EXHIBIT 13
ANNUAL REPORT OF THE REGISTRANT TO ITS STOCKHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1995
Company Profile
Republic Bancorp Inc. is a bank holding company established in 1986 which
currently operates 96 banking and mortgage banking offices in 20 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.
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 mortgage
operations in 13 offices located in 4 states; Market Street Mortgage
Corporation, a retail mortgage company based in Clearwater, Florida with 33
locations in 9 states; and CUB Funding Corporation, a retail and wholesale
mortgage company, headquartered in Calabasas, California with 14 offices in 6
states. During 1995 the Company originated or purchased $2.85 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, 1995, the mortgage loan servicing portfolio was $4.0
billion.
1
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 .................................... 45
Independent Auditors' Report ............................ 46
Summary of Common Share Market Data and Quarterly Data .. 47
Republic Affiliates ..................................... 48
Republic Bancorp Inc. Board of Directors and Officers ... 56
Corporate Information ................................... 57
2
Financial Highlights
%
(Dollars in thousands, except per share data) 1995 1994 Change
---- ---- ------
Net Income ............................................ $ 14,264 $ 15,719 (9)%
Per Common Share Data: (1)
Net income - primary and fully diluted .......... 0.84 0.91 (8)
Cash dividends declared ......................... 0.34 .0.27 26
Book value per common share outstanding ......... 7.67 7.03 9
Average shares outstanding (000s) - fully diluted 16,996 17,326 (2)
Operating Data (in millions):
Residential mortgage loan closings .............. $ 2,847 $ 2,837 --
Mortgage loan servicing portfolio ............... 3,967 4,669 (15)%
Year-End Balances:
Total assets .................................... $1,472,690 $1,363,614 8%
Mortgage loans held for sale .................... 423,364 152,138 178
Portfolio loans, net ............................ 573,110 599,545 (4)
Total deposits .................................. 904,729 818,742 11
Shareholders' equity ............................ 126,376 117,914 7
Financial Ratios:
Return on average assets ........................ 1.00% 1.23% (19)%
Return on average equity ........................ 11.71 13.43 (13)
Total shareholders' equity to assets ............ 8.58 8.65 (1)
Total risk-based capital ........................ 18.63 21.05 (11)
Asset Quality Ratios:
Non-performing assets to loans and other
real estate owned ............................ 0.30% 0.54% (44)%
Non-performing assets to total assets ........... 0.20 0.30 (33)
<FN>
(1) All per share amounts have been restated to reflect stock dividends.
3
Letter to Shareholders
Results
We are pleased to report your Company earned net income of $14.3 million in
1995, which was the second highest earnings year in the Company's history when
comparing income from operations. Fully diluted earnings per share were $0.84
for the year ended December 31, 1995 compared to $0.76 in 1994, excluding the
gain on sale of bank branches. Earnings per share amounts are restated to
reflect the 10% stock dividend issued December 1, 1995. Our return on average
assets was 1.00% in 1995 and our return on average equity was 11.71%. Mortgage
loan closings were $2.85 billion for the year ended December 31, 1995, a
slight increase from the $2.84 billion in closings for 1994.
[ PHOTO ]
Jerry D. Campbell
Chairman and
Chief Executive Officer
Strength of Asset Quality and Capital
The Company's total assets increased to $1.47 billion at December 31, 1995,
compared with $1.36 billion reported at December 31, 1994. Republic's asset
quality ratios continue to be among the best in the country. Net charge-offs
in 1995 were only .06% of average total loans and non-performing assets were
only .20% of total assets at December 31, 1995. These ratios reflect the
Company's emphasis on conservative lending policies. At December 31, 1995,
approximately 85% of the Company's loan portfolio consisted of residential
real estate mortgages and commercial loans secured by real estate.
The Company also continues to enjoy very strong capital levels with
total shareholders' equity increasing to $126 million at December 31, 1995,
from $118 million at December 31, 1994. The Company's capital ratios are
significantly higher than the regulatory requirements of a well-capitalized
financial institution, with a Total risk-based capital ratio of 18.63% at
December 31, 1995.
[ PHOTO ]
Dana M. Cluckey
President and
Chief Operating Officer
1995 Overview
While the Company had consistent levels of mortgage loan originations in 1995
compared to 1994, our December 31, 1995 pipeline of mortgage loan applications
in process was $794 million, or more than double the pipeline at December 31,
1994. Considering the current interest rate outlook and our significant
mortgage loan pipeline, the Company is entering 1996 with significant
momentum.
In August 1995, the Company acquired the six western mortgage
division offices of Railroad Savings Bank, F.S.B. Since their acquisition, RSL
Mortgage has originated $160 million in mortgage loan closings. This move
increased our presence in the western United States and has been profitable in
a very short time period.
The Company's Small Business Administration (SBA) lending emphasis
continued to grow in 1995. Republic Bank was the Number One SBA lender in the
state of Michigan for the second year in a row. The Company closed over $17
million in SBA loans during the year and has a strong pipeline of loans in
process.
The year ending December 31, 1995 also saw a 20% increase in the market
value of the Company's stock. The Company's five year average annual return on
its common stock of 35% continues to exceed that of the NASDAQ stock Market
composite for all U.S. companies and the NASDAQ bank stocks composite.
4
Promotion
In recognition of his many contributions to the Company, Dana M. Cluckey was
recently promoted to President and Chief Operating Officer of the Company. Mr.
Cluckey joined Republic in 1986, when total assets were approximately $15
million. Since that time the Company has grown one hundred-fold in less than
ten years.
Outlook
Republic Bancorp Inc. begins the year in an excellent position to take
advantage of the opportunities before us. We are a nationwide mortgage lender
with 96 offices in 20 states, with a focus on mortgage lending, SBA lending
and personal banking. The following actions recently taken by the Company
contribute to our enthusiasm for increased returns to our shareholders:
o In January 1996, the Company completed a $22.5 million Senior
Debenture offering, with an interest rate of 6.87%. The proceeds were
used to redeem the existing $17.25 million of 9% Subordinated Notes,
which will result in annual pre-tax savings of approximately $400,000
in interest expense. The remaining proceeds from this debt offering
will be used for working capital, including possible acquisitions.
o In February 1996, your Board of Directors approved an increase in the
quarterly dividend to $.10 per share as a result of the Company's
strong capital position and positive outlook for 1996. This is the
fourth increase in Republic's regular quarterly dividend in the last
four years and represents a cumulative increase of 193% over this
period. Additionally, the Company has acquired approximately 350,000
shares of common stock under the previously announced Stock Repurchase
Program.
o Effective March 1, 1996, Republic Bancorp Mortgage Inc. and CUB
Funding Corporation became subsidiaries of Republic Bank. This
consolidation will allow the mortgage companies to utilize Republic
Bank's lower cost of funds for the financing of their mortgage loan
closings, thereby increasing our net interest margin.
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 1996 and want to thank you for
your continued support.
Sincerely,
/s/ JERRY D. CAMPBELL
Jerry D. Campbell
Chairman and Chief Executive Officer
/s/ DANA M. CLUCKEY
Dana M. Cluckey
President and Chief Operating Officer
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, 1995 has been derived from the Consolidated Financial Statements
of the Company and the related notes to the Consolidated Financial Statements.
Year Ended December 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Statements of Income Information (Dollars in thousands):
Total interest income .......................................... $ 95,597 $ 78,219 $ 78,831 $ 74,068 $ 70,886
Total interest expense ......................................... 65,192 44,999 42,268 40,339 43,990
Net interest income before provision for loan losses ........... 30,405 33,220 36,563 33,729 26,896
Provision for loan losses ...................................... 24 94 603 3,967 2,135
Mortgage banking income ........................................ 70,960 69,899 85,128 30,697 8,985
Other non-interest income ...................................... 4,241 5,762 6,992 6,113 4,482
Non-interest expense ........................................... 83,152 85,021 93,539 47,811 29,325
Provision for income taxes ..................................... 8,166 8,047 12,308 7,339 3,342
-------- -------- -------- -------- --------
Net income before cumulative effect of
change in accounting principle ............................ 14,264 15,719 22,233 11,422 5,561
Cumulative effect of change in accounting principle ............ -- -- (950) -- --
-------- -------- -------- -------- --------
Net Income ................................................ $ 14,264 $ 15,719 $ 23,183 $ 11,422 $ 5,561
======== ======== ======== ======== ========
Per Common Share Data: (1)
Net income (primary) ........................................... $ .84 $ .91 $ 1.37 $ .76 $ .41
Net income (fully diluted) ..................................... .84 .91 1.37 .73 .41
Cash dividends declared ........................................ .34 .27 .18 .14 --
Dividend payout ratio .......................................... 40% 30% 13% 19% --
Book value per common share outstanding ........................ $ 7.67 $ 7.03 $ 6.70 $ 5.39 $ 5.14
Operating data (Dollars in millions):
Residential mortgage loan closings ............................. $ 2,847 $ 2,837 $ 4,911 $ 2,078 $ 528
SBA loan closings .............................................. 17 12 7 1 --
Mortgage loan servicing portfolio .............................. 3,967 4,669 3,023 2,049 284
Year-End Balances (Dollars in millions):
Total assets ................................................... $ 1,473 $ 1,364 $ 1,171 $ 1,126 $ 838
Total earning assets ........................................... 1,323 1,224 1,078 1,041 801
Mortgage loans held for sale ................................... 423 152 508 245 67
Net loans ...................................................... 573 600 400 519 459
Total deposits ................................................. 905 819 834 898 686
Long-term debt ................................................. 52 56 20 5 7
Shareholders' equity ........................................... 126 118 111 84 65
Performance Ratios:
Return on average assets ....................................... 1.00% 1.23% 1.94% 1.20% .71%
Return on average common equity ................................ 11.71 13.43 23.72 15.05 8.91
Net interest margin ............................................ 2.38 2.88 3.29 3.70 3.62
Asset Quality Ratios:
Non-performing assets to loans and other real estate owned (2) . .30% .54% .58% 1.01% 1.68%
Non-performing assets to total assets .......................... .20 .30 .45 .69 1.07
Allowance for estimated loan losses to non-performing loans .... 252.64 158.61 148.34 163.73 78.41
Allowance for estimated loan losses to loans ................... .87 .92 1.77 1.46 1.16
Net charge-offs to average loans outstanding (2) ............... .06 .20 .06 .26 .23
Capital Ratios:
Total shareholders' equity to assets ........................... 8.58% 8.65% 9.52% 7.48% 7.74%
Tier 1 risk-based capital ...................................... 15.72 17.57 16.35 12.97 13.07
Total risk-based capital ....................................... 18.63 21.05 20.19 14.23 14.54
Tier 1 leverage ................................................ 8.31 8.43 8.43 7.51 8.02
<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 1995 totaled $14.3 million, compared to $15.7 million earned in
1994. This decrease in earnings was due primarily to a gain on sale of bank
branches in 1994 and a decrease in net interest income. Net income per common
share, fully diluted, was $0.84 for 1995, compared to $0.91 earned in 1994.
Return on average assets in 1995 was 1.00%, while return on average equity was
11.71%.
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 1995, the Company closed $2.85 billion in single-family, residential
mortgage loans, a slight increase over the $2.84 billion closed in 1994. A
breakdown of income from mortgage banking activities is summarized as follows:
Year ended December 31,
--------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Net mortgage loan servicing fees ...... $ 9,596 $ 7,439 $ 4,558
Origination fee income ................ 26,037 25,054 34,044
Gain on sale of mortgages ............. 10,048 4,968 33,190
Gain on sale of servicing ............. 25,279 32,438 13,336
------- ------- -------
Total mortgage banking income ... $70,960 $69,899 $85,128
======= ======= =======
Net mortgage loan servicing fees rose to $9.6 million for 1995, compared with
$7.4 million in 1994. This was the result of higher average servicing
portfolio balances during the year, and the shift toward a greater percentage
of government servicing, which has a higher servicing fee than conventional
servicing. The servicing fees are net of the amortized cost of originated and
purchased servicing rights of $7.0 million in 1995, and net of the amortized
cost of purchased servicing rights of $5.0 million and $4.6 million in 1994
and 1993, respectively.
The Company generates origination fee income primarily through its
retail mortgage loan operation. The Company's retail mortgage loan closings
were $1.93 billion in 1995 compared to $1.77 billion for 1994. This increase
in retail mortgage closings resulted in an increase in origination fee income
of $1.0 million, from $25.0 million in 1994 to $26.0 million in 1995.
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 1995, the Company's gain on sale of mortgages totaled $10.0 million
compared to $5.0 million for 1994. The increase in the gain on sale of
mortgages was due to higher margins and a greater mix of retail production in
1995.
During 1995 and 1994 the Company sold both purchased and originated
mortgage servicing rights of $3.9 billion and $4.5 billion, respectively,
resulting in gains of $25.3 million and $32.4 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 declined by 8.5% in 1995, to $30.4 million. This decrease
was primarily the result of a 50 basis point decrease in the net interest
margin to 2.38% in 1995, as rates on interest bearing liabilities rose
proportionately faster than the increase in rates on interest earning assets.
Interest income grew by 22.2% in 1995, to $95.6 million. Average
balances on interest earning assets rose by 10.8% during 1995, to $1.28
billion, while average rates earned on those assets also rose, to 7.48% from
6.78% in 1994. The largest contributors to the rise in interest income were
mortgages held for sale and portfolio loans, which increased by $5.8 million
and $12.1 million, respectively. These increases were primarily due to higher
levels of mortgage and commercial loan production.
Interest expense rose $20.2 million to $65.2 million in 1995, a 44.9%
increase over the previous year. Average interest bearing liabilities climbed
by 13.9%, to $1.14 billion in 1995. Average balances of time deposits rose by
23.0%, while the average rate paid increased by 121 basis points. This
combination resulted in an increase in time deposit interest expense of $10.8
million, to $30.6 million in 1995. Another significant factor in the overall
rise in interest expense was a 116% increase in average warehousing lines of
credit outstanding and a 47 basis point increase in the average rate paid on
the lines. As a result, interest expense on warehousing lines of credit
increased by $4.5 million over the previous year. In addition, while average
other short-term borrowing remained fairly consistent from 1994 to 1995,
interest expense was impacted by a 176 basis point increase in the average
cost of funds for these borrowings, resulting in $3.0 million in additional
interest expense in 1995.
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 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.
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, 1995, 1994 and 1993.
Year Ended December 31,
-------------------------------------------------------------------------------------
1995 1994 1993
---------------------------- -------------------------- ---------------------------
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 ....... $ 16,801 $ 954 5.68% $ 13,163 $ 474 3.60% $ 50,541 $ 1,473 2.91%
Mortgage loans held for sale ... 268,788 21,100 7.85 213,593 15,317 7.17 382,196 27,361 7.16
Investment securities .......... 382,242 23,155 6.06 434,440 24,128 5.56 213,984 10,823 5.06
Commercial loans ............... 109,063 10,843 9.94 114,954 10,599 9.22 148,707 13,213 8.89
Real estate mortgage loans ..... 443,928 33,633 7.58 326,902 23,243 7.11 270,537 21,520 7.95
Installment loans .............. 56,370 5,912 10.49 50,120 4,458 8.89 46,830 4,441 9.48
---------- ------- ----- ---------- ------- ---- ---------- ------- ----
Total loans, net of
unearned income .......... 609,361 50,388 8.27 491,976 38,300 7.78 466,074 39,174 8.41
---------- ------- ----- ---------- ------- ---- ---------- ------- ----
Total interest earning
assets ................... 1,277,192 95,597 7.48 1,153,172 78,219 6.78 1,112,795 78,831 7.08
---------- ------- ----- ---------- ------- ---- ---------- ------- ----
Allowance for loan losses ...... (5,264) (6,360) (7,594)
Cash and due from banks ........ 24,460 25,758 20,467
Other assets ................... 126,339 108,549 71,892
---------- ---------- ----------
Total assets ................ $1,422,727 $1,281,119 $1,197,560
========== ========== ==========
Average Liabilities and
Shareholders' Equity:
Deposits:
Interest bearing demand
deposits ................. $ 63,516 1,554 2.45 $ 86,965 2,295 2.64 $ 65,392 1,846 2.82
Savings deposits ............ 177,978 6,677 3.75 188,267 6,212 3.30 179,988 5,093 2.83
Time deposits ............... 517,663 30,567 5.90 420,995 19,754 4.69 512,666 25,346 4.94
---------- ------- ----- ---------- ------- ---- ---------- ------- ----
Total interest bearing
deposits ................. 759,157 38,798 5.11 696,227 28,261 4.06 758,046 32,285 4.26
Warehousing lines of credit .... 106,028 7,958 7.51 49,042 3,455 7.04 117,784 5,587 4.74
Other short-term borrowings .... 168,426 10,438 6.20 167,621 7,447 4.44 23,625 892 3.78
FHLB advances .................. 40,004 2,431 6.08 42,796 2,237 5.23 28,008 1,781 6.36
Long-term debt ................. 63,256 5,567 8.80 42,499 3,599 8.47 18,833 1,723 9.15
---------- ------- ----- ---------- ------- ---- ---------- ------- ----
Total interest bearing
liabilities.............. 1,136,871 65,192 5.73 998,185 44,999 4.51 946,296 42,268 4.47
---------- ------- ----- ---------- ------- ---- ---------- ------- ----
Non-interest bearing deposits .. 128,640 121,594 127,562
Other liabilities .............. 35,435 44,273 25,951
---------- ---------- ----------
Total liabilities .............. 1,300,946 1,164,052 1,099,809
---------- ---------- ----------
Shareholders' equity ........... 121,781 117,067 97,751
---------- ---------- ----------
Total liabilities and
shareholders' equity ........ $1,422,727 $1,281,119 $1,197,560
========== ========== ==========
Net interest income ............ $30,405 $33,220 $36,563
======= ======= =======
Net interest spread ............ 1.75% 2.27% 2.61%
===== ==== ====
Net interest margin ............ 2.38% 2.88% 3.29%
===== ==== ====
<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 1995, 1994 or 1993.
