<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 Six Months Ended June 30, 1997. 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: 713-993-9200
-------------------
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 June 30,
1997, (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, 1996, and June 30, 1997. 1
Consolidated Statements of Income for the three months
and six months ended June 30, 1996 and 1997. 2
Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and 1997. 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>
June 30 December 31
1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks (demand).............................. $ 3,098,311 $ 3,273,580
Investment securities:
Held-to-maturity
Market value at 6-30-97 27,873,600
----------
Market value at 12-31-96 9,984,375...................... 27,881,442 10,006,368
----------
Available-for-sale
Market value at 6-30-97 24,000
----------
Market value at 12-31-96 24,000...................... 24,000 24,000
------------ ------------
$ 31,003,753 $ 13,303,948
Loans......................................................... 75,611,792 71,592,533
Plus: Uncollected earned interest........................... 701,246 629,677
Less: Allowance for losses.................................. (1,025,299) (964,057)
Net loans and other receivables............................. 75,287,739 71,258,153
------------ ------------
Federal funds sold............................................ 13,125,000 27,125,000
Property, equipment and vehicles (net)........................ 1,590,632 1,651,386
Other real estate............................................. 183,302 300,025
Goodwill...................................................... 436,079 436,079
Other assets.................................................. 637,238 888,369
------------ ------------
Total assets............................................ $122,263,743 $114,962,960
------------ ------------
------------ ------------
Liabilities and Stockholders' Equity
Deposits (Domestic):
Demand (non-interest bearing)............................... $ 14,237,229 $ 12,464,933
Savings, time and demand (Interest-bearing)................. 95,831,592 90,933,080
------------ ------------
$110,068,821 $103,398,013
Accounts payable and accrued interest payable................. 1,033,299 834,013
Accrued taxes payable......................................... 398,459 559,450
------------ ------------
Total liabilities....................................... $111,500,579 $104,791,476
------------ ------------
Minority Interest in Consolidated Subsidiary.................. 230,491 216,826
------------ ------------
Stockholders'Equity
Common stock (par value $1; 750,000 shares
authorized, 356,844 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 6-30-97 and
23,119 at 12-31-96).......................................... (91,303) (91,303)
------------ ------------
Total contributed capital............................... 500,472 500,472
------------ ------------
Retained earnings............................................. 10,032,201 9,454,186
------------ ------------
Net Unrealized Gain (Loss) on Securities
Available-for-Sale (Net of Taxes)........................... -0- -0-
Stockholders' equity...................................... 10,532,673 9,954,656
------------ ------------
Total liabilities and stockholders equity............... $122,263,743 $114,962,960
------------ ------------
------------ ------------
</TABLE>
The accompanying note is an integral part of these financial statements.
(1)
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Statement of Income
<TABLE>
Three Months Ended Six Months Ended
----------------------- -----------------------
June 30 June 30 June 30 June 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $1,667,366 $1,501,941 $3,264,513 $2,959,040
Interest on funds sold and securities
purchased under agreement to resell 310,872 337,416 690,548 709,854
Interest and dividends on investments
Securities of U.S. Government and
government agencies 254,693 185,927 391,342 371,755
Obligations of states, political
subdivisions and other obligations
secured by the government -0- -0- -0- -0-
---------- ---------- ---------- ----------
Total interest on investments 565,565 523,343 1,081,890 1,081,609
---------- ---------- ---------- ----------
Total interest income 2,232,931 2,025,284 4,346,403 4,040,649
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 1,097,086 1,000,891 2,114,544 2,012,316
---------- ---------- ---------- ----------
Total Interest expense 1,097,086 1,000,891 2,114,544 2,012,316
---------- ---------- ---------- ----------
Net interest income 1,135,845 1,024,393 2,231,859 2,028,333
Provision for loan losses 41,875 (87,946) (142,789) (117,526)
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses 1,093,970 936,447 2,089,070 1,910,807
---------- ---------- ---------- ----------
Other income:
Service charges on deposit accounts 47,749 44,798 93,102 85,986
Other service charges, commission and fees 62,103 46,326 118,013 94,443
Gain on sale of securities -0- -0- -0- -0-
Net income - other real estate 9,564 -0- 30,170 -0-
Other income 33,353 13,974 47,588 25,969
---------- ---------- ---------- ----------
