ITEM 2. Properties:
The subsidiary Bank owns a building and annex at 100 East Main Street, and the motor-bank facility, 122 East First Street, in which the banking operations are carried on in Trinidad, Colorado. Approximately one-third (1/3) of the building is utilized by the bank. The remaining space is leased to other businesses. Additionally, a bank building in Walsenburg, Colorado was acquired in 1992. Banking operations at this location began in October of 1993. In 1996, two automatic teller locations were added. One is in Trinidad and the other is in La Veta, Colorado. A facility with banking operations and automated tellers was located in a Trinidad retail superstore and became operational in 1998. Also, an office space in Raton, New Mexico was leased and remodeled in 1999 for the purpose of conducting loan and deposit production activities. A ground lease near by the Raton facility was obtained and upon it was constructed a drive-thru automatic teller machine and automated night depository. Properties held as other real estate owned consist of real property that has been acquired by the Bank through foreclosure on real estate pledged as collateral on loans made by the Bank.
ITEM 3.
ITEM 3. Legal Proceedings:
Not applicable.
ITEM 4.
ITEM 4. Submission of Matters to a Vote of Securities Holders:
Not applicable.
PART II
ITEM 5.
ITEM 5. Market for The Republic Corporation's stock.
(a) The Articles of Incorporation do not restrict the marketability of the Republic Corporation stock. However, due to the limited number of shares outstanding, it is not anticipated that an active market for the shares will develop. Shares may be purchased by The Republic Corporation, but there is no assurance that the Corporation will do so.
(b) There were approximately 1,750 shareholders as of the date of this annual report.
Holders of Republic Corporation shares are entitled to their pro-rata share of any dividends paid on the shares. However, because the Corporation has no income other than distributions received on its equity in The First National Bank in Trinidad, Colorado, its ability to pay dividends depends upon its receipt of Bank distributions. Decisions as to the declaration and payment of dividends, subject to the availability of funds for this purpose, rest exclusively with The Republic Corporation Board of Directors.
(c) No dividends have been declared in 1999 or 1998 and management has no intention to declare dividends in the immediate future.
ITEM 6.
ITEM 6. Selected financial data:
The following table presents certain key financial information.
TABLE #14
(2) Net income per common share and dividends declared per common share are in actual dollars, not thousands.
ITEM 7.
ITEM 7. Management's discussion and analysis of financial condition and results of operations:
FINANCIAL CONDITION
ASSET QUALITY
TABLE #15
* Past due loans which are still accruing interest but are contractually ninety or more days delinquent as to principal or interest payments
** Allowance for loan losses divided by problem loans
TABLE #16
INTEREST RATE SENSITIVITY
* Does not include $837 thousand in nonaccruing loans and $10 thousand in overdrafts.
** Does not include $24 thousand in Federal Reserve Bank Stock.
INVESTMENT SECURITIES
TABLE #17 AND FOOTNOTES 1-2
(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 had 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 the fair market value. Unrealized gains or losses (net of tax) will be reported as a separate item in the shareholders' equity section of the balance sheet. Adjustments will be recorded at least quarterly.
ASSET QUALITY
Loans placed on nonaccrual are up from the prior year period, due primarily to defaults on a cattle line and two single family home loans as well as cash flow difficulties on one commercial real estate loan. (Please see Table #15, P-14)
The restructured loan grouping consists of two commercial real estate loan relationships that have received a below-market rate of interest in the one instance and a temporarily reduced monthly payment amount in the other. (Please see Table #15, P-14)
Approximately 65% of total charge offs in 1999 consisted of installment loans to individuals, the remainder going to a grouping of four commercial credits. This continues to mirror national trends regarding default on personal debt and makes necessary the continuance of the bank's monthly loan loss provision. (Please see Table #10, P-10)
Loans of all types secured by real property accounted for substantially all of the 1999 loan growth and brought the percentage of total loans secured by real property to 79% at year-end. Substantially all of the properties serving as collateral for these loans lie within Las Animas or Huerfano Counties in Colorado or within Colfax County, New Mexico, with 65% representing finished, 1-4 family homes, 26% commercial properties and 2% farm and ranch properties. (Please see Table #7, P-8)
Economic activity has been stimulated in the bank's market area by natural gas exploration and development in Las Animas County, Colorado and Colfax County, New Mexico. These activities are expected to have a 15-20 year lifespan and will spin off activity into the retail, service and housing sectors and provide increased tax revenue to local governmental entities. The area is also experiencing continued inmigration of retired and semi-retired individuals and families seeking a lifestyle change. The prison project in Las Animas County remains fallow due to continued difficulty in affecting an agreement with the bonding company by the Colorado Department of Corrections regarding remediation issues created by a previous contractor.
