<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
Commission file number 0-8597
THE REPUBLIC CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 74-0911766
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5340 Weslayan, P.O. Box 270462
Houston, Texas 77277
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 993-9200
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
None None
------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
750,000 SHARES COMMON STOCK, PAR VALUE $1 PER SHARE, OF WHICH 356,844
ARE OUTSTANDING INCLUDING 23,119 HELD IN TREASURY.
---------------------------------------------------------------------
Indicate by check mark whether this registrant (1) has filed all reports
required to be filed 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 reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (&229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. (X)
State the aggregate market value of the voting stock held by
non-affiliates of the registrant:
$624,115 as of January 31, 1997
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date:
Common Stock par value $1 per share
333,725 shares outstanding as of December 31, 1996
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
REPUBLIC CORPORATION
FORM 10-K
INDEX
PAGE
----
IMPORTANT TERMS.....................................................
PART I
ITEM 1. BUSINESS............................................ 1-12
ITEM 2. PROPERTIES.......................................... 12
ITEM 3. LEGAL PROCEEDINGS................................... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITIES HOLDERS............................... 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS..................... 12
ITEM 6. SELECTED FINANCIAL DATA............................. 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....... 14-19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......... 20-40
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................. 41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT................................... 42
ITEM 11. EXECUTIVE COMPENSATION.............................. 43
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.................... 44
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...... 45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K............................. 46-47
SIGNATURES.................................................... 48
SUPPLEMENTAL INFORMATION...................................... 49
<PAGE>
IMPORTANT TERMS
"Registrant" - THE REPUBLIC CORPORATION, a Texas Corporation whose sole
purpose is the holding and managing of The First National Bank in Trinidad.
"Bank" - The First National Bank in Trinidad is a commercial bank located in
Trinidad, Colorado and Walsenburg, Colorado, also referred to as the
"Subsidiary Bank".
"FRB" - The Board of Governors of the Federal Reserve System, the Agency
which has responsibility for administering the Bank Holding Company Act of
1956, as amended.
<PAGE>
PART I
ITEM I. Business
THE REPUBLIC CORPORATION
GENERAL. On January 11, 1955, the Registrant was chartered under the
laws of the State of Texas as Columbia General Investment Corporation,
conducting business in mortgage banking until 1963. In 1960, Columbia
General Investment Corporation acquired The Republic Corporation. Shortly
thereafter, the name Columbia General Investment Corporation was changed to
The Republic Corporation. Also in 1960, the Registrant acquired 75% of the
outstanding stock of the First National Bank in Trinidad, Colorado. In 1961,
an additional 23% of the stock was purchased, and since then, only qualifying
shares for directors and officers of the Bank have been held by other than
the Registrant.
Since discontinuing mortgage banking operations in 1963, the Registrant
has carried on no significant operations other than as an advisor to the
Bank. In this advisory position, the Registrant coordinates general policies
and activities, and assumes primary responsibility for all major decisions of
the Bank.
SUPERVISION AND REGULATION. THE REGISTRANT is a registered bank holding
company under the Bank Holding Company Act of 1956 (the "Act"), and is
subject to the supervision of, and regulation by, the Board of Governors of
the Federal Reserve System (the "Board"). Under the Act, a bank holding
company may engage in banking, managing or controlling banks, furnishing or
performing services for banks it controls, and conducting activities that the
Board has determined to be closely related to banking. The Registrant must
obtain approval of the Board before acquiring control of a bank or acquiring
more than 5 percent of the outstanding voting shares of a company engaged in
a "bank-related" business. Under the Act and state laws, the Registrant is
subject to certain restrictions as to states in which the Registrant can
acquire a bank. National banks are subject to the supervision of, and are
examined by the Comptroller of the Currency. State banks are subject to the
supervision of the regulatory authorities of the states in which they are
located. The subsidiary bank of the Registrant is a member of the Federal
Deposit Insurance Corporation, and as such is subject to examination thereby.
In private, the primary federal regulator makes regular examinations of the
subsidiary bank subject to its regulatory review or participates in joint
examinations with other federal regulators. Areas subject to regulation by
federal and state authorities include the allowance for credit losses,
investments, loans, mergers, issuance of securities, payment of dividends,
establishment of branches and other aspects of operations.
1
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BUSINESS. The Registrant is a holding company whose sole business
purpose is to hold the stock of the Bank. The operation of the Bank is
described as follows:
FIRST NATIONAL BANK IN TRINIDAD
SUBSIDIARY BANK
BUSINESS.
OPERATION OF THE SUBSIDIARY BANK. The Board of Directors and officers of
the subsidiary bank are responsible for its operation. However, the Republic
Corporation, as the controlling stockholder, coordinates the establishment of
goals, objectives and policies for the entire organization, assists the
subsidiary bank in the attainment of these objectives and monitors adherence to
established policies. The company also monitors adherence to lending and
accounting policies, budgetary goals and long-range plans.
The bank provides the following services:
COMMERCIAL BANKING SERVICES. The Bank provides a broad range of
financial services to a diversified group of commercial, industrial and
financial customers in Southern Colorado. Services provided to commercial
customers include short and medium term loans, revolving credit arrangements,
trade financing, energy related financing, real estate construction lending,
capital equipment financing and letters of credit.
CONSUMER SERVICES. The Bank provides a diverse range of personal
services to individuals including savings and time deposit accounts,
installment lending, bank check guarantee cards, checking accounts, N.O.W.
accounts, mortgage loans, safe deposit facilities, IRA services, money market
deposits, and automatic teller facilities.
EMPLOYEES. The Bank had 47 full time equivalent employees on December 31,
1996.
2
<PAGE>
COMPETITION
The Bank's primary market area is Trinidad, Colorado, Walsenburg,
Colorado and the surrounding communities. In this market are two other banks
and a savings and loan association. The deposits of the Bank are larger than
those of the savings and loan and larger than those of the other banks. The
Bank competes with these institutions in obtaining new deposits, making
loans, and providing additional banking services.
The principal methods of competition in the industry are price (i.e.
interest rates and fees) and service. Inasmuch as rate and fee structures at
all local competitors are somewhat similarly constrained by net interest
income objectives, competitive pressure and the restraint that must
necessarily be exercised in smaller communities of modest means, the primary
arena for competition is service. Community banks are uniquely able to
provide the type of personal service that is typically of greatest value in
smaller, less populated markets such as Las Animas and Huerfano Counties.
The ability of the bank to successfully market this type of service delivery,
along with a reasonable selection of more modern and less personal means of
access, will determine its ultimate competitive success.
MONETARY POLICY.
The earnings and growth of the banking industry and of the Bank are
affected not only by general economic conditions, but also by the credit
policies of monetary authorities, particularly the Federal Reserve System.
An important function of the Federal Reserve System is to regulate the
national supply of bank credit in order to combat recession and curb
inflationary pressures. Among the instruments of monetary policy used by the
Federal Reserve System to implement these objectives are open market
operations in U.S. Government securities, changes in the discount rate on
member bank borrowings and changes in reserve requirements against member
bank deposits. These means are used in varying combinations to influence
overall growth of bank loans, investments and deposits and may also affect
interest rates charged on loans or paid for deposits.
The monetary policies of the Federal Reserve System have had a
significant effect on the operating results of commercial banks in the past
and are expected to continue to do so in the future. Because of changing
conditions in the national and international economy and in the money
markets, and as a result of actions by monetary and fiscal authorities,
including the Federal Reserve System, interest rates, credits and
availability and deposit levels may change due to circumstances beyond the
control of The Republic Corporation or the Bank.
STATISTICAL DATA. The following sets forth certain statistical data
regarding the Republic Corporation.
I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY: INTEREST
RATES AND DIFFERENTIAL
BALANCE SHEET ANALYSIS
The following three tables present the consolidated monthly average
balance sheet, taxable equivalent interest revenue, interest expense, and
average yields and rates.
3
<PAGE>
Interest income on non-taxable investment securities has been adjusted to
reflect the tax benefit of tax exempt income at a marginal rate of 38% for each
year presented.
Non-accruing loans are included for purposes of the analysis of interest
earnings on loans.
