**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-K**

 

 
|                                             |                                                                                      |
|--------------------------------------------------|-------------------------------------------------------------------------------------------|
|                                             | **ANNUAL  REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                             |                                                                                      |
| **For  the fiscal year ended December 31, 2002** |
|                                             |                                                                                      |
|                                             |                                                                                      |
|                                             | **Commission file number 0-8597**                                                         |

 

| **THE REPUBLIC CORPORATION**                                                       |
|------------------------------------------------------------------------------------|
| (Exact name of  registrant as specified in its charter)                            |
|                                                                               |   |   |
| **TEXAS**                                                                          |   | **74-0911766** |
| (State or other  jurisdiction of  incorporation or organization)                   |   | (I.R.S. Employer  Identification No.) |
|                                                                               |   |   |
| **5340  Weslayan, P.O. Box 270462**                                                |   |   |
| **Houston,  Texas**                                                                |   | **77277** |
| (Address of principal  executive offices)                                          |   | (Zip Code) |
|                                                                               |   |   |
| Registrant’s telephone  number, including area code:  **(713) 993-9200** |

 

                Securitiesregistered pursuant to section 12(b) of the Act:

 

| **Title of each class** |   | **Name of each exchange on which registered** |
|-------------------------|--------|-----------------------------------------------|
| None                    |   | None                                          |

 

                Securities registered pursuant to Section 12(g) ofthe Act:

 

| **750,000 shares Common Stock, par  value $1.00 per share, of which 356,844 are outstanding, including 23,119  held in treasury.** |
|------------------------------------------------------------------------------------------------------------------------------------|
| (Title of class)                                                                                                                   |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

 

Yes ýNo o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K(§229.405 of this chapter) is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. ý

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theAct). Yes  o    No ý

 

State the aggregatemarket value for the voting and non-voting common equity held by non-affiliatescomputed by reference to the price at which the common equity was last sold, orthe average bid and asked price of such common equity, as of the last businessday of the registrant's most recently completed second fiscal quarter.

 

**$624,115as of June 30, 2002**

 

**DOCUMENTSINCORPORATED BY REFERENCE**

**NONE**

 

 

 

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REPUBLIC CORPORATION

FORM 10-K

INDEX

 
| IMPORTANT TERMS |
|-----------------|
| PART I          |   |
|            | ITEM 1. | BUSINESS |
|            |   |   |
|            | ITEM 2. | PROPERTIES |
|            |   |   |
|            | ITEM 3. | LEGAL PROCEEDINGS |
|            |   |   |
|            | ITEM  4. | SUBMISSION  OF MATTERS TO A VOTE OF SECURITIES HOLDERS |
|            |   |   |
| PART  II        |   |
|            |   |   |
|            | ITEM  5. | MARKET  FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS |
|            |   |   |
|            | ITEM 6. | SELECTED FINANCIAL  DATA |
|            |   |   |
|            | ITEM  7. | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|            |   |   |
|            | ITEM  7A. | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
|            |   |   |
|            | ITEM  8. | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA |
|            |   |   |
|            | ITEM  9. | CHANGES  AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
|            |   |   |
| PART  III       |   |
|            |   |   |
|            | ITEM  10. | DIRECTORS  AND EXECUTIVE OFFICERS OF THE REGISTRANT |
|            |   |   |
|            | ITEM 11. | EXECUTIVE COMPENSATION |
|            |   |   |
|            | ITEM  12. | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
|            |   |   |
|            | ITEM  13. | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS |
|            |   |   |
| PART  IV        |   |
|            |   |   |
|            | ITEM  14. | EXHIBITS,  FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K |
|            |   |   |
|            | SIGNATURES |
|            |   |   |
|            | CERTIFICATIONS |
|            |   |   |
|            | SUPPLEMENTAL INFORMATION |

 

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IMPORTANT TERMS

 

“Registrant” - THE REPUBLIC CORPORATION, a Texas Corporation whose solepurpose is the holding and managing of The First National Bank in Trinidad.

“Bank” - The First National Bank in Trinidad is a commercial banklocated in Trinidad, Colorado and Walsenburg, Colorado, also referred to as the“Subsidiary Bank”.

 

“FRB” - The Board of Governors of the Federal Reserve System, theAgency which has responsibility for administering the Bank Holding Company Actof 1956, as amended.

 

----

 

PART I

 

ITEM I.  Business

 

THE REPUBLIC CORPORATION

 

General.  On January 11, 1955, the Registrant waschartered under the laws of the State of Texas as Columbia General InvestmentCorporation, conducting business in mortgage banking until 1963.  In 1960, Columbia General InvestmentCorporation acquired The Republic Corporation. Shortly thereafter, the name Columbia General Investment Corporation waschanged to The Republic Corporation. Also in 1960, the Registrant acquired 75% of the outstanding stock ofthe First National Bank in Trinidad, Colorado. In 1961, an additional 23% of the stock was purchased, and since then,only qualifying shares for directors and officers of the Bank have been held byother than the Registrant.

 

Sincediscontinuing mortgage banking operations in 1963, the Registrant has carriedon no significant operations other than as an advisor to the Bank.  In this advisory position, the Registrantcoordinates general policies and activities, and assumes primary responsibilityfor all major decisions of the Bank.

 

Supervision andRegulation.  THEREGISTRANT is a registered bank holding company under the Bank Holding CompanyAct of 1956 (the “Act”), and is subject to the supervision of, and regulationby, the Board of Governors of the Federal Reserve System (the “Board”).  Under the Act, a bank holding company mayengage in banking, managing or controlling banks, furnishing or performingservices for banks it controls, and conducting activities that the Board hasdetermined to be closely related to banking. The Registrant must obtain approval of the Board before acquiringcontrol of a bank or acquiring more than 5 percent of the outstanding votingshares of a company engaged in a “bank-related” business.  Under the Act and state laws, the Registrantis subject to certain restrictions as to states in which the Registrant canacquire a bank.  National banks aresubject to the supervision of, and are examined by the Comptroller of theCurrency.  State banks are subject to thesupervision of the regulatory authorities of the states in which they are located.  The subsidiary bank of the Registrant is amember of the Federal Deposit Insurance Corporation, and as such is subject toexamination thereby.  In private, theprimary federal regulator makes regular examinations of the subsidiary banksubject to its regulatory review or participates in joint examinations withother federal regulators.  Areas subjectto regulation by federal and state authorities include the allowance for creditlosses, investments, loans, mergers, issuance of securities, payment of dividends,establishment of branches and other aspects of operations.

 

1

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Business.  The Registrant is a holding company whosesole business purpose is to hold the stock of the Bank.  The operation of the Bank is described asfollows:

 

FIRST NATIONALBANK IN TRINIDAD

SUBSIDIARY BANK

 

Business.

 

Operation of theSubsidiary Bank.  TheBoard of Directors and officers of the subsidiary bank are responsible for itsoperation.  However, the RepublicCorporation, as the controlling stockholder, coordinates the establishment ofgoals, objectives and policies for the entire organization, assists thesubsidiary bank in the attainment of these objectives and monitors adherence toestablished policies.  The company alsomonitors adherence to lending and accounting policies, budgetary goals andlong-range plans.

 

The bank providesthe following services:

 

Commercial BankingServices.  The Bankprovides a broad range of financial services to a diversified group ofcommercial, industrial and financial customers in Southern Colorado.  Services provided to commercial customersinclude short and medium term loans, revolving credit arrangements, tradefinancing, energy related financing, real estate construction lending, capitalequipment financing and letters of credit.

 

Consumer Services.  The Bank provides a diverse range ofpersonal services to individuals including savings and time deposit accounts,installment lending, debit cards, checking accounts, N.O.W. accounts, mortgage loans,safe deposit facilities, IRA services, money market deposit accounts, andautomatic teller facilities.

 

Employees.  The Bank had 75 full time equivalentemployees on December 31, 2002.

 

2

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Competition

 

The Bank’s primarymarket area is Trinidad, Colorado, Walsenburg, Colorado, Raton, New Mexico andthe surrounding communities.  In thismarket are two other bank charters, five branch offices, and a savings and loanassociation.  The deposits of the Bankare larger than those of the savings and loan and larger than those of each ofthe other bank offices.  The Bankcompetes with these institutions in obtaining new deposits, making loans, andproviding additional banking services.

 

The principalmethods of competition in the industry are price (i.e. interest rates and fees)and service.  Inasmuch as rate and feestructures at all local competitors are somewhat similarly constrained by netinterest income objectives, competitive pressure and the restraint that mustnecessarily be exercised in smaller communities of modest means, the primaryarena for competition is service. Community banks are uniquely able to provide the type of personalservice that is typically of greatest value in smaller, less populated marketssuch as Las Animas, Huerfano and Colfax Counties.  The ability of the bank to successfully market this type ofservice delivery, along with a reasonable selection of more modern and lesspersonal means of access, will determine its ultimate competitive success.

 

Monetary Policy.

 

The earnings andgrowth of the banking industry and of the Bank are affected not only by generaleconomic conditions, but also by the credit policies of monetary authorities,particularly the Federal Reserve System. An important function of the Federal Reserve System is to regulate thenational supply of bank credit in order to combat recession and curbinflationary pressures.  Among theinstruments of monetary policy used by the Federal Reserve System to implementthese objectives are open market operations in U.S. Government securities,changes in the discount rate on member bank borrowings and changes in reserverequirements against member bank deposits. These means are used in varying combinations to influence overall growthof bank loans, investments and deposits and may also affect interest ratescharged on loans or paid for deposits.

 

The monetarypolicies of the Federal Reserve System have had a significant effect on theoperating results of commercial banks in the past and are expected to continueto do so in the future.  Because ofchanging conditions in the national and international economy and in the moneymarkets, and as a result of actions by monetary and fiscal authorities,including the Federal Reserve System, interest rates, credits and availabilityand deposit levels may change due to circumstances beyond the control of TheRepublic Corporation or the Bank.

 

Statistical Data.  The following sets forth certain statisticaldata regarding the Republic Corporation.

 

I.              Distribution ofAssets, Liabilities and Stockholders’ Equity: Interest Rates and Differential

 

Balance Sheet Analysis

 

The followingthree tables present the consolidated monthly average balance sheet, taxableequivalent interest revenue, interest expense, and average yields and rates.

 

3

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Interest income onnon-taxable investment securities has been adjusted to reflect the tax benefitof tax exempt income at a marginal rate of 38% for each year presented.

 

Non-accruing loansare included for purposes of the analysis of interest earnings on loans.

 

TABLE #1

 
| **Year Ended December 31, 2002  (Dollars in Thousands)** |   | **Average  Balance** |    | **Interest  Rev./Exp.** |   | **Yield/  Rate** |   |
|----------------------------------------------------------|--------|----------------------|---------|-------------------------|--------|------------------|--------|
|                                                     |   |                 |    |                    |   |             |   |
| ASSETS                                                   |   |                 |    |                    |   |             |   |
| Investment securities:                                   |   |                 |    |                    |   |             |   |
| Taxable                                                  |   | $                    | 26,292  |                    | $      | 1,168            |   | 4.4 | % |
| Tax exempt                                               |   | 2,295                |    | 189                     |   | 8.2              | %      |
| Loans                                                    |   | 110,688              |    | 9,237                   |   | 8.3              | %      |
| Less: Reserve  for loan loss                             |   | (1,751               | )       |                    |   |             |   |
| Funds sold                                               |   | 36,194               |    | 590                     |   | 1.6              | %      |
| Total Earnings  Assets                                   |   | 173,718              |    | 11,184                  |   | 6.4              | %      |
|                                                     |   |                 |    |                    |   |             |   |
| Cash and due  from banks                                 |   | 5,649                |    |                    |   |             |   |
| Other assets                                             |   | 5,387                |    |                    |   |             |   |
|                                                     |   |                 |    |                    |   |             |   |
| Total Assets                                             |   | $                    | 184,754 |                    |   |             |   |   |
|                                                     |   |                 |    |                    |   |             |   |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY               |   |                 |    |                    |   |             |   |
| Interest bearing  demand and money market deposits       |   | $                    | 53,229  |                    | $      | 785              |   | 1.5 | % |
| Savings  deposits-Other                                  |   | 9,590                |    | 134                     |   | 1.4              | %      |
| Time deposits                                            |   | 82,733               |    | 2,946                   |   | 3.6              | %      |
| Total interest  bearing liabilities                      |   | 145,552              |    | 3,865                   |   | 2.7              | %      |
|                                                     |   |                 |    |                    |   |             |   |
| Net Interest  Revenue                                    |   |                 |    | $                       | 7,319  |             | 3.7    | % |
|                                                     |   |                 |    |                    |   |             |   |
| Net Interest  Revenue to Earning Assets                  |   |                 |    |                    |   | 4.2              | %      |
|                                                     |   |                 |    |                    |   |             |   |
| Demand deposits  (non-interest bearing)                  |   | $                    | 21,622  |                    |   |             |   |   |
| Other  liabilities                                       |   | 1,456                |    |                    |   |             |   |
| Stockholders’  Equity                               |   | 16,124               |    |                    |   |             |   |
| Total  Liabilities and Stockholders’ Equity         |   | $                    | 184,754 |                    |   |             |   |   |

 

4

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TABLE #2

 
| **Year Ended December 31, 2001  (Dollars in Thousands)** |   | **Average  Balance** |    | **Interest  Rev./Exp.** |   | **Yield/  Rate** |   |
|----------------------------------------------------------|--------|----------------------|---------|-------------------------|--------|------------------|--------|
|                                                     |   |                 |    |                    |   |             |   |
| ASSETS                                                   |   |                 |    |                    |   |             |   |
| Investment  securities:                                  |   |                 |    |                    |   |             |   |
| Taxable                                                  |   | $                    | 25,550  |                    | $      | 1,518            |   | 5.9 | % |
| Tax exempt                                               |   | 2,295                |    | 189                     |   | 8.2              | %      |
| Loans                                                    |   | 116,050              |    | 10,541                  |   | 9.1              | %      |
| Less: Reserve  for loan loss                             |   | (1,607               | )       |                    |   |             |   |
| Funds sold                                               |   | 16,879               |    | 610                     |   | 3.6              | %      |
| Total Earning  Assets                                    |   | 159,167              |    | 12,858                  |   | 8.1              | %      |
|                                                     |   |                 |    |                    |   |             |   |
| Cash and due  from banks                                 |   | 5,269                |    |                    |   |             |   |
| Other assets                                             |   | 5,425                |    |                    |   |             |   |
|                                                     |   |                 |    |                    |   |             |   |
| Total Assets                                             |   | $                    | 169,861 |                    |   |             |   |   |
|                                                     |   |                 |    |                    |   |             |   |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY               |   |                 |    |                    |   |             |   |
| Interest bearing  demand and money market deposits       |   | $                    | 46,317  |                    | $      | 1,403            |   | 3.0 | % |
| Savings deposits  - Other                                |   | 9,005                |    | 216                     |   | 2.4              | %      |
| Time deposits                                            |   | 76,097               |    | 4,108                   |   | 5.4              | %      |
| Total interest  bearing liabilities.                     |   | 131,419              |    | 5,727                   |   | 4.4              | %      |
|                                                     |   |                 |    |                    |   |             |   |
| Net Interest  Revenue                                    |   |                 |    | $                       | 7,131  |             | 3.7    | % |
|                                                     |   |                 |    |                    |   |             |   |
| Net Interest  Revenue to Earning Assets.                 |   |                 |    |                    |   | 4.5              | %      |
|                                                     |   |                 |    |                    |   |             |   |
| Demand deposits  (non-interest bearing)                  |   | $                    | 21,906  |                    |   |             |   |   |
| Other  liabilities                                       |   | 1,607                |    |                    |   |             |   |
| Stockholders’  equity                               |   | 14,929               |    |                    |   |             |   |
| Total  Liabilities and Stockholders’ Equity         |   | $                    | 169,861 |                    |   |             |   |   |

 

