(Mark
One)
|
|||
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
||
For
the quarterly period ended March
31, 2006
|
|||
Or
|
|||
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Michigan
|
38-2604669
|
|||
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|||
1070
East Main Street, Owosso, Michigan
|
48867
|
|||
(Address
of principal executive offices)
|
(Zip
Code)
|
|||
(989)
725-7337
|
||||
(Registrant's
telephone number, including area code)
|
||||
(Former
name, former address and former fiscal year, if changed since last
report)
|
Common
Stock Outstanding as of April 30, 2006:
|
||
Common
Stock, $5 Par Value Per Share
|
74,588,000
Shares
|
PART
I.
|
FINANCIAL
INFORMATION
|
||
Item
1.
|
Financial
Statements (Unaudited)
|
||
Consolidated
Balance Sheets as of March 31, 2006 and December 31, 2005
|
2
|
||
Consolidated
Statements of Income for the Three Months Ended March 31, 2006 and
2005
|
3
|
||
Consolidated
Statements of Cash Flows for the Three Months Ended March 31, 2006
and
2005
|
4
|
||
Notes
to Consolidated Financial Statements
|
5
-
11
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
12
- 23
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
24
- 26
|
|
Item
4.
|
Controls
and Procedures
|
26
|
|
PART
II.
|
OTHER
INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
27
|
|
Item
2.
|
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
|
27
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
27
|
|
Item
6.
|
Exhibits
|
27
|
|
SIGNATURE
|
28
|
||
Exhibits
31(a)-(b) -
|
Certifications
of the Principal Executive Officer and Principal Financial
Officer
|
29
- 30
|
|
Exhibits
32(a)-(b) -
|
Certifications
of the Chief Executive Officer and Chief Financial Officer
|
31
- 32
|
(Dollars
in thousands)
|
March
31,
2006
|
December
31, 2005
|
|||||
(Unaudited)
|
(Note
1)
|
||||||
ASSETS
|
|||||||
Cash
and cash equivalents
|
$
|
47,505
|
$
|
52,527
|
|||
Mortgage
loans held for sale
|
24,600
|
38,259
|
|||||
Securities
available for sale, at market
|
926,912
|
861,623
|
|||||
Securities
held to maturity, at cost
|
222,213
|
227,262
|
|||||
Loans,
net of unearned income
|
4,746,970
|
4,628,258
|
|||||
Less
allowance for loan losses
|
(42,342
|
)
|
(42,122
|
)
|
|||
Net
loans
|
4,704,628
|
4,586,136
|
|||||
Federal
Home Loan Bank stock (at cost)
|
80,529
|
80,525
|
|||||
Premises
and equipment
|
26,887
|
26,586
|
|||||
Bank
owned life insurance
|
117,509
|
116,519
|
|||||
Other
assets
|
92,887
|
92,329
|
|||||
Total
assets
|
$
|
6,243,670
|
$
|
6,081,766
|
|||
LIABILITIES
|
|||||||
Noninterest-bearing
deposits
|
$
|
277,791
|
$
|
284,932
|
|||
Interest-bearing
deposits:
|
|||||||
NOW
accounts
|
185,461
|
187,190
|
|||||
Savings
and money market accounts
|
859,322
|
932,048
|
|||||
Retail
certificates of deposit
|
1,153,593
|
1,102,188
|
|||||
Wholesale
deposits
|
607,808
|
636,585
|
|||||
Total
interest-bearing deposits
|
2,806,184
|
2,858,011
|
|||||
Total
deposits
|
3,083,975
|
3,142,943
|
|||||
Federal
funds purchased and other short-term borrowings
|
718,153
|
709,300
|
|||||
Short-term
FHLB advances
|
375,000
|
218,000
|
|||||
Long-term
FHLB advances and security repurchase agreements
|
1,547,071
|
1,489,432
|
|||||
Accrued
expenses and other liabilities
|
62,984
|
67,632
|
|||||
Long-term
debt
|
50,000
|
50,000
|
|||||
Total
liabilities
|
5,837,183
|
5,677,307
|
|||||
SHAREHOLDERS’
EQUITY
|
|||||||
Preferred
stock, $25 stated value: $2.25 cumulative and convertible; 5,000,000
shares authorized, none issued and outstanding
|
-
|
-
|
|||||
Common
stock, $5 par value, 100,000,000 shares authorized; 74,684,000 and
74,976,000 issued and outstanding, respectively
|
373,422
|
374,882
|
|||||
Capital
surplus
|
34,841
|
36,721
|
|||||
Retained
earnings
|
11,307
|
3,114
|
|||||
Accumulated
other comprehensive loss
