<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Three Months Ended March 31, 1997.
COMMISSION FILE NUMBER 0-8597
THE REPUBLIC CORPORATION
TEXAS 74-0911766
- ------------------------------- -------------------
(State or 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 March 31,
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 March 31, 1997. 1
Consolidated Statements of Income for the three months
Ended March 31, 1996 and 1997. 2
Consolidated Statements of Cash Flows for the three months
Ended March 31, 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
March 31 December 31
1997 1996
------------ ------------
Assets
Cash and due from banks (demand)................ $ 2,792,426 $ 3,273,580
Investment securities:
Held-to-maturity
Market value at 3-31-97 9,987,500
Market value at 12-31-96 9,984,375... 10,003,980 10,006,368
Available-for-sale
Market value at 3-31-97 24,000
Market value at 12-31-96 24,000... 24,000 24,000
------------ ------------
$ 12,820,406 $ 13,303,943
Loans........................................... 72,870,214 71,592,533
Plus: Uncollected earned interest........... 606,114 629,677
Less: Allowance for losses.................. (1,047,000) (964,057)
Net loans and other receivables............. 72,429,323 71,258,153
------------ ------------
Federal funds sold.............................. 30,750,000 27,125,000
Property, equipment and vehicles (net).......... 1,628,721 1,651,386
Other real estate............................... 189,524 300,025
Goodwill........................................ 436,079 436,079
Other assets.................................... 205,437 888,369
------------ ------------
Total assets................................ $118,459,495 $114,962,960
------------ ------------
Liabilities and Stockholders' Equity
Deposits (Domestic):
Demand (non-interest bearing)............... $ 15,264,100 $ 12,464,933
Savings, time and demand (Interest-bearing). 91,652,104 90,933,080
------------ ------------
$106,916,204 $103,398,013
Accounts payable and accrued interest payable... 940,291 834,013
Accrued taxes payable .......................... 193,736 559,450
------------ ------------
Total liabilities........................... $108,050,231 $104,791,476
------------ ------------
Minority Interest in Consolidated Subsidiary.... 222,243 216,826
------------ ------------
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 3-31-97 and 23,119 at 12-31-96........... (91,303) (91,303)
------------ ------------
Total contributed capital.............. 500,472 500,472
------------ ------------
Retained earnings............................... 9,686,549 9,454,186
------------ ------------
Net Unrealized Gain (Loss) on Securities
Available-for-Sale (Net of Taxes)........... -0- -0-
Stockholders'equity.................... 10,187,021 9,954,658
------------ ------------
Total liabilities and stockholders equity... $118,459,495 $114,962,960
------------ ------------
The accompanying note is an integral part of these financial statements.
(1)
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Statement of Income
THREE MONTHS ENDED
----------------------
March 31 March 31
1997 1996
Interest Income:
Interest and fees on loans $1,597,147 $1,457,099
Interest on funds sold and securities
purchased under agreement to resell 379,676 372,438
Interest and dividends on investments
Securities of U.S. Government and
government agencies 136,649 185,828
Obligations of states, political
subdivisions and other obligations
secured by the government -0- -0-
---------- ----------
Total interest on investments 516,325 558,266
---------- ----------
Total interest income $2,113,472 $2,015,365
---------- ----------
---------- ----------
Interest expense:
Interest on deposits 1,017,458 1,011,425
---------- ----------
Total Interest expense 1,017,458 1,011,425
---------- ----------
Net interest income 1,096,014 1,003,940
Provision for loan losses (100,914) (29,580)
---------- ----------
Net interest income after provision for
loan losses 995,100 974,360
---------- ----------
Other income:
Service charges on deposit accounts 45,353 41,188
Other service charges, commission and fees 55,910 48,117
Gain on sale of securities -0- -0-
Net income- other real estate 20,606 -0-
Other income 14,235 11,995
---------- ----------
Total other income 136,104 101,300
---------- ----------
Other expenses:
Salaries and wages 290,763 269,942
Employee benefits 65,658 63,449
Net occupancy expenses 52,293 60,350
Furniture and equipment expenses 17,385 23,595
Depreciation other than rental property 35,211 29,313
Net cost-other real estate -0- -0-
Computer service center 40,376 26,565
FDIC-insurance 6,021 500
Professional services 31,148 49,768
Advertising 12,553 13,284
Other operating expenses 158,016 176,999
---------- ----------
Total other expenses 709,424 713,765
---------- ----------
Income before income taxes 421,780 361,895
Less applicable income taxes (Current) 184,000 153,000
---------- ----------
Income before reduction for minority interest 237,780 208,895
Less minority interest income (loss) 5,417 6,983
---------- ----------
Net income $ 232,363 $ 201,912
---------- ----------
---------- ----------
Earnings per share $ .70 $ .61
---------- ----------
---------- ----------
The accompanying note is an integral part of these financial statements.