Total other income 152,769 105,098 288,873 206,398
---------- ---------- ---------- ----------
Other expenses:
Salaries and wages 289,923 271,127 580,686 541,069
Employee benefits 67,673 62,954 133,331 126,403
Net occupancy expenses 46,564 56,224 98,857 116,574
Furniture and equipment expenses 15,381 15,935 32,766 39,530
Depreciation other than rental property 35,163 30,366 70,374 59,679
Net cost - other real estate -0- -0- -0- -0-
Computer service center 38,766 29,112 79,142 55,677
FDIC - insurance -0- 500 6,021 1,000
Professional services 51,508 16,132 82,656 65,900
Advertising 14,021 14,688 26,574 27,972
Other operating expenses 141,840 136,475 299,856 313,474
---------- ---------- ---------- ----------
Total other expenses 700,839 633,513 1,410,263 1,347,278
---------- ---------- ---------- ----------
Income before income taxes 545,900 408,032 967,680 769,927
Less applicable income taxes (Current) 192,000 (165,000) (376,000) (318,000)
---------- ---------- ---------- ----------
Income before reduction for minority interest 353,900 243,032 591,680 451,927
Less minority interest income (loss) (8,248) (6,928) (13,665) (13,911)
---------- ---------- ---------- ----------
Net income $ 345,652 $ 236,104 $ 578,015 $ 438,016
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per share $ 1.04 $ .71 $ 1.73 $ 1.31
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying note is an integral part of these financial statements.
(2)
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Statement of Cash Flows
<TABLE>
Six Months Ended
June 30 June 30
1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows and operating activities:
Net income (loss)................................................ $ 578,015 $ 438,016
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................................... 93,552 110,470
Provision for loan losses...................................... 142,789 117,526
Amortization (accretion) of discounts and
Premium....................................................... (112,488) (19,240)
Other real estate gains/net ................................... (30,172) -0-
Investment securities gains/net ............................... -0- -0-
Loss on sale of subsidiary stock .............................. -0- 33,884
Re-appraisal - other real estate .............................. 12,500 -0-
(Decrease) increase in interest payable ....................... 199,286 20,873
(Increase) decrease in interest receivable .................... (71,569) (97,690)
(Increase) decrease in other assets ........................... 251,131 2,354
Increase (decrease) in other liabilities ...................... (147,326) (68,274)
------------ ------------
Total adjustments ................................................ 337,703 99,903
------------ ------------
Net cash provided by (used in) operating activities .............. 915,718 537,919
------------ ------------
Cash flows from investing activities
Proceeds from sale of subsidiary stock .......................... -0- 10,000
Proceeds from sales of investment securities .................... -0- -0-
Proceeds from maturities of investment securities ............... 17,000,000 10,000,000
Purchase of investment securities ............................... (34,762,586) (10,014,063)
Loans made to customers net cash activity ....................... (4,033,640) (5,653,695)
Capital expenditure ............................................. (32,798) (46,119)
Proceeds from sale of other real estate ......................... 67,229 -0-
------------ ------------
Net cash provided by (used in) investing activities .............. (21,761,795) (5,703,877)
------------ ------------
Cash flows from financing activities
Net increase (descrease) in demand deposits, NOW
account, savings accounts and certificates of deposit ........... 6,670,808 3,315,199
Purchase of treasury stock ....................................... -0- -0-
------------ ------------
Net cash provided by (used in) financing ......................... 6,670,808 3,315,199
------------ ------------
Net increase (decrease) in cash and cash equivalents ............ (14,175,269) (1,850,759)
------------ ------------
Cash and cash equivalents at beginning of year:
Cash and due from banks ......................................... 3,273,580 2,362,761
------------ ------------
Federal funds sold .............................................. 27,125,000 30,650,000
Cash and cash equivalents at beginning of year ................... 30,398,580 33,012,761
------------ ------------
Cash and cash equivalents at June 30, 1997
Cash and due from banks ......................................... 3,098,311 2,587,002
Federal funds sold .............................................. 13,125,000 28,575,000
------------- -------------
Cash and cash equivalents at June 30, 1997 ....................... $ 16,223,311 $ 31,162,002
------------ ------------
------------ ------------
Supplemental disclosures of cash flow information:
Cash paid for interest .......................................... 1,915,258 1,991,443
Cash paid for income tax ........................................ 312,814 234,289
</TABLE>
The accompanying note is an integral part of these financial statements.
