<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Three Months Ended March 31, 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
NONE
- ----
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such report(s), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of March 31, 2000.
Common Stock, $1.00 par value Shares 356,844
- ----------------------------- --------
Outstanding at March 31,
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 March 31, 2000................ 1
Consolidated Statements of Income for the three months
Ended March 31, 1999 and 2000........................ 2
Consolidated Statements of Cash Flows for the three
months Ended March 31, 1999 and 2000................. 3
Notes to Financial Statements.......................... 4
Item 2. Management's Discussion and Analysis................... 5-10
Part II. Other Information............................................... 11
Signatures................................................................ 12
</TABLE>
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Balance Sheet
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
------------- -------------
<S> <C> <C>
Assets
Cash and due from banks (demand) ......................... $ 4,398,875 $ 8,178,452
Investment securities:
Held-to-maturity
Market value at 3-31-00 23,897,321
Market value at 12-31-99 23,630,302 ............... 23,925,042 23,639,383
Available-for-sale
Market value at 3-31-00 24,000
Market value at 12-31-99 24,000 .................... 24,000 24,000
------------- -------------
$ 28,347,917 $ 31,841,835
Loans .................................................... 102,933,995 98,532,057
Plus: Uncollected earned interest ..................... 695,161 747,419
Less: Allowance for losses ............................ (1,348,000) (1,379,000)
Net loans and other receivables ....................... 102,281,156 97,900,476
------------- -------------
Federal funds sold
Property, equipment and vehicles (net) ................... 2,637,581 2,625,277
Other real estate ........................................ 43,343 43,343
Goodwill ................................................. 436,079 436,079
Other assets ............................................. 203,293 259,166
------------- -------------
Total assets .......................................... $ 162,449,369 $ 155,606,176
------------- -------------
Liabilities and Stockholders' Equity
Deposits (Domestic):
Demand (non-interest bearing) ......................... $ 15,708,362 $ 15,582,942
Savings, time and demand (Interest-bearing) ........... 132,428,997 125,935,777
------------- -------------
$ 148,137,359 $ 141,518,719
Accounts payable and accrued interest payable ............ 1,200,645 1,119,265
Accrued taxes payable .................................... 74,689 57,935
------------- -------------
Total liabilities ..................................... $ 149,412,693 $ 142,695,919
------------- -------------
Minority Interest in Consolidated Subsidiary ............. 281,192 277,970
------------- -------------
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 3-31-00 and
23,119 at 12-31-99) ................................... (91,303) (91,303)
------------- -------------
Total contributed capital .......................... 500,472 500,472
------------- -------------
Retained earnings ........................................ 12,255,012 12,131,815
------------- -------------
Net Unrealized Gain (Loss) on Securities
Available-for-Sale (Net of Taxes) ..................... -0- -0-
Stockholders'equity ................................ 12,755,483 12,632,287
------------- -------------
Total liabilities and stockholders equity ............. $ 162,449,369 $ 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
March 31 March 31
2000 1999
---------- ----------
<S> <C> <C>
Interest Income:
Interest and fees on loans ..................... $2,151,053 $2,009,199
Interest on funds sold and securities
purchased under agreement to resell ......... 380,700 67,713
Interest and dividends on investments
Securities of U.S. Treasury and
government sponsored agencies ............ 330,260 296,362
Obligations of states, political
subdivisions and other obligations
secured by the government ................ -0- -0-
---------- ----------
Total interest on investments ............... 710,960 364,075
---------- ----------
Total interest income ....................... $2,862,013 $2,373,274
---------- ----------
Interest expense:
Interest on deposits ........................... 1,540,360 1,099,887
---------- ----------
Total Interest expense ...................... 1,540,360 1,099,887
---------- ----------
Net interest income ......................... 1,321,653 1,273,387
Provision for loan losses ......................... 121,334 49,755
---------- ----------
Net interest income after provision for
loan losses ................................. 1,200,319 1,223,632
Other income:
Service charges on deposit accounts ............ 55,662 50,807
Other service charges, commission and fees ..... 116,191 64,406
Gain on sale of securities ..................... -0- -0-
Net income- other real estate .................. -0- -0-
Other income ................................... 16,799 16,542
---------- ----------
