10-Q 1 a2062434z10-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 Nine Months Ended September 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 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 September 30, 2001 COMMON STOCK, $1.00 PAR VALUE Shares 356,844 ----------------------------- ------- Outstanding at Sept. 30, 2001, (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, 2000, and ~~June~~September 30, 2001. 1 Consolidated Statements of Income for the three months and ~~six~~nine months ended ~~June~~September 30, 2000 and 2001. 2 Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 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

~~June~~September 30 December 31 2001 2000 ------------- ---------------------------------------------------------------------------------------------------------- Assets Cash and due from banks (demand) ............................................... $ 45,~~645~~693,~~476~~038 $ 5,813,679 Investment securities: Held-to-maturity Market value at 69-30-01 2228,~~822,392~~200.693............................. ---------- Market value at 12-31-00 32,231,223 .............................~~..........~~ 2227,~~401~~507,~~301~~017 31,961,129 ---------- Available-for-sale Market value at 69-30-01 24,000............................. ---------- Market value at 12-31-00 24,000 .............................~~...........~~ 24,000 24,000 ---------- ------------ ------------- $ 2733,~~070~~224,~~777~~055 $ 37,798,808 Loans .......................................................................... ~~117~~116,~~383~~131,~~793~~718 113,978,399 Plus: Uncollected earned interest .........................................~~...~~ 1,~~064~~509,~~243~~507 903,442 Less: Allowance for losses ................................................~~...~~ (1,~~600~~580,000) (1,578,694) ------------- ------------- Net loans and other receivables ...........................................~~...~~ 116,~~848~~061,~~036~~225 113,303,147 ------------- ------------- Federal funds sold ............................................................. 1724,~~225~~750,000 10,800,000 Property, equipment and vehicles (net) ......................................... 3,~~085~~231,~~347~~936 2,633,874 Other real estate .............................................................. ~~251~~270,~~774~~474 37,716 Goodwill ....................................................................... 436,079 436,079 Other assets ................................................................... ~~539~~729,~~953~~821 266,361 ------------- ------------- Total assets ..............................................................~~...~~ $ ~~165~~178,~~456~~703,~~966~~590 $ 165,275,985 ------------- ------------- Liabilities and Stockholders' Equity Deposits (Domestic): Demand (non-interest bearing) ............................................... $ 2021,~~711~~742,~~195~~044 $ 18,184,083 Savings, time and demand (Interest-bearing) ................................. ~~128~~140,~~099~~078,~~562~~087 131,483,346 ------------- ------------- $ ~~148~~161,~~810~~820,~~757~~131 $ 149,667,429 Accounts payable and accrued interest payable .................................. 1,~~260~~034,~~299~~724 1,459,527 Accrued taxes payable .......................................................... ~~466~~620,~~612~~914 58,996 ------------- ------------- Total liabilities .........................................................~~...~~ $ ~~150~~163,~~537~~475,~~668~~769 $ 151,185,952 ------------- ------------- Minority Interest in Consolidated Subsidiary ................................... ~~395~~403,~~257~~910 304,376 ------------- ------------- 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 69-30-01 and 23,119 at 12-31-00) ....................................................... (91,303) (91,303) ------------- ------------- Total contributed capital ........................................~~..........~~ 500,472 500,472 ------------- ------------- Retained earnings .............................................................. 14,~~023~~323,~~569~~439 13,285,185 ------------- ------------- Net Unrealized Gain (Loss) on Securities Available-for-Sale (Net of Taxes) .....................................~~......~~ -0- -0- Stockholders'~~equity~~ equity.........................................~~...............~~ 14,~~524~~823,~~041~~911 13,785,657 ------------- ------------- Total liabilities and stockholders equity .............................~~.......~~ $ ~~165~~178,~~456~~703,~~966~~590 $ 165,275,985 ------------- -------------

