the Committee shall have any duty whatsoever
to invest any amounts credited to any Deferred Compensation Accounts established
under the Plan. However, the Company has created a Rabbi Trust to facilitate
payment of the obligations under the Plan, and shall maintain and contribute to
such trust so long it is consistent with the "unfunded" status of the Plan. A
Participant shall have no right, title, or interest whatsoever in or to any
investments which Republic may make (in trust or otherwise) to aid it in meeting
its obligations hereunder.
ARTICLE 8
PAYMENT OF DEFERRED COMPENSATION
8.1 Commencement of Benefits. A Participant's Deferred
Compensation Account balance shall commence to be paid the first business day of
the month following the expiration of 60 days after the Participant's employment
with Republic terminates on account of retirement, disability, death or
termination of employment for any other reason (the "Benefit Commencement
Date").
8.2 Payment Method Election. At the time the first post-1998
Deferred Compensation Election Form is filed pursuant to ARTICLE IV,
Participants must also elect the method of receiving payment of their Deferred
Compensation Account balance. Each Participant shall elect to receive payment of
his/her Deferred Compensation Account either in:
<PAGE>
(i) one lump-sum on the Benefit Commencement Date; or
(ii) annual installments over a specified period (elected in
accordance with Section 8.4), beginning on the Benefit
Commencement Date; provided that the undistributed balance of
the Participant's Deferred Compensation Account shall be
deemed to remain invested in one or more of the Investment
Options available under ARTICLE VI, subject to the
Participant's right to transfer Account balances in accordance
with Section 6.4.
8.3 Subject to the consent of the Committee, a Participant may
file a request to change his/her prior election with respect to payment method
(Section 8.2) and/or payment period (Section 8.4). Such new election must be
filed with the Committee at least 365 days prior to the date on which payment of
benefits would commence under either the original or the revised election. Only
one such request will be approved for any Participant.
8.4 Installment Payout Formula. If a Participant selects payment
option (ii) of Section 8.2, the annual installment amount for a particular
Installment Payment Year will be computed as follows:
$W=($X/[Y - Z])
Where W = Installment amount received by Participant in a
particular Installment Payment Year.
Where X = Participant's Deferred Compensation Account balance at
the end of prior Installment Payment Year (or on the
Participant's Benefit Commencement Date in the case of
the first installment payment).
Where Y = Number of years originally elected by Participant
for the payment period.
Where Z = Number of Installment Payment Years in the elected
payment period already elapsed.
For purposes of this Section 8.3 "Installment Payment Year" means the period
commencing on the Participant's Benefit Commencement Date and ending on June
30th of the calendar year following the calendar year in which the Benefit
Commencement Date falls, the 12-month period commencing on such June 30th and on
each subsequent June 30th during the payment period elected under Section 8.4.
8.5 Payment Period Election. At the time an Eligible Participant
elects on the Deferred Compensation Election Form to be a Participant for any
Plan Year, he/she shall concurrently elect the number of years, up to a maximum
of fifteen (15), over which his/her Deferred Compensation Account shall be paid
out to him from the Plan commencing on the Benefit Commencement Date following
the termination of his/her employment with Republic.
8.6 Automatic Payment Method and Payment Period Override.
Notwithstanding the Participant's Payment Method Election and Payment Period
Election made pursuant to Sections 8.2 and 8.4, respectively, in the case of
Termination for Cause described in Section 8.7 or Death of Participant (ARTICLE
10), such Payment Method Election and Payment Period Election will be
automatically changed to the lump-sum option contained in Section 8.2(i).
8.7 Payment in Cash. All Deferred Compensation Account balances
will be paid solely in cash.
8.8 Termination for Cause. Termination for cause shall include
gross negligence, willful misconduct or fraud against the Company or any of its
subsidiaries, as determined by the Committee.
8.9 Hardship Withdrawal. Upon application of any Participant and
approval thereof by the Committee, the Participant may withdraw, by reason of
hardship, part or all of his/her Deferred Compensation Account balance.
"Hardship" shall mean 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 members of
his/her family, or any other significant financial emergency, as determined by
the Committee in its sole discretion.
