<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, 1997
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, 1998
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, 1997
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
REPUBLIC CORPORATION
FORM 10-K
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
IMPORTANT TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART I
ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . 1-13
ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 3. LEGAL PROCEEDINGS.. . . . . . . . . . . . . . . . . . . . . 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITIES HOLDERS . . . . . . . . . . . . . . . . . . . 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . 13
ITEM 6. SELECTED FINANCIAL DATA.. . . . . . . . . . . . . . . . . . 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.. . . . . . . 15-19
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
</TABLE>
<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
<PAGE>
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 53 full time equivalent employees on December 31, 1997.
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
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Average Interest Yield/
(Dollars in Thousands) Balance Rev./Exp. Rate
<S> <C> <C> <C>
ASSETS
Investment securities:
Taxable. . . . . . . . . . . . . $20,588 $ 1,112 5.4%
Tax exempt . . . . . . . . . . . - - -
Loans . . . . . . . . . . . . . . . . 75,870 6,796 8.9%
Less: Reserve for loan loss. . . (1,049)
Funds sold. . . . . . . . . . . . . . 20,917 1,130 5.4%
------- ------ -----
Total Earnings Assets. . . . . . 116,326 9,038 7.8%
------- ------ -----
Cash and due from banks. . . . . . . 2,250
Other assets . . . . . . . . . . . . 3,462
--------
TOTAL ASSETS. . . . . . . . . . $122,038
--------
--------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand deposits . . $31,498 $1,105 3.5%
Savings deposits . . . . . . . . . . 9,381 259 2.8%
Time deposit . . . . . . . . . . . . 54,614 3,087 5.7%
------- ------ -----
TOTAL INTEREST BEARING
LIABILITIES. . . . . . . . . . . 95,493 4,451 4.7%
------- ------ -----
NET INTEREST REVENUE . . . . . . . . . . . $4,587 3.1%
------
------
NET INTEREST REVENUE TO EARNING ASSETS . . 3.9%
Demand deposits (non-interest
bearing) . . . . . . . . . . . . $14,315
Other liabilities. . . . . . . . . . 1,409
Stockholders' Equity . . . . . . . . 10,821
--------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . . . $122,038
--------
--------
</TABLE>
4
<PAGE>
TABLE #2
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Average Interest Yield/
(Dollars in Thousands) Balance Rev./Exp. Rate
<S> <C> <C> <C>
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 12,907 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
--------
--------
</TABLE>
5
<PAGE>
TABLE #3
<TABLE>
<CAPTION>
Year Ended December 31, 1995 Average Interest Yield/
(Dollars in Thousands) Balance Rev./Exp. Rate
<S> <C> <C> <C>
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
--------
--------
</TABLE>
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
<TABLE>
<CAPTION>
1997 vs 1996 1996 vs 1995
-------------------------------------- -------------------------------------
Yield/ Yield/
Volume Rate Total Volume Rate Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
interest income on:
Loans . . . . . . . . . . . . $ 680 $ (68) $ 612 $1,064 $ 114 $1,178
Investment securities . . . . 589 (130) 459 62 75 137
Federal funds sold. . . . . . (381) 28 (353) (500) (143) (643)
---- ----- ----- ----- ----- -----
888 (170) 718 626 46 672
---- ----- ----- ----- ----- -----
Increase (decrease) in
interest expense on:
Demand deposits . . . . . . . 72 29 101 51 (84) (33)
Savings . . . . . . . . . . . (9) - (9) 3 9 12
Time deposits . . . . . . . . 235 - 235 26 (49) (23)
---- ----- ----- ----- ----- -----
298 29 327 80 (124) (44)
---- ----- ----- ----- ----- -----
Net interest income . . . . . 590 (199) 391 546 170 716
---- ----- ----- ----- ----- -----
---- ----- ----- ----- ----- -----
</TABLE>
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>
TABLE #4 (CONT.)
<TABLE>
<CAPTION>
1995 vs 1994
--------------------------------------
Yield/
Volume Rate Total
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in
interest income on: 1,203 $ 43 $1,246
Loans. . . . . . . . . . . 105 114 219
Investment securities. . . 219 518 737
------ ----- ------
Federal funds sold . . . . 1,527 675 2,202
------ ----- ------
Increase (decrease) in
interest expense on: 27 134 161
Demand deposits. . . . . . - - -
Savings. . . . . . . . . . 1,030 504 1,534
------ ----- ------
Time deposits. . . . . . . 1,057 638 1,695
------ ----- ------
Net interest income. . . . 470 37 507
------ ----- ------
------ ----- ------
</TABLE>
8
<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
<TABLE>
<CAPTION>
December 31
(Dollars in thousands) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Securities. . . . . . . . . . . . $12,036 $10,006 $ 9,978
Government Sponsored Agencies . . . . . . . . . 15,952 - -
Other bonds, notes and securities . . . . . . . 24 24 24
------- ------- -------
TOTAL $28,012 $10,030 $10,002
------- ------- -------
------- ------- -------
</TABLE>
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
<TABLE>
<CAPTION>
Government Federal
U.S. Treasury Sponsored Reserve Bank
Securities Agencies Stock
-------------- ------------- ---------------
Amount/yield Amount/yield Amount/yield
-------------- ------------- ---------------
<S> <C> <C> <C>
Within one year. . . . . . . $12,036 5.6% $15,952 5.4% $ - -%
After one year
through five years. . . - -% - -% - -%
After five years
through ten years . . . - -% - -% - -%
After ten years. . . . . . . - -% - -% 24 7.5%
------- ---- ------- ---- ---- ----
TOTAL $12,036 5.6% 15,952 5.4% 24 7.5%
------- ---- ------- ---- ---- ----
------- ---- ------- ---- ---- ----
</TABLE>
III. LOAN PORTFOLIO
Domestic loans by category are listed below (dollars in thousands):
TABLE #7
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Commercial. . . . . . . . . . . . . . . $ 5,762 $ 5,716
Agricultural. . . . . . . . . . . . . . 3,459 3,787
Real Estate - Construction. . . . . . . 1,960 3,087
Real Estate - Mortgage. . . . . . . . . 59,562 50,228
Installment loans to individuals. . . . 8,865 8,775
------- -------
TOTAL $79,608 $71,593
------- -------
------- -------
</TABLE>
There were no foreign loans at December 31, 1997 or December 31, 1996.
