<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Six Months Ended June 30, 2000. Commission File Number 0-8597
-----------------------------
THE REPUBLIC CORPORATION
------------------------
Texas 74-0911766
----- ----------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5340 Weslayan - P.O. Box 270462, Houston, TX 77277
---------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 713-993-9200
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such report(s), and (2) has been subject to such filing requirements for
the past 90 days.
YES X. NO .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 30, 2000
Common Stock, $1.00 par value Shares 356,844
----------------------------- ------------
Outstanding at June 30,
2000, (including 23,119
shares held as treasury
shares)
<PAGE>
THE REPUBLIC CORPORATION
Index to Quarterly Report on Form 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
December 31, 1999, and June 30, 2000. 1
Consolidated Statements of Income for the three months
and six months ended June 30, 1999 and 2000. 2
Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and 2000. 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis 5-9
Part II. Other Information 10
Signatures 11
</TABLE>
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Balance Sheet
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks (demand) ..................................... $ 4,451,169 $ 8,178,452
Investment securities:
Held-to-maturity
Market value at 6-30-00 28,604,471
Market value at 12-31-99 23,630,302 ................... 28,622,357 23,639,383
Available-for-sale
Market value at 6-30-00 24,000
Market value at 12-31-99 24,000 ................... 24,000 24,000
----------------- -----------------
$ 33,097,526 $ 31,841,835
Loans ................................................................ 109,657,718 98,532,057
Plus: Uncollected earned interest ............................ 994,318 747,419
Less: Allowance for losses ................................... (1,448,000) (1,379,000)
----------------- -----------------
Net loans and other receivables .............................. 109,204,036 97,900,476
Federal funds sold ................................................... 21,825,000 22,500,000
Property, equipment and vehicles (net) ............................... 2,585,770 2,625,277
Other real estate .................................................... 43,343 43,343
Goodwill ............................................................. 436,079 436,079
Other assets ......................................................... 366,880 259,166
----------------- -----------------
Total assets ................................................. $ 167,558,634 $ 155,606,176
----------------- -----------------
Liabilities and Stockholders' Equity
Deposits (Domestic):
Demand (non-interest bearing) ................................ $ 22,199,604 $ 15,582,942
Savings, time and demand (Interest-bearing) .................. 130,464,664 125,935,777
----------------- -----------------
$ 152,664,268 $ 41,518,719
Accounts payable and accrued interest payable ........................ 1,309,240 1,119,265
Accrued taxes payable ................................................ 252,969 57,935
----------------- -----------------
Total liabilities ............................................ $ 154,226,477 $ 42,695,919
----------------- -----------------
Minority Interest in Consolidated Subsidiary ......................... 288,110 277,970
----------------- -----------------
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 6-30-00 and
23,119 at 12-31-99) .......................................... (91,303) (91,303)
----------------- -----------------
Total contributed capital ............................. 500,472 500,472
----------------- -----------------
Retained earnings .................................................... 12,543,575 12,131,815
----------------- -----------------
Net Unrealized Gain (Loss) on Securities
Available-for-Sale (Net of Taxes) ............................ -0- -0-
Stockholders'equity ................................... 13,044,047 12,632,287
----------------- -----------------
Total liabilities and stockholders equity .................. $ 167,558,634 $ 155,606,176
----------------- -----------------
</TABLE>
The accompanying note is an integral part of these financial statements.
