<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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, 1999
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 (IRS 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, 2000
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, 1999
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
NONE
REPUBLIC CORPORATION
FORM 10-K
INDEX
<TABLE>
PAGE
----
<S> <C>
IMPORTANT TERMS
PART I
ITEM 1. BUSINESS ................................................. 1-12
ITEM 2. PROPERTIES ............................................... 12
ITEM 3. LEGAL PROCEEDINGS ........................................ 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITIES HOLDERS .................................... 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS .......................... 12
ITEM 6. SELECTED FINANCIAL DATA .................................. 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ............ 14-19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .............. 20-40
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ...................... 41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT ........................................ 42
ITEM 11. EXECUTIVE COMPENSATION ................................... 43
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT ......................... 44
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........... 45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K .................................. 46-47
SIGNATURES ........................................................ 48
SUPPLEMENTAL INFORMATION .......................................... 49
</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 68 full time equivalent employees on December 31, 1999.
2
<PAGE>
COMPETITION
The Bank's primary market area is Trinidad, Colorado, Walsenburg, Colorado,
Raton, New Mexico and the surrounding communities. In this market are two other
bank charters, four branch offices, 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 each of the other bank offices. 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, Huerfano and Colfax 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, 1999 Average Interest Yield/
(Dollars in Thousands) Balance Rev./Exp. Rate
<S> <C> <C> <C>
ASSETS
Investment securities:
Taxable ................................ $ 27,856 $ 1,442 5.2%
Tax exempt ............................. -- -- --
Loans ....................................... 96,033 8,249 8.6%
Less: Reserve for loan loss ............ (1,305)
Funds sold .................................. 12,640 636 5.0%
--------- --------- ---
Total Earning Assets ................... 135,244 10,327 7.6%
--------- --------- ---
Cash and due from banks ..................... 5,488
Other assets ................................ 4,267
---------
TOTAL ASSETS ........................... $ 144,979
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand deposits ............ $ 44,448 $ 1,775 3.9%
Savings deposits ............................ 9,391 261 2.8%
Time deposits ............................... 61,871 3,110 5.0%
--------- --------- ---
TOTAL INTEREST BEARING
LIABILITIES ............................ 115,710 5,146 4.4%
--------- --------- ---
NET INTEREST REVENUE ............................. $ 5,181 3.2%
=========
NET INTEREST REVENUE TO EARNING ASSETS ........... 3.8%
Demand deposits (non-interest
bearing) ............................... $ 15,375
Other liabilities ........................... 1,350
Stockholders' equity ........................ 12,544
---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ................... $ 144,979
=========
</TABLE>
4
<PAGE>
TABLE #2
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Average Interest Yield/
(Dollars in Thousands) Balance Rev./Exp. Rate
<S> <C> <C> <C>
ASSETS
Investment securities:
Taxable ................................ $ 23,399 $ 1,335 5.7%
Tax exempt ............................. -- -- --
Loans ....................................... 87,275 7,683 8.8%
Less: Reserve for loan loss ............ (1,145)
Funds sold .................................. 12,435 665 5.3%
--------- --------- ---
Total Earnings Assets .................. 121,964 9,683 7.9%
--------- --------- ---
Cash and due from banks ..................... 3,696
Other assets ................................ 4,224
---------
TOTAL ASSETS ........................... $ 129,884
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand deposits ............ $ 35,669 $ 1,295 3.6%
Savings deposits ............................ 9,282 252 2.7%
Time deposit ................................ 55,591 3,024 5.4%
--------- --------- ---
TOTAL INTEREST BEARING
LIABILITIES ............................ 100,542 4,571 4.5%
--------- --------- ---
NET INTEREST REVENUE ............................. $ 5,112 3.4%
=========
NET INTEREST REVENUE TO EARNING ASSETS ........... 4.2%
Demand deposits (non-interest
bearing) ............................... $ 16,114
Other liabilities ........................... 1,463
Stockholders' Equity ........................ 11,765
---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ................... $ 129,884
=========
</TABLE>
5
<PAGE>
TABLE #3
<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 1,129 5.4%
--------- --------- ---
Total Earning Assets ................... 116,326 9,037 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 Deposits ............................... 54,614 3,087 5.7%
--------- --------- ---
TOTAL INTEREST BEARING
LIABILITIES ............................ 95,493 4,451 4.7%
--------- --------- ---
NET INTEREST REVENUE ............................. $ 4,586 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>
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>
1999 vs 1998 1998 vs 1997
---------------------- ------------------------
Yield/ Yield/
Volume Rate Total Volume Rate Total
---------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
interest income on:
Loans ............................. $ 742 $(175) $ 567 $ 963 $ (77) $ 886
Investment securities ............. 227 (120) 107 160 63 223
Federal funds sold ................ 8 (37) (29) (444) (21) (465)
----- ----- ----- ----- ----- -----
977 (332) 645 679 (35) 644
----- ----- ----- ----- ----- -----
Increase (decrease) in
interest expense on:
Demand deposits ................... 338 142 480 159 31 190
Savings ........................... 3 6 9 (1) (6) (7)
Time deposits ..................... 310 (224) 86 99 (162) (63)
----- ----- ----- ----- ----- -----
651 (76) 575 257 (137) 120
----- ----- ----- ----- ----- -----
Net interest income ............... 326 (256) 70 422 102 524
===== ===== ===== ===== ===== =====
</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>
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) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
U.S. Treasury Securities ............... $ - $ - $12,036
Government Sponsored Agencies .......... 23,639 23,865 15,952
Other bonds, notes and securities ...... 24 24 24
------- ------- -------
TOTAL ............................ $23,663 $23,889 $28,012
======= ======= =======
</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> <C> <C> <C>
Within one year .............. $ -- --% $23,639 5.6% $ -- --%
After one year
through five years ..... -- --% -- --% -- --%
After five years
through ten years ...... -- --% -- --% -- --%
After ten years .............. -- --% -- --% 24 7.5%
------- --- ------- --- ------- ---
TOTAL .................. $ -- --% $23,639 5.6% $ 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,
1999 1998
------------ ------------
<S> <C> <C>
Commercial ............................. $ 7,189 $ 7,371
Agricultural ........................... 3,464 4,156
Real Estate - Construction ............. 6,112 6,423
Real Estate - Mortgage ................. 71,257 66,652
Installment loans to Individuals ....... 10,510 9,967
------- -------
TOTAL ............................... $98,532 $94,569
======= =======
</TABLE>
There were no foreign loans at December 31, 1999 or December 31, 1998.