5

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TABLE #3

 
| **Year Ended December 31, 2000  (Dollars in Thousands)** |   | **Average  Balance** |    | **Interest  Rev./Exp.** |   | **Yield/  Rate** |   |
|----------------------------------------------------------|--------|----------------------|---------|-------------------------|--------|------------------|--------|
|                                                     |   |                 |    |                    |   |             |   |
| ASSETS                                                   |   |                 |    |                    |   |             |   |
| Investment  securities:                                  |   |                 |    |                    |   |             |   |
| Taxable                                                  |   | $                    | 27,087  |                    | $      | 1,765            |   | 6.5 | % |
| Tax exempt                                               |   | 73                   |    | 6                       |   | 8.2              | %      |
| Loans                                                    |   | 108,445              |    | 9,615                   |   | 8.9              | %      |
| Less: Reserve  for loan loss                             |   | (1,441               | )       |                    |   |             |   |
| Funds sold                                               |   | 21,752               |    | 1,356                   |   | 6.2              | %      |
| Total Earning  Assets                                    |   | 155,916              |    | 12,742                  |   | 8.2              | %      |
|                                                     |   |                 |    |                    |   |             |   |
| Cash and due  from banks                                 |   | 4,940                |    |                    |   |             |   |
| Other assets                                             |   | 4,454                |    |                    |   |             |   |
|                                                     |   |                 |    |                    |   |             |   |
| Total Assets                                             |   | $                    | 165,310 |                    |   |             |   |   |
|                                                     |   |                 |    |                    |   |             |   |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY               |   |                 |    |                    |   |             |   |
| Interest bearing  demand and money market deposits       |   | $                    | 45,091  |                    | $      | 1,925            |   | 4.3 | % |
| Savings deposits  - Other                                |   | 9,037                |    | 291                     |   | 3.2              | %      |
| Time deposits                                            |   | 74,905               |    | 4,331                   |   | 5.8              | %      |
| Total interest  bearing liabilities.                     |   | 129,033              |    | 6,547                   |   | 5.1              | %      |
|                                                     |   |                 |    |                    |   |             |   |
| Net Interest  Revenue                                    |   |                 |    | $                       | 6,195  |             | 3.1    | % |
|                                                     |   |                 |    |                    |   |             |   |
| Net Interest  Revenue to Earning Assets .                |   |                 |    |                    |   | 4.0              | %      |
|                                                     |   |                 |    |                    |   |             |   |
| Demand deposits  (non-interest bearing)                  |   | $                    | 21,487  |                    |   |             |   |   |
| Other  liabilities                                       |   | 1,572                |    |                    |   |             |   |
| Stockholders’  equity                               |   | 13,218               |    |                    |   |             |   |
| Total  Liabilities and Stockholders’ Equity         |   | $                    | 165,310 |                    |   |             |   |   |
|                                                          |        |                      |         |                         |        |                  |        |  |  |  |

 

6

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The followingtable presents statistical information regarding the components of net interestincome of the Registrant and an analysis of the changes in net interest incomedue to changes in volume and rates.

 

Analysis of Changes inComponents of Net Interest Income(Dollars in thousands)

 

TABLE #4

 
|                                         |   | **2002 vs  2001** |   | **2001 vs  2000** |   |
|----------------------------------------------|--------|-------------------|--------|-------------------|--------|
|                                         |   | **Yield/**        |   | **Yield/**        |   |
|                                         |   | **Volume**        |   | **Rate**          |   | **Total** |   | **Volume** |   | **Rate** |   |   |   |
|                                         |   |              |   |              |   |   |   |   |   |   |   | **Total** |   |
| Increase  (decrease) in interest income on:  |   |              |   |              |   |   |   |   |   |   |   |   |   |
| Loans                                        |   | $                 | (444   | )                 | $      | (860 | ) | $ | (1,304 | ) | $ | 690 |   | $ | 236 |   | $ | 926 |   |
| Investment  securities                       |   | 31                |   | (381              | )      | (350 | ) | 40 |   | (173 | ) | (133 | ) |
| Federal funds  sold                          |   | 106               |   | (125              | )      | (19 | ) | (122 | ) | (624 | ) | (746 | ) |
|                                         |   | (307)             |   | (1,366            | )      | (1,673 | ) | 608 |   | (561 | ) | 47 |   |
| Increase  (decrease) in interest expense on: |   |              |   |              |   |   |   |   |   |   |   |   |   |
| Demand deposits,  MMDA                       |   | 53                |   | (646              | )      | (593 | ) | 33 |   | (555 | ) | (522 | ) |
| Savings                                      |   | 3                 |   | (110              | )      | (107 | ) | (1 | ) | (74 | ) | (75 | ) |
| Time deposits                                |   | 195               |   | (1,357            | )      | (1,162 | ) | 64 |   | (287 | ) | (223 | ) |
|                                         |   | 251               |   | (2,113            | )      | (1,862 | ) | 96 |   | (916 | ) | (820 | ) |
|                                         |   |              |   |              |   |   |   |   |   |   |   |   |   |
| Net interest  income                         |   | $                 | (558   | )                 | $      | 747 |   | $ | 189 |   | $ | 512 |   | $ | 355 |   | $ | 867 |   |

 

The volume/ratevariance was allocated to rate based on the percentage increase or decrease inrelation to the total previous year rates with the remainder allocated tovolume.

 

7

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II.            InvestmentPortfolio

 

The followingtable shows the classification of investment securities with fixed maturitiesheld at December 31, in each of the past three years (including investmentsavailable for sale):

 

TABLE #5

 
| **December 31  (Dollars in thousands)** |   | **2002** |   | **2001** |   | **2000** |   |
|-----------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                    |   |     |   |     |   |     |   |
| U.S. Treasury  Securities               |   | $        | — |     | $      | —   |   | $ | — |   |
| Government  Sponsored Agencies          |   | 20,175   |   | 30,344   |   | 29,666   |   |
| US States and  Political Subdivisions   |   | 2,295    |   | 2,295    |   | 2,295    |   |
| Other bonds,  notes and securities      |   | 24       |   | 24       |   | 24       |   |
| Total                                   |   | $        | 22,494 |     | $      | 32,663   |   | $ | 31,985 |   |

 

The following is atable which shows the maturity distribution of investment securities and theaverage taxable equivalent yield by each range.  Dollars presented are in thousands.

 

TABLE #6

 
|                                |   | **U.S.  Treasury  Securities** |   | **U.S.  States  and Political  Subdivisions** |   | **Government  Sponsored  Agencies** |   | **Federal  Reserve Bank  Stock** |   |
|-------------------------------------|--------|--------------------------------|--------|-----------------------------------------------|--------|-------------------------------------|--------|----------------------------------|--------|
|                                |   | **Amount/Yield**               |   | **Amount/Yield**                              |   | **Amount/Yield**                    |   | **Amount/Yield**                 |   |
|                                |   |                           |   |                                          |   |                                |   |                             |   |   |   |   |   |   |   |   |   |
| Within one year                     |   | $                              | — |                                          | — | %                                   | $      | —                           |   | — | % | $ | 10,085 |   | 4.2 | % | $ | — |   | — | % |
| After one year  through five years  |   | —                         |   | —                                        | %      | —                              |   | —                           | %      | 10,090 |   | 3.4 | % | — |   | — | % |
| After five years  through ten years |   | —                         |   | —                                        | %      | 653                                 |   | 7.8                              | %      | — |   | — | % | — |   | — | % |
| After ten years                     |   | —                         |   | —                                        | %      | 1,642                               |   | 8.4                              | %      | — |   | — | % | 24 |   | 7.5 | % |
| Total                               |   | $                              | — |                                          | — | %                                   | $      | 2,295                            |   | 8.2 | % | $ | 20,175 |   | 3.8 | % | $ | 24 |   | 7.5 | % |

 

III.           Loan Portfolio

 

Domestic loans bycategory are listed below (dollars in thousands):

 

TABLE #7

 
|                              |   | **December  31,  2002** |    | **December  31,  2001** |   |
|-----------------------------------|--------|-------------------------|---------|-------------------------|--------|
|                              |   |                    |    |                    |   |
| Commercial                        |   | $                       | 9,676   |                    | $      | 7,424 |   |
| Agricultural                      |   | 1,244                   |    | 1,754                   |   |
| Real Estate -  Construction       |   | 3,672                   |    | 3,262                   |   |
| Real Estate -  Mortgage           |   | 83,928                  |    | 89,617                  |   |
| Installment  loans to Individuals |   | 10,840                  |    | 11,233                  |   |
| Total                             |   | $                       | 109,360 |                    | $      | 113,290 |   |

 

There were noforeign loans at December 31, 2002 or December 31, 2001.

 

8

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Commercial,agricultural and real estate - construction loans at December 31, 2002 arepresented by maturity as follows (dollars in thousands):

 

TABLE #8

 
|                         |   | **Due in One  Year or Less** |   | **Due After  One Year  Through Five Years** |   | **Due After  Five Years** |   |
|------------------------------|--------|------------------------------|--------|---------------------------------------------|--------|---------------------------|--------|
|                         |   |                         |   |                                        |   |                      |   |
| Commercial:                  |   |                         |   |                                        |   |                      |   |
| Fixed rates                  |   | $                            | 2,193  |                                        | $      | 45                        |   | $ | — |   |
| Adjustable rates             |   | 3,825                        |   | 3,559                                       |   | 54                        |   |
| Agricultural:                |   |                         |   |                                        |   |                      |   |
| Fixed rates                  |   | 1                            |   | 178                                         |   | 351                       |   |
| Adjustable rates             |   | 555                          |   | 148                                         |   | 17                        |   |
| Real Estate -  Construction: |   |                         |   |                                        |   |                      |   |
| Fixed rates                  |   | 157                          |   | 27                                          |   | 2,913                     |   |
| Adjustable rates             |   | 206                          |   | 369                                         |   | —                    |   |
|                              |        |                              |        |                                             |        |                           |        |  |  |  |

 

Within the loanportfolio are loans which are considered non-performing.  Included in the table below are past dueloans which are defined as past due (1) single payment notes - these areconsidered past due 15 days or more after maturity; (2) single payment loans,with interest payable at stated intervals, and demand notes - these are consideredpast due when an interest payment is due and unpaid for 15 days; (3) consumer,mortgage, or term business installment loans - these loans are past due inwhole after one installment is due and unpaid for 30 days or one month.  When an installment payment is past due, theentire unpaid balance is past due; (4) overdrafts are considered past due whennot paid in 15 days.  Such loans remainin past due status until all past due payments are made.

 

TABLE #9

 
| **December 31 (Dollars in  thousands)**                                                                                                                   |   | **2002** |   | **2001** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
|                                                                                                                                                      |   |     |   |     |   |
| Non-accrual  loans                                                                                                                                        |   | $        | 2,304  |     | $      | 1,007 |   |
| Loans which are  contractually past due 90 days or more as to interest or principal, but have  not been put on a non-accrual basis (See discussion below) |   | —   |   | —   |   |
| Loans  restructured to provide concessions to the borrower in order to maximize the  recovery possibility of the bank                                     |   | $        | 256    |     | $      |  81 |   |

 

There was nointerest foregone on restructured loans in 2001.  Recognized income was $6 thousand.  Interest recognized in 2002 was $23 thousand with foregone interestof $3 thousand.

 

Past due andrenegotiated loans as described above are defined as non-performing loans forpurposes of this discussion.

 

Non-accrual loansare defined as loans on which, in the opinion of management, the collection ofinterest has become uncertain. Management places loans on non-accrual status when loans become past duesixty days or sooner if, in their judgment, the ability of the borrower toservice the debt has become impaired.

 

9

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Interest is nottaken into income unless received in cash or until such time as the borrowerdemonstrates the ability to pay interest and principal.  Placing a loan on non-accrual status for thepurpose of income recognition is not by itself a reliable indicator ofpotential loss of principal.  Otherfactors, such as the value of the collateral securing the loan and thefinancial condition of the borrower, serve as more reliable indicators ofpotential loss.

 

Management has noinformation that would indicate that any loans on hand at December 31, 2002that are not currently included as non-performing loans have possible creditproblems that would cause serious doubts as to their ability to comply with thecurrent repayment terms or contain uncertainties which would have a materialimpact on future operations or financial position.

 

IV.           Summary of LoanLoss Experience

 

The table belowpresents selected information analyzing the allowance for loan losses (dollarsin thousands):

 

TABLE #10

 
|                                                        |   | **2002** |    | **2001** |   |
|-------------------------------------------------------------|--------|----------|---------|----------|--------|
|                                                        |   |     |    |     |   |
| Balance -  Beginning of year                                |   | $        | 1,612   |     | $      | 1,579 |   |
| Charge-offs:                                                |   |     |    |     |   |
| Commercial                                                  |   | 18       |    | 70       |   |
| Agricultural                                                |   | —   |    | —   |   |
| Real Estate -  Construction                                 |   | —   |    | —   |   |
| Real Estate -  Mortgage                                     |   | —   |    | 12       |   |
| Installment  loans to Individuals                           |   | 363      |    | 226      |   |
|                                                        |   | $        | 381     |     | $      | 308 |   |
| Recoveries:                                                 |   |     |    |     |   |
| Commercial                                                  |   | $        | 24      |     | $      | 20 |   |
| Agricultural                                                |   | —   |    | —   |   |
| Real Estate -  Construction                                 |   | —   |    | —   |   |
| Real Estate -  Mortgage                                     |   | —   |    | 7        |   |
| Installment  loans to individuals                           |   | 87       |    | 32       |   |
|                                                        |   | $        | 111     |     | $      | 59 |   |
|                                                        |   |     |    |     |   |
| Net Charge-offs  (recoveries)                               |   | $        | 270     |     | $      | 249 |   |
|                                                        |   |     |    |     |   |
| Provision -  Charged to operations                          |   | $        | 358     |     | $      | 282 |   |
|                                                        |   |     |    |     |   |
| Balance - End of  Year                                      |   | $        | 1,700   |     | $      | 1,612 |   |
|                                                        |   |     |    |     |   |
| Average loan  balance outstanding                           |   | $        | 110,688 |     | $      | 116,050 |   |
|                                                        |   |     |    |     |   |
| Percentage of  net charge offs to average loans outstanding |   | .2       | %       | .2       | %      |

 

The provision for2001 was lower than in 2000 as non-accrual loans and restructured loans werelower.  No loan growth was experiencedin 2001.

 

In 2002, theprovision was higher than 2001 due to higher non-accrual loans.

 

10

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The allocation ofthe allowance is as follows (dollars in thousands):

 

TABLE #11

 
|                       |   | **December  31,  2002** |   | **December  31,  2001**                                 |   |
|----------------------------|--------|-------------------------|--------|---------------------------------------------------------|--------|
|                       |   | **Amount**              |   | **Percent of  Loans  in Each Category  to Total Loans** |   | **Amount** |   | **Percent of  Loans  in Each Category  to Total Loans** |   |
|                       |   |                    |   |                                                    |   |   |   |   |   |
| Commercial                 |   | $                       | 10     |                                                    | 8.9    | % | $ | 9 |   | 6.6 | % |
| Agricultural               |   | 1                       |   | 1.1                                                     | %      | — |   | 1.5 | % |
| Real Estate-  Construction |   | —                  |   | 3.4                                                     | %      | — |   | 2.9 | % |
| Real  Estate-Mortgage      |   | 481                     |   | 76.7                                                    | %      | 329 |   | 79.1 | % |
| Installment  Loans         |   | 193                     |   | 9.9                                                     | %      | 161 |   | 9.9 | % |
| Unallocated                |   | 1,015                   |   | N/A                                                     |   | 1,113 |   | N/A |   |
|                       |   | $                       | 1,700  |                                                    | 100    | % | $ | 1,612 |   | 100 | % |

 

The large,unallocated allowance for loan losses is being maintained in recognition ofseveral risk factors inherent in the bank’s loan portfolio.  Foremost among these is the largeconcentration of loans of all types secured by real property.  While the vast majority of these loans areperforming and not in need of an allocated allowance, there has beensignificant growth in this area in the last decade and a noticeable increase inappraised values has occurred.  Shouldinterest rates rebound from the current, historic lows, the probability existsthat real estate activity, and property values, will be negatively affected.Also, as seen in Table 10, on Page 10, recent loan losses have been highly concentratedin the installment loan area.  Untilmore stringent underwriting controls instituted by management can have effect,it is deemed prudent by management to maintain reserves in excess of thespecific allocation.  At the time ofthis writing, estimated charge-offs for the coming year are not expected toexceed $250,000 and will likely be concentrated in the installment area.

