10-Q 1 a2055139z10-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 Six Months Ended June 30, 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 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, 2001 Common Stock, $1.00 par value Shares 356,844 Outstanding at June 30, 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, 2000, and ~~March~~June 3130, 2001. 1 Consolidated Statements of Income for the three months ~~Ended~~and ~~March~~six 31months ended June 30, 2000 and 2001. 2 Consolidated Statements of Cash Flows for the ~~three~~six months ~~Ended~~ended ~~March~~June 3130, 2000 and 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

~~March~~June 3130 December 31 2001 2000 ------------- -------------~~-----------------------------------------------------------------------------------------------~~ Assets Cash and due from banks (demand) ............................................... $ 4,~~982~~645,~~035~~476 $ 5,813,679 Investment securities: Held-to-maturity Market value at 36-3130-01 3222,~~666~~822,~~021~~392 ----------- Market value at 12-31-00 32,231,223 ....................................... 3222,~~215~~401,~~300~~301 31,961,129 ---------- Available-for-sale Market value at 36-3130-01 24,000 ---------- Market value at 12-31-00 24,000 ........................................ 24,000 24,000 ---------- ~~------------- --------------~~ $ 3727,~~221~~070,~~335~~777 $ 37,798,808 Loans .......................................................................... ~~$114~~117,~~821~~383,~~644~~793 $113,978,399 Plus: Uncollected earned interest ............................................ 1,~~234~~064,~~298~~243 903,442 Less: Allowance for losses ................................................... (1,~~580~~600,000) (1,578,694) ------------- ------------- Net loans and other receivables .............................................. ~~114~~116,~~475~~848,~~942~~036 113,303,147 ------------- -------------- Federal funds sold ............................................................. 517,~~375~~225,000 10,800,000 Property, equipment and vehicles (net) ........................................ 23,~~835~~085,~~914~~347 2,633,874 Other real estate .............................................................. 251,774 37,716 Goodwill ....................................................................... 436,079 436,079 Other assets ................................................................... ~~152~~539,~~535~~953 266,361 ------------- ------------- Total assets ................................................................. $~~160~~ 165,~~748~~456,~~579~~966 $ 165,275,985 ------------- -------------- Liabilities and Stockholders' Equity Deposits (Domestic): Demand (non-interest bearing) ............................................... $ 1720,~~985~~711,~~454~~195 $ 18,184,083 Savings, time and demand (Interest-bearing) ................................. ~~126~~128,~~623~~099,~~466~~562 131,483,346 ------------- -------------- $~~144~~ 148,~~608~~810,~~920~~757 $ 149,667,429 Accounts payable and accrued interest payable .................................. 1,~~439~~260,~~390~~299 1,459,527 Accrued taxes payable .......................................................... ~~218~~466,~~854~~612 58,996 ------------- -------------- Total liabilities ............................................................ $~~146~~ 150,~~267~~537,~~164~~668 $ 151,185,952 ------------- -------------- Minority Interest in Consolidated Subsidiary ................................... ~~382~~395,~~687~~257 304,376 ------------- -------------- 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 36-3130-01 and 23,119 at 12-31-00) ..........................................~~......~~ (91,303) (91,303) ------------- -------------- Total contributed capital .................................................. 500,472 500,472 ------------- -------------- Retained earnings .............................................................. 1314,~~598~~023,~~256~~569 13,285,185 ------------- -------------- Net Unrealized Gain (Loss) on Securities Available-for-Sale (Net of Taxes) ........................................... -0- -0- Stockholders'equity ........................................................ $14,~~098~~524,~~728~~041 $13,785,657 ------------- -------------- Total liabilities and stockholders equity .................................... $~~160~~ 165,~~748~~456,~~579~~966 $ 165,275,985 ------------- --------------