|
(13,083
|
)
|
(10,258
|
)
|
|||
Total
shareholders’ equity
|
406,487
|
404,459
|
|||||
Total
liabilities and shareholders’ equity
|
$
|
6,243,670
|
$
|
6,081,766
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
(In
thousands, except per share data)
|
2006
|
2005
|
|||||
Interest
Income:
|
|||||||
Interest
and fees on loans
|
$
|
74,159
|
$
|
64,464
|
|||
Interest
on investment securities and FHLB stock dividends
|
14,240
|
11,377
|
|||||
Total
interest income
|
88,399
|
75,841
|
|||||
Interest
Expense:
|
|||||||
Deposits
|
21,362
|
15,188
|
|||||
Short-term
borrowings
|
11,470
|
5,620
|
|||||
Long-term
FHLB advances and security repurchase agreements
|
15,804
|
15,630
|
|||||
Long-term
debt
|
1,075
|
1,075
|
|||||
Total
interest expense
|
49,711
|
37,513
|
|||||
Net
interest income
|
38,688
|
38,328
|
|||||
Provision
for loan losses
|
1,400
|
1,500
|
|||||
Net
interest income after provision for loan losses
|
37,288
|
36,828
|
|||||
Noninterest
Income:
|
|||||||
Mortgage
banking income
|
1,835
|
5,825
|
|||||
Service
charges
|
2,993
|
2,681
|
|||||
Gain
on sale of securities
|
62
|
435
|
|||||
Gain
on sale of SBA loans
|
548
|
392
|
|||||
Income
from bank owned life insurance
|
979
|
1,013
|
|||||
Other
noninterest income
|
862
|
692
|
|||||
Total
noninterest income
|
7,279
|
11,038
|
|||||
Noninterest
Expense:
|
|||||||
Salaries
and employee benefits
|
12,320
|
13,416
|
|||||
Occupancy
expense of premises
|
2,691
|
2,701
|
|||||
Equipment
expense
|
1,434
|
1,624
|
|||||
Other
noninterest expense
|
4,527
|
5,131
|
|||||
Total
noninterest expense
|
20,972
|
22,872
|
|||||
Income
before income taxes
|
23,595
|
24,994
|
|||||
Provision
for income taxes
|
7,178
|
7,687
|
|||||
Net
Income
|
$
|
16,417
|
$
|
17,307
|
|||
Basic
earnings per share
|
$
|
.22
|
$
|
.22
|
|||
Diluted
earnings per share
|
$
|
.22
|
$
|
.22
|
|||
Average
common shares outstanding - diluted
|
75,552
|
78,322
|
|||||
Cash
dividends declared per common share
|
$
|
.11
|
$
|
.10
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
(In
thousands)
|
2006
|
2005
|
|||||
Cash
Flows From Operating Activities:
|
|||||||
Net
income
|
$
|
16,417
|
$
|
17,307
|
|||
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
|||||||
Depreciation
and amortization
|
1,600
|
2,305
|
|||||
Stock-based
compensation expense
|
386
|
518
|
|||||
Net
gains on sale of securities available for sale
|
(62
|
)
|
(435
|
)
|
|||
Net
gains on sale of commercial and residential real estate
loans
|
(548
|
)
|
(2,483
|
)
|
|||
Proceeds
from sale of mortgage loans held for sale
|
79,104
|
174,302
|
|||||
Origination
of mortgage loans held for sale
|
(65,445
|
)
|
(99,364
|
)
|
|||
Net
increase in other assets
|
(1,624
|
)
|
(8,635
|
)
|
|||
Net
decrease in other liabilities
|
(3,937
|
)
|
(603
|
)
|
|||
Other,
net
|
221
|
38
|
|||||
Total
adjustments
|
9,695
|
65,643
|
|||||
Net
cash provided by operating activities
|
26,112
|
82,950
|
|||||
Cash
Flows From Investing Activities:
|
|||||||
Proceeds
from sale of securities available for sale
|
9,085
|
69,866
|
|||||
Proceeds
from calls and principal payments of securities available for
sale
|
17,386
|
33,897
|
|||||
Proceeds
from principal payments of securities held to maturity
|
5,102
|
11,972
|
|||||
Purchases
of securities available for sale
|
(96,183
|
)
|
(330,709
|
)
|
|||
Purchases
of securities held to maturity
|
-
|
(50,921
|
)
|
||||
Proceeds
from sale of commercial and residential real estate loans
|
8,309
|
136,359
|
|||||
Net
increase in loans made to customers
|
(126,094
|
)
|
(158,778
|
)
|
|||
Purchases
of premises and equipment
|
(1,543
|
)
|
(645
|
)
|
|||
Net
cash used in investing activities
|
(183,938
|
)
|
(288,959
|
)
|
|||
Cash
Flows From Financing Activities:
|
|||||||
Net
decrease in total deposits