TABLE #1
Year Ended December 31, 1996 Average Interest Yield/
(Dollars in Thousands) Balance Rev./Exp. Rate
ASSETS
Investment securities:
Taxable. . . . . . . . . . . . $ 10,006 $ 653 6.5%
Tax exempt . . . . . . . . . . - - -
Loans. . . . . . . . . . . . . . . 68,841 6,184 9.0%
Less: Reserve for loan loss. . (956)
Funds sold . . . . . . . . . . . . 27,844 1,483 5.3%
-------- ------ ---
Total Earning Assets . . . . . 105,735 8,320 7.9%
-------- ------ ---
Cash and due from banks. . . . . . 2,776
Other assets . . . . . . . . . . . 3,486
--------
TOTAL ASSETS . . . . . . . . . $111,997
--------
--------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand deposits . $ 29,339 $1,004 3.4%
Savings deposits . . . . . . . . . 9,703 268 2.8%
Time deposits. . . . . . . . . . . 49,773 2,852 5.7%
-------- ------ ---
TOTAL INTEREST BEARING
LIABILITIES. . . . . . . . . . 88,815 4,124 4.6%
-------- ------ ---
NET INTEREST REVENUE . . . . . . . . . $4,196 3.3%
------
------
NET INTEREST REVENUE TO EARNING ASSETS 4.0%
Demand deposits (non-interest
bearing) . . . . . . . . . . . $ 12,596
Other liabilities. . . . . . . . . 1,338
Stockholders' equity . . . . . . . 9,248
--------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . . $111,997
--------
--------
4
<PAGE>
TABLE #2
--------
Year Ended December 31, 1995 Average Interest Yield/
(Dollars in Thousands) Balance Rev./Exp. Rate
ASSETS
Investment securities:
Taxable. . . . . . . . . . . . . $ 9,091 $ 516 5.7%
Tax exempt . . . . . . . . . . . - - -
Loans. . . . . . . . . . . . . . . . 56,938 5,006 8.8%
Less: Reserve for loan loss. . . (907)
Funds sold . . . . . . . . . . . . . 36,503 2,126 5.8%
-------- ------ ---
Total Earning Assets . . . . . . 101,625 7,648 7.5%
-------- ------ ---
Cash and due from banks. . . . . . . 2,061
Other assets . . . . . . . . . . . . 3,158
--------
TOTAL ASSETS . . . . . . . . . . $106,844
--------
--------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand deposits . . $ 28,010 $1,037 3.7%
Savings deposits . . . . . . . . . . 9,411 256 2.7%
Time deposits. . . . . . . . . . . . 49,731 2,875 5.8%
-------- ------ ---
TOTAL INTEREST BEARING
LIABILITIES. . . . . . . . . . . 87,152 4,168 4.8%
-------- ------ ---
NET INTEREST REVENUE . . . . . . . . . . $3,480 2.7%
------
------
NET INTEREST REVENUE TO EARNING ASSETS . 3.4%
Demand deposits (non-interest
bearing). . . . . . . . . . . . . . $ 9,600
Other liabilities. . . . . . . . . . 1,202
Stockholders' equity . . . . . . . . 8,890
--------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . . . $106,844
--------
--------
5
<PAGE>
TABLE #3
--------
Year Ended December 31, 1994 Average Interest Yield/
(Dollars in Thousands) Balance Rev./Exp. Rate
ASSETS
Investment securities:
Taxable. . . . . . . . . . . . . $ 6,995 $ 296 4.2%
Tax exempt . . . . . . . . . . . 5 5 10.0%
Loans. . . . . . . . . . . . . . . . 43,109 3,760 8.7%
Less: Reserve for loan loss. . . (942)
Funds sold . . . . . . . . . . . . . 32,638 1,389 4.3%
------- ------ ----
Total Earnings Assets. . . . . . 81,805 5,450 6.7%
------- ------ ----
Cash and due from banks. . . . . . . 2,816
Other assets . . . . . . . . . . . . 2,813
-------
TOTAL ASSETS . . . . . . . . . . $87,434
-------
-------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand deposits . . $27,068 $ 812 3.0%
Savings deposits . . . . . . . . . . 9,414 320 3.4%
Time deposit . . . . . . . . . . . . 30,277 1,341 4.4%
------- ------ ----
TOTAL INTEREST BEARING
LIABILITIES. . . . . . . . . . . 66,759 2,473 3.7%
------- ------ ----
NET INTEREST REVENUE . . . . . . . . . . $2,973 3.0%
------
------
NET INTEREST REVENUE TO EARNING ASSETS . 3.6%
Demand deposits (non-interest
bearing). . . . . . . . . . . . . . $11,855
Other liabilities. . . . . . . . . . 661
Stockholders' Equity . . . . . . . . 8,159
-------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . . . $87,434
-------
-------
6
<PAGE>
The following table presents statistical information regarding the
components of net interest income of the Registrant and an analysis of the
changes in net interest income due to changes in volume and rates.
Analysis of Changes in Components of Net Interest Income
(Dollars in thousands)
TABLE #4
--------
1996 VS 1995 1995 VS 1994
--------------------- ----------------------
Yield/ Yield/
Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------
Increase (decrease) in
interest income on:
Loans. . . . . . . . . . . . $1,064 $ 114 $1,178 $1,203 $ 43 $1,246
Investment securities. . . . 62 75 137 105 114 219
Federal funds sold . . . . . (500) (143) (643) 219 518 737
------ ----- ------ ------ ----- ------
626 46 672 1,527 675 2,202
------ ----- ------ ------ ----- ------
Increase (decrease) in
interest expense on:
Demand deposits. . . . . . . 51 (84) (33) 27 134 161
Savings. . . . . . . . . . . 3 9 12 - - -
Time deposits. . . . . . . . 26 (49) (23) 1,030 504 1,534
------ ----- ------ ------ ----- ------
80 (124) (44) 1,057 638 1,695
------ ----- ------ ------ ----- ------
Net interest income. . . . . 546 170 716 470 37 507
------ ----- ------ ------ ----- ------
------ ----- ------ ------ ----- ------
The volume/rate variance was allocated to rate based on the percentage
increase or decrease in relation to the total previous year rates with the
remainder allocated to volume.
7
<PAGE>
II. INVESTMENT PORTFOLIO
The following table shows the classification of investment securities
with fixed maturities held at December 31, in each of the past three years
(including investments held for sale):
TABLE #5
--------
December 31
(Dollars in thousands) 1996 1995 1994
- --------------------------------------------------------------------------
U.S. Government Securities. . . . . . . . . . . $10,006 $ 9,978 $6,997
States and political subdivisions . . . . . . . - - 5
Other bonds, notes and securities . . . . . . . 24 24 24
------- ------- -------
TOTAL $10,030 $10,002 $7,026
------- ------- -------
------- ------- -------
The following is a table which shows the maturity distribution of
investment securities and the average taxable equivalent yield by each range.
Dollars presented are in thousands.
TABLE #6
--------
States and Federal
U.S. Government Political Reserve Bank
Securities Subdivisions Stock
--------------- ------------ ------------
Amount/Yield Amount/Yield Amount/Yield
------------- ------------ ------------
Within one year. . . . . . . $10,006 5.5% $ - -% $ - -%
After one year
through five years. . . - -% - -% - -%
After five years
through ten years . . . - -% - -% - -%
After ten years. . . . . . . - -% - -% 24 7.5%
------- --- --- --- --- ---
TOTAL $10,006 5.5% $ - -% $24 7.5%
------- --- --- --- --- ---
------- --- --- --- --- ---
III. LOAN PORTFOLIO
Domestic loans by category are listed below (dollars in thousands):
TABLE #7
--------
December 31, December 31,
1996 1995
------------ ------------
Commercial. . . . . . . . . . . . . . . $ 5,716 $ 4,892
Agricultural. . . . . . . . . . . . . . 3,787 3,676
Real Estate - Construction. . . . . . . 3,087 1,584
Real Estate - Mortgage. . . . . . . . . 50,228 44,594
Installment loans to individuals. . . . 8,775 8,679
------- -------
TOTAL $71,593 $63,425
------- -------
------- -------
There were no foreign loans at December 31, 1996 or December 31, 1995.
8
<PAGE>
Commercial, agricultural and real estate - construction loans at December
31, 1996 are presented by maturity as follows (dollars in thousands):
TABLE #8
--------
Due After
Due in One One Year Due After
Year or Less Through Five Years Five Years
------------ ------------------ ----------
Commercial:
Fixed rates. . . . . . . 4,161 - -
Adjustable rates . . . . 1,555 - -
Agricultural:
Fixed rates. . . . . . . 3,172 - -
Adjustable rates . . . . - 60 555
Real Estate - Construction:
Fixed rates. . . . . . . 257 - -
Adjustable rates . . . . 459 - -
Within the loan portfolio are loans which are considered non-performing.
Included in the table below are past due loans which are defined as past due
(1) single payment notes - these are considered past due 15 days or more
after maturity; (2) single payment loans, with interest payable at stated
intervals, and demand notes - these are considered past due when an interest
payment is due and unpaid for 15 days; (3) consumer, mortgage, or term
business installment loans - these loans are past due in whole after one
installment is due and unpaid for 30 days or one month. When an installment
payment is past due, the entire unpaid balance is past due; (4) overdrafts
are considered past due when not paid in 15 days. Such loans remain in past
due status until all past due payments are made.
TABLE #9
--------
December 31 (Dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------
Non-accrual loans. . . . . . . . . . . . . . . . . . . . . . $ 759 $183
Loans which are contractually past due 90 days or more
as to interest or principal, but have not been put
on a non-accrual basis (See discussion below) . . . . . - -
Loans restructured to provide concessions to the
borrower in order to maximize the recovery
possibility of the bank . . . . . . . . . . . . . . . . 2,148 593
Foregone interest on restructured loans in 1996 was 19 thousand on
recognized income of 137 thousand. 1995 interest included was 36 thousand
with foregone interest of 14 thousand.
Past due and renegotiated loans as described above are defined as
non-performing loans for purposes of this discussion.
Non-accrual loans are defined as loans on which, in the opinion of
management, the collection of interest has become uncertain. Management
places loans on non-accrual status when loans become past due thirty days or
if, in their judgment, the ability of the borrower to service the debt has
become impaired.
9
<PAGE>
Interest is not taken into income unless received in cash or until such
time as the borrower demonstrates the ability to pay interest and principal.
Placing a loan on non-accrual status for the purpose of income recognition is
not by itself a reliable indicator of potential loss of principal. Other
factors, such as the value of the collateral securing the loan and the
financial condition of the borrower, serve as more reliable indicators of
potential loss.
Management has no information that would indicate that any loans on hand
at December 31, 1996 that are not currently included as non-performing loans
have possible credit problems that would cause serious doubts as to their
ability to comply with the current repayment terms or contain uncertainties
which would have a material impact on future operations or financial position.
IV SUMMARY OF LOAN LOSS EXPERIENCE
The table below presents selected information analyzing the allowance
for loan losses (dollars in thousands):
TABLE #10
--------
1996 1995
------- -------
Balance - Beginning of year. . . . . . . . . . . . . . $ 868 $ 926
------- -------
Charge-offs:
Commercial. . . . . . . . . . . . . . . . . . . . 48 -
Agricultural. . . . . . . . . . . . . . . . . . . 25 -
Real Estate - Construction. . . . . . . . . . . . 76 -
Real Estate - Mortgage. . . . . . . . . . . . . . 68 -
Installment loans to individuals. . . . . . . . . 106 73
------- -------
$ 323 $ 73
------- -------
Recoveries:
Commercial. . . . . . . . . . . . . . . . . . . . $ 4 $ 4
Agricultural. . . . . . . . . . . . . . . . . . . - -
Real Estate - Construction. . . . . . . . . . . . 10 -
Real Estate - Mortgage. . . . . . . . . . . . . . - -
Installment loans to individuals. . . . . . . . . 12 11
------- -------
$ 26 $ 15
------- -------
Net Charge-offs (recoveries) . . . . . . . . . . . . . $ 297 $ 58
------- -------
Provision - Charged to operations. . . . . . . . . . . $ 393 $ -
------- -------
Balance - End of Year. . . . . . . . . . . . . . . . . $ 964 $ 868
------- -------
------- -------
Average loan balance outstanding . . . . . . . . . . . $68,841 $56,938
------- -------
------- -------
Percentage of net charge offs to average loans
outstanding. . . . . . . . . . . . . . . . . . . . . .4% .1%
------- -------
------- -------
In 1996, provision was made based on higher charge offs and an increase
in problem loans in relation to the previous period.