9
<PAGE>
Commercial, agricultural and real estate - construction loans at December
31, 1997 are presented by maturity as follows (dollars in thousands):
TABLE #8
<TABLE>
<CAPTION>
Due After
Due in One One Year Due After
Year or Less Through Five Years Five Years
------------ ------------------ -----------
<S> <C> <C> <C>
Commercial:
Fixed rates. . . . . . . 4,611 - -
Adjustable rates . . . . 1,151 - -
Agricultural:
Fixed rates. . . . . . . 2,365 - -
Adjustable rates . . . . - 617 477
Real Estate - Construction:
Fixed rates. . . . . . . 1,185 - -
Adjustable rates . . . . 775 - -
</TABLE>
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
<TABLE>
<CAPTION>
December 31 (Dollars in thousands) 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
Non-accrual loans. . . . . . . . . . . . . . . . . . . . . . $ 809 $ 759
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 . . . . . . . . . . . . . . . . 2,465 2,148
</TABLE>
Foregone interest on restructured loans in 1997 was 15 thousand on
recognized income of 141 thousand. 1996 interest included was 137 thousand with
foregone interest of 19 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.
10
<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, 1997 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
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Balance - Beginning of year. . . . . . . . . . . . . . $ 964 $ 868
------- -------
Charge-offs:
Commercial. . . . . . . . . . . . . . . . . . . . 15 48
Agricultural. . . . . . . . . . . . . . . . . . . - 25
Real Estate - Construction. . . . . . . . . . . . - 76
Real Estate - Mortgage. . . . . . . . . . . . . . 33 68
Installment loans to individuals. . . . . . . . . 132 106
------- -------
$ 180 $ 323
------- -------
Recoveries:
Commercial. . . . . . . . . . . . . . . . . . . . $ 14 $ 4
Agricultural. . . . . . . . . . . . . . . . . . . - -
Real Estate - Construction. . . . . . . . . . . . - 10
Real Estate - Mortgage. . . . . . . . . . . . . . 8 -
Installment loans to individuals. . . . . . . . . 34 12
------- -------
$ 56 $ 26
------- -------
Net Charge-offs (recoveries) . . . . . . . . . . . . . $ 124 $ 297
------- -------
Provision - Charged to operations. . . . . . . . . . . $ 230 $ 393
------- -------
Balance - End of Year. . . . . . . . . . . . . . . . . $ 1,070 $ 964
------- -------
------- -------
Average loan balance outstanding . . . . . . . . . . . $75,870 $68,841
------- -------
------- -------
Percentage of net charge offs to
average loans outstanding. . . . . . . . . . . . . . . .2% .4%
------- -------
------- -------
</TABLE>
The provision for 1997 decreased from that of 1996. This was mainly due to
a reduction in charge offs and a small increase in problem loans over the prior
year.
In 1996, provision was made based on higher charge offs and an increase in
problem loans in relation to the previous period.
11
<PAGE>
The allocation of the allowance is as follows (dollars in thousands):
TABLE #11
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------------------ ------------------------
Percent of Loans Percent of Loans
in Each Category in Each Category
Amount to Total Loans Amount to Total Loans
------ ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Commercial. . . . . . . $ 6 7.2% $ 15 8.0%
Agricultural. . . . . . 28 4.3% 93 5.3%
Real Estate-
Construction. . . . - 2.5% 4 4.3%
Real Estate-Mortgage. . 84 74.8% 34 70.2%
Installment Loans . . . 60 11.2% 88 12.2%
Unallocated . . . . . . 892 N/A 730 N/A
------ ------ ----- -----
$1,070 100% $964 100%
------ ------ ----- -----
------ ------ ----- -----
</TABLE>
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 $120,000.00 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, 1997, there existed outstanding time certificates of
deposit in amounts of $100,000 or more of $14,057,867. The deposits by time
remaining until maturity were (dollars in thousands):
TABLE #12
<TABLE>
<S> <C>
3 months or less $6,594
Over 3 through 6 months 4,370
Over 6 through 12 months 2,676
Over 12 months 418
------
14,058
------
------
</TABLE>
As required by the Monetary Control Act of 1980, the reserve balance held
against deposits at December 31, 1997 was $976,000.
12
<PAGE>
TABLE #13
<TABLE>
<CAPTION>
For the year ended December 31 1997 1996 1995
- ------------------------------ ---- ---- ----
<S> <C> <C> <C>
Return on Assets (Net income divided by
average total assets) . . . . . . . . . . . . . . .9% .8% .9%
Return on Equity (Net income divided by
average equity) . . . . . . . . . . . . . . . . . 10.5% 9.1% 9.2%
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). . . . . . . . . 8.9% 8.3% 8.3%
</TABLE>
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 1997 or 1996 and management has no
intention to declare dividends in the immediate future.
13
<PAGE>
ITEM 6. Selected financial data:
The following table presents certain key financial information.
TABLE #14
<TABLE>
<CAPTION>
Selected Financial Data
Year Ended December 31
(Dollars in thousands) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income . . . . . . . . . . . 9,038 $8,320 $7,648 $5,445 $4,347
Interest expense. . . . . . . . . . . 4,452 4,124 4,168 2,473 1,808
------ ------ ------ ------ ------
Net interest income. . . . . . . 4,586 4,196 3,480 2,972 2,539
Provision for Loan Losses . . . . . . 230 393 - - 115
------ ------ ------ ------ ------
Net interest income after
Provision for loan losses . 4,356 3,803 3,480 2,972 2,424
Non-interest income . . . . . . . . . 623 473 389 357 325
Securities gains. . . . . . . . . . . - - - - 192
Non-interest expense:
Personnel expenses . . . . . . . 1,532 1,391 1,266 1,137 1,000
Other expenses . . . . . . . . . 1,587 1,510 1,388 1,329 1,289
------ ------ ------ ------ ------
Income before income taxes. . . . . . 1,860 1,375 1,215 863 654
Applicable income taxes . . . . . . . 699 514 378 284 230
------ ------ ------ ------ ------
Income before reduction for minority
interest or security gains or
losses . . . . . . . . . . . . . 1,161 861 837 579 424
Less minority interest. . . . . . . . 27 20 20 14 9
------ ------ ------ ------ ------
Net Income. . . . . . . . . . . . . . $1,134 $ 841 $ 817 $ 565 $ 415
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Net income per common share (2). . . $ 3.40 $ 2.52 $ 2.44 $ 1.69 $ 1.24
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Dividends declared per common share(2) $ 0 $ 0 $ 0 $ 0 $ 0
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
(2) Net income per common share and dividends declared per common share are
in actual dollars, not thousands.
