UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30, 1997
Commission File Number: 0-17007
Republic First Bancorp, Inc.
(Exact name of small business issuer as specified in its charter)
Pennsylvania 23-2486815
(State or other jurisdiction of IRS Employer Identification
incorporation or organization) Number
1608 Walnut Street, Philadelphia, Pennsylvania 19103
(Address of principal executive offices) (Zip code)
215-735-4422
(Registrant's telephone number, including area code)
First Republic Bancorp, Inc.
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
YES X NO ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
3,446,309 shares of Issuer's Common Stock, par value
$0.01 per share, issued and outstanding as of July 31, 1997
Page 1 of 25
Exhibit index appears on page 23
<PAGE>
Table of Contents
Page
Part I: Financial Information
Item 1: Financial Statements 3
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Part II: Other Information
Item 1: Legal Proceedings 23
Item 2: Changes in Securities 23
Item 3: Defaults Upon Senior Securities 23
Item 4: Submission of Matters to a Vote of Security Holders 23
Item 5: Other Information 24
Item 6: Exhibits and Reports on Form 8-K 24
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
3
<PAGE>
Republic First Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS: June 30, 1997 December 31, 1996
(unaudited)
<S> <C> <C>
Cash and due from banks $6,305,000 $7,716,000
Interest - bearing deposits with banks 3,351,000 665,000
Federal funds sold 0 7,115,000
------------ ------------
Total cash and cash equivalents 9,656,000 15,496,000
Securities available for sale, at fair value 4,888,000 5,900,000
Securities held to maturity, at amortized cost 90,086,000 75,054,000
Loans receivable, net 182,196,000 170,002,000
Premises and equipment, net 1,844,000 711,000
Real estate owned, net 248,000 295,000
Accrued income and other assets 11,070,000 6,337,000
------------ ------------
Total Assets $299,988,000 $273,795,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Deposits:
Demand - non-interest-bearing $29,277,000 $32,611,000
Demand - interest-bearing 9,454,000 10,181,000
Money market and savings 30,118,000 27,240,000
Time 142,291,000 150,800,000
Time over $100,000 25,058,000 29,227,000
------------ ------------
Total Deposits 236,198,000 250,059,000
Other Borrowings 37,019,000 0
Accrued expenses and other liabilities 5,812,000 5,365,000
------------ ------------
Total Liabilities 279,029,000 255,424,000
------------ ------------
Shareholders' Equity:
Common stock, par value $.01 per share;
25,000,000 shares authorized; shares issued
and outstanding 3,446,309 and 3,417,509 as of June 30,
1997 and December 31, 1996 respectively 28,000 28,000
Additional paid in capital 13,792,000 13,687,000
Retained earnings 7,133,000 4,653,000
Unrealized gain on securities available for sale, net of
deferred taxes 6,000 3,000
------------ ------------
Total Shareholders' Equity 20,959,000 18,371,000
------------ ------------
Total Liabilities and Shareholders' Equity $299,988,000 $273,795,000
============ ============
</TABLE>
(See notes to consolidated financial statements)
4
<PAGE>
Republic First Bancorp, Inc. and Subsidiary
Consolidated Statements of Operations
For the Periods Ended June 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 $4,146,000 $2,549,000 $7,952,000 $4,552,000
Interest on federal funds sold 1,000 318,000 290,000 1,129,000
Interest on investments 1,285,000 734,000 2,627,000 1,249,000
----------- ----------- ----------- -----------
Total Interest Income 5,432,000 3,601,000 10,869,000 6,930,000
----------- ----------- ----------- -----------
Interest expense:
Demand - interest-bearing 63,000 23,000 128,000 32,000
Money market and savings 226,000 151,000 441,000 258,000
Time 2,023,000 1,571,000 4,088,000 2,948,000
Time over $100,000 400,000 261,000 824,000 795,000
Subordinated Debt 0 71,000 0 140,000
Other Borrowings 171,000 0 248,000 0
----------- ----------- ----------- -----------
Total InterestExpense 2,883,000 2,077,000 5,729,000 4,173,000
----------- ----------- ----------- -----------
Net interest income 2,549,000 1,524,000 5,140,000 2,757,000
Provision for loan losses 80,000 25,000 110,000 25,000
----------- ----------- ----------- -----------
Net interest income after provision for
loan losses 2,469,000 1,499,000 5,030,000 2,732,000
----------- ----------- ----------- -----------
Non-interest income:
Service fees 83,000 48,000 162,000 59,000
Other income 256,000 174,000 2,312,000 2,148,000
----------- ----------- ----------- -----------
339,000 222,000 2,474,000 2,207,000
Non-interest expenses:
Salaries and Benefits 1,082,000 636,000 2,027,000 1,113,000
Occupancy/Equipment 300,000 203,000 552,000 358,000
Other expenses 747,000 353,000 1,383,000 626,000
----------- ----------- ----------- -----------
2,129,000 1,192,000 3,962,000 2,097,000
----------- ----------- ----------- -----------
Income before income taxes 679,000 529,000 3,542,000 2,842,000
----------- ----------- ----------- -----------
Provision for income taxes 204,000 178,000 1,063,000 965,000
----------- ----------- ----------- -----------
Net income $475,000 $351,000 $2,479,000 $1,877,000
=========== =========== =========== ===========
