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, 1998
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)
N/A
(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.
5,545,883 shares of Issuer's Common Stock, par value
$0.01 per share, issued and outstanding as of July 31, 1998
Page 1 of 33
Exhibit index appears on page 32
<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 12
Part II: Other Information
Item 1: Legal Proceedings 31
Item 2: Changes in Securities 31
Item 3: Defaults Upon Senior Securities 31
Item 4: Submission of Matters to a Vote of Security Holders 31
Item 5: Other Information 32
Item 6: Exhibits and Reports on Form 8-K 32
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Page Number
(1) Consolidated Balance Sheets as of June 30, 1998 and December 31,
1997, respectively...................................................4
(2) Consolidated Statements of Operations for three and six months
ended June 30, 1998 and 1997.........................................5
(3) Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1997...............................................6
(4) Notes to Consolidated Financial Statements...........................7
3
<PAGE>
Republic First Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
as of June 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
ASSETS: 1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
Cash and due from banks $ 10,239,000 $ 5,850,000
Interest - bearing deposits with banks 138,000 476,000
Federal funds sold 4,149,000 0
------------ ------------
Total cash and cash equivalents 14,526,000 6,326,000
Securities available for sale, at fair value 2,725,000 2,950,000
Securities held to maturity at amortized cost 183,473,000 145,030,000
(fair value of $184,316,000 and
$145,908,000, respectively)
Loans receivable, (net of allowance for loan losses
of $2,235,000 and $2,028,000, respectively) 242,475,000 209,999,000
Premises and equipment, net 3,634,000 2,534,000
Real estate owned 1,944,000 1,944,000
Accrued income and other assets 15,427,000 6,679,000
------------ ------------
Total Assets $464,204,000 $375,462,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Deposits:
Demand - non-interest-bearing $ 26,048,000 $ 32,885,000
Demand - interest-bearing 13,167,000 8,587,000
Money market and savings 40,154,000 26,341,000
Time 163,866,000 152,014,000
Time over $100,000 24,889,000 28,574,000
------------ ------------
Total Deposits 268,124,000 248,401,000
Other borrowed funds 150,080,000 85,912,000
Accrued expenses and other liabilities 8,035,000 6,527,000
------------ ------------
Total Liabilities 426,239,000 340,840,000
------------ ------------
Shareholders' Equity:
Common stock par value $.01 per share, 20,000,000
shares authorized; shares issued and outstanding
5,545,883 as of June 30, 1998
and 5,515,517 as of December 31, 1997 55,000 55,000
Additional paid in capital 26,524,000 26,364,000
Retained earnings 11,382,000 8,198,000
Accumulated other comprehensive income 4,000 5,000
------------ ------------
Total Shareholders' Equity 37,965,000 34,622,000
------------ ------------
Total Liabilities and Shareholders' Equity $464,204,000 $375,462,000
============ ============
</TABLE>
(see notes to consolidated financial statements)
4
<PAGE>
Republic First Bancorp, Inc. and Subsidiary
Consolidated Statements of Operations
For the Three and Six Months Ended, June 30,
<TABLE>
<CAPTION>
Quarter to Date Year to Date
June 30, June 30,
1998 1997 1998 1997
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 5,308,000 $ 4,146,000 $10,104,000 $ 7,952,000
Interest on federal funds sold 25,000 1,000 207,000 290,000
Interest on investments 3,458,000 1,285,000 6,459,000 2,627,000
----------- ----------- ----------- -----------
Total Interest Income 8,791,000 5,432,000 16,770,000 10,869,000
----------- ----------- ----------- -----------
Interest expense:
Demand interest-bearing 84,000 63,000 139,000 128,000
Money market and savings 403,000 226,000 572,000 441,000
Time over $100,000 380,000 400,000 782,000 824,000
Time 2,516,000 2,023,000 4,888,000 4,088,000
Other borrowed funds 2,018,000 171,000 3,525,000 248,000
----------- ----------- ----------- -----------
Total interest expense 5,401,000 2,883,000 9,906,000 5,729,000
----------- ----------- ----------- -----------
Net interest income 3,390,000 2,549,000 6,864,000 5,140,000
----------- ----------- ----------- -----------
Provision for loan loss 80,000 80,000 210,000 110,000
Net interest income after provision
For loan losses 3,310,000 2,469,000 6,654,000 5,030,000
----------- ----------- ----------- -----------
Non-interest income:
Service fees 113,000 83,000 218,000 188,000
Tax Refund Program revenue 223,000 229,000 2,379,000 2,234,000
Misc. Income 23,000 27,000 40,000 52,000
----------- ----------- ----------- -----------
359,000 339,000 2,637,000 2,474,000
----------- ----------- ----------- -----------
Non-interest expense:
Salaries and benefits 1,211,000 1,082,000 2,399,000 2,027,000
Occupancy/Equipment 370,000 300,000 722,000 552,000
Other expenses 888,000 747,000 1,411,000 1,383,000
----------- ----------- ----------- -----------
2,469,000 2,129,000 4,532,000 3,962,000
----------- ----------- ----------- -----------
Income before income taxes 1,200,000 679,000 4,759,000 3,542,000
Provision for income taxes 396,000 204,000 1,576,000 1,063,000
----------- ----------- ----------- -----------
Net income $ 804,000 $ 475,000 $ 3,183,000 $ 2,479,000
=========== =========== =========== ===========
Net income per share:
Basic $ 0.15 $ 0.12 $ 0.58 $ 0.60
----------- ----------- ----------- -----------
Diluted $ 0.14 $ 0.11 $ 0.54 $ 0.55
----------- ----------- ----------- -----------
Average common shares CSE
Outstanding:
Basic 5,535,728 4,124,051 5,525,623 4,112,531
----------- ----------- ----------- -----------
Diluted 5,951,815 4,457,285 5,944,008 4,468,670
----------- ----------- ----------- -----------
</TABLE>
5
<PAGE>
Republic First Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For Six Months Ended June 30,
(unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,183,000 $ 2,479,000