<TABLE>
<CAPTION>
Selected Year End Balances:
(Dollars in thousands) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans. . . . . . . . . . . . . . . . 79,608 71,593 63,425 49,138 36,482
Total assets . . . . . . . . . . . . 125,190 114,963 109,018 97,616 75,648
Long-term debt . . . . . . . . . . . -0- -0- -0- -0- -0-
</TABLE>
14
<PAGE>
ITEM 7. Management's discussion and analysis of financial condition and
results of operations:
FINANCIAL CONDITION
ASSET QUALITY
TABLE #15
<TABLE>
<CAPTION>
December 31 (dollars in thousands) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans. . . . . . . . . . . . . . 809 759 183 217 313
Past-due loans* . . . . . . . . . . . . . . - - - - -
Restructured loans. . . . . . . . . . . . . 2,465 2,148 593 668 546
----- ----- --- --- ---
Total problem loans. . . . . . . . . . 3,274 2,907 776 885 859
Foreclosed Assets
Real estate . . . . . . . . . . . . . 9 300 - - -
In-substance foreclosures . . . . . . - - - - -
Other . . . . . . . . . . . . . . . . 5 34 - - -
----- ----- --- --- ---
Total problem assets . . . . . . 3,288 3,241 776 885 859
Total problem loans as a
percentage of total loans . . . . . . 4.1% 4.1% 1.2% 1.8% 2.4%
Total problem assets as a percentage of
total loans and foreclosed assets . . 4.1% 4.5% 1.2% 1.8% 2.4%
Reserve coverage ratio **. . . . . . . . . 32.7% 33.2% 112.0% 104.6% 111.3%
</TABLE>
* 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
15
<PAGE>
TABLE #16
INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
December 31, 1997 (dollars in thousands)
- ---------------------------------------------------------------------------------------------------------
3 Mo 3-12 1-5 Over
Or Less Months Years 5 Years
------- ------ ----- -------
<S> <C> <C> <C> <C>
Rate Sensitive Assets
(Assets that can be repriced
within x months/years)
Loans *. . . . . . . . . . . . . . . . . 19,251 31,763 27,426 335
Federal Funds Sold . . . . . . . . . . . 11,150 -0- -0- -0-
Taxable Securities** . . . . . . . . . . 15,952 12,036 -0- -0-
Municipal Bonds. . . . . . . . . . . . . -0- -0- -0- -0-
TOTAL. . . . . . . . . . . . . . . . 46,353 43,799 27,426 335
Rate Sensitive Liabilities
(Liabilities that can be
repriced within x months/years)
Time Certificates of Deposit . . . . . . 21,650 30,721 3,132 -0-
NOW Accounts . . . . . . . . . . . . . . 2,000 -0- -0- -0-
Super NOW Accounts . . . . . . . . . . . 19,245 -0- -0- -0-
Savings Accounts . . . . . . . . . . . . 9,409 -0- -0- -0-
MMDA Accounts. . . . . . . . . . . . . . 8,857 -0- -0- -0-
TOTAL. . . . . . . . . . . . . . . . 61,161 30,721 3,132 -0-
Interest Rate Sensitivity Gap. . . . . . (14,808) 13,078 24,294 335
Cumulative Interest Rate
Sensitivity Gap. . . . . . . . . . . (14,808) (1,730) 22,564 22,899
</TABLE>
* Does not include $809 thousand in nonaccruing loans and $24 thousand in
overdrafts.
** Does not include $24 thousand in Federal Reserve Bank Stock.
16
<PAGE>
INVESTMENT SECURITIES
TABLE #17
AND FOOTNOTES 1-2
<TABLE>
<CAPTION>
Carrying Unrealized Unrealized Market
Value Gains Losses Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
(1) Held-to-Maturity:
U.S. Treasury Securities 12,036,450 - 2,700 12,033,750
Other 15,951,840 - 284 15,951,556
(2) Available-for-Sale Securities
Carried at Fair Value:
U.S. Treasury Securities - - - -
Other 24,000 - - 24,000
---------- ------- ------ ----------
28,012,290 - 2,984 28,009,306
---------- ------- ------ ----------
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
---------- ------- ------ ----------
</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.
(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.
17
<PAGE>
Approximately one third of loan balances on nonaccrual status at year end,
1997 represented borrowings secured by single-family homes which were either in
foreclosure or close to foreclosure status. Current elevated housing demand in
the bank's market area should provide the bank with an excellent opportunity to
avoid loss on the liquidation of those properties which the bank acquires
through foreclosure. (Please see Table #15, P-15)
Although the drought conditions experienced in 1996 have abated and
livestock prices have come back from the recent lows, area stockgrowers are
still struggling to pay down their loan balances and, most recently, have faced
a setback in the form of elevated feed costs and other complications arising
from blizzard conditions experienced during the fourth quarter of 1997. Until a
string of years with more favorable weather and market prices can be
experienced, area cattlegrowers will continue to account for a substantial
portion of the bank's restructured loan grouping. (Please see Table #15, P-15)
Installment loan charge off activity over the past three years has been
high and is partially a reflection of the national trend regarding consumer debt
recognition. Until this trend, as well as local job creation, improves, the
bank is continuing a monthly loan loss provision. (Please see Table #10, P-11)
Economic activity in the bank's market area is on the upswing and appears
to be healthy for at least the next two years. Huerfano County is currently
feeling the benefits of a recently opened private correctional facility near
Walsenburg and a recently re-opened ski area at Cuchara. Las Animas County will
experience the positive effects of construction activity during 1998 at the
State mega-prison site, east of Trinidad, and at the Wal-Mart Supercenter, south
of Trinidad. When these projects are complete, employment levels will certainly
improve and compliment the recent gains in employment in the light
manufacturing, small retail and tourism sectors.
Loans secured by real estate of all types represented 77% of total loans on
December 31, 1997. All of the property serving as collateral for these loans
lies within Las Animas, Huerfano or adjacent counties, with 63% consisting of
1-4 family homes, 27% commercial properties and 4% farm and ranch properties.