Net income per share:
Primary $0.12 $0.14 $0.65 $0.82
Fully diluted $0.12 $0.14 $0.65 $0.82
----------- ----------- ----------- -----------
Average common shares and CSE
outstanding:
Primary 3,844,628 2,484,777 3,805,338 2,288,234
Fully diluted 3,844,628 2,484,777 3,835,028 2,288,234
----------- ----------- ----------- -----------
</TABLE>
(See notes to consolidated financial statements)
5
<PAGE>
Republic First Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Six Months Ended June 30,
<TABLE>
<CAPTION>
1997 1996
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $2,479,000 $1,877,000
Adjustments to reconcile net income
to net cash (used)/provided by operating
activities:
Provision for loan losses 110,000 25,000
Depreciation and amortization 182,000 123,000
(Increase) in accrued income
and other assets (4,733,000) (846,000)
Increase in accrued expenses
and other liabilities 447,000 77,000
------------ ------------
Net cash (used)/provided by operating activities (1,515,000) 1,256,000
------------ ------------
Cash flows from investing activities:
Purchase of securities:
Available for sale (4,913,000) 0
Held to Maturity (19,917,000) (17,900,000)
Proceeds from principal receipts and maturities of
securities 10,883,000 10,188,000
Net (increase) in loans (12,194,000) (713,000)
Cash Proceeds from acquisitions 0 12,155,000
Premises and equipment expenditures (1,292,000) (114,000)
------------ ------------
Net cash(used)/provided by investing
activities (27,433,000) 3,616,000
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in demand, money
market, and savings deposits (1,233,000) 6,215,000
Net increase in borrowed funds 37,019,000 0
Net increase (decrease) in time deposits (12,678,000) 94,000
============ ============
Net cash provided by financing activities 23,108,000 6,309,000
============ ============
Increase (decrease) in cash and cash equivalents $(5,840,000) $11,181,000
Cash and cash equivalents, beginning of period $15,496,000 3,856,000
============ ============
Cash and cash equivalents, end of period $9,656,000 $15,037,000
============ ============
Supplemental disclosure:
Interest paid $6,298,000 $4,266,000
============ ============
Non-cash transactions:
Net transfers to real estate owned from loans 0 295,000
Changes in unrealized gain on securities
available for sale $1,000 $(18,000)
============ ============
</TABLE>
(See notes to consolidated financial statements)
6
<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 June 30, 1997, the results of operations for the three and six months ended,
June 30, 1997 and 1996, and the cash flows for the six months ended June 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 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. 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 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 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 June 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.
7
<PAGE>
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.
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 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 beginning of each respective period.
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
quarters and six months ended June 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 June 30, 1997, pro forma basic earnings per share would have been $0.14 and
$0.15 for the three months ended June 30, 1997 and 1996, respectively, and $0.73
and $0.90 for the six months ended June 30, 1997 and 1996, respectively.
8
<PAGE>
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 June 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 Treasury and US
Government Agency securities. The book and market values of securities
available-for-sale was $4,882,000 and $4,888,000 respectively, as of June 30,
1997. The net unrealized gain on securities available-for-sale, as of this date,
was $6,000.
The following table represents the carrying and estimated fair values of
Investment Securities at June 30, 1997.
Gross Gross
Amortized Unrealized Unrealized
Available-for-Sale ($000) Cost Gain Loss Fair Value
US Treasury $999 1 0 $1,000
US Government Agencies 3,883 5 0 3,888
Other 0 0 0 0
------- ------- ------- -------
Total Available-for-Sale $4,882 6 0 $4,888
------- ------- ------- -------
Gross Gross
Amortized Unrealized Unrealized
Held-to-Maturity ($000) Cost Gain Loss Fair Value
US Government Agencies $85,640 511 311 $85,840
Other 4,446 0 0 4,446
------- ------- ------- -------
Total Held-to-Maturity $90,086 511 311 $90,286
------- ------- ------- -------
9
<PAGE>
Item 2:
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Organization:
Republic First Bancorp, Inc. ("the Company") 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.
Effective July 15, 1997, the company changed its name from First
Republic Bancorp, Inc. to Republic First Bancorp, Inc. This change was made to
avoid confusion with First Republic Bancorp of California, which is not
associated with this Philadelphia based Company. The ticker symbol for the
NASDAQ National Market System (FRBK) will remain the same and the subsidiary
bank will continue to use the name First Republic Bank within certain
territories.
