10-Q 1 a2047406z10-q.txt FORM 10-Q 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, 2001 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, 2001. Common Stock, $1.00 par value Shares 356,844 ----------------------------- -------- Outstanding at March 31, 2001, (including 23,119 shares held as treasury shares) THE REPUBLIC CORPORATION Index to Quarterly Report on Form 10-Q

~~PAGE~~Page ---- Part I. Financial Information Item 1. Financial Statements (unaudited) Consolidated Balance Sheets December 31, ~~1999~~2000, and ~~September~~March 3031, ~~2000~~2001. 1 Consolidated Statements of Income for the three months ~~and~~Ended ~~nine~~March ~~months ended September 30~~31, ~~1999~~2000 and ~~2000~~2001. 2 Consolidated Statements of Cash Flows for the ~~nine~~three months ~~ended~~Ended ~~September~~March 3031, ~~1999~~2000 and ~~2000~~2001. 3 Notes to Financial Statements 4 Item 2. Management's Discussion and Analysis 5-9 Part II. Other Information 10 Signatures 11

REPUBLIC CORPORATION AND SUBSIDIARY Balance Sheet

~~September~~March 3031 December 31 2001 2000 ~~1999~~ -------------------------------------------------------------------------------------------------------------------------- Assets Cash and due from banks (demand) . . . . . . . . . . . . . . . . . . . . . . ..................... $ 4,~~242~~982,~~832~~035 $ 85,~~178~~813,~~452~~679 Investment securities: Held-to-maturity Market value at 93-3031-0001 2532,~~909~~666,~~332~~021 ~~. . . . . . . . . . . . . .~~ ----------- Market value at 12-31-9900 2332,~~630~~231,~~302~~ 223. . . . . . . . . . . . . ............ 2532,~~843~~215,~~159~~300 2331,~~639~~961,~~383~~129 ---------- Available-for-sale Market value at 93-3031-0001 24,000 ---------- Market value at 12-31-9900 24,000 . . . . . . . . . . . . . ............ 24,000 24,000 ---------- ------------- -------------- $ 3037,~~109~~221,~~991~~335 $ 3137,~~841~~798,~~835~~808 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................................... ~~112~~$114,~~708~~821,~~360~~644 98$113,~~532~~978,~~057~~399 Plus: Uncollected earned interest . . . . . . . . . . . . . . . . . ................. 1,~~192~~234,~~732~~298 ~~747~~903,~~419~~442 Less: Allowance for losses . . . . . . . . . . . . . . . . . . . . ..................... (1,~~450~~580,000) (1,~~379~~578,~~000~~694) ~~------------ ------------~~ Net loans and other receivables . . . . . . . . . . . . . . . . . . .................. ~~112~~114,~~451~~475,~~092~~942 97113,~~900~~303,~~476~~147 ------------- -------------- Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............................. 225,~~650~~375,000 2210,~~500~~800,000 Property, equipment and vehicles (net). . . . . . . . . . . . . . . . . . . .................. 2,~~547~~835,~~580~~914 2,~~625~~633,~~277~~874 Other real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............................. 251,774 37,716 ~~43,343~~ Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................................. 436,079 436,079 Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............................... ~~610~~152,~~273~~535 ~~259~~266,~~166~~361 ------------- ------------- Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . ........................... $~~168~~160,~~842~~748,~~731~~579 $~~155~~165,~~606~~275,~~176~~985 ------------- -------------- Liabilities and Stockholders' Equity Deposits (Domestic): Demand (non-interest bearing) . . . . . . . . . . . . . . . . . . . ................... $ 1817,~~895~~985,~~487~~454 $ 1518,~~582~~184,~~942~~083 Savings, time and demand (Interest-bearing) . . . . . . . . . . . . ............ ~~134~~126,~~217~~623,~~983~~466 ~~125~~131,~~935~~483,~~777~~346 ------------- -------------- $~~153~~144,~~113~~608,~~470~~920 $~~141~~149,~~518~~667,~~719~~429 Accounts payable and accrued interest payable . . . . . . . . . . . . . . . ............... 1,~~423~~439,~~487~~390 1,~~119~~459,~~265~~527 Accrued taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . ........................... ~~530~~218,~~675~~854 5758,~~935~~996 ------------- -------------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . ......................... $~~155~~146,~~067~~267,~~632~~164 $~~142~~151,~~695~~185,~~919~~952 ------------- -------------- Minority Interest in Consolidated Subsidiary. . . . . . . . . . . . . . . . ............... ~~298~~382,~~215~~687 ~~277~~304,~~970~~376 ------------- -------------- 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 93-3031-0001 and 23,119 at 12-31-9900). . . . . . . . . . . . . . . . . . . . . . . . . ....................... (91,303) (91,303) ------------- -------------- Total contributed capital . . . . . . . . . . . . . . . . . . ................. 500,472 500,472 ------------- -------------- Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............................ 1213,~~976~~598,~~412~~256 1213,~~131~~285,~~815~~185 ------------- -------------- Net Unrealized Gain (Loss) on Securities Available-for-Sale (Net of Taxes). . . . . . . . . . . . . . . . . . ................ -0- -0- Stockholders'equity . . . . . . . . . . . . . . . . . . . . . .................... 13$14,~~476~~098,~~884~~728 12$13,~~632~~785,~~287~~657 ------------- -------------- Total liabilities and stockholders equity. . . . . . . . . . . . . . ............ $~~168~~160,~~842~~748,~~731~~579 $~~155~~165,~~606~~275,~~176~~985 ------------- --------------