The bank does not buy or sell participation loans. (Please see Table #7, P-9)
SOURCES AND USES OF FUNDS
Deposit growth in 1997 was $8,559,380, approximately 167% of 1996 deposit
growth and approximately 85% of 1995 deposit growth. The continuing uptrend in
economic activity in the bank's market area, coupled with the influx of new
depositors, is the primary reason for the growth. This is being tempered, of
course, by the continuing growth in domestic stock prices and the proclivity of
a segment of the bank's deposit customers to invest in equities. This deposit
growth, coupled with $1,351,092 provided by operating activities, was deployed
into growth of $8,011,488 in outstanding loans, approximately $2,000,000 in U.S.
TREASURY SECURITIES holdings and $392,333 in capital expenditures. The
$15,781,278 reduction in cash and cash equivalents was caused by the
re-deployment of approximately $16,000,000 from Federal Funds Sold into a
Federal Home Loan Bank Discount note, maturing within 20 days. (Please see
STATEMENT OF CASH FLOWS, P-24, BALANCE SHEET, P-22 and TABLE #17, P-17)
LIQUIDITY
Average 1997 holdings of cash and due from banks, readily marketable
securities and Federal Funds Sold totaled approximately 39% of average
liabilities. This was down from approximately 40% in 1996 and 49% in 1995.
(Please see TABLES 1-3, P-4-6)
18
<PAGE>
Current securities holdings include one $12,000,000 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. Additionally, a $16,000,000 par
value, FEDERAL HOME LOAN BANK DISCOUNT NOTE, which matures within 20 days, has
been acquired. At the time of this writing, the bank intends to replace both of
these securities with similar instruments when they mature. (Please see TABLE
#17, P-17 and NOTE 2, p-29-30)
CAPITAL
Tier 1 and total risk based capital ratios ended 1997 at an estimated
15.49% and 16.75%, respectively, compared with 14.79% and 16.05% in 1996 and
14.67% and 15.92% in 1995. Factors accounting for the increase over these
periods include earnings retention in excess of risk weighted asset growth on a
percentage basis and predominant loan growth in low risk categories. The
leverage ratio stood at an estimated 8.66% at year end, 1997, compared with
8.37% in 1996 and 8.07% in 1995.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income continued to improve on a dollar basis in 1997, but at
a slower pace than what was experienced in the previous year. The change was
slightly negative when expressed on a percentage basis. Net interest revenue as
a percentage of average earning assets fell to 3.9% in 1997, compared with 4% in
1996. The growth in volume driven interest income outstripped volume driven
increases in interest expense, but was tempered by flat to slightly declining
interest rates on loans and investment securities. (Please see TABLE #14, P-14,
TABLES 1 and 2, p-4-5 and TABLE #4, P-7)
OTHER INCOME AND EXPENSE
With the exception of equipment expense, depreciation expense and
advertising expense, all operating expense categories grew and were only
partially offset by a $150,254 increase in non-interest income. Growth factors
played the major role in the increases with the exception of the $72,465 gain
realized on the sale of foreclosed real estate in 1997. (Please see TABLE #14,
P-14 and STATEMENT OF INCOME, P-23)
Because of the possibility that computer programs and other systems in
use by the bank or its service providers use only two digits to identify a year
in the date field, there exists the potential for error in financial
calculations or outright failure of these systems by or at the year 2000. The
bank has made contact with and has received replies from all vendors and service
providers in order to determine the year 2000 survivability of their respective
systems. Additionally, all systems described as being compliant have or will
undergo simulation testing during 1998 to confirm survivability. Mission
critical applications will be the first to undergo testing. Also, those systems
which are identified, either by the vendor or service provider or through
testing, as non-compliant are scheduled for replacement during 1998. The cost
to remediate the year 2000 issue is not, at the time of this writing, expected
to be material to the bank's business, operations or financial condition and is
not expected to have a material, adverse impact on the bank's results of
operations, liquidity or capital resources.
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.
<TABLE>
<CAPTION>
Index to Financial Statements of
The Republic Corporation and Subsidiary PAGE
<S> <C>
Accountant's Report. . . . . . . . . . . . . . . . . . . . 21
Balance Sheets as of December 31, 1997 and 1996. . . . . . 22
Statement of Income for the three years ended
December 31, 1997 . . . . . . . . . . . . . . . . . . 23
Statement of Cash Flows for the three years ended
December 31, 1997 . . . . . . . . . . . . . . . . . . 24-25
Statement of Changes in Stockholders' Equity
for the three years ended December 31, 1997 . . . . . 26
Notes to Financial Statements. . . . . . . . . . . . . . . 27-40
</TABLE>
20
<PAGE>
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of its operations and its cash
flows, for each of the three years in the period ending December 31, 1997, in
conformity with generally accepted accounting principles.
/S/ Dixon, Waller & Co., Inc.