SOURCES AND USES OF FUNDS
Reductions in cash equivalents in 1997 and 1998, totaling $21,066,449, were restored to the bank's balance sheet in 1999 by an annual growth figure of $21,346,321. This was largely made possible by a rapid rate of deposit growth in 1999, which came to 449% of 1998 deposit growth and 283% of 1997 deposit growth. Another contributing factor was a modest growth in loans during the current period. Loan growth for 1999 represented 27% of 1998 loan growth and 51% of 1997 loan growth. Attractive offering rates on deposit products and a rising market interest rate environment caused the growth in deposits during 1999 while reduced loan demand and loan pay offs and pay downs caused the modest loan growth. (Please see Statement of Cash Flows, P 24-25 and Balance Sheet, P-22)
LIQUIDITY
Year-end, 1999 holdings of cash and due from banks, readily marketable securities and federal funds sold came to approximately 38% of total liabilities, up from approximately 28% at year-end, 1998 and approximately 37% at year-end, 1997. This accumulation, while harmful to current earnings, provided a substantial response capability to year-end 1999, Y2K related liquidity concerns. Current securities holdings consist of one $21,000,000 par value, FEDERAL HOME LOAN BANK DISCOUNT NOTE, maturing May 10, 2000 and one
LIQUIDITY (CONTINUED)
$3,050,000 par value FEDERAL HOME LOAN BANK DEBENTURE, maturing September 7, 2000. Both of these are pledged to the State of Colorado and the Federal Reserve Bank in order to meet the bank's pledging requirements regarding uninsured public funds and federal tax remittances. (Please see Balance Sheet, P-22 and Note 2, P-29-30)
CAPITAL
Estimated Tier 1 and total risk based capital ratios for year-end, 1999 were 14.23% and 15.49%, respectively, substantially equivalent to the 1998 ratios of 14.16% and 15.41%. The increased proportion of earning assets held in low risk, cash equivalent categories enabled these ratios to remain stable, in spite of the decline of the Tier 1 leverage ratio from 8.80% at year-end, 1998 to 7.96% at year-end, 1999.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income in 1999 was only slightly higher ($69,000) on a dollar basis than the 1998 equivalent and significantly lower when expressed as a percentage of earning assets. Net interest income for 1999 was only 3.8% of average earning assets, compared with 4.2% in 1998. This deterioration is partially a by - product of the bank's preparations for Y2K contingencies, including the accumulation of significant short term, and low yielding, cash equivalent assets, the accumulation of much higher than normal vault cash during the latter half of the year and progressively higher funding costs throughout the year due to rising market rates. An additional factor was the modest loan growth in 1999, an area which is normally the most significant opportunity in the bank for interest revenue growth. Going forward, management will, of necessity, seek to improve net interest margin by concentrating on both sides of the balance sheet when making pricing and structuring decisions. (Please see Table #14, P-13, Tables 1&2, P 4-5 and Table #4, P-7)
OTHER INCOME AND EXPENSE
Other than equipment expense and computer service center expense, all non-interest expense categories were at significantly higher levels in 1999, a continuation of a trend tied to expanded facilities, staffing levels and transaction volume. The growth in the bank's balance sheet has clearly not yet begun to pay for itself and this is the major challenge to management in improving earnings. While passage of time normally improves the profitability of new bank offices, simple reliance upon this will not be sufficient and efficiencies will have to be sought aggressively across the board in order to affect meaningful improvement. (Please see Statement of Income, P-23)
Growth in non interest income over the prior year's level is primarily due to volume increases rather than increases in service charges. This, too, will need to be altered in order to positively impact earnings and it is management's belief that some increases in fee rates are obtainable without a material alteration in the bank's image of being a low cost provider. (Please see Statement of Income, P-23)
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.