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 Six Months Ended ----------------------------- ~~March~~----------------------------- 31June ~~March~~30 31June 30 June 30 June 30 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Interest Income: Interest and fees on loans $ 2,~~593~~618,~~767~~164 $ 2,~~151~~328,~~053~~378 $ 5,211,931 $ 4,479,431 ----------- ----------- ----------- ----------- Interest on funds sold and securities purchased under agreement to resell ~~105~~170,~~682~~059 ~~380~~364,~~700~~936 275,741 745,636 Interest and dividends on investments Securities of U.S. ~~Treasury~~Government and government ~~sponsored~~ agencies ~~519~~294,~~153~~604 ~~330~~298,~~260~~110 813,757 583,769 Obligations of states, political subdivisions and other obligations secured by the government 58,517 135,336 58,517 179,937 -0---------- -0---------- ----------- ----------- Total interest on investments ~~624~~523,~~835~~180 ~~710~~798,~~960~~382 1,148,015 1,509,342 ----------- ----------- ----------- ----------- Total interest income $3,~~218~~141,~~602~~344 $23,~~862~~126,~~013~~760 6,359,946 5,988,773 ----------- ----------- ----------- ----------- Interest expense: Interest on deposits 1,~~558~~441,~~442~~706 1,~~540~~633,~~360~~796 3,000,148 3,174,156 ----------- ----------- ----------- ----------- Total Interest expense 1,~~558~~441,~~442~~706 1,~~540~~633,~~360~~796 3,000,148 3,174,156 ----------- ----------- ----------- ----------- Net interest income 1,~~660~~699,~~160~~638 1,~~321~~492,~~653~~964 3,359,798 2,814,617 Provision for loan losses (4737,~~641~~891) (~~121~~113,~~334~~028) (85,532) (234,362) ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 1,~~612~~661,~~519~~747 1,~~200~~379,~~319~~936 3,274,266 2,580,255 ----------- ----------- ----------- ----------- Other income: Service charges on deposit accounts 55,~~171~~393 5556,~~662~~983 110,56 112,645 Other service charges, commission and fees ~~140~~228,~~750~~932 ~~116~~169,~~191~~304 369,682 285,495 Gain on sale of securities -0 -0- -0 -0- Net income- other real estate -0 -0- -0 -0- Other income 1352,~~059~~520 1620,~~799~~597 65,579 37,396 ----------- ----------- ----------- ----------- Total other income ~~208~~336,~~980~~845 ~~188~~246,~~652~~884 545,825 435,536 ----------- ----------- ----------- ----------- Other expenses: Salaries and wages 482,937 471,334 ~~472~~954,~~146~~270 943,480 Employee benefits ~~137~~115,~~585~~227 ~~110~~126,~~966~~313 252,812 237,279 Net occupancy expenses 67154,~~575~~553 76141,~~394~~836 222,128 218,230 Furniture and equipment expenses 3638,~~415~~765 4019,~~617~~387 75,180 60,004 Depreciation other than rental property 7172,~~104~~481 6065,~~936~~263 143,585 126,199 Net cost-other real estate -- -0 -- -0- Computer service center ~~110~~104,~~555~~556 9245,~~431~~974 215,111 138,405 FDIC-insurance 146,~~326~~666 147,~~396~~4 20,992 21,884 Professional services 5146,~~701~~945 8427,~~830~~657 98,645 112,487 Advertising 2039,~~341~~350 3570,~~062~~619 59,691 105,681 Other operating expenses ~~311~~275,~~821~~231 ~~205~~192,~~102~~140 587,052 397,242 ----------- ----------- ----------- ----------- Total other expenses 1,~~292~~336,~~757~~711 1,~~192~~168,~~880~~011 2,629,466 2,360,891 ----------- ----------- ~~Income before income taxes 528,742 196,091~~ ----------- ----------- Income before income taxes 661,881 458,809 1,190,625 654,900 Less applicable income taxes (Current) ~~205~~234,000 69163,~~670~~330 439,000 233,000 ----------- ----------- ----------- ----------- Income before reduction for minority interest ~~323~~427,~~742~~881 ~~126~~295,479 751,625 421,900 Less minority interest income (loss) 1012,~~671~~570 36,~~222~~919 23,241 10,141 ----------- ----------- ----------- ----------- Net income $ ~~313~~415,~~071~~311 $ ~~123~~288,~~199~~560 $ 728,384 $ 411,759 ----------- ----------- ~~Earnings per share $ .94 $ .37~~ ----------- ----------- Earnings per share $ 1.24 $ .86 $ 2.18 $ 1.23 =========== =========== =========== ===========