Trinidad, Colorado
February 6, 1998
21
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Balance Sheet
<TABLE>
<CAPTION>
December 31 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks (demand.) . . . . . . . . 3,467,302 $3,273,580
Investment securities:
Held to maturity
Market value at 12-31-97 - 27,985,306
Market value at 12-31-96 - 9,984,375 27,988,290 10,006,368
Available for Sale . . . . . . . . . . . . . 24,000 24,000
----------- -----------
31,479,592 13,303,948
----------- -----------
Loans . . . . . . . . . . . . . . . . . . . . . . 79,608,471 71,592,533
Plus: Uncollected earned interest . . . . . 653,441 629,677
Less: Allowance or losses . . . . . . . . . (1,070,000) (964,057)
----------- -----------
NET LOANS AND OTHER RECEIVABLES . . . . 79,191,912 71,258,153
----------- -----------
Federal funds sold. . . . . . . . . . . . . . . . 11,150,000 27,125,000
Property, equipment and vehicles (Net). . . . . . 1,842,555 1,651,386
Other real estate . . . . . . . . . . . . . . . . 9,000 300,025
Goodwill. . . . . . . . . . . . . . . . . . . . . 436,079 436,079
Other assets. . . . . . . . . . . . . . . . . . . 1,080,644 888,369
----------- -----------
Total Assets . . . . . . . . . . . . . . . . $125,189,782 $114,962,960
------------ ------------
------------ ------------
Liabilities and Stockholders' Equity
Deposits (Domestic):
Demand (noninterest bearing) . . . . . . . . $14,999,271 $ 12,464,933
Savings, time and demand (interest bearing) 96,958,122 90,933,080
----------- -----------
111,957,393 103,398,013
----------- -----------
Accounts payable and accrued interest payable. . 1,153,610 834,013
Accrued taxes payable. . . . . . . . . . . . . . 747,184 559,450
----------- -----------
Total liabilities. . . . . . . . . . . . . . 113,858,187 104,791,476
----------- -----------
Minority Interest in Consolidated Subsidiary. . . 242,912 216,826
----------- -----------
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 12/31/97, 23,119 shares at 12/31/96) (91,303) (91,303)
----------- -----------
Total contributed capital . . . . . 500,472 500,472
----------- -----------
Retained earnings . . . . . . . . . . . . . . . . 10,588,211 9,454,186
----------- -----------
Stockholders' equity . . . . . . . . . . . . 11,088,683 9,954,658
----------- -----------
Total liabilities and
stockholders' equity. . . . . . . . $125,189,782 $114,962,960
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Statement of Income
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans. . . . . $6,796,396 $6,184,010 $5,005,568
Interest on federal funds sold. . . 1,129,794 1,483,240 2,126,113
Interest and dividends on
investments:
Securities of U.S. Treasury and
government sponsored agencies . 1,112,064 652,786 516,366
Obligations of states, political
subdivisions and other obli-
gations secured by the
government. . . . . . . . . . . - - 125
---------- ----------- ----------
Total interest on investments . 1,112,064 652,786 516,491
---------- ----------- ----------
Total interest income . . . . . 9,038,227 8,320,036 7,648,172
---------- ----------- ----------
Interest expense:
Interest on deposits . . . . . . . . 4,452,159 4,124,629 4,168,021
---------- ----------- ----------
Total interest expense. . . . . 4,452,159 4,124,629 4,168,021
---------- ----------- ----------
Net interest income . . . . . . 4,586,068 4,195,407 3,480,151
Provision for loan losses . . . . . . . . 230,059 392,703 -
---------- ----------- ----------
Net interest income after
provision for loan losses . . . 4,356,009 3,802,704 3,480,151
Other income:
Service charges on deposit accounts 202,137 185,218 157,384
Other service charges,
commissions and fees. . . . . . 241,081 191,527 162,998
Gain on sale of securities . . . . . - - -
Gain on Sale - Other Real Estate . . 72,465 - -
Other income . . . . . . . . . . . . 107,609 96,293 68,375
---------- ----------- ----------
Total other income. . . . . . . 623,292 473,038 388,757
---------- ----------- ----------
Other expenses:
Salaries and wages . . . . . . . . . 1,347,288 1,217,215 1,092,575
Employee benefits. . . . . . . . . . 184,852 173,827 173,784
Net occupancy expenses . . . . . . . 135,321 119,604 92,527
Equipment expense . . . . . . . . . 94,652 108,633 81,683
Depreciation other than
rental property . . . . . . . . 197,448 227,772 177,414
Operating Loss . . . . . . . . . . . - - -
Computer service center. . . . . . . 165,771 119,105 93,759
FDIC Assesment . . . . . . . . . . . 9,471 - 102,024
Professional services. . . . . . . . 132,906 121,272 88,200
Advertising. . . . . . . . . . . . . 102,234 102,069 111,998
Other operating expenses . . . . . . 748,933 711,316 639,879
---------- ----------- ----------
Total other expenses. . . . . . 3,118,876 2,900,813 2,653,843
---------- ----------- ----------
Income before income taxes. . . 1,860,425 1,374,929 1,215,065
---------- ----------- ----------
Less applicable income taxes (Current). . 699,414 513,814 378,289
---------- ----------- ----------
Income before reduction
for minority interest . . . . . 1,161,011 861,115 836,776
Less minority interest in income (26,986) (20,248) (19,667)
---------- ----------- ----------
Net income . . . . . . . . . . . . . 1,134,025 840,867 817,109
---------- ----------- ----------
---------- ----------- ----------
Earnings per share . . . . . . . . . $3.40 $2.52 $2.44
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
December 31 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows and operating activities:
Net income (loss). . . . . . . . . . . $ 1,134,025 $ 840,867 $ 817,109
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation. . . . . . . . . . . 201,164 233,578 183,216
Provision for loan losses . . . . 230,059 392,703 -
Amortization (accretion) of
discounts and premiums . . . (471,569) (14,464) (48,752)
Other real estate gains/net . . . (72,465) - (1,000)
Re-appraisal - other real estate 12,500 9,693 -
Gain on sale of securities. . . . - - -
(Decrease) increase in
interest payable . . . . . . 319,597 (174,135) 409,444
(Increase) Decrease in
interest receivable. . . . . (23,764) (91,959) (153,834)
(Increase) decrease in
other assets . . . . . . . . (192,275) (217,874) (178,374)
Increase (decrease) in
other liabilities. . . . . . 213,820 152,896 119,394
---------- ----------- ----------
Total adjustments . . . 217,067 290,438 330,094
---------- ----------- ----------
Net cash provided by (used in)
operating activities. . . . . . . . . 1,351,092 1,131,305 1,147,203
---------- ----------- ----------
Cash flows from investing activities:
Proceeds from sales of investment
securities. . . . . . . . . . . . - 5,000 -
Proceeds from maturities of
investment securities . . . . . . 61,000,000 10,005,000 7,005,000
Purchase of investment securities. . . (78,510,353) (10,024,063) (9,932,031)
Loans made to customers-net
cash activity . . . . . . . . . . (8,011,488) (8,785,526) (14,344,477)
Capital expenditures . . . . . . . . . (392,333) (83,150) (443,971)
Proceeds from sale
of other real estate. . . . . . . 222,424 12,000 -
---------- ----------- ----------
Net cash provided by
(used in) investing activities . . . . (25,691,750) (8,870,739) (17,714,479)
----------- ----------- -----------
Cash flows from financing activities:
Net increase in demand deposits, NOW
accounts, savings accounts and
certificates of deposit . . . . . . . 8,559,380 5,125,253 10,056,464
Purchase of treasury stock. . . . . . - - -
Net cash provided by