Adjustments to reconcile net income
To net cash provided by operating
activities
Provision for loan losses 210,000 110,000
Depreciation and amortization 260,000 182,000
Increase in accrued income
and other assets (8,748,000) (4,733,000)
Increase in accrued expenses
and other liabilities 1,634,000 447,000
------------ ------------
Net cash used in operating activities (3,461,000) (1,515,000)
------------ ------------
Cash flows from investing activities:
Purchase of securities:
Available for Sale 0 (4,913,000)
Held to Maturity (74,360,000) (20,023,000)
Proceeds from principal receipts, sales, and
maturities of securities 35,774,000 10,833,000
Net increase in loans (32,717,000) (11,730,000)
Net increase/(decrease) in deferred fees 241,000 (464,000)
Premises and equipment expenditures (1,249,000) (1,292,000)
------------ ------------
Net cash used in investing activities (72,311,000) (27,589,000)
------------ ------------
Cash flows from financing activities:
Net increase in demand, money
market, and savings deposits 11,556,000 (1,233,000)
Net increase/(decrease) in borrowed funds less than
90 days (5,832,000) 37,019,000
Net increase in borrowed funds greater than 90 days 70,000,000 0
Net increase (decrease) in time deposits 8,167,000 (12,678,000)
Net proceeds from issued common stock 81,000 106,000
------------ ------------
Net cash provided by financing activities 83,972,000 23,214,000
------------
Increase in cash and cash equivalents 8,200,000 (5,890,000)
Cash and cash equivalents, beginning of period 6,326,000 15,496,000
============ ============
Cash and cash equivalents, end of period 14,526,000 $ 9,606,000
============ ============
Supplemental disclosure:
Interest paid $ 8,308,000 $ 6,298,000
============ ============
Non-cash transactions:
Changes in unrealized gain on securities
available for sale ($ 2,000) $ 1,000
============ ============
</TABLE>
(See notes to consolidated financial statements)
6
<PAGE>
REPUBLIC FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: 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.
In the opinion of 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, 1998, the
results of operations for the quarter and six months ended June 30, 1998 and
1997, and the cash flows for the six months ended June 30, 1998 and 1997. 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 1997 annual report.
Note 2: Summary of Significant Accounting Policies:
Principles of Consolidation
The consolidated financial statements of the Company include the accounts
of Republic First Bancorp. Inc. and its wholly-owned subsidiary, First Republic
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 other borrowed funds. Accordingly, the operations of the Bank
are subject to risks and uncertainties surrounding its exposure to changes in
the interest rate environment.
Additionally, the Company derives fee income from the Bank's participation
in a Tax Refund Program, which indirectly funds consumer loans collateralized by
federal income tax refunds. Approximately $2.4 million and $2.2 million in gross
revenues were collected on these loans during the six months ended June 30, 1998
and 1997, respectively. The Company expects to participate in the program again
in 1999, however, tax code changes, banking regulations, as well as business
decisions by the parties involved in the program may affect the Company's
participation in the program in 1999.
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 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.
7
<PAGE>
Significant estimates are made by management in determining the allowance
for 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 loan losses and carrying value of real estate owned is
dependent, to a great extent, on the general condition of the local economy and
other conditions that may be beyond the Company's control, it is at least
reasonably possible that the estimates of the allowance for loan losses and the
carrying values of the real estate owned could differ materially in the near
term.
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 June 30, 1998 and December 31, 1997, were
$886,000 and $850,000, respectively. These requirements were satisfied through
the restriction of vault cash and a balance at the Federal Reserve Bank of
Philadelphia.
Loans
Loans are stated at the principal amount outstanding, net of deferred loan
fees and costs. The amortization of deferred loan fees and costs are accounted
for by a method, which approximates level yield. Any unamortized fees or costs
associated with loans, which pay down in full, are immediately recognized in the
Company's operations. Income is accrued on the principal amount outstanding.
Loans, including impaired loans, are generally classified as nonaccrual if
they are past due as to maturity or payment of principal and/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.
8
<PAGE>
Allowance for Loan Losses
The allowance for loan losses is established through a provision for 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 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 considers residential mortgage loans and consumer loans,
including home equity lines of credit, to be 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.
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 less estimated costs to sell the
property. Costs to maintain other real estate owned, or deterioration on value
of the properties is recognized as period expenses. There is no valuation
allowance associated with the Company's other real estate portfolio for those
periods presented.
Income Taxes
Deferred income taxes are established for the temporary differences between
the financial reporting basis and the tax basis of the Company's assets and
liabilities at the tax rates expected to be in effect when the temporary
differences are realized or settled. 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.
Reclassifications
Certain items in the 1997 financial statements were reclassified to conform
to 1998 presentation format. These reclassifications had no impact on net
income.