|
(58,968
|
)
|
(53,465
|
)
|
|||
Net
increase in short-term borrowings
|
8,853
|
271,833
|
|||||
Net
increase (decrease) in short-term FHLB advances
|
157,000
|
(45,000
|
)
|
||||
Proceeds
from long-term FHLB advances and security repurchase
agreements
|
113,583
|
62,250
|
|||||
Payments
on long-term FHLB advances and security repurchase
agreements
|
(55,690
|
)
|
(19,371
|
)
|
|||
Net
proceeds from issuance of common shares
|
432
|
5,994
|
|||||
Excess
tax benefits of stock-based awards
|
210
|
-
|
|||||
Repurchase
of common shares
|
(5,471
|
)
|
(8,846
|
)
|
|||
Dividends
paid on common shares
|
(7,145
|
)
|
(6,617
|
)
|
|||
Net
cash provided by financing activities
|
152,804
|
206,778
|
|||||
Net
(decrease) increase in cash and cash equivalents
|
(5,022
|
)
|
769
|
||||
Cash
and cash equivalents at beginning of period
|
52,527
|
53,671
|
|||||
Cash
and cash equivalents at end of period
|
$
|
47,505
|
$
|
54,440
|
(In
thousands)
|
2006
|
2005
|
|||||
Cash
paid during the period for:
|
|||||||
Interest
|
$
|
50,254
|
$
|
37,383
|
|||
Income
taxes
|
$
|
1,750
|
$
|
250
|
|||
Non-cash
investing activities:
|
|||||||
Loan
charge-offs
|
$
|
1,720
|
$
|
1,700
|
|||
Loans
transferred to other real estate owned
|
$
|
3,814
|
$
|
3,195
|
Three
Months Ended
March
31,
|
|||||||
(In
thousands)
|
2006
|
2005
|
|||||
Net
income
|
$
|
16,417
|
$
|
17,307
|
|||
Unrealized
holding losses on securities, net of tax (credit) of ($1,500) and
($4,036), respectively
|
(2,785
|
)
|
(7,495
|
)
|
|||
Reclassification
adjustment for gains included in net income, net of tax of $22 and
$152,
respectively
|
(40
|
)
|
(283
|
)
|
|||
Net
unrealized losses on securities, net of tax
|
(2,825
|
)
|
(7,778
|
)
|
|||
Comprehensive
income
|
$
|
13,592
|
$
|
9,529
|
(In
thousands)
|
March
31, 2006
|
December
31, 2005
|
|||||
Core
Deposit Intangible Asset:
|
|||||||
Gross
carrying amount
|
$
|
10,883
|
$
|
10,883
|
|||
Accumulated
amortization
|
8,089
|
7,880
|
|||||
Net
book value
|
$
|
2,794
|
$
|
3,003
|
Three
Months Ended
March
31,
|
|||||||
(In
thousands, except per share data)
|
2006
|
2005(1)
|
|||||
Numerator
for basic and diluted earnings per share:
|
|||||||
Net
income
|
$
|
16,417
|
$
|
17,307
|
|||
Denominator
for basic earnings per share - weighted-average shares
|
74,862
|
77,433
|
|||||
Effect
of dilutive securities:
|
|||||||
Stock
options
|
638
|
824
|
|||||
Warrants
|
52
|
65
|
|||||
Dilutive
potential common shares
|
690
|
889
|
|||||
Denominator
for diluted earnings per share—adjusted weighted-average shares for
assumed conversions
|
75,552
|
78,322
|
|||||
Basic
earnings per share
|
$
|
.22
|
$
|
.22
|
|||
Diluted
earnings per share
|
$
|
.22
|
$
|
.22
|
|||
(In
thousands)
|
Commercial
|
Retail
|
Mortgage
|
Treasury
and
Other
|
Consolidated
|
|||||||||||
For
the Three Months Ended March 31, 2006
|
||||||||||||||||
Net
interest income from external customers
|
$
|
30,730
|
$
|
(8,392
|
)
|
$
|
2,393
|
$
|
13,957
|
$
|
38,688
|
|||||
Internal
funding
|
(13,335
|
)
|
33,669
|
(1,398
|
)
|
(18,936
|
)
|
-
|
||||||||
Net
interest income
|
17,395
|
25,277
|
995
|
(4,979
|
)
|
38,688
|
||||||||||
Provision
for loan losses
|
686
|
100
|
95
|
519
|
1,400
|
|||||||||||
Noninterest
income
|
948
|
3,050
|
2,918
|
363
|
7,279
|
|||||||||||
Noninterest
expense
|
2,977
|
7,932
|
4,308
|
5,755
|
20,972
|
|||||||||||
Income
before taxes
|
14,680
|
20,295
|
(490
|
)
|
(10,890
|
)
|
23,595
|
|||||||||
Income
taxes
|
5,138
|
7,103
|
(171
|
)
|
(4,892
|
)
|
7,178
|
|||||||||
Net
income
|
$
|
9,542
|
$
|
13,192
|
$
|
(319
|
)
|
$
|
(5,998
|
)
|
$
|
16,417
|
||||
Depreciation
and amortization
|
$
|
18
|
$
|
683
|
$
|
316
|
$
|
583
|
$
|
1,600
|
||||||
Capital
expenditures
|
$
|
1
|
$
|
1,387
|
$
|
72
|
$
|
83
|
$
|
1,543
|
||||||
Net
identifiable assets (in millions)
