<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Nine Months Ended September 30, 1997. Commission file Number 0-8597
-----------------------------
THE REPUBLIC CORPORATION
Texas 74-0911766
- ----- ----------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5340 Weslayan - P.O. Box 270462, Houston, Tx 77277
- ---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 713-993-9200
------------
NONE
- ----
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of
Common Stock, $1.00 par value Shares 356,844
- ----------------------------- -------
Outstanding at Sept. 30,
1997, (excluding 23,119
shares held as treasury
shares)
<PAGE>
THE REPUBLIC CORPORATION
Index to Quarterly Report on Form 10-Q
Page
Part I. Financial Information ----
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
December 31, 1996, and September 30, 1997. 1
Consolidated Statements of Income for the three months
and nine months ended September 30, 1996 and 1997. 2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996 and 1997. 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis 5-9
Part II. Other Information 10
Signatures 11
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Balance Sheet
September 30 December 31
1997 1996
- --------------------------------------------------------------------------------
Assets
Cash and due from banks (demand) . . . . . . . . . . $ 3,637,978 $ 3,273,580
Investment securities:
Held-to-maturity
Market value at 9-30-97 27,959,560
Market value at 12-31-96 9,984,375. . . . 27,964,810 10,006,368
Available-for-sale
Market value at 9-30-97 24,000
Market value at 12-31-96 24,000. . . . 24,000 24,000
------------ ------------
$ 31,626,788 $ 13,303,948
Loans. . . . . . . . . . . . . . . . . . . . . . . . 78,606,532 71,592,533
Plus: Uncollected earned interest . . . . . . . 737,253 629,677
Less: Allowance for losses. . . . . . . . . . . (1,048,000) (964,057)
Net loans and other receivables . . . . . . . . 78,295,785 71,258,153
------------ ------------
Federal funds sold . . . . . . . . . . . . . . . . . 12,725,000 27,125,000
Property, equipment and vehicles (net) . . . . . . . 1,618,267 1,651,386
Other real estate. . . . . . . . . . . . . . . . . . -0- 300,025
Goodwill . . . . . . . . . . . . . . . . . . . . . . 436,079 436,079
Other assets . . . . . . . . . . . . . . . . . . . . 709,157 888,369
------------ ------------
Total assets. . . . . . . . . . . . . . . . . . $125,411,076 $114,962,960
------------ ------------
Liabilities and Stockholders' Equity
Deposits (Domestic):
Demand (non-interest bearing) . . . . . . . . . $ 14,683,810 $ 12,464,933
Savings, time and demand (Interest-bearing) . . 97,909,044 90,933,080
------------ ------------
$112,592,854 $103,398,013
Accounts payable and accrued interest payable. . . . 1,168,341 834,013
Accrued taxes payable. . . . . . . . . . . . . . . . 587,115 559,450
------------ ------------
Total liabilities . . . . . . . . . . . . . . . $114,348,310 $104,791,476
------------ ------------
Minority Interest in Consolidated Subsidiary . . . . 237,392 216,826
------------ ------------
Stockholders'Equity
Common stock (par value $1; 750,000 shares
authorized, 356,844 shares issued including
stock held in treasury) . . . . . . . . . . . . 356,844 356,844
Additional paid-in capital . . . . . . . . . . . . . 234,931 234,931
Less cost of treasury stock (23,119 shares at
9-30-97 and 23,119 at 12-31-96). . . . . . . . . . (91,303) (91,303)
------------ ------------
Total contributed capital. . . . . . . . . 500,472 500,472
------------ ------------
Retained earnings. . . . . . . . . . . . . . . . . . 10,324,902 9,454,186
------------ ------------
Net Unrealized Gain (Loss) on Securities
Available-for-Sale (Net of Taxes) . . . . . . . -0- -0-
Stockholders'equity. . . . . . . . . . . . 10,825,374 9,954,658
------------ ------------
Total liabilities and stockholders equity . . . $125,411,076 $114,962,960
------------ ------------
The accompanying note is an integral part of these financial statements.
