<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Amendment No. 1)
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Nine Months Ended September 30, 1998. Commission file Number 0-8597
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THE REPUBLIC CORPORATION
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Texas 74-0911766
- ----- -----------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5340 Weslayan - P.O. Box 270462, Houston, Tx 77277
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 713-993-9200
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NONE
- ----
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of
Common Stock, $1.00 par value Shares 356,844
- ----------------------------- --------
Outstanding at Sept. 30,
1998, (excluding 23,119
shares held as treasury
shares)
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MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
ASSET QUALITY
Loans placed on non-accrual and restructured loans declined from
year-end, 1997 levels by virtue of reclassification and liquidation. The
loans presently classified as restructured will be repriced to prevailing
interest rates once the respective maturity dates are reached.
Table 1 PROBLEM ASSETS
<TABLE>
<CAPTION>
(dollars in thousands) September 30 December 31
------------ ------------------------------
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Nonaccrual loans $ 451 $ 809 $ 759 $ 183
Past-due loans (over 90 days) -0- -0- -0- -0-
Restructured loans 786 2,465 2,148 593
------- ------- ------- ------
Total problem loans $ 1,237 $ 3,274 $ 2,907 $ 776
Foreclosed assets
Real estate 33 9 300 -0-
In-substance foreclosures -0- -0- -0- -0-
Other 13 5 34 -0-
------- ------- ------- ------
Total Problem Assets $ 1,283 $ 3,288 $ 3,241 $ 776
Total problem loans as
a percentage of total loans 1.35% 4.1% 4.1% 1.2%
Total problem assets as a
percentage of total loans
and foreclosed assets 1.40% 4.1% 4.5% 1.2%
</TABLE>
Table 2 LOAN CONCENTRATIONS
<TABLE>
<CAPTION>
(dollars in thousands) September 30 December 31
------------ --------------------
1998 1997 1996
<S> <C> <C> <C>
Commercial $ 7,182 $ 5,762 $ 5,716
Agricultural 4,366 3,459 3,787
Real Estate-Construction 5,527 1,960 3,087
Real Estate-Mortgage 65,083 59,562 50,228
Installment loans to Individuals 9,492 8,865 8,775
-------- -------- --------
Totals $ 91,650 $ 79,608 $ 71,593
</TABLE>
(5)
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SOURCES AND USES OF FUNDS
Deposit growth of $15.3 mm was deployed primarily into loan growth of
$12.1 mm and growth of $7.8 mm in cash equivalent assets, tempered with a
$4.8 mm reduction in investment securities. (Please see Statement of Cash
Flows, P-3)
LIQUIDITY
Liquidity was slightly lower at period end compared with year-end 1997
levels. Cash and due from banks, federal funds sold and short term
securities represented 35.72% of total liabilities on September 30, 1998,
compared with 37.42% on December 31, 1997. Loan growth in excess of liquid
asset growth was the primary reason for the decline. (Please see Balance
Sheet, P-1)
INTEREST RATE SENSITIVITY MANAGEMENT
Bank earnings are most at risk in the event short term interest rates
rise. An increase of 200 basis points in the front end of the money market
would cause an approximate decline of 11% in after tax earnings, based upon
the maturity and repricing data depicted in Table 3 on Page 7.
(6)
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INTEREST RATE SENSITIVITY MANAGEMENT
Table 3 - REPRICING SCHEDULE
9-30-98
<TABLE>
<CAPTION>
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 days)
Loans * 9,340 38,273 43,046 508
Federal Funds Sold 18,000 -0- -0- -0-
Taxable Securities ** 12,000 12,000 -0- -0-
Municipal Bonds -0- -0- -0- -0-
TOTAL 39,340 50,273 43,046 508
RATE SENSITIVE LIABILITIES
(Liabilities that can be
repriced within X days)
Time Certificates of Deposit 22,190 29,023 4,686 -0-
NOW Accounts 1,721 -0- -0- -0-
Super NOW Accounts 18,951 -0- -0- -0-
Savings Accounts 9,376 -0- -0- -0-
MMDA Accounts 22,504 -0- -0- -0-
TOTAL 74,742 29,023 4,686 -0-
Interest Rate Sensitivity Gap (35,402) 21,250 38,360 508
Cumulative Interest Rate
Sensitivity Gap (35,402) (14,152) 24,208 24,716
</TABLE>
* Does not include $451,000 in nonaccruing loans or overdrawn demand
deposits of $32,000
** Does not include $24,000 in Federal Reserve Bank stock
(7)
<PAGE>
INVESTMENT SECURITIES
Table 4
<TABLE>
<CAPTION>
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
September 30, 1998
- -------------------
(1) Held-to-Maturity:
U.S. Treasury Securities -- -- -- --
Other 23,692,630 -- -- 23,692,630
(2) Available-for-Sale Securities
Carried at Fair Value:
U.S. Treasury Securities -- -- -- --
Other 24,000 -- -- 24,000
---------- ---------- ---------- ----------
23,716,630 -- -- 23,716,630
---------- ---------- ---------- ----------
December 31, 1997
- -----------------
(1) Held-to-Maturity:
U.S. Treasury Securities 12,036,450 -- 2,700 12,033,750
Other 12,951,840 -- 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
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(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
---------- ---------- ---------- ----------
</TABLE>
(1) Securities which the Bank has the ability and intent to hold to
maturity. These securities are stated at cost, adjusted for amortization of
premiums and accretion of discounts, computed by the interest method.