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 balances of
interest earning assets and interest bearing liabilities and due to changes in
average rates for the periods indicated.
Year Ended December 31,
--------------------------------------------------------------------------
1995 versus 1994 1994 versus 1993
--------------------------------- -----------------------------------
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
---------- ------- ------ ---------- ------- ------
Interest income:
Money market investments ........... $ 155 $ 325 $ 480 $ (1,285) $ 286 $ (999)
Mortgage loans held for sale ....... 4,232 1,551 5,783 (12,082) 38 (12,044)
Investment securities .............. (3,049) 2,076 (973) 12,140 1,165 13,305
Loans, net of unearned income (2) .. 9,589 2,499 12,088 2,129 (3,003) (874)
-------- -------- -------- -------- -------- --------
Total interest income ......... 10,927 6,451 17,378 902 (1,514) (612)
-------- -------- -------- -------- -------- --------
Interest expense:
Interest bearing demand deposits ... (583) (158) (741) 573 (124) 449
Savings deposits ................... (353) 818 465 243 876 1,119
Time deposits ...................... 5,087 5,726 10,813 (4,358) (1,234) (5,592)
-------- -------- -------- -------- -------- --------
Total interest bearing deposits 4,151 6,386 10,537 (3,542) (482) (4,024)
-------- -------- -------- -------- -------- --------
Warehousing lines of credit ........ 4,263 240 4,503 (4,125) 1,993 (2,132)
Other short-term borrowings ........ 36 2,955 2,991 6,370 185 6,555
FHLB advances ...................... (153) 347 194 815 (359) 456
Long-term debt ..................... 1,822 146 1,968 2,007 (131) 1,876
-------- -------- -------- -------- -------- --------
Total interest expense ........ 10,119 10,074 20,193 1,525 1,206 2,731
-------- -------- -------- -------- -------- --------
Net interest income ........... $ 808 $ (3,623) $ (2,815) $ (623) $ (2,720) $ (3,343)
======== ======== ======== ======== ======== ========
<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 $75.2 million in 1995, compared to $75.7
million in 1994. 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 the previous year. 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 1995, the Company's gain on sale of
securities was $1.1 million.
Non-Interest Expense
During 1995, non-interest expense decreased to $83.2 million, or 5.8% of
average assets, compared to $85.0 million, or 6.6% of average assets for 1994.
The decease in non-interest expense was due primarily to a reduction in
operating expenses other than salaries. These expenses decreased from $37.4
million in 1994 to $33.4 million in 1995, a decrease of 10.7%. This decrease
is largely attributable to decreases in mortgage loan closing costs, deposit
insurance premiums, and state taxes. Salaries and employee benefits increased
to $49.8 million in 1995, or 59.9% of non-interest expense, compared with
$47.6 million in 1994, or 56% of non-interest expense.
Non-interest expense decreased from $93.5 million in 1993, or 7.8% of
average assets, to $85.0 million, or 6.6% of average assets in 1994. The
decrease in non-interest expense was due primarily to a reduction in salaries
and employee benefits of $7.4 million, including commissions paid on
residential loan closings.
10
Management's Discussion and Analysis(continued)
Income Taxes
Federal income tax expense was $8.2 million in 1995, compared to $8.0 million
in 1994, and $12.3 million in 1993. The effective tax rate in 1995 was 36.4%,
compared with 33.9% in 1994, and 35.6% in 1993. The increase in 1995 is due to
a higher amount of non-deductible expenses.
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 is 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, 1995 were $1.47 billion, compared to $1.36
billion at December 31, 1994, an increase of 8%. The increase in assets during
1995 was due primarily to an increase in mortgage loans held for sale, which
increased by $271.2 million. This increase was funded by increased levels of
deposits and short-term borrowings, as well as net proceeds from sales of
securities. Average earning assets totaled $1.28 billion for 1995, compared
with $1.15 billion for 1994.
Loans
Total loans, excluding loans held for sale, at December 31, 1995 were $578.1
million. This represents a decrease of $27.0 million from the $605.1 million
reported at December 31, 1994. Residential real estate loans decreased $76.0
million to $381.8 million at December 31, 1995, from $457.8 million at
December 31, 1994, due primarily to sales or securitizations of adjustable and
fixed rate loans that were identified as having a higher level of prepayment
risk. The Company will continue its emphasis on originating fixed rate
residential real estate loans to be sold into the secondary market, and on
generating adjustable rate, real estate-secured portfolio loans. Commercial
loans, including commercial loans secured by real estate, increased from $97.9
million to $132.4 million, or 22.9% of total loans at December 31, 1995. The
increase of $34.5 million from 1994 was due to increased originations and SBA
and FMHA loan purchases of $6.6 million and $3.6 million, respectively.
Mortgage loans held for sale increased from $152.1 million at December
31, 1994 to $423.4 million at December 31, 1995. During 1995, the Company
closed $2.85 billion in residential real estate mortgage loans, a slight
increase over the $2.84 billion closed in 1994. The substantial majority of
all mortgage loans closed were 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, 1995, these loans comprise
84.7% 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"), the Federal National
Mortgage Association ("FNMA"), or the Government National Mortgage Association
("GNMA"). The majority of the Company's commercial loans are secured by real
estate and are 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.
Installment loans increased by $14.5 million from 1994, due to an
increased emphasis on home equity loans and lines of credit. The Company has
not emphasized other installment loans and 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,
--------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------------- ---------------- --------------- --------------- --------------
Amount % Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ - ------ -
(Dollars in thousands)
Commercial loans:
Secured by real
estate ........ $108,108 18.7% $ 81,922 13.5% $ 94,428 23.2% $147,790 28.1% $144,832 31.2%
Other (generally
secured) ...... 24,325 4.2 15,989 2.6 32,114 7.9 44,538 8.5 48,238 10.4
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total commercial
loans ......... 132,433 22.9 97,911 16.1 126,542 31.1 192,328 36.6 193,070 41.6
Residential loans:
Real estate
mortgages .. 381,803 66.0 457,755 75.7 229,203 56.3 286,502 54.4 224,478 48.3
Installment loans 63,876 11.1 49,423 8.2 51,372 12.6 47,563 9.0 46,955 10.1
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans ... $578,112 100.0% $605,089 100.0% $407,117 100.0% $526,393 100.0% $464,503 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
The following table sets forth information regarding the maturity and
sensitivity to interest rates of the Company's commercial loan portfolio.
December 31, 1995
----------------------
(Dollars in thousands)
Commercial Loan Maturity:
Due within one year........................... $ 31,681
One year through five years................... 70,874
After five years.............................. 29,878
---------
Total commercial loans..................... $ 132,433
=========
Commercial Loans Maturing After One Year:
With predetermined rates...................... $ 52,453
With floating rates........................... 48,299
---------
Total commercial loans..................... $ 100,752
=========
The following table sets forth information regarding the geographic
distribution of the Company's loan portfolio as of December 31, 1995. As noted
below, the majority of loans have been originated in Michigan and Ohio.
December 31, Percent of Total
1995 Outstanding
------------ ----------------
(Dollars in thousands)
Michigan................... $389,920 67.4%
Ohio....................... 129,540 22.4
Florida.................... 21,793 3.8
Other...................... 36,859 6.4
-------- -----
Total................... $578,112 100.0%
======== =====
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 in
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, 1995 approximately $8.0 million, or 1.4% 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 ("OREO") 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,
-------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in thousands)
Loans past due 90 days or more and still
accruing interest:
Commercial ........................... $ 209 $ 104 $ 217 -- --
Residential real estate mortgages .... 42 -- -- $ 90 --
Installment .......................... 94 35 93 31 $ 3
------ ------ ------ ------ ------
Total .............................. $ 345 $ 139 $ 310 $ 121 $ 3
====== ====== ====== ====== ======
Non-accrual loans:
Commercial ........................... $ 500 $ 982 $1,812 $1,386 $3,332
Residential real estate mortgages .... 661 1,304 803 1,085 1,223
Installment .......................... 131 79 108 82 163
------ ------ ------ ------ ------
Total ............................. 1,292 2,365 2,723 2,553 4,718
Restructured loans ................... 688 1,130 2,140 2,140 2,181
Other real estate owned .............. 980 586 405 3,117 2,078
------ ------ ------ ------ ------
Total non-performing assets ....... $2,960 $4,081 $5,268 $7,810 $8,977
====== ====== ====== ====== ======
Non-performing assets as a percentage of:
Portfolio loans and OREO (1) ......... .51% .67% 1.29% 1.47% 1.92%
Total loans and OREO (2) ............. .30 .54 .58 1.01 1.68
Total assets ......................... .20 .30 .45 .69 1.07
<FN>
(1) Excluding loans held for sale.
(2) Including loans held for sale.
Gross interest income that would have been recorded in 1995 for loans
that were classified as non-accrual on December 31, 1995, assuming they had
been accruing interest throughout the year in accordance with their original
terms, was approximately $135,000. The amount of interest collected on these
loans and included in income for 1995 was approximately $44,000. Therefore, on
a net basis, total income foregone in 1995 due to these loans was
approximately $91,000. Furthermore, gross interest income that would have been
recorded on restructured loans throughout the year, in accordance with their
original terms, was $67,000, versus $38,000, the amount actually collected
under the new loan terms, resulting in lost interest of approximately $29,000.
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, 1995, total loans on
the watch list of the Company were $6.7 million, or 1.16% of total portfolio
loans, compared to $9.2 million, or 1.52% of the total loan portfolio at
December 31, 1994.
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, the Company'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, 1995, the allowance for estimated loan losses
was $5.0 million, or .87% of total loans, excluding mortgage loans held
13
Management's Discussion and Analysis (continued)
for sale, compared with $5.5 million, or .92%, as of December 31, 1994, and
$7.2 million, or 1.77% as of December 31, 1993. The provision for loan losses
for the years ended December 31, 1995, 1994, and 1993 was $24,000, $94,000 and
$603,000, 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,
------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in thousands)
Allowance for estimated loan losses:
Balance at beginning of period .................... $ 5,544 $ 7,214 $ 7,684 $ 5,410 $ 4,426
Loan charge-offs ............................ (845) (1,705) (762) (2,079) (1,350)
Recoveries of loans previously charged off .. 279 291 279 386 199
------- ------- ------- ------- -------
Net charge-offs ................................... (566) (1,414) (483) (1,693) (1,151)
------- ------- ------- ------- -------
Provision charged to expense ...................... 24 94 603 3,967 2,135
Reduction due to sale of commercial loans ......... -- (350) (590) -- --
------- ------- ------- ------- -------
Balance at end of period .......................... $ 5,002 $ 5,544 $ 7,214 $ 7,684 $ 5,410
======= ======= ======= ======= =======
Analysis of charge-offs and recoveries:
Charge-offs:
Commercial loans ............................ $ 661 $ 1,521 $ 612 $ 1,778 $ 860
Residential real estate mortgage loans ...... 34 70 49 69 291
Installment loans ........................... 150 114 101 232 199
------- ------- ------- ------- -------
Total charge-offs ........................... 845 1,705 762 2,079 1,350
------- ------- ------- ------- -------
Recoveries:
Commercial loans ............................ 189 219 170 262 81
Residential real estate mortgage loans ...... 47 -- 36 4 39
Installment loans ........................... 43 72 73 120 79
------- ------- ------- ------- -------
Total recoveries ............................ 279 291 279 386 199
------- ------- ------- ------- -------
Net charge-offs ................................... $ 566 $ 1,414 $ 483 $ 1,693 $ 1,151
======= ======= ======= ======= =======
Net charge-offs as a percentage of
average portfolio loans
outstanding ................................. .09% .29% .10% .34% .25%
Allowance for estimated loan
losses at end of year
as a percentage of portfolio
loans outstanding ........................... .87 .92 1.77 1.46 1.16
Allowance for estimated loan
losses at end of year
as a percentage of non-performing loans ..... 252.64 158.61 148.34 163.73 78.41
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,
-------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(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 ........ $1,522 23% $2,221 16% $3,382 31% $4,738 37% $3,454 42%
Residential real estate
mortgage loans ........ 971 66 598 76 1,298 56 906 54 508 48
Installment loans ....... 212 11 501 8 559 13 481 9 513 10
Unallocated ............. 2,297 -- 2,224 -- 1,975 -- 1,559 -- 935 --
------ --- ------ --- ------ --- ------ --- ------ ---
Total allowance for
estimated loan losses $5,002 100% $5,544 100% $7,214 100% $7,684 100% $5,410 100%
====== === ====== === ====== === ====== === ====== ===
14
Management's Discussion and Analysis (Continued)
Investment Securities
The investment 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,
obligations collateralized by U.S. Government agencies, primarily in the form
of collateralized mortgage obligations and mortgage-backed securities, and
obligations of state and political subdivisions. With the exception of
municipal obligations, the maturity structure of the portfolio is generally
short-term (with estimated average maturities of 0.2 to 4.2 years) or at
variable rates. The investment securities portfolio constituted 21.6% of the
Company's assets at December 31, 1995. The held-to-maturity investment
securities portfolios at December 31, 1994 and 1993, constituted 19.8% and
9.2%, respectively, of the Company's assets, while the available-for-sale and
held-for-sale investment securities portfolios constituted 14.4% and 4.4%
respectively. In order to more effectively respond to liquidity needs,
primarily related to funding the substantial increase in mortgage loans held
for sale, the Company reclassified the entire held-to-maturity investment
portfolio to available-for-sale at June 30, 1995, and sold $143.4 million of
U.S. Treasury and U.S. Government agency obligations in July, 1995. As such,
all investment securities are now reported in the balance sheet at their
estimated fair value. The following schedule sets forth the amortized cost of
the held-to-maturity, available-for-sale and held-for sale investment
portfolios at December 31, 1995, 1994 and 1993.
December 31,
----------------------------------------------------------------------------
1995 1994 1993
----------------------- ------------------------ -----------------------
Held-To Available Held-To Available Held-To Held-For
Maturity For-Sale Maturity For-Sale Maturity Sale
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
U.S. Treasury ........................ $ -- $ 32,456 $ 81,395 -- $ 3,121 --
U.S. Government agency obligations ... -- 39,298 70,106 $ 3,708 9,637 --
Collateralized mortgage obligations .. -- 86,481 104,667 4,811 21,026 $ 9,002
Mortgage-backed securities ........... -- 118,681 12,436 176,798 68,145 42,042
Municipal and other securities ....... -- 23,292 1,097 -- 2,084 --
Equity securities .................... -- 19,657 -- 19,297 3,385 --
------ -------- -------- -------- -------- -------
Total securities ............... $ -- $319,865 $269,701 $204,614 $107,398 $51,044
====== ======== ======== ======== ======== =======
The maturity distribution and average yields, on a fully taxable equivalent
basis, of the major components of the investment securities portfolio at
December 31, 1995 are shown below:
U.S. Treasury Collateralized Mortgage- Municipal
and Agency Mortgage Backed and Other Equity
Obligations Obligations(2)(3) Securities(2)(3) Securities (1) Securities
-------------- ---------------- ---------------- -------------- ---------------
Book Avg. Book Avg. Book Avg. Book Avg. Book Avg.