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. 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 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 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. Additionally, 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 beginning of each respective period.
The June 30, 1997 and December 31, 1996 Consolidated Balance Sheets
reflect 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 then
outstanding shares of ExecuFirst of approximately 1,226,000 (prior to subsequent
10
<PAGE>
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.
Financial Condition:
At June 30, 1997, the Bank's total assets increased $26.2 million to
$300.0 million from $273.8 million at December 31, 1996. This increase was
primarily due to the increase in the net loan portfolio a higher level of
investment securities and a temporary increase of approximately $4.5 million in
other assets associated with the Refant Tax Program (the "Refant Program").
At June 30, 1997, net loans totaled approximately $182.2 million
representing an increase of approximately $12.2 million compared to $170.0
million at December 31, 1996. The increase in commercial loans was attributable
to a more aggressive loan origination program, consistent with the Bank's
strategic plan. Additionally, the Company increased its investment securities
portfolio through purchases funded by Federal Home Loan Bank advances.
Total deposits decreased to approximately $236.2 million during the six
months ended June 30, 1997 from $250.1 million at December 31, 1996. This was
primarily the result of allowing higher priced retail certificates of deposit to
run off. These deposits were replaced primarily with short term advances from
the Federal Home Loan Bank of Pittsburgh
Deposit Breakdown Table
<TABLE>
<CAPTION>
At At
June 30, December 31,
1997 1996
Type of Deposit Account % of % of
Balance Total Balance Total
<S> <C> <C> <C> <C>
Demand: non-interest bearing $29,277,000 12.4% $32,611,000 13.0%
Demand: interest bearing 9,454,000 4.0 10,181,000 4.1
Money Market and Savings 30,118,000 12.8 27,240,000 10.9
Time deposits under $100,000 142,291,000 60.2 150,800,000 60.3
Time deposits over $100,000 25,058,000 10.6 29,227,000 11.7
------------ ----- ------------ -----
Total deposits $236,198,000 100% $250,059,000 100%
============ ===== ============ =====
</TABLE>
11
<PAGE>
Allowance for Loan Losses:
The Allowance for Loan Losses for the Bank was $2,217,000 as of June
30, 1997. The Bank has a policy of increasing its Allowance for Loan Losses by
0.60% of net new loans receivable. Based on numerous factors including, but not
limited to, the Bank's existing loan portfolio, the size of its allowance for
Loan Losses, results of regularly scheduled bank regulatory field examinations,
and Management's internal loan review decisions, the Bank may make additions to
the Allowance for Loan Losses other than the percentage additions made in the
ordinary course of business. Additionally, the Board of Directors reviews
reserve adequacy on a quarterly basis. Management believes that the Allowance
for Loan Losses is reasonable and adequate to cover any known losses and any
losses reasonably expected in the portfolio.
The Bank recorded a Provision for Loan Losses of $110,000 during the
six months ended June 30, 1997 compared to $25,000 for the six months ended June
30, 1996, as loan growth was higher during 1997 compared to 1996. As a result of
this provision for potential loan losses and following certain recoveries net of
charge-offs credited to the allowance for loan losses as detailed below, the
Bank's aggregate reserve for potential loan losses increased to $2,217,000 at
June 30, 1997 from $2,092,000 at December 31, 1996. Listed below is an analysis
of the allowance for loan losses account:
Allowance for Loan Losses
Rollforward
Balance at December 31, 1996 $2,092,000
Charge-offs:
Commercial Loans 54,000
----------
Total charge-offs: 54,000
Recoveries
Commercial Loans 47,000
Real Estate Loans 19,000
Installment Loans 3,000
----------
Total Recoveries 69,000
Additions charged to operations 110,000
Balance at June 30, 1997 $2,217,000
----------
As of June 30, 1997, the Bank had loans outstanding placed in a
non-accrual status totaling approximately $2,151,000 compared to $1,892,000 at
December 31, 1996. This increase was mainly due to the addition of a number of
low balance credits. During the second quarter a larger non-accruing loan
totaling $850,000 was returned to performing status. There was no interest
income recorded on non-accrual loans for the six months ended June 30, 1997.
Management is actively pursuing the collection of all troubled loans. It is
uncertain as to the amount of any potential loss that may be incurred in
connection
12
<PAGE>
with the remaining non-accruing loans. The Bank has a policy of generally
placing on non-accrual status any loan for which payment of either principal or
interest, on a contractual basis, is not received or is unlikely to be received
for a period of 90 days. Such loans include those classified by either the Bank
or its regulators such that collection of the full amount of principal and
interest are considered doubtful.