Total other income .......................... 188,652 131,755
---------- ----------
Other expenses:
Salaries and wages ............................. 472,146 443,122
Employee benefits .............................. 110,966 104,007
Net occupancy expenses ......................... 76,394 63,368
Furniture and equipment expenses ............... 40,617 44,094
Depreciation other than rental property ........ 60,936 59,152
Net cost-other real estate ..................... -0- -0-
Computer service center ........................ 92,431 54,429
FDIC-insurance ................................. 14,396 35,886
Professional services .......................... 84,830 14,623
Advertising .................................... 35,062 25,437
Other operating expenses ....................... 205,102 185,575
---------- ----------
Total other expenses ........................ 1,192,880 1,029,693
---------- ----------
Income before income taxes .................. 196,091 325,694
Less applicable income taxes (Current) ......... 69,670 130,000
---------- ----------
Income before reduction for minority interest 126,421 195,694
Less minority interest income (loss) ........... 3,222 4,699
---------- ----------
Net income .................................. $ 123,199 $ 190,995
---------- ----------
Earnings per share .......................... $ .37 $ .57
---------- ----------
</TABLE>
The accompanying note is an integral part of these financial statements.
(2)
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Statement of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31 March 31
2000 1999
------------ ------------
<S> <C> <C>
Cash flows and operating activities:
Net income (loss) .................................................. $ 123,197 $ 190,995
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ................................................. 60,936 78,869
Provision for loan losses .................................... 121,335 49,756
Amortization (accretion) of discounts and Premium ............ (285,659) (296,362)
Other real estate gains/net .................................. -0- -0-
Investment securities gains/net .............................. -0- -0-
Re-appraisal - other real estate ............................. -0- -0-
(Decrease) increase in interest payable ...................... 81,380 77,048
(Increase) decrease in interest receivable ................... 52,258 114,542
(Increase) decrease in other assets .......................... 55,873 597,063
Increase (decrease) in other liabilities ..................... 19,976 (493,674)
------------ ------------
Total adjustments ..................................................... 106,099 127,242
------------ ------------
Net cash provided by (used in) operating activities ................... 229,296 318,237
------------ ------------
Cash flows from investing activities
Proceeds from sales of investment securities ....................... -0- -0-
Proceeds from maturities of investment securities .................. -0- 24,000.000
Purchase of investment securities .................................. -0- (25,700,505)
Loans made to customers net cash activity .......................... (4,554,272) (395,942)
Capital expenditure ................................................ (73,240) (28,842)
Proceeds from sale of other real estate ............................ -0- -0-
------------ ------------
Net cash provided by (used in) investing activities ................... (4,627,512) (2,125,289)
------------ ------------
Cash flows from financing activities
Net increase (decrease) in demand deposits, NOW
account, savings accounts and certificates of deposit .............. 6,618,640 3,285,012
Purchase of treasury stock ............................................ -0- -0-
------------ ------------
Net cash provided by (used in) financing .............................. 6,618,640 3,285,012
------------ ------------
Net increase (decrease) in cash and cash equivalents .................. 2,220,424 1,477,960
------------ ------------
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 1,150,000
------------ ------------
Cash and cash equivalents at beginning of year ........................ 30,678,452 9,332,131
------------ ------------
Cash and cash equivalents at March 31
Cash and due from banks ............................................ 4,398,876 4,160,091
Federal funds sold ................................................. 28,500,000 6,650,000
------------ ------------
Cash and cash equivalents at March 31 ................................. $ 32,898,876 $ 10,810,091
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest ............................................. 1,458,995 1,022,839
Cash paid for income tax ........................................... -0- -0-
</TABLE>
The accompanying note is an integral part of these financial statements.
(3)
<PAGE>
REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 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 nonaccrual loan total continues at a high level, but is expected to be
reduced by approximately $375 m in the near term by takeouts on two
collateralized properties presently in foreclosure.
The restructured loan total is reduced from year-end, 1999 and presently
consists of one commercial credit at a below-market rate of interest.