|
$
|
1,735
|
$
|
2,793
|
$
|
170
|
$
|
1,546
|
$
|
6,244
|
||||||
Return
on equity(1)
|
22.33
|
%
|
39.58
|
%
|
(14.17)
|
%
|
n/m
|
16.01
|
%
|
|||||||
Return
on assets
|
2.23
|
%
|
1.88
|
%
|
(0.71)
|
%
|
n/m
|
1.07
|
%
|
|||||||
Efficiency
ratio
|
16.23
|
%
|
28.00
|
%
|
110.09
|
%
|
n/m
|
44.85
|
%
|
(In
thousands)
|
Commercial
|
Retail
|
Mortgage
|
Treasury
and
Other
|
Consolidated
|
|||||||||||
For
the Three Months Ended March 31, 2005
|
||||||||||||||||
Net
interest income from external customers
|
$
|
24,226
|
$
|
(6,200
|
)
|
$
|
3,221
|
$
|
17,081
|
$
|
38,328
|
|||||
Internal
funding
|
(9,791
|
)
|
31,696
|
(1,867
|
)
|
(20,038
|
)
|
-
|
||||||||
Net
interest income
|
14,435
|
25,496
|
1,354
|
(2,957
|
)
|
38,328
|
||||||||||
Provision
for loan losses
|
752
|
282
|
75
|
391
|
1,500
|
|||||||||||
Noninterest
income
|
705
|
2,787
|
5,055
|
2,491
|
11,038
|
|||||||||||
Noninterest
expense
|
2,940
|
8,001
|
4,921
|
7,010
|
22,872
|
|||||||||||
Income
before taxes
|
11,448
|
20,000
|
1,413
|
(7,867
|
)
|
24,994
|
||||||||||
Income
taxes
|
4,007
|
7,000
|
495
|
(3,815
|
)
|
7,687
|
||||||||||
Net
income
|
$
|
7,441
|
$
|
13,000
|
$
|
918
|
$
|
(4,052
|
)
|
$
|
17,307
|
|||||
Depreciation
and amortization
|
$
|
29
|
$
|
742
|
$
|
424
|
$
|
1,110
|
$
|
2,305
|
||||||
Capital
expenditures
|
$
|
19
|
$
|
374
|
$
|
19
|
$
|
233
|
$
|
645
|
||||||
Net
identifiable assets (in millions)
|
$
|
1,580
|
$
|
2,889
|
$
|
202
|
$
|
1,253
|
$
|
5,924
|
||||||
Return
on equity(1)
|
18.98
|
%
|
37.69
|
%
|
30.51
|
%
|
n/m
|
16.76
|
%
|
|||||||
Return
on assets
|
1.90
|
%
|
1.79
|
%
|
1.53
|
%
|
n/m
|
1.19
|
%
|
|||||||
Efficiency
ratio
|
19.42
|
%
|
28.29
|
%
|
76.78
|
%
|
n/m
|
45.96
|
%
|
(1)
|
Capital
is allocated as a percentage of assets of 10% and 5% for the commercial
and mortgage banking segments, respectively and is allocated as a
percentage of deposits of 5% for the retail segment.
|
n/m
|
¾
Not meaningful
|
Three
Months Ended
|
||||
March
31
|
||||
(Dollars
in thousands, except per share data)
|
2005
|
|||
Net
income (as reported)
|
$
|
17,307
|
||
Add:
Stock-based employee compensation expense included in reported net
income,
net of related tax effects
|
337
|
|||
Deduct:
Total stock-based employee compensation expense determined under
fair
value based method for all awards, net of related tax
effects
|
(418
|
)
|
||
Net
income (pro forma)
|
$
|
17,226
|
||
Basic
earnings per share (as reported)
|
$
|
.22
|
||
Basic
earnings per share (pro forma)
|
.22
|
|||
Diluted
earnings per share (as reported)
|
$
|
.22
|
||
Diluted
earnings per share (pro forma)
|
.22
|
|||
Weighted
|
|||||||||||||
Weighted-
|
Average
|
Aggregate
|
|||||||||||
Average
|
Remaining
|
Intrinsic
|
|||||||||||
Number
of
|
Exercise
|
Contractual
|
Value
|
||||||||||
Options
|
Price
|
Term
|
(in
thousands)
|
||||||||||
Outstanding
at January 1, 2006
|
2,367,472
|
$
|
7.05
|
||||||||||
Granted
|
-
|
-
|
|||||||||||
Exercised
|
(59,598
|
)
|
4.96
|
||||||||||
Forfeited,
cancelled and expired
|
(4,132
|
)
|
8.25
|
||||||||||
Outstanding
at March 31, 2006
|
2,303,742
|
$
|
7.10
|
3.7
|
$
|
11,375
|
|||||||
Exercisable
at March 31, 2006
|
2,296,387
|
$
|
7.09
|
3.7
|
$
|
11,367
|
Weighted-Average
|
|||||||
Grant
Date
|
|||||||
Shares
|
Fair
Value
|
||||||
Nonvested
at January 1, 2006
|
795,998
|
$
|
11.811
|
||||
Granted
|
91,144
|
12.270
|
|||||
Vested
|
(118,366
|
)
|
12.817
|
||||
Forfeited
|
(10,327
|
)
|
11.809
|
||||
Nonvested
at March 31, 2006
|
758,449
|
$
|
11.709
|
(In
thousands)
|
March
31,
2006
|
December
31,
2005
|
|||||
Financial
instruments whose contract amounts represent credit risk:
|
|||||||
Commitments
to fund residential real estate loans
|
$
|
155,372
|
$
|
201,846
|
|||
Commitments
to fund commercial real estate construction loans and lines of
