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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, 2003. 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 15, 2003
Common Stock, $1.00 Par Value Shares 333,725
- ----------------------------- ---------
(excluding 23,119
shares held as treasury
shares)
THE REPUBLIC CORPORATION
Index to Quarterly Report on Form 10-Q
PAGE
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
December 31, 2002 and March 31, 2003. 1
Consolidated Statements of Income
for the three months ended
March 31, 2002 and 2003. 2
Consolidated Statements of Cash Flows for the
three months ended March 31, 2002 and 2003. 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis 5-10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
Item 4. Controls and Procedures 12
Part II. Other Information 13
Signatures 14
Certification 14-15
ITEM 1. FINANCIAL STATEMENTS
REPUBLIC CORPORATION AND SUBSIDIARY
Balance Sheets
March 31, December 31,
2003 2002
(Unaudited) (Restated)
- ----------------------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks (demand) . . . . . . . . . . . . . . . . . . . . . . . $ 6,026,205 $ 5,781,622
Investment securities:
Held-to-maturity
Market value at 3-31-03 $23,109,825
Market value at 12-31-02 $23,192,854 . . . . . . . . . . . 22,425,345 22,470,121
Federal Reserve Bank Stock . . . . . . . . . . . . . . . . . . . . . 24,000 24,000
----------- -----------
$ 28,475,550 $ 28,275,743
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,289,041 109,359,880
Plus: Uncollected earned interest . . . . . . . . . . . . . . . . . 919,867 624,047
Less: Allowance for losses . . . . . . . . . . . . . . . . . . . . . (1,700,300) (1,700,060)
----------- -----------
Net loans and other receivables . . . . . . . . . . . . . . . . . . 108,508,608 108,283,867
----------- -----------
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,350,000 40,750,000
Property, equipment and vehicles (net) . . . . . . . . . . . . . . . . . . . 2,977,422 3,033,582
Other real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354,309 350,977
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 488,418 488,418
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436,079 436,079
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174,325 324,857
----------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 179,764,711 $ 181,943,523
=========== ===========
Liabilities and Stockholders' Equity
Deposits (Domestic):
Demand (non-interest bearing) . . . . . . . . . . . . . . . . . . . $ 22,274,695 $ 21,052,697
Savings, time and demand (Interest-bearing) . . . . . . . . . . . . 138,870,804 142,722,417
----------- -----------
$ 161,145,499 $ 163,775,114
Accounts payable and accrued interest payable . . . . . . . . . . . . . . . . $ 781,152 834,228
Accrued taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210,126 60,247
----------- -----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . $ 162,136,777 $ 164,669,589
----------- -----------
Minority Interest in Consolidated Subsidiary . . . . . . . . . . . . . . . . . 508,186 497,123
----------- -----------
Stockholders' Equity
Common stock (par value $1; 750,000 shares
authorized, 356,844 shares issued including
stock held in treasury at 3-31-03 and
12-31-02) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356,844 356,844
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 234,931 234,931
Less cost of treasury stock (23,119 shares at 3-31-03 and
12-31-02) . . . . . . . . . . . . . . . . . . . . . . . . . . . (91,303) (91,303)
----------- -----------
Total contributed capital . . . . . . . . . . . . . . . . 500,472 500,472
----------- -----------
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,619,276 16,276,339
----------- -----------
Total Stockholders' equity . . . . . . . . . . . . . . . . . . . . 17,119,748 16,776,811
----------- -----------
Total liabilities and stockholders equity . . . . . . . . . . . . . $ 179,764,711 $ 181,943,523
=========== ===========
The accompanying notes are an integral part of these financial statements.