9
<PAGE>
Earnings Per Share
Earnings per common share, and common stock equivalent shares, are based on
the weighted average number of common shares and common stock equivalent shares
outstanding during the periods. Stock options are included as common stock
equivalents when dilutive. These common stock equivalents had a dilutive effect
for the six months ended June 30, 1998 and 1997.
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 EPS
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. The Company adopted SFAS No. 128
effective December 31, 1997. All prior period earnings per share presentations
have been restated to conform to this pronouncement.
EPS consists of two separate components, basic EPS and diluted EPS. Basic
EPS is computed by dividing net income by the weighted average number of common
shares outstanding for each period presented. Diluted EPS is calculated by
dividing net income by the weighted average number of common shares outstanding
plus common stock equivalents. Common stock equivalents consist of dilutive
stock options granted through the company's stock option plan. The following
table is a reconciliation of the numerator and denominator used in calculating
basic and diluted EPS. The following table is a comparison of EPS for the six
months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Year to Date Quarter to Date
1998 1997 1998 1997
------------------------------------------------ ------------------------------------------------
Net Income numerator, for both
calculations) $3,183,000 $2,479,000 $804,000 $475,000
--------------------------------------------------------------------------------------------------
Shares Per Share Shares Per Share Shares Per Share Shares Per Share
------ --------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted average shares
for period 5,525,623 4,112,531 5,535,728 4,124,051
Basic EPS $0.58 $0.60 $0.15 $0.12
Add common stock equivalents
representing dilutive stock
options 418,385 356,139 416,087 333,243
Effect on basic EPS and CSE $(0.04) $(0.05) $(0.01) $(0.01)
Equals total weighted average
shares and CSE (diluted) 5,944,008 4,468,670 5,951,815 4,457,285
Diluted EPS $0.54 $0.55 $0.14 $0.11
</TABLE>
Investment Securities
Debt and equity securities are classified in one of three categories, as
applicable, and are accounted for as follows: debt securities which the Company
has the 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
10
<PAGE>
securities are classified as "securities available for sale" and are reported at
fair market value with net unrealized gains and losses, net of tax, reported as
a separate component of shareholders' equity. Securities are adjusted for
amortization of premiums and accretion of discounts over the life of the related
security on a level yield method. Securities available for sale 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 the six months ended June 30, 1998 or
1997. Additionally, neither the Bank nor the Company has any trading securities.
Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." The following table displays net income and the
components of other comprehensive income to arrive at total comprehensive
income. For the Company, the only components of other comprehensive income are
those related to SFAS No. 115 available for sale securities.
For the six months ended June 30, 1998 1997
------- --------
(amount in thousands)
Net income $ 3,183 $ 2,479
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains during the period (1) 2
Less: Reclassification adjustment for gains
Included in net income 0 0
------- -------
Other comprehensive income (1) 2
Comprehensive income $ 3,182 $ 2,481
======= =======
Note: 3 Legal Proceedings
The Company, along with a number of other financial institutions, has 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
Company believes that it has a valid defense to this claim. In addition, one of
these loans in the amount of $612,000, was sold by the Bank to a mortgage banker
who is now alleging that the Company breached its warranty obligations when it
sold this loan to the mortgage banker because the lien of the loan is possibly
inferior to other mortgages. The Company believes its actions were proper, that
the lien is enforceable as a first lien, and it intends to vigorously defend
these claims and, to the extent necessary, seek recourse from other parties who
may have participated in this allegedly fraudulent scheme.
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.
11
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Quarter Ended June 30, 1998 Compared to June 30, 1997
Results of Operations:
Overview
The Company's net income increased $329,000, or 69.2%, to $804,000 for the
quarter ended June 30, 1998, from $475,000 for the quarter ended June 30, 1997.
The earnings increased primarily due to an increase in the Company's net
interest income. Diluted earnings per share for the quarter ended June 30, 1998
was $0.14 compared to $0.11, for the quarter ended June 30, 1997, due to the
increase in net income, partially offset by the effect of the stock offering
during the fourth quarter of 1997, by which 1,150,000 additional shares were
issued resulting in a materially larger number of average shares outstanding for
the quarter ended June 30, 1998, compared to the quarter ended June 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 Company's net interest income increased $841,000, or 33.0%, to $3.4
million for the quarter ended June 30, 1998 from $2.5 million for the quarter
ended June 30, 1997. The increase in net interest income was primarily due to an
increase in average interest-earning assets due to the purchase of investment
securities primarily funded by borrowings, and also in part to increased
business development. The Company's total interest income increased $3.4
million, or 61.8%, to $8.8 million for the quarter ended June 30, 1998 from $5.4
million for the quarter ended June 30, 1997. Interest and fees on loans
increased $1.2 million, or 28.0%, to $5.3 million for the quarter ended June 30,
1998 from $4.1 million for the quarter ended June 30, 1997. This increase was
due primarily to an increase in average loans outstanding for the period of
$54.9 million. Also contributing to the increase in total interest income was an
increase in interest and dividend income on securities of $2.2 million, or
169.1%, to $3.5 million for the quarter ended June 30, 1998 from $1.3 million
for the quarter ended June 30, 1997. This increase in investment income was the
result of an increase in the average balance of securities owned of $126.2
million, or 164.5%, to $202.9 million for the quarter ended June 30, 1998 from
$76.7 million for the quarter ended June 30, 1997.