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

Three Months Ended ~~Six~~Nine Months Ended -------------------------~~----~~ -----------------------~~------~~ ~~June~~Sept. 30 ~~June~~Sept. 30 ~~June~~Sept. 30 ~~June~~Sept. 30 2001 2000 2001 2000 ~~----------- ----------- ----------- -----------~~ Interest Income Interest and fees on loans $ 2,~~618~~676,~~164~~088 $ 2,~~328~~446,~~378~~777 $ 57,~~211~~888,~~931~~019 $ 46,~~479~~926,~~431~~208 ----------- ----------- ----------- ----------- Interest on funds sold and securities purchased under agreement to resell ~~170~~202,~~059~~279 ~~364~~362,~~936~~359 ~~275~~478,~~741~~020 ~~745~~1,~~636~~107,995 Interest and dividends on investments Securities of U.S. Government and government agencies ~~294~~324,~~604~~388 ~~298~~271,~~110~~151 ~~813~~1,~~757~~138,145 ~~583~~854,~~769~~920 Obligations of states, political subdivisions and other obligations secured by the government 5829,~~517~~262 ~~135~~189,~~336~~952 5887,~~517~~779 ~~179~~369,~~937~~889 ----------- ----------- ----------- ----------- Total interest on investments ~~523~~555,~~180~~929 ~~798~~823,~~382~~462 1,~~148~~703,~~015~~944 12,~~509~~332,~~342~~804 ----------- ----------- ----------- ----------- Total interest income 3,~~141~~232,~~344~~017 3,~~126~~270,~~760~~239 69,~~359~~591,~~946~~963 59,~~988~~259,~~773~~012 ----------- ----------- ----------- ----------- Interest expense: Interest on deposits 1,~~441~~449,~~706~~193 1,~~633~~689,~~796~~579 34,~~000~~449,~~148~~341 34,~~174~~863,~~156~~735 ----------- ----------- ----------- ----------- Total Interest expense 1,~~441~~449,~~706~~193 1,~~633~~689,~~796~~579 34,~~000~~449,~~148~~341 34,~~174~~863,~~156~~735 ----------- ----------- ----------- ----------- Net interest income 1,~~699~~782,~~638~~824 1,~~492~~580,~~964~~660 35,~~359~~142,~~798~~622 24,~~814~~395,~~617~~277 Provision for loan losses (3786,~~891~~840) (~~113~~50,~~028~~263) (85172,~~532~~372) (~~234~~284,~~362~~625) ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 1,~~661~~695,~~747~~984 1,~~379~~530,~~936~~397 34,~~274~~970,~~266~~250 24,~~580~~110,~~255~~652 ----------- ----------- ----------- ----------- Other income: Service charges on deposit accounts 5554,~~393~~972 5657,~~983~~060 ~~110~~165,56536 ~~112~~169,~~645~~705 Other service charges, commission and fees ~~228~~78,~~932~~786 ~~169~~37,~~304~~690 ~~369~~448,~~682~~468 ~~285~~403,~~495~~185 Gain on sale of securities -0- -0- -0- -0- Net income-other real estate -0 -0- -02,622 -0- 2,622 Other income 5239,~~520~~631 20124,~~597~~106 65105,~~579~~210 37161,~~396~~502 ----------- ----------- ----------- ----------- Total other income ~~336~~173,~~845~~389 ~~246~~221,~~884~~478 ~~545~~719,~~825~~214 ~~435~~737,~~536~~014 ----------- ----------- ----------- ----------- Other expenses: Salaries and wages ~~482~~526,~~937~~761 ~~471~~456,~~334~~476 ~~954~~1,~~270~~481,031 ~~943~~1,~~480~~399,957 Employee benefits ~~115~~129,~~227~~549 ~~126~~84,~~313~~545 ~~252~~382,~~812~~361 ~~237~~321,~~279~~824 Net occupancy expenses ~~154~~90,~~553~~866 ~~141~~133,~~836~~778 ~~222~~312,~~128~~994 ~~218~~352,~~230~~008 Furniture and equipment expenses 3843,~~765~~607 1917,~~387~~113 75118,~~180~~787 6077,~~004~~117 Depreciation other than rental property 7288,~~481~~124 6566,~~263~~278 ~~143~~231,~~585~~709 ~~126~~192,~~199~~477 Net cost-other real estate -0- -0- -0- -0- Computer service center ~~104~~136,~~556~~645 4552,~~974~~579 ~~215~~351,~~111~~756 ~~138~~190,~~405~~984 FDIC-insurance 6,~~666~~687 7,4524 2027,~~992~~679 2129,~~884~~408 Professional services 4642,~~945~~950 2746,~~657~~806 98141,~~645~~595 ~~112~~159,~~487~~293 Advertising 3954,~~350~~923 7032,~~619~~620 59114,~~691~~614 ~~105~~138,~~681~~301 Other operating expenses ~~275~~290,~~231~~738 ~~192~~226,~~140~~212 ~~587~~877,~~052~~790 ~~397~~623,~~242~~454 ----------- ----------- ----------- ----------- Total other expenses 1,~~336~~410,~~711~~850 1,~~168,011~~123.931 24,~~629~~040,~~466~~316 23,~~360~~484,~~891~~823 ----------- ----------- ----------- ----------- Income before income taxes ~~661~~458,~~881~~523 ~~458~~627,~~809~~944 1,~~190~~649,~~625~~148 ~~654~~1,~~900~~362,843 Less applicable income taxes (Current) ~~234~~140,000 ~~163~~265,~~330~~000 ~~439~~579,000 ~~233~~498,000 ----------- ----------- ----------- ----------- Income before reduction for minority interest ~~427~~318,~~881~~523 ~~295~~362,~~479~~944 ~~751~~1,~~625~~070,148 ~~421~~864,~~900~~843 Less minority interest income (loss) 128,~~570~~653 610,~~919~~105 2331,~~241~~894 1020,~~141~~246 ----------- ----------- ----------- ----------- Net income $ ~~415~~309,~~311~~870 $ ~~288~~352,~~560~~839 $ ~~728~~1,~~384~~038,254 $ ~~411~~844,~~759~~597 ----------- ----------- ----------- ----------- Earnings per share $ 10.2493 $ 1.8606 $ 23.1811 $ 12.2353 ~~===========~~---------- ~~===========~~---------- ~~===========~~---------- ~~===========~~----------