---------- ----------- ----------
(used in) financing activities. . . . 8,559,380 5,125,253 10,056,464
---------- ----------- ----------
Net increase (decrease) in cash
and cash equivalents. . . . . . . . . (15,781,278) (2,614,181) (6,510,812)
</TABLE>
(Continued)
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
December 31 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents
at beginning 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 beginning of year . . . . . 30,398,580 33,012,761 39,523,573
---------- ---------- ----------
Cash and cash equivalents
at end of year:
Cash and due from banks. . . . 3,467,302 3,273,580 2,362,761
Federal funds sold . . . . . . 11,150,000 27,125,000 30,650,000
---------- ---------- ----------
Cash and cash equivalents
at end of year . . . . . . . . 14,617,302 30,398,580 33,012,761
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosures of
cash flow information
Cash paid for interest . . . . 4,132,562 4,298,764 3,758,577
---------- ---------- ----------
---------- ---------- ----------
Cash paid for income tax . . . 678,814 468,289 403,718
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
For three Additional
years ended Capital Paid in Treasury Contributed Retained Total
December 31, Stock Capital Stock Capital Earnings Equity
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
Net Income - - - - 1,134,025 1,134,025
Market value
adjustment-
Securities - - - - - -
Addition to
treasury
stock - - - - - -
-------- --------- -------- -------- ----------- ----------
Balance at
12-31-97 $356,844 $234,931 $(91,303) $500,472 $10,588,211 $11,088,683
-------- --------- -------- -------- ----------- -----------
-------- --------- -------- -------- ----------- -----------
</TABLE>
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>
<CAPTION>
December 31, 1997 December 31, 1996
---------------------------------------- ----------------------------------------
Principal Book Market Principal Book Market
Amount Value Value Amount Value Value
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Government
Securities 28,000,000 27,988,290 27,985,306 10,000,000 10,006,368 9,984,375
Obligations
of states
and polit-
ical sub-
divisions - - - - - -
Other 24,000 24,000 24,000 24,000 24,000 24,000
---------- ---------- ---------- ---------- ---------- ----------
---------- ----------
28,012,290 28,009,306 10,030,368 10,008,375
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</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 $11,534,931 at December
31, 1997 and $9,506,050 at December 31, 1996. Additionally, $501,519 was
pledged to the Federal Reserve Bank in order to secure treasury, tax and
loan remittances at December 31, 1997.
Net gains on the sale of securities were as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
GAINS
U.S. Government Securities - -
------- -------
LOSSES
U.S. Government Securities - -
------- -------
NET GAINS ON SALE OF SECURITIES - -
------- -------
------- -------
</TABLE>
Unrealized gains and losses in the securities portfolio were as follows:
<TABLE>
<CAPTION>
Carrying Unrealized Unrealized Market
Value Gain Loss Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
U.S. Treasury Securities 12,036,450 - 2,700 12,033,750
Government
Sponsored Agencies. 15,951,840 - 284 15,951,556
Other. . . . . . . . . . 24,000 - - 24,000
---------- ---------- ---------- ----------
28,012,290 - 2,984 28,009,306
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
DECEMBER 31, 1996
U.S. Treasury Securities 10,006,368 - - 9,984,375
Obligations of States
and Political
Subdivisions. . . . - - - -
Other. . . . . . . . . . 24,000 - - 24,000
---------- ---------- ---------- ----------
10,030,368 - 21,993 10,008,375
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
3. Loans and Other Receivables
Loans and other receivables are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
TYPE 1997 1996
----------- -----------
<S> <C> <C>
Real estate. . . . . . . . . . . . . . $61,522,710 $53,315,567
Commercial and industrial. . . . . . . 5,761,796 5,715,555
Agriculture. . . . . . . . . . . . . . 3,458,889 3,787,250
Loans to individuals for household,
family and other consumer goods . 8,840,179 8,734,360
Other. . . . . . . . . . . . . . . . . 24,897 39,801
----------- -----------
TOTAL $79,608,471 $71,592,533
----------- -----------
----------- -----------
</TABLE>
30
<PAGE>
THE REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
The changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year. . . . . $964,057 $868,026 $925,572
Provision charged to
operating expenses . . . . . . . 230,059 392,703 -
Loans charged off . . . . . . . . . . 180,345 322,659 73,040
Recoveries on loans
previously charged off . . . . . 56,229 25,987 15,494
--------- -------- --------
Balance at end of year. . . . . . . . 1,070,000 $964,057 $868,026
--------- -------- --------
--------- -------- --------
</TABLE>
At December 31, 1997 and 1996, 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 $3,274,000 and $2,907,000
respectively. The average recorded investment in impaired loans amounted
to approximately $3,124,000 and $2,286,000 for the years ended December 31,
1997 and 1996, respectively. The allowance for loan losses related to
impaired loans amounted to approximately $42,853 and $199,890 at December
31, 1997 and 1996, respectively. Interest income on impaired loans of
$243,569 and $159,830 was recognized for cash payments received in 1997 and
1996 respectively.
4. Property and equipment.
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Land. . . . . . . . . . . . . . $ 114,751 $ 114,751 $ 114,751
Buildings . . . . . . . . . . . 2,202,422 2,029,738 2,029,738
Furniture and equipment . . . . 1,590,229 1,370,580 1,287,430
---------- ---------- ----------
3,907,402 3,515,069 3,431,919
Less accumulated depreciation . 2,064,847 1,863,683 1,630,105
---------- ---------- ----------
Net. . . . . . . . . . . . 1,842,555 1,651,386 $1,801,814
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Depreciation expense for 1997, 1996 and 1995 was $201,164, $233,578
and $183,216, 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)
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Federal provision:
Current. . . . . . . . . . . . $656,555 $478,584 $352,561
Deferred . . . . . . . . . . . - - -
-------- -------- --------
656,555 478,584 352,561
State provision . . . . . . . . . . 42,859 35,230 25,728
-------- -------- --------
Total. . . . . . . . . . . . . 699,414 $513,814 $378,289
-------- -------- --------
-------- -------- --------
</TABLE>
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):
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Statutory tax rate Federal . 633 34 467 34 413 34
State income tax . . . . . . 43 2 35 2 25 2
Tax exempt revenue . . . . . (11) (1) (5) - (5) -
Accrual to cash adjustment . - - - - (21) (2)
Provision for loan loss. . . 36 2 33 2 (20) (2)
Other (net). . . . . . . . . (2) - (16) (1) (14) (1)
----- ------ ----- ---- ---- ----
Total . . . . . . . . . 699 37 514 37 378 31
----- ------ ----- ---- ---- ----
----- ------ ----- ---- ---- ----
</TABLE>
6. Service Commitments.
Computer and data processing services are provided to the Bank by an
outside service center. Expenses incurred for such services during 1997,
1996 and 1995 were $165,771, $119,105 and $93,759, 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 was a $1,000 gain on other real estate sold in 1995.
