<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
REPUBLIC FIRST BANCORP, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 6711 23-2486815
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
1608 WALNUT STREET 1608 WALNUT STREET
PHILADELPHIA, PENNSYLVANIA 19103 PHILADELPHIA, PENNSYLVANIA 19103
(215) 735-4422 (215) 735-4422
(Address of principal place of business (Address and telephone number
or intended principal place of business) of principal executive offices)
</TABLE>
ROLF A. STENSRUD, PRESIDENT
REPUBLIC FIRST BANCORP, INC.
1608 WALNUT STREET
PHILADELPHIA, PENNSYLVANIA 19103
(215) 735-4422
(Name, address and telephone number of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
EDWARD G. FITZGERALD, ESQUIRE JEFFREY P. WALDRON, ESQUIRE
CHRISTOPHER P. FLANNERY, ESQUIRE STEVENS & LEE
SPECTOR GADON & ROSEN, P.C. ONE GLENHARDIE CORPORATE CENTER
SEVEN PENN CENTER 1275 DRUMMERS LANE
1635 MARKET STREET, 7TH FLOOR WAYNE, PENNSYLVANIA 19087
PHILADELPHIA, PA 19103
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE
AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2)(3) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value................ 1,150,000 $13.375 $15,381,250 $4,661
</TABLE>
(1) Based upon the maximum number of shares of the registrant's common stock
that may be issued under this registration statement, including 150,000
shares of common stock that may be issued upon exercise of the Underwriter's
over-allotment option.
(2) Estimated solely for the purpose of determining the registration fee, and,
in accordance with Rule 457(c), based on the average of the high and low
price of the registrant's common stock reported on the Nasdaq National
Market System on October 13, 1997.
(3) The Company will incur approximately $380,000 of additional costs in
connection with the public offering for attorneys' and accountants' fees and
expenses, registration fees, printing costs and other miscellaneous items.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 15, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
1,000,000 SHARES
REPUBLIC FIRST BANCORP, INC.
[LOGO]
COMMON STOCK
------------------
Republic First Bancorp, Inc. (the "Company") hereby offers for sale (the
"Offering") 1,000,000 shares of its common stock, par value $.01 per share (the
"Common Stock"). The Common Stock is traded on the Nasdaq National Market System
("Nasdaq/NMS") under the symbol "FRBK." On October 13, 1997, the last reported
sale price of the Common Stock on the Nasdaq NMS was $13.375 per share. See
"Market for Common Stock and Related Shareholder Matters--Market Information".
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER "RISK FACTORS" BEGINNING ON
PAGE 9.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $380,000.
(3) The Company has granted the Underwriter a 30-day option to purchase up to an
additional 150,000 shares of Common Stock, on the same terms and conditions
set forth above, to cover over-allotments. If all of such additional shares
are purchased, the total Price to Public, Underwriting Discount and Proceeds
to Company will be $ , $ and $ , respectively. See
"Underwriting."
------------------------------
The shares of Common Stock are offered by the Underwriter, subject to prior
sale, when, as and if issued to and accepted by it. The Underwriter reserves the
right to withdraw, cancel or modify such offer and to reject orders in whole or
in part. It is expected that the delivery of the certificates for such shares of
Common Stock will be made on or about , 1997 at the office of Janney
Montgomery Scott Inc.
[LOGO]
The date of this Prospectus is , 1997.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SEE "UNDERWRITING."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, accordingly, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed with the Commission are available for inspection and copying
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and at Seven World Trade Center,
Suite 1300, New York, New York 10048. Copies of such documents may also be
obtained from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, copies of such documents may be obtained through the Commission's
Internet address at http://www.sec.gov. The Common Stock is authorized for
quotation on the Nasdaq/NMS and, accordingly, such materials and other
information can also be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. The
Company has filed with the Commission under the Securities Act of 1933, as
amended (including the rules and regulations thereunder, the "Securities Act"),
a Registration Statement on Form SB-2 (No. 333- ) (including all amendments
and exhibits thereto, the "Registration Statement") with respect to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. The
Registration Statement, including any amendments and exhibits thereto, is
available for inspection and copying as set forth above. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
The Company will furnish to its shareholders annual reports containing
audited financial statements and will make available copies of quarterly reports
for the first three quarters of each fiscal year containing unaudited interim
financial information.
2
<PAGE>
[GRAPHIC IMAGE CONSISTS OF A MAP OF PHILADELPHIA COUNTY AND MONTGOMERY COUNTY,
PENNSYLVANIA, WITH POINTS INDICATING LOCATIONS OF 3 BANK BRANCHES IN
PHILADELPHIA COUNTY AND ONE EACH IN ABINGTON, ARDMORE, BALA CYNWYD AND EAST
NORRITON, MONTGOMERY COUNTY]
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS. THIS SUMMARY IS PROVIDED FOR CONVENIENCE; IT SHOULD NOT BE
CONSIDERED COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. CROSS REFERENCES IN
THIS SUMMARY ARE TO CAPTIONS APPEARING IN THE BODY OF THIS PROSPECTUS. EXCEPT AS
OTHERWISE NOTED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THE
UNDERWRITER'S OVER-ALLOTMENT OPTION IS NOT EXERCISED.
The Company is a Pennsylvania corporation headquartered in Philadelphia,
Pennsylvania and is a registered bank holding company for First Republic Bank
(the "Bank"), a Pennsylvania-chartered commercial bank. The Bank offers a full
range of commercial and retail banking services to professionals and small- to
medium-sized businesses that management believes are not being adequately served
by larger competitors in the Greater Philadelphia area. The Bank operates six
branches, including three located in Center City Philadelphia, one each in
Ardmore and East Norriton, Montgomery County and one located on City Line
Avenue, Philadelphia County. A seventh branch is scheduled to open in Abington,
Montgomery County in November 1997. In addition, the Company is engaged in joint
venture with Jackson Hewitt, Inc. ("Jackson Hewitt"), one of the nation's
largest tax preparation services, to provide tax refund products to consumer
taxpayers for whom Jackson Hewitt prepares and electronically files federal
income tax returns (the "Tax Refund Program"). The Tax Refund Program enables
the Bank to provide accelerated check refunds ("ACRs") and refund anticipation
loans ("RALs") (collectively, "Tax Refund Products").
In June 1996, Republic Bancorporation ("Republic"), parent company of
Republic Bank, merged with and into ExecuFirst Bancorp, Inc. ("ExecuFirst"),
parent company of First Executive Bank (the "Merger"). The Company and the Bank
were the surviving entities of the Merger. Republic Bank and ExecuFirst both
commenced operations in 1988. The Bank is a member of the Federal Reserve System
and the Bank's deposits are insured by the Bank Insurance Fund ("BIF") of the
Federal Deposit Insurance Corporation ("FDIC") to the fullest extent provided by
law.
As of September 30, 1997, the Company had total deposits of $247.9 million,
loans outstanding of $184.4 million, total assets of $303.2 million and total
shareholders' equity of $21.5 million. The Company's objective is for the Bank
to become the primary alternative to the large banks that dominate the Greater
Philadelphia market. The Company's management team has developed the following
key strategic elements to achieve this objective:
EXPANDING THE BRANCH SYSTEM. Management plans to develop a cohesive
network of branches that will be within a ten minute drive of most of the
major commercial centers in its marketplace. Management intends to build
this network by opening three branches each year through 1999 that are
strategically located in commercial corridors of suburban Philadelphia. The
Bank intends to fund this expansion through revenue generated from the Tax
Refund Program, among other things.
PROVIDING ATTENTIVE AND PERSONALIZED SERVICE. The Company believes that
a very attractive niche exists serving small-to medium-sized businesses and
professionals that are not adequately served by larger competitors. The
Company believes this segment of the market responds very positively to the
attentive and highly personalized service provided by the Bank. The Company
offers a community banking alternative and tailors its product offerings to
fill the void created as larger competitors increase the price of products
and services and de-emphasize such products and services for small-to
medium-sized businesses.
MAINTAINING SUPERIOR OPERATING RESULTS. The Company's goal is to
maintain a return on average equity in excess of 15% while maintaining a 15%
asset growth rate. The Company expects to fund significant expansion and
simultaneously meet its operating goals, in part, because of the income
earned through the Tax Refund Program. To accomplish these goals, the Bank
plans to maintain sufficient margins on incremental growth through efficient
utilization and leveraging of capital.
4
<PAGE>
ATTRACTING AND RETAINING HIGHLY EXPERIENCED PERSONNEL. The Bank's
executive officers and other personnel have substantial employment
experience with larger banks in the region. When opening new branches, as in
the case of the Abington office, the Bank screens and trains its employees
to ensure the staff has the necessary ability and contacts in the community
to foster rapid growth. The Company seeks to instill a sales and service
oriented culture in its personnel in order to build customer relationships
and maximize cross-selling opportunities. The Company offers meaningful
sales-based incentives to all of its customer contact employees.
CAPITALIZING ON MARKET DYNAMICS. In the past two years, over 45% of the
deposits in the Bank's primary market area have been acquired by large and
super-regional bank holding companies. The Company believes the ensuring
cultural changes in these banking institutions have resulted in a change in
product offerings and the degree of personal attention provided. The Company
has sought to capitalize on these changes by offering a community banking
alternative. As a result, the Company believes it has a tremendous
opportunity to increase its marketshare.
DEVELOPING SPECIALIZED PRODUCTS. The Company has built the Tax Refund
Program into a significant source of income. Management will continue to
explore and develop other opportunities to provide specialized banking
products and services that command higher profit margins.
Financial highlights of the Company and the Bank include the following:
PROFITABILITY. The Company's banking operations are profitable and
significant income is generated by the Tax Refund Program. Net income has
increased $627,000, or 26.4%, to $3.0 million for the nine months ended
September 30, 1997 from $2.4 million for the nine months ended September 30,
1996.
RETURN ON AVERAGE SHAREHOLDERS' EQUITY. The Company has achieved a
return on average shareholders' equity which it believes compares favorably
with its peers. The return on average shareholders' equity for the nine
months ended September 30, 1997 was 19.73% and was 17.85% for the year ended
December 31, 1996.
LOAN QUALITY. The Company maintains a strong credit culture and
emphasizes conservative underwriting standards. The Company's ratio of
non-performing loans to total loans declined to 0.88% at September 30, 1997
from 1.12% at December 31, 1996 while the allowance for loan losses as a
percentage of non-performing loans increased to 117.24% at September 30,
1997 from 109.02% at December 31, 1996.
The principal executive offices of the Company and the Bank are located at
1608 Walnut Street, Philadelphia, Pennsylvania 19103 and its telephone number is
(215) 735-4422.
5
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Company......... 1,000,000 shares
Common Stock outstanding before the
Offering.................................... 3,446,309 shares
Common Stock outstanding after the
Offering.................................... 4,446,309 shares
Use of Proceeds............................. The Company intends to contribute the majority
of the net proceeds from the Offering to the
Bank. The Bank expects to use the net proceeds
to fund branch expansion and to support growth
in its loan and securities portfolios. The
Company intends to retain a portion of the
proceeds for general corporate purposes,
possible future acquisitions and capital
contributions to existing and possible future
subsidiaries of the Company. See "Use of
Proceeds."
Nasdaq/NMS symbol........................... FRBK
</TABLE>
6
<PAGE>
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The following is selected consolidated financial data for the Company at and
for the nine months ended September 30, 1997 and 1996 and for each of the three
years in the period ended December 31, 1996. The following financial data is
qualified by reference to the more detailed information contained in the
consolidated financial statements and notes thereto included elsewhere in this
Prospectus. See the Consolidated Financial Statements. The results of operations
for the nine months ended September 30, 1997 and 1996 are not audited but, in
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of operations of
such periods have been included. The results for the nine months ended September
30, 1997 are not necessarily indicative of the results that may be expected for
the full year or for any other interim period. The data for each of the three
years ended December 31, 1996 is derived from the Company's audited,
consolidated financial statements for such periods.
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS AT OR FOR THE
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total interest income................................. $ 16,808 $ 11,902 $ 16,903 $ 9,902 $ 7,241
Total interest expense................................ 9,059 6,860 9,715 5,891 3,944
--------- --------- --------- --------- ---------
Interest income....................................... 7,749 5,042 7,188 4,011 3,297
Provision for loan losses............................. 140 55 155 223 323
Non-interest income................................... 2,626 2,314 2,614 155 1,096
Non-interest expenses................................. 5,894 3,735 5,581 3,049 2,833
Federal income taxes.................................. 1,337 1,189 1,353 291 430
--------- --------- --------- --------- ---------
Net income(1)......................................... $ 3,004 $ 2,377 $ 2,713 $ 603 $ 807
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
PER SHARE DATA:
Primary Earnings per share(1)(2)(3)................... $ 0.79 $ 0.85 $ 0.92 $ 0.31 $ 0.42
Fully-Diluted Earnings per share(1)(2)(3)............. 0.78 0.83 0.88 0.31 0.42
Book value per share(3)(4)............................ 6.23 5.27 5.38 4.48 3.74
BALANCE SHEET DATA:
Total assets.......................................... $ 303,166 $ 258,163 $ 273,795 $ 131,063 $ 106,203
Total loans, net...................................... 184,403 158,775 170,002 85,183 71,433
Total securities...................................... 101,114 78,062 80,954 38,352 28,209
Total deposits........................................ 247,904 231,916 250,059 116,424 87,966
Total borrowings...................................... 27,346 3,400 0 3,400 3,400
Total shareholders' equity............................ 21,481 18,025 18,371 8,622 8,000
PERFORMANCE RATIOS:
Return on average assets(5)........................... 1.32% 1.47% 1.22% 0.50% 0.75%
Return on average shareholders' equity(5)............. 19.73 22.30 17.85 7.29 10.56
Net interest margin(5)(6)............................. 3.82 3.41 3.28 3.45 3.18
Total other expenses as a percentage of average
assets.............................................. 2.59 2.31 2.51 2.54 2.65
ASSET QUALITY RATIOS:
Allowance for loan losses as a percentage of loans,
net(11)............................................. 1.04% 1.26% 1.22% 0.79% 0.90%
Allowance for loan losses as a percentage of
non-performing loans(7)............................. 117.24% 84.13% 109.02% 126.63% 60.52%
Non-performing loans as a percentage of total loans,
net(7).............................................. 0.88 1.50 1.12 0.63 1.49
Non-performing assets as a percentage of total
assets(7)........................................... 1.18 1.07 0.81 0.63 1.01
Net charge-offs as a percentage of average loans,
net................................................. 0.17 0.21 0.20 0.25 0.19
LIQUIDITY AND CAPITAL RATIOS:
Equity to assets(8)................................... 6.68% 6.59% 6.84% 6.87% 7.15%
Tier 1 capital to risk weighted assets(9)............. 10.97 10.15 10.08 8.40 9.10
Leverage ratio(10).................................... 7.25 6.68 6.65 6.58 7.55
Total capital to risk-weighted assets(9).............. 11.97 12.96 11.25 12.38 13.70
</TABLE>
7
<PAGE>
- ------------------------------
(1) Because of the Tax Refund Program, the Company recognizes a disproportionate
amount of its net income in the first quarter of each year.
(2) Based upon average shares and common share equivalents outstanding.
(3) Adjusted to reflect a 20% stock dividend paid on April 15, 1997.
(4) Based upon total shares issued and outstanding at the end of each respective
period.
(5) Annualized ratios at September 30, 1997 and 1996. Because of the Tax Refund
Program, the Company recognizes a disproportionate amount of its net income
in the first quarter of each year. Accordingly, performance ratios for a
full year generally will be less than annualized ratios as of any interim
date.
(6) Represents net interest income as a percentage of average total
interest-earning assets, calculated on a tax-equivalent basis.
(7) Non-performing loans are comprised of (i) loans which are on a nonaccrual
basis, (ii) accruing loans that are 90 days or more past due and (iii)
restructured loans. Non-performing assets are comprised of non-performing
loans and foreclosed real estate (assets acquired in foreclosure).
(8) Based upon average daily balances for the respective periods.
(9) Based on FRB risk-based capital guidelines, as applicable to the Company.
The Bank is subject to similar requirements imposed by the FRB.
(10) The leverage ratio is defined as the ratio of Tier 1 capital to average
total assets.
(11) Net of unearned income.
8
<PAGE>
RISK FACTORS
WHEN USED IN THIS PROSPECTUS, THE WORDS OR PHRASES "WILL LIKELY RESULT,"
"ARE EXPECTED TO," "WILL CONTINUE," "IS ANTICIPATED," "ESTIMATE," "PROJECT,"
"BELIEVE" OR SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. THE COMPANY WISHES TO CAUTION READERS THAT ALL FORWARD-LOOKING
STATEMENTS ARE NECESSARILY SPECULATIVE AND NOT TO PLACE UNDUE RELIANCE ON ANY
SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE MADE, AND TO
ADVISE READERS THAT VARIOUS RISKS AND UNCERTAINTIES, INCLUDING REGIONAL AND
NATIONAL ECONOMIC CONDITIONS, CHANGES IN MARKET INTEREST RATES, CREDIT RISKS OF
LENDING ACTIVITIES, AND COMPETITIVE AND REGULATORY FACTORS, COULD AFFECT THE
COMPANY'S FINANCIAL PERFORMANCE AND COULD CAUSE THE COMPANY'S ACTUAL RESULTS FOR
FUTURE PERIODS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED OR PROJECTED. THE
RISKS HIGHLIGHTED HEREIN SHOULD NOT BE ASSUMED TO BE THE ONLY RISKS THAT COULD
AFFECT FUTURE PERFORMANCE OF THE COMPANY.
ABILITY OF THE COMPANY TO IMPLEMENT ITS GROWTH STRATEGY AND MANAGE GROWTH
The Company's goal is to open three new branches per year in 1998 and 1999.
In the last year the Company has opened three new branches in areas with
significant concentrations of commercial activity as part of its growth
strategy. The Company believes it has in place the management, systems,
including data processing systems, internal controls and strong credit culture
to support continued growth and expansion. However, the Company's continued
growth and expansion depends on the ability of its officers and key employees to
manage such growth effectively, to attract and retain skilled employees and to
maintain adequate internal controls and a strong credit culture. Accordingly,
there can be no assurance that the Company will be successful in achieving its
expansion goals and the failure to do so could adversely affect the Company's
financial condition and results of operations.
One result of adding new branches is an increase in non-interest expense.
These costs are associated with branch construction and renovation, increased
staffing and equipment necessary to operate new branches. Since branch expansion
is a key part of the Company's growth plans, purchasers of Common Stock should
expect non-interest expense to increase.
RELIANCE ON JACKSON HEWITT RELATIONSHIP
The Bank receives substantial income each year from the Tax Refund Program
under which the Bank makes Tax Refund Products available to customers of Jackson
Hewitt. The agreement with Jackson Hewitt was recently extended for two
additional years. There is no assurance that this agreement will be further
extended. Failure to continue this program will have a material adverse effect
on the Company's income and profitability. Moreover, revenues from the Tax
Refund Program have permitted the Company to expand aggressively while
maintaining profitable operations that compare favorably with its peers. If the
Jackson Hewitt agreement were not renewed, the Company would be unable to
maintain its existing expansion strategy while simultaneously achieving current
levels of return on average shareholders' equity.
ADVERSE IMPACT OF INTERNAL REVENUE SERVICE POLICIES
The Bank receives substantial income each year from the Tax Refund Program.
From time to time, the United States Department of the Treasury and the Internal
Revenue Service (the "IRS") initiate policy and rule changes related to the
methods of providing refunds to taxpayers. These changes and initiatives, if
any, could significantly impact the demand for these Tax Refund Products. See
"Business--Products and Services--Tax Refund Products."
LIMITED PUBLIC MARKET FOR COMMON STOCK
The Common Stock is traded on the Nasdaq/NMS. Trading volume has averaged
12,078 shares per day for the nine months ended September 30, 1997. Accordingly,
a regular and active market has not yet developed. Upon completion of the
Offering, the number of outstanding shares of Common Stock will
9
<PAGE>
increase by at least one million shares. However, the Company can give no
assurance that an active market will develop, or such a market, if established,
can be sustained. In addition, the price of the Common Stock may remain
susceptible to short-term volatility caused by large trades. See "Market For
Common Stock and Related Shareholder Matters."
COMPETITION
The Bank faces significant competition from many other banks, savings
institutions and other financial institutions that have branch offices or
otherwise operate in the Bank's market area, as well as many other companies now
offering a variety of financial services. Many of these competitors have
substantially greater financial resources than the Bank including a larger
capital base that allows them to attract customers seeking larger loans than the
Bank is able to make. The market for Tax Refund Products is relatively new and
the Company expects the market for Tax Refund Products to become more
competitive. Such competition may adversely affect the Bank's market share and
profit margins for Tax Refund Products. See "Business--Competition."
ECONOMIC CONDITIONS AND RELATED UNCERTAINTIES
Commercial banking is affected, directly and indirectly, by local, domestic
and international economic and political conditions, and by government monetary
and fiscal policies. Conditions such as inflation, recession, unemployment,
volatile interest rates, tight money supply, scarce natural resources, real
estate values, international conflicts and other factors beyond the control of
the Company and the Bank may adversely affect the potential profitability of the
Company and the Bank. Management does not expect any one particular factor to
affect the Bank's results of operations. However, a continued downtrend in
several areas, such as real estate, construction and consumer spending, could
have an adverse impact on the Bank's ability to maintain or increase
profitability.
FEDERAL AND STATE GOVERNMENT REGULATION
The operations of the Company and the Bank are heavily regulated and will be
affected by present and future legislation and by the policies established from
time to time by various federal and state regulatory authorities. In particular,
the monetary policies of the FRB have had a significant effect on the operating
results of banks in the past, and are expected to continue to do so in the
future. See "Business-- Supervision and Regulation."
RELIANCE ON EXISTING MANAGEMENT
The operations of the Company to date have been largely dependent on
existing management. The loss to the Company of one or more of its existing
executive officers could have a material adverse effect on its business and
results of operations. The Company has entered into employment agreements with
the executive officers of the Company and the Bank. See "Management--Executive
Officers," "--Employment Agreements."
10
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of Common Stock offered hereby are estimated
to be $12,192,500 million after deduction of the underwriting discount and
estimated expenses ($14,078,375 million if the Underwriter's over-allotment
option is exercised in full). The Company intends to contribute the majority of
the net proceeds to the Bank. The Bank expects the proceeds to be used to fund
branch expansion and support growth in the loan and securities portfolio. To the
extent proceeds are allocated to the Company, the Company intends to retain a
portion of the proceeds for general corporate purposes including, but not
limited to, future acquisitions and capital contributions to existing and future
subsidiaries of the Company. The Company presently has no agreements regarding
future acquisitions. The precise amounts and timing of the application of cash
proceeds will depend, among other things, upon the funding requirements of the
Bank and the availability of other funds. Pending application, the Company
expects to invest the net proceeds in short-term government or investment grade
obligations.
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
MARKET INFORMATION
Shares of the Common Stock are traded in the over-the-counter market and are
quoted on the Nasdaq/NMS under the symbol "FRBK." The Common Stock began trading
on Nasdaq/NMS on December 4, 1996. Prior to that date, the Common Stock was
quoted on the Nasdaq SmallCap Market. The table below presents the range of high
and low trade prices reported for the Common Stock on Nasdaq/NMS or on the
Nasdaq SmallCap Market, as the case may be, for the periods indicated. Market
quotations reflect inter-dealer prices, without retail mark-up, markdown, or
commission, and may not necessarily reflect actual transactions. All price
information in the following table has been adjusted retroactively to reflect a
20% stock dividend paid on April 15, 1997. As of September 30, 1997, there were
297 holders of record of the Common Stock. On October 13, 1997, the closing
price of a share of Common Stock on the Nasdaq/NMS was $13.375. For periods
prior to the Merger, the prices disclosed in the table are those of ExecuFirst.
<TABLE>
<CAPTION>
YEAR QUARTER HIGH LOW
- --------- ----------- --------- ---------
<C> <S> <C> <C>
1997 4th(1) $ 13.75 $ 12.31
3rd 11.75 10.63
2nd 12.00 8.50
1st 10.25 7.80
1996 4th 8.90 6.25
3rd 6.98 4.66
2nd 6.15 4.69
1st 5.42 3.75
1995 4th 5.41 3.54
3rd 4.58 2.92
2nd 3.54 2.92
1st 3.23 2.50
</TABLE>
- ------------------------
(1) For the partial quarter until October 13, 1997.
11
<PAGE>
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock. At the
present time, the Company does not foresee paying cash dividends to shareholders
and intends to retain all earnings to fund the growth of the Company and the
Bank. The Company paid a 20% stock dividend on April 15, 1997. The payment of
dividends in the future, if any, will depend upon earnings, capital levels, cash
requirements, the financial condition of the Company and the Bank, applicable
government regulations and policies and other factors deemed relevant by the
Company's Board of Directors, including the amount of cash dividends payable to
the Company by the Bank. The principal source of income and cash flow for the
Company, including cash flow to pay cash dividends on the Common Stock, is
dividends from the Bank. Various federal and state laws, regulations and
policies limit the ability of the Bank to pay cash dividends to the Company. For
certain limitations on the Bank's ability to pay cash dividends to the Company.
See "Business--Supervision and Regulation."
12
<PAGE>
CAPITALIZATION
The following tables present the consolidated capitalization and certain
capital ratios of the Company at September 30, 1997 and as adjusted as of such
date to give effect to the issuance and sale of the shares of Common Stock
offered hereby (after giving effect to the estimated underwriting discount, the
payment of estimated issuance expenses and assuming no exercise of the
Underwriter's over-allotment option) at an assumed public offering price of
$13.375 per share. This table should be read in conjunction with the historical
consolidated financial statements of the Company and the related notes thereto
set forth elsewhere herein.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
------------------------
<S> <C> <C>
HISTORICAL AS ADJUSTED
----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Long-term borrowings..................................................................... $ 5,600 $ 5,600
----------- -----------
Shareholders' equity:
Common Stock, par value $.01 per share; 20,000,000 shares authorized, 3,446,309 shares
issued and outstanding on September 30, 1997; 4,446,309 shares as adjusted........... 28 38
Additional paid-in capital............................................................. 13,799 25,982
Retained earnings (less unrealized depreciation on securities available for sale)...... 7,654 7,654
----------- -----------
Total shareholders' equity............................................................... $ 21,481 $ 33,674
----------- -----------
Total long-term debt and shareholders' equity............................................ $ 27,081 $ 39,274
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
CAPITAL RATIOS
-------------------------------------------------------
<S> <C> <C> <C>
MINIMUM
ACTUAL AT REGULATORY
SEPTEMBER 30, 1997 AS ADJUSTED(1) REQUIREMENT(2)
------------------- --------------- -----------------
Capital Ratios:
Tier 1 capital to risk-weighted assets...................... 10.97% 16.59%(3) 4.00%(3)
Total capital to risk-weighted assets....................... 11.97 17.55(3) 8.00(3)
Leverage ratio(4)(5)........................................ 7.25 10.96 5.00
</TABLE>
- ------------------------
(1) Assumes that the Company's total assets will increase by the amount of the
estimated net proceeds from the issuance and sale of the Common Stock
offered hereby.
(2) Based on the risk-based capital guidelines of the FRB, a bank holding
company, such as the Company, is required to maintain a Tier 1 capital to
risk-weighted assets ratio of 4.00% and a total capital to risk-weighted
assets ratio of 8.00%. The Bank is subject to similar capital requirements
also adopted by the FRB. At September 30, 1997, the Company and the Bank
each exceeded their respective regulatory requirements. See
"Business--Supervision and Regulation."
(3) Assumes a risk-weighting factor of 64% (the average risk-weighting factor
for the Company's total assets at September 30, 1997) for the net proceeds
from the issuance and sale of the Common Stock offered hereby. See
"Business--Supervision and Regulation" for a discussion of risk-based
capital guidelines and the FRB's minimum leverage ratio requirement.
(4) The leverage ratio is defined as the ratio of Tier 1 capital to average
total assets.
(5) Based on the FRB's guidelines, a bank holding company, such as the Company,
generally is required to maintain a leverage ratio of 3% plus an additional
amount of at least 100 to 200 basis points.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On June 7, 1996 Republic, parent company of Republic Bank, merged with and
into ExecuFirst, parent company of First Executive Bank. In the Merger,
ExecuFirst issued 1,604,411 shares (56% of the combined total) of its common
stock to Republic's shareholders. Effective upon the Merger, ExecuFirst changed
its name to First Republic Bancorp, Inc. The Company subsequently changed its
name to Republic First Bancorp, Inc. Upon completion of the Merger, Republic's
shareholders owned a majority of the outstanding shares of the consolidated
company's stock. As a result, the transaction was accounted for as a reverse
acquisition of ExecuFirst by Republic for accounting and financial reporting
purposes. The operations of the ExecuFirst have been included in the Company's
financial statements since the date of the Merger. Therefore, the Consolidated
Financial Statements for the periods prior to 1996 are those of Republic only,
and may not be comparable to the Consolidated Financial Statements for 1996 and
1997. Historical shareholders' equity of Republic prior to the Merger has been
retroactively restated for the equivalent number of shares received in the
Merger after giving effect to the differences in par value of the respective
stock of each company.
Republic Bank and First Executive Bank each opened in 1988, with similar
marketing strategies. At the signing of the merger agreement, each had assets of
approximately $130 million. Republic Bank had two offices in Center City
Philadelphia and an office in Ardmore, Montgomery County and First Executive
Bank had two offices in Center City Philadelphia. After the Merger, the Bank
initiated a more aggressive branch expansion and marketing program targeting
customers of larger financial institutions that were recently acquired. The Bank
opened branches on City Line Avenue, Philadelphia and in East Norriton,
Montgomery County, Pennsylvania in the first half of 1997. Additionally, a
seventh branch office will be opened in Abington, Montgomery County,
Pennsylvania in November 1997. The Bank has formed a planning committee to
evaluate prospective locations for new branches which meet the committee's
criteria. The planning committee currently has 15 sites under review.
Future growth plans include the opening of three new branch offices each
year in 1998 and 1999. Management's goal in establishing these new branches is
to achieve deposits at each branch of at least $35 million in three years or
less. The Company's net income historically has been affected by new branch
openings because the Company incurs incremental non-interest expense when
opening a new branch office. Because the Company is substantially larger in 1997
than it was when it previously opened branches in 1992 and 1995, management
expects that the incremental non-interest expense resulting from such openings
as a percentage of net income will be substantially less in 1997 and future
years than it was in the past.
The Company's Tax Refund Program is a significant component of the Company's
net income and provides capital to support the Bank's rapid branch expansion.
The Tax Refund Program generated $2.2 million and $2.1 million in revenue during
1997 and 1996, respectively. The Tax Refund Program earnings are realized
primarily in the first quarter of the year. These pretax earnings constituted
70% and 75% of the Company's first quarter 1997 and 1996 pretax earnings,
respectively, and approximately 45% of the Company's pretax earnings for the
year ended December 31, 1996. Management has been encouraged by the success of
the Tax Refund Program and looks forward to continuing participation in the
future. The Company recently signed a two-year extension (with automatic
renewals) of the Tax Refund Program agreement with its partner, Jackson Hewitt,
ensuring the Company's participation through the 1999 tax season. See "Risk
Factors--Reliance on Jackson Hewitt Relationship."
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements, including the related notes, included
elsewhere herein.
14
<PAGE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
OVERVIEW
The Company's net income increased $627,000, or 26.4%, to $3.0 million for
the nine months ended September 30, 1997, from $2.4 million for the nine months
ended September 30, 1996. The earnings increased primarily due to an increase in
net interest income. Although net income for the comparative periods increased,
primary and fully-diluted earnings per share for the nine months ended September
30, 1997 were $0.79 and $0.78 compared to $0.85 and $0.83, respectively, for the
nine months ended September 30, 1996, due to the Merger which resulted in a
materially greater number of average shares outstanding for the nine months
ended September 30, 1997.
ANALYSIS OF NET INTEREST INCOME
Historically, the Company's earnings have depended primarily upon the Bank's
net interest income, which is the difference between interest earned on
interest-earning assets and interest paid on interest-bearing liabilities. Net
interest income is affected by changes in the mix of the volume and rates of
interest-earning assets and interest-bearing liabilities. The following table
provides an analysis of net interest income on an annualized tax-equivalent
basis, setting forth for the periods (i) average assets, liabilities, and
shareholders' equity, (ii) interest income earned on interest-earnings assets
and interest expense paid on interest-bearing liabilities, (iii) average yields
earned on interest-earning assets and average rates paid on interest-bearing
liabilities, and (iv) the Bank's net interest margin (net interest income as a
percentage of average total interest-earning assets). All averages are computed
based on daily balances. Nonaccrual loans are included in average loans
receivable.
15
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------
1997 1996
------------------------------------ ------------------------------------
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE(1) RATE(2) BALANCE EXPENSE(1) RATE(2)
---------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest Earning Assets:
Federal funds sold...................... $ 7,514 $ 300 5.34% $ 31,741 $ 1,195 5.03%
Securities.............................. 84,048 4,192 6.65 53,471 2,462 6.14
Loans receivable........................ 180,019 12,316 9.15 112,735 8,245 9.78
---------- ----------- ----- ---------- ----------- -----
Total interest-earning assets........... 271,581 16,808 8.28 197,947 11,902 8.04
---------- ----------- ----- ---------- ----------- -----
Other assets.............................. 32,318 17,799
---------- ----------
Total assets.............................. $ 303,899 $ 215,746
---------- ----------
---------- ----------
Interest-Bearing Liabilities:
Demand deposits, non-interest bearing... $ 52,502 $ 0 N/A $ 32,104 $ 0 N/A
Demand deposits, interest-bearing....... 8,525 159 2.49% 4,327 82 2.53%
Money market and savings deposits....... 28,761 692 3.21 15,961 467 3.90
Time deposits........................... 173,690 7,587 5.84 138,437 6,101 5.89
---------- ----------- ----- ---------- ----------- -----
Total deposits.......................... 263,478 8,438 4.28 190,829 6,650 5.60
Total interest-bearing deposits......... 210,976 8,438 5.35 158,725 6,650 5.60
---------- ----------- ----- ---------- ----------- -----
Other borrowed funds.................... 13,665 621 6.08 3,400 210 8.26
---------- ----------- ----- ---------- ----------- -----
Total interest-bearing liabilities...... 224,641 9,059 5.39 162,125 6,860 5.66
---------- ----------- ----- ---------- ----------- -----
Other liabilities......................... 6,459 7,302
Shareholders' equity.................... 20,297 14,215
---------- ----------
Total liabilities and shareholders'
equity.................................. $ 303,899 $ 215,746
---------- ----------
---------- ----------
Net interest income..................... $ 7,749 $ 5,042
----------- -----------
----------- -----------
Net interest spread..................... 3.90% 3.32%
----- -----
----- -----
Net interest margin(3).................. 3.82% 3.41%
----- -----
----- -----
</TABLE>
- ------------------------------
(1) Includes loan fee income.
(2) Yields on investments are calculated based on amortized costs; all yields
are annualized.
(3) Represents the difference between interest earned and interest paid, divided
by average total interest earning assets.
RATE/VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
Net interest income may also be analyzed by segregating the volume and rate
components of interest income and interest expense. The following table sets
forth an analysis of volume and rate changes in net interest income for the
periods indicated. For purposes of this table, changes in interest income and
16
<PAGE>
interest expense are allocated to volume and rate categories based upon the
respective percentage changes in average balances and average rates.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------
<S> <C> <C> <C>
1997 VS. 1996
-----------------------------------
<CAPTION>
CHANGE DUE TO
-----------------------------------
AVERAGE AVERAGE INCREASE
VOLUME RATE (DECREASE)
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest earned on:
Federal funds sold............................................................ $ (984) $ 89 $ (895)
Securities.................................................................... 1,448 282 1,730
Loans receivable.............................................................. 4,800 (729) 4,071
--------- ----- -----------
Total interest income........................................................... $ 5,264 $ (358) $ 4,906
--------- ----- -----------
Interest paid on:
Demand deposits, money market and savings deposits............................ 426 (124) 302
Time deposits................................................................. 1,557 (71) 1,486
Other borrowed funds.......................................................... 501 (90) 411
--------- ----- -----------
Total interest expense.......................................................... 2,484 (285) 2,199
--------- ----- -----------
Net interest income........................................................... $ 2,780 $ (73) $ 2,707
--------- ----- -----------
--------- ----- -----------
</TABLE>
The Company's net interest margin increased 41 basis points to 3.82% for the
nine months ended September 30, 1997 from 3.41% for the nine months ended
September 30, 1996. This increase was primarily due to an increase in the
average volume of interest-earnings assets. The average yield on
interest-earnings assets increased 24 basis points to 8.28% for the nine months
ended September 30, 1997 from 8.04% for the nine months ended September 30,
1996. The average rate on interest-bearing liabilities decreased by 27 basis
points to 5.39% for the nine months ended September 30, 1997 from 5.66% for the
nine months ended September 30, 1996.