<PAGE>
ARTICLE 9
VALUATION DATE
9.1 As of each Valuation Date, the Deferred Compensation Account
of each Participant shall be valued by the Committee. The current value, and the
change in value from the prior valuation (whether positive or negative), shall
be communicated in writing to each Participant within forty-five (45) days after
such Valuation Date.
9.2 Valuation Date shall, at a minimum, be four (4) times during a
Plan Year as of the last business day of each of the quarterly periods ending on
March 31, June 30, September 30 and December 31.
ARTICLE 10
DEATH OF PARTICIPANT
10.1 Notwithstanding the Payment Method Election and Payment Period
Election made under Sections 8.2 and 8.4, respectively, if a Participant had a
Deferred Compensation Account balance at the time of his/her death, his/her
estate or Beneficiary shall be paid such balance in one lump-sum on the first
business day of the month following the expiration of 60 days after the date of
the Participant's death.
ARTICLE 11
ALIENATION
11.1 Other than as provided in ARTICLE 10, anticipation,
alienation, sale, transfer, assignment, pledge, levy, garnishment or other
encumbrance of any payments from or benefits held under the Plan shall not be
permitted or recognized, and to the extent permitted by law, no such payments or
benefits shall be subject to legal process or attachment for the payment of any
claim of any person entitled to receive the same.
ARTICLE 12
TAX WITHHOLDING
12.1 Subject to Sections 12.2 and 12.3, Republic, or its authorized
payroll master agent (if any), shall deduct from all payments under the Plan
each Participant's share of any taxes required to be withheld by any Federal,
state or local government. The Participants and their Beneficiaries,
distributees and personal representatives will bear any and all Federal,
foreign, state, local income taxes or any other taxes imposed on Participants on
amounts under this Plan.
12.2 FICA Taxes. Pursuant to Code Section 3121(v), Compensation
deferred pursuant to the Plan is subject to FICA taxes at the time of deferral
rather than at the time of distribution to the Participant. Accordingly, at the
time of deferral, each Participant will be required to pay to Republic, either
by payroll deduction or check, his/her share of FICA taxes due and payable;
unless the Participant has already reached the maximum compensation levels, if
any, subject to FICA at the time Compensation is deferred hereunder.
12.3 Taxes Due at Deferral Date Other than FICA Taxes. If any of
the taxes referred to in Section 12.1 are due at the time of deferral, instead
of at the time of payout, each Participant will be required to pay to Republic,
by payroll deduction or check, the Participant's share of any such taxes due and
payable.
ARTICLE 13
PARTICIPANT CONSENT
13.1 By electing to defer compensation pursuant to the Plan,
Participants shall be deemed conclusively to have accepted and consented to all
terms of the Plan and all actions or decisions made by the Company, the Board of
Directors or the Committee with regard to the Plan. Such terms and consent shall
also apply to, and be binding upon, the Beneficiaries, distributees and personal
representatives and other successors in interest of each Participant.
<PAGE>
ARTICLE 14
SEVERABILITY
14.1 In the event any provision of the Plan would serve to
invalidate the Plan, that provision shall be deemed to be null and void, and the
Plan shall be construed as if it did not contain the particular provision that
would make it invalid.
ARTICLE 15
AMENDMENT AND TERMINATION
15.1 Subject to all other provisions of the Plan, the Board of
Directors (not the Committee), may at any time terminate the Plan.
15.2 Subject to all other provisions of the Plan, the Board of
Directors may at any time modify or amend any or all of the provisions of the
Plan.
15.3 [Deleted].
15.4 Notwithstanding Sections 15.1 and 15.2, the Board of Directors
will not make amendments or terminate the Plan if such amendments or termination
would reduce a Participant's balance in his/her Deferred Compensation Account.
15.5 In the event the Board of Directors terminates the Plan, the
Committee shall give written notice to each Participant that his/her Deferred
Compensation Account balance will be distributed in the manner initially elected
by each Participant pursuant to ARTICLE 8, or in the discretion of the Board of
Directors that each Participant's Deferred Compensation Account balance will be
distributed in a lump sum.
ARTICLE 16
CLAIMS AND DISPUTES; ARBITRATION
16.1 Claims for benefits under the Plan shall be made in writing to
the Committee. The Participant (or Beneficiary) may furnish the Committee with
any written material he/she believes necessary to perfect his/her claim.