There was no provision for loan losses in 1995 due to the continued
reduction of loss exposure in the loan portfolio.
10
<PAGE>
The allocation of the allowance is as follows (dollars in thousands):
TABLE #11
---------
December 31, 1996 December 31, 1995
------------------------- -------------------------
Percent of Loans Percent of Loans
in Each Category in Each Category
Amount to Total Loans Amount to Total Loans
------ ---------------- ------ ----------------
Commercial. . . . . . . $ 15 8.0% $ 11 7.7%
Agricultural. . . . . . 93 5.3% 9 5.8%
Real Estate-
Construction. . . . . 4 4.3% - 2.5%
Real Estate-Mortgage. . 34 70.2% 3 70.3%
Installment Loans . . . 88 12.2% 23 13.7%
Unallocated . . . . . . 730 N/A 822 N/A
---- ---- ---- ----
$964 100% $868 100%
---- ---- ---- ----
---- ---- ---- ----
The large, unallocated allowance for loan losses is being maintained in
recognition of several risk factors inherent in the bank's loan portfolio.
Foremost among these is the large concentration of loans of all types secured
by real property. While the vast majority of these loans are performing and
not in need of an allocated allowance, there has been significant growth in
this area and a noticeable increase in appraised values has occurred.
(Please see Table #7, P-8). Another significant area of concern is
agricultural purpose loans. This grouping consists largely of livestock
growers in the bank's market area and is uniquely vulnerable to adverse
weather, crop or livestock disease and market price decline. Borrowers of
this type that have required restructured terms or that have been
non-performing receive an allocation of the bank's allowance. Those
remaining, however, still represent a significant potential for loss should
circumstances in that sector deteriorate further. At the time of this
writing, estimated charge-offs for the coming year are not expected to exceed
$100,000.00 and will be concentrated in the commercial and installment areas.
V. DEPOSITS
The average amount of deposits and the average rates paid are presented
in the balance sheet analysis shown previously.
At December 31, 1996, there existed outstanding time certificates of
deposit in amounts of $100,000 or more of $11,965,011. The deposits by time
remaining until maturity were (dollars in thousands):
TABLE #12
---------
3 months or less $ 3,638
Over 3 through 6 months 4,611
Over 6 through 12 months 1,683
Over 12 months 2,033
-------
$11,965
-------
-------
As required by the Monetary Control Act of 1980, the reserve balance held
against deposits at December 31, 1996 was $908,000.
11
<PAGE>
TABLE #13
---------
For the year ended December 31 1996 1995 1994
- ------------------------------ ---- ---- ----
Return on Assets (Net income divided by
average total assets) . . . . . . . . . . . . . . .8 .9% .6%
Return on Equity (Net income divided by
average equity) . . . . . . . . . . . . . . . . . 9.1% 9.2% 6.9%
Dividend Payout Ratio (Dividends declared per
share divided by net income per share). . . . . . 0% 0% 0%
Equity to Assets Ratio (Average equity
divided by average total assets). . . . . . . . . 8.3% 8.3% 9.3%
ITEM 2. Properties:
The subsidiary Bank owns a building and annex at 100 East Main Street,
and the motor-bank facility, 122 East First Street, in which the banking
operations are carried on in Trinidad, Colorado. Approximately one-third
(1/3) of the building is utilized by the bank. The remaining space is leased
to other businesses. Additionally, a bank building in Walsenburg, Colorado
was acquired in 1992. Banking operations at this location began in October
of 1993. In 1996, two automatic teller locations were added. One is in
Trinidad and the other is in La Veta, Colorado. Properties held as other
real estate owned consist of real property that has been acquired by the Bank
through foreclosure on real estate pledged as collateral on loans made by the
Bank.
ITEM 3. Legal Proceedings:
Not applicable.
ITEM 4. Submission of Matters to a Vote of Securities Holders:
Not applicable.
PART II
ITEM 5. Market for The Republic Corporation's stock.
(a) The Articles of Incorporation do not restrict the marketability of
the Republic Corporation stock. However, due to the limited number
of shares outstanding, it is not anticipated that an active market
for the shares will develop. Shares may be purchased by The Republic
Corporation, but there is no assurance that the Corporation will do
so.
(b) There were approximately 1,757 shareholders as of the date of this
annual report.
Holders of Republic Corporation shares are entitled to their pro-rata
share of any dividends paid on the shares. However, because the
Corporation has no income other than distributions received on its
equity in The First National Bank in Trinidad, Colorado, its ability
to pay dividends depends upon its receipt of Bank distributions.
Decisions as to the declaration and payment of dividends, subject to
the availability of funds for this purpose, rest exclusively with The
Republic Corporation Board of Directors.
(c) No dividends have been declared in 1996 or 1995 and management has no
intention to declare dividends in the immediate future.
12
<PAGE>
ITEM 6. Selected financial data:
The following table presents certain key financial information.
TABLE #14
---------
Selected Financial Data
Year Ended December 31
(Dollars in thousands) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------
Interest income. . . . . . . . . . . $8,320 $7,648 $5,445 $4,347 $4,785
Interest expense . . . . . . . . . . 4,124 4,168 2,473 1,808 2,473
------ ------ ------ ------ ------
Net interest income. . . . . . . 4,196 3,480 2,972 2,539 2,312
Provision for Loan Losses. . . . . . 393 - - 115 115
------ ------ ------ ------ ------
Net interest income after
Provision for loan losses. . 3,803 3,480 2,972 2,424 2,197
Non-interest income. . . . . . . . . 473 389 357 325 360
Securities gains . . . . . . . . . . - - - 192 864
Non-interest expense:
Personnel expenses . . . . . . . 1,391 1,266 1,137 1,000 917
Other expenses . . . . . . . . . 1,510 1,388 1,329 1,289 1,049
------ ------ ------ ------ ------
Income before income taxes . . . . . 1,375 1,215 863 654 1,455
Applicable income taxes. . . . . . . 514 378 284 230 485
------ ------ ------ ------ ------
Income before reduction for
minority interest or security
gains or losses . . . . . . . . . . 861 837 579 424 970
Less minority interest . . . . . . . 20 20 14 9 (20)
------ ------ ------ ------ ------
Net Income . . . . . . . . . . . . . $ 841 $ 817 $ 565 $ 415 $ 950
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Net income per common share (2). . . $ 2.52 $ 2.44 $ 1.69 $ 1.24 $ 2.84
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Dividends declared per common
share(2). . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
------ ------ ------ ------ ------
------ ------ ------ ------ ------
(2) Net income per common share and dividends declared per common share are in
actual dollars, not thousands.
Selected Year End Balances:
(Dollars in thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------
Loans. . . . . . . . . . . . . . . . 71,593 63,425 49,138 36,482 30,454
Total assets . . . . . . . . . . . . 114,963 109,018 97,616 75,648 71,270
Long-term debt . . . . . . . . . . . -0- -0- -0- -0- -0-
13
<PAGE>
ITEM 7. Management's discussion and analysis of financial condition and
results of operations:
FINANCIAL CONDITION
ASSET QUALITY
TABLE #15
---------
December 31 (dollars in thousands) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------
Nonaccrual loans. . . . . . . . . . . . 759 183 217 313 499
Past-due loans* . . . . . . . . . . . . - - - - -
Restructured loans. . . . . . . . . . . 2,148 593 668 546 569
----- --- --- --- -----
Total problem loans . . . . . . . . 2,907 776 885 859 1,068
Foreclosed Assets
Real estate . . . . . . . . . . . . 300 - - - 91
In-substance foreclosures . . . . . - - - - 105
Other . . . . . . . . . . . . . . . 34 - - - -
----- --- --- --- -----
Total problem assets. . . . . . 3,241 776 885 859 1,264
Total problem loans as a
percentage of total loans . . . . . . 4.1% 1.2% 1.8% 2.4% 3.5%
Total problem assets as a percentage of
total loans and foreclosed assets . . 4.5% 1.2% 1.8% 2.4% 4.1%
Reserve coverage ratio ** . . . . . . . 33.2% 112.0% 104.6% 111.3% 76.8%
* Past due loans which are still accruing interest but are contractually
ninety or more days delinquent as to principal or interest payments
** Allowance for loan losses divided by problem loans
Drought conditions and depressed livestock prices which prevailed
throughout most of 1996 placed a significant financial burden on stock
growers in the bank's market area. Approximately 48% of the increase in
nonaccruing loans in 1996 consisted of livestock loans made to one customer.
Also, approximately 66% of the increase in restructured loans in 1996
consisted of livestock loans made to this and one other customer of the bank.
Both of these customers have made their required payments for the year and
there has, as of this writing, been a noticeable improvement in related
weather and market conditions. (Please see Table #15, P-14)
The bank has also experienced an increase in foreclosure and repossession
activity in 1996. At the time of this writing the bank is in possession of
signed contracts for the sale of two properties which represent approximately
89% of total foreclosed real estate and, in each case, for amounts in excess
of current book value. (Please see Table #15, P-14)
In light of the increased charge-off activity in 1996, and in view of the
residual impact remaining from the 1995 closure of a local coal mine, the
bank is continuing a monthly loan loss provision in 1997. (Please see Table
#10, P-10)
14
<PAGE>
Positive factors that should improve economic conditions in the bank's
market area going forward include the completion of a private prison facility
in Huerfano County in October of 1997 and the hoped for commencement of
construction of a State prison facility in Las Animas County in September of
1997. These projects, coupled with continued growth in light manufacturing,
retail and tourist sector businesses, should provide a noticeable improvement
in employment levels which will surely be a welcomed change in this region.