Approximately 40% of the loans receivable earn interest at rates that
vary overnight with changes in the Bank's prime rate. Approximately 48% in loans
receivable are comprised of fixed rate loans that will mature in the next five
years, while another 12% of loans receivable represent fixed rate loans which
will mature beyond five years.
Listed below is a schedule of loans receivable. The loans are
categorized based on bank regulatory requirements, which categorizations are not
necessarily indicative of the actual type or purpose of the loan.
Loans Receivable
<TABLE>
<CAPTION>
At At
June 30, December 31,
1997 1996
Loan Type % of % of
Balance Total Balance Total
<S> <C> <C> <C> <C>
Loans collateralized by Real Estate:
One-to-four family residential $63,466,000 34.4% $58,908,000 34.2%
Multi-family residential 2,356,000 1.3 2,332,000 1.4
Commercial and other 68,959,000 37.4 62,016,000 36.0
------------ ----- ------------ -----
Total loans collateralized by Real Estate 134,781,000 73.1 123,256,000 71.6
------------ ----- ------------ -----
Commercial business loans 41,414,000 22.5 45,007,000 26.2
Other loans 8,218,000 4.4 3,831,000 2.2
============ ===== ============ =====
Total loans $184,413,000 100% $172,094,000 100%
============ ===== ============ =====
</TABLE>
Since its founding, the Bank's primary focus has been to service the
borrowing and deposit needs of small businesses and commercial real estate
investors. Many of the loans made to all of these categories of customers have
been collateralized by real estate, as set forth on the above chart.
Of the approximately $63.5 million in loans collateralized by
"one-to-four residential" properties at June 30, 1997, only $3.7 million
represent traditional residential mortgages. The remainder includes loans made
to investors who own small rental properties or business loans secured by liens,
often junior liens, on the residences of the principals. The risk in business
loans collateralized by liens on residential properties lies more in the success
or failure of the borrower's businesses than the real estate market, although
the value of the collateral is affected by variations in the real estate market.
Generally, housing prices in the Bank's market area fell during the late 1980s
and early 1990s, but more recently have been relatively stable.
13
<PAGE>
"Multi-family residential" and "Commercial and other" loans primarily
represent loans made to real estate investors and/or developers. This market
suffered dramatic declines in value during the late 1980s and early 1990s, but
has shown signs of stability in recent years. The degree of recovery, however,
is dependent on the type of property and its location. The Bank has strengthened
its ability to analyze and service such loans, and intends to continue its
penetration of this market, which it believes to be under-served, with a
resultant expectation of satisfactory interest rates, fees, and deposits.
Underwriting of such loans will continue to be performed in a conservative
manner.
"Commercial business loans" include loans to professionals and other
businesses not collateralized by real estate. $16.0 million of such loans were
collateralized by liquid collateral as of June 30, 1997. Another $8.0 million
were unsecured, that is, made to borrowers considered to be of sufficient
strength to merit unsecured financing. The balance consists primarily of loans
collateralized by business assets, such as accounts receivable, inventory and/or
equipment. The risk in business loans is generally a function of local market
and industry conditions, with any collateral serving as the source of repayment.
The Bank intends to continue its lending focus on professionals while
expanding its commercial real estate and small business efforts. Additionally,
in a further attempt to diversify its portfolio and increase its market
penetration, the Bank has begun to emphasize consumer lending. All such plans
are highly dependent upon the strength of the economic environment in the Bank's
market area, as well as the specific industries on which it focuses.
14
<PAGE>
Capital Resources:
During the six months ended June 30, 1997, the Company reported net
income of $2.5 million. As a result, tier one regulatory capital increased to
$20,513,000 at June 30, 1997 from $18,034,000 at year end 1996.
The Bank's ratio of Tier I Capital to total Risk-Weighted Assets
increased to 10.65% as of June 30, 1997 from 10.08% as of December 31, 1996. The
Company's ratio of Tier I Leverage Capital to total average quarterly assets was
7.43% compared to 6.65% as of December 31, 1996.
Regulatory Capital Requirements:
The following table presents the Bank's capital ratios at June 30, 1997:
Tier I Capital $20,513,000
Tier II Capital 2,217,000
-----------
Total Capital 22,730,000
Total Average Quarterly Assets 276,083,000
Total Risk-Weighted Assets (1) 192,627,000
Tier I Risk-Based Capital Ratio (2) 10.65%
Required Tier I Risk-Based Capital Ratio 4.00%
-----------
Excess Tier I Risk-Based Capital Ratio 6.65%
Total Risk-Based Capital Ratio (3) 11.80%
Required Total Risk-Based Capital Ratio 8.00%
-----------
Excess Total Risk-Based Capital Ratio 3.80%
Tier I Leverage Ratio (4) 7.43%
Required Tier I Leverage Ratio 5.00%
-----------
Excess Tier I Leverage Ratio 2.43%
-----------
(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.
