Exhibit 13
TABLE OF CONTENTS
Financial Highlights 3
Letter to Shareholders 4
Five Year Summary of Selected Financial Data 6
Management's Discussion and Analysis 7
Consolidated Financial Statements 21
Notes to Consolidated Financial Statements 26
Report of Management 44
Independent Auditors' Report 45
Summary of Common Share and Quarterly Data 46
Republic Affiliates 47
Republic Bancorp Inc. Board of Directors and Officers 56
Corporate Information 57
COMPANY PROFILE
Republic Bancorp Inc. is a bank holding company established in 1986 which
currently operates 86 banking and mortgage banking offices in 19 states. The
Company owns Republic Bank based in Ann Arbor, Michigan, with 25 offices in
Michigan, and Republic Savings Bank with 11 offices primarily in the greater
Cleveland, Ohio area. The Company's two banking entities engage in the
business of commercial banking and exercise the powers of a full-service
commercial bank and savings bank, respectively, with the exception of trust
services.
To complement its retail banking activities, the Company maintains a
nationwide mortgage banking presence with Republic Bancorp Mortgage Inc.,
located in Farmington Hills, Michigan, which operates its retail and wholesale
mortgage operations in 19 offices located in 6 states; Market Street Mortgage
Corporation, a retail mortgage company based in Clearwater, Florida with 24
locations in 9 states; and CUB Funding Corporation, a retail and wholesale
mortgage company, headquartered in Calabasas, California with 7 offices in 3
states. During 1994 the Company originated or purchased $2.8 billion in
residential mortgage loans. The Company also performs servicing of mortgage
loans, which includes the processing and administration of mortgage loan
payments. At December 31, 1994, the mortgage loan servicing portfolio was
$4.7 billion.
Financial Highlights
%
(Dollars in thousands, except per share data) 1994 1993 Change
NET INCOME $15,719 $23,183 (32)%
PER COMMON SHARE DATA:
Income before cumulative effect of change
in accounting principle 1.00 1.45 (31)
Cumulative effect of change in accounting principle - .06 -
Net income - primary 1.00 1.51 (34)
Net income - fully diluted 1.00 1.50 (33)
Cash dividends declared .32 .23 39
Book value per common share outstanding 7.73 7.37 5
Average shares outstanding (000s) - fully diluted 15,751 15,437 2
OPERATING DATA (IN MILLIONS):
Residential mortgage loan closings $2,837 $4,911 (42)%
Mortgage loan servicing portfolio 4,669 3,023 54
YEAR-END BALANCES:
Total assets $1,363,614 $1,170,594 16%
Portfolio loans, net 599,545 399,903 50
Total deposits 818,742 833,734 (2)
Shareholders' equity 117,914 111,433 6
FINANCIAL RATIOS:
Return on average assets 1.23% 1.94% (37)%
Return on average equity 13.43 23.72 (43)
Total shareholders' equity to assets 8.65 9.52 (9)
Total risk-based capital 21.05 20.19 4
ASSET QUALITY RATIOS:
Non-performing assets to loans and other
real estate owned .54% .58% (7)%
Non-performing assets to total assets .30 .45 (33)
3
Letter to Shareholders
RESULTS
We are pleased to report your Company earned net income of $15.7 million in
1994. While 1994 earnings were below our banner year of 1993 in which the
Company earned $23.2 million, they are very respectable in relationship to
both our peer group and the volatile interest rate environment in 1994. Our
return on average assets was 1.23% for 1994, compared with national peer of
1.11%, and our return on average equity was 13.43%, compared with peer of
12.77%. Included in net income for 1993 was $950,000 in earnings for the
Company's change in accounting for income taxes, or $.06 per share. Fully
diluted earnings per share was $1.00 for the year ended December 31, 1994
compared to $1.45 in 1993, excluding the earnings for the Company's change in
accounting for income taxes. All earnings per share amounts presented are
restated to reflect the 10% stock dividend issued December 2, 1994.
Mortgage loan closings were $2.8 billion for the year ending December 31,
1994, a decrease of 42% from the $4.9 billion closed during 1993. While the
dramatic increase in interest rates throughout the year substantially reduced
the volume of refinance mortgages, the Company's origination of home purchase
mortgages actually increased by 28% during 1994 through our nationwide
mortgage network.
STRENGTH OF ASSET QUALITY AND CAPITAL
The Company's total assets increased to $1.36 billion at December 31, 1994,
compared to $1.17 billion reported at December 31, 1993. Republic's asset
quality ratios continue to be among the best in the country. Net charge-offs
in 1994 were only .20% of average total loans and non-performing assets were
only .30% of total assets at December 31, 1994. These ratios reflect the
Company's emphasis on conservative lending policies. At December 31, 1994,
approximately 90% of the Company's loan portfolio consisted of residential
mortgages and commercial loans secured by real estate.
The Company also continues to enjoy very strong capital levels with total
shareholders' equity increasing to $118 million at December 31, 1994 from $111
million at December 31, 1993. The Company's capital ratios are more than
double the regulatory requirements of a well-capitalized financial
institution, with a Total Risk-Based capital ratio of 21.05% at December 31,
1994.
1994 OVERVIEW
The year ending December 31, 1994 was a year of significant change in our
industry. The dramatic increase in both short-term and long-term interest
rates during the year caused a reduction in mortgage loan volume, a fall-off
of the refinance business, overcapacity in the mortgage market and very
competitive pricing. In this challenging environment, the Company still
closed $2.84 billion in mortgages during 1994. Other than for the refinance
boom of 1993, our mortgage loan closings in 1994 represent the highest volume
ever at the Company.
The Company also did very well in Small Business Administration (SBA)
lending in 1994. Based on number of loans closed, Republic Bank was the Number
One SBA originator in the state of Michigan. As a Company, we closed over $12
million in SBA loans during the year.
While 1994 also saw a reduction in the price of the Company's stock, the
Company's five year average return on stock of 31% continues to exceed that
of the NASDAQ Stock Market composite for all U.S. companies of 20% and the
NASDAQ bank stocks of 15%.
4
During 1994, the Company also took the following steps to better position
itself for 1995 and beyond:
Republic acquired Home Funding with seven mortgage origination offices in
the states of New York, Connecticut, Massachusetts and Maryland.
Additionally, we expanded into the Southwest market in Phoenix, and into
the Northwest in Portland and Seattle. Also, in December, 1994 we sold
our bank branch offices in the Traverse City, Michigan region and
redeployed those assets through an acquisition of deposits in the Flint,
Owosso and Flushing, Michigan markets. This expansion has been coupled
with a review of the staffing levels and profitability of all of our
offices.
During the fourth quarter, the Company sold approximately $47 million of
lower yielding, adjustable rate securities. The proceeds from the
securities sale were redeployed into higher yielding adjustable rate
residential mortgage loans which will improve our future interest income.
The Company significantly increased its mortgage loan servicing portfolio
to $4.7 billion, an increase of more than 50% since 1993. This servicing
has value in that it may either be sold or retained and recognized as an
income stream over an extended period. Our mortgage loan servicing
portfolio also acts as a natural hedge against rising interest rates, in
that its value increases as mortgage loan interest rates increase. As of
December 31, 1994, we estimate the market value of this servicing
portfolio exceeds its book value by more than $10 million.
DIRECTORS
John F. Northway retired from the Board of Directors in January 1995 and
became a director-emeritus. We would like to acknowledge his many significant
contributions and counsel to the Company over the last nine years.
Additionally, Lyman H. (Tim) Treadway has chosen to retire from the Board
effective with the 1995 annual meeting. We would like to express our sincere
appreciation for his efforts and guidance.
OUTLOOK
In February 1995, your Board of Directors approved a 12.5% increase in the
quarterly dividend to $.09 per share, as a result of the Company's strong
capital position and positive outlook for 1995. This is the third increase
in Republic's regular quarterly dividend in the last three years and
represents a cumulative increase of 140% over this period. Additionally, the
Company has acquired approximately 250,000 shares under the previously
announced stock repurchase program.
We believe the actions we have taken and those we continue to implement
will create additional opportunities in our fundamental business. Republic is
a geographically diversified organization with 86 offices in 19 states, and
our emphasis remains on our strengths of mortgage banking, SBA lending and
personal banking. With the talent of Republic employees and a clear vision of
our goals and objectives, we will continue to create value for our
shareholders.
The directors, officers and staff look forward to 1995 and want to thank
you for your continued support.
Sincerely,
/s/ Jerry D. Campbell
-----------------------
Jerry D. Campbell
Chairman and President
5
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
The selected consolidated financial information for the Company and its
subsidiaries presented below for each of the five years in the period ended
December 31, 1994 has been derived from the Consolidated Financial Statements
of the Company and the related notes to the Consolidated Financial Statements.
Year Ended December 31,
1994 1993 1992 1991 1990
STATEMENTS OF INCOME INFORMATION (Dollars in thousands):
Total interest income $78,219 $78,831 $74,068 $70,886 $71,106
Total interest expense 44,999 42,268 40,339 43,990 48,015
Net interest income before provision for loan losses 33,220 36,563 33,729 26,896 23,091
Provision for loan losses 94 603 3,967 2,135 1,151
Mortgage banking income 69,899 85,128 30,697 8,985 5,652
Other non-interest income 5,762 6,992 6,113 4,482 1,578
Non-interest expense 85,021 93,539 47,811 29,325 25,246
Provision for income taxes 8,047 12,308 7,339 3,342 1,497
------ ------ ------ ----- -----
Net income before cumulative effect of
change in accounting principle 15,719 22,233 11,422 5,561 2,427
Cumulative effect of change in accounting principle - (950) - - -
------- ------- ------- ------- -------
Net income $15,719 $23,183 $11,422 $ 5,561 $ 2,427
======= ======= ======= ======= =======
PER COMMON SHARE DATA:
Net income (primary) (1) $1.00 $1.51 $.83 $.45 $.17
Net income (fully diluted) (1) 1.00 1.50 .80 .44 .17
Cash dividends declared .32 .23 .20 - -
Dividend payout ratio 32% 15% 25% - -
Book value per common share outstanding (1) $7.73 $7.37 $5.93 $5.30 $5.18
OPERATING DATA (Dollars in millions):
Residential mortgage loan closings $2,837 $ 4,911 $ 2,078 $ 528 $ 267
Mortgage loan servicing rights sold 4,508 2,301 1,213 201 103
Mortgage loan servicing portfolio 4,669 3,023 2,049 284 150
YEAR-END BALANCES (Dollars in millions):
Total assets $1,364 $1,171 $1,126 $838 $743
Total earning assets 1,224 1,078 1,041 801 703
Net loans 600 400 519 459 466
Total deposits 819 834 898 686 630
Long-term debt 56 20 5 7 9
Shareholders' equity 118 111 84 65 59
PERFORMANCE RATIOS:
Return on average assets 1.23% 1.94% 1.20% .71% .33%
Return on average common equity 13.43 23.72 15.05 8.91 3.60
Net interest margin 2.88 3.29 3.70 3.62 3.30
ASSET QUALITY RATIOS:
Non-performing assets to loans and other real estate owned (2) .54% .58% 1.01% 1.68% 1.78%
Non-performing assets to total assets .30 .45 .69 1.07 1.16
Allowance for estimated loan losses to non-performing loans 158.61 148.34 163.73 78.41 54.37
Allowance for estimated loan losses to loans .92 1.77 1.46 1.16 .94
Net charge-offs to average loans outstanding (2) .20 .06 .26 .23 .12
CAPITAL RATIOS:
Total shareholders' equity to assets 8.65% 9.52% 7.48% 7.74% 7.96%
Tier 1 risk-based capital 17.57 16.35 12.97 13.07 12.99
Total risk-based capital 21.05 20.19 14.23 14.54 14.37
Tier 1 leverage 8.43 8.43 7.51 8.02 7.83
<FN>
(1) All per common share amounts have been restated to reflect stock dividends
and stock splits.
(2) Includes mortgage loans held for sale.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net income in 1994 totaled $15.7 million, compared to $23.2 million earned in
1993. This decrease in earnings was due primarily to a significant decline in
single-family mortgage volume, which resulted in a reduction in mortgage
banking income. Net income per common share, fully diluted, was $1.00 for
1994, compared to $1.50 earned in 1993. Return on average assets in 1994 was
1.23%, while return on average equity was 13.43%.
Republic Bancorp Inc. has five subsidiaries engaged in two business
segments, mortgage banking and commercial banking. The subsidiaries in the
mortgage banking segment include: Republic Bancorp Mortgage Inc. ("Republic
Mortgage"), Market Street Mortgage Corporation ("Market Street") and CUB
Funding Corporation ("CUB Funding"), while the commercial banking segment
includes Republic Bank and Republic Savings Bank ("Republic Savings").
MORTGAGE BANKING
During 1994, the Company closed $2.8 billion in single-family, residential
mortgage loans, compared to $4.9 billion during 1993, a decrease of 42%. The
decline in the Company's residential loan closings for 1994 was due to the
significant increase in both short-term and long-term interest rates which
substantially reduced the volume of mortgage loan originations.
The decrease in mortgage loan volume resulted in a decrease of mortgage
banking income of $15.2 million, or 18% from $85.1 million in 1993 to $69.9
million in 1994. A breakdown of income from mortgage banking activities is
summarized as follows:
Year ended December 31,
1994 1993 1992
(Dollars in thousands)
Net mortgage loan servicing fees $7,439 $4,558 $918
Origination fee income 25,054 34,044 9,550
Gain on sale of mortgages 4,968 33,190 17,760
Gain on sale of servicing 32,438 13,336 2,469
------- ------- -------
Total mortgage banking income $69,899 $85,128 $30,697
======= ======= =======
The Company generates origination fee income primarily through its retail
mortgage loan operation. The Company's retail mortgage loan closings were
$1.77 billion in 1994 compared to $2.35 billion for 1993. This decrease in
retail mortgage closings resulted in a decrease in origination fee income of
$9.0 million from $34.0 million in 1993 to $25.0 million in 1994.
The Company typically sells all of its long-term fixed rate and a
significant portion of its variable rate mortgages to the secondary market.
During 1994, the Company's gain on sale of mortgages totaled $5.0 million
compared to $33.2 million for 1993. The decrease in the gain on sale of
mortgages was due to lower volume and the significant decline in margins. The
margin decline was caused by an overcapacity in the mortgage market,
resulting in very competitive pricing for a significant portion of 1994.
During 1994, the Company continued its emphasis on the purchase of and
retention of mortgage loan servicing rights. This emphasis contributed to the
increase in the mortgage servicing portfolio from $3.0 billion at December
31, 1993 to $4.7 billion at December 31, 1994. This increase in the servicing
portfolio resulted in net mortgage loan servicing fees of $7.4 million for
the year ended December 31, 1994, or a 63% increase over the $4.6 million in
fees in 1993. The servicing fees are net of the amortized cost of the
purchased mortgage servicing rights for the years ended December 31, 1994,
1993 and 1992 of $5.0 million, $4.6 million, and $1.4 million, respectively.
During 1994 and 1993, the Company sold both purchased and originated
mortgage servicing rights of $4.5 billion and $2.3 billion, respectively,
resulting in gains of $32.4 million and $13.3 million, respectively.
For a further discussion of the mortgage banking segment, please refer to
Notes 4 and 19 of the Notes to the Consolidated Financial Statements. The
remainder of the Management's Discussion and Analysis provides various
disclosures and analysis relating principally to the commercial banking
segment.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income totaled $33.2 million in 1994, a decrease of 9.1% from
the $36.6 million earned during 1993. The decrease in net interest income was
primarily due to the decline in the net interest margin from 3.29% in 1993 to
2.88% in 1994. The decrease in the net interest margin was a result of a
decrease in mortgage loans held for sale and a subsequent redeployment of
assets into lower yielding securities as well as a significant increase in
short-term borrowing costs.
While average earning asset balances grew 3.6% or $40.4 million, to $1.15
billion as of December 31, 1994, the yield on average earning assets decreased
from 7.08% to 6.78%, resulting in an overall decrease of $612,000 in interest
income. As a result of the rise in interest rates and the decline in mortgage
production, the average mortgage loans held for sale balance decreased from
$382 million in 1993 to $214 million in 1994. These assets were redeployed
primarily into investment securities, which earned 161 basis points less on
average than mortgage loans held for sale. An additional factor in the decline
in yield on interest earning assets was the 84 basis points decline in average
rates earned on portfolio real estate mortgages from 1993, a significant
portion of which reprice annually based on the one-year Constant Maturity
Treasury, plus an index.
Interest expense for 1994 increased $2.7 million compared with 1993. This
was a result of an increase in average interest bearing liabilities of $51.9
million, or 5.5%, over 1993 and an increase in the average rates paid on
liabilities from 4.47% to 4.51%. As a result of the decrease in mortgage loan
originations, the 1994 average borrowings of the Company's mortgage affiliates
under the higher cost warehousing facilities decreased $60.7 million while the
average borrowing rate increased from 5.77% to 6.19% in 1994. Offsetting the
reduction in these borrowings was an increase of $136.0 million in other
short-term borrowings of the bank affiliates, primarily reverse repurchase
agreements. Average balances and rates on these borrowings were $159.6 million
and 4.83% in 1994 and $23.6 million and 3.78% in 1993, respectively.
Net interest income totaled $36.6 million in 1993, an increase of 8.4%
from 1992. The increase in net interest income in 1993 compared with 1992,
resulted from an increase of $4.8 million in interest income offset by an
increase of $1.9 million in interest expense. The increase in both interest
income and interest expense was primarily due to an increase in interest
earning assets and interest bearing liabilities partially offset by general
declines in interest rates. The net interest margin decreased from 3.70% in
1992 to 3.29% in 1993.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The following table presents an analysis of average balances and rates for
each of the three years ended December 31, 1994, 1993 and 1992.
Year Ended December 31,
1994 1993 1992
Average Avg. Average Avg. Average Avg.
Balance(1) Interest Rate Balance(1) Interest Rate Balance(1) Interest Rate
(Dollars in thousands)
AVERAGE ASSETS:
Money market investments $13,163 $474 3.60% $50,541 $1,473 2.91% $47,942 $1,572 3.28%
Mortgage loans held for sale 213,593 15,317 7.17 382,196 27,361 7.16 153,754 10,966 7.13
Securities 434,440 24,128 5.56 213,984 10,823 5.06 205,832 14,391 6.99
Commercial loans 114,954 10,599 9.22 148,707 13,213 8.89 193,595 18,493 9.55
Real estate mortgage loans 326,902 23,243 7.11 270,537 21,520 7.95 262,214 23,662 9.02
Installment loans 50,120 4,458 8.89 46,830 4,441 9.48 48,290 4,984 10.32
Total loans, net of ------- ------ ---- ------- ------ ---- ------- ------ -----
unearned income 491,976 38,300 7.78 466,074 39,174 8.41 504,099 47,139 9.35
--------- ------ ---- --------- ------ ---- ------- ------ ----
Total interest earning assets 1,153,172 78,219 6.78 1,112,795 78,831 7.08 911,627 74,068 8.12
--------- ------ ---- --------- ------ ---- ------- ------ ----
Allowance for loan losses (6,360) (7,594) (6,147)
Cash and due from banks 25,758 20,467 14,525
Other assets 108,549 71,892 35,435
---------- ---------- --------
Total assets $1,281,119 $1,197,560 $955,440
========== ========== ========
AVERAGE LIABILITIES AND
SHAREHOLDERS' EQUITY:
Deposits:
Interest bearing demand
deposits $86,965 2,295 2.64 $65,392 1,846 2.82 $57,552 1,907 3.31
Savings deposits 188,267 6,212 3.30 179,988 5,093 2.83 178,072 6,451 3.62
Time deposits 420,995 19,754 4.69 512,666 25,346 4.94 489,934 28,338 5.78
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest bearing deposits 696,227 28,261 4.06 758,046 32,285 4.26 725,558 36,696 5.06
Short-term borrowings 216,663 10,902 5.03 141,409 6,479 4.58 28,776 1,557 5.41
FHLB advances 42,796 2,237 5.23 28,008 1,781 6.36 23,546 1,666 7.05
Long-term debt 42,499 3,599 8.47 18,833 1,723 9.15 6,410 420 6.55
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest bearing liabilities 998,185 44,999 4.51 946,296 42,268 4.47 784,290 40,339 5.14
------- ------ ---- ------- ------ ---- ------ ------ ----
Non-interest bearing deposits 121,594 127,562 62,605
Other liabilities 44,273 25,951 30,708
--------- --------- -------
Total liabilities 1,164,052 1,099,809 877,603
--------- --------- -------
Shareholders' equity 117,067 97,751 77,837
Total liabilities and ---------- ---------- --------
shareholders' equity $1,281,119 $1,197,560 $955,440
========== ========== ========
Net interest income $33,220 $36,563 $33,729
======= ======= =======
Net interest spread 2.27% 2.61% 2.98%
==== ==== ====
Net interest margin 2.88% 3.29% 3.70%
==== ==== ====
<FN>
(1) Non-accrual loans and overdrafts are included in average balances. No
significant amounts of tax-exempt income were earned by the Company or
its subsidiaries during 1994, 1993 or 1992.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Net interest income can be analyzed in terms of the impact of changing rates
and changing volumes of interest earning assets and interest bearing
liabilities. The following table sets forth certain information regarding
changes in net interest income due to changes in the average balance of
interest earning assets and interest bearing liabilities and due to changes
in average rates for the periods indicated.