YEAR 2000 READINESS
The Bank has made substantial progress in implementing its Y2K preparedness plan. The plan consists of the following five phases:
AWARENESS PHASE - The creation of a basic strategy for project management.
ASSESSMENT PHASE-The identification of mission critical systems and equipment as well as customer and provider relationships that may be vulnerable to the year 2000 problem.
RENOVATION PHASE-The upgrading or replacement of systems and equipment known to be deficient.
VALIDATION PHASE-The comprehensive testing of all systems and equipment to ensure that they survive each of 13 suspect dates.
IMPLEMENTATION PHASE-The correction of any deficiencies uncovered in the validation phase along with the continued assessment and testing of systems and equipment.
The awareness and assessment phases were completed during the first quarter of 1998. The renovation phase was substantially completed by the end of 1998 with the exception of credit reporting software at the bank's main facility. Compliant credit reporting software was installed during the second quarter of 1999. The validation phase is still ongoing and all testing and verification performed since 1999 have failed to produce any evidence of error or malfunction. This, as of this writing, includes all critical dates falling in December, 1999 and January 2000 as well as the leap year date, February 29, 2000. The most critical systems that have and will continue to be tested and verified are those provided by the bank's third party provider of computing services. These services are highly critical to bank operations and any significant interruptions in them could materially impact the bank's results. Finally, the implementation phase is ongoing and will continue in the post-millennium time frame.
Management is of the opinion that its readiness plan is more than adequate to address the year 2000 threat and that all systems and hardware will function as intended when the time comes, without any material adverse effect on the company's business. Due to the uniqueness of the year 2000 issue and the direct impact it can have on bank operations, however, it is not possible to escape risk and uncertainty, particularly that which is tied to third party service providers. The bank has, as mentioned, an ongoing process to monitor these critical third parties and has developed business resumption and contingency plans that address failures from these sources. Management is not aware of any additional material expenditures that could be necessary in order to resolve year 2000 issues.
[Letterhead]
INDEPENDENT AUDITOR'S REPORT
The Board of Directors The Republic Corporation
We have audited the consolidated balance sheets of The Republic Corporation as of December 31, 1999 and 1998, and the related consolidated statements of income and stockholders' equity and cash flows for each of the three years in the period ending December 31, 1999. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Republic Corporation at December 31, 1999 and 1998, and the results of its operations and its cash flows, for each of the three years in the period ending December 31, 1999, in conformity with generally accepted accounting principles.
/s/ Dixon, Waller & Co., Inc.
Dixon, Waller & Co., Inc. Trinidad, Colorado February 18, 2000
REPUBLIC CORPORATION AND SUBSIDIARY Balance Sheet
The accompanying notes are an integral part of these financial statements.
REPUBLIC CORPORATION AND SUBSIDIARY Statement of Income
The accompanying notes are an integral part of these financial statements.
REPUBLIC CORPORATION AND SUBSIDIARY STATEMENT OF CASH FLOWS
(Continued)
The accompanying notes are an integral part of these financial statements.
REPUBLIC CORPORATION AND SUBSIDIARY STATEMENT OF CASH FLOWS
The accompanying notes are an integral part of these financial statements.
REPUBLIC CORPORATION AND SUBSIDIARY Statement of Changes in Stockholders' Equity
The accompanying notes are an integral part of these financial statements.