(1)
REPUBLIC CORPORATION AND SUBSIDIARY
Statements of Income
Three Months Ended
March 31, March 31,,
2003 2002
(Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
Interest Income
Interest and fees on loans $ 2,093,908 $ 2,341,058
----------- -----------
Interest on federal funds sold and securities
purchased under agreement to resell ........................... 114,284 105,092
Interest and dividends on investment
Securities of U.S. Government and
government agenciess ................................... 191,067 358,196
Obligations of states, political
subdivisions and other obligations
secured by the governments ............................. 29,211 29,211
----------- -----------
Total interest on investments and funds sold .................. 334,562 492,499
----------- -----------
Total interest income ......................................... 2,428,470 2,833,557
----------- -----------
Interest expense:
Interest on deposits ................................................. 697,498 1,067,359
----------- -----------
Total Interest expense ........................................ 697,498 1,067,359
----------- -----------
Net interest income .................................................. 1,730,972 1,766,198
Provision for loan losses .................................................... (88,827) (201,861)
----------- -----------
Net interest income after provision for
loan losses .................................................. 1,642,145 1,564,337
----------- -----------
Other income:
Service charges on deposit accounts .................................. 55,728 38,742
Other service charges, commission and fees ........................... 132,948 92,288
Net income- other real estate ........................................ 3,014 -0-
Other income ......................................................... 85,590 79,516
----------- -----------
Total other income ................................................... 277,280 210,546
----------- -----------
Other expenses:
Salaries and wages ................................................... 541,920 525,732
Employee benefits .................................................... 129,592 160,498
Net occupancy expenses ............................................... 64,075 66,436
Furniture and equipment expenses ..................................... 30,889 29,606
Depreciation other than rental property .............................. 77,263 84,147
Computer service center .............................................. 157,429 136,507
FDIC-insurance ....................................................... 6,472 14,124
Professional services ................................................ 69,856 72,201
Advertising .......................................................... 43,001 47,223
Other operating expenses ............................................. 253,051 247,964
----------- -----------
Total other expenses .......................................... 1,373,548 1,384,438
----------- -----------
Income before income taxes .................................... 545,877 390,445
Less applicable income taxes (Current) ............................... 192,000 199,050
----------- -----------
Income before reduction for minority interest ................. 353,877 191,395
Less minority interest income ........................................ 10,940 5,422
----------- -----------
Net income .................................................... $ 342,937 $ 185,973
=========== ===========
Earnings per share .............................................. $ 1.03 $ .56
----------- -----------
The accompanying notes are an integral part of these financial statements.
(2)
REPUBLIC CORPORATION AND SUBSIDIARY
Statements of Cash Flows
Three Months Ended
March 31, March 31,
2003 2002
(Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows and operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 342,937 $185,973
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,263 84,147
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . 88,827 201,861
Amortization (accretion) of discounts and
Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,776 39,382
Other real estate gains (loss)/net . . . . . . . . . . . . . . . . . (3,014) -0-
(Decrease) increase in interest payable . . . . . . . . . . . . . (53,076) 51,236
(Increase) decrease in interest receivable . . . . . . . . . . . . (295,820) 61,295
(Increase) decrease in other assets . . . . . . . . . . . . . . . . 150,532 (335,836)
Increase (decrease) in other liabilities . . . . . . . . . . . . . . 160,942 165,166
---------- ----------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,430 267,251
---------- ----------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . 513,367 453,224
---------- ----------
Cash flows from investing activities
Net (increase) decrease in loans made to customers . . . . . . . . . . . . . (90,838) 2,325,038
Capital expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,103) (81,817)
Proceeds from sale of other real estate . . . . . . . . . . . . . . . . . . 72,772 -0-
---------- ----------
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . (39,169) 2,243,211
---------- ----------
Cash flows from financing activities
Net increase (decrease) in demand deposits, NOW
account, savings accounts and certificates of deposit . . . . . . . . . . . . (2,629,615) 5,305,505
---------- ----------
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . (2,629,615) 5,305,505
---------- ----------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . (2,155,417) 8,001,950
---------- ----------
Cash and cash equivalents at beginning of year:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . 5,781,622 6,740,872
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,750,000 21,975,000
---------- ----------
Cash and cash equivalents at beginning of year: . . . . . . . . . . . . . . . . 46,531,622 28,715,872
========== ==========
Cash and cash equivalents at the end of the period:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,026,205 6,667,822
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,350,000 30,050,000
---------- ----------
Cash and cash equivalents at the end of the period: . . . . . . . . . . . . . . $ 44,376,205 $ 36,717,822
========== ==========
Supplemental disclosures of cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 750,574 $ 1,016,123
Cash paid for income tax . . . . . . . . . . . . . . . . . . . . . . . . . . $ -0- $ -0-
Real estate acquired in settlement of loans . . . . . . . . . . . . . . . . $ 73,090 $ 158,501
The accompanying notes are an integral part of these financial statements.