16.2 A person whose claim for benefits under the Plan has been
denied, or his/her duly authorized representative, may request a review upon
written application to the Committee, may review pertinent documents, and may
submit issues and comments in writing. The claimant's written request for review
must be submitted to the Committee within sixty (60) days after receipt by the
claimant of written notification of the denial of a claim. A decision by the
Committee shall be made promptly, and not later than sixty (60) days after the
Committee's receipt of a request for review, unless special circumstances
require an extension of time for proceeding, in which cases a decision shall be
rendered as soon as possible, but not later than one hundred twenty (120) days
after receipt of the request for review. The decision on review shall be in
writing, shall include reasons for the decision, may include specific reference
to the pertinent provision of the Plan on which the decision is based, and shall
be written in a manner calculated to be understood by the claimant.
16.3 Unless otherwise required by law, any controversy or claim
arising out of or relating to the Plan or the breach thereof, including in
particular any controversy relating to ARTICLES 8 or 10, shall be settled by
binding arbitration in the City of Owosso in accordance with the laws of the
State of Michigan by three arbitrators, one of whom shall be appointed by
Republic, one by the Participant (or in the event of his/her prior death,
his/her beneficiary-(ies)), and the third of whom shall be appointed by the
first two arbitrators. If the selected (third) arbitrator declines or is unable
to serve for any reason, the appointed arbitrators shall select another
arbitrator. Upon their failure to agree on another arbitrator, the jurisdiction
of the Circuit Court of Shiawassee County, Michigan shall be invoked to make
such selection. The arbitration shall be conducted in accordance with the
commercial arbitration rules of the American Arbitration Association except as
hereinabove provided in 16.4 below. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. Review by
the arbitrators of any decision, action or interpretation of the Board of
Directors or Committee shall be limited to a determination of whether it was
arbitrary and capricious or constituted an abuse of discretion, within the
guidelines of Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). In the
event the Participant or his/her Beneficiary shall retain legal counsel and/or
incur other costs
<PAGE>
and expenses in connection with enforcement of any of the Participant's rights
under the Plan, the Participant or Beneficiary shall not be entitled to recover
from Republic any attorneys fees, costs or expenses in connection with the
enforcement of such rights (including enforcement of any arbitration award in
court) regardless of the final outcome; except that the arbitrators in their
discretion may award reasonable attorneys fees and reasonable costs to the
Participant in an arbitration initiated by the Participant following a Change in
Control, to enforce the Participant's rights under the Plan, provided the
Participant is the prevailing party in such arbitration.
16.4 Any arbitration shall be conducted as follows:
(i) The arbitrators shall follow the Commercial arbitration Rules of
the American Arbitration Association, except as otherwise
provided herein. The arbitrators shall substantially comply with
the rules of evidence; shall grant essential but limited
discovery; shall provide for the exchange of witness lists and
exhibit copies; and shall conduct a pretrial and consider
dispositive motions. Each party shall have the right to request
the arbitrators to make findings of specific factual issues.
(ii) The arbitrators shall complete their proceedings and render
their decision within 40 days after submission of the dispute to
them, unless both parties agree to an extension. Each party
shall cooperate with the arbitrators to comply with procedural
time requirements and the failure of either to do so shall
entitle the arbitrators to extend the arbitration proceedings
accordingly and to impose sanctions on the party responsible for
the delay, payable to the other party. In the event the
arbitrators do not fulfill their responsibilities on a timely
basis, either party shall have the right to require a
replacement and the appointment of new arbitrators.
(iii) The decision of the arbitrator shall be final and binding upon
the parties and accordingly a judgment by any Circuit Court of
the State of Michigan or any other court of competent
jurisdiction may be entered in accordance therewith.
(iv) Subject to the provisions of Section 16.3 relating to reasonable
attorneys fees and costs in an arbitration following a Change in
Control, the costs of the arbitration shall be borne equally by
the parties to such arbitration, except that each party shall
bear its own legal and accounting expenses relating to its
participation in the arbitration.