(1)
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Statement of Income
<TABLE>
Three Months Ended Nine Months Ended
------------------------- -------------------------
Sept. 30 Sept. 30 Sept. 30 Sept. 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $1,733,788 $1,608,120 $4,998,301 $4,567,160
Interest on funds sold and securities
purchased under agreement to resell 223,129 386,874 913,677 1,096,728
Interest and dividends on investments
Securities of U.S. Government and
government agencies 348,390 139,743 739,732 511,498
Obligations of states, political
subdivisions and other obligations
secured by the government -0- -0- -0- -0-
---------- ---------- ---------- ----------
Total interest on investments 571,519 526,617 1,653,409 1,608,226
---------- ---------- ---------- ----------
Total interest income 2,305,307 2,134,737 6,651,710 6,175,386
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 1,182,879 1,043,848 3,297,423 3,056,164
---------- ---------- ---------- ----------
Total Interest expense 1,182,879 1,043,848 3,297,423 3,056,164
---------- ---------- ---------- ----------
Net interest income 1,122,428 1,090,889 3,354,287 3,119,222
Provision for loan losses (42,457) (221,068) (185,246) (338,594)
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses 1,079,971 869,821 3,169,041 2,780,628
---------- ---------- ---------- ----------
Other income:
Service charges on deposit accounts 49,251 44,091 142,353 130,077
Other service charges, commission and fees 58,294 55,633 176,307 150,076
Gain on sale of securities -0- -0- -0- -0-
Net income- other real estate 42,295 -0- 72,465 -0-
Other income 13,227 13,002 60,815 38,971
---------- ---------- ---------- ----------
Total other income 163,067 112,726 451,940 319,124
---------- ---------- ---------- ----------
Other expenses:
Salaries and wages 310,464 286,169 891,150 827,238
Employee benefits 84,154 61,940 217,485 188,343
Net occupancy expenses 48,136 57,050 146,993 173,624
Furniture and equipment expenses 29,056 26,205 61,822 65,735
Depreciation other than rental property 35,775 30,366 106,149 90,045
Net cost-other real estate -0- -0- -0- -0-
Computer service center 44,635 31,093 123,777 86,770
FDIC-insurance -0- 500 6,021 1,500
Professional services 37,002 38,752 119,658 104,652
Advertising 14,248 18,911 40,822 46,883
Other operating expenses 163,966 130,832 463,822 444,306
---------- ---------- ---------- ----------
Total other expenses 767,436 681,818 2,177,699 2,029,096
---------- ---------- ---------- ----------
Income before income taxes 475,602 300,729 1,443,282 1,070,656
Less applicable income taxes (Current) (176,000) (150,000) (552,000) (468,000)
---------- ---------- ---------- ----------
Income before reduction for minority interest 299,602 150,729 891,282 602,656
Less minority interest income (loss) (6,901) (2,170) (20,566) (16,081)
---------- ---------- ---------- ----------
Net income $ 292,701 $ 148,559 $ 870,716 $ 586,575
---------- ---------- ---------- ----------
Earnings per share $ .88 $ .45 $ 2.61 $ 1.76
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying note is an integral part of these financial statements.