The accompanying note is an integral part of these financial statements. (1) REPUBLIC CORPORATION AND SUBSIDIARY Statement of Income

~~Three~~THREE ~~Months~~MONTHS ~~Ended~~ENDED ~~Nine Months Ended~~ ------------------ ----------~~--------~~ ~~Sept.~~March 3031 ~~Sept.~~March 3031 ~~Sept.~~2001 ~~30 Sept. 30~~ 2000 ~~1999 2000 1999~~ Interest Income: Interest and fees on loans $2,~~446~~593,~~777~~767 $2,~~089~~151,~~483~~053 ~~$6,926,208 $6,136,693~~ Interest on funds sold and securities purchased under agreement to resell ~~362~~105,~~359~~682 ~~156~~380,~~546~~700 ~~1,107,995 353,178~~ Interest and dividends on investments Securities of U.S. ~~Government~~Treasury and government sponsored agencies ~~271~~519,~~151~~153 ~~419~~330,~~930~~260 ~~854,920 1,050,792~~ Obligations of states, political subdivisions and other obligations secured by the government ~~189,952~~ -0- ~~369,889~~ -0- ---------- -~~---------~~ ---------- -~~---------~~ Total interest on investments ~~823~~624,~~462~~835 ~~576~~710,~~476~~960 ~~2,332,804 1,403,970~~ ---------- -~~---------~~ ---------- -~~---------~~ Total interest income $3,~~270~~218,~~239~~602 $2,~~665~~862,~~959~~013 ~~9,259,012 7,540,663~~ ---------- -~~---------~~ ---------- -~~---------~~ Interest expense: Interest on deposits 1,~~689~~558,~~579~~442 1,~~358~~540,~~252~~360 ~~4,863,735 3,670,117~~ ---------- -~~---------~~ ---------- -~~---------~~ Total Interest expense 1,~~689~~558,~~579~~442 1,~~358~~540,~~252~~360 ~~4,863,735 3,670,117~~ ---------- -~~---------~~ ---------- -~~---------~~ Net interest income 1,~~580,~~660,160 1,~~307~~321,~~707~~653 ~~4,395,277 3,870,546~~ Provision for loan losses (5047,~~263~~641) (46121,~~658~~334) ~~(284,625) (154,392)~~ ---------- -~~---------~~ ---------- -~~---------~~ Net interest income after provision for loan losses 1,~~530~~612,~~397~~519 1,~~261~~200,~~049~~319 ~~4,110,652 3,716,154 ---------- ---------- ---------- ----------~~ Other income: Service charges on deposit accounts 5755,~~060~~171 55,~~215~~662 ~~169,705 160,221~~ Other service charges, commission and fees 37140,~~690~~750 81116,~~077~~191 ~~403,185 213,193~~ Gain on sale of securities -0- -0- ~~-0- -0-~~ Net income- other