No gains or losses were incurred in 1996 on other real estate
transactions.
During 1997, other real estate was sold at a gain of $72,465.
Reductions in the carrying value of other real estate due to reappraisal
were $12,500.
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 $14,057,867 and $11,965,011 at December 31, 1997 and
1996, respectively. Interest expense for the years ended December 31,
1997, 1996 and 1995 on this type of deposit was $619,979, $619,605, and
$596,555, respectively.
The deposits by time remaining until maturity were (dollars in
thousands).
<TABLE>
<S> <C>
3 months or less $ 6,594
3 to 6 months 4,370
6 to 12 months 2,676
over 12 months 418
-------
$14,058
-------
-------
</TABLE>
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 $2,019,000. 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, 1997, 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, 1997 were
$15.49% and 16.75%, respectively. The Bank's Tier 1 leverage ratio at
December 31, 1997 was 8.66%. The minimum required leverage ratio for the
Bank at December 31, 1997, was 3.00%.
10. Supplemental Cash Flow Information
In 1997 and 1996, the Bank recorded amounts of other real estate
acquired through foreclosure of $67,000 and $321,718. Of total sales of
other real estate during 1997, $195,566 of the purchase price was financed
by the Bank, taking the other real estate as security. Loans charged off
in 1997, 1996 and 1995 amounted to $67,000, $322,659 and $73,040. 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
<TABLE>
<CAPTION>
(Note 11 Continued)
December 31 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash in Bank. . . . . . . . . . . . . . . . . $ 23,024 $ 22,102
Investment in subsidiary - equity method. . . 10,989,255 9,855,952
Vehicles and equipment (net). . . . . . . . . - -
Receivable - due from subsidiary. . . . . . . 19,800 20,000
Other assets. . . . . . . . . . . . . . . . . 56,604 56,604
------------ ----------
Total assets . . . . . . . . . . . . . . $ 11,088,683 $9,954,658
------------ ----------
------------ ----------
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 1997 and 1996,
respectively . . . . . . . . . . . . . . 356,844 356,844
Additional paid in capital. . . . . . . . . . 234,931 234,931
Less cost of treasury stock (23,119 shares
at 12-31-97, 23,119 shares at 12-31-96). (91,303) (91,303)
------------ ----------
Total contributed capital . . . . . 500,472 500,472
------------ ----------
Retained earnings . . . . . . . . . . . . . . 10,588,211 9,454,186
------------ ----------
Total stockholders' equity . . . . . . . 11,088,683 9,954,658
------------ ----------
Total liabilities and
stockholders' equity . . . . . . . . . . $11,088,683 $9,954,658
------------ ----------
------------ ----------
</TABLE>
34
<PAGE>
THE REPUBLIC CORPORATION
Statement of Income
<TABLE>
<CAPTION>
(Note 11 Continued)
Year Ended December 31 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
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
Examination and legal fees . . . . . . . . . . 9,451 9,826 8,127
Miscellaneous. . . . . . . . . . . . . . . . . 100 90 140
Office . . . . . . . . . . . . . . . . . . . . 4,254 4,406 3,729
Taxes. . . . . . . . . . . . . . . . . . . . . 3,300 3,303 3,310
Travel . . . . . . . . . . . . . . . . . . . . - - -
--------- -------- --------
Total expenses. . . . . . . . . . . . . . 58,178 58,806 56,486
--------- -------- --------
Income (Loss) before equity in
undistributed net income of subsidiary. . (19,078) (19,706) (17,386)
Less applicable income (taxes) benefit . . . . 19,800 20,000 19,200
--------- -------- --------
722 294 1,814
Equity in undistributed net income
(loss) of subsidiary. . . . . . . . . . . 1,133,303 840,573 815,295
--------- -------- --------
Net income (loss) . . . . . . . . . . . . 1,134,025 $840,867 $817,109
--------- -------- --------
--------- -------- --------
Earnings per share
Weighted average number of
shares outstanding . . . . . . . . . 333,725 333,725 333,725
--------- -------- --------
--------- -------- --------
Net income (loss) per common share. . . . $ 3.40 $ 2.52 $ 2.44
--------- -------- --------
--------- -------- --------
</TABLE>
35
<PAGE>
THE REPUBLIC CORPORATION
Statement of Cash Flows
<TABLE>
<CAPTION>
(Note 11 Continued)
Year Ended December 31 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . $1,134,025 $ 840,867 $ 817,109
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation. . . . . . . . . . . . . - 108 107
Dividends received - subsidiary . . . (39,100) (39,100) (39,100)
(Increase) in investment in
subsidiary-held on the
equity method. . . . . . . . . . (1,133,303) (840,573) (815,295)
(Increase) decrease in receivable
from subsidiary-income
tax benefit. . . . . . . . . . . 200 (800) (1,100)
Increase (decrease) in current
liabilities. . . . . . . . . . . - - -
---------- --------- ---------
Net cash (used in) operating activities. . (38,178) (39,498) (38,279)
---------- --------- ---------
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 . . . 922 (398) 821
Cash - beginning of year . . . . . . . . . 22,102 22,500 21,679
---------- --------- ---------
Cash - end of year . . . . . . . . . . . . 23,024 22,102 22,500
---------- --------- ---------
---------- --------- ---------
Supplemental disclosures of cash
flow information:
Cash paid for interest. . . . . . . . - - -
---------- --------- ---------
---------- --------- ---------
Cash paid for income taxes. . . . . . - - -
---------- --------- ---------
---------- --------- ---------
</TABLE>
36
<PAGE>
THE REPUBLIC CORPORATION
Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
(Note 11 Continued)
For the Three Additional Total
Year Ended Capital Paid in Treasury Contributed Retained
December 31 Stock Capital Stock Capital Earnings
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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*
Net income. . . . . . - - - - 1,134,025
Additions to
treasury stock. . - - - - -
-------- -------- -------- -------- ------------
Balance at December
31, 1997 $356,844 $234,931 ($91,303) $500,472 $10,588,211*
-------- -------- -------- -------- ------------
-------- -------- -------- -------- ------------
</TABLE>
*On December 31, 1994, 1995, 1996 and 1997 the portion of retained earnings
resulting from Republic Corporation's equity in the undistributed income of its
subsidiary was $6,982,005, $7,797,300, $8,637,872 and 9,771,176 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, 1997, is as follows:
<TABLE>
<CAPTION>
National
Amount
---------
<S> <C>
Commitments to extend credit 3,796,000
Standby letters of credit 451,000
</TABLE>
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, 1997, 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:
<TABLE>
<CAPTION>
December 31, 1997
---------------------
Carrying Fair
Amount Value
-------- -------
(In Thousands)
<S> <C> <C>
Financial assets:
Cash and due from banks $ 3,467 $ 3,467
Held-to-maturity securities 27,988 27,985
Other Securities 24 24
Federal funds sold 11,150 11,150
Loans, net of allowance 78,538 78,636
Financial liabilities:
Deposits 111,957 111,961
</TABLE>
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, 1997. 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 71 34 Years Catherine G. Eisemann has been a
Director of The Republic Corporation for
34 years. Mrs. Eisemann was elected
President of The Republic Corporation
and began serving December 11, 1981.