Value Yield Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
Maturities:
Due within one year $32,456 5.50% -- -- $ 923 8.50% $ 240 8.63% $19,657 6.38%
One to five years . 2,503 4.59 -- -- 3,256 5.34 120 9.95 -- --
Five to ten years . 424 6.47 $ 8,081 6.26% 6,878 6.08 156 9.24 -- --
After ten years ... 36,371 8.01 78,400 5.88 107,624 6.60 22,776 7.52 -- --
------- ---- ------- ---- -------- ---- ------- ---- ------- ----
$71,754 6.75% $86,481 5.91% $118,681 6.55% $23,292 7.56% $19,657 6.38%
======= ==== ======= ==== ======== ==== ======= ==== ======= ====
<FN>
(1) Average yields on tax-exempt obligations have been computed on a tax
equivalent basis, based on a 35% federal tax rate.
(2) Collateral guaranteed by U.S. Government agencies.
(3) All maturities beyond ten years are at variable rates or have estimated
average lives of less than 4.2 years. The average yield presented is the
current yield on these securities.
Liabilities
Deposits
The Company's primary funding sources are non-interest bearing and interest
bearing deposits. Interest bearing deposits increased 10.0% to $778.3 million
in 1995, from $707.3 million in 1994. Non-interest bearing deposits increased
$15.0 million to $126.4 million at December 31, 1995 from $111.4 million at
December 31, 1994. The increase in non-interest bearing deposits was primarily
due to a increase in official checks outstanding of $6.9 million.
15
Management's Discussion and Analysis (continued)
The following table sets forth the average deposits of the Company for the
years indicated:
Year Ended December 31,
-----------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------- ------- ------- ------- ------- -------
(Dollars in thousands)
Demand deposits:
Non-interest bearing $ 128,640 -- $ 121,594 -- $ 127,562 --
Interest bearing ... 63,516 2.45% 86,965 2.64% 65,392 2.82%
Savings Deposits ......... 177,978 3.75 188,267 3.30 179,988 2.83
Time deposits ............ 517,663 5.90 420,995 4.69 512,666 4.94
----------- ----------- -----------
Total .............. $ 887,797 $ 817,821 $ 885,608
=========== =========== ===========
The maturity distribution of time deposits of $100,000 or more is as follows:
December 31,
----------------------------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Three months or less.............. $ 50,829 $111,707 $28,446
Four through six months........... 52,282 24,133 21,257
Seven through twelve months....... 32,353 17,337 22,466
Over twelve months................ 24,813 16,773 19,825
-------- -------- -------
Total....................... $160,277 $169,950 $91,994
======== ======== =======
Approximately $19.5 million of time deposits of $100,000 or more at December
31, 1995, were from brokers with the remaining being originated primarily in
the Republic Bank and Republic Savings local markets.
Federal Funds Purchased and Reverse Repurchase Agreements
As of December 31, 1995, the Company had federal funds purchased of $16.0
million that had a weighted average interest rate of 6.00% and matured January
2, 1996. The Company also had $118.2 million of reverse repurchase agreements
at an average rate of 6.10%. Such agreements are secured by certain securities
with a carrying value of $121 million, with $87.5 million of the reverse
repurchase agreements maturing during the first six months of 1996, and $20.7
million maturing during the final six months of 1996. The remaining $10.0
million of the reverse repurchase agreements mature in June 1997. The proceeds
from both the federal funds purchased and the reverse repurchase agreements
were used to fund mortgage loans held for sale.
Short-Term Borrowings
Market Street has a $75 million warehousing line of credit agreement with
Residential Funding Corporation 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 August 1996. Interest, which is payable monthly, is calculated at a
rate equal to 1.50% above the monthly average LIBOR rate. Due to the increased
mortgage loan origination volume, borrowings under Market Street's warehousing
line of credit increased to $53.8 million at December 31, 1995, from $22.8
million at December 31, 1994. During 1995, the average borrowings and interest
rate on this line were $39.0 million and 7.53%, respectively.
Republic Mortgage has a $25 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 is secured
by various real estate mortgage loans and expires in July, 1996. Republic
Mortgage is required to pay interest on the unpaid principal amount of each
advance in a range of federal funds sold plus 1.50%, to Wall Street Journal
Prime, based on the document status of each loan as applicable to such
advance. At December 31, 1995, borrowings under this warehousing line of
credit were $21.1 million. During 1995, the average borrowings and interest
rate on this line were $11.9 million and 7.09%, respectively. No borrowings
under this line were outstanding at December 31, 1994.
During 1995, Republic Mortgage entered into a revolving repurchase
agreement with Paine Webber, Inc., as a source of funding for mortgage loan
originations. Security for the agreement includes various real estate mortgage
notes, and expires at the option of either party. Interest is calculated at
LIBOR plus .90%. Borrowings under this
16
Management's Discussion and Analysis (continued)
agreement at December 31, 1995, were $1.9 million. The average borrowings and
interest rate paid on this agreement for 1995 were $2.6 million and 6.77%,
respectively.
CUB Funding has a $16 million warehousing line of credit agreement with
Prudential Home Mortgage Company used for the purpose of funding the purchase
or 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 May 1996. 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, 1995 totaled $13.9 million. During
1995, the average borrowings and interest rate on this line were $12.4 million
and 7.22%, respectively.
During 1995, CUB Funding also entered into a revolving repurchase
agreement with Paine Webber Inc. as a funding source for mortgage loan
originations. Security for this borrowing agreement includes various real
estate mortgage notes and expires at the option of either party. Interest is
calculated at various rates depending on loan document status and ranges from
federal funds plus .60% to 30 day LIBOR plus .90% to 1.75%. Borrowings under
this agreement at December 31, 1995, were $25.9 million. During 1995, the
average borrowing and interest rate paid for this agreement were $23.3 million
and 7.08%, respectively..
During 1995, CUB Funding entered into a $4 million mortgage servicing
acquisition line of credit with Prudential Home Mortgage Company used for the
acquisition of mortgage servicing rights. Interest is calculated based on the
30-day commercial paper index plus 2.75%. At December 31, 1995, $4.0 million
was outstanding under this line of credit, at a borrowing rate of 8.60%. The
line of credit expires May, 1996.
In May, 1995, Market Street entered into a $4 million working capital
revolving line of credit with Residential Funding Corporation. Interest is
calculated at a floating rate of interest which is equal to 1.0% over the
prime lending rate. At December 31, 1995, no amounts were outstanding under
this revolving line of credit, which expires in August, 1996.
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 in January 1997. The agreement provides for
borrowings with interest at the prime rate less .50% or LIBOR rate plus 1.40%.
At December 31, 1995, $8.1 million was outstanding under this credit
agreement. During 1995, the average borrowings and interest rate paid for the
credit agreement were $10.2 million and 8.54%, respectively. At December 31,
1994, no amounts were outstanding under this credit agreement.
FHLB Advances
Republic Savings has six outstanding advances with the Federal Home Loan Bank
("FHLB"); a $14.5 million advance with a fixed interest rate of 5.90%,
maturing in February 1996, a $5 million advance with a fixed interest rate of
5.75%, maturing in March 1996, a $10 million advance with a fixed interest
rate of 7.15%, maturing in February 1997, a $5 million advance with a fixed
interest rate of 6.0%, maturing in June 1997, and two $5 million advances with
floating interest rates flat to the three month LIBOR index and adjusting
quarterly, maturing in June and September 2000, respectively. The interest
rate on these advances was 5.87% at December 31, 1995. Republic Bank has
outstanding three FHLB advances; a $15 million advance with a fixed interest
rate of 5.67%, maturing in October 1996, a $10 million advance with a fixed
rate of 5.56%, maturing in November 1996, and a $11 million advance with a
fixed interest rate of 5.79%, maturing in July 1997. These advances are
generally secured by first mortgage loans equal to at least 150% of the
advances under a blanket security agreement or investment securities equal to
at least 110% of the advances under a specific security agreement with
interest payable monthly for all advances.
In order to provide liquidity needs for mortgage loan originations,
Republic Savings also has a $50 million line of credit with the FHLB.
Borrowings under the line are secured by first mortgages. As a result of
Republic Savings' other secured borrowings, $3 million was available to be
borrowed under this line; however, no amounts were outstanding under this line
at December 31, 1995.
Long-Term Debt
During January 1996, the Company completed a private offering of $22.5 million
principal amount of 6.87% Senior Debentures with $9.0 million and $13.5
million maturing in January 2001 and 2003, respectively. Interest on the notes
is payable semi-annually. Proceeds from the offering were used to redeem the
Company's $17.25 million of 9% Subordinated Notes on February 28, 1996 at par,
with the remaining proceeds to be used for general corporate purposes,
including possible future acquisitions.
In May, 1995, Market Street entered into a $26 million term loan
agreement with Residential Funding
17
Management's Discussion and Analysis (continued)
Corporation used for the purpose of (1) refinancing then existing term loans
to Market Street from G.E. Capital Mortgage Services, Inc., Bank United of
Texas, F.S.B. and Poughkeepsie Savings Bank, and (2) to finance mortgage loan
servicing acquisitions. Interest is calculated at a floating rate which is
equal to 1.0% over the prime lending rate. The outstanding principal balance
of all term loan advances outstanding are due in quarterly installments, on
the last day of each November, February, May and August, beginning with
November 1996, each in an amount equal to five percent of the outstanding
principal amount of term loan advances. The final payment of any remaining
principal amount outstanding will be due on August 31, 2000. Borrowings under
this term loan agreement at December 31, 1995 were $8.3 million at an interest
rate of 9.50%. As of December 31, 1995, $415,000 of the total $8.3 million
outstanding is classified as short-term borrowings.
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%. The net proceeds
were used to fund the purchase of mortgage servicing rights and expand the
Company's mortgage banking network.
During September 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, 1995, $91,000 of the total $1.8 million 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 Subordinated Notes
qualify as Tier 2 capital for the calculation of Total Risk-Based capital
under Federal Reserve Board guidelines. These notes were redeemed at par on
February 28, 1996.
Capital Resources
Total shareholders' equity at December 31, 1995 was $126.4 million compared to
$117.9 million at December 31, 1994, and $111.4 million at December 31, 1993.
The increase of $8.5 million in 1995 was due primarily to earnings, net of
dividends and repurchased shares, and the decrease in the market value
adjustment for securities available-for-sale. 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 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 50% of the Total
capital to be composed of Tier 1 capital; i.e., common shareholders' equity,
minority interests in the equity accounts of consolidated subsidiaries and a
limited amount of perpetual preferred stock, less goodwill and certain other
intangibles. The remainder of Total capital, called Tier 2 capital may consist
of certain subordinated debt, other preferred stock and a limited amount of
loan loss reserves. Tier 2 capital is subject to an aggregate maximum amount
equal to 100% of Tier 1 capital. At December 31, 1995, the Company's Tier 1
and Total capital ratios were 15.72% and 18.63%, respectively. These ratios
exceed minimum guidelines prescribed by regulatory agencies. As of December
31, 1995, Total qualifying capital for the risk-based capital ratio was $142.4
million, an excess of $81.3 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. The Tier 1 Leverage ratio is
calculated by dividing Tier 1 capital by average total consolidated assets
minus goodwill and certain other intangibles. The guidelines establish a
minimum Tier 1 Leverage ratio of 3% for bank holding companies that meet
certain specified criteria. All other bank holding companies will generally be
required to maintain a minimum Tier 1 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 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activities. The
Federal Reserve Board has not advised the Company of any specific minimum Tier
1 Leverage ratio applicable to it. The Company's Tier 1 Leverage ratio at
December 31, 1995 was 8.31%.
The following table sets forth the Total risk-based capital ratio, the Tier 1
to risk-based capital ratio, and the Tier 1 Leverage ratios for the Company.
At December 31,
-------------------------
1995 1994 1993
---- ---- ----
Total risk-based capital ratio........ 18.63% 21.05% 20.19%
Tier 1 to risk-based capital ratio.... 15.72 17.57 16.35
Tier 1 Leverage ratio................. 8.31 8.43 8.43
18
Management's Discussion and Analysis (continued)
The Company is committed to maintaining a strong capital position at Republic
Bank and Republic Savings. As of December 31, 1995, the Total risk-based
capital ratio, and Tier 1 to risk-based capital ratio for Republic Bank and
Republic Savings were in excess of requirements. 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.
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, 1995.
December 31, 1995
-----------------------------------------------------------------------
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.......................... $ 3,381 -- $ 3,381 -- -- $ 3,381
Mortgage loans held for sale.................... 423,364 -- 423,364 -- -- 423,364
Investment securities........................... 170,912 $ 35,727 206,639 $ 45,618 $ 65,512 317,769
Loans........................................... 154,994 134,241 289,235 222,590 66,287 578,112
-------- --------- -------- -------- -------- ----------
Total rate sensitive assets............... 752,651 169,968 922,619 268,208 131,799 1,322,626
-------- --------- -------- -------- -------- ----------
Rate Sensitive Liabilities:
Interest bearing deposits:
Demand deposits........................... -- 32,916 32,916 21,943 -- 54,859
Savings deposits.......................... -- 59,585 59,585 127,499 -- 187,084
Certificates of deposit:
Under $100,000............................ 66,037 210,959 276,996 98,571 515 376,082
Over $100,000............................. 50,829 84,635 135,464 24,813 -- 160,277
-------- --------- -------- -------- -------- ----------
Total interest bearing deposits........... 116,866 388,095 504,961 272,826 515 778,302
-------- --------- -------- -------- -------- ----------
Short-term borrowings (1)....................... 225,096 -- 225,096 38,355 -- 263,451
FHLB advances................................... 19,500 25,000 44,500 36,000 -- 80,500
Long-term debt.................................. 7,814 73 7,887 1,791 42,250 51,928
-------- --------- -------- -------- -------- ----------
Total rate sensitive liabilities.......... 369,276 413,168 782,444 348,972 42,765 1,174,181
-------- ---------- -------- -------- -------- ----------
Interest rate sensitivity gap (2)............... $383,375 $(243,200) $140,175 $(80,764) $ 89,034 $ 148,445
======== ========= ======== ======== ======== ==========
Interest rate sensitivity gap as percentage
of total rate sensitive assets............ 28.99% (18.39)% 10.60% (6.11)% 6.73% 11.22%
======== ========= ======== ========= ======== ==========
<FN>
(1) Includes warehousing lines of credit, federal funds purchased, reverse
repurchase agreements, and the current portion of long-term debt.
(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,
1995, the Company was in a position to benefit in the next
19
Management's Discussion and Analysis (continued)
year from increasing short-term interest rates. Interest margins would widen
because assets would reprice more quickly than liabilities. 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 by the Company less than 60 days, as outstanding commitments
are generally obtained to sell the loans to investors prior to the loan
closing. Therefore, the Company can earn long-term interest rates on
short-term assets while reducing interest rate risk. Additionally, $289.2
million of total portfolio loans reprice within one year, of which
approximately 75% 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 its strategy of managing interest rate risk, the Company
typically securitizes and sells all short-term and long-term fixed rate
mortgages and retains a portion of variable 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 warehousing lines of credit,
FHLB advances, federal funds purchased, reverse repurchase agreements, and
brokered certificates of deposit.
At December 31, 1995, Republic Bank had available $35.9 million in
unused lines for federal funds borrowing. Additionally, Republic Savings had
available $50.0 million in unused borrowings on its line of credit with the
FHLB. The mortgage companies had unused capacity of $31.2 million on
warehousing lines of credit to fund mortgage loan origination volume. The
Company has $9.9 million available on its $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 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 March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of, effective for fiscal years beginning after December 15,
1995. This statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable tangibles to be disposed of. The statement requires that
long-lived assets for certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In addition, the statement requires that certain long-lived
assets and intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell. The Company will adopt this accounting
standard effective January 1, 1996 and does not expect its adoption to have a
material effect on the financial statements.