The Company's net interest income increased $2.7 million, or 53.7%, to $7.7
million for the nine months ended September 30, 1997 from $5.0 million for the
nine months ended September 30, 1996. The increase in net interest income was
primarily due to an increase in average interest-earnings assets due, in part,
to the Merger and also as a result of increased business development. The
Company's total interest income increased $4.9 million, or 41.2%, to $16.8
million for the nine months ended September 30, 1997 from $11.9 million for the
nine months ended September 30, 1996. Interest and fees on loans increased $4.1
million, or 49.4%, to $12.3 million for the nine months ended September 30, 1997
from $8.2 million for the nine months ended September 30, 1996, largely as a
result of an increase in average loan balances of $67.3 million, or 59.7%, to
$180.0 million for the nine months ended September 30, 1997 from $112.7 million
for the nine months ended September 30, 1996. The yield on the loan portfolio
declined 63 basis points to 9.15% for the nine months ended September 30, 1997
from 9.78% for the nine months ended September 30, 1996. This decrease was due
primarily to the change in the composition of the loan portfolio and a higher
level of non-accrual loans, both as a result of the Merger, as well as more
competitive pricing for commercial loan products. Also contributing to the
increase in total interest income was an increase in interest and dividend
income on securities of $1.7 million, or 70.3%, to $4.2 million for the nine
months ended September 30, 1997 from $2.5 million for the nine months ended
September 30, 1996. This increase in investment income was the result of a
combination of an increase in the average balance of securities owned of $30.5
million, or 57.0% to $84.0 million for the nine months ended September 30, 1997
from $53.5 million for the nine months ended September 30, 1996, and an increase
in yield on the average balance in securities held, to 6.65% for the nine months
ended September 30, 1997 from 6.14% for the nine months ended September 30,
1996.
17
<PAGE>
The increase in the average balance of securities is the result of leveraged
funding programs employed by the Company that use Federal Home Loan Bank
("FHLB") advances to fund securities purchases. The purpose of these programs is
to target growth in net interest income while managing liquidity, credit, market
and interest rate risk. From time to time, a specific leveraged funding program
may attempt to achieve current earnings benefits by funding security portfolio
increases partially with short-term FHLB advances with the expectation that
future growth in deposits will replace the FHLB advances at maturity.
The increase in average yield on interest-earning assets was largely the
result of the Company's strategy to reduce its investment in overnight funds,
better utilize its borrowing capacity with FHLB advances, and minimize lower
yield assets needed for short-term liquidity needs.
The Company's total interest expense increased $2.2 million, or 32.1%, to
$9.1 million for the nine months ended September 30, 1997 from $6.9 million for
the nine months ended September 30, 1996. This increase was due to an increase
in the volume of average interest-bearing liabilities of $62.5 million, or
38.6%, to $224.6 million for the nine months ended September 30, 1997 from
$162.1 million for the nine months ended September 30, 1996. The average rate
paid on interest-bearing liabilities decreased 27 basis points to 5.39% for the
nine months ended September 30, 1997 from 5.66% for the nine months ended
September 30, 1996 due to an decrease in money market and time deposits.
Interest expense on certificates of deposit increased $1.5 million, or
24.4%, to $7.6 million for the nine months ended September 30, 1997 from $6.1
million for the nine months ended September 30, 1996. This increase was due to
an increase in the average volume of certificates of deposit in the amount of
$35.3 million, or 25.5%, to $173.7 million for the nine months ended September
30, 1997 from $138.4 million for the nine months ended September 30, 1996,
partially offset by decreases in the average interest rates to 5.84% from 5.89%,
for the comparative periods.
Interest expense on FHLB advances increased to $621,000 for the nine months
ended September 30, 1997; the Company had no FHLB advances for the nine months
ended September 30, 1996. In 1997, $13.7 million of FHLB advances funded
purchases of securities and origination of loans as part of an ongoing leveraged
funding program designed to increase earnings while also managing interest rate
risk and liquidity. Additionally, the Company utilized FHLB borrowings to fund
the Tax Refund Program in 1997. The Company used brokered certificates of
deposit to fund the Tax Refund Program in 1996. The Company incurred no interest
expense on subordinated debt in the nine months ended September 30, 1997
compared to $210,000 in the nine months ended September 30, 1996 as this debt
was retired during the fourth quarter of 1996.
PROVISION FOR LOAN LOSSES
The provision for loan losses is charged to operations to bring the total
allowance for loan losses to a level considered appropriate by management. The
level of the allowance for loan losses is determined by management based upon
its evaluation of the known as well as inherent risks within the Bank's loan
portfolio. Management's periodic evaluation is based upon an examinaiton of the
portfolio, past loss experience, current economic conditions, the results of the
most recent regulatory examinations and other relevant factors. The provision
for loan losses increased $85,000, or 154%, to $140,000 for the nine months
ended September 30, 1997 from $55,000 for the nine months ended September 30,
1996. Non-performing assets were 1.18% of total assets at September 30, 1997,
compared to .81% at December 31, 1996. Delinquencies were 0.36% of total loans
at September 30, 1997, compared to 0.75% at December 31, 1996.
NON-INTEREST INCOME
Total other income increased $312,000, or 13.5%, to $2.6 million for the
nine months ended September 30, 1997 from $2.3 million for the nine months ended
September 30, 1996. The increase was due primarily to a $159,000 increase in Tax
Refund Program income associated with an increase in Tax Refund Product sales in
the 1997 tax return season compared to the 1996 tax return season. Additionally,
18
<PAGE>
Bank service fees increased $117,000 due to the increase in deposit account
activity on higher average levels of deposit balances as a result of the Merger.
NON-INTEREST EXPENSES
Total other expenses increased $2.2 million, or 58.9%, to $5.9 million for
the nine months ended September 30, 1997 from $3.7 million for the nine months
ended September 30, 1996. Salaries and benefits increased $1.1 million, or
57.5%, to $3.1 million for the nine months ended September 30, 1997 from $2.0
million for the nine months ended September 30, 1996. The increase was due
primarily to an increase in staff as a result of the Merger as well as increases
associated with the expansion of the branches and business development staff.
Occupancy and equipment expenses increased $228,000, or 35.7%, to $867,000 for
the nine months ended September 30, 1997 from $639,000 for the nine months ended
September 30, 1996 as a result of opening additional branch offices. Other
operating expenses increased $846,000, or 74.3%, to $2.0 million for the nine
months ended September 30, 1997 from $1.1 million for the nine months ended
September 30, 1996. Other operating expenses encompass all expenses not
otherwise categorized, and include items such as data processing costs,
professional fees, advertising costs, printing and supplies, insurance and other
miscellaneous expenses. The primary reason for increases in other operating
expenses was the growth of the Bank associated with the Merger and increased
expenses related to the opening of new branch offices.
PROVISION FOR INCOME TAXES
The provision for income taxes increased $148,000, or 13.6%, to $1.3 million
for the nine months ended September 30, 1997 from $1.2 million for the nine
months ended September 30, 1996. The increase of $148,000 results from the
increase in pre-tax income from 1996 to 1997.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
OVERVIEW
For the year ended December 31, 1996, the Company reported net income of
$2.7 million or $0.92 in primary earnings per share and $0.88 in fully diluted
earnings per share, compared to net income of $603,000 or $0.31 in primary
earnings per share and $0.31 in fully diluted earnings per share for the year
ended December 31, 1995. The increase in the Company's results during 1996 was
primarily the result of the Merger and the Bank's participation in the Tax
Refund Program, which generated $2.1 million in revenues during the year ended
December 31, 1996. The Bank did not participate in the Tax Refund Program during
1995 due to the uncertain impact of IRS policy changes. Net interest income
increased $3.2 million, or 79.2%, to $7.2 million for the year ended December
31, 1996 from $4.0 million for the year ended December 31, 1995. This increase
was primarily due to the increase in interest-earning assets as a result of the
Merger.
ANALYSIS OF NET INTEREST INCOME
The following table provides an analysis of net interest income on an
annualized tax-equivalent basis, setting forth for the periods (i) average
assets, liabilities, and shareholders' equity, (ii) interest income earned on
interest-earnings assets and interest expense paid on interest-bearing
liabilities, (iii) average yields earned on interest-earning assets and average
rates paid on interest-bearing liabilities, and (iv) the Bank's net interest
margin (net interest income as a percentage of average total interest-earning
assets).
19
<PAGE>
All averages are computed based on daily balances. Nonaccrual loans are included
in average loans receivable.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------------- ------------------------------------- ------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/
BALANCE EXPENSE(1) RATE(2) BALANCE EXPENSE(1) RATE(2) BALANCE EXPENSE(1)
--------- ----------- ----------- --------- ------------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Federal funds sold.......... 26,488 1,346 5.08% 2,953 176 5.96% 7,465 278
Securities.................. 60,389 3,759 6.23 34,687 2,016 5.81 26,263 1,442
Loans receivable............ $ 132,294 $ 11,798 8.92 $ 78,489 $ 7,710 9.82 69,838 5,521
--------- ----------- --- --------- ------ --- --------- ------
Total interest-earning
assets.................... 219,171 16,903 7.71 116,129 9,902 8.53 103,566 7,241
--------- ----------- --- --------- ------ --- --------- ------
Other Asset................... 3,029 4,139 3,335
--------- --------- ---------
Total Assets.................. $ 222,200 $ 120,268 106,901
--------- --------- ---------
--------- --------- ---------
Interest-Bearing Liabilities:
Demand deposits,
non-interest bearing...... $ 23,909 $ 8,939 5,837
Demand deposits, interest-
bearing................... 5,623 140 2.49% 1,320 33 2.50% 1,423 34
Money market and savings
deposits.................. 21,594 674 3.12 14,063 516 3.67 18,856 627
Time deposits............... 148,834 8,663 5.82 81,404 5,004 6.15 68,152 3,003
Other borrowed funds........ 2,920 238 8.15 4,431 338 7.63 3,691 280
--------- ----------- --- --------- ------ --- --------- ------
Total Deposits(4)............. 199,960 9,477 4.73 105,726 5,553 5.25 94,268 3,664
--------- ----------- --- --------- ------ --- --------- ------
Total Interest-bearing
deposits.................... 176,051 9,477 5.38 96,787 5,553 5.74 88,431 3,664
Total Interest-bearing
liabilities................. 202,880 9,715 4.79 110,157 5,891 5.35 97,959 3,944
--------- ----------- --- --------- ------ --- --------- ------
Other liabilities............. 4,124 1,844 1,298
--------- --------- ---------
Total liabilities............. 207,004 112,001 99,257
Shareholders' equity.......... 15,196 8,267 7,642
--------- --------- ---------
Total liabilities and
shareholders' equity........ 222,200 9,715 120,268 5,891 106,899 3,944
--------- ----------- --------- ------ --------- ------
Net Interest Income........... 7,188 4,011 3,297
----------- --- ------ --- ------
Net interest spread........... 2.92% 3.18%
--- ---
--- ---
Net interest margin(3)........ 3.28% 3.45%
--- ---
--- ---
<CAPTION>
YIELD/
RATE(2)
-----------
<S> <C>
Interest-Earning Assets:
Federal funds sold.......... 3.72%
Securities.................. 5.49
Loans receivable............ 7.91
---
Total interest-earning
assets.................... 6.99
---
Other Asset...................
Total Assets..................
Interest-Bearing Liabilities:
Demand deposits,
non-interest bearing......
Demand deposits, interest-
bearing................... 2.39%
Money market and savings
deposits.................. 3.33
Time deposits............... 4.41
Other borrowed funds........ 7.60
---
Total Deposits(4)............. 3.89
---
Total Interest-bearing
deposits.................... 4.14
Total Interest-bearing
liabilities................. 4.03
---
Other liabilities.............
Total liabilities.............
Shareholders' equity..........
Total liabilities and
shareholders' equity........
Net Interest Income...........
Net interest spread........... 2.96
---
---
Net interest margin(3)........ 3.69%
---
---
</TABLE>
- ------------------------------
(1) Includes loan fee income.
(2) Yields on investments are calculated based on amortized costs; all yields
are annualized.
(3) Represents the difference between interest earned and interest paid, divided
by average total interest earning assets.
(4) Excludes borrowed funds.
20
<PAGE>
RATE/VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
Net interest income may also be analyzed by segregating the volume and rate
components of interest income and interest expense. The following table sets
forth an analysis of volume and rate changes in net interest income for the
periods indicated. For purposes of this table, changes in interest income and
interest expense are allocated to volume and rate categories based upon the
respective percentage changes in average balances and average rates.
<TABLE>
<CAPTION>
1996 VS. 1995 1995 VS. 1994
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
CHANGE DUE TO CHANGE DUE TO
--------------------------------- ---------------------------------
<CAPTION>
AVERAGE AVERAGE INCREASE AVERAGE AVERAGE INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
--------- --------- ----------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Federal funds sold............................ $ 1,200 $ 1,170 $ (30) $ (220) $ 118 $ (102)
Securities.................................... 1,585 1,743 158 510 65 575
Loans receivable.............................. 4,865 4,088 (777) 741 1,448 2,189
--------- --------- ----------- --------- --------- -----------
Total interest income........................... 7,650 7,001 $ (649) $ 1,031 $ 1,631 $ 2,662
--------- --------- ----------- --------- --------- -----------
--------- --------- ----------- --------- --------- -----------
Interest paid on:
Demand deposits, money market and savings
deposits...................................... $ 352 $ 265 $ (87) $ (124) $ 11 $ (113)
Time Deposits................................... 3,942 3,659 (283) 660 1,342 2,002
Other borrowed funds............................ (100) (100) -- 56 1 57
--------- --------- ----------- --------- --------- -----------
Total interest expense........................ 4,194 3,824 (370) 592 1,354 1,946
--------- --------- ----------- --------- --------- -----------
Net interest income........................... $ 3,456 $ 3,177 $ (279) $ 439 $ 277 $ 716
--------- --------- ----------- --------- --------- -----------
--------- --------- ----------- --------- --------- -----------
</TABLE>
The Company's total interest income increased $7.0 million, or 70.7%, to
$16.9 million for the year ended December 31, 1996 from $9.9 million for the
year ended December 31, 1995. The average balance of interest-earning assets
increased $103.1 million, or 88.7%, to $219.2 million for the year ended
December 31, 1996 from $116.1 million for the year ended December 31, 1995. The
yield on interest-earning assets decreased 82 basis points to 7.71% for the year
ended December 31, 1996 from 8.53% for the year ended December 31, 1995. Total
interest expense increased $3.8 million, or 64.9%, to $9.7 million for the year
ended December 31, 1996 from $5.9 million for the year ended December 31, 1995.
The average balance of interest-bearing liabilities increased $92.7 million, or
84.2%, to $202.9 million for the year ended December 31, 1996 from $110.2
million for the year ended December 31, 1995. The average rate on
interest-bearing liabilities decreased 56 basis points to 4.79% for the year
ended December 31, 1996 from 5.35% for the year ended December 31, 1995. The
increases in interest income and interest expense were principally the result of
a higher volume of interest-earning assets and interest-bearing liabilities in
1996 as a result of the Merger. The ratio of interest expense to interest income
was 57.5% for the year ended December 31, 1996 compared to a ratio of 59.5% for
the year ended December 31, 1995. The Merger was also primarily responsible for
the changes in average rate in 1996 as compared to 1995.
PROVISION FOR LOAN LOSSES
The provision for loan losses is charged to operations to bring the total
allowance for loan losses to a level considered appropriate by management. The
level of the allowance for loan losses is determined by management based upon
its evaluation of the known as well as inherent risks within the Bank's loan
portfolio. Management's periodic evaluation is based upon an examination of the
portfolio, past loss experience, current economic conditions, the results of the
most recent regulatory examinations and other relevant factors. The provision
for loan losses decreased $68,000, or 30%, to $155,000 for the year ended
December 31, 1996 from $223,000 for the year ended December 31, 1995.
Non-performing assets were
21
<PAGE>
0.81% of total assets at December 31, 1996, compared to 0.63% at December 31,
1995. Delinquencies were 1.78% of total loans at December 31, 1996, compared to
0.86% at December 31, 1995.
NON-INTEREST INCOME
Non-interest income increased $2.5 million to $2.6 million for the year
ended December 31, 1996 from $155,000 for the year ended December 31, 1995.
Non-interest income as a percentage of gross revenues for the years ended
December 31, 1996 and 1995 were 13.4% and 1.5%, respectively. This increase was
due to the Bank's participation in the Tax Refund Program. The Bank did not
participate in the Tax Refund program during 1995.
NON-INTEREST EXPENSE
Salaries and employee benefits increased $1.3 million, or 80.4%, to $2.9
million for the year ended December 31, 1996 from $1.6 million for the year
ended December 31, 1995. This increase was the result of additions in staffing
due to the Merger, as well as non-recurring severance costs.
Occupancy and equipment expenses increased $337,000, or 59.7%, to $901,000
for the year ended December 31, 1996 from $564,000 for the year ended December
31, 1995. These expenses were comprised mainly of rental, equipment and
maintenance expense. Professional fees declined $45,000, or 13.8%, to $282,000
for the year ended December 31, 1996 from $327,000 for the year ended December
31, 1995 as the result of management's efforts to reduce the use of outside
consultants.
Other expenses increased $960,000, or 169.6%, to $1.5 million for the year
ended December 31, 1996 from $566,000, for the year ended December 31, 1995.
Major components of this category included advertising, insurance other than
premises, and general/administrative expenses. The year-to-year increase of
$960,000 is attributable to increased operating costs resulting from the Merger
and the increased size of the Company.
PROVISION FOR INCOME TAXES
The provision for income taxes increased $1.1 million to $1.4 million for
the year ended December 31, 1996 from $291,000 for the year ended December 31,
1995. The effective tax rate was 33.2% for the year ended December 31, 1996
compared to 32.6% for the year ended December 31, 1995.
FINANCIAL CONDITION
SEPTEMBER 30, 1997 COMPARED TO DECEMBER 31, 1996
Total assets increased $29.4 million, or 10.7%, to $303.2 million at
September 30, 1997 from $273.8 million at December 31, 1996. The increase in
assets was the result of higher levels of loans and securities, which were
funded by the net increase in borrowings in the nine months ended September 30,
1997. Net loans increased $14.4 million, or 8.5%, to $184.4 million at September
30, 1997 from $170.0 million at December 31, 1996. Securities increased $20.2
million, or 24.9%, to $101.1 million at September 30, 1997 from $81.0 million at
December 31, 1996. The increase was due primarily to the purchase of $20.0
million in securities as part of the Company's leveraged funding strategy which
is intended to increase earnings.
Cash and due from banks, interest-bearing deposits, which are held at the
Federal Home Loan Bank of Pittsburgh, and federal funds sold are all liquid
funds. The aggregate amount in these three categories decreased by $8.2 million,
or 52.9%, to $7.3 million at September 30, 1997 from $15.5 million at December
31, 1996 because the Company redeployed these funds into higher yielding loans
and securities. This redeployment of liquid assets was done in anticipation of
the utilization of the Company's borrowing capacity with the FHLB.
22
<PAGE>
Bank premises and equipment, net of accumulated depreciation, increased $1.2
million, or 170.9.%, to $1.9 million at September 30, 1997 from $711,000 at
December 31, 1996. The increase was attributable mainly to the construction of
the Bank's new branch offices.
Total liabilities increased $26.3 million, or 10.3%, to $281.7 million at
September 30, 1997 from $255.4 million at December 31, 1996. During the nine
months ended September 30, 1997, deposits, the Company's primary source of
funds, decreased $2.2 million, or 0.86%, to $247.9 million at September 30, 1997
from $250.1 million at December 31, 1996. The aggregate of transaction accounts,
which include demand, money market and savings accounts, decreased $2.0 million,
or 2.9%, to $68.0 million at September 30, 1997 from $70.0 million at December
31, 1996. Certificates of deposit declined $157,000, or 0.09%, to $179.8 million
at September 30, 1997 from $180 million at December 31, 1996. During the first
quarter of 1997 higher costing certificates of deposit were allowed to run-off
in favor of lower cost borrowings at the FHLB. This run-off was later partially
replaced by the growth in deposits from the new branches.
FHLB borrowings increased to $27.3 million at September 30, 1997. There were
no FHLB borrowings at December 31, 1996. The increase was primarily the result
of the Company's leveraged funding strategy of utilizing short-term and
long-term FHLB advances to purchase investment securities and to fund new loan
originations.
DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
The Company's total assets increased $142.7 million, or 108.8%, to $273.8
million at December 31, 1996 from $131.1 million at December 31, 1995. This
increase was primarily due to the Merger. The Company's asset mix remained
relatively stable. Net loans receivable increased $84.8 million, or 99.5%, to
$170.0 million at December 31, 1996 from $85.2 million at December 31, 1995. Net
loans represented 62% and 65% of total assets at December 31, 1996 and 1995,
respectively. Total investment securities increased $42.6 million, or 111.1%, to
$81.0 million at December 31, 1996 from $38.4 million at December 31, 1995.
Investment securities represented 30% and 29% of total assets at December 31,
1996 and 1995, respectively. Total deposits increased $133.6 million, or 114.8%,
to $250.1 million at December 31, 1996 from $116.4 million at December 31, 1995.
Loans receivable generally represent the highest earning assets of a bank's
portfolio. The ratio of loans receivable to total deposits was approximately 68%
at December 31, 1996 compared to approximately 73% at December 31, 1995.
INTEREST RATE RISK MANAGEMENT
Interest rate risk management involves managing the extent to which
interest-sensitive assets and interest-sensitive liabilities are matched. The
Bank typically defines interest-sensitive assets and interest-sensitive
liabilities as those that reprice within one year or less. Maintaining an
appropriate match is a method of avoiding wide fluctuations in net interest
margin during periods of changing interest rates.
The difference between interest-sensitive assets and interest-sensitive
liabilities is known as the "interest-sensitivity gap" ("GAP"). A positive GAP
occurs when interest-sensitive assets exceed interest-sensitive liabilities
repricing in the same time periods, and a negative GAP occurs when
interest-sensitive liabilities exceed interest-sensitive assets repricing in the
same time periods. A negative GAP ratio suggests that a financial institution
may be better positioned to take advantage of declining interest rates rather
than increasing interest rates, and a positive GAP ratio suggests the converse.
Shortcomings are inherent in a simplified and static GAP analysis that may
result in an institution with a negative GAP having interest rate behavior
associated with an asset-sensitive balance sheet. For example, although certain
assets and liabilities may have similar maturities or periods to repricing, they
may react in different degrees to changes in market interest rates. Furthermore,
repricing characteristics of certain assets and liabilities may vary
substantially within a given time period. In the event of a change in interest
rates, prepayment and early withdrawal levels could also deviate significantly
from those assumed in calculating GAP in the manner presented in the following
table.
23
<PAGE>
The Bank attempts to manage its assets and liabilities in a manner that
stabilizes net interest income under a broad range of interest rate
environments. Adjustments to the mix of assets and liabilities are made
periodically in an effort to provide dependable and steady growth in net
interest income regardless of the behavior of interest rates.
The following table presents a summary of the Bank's interest rate
sensitivity GAP at September 30, 1997. For purposes of this table, the Bank has
used assumptions based on industry data and historical experience to calculate
the expected maturity of loans because, statistically, certain categories of
loans are prepaid before their maturity date, even without regard to interest
rate fluctuations. Additionally certain prepayment assumptions were made with
regard to investment securities based upon the expected prepayment of the
underlying collateral of the mortgage backed securities.
INTEREST SENSITIVITY AT SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
0-90 91-180 181-365 1-5
DAYS DAYS DAYS YEARS OVER 5 YRS TOTAL
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest sensitive assets:
Securities.............................. $ 33,365 $ 6,903 $ 6,427 $ 24,765 $ 31,712 $ 103,172
Loans receivable........................ 84,136 6,833 14,831 54,036 26,498 186,334
---------- ---------- ---------- ---------- ---------- ----------
Total................................... 117,501 13,736 21,258 78,801 58,210 289,506
---------- ---------- ---------- ---------- ---------- ----------
Cumulative total........................ $ 117,501 $ 131,237 $ 152,495 $ 231,296 $ 289,506
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Interest sensitive liabilities:
Demand interest-bearing(1).............. $ 4,117 $ -- $ -- $ 2,058 $ 2,058 $ 8,233
Savings accounts(1)..................... 1,034 -- -- -- 1,033 2,067
Money market accounts(1)................ 11,887 -- -- 5,943 5,943 23,773
FHLB borrowings......................... 18,621 1,325 1,800 5,600 -- 27,346
Time deposits........................... 40,503 23,327 63,840 52,195 5 179,870
---------- ---------- ---------- ---------- ---------- ----------
Total................................... 76,162 24,652 65,640 65,796 9,039 241,289
---------- ---------- ---------- ---------- ---------- ----------
Cumulative total........................ $ 76,162 $ 100,814 $ 166,454 $ 232,250 $ 241,289
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Interest rate sensitivity GAP........... $ 41,339 $ (10,916) $ (44,382) $ 13,005 $ 49,171 $ 48,217
Cumulative GAP.......................... 41,339 30,423 (13,959) (954) 48,217
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Interest sensitive assets/
interest sensitive liabilities........ 1.5x 1.3x 0.9x 1.0x 1.2x
Cumulative GAP/
total earning assets.................. 14.3% 10.5% -4.8% -0.3% 16.7%
</TABLE>
- ------------------------
(1) For interest rate sensitivity purposes 50% of these deposits are assumed to
reprice within one year.
CAPITAL
The Company's Tier l capital to risk-weighted assets ratio was 10.97% at
September 30, 1997 compared to 10.08% at December 31, 1996. These ratios
exceeded the Tier 1 regulatory capital requirement of 4.00%. The Company's total
capital to risk-weighted assets ratio was 11.97% at September 30,
24
<PAGE>
1997 compared to 11.25% at December 31, 1996. These ratios exceeded the total
risk-based capital regulatory requirement of 8.00%. The Company's leverage ratio
was 7.25% at September 30, 1997, compared to 6.65% at December 31, 1996. The
increase in the Company's leverage ratio was due to the Company's higher level
of earnings in the nine months ended September 30, 1997. The Company remains
categorized as "well capitalized" under applicable Federal regulations. The Bank
is subject to similar capital requirements adopted by the FRB. At September 30,
1997, the Bank's capital exceeded all regulatory requirements and the Bank
remains categorized as "well capitalized" under applicable federal regulations.
LIQUIDITY
Financial institutions must maintain liquidity to meet day-to-day
requirements of depositors and borrowers, take advantage of market
opportunities, and provide a cushion against unforeseen needs. Liquidity needs
can be met by either reducing assets or increasing liabilities. Sources of asset
liquidity are provided by cash and amounts due from banks, interest-bearing
deposits with banks, and federal funds sold.
The Company's liquid assets totaled $7.3 million at September 30, 1997
compared to $15.5 million at December 31, 1996. Maturing and repaying loans are
another source of asset liquidity. At September 30, 1997, the Bank estimated
that an additional $15.8 million of loans will mature or repay in the next six-
month period ended March 31, 1998.
Liability liquidity can be met by attracting deposits with competitive
rates, buying federal funds or utilizing the facilities of the Federal Reserve
System or the Federal Home Loan Bank System. The Bank utilizes a variety of
these methods of liability liquidity. At September 30, 1997, the Bank had $70
million in unused lines of credit available to it under informal arrangements
with correspondent banks compared to $99 million at December 31, 1996. These
lines of credit enable the Bank to purchase funds for short-term needs at
current market rates.
Liquidity can be further analyzed by reference to the Unaudited Consolidated
Statement of Cash Flows. Net cash provided by operating activities during the
nine months ended September 30, 1997 and 1996 was $4.4 million and $3.1 million,
respectively. The decrease from the nine months ended September 30, 1997 to the
nine months ended September 30, 1996 was due primarily to an increase in other
assets. The Company's cash flows from financing activities increased $20.9
million to $25.1 million at September 30, 1997 from $4.2 million at September
30, 1996, due primarily to the repayment of other borrowed funds and long- term
debt. The Company utilized $37.8 million in cash for investing activities
through September 30, 1997 versus $2.4 million provided through September 30,
1996. The increase in cash used in investing activities was primarily due to an
increase in loans outstanding and investment securities in the amount of $14.4
million and $20.2 million, respectively at September 30, 1997. The changes in
cash flows resulted in a net decrease of internally generated cash of $8.2
million for the nine months ended September 30, 1997 compared to a net increase
of $9.8 million for the nine months ended September 30, 1996.
At September 30, 1997, the Company had outstanding commitments (including
unused lines of credit and letters of credit) of $16.7 million. Certificates of
deposit which are scheduled to mature within one year totaled $127.7 million at
September 30, 1997, and borrowings that are scheduled to mature within the same
period amounted to $21.7 million. The Company anticipates that it will have
sufficient funds available to meet its current commitments.
As of September 30, 1997, capital expenditures that were anticipated for the
remainder of 1997 included approximately $400,000 required to complete the site
improvements and construction of a full-service branch in Abington, Montgomery
County. These cost estimates also include furniture, fixtures and equipment
costs necessary to operate this office.
25
<PAGE>
EFFECTS OF INFLATION
The majority of assets and liabilities of a financial institution are
monetary in nature. Therefore, a financial institution differs greatly from most
commercial and industrial companies that have significant investments in fixed
assets or inventories. Management believes that the most significant impact of
inflation on financial results is the Company's ability to react to changes in
interest rates. As discussed previously, management attempts to maintain an
essentially balanced position between rate sensitive assets and liabilities over
a one year time horizon in order to protect net interest income from being
affected by wide interest rate fluctuations.
NEW FINANCIAL ACCOUNTING STANDARDS
MORTGAGE SERVICING RIGHTS
In 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards (hereafter, a "Statement") No. 122,
"Accounting for Mortgage Servicing Rights", which amends Statement No. 65,
"Accounting for Certain Mortgage Banking Activities." This Statement applies to
all mortgage banking activities in which a mortgage loan is originated or
purchased and then sold or securitized with the right to service the loan
retained by the seller. The total cost of the mortgage loans is allocated
between the mortgage servicing rights and the mortgage loans based on their
relative fair values. The mortgage servicing rights are capitalized as assets
and amortized over the period of estimated net servicing income. Additionally,
these servicing rights are subject to an impairment analysis based on their fair
value in future periods. This Statement was effective for transactions in which
mortgage loans are sold or securitized beginning January 1, 1996. For the year
ended December 31, 1996 and for the nine months ended September 30, 1997, the
impact of this Statement on the Company was immaterial.
STOCK-BASED COMPENSATION
In 1996, the Company adopted Statement No. 123, "Accounting for Stock-based
Compensation." This Statement provides the Company with a choice of how to
account for the issuance of stock options and other stock grants. This Statement
encourages companies to account for stock options at their fair value and
recognize the expense as compensation over the service period, but also permits
companies to follow existing accounting rules under Accounting Principles Board
("APB") Opinion No. 25. Companies electing to follow APB Opinion No. 25 rules
are required to disclose pro forma net income and earnings per share information
as if the new fair value approach had been adopted. The Company is continuing to
follow existing accounting rules under APB Opinion No. 25 for options granted,
with pro forma disclosure in the footnotes to the Company's Consolidated
Financial Statements.
EARNINGS PER SHARE
In February 1997 the FASB issued SFAS No. 128, "Earnings Per Share." This
Statement establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly held common stock or potential
common stock. This Statement simplifies the standards for computing earnings per
share previously found in APB Opinion No. 15, "Earnings per Share," and makes
them comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. This Statement requires restatement of all prior
period EPS data presented upon adoption.
26
<PAGE>
The pro forma effect of Statement No. 128 on earnings per share of the
Company is shown in the following table:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
HISTORICAL EPS(1)
Primary.............................................................. $ 0.79 $ 0.85 $ 0.92 $ 0.31 $ 0.42
Fully Diluted........................................................ $ 0.78 $ 0.83 $ 0.88 $ 0.31 $ 0.42
PRO FORMA EPS(1)
Basic................................................................ $ 0.87 $ 0.92 $ 0.97 $ 0.31 $ 0.42
Diluted.............................................................. $ 0.79 $ 0.88 $ 0.92 $ 0.31 $ 0.42
</TABLE>
- ------------------------
(1) Adjusted to reflect a 20% stock dividend paid on April 15, 1997.
REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Statement No. 130 requires that all items that are
required to be recognized as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This Statement does not require a specific format for that
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. Statement No. 130 is effective for fiscal years beginning after
December 15, 1997. The impact of this Statement on the Company would be to
require additional disclosures in the Company's financial statements.
OPERATING SEGMENT DISCLOSURE
In June 1997, the FASB issued Statement No. 131, "Disclosures About Segments
of an Enterprise and Related Information." Statement No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Statement No. 131 is effective for periods beginning after December
15, 1997. The impact, if any, of this Statement on the Company will be to
require additional disclosures in the Company's financial statements.
27
<PAGE>
BUSINESS
GENERAL
The Company is a Pennsylvania corporation headquartered in Philadelphia,
Pennsylvania and is a registered bank holding company for the Bank, a
Pennsylvania-chartered commercial bank, which is the Company's wholly-owned
subsidiary. The Bank is a member of the Federal Reserve System and the Bank's
deposits are insured by the FDIC to the fullest extent provided by law. The
Company was the surviving corporation in the Merger, and the Bank was the
surviving bank in the merger of Republic Bank with and into First Executive
Bank, each of which was completed in June 1996. The Bank serves the Greater
Philadelphia area and is the third largest bank headquartered in Philadelphia.
The Bank presently conducts banking activities through its six branches,
including three located in Center City, Philadelphia and one each in Ardmore and
East Norriton, Montgomery County and one located on City Line Avenue, in
Philadelphia County. A seventh branch is scheduled to open in Abington,
Montgomery County in November 1997. At September 30, 1997, the Company had total
consolidated assets, deposits, net loans and shareholders' equity of $303.2
million, $247.9 million, $184.4 million and $21.4 million, respectively.
The Bank is engaged in the Tax Refund Program through a joint venture with
Jackson Hewitt to provide Tax Refund Products to Jackson Hewitt customers.
Through the Tax Refund Program, the Bank offers Tax Refund Products to
qualifying Jackson Hewitt customers, which provides the Bank with significant
interest and fee income. The Bank is a leading provider of Tax Refund Products.
There are a limited number of banks that provide this service nationwide.
Management believes that the demand for Tax Refund Products will grow as a
result of the IRS' intention to encourage electronic filing of tax returns and
the increasing complexity of tax forms. The Bank generates significant revenue
from the Tax Refund Program. Recently, the Company and Jackson Hewitt signed a
two-year extension of the Tax Refund Program, which contains automatic renewal
provisions. See "Products and Services--Tax Refund Products."
MARKET OVERVIEW
The Bank's primary market service area consists of the Greater Philadelphia
region, including Center City Philadelphia and the northern and western suburban
communities located principally in Montgomery County. To a lesser extent, the
Bank also serves the surrounding counties of Bucks, Chester and Delaware in
Pennsylvania, southern New Jersey and northern Delaware.
As of June 30, 1996, there were 37 different banking institutions operating
approximately 330 branch offices and having total deposits of approximately
$24.0 billion in Philadelphia. The four largest of these institutions with
respect to total deposits operated over 63% of the area's branch offices and had
approximately 78% of the area's deposits. The Bank had the 12th largest deposit
market share in the City of Philadelphia as of June 30, 1996, with deposits of
$223.9 million.
OPERATING STRATEGY
The Company's objective is for the Bank to become the primary alternative to
the large banks that dominate the Greater Philadelphia market. The Company's
management team has developed a business strategy consisting of the following
key elements to achieve this objective:
EXPANDING THE BRANCH SYSTEM. Management plans to develop a cohesive network
of branches that will be within a ten minute drive of most of the major
commercial centers in its marketplace. Management intends to build this network
by opening three branches each year through 1999 that are strategically located
in commercial corridors of suburban Philadelphia. The Bank's Abington branch,
scheduled to open in November 1997, is a prime example of this strategy. This
branch is located in a major suburban commercial center and is easily accessible
from a major local traffic artery. The branch manager has significant banking
experience and contacts in the targeted community. The efforts of this manager
will be
28
<PAGE>
supported by marketing assistance from loan officers assigned to that community.
In addition, the Company will consider acquisition opportunities that will
enhance earnings and growth capabilities. The Company expects to fund this
expansion by revenue generated from the Tax Refund Program, among other things.
See "Risk Factors--Reliance on Jackson Hewitt Relationship."
PROVIDING ATTENTIVE AND PERSONALIZED SERVICE. The Company believes that a
very attractive niche exists serving small- to medium-sized business customers
not adequately served by the larger competitors. The Company believes this
segment of the market responds very positively to the attentive and highly
personalized service provided by the Bank. The Bank offers individuals and
small- to medium-sized businesses a wide array of banking products, informed and
friendly service, extended operating hours, consistently applied credit
policies, and local, timely decision making. The banking industry is
experiencing a period of rapid consolidation and many local branches have been
acquired by large out-of-market institutions. The ensuing changes in these
banking institutions have resulted in a change in their product offerings and
the degree of personal attention they provide to their customers. The Company
has capitalized on these dynamics by offering a community banking alternative
and tailoring its product offering to fill voids created as larger competitors
increase the price of products and services or de-emphasize such products and
services.