Because securities are purchased for investment purposes and quoted market
values fluctuate during the investment period, gains and losses are
recognized upon disposition or at such time as management determines that a
permanent impairment of value has occurred. Cost of securities sold is
determined on the specific identification method.
(2) Securities that the bank may sell in response to changes in market
conditions or in the balance sheet objectives of the bank. Securities in
this category will be reported at fair market value. Unrealized gains or
losses (net of tax) will be reported as a separate item in the shareholder's
equity section of the balance sheet. Adjustments will be recorded at lease
quarterly.
(8)
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CAPITALIZATION:
All capital ratios fell in comparison with year-end 1997 levels due to a
short term deposit in excess of $9 mm which was included in the September 30,
1998 deposit totals. Absent this deposit, both risk based capital ratios
would be similar to year-end levels and the leverage ratio would be slightly
higher. (Please see Table 5, P-9)
Table 5 - CAPITAL
<TABLE>
<CAPTION>
*September 30 December 31
------------- -----------
1998 1997
<S> <C> <C>
Tier 1 risk-based capital
(minimum is 4%) 14.11% 15.34%
Tier 1 + Tier 2 risk based capital
(minimum is 8%) 15.37% 16.60%
Tier 1 leverage (minimum is 3%) 8.28% 8.66%
*Estimate
</TABLE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income was higher in the three and nine month periods
ending September 30, 1998 when compared with the year-ago period. Loan
growth and a leveling off in deposit interest expense are the primary reasons
for the increase. (Please see Statement of Income, P-2)
OTHER INCOME AND EXPENSE
The loan loss provision was comparable to the year-ago period and
remains high due to brisk loan growth.
Non-interest income, notwithstanding the effect of gains on the sale of
foreclosed real estate, remains at year-ago levels.
Expansion of facilities and staffing, as well as higher operating
levels, has caused the pronounced growth in non-interest expense. (Please
see Statement of Income, P-2)
YEAR 2000 READINESS
The Bank has made substantial progress in implementing its Y2K
preparedness plan. The plan consists of the following five phases:
AWARENESS PHASE - The creation of a basic strategy for project
management.
ASSESSMENT PHASE - The identification of mission critical systems and
equipment as well as customer and provider relationships that may be
vulnerable to the year 2000 problem.
RENOVATION PHASE - The upgrading or replacement of systems and
equipment known to be deficient.
VALIDATION PHASE - The comprehensive testing of all systems and
equipment to ensure that they survive each of 13 suspect dates.
IMPLEMENTATION PHASE - The correction of any deficiencies uncovered
in the validation phase along with the continued assessment and
testing of systems and equipment.
The awareness and assessment phases were completed during the first
quarter of 1998. The renovation phase was substantially completed by the end
of the third quarter with the exception of the bank's off-line, general
ledger, hard drive and software, credit reporting software at the bank's main
facility and balance reporting software utilized by the bank's primary
correspondent. All but the credit reporting software are expected to be
replaced or upgraded prior to year-end, with the replacement of credit
reporting software expected by the end of the first quarter of 1999. The
validation phase is ongoing and on schedule and it is anticipated that all
testing will have been performed at least once by the end of the first
quarter of 1999. Of primary importance during this phase is the proxy testing
of all applications currently provided by the bank's third party provider of
computing services. These services are highly critical to bank operations and
any significant interruption in them could materially impact the bank's
results. Finally, the implementation phase is ongoing and will continue
beyond the end of the millennium.
Management is of the opinion that its readiness plan is more than
adequate to address the year 2000 threat and that all systems and hardware
will function as intended when the time comes, without any material adverse
effect on the company's business. Due to the uniqueness of the year 2000
issue and the direct impact it can have on bank operations, however, it is
not possible to escape risk and uncertainty, particularly that which is tied
to third party service providers. The bank has, as mentioned, an ongoing
process to monitor these critical third parties and has developed business
resumption and contingency plans that address failures from these sources.
Management is not aware of any material expenditures that could be necessary
in order to complete its year 2000 readiness plan or contingency plans.
(9)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE REPUBLIC CORPORATION
Date: January 26, 1999 /S/ J. Ed Eisemann, IV
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Chairman of the Board
Date: January 26, 1999 /S/ Catherine G. Eisemann
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Director
(11)