 

V.            Deposits

 

The average amountof deposits and the average rates paid are presented in the balance sheetanalysis shown previously.

 

At December 31,2002, there existed outstanding time certificates of deposit in amounts of$100,000 or more of $24,251,094.  Thedeposits by time remaining until maturity were (dollars in thousands):

 

TABLE #12

 
| 3 months or less          |   | $     | 9,640  |   |
|---------------------------|--------|-------|--------|--------|
| Over 3 through 6  months  |   | 7,507 |   |
| Over 6 through  12 months |   | 5,118 |   |
| Over 12 months            |   | 1,986 |   |
|                      |   | $     | 24,251 |   |

 

As  required by the Monetary Control Act of1980, the reserve balance held against deposits at December 31, 2002 was$2,458,000.

 

11

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TABLE #13

 
| **For the year ended December 31**                                                    |   | **2002** |   | **2001** |   | **2000** |   |
|---------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Return on Assets  (Net income divided by average total assets)                        |   | .7       | %      | .7       | %      | .7       | %      |
| Return on Equity  (Net income divided by average equity)                              |   | 7.9      | %      | 8.3      | %      | 8.7      | %      |
| Dividend Payout  Ratio (Dividends declared per share divided by net income per share) |   | 0        | %      | 0        | %      | 0        | %      |
| Equity to Assets  Ratio (Average equity divided by average total assets               |   | 8.7      | %      | 8.8      | %      | 8.0      | %      |

 

ITEM 2.  Properties:

 

The subsidiaryBank owns a building and annex at 100 East Main Street, and the motor-bankfacility, 122 East First Street, in which the banking operations are carried onin Trinidad, Colorado.  Approximatelyone-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.  Bankingoperations 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 LaVeta, Colorado.** **A facility withbanking operations and automated tellers was located in a Trinidad retailsuperstore and became operational in 1998. Also, an office space in Raton, New Mexico was leased and remodeled in1999 for the purpose of conducting loan and deposit production activities.  A ground lease near by the Raton facilitywas obtained and upon it was constructed a drive-thru automatic teller machineand automated night depository.  Aproperty adjacent to the 100 E Main Street building was acquired for futureexpansion in 2001. Properties held as other real estate owned consist of realproperty that has been acquired by the Bank through foreclosure on real estatepledged as collateral on loans made by the Bank.

 

ITEM 3.  Legal Proceedings:

 

                Not applicable.

 

ITEM 4.  Submissionof Matters to a Vote of Securities Holders:

 

                Not applicable.

 

PART II

 

ITEM 5.  Marketfor The Republic Corporation’s stock.

 

(a)                                  TheArticles of Incorporation do not restrict the marketability of the RepublicCorporation stock.  However, due to thelimited number of shares outstanding, it is not anticipated that an activemarket for the shares will develop. Shares may be purchased by The Republic Corporation, but there is noassurance that the Corporation will do so.

(b)                                 Therewere approximately 1,750 shareholders as of the date of this annual report.

 

Holders of Republic Corporation shares are entitled totheir pro-rata share of any dividends paid on the shares.  However, because the Corporation has noincome other than distributions received on its equity in The First NationalBank in Trinidad, Colorado, its ability to pay dividends depends upon itsreceipt of Bank distributions. Decisions as to the declaration and payment of dividends, subject to theavailability of funds for this purpose, rest exclusively with The RepublicCorporation Board of Directors.

(c)                                  Nodividends have been declared in 2002 or 2001 and management has no intention todeclare dividends in the immediate future.

 

12

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ITEM 6.  Selected financial data:

 

The followingtable presents certain key financial information.

 

TABLE #14

 
| **Selected Financial Data  Year Ended December 31  (Dollars in thousands)** |   | **2002** |   | **2001** |   | **2000** |   | **1999** |   | **1998** |   |
|-----------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
|                                                                        |   |     |   |     |   |     |   |     |   |     |   |
| Interest Income                                                             |   | $        | 11,112 |     | $      | 12,786   |   | $        | 12,739 |     | $      | 10,328 |   | $ | 9,683 |   |
| Interest expense                                                            |   | 3,865    |   | 5,727    |   | 6,547    |   | 5,147    |   | 4,571    |   |
| Net Interest  Income                                                        |   | 7,247    |   | 7,059    |   | 6,192    |   | 5,181    |   | 5,112    |   |
| Provision for  Loan Losses                                                  |   | 358      |   | 282      |   | 314      |   | 238      |   | 241      |   |
| Net Interest  Income after Provision for Loan Losses                        |   | 6,889    |   | 6,777    |   | 5,878    |   | 4,943    |   | 4,871    |   |
| Non-Interest  Income                                                        |   | 906      |   | 853      |   | 825      |   | 636      |   | 597      |   |
| Non-Interest  Expense:                                                      |   |     |   |     |   |     |   |     |   |     |   |
| Personnel  Expenses                                                         |   | 2,605    |   | 2,514    |   | 2,295    |   | 2,277    |   | 1,872    |   |
| Other Expenses                                                              |   | 3,187    |   | 3,167    |   | 2,505    |   | 2,315    |   | 2,035    |   |
| Income Before  Income Taxes                                                 |   | 2,003    |   | 1,949    |   | 1,903    |   | 987      |   | 1,561    |   |
| Applicable  Income Taxes                                                    |   | 692      |   | 666      |   | 722      |   | 373      |   | 593      |   |
| Income before  Reduction for Minority Interest or Security Gains or Losses  |   | 1,311    |   | 1,283    |   | 1,181    |   | 614      |   | 968      |   |
| Less Minority  Interest                                                     |   | 42       |   | 38       |   | 28       |   | 15       |   | 23       |   |
|                                                                        |   |     |   |     |   |     |   |     |   |     |   |
| Net Income                                                                  |   | $        | 1,269  |     | $      | 1,245    |   | $        | 1,153  |     | $      | 599 |   | $ | 945 |   |
|                                                                        |   |     |   |     |   |     |   |     |   |     |   |
| Net Income per  Common Share(2)                                             |   | $        | 3.80   |     | $      | 3.73     |   | $        | 3.46   |     | $      | 1.80 |   | $ | 2.83 |   |
|                                                                        |   |     |   |     |   |     |   |     |   |     |   |
| Dividends Declared  per Common Share(2)                                     |   | $        | 0      |     | $      | 0        |   | $        | 0      |     | $      | 0 |   | $ | 0 |   |

 

----

(2) Net income per common share and dividends declared per common shareare in actual dollars, not thousands.

 
| **Selected Year End Balances:  (Dollars in thousands)** |   | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** | **1999** | ** ** | **1998** | ** ** |
|---------------------------------------------------------|--------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                                    |   |     |       |     |       |     |       |     |       |     |       |
| Loans                                                   |   | $        | 109,360    |     | $          | 113,290  |       | $        | 113,978    |     | $          | 98,532 |   | $ | 94,569 |   |
| Total Assets                                            |   | 181,455  |       | 178,143  |       | 165,276  |       | 155,606  |       | 131,275  |       |
| Long-Term Debt                                          |   | 0        |       | 0        |       | 0        |       | 0        |       | 0        |       |
|                                                         |        |          |            |          |            |          |            |          |            |          |            |  |  |  |  |  |

 

13

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ITEM 7.  Management’sdiscussion and analysis of financial condition and results of operations:

 

**FINANCIAL CONDITION**

 

ASSET QUALITY

 

TABLE #15

 
| **December  31 (dollars in thousands)**                                    |   | **2002** |   | **2001** |   | **2000** |   | **1999** |   | **1998** |   |
|----------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
|                                                                       |   |     |   |     |   |     |   |     |   |     |   |
| Nonaccrual Loans                                                           |   | $        | 2,304  |     | $      | 1,008    |   | $        | 1,076  |     | $      | 837 |   | $ | 351 |   |
| Past-Due Loans*                                                            |   | —   |   | —   |   | 149      |   | —   |   | —   |   |
|                                                                       |   |     |   |     |   |     |   |     |   |     |   |
| Restructured Loans                                                         |   | 256      |   | 81       |   | 781      |   | 1,022    |   | 714      |   |
| Total Problem  Loans                                                       |   | 2,560    |   | 1,089    |   | 2,006    |   | 1,859    |   | 1,065    |   |
|                                                                       |   |     |   |     |   |     |   |     |   |     |   |
| Foreclosed Assets                                                          |   |     |   |     |   |     |   |     |   |     |   |
| Real Estate                                                                |   | 351      |   | 255      |   | 38       |   | 43       |   | 48       |   |
| In-Substance  Foreclosures                                                 |   | —   |   | —   |   | —   |   | —   |   | —   |   |
| Other                                                                      |   | —   |   | —   |   | 17       |   | 23       |   | 28       |   |
| Total Problem  Assets                                                      |   | $        | 2,911  |     | $      | 1,344    |   | $        | 2,061  |     | $      | 1,925 |   | $ | 1,141 |   |
|                                                                       |   |     |   |     |   |     |   |     |   |     |   |
| Total Problem Loans as a Percentage of Total Loans                         |   | 2.3      | %      | 1.0      | %      | 1.8      | %      | 1.9      | %      | 1.1      | %      |
|                                                                       |   |     |   |     |   |     |   |     |   |     |   |
| Total Problem  Assets as a Percentage of Total Loans and Foreclosed Assets |   | 2.7      | %      | 1.2      | %      | 1.8      | %      | 2.0      | %      | 1.2      | %      |
|                                                                       |   |     |   |     |   |     |   |     |   |     |   |
| Reserve Coverage  Ratio**                                                  |   | 66.4     | %      | 148.0    | %      | 78.7     | %      | 74.2     | %      | 115.8    | %      |

 

----

*                                         Pastdue loans which are still accruing interest but are contractually ninety ormore days delinquent as to principal or interest payments.  Approximately $110m of the amount shown in2000 is also included in the restructured total for the same year.

 

**                                  Allowancefor loan losses divided by problem loans

 

14

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TABLE #16

 

INTEREST RATE SENSITIVITY

 

 

 
| **December 31, 2002 (dollars in thousands)**                                         |   | **3 Mo  Or Less** |   | **3-12  Months** |   | **1-3  Years** |   | **Over  3 Years** |   |
|--------------------------------------------------------------------------------------|--------|-------------------|--------|------------------|--------|----------------|--------|-------------------|--------|
|                                                                                 |   |              |   |             |   |           |   |              |   |
| Rate Sensitive Assets  (Assets that can be repriced within x months/years)           |   |              |   |             |   |           |   |              |   |
|                                                                                 |   |              |   |             |   |           |   |              |   |
| Loans*                                                                               |   | $                 | 14,118 |             | $      | 28,674         |   | $                 | 12,070 |   | $ | 54,477 |   |
|                                                                                 |   |              |   |             |   |           |   |              |   |
| Federal Funds  Sold                                                                  |   | 40,750            |   | —           |   | —         |   | —            |   |
|                                                                                 |   |              |   |             |   |           |   |              |   |
| Taxable  Securities**                                                                |   | —            |   | 10,000           |   | 10,000         |   | —            |   |
|                                                                                 |   |              |   |             |   |           |   |              |   |
| Municipal Bonds                                                                      |   | —            |   | —           |   | —         |   | 2,295             |   |
|                                                                                 |   |              |   |             |   |           |   |              |   |
| Total                                                                                |   | 54,868            |   | 38,674           |   | 22,070         |   | 56,772            |   |
|                                                                                 |   |              |   |             |   |           |   |              |   |
| Rate Sensitive Liabilities  (Liabilities that can be repriced within x months/years) |   |              |   |             |   |           |   |              |   |
|                                                                                 |   |              |   |             |   |           |   |              |   |
| Time  Certificates of Deposit                                                        |   | 31,410            |   | 42,264           |   | 8,624          |   | —            |   |
|                                                                                 |   |              |   |             |   |           |   |              |   |
| NOW Accounts                                                                         |   | 1,827             |   | —           |   | —         |   | —            |   |
|                                                                                 |   |              |   |             |   |           |   |              |   |
| Super NOW  Accounts                                                                  |   | 32,769            |   | —           |   | —         |   | —            |   |
|                                                                                 |   |              |   |             |   |           |   |              |   |
| Savings Accounts                                                                     |   | 9,988             |   | —           |   | —         |   | —            |   |
|                                                                                 |   |              |   |             |   |           |   |              |   |
| MMDA Accounts                                                                        |   | 16,048            |   | —           |   | —         |   | —            |   |
|                                                                                 |   |              |   |             |   |           |   |              |   |
| Total                                                                                |   | 92,042            |   | 42,264           |   | 8,624          |   | —            |   |
|                                                                                 |   |              |   |             |   |           |   |              |   |
| Interest Rate  Sensitivity Gap                                                       |   | (37,174           | )      | (3,590           | )      | 13,446         |   | 56,772            |   |
|                                                                                 |   |              |   |             |   |           |   |              |   |
| Cumulative  Interest Rate Sensitivity Gap                                            |   | (37,174           | )      | (40,764          | )      | (27,318        | )      | 29,454            |   |
|                                                                                      |        |                   |        |                  |        |                |        |                   |        |  |  |  |  |

 

----

*   Does not include $21 thousandin overdrafts.

 

**   Does not include $24 thousand in FederalReserve Bank Stock.

 

15

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INVESTMENT SECURITIES

 

TABLE #17

AND FOOTNOTES 1-2

 
|                               |   | **Carrying  Value** |       | **Unrealized  Gains** |   | **Unrealized  Losses** |   | **Market  Value** |   |
|------------------------------------|--------|---------------------|------------|-----------------------|--------|------------------------|--------|-------------------|--------|
| December 31,  2002                 |   |                |       |                  |   |                   |   |              |   |
| (1)  Held-to-Maturity:             |   |                |       |                  |   |                   |   |              |   |
| U.S. Treasury  Securities          |   | $                   | —     |                  | $      | —                 |   | $                 | — |   | $ | — |   |
| Other                              |   | 22,470,121          |       | 722,733               |   | —                 |   | 23,192,854        |   |
| (2)  Available-for-Sale Securities |   |                |       |                  |   |                   |   |              |   |
| Carried at Fair  Value:            |   |                |       |                  |   |                   |   |              |   |
| US Treasury  Securities            |   | —              |       | —                |   | —                 |   | —            |   |
| Other                              |   | 24,000              |       | —                |   | —                 |   | 24,000            |   |
|                               |   | 22,494,121          |       | 722,733               |   | —                 |   | 23,216,854        |   |
|                               |   |                |       |                  |   |                   |   |              |   |
| December 31,  2001                 |   |                |       |                  |   |                   |   |              |   |
| (1)  Held-to-Maturity:             |   |                |       |                  |   |                   |   |              |   |
| U.S. Treasury  Securities          |   | —              |       | —                |   | —                 |   | —            |   |
| Other                              |   | 32,639,115          |       | 397,400               |   | —                 |   | 33,036,515        |   |
| (2)  Available-for-Sale Securities |   |                |       |                  |   |                   |   |              |   |
| Carried at Fair  Value:            |   |                |       |                  |   |                   |   |              |   |
| U.S. Treasury  Securities          |   | —              |       | —                |   | —                 |   | —            |   |
| Other                              |   | 24,000              |       | —                |   | —                 |   | 24,000            |   |
|                               |   | 32,663,115          |       | 397,400               |   | —                 |   | 33,060,515        |   |
| December 31,  2000                 |   |                |       |                  |   |                   |   |              |   |
| (1)  Held-to-Maturity:             |   |                |       |                  |   |                   |   |              |   |
| U.S. Treasury  Securities          |   | —              |       | —                |   | —                 |   | —            |   |
| Other                              |   | 31,961,129          |       | 270,094               |   | —                 |   | 32,231,223        |   |
| (2)  Available-for-Sale Securities |   |                |       |                  |   |                   |   |              |   |
| Carried at Fair  Value:            |   |                |       |                  |   |                   |   |              |   |
| U.S. Treasury  Securities          |   | —              |       | —                |   | —                 |   | —            |   |
| Other                              |   | 24,000              |       | —                |   | —                 |   | 24,000            |   |
|                               |   | $                   | 31,985,129 |                  | $      | 270,094                |   | $                 | — |   | $ | 32,255,223 |   |

 

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(1) Securities which the Bank has the ability and intent to hold tomaturity.  These securities are statedat cost, adjusted for amortization of premiums and accretion of discounts,computed by the interest method. Because securities are purchased for investment purposes and quotedmarket values fluctuate during the investment period, gains and losses arerecognized upon disposition or at such time as management determines that apermanent impairment of value had occurred. Cost of securities sold is determined on the specific identificationmethod.