(3)
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1997
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, 1996. 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 majority of the loan balances placed on non-accrual represent larger
loans (over $25,000.00) which are current on payments but which exhibit
financial weaknesses or which have been delinquent in the past. Restructured
loans remain high due to the retention of below-market interest rates on
livestock loans affected by low market prices in 1996.
Table 1 PROBLEM ASSETS
June 30 December 31
(dollars in thousands) ------- -------------------------------
1997 1996 1995 1994
Nonaccrual loans $ 677 $ 759 $ 183 $ 217
Past-due loans (over 90 days) -0- -0- -0- -0-
Restructured loans 2,213 2,148 593 668
------- ------ ------ ------
Total problem loans $ 2,890 $2,907 $ 776 $ 885
Foreclosed assets
Real estate 183 300 -0- -0-
In-substance foreclosures -0- -0- -0- -0-
Other 11 34 -0- -0-
------- ------ ------ ------
Total Problem Assets $ 3,084 $3,241 $ 776 $ 885
Total problem loans as
a percentage of total loans 3.8% 4.1% 1.2% 1.8%
Total problem assets as a
percentage of total loans
and foreclosed assets 4.1% 4.5% 1.2% 1.8%
Table 2 LOAN CONCENTRATIONS
June 30 December 31
(dollars in thousands) ------- ------------------------
1997 1996 1995
Commercial $ 6,182 $ 5,716 $ 4,892
Agricultural 4,251 3,787 3,676
Real Estate-Construction 1,113 3,087 1,584
Real Estate-Mortgage 55,511 50,228 44,594
Installment loans to
Individuals 8,555 8,775 8,679
------- ------- -------
Totals $75,612 $71,593 $63,425
(5)
<PAGE>
SOURCES AND USES OF FUNDS
Deposit growth of $6,670,808 in the first half of 1997 was more than
twice the level experienced in the year ago period. Approximately 60% of
this growth was deployed into loan growth. The $14,175,269 decline in cash
equivalents in the first half of 1997 was more than offset by the purchase of
an $18,000,000 FEDERAL HOME LOAN DISCOUNT NOTE, with a remaining term, as of
6-30-97, of 46 days. (Please see Statement of Cash Flows, P-3 and Balance
Sheet, P-1)
LIQUIDITY
Total liquid assets, consisting of cash and due from banks, federal
funds sold and readily marketable U.S. Treasury and Government Agency
securities, stood at approximately 40% of liabilities on June 30, 1997, up
slightly from the 39% level which prevailed at the end of 1996. Liquidation
of these assets is the primary means by which the bank can accommodate
withdrawal and loan requests. (Please see Balance Sheet, P-1)
INTEREST RATE SENSITIVITY MANAGEMENT
Bank earnings are expected to be unaffected by material changes in
market interest rates, largely because of the sizeable holdings of short term
assets that are repriceable without corresponding credit quality concerns.