8
<PAGE>
Commercial, agricultural and real estate - construction loans at December
31, 1999 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................ $ 2,321 $ 412 $ 25
Adjustable rates........... 431 3,810 190
Agricultural:
Fixed rates................ - 1,956 254
Adjustable rates........... - 475 779
Real Estate - Construction:
Fixed rates................ 6,112 - -
Adjustable rates........... - - -
</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) 1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Non-accrual loans........................................... $ 837 $ 351
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............................... 1,022 714
</TABLE>
Foregone interest on restructured loans in 1998 was $15 thousand on
recognized income of $68 thousand. Interest recognized in 1999 was $23 thousand
with foregone interest of $3 thousand.
Past due and renegotiated loans as described above are defined as
non-performing loans for purposes of this discussion.
Non-accrual loans are defined as loans on which, in the opinion of
management, the collection of interest has become uncertain. Management places
loans on non-accrual status when loans become past due thirty days or if, in
their judgment, the ability of the borrower to service the debt has become
impaired.
9
<PAGE>
Interest is not taken into income unless received in cash or until such
time as the borrower demonstrates the ability to pay interest and principal.
Placing a loan on non-accrual status for the purpose of income recognition is
not by itself a reliable indicator of potential loss of principal. Other
factors, such as the value of the collateral securing the loan and the financial
condition of the borrower, serve as more reliable indicators of potential loss.
Management has no information that would indicate that any loans on hand at
December 31, 1999 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>
1999 1998
------- -------
<S> <C> <C>
Balance - Beginning of year ............ $ 1,233 $ 1,070
------- -------
Charge-offs:
Commercial ........................... 48 20
Agricultural ......................... -- --
Real Estate - Construction ........... -- --
Real Estate - Mortgage ............... -- 10
Installment loans to Individuals ..... 90 98
------- -------
$ 138 $ 128
------- -------
Recoveries:
Commercial ........................... $ 21 $ 4
Agricultural ......................... -- --
Real Estate - Construction ........... -- --
Real Estate - Mortgage ............... 7 12
Installment loans to individuals ..... 18 34
------- -------
$ 46 $ 50
------- -------
Net Charge-offs (recoveries) ........... $ 92 $ 104
------- -------
Provision - Charged to operations ...... $ 238 $ 241
------- -------
Balance - End of Year .................. $ 1,379 $ 1,233
======= =======
Average loan balance outstanding ....... $96,033 $87,275
======= =======
Percentage of net charge offs to
average loans outstanding .............. .1% .1%
======= =======
</TABLE>
In 1999, the provision was still high based on the higher non-accrual and
restructured loans and on an ongoing analysis of these loans.
The provision for 1998 increased slightly over that of 1997. This was
mainly due to a reduction in charge offs, a reduction in problem loans over the
prior year and a significant loan growth for the period.
10
<PAGE>
The allocation of the allowance is as follows (dollars in thousands):
TABLE #11
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
----------------------------- ------------------------------
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 7.3% $ 5 7.8%
Agricultural ........................... 12 3.5% 20 4.4%
Real Estate-
Construction ....................... -- 6.2% -- 6.8%
Real Estate-Mortgage ................... 318 72.3% 194 70.5%
Installment Loans ...................... 65 10.7% 49 10.5%
Unallocated ............................ 978 N/A 965 N/A
------ ---- ------ -----
$1,379 100% $1,233 100.0%
====== ==== ====== =====
</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 $200,000.00 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, 1999, there existed outstanding time certificates of
deposit in amounts of $100,000 or more of $20,788,185. The deposits by time
remaining until maturity were (dollars in thousands):
TABLE #12
<TABLE>
<S> <C>
3 months or less .................. $10,128
Over 3 through 6 months ........... 5,453
Over 6 through 12 months .......... 4,139
Over 12 months .................... 1,068
-------
$20,788
=======
</TABLE>
As required by the Monetary Control Act of 1980, the reserve balance held
against deposits at December 31, 1999 was $1,743,000.
11
<PAGE>
TABLE #13
<TABLE>
<CAPTION>
For the year ended December 31 1999 1998 1997
- ------------------------------ ----- ---- ----
<S> <C> <C> <C>
Return on Assets (Net income divided by
average total assets) ....................... .4% .7% .9%
Return on Equity (Net income divided by
average equity) ............................. 4.8% 8.0% 10.5%
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 ............. 8.7% 9.1% 8.9%
</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. A facility with banking operations and automated tellers
was located in a Trinidad retail superstore and became operational in 1998.
Also, an office space in Raton, New Mexico was leased and remodeled in 1999 for
the purpose of conducting loan and deposit production activities. A ground lease
near by the Raton facility was obtained and upon it was constructed a drive-thru
automatic teller machine and automated night depository. 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 1,750 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 1999 or 1998 and management has no
intention to declare dividends in the immediate future.
12
<PAGE>
ITEM 6. Selected financial data:
The following table presents certain key financial information.