The Bank's ability to maintain the required level of capital is
substantially dependent upon the success of the Bank's capital and business
plans, the impact of future economic events on the Bank's loan customers, the
Bank's ability to manage its interest rate risk and control its growth and other
operating expenses.
15
<PAGE>
In addition to the above minimum capital requirements, the Federal
Reserve Bank has promulgated rules to implement a statutory requirement that
federal banking regulators take specified "prompt corrective action" when an
insured institution's capital level falls below certain levels. The rule defines
five capital categories based on several of the above capital ratios. The Bank
currently exceeds the levels required for a bank to be classified as "well
capitalized". However, the Federal Reserve Bank may consider other criteria in
the future when determining such classifications that could result in a
downgrading in such classifications.
Liquidity:
The Bank's target and actual liquidity levels are determined and
managed based on Management's comparison of the maturities and marketability of
the Bank's interest-earning assets with its projected future maturities of
deposits and other liabilities. As of June 30, 1997, the Bank maintained $9.1
million in cash and cash equivalents in the form of cash and due from banks
(after reserve requirements) and overnight federal funds sold. This represented
3.0% of the total assets at June 30, 1997 as compared to 5.7% at December 31,
1996. Of the Bank's investment securities, approximately $7.0 million are
pledged to secure public funds deposits and, therefore, are not available for
liquidity purposes.
Additionally, the Bank has established three lines of credit totaling
$99.0 million to assist in managing the Bank's liquidity position. As of June
30, 1997, approximately $37.0 million was outstanding on the aforementioned
lines of credit.
Both liquidity and interest sensitivity are managed by the Finance
Committee of the Board of Directors. This Committee's primary objective is to
oversee and assist Management in various financial aspects of the Bank's
activities including asset/liability management.
Investment Securities:
The Company classifies certain investments under one of the following
categories: "held-to-maturity" which are accounted for at historical cost,
adjusted for accretion of discounts and amortization of premiums;
"available-for-sale" which are accounted for at fair market value, with
unrealized gains and losses reported as a separate component of shareholders'
equity; or "trading" which are 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 June 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 Treasury and US
Government Agency securities. The book and market values of securities
available-for-sale was $4,882,000 and $4,888,000 respectively, as of June 30,
1997. The net unrealized gain on securities available-for-sale, as of this date,
was $6,000.
16
<PAGE>
Interest Rate Sensitivity:
The possible effect upon the Company and the Bank of any future
sustained rise in interest rates is believed by Management to have a negative
impact on net interest income, since the Bank does not have the ability to
respond to any such changes by quickly raising rates on many of its
interest-earning assets. However, a sustained decrease in interest rates
generally could have a positive effect on the Bank, due to a timing difference
in repricing the Bank's liabilities, primarily certificates of deposit, and its
interest-earning assets noted above. The Bank has the ability to reprice
interest bearing deposits, reflecting Money Market, NOW and Savings accounts, on
a weekly basis. As of June 30, 1997, 39.0% of the Bank's time deposits were to
mature and be repriceable within three months of such date, and an additional
18.6% were to be repriceable within three to six months.
17
<PAGE>
The cumulative 12-month Interest Rate Sensitivity Gap at June 30, 1997
was a negative 5.6% compared to a negative 15.8% and 9.4% at March 31, 1997 and
December 31, 1996, respectively, all of which are within management's guidelines
of +/- 20%.
First Republic Bank
Interest Sensitive Gap
June 30, 1997
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
0 - 90 91 - 180 181 - 365 1 - 5 5 YRS &
Days Days Days Years Over Total
<S> <C> <C> <C> <C> <C> <C>
Interest Sensitive Assets:
Interest Bearing Balances
Due From Banks $3,351 $0 $0 $0 $0 $3,351
Investment Securities 29,892 7,839 13,513 24,123 19,607 94,974
Loans 78,894 10,426 25,314 34,946 34,833 184,413
------------------------------------------------------------------------------
Totals 112,137 18,265 38,827 59,069 54,440 282,738
=============================================================================
Cumulative Totals $ 112,137 $ 130,402 $ 169,229 $ 228,298 $ 282,738
------------------------------------------------------------------------------
Interest Sensitive Liabilities:
Demand Interest Bearing $ 4,012 $ 0 $ 0 $ 2,721 $ 2,721 $ 9,454
Savings Accounts 1,275 0 0 0 1,275 2,550
Money Market Accounts 13,785 0 0 6,892 6,891 27,568
FHLB Borrowings 31,419 0 0 5,600 0 37,019
Time Deposits 65,229 31,058 38,334 32,723 5 167,349
------------------------------------------------------------------------------
Totals $ 115,720 $ 31,058 $ 38,334 $ 47,936 $ 10,892 $ 243,940
Cumulative Totals $ 115,720 $ 146,778 $ 185,112 $ 233,048 $ 243,940
------------------------------------------------------------------------------
GAP $ (3,583) $ (12,793) $ 493 $ 11,133 $ 43,548 $ 38,798
Cumulative GAP $ (3,583) $ (16,376) $ (15,883) $ (4,750) $ 38,798 $ 38,798
Interest Sensitive Assets/
Interest Sensitive Liabilities 1.0 0.9 0.9 1.0 1.2
Cumulative GAP/
Total Earning Assets -1.3% -5.8% -5.6% -1.7% 13.7%
Total Earning Assets
282,738
</TABLE>
18
<PAGE>
Results of Operations for the Quarter Ended June 30, 1997 vs. 1996:
The Company's net income for the quarter ended June 30, 1997, was
$475,000, or $0.12 per share of common stock, compared to a net income of
$351,000 or $0.14 per share of common stock, during the comparable quarter of
1996.