credit
|
347,482
|
375,054
|
|||||
Commitments
to fund the pipeline of commercial real estate loans
|
160,539
|
225,878
|
|||||
Other
unused commitments to extend credit
|
418,378
|
418,158
|
|||||
Standby
letters of credit
|
119,665
|
125,338
|
Three
Months Ended
March
31, 2006
|
Three
Months Ended
March
31, 2005
|
||||||||||||||||||
(Dollars
in thousands)
|
Average
Balance
|
Interest
|
Average
Rate
|
Average
Balance
|
Interest
|
Average
Rate
|
|||||||||||||
Average
Assets:
|
|||||||||||||||||||
Short-term
investments
|
$
|
345
|
$
|
7
|
4.74
|
%
|
$
|
2,067
|
$
|
9
|
1.67
|
%
|
|||||||
Mortgage
loans held for sale
|
26,143
|
391
|
5.98
|
113,635
|
1,662
|
5.85
|
|||||||||||||
Securities
available for sale: (1)
|
|||||||||||||||||||
Taxable
|
689,286
|
8,470
|
4.92
|
529,900
|
5,980
|
4.51
|
|||||||||||||
Tax-exempt
|
216,959
|
2,878
|
5.38
|
199,848
|
2,702
|
5.48
|
|||||||||||||
Securities
held to maturity
|
225,140
|
2,699
|
4.80
|
234,708
|
2,691
|
4.59
|
|||||||||||||
Portfolio
loans:
(2)
|
|||||||||||||||||||
Commercial
loans
|
1,729,667
|
30,982
|
7.16
|
1,586,114
|
24,470
|
6.17
|
|||||||||||||
Residential
real estate mortgage loans
|
2,217,643
|
29,846
|
5.38
|
2,120,187
|
27,506
|
5.19
|
|||||||||||||
Installment
loans
|
730,204
|
12,940
|
7.19
|
736,509
|
10,826
|
5.96
|
|||||||||||||
Total
loans, net of unearned income
|
4,677,514
|
73,768
|
6.32
|
4,442,810
|
62,802
|
5.67
|
|||||||||||||
Federal
Home Loan Bank stock (at cost)
|
80,525
|
1,045
|
5.26
|
80,712
|
827
|
4.15
|
|||||||||||||
Total
interest-earning assets
|
5,915,912
|
89,258
|
6.05
|
5,603,680
|
76,673
|
5.49
|
|||||||||||||
Allowance
for loan losses
|
(42,558
|
)
|
(41,762
|
)
|
|||||||||||||||
Cash
and due from banks
|
43,017
|
51,151
|
|||||||||||||||||
Other
assets
|
230,610
|
206,811
|
|||||||||||||||||
Total
assets
|
$
|
6,146,981
|
$
|
5,819,880
|
|||||||||||||||
Average
Liabilities and Shareholders’ Equity:
|
|||||||||||||||||||
Interest-bearing
demand deposits
|
$
|
182,446
|
$
|
280
|
0.62
|
%
|
$
|
200,481
|
$
|
222
|
0.45
|
%
|
|||||||
Savings
and money market accounts
|
879,098
|
4,407
|
2.03
|
1,072,178
|
4,130
|
1.56
|
|||||||||||||
Retail
certificates of deposit
|
1,135,957
|
10,181
|
3.63
|
915,071
|
7,008
|
3.11
|
|||||||||||||
Wholesale
deposits
|
608,020
|
6,494
|
4.33
|
552,336
|
3,828
|
2.81
|
|||||||||||||
Total
interest-bearing deposits
|
2,805,521
|
21,362
|
3.09
|
2,740,066
|
15,188
|
2.25
|
|||||||||||||
Short-term
borrowings
|
1,066,323
|
11,470
|
4.30
|
893,359
|
5,620
|
2.52
|
|||||||||||||
Long-term
FHLB advances and security repurchase agreements
|
1,502,914
|
15,804
|
4.21
|
1,411,945
|
15,630
|
4.43
|
|||||||||||||
Long-term
debt
|
50,000
|
1,075
|
8.60
|
50,000
|
1,075
|
8.60
|
|||||||||||||
Total
interest-bearing liabilities
|
5,424,758
|
49,711
|
3.69
|
5,095,370
|
37,513
|
2.96
|
|||||||||||||
Noninterest-bearing
deposits
|
264,615
|
270,015
|
|||||||||||||||||
Other
liabilities
|
47,305
|
41,445
|
|||||||||||||||||
Total
liabilities
|
5,736,678
|
5,406,830
|
|||||||||||||||||
Shareholders’
equity
|
410,303
|
413,050
|
|||||||||||||||||
Total
liabilities and shareholders’ equity
|
$
|
6,146,981
|
$
|
5,819,880
|
|||||||||||||||
Net
interest income/rate spread (FTE)
|
$
|
39,547
|
2.36
|
%
|
$
|
39,160
|
2.53
|
%
|
|||||||||||
FTE
adjustment
|
$
|
859
|
$
|
832
|
|||||||||||||||
Impact
of noninterest-
|
|||||||||||||||||||
bearing
sources of funds
|
0.31
|
%
|
0.26
|
%
|
|||||||||||||||
Net
interest margin (FTE)
|
2.67
|
%
|
2.79
|
%
|
|||||||||||||||
(1)
|
To
compare the tax-exempt asset yields to taxable yields, amounts are
adjusted to pretax equivalents based on the marginal corporate Federal
tax
rate of 35%.
|
(2)
|
Non-accrual
loans and overdrafts are included in average
balances.