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

~~Six~~Nine Months Ended ~~June~~Sept. 30 ~~June~~Sept. 30 2001 2000 ------------ ------------------------------------------------------------------------------------------------------ Cash flows and operating activities: Net income (loss) ............................................................ $ ~~728~~1,~~384~~038,254 $ ~~411~~844,~~759~~597 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ................................................... ~~143~~231,~~585~~709 ~~168~~256,~~266~~636 Provision for loan losses ...................................... 85172,~~532~~372 ~~234~~284,~~362~~625 Amortization (accretion) of discounts and Premium ................................................... (~~440~~545,~~172~~888) (~~582~~853,~~849~~651) Other real estate gains/net .................................... -0- ~~-0-~~(2,622) Investment ~~Securities~~securities gains/net ................................ -0- -0- Loss onof sale ofon subsidiary stock ............................... 57,639 -0- Re-appraisal - other real estate ............................... -0- -0- (Decrease) increase in interest payable ........................ (~~199~~424,~~228~~803) ~~189~~304,~~975~~222 (Increase) decrease in interest receivable ..................... (~~160~~606,~~801~~065) (~~246~~445,~~899~~313) (Increase) decrease in other assets ............................ (~~273~~463,~~592~~460) (~~107~~351,~~714~~107) Increase (decrease) in other liabilities ....................... ~~440~~593,~~858~~813 ~~205~~492,~~174~~985 ------------ ---------~~---~~ Total adjustments .................................................................. (~~346~~974,~~179~~683) (~~139~~314,~~685~~225) ------------ ---------~~---~~ Net cash provided by (used in) operating activities ................................ ~~382~~53,~~205~~571 ~~272~~530,~~074~~372 ------------ ---------~~---~~ Cash flows from investing activities Proceeds from sales of subsidiary stock ...................................... 10,000 -0- Proceeds from ~~sales~~maturities of investment securities ................. ~~-0- -0- Proceeds from maturities of investment securities~~ ............ 15,000,000 2124,~~000~~050,000 Purchase of investment securities ............................................ (510,000,000) (25,400,125) Loans made to customers net cash activity .................................... (32,~~683~~557,~~678~~143) (1114,~~291~~397,~~022~~257) Capital expenditure .......................................................... (~~595~~829,~~058~~771) (~~128~~178,~~759~~939) Proceeds from sale of other real estate ...................................... -0- ~~-0-~~15,578 ------------ ------------ Net cash provided by (used in) investing activities ................................ 51,~~731~~623,~~264~~086 (15,~~819~~910,~~906~~743) ------------ ------------ Cash flows from financing activities Net increase (decrease) in demand deposits, NOW account, savings accounts and certificates of deposit ...................... ~~(856~~12,~~672)~~152,702 11,~~145~~594,~~549~~751 Purchase of treasury stock ................................................... -0- -0- ------------ ------------ Net cash provided by (used in) financing activities................................ ~~(856~~12,~~672)~~152,702 11,~~145~~594,~~549~~751 ------------ ------------ Net increase (~~descrease~~decrease) in cash and cash equivalents ............................... 513,~~256~~829,~~797~~359 (43,~~402~~785,~~283~~620) ------------ ------------ 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 ~~June~~Sept. 30, 2001 Cash and due from banks ...................................................... 45,~~645~~693,~~476~~038 4,~~451~~242,~~169~~832 Federal funds sold ........................................................... 1724,~~225~~750,000 2122,~~825~~650,000 ------------ ------------ Cash and cash equivalents at ~~June~~Sept. 30, ~~2000~~ 2001........................................ $ 2130,~~870~~443,~~476~~038 $ 26,~~276~~892,~~169~~832 ============ ============ Supplemental disclosures of cash flow information: Cash paid for interest ....................................................... 34,~~199~~874,~~376~~144 23,~~984~~068,~~181~~297 Cash paid for income tax ..................................................... ~~427~~584,~~000~~210 ~~208~~515,~~952~~414