 

(2) Securities that the bank may sell in response to changes in marketconditions or in the balance sheet objectives of the bank.  Securities in this category will be reportedat the fair market value.  Unrealizedgains or losses (net of tax) will be reported as a separate item in theshareholders’ equity section of the balance sheet.  Adjustments will be recorded at least quarterly.

 

16

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ASSET QUALITY

 

Loans placed onnon-accrual are up significantly from the year-end, 2001 level, a resultprimarily of growth in loans with either current or previous past due status.  As of December 31, 2002, approximately 25%of the total, non-accrual figure depicted in Table 15 was current on payments,32% between 1 and 30 days past due, 19% between 30 and 60 days past due, 23%between 60 and 90 days past due and 1% over 90 days past due.  Normally, the bank collects interest on acash basis when payments are made on non-accrual loans and they are usuallyreturned to accrual status following two or more quarters of timely payments.  Continuing concern on the part of managementregarding future payment prospects will, in some cases, cause a paying loan toremain on non-accrual beyond this time frame. The bank normally places past due loans on non-accrual no later than 60days past due, with collection activity commencing at 30 days.  (Please see Table 15, P-14)

 

Loan lossesincurred in 2002 were concentrated in the consumer installment loan area, withnet installment charge-offs representing approximately 102% of total, netcharge-offs.  This is being addressedthrough the use of second opinion approval on loans of this type.  Total net charge-offs for 2002 were up from2001 levels, both in dollar level ($270 m vs. $240 m) and when expressed as apercentage of average loans outstanding (.24% vs .21%).  For this reason, the bank increased theallowance for loan losses account from $1,612 m at year-end, 2001 to $1,700 mat year-end, 2002.  Provision expenseincreased to $358 m in 2002, compared with $282 m in 2001.  (Please see Table 10, P-10)

 

The restructuredloan total at year-end, 2002 was $256 m, up from $81 m at year-end, 2001.  The 2002 figure consisted of 17 creditrelationships which were granted modified payments or a lower interest rate dueto adverse financial circumstances. This category will remain under upward pressure until economiccircumstances improve nationally and in the bank’s markets. (Please see Table15, P-14)

 

The bankexperienced negative loan growth of $3,930 m in 2002, a result primarily of anunprecedented pay-down rate on commercial real estate loans.  This was tied to increased competition forloans of this type in the bank’s markets. Commercial real estate loans declined $7,728 m, or approximately 27%, in2002.  During the same time frame, thebank was able to grow it’s 1-4 family residential loans by $1,793 m, orapproximately 3%.  This occurred inspite of unprecedented refinancing, tied to historically low offering ratesthroughout the year.  Real estate loansof all types were approximately 80% of total loans at year-end, 2002, comparedwith 82% at year-end, 2001.  Of the 2002real estate loan total, approximately 70% was secured by 1-4 family residences,24% by commercial real estate and .5% by agricultural property.  This compares with a year-end, 2001distribution of 65%, 31% and .5%, respectively.  (Please see Table 7, P-8)

 

The economicuncertainty that prevails in the national economy as a result of war worriesand concern over further acts of terrorism has also served to dampen the localretail and service sectors.  This hasoccurred in spite of the continuing, positive influence from coal bed methanegas production in Las Animas County, Colorado and to a lesser extent, ColfaxCounty, New Mexico.  The severe droughtexperienced in 2002 has also put a strain on the agriculture and tourism sectorsthroughout the bank’s market and the entire region as well.  Finally, the decline in state revenue,primarily in Colorado, has begun to filter down to county and municipalgovernmental entities, precipitating cutbacks in spending and hiring in thosesectors.  In the face of all of thesenegative influences, the housing sector continues to thrive, largely as aresult of the enticement of low interest rates and the preference of newarrivals to these communities for the aesthetic qualities of living in an unclutteredand historically interesting portion of the front range of the Rocky Mountains.

 

17

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SOURCES AND USES OF FUNDS

 

The pattern forflow of funds differed markedly in 2002 from the preceding two years.  Deposit growth in the current year was only$2,131 m, compared with $11,976 m in 2001 and $8,149 m in 2000.  Also, net cash activity in loans for 2002was a negative $3,532 m, compared with a negative $210 m in 2001 and a positive$15,568 m in 2000.  In the two prioryears, the bank reinvested all of the proceeds from maturing investments.  In the current year, the entire $10,000 mreceived from matured investments was, along with paid down loan proceeds anddeposit gains, placed into cash equivalents. The latter grew $17,816 m in 2002 and $12,102 m in 2001, compared to adecline of $14,065 m in 2000.  Causalfactors at play in the past three years would include waning demand andincreased competition for loans, declining offering rates on deposits and increasingconcern on the part of management regarding the possibility of an eventualincrease in market interest rates. (Please see Statement of Cash Flows, P 25-26)

 

LIQUIDITY

 

The negative loangrowth, coupled with the placement of all deposit growth into liquid assetaccounts, has raised the percentage of total liabilities held in cash and duefrom banks, readily marketable securities and federal funds sold toapproximately 42% in 2002, up from approximately 38% in 2001.  Current, taxable securities holdings consistof four FEDERAL HOME LOAN BANK DEBENTURES in par amounts of $5,000,000.00 each.These mature in July and November of 2003 and June and November of 2004.  All of these securities were needed tosatisfy the year-end, 2002 pledging requirements of the State of Colorado andthe Federal Reserve Bank.  Management isof the opinion that current liquidity sources in the bank are more thanadequate to address the current, anticipated loan demand and withdrawal activityin 2002.  (Please see Balance Sheet,P-23 and Note 2, P30-31)

 

MARKET RISK

 

In the ordinarycourse of business, the bank is exposed to the risk of loss from changes ininterest rates.  The majority of thisrisk has to do with timing differences related to the repricing of assets andliabilities.  The bank, through its ALCOcommittee, analyzes and compares these repricing differences and basis pointspreads so as to effectively monitor and adjust the inevitable earnings impactof rate change.  The objective, overtime, is to minimize this earnings impact in all interest rate environments andnot to attempt to anticipate or time the market.  The primary tools to accomplish this are absolute pricing leveldecisions 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, soas to address “term risk” as a matter of policy.  The modeling used internally consists of 100 basis point and 400basis point earnings impact estimates. The instruments that the bank typically adjusts in this regard areloans, securities held to maturity, federal funds sold and depositliabilities.  Based on the currentrepricing structure, it is anticipated that the bank has sufficient tools inplace to minimize or eliminate any adverse earning impact caused by interestrate change.  The bank does not investin derivative financial instruments such as futures, forwards, swaps, optionsand other financial instruments with similar characteristics and there isnegligible direct risk of adverse impacts resulting from changes in foreigncurrency exchange rates, commodity prices or prices of equity securities.  (Please see Table 16, P-15 and Table 17,P-16)

 

CAPITAL

 

The bank ended2002 with estimated Tier 1 and total, risk-based capital ratios of 16.67% and17.93%, respectively, up from 14.67% and 15.93% in 2001.  This is a result of the reduction in 2002 ofassets with high risk ratings, i.e. commercial real estate loans, and theconcurrent growth in assets with lower risk ratings, i.e. federal

 

18

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funds sold andresidential loans.  It is also true thatthe rate of growth in Tier 1 leverage capital in 2002, 8.98%, well exceeded therate of asset growth, 1.90%.  The Tier 1leverage ratio ended 2002 at an estimated 8.91%, compared with 8.30% atyear-end, 2001.  (Please see Note 9, P.34)

 

RESULTS OF OPERATIONS

 

NET INTEREST INCOME

 

The bank was ableto match the net interest income figure achieved in 2001 in the current periodby aggressively reducing funding costs, an approach that could have played arole in the modest deposit growth during the same period.  The bank has also increased it’s ability topreserve and possibly grow it’s net interest income in a rising interest rateenvironment, an approach that may prove beneficial should the Federal Reservereverse course on monetary policy. (Please see Table 14, P-13, Tables 1 & 2 P 4-5, Table 4, P-7 andTable 16, P-15)

 

OTHER INCOME AND EXPENSE

 

The bank was ableto grow fee income over 2001 levels, in spite of reduced operating andtransaction volumes.  The primary avenuefor this to occur was revised fee calculation structures, and in some cases,higher fees.  The bank was also able toaccomplish these changes without changing its relative position as a low costprovider in this market.  (Please seeStatement of Income, P-24)

 

Non-interestexpenses grew in a much more modest fashion in 2002, compared with 2001.  This category grew approximately 2% in 2002,compared with 18% in 2001.  The primaryreason for this was the fact that the bank had already absorbed most of theone-time costs associated with a computer conversion and other operationsupgrades prior to 2002.  It is also truethat the bank was better able in 2002 to control the effects of rising healthcare and other employee benefit and compensation costs.  (Please see Statement of Income, P-24)

 

Management is notaware of any regulatory recommendations or other trends, events, oruncertainties that would have or would reasonably be likely to have a materialeffect on liquidity, capital resources or operations of the company.

 

Estimates andforward-looking statements are included in this discussion and as such aresubject to certain risks, uncertainties, and assumptions.  These statements are based on currentfinancial and economic data and management’s expectations.  Factors that could cause materialdifferences in actual operating results include, but are not limited to, loandemand, the ability of customers to repay loans, consumer saving habits,employment cost and interest rate changes.

 

 

19

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ITEM 7A.  Quantitativeand qualitative disclosures about market risk.

 

                    Information required by this item is included inITEM 7, Management’s discussion and analysis of financial condition and resultsof operations.

 

20

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ITEM 8.      Financialstatements and supplementary data.

 
|   | Index to Financial Statements of The Republic  Corporation and Subsidiary                      |   |
|--------|------------------------------------------------------------------------------------------------|--------|
|   |                                                                                           |   |
|   | Accountant’s Report                                                                       |   |
|   |                                                                                           |   |
|   | Balance Sheets as of  December 31, 2002 and 2001                                               |   |
|   |                                                                                           |   |
|   | Statement of Income for the three years  ended December 31, 2002                               |   |
|   |                                                                                           |   |
|   | Statement  of Cash Flows for the three years ended December 31, 2002                           |   |
|   |                                                                                           |   |
|   | Statement of Changes in Stockholders’  Equity for the three years ended December 31, 2002 |   |
|   |                                                                                           |   |
|   | Notes to  Financial Statements                                                                 |   |

 

21

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[DIXON, WALLER & CO.,INC. LETTER HEAD]

 

INDEPENDENTAUDITOR’S REPORT

 

The Board of Directors

The Republic Corporation

 

We have audited theconsolidated balance sheets of The Republic Corporation as of December 31, 2002and 2001, and the related consolidated statements of income and stockholders’equity and cash flows for each of the three years in the period ending December31, 2002.  These financial statementsare the responsibility of the Corporation’s management.  Our responsibility is to express an opinionon these financial statements based on our audits.

 

We conducted our auditsin accordance with auditing standards generally accepted in the United Statesof America.  Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that ouraudits provide a reasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the financial position of The Republic Corporation at December 31,2002 and 2001, and the results of its operations and its cash flows, for eachof the three years in the period ending December 31, 2002, in conformity withaccounting principles generally accepted in the United States of America.

 

 
| /s/ Dixon, Waller &  Co., Inc. |   |
|------------------------------------|--------|
| Dixon, Waller &  Co., Inc.     |
| Trinidad, Colorado                 |
| January 31, 2003                   |

 

22

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REPUBLICCORPORATION AND SUBSIDIARY

Balance Sheet

 
| **December 31**                                                                                                 |   | **2002**    |        | **2001**    |   |
|-----------------------------------------------------------------------------------------------------------------|--------|-------------|-------------|-------------|--------|
| Assets                                                                                                          |   |        |        |        |   |
| Cash and Due  from Banks (Demand)                                                                               |   | $           | 5,781,622   |        | $      | 6,740,872 |   |
| Investment  Securities:                                                                                         |   |        |        |        |   |
| Held to Maturity                                                                                                |   |        |        |        |   |
| Market Value at  12-31-02 - 23,192,854                                                                          |   |        |        |        |   |
| Market Value at  12-31-01 - 33,036,515                                                                          |   | 22,470,121  |        | 32,639,115  |   |
| Available for  Sale                                                                                             |   | 24,000      |        | 24,000      |   |
|                                                                                                            |   | 28,275,743  |        | 39,403,987  |   |
|                                                                                                            |   |        |        |        |   |
| Loans                                                                                                           |   | 109,359,880 |        | 113,289,960 |   |
| Plus:   Uncollected Earned Interest                                                                   |   | 624,047     |        | 815,911     |   |
| Less:  Allowance or Losses                                                                                 |   | (1,700,060  | )           | (1,612,000  | )      |
|    Net Loans and Other Receivables                                                                    |   | 108,283,867 |        | 112,493,871 |   |
|                                                                                                            |   |        |        |        |   |
| Federal Funds  Sold                                                                                             |   | 40,750,000  |        | 21,975,000  |   |
| Property,  Equipment and Vehicles (Net)                                                                         |   | 3,033,582   |        | 3,175,287   |   |
| Other Real  Estate                                                                                              |   | 350,977     |        | 254,732     |   |
| Goodwill                                                                                                        |   | 436,079     |        | 436,079     |   |
| Other Assets                                                                                                    |   | 324,857     |        | 403,645     |   |
|                                                                                                            |   |        |        |        |   |
| Total Assets                                                                                                    |   | 181,455,105 |        | 178,142,601 |   |
|                                                                                                            |   |        |        |        |   |
| Liabilities and  Stockholders’ Equity                                                                      |   |        |        |        |   |
| Deposits  (Domestic):                                                                                           |   |        |        |        |   |
| Demand  (Noninterest Bearing)                                                                                   |   | 21,052,697  |        | 21,085,881  |   |
| Savings, Time  and Demand (Interest Bearing)                                                                    |   | 142,722,417 |        | 140,557,986 |   |
|                                                                                                            |   | 163,775,114 |        | 161,643,867 |   |
| Accounts Payable  and Accrued Interest Payable.                                                                 |   | 834,228     |        | 1,002,190   |   |
| Accrued Taxes  Payable                                                                                          |   | 60,247      |        | 57,357      |   |
|                                                                                                            |   |        |        |        |   |
| Total  Liabilities                                                                                              |   | 164,669,589 |        | 162,703,414 |   |
|                                                                                                            |   |        |        |        |   |
| Minority  Interest in Consolidated Subsidiary                                                                   |   | 485,851     |        | 408,681     |   |
|                                                                                                            |   |        |        |        |   |
| 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 12/31/02, 23,119 Shares at 12/31/01)                             |   | (91,303     | )           | (91,303     | )      |
| Total  Contributed Capital                                                                                      |   | 500,472     |        | 500,472     |   |
| Retained Earnings                                                                                               |   | 15,799,193  |        | 14,530,034  |   |
| Stockholders’  Equity                                                                                      |   | 16,299,665  |        | 15,030,506  |   |
| Total  Liabilities and Stockholders’ Equity                                                                |   | $           | 181,455,105 |        | $      | 178,142,601 |   |

 

The accompanying notesare an integral part of these financial statements.