THE REPUBLIC CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include The Republic Corporation, (Company) and its majority-owned subsidiary, The First National Bank in Trinidad (Bank). All major items of income and expense are recorded on the accrual basis of accounting, and all significant intercompany accounts and transactions have been eliminated.
INVESTMENT SECURITIES. The investment securities are classified and accounted for as follows:
. Held to Maturity - investment debt securities for 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.
. Available for sale - securities not classified as securities to be held to maturity. Unrealized holding gains or losses, net of tax, are reported as a separate component of shareholders' equity until realized.
LOANS. Interest on all loans is credited to interest income as earned on the principal amount outstanding. Loans to individuals for household, family and other consumer expenditures are principally written at the amount disbursed, and interest income is accrued on the outstanding principal balance.
USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans and the valuation of foreclosed real estate. In connection with the determination of the estimated losses on loans and foreclosed real estate, management obtains independent appraisals for significant properties.
While management uses available information to recognize losses on loans and foreclosed real estate, further reductions in the carrying amounts of loans and foreclosed assets may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans and foreclosed real estate. Such agencies may require the Company to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans and foreclosed real estate may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.
THE REPUBLIC CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements
INCOME RECOGNITION ON IMPAIRED LOANS. Interest income generally is not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal balance. Interest income on other impaired loans is recognized only to the extent of interest payments received.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established through charges to earnings in the form of provisions for loan losses. Loan losses or recoveries are charged or credited directly to the allowance. In general, the amount charged to earnings each year by the Bank is based on management's judgment which takes into consideration a number of factors, including (1) loss experience in relation to outstanding loans and the existing level of the valuation allowance, (2) a continuing review of problem loans and overall portfolio quality, (3) regular examinations and appraisals of loan portfolios conducted by Federal supervisory authorities, and (4) current and expected economic conditions.
GOODWILL. The excess of the purchase cost over the net assets of the Bank purchased represents goodwill. APB 17, which addresses the amortization of intangible assets such as goodwill, is not to be applied retroactively to assets acquired before November 1, 1970. Since the acquisition of the Bank was made prior to November 1, 1970, the goodwill acquired is considered to have continuing value over an indefinite period and, therefore, is not being amortized.
LONG-LIVED ASSETS. The undiscounted future net cash flows of the Company are expected to be greater than the net book value of long-lived assets (including goodwill) so that recoverability is not determined to be impaired.
PROPERTY AND EQUIPMENT. Bank property and equipment are stated at cost less accumulated depreciation. The building and improvements are depreciated on the straight-line, declining balance, ACRS and MACRS methods over estimated useful lives of 30 years. There is not a material difference between the expense recognized using the ACRS and MACRS methods and the expense that would be recognized using a method acceptable under generally accepted accounting principles. Automobiles are depreciated primarily on the straight-line basis over estimated useful lives of 3-4 years. Other equipment is depreciated on the straight-line, ACRS and MACRS methods over estimated useful lives of 5-10 years.
The accounting policy is to charge maintenance, repairs, minor renewals and betterments of property and equipment to expense in the year incurred. Major expenditures for renewals and betterments are capitalized and depreciated or amortized over their estimated useful lives. On disposal or retirement, the related cost and accumulated depreciation are eliminated from the accounts and gain or loss on the transaction is reflected in the statement of income.
FINANCIAL STATEMENT PRESENTATION. Amounts have been reclassified and additional line items have been presented in previously issued financial statements to allow comparability with the financial statements for 1999 and the year then ended.
THE REPUBLIC CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements
FORECLOSED REAL ESTATE. Foreclosed real estate includes formally foreclosed properties.
At the time of foreclosure, foreclosed real estate is recorded at the lower of the carrying amount or fair value less cost to sell, which becomes the property's new basis.
LOAN ORIGINATION FEES AND COSTS. Loan origination fees are of an immaterial nature and are recognized as income upon receipt.
INCOME TAXES. The Company files a consolidated federal income tax return with the Bank. The corresponding amount of income tax expense has been reflected in the financial statements. All expense recognized is current due to the fact that temporary differences in the recognition of income and expense for tax and financial statement purposes have created an immaterial deferred credit not reflected in the accompanying financial statements.