(3)
REPUBLIC CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2003
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
(consisting of normal recurring 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 subsidiary. The
condensed consolidated balance sheet of the Company as of December 31, 2002 has
been derived from the audited consolidated balance sheet of the Company as of
that date. The balance sheet for December 31, 2002 has been restated to reflect
the previously unrecorded deferred income tax asset of $488,418 and the
corresponding increases in the minority interest in the Company's consolidated
subsidiary by $11,272 and retained earnings by $477,146. 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, 2002. The financial data for
the interim periods may not necessarily be indicative of results to be expected
for the year.
Note 2 -- EARNINGS PER COMMON SHARE
Earnings per common share is computed by dividing net income available for
common stockholders by the average number of shares of common stock outstanding
during the period (333,725 shares).
(4)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides information about the major components of
operations and financial condition, liquidity and capital resources of The
Republic Corporation. This discussion and analysis should be read in conjunction
with the accompanying consolidated financial statements and related notes.
GENERAL
Our profitability, like that of similar financial institutions, is driven
in large part by circumstances in both the local and national economies.
Foremost among these is market interest rates, both in terms of absolute level
and in terms of rate of change. Management is responsible for appropriately
structuring both the timing of interest bearing asset repricings and the timing
of interest bearing liability repricings so that net interest income is ideally
at a sufficient level in the current time frame and adequately protected from
significant decline in the future. The often unforeseen magnitude and direction
of interest rate change can periodically cause a negative earnings impact on the
most well conceived asset/liability management structure and future results in
this area are therefore most appropriately described as probabilities. Another
factor in the local and national economies, not entirely unrelated to interest
rates, is credit risk and management's ability to appropriately manage this
exposure. Deterioration in either the national economy or in Southern Colorado
and Northern New Mexico can cause declines in borrower repayment ability and
performance and dampen loan demand to an extent that earnings are significantly
impacted. The management task in this area is defined as a process of decision
making that appropriately accommodates changed circumstance in the mix of
determinant factors that go into the credit granting process. Lastly, the
effective management of technology is a growing factor in defining financial
institution results. Our results are materially tied to such factors as
technology cost, effective delivery of banking services through the use of
technology, and the management of risks incidental to the use of technology,
including operational risk, reputation risk and information security risk.
ASSET QUALITY
Loans placed on non-accrual remain at an elevated level, a result of the
progressive accumulation over the past 15 months of loans that are, or once
were, past-due 60 days, the point where they are automatically placed on
non-accrual. As a matter of practice, loans are also placed on non-accrual when
the borrower has become highly leveraged, has been charged with serious crimes
or has demonstrated any other characteristic that makes further payments
questionable. Currently, 31% of the non-accruing loan total is contractually
past-due 60 days, or more. We typically collect interest on a cash basis when
payments are made on non-accrual loans and will usually return such loans to
accruing status when the outlook has materially improved and payments have been
made on a timely basis for at least two quarters.
