<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Three Months Ended March 31, 1996. COMMISSION FILE NUMBER 0-8597
THE REPUBLIC CORPORATION
TEXAS 74-0911766
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5340 WESLAYAN - P.O. BOX 270462, HOUSTON, TX 77277
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 713-622-9727
NONE
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
YES X. NO .
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of
Common Stock, $1.00 par value Shares 356,844
Outstanding at March 31,
1996, (excluding 23,119
shares held as treasury
shares)
<PAGE>
THE REPUBLIC CORPORATION
Index to Quarterly Report on Form 10-Q
Page
----
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
December 31, 1995, and March 31, 1996. 1
Consolidated Statements of Income for the
three months Ended March 31, 1995 and 1996. 2
Consolidated Statements of Cash Flows for the
three months Ended March 31, 1995 and 1996. 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis 5-9
Part II. Other Information 10
Signatures 11
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Balance Sheet
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1996 1995
_______________________________________________________________________________
<S> <C> <C>
Assets
Cash and due from banks (demand).................. $ 2,722,762 $ 2,362,761
Investment securities:
Held-to-maturity
Market value at 3-31-96 19,990,625
Market value at 12-31-95 10,009,375............ 20,008,131 9,977,841
Available-for-sale
Market value at 3-31-96 24,000
Market value at 12-31-95 24,000............... 24,000 24,000
------------ ------------
$ 22,754,893 $ 12,364,602
Loans............................................. 65,905,512 63,425,397
Plus: Uncollected earned interest................ 539,427 537,718
Less: Allowance for losses....................... (885,000) (868,026)
Net loans and other receivables.................. 65,559,939 63,095,089
------------ ------------
Federal funds sold................................ 18,425,000 30,650,000
Property, equipment and vehicles (net)............ 1,776,594 1,801,814
Other real estate................................. -0- -0-
Goodwill.......................................... 436,079 436,079
Other assets...................................... 480,282 670,495
------------ ------------
Total assets..................................... $109,432,787 $109,018,079
------------ ------------
------------ ------------
Liabilities and Stockholders' Equity
Deposits (Domestic):
Demand (non-interest bearing).................... $ 13,165,586 $ 10,768,809
Savings, time and demand (Interest-bearing)...... 85,469,811 87,503.951
------------ ------------
$ 98,635,397 $ 98,272,760
Accounts payable and accrued interest payable..... 1,065,844 1,008,148
Accrued taxes payable............................. 167,499 425,902
------------ ------------
Total liabilities................................ $ 99,868,740 $ 99,706,810
------------ ------------
Minority Interest in Consolidated Subsidiary...... 248,344 197,478
------------ ------------
Stockholders'Equity
Common stock (par value $1; 750,000 shares
authorized, 365,844 shares issued including
stock held in treasury).......................... 356,844 356,844
Additional paid-in capital........................ 234,931 234,931
Less cost of treasury stock (23,119 shares at
3-31-96 and 23,119 at 12-31-95).................. (91,303) (91,303)
------------ ------------
Total contributed capital...................... 500,472 500,472
------------ ------------
Retained earnings................................. 8,815,231 8,613,319
------------ ------------
Net Unrealized Gain (Loss) on Securities
Available-for-Sale (Net of Taxes)................ -0- -0-
Stockholders'equity............................ 9,315,703 9,113,791
------------ ------------
Total liabilities and stockholders equity........ $109,432,787 $109,018,079
------------ ------------
------------ ------------
</TABLE>
The accompanying note is an integral part of these financial statements.