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

~~Three~~Six Months Ended ~~March~~June 3130 ~~March~~June 3130 2001 2000 ------------ ------------~~------------------------------------------------------------------------------------------------~~ Cash flows and operating activities: Net income (loss) ............................................~~......~~ $ ~~313~~728,~~071~~384 $ ~~123~~411,~~197~~759 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ........................................... 71143,~~104~~585 60168,~~936~~266 Provision for loan losses .............................. 4785,~~641~~532 ~~121~~234,~~335~~362 Amortization (accretion) of discounts and Premium ......~~...................................~~ (~~254~~440,~~171~~172) (~~285~~582,~~659~~849) Other real estate gains/net ............................ -0- -0- Investment ~~securities~~Securities gains/net ........................ -0- -0- Loss on sale of subsidiary stock ....................... 57,639 ~~-0-~~ Re-appraisal - other real estate ....................... -0- -0- (Decrease) increase in interest payable ................ (20199,~~137~~228) 81189,~~380~~975 (Increase) decrease in interest receivable ............. (~~186~~160,~~704~~801) 52(246,~~258~~899) (Increase) decrease in other assets .................... (30273,~~326~~592) 55(107,~~873~~714) Increase (decrease) in other liabilities ............... ~~170~~440,~~529~~858 19205,~~976~~174 ------------- ------------ Total adjustments ...............................................~~...........~~ (~~144~~346,~~425~~179) ~~106~~(139,~~099~~685) ------------- ------------ Net cash provided by (used in) operating activities .............~~...........~~ ~~168~~382,~~646~~205 ~~229~~272,~~296~~074 ------------- ------------ Cash flows from investing activities Proceeds from sales of subsidiary stock ......................~~......~~ 10,000 -0- Proceeds from sales of investment securities .................~~......~~ -0- -0- Proceeds from maturities of investment securities ............~~......~~ ~~-0-~~15,000,000 ~~-0-~~21,000,000 Purchase of investment securities ............................~~......~~ ~~-0-~~(5,000,000) ~~-0-~~(25,400,125) Loans made to customers net cash activity ....................~~......~~ (13,~~103~~683,~~638~~678) (411,~~554~~291,~~272~~022) Capital expenditure ..........................................~~......~~ (~~273~~595,~~144~~058) ( 73128,~~240~~759) Proceeds from sale of other real estate ......................~~......~~ -0- -0- ------------- ------------ Net cash provided by (used in) investing activities .............~~...........~~ (15,~~366~~731,~~782)~~264 (415,~~627~~819,~~512~~906) ------------- ------------ Cash flows from financing activities Net increase (decrease) in demand deposits, NOW account, savings accounts and certificates of deposit .......~~.......~~ (5856,~~058,508~~672) 611,~~618~~145,~~640~~549 Purchase of treasury stock ......................................~~...........~~ -0- -0- ------------- ------------ Net cash provided by (used in) financing ........................~~...........~~ (5856,~~058,508~~672) 611,~~618~~145,~~640~~549 ------------- ------------ Net increase (~~decrease~~descrease) in cash and cash equivalents ...........~~............~~ (65,256,~~644)~~797 2(4,~~220~~402,~~424~~283) ------------- ------------ Cash and cash equivalents at beginning of year: Cash and due from banks ......................................~~......~~ 5,813,679 8,178,452 Federal funds sold ...........................................~~......~~ 10,800,000 22,500,000 ------------- ------------ Cash and cash equivalents at beginning of year ..................~~...........~~ 16,613,679 30,678,452 ------------- ------------ Cash and cash equivalents at ~~March~~June 3130, 2001 Cash and due from banks ......................................~~......~~ 4,~~982~~645,~~035~~476 4,~~398~~451,~~876~~169 Federal funds sold ...........................................~~......~~ 517,~~375~~225,000 2821,~~500~~825,000 ------------- ------------ Cash and cash equivalents at ~~March~~June 3130, 2000 ......................~~................~~ $10 21,~~357~~870,~~035~~476 $32 26,~~898~~276,~~876~~169 ============= ============ Supplemental disclosures of cash flow information: Cash paid for interest .......................................~~......~~ 13,~~578~~199,~~579~~376 12,~~458~~984,~~995~~181 Cash paid for income tax .....................................~~......~~ ~~-0-~~427,000 ~~-0-~~208,952