real estate ~~2,622~~-0- -0- ~~2,622 15,939~~ Other income ~~124~~13,~~106~~059 1816,~~397~~799 ~~161,502 52,308~~ ---------- -~~---------~~ ---------- -~~---------~~ Total other income ~~221~~208,~~478~~980 ~~154~~188,~~689~~652 ~~737,014 441,661~~ ---------- -~~---------~~ ---------- -~~---------~~ Other expenses: Salaries and wages ~~456~~471,~~476~~334 ~~479~~472,~~080~~146 ~~1,399,957 1,395,165~~ Employee benefits 84137,~~545~~585 ~~126~~110,~~201~~966 ~~321,824 346,700~~ Net occupancy expenses ~~133~~67,~~778~~575 8876,~~268~~394 ~~352,008 229,192~~ Furniture and equipment expenses 1736,~~113~~415 2440,~~104~~617 ~~77,117 89,624~~ Depreciation other than rental property 6671,~~278~~104 6760,~~218~~936 ~~192,477 185,522~~ Net cost-other real estate -0- -0- ~~-0- -0-~~ Computer service center 52110,~~579~~555 4692,~~502~~431 ~~190,984 160,145~~ FDIC-insurance 714,~~524~~326 ~~3,785 29,408~~ 14,~~351~~396 Professional services 4651,~~806~~701 4184,~~756~~830 ~~159,293 119,863~~ Advertising 3220,~~620~~341 3935,~~222~~062 ~~138,301 101,564~~ Other operating expenses ~~226~~311,~~212~~821 ~~224~~205,~~106~~102 ~~623,454 598,491~~ ---------- -~~---------~~ ---------- -~~---------~~ Total other expenses 1,~~123~~292,~~931~~757 1,~~140.242 3~~192,~~484,823~~880 ~~3,240,617~~ ----------- ----------- Income before income taxes 528,742 196,091 ----------- ----------- ~~Income before income taxes 627,944 275,496 1,362,843 917,198~~ Less applicable income taxes (Current) ~~265~~205,000 ~~113~~69,~~000~~670 ~~498,000 354,000~~ ---------- -~~---------~~ ---------- -~~---------~~ Income before reduction for minority interest ~~362~~323,~~944~~742 ~~162~~126,~~496~~421 ~~864,843 563,198~~ Less minority interest income (loss) 10,~~105~~671 3,~~901~~222 ~~20,246 13,384~~ ---------- -~~---------~~ ---------- -~~---------~~ Net income $ ~~352~~313,~~839~~071 $ ~~158~~123,~~595~~199 ~~$ 844,597 $ 549,814~~ ---------- -~~---------~~ ---------- -~~---------~~ Earnings per share $ 1.0694 $ .4837 ~~$ 2.53 $ 1.65~~ ---------- -~~---------~~ ---------- -~~---------~~

The accompanying note is an integral part of these financial statements. (2) REPUBLIC CORPORATION AND SUBSIDIARY Statement of Cash Flows