EMPLOYEE BENEFIT PLANS. The Bank makes payments into a 401K employee benefit plan. All employees of the bank are covered, with the Bank paying a discretionary percentage of the employee's earnings to the plan. An employee can contribute an additional percentage of his/her earnings if so desired. The plan is overseen by a board of trustees composed of Bank officers.
EARNINGS PER SHARE COMPUTATIONS. Earnings per share computations are based on the weighted average number of common shares outstanding during each year.
2. Investment Securities, including investments held for sale.
A schedule of securities is as follows:
THE REPUBLIC CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements
The approximate amortized cost of investment securities pledged by the Bank to secure public funds on deposit amounted to $23,391,070 at December 31, 1999 and $11,715,533 at December 31, 1998. Additionally, $248,313 was pledged to the Federal Reserve Bank in order to secure treasury, tax and loan remittances at December 31, 1999.
Net gains on the sale of securities were as follows:
Unrealized gains and losses in the securities portfolio were as follows:
3. Loans and Other Receivables
Loans and other receivables are summarized as follows:
THE REPUBLIC CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements
The changes in the allowance for loan losses are as follows:
At December 31, 1999 and 1998, the total recorded investment in impaired loans, all of which had allowances determined in accordance with SFAS No. 114 and No. 118, amounted to approximately $1,859,000 and $1,065,000 respectively. The average recorded investment in impaired loans amounted to approximately $1,093,000 and $1,656,000 for the years ended December 31, 1999 and 1998, respectively. The allowance for loan losses related to impaired loans amounted to approximately $122,350 and $21,500 at December 31, 1999 and 1998, respectively. Interest income on impaired loans of $22,860 and $67,703 was recognized for cash payments received in 1999 and 1998 respectively.
4. Property and Equipment.
Property and equipment are summarized as follows:
Depreciation expense for 1999, 1998 and 1997 was $375,543, $291,890 and $201,164, respectively.
5. Income Taxes.
The components of the income tax provisions (benefits) are as follows:
THE REPUBLIC CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements
5. (Continued)
The difference between the total expected income tax expense applying the Federal tax rates and the effective tax rate applicable to income are as follows (dollars in thousands):
6. Service Commitments
Computer and data processing services are provided to the Bank by an outside service center. Expenses incurred for such services during 1999, 1998 and 1997 were $210,804, $212,117 and $165,771, respectively.
7. Other Real Estate.
Other real estate consists of properties acquired through foreclosure and loans that are classified as in-substance foreclosed for which the underlying collateral is real estate.
During 1997, other real estate was sold at a gain of $72,465. Reductions in the carrying value of other real estate due to reappraisal were $12,500.
Other real estate was sold at a gain of $38,760 in the year ended December 31, 1998.
For 1999, sales of other real estate resulted in a gain of $24,541.
THE REPUBLIC CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements
8. Certificates of Deposit.
The Bank has time certificates of deposit in amounts of $100,000 or more amounting to $20,788,185 and $15,371,575 at December 31, 1999 and 1998, respectively. Interest expense for the years ended December 31, 1999, 1998 and 1997 on this type of deposit was $890,971, $859,782, and $619,979, respectively.
The deposits by time remaining until maturity were (dollars in thousands).
9. Regulatory Matters.
The Bank, as a National Bank, is subject to the dividend restrictions set forth by the Comptroller of the Currency. Under such restrictions, the Bank may not, without the prior approval of the Comptroller of the Currency, declare dividends in excess of the sum of the current year's earnings (as defined) plus the retained earnings (as defined) from the prior two years. The dividends, as of December 31, 1999, that the Bank could declare, without the approval of the Comptroller of the Currency, amounted to approximately $1,600,000. The Bank is also required to maintain minimum amounts of capital to total "risk weighted" assets, as defined by the banking regulators. As of December 31, 1999, Banks are required to have minimum Tier 1 and Total capital ratios of 4.00% and 8.00%, respectively. The Bank's estimated ratios estimated at December 31, 1999 were $14.23% and 15.49%, respectively. The Bank's estimated Tier 1 leverage ratio at December 31, 1999 was 7.96%. The minimum required leverage ratio for the Bank at December 31, 1999, was 3.00%.