The accompanying note is an integral part of these financial statements. (3) REPUBLIC CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements June 30, 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 Total problem loans continue at a level in excess of 1% of the bank's loan portfolio, largely a result of the bank's practice of placing chronic, 30 day past due credits on non-accrual. These accounts are typically placed back on accrual status if payments are made on time for at least one quarter. The restructured loan total continues to be dominated by one commercial loan that has experienced difficulty for a number of years. TABLE 1 PROBLEM ASSETS

~~TABLE 1 PROBLEM ASSETS~~ (dollars in ~~thousand~~thousands) ~~MARCH~~June 3130 ~~DECEMBER~~December 31 -------- -------------------------------- 2001 2000 1999 1998 ------ ------ ------ ------ Nonaccrual loans $ ~~1,035~~945 $ 1,076 $ 837 $ 351 Past-due loans (over 90 days) -0- 149 -0- -0- Restructured loans ~~590~~630 781 1,022 741 ------~~---~~ -------- -------- ------~~---~~ Total problem loans $ 1,~~625~~575 $ 2,006 $ 1,859 $ 1,092 Foreclosed assets Real estate 252 38 43 48 In-substance foreclosures .. -0- -0- -0- -0- Other 5524 17 23 28 ------~~---~~ -------- -------- ------~~---~~ Total Problem Assets $ 1,~~932~~851 $ 2,061 $ 1,925 $ 1,168 Total problem loans as a percentage of total loans 1.43% 1.8% 1.9% 1.2% Total problem assets as a percentage of total loans and foreclosed assets 1.76% 1.8% 2.0% 1.2%

TABLE 2 LOAN CONCENTRATIONS

(~~Dollars~~dollars in thousands) ~~MARCH~~June 3130 ~~DECEMBER~~December 31 -------- ---------------------- 2001 2000 1999 -------- -------- --------~~-------------~~ ~~2001 2000 1999~~ Commercial $ 7,~~500~~859 $ 7,361 $ 7,189 Agricultural 2,~~422~~301 3,029 3,464 Real Estate-Construction 7,~~811~~888 ~~8,122~~22 6,112 Real Estate-Mortgage 8588,~~911~~459 84,256 71,257 Installment loans to Individuals 1110,~~178~~877 11,210 10,504 ---------- --------~~---~~ --------- Totals $~~114~~117,~~822~~384 $113,978 $ 98,526

(5) SOURCES AND USES OF FUNDS Economic activity was slower in the bank's market areas during the first half of 2001 when compared with the year-ago period. Deposit growth for the current period was a negative $857m , compared with a positive $11,146m figure for the first half of 2000. Likewise, loan growth for the first half of 2001 was $3,684 compared with $11,291 during the year-ago period. The other, significant event that occurred during the current period was the placement of the remaining proceeds of $15,000m in matured securities (approx. $5,256m) into fed funds sold. (Please see Statement of Cash Flows, P-3) LIQUIDITY At mid-year, 2001 the bank's total of cash and due from banks, readily marketable securities and federal funds sold stood at approximately 29% of total liabilities. This compares with approximately 32% at year-end, 2000. The decline is largely a result of the flow of cash assets into the loan portfolio during the first six months of 2001 (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 6-30-01