 

23

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REPUBLICCORPORATION AND SUBSIDIARY

Statement of Income

 
| **Year Ended December 31**                                    |   | **2002**   |      | **2001**   |   | **2000**   |   |
|---------------------------------------------------------------|--------|------------|-----------|------------|--------|------------|--------|
| Interest Income:                                              |   |       |      |       |   |       |   |
| Interest and  Fees on Loans                                   |   | $          | 9,236,703 |       | $      | 10,541,196 |   | $ | 9,614,879 |   |
| Interest on  Federal Funds Sold                               |   | 590,566    |      | 610,031    |   | 1,355,545  |   |
| Interest and  Dividends on Investments:                       |   |       |      |       |   |       |   |
| Securities of  U.S. Treasury and                              |   |       |      |       |   |       |   |
| Government  Sponsored Agencies                                |   | 1,168,225  |      | 1,518,374  |   | 1,764,632  |   |
| Obligations of  States, Political                             |   |       |      |       |   |       |   |
| Subdivisions and  other Obligations Secured By the Government |   | 116,843    |      | 116,966    |   | 3,577      |   |
| Total Interest  on Investments                                |   | 1,285,068  |      | 1,635,340  |   | 1,768,209  |   |
| Total Interest  Income                                        |   | 11,112,337 |      | 12,786,567 |   | 12,738,633 |   |
| Interest  Expense:                                            |   |       |      |       |   |       |   |
| Interest on Deposits                                          |   | 3,864,618  |      | 5,727,105  |   | 6,546,851  |   |
| Total Interest  Expense                                       |   | 3,864,618  |      | 5,727,105  |   | 6,546,851  |   |
| Net Interest  Income                                          |   | 7,247,719  |      | 7,059,462  |   | 6,191,782  |   |
| Provision for  Loan Losses                                    |   | 357,834    |      | 282,263    |   | 314,410    |   |
| Net Interest  Income after Provision for Loan Losses          |   | 6,889,885  |      | 6,777,199  |   | 5,877,372  |   |
| Other Income:                                                 |   |       |      |       |   |       |   |
| Service Charges  on Deposit Accounts                          |   | 228,463    |      | 203,475    |   | 227,240    |   |
| Other Service  Charges, Commissions and Fees                  |   | 490,170    |      | 482,318    |   | 414,443    |   |
| Gain on Sale of  Securities.                                  |   | —     |      | —     |   | —     |   |
| Gain on Sale -  Other Real Estate                             |   | 2,963      |      | —     |   | 2,728      |   |
| Other Income                                                  |   | 184,263    |      | 167,422    |   | 180,878    |   |
| Total Other  Income                                           |   | 905,859    |      | 853,215    |   | 825,289    |   |
| Other Expenses:                                               |   |       |      |       |   |       |   |
| Salaries and  Wages                                           |   | 2,245,844  |      | 2,145,417  |   | 1,959,087  |   |
| Payroll Taxes                                                 |   | 167,752    |      | 163,540    |   | 149,568    |   |
| Employee  Benefits                                            |   | 359,865    |      | 368,526    |   | 336,014    |   |
| Occupancy  Expenses                                           |   | 359,978    |      | 314,616    |   | 260,940    |   |
| Equipment  Expense                                            |   | 135,140    |      | 180,050    |   | 150,987    |   |
| Depreciation                                                  |   | 358,986    |      | 332,232    |   | 346,162    |   |
| Printing and  Supplies.                                       |   | 178,802    |      | 233,814    |   | 155,935    |   |
| Computer Service  Center                                      |   | 564,506    |      | 494,599    |   | 240,598    |   |
| FDIC Assessment                                               |   | 34,988     |      | 27,679     |   | 29,408     |   |
| Professional  Services                                        |   | 159,880    |      | 145,256    |   | 179,240    |   |
| Advertising                                                   |   | 224,558    |      | 207,005    |   | 215,294    |   |
| Other Operating  Expenses                                     |   | 1,002,244  |      | 1,068,789  |   | 776,404    |   |
| Total Other  Expenses                                         |   | 5,792,543  |      | 5,681,523  |   | 4,799,637  |   |
| Income Before  Income Taxes                                   |   | 2,003,201  |      | 1,948,891  |   | 1,903,024  |   |
| Less Applicable  Income Taxes (Current)                       |   | 692,344    |      | 665,837    |   | 721,987    |   |
| Income Before  Reduction for Minority Interest.               |   | 1,310,857  |      | 1,283,054  |   | 1,181,037  |   |
| Less Minority  Interest in Income                             |   | (41,698    | )         | (38,205    | )      | (27,667    | )      |
| Net Income                                                    |   | $          | 1,269,159 |       | $      | 1,244,849  |   | $ | 1,153,370 |   |
| Earnings per  Share                                           |   | $          | 3.80      |       | $      | 3.73       |   | $ | 3.46 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

24

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REPUBLICCORPORATION AND SUBSIDIARY

STATEMENT OF CASH FLOWS

 
| **December  31**                                                                   |   | **2002**   |       | **2001**    |   | **2000**    |   |
|------------------------------------------------------------------------------------|--------|------------|------------|-------------|--------|-------------|--------|
| Cash Flows and  Operating Activities:                                              |   |       |       |        |   |        |   |
| Net Income (Loss)                                                                  |   | $          | 1,269,159  |        | $      | 1,244,849   |   | $ | 1,153,370 |   |
| Adjustments to  Reconcile Net Income to Net Cash Provided by Operating Activities: |   |       |       |        |   |        |   |
| Depreciation                                                                       |   | 358,986    |       | 332,232     |   | 346,162     |   |
| Provision for  Loan Losses                                                         |   | 357,834    |       | 282,263     |   | 314,410     |   |
| Amortization  (Accretion) of                                                       |   |       |       |        |   |        |   |
| Discounts and  Premiums                                                            |   | 168,994    |       | (247,894    | )      | (1,159,025  | )      |
| Other Real  Estate Gains/Net                                                       |   | (2,963     | )          | —      |   | (2,728      | )      |
| Re-Appraisal -  Other Real Estate                                                  |   | —     |       | —      |   | —      |   |
| Gain on Sale of  Securities                                                        |   | —     |       | —      |   | —      |   |
| Loss on Sales of  Subsidiary Stock                                                 |   | 32,153     |       | 57,639      |   | —      |   |
| (Decrease)  Increase in                                                            |   |       |       |        |   |        |   |
| Interest Payable                                                                   |   | (167,962   | )          | (457,337    | )      | 340,262     |   |
| (Increase)  Decrease in                                                            |   |       |       |        |   |        |   |
| Interest  Receivable                                                               |   | 191,864    |       | 87,531      |   | (156,023    | )      |
| (Increase)  Decrease in                                                            |   |       |       |        |   |        |   |
| Other Assets                                                                       |   | 78,788     |       | (137,284    | )      | (7,195      | )      |
| Increase  (Decrease) in                                                            |   |       |       |        |   |        |   |
| Other  Liabilities                                                                 |   | 42,907     |       | 35,027      |   | 27,467      |   |
| Total  Adjustments                                                                 |   | 1,060,601  |       | (47,823     | )      | (296,670    | )      |
| Net Cash  Provided By (Used In)                                                    |   |       |       |        |   |        |   |
| Operating  Activities                                                              |   | 2,329,760  |       | 1,197,026   |   | 856,700     |   |
|                                                                               |   |       |       |        |   |        |   |
| Cash Flows from  Investing Activities:                                             |   |       |       |        |   |        |   |
| Proceeds from  Sale of Subsidiary Stock                                            |   | 5,000      |       | 10,000      |   | —      |   |
| Proceeds from  Sales of Investment Securities                                      |   | —     |       | —      |   | —      |   |
| Proceeds from  Maturities of                                                       |   |       |       |        |   |        |   |
| Investment  Securities                                                             |   | 10,000,000 |       | 20,000,000  |   | 40,050,000  |   |
| Purchase of  Investment Securities                                                 |   | —     |       | (20,430,092 | )      | (47,212,721 | )      |
| Loans Made to  Customers-Net Cash Activity                                         |   | 3,532,333  |       | 210,192     |   | (15,568,281 | )      |
| Capital  Expenditures                                                              |   | (217,281   | )          | (873,645    | )      | (354,759    | )      |
| Proceeds from  Sale of Other Real Estate                                           |   | 34,691     |       | 12,274      |   | 15,578      |   |
| Net Cash  Provided by (Used In) Investing Activities                               |   | 13,354,743 |       | (1,071,271  | )      | (23,070,183 | )      |
|                                                                               |   |       |       |        |   |        |   |
| Cash Flows from  Financing Activities:                                             |   |       |       |        |   |        |   |
| Net Increase in  Demand Deposits, NOW                                              |   |       |       |        |   |        |   |
| Accounts, Savings  Accounts and                                                    |   |       |       |        |   |        |   |
| Certificates of  Deposit                                                           |   | 2,131,247  |       | 11,976,438  |   | 8,148,710   |   |
| Purchase of  Treasury Stock                                                        |   | —     |       | —      |   | —      |   |
| Net Cash  Provided by (Used In) Financing Activities                               |   | 2,131,247  |       | 11,976,438  |   | 8,148,710   |   |
|                                                                               |   |       |       |        |   |        |   |
| Net Increase  (Decrease) in Cash and Cash Equivalents                              |   | 17,815,750 |       | 12,102,193  |   | (14,064,773 | )      |
|                                                                               |   |       |       |        |   |        |   |
| Cash and Cash  Equivalents at Beginning of Year:                                   |   |       |       |        |   |        |   |
| Cash and Due  from Banks                                                           |   | $          | 6,740,872  |        | $      | 5,813,679   |   | $ | 8,178,452 |   |
| Federal Funds  Sold                                                                |   | 21,975,000 |       | 10,800,000  |   | 22,500,000  |   |
| Cash and Cash  Equivalents at Beginning of Year                                    |   | 28,715,872 |       | 16,613,679  |   | 30,678,452  |   |
|                                                                               |   |       |       |        |   |        |   |
| Cash and Cash  Equivalents at End of Year:                                         |   |       |       |        |   |        |   |
| Cash and Due  from Banks                                                           |   | 5,781,622  |       | 6,740,872   |   | 5,813,679   |   |
| Federal Funds  Sold                                                                |   | 40,750,000 |       | 21,975,000  |   | 10,800,000  |   |
| Cash and Cash  Equivalents at End of Year                                          |   | $          | 46,531,622 |        | $      | 28,715,872  |   | $ | 16,613,679 |   |
|                                                                               |   |       |       |        |   |        |   |
| Supplemental  Disclosures of Cash Flow Information                                 |   |       |       |        |   |        |   |
| Cash Paid for  Interest                                                            |   | $          | 4,032,580  |        | $      | 6,184,442   |   | $ | 6,206,589 |   |
| Cash Paid for  Income Tax                                                          |   | $          | 720,503    |        | $      | 667,579     |   | $ | 648,952 |   |

 

The accompanying notesare an integral part of these financial statements.

 

25

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REPUBLICCORPORATION AND SUBSIDIARY

Statement of Changes in Stockholders’Equity

 

 
| **For Three  Years Ended  December 31,** |   | **Capital  Stock** |    | **Additional  Paid in  Capital** |   | **Treasury  Stock** |   | **Contributed  Capital** |    | **Retained  Earnings** |   | **Total  Equity** |   |
|------------------------------------------|--------|--------------------|---------|----------------------------------|--------|---------------------|--------|--------------------------|---------|------------------------|--------|-------------------|--------|
|                                     |   |               |    |                             |   |                |   |                     |    |                   |   |              |   |
| Balance at  12-31-99                     |   | $                  | 356,844 |                             | $      | 234,931             |   | $                        | (91,303 | )                      | $      | 500,472           |   | $ | 12,131,815 |   | $ | 12,632,287 |   |
|                                     |   |               |    |                             |   |                |   |                     |    |                   |   |              |   |
| Net Income                               |   | —             |    | —                           |   | —              |   | —                   |    | 1,153,370              |   | 1,153,370         |   |
|                                     |   |               |    |                             |   |                |   |                     |    |                   |   |              |   |
| Balance at  12-31-00                     |   | 356,844            |    | 234,931                          |   | (91,303             | )      | 500,472                  |    | 13,285,185             |   | 13,785,657        |   |
|                                     |   |               |    |                             |   |                |   |                     |    |                   |   |              |   |
| Net Income                               |   | —             |    | —                           |   | —              |   | —                   |    | 1,244,849              |   | 1,244,849         |   |
|                                     |   |               |    |                             |   |                |   |                     |    |                   |   |              |   |
| Balance at  12-31-01                     |   | 356,844            |    | 234,931                          |   | (91,303             | )      | 500,472                  |    | 14,530,034             |   | 15,030,506        |   |
|                                     |   |               |    |                             |   |                |   |                     |    |                   |   |              |   |
| Net Income                               |   | —             |    | —                           |   | —              |   | —                   |    | 1,269,159              |   | 1,269,159         |   |
|                                     |   |               |    |                             |   |                |   |                     |    |                   |   |              |   |
| Balance at  12-31-02                     |   | $                  | 356,844 |                             | $      | 234,931             |   | $                        | (91,303 | )                      | $      | 500,472           |   | $ | 15,799,193 |   | $ | 16,299,665 |   |

 

The accompanying notesare an integral part of these financial statements.

 

26

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THE REPUBLICCORPORATION AND SUBSIDIARY

Notes to ConsolidatedFinancial Statements

 

1.             Summary of Significant Accounting Policies.

 

Principles of Consolidation.  The consolidated financial statementsinclude The Republic Corporation, (Company) and its majority-ownedsubsidiary.  The First National Bank inTrinidad (Bank).  All major items ofincome and expense are recorded on the accrual basis of accounting, and allsignificant intercompany accounts and transactions have been eliminated.

 

Investment Securities.  The investment securities are classified and accounted for asfollows:

 

Heldto Maturity - investment debt securities for which the Bank has the ability andintent to hold to maturity.  Thesesecurities are stated at cost, adjusted for amortization of premiums andaccretion of discounts, computed by the interest method.

 

Availablefor sale - securities not classified as securities to be held to maturity.  Unrealized holding gains or losses, net oftax, are reported as a separate component of shareholders’ equity untilrealized.

 

Loans. Interest on all loans is credited to interest income as earned on theprincipal amount outstanding.  Loans toindividuals for household, family and other consumer expenditures areprincipally written at the amount disbursed, and interest income is accrued onthe outstanding principal balance.

 

Use of Estimates. The preparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.

 

Materialestimates that are particularly susceptible to significant change relate to thedetermination of the allowance for losses on loans and the valuation offoreclosed real estate.  In connectionwith the determination of the estimated losses on loans and foreclosed realestate, management obtains independent appraisals for significant properties.

 

Whilemanagement uses available information to recognize losses on loans andforeclosed real estate, further reductions in the carrying amounts of loans andforeclosed assets may be necessary based on changes in local economicconditions.  In addition, regulatoryagencies, as an integral part of their examination process, periodically reviewthe estimated losses on loans and foreclosed real estate.  Such agencies may require the Company torecognize additional losses based on their judgments about informationavailable to them at the time of their examination.  Because of these factors, it is reasonably possible that theestimated losses on loans and foreclosed real estate may change materially inthe near term.  However, the amount ofthe change that is reasonably possible cannot be estimated.

 

27

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Income Recognition on Impaired Loans.  Interest income generally is not recognizedon specific impaired loans unless the likelihood of further loss isremote.  Interest payments received onsuch loans are applied as a reduction of the loan principal balance.  Interest income on other impaired loans isrecognized only to the extent of interest payments received.

 

Allowance for Loan Losses.  The allowance for loan losses is established through charges toearnings in the form of provisions for loan losses.  Loan losses or recoveries are charged or credited directly to theallowance.  In general, the amountcharged to earnings each year by the Bank is based on management’s judgmentwhich takes into consideration a number of factors, including (1) lossexperience in relation to outstanding loans and the existing level of thevaluation allowance, (2) a continuing review of problem loans and overallportfolio quality, (3) regular examinations and appraisals of loan portfoliosconducted by Federal supervisory authorities, and (4) current and expectedeconomic conditions.