TABLE #14
<TABLE>
<CAPTION>
Selected Financial Data
Year Ended December 31
(Dollars in thousands) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income ............................. $ 10,328 $ 9,683 $ 9,038 $ 8,320 $ 7,648
Interest expense ............................ 5,147 4,571 4,452 4,124 4,168
-------- -------- -------- -------- --------
Net Interest Income .................... 5,181 5,112 4,586 4,196 3,480
Provision for Loan Losses ................... 238 241 230 393 --
-------- -------- -------- -------- --------
Net Interest Income after
Provision for Loan Losses ......... 4,943 4,871 4,356 3,803 3,480
Non-Interest Income ......................... 636 597 623 473 389
Securities Gains ............................ -- -- -- -- --
Non-Interest Expense:
Personnel Expenses ..................... 2,277 1,872 1,532 1,391 1,266
Other Expenses ......................... 2,315 2,035 1,587 1,510 1,388
-------- -------- -------- -------- --------
Income Before Income Taxes .................. 987 1,561 1,860 1,375 1,215
Applicable Income Taxes ..................... 373 593 699 514 378
-------- -------- -------- -------- --------
Income before Reduction for Minority
Interest or Security Gains or
Losses ................................. 614 968 1,161 861 837
Less Minority Interest ...................... (15) 23 27 20 20
-------- -------- -------- -------- --------
Net Income .................................. $ 599 $ 945 $ 1,134 $ 841 $ 817
======== ======== ======== ======== ========
Net Income per Common Share (2) ............. $ 1.80 $ 2.83 $ 3.40 $ 2.52 $ 2.44
======== ======== ======== ======== ========
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) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans .............. $ 98,532 $ 94,569 $ 79,608 $ 71,593 $ 63,425
Total Assets ....... 155,606 131,275 125,190 114,963 109,018
Long-Term Debt ..... 0 0 0 0 0
</TABLE>
13
<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) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans ............................ $ 837 $ 351 $ 809 $ 759 $ 183
Past-Due Loans* ............................. -- -- -- -- --
Restructured Loans .......................... 1,022 714 2,465 2,148 593
------ ------ ------ ------ ------
Total Problem Loans .................... 1,859 1,065 3,274 2,907 776
Foreclosed Assets
Real Estate ............................ 43 48 9 300 --
In-Substance Foreclosures............... -- -- -- -- --
Other................................... 23 28 5 34 --
------ ------ ------ ------ ------
Total Problem Assets .............. $1,925 $1,141 $3,288 $3,241 $ 776
Total Problem Loans as a
Percentage of Total Loans .............. 1.9% 1.1% 4.1% 4.1% 1.2%
Total Problem Assets as a Percentage of
Total Loans and Foreclosed Assets ...... 2.0% 1.2% 4.1% 4.5% 1.2%
Reserve Coverage Ratio ** ................... 74.2% 115.8% 32.7% 33.2% 112.0
</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
14
<PAGE>
TABLE #16
INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
December 31, 1999 (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 * ........................... $ 17,126 $ 45,822 $ 34,349 $ 382
Federal Funds Sold ................ 22,500 -- -- --
Taxable Securities** .............. -- 24,050 -- --
Municipal Bonds ................... -- -- -- --
TOTAL ........................ 39,626 69,872 34,349 382
Rate Sensitive Liabilities
(Liabilities that can be
repriced within x months/years)
Time Certificates of Deposit ...... 27,547 34,093 6,862 --
NOW Accounts ...................... 1,792 -- -- --
Super NOW Accounts ................ 28,725 -- -- --
Savings Accounts .................. 9,533 -- -- --
MMDA Accounts ..................... 14,168 -- -- --
TOTAL ........................ 81,765 34,093 6,862 --
Interest Rate Sensitivity Gap ..... (42,139) 35,779 27,487 382
Cumulative Interest Rate
Sensitivity Gap .............. (42,139) (6,360) 21,127 21,509
</TABLE>
* Does not include $837 thousand in nonaccruing loans and $10 thousand in
overdrafts.
** Does not include $24 thousand in Federal Reserve Bank Stock.
15
<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, 1999
(1) Held-to-Maturity:
U.S. Treasury Securities .......... $ -- $ -- $ -- $ --
Other ............................. 23,639,383 -- 9,081 23,630,302
(2) Available-for-Sale Securities
Carried at Fair Value:
U.S. Treasury Securities .......... -- -- -- --
Other ............................. 24,000 -- -- 24,000
----------- ----------- ----------- -----------
23,663,383 -- 9,081 23,654,302
----------- ----------- ----------- -----------
DECEMBER 31, 1998
(1) Held-to-Maturity:
U.S. Treasury Securities .......... -- -- -- --
Other ............................. 23,864,557 4,493 -- 23,869,050
(2) Available-for-Sale Securities
Carried at Fair Value:
U.S. Treasury Securities .......... -- -- -- --
Other ............................. 24,000 -- -- 24,000
----------- ----------- ----------- -----------
23,888,557 4,493 -- 23,893,050
----------- ----------- ----------- -----------
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
----------- ----------- ----------- -----------
</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 shareholders' equity
section of the balance sheet. Adjustments will be recorded at least quarterly.
16
<PAGE>
ASSET QUALITY
Loans placed on nonaccrual are up from the prior year period, due primarily
to defaults on a cattle line and two single family home loans as well as cash
flow difficulties on one commercial real estate loan. (Please see Table #15,
P-14)
The restructured loan grouping consists of two commercial real estate loan
relationships that have received a below-market rate of interest in the one
instance and a temporarily reduced monthly payment amount in the other. (Please
see Table #15, P-14)
Approximately 65% of total charge offs in 1999 consisted of installment
loans to individuals, the remainder going to a grouping of four commercial
credits. This continues to mirror national trends regarding default on personal
debt and makes necessary the continuance of the bank's monthly loan loss
provision. (Please see Table #10, P-10)
Loans of all types secured by real property accounted for substantially all
of the 1999 loan growth and brought the percentage of total loans secured by
real property to 79% at year-end. Substantially all of the properties serving as
collateral for these loans lie within Las Animas or Huerfano Counties in
Colorado or within Colfax County, New Mexico, with 65% representing finished,
1-4 family homes, 26% commercial properties and 2% farm and ranch properties.
(Please see Table #7, P-8)
Economic activity has been stimulated in the bank's market area by natural
gas exploration and development in Las Animas County, Colorado and Colfax
County, New Mexico. These activities are expected to have a 15-20 year lifespan
and will spin off activity into the retail, service and housing sectors and
provide increased tax revenue to local governmental entities. The area is also
experiencing continued inmigration of retired and semi-retired individuals and
families seeking a lifestyle change. The prison project in Las Animas County
remains fallow due to continued difficulty in affecting an agreement with the
bonding company by the Colorado Department of Corrections regarding remediation
issues created by a previous contractor.
SOURCES AND USES OF FUNDS
Reductions in cash equivalents in 1997 and 1998, totaling $21,066,449, were
restored to the bank's balance sheet in 1999 by an annual growth figure of
$21,346,321. This was largely made possible by a rapid rate of deposit growth in
1999, which came to 449% of 1998 deposit growth and 283% of 1997 deposit growth.