~~Nine~~Three Months Ended ~~Sept.~~March 3031 ~~Sept.~~March 3031 2001 2000 ~~1999~~ ------------------------------------------------------------------------------------------------------------------------~~--------~~ Cash flows and operating activities: Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................... $ ~~844~~313,~~597~~071 $ ~~549~~123,~~814~~197 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . .............. ~~256~~71,~~636~~104 ~~247~~60,~~363~~936 Provision for loan losses . . . . . . . . . . . . . . . . . . . . ........ ~~284~~47,~~625~~641 ~~154~~121,~~392~~335 Amortization (accretion) of discounts and Premium. . . . . . . . . . . . . . . . . . . . . . . . . . . .............. (~~853~~254,~~651~~171) (1285,~~050,072~~659) Other real estate gains/net . . . . . . . . . . . . . . . . . . . ....... ~~(2,622)~~-0- ~~(15,839)~~-0- Investment securities gains/net . . . . . . . . . . . . . . . . . ..... -0- ~~(100)~~-0- Loss on sale of subsidiary stock..................... 57,639 -0- Re-appraisal - other real estate . . . . . . . . . . . . . . . . . . . . . -0- -0- (Decrease) increase in interest payable . . . . . . . . . . . . . . ~~304,222~~ (~~123~~20,~~111~~137) 81,380 (Increase) decrease in interest receivable. . . . . . . . . . . ~~. .~~ (~~445~~186,~~313~~704) (852,~~219)~~258 (Increase) decrease in other assets . . . . . . . . . . . . . . . ... (~~351~~30,~~107~~326) ~~(219~~55,~~409)~~873 Increase (decrease) in other liabilities. . . . . . . . . . . . . ~~. 492~~170,~~985~~529 ~~230~~19,~~430~~976 ------------- ------------ Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...................... (~~314~~144,~~225~~425) ~~(784~~106,~~565)~~099 ------------- ------------ Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . ..... ~~530~~168,~~372~~646 ~~(234~~229,~~751)~~296 ------------- ------------ Cash flows from investing activities Proceeds from ~~maturities~~sales of ~~investment~~subsidiary ~~securities~~ stock. . . . . . . . . . . . . . . ............. 2410,~~050,~~000 ~~80,000,000~~-0- ~~Purchase~~Proceeds from sales of investment securities . . . . . . . . . . . . . . . . . . . . . .. -0- -0- Proceeds from maturities of investment securities.................. -0- -0- Purchase of investment securities.................................. ~~(25,400,125)~~-0- ~~(92,870,073)~~-0- Loans made to customers net cash activity . . . . . . . . . . . . . . . . . . . ....... (141,~~397~~103,~~257~~638) (14,~~407~~554,~~708~~272) Capital expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................. (~~178~~273,~~939~~144) (~~239~~ 73,~~575~~240) Proceeds from sale of other real estate . . . . . . . . . . . . . . . . . . . . ........ ~~15,578~~-0- ~~11,759~~-0- ------------- ------------ Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . ..... (151,~~910~~366,~~743~~782) (144,~~505~~627,~~597~~512) ------------- ------------- Cash flows from financing activities Net increase (decrease) in demand deposits, NOW account, savings accounts and certificates of deposit . . . . . . . . . . . ... 11(5,~~594~~058,~~751~~508) 216,~~713~~618,~~010~~640 Purchase of treasury stock. . . . . . . . . . . . . . . . . . . . . . . . . . . ...................... -0- -0- ------------- ------------ Net cash provided by (used in) financing ~~activities~~ . . . . . . . . . . . . . . . . . . . ................ 11(5,~~594~~058,~~751~~508) 216,~~713~~618,~~010~~640 ------------- ------------ Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . . . . . .... (36,~~785~~256,~~620~~644) 62,~~972~~220,~~662~~424 ------------- ------------ Cash and cash equivalents at beginning of year: Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................ 5,813,679 8,178,452 ~~3,682,131~~ Federal funds sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................. 2210,~~500~~800,000 522,~~650~~500,000 ------------- ------------ Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . . . . . . . . ....... 16,613,679 30,678,452 ~~9,332,131~~------------- ~~============~~------------ ~~============~~ Cash and cash equivalents at ~~Sept.~~March ~~30,~~31 ~~2000~~ Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................ 4,~~242~~982,~~832~~035 64,~~004~~398,~~793~~876 Federal funds sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................. 225,~~650~~375,000 1028,~~300~~500,000 ------------- ------------ Cash and cash equivalents at ~~Sept.~~March ~~30, 2000~~ 31. . . . . . . . . . . . . . . . . . . . . . . ............... $ 2610,~~892~~357,~~832~~035 $ 1632,~~304~~898,~~793~~876 ============= ============ Supplemental disclosures of cash flow information: Cash paid for interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................ 41,~~559~~578,~~513~~579 31,~~068~~458,~~297~~995 Cash paid for income tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... ~~443,952~~-0- ~~515,414~~-0-