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 decrease in average yield on interest-earning assets from 8.41% for the
quarter ended June 30, 1997 to 7.98% for the same period in 1998, was largely
the result of the Company's strategy to increase its position in
12
<PAGE>
investment securities which have an incrementally lower yield than the existing
interest earning asset base. Therefore, as a result, the total yield on interest
earning assets declined.
The Company's total interest expense increased $2.5 million, or 87.3%, to
$5.4 million for the quarter ended June 30, 1998 from $2.9 million for the
quarter ended June 30, 1997. This increase was due to an increase in the volume
of average interest-bearing liabilities of $176.5 million, or 80.8%, to $394.9
million for the quarter ended June 30, 1998 from $218.4 million for the quarter
ended June 30, 1997. The average rate paid on interest-bearing liabilities
increased 19 basis points to 5.49% for the quarter ended June 30, 1998 from
5.30% for the quarter ended June 30, 1997 due primarily to the increase in
average FHLB advances of $138.2 million which were borrowed at higher
incremental rate than the Company's existing interest-bearing liability base.
Interest expense on time deposits increased $473,000, or 19.5%, to $2.9
million for the quarter ended June 30, 1998 from $2.4 million for the quarter
ended June 30, 1997. This increase was primarily due to an increase in the
average volume of certificates of deposit in the amount of $21.1 million, or
12.6%, to $189.0 million for the quarter ended June 30, 1998 from $167.9 million
for the quarter ended June 30, 1997.
Interest expense on FHLB advances and overnight federal funds purchased was
$2.0 million for the quarter ended June 30, 1998. At June 30, 1998, 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.
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 Company'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 was $80,000 for the quarters ended June 30, 1998 and 1997.
Non-Interest Income
Total non-interest income increased $20,000 or 5.9%, to $359,000 for the
quarter ended June 30, 1998 from $339,000 for the quarter ended June 30, 1997.
This was mainly attributable to an increase from service fee income related to
loans.
Non-Interest Expenses
Total non-interest expenses increased $340,000, or 16.0% to $2.5 million
for the quarter ended June 30, 1998 from $2.1 million for the quarter ended June
30, 1997. Salaries and benefits increased $129,000, or 11.9%, to $1.2 million
for the quarter ended June 30, 1998 from $1.1 million for the quarter ended June
30, 1997. The increase was due primarily to an increase in staff as a result of
the expansion of the branches.
Occupancy and equipment expenses increased $70,000, or 23.3%, to $370,000
for the quarter ended June 30, 1998 from $300,000 for the quarter ended June 30,
1997 as a result of opening three additional branch offices.
13
<PAGE>
Other non-interest expense increased $141,000, or 18.9%, to $888,000 for
the quarter ended June 30, 1998 from $747,000 for the same period in 1997 as a
result of additional legal and real estate costs allocated with non-performing
assets, higher advertising expenses, as well as, insurance deductible costs
related to a branch robbery and customer fraud.
Provision for Income Taxes
The provision for income taxes increased $192,000, or 94.1%, to $396,000
for the quarter ended June 30, 1998 from $204,000 for the quarter ended June 30,
1997. This increase is mainly the result of the increase in pre-tax income from
1997 to 1998. The effective tax rate in 1998 increased to 33.0% from 30.0% in
1997 primarily due to the recognition of certain tax benefits in 1997, as a
result of the merger with ExecuFirst Bancorp, Inc.
Six Months Ended June 30, 1998 Compared to June 30, 1997
Results of Operations:
Overview
The Company's net income increased $704,000, or 28.4%, to $3.2 million for
the six months ended June 30, 1998, from $2.5 million for the six months ended
June 30, 1997. The earnings increased primarily due to an increase in the
Company's net interest income. Diluted earnings per share for the six months
ended June 30, 1998 was $0.54 compared to $0.55, for the six months ended June
30, 1997, due to the increase in net income, offset by the effect of the stock
offering during the fourth quarter of 1997, by which 1,150,000 additional shares
were issued resulting in a materially larger number of average shares
outstanding for the six months ended June 30, 1998.
Analysis of Net Interest Income
Historically, the Company's earnings have depended primarily upon the
Company'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 Company's net interest income increased $1.8 million, or 33.5%, to $6.9
million for the six months ended June 30, 1998 from $5.1 million for the six
months ended June 30, 1997. The increase in net interest income was primarily
due to an increase in average interest-earning assets due to the purchase of
investment securities primarily funded by borrowings, and also in part to
increased business development. The Company's total interest income increased
$5.9 million, or 54.3%, to $16.8 million for the six months ended June 30, 1998
from $10.9 million for the six months ended June 30, 1997. Interest and fees on
loans increased $2.2 million, or 27.1%, to $10.1 million for the six months
ended June 30, 1998 from $8.0 million for the six months ended June 30, 1997.
This increase was due primarily to an increase in average loans outstanding for
the period of $48.1 million. Also contributing to the increase in total interest
income was an increase in interest and dividend income on securities of $3.8
million, or 145.9%, to $6.5 million for the six months ended June 30, 1998 from
$2.6 million for the six months ended June 30, 1997. This increase in investment
income was the result of an increase in the average balance of securities owned
of $110.6 million, or 140.1%, to $189.5 million for the six months ended June
30, 1998 from $78.9 million for the six months ended June 30, 1997.