Another contributing factor was a modest growth in loans during the current
period. Loan growth for 1999 represented 27% of 1998 loan growth and 51% of 1997
loan growth. Attractive offering rates on deposit products and a rising market
interest rate environment caused the growth in deposits during 1999 while
reduced loan demand and loan pay offs and pay downs caused the modest loan
growth. (Please see Statement of Cash Flows, P 24-25 and Balance Sheet, P-22)
LIQUIDITY
Year-end, 1999 holdings of cash and due from banks, readily marketable
securities and federal funds sold came to approximately 38% of total
liabilities, up from approximately 28% at year-end, 1998 and approximately 37%
at year-end, 1997. This accumulation, while harmful to current earnings,
provided a substantial response capability to year-end 1999, Y2K related
liquidity concerns. Current securities holdings consist of one $21,000,000 par
value, FEDERAL HOME LOAN BANK DISCOUNT NOTE, maturing May 10, 2000 and one
17
<PAGE>
LIQUIDITY (CONTINUED)
$3,050,000 par value FEDERAL HOME LOAN BANK DEBENTURE, maturing September 7,
2000. Both of these are pledged to the State of Colorado and the Federal Reserve
Bank in order to meet the bank's pledging requirements regarding uninsured
public funds and federal tax remittances. (Please see Balance Sheet, P-22 and
Note 2, P-29-30)
CAPITAL
Estimated Tier 1 and total risk based capital ratios for year-end, 1999
were 14.23% and 15.49%, respectively, substantially equivalent to the 1998
ratios of 14.16% and 15.41%. The increased proportion of earning assets held in
low risk, cash equivalent categories enabled these ratios to remain stable, in
spite of the decline of the Tier 1 leverage ratio from 8.80% at year-end, 1998
to 7.96% at year-end, 1999.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income in 1999 was only slightly higher ($69,000) on a dollar
basis than the 1998 equivalent and significantly lower when expressed as a
percentage of earning assets. Net interest income for 1999 was only 3.8% of
average earning assets, compared with 4.2% in 1998. This deterioration is
partially a by - product of the bank's preparations for Y2K contingencies,
including the accumulation of significant short term, and low yielding, cash
equivalent assets, the accumulation of much higher than normal vault cash during
the latter half of the year and progressively higher funding costs throughout
the year due to rising market rates. An additional factor was the modest loan
growth in 1999, an area which is normally the most significant opportunity in
the bank for interest revenue growth. Going forward, management will, of
necessity, seek to improve net interest margin by concentrating on both sides of
the balance sheet when making pricing and structuring decisions. (Please see
Table #14, P-13, Tables 1&2, P 4-5 and Table #4, P-7)
OTHER INCOME AND EXPENSE
Other than equipment expense and computer service center expense, all
non-interest expense categories were at significantly higher levels in 1999, a
continuation of a trend tied to expanded facilities, staffing levels and
transaction volume. The growth in the bank's balance sheet has clearly not yet
begun to pay for itself and this is the major challenge to management in
improving earnings. While passage of time normally improves the profitability of
new bank offices, simple reliance upon this will not be sufficient and
efficiencies will have to be sought aggressively across the board in order to
affect meaningful improvement. (Please see Statement of Income, P-23)
Growth in non interest income over the prior year's level is primarily due
to volume increases rather than increases in service charges. This, too, will
need to be altered in order to positively impact earnings and it is management's
belief that some increases in fee rates are obtainable without a material
alteration in the bank's image of being a low cost provider. (Please see
Statement of Income, P-23)
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.
18
<PAGE>
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 1998
with the exception of credit reporting software at the bank's main facility.
Compliant credit reporting software was installed during the second quarter of
1999. The validation phase is still ongoing and all testing and verification
performed since 1999 have failed to produce any evidence of error or
malfunction. This, as of this writing, includes all critical dates falling in
December, 1999 and January 2000 as well as the leap year date, February 29,
2000. The most critical systems that have and will continue to be tested and
verified are those provided by the bank's third party provider of computing
services. These services are highly critical to bank operations and any
significant interruptions in them could materially impact the bank's results.
Finally, the implementation phase is ongoing and will continue in the
post-millennium time frame.
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
additional material expenditures that could be necessary in order to resolve
year 2000 issues.
19
<PAGE>
<TABLE>
<CAPTION>
ITEM 8. Financial statements and supplementary data.
Index to Financial Statements of
The Republic Corporation and Subsidiary PAGE
<S> <C>
Accountant's Report ................................... 21
Balance Sheets as of December 31, 1999 and 1998 ....... 22
Statement of Income for the three years ended
December 31, 1999 ................................ 23
Statement of Cash Flows for the three years ended
December 31, 1999 ................................ 24-25
Statement of Changes in Stockholders' Equity
for the three years ended December 31, 1999 ...... 26
Notes to Financial Statements ......................... 27-40
</TABLE>
20
<PAGE>
[Letterhead]
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
The Republic Corporation
We have audited the consolidated balance sheets of The Republic Corporation as
of December 31, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of its operations and its cash
flows, for each of the three years in the period ending December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ Dixon, Waller & Co., Inc.
Dixon, Waller & Co., Inc.