16.5 Change of Control. For purposes of ARTICLE 16 of the Plan, a
"Change of Control" shall occur if:
(i) any person or group (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act), other than the Company
or the existing management group of the Company becomes the
beneficial owner (within the meaning of Rule 13d-3 under the
Securities Exchange Act) of twenty-five percent (25%) or more of
the Company's then outstanding voting securities;
(ii) As defined in Section 16.6, the "Incumbent Board of Directors",
cease to constitute a majority of the Board of Directors of the
Company; or
(iii) the business of the Company for which the Participant's services
are principally performed is disposed of by the Company pursuant
to a sale or other disposition of all or substantially all of
the business or business related assets of the Company
(including stock of a subsidiary of the Company).
16.6 Incumbent Board of Directors. Incumbent Board of Directors shall
mean those individuals who, as of December 16, 1993, constituted the Board of
Directors or, alternatively, those members elected or nominated after December
16, 1993, who were approved for such election or nomination by a vote of at
least a majority of the directors then comprising the Incumbent Board of
Directors. Further, individuals shall be excluded whose initial assumption of
office is or was in connection with an actual or threatened election contest
relating to the election of the Directors of the Company (as used in rule 14a-11
under the Securities Exchange Act).
<PAGE>
16.7 Every asserted claim to benefits or right of action by or on
behalf of any Participant or Eligible Participant, past, present, or future, or
any spouse, child, beneficiary or legal representative thereof, against
Republic, the Board or the Committee arising out of or in connection with the
Plan shall, irrespective of the place where such right of action may arise or be
asserted, cease and be barred by the expiration of the earliest of: (i) one year
from the date of the alleged act or omission in respect of which such right of
action first arises in whole or in part, (ii) one year after the Participant's
or Eligible Participant's termination of employment, or (iii) six months after
notice is given to or on behalf of the Participant or Eligible Participant of
the amount payable from the Participant's Deferred Compensation Account under
the Plan.
ARTICLE 17
PLAN ADMINISTRATION
17.1 The responsibility for the general administration of the Plan
and the responsibility for carrying out its provisions shall be placed with the
Committee.
17.2 Subject to the limitations of the Plan or the express powers
reserved solely for the Board of Directors, the Committee shall from time to
time establish rules for the administration and interpretation of the Plan and
the transaction of its business. The determination of the Committee shall be
conclusive concerning the content, import or meaning of any and all terms in the
Plan.
17.3 Any act which the Plan authorizes or requires the Committee to
do may be done by a majority (expressed from time to time by a vote at a meeting
or, in lieu thereof, a written consent) and shall constitute the action of the
Committee, and shall have the same effect for all purposes as if assented to by
all members of the Committee.
17.4 The Committee may employ or retain agents to perform such
clerical, accounting, and other services as they may require in carrying out the
provisions of the Plan.
17.5 The members of the Committee may authorize one or more of their
members to execute or deliver any instrument, make any payment, or perform any
other act which the Plan authorizes or requires the Committee to do.
17.6 Any and all such costs in administering the Plan will be
incurred and paid by Republic.
<PAGE>
REPUBLIC BANCORP INC.
FIRST AMENDMENT TO DEFERRED COMPENSATION PLAN
(Adopted July 16, 1999)
As authorized in Article XV of the REPUBLIC BANCORP INC. DEFERRED
COMPENSATION PLAN ("Plan"), Republic Bancorp Inc. ("Company") amends the Plan
effective June 17, 1999, as described below:
1. SECTION 2.5 OF THE PLAN IS AMENDED TO READ:
2.5 "Committee" means the Personnel, Compensation and
Nominating Committee of the Board of Directors.
2. SECTION 2.17 OF THE PLAN IS RENUMBERED AND AMENDED TO READ:
2.18 "Valuation Date" means the last business day of each
calendar quarter.
3. SECTION 2.18 OF THE PLAN IS RENUMBERED AND AMENDED TO READ:
2.17 "Republic" means Republic Bancorp Inc., its majority
or wholly owned subsidiaries, Republic Bank, a Michigan corporation,
Republic Bancorp Mortgage Inc., a Michigan corporation, Market Street
Mortgage Corporation, a Michigan corporation, CUB Funding Corporation,
a California corporation, and all additional majority or wholly owned
subsidiaries designated by the Committee or the Board of Directors.
4. SECTIONS 4.1 AND 4.2 OF THE PLAN ARE AMENDED TO READ:
4.1 Subject to Section 4.2, to participate in the Plan and
defer Base Salary and/or Bonus for a particular Plan Year, an Eligible
Participant must make a valid election by executing and filing with the
Committee, before the commencement of such Plan Year, a Deferred
Compensation Election Form.