Net Interest Income:
Net interest income, the difference between interest earned on loans
and other investments and the interest paid on deposits and borrowings,
increased to $2,549,000 during the quarter ended June 30, 1997, from $1,524,000
for the quarter ended June 30, 1996. The increase was mainly due to the 1996
merger with ExecuFirst, resulting in the absence of two months of income from
operations of Execufirst during the quarter ended June 30, 1996.
Management believes that profitable operations in the future will be
contingent on both external and internal factors. Internal factors include
Management's ability to (i) attract additional deposits to allow further
expansion of the Bank's loan and investment programs; (ii) make accurate credit
analyses upon origination of loans; (iii) deal expeditiously and efficiently
with non-performing assets; and (iv) control or reduce non-interest expenses.
Management has increased its emphasis on business development through the hiring
of additional lending staff and targeting the Bank's niche market segment of
small businesses and professionals. Additionally, media advertising is employed
to obtain deposit funding required to support the increases in loan production.
The utilization of internal loan review and workout activities in conjunction
with the strengthening of credit standards has facilitated the identification
and disposition of problem loans.
External factors, over which the Company has little or no control,
include the interest rate environment and the strength or weakness in the local
economy. Management believes that the general economy in its market area will
not experience a decline to any material extent in the near term. Interest rate
changes are caused, in part, by the actions of the Federal Reserve Bank and
cannot be predicted in advance with any certainty.
Interest and fees on loans was $4,146,000 or 76% of total interest
income, for the quarter ended June 30, 1997 compared with $2,549,000 or 71% of
total interest income reported during the comparable quarter of 1996. This
increase, on an absolute dollar basis of $1.6 million, was mainly due to the
merger with ExecuFirst, effective June 7, 1996 in addition to increased loan
volume generated through business development efforts. On a percentage basis,
this increase is attributable to the increase in total loans as a percentage of
total average earning assets during 1997.
Interest on federal funds sold was $1,000, during the quarter ended
June 30, 1997, compared to $318,000 reported in the comparable quarter of 1996.
This decrease was due to higher average balances of federal funds outstanding
during the second quarter of 1996. Interest on investments was $1,285,000 or 24%
of total interest income in the quarter ended June 30, 1997, compared to
$734,000, or 20% of total interest income reported during the comparable quarter
of 1996. This was due to higher average balances during the quarter ended June
30, 1997 as a result of the merger.
19
<PAGE>
Interest expense for the quarter ended June 30, 1997 was $2,883,000
compared to $2,077,000 for the quarter ended June 30, 1996. Such increase is
attributable to the increase in deposits as a result of the merger with
ExecuFirst. The Company had 73.6 % of its quarterly average deposit base in
certificate of deposits during 1997 compared with 70.8% for the same period in
1996. Certificates of deposit traditionally represent higher costing deposits,
compared to interest earning and non-interest earning demand deposits. Interest
expense on subordinated debt was reduced from $71,000 for the quarter ended June
30, 1996 to $0 for the same period in 1997, due to the early redemption of the
debt in December of 1996. Other borrowing expense totaled $171,000 resulting
from the Federal Home Loan advances used to fund loan growth, purchase
investment securities and replace matured certificates of deposit.
Non-Interest Income:
Non-interest income is comprised of charges on deposit accounts, plus
or minus any gains or losses on sales of securities and the participation of the
Company's subsidiary, First Republic Bank, in a tax refund program with a
national tax preparation service company. As these loans are repaid, the Bank
recognizes a fee per refund, which is paid by the borrower/taxpayer. Fees
recognized on this program were approximately $230,000 net of expenses for the
second quarter of 1997 compared to $156,000 in 1996. Total service fees
increased to $83,000 for the quarter ended June 30, 1997 compared to $48,000 for
the quarter ended June 30, 1996. The increase is primarily due to greater
deposit service charges on higher average levels of deposit balances, as a
result of the merger with ExecuFirst.