|
Increase
(decrease) due to change in:
|
Volume(1)
|
Rate(1)
|
Net
Change
|
|||||||
Interest
Income:
|
||||||||||
Short-term
investments
|
$
|
(10
|
)
|
$
|
8
|
$
|
(2
|
)
|
||
Mortgage
loans held for sale
|
(1,307
|
)
|
36
|
(1,271
|
)
|
|||||
Securities
available for sale:
|
||||||||||
Taxable
|
1,912
|
578
|
2,490
|
|||||||
Tax-exempt
|
227
|
(51
|
)
|
176
|
||||||
Securities
held to maturity
|
(112
|
)
|
120
|
8
|
||||||
Portfolio
loans:
(2)
|
||||||||||
Commercial
loans
|
2,348
|
4,164
|
6,512
|
|||||||
Residential
real estate mortgage loans
|
1,302
|
1,038
|
2,340
|
|||||||
Installment
loans
|
(96
|
)
|
2,210
|
2,114
|
||||||
Total
loans, net of unearned income
|
3,554
|
7,412
|
10,966
|
|||||||
Federal
Home Loan Bank stock (at cost)
|
(2
|
)
|
220
|
218
|
||||||
Total
interest income
|
4,262
|
8,323
|
12,585
|
|||||||
Interest
Expense:
|
||||||||||
Interest-bearing
demand deposits
|
(21
|
)
|
79
|
58
|
||||||
Savings
and money market
|
(839
|
)
|
1,116
|
277
|
||||||
Retail
certificates of deposit
|
1,874
|
1,299
|
3,173
|
|||||||
Wholesale
deposits
|
419
|
2,247
|
2,666
|
|||||||
Total
interest-bearing deposits
|
1,433
|
4,741
|
6,174
|
|||||||
Short-term
borrowings
|
1,259
|
4,591
|
5,850
|
|||||||
Long-term
FHLB advances and security repurchase agreements
|
975
|
(801
|
)
|
174
|
||||||
Long-term
debt
|
-
|
-
|
-
|
|||||||
Total
interest expense
|
3,667
|
8,531
|
12,198
|
|||||||
Net
interest income (FTE)
|
$
|
595
|
$
|
(208
|
)
|
$
|
387
|
(1)
|
Variances
attributable jointly to volume and rate changes are allocated to
volume
and rate in proportion to the relationship of the absolute dollar
amount
of the change in each.
|
(2)
|
Non-accrual
loans and overdrafts are included in average
balances.
|
Investment
Securities
|
|||||||||||||
(In
thousands)
|
Gross
Amortized Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized Losses
|
Fair
Value
|
|||||||||
Securities
Available For Sale (Estimated Fair Value):
|
|||||||||||||
U.S.
Government agency securities
|
$
|
351,751
|
$
|
-
|
$
|
8,389
|
$
|
343,362
|
|||||
Collateralized
mortgage obligations
|
275,240
|
211
|
6,808
|
268,643
|
|||||||||
Mortgage-backed
securities
|
101,029
|
4
|
2,536
|
98,497
|
|||||||||
Municipal
and other securities
|
219,018
|
67
|
2,675
|
216,410
|
|||||||||
Total
securities available for sale
|
$
|
947,038
|
$
|
282
|
$
|
20,408
|
$
|
926,912
|
|||||
Securities
Held To Maturity (At Cost):
|
|||||||||||||
Collateralized
mortgage obligations
|
$
|
189,356
|
$
|
16
|
$
|
7,005
|
$
|
182,367
|
|||||
Mortgage-backed
securities
|
32,857
|
-
|
1,053
|
31,804
|
|||||||||
Total
securities held to maturity
|
$
|
222,213
|
$
|
16
|
$
|
8,058
|
$
|
214,171
|
March
31, 2006
|
December
31, 2005
|
||||||||||||
(Dollars
in thousands)
|
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||
Commercial
loans:
|
|||||||||||||
Commercial
and industrial
|
$
|
27,639
|
0.6
|
%
|
$
|
28,314
|
0.6
|
%
|
|||||
Real
estate construction
|
397,861
|
8.4
|
360,999
|
7.8
|
|||||||||
Commercial
real estate mortgage
|
1,328,928
|
28.0
|
1,308,557
|
28.3
|
|||||||||
Total
commercial loans
|
1,754,428
|
37.0
|
1,697,870
|
36.7
|
|||||||||
Residential
real estate mortgages
|
2,267,385
|
47.8
|
2,193,128
|
47.4
|
|||||||||
Installment
loans:
|
|||||||||||||
Home
equity lines of credit
|
371,955
|
7.8
|
390,373
|
8.4
|
|||||||||
Home
equity term loans
|
179,578
|
3.8
|
170,352
|
3.7
|
|||||||||
Other
consumer loans
|
173,624
|
3.6
|
176,535
|
3.8
|
|||||||||
Total
installment loans
|
725,157
|
15.2
|
737,260
|
15.9
|
|||||||||
Total
portfolio loans
|
$
|
4,746,970
|
100.0
|
%
|
$
|
4,628,258
|
100.0
|
%
|
March
31,
|
December
31,
|
||||||
(Dollars
in thousands)
|
2006
|
2005
|
|||||
Non-Performing
Assets:
|
|||||||
Non-accrual
loans:
|
|||||||
Commercial
|
$
|
26,395
|
$
|
27,344
|
|||
Residential
real estate mortgages
|
21,484
|
19,026
|
|||||
Installment
|
1,758
|
2,413
|
|||||
Total
non-accrual loans
|
49,637
|
48,783
|
|||||
Other
real estate owned:
|
|||||||
Commercial
|
6,287
|
8,575
|
|||||
Residential
real estate mortgages
|
4,856
|
3,029
|
|||||
Installment
|
1,449
|
712
|
|||||
Total
other real estate owned
|
12,592
|
12,316
|
|||||
Total
non-performing assets
|
$
|
62,229
|
$
|
61,099
|
|||
Non-performing
assets as a percentage of:
|
|||||||
Portfolio
loans and OREO
|
1.31
|
%
|
1.32
|
%
|
|||
Total
assets
|
1.00
|
%
|
1.00
|
%
|
Three
Months Ended
March
31,
|
|||||||
(Dollars
in thousands)
|
2006
|
2005
|
|||||
Allowance
for loan losses:
|
|||||||
Balance
at January 1
|
$
|
42,122
|
$
|
41,818
|
|||
Loans
charged off
|
(1,720
|
)
|
(1,700
|
)
|
|||
Recoveries
of loans previously charged off
|
540
|
237
|
|||||
Net
charge-offs
|
(1,180
|
)
|
(1,463
|
)
|
|||
Provision
charged to expense
|
1,400
|
1,500
|
|||||
Balance
at March 31