MAINTAINING SUPERIOR OPERATING RESULTS. The Company's goal is to maintain a
return on average equity in excess of 15% while maintaining a 15% asset growth
rate. The Company expects to fund significant expansion and simultaneously meet
its operating goals, in part, because of the income earned through the Tax
Refund Program. To accomplish these goals the strategy is for the Bank to
maintain sufficient margins on incremental growth through efficient utilization
and leveraging of capital.
ATTRACTING AND RETAINING HIGHLY EXPERIENCED PERSONNEL. The Bank's executive
officers and other personnel have substantial employment experience with larger
banks in the region. When opening new branches, as in the case of the Abington
office, the Bank extensively screens and trains its employees to ensure the
staff has the necessary ability and contacts in the community to foster rapid
growth. The Company seeks to instill a sales and service oriented culture in its
personnel in order to build customer relationships and maximize cross-selling
opportunities. The Company offers meaningful sales-based incentives to all its
customer contact employees.
CAPITALIZING ON MARKET DYNAMICS. In the past two years, over 45% of the
deposits in the Bank's primary market areas have been acquired by large,
super-regional bank holding companies. The ensuing cultural changes in these
banking institutions have resulted in a change in their product offerings and
the degree of personal attention they provide. The Company has sought to
capitalize on these changes by offering a community banking alternative. As a
result, the Company believes it has a tremendous opportunity to increase its
market share.
DEVELOPING SPECIALIZED PRODUCTS. The Company has built the Tax Refund
Program into a significant source of income. Management will continue to explore
and develop other opportunities to provide specialized banking products and
services that command higher profit margins.
PRODUCTS AND SERVICES.
TRADITIONAL BANKING PRODUCTS AND SERVICES The Bank offers a range of
commercial and retail banking services to its customers, including commercial
loans, commercial loans secured by real estate, personal and business checking
and savings accounts, certificates of deposit, residential mortgages and
consumer loans. The Bank's commercial loan customers typically borrow between
$250,000 and $750,000. The Bank attempts to offer a high level of personalized
service to both its commercial and consumer customers. In addition, the Bank
provides travelers' checks, money orders and other typical banking services. The
Bank is a member of the MAC and PLUS networks, to provide customers with access
to automated teller
29
<PAGE>
machines worldwide, and makes credit cards available to its customers through
correspondent banking institutions.
TAX REFUND PRODUCTS The Bank is engaged in the Tax Refund Program through a
joint venture with Jackson Hewitt. Through the Tax Refund Program, the Bank
provides Tax Refund Products to qualifying Jackson Hewitt customers. The Tax
Refund Products, ACRs and RALs, enable taxpayers to receive tax refunds faster
than if they filed their tax returns by mail. An ACR enables taxpayers to have
refunds directly deposited into a bank account, established by the Bank solely
for this purpose, within two to three weeks after filing of the return. A RAL is
a recourse loan secured by the taxpayer's federal income tax refund and is made
within one or two days after filing a tax return. During the 1997 tax season,
the Bank provided approximately 234,000 ACRs and 103,000 RALs to Jackson Hewitt
customers.
The Bank receives a processing fee for each ACR and RAL it provides. When
the Bank provides a RAL, it receives an additional fee that is equal to 4% of
the RAL. If the IRS does not deposit the expected refund into the bank account
established for its receipt because, among other reasons, the taxpayer owes back
taxes, the amount due under a RAL will not be paid without instituting
individual collection actions against the taxpayer. The risk of RAL default in
excess of 4% is apportioned between the Bank and Jackson Hewitt on a 35%/65%
basis, respectively. The default rate did not exceed 4% in 1997 or 1996.
The Bank participated in the Tax Refund Program in 1997 and 1996, but did
not participate in 1995 due to a significant change by the IRS in the
administration of the electronic filing and refund program, which was
subsequently changed the following year. Revenue generated by the Tax Refund
Program accounted for 11.5% and 14.6% of total revenues in the nine months ended
September 30, 1997 and 1996, respectively. See "Risk Factors--Reliance on
Jackson Hewitt Relationship."
The Bank has adopted stringent underwriting standards, instituted
independent credit checks, set loan limits based on past history and increased
pricing to reflect the risk associated with RALs. In addition, the Bank
participates in cross-collection arrangements with other RAL lenders. Under
these arrangements, the banks share information regarding the identity of, and
amounts payable by, delinquent RAL borrowers. By sharing this information the
banks are able to identify these individuals in later tax seasons should they
obtain a RAL from a tax preparation company. RAL borrowers are advised in
advance that should they become identified as owing any portion of a RAL from a
prior tax season, any tax refunds attributable to such borrower will be offset
first against the prior debt.
BRANCH EXPANSION PLANS AND GROWTH STRATEGY
The Company plans to achieve growth and market penetration by expanding the
Bank's branch network into markets with significant commercial activity and good
location. The Bank has an aggressive branch expansion plan and expects to open
three branches per year in 1998 and 1999 and is currently considering 15 sites
as possible locations for new branches. Management's goal when establishing a
new branch is to achieve deposits of at least $35.0 million in three years or
less. The Bank opened its Ardmore, City Line Avenue and East Norriton branches
in November 1995, March 1997 and May 1997, respectively. As of September 30,
1997, these branches had $21.0 million, $5.5 million and $4.5 million in
deposits, respectively. The Bank expects to open its seventh branch office in
Abington, Pennsylvania in November 1997.
LOAN PORTFOLIO
The Company's loan portfolio consists of commercial loans, commercial real
estate loans, commercial loans secured by one-to-four family residential
property, as well as residential, home equity loans and consumer loans.
Commercial loans are primarily term loans made to small- to medium-size
businesses and professionals for working capital purposes. The majority of these
commercial loans are collateralized by real estate and further secured by other
collateral and personal guarantees. The Bank's commercial loans average from
$250,000 to $750,000 in amount.
30
<PAGE>
The Company's net loans at September 30, 1997 increased $14.4 million, or
8.5%, to $184.4 million from $170.0 million at December 31, 1996, which were
funded by an increase in borrowings.
The following table sets forth the Company's gross loans by major categories
for the periods indicated:
LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
----------------------- ------------------------------------------------------
1997 1966 1996 1995 1994 1993 1992
---------- ----------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Commercial:
Real estate secured.................. $ 68,844 $ 59, 169 $ 62,016 $ 34,353 $ 22,979 $ 16,160 $ 12,623
--------- ---------
Non-real estate secured/ unsecured... 37,778 42,458 45,007 23,183 27,429 29,653 33,669
---------- ----------- ---------- --------- ---------
Total commercial................... 106,622 101,627 107,023 57,536 50,408 45,813 46,292
Residential real estate................ 71,540 54,604 61,240 26,781 20,493 16,279 12,502
Consumer and other..................... 8,172 4,569 3,831 1,546 1,182 829 994
---------- ----------- ---------- --------- --------- --------- ---------
Total loans........................ $ 186,334 $ 160,800 $ 172,094 $ 85,863 $ 72,083 62,921 59,793
---------- ----------- ---------- --------- --------- --------- ---------
---------- ----------- ---------- --------- --------- --------- ---------
</TABLE>
LOAN MATURITY AND INTEREST RATE SENSITIVITY
The amount of loans outstanding by category as of the dates indicated, which
are due in (i) one year or less, (ii) more than one year through five years and
(iii) over five years, is shown in the following table. Loan balances are also
categorized according to their sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997, AT DECEMBER 31, 1996,
---------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MORE THAN MORE THAN
ONE YEAR ONE YEAR
THROUGH OVER THROUGH OVER
ONE YEAR FIVE FIVE TOTAL ONE YEAR FIVE FIVE
OR LESS YEARS YEARS LOANS OR LESS YEARS YEARS
----------- ----------- --------- --------- ----------- ----------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial............................. $ 12,735 $ 65,674 $ 28,163 $ 106,572 $ 20,028 $ 62,254 $ 24,741
Residential real estate................ 4,843 36,295 30,452 71,590 7,562 34,179 19,499
Consumer and other..................... 359 2,356 5,457 8,172 607 1,946 1,278
----------- ----------- --------- --------- ----------- ----------- ---------
Total.............................. $ 17,937 $ 104,325 $ 64,072 $ 186,334 $ 28,197 $ 98,379 $ 45,518
----------- ----------- --------- --------- ----------- ----------- ---------
----------- ----------- --------- --------- ----------- ----------- ---------
Loans with fixed rate.................. $ 10,873 $ 72,451 $ 27,853 $ 111,177 $ 9,163 $ 58,761 $ 21,257
Loans with floating rate............... 7,064 31,874 36,219 75,157 19,034 39,618 24,261
----------- ----------- --------- --------- ----------- ----------- ---------
Total.............................. $ 17,937 $ 104,325 $ 64,072 $ 186,334 $ 28,197 $ 98,379 $ 45,518
----------- ----------- --------- --------- ----------- ----------- ---------
Percent composition by maturity........ 9.63 55.99 34.38 100 16.38 57.1 26.45
Fixed rate loans as a percentage of
total loans maturing................. 60.62 69.45 43.47 59.67 32.50 59.73 46.70
Floating rate loans as a percentage of
total loans maturing................. 39.38% 30.55% 56.53% 40.33 % 67.50% 40.27% 53.30%
<CAPTION>
<S> <C>
TOTAL
LOANS
---------
<S> <C>
Commercial............................. $ 107,023
Residential real estate................ 61,240
Consumer and other..................... 3,831
---------
Total.............................. $ 172,094
---------
---------
Loans with fixed rate.................. $ 89,181
Loans with floating rate............... 82,913
---------
Total.............................. $ 172,094
---------
Percent composition by maturity........ 100.0
Fixed rate loans as a percentage of
total loans maturing................. 51.82
Floating rate loans as a percentage of
total loans maturing................. 48.18%
</TABLE>
In the ordinary course of business, loans maturing within one year may be
renewed, in whole or in part, as to principal amount, at interest rates
prevailing at the date of renewal.
At September 30, 1997, 59.67% of total loans were fixed rate compared to
51.82% at December 31, 1996. See "Management's Discussion and Analysis Of
Financial Condition and Results of Operations-- Interest Rate Risk Management."
31
<PAGE>
CREDIT QUALITY
The Bank's written lending policies require underwriting, loan documentation
and credit analysis standards to be met prior to funding. In addition, a senior
loan officer reviews all loan applications. The Board of Directors reviews the
status of loans monthly to ensure that proper standards are maintained.
Loans, including impaired loans, are generally classified as nonaccrual if
they are past due as to maturity or payment or principal or interest for a
period of more than 90 days, unless such loans are well-secured and in the
process of collection. Loans that are on a current payment status or past due
less than 90 days may also be classified as nonaccrual if repayment in full of
principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due are reasonably assured of repayment within an
acceptable period of time, and there is a sustained period of repayment
performance (generally a minimum of six months) by the borrower, in accordance
with the contractual terms of interest and principal.
While a loan is classified as nonaccrual or as an impaired loan and the
future collectability of the recorded loan balance is doubtful, collections of
interest and principal are generally applied as a reduction to principal
outstanding. When the future collectability of the recorded loan balance is
expected, interest income may be recognized on a cash basis. In the case where a
nonaccrual loan had been partially charged off, recognition of interest on a
cash basis is limited to that which would have been recognized on the recorded
loan balance at the contractual interest rate. Cash interest receipts in excess
of that amount are recorded as recoveries to the allowance for loan losses until
prior charge-offs have been fully recovered.
The following summary shows information concerning loan delinquency and
other non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans accruing, but past due 90 days or more......... $ 284 $ 436 $ 27 $ 11 $ 196 $ 256 $ 441
Nonaccrual loans..................................... 1,363 1,971 1,892 526 878 274 --
--------- ---------
Total non-performing loans........................... 1,647 2,407 1,919 537 1,074 530 441
Foreclosed real estate............................... 1,944 364 295 295 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total non-performing assets(1)................... $ 3,591 $ 2,771 $ 2,214 $ 832 $ 1,074 $ 530 $ 441
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Non-performing loans as a percentage of total loans,
net of an unearned income(1)....................... 0.88% 1.50% 1.12% 0.63% 1.49% 0.84% 0.74%
Non-performing assets as a percentage of total
assets............................................. 1.18% 1.07% 0.81% 0.63% 1.01% 0.52% 0.54%
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Non-performing loans are comprised of (i) loans that are on a nonaccrual
basis, (ii) accruing loans that are 90 days or more past due and (iii)
restructured loans. Non-performing assets are composed of non-performing
loans and foreclosed real estate (assets acquired in foreclosure).
32
<PAGE>
The following summary shows the impact on interest income on nonaccrual
loans for the periods indicated:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
--------------------- ------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income that would have been
recorded had the loans been in
accordance with their original terms.... $ 212,400 $ 54,900 $ 135,100 $ 48,000 $ 26,000 $ 12,000 $ 7,000
Interest income included in net income.... -0- -0- 60,000 -0- 75,000 -0- -0-
</TABLE>
At September 30, 1997, the Company had no foreign loans and no loan
concentrations exceeding 10% of total loans except for credits extended to real
estate agents and managers in the aggregate amount of $37.5 million, which
represented 20% of gross loans receivable. Loan concentrations are considered to
exist when there are amounts loaned to a multiple number of borrowers engaged in
similar activities that would cause them to be similarly impacted by economic or
other conditions.
Foreclosed real estate is initially recorded at fair value, net of estimated
selling costs at the date of foreclosure, thereby establishing a new cost basis.
After foreclosure, valuations are periodically performed by management and the
assets are carried at the lower of cost or fair value, less estimated costs to
sell. Revenues and expenses from operations and changes in the valuation
allowance are included in other expenses.
Potential problem loans consist of loans that are included in performing
loans, but for which potential credit problems of the borrowers have caused
management to have serious doubts as to the ability of such borrowers to
continue to comply with present repayment terms. At September 30, 1997, all
identified potential problem loans are included in the preceding table.
The Bank had no credit exposure to "highly leveraged transactions" at
September 30, 1997, as defined by the FRB.
33
<PAGE>
ALLOWANCE FOR LOAN LOSSES
A detailed analysis of the Company's allowance for loan losses for the nine
month periods ended September 30, 1997 and 1996 and for each of the years in the
five year period ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
<S> <C> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- --------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- --------- --------- ---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period........... $ 2,092 $ 680 $ 680 $ 650 $ 460 $ 340 $ 355
Charge-offs:
Commercial............................. 332 238 293 162 136 64 75
Real estate............................ -- -- -- 50 --
Consumer............................... 44 33 98 -- 8 23 2
---------- ---------- ---------- --------- --------- ---------- ----------
Total charge-offs.................... 376 271 391 212 144 87 77
Recoveries:
Commercial............................. 69 19 101 16 6 -- --
Real estate............................ -- -- -- 2 -- -- --
Consumer............................... 6 14 19 1 5
---------- ---------- ---------- --------- --------- ---------- ----------
Total recoveries..................... 75 33 120 19 11 -- --
---------- ---------- ---------- --------- --------- ---------- ----------
Net charge-offs.......................... 301 238 271 193 133 87 77
Acquisition of ExecuFirst.............. -- 1,528 1,528 -- -- -- --
Provision for loan losses.............. 140 55 155 223 323 207 62
---------- ---------- ---------- --------- --------- ---------- ----------
Balance at end of period............... $ 1,931 $ 2,025 $ 2,092 $ 680 $ 650 $ 460 $ 340
---------- ---------- ---------- --------- --------- ---------- ----------
---------- ---------- ---------- --------- --------- ---------- ----------
Average loans outstanding(1)........... $ 180,019 $ 112,735 $ 132,294 $ 78,489 $ 69,838 $ 62,489 $ 58,173
---------- ---------- ---------- --------- --------- ---------- ----------
---------- ---------- ---------- --------- --------- ---------- ----------
As a percent of average loans(1):
Net charge-offs........................ 0.17% 0.21% 0.20% 0.25% 0.19% 0.14% 0.13%
Provision for loan losses................ 0.07 0.05 0.12 0.28 0.46 0.33 0.11
Allowance for loan losses................ 1.07 1.80 1.58 0.87 0.93 0.74 0.58
Allowance for possible loan losses to:
Total loans, net of unearned
income............................. 1.04 1.26 1.22 0.79 0.90 0.73 0.57
Total non-performing loans........... 117.24 84.13 109.02 126.63 60.52 86.79 77.10
</TABLE>
- ------------------------
(1) Includes nonaccruing loans.
34
<PAGE>
Management makes a monthly determination as to an appropriate provision from
earnings necessary to maintain an allowance for loan losses that is adequate for
potential yet undetermined losses. The Company's Board of Directors periodically
reviews the status of all nonaccrual and impaired loans, loans criticized by
Bank's regulators and internal loan review officer, who reviews both the loan
portfolio and the overall adequacy of the loan loss reserve. During the review
of the loan loss reserve, the Board of Directors considers specific loans, pools
of similar loans, historical charge-off activity, and a supplemental reserve
allocation as a measure of conservatism for any unforeseen loan loss reserve
requirements. The sum of these components is compared to the loan loss reserve
balance. Any additions deemed necessary to the loan loss reserve balance are
charged to operating expenses.
The unallocated allowance decreased $405,000, or 80.4%, to $99,000 at
September 30, 1997 from $504,000 at September 30, 1996, primarily as the result
of a decline in non-performing loans.
The Company has an existing loan review program which monitors the loan
portfolio on an ongoing basis. Loan review is conducted by a loan review officer
and is reported quarterly to the Board of Directors. The Board of Directors
reviews the finding of the loan review program on a monthly basis. Based on the
recommendations of this program, past performance of the Bank's loan portfolio
and general economic conditions, management believes that the reserve for loan
losses is reasonable and would be adequate to absorb potential losses related to
problem assets.
Determining the appropriate level of the allowance for loan losses at any
given date is difficult, particularly in a continually changing economy. In
management's opinion, the allowance for loan losses was adequate at September
30, 1997. However, there can be no assurance that, if asset quality deteriorates
in future periods, additions to the allowance for loan losses will not be
required.
The Bank's management is unable to determine in what loan category future
charge-offs and recoveries may occur. The following schedule sets forth the
allocation of the allowance for loan losses among various categories. At
September 30, 1997, approximately 59.0% of the allowance for loan losses is
allocated to general risk to protect the Bank against potential yet undetermined
losses. The allocation is based upon historical experience. The entire allowance
for loan losses is available to absorb future loan losses in any loan category.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------------------
<S> <C> <C> <C> <C>
1997 1996
---------------------- ----------------------
<CAPTION>
PERCENTAGE PERCENTAGE
OF LOANS OF LOANS
IN EACH IN EACH
CATEGORY CATEGORY
AMOUNT TO LOANS(1) AMOUNT TO LOANS(1)
--------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Allocation of allowance for loan losses:
Commercial........................................................ $ 1,699 57.2% $ 1,378 63.20%
Residential real estate........................................... 20 38.4 23 33.96
Consumer and other................................................ 113 4.4 120 2.84
Unallocated....................................................... 99 504
--------- ---------
Total........................................................... $ 1,931 $ 2,025
--------- ---------
--------- ---------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993
-------------------------- -------------------------- -------------------------- --------------------------
<CAPTION>
PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS
IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY
AMOUNT TO LOANS(1) AMOUNT TO LOANS(1) AMOUNT TO LOANS(1) AMOUNT TO LOANS(1)
----------- ------------- ----------- ------------- ----------- ------------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allocation of
allowance
for loan
losses:
Commercial.. $ 1,573 62.19% $ 161 67.01% $ 146 69.93% $ 203 66.34%
Residential
real
estate...... 21 35.59 40 31.19 44 28.43 103 33.66
Consumer and
other....... 90 2.22 9 1.80 8 1.64 -- --
Unallocated.. 408 470 452 154
----------- ----- ----- -----
Total..... $ 2,092 $ 680 $ 650 $ 460
----------- ----- -----
----------- ----- -----
<CAPTION>
<S> <C> <C>
1992
--------------------------
PERCENT
OF LOANS
IN EACH
CATEGORY
AMOUNT TO LOANS(1)
----------- -------------
<S> <C> <C>
Allocation of
allowance
for loan
losses:
Commercial.. $ 76 45.78%
Residential
real
estate...... 90 54.22%
Consumer and
other....... 0
Unallocated.. 174
-----
Total..... $ 340
</TABLE>
- ------------------------
(1) Loans net of unearned income.
SECURITIES PORTFOLIO
The Company's securities portfolio is intended to provide liquidity, reduce
interest rate risk and contribute to earnings while exposing the Company to
reduced credit risk. As a result of the Merger, the securities portfolio has
grown substantially. The securities portfolio has also grown through the use of
leverage provided by FHLB advances.
A summary of securities available for sale and securities held to maturity
at September 30, 1997 and 1996 and at December 31, 1996, 1995, and 1994 follows.
<TABLE>
<CAPTION>
SECURITIES SECURITIES
AVAILABLE FOR SALE AVAILABLE FOR SALE
AT SEPTEMBER 30, AT DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
U.S. Treasury................................................. $ -- $ 1,499 $ 998 $ -- $ --
U.S. Government Agencies...................................... 3,159 6,135 4,128 4,320 --
Mortgage-backed and asset-backed securities (1)............... -- -- -- -- --
Other securities (2).......................................... -- -- -- -- --
--------- --------- --------- --------- ---------
Total amortized cost of securities............................ $ 3,159 $ 7,634 $ 5,896 $ 4,320 $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total fair value of securities................................ $ 3,162 $ 7,627 $ 5,900 $ 4,348 $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
SECURITIES SECURITIES
HELD TO MATURITY HELD TO MATURITY
AT SEPTEMBER 30, AT DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
U.S. treasury................................................. $ -- $ -- $ -- $ 1,002 $ 2,016
U.S. government agencies...................................... 30,792 33,138 49,214 7,002 --
Mortgage-backed and asset-backed securities (1)............... 63,323 35,263 23,682 25,215 25,402
Other securities (2).......................................... 3,837 2,034 2,158 785 791
--------- --------- --------- --------- ---------
Total amortized cost of securities............................ $ 97,952 $ 70,435 $ 75,054 $ 34,004 $ 28,209
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total fair value of securities................................ $ 98,536 $ 70,206 $ 75,307 $ 33,846 $ 26,481
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------------
(1) All of these obligations consist of U.S. Government Agency issued
securities.
(2) Comprised mostly of FHLB stock and Federal Reserve Bank stock.
The following table presents the maturity distribution and weighted average
yield of the securities portfolio of the Company at September 30, 1997 and
December 31, 1996.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE AT SEPTEMBER 30, 1997
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AFTER 5 YEARS BUT
AFTER 1 YEAR BUT
WITHIN 1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS
-------------------------- -------------------------- ------------------------
<CAPTION>
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------------- ----- ------------- ----- ----------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Amortized cost:
U.S. treasury......................... $ 0 0% $ 0 0% $ 0 0%
U.S. government agencies.............. 0 0 0 0 2,276 6.91
Mortgage-backed securities............ 0 0 0 0 0 0
Other securities...................... 0 0 0 0 $ 0 0
-- - -- -
----------- ---
Total securities available for sale... $ 0 0% $ 0 0% $ 2,276 6.91%
-- - -- -
-- - -- -
----------- ---
----------- ---
<CAPTION>
<S> <C> <C> <C> <C>
AFTER 10 YEARS OR
NO MATURITY TOTAL
------------------------ ------------------------
AMOUNT YIELD AMOUNT YIELD
----------- ----- ----------- -----
<S> <C> <C> <C> <C>
Amortized cost:
U.S. treasury......................... $ 0 0% $ 0 0%
U.S. government agencies.............. 886 7.35 3,162 7.03
Mortgage-backed securities............ 0 0 0 0
Other securities...................... 0 0.00 0 0.00
----------- --- ----------- ---
Total securities available for sale... 886 7.35% 3,162 7.03%
----------- --- ----------- ---
----------- --- ----------- ---
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE FOR SALE AT DECEMBER 31, 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AFTER 5 YEARS BUT AFTER 10
AFTER 1 YEAR BUT YEARS OR
WITHIN 1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS NO MATURITY
------------------------ -------------------------- ------------------------ -----------
<CAPTION>
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
----------- ----- ------------- ----- ----------- ----- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Amortized cost:
U.S. treasury......................... $ 1,001 5.88% $ 0 0% $ 0 0% $ 0
U.S. government agencies.............. 500 4.53 0 0 2,570 7.15 1,061
Mortgage-backed securities............ 0 0 0 0 0 0 768
Other securities...................... 0 0 0 0 0 0 0
-- -
----------- --- ----------- --- -----------
Total securities available for sale... $ 1,501 5.43% $ 0 0% $ 2,570 7.15% $ 1,829
-- -
-- -
----------- --- ----------- --- -----------
----------- --- ----------- --- -----------
<CAPTION>
<S> <C> <C> <C>
TOTAL
------------------------
YIELD AMOUNT YIELD
----- ----------- -----
<S> <C> <C> <C>
Amortized cost:
U.S. treasury......................... 0% $ 1,001 5.88%
U.S. government agencies.............. 7.08 4,131 6.81
Mortgage-backed securities............ 5.53 768 5.53
Other securities...................... 0 0 0
--- ----------- ---
Total securities available for sale... 6.44% $ 5,900 6.49%
--- ----------- ---
--- ----------- ---
</TABLE>
<TABLE>
<CAPTION>
HELD TO MATURITY AT SEPTEMBER 30, 1997
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AFTER 10
YEARS OR
AFTER 1 YEAR BUT AFTER 5 YEARS BUT NO
WITHIN 1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS MATURITY
------------------------ ---------------------- ---------------------- ---------
<CAPTION>
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
----------- ----- --------- ----- --------- ----- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Amortized cost:
U.S. treasury......................... $ 0 0% $ 0 0% $ 0 0% $ 0
U.S. government agencies.............. 0 0 7,398 6.96 19,317 7.31 4,077
Mortgage-backed securities............ 0 0 2,506 5.61 9,093 6.80 51,724
Other securities...................... 0 0.00 805 6.81 100 7.50 2,932
----------- --- --------- --- --------- --- ---------
Total securities held to maturity..... 0 0.00% $ 10,709 6.64% $ 28,510 7.15% $ 58,733
----------- --- --------- --- --------- --- ---------
----------- --- --------- --- --------- --- ---------
<CAPTION>
<S> <C> <C> <C>
TOTAL
----------------------
YIELD AMOUNT YIELD
----- --------- -----
<S> <C> <C> <C>
Amortized cost:
U.S. treasury......................... 0% $ 0 0%
U.S. government agencies.............. 7.78 $ 30,792 7.29
Mortgage-backed securities............ 6.56 63,323 6.55
Other securities...................... 5.99 $ 3,837 6.20
--- --------- ---
Total securities held to maturity..... 6.62% $ 97,952 6.78%
--- --------- ---
--- --------- ---
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
HELD TO MATURITY AT DECEMBER 31, 1996
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AFTER 10
YEARS OR
AFTER 1 YEAR BUT AFTER 5 YEARS BUT NO
WITHIN 1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS MATURITY
------------------------ ---------------------- ---------------------- ---------
<CAPTION>
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
----------- ----- --------- ----- --------- ----- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Amortized cost:
U.S. treasury......................... $ 0 0% $ 0 0% $ 0 0% $ 0
U.S. government agencies.............. 0 0 15,986 6.68 33,228 7.35 0
Mortgage-backed securities............ 0 0 0 0 0 0 23,682
Other securities...................... 0 0 0 0 0 0 2,158
-
----------- --------- --- --------- --- ---------
Total securities held to maturity..... $ 0 0% $ 15,986 6.68% $ 33,228 7.35% $ 25,840
-
-
----------- --------- --- --------- --- ---------
----------- --------- --- --------- --- ---------
<CAPTION>
<S> <C> <C> <C>
TOTAL
----------------------
YIELD AMOUNT YIELD
----- --------- -----
<S> <C> <C> <C>
Amortized cost:
U.S. treasury......................... 0% $ 0 0%
U.S. government agencies.............. 0 $ 49,214 7.13
Mortgage-backed securities............ 5.14 $ 23,682 5.14
Other securities...................... 6.00 $ 2,158 6.00
--- --------- ---
Total securities held to maturity..... 5.21% $ 75,054 6.75%
--- --------- ---
--- --------- ---
</TABLE>
DEPOSIT STRUCTURE
Of the total daily average deposits of approximately $263.5 million held by
the Bank during the nine months ended September 30, 1997, approximately $52.5
million, or 19.9%, represented non-interest bearing deposits, compared to
approximately $32.1 million, or 16.8%, of approximately $190.8 million total
daily average deposits during 1996. Total deposits at September 30, 1997
consisted of approximately $34.0 million in non-interest-bearing demand
deposits, approximately $8.2 million in interest-bearing demand deposits,
approximately $25.8 million in savings deposits and money market accounts,
approximately $152.9 million in time deposits under $100,000, and approximately
$26.9 million in time deposits greater than $100,000. In general, the Bank pays
higher interest rates on time deposits over $100,000 in principal amount. Due to
the nature of time deposits and changes in the interest rate market generally,
it should be expected that the Bank's deposit liabilities may fluctuate from
period-to-period.
The following table is a distribution of the average balances of the Bank's
deposits and the average rates paid thereon, for the nine month periods ended
September 30, 1997 and 1996 and the three years ended December 31, 1996, 1995
and 1994.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
-------------------- ----------------------------------------------------------------
1997 1996 1995 1994
-------------------- -------------------- -------------------- --------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Money market and savings deposits.......... $ 28,761 3.21% $ 21,594 3.12% $ 14,063 3.67% $ 18,856 3.33%
Time deposits.............................. 173,690 5.82% 148,834 5.82% 81,404 6.15% 68,152 4.41%
Demand deposits, interest bearing.......... 8,525 2.49% 5,623 2.49% 1,320 2.50% 1,423 2.39%
--------- --------- --------- --------- --------- --------- --------- ---------
Total interest-bearing deposits............ $ 210,976 5.33% 176,051 5.38% $ 96,787 5.74% $ 88,431 4.14%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
38
<PAGE>
The following is a breakdown, by maturities, of the Company's time
certificates of deposit issued in denominations of $100,000 or more as of
September 30, 1997 and 1996 and December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
CERTIFICATES OF 100,000 OR MORE
-----------------------------------------------------
AT SEPTEMBER 30, AT DECEMBER 31.
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Maturing in:
Three months or less................................. $ 4,204 $ 12,930 $ 10,654 $ 1,700 $ 5,850
Over three months through six months................. 5,722 5,305 4,381 983 1,825
Over six months through twelve months................ 8,259 7,262 6,120 1,358 2,809
Over twelve months................................... 8,738 7,730 8,072 4,029 --
--------- --------- --------- --------- ---------
Total............................................ $ 26,923 $ 33,227 $ 29,227 $ 8,070 $ 10,484
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
BORROWINGS
The Company has two lines of credit totaling $7.0 million available for the
purchase of federal funds from corresponding banks. In addition, the Company has
a collateralized line of credit with the Federal Home Loan Bank of Pittsburgh
with a maximum borrowing capacity of $102.0 million. This maximum borrowing
capacity is subject to change on a quarterly basis. As of September 30, 1997,
there were $27.3 million of borrowings outstanding.
COMPETITION
The Bank faces significant competition from other commercial banks, savings
banks, savings and loan associations and several other financial or investment
service institutions in the communities it serves. Several of these institutions
are affiliated with major banking and financial institutions that are
substantially larger and have greater financial resources than the Company and
the Bank. As the financial services industry continues to consolidate,
competition affecting the Bank may increase. For most of the services that the
Bank performs there is also competition from credit unions and issuers of
commercial paper and money market funds. Such institutions, as well as brokerage
firms, consumer finance companies, insurance companies and pension trusts, are
important competitors for various types of financial services.
PROPERTY
The Company leases approximately 18,000 square feet on the tenth and
eleventh floors of 1608 Walnut Street, Philadelphia, Pennsylvania. The space is
occupied by both the Company and the Bank and is used for executive offices,
Bank operations and commercial lending. A new lease was signed effective
February 1, 1997 with a term of 10 and one-half years with annual rent expense
of $84,217 payable monthly. In addition to the base rent and building operation
expenses, the Company is required to pay all real estate taxes, assessments, and
sewer costs, water charges, excess levies, license and permit fees under its
lease and to maintain insurance on the premises. Pursuant to the terms of its
lease, the Company has a right of first refusal to purchase the leased premises.
Management believes that its present space is adequate, but that future staffing
needs may require the Bank to secure additional space and the Bank is presently
exploring several options in this area.
The Bank also occupies under lease approximately 3,600 square feet on the
ground floor and 2,900 square feet in the mezzanine at the northwest corner of
Three Penn Center at 1515 Market Street, Philadelphia, Pennsylvania. This space
contains a banking floor, lobby and operations center. The initial term expires
on March 31, 1998 and contains three options to renew, the first for a
three-year period and the second and third for five years each at the then
prevailing market rates. The annual adjusted base rent for such location for
1996 was $28,082 payable monthly.
39
<PAGE>
The Bank leases approximately 1,743 square feet on the ground floor at 1601
Walnut Street, Philadelphia, Pennsylvania. This space contains a banking area
and safe. The initial ten-year term of the lease expires July 2006 and contains
one renewal option of five years. The annual rent for such location for 1996 was
$42,600 payable monthly.
The Bank leases approximately 780 square feet in the lower level of Pepper
Pavilion at Graduate Hospital, 19th and Lombard Streets, Philadelphia,
Pennsylvania. The space contains a banking area, lobby, office and safe. The
initial five-year term on such lease expired June 30, 1997 and the Company
exercised its renewal option for five years. The annual rental for such location
for 1996 was $26,000 payable monthly.
The Bank leases approximately 798 square feet on the ground floor and 903
square feet on the 2nd floor at 233 East Lancaster Avenue, Ardmore, Montgomery
County. The space contains a banking area and business development office. The
initial five-year term of the lease expires in September 2000. The annual rent
for such location for 1996 was $38,694 payable monthly.
The Bank leases an approximately 2,200 square feet building on City Line
Avenue, Philadelphia County. The space contains a retail banking facility. The
initial 10 year term of the lease expires January, 2007, at an annual rent of
$55,000, payable monthly.
The Bank leases an approximately 4500 square foot building at 75 East
Germantown Avenue, East Norriton, Pennsylvania. The space contains a banking
area and business development office. The initial ten year term of the lease
expires in December 2006. The annual rent for 1997 is $66,000, payable monthly.
The Bank purchased an approximately 2800 square foot facility for its future
Abington, Montgomery County location at 1480 York Road. It is expected to house
the branch facility and a possible loan administration office.
LEGAL PROCEEDINGS
The Bank, along with a number of other financial institutions, has recently
been made a party to a lawsuit brought by a New Jersey bank claiming damages of
approximately $200,000 arising out of a series of mortgage loans made to a
borrower who apparently procured one or more of these loans fraudulently. The
Bank does not believe it has any liability arising from this transaction and
intends to vigorously defend this claim.
The Company and the Bank are from time to time a party (plaintiff or
defendant) to lawsuits that are in the normal course of business. While any
litigation involves an element of uncertainty, management, after reviewing
pending actions with its legal counsel, is of the opinion that the liability of
the Company and the Bank, if any, resulting from such actions will not have a
material effect on the financial condition or results of operations of the
Company and the Bank.
SUPERVISION AND REGULATION
Various requirements and restrictions under the laws of the United States
and the Commonwealth of Pennsylvania affect the Company and the Bank.
GENERAL
The Company is a bank holding company subject to supervision and regulation
by the FRB under the Bank Holding Company Act of 1956, as amended. As a bank
holding company, the Company's activities and those of its subsidiary are
limited to the business of banking and activities closely related or incidental
to banking, and the Company may not directly or indirectly acquire the ownership
or control of more than 5% of any class of voting shares or substantially all of
the assets of any company, including a bank, without the prior approval of the
FRB.
40
<PAGE>
The Bank is subject to supervision and examination by applicable federal and
state banking agencies. The Bank is a member of the Federal Reserve System, and
therefore, subject to the regulations of the FRB. The Bank is also a
Pennsylvania-chartered bank subject to supervision and regulation by the
Pennsylvania Department of Banking.
In addition, because the FDIC insures the deposits of the Bank, the Bank is
subject to regulation by the FDIC. The Bank is also subject to requirements and
restrictions under federal and state law, including requirements to maintain
reserves against deposits, restrictions on the types and amounts of loans that
may be granted and the interest that may be charged thereon, and limitations on
the types of investments that may be made and the types of services that may be
offered. Various consumer laws and regulations also affect the operations of the
Bank. In addition to the impact of regulation, commercial banks are affected
significantly by the actions of the FRB in attempting to control the money
supply and credit availability in order to influence the economy.