Trinidad, Colorado
February 18, 2000
21
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Balance Sheet
<TABLE>
<CAPTION>
December 31 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and Due from Banks (Demand) ...................... $ 8,178,452 $ 3,682,131
Investment Securities:
Held to Maturity
Market Value at 12-31-99 - 23,630,302
Market Value at 12-31-98 - 23,869,050 ....... 23,639,383 23,864,557
Available for Sale ............................... 24,000 24,000
------------- -------------
31,841,835 27,570,688
------------- -------------
Loans ................................................. 98,532,057 94,569,025
Plus: Uncollected Earned Interest ............... 747,419 847,969
Less: Allowance or Losses ....................... (1,379,000) (1,233,000)
------------- -------------
Net Loans and Other Receivables ............. 97,900,476 94,183,994
------------- -------------
Federal Funds Sold .................................... 22,500,000 5,650,000
Property, Equipment and Vehicles (Net) ................ 2,625,277 2,610,729
Other Real Estate ..................................... 43,343 47,658
Goodwill .............................................. 436,079 436,079
Other Assets .......................................... 259,166 183,090
------------- -------------
Total Assets ..................................... 155,606,176 130,682,238
============= =============
Liabilities and Stockholders' Equity
Deposits (Domestic):
Demand (Noninterest Bearing) ..................... 15,582,942 16,718,279
Savings, Time and Demand (Interest Bearing) ...... 125,935,777 100,571,189
------------- -------------
141,518,719 117,289,468
------------- -------------
Accounts Payable and Accrued Interest Payable ......... 1,119,265 1,047,005
Accrued Taxes Payable ................................. 57,935 48,155
------------- -------------
Total Liabilities ................................ 142,695,919 118,384,628
------------- -------------
Minority Interest in Consolidated Subsidiary .......... 277,970 264,371
------------- -------------
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 12/31/99, 23,119 Shares at 12/31/98) ..... (91,303) (91,303)
------------- -------------
Total Contributed Capital ............... 500,472 500,472
------------- -------------
Retained Earnings ..................................... 12,131,815 11,532,767
------------- -------------
Stockholders' Equity ............................. 12,632,287 12,033,239
------------- -------------
Total Liabilities and
Stockholders' Equity .................... $ 155,606,176 $ 130,682,238
============= =============
</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 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Interest and Fees on Loans ....................... $ 8,249,415 $ 7,682,475 $ 6,796,396
Interest on Federal Funds Sold ................... 635,926 664,985 1,129,794
Interest and Dividends on
Interest on Federal Funds Sold ................... 635,926 664,985 1,129,794
Interest and Dividends on Investments:
Securities of U.S. Treasury and
Government Sponsored Agencies ............... 1,442,426 1,335,139 1,112,064
Obligations of States, Political
Subdivisions and other Obli-
gations Secured By the
Government .................................. -- -- --
------------ ------------ ------------
Total Interest on Investments ............... 1,442,426 1,335,139 1,112,064
------------ ------------ ------------
Total Interest Income .................. 10,327,767 9,682,599 9,038,227
------------ ------------ ------------
Interest Expense:
Interest on Deposits ............................. 5,146,630 4,571,268 4,452,159
------------ ------------ ------------
Total Interest Expense ...................... 5,146,630 4,571,268 4,452,159
------------ ------------ ------------
Net Interest Income ......................... 5,181,137 5,111,331 4,586,068
Provision for Loan Losses ............................. 237,694 240,895 230,059
------------ ------------ ------------
Net Interest Income after
Provision for Loan Losses ................... 4,943,443 4,870,436 4,356,009
Other Income:
Service Charges on Deposit Accounts .............. 216,222 203,136 202,137
Other Service Charges, Commissions and Fees ...... 302,401 263,849 241,081
Gain on Sale of Securities ....................... -- -- --
Gain on Sale - Other Real Estate ................. 24,541 38,760 72,465
Other Income ..................................... 93,283 91,336 107,609
------------ ------------ ------------
Total Other Income .......................... 636,447 597,081 623,292
------------ ------------ ------------
Other Expenses:
Salaries and Wages ............................... 1,960,142 1,649,366 1,347,288
Payroll Taxes .................................... 149,308 124,833 100,613
Employee Benefits ................................ 316,727 222,967 184,852
Occupancy Expenses ............................... 213,147 171,225 135,321
Equipment Expense ................................ 144,999 144,716 94,652
Depreciation ..................................... 375,543 288,183 197,448
Printing and Supplies ............................ 178,425 138,464 125,288
Computer Service Center .......................... 210,804 212,117 165,771
FDIC Assesment ................................... 14,351 16,692 9,471
Professional Services ............................ 130,373 122,428 132,906
Advertising ...................................... 183,037 163,717 102,234
Other Operating Expenses ......................... 715,846 652,423 523,032
------------ ------------ ------------
Total Other Expenses ........................ 4,592,702 3,907,131 3,118,876
------------ ------------ ------------
Income Before Income Taxes .................. 987,188 1,560,386 1,860,425
------------ ------------ ------------
Less Applicable Income Taxes (Current) ................ 373,282 593,111 699,414
------------ ------------ ------------
Income Before Reduction for Minority Interest .... 613,906 967,275 1,161,011
Less Minority Interest in Income ...................... (14,858) (22,719) (26,986)
------------ ------------ ------------
Net Income ....................................... $ 599,048 $ 944,556 $ 1,134,025
============ ============ ============
Earnings per Share ............................... $ 1.80 $ 2.83 $ 3.40
============ ============ ============
</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 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows and Operating Activities:
Net Income (Loss) ................................ $ 599,048 $ 944,556 $ 1,134,025
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation ................................ 375,543 291,900 201,164
Provision for Loan Losses ................... 237,694 240,895 230,059
Amortization (Accretion) of
Discounts and Premiums ................. (1,409,744) (840,807) (471,569)
Other Real Estate Gains/Net ................. (24,541) (38,760) (72,465)
Re-Appraisal - Other Real Estate ............ -- -- 12,500
Gain on Sale of Securities .................. -- -- --
(Decrease) Increase in
Interest Payable ....................... 72,260 (168,082) 319,597
(Increase) Decrease in
Interest Receivable .................... 100,550 (194,528) (23,764)
(Increase) Decrease in
Other Assets ........................... (76,076) 304,443 (192,275)
Increase (Decrease) in
Other Liabilities ...................... 23,379 (84,459) 213,820