14
<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 decrease in average yield on interest-earning assets from 8.21% for the
six months ended June 30, 1997 to 8.03% for the same period in 1998, was largely
the result of the Company's strategy to purchase investment securities as part
of a leverage program, which has a lower yield than the existing asset base.
Therefore, the overall yield on interest earning assets has decreased.
The Company's total interest expense increased $4.2 million, or 72.9%, to $9.9
million for the six months ended June 30, 1998 from $5.7 million for the six
months ended June 30, 1997. This increase was due to an increase in the volume
of average interest-bearing liabilities of $146.6 million, or 67.1%, to $365.1
million for the six months ended June 30, 1998 from $218.5 million for the six
months ended June 30, 1997. The average rate paid on interest-bearing
liabilities increased 18 basis points to 5.50% for the six months ended June 30,
1998 from 5.32% for the six months ended June 30, 1997 due primarily to the
increase in average FHLB advances of $121.2 million which were borrowed at
higher incremental rate than the Company's existing interest-bearing liability
base.
Interest expense on time deposits increased $758,000, or 15.4%, to $5.7
million for the six months ended June 30, 1998 from $4.9 million for the six
months ended June 30, 1997. This increase was primarily due to an increase in
the average volume of certificates of deposit in the amount of $14.3 million, or
8.3%, to $186.6 million for the six months ended June 30, 1998 from $172.3
million for the six months ended June 30, 1997.
Interest expense on FHLB advances was $3.5 million for the six months ended
June 30, 1998. At June 30, 1998, 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 during the first quarter in 1998.
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 Company'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 increased $100,000, to $210,000 for the six months ended June
30, 1998 from $110,000 for the six months ended June 30, 1997 due to an increase
in average loans outstanding of $48.1 million from June 30, 1997 to June 30,
1998.
15
<PAGE>
Non-Interest Income
Total non-interest income increased $163,000 or 6.6%, to $2.6 million for
the six months ended June 30, 1998 from $2.5 million for the six months ended
June 30, 1997. The increase was due primarily to a $145,000 increase in Tax
Refund Program income associated with an increase in Tax Refund Product sales in
1998. Additionally, there was an increase in service fees of $30,000 to $218,000
for the six months ended June 30, 1998 from $188,000 for the six months ended
June 30, 1997, due to an average increase in core deposits of $14.5 million.
Non-Interest Expenses
Total non-interest expenses increased $570,000, to $4.5 million for the six
months ended June 30, 1998 from $4.0 million for the six months ended June 30,
1997. Salaries and benefits increased $373,000, or 18.4%, to $2.4 million for
the six months ended June 30, 1998 from $2.0 million for the six months ended
June 30, 1997. The increase was due primarily to an increase in staff as a
result of the expansion of the branches.
Occupancy and equipment expenses increased $170,000, or 38.3%, to $722,000
for the six months ended June 30, 1998 from $552,000 for the six months ended
June 30, 1997 as a result of opening three additional branch offices.
Other non-interest expense increased $28,000, or 2.0%, to $1,411,000 for
the six months ended June 30, 1998 from $1,383,000 for the same period in 1997
as a result of additional legal and real estate costs associated with
non-performing assets, higher advertising expenses, as well as, insurance
deductible costs related to a branch robbery and customer fraud.
Provision for Income Taxes
The provision for income taxes increased $512,000, or 48.2%, to $1.6
million for the six months ended June 30, 1998 from $1.1 million for the six
months ended June 30, 1997. This increase is mainly the result of the increase
in pre-tax income from 1997 to 1998. The effective tax rate in 1998 increased to
33.0% from 30.0% in 1997 primarily due to the recognition of certain tax
benefits in 1997, as a result of the merger with ExecuFirst Bancorp, Inc.
Financial Condition:
June 30, 1998 Compared to December 31, 1997
Total assets increased $88.7 million, or 23.6%, to $464.2 million at June
30, 1998 from $375.5 million at December 31, 1997. The increase in assets was
the result of higher levels of loans and securities, which were funded by the
increase in deposits and a net increase in other borrowed funds. Net loans
increased $32.5 million, or 15.5%, to $242.5 million at June 30, 1998 from
$210.0 million at December 31, 1997. This increase in loans was mainly
attributable to the growth in residential mortgages of $27.5 million. Investment
securities increased $38.2 million, or 25.8%, to $186.2 million at June 30, 1998
from $148.0 million at December 31, 1997. The increase was due primarily to the
purchase of $60.0 million in securities from funds generated through other
borrowed funds as part of the Company's leveraged funding strategy, which is
intended to increase earnings.
16
<PAGE>
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 increased by $8.2 million,
or 129.6%, to $14.5 million at June 30, 1998 from $6.3 million at December 31,
1997.
Premises and equipment, net of accumulated depreciation, increased $1.1
million to $3.6 million at June 30, 1998 from $2.5 million at December 31, 1997.
The increase was attributable mainly to the renovations of the second floor at
1608 Walnut Street for the Company's Operations Department, in addition to
renovations to the 1601 Market Street Branch, which replaced the 1515 Market
Street Branch.