HOLDING COMPANY STRUCTURE
The Bank is subject to restrictions under federal law which limit its
ability to transfer funds to the Company, whether in the form of loans, other
extensions of credit, investments or asset purchases. Such transfers by the Bank
to the Company are generally limited in amount to 10% of the Bank's capital and
surplus. Furthermore, such loans and extensions of credit are required to be
secured in specific amounts, and all transactions are required to be on an arm's
length basis. The Bank has never made any loan or extension of credit to the
Company nor has it purchased any assets from the Company.
Under FRB policy, the Company is expected to act as a source of financial
strength to the Bank and to commit resources to support the Bank, i.e., to
downstream funds to the Bank. This support may be required at times when, absent
such policy, the Company might not otherwise provide such support. Any capital
loans by the Company to the Bank are subordinate in right of payment to deposits
and to certain other indebtedness of the Bank. In the event of the Company's
bankruptcy, any commitment by the Company to a federal bank regulatory agency to
maintain the capital of the Bank will be assumed by the bankruptcy trustee and
entitled to a priority of payment.
REGULATORY RESTRICTIONS ON DIVIDENDS
Dividend payments by the Bank to the Company are subject to the Pennsylvania
Banking Code of 1965 (the "Banking Code"), the Federal Reserve Act, and the
Federal Deposit Insurance Act (the "FDIA"). Under the Banking Code, no dividends
may be paid except from "accumulated net earnings" (generally, undivided
profits). Under the FRB's regulations, the Bank cannot pay dividends that exceed
its net income from the current year and the preceding two years. Under the
FDIA, an insured bank may pay no dividends if the bank is in arrears in the
payment of any insurance assessment due to the FDIC. Under current banking laws,
the Bank would be limited to $2.9 million of dividends in 1997 plus an
additional amount equal to the Bank's net profit for 1997, up to the date of any
such dividend declaration.
State and federal regulatory authorities have adopted standards for the
maintenance of adequate levels of capital by banks. Adherence to such standards
further limits the ability of the Bank to pay dividends to the Company.
Other regulatory requirements and policies may also affect the payment of
dividends to the Company by the Bank. If, in the opinion of the FRB, the Bank is
engaged in, or is about to engage in, an unsafe or unsound practice (which,
depending on the financial condition of the Bank, could include the payment of
dividends), the FRB may require, after notice and hearing, that the Bank cease
and desist from such practice. The FRB has formal and informal policies
providing that insured banks and bank holding companies should generally pay
dividends only out of current operating earnings.
41
<PAGE>
FDIC INSURANCE ASSESSMENTS
The FDIC has implemented a risk-related premium schedule for all insured
depository institutions that results in the assessment of premiums based on
capital and supervisory measures.
Under the risk-related premium schedule, the FDIC, on a semiannual basis,
assigns each institution to one of three capital groups (well capitalized,
adequately capitalized or under capitalized) and further assigns such
institution to one of three subgroups within a capital group corresponding to
the FDIC's judgment of the institution's strength based on supervisory
evaluations, including examination reports, statistical analysis and other
information relevant to gauging the risk posed by the institution. Only
institutions with a total capital to risk-adjusted assets ratio of 10.00% or
greater, a Tier 1 capital to risk-adjusted assets ratio of 6.0% or greater and a
Tier 1 leverage ratio of 5.0% or greater, are assigned to the well-capitalized
group.
Over the last two years, FDIC insurance assessments have seen several
changes for both BIF and SAIF institutions. The most recent change occurred on
March 31, 1996, when the President signed into law a bill designed to remedy the
disparity between BIF and SAIF deposit premiums. The first part of the bill
called for the SAIF to be capitalized by a one-time assessment on all SAIF
insured deposits held as of September 30, 1995. This assessment, which was 65.7
cents per $100 in deposits, raised $4.7 billion to bring the SAIF up to its
required 1.25 reserve ratio. This special assessment, paid on November 30, 1996,
had no effect on the Bank. The second part of the bill remedied the future
anticipated shortfall with respect to the payment of FICO interest. For 1997
through 1999, the banking industry will help pay the FICO interest payments at
an assessment rate that is one fifth the rate paid by thrifts. The FICO
assessment on BIF insured deposits is 1.29 cents per $100 in deposits; for SAIF
insured deposits it is 6.44 cents per $100 in deposits. Beginning January 1,
2000, the FICO interest payments will be paid pro-rata by banks and thrifts
based on deposits. At December 31, 1996, the Company estimated the FICO interest
assessment to be $30,000 for 1997. For the nine month period ended September 30,
1997, the Company paid FICO expenses of approximately $17,000. The Bank has not
been required to pay any FDIC insurance assessments since the fourth quarter of
1996 because BIF has met its statutorily required ratios and the Bank is
categorized as "well capitalized."
CAPITAL ADEQUACY
The FRB adopted risk-based capital guidelines for bank holding companies,
such as the Company. The required minimum ratio of total capital to
risk-weighted assets (including off-balance sheet activities, such as standby
letters of credit) is 8.0%. At least half of the total capital is required to be
Tier 1 capital, consisting principally of common shareholders' equity,
noncumulative perpetual preferred stock and minority interests in the equity
accounts of consolidated subsidiaries, less goodwill. The remainder, Tier 2
capital, may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, perpetual preferred stock, and a limited amount of the general
loan loss allowance.
In addition to the risk-based capital guidelines, the FRB established
minimum leverage ratio (Tier 1 capital to average total assets) guidelines for
bank holding companies. These guidelines provide for a minimum leverage ratio of
3% for those bank holding companies that have the highest regulatory examination
ratings and are not contemplating or experiencing significant growth or
expansion. All other bank holding companies are required to maintain a leverage
ratio of at least 1% to 2% above the 3% stated minimum. The Company is in
compliance with these guidelines. The FRB subjects the Bank to similar capital
requirements.
The risk-based capital standards are required to take adequate account of
interest rate risk, concentration of credit risk and the risks of
non-traditional activities.
42
<PAGE>
INTERSTATE BANKING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Law"), amended various federal banking laws to provide for
nationwide interstate banking, interstate bank mergers and interstate branching.
The interstate banking provisions allow for the acquisition by a bank holding
company of a bank located in another state.
Interstate bank mergers and branch purchase and assumption transactions were
allowed effective September 1, 1997; however, states may "opt-out" of the merger
and purchase and assumption provisions by enacting a law that specifically
prohibits such interstate transactions. States could, in the alternative, enact
legislation to allow interstate merger and purchase and assumption transactions
prior to Septem-
ber 1, 1997. States could also enact legislation to allow for de novo interstate
branching by out of state banks. In July 1995, Pennsylvania adopted "opt-in"
legislation which allows such transactions.
43
<PAGE>
MANAGEMENT
The following sets forth information concerning the Company's executive
officers.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Rolf A. Stensrud..................................... 59 Director, President and Chief Executive Officer of
the Company and the Bank
George S. Rapp....................................... 45 Executive Vice President and Chief Financial and
Administrative Officer of the Company and the Bank
Kevin J. Gallagher................................... 40 Executive Vice President and Chief Lending Officer of
the Bank
Jerome D. McTiernan.................................. 53 Executive Vice President of the Bank
</TABLE>
The executive officers serve at the discretion of the Company's Board of
Directors.
ROLF A. STENSRUD has served as President and Chief Executive Officer of the
Company and the Bank since March 1, 1997. From June 1996 to February 1997, he
was Executive Vice president and Chief Operating Officer of the Company and
President and Co-Chief Executive Officer of the Bank. Prior to the Merger, he
served as President, Chief Executive Officer and Director of Republic
Bancorporation and Republic Bank since 1995 and 1988, respectively.
GEORGE S. RAPP has been Executive Vice President and Chief Financial and
Administrative Officer of the Company and Bank since March 1, 1997. From the
Merger in 1996 until February 1997, he served as Executive Vice President and
Chief Operating Officer for the Bank. From February 1995 until the Merger, he
served as Executive Vice President and Chief Operating Officer of ExecuFirst and
First Executive Bank. Prior to joining ExecuFirst, he served two years as
Executive Vice President and Chief Financial Officer at Old York Road Bancorp.
KEVIN J. GALLAGHER has served as Executive Vice President and Chief Lending
Officer of the Bank since the Merger. From 1993 to 1996, he served as Executive
Vice President and Chief Lending Officer of Republic Bank. He served as Senior
Vice President of Republic Bank from 1992 to 1993, and as a Vice President of
Republic Bank from 1988 to 1992.
JEROME D. MCTIERNAN has served as Executive Vice President of the Bank since
the Merger. From April 1992 to 1996, he served as Executive Vice President of
Republic Bank. From 1988 to 1992, he was a Senior Vice President of Republic
Bank.
44
<PAGE>
The following table sets forth information regarding the members of the
Company's Board of Directors.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS
DIRECTOR AND POSITION HELD WITH
NAME AGE SINCE THE COMPANY AND THE BANK
- ------------------------------------------------ --- ----------- ------------------------------------------------
<S> <C> <C> <C>
Harry D. Madonna, Esquire ...................... 55 1988 Chairman of the Board of the Company and the
Bank; Partner, Blank, Rome, Comisky & McCauley,
1977 to present
Michael J. Bradley.............................. 53 1988 Vice Chairman of the Board of the Company and
the Bank; formerly Executive Vice President,
Acute and Ambulatory Services, Mercy Health
Corporation of Southeastern Pennsylvania, 1995
to 1997; Principal, Paragon Management Group,
Inc. (management consulting), 1991 to present
Kenneth Adelberg................................ 45 1988 Director of the Company and the Bank; President
of The Hifi House Group of Companies (audio and
video electronics), 1976 to present
William Batoff.................................. 62 1988 Director of the Company and the Bank; President,
Pioneer of Philadelphia Title Insurance Company,
1973 to 1993; Senior Consultant, Cassidy &
Associates (government relations consulting
firm), 1992 to present
Daniel S. Berman................................ 36 1988 Director of the Company and the Bank; President,
Berman Development Corporation (real estate
development), 1990 to present
John F. D'Aprix................................. 55 1991 Director of the Company and the Bank; formerly
President, Pennsylvania College of Podiatric
Medicine, March 1995 to May 1997; Chairman and
CEO of HouseCare America, Inc. (managed house
care), 1993 to present; Chairman Artran Scanning
Technology (imaging services), October, 1991 to
December, 1992
Sheldon E. Goldberg............................. 66 1989 Director of the Company and the Bank; Partner,
Investment Advisor, Cumberland Advisors,
Vineland, NJ (investment advisers), 1973 to
present; President, Cumberland Brokerage Corp.,
1990 to present; Chairman, National CD Sales,
1993 to present; Chairman, Matterhorn Asset
Management Corp., 1996 to present
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS
DIRECTOR AND POSITION HELD WITH
NAME AGE SINCE THE COMPANY AND THE BANK
- ------------------------------------------------ --- ----------- ------------------------------------------------
<S> <C> <C> <C>
Gerald Levinson................................. 66 1989 Director of the Company and the Bank;
Independent Financial Consultant, July 1985 to
present; Director; The Lannett Company (public
pharmaceutical company), 1979 to January 1997
Eustace W. Mita................................. 43 1988 Director of the Company and the Bank; Chief
Operating Officer , HAC Group, Inc. (training
consulting), 1989 to present
Neal I. Rodin................................... 51 1988 Director of the Company and the Bank; President,
The Rodin Group (international real estate
investment) President, IFC (international
financing and investing), 1975 to present
James E. Schleif................................ 55 1993 Director of the Company and the Bank; Executive
Vice President, Administration and Finance,
Mercy Health System of Southeastern Pennsylvania
(health care organization), 1978 to present
Zeev Shenkman................................... 45 1997 Director of the Company and the Bank; Private
investor, formerly Executive Vice President and
Chief Financial Officer of Global Sports, Inc.
June 1996 to May 1997; Executive Vice President
and Chief Financial Officer of Today's Man, Inc.
1984 to 1995. Former director of ExecuFirst
Bancorp
Steven J. Shotz................................. 52 1988 Director of the Company and the Bank; President
of Quantum Group, Inc. (venture capital group),
1995 to present; President and Chief Executive
Officer, Shotz, Miller, Glusman, Footer &
Magarick, P.C. (Accounting firm), 1980 to 1994
Rolf A. Stensrud................................ 59 1988 Director, President and Chief Executive Officer
of the Company and the Bank; former President
and Chief Executive Officer of Republic
Bancorporation and Republic Bank.
Harris Wildstein, Esquire....................... 51 1988 Director of the Company and the Bank; President
of R&S Imports, Ltd. and
Vice President of HVW, Inc. (Auto dealerships),
1977 to present
</TABLE>
46
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 1997, the amount and
percentage of Common Stock owned by each person who is known to the Company to
own more than five percent (5%) of the Common Stock, each director, each named
executive officer, and all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER(1) OWNERSHIP(2)(3) OF CLASS
- ----------------------------------------- --------------------------- -----------
<S> <C> <C>
Directors:
Kenneth Adelberg (4)(5).................................................... 80,665 2.32%
William Batoff(4)(6)....................................................... 46,587 1.34
Daniel S. Berman(7)(8)..................................................... 29,890 0.86
Michael J Bradley(10)(21).................................................. 53,000 1.53
John F. D'Aprix(7)......................................................... 9,600 0.28
Sheldon Goldberg(4)(9)..................................................... 54,900 1.58
Gerald Levinson(10)........................................................ 9,602 0.28
Harry D. Madonna, Esquire(10)(11).......................................... 250,829 6.68
Eustace W. Mita(7)(12)..................................................... 58,713 1.69
Neal Rodin (10) (13)....................................................... 95,431 2.75
James E. Schleif(7)........................................................ 25,000 0.73
Zeev Shenkman(4)........................................................... 141,012 4.09
Steven J. Shotz(10)(14).................................................... 143,434 4.05
Rolf A. Stensrud(4)(15).................................................... 70,006 2.00
Harris Wildstein, Esquire(7)(16)........................................... 218,802 6.24
Other Named Executive Officers:
George S. Rapp(17)......................................................... 7,200 0.21
Kevin J. Gallagher(18)..................................................... 18,733 5.41
Jerome D. McTiernan(19).................................................... 12,048 0.35
All directors and executive officers as a group (18 persons)(20)........... 1,325,434 33.08%
</TABLE>
- ------------------------
(1) Unless otherwise indicated, the address of each beneficial owner is c/o
Republic First Bancorp, Inc., 1608 Walnut Street, Philadelphia, PA 19103.
(2) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission and
may include securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as well as securities
to which the individual has or shares voting or investment power or has the
right to acquire beneficial ownership within sixty (60) days after September
30, 1997. Beneficial ownership may be disclaimed as to certain of the
securities.
(3) Information furnished by the directors, executive officers, and the Company.
(4) A Class I director whose term expires in 1999.
(5) Includes 25,264 shares of Common Stock subject to options granted to Mr.
Adelberg which are currently exercisable.
(6) Includes 19,253 shares of Common Stock subject to options granted to Mr.
Batoff which are currently exercisable.
(7) A Class II director whose term expires in 2000.
(8) Includes 25,264 shares of Common Stock subject to options granted to Mr.
Berman which are currently exercisable.
(9) Includes 18,000 shares of Common Stock subject to options granted to Mr.
Goldberg which are currently exercisable.
(10) A Class III director whose term expires in 1998.
(11) Includes 154,969 shares of Common Stock subject to options granted to Mr.
Madonna which are currently exercisable.
(12) Includes 28,879 shares of Common Stock subject to options granted to Mr.
Mita which are currently exercisable.
47
<PAGE>
(13) Includes 28,879 shares of Common Stock subject to options granted to Mr.
Rodin which are currently exercisable.
(14) Includes 91,318 shares of Common Stock subject to options granted to Mr.
Shotz which are currently exercisable.
(15) Includes 57,758 shares of Common Stock subject to options granted to Mr.
Stensrud which are currently exercisable.
(16) Includes 61,319 shares of Common Stock subject to options granted to Mr.
Wildstein which are currently exercisable.
(17) Includes 6,000 shares of Common Stock subject to options granted to Mr.
Rapp which are currently exercisable.
(18) Includes 15,624 shares of Common Stock subject to options granted to Mr.
Gallagher which are currently exercisable.
(19) Includes 9,624 shares of Common Stock subject to options granted to Mr.
McTiernan which are currently exercisable.
(20) The percent of class assumes all exercisable options issued to the
executive officers and non-employee directors have been exercised and,
therefore, on a pro forma basis, 4,006,460 shares of Common Stock would be
outstanding.
(21) Includes 18,000 shares of Common Stock subject to options granted to Mr.
Bradley which are currently exercisable.
48
<PAGE>
EXECUTIVE COMPENSATION
Set forth below is information concerning the annual compensation for
services in all capacities to the Company and the Bank for the fiscal years
ended December 31, 1996, 1995 and 1994 of each person who, during 1996, served
as (i) the chief executive officer of the Company or (ii) an executive officer
of the Company and the Bank to the extent such executive officers' total annual
salary and bonus exceeded $100,000. There were no other executive officers for
whom disclosure would have been provided but for the fact that such individuals
were not serving at the end of the 1996 fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------
AWARDS
ANNUAL COMPENSATION --------------------------
--------------------------------------------- SECURITIES PAYOUTS
OTHER RESTRICTED UNDER- -----------
ANNUAL STOCK LYING LTIP
SALARY BONUS COMPEN- AWARD(S) OPTIONS/ PAYOUTS
NAME AND PRINCIPAL POSITION YEAR ($) ($) SATION ($) SARS(#) $
- -------------------------------------- --------- ---------- --------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Zvi H. Muscal (1)..................... 1996 $ 220,000 $ 0 $ 9,000 0 0 0
Former Chief Executive Officer of 1995 220,000 0 15,000 0 12,000 0
the Company and the Bank 1994 220,000 35,000 15,000 0 12,000 0
Rolf A. Stensrud...................... 1996 175,000 50,000 0 0 0 0
President and Chief Executive 1995 165,000 50,000 0 0 0 0
Officer of the Company and the Bank 1994 155,000 0 17,615 0 23,827 0
George S. Rapp........................ 1996 105,000 15,000 0 0 6,000 0
Executive Vice President and Chief 1995 105,000 0 0 0 0 0
Financial Officer of the Company and 1994 N/A N/A N/A N/A N/A N/A
the Bank
Kevin J. Gallagher.................... 1996 105,000 31,069 0 0 6,000 0
Executive Vice President and Chief 1995 95,000 0 0 0 0 0
Lending Officer of the Bank 1994 85,000
Jerome D. McTiernan................... 1996 95,000 10,000 0 0 0 0
Executive Vice President of the Bank 1995 90,000 0 0 0 0 0
1994 85,000 0 0 0 0 0
<CAPTION>
ALL
OTHER
COMPEN-
SATION
NAME AND PRINCIPAL POSITION ($)
- -------------------------------------- ---------
<S> <C>
Zvi H. Muscal (1)..................... $ 16,036(2)
Former Chief Executive Officer of 16,036
the Company and the Bank 16,036
Rolf A. Stensrud...................... 8,950(2)
President and Chief Executive 0
Officer of the Company and the Bank 0
George S. Rapp........................ 0
Executive Vice President and Chief 0
Financial Officer of the Company and N/A
the Bank
Kevin J. Gallagher.................... 0
Executive Vice President and Chief 0
Lending Officer of the Bank
Jerome D. McTiernan................... 0
Executive Vice President of the Bank 0
0
</TABLE>
- ------------------------
(1) Mr. Zvi H. Muscal resigned his position as Chief Executive Officer of the
Company and the Bank effective February 28, 1997.
(2) Represent payments made to long term retirement plans established for the
benefit of the named executive.
49
<PAGE>
OPTIONS GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning stock options
granted during the fiscal year ended December 31, 1996 for the named executives.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENTAGE OF TOTAL EXERCISE OR
UNDERLYING OPTIONS OPTIONS GRANTED BASE PRICE ($/
NAME GRANTED (#) TO EMPLOYEES IN FISCAL YEAR SH) EXPIRATION DATE
- ------------------------------ ------------------- ----------------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Zvi H. Muscal................. -- -- --
Rolf A. Stensrud.............. -- -- --
Jerome D. McTiernan........... -- -- --
George S. Rapp................ 6,000 2.7% $ 6.49 October, 2006
Kevin J. Gallagher............ 6,000 2.7 6.49 October, 2006
</TABLE>
The following table sets forth information concerning the exercise of
options to purchase Common Stock by the named executive officers during the
fiscal year ended December 31, 1996 as well as the number of securities
underlying unexercised options and the potential value of unexercised options as
of December 31, 1996.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
UNDERLYING NUMBER OF SECURITIES IN-THE-MONEY OPTIONS
SHARES(#) ACQUIRED OPTIONS AT FYI-END (#) AT FISCAL YEAR-END($)
NAME ON EXERCISE EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- -------------------------------- --------------------- ----------------------------------- --------------------------
<S> <C> <C> <C>
Zvi H. Muscal................... 0 60,000/0 $300,930/$0
Rolf A. Stensrud................ 0 48,132/0 302,871/0
Jerome D. McTiernan............. 0 8,020/0 50,465/0
George S. Rapp.................. 0 5,000/0 11,237/0
Kevin J. Gallagher.............. 0 13,020/0 61,702/0
</TABLE>
- ------------------------
(1) "In-the-money options" are stock options with respect to which the market
value of the underlying shares of Common Stock exceeded the exercise price
at December 31, 1996. The value of such options is determined by subtracting
the aggregate exercise price for such options from the aggregate fair market
value of the underlying shares of Common Stock on December 31, 1996.
COMPENSATION PAID TO DIRECTORS
Each director of the Company also serves as a director of the Bank. The
Company's director compensation plan throughout 1996 provided that each director
would receive $500 for each Board meeting and $250 for each Committee meeting
attended. Pursuant to such plan, a total of $92,950 in director fees was accrued
and a total of $83,200 was paid for services rendered during 1996. No director
received more than $12,400 in 1996.
EXECUTIVE EMPLOYMENT AGREEMENTS
Mr. Rolf A. Stensrud currently serves as President and Chief Executive
Officer of the Company and the Bank under the terms and conditions of an
employment agreement with the Company and the Bank (the "Stensrud Agreement").
The Stensrud Agreement provides for an initial term of three years expiring in
June, 1999 and will automatically renew for successive one-year terms until
terminated by the parties. Under the Stensrud Agreement, Mr. Stensrud will
receive an annual base salary of $175,000 per year. In
50
<PAGE>
addition, Mr. Stensrud is entitled to: (i) reimbursement for entertainment and
travel expenses in connection with his duties, including expenses for one lunch
club and annual dues for one golf club; (ii) participate in any bonus, stock
purchase or grant, stock option, deferred compensation or other compensation
plans maintained by the Bank or the Company for its senior executives; (iii)
receive such basic medical, hospitalization and major medical insurance coverage
for himself and his dependents as the Bank or the Company maintains for its
executives; and (iv) use of an automobile provided by the Bank. If Mr. Stensrud
s employment is terminated for reasons other than for engaging in conduct
detrimental to the Bank, Mr. Stensrud will be entitled to receive his salary and
benefits for certain specified periods of time. The Stensrud Agreement provides
for the non-disclosure by Mr. Stensrud of confidential information acquired by
him in the context of his employment.
George S. Rapp currently serves as Executive Vice President and Chief
Financial and Administrative Officer of the Company and the Bank under the terms
of an employment agreement (the "Rapp Agreement"). The Rapp Agreement provides
that Mr. Rapp is employed as Executive Vice President and Chief Financial and
Administrative Officer of the Company and the Bank at an annual base salary of
$112,500, which may not be terminated by the Company and the Bank prior to March
31, 1998. Thereafter, the Company and the Bank may terminate the Rapp Agreement
on one year's notice, and Mr. Rapp may terminate this Agreement upon 30 days'
notice. Mr. Rapp is also eligible to receive an annual bonus at the discretion
of the Board of Directors and to participate in any executive or employee stock
option, bonus or other compensation plan and all other employee benefit plans.
The Company provides Mr. Rapp with an automobile allowance and the reimbursement
of certain expenses related to the use of such automobile in connection with his
employment.
Kevin J. Gallagher currently serves as Executive Vice President and Chief
Lending Officer of the Bank under the terms of an employment agreement (the
"Gallagher Agreement"). The Gallagher Agreement has a one-year term at an annual
base salary of $112,500. The term of the Agreement will be automatically
extended for successive one-year periods unless terminated by either party upon
90 days written notice prior to the end of any such year. Mr. Gallagher is also
eligible to receive an annual bonus at the discretion of the Board of Directors
and to participate in the Company's Stock Option Plan and all other employee
benefit plans. The Company provides Mr. Gallagher with an automobile allowance
and the reimbursement of certain expenses related to the use of such automobile
in connection with his employment.
Jerome D. McTiernan currently serves as Executive Vice President of the Bank
under the terms of an employment agreement (the "McTiernan Agreement"). The
McTiernan Agreement provides that Mr. McTiernan is employed for as Executive
Vice President at an annual base salary of $100,000, until terminated by the
Bank or Mr. McTiernan. The Agreement may be terminated by the Bank on twelve
months' written notice or by Mr. McTiernan on 30 days' notice. Mr. McTiernan is
also eligible to receive an annual bonus at the discretion of the Board of
Directors and to participate in the Company's Stock Option Plan and all other
employee benefit plans. The Company maintains a life insurance policy for the
benefit of Mr. McTiernan's designated beneficiaries and provides him with use of
an automobile and the reimbursement of certain expenses related to the use of
such automobile in connection with his employment.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain directors and executive officers of the Company and/or their
affiliates have loans outstanding from the Bank totaling in the aggregate $7.3
million. All such loans were made in the ordinary course of the Bank's business;
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for the comparable transactions with
unrelated persons; and, in the opinion of management, do not involve more than
the normal risk of collectability or present other unfavorable features.
51
<PAGE>
DESCRIPTION OF COMMON STOCK
The following is a summary of the material provisions of the Company's
Articles of Incorporation and Bylaws. This summary does not purport to be
complete and is qualified in its entirety by reference to such instruments, each
of which is an exhibit to the Registration Statement of which this Prospectus
forms a part.
AUTHORIZED CAPITAL STOCK
The Company has 20,000,000 shares of authorized Common Stock and 10,000,000
authorized shares of Preferred Stock. As of September 30, 1997, 3,446,309 shares
of Common Stock were outstanding and no shares of Preferred Stock were
outstanding.
Holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote at a meeting of shareholders. Each
share of Common Stock is entitled to share, pro rata, in dividends and in the
Company's assets in the event of dissolution or liquidation of the Company.
Holders of shares of Common Stock do not possess any preemptive rights and are
not entitled to cumulate votes in elections of directors. The outstanding shares
of Common Stock are fully paid and nonassessable. No option, warrant, privilege
or right has been issued or is outstanding other than the options granted under
the Company's stock option plans. See "Executive Compensation."
SPECIAL CHARTER AND PENNSYLVANIA CORPORATE LAW PROVISIONS
The Company's Articles of Incorporation and Bylaws contain certain
provisions that may have the effect of deterring or discouraging, among other
things, a nonnegotiated tender or exchange offer for the Common Stock, a proxy
contest for control of the Company, the assumption of control of the Company by
a holder of a large block of the Common Stock and the removal of the Company's
management. These provisions: (1) divide the Board of Directors into three
classes serving staggered three-year terms; (2) require that shares with at
least 75% of total voting power approve any merger or consolidation, with or
into a related person (a person or entity who, together with any affiliates or
associates, owns 10% or more of the outstanding voting stock of the Company,
except as otherwise permitted in the Company's Articles of Incorporation) or any
sale, lease, exchange transfer or other disposition of all or substantially all
of the assets of the Company to a related person (collectively a "Business
Combination") and other similar transactions; (3) terminates all voting rights
of any shareholder who acquires or owns more than 10% of the Common Stock unless
waived by the Board of Directors; (4) require that shares with at least 60% of
total voting power approve any amendment of those provisions of the Articles of
Incorporation pertaining to the election of directors, shareholder approval of a
Business Combination and termination of voting rights for shareholders who own
more than 10% of Common Stock; (5) permit the Board of Directors to oppose a
tender offer or other offer for the Company's securities on the basis of factors
other than the economic benefit to shareholders; (6) eliminate cumulative voting
in elections of directors; (7) require that shares with at least 75% of total
voting power approve any substantive amendment of the Bylaws; and (8) require
advance notice of nominations for the election of directors.
The Company is subject to provisions of the Pennsylvania Business
Corporation Law (the "BCL") which are triggered, in general, if any person or
group acquires, or discloses an intent to acquire, 20% or more of the voting
power of a covered corporation, other than pursuant to a registered firm
commitment underwriting or, in certain cases, pursuant to the approving vote of
the board of directors. The relevant provisions are contained in Subchapters
25E-H of the BCL.
Subchapter 25E of the BCL (relating to control transactions) provides that
if any person or group acquires 20% or more of the voting power of a covered
corporation, the remaining shareholders may demand from such person or group the
fair value of their shares, including a proportionate amount of any control
premium.
52
<PAGE>
Subchapter 25F of the BCL (relating to business combinations) delays for
five years and imposes conditions upon "business combinations" between an
"interested shareholder" and the corporation. The term "business combination" is
defined broadly to include various transactions utilizing a corporation's assets
for purchase price amortization or refinancing purposes. For this purpose, an
"interested shareholder" is defined generally as the beneficial owner of at
least 20% of a corporation's voting shares.
Subchapter 25G of the BCL (relating to control share acquisitions) prevents
a person who has acquired 20% or more of the voting power of a covered
corporation from voting such shares unless the "disinterested" shareholders
approve such voting rights. Failure to obtain such approval exposes the owner to
the risk of a forced sale of the shares to the issuer. Even if shareholder
approval is obtained, the corporation is also subject to Subchapters 25I and J
of the BCL. Subchapter 25I provides for a minimum severance payment to certain
employees terminated within two years of the approval. Subchapter 25J prohibits
the abrogation of certain labor contracts prior to their stated date of
expiration.
Subchapter 25H of the BCL (relating to disgorgement) applies in the event
that (i) any person or group publicly discloses that the person or group may
acquire control of the corporation or (ii) a person or group acquires (or
publicly discloses an offer or intent to acquire) 20% or more of the voting
power of the Company and, in either case, sells shares within 18 months
thereafter. Any profits from sales of equity securities of the corporation by
the person or group during the 18-month period belong to the corporation if the
securities that were sold were acquired during the 18-month period or within 24
months prior thereto.
Subchapters 25E-H of the BCL contain a wide variety of transnational and
status exemptions, exclusions and safe harbors. The Company is subject to the
provisions of Subchapters 25E through H.
In addition, the fiduciary duty standards applicable to the Board of
Directors under the BCL may have the effect of deterring or discouraging, among
other things, a nonnegotiated tender or exchange offer for the Common Stock, a
proxy contest for control of the Company, the assumption of control of the
Company by a holder of a large block of Common Stock and the removal of the
Company's management.
To the extent applicable to the Company at the present time, this
legislation generally (1) expands the factors and groups (including
shareholders) that the Board of Directors can consider in determining whether a
certain action is in the best interests of the Company; (2) provides that the
Board need not consider the interests of any particular group as dominant or
controlling; (3) provides that directors, in order to satisfy the presumption
that they have acted in the best interests of the Company, need not satisfy any
greater obligation or higher burden of proof with respect to actions relating to
an acquisition or potential acquisition of control; (4) provides that actions
relating to acquisitions of control that are approved by a majority of
"disinterested directors" are presumed to satisfy the directors' standard of
care unless it is proven by clear and convincing evidence that the directors did
not assent to such action in good faith after reasonable investigation; and (5)
provides that the fiduciary duty of directors is solely to the Company and may
be enforced by the Company or by a shareholder in a derivative action, but not
by a shareholder directly. One of the effects of these fiduciary duty provisions
may be to make it more difficult for a shareholder to successfully challenge the
actions of the Board of Directors in a potential change in control context.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the form of which is filed as an Exhibit to the Registration Statement of which
this Prospectus is a part), the Company has agreed to sell to Janney Montgomery
Scott Inc. (the "Underwriter"), and the Underwriter has agreed to purchase from
the Company, 1,000,000 shares of Common Stock.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all the shares of the Common
Stock offered hereby (other than those subject to
53
<PAGE>
the over-allotment option described below) if any shares are purchased. The
Underwriter has advised the Company that it initially plans to offer the shares
of Common Stock to the public at the public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriter may allow and
such dealers may reallow a concession not in excess of $ per share to
other dealers. After the Offering, the public offering price and the concessions
to selected dealers may be changed.
The Company has granted the Underwriter an option, exercisable within 30
days of the date of this Prospectus, to purchase up to 150,000 additional shares
of Common Stock from the Company at the same price per share as the initial
1,000,000 shares of Common Stock to be purchased by the Underwriter. The
Underwriter may exercise such option only to cover over-allotments in the sale
of the shares of Common Stock that the Underwriter has agreed to purchase.
The Company and its directors and executive officers have agreed that they
will not, with certain exceptions, publicly sell or otherwise dispose of any
shares of Common Stock, except the shares of the Common Stock offered hereby,
for 180 days from the date of this Prospectus without the prior written consent
of the Underwriter.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act, or contribute to payments the Underwriter may be required to
make in respect thereof.
The public offering price of the Common Stock offered hereby was determined
by negotiation between the Company and the Underwriter. Among the factors
considered in determining the public offering price, in addition to the lack of
a regular and active market for the Common Stock, are certain financial
information of the Company, an assessment of the Company's prospects and factors
relating to the market value of the Company and other publicly traded financial
institutions.
INDEMNIFICATION
Pennsylvania law provides that a Pennsylvania corporation may indemnify
directors, officers, employees and agents of the corporation against liabilities
they may incur in such capacities for any action taken or any failure to act,
whether or not the corporation would have the power to indemnify the person
under any provision of law, unless such action or failure to act is determined
by a court to have constituted recklessness or willful misconduct. Pennsylvania
law also permits the adoption of a Bylaw amendment, approved by shareholders,
providing for the elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (1) the director has
breached or failed to perform the duties of his office and (2) the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
The Bylaws of the Company provide for (1) indemnification of directors,
officers, employees and agents of the registrant and its subsidiaries and (2)
the elimination of a director's liability for monetary damages, to the fullest
extent permitted by Pennsylvania law.
Directors and officers also are insured against certain liabilities for
their actions, as such, by an insurance policy obtained by the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to the directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
54
<PAGE>
LEGAL MATTERS
Spector Gadon & Rosen, P.C., Philadelphia, Pennsylvania will pass upon the
validity of the shares offered hereby for the Company. Stevens & Lee, Wayne,
Pennsylvania, will pass upon certain legal matters for the Underwriters.
EXPERTS
The consolidated financial statements appearing in this Prospectus for the
year ended December 31, 1996 have been audited by Coopers & Lybrand L.L.P.,
independent accountants as indicated in their reports appearing elsewhere
herein, and are included in reliance upon such reports and given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements appearing in this Prospectus for the
year ended December 31, 1995 have been audited by Deloitte & Touche LLP,
independent auditors as stated in their report appearing herein, and have been
so included in reliance upon the report of such firm and given upon their
authority as experts in accounting and auditing.