TABLE 1 PROBLEM ASSETS
<TABLE>
<CAPTION>
(dollars in thousand) March 31 December 31
-------- ------------------------------
2000 1999 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Nonaccrual loans .................. $ 955 $ 837 $ 351 $ 809
Past-due loans (over 90 days) ..... -0- -0- -0- -0-
Restructured loans ................ 373 1,022 741 2,465
------ ------ ------ ------
Total problem loans ............ $1,328 $1,859 $1,092 $3,274
Foreclosed assets
Real estate .................... 43 43 48 9
In-substance foreclosures ...... -0- -0- -0- -0-
Other .......................... 44 23 28 5
------ ------ ------ ------
Total Problem Assets ........ $1,415 $1,925 $1,168 $3,288
Total problem loans as
a percentage of total loans .... 1.3% 1.9% 1.2% 4.1%
Total problem assets as a
percentage of total loans
and foreclosed assets .......... 1.4% 2.0% 1.2% 4.1%
</TABLE>
TABLE 2 LOAN CONCENTRATIONS
<TABLE>
<CAPTION>
(Dollars in thousands) March 31 December 31
-------- -------------------
2000 1999 1998
-------- ------- -------
<S> <C> <C> <C>
Commercial .................................. $ 7,679 $ 7,189 $ 7,371
Agricultural ................................ 3,438 3,464 4,156
Real Estate-Construction .................... 6,374 6,112 6,423
Real Estate-Mortgage ........................ 75,178 71,257 66,652
Installment loans to Individuals ............ 10,266 10,504 9,967
-------- ------- -------
Totals ................................... $102,935 $98,526 $94,569
</TABLE>
(5)
<PAGE>
SOURCES AND USES OF FUNDS
Deposit growth of $6,619 m in the first quarter was slightly more than
double that of the prior year's first quarter and was deployed largely into loan
growth. The latter was far more robust than the prior year's level and was
reflective of an upsurge in loan demand in the bank's markets. (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 38% of total
liabilities, substantially the same as that which existed at year-end, 1999.
(Please see Balance Sheet, P-1).
INTEREST RATE SENSITIVITY MANAGEMENT
While the information contained in the Repricing Schedule on P-7 would seem
to reflect an element of balance that would protect the bank's earnings in a
rising rate environment such as the present, it is necessary to weigh the
realistic capacity of the bulk of the bank's borrowers, located in a market such
as this, for significant increases in loan interest rates.
(6)
<PAGE>
INTEREST RATE SENSITIVITY MANAGEMENT
Table 3 - REPRICING SCHEDULE
3-31-00
<TABLE>
<CAPTION>
3 MO 3-12 1-5 OVER
OR LESS MONTHS YEARS 5 YEARS
------- ------ ------ -------
<S> <C> <C> <C> <C>
RATE SENSITIVE ASSETS
(Assets that can be
repriced within X days)
Loans * ................................ 15,894 46,991 32,887 6,195
Federal Funds Sold ..................... 28,500 -0- -0- -0-
Taxable Securities ** .................. 24,050 -0- -0- -0-
Municipal Bonds ........................ -0- -0- -0- -0-
TOTAL ............................... 68,444 46,991 32,887 6,195
RATE SENSITIVE LIABILITIES
(Liabilities that can be
repriced within X days)
Time Certificates of Deposit ........... 31,389 36,597 6,815 -0-
NOW Accounts ........................... 2,124 -0- -0- -0-
Super NOW Accounts ..................... 28,312 -0- -0- -0-
Savings Accounts ....................... 9,643 -0- -0- -0-
MMDA Accounts .......................... 14,379 -0- -0- -0-
TOTAL ............................... 85,847 36,597 6,815 -0-
Interest Rate Sensitivity Gap .......... (17,403) 10,394 26,072 6,195
Cumulative Interest Rate
Sensitivity Gap ..................... (17,403) (7,009) 19,063 25,258
</TABLE>
* Does not include $955,000 in nonaccruing loans or overdrawn demand deposits
of $12,000
** Does not include $24,000 in Federal Reserve Bank stock
(7)
<PAGE>
INVESTMENT SECURITIES
TABLE 4
<TABLE>
<CAPTION>
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
MARCH 31, 2000
(1) Held-to-Maturity:
U.S. Treasury Securities .......... -- -- -- --
Other ............................. 23,925,042 -- 27,721 23,897,321
(2) Available-for-Sale Securities
Carried at Fair Value:
U.S. Treasury Securities .......... -- -- -- --
Other ............................. 24,000 -- -- 24,000
---------- ------ ----------- -----------
23,949,042 -- 27,721 24,921,321
---------- ------ ----------- -----------
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 lease quarterly.