 

Goodwill.  Theexcess of the purchase cost over the net assets of the Bank purchasedrepresents goodwill.  APB 17, whichaddressed the amortization of intangible assets such as goodwill, was not to beapplied retroactively to assets acquired before November 1, 1970.  Since the acquisition of the Bank was madeprior to November 1, 1970, the goodwill acquired was not amortized.  The adoption of SFAS 142 required thatgoodwill be evaluated for other-than-temporary impairment.  Goodwill is not considered impaired and isrecorded at full value.

 

Long-Lived Assets. The undiscounted future net cash flows of the Company are expected to begreater than the net book value of long-lived assets (including goodwill) sothat recoverability is not determined to be impaired.

 

Property and Equipment.  Bank property and equipment are stated at cost less accumulateddepreciation.  The building andimprovements are depreciated on the straight-line, declining balance, ACRS andMACRS methods over estimated useful lives of 30 years.  There is not a material difference betweenthe expense recognized using the ACRS and MACRS methods and the expense thatwould be recognized using a method acceptable under generally acceptedaccounting principles.  Automobiles aredepreciated primarily on the straight-line basis over estimated useful lives of3-4 years.  Other equipment isdepreciated on the straight-line, ACRS and MACRS methods over estimated usefullives of 5-10 years.

 

Theaccounting policy is to charge maintenance, repairs, minor renewals andbetterments of property and equipment to expense in the year incurred.  Major expenditures for renewals andbetterments are capitalized and depreciated or amortized over their estimateduseful lives.  On disposal orretirement, the related cost and accumulated depreciation are eliminated fromthe accounts and gain or loss on the transaction is reflected in the statementof income.

 

28

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Foreclosed Real Estate.  Foreclosed real estate includes formally foreclosed properties.

 

Atthe time of foreclosure, foreclosed real estate is recorded at the lower of thecarrying amount or fair value less cost to sell, which becomes the property’snew basis.

 

Loan Origination Fees and Costs.  Loan origination fees are of an immaterialnature and are recognized as income upon receipt.

 

Income Taxes. The Company files a consolidated federal income tax return with theBank.  The corresponding amount ofincome tax expense has been reflected in the financial statements.  All expense recognized is current due to thefact that temporary differences in the recognition of income and expense fortax and financial statement purposes have created an immaterial deferred creditnot 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, withthe Bank paying a discretionary percentage of the employee’s earnings to theplan.  An employee can contribute anadditional percentage of his/her earnings if so desired.  The plan is overseen by a board of trusteescomposed of Bank officers.

 

Earnings per Share Computations.  Earnings per share computations are based onthe weighted average number of common shares outstanding during each year.

 

Effect of Recently Issued Accounting Standards.  In June 1998, the Financial AccountingStandards Board issued statement No. 133 “Accounting for Derivatives andHedging Activities” (SFAS No.133) which was subsequently amended by SFAS No.138 “Accounting for Certain Derivatives and Certain Hedging Activities”.  The standards were effective for adoption onor before January 1, 2001 (SFAS No. 137 deferred the original effective date inSFAS No. 138).  The adoption of thesestatements did not have an impact on the Company’s results of operations orfinancial position as the Company does not trade in derivative financialinstruments.

 

2.             Investment Securities, including investments held forsale.

 

A schedule ofsecurities is as follows:

 
|                                                 |   | **December  31, 2002** |       | **December  31, 2001** |       |
|------------------------------------------------------|--------|------------------------|------------|------------------------|------------|
|                                                 |   | **Par  Value**         |       | **Book  Value**        |       | **Market  Value** |   | **Par  Value** |   | **Book  Value** |   | **Market  Value** |   |
| Government  Securities                               |   | $                      | 20,000,000 |                   | $          | 20,175,250 |   | $ | 20,682,150 |   | $ | 30,000,000 |   | $ | 30,344,040 |   | $ | 30,687,644 |   |
|                                                 |   |                   |       |                   |       |   |   |   |   |   |   |   |   |
| Obligations of  States and   Political Sub-Divisions |   | 2,295,000              |       | 2,294,871              |       | 2,510,704 |   | 2,295,000 |   | 2,295,075 |   | 2,348,871 |   |
|                                                 |   |                   |       |                   |       |   |   |   |   |   |   |   |   |
| Other                                                |   | $                      | 24,000     |                   | 24,000     |   | 24,000 |   | $ | 24,000 |   | 24,000 |   | 24,000 |   |
|                                                 |   |                   |       | $                      | 22,494,121 |   | $ | 23,216,854 |   |   |   | $ | 32,663,115 |   | $ | 33,060,515 |   |

 

29

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Theapproximate amortized cost of investment securities pledged by the Bank tosecure public funds on deposit amounted to $22,215,755 at December 31, 2002 and$32,389,314 at December 31, 2001. Additionally, $254,366 was pledged to the Federal Reserve Bank in orderto secure treasury, tax and loan remittances at December 31, 2002.

 

Netgains on the sale of securities were as follows:

 
|                                    |   | **2002** |   | **2001** |   |
|-----------------------------------------|--------|----------|--------|----------|--------|
| Gains                                   |   |     |   |     |   |
| U.S. Government  Securities             |   | —   |   | —   |   |
| U.S. State and  Political Subdivisions  |   | —   |   | —   |   |
| Losses                                  |   |     |   |     |   |
| U.S. Government  Securities             |   | —   |   | —   |   |
| U.S. States and  Political Subdivisions |   | —   |   | —   |   |
| Net Gains on  Sale of Securities        |   | —   |   | —   |   |

 

Unrealized gainsand losses in the securities portfolio were as follows:

 
|                                    |   | **Carrying  Value** |       | **Unrealized  Gain** |   | **Unrealized  Loss** |   | **Market  Value** |      |
|-----------------------------------------|--------|---------------------|------------|----------------------|--------|----------------------|--------|-------------------|-----------|
| December 31,  2002                      |   |                |       |                 |   |                 |   |              |      |
| U.S. Treasury  Securities               |   | $                   | —     |                 | $      | —               |   | $                 | —    |   | $ | — |   |
| U.S. States and  Political Subdivisions |   | 2,294,871           |       | 215,833              |   | —               |   | 2,510,704         |      |
| Government  Sponsored Agencies          |   | 20,175,250          |       | 506,900              |   | —               |   | 20,682,150        |      |
| Other                                   |   | 24,000              |       | —               |   | —               |   | 24,000            |      |
|                                    |   | $                   | 22,494,121 |                 | $      | 722,733              |   | $                 | —    |   | $ | 23,216,854 |   |
|                                    |   |                |       |                 |   |                 |   |              |      |
| December 31,  2001                      |   |                |       |                 |   |                 |   |              |      |
| U.S. Treasury  Securities               |   | $                   | —     |                 | $      | —               |   | $                 | —    |   | $ |  — |   |
| U.S. States and  Political Subdivisions |   | 2,295,075           |       | 53,796               |   | —               |   |              | 2,348,871 |   |
| Government  Sponsored Agencies          |   | 30,344,040          |       | 343,604              |   | —               |   | 30,687,644        |      |
| Other                                   |   | 24,000              |       | —               |   | —               |   | 24,000            |      |
|                                    |   | $                   | 32,663,115 |                 | $      | 397,400              |   | $                 | —    |   | $ | 33,060,515 |   |
|                                         |        |                     |            |                      |        |                      |        |                   |           |  |  |  |  |  |

 

 

3.             Loans and Other Receivables

 

Loans and otherreceivables are summarized as follows:

 
|                                                                 |   | **December  31,** |        |
|----------------------------------------------------------------------|--------|-------------------|-------------|
| **Type**                                                             |   | **2002**          |        | **2001** |   |
| Real Estate                                                          |   | $                 | 87,600,350  |   | $ | 92,878,842 |   |
| Commercial and  Industrial                                           |   | 9,676,356         |        | 7,423,759 |   |
| Agriculture                                                          |   | 1,243,638         |        | 1,753,651 |   |
| Loans to  Individuals for Household, Family and Other Consumer Goods |   | 10,837,664        |        | 11,218,675 |   |
| Other                                                                |   | 1,872             |        | 15,033 |   |
| Total                                                                |   | $                 | 109,359,880 |   | $ | 113,289,960 |   |

 

30

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The changes in theallowance for loan losses are as follows:

 
|                                        |   | **December  31,** |            |
|---------------------------------------------|--------|-------------------|-----------------|
|                                        |   | **2002**          |            | **2001** |   | **2000** |   |
|                                        |   |              |            |   |   |   |   |
| Balance at  Beginning of Year               |   | $                 |  1,612,000 |   | $ |  1,578,694 |   | $ |  1,379,000 |   |
| Provision  Charged to Operating Expenses    |   | 357,834           |            | 282,263 |   | 314,410 |   |
| Loans Charged  Off                          |   | 380,504           |            | 308,149 |   | 274,204 |   |
| Recoveries on  Loans Previously Charged Off |   | 110,730           |            | 59,192 |   | 159,488 |   |
| Balance at End  of Year                     |   | $                 |  1,700,060 |   | $ |  1,612,000 |   | $ |  1,578,694 |   |

 

At December 31, 2002 and 2001, the total recordedinvestment in impaired loans, all of which had allowances determined inaccordance with SFAS No. 114 and No. 118, amounted to approximately $2,560,000and $1,088,000 respectively.  Theaverage recorded investment in impaired loans amounted to approximately$1,706,000 and $1,213,000 for the years ended December 31, 2002 and 2001,respectively.  The allowance for loanlosses related to impaired loans amounted to approximately $1,200 and $1,500 atDecember 31, 2002 and 2001, respectively. Interest income on impaired loans of $24,343 and $5,956 was recognizedfor cash payments received in 2002 and 2001 respectively.

 

4.             Property and Equipment.

 

Property and equipment are summarized as follows:

 
|                           |   | **December  31,** |      |
|--------------------------------|--------|-------------------|-----------|
|                           |   | **2002**          |      | **2001** |   | **2000** |   |
|                           |   |              |      |   |   |   |   |
| Land                           |   | $                 | 134,750   |   | $ | 134,750 |   | $ | 134,750 |   |
| Buildings                      |   | 3,752,745         |      | 3,700,383 |   | 3,164,931 |   |
| Furniture and  Equipment       |   | 2,900,937         |      | 2,736,018 |   | 2,397,825 |   |
|                           |   | 6,788,432         |      | 6,571,151 |   | 5,697,506 |   |
| Less Accumulated  Depreciation |   | 3,754,850         |      | 3,395,864 |   | 3,063,632 |   |
| Net                            |   | $                 | 3,033,582 |   | $ | 3,175,287 |   | $ | 2,633,874 |   |

 

Depreciationexpense for 2002, 2001 and 2000 was $358,986, $332,232 and $346,162,respectively.

 

5.             Income Taxes.

 

The components ofthe income tax provisions (benefits) are as follows:

 

31

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|                |   | **December  31,** |    |
|---------------------|--------|-------------------|---------|
|                |   | **2002**          |    | **2001** |   | **2000** |   |
| Federal  Provision: |   |              |    |   |   |   |   |
| Current             |   | $                 | 656,805 |   | $ | 654,439 |   | $ | 709,654 |   |
| Deferred            |   | —            |    | — |   | — |   |
|                |   | 656,805           |    | 654,439 |   | 709,654 |   |
| State Provision     |   | 35,539            |    | 11,398 |   | 12,333 |   |
| Total               |   | $                 | 692,344 |   | $ | 665,837 |   | $ | 721,987 |   |

 

Thedifference between the total expected income tax expense applying the Federaltax rates and the effective tax rate applicable to income are as follows(dollars in thousands):

 
|                                 |   | **2002**   |      | **2001**                 |   | **2000**   |   |
|--------------------------------------|--------|------------|-----------|--------------------------|--------|------------|--------|
|                                 |   | **Amount** |      | **% of  Pretax  Income** |   | **Amount** |   | **% of  Pretax  Income** |   | **Amount** |   | **% of  Pretax  Income** |   |
|                                 |   |       |      |                     |   |       |   |   |   |   |   |   |   |
| Statutory Tax  Rate Federal          |   | $          | 681       |                     | 34     |       | $      | 663 |   | 34 |   | $ | 647 |   | 34 |   |
| State Income Tax                     |   | 36         |      | 2                        |   | 11         |   | .5 |   | 12 |   | 1 |   |
| Tax Exempt  Revenue                  |   | (41        | )         | (2                       | )      | (40        | )      | (2 | ) | (2 | ) | — |   |
| Provision for  Loan Loss             |   | 30         |      | 2                        |   | 11         |   | .5 |   | 68 |   | 3 |   |
| Book Loss-Sales  of Sub-Stock        |   | 13         |      | .5                       |   | 20         |   | 1 |   | — |   | — |   |
| Accelerated  Depreciation – Tax |   | (17        | )         | (1                       | )      | —     |   | — |   | — |   | — |   |
| Deduction –  State Tax          |   | (8         | )         | (.5                      | )      | —     |   | — |   | — |   | — |   |
| Other (Net)                          |   | (2         | )         | —                   |   | 1          |   | — |   | (3 | ) | — |   |
| Total                                |   | $          |  692 |                     | 35     |       | $      |  666 |   | 34 |   | $ |  722 |   | 38 |   |

 

6.             Service Commitments.

 

Computerand data processing services are provided to the Bank by an outside servicecenter.  Expenses incurred for suchservices during 2002, 2001 and 2000 were $564,506, $494,599 and $240,598,respectively.

 

7.             Other Real Estate.

 

Otherreal estate consists of properties acquired through foreclosure and loans thatare classified as in-substance foreclosed for which the underlying collateral is real estate.

 

During 2000, otherreal estate was sold at a gain of $2,728.

 

Sales of other real estate in 2001 resulted in no gainor loss.

 

For 2002, sales of other real estate resulted in again of $2,963.

 

32

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8.             Certificates of Deposit.

 

TheBank had time certificates of deposit in amounts of $100,000 or more amountingto $24,251,094 and $22,888,052 at December 31, 2002 and 2001,respectively.  Interest expense for theyears ended December 31, 2002, 2001 and 2000 on this type of deposit was$773,848, $972,324, and $1,262,692, respectively.

 

Thedeposits by time remaining until maturity were (dollars in thousands).

 

| 3 Months or Less |   | $     | 9,640  |   |
|------------------|--------|-------|--------|--------|
| 3 to 6 Months    |   | 7,507 |   |
| 6 to 12 Months   |   | 5,118 |   |
| Over 12 Months   |   | 1,986 |   |
|             |   | $     | 24,251 |   |

 

9.             Regulatory Matters.

 

TheBank, as a National Bank, is subject to the dividend restrictions set forth bythe Comptroller of the Currency.  Undersuch restrictions, the Bank may not, without the prior approval of theComptroller of the Currency, declare dividends in excess of the sum of thecurrent year’s earnings (as defined) plus the retained earnings (as defined)from the prior two years.  Thedividends, as of December 31, 2002, that the Bank could declare, without theapproval of the Comptroller of the Currency, amounted to approximately$3,800,000.  The Bank is also requiredto maintain minimum amounts of capital to total “risk weighted” assets, asdefined by the banking regulators.  Asof December 31, 2002, Banks are required to have minimum Tier 1 and Totalcapital ratios of 4.00% and 8.00%, respectively.  The Bank’s estimated ratios at December 31, 2002 were $16.67% and17.93%, respectively.  The Bank’sestimated Tier 1 leverage ratio at December 31, 2002 was 8.91%.  The minimum required leverage ratio for theBank at December 31, 2002, was 3.00%.

 

10.           Supplemental Cash Flow Information

 

In2002 and 2001, the Bank recorded amounts of other real estate acquired throughforeclosure of $257,398 and $328,416. Of total sales of other real estate during 2002 and 2001, $129,425 and$99,125 of the purchase price was financed by the Bank, taking the other realestate as security.  Loans charged offdue to foreclosure transactions in 2002, 2001 and 2000 amounted to $257,398,$328,416 and $37,716.  These noncashtransactions have been excluded from the consolidated statement of cash flows.