|
$
|
42,342
|
$
|
41,855
|
|||
Annualized
net charge-offs as a percentage of average loans
|
.10
|
%
|
.13
|
%
|
|||
Allowance
for loan losses as a percentage of total portfolio loans outstanding
at
period-end
|
.89
|
%
|
.93
|
%
|
|||
Allowance
for loan losses as a percentage of non-performing loans
|
85.30
|
%
|
129.34
|
%
|
March
31,
|
December
31,
|
||||||
(In
thousands)
|
2006
|
2005
|
|||||
Gross
recorded investment in impaired loans (period-end)
|
$
|
26,395
|
$
|
27,344
|
|||
Impaired
loans requiring a specific allocated allowance
|
21,252
|
21,625
|
|||||
Specific
impairment allowance
|
5,834
|
5,332
|
|||||
March
31, 2006
|
December
31, 2005
|
||||||||||||||||||
(Dollars
in thousands)
|
Ending
Balance
|
Average
Balance
|
Average
Rate
During
Period
|
Ending
Balance
|
Average
Balance
|
Average
Rate
During
Year
|
|||||||||||||
Federal
funds purchased
|
$
|
531,000
|
$
|
554,839
|
4.55
|
%
|
$
|
472,000
|
$
|
457,625
|
3.41
|
%
|
|||||||
Security
repurchase agreements
|
187,153
|
223,017
|
3.26
|
237,300
|
268,056
|
3.11
|
|||||||||||||
Total
short-term borrowings
|
$
|
718,153
|
$
|
777,856
|
4.18
|
%
|
$
|
709,300
|
$
|
725,681
|
3.30
|
%
|
March
31, 2006
|
December
31, 2005
|
||||||||||||||||||
(Dollars
in thousands)
|
Ending
Balance
|
Average
Balance
|
Average
Rate
During
Period
|
Ending
Balance
|
Average
Balance
|
Average
Rate
During
Year
|
|||||||||||||
Short-term
FHLB advances
|
$
|
375,000
|
$
|
288,467
|
4.63
|
%
|
$
|
218,000
|
$
|
234,930
|
3.40
|
%
|
March
31, 2006
|
December
31, 2005
|
||||||||||||
(Dollars
in thousands)
|
Ending
Balance
|
Average
Rate
At
Period-End
|
Ending
Balance
|
Average
Rate
At
Year-End
|
|||||||||
Long-term
FHLB advances:
|
|||||||||||||
Bullet
advances
|
$
|
222,874
|
3.75
|
%
|
$
|
226,748
|
3.77
|
%
|
|||||
Putable
advances
|
750,000
|
4.85
|
750,000
|
4.85
|
|||||||||
Total
long-term FHLB advances
|
972,874
|
4.60
|
976,748
|
4.59
|
|||||||||
Long-term
security repurchase agreements
|
574,197
|
3.39
|
512,684
|
3.10
|
|||||||||
Total
long-term FHLB advances and security
|
|||||||||||||
repurchase
agreements
|
$
|
1,547,071
|
4.15
|
%
|
$
|
1,489,432
|
4.08
|
%
|
March
31, 2006
|
December
31,
2005
|
||||||
Total
capital to risk-weighted assets (1)
|
12.18
|
%
|
12.32
|
%
|
|||
Tier
1 capital to risk-weighted assets (1)
|
11.12
|
11.24
|
|||||
Tier
1 capital to average assets (1)
|
7.58
|
7.57
|
(1)
|
As
defined by the regulations.
|
·
|
significantly
increased competition from banking and non-banking
institutions;
|
·
|
inflation
and changes in the interest rate environment that reduce our margins
or
reduce the fair value of financial instruments;
|
·
|
general
political, industry and economic conditions, either domestically
or
internationally, that are different than expected;
|
·
|
adverse
developments concerning credit quality in our business segments that
may
result in increases in our provisions for loan losses, nonperforming
assets, potential problem loans, net charge-offs and reserve for
credit
losses could cause earnings to decline;
|
·
|
instruments,
systems and strategies that are used to hedge or otherwise manage
our
exposure to various types of market, credit, operational and
enterprise-wide risk could be less effective than anticipated, and
we may
not be able to effectively mitigate risk exposures in particular
market
environments or against particular types of risk;
|
·
|
customer
borrowing, repayment, investment and deposit practices generally
may be
less favorable than anticipated;
|
·
|
the
mix of interest rates and maturities of our interest earning assets
and
interest-bearing liabilities (primarily loans and deposits) may be
less
favorable than expected;
|
·
|
interest
rate margin compression may be greater than expected;
|
·
|
adverse
changes in the securities markets;
|
·
|
legislative
or regulatory changes, actions or reinterpretations that adversely
affect
our business;
|
·
|
the
ability to enter new markets successfully and capitalize on growth
opportunities;
|
·
|
effects
of and changes in trade, monetary and fiscal policies and laws, including
interest rate policies of the Federal Reserve Board;
|
·
|
timely
development of and acceptance of new products and
services;
|
·
|
changes
in consumer spending, borrowing and savings habits;
|
·
|
effect
of changes in accounting policies and practices, as may be adopted
by the
bank regulatory agencies, the Financial Accounting Standards Board
or
other regulatory agencies;
|
·
|
changes
in our organization, compensation and benefit plans;
|
·
|
costs
and effects of new litigation or changes in existing litigation and
unexpected or adverse outcomes in such litigation; and
|
·
|
our
success in managing the foregoing factors and the risks associated
with or
inherent in the foregoing.