Loans secured by real estate represented 74% of total loans on December
31, 1996. All of the real property serving as collateral for these loans
lies within Las Animas, Huerfano or adjacent counties, with 67% consisting of
1-4 family homes, 28% commercial properties and 5% farm and ranch properties.
The bank does not sell any of its loans in the secondary market and does not
buy or sell participation loans. (Please see Table #7, P-8)
SOURCES AND USES OF FUNDS
Deposit growth for 1996 was $5,125, 253.00, slightly over one half the
growth experienced in 1995 and slightly under one fourth the growth
experienced in 1994. This continued decline is, in the opinion of
management, a partial result of the continuing boom in the equities markets
and the relative attractiveness of the bank's deposit rates. (Please see
STATEMENT OF CASH FLOWS, P-24, and BALANCE SHEET, P-22) This deposit growth,
coupled with a $2,614,181.00 decrease in cash and cash equivalents and
$1,131,305.00 provided by operating activities, was largely deployed into
continued loan growth of $8,785,526.00. (Please see STATEMENT OF CASH FLOWS,
P-24)
LIQUIDITY
Since loan growth continued to exceed deposit growth in 1996, liquidity
continued its' decline. Average 1996 holdings of cash and due from banks,
readily marketable securities and federal funds sold totaled approximately
40% of average liabilities. This is down significantly from 49% in 1995 and
54% in 1994. (Please see tables 1-3, P-4-6)
15
<PAGE>
TABLE #16
---------
INTEREST RATE SENSITIVITY
December 31, 1996 (dollars in thousands)
- ------------------------------------------------------------------------------
3 Mo 3-12 1-5 Over
Or Less Months Years 5 Years
------- ------ ----- -------
Rate Sensitive Assets
(Assets that can be repriced
within x months/years)
Loans *. . . . . . . . . . . . . . . . . 18,967 43,290 8,293 244
Federal Funds Sold . . . . . . . . . . . 27,125 -0- -0- -0-
Taxable Securities** . . . . . . . . . . -0- 10,006 -0- -0-
Municipal Bonds. . . . . . . . . . . . . -0- -0- -0- -0-
TOTAL. . . . . . . . . . . . . . . . 46,092 53,296 8,293 244
Rate Sensitive Liabilities
(Liabilities that can be
repriced within x months/years)
Time Certificates of Deposit . . . . . . 16,445 27,230 7,409 -0-
NOW Accounts . . . . . . . . . . . . . . 1,934 -0- -0- -0-
Super NOW Accounts . . . . . . . . . . . 19,772 -0- -0- -0-
Savings Accounts . . . . . . . . . . . . 9,689 -0- -0- -0-
MMDA Accounts. . . . . . . . . . . . . . 6,579 -0- -0- -0-
TOTAL. . . . . . . . . . . . . . . . 54,419 27,230 7,409 -0-
Interest Rate Sensitivity Gap. . . . . . (8,327) 26,066 884 244
Cumulative Interest Rate
Sensitivity Gap. . . . . . . . . . . (8,327) 17,739 18,623 18,867
* Does not include $759 thousand in nonaccruing loans and $40 thousand in
overdrafts.
** Does not include $24 thousand in Federal Reserve Bank Stock.
While the asset heavy gap numbers in Table 16 would normally cause an
increase in earnings should interest rates rise, and vice versa, there are
significant reasons why management believes the earnings shift would be de
minimus. This asset heavy profile must be modified by the bank's practice
and intention of minimizing or deferring rate adjustments to loan accounts.
The resulting gap profile would therefore be more in balance if adjusted in
this fashion.
16
<PAGE>
INVESTMENT SECURITIES
TABLE #17
---------
AND FOOTNOTES 1-2
-----------------
<TABLE>
Carrying Unrealized Unrealized Market
Value Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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 10,008,375
---------- ---------- ---------- ----------
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
---------- ---------- ---------- ----------
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 had occurred. Cost of securities sold is determined on
the specific identification method.
17
<PAGE>
(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 the 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.
Current securities holdings consist of one $10,000,000.00 par value, U.S.
TREASURY NOTE, which matures within 8 months. The bank has pledged the
majority of this asset to the State of Colorado in order to collateralize
uninsured public deposits in accordance with State law. A similar security
will be purchased prior to the August, 1997 maturity to serve as a
replacement. (Please see Table #17, P-17 and Note 2, P-29-30)
CAPITAL
Tier 1 and total risk based capital ratios ended 1996 at 14.90% and
16.15%, respectively, compared with 14.73% and 15.99% in 1995 and 16.29% and
17.55% in 1994. This decline between 1994 and 1995, a reflection of asset
growth exceeding retained earnings growth and a significant asset shift from
low risk, cash equivalents to higher risk loan balances, has been partially
reversed in the 1995 to 1996 time frame. Declining asset growth, slightly
higher earnings and a slower rate of loan growth are responsible for this
reversal. The leverage ratio stood at 8.42% at year end, 1996, compared with
8.09% in 1995 and 8.19% in 1994.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Some improvement in net interest income has been experienced in 1996.
This was true in dollar terms and when expressed as a percentage of average
earning assets. (Please see Table #14, P-13 and Tables 1-3, P-4-6). The
information in Table #4 on page 7 reveals that the primary cause for this
improvement is the volume driven increase in interest earned on loans.
Interest expense on deposits remained stable, with small, volume driven
increases substantially offset by small declines in deposit rates.
OTHER INCOME AND EXPENSE
With the exception of advertising expense and FDIC insurance expense,
increases in non-interest expense occurred in 1996 across all categories.
The total increase was $247,000.00 and is tied primarily to growth factors
and increased legal fees incurred in collecting delinquent loans. The
$84,000.00 increase in non-interest income was also largely a result of
growth. In this instance, volume driven increases in fee income play the
major role. (Please see Table #14, P-13 and STATEMENT OF INCOME, P-23)
18
<PAGE>
Management is not aware of any regulatory recommendations or other
trends, events or uncertainties that would have or would reasonably be likely
to have a material effect on liquidity, capital resources or operations of
the company.
19
<PAGE>
ITEM 8. Financial statements and supplementary data.
Index to Financial Statements of
The Republic Corporation and Subsidiary PAGE
Accountant's Report. . . . . . . . . . . . . . . . . . . . 21
Balance Sheets as of December 31, 1996 and 1995. . . . . . 22
Statement of Income for the three years ended
December 31, 1996 . . . . . . . . . . . . . . . . . . 23
Statement of Cash Flows for the three years ended
December 31, 1996 . . . . . . . . . . . . . . . . . . 24-25
Statement of Changes in Stockholders' Equity
for the three years ended December 31, 1996 . . . . . 26
Notes to Financial Statements. . . . . . . . . . . . . . . 27-40
20
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
The Republic Corporation
We have audited the consolidated balance sheets of The Republic Corporation
as of December 31, 1996 and 1995, and the related consolidated statements of
income and stockholders' equity and cash flows for each of the three years in
the period ending December 31, 1996. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of The Republic Corporation at
December 31, 1996 and 1995, and the results of its operations and its cash
flows, for each of the three years in the period ending December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Dixon, Waller & Co.
Trinidad, Colorado
February 5, 1997
21
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Balance Sheet
December 31 1996 1995
- -------------------------------------------------------------------------------
Assets
Cash and due from banks (demand). . . . . . . . $ 3,273,580 $ 2,362,761
Investment securities:
Held to maturity
Market value at 12-31-96 - 9,984,375
Market value at 12-31-95 - 10,009,375 10,006,368 9,977,841
Available for Sale. . . . . . . . . . . . . 24,000 24,000
------------ ------------
13,303,948 12,364,602
------------ ------------
Loans . . . . . . . . . . . . . . . . . . . . . 71,592,533 63,425,397
Plus: Uncollected earned interest. . . . . 629,677 537,718
Less: Allowance or losses. . . . . . . . . (964,057) (868,026)
------------ ------------
NET LOANS AND OTHER RECEIVABLES . . . . 71,258,153 63,095,089
------------ ------------
Federal funds sold. . . . . . . . . . . . . . . 27,125,000 30,650,000
Property, equipment and vehicles (Net). . . . . 1,651,386 1,801,814
Other real estate . . . . . . . . . . . . . . . 300,025 -
Goodwill. . . . . . . . . . . . . . . . . . . . 436,079 436,079
Other assets. . . . . . . . . . . . . . . . . . 888,369 670,495
------------ ------------
Total Assets. . . . . . . . . . . . . . . . $114,962,960 $109,018,079
---------- ------------
---------- ------------
Liabilities and Stockholders' Equity
Deposits (Domestic):
Demand (noninterest bearing). . . . . . . . $ 12,464,933 $ 10,768,809
Savings, time and demand (interest bearing) 90,933,080 87,503,951
---------- ------------
103,398,013 98,272,760
---------- ------------
Accounts payable and accrued interest payable . 834,013 1,008,148
Accrued taxes payable . . . . . . . . . . . . . 559,450 425,902
---------- ------------
Total liabilities . . . . . . . . . . . . . 104,791,476 99,706,810
---------- ------------
Minority Interest in Consolidated Subsidiary. . 216,826 197,478
---------- ------------
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 12/31/96, 23,119 shares at 12/31/95) (91,303) (91,303)
------------ ------------
Total contributed capital . . . . . 500,472 500,472
------------ ------------
Retained earnings . . . . . . . . . . . . . . . 9,454,186 8,613,319
------------ ------------
Stockholders' equity. . . . . . . . . . . . 9,954,658 9,113,791
------------ ------------
Total liabilities and
stockholders' equity. . . . . . . . $114,962,960 $109,018,079
------------ ------------
------------ ------------
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Statement of Income
Year Ended December 31 1996 1995 1994
- -------------------------------------------------------------------------------
Interest income:
Interest and fees on loans. . . . . $6,184,010 $5,005,568 $3,760,091
Interest on federal funds sold. . . 1,483,240 2,126,113 1,389,369
Interest and dividends on
investments:
Securities of U.S.