55
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF
REPUBLIC FIRST BANCORP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPUBLIC FIRST BANCORP, INC. AND FIRST REPUBLIC BANK:
<TABLE>
<CAPTION>
<S> <C>
Financial Statements (Unaudited)
Consolidated Balance Sheets--As of September 30, 1997 and December 31, 1996........ F-2
Consolidated Statements of Income--For the nine months ended September 30, 1997 and
1996............................................................................. F-3
Consolidated Statements of Cash Flows--For the nine months ended September 30, 1997
and 1996......................................................................... F-4
Consolidated Statement of Shareholders' Equity--For the nine months ended September
30, 1997......................................................................... F-5
Notes to Consolidated Financial Statements......................................... F-6
Financial Statements (Audited)
Independent Auditors' Report....................................................... F-9
Independent Auditors' Report....................................................... F-10
Consolidated Balance Sheets--As of December 31, 1996 and 1995...................... F-11
Consolidated Statements of Income--For the years ended December 31, 1996 and
1995............................................................................. F-12
Consolidated Statements of Cash Flows--For the years ended December 31, 1996 and
1995............................................................................. F-13
Consolidated Statements of Shareholders' Equity--For the years ended December 31,
1996 and 1995.................................................................... F-14
Notes to Consolidated Financial Statements......................................... F-15
</TABLE>
F-1
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
(UNAUDITED)
ASSETS:
Cash and due from banks.................................................... $ 5,237,000 $ 7,716,000
Interest--bearing deposits with banks...................................... 2,058,000 665,000
Federal funds sold......................................................... 0 7,115,000
------------------ -----------------
Total cash and cash equivalents.......................................... 7,295,000 15,496,000
Securities available for sale, at fair value............................... 3,920,000 5,900,000
Securities held to maturity, at amortized cost (Fair value of $98,536,000
and $74,997,000)......................................................... 97,194,000 75,054,000
Loans receivable, net...................................................... 184,403,000 170,002,000
Premises and equipment, net................................................ 1,926,000 711,000
Real estate owned, net..................................................... 1,944,000 295,000
Accrued income and other assets............................................ 6,484,000 6,337,000
------------------ -----------------
Total Assets............................................................... $ 303,166,000 $ 273,795,000
------------------ -----------------
------------------ -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Deposits:
Demand--non-interest-bearing............................................... $ 33,961,000 $ 32,611,000
Demand--interest-bearing................................................... 8,233,000 10,181,000
Money market and savings................................................... 25,840,000 27,240,000
Time....................................................................... 152,947,000 150,800,000
Time over $100,000......................................................... 26,923,000 29,227,000
------------------ -----------------
Total Deposits........................................................... 247,904,000 250,059,000
Other Borrowings........................................................... 27,346,000 0
Accrued expenses and other liabilities..................................... 6,435,000 5,365,000
------------------ -----------------
Total Liabilities.......................................................... 281,685,000 255,424,000
------------------ -----------------
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share; 20,000,000 shares authorized;
shares issued and outstanding 3,446,309 and 3,417,509 as of September 30,
1997 and December 31, 1996 respectively.................................. 28,000 28,000
Additional paid in capital................................................. 13,799,000 13,693,000
Retained earnings.......................................................... 7,651,000 4,647,000
Unrealized gain on securities available for sale, net of deferred taxes.... 3,000 3,000
------------------ -----------------
Total Shareholders' Equity................................................. 21,481,000 18,371,000
------------------ -----------------
Total Liabilities and Shareholders' Equity................................. $ 303,166,000 $ 273,795,000
------------------ -----------------
------------------ -----------------
</TABLE>
(See notes to consolidated financial statements)
F-2
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER TO DATE YEAR TO DATE
-------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans............................ $ 4,364,000 $ 3,693,000 $ 12,316,000 $ 8,245,000
Interest on federal funds sold........................ 10,000 66,000 300,000 1,195,000
Interest on investments............................... 1,565,000 1,213,000 4,192,000 2,462,000
------------ ------------ ------------- ------------
Total Interest Income................................. 5,939,000 4,972,000 16,808,000 11,902,000
------------ ------------ ------------- ------------
INTEREST EXPENSE:
Demand--interest-bearing.............................. 49,000 50,000 159,000 82,000
Money market and savings.............................. 233,000 209,000 692,000 467,000
Time.................................................. 2,285,000 1,960,000 6,373,000 4,908,000
Time over $100,000.................................... 390,000 398,000 1,214,000 1,193,000
Subordinated Debt..................................... 0 70,000 0 210,000
Other Borrowings...................................... 373,000 0 621,000 0
------------ ------------ ------------- ------------
Total Interest Expense.................................. 3,330,000 2,687,000 9,059,000 6,860,000
------------ ------------ ------------- ------------
Net interest income..................................... 2,609,000 2,285,000 7,749,000 5,042,000
Provision for loan losses............................... 30,000 30,000 140,000 55,000
------------ ------------ ------------- ------------
Net interest income after provision for loan losses..... 2,579,000 2,255,000 7,609,000 4,987,000
------------ ------------ ------------- ------------
NON-INTEREST INCOME:
Service fees.......................................... 129,000 115,000 291,000 174,000
Tax refund program revenue............................ 5,000 0 2,239,000 2,080,000
Other income.......................................... 18,000 51,000 96,000 60,000
------------ ------------ ------------- ------------
152,000 166,000 2,626,000 2,314,000
------------ ------------ ------------- ------------
NON-INTEREST EXPENSES:
Salaries and Benefits................................. 1,056,000 845,000 3,083,000 1,958,000
Occupancy/Equipment................................... 315,000 281,000 867,000 639,000
Other expenses........................................ 561,000 571,000 1,944,000 1,138,000
------------ ------------ ------------- ------------
1,932,000 1,697,000 5,894,000 3,735,000
------------ ------------ ------------- ------------
Income before income taxes.............................. 799,000 724,000 4,341,000 3,566,000
------------ ------------ ------------- ------------
Provision for income taxes.............................. 274,000 224,000 1,337,000 1,189,000
------------ ------------ ------------- ------------
NET INCOME.............................................. $ 525,000 $ 500,000 $ 3,004,000 $ 2,377,000
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
NET INCOME PER SHARE:
Primary............................................... $ 0.14 $ 0.14 $ 0.79 $ 0.85
Fully diluted......................................... $ 0.14 $ 0.13 $ 0.78 $ 0.83
------------ ------------ ------------- ------------
AVERAGE COMMON SHARES AND CSE OUTSTANDING:
Primary............................................... 3,846,497 3,663,111 3,815,186 2,791,819
Fully diluted......................................... 3,858,398 3,730,890 3,855,189 2,867,286
------------ ------------ ------------- ------------
</TABLE>
(See notes to consolidated financial statements)
F-3
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................................... $ 3,004,000 $ 2,377,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses..................................................... 140,000 55,000
Write down of other real estate owned......................................... 70,000
Depreciation and amortization................................................. 302,000 183,000
(Increase) decrease in accrued income and other assets........................ (147,000) 663,000
Increase (decrease) in accrued expenses and other liabilities................ 1,070,000 (153,000)
-------------- --------------
Net cash provided by operating activities....................................... 4,439,000 3,125,000
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities:
Available for sale............................................................ (1,950,000) 0
Held to Maturity.............................................................. (37,386,000) (26,901,000)
Proceeds from principal receipts, sales, and maturities of securities........... 19,074,000 17,684,000
Net (increase) in loans......................................................... (14,715,000) (372,000)
Cash Proceeds from acquisitions................................................. 0 12,155,000
Purchase of other real estate owned............................................. (1,406,000) 0
Premises and equipment expenditures............................................. (1,448,000) (137,000)
-------------- --------------
Net cash provided by (used in) investing activities............................. (37,831,000) 2,429,000
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) in demand, money market, and savings deposits.................... (1,998,000) (4,589,000)
Net increase in borrowed funds.................................................. 27,346,000 0
Net increase (decrease) in time deposits........................................ (157,000) 8,823,000
-------------- --------------
Net cash provided by financing activities....................................... 25,191,000 4,234,000
-------------- --------------
Increase (decrease) in cash and cash equivalents.................................. (8,201,000) 9,788,000
Cash and cash equivalents, beginning of period.................................... 15,496,000 3,856,000
-------------- --------------
Cash and cash equivalents, end of period.......................................... $ 7,295,000 $ 13,644,000
-------------- --------------
-------------- --------------
Supplemental disclosure:
Interest paid................................................................... $ 8,699,000 $ 6,327,000
-------------- --------------
-------------- --------------
Non-cash transactions:
Net transfers to real estate owned from loans................................... $ 539,000 0
-------------- --------------
-------------- --------------
Changes in unrealized gain on securities available for sale..................... 0 ($ 26,000)
-------------- --------------
-------------- --------------
</TABLE>
(See notes to consolidated financial statements)
F-4
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
ADDITIONAL SECURITIES TOTAL
COMMON PAID IN RETAINED AVAILABLE SHAREHOLDERS'
STOCK CAPITAL EARNINGS FOR SALE EQUITY
--------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1995..................... $ 16,000 $ 6,653,000 $ 1,934,000 $ 19,000 $ 8,622,000
Acquisition of Execufirst Bancorp, Inc........ 12,000 7,040,000 0 0 7,052,000
Net income for the year....................... 0 0 2,713,000 0 2,713,000
Change in unrealized gain on securities
available for sale.......................... 0 0 0 (16,000) (16,000)
Balance December 31, 1996..................... 28,000 13,693,000 4,647,000 3,000 18,371,000
--------- ------------- ------------ ----------- -------------
Net Income For the Period..................... 0 0 3,004,000 0 3,004,000
Stock options exercised....................... 106,000 0 0 106,000
--------- ------------- ------------ ----------- -------------
Balance September 30, 1997.................... $ 28,000 $ 13,799,000 $ 7,651,000 $ 3,000 $ 21,481,000
--------- ------------- ------------ ----------- -------------
--------- ------------- ------------ ----------- -------------
</TABLE>
(See notes to consolidated financial statements)
F-5
<PAGE>
REPUBLIC FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of Republic First Bancorp, Inc. ("the Company"), the
accompanying unaudited financial statements contain all adjustments (including
normal recurring accruals) necessary to present fairly the financial position as
of September 30, 1997, the results of operations for the three and nine months
ended, September 30, 1997 and 1996, and the cash flows for the nine months ended
September 30, 1997 and 1996. The interim results of operations may not be
indicative of the results of operations for the full year. The accompanying
unaudited financial statements should be read in conjunction with the Company's
audited financial statements, and the notes thereto, included in the Company's
1996 annual report.
The Company is a one-bank holding company organized and incorporated under
the laws of the Commonwealth of Pennsylvania. Its solely-owned subsidiary, First
Republic Bank (the "Bank"), offers a variety of banking services to individuals
and businesses throughout the Greater Philadelphia and South Jersey area through
its offices and branches in Philadelphia and Montgomery Counties.
On September 7, 1996 Republic Bancorporation ("Republic"), parent company of
Republic Bank, its sole subsidiary, merged with and into ExecuFirst Bancorp,
Inc., ("ExecuFirst") parent company of First Executive Bank, its sole
subsidiary. Republic exchanged all of its common stock, for approximately
1,604,411 shares (approximately 56% of the combined total) of ExecuFirst's
common stock. Effective upon the merger, ExecuFirst changed its name to First
Republic Bancorp, Inc. Upon completion of the merger, Republic's shareholders
owned a majority of the outstanding shares of the consolidated Company's stock.
As a result, the transaction was accounted for as a reverse acquisition of
ExecuFirst by Republic solely for accounting and financial reporting purposes.
Therefore, Consolidated Statements of Operations and Consolidated Statements of
Cash Flows for the nine months and three months ended September 30, 1996 are
those of Republic from the date of the merger through September 30, 1996 and may
not be comparable to the current year Consolidated Statements. The operations of
ExecuFirst have been included in the Company's financial statements since the
date of acquisition. Historical shareholders' equity and earnings per share of
Republic prior to the merger have been retroactively restated (a
recapitalization) for the equivalent number of shares received in the merger
after giving effect to any differences in par value of the respective stock of
ExecuFirst and Republic.
The September 30, 1997 and December 31, 1996 Consolidated Balance Sheets
include the effect of the merger on a purchase accounting basis based on the
fair market value of ExecuFirst's common stock at a price of $5.75 per share,
the estimated market value of the stock for a reasonable period before and after
November 17, 1995, the announcement date of the merger. The purchase price
calculated for accounting purposes amounted to $7,052,000, which is the result
of multiplying the $5.75 per share market value of ExecuFirst by the outstanding
share of ExecuFirst of approximately 1,226,000 (prior to subsequent dividends)
at the announcement date of the merger, plus acquisition expenses incurred by
Republic, as a result of the merger, in the amount of $1,193,000.
The purchase price has been allocated to the respective assets acquired and
the liabilities based on their estimated fair market values, net of applicable
income tax effects. Negative goodwill in the amount of $1,045,000 was generated
for purchase accounting purposes and was applied against (i) bank premises and
equipment in the amount of $276,000, (ii) other real estate owned in the net
amount of $84,000, and (iii) the net deferred tax asset in the amount of
$685,000. No negative goodwill remains after application to these non-current
assets.
F-6
<PAGE>
REPUBLIC FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. RECLASSIFICATIONS:
Certain items in the 1996 financial statements were reclassified to conform
to 1997 presentation format.
Additionally, the Company declared a six for five stock split effected in
the form of a dividend on April 15, 1997 for all shareholders of record of the
Company on that date. Average common shares and common share equivalents, and
all other share presentations have been retroactively restated as if the
dividend was declared at the beginning of each respective period presented
herein.
3. EARNINGS PER SHARE:
Earnings per common share, and common equivalent shares, are based on the
weighted average number of common shares and common equivalent shares
outstanding during the periods. Stock options are included as share equivalents
when dilutive. These common stock equivalents had a dilutive effect for the nine
months and three months ended September 30, 1997 and 1996.
In February 1997 the FASB issued SFAS No. 128, "Earnings Per Share." This
Statement establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock. This Statement simplifies the standards for computing earnings per
share previously found in APB Opinion No. 15, Earnings Per Share, and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. This Statement requires restatement of all prior
period EPS data presented upon adoption. Had the Company adopted SFAS No. 128 as
of September 30, 1997, pro forma basic earnings per share would have been $0.14
and $0.15 for the three months ended September 30, 1997 and 1996, respectively,
and $0.87 and $0.92 for the nine months ended September 30, 1997 and 1996,
respectively.
4. INVESTMENT SECURITIES:
The Company classifies certain investments under one of the following
categories: "held-to- maturity" which is accounted for at historical cost,
adjusted for accretion of discounts and amortization of premiums;
"available-for-sale" which is accounted for at fair market value, with
unrealized gains and losses reported as a separate component of shareholders'
equity; or "trading" which is accounted for at fair market value, with
unrealized gains and losses reported as a component of net income. The Bank does
not hold "trading" securities.
At September 30, 1997, the Bank had identified certain investment securities
that are being held for indefinite periods of time, including securities that
will be used as part of the Bank's asset/liability management strategy and that
may be sold in response to changes in interest rates, prepayments and similar
factors. These securities are classified as available-for-sale and are intended
to increase the flexibility of the Bank's asset/liability management.
Available-for-sale securities consist of US Government Agency securities and
other investments. The book and market values of securities available-for-sale
was $3,159,000 and $3,162,000 respectively, as of September 30, 1997. The net
unrealized gain on securities available-for-sale, as of this date, was $3,000.
F-7
<PAGE>
REPUBLIC FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table represents the carrying and estimated fair values of
Investment Securities at September 30, 1997.
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
AVAILABLE-FOR-SALE ($000) COST GAIN LOSS FAIR VALUE
- ------------------------------------------------------------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
US Government Agencies............................................ $ 3,159 $ 7 $ (4) $ 3,162
Other............................................................. -- -- -- --
----------- ----- ----- -----------
TOTAL AVAILABLE-FOR-SALE.......................................... $ 3,159 $ 7 $ (4) $ 3,162
----------- ----- ----- -----------
----------- ----- ----- -----------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
HELD-TO-MATURITY ($000) COST GAIN LOSS FAIR VALUE
- ------------------------------------------------------------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Mortgage-backed Securities........................................ $ 30,792 $ 26 $ (52) $ 30,766
US Government Agencies............................................ 63,323 846 (236) 63,933
Other............................................................. 3,837 -- -- 3,837
----------- ----- ----- -----------
TOTAL HELD-TO-MATURITY............................................ $ 97,952 $ 872 $ (288) $ 98,536
----------- ----- ----- -----------
----------- ----- ----- -----------
</TABLE>
F-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of First Republic Bancorp, Inc.
We have audited the accompanying consolidated balance sheet of First
Republic Bancorp, Inc. and Subsidiary as of December 31, 1996, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all materials respects, the consolidated financial position
of First Republic Bancorp, Inc. and Subsidiary as of December 31, 1996 and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 30, 1997
F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Republic Bancorporation, Inc.:
We have audited the accompanying consolidated balance sheet of Republic
Bancorporation, Inc. and subsidiaries (the "Bank") as of December 31, 1995, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the two years in the period ended December 31, 1995. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Bank at December 31, 1995, and
the results of their operations and their cash flows for each of the two years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
[LOGO]
March 1, 1996
(Except Note 1 related to the merger
which is dated June 7, 1996 and except
Note 17 relating to the stock split effected
in the form of a dividend which is dated
March 4, 1997)
F-10
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS:
1996 1995
--------- ---------
<S> <C> <C>
Cash and due from banks................................................. $ 7,716 $ 2,884
Interest-bearing deposits with banks.................................... 665 39
Federal funds sold...................................................... 7,115 933
--------- ---------
Total cash and cash equivalents..................................... 15,496 3,856
Securities available for sale, at fair value............................ 5,900 4,348
Securities held to maturity, at amortized cost.......................... 75,054 34,004
Loans receivable, net................................................... 170,002 85,183
Premises and equipment, net............................................. 711 321
Real estate owned, net.................................................. 295 295
Accrued income and other assets......................................... 6,337 3,056
--------- ---------
Total Assets........................................................ $ 273,795 $ 131,063
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Deposits:
Demand--non-interest-bearing............................................ $ 32,611 $ 12,570
Demand--interest-bearing................................................ 10,181 1,429
Money market and savings................................................ 27,240 11,598
Time.................................................................... 150,800 82,757
Time over $100,000...................................................... 29,227 8,070
--------- ---------
Total Deposits...................................................... 250,059 116,424
Subordinated debt....................................................... 0 3,400
Accrued expenses and other liabilities.................................. 5,365 2,617
--------- ---------
Total Liabilities................................................... 255,424 122,441
--------- ---------
Commitments and contingencies (Note 10)
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share; 20,000,000 shares authorized;
shares issued and outstanding 3,417,509 and 1,925,293 as of December
31, 1996 and 1995 respectively........................................ 28 16
Additional paid in capital.............................................. 13,693 6,653
Retained earnings....................................................... 4,647 1,934
Unrealized gain on securities available for sale, net of deferred
taxes................................................................. 3 19
--------- ---------
Total Shareholders' Equity.......................................... 18,371 8,622
--------- ---------
Total Liabilities and Shareholders' Equity........................ $ 273,795 $ 131,063
--------- ---------
--------- ---------
</TABLE>
(See notes to consolidated financial statements)
F-11
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSAND, EXCEPT FOR PERSHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest Income
Interest and fees on loans............................................... $ 11,798 $ 7,710 $ 5,521
Interest on federal funds sold........................................... 1,346 176 278
Interest on deposits in banks............................................ 20 0 0
Interest on investments.................................................. 3,739 2,016 1,442
---------- ---------- ----------
16,903 9,902 7,241
---------- ---------- ----------
Interest espense:
Demand - Interest bearing................................................ 140 33 30
Money market and savings................................................. 674 516 637
Time..................................................................... 7,069 4,485 2,398
Time over $100,000....................................................... 1,594 519 599
Other borrowings......................................................... 0 62 25
Subordinated debt........................................................ 238 276 255
---------- ---------- ----------
9,715 5,891 3,944
---------- ---------- ----------
Net interest income........................................................ 7,188 4,011 3,297
Provision for possible loan losses......................................... 155 223 323
---------- ---------- ----------
Net interest income after provision for
possible loan losses..................................................... 7,033 3,788 2,974
---------- ---------- ----------
Non-interest income:
Service fees............................................................. 170 155 219
Refant program revenue................................................... 2,080 0 877
Other income............................................................. 364 0 0
---------- ---------- ----------
2,614 155 1,096
---------- ---------- ----------
Non-interest expenses:
Salaries and employee benefits........................................... 2,872 1,592 1,284
Occupancy expenses....................................................... 696 470 425
Professional fees........................................................ 282 327 354
Equipment................................................................ 205 94 96
Other operating expenses................................................. 1,526 566 674
---------- ---------- ----------
5,581 3,049 2,833
---------- ---------- ----------
Income before income taxes................................................. 4,066 894 1,237
Provision for income taxes................................................. 1,353 291 430
---------- ---------- ----------
Net income................................................................. $ 2,713 $ 603 $ 807
---------- ---------- ----------
---------- ---------- ----------
Earnings per common share:
Primary.................................................................. $ 0.92 $ 0.31 $ 0.42
Fully diluted............................................................ $ 0.88 $ 0.31 $ 0.42
Weighted average common shares outstanding
and common stock equivalents
Primary.................................................................. 2,961,225 1,925,293 1,925,293
Fully diluted............................................................ 3,164,944 1,925,293 1,925,293
</TABLE>
See notes to consolidated financial statements)
F-12
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................. $ 2,713 $ 603 $ 807
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for possible loan losses......................................... 155 223 323
Depreciation and amortization.............................................. 62 89 82
Amortization of securities................................................. 131 57 28
Realized gain on sale of real estate owned................................. (18) 0 0
Decrease (increase) in accrued income and other assets..................... 824 (697) (349)
Increase (decrease) in accrued expenses and other liabilities.............. 693 1,354 (344)
----------- ---------- ----------
Net cash provided by operating activities.................................. 4,560 1,629 547
----------- ---------- ----------
Cash flows from investing activities:
Acquisition of ExecuFirst Bancorp, Inc..................................... 11,952 0 0
Purchase of securities:
Available for sale....................................................... (1,000) (4,022) 0
Held to maturity......................................................... (24,650) (6,330) (2,141)
Proceeds from maturities and calls of securities:
Available for sale....................................................... 1,500 0 0
Held to maturity......................................................... 5,500 0 0
Principal collected on MBS's and CMO's:
Available for sale....................................................... 691 0 0
Held to maturity......................................................... 6,517 180 383
Net increase in loans...................................................... (11,937) (14,043) (9,295)
Proceeds from the sale of real estate owned................................ 86 0 0
Premises and equipment expenditures........................................ (556) (401) (73)
----------- ---------- ----------
Net cash used in investing activities...................................... (11,897) (24,616) (11,126)
----------- ---------- ----------
Cash flows from financing activities:
Net increase in demand and money market.................................... 7,628 5,570 2,266
Net increase (decrease) in time deposits................................... 14,749 22,888 (3,284)
Issuance (redemption of) subordinated debt................................. (3,400) 0 3,400
Net increase (decrease) in borrowed funds.................................. 0 (5,583) 1,583
----------- ---------- ----------
Net cash provided by financing activities.................................. 18,977 22,875 3,965
----------- ---------- ----------
Increase (decrease) in cash and cash equivalents............................. 11,640 (112) (6,614)
Cash and cash equivalents, beginning of period............................... 3,856 3,968 10,582
----------- ---------- ----------
Cash and cash equivalents, end of period..................................... $ 15,496 $ 3,856 $ 3,968
Supplemental disclosures:
Interest paid.............................................................. $ 8,409 $ 4,571 $ 3,890
Income taxes paid.......................................................... $ 1,105 $ 290 $ 443
Non-cash investing and financing activities:
Acquisition of ExecuFirst Bancorp, Inc.:
FMV of assets acquired................................................... $ (108,415) $ 0 $ 0
FMV of liabilities assumed............................................... 113,315 0 0
Stock issued............................................................. 7,052 0 0
----------- ---------- ----------
Total cash received, net of merger related costs......................... $ 11,952 $ 0 $ 0
----------- ---------- ----------
Non-monetary transfers from loans to real estate owned..................... $ 68 $ 70 $ 0
</TABLE>
(See notes to consolidated financial statements)
F-13
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN
ADDITIONAL ON SECURITIES TOTAL
COMMON PAID IN RETAINED AVAILABLE SHAREHOLDERS'
STOCK CAPITAL EARNINGS FOR SALE EQUITY
------------- ----------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1994............................. $ 16 $ 6,653 $ 524 $ 0 $ 7,193
Net income for the year............................. 0 0 807 0 807
--- ----------- ----------- --- -------------
Balance December 31, 1994........................... 16 6,653 1,331 0 8,000
Net income for the year............................. 0 0 603 0 603
Unrealized gain on securities available for sale.... 0 0 0 19 19
--- ----------- ----------- --- -------------
Balance December 31, 1995........................... 16 6,653 1,934 19 8,622
Acquisition of Execufirst Bancorp, Inc.............. 12 7,040 0 0 7,052
Net income for the year............................. 0 0 2,713 0 2,713
Change in unrealized gain on securities available
for sale.......................................... 0 0 (16) (16)
--- ----------- ----------- --- -------------
Balance December 31, 1996........................... $ 28 $ 13,693 $ 4,647 $ 3 $ 18,371
--- ----------- ----------- --- -------------
--- ----------- ----------- --- -------------
</TABLE>
(See notes to consolidated financial statements)
F-14
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
First Republic Bancorp, Inc. (formerly known as "Republic Bancorporation")
is a one-bank holding company organized and incorporated under the laws of the
Commonwealth of Pennsylvania. Its wholly-owned subsidiary, First Republic Bank
(the "Bank"), offers a variety of banking services to individuals and businesses
throughout the Greater Philadelphia and South Jersey area through its offices
and branches in Philadelphia and Montgomery Counties.
On June 7, 1996 Republic Bancorporation, ("Republic") parent company of
Republic Bank, its sole subsidiary, merged with and into ExecuFirst Bancorp,
Inc., ("ExecuFirst") parent company of First Executive Bank, its sole
subsidiary. Republic exchanged all of its common stock, for approximately
1,604,411 shares (approximately 56% of the combined total) of ExecuFirst's
common stock. Effective upon the merger, ExecuFirst changed its name to First
Republic Bancorp, Inc. (the "Company"). Upon completion of the merger,
Republic's shareholders owned a majority of the outstanding shares of the
consolidated company's stock. As a result, the transaction was accounted for as
a reverse acquisition of ExecuFirst by Republic solely for accounting and
financial reporting purposes. Therefore, the Consolidated Balance Sheets,
Consolidated Statements of Income and Consolidated Statements of Cash Flows for
the prior year periods are those of Republic only, and may not be comparable to
the current year Consolidated Statements. The operations of ExecuFirst have been
included in the Company's financial statements since the date of acquisition.
Historical shareholders' equity and earnings per share of Republic prior to the
merger has been retroactively restated (a recapitalization) for the equivalent
number of shares received in the merger after giving effect to any differences
in par value of the respective stock of ExecuFirst and Republic.
The December 31, 1996 Consolidated Balance Sheet reflects the effect of the
merger on a purchase accounting basis based on the fair market value of
ExecuFirst's common stock at a price of $5.75 per share, the estimated market
value of the stock for a reasonable period before and after November 17, 1995,
the announcement date of the merger. The merger was accounted for as a reverse
acquisition of ExecuFirst by Republic. Solely for accounting and financial
reporting purposes, Republic is considered the acquiring entity because Republic
shareholders acquired the majority of the combined Company's common stock, even
though ExecuFirst is the surviving entity and is the entity issuing common
stock. The purchase price calculated for accounting purposes amounted to
$7,052,000, which is the result of multiplying the $5.75 per share market value
of ExecuFirst by the outstanding shares of ExecuFirst of approximately 1,226,000
at the announcement date of the merger, plus acquisition expenses incurred by
Republic, as a result of the merger, in the amount of $1,193,000.
The purchase price has been allocated to the respective assets acquired and
the liabilities based on their estimated fair market values, net of applicable
income tax effects. Negative goodwill in the amount of $1,045,000 was generated
for purchase accounting purposes and was applied against (i) bank premises and
equipment in the amount of $276,000, (ii) other real estate owned in the net
amount of $84,000, and (iii) the net deferred tax asset in the amount of
$685,000. No negative goodwill remains after application to these non-current
assets.
The following unaudited pro forma information presents a summary of the
consolidated results if the merger had occurred at the beginning of such periods
presented.
F-15
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION: (CONTINUED)
(Dollar amounts in thousands, except for per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Net interest income........................................................ $ 9,337 $ 9,404
Net income................................................................. $ 2,954 $ 1,454
Earnings per share......................................................... $ 0.98 $ 0.51
</TABLE>
The pro forma results are for illustrative purposes only and do not purport
to be indicative of the actual results which would have occurred had the
transaction been consummated as of those earlier dates, nor are they necessarily
indicative of future operating results.
As a result of the merger, supervisory agreements of ExecuFirst, between the
Federal Reserve Bank and the PA Department of Banking were terminated. The bank
is subject to examination and extensive regulation by the Pennsylvania Banking
Department and the Federal Reserve Board. Its deposits are insured by the FDIC
to the individual deposit limits established by law.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements of the Company include the accounts of
First Republic Bancorp, Inc. and its wholly-owned subsidiary, First Republic
Bank ("the Bank"). All significant intercompany accounts and transactions have
been eliminated in the consolidated financial statements.
RISKS AND UNCERTAINTIES AND CERTAIN SIGNIFICANT ESTIMATES:
The earnings of the Company depend on the earnings of the Bank. The Bank is
dependent primarily upon the level of net interest income, which is the
difference between interest earned on its interest-earning assets, such as loans
and investments, and the interest paid on its interest-bearing liabilities, such
as deposits and borrowings. Accordingly, the operations of the Bank are subject
to risks and uncertainties surrounding its exposure to change in the interest
rate environment.
Additionally, the Company derives fee income from the Bank's participation
in a program (the "Refant" program) which indirectly funds consumer loans
collateralized by federal income tax refunds. Approximately $2.2 million in
gross revenues were collected on these loans during 1996. The Company is
participating in the program again in 1997, however, tax code changes, banking
regulations, as well as business decisions by the parties involved in the
program may affect future participation in the program.
Significant estimates are made by management in determining the allowance
for possible loan losses and carrying values of real estate owned. Consideration
is given to a variety of factors in establishing these estimates including
current economic conditions, diversification of the loan portfolio, delinquency
statistics, results of internal loan reviews, borrowers' perceived financial and
managerial strengths, the adequacy of underlying collateral, if collateral
dependent, or present value of future cash flows and other relevant factors.
Since the allowance for possible loan losses and carrying value of real estate
owned is dependent, to a great extent, on the general economy and other
conditions that may be beyond the Bank's control, it is at least reasonably
possible that the estimates of the allowance for possible loan losses and the
carrying values of the real estate owned could differ materially in the near
term.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make significant estimates
and assumptions that affect the reported amounts of
F-16
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
CASH AND CASH EQUIVALENTS:
For purposes of the statements of cash flows, the Company considers all cash
and due from banks, interest-bearing deposits with an original maturity of
ninety days or less and federal funds sold to be cash and cash equivalents. The
Bank is required to maintain certain average reserve balances as established by
the Federal Reserve Board. The amounts of those balances for the reserve
computation periods which included December 31, 1996 and 1995 were $798,000 and
$257,000, respectively. These requirements were satisfied through the
restriction of vault cash and a balance at the Federal Reserve Bank of
Philadelphia.
INVESTMENT SECURITIES:
The Company adopted Statement of Financial Accounting Standards No. 115,
("SFAS No. 115"), "Accounting for Certain Investments in Debt and Equity
Securities" on January 1, 1994. SFAS No. 115 requires debt and equity securities
to be classified in one of three categories, as applicable, and to be accounted
for as follows: debt securities which the Company has positive intent and
ability to hold to maturity are classified as "securities held to maturity" and
are reported at amortized cost; debt and equity securities that are bought and
sold in the near term are classified as "trading" and are reported at fair
market value with unrealized gains and losses included in earnings; and debt and
equity securities not classified as either held to maturity and/or trading
securities are classified as "securities available for sale" and are reported at
fair market value with unrealized gains and losses reported as a separate
component of shareholders' equity.
As of December 31, 1996 and 1995, shareholders' equity was increased by
$3,000 and $19,000 , respectively as the result of unrealized gains on
securities available for sale. Shareholders' equity was unaffected by the
adoption of SFAS No. 115 at December 31, 1994.
Investment securities classified as held to maturity are carried at
amortized cost, and are adjusted for amortization of premiums and accretion of
discounts over the life of the related security on a level yield method.
Investments securities that are held for an indefinite period of time are
classified as available for sale, and are carried at fair market value. Such
items include those management intends to use as part of its asset-liability
matching strategy or that may be sold in response to changes in interest rates
or other factors. Realized gains and losses on the sale of investment securities
are recognized using the specific identification method. The Company did not
realize any gains or losses on the sale of securities during 1996, 1995 or 1994.
Additionally, the Bank does not have any trading securities.
As permitted under SFAS No. 115, concurrent with the merger, the Company
reclassified a portion of ExecuFirst's securities available for sale with an
amortized cost of $30,259,000 to securities held to maturity, as of the merger
date of June 7, 1996. This one-time reclassification was done to reposition the
investment security portfolio to be consistent with the Company's
Asset/Liability Management policy and the anticipated future liquidity
requirements of the Company.
LOANS:
Loans are stated at the principal amount outstanding, net of deferred loan
fees and costs. Income is accrued on the principal amount outstanding.
F-17
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Loans, including impaired loans, are generally classified as nonaccrual if
they are past due as to maturity or payment of principal or interest for a
period of more than 90 days, unless such loans are well-secured and in the
process of collection. Loans that are on a current payment status or past due
less than 90 days may also be classified as nonaccrual if repayment in full of
principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due are reasonably assured of repayment within an
acceptable period of time, and there is a sustained period of repayment
performance (generally a minimum of six months) by the borrower, in accordance
with the contractual terms of interest and principal.
While a loan is classified as nonaccrual or as an impaired loan and the
future collectibility of the recorded loan balance is doubtful, collections of
interest and principal are generally applied as a reduction to principal
outstanding. When the future collectibility of the recorded loan balance is
expected, interest income may be recognized on a cash basis. In the case where a
nonaccrual loan had been partially charged off, recognition of interest on a
cash basis is limited to that which would have been recognized on the recorded
loan balance at the contractual interest rate. Cash interest receipts in excess
of that amount are recorded as recoveries to the allowance for loan losses until
prior charge-offs have been fully recovered.
ALLOWANCE FOR POSSIBLE LOAN LOSSES:
The allowance for possible loan losses is established through a provision
for possible loan losses charged to operations. Loans are charged against the
allowance when management believes that the collectibility of the loan principal
is unlikely. Recoveries on loans previously charged off are credited to the
allowance.
The allowance is an amount that management believes will be adequate to
absorb possible loan losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio quality, review
of specific problem loans, the results of the most recent regulatory
examination, current economic conditions and trends that may affect the
borrower's ability to pay.
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114") on January 1,
1995. SFAS 114 requires an adjustment to the carrying value of a loan through
the provision for possible credit losses when it is "probable" that a creditor
will be unable to collect all amounts due according to the contractual terms of
the loan. An insignificant delay, those less than 90 days, or insignificant
shortfall in amount of payments does not necessarily result in the loan being
identified as impaired. SFAS 114 was subsequently amended by Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment
of a Loan--Income Recognition and Disclosure" ("SFAS 118") to allow a creditor
to use existing methods for recognizing interest income on an impaired loan. The
adoption of SFAS 114 did not have a material impact on financial position or the
results of operations, for the years ended December 31, 1996 or 1995.
The Company considers residential mortgage loans and consumer loans,
including home equity lines of credit, to be small balance homogeneous loans.
These loan categories are collectively evaluated for impairment. Commercial
business loans and commercial real estate loans are individually measured for
impairment based on the present value of expected future cash flows discounted
at the historical effective interest rate, except that all collateral dependent
loans are measured for impairment based on the fair market value of the
collateral.
F-18
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation of furniture and equipment is calculated over the
estimated useful life of the asset using the straight-line method. Leasehold
improvements are amortized over the shorter of their estimated useful lives or
terms of their respective leases, using the straight-line method.
Repairs and maintenance are charged to current operations as incurred, and
renewals and betterments are capitalized.
REAL ESTATE OWNED:
Real estate owned consists of foreclosed assets and is stated at the lower
of cost or estimated fair market value minus estimated costs to sell the
property.
INCOME TAXES:
Deferred income taxes are recorded for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. In addition, a deferred tax asset is recorded to reflect the future
benefit of net operating loss carryforwards. The deferred tax assets may be
reduced by a valuation allowance if it is probable that some portion or all of
the deferred tax assets will not be realized.
EARNINGS PER COMMON SHARE:
Earnings per common share is computed by using the weighted average number
of common shares outstanding and common stock equivalents during each period
presented. Common stock equivalents consist of dilutive stock options granted
through the company's stock option plan. See note 16.
NEW ACCOUNTING PRONOUNCEMENTS:
In June 1996, the FASB No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125") which is
effective for the Company beginning January 1, 1997. SFAS No. 125, which is to
be applied prospectively, provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on the concept of control. It is anticipated that the adoption of SFAS No.
125 will not have a material effect on the financial position or results of
operations of the Company.
F-19
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT SECURITIES:
Investment securities available for sale as of December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED GROSS UNREALIZED ESTIMATED FAIR
AMORTIZED COST GAINS LOSSES VALUE
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
U.S. Treasuries.............................. $ 998,000 $ 3,000 $ 0 $ 1,001,000
U.S.Gov't Agencies........................... 4,128,000 8,000 (5,000) 4,131,000
CMOs......................................... 770,000 0 (2,000) 768,000
-------------- -------- ---------------- --------------
Total.................................... $ 5,896,000 $ 11,000 $ (7,000) $ 5,900,000
-------------- -------- ---------------- --------------
</TABLE>
Investment securities held to maturity as of December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED GROSS UNREALIZED ESTIMATED FAIR
AMORTIZED COST GAINS LOSSES VALUE
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
U.S. Gov't Agencies.......................... $ 49,214,000 $ 661,000 $ (293,000) $ 49,582,000
CMOs......................................... 23,682,000 14,000 (129,000) 23,567,000
Other Investment Securities.................. 2,158,000 0 0 2,158,000
-------------- -------- ---------------- --------------
Total.................................... $ 75,054,000 $ 675,000 $ (422,000) $ 75,307,000
-------------- -------- ---------------- --------------
</TABLE>
Investment securities available for sale as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED GROSS UNREALIZED ESTIMATED FAIR
AMORTIZED COST GAINS LOSSES VALUE
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
U.S. Gov't Agencies.......................... $ 4,320,000 $ 28,000 $ 0 $ 4,348,000
-------------- -------- ---------------- --------------
Total.................................... $ 4,320,000 $ 28,000 $ 0 $ 4,348,000
-------------- -------- ---------------- --------------
</TABLE>
Investment securities held to maturity as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED GROSS UNREALIZED ESTIMATED FAIR
AMORTIZED COST GAINS LOSSES VALUE
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
U.S. Treasuries.............................. $ 1,002,000 $ 0 $ 0 $ 1,002,000
CMOs......................................... 25,215,000 1,000 (194,000) 25,022,000
U.S.Gov't Agencies........................... 7,002,000 35,000 0 7,037,000
Other Investment Securities.................. 785,000 0 0 785,000
-------------- -------- ---------------- --------------
Total.................................... $ 34,004,000 $ 36,000 $ (194,000) $ 33,846,000
-------------- -------- ---------------- --------------
</TABLE>
The Company held an investment in stock of the Federal Reserve Bank in
accordance with regulatory requirements, with a carrying value of $521,000 and
$200,000 as of December 31, 1996 and 1995, respectively which are included in
Other Investment Securities. Also included in Other Securities is investments in
the stock of the Federal Home Loan Bank of Pittsburgh of $318,000 and $305,000
at December 31, 1996 and 1995, respectively.