(2)
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Statement of Cash Flows
<TABLE>
Nine Months Ended
Sept. 30 Sept. 30
1997 1996
------------ ------------
<S> <C> <C>
Cash flows and operating activities:
Net income (loss) $ 870,716 $ 586,575
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 140,916 166,680
Provision for loan losses 185,246 338,594
Amortization (accretion) of discounts and
Premium. (286,753) (16,852)
Other real estate gains/net (72,465) -0-
Investment securities gains/net -0- -0-
Loss on sale of subsidiary stock -0- 16,942
Re-appraisal - other real estate 12,500 9,692
(Decrease) increase in interest payable 334,328 (37,505)
(Increase) decrease in interest receivable. (107,576) (197,558)
(Increase) decrease in other assets 179,212 36,886
Increase (decrease) in other liabilities 48,231 95,114
------------ ------------
Total adjustments 433,639 411,993
------------ ------------
Net cash provided by (used in) operating activities 1,304,355 998,568
------------ ------------
Cash flows from investing activities
Proceeds from sale of subsidiary stock -0- 10,000
Proceeds from sales of investment securities -0- -0-
Proceeds from maturities of investment securities 45,000,000 10,000,000
Purchase of investment securities (62,671,689) (10,019,063)
Loans made to customers net cash activity. (6,977,735) (7,879,804)
Capital expenditure. (107,798) (63,016)
Proceeds from sale of other real estate. 222,424 -0-
------------ ------------
Net cash provided by (used in) investing activities (24,534,798) (7,951,883)
------------ ------------
Cash flows from financing activities
Net increase (decrease) in demand deposits, NOW
account, savings accounts and certificates of deposit 9,194,841 4,221,733
Purchase of treasury stock. -0- -0-
------------ ------------
Net cash provided by (used in) financing 9,194,841 4,221,733
------------ ------------
Net increase (decrease) in cash and cash equivalents (14,035,602) (2,731,582)
------------ ------------
Cash and cash equivalents at beginning of year:
Cash and due from banks. 3,273,580 2,362,761
Federal funds sold 27,125,000 30,650,000
------------ ------------
Cash and cash equivalents at beginning of year. 30,398,580 33,012,761
------------ ------------
------------ ------------
Cash and cash equivalents at Sept. 30, 1997
Cash and due from banks 3,637,978 2,931,179
Federal funds sold. 12,725,000 27,350,000
------------ ------------
Cash and cash equivalents at Sept. 30, 1997 $ 16,362,978 $ 30,281,179
------------ ------------
------------ ------------
Supplemental disclosures of cash flow information:
Cash paid for interest 2,963,095 3,103,361
Cash paid for income tax 521,814 368,289
</TABLE>
The accompanying note is an integral part of these financial statements.
(3)
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1997
Note 1 -- BASIS OF PREPARATION AND PRESENTATION
The consolidated financial statements included herein have been prepared by
The Republic Corporation, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission and include all adjustments which are,
in the opinion of management, necessary for a fair presentation. The condensed
consolidated financial statements include the accounts of the company and its
subsidiaries. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Republic Corporation believes that the disclosures are
adequate to make the information presented not misleading; however, it is
suggested that these financial statements be read in conjunction with the
financial statements and the notes thereto which are on Form 10-K for the fiscal
year ended December 31, 1996. The financial data for the interim periods may
not necessarily be indicative of results to be expected for the year.
Securities that will be held for indefinite periods of time, including
securities that will be used as part of the Company's asset/liability management
strategy and that may be sold in response to changes in interest rates,
prepayments, and similar factors, are classified as Available-for-Sale and
accounted for at fair value.
(4)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
ASSET QUALITY
Non-accruing loan totals remain high due to a grouping of larger credits
which are current on payments but which have been delinquent in the past or
have exhibited poor repayment prospects. The bank typically requires a
satisfactory payment stream for at least 6 months and a documented
improvement in payment ability before loans of this type are placed back on
accruing status. Restructured loans remain high due to the below-market
interest rates that have been retained on a grouping of larger livestock
loans. Loans in this category are only now beginning to emerge from the
effects of low market prices in 1995 and 1996.
TABLE 1 PROBLEM ASSETS
(dollars in thousands) September 30 December 31
------------- -------------------------
1997 1996 1995 1994
Nonaccrual loans $1,053 $ 759 $ 183 $217
Past-due loans (over 90 days) -0- -0- -0- -0-
Restructured loans 2,444 2,148 593 668
------ ------ ------ ----
Total problem loans $3,497 $2,907 $ 776 $885
Foreclosed assets
Real estate -0- 300 -0- -0-
In-substance foreclosures -0- -0- -0- -0-
Other 5 34 -0- -0-
------ ------ ------ ----
Total Problem Assets $3,502 $3,241 $ 776 $885
Total problem loans as
a percentage of total loans 4.4% 4.1% 1.2% 1.8%
Total problem assets as a
percentage of total loans
and foreclosed assets 4.5% 4.5% 1.2% 1.8%
TABLE 2 LOAN CONCENTRATIONS
(dollars in thousands) September 30 December 31
------------- -------------------
1997 1996 1995
Commercial $ 5,980 $ 5,716 $ 4,892
Agricultural 4,051 3,787 3,676
Real Estate-Construction 1,655 3,087 1,584
Real Estate-Mortgage 58,124 50,228 44,594
Installment loans to Individuals 8,797 8,775 8,679
------- ------- -------
Totals $78,607 $71,593 $63,425
(5)
<PAGE>
SOURCES AND USES OF FUNDS
Approximately $9.2mm in deposit growth in the first nine months of 1997
served as a primary funding source for approximately $7mm in loan growth.