Non-Interest Expense:
The Company's largest non-interest expense is salaries and employee
benefits, which totaled $1,082,000, or approximately 51% of total non-interest
expenses for the quarter ended June 30, 1997, compared to $636,000, or
approximately 53% of total expenses, in the quarter ended June 30, 1996. The
year-to-year dollar increase is due primarily to more staff as a result of the
merger with ExecuFirst, as well as the increase associated with the expansion of
branches and business development staff.
Occupancy expense consists primarily of rent expense for the lease of
the Company's offices and Bank branches, as well as premises and equipment
depreciation expenses. Occupancy expenses were $300,000 for the quarter ended
June 30, 1997, or 14% of total expenses, compared to $203,000, or 17% of total
expenses, for the comparable quarter of 1996. This increase is the result of
additional branch openings partially offset by consolidation of the Company's
main office.
Other operating expenses during the quarter ended June 30, 1997 were
$747,000 or 35% of total non-interest expenses, compared to $353,000 or 30% of
such expenses, for the quarter ended June 30, 1996. Major components of this
category include data processing, printing and supplies, advertising, travel and
entertainment, fidelity insurance premiums, and Federal Deposit Insurance
premiums.
20
<PAGE>
Results of Operations for the Six Months Ended June 30, 1997 vs. 1996:
The Company's net income for the six months ended June 30, 1997, was
$2,479,000, or approximately $0.65 per share of common stock, compared to net
income of $1,877,000 or approximately $0.82 per share of common stock, during
the six months ended June 30, 1996.
Net Interest Income:
Net interest income, the difference between interest earned on loans
and other investments and the interest paid on deposits and borrowings,
increased to $5,140,000 during the six months ended June 30, 1997, from
$2,757,000 for the six months ended June 30, 1996. The increase was mainly due
to the 1996 merger with ExecuFirst resulting in the absence of five months of
income form operations of Execufirst during the six months ended June 30, 1996.
Interest and fees on loans was $7,952,000 or 73% of total interest
income, for the six months ended June 30, 1997 compared with $4,552,000 or 66%
of total interest income reported during the comparable period of 1996. This
increase, on an absolute dollar basis of $3.4 million, was mainly due to the
merger with ExecuFirst, effective June 7, 1996 in addition to increased loan
volume generated through business development efforts. On a percentage basis,
this increase is attributable to the increase in total loans as a percentage of
total average earning assets during 1997.
Interest on federal funds sold was $290,000, or 3% of total interest
income during the six months ended June 30, 1997, compared to $1,129,000 or 16%
of total interest income reported in the comparable period of 1996. This
decrease was due to higher average balances of federal funds outstanding during
the six months ended June 30, 1996. Interest on investments was $2,627,000 or
24% of total interest income in the six months ended June 30, 1997, compared to
$1,249,000, or 18% of total interest income reported during the comparable
period of 1996.
Interest Expense:
Interest expense for the six months ended June 30, 1997 was $5,729,000
compared to $4,173,000 for the six months ended June 30, 1996. Such increase is
attributable to the increase in average deposits as a result of the merger with
ExecuFirst. Interest expense on subordinated debt was reduced from $140,000 to
$0 in 1997 due to the early redemption of the debt in December of 1996. Other
borrowing expense totaled $248,000 resulting from the Federal Home Loan advance
used to fund loan growth, purchase investment securities and to replace matured
in certificates of deposit.
21
<PAGE>
Non-Interest Income:
Fees recognized on the Refant Tax Program were approximately $2.2
million net of expenses for the six months ended June 30, 1997 compared to $2.0
million in 1996. Total service fees income increased to $162,000 for the six
months ended June 30, 1997 compared to $59,000 for the six months ended June 30,
1996. The increase is primarily due to greater deposit service charges, on
higher average deposit balances, as a result of the merger with ExecuFirst.
Non-Interest Expense:
Salaries and employee benefits, which totaled $2,027,000, or
approximately 51% of total non-interest expenses for the six months ended June
30, 1997, increased compared to $1,113,000, or approximately 53% of total
expenses, for the six months ended June 30, 1996. The year-to-year dollar
increase is due primarily to more staff as a result of the merger with
ExecuFirst, as well as the increase associated with the expansion of branches
and the business development staff.
Occupancy expense consists primarily of rent expense for the lease of
the Company's offices and Bank branches as well as premises and equipment
depreciation expenses. Occupancy expenses were $552,000 for the six months ended
June 30, 1997, or 14% of total expenses, compared to $358,000, or 17% of total
expenses, for the comparable period in 1996. This decrease is the result of the
consolidation of the Company's main office, partially offset by a two new branch
openings during 1997.