The accompanying note is an integral part of these financial statements. 3 REPUBLIC CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements September 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 in the same range as in recent time periods and is reflective of credits past due 30 days or more, or loans troubled in some other manner to the extent that management has deemed non-accrual status appropriate. If the payments on a problem loan remain current for at least one quarter or there is confirmation that identified, structural weaknesses have been effectively mitigated, the loan will be considered for accrual status. The restructured total consists of one loan receiving non-standard terms due to business difficulty. Foreclosed real estate and repossessed autos have increased over year-end 2000 levels and is partially reflective of some deterioration in the local economy.

Table 1 PROBLEM ASSETS (dollars in thousands) ~~June~~September 30 December 31 ------- ----- ------------------------------- 2001 2000 1999 1998 ~~------ ------ ------ ------~~ Nonaccrual loans $1,040 ~~945~~ $1,076 $ 837 $ 351 Past-due loans (over 90 days) -0- 149 -0- -0- Restructured loans ~~630~~63 781 1,022 741 ------ ------ ------ ------ Total problem loans $1,~~575~~103 $2,006 $1,859 $1,092 Foreclosed assets Real estate ~~252~~270 38 43 48 In-substance foreclosures .. -0- -0- -0- -0- Other 2445 17 23 28 ------ ------ ------ ------ Total Problem Assets $1,~~851~~418 $2,061 $1,925 $1,168 Total problem loans as a percentage of total loans 1.39% 1.8% 1.9% 1.2% Total problem assets as a percentage of total loans and foreclosed assets 1.62% 1.8% 2.0% 1.2% Table 2 LOAN CONCENTRATIONS (dollars in thousands) September 30 December 31 ------------- --------------------- 2001 2000 1999 Commercial $ 8,109 $ 7,361 $ 7,189 Agricultural 2,120 3,029 3,464 Real Estate-Construction 2,623 8,122 6,112 Real Estate-Mortgage 92,041 84,256 71,257 Installment loans to Individuals 11,238 11,210 10,504 ------- ------- ------- Totals $116,131 $113,978 $ 98,526

5 SOURCES AND USES OF FUNDS Because of a robust, rate driven increase in deposits during the third quarter of 2001, year-to-date cash flow matched year-ago levels ($12,152,702 vs $11,594,751). Unlike the year-ago period, however, was the modest ($2,557,143) level of loan growth in the year-to-date, 2001 period compared with $14,397,257 in the corresponding 2000 period. An economic slowdown in the bank's market is, in the opinion of management, the cause for the slow loan growth and the concurrent increase ($13,829,359) in cash and cash equivalents. (Please see Statement of Cash Flows, P-3) LIQUIDITY The total of cash and due from banks, readily marketable securities and federal funds sold stood at approximately 35% of total liabilities at September 30, 2001, compared with 32% at December 31, 2000. The increase was a result of a modest growth in loans during 2001 coupled with a robust growth in liquid assets 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 with 3 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 se Repricing Schedule, P-7 and Investment Securities, P-8) 6 INTEREST RATE SENSITIVITY MANAGEMENT