(dollars in thousands) 3 MO 3-12 1-5 OVER OR LESS MONTHS YEARS 5 YEARS -------- -------- ------- -------- RATE SENSITIVE ASSETS (Assets that can be repriced within X days) Loans * 1417,~~684~~285 4849,~~833~~559 2522,~~748~~754 2426,~~396~~814 Federal Funds Sold 517,~~375~~225 -0- -0- -0- Taxable Securities ** ~~15,000~~-0- 510,000 10,000 -0- Municipal Bonds -0- -0- -0- 2,295 TOTAL 3534,~~059~~510 5359,~~833~~559 3532,~~748~~754 2629,~~691~~109 RATE SENSITIVE LIABILITIES (Liabilities that can be repriced within X days) Time Certificates of Deposit 3634,~~334~~797 3233,~~733~~744 35,~~351~~317 -0- NOW Accounts 1,~~863~~744 -0- -0- -0- Super NOW Accounts 2829,~~056~~776 -0- -0- -0- Savings Accounts 9,~~178~~259 -0- -0- -0- MMDA Accounts 12,~~338~~347 -0- -0- -0- TOTAL 87,~~769~~923 3233,~~733~~744 35,~~351~~317 -0- Interest Rate Sensitivity Gap (5253,~~710~~413) 2125,~~100~~815 3227,~~397~~437 2629,~~691~~109 Cumulative Interest Rate Sensitivity Gap (5253,~~710~~413) (3127,~~610~~598) ~~787~~(161) 2728,~~478~~948

* Does not include $945m in nonaccruing loans or overdrawn demand deposits of $22m ** Does not include $24m in Federal Reserve Bank stock (7) INVESTMENT SECURITIES TABLE 4

CARRYING UNREALIZED UNREALIZED MARKET (dollars in thousands) VALUE GAINS LOSSES VALUE ------------ ----------~~-------~~ ----------~~------~~ ---------- ~~MARCH~~June 3130, 2001 -------------- (1) Held-to-Maturity: U.S. Treasury Securities -- -- -- -- Other 3222,~~215~~401,~~300~~301 ~~450~~421,~~721~~091 -- 3222,~~666~~822,~~021~~392 (2) Available-for-Sale Securities Carried at Fair Value: U.S. Treasury Securities -- -- -- -- Other 24,000 -- -- 24,000 ------------ ----------~~-------~~ ----------~~------~~ ----------- 3222,~~239~~425,~~300~~301 ~~450~~421,~~721~~091 -- 3222,~~690~~846,~~021~~392 ------------ ----------~~-------~~ ----------~~------~~ ----------- ~~DECEMBER~~December 31, 2000 ----------------- (1) Held-to-Maturity: U.S. Treasury Securities -- -- -- -- Other 31,961,129 270,094 -- 32,231,223 (2) Available-for-Sale Securities Carried at Fair Value: U.S. Treasury Securities -- -- -- -- Other 24,000 -- -- 24,000 ------------ ----------~~-------~~ ----------~~------~~ ----------- 31,985,129 270,094 -- 32,255,223 ------------ ----------~~-------~~ ----------~~------~~ ----------- ~~DECEMBER~~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 ------------ ----------~~-------~~ ----------~~------~~ -----------

(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) CAPITALIZATION: All capital ratios increased during the first half of 2001, a result of retained earnings growth that far exceeded asset growth performance. (Please see Table 5, P-9) Table 5 - CAPITAL

*~~MARCH~~ 31June ~~DECEMBER~~30 31December --------- --------~~---~~ 2001 2000 Tier 1 risk-based capital (minimum is 4%) 14.4143% 13.79% Tier 1 + Tier 2 risk based capital (minimum is 8%) 15.6769% 15.04% Tier 1 leverage (minimum is 3%) 8.6871% 8.21% *ESTIMATE

RESULTS OF OPERATIONS NET INTEREST INCOME Net interest income was up from prior year levels in both the three and six month periods, a result of both increased interest revenue and decreased interest expense. The increase in loan interest revenue was largely volume driven, where the decrease in interest expense was both volume and rate driven. When annualized and expressed as a percentage of period-end, interest bearing assets, net interest income was 4.28%, compared with 3.59% 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 for the first half of 2001 was markedly lower than in the prior year period, primarily due to a $111m charge-off experienced in the year-ago period. Non-interest income in the current period was up significantly from the prior year period, primarily due to a non-recurring late charge of approximately $74m realized in June of 2001. Savings in expenditures related to legal fees and advertising were more than offset by increased expenses for outsourced computer and item processing services. (Please see Statement 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: July 20, 2001 /s/ J. Ed Eisemann, IV -------------------------- Chairman of the Board Date: July 20, 2001 /s/ Catherine G. Eisemann -------------------------- Director (11)

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