Total liabilities increased $85.6 million, or 25.1%, to $426.4 million at
June 30, 1998 from $340.8 million at December 31, 1997. Deposits, the Company's
primary source of funds, increased $19.7 million, or 7.9% to $268.1 million at
June 30, 1998 from $248.4 million at December 31, 1997. The aggregate of
transaction accounts, which include demand, money market and savings accounts,
increased $11.6 million, or 17.0%, to $79.4 million at June 30, 1998 from $67.8
million at December 31, 1997. Certificates of deposit increased by $8.2 million,
or 4.5%, to $188.8 million at June 30, 1998 from $180.6 million at December 31,
1997.
Other borrowed funds were $150.1 million at June 30, 1998 as compared to
$85.9 million at December 31, 1997. 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.
Interest Rate Risk Management
Interest rate risk management involves managing the extent to which
interest-sensitive assets and interest-sensitive liabilities are matched. The
Company 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 suggests the converse.
Static Gap analysis describes interest rate sensitivity at a point in time.
However, it alone does not accurately measure the magnitude of changes in net
interest income since changes in interest rates do not impact all categories of
assets and liabilities equally or simultaneously. Interest rate sensitivity
analysis also involves assumptions on certain categories of assets and deposits.
For purposes of interest rate sensitivity analysis, assets and liabilities are
stated at their contractual maturity, estimated likely call date, or earliest
repricing opportunity. Mortgage-backed securities and amortizing loans are
scheduled based on their anticipated cash flow, which also considers
prepayments, based on historical data and current market trends. Savings
accounts, including passbook, statement savings, money market, and NOW accounts,
do not have a stated maturity or repricing term and can be withdrawn or repriced
at any time. This may impact the Company's margin if more expensive alternative
sources of deposits are required to fund loans or deposit runoff. Management
projects the repricing characteristics of these accounts based on historical
performance and assumptions that it believes reflect their rate sensitivity.
Therefore, for purposes of the gap analysis, these deposits are not considered
to reprice simultaneously. Accordingly, portions of the deposits are moved into
time periods exceeding one year.
17
<PAGE>
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 table
below.
The Company 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.
Management presently believes that the effect on the Company of any future
rise in interest rates, reflected in higher cost of funds, would be detrimental
since the Company has generally more interest sensitive liabilities repricing
during the next year, than interest earning assets. However, a decrease in
interest rates generally could have a positive effect on the Company, due to the
timing difference between repricing the Company's liabilities, primarily
certificates of deposit, and the largely automatic repricing of its existing
interest-earning assets.
Since the assets and liabilities of the Company have diverse repricing
characteristics that influence net interest income, management analyzes interest
sensitivity through the use of gap analysis and simulation models. Interest rate
sensitivity management seeks to minimize the effect of interest rate changes on
net interest margins and interest rate spreads, and to provide growth in net
interest income through periods of changing interest rates. The Finance
Committee is responsible for managing interest rate risk and for evaluating the
impact of changing interest rate conditions on net interest income. The
Company's Finance Committee acts as its asset/liability committee.
The following table presents a summary of the Company's interest rate
sensitivity GAP at June 30, 1998. For purposes of these tables, the Company 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.
18
<PAGE>
First Republic Bank
Interest Sensitive Gap
June 30, 1998
<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 $138 $0 $0 $0 $0 $138
Federal Funds Sold 4,149 -- -- -- -- 4,149
Investment Securities 19,527 29,639 24,011 66,274 46,747 186,198
Loans 88,876 21,864 10,018 105,568 18,384 244,710
-----------------------------------------------------------------------------------
Totals 112,690 51,503 34,029 171,842 65,131 435,195
===================================================================================
Cumulative Totals $ 112,690 $ 164,193 $ 198,222 $ 370,064 $ 435,195
=====================================================================
Interest Sensitive Liabilities:
Demand Interest Bearing $ 6,583 $ -- $ -- $ 3,292 $ 3,292 $ 13,167
Savings Accounts 1,475 -- -- 1,475 2,950
Money Market Accounts 18,602 -- -- 9,301 9,301 37,204
FHLB Borrowings 42,680 26,800 30,600 50,000 -- 150,080
Time Deposits 62,929 28,685 35,976 61,160 5 188,755
-----------------------------------------------------------------------------------
Totals $ 132,268 $ 55,485 $ 66,576 $ 123,753 $ 14,073 392,155
Cumulative Totals $ 132,268 $ 187,753 $ 254,329 $ 378,082 $ 392,155
=====================================================================
GAP $ (19,578) $ (3,982) $ (32,547) $ 48,089 $ 51,058 $ 43,040
Cumulative GAP $ (19,578) $ (23,560) $ (56,107) $ (8,018) $ 43,039 $ --
Interest Sensitive Assets/
Interest Sensitive Liabilities 0.9 0.9 0.8 1.0 1.1
First Republic's Guideline 0.8 to 1.2
Cumulative GAP/
Total Earning Assets -4.5% -5.4% -12.9% -1.8% 9.9%
First Republic's Guideline +/- 20.00%
Total Earning Assets 435,195
</TABLE>
19
<PAGE>
Capital Resources
The Bank is required to comply with certain "risk-based" capital adequacy
guidelines issued by the Federal Reserve Bank (the "FRB") and the Federal
Deposit Insurance Corporation (the "FDIC"). The risk-based capital guidelines
assign varying risk weights to the individual assets held by a bank. The
guidelines also assign weights to the "credit-equivalent" amounts of certain
off-balance sheet items, such as letters of credit and interest rate and
currency swap contracts. Under these guidelines, banks are expected to meet a
minimum target ratio for "qualifying total capital" to weighted risk assets of
8%, at least one-half of which is to be in the form of "Tier 1 capital".