------------- ------------- -------------
Total Adjustments ................ (700,935) (489,398) 217,067
------------- ------------- -------------
Net Cash Provided By (Used In)
Operating Activities ............................. (101,887) 455,158 1,351,092
------------- ------------- -------------
Cash Flows from Investing Activities:
Proceeds from Sales of Investment Securities ..... -- -- --
Proceeds from Maturities of
Investment Securities ....................... 118,000,000 70,000,000 61,000,000
Purchase of Investment Securities ................ (116,365,082) (65,035,460) (78,510,353)
Loans Made to Customers-Net Cash Activity ........ (4,100,712) (15,052,296) (8,011,488)
Capital Expenditures ............................. (390,091) (1,060,074) (392,333)
Proceeds from Sale of Other Real Estate .......... 74,842 13,949 222,424
------------- ------------- -------------
Net Cash Provided by
(Used In) Investing Activities ................... (2,781,043) (11,133,881) (25,691,750)
------------- ------------- -------------
Cash Flows from Financing Activities:
Net Increase in Demand Deposits, NOW
Accounts, Savings Accounts and
Certificates of Deposit .......................... 24,229,251 5,393,552 8,559,380
Purchase of Treasury Stock ....................... -- -- --
------------- ------------- -------------
Net Cash Provided by
(Used In) Financing Activities ................... 24,229,251 5,393,552 8,559,380
------------- ------------- -------------
Net Increase (Decrease) in Cash
and Cash Equivalents ............................. 21,346,321 (5,285,171) (15,781,278)
</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 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and Cash Equivalents
at Beginning of Year:
Cash and Due from Banks ..................... 3,682,131 3,467,302 3,273,580
Federal Funds Sold .......................... 5,650,000 11,150,000 27,125,000
----------- ----------- -----------
Cash and Cash Equivalents
at Beginning of Year ........................ 9,332,131 14,617,302 30,398,580
----------- ----------- -----------
Cash and Cash Equivalents
at End of Year:
Cash and Due from Banks ..................... 8,178,452 3,682,131 3,467,302
Federal Funds Sold .......................... 22,500,000 5,650,000 11,150,000
----------- ----------- -----------
Cash and Cash Equivalents
at End of Year .............................. $30,678,452 $ 9,332,131 $14,617,302
=========== =========== ===========
Supplemental Disclosures of
Cash Flow Information
Cash Paid for Interest ...................... $ 5,074,370 $ 4,739,350 $ 4,132,562
=========== =========== ===========
Cash Paid for Income Tax .................... $ 409,168 $ 621,414 $ 678,814
=========== =========== ===========
</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
12-31-96 ....... $ 356,844 $ 234,931 $ (91,303) $ 500,472 $ 9,454,186 $ 9,954,658
Net Income ......... -- -- -- -- 1,134,025 1,134,025
----------- ----------- ----------- ----------- ----------- -----------
Balance at
12-31-97 ....... 356,844 234,931 (91,303) 500,472 10,588,211 11,088,683
Net Income ......... -- -- -- -- 944,556 944,556
----------- ----------- ----------- ----------- ----------- -----------
Balance at
12-31-98 ....... 356,844 234,931 (91,303) 500,472 11,532,767 12,033,239
Net Income ......... -- -- -- -- 599,048 599,048
----------- ----------- ----------- ----------- ----------- -----------
Balance at
12-31-99 ....... $ 356,844 $ 234,391 $ 91,303 $ 500,472 $12,131,815 $12,632,287
=========== =========== =========== =========== =========== ===========
</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.
FINANCIAL STATEMENT PRESENTATION. Amounts have been reclassified and
additional line items have been presented in previously issued financial
statements to allow comparability with the financial statements for 1999
and the year then ended.
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, 1999 December 31, 1998
--------------------------------------- ---------------------------------------
Principal Book Market Principal Book Market
Amount Value Value Amount Value Value
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Government Securities .................. $24,050,000 $23,639,383 $23,630,302 $24,000,000 $23,864,557 $23,869,050
Obligations of States and Political
Sub-Divisions .......................... -- -- -- -- -- --
Other .................................. $ 24,000 24,000 24,000 $ 24,000 24,000 24,000
=========== ----------- ----------- =========== ----------- -----------
$23,663,383 $23,654,302 $23,888,557 $23,898,050
=========== =========== =========== ===========
</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 $23,391,070 at December
31, 1999 and $11,715,533 at December 31, 1998. Additionally, $248,313 was
pledged to the Federal Reserve Bank in order to secure treasury, tax and
loan remittances at December 31, 1999.
Net gains on the sale of securities were as follows:
<TABLE>
<CAPTION>
1999 1998
<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, 1999
U.S. Treasury Securities .................. -- -- -- --
Government Sponsored Agencies ............. $23,639,383 -- $ 9,081 $23,630,302
Other ..................................... 24,000 -- -- 24,000
----------- ------ ----------- -----------
$23,663,383 -- $ 9,081 $23,654,302
=========== ====== =========== ===========
DECEMBER 31, 1998
U.S. Treasury Securities .................. -- -- -- --
Government Sponsored Agencies ............. $23,864,557 $4,493 -- $23,869,050
Other ..................................... 24,000 -- -- 24,000
----------- ------ ----------- -----------
$23,888,557 $4,493 -- $23,893,050
=========== ====== =========== ===========
</TABLE>
3. Loans and Other Receivables
Loans and other receivables are summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
TYPE 1999 1998
----------- -----------
<S> <C> <C>
Real Estate ............................ $77,369,285 $73,075,345
Commercial and Industrial .............. 7,189,099 7,371,019
Agriculture ............................ 3,464,257 4,155,528
Loans to Individuals for Household,
Family and Other Consumer Goods .. 10,494,086 9,957,149
Other .................................. 15,330 9,984
----------- -----------
TOTAL ............................ $98,532,057 $94,569,025
=========== ===========
</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,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Balance at Beginning of Year ...... $1,233,000 $1,070,000 $ 964,057
Provision Charged to
Operating Expenses ........... 237,694 240,895 230,059
Loans Charged Off ................. 138,074 128,284 180,345
Recoveries on Loans
Previously Charged Off ....... 46,380 50,389 56,229
---------- ---------- ----------
Balance at End of Year ............ $1,379,000 $1,233,000 $1,070,000
========== ========== ==========
</TABLE>
At December 31, 1999 and 1998, 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 $1,859,000 and $1,065,000
respectively. The average recorded investment in impaired loans amounted to
approximately $1,093,000 and $1,656,000 for the years ended December 31,
1999 and 1998, respectively. The allowance for loan losses related to
impaired loans amounted to approximately $122,350 and $21,500 at December
31, 1999 and 1998, respectively. Interest income on impaired loans of
$22,860 and $67,703 was recognized for cash payments received in 1999 and
1998 respectively.