(Please see Statement of Cash Flows, P-3)
LIQUIDITY
Liquid assets, consisting of cash and due from banks, federal funds sold
and readily marketable U.S. Treasury and Government Agency securities, stood
at approximately 39% of liabilities on Sept. 30, 1997, unchanged from the
level which prevailed at the end of 1996. (Please see Balance Sheet, P-1)
INTEREST RATE SENSITIVITY MANAGEMENT
The significant excess of repriceable assets depicted in Table 3 will
not provide higher earnings if market interest rates rise due to the
restraint the bank excercises in adjusting rates on existing loans.
(6)
<PAGE>
INTEREST RATE SENSITIVITY MANAGEMENT
Table 3 - REPRICING SCHEDULE
9-30-97
3 MO 3-12 1-5 OVER
OR LESS MONTHS YEARS 5 YEARS
------- ------ ----- -------
RATE SENSITIVE ASSETS
(Assets that can be
repriced within X days)
Loans * 14,654 43,714 18,904 276
Federal Funds Sold 12,725 -0- -0- -0-
Taxable Securities ** 15,915 12,050 -0- -0-
Municipal Bonds -0- -0- -0- -0-
TOTAL 43,294 55,764 18,904 276
RATE SENSITIVE LIABILITIES
(Liabilities that can be
repriced within X days)
Time Certificates of Deposit 20,382 30,823 4,681 -0-
NOW Accounts 1,901 -0- -0- -0-
Super NOW Accounts 18,924 -0- -0- -0-
Savings Accounts 9,337 -0- -0- -0-
MMDA Accounts 8,944 -0- -0- -0-
TOTAL 59,488 30,823 4,681 -0-
Interest Rate Sensitivity Gap (16,194) 24,941 14,223 276
Cumulative Interest Rate
Sensitivity Gap (16,194) 8,747 22,970 23,246
* Does not include $1,053,000 in nonaccruing loans or overdrawn demand
deposits of $6,000
** Does not include $24,000 in Federal Reserve Bank stock
(7)
<PAGE>
INVESTMENT SECURITIES
Table 4
<TABLE>
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
September 30, 1997
(1) Held-to-Maturity:
U.S. Treasury Securities 12,050,250 -- 5,250 12,045,000
Other 15,914,560 -- -- 15,914,560
(2) Available-for-Sale Securities
Carried at Fair Value:
U.S. Treasury Securities -- -- -- --
Other 24,000 -- -- 24,000
---------- ------ ------ ----------
27,988,810 -- 5,250 27,983,560
---------- ------ ------ ----------
December 31, 1996
(1) Held-to-Maturity:
U.S. Treasury Securities 10,006,368 -- 21,993 9,984,375
Other -- -- -- --
(2) Available-for-Sale Securities
Carried at Fair Value:
U.S. Treasury Securities -- -- -- --
Other 24,000 -- -- 24,000
---------- ------ ------ ----------
10,030,368 -- 21,993 10,033,375
---------- ------ ------ ----------
December 31, 1995
(1) Held-to-Maturity:
U.S. Treasury Securities 9,977,841 31,534 -- 10,009,375
Other -- -- -- --
(2) Available-for-Sale Securities
Carried at Fair Value:
U.S. Treasury Securities -- -- -- --
Other 24,000 -- -- 24,000
---------- ------ ------ ----------
10,001,841 31,534 -- 10,033,375
---------- ------ ------ ----------
</TABLE>
(1) Securities which the Bank has the ability and intent to hold to
maturity. These securities are stated at cost, adjusted for amortization of
premiums and accretion of discounts, computed by the interest method.