Year Ended December 31,
1994 versus 1993 1993 versus 1992
Increase/(Decrease) Increase/(Decrease)
Due to Change In: Due to Change In:
Average Average Net Average Average Net
Balance(1) Rate(1) Change Balance(1) Rate(1) Change
(Dollars in thousands)
INTEREST INCOME:
Money market investments $(1,285) $286 $(999) $83 $(182) $(99)
Mortgage loans held for sale (12,082) 38 (12,044) 16,350 45 16,395
Securities 12,140 1,165 13,305 598 (4,166) (3,568)
Loans, net of unearned income(2) 2,129 (3,003) (874) (3,414) (4,551) (7,965)
----- ------ ---- ------ ------ -----
Total interest income 902 (1,514) (612) 13,617 (8,854) 4,763
----- ------ ---- ------ ------ -----
INTEREST EXPENSE:
Interest bearing demand deposits 573 (124) 449 241 (302) (61)
Savings deposits 243 876 1,119 68 (1,426) (1,358)
Time deposits (4,358) (1,234) (5,592) 1,268 (4,260) (2,992)
------ ------ ------ ----- ------ ------
Total interest bearing deposits (3,542) (482) (4,024) 1,577 (5,988) (4,411)
Short-term borrowings 3,734 689 4,423 5,196 (274) 4,922
FHLB advances 815 (359) 456 295 (180) 115
Long-term debt 2,007 (131) 1,876 986 317 1,303
----- ---- ----- ----- ------ -----
Total interest expense 3,014 (283) 2,731 8,054 (6,125) 1,929
------- ------- ------- ------ ------- ------
Net interest income $(2,112) $(1,231) $(3,343) $5,563 $(2,729) $2,834
======= ======= ======= ====== ======= ======
<FN>
(1) Any variance attributable jointly to volume and rate changes is allocated
to volume and rate in proportion to the relationship of the absolute dollar
amount of the change in each.
(2) Non-accrual loans are included in average balances.
NON-INTEREST INCOME
Non-interest income decreased to $75.7 million in 1994 compared to $92.1
million in 1993. The largest component of non-interest income is mortgage
banking income which is discussed previously in the mortgage banking section
of Management's Discussion and Analysis. Certain non-recurring items had a
impact on non-interest income for the Company in 1994. In December 1994, the
Company completed the sale of its three northern Michigan branch offices with
total deposits of $43.7 million, resulting in a gain of $4.0 million. In
addition, during the fourth quarter of 1994 the Company sold approximately
$47.0 million of low yielding mortgage backed securities, resulting in a loss
of $2.0 million and an overall loss on sale of securities of $1.4 million for
the year. During 1993, the Company's gain on sale of securities was $2.0
million
NON-INTEREST EXPENSE
During 1994, non-interest expense decreased to $85.0 million, or 6.6% of
average assets, compared to $93.5 million, or 7.8% of average assets from 1993.
The decrease in non-interest expense was due primarily to the reduction in
salaries and employee benefits of $7.4 million, including commissions paid on
residential loan closings. Salaries and employee benefits are the largest
portion of non-interest expense, totalling $47.6 million, or 56.0% of total
non-interest expense in 1994. Furthermore, other non-interest expenses
decreased from $38.5 million in 1993 to $37.4 million in 1994, a decrease of
2.8%. This decrease is primarily attributable to a decrease in mortgage loan
closing costs.
Non-interest expense increased from $47.8 million in 1992, or 5.0% of average
assets, compared to $93.5 million, or 7.8% of average assets, in 1993. Salaries
and employee benefits were the largest portion of non-interest expense,
totalling $55.0, or 58.8% of total non-interest expense in 1993. The increase
in salaries and employee
10
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
benefits were primarily due to increased commissions on the significant
increase in residential loan closings and the expansion of the Company's
mortgage banking activities, including the Market Street acquisition.
INCOME TAXES
Federal income tax expense was $8.0 million in 1994, as compared to $12.3
million in 1993 and $7.3 million in 1992. The effective tax rate in 1994 was
33.9%, as compared to 35.6% in 1993 and 39.1% in 1992. The decrease from 1993
is due to a decreased percentage of non-tax deductible expenses to income
before income taxes.
The Company adopted Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes," effective January 1, 1993.
Included in earnings for the year ended December 31, 1993 was a cumulative
adjustment of $950,000, or $.06 per share, relating to the adoption of SFAS
109.
FINANCIAL CONDITION
ASSETS
Total assets at December 31, 1994 were $1.36 billion, compared to $1.17
billion at December 31, 1993, an increase of 16%. The increase in assets
during 1994 was due primarily to an increase in securities, which increased by
$307.8 million, and an increase in portfolio loans of $198.0 million. These
increases have been funded by a decrease in mortgage loans held for sale of
$355.7 million and increased levels of federal funds purchased and reverse
repurchase agreements, as well as Federal Home Loan Bank advances totalling
$228.5 million. The decrease in mortgage loans held for sale resulted from the
decreased mortgage volume attributable to the significant increase in interest
rates during the year.
Average earning assets totalled $1.15 billion for 1994, compared with
$1.11 billion for 1993.
LOANS
Total loans, excluding loans held for sale, at December 31, 1994 were $605.1
million. This represents an increase of $198.0 million from the $407.1 million
reported at December 31, 1993. Residential real estate loans increased $228.6
million to $457.8 million, or 75.7% of total loans at December 31, 1994, from
$229.2 million, or 56.3% at December 31, 1993, due primarily to the Company
increasing it's portfolio of variable rate residential real estate loans. The
Company will continue its emphasis on originating fixed rate residential real
estate loans to be subsequently sold into the secondary market, and on
generating adjustable rate, real estate-secured portfolio loans. Commercial
loans, including commercial loans secured by real estate, decreased from
$126.5 million to $97.9 million or 16.1% of total loans at December 31, 1994.
The decrease of $28.6 million from 1993 was due to the sale of $12.8 million
of commercial loans by Republic Bank and Republic Savings Bank to other
financial institutions, SBA loan sales and loan payoffs.
Mortgage loans held for sale decreased from $507.8 million at December 31,
1993 to $152.1 million at December 31, 1994. During 1994, the Company closed
$2.8 billion in residential real estate mortgage loans, compared to $4.9
billion closed during 1993. The substantial majority of all mortgage loans
closed were sold or committed for sale into the secondary market.
The Company attempts to minimize credit risk in its loan portfolio by
focusing primarily on residential real estate mortgages and real estate-
secured commercial loans. As of December 31, 1994, these loans comprise 89.2%
of the total loan portfolio, excluding mortgage loans held for sale. The
Company's general policy is to originate conventional real estate mortgages
with loan to value ratios of 80% or less and SBA-secured loans or real estate-
secured commercial loans with loan to value ratios of 70% or less. The
substantial majority of the Company's loans are conventional mortgage loans
which are secured by residential properties and which comply with the
requirements for sale to or conversion to mortgage-backed securities issued
by the Federal Home Loan Mortgage Corporation ("FHLMC") or the Federal
National Mortgage Association ("FNMA"). The majority of the Company's
commercial loans are secured by real estate and are made to small and medium-
sized businesses. These loans are generally made at rates based on the
prevailing prime interest rates of Republic Bank and Republic Savings and are
adjusted periodically. The focus of the Company on real estate-secured lending
with lower loan to value ratios is generally reflected in the low net charge-
off ratio percentages.
The Company has not emphasized installment loans and, excluding home
equity loans, does not intend to emphasize these loans in the future. To the
extent made, these loans generally result from accommodations to customers
related to other banking activities. The Company has insignificant amounts of
agribusiness loans outstanding, and has no loans to foreign debtors. The table
on the following page summarizes the composition of the Company's loan
portfolio.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
December 31,
1994 1993 1992 1991 1990
Amount % Amount % Amount % Amount % Amount %
(Dollars in thousands)
Commercial loans:
Secured by real
estate $81,922 13.5% $94,428 23.2% $147,790 28.1% $144,832 31.2% $128,069 27.2%
Other (generally
secured) 15,989 2.6 32,114 7.9 44,538 8.5 48,238 10.4 56,020 11.9
------ ---- ------- ---- ------- ---- ------- ---- ------- ----
Total commercial
loans 97,911 16.1 126,542 31.1 192,328 36.6 193,070 41.6 184,089 39.1
Residential loans:
Real estate
mortgages 457,755 75.7 229,203 56.3 286,502 54.4 224,478 48.3 242,416 51.6
Installment loans 49,423 8.2 51,372 12.6 47,563 9.0 46,955 10.1 43,536 9.3
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans $605,089 100.0% $407,117 100.0% $526,393 100.0% $464,503 100.0% $470,041 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
The following table sets forth information regarding the maturity and
sensitivity to interest rates of the Company's commercial loan portfolio.
December 31, 1994
(Dollars in thousands)
Commercial Loan Maturity:
Due within one year $25,121
One year through five years 52,074
After five years 20,716
-------
Total commercial loans $97,911
=======
Commercial Loans Maturing After One Year:
With predetermined rates $24,564
With floating rates 48,226
-------
Total commercial loans $72,790
=======
The following table sets forth information regarding the geographic
distribution of the Company's loan portfolio as of December 31, 1994. As noted
below, the majority of loans have been originated in Michigan.
December 31, Percent of Total
1994 Outstanding
(Dollars in thousands)
Michigan $404,966 66.9%
Ohio 114,359 18.9
Florida 12,986 2.2
Indiana 12,144 2.0
Other 60,634 10.0
-------- -----
Total $605,089 100.0%
======== =====
There are no loans outstanding which would be considered a concentration of
lending in any particular industry or group of industries.
NON-PERFORMING ASSETS
Loans held in portfolio are reviewed on a regular basis and are placed on
non-accrual status when, in the opinion of management, reasonable doubt
exists as to the full, timely collection of interest or principal. Generally,
loans are placed in non-accrual status when either principal or interest is
90 days or more past due. Furthermore, at the time such loans are placed in
non-accrual status, uncollected accrued interest is charged against current
income. At December 31, 1994, approximately $1.6 million, or .3% of the loans
in the Company's portfolio were 30-89 days delinquent.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Real estate acquired by the Company as a result of foreclosure or by deed in
lieu of foreclosure is classified as other real estate owned ("ORE") until
such time as it is sold. When such property is acquired, it is recorded at the
lower of the unpaid principal balance of the related loan or its net
realizable value. Any further write-down of the property is charged to
expense. The following table provides information with respect to the
Company's past due loans and the components of non-performing assets at the
dates indicated.
December 31,
1994 1993 1992 1991 1990
(Dollars in thousands)
Loans past due 90 days or more and still accruing interest:
Commercial $104 $217 - - $435
Residential real estate mortgages - - $90 - 176
Installment 35 93 31 $3 12
---- ---- ---- -- ----
Total $139 $310 $121 $3 $623
==== ==== ==== == ====
Non-accrual loans:
Commercial $982 $1,812 $1,386 $3,332 $6,285
Residential real estate mortgages 1,304 803 1,085 1,223 1,808
Installment 79 108 82 163 48
----- ----- ----- ----- -----
Total 2,365 2,723 2,553 4,718 8,141
Restructured loans 1,130 2,140 2,140 2,181 -
Other real estate owned 586 405 3,117 2,078 449
------ ------ ------ ------ ------
Total non-performing assets $4,081 $5,268 $7,810 $8,977 $8,590
====== ====== ====== ====== ======
Non-performing assets as a percentage of:
Total loans and OREO(1) .67% 1.29% 1.47% 1.92% 1.83%
Total loans and OREO(2) .54 .58 1.01 1.68 1.78
Total assets .30 .45 .69 1.07 1.16
<FN>
(1) Including other real estate owned, but excluding loans held for sale.
(2) Including other real estate owned and loans held for sale.
Gross interest income that would have been recorded in 1994 for loans that
were classified as non-accrual on December 31, 1994, assuming they had been
accruing interest throughout the year in accordance with their original terms,
was approximately $214,000. The amount of interest collected on these loans
and included in income for 1994 was approximately $75,000. Therefore, on a net
basis, total income foregone in 1994 due to these loans was approximately
$139,000. Furthermore, gross interest income that would have been recorded on
restructured loans throughout the year in accordance with their original
terms, was approximately $114,000, versus $77,000, the amount actually
collected under the new loan terms, resulting in lost interest of
approximately $37,000.
The Company also maintains a watch list for loans identified as requiring
a higher level of monitoring by management. These are loans which, because of
one or more characteristics, such as economic conditions, industry trends,
nature of collateral, collateral margin or other factors, require more than
normal monitoring by the Company. As of December 31, 1994, total loans on the
watch list of the Company were $9.2 million, or 1.52% of total portfolio
loans, compared to $8.9 million, or 2.18% of the total loan portfolio at
December 31, 1993.
ALLOWANCE FOR ESTIMATED LOAN LOSSES
Management is responsible for maintaining an adequate allowance for estimated
loan losses. The appropriate level of the allowance for estimated loan losses
is determined by systematically reviewing the loan portfolio quality,
analyzing economic changes, consulting with regulatory agencies and reviewing
historical loan loss experience. Actual net loan losses are charged against
this allowance. If actual circumstances and losses differ substantially from
management's assumptions and estimates, such reserves for loan losses may not
be sufficient to absorb all future losses, and net earnings could be
significantly and adversely affected. Management is of the opinion that the
allowance for estimated loan losses is adequate to meet potential losses in
the portfolio. It must be understood, however, that there are inherent risks
and uncertainties related to the operation of a financial institution. By
necessity, Republic Bancorp's financial statements are dependent upon
estimates, appraisals and evaluations of loans. Therefore, the possibility
exists that abrupt changes in such estimates, appraisals and evaluations
might be required because of changing economic conditions and the economic
prospects of borrowers.
As of December 31, 1994, the allowance for estimated loan losses was $5.5
million, or .92% of total loans,
13
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
excluding mortgage loans held for sale, compared with $7.2 million, or 1.77%,
as of December 31, 1993, and $7.7 million, or 1.46% as of December 31, 1992.
Including mortgage loans held for sale such ratios would be .73%, .79% and
1.00% as of December 31, 1994, 1993 and 1992, respectively. The provision for
loan losses for the years ended December 31, 1994, 1993 and 1992 was $94,000,
$603,000 and $4.0 million, respectively.
An analysis of the allowance for estimated loan losses, the amount of
loans charged off, and the recoveries on loans previously charged off is
summarized in the following table:
Year Ended December 31,
1994 1993 1992 1991 1990
(Dollars in thousands)
Allowance for estimated loan losses:
Balance at beginning of period $7,214 $7,684 $5,410 $4,426 $3,862
Loans charged off (1,705) (762) (2,079) (1,350) (871)
Recoveries of loans previously charged off 291 279 386 199 284
------ ---- ------ ------ ----
Net charge-offs (1,414) (483) (1,693) (1,151) (587)
------ ---- ----- ----- -----
Provision charged to expense 94 603 3,967 2,135 1,151
Reduction due to sale of commercial loans (350) (590) - - -
------ ------ ------ ------ ------
Balance at end of period $5,544 $7,214 $7,684 $5,410 $4,426
====== ====== ====== ====== ======
Analysis of charge-offs and recoveries:
Charge-offs:
Commercial loans $1,521 $612 $1,778 $860 $346
Residential real estate mortgage loans 70 49 69 291 217
Installment loans 114 101 232 199 308
----- --- ----- ----- ---
Total charge-offs 1,705 762 2,079 1,350 871
----- --- ----- ----- ---
Recoveries:
Commercial loans 219 170 262 81 135
Residential real estate mortgage loans - 36 4 39 26
Installment loans 72 73 120 79 123
--- --- --- --- ---
Total recoveries 291 279 386 199 284
------ ---- ------ ------ ----
Net charge-offs $1,414 $483 $1,693 $1,151 $587
====== ==== ====== ====== ====
Net charge-offs as a percentage of average loans
outstanding .29% .10% .34% .25% .12%
Allowance for estimated loan losses at end of year
as a percentage of loans outstanding .92 1.77 1.46 1.16 .94
Allowance for estimated loan losses at end of year
as a percentage of non-performing loans 158.61 148.34 163.73 78.41 54.37
The following table summarizes the allocation of the loan loss reserve by loan
type. The entire loan loss reserve is available for use against any loan
charge-offs:
December 31,
----------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
(Dollars in thousands) ---------------- ---------------- ---------------- ---------------- ----------------
% of % of % of % of % of
related related related related related
loans loans loans loans loans
Dollar to total Dollar to total Dollar to total Dollar to total Dollar to total
Amount loans Amount loans Amount loans Amount loans Amount loans
Commercial loans $2,221 16% $3,382 31% $4,738 37% $3,454 42% $2,783 39%
Residential real estate mortgage loans 598 76 1,298 56 906 54 508 48 449 52
Installment loans 501 8 559 13 481 9 513 10 449 9
Unallocated 2,224 - 1,975 - 1,559 - 935 - 745 -
------ --- ------ --- ------ --- ------ --- ------ ---
Total allowance for estimated loan losses $5,544 100% $7,214 100% $7,684 100% $5,410 100% $4,426 100%
====== === ====== ==== ====== === ====== === ====== ===
14
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
INVESTMENT SECURITIES
The securities portfolio serves as a source of earnings with relatively
minimal principal risk. As a result, the Company's portfolio includes a large
portion of U.S. Treasury and Government agency obligations and obligations
collateralized by U.S. Government agencies, primarily in the form of
collateralized mortgage obligations and mortgage-backed securities. The
maturity structure of the portfolio is generally short-term (with estimated
average maturities of 0.1 to 6.1 years) or at variable rates. The held-to-
maturity and available-for-sale investment securities portfolios constituted
19.8% and 14.4%, respectively, of the Company's assets at December 31, 1994.
The held-to-maturity investment securities portfolios at December 31, 1993 and
1992, constituted 9.2% and 16.8%, respectively, of the Company's assets, while
the held-for-sale investment securities portfolios constituted 4.4% and 1.6%,
respectively. The increase in investment securities during 1994 was primarily
a result of excess liquidity provided by a decrease in mortgage loans held for
sale. Securities identified that will be held for indefinite periods of time,
including securities that will be used as part of the Company's
asset/liability management strategy and may be sold in response to changes in
interest rates, prepayments and similar factors, are classified as available-
for-sale and accounted for at market value. The following schedule sets forth
the book value of the held-to-maturity, available-for-sale and held-for-sale
investment portfolios at December 31, 1994, 1993 and 1992.
December 31,
1994 1993 1992
Held-To Available Held-To Held-For Held-To Held-For
Maturity For-Sale Maturity Sale Maturity Sale
(Dollars in thousands)
U.S. Treasury $81,395 - $3,121 - $4,178 -
U.S. Government agency obligations 70,106 $3,708 9,637 - 12,736 -
Collateralized mortgage obligations 104,667 4,811 21,026 $9,002 56,899 $2,011
Mortgage-backed securities 12,436 176,798 68,145 42,042 110,307 16,167
Other securities 1,097 19,297 5,469 - 4,987 -
-------- -------- -------- ------- -------- -------
Total securities $269,701 $204,614 $107,398 $51,044 $189,107 $18,178
======== ======== ======== ======= ======== =======
The maturity distribution and average yields, on a fully taxable equivalent
basis, of the major components of the investment securities portfolio at
December 31, 1994 are shown below:
U.S. Govt. Collateralized Mortgage-
U.S. Treasury Agency Mortgage Backed Other
Obligations Obligations Obligations(2) Securities(2) Securities(1)
---------------- ---------------- ---------------------- --------------------- --------------------
Book Avg. Book Avg. Book Avg. Book Avg. Book Avg.