Foremost among these are federal funds sold, U.S. TREASURY securities and
U.S. GOVERNMENT AGENCY securities. (Please see Table 3, P-7 and Table 4, P-8)
(6)
<PAGE>
INTEREST RATE SENSITIVITY MANAGEMENT
Table 3 - REPRICING SCHEDULE
6-30-97
3 MO 3-12 1-5 OVER
OR LESS MONTHS YEARS 5 YEARS
------- ------ ----- --------
RATE SENSITIVE ASSETS
(Assets that can be
repriced within X days)
Loans* 14,313 52,252 8,217 143
Federal Funds Sold 13,125 -0- -0- -0-
Taxable Securities** 27,881 -0- -0- -0-
Municipal Bonds -0- -0- -0- -0-
TOTAL 55,319 52,252 8,217 143
RATE SENSITIVE LIABILITIES
(Liabilities that can be
repriced within X days)
Time Certificates of Deposit 18,404 31,550 5,319 -0-
NOW Accounts 1,704 -0- -0- -0-
Super NOW Accounts 19,471 -0- -0- -0-
Savings Accounts 9,403 -0- -0- -0-
MMDA Accounts 7,981 -0- -0- -0-
TOTAL 56,963 31,550 5,319 -0-
Interest Rate Sensitivity Gap (1,644) 20,702 2,898 143
Cumulative Interest Rate
Sensitivity Gap (1,644) 19,058 21,956 22,099
* Does not include $677,000 in nonaccruing loans or overdrawn demand
deposits of $10,000
** Does not include $24,000 in Federal Reserve Bank stock
(7)
<PAGE>
INVESTMENT SECURITIES
Table 4
<TABLE>
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
JUNE 30, 1997
(1) Held-to-Maturity:
U.S. Treasury Securities 10,001,592 -- 7,842 9,993,750
Other 17,879,850 -- -- 17,879,850
(2) Available-for-Sale Securities
Carried at Fair Value:
U.S. Treasury Securities -- -- -- --
Other 24,000 -- -- 24,000
---------- ---------- ---------- -----------
27,905,442 -- 7,842 27,897,600
---------- ---------- ---------- -----------
DECEMBER 31, 1996
(1) Held-to-Maturity:
U.S. Treasury Securities 10,006,368 -- 21,993 9,984,375
Other -- -- -- --
(2) Available-for-Sale Securities
Carried at Fair Value:
U.S. Treasury Securities -- -- -- --
Other 24,000 -- -- 24,000
---------- ---------- ---------- -----------
10,030,368 -- 21,993 10,033,375
---------- ---------- ---------- -----------
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
---------- ---------- ---------- ----------
</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 least
quarterly.
(8)
<PAGE>
CAPITALIZATION:
The majority of the asset growth during the first half of 1997 was in
lower risk, single family home loans and even lower risk investment
securities. This caused the risk-based capital ratios to improve slightly.
(Please see Table 2, LOAN CONCENTRATIONS and Balance Sheet P-1)
Table 5 - CAPITAL
* June 30 December
--------- --------
1997 1996
Tier 1 risk-based capital
(minimum is 4%) 15.27% 14.79%
Tier 1 + Tier 2 risk based capital
(minimum is 8%) 16.53% 16.05%
Tier 1 leverage (minimum is 3%) 8.41% 8.37%
*ESTIMATE
RESULTS OF OPERATIONS
NET INTEREST INCOME
Volume driven increases in interest income in the first half of 1997
exceeded by threefold the volume driven increase in interest on deposits.
(Please see STATEMENT OF INCOME, P-2)
OTHER INCOME AND EXPENSE
The provision for loan losses was higher in the first half of 1997,
compared with the year ago period, due to the chargedown of one loan balance
in the current period, the balance of which was then moved into other real
estate.
Increases in growth related fee income, gains on sale of foreclosed
properties and recoveries through litigation offset growth related increases
in operating expenses.
(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: July 28, 1997 /s/ J. ED EISEMANN, IV
----------------------------------
Chairman of the Board
Date: July 28, 1997 /s/ CATHERINE G. EISEMANN
----------------------------------
Director
(11)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
FORM 10-Q, DATED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,098,311
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,125,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,000
<INVESTMENTS-CARRYING> 27,881,442
<INVESTMENTS-MARKET> 27,873,600
<LOANS> 75,611,792
<ALLOWANCE> 1,025,299
<TOTAL-ASSETS> 122,263,743
<DEPOSITS> 110,068,821
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,431,758
<LONG-TERM> 0
0
0
<COMMON> 356,844
<OTHER-SE> 10,175,829
<TOTAL-LIABILITIES-AND-EQUITY> 122,263,743
<INTEREST-LOAN> 3,264,513
<INTEREST-INVEST> 391,342
<INTEREST-OTHER> 690,548
<INTEREST-TOTAL> 4,346,403
<INTEREST-DEPOSIT> 2,114,544
<INTEREST-EXPENSE> 2,114,544
<INTEREST-INCOME-NET> 2,231,859
<LOAN-LOSSES> 142,789
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,410,263
<INCOME-PRETAX> 967,680
<INCOME-PRE-EXTRAORDINARY> 967,680
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 578,015
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
<YIELD-ACTUAL> .075
<LOANS-NON> 677,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 2,213,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 964,000
<CHARGE-OFFS> 104,000
<RECOVERIES> 22,000
<ALLOWANCE-CLOSE> 1,025,000
<ALLOWANCE-DOMESTIC> 208,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 817,000
</TABLE>