(1)
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Statement of Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- ----------------------
June 30 June 30 June 30 June 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $2,328,378 $2,038,011 $4,479,431 $4,037,712
Interest on funds sold and securities
purchased under agreement to resell 364,936 128,919 745,636 196,632
Interest and dividends on investments
Securities of U.S. Government and
government agencies 298,110 334,500 583,769 630,862
Obligations of states, political
subdivisions and other obligations
secured by the government 135,336 -0- 179,937 -0-
---------- ---------- ---------- ----------
Total interest on investments 798,382 463,419 1,509,342 827,494
---------- ---------- ---------- ----------
Total interest income 3,126,760 2,501,430 5,988,773 4,865,206
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 1,633,796 1,211,978 3,174,156 2,311,865
---------- ---------- ---------- ----------
Total Interest expense 1,633,796 1,211,978 3,174,156 2,311,865
---------- ---------- ---------- ----------
Net interest income 1,492,964 1,289,452 2,814,617 2,553,341
Provision for loan losses (113,028) (57,979) (234,362) (107,734)
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses 1,379,936 1,231,473 2,580,255 2,445,607
---------- ---------- ---------- ----------
Other income:
Service charges on deposit accounts 56,983 54,198 112,645 105,006
Other service charges, commission and fees 169,304 67,710 285,495 141,613
Gain on sale of securities -0- -0- -0- -0-
Net income- other real estate -0- 15,839 -0- 15,839
Other income 20,597 17,469 37,396 34,011
---------- ---------- ---------- ----------
Total other income 246,884 155,216 435,536 296,469
---------- ---------- ---------- ----------
Other expenses:
Salaries and wages 471,334 472,961 943,480 916,084
Employee benefits 126,313 116,492 237,279 220,499
Net occupancy expenses 141,836 77,556 218,230 140,924
Furniture and equipment expenses 19,387 21,427 60,004 65,520
Depreciation other than rental property 65,263 59,153 126,199 118,304
Net cost-other real estate -0- -0- -0- -0-
Computer service center 45,974 59,214 138,405 113,643
FDIC-insurance 7,488 3,419 21,884 10,566
Professional services 27,657 34,745 112,487 78,107
Advertising 70,619 36,905 105,681 62,342
Other operating expenses 192,140 188,809 397,242 374,385
---------- ---------- ---------- ----------
Total other expenses 1,168,011 1,070,681 2,360,891 2,100,374
---------- ---------- ---------- ----------
Income before income taxes 458,809 316,008 654,900 641,702
Less applicable income taxes (Current) 163,330 111,000 233,000 241.000
---------- ---------- ---------- ----------
Income before reduction for minority interest 295,479 205,008 421,900 400,702
Less minority interest income (loss) 6,919 4,784 10,141 9,483
---------- ---------- ---------- ----------
Net income $ 288,560 $ 200,224 $ 411,759 $ 391,219
---------- ---------- ---------- ----------
Earnings per share $ .86 $ .60 $ 1.23 $ 1.17
---------- ---------- ---------- ----------
</TABLE>
The accompanying note is an integral part of these financial statements.
(2)
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
June 30 June 30
2000 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows and operating activities:
Net income (loss) ................................................ $ 411,759 $ 391,219
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ....................................... 168,266 157,739
Provision for loan losses .......................... 234,362 107,734
Amortization (accretion) of discounts and
Premium ....................................... (582,849) (630,142)
Other real estate gains/net ........................ -0- (15,839)
Investment Securities gains/net .................... -0- -0-
Re-appraisal - other real estate ................... -0- -0-
(Decrease) increase in interest payable ............ 189,975 97,299
(Increase) decrease in interest receivable ......... (246,899) 96,596
(Increase) decrease in other assets ................ (107,714) 440,679
Increase (decrease) in other liabilities ........... 205,174 (361,815)
--------------- --------------
Total adjustments ........................................................ (139,685) (107,749)
--------------- --------------
Net cash provided by (used in) operating activities ...................... 272,074 283,470
--------------- --------------
Cash flows from investing activities
Proceeds from sales of investment securities ..................... -0- -0-
Proceeds from maturities of investment securities ................ 21,000,000 50,000,000
Purchase of investment securities ................................ (25,400,125) (55,348,780)
Loans made to customers net cash activity ........................ (11,291,022) (1,239,102)
Capital expenditure .............................................. (128,759) (102,841)
Proceeds from sale of other real estate .......................... -0- 11,759
--------------- --------------
Net cash provided by (used in) investing activities ...................... (15,819,906) (6,678,964)
--------------- --------------
Cash flows from financing activities
Net increase (decrease) in demand deposits, NOW
account, savings accounts and certificates of deposit............. 11,145,549 13,595,493
Purchase of treasury stock ............................................... -0- -0-
--------------- --------------
Net cash provided by (used in) financing ................................. 11,145,549 13,595,493
--------------- --------------
Net increase (descrease) in cash and cash equivalents .................... (4,402,283) 7,199,999
--------------- --------------
Cash and cash equivalents at beginning of year:
Cash and due from banks .......................................... 8,178,452 3,682,131
Federal funds sold ............................................... 22,500,000 5,650,000
--------------- --------------
Cash and cash equivalents at beginning of year ........................... 30,678,452 9,332,131
--------------- --------------
Cash and cash equivalents at June 30, 2000
Cash and due from banks .......................................... 4,451,169 4,882,130
Federal funds sold ............................................... 21,825,000 11,650,000
--------------- --------------
Cash and cash equivalents at June 30, 2000 ............................... $ 26,276,169 $ 16,532,130
=============== ==============
Supplemental disclosures of cash flow information:
Cash paid for interest ........................................... 2,984,181 2,214,566
Cash paid for income tax ......................................... 208,952 172,168
</TABLE>
The accompanying note is an integral part of these financial statements.