F-20
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT SECURITIES: (CONTINUED)
The maturity distribution of the amortized cost and estimated market value
of investment securities by contractual maturity at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
---------------------------- ------------------------------
<S> <C> <C> <C> <C>
AMORTIZED ESTIMATED ESTIMATED FAIR
COST FAIR VALUE AMORTIZED COST VALUE
------------- ------------- -------------- --------------
Due in 1 year or less.............................. $ 0 $ 0 $ 1,500,000 $ 1,501,000
After 1 year to 5 years............................ 15,986,000 15,943,000 0 0
After 5 years to 10 years.......................... 20,272,000 20,513,000 2,571,000 2,570,000
Mortgage-backed securities and CMOs................ 36,638,000 36,693,000 1,825,000 1,829,000
Other Investment Securities........................ 2,158,000 2,158,000 0 0
------------- ------------- -------------- --------------
Total........................................ $ 75,054,000 $ 75,307,000 $ 5,896,000 $ 5,900,000
------------- ------------- -------------- --------------
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers have the right to call or prepay obligations with or without
prepayment penalties. Mortgage-backed securities and CMOs are shown separately
due to the amortization and prepayment of principal accruing throughout the life
of these instruments.
At December 31, 1996, investment securities in the amount of approximately
$5,099,000 were pledged as collateral for public deposits and certain other
deposits as required by law.
4. LOANS RECEIVABLE:
Loans receivable at December 31, consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
Commercial and industrial..................................... $ 45,007,000 $ 23,183,000
Real estate--mortgage......................................... 123,256,000 61,134,000
Consumer and other............................................ 3,831,000 1,546,000
-------------- -------------
172,094,000 85,863,000
Less allowance for possible loan losses....................... (2,092,000) (680,000)
-------------- -------------
Total loans receivable, net................................... $ 170,002,000 $ 85,183,000
-------------- -------------
</TABLE>
The recorded investment in loans for which impairment has been recognized in
accordance with SFAS 114 totaled $1,892,000 million and $526,000, at December
31, 1996 and 1995 respectively, of which $845,000 and $10,000 respectively,
related to loans with no valuation allowance because the loans have been
partially written down through charge-offs. Loans with valuation allowances at
December 31, 1996 and 1995 were $1,047,000 and $516,000, respectively. For the
years ended December 31, 1996 and 1995, the average recorded investment in
impaired loans was approximately $1,573,000 and $452,000, respectively. The Bank
did not recognize any interest on impaired loans in 1996 or 1995.
As of December 31, 1996, 1995 and 1994, there were loans of approximately
$1,892,000, $526,000 and $878,000, respectively, which were nonperforming. If
these loans were performing under their original contractual rate, interest
income on such loans would have approximated $135,000, $48,060 and $26,000 for
1996, 1995 and 1994, respectively.
The majority of loans are with borrowers in the Company's marketplace,
Philadelphia and surrounding suburbs, including southern New Jersey. The Company
has loans to customers whose assets and
F-21
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LOANS RECEIVABLE: (CONTINUED)
businesses are concentrated in real estate and healthcare. Repayment of these
loans is in part dependent upon general economic conditions affecting these
industries. The Company evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained is based on management's
credit evaluation of the customer. Collateral varies but primarily includes
residential and income-producing properties.
Included in loans are loans due from directors and other related parties of
$5,226,000 and $4,454,000 at December 31, 1996 and 1995, respectively. Of loans
due from directors and other related parties, approximately $4,887,000 and
$3,979,000 were collateralized at December 31, 1996 and 1995, respectively. The
following presents the activity in amounts due from directors and other related
parties for the year ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year........................ $ 4,454,000 $ 2,380,000 $ 2,249,000
Additions......................................... 1,826,000 2,724,000 916,000
Repayments........................................ (1,054,000) (650,000) (785,000)
------------ ------------ ------------
Balance at end of year............................ $ 5,226,000 $ 4,454,000 $ 2,380,000
------------ ------------ ------------
</TABLE>
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES:
Changes in the allowance for possible loan losses for the years ended December
31, is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year........................... $ 680,000 $ 650,000 $ 460.000
Charge-offs........................................ (391,000) (212,000) (144,000)
Recoveries......................................... 120,000 19,000 11,000
Acquisition of ExecuFirst.......................... 1,528,000 0 0
Provision for possible loan losses................. 155,000 223,000 323,000
------------ ---------- ----------
Balance at end of year................................. $ 2,092,000 $ 680,000 $ 650,000
------------ ---------- ----------
</TABLE>
6. PREMISES AND EQUIPMENT:
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Furniture and equipment............................................. $ 1,122,000 $ 715,000
Leasehold improvements.............................................. 404,000 255,000
------------ ----------
1,526,000 970,000
Less accumulated depreciation....................................... (815,000) (649,000)
------------ ----------
Net premises and equipment.......................................... $ 711,000 $ 321,000
------------ ----------
</TABLE>
Depreciation expense on premises and equipment amounted to $166,000, $89,000
and $82,000 in 1996, 1995 and 1994, respectively.
F-22
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PREMISES AND EQUIPMENT: (CONTINUED)
The Company has entered into noncancelable lease agreements for its
operations center and four branch facilities, expiring through July 31, 2007.
The leases are accounted for as operating leases. The minimum annual rental
payments required under these leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1997.......................................................................... $ 461,000
1998.......................................................................... 231,000
1999.......................................................................... 363,000
2000.......................................................................... 356,000
2001 and beyond............................................................... 2,609,000
------------
Total......................................................................... $ 4,020,000
------------
------------
</TABLE>
The Company incurred rent expense of $613,000, $427,000 and $395,000 in
1996, 1995 and 1994, respectively. Such rent expense has been computed in
accordance with generally accepted accounting principles which require rent
expense to be charged to expense on a straight-line basis rather than as paid.
7. SHORT-TERM BORROWINGS:
The Company has two lines of credit totaling $7,000,000 available for the
purchase of federal funds from corresponding banks. In addition, the Company has
a collateralized line of credit with the Federal Home Loan Bank of Pittsburgh
with a maximum borrowing capacity of $92 million. This maximum borrowing
capacity is subject to change on a quarterly basis. As of December 31, 1996 and
1995, there were no amounts outstanding on any of the Bank's lines of credit.
8. INCOME TAXES:
In accordance with Statement of Financial Accounting Standards No, 109,
"Accounting for Income Taxes" (SFAS No. 109), deferred tax assets and
liabilities are established for the temporary difference between accounting
bases and tax bases of the Company's assets and liabilities at the tax rates
expected to be in effect when the temporary differences are realized or settled.
Management believes that the existing net differences which give rise to the net
deferred income tax assets are realizable on a more likely than not basis.
The approximate tax effect of each type of temporary difference and
carryforward that gives rise to net deferred tax assets included in the accrued
income and other assets in the accompanying consolidated balance sheets at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Allowance for loan losses............................................ $ 320,000 $ 178,000
Net operating loss carryforward...................................... 503,000 0
Deferred compensation................................................ 199,000 (12,000)
Depreciation......................................................... 164,000 24,000
Real estate owned.................................................... 46,000 0
Other................................................................ 142,000 15,000
Unrealized gain on securities available for sale..................... (1,000) (9,000)
---------- ----------
Deferred tax asset................................................... 1,373,000 196,000
Negative goodwill allocated to deferred tax asset,
net of amortization................................................ (515,000) 0
---------- ----------
Deferred tax assets, net............................................. $ 858,000 $ 196,000
---------- ----------
</TABLE>
F-23
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES: (CONTINUED)
As discussed in Note 1 of the consolidated financial statements, the reverse
acquisition of ExecuFirst by Republic on June 7, 1996 generated negative
goodwill of $1,045,000, of which $685,000 was applied against the deferred tax
assets. During 1996, the negative goodwill allocated to the deferred tax assets
was amoritized by an amount of $170,000, thereby resulting in a corresponding
reduction to the provision for income taxes. The amortization of negative
goodwill is being recorded based upon the estimated reversal period of the
underlying components of the deferred tax assets.
At December 31, 1996, the Company has available approximately $1,479,000 of
net operating loss carryforwards available for income tax reporting purposes
which expire from 2003 through 2008.
The following represents the components of income tax expense (benefit) for
the years ended December 31, 1996, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
1996 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Current provision
Federal.................................................................. $ 950,000 $ 370,000 $ 398,000
State.................................................................... 163,000 0 15,000
Deferred provision--Federal................................................ 240,000 (79,000) 17,000
------------ ---------- ----------
Total provision for income taxes..................................... $ 1,353,000 $ 291,000 $ 430,000
------------ ---------- ----------
</TABLE>
The following table accounts for the difference between the actual tax
provision and the amount obtained by applying the statutory federal income tax
rate of 34% to income before income taxes for the years ended December 31, 1996,
1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Tax provision computed at statutory rate................................... $ 1,383,000 $ 304,000 $ 421,000
State income taxes net of federal tax benefit.............................. 108,000 0 10,000
Amortization of negative goodwill.......................................... (170,000) 0 0
Other...................................................................... 32,000 (13,000) (1,000)
------------ ---------- ----------
Total provision for income taxes..................................... $ 1,353,000 $ 291,000 $ 430,000
------------ ---------- ----------
</TABLE>
9. DIRECTORS AND OFFICERS ANNUITY PLAN:
The Bank has an agreement with an insurance company to provide for an
annuity payment upon the retirement or death of the Bank's Directors and certain
officers, ranging from $15,000 to $25,000 per year for ten years. After five
years of service, the Director or officer shall be 50% vested in his accrued
benefit. For each additional year of service over five years, the Director or
officer will be vested an additional 10% per year until he is 100% vested. The
accrued benefits under the plan at December 31, 1996, 1995 and 1994 totaled
$224,000, $146,000 and $90,000, respectively. The expense for the years ended
December 31, 1996, 1995 and 1994 was $72,000, $56,000 and $46,000, respectively.
The Bank has elected to fund the plan through the purchase of certain life
insurance contracts. The cash surrender value of these contracts (owned by the
Bank) aggregated $1,277,000, $1,181,000 and $1,105,000 at December 31, 1996,
1995 and 1994, respectively, which is included in accrued interest and other
assets.
10. COMMITMENTS AND CONTINGENCIES:
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to
F-24
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
extend credit and standby letters of credit. These instruments involve to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the financial statements.
Credit risk is defined as the possibility of sustaining a loss due to the
failure of the other parties to a financial instrument to perform in accordance
with the terms of the contract. The maximum exposure to credit loss under
commitments to extend credit and standby letters of credit is represented by the
contractual amount of these instruments. The Company uses the same underwriting
standards and policies in making credit commitments as it does for
on-balance-sheet instruments.
Financial instruments whose contract amounts represent potential credit risk
are commitments to extend credit of approximately $28.5 million and $15.7
million and standby letters of credit of approximately $1,129,000 and $419,000
at December 31, 1996 and 1995, respectively.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and many
require the payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained upon
extension of credit is based on management's credit evaluation of the customer.
Collateral held varies but may include real estate, marketable securities,
pledged deposits, equipment and accounts receivable.
Standby letters of credit are conditional commitments issued that guarantee
the performance of a customer to a third party. The credit risk and collateral
policy involved in issuing letters of credit is essentially the same as that
involved in extending loan commitments. The amount of collateral obtained is
based on management's credit evaluation of the customer. Collateral held varies
but may include real estate, marketable securities, pledged deposits, equipment
and accounts receivable.
The Company has entered into an employment agreement with the subsidiary
bank's CEO, which provides for the payment of base salary and certain benefits
for a period of three years after notice of termination. The aggregate
commitment for future salaries and benefits under this employment agreement at
December 31, 1996 is approximately $675,000. The Company has also entered into
an employment agreement with the President, Chief Operating Officer and Chief
Lending Officer of the subsidiary Bank, which provides for the payment of base
salary and certain benefits through the year 1997. The aggregate commitment for
future salaries and benefits under these employment agreements at December 31,
1996 is approximately $633,000.
11. SUBORDINATED DEBT:
In 1994, the Bank issued $3,400,000 of subordinated debentures due in 2001
in a private placement with a broker. Interest on the debt accrued from their
date of issuance and was paid semiannually at the annual rate of 8.15%. During
the fourth quarter of 1996, all of the outstanding subordinated debt was
redeemed at par value.
F-25
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SHAREHOLDERS' EQUITY:
In accordance with the Pennsylvania Banking Code, cash dividends by the Bank
may be declared and only paid out of accumulated net earnings, as defined by the
Code. At December 31, 1996, there were no dividends declared or paid.
The Bank is subject to the Federal Reserve Board's risk-based capital
leverage ratio guidelines. These guidelines require all state-chartered member
banks to maintain total capital equal to at least 8% of risk-weighted total
assets, Tier 1 capital (common stock, additional paid-in capital and retained
earnings) equal to 4% of risk-weighted total assets, and a Tier 1 leverage ratio
of 5%. At December 31, 1996, the aforementioned ratios are as follows:
REGULATORY CAPITAL REQUIREMENTS:
The following table presents the Bank's capital ratios at December 31,:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Tier I Capital............................................. $ 18,034,000 $ 8,600,000
Tier II Capital............................................ $ 2,092,000 $ 4,080,000
-------------- --------------
Total Capital.............................................. $ 20,126,000 $ 12,680,000
Total Average Quarterly Assets............................. $ 271,009,000 $ 130,699,000
Total Risk-Weighted Assets (1)............................. $ 178,834,000 $ 102,423,000
Tier I Risk-Based Capital Ratio (2)........................ 10.08% 8.40%
Required Tier I Risk-Based Capital Ratio................... 4.00% 4.00%
-------------- --------------
Excess Tier I Risk-Based Capital Ratio..................... 6.08% 4.40%
Total Risk-Based Capital Ratio (3)......................... 11.25% 12.38%
Required Total Risk-Based Capital Ratio.................... 8.00% 8.00%
-------------- --------------
Excess Total Risk-Based Capital Ratio...................... 3.25% 4.38%
Tier I Leverage Ratio (4).................................. 6.65% 6.58%
Required Tier I Leverage Ratio............................. 5.00% 5.00%
-------------- --------------
Excess Tier I Leverage Ratio............................... 1.65% 1.58%
</TABLE>
- ------------------------
(1) INCLUDES OFF-BALANCE SHEET ITEMS AT CREDIT-EQUIVALENT VALUES.
(2) TIER I RISK-BASED CAPITAL RATIO IS DEFINED AS THE RATIO OF TIER I CAPITAL TO
TOTAL RISK-WEIGHTED ASSETS.
(3) TOTAL RISK-BASED CAPITAL RATIO IS DEFINED AS THE RATIO OF TIER I AND TIER II
CAPITAL TO TOTAL RISK-WEIGHTED ASSETS.
(4) TIER I LEVERAGE RATIO IS DEFINED AS THE RATIO OF TIER I CAPITAL TO TOTAL
AVERAGE QUARTERLY ASSETS.
13. RETIREMENT PLAN:
The Company maintains a Supplemental Retirement Plan for its Chief Executive
Officer which provides for payments of approximately $100,000 a year, commencing
for a ten-year period upon
F-26
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. RETIREMENT PLAN: (CONTINUED)
retirement or death. A life insurance contract has been purchased to insure
against all or a portion of the payments which may be required prior to the
anticipated retirement date of the officer.
The Bank has a defined contribution plan pursuant to the provision of 401(k)
of the Internal Revenue Code. The Plan covers all full-time employees who meet
age and service requirements. The plan provides for elective employee
contributions up to 6% of compensation and a 50% matching Company or Bank
contribution limited to 3%. The total expense relating to the plan was $47,000
and $33,000 in 1996 and 1995, respectively. There was no expense in 1994.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The disclosure of the fair value of all financial instruments is required,
whether or not recognized on the balance sheet, for which it is practical to
estimate fair value. In cases where quoted market prices are not available, fair
values are based on assumptions including future cash flows and discount rates.
Accordingly, the fair value estimates cannot be substantiated, may not be
realized, and do not represent the underlying value of the Company.
The Company uses the following methods and assumptions to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
CASH AND CASH EQUIVALENTS:
The carrying value is a reasonable estimate of fair value.
SECURITIES HELD TO MATURITY AND SECURITIES AVAILABLE FOR SALE:
For investment securities with a quoted market price, fair value is equal to
quoted market prices. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
LOANS:
For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair value is the carrying value. For other categories of
loans such as commercial and industrial loans, real estate mortgage and consumer
loans, fair value is estimated based on discounting the estimated future cash
flows using the current rates at which similar loans would be made to borrowers
with similar collateral and credit ratings and for similar remaining maturities.
DEPOSIT LIABILITIES:
For checking, savings and money market accounts, fair value is the amount
payable on demand at the reporting date. For time deposits, fair value is
estimated using the rates currently offered for deposits of similar remaining
maturities.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT:
For commitments and standby letters of credit, the recorded fee amount is a
reasonable estimate of fair value because the majority of the Bank's commitments
to extend credit and standby letters of credit carry current market rates if
converted to loans.
F-27
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
At December 31, 1996, the carrying amount and the estimated fair value of
the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------- -------------- ------------- -------------
Financial Assets
Cash and cash equivalents....................... $ 15,496,000 $ 15,496,000 $ 3,856,000 $ 3,856,000
Securities available for sale................... 5,900,000 5,900,000 4,348,000 4,348,000
Securities held to maturity..................... 75,054,000 75,307,000 34,004,000 33,846,000
Loans receivable, net........................... 170,002,000 170,513,000 85,183,000 86,400,000
Financial Liabilities:
Deposits:
Demand, savings, and money market............... $ 70,032,000 $ 70,032,000 $ 25,597,000 $ 25,597,000
Time............................................ 180,027,000 181,167,000 90,827,000 88,982,000
Subordinated Debt............................... 0 0 3,400,000 3,446,000
</TABLE>
15. PARENT COMPANY FINANCIAL INFORMATION
The following financial statements for First Republic Bancorp, Inc.
(formally known as Republic Bancorporation) should be read in conjunction with
the consolidated financial statements and the other notes related to the
consolidated financial statements. Republic Bancorporation was formed on August
2, 1995, and therefore, comparative financial statements are not presented for
the year ended December 31, 1994.
F-28
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
ASSETS:
Cash....................................................................................... $ 84 $ 0
Investment in subsidiary, at equity........................................................ 18,287 8,577
Other Assets............................................................................... 0 45
--------- ---------
Total Assets............................................................................. $ 18,371 $ 8,622
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Total Liabilities........................................................................ $ 0 $ 0
SHAREHOLDERS' EQUITY:
Common stock............................................................................. 28 16
Additional paid in capital............................................................... 13,693 6,653
Retained earnings........................................................................ 4,647 1,934
Unrealized gain on securities available for sale, net of deferred tax.................... 3 19
--------- ---------
Total Shareholders' Equity............................................................. 18,371 8,622
--------- ---------
Total Liabilities and Shareholders' Equity............................................... $ 18,371 $ 8,622
--------- ---------
--------- ---------
</TABLE>
STATEMENTS OF INCOME AND CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Income....................................................................................... $ 0 $ 0
Expenses..................................................................................... 0 0
Equity in undistributed income of subsidiary................................................. 2,713 603
--------- ---------
Net income................................................................................... 2,713 603
Shareholders' equity, beginning of year...................................................... 8,622 8,000
Change in unrealized gain on securities available for sale................................... (16) 19
Acquisition of ExecuFirst Bancorp, Inc....................................................... 7,052 0
--------- ---------
Shareholders' equity, end of year............................................................ $ 18,371 $ 8,622
--------- ---------
</TABLE>
F-29
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................................................... $ 2,713 $ 603
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed income of subsidiary................................................. (2,713) (603)
--------- ---------
Net cash provided by operating activities.................................................... 0 0
--------- ---------
Cash flows from investing activities:
Acquisition of ExecuFirst Bancorp, Inc......................................................... 84 0
--------- ---------
Net cash provided by investing activities.................................................... 84 0
--------- ---------
Increase in cash............................................................................... 84 0
Cash, beginning of period...................................................................... 0 0
--------- ---------
Cash, end of period............................................................................ $ 84 $ 0
--------- ---------
--------- ---------
</TABLE>
16. STOCK OPTIONS
The Company maintains a Stock Option Plan (the "Plan") under which the
Company grants options to its employees and directors. Under the terms of the
plan, 500,000 shares of common stock are reserved for such options. The Plan
provides that the exercise price of each option granted equals the market price
of the Company's stock on the date of grant. Any option granted vests within one
year and has a maximum term of ten years. All options are granted upon approval
of the Stock Option Committee of the Board of Directors, consisting of three
disinterested members (as defined under Rule 16b-3 of the Securities Exchange
Act of 1934, as amended). Stock Options are issued to promote the interests of
the Company by providing incentives to (i) designated officers and other
employees of the Company or a Subsidiary Corporation (as defined herein), (ii)
non-employee members of the Company's Board of Directors and (iii) independent
contractors and consultants who may perform services for the Company. The
Company believes that the Plan causes participants to contribute materially to
the growth of the Company, thereby benefiting the Company's shareholders.
Prior to the merger of Republic Bancorporation and ExecuFirst Bancorp, Inc.,
various grants of stock options were issued pursuant to the then existing plans
of each Corporation.
In addition to the shares reserved under the plan, 102,023 options were
granted outside of the Plan to a director of the Company, as a result of the
merger between Republic Bancorporation and ExecuFirst Bancorp, Inc. These
options have a grant date of June 7, 1996. The options will vest within one year
of the grant date, and will expire on June 7, 2006. Shares outstanding under
option and option price per share have been retroactively restated (a
recapitalization) for the equivalent number of shares received in the
F-30
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. STOCK OPTIONS (CONTINUED)
merger after giving effect to any differences in par value of the issuer's and
acquirer's stock. Changes in total shares are as follows:
<TABLE>
<CAPTION>
RANGE OF WEIGHTED
EXERCISE AVERAGE
DECEMBER 31, 1996: SHARES PRICES EXERCISE PRICE
- --------------------------------------------------------------------- --------- ---------------- ---------------
<S> <C> <C> <C>
Outstanding at beginning of year..................................... 375,419 $2.58 to $4.13 $ 3.14
Granted during year*................................................. 219,622 $5.30 to $6.41 5.89
Acquisition of Execufirst Bancorp, Inc............................... 79,200 $3.33 to $5.11 4.03
Exercised during year................................................ 0 0
Forfeited during year................................................ 0 0
--------- ---------------- -----
Outstanding at end of year........................................... 674,241 $2.58 to $6.41 $ 4.14
Options exercisible at end of year................................... 454,619 $2.58 to $5.11
</TABLE>
- ------------------------
* Includes 102,023 options issued outside the Plan.
At December 31, 1995 and 1994, the Company had outstanding and exercisible
options of 375,419 at exercise prices per share between $2.58 and $4.13 per
share. There were no options granted or exercised during 1995 and 1994.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, ("SFAS No. 123"), "Accounting for Stock
Based Compensation", but applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees and related Interpretations in accounting for its Plan.
Accordingly, no compensation has been recognized for options granted under the
Plan. If the Company had elected to recognize compensation based on the fair
value at the grant dates for awards under its Plan, consistent with the method
prescribed by SFAS No. 123, net income and earnings per share would have been
changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996
--------------------------
<S> <C> <C>
AS REPORTED PRO FORMA
------------ ------------
Net income...................................................... $ 2,713,000 $ 2,089,000
Primary earnings per share...................................... $0.92 $0.71
Fully diluted earnings per share................................ $0.88 $0.67
</TABLE>
Note: The pro forma disclosure shown above is not representative of the effects
on net income and earnings per share in future years because it includes
an incremental fair value of outstanding options that had been granted
under the previous existing plans of Republic Bancorporation and
ExecuFirst Bancorp, Inc. Excluding the impact of these options which have
been converted into the surviving plan under First Republic Bancorp, Inc.,
pro forma net income, primary earnings per share and fully diluted
earnings per share disclosures would have been $2,543,000 and $0.86 and
$0.82, respectively.
The fair value of each option granted (including the converted options under
the Republic Bancorporation and ExecuFirst Bancorp, Inc. plans) is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for grant in 1996; dividend yield of
0%, expected volatility of 35%, risk-free interest rate of 6.6% and an expected
life of 6.3 years.
F-31
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. STOCK OPTIONS (CONTINUED)
There were no options granted in 1995 under the previous existing plans of
Republic Bancorporation and ExecuFirst Bancorp, Inc.
17. SUBSEQUENT EVENT
The Company declared a six for five stock split effected in the form of a
dividend on March 4, 1997 for all shareholders of record of the Company on that
date. Average common shares and common share equivalents, and all other share
presentations have been retroactively restated as if the dividend was declared
at the earliest period presented herein.
F-32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF. UNTIL , 1998 ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information................. 2
Prospectus Summary.................... 4
Risk Factors.......................... 9
Use of Proceeds....................... 11
Market for Common Stock and Related
Shareholder Matters................. 11
Capitalization........................ 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 28
Management............................ 44
Security Ownership of Certain
Beneficial Owners and Management.... 47
Executive Compensation................ 49
Certain Relationships and Related
Transactions........................ 51
Description of Common Stock........... 52
Underwriting.......................... 53
Indemnification....................... 54
Legal Matters......................... 55
Experts............................... 55
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
1,000,000 SHARES
REPUBLIC FIRST BANCORP, INC.
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
[LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 4,661
NASD fees................................................................. 20,000*
Attorneys' fees and expenses.............................................. 80,000
Printing.................................................................. 50,000*
Accountants' fees and expenses............................................ 105,000*
Blue Sky fees and expenses................................................ 10,000
Unaccountable Expense Reimbursement to Underwriters....................... 100,000*
Miscellaneous............................................................. 10,339*
---------
Total............................................................... $ 380,000
---------
---------
</TABLE>
- ------------------------
* Estimated
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pennsylvania law provides that a Pennsylvania corporation may indemnify
directors, officers, employees and agents of the corporation against liabilities
they may incur in such capacities for any action taken or any failure to act,
whether or not the corporation would have the power to indemnify the person
under any provision of law, unless such action or failure to act is determined
by a court to have constituted recklessness or willful misconduct. Pennsylvania
law also permits the adoption of a bylaw amendment, approved by shareholders,
providing for the elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (1) the director has
breached or failed to perform the duties of his office and (2) the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
The Bylaws of the Company and the Bank provide for (1) indemnification of
directors, officers, employees and agents of the registrant and (2) the
elimination of a director's liability for monetary damages, to the fullest
extent permitted by Pennsylvania law.
Directors and officers are also insured against certain liabilities for
their actions, as such, by an insurance policy obtained by the Company and the
Bank.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
II-1
<PAGE>
ITEM 27. EXHIBITS.
The following exhibits are filed herewith or incorporated by reference
herein as part of the Registration Statement:
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the Registrant.
3.2 Amendment of the Amended and Restated Articles of Incorporation of the Registrant.
3.3 Amended and Restated Bylaws of the Registrant, incorporated herein by reference to
Exhibit 3 to the Registrant's Registration Statement on Form S-1.
4.1 Specimen Common Stock Certificate, incorporated herein by reference to Exhibit 4 of
the Form S-1.
5.1 Opinion of Spector Gadon & Rosen, P.C. re: Legality of Common Stock.
10.1 Employment Agreement Of Rolf A. Stensrud dated September 30, 1997.*+
10.2 Employment Agreement Of George S. Rapp dated September 30, 1997.*+
10.3 Employment Agreement Of Kevin Gallagher dated September 30, 1997.*+
10.4 Employment Agreement Of Jerome McTiernan dated September 30, 1997.*+
10.5 Agreement between the Registrant and Harry D. Madonna, incorporated herein by
reference to Exhibit 10.5 to the Registration Statement No. 333-00673 on Form S-4.*
10.6 Amended and Restated Stock Option and Restricted Stock Plan of the Registrant,
incorporated herein by reference to Annex F to the Proxy Statement/Prospectus
included as part of the Registration Statement No. 333-00673 on Form S-4.*
21.1 List of Subsidiaries of the Registrant incorporated herein by reference to Exhibit
21.1 of the Registrant's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996.
23.1 Consent of Spector Gadon & Rosen, P.C. (included in Exhibit 5.1).
23.2 Consent of Coopers & Lybrand L.L.P, independent auditors with regard to the
Registrant's Financial Statements for the year ended December 31, 1996.
23.3 Consent of Deloitte & Touche LLP, independent accountants with regard to the
Registrant's Financial Statements for the year ended December 31, 1995.
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Denotes compensatory plan or arrangement.
+ To be filed by amendment.
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or
II-2
<PAGE>
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The registrant hereby undertakes:
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant under Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time the Commission declared it effective.
(b) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement for the securities offered in the
registration statement, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering of those securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Philadelphia, Commonwealth of Pennsylvania on October 14, 1997.
REPUBLIC FIRST BANCORP, INC.
(REGISTRANT)
<TABLE>
<S> <C> <C>
Date: October 14 1997 By: /S/ ROLF A. STENSRUD
President and
Chief Executive Officer
</TABLE>
------------------------
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<S> <C> <C>
Date: October 14, By: /S/ ROLF A. STENSRUD
1997
President and
Chief Executive Officer
Date: October 14, By: /S/ GEORGE S. RAPP
1997
Executive Vice President and
Chief Financial and Administrative Officer
</TABLE>
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Rolf A. Stensrud and George S. Rapp, or each of
them, as true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to be done in an about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
<TABLE>
<S> <C> <C>
/s/ HARRY D. MADONNA
Date: October 14, 1997 By: -------------------------------------------
Chairman of the Board and Director
/s/ KENNETH ADELBERG
Date: October 14, 1997 By: -------------------------------------------
Director
/s/ WILLIAM BATOFF
Date: October 14, 1997 By: -------------------------------------------
Director
/s/ DANIEL S. BERMAN
Date: October 14, 1997 By: -------------------------------------------
Director
/s/ MICHAEL J. BRADLEY
Date: October 14, 1997 By: -------------------------------------------
Director
/s/ JOHN F. D'APRIX
Date: October 14, 1997 By: -------------------------------------------
Director
/s/ SHELDON GOLDBERG
Date: October 14, 1997 By: -------------------------------------------
Director
/s/ GERALD LEVINSON
Date: October 14, 1997 By: -------------------------------------------
Director
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C>
/s/ EUSTACE MITA
Date: October 14, 1997 By: -------------------------------------------
Director
/s/ NEAL I. RODIN
Date: October 14, 1997 By: -------------------------------------------
Director
/s/ JAMES E. SCHLEIF
Date: October 14, 1997 By: -------------------------------------------
Director
/s/ ZEEV SHENKMAN
Date: October 14, 1997 By: -------------------------------------------
Director
/s/ STEVEN J. SHOTZ
Date: October 14, 1997 By: -------------------------------------------
Director
/s/ ROLF A. STENSRUD
Date: October 14, 1997 By: -------------------------------------------
Director
/s/ HARRIS WILDSTEIN
Date: October 14, 1997 By: -------------------------------------------
Director
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the Registrant.
3.2 Amendment of the Amended and Restated Articles of Incorporation of the Registrant.
3.3 Amended and Restated Bylaws of the Registrant, incorporated herein by reference to Exhibit 3 to the
Registrant's Registration Statement on Form S-1.
4.1 Specimen Common Stock Certificate incorporated by reference to Exhibit 4 of the Form S-1.
5.1 Opinion of Spector Gadon & Rosen, P.C. re: Legality of Common Stock.
10.1 Employment Agreement Of Rolf A. Stensrud dated September 30, 1997.*+
10.2 Employment Agreement Of George S. Rapp dated September 30, 1997.*+
10.3 Employment Agreement Of Kevin Gallagher dated September 30, 1997.*+
10.4 Employment Agreement Of Jerome McTiernan dated September 30, 1997.*+
10.5 Agreement between the Registrant and Harry D. Madonna, incorporated herein by reference to Exhibit 10.5
to the Registration Statement No. 333-00673 on Form S-4.*
10.6 Amended and Restated Stock Option and Restricted Stock Plan of the Registrant, incorporated herein by
reference to Annex F to the Proxy Statement/Prospectus included as part of the Registration Statement No.
333-00673 on Form S-4.*
21.1 List of Subsidiaries of the Registrant incorporated herein by reference to Exhibit 21.1 of the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996.
23.1 Consent of Spector Gadon & Rosen, P.C. (included in Exhibit 5.1).
23.2 Consent of Coopers & Lybrand L.L.P, independent auditors with regard to the Registrant's Financial
Statements for the year ended December 31, 1996.
23.3 Consent of Deloitte & Touche LLP, independent accountants with regard to the Registrant's Financial
Statements for the year ended December 31, 1995.
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Denotes compensatory plan or arrangement.
+ To be filed by amendment.
<PAGE>
Exhibit 1. Underwriting Agreement
1,000,000 Shares
REPUBLIC FIRST BANCORP, INC.
Common Stock
$0.01 Par Value
------------------------------
UNDERWRITING AGREEMENT
------------------------------
Philadelphia, Pennsylvania
October , 1997
JANNEY MONTGOMERY SCOTT INC.
Representative of the Several
Underwriters Named in Schedule I Hereto
c/o Janney Montgomery Scott Inc.
1801 Market Street
Philadelphia, Pennsylvania 19103
Ladies and Gentlemen:
REPUBLIC FIRST BANCORP, INC., a Pennsylvania corporation ("Republic"),
proposes to sell to the underwriter identified above (the "Representative")
and the several other underwriters named in Schedule I hereto (together with
the Representative, the "Underwriters"), 1,000,000 shares of Republic's
Common Stock, par value $0.01 per share (the "Common Stock"). The 1,000,000
shares of Common Stock to be sold to the Underwriters by Republic are
referred to herein as the "Firm Shares." The respective amounts of the Firm
Shares to be purchased by the several Underwriters are set forth opposite
their names in Schedule I hereto. The
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<PAGE>
Firm Shares shall be offered to the public at a public offering price of
$13.00 per Firm Share (the "Offering Price").
In order to cover over-allotments in the sale of the Firm Shares, the
Underwriters may purchase for the Underwriters' own accounts up to 150,000
additional shares of Common Stock from Republic. Such 150,000 additional
shares of Common Stock are referred to herein as the "Optional Shares." If
any Optional Shares are purchased, the Optional Shares shall be purchased for
offering to the public at the Offering Price and in accordance with the terms
and conditions set forth herein. The Firm Shares and the Optional Shares are
referred to collectively herein as the "Shares."
1. Representations and Warranties of Republic. Republic represents
and warrants to, and agrees with, the several Underwriters that:
(a) Republic has prepared, in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Regulations") of the Securities and Exchange Commission
(the "SEC") under the Act in effect at all applicable times, and has filed
with the SEC a registration statement on Form SB-2 (File No. 333-___) and one
or more amendments thereto for the purpose of registering the Shares under
the Act. Copies of such registration statement and any amendments thereto,
and all forms of the related prospectus contained therein, have been
delivered to the Representative. Any preliminary prospectus included in such
registration statement or filed with the SEC pursuant to Rule 424(a) of the
Regulations is hereinafter called a "Preliminary Prospectus." The various
parts of such registration statement, including all exhibits thereto and the
information contained in the form of final prospectus filed with the SEC
pursuant to Rule 424(b) of the Regulations in accordance with Section 5(a) of
this Agreement and deemed by virtue of Rule 424 of the Regulations to be part
of the registration statement at the time it was declared effective, each as
amended at the time the registration statement became effective, including
the information (if any) deemed to be part of the registration statement at
the time of effectiveness pursuant to Rule 430A of the Regulations, are
hereinafter collectively called the "Registration Statement." The final
prospectus in the form included in the Registration Statement or
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<PAGE>
first filed with the SEC pursuant to Rule 424(b) of the Regulations and any
amendments or supplements thereto, including the information (if any) deemed
to be part of that prospectus at the time of effectiveness pursuant to Rule
430A of the Regulations, is hereinafter called the "Prospectus." All
references to the Registration Statement, the Preliminary Prospectus and the
Prospectus include all documents incorporated therein by reference. If
Republic has filed an abbreviated registration statement to register
additional Common Stock pursuant to Rule 462(b) under the Act (the "Rule 462
Registration Statement"), then any reference herein to the term "Registration
Statement" shall be deemed to include such Rule 462 Registration Statement.