(8)
<PAGE>
CAPITALIZATION:
Asset growth during the first quarter of 2000 far outstripped retained
earnings growth, thereby causing the abrupt decline in all of the capital ratios
depicted in Table 5, P-9 below.
TABLE 5 - CAPITAL
<TABLE>
<CAPTION>
*March 31 December 31
--------- -----------
2000 1999
<S> <C> <C>
Tier 1 risk-based capital
(minimum is 4%) ..................... 13.65% 14.07%
Tier 1 + Tier 2 risk based capital
(minimum is 8%) ..................... 14.90% 15.33%
Tier 1 leverage (minimum is 3%) ........ 7.72% 7.96%
</TABLE>
*ESTIMATE
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income was only slightly higher than the year-ago figure and
was a product of lagged increases in loan rates and a resulting compression of
interest margins. Net interest income, on an annualized basis, came to 3.40% of
period end, interest bearing assets in the current period. This was
significantly lower than the 4% which prevailed a year ago. (Please see Balance
Sheet, P-1 and Statement of Income, P-2)
OTHER INCOME AND EXPENSE
The loan loss provision for the first quarter of 2000 was significantly
higher than the prior year period due to the default on an agricultural loan
grouping of approximately $111 m and the need to restore the loan loss reserve
following the charge-offs.
Non-interest income grew over the prior year period due to fee increases
and growth experience.
Growth factors continue to place upward pressure on the bank's operating
expenses, however, two of the expense accounts, Computer Service Center and
Professional Services, were higher due to non-recurring events. A one-time entry
fee of approximately $43 m in order to institute internet banking and legal fees
expended in collecting loan defaults caused the latter increases. (Please see
Statement of Income, P-2).
(9)
<PAGE>
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
not applicable
Item 2. CHANGES IN SECURITIES
not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
not applicable
Item 5. OTHER INFORMATION
not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Exhibits
none
b). No reports on Form 8-K have been filed during the quarter for
which this report was filed.
(10)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE REPUBLIC CORPORATION
Date: April 28, 2000 /S/ J. Ed Eisemann, IV
--------------------------
Chairman of the Board
Date: April 28, 2000 /S/ Catherine G. Eisemann
--------------------------
Director
(11)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
FORM 10-Q DATED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,398,875
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 28,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,000
<INVESTMENTS-CARRYING> 23,925,042
<INVESTMENTS-MARKET> 23,897,321
<LOANS> 102,933,995
<ALLOWANCE> 1,348,000
<TOTAL-ASSETS> 162,449,369
<DEPOSITS> 148,137,359
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,275,334
<LONG-TERM> 0
0
0
<COMMON> 356,844
<OTHER-SE> 12,398,640
<TOTAL-LIABILITIES-AND-EQUITY> 162,449,369
<INTEREST-LOAN> 2,151,053
<INTEREST-INVEST> 330,260
<INTEREST-OTHER> 380,700
<INTEREST-TOTAL> 2,862,013
<INTEREST-DEPOSIT> 1,540,360
<INTEREST-EXPENSE> 1,540,360
<INTEREST-INCOME-NET> 1,321,653
<LOAN-LOSSES> 121,334
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,192,880
<INCOME-PRETAX> 196,091
<INCOME-PRE-EXTRAORDINARY> 196,091
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 123,199
<EPS-BASIC> .37
<EPS-DILUTED> .37
<YIELD-ACTUAL> .074
<LOANS-NON> 955,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 373,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,379,000
<CHARGE-OFFS> 159,834
<RECOVERIES> 7,500
<ALLOWANCE-CLOSE> 1,348,000
<ALLOWANCE-DOMESTIC> 89,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,259,000
</TABLE>