20
Republic Bancorp Inc. and Subsidiaries
December 31,
------------------------
Consolidated Balance Sheets 1995 1994
---- ----
(Dollars in thousands)
Assets:
Cash and due from banks (Note 3) ............................................ $ 36,260 $ 22,518
Other cash investments ...................................................... 3,381 779
---------- ----------
Cash and cash equivalents ................................................... 39,641 23,297
Mortgage loans held for sale ................................................ 423,364 152,138
Securities (Note 5):
Held-to-maturity (aggregate market value of approximately
$254,996) .......................................................... -- 269,701
Available-for-sale (amortized cost of approximately
$319,865, 1995 and $204,614, 1994) ................................. 317,769 196,502
Loans (Note 6) .............................................................. 578,112 605,089
Less allowance for estimated loan losses (Note 7) ..................... 5,002 5,544
---------- ----------
Net loans ................................................................... 573,110 599,545
Premises and equipment, net (Note 8) ........................................ 14,724 15,484
Mortgage servicing rights (Note 4) .......................................... 58,265 57,183
Other assets ................................................................ 45,817 49,764
---------- ----------
Total assets .......................................................... $1,472,690 $1,363,614
========== ==========
Liabilities:
Deposits:
Non-interest bearing .................................................. $ 126,427 $ 111,425
Interest bearing ...................................................... 778,302 707,317
---------- ----------
Total deposits ..................................................... 904,729 818,742
Federal funds purchased and reverse repurchase agreements (Note 9) .......... 134,237 217,124
Short-term borrowings (Note 9) .............................................. 129,214 39,822
FHLB advances (Note 10) ..................................................... 80,500 69,950
Accrued and other liabilities ............................................... 44,806 43,077
Long-term debt (Note 11) .................................................... 51,928 56,379
---------- ----------
Total Liabilities ..................................................... 1,345,414 1,245,094
Minority interest ........................................................... 900 606
---------- ----------
Commitment and contingencies (Notes 18 and 20)
Shareholders' Equity (Notes 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; 16,477,981 and
15,246,134 shares issued and outstanding in 1995 and 1994, respectively 82,390 76,231
Capital surplus ............................................................. 43,177 35,636
Market value adjustment for securities available-for-sale, net .............. (1,363) (5,273)
Retained earnings ........................................................... 2,172 11,320
---------- ----------
Total shareholders' equity ............................................ 126,376 117,914
---------- ----------
Total liabilities and shareholders' equity ......................... $1,472,690 $1,363,614
========== ==========
<FN>
See notes to consolidated financial statements.
21
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Income Year Ended December 31,
------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands, except per share data)
Interest Income:
Loans, including fees ........................................... $71,488 $ 53,617 $ 66,535
Securities;
Held-to-maturity .......................................... 8,084 12,878 8,556
Available-for-sale ........................................ 15,071 11,250 --
Held-for-sale ............................................. -- -- 2,267
Money market investments:
Federal funds sold ........................................ 573 277 1,282
Other ..................................................... 381 197 191
------- -------- --------
Total interest income ..................................... 95,597 78,219 78,831
------- -------- --------
Interest Expense:
Demand deposits ................................................. 1,554 2,295 1,846
Savings and time deposits ....................................... 37,244 25,966 30,439
Short-term borrowings ........................................... 18,396 10,902 6,479
FHLB advances ................................................... 2,431 2,237 1,781
Long-term debt .................................................. 5,567 3,599 1,723
------- -------- --------
Total interest expense .................................... 65,192 44,999 42,268
------- -------- --------
Net interest income ............................................. 30,405 33,220 36,563
Provision for loan losses (Note 7) .............................. 24 94 603
------- -------- --------
Net interest income after provision for loan losses ............. 30,381 33,126 35,960
------- -------- --------
Non-Interest Income:
Service charges ................................................. 1,297 1,337 1,431
Mortgage banking ................................................ 70,960 69,899 85,128
Gain/(loss) on sale of securities ............................... 1,061 (1,392) 2,014
Gain on sale of commercial loans ................................ 873 1,135 2,224
Gain on sale of bank branches ................................... -- 4,034 --
Other ........................................................... 1,010 648 1,323
------- -------- --------
Total non-interest income ................................. 75,201 75,661 92,120
------- -------- --------
Non-Interest Expense:
Salaries and employee benefits .................................. 49,791 47,586 55,028
Occupancy expense of premises ................................... 5,274 5,807 4,540
Equipment expense ............................................... 4,395 4,090 3,133
Other (Note 16) ................................................. 23,042 27,538 30,453
Minority interest ............................................... 650 - 385
------- -------- --------
Total non-interest expense ................................ 83,152 85,021 93,539
------- -------- --------
Income before income taxes ...................................... 22,430 23,766 34,541
Provision for income taxes (Note 12) ............................ 8,166 8,047 12,308
------- -------- --------
Net income before cumulative effect of change in accounting
principle .................................................... 14,264 15,719 22,233
Cumulative effect of change in accounting principle (Note 12) ... -- -- (950)
------- -------- --------
Net Income ...................................................... $14,264 $ 15,719 $ 23,183
======= ======== ========
Net Income Per Common Share (Note 14):
Income before cumulative effect of change in accounting
principle .................................................... $ 0.84 $ 0.91 $ 1.31
Cumulative effect of change in accounting principle ............. -- -- 0.06
------- -------- --------
Net income per common share, primary ............................ 0.84 0.91 1.37
Net income per common share, fully diluted ...................... 0.84 0.91 1.37
<FN>
See notes to consolidated financial statements
22
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity Market
Valuation
Number Adjustment Total
of for Securities Share-
Common Common Capital Available- Retained holders'
Shares Stock Surplus For-Sale Earnings Equity
------ ------ ------- -------------- -------- ---------
Balances at January 1, 1993 ................... 11,738 $58,692 $12,962 -- $ 12,552 $ 84,206
Net income .............................. 23,183 23,183
Cash dividends declared on
common shares ($.18 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 $111,433
Net income .............................. 15,719 15,719
Cash dividends declared on common
shares ($.27 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 $117,914
Net Income .............................. 14,264 14,264
Cash dividends declared on common
shares ($.34 per share) .............. (5,536) (5,536)
Awards of common shares under
Restricted Stock Plan ................ (1,318) (1,318)
Amortization of restricted stock ........ 672 672
10% Common share dividend ............... 1,504 7,521 10,342 (17,876) (13)
Issuance of common shares:
Through exercise of stock options .... 177 885 241 1,126
Through exercise of stock warrants ... 12 58 11 69
Tax benefit relating to exercise of stock
options ............................. 405 405
Change in market valuation for securities
available-for-sale, net of income tax
of $2,105 ............................ 3,910 3,910
Repurchase of common shares ................... (461) (2,305) (2,812) (5,117)
------ ------- ------- ------- ------- --------
Balances at December 31, 1995 ................. 16,478 $82,390 $43,177 $(1,363) $ 2,172 $126,376
====== ======= ======= ======= ======== ========
<FN>
See notes to consolidated financial statements.
23
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Cash Flows Year Ended December 31,
---------------------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Cash Flows From Operating Activities:
Net income........................................................... $ 14,264 $ 15,719 $ 23,183
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation and amortization.................................. 5,521 5,107 4,236
Amortization of mortgage servicing rights...................... 6,999 5,008 4,607
Decrease in net deferred income taxes.......................... 3,039 1,039 317
Gain on sale of mortgage servicing rights...................... (25,279) (32,438) (13,336)
Gain on sale of securities held-for-sale....................... -- -- (2,014)
(Gain)/loss on sale of securities available-for-sale........... (1,061) 1,392 --
Gain on sale of loans.......................................... (3,037) (2,793) (3,869)
Gain on sale of bank branches.................................. -- (4,034) --
(Increase)/decrease in other assets............................ 98 (13,935) (5,953)
Increase/(decrease) in other liabilities....................... 1,729 (4,616) 1,016
Proceeds from sale of mortgage loans held for sale............ 2,408,751 3,002,993 4,578,910
Origination of mortgage loans held for sale.................... (2,695,917) (2,640,165) (4,841,731)
Other, Net..................................................... (5,077) (2,939) (3,193)
----------- ----------- -----------
Total adjustments.................................................... (304,234) 314,619 (281,010)
----------- ----------- -----------
Net cash provided by/(used in) operating activities.................. (289,970) 330,338 (257,827)
----------- ----------- -----------
Cash Flows From Investing Activities:
Additions to mortgage servicing rights............................... (31,720) (52,604) (19,454)
Proceeds from sale of mortgage servicing rights...................... 48,918 45,676 20,070
Proceeds from sale of securities held-for-sale....................... -- -- 84,150
Proceeds from sale of securities available-for-sale.................. 233,082 106,470 --
Proceeds from maturities/principal payments of securities held-
to-maturity and held-for-sale and interest earning deposits.... 11,881 16,728 82,119
Proceeds from maturities/principal payments of securities
available-for-sale............................................. 67,192 48,808 --
Purchase of securities held-for-sale................................. -- -- (21,413)
Purchase of securities available-for-sale............................ (157,537) (238,926) --
Purchase of securities held-to-maturity.............................. -- (250,958) (53,061)
Proceeds from sale of loans related to bank branch sale.............. -- 28,933 --
Proceeds from sale of loans.......................................... 253,310 82,742 92,096
Net increase in loans made to customers.............................. (208,034) (307,793) (10,937)
Purchase of acquisitions............................................. (177) (2,450) (3,390)
---------- ----------- -----------
Net cash provided by/(used in) investing activities.................. 216,915 (523,374) 170,180
---------- ----------- -----------
24
Republic Bancorp Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued) Year Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Cash Flows From Financing Activities:
Net increase/(decrease) in total deposits .............. $ 65,490 $ 32,791 $(63,921)
Purchase of bank branch deposits ....................... 20,497 -- --
Sale of bank branch deposits ........................... -- (43,749) --
Net increase in short-term borrowings .................. 6,505 120,094 69,238
Net increase/(decrease) in short-term FHLB advances .... (34,950) 26,950 8,000
Increase in long-term debt ............................. 13,464 12,244 1,976
Increase in FHLB advances .............................. 70,500 20,000 5,000
Net proceeds from issuance of common shares ............ 1,195 1,072 4,741
Repurchase of common shares ............................ (5,117) (838) --
Dividends paid ......................................... (5,270) (4,141) (2,341)
Payments on long-term debt ............................. (17,915) (827) (4,368)
Payments on FHLB advances .............................. (25,000) -- (17,000)
Issuance of senior and subordinated debt,
net of issuance costs ................................ -- 24,712 16,492
-------- -------- --------
Net cash provided by financing activities .............. 89,399 188,308 17,817
-------- -------- --------
Net increase/(decrease) in cash and cash equivalents ... 16,344 (4,728) (69,830)
Cash and cash equivalents at beginning of year ......... 23,297 28,025 97,855
-------- -------- --------
Cash and cash equivalents at end of year (1) ........... $ 39,641 $ 23,297 $ 28,025
======== ======== ========
Cash paid during the year for:
Interest ......................................... $ 62,562 $ 44,206 $ 41,906
Income taxes ..................................... $ 5,782 $ 9,980 $ 9,873
<FN>
Non-cash investing activities:
o During the years ended December 31, 1995 and 1993, the Company securitized
residential real estate portfolio loans into investment securities
available-for-sale and held-for-sale of $107.6 million and $42.0 million,
respectively.
o At June 30, 1995, the Company transferred $257.2 million of
held-to-maturity securities into the available-for-sale category.
(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
NATURE OF OPERATIONS
Republic Bancorp Inc. ("Republic" or the "Company") is a bank holding company
established in 1986 which currently operates 96 banking and mortgage banking
offices in 20 states. The Company owns Republic Bank based in Ann Arbor,
Michigan, with 25 offices in Michigan, and Republic Savings Bank ("Republic
Savings") 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.
To complement its retail banking activities, the Company maintains a
nationwide mortgage banking presence with Republic Bancorp Mortgage Inc.
("Republic Mortgage"), located in Farmington Hills, Michigan, which operates
its retail mortgage operations in 13 offices located in 4 states; Market
Street Mortgage Corporation ("Market Street"), a retail mortgage company based
in Clearwater, Florida with 33 offices in 9 states; and CUB Funding
Corporation ("CUB Funding"), a retail and wholesale mortgage company,
headquartered in Calabasas, California with 14 offices in 6 states. During
1995 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,
1995, the mortgage loan servicing portfolio was $4.0 billion.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Republic Bancorp Inc. and the accounts of three wholly owned
subsidiaries: Republic Bank, Republic Mortgage, and Republic Savings; and
Market Street and CUB Funding, of which the Company owns an 80% majority
interest in each subsidiary. Republic Mortgage operates Home Funding, Inc.,
which was acquired in October 1994, as a division, and CUB Funding operates
RSL Mortgage, which was acquired in August 1995, as a division. CUB Funding
also owns a 50.1% interest in two joint ventures, Premier Partners - James R.
Gary Realtors and Premier Partners - Todd C. Olson Estate Brokerage, Inc. All
significant intercompany transactions and balances have been eliminated in
consolidation.
SECURITIES: 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.
Management determines the appropriate classification for debt securities
at the time of purchase. 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 consisted primarily of U.S. Treasuries,
U.S. Government Agency obligations, fixed rate mortgage-backed securities and
fixed rate collateralized mortgage obligations and were stated at amortized
cost.
Debt securities not classified as held-to-maturity and marketable equity
securities are classified as available-for-sale. 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 securities.
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. Mortgage loans held for sale balances are committed for sale to
secondary market investors under firm agreements at or prior to closing date
of 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.
MORTGAGE SERVICING RIGHTS: The Company purchases and originates mortgage loans
for sale to the secondary market, and sells the loans on either a servicing
retained or servicing released basis. Effective April 1, 1995, the Company
adopted FASB Statement No. 122 (SFAS 122) "Accounting for Mortgage Servicing
Rights." Prior to adoption of SFAS 122, only purchased loan servicing rights
were capitalized. Under the statement, the
26
Notes to Consolidated Financial Statements (continued)
total cost of mortgage loans purchased or originated with the intent to sell
is allocated between the loan servicing right and the mortgage loan without
servicing, based on their relative fair values at the date of purchase or
origination. The capitalized cost of loan servicing rights is amortized in
proportion to, and over the period of, estimated net future servicing revenue.
Mortgage servicing rights are periodically evaluated for impairment. For
purposes of measuring impairment, mortgage servicing rights are stratified
based on predominant risk characteristics of the underlying serviced loans.
These risk characteristics include loan type (conventional or government,
fixed or adjustable rate), term (15 year or 30 year), and note rate.
Impairment represents the excess of cost of an individual mortgage servicing
rights stratum over its fair value, and is recognized through a valuation
allowance.
Fair values for individual stratum are based on the present value of
estimated future cash flows using a discount rate commensurate with the risks
involved. Estimates of fair value include assumptions about prepayment,
default and interest rates, and other factors which are subject to change over
time. Changes in these underlying assumptions could cause the fair value of
mortgage servicing rights, and the related valuation allowance, to change
significantly in the future.
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 were effective for
fiscal years beginning after December 15, 1994. The impact of these Statements
on the Company's financial statements were not material.
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, the Company'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.
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: 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 future events raise 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.
27
Notes to Consolidated Financial Statements (continued)
Effective January 1, 1993, the Company adopted SFAS 109 which resulted in a
cumulative adjustment of $950,000 or $.06 per share.
PER COMMON SHARE AMOUNTS: All per common share amounts have been restated to
reflect stock dividends.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
RECLASSIFICATIONS: Certain reclassifications have been made to the 1994 and
1993 financial statements, to conform with the classifications used in 1995.
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 Mortgage,
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. 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 acquisition.
The acquisition of the assets of Home Funding, Inc. and CUB Funding did
not have a significant impact on the results of operations of the Company.