 

11.           Financial Position and Results ofOperations - Republic Corporation.

 

Thefinancial position and results of operations of The Republic Corporation(parent only) are as follows:

 

33

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THE REPUBLICCORPORATION

Balance Sheet

 
| **December 31**                                                                                                                                                         |   | **2002**   |       | **2001**   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|------------|------------|--------|
|                                                                                                                                                                    |   |       |       |       |   |
| Assets                                                                                                                                                                  |   |       |       |       |   |
|                                                                                                                                                                    |   |       |       |       |   |
| Cash in Bank                                                                                                                                                            |   | $          | 74,494     |       | $      | 62,076 |   |
| Investment in  Subsidiary - Equity Method                                                                                                                               |   | 16,145,260 |       | 14,888,514 |   |
| Vehicles and  Equipment (Net)                                                                                                                                           |   | —     |       | —     |   |
| Receivable - Due  from Subsidiary.                                                                                                                                      |   | 23,307     |       | 23,312     |   |
| Other Assets                                                                                                                                                            |   | 56,604     |       | 56,604     |   |
| Total Assets                                                                                                                                                            |   | 16,299,665 |       | 15,030,506 |   |
| Liabilities.                                                                                                                                                            |   | —     |       | —     |   |
|                                                                                                                                                                    |   |       |       |       |   |
| Stockholders’  Equity                                                                                                                                              |   |       |       |       |   |
|                                                                                                                                                                    |   |       |       |       |   |
| Common Stock,  par Value $1.00; Authorized 750,000 Shares, Issued 356,844 Shares Including  Stock Held in Treasury of 23,119 and 23,119 for 2002 and 2001, Respectively |   | 356,844    |       | 356,844    |   |
| Additional Paid  in Capital.                                                                                                                                            |   | 234,931    |       | 234,931    |   |
| Less Cost of  Treasury Stock (23,119 Shares at 12-31-02, 23,119 Shares at 12-31-01)                                                                                     |   | (91,303    | )          | (91,303    | )      |
| Total  Contributed Capital                                                                                                                                              |   | 500,472    |       | 500,472    |   |
| Retained  Earnings                                                                                                                                                      |   | 15,799,193 |       | 14,530,034 |   |
| Total  Stockholders’ Equity                                                                                                                                        |   | 16,299,665 |       | 15,030,506 |   |
| Total  Liabilities and Stockholders’ Equity                                                                                                                        |   | $          | 16,299,665 |       | $      | 15,030,506 |   |

 

34

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THE REPUBLICCORPORATION

Statement of Income

 
| **Year Ended December 31**                                             |   | **2002**  |      | **2001**  |   | **2000**  |   |
|------------------------------------------------------------------------|--------|-----------|-----------|-----------|--------|-----------|--------|
|                                                                   |   |      |      |      |   |      |   |
| Income                                                                 |   |      |      |      |   |      |   |
|                                                                   |   |      |      |      |   |      |   |
| Investment  Income in Subsidiary Dividends Received from               |   |      |      |      |   |      |   |
| Subsidiary Bank                                                        |   | $         | 54,320    |      | $      | 54,460    |   | $ | 54,740 |   |
| Other Income                                                           |   | —    |      | —    |   | —    |   |
| Total Income                                                           |   | 54,320    |      | 54,460    |   | 54,740    |   |
|                                                                   |   |      |      |      |   |      |   |
| Expenses                                                               |   |      |      |      |   |      |   |
|                                                                   |   |      |      |      |   |      |   |
| Salaries and  Employee Benefits                                        |   | 51,073    |      | 51,073    |   | 54,814    |   |
| Loss on Sale of  Subsidiary Stock                                      |   | 32,153    |      | 57,639    |   | —    |   |
| Depreciation                                                           |   | —    |      | —    |   | —    |   |
| Examination and  Legal Fees                                            |   | 8,275     |      | 8,100     |   | 7,700     |   |
| Miscellaneous                                                          |   | —    |      | 2,194     |   | —    |   |
| Office                                                                 |   | 6,709     |      | 6,384     |   | 6,643     |   |
| Taxes                                                                  |   | 4,156     |      | 4,140     |   | 4,544     |   |
| Travel                                                                 |   | —    |      | —    |   | —    |   |
|                                                                   |   |      |      |      |   |      |   |
| Total Expenses                                                         |   | 102,366   |      | 129,530   |   | 73,701    |   |
|                                                                   |   |      |      |      |   |      |   |
| Income (Loss)  Before Equity in Undistributed Net Income of Subsidiary |   | (48,046   | )         | (75,070   | )      | (18,961   | )      |
| Less Applicable  Income (Taxes) Benefit                                |   | 23,307    |      | 23,312    |   | 25,100    |   |
|                                                                   |   | (24,739)  |      | 51,758    |   | 6,139     |   |
| Equity in  Undistributed Net Income                                    |   |      |      |      |   |      |   |
| (Loss) of  Subsidiary                                                  |   | 1,293,898 |      | 1,296,607 |   | 1,147,231 |   |
|                                                                   |   |      |      |      |   |      |   |
| Net Income  (Loss)                                                     |   | $         | 1,269,159 |      | $      | 1,244,849 |   | $ | 1,153,370 |   |
|                                                                   |   |      |      |      |   |      |   |
| Earnings Per  Share                                                    |   |      |      |      |   |      |   |
| Weighted Average  Number of Shares Outstanding                         |   | 333,725   |      | 333,725   |   | 333,725   |   |
|                                                                   |   |      |      |      |   |      |   |
| Net Income  (Loss) per Common Share                                    |   | $         | 3.80      |      | $      | 3.73      |   | $ | 3.46 |   |

 

35

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THE REPUBLICCORPORATION

Statement of Cash Flows

 
| **Year Ended December 31**                                            |   | **2002**   |      | **2001**   |   | **2000**   |   |
|-----------------------------------------------------------------------|--------|------------|-----------|------------|--------|------------|--------|
|                                                                  |   |       |      |       |   |       |   |
| Cash Flows From  Operating Activities:                                |   |       |      |       |   |       |   |
|                                                                  |   |       |      |       |   |       |   |
| Net Income                                                            |   | $          | 1,269,159 |       | $      | 1,244,849  |   | $ | 1,153,370 |   |
| Adjustments to  Reconcile Net Income to                               |   |       |      |       |   |       |   |
| Net Cash  Provided by Operating Activities:                           |   |       |      |       |   |       |   |
| Loss on Sale of  Subsidiary Stock                                     |   | 32,153     |      | 57,639     |   | —     |   |
| Depreciation                                                          |   | —     |      | —     |   | —     |   |
| Dividends  Received - Subsidiary                                      |   | (54,320    | )         | (54,460    | )      | (54,740    | )      |
| (Increase) in  Investment in Subsidiary-Held on the Equity Method     |   | (1,293,899 | )         | (1,296,607 | )      | (1,147,231 | )      |
| (Increase)  Decrease in Receivable from Subsidiary-Income Tax Benefit |   | 5          |      | 1,788      |   | (1,200     | )      |
| Increase  (Decrease) in Current Liabilities                           |   | —     |      | —     |   | —     |   |
|                                                                  |   |       |      |       |   |       |   |
| Net Cash (Used  In) Operating Activities                              |   | (46,902    | )         | (46,791    | )      | (49,801    | )      |
|                                                                  |   |       |      |       |   |       |   |
| Cash Flows From  Investing Activities-                                |   |       |      |       |   |       |   |
| Sale of  Subsidiary Stock                                             |   | 5,000      |      | 10,000     |   | —     |   |
| Dividends  Received                                                   |   | 54,320     |      | 54,460     |   | 54,740     |   |
|                                                                  |   | 59,320     |      | 64,460     |   | 54,740     |   |
|                                                                  |   |       |      |       |   |       |   |
| Cash Flows From  Financing Activities-                                |   |       |      |       |   |       |   |
| Purchase of  Treasury Stock                                           |   | —     |      | —     |   | —     |   |
|                                                                  |   |       |      |       |   |       |   |
| Net Increase  (Decrease) in Cash                                      |   | 12,418     |      | 17,669     |   | 4,939      |   |
|                                                                  |   |       |      |       |   |       |   |
| Cash - Beginning  of Year                                             |   | 62,076     |      | 44,407     |   | 39,468     |   |
|                                                                  |   |       |      |       |   |       |   |
| Cash - End of  Year                                                   |   | $          | 74,494    |       | $      | 62,076     |   | $ | 44,407 |   |
|                                                                  |   |       |      |       |   |       |   |
| Supplemental  Disclosures of Cash                                     |   |       |      |       |   |       |   |
| Flow  Information:                                                    |   |       |      |       |   |       |   |
| Cash Paid for  Interest                                               |   | —     |      | —     |   | —     |   |
|                                                                  |   |       |      |       |   |       |   |
| Cash Paid for  Income Taxes                                           |   | —     |      | —     |   | —     |   |

 

36

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THE REPUBLICCORPORATION

Statement of Changes in Stockholders’ Equity

 
| **For the Three  Years Ended** |   | **Capital  Stock** |    | **Additional  Paid in  Capital** |   | **Treasury  Stock** |   | **Total  Contributed  Capital** |    | **Retained  Earnings** |   |
|--------------------------------|--------|--------------------|---------|----------------------------------|--------|---------------------|--------|---------------------------------|---------|------------------------|--------|
|                           |   |               |    |                             |   |                |   |                            |    |                   |   |
| Balance at  December 31, 1999  |   | $                  | 356,844 |                             | $      | 234,931             |   | $                               | (91,303 | )                      | $      | 500,472 |   | $ | 12,131,815 | * |
|                           |   |               |    |                             |   |                |   |                            |    |                   |   |
| Net Income                     |   | —             |    | —                           |   | —              |   | —                          |    | 1,153,370              |   |
|                           |   |               |    |                             |   |                |   |                            |    |                   |   |
| Additions to  Treasury Stock   |   | —             |    | —                           |   | —              |   | —                          |    | —                 |   |
|                           |   |               |    |                             |   |                |   |                            |    |                   |   |
| Balance at  December 31, 2000  |   | $                  | 356,844 |                             | $      | 234,931             |   | $                               | (91,303 | )                      | $      | 500,472 |   | $ | 13,285,185 | * |
|                           |   |               |    |                             |   |                |   |                            |    |                   |   |
| Net Income                     |   | —             |    | —                           |   | —              |   | —                          |    | 1,244,849              |   |
|                           |   |               |    |                             |   |                |   |                            |    |                   |   |
| Additions to  Treasury Stock   |   | —             |    | —                           |   | —              |   | —                          |    | —                 |   |
|                           |   |               |    |                             |   |                |   |                            |    |                   |   |
| Balance at December  31, 2001  |   | $                  | 356,844 |                             | $      | 234,931             |   | $                               | (91,303 | )                      | $      | 500,472 |   | $ | 14,530,034 | * |
|                           |   |               |    |                             |   |                |   |                            |    |                   |   |
| Net Income                     |   | —             |    | —                           |   | —              |   | —                          |    | 1,269,159              |   |
|                           |   |               |    |                             |   |                |   |                            |    |                   |   |
| Additions to  Treasury Stock   |   | —             |    | —                           |   | —              |   | —                          |    | —                 |   |
|                           |   |               |    |                             |   |                |   |                            |    |                   |   |
| Balance at  December 31, 2002  |   | $                  | 356,844 |                             | $      | 234,931             |   | $                               | (91,303 | )                      | $      | 500,472 |   | $ | 15,799,193 | * |

 

----

*On December 31,1999, 2000, 2001 and 2002 the portion of retained earnings resulting fromRepublic Corporation’s equity in the undistributed income of its subsidiary was$11,294,236, $12,441,467, $13,674,435, and $14,933,318 respectively.

 

12.           Contingent Liabilities andCommitments.

 

The consolidatedfinancial statements do not reflect various commitments and contingentliabilities which arise in the normal course of business and which involveelements of credit risk, interest rate risk and liquidity risk.  These commitments and contingent liabilitiesare commitments to extend credit and standby letters of credit.  A summary of the Bank’s commitments andcontingent liabilities at December 31, 2002, is as follows:

 
| Commitments to extend credit |   | $ | 5,658,000 |
|------------------------------|--------|---|-----------|
| Standby letters of credit    |   | $ | 371,000   |

 

37

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THE REPUBLICCORPORATION AND SUBSIDIARY

Notes toConsolidated Financial Statements

 

Commitments toextend credit and standby letters of credit all include exposure to some creditloss in the event of nonperformance of the customer.  The Bank’s credit policies and procedures for credit commitmentsand financial guarantees are the same as those for extensions of credit thatare recorded on the consolidated statements of condition.  Because these instruments have fixedmaturity dates, and because many of them expire without being drawn upon, theydo not generally present any significant liquidity risk to the Bank.

 

13.           Disclosures about the Fair Value ofFinancial Instruments

 

The followingdisclosures of the estimated fair value of financial instruments are made inaccordance with the requirements of SFAS No. 107, Disclosures about FairValue of Financial Instruments.  Theestimated fair value amounts have been determined by the Bank using availablemarket information and valuation methodologies.  The fair value estimates presented are not necessarily indicativeof the amounts the company could realize in a current market exchange.  The use of different market assumptionsand/or estimation methodologies may have a material impact on the estimatedfair value amounts.  SFAS No. 107excludes certain financial instruments and all non-financial instruments includingintangible assets from its disclosure requirements.  Therefore, the aggregate fair value amounts presented herein arenot indicative of the underlying value of the Bank.

 

The followingmethods and assumptions were used to estimate the fair value of each class offinancial instruments for which is it practicable to estimate that value:

 

•              Cashand Due from Banks

 

The currentcarrying amount is a reasonable estimate of fair value.

 

•              FederalFunds Sold

 

The currentcarrying amount is a reasonable estimate of fair value.

 

•              InvestmentSecurities

 

An estimate of thefair value for investment securities is made utilizing quoted market prices forpublicly traded securities, where available. A third-party pricing service that specializes in “matrix pricing” andmodeling techniques provides estimated fair values for securities not activelytraded.

 

38

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•              Loans

 

The fair value of loans is estimated by discountingthe future cash flows using the current rates at which similar loans would bemade to borrowers with similar credit ratings and for the same remainingmaturities.  Due to the small amount ofnonaccrual loans at December 31, 2002, these loans do not significantly impactthe fair value of loans.

 

•              Deposits

 

The fair value of demand deposits, savings accountsand money market deposits is the amount payable on demand at the reportingdate.  The fair value of fixed-maturitycertificates of deposit is estimated by discounting the future cash flows usingthe rates currently offered for deposits of similar remaining maturities.

 

•              Commitmentsto Extend Credit and Standby Letters of Credit

 

The fair value of commitments is estimated using thefees currently charged to enter into similar agreements, taking into accountthe remaining terms of the agreements and the present creditworthiness of thecustomers.  For fixed-rate loancommitments, fair value also considers the difference between current levels ofinterest rates and the committed rates. The estimated fair value of letters of credit is based on the feescurrently charged for similar agreements. The instruments were determined to have no positive or negative marketvalue adjustments and are not listed in the following table.

 

The estimated fair value of the Company’s financialinstruments is as follows:

 

 
|                         |   | **December  31, 2002** |   |
|------------------------------|--------|------------------------|--------|
|                         |   | **Carrying  Amount**   |   | **Fair  Value** |   |
|                         |   | **(In  Thousands)**    |   |
| Financial  assets:           |   |                   |   |   |   |
| Cash and Due  From Banks     |   | $                      | 5,782  |   | $ | 5,782 |   |
| Held-to-Maturity  Securities |   | 22,470                 |   | 23,193 |   |
| Other Securities             |   | 24                     |   | 24 |   |
| Federal Funds  Sold          |   | 40,750                 |   | 40,750 |   |
| Loans, Net of  Allowance     |   | 107,660                |   | 109,971 |   |
|                         |   |                   |   |   |   |
| Financial  Liabilities:      |   |                   |   |   |   |
| Deposits                     |   | 163,775                |   | 164,090 |   |
|                              |        |                        |        |  |  |  |  |

 

39

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The fair value estimates presented herein are based onpertinent information available to management as of December 31, 2002.  Although management is not aware of anyfactors that would significantly affect the estimated fair value amounts, suchamounts have not been comprehensively revalued for purposes of the financialstatements since that date and, therefore, current estimates of fair value maydiffer significantly from the amounts presented.