(1)
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Statement of Income
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 31 MARCH 31
1996 1995
--------- ----------
<S> <C> <C>
Interest Income:
Interest and fees on loans........................... $1,457,099 $1,123,218
Interest on funds sold and securities purchased
under agreement to resell........................... 372,438 572,317
Interest and dividends on investments
Securities of U.S. Government and government
agencies.......................................... 185,828 70,381
Obligations of states, political subdivisions
and other obligations secured by the government... -0- -0-
---------- ----------
Total interest on investments...................... 558,266 642,698
---------- ----------
Total interest income.............................. $2,015,365 $1,765,916
---------- ----------
Interest expense:
Interest on deposits................................. 1,011,425 976,223
---------- ----------
Total Interest expense............................. 1,011,425 976,223
---------- ----------
Net interest income................................ 1,003,940 789,693
Provision for loan losses.............................. (29,580) -0-
---------- ----------
Net interest income after provision for loan
losses.............................................. 974,360 789,693
---------- ----------
Other income:
Service charges on deposit accounts.................. 41,188 36,670
Other service charges, commission and fees........... 48,117 39,519
Gain on sale of securities........................... -0- -0-
Net income- other real estate........................ -0- -0-
Other income......................................... 11,995 13,689
---------- ----------
Total other income................................. 101,300 89,878
---------- ----------
Other expenses:
Salaries and wages................................... 269,942 242,271
Employee benefits.................................... 63,449 61,316
Net occupancy expenses............................... 60,350 54,029
Furniture and equipment expenses..................... 23,595 18,658
Depreciation other than rental property.............. 29,313 21,963
Net cost-other real estate........................... -0- -0-
Computer service center.............................. 26,565 22,687
FDIC-insurance....................................... 500 48,195
Professional services................................ 49,768 42,010
Advertising.......................................... 13,284 18,559
Other operating expenses............................. 176,999 114,944
---------- ----------
Total other expenses............................... 713,765 644,632
---------- ----------
Income before income taxes......................... 361,895 234,939
Less applicable income taxes (Current)............... 153,000 88,000
---------- ----------
Income before reduction for minority interest...... 208,895 146,939
Less minority interest income (loss)................. 6,983 3,481
---------- ----------
Net income......................................... $ 201,912 $ 143,458
---------- ----------
---------- ----------
Earnings per share................................. $ .61 $ .43
---------- ----------
---------- ----------
</TABLE>
The accompanying note is an integral part of these financial statements.
(2)
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Statement of Cash Flows
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 MARCH 31
1996 1995
----------- ----------
<S> <C> <C>
Cash flows and operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ 201,912 $ 143,458
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation. . . . . . . . . . . . . . . . . 54,260 40,650
Provision for loan losses . . . . . . . . . . 29,580 -0-
Amortization (accretion) of discounts and
Premium. . . . . . . . . . . . . . . . . (16,227) (2,223)
Other real estate gains/net . . . . . . . . . -0- -0-
Investment securities gains/net . . . . . . . -0- -0-
Loss on sale of subsidiary stock. . . . . . . 33,884 -0-
Re-appraisal - other real estate. . . . . . . -0- -0-
(Decrease) increase in interest payable . . . 57,696 255,383
(Increase) decrease in interest receivable. . (1,709) (95,337)
(Increase) decrease in other assets . . . . . 190,213 201,199
Increase (decrease) in other liabilities. . . (251,421) (220,309)
------------ -----------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . 96,276 179,363
------------ -----------
Net cash provided by (used in) operating activities . . . . . . . 298,188 322,821
------------ -----------
Cash flows from investing activities
Proceeds from sale of subsidiary stock. . . . . . . . . . . 10,000 -0-
Proceeds from sales of investment securities. . . . . . . . -0- -0-
Proceeds from maturities of investment securities . . . . . -0- 5,000
Purchase of investment securities . . . . . . . . . . . . . (10,014,063) -0-
Loans made to customers net cash activity . . . . . . . . . (2,492,721) (3,336,582)
Capital expenditure . . . . . . . . . . . . . . . . . . . . (29,040) (75,182)
Proceeds from sale of other real estate . . . . . . . . . . -0- -0-
------------ -----------
Net cash provided by (used in) investing activities . . . . . . . (12,525,824) (3,406,764)
------------ -----------
Cash flows from financing activities
Net increase (decrease) in demand deposits, NOW
account, savings accounts and certificates of deposit . . . 362,637 6,976,622
Purchase of treasury stock. . . . . . . . . . . . . . . . . . . . -0- -0-
------------ -----------
Net cash provided by (used in) financing. . . . . . . . . . . . . 362,637 6,976,622
------------ -----------
Net increase (descrease) in cash and cash equivalents . . . . . . (11,864,999) 3,892,679
------------ -----------
Cash and cash equivalents at beginning of year:
Cash and due from banks . . . . . . . . . . . . . . . . . . 2,362,761 3,073,573
Federal funds sold. . . . . . . . . . . . . . . . . . . . . 30,650,000 36,450,000
------------ -----------
Cash and cash equivalents at beginning of year. . . . . . . . . . 33,012,761 39,523,573
------------ -----------
Cash and cash equivalents at March 31, 1996
Cash and due from banks . . . . . . . . . . . . . . . . . . 2,722,762 2,416,252
Federal funds sold. . . . . . . . . . . . . . . . . . . . . 18,425,000 41,000,000
------------ -----------
Cash and cash equivalents at March 31, 1996 . . . . . . . . . . . $21,147,762 $43,416,252
------------ -----------
------------ -----------
Supplemental disclosures of cash flow information:
Cash paid for interest. . . . . . . . . . . . . . . . . . . 1,014,664 781,952
Cash paid for income tax. . . . . . . . . . . . . . . . . . -0- -0-
</TABLE>
The accompanying note is an integral part of these financial statements.