Qualifying total capital is divided into two separate categories or "tiers".
"Tier 1 capital" includes common stockholders' equity, certain qualifying
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less goodwill. "Tier 2 capital" components (limited
in the aggregate to one-half of total qualifying capital) includes allowances
for credit losses (within limits), certain excess levels of perpetual preferred
stock and certain types of "hybrid" capital instruments, subordinated debt and
other preferred stock. Applying the federal guidelines, the ratio of qualifying
total capital to weighted-risk assets was 12.16% and 12.56% at June 30, 1998 and
December 31, 1997, respectively, and as required by the guidelines, at least
one-half of the qualifying total capital consisted of Tier l capital elements.
Tier l risk-based capital ratios on June 30, 1998 and December 31, 1997 was
11.30% and 11.65%, respectively. At June 30, 1998, and December 31, 1997, the
Bank exceeded the requirements for risk-based capital adequacy under both
federal and Pennsylvania guidelines.
Under FRB and FDIC regulations, a bank is deemed to be "well capitalized"
when it has a "leverage ratio" ("Tier l capital to total quarterly average
assets") of at least 5%, a Tier l capital to risk-weighted assets ratio of at
least 4%, and a total capital to weighted-risk assets ratio of at least 8%. At
June 30, 1998 and December 31, 1997, the Bank's leverage ratio was 6.21% and
7.86% respectively. At June 30, 1998 and December 31, 1997, the consolidated
company's leverage ratio was 8.07% and 10.40%, respectively. Accordingly, at
June 30, 1998 and December 31, 1997, the Bank was considered "well capitalized"
under FRB and FDIC regulations.
Shareholders' equity in the Company as of June 30, 1998 totaled $37,965,000
compared to $34,622,000 as of December 31, 1997.
Book value per share of the Company's common stock increased to $6.82 as of
June 30, 1998 from $6.28 as of December 31, 1997.
Regulatory Capital Requirements
Federal banking agencies impose three minimum capital requirements on the
Bank's risk-based capital ratios based on total capital, Tier 1 capital, and a
leverage capital ratio. The risk-based capital ratios measure the adequacy of a
bank's capital against the riskiness of its assets and off-balance sheet
activities. Failure to maintain adequate capital is a basis for "prompt
corrective action" or other regulatory enforcement action. In assessing a bank's
capital adequacy, regulators also consider other factors such as interest rate
risk exposure; liquidity, funding and market risks; quality and level of
earnings; concentrations of credit, quality of loans and investments; risks of
any nontraditional activities; effectiveness of bank policies; and management's
overall ability to monitor and control risks.
20
<PAGE>
The following table presents the Bank's capital regulatory ratios at June 30,
1998 and December 31, 1997:
<TABLE>
<CAPTION>
To be well
capitalized under
For capital FRB capital
Actual adequacy purposes guidelines
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998:
Total risk based capital $31,232 12.16% $20,557 8.00% $25,695 10.00%
Tier I capital 29,047 11.30% 10,278 4.00% 15,417 6.00%
Tier I (leveraged) capital 29,047 6.21% 23,357 5.00% 23,357 5.00%
As of December 31, 1997:
Total risk based capital $28,003 12.56% $17,831 8.00% $22,289 10.00%
Tier I capital 25,975 11.65% 8,916 4.00% 13,374 6.00%
Tier I (leveraged) capital 25,975 7.86% 16,525 5.00% 16,525 5.00%
</TABLE>
The Bank's ability to maintain the required levels 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.
In addition to the above minimum capital requirements, the FRB approved a
rule that became effective on December 19, 1992 implementing 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 when determining such classifications which consideration could
result in a downgrading in such classifications.
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
$14.5 million at June 30, 1998 compared to $6.3 million at December 31, 1997.
Maturing and repaying loans are another source of asset liquidity.
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 Company utilizes a variety of
these methods of liability liquidity. At June 30, 1998, the Company had $79.1
million in unused lines of credit available to it under arrangements with
correspondent banks compared to $50.1 million at December 31, 1997. These lines
of credit enable the Company to purchase funds for short-term needs at current
market rates.
21
<PAGE>
At June 30, 1998, the Company had outstanding commitments (including unused
lines of credit and letters of credit) of $17.1 million. Certificates of deposit
which are scheduled to mature within one year totaled $131.5 million at June 30,
1998, and other borrowed funds that are scheduled to mature within the same
period amounted to $14.4 million. The Company anticipates that it will have
sufficient funds available to meet its current commitments.
The Company's target and actual liquidity levels are determined and managed
based on management's comparison of the maturities and marketability of the
Company's interest-earning assets with its projected future maturities of
deposits and other liabilities. Management currently believes that floating rate
commercial loans, short-term market instruments, such as 2-year United States
Treasury Notes, adjustable rate mortgage-backed securities issued by government
agencies, and federal funds, are the most appropriate approach to satisfy the
Company's liquidity needs. The Company has established collateralized lines of
credit from correspondents to assist in managing the Company's liquidity
position. These lines of credit total $5 million in the aggregate. Additionally,
the Company has established a line of credit with the Federal Home Loan Bank of
Pittsburgh with a maximum borrowing capacity of approximately $234.2 million. An
aggregate of $150.1 million was outstanding on the aforementioned lines of
credit at June 30, 1998. The Company's Board of Directors has appointed a
Finance Committee to assist Management in establishing parameters for
investments.