The restructured total consists of twelve loans, still accruing, that have
necessitated modified terms due to adverse financial circumstances. Loans in
this category are often taken off restructured status when the situation has
improved and original payment terms have been restored. (Please see PROBLEM
ASSETS below)
Loans outstanding have been flat over the first quarter of 2003, however,
there has been significant movement amongst loan types. Significantly,
commercial real estate loans fell $608 thousand and loans secured by 1-4 family
homes rose $909 thousand during this period, the continuance of a trend
experienced during all of 2002. Also, commercial and industrial loans fell $677
thousand during the first quarter of 2003. (Please see LOAN CONCENTRATIONS
below)
(5)
TABLE 1 PROBLEM ASSETS
(dollars in thousands) March 31, December 31,
-------- -----------------------------
2003 2002 2001 2000
Nonaccrual loans $2,589 $2,304 $1,008 $1,076
Past-due loans (90 days or more and still accruing) -0- -0- -0- 149
Restructured loans (still accruing) 451 349 81 781
------ ----- ----- ----
Total problem loans $3,040 $2,653 $1,089 $2,006
Foreclosed assets
Real estate 354 351 255 38
In-substance foreclosures -0- -0- -0- -0-
Other 60 -0- -0- 17
------ ----- ----- ----
Total Problem Assets $3,454 $3,004 $1,344 $2,061
====== ===== ===== ====
Total problem loans as
a percentage of total loans 2.8% 2.4% 1.0% 1.8%
Total problem assets as a
percentage of total loans
and foreclosed assets 3.1% 2.7% 1.2% 1.8%
TABLE 2 LOAN CONCENTRATIONS
(dollars in thousands) March 31, December 31,
---------- -------------------
2003 2002 2001
Commercial and industrial $ 8,999 $ 9,676 $ 7,424
Agricultural 1,247 1,244 1,754
Real Estate-Construction 4,359 3,672 3,262
Real Estate-Mortgage 84,225 83,928 89,617
Installment loans to Individuals 10,459 10,840 11,233
------- ------- -------
Totals $109,289 $109,360 $113,290
======= ======= =======
SOURCES AND USES OF FUNDS
Cash flows differed materially when comparing the first quarter of 2003
with the same period in 2002. In the 2003 period, deposits fell $2.6 million,
compared with growth of $5.3 million in the 2002 period. The decline in deposits
in the first quarter of 2003 resulted in part in a $2.2 million reduction in
cash and cash equivalents, with loan growth being flat during the same period.
In contrast, the deposit growth experienced in the first quarter of 2002,
coupled with a reduction of $2.3 million in loans outstanding, flowed into cash
and cash-equivalents, the latter growing $8.0 million during the same period.
Historically low interest rates and a noticeably softer local economy in 2003
could largely explain the contrasting deposit growth performance in the two
periods. The absence of loan growth in both periods is also tied to these
factors, with increasing competition for a diminishing supply of commercial
loans and a record rate of residential refinancing playing leading roles.
(Please see Statement of Cash Flows on page 3)
LIQUIDITY
Liquidity, our ability to respond to withdrawal or loan requests from
customers, remained only slightly lower at the end of the first quarter of 2003,
compared with year-end, 2002 levels. Cash and due from banks, readily marketable
securities and federal funds sold totaled approximately 41% of total liabilities
at the
(6)
March 31, 2003 quarter-end, compared with approximately 42% at year-end,
2002. (Please see Balance Sheet on page 1)
INTEREST RATE SENSITIVITY MANAGEMENT
In the ordinary course of business, we are 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 400 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.