The accompanying note is an integral part of these financial statements. (3) REPUBLIC CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 2001 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, 2000. 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) MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL CONDITION ASSET QUALITY Loans placed on non-accrual remain at elevated levels due to the past-due status of larger credits that the bank is working with to bring current. Those that are brought current typically remain on non-accrual for at least one quarter of demonstrated, current payment status before being placed on accrual.. Restructured loans fell from year-end, 2000 levels due to the placement of one credit aggregation back on original terms.

TABLE 1 PROBLEM ASSETS (dollars in ~~thousands~~thousand) ~~September~~MARCH 3031 ~~December~~DECEMBER 31 -------- ---- ------------------------------ 2001 2000 1999 1998 ~~1997~~ Nonaccrual loans $ ~~807~~1,035 $ ~~837~~1,076 $ ~~351~~837 $ ~~809~~351 Past-due loans (over 90 days) -0- ~~-0-~~149 -0- -0- Restructured loans ~~428~~590 781 1,022 ~~714~~741 ~~2,465~~ --------- -------- -------- --------- Total problem loans $ 1,~~235~~625 $ 12,~~859~~006 $ 1,~~065~~859 $ 31,~~274~~092 Foreclosed assets Real estate 252 38 43 48 9 In-substance foreclosures -0- -0- -0- -0- Other 2255 17 23 28 5 --------- -------- -------- --------- Total Problem Assets $ 1,~~295~~932 $ 12,~~925~~061 $ 1,~~141~~925 $ 31,~~288~~168 Total problem loans as a percentage of total loans 1.14% 1.98% 1.19% 4.1.2% Total problem assets as a percentage of total loans and foreclosed assets 1.7% 1.8% 2.0% 1.2% ~~4.1%~~

TABLE 2 LOAN CONCENTRATIONS

~~TABLE 2 LOAN CONCENTRATIONS~~ (~~dollars~~Dollars in thousands) ~~September~~MARCH 3031 ~~December~~DECEMBER 31 ------------ ------------------------------------------------------- 2001 2000 1999 ~~1998~~ Commercial $ 7,~~403~~500 $ 7,~~189~~361 $ 7,~~371~~189 Agricultural 2,422 3,~~402~~029 3,464 ~~4,156~~ Real Estate-Construction 7,~~751~~811 68,~~112~~122 6,~~423~~112 Real Estate-Mortgage 8285,~~982~~911 84,256 71,257 ~~66,652~~ Installment loans to Individuals 11,~~170~~178 1011,~~510~~210 910,~~967~~504 ---------- ----------- --------- Totals $~~112~~114,~~708~~822 $98113,~~532~~978 $94 98,~~569~~526