Held-To-Maturity Securities Value Yield Value Yield Value Yield Value Yield Value Yield
(Dollars in thousands) -------- ------ -------- ------ --------- ------ -------- ------ ------ -----
Maturities:
Due within one year $3,508 4.81% - - - - - - $236 8.01%
One to five years 77,887 5.84 $70,106 6.39% $1,934 5.67% $4,679 6.14% 327 9.16
Five to ten years - - - - 11,190 6.12 7,757 6.08 204 9.57
After ten years(3) - - - - 91,543 5.95 - - 330 9.92
------- ---- ------- ---- -------- ---- ------- ---- ------ ----
$81,395 5.80% $70,106 6.39% $104,667 5.96% $12,436 6.10% $1,097 9.22%
======= ==== ======= ==== ======== ==== ======= ==== ====== ====
U.S. Govt. Collateralized Mortgage-
Agency Mortgage Backed Equity
Obligations Obligations(2) Securities(2) Securities
--------------- ------------------ ------------------- ------------------
Book Avg. Book Avg. Book Avg. Book Avg.
Available-For-Sale Securities Value Yield Value Yield Value Yield Value Yield
(Dollars in thousands) -------- ------- ------- ------ ---------- ------ ------- -------
Maturities:
Due within one year - - - - - - $19,297 5.80%
One to five years $2,934 4.77% - - - - - -
Five to ten years 774 5.18 - - - - - -
After ten years(3) - - $4,811 5.24% $176,798 5.97% - -
------ ---- ------ ---- -------- ---- ------- ----
$3,708 4.85% $4,811 5.24% $176,798 5.97% $19,297 5.80%
====== ==== ====== ==== ======== ==== ======= ====
<FN>
(1) Average yields on tax-exempt obligations included in other securities have
been computed on a tax equivalent basis, based on a 35% federal tax rate.
(2) Collateral guaranteed by U.S. Government agencies.
(3) All maturities beyond ten years are at variable rates or have estimated
average lives of less than 6.2 years. The average yield presented is the
current yield on these securities.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
LIABILITIES
DEPOSITS
The Company's primary funding sources are non-interest bearing and interest
bearing deposits. Interest bearing deposits increased 4.0% to $707.3 million
in 1994, from $680.3 million in 1993. Non-interest bearing deposits decreased
$42.0 million to $111.4 million at December 31, 1994 from $153.4 million at
December 31, 1993. The decrease in non-interest bearing deposits was primarily
due to a decrease in official checks outstanding of $26.0 million.
The following table sets forth the average deposits of the Company for the
years indicated:
Year Ended December 31,
1994 1993 1992
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
(Dollars in thousands)
Demand deposits:
Non-interest bearing $121,594 - $127,562 - $62,605 -
Interest bearing 86,965 2.64% 65,392 2.82% 57,552 3.31%
Savings deposits 188,267 3.30 179,988 2.83 178,072 3.62
Time deposits 420,995 4.69 512,666 4.94 489,934 5.78
-------- -------- --------
Total $817,821 $885,608 $788,163
======== ======== ========
The maturity distribution of time deposits of $100,000 or more is as follows:
December 31,
1994 1993 1992
(Dollars in thousands)
Three months or less $111,707 $28,446 $28,256
Four through six months 24,133 21,257 30,006
Seven through twelve months 17,337 22,466 41,085
Over twelve months 16,773 19,825 26,076
-------- ------- --------
Total $169,950 $91,994 $125,423
======== ======= ========
Approximately $86.4 million of time deposits of $100,000 or more at December
31, 1994, were from brokers with the remaining being originated primarily in
the Republic Bank and Republic Savings Bank local markets.
FEDERAL FUNDS BORROWED AND REVERSE REPURCHASE AGREEMENTS
As of December 31, 1994, the Company had federal fund borrowings of $21.0
million that had a weighted average interest rate of 6.13% and matured January
2, 1995. The Company also had $196.1 million of reverse repurchase agreements
at an average rate of 5.96%. Such agreements are secured by certain securities
with a carrying value of $235.3 million, with $120.7 million of the reverse
repurchase agreements maturing January 1995 and $75.4 million maturing in
February 1995. The proceeds from both the federal funds borrowed and the
reverse repurchase agreements were used to fund portfolio loans and investment
securities purchases.
SHORT-TERM BORROWINGS
Market Street Mortgage has a $75 million warehousing line of credit agreement
with G.E. Capital Mortgage Services, Inc. and Cooper River Funding Inc. used
for the purpose of funding the origination of mortgage loans by Market Street.
The line of credit, which is payable on demand, is secured by various real
estate mortgage loans and expires in July 1995. Interest, which is payable
monthly, is calculated at a rate equal to 2.00% above the lower of the
lender's one month commercial paper rate or the LIBOR rate. Due to the
decreased mortgage loan origination volume, borrowings under this warehousing
line of credit decreased to $22.8 million at December 31, 1994, from $85.5
million at December 31, 1993. During 1994, the average borrowings and interest
rate on this line were $35.4 million and 6.23%, respectively.
Republic Bancorp Mortgage has a $20 million warehousing line of credit
with NBD Bank, N.A. used to fund the acquisition or origination of mortgage
loans by Republic Mortgage. The line of credit, which is payable on demand,
16
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
is secured by various real estate mortgage loans and expires in April 1995.
Republic Mortgage is required to pay interest on the unpaid principal amount
on each borrowing at the adjusted LIBOR rate or federal funds sold plus 1.25%,
as applicable to such advance. No borrowings under this line were outstanding
at December 31, 1994. At December 31, 1993 borrowings under this line were
$14.9 million. During 1994, the average borrowings and interest rate on this
line were $4.5 million and 5.87%, respectively.
CUB Funding has a $16 million warehousing line of credit agreement with
Prudential Home Mortgage Company used for the purpose of funding the
origination of mortgage loans by CUB Funding. The line of credit, which is
payable on demand, is secured by various real estate mortgage loans and
expires in August 1995. Interest, which is payable monthly, is computed based
on the 30 day commercial paper index plus various spreads ranging from 1.00%
to 2.75% based on the document status of each loan. Borrowings under this
warehousing line of credit at December 31, 1994 totaled $12.0 million. During
1994, the average borrowings and interest rate on this line were $10.2
million and 6.0%.
CUB Funding entered into a $1.1 million repurchase agreement with Paine
Webber Inc. to fund a portion of its mortgage loan originations. Security for
this borrowing includes various real estate mortgage notes and expires
January 23, 1995. The interest rate on the borrowing was fixed at 6.98% at
December 31, 1994.
The Company has an $18 million Revolving Credit Agreement with Firstar
Bank Milwaukee, N.A. with loan proceeds being utilized for working capital
purposes. The credit facility is secured by the common and preferred stock of
Republic Bank and expires January 1996. The agreement provides for interest
at the prime rate less .25% or LIBOR rate plus 1.75%. At December 31, 1994 no
amounts were outstanding under this Credit Agreement.
FHLB ADVANCES
Republic Savings Bank has outstanding two advances from the Federal Home Loan
Bank ("FHLB"), one a $10 million advance with an interest rate of 7.15%,
maturing in February 1997, and a $5 million advance with an interest rate of
4.45%, maturing in December 1995. These advances are secured by first mortgage
loans equal to at least 150% of the advances under a blanket security
agreement, with interest payable monthly for both advances.
In order to provide liquidity needs for mortgage loan originations,
Republic Savings Bank entered into a $50 million line of credit with the FHLB
in September 1994. The line of credit, which is payable on demand, has
borrowing rates set daily by the FHLB, is secured by various real estate
mortgage loans, and expires in September 1995. As of December 31, 1994,
borrowing under this line totaled $35.0 million with an interest rate of
5.90%.
Republic Bank has outstanding one advance with the FHLB, a $20 million advance
with an interest rate of 6.25%, maturing in March 1995. This advance is
secured by investment securities equal to at least 110% of the advance under a
specific collateral agreement, with interest payable monthly.
LONG-TERM DEBT
During March 1994, the Company completed a private offering of $25.0 million
principal amount of 7.17% Senior Debentures which mature April 1, 2001.
Interest on the notes is payable semiannually at 7.17%. A portion of the net
proceeds were used to fund the purchase of mortgage servicing rights and
expand the Company's mortgage banking network. The remainder of the net
proceeds will be used to further expand the Company's mortgage banking
operations and activities and for general corporate purposes, including future
acquisitions.
During April 1994, Market Street entered into a Term Loan Agreement with
GE Capital Mortgage Services, Inc. to finance the acquisition of mortgage loan
servicing rights. At December 31, 1994, the Company had $16 million available
under this agreement, of which $15.3 million had been borrowed. Borrowings
under this agreement are collateralized by the mortgage loan servicing
portfolio in respect of when a borrowing advance has been made pursuant to the
Term Loan Agreement. Interest on borrowings under the Term Loan Agreement is
payable monthly at a rate of 3.75% above the lender's one month commercial
paper rate, or 9.73% at December 31, 1994. Principal payments began on January
1, 1995 and are due monthly based on a 60 month amortization period with a
balloon payment equal to the unpaid principal balance on December 1, 1998. As
of December 31, 1994, $3.1 million of the amount outstanding is classified as
short-term borrowings.
During January 1993, the Company completed a public offering of $17.25
million of 9% Subordinated Notes which mature in 2003. The majority of the net
proceeds from the sale of the notes were used to repay the $15 million of
borrowings incurred with Firstar Bank Milwaukee, N.A. in connection with the
Company's acquisition of the assets of Market Street Mortgage Corporation. The
Subordinated Notes qualify as Tier 2 capital for the calculation of Total
Risk-Based capital under Federal Reserve Board guidelines.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
During September 1993, Republic Bancorp Mortgage financed the acquisition
of its new corporate office with a mortgage loan in the amount of $2.1 million
with Firstar Bank Milwaukee, N.A. Principal and interest with a fixed rate of
6.99% is payable quarterly, with a final maturity date of October 1, 2000. As
of December 31, 1994, $91,000 of the total $2.0 million outstanding is
classified as short-term borrowings.
In connection with the purchase of Market Street Mortgage Corporation, a
subsidiary of Poughkeepsie Savings Bank F.S.B. ("Poughkeepsie"), Market Street
incurred a $2.2 million note payable to Poughkeepsie. This note is secured by
the servicing rights underlying the Poughkeepsie mortgages which are serviced
by Market Street. Interest is payable at the prime rate plus 2%, or 10.5% at
December 31, 1994, and is payable in twelve (12) equal quarterly installments
commencing February 1993 with final maturity due November 30, 1995. As of
December 31, 1994, the remaining $744,000 is classified as short-term
borrowings.
CAPITAL RESOURCES
Total shareholders' equity at December 31, 1994 was $117.9 million compared to
$111.4 million at December 31, 1993 and $84.2 million at December 31, 1992.
The increase of $6.5 million in 1994 was due primarily to earnings, net of
dividends and the market value adjustment for securities available-for-sale.
The increase of $27.2 million in 1993 was due to earnings, net of dividends
and the proceeds and tax benefits from the exercise of stock options.
The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies. At December 31, 1992 the minimum guidelines for the
ratio of Total capital to risk-weighted assets (including certain off-balance-
sheet activities, such as standby letters of credit) became 8%. The Federal
Reserve capital guidelines require at least 4% of the Total capital to be
composed of common shareholders' equity, minority interests in the equity
accounts of consolidated subsidiaries and a limited amount of perpetual
preferred stock, less goodwill and purchased mortgage servicing rights in
excess of 50% of Tier 1 capital less goodwill, or Tier 1 capital. The
remainder may consist of subordinated debt, other preferred stock and a
limited amount of loan loss reserves, or Tier 2 capital. At December 31, 1994,
Republic's Tier 1 capital and Total capital ratios were 17.57% and 21.05%,
respectively. These ratios exceed minimum guidelines prescribed by regulatory
agencies. As of December 31, 1994, Total risk-based capital was $137.8
million, an excess of $85.4 million over the minimum guidelines prescribed by
regulatory agencies.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum Tier 1 Capital Leverage ratio (Tier 1 capital to total average assets
for the most recent quarter, less goodwill, less purchased mortgage servicing
rights in excess of 50% of Tier 1 capital less goodwill) of 3% for bank
holding companies that meet certain specified criteria, including having the
highest regulatory rating. All other bank holding companies will generally be
required to maintain a minimum Tier 1 Capital Leverage ratio of 3% plus an
additional cushion of 100 to 200 basis points. The guidelines also provide
that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant
reliance on intangible assets. Furthermore, the guidelines indicated that the
Federal Reserve Board will continue to consider a "tangible Tier 1 Capital
leverage ratio" (deducting all intangibles) in evaluating proposals for
expansion or new activities. The Federal Reserve Board has not advised
Republic of any specific minimum Tier 1 Capital Leverage ratio applicable to
it. Republic's Tier 1 Capital Leverage ratio at December 31, 1994 was 8.43%.
The following table sets forth the Total capital to risk-weighted assets
ratio, the Tier 1 capital to risk-weighted assets ratio, and the Tier 1
Capital Leverage ratios for the Company.
At December 31,
1994 1993 1992
Total capital to risk-weighted assets ratio 21.05% 20.19% 14.23%
Tier 1 capital to risk-weighted assets ratio 17.57 16.35 12.97
Tier 1 capital leverage ratio 8.43 8.43 7.51
The Company is committed to maintaining a strong capital position at
Republic Bank and Republic Savings Bank. As of December 31, 1994, Republic
Bank and Republic Savings Bank Total capital to risk-weighted assets ratio,
and Tier 1 Capital to risk-weighted assets ratio were in excess of
requirments. It is management's opinion that the Company and its subsidiaries'
capital structure is adequate and the Company does not anticipate any
difficulty in meeting these guidelines on an ongoing basis.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
INTEREST RATE SENSITIVITY AND LIQUIDITY
ASSET/LIABILITY MANAGEMENT. The primary objective of interest rate management
is to maintain an appropriate balance between the stability of net interest
income and the risks associated with significant changes in market interest
rates. Interest rate risk arises when assets and liabilities reprice, or
mature, at different times. If more assets than liabilities reprice in a given
period (an asset sensitive position or "positive gap"), market interest rate
changes will be reflected more quickly in asset rates and increases in
interest rates will generally benefit net interest income. Alternatively,
where liabilities reprice more quickly than assets in a given period
(a liability sensitive position or "negative gap"), an increase in market
rates will generally have an adverse impact on net interest income. The
Company's current policy is to maintain a mix of asset and liability
maturities that permits a moderate amount of short-term interest rate risk
based on current interest rate projections, customer credit demands and
deposit preferences. Management believes that this policy reduces the
vulnerability to large shifts in market interest rates while allowing the
Company to take advantage of fluctuations in current short-term rates. The
interest rate sensitivity table below presents the repricing structure of the
Company's balance sheet as of December 31, 1994.
December 31, 1994
Within 4 Months Total Within 1 to 5 Years
3 Months to 1 Year One Year 5 Years or Over Total
(Dollars in thousands)
RATE SENSITIVE ASSETS:
Other cash investments $779 - $779 - - $779
Mortgage loans held for sale 152,138 - 152,138 - - 152,138
Securities available for sale 132,218 $61,388 193,606 $2,896 - 196,502
Securities held to maturity 896 11,646 12,542 199,431 $57,728 269,701
Loans 136,040 124,546 260,586 262,368 82,135 605,089
------- ------- ------- ------- ------- ---------
Total rate sensitive assets 422,071 197,580 619,651 464,695 139,863 1,224,209
======= ======= ======= ======= ======= =========
RATE SENSITIVE LIABILITIES:
Interest bearing deposits:
Demand deposits - 25,758 25,758 20,999 - 46,757
Savings deposits - 16,500 16,500 193,274 - 209,774
Certificates of deposit:
Under $100,000 54,594 131,077 185,671 94,971 194 280,836
Over $100,000 111,707 41,470 153,177 16,773 - 169,950
------- ------- ------- ------- --- -------
Total interest bearing deposits 166,301 214,805 381,106 326,017 194 707,317
------- ------- ------- ------- ---- -------
Short-term borrowings(1) 256,134 812 256,946 - - 256,946
FHLB advances 54,950 5,000 59,950 10,000 - 69,950
Long-term debt 12,242 - 12,242 429 43,708 56,379
------- ------- ------- ------- ------ ---------
Total rate sensitive liabilities 489,627 220,617 710,244 336,446 43,902 1,090,592
-------- -------- -------- -------- ------- ---------
Interest rate sensitivity gap(2) $(67,556) $(23,037) $(90,593) $128,249 $95,961 $133,617
======== ======== ======== ======== ======= =========
Interest rate sensitivity gap as percentage of
total rate sensitive assets (5.52)% (1.88)% (7.40)% 10.48% 7.84% 10.91%
===== ===== ===== ===== ==== =====
<FN>
(1) Includes federal funds purchased and reverse repurchase agreements.
(2) Interest rate sensitivity gap is the difference between interest rate
sensitive assets and interest rate sensitive liabilities within the above
time frames.
This table incorporates a number of estimation techniques and assumptions and
represents only a one day position at the date presented. It shows the
interval of time in which given volumes of interest earning assets and
interest bearing liabilities will be responsive to changes in market interest
rates. The Company adjusts its interest rate sensitivity throughout the year.
As a result, there may be considerable day-to-day variations in the interest
rate sensitivity gap. The table indicates that as of December 31, 1994, the
Company was in a position to benefit in the next year from decreasing short-
term interest rates. Interest margins would widen because liabilities would
reprice more quickly than assets. Of those assets identified as interest
sensitive within 3 months, the largest category is mortgage loans held for
sale, which are primarily fixed rate loans and generally held less than 60
days, as outstanding
19
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
commitments are generally obtained to sell the loans to investors prior to the
Company funding the loans. Therefore, the Company can earn long-term interest
rates on short-term assets while reducing interest rate risk. Additionally,
approximately $261 million of total portfolio loans reprice within one year,
of which approximately 65.7% are adjustable rate mortgages and have maximum
adjustments, or caps, of 2% in one year and 6% over their terms. These loans,
therefore, are not totally interest sensitive in that a significant change in
interest rates would only be reflected up to the maximum of the rate cap in
any one year. Consistent with a strategy of managing interest rate risk, the
Company typically securitizes and sells all long-term fixed rate mortgages and
retains a portion of variable rate and short-term fixed rate mortgages.
LIQUIDITY MANAGEMENT. The objectives of liquidity management are to provide
funds at an acceptable cost to meet mortgage and commercial loan demand,
deposit withdrawals and service other liabilities as they become due, as well
as to capitalize on opportunities for business expansion. Asset liquidity
sources consist of cash and due from banks, mortgage loans held for sale,
repayments and maturities of portfolio loans, money market investments, and
investment securities. Also, liquidity is generated from liabilities through
deposit growth, the maturity structure of time deposits and the accessibility
to market sources of funds through warehouse lines of credit, FHLB advances,
federal funds borrowings and reverse repurchase agreements.
At December 31, 1994, Republic Bank had available $24.9 million in unused
lines for federal funds borrowing. Additionally, Republic Savings Bank had
available $15.0 million in unused borrowings on its line of credit with the
FHLB. The mortgage companies had unused capacity of $76.2 million on warehouse
lines of credit to fund mortgage loan origination volume. The parent company
has available an $18 million revolving line of credit with Firstar Bank
Milwaukee, N.A. for borrowings to be used for general corporate purposes.
Republic is a legal entity separate and distinct from its subsidiaries. A
portion of Republic's revenues result from dividends paid to it by its
subsidiaries as well as earnings on investments. There are statutory and
regulatory requirements applicable to the payment of dividends by Republic
Bank and Republic Savings Bank as well as by Republic to its shareholders.
Such restrictions have not had, and are not expected to have, a material
effect on the Company's ability to meet its cash obligations.