Note 3: Cash Reserve Requirements
Republic Bank and Republic Savings are required by the Federal Reserve Bank to
maintain an average reserve balance. Such reserve amounted to approximately
$11.9 million and $9.6 million at December 31, 1995 and 1994, respectively.
Note 4: Mortgage Banking
Mortgage Servicing Rights
As discussed in Note 1, the Company adopted SFAS 122 on April 1, 1995. The
effect of the adoption on income was approximately $3.4 million before taxes
for 1995.
The following table summarizes the Company's activity related to mortgage
servicing rights:
Year Ended December 31,
-------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Balance at January 1 ................... $ 57,183 $ 18,428 $ 16,126
Additions .............................. 31,720 52,604 19,454
Mortgage loan servicing rights acquired
through the purchase of the assets
of Home Funding, Inc. ............ -- 1,388 --
Sales .................................. (23,639) (10,229) (12,545)
Amortization ........................... (6,999) (5,008) (4,607)
-------- -------- --------
Balance at December 31 ................. $ 58,265 $ 57,183 $ 18,428
======== ======== ========
The estimated fair value of mortgage servicing rights as of December 31, 1995
was $63 million.
28
Notes to Consolidated Financial Statements (continued)
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 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 $4.0 billion and $4.7 billion at December 31, 1995 and 1994,
respectively, representing approximately 51,000 and 59,000 mortgages,
respectively.
The Company is accountable for related escrow funds aggregating $55.4
million and $59.8 million at December 31, 1995 and 1994, respectively. At
December 31, 1995 and 1994, $55.4 million and $58.1 million, respectively of
these funds are included in the consolidated non-interest bearing deposit
accounts of Republic Bank and Republic Savings. The remaining $1.7 million at
December 31, 1994 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
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
Available-for-Sale Securities (Dollars in thousands)
December 31, 1995:
Obligations of U.S. Treasury and U.S. Government
agencies $ 71,754 $273 $ 159 $ 71,868
Mortgage-backed securities .............................. 118,681 116 747 118,050
Collateralized mortgage obligations ..................... 86,481 -- 1,122 85,359
Municipal and other securities .......................... 23,292 269 54 23,507
-------- ---- ------ --------
Total debt securities ................................ 300,208 658 2,082 298,784
Equity securities ....................................... 19,657 -- 672 18,985
-------- ---- ------ --------
Total available-for-sale securities .................. $319,865 $658 $2,754 $317,769
======== ==== ====== ========
Available-for-Sale Securities
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
======== === ======= ========
The Company adopted SFAS 115 as of January 1, 1994. The market valuation
adjustment of $1.4 million and $5.3 million on available-for-sale securities,
net of tax, is reported as a separate component in shareholders' equity at
December 31, 1995 and 1994, respectively.
In order to respond more effectively to liquidity needs, primarily
related to funding the increase in mortgage loans held for sale, the Company
reclassified the entire held-to-maturity security portfolio to
available-for-sale on June 30, 1995. The amortized cost and estimated market
value of available-for-sale securities at December 31, 1995, by contractual
maturity, are shown on the following page. Expected maturities for
mortgage-backed securities and collateralized mortgage obligations will differ
from contractual maturities because borrowers may have the right to
29
Notes to Consolidated Financial Statements (continued)
call or prepay obligations. Based upon prepayment assumptions, estimated lives
of the fixed rate mortgage-backed securities range from 0.3 to 3.4 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 0.5 to 4.2 years. Collateral for all mortgage-backed
securities and collateralized mortgage obligations is guaranteed by U.S.
Government agencies.
Available-for-Sale Securities
-------------------------------------------------------------------
U.S. Treasury Collateralized
and Government Mortgage-Backed Mortgage
Agency Obligations Securities Obligations
--------------------- --------------------- --------------------
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- --------- -------- --------- --------- ---------
Maturities:
Due within one year..... $32,456 $32,454 $ 923 $ 928 -- --
One to five years....... 2,503 2,438 3,256 3,202 -- --
Five to ten years....... 424 423 6,878 6,826 $ 8,081 $ 8,041
After ten years......... 36,371 36,553 107,624 107,094 78,400 77,318
------- ------- -------- -------- ------- -------
Total................ $71,754 $71,868 $118,681 $118,050 $86,481 $85,359
======= ======= ======== ======== ======= =======
Available-for-Sale Securities
-------------------------------------------------------------------
Municipal Total
and Other Available-for-Sale
Securities Equity Securities Securities
--------------------- --------------------- --------------------
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- --------- -------- --------- --------- ---------
Maturities:
Due within one year..... $ 240 $ 241 $19,657 $18,985 $ 53,276 $ 52,608
One to five years....... 120 125 -- -- 5,879 5,765
Five to ten years....... 156 163 -- -- 15,539 15,453
After ten years......... 22,776 22,978 -- -- 245,171 243,943
------- ------- ------- ------- -------- --------
Total................ $23,292 $23,507 $19,657 $18,985 $319,865 $317,769
======= ======= ======= ======= ======== ========
Proceeds from the sale of securities available-for-sale during 1995 and 1994
were $233.1 million and $106.5 million, respectively. The gross realized gains
on these sales were $1.5 million and $587,000, respectively, while gross
realized losses totaled $463,000 and $2.0 million. Proceeds from sale of
securities held-for-sale during 1993 were $84.2 million. The gross realized
gains on such sales totaled $2.2 million and the gross realized losses totaled
$184,000.
Certain securities, with a carrying value of approximately $164.3 million and
$235.3 million at December 31,1995 and 1994, respectively, were pledged to
secure certain short-term borrowings, FHLB advances and public and other
deposits as required by law.
Note 6: Loans
Loans consist of the following:
December 31,
---------------------
1995 1994
---- ----
(Dollars in thousands)
Commercial loans:
Secured by real estate ............. $108,108 $ 81,922
Other (generally secured) .......... 24,325 15,989
-------- --------
Total commercial loans .......... 132,433 97,911
Residential real estate mortgages ........ 381,803 457,755
Installment loans ........................ 63,876 49,423
-------- --------
Net loans .......................... $578,112 $605,089
======== ========
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, 1995. Approximately 67% and 22%
of the Company's loan portfolio at December 31, 1995 has been originated in
the states of Michigan and Ohio, respectively.
The following table is a summary of the Company's impaired loans as of
December 31, 1995:
(Dollars in thousands)
Gross recorded investment in impaired loans ........ $ 865
Specific allowance for estimated loan losses ....... (368)
------
Total net impaired loans ........................... 497
======
Average impaired loans outstanding ................. 1,569
======
Interest income recognized ......................... $ 185
======
30
Notes to Consolidated Financial Statements (continued)
Note 7: Allowance for Estimated Loan Losses
Changes in the allowance for estimated loan losses are as follows:
Year Ended December 31,
---------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Balance at January 1 ........................... $5,544 $ 7,214 $7,684
Loans charged off .............................. (845) (1,705) (762)
Recoveries on loans previously charged off ..... 279 291 279
Provision for loan losses ...................... 24 94 603
Reduction due to sale of commercial loans at
Republic Savings Bank ....................... -- (350) (590)
------ ------- ------
Balance at December 31 ......................... $5,002 $ 5,544 $7,214
====== ======= ======
Note 8: Premises and Equipment
Premises and equipment consist of the following:
December 31,
-----------------
1995 1994
---- ----
(Dollars in thousands)
Land ............................................... $ 2,065 $ 2,038
Furniture and equipment ............................ 18,522 16,195
Buildings and improvements ......................... 9,216 9,664
------- ------
29,803 27,897
Less accumulated amortization and depreciation ..... 15,079 12,413
------- -------
Net premises and equipment ......................... $14,724 $15,484
======= =======
Note 9: Short-Term Borrowings
Short-term borrowings, including Federal funds purchased and reverse
repurchase agreements, consist of the following:
December 31,
--------------------------------------------
1995 1994
-------------------- -------------------
Interest Interest
Balance Rate Balance Rate
------- -------- ------- --------
(Dollars in thousands)
Federal funds purchased and reverse repurchase agreements.................... $134,237 6.09% $217,124 5.97%
======== ========
Short-term borrowings:
Mortgage banking warehousing line of credit for
Market Street, variable rate........................................ $ 53,822 7.25 $ 22,806 7.98
Mortgage banking warehousing line of credit for
Republic Mortgage, variable rate.................................... 21,055 7.48 -- --
Mortgage banking warehousing line of credit for
CUB Funding, variable rate.......................................... 13,902 7.18 11,984 7.57
Revolving repurchase agreement for Republic Mortgage, variable rate.... 1,884 6.40 -- --
Revolving repurchase agreement for CUB Funding, variable rate.......... 25,913 7.45 -- --
Mortgage servicing acquisition line of credit for CUB Funding,
variable rate....................................................... 4,000 8.59 -- --
Revolving credit agreement for Republic Bancorp Inc. variable rate..... 8,125 7.80 -- --
Repurchase agreement for CUB Funding, fixed rate....................... -- -- 1,136 6.98
Short-term portion of long-term debt (See Note 11)..................... 513 9.02 3,896 9.80
-------- --------
Total short-term borrowings.................................................. $129,214 $ 39,822
======== ========
31
Notes to Consolidated Financial Statements (continued)
In May 1995, Market Street entered into a $75 million warehousing line of
credit agreement with Residential Funding Corporation 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 August, 1996. Market Street is required to pay interest
on the unpaid principal amount of each advance at 1.50% above the monthly
average LIBOR rate. At December 31, 1995 the balance outstanding was $53.8
million. 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 through a $75 million
mortgage warehousing line of credit with G.E. Capital Mortgage Services, Inc.
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 2.00% above the lower of the lender's
one month commercial paper rate, or the LIBOR rate. During 1995, the average
interest rate paid on this agreement was 7.53%. The average aggregate amounts
outstanding under such agreements were $39.0 million and $35.4 million in 1995
and 1994, respectively. The maximum amount outstanding at any month-end during
1995 under this agreement was $53.8 million.
In July 1995, Republic Mortgage entered into a $25 million warehousing
line of credit with NBD Bank, N.A. used for the purpose of funding the
acquisition or origination of mortgage loans. The line of credit, which is
payable on demand, is secured by various real estate mortgage loans and
expires in July, 1996. Republic Mortgage is required to pay interest
on the unpaid principal amount of each advance in a range of federal funds
sold plus 1.50%, to Wall Street Journal Prime, based on the document status of
each loan as applicable to such advance. During 1995, the average interest
rate paid on this line of credit was 7.09%. The provisions of the warehousing
line of credit include various financial covenants for Republic Mortgage.
The average aggregate amounts outstanding under such agreement were $11.9
million and $4.5 million in 1995 and 1994, respectively. The maximum amount
outstanding at any month-end during 1995 under this agreement was $24.6
million.
In May 1995, CUB Funding Corporation entered into a $25 million
warehousing line of credit agreement with Prudential Home Mortgage Company,
used for funding the purchase or origination of mortgage loans by CUB Funding.
This warehousing line was subsequently changed to $16 million in November,
1995. Interest, which is payable monthly, is computed based upon the 30-day
commercial paper index plus various indexes ranging from 1.00% to 2.75% based
on the document status of each loan. During 1995, the average interest rate
paid on the line of credit was 7.22%. At December 31, 1995 the balance
outstanding was $13.9 million. The line of credit, which is payable on demand,
is secured by various real estate mortgage loans and expires in May, 1996. The
provisions of the warehousing line of credit include various financial
covenants for CUB Funding. The average aggregate amounts outstanding under
such agreement were $12.4 million and $10.2 million in 1995 and 1994,
respectively. The maximum amount outstanding at any month-end during 1995
under this agreement was $24.5 million.
In August, 1995, Republic Mortgage, entered into a revolving gestation
repurchase agreement with Paine Webber, as a source of funding for mortgage
loan originations. Security for the agreement includes various real estate
mortgage notes, and expires at the option of either party. Interest is
calculated at LIBOR plus .90%. Borrowings under this agreement at December 31,
1995, were $1.9 million. The average borrowings and interest rate paid on this
agreement for 1995 were $2.6 million and 6.77%, respectively. The maximum
amount outstanding at any month-end during 1995 under this agreement was $9.6
million.
In March 1995, CUB Funding entered into a revolving repurchase
agreement with Paine Webber Inc. as a funding source for mortgage loan
originations. Security for this borrowing agreement includes various real
estate mortgage notes and expires at the option of either party. Interest is
calculated at various rates depending on loan document status and ranges from
federal funds plus .60% to 30 day LIBOR plus .90% to 1.75%. Borrowings under
this agreement at December 31, 1995, were $25.9 million. During 1995, the
average borrowings and interest rate paid for this agreement were $23.3
million and 7.08%, respectively. The maximum amount outstanding at any
month-end during 1995 under this agreement was $74.0 million.
In May 1995, CUB Funding entered into a $4 million mortgage servicing
acquisition line of credit with Prudential Home Mortgage Company used for the
acquisition of mortgage servicing rights. Interest is calculated based on the
30-day commercial paper index plus 2.75%. At December 31, 1995, $4.0 million
was outstanding under this line of credit. The line of credit expires May,
1996.
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 1997. The agreement provides for
borrowings with interest at the prime rate, less 50%, or LIBOR plus 1.40% for
borrowings up to $18 million. At December 31, 1995,
32
Notes to Consolidated Financial Statements (continued)
$8.1 million was outstanding under this credit agreement. During 1995, the
average borrowings and interest rate paid for the credit agreement were $10.2
million and 8.54%, respectively. No amounts were outstanding under this Credit
Agreement at December 31, 1994. The maximum amount outstanding at any
month-end during 1995 under this agreement was $17.0 million.
In May 1995, Market Street entered into a $4 million working capital
revolving line of credit with Residential Funding Corporation, collateralized
by the assets of Market Street. Interest is calculated at a floating rate of
interest which is equal to 1.0% over the prime lending rate. At December 31,
1995, no amounts were outstanding under this revolving line of credit. The
working capital revolving credit agreement expires in August, 1996. The
maximum amount outstanding at any month-end during 1995 under this agreement
was $3.9 million. Federal funds purchased mature the day following the date of
purchase while reverse repurchase agreements generally mature within one year
from the date of the transaction. Federal funds purchased and reverse
repurchase agreements are detailed as follows:
1995 1994
------------------------------------------------------ -------------------------------------------------------
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 31 31 the Year the Year Month End
-------- -------- -------- -------- ----------- -------- -------- -------- -------- -----------
(Dollars in thousands)
Federal
funds
purchased .. $ 16,000 6.00% $ 9,427 5.95% $ 19,000 $ 21,000 6.13% $ 11,873 4.63% $ 37,900
Reverse
repurchase
agreements . 118,237 6.10% 158,999 6.21% 220,612 196,124 5.96% 155,748 4.43% 251,601
At December 31, 1993, the Company had reverse repurchase agreements of $19.6
million with an interest rate of 3.44%. The average amount outstanding during
the year ended December 31, 1993 was $17.5 million and the maximum amounts
outstanding at any month end was $65.7 million.
Note 10: FHLB Advances
Republic Savings has six outstanding advances with the Federal Home Loan Bank
("FHLB"); a $14.5 million advance with a fixed interest rate of 5.90%,
maturing in February 1996, a $5 million advance with a fixed interest rate of
5.75% maturing in March 1996, a $10 million advance with a fixed interest rate
of 7.15%, maturing in February 1997, a $5 million advance with a fixed
interest rate of 6.0%, maturing in June 1997, and two $5 million advances with
floating interest rates flat to the three month LIBOR index and adjusting
quarterly, maturing in June and September, 2000, respectively. The interest
rate on these advances was 5.87% at December 31, 1995. Republic Bank has
outstanding three FHLB advances; a $15 million advance with a fixed interest
rate of 5.67%, maturing in October 1996, a $10 million advance with a fixed
rate of 5.56%, maturing in November 1996, and an $11 million advance with a
fixed interest rate of 5.79%, maturing in July 1997. These advances generally
are secured by first mortgage loans equal to at least 150% of advances under a
blanket security agreement or investment securities equal to at least 110% of
the advance under a specific collateral agreement, with interest payable
monthly for all advances.
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 1996. At December
31, 1995, no amounts were outstanding under this line. At December 31, 1994,
borrowings under this line totaled $34.95 million.