(2)
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Statement of Cash Flows
Three Months Ended
March 31 March 31
1997 1996
----------- ------------
Cash flows and operating activities:
Net income (loss)............................ $ 232,363 $ 201,912
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................. 46,188 54,260
Provision for loan losses................ 100,914 29,580
Amortization (accretion) of discounts
and Premium............................ 2,388 (16,227)
Other real estate gains/net.............. (20,606) -0-
Investment securities gains/net.......... -0- -0-
Loss on sale of subsidiary stock......... -0- 33,884
Re-appraisal - other real estate......... 12,500 -0-
(Decrease) increase in interest payable.. 106,278 57,696
(Increase) decrease in interest
receivable............................ 23,563 (1,709)
(Increase) decrease in other assets...... 682,932 190,213
Increase (decrease) in other liabilities. (360,297) (251,421)
----------- ------------
Total adjustments................................ 593,860 96,276
----------- ------------
Net cash provided by (used in) operating
activities..................................... 826,223 298,188
----------- ------------
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................................. -0- -0-
Purchase of investment securities............ -0- (10,014,063)
Loans made to customers net cash activity.... (1,200,052) (2,492,721)
Capital expenditure.......................... (23,523) (29,040)
Proceeds from sale of other real estate...... 23,007 -0-
----------- ------------
Net cash provided by (used in) investing
activities..................................... (1,200,568) (12,525,824)
----------- ------------
Cash flows from financing activities
Net increase (decrease) in demand deposits,
NOW account, savings accounts and
certificates of deposit.................... 3,518,191 362,637
Purchase of treasury stock....................... -0- -0-
----------- ------------
Net cash provided by (used in) financing......... 3,518,191 362,637
----------- ------------
Net increase (decrease) in cash and cash
equivalents.................................... 3,143,846 (11,864,999)
----------- ------------
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 March 31, 1996
Cash and due from banks...................... 2,792,426 2,722,762
Federal funds sold........................... 30,750,000 18,425,000
----------- ------------
Cash and cash equivalents at March 31, 1996...... $33,542,426 $ 21,147,762
----------- ------------
----------- ------------
Supplemental disclosures of cash flow information:
Cash paid for interest....................... 911,180 1,014,664
Cash paid for income tax..................... -0- -0-
The accompanying note is an integral part of these financial statements.
(3)
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1997
Note 1 -- BASIS OF PREPARATION AND PRESENTATION
The consolidated financial statements included herein have been prepared by
The Republic Corporation, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission and include all adjustments which are,
in the opinion of management, necessary for a fair presentation. The condensed
consolidated financial statements include the accounts of the company and its
subsidiaries. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Republic Corporation believes that the disclosures are
adequate to make the information presented not misleading; however, it is
suggested that these financial statements be read in conjunction with the
financial statements and the notes thereto which are on Form 10-K for the fiscal
year ended December 31, 1996. The financial data for the interim periods may
not necessarily be indicative of results to be expected for the year.