|
ITEM
3:
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Change
in market interest rates in basis points
|
+200
|
+100
|
+50
|
-50
|
-100
|
-200
|
|||||||||||||
Projected
change in net interest income over next twelve months
|
-5.59
|
%
|
-2.30
|
%
|
-1.03
|
%
|
1.44
|
%
|
2.26
|
%
|
-1.33
|
%
|
Year
of Maturity
|
|||||||||||||
(Dollars
in thousands)
|
2006
|
2007
|
2008
|
Total
|
|||||||||
Receive
fixed/pay floating swaps:(1)
|
|||||||||||||
Notional
amount
|
$
|
-
|
$
|
36,300
|
$
|
37,000
|
$
|
73,300
|
|||||
Fair
value gain/(loss)
|
-
|
(1,058
|
)
|
(1,440
|
)
|
(2,498
|
)
|
||||||
Weighted
average:
|
|||||||||||||
Receive
rate
|
-
|
%
|
2.92
|
%
|
3.24
|
%
|
3.08
|
%
|
|||||
Pay
rate
|
-
|
4.32
|
%
|
4.95
|
%
|
4.64
|
%
|
||||||
(1)
|
Variable
interest rates - which generally are based on the one-month and
three-month LIBOR in effect on the date of
repricing.
|
ITEM
4:
|
Controls
and Procedures
|
PART
II -
|
OTHER
INFORMATION
|
Item
1.
|
Legal
Proceedings
|
Item
2.
|
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
|
Period
|
Total
Shares
Purchased
|
Average
Price
Paid
Per Share
|
Shares
Purchased as Part of Publicly Announced Plans(1)
|
Maximum
Shares Available to be Purchased Under the Plans(1)
|
|||||||||
1/1/06
- 1/31/06
|
85,000
|
12.20
|
85,000
|
977,852
|
|||||||||
2/1/06
- 2/28/06
|
138,700
|
12.30
|
138,700
|
839,152
|
|||||||||
3/1/06
- 3/31/06
|
226,000
|
12.08
|
226,000
|
613,152
|
|||||||||
Total
|
449,700
|
$
|
12.17
|
449,700
|
613,152
|
(1)
|
On
June 16, 2005, the Board of Directors approved the 2005 Stock Repurchase
Program authorizing the repurchase of up to 2,200,000 shares. There
were
613,152 shares available for repurchase at March 31, 2006 under this
program.
|
Director
|
For
|
Withheld
|
|||||
Jerry
D. Campbell
|
66,240,330
|
1,351,573
|
|||||
Dana
M. Cluckey
|
66,618,857
|
973,047
|
|||||
George
J. Butvilas
|
66,251,170
|
1,340,733
|
|||||
Richard
J. Cramer, Sr.
|
66,657,217
|
934,686
|
|||||
Barry
J. Eckhold
|
66,214,762
|
1,377,141
|
|||||
Gary
Hurand
|
65,926,771
|
1,665,132
|
|||||
Dennis
J. Ibold
|
66,670,025
|
921,878
|
|||||
John
J. Lennon
|
66,650,978
|
940,925
|
|||||
Kelly
E. Miller
|
66,662,707
|
929,196
|
|||||
Randolph
P. Piper
|
67,035,704
|
556,199
|
|||||
Dr.
Isaac J. Powell
|
66,420,126
|
1,171,777
|
|||||
William
C. Rands III
|
66,443,304
|
1,148,599
|
|||||
Dr.
Jeoffrey K. Stross
|
66,060,740
|
1,531,163
|
|||||
Steven
E. Zack
|
67,063,021
|
528,882
|
Item
6.
|
Exhibits
|
(12)
|
Computations
of ratios of earnings to fixed
charges.*
|
(31)(a)
|
Certification
of Principal Executive Officer of Republic Bancorp Inc. Pursuant
to 15
U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-Oxley Act of
2002)*
|
(31)(b)
|
Certification
of Principal Financial Officer of Republic Bancorp Inc. Pursuant
to 15
U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-Oxley Act of
2002)*
|
(32)(a)
|
Certification
of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350
(Section
906 of the Sarbanes-Oxley Act of
2002).*
|
(32)(b)
|
Certification
of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350
(Section
906 of the Sarbanes-Oxley Act 0f
2002)*
|
REPUBLIC
BANCORP INC.
|
||||
(Registrant)
|
||||
Date:
May 9, 2006
|
BY:
|
/s/
Thomas F. Menacher
|
||
Thomas
F. Menacher
Executive
Vice President, Treasurer and Chief Financial Officer
(Principal
Financial and Accounting Officer)
|