Based on current repricing structure, it is anticipated that we have sufficient
tools in place to minimize or eliminate any adverse earnings impact caused by
interest rate change. We do 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 on page 8 and
Investment Securities on page 9)
(7)
INTEREST RATE SENSITIVITY MANAGEMENT
Table 3 - REPRICING SCHEDULE
3-31-03
3 MO 3-12 1-3 OVER
(dollars in thousands) OR LESS MONTHS YEARS 3 YEARS
RATE SENSITIVE ASSETS
(Assets that can be
repriced within X days)
Loans * $ 14,423 $ 25,865 $ 10,827 $58,049
Federal Funds Sold 38,350 -0- -0- -0-
Taxable Securities ** (at par) -0- 10,000 10,000 -0-
Municipal Bonds (at par) -0- -0- -0- 2,295
-------- -------- -------- -------
TOTAL $ 52,773 $ 35,865 $ 20,827 $60,344
======== ======== ======== =======
RATE SENSITIVE LIABILITIES
(Liabilities that can be
repriced within X days)
Time Certificates of Deposit $ 34,791 $ 35,853 $ 9,494 $ -0-
NOW Accounts 1,792 -0- -0- -0-
Super NOW Accounts 30,338 -0- -0- -0-
Savings Accounts 9,748 -0- -0- -0-
MMDA Accounts 16,855 -0- -0- -0-
-------- -------- -------- -------
TOTAL $ 93,524 $ 35,853 $ 9,494 $ -0-
======== ======== ======== =======
Interest Rate Sensitivity Gap (40,751) 12 11,333 60,344
Cumulative Interest Rate
Sensitivity Gap (40,751) (40,739) (29,406) 30,938
* Does not include overdrawn demand deposits of $21 thousand or $104 thousand
in overdraft loans
** Does not include $24 thousand in Federal Reserve Bank stock
(8)
INVESTMENT SECURITIES
TABLE 4
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
--------- ---------- ---------- ---------
March 31, 2003
- --------------
Held-to-Maturity *:
U.S. Treasury Securities -- -- -- --
Other $22,425,345 $ 684,480 -- $23,109,825
December 31, 2002
- -----------------
Held-to-Maturity*:
U.S. Treasury Securities -- -- -- --
Other $22,470,121 $ 722,733 -- $23,192,854
December 31, 2001
- -----------------
Held-to-Maturity*:
U.S. Treasury Securities -- -- -- --
Other $32,639,115 $ 397,400 -- $33,036,515
* Securities which we have 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.
(9)
CAPITALIZATION
The negative asset growth during the first quarter of 2003, coupled with
retained earnings growth during the same period, has resulted in significant
growth in both risk-based capital ratios as well as the Tier 1 leverage ratio.
(Please see Table 5, CAPITAL)
TABLE 5 - CAPITAL
* MARCH 31, DECEMBER 31,
----------- ------------
2003 2002
Tier 1 risk-based capital
(minimum is 4%) 17.91% 17.43%
Tier 1 + Tier 2 risk based capital
(minimum is 8%) 19.17% 18.69%
Tier 1 leverage (minimum is 3%) 9.53% 9.12%
*Estimate
RESULTS OF OPERATIONS
NET INTEREST INCOME
Negative loan growth and a yield curve that offers few opportunities in the
relatively near term (2-3 years) has made growth in net interest income
problematic. In fact, net interest income for the first quarter of 2003 fell
approximately 2% below the first quarter 2002 level, this occurring in the midst
of unprecedented declines in interest rates. Continual adjustments to
interest-bearing, deposit account offering rates will remain the primary means
of ensuring comparable results for the remainder of 2003. We will be prepared to
take advantage of any opportunity to appropriately grow loan totals or improve
investment portfolio yields should the enabling circumstances occur in the
marketplace. (Please see Statement of Income on page 2)
OTHER INCOME AND EXPENSE
The loan loss provision of $89 thousand in the first quarter of 2003 was
materially smaller ($113 thousand) than the same period in 2002, a circumstance
that primarily relates to loan loss exposure in the year-ago period. Net
charge-offs for the first quarter of 2003 also totaled $89 thousand versus a
negative $1 thousand in the year-ago period, the former elevated by our current
practice, adopted during the fourth quarter of 2002, of charging off the entire
principal amount of defaulted auto loans. This practice is driven by the
likelihood of a protracted selling period due to the current oversupply of used
autos in this market. Recoveries are taken into the reserve account once these
units are sold. By comparison, the average, quarterly net charge-off for the
2001 and 2002 time frame was approximately $65 thousand.
Service charge and fee income was approximately $58 thousand higher than in
the year-ago period. This is primarily a result of revised fee calculation
schedules and higher fees in some cases.