4.2 Notwithstanding Section 4.1, a newly hired Key
Employee who becomes an Eligible Participant after the first day of the
Plan Year in which he is hired, may elect to participate in the Plan
for such Plan Year with respect to future Compensation by filing a
Deferred Compensation Election Form within 30 days after his/her
initial date of employment.
5. SECTIONS 6.3 THROUGH 6.8 OF THE PLAN ARE REPLACED BY SECTIONS 6.3
THROUGH 6.5, WHICH SHALL READ:
6.3 Investment Options. A Participant's Deferred
Compensation Account shall be deemed invested in one or more Investment
Options selected by the Participant from a group of alternative
investments designated by the Committee. If more than one Investment
Option is selected, the allocation may not be less than $1,000 to any
one Investment Option. The Committee shall establish a sub-account for
each Investment Option selected and such sub-account shall be credited
with earnings, losses and/or expenses of the selected investment.
6.4 Transferring Deferred Compensation Account Balances. A
Participant's Deferred Compensation Account balance may be transferred
among Investment Options by filing an election with the Committee at
least ten days prior to the end of a calendar quarter or at least ten
days prior to other (more frequent) transfer dates established by the
Committee. Any such election shall be effective on the first business
day following the end-of-calendar-quarter or other transfer date, as
the case may be. Any change in Investment Options elected by a
Participant shall apply to the balance of his or her Account at the
time of the election and also to subsequent Compensation deferrals
credited to such Account. The Committee shall have no obligation to
"re-balance" any Account to maintain particular ratios. For example, if
a Participant elects to invest his/her account 50% in Option A and 50%
in Option B, then the Account shall be allocated in that manner as of
the effective date described above.
<PAGE>
Subsequent Compensation deferrals shall also be allocated 50% to Option
A and 50% to Option B, notwithstanding a different ratio in values of
the two sub-accounts at the time of the subsequent deferral.
6.5 New Investment Options; Committee Discretion Limited.
The Committee may at any time in its sole discretion add an Investment
Option or Options. Further, the Committee may eliminate or modify the
terms of an existing Investment Option on a prospective basis, so long
as the dollar value of a Participant's Plan benefits accrued prior to
such modification is not adversely affected thereby. If the Committee
decides to eliminate or materially modify the terms of an existing
Investment Option, it shall promptly notify Participants regarding the
details of such decision. Following receipt of such notice, each
Participant shall have a period of not less than ten business days
within which to elect to convert all or a portion (in dollar or
percentage increments as established by the Committee) of the affected
sub-account(s) to any other Investment Option(s) then offered under the
Plan, such election to take effect as of the effective date of the
elimination or material modification.
6. SECTION 7.2 OF THE PLAN IS AMENDED TO READ:
7.2 No assets of Republic shall in any way be held in
trust for, or be subject to, any claim by a Participant or his/her
Beneficiary under the Plan. Further, neither Republic nor the Committee
shall have any duty whatsoever to invest any amounts credited to any
Deferred Compensation Accounts established under the Plan. However, the
Company has created a Rabbi Trust to facilitate payment of the
obligations under the Plan, and shall maintain and contribute to such
trust so long it is consistent with the "unfunded" status of the Plan.
A Participant shall have no right, title, or interest whatsoever in or
to any investments which Republic may make (in trust or otherwise) to
aid it in meeting its obligations hereunder.
7. SECTIONS 8.2 AND 8.3 OF THE PLAN ARE AMENDED TO READ:
8.2 Payment Method Election. At the time the first
post-1998 Deferred Compensation Election Form is filed pursuant to
ARTICLE IV, Participants must also elect the method of receiving
payment of their Deferred Compensation Account balance. Each
Participant shall elect to receive payment of his/her Deferred
Compensation Account either in:
(i) one lump-sum on the Benefit Commencement Date; or
(ii) annual installments over a specified period
(elected in accordance with Section 8.4), beginning on the
Benefit Commencement Date; provided that the undistributed
balance of the Participant's Deferred Compensation Account
shall be deemed to remain invested in one or more of the
Investment Options available under Article VI, subject to the
Participant's right to transfer Account balances in accordance
with Section 6.4.