(3)
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1996
Note 1 -- BASIS OF PREPARATION AND PRESENTATION
The consolidated financial statements included herein have been
prepared by The Republic Corporation, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation. The condensed consolidated financial statements include the
accounts of the company and its subsidiaries. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. The Republic Corporation
believes that the disclosures are adequate to make the information presented
not misleading; however, it is suggested that these financial statements be
read in conjunction with the financial statements and the notes thereto which
are on Form 10-K for the fiscal year ended December 31, 1995. The financial
data for the interim periods may not necessarily be indicative of results to
be expected for the year.
Securities that will be held for indefinite periods of time, including
securities that will be used as part of the Company's asset/liability
management strategy and that may be sold in response to changes in interest
rates, prepayments, and similar factors, are classified as Available-for-Sale
and accounted for at fair value.
(4)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
ASSET QUALITY
The increase in loans placed on non-accrual is due in large part to the
apparent default of two loans secured by single family homes. The bank has
not as yet experienced a broad trend of loan defaults tied to the recent coal
mine closure, but a definite slowing of loan growth is apparent at the end of
the first quareter. (Please see Tables 1 and 2, P-5) Due to the possibility
that laid-off coal miners will experience financial difficulties once
severance checks have been spent, the bank is continuing a modest loan loss
provision.
TABLE 1 PROBLEM ASSETS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSAND) MARCH 31 DECEMBER 31
-------- ---------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Nonaccrual loans . . . . . . . . . . . . . $ 425 $ 183 $ 217 $ 313
Past-due loans (over 90 days). . . . . . . -0- -0- -0- -0-
Restructured loans . . . . . . . . . . . . 658 593 668 546
------- ------ ------ -----
Total problem loans. . . . . . . . . $ 1,083 $ 776 $ 885 $ 859
Foreclosed assets
Real estate. . . . . . . . . . . . . -0- -0- -0- -0-
In-substance foreclosures. . . . . . -0- -0- -0- -0-
Other. . . . . . . . . . . . . . . . -0- -0- -0- -0-
------- ------ ------ -----
Total Problem Assets . . . . $ 1,083 $ 776 $ 885 $ 859
Total problem loans as
a percentage of total loans . . . . 1.6% 1.2% 1.8% 2.4%
Total problem assets as a
percentage of total loans
and foreclosed assets. . . . . . . . 1.6% 1.2% 1.8% 2.4%
</TABLE>
TABLE 2 LOAN CONCENTRATIONS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) MARCH 31 DECEMBER 31
-------- ----------------
1996 1995 1994
<S> <C> <C> <C>
Commercial . . . . . . . . . . . . . $ 4,918 $ 4,892 $ 3,470
Agricultural . . . . . . . . . . . . 3,559 3,676 3,277
Real Estate-Construction . . . . . . 2,439 1,584 639
Real Estate-Mortgage . . . . . . . . 46,378 44,594 34,248
Installment loans to Individuals . . 8,612 8,679 7,504
------- ------- -------
Totals . . . . . . . . . . . . $65,906 $63,425 $49,138
</TABLE>
(5)
<PAGE>
SOURCES AND USES OF FUNDS
The use of cash equivalent assets to fund the purchase of investment
securities in the amount of $10,014,063, and to fund loan growth in the
amount of $2,492,721, accounted for the major cash flow activity during the
quarter. Deposit growth was flat in comparison with the year ago period.