government agencies . . . . 652,786 516,366 296,316
Obligations of states, political
subdivisions and other obli-
gations secured by the
government. . . . . . . . . . . - 125 267
---------- ---------- ----------
Total interest on investments . 652,786 2,642,604 1,685,952
---------- ---------- ----------
Total interest income . . . . . 8,320,036 7,648,172 5,446,043
---------- ---------- ----------
Interest expense:
Interest on deposits. . . . . . . . 4,124,629 4,168,021 2,473,418
---------- ---------- ----------
Total interest expense. . . . . 4,124,629 4,168,021 2,473,418
---------- ---------- ----------
Net interest income . . . . . . 4,195,407 3,480,151 2,972,625
Provision for loan losses . . . . . . . 392,703 - -
---------- ---------- ----------
Net interest income after
provision for loan losses . . . 3,802,704 3,480,151 2,972,625
Other income:
Service charges on deposit accounts 185,218 157,384 150,627
Other service charges,
commissions and fees. . . . . . 191,527 162,998 131,574
Gain on sale of securities. . . . . - - -
Net Income - Other Real Estate. . . - - -
Other income. . . . . . . . . . . . 96,293 68,375 74,509
---------- ---------- ----------
Total other income. . . . . . . 473,038 388,757 356,710
---------- ---------- ----------
Other expenses:
Salaries and wages. . . . . . . . . 1,217,215 1,092,575 979,191
Employee benefits . . . . . . . . . 173,827 173,784 158,185
Net occupancy expenses. . . . . . . 119,604 92,527 78,494
Furniture and equipment expense . . 108,633 81,683 77,084
Depreciation other than
rental property . . . . . . . . 227,772 177,414 189,842
Operating Loss. . . . . . . . . . . - - -
Computer service center . . . . . . 119,105 93,759 73,186
FDIC Insurance. . . . . . . . . . . - 102,024 156,816
Professional services . . . . . . . 121,272 88,200 87,809
Advertising . . . . . . . . . . . . 102,069 111,998 78,749
Other operating expenses. . . . . . 711,316 639,879 587,128
---------- ---------- ----------
Total other expenses. . . . . . 2,900,813 2,653,843 2,466,484
---------- ---------- ----------
Income before income taxes. . . 1,374,929 1,215,065 862,851
---------- ---------- ----------
Less applicable income taxes (Current). 513,814 378,289 283,718
---------- ---------- ----------
Income before reduction
for minority interest . . . . . 861,115 836,776 579,133
Less minority interest in income (20,248) (19,667) (14,157)
---------- ---------- ----------
Net income. . . . . . . . . . . . . 840,867 817,109 564,976
---------- ---------- ----------
---------- ---------- ----------
Earnings per share. . . . . . . . . $2.52 $2.44 $1.69
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
STATEMENT OF CASH FLOWS
December 31 1996 1995 1994
- -------------------------------------------------------------------------------
Cash flows and operating activities:
Net income (loss). . . . . . . . . . $ 840,867 $ 817,109 $ 564,976
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation . . . . . . . . . . 233,578 183,216 195,832
Provision for loan losses. . . . 392,703 - -
Amortization (accretion) of
discounts and premiums . . . (14,464) (48,752) 6,717
Other real estate gains/net. . . - (1,000) -
Re-appraisal - other real
estate . . . . . . . . . . . . 9,693 - -
Gain on sale of securities . . . - - -
(Decrease) increase in
interest payable . . . . . . (174,135) 409,444 290,867
(Increase) Decrease in
interest receivable. . . . . (91,959) (153,834) (61,166)
(Increase) decrease in
other assets . . . . . . . . (217,874) (178,374) 3,383
Increase (decrease) in
other liabilities. . . . . . 152,896 119,394 85,243
---------- ---------- ----------
Total adjustments. . . . 290,438 330,094 520,876
---------- ---------- ----------
Net cash provided by (used in)
operating activities . . . . . . . 1,131,305 1,147,203 1,085,852
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sales of investment
securities . . . . . . . . . . . 5,000 - -
Proceeds from maturities of
investment securities. . . . . . 10,005,000 7,005,000 7,000,000
Purchase of investment securities. . (10,024,063) (9,932,031) (6,989,063)
Loans made to customers-net
cash activity. . . . . . . . . . (8,785,526) (14,344,477) (12,686,557)
Capital expenditures . . . . . . . . (83,150) (443,971) (113,425)
Proceeds from sale
of other real estate . . . . . . 12,000 - -
---------- ---------- ----------
Net cash provided by
(used in) investing activities . . (8,870,739) (17,714,479) 12,789,045
---------- ---------- ----------
Cash flows from financing activities:
Net increase in demand deposits, NOW
accounts, savings accounts and
certificates of deposit. . . . . . 5,125,253 10,056,464 21,026,279
Purchase of treasury stock . . . . . - - -
---------- ---------- ----------
Net cash provided by (used in)
financing activities . . . . . . . 5,125,253 10,056,464 21,026,279
---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents . . . . . . . (2,614,181) (6,510,812) 9,323,086
(Continued)
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
STATEMENT OF CASH FLOWS
December 31 1996 1995 1994
- -------------------------------------------------------------------------------
Cash and cash equivalents
at beginning of year:
Cash and due from banks. . . . 2,362,761 3,073,573 2,525,487
Federal funds sold . . . . . . 30,650,000 36,450,000 27,675,000
---------- ---------- ----------
Cash and cash equivalents
at beginning of year . . . . . 33,012,761 39,523,573 30,200,487
---------- ---------- ----------
Cash and cash equivalents
at end of year:
Cash and due from banks. . . . 3,273,580 2,362,761 3,073,573
Federal funds sold . . . . . . 27,125,000 30,650,000 36,450,000
---------- ---------- ----------
Cash and cash equivalents
at end of year . . . . . . . . 30,398,580 33,012,761 39,523,573
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosures of
cash flow information
Cash paid for interest . . . . 4,298,764 3,758,577 2,182,551
---------- ---------- ----------
---------- ---------- ----------
Cash paid for income tax . . . 468,289 403,718 285,621
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Statement of Changes in Stockholders' Equity
For three Additional
years ended Capital Paid in Treasury Contributed Retained Total
December 31, Stock Capital Stock Capital Earnings Equity
- -------------------------------------------------------------------------------
Balance at
12-31-93 356,844 234,931 (91,303) 500,472 7,231,234 7,731,706
Net income - - - - 564,976 564,976
Market value
adjustment-
Securities - - - - - -
Addition to
treasury
stock - - - - - -
-------- -------- -------- -------- ---------- ----------
Balance at
12-31-94 356,844 234,931 (91,303) 500,472 7,796,210 8,296,682
Net income - - - - 817,109 817,109
Market value
adjustment-
Securities - - - - - -
Addition to
treasury
stock - - - - - -
-------- -------- -------- -------- ---------- ----------
Balance at
12-31-95 356,844 234,931 (91,303) 500,472 8,613,319 9,113,791
Net Income - - - - 840,867 840,867
Market value
adjustment-
Securities - - - - - -
Addition to
treasury
stock - - - - - -
-------- -------- -------- -------- ---------- ----------
Balance at
12-31-96 $356,844 $234,931 $(91,303) $500,472 $9,454,186 $9,954,658
-------- -------- -------- -------- ---------- ----------
-------- -------- -------- -------- ---------- ----------
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
THE REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include The Republic Corporation, (Company) and its majority-owned
subsidiary, The First National Bank in Trinidad (Bank). All major items of
income and expense are recorded on the accrual basis of accounting, and all
significant intercompany accounts and transactions have been eliminated.
INVESTMENT SECURITIES. The investment securities are classified and
accounted for as follows:
- Held to Maturity - investment debt securities for 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.
- Available for sale - securities not classified as securities to be
held to maturity. Unrealized holding gains or losses, net of tax, are
reported as a separate component of shareholders' equity until realized.
LOANS. Interest on all loans is credited to interest income as earned
on the principal amount outstanding. Loans to individuals for household,
family and other consumer expenditures are principally written at the
amount disbursed, and interest income is accrued on the outstanding
principal balance.
USE OF ESTIMATES. 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.
Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance for losses
on loans and the valuation of foreclosed real estate. In connection with
the determination of the estimated losses on loans and foreclosed real
estate, management obtains independent appraisals for significant
properties.
While management uses available information to recognize losses
on loans and foreclosed real estate, further reductions in the carrying
amounts of loans and foreclosed assets may be necessary based on changes in
local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the
estimated losses on loans and foreclosed real estate. Such agencies may
require the Company to recognize additional losses based on their judgments
about information available to them at the time of their examination.
Because of these factors, it is reasonably possible that the estimated
losses on loans and foreclosed real estate may change materially in the
near term. However, the amount of the change that is reasonably possible
cannot be estimated.
27
<PAGE>
THE REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
INCOME RECOGNITION ON IMPAIRED LOANS. Interest income generally
is not recognized on specific impaired loans unless the likelihood of
further loss is remote. Interest payments received on such loans are
applied as a reduction of the loan principal balance. Interest income on
other impaired loans is recognized only to the extent of interest payments
received.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is
established through charges to earnings in the form of provisions for loan
losses. Loan losses or recoveries are charged or credited directly to the
allowance. In general, the amount charged to earnings each year by the
Bank is based on management's judgment which takes into consideration a
number of factors, including (1) loss experience in relation to outstanding
loans and the existing level of the valuation allowance, (2) a continuing
review of problem loans and overall portfolio quality, (3) regular
examinations and appraisals of loan portfolios conducted by Federal
supervisory authorities, and (4) current and expected economic conditions.
GOODWILL. The excess of the purchase cost over the net assets of the
Bank purchased represents goodwill. APB 17, which addresses the
amortization of intangible assets such as goodwill, is not to be applied
retroactively to assets acquired before November 1, 1970. Since the
acquisition of the Bank was made prior to November 1, 1970, the goodwill
acquired is considered to have continuing value over an indefinite period
and, therefore, is not being amortized.