 

14.           Selected Quarterly Financial Data (inthousands except per share data)

 
|                       |   | **2002**   |   | **2001**  |   |
|----------------------------|--------|------------|--------|-----------|--------|
|                       |   | **Fourth** |   | **Third** |   | **Second** |   | **First** |   | **Fourth** |   | **Third** |   | **Second** |   | **First** |   |
|                       |   |       |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Interest  Income       |   | $          | 1,967  |      | $      | 1,780 |   | $ | 1,735 |   | $ | 1,766 |   | $ | 1,916 |   | $ | 1,783 |   | $ | 1,700 |   | $ | 1,660 |   |
|                       |   |       |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for  Loan Losses |   | 46         |   | 70        |   | 40 |   | 202 |   | 109 |   | 87 |   | 38 |   | 48 |   |
|                       |   |       |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest  Income       |   | 153        |   | 254       |   | 288 |   | 211 |   | 133 |   | 173 |   | 337 |   | 210 |   |
|                       |   |       |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating  Expense         |   | 1,581      |   | 1,355     |   | 1,473 |   | 1,384 |   | 1,642 |   | 1,411 |   | 1,337 |   | 1,292 |   |
|                       |   |       |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Income                 |   | 356        |   | 391       |   | 336 |   | 186 |   | 207 |   | 310 |   | 415 |   | 313 |   |
|                       |   |       |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings per  Share        |   | $          | 1.06   |      | $      | 1.17 |   | $ | 1.01 |   | $ | .56 |   | $ | .62 |   | $ | .93 |   | $ | 1.24 |   | $ | .94 |   |

 

40

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ITEM 9.  Changesin and Disagreements with Accountants on Accounting and Financial Disclosure:

 

                Not applicable.

 

41

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PART III

 

ITEM 10.  Directorsand executive officers of the Republic Corporation.

 

The RepublicCorporation’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 DeanEisemann.

 
| **NAME AND  TITLE**   |   | **AGE** |   | **TERM OF  OFFICE** |   | **PRINCIPAL OCCUPATIONS FOR THE  LAST FIVE YEARS**                                                                                                                                                                                                                                                                                                                                   |
|-----------------------|--------|---------|--------|---------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |   |    |   |                |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| Catherine G. Eisemann |   | 76      |   | 39 Years            |   | Catherine G. Eisemann has been a Director of The  Republic Corporation for 39 years.   Mrs. Eisemann was elected President of The Republic Corporation and  began serving December 11, 1981.                                                                                                                                                                                    |
|                  |   |    |   |                |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| J.E. Eisemann, IV     |   | 55      |   | 26 Years            |   | J.E. Eisemann, IV has served as a Director on The  Republic Corporation Board for 26 years.   Mr. Eisemann has been the Vice-President and Director of the  Subsidiary Bank for approximately 25 years.   Mr. Eisemann has served as the Chairman of the Board of The Republic  Corporation and Chairman of the Board for the Subsidiary Bank for  approximately 21 years. |
|                  |   |    |   |                |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| Roger Dean Eisemann   |   | 48      |   | 20 Years            |   | Roger Dean Eisemann was elected Secretary and began  serving as a director of The Republic Corporation in July, 1982.                                                                                                                                                                                                                                                                |

 

J.E. Eisemann, IIIwas the President and Chairman of the Board of The Republic Corporation for 25years.  Mr. Eisemann passed away during1981.

 

42

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ITEM 11.           ExecutiveCompensation.

 

EXECUTIVE COMPENSATIONSUMMARY COMPENSATION TABLE

 
|                                                                                                                                                        |   | **Annual  Compensation** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|--------|
| **Name &  Principal Position**                                                                                                                          |   | **Year**                 |   | **Salary** |   | **Bonus** |   |
|                                                                                                                                                        |   |                     |   |   |   |   |   |
| J.E. Eisemann,  IV Chairman of the Board of the Company,  Vice President of the Company, Chairman of the Board & Vice President of  the Subsidiary Bank |   | 2002                     |   | $ | 85,773 | (1) | $ | 3,735 | (2) |
|                                                                                                                                                        | 2001   |                     | 83,573 | (1) | 5,438 | (2) |
|                                                                                                                                                        | 2000   |                     | 80,073 | (1) | 3,450 | (2) |
|                                                                                                                                                        |   |                     |   |   |   |   |   |
| Catherine  Eisemann President of the                                                                                                                        |   | 2002                     |   | $ | 30,000 |   | -0 | - |
| Company                                                                                                                                                     |   | 2001                     |   | 30,000 |   | -0 | - |
|                                                                                                                                                        |   | 2000                     |   | 30,000 |   | -0 | - |
|                                                                                                                                                             |        |                          |        |  |  |  |  |  |  |

 
| **Name &  Principal Position**                                                                                                                         |   | **Restricted  Stock  Awards** |   | **Stock  Options/  SARs(#)** |   | **LTIP  Payouts($)** |   | **All Other  Compensation** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|--------|------------------------------|--------|----------------------|--------|-----------------------------|--------|
|                                                                                                                                                       |   |                          |   |                         |   |                 |   |                        |   |
| J.E. Eisemann,  IV Chairman of the Board of the Company, Vice President of the Company,  Chairman of the Board & Vice President of the Subsidiary Bank |   | -0                            | -      | -0                           | -      | -0                   | -      | -0                          | -      |
|                                                                                                                                                       | -0     | -                             | -0     | -                            | -0     | -                    | -0     | -                           |
|                                                                                                                                                       | -0     | -                             | -0     | -                            | -0     | -                    | -0     | -                           |
|                                                                                                                                                       |   |                          |   |                         |   |                 |   |                        |
|                                                                                                                                                       |   |                          |   |                         |   |                 |   |                        |   |
| Catherine  Eisemann                                                                                                                                        |   | -0                            | -      | -0                           | -      | -0                   | -      | -0                          | -      |
| President of the  Company                                                                                                                                  |   | -0                            | -      | -0                           | -      | -0                   | -      | -0                          | -      |
|                                                                                                                                                       |   | -0                            | -      | -0                           | -      | -0                   | -      | -0                          | -      |

 

----

(1) Includes amounts deferred under Section 401(K) of the InternalRevenue Code.  Amounts deferred by Mr.Eisemann were $10,066 in 2000, $10,422 in 2001 and $11,205 in 2002.

 

(2) Includes amounts deferred under Section 401(K) of the InternalRevenue Code.  Amounts deferred by Mr.Eisemann were $434 in 2000, $0 in 2001 and $560 in 2002.

 

STOCK OPTIONS/SARGRANTS IN 2002-NONEAGGREGATED STOCK OPTIONS/SAR EXERCISES IN 2002 AND OPTIONS/SARVALUES AS OF DECEMBER 31 2002 - NONELONG-TERM INCENTIVE PLANS - AWARDS IN 2002 - NONECOMPENSATION OF DIRECTORSDirector fees are not paid to directors of the Company.EMPLOYMENT CONTRACTS AND TERMINATION OFEMPLOYMENT ARRANGEMENTS - NONEREPORT ON REPRICING OF OPTIONS/SARS - NONE

 

43

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ITEM 12.      Security ownership of certain beneficial owners and management.

 

(a)                Security ownershipof certain beneficial owners and management.

The following schedulereflects security ownership of persons who are (1) the beneficial owners ofmore than 5% of any class of voting securities of The Republic Corporation, (2)each of the Company’s directors, and (3) all directors and executive officersof the Company as a group.

 
| **Name of  Person**                              |   | **Title of  Class** |   | **Amount and  Nature  Beneficial  Ownership (1)** |   | **Percent  of  Class** |   |
|--------------------------------------------------|--------|---------------------|--------|---------------------------------------------------|--------|------------------------|--------|
|                                             |   |                |   |                                              |   |                   |   |
| Catherine G.  Eisemann                           |   | Common Stock        |   | 193,702                                           |   | 58.0424                |   |
| 3350 McCue, #904                                 |   |                |   |                                              |   |                   |   |
| Houston,  Texas  77056                      |   |                |   |                                              |   |                   |   |
|                                             |   |                |   |                                              |   |                   |   |
| Mr. J.E.  Eisemann IV                            |   | Common Stock        |   | 8,700                                             |   | 2.6069                 |   |
| 1103 Victoria  Square                            |   |                |   |                                              |   |                   |   |
| Trinidad,  Colorado  81082                  |   |                |   |                                              |   |                   |   |
|                                             |   |                |   |                                              |   |                   |   |
| Mr. R. Dean  Eisemann                            |   | Common Stock        |   | 6,500                                             |   | 1.9477                 |   |
| 3738 Ella Lee  Lane                              |   |                |   |                                              |   |                   |   |
| Houston,  Texas  77027                      |   |                |   |                                              |   |                   |   |
|                                             |   |                |   |                                              |   |                   |   |
| All directors  and executive officers as a group |   | Common Stock        |   | 208,902                                           | (2)    | 62.5970                |   |

 

----

(1)          Beneficial ownership inaccordance with Securities and Exchange Commission rules, which generallyattribute beneficial ownership to persons who possess sale or shared voting andfor investment power with respect to those securities.

 

(2)          Shares of The RepublicCorporation have not been pledged by the officers or directors of thecorporation.

 

(3)          All of the above nameddirectors own 100 shares each of the subsidiary bank stock as directors’qualifying shares.

 

44

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(c)                                                      Changesin control.

 

The Republic Corporation has the option ofrepurchasing its own stock, thus increasing the ownership percentages of theremaining shareholders.

 

ITEM 13.             Certainrelationships and related transactions.

 

There have been notransactions with management or other related parties that would requiredisclosure under current Securities and Exchange Commission regulations.  Additionally, no business relationships thatwould require disclosure exist.  Nodirectors were indebted to the subsidiary bank during 2002.

 

45

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PART IV

 

ITEM 14.            Exhibits,financial statement, schedules, and reports on Form 8-K  

 

(a)                                                      1.                                      Thefollowing financial statements and financial statement schedules are includedin Part II of this report:

 
| Consolidated statements of the parent and subsidiary  bank: |                                                                                            |   |
|-------------------------------------------------------------|-------------------------------------------------------------------------------------------------|--------|
|                                                        |                                                                                            |   |   |
|                                                        | Accountant’s Report                                                                        |
|                                                        |                                                                                            |   |   |
|                                                        | Balance Sheets as of December 31, 2002  and 2001                                                |
|                                                        |                                                                                            |   |   |
|                                                        | Statements of Income - Years Ended  December 31, 2002, 2001 and 2000                            |
|                                                        |                                                                                            |   |
|                                                        | Statement of Cash Flows -Years ended  December 31, 2002, 2001 and 2000                          |
|                                                        |                                                                                            |   |   |
|                                                        | Statement of Changes in  Stockholders’ Equity-years ended December 31, 2002, 2001 and 2000 |
|                                                        |                                                                                            |   |   |
|                                                        | Notes to Financial Statements                                                                   |
|                                                             |                                                                                                 |        |  |  |

 

2.                                       Allother schedules are omitted because they are not applicable, are not required,or because the required information is included in the consolidated financialstatements or notes thereto.

 

46

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3.                                       Listof Exhibits.

 

The following documents were filed as exhibits toRegistration Statement Form 10 (which was filed with the Securities andExchange Commission under The Securities Exchange Act of 1934) dated August 23,1977.

 
| **Exhibit  No.**                               |                                                             |
|------------------------------------------------|------------------------------------------------------------------|
|                                           |
| 3                                              | The Republic Corporation, Articles of Incorporation  and By-Laws |   |
|                                           |                                                             |   |
| 22 (a) Subsidiary of the Registrant.           |
|                                           |
| 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 monthsended December 31, 2002.

 

47

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SIGNATURES

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, TheRepublic Corporation has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

THE REPUBLIC CORPORATION

 
| /s/ J.E. Eisemann, IV |              | Chairman of the Board, Director, Chief Executive  Officer, Chief Financial and Accounting Officer |   |   | 3-21-03 |
|-----------------------|-------------------|---------------------------------------------------------------------------------------------------|--------|--------|---------|
|                  | J.E. Eisemann, IV |                                                                                              |   |   |    | Date |
|                       |                   |                                                                                                   |        |        |         |  |  |

 

 

Pursuant to the requirements of the Securities Exchanges Act of 1934,this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated:

 

 
| **Signature**              |              |   | **Title**                                                                                         |   |    | **Date** |
|----------------------------|-------------------|--------|---------------------------------------------------------------------------------------------------|--------|---------|----------|
|                       |              |   |                                                                                              |   |    |     |
| /s/ J.E. Eisemann, IV      |              |   | Chairman of the Board, Director, Chief Executive  Officer, Chief Financial and Accounting Officer |   |    | 3-21-03  |
|                       | J.E. Eisemann, IV |   |                                                                                              |   |    |     |
|                       |              |   |                                                                                              |   |    |     |
| /s/ Catherine G.  Eisemann |              |   | President of the Board and a Director                                                             |   |    |     |
| Catherine G. Eisemann      |              |   |                                                                                              |   | 3-21-03 |
|                            |                   |        |                                                                                                   |        |         |          |  |

 

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**CERTIFICATIONS**

 

I, J. Ed Eisemann, IV,certify that:

 

1. I have reviewed thisannual report on Form 10-K of The Republic Corporation;

 

2. Based on my knowledge,this annual report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this annual report;

 

3.Based on my knowledge, the financial statements, and otherfinancial information included in this annual report, fairly present in allmaterial respects the financial condition, results of operations and cash flowsof the registrant as of, and for, the periods presented in this annual report;

 

4. The registrant's othercertifying officers and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and have:

 

                a) designed such disclosurecontrols and procedures to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which thisannual report is being prepared;

 

                b) evaluated the effectivenessof the registrant's disclosure controls and procedures as of a date within 90days prior to the filing date of this annual report (the "EvaluationDate"); and 

 

                c) presented in this annualreport our conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

 

5. The registrant's othercertifying officers and I have disclosed, based on our most recent evaluation,to the registrant's auditors and the audit committee of registrant's board ofdirectors (or persons performing the equivalent functions):

 

                a) all significant deficienciesin the design or operation of internal controls which could adversely affectthe registrant's ability to record, process, summarize and report financialdata and have identified for the registrant's auditors any material weaknessesin internal controls; and

                

                b) any fraud, whether or notmaterial, that involves management or other employees who have a significantrole in the registrant's internal controls; and 

 

6. The registrant's othercertifying officers and I have indicated in this annual report whether therewere significant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:  | March 21, 2003 |                                                                                              | /s/ J. Ed Eisemann, IV |
|-------------|----------------|---------------------------------------------------------------------------------------------------|------------------------|
|        |           | J. Ed Eisemann, IV                                                                                |
|        |           | Chairman of the Board,  Director, Chief Executive Officer, Chief Financial and Accounting Officer |

 

 

                I, J. Ed EisemannIV, Chief Financial and Accounting Officer of The Republic Corporation (the"Registrant"), do hereby certify, pursuant to 18 U.S.C. Section 1350as adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002, withrespect to this Annual Report on Form 10-K for the fiscal year ended December31, 2002 of the Registrant (the "Report"), that to the best of myknowledge:

 

(1) The Report fully complies with the requirement of Section 13(a) or15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2) The information contained in the Report fairly presents, in allmaterial respects, the financial condition and results of the Registrant.

 

This certification is made solely for purposes of 18 U.S.C. Section1350 and not for any other purpose.

 
| /s/ J. Ed Eisemann, IV |               | Chief Financial and | March 21, 2003 |   |
|------------------------|--------------------|---------------------|----------------|--------|
| J. Ed Eisemann, IV     | Accounting Officer | Date                |           |

 

 

SUPPLEMENTAL INFORMATION

 

The Republic Corporation will send the shareholders an annual reportand proxy materials subsequent to the filing of this report.

 

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