(Please see Statement of Cash Flows, P-3)
LIQUIDITY
The primary means of accommodating withdrawal and loan requests in the
absence of significant deposit growth is through liquidation of assets such
as cash and due from banks, federal funds sold and U.S. Treasury Notes.
Assets of this type totaled 41% of liabilities at the end of the first
quarter, compared with 46% at year-end, 1995. Loan growth in excess of
deposit growth accounted for this decline. (Please see Balance Sheet, P-1)
INTEREST RATE SENSITIVITY MANAGEMENT
The bank is presently structured to experience slightly higher net
interest income should market interest rates decline significantly. This is
true because of the bank's practice and strategy of adjusting loan rates far
less frequently and in far lesser magnitude than that which is exhibited in
money markets. The inverse result would occur should market interest rates
increase significantly. (Please see Table 3, P-7)
(6)
<PAGE>
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY MANAGEMENT
Table 3 - REPRICING SCHEDULE
3-31-96
3 MO 3-12 1-5 OVER
OR LESS MONTHS YEARS 5 YEARS
------- ------ ----- -------
<S> <C> <C> <C> <C>
RATE SENSITIVE ASSETS
(Assets that can be
repriced within X days)
Loans *.........................11,394 46,364 7,389 316
Federal Funds Sold..............18,425 -0- -0- -0-
Taxable Securities **........... 9,995 -0- 10,014 -0-
Municipal Bonds................. -0- -0- -0- -0-
TOTAL......................39,814 46,364 17,403 316
RATE SENSITIVE LIABILITIES
(Liabilities that can be
repriced within X days)
Time Certificates of Deposit....18,422 26,421 3,359 -0-
NOW Accounts.................... 1,773 -0- -0- -0-
Super NOW Accounts..............21,004 -0- -0- -0-
Savings Accounts................ 9,779 -0- -0- -0-
MMDA Accounts................... 4,712 -0- -0- -0-
TOTAL.......................55,690 26,421 3,359 -0-
Interest Rate Sensitivity Gap..(15,876) 19,943 14,044 316
Cumulative Interest Rate
Sensitivity Gap............(15,876) 4,067 18,111 18,427
</TABLE>
* Does not include $425,000 in nonaccruing loans or overdrawn demand
deposits of $18,000
** Does not include $24,000 in Federal Reserve Bank stock
(7)
<PAGE>
INVESTMENT SECURITIES
TABLE 4
<TABLE>
<CAPTION>
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ------
<S> <C> <C> <C> <C>
MACH 31, 1996
(1) Held-to-Maturity:
U.S. Treasury Securities......20,008,131 -- 17,506 19,990,625
Other......................... -- -- -- --
(2) Available-for-Sale Securities
Carried at Fair Value:
U.S. Treasury Securities...... -- -- -- --
Other......................... 24,000 -- -- 24,000
---------- ---------- ------ ----------
20,032,131 -- 17,506 20,014,625
---------- ---------- ------ ----------
DECEMBER 31, 1995
(1) Held-to-Maturity:
U.S. Treasury Securities...... 9,977,841 31,534 -- 10,009,375
Other......................... -- -- -- --
(2) Available-for-Sale Securities
Carried at Fair Value:
U.S. Treasury Securities...... -- -- -- --
Other......................... 24,000 -- -- 24,000
---------- ---------- ------ ----------
10,001,841 31,534 -- 10,033,375
---------- ---------- ------ ----------
DECEMBER 31, 1994
(1) Held-to-Maturity:
U.S. Treasury Securities...... 6,997,049 -- 49,549 6,947,500
Other......................... 5,009 -- 309 4,700
(2) Available-for-Sale Securities
Carried at Fair Value:
U.S. Treasury Securities...... -- -- -- --
Other......................... 24,000 -- -- 24,000
---------- ---------- ------ ----------
7,026,058 -- 49,858 6,976,200
---------- ---------- ------ ----------
</TABLE>
(1) Securities which the Bank has the ability and intent to hold to
maturity. These securities are stated at cost, adjusted for amortization of
premiums and accretion of discounts, computed by the interest method.