Table 3 - REPRICING SCHEDULE 9-30-01 3 MO 3-12 13-36 OVER (dollars in thousands) ~~June~~OR 30LESS ~~December~~MONTHS 31MONTHS 36 MONTHS -------- ------- ------ ---------- ~~2001~~RATE ~~2000~~SENSITIVE ~~1999~~ASSETS (Assets that can be repriced within X days) Loans * 20,380 47,463 20,202 27,990 Federal Funds Sold 24,750 -0- -0- -0- Taxable Securities ** 5,000 5,000 15,000 -0- Municipal Bonds -0- -0-~~----~~ -0-~~------~~ ~~Commercial $ 7~~2,~~859~~295 $TOTAL 750,~~361~~130 ~~$ 7~~52,~~189~~463 ~~Agricultural 2~~35,~~301~~202 330,~~029~~285 ~~3,464~~RATE ~~Real~~SENSITIVE ~~Estate-Construction~~LIABILITIES ~~7,888~~(Liabilities 22that ~~6,112~~can ~~Real~~be ~~Estate-Mortgage~~repriced ~~88,459~~within ~~84,256~~X ~~71,257~~days) ~~Installment~~Time ~~loans~~Certificates toof ~~Individuals~~Deposit 1033,~~877~~737 1136,~~210~~888 108,~~504~~108 -0- NOW Accounts 1,838 -0- -0- -0- Super NOW Accounts 36,160 -0- -0- -0- Savings Accounts 9,358 -0- -0- -0- MMDA Accounts 13,432 -0- -0- ~~Totals~~-0- ~~$117~~TOTAL 94,~~384~~525 ~~$113~~36,~~978~~888 $8,108 98-0- Interest Rate Sensitivity Gap (44,~~526~~395) 15,575 27,094 30,285 Cumulative Interest Rate Sensitivity Gap (44,395) (28,820) (1,726) 28,559

* Does not include overdrawn demand deposits of $93m ** Does not include $24m in Federal Reserve Bank stock 7 INVESTMENT SECURITIES Table 4

~~(dollars~~CARRYING inUNREALIZED ~~thousands)~~UNREALIZED 3MARKET MOVALUE ~~3-12~~GAINS ~~1-5~~LOSSES ~~OVER~~VALUE ~~OR LESS MONTHS YEARS 5 YEARS~~ ----------- ----------- ---------- ----------- ~~RATE~~SEPTEMBER ~~SENSITIVE~~30, ~~ASSETS~~2001 (~~Assets~~1) ~~that~~Held-to-Maturity: ~~can~~U.S. beTreasury ~~repriced~~Securities ~~within~~-- X-- ~~days)~~-- ~~Loans~~-- *Other 1727,~~285 49~~507,~~559~~017 22693,~~754~~676 26-- 28,~~814~~200,693 ~~Federal~~(2) ~~Funds~~Available-for-Sale ~~Sold~~Securities ~~17,225~~Carried at Fair Value: U.S. Treasury Securities -0- -0- -0- ~~Taxable~~-- ~~Securities~~Other **24,000 -0- ~~10,000~~-- 1024,000 -0---------- ~~Municipal Bonds~~ -0---------- -0--------- -0---------- 227,~~295 TOTAL 34~~531,~~510~~017 59693,~~559~~676 ~~32,754~~-- 2928,~~109~~224,693 ~~RATE~~----------- ~~SENSITIVE~~----------- ~~LIABILITIES~~---------- ~~(Liabilities~~----------- ~~that~~DECEMBER ~~can~~31, be2000 ~~repriced~~(1) ~~within~~Held-to-Maturity: XU.S. ~~days)~~Treasury ~~Time~~Securities ~~Certificates~~-- of-- ~~Deposit~~-- 34-- Other 31,~~797~~961,129 33270,~~744~~094 5-- 32,~~317~~231,223 (2) Available-0for-Sale ~~NOW~~Securities ~~Accounts~~Carried ~~1,744~~at Fair Value: U.S. Treasury Securities -0- -0- -0- ~~Super~~-- ~~NOW~~Other ~~Accounts~~24,000 29-- -- 24,~~776~~000 -0---------- -0---------- -0--------- ~~Savings~~----------- ~~Accounts~~31,985,129 9270,~~259~~094 -0- 32,255,223 -0---------- -0---------- ~~MMDA~~---------- ~~Accounts~~----------- 12DECEMBER 31,~~347~~ 1999 (1) Held-0to-Maturity: U.S. Treasury Securities -0- -0- ~~TOTAL~~-- 87-- Other 23,~~923~~639,383 33-- 9,~~744~~081 523,~~317~~630,302 (2) Available-0for-Sale ~~Interest~~Securities ~~Rate~~Carried ~~Sensitivity~~at ~~Gap~~Fair ~~(53,413)~~Value: ~~25,815~~U.S. 27Treasury Securities -- -- -- -- Other 24,~~437~~000 29-- -- 24,~~109~~000 ~~Cumulative~~----------- ~~Interest~~----------- ~~Rate~~---------- ~~Sensitivity~~----------- ~~Gap~~23,663,383 ~~(53~~-- 9,~~413)~~081 ~~(27~~23,~~598)~~654,302 ~~(161)~~----------- ~~28,948~~----------- ---------- -----------