8.3 Subject to the consent of the Committee, a Participant
may file a request to change his/her prior election with respect to
payment method (Section 8.2) and/or payment period (Section 8.4). Such
new election must be filed with the Committee at least 365 days prior
to the date on which payment of benefits would commence under either
the original or the revised election. Only one such request will be
approved for any Participant.
8. ARTICLE XV OF THE PLAN IS AMENDED TO READ:
15.1 Subject to all other provisions of the Plan, the Board
of Directors (not the Committee), may at any time terminate the Plan.
15.2 Subject to all other provisions of the Plan, the Board
of Directors may at any time modify or amend any or all of the
provisions of the Plan.
15.3 [Deleted].
<PAGE>
15.4 Notwithstanding Sections 15.1 and 15.2, the Board of
Directors will not make amendments or terminate the Plan if such
amendments or termination would reduce a Participant's balance in
his/her Deferred Compensation Account.
15.5 In the event the Board of Directors terminates the
Plan, the Committee shall give written notice to each Participant that
his/her Deferred Compensation Account balance will be distributed in
the manner initially elected by each Participant pursuant to ARTICLE 8,
or in the discretion of the Board of Directors that each Participant's
Deferred Compensation Account balance will be distributed in a lump
sum.
9. EXCEPT AS AMENDED ABOVE, THE PLAN CONTINUES IN FULL FORCE AND EFFECT.
The foregoing Amendment was approved by the Company's Board of Directors on July
16, 1999.
ATTEST:
/s/ Debra A. Hanses
-------------------------------
Senior Vice President
<PAGE>
EXHIBIT 21
LIST OF SUBIDIARIES OF
REPUBLIC BANCORP INC.
<TABLE>
<CAPTION>
Percentage State of
of Incorporation
Parent Subsidiary Ownership or Organization
- ------ ---------- ---------- ---------------
<S> <C> <C> <C>
Republic Bancorp Inc. Republic Bank 100% Michigan
Republic Bancorp Inc. D&N Bank 100% Delaware
Republic Bank Republic Banc Mortgage Corporation 100% Michigan
Republic Bank Market Street Mortgage Corporation 80% Michigan
Republic Bank CAS Properties, Inc. 100% Ohio
D&N Bank D&N Capital Corporation 100% Delaware
D&N Bank Quincy Investment Services, Inc.,
A Licensed Insurance Agency 100% Delaware
</TABLE>
<PAGE>
EXHIBIT 23(a)
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); (5) the Registration Statement (Form S-8 No. 333-26515)
pertaining to the Republic Bancorp Inc. 1997 Stock Option Plan; (6) the
Registration Statement (Form S-8 No. 333-83267) pertaining to the D&N Financial
Corporation 1984 Stock Option and Incentive Plan; and (7) the Registration
Statement (Form S-8 No. 333-83265) pertaining to the D&N Financial Corporation
1994 Management Stock Incentive Plan in the related Prospectuses of our report
dated January 14, 2000, 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, 1999.
/s/ Ernst & Young LLP
Detroit, Michigan
March 22, 2000
<PAGE>
EXHIBIT 23(b)
Consent of Independent Auditors
We hereby 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); (5) the Registration Statement (Form S-8 No. 333-26515)
pertaining to the Republic Bancorp Inc. 1997 Stock Option Plan; (6) the
Registration Statement (Form S-8 No. 333-83267) pertaining to the D&N Financial
Corporation 1984 Stock Option and Incentive Plan; and (7) the Registration
Statement (Form S-8 No. 333-83265) pertaining to the D&N Financial Corporation
1994 Management Stock Incentive Plan in the related Prospectuses of our report
dated January 21, 1999, with respect to the report on the consolidated financial
statements of D&N Financial Corporation as of December 31, 1998, and for each of
the two years in the period then ended, which report is included in the annual
report (Form 10-K) of Republic Bancorp Inc. for the year ended December 31,
1999.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
March 22, 2000
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Jerry D. Campbell
------------------------------
Jerry D. Campbell
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Joseph C. Bromley
----------------------------
Joseph C. Bromley
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ George J. Butvilas
------------------------------
George J. Butvilas
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Mary P. Cauley
------------------------------
Mary P. Cauley
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Dana M. Cluckey
------------------------------
Dana M. Cluckey
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Steven Coleman
------------------------------
Steven Coleman
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Bruce L. Cook
------------------------------
Bruce L. Cook
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Richard J. Cramer Sr.