IMPACT OF INTEREST RATE FLUCTUATIONS AND INFLATION
Unlike most industrial companies, substantially all the assets and liabilities
of a financial institution are monetary in nature. As a result, interest rate
fluctuations generally have a more significant and direct impact on a financial
institution's performance than do the effects of inflation. To the extent
inflation affects interest rates, real estate values and other costs, the
Company's lending activities are impacted. Significant increases in interest
rates make it more difficult for potential borrowers to purchase residential
property and to qualify for mortgage loans. As a result, the volume and related
income on loan originations may be reduced. Significant decreases in interest
rates result in higher loan prepayment activity although such conditions may
enable potential borrowers to qualify for a relatively higher mortgage loan
balance.
ACCOUNTING AND REPORTING DEVELOPMENTS
In May 1993, the FASB issued Statement of Financial Accounting Standards
("SFAS") 114, "Accounting by Creditors for Impairment of a Loan." In October
1994, the FASB issued SFAS 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures," that amended SFAS 114 and eliminated
its provisions regarding how a creditor should report income on an impaired
loan. SFAS 114 provides guidance in measuring and accounting for impaired
loans. The Statements are effective for fiscal years beginning after December
15, 1994. The impact of these Statements on the Company's financial statements
have not been estimated.
20
REPUBLIC BANCORP INC. AND SUBSIDIARIES
December 31,
1994 1993
CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
ASSETS:
Cash and due from banks (Note 3) $22,518 $23,508
Other cash investments 779 4,517
------ ------
Cash and cash equivalents 23,297 28,025
Mortgage loans held for sale 152,138 507,795
Securities (Note 5):
Held-to-Maturity (aggregate market value of approximately
$254,996, 1994 and $108,360, 1993) 269,701 107,398
Available-for-Sale (amortized cost of approximately $204,614, 1994) 196,502 -
Held-for-Sale (aggregate market value of approximately $51,776, 1993) - 51,044
Loans (Note 6) 605,089 407,117
Less allowance for estimated loan losses (Note 7) 5,544 7,214
------- -------
Net loans 599,545 399,903
Premises and equipment, net (Note 8) 15,484 16,295
Purchased mortgage servicing rights (Note 4) 57,183 18,428
Other assets 49,764 41,706
---------- ----------
Total assets $1,363,614 $1,170,594
========== ==========
LIABILITIES
Deposits:
Non-interest bearing $111,425 $153,474
Interest bearing 707,317 680,260
------- -------
Total deposits 818,742 833,734
Federal funds purchased and reverse repurchase agreements (Note 9) 217,124 35,572
Short-term borrowings (Note 9) 39,822 101,273
FHLB advances (Note 10) 69,950 23,000
Accrued and other liabilities 43,077 45,123
Long-term debt (Note 11) 56,379 19,970
--------- ---------
Total liabilities 1,245,094 1,058,672
Minority interest 606 489
--- ---
Commitments and contingencies (Notes 18 and 20)
SHAREHOLDERS' EQUITY (Notes 2, 13, 14 and 22):
Preferred stock, $25 stated value; $2.25 cumulative and convertible;
5,000,000 shares authorized, none issued and outstanding - -
Common stock, $5 par value; 20,000,000 shares authorized; 15,246,134 and
13,747,771 shares issued and outstanding in 1994 and 1993, respectively 76,231 68,739
Capital surplus 35,636 27,229
Market value adjustment for securities available-for-sale (5,273) -
Retained earnings 11,320 15,465
------- -------
Total shareholders' equity 117,914 111,433
---------- ----------
Total liabilities and shareholders' equity $1,363,614 $1,170,594
========== ==========
<FN>
See notes to consolidated financial statements.
21
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1994 1993 1992
(Dollars in thousands, except per share data)
INTEREST INCOME:
Loans, including fees $53,617 $66,535 $58,105
Securities:
Held-to-Maturity 12,878 8,556 13,186
Available-for-Sale 11,250 - -
Held-for-Sale - 2,267 1,205
Money market investments:
Federal funds sold 277 1,282 1,091
Other 197 191 481
------ ------ ------
Total interest income 78,219 78,831 74,068
------ ------ ------
INTEREST EXPENSE:
Demand deposits 2,295 1,846 1,907
Savings and time deposits 25,966 30,439 34,789
Short-term borrowings 10,902 6,479 1,557
FHLB advances 2,237 1,781 1,666
Long-term debt 3,599 1,723 420
------ ------ ------
Total interest expense 44,999 42,268 40,339
------ ------ ------
Net interest income 33,220 36,563 33,729
Provision for loan losses (Note 7) 94 603 3,967
------ ------ ------
Net interest income after provision for loan losses 33,126 35,960 29,762
------ ------ ------
NON-INTEREST INCOME:
Service charges 1,337 1,431 1,424
Mortgage banking 69,899 85,128 30,697
Gain/(Loss) on sale of securities (1,392) 2,014 3,580
Gain on sale of commercial loans 1,135 2,224 -
Gain on sale of bank branches 4,034 - -
Other 648 1,323 1,109
------ ------ ------
Total non-interest income 75,661 92,120 36,810
------ ------ ------
NON-INTEREST EXPENSE:
Salaries and employee benefits 47,586 55,028 26,892
Occupancy expense of premises 5,807 4,540 2,805
Equipment expense 4,090 3,133 1,733
Other (Note 16) 27,538 30,453 16,303
Minority interest - 385 78
------ ------ ------
Total non-interest expense 85,021 93,539 47,811
------ ------ ------
Income before income taxes 23,766 34,541 18,761
Provision for income taxes (Note 12) 8,047 12,308 7,339
------ ------ ------
Net income before cumulative effect of change in accounting principle 15,719 22,233 11,422
Cumulative effect of change in accounting principle (Note 12) - (950) -
------ ------ ------
NET INCOME 15,719 23,183 11,422
Less dividends on preferred shares - - 275
------- ------- -------
Net income applicable to common shares $15,719 $23,183 $11,147
======= ======= =======
NET INCOME PER COMMON SHARE (Note 14):
Income before cumulative effect of change in accounting principle $1.00 $1.45 $.83
Cumulative effect of change in accounting principle - .06 -
----- ----- ----
Net income per common share, primary $1.00 $1.51 $.83
Net income per common share, fully diluted $1.00 $1.50 $.80
<FN>
See notes to consolidated financial statements.
22
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Market
Valuation
Number Number Adjustment Total
of of for Securities Share-
Preferred Preferred Common Common Capital Available- Retained holders'
Shares Stock Shares Stock Surplus For-Sale Earnings Equity
(Dollars and numbers of shares in thousands)
BALANCES AT JANUARY 1, 1992 245 $6,125 8,635 $43,175 $5,286 $ - $10,344 $64,930
Net income 11,422 11,422
Preferred stock dividends (275) (275)
Cash dividends declared on common
shares ($.20 per share) (1,903) (1,903)
Amortization of restricted stock 15 15
Conversion of Series B and C preferred
shares to common shares (85) (2,125) 311 1,556 569 -
Conversion and redemption of Series A
preferred shares to common shares (160) (4,000) 437 2,187 1,120 (693)
Conversion of subordinated debentures
to common shares 151 752 376 1,128
10% common share dividend 760 3,800 3,230 (7,036) (6)
Issuance of common shares:
Through exercise of stock options 5 26 61 87
Through exercise of stock warrants 65 327 109 436
Through sale of common shares 1,374 6,869 2,196 9,065
----- ----- ------ ------ ------ --------- ------ ------
BALANCES AT DECEMBER 31, 1992 - - 11,738 58,692 12,962 - 12,552 84,206
Net income 23,183 23,183
Cash dividends declared on
common shares ($.23 per share) (2,746) (2,746)
Amortization of restricted stock 119 119
Awards of common shares under
Restricted Stock Plan (328) (328)
10% common share dividend 1,219 6,093 11,423 (17,524) (8)
Issuance of common shares:
Through exercise of stock options 752 3,757 757 4,514
Through exercise of stock warrants 39 197 38 235
Tax benefit relating to
exercise of stock options 2,258 2,258
----- ----- ------ ------ ------ ------ ------ -------
BALANCES AT DECEMBER 31, 1993 - - 13,748 68,739 27,229 - 15,465 111,433
Net income 15,719 15,719
Cash dividends declared on common
shares ($.32 per share) (4,542) (4,542)
Amortization of restricted stock 109 109
10% common share dividend 1,392 6,961 8,353 (15,322) (8)
Issuance of common shares:
Through exercise of stock options 104 522 130 652
Through exercise of stock warrants 82 409 10 419
Tax benefit relating to exercise of
stock options 243 243
Adjustment to beginning balance for
change in accounting method for
securities available-for-sale, net of
income taxes of $453 840 840
Change in market valuation for
securities available-for-sale, net of
income tax benefit of $3,292 (6,113) (6,113)
Repurchase of common shares (80) (400) (438) (838)
----- ---- ------ ------- ------- ------- ------- --------
BALANCES AT DECEMBER 31, 1994 - - 15,246 $76,231 $35,636 $(5,273) $11,320 $117,914
===== ==== ====== ======= ======= ======= ======= ========
<FN>
See notes to consolidated financial statements.
23
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1994 1993 1992
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $15,719 $23,183 $11,422
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation and amortization 4,268 3,090 1,846
Amortization of purchased mortgage servicing rights 5,008 4,607 1,407
(Increase)/decrease in deferred income tax credit (1,801) 317 (1,429)
Provision for loan losses 94 603 3,967
Provision for loss on other real estate - 888 447
Gain on sale of purchased mortgage servicing rights (32,438) (13,336) (2,469)
Gain on sale of securities held-for-sale - (2,014) (3,580)
Loss on sale of securities available-for-sale 1,392 - -
Gain on sale of loans (2,793) (3,869) (342)
Gain on sale of other real estate - (170) (38)
Gain on sale of bank branches (4,034) - -
(Increase)/decrease in interest receivable (3,639) 1,001 (49)
Increase in interest payable 793 362 124
Increase/(decrease) in deferred loan fees (1,113) (1,830) 454
Net premium amortization on securities 839 1,146 853
Increase in other assets (8,782) (4,719) (5,372)
Increase/(decrease) in other liabilities (5,409) 654 18,345
Proceeds from sale of mortgage loans held for sale 3,002,993 4,578,910 1,649,042
Origination of mortgage loans held for sale (2,640,165) (4,841,731) (1,827,451)
Other, net 595 211 (213)
------- -------- --------
Total adjustments 315,808 (275,880) (164,458)
------- -------- --------
Net cash provided by/(used in) operating activities 331,527 (252,697) (153,036)
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mortgage servicing rights (52,604) (19,454) (11,472)
Proceeds from sale of mortgage servicing rights 45,676 20,070 7,068
Proceeds from sale of securities held-for-sale - 84,150 132,484
Proceeds from sale of securities available-for-sale 106,470 - -
Proceeds from maturities/principal payments of securities held-to-maturity
and held-for-sale and interest earning deposits 16,728 82,119 54,465
Proceeds from maturities/principal payments of securities
available-for-sale 48,808 - -
Purchase of securities held-for-sale - (21,413) -
Purchase of securities available-for-sale (238,926) - -
Purchase of securities held-to-maturity (250,958) (53,061) (108,191)
Proceeds from sale of other real estate 1,770 1,605 246
Proceeds from sale of loans related to bank branch sale 28,933 - -
Proceeds from sale of loans 82,742 92,096 10,896
Net increase in loans made to customers (307,793) (10,937) (113,708)
Recoveries on loans previously charged off 291 279 386
Premises and equipment expenditures (2,849) (6,609) (2,844)
Payment for the purchase of Market Street Mortgage - - (17,456)
Payment for the purchase of CUB Funding - (3,390) -
Payment for the purchase of Home Funding. (2,450) - -
-------- ------- -------
Net cash provided by/(used in) investing activities (524,162) 165,455 (48,126)
-------- ------- -------
24
REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Year Ended December 31,
1994 1993 1992
(Dollars in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase/(decrease) in demand deposits, NOW accounts
and savings accounts $(20,175) $75,474 $49,636
Net increase/(decrease) in certificates of deposit 52,966 (139,395) 61,688
Sale of bank branch deposits (43,749) - -
Net increase in short-term borrowings 120,094 69,238 28,611
Net increase/(decrease) in FHLB advances 46,950 (4,000) 12,000
Redemption of Series A Preferred Stock - - (619)
Redemption of Subordinated Debentures - - (471)
Increase in long-term debt 12,244 1,976 -
Net proceeds from issuance of common shares 1,072 4,741 9,595
Repurchase of common shares (838) - -
Dividends paid (4,542) (2,746) (2,183)
Payments on current portion of long-term debt (827) (4,368) (1,558)
Issuance of senior debt, net of issuance costs 24,712 - -
Issuance of subordinated debt, net of issuance costs - 16,492 -
------- ------ -------
Net cash provided by financing activities 187,907 17,412 256,699
------ ------- ------
Net increase/(decrease) in cash and cash equivalents (4,728) (69,830) 55,537
Cash and cash equivalents at beginning of year 28,025 97,855 42,318
------- ------- -------
Cash and cash equivalents at end of year(1) $23,297 $28,025 $97,855
======= ======= =======
Cash paid during the year for:
Interest $44,206 $41,906 $40,216
Income taxes $9,980 $9,873 $8,521
<FN>
Noncash investing activities:
* During the years ended December 31, 1993 and 1992, the Company securitized
residential real estate portfolio loans into investment securities held-for-
sale of $42.0 million and $38.0 million, respectively.
* During the years ended December 31, 1994, 1993 and 1992, the Company incurred
charge-offs on portfolio loans of $1.7 million, $762,000 and $2.1 million,
respectively.
Noncash financing activities:
* During the year ended December 31, 1992, the Company purchased certain
assets of Market Street Mortgage Corporation for $17.5 million in cash
(primarily purchased mortgage servicing rights) and notes payable to the
seller of $2.4 million and a purchase holdback of $300,000.
* During the year ended December 31, 1992, the Company converted $1.1 million
of subordinated debentures into 150,498 common shares.
* During the year ended December 31, 1992, the Company converted $5.5 million
of Series A, B and C preferred stock into 748,499 common shares.
(1) For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, federal funds sold and other short-term
money market investments with maturities less than 30 days. Generally, federal
funds are purchased and sold for one-day periods.
See notes to consolidated financial statements.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Republic Bancorp Inc. ("Republic" or the "Company") and the
accounts of three wholly owned subsidiaries: Republic Bank, Republic Bancorp
Mortgage Inc., and Republic Savings Bank (formerly Horizon Savings Bank); and
Market Street Mortgage Corporation and CUB Funding Corporation, of which the
Company owns an 80% majority interest in each subsidiary. Republic Bancorp
Mortgage Inc. operates Home Funding, Inc., which was acquired in October 1994,
as a division. The Company's financial statements have been restated for the
effect of the acquisition of Horizon Financial Services, Inc. in 1993, which
was accounted for under the "pooling of interests method" of accounting (See
Note 2). All significant intercompany transactions and balances have been
eliminated in consolidation.
SECURITIES: In May 1993, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") 115, "Accounting
for Certain Investments in Debt and Equity Securities," effective for fiscal
years beginning after December 15, 1993. Under SFAS 115, all affected debt and
equity securities must be classified as held-to-maturity, trading or available-
for-sale. Classification is critical because it affects the carrying amount of
the security, as well as the timing of gain or loss recognition in the income
statement. The Company does not currently maintain a trading account
classification. The Company adopted SFAS 115 for the financial period beginning
January 1, 1994.
Management determines the appropriate classification for debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities consist primarily of U.S. Treasuries, U.S.
Government Agency obligations, fixed rate mortgage-backed securities and fixed
rate collateralized mortgage obligations and are stated at amortized cost.
Debt securities not classified as held-to-maturity and marketable equity
securities are classified as available-for-sale. Available-for-sale securities
consist primarily of adjustable rate mortgage-backed securities. Such
securities are stated at fair value, with the market value adjustment, net of
tax, reported as a separate component of shareholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premium and accretion of
discounts to maturity, or in the case of mortgage-backed securities and
collateralized mortgage obligations, over the estimated life of the security.
Interest and dividends are included in interest income from investments.
Realized gains and losses, and declines in value judged to be other-than-
temporary are included in net securities gains (losses). The cost of
securities sold is based on the specific identification method.
MORTGAGE BANKING ACTIVITIES: Mortgage loans held for sale are valued at the
lower of cost or market as determined by outstanding commitments to sell loans
to investors. All mortgage loans held for sale balances are committed for sale
to secondary market investors under firm agreements at or prior to closing date
on the individual loan. Since mortgage loans originated or acquired are
generally sold within 60 to 90 days, the related fees and costs are not
amortized during that period. For mortgage portfolio loans which later become
securitized and retained as investment securities, the net remaining deferred
fees or costs are treated as discount or premium, and recognized as an
adjustment to yield over the life of the security using the effective interest
method. If the security is sold, the net deferred balance is treated as part
of the cost basis in calculating the gain or loss on sale of security.
The cost of purchased mortgage servicing rights is capitalized and amortized
over the period of, and in proportion to, the related net servicing income to
be generated from the various servicing portfolios acquired.
The Company evaluates possible impairment using the undiscounted,
disaggregated method.
LOANS: Loans are stated at the principal amount outstanding and the related
interest on loans is generally accrued daily. Loans on which the accrual of
interest has been discontinued are designated as non-accrual loans. Accrual of
interest on loans is discontinued when, in the opinion of management,
reasonable doubt exists as to the full, timely collection of interest or
principal. Further, uncollected accrued interest is charged against current
income at the time such loans are placed in a non-accrual status. Loan
origination fees are deferred, along with incremental direct costs and are
amortized over the term of the loan as an adjustment to yield.
In May 1993, the FASB issued SFAS 114, "Accounting by Creditors for Impairment
of a Loan." In October 1994, the FASB issued SFAS 118, "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures," that
amended SFAS 114 and eliminated its provisions regarding how a creditor should
report income on an impaired loan. SFAS 114 provides guidance in measuring and
accounting for impaired loans. The Statements are effective for fiscal years
beginning after December 15, 1994. The impact of these Statements on the
Company's financial statements have not been estimated.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ALLOWANCE FOR ESTIMATED LOAN LOSSES: Management provides for and determines
the adequacy of the allowance for estimated loan losses based on actual loan
loss experience, reviews of individual loans, estimates of potential losses
in the loan portfolio in light of prevailing and anticipated economic
conditions and other factors which require recognition in estimating credit
losses. A charge is made to the allowance at the time management determines
that all or part of a loan is uncollectible.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets.
Amortization of leasehold improvements is computed using the straight-line
method over the shorter of the estimated useful lives of the related assets
or the remaining lease terms.
GOODWILL: The excess of cost over the fair value of net assets acquired is
amortized using the straight-line method over fifteen years.
INCOME TAXES: Deferred income taxes are accounted for under SFAS 109. Under
the asset and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. To the extent that current
available evidence about the future raises doubt about the future realization
of a deferred tax asset, a valuation allowance must be established. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enacted date.
Effective January 1, 1993, the Company adopted SFAS 109 which resulted in a
cumulative adjustment of $950,000 or $.06 per share. Previously, the Company
accounted for deferred income taxes using APB No. 11 which provides for items
of income and expense in different periods or on different basis than those
used to determine income taxes currently payable.
PER COMMON SHARE AMOUNTS: All per common share amounts have been restated to
reflect stock dividends.
NOTE 2: ACQUISITIONS
On November 1, 1994, pursuant to an agreement with Home Funding, Inc. of
Hopewell Junction, New York, the Company's subsidiary, Republic Bancorp
Mortgage Inc., purchased the assets and mortgage origination network of Home
Funding, Inc. The purchase included the acquisition of Home Funding's $130
million mortgage servicing portfolio. The total purchase price was
approximately $2.5 million, of which $1.2 million was goodwill. The purchased
assets and results of operations of Home Funding, Inc. are included in the
consolidated financial statements from November 1, 1994, the effective date of
the acquisition.