4. Property and Equipment.
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Land .............................. $ 134,750 $ 134,750 $ 114,751
Buildings ......................... 2,970,234 2,815,269 2,202,422
Furniture and Equipment ........... 2,237,763 2,002,637 1,590,229
---------- ---------- ----------
5,342,747 4,952,656 3,907,402
Less Accumulated Depreciation ..... 2,717,470 2,341,927 2,064,847
---------- ---------- ----------
Net ............................ $2,625,277 $2,610,729 $1,842,555
========== ========== ==========
</TABLE>
Depreciation expense for 1999, 1998 and 1997 was $375,543, $291,890
and $201,164, 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,
---------------------------------------
1999 1998 1997
--------- ---------- ---------
<S> <C> <C> <C>
Federal Provision:
Current ................ $ 384,952 $579,168 $656,555
Deferred ............... -- -- --
--------- -------- --------
384,952 579,168 656,555
State Provision ........ (11,670) 13,943 42,859
--------- -------- --------
Total .................. $ 373,282 $593,111 $699,414
========= ======== ========
</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>
1999 1998 1997
----------------- ------------------ ------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Statutory Tax Rate Federal ... $ 336 34 $ 530 34 $ 633 34
State Income Tax ............. (12) (1) 22 1 43 2
Tax Exempt Revenue ........... (2) -- (9) (1) (11) (1)
Provision for Loan Loss ...... 49 5 55 4 36 2
Other (Net) .................. 2 -- (5) -- (2) --
----- -- ----- -- ----- --
Total .................... $ 373 38 $ 593 38 $ 699 37
===== === ===== === ===== ===
</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 1999,
1998 and 1997 were $210,804, $212,117 and $165,771, 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.
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.
Other real estate was sold at a gain of $38,760 in the year ended
December 31, 1998.
For 1999, sales of other real estate resulted in a gain of $24,541.
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 $20,788,185 and $15,371,575 at December 31, 1999 and
1998, respectively. Interest expense for the years ended December 31, 1999,
1998 and 1997 on this type of deposit was $890,971, $859,782, and $619,979,
respectively.
The deposits by time remaining until maturity were (dollars in
thousands).
<TABLE>
<S> <C>
3 Months or Less ........ $10,128
3 to 6 Months ........... 5,453
6 to 12 Months .......... 4,139
Over 12 Months .......... 1,068
-------
$20,788
=======
</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, 1999, that the Bank
could declare, without the approval of the Comptroller of the Currency,
amounted to approximately $1,600,000. 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, 1999, Banks are required to have
minimum Tier 1 and Total capital ratios of 4.00% and 8.00%, respectively.
The Bank's estimated ratios estimated at December 31, 1999 were $14.23% and
15.49%, respectively. The Bank's estimated Tier 1 leverage ratio at
December 31, 1999 was 7.96%. The minimum required leverage ratio for the
Bank at December 31, 1999, was 3.00%.
10. Supplemental Cash Flow Information
In 1999 and 1998, the Bank recorded amounts of other real estate
acquired through foreclosure of $285,120 and $179,209. Of total sales of
other real estate during 1999 and 1998, $239,134 and $184,851 of the
purchase price was financed by the Bank, taking the other real estate as
security. Loans charged off due to foreclosure transactions in 1999, 1998
and 1997 amounted to $138,074, $179,209 and $67,000. 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 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash in Bank ..................................... $ 39,468 $ 33,191
Investment in Subsidiary - Equity Method ......... 12,512,315 11,921,544
Vehicles and Equipment (Net) ..................... -- --
Receivable - Due from Subsidiary ................. 23,900 21,000
Other Assets ..................................... 56,604 56,604
------------ ------------
Total Assets .................................. 12,632,287 12,033,239
============ ============
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 1999 and 1998, Respectively .... 356,844 356,844
Additional Paid in Capital ....................... 234,931 234,931
Less Cost of Treasury Stock (23,119 Shares
at 12-31-99, 23,119 Shares at 12-31-98) ....... (91,303) (91,303)
------------ ------------
Total Contributed Capital ................ 500,472 500,472
------------ ------------
Retained Earnings ................................ 12,131,815 11,532,767
------------ ------------
Total Stockholders' Equity .................... 12,632,287 12,033,239
------------ ------------
Total Liabilities and
Stockholders' Equity .......................... $ 12,632,287 $ 12,033,239
============ ============
</TABLE>
34
<PAGE>
THE REPUBLIC CORPORATION
Statement of Income
<TABLE>
<CAPTION>
(Note 11 Continued)
Year Ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Investment Income in Subsidiary
Dividends Received from
Subsidiary Bank ..................... $ 54,740 $ 54,740 $ 39,100
Other Income ............................. -- -- --
-------- -------- -----------
Total Income ........................ 54,740 54,740 39,100
-------- -------- -----------
Expenses
Salaries and Employee Benefits ................ 51,073 46,073 41,073
Depreciation .................................. -- -- --
Examination and Legal Fees .................... 11,115 10,468 9,451
Miscellaneous ................................. -- -- 100
Office ........................................ 4,035 4,093 4,254
Taxes ......................................... 4,140 3,739 3,300
Travel ........................................ -- -- --
-------- -------- -----------
Total Expenses ........................... 70,363 64,373 58,178
-------- -------- -----------
Income (Loss) Before Equity in
Undistributed Net Income of Subsidiary ... (15,623) (9,633) (19,078)
Less Applicable Income (Taxes) Benefit ... 23,900 21,900 19,800
-------- -------- -----------
8,277 12,267 722
Equity in Undistributed Net Income
(Loss) of Subsidiary ..................... 590,771 932,289 1,133,303
-------- -------- -----------
Net Income (Loss) ........................ $599,048 $944,556 $ 1,134,025
======== ======== ===========
Earnings Per Share
Weighted Average Number of
Shares Outstanding .................. 333,725 333,725 333,725
======== ======== ===========
Net Income (Loss) per Common Share ....... $ 1.80 $ 2.83 $ 3.40
======== ======== ===========
</TABLE>
35
<PAGE>
THE REPUBLIC CORPORATION
Statement of Cash Flows
<TABLE>
<CAPTION>
(Note 11 Continued)
Year Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income ............................. $ 599,048 $ 944,556 $ 1,134,025
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Depreciation ......................... -- -- --
Dividends Received - Subsidiary ...... (54,740) (54,740) (39,100)
(Increase) in Investment in
Subsidiary-Held on the
Equity Method ...................... (590,771) (932,289)
(Increase) Decrease in Receivable
from Subsidiary-Income
Tax Benefit ........................ (2,000) (2,100) 200
Increase (Decrease) in Current
Liabilities ....................... -- -- --
--------- --------- -----------
Net Cash (Used In) Operating Activities (48,463) (44,573) (38,178)
--------- --------- -----------
Cash Flows From Investing Activities-
Dividends Received ................... 54,740 54,740 39,100
--------- --------- -----------
Cash Flows From Financing Activities-
Purchase of Treasury Stock ........... -- -- --
--------- --------- -----------
Net Increase (Decrease) in Cash ...... 6,277 10,167 922
Cash - Beginning of Year ............... 33,191 23,024 22,102
--------- --------- -----------
Cash - End of Year ..................... $ 39,468 $ 33,191 $ 23,024
========= ========= ===========
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
Years Ended Capital Paid in Treasury Contributed Retained
Stock Capital Stock Capital Earnings
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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*
Net Income ........................ -- -- -- -- $ 944,556
Additions to Treasury Stock ....... -- -- -- -- --
-------- -------- -------- -------- -----------
Balance at December 31, 1998 ...... $356,844 $234,931 $(91,303) $500,472 $11,532,767*
Net Income ........................ -- -- -- -- $ 599,048
Additions to Treasury Stock ....... -- -- -- -- --
-------- -------- -------- -------- -----------
Balance at December 31, 1999 ...... $356,844 $234,931 $(91,303) $500,472 $12,131,815*
======== ======== ======== ======== ===========
</TABLE>
*On December 31, 1996, 1997, 1998 and 1999 the portion of retained earnings
resulting from Republic Corporation's equity in the undistributed income of its
subsidiary was $8,637,872, $9,771,176, $10,703,465 and $11,294,236 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, 1999, is as follows:
<TABLE>
<S> <C>
Commitments to extend credit $ 5,330,000
Standby letters of credit 313,000
</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, 1999, 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, 1999
----------------------
Carrying Fair
Amount Value
-------- --------
(In Thousands)
<S> <C> <C>
Financial assets:
Cash and Due From Banks ........ $ 8,178 $ 8,178
Held-to-Maturity Securities .... 23,639 23,630
Other Securities ............... 24 24
Federal Funds Sold ............. 22,500 22,500
Loans, Net of Allowance ........ 97,153 96,981
Financial Liabilities:
Deposits ....................... 141,519 141,480
</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, 1999. 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.