At December 31, 1994, Republic Savings had outstanding two advances from
the FHLB, a $10 million advance due February 1997, and a $5 million advance
due December 1995, with interest rates at 7.15% and 4.45%, respectively.
Republic Bank had one advance outstanding at December 31, 1994, a $20 million
advance with an interest rate of 6.25% maturing in March 1995.
33
Notes to Consolidated Financial Statements (continued)
Note 11: Long-Term Debt
Long-term debt consists of the following:
December 31,
-----------------
1995 1994
---- ----
(Dollars in thousands)
Senior notes, interest at 7.17%, interest payable semi-annually, maturing 2001 ... $25,000 $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 ................................ 1,887 1,977
Note payable under term loan agreement, interest at prime
plus 1.00%, principal and interest payable quarterly, maturing
August 31, 2000 ............................................................ 8,304 --
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
------- -------
Total ............................................................................ 52,441 60,275
Less maturities included as short-term borrowings (Note 9) ................. (513) (3,896)
------- -------
Total ............................................................................ $51,928 $56,379
======= =======
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 to expand the Company's mortgage banking network.
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, at par plus accrued interest at any time
after February 1, 1996. 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, 1995, $98,000 of the amount outstanding is classified as
short-term borrowings.
On May 22, 1995, Market Street entered into a $26 million Term Loan
Agreement with Residential Funding Corporation used for the purpose of (1)
refinancing then existing term loans to Market Street from G.E. Capital
Mortgage Services, Inc., Bank United of Texas, F.S.B. and Poughkeepsie Savings
Bank, and (2) to finance mortgage loan servicing acquisitions. Interest is
calculated at a floating rate which is equal to 1.0% over the prime lending
rate. The outstanding principal balance of all term loan advances outstanding
are due in quarterly installments, on the last day of each November, February,
May and August beginning with November 1996, each in an amount equal to five
percent of the outstanding principal amount of term loan advances. The final
payment of any remaining principal amount outstanding will be due on August
31, 2000. Borrowings under this agreement at December 31, 1995 were $8.3
million at a borrowing rate of 9.50%. The borrowings are collateralized by
Market Street's mortgage loan servicing portfolio. As of December 31, 1995,
$415,000 of the total $8.3 million outstanding is classified as short-term
borrowings.
On April 29, 1994, Market Street entered into a Term Loan Agreement with
G.E. Capital Mortgage Services, Inc. to finance the acquisition of mortgage
loan servicing rights. At December 31, 1994, $15.3 million had been borrowed
under this agreement. Interest on borrowings under the Term Loan Agreement was
payable monthly at a rate of 3.75% above the lender's one month commercial
paper rate. As of December 31, 1994, $3.1 million of the amount outstanding
was 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 Savings Bank. Interest was payable at
the prime rate plus 2%. As of December 31, 1994, the entire amount outstanding
of $744,000 was classified as short-term borrowings. This balance was paid in
full during 1995.
34
Notes to Consolidated Financial Statements (continued)
The following table indicates the remaining principal maturities of
long-term debt at December 31, 1995 (excludes short-term portion detailed in
Note 9):
(Dollars in thousands)
1997................................ $ 1,764
1998................................ 1,772
1999................................ 1,780
2000................................ 4,362
2001................................ 25,000
2002 and thereafter................. 17,250
-------
Total............................... $51,928
=======
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.
The following is a summary of the components of the provision for income tax
expense for the years ended December 31, 1995, 1994 and 1993. During the years
ended December 31, 1995, 1994, 1993, the Company's state taxes on income were
insignificant.
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Current expense........................ $5,127 $7,008 $11,991
Deferred income tax.................... 3,039 1,039 317
------ ------ -------
Total income tax expense......... $8,166 $8,047 $12,308
====== ====== =======
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 are as follows:
1995 1994
--------------------- ------------------
Asset Liability Asset Liability
----- --------- ----- ---------
(Dollars in thousands)
Allowance for estimated loan losses............................. $ 492 -- $1,020 --
Purchased mortgage servicing rights amortization................ 1,526 -- 1,393 --
Originated mortgage servicing rights............................ -- $1,196 -- --
Deferred loan fees and costs, net............................... -- 1,860 -- $ 162
Non-deductible accruals......................................... 156 -- 195 --
Depreciation/amortization....................................... -- -- -- 399
Cash dividends on FHLB stock.................................... -- 535 -- 431
Purchase accounting adjustment amortization..................... 617 -- 558 --
Market value adjustment for securities available-for-sale....... 734 -- 2,839 --
Loan mark-to-market adjustment.................................. -- 352 -- 344
Other ....................................................... 542 102 580 83
------ ------ ------ ------
Total deferred taxes...................................... $4,067 $4,045 $6,585 $1,419
====== ====== ====== ======
35
Notes to Consolidated Financial Statements (continued)
Items causing differences between the statutory tax rate and the effective tax
rate are summarized as follows:
Year ended December 31,
----------------------------------------------------------------
1995 1994 1993
---------------- ----------------- ----------------
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
(Dollars in thousands)
Statutory tax rate....................... $7,851 35.0% $8,318 35.0% $12,089 35.0%
Amortization of goodwill................. 88 .4 88 .4 77 .2
Other, net............................... 227 1.0 (359) (1.5) 142 .4
------ ---- ------ ---- ------- -----
Provision for income taxes......... $8,166 36.4% $8,047 33.9% $12,308 35.6%
====== ===== ====== ===== ======= =====
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 1995, 1994 and 1993 are as follows:
Year Ended December 31,
-----------------------------------------------------------------------------
1995 1994 1993
----------------------- ----------------------- ------------------------
Number of Option Number of Option Number of Option
Options Price Options Price Options Price
-------- ------ --------- ------ --------- ------
Outstanding at beginning of year... 883,038 $ 2.64-11.77 949,322 $2.64-11.36 1,595,401 $2.64- 8.83
Granted...................... 26,630 10.57-10.75 57,239 8.98-11.77 184,192 8.07-11.36
Exercised.................... (193,625) 2.64-11.08 (114,928) 3.81- 8.88 (826,611) 4.03- 8.88
Canceled..................... (6,473) 8.07-11.77 (8,595) 5.01-12.19 (3,660) 4.44
-------- ------------ -------- ---------- --------- -----------
Outstanding at end of year......... 709,570 $3.65-11.77 883,038 $2.64-11.77 949,322 $2.64-11.36
======= =========== ======= =========== ========= ===========
Available for future grant......... 760 20,941 80,562
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 1995, 1994 and 1993 follows:
Year Ended December 31,
---------------------------------------------------------------------------------
1995 1994 1993
------------------------ ------------------------ ------------------------
Number of Warrant Number of Warrant Number of Warrant
Warrants Price Warrants Price Warrants Price
--------- ------- --------- ------- --------- -------
Outstanding at beginning of year.... 206,096 $3.66-10.85 279,133 $3.66- 8.26 307,938 $3.66- 4.55
Granted....................... 13,200 10.57 16,940 10.85 14,520 8.26- 9.09
Exercised..................... (12,723) 4.24-10.85 (89,977) 4.19 - 4.66 (43,325) 4.38-10.00
Expired....................... -- -- -- -- -- --
------- ------------- ------- ----------- ------- -----------
Outstanding at end of year.......... 206,573 $3.66 - 10.85 206,096 $3.66-10.85 279,133 $3.66- 8.26
======= ============= ======= =========== ======= ===========
Restricted Stock Plan
Under the Restricted Stock Plan, 226,490 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 1995 and 1993, 132,966 and
43,524 shares were issued under this plan, respectively. In 1994 no shares
were issued under this plan. At December 31, 1995, 164,268 shares were
outstanding under this plan. The Company amortizes the share issuance price
over the restriction period of the agreement.
36
Notes to Consolidated Financial Statements (continued)
Stock Dividends
On September 21, 1995, Republic's Board of Directors declared a 10% stock
dividend distributed on December 1, 1995 to shareholders to record on November
3, 1995. Similar stock dividends were distributed on December 2, 1994 to
shareholders of record on November 4, 1994 and on October 29, 1993 to
shareholders of record October 1, 1993.
Common Stock Repurchased
During 1995 and 1994, the Company repurchased 461,000 and 80,000 shares,
respectively, of its common stock. In 1995, 429,000 of these shares were
reissued in conjunction with the 10% stock dividend.
Note 14: Earnings Per Common Share
Primary earnings per common share are computed by dividing net income, 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 the effects, if any, of an ending market
price of the Company's common stock which is higher than the average price for
the period.
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, 1995, 1994 and 1993.
1995 1994 1993
---- ---- ----
Average number of common shares outstanding..................... 16,504,390 16,772,291 16,069,313
Common share equivalents on stock options and stock
warrants based on average market price.................... 480,179 552,213 867,278
---------- ----------- ----------
Average number of common shares outstanding to
compute primary earnings per share........................ 16,984,569 17,324,504 16,936,591
Incremental common share equivalents on stock options
and stock warrants based on end of period market price.... 11,538 1,265 43,949
---------- ---------- ----------
Average number of common shares outstanding to
compute fully diluted earnings per share.................. 16,996,107 17,325,769 16,980,540
========== ========== ==========
Note 15: Transactions With Related Parties
Republic Bank and Republic Savings 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, 1995
and 1994 follows:
1995 1994
---- ----
(Dollars in thousands)
Balance at January 1........................ $ 3,978 $ 4,508
New loans and advances................ 100 557
New directors and officers............ -- --
Repayments............................ (1,482) (1,087)
Former directors and officers......... -- --
------- -------
Balance at December 31...................... $ 2,596 $ 3,978
======= =======
37
Notes to Consolidated Financial Statements (continued)
Note 16: Other Non-Interest Expense
For 1995, 1994 and 1993, the other non-interest expense category contained
certain types of expenses which exceeded 1% of total interest income and other
non-interest income. For 1995, telephone expense of $2.7 million exceeded this
threshold. 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 the 1% threshold. Telephone expense and
FDIC insurance premiums of $2.2 million and $2.0 million, respectively, during
1993, exceeded the 1% threshold.
Note 17: Employee Benefit Plans
The Company maintains a 401(k) plan for its employees. The employer
contributions to the plan are determined annually by the Board of Directors.
Expenses under the plan for the years ended December 31, 1995, 1994 and 1993
aggregated $644,000, $669,000 and $353,000, respectively.
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 1995, 1994 and
1993 approximated $3.6 million, $3.7 million and $2.5 million, respectively.
As of December 31, 1995, the future aggregate minimum lease payments required
under noncancellable operating leases are as follows:
Operating
Leases
---------
Year Ending
1996............................ $3,116
1997............................ 2,271
1998............................ 1,334
1999............................ 568
2000............................ 340
2001 and thereafter............. 10
------
Total minimum payments required....... $7,639
======
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, 1995, 1994 and 1993. The intercompany
income/(expense) presented on the following page 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.
38
Notes to Consolidated Financial Statements (continued)
Commercial Banking Mortgage Banking Consolidated
-------------------------- ----------------------------- ---------------------------
Year ended December 31, 1995 1994 1993 1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
Net interest income after provision
for loan losses..................... $35,091 $35,617 $34,949 $ (4,710) $(2,491) $ 1,011 $30,381 $33,126 $35,960
Non-interest income................... 4,241 5,762 6,992 -- -- -- 4,241 5,762 6,992
Mortgage banking income (1)........... -- -- -- 70,960 69,899 85,128 70,960 69,899 85,128
Depreciation and amortization......... 2,152 2,051 1,771 2,476 2,217 1,319 4,628 4,268 3,090
Non-interest expense.................. 21,988 23,582 28,682 56,536 57,171 61,767 78,524 80,753 90,449
------- ------- ------- ------- ------ ------- ------- ------- -------
Income before taxes................... $15,192 $15,746 $11,488 $ 7,238 $8,020 $23,053 $22,430 $23,766 $34,541
======= ======= ======= ======= ====== ======= ======= ======= =======
Intercompany income/(expense)
included in income before taxes..... $ 1,796 $ 1,111 $ 1,015 $ (1,796) $(1,111) $(1,015) -- -- --
======= ======= ======= ======== ======= ======= ======= ======= =======
(Dollars in millions)
At December 31,
Total identifiable assets............ $1,273 $1,235 $1,003 $ 255 $ 155 $ 181 $1,528 $ 1,390 $ 1,184
Intercompany assets included in
total identifiable assets......... (55) (26) (12) -- -- (1) (55) (26) (13)
----- ----- ----- ----- ------ ----- ------ ------- ------
Assets after intercompany
eliminations...................... $1,218 $1,209 $ 991 $ 255 $ 155 $ 180 $1,473 $ 1,364 $ 1,171
====== ====== ====== ===== ====== ===== ====== ======= =======
<FN>
(1) Included in mortgage banking income is amortization of mortgage servicing
rights of $7.0 million, $5.0 million and $4.6 million in 1995, 1994 and
1993, respectively.
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 financial 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 counter party. 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.
39
Notes to Consolidated Financial Statements (continued)
The following table outlines Republic's off-balance sheet exposure to credit
and interest rate risk at December 31, 1995 and 1994:
Outstanding at December 31,
---------------------------
1995 1994
---- ----
(Dollars in thousands)
Financial instruments whose contract amounts represent credit risk:
Unused commitments to extend credit........................................ $38,835 $18,905
Standby letters of credit.................................................. 206 450
Commitments to fund residential real estate loans.......................... 277,425 195,472
Commitments to fund commercial real estate loans........................... 20,368 43,391
Financial instruments whose contract amounts represent interest rate risk:
Residential real estate loan applications with agreed-upon rates........... 134,039 129,640
Commitments to sell residential real estate loans.......................... 532,442 213,569
To offset 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 $532.4 million of residential mortgage loans to various third parties
of which $423.4 million related to the balances of mortgage loans held for
sale at December 31, 1995 with the remaining $109.0 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 1996, are not expected to produce any material gains or losses. At
December 31, 1994, Republic had entered into firm commitments to sell forward
$213.6 million of residential mortgage loans of which $152.1 million related
to the balances of mortgage loans held for sale with the remaining $61.5
million relating to those commitments for residential real estate loan
applications with agreed-upon interest rates.
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. Since no ready market exists for a
significant portion of the Company's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and value of assets and liabilities that are not considered
financial instruments. Tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimated and have not been considered in these estimates.
40
Notes to Consolidated Financial Statements (continued)
The estimated fair values of the Company's financial instruments as of
December 31, 1995 and 1994 are as follows:
December 31, 1995 December 31, 1994
------------------- --------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ------ ------- -----
(Dollars in thousands)
Assets:
Cash and cash equivalents.................................... $ 39,641 $ 39,641 $ 23,297 $ 23,297
Mortgage loans held for sale................................. 423,364 428,737 152,138 152,064
Held-to-maturity securities.................................. -- -- 269,701 254,996
Available-for-sale securities................................ 317,769 317,769 196,502 196,502
Loans, net of the allowance for estimated loan losses........ 573,110 575,962 599,545 580,911
Liabilities:
Deposits:
Non-interest bearing demand deposits................... 126,427 126,427 111,425 111,425
Interest bearing demand and savings deposits........... 241,943 241,943 256,528 256,528
Certificates of deposit:
Maturing in six months or less...................... 289,204 290,612 218,475 218,348
Maturing between six months and one year............ 123,154 123,947 108,266 107,817
Maturing between one and three years................ 108,490 110,241 103,090 102,590
Maturing beyond three years......................... 15,511 15,652 20,958 20,615
-------- -------- -------- --------
Total deposits...................................... 904,729 908,822 818,742 817,323
Federal funds purchased and reverse repurchase agreements.... 134,237 134,237 217,124 217,124
Short-term borrowings........................................ 129,214 129,214 39,822 39,821
FHLB advances................................................ 80,500 80,713 69,950 69,605
Long-term debt............................................... 51,928 54,474 56,379 52,094
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, including the fair value of
mortgage servicing rights, 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.
Investments:
The fair value of held-to-maturity securities and available-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.
41
Notes to Consolidated Financial Statements (continued)
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, 1995 and 1994.
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. Since borrowings classified short-term generally 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 commitments to sell residential real
estate loans may result in a gain or loss. The aggregated fair value of these
off-balance sheet financial instruments at December 31, 1995 and 1994 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. The limitations of the
subsidiary bank and the state savings bank for 1995 were approximately $28.5
million and $4.7 million, respectively. Market Street is restricted by its
Term Loan Agreement debt covenant with Residential Funding Corporation, such
that dividends may not exceed their annual net income.