10. Supplemental Cash Flow Information
In 1999 and 1998, the Bank recorded amounts of other real estate acquired through foreclosure of $285,120 and $179,209. Of total sales of other real estate during 1999 and 1998, $239,134 and $184,851 of the purchase price was financed by the Bank, taking the other real estate as security. Loans charged off due to foreclosure transactions in 1999, 1998 and 1997 amounted to $138,074, $179,209 and $67,000. These noncash transactions have been excluded from the consolidated statement of cash flows.
11. Financial Position and Results of Operations - Republic Corporation.
The financial position and results of operations of The Republic Corporation (parent only) are as follows:
THE REPUBLIC CORPORATION Balance Sheet
THE REPUBLIC CORPORATION Statement of Income
THE REPUBLIC CORPORATION Statement of Cash Flows
THE REPUBLIC CORPORATION Statement of Changes in Stockholders' Equity
*On December 31, 1996, 1997, 1998 and 1999 the portion of retained earnings resulting from Republic Corporation's equity in the undistributed income of its subsidiary was $8,637,872, $9,771,176, $10,703,465 and $11,294,236 respectively.
12. Contingent Liabilities and Commitments.
The consolidated financial statements do not reflect various commitments and contingent liabilities which arise in the normal course of business and which involve elements of credit risk, interest rate risk and liquidity risk. These commitments and contingent liabilities are commitments to extend credit and standby letters of credit. A summary of the Bank's commitments and contingent liabilities at December 31, 1999, is as follows:
THE REPUBLIC CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements
12.(Continued)
Commitments to extend credit and standby letters of credit all include exposure to some credit loss in the event of nonperformance of the customer. The Bank's credit policies and procedures for credit commitments and financial guarantees are the same as those for extensions of credit that are recorded on the consolidated statements of condition. Because these instruments have fixed maturity dates, and because many of them expire without being drawn upon, they do not generally present any significant liquidity risk to the Bank.
13.Disclosures about the Fair Value of Financial Instruments
The following disclosures of the estimated fair value of financial instruments are made in accordance with the requirements of SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated fair value amounts have been determined by the Bank using available market information and valuation methodologies. The fair value estimates presented are not necessarily indicative of the amounts the company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material impact on the estimated fair value amounts. SFAS No. 107 excludes certain financial instruments and all non-financial instruments including intangible assets from its disclosure requirements. Therefore the aggregate fair value amounts presented herein are not indicative of the underlying value of the Bank.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which is it practicable to estimate that value:
. CASH AND DUE FROM BANKS
The current carrying amount is a reasonable estimate of fair value.
. FEDERAL FUNDS SOLD
The current carrying amount is a reasonable estimate of fair value.
. INVESTMENT SECURITIES
An estimate of the fair value for investment securities is made utilizing quoted market prices for publicly traded securities, where available. A third-party pricing service that specializes in "matrix pricing" and modeling techniques provides estimated fair values for securities not actively traded.
THE REPUBLIC CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements
13.(Continued)
. LOANS
The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Due to the small amount of nonaccrual loans at December 31, 1999, these loans do not significantly impact the fair value of loans.
. DEPOSITS
The fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.
. COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the customers. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The estimated fair value of letters of credit is based on the fees currently charged for similar agreements. The instruments were determined to have no positive or negative market value adjustments and are not listed in the following table.
The estimated fair value of the Company's financial instruments is as follows:
THE REPUBLIC CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements
13.(Continued)
The fair value estimates presented herein are based on pertinent information available to management as of December 31, 1999. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of the financial statements since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented.
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure:
Not applicable.
PART III
ITEM 10.