------------------------------
Richard J. Cramer Sr.
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ George A. Eastman
------------------------------
George A. Eastman
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Howard J. Hulsman
------------------------------
Howard J. Hulsman
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Gary Hurand
------------------------------
Gary Hurand
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Dennis J. Ibold
------------------------------
Dennis J. Ibold
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Stanley A. Jacobson
------------------------------
Stanley A. Jacobson
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ John J. Lennon
------------------------------
John J. Lennon
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Sam H. McGoun
------------------------------
Sam H. McGoun
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Kelly E. Miller
------------------------------
Kelly E. Miller
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Joe D. Pentecost
------------------------------
Joe D. Pentecost
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Randolph P. Piper
------------------------------
Randolph P. Piper
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Isaac J. Powell
------------------------------
Isaac J. Powell
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Kenneth D. Seaton
------------------------------
Kenneth D. Seaton
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ B. Thomas M. Smith Jr.
------------------------------
B. Thomas M. Smith Jr.
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ George B. Smith
------------------------------
George B. Smith
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Jeoffrey K. Stross
------------------------------
Jeoffrey K. Stross
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Peter Van Pelt
------------------------------
Peter Van Pelt
<PAGE>
POWER OF ATTORNEY
TO EXECUTE SECURITIES AND EXCHANGE COMMISSION
FORM 10-K ANNUAL REPORT
FOR YEAR ENDED DECEMBER 31, 1999
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 Executive Officer, and Thomas F. Menacher,
Executive Vice President, Treasurer 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 10-K 1999 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 1999 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 17th day of February, 2000.
/s/ Steven E. Zack
------------------------------
Steven E. Zack
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REPUBLIC
BANCORP INC.'S CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31,1999 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 1999 ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 74,423
<INT-BEARING-DEPOSITS> 9,338
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 206,459
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,373,425
<ALLOWANCE> 27,128
<TOTAL-ASSETS> 4,301,615
<DEPOSITS> 2,613,050
<SHORT-TERM> 814,243
<LIABILITIES-OTHER> 115,356
<LONG-TERM> 47,500
0
0
<COMMON> 226,429
<OTHER-SE> 40,012
<TOTAL-LIABILITIES-AND-EQUITY> 4,301,615
<INTEREST-LOAN> 268,552
<INTEREST-INVEST> 31,110
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 299,662
<INTEREST-DEPOSIT> 106,573
<INTEREST-EXPENSE> 171,396
<INTEREST-INCOME-NET> 128,266
<LOAN-LOSSES> 11,650
<SECURITIES-GAINS> (7,345)
<EXPENSE-OTHER> 225,968
<INCOME-PRETAX> 28,379
<INCOME-PRE-EXTRAORDINARY> 28,379
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,911
<EPS-BASIC> .33
<EPS-DILUTED> .33
<YIELD-ACTUAL> 3.29
<LOANS-NON> 17,519
<LOANS-PAST> 100
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,651
<ALLOWANCE-OPEN> 21,446
<CHARGE-OFFS> 7,400
<RECOVERIES> 1,432
<ALLOWANCE-CLOSE> 27,128
<ALLOWANCE-DOMESTIC> 27,128
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 8,063
</TABLE>
<PAGE>
EXHIBIT 99
Report of Independent Accountants
To the Board of Directors and Stockholders
of D&N Financial Corporation:
In our opinion, the consolidated statement of condition as of December 31, 1998
and the related consolidated statements of operations, stockholders' equity, and
of cash flows for each of the two years in the period ended December 31, 1998 of
D&N Financial Corporation and its subsidiaries (not presented separately herein)
present fairly, in all material respects, the financial position, results of
operations and cash flows of D&N Financial Corporation and its subsidiaries at
December 31, 1998 and for each of the two years in the period ended December 31,
1998, in conformity with accounting principles generally accepted in the United
States. 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 audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of D&N Financial Corporation for
any period subsequent to December 31, 1998.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
January 21, 1999