Non-interest expense was comparable to prior year levels, with computer and
data processing costs showing the only significant increases. (Please see
Statement of Income on page 2)
(10)
Management is not aware of any regulatory recommendations or other trends,
events or uncertainties that would have or would reasonably be likely to have a
material effect on liquidity, capital resources or operations of the company.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
Statements which are not historical facts contained in this document are
forward looking statements that involve risks and uncertainties that could cause
actual results to differ from projected results. Factors that could cause actual
results to differ materially include, among others: general economic conditions,
economic conditions in the Southern Colorado and Northern New Mexico area, the
monetary policy of the Federal Reserve Board, changes in interest rates,
inflation, instability in the financial markets relating to terrorist activities
and the response thereto, competition in the banking business, changes in state
and federal regulatory regimes applicable to our operations, loan demand, the
ability of customers to repay loans, consumer saving habits, employment costs,
and other risk factors detailed in our Form 10-K for the year ended December 31,
2002 filed with the Securities and Exchange Commission.
"Forward-looking statements" in this document can be identified by the use
of forward-looking terminology such as "may," "will," "anticipate," "believe,"
"estimate," or "continue," or the negative thereof or other variations thereon
or comparable terminology and include statements relating to, among other
things, our ability to minimize the adverse impact of interest rate changes. The
statements in "risk-factors" and other statements and disclaimers in our Annual
Report on Form 10-K constitute cautionary statements identifying important
factors, including certain risks and uncertainties, with respect to such
forward-looking statements that could cause actual results to differ materially
from those reflected in such forward-looking statements.
(11)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See INTEREST RATE SENSITIVITY MANAGEMENT on page 7.
ITEM 4. CONTROLS AND PROCEDURES
(A) Evaluation of disclosure controls and procedures
Our Chief Executive and Chief Financial Officer, after evaluating the
effectiveness of our disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within 90 days of
the filing date of this Form 10-Q Quarterly Report (the "Evaluation Date"),
has concluded that as of the Evaluation Date, our disclosure controls and
procedures were adequate and effective to ensure that material information
relating to us would be made known to him by others within our company,
particularly during the period in which this Form 10-Q Quarterly Report was
being prepared.
(B) Changes in internal controls.
There were no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of the most recent evaluation, nor any significant deficiencies or
material weaknesses in such internal controls requiring corrective actions.
As a result, no corrective actions were taken.
(12)
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
Restatement of Financial Statements.
In April 2003, we became aware of the need to record deferred income tax
assets which had not been properly recorded in prior periods. We have included
in this Quarterly Report on Form 10-Q a restated balance sheet for December 31,
2002 to reflect the previously unrecorded deferred income tax asset of $488,418
and the corresponding increases in the minority interest in our consolidated
subsidiary by $11,272 and retained earnings by $477,146. We plan to file as soon
as reasonably practicable amendments to our Form 10-Ks for the fiscal years
ended December 31, 2002, 2001 and 2000 and amendments to Form 10-Qs filed in
these fiscal years to restate the financial statements included in these reports
to reflect the correct treatment of deferred income tax assets and make related
adjustments.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Exhibits
99.1 Certificate of Chief Executive and Chief Financial
Officer pursuant to 18 U.S.C. 1350 (Section 906 of the
Sarbanes-Oxley Act of 2002)
b). No reports on Form 8-K have been filed during the quarter for
which this report was filed.
(13)
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: May 15, 2003 /S/ J. ED EISEMANN, IV
--------------------------
Chairman of the Board
CERTIFICATIONS
I, J. Ed Eisemann, IV, certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Republic
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
statements made, in the light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to me by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
(14)
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this quarterly report whether there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of my most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003 /s/ J. ED EISEMANN, IV
------------ --------------------------
J. Ed Eisemann, IV
Chairman of the Board, Director,
Chief Executive Officer, Chief
Financial and Accounting Officer
(15)
EXHIBIT INDEX
99.1 Certificate of Chief Executive and Chief Financial Officer pursuant to
18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)