Securities that will be held for indefinite periods of time, including
securities that will be used as part of the Company's asset/liability management
strategy and that may be sold in response to changes in interest rates,
prepayments, and similar factors, are classified as Available-for-Sale and
accounted for at fair value.
(4)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
ASSET QUALITY
The level of loans placed on nonaccrual remains high, primarily because of
the bank's concerns regarding a small number of larger credits which are
presently current on payments but which exhibit weaknesses related to prior
delinquencies or poor financial outlook. Restructured loans continue at a high
level due to the reduction of interest rates on a significant grouping of
livestock loans to below-market levels so as to provide assistance to those most
severely impacted by recent drought conditions.
TABLE 1 PROBLEM ASSETS
(dollars in thousand) MARCH 31 DECEMBER 31
-------- ------------------------
1997 1996 1995 1994
Nonaccrual loans $ 772 $ 759 $ 183 $ 217
Past-due loans (over 90 days) -0- -0- -0- -0-
Restructured loans 2,061 2,148 593 668
------ ------ ----- -----
Total problem loans $2,833 $2,907 $ 776 $ 885
Foreclosed assets
Real estate 190 300 -0- -0-
In-substance foreclosures -0- -0- -0- -0-
Other 12 34 -0- -0-
------ ------ ----- -----
Total Problem Assets $3,035 $3,241 $ 776 $ 885
Total problem loans as
a percentage of total loans 3.9% 4.1% 1.2% 1.8%
Total problem assets as a
percentage of total loans
and foreclosed assets 4.2% 4.5% 1.2% 1.8%
TABLE 2 LOAN CONCENTRATIONS
(dollars in thousands) MARCH 31 DECEMBER 31
--------- -----------
1997 1996 1995
Commercial $ 5,842 $ 5,716 $ 4,892
Agricultural 3,694 3,787 3,676
Real Estate-Construction 2,314 3,087 1,584
Real Estate-Mortgage 52,679 50,228 44,594
Installment loans to Individuals 8,341 8,775 8,679
------- ------- -------
Totals $72,870 $71,593 $63,425
(5)
<PAGE>
SOURCES AND USES OF FUNDS
The bank experienced deposit growth of $3,518,191 in the first quarter of
1997. This contrasts sharply with the $362,637 growth in the same period last
year. Loan growth of $1,200,052 was approximately half the level experienced in
the 1996 period and, unlike the year ago period, no securities were purchased.
An increase of $3,143,846 in cash and cash equivalents represents the largest
use of funds in the current period. (Please see Statement of Cash Flows, P-3)
LIQUIDITY
Liquid assets, consisting of cash and due from banks, federal funds sold
and U.S. Treasury Notes, stood at approximately 40% of liabilities at March 31,
1997. This is up slightly from the 39% level which prevailed at the end of
1996. Liquidation of these assets is the primary means the bank has of
accommodating withdrawal or loan requests. (Please see Balance Sheet, P-1)
INTEREST RATE SENSITIVITY MANAGEMENT
The bank is presently structured to be largely unaffected by the worst
scenarios regarding the recent Federal Reserve monetary tightening. The large
concentration of federal funds sold and short-term securities enables the bank
to effectively reprice its assets in response to increasing funding costs
without unduly burdening those borrowers whose loans reprice in the same time
frame. (Please see Table 3, P-7 and Table 4, P-8)
(6)
<PAGE>
INTEREST RATE SENSITIVITY MANAGEMENT
Table 3 - REPRICING SCHEDULE
3-31-97
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 * 13,120 51,551 7,305 118
Federal Funds Sold 30,750 -0- -0- -0-
Taxable Securities ** -0- 10,004 -0- -0-
Municipal Bonds -0- -0- -0- -0-
TOTAL 43,870 61,555 7,305 118
RATE SENSITIVE LIABILITIES
(Liabilities that can be
repriced within X days)
Time Certificates of Deposit 19,735 27,216 5,796 -0-
NOW Accounts 1,785 -0- -0- -0-