42
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,
---------------------
1995 1994
---- ----
(Dollars in thousands)
Assets:
Cash and due from banks ................................... $ 339 $ 199
Interest earning deposits ................................. 2,133 5,744
-------- --------
Cash and cash equivalents ................................. 2,472 5,943
Investment in subsidiaries ................................ 132,237 131,446
Notes and advances receivable from non-bank subsidiaries .. 44,446 21,811
Furniture and equipment ................................... 101 109
Other assets .............................................. 2,264 5,312
-------- --------
Total assets ........................................ $181,520 $164,621
======== ========
Liabilities and Shareholders' Equity:
Accrued and other liabilities ............................. $ 4,769 $ 4,457
Short-term borrowings ..................................... 8,125 --
Long-term debt ............................................ 42,250 42,250
-------- --------
Total liabilities ................................... 55,144 46,707
-------- --------
Total shareholders' equity ................................ 126,376 117,914
-------- --------
Total liabilities and shareholders' equity .......... $181,520 $164,621
======== ========
STATEMENTS OF INCOME
Year Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Interest income .................................................. $ 2,751 $ 1,653 $ 1,182
Dividends from subsidiaries ...................................... 23,586 7,242 5,392
Other income ..................................................... 4 19 108
-------- -------- --------
Total income ............................................... 26,341 8,914 6,682
-------- -------- --------
Interest expense ................................................. 4,365 3,107 1,705
Salaries and employee benefits and other expenses ................ 2,318 2,713 3,884
-------- -------- --------
Total expense .............................................. 6,683 5,820 5,589
-------- -------- --------
Income before income taxes and excess (deficiency) of
undistributed earnings of subsidiaries over dividends....... 19,658 3,094 1,093
Income tax credits ............................................... (1,272) (1,615) (1,433)
-------- -------- --------
Income before excess (deficiency) of undistributed earnings of
subsidiaries over dividends and cumulative effect of
change in accounting principle ............................. 20,930 4,709 2,526
Cumulative effect of change in account principle ................. -- -- (50)
Excess (deficiency) of undistributed earnings of subsidiaries
over dividends ............................................. (6,666) 11,010 20,607
-------- -------- --------
Net income ....................................................... $ 14,264 $ 15,719 $ 23,183
======== ======== ========
43
Notes to Consolidated Financial Statements (continued)
Parent Company Financial Information (continued)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................... $ 14,264 $ 15,719 $ 23,183
Adjustments to reconcile net income to net cash (used in)/provided
by operating activities:
Depreciation and amortization ................................................ 598 498 444
Excess (deficiency) of undistributed earnings of subsidiaries over dividends . 6,666 (11,010) (20,607)
(Increase)/decrease in other assets .......................................... 1,959 (977) 982
Increase in other liabilities ................................................ 312 2,616 754
Other, net ................................................................... (21) (45) (54)
-------- -------- --------
Total adjustments ............................................................ 9,514 (8,918) (18,481)
-------- -------- --------
Net cash provided by operating activities ....................................... 23,778 6,801 4,702
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of mortgage-backed securities .......................... -- -- 416
Capital investments in subsidiaries ............................................. (3,547) (9,779) --
Increase in notes and advances receivable from non-bank subsidiaries ............ (22,635) (13,729) (4,072)
Acquisition of minority interest in bank subsidiary ............................. -- -- (74)
Acquisition of increased ownership interest under stock purchase
agreement with Premier Bancorporation, Inc. ............................... -- -- (668)
-------- -------- --------
Net cash used in investing activities ........................................... (26,182) (23,508) (4,398)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt of Premier Bancorporation, Inc.
upon acquisition of remaining minority interest ........................... -- -- (3,756)
Net proceeds from issuance of common shares through exercise of stock
options and stock warrants ................................................ 1,195 1,072 4,749
Repurchase of common shares ..................................................... (5,117) (838) --
Dividends paid on common shares ................................................. (5,270) (4,141) (2,341)
Net increase/(decrease) in short-term borrowings ................................ 8,125 -- (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 ............................. (1,067) 20,805 144
-------- -------- --------
Net increase/(decrease) in cash and cash equivalents ............................ (3,471) 4,098 448
Cash and cash equivalents at beginning of year .................................. 5,943 1,845 1,397
-------- -------- --------
Cash and cash equivalents at end of year ........................................ $ 2,472 $ 5,943 $ 1,845
======== ======== ========
Cash paid during the year for:
Interest .................................................................. $ 4,030 $ 2,758 $ 1,581
Income taxes .............................................................. -- -- --
<FN>
Noncash investing activities:
o During the year ended December 31, 1994, Republic Bancorp Inc. reclassified
$3.4 million of an advance to Market Street for the purchase of CUB Funding
to investment in subsidiaries upon the spin-off of CUB Funding into
a separate subsidiary.
44
Report of Management
The management of Republic Bancorp Inc. is responsible for the preparation of
the financial statements and other related financial information included in
this annual report. The financial statements have been prepared in accordance
with generally accepted accounting principles and include the amounts based on
management's estimates and judgments where appropriate. Financial information
appearing throughout this annual report is consistent with the financial
statements.
Management is responsible for the integrity and objectivity of the
consolidated financial statements. Established accounting procedures are
designed to provide financial records and accounts which fairly reflect the
transactions of the Company. The training of qualified personnel and the
assignment of duties are intended to provide an internal control structure at
a cost consistent with management's evaluation of the risks involved. Such
controls are monitored by an internal audit staff to provide reasonable
assurances that transactions are executed in accordance with management's
authorization and that adequate accountability for the Company's assets is
maintained.
The financial statements have been audited by Deloitte & Touche LLP
independent auditors, and their report follows.
The Audit Committee of the Board of Directors is composed of outside
directors who meet with management, internal auditors, independent auditors
and regulatory examiners to review matters relating to financial reporting and
internal controls. The internal auditors, independent auditors and regulatory
examiners have direct access to the Audit Committee.
/s/ JERRY D. CAMPBELL /s/ THOMAS F. MENACHER
Jerry D. Campbell Thomas F. Menacher, C.P.A.
Chairman of the Board and Senior Vice President, Treasurer and
Chief Executive Officer Chief Financial Officer
45
[Letterhead of Deloitte & Touche LLP]
Deloitte &
Touche LLP
____________
Independent Auditors' Report
To the Shareholders and Board of Directors
Republic Bancorp Inc.
We have audited the accompanying consolidated balance sheets of Republic
Bancorp Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Republic Bancorp Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 4 to the consolidated financial statements,
Republic Bancorp Inc. adopted recently issued Statements of Financial
Accounting Standards and, accordingly changed its method of accounting for
mortgage servicing rights effective April 1, 1995, and its method of
accounting for income taxes effective January 1, 1993.
/s/ DELOITTE & TOUCHE LLP
January 18, 1996
Detroit, Michigan
46
Summary of Common Share Market Data
Market Price on Common Shares
------------------------------------------------
1995 1994
------------------- --------------------
High Low High Low
---- --- ---- ---
First quarter............ 10 5/8 9 12 3/4 10 1/8
Second quarter........... 11 1/2 10 11 5/8 10 1/8
Third quarter............ 12 7/8 10 1/2 12 3/8 10 5/8
Fourth quarter........... 12 7/8 10 11 3/8 8 5/8
The Company had 4,448 common shareholders of record and approximately 13,000
total common shareholders as of February 19, 1996. 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 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 15, 1996,
declared a quarterly cash dividend of $.10 per share on Common Stock, payable
on April 5, 1996 to shareholders of record on March 8, 1996. It is the current
intent of the Company's Board of Directors to continue to distribute quarterly
cash dividends to common shareholders at the rate of $.10 per share and to
retain the balance of earnings and surplus to provide operating capital and to
finance the growth and development of the Company.
The Company has historically declared stock dividends and stock splits
effected in the form of dividends on its Common Stock. Payment of such stock
dividends in the future will be dependent upon the consolidated earnings and
financial condition of the Company, legal restrictions and other such factors
as the Board of Directors may consider relevant at the time.
Quarterly Data
Selected unaudited quarterly financial information for the latest eight
quarters is shown in the table below. All amounts are in thousands, except per
common share amounts. Per share amounts have been restated for all applicable
stock dividends.
1995 1994
---------------------------------- -------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr
---- --- --- --- --- --- --- ---
(Dollars in thousands, except per share data) (Dollars in thousands, except per share data)
Total income....................... $38,570 $42,062 $45,818 $44,348 $45,296 $37,089 $36,036 $35,459
Total interest income.............. 22,540 23,409 24,608 25,040 15,896 19,332 21,620 21,371
Total interest expense............. 14,764 15,873 17,237 17,318 8,363 10,663 12,530 13,443
Provision for loan losses.......... 12 12 -- -- 47 17 20 10
Net income......................... 4,205 3,925 4,114 2,020 6,082 5,007 3,025 1,605
Net income per common share:
Primary and fully diluted.... .25 .23 .24 .12 .35 .29 .17 .09
47
Republic Affiliates
Republic Bank
- ----------------------------------------- Directors ----------------------------------------------------
Lee E. Benz Frederick H. Marx John E. VanderPoel
President President Chief Executive Officer
Benz Insurance Agency Marx, Layne & Company Jackson Iron & Metal, Inc.
Barry J. Eckhold Alan R. Pfaff, Jr.
Chairman of the Board President Giorgio Vozza
President and Chief Atlantic Eagle Inc. President
Executive Officer Grant C. Putman Adventure Golf and Design
D. Wayne Fate Farmer
Pharmacist William C. Rands, III David W. Wright
Jack R. Lousma Managing Partner Owner
Consultant Rands Investment Company Wright Ventures
Milton F. Lutz, II David G. Stickel
President Regional President Michael D. Young
Midbrook Products, Inc. Secretary to the Board President, Michael D. Young
and Community Bank Olds, Pontiac, GMC Trucks, Inc.
President - Flint
- ----------------------------------------- Officers -----------------------------------------------------
Barry J. Eckhold Donald F. Chamberlain Michael J. Charlow
Chairman of the Board Vice President Vice President
President and Chief Ronald L. Clingerman Jonathan J. Cousins
Executive Officer Vice President Vice President
David G. Stickel John C. Deming Suzanne A. Lieder
Regional President, Vice President Vice President
Secretary to the Board and Todd A. Endresen Daniel F. Mackenzie
Community Bank President - Vice President Vice President
Flint Pamela J. Foster Heidi H. McNaughton
Constance A. Deneweth Vice President Vice President
Community Bank President - Stephen A. Horton Gregory B. Smith
Traverse City Vice President Vice President
Dennis A. Hill E. James Houston, Jr. Holly G. Tegel
Community Bank President - Vice President Vice President
Jackson Mary E. Kropp
Richard P. Lupkes Vice President Retail Banking & Consumer Lending
Community Bank President - Joann M. Roche Theodore J. Carlson
Ann Arbor Vice President Executive Vice President
David C. Williams Andrew P. Sabatine and Cashier
Community Bank President - Vice President Ian T. Glassford
Southeastern Michigan David J. Skaff Vice President
Thomas G. Zernick Vice President Jack S. Harris
Community Bank President - James L. Stotz Vice President
Lansing Vice President Douglas A. Liverance
Kenneth W. Faupel Robert K. Sission Vice President
Senior Vice President and Vice President Barbara J. Schmidt
Senior Operations Officer Vice President
Jeffrey D. Saunders C.P.A. Mortgage Lending Joanne M. Wrozek
Chief Financial Officer Lawrence D. Corbett Vice President
Commercial Lending Senior Vice President
Craig Foust Michael J. Gleason
Senior Vice President and Senior Vice President
Chief Credit Officer David B. Randall
Vincent G. Cassisa Senior Vice President
Vice President
48
Republic Affiliates
Republic Bank (continued)
- --------------------------------------------- Offices ---------------------------------------------------------
Ann Arbor 2201 East Michigan Avenue 127 East Grand River
122 South Main Street Jackson, Michigan 49202 Webberville, Michigan 48892
Ann Arbor, Michigan 48104 (517) 789-4330 (517) 521-3122
(313) 665-4030
2030 Fourth Street 105 West Middle Street
2100 South Main Street, Suite E Jackson, Michigan 49203 Williamston, Michigan 48895
Ann Arbor, Michigan 48103 (517) 789-4335 (517) 655-4371
(313) 665-4080
904 North Wisner Street Southeastern Michigan
Flint Jackson, Michigan 49202 1700 North Woodward Avenue
3200 Beecher Road (517) 789-4326 Suite B
Flint, Michigan 48532 Bloomfield Hills, Michigan 48304
(810) 732-3300 Loan Production Office (810) 258-5300
4205 South Westnedge Avenue
220 E. Main Street Kalamazoo, Michigan 49008 31155 Northwestern Highway
Flushing, Michigan 48433 (616) 344-0011 Farmington Hills, Michigan 48334
(810) 659-7712 (810) 737-0444
112 Jonesville Street
G-8455 South Saginaw Road Litchfield, Michigan 49252 18720 Mack Avenue
Grand Blanc, Michigan 48439 (517) 542-2931 Grosse Pointe Farms, Michigan 48236
(810) 694-8222 (313) 882-6400
12811 East Chicago Road
1070 East Main Street P.O. Box 9 Traverse City
Owosso, Michigan 48867 Somerset Center, Michigan 49282 534 E. Front Street
(517) 723-7800 (517) 688-4433 Traverse City, Michigan 49686
(616) 933-5626
1345 N. Shiawassee Street 119 West Main Street
Owosso, Michigan 48867 Spring Arbor, Michigan 49283 Loan Production Office
(517) 723-5101 (517) 789-4340 616 Petoskey Street, Suite 306
Petoskey, Michigan 49770
Jackson Lansing (616) 347-0290
306 West Michigan Avenue 500 North Homer Street
Jackson, Michigan 49201 Lansing, Michigan 48912
(517) 789-4300 (517) 351-7300
125 West Main Street 601 West Grand River
Hanover, Michigan 49241 Okemos, Michigan 48864
(517) 563-8332 (517) 349-1930
49
Republic Affiliates
Republic Bank Community Boards
- ----------------------------------- Directors ---------------------------------------
Ann Arbor Jackson Southeastern Michigan
Lee E. Benz G. Mark Alyea Peter A. Dow
Jack R. Lousma Theodore J. Carlson Robert G. Edgar
Richard P. Lupkes Frank A. Denbrock Frederick H. Marx
Robert L. McNaughton Lloyd G. Ganton Sam H. McGoun
William G. Milliken, Jr. Dennis A. Hill Alan R. Pfaff, Jr.
David G. Stickel Gary Hurand William C. Rands, III
James D. Shortt, Jr., Ph.D. William C. Koons Richard H. Turner
Jeoffrey K. Stross, M.D. Milton F. Lutz, II Robert C. Valade
George D. Zuidema, M.D. Phillip O. Richards, M.D. David C. Williams
Jo-Anne Rosenfeld
Flint Lawrence Schultz
Bruce L. Cook John E. VanderPoel
Richard J. Cramer
Dr. George A. Eastman Lansing
Barry J. Eckhold George L. Burkitt
Howard J. Hulsman A. Gregory Eaton
Gary Hurand Barry J. Eckhold
Robert C. Manutes D. Wayne Fate
Dr. Milton Rosenbaum Joe D. Pentecost
David G. Stickel Grant C. Putman
David W. Wright Thomas G. Zernick
Michael D. Young
50
Republic Affiliates
Republic Savings Bank
- ------------------------------------------ Directors --------------------------------------------------
Albert P. Blank Dennis J. Ibold John L. Macklin
Executive Vice President Chairman of the Board President
Partner Investment Advisors
Dana M. Cluckey, C.P.A. Petersen & Ibold International, Inc.
President and Attorneys at Law
Chief Operating Officer Lyman H. Treadway
Republic Bancorp Inc. Craig L. Johnson Consultant
President and Retired Chairman and
Paul C. Drueke Chief Executive Officer Chief Executive Officer
First Vice President Bancapital Corporation
Stifel Nicolaus & Company, Inc. John J. Lennon
Retired Chairman and
Chief Executive Officer
White Engines, Inc.