<TABLE>
<CAPTION>
TERM OF PRINCIPAL OCCUPATIONS FOR THE
NAME AND TITLE AGE OFFICE LAST FIVE YEARS
<S> <C> <C> <C>
Catherine G. Eisemann 73 36 Years Catherine G. Eisemann has been a
Director of The Republic
Corporation for 36 years. Mrs.
Eisemann was elected President of
The Republic Corporation and
began serving December 11, 1981.
J.E. Eisemann, IV 52 23 Years J.E. Eisemann, IV has served as a
Director on The Republic
Corporation Board for 23 years.
Mr. Eisemann has been the
Vice-President and Director of
the Subsidiary Bank for
approximately 22 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 18 years.
Roger Dean Eisemann 45 17 Years Roger Dean Eisemann was elected
Secretary and began serving as a
director of The Republic
Corporation in July, 1982.
</TABLE>
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 1999 $ 80,073 (1) $ 3,450 (2)
Board of the Company, Vice 1998 78,073 (1) 6,700 (2)
President of the Company, 1997 76,073 (1) 6,500 (2)
Chairman of the Board & Vice
President of the Subsidiary Bank
Catherine Eisemann President of the 1999 $ 30,000 -0-
Company 1998 30,000 -0-
1997 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 $6,435 in 1997, $6,633 in 1998 and $8,140
in 1999.
(2)Includes amounts deferred under Section 401(K) of the Internal Revenue Code.
Amounts deferred by Mr. Eisemann were $715 in 1997, $737 in 1998 and $428 in
1999.
STOCK OPTIONS/SAR GRANTS IN 1999-NONE
AGGREGATED STOCK OPTIONS/SAR EXERCISES IN 1999 AND OPTIONS/SAR
VALUES AS OF DECEMBER 31 1999 - NONE
LONG-TERM INCENTIVE PLANS - AWARDS IN 1999 - 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 7.75
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. No directors were indebted to the subsidiary bank
during 1999.
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:
<TABLE>
<S> <C>
Consolidated statements of the parent and subsidiary bank:
Accountant's Report ....................................... 21
Balance Sheets as of December 31, 1999 and 1998 ........... 22
Statements of Income - Years Ended
December 31, 1999, 1998 and 1997 ....................... 23
Statement of Cash Flows - Years ended
December 31, 1999, 1998 and 1997 ....................... 24-25
Statement of Changes in Stockholders' Equity-years
ended December 31, 1999, 1998 and 1997 ................. 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.
<TABLE>
<CAPTION>
Exhibit
No.
-------
<S> <C>
3 The Republic Corporation, Articles of Incorporation and By-Laws
22 (a) Subsidiary of the Registrant.
</TABLE>
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, 1999.
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 Board, 3/3/00
- ------------------------ Director, Chief Executive -------------
J.E. Eisemann, IV Officer, Chief Financial Date
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 Board, 3/3/00
- ------------------------- Director, Chief Executive -------------
J.E. Eisemann, IV Officer, Chief Financial
and Accounting Officer
/s/ Catherine G. Eisemann President of the 3/3/00
- ------------------------- 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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,178,452
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 22,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,000
<INVESTMENTS-CARRYING> 23,639,383
<INVESTMENTS-MARKET> 23,630,302
<LOANS> 98,532,057
<ALLOWANCE> 1,379,000
<TOTAL-ASSETS> 155,606,176
<DEPOSITS> 141,518,719
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,177,200
<LONG-TERM> 0
0
0
<COMMON> 356,844
<OTHER-SE> 12,275,443
<TOTAL-LIABILITIES-AND-EQUITY> 155,606,176
<INTEREST-LOAN> 8,249,415
<INTEREST-INVEST> 1,442,426
<INTEREST-OTHER> 635,926
<INTEREST-TOTAL> 10,327,767
<INTEREST-DEPOSIT> 5,146,630
<INTEREST-EXPENSE> 5,146,630
<INTEREST-INCOME-NET> 5,181,137
<LOAN-LOSSES> 237,694
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,592,702
<INCOME-PRETAX> 987,188
<INCOME-PRE-EXTRAORDINARY> 987,188
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 599,048
<EPS-BASIC> 1.80
<EPS-DILUTED> 1.80
<YIELD-ACTUAL> .071
<LOANS-NON> 837,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,022,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,233,000
<CHARGE-OFFS> 138,000
<RECOVERIES> 46,000
<ALLOWANCE-CLOSE> 1,379,000
<ALLOWANCE-DOMESTIC> 126,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,253,000
</TABLE>