Super NOW Accounts 20,131 -0- -0- -0-
Savings Accounts 9,834 -0- -0- -0-
MMDA Accounts 7,193 -0- -0- -0-
TOTAL 58,678 27,216 5,796 -0-
Interest Rate Sensitivity Gap (14,808) 34,339 1,509 118
Cumulative Interest Rate
Sensitivity Gap (14,808) 19,531 21,040 21,158
* Does not include $772,000 in nonaccruing loans or overdrawn demand
deposits of $4,000
** 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>
MARCH 31, 1997
(1) Held-to-Maturity:
U.S. Treasury Securities 10,003,980 -- 16,480 9,987,500
Other -- -- -- --
(2) Available-for-Sale Securities
Carried at Fair Value:
U.S. Treasury Securities -- -- -- --
Other 24,000 -- 24,000
---------- ------ ------ ----------
10,027,980 -- 16,480 10,011,500
---------- ------ ------ ----------
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:
The significant growth in low risk federal funds sold, coupled with modest
loan growth, caused both risk based capital ratios to increase during the
quarter. (Please see Table 5, P-9 and Balance Sheet, P-1)
TABLE 5 - CAPITAL
*MARCH 31 DECEMBER
1997 1996
--------- --------
Tier 1 risk-based capital
(minimum is 4%) 15.14% 14.79%
Tier 1 + Tier 2 risk based capital
(minimum is 8%) 16.39% 16.05%
Tier 1 leverage (minimum is 3%) 8.37% 8.37%
*ESTIMATE
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income for the first quarter of 1997 was improved over that of
the year ago period, primarily as a result of increased interest on loans as a
result of loan growth coupled with stable deposit interest expense. (Please see
Statement of Income, P-2)
OTHER INCOME AND EXPENSE
The provision for loan losses was higher than in the year ago period due to
downgraded classifications on two, larger commercial credits.
A non-recurring gain of $20,606 was taken in the first quarter of 1997 as a
result of the sale of one foreclosed, residential property. (Please see
Statement of Income, P-2)
(9)
<PAGE>
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
not applicable
Item 2. CHANGES IN SECURITIES
not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
not applicable
Item 5. OTHER INFORMATION
not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Exhibits
none
b). No reports on Form 8-K have been filed during the quarter for
which this report was filed.
(10)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE REPUBLIC CORPORATION
Date: April 25, 1997 /s/ J. ED EISEMANN, IV
---------------------------------------
Chairman of the Board
Date: April 25, 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 MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,792,426
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 30,750,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,000
<INVESTMENTS-CARRYING> 10,003,980
<INVESTMENTS-MARKET> 9,987,500
<LOANS> 72,870,214
<ALLOWANCE> 1,047,000
<TOTAL-ASSETS> 118,459,495
<DEPOSITS> 106,916,204
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,134,027
<LONG-TERM> 0
0
0
<COMMON> 356,844
<OTHER-SE> 9,830,177
<TOTAL-LIABILITIES-AND-EQUITY> 118,459,495
<INTEREST-LOAN> 1,597,147
<INTEREST-INVEST> 136,649
<INTEREST-OTHER> 379,676
<INTEREST-TOTAL> 2,113,472
<INTEREST-DEPOSIT> 1,017,458
<INTEREST-EXPENSE> 1,017,458
<INTEREST-INCOME-NET> 1,096,014
<LOAN-LOSSES> 100,914
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 709,424
<INCOME-PRETAX> 421,780
<INCOME-PRE-EXTRAORDINARY> 421,780
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 232,363
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
<YIELD-ACTUAL> .074
<LOANS-NON> 772,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 2,061,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 964,000
<CHARGE-OFFS> 27,000
<RECOVERIES> 9,000
<ALLOWANCE-CLOSE> 1,047,000
<ALLOWANCE-DOMESTIC> 328,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 719,000
</TABLE>