- ------------------------------------------ Officers ----------------------------------------------------
Craig L. Johnson Brian R. Ludtke, C.P.A. Thomas P. Krumel
President and Chief Financial Officer Vice President
Chief Executive Officer and Treasurer
Daniel G. Merkel
Albert P. Blank Laurie Ellen Bonos Vice President
Executive Vice President Vice President
John L. Mlakar
Terry G. Robbins Michelle J. Dubblestyne Vice President
First Vice President and Secretary Vice President
Leeanne M. Wright
Vice President
- ------------------------------------------ Offices -----------------------------------------------------
26301 Curtiss Wright Parkway 8382 Mentor Avenue Loan Production Office
Richmond Heights, Ohio 44143 Mentor, Ohio 44060 500 W. Wilson Bridge Road
(216) 289-0999 (216) 918-0800 Suite 100
Worthington, Ohio 43085
17800 Chillicothe Road 26777 Lorain Road (614) 888-9582
Chagrin Falls, Ohio 44023 North Olmsted, Ohio 44070
(216) 543-8237 (216) 779-9922 Loan Production Office
201 South Capital, Suite 650
8389 Mayfield Road 2104Warrensville Center Road Indianapolis, Indiana 46225
Chesterland, Ohio 44026 South Euclid, Ohio 44121 (317) 237-5300
(216) 729-1636 (216) 932-7774
Loan Production Office
80 Severance Circle Drive Loan Production Office 500 W. Wilson Bridge Road
Cleveland Heights, Ohio 44118 7333 Paragon Road, Suite 160 Suite 100
(216) 291-3171 Centerville, Ohio 45459 Worthington, Ohio 43085
(513) 438-4663 (614) 888-9582
5710 Mayfield Road
Greens of Lyndhurst
Lyndhurst, Ohio 44124
(216) 461-7300
51
Republic Affiliates
Republic Bancorp Mortgage Inc.
(and its division Home Funding, Inc.)
- -------------------------------------------------- Directors ---------------------------------------------------
George B. Smith Jerry D. Campbell Dana M. Cluckey, C.P.A.
Chairman of the Board Chairman and President and
Republic Bancorp Mortgage Inc. Chief Executive Officer Chief Executive Officer
Republic Bancorp Inc.
Barry J. Eckhold Richard H. Shaffner Charles W. Adams
Chairman, President and Consultant Consultant
Chief Executive Officer
Republic Bank
- -------------------------------------------------- Officers -----------------------------------------------------
George B. Smith Charles W. Cracraft Daniel B. Smith
Chairman of the Board Vice President Vice President
Dana M. Cluckey, C.P.A. Alfred E. Davis Thomas B. Smith
President and Vice President Vice President
Chief Executive Officer
Debra J. Gouin Timothy B. Smith
Diana L. Wallace Vice President Vice President
Senior Vice President
Thomas R. Henaughen Michael G. Taormino
William A. Zablocki Vice President Vice President
Senior Vice President
Deborah E. Harman Gail T. Thomas
Sandra J. Nickol Vice President Vice President
Senior Vice President
C. Ann Jeffares Lisa A. Wickham
Lawrence Rosenberg, C.P.A. Vice President Vice President
Chief Financial Officer
Howard M. Nathan William D. Wilhammer
Barbara J. Bartus Controller Vice President
Vice President
Marcetta Nelson - Rhodes Joseph A. Cilento
Greg R. Bixby Vice President President, Home Funding Inc. Division
Vice President
Barbara Jo Smith Kathleen Quinn
Robert L. Borkowski Vice President Executive Vice President,
Vice President Home Funding Inc. Division
- -------------------------------------------------- Offices -----------------------------------------------------
31155 Northwestern Highway 186 South Main Street 195 Farmington Avenue, Suite 310
Farmington Hills, Michigan 48334 Plymouth, Michigan 48170 Farmington, Connecticut 06032
(810) 932-6500 (313) 459-7800 (203) 678-1778
1919 West Stadium, Suite 4 543 Main Street 1407 Route 9
Ann Arbor, Michigan 48103 Suite 213 Clifton Park, New York 12065
(313) 995-4499 Rochester, Michigan 48307 (518) 373-0814
(810) 656-4200
1700 North Woodward Avenue 6701 Manlius Center Road
Bloomfield Hills, Michigan 48304 14715 Northline Road East Syracuse, New York 13057
(810) 646 7050 Southgate, Michigan 48195 (315) 431-4100
(313) 283-6200
322 West Grand River Two Meeting House Road
Brighton, Michigan 48116 457 Main Street Chelmsford, Massachusetts 01824
(810) 229-7440 Danbury, Connecticut 06811 (508) 250-2700
(203) 791-1736
Two Summit Court, Suite 202
Fishkill, NY 12524
(914) 896-1800
52
Republic Affiliates
Market Street Mortgage Corporation
- --------------------------------------- Directors ----------------------------------------
Randall C. Johnson, CMB Jerry D. Campbell
Chairman of the Board Chairman and
President and Chief Executive Officer
Chief Executive Officer Republic Bancorp Inc.
T. Donnell Smith, CMB Dana M. Cluckey, C.P.A.
Executive Vice President President and
Chief Operating Officer
Michael H. Dillon, C.P.A. Republic Bancorp Inc.
Executive Vice President
- --------------------------------------- Officers -----------------------------------------
Randall C. Johnson, CMB Anthony J. Agliardi, C.P.A. Brian W. Prentice
Chairman of the Board, Vice President Vice President
President and and Controller
Chief Executive Officer Lauren C. Reed
Michael T. Alea Vice President
T. Donnell Smith, CMB Vice President
Executive Vice President Charles W. Richardson
Ross G. Bennett Vice President
Michael H. Dillon, C.P.A. Vice President
Executive Vice President Timothy A. Slone
Barry W. Carroll Vice President
James B. Capps Vice President
Senior Vice President Nancy K. Smith
Jerry F. Cobbe Vice President
Tracy S. Jackson, C.P.A. Vice President
Senior Vice President Gene F. Swindle
Chief Financial Officer, Barbara Jan Jenkins Vice President
Treasurer and Secretary Vice President
Nancy J. Weaver
Nancy A. Jones Bruce W. Kates Vice President
Senior Vice President Vice President
John M. Welsh
Barbara V. VanAntwerp Patricia K. McCabe Vice President
Senior Vice President Vice President
Frank L. Wolff
Vickey L. Adkins Brian J. Murphy Vice President
Vice President Vice President
Anna Y. Agee John C. Pacini
Vice President Vice President
53
Republic Affiliates
Market Street Mortgage Corporation (continued)
- -------------------------------------------- Offices --------------------------------------------------------------
2650 McCormick Drive, Suite 200 1715 North Westshore Boulevard 3901 National Drive, Suite 210
Clearwater, Florida 34619 Suite 552 Burtonsville, Maryland 20866
(800) 669-3210 Tampa, Florida 33607 (301) 989-8500
(813) 724-7000 (813) 286-8700
18215-D Flower Hill Way
9240 Bonita Beach Road, Suite 2209 111 Hidden Glen Way Gaithersburg, Maryland 20879
Bonita Springs, Florida 33923 Dothan, Alabama 36303 (301) 670-5660
(941) 495-5454 (334) 794-7660
2701 Coltsgate Road, Suite #101
1375 Oakfield Drive 6719 Taylor Circle, Unit B Charlotte, North Carolina 28211
Brandon, Florida 33511 Montgomery, Alabama 36117 (704) 365-9044
(813) 681-7700 (334) 277-9011
7611 Little River Turnpike
1401 S. Florida Avenue #204 2222 S. Dobson Road, Suite 102 Suite 502W
Lakeland, Florida 33803 Mesa, Arizona 85202 Annandale, Virginia 22003
(941) 688-6211 (602) 897-7447 (703) 941-6600
Cross Bayou Commerce Center 4222 E. Camelback Road 3998 Fair Ridge Drive, Suite 200
11701 Belcher Road South, Suite 110 Suite H100 Fairfax, Virginia 22033
Largo, Florida 34643 Phoenix, Arizona 85018 (703) 359-0100
(813) 539-8300 (602) 840-4434
8700 Centreville Road
2500 Maitland Center Parkway 500 E. Fry Boulevard, Suite L9 Suite 310
Suite 402 Sierra Vista, Arizona 85635 Manassas, Virginia 22110
Maitland, Florida 32751 (520) 458-8523 (703) 331-0300
(407) 875-6900
7850 Vance Drive, Suite 190 3102 Tyre Neck Road
11440 North Kendall Drive Arvada, Colorado 80003 Portsmouth Virginia 23703
Suite 301-305 (303) 424-6993 (804) 686-0022
Miami, Florida 33176
(305) 596-1640 Plaza Quebec 4510 Holland Office Park
6025 South Quebec, Suite 120 Suite 503
9050 Pines Blvd. Suite 100 Englewood, Colorado 80111 Virginia Beach, Virginia 23452
Pembroke Pines, Florida 33024 (303) 721-1120 (804) 497-0022
(954) 438-6600
214 8th Street, Suite 210
5700 North David Highway, Suite 4 Glenwood Springs, Colorado 81601
Pensacola, Florida 32504 (970) 945-7200
(904) 479-7991
5669 Whitesville Road, Suite B
1800 Second Street, Suite 952 Columbus, Georgia 31904
Sarasota, Florida 34236 (706) 324-0074
(941) 954-8880
300 Chastain Center Blvd., Suite 335
3160 Fifth Avenue North, Suite 140 Kennesaw, Georgia 30144
St. Petersburg, Florida 33713 (770) 795-0886
(813) 539-8300
Woodfield Financial Center
3550 Bushwood Park Drive, Suite 150 1375 E. Woodfield Road, Suite 250
Tampa, Florida 33618 Schaumburg, Illinois 60173
(813) 932-4578
54
Republic Affiliates
CUB Funding Corporation
(and its division RSL Mortgage)
- ---------------------------------------------- Directors -----------------------------------------------------
Douglas E. Jones Jerry D. Campbell Dana M. Cluckey, C.P.A.
Chairman of the Board and Chairman and President and
Chief Executive Officer Chief Executive Officer Chief Operating Officer
Republic Bancorp Inc. Republic Bancorp Inc.
Daniel M. LuVisi
Vice Chairman and President Barry J. Eckhold
Chairman, President
and Chief Executive Officer
Republic Bank
- ----------------------------------------------- Officers ------------------------------------------------------
Douglas E. Jones John Gunther John P. Dixon
Chairman of the Board and Senior Vice President - CUB Vice President
Chief Executive Officer President - RSL Division
Daniel M. LuVisi Judy L. Smith Dennece Bickley
Vice Chairman and President Vice President and Controller Vice President
Anne L. Elliott
Senior Vice President
- ----------------------------------------------- Offices --------------------------------------------------------
26565 West Agoura Road, Suite 305 1265 S. Bascom Avenue, Suite 110 1199 Shoreline Drive, Suite 250
Calabasas, California 91302-1958 San Jose, California 95128 Boise, Idaho 83702
(818) 880-4400 (800) 559-4775 (209) 331-0285
100 Pacifica, Suite 340 1164 N. Monte Vista Avenue, Suite 4 601 S. Rancho Drive, Suite D-29
Irvine, California 92718 Upland, California 91786 Las Vegas, Nevada 89106
(714) 753-7424 (909) 920-5252 (702) 382-2829
23332 Mill Creek Drive, Suite 225 2590 E. Main Street, Suite 200 10260 SW Greenburg Road,
Laguna Hills, California 92653 Ventura, California 93003 Suite 535
(800) 966-4775 (800) 577-4775 Portland, Oregon 97223
(503) 293-7390
1670 Hillhurst Avenue, Suite 204 21241 Ventura Blvd., Suite 253
Los Angeles, California 90027 Woodland Hills, California 91302 320 108th Avenue, N.E., Suite 600
(213) 953-7133 (818) 227-8360 Bellevue, Washington 98004
(206) 646-2808
3140 Gold Camp Drive 2390 East Camelback Road, Suite 300
Suite 150 Phoenix, Arizona 85016
Rancho Cordova, California 95670 (602) 553-1009
(916) 631-1304
55
Republic Bancorp Inc.
- -------------------------------------------------- Directors ----------------------------------------------------------
Jerry D. Campbell Gary Hurand Kelly E. Miller
Chairman and President President
Chief Executive Officer Dawn Donut Systems, Inc. Miller Oil Corporation
Dana M. Cluckey, C.P.A. Dennis J. Ibold Joe D. Pentecost
President, Partner President
Chief Operating Officer and Petersen & Ibold Better Properties, Inc.
Assistant Secretary Attorneys at Law
George B. Smith
Bruce L. Cook Stephen M. Klein Chairman of the Board
Chairman Chairman and Republic Bancorp Mortgage Inc.
Wolverine Sign Works Chief Executive Officer
Omni Funding Corporation Dr. Jeoffrey K. Stross
Richard J. Cramer Professor, Internal Medicine
President John J. Lennon Associate Chief of Clinical Affairs
Dee Cramer, Inc. Retired Chairman and University Medical Center
Chief Executive Officer
Dr. George A. Eastman White Engines, Inc. Directors - Emeriti
Orthodontic Consultant Myer N. Franklin
Sam H. McGoun David Laro
Howard J. Hulsman President and John F. Northway
Chairman. Chief Executive Officer Lyman H. Treadway
Ross Learning Inc. Willis Corroon Corporation
of Michigan, Inc.
- -------------------------------------------------- Officers -----------------------------------------------------------
Jerry D. Campbell Barry J. Eckhold Travis D. Jones, C.P.A.
Chairman and Vice President Vice President and
Chief Executive Officer Chief Credit Officer and Controller
Secretary
Dana M. Cluckey, C.P.A. Mary Lou Scriba
President, Timothy G. Blazejewski, C.P.A. Investment Relations Manager
Chief Operating Officer and Vice President and and Assistant Secretary
Assistant Secretary Chief Investment Officer
Pamela E. Taiariol
Thomas F. Menacher, C.P.A. Debra A. Hanses, PHR Corporate Internal Audit and
Senior Vice President, Treasurer and Vice President Compliance Officer
Chief Financial Officer Corporate Human Resources
- -------------------------------------------------- Offices ------------------------------------------------------------
1070 East Main Street 122 South Main Street
P.O. Box 70 Ann Arbor, Michigan 48104
Owosso, Michigan 48867 (313) 665-4030
(517) 725-7337
56
Corporate Information
Annual Meeting
The Annual Meeting of Shareholders of Republic Bancorp Inc. will be held on
April 24, 1996 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:
Thomas F. Menacher, C.P.A.
Senior Vice President, Treasurer and Chief Financial Officer
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 Register
State Street Bank and Trust Company
c/o Boston EquiServe
P.O. Box 1865
Boston, Massachusetts 02105
(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 22 brokerage firms make a market in the
common stock of Republic Bancorp Inc.
A.G. Edwards & Sons, Inc. Gruntal & Co. Incorporated Pauli & Company, Inc.
St. Louis, Missouri 63103 New York, New York 10005 St. Louis, Missouri 63105
Allen & Company, Inc. Herzog, Heine, Geduld, Inc. RFB Investments Inc.
New York, New York 10022 New York, New York 10004 New York, New York 10022
Robert W. Baird & Co., Inc. Howe Barnes Investments, Inc. Roney & Co.
Milwaukee, Wisconsin 53202 Chicago, Illinois 60603 Detroit, Michigan 48226
The Chicago Corporation Keefe, Bruyette & Woods, Inc. Sherwood Securities Corp.
Chicago, Illinois 60604 New York, New York 10048 New York, New York 10285
Dean Witter Reynolds, Inc. MacAllister Pitfield MacKay Smith Barney Shearson, Inc.
New York, New York 10048 New York, New York 10004 New York, New York 10105
Everen Securities Inc. Mayer & Schweitzer Inc. Stifel Nicolaus & Co., Inc.
Chicago, Illinois 60601 Jersey City, New Jersey 07302 St. Louis, Missouri 63102
First of Michigan Corporation McDonald & Company Securities,Inc. Troster Singer Corp.
Detroit, Michigan 48226 Cleveland, Ohio 44114 Jersey City, New Jersey 07302
Nash Weiss
Jersey City, New Jersey 07302
58