Other operating expenses during the six months ended June 30, 1997 were
$1,383,000 or 35% of total non interest expenses, compared to $626,000 or 30% of
such expenses, for the six months ended June 30, 1996. Major components of this
category include data processing, printing and supplies, advertising, travel and
entertainment, fidelity insurance premiums, and Federal Deposit Insurance
premiums.
22
<PAGE>
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
Management is not aware of any pending or contemplated legal action
which would have a material adverse effect on the Company.
Item 2: Changes in Securities
None
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of Republic First Bancorp, Inc., to
take action upon the election and re-election of certain directors of the
Company was held on the 29th day of April, 1997 at 4:00 p.m., at the Pyramid
Club, 1735 Market Street, Philadelphia, Pennsylvania, after written notice of
said meeting, according to law, was mailed to each shareholder of record
entitled to receive notice of said meeting, 33 days prior thereto. As of the
record date for said meeting of shareholders, the number of shares then issued
and outstanding was 2,847,969 shares of common stock, of which 2,847,969 shares
were entitled to vote. A total of 1,840,976 shares were voted. No nominee
received less than 99.5% of the voted shares. Therefore, pursuant to such
approval, the following Directors were elected to the Company:
Daniel S. Berman (re-elected)
John F. D'Aprix (re-elected)
Eustace W. Mita (re-elected)
James E. Schleif (re-elected)
Harris Wildstein (re-elected)
Zeev Shenkman
The following directors continue to serve on the board of the Company:
Kenneth Adelberg
William Batoff
Michael J. Bradley
Sheldon Goldberg
Gerald Levinson
Harry D. Madonna
Neal I. Rodin
Steven J. Shotz
Rolf A. Stensrud
23
<PAGE>
Mr. Muscal, who was the President of the Company, and Chairman of the
Bank, resigned as an Officer and Director of the Company and Bank, and
terminated his employment agreement effective February 28, 1997. Mr. Muscal has
executed a consulting agreement with the Bank effective February 28, 1997.
The Board filled Mr. Muscal's director vacancy by nominating Mr. Zeev
Shenkman. Mr. Shenkman was elected to the Board of Directors at the Company's
annual meeting on April 29, 1997.
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K Page Numbering
in Sequential
Numbering System
(a) Exhibits:
27 - Financial Data Schedule 26
(b) Form 8-K was filed by the Registrant on April 21, 1997 to
announce the resignation of Coopers and Lybrand, the Registrant's
certified public accountants.
Form 8-K/A was filed by the Registrant on April 29, 1997 to
announce the resignation of Coopers and Lybrand, the Registrant's
certified public accountants.
Form 8-K/A was filed by the Registrant on May 6, 1997 to announce
the resignation of Coopers and Lybrand, the Registrant's
certified public accountants.
Form 8-K was filed by the Registrant on July 17, 1997 to announce
the name change of the Registrant from First Republic Bancorp,
Inc. to Republic First Bancorp, Inc. The stock ticker symbol will
remain the same ("FRBK").
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Issuer has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Republic First Bancorp, Inc.
/s/ Rolf Stensrud
Rolf Stensrud
President and Chief Executive Officer
/s/ George S. Rapp
George S. Rapp
Executive Vice President and
Chief Financial Officer
Dated: August 11, 1997
25
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000834285
<NAME> FIRST REPUBLIC BANCORP INC
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,305,000
<INT-BEARING-DEPOSITS> 3,351,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,888,000
<INVESTMENTS-CARRYING> 90,086,000
<INVESTMENTS-MARKET> 0
<LOANS> 184,413,000
<ALLOWANCE> 2,217,000
<TOTAL-ASSETS> 299,988,000
<DEPOSITS> 236,198,000
<SHORT-TERM> 31,419,000
<LIABILITIES-OTHER> 5,812,000
<LONG-TERM> 5,600,000
<COMMON> 28,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 299,988,000
<INTEREST-LOAN> 4,146,000
<INTEREST-INVEST> 1,285,000
<INTEREST-OTHER> 1,000
<INTEREST-TOTAL> 5,432,000
<INTEREST-DEPOSIT> 2,712,000
<INTEREST-EXPENSE> 171,000
<INTEREST-INCOME-NET> 2,549,000
<LOAN-LOSSES> 80,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,129,000
<INCOME-PRETAX> 679,000
<INCOME-PRE-EXTRAORDINARY> 475,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 475,000
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
<YIELD-ACTUAL> 3.72
<LOANS-NON> 2,151,000
<LOANS-PAST> 1,641,000
<LOANS-TROUBLED> 2,151,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,092,000
<CHARGE-OFFS> 54,000
<RECOVERIES> 69,000
<ALLOWANCE-CLOSE> 2,217,000
<ALLOWANCE-DOMESTIC> 2,217,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 392,000
</TABLE>