LONG-LIVED ASSETS. The undiscounted future net cash flows of the
Company are expected to be greater than the net book value of long-lived
assets (including goodwill) so that recoverability is not determined to be
impaired.
PROPERTY AND EQUIPMENT. Bank property and equipment are stated at
cost less accumulated depreciation. The building and improvements are
depreciated on the straight-line, declining balance, ACRS and MACRS methods
over estimated useful lives of 30 years. There is not a material
difference between the expense recognized using the ACRS and MACRS methods
and the expense that would be recognized using a method acceptable under
generally accepted accounting principles. Automobiles are depreciated
primarily on the straight-line basis over estimated useful lives of 3-4
years. Other equipment is depreciated on the straight-line, ACRS and MACRS
methods over estimated useful lives of 5-10 years.
The accounting policy is to charge maintenance, repairs, minor
renewals and betterments of property and equipment to expense in the year
incurred. Major expenditures for renewals and betterments are capitalized
and depreciated or amortized over their estimated useful lives. On
disposal or retirement, the related cost and accumulated depreciation are
eliminated from the accounts and gain or loss on the transaction is
reflected in the statement of income.
28
<PAGE>
THE REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
FORECLOSED REAL ESTATE. Foreclosed real estate includes formally
foreclosed properties.
At the time of foreclosure, foreclosed real estate is recorded at
the lower of the carrying amount or fair value less cost to sell, which
becomes the property's new basis.
LOAN ORIGINATION FEES AND COSTS. Loan origination fees are of an
immaterial nature and are recognized as income upon receipt.
INCOME TAXES. The Company files a consolidated federal income tax
return with the Bank. The corresponding amount of income tax expense has
been reflected in the financial statements. All expense recognized is
current due to the fact that temporary differences in the recognition of
income and expense for tax and financial statement purposes have created an
immaterial deferred credit not reflected in the accompanying financial
statements.
EMPLOYEE BENEFIT PLANS. The Bank makes payments into a 401K employee
benefit plan. All employees of the bank are covered, with the Bank paying
a discretionary percentage of the employee's earnings to the plan. An
employee can contribute an additional percentage of his/her earnings if so
desired. The plan is overseen by a board of trustees composed of Bank
officers.
EARNINGS PER SHARE COMPUTATIONS. Earnings per share computations are
based on the weighted average number of common shares outstanding during
each year.
2. Investment Securities, including investments held for sale.
A schedule of securities is as follows:
<TABLE>
December 31, 1996 December 31, 1995
----------------------------------- -----------------------------------
Principal Book Market Principal Book Market
Amount Value Value Amount Value Value
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Government
Securities 10,000,000 10,006,368 9,984,375 10,000,000 9,977,841 10,009,375
Obligations
of states
and polit-
ical sub-
divisions - - - - - -
Other 24,000 24,000 24,000 24,000 24,000 24,000
---------- ---------- ---------- ---------- ---------- ----------
10,030,368 10,008,375 10,001,841 10,033,375
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
29
<PAGE>
THE REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
The approximate amortized cost of investment securities pledged by the
Bank to secure public funds on deposit amounted to $9,506,050 at December
31, 1996 and $9,478,949 at December 31, 1995. Additionally, $500,318 was
pledged to the Federal Reserve Bank in order to secure treasury, tax and
loan remittances at December 31, 1996.
Net gains on the sale of securities were as follows:
1996 1995
------- -------
GAINS
U.S. Government Securities - -
------- -------
LOSSES
U.S. Government Securities - -
------- -------
NET GAINS ON SALE OF SECURITIES - -
------- -------
------- -------
Unrealized gains and losses in the securities portfolio were as follows:
Carrying Unrealized Unrealized Market
Value Gain Loss Value
---------- ---------- ---------- -------
DECEMBER 31, 1996
-----------------
U.S. Treasury Securities 10,006,368 - 21,993 9,984,375
Obligations of States
and Political
Subdivisions. . . . - - - -
Other. . . . . . . . . . 24,000 - - 24,000
---------- ------- ------ ----------
10,030,368 - 21,993 10,008,375
---------- ------- ------ ----------
---------- ------- ------ ----------
DECEMBER 31, 1995
-----------------
U.S. Treasury Securities 9,977,841 31,534 - 10,009,375
Obligations of States
and Political
Subdivisions. . . . - - - -
Other. . . . . . . . . . 24,000 - - 24,000
---------- ------- ------ ----------
10,001,841 31,534 - 10,033,375
---------- ------- ------ ----------
---------- ------- ------ ----------
3. Loans and Other Receivables
Loans and other receivables are summarized as follows:
December 31,
-------------------------
TYPE 1996 1995
----- ----------- -----------
Real estate. . . . . . . . . . . . . . $53,315,567 $46,178,005
Commercial and industrial. . . . . . . 5,715,555 4,892,134
Agriculture. . . . . . . . . . . . . . 3,787,250 3,676,333
Loans to individuals for household,
family and other consumer goods . 8,734,360 8,651,779
Other. . . . . . . . . . . . . . . . . 39,801 27,146
----------- -----------
TOTAL $71,592,533 $63,425,397
----------- -----------
----------- -----------
30
<PAGE>
THE REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
The changes in the allowance for loan losses are as follows:
December 31,
----------------------------
1996 1995 1994
-------- -------- --------
Balance at beginning of year. . . . . $868,026 $925,572 $956,000
Provision charged to
operating expenses . . . . . . . 392,703 - -
Loans charged off . . . . . . . . . . 322,659 73,040 46,489
Recoveries on loans
previously charged off . . . . . 25,987 15,494 16,061
-------- -------- --------
Balance at end of year. . . . . . . . $964,057 $868,026 $925,572
-------- -------- --------
-------- -------- --------
At December 31, 1996 and 1995, the total recorded investment in impaired
loans, all of which had allowances determined in accordance with SFAS No.
114 and No. 118, amounted to approximately $2,907,000 and $776,000
respectively. The average recorded investment in impaired loans amounted
to approximately $2,286,000 and $867,000 for the years ended December 31,
1996 and 1995, respectively. The allowance for loan losses related to
impaired loans amounted to approximately $199,890 and $167,482 at December
31, 1996 and 1995, respectively. Interest income on impaired loans of
$159,830 and $48,675 was recognized for cash payments received in 1996 and
1995 respectively.
4. Property and equipment.
Property and equipment are summarized as follows:
December 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
Land. . . . . . . . . . . . . . $ 114,751 $ 114,751 $ 49,681
Buildings . . . . . . . . . . . 2,029,738 2,029,738 1,945,220
Furniture and equipment . . . . 1,370,580 1,287,430 993,047
---------- ---------- ----------
3,515,069 3,431,919 2,987,948
Less accumulated depreciation . 1,863,683 1,630,105 1,446,889
---------- ---------- ----------
Net. . . . . . . . . . . . 1,651,386 $1,801,814 $1,541,059
---------- ---------- ----------
---------- ---------- ----------
Depreciation expense for 1996, 1995 and 1994 was $233,578, $183,216
and $195,832, respectively.
5. Income Taxes.
The components of the income tax provisions (benefits) are as follows:
31
<PAGE>
THE REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
5. (Continued)
December 31,
------------------------------
1996 1995 1994
-------- -------- --------
Federal provision:
Current. . . . . . . . . . . . $478,584 $352,561 $262,050
Deferred . . . . . . . . . . . - - -
-------- -------- --------
478,584 352,561 262,050
State provision . . . . . . . . . . 35,230 25,728 21,668
-------- -------- --------
Total. . . . . . . . . . . . . $513,814 $378,289 $283,718
-------- -------- --------
-------- -------- --------
The difference between the total expected income tax expense applying
the Federal tax rates and the effective tax rate applicable to income are
as follows (dollars in thousands):
1996 1995 1994
------------- ------------- -------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
Statutory tax rate Federal . 467 34 413 34 293 34
State income tax . . . . . . 35 2 25 2 22 3
Tax exempt revenue . . . . . (5) - (5) - (4) (1)
Accrual to cash adjustment . - - (21) (2) (21) (3)
Provision for loan loss. . . 33 2 (20) (2) (3) -
Other (net). . . . . . . . . (16) (1) (14) (1) (3) -
---- ---- ---- ---- ---- ----
Total . . . . . . . . . 514 37 378 31 284 33
---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ----
6. Service Commitments.
Computer and data processing services are provided to the Bank by an
outside service center. Expenses incurred for such services during 1996,
1995 and 1994 were $119,105, $93,759 and $73,186, respectively.
7. Other Real Estate.
Other real estate consists of properties acquired through foreclosure
and loans that are classified as in-substance foreclosed for which the
underlying collateral is real estate. There were no gains or losses on
sales of properties for the year ended December 31, 1996.
There was a $1,000 gain on other real estate sold in 1995.
transactions.
No gains or losses were incurred in 1994 on other real estate
transactions.
32
<PAGE>
THE REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
8. Certificates of Deposit.
The Bank has time certificates of deposit in amounts of $100,000 or
more amounting to $11,965,011 and $11,692,086 at December 31, 1996 and
1995, respectively. Interest expense for the years ended December 31,
1996, 1995 and 1994 on this type of deposit was $619,605, $596,555, and
$246,698, respectively.
The deposits by time remaining until maturity were (dollars in
thousands).
3 months or less $ 3,638
3 to 6 months 4,611
6 to 12 months 1,683
over 12 months 2,033
-------
11,965
-------
-------
9. Regulatory Matters.
The Bank, as a National Bank, is subject to the dividend restrictions
set forth by the Comptroller of the Currency. Under such restrictions, the
Bank may not, without the prior approval of the Comptroller of the
Currency, declare dividends in excess of the sum of the current year's
earnings (as defined) plus the retained earnings (as defined) from the
prior two years. The dividends, as of December 31, 1996, that the Bank
could declare, without the approval of the Comptroller of the Currency,
amounted to approximately $1,694,000. The Bank is also required to
maintain minimum amounts of capital to total "risk weighted" assets, as
defined by the banking regulators. As of December 31, 1996, Banks are
required to have minimum Tier 1 and Total capital ratios of 4.00% and
8.00%, respectively. The Bank's actual ratios at December 31, 1996 were
$14.90% and 16.15%, respectively. The Bank's Tier 1 leverage ratio at
December 31, 1996 was 8.42%. The minimum required leverage ratio for the
Bank at December 31, 1996, was 3.00%.