(3)
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2000
Note 1 -- BASIS OF PREPARATION AND PRESENTATION
The consolidated financial statements included herein have been prepared
by The Republic Corporation, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation. The condensed consolidated financial statements include the
accounts of the company and its subsidiaries. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Republic Corporation believes that
the disclosures are adequate to make the information presented not misleading;
however, it is suggested that these financial statements be read in conjunction
with the financial statements and the notes thereto which are on Form 10-K for
the fiscal year ended December 31, 1999. The financial data for the interim
periods may not necessarily be indicative of results to be expected for the
year.
Securities that will be held for indefinite periods of time, including
securities that will be used as part of the Company's asset/liability management
strategy and that may be sold in response to changes in interest rates,
prepayments, and similar factors, are classified as Available-for-Sale and
accounted for at fair value.
(4)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
ASSET QUALITY
The total of loans placed on non-accrual remains at an elevated level,
largely due to the involved customers falling 30 days past due at some point.
These accounts remain on non-accrual status, even though most are now current,
for a number of months so that management can observe the customer's financial
condition and payment performance. Once the financial picture has improved and
payments have been current for at least a quarter, the bank typically places
these accounts back on accrual status. In those instances where the account
remains over 30 days past due, the bank normally places the account in
collection.
The restructured loan total continues to represent one commercial loan
which has received a lower interest rate due to financial difficulties.
TABLE 1 PROBLEM ASSETS
<TABLE>
<CAPTION>
(dollars in thousands) June 30 December 31
------- -----------------------
2000 1999 1998 1997
<S> <C> <C> <C> <C>
Nonaccrual loans $ 903 $ 837 $ 351 $ 809
Past-due loans (over 90 days) -0- -0- -0- -0-
Restructured loans 414 1,022 714 2,465
-------- ------ ------ ------
Total problem loans $ 1,317 $ 1,859 $ 1,065 $ 3,274
Foreclosed assets
Real estate 43 43 48 9
In-substance foreclosures -0- -0- -0- -0-
Other 8 23 28 5
-------- ------ ------ ------
Total Problem Assets $ 1,368 $ 1,925 $ 1,141 $ 3,288
Total problem loans as
a percentage of total loans 1.2% 1.9% 1.1% 4.1%
Total problem assets as a
percentage of total loans
and foreclosed assets 1.2% 2.0% 1.2% 4.1%
</TABLE>
TABLE 2 LOAN CONCENTRATIONS
<TABLE>
<CAPTION>
(dollars in thousands)
June 30 December 31
------- -----------------
2000 1999 1998
<S> <C> <C> <C>
Commercial $ 8,020 $ 7,189 $ 7,371
Agricultural 3,733 3,464 4,156
Real Estate-Construction 7,046 6,112 6,423
Real Estate-Mortgage 79,794 71,257 66,652
Installment loans to Individuals 11,067 10,510 9,967
------- -------- --------
Totals $109,660 $ 98,532 $ 94,569
</TABLE>
(5)
<PAGE>
SOURCES AND USES OF FUNDS
The predominant cash flow profile for the first half of 2000 was the
almost dollar-for-dollar placement of deposit growth into new loans. During the
period, deposit growth of $11,146 m occurred in conjunction with $11,291m in
loan growth. This contrasts with $13,595m in deposit growth for the same period
last year, coupled with a much smaller $1,239m, prior year period loan growth.