On November 10, 1993, pursuant to an agreement with California United Bank,
N.A. ("C.U.B."), of Encino, California, the Company purchased C.U.B's mortgage
origination network, loan production offices and certain other assets. The
total purchase price was approximately $4 million, of which $2.25 million was
goodwill, with C.U.B. entitled to additional payments through 1995 based on
the profitability of the mortgage banking operation. This mortgage banking
acquisition operates under the name of CUB Funding Corporation. The purchased
assets and results of operations of CUB Funding are included in the
consolidated financial statements from November 10, 1993, the effective date
of the acquisition.
On December 29, 1992, pursuant to an agreement with Poughkeepsie Savings Bank,
FSB, ("Poughkeepsie"), a federal savings bank, and its subsidiary, Market
Street Mortgage Corporation, a Florida corporation, the Company purchased
Market Street's mortgage loan servicing and origination operations, a
servicing portfolio of approximately $1.4 billion and certain other assets
for a total purchase price of $20.2 million, of which $2.8 million was
goodwill. The purchased assets and results of operations of Market Street
are included in the consolidated financial statements from December 1, 1992,
the effective date of the acquisition.
The unaudited proforma consolidated results of operations if the acquistition
of the assets of Market Street had occurred on January 1, 1992 would have
resulted in interest income of $78.5 million, net interest income of $34.4
million, net income of $12.6 million and earnings per common share of $0.93.
This information is based upon numerous assumptions and estimates and may not
be indicative of actual consolidated results of operations if the acquisition
had been consummated on January 1, 1992. The acquisition of the assets of Home
Funding, Inc. and CUB Funding Corporation did not have a significant impact on
the results of operations of the Company.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On June 30, 1993, pursuant to an agreement entered into on September 30, 1992
with Horizon Financial Services, Inc. ("Horizon Financial"), a registered
unitary savings and loan holding company incorporated under the laws of the
state of Delaware and located in Cleveland, Ohio, Horizon Financial was merged
with and into the Company. Under the terms of the restated and amended
agreement, Horizon Financial shareholders received two shares of the Company's
common stock for each share of Horizon Financial stock tendered. As a result of
the exchange, approximately 4.1 million shares of Republic stock were issued.
The merger was accounted for under the "pooling of interests method" of
accounting and, accordingly, all amounts presented give retroactive effect to
reflect the acquisition of Horizon Financial.
The effect on the results of operations for the periods prior to the
combination is as follows:
Six Months Year Ended
Ended December 31,
June 30, 1993 1992
(Unaudited)
(in thousands, except per share amounts)
Total Revenue:
Republic Bancorp Inc. $61,619 $77,795
Horizon Financial Services, Inc. 16,292 33,083
------- --------
Total $77,911 $110,878
======= ========
Net Income:
Republic Bancorp Inc. $9,404 $11,353
Horizon Financial Services, Inc. 2,739 69
------- -------
Total $12,143 $11,422
======= =======
Earnings Per Share-Primary:(1)
Republic Bancorp Inc. $0.84 $1.22
Combined $0.80 $0.85
Earnings Per Share-Fully Diluted:(1)
Republic Bancorp Inc. $0.84 $1.11
Combined $0.80 $0.80
Average Shares-Primary:(1)
Republic Bancorp Inc. 11,131 9,297
Combined 15,205 13,373
Average Shares-Fully Diluted:(1)
Republic Bancorp Inc. 11,175 10,266
Combined 15,250 14,342
<FN>
(1) Restated for the 10% stock dividends distributed on October 29, 1993 and
December 2, 1994.
In December 1992, Horizon Financial recorded $1.2 million ($772,000 after tax)
of merger-related expenses for investment banking services, legal and
accounting fees, and severance packages for senior management. In June 1993,
Horizon Financial recorded an additional $280,000 ($182,000 after tax) related
to the senior management severance packages.
Pursuant to a stock purchase agreement dated September 30, 1988 and the
amended stock purchase agreement approved by the Board of Directors on
November 14, 1991, Republic purchased common stock from the shareholders of
Premier Bancorporation, Inc. ("Premier") resulting in Republic owning 94.8%
of the issued and outstanding common stock of Premier as of December 31, 1991.
During 1992 and 1993, Republic acquired the remaining 32,131 shares of
Premier's common stock for total cash consideration aggregating $778,000. On
March 31, 1993, Premier Bancorporation, Inc. was merged into Republic Bancorp.
The excess of cost over the fair value of the increased ownership interest in
the net assets acquired totaled approximately $1.1 million for the
acquisitions during the years 1990 through 1993.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3: CASH RESERVE REQUIREMENTS
Republic Bank and Republic Savings Bank are required by the Federal Reserve
Bank to maintain an average reserve balance. Such reserve amounted to
approximately $9.6 million and $9.9 million at December 31, 1994 and 1993,
respectively.
NOTE 4: MORTGAGE BANKING
PURCHASED MORTGAGE SERVICING RIGHTS
The unamortized cost of purchased mortgage servicing rights are summarized as
follows:
Year Ended December 31,
1994 1993 1992
(Dollars in thousands)
Balance at January 1 $18,428 $16,126 $1,450
Purchases of mortgage loan servicing rights 52,604 19,454 11,472
Mortgage loan servicing rights acquired through the purchase of the assets
of mortgage companies 1,388 - 17,029
Sales of purchased and acquired mortgage loan servicing rights (10,229) (12,545) (12,418)
Amortization (5,008) (4,607) (1,407)
------- ------- -------
Balance at December 31 $57,183 $18,428 $16,126
======= ======= =======
SERVICING OF MORTGAGE LOANS
The Company originates, purchases and sells to investors, without recourse,
loans secured by mortgages, principally on single-family residential properties.
The Company generally retains the servicing of certain loans sold to investors
and collects the monthly principal and interest payments and performs certain
escrow services. The aggregate mortgage servicing portfolio was approximately
$4.7 billion and $3.0 billion at December 31, 1994 and 1993, respectively,
representing approximately 59,000 and 37,000 mortgages, respectively.
The Company is accountable for related escrow funds aggregating $59.8 million
and $80.4 million at December 31, 1994 and 1993, respectively. At December 31,
1994 and 1993, $58.1 million and $67.5 million, respectively, of these funds
are included in the consolidated non-interest bearing deposit accounts of
Republic Bank and Republic Savings Bank. The remaining $1.7 million and $12.9
million of escrow balances at December 31, 1994 and 1993, respectively, are on
deposit at financial institutions not affiliated with the Company, and are not
included in the consolidated balance sheet totals.
NOTE 5: INVESTMENTS
The following is a summary of the Company's securities portfolio:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
Available-for-Sale Securities (Dollars in thousands)
December 31, 1994:
Obligations of U.S. government agencies $3,708 - $343 $3,365
Mortgage-backed securities 176,798 - 6,631 170,167
Collateralized mortgage obligations 4,811 - 316 4,495
------- ------- ----- -------
Total debt securities 185,317 - 7,290 178,027
Equity securities 19,297 - 822 18,475
-------- ------- ------ --------
Total available-for-sale securities $204,614 - $8,112 $196,502
======== ======= ====== ========
Held-to-Maturity Securities
December 31, 1994:
U.S. Treasury securities and obligations
of U.S. government agencies $151,501 - $6,023 $145,478
Mortgage-backed securities 12,436 $11 836 11,611
Collateralized mortgage obligations 104,667 - 7,832 96,835
Other debt securities 1,097 9 34 1,072
-------- --- ------- --------
Total held-to-maturity securities $269,701 $20 $14,725 $254,996
======== === ======= ========
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
Held-for-Sale Securities (Dollars in thousands)
December 31, 1993:
Mortgage-backed securities $42,042 $734 $18 $42,758
Collateralized mortgage obligations 9,002 16 - 9,018
------- ---- --- -------
Total held-for-sale securities $51,044 $750 $18 $51,776
======= ==== === =======
Held-to-Maturity Securities
December 31, 1993:
U.S. Treasury securities and obligations
of U.S. government agencies $12,758 $128 $8 $12,878
Mortgage-backed securities 68,145 662 35 68,772
Collateralized mortgage obligations 21,026 76 6 21,096
Other debt securities 5,469 145 - 5,614
-------- ------- --- --------
Total held-to-maturity securities $107,398 $1,011 $49 $108,360
======== ======= === ========
The Company adopted SFAS 115 as of January 1, 1994. The market valuation
adjustment of $5.3 million on available-for-sale securities, net of tax, is
reported as a separate component in shareholders' equity at December 31, 1994.
The amortized cost and estimated market value of held-to-maturity and
available-for-sale investments at December 31, 1994, by contractual maturity,
are shown below. Expected maturities for mortgage-backed securities and
collateralized mortgage obligations will differ from contractual maturities
because borrowers may have the right to call or prepay obligations. Based upon
prepayment assumptions, estimated lives of the fixed rate mortgage-backed
securities range from 1.0 to 3.8 years. The variable rate mortgage-backed
securities are primarily indexed to the one-year Constant Maturity
Treasury and 11th District Cost of Funds. Estimated average remaining lives of
the Company's collateralized fixed rate mortgage obligations range from 0.1 to
6.1 years. Collateral for all mortgage-backed securities and collateralized
mortgage obligations is guaranteed by U.S. Government agencies.
Available-for-Sale Securities
------------------------------------------------------------------
Obligations of Collateralized
U.S.Government Mortgage-Backed Mortgage
Agencies Securities Obligations
------------------------------------------------------------------
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
Maturities:(Dollars in thousands) --------- --------- --------- --------- --------- ---------
Due within one year - - - - - -
One to five years $2,934 $2,602 - - - -
Five to ten years 774 763 - - - -
After ten years - - $176,798 $170,167 $4,811 $4,495
------ ------ -------- -------- ------ ------
Total $3,708 $3,365 $176,798 $170,167 $4,811 $4,495
====== ====== ======== ======== ====== ======
Available-for-Sale Securities
-----------------------------------------------------------------
Total Total
Available-for-Sale Available-for-Sale
Debt Securities Equity Securities Securities
-------------------------------------------------------------------
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
Maturities:(Dollars in thousands) --------- ---------- --------- --------- --------- ---------
Due within one year - - $19,297 $18,475 $19,297 $18,475
One to five years $2,934 $2,602 - - 2,934 2,602
Five to ten years 774 763 - - 774 763
After ten years 181,609 174,662 - - 181,609 174,662
------ -------- ------- -------- -------- --------
Total 185,317 $178,027 $19,297 $18,475 $204,614 $196,502
====== ======== ======= ======== ====== ========
Held-to-Maturity Securities
------------------------------------------------------------------------------------------------------------
U.S. Treasury and Collateralized Total
Government Agency Mortgage-Backed Mortgage Other Debt Held-to-Maturity
Obligations Securities Obligations Securities Securities
-------------------- ---------------------- ---------------------- -------------------- --------------------
Estimated Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value Cost Value
(Dollars in thousands) --------- ------- --------- --------- --------- ---------- --------- --------- --------- ----------
Maturities:
Due within one year $3,508 $3,438 - - - - $236 $238 $3,744 $3,675
One to five years 147,993 142,040 $4,679 $4,456 $1,934 $1,888 327 331 154,933 148,715
Five to ten years - - 7,757 7,155 11,190 10,304 204 207 19,151 17,667
After ten years - - - - 91,543 84,643 330 296 91,873 84,939
-------- -------- ------- ------- -------- ------- ------ ------ -------- --------
Total $151,501 $145,478 $12,436 $11,611 $104,667 $96,835 $1,097 $1,072 $269,701 $254,996
======== ======== ======= ======= ======== ======= ====== ====== ======== ========
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Proceeds from the sale of securities available-for-sale during 1994 were
$106.5 million with gross realized gains and losses on those securities of
$587,000 and $2.0 million, respectively. Proceeds from sale of securities
held-for-sale during 1993 and 1992 were $84.2 million and $132.5 million,
respectively. The gross realized gains on such sales totaled $2.2 million
and $3.7 million, respectively, and the gross realized losses totaled $184,000
and $167,000, respectively.
Certain securities, with a carrying value of approximately $235.3 million and
$25.5 million at December 31, 1994 and 1993, respectively, were pledged to
secure certain short-term borrowings and public and other deposits as
required by law.
NOTE 6: LOANS
Loans consist of the following:
December 31,
1994 1993
Commercial loans: (Dollars in thousands)
Secured by real estate $81,922 $94,428
Other (generally secured) 15,989 32,114
------ -------
Total commercial loans 97,911 126,542
Residential real estate mortgages 457,755 229,203
Installment loans 49,423 51,372
-------- --------
Net loans $605,089 $407,117
======== ========
The commercial loan portfolio is well diversified as to industry concentration
with no aggregate loans to any one specific industry exceeding 10% of total
commercial loans outstanding at December 31, 1994. Approximately 67% and 19% of
the Company's loan portfolio at December 31, 1994 has been originated in the
states of Michigan and Ohio, respectively.
NOTE 7: ALLOWANCE FOR ESTIMATED LOAN LOSSES
Changes in the allowance for estimated loan losses are as follows:
Year Ended December 31,
1994 1993 1992
(Dollars in thousands)
Balance at January 1 $7,214 $7,684 $5,410
Loans charged off (1,705) (762) (2,079)
Recoveries on loans previously charged off 291 279 386
Provision charged to expense 94 603 3,967
Reduction due to sale of commercial loans at Republic Savings Bank (350) (590) -
------ ------ ------
Balance at December 31 $5,544 $7,214 $7,684
====== ====== ======
NOTE 8: PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
December 31,
1994 1993
(Dollars in thousands)
Land $2,038 $2,066
Furniture and equipment 16,195 15,105
Buildings and improvements 9,664 10,109
------ ------
27,897 27,280
Less accumulated amortization and depreciation 12,413 10,985
------- -------
Net premises and equipment $15,484 $16,295
======= =======
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9: SHORT-TERM BORROWINGS
Short-term borrowings, including Federal funds purchased and reverse
repurchase agreements, consist of the following:
December 31,
--------------------------------------------
1994 1993
--------------------- ---------------------
Interest Interest
Balance Rate Balance Rate
(Dollars in thousands) ------- -------- ------- ---------
Federal funds purchased and reverse repurchase agreements $217,124 5.97% $35,572 3.34%
======== =======
Short-term borrowings:
Mortgage banking warehousing line of credit for
Market Street, variable rate $22,806 7.98 $85,535 5.73
Mortgage banking warehousing line of credit for
Republic Mortgage, variable rate - - 14,911 6.13
Mortgage banking warehousing line of credit for
CUB Funding, variable rate 11,984 7.57 - -
Repurchase agreement for CUB Funding, fixed rate 1,136 6.98 - -
Short-term portion of long-term debt (See Note 11) 3,896 9.80 827 7.90
------- --------
Total short-term borrowings $39,822 $101,273
======= ========
On July 30, 1994, Market Street entered into a $75 million warehousing line of
credit agreement with G.E. Capital Mortgage Services, Inc. (G.E. Capital) and
Cooper River Funding Inc. (Cooper River). Advances under such line are to be
used for funding the origination of mortgage loans by Market Street. Interest,
which is payable monthly, is computed at a rate equal to the lower of 2.00%
above the lower of the lender's one month commercial paper rate or the LIBOR
rate. The interest rate at December 31, 1994 was 7.98% and the balance
outstanding was $22.8 million. The line of credit, which is payable on demand,
is secured by various real estate mortgage loans and expires in July 1995. The
provisions of the warehousing line of credit include various financial
covenants for Market Street. Prior to this warehousing line of credit, Market
Street funded its mortgage originations and those of its division, CUB Funding,
through a $135 million mortgage warehousing line of credit with G.E. Capital.
Security for this warehousing line of credit, which was payable on demand,
included various real estate mortgage loans. Interest, which was payable
monthly, was computed at the lower of 2.25% plus the monthly commercial paper
rate, or 2.25% plus the LIBOR rate. The interest rate at December 31, 1993 was
5.73% and the balance outstanding was $85.5 million. The average aggregate
amounts outstanding under such agreements were $35.4 million and $76.8 million
in 1994 and 1993, respectively. As of April 1, 1994, CUB Funding ceased to
operate as a division of Market Street and began to operate as a separate
affiliate of Republic Bancorp Inc.
On December 18, 1992, Republic Mortgage entered into a $50 million warehousing
line of credit with NBD Bank, N.A. and Comerica, Inc. This agreement was amended
on September 1, 1994 to reduce the line of credit to $20 million, and to
discontinue the warehousing line of credit with Comerica, Inc. Advances under
such line are to be used to fund the acquisition or origination of mortgage
loans by Republic Mortgage. Security for this line of credit, which is payable
on demand, includes various real estate mortgage notes and expires in April
1995. Interest is computed on the unpaid principal amount of each advance at
the adjusted LIBOR rate or federal funds sold plus 1.25%, as applicable to
such advance. The provisions of the warehousing line of credit include various
financial covenants for Republic Mortgage. The interest rate at December 31,
1994 and 1993 was 7.375% and 6.13%, respectively, and the balance outstanding
at December 31, 1994 and 1993 was $-0- and $14.9 million, respectively. The
average aggregate amounts outstanding under such agreement were $4.5 million
and $21.8 million in 1994 and 1993, respectively.
On August 11, 1994, CUB Funding Corporation entered into a $30 million
warehousing line of credit agreement with Prudential Home Mortgage Company
(Prudential). On November 1, 1994, this agreement was amended to reduce the
line of credit to $16 million. Advances under such line are to be used for
funding the origination of mortgage loans by CUB Funding. Interest, which is
payable monthly, is computed based upon the 30 day commercial paper index plus
various spreads ranging from 1.00% to 2.75% based on the document status of
each loan. The average interest rate at December 31, 1994 was 7.57% and the
balance outstanding was $12.0 million. The line of credit, which is payable
on demand, is secured by various real estate mortgage loans and expires in
August 1995. The provisions of the warehousing line of credit include various
financial covenants for CUB Funding. During 1994, the average aggregate amount
outstanding under such agreement was $10.2 million.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In December 1994, CUB Funding entered into a $1.1 million repurchase agreement
with Paine Webber Inc. to fund a portion of its mortgage loan originations.
Security for this borrowing includes various real estate mortgage notes and
expires January 23, 1995. The interest rate on this borrowing was fixed at
6.98% at December 31, 1994.
The Company has an $18 million Revolving Credit Agreement with Firstar Bank
Milwaukee, N.A. with loan proceeds available to be utilized for working capital
purposes. The credit facility is secured by the common and preferred stock of
Republic Bank and expires in January 1996. The agreement provides for borrowings
with interest at the prime rate, less .25%, or LIBOR plus 1.75% for borrowings
up to $18 million. No amounts were outstanding under this Credit Agreement at
December 31, 1994 or 1993.
Federal funds purchased mature the day following the date of purchase while
reverse repurchase agreements generally mature within 30 to 90 days from the
date of the transaction. Federal funds purchased and reverse repurchase
agreements are detailed as follows:
1994 1993
Maximum Maximum
Balance Interest Average Average Amount Balance Interest Average Average Amount
at Rate at Balance Rate Outstanding at Rate at Balance Rate Outstanding
December December during during at any December December during during at any
31 31 the Year the Year Month End 31 31 the Year the Year Month End
(Dollars in thousands)
Federal funds purchased $21,000 6.13% $11,873 4.63% $37,900 $16,000 3.21% $4,547 3.39% $16,200
Reverse repurchase
agreements 196,124 5.96 146,206 4.85 251,601 19,572 3.44 17,518 3.37 65,746
At December 31, 1992, the Company had reverse repurchase agreements of $2.5
million with an interest rate of 3.33%. The average amount outstanding during
the year ended December 31, 1992 was $13.2 million and the maximum amounts
outstanding at any month end was $29.2 million.
NOTE 10: FHLB ADVANCES
Republic Savings Bank has outstanding two advances from the Federal Home Loan
Bank ("FHLB"), a $10 million advance with an interest rate of 7.15%, maturing
in February 1997, and a $5 million advance, with an interest rate of 4.45%,
maturing in December 1995. These advances are secured by first mortgage loans
equal to at least 150% of the advances under a blanket security agreement with
interest payable monthly.
Republic Bank has outstanding one advance from the FHLB, a $20 million advance
with an interest rate of 6.25%, maturing in March 1995. This advance is secured
by investment securities equal to at least 110% of the advance under a specific
collateral agreement, with interest payable monthly.