10. Supplemental Cash Flow Information
In 1996 and 1994, the Bank recorded amounts of other real estate
acquired through foreclosure of $321,718 and $5,500. Of total sales of
other real estate during 1994, $5,300 of the purchase price was financed by
the Bank, taking the other real estate as security. Loans charged off in
1996, 1995 and 1994 amounted to $322,659, $73,040 and $46,489. These
noncash transactions have been excluded from the consolidated statement of
cash flows.
11. Financial Position and Results of Operations - Republic Corporation.
The financial position and results of operations of The Republic
Corporation (parent only) are as follows:
33
<PAGE>
THE REPUBLIC CORPORATION
Balance Sheet
(Note 11 Continued)
December 31 1996 1995
- ------------------------------------------------------------------------------
Assets
Cash in Bank. . . . . . . . . . . . . . . . . $ 22,102 $ 22,500
Investment in subsidiary - equity method. . . 9,855,952 9,015,379
Vehicles and equipment (net). . . . . . . . . - 108
Receivable - due from subsidiary. . . . . . . 20,000 19,200
Other assets. . . . . . . . . . . . . . . . . 56,604 56,604
---------- ----------
Total assets. . . . . . . . . . . . . . . 9,954,658 $9,113,791
---------- ----------
---------- ----------
Liabilities . . . . . . . . . . . . . . . . . $ - $ -
---------- ----------
Stockholders' Equity
Common stock, par value $1.00; authorized
750,000 shares, issued 356,844 shares
including stock held in treasury of
23,119 and 23,119 for 1996 and 1995,
respectively. . . . . . . . . . . . . . . 356,844 356,844
Additional paid in capital. . . . . . . . . . 234,931 234,931
Less cost of treasury stock (23,119 shares
at 12-31-96, 23,119 shares at 12-31-95) . (91,303) (91,303)
---------- ----------
Total contributed capital . . . . . . 500,472 500,472
---------- ----------
Retained earnings . . . . . . . . . . . . . . 9,454,186 8,613,319
---------- ----------
Total stockholders' equity. . . . . . . . 9,954,658 9,113,791
---------- ----------
Total liabilities and
stockholders' equity. . . . . . . . . . . $9,954,658 $9,113,791
---------- ----------
---------- ----------
34
<PAGE>
THE REPUBLIC CORPORATION
Statement of Income
(Note 11 Continued)
Year Ended December 31 1996 1995 1994
- ---------------------------------------------------------------------------
Income
Investment income in subsidiary
Dividends received from
subsidiary bank. . . . . . . . . . $ 39,100 $ 39,100 $ 39,100
Other income . . . . . . . . . . . . . - - -
-------- -------- --------
Total income . . . . . . . . . . . $ 39,100 $ 39,100 $ 39,100
-------- -------- --------
Expenses
Salaries and employee benefits . . . . . . 41,073 41,073 41,073
Depreciation . . . . . . . . . . . . . . . 108 107 107
Examination and legal fees . . . . . . . . 9,826 8,127 6,375
Miscellaneous. . . . . . . . . . . . . . . 90 140 13,384
Office . . . . . . . . . . . . . . . . . . 4,406 3,729 3,726
Taxes. . . . . . . . . . . . . . . . . . . 3,303 3,310 3,315
Travel . . . . . . . . . . . . . . . . . . - - 200
-------- -------- --------
Total expenses . . . . . . . . . . . . 58,806 56,486 68,180
-------- -------- --------
Income (Loss) before equity in
undistributed net income of subsidiary (19,706) (17,386) (29,080)
Less applicable income (taxes) benefit . . 20,000 19,200 18,100
-------- -------- --------
294 1,814 (10,980)
Equity in undistributed net income
(loss) of subsidiary . . . . . . . . . 840,573 815,295 575,956
-------- -------- --------
Net income (loss). . . . . . . . . . . $840,867 $817,109 $564,976
-------- -------- --------
-------- -------- --------
Earnings per share
Weighted average number of
shares outstanding . . . . . . . . 333,725 333,725 333,725
-------- -------- --------
-------- -------- --------
Net income (loss) per common share . . $ 2.52 $ 2.44 $ 1.69
-------- -------- --------
-------- -------- --------
35
<PAGE>
THE REPUBLIC CORPORATION
Statement of Cash Flows
(Note 11 Continued)
Year Ended December 31 1996 1995 1994
- ---------------------------------------------------------------------------
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . $ 840,867 $ 817,109 $ 564,976
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation. . . . . . . . . . . . . 108 107 107
Dividends received - subsidiary . . . (39,100) (39,100) (39,100)
(Increase) in investment in
subsidiary-held on the
equity method . . . . . . . . . . (840,573) (815,295) (557,573)
(Increase) decrease in receivable
from subsidiary-income
tax benefit . . . . . . . . . . . (800) (1,100) 700
Increase (decrease) in current
liabilities . . . . . . . . . . . - - -
--------- -------- --------
Net cash (used in) operating activities . (39,498) (38,279) (30,890)
--------- -------- --------
Cash flows from investing activities-
Dividends received. . . . . . . . . . 39,100 39,100 39,100
--------- -------- --------
Cash flows from financing activities-
Purchase of treasury stock. . . . . . - - -
--------- -------- --------
Net increase (decrease) in cash . . . . . (398) 821 8,210
Cash - beginning of year. . . . . . . . . 22,500 21,679 13,469
--------- -------- --------
Cash - end of year. . . . . . . . . . . . 22,102 22,500 21,679
--------- -------- --------
--------- -------- --------
Supplemental disclosures of cash
flow information:
Cash paid for interest. . . . . . . . - - -
--------- -------- --------
--------- -------- --------
Cash paid for income taxes. . . . . . - - -
--------- -------- --------
--------- -------- --------
36
<PAGE>
THE REPUBLIC CORPORATION
Statement of Changes in Stockholders' Equity
(Note 11 Continued)
For the Three Additional Total
Year Ended Capital Paid in Treasury Contributed Retained
December 31 Stock Capital Stock Capital Earnings
- ------------------------------------------------------------------------------
Balance at December
31, 1993. . . . . $356,844 $234,931 $(91,303) $500,472 $7,231,234*
Net income. . . . . . - - - - 564,976
Additions to
treasury stock. . - - - - -
-------- -------- -------- -------- ----------
Balance at December
31, 1994. . . . . 356,844 234,931 (91,303) 500,472 7,796,210*
Net income. . . . . . - - - - 817,109
Additions to
treasury stock. . - - - - -
-------- -------- -------- -------- ----------
Balance at December
31, 1995. . . . . 356,844 234,931 (91,303) 500,472 8,613,319*
Net income. . . . . . - - - - 840,867
Additions to
treasury stock. . - - - - -
-------- -------- -------- -------- ----------
Balance at December
31, 1996 $356,844 $234,931 $(91,303) $500,472 $9,454,186*
-------- -------- -------- -------- ----------
-------- -------- -------- -------- ----------
*On December 31, 1993, 1994, 1995 and 1996 the portion of retained earnings
resulting from Republic Corporation's equity in the undistributed income of its
subsidiary was $6,422,432, $6,982,005, $7,797,300 and 8,637,872 respectively.
12. Contingent Liabilities and Commitments.
The consolidated financial statements do not reflect various commitments and
contingent liabilities which arise in the normal course of business and which
involve elements of credit risk, interest rate risk and liquidity risk. These
commitments and contingent liabilities are commitments to extend credit and
standby letters of credit. A summary of the Bank's commitments and contingent
liabilities at December 31, 1996, is as follows:
National
Amount
---------
Commitments to extend credit 3,472,000
Standby letters of credit 253,000
37
<PAGE>
THE REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
12. (Continued)
Commitments to extend credit and standby letters of credit all include
exposure to some credit loss in the event of nonperformance of the customer.
The Bank's credit policies and procedures for credit commitments and financial
guarantees are the same as those for extensions of credit that are recorded on
the consolidated statements of condition. Because these instruments have fixed
maturity dates, and because many of them expire without being drawn upon, they
do not generally present any significant liquidity risk to the Bank.
13. Disclosures about the Fair Value of Financial Instruments
The following disclosures of the estimated fair value of financial
instruments are made in accordance with the requirements of SFAS No. 107,
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated fair value
amounts have been determined by the Bank using available market information and
valuation methodologies. The fair value estimates presented are not necessarily
indicative of the amounts the company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material impact on the estimated fair value amounts.
SFAS No. 107 excludes certain financial instruments and all non-financial
instruments including intangible assets from its disclosure requirements.
Therefore the aggregate fair value amounts presented herein are not indicative
of the underlying value of the Bank.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which is it practicable to estimate
that value:
- CASH AND DUE FROM BANKS
The current carrying amount is a reasonable estimate of fair value.
- FEDERAL FUNDS SOLD
The current carrying amount is a reasonable estimate of fair value.
- INVESTMENT SECURITIES
An estimate of the fair value for investment securities is made
utilizing quoted market prices for publicly traded securities, where
available. A third-party pricing service that specializes in "matrix
pricing" and modeling techniques provides estimated fair values for
securities not actively traded.
38
<PAGE>
THE REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
13. (Continued)
- LOANS
The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities. Due to the small amount of nonaccrual loans at December 31,
1996, these loans do not significantly impact the fair value of loans.
- DEPOSITS
The fair value of demand deposits, savings accounts and money market
deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated by
discounting the future cash flows using the rates currently offered for
deposits of similar remaining maturities.
- COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of
the customers. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and
the committed rates. The estimated fair value of letters of credit is
based on the fees currently charged for similar agreements. The
instruments were determined to have no positive or negative market value
adjustments and are not listed in the following table.