The current period also saw an approximate $4,402 reduction in cash and cash
equivalents and a $4,400 increase in investment securities. (Please see
Statement of Cash Flows, P-3)
LIQUIDITY
Period-end holdings of cash and due from banks, readily marketable
securities and federal funds sold came to approximately 35.5%, down from the 38%
which existed at year-end, 1999. The primary reason for the decline was the
brisk rate of loan growth during the first half. (Please see Balance Sheet, P-1)
INTEREST RATE SENSITIVITY MANAGEMENT
The bank has extended some maturities in the investment portfolio based
upon the possibility that the Federal Reserve is near the end of its monetary
tightening. The predominant configuration, however, remains a defensive one,
should interest continue to rise. (Please see Repricing Schedule, P-7)
(6)
<PAGE>
INTEREST RATE SENSITIVITY MANAGEMENT
Table 3 - REPRICING SCHEDULE
6-30-00
<TABLE>
<CAPTION>
(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 days)
Loans * 14,943 45,646 34,639 13,511
Federal Funds Sold 21,825 -0- -0- -0-
Taxable Securities ** 3,050 16,000 10,000 -0-
Municipal Bonds -0- -0- -0- -0-
TOTAL 39,818 61,646 44,639 13,511
RATE SENSITIVE LIABILITIES
(Liabilities that can be
repriced within X days)
Time Certificates of Deposit 32,480 39,715 4,362 -0-
NOW Accounts 1,852 -0- -0- -0-
Super NOW Accounts 30,643 -0- -0- -0-
Savings Accounts 9,519 -0- -0- -0-
MMDA Accounts 13,427 -0- -0- -0-
TOTAL 87,921 39,715 4,362 -0-
Interest Rate Sensitivity Gap (48,103) 21,931 40,277 13,511
Cumulative Interest Rate
Sensitivity Gap (48,103) (26,172) 14,105 27,616
</TABLE>
* Does not include $903,000 in nonaccruing loans or overdrawn
demand deposits of $16,000
** Does not include $24,000 in Federal Reserve Bank stock
(7)
<PAGE>
INVESTMENT SECURITIES
TABLE 4
<TABLE>
<CAPTION>
CARRYING UNREALIZED UNREALIZED MARKET
(dollars in thousands) VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
JUNE 30, 2000
(1) Held-to-Maturity:
U.S. Treasury Securities -- -- -- --
Other 28,622,357 -- 17,886 28,604,471
(2) Available-for-Sale Securities
Carried at Fair Value:
U.S. Treasury Securities -- -- -- --
Other 24,000 -- -- 24,000
---------- ---------- ---------- ----------
28,646,357 -- 17,886 28,628,471
---------- ---------- ---------- ----------
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
---------- ---------- ---------- ----------
</TABLE>
(1) Securities which the Bank has the ability and intent to hold to maturity.
These securities are stated at cost, adjusted for amortization of premiums and
accretion of discounts, computed by the interest method. Because securities are
purchased for investment purposes and quoted market values fluctuate during the
investment period, gains and losses are recognized upon disposition or at such
time as management determines that a permanent impairment of value has occurred.
Cost of securities sold is determined on the specific identification method.
(2) Securities that the bank may sell in response to changes in market
conditions or in the balance sheet objectives of the bank. Securities in this
category will be reported at fair market value. Unrealized gains or losses (net
of tax) will be reported as a separate item in the shareholder's equity section
of the balance sheet. Adjustments will be recorded at least quarterly.
(8)
<PAGE>
CAPITALIZATION:
The rate of asset growth continues to exceed retained earnings growth,
causing a further decline in all capital ratios. Some of the reduction in the
risk-based ratios is also tied to growth in loan categories that carry higher
risk ratings than cash equivalent assets. (Please see table 5, P-9)
Table 5 - CAPITAL
<TABLE>
<CAPTION>
* June 30 December
------- --------
2000 1999
<S> <C> <C>
Tier 1 risk-based capital
(minimum is 4%) 13.25% 14.07%
Tier 1 + Tier 2 risk based capital
(minimum is 8%) 14.50% 15.33%
Tier 1 leverage (minimum is 3%) 7.66% 7.96%
*ESTIMATE
</TABLE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, when annualized and expressed as a percentage of
period-end, interest bearing assets, rose to 3.73% for the second quarter of
2000, compared to 3.40% for the first quarter. This trend, a by-product of loan
growth and adjustments made to both sides of the balance sheet, will provide a
significant contribution to improved earnings for the year 2000. (Please see
Balance Sheet, P-1 and Statement of Income, P-2)
OTHER INCOME AND EXPENSE
The provision for loan losses is approximately double that of the prior
year, primarily a result of the need to restore the loan loss reserve following
a $111m charge-off in the first quarter and as a result of brisk loan growth
which increases loss exposure.
Non-interest income grew significantly over prior year levels, due
primarily to rate driven, and to a lesser degree, volume driven increases in
loan fee revenue.
Net occupancy expense is higher this year due to an expenditure to date
of approximately $67m for stone repair on the bank's main building and
advertising expense is higher by approximately $25m due to costs associated with
the bank's 125th anniversary booklet and celebration. Also, Internet banking
start-up costs of approximately $43m caused a higher than normal expenditure on
computer services. The remaining increases are tied to growth factors. (Please
see Statement of Income, P-2)
(9)
<PAGE>
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
not applicable
Item 2. CHANGES IN SECURITIES
not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
not applicable
Item 5. OTHER INFORMATION
not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Exhibits
none
b). No reports on Form 8-K have been filed during the
quarter for which this report was filed.
(10)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE REPUBLIC CORPORATION
Date: July 20, 2000 /S/ J. Ed Eisemann, IV
--------------------------
Chairman of the Board
Date: July 20, 2000 /S/ Catherine G. Eisemann
--------------------------
Director
(11)