(5) SOURCES AND USES OF FUNDS The bank experienced a significant run-off of deposits during the first quarter of 2001, primarily the result of significantly lower deposit account offering rates and the effect that had on the placement of funds formerly held for the benefit of public, i.e. non-core, depositors. The bank also grew the loan portfolio to a far lesser extent than in the year-ago period, evidencing a lessening of economic activity in the bank's markets. (Please see Statement of Cash Flows, P-3) LIQUIDITY At period end, the bank's holdings of cash and due from banks, readily marketable securities and federal funds sold fell to approximately 29% of total liabilities from the year-end, 2000 level of 32%. This occurred as a result of an approximate 12% decline in liquid assets in conjunction with only a 3% decline in total liabilities during the same period. (Please see Balance Sheet, P-1) INTEREST RATE SENSITIVITY MANAGEMENT In the ordinary course of business, the company is exposed to the risk of loss from changes in interest rates. The majority of this risk has to do with timing differences related to the repricing of assets and liabilities. The company, through its ALCO committee, analyzes and compares these repricing differences and basis point spreads so as to effectively monitor and adjust the inevitable earnings impact of rate change. The objective, over time, is to minimize this earnings impact in all interest rate environments and not to attempt to anticipate or time the market. The primary tools to accomplish this are absolute pricing level decisions on both sides of the balance sheet, so as to address the imbedded "basis risk", as well as overt adjustment to the timing of repricing events, so as to address "term risk", as a matter of policy. The modeling used internally consists of 100 basis point and 200 basis point earnings impact estimates. The instruments that the company typically adjusts in this regard are loans, securities held to maturity, federal funds sold and deposit liabilities. The abundance of interest-bearing, liability accounts depicted in the Repricing Schedule on Page 7 as repricing within 12 months would tend to lead to a conclusion that bank earnings would expand in a declining interest rate environment such as that which has been experienced thus far in 2001. The actual, historical effect of such rate changes in this market, however, is demonstrably non-linear and the earnings impact of that change in this instance is more likely to be zero to slightly negative. The company does not invest in derivative financial instruments such as futures, forwards, swaps, options and other financial instruments with similar characteristics and there is negligible direct risk of adverse impacts resulting from changes in foreign currency exchange rates, commodity prices or prices of equity securities. (Please see Repricing Schedule, P-7 and Investment Securities, P-8) (6) INTEREST RATE SENSITIVITY MANAGEMENT Table 3 - REPRICING SCHEDULE 3-31-01

3 MO 3-12 1-5 OVER ~~(dollars in thousands)~~ OR LESS MONTHS ~~YEAR~~YEARS 5 YEARS -------- -------- ------- -------- RATE SENSITIVE ASSETS (Assets that can be repriced within X days) Loans * 1314,~~394~~684 4648,~~870~~833 3225,~~440~~748 1924,~~181~~396 Federal Funds Sold 225,~~650~~375 -0- -0- -0- Taxable Securities ** 1615,000 ~~-0-~~5,000 10,000 -0- Municipal Bonds -0- -0- -0- ~~-0-~~2,295 TOTAL 5235,~~044~~059 4653,~~870~~833 4235,~~440~~748 1926,~~181~~691 RATE SENSITIVE LIABILITIES (Liabilities that can be repriced within X days) Time Certificates of Deposit 3236,~~521~~334 4132,~~269~~733 23,~~672~~351 -0- NOW Accounts 1,~~821~~863 -0- -0- -0- Super NOW Accounts 3028,~~551~~056 -0- -0- -0- Savings Accounts 9,~~246~~178 -0- -0- -0- MMDA Accounts 1312,~~470~~338 -0- -0- -0- TOTAL 87,~~609~~769 4132,~~269~~733 23,~~672~~351 -0- Interest Rate Sensitivity Gap (3552,~~565~~710) 521,~~601~~100 3932,~~768~~397 1926,~~181~~691 Cumulative Interest Rate Sensitivity Gap (3552,~~565~~710) (2931,~~964~~610) ~~9,804~~787 2827,~~985~~478

* Does not include $1,035,000 in nonaccruing loans or overdrawn demand deposits of $14,000 ** Does not include $24,000 in Federal Reserve Bank stock (7) INVESTMENT SECURITIES TABLE 4