Because securities are purchased for investment purposes and quoted market
values fluctuate during the investment period, gains and losses are
recognized upon disposition or at such time as management determines that a
permanent impairment of value has occurred. Cost of securities sold is
determined on the specific identification method.
(2) Securities that the bank may sell in response to changes in market
conditions or in the balance sheet objectives of the bank. Securities in
this category will be reported at fair market value. Unrealized gains or
losses (net of tax) will be reported as a separate item in the shareholder's
equity section of the balance sheet. Adjustments will be recorded at lease
quarterly.
(8)
<PAGE>
CAPITALIZATION:
Growth in loans secured by 1-4 family homes and in low risk investment
securities caused risk-based capital ratios to increase slightly from year
end 1996 levels. Leverage ratios remain substantially the same as retained
earnings growth has kept pace with asset growth. (Please see Table 2, LOAN
CONCENTRATIONS and Balance Sheet, P-1)
Table 5 - CAPITAL
*September 30 December 31
------------- -----------
1997 1996
Tier 1 risk-based capital
(minimum is 4%) 15.34% 14.79%
Tier 1 + Tier 2 risk based capital
(minimum is 8%) 16.59% 16.05%
Tier 1 leverage (minimum is 3%) 8.45% 8.37%
*Estimate
RESULTS OF OPERATIONS
NET INTEREST INCOME
The increase in interest income for the first nine months of 1997,
compared with 1996 levels, was almost double the increase in interest expense
over the same period. The increase in both categories is volume driven and
the disparity within the respective growth levels is reflective of the rate
gap between interest-bearing deposits and average loan yields. (Please see
STATEMENT OF INCOME, P-2)
OTHER INCOME AND EXPENSE
The loan loss provision for the first nine months of 1997 was lower than
that which occurred in the 1996 period, primarily a result of larger
chargedowns on defaulted real estate loans in the prior year period.
Growth related increases in fee income and recoveries on the sale of
foreclosed real estate substantially offset growth related increases in
non-interest expense. (Please see STATEMENT OF INCOME, P-2)
(9)
<PAGE>
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
not applicable
Item 2. CHANGES IN SECURITIES
not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
not applicable
Item 5. OTHER INFORMATION
not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Exhibits
none
b). No reports on Form 8-K have been filed during the quarter for which
this report was filed.
(10)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE REPUBLIC CORPORATION
Date: October 17, 1997 /s/ J. Ed Eisemann, IV
-------------------------------------
Chairman of the Board
Date: October 17, 1997 /s/ Catherine G. Eisemann
-------------------------------------
Director
(11)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
REGISTRANT'S FORM 10-Q, DATED SEPT. 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,637,978
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,725,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,000
<INVESTMENTS-CARRYING> 27,964,810
<INVESTMENTS-MARKET> 27,959,560
<LOANS> 78,606,532
<ALLOWANCE> 1,048,000
<TOTAL-ASSETS> 125,411,076
<DEPOSITS> 112,592,854
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,755,456
<LONG-TERM> 0
0
0
<COMMON> 356,844
<OTHER-SE> 10,468,530
<TOTAL-LIABILITIES-AND-EQUITY> 125,411,076
<INTEREST-LOAN> 4,998,301
<INTEREST-INVEST> 739,732
<INTEREST-OTHER> 913,677
<INTEREST-TOTAL> 6,651,710
<INTEREST-DEPOSIT> 3,297,423
<INTEREST-EXPENSE> 3,297,423
<INTEREST-INCOME-NET> 3,354,287
<LOAN-LOSSES> 185,246
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,177,699
<INCOME-PRETAX> 1,443,282
<INCOME-PRE-EXTRAORDINARY> 1,443,282
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 870,716
<EPS-PRIMARY> 2.61
<EPS-DILUTED> 2.61
<YIELD-ACTUAL> .074
<LOANS-NON> 1,053,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 2,444,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 964,000
<CHARGE-OFFS> 146,000
<RECOVERIES> 45,000
<ALLOWANCE-CLOSE> 1,048,000
<ALLOWANCE-DOMESTIC> 211,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 837,000
</TABLE>