(b) The Registration Statement has become effective under the Act,
and the SEC has not issued any stop order suspending the effectiveness of the
Registration Statement or preventing or suspending the use of the Preliminary
Prospectus, nor has the SEC instituted or threatened to institute proceedings
with respect to such an order. No stop order suspending the sale of the
Shares in any jurisdiction designated by the Representative as provided for
in Section 5(f) hereof has been issued, and no proceedings for that purpose
have been instituted or threatened. Republic has complied in all material
respects with all requests of the SEC, or requests of which Republic has been
advised of any state or foreign securities commission in a state or foreign
jurisdiction designated by the Representative as provided for in Section 5(f)
hereof, for additional information to be included in the Registration
Statement, any Preliminary Prospectus or the Prospectus. Each Preliminary
Prospectus conformed to all the requirements of the Act and the Regulations
as of its date in all material respects and did not, as of its date, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
the foregoing shall not apply to statements in or omissions from any
Preliminary Prospectus in reliance upon and in conformity with information
supplied to Republic in writing by or on behalf of any Underwriter through
the Representative expressly for use therein. The Registration Statement,
on the date on which it was declared effective by the SEC (the "Effective
Date") and when any post-effective amendment thereof shall become effective,
and
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<PAGE>
the Prospectus, at the time it is filed with the SEC including, if
applicable, pursuant to Rule 424(b), and on the Closing Date (as defined in
Section 3 hereof) and any Option Closing Date (as defined in Section 4(b)
hereof), conformed and will conform in all material respects to all the
requirements of the Act and the Regulations, and did not and will not, on any
of such dates, include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, except that this representation and
warranty does not apply to statements in or omissions from the Registration
Statement or the Prospectus made in reliance upon and in conformity with
information furnished to Republic in writing by or on behalf of any
Underwriter through the Representative expressly for use therein.
(c) Republic is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Pennsylvania, with
all necessary corporate power and authority, and all required licenses,
permits, certifications, registrations, approvals, consents and franchises to
own or lease and operate its properties and to conduct its current business
as described in the Prospectus, and to execute, deliver and perform this
Agreement. Republic is duly registered with the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") as a bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHCA").
(d) Republic's only direct or indirect subsidiaries are First
Republic Bank (the "Bank") and Republic Services, Inc. ("RSI") and Republic
does not own or control, directly or indirectly, more than 5% of any class of
equity security of any corporation, association or other entity other than
the Bank and RSI (collectively the "Subsidiaries"). The Bank is a
Pennsylvania-chartered commercial bank and RSI is a Delaware corporation and
each of the Bank and RSI are duly organized, validly existing and in good
standing under the laws of the State where each is incorporated, with all
necessary corporate power and authority, and all required licenses, permits,
certifications, registrations, approvals, consents and franchises to own or
lease and operate their respective properties and to conduct their respective
businesses as described in the Prospectus. The deposit accounts of the Bank
are insured by the Bank Insurance Fund administered by the Federal Deposit
Insurance
-4-
<PAGE>
Corporation (the "FDIC") up to the maximum amount provided by law; and no
proceedings for the modification, termination or revocation of any such
insurance are pending or, to the knowledge of Republic, threatened. Republic
and each of its Subsidiaries are duly qualified to do business as foreign
corporations, and are in good standing, in all jurisdictions in which such
qualification is required, except where the failure to so qualify would not
have a material adverse effect on the general affairs, properties, condition
(financial or otherwise), results of operations, stockholders' equity,
business or prospects (collectively, the "Business Conditions") of Republic
and the Subsidiaries taken as a whole.
(e) The outstanding shares of capital stock of each of the
Subsidiaries has been duly authorized and validly issued, are fully paid and
non-assessable and are owned, directly or indirectly, by Republic free and
clear of all liens, encumbrances and security interests; and no options,
warrants or other rights to purchase, agreements or other obligations to
issue, or other rights to convert any obligations into, shares of capital
stock or ownership interests in either of the Subsidiaries or securities
convertible into or exchangeable for capital stock of, or other ownership
interests in, either of the Subsidiaries are outstanding.
(f) This Agreement has been duly authorized, executed and
delivered by Republic and constitutes its legal, valid and binding
obligation, enforceable against Republic in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and subject to
applicability of general principles of equity and except, as to this
Agreement, as rights to indemnity and contribution may be limited by federal
and state securities laws or principles of public policy.
(g) The execution, delivery and performance of this Agreement and
the transactions contemplated herein, do not and will not, with or without
the giving of notice or the lapse of time, or both, (i) conflict with any
term or provision of Republic's or either of the Subsidiaries' Articles of
Incorporation or Bylaws; (ii) result in a breach of, constitute a default
under, result in the termination or modification of,
-5-
<PAGE>
result in the creation or imposition of any lien, security interest, charge
or encumbrance upon any of the properties of Republic or either of the
Subsidiaries or require any payment by Republic or either of the Subsidiaries
or impose any liability on Republic or either of the Subsidiaries pursuant
to, any contract, indenture, mortgage, deed of trust, commitment or other
agreement or instrument to which Republic or either of the Subsidiaries is a
party or by which any of their respective properties are bound or affected
other than this Agreement; (iii) assuming compliance with all applicable
state securities ("Blue Sky") laws and the rules of the National Association
of Securities Dealers, Inc. ("NASD") applicable to the offer and sale of the
Shares, violate any law, rule, regulation, judgment, order or decree of any
government or governmental agency, instrumentality or court, domestic or
foreign, having jurisdiction over Republic or either of the Subsidiaries or
any of their respective properties or businesses; or (iv) result in a breach,
termination or lapse of Republic's or either of the Subsidiaries' corporate
power and authority to own or lease and operate their respective properties
and conduct their respective businesses.
(h) At the date or dates indicated in the Prospectus, Republic
had the duly authorized and outstanding capitalization set forth in the
Prospectus under the caption "Capitalization" and will have, as of the
issuance of the Firm Shares on the Closing Date, the as adjusted
capitalization set forth therein as of the date indicated in the Prospectus.
On the Effective Date, the Closing Date and any Option Closing Date, there
will be no options or warrants or other outstanding rights to purchase,
agreements or obligations to issue or agreements or other rights to convert
or exchange any obligation or security into, capital stock of Republic or
securities convertible into or exchangeable for capital stock of Republic,
except as described in the Prospectus or the grant of options after the date
of the Prospectus under option plans of the Company described in the
Prospectus. The information in the Prospectus insofar as it relates to all
outstanding options and other rights to acquire securities of Republic as of
the Effective Date and immediately prior to the Closing Date and any Option
Closing Date is true and correct in all material respects.
(i) The currently outstanding shares of Republic's capital stock
have been duly authorized and are validly issued,
-6-
<PAGE>
fully paid and non-assessable, and none of such outstanding shares of
Republic's capital stock has been issued in violation of any preemptive
rights of any security holder of Republic. The holders of the outstanding
shares of Republic's capital stock are not subject to personal liability
solely by reason of being such holders. All prior offers and sales of
Republic's capital stock were at all relevant times registered under the Act
or exempt from the registration requirements of the Act and were duly
registered with or the subject of an available exemption from the
registration requirements of the applicable state securities or Blue Sky
laws, except for such offers and sales which are described in the
Registration Statement. The failure to duly register or satisfy an
applicable exemption from registration pursuant to the Act and/or applicable
state securities or Blue Sky laws with respect to any prior offers and sales
of Republic's capital stock which are described in the Registration
Statement, will not, either individually or in the aggregate, have a material
adverse effect on the Business Conditions of Republic and the Subsidiaries
taken as a whole. The authorized capital stock of Republic including,
without limitation, the outstanding Common Stock, the Shares being issued,
and the outstanding options to purchase shares of Common Stock, conform in
all material respects with the descriptions thereof in the Prospectus, and
such descriptions conform in all material respects with the instruments
defining the same.
(j) When the Shares have been duly delivered against payment
therefor as contemplated by this Agreement, the Shares will be validly
issued, fully paid and non-assessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. The
certificates representing the Shares are in proper legal form under, and
conform in all respects to the requirements of, the Pennsylvania Business
Corporation Law, as amended (the "PBCL"). Neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated
by this Agreement gives any security holder of Republic any rights for or
relating to the registration of any Common Stock or any other capital stock
of Republic or any rights to covert or have redeemed or otherwise receive
anything of value with respect to any other security of Republic.
(k) No consent, approval, authorization, order, registration,
license or permit of, or filing or registration
-7-
<PAGE>
with, any court, government, governmental agency, instrumentality or other
regulatory body or official is required for the valid and legal execution,
delivery and performance by Republic of this Agreement and the consummation
of the transactions contemplated hereby or described in the Prospectus,
except such as may be required for the registration of the Shares under the
Act, the Regulations and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and for compliance with the applicable state securities or
Blue Sky laws or the Bylaws, rules and other pronouncements of the NASD.
(l) The Common Stock (including the Shares) have been registered
pursuant to Section 12(g) of the Exchange Act. The issued and outstanding
shares of Common Stock (including the Shares) are included for quotation on
the NASDAQ Stock Market. Neither Republic nor, to Republic's knowledge, any
other person has taken any action designed to cause, or likely to result in,
the termination of the registration of the Common Stock under the Exchange
Act. Republic has not received any notification that the SEC or the NASD is
contemplating terminating such registration or inclusion.
(m) The statements in the Registration Statement and Prospectus,
insofar as they are descriptions of or references to contracts, agreements or
other documents, are accurate in all material respects and present or
summarize fairly, in all material respects, the information required to be
disclosed under the Act or the Regulations, and there are no contracts,
agreements or other documents, instruments or transactions of any character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration Statement that have
not been so described, referred to or filed, as required.
(n) Each contract or other instrument (however characterized or
described) to which Republic or either of its Subsidiaries is a party or by
which any of their respective properties or businesses is bound or affected
and which is material to the conduct of Republic's or either of its
Subsidiaries', business has been duly and validly executed by Republic or
either of its Subsidiaries, as applicable, and, to the knowledge of Republic,
by the other parties thereto. Each such contract or other instrument is in
full force and effect and
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<PAGE>
is enforceable in all material respects against the parties thereto in
accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and subject to applicability of general
principles of equity, and neither Republic nor either of its Subsidiaries is,
and to the knowledge of Republic, no other party is, in default thereunder,
and no event has occurred that, with the lapse of time or the giving of
notice, or both, would constitute a default under any such contract or other
instrument. All necessary consents under such contracts or other instruments
to the disclosure in the Prospectus with respect thereto have been obtained.
(o) The consolidated financial statements of Republic (including
the notes thereto) filed as part of any Preliminary Prospectus, the
Prospectus and the Registration Statement present fairly, in all material
respects, the financial position of Republic as of the respective dates
thereof, and the results of operations and cash flows of Republic for the
periods indicated therein, all in conformity with generally accepted
accounting principles. The supporting notes included in the Registration
Statement fairly state in all material respects the information required to
be stated therein in relation to the financial statements taken as a whole.
The financial information included in the Prospectus under the caption
"Prospectus Summary - Summary Selected Consolidated Financial Data" pursuant
to applicable accounting and securities law standards, presents fairly the
information shown therein and has been compiled on a basis consistent with
that of the audited consolidated financial statements included in the
Registration Statement. The unaudited pro forma adjustments to financial
information included in the Registration Statement have been properly
applied, pursuant to applicable accounting and securities law standards, to
the historical amounts in the compilation of that information to reflect the
sale by Republic of 1,000,000 shares of Common Stock offered thereby at an
assumed offering or actual price set forth in the Preliminary Prospectus or
the Prospectus, as the case may be, and the application of the estimated net
proceeds therefrom.
(p) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, there has not been (i) any material adverse change (including,
whether or not insured against, any
-9-
<PAGE>
material loss or damage to any material assets), or development involving a
prospective material adverse change, in the Business Conditions of Republic
and the Subsidiaries taken as a whole; (ii) any material adverse change,
loss, reduction, termination or non-renewal of any material contract to which
Republic or either of its Subsidiaries is a party; (iii) any transaction
entered into by Republic or either of its Subsidiaries not in the ordinary
course of its business that is material to Republic; (iv) any dividend or
distribution of any kind declared, paid or made by Republic on its capital
stock, except for and to the extent described in the Prospectus; (v) any
liabilities or obligations, direct or indirect, incurred by Republic or
either of its Subsidiaries that are material to Republic or either of its
Subsidiaries; (vi) any change in the capitalization of Republic or either of
its Subsidiaries; or (vii) any change in the indebtedness of Republic or
either of its Subsidiaries that is material to Republic or either of its
Subsidiaries. Neither Republic nor either of its Subsidiaries has any
contingent liabilities or obligations that are material and that are not
expressly disclosed in the Prospectus.
(q) Republic has not distributed, and will not distribute, any
offering material in connection with the offering and sale of the Shares
other than the Registration Statement, a Preliminary Prospectus, the
Prospectus and other material, if any, permitted by the Act and the
Regulations. Neither Republic nor any of its officers, directors or
affiliates has taken, nor shall Republic or such persons take, any action
designed to, or that might be reasonably expected to, cause or result in
stabilization or manipulation of the price of the Common Stock.
(r) Republic and the Subsidiaries have filed with the appropriate
federal, state and local governmental agencies, and all foreign countries and
political subdivisions thereof, all tax returns that are required to be filed
or have duly obtained extensions of time for the filing thereof and have paid
all taxes shown on such returns or otherwise due and all material assessments
received by them to the extent that the same have become due. Neither
Republic nor either of its Subsidiaries has executed or filed with any taxing
authority, foreign or domestic, any agreement extending the period for
assessment or collection of any income or other tax and none of them is a
party to any pending action or proceeding by any foreign or domestic
-10-
<PAGE>
governmental agency for the assessment or collection of taxes, and no claims
for assessment or collection of taxes have been asserted against Republic or
either of its Subsidiaries that might materially adversely affect the
Business Conditions of Republic and the Subsidiaries taken as a whole.
(s) [Coopers & Lybrand, L.L.P.], who have certified the
consolidated financial statements of Republic included as part of the
Registration Statement, are independent certified public accountants with
respect to Republic as required by the Act and the Regulations.
(t) Neither Republic nor either of its Subsidiaries is in
violation of, or in default under, any of the terms or provisions of (i) its
Articles of Incorporation or Bylaws or similar governing instruments, (ii)
any indenture, mortgage, deed of trust, contract, commitment or other
agreement or instrument to which it is a party or by which it or any of its
assets or properties is bound or affected, (iii) any law, rule, regulation,
judgment, order or decree of any government or governmental agency,
instrumentality or court, domestic or foreign, having jurisdiction over it or
any of its properties or business, or (iv) any license, permit,
certification, registration, approval, consent or franchise, except with
respect to clause (ii), (iii) or (iv) above, where any such default would not
have a material adverse effect on the Business Conditions of Republic and the
Subsidiaries taken as a whole.
(u) Except as expressly disclosed in the Prospectus, there are no
claims, actions, suits, protests, proceedings, arbitrations, investigations
or inquiries pending before, or, to Republic's knowledge, threatened or
contemplated by, any governmental agency, instrumentality, court or tribunal,
domestic or foreign, or before any private arbitration tribunal to which
Republic or either of its Subsidiaries is or may be made a party that could
reasonably be expected to affect the validity of any of the outstanding
shares of Common Stock, or that, if determined adversely to Republic or
either of its Subsidiaries would, in any case or in the aggregate, result in
any material adverse change in the Business Conditions of Republic and the
Subsidiaries taken as a whole, nor to Republic's knowledge is there any
reasonable basis for any such claim, action, suit, protest, proceeding,
arbitration, investigation or inquiry. There are no outstanding orders,
judgments or decrees of any court, governmental agency, instrumentality or
other tribunal enjoining Republic or either of its Subsidiaries from, or
requiring Republic or either of its Subsidiaries to take or refrain from
taking, any action, or to which Republic or either of its Subsidiaries or
their respective properties, assets or businesses are bound or subject.
(v) Each of Republic and the Subsidiaries owns, or possesses
adequate rights to use, all trademarks, trademark registrations, applications
for trademark registration, trade names, service marks, licenses, copyrights,
and other proprietary information necessary for, used in, or proposed to be
used in, the conduct of the business of Republic as described in the
Prospectus (collectively, the "Intellectual Property"). To Republic's
knowledge, Republic has not infringed, is not infringing and Republic has not
received any notice of conflict with, the asserted rights of others with
respect to the Intellectual Property that, individually or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, could
materially adversely affect the Business Conditions of Republic and the
Subsidiaries taken as a whole, and Republic knows of no reasonable basis
therefor. To the knowledge of Republic, no other parties have infringed upon
or are in conflict with any Intellectual Property.
(w) Each of Republic and the Subsidiaries has good and marketable
title to all property described in the Prospectus as being owned by it, free
and clear of all liens, security interests, charges or encumbrances and the
like, except such as are expressly described or referred to in the Prospectus
or such as do not materially affect the Business Conditions or the conduct of
the business of Republic and the Subsidiaries as described in the Prospectus.
Each of Republic and the Subsidiaries has insured its property against loss
or damage by fire or other casualty, in amounts reasonably believed by
Republic to be adequate, and maintains insurance against such other risks as
management of Republic deems appropriate. All real and personal property
leased by Republic and the Subsidiaries as described or referred to in the
Prospectus, is held by Republic and the Subsidiaries, as applicable, under
valid leases. All real property owned by Republic and the Subsidiaries
(including offices and real estate acquired through foreclosure or
deed-in-lien thereof) and all real property securing any loans
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<PAGE>
originated and/or purchased by Republic and the Subsidiaries (collectively,
the "Real Property") are, to the knowledge of Republic, in compliance with
all federal, state and local statutes, ordinances, regulations, rules,
standards and requirements of common law concerning or relating to industrial
hygiene and the protection of health and the environment (collectively, "the
Environmental Laws"), except to the extent that any failure in such
compliance would not materially adversely affect the Business Conditions of
Republic and the Subsidiaries taken as a whole. To the knowledge of
Republic, there are no conditions on, about, beneath or arising from the Real
Property, in close proximity to the Real Property or at any other location
that might give rise to liability, the imposition of a statutory lien or
require a "Response," "Removal" or "Remedial Action," as defined herein,
under any of the Environmental Laws, and that would materially adversely
affect the Business Conditions of Republic and the Subsidiaries taken as a
whole except as described in the Prospectus. Except as expressly disclosed
in the Prospectus, or which will not materially adversely affect the Business
Conditions of Republic and the Subsidiaries taken as a whole, (i) neither
Republic nor either of its Subsidiaries has received notice or has knowledge
of any claim, demand, investigation, regulatory action, suit or other action
instituted or threatened against Republic or either of its Subsidiaries or
any portion of the Real Property or any parcel in close proximity to the Real
Property relating to any of the Environmental Laws and (ii) neither Republic
nor either of its Subsidiaries has received any notice of material violation,
citation, complaint, order, directive, request for information or response
thereto, notice letter, demand letter or compliance schedule to or from any
governmental or regulatory agency arising out of or in connection with
"hazardous substances" (as defined by applicable Environmental Laws) on,
about, beneath, arising from or generated at the Real Property, near the Real
Property or at any other location. As used in this subsection, the terms
"Response, " Removal" and "Remedial Action" shall have the respective
meanings assigned to such terms under Sections 101(23) - 101(25) of the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C9601(23)
- -9601(25).
(x) Each of Republic and the Subsidiaries maintains a system of
internal accounting controls sufficient to provide
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reasonable assurances that: (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary in order to permit preparation of financial statements
in accordance with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(y) Except for the plans that are expressly disclosed in the
Prospectus or are not required to be disclosed therein, neither Republic nor
either of its Subsidiaries has any employee benefit plan, profit sharing
plan, employee pension benefit plan or employee welfare benefit plan or
deferred compensation arrangements ("Plans") that are subject to the
provisions of the Employee Retirement Income Security Act of 1974, as
amended, or the rules and regulations thereunder ("ERISA"). All Plans that
are subject to ERISA are in compliance with ERISA, in all material respects,
and, to the extent required by the Internal Revenue Code of 1986, as amended
(the "Code"), in compliance with the Code in all material respects. Neither
Republic nor either of its Subsidiaries has any employee pension benefit plan
that is subject to Part 3 of Subtitle B of Title I or ERISA or any defined
benefit plan or multi-employer plan. Neither Republic nor either of its
Subsidiaries has maintained retiree life or retiree health insurance plans
that are employee welfare benefit plans providing for continuing benefit or
coverage for any employee or any beneficiary of any employee after such
employee's termination of employment, except as required by Section 4980B of
the Code and except as disclosed in the Prospectus. No fiduciary or other
party in interest with respect to any of the Plans has caused any of such
Plans to engage in a prohibited transaction as defined in Section 406 of
ERISA. As used in this subsection, the terms "defined benefit plan,"
"employee benefit plan," "employee pension benefit plan," "employee welfare
benefit plan," "fiduciary" and "multiemployer plan" shall have the respective
meanings assigned to such terms in Section 3 of ERISA
(z) No labor dispute exists with Republic's or the Subsidiaries'
employees, and to Republic's knowledge, no such labor dispute is threatened.
Republic has no knowledge of any
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existing or threatened labor disturbance by the employees of any of the
principal suppliers, contractors or customers of Republic or the Subsidiaries
that would materially adversely affect the Business Conditions of Republic
and the Subsidiaries taken as a whole. None of Republic's or the
Subsidiaries' employees is covered by a collective bargaining agreement and
no union organizing activity exists with respect to any of such employees.
(aa) Neither Republic nor either of its Subsidiaries has
incurred any liability for any finder's fees or similar payments in
connection with the transactions contemplated herein other than as disclosed
in the Prospectus.
(bb) Republic is familiar with the Investment Company Act of
1940, as amended (the "1940 Act"), and the rules and regulations thereunder,
and has in the past conducted, and Republic intends to conduct, its affairs
in such a manner as to ensure that it will not be an "investment company"
within the meaning of the 1940 Act and the rules and regulations thereunder.
(cc) No statement, representation, warranty or covenant made by
Republic or either of its Subsidiaries in this Agreement or in any
certificate or document required by this Agreement to be delivered to the
Representative is, or as of the Closing Date or any Option Closing Date will
be, inaccurate, untrue or incorrect in any material respect. No transaction
has occurred or is proposed between or among Republic or either of its
Subsidiaries and any of their respective officers, directors or stockholders
or any affiliate of the foregoing, that is required to be described in and is
not described in the Registration Statement and the Prospectus.
(dd) Neither Republic or either of its Subsidiaries nor any
officer, director, employee, partner, agent or other person acting on behalf
of Republic or either of its Subsidiaries has, directly or indirectly, given
or agreed to give any money, property or similar benefit or consideration to
any customer or supplier (including any employee or agent of any customer or
supplier) or official or employee of any agency or instrumentality of any
government (foreign or domestic) or political party or candidate for office
(foreign or domestic) or any other person who was, is or in the future may be
in a position to affect the Business Conditions of Republic and the
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<PAGE>
Subsidiaries taken as a whole or any actual or proposed business transaction
of Republic or either of its Subsidiaries that (i) could subject Republic or
either of its Subsidiaries to any liability (including, but not limited to,
the payment of monetary damages) or penalty in any civil, criminal or
governmental action or proceeding that would have a material adverse effect
on the Business Conditions of Republic and the Subsidiaries taken as a whole
or (ii) with respect to Republic, either of its Subsidiaries, or any officer
or director thereof, violates any law, rule or regulation to which Republic
or either of it Subsidiaries is subject.
Any certificate signed by any officer of Republic or either of its
Subsidiaries in such capacity and delivered to the Representative or to
counsel for the Underwriters pursuant to this Agreement shall be deemed a
representation and warranty by Republic or either of its Subsidiaries, as the
case may be, to the several Underwriters as to the matters covered thereby.
2. Purchase and Sale of Firm Shares. On the basis of the
representations, warranties, covenants and agreements contained herein, but
subject to the terms and conditions set forth herein, Republic shall sell the
Firm Shares to the several Underwriters at the Offering Price less the
Underwriting Discounts and Commissions shown on the cover page of the
Prospectus, and the Underwriters, severally and not jointly, shall purchase
from Republic on a firm commitment basis, at the Offering Price less the
Underwriting Discounts and Commissions shown on the cover page of the
Prospectus, the respective amounts of the Firm Shares set forth opposite
their names on Schedule I hereto. In making this Agreement, each Underwriter
is contracting severally and not jointly, and except as provided in Sections
4 and 11 hereof, the agreement of each Underwriter is to purchase only that
number of Shares specified with respect to that Underwriter in Schedule I
hereto. The Underwriters shall offer the Shares to the public as set forth
in the Prospectus.
3. Payment and Delivery. Payment for the Firm Shares shall be made by
certified or official bank check or checks payable to the order of Republic
in New York Clearing House (next day) funds, at the offices of Janney
Montgomery Scott Inc., 1801 Market Street, Philadelphia, Pennsylvania, or in
immediately
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available funds wired to such accounts as Republic may specify (with all
costs and expenses incurred by the Underwriters in connection with such
settlement in immediately available funds, including, but not limited to,
interest or cost of funds and expenses, to be borne by Republic), against
delivery of the Firm Shares to the Representative at its offices located at
26 Broadway, New York, New York for the respective accounts of the
Underwriters. Such payment and delivery will be made at 10:00 am.,
Philadelphia, Pennsylvania time, on the third business day after the date of
this Agreement, or at such other time on the same or such other date, not
later than seven business days thereafter as shall be designated in writing
by the Representative. Such time and date are referred to herein as the
"Closing Date." The certificates representing the Firm Shares to be sold and
delivered will be in such denominations and registered in such names as the
Representative requests not less than two full business days prior to the
Closing Date, and will be made available to the Representative for
inspection, checking and packaging not less than one full business day prior
to the Closing Date.
4. Option to Purchase Optional Shares.
(a) For the purposes of covering any over-allotments in connection
with the distribution and sale of the Firm Shares as contemplated by the
Prospectus, subject to the terms and conditions herein set forth, the several
Underwriters are hereby granted an option by Republic to purchase all or any
part of the Optional Shares (the "Over-allotment Option"). The purchase
price to be paid for the Optional Shares shall be the Offering Price less the
Underwriting Discounts and Commissions shown on the cover page of the
Prospectus. The Over-allotment Option granted hereby may be exercised by the
Representative on behalf of the several Underwriters as to all or any part of
the Optional Shares at any time and from time to time within 30 days after
the date of the Prospectus. No Underwriter shall be under any obligation to
purchase any Optional Shares prior to an exercise of the Over-allotment
Option.
(b) The Over-allotment Option granted hereby may be exercised by
the Representative on behalf of the several Underwriters by giving notice to
Republic by a letter sent by
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registered or certified mail, postage prepaid, telex, telegraph, telegram or
facsimile (such notice to be effective when received), addressed as provided
in Section 13 hereof, setting forth the number of Optional Shares to be
purchased, the date and time for delivery of and payment for the Optional
Shares and stating that the Optional Shares referred to therein are to be
used for the purpose of covering over-allotments in connection with the
distribution and sale of the Firm Shares. If such notice is given at least
two full business days prior to the Closing Date, the date set forth therein
for such delivery and payment shall be not earlier than the Closing Date. If
such notice is given after two full business days prior to the Closing Date,
the date set forth therein for such delivery and payment shall be a date
selected by the Representative not later than five full business days after
the exercise of the Over-allotment Option. The date and time set forth in
such a notice is referred to herein as an "Option Closing Date," and a
closing held pursuant to such a notice is referred to herein as an "Option
Closing." Upon each exercise of the Over-allotment Option, and on the basis
of the representations, warranties, covenants and agreements herein
contained, and subject to the terms and conditions herein set forth, the
several Underwriters shall become severally, but not jointly, obligated to
purchase from Republic the number of Optional Shares specified in each notice
of exercise of the Over-allotment Option (allocated among them in accordance
with Section 4(c) hereof).
(c) The number of Optional Shares to be purchased by each
Underwriter pursuant to each exercise of the Over-allotment Option shall be
the number that bears the same ratio to the aggregate number of Optional
Shares being purchased through such Over-allotment Option exercise as the
number of Firm Shares opposite the name of such Underwriter in Schedule I
hereto bears to the total number of all Firm Shares. Notwithstanding the
foregoing, the number of Optional Shares purchased and sold pursuant to each
exercise of the Over-allotment Option shall be subject to such adjustment as
the Representative may approve to eliminate fractional shares and subject to
the provisions for the allocation of Optional Shares purchased for the
purpose of covering over-allotments set forth in the agreement entered into
by and among the Underwriters in connection herewith (the "Agreement Among
Underwriters").
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<PAGE>
(d) Payment for the Optional Shares shall be made to Republic, by
certified or official bank check payable to the order of Republic, in New
York Clearing House (next day) funds, at the Representative's offices located
at 26 Broadway, New York, New York, or such other place as shall be agreed
upon by Republic and the Representative, or in immediately available funds
wired to such accounts as Republic may specify (with all costs and expenses
incurred by the Underwriters in connection with such settlement in
immediately available funds, including, but not limited to, interest or cost
of funds and expenses, to be borne by Republic), against delivery of the
Optional Shares to the Representative at its offices located at 1801 Market
Street, Philadelphia, Pennsylvania, for the respective accounts of the
Underwriters. The certificates representing the Optional Shares to be issued
and delivered will be in such denominations and registered in such names as
the Representative request upon reasonable notice prior to such Option
Closing Date, and will be made available to the Representative for
inspection, checking and packaging at a reasonable time in advance of such
Option Closing Date.
5. Certain Covenants and Agreements of Republic. Republic covenants
and agrees with the several Underwriters as follows:
(a) If Rule 430A of the Regulations is employed, Republic will
timely file the Prospectus pursuant to and in compliance with Rule 424(b) of
the Regulations and will advise the Representative of the time and manner of
such filing.
(b) Republic will not file or publish any amendment or supplement
to the Registration Statement, Preliminary Prospectus or Prospectus at any
time before the completion (in the opinion of the Underwriters' counsel) of
the distribution of the Shares by the Underwriters that is not (i) in
compliance with the Regulations and (ii) approved by the Representative (such
approval not to be unreasonably withheld or delayed).
(c) Republic will advise the Representative immediately, and
confirm such advice in writing, (i) when any post-effective amendment to the
Registration Statement is filed with the SEC under Rule 462(c) under the Act
or otherwise, (ii) when any Rule 462(b) Registration Statement is filed,
(iii) of the receipt of any comments from the SEC concerning the
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<PAGE>
Registration Statement, (iv) when any post-effective amendment to the
Registration Statement becomes effective, or when any supplement to the
Prospectus or any amended Prospectus has been filed, (v) of any request of
the SEC for amendment or supplementation of the Registration Statement or
Prospectus or for additional information, (vi) during the period when the
Prospectus is required to be delivered under the Act and Regulations, of the
happening of any event as a result of which the Registration Statement or the
Prospectus would include an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein not
misleading, (vii) during the period noted in clause (vi) above, of the need
to amend the Registration Statement or supplement the Prospectus to comply
with the Act, (viii) of the issuance by the SEC of any stop order suspending
the effectiveness of the Registration Statement or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, and (ix)
of the suspension of the qualification of any of the Shares for offering or
sale in any jurisdiction in which the Underwriters intend to make such offers
or sales, or the initiation or threatening of any proceedings for any of such
purposes known to Republic. Republic will use its best efforts to prevent
the issuance of any such stop order or of any order preventing or suspending
such use, and if any such order is issued, to obtain as soon as possible the
lifting thereof.
(d) Republic has delivered to the Representative, without charge,
as many copies of each Preliminary Prospectus as the Representative has
reasonably requested. Republic will deliver to the Representative, without
charge, from time to time during the period when delivery of the Prospectus
is required under the Act, such number of copies of the Prospectus (as
supplemented or amended) as the Representative may reasonably request.
Republic hereby consents to the use of such copies of the Preliminary
Prospectus and the Prospectus for purposes permitted by the Act, the
Regulations and the securities or Blue Sky laws of the states or foreign
jurisdictions in which the Shares are offered by the several Underwriters and
by all dealers to whom Shares may be sold, both in connection with the
offering and sale of the Shares and for such period of time thereafter as the
Prospectus is required by the Act to be delivered in connection with sales by
any Underwriter or dealer. Republic has furnished or will furnish to the
Representative at least three
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original signed copies of the Registration Statement as originally filed and
of all amendments and supplements thereto, whether filed before or after the
Effective Date, at least three copies of all exhibits filed therewith and of
all consents and certificates of experts, and will deliver to the
Representative such number of conformed copies of the Registration Statement,
including financial statements and exhibits, and all amendments thereto, as
the Representative may reasonably request.
(e) Republic will comply with the Act, the Regulations, the
Exchange Act and the rules and regulations thereunder so as to permit the
continuance of sales of and dealings in the Shares for as long as may be
necessary to complete the distribution of the Shares as contemplated hereby.
(f) Republic will furnish such information and pay such filing
fees and other expenses as may be required, and otherwise cooperate in the
registration or qualification of the Shares, or exemption therefrom, for
offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions in which the Representative
determine to offer the Shares, after consultation with Republic, and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided,
however, that no such qualification shall be required in any jurisdiction
where, solely as a result thereof, Republic would be subject to taxation or
qualification as a foreign corporation doing business in such jurisdiction
where it is not now so qualified or to take any action which would subject it
to service of process in suits, other than those arising out of the offering
or sale of the Shares, in any jurisdiction where it is not now so subject.
Republic will, from time to time, prepare and file such statements and
reports as are or may be required to continue such qualification in effect
for so long a period as is required under the laws of such jurisdictions for
such offering and sale.
(g) Subject to Section 5(b) hereof, in case of any event
(occurring at any time within the period during which, in the opinion of
counsel for the Underwriters, a prospectus is required to be delivered under
the Act or the Regulations), as a result of which any Preliminary Prospectus
or the Prospectus, as then amended or supplemented, would contain, in the
opinion of
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counsel for the Underwriters, an untrue statement of a material fact, or omit
to state any material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading, or,
if it is necessary at any time to amend any Preliminary Prospectus or the
Prospectus to comply with the Act or the Regulations or any applicable state
securities or Blue Sky laws, Republic promptly will prepare and file with the
SEC, and any applicable state and foreign securities commission, an
amendment, supplement or document that will correct such statement or
omission or effect such compliance and will furnish to the several
Underwriters such number of copies of such amendments, supplements or
documents (in form and substance satisfactory to the Representative and
counsel for the Underwriters) as the Representative may reasonably request.
For purposes of this Section 5(g), Republic will provide such information to
the Representative, the Underwriters' counsel and counsel to Republic as
shall be necessary to enable such persons to consult with Republic with
respect to the need to amend or supplement the Registration Statement,
Preliminary Prospectus or Prospectus or file any document, and shall furnish
to the Representative and the Underwriters' counsel such further information
as each may from time to time reasonably request.
(h) Republic will make generally available to its security holders
not later than 45 days after the end of the period covered thereby, a
consolidated earnings statement of Republic (which need not be audited unless
required by the Act or the Regulations) that shall comply with Section 11(a)
of the Act and Rule 158 thereunder and cover a period of at least 12
consecutive months beginning not later than the first day of Republic's
fiscal quarter next following the Effective Date (or, if later, the effective
date of the Rule 462(b) Registration Statement).
(i) For a period of five years from the Effective Date, Republic
will deliver to the Representative and, upon request, to each of the
Underwriters: (i) a copy of each report or document, including, without
limitation, reports on Forms 8-K, 10-C, 10-K and 10-Q (or such similar forms
as may be designated by the SEC), registration statements and any exhibits
thereto, filed or furnished to the SEC or any securities exchange or the
NASD, on the date each such report or document is so filed or furnished; (ii)
as soon as practicable, copies of any reports or
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communications (financial or other) of Republic mailed to its security
holders; and (iii) every material press release in respect of Republic or its
affairs that is released or prepared by Republic.
(j) During the course of the distribution of the Shares, Republic
will not take, directly or indirectly, any action designed to, or that could
reasonably be expected to, cause or result in stabilization or manipulation
of the price of the Common Stock.
(k) Republic has caused each person listed on Schedule II hereto
to execute an agreement (a "Lock-up Agreement") in form and substance
satisfactory to the Representative and the Underwriters' counsel which
provides that for a period of 180 days from the date of the final Prospectus,
as amended or supplemented, such persons will not, without the prior written
consent of the Representative, directly or indirectly, sell, offer or
contract to sell or grant any option to purchase or otherwise dispose of any
shares of Common Stock (or any securities convertible into or exercisable or
exchangeable for any shares of Common Stock). Republic has delivered such
agreements to the Representative prior to the date of this Agreement.
Appropriate stop transfer instructions will be issued by Republic to the
transfer agent for the Common Stock, and a copy of such instructions will be
delivered to the Representative.