The estimated fair value of the Company's financial instruments is as
follows:
December 31, 1996
-----------------------
Carrying Fair
Amount Value
-------- -----
(In Thousands)
Financial assets:
Cash and due from banks $ 3,274 $ 3,274
Held-to-maturity securities 10,006 9,984
Other Securities 24 24
Federal funds sold 27,125 27,125
Loans, net of allowance 70,628 70,639
Financial liabilities:
Deposits 103,398 103,417
39
<PAGE>
THE REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
13. (Continued)
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1996. Although
management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of the financial statements since
that date and, therefore, current estimates of fair value may differ
significantly from the amounts presented.
40
<PAGE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure:
Not applicable.
41
<PAGE>
PART III
ITEM 10. Directors and executive officers of the Republic Corporation.
The Republic Corporation's Board of Directors consists of Catherine G.
Eisemann, J.E. Eisemann, IV and Roger Dean Eisemann. All directors and
officers are U.S. citizens. Catherine G. Eisemann is the mother of J.E. and
Roger Dean Eisemann.
TERM OF PRINCIPAL OCCUPATIONS FOR THE
NAME AND TITLE AGE OFFICE LAST FIVE YEARS
- -------------- --- -------- -----------------------------------------
Catherine G. Eisemann 70 33 Years Catherine G. Eisemann has been a Director
of The Republic Corporation for 33 years.
Mrs. Eisemann was elected President of
The Republic Corporation and began
serving December 11, 1981.
J.E. Eisemann, IV 49 20 Years J.E. Eisemann, IV has served as a
Director on The Republic Corporation
Board for 20 years. Mr. Eisemann has
been the Vice-President and Director of
the Subsidiary Bank for approximately 20
years. Mr. Eisemann has served as the
Chairman of the Board of The Republic
Corporation and Chairman of the Board
for the Subsidiary Bank for approximately
15 years.
Roger Dean Eisemann 42 14 Years Roger Dean Eisemann was elected Secretary
and began serving as a director of The
Republic Corporation in July, 1982.
J.E. Eisemann, III was the President and Chairman of the Board of The
Republic Corporation for 25 years. Mr. Eisemann passed away during 1981.
42
<PAGE>
ITEM 11. Executive Compensation.
EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE
Annual Compensation
---------------------------------
Name & Principal Position Year Salary Bonus
- ------------------------- ---- --------- ---------
J.E. Eisemann, IV Chairman of the 1996 $54,193(1) $3,881(2)
Board of the Company, Vice 1995 52,716(1) 3,429(2)
President of the Company, 1994 50,767(1) 2,076(2)
Chairman of the Board & Vice
President of the Subsidiary Bank
Catherine Eisemann President of the 1996 $30,000 -0-
Company 1995 30,000 -0-
1994 30,000 -0-
Restricted Stock
Stock Options/ LTIP All Other
Name & Principal Position Awards SARs(#) Payouts($) Compensation
- ------------------------- ---------- ------- --------- ------------
J.E. Eisemann, IV -0- -0- -0- -0-
Chairman of the Board -0- -0- -0- -0-
of the Company, Vice -0- -0- -0- -0-
President of the
Company, Chairman of
the Board & Vice
President of the
Subsidiary Bank
Catherine Eisemann -0- -0- -0- -0-
President of the -0- -0- -0- -0-
Company -0- -0- -0- -0-
(1) Includes amounts deferred under Section 401(K) of the Internal Revenue
Code. Amounts deferred by Mr. Eisemann were $4,924 in 1994, $3,543 in 1995,
and $3,920 in 1996.
(2) Includes amounts deferred under Section 401(K) of the Internal Revenue
Code. Amounts deferred by Mr. Eisemann were $246 in 1994, $343 in 1995, and
$353 in 1996.
STOCK OPTIONS/SAR GRANTS IN 1996-NONE
AGGREGATED STOCK OPTIONS/SAR EXERCISES IN 1996 AND OPTIONS/SAR
VALUES AS OF DECEMBER 31 1996 - NONE
LONG-TERM INCENTIVE PLANS - AWARDS IN 1996 - NONE
COMPENSATION OF DIRECTORS
Director fees are not paid to directors of the Company.
EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT ARRANGEMENTS - NONE
REPORT ON REPRICING OF OPTIONS/SARS - NONE
43
<PAGE>
ITEM 12. Security ownership of certain beneficial owners and management.
(a) Security ownership of certain beneficial owners.
The following schedule reflects security ownership of persons who are
the beneficial owners of more than 5% of any class of voting
securities of The Republic Corporation.
Amount and
Nature of Percent
Name of Title of Beneficial of
Person (1) Class Ownership (2) Class
---------- ------------ ------------- --------
Catherine G. Eisemann Common Stock 193,702 58.0424
3350 McCue, #904
Houston, Texas 77056
(1) All persons shows are officers or directors of The Republic
Corporation.
(2) Shares of The Republic Corporation have not been pledged by
the officers or directors of the corporation.
(b) Security ownership of management.
The following schedule reflects security ownership of the officers and
directors of The Subsidiary Bank:
Amount and
Nature of Percent
Name of Director Title of Beneficial of
or Officer Class Ownership Class
---------------- ------------ ---------- -------
The Republic Corporation(1) Common Stock 39,100 97.75
Catherine G. Eisemann Common Stock 100 .25
J.E. Eisemann, IV Common Stock 100 .25
R. Dean Eisemann Common Stock 100 .25
Ralph Gagliardi Common Stock 100 .25
Opal Gahm Common Stock 100 .25
Johnny Niccoli Common Stock 100 .25
Charles Latuda Common Stock 100 .25
John Davis Common Stock 100 .25
James Cummings Common Stock 100 .25
(1) Catherine G. Eisemann owns 58.0424 percent of The Republic
Corporation.
(c) Changes in control.
The Republic Corporation has the option of repurchasing its own stock,
thus increasing the ownership percentages of the remaining
shareholders.
44
<PAGE>
ITEM 13. Certain relationships and related transactions.
There have been no transactions with management or other related
parties that would require disclosure under current Securities and Exchange
Commission regulations. Additionally, no business relationships that would
require disclosure exist. A director was indebted to the subsidiary bank
during 1996 on a loan made in the ordinary course of business made on
substantially the same terms as those prevailing at the time for comparable
transactions with other persons and did not involve more than the normal
risk of collectibility. At no time was the amount of the loan in excess of
$60,000.
45
<PAGE>
PART IV
ITEM 14. Exhibits, financial statement, schedules, and reports on
Form 8-K.
(a) 1. The following financial statements and financial statement
schedules are included in Part II of this report:
Consolidated statements of the parent and subsidiary bank:
Accountant's Report. . . . . . . . . . . . . 21
Balance Sheets as of December
31, 1996 and 1995 . . . . . . . . . . . 22
Statements of Income - years ended
December 31, 1996, 1995 and 1994. . . . 23
Statement of Cash Flows -
Years ended December 31,
1996, 1995 and 1994. . . . . . . . . . . 24-25
Statement of Changes in Stockholders'
Equity-years ended December 31,
1996, 1995 and 1994. . . . . . . . . . . 26
Notes to Financial Statements . . . . . . . . 27-40
2. All other schedules are omitted because they are not applicable,
are not required, or because the required information is included
in the consolidated financial statements or notes thereto.
46
<PAGE>
3. List of Exhibits.
The following documents were filed as exhibits to Registration
Statement Form 10 (which was filed with the Securities and
Exchange Commission under The Securities Exchange Act of 1934)
dated August 23, 1977.
Exhibit
No.
-------
3 The Republic Corporation, Articles of Incorporation and
By-Laws
22(a) Subsidiary of the Registrant.
The First National Bank in Trinidad, Colorado.
Incorporated in Colorado
(b) Reports on Form 8-K
There were no reports on Form 8-K for the three months ended December
31, 1996.
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Republic Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
REPUBLIC CORPORATION
/s/ J.E. Eisemann, IV Chairman of the 03/19/97
- ------------------------------ Board, Director, --------
J.E. Eisemann, IV Chief Executive Date
Officer, Chief
Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchanges Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
Chairman of the 03/19/97
Board, Director,
/s/ J.E. Eisemann, IV Chief Executive
- ------------------------------ Officer, Chief
J.E. Eisemann, IV Financial and
Accounting Officer
/s/ Catherine G. Eisemann President of the 03/19/97
- ------------------------------ Board and a Director
Catherine G. Eisemann
48
<PAGE>
SUPPLEMENTAL INFORMATION
The Republic Corporation will send the shareholders an annual report and proxy
materials subsequent to the filing of this report.
49
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
FORM 10-K, DATED DEC. 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,273,580
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 27,125,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,000
<INVESTMENTS-CARRYING> 10,006,368
<INVESTMENTS-MARKET> 9,984,375
<LOANS> 71,592,533
<ALLOWANCE> 964,057
<TOTAL-ASSETS> 114,962,960
<DEPOSITS> 103,398,013
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,393,463
<LONG-TERM> 0
0
0
<COMMON> 356,844
<OTHER-SE> 9,597,814
<TOTAL-LIABILITIES-AND-EQUITY> 114,962,960
<INTEREST-LOAN> 6,184,010
<INTEREST-INVEST> 652,786
<INTEREST-OTHER> 1,483,240
<INTEREST-TOTAL> 8,320,036
<INTEREST-DEPOSIT> 4,124,629
<INTEREST-EXPENSE> 4,124,629
<INTEREST-INCOME-NET> 4,195,407
<LOAN-LOSSES> 392,703
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,900,813
<INCOME-PRETAX> 1,374,929
<INCOME-PRE-EXTRAORDINARY> 1,374,929
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 840,867
<EPS-PRIMARY> 2.52
<EPS-DILUTED> 2.52
<YIELD-ACTUAL> .077
<LOANS-NON> 759,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 2,148,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 868,000
<CHARGE-OFFS> 323,000
<RECOVERIES> 26,000
<ALLOWANCE-CLOSE> 964,000
<ALLOWANCE-DOMESTIC> 234,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 730,000
</TABLE>