~~TABLE 4~~ CARRYING UNREALIZED UNREALIZED MARKET VALUE GAINS LOSSES VALUE ------------ ----------------- ---------------- ---------- ~~SEPTEMBER~~MARCH 3031, ~~2000~~2001 -------------- (1) Held-to-Maturity: U.S. Treasury Securities -- -- -- -- Other 2532,~~843~~215,~~159~~300 66450,~~182~~721 -- 2532,~~909~~666,~~332~~021 (2) Available-for-Sale Securities Carried at Fair Value: U.S. Treasury Securities -- -- -- -- Other 24,000 -- -- 24,000 ------------ ----------------- ---------------- ----------- 2532,~~867~~239,~~159~~300 66450,~~182~~721 -- 2532,~~933~~690,~~332~~021 ------------ ----------------- ---------------- ----------- DECEMBER 31, ~~1999~~2000 ----------------- (1) Held-to-Maturity: U.S. Treasury Securities -- -- -- -- Other 2331,~~639~~961,~~383~~129 270,094 -- 932,~~081 23~~231,~~630,302~~223 (2) Available-for-Sale Securities Carried at Fair Value: U.S. Treasury Securities -- -- -- -- Other 24,000 -- -- 24,000 ------------ ----------------- ---------------- ----------- 2331,~~663~~985,~~383~~129 270,094 -- 932,~~081 23~~255,~~654,302~~223 ------------ ----------------- ---------------- ----------- DECEMBER 31, ~~1998~~1999 ----------------- (1) Held-to-Maturity: U.S. Treasury Securities -- -- -- -- Other 23,~~864~~639,~~557~~383 ~~4,493~~ -- 9,081 23,~~869~~630,~~050~~302 (2) Available-for-Sale Securities Carried at Fair Value: U.S. Treasury Securities -- -- -- -- Other 24,000 -- -- 24,000 ------------ ----------------- ---------------- ----------- 23,~~888~~663,~~557~~383 ~~4,493~~ -- 9,081 $23,~~893~~654,~~050~~302 ------------ ----------------- ---------------- -----------

(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) CAPITALIZATION: The negative deposit growth and minimal loan growth experienced during the first quarter of 2001, coupled with the concurrent, increased retained earnings growth, caused all estimated capital ratios to increase from year-end, 2000 levels. (Please see Table 5, P-9) TABLE 5 - CAPITAL

~~TABLE 5 - CAPITAL~~ *~~September~~MARCH 3031 ~~December~~DECEMBER 31 ---------~~----~~ ----------- 2001 2000 ~~1999~~ Tier 1 risk-based capital (minimum is 4%) 1314.4641% 1413.0779% Tier 1 + Tier 2 risk based capital (minimum is 8%) 1415.7267% 15.3304% Tier 1 leverage (minimum is 3%) 78.8768% 78.9621%

*ESTIMATE RESULTS OF OPERATIONS NET INTEREST INCOME Significantly higher loan interest income in the current period, coupled with essentially unchanged interest expense on deposits, led to a much higher net interest income compared with the year-ago first quarter. The increase in loan interest income was both volume and rate driven. When annualized and expressed as a percentage of period-end, interest bearing assets, net interest income was 4.22%, compared with 3.40% for the prior year period. (Please see Balance Sheet, P-1 and Statement of Income, P-2) OTHER INCOME AND EXPENSE The provision for loan losses during the first quarter of 2001 was lower than in the prior year period, largely a result of a $111m write-off in the latter period. Growth in loan fee income occurred in spite of the loan growth disparity when comparing the first quarters of 2001 and 2000. Fee increases enabled this to occur. Operating expenses grew approximately 8% over the prior year period. Increased costs for out-sourced computer services and employer health insurance played leading roles in the increase while savings were accomplished in the professional services category. (Please see State of Income, P-2) (9) 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) 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 20, 2001 /s/ J. Ed Eisemann, IV -------------------------- Chairman of the Board Date: April 20, 2001 /s/ Catherine G. Eisemann -------------------------- Director (11)

Filing Compare · REPUBLIC CORP /TX/