In order to provide liquidity needs for mortgage loan originations, Republic
Savings entered into a $50 million line of credit with the FHLB in September
1994. The line of credit is payable on demand and is secured by various real
estate mortgage loans and expires in September 1995. As of December 31, 1994,
borrowings under this line totaled $34.95 million, with a variable interest
rate of 5.90%.
At December 31, 1993, Republic Savings Bank had outstanding the following three
advances from the FHLB; $8 million due on demand; $10 million due February 1997;
and $5 million due December 1995, with interest rates at 5.90%, 7.15% and 4.45%,
respectively.
NOTE 11: LONG-TERM DEBT December 31,
Long-term debt consists of the following: 1994 1993
(Dollars in thousands)
Senior notes, interest at 7.17%, interest payable semi-annually, maturing 2001 $25,000 -
Subordinated notes, interest at 9%, interest payable monthly, maturing 2003 17,250 $17,250
Mortgage loan, interest at 6.99%, principal and interest
payable quarterly, maturing October 1, 2000 1,977 2,060
Note payable under term loan agreement, interest at one month commercial
paper rate plus 3.75%, principal and interest payable monthly, maturing
December 1, 1998 15,304 -
Note payable with bank, interest at prime plus 2%, principal
and interest payable quarterly, maturing November 30, 1995 744 1,487
------ ------
Total 60,275 20,797
Less maturities included as short-term borrowings (Note 9) (3,896) (827)
------- -------
Total $56,379 $19,970
======= =======
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During March 1994, the Company completed a private offering of $25.0 million
principal amount of 7.17% Senior Debentures which mature April 1, 2001 with
interest on the notes payable semiannually. A portion of the net proceeds from
the sale of the Debentures has been used to fund the purchase of mortgage
servicing rights and for acquisitions. The remainder of the net proceeds will
be used to further expand the Company's mortgage banking operations and
activities and for general corporate purposes, including possible future
acquisitions.
During January 1993, the Company completed a public offering of $17.25 million
principal amount of 9% Subordinated Notes which mature February 1, 2003.
Interest on the notes is payable monthly at 9%. The notes are redeemable in
whole or in part by the Company, subject to Federal Reserve Board approval at
par plus accrued interest at any time after February 1, 1996. The majority of
the net proceeds from the sale of the Notes were used to repay the amounts
outstanding under the Revolving Credit Agreement with Firstar Bank Milwaukee,
N.A. incurred in connection with the Company's acquisition of the assets of
Market Street Mortgage Corporation in December 1992. The Subordinated Notes
qualify as Tier 2 capital for the calculation of Total risk-based capital under
Federal Reserve guidelines.
On September 27, 1993, Republic Mortgage financed the acquisition of its new
corporate office with a mortgage loan in the amount of $2.1 million with
Firstar Bank Milwaukee, N.A. Principal and interest, with a fixed rate of
6.99%, is payable quarterly, with a final maturity date of October 1, 2000.
As of December 31, 1994, $91,000 of the amount outstanding is classified as
short-term borrowings.
On April 29, 1994, Market Street entered into a Term Loan Agreement with GE
Capital Mortgage Services, Inc. to finance the acquisition of mortgage loan
servicing rights. At December 31, 1994, the Company had $16 million available
under this agreement, of which $15.3 million had been borrowed. Borrowings
under this agreement are collateralized by Market Street's mortgage loan
servicing portfolio in respect of when a borrowing advance has been made
pursuant to the Term Loan Agreement. Interest on borrowings under the Term
Loan Agreement is payable monthly at a rate of 3.75% above the lender's one
month commercial paper rate (9.73% at December 31, 1994). Principal payments
begin on January 1, 1995 and are due monthly based on a 60-month amortization
period with a balloon payment equal to the unpaid principal balance required
in the 48th month (December 1, 1998). As of December 31, 1994, $3.1 million of
the amount outstanding is classified as short-term borrowings.
On December 29, 1992, to finance a portion of the purchase of the assets of
Market Street Mortgage Corporation, Market Street entered into a $2.2 million
note payable with Poughkeepsie. Interest is payable at the prime rate plus 2%
and the note is payable in twelve equal quarterly installments commencing
February 29, 1993 with the final payment due on November 30, 1995. At December
31, 1994 and 1993 the interest rate was 10.5% and 8%, respectively and the
loan is secured by the servicing rights underlying the Poughkeepsie mortgages
which are serviced by Market Street. As of December 31, 1994, the entire
amount outstanding of $744,000 is classified as short-term borrowings.
Premier incurred a term note due September 30, 1998 in the original principal
amount of $5.8 million to Merchants National Bank & Trust Company of
Indianapolis, Indiana pursuant to a Term Loan Agreement dated September 30,
1988. Loan proceeds were used to fund a portion of the purchase of two banks
from Michigan National Corporation. Simultaneous with the acquisition of the
remaining minority shares of Premier by the Company in March 1993, the
remaining $4.4 million balance due was paid in full.
The following table indicates the remaining principal maturities of long-term
debt at December 31, 1994 (excludes short-term portion detailed in Note 9):
(Dollars in thousands)
1996 $3,156
1997 3,164
1998 3,172
1999 3,180
2000 1,457
2001 and thereafter 42,250
-------
Total $56,379
=======
NOTE 12: INCOME TAXES
As discussed in Note 1, the Company adopted SFAS 109 as of January 1, 1993.
The cumulative effect of this change in accounting for income taxes of
$950,000 is reported separately in the consolidated statement of income for
the year ended December 31, 1993. Prior years' financial statements have not
been restated to apply the provisions of SFAS 109.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following is a summary of the components of the provision for income tax
expense for the years ended December 31, 1994, 1993 and 1992. During the years
ended December 31, 1994, 1993 and 1992, the Company's state taxes on income
were insignificant.
1994 1993 1992
(Dollars in thousands)
Current expense $7,008 $11,991 $8,768
Deferred income tax (benefit) 1,039 317 (1,429)
------ ------- ------
Total income tax expense $8,047 $12,308 $7,339
====== ======= ======
Deferred taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant temporary differences which give rise to the deferred tax assets
and liabilities as of December 31, 1994 and December 31, 1993 are as follows:
December 31,
1994 1993
Asset Liability Asset Liability
(Dollars in thousands)
Allowance for estimated loan losses $1,020 - $1,392 -
Purchased mortgage servicing rights amortization 1,393 - 1,289 -
Deferred loan fees and costs, net - $162 499 -
Non-deductible accruals 195 - 296 -
Depreciation/amortization - 399 - $351
Stock dividends in FHLB stock - 431 - 352
Purchase accounting adjustment amortization 558 - - -
Market value adjustment for securities available-for-sale 2,839 - - -
Loan mark-to-market adjustment - 344 - -
Other 580 83 1,026 249
------ ------ ------ ----
Total deferred taxes $6,585 $1,419 $4,502 $952
====== ====== ====== ====
The significant components of deferred taxes under APB No. 11 are as follows:
Year ended December 31,
1992
(Dollars in thousands)
Provision for loan losses $(275)
Non-deductible accruals (400)
Deferred loan fees (109)
Hedging transactions (448)
Severance benefits (170)
Other, net (27)
-------
Total deferred income tax benefit $(1,429)
=======
Items causing differences between the statutory tax rate and the effective tax
rate are summarized as follows:
Year ended December 31,
1994 1993 1992
Amount Rate Amount Rate Amount Rate
(Dollars in thousands)
Statutory tax rate $8,318 35.0% $12,089 35.0% $6,379 34.0%
Amortization of purchase adjustments and goodwill 88 .4 77 .2 136 .7
Bad debt deduction of Republic Savings Bank - - - - (359) (1.9)
Losses on loans and other real estate - - - - 929 5.0
Merger expense - - - - 221 1.2
Other, net (359) (1.5) 142 .4 33 .1
------ ---- ------- ---- ------ ----
Provision for income taxes $8,047 33.9% $12,308 35.6% $7,339 39.1%
====== ==== ======= ==== ====== ====
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 13: COMMON STOCK
STOCK OPTIONS
The Company has an incentive stock option plan for key employees which
currently provides for granting options to purchase up to 1,815,000 common
shares during a ten-year period, at exercise prices equal to the fair market
value at date of grant.
Activity and price information for 1994, 1993 and 1992 are as follows:
Year Ended December 31,
1994 1993 1992
Number of Option Number of Option Number of Option
Options Price Options Price Options Price
Outstanding at beginning of year 863,020 $2.90-12.50 1,450,364 $2.90- 9.71 1,424,397 $2.90- 5.01
Granted 52,035 9.88-12.95 167,447 8.88-12.50 160,930 5.07- 9.71
Exercised (104,479) 4.19- 9.77 (751,464) 4.44- 9.77 (5,232) 6.07
Cancelled (7,814) 5.51-13.41 (3,327) 4.88 (25,597) 5.58- 6.67
Converted to stock warrants - - - - (104,134) 4.87- 6.06
------- ----------- ------- ----------- --------- -----------
Outstanding at end of year 802,762 $2.90-12.95 863,020 $2.90-12.50 1,450,364 $2.90- 9.71
======= =========== ======= =========== ========= ===========
Available for future grant 19,037 73,238 358,304
====== ====== =======
STOCK WARRANTS
The Company has awarded warrants to purchase common shares during exercise
periods ranging from three to ten years to key executive officers and certain
directors of the Company and its affiliates. In addition, the Company has a
Director Compensation Plan that awards 1,000 warrants annually to each of the
Company's non-employee directors.
Activity and price information for 1994, 1993 and 1992 follows:
Year Ended December 31,
1994 1993 1992
Number of Warrant Number of Warrant Number of Warrant
Warrants Price Warrants Price Warrants Price
Outstanding at beginning of year 253,757 $4.03- 9.09 279,943 $4.03- 5.01 219,259 $4.19-5.01
Granted 15,400 11.93 13,200 9.09-10.00 - -
Exercised (81,797) 4.61- 5.13 (39,386) 4.82-11.00 (65,317) 5.82-6.67
Expired - - - - - -
Converted from stock options - - - - 126,001 4.03-5.01
------- ----------- ------- ----------- ------- ----------
Outstanding at end of year 187,360 $4.03-11.93 253,757 $4.03- 9.09 279,943 $4.03-5.01
======= =========== ======= =========== ======= ==========
RESTRICTED STOCK PLAN
Under the Republic Restricted Stock Plan, 98,575 common shares are authorized
to be granted to certain key employees. Such shares must be forfeited if
employment terminates within three years of issuance. In 1994 and 1992 no
shares were issued under this plan and 39,567 shares were issued in 1993. At
December 31, 1994, 88,617 shares have been issued under this plan. The Company
amortizes the share issuance price over the restriction period of the
agreement.
STOCK DIVIDENDS
On September 22, 1994, Republic's Board of Directors declared a 10% stock
dividend distributed on December 2, 1994 to shareholders of record on November
4, 1994. Similar stock dividends were distributed on October 29, 1993 to
shareholders of record on October 1, 1993 and on October 30, 1992 to
shareholders of record September 30, 1992.
NOTE 14: PRIMARY EARNINGS PER COMMON SHARE
Primary earnings per common share are computed by dividing net income, after
deducting preferred stock dividends by the weighted average number of common
shares outstanding and common equivalent shares with a dilutive effect. Common
equivalent shares are shares which may be issuable upon exercise of outstanding
stock options and warrants.
Fully diluted earnings per common share are determined on the assumption that
the weighted average number of common shares and common equivalent shares
outstanding is further increased by conversion of convertible debentures and
convertible preferred stock. Convertible debentures and Series A, B and C
convertible preferred stock were included in earnings per fully diluted common
share computations for 1992. During 1992, all of the convertible debt and
Series A, B and C preferred stock was converted to common stock or redeemed
for cash value.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table presents information necessary for the computation of
earnings per share, on both a primary and fully diluted basis, for the years
ended December 31, 1994, 1993 and 1992.
1994 1993 1992
Average number of common shares outstanding 15,247,537 14,608,466 12,825,529
Common share equivalents on stock options and stock
warrants based on average market price 502,012 788,435 546,896
---------- ---------- ----------
Average number of common shares outstanding to
compute primary earnings per share 15,749,549 15,396,901 13,372,425
Incremental common share equivalents on stock options
and stock warrants based on end of period market price 1,150 39,953 112,515
Common shares outstanding based on conversion of:
Convertible debentures - - 165,689
Series A convertible preferred stock - - 414,841
Series B and C convertible preferred stock - - 275,854
---------- ---------- ----------
Average number of common shares outstanding to
compute fully diluted earnings per share 15,750,699 15,436,854 14,341,324
========== ========== ==========
NOTE 15: TRANSACTIONS WITH RELATED PARTIES
Republic Bank and Republic Savings Bank have, in the normal course of business,
made loans to certain directors and officers and to organizations in which
certain directors and officers have an interest. Other transactions with
related parties include non-interest bearing and interest bearing deposits.
In the opinion of management, such loans and other transactions were made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with unrelated
parties and did not involve more than normal risk of collectibility. A summary
of related party loan activity for the years ended December 31, 1994 and 1993
follows:
1994 1993
(Dollars in thousands)
Balance at January 1 $4,508 $8,073
New loans and advances 557 1,106
New directors and officers - -
Repayments (1,087) (3,664)
Former directors and officers - (1,007)
------ ------
Balance at December 31 $3,978 $4,508
====== ======
NOTE 16: OTHER NON-INTEREST EXPENSE
For 1994, 1993 and 1992, the other non-interest expense category contained
certain types of expenses which exceeded 1% of total interest income and other
non-interest income. Telephone expense, advertising, travel and auto and FDIC
insurance premiums of $2.7 million, $1.6 million, $1.7 million and $1.9
million, respectively, during 1994, exceeded this 1% threshold. Telephone
expense and FDIC insurance premiums of $2.2 million and $2.0 million,
respectively, during 1993, exceeded this 1% threshold. Legal fees, FDIC
insurance premiums and Michigan Single Business Tax of $1.9 million, $1.6
million and $1.6 million, respectively, during 1992, exceeded this 1%
threshold.
NOTE 17: EMPLOYEE BENEFIT PLANS
401(K) PLANS: The Company maintains 401(k) plans for Republic Bancorp Inc.
employees and Republic Savings Bank employees. The employer contributions to
the plans are determined annually by the respective Board of Directors.
Expenses under these plans for the years ended December 31, 1994, 1993 and
1992 aggregated $669,000, $353,000 and $196,000, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN: Horizon Financial Services, Inc. maintained an
Employee Stock Ownership Plan (ESOP) that was a qualified defined contribution
plan. Substantially all of the assets in this plan were invested in Horizon
Financial Services, Inc. common stock which was converted to Republic Bancorp
Inc. common stock effective June 30, 1993. This plan was terminated effective
November 30, 1994 and the assets of the plan were distributed to the
participants. ESOP expense for the years ending December 31, 1994, 1993 and
1992 amounted to $0, $0 and $220,000, respectively.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 18: COMMITMENTS AND CONTINGENCIES
The Company leases certain office facilities under lease agreements that
expire at various dates. In some cases, these leases offer renewal options and
provide that the Company pay for insurance, maintenance and taxes. Rental
expense under all operating leases charged to operations in 1994, 1993 and 1992
approximated $3.7 million, $2.5 million and $1.1 million, respectively. As of
December 31, 1994, the future aggregate minimum lease payments required under
noncancellable operating leases are as follows:
Operating
Year Ending (Dollars in thousands) Leases
1995 $2,673
1996 1,777
1997 1,357
1998 677
1999 153
2000 and thereafter 0
------
Total minimum payments required $6,637
======
In the ordinary course of business, there are various legal proceedings
pending against Republic and its subsidiaries. Management considers that the
aggregate liabilities, if any, arising from such actions would not have a
material adverse effect on the consolidated financial position of the Company.
NOTE 19: SEGMENT INFORMATION
The Company operates in two industry segments (as defined by SFAS 14,
"Financial Reporting for Segments of a Business Enterprise"). The two industry
segments are mortgage banking and commercial banking. Following is a
presentation of the revenues, operating profits and identifiable assets for
the years ended December 31, 1994, 1993 and 1992. The intercompany income/
(expense) presented below consists of interest expense incurred by the
mortgage banking subsidiaries on their notes payable with the parent company,
less amounts paid to the mortgage banking subsidiaries by Republic Bank for
servicing their mortgage loans. Intercompany assets included in the commercial
banking total identifiable assets consist primarily of notes receivable of the
parent company from the mortgage banking subsidiaries.
Commercial Banking Mortgage Banking Consolidated
YEAR ENDED DECEMBER 31, 1994 1993 1992 1994 1993 1992 1994 1993 1992
(Dollars in thousands)
Net interest income after provision
for loan losses $35,617 $34,949 $28,964 $(2,491) $1,011 $798 $33,126 $35,960 $29,762
Non-interest income 5,762 6,992 6,113 - - - 5,762 6,992 6,113
Mortgage banking income(1) - - - 69,899 85,128 30,697 69,899 85,128 30,697
Depreciation and amortization 2,051 1,771 1,566 2,217 1,319 280 4,268 3,090 1,846
Non-interest expense 23,582 28,682 27,177 57,171 61,767 18,788 80,753 90,449 45,965
------- ------- ------ ------ ------- ------- ------- ------- -------
Income before taxes $15,746 $11,488 $6,334 $8,020 $23,053 $12,427 $23,766 $34,541 $18,761
======= ======= ====== ====== ======= ======= ======= ======= =======
Intercompany income/(expense)
included in income before taxes $1,111 $1,015 $123 $(1,111) $(1,015) $(123) - - -
====== ====== ==== ======= ======= ===== ===== ===== ======
AT DECEMBER 31,
(Dollars in millions)
Total identifiable assets $1,241 $1,003 $1,031 $155 $181 $118 $1,396 $1,184 $1,149
Intercompany assets included in
total identifiable assets (26) (12) (22) - (1) (1) (26) (13) (23)
------ ---- ------ ---- ---- ---- ------ ------ ------
Assets after intercompany
eliminations $1,215 $991 $1,009 $155 $180 $117 $1,370 $1,171 $1,126
====== ==== ====== ==== ==== ==== ======= ====== ======
<FN>
(1) Included in mortgage banking income is amortization of purchased mortgage
servicing rights of $5.0 million, $4.6 million and $1.4 million in 1994, 1993
and 1992, respectively.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 20: OFF-BALANCE SHEET TRANSACTIONS
In the normal course of business, Republic is a party to financial instruments
with off-balance sheet risk to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby letters of
credit. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
balance sheet. The contract or notional amounts of those instruments reflect
the involvement Republic has in particular classes of fiancial instruments.
Commitments to extend credit are agreements to lend cash to a customer as long
as there is no breach of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require the payment of a fee. Certain of the commitments may expire
without being drawn upon, therefore the total commitment amounts do not
necessarily represent future cash requirements. The exposure to credit loss in
the event of nonperformance by the other party to the financial instrument for
these commitments is represented by the contractual notional amount. Loan
commitments are subject to market risk resulting from fluctuations in interest
rates. Republic applies the same credit policies in making commitments as it
does for on-balance sheet instruments, mainly by evaluating each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by Republic upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include residential properties, accounts receivable, inventories,
investments, property, plant and equipment, and income-producing commercial
properties.
Standby letters of credit guarantee the performance of a customer to a third
party. These guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing, and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan commitments to
customers. Republic uses the same credit policies in making these conditional
obligations as it does for on-balance sheet instruments. Collateral held for
those commitments in which it is deemed necessary varies but may include
accounts receivable, inventories, investments and real estate.
The following table outlines Republic's off-balance sheet exposure to credit
and interest rate risk at December 31, 1994 and 1993:
Outstanding at December 31,
1994 1993
(Dollars in thousands)
Financial instruments whose contract amounts represent credit risk:
Unused commitments to extend credit $18,905 $22,478
Standby letters of credit 450 885
Commitments to fund residential real estate loans 195,472 313,798
Commitments to fund commercial real estate loans 43,391 16,531
Financial instruments whose contract amounts represent interest rate risk:
Residential real estate loan applications with agreed-upon rates 129,640 406,444
Commitments to sell residential real estate loans 213,569 667,373
Offsetting the risk associated with the commitments to fund residential real
estate loan applications with agreed-upon rates, as well as mortgage loans
held for sale, Republic has entered into firm commitments to sell forward
$213.6 million of residential mortgage loans to various third parties of which
$152.1 million related to the balances of mortgage loans held for sale at
December 31, 1994 with the remaining $61.5 million relating to those
commitments for real estate loan applications with agreed-upon interest rates.