ITEM 10. Directors and executive officers of the Republic Corporation.
The Republic Corporation's Board of Directors consists of Catherine G. Eisemann, J.E. Eisemann, IV and Roger Dean Eisemann. All directors and officers are U.S. citizens. Catherine G. Eisemann is the mother of J.E. and Roger Dean Eisemann.
J.E. Eisemann, III was the President and Chairman of the Board of The Republic Corporation for 25 years. Mr. Eisemann passed away during 1981.
ITEM 11.
ITEM 11. Executive Compensation.
EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE
(1) Includes amounts deferred under Section 401(K) of the Internal Revenue Code. Amounts deferred by Mr. Eisemann were $6,435 in 1997, $6,633 in 1998 and $8,140 in 1999.
(2)Includes amounts deferred under Section 401(K) of the Internal Revenue Code. Amounts deferred by Mr. Eisemann were $715 in 1997, $737 in 1998 and $428 in 1999.
STOCK OPTIONS/SAR GRANTS IN 1999-NONE AGGREGATED STOCK OPTIONS/SAR EXERCISES IN 1999 AND OPTIONS/SAR VALUES AS OF DECEMBER 31 1999 - NONE LONG-TERM INCENTIVE PLANS - AWARDS IN 1999 - NONE COMPENSATION OF DIRECTORS Director fees are not paid to directors of the Company. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS - NONE REPORT ON REPRICING OF OPTIONS/SARS - NONE
ITEM 12.
ITEM 12. Security ownership of certain beneficial owners and management.
(a) Security ownership of certain beneficial owners. The following schedule reflects security ownership of persons who are the beneficial owners of more than 5% of any class of voting securities of The Republic Corporation.
(1) All persons shows are officers or directors of The Republic Corporation
(2) Shares of The Republic Corporation have not been pledged by the officers or directors of the corporation.
(b) Security ownership of management. The following schedule reflects security ownership of the officers and directors of The Subsidiary Bank:
(1) Catherine G. Eisemann owns 58.0424 percent of The Republic Corporation.
(c) Changes in control.
The Republic Corporation has the option of repurchasing its own stock, thus increasing the ownership percentages of the remaining shareholders.
ITEM 13.
ITEM 13. Certain relationships and related transactions.
There have been no transactions with management or other related parties that would require disclosure under current Securities and Exchange Commission regulations. Additionally, no business relationships that would require disclosure exist. No directors were indebted to the subsidiary bank during 1999.
PART IV
ITEM 14.
ITEM 14. Exhibits, financial statement, schedules, and reports on Form 8-K.
(a) 1. The following financial statements and financial statement schedules are included in Part II of this report:
2. All other schedules are omitted because they are not applicable, are not required, or because the required information is included in the consolidated financial statements or notes thereto.
3. List of Exhibits.
The following documents were filed as exhibits to Registration Statement Form 10 (which was filed with the Securities and Exchange Commission under The Securities Exchange Act of 1934) dated August 23, 1977.
The First National Bank in Trinidad, Colorado. Incorporated in Colorado
(b) Reports on Form 8-K
There were no reports on Form 8-K for the three months ended December 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Republic Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
REPUBLIC CORPORATION
/s/ J.E. Eisemann, IV Chairman of the Board, 3/3/00 - ------------------------ Director, Chief Executive ------------- J.E. Eisemann, IV Officer, Chief Financial Date and Accounting Officer
Pursuant to the requirements of the Securities Exchanges Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature Title Date - --------- ----- ----
/s/ J.E. Eisemann, IV Chairman of the Board, 3/3/00 - ------------------------- Director, Chief Executive ------------- J.E. Eisemann, IV Officer, Chief Financial and Accounting Officer
/s/ Catherine G. Eisemann President of the 3/3/00 - ------------------------- Board and a Director ------------- Catherine G. Eisemann
SUPPLEMENTAL INFORMATION
The Republic Corporation will send the shareholders an annual report and proxy materials subsequent to the filing of this report.