(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 risks based capital ratios increased noticeably during the first nine months of 2001, principally due to the disproportionately large growth in low-risk, money market assets versus higher risk, loan assets. The growth in Tier 1 leverage was much smaller as retained earnings growth only managed to keep pace with asset growth during the nine month period. (Please see table 5, P-9)

~~CARRYING~~Table ~~UNREALIZED~~5 ~~UNREALIZED MARKET (dollars in thousands) VALUE GAINS LOSSES VALUE~~ -~~---------~~ ~~----------~~CAPITAL ~~----------~~*September ~~---------- June~~ 30, ~~2001~~December ~~-------------~~31 ~~(1) Held~~-to-~~Maturity: U.S. Treasury Securities~~ -- -- -- -- ~~Other 22,401,301 421,091~~ -- ~~22,822,392 (2) Available~~-~~for~~-~~Sale Securities Carried at Fair Value: U.S. Treasury Securities~~ -- -- -- -- ~~Other 24,000~~ -- --2001 ~~24,000 ---------- ---------- ---------- ---------- 22,425,301 421,091 -- 22,846,392 ---------- ---------- ---------- ---------- December 31,~~ 2000 ~~-----------------~~Tier (1) ~~Held~~risk-~~to-Maturity:~~based ~~U.S.~~capital ~~Treasury~~(minimum ~~Securities~~is ~~-- -- -- -- Other 31,961,129 270,094 -- 32,231,223 (2~~4%) ~~Available-for-Sale~~14.25% ~~Securities Carried at Fair Value: U~~13.S.79% ~~Treasury~~Tier ~~Securities~~1 --+ --Tier --2 --risk ~~Other~~based ~~24,000~~capital --(minimum --is ~~24,000 ---------- ---------- ---------- ---------- 31,985,129 270,094 -- 32,255,223 ---------- ---------- ---------- ---------- December 31, 1999 ----------------- (1~~8%) ~~Held-to-Maturity:~~15.50% U15.S.04% ~~Treasury~~Tier ~~Securities~~1 --leverage --(minimum --is ~~-- Other 23,639,383 -- 9,081 23,630,302 (2~~3%) ~~Available-for-Sale Securities Carried at Fair Value: U~~8.~~S. Treasury Securities -- -- -- -- Other~~ 24~~,000~~% ~~-- -- 24,000 ---------- ---------- ---------- ---------- 23,663,383 -- 9,081 23,654,302 ---------- ---------- ---------- ----------~~8.21%

*Estimate RESULTS OF OPERATIONS NET INTEREST INCOME Total interest income for the nine months ended September 30, 2001 was only slightly higher than in the corresponding period in 2000 and slightly lower in the three month period ended on the same date. This is reflective of the almost unprecedented decline in market interest rates during 2001 and the effect of same on revenue streams by virtue of repricing. The interest expense incurred on deposits was lower in the current three and nine month periods for the same reason and resulted in improved net interest income in both periods for 2001. (Please see Balance Sheet, P-1 and Statement of Income, P-2) OTHER INCOME AND EXPENSE The provision for loan loss expense in the first nine months of 2001 was lower than the 2000 period due to a large ($111M) charge-off taken in the latter period. The third quarter of 2001, however, had a higher provision than the 2000 period, a result of deteriorating economic conditions in the 2001 time frame. Year-to-date, non-interest income was comparable to the year-ago period but the three month experience was demonstrably lower due to the reversal of an incorrect late charge on a large agricultural credit.. With the exception of FDIC insurance premiums, advertising costs and legal fees, all non-interest expense categories were materially higher in the year-to-date 2001 period in comparison with the same period in 2000. Growth phenomena, coupled with enhanced (expensive) operating systems caused these increases. (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: October 12, 2001 /S/ J. Ed Eisemann, IV -------------------------- Chairman of the Board Date: October 12, 2001 /S/ Catherine G. Eisemann -------------------------- Director 11

* June 30 December -------- -------- 2001 2000 Tier 1 risk-based capital (minimum is 4%) 14.43% 13.79% Tier 1 + Tier 2 risk based capital (minimum is 8%) 15.69% 15.04% Tier 1 leverage (minimum is 3%) 8.71% 8.21% *ESTIMATE

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