The commitments to sell forward, which are expected to settle in the first
quarter of 1995, is not expected to produce any material gains or losses. At
December 31, 1993, Republic had entered into firm commitments to sell forward
$667.4 million of residential mortgage loans of which $507.8 million related
to the balances of mortgage loans held for sale with the remaining $159.6
million relating to those commitments for residential real estate loan
applications with agreed-upon interest rates.
The Company has sold certain loans to the Federal Home Loan Mortgage
Corporation ("FHLMC") with recourse. Under the sales agreement, the Company
must repurchase FHLMC's share of principal and interest upon the completion of
a foreclosure sale or upon receipt of a deed in lieu of foreclosure. The
outstanding balance of loans sold with recourse was $2.7 million and $6.1
million at December 31, 1994 and 1993, respectively. Management has
established appropriate reserves for these estimated losses, if any.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 21: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates of financial instruments are made at a specific point in
time, based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire holdings of a
particular financial instrument. Because no ready market exists for a
significant portion of the Company's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.
Fair value estimates are based on existing on-and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and value of assets and liabilities that are not considered financial
instruments. Tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and
have not been considered in these estimates.
The estimated fair values of the Company's financial instruments as of
December 31, 1994 and 1993 are as follows:
December 31, 1994 December 31, 1993
------------------- -------------------
Carrying Fair Carrying Fair
Value Value Value Value
(Dollars in thousands) -------- ------- -------- -------
ASSETS:
Cash and cash equivalents $23,297 $23,297 $28,025 $28,025
Mortgage loans held for sale 152,138 152,064 507,795 508,951
Held-for-sale securities - - 51,044 51,776
Held-to-maturity securities 269,701 254,996 107,398 108,360
Available-for-sale securities 204,614 196,502 - -
Loans, net of the allowance for estimated loan losses 599,545 580,911 399,903 403,974
LIABILITIES:
Deposits:
Non-interest bearing demand deposits 111,425 111,425 153,474 153,474
Interest bearing demand and savings deposits 256,528 256,528 254,448 254,448
Certificates of deposit:
Maturing in six months or less 218,475 218,348 173,080 173,330
Maturing between six months and one year 108,266 107,817 109,797 110,230
Maturing between one and three years 103,090 102,590 111,113 112,618
Maturing beyond three years 20,958 20,615 31,822 32,469
------- ------- ------- -------
Total deposits 818,742 817,323 833,734 836,569
Federal funds purchased and reverse repurchase agreements 217,124 217,124 35,572 35,572
Short-term borrowings 39,822 39,821 101,273 101,273
FHLB advances 69,950 69,605 23,000 23,565
Long-term debt 56,379 52,094 19,970 20,382
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS:
The carrying amount is a reasonable estimate of fair value for these
instruments.
MORTGAGE LOANS HELD FOR SALE:
The fair value of mortgage loans held for sale is estimated based on the
present value of estimated future cash flows using a discount rate
commensurate with the risks associated with the financial instrument. As
mortgage loans held for sale are originated or acquired at current market
interest rates and generally sold within 60 to 90 days, the difference between
carrying value and fair value is generally minimal.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
INVESTMENTS:
The fair value of held-to-maturity securities, available-for-sale securities
and held-for-sale securities is estimated based on quoted market prices or
dealer quotes for those investments.
LOANS:
Fair values are estimated for portfolio loans based on the present value of
future expected cash flows using discount rates which incorporate a premium
commensurate with normal credit and interest rate risks involved. Loans are
segregated by type such as commercial, commercial real estate, residential
mortgage and installment.
Fair value for nonperforming loans is based on the premise that management has
allocated adequate reserves for loan losses. As a result, the fair value of
nonperforming loans are reported at carrying value.
DEPOSITS:
The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposits, savings, money market, checking and NOW accounts,
is equal to the amount payable on demand. The estimated fair value of
certificates of deposit is based on the present value of future estimated
cash flows using the rates currently offered for deposits of similar remaining
maturities.
FEDERAL FUNDS PURCHASED AND REVERSE REPURCHASE AGREEMENTS:
The carrying amount is a reasonable estimate of fair value as the majority of
such borrowings were negotiated at or near December 31, 1994 and 1993.
SHORT-TERM BORROWINGS:
The fair value is estimated based on the present value of future estimated
cash flows using current rates offered to the Company for debt with similar
terms. As 99.8% of borrowings classified short-term float based on indexes
such as prime, LIBOR and commercial paper, the carrying amount will generally
approximate fair value as the rates on such notes reprice frequently.
FHLB ADVANCES AND LONG-TERM DEBT:
The fair value is estimated based on the present value of future estimated
cash flows using current rates offered to the Company for debt with similar
terms.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:
The Company's off-balance sheet financial instruments are detailed in Note 20
in the Notes to Consolidated Financial Statements. The Company's residential
real estate loan applications with agreed-upon interest rates may result in a
gain or loss upon the sale of the funded residential real estate loans.
Additionally, the Company's forward commitment 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, 1994 and 1993 were not
material.
NOTE 22: DIVIDEND RESTRICTIONS
The Company's state chartered bank and state chartered savings bank regulatory
agencies limit the amount of dividends these financial institutions can
declare to the parent company in any calendar year without obtaining prior
approval. The limitations of the subsidiary bank and the state savings bank
for 1994 were approximately $18.4 million and $18.3 million, respectively.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 23: PARENT COMPANY FINANCIAL INFORMATION
The condensed financial statements of Republic Bancorp Inc. (Parent Company
only) are as follows:
BALANCE SHEETS
December 31,
1994 1993
(Dollars in thousands)
Assets:
Cash and due from banks $199 $171
Interest earning deposits 5,744 1,674
----- -----
Cash and cash equivalents 5,943 1,845
Investment in subsidiaries 131,446 112,544
Notes and advances receivable from non-bank subsidiaries 21,811 11,472
Furniture and equipment 109 88
Other assets 5,312 4,575
-------- --------
Total assets $164,621 $130,524
======== ========
Liabilities and Shareholders' Equity:
Accrued and other liabilities $4,457 $1,841
Short-term borrowings - -
Long-term debt 42,250 17,250
------ ------
Total liabilities 46,707 19,091
------- -------
Total shareholders' equity 117,914 111,433
-------- --------
Total liabilities and shareholders' equity $164,621 $130,524
======== ========
STATEMENTS OF INCOME
Year Ended December 31,
1994 1993 1992
(Dollars in thousands)
Interest income $1,653 $1,182 $414
Management fees from subsidiaries - - 180
Dividends from subsidiaries 7,242 5,392 439
Gain on sale of securities - - 3
Other income 19 108 -
----- ----- -----
Total income 8,914 6,682 1,036
----- ----- -----
Interest expense 3,107 1,705 106
Salaries and employee benefits and other expenses 2,713 3,884 4,359
----- ----- -----
Total expense 5,820 5,589 4,465
----- ----- -----
Income/(loss) before income taxes and equity in undistributed earnings
of subsidiaries 3,094 1,093 (3,429)
Income tax credits (1,615) (1,433) (1,056)
------ ------ ------
Income/(loss) before equity in undistributed earnings of subsidiaries and
cumulative effect of change in accounting principle 4,709 2,526 (2,373)
Cumulative effect of change in accounting principle - (50) -
Equity in undistributed earnings of subsidiaries 11,010 20,607 13,795
------- ------- -------
Net income $15,719 $23,183 $11,422
======= ======= =======
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
PARENT COMPANY FINANCIAL INFORMATION (continued)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1994 1993 1992
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $15,719 $23,183 $11,422
Adjustments to reconcile net income to net cash (used in)/provided
by operating activities:
Depreciation and amortization 498 444 254
Equity in undistributed earnings of consolidated subsidiaries (11,010) (20,607) (13,795)
(Increase)/decrease in interest receivable (149) 277 (270)
Increase/(decrease) in interest payable 349 124 (15)
(Increase)/decrease in other assets (427) 1,110 (515)
Increase in other liabilities 2,267 630 2,697
Other, net - - 68
------ ------- -------
Total adjustments (8,472) (18,022) (11,576)
------ ------- -------
Net cash (used in)/provided by operating activities 7,247 5,161 (154)
------ ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of securities - - 250
Proceeds from maturities of mortgage-backed securities - 416 68
Premises and equipment expenditures (45) (54) (23)
Capital investments in subsidiaries (9,779) - (500)
Increase in notes and advances receivable from non-bank subsidiaries (13,729) (4,072) (20,375)
Acquisition of minority interest in bank subsidiary - (74) -
Acquisition of increased ownership interest under stock purchase agreement
with Premier Bancorporation, Inc. - (668) (81)
------- ------ -------
Net cash used in investing activities (23,553) (4,452) (20,661)
------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt - - (917)
Payment of long-term debt of Premier Bancorporation, Inc.
upon acquisition of remaining minority interest - (3,756) -
Net proceeds from issuance of common shares - - 9,106
Net proceeds from issuance of common shares through exercise of stock options
and stock warrants 1,072 4,749 489
Repurchase of common shares (838) - -
Dividends paid on preferred shares - - (276)
Dividends paid on common shares (4,542) (2,746) (1,907)
Redemption of subordinated debentures - - (471)
Redemption of Series A preferred stock - - (619)
Net increase/(decrease) in short-term borrowings - (15,000) 15,000
Issuance of subordinated debt, net of issuance costs - 16,492 -
Issuance of senior debt, net of issuance costs 24,712 - -
------ ------ ------
Net cash (used in)/provided by financing activities 20,404 (261) 20,405
------ ------ ------
Net increase/(decrease) in cash and cash equivalents 4,098 448 (410)
Cash and cash equivalents at beginning of year 1,845 1,397 1,807
------ ------ ------
Cash and cash equivalents at end of year $5,943 $1,845 $1,397
====== ====== ======
Cash paid during the year for:
Interest $2,758 $1,581 $121
Income taxes $9,980 $9,873 $8,521
<FN>
Noncash investing activities:
* During the year ended December 31, 1994, the holding company reclassified
$3.4 million of a borrowing to Market Street Mortgage for the purchase of CUB
Funding to capital investment in CUB Funding upon the spinoff of CUB Funding
into a separate subsidiary.
Noncash financing activities:
* During the year ended December 31, 1992, the Company converted $1.1 million
of subordinated debentures into 150,498 common shares.
* During the year ended December 31, 1992, the Company converted $5.5 million
of Series A, B and C preferred shares into 748,499 common shares.
43
REPORT OF MANAGEMENT
The management of Republic Bancorp Inc. is responsible for the preparation of
the financial statements and other related financial information included in
this annual report. The financial statements have been prepared in accordance
with generally accepted accounting principles and include the amounts based on
management's estimates and judgements where appropriate. Financial information
appearing throughout this annual report is consistent with the financial
statements.
Management is responsible for the integrity and objectivity of the consolidated
financial statements. Established accounting procedures are designed to provide
financial records and accounts which fairly reflect the transactions of the
Company. The training of qualified personnel and the assignment of duties are
intended to provide an internal control structure at a cost consistent with
management's evaluation of the risks involved. Such controls are monitored by
an internal audit staff to provide reasonable assurances that transactions are
executed in accordance with management's authorization and that adequate
accountability for the Company's assets is maintained.
The financial statements have been audited by Deloitte & Touche LLP,
independent auditors, and their report follows.
The Audit Committee of the Board of Directors is composed of outside directors
who meet with management, internal auditors, independent auditors and
regulatory examiners to review matters relating to financial reporting and
internal controls. The internal auditors, independent auditors and regulatory
examiners have direct access to the Audit Committee.
/s/ Jerry D. Campbell /s/ Thomas F. Menacher, C.P.A.
-------------------------------- --------------------------------------
Jerry D. Campbell Thomas F. Menacher, C.P.A.
Chairman of the Board, President Chief Financial Officer
and Chief Executive Officer
44
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
REPUBLIC BANCORP INC.
We have audited the accompanying consolidated balance sheet of Republic Bancorp
Inc. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated financial statements give retroactive effect to
the merger of Republic Bancorp Inc. and Horizon Financial Services, Inc. which
has been accounted for as a pooling of interests as described in Note 2 to the
consolidated financial statements. We did not audit the statements of income,
shareholders' equity and cash flows of Horizon Financial Services, Inc. for
the year ended December 31, 1992, whose financial statements reflect total
revenues of $33 million for the year ended December 31, 1992. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Horizon Financial
Services, Inc. for 1992, is based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports
of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Republic Bancorp Inc. and its
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 12 to the consolidated financial statements,
Republic Bancorp Inc. adopted recently issued Statements of Financial
Accounting Standards and, accordingly changed its method of accounting for
investments in debt and equity securities effective January 1, 1994 and its
method of accounting for income taxes in 1993.
/s/ Deloitte & Touche LLP
-------------------------
January 18, 1995
Detroit, Michigan
45
SUMMARY OF COMMON SHARE MARKET DATA
Market Price on Common Shares
1994 1993
High Low High Low
First quarter 14 11 1/8 11 1/8 8
Second quarter 12 3/4 11 1/8 10 3/8 8 1/2
Third quarter 13 5/8 11 3/4 12 5/8 9 1/4
Fourth quarter 12 1/2 9 1/2 14 5/8 11 1/4
The Company had 3,923 common shareholders of record and approximately 13,000
total common shareholders as of February 20, 1995. The Common Stock is traded
on the NASDAQ Stock Market under the symbol "RBNC." The prices shown above
are the high and low sales prices of the common stock reported during the
periods indicated and have been restated to reflect all stock dividends.
Payment of cash dividends by the Company on any of its common stock will
depend upon the receipt of dividends from its subsidiaries, on the
consolidated earnings and financial condition of the Company, on legal
restrictions and on such other factors as the Board of Directors may consider
relevant at the time. The Board of Directors of Republic Bancorp Inc., on
February 16, 1995, declared a quarterly cash dividend of $.09 per share
on Common Stock, payable on April 7, 1995 to shareholders of record on March
10, 1995. It is the current intent of the Company's Board of Directors to
continue to distribute quarterly cash dividends to common shareholders at the
rate of $.09 per share and to retain the balance of earnings and surplus to
provide operating capital and to finance the growth and development of the
Company.
The Company has historically declared stock dividends and stock splits
effected in the form of dividends on its Common Stock. Based on the Company's
intent to distribute quarterly cash dividends to common shareholders in the
future, it has not been determined whether the Company will continue stock
dividends in the future.
QUARTERLY DATA
Selected unaudited quarterly financial information for the latest eight
quarters is shown in the table below. All amounts are in thousands, except
per common share amounts.
1994
1st 2nd 3rd 4th
Qtr Qtr Qtr Qtr
(Dollars in thousands, except per share data)
Total income $45,296 $37,089 $36,036 $35,459
Total interest income 15,896 19,332 21,620 21,371
Total interest expense 8,363 10,663 12,530 13,443
Provision for loan losses 47 17 20 10
Net income before cumulative effect of
change in accounting principle 6,082 5,007 3,025 1,605
Cumulative effect of change in
accounting principle - - - -
Net income 6,082 5,007 3,025 1,605
Net income per common share:
Primary .39 .32 .19 .10
Fully diluted .39 .32 .19 .10
1993
1st 2nd 3rd 4th
Qtr Qtr Qtr Qtr
(Dollars in thousands, except per share data)
Total income $34,674 $45,679 $44,321 $46,277
Total interest income 18,859 20,805 19,501 19,666
Total interest expense 10,830 11,097 10,465 9,876
Provision for loan losses 117 204 190 92
Net income before cumulative effect of
change in accounting principle 4,799 6,394 6,076 4,964
Cumulative effect of change in
accounting principle (950) - - -
Net income 5,749 6,394 6,076 4,964
Net income per common share:
Primary .38 .42 .39 .32
Fully diluted .37 .42 .39 .32
46
REPUBLIC AFFILIATES
REPUBLIC BANK
DIRECTORS
Lee E. Benz
President
Benz Insurance Agency
Barry J. Eckhold
Chairman of the Board
President, Chief
Executive Officer and
Chief Credit Officer
D. Wayne Fate
Pharmacist
Jack R. Lousma
Consultant
Milton F. Lutz, II
President
Midbrook Products, Inc.
Frederick H. Marx
President
Marx, Layne & Company
Alan R. Pfaff, Jr.
President
Atlantic Eagle Inc.
Grant C. Putman
Farmer
William C. Rands, III
Managing Partner
Rands Investment Company
David G. Stickel
Regional President and
Secretary to the Board
John E. VanderPoel
Chief Executive Officer
Jackson Iron & Metal, Inc.
Giorgio Vozza
President
Adventure Golf and Design
David W. Wright
Owner
Wright Ventures
Michael D. Young
President, Michael D. Young
Olds, Pontiac, GMC Trucks, Inc.
OFFICERS
Barry J. Eckhold
Chairman of the Board
President, Chief
Executive Officer and
Chief Credit Officer
David G. Stickel
Regional President and
Secretary to the Board
Constance A. Deneweth
Community Bank President-
Traverse City
C. Howard Haas
Community Bank President-
Lansing
Dennis A. Hill
Community Bank President-
Jackson
Craig L. Johnson
Community Bank President-
Flint
Peter W. Smith
Community Bank President-
Southeastern Michigan
Theodore J. Carlson
Executive Vice President
and Cashier
Patricia A. Brady
Senior Vice President-
Mortgage Lending
Lawrence D. Corbett
Senior Vice President and
Mortgage Loan Officer
Kenneth W. Faupel
Senior Vice President and
Senior Operations Officer
Richard P. Lupkes
Senior Vice President and
Commercial Loan Officer
David B. Randall
Senior Vice President and
Mortgage Loan Officer
Diana L. Wallace
Senior Vice President
Thomas G. Zernick
Senior Vice President and
Commercial Loan Officer
Vincent G. Cassisa
Vice President-
Commercial Lending
Ronald L. Clingerman
Vice President and
Commercial Loan Officer
Michael A. DeMeyere
Vice President-Retail Banking
John C. Deming
Vice President and
Commercial Loan Officer
Ian T. Glassford
Vice President-Retail Banking
Michael J. Gleason
Vice President-Mortgage Sales
Jack S. Harris
Vice President-Retail Banking
Suzanne A. Lieder
Vice President-
Mortgage Lending
Douglas A. Liverance
Vice President-
Consumer Lending
Daniel F. Mackenzie
Vice President-
Mortgage Lending
Cassandra Miller
Vice President-
Mortgage Lending
Jeffrey D. Saunders, C.P.A.
Controller
David J. Skaff
Vice President-
Commercial Lending
Gregory B. Smith
Vice President-
Mortgage Lending
James L. Stotz
Vice President-Loan Servicing
Joanne M. Wrozek
Vice President
47
REPUBLIC AFFILIATES
REPUBLIC BANK (continued)
OFFICES
ANN ARBOR
122 South Main Street
Ann Arbor, Michigan 48104
(313) 665-4030
2100 South Main Street, Suite 2
Ann Arbor, Michigan 48103
(313) 665-4080
FLINT
3200 Beecher Road
Flint, Michigan 48532
(810) 732-3300
220 E. Main Street
Flushing, Michigan 48433
(810) 659-7712
G-8455 South Saginaw Road
Grand Blanc, Michigan 48439
(810) 694-8222
1070 East Main Street
Owosso, Michigan 48867
(517) 723-7800
1345 N. Shiawassee Street
Owosso, Michigan 48867
(517) 723-5101
JACKSON
306 West Michigan Avenue
Jackson, Michigan 49201
(517) 789-4300
125 West Main Street
Hanover, Michigan 49241
(517) 563-8332
2201 East Michigan Avenue
Jackson, Michigan 49202
(517) 789-4330
2030 Fourth Street
Jackson, Michigan 49203
(517) 789-4335
904 North Wisner Street
Jackson, Michigan 49202
(517) 789-4394
Loan Production Office
4205 South Westnedge Avenue
Kalamazoo, Michigan 49008
(616) 344-0011
112 Jonesville Street
Litchfield, Michigan 49252
(517) 542-2931
12811 East Chicago Road
P.O. Box 9
Somerset Center, Michigan 49282
(517) 688-4433
119 West Main Street
Spring Arbor, Michigan 49283
(517) 789-4340
LANSING
500 North Homer Street
Lansing, Michigan 48912
(517) 351-7300
601 West Grand River
Okemos, Michigan 48864
(517) 349-1930
127 East Grand River
Webberville, Michigan 48892
(517) 521-3122
105 West Middle Street
Williamston, Michigan 48895
(517) 655-4371
SOUTHEASTERN MICHIGAN
1700 North Woodward Avenue
Suite B
Bloomfield Hills, Michigan 48304
(810) 258-5300
31155 Northwestern Highway
Farmington Hills, Michigan 48334
(810) 737-0444
18720 Mack Avenue
Grosse Pointe Farms, Michigan 48236
(313) 882-6400
TRAVERSE CITY
534 E. Front Street
Traverse City, Michigan 49686
(616) 933-5626
Loan Production Office
616 Petoskey Street, Suite 306
Petoskey, Michigan 49770
(616) 347-0290
48
REPUBLIC AFFILIATES
REPUBLIC BANK COMMUNITY BOARDS
DIRECTORS
ANN ARBOR
Lee E. Benz
Jack R. Lousma
Robert L. McNaughton
William G. Milliken, Jr.