Because securities are purchased for investment purposes and quoted market
values fluctuate during the investment period, gains and losses are
recognized upon disposition or at such time as management determines that a
permanent impairment of value has occurred. Cost of securities sold is
determined on the specific identification method.
(2) Securities that the bank may sell in response to changes in market
conditions or in the balance sheet objectives of the bank. Securities in
this category will be reported at fair market value. Unrealized gains or
losses (net of tax) will be reported as a separate item in the shareholder's
equity section of the balance sheet. Adjustments will be recorded at lease
quarterly.
(8)
<PAGE>
CAPITALIZATION:
Increased retained earnings growth, flat asset growth and a lower
risk-weighted asset total caused capital ratios to improve over year-end 1995
levels. (Please see Table 5, P-9 and Balance Sheet, P-1)
TABLE 5 - CAPITAL
<TABLE>
<CAPTION>
MARCH 31 DECEMBER
1996 1995
<S> <C> <C>
Tier 1 risk-based capital
(minimum is 4%)...............15.29% 14.73%
Tier 1 + Tier 2 risk based capital
(minimum is 8%)...............16.54% 15.99%
Tier 1 leverage (minimum is 3%)..... 8.29% 8.09%
</TABLE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, as well as margin, was significantly improved over
the year ago period, primarily a result of loan growth and moderating deposit
rates. Net interest margin improved a full 80 basis points over the prior
year. (Please see Statement of Income, P-2)
OTHER INCOME AND EXPENSE
The provision for loan losses incurred in the first quarter of this
year is in recognition of the slight deterioration in the local economy, tied
to the recent coal mine closure, and the slight increase in charge-off
activity, foreclosure activity and repossessions at the subsidiary bank.
FDIC insurance premiums are not being assessed at this time and
elimination of same is expected to have a major impact on 1996 earnings.
Other operating expenses are higher in large part due to the sale of
qualifying subsidiary shares to new directors on the board of the subsidiary
bank. (Please see Statement of Income, P-2)
(9)
<PAGE>
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
not applicable
Item 2. CHANGES IN SECURITIES
not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
not applicable
Item 5. OTHER INFORMATION
not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Exhibits
none
b). No reports on Form 8-K have been filed during the
quarter for which this report was filed.
(10)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE REPUBLIC CORPORATION
Date: April 25, 1996 /S/ J. Ed Eisemann, IV
--------------------------
Chairman of the Board
Date: April 25, 1996 /S/ Catherine G. Eisemann
--------------------------
Director
(11)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANTS
FORM 10-Q, DATED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,722,762
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 18,425,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,000
<INVESTMENTS-CARRYING> 20,008,131
<INVESTMENTS-MARKET> 19,990,625
<LOANS> 65,905,512
<ALLOWANCE> 885,000
<TOTAL-ASSETS> 109,432,787
<DEPOSITS> 98,635,397
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,233,343
<LONG-TERM> 0
0
00
<COMMON> 356,844
<OTHER-SE> 8,958,859
<TOTAL-LIABILITIES-AND-EQUITY> 109,432,787
<INTEREST-LOAN> 1,457,099
<INTEREST-INVEST> 185,828
<INTEREST-OTHER> 372,438
<INTEREST-TOTAL> 2,015,365
<INTEREST-DEPOSIT> 1,011,425
<INTEREST-EXPENSE> 1,011,425
<INTEREST-INCOME-NET> 1,003,940
<LOAN-LOSSES> 29,580
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 713,765
<INCOME-PRETAX> 361,895
<INCOME-PRE-EXTRAORDINARY> 361,895
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 201,912
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
<YIELD-ACTUAL> .077
<LOANS-NON> 425,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 658,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 868,000
<CHARGE-OFFS> 13,000
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 885,000
<ALLOWANCE-DOMESTIC> 84,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 801,000
</TABLE>