(l) For a period of 180 days after the Effective Date, Republic
will not, without the prior written consent of the Representative, offer,
sell, contract to sell or otherwise dispose of any Common Stock or any
securities convertible into or exercisable for any Common Stock or grant
options to purchase any Common Stock, except (i) the issuance of Common Stock
upon the exercise of currently outstanding options and warrants as described
in the Prospectus and (ii) the grant of options to purchase Common Stock
under Republic's currently outstanding stock option plans as described in the
Prospectus and the issuance of Common Stock upon the exercise thereof.
(m) For a period of five years from the Effective Date, Republic
will use all reasonable efforts to maintain the listing of the Common Stock
(including, without limitation, the
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Shares) on the NASDAQ Stock Market or on a national securities exchange.
(n) Republic shall, at its sole cost and expense, supply and
deliver to the Representative and the Underwriters' counsel, within a
reasonable period from the Closing Date, transaction binders in such number
and in such form and content as the Representative reasonably request.
(o) Republic will use the net proceeds from the sale of the Shares
to be sold by it hereunder substantially in accordance with the description
set forth in the Prospectus.
6. Payment of Fees and Expenses.
(a) Whether or not the transactions contemplated by this Agreement
are consummated and regardless of the reason this Agreement is terminated,
Republic will pay or cause to be paid, and bear or cause to be borne, all
costs and expenses incident to the performance of the obligations of Republic
under this Agreement, including: (i) the fees and expenses of the
accountants and counsel for Republic incurred in the preparation of the
Registration Statement and any post-effective amendments thereto (including
financial statements and exhibits), Preliminary Prospectuses and the
Prospectus and any amendments or supplements thereto; (ii) printing and
mailing expenses associated with the Registration Statement and any
post-effective amendments thereto, any Preliminary Prospectus, the
Prospectus, this Agreement, the Agreement Among Underwriters, the power of
attorney executed by each of the Underwriters, the Selected Dealers Agreement
and related documents and the Preliminary Blue Sky Memorandum (and any
supplement thereto); (iii) the costs and expenses incident to the
authentication, issuance, sale and delivery of the Shares to the
Underwriters; (iv) the fees, expenses and all other costs of qualifying the
Shares for sale under the securities or Blue Sky laws of those states or
foreign jurisdictions in which the Shares are to be offered or sold,
including the reasonable fees and expenses of Underwriters' counsel, except
such fees shall not exceed $5,000; (v) the fees, expenses and other costs of,
or incident to, securing any review or approvals by or from the NASD; (vi)
the filing fees of the SEC; (vii) the cost of furnishing to the Underwriters
copies of the Registration Statement, Preliminary Prospectuses and
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Prospectuses as herein provided; (viii) Republic's travel expenses in
connection with meetings with the brokerage community and institutional
investors; (ix) the costs and expenses associated with settlement in same day
funds (including, but not limited to, interest or cost of funds expenses), if
desired by Republic; (x) any fees or costs payable to the NASDAQ Stock Market
as a result of the offering; (xi) the cost of printing certificates for the
Shares; (xii) the costs and charges of any transfer agent; (xiii) all taxes,
if any, on the issuance, delivery and transfer of the Shares sold by
Republic; and (xiv) all other costs and expenses reasonably incident to the
performance of Republic's obligations hereunder that are not otherwise
specifically provided for in this Section 6(a).
(b) Republic shall pay as due any state or foreign registration,
qualification and filing fees and any accountable out-of-pocket disbursements
in connection with such registration, qualification or filing in the states
and foreign jurisdictions in which the Representative determines to offer or
sell the Shares.
(c) On the Closing Date, Republic shall pay the Representative a
non-accountable expense allowance in the amount of $150,000.
(d) If (i) the Underwriters are willing to proceed with the
offering, and the transactions contemplated by this Agreement are not
consummated because Republic elects not to proceed with the offering for any
reason or (ii) the Representative terminate this Agreement pursuant to
Section 10(b) hereof, then Republic will reimburse the Representative for its
reasonable out-of-pocket expenses, including, without limitation, fees and
disbursements of counsel for the Underwriters, incurred in connection with
investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder, in an amount not to
exceed an additional $50,000.
7. Conditions of Underwriters' Obligations. The obligation of each
Underwriter to purchase and pay for the Firm Shares that it has agreed to
purchase hereunder on the Closing Date, and to purchase and pay for any
Optional Shares as to which it exercises its right to purchase under Section
4 on an Option Closing Date, is subject at the date hereof, the Closing Date
and any Option
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Closing Date to the continuing accuracy and fulfillment of the
representations and warranties of Republic, to the performance by Republic of
its covenants and obligations hereunder, and to the following additional
conditions:
(a) If required by the Regulations, the Prospectus shall have been
filed with the SEC pursuant to Rule 424(b) of the Regulations within the
applicable time period prescribed for such filing by the Regulations. On or
prior to the Closing Date or any Option Closing Date, as the case may be, no
stop order or other order preventing or suspending the effectiveness of the
Registration Statement or the sale of any of the Shares shall have been
issued under the Act or any state or foreign securities law, and no
proceedings for that purpose shall have been initiated or shall be pending
or, to the Representative's knowledge or the knowledge of Republic, shall be
contemplated by the SEC or by any authority in any jurisdiction designated by
the Representative pursuant to Section 5(f) hereof. Any request on the part
of the SEC or any state or foreign securities authority for additional
information shall have been complied with to the reasonable satisfaction of
counsel for the Underwriters.
(b) All corporate proceedings and other matters incident to the
authorization, form and validity of this Agreement, the Shares and the form
of the Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby shall be
satisfactory in all material respects to counsel for the Underwriters.
Republic shall have furnished to such counsel all documents and information
that they may have reasonably requested to enable them to pass upon such
matters. The Representative shall have received from the Underwriters'
counsel, Stevens & Lee, P.C., an opinion, dated as of the Closing Date and
any Option Closing Date, as the case may be, and addressed to the
Representative individually and as representative of the several
Underwriters, which opinion shall be satisfactory in all respects to the
Representative.
(c) The Representative shall have received a copy of an executed
Lock-up Agreement from each person listed on Schedule II hereto.
(d) The Representative shall have received at or prior
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to the Closing Date from the Underwriters' counsel a memorandum or summary,
in form and substance satisfactory to the Representative, with respect to the
qualification for offering and sale by the Underwriters of the Shares under
the securities or Blue Sky laws of such jurisdictions designated by the
Representative pursuant to Section 5(f) hereof.
(e) On the Closing Date and any Option Closing Date, there shall
have been delivered to the Representative signed opinions of Spector Gadon &
Rosen, P.C., counsel for Republic, dated as of each such date and addressed
to the Representative individually and as representative of the several
Underwriters to the effect set forth in Exhibit A hereto or to such effect as
is otherwise reasonably satisfactory to the Representative.
(f) At the Closing Date and any Option Closing Date: (i) the
Registration Statement and any post-effective amendment thereto and the
Prospectus and any amendments or supplements thereto shall contain all
statements that are required to be stated therein in accordance with the Act
and the Regulations and in all material respects shall conform to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor any post-effective amendment thereto nor the Prospectus and any
amendments or supplements thereto shall contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; (ii)
since the respective dates as of which information is given in the
Registration Statement and any post-effective amendment thereto and the
Prospectus and any amendments or supplements thereto, except as otherwise
stated therein, there shall have been no material adverse change in the
Business Conditions of Republic and the Subsidiaries from that set forth
therein, whether or not arising in the ordinary course of business; (iii)
since the respective dates as of which information is given in the
Registration Statement and the Prospectus or any amendment or supplement
thereto, there shall have been no event or transaction, contract or agreement
entered into by Republic or either of its Subsidiaries other than in the
ordinary course of business and as set forth in the Registration Statement or
Prospectus, that has not been, but would be required to be, set forth in the
Registration Statement or Prospectus; (iv) since the respective dates as of
which information is given in the Registration Statement and any
post-effective amendment
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<PAGE>
thereto and the Prospectus and any amendments or supplements thereto, there
shall have been no material adverse change, loss, reduction, termination or
non-renewal of any contract to which Republic or either of its Subsidiaries
is a party, that has not been, but would be required to be set forth in the
Registration Statement or Prospectus; and (v) no action, suit or proceeding
at law or in equity shall be pending or threatened against Republic or either
of its Subsidiaries that would be required to be set forth in the Prospectus,
other than as set forth therein, and no proceedings shall be pending or
threatened against or directly affecting Republic or either of its
Subsidiaries before or by any federal, state or other commission, board or
administrative agency wherein an unfavorable decision, ruling or finding
would materially adversely affect the Business Conditions of Republic and the
Subsidiaries taken as a whole.
(g) The Representative shall have received at the Closing Date and
any Option Closing Date certificates of the Chief Executive Officer and the
Chief Financial Officer of Republic dated as of the date of the Closing Date
or Option Closing Date, as the case may be, and addressed to the
Representative, individually and as representative of the several
Underwriters, to the effect that (i) the representations and warranties of
Republic in this Agreement are true and correct, as if made at and as of the
Closing Date or the Option Closing Date, as the case may be, and that
Republic has complied with all the agreements, fulfilled all the covenants
and satisfied all the conditions on its part to be performed, fulfilled or
satisfied at or prior to the Closing Date or the Option Closing Date, as the
case may be, and (ii) the signers of the certificate have carefully examined
the Registration Statement and the Prospectus and any amendments or
supplements thereto, and the conditions set forth in Section 7(g) hereof have
been satisfied.
(h) At the time this Agreement is executed and at the Closing
Date and any Option Closing Date, the Representative shall have received a
letter, dated the date of delivery thereof, addressed to the Representative,
individually and as representative of the several Underwriters, in form and
substance satisfactory to the Representative in all respects (including,
without limitation, the non-material nature of the changes or decreases, if
any, referred to in clause (iii) below) from [Coopers & Lybrand, L.L.P.]
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<PAGE>
(i) confirming they are independent certified public accountants
within the meaning of the Act and the Regulations, and stating that the
section of the Registration Statement under the caption "Experts" is correct
insofar as it relates to them; (ii) stating that, in their opinion, the
consolidated financial statements, schedules and notes of Republic audited by
them and included in the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the Act and
the Regulations; (iii) stating that, on the basis of specified procedures,
which included the procedures as specified by the American Institute of
Certified Public Accountants for a review of interim financial information,
as described in SAS No. 71, Interim Financial Information (with respect to
the latest unaudited consolidated financial statements of Republic included
in the Registration Statement), a reading of the latest available unaudited
interim consolidated financial statements of Republic (with an indication of
the date of the latest available unaudited interim financial statements), a
reading of the minutes of the meetings of the stockholders and the Boards of
Directors of Republic and the Subsidiaries, and audit and compensation
committees of such Boards, if any, and inquiries to certain officers and
other employees of Republic and the Subsidiaries responsible for operational,
financial and accounting matters and other specified procedures and
inquiries, nothing has come to their attention that would cause them to
believe that (A) the unaudited consolidated financial statements of Republic
and the Subsidiaries included in the Registration Statement, (I) do not
comply in form and all material respects with the applicable accounting
requirements of the Act and the Regulations, or (II) any material
modifications should be made to such unaudited financial statements for them
to be in conformity with generally accepted accounting principles; (B) at a
specified date not more than five business days prior to the date of such
letter, there was any change in the capital stock or debt of Republic or any
decrease in net current assets, total assets or stockholders' equity of
Republic as compared with the amounts shown in the September 30, 1997
unaudited balance sheet of Republic included in the Registration Statement,
or that for the periods from October 1, 1997 to the date of the latest
available unaudited financial statements of Republic and to a specified date
not more than five days prior to the date of the letter, there were any
decreases, as compared to the corresponding periods in the prior
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year, in operating income or total or per share amounts of net income, except
in all instances for changes, decreases or increases that the Registration
Statement discloses have occurred or may occur and except for such other
changes, decreases or increases which the Representative shall in its sole
discretion accept; or (C) the unaudited pro forma financial statements
included in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of Rule 11-02
of Regulation S-X under the Act and that the pro forma adjustments have not
been properly applied to the historical amounts in the compilation of those
statements; and (iv) stating that they have compared specific dollar amounts
(or percentages derived from such dollar amounts), numbers of shares and
other numerical data and financial information set forth in the Registration
Statement that have been specified by the Representative prior to the date of
this Agreement (in each case to the extent that such dollar amounts,
percentages and other information is derived from the general accounting
records subject to the internal controls of Republic's or either of its
Subsidiaries' accounting systems, or has been derived directly from such
accounting records by analysis or comparison or has been derived from other
records and analyses maintained or prepared by Republic or either of its
Subsidiaries) with the results obtained from the application of readings,
inquiries and other appropriate procedures set forth in the letter, and found
them to be in agreement. All financial statements and schedules included in
material incorporated by reference into the Prospectus shall be deemed
included in the Registration Statement for purposes of this subsection.
(i) There shall have been duly tendered to the Representative for
the respective accounts of the Underwriters certificates representing all of
the Shares to be purchased by the Underwriters on the Closing Date or Option
Closing Date, as the case may be.
(j) All corporate and other proceedings and other matters incident
to the authorization, form and validity of this Agreement and the form of the
Registration Statement and Prospectus and all other legal matters related to
this Agreement and the transactions contemplated hereby shall be reasonably
satisfactory in all respects to counsel to the Underwriters. Republic shall
have furnished to such counsel all documents and information that they shall
have reasonably requested to enable them to pass upon such matters.
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(k) At the Closing Date and any Option Closing Date, the
Representative shall have been furnished such additional documents,
information and certificates as they shall have reasonably requested.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to the Representative and the
Underwriters' counsel. Republic shall furnish the Representative with such
conformed copies of such opinions, certificates, letters and other documents
as they shall reasonably request. If any condition to the Underwriters'
obligations hereunder to be fulfilled prior to or at the Closing Date or any
Option Closing Date, as the case may be, is not fulfilled, the Representative
may on behalf of the several Underwriters, terminate this Agreement with
respect to the Closing Date or such Option Closing Date, as applicable, or,
if it so elects, waive any such conditions which have not been fulfilled or
extend the time for their fulfillment Any such termination shall be without
liability of the Underwriters to Republic.
8. Indemnification and Contribution.
(a) Republic shall indemnify and hold harmless each Underwriter,
and each person, if any, who controls each Underwriter within the meaning of
the Act, against any and all loss, liability, claim, damage and expense
whatsoever, including, but not limited to, any and all reasonable expenses
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever or in connection with any
investigation or inquiry of, or action or proceeding that may be brought
against, the respective indemnified parties, arising out of or based upon any
breach of Republic's representations and warranties made in this Agreement or
any untrue statements or alleged untrue statements of material fact contained
in any Preliminary Prospectus, the Registration Statement or the Prospectus,
any application or other document (in this Section 8 collectively called
"application") filed in any jurisdiction in order to qualify all or any part
of the Shares under the securities laws thereof or filed with the SEC or the
NASD, or the omission or alleged omission from any of the foregoing of a
material fact required to be stated therein or necessary to make the
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statements therein not misleading; provided, however, that the foregoing
indemnity shall not apply in respect of any statement or omission made in
reliance upon and in conformity with written information furnished to
Republic by any Underwriter through the Representative expressly for use in
any Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment or supplement thereto, or in any application or in any
communication to the SEC, as the case may be; and further provided, however,
that the indemnification contained in this Section 8(a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter (or
to the benefit of any person controlling such Underwriter) on account of any
such loss, claim, liability or expense arising from the sale of the Shares by
such Underwriter to any person if a copy of the Prospectus shall not have
been delivered or sent to such person within the time required by the Act and
the Regulations, and the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus, provided that Republic has
delivered the Prospectus to the several Underwriters in requisite quantity on
a timely basis to permit such delivery or sending. The obligations of
Republic under this Section 8(a) will be in addition to any liability
Republic may otherwise have.
(b) Each Underwriter, severally and not jointly, shall indemnify
and hold harmless Republic, each of the directors of Republic, each of the
officers of Republic who shall have signed the Registration Statement, and
each other person, if any, who controls Republic within the meaning of the
Act to the same extent as the foregoing indemnities from Republic to the
several Underwriters, but only with respect to any and all loss, liability,
claim, damage or expense resulting from statements or omissions, or alleged
statements or omissions, if any, made in any Preliminary Prospectus,
Registration Statement or Prospectus or any amendment or supplement thereof
or any application in reliance upon, and in conformity with written
information furnished to Republic by any Underwriter through the
Representative expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment or supplement thereof
or any application, as the case may be. The obligations of each Underwriter
under this Section 8(b) will be in addition to any liability which such
Underwriter may otherwise have.
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<PAGE>
(c) If any action, inquiry, investigation or proceeding is brought
against any person in respect of which indemnification may be sought pursuant
to Section 8(a) or (b) hereof, such person (hereinafter called the
"indemnified party") shall, promptly after notification of, or receipt of
service of process for, such action, inquiry, investigation or proceeding,
notify in writing the party or parties against whom indemnification is to be
sought (hereinafter called the "indemnifying party") of the institution of
such action, inquiry, investigation or proceeding. The indemnifying party,
upon the request of the indemnified party, shall assume the defense of such
action, inquiry, investigation or proceeding, including, without limitation,
the employment of counsel (reasonably satisfactory to such indemnified party)
and payment of expenses. No indemnification provided for in this Section 8
shall be available to any indemnified party who shall fail to give such
notice if the indemnifying party does not have knowledge of such action,
inquiry, investigation or proceeding to the extent that such indemnifying
party has been materially prejudiced by the failure to give such notice, but
the omission to so notify the indemnifying party shall not relieve the
indemnifying party otherwise than under this Section 8. Such indemnified
party shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense such
indemnified party unless the employment of such counsel shall have been
authorized in writing by the indemnifying party in connection with the
defense of such action or if the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party or if such
indemnified party or parties shall have been advised by counsel that there
may be a conflict between the positions of the indemnifying party or parties
and of the indemnified party or parties or that there may be legal defenses
available to such indemnified party or parties different from or in addition
to those available to the indemnifying party or parties, in any of which
events the indemnified party or parties shall be entitled to select counsel
to conduct the defense to the extent determined by such counsel to be
necessary to protect the interests of the indemnified party or parties, and
the reasonable fees and expenses of such counsel shall be borne by the
indemnifying party. The indemnifying party shall be responsible for the fees
and disbursements of only one such counsel so engaged by the indemnified
party or parties. Expenses covered by the indemnification in this Section 8
shall be paid by the indemnifying party as they are incurred by the
indemnified party. No indemnifying party
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<PAGE>
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any
claims that are the subject matter of such action. Anything in this Section
8 to the contrary notwithstanding, an indemnifying party shall not be liable
for any settlement of a claim effected without its written consent, which
consent shall not be unreasonably withheld.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) hereof in respect of any losses, liabilities, claims,
damages or expenses (or actions, inquiries, investigations or proceedings in
respect thereof) referred to therein, except by reason of the failure to give
notice as required in Section 8(c) hereof (provided that the indemnifying
party does not have knowledge of the action, inquiry, investigation or
proceeding and to the extent such party has been materially prejudiced by the
failure to give such notice), then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, liabilities, claims, damages or expenses (or actions, inquiries,
investigations or proceedings in respect thereof in such proportion as is
appropriate to reflect the relative benefits received by Republic on the one
hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as
is appropriate to reflect not only such relative benefits but also the
relative fault of Republic on the one hand and the Underwriters on the other
in connection with the statements or omissions which resulted in such losses,
liabilities, claims or expenses (or actions, inquiries, investigations or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by Republic on the one hand
and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by Republic bears to the total underwriting discount and
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by Republic on
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<PAGE>
the one hand or the Underwriters on the other hand and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
Republic and the Underwriters agree that it would not be just and
equitable if contributions to this Section 8(d) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to above in this Section 8(d). The
amount paid or payable by an indemnified party as a result of the losses,
liabilities, claims, damages or expenses (or actions, inquiries,
investigations or proceedings in respect thereof) referred to above in this
Section 8(d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(d), (i) the provisions of the Agreement Among
Underwriters shall govern contribution among Underwriters, (ii) no
Underwriter (except as provided in the Agreement Among Underwriters) shall be
required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, and (iii)
no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this Section 8(d) to contribute are several in proportion to
their individual underwriting obligations and not joint.
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9. Representations and Agreements to Survive Delivery. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Date and any Option Closing Date. All such
representations, warranties and agreements of the Underwriters and Republic,
including, without limitation, the indemnity and contribution agreements
contained in Section 8 hereof and the agreements contained in Sections 6, 9,
10 and 13 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter or
any controlling person, and shall survive delivery of the Shares and
termination of this Agreement, whether before or after the Closing Date or
any Option Closing Date.
10. Effective Date of This Agreement and Termination Hereof.
(a) This Agreement shall become effective at 10:00
a.m.,Philadelphia, Pennsylvania time, on the first business day following the
Effective Date or at the time of the public offering by the Underwriters of
the Shares, whichever is earlier, except that the provisions of Sections 6,
8, 9, 10 and 13 hereof shall be effective upon execution hereof. The time of
the public offering, for the purpose of this Section 10, shall mean the time
when any of the Shares are first released by the Underwriters for offering by
dealers. The Representative and Republic may prevent the provisions of this
Agreement (other than those contained in Sections 6, 8, 9, 10 and 13) hereof
from becoming effective without liability of any party to any other party,
except as noted below, by giving the notice indicated in Section 10(c) hereof
before the time the other provisions of this Agreement become effective.
(b) The Representative shall have the right to terminate this
Agreement at any time prior to the Closing Date or any Option Closing Date as
provided in Sections 7 and 11 hereof or if any of the following have
occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change or
any development involving a prospective material adverse change in or
affecting the Business Conditions of
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Republic or the Subsidiaries, whether or not arising in the ordinary course
of business, that would, in the Representative's opinion, make the offering
or delivery of the Shares impracticable; (ii) any outbreak of
hostilities or other national or international calamity or crisis or change
in economic, political or financial market conditions if the effect on the
financial markets of the United States of such outbreak, calamity, crisis or
change would, in the Representative's opinion, make the offering or delivery
of the Shares impracticable; (iii) any suspension or limitation of trading
generally in securities on the New York Stock Exchange, the American Stock
Exchange, the NASDAQ National Market or the over-the-counter market or any
setting of minimum prices for trading or the promulgation of any federal or
state statute, regulation, rule or order of any court or other governmental
authority that in the Representative's opinion materially and adversely
affects trading on such exchange or the over-the-counter market; (iv) the
enactment, publication, decree or other promulgation of any federal or state
statute, regulation, rule or order of any court or other governmental
authority which in the Representative's opinion materially and adversely
affects or will materially or adversely affect the business or operations of
Republic or the Subsidiaries; (v) declaration of a banking moratorium by
either United States, New York or Pennsylvania authorities; (vi) the taking
of any action by any federal, state or local government or agency in respect
of its monetary or fiscal affairs that in the Representative's opinion has a
material adverse effect on the securities markets in the United States; or
(vii) trading in any securities of Republic shall have been suspended or
halted by NASD or the SEC.
(c) If the Representative elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section
10, the Representative shall notify Republic hereof promptly by telephone,
telex, telegraph, telegram or facsimile, confirmed by letter.
11. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Firm Shares or Optional Shares hereunder, and if
the Firm Shares or Optional Shares with respect to which such default relates
do not exceed in the
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aggregate 10% of the number of Firm Shares or Optional Shares, as the case
may be, that all Underwriters have agreed to purchase on the relevant Closing
Date or Option Closing Date, then the Representative may make arrangements
satisfactory to Republic for the purchase of such Firm Shares by other
persons, including any of the Underwriters, but if no such arrangements are
made by the relevant Closing Date or Option Closing Date, such Firm Shares or
Optional Shares to which the default relates shall be purchased severally by
the non-defaulting Underwriters in proportion to their respective commitments
hereunder.
(b) If such default relates to more than 10% of the Firm Shares or
Optional Shares, as the case may be, the Representative may in its discretion
arrange for another party or parties (including a non-defaulting Underwriter)
to purchase such Firm Shares or Optional Shares to which such default
relates, on the terms contained herein. In the event that the Representative
does not arrange for the purchase of the Firm Shares or Optional Shares to
which a default relates as provided in this Section 11, this Agreement may be
terminated by the Representative or by Republic without liability on the part
of the non-defaulting several Underwriters (except as provided in Section 8
hereof) or Republic (except as provided in Sections 6 and 8 hereof); provided
that if such default occurs with respect to Optional Shares after the Closing
Date, this Agreement will not terminate as to the Firm Shares or any Optional
Shares purchased prior to such termination. Nothing herein shall relieve a
defaulting Underwriter of its liability, if any, to the other several
Underwriters and to Republic for damages occasioned by its default hereunder.
(c) If the Firm Shares or Optional Shares to which the default
relates are to be purchased by the non-defaulting Underwriters, or are to be
purchased by another party or parties, the Representative or Republic shall
have the right to postpone the Closing Date or any Option Closing Date, as
the case may be, for a reasonable period but not in any event exceeding seven
days, in order to effect whatever changes may thereby be made necessary in
the Registration Statement or the Prospectus or in any other documents and
arrangements, and Republic agrees to file promptly any amendment to the
Registration Statement or supplement to the Prospectus that in the opinion of
counsel for the Underwriters may thereby be made necessary. The terms
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"Underwriters" and "Underwriter" as used in this Agreement shall include any
party substituted under this Section 11 with like effect as if it had
originally been a party to this Agreement with respect to such Firm Shares
and/or Optional Shares.
12. Information Furnished by Underwriters. The statement set forth on
the last paragraph at the bottom of the cover page of the Prospectus
regarding the terms of the Offering by the Underwriters, the legend on the
inside cover page regarding stabilization, the identity of the Underwriters
set forth in the first paragraph under the heading "Underwriting" and the
concession and reallowance figures appearing in the second paragraph under
the caption "Underwriting," constitute the only written information furnished
by reference or on behalf of any Underwriter referred to in Sections 1(b) and
8 hereof.
13. Notice. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to any Underwriter,
shall be mailed, delivered, telexed, telegrammed, telegraphed or telecopied
and confirmed to such Underwriter, c/o Janney Montgomery Scott Inc., 1801
Market Street, Philadelphia, Pennsylvania 19103, Attention: Mr. Edward J.
Losty, with a copy to Stevens & Lee, 111 North Sixth Street, Reading,
Pennsylvania 19603, Attention: Jeffrey P. Waldron, Esquire; and if sent to
Republic, shall be mailed, delivered, telexed, telegrammed, telegraphed or
telecopied and confirmed to Republic Financial Services Corporation, 400
Washington Street, Reading, Pennsylvania 19603; Attention: Nelson R. Oswald,
with a copy to Spector Gadon & Rosen, P.C., 1635 Market Street, 7th Floor,
Philadelphia, Pennsylvania 19103, Attention: Christopher Flannery, Esquire.
14. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the several Underwriters, Republic and the controlling
persons, directors and officers thereof, and their respective successors,
assigns, heirs and legal representatives, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision herein
contained. The terms "successors" and "assigns" shall not include any
purchaser of the Shares merely because of such purchase.
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15. Definition of Business Day. For purposes of this Agreement,
"business day" means any day on which the NASDAQ Stock Market is opened for
trading.
16. Counterparts. This Agreement may be executed in one or more
counterparts and all such counterparts will constitute one and the same
instrument.
17. Construction. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and performed entirely within such Commonwealth.
If the foregoing correctly sets forth your understanding of our
agreement, please sign and return to Republic the enclosed duplicate hereof,
whereupon it will become a binding agreement in accordance with its terms.
Very truly yours,
REPUBLIC FIRST BANCORP, INC.
By:
---------------------------
Rolf A. Stensrud, President
and Chief Executive Officer
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
JANNEY MONTGOMERY SCOTT INC.
As Representatives of the Several Underwriters named in Schedule I hereto
By: JANNEY MONTGOMERY SCOTT INC.
By:
-----------------------------
Edward J. Losty
First Vice President
SCHEDULE I
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Schedule of Underwriters
Number of Firm Shares Underwriter to be Purchased ____________.
Janney Montgomery Scott Inc. ________________________________.
Total _________________________
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SCHEDULE II
Persons Who Are to Deliver Lock-Up Agreements
Lock-Up Agreements are to be delivered by the following persons and
entities immediately prior to the time the SEC declares the Registration
Statement effective:
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<PAGE>
Exhibit 3.1
Microfilm Number__________ Filed with the Department of State on June 7, 1996
Entity Number 1007552 /s/ [illegible]
-----------------------------
Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
0SCB-15-1915 (Rev 90)
In compliance with the requirements of 15 Pa.C.S. Section 1915 (relating
to articles of amendment), the undersigned business corporation, desiring to
amend its Articles, hereby states that:
1. The name of the corporation is ExecuFirst Bancorp, Inc.
------------------------
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider
and the county of venue is (the Department is hereby authorized to
correct the following information to conform to the records of the
Department):
(a) 1513 Walnut Street Philadelphia PA 19102 Phila.
------------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o
------------------------------------------------------------------------
Name of Commercial Registered Officer Provider County
For a corporation represented by a commercial registered office provider,
the county in (b) shall be deemed the county in which the corporation is
located for venue and official publication purposes.
3. The statute by or under which it was incorporated is:
Pennsylvania Business Corporation Law
----------------------------------------------------------------------------
4. The date of its incorporation is: November 15, 1997
-------------------------------------------
5. (Check, and if appropriate complete, one of the following):
/X/ The amendment shall be effective upon filing these Articles of
Amendment in the Department of State.
/ / The amendment shall be effective on: at
--------------------- ------------
Date Hour
6. (Check one of the following):
/ / The amendment was adopted by the shareholders (or members) pursuant to
15 Pa.C.S. Section 1914(a) and (b).
/X/ The amendment was adopted by the board of directors pursuant to 15
Pa.C.S. Section 1914(c).
7. (Check, and if appropriate complete, one of the following):
/X/ The amendment adopted by the corporation, set forth in full, is as
follows:
Article 1 - The name of the Corporation is First Republic Bancorp,
Inc.
/ / The amendment adopted by the corporation as set forth in full in
Exhibit A attached hereto and made a part hereof.
<PAGE>
8. (Check if the amendment restates the Articles):
/ / The restated Articles of Incorporation supersede the original
Articles and all amendments thereto.
IN TESTIMONY WHEREOF, (the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer thereof this
7 day of June 1996.
EXECUFIRST BANCORP, INC.
BY: /s/ Zvi H. Muscal
-------------------------------------
Zvi H. Muscal
TITLE: President and Chief Executive
Officer
<PAGE>
Microfilm Number 9761-1259 Filed with the Department of State on JUL 07 1997
----------- -----------
Entity Number 1007552 /s/ [Illegible]
--------- ------------------------------------------------
Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB.15-1915 (Rev 50)
In compliance with the requirements of 15 Pa.C.S. Section 1915 (relating
to articles of amendment), the undersigned business corporation, desiring to
amend its Articles, hereby states that
1. The name of the corporation is: First Republic Bancorp, Inc.
--------------------------------------------
----------------------------------------------------------------------------
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and
the county of venue is (the Department is hereby authorized to correct
the following information to conform to the records of the Department):
(a) 1513 Walnut Street Philadelphia PA 19102 Philadelphia
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Number and Street City State Zip County
(b) c/o:
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Name of Commercial Registered Office Provider County
For a corporation represented by a commerical registered office provider,
the county in (b) shall be deemed the county in which the corporation is
located for venue and official publication purposes.
3. The statute by or other which it was incorporated is: PA Business
Corporation Law ----------------------
---------------------
4. The date of its incorporation is: November 16, 1987
-----------------------------------------
5. (Check, and if appropriate complete, one of the following):
/ / The amendment shall be effective upon filing these Articles of
Amendment in the Department of State.
/X/ The amendment shall be effective on: July 15, 1997 at 12:00 Noon
------------- ----------
Date Hour
6. (Check one of the following):
/ / The amendment was adopted by the shareholders (or members) pursuant
to 15 Pa.C.S. Section 1914(a) and (b).
/X/ The amendment was adopted by the board of directors pursuant to 15
Pa.C.S. Section 1914(c).
7. (Check, and if appropriate complete, one of the following):
/ / The amendment adopted by the corporation, set forth in full, is as
follows:
---------------------------------------------------------------
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/X/ The amendment adopted by the corporation is set forth in full in
Exhibit A attached hereto and made a part hereof.
<PAGE>
8. (Check if the amendment restates the Articles):
/ / The restated Articles of Incorporation supersede the original
Articles and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer thereof this
3rd day of July, 1997.
- --- ---- ----
FIRST REPUBLIC BANCORP, INC.
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(Name of Corporation)
BY: /s/ Rolf A. Stensrud
-------------------------------------
(Signature)
Rolf A. Stensrud
TITLE: President
----------------------------------
<PAGE>
Exhibit A
to
Articles of Amendment
of
First Republic Bancorp, Inc.
7. Articles 1 and 2 of the Articles of Incorporation of the Corporation
are amended so as to read in their entirety as follows:
1. The name of the Corporation is: Republic First Bancorp, Inc.
2. The address of the Corporation's current registered address is:
1608 Walnut Street, Suite 1000, Philadelphia, PA 19103, County
of Philadelphia.
<PAGE>
Exhibit 5.1
Board of Directors
Republic First Bancorp, Inc.
1608 Walnut Street
Philadelphia, Pennsylvania 19103
Re: Registration Statement on Form SB-2 (SEC File No. 333-_________)
Gentlemen:
In connection with the proposed offering by Republic First Bancorp, Inc.
(the "Company") of up to 1,150,000 shares of the Company's common stock, par
value $.10 per share (the "Common Stock"), covered by the Company's Registration
Statement on Form SB-2 (No. 333-_________) (the "Registration Statement"), we,
as counsel to the Company, have reviewed:
1. the Articles of Incorporation of the Company;
2. the Bylaws of the Company;
3. the minute books of the Company;
4. a Corporate Subsistence Certificate, dated October __, 1997, issued by
the Secretary of the Commonwealth of Pennsylvania with respect to the Company;
5. the Registration Statement; and
6. copies of the certificates representing shares of the Common Stock.
Based upon our review of such documents, it is our opinion that:
1. The Company has been duly incorporated under the laws of the
Commonwealth of Pennsylvania and is validly existing and in good standing under
the laws of such Commonwealth.
2. The 1,150,000 shares of Common Stock covered by the Registration
Statement have been duly authorized and, when issued and sold for cash pursuant
to the terms described in the Registration Statement, will be legally issued by
the Company and fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement, and to the reference to us under the heading "Legal Matters" in the
related Prospectus. In giving this consent, we do not thereby admit that we
come within the category of persons whose
<PAGE>
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the Rules and Regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ SPECTOR GADON & ROSEN, P.C.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on form SB-2
of our report dated January 30, 1997, except as to the information in Note 17
for which the date is March 4, 1997, on our audit of the consolidated
financial statements and financial statement schedules of First Republic
Bancorp, Inc. and Subsidiary as of December 31, 1996 and for the year then
ended. We also consent to the references to our firm under the caption
"Experts".
/s/ COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 14, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Republic First
Bancorp, Inc. on Form SB-2 of our report on Republic Bancorporation, Inc. for
the year ended December 31, 1995 dated March 1, 1996, except Note 1 related
to the merger which is dated June 7, 1996 and except Note 17 related to the
stock split effected in the form of a dividend which is dated March 4, 1997,
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
October 14, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
Registrants Interim Unaudited Consolidated Financial Statements for the nine
months ended September 30, 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,237,000
<INT-BEARING-DEPOSITS> 2,058,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,920,000
<INVESTMENTS-CARRYING> 97,194,000
<INVESTMENTS-MARKET> 0
<LOANS> 184,903,000
<ALLOWANCE> 0
<TOTAL-ASSETS> 303,166,000
<DEPOSITS> 247,904,000
<SHORT-TERM> 27,346,000
<LIABILITIES-OTHER> 6,435,000
<LONG-TERM> 0
0
0
<COMMON> 34,000
<OTHER-SE> 21,447,000
<TOTAL-LIABILITIES-AND-EQUITY> 303,166,000
<INTEREST-LOAN> 12,311,000
<INTEREST-INVEST> 4,192,000
<INTEREST-OTHER> 300,000
<INTEREST-TOTAL> 16,808,000
<INTEREST-DEPOSIT> 8,398,000
<INTEREST-EXPENSE> 9,059,000
<INTEREST-INCOME-NET> 7,749,000
<LOAN-LOSSES> 140,000
<SECURITIES-GAINS> 3,000
<EXPENSE-OTHER> 5,934,000
<INCOME-PRETAX> 4,301,000
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,004,000
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.78
<YIELD-ACTUAL> 0.038
<LOANS-NON> 1,363,000
<LOANS-PAST> 284,000
<LOANS-TROUBLED> 225,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,092,000
<CHARGE-OFFS> 376,000
<RECOVERIES> 75,000
<ALLOWANCE-CLOSE> 1,931,000
<ALLOWANCE-DOMESTIC> 1,931,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 408,000
</TABLE>