David G. Stickel
James D. Short, Jr., Ph.D.
Jeoffrey K. Stross, M.D.
George D. Zuidema, M.D.
FLINT
Bruce L. Cook
Richard J. Cramer
Dr. George A. Eastman
Barry J. Eckhold
Howard J. Hulsman
Gary Hurand
Craig L. Johnson
Robert C. Manutes
Dr. Milton Rosenbaum
David G. Stickel
David W. Wright
Michael D. Young
JACKSON
G. Mark Alyea
Theodore J. Carlson
Frank A. Denbrock
Lloyd G. Ganton
Dennis A. Hill
Gary Hurand
William C. Koons
Milton F. Lutz, II
Phillip O. Richards, M.D.
Jo-Anne Rosenfeld
Lawrence Schultz
John E. VanderPoel
LANSING
George L. Burkitt
A. Gregory Eaton
Barry J. Eckhold
D. Wayne Fate
C. Howard Haas
Joe D. Pentecost
Grant C. Putman
SOUTHEASTERN MICHIGAN
Peter A. Dow
Robert C. Edgar
Harvey C. Fruehauf, Jr.
Frederick C. Gould
Frederick H. Marx
Sam H. McGoun
Lawrence E. Padlo
Alan R. Pfaff, Jr.
William C. Rands, III
Peter W. Smith
Richard H. Turner
Robert C. Valade
49
REPUBLIC AFFILIATES
REPUBLIC SAVINGS BANK
DIRECTORS
Joseph D. Rusnak
President and
Chief Executive Officer
Albert P. Blank
Executive Vice President
Dana M. Cluckey
Executive Vice President and
Treasurer
Republic Bancorp Inc.
Paul C. Drueke
First Vice President
Stifel Nicolaus & Company, Inc.
Dennis J. Ibold
Chairman of the Board
Partner
Petersen, Ibold & Wantz
Attorneys at Law
John J. Lennon
Retired Chairman and
Chief Executive Officer
White Engines, Inc.
John L. Macklin
President
Investment Advisors
International, Inc.
Lyman H. Treadway
Consultant
Retired Chairman and
Chief Executive Officer
Bancapital Corporation
OFFICERS
Joseph D. Rusnak
President and
Chief Executive Officer
Albert P. Blank
Executive Vice President
David C. Williams
Senior Vice President and
Senior Credit Officer
Terry G. Robbins
First Vice President and Secretary
David W. Gifford, C.P.A.
Vice President and Treasurer
Ronald E. Decker
Vice President
Glenn B. Keeney
Vice President
Denise H. Long
Vice President
John L. Mlakar
Vice President
Karen H. Rhodes
Vice President
Leeanne M. Wright
Vice President
OFFICES
23175 Commerce Park Road
Beachwood, Ohio 44122
(216) 765-1100
17800 Chillicothe Road
Chagrin Falls, Ohio 44023
(216) 543-8237
8389 Mayfield Road
Chesterland, Ohio 44026
(216) 729-1636
80 Severance Circle Drive
Cleveland Heights, Ohio 44118
(216) 291-3171
5710 Mayfield Road
Greens of Lyndhurst
Lyndhurst, Ohio 44124
(216) 461-7300
26777 Lorain Road
North Olmsted, Ohio 44070
(216) 779-9922
2104 Warrensville Center Road
South Euclid, Ohio 44121
(216) 932-7774
Loan Production Office
7333 Paragon Road, Suite 160
Centerville, Ohio 45459
(513) 438-4663
Loan Production Office
209 West Portage Trail Extension
Suite 200
Cuyahoga Falls, Ohio 44223
(216) 922-5800
Loan Production Office
7784 Reynolds Road
Mentor, Ohio 44060
(216) 946-2690
Loan Production Office
500 W. Wilson Bridge Road
Suite 100
Worthington, Ohio 43085
(614) 888-9582
50
REPUBLIC AFFILIATES
REPUBLIC BANCORP MORTGAGE INC.
DIRECTORS
George B. Smith
Chairman of the Board
Republic Bancorp Mortgage Inc.
Jerry D. Campbell
Chairman of the Board, President
and Chief Executive Officer
Republic Bancorp Inc.
Dana M. Cluckey
Executive Vice President
and Treasurer
Republic Bancorp Inc.
Richard H. Shaffner
President and
Chief Executive Officer
Republic Bancorp Mortgage Inc.
OFFICERS
George B. Smith
Chairman of the Board
Richard H. Shaffner
President and
Chief Executive Officer
Shirley M. Clark
Executive Vice President
Alice M. Alvey
Senior Vice President
Lawrence Rosenberg, C.P.A.
Chief Financial Officer
Gregory R. Bixby
Vice President
Robert L. Borkowski
Vice President
Charles W. Cracraft
Vice President
Robert V. Drury
Vice President
Thomas R. Henaughen
Vice President
Brian R. Ludtke, C.P.A.
Vice President
Marianne Opt-Thompson
Vice President
Gary L. Shafer
Vice President
Denise M. Sims
Vice President
Barbara Jo Smith
Vice President
Daniel B. Smith
Vice President
Thomas B. Smith
Vice President
Timothy B. Smith
Vice President
Michael G. Taormino
Vice President
Gayle S. Wickham
Vice President
Lisa A. Wickham
Vice President
William D. Wilhammer
Vice President
OFFICES
31155 Northwestern Highway
Farmington Hills, Michigan 48334
(810) 932-6500
1919 West Stadium, Suite 4
Ann Arbor, Michigan 48103
(313) 995-4499
1700 North Woodward Avenue
Bloomfield Hills, Michigan 48304
(810) 646-7050
322 West Grand River
Brighton, Michigan 48116
(810) 229-7440
186 South Main Street
Plymouth, Michigan 48170
(313) 459-7800
543 Main Street
Suite 213
Rochester, Michigan 48307
(810) 656-4200
19301 Northline Road
Southgate, Michigan 48195
(313) 287-0400
1200 Valley West Drive
Suite 206-14
West Des Moines, Iowa 50265
(800) 800-6492
17218 Preston Road
Suite 451
Dallas, Texas 75252
(214) 713-9564
51
REPUBLIC AFFILIATES
HOME FUNDING, INC.
(a division of Republic Bancorp Mortgage Inc.)
OFFICERS
Joseph A. Cilento
President
Kathleen Quinn
Executive Vice President
OFFICES
1811 Route 52
Hopewell Junction, New York 12533
(914) 226-6000
1407 Route 9
Clifton Park, New York 12065
(518) 373-0814
6701 Manlius Center Road
East Syracuse, New York 13057
(315) 431-4100
457 Main Street
Danbury, Connecticut 06811
(203) 791-1736
195 Farmington Avenue
Suite 310
Farmington, Connecticut 06032
(203) 678-1778
1301 York Road, Suite 400
Lutherville, Maryland 21093
(410) 339-7794
Two Meeting House Road
Chelmsford, Massachusetts 01824
(508) 250-2700
AMERIFIRST HOME MORTGAGE
(a division of Republic Bancorp Mortgage Inc.)
OFFICERS
David N. Gahm
Senior Vice President
Mark A. Jones
Senior Vice President
Nancy F. Bastian
Vice President
David H. Jones
Vice President
Blake E. Bottomley
Vice President
OFFICES
7215 S. Westnedge
Portage, Michigan 49002
(616) 324-4120
138 N. Otsego
P.O. Box 840
Gaylord, Michigan 49735
(517) 732-3526
5763 28th Street, SE
Grand Rapids, Michigan 49546
(616) 285-3200
112 East Chart St.
Plainwell, Michigan 49080
(616) 685-1441
52
REPUBLIC AFFILIATES
MARKET STREET MORTGAGE CORPORATION
DIRECTORS
Randall C. Johnson
Chairman of the Board,
President and
Chief Executive Officer
T. Donnell Smith
Executive Vice President
Michael H. Dillon
Executive Vice President
Jerry D. Campbell
Chairman of the Board,
President and
Chief Executive Officer
Republic Bancorp Inc.
Dana M. Cluckey
Executive Vice President
and Treasurer
Republic Bancorp Inc.
Richard H. Shaffner
President and
Chief Executive Officer
Republic Bancorp Mortgage Inc.
OFFICERS
Randall C. Johnson
Chairman of the Board,
President and
Chief Executive Officer
T. Donnell Smith
Executive Vice President
Michael H. Dillon
Executive Vice President
James B. Capps
Senior Vice President
Tracy S. Jackson
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
Barbara V. VanAntwerp
Senior Vice President
Vickey L. Adkins
Vice President
Anna Y. Agee
Vice President
Tony J. Agliardi, C.P.A.
Vice President
and Controller
Michael T. Alea
Vice President
W. Patrick Begg
Vice President
Ross G. Bennett
Vice President
Tambra L. Butler
Vice President
Barry W. Carroll
Vice President
Jerry F. Cobbe
Vice President
Elizabeth Jamison-Rouquie
Vice President
Barbara Jan Jenkins
Vice President
Nancy A. Jones
Vice President
Bruce W. Kates
Vice President
Thomas J. Ninness
Vice President
John C. Pacini
Vice President
Charles W. Richardson
Vice President
Timothy A. Slone
Vice President
Gene F. Swindle
Vice President
Nancy J. Weaver
Vice President
John M. Welsh
Vice President
53
REPUBLIC AFFILIATES
MARKET STREET MORTGAGE CORPORATION (continued)
OFFICES
2650 McCormick Drive, Suite 200
Clearwater, Florida 34619
(800) 669-3210
(813) 724-7000
2410 West Brandon Boulevard
Brandon, Florida 33511
(813) 681-7700
2650 McCormick Drive, Suite 100
Clearwater, Florida 34619
(813) 539-8300
Cross Bayou Commerce Center
11701 Belcher Road South, Suite 110
Largo, Florida 34643
(813) 539-8300
2500 Maitland Center Parkway
Suite 402
Maitland, Florida 32751
(407) 875-6900
10700 North Kendall Drive, Suite 301
Miami, Florida 33176
(305) 596-1640
9000 W. Sheridan Street
Unit 147
Pembroke Pines, Florida 33024
(305) 438-6600
5700 North Davis Highway, Suite 4
Pensacola, Florida 32503
(904) 479-7991
1800 Second Street, Suite 808
Sarasota, Florida 34236
(813) 954-8880
3160 Fifth Avenue North, Suite 140
St. Petersburg, Florida 33713
(813) 539-8300
3550 Bushwood Park Drive, Suite 150
Tampa, Florida 33618
(813) 932-4578
1715 North Westshore Boulevard
Suite 552
Tampa, Florida 33607
(813) 286-8700
111 Hidden Glen Way
Dothan, Alabama 36303
(205) 794-7660
6719 Taylor Circle, Unit B
Montgomery, Alabama 36106
(334) 277-9011
4222 E. Camelback Road
Suite H100
Phoenix, Arizona 85018
(602) 840-4434
500 E. Fry Boulevard, Suite L9
Sierra Vista, Arizona 85635
(502) 458-8523
Plaza Quebec
6025 South Quebec, Suite 120
Englewood, Colorado 80111
(303) 721-1120
400 Interstate North Parkway
Suite 600
Atlanta, Georgia 30339
(404) 988-1800
5669 Whitesville Road, Suite E
Columbus, Georgia 31904
(706) 324-0074
1750 East Golf Road, Suite 210
Schaumburg, Illinois 60173
(708) 706-9411
3901 National Drive, Suite 210
Burtonsville, Maryland 20866
(301) 989-8500
2701 Coltsgate Road, Suite #101
Charlotte, North Carolina 28211
(704) 365-9044
7611 Little River Turnpike
Suite 502W
Annandale, Virginia 22003
(703) 941-6600
3998 Fair Ridge Drive, Suite 200
Fairfax, Virginia 22033
(703) 359-0100
54
REPUBLIC AFFILIATES
CUB FUNDING CORPORATION
DIRECTORS
Douglas E. Jones
Chairman of the Board and
Chief Executive Officer
Daniel M. LuVisi
Vice Chairman and President
Jerry D. Campbell
Chairman of the Board,
President and
Chief Executive Officer
Republic Bancorp Inc.
Dana M. Cluckey
Executive Vice President
and Treasurer
Republic Bancorp Inc.
OFFICERS
Douglas E. Jones
Chairman of the Board and
Chief Executive Officer
Daniel M. LuVisi
Vice Chairman and President
Anne L. Elliott
Senior Vice President
Judy L. Smith
Vice President and Controller
Dennece Bickley
Vice President
Jackie M. Casillas
Vice President
John P. Dixon
Vice President
Scott K. Osder
Vice President
OFFICES
26565 West Agoura Road, Suite 305
Calabasas, California 91302-1958
(818) 880-4400
5345 Madison Avenue, Suite 301
Sacramento, California 95841
(916) 349-3211
100 Pacifica, Suite 340
Irvine, California 92718
(714) 753-7424
468 North Rosemead Boulevard,
No. 104
Pasadena, California 91107
(818) 351-4888
4320 Stevens Creek Blvd., Suite 165
San Jose, California 95129
(408) 261-1660
10655 NE Fourth, Suite 400
Bellevue, Washington 98004
(206) 455-3462
10260 SW Greenburg Road,
Suite 535
Portland, Oregon 97223
(503) 293-7390
55
REPUBLIC BANCORP INC.
DIRECTORS
Jerry D. Campbell
Chairman of the Board,
President and
Chief Executive Officer
Dana M. Cluckey, C.P.A.
Executive Vice President,
Treasurer and
Assistant Secretary
Bruce L. Cook
President
Wolverine Sign Works
Richard J. Cramer
President
Dee Cramer, Inc.
Dr. George A. Eastman
Orthodontic Consultant
Howard J. Hulsman
Chairman
Ross Learning Inc.
Gary Hurand
President
Dawn Donut Systems, Inc.
Dennis J. Ibold
Partner
Petersen, Ibold & Wantz
Attorneys at Law
Stephen M. Klein
Chairman and
Chief Executive Officer
Omni Funding Corporation
John J. Lennon
Retired Chairman and
Chief Executive Officer
White Engines, Inc.
Sam H. McGoun
President and
Chief Executive Officer
Willis Corroon Corporation
of Michigan, Inc.
Kelly E. Miller
President
Miller Oil Corporation
Joe D. Pentecost
President
Better Properties, Inc.
George B. Smith
Chairman of the Board
Republic Bancorp Mortgage Inc.
Dr. Jeoffrey K. Stross
Professor, Internal Medicine
Associate Chief of Clinical Affairs
University Medical Center
Lyman H. Treadway
Consultant
Retired Chairman and
Chief Executive Officer
Bancapital Corporation
DIRECTOR-EMERITUS
John F. Northway
Chairman
The Owosso Company
OFFICERS
Jerry D. Campbell
Chairman of the Board,
President and
Chief Executive Officer
Dana M. Cluckey, C.P.A.
Executive Vice President,
Treasurer and
Assistant Secretary
Barry J. Eckhold
Vice President,
Chief Credit Officer and
Secretary
Richard H. Shaffner
Vice President
Thomas F. Menacher, C.P.A.
Chief Financial Officer
Timothy G. Blazejewski, C.P.A.
Controller and
Assistant Secretary
Travis D. Jones, C.P.A.
Risk Management Officer
Mary Lou Scriba
Investment Relations Manager
and Assistant Secretary
OFFICES
1070 East Main Street
P.O. Box 70
Owosso, Michigan 48867
(517) 725-7337
122 South Main Street
Ann Arbor, Michigan 48104
(313) 665-4030
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CORPORATE INFORMATION
ANNUAL MEETING
The Annual Meeting of Shareholders of Republic Bancorp Inc. will be held on
April 26, 1995 at 9:00 a.m. at the Novi Hilton, 21111 Haggerty Road, Novi,
Michigan.
ADDITIONAL SHAREHOLDER INFORMATION
Those seeking general information about the Company or a copy of the Form 10-K
filed with the Securities and Exchange Commission may contact:
Dana M. Cluckey, C.P.A.
Executive Vice President and Treasurer
P.O. Box 70
Owosso, Michigan 48867
(517) 725-7337
INDEPENDENT AUDITORS
Deloitte & Touche, LLP,
Detroit, Michigan
LEGAL COUNSEL
Dickinson, Wright, Moon, Van Dusen & Freeman
Detroit, Michigan
Miller, Canfield, Paddock and Stone
Detroit, Michigan
STOCK TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company
c/o Boston Financial Data Services
P.O. Box 8204
Boston, Massachusetts 02266
(800) 257-1770
57
CORPORATE INFORMATION (continued)
DIVIDEND REINVESTMENT PLAN
Republic Bancorp Inc. shareholders of record may elect to have dividends
automatically reinvested in additional shares of Republic stock through its
Dividend Reinvestment Plan (Plan). The Plan offers you the opportunity to
reinvest your quarterly cash dividends, as well as make supplemental cash
contributions toward the purchase of additional Republic Bancorp common stock.
The Plan is voluntary and there are no service charges or brokerage fees for
purchases under the Plan. We are pleased to make this Plan available to
Republic shareholders, and we invite you to participate.
Requests for additional information about this Plan, or any questions about
stock holdings should be directed to:
Mary Lou Scriba
Investor Relations Manager
P.O. Box 70
Owosso, Michigan 48867
(517) 725-7337
COMMON STOCK
The common stock of Republic Bancorp Inc. is traded on The NASDAQ Stock Market
under the symbol RBNC. The following 26 brokerage firms make a market in the
common stock of Republic Bancorp Inc.
A.G. Edwards & Sons, Inc.
St. Louis, Missouri 63103
Advest, Inc.
Hartford, Connecticut 06103
Allen & Company, Inc.
New York, New York 10022
Robert W. Baird & Co. Incorporated
Milwaukee, Wisconsin 53202
The Chicago Corporation
Chicago, Illinois 60604
Dean Witter Reynolds, Inc.
New York, New York 10048
First of Michigan Corporation
Detroit, Michigan 48226
Gerald Klauer Mattison & Co.
New York, New York 10016
Gruntal & Co. Incorporated
New York, New York 10005
Herzog, Heine, Geduld, Inc.
New York, New York 10004
Howe Barnes & Johnson, Inc.
Chicago, Illinois 60603
Keefe, Bruyette & Woods, Inc.
New York, New York 10048
Kemper Securities Group Inc.
Chicago, Illinois 60606
MacAllister Pitfield MacKay
New York, New York 10004
Mayer & Schweitzer Inc.
Jersey City, New Jersey 07302
McDonald & Company Securities, Inc.
Cleveland, Ohio 44114
Merrill Lynch, Pierce, Fenner & Smith
New York, New York 10281
Nash Weiss
Jersey City, New Jersey 07302
PaineWebber Inc.
New York, New York 10019
RFB Investments Inc.
New York, New York 10022
Roney & Co.
Detroit, Michigan 48226
Sherwood Securities Corp.
New York, New York 10285
Smith Barney Shearson, Inc.
New York, New York 10105
Stifel Nicolaus & Co., Inc.
St. Louis, Missouri 63102
Troster Singer Corp.
Jersey City, New Jersey 07302
Wertheim Schroder & Co., Inc.
New York, New York 10019
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