J.E. Eisemann, IV 50 21 Years J.E. Eisemann, IV has served as a
Director on The Republic Corporation
Board for 21 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 16 years.
Roger Dean Eisemann 43 15 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
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------
Name & Principal Position Year Salary Bonus
- ------------------------- ---- ---------- ---------
<S> <C> <C> <C>
J.E. Eisemann, IV Chairman of the 1997 $82,573(1) $7,150(2)
Board of the Company, Vice 1996 54,193(1) 3,881(2)
President of the Company, 1995 52,716(1) 3,429(2)
Chairman of the Board & Vice
President of the Subsidiary Bank
Catherine Eisemann President of the 1997 $30,000 -0-
Company 1996 30,000 -0-
1995 30,000 -0-
</TABLE>
<TABLE>
<CAPTION>
Restricted Stock
Stock Options/ LTIP All Other
Name & Principal Position Awards SARs(#) Payouts($) Compensation
- ------------------------- ---------- -------- ---------- ------------
<S> <C> <C> <C> <C>
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-
</TABLE>
(1) Includes amounts deferred under Section 401(K) of the Internal Revenue Code.
Amounts deferred by Mr. Eisemann were $3,543 in 1995, $3,920 in 1996 and $6,500
in 1997.
(2) Includes amounts deferred under Section 401(K) of the Internal Revenue
Code. Amounts deferred by Mr. Eisemann were $343 in 1995, $353 in 1996 and $650
in 1997.
STOCK OPTIONS/SAR GRANTS IN 1997-NONE
AGGREGATED STOCK OPTIONS/SAR EXERCISES IN 1997 AND OPTIONS/SAR
VALUES AS OF DECEMBER 31 1997 - NONE
LONG-TERM INCENTIVE PLANS - AWARDS IN 1997 - 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.
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Name of Title of Beneficial of
Person (1) Class Ownership (2) Class
---------- ------------ ------------- --------
<S> <C> <C> <C>
Catherine G. Eisemann Common Stock 193,702 58.0424
3350 McCue, #904
Houston, Texas 77056
</TABLE>
(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:
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Name of Director Title of Beneficial of
or Officer Class Ownership Class
---------------- ------------ ---------- --------
<S> <C> <C> <C>
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
</TABLE>
(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 1997 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:
<TABLE>
<S> <C>
Accountant's Report. . . . . . . . . . . . . 21
Balance Sheets as of December
31, 1997 and 1996 . . . . . . . . . . . 22
Statements of Income - years ended
December 31, 1997, 1996 and 1995. . . . 23
Statement of Cash Flows -
Years ended December 31,
1997, 1996 and 1995. . . . . . . . . . . 24-25
Statement of Changes in Stockholders'
Equity-years ended December 31,
1997, 1996 and 1995. . . . . . . . . . . 26
Notes to Financial Statements . . . . . . . . 27-40
</TABLE>
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, 1997.
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 3-19-98
- ----------------------------------- 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
- --------- ----- ----
/S/ J.E. Eisemann, IV Chairman of the 3-19-98
- ----------------------------------- Board, Director, -----------
J.E. Eisemann, IV Chief Executive
Officer, Chief
Financial and
Accounting Officer
/S/ Catherine G. Eisemann President of the 3-19-98
- ----------------------------------- 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 DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,467,302
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,150,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,000
<INVESTMENTS-CARRYING> 27,988,290
<INVESTMENTS-MARKET> 27,985,306
<LOANS> 79,608,471
<ALLOWANCE> 1,070,000
<TOTAL-ASSETS> 125,189,782
<DEPOSITS> 111,957,393
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,900,794
<LONG-TERM> 0
0
0
<COMMON> 356,844
<OTHER-SE> 10,731,839
<TOTAL-LIABILITIES-AND-EQUITY> 125,189,782
<INTEREST-LOAN> 6,796,396
<INTEREST-INVEST> 1,112,064
<INTEREST-OTHER> 1,129,794
<INTEREST-TOTAL> 9,038,227
<INTEREST-DEPOSIT> 4,452,159
<INTEREST-EXPENSE> 4,452,159
<INTEREST-INCOME-NET> 4,586,068
<LOAN-LOSSES> 230,059
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,118,876
<INCOME-PRETAX> 1,860,425
<INCOME-PRE-EXTRAORDINARY> 1,860,425
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,134,025
<EPS-PRIMARY> 3.40
<EPS-DILUTED> 3.40
<YIELD-ACTUAL> 0.76
<LOANS-NON> 809,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 2,465,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 964,000
<CHARGE-OFFS> 180,000
<RECOVERIES> 56,000
<ALLOWANCE-CLOSE> 1,070,000
<ALLOWANCE-DOMESTIC> 178,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 892,000
</TABLE>