Operating cash flows are primarily derived from cash provided from net
income during the year. Cash used in investment activities for the years ended
June 30, 1998 and December 31, 1997 were primarily due to the investing of
excess and borrowed funds into investment securities. Cash was provided by
financing activities during 1998 and 1997, as the Company has grown its deposit
base and increased its other borrowed funds to fund anticipated loan growth.
The Company's Finance Committee also acts as an Asset/Liability Management
Committee, which is responsible for managing the liquidity, position and
interest sensitivity of the Company. Such committee's primary objective is to
maximize net interest margin in an ever changing rate environment, while
balancing the Company's interest-sensitive assets and liabilities and providing
adequate liquidity for projected needs.
Securities Portfolio
The Company classifies its securities under one of these 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 Company does not hold "trading" securities.
At June 30, 1998, the Company had identified certain investment securities
that are being held for indefinite periods of time, including securities that
will be used as part of the Company's asset/liability management strategy and
that may be sold in response to changes in interest rates, prepayments and
similar factors. These securities are classified as available-for-sale and are
intended to increase the flexibility of the Company'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 were $2,720,000 and $2,725,000 as of June 30, 1998. The net
unrealized gain on securities available-for-sale, as of this date, was $0.
22
<PAGE>
The following table represents the carrying and estimated fair values of
Investment Securities at June 30, 1998.
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Available-for-Sale Cost Gain Loss Fair Value
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed $2,720,000 $5,000 $0 $2,725,000
---------------------------------------------------------------------
Total Available-for-Sale $2,720,000 $5,000 $0 $2,725,000
Gross Gross
Amortized Unrealized Unrealized
Held-to-Maturity Cost Gain Loss Fair Value
---------------------------------------------------------------------
Mortgage-backed $116,334,000 $837,000 $(244,000) $116,927,000
US Government Agencies 49,663,000 192,000 (3,000) 49,852,000
Other 17,476,000 66,000 (5,000) 17,537,000
---------------------------------------------------------------------
Total Held-to-Maturity $183,473,000 $1,095,000 $(252,000) $184,316,000
</TABLE>
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-sized
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 Company's commercial loans generally
range from $250,000 to $750,000 in amount.
The Company's net loans increased $32.5 million, or 15.5%, to $242.5
million at June 30, 1998 from $210.0 million at December 31, 1997, which were
primarily funded by an increase in other borrowed funds.
The following table sets forth the Company's gross loans by major
categories for the periods indicated:
<TABLE>
<CAPTION>
As of June 30, 1998 As of December 31, 1997
Balance % of Total Balance % of Total
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate:
1-4 Family $108,325,000 44.3% $ 71,241,000 33.6%
Multi-Family 8,739,000 3.6% 7,125,000 3.4%
Comm RE 87,346,000 35.7% 87,701,000 41.4%
--------------------------------------------------------------
Total Real Estate 204,410,000 83.6% 166,067,000 78.4%
Commercial 38,208,000 15.6% 42,519,000 20.0%
Other 2,092,000 0.8% 3,441,000 1.6%
--------------------------------------------------------------
Total Loans $244,710,000 100.0% $212,027,000 100.0%
</TABLE>
Credit Quality
The Company'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.
23
<PAGE>
Loans, including impaired loans, are generally classified as nonaccrual if
they are past due as to maturity or payment of principal and/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 the loan.
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 remaining
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.
June 30, December 31,
1998 1997
------------------------------
Loans accruing, but past due 90 days or more $386,000 $113,000
Nonaccrual loans .............................. 1,518,000 1,800,000
------------------------------
Total non-performing loans (1)................. 1,904,000 1,913,000
Foreclosed real estate......................... 1,944,000 1,944,000
------------------------------
Total non-performing assets(2)........... $3,848,000 $3,857,000
==============================
Non-performing loans as a percentage of total
loans, net of unearned income................ 0.78% 0.90%
Non-performing assets as a percentage of total
assets...................................... 0.83% 1.03%
(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.
(2) Non-performing assets are composed of non-performing loans and foreclosed
real estate (assets acquired in foreclosure).
At June 30, 1998, 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 $61.0 million, which
represented 24.9% 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 the lower or cost or fair
value, net of estimated selling costs at the date of foreclosure. After
foreclosure, management periodically performs valuations and any subsequent
24
<PAGE>
deteriations in fair value, and all other revenue and expenses are charged
against operating expenses in the period in which they occur.
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 June 30, 1998, all
identified potential problem loans are included in the preceding table.
The Company had no credit exposure to "highly leveraged transactions" at
June 30, 1998, as defined by the FRB.
Allowance for Loan Losses
A detailed analysis of the Company's allowance for loan losses for the six
months ended June 30, 1998, and 1997:
<TABLE>
<CAPTION>
For the six months ended June 30,
1998 1997
--------------------------------
<S> <C> <C>
Balance at beginning of period ....... $ 2,028,000 $ 2,092,000
Charge-offs:
Commercial ........................ 53,000 54,000
Real estate ....................... 0 0
Consumer .......................... 0 0
--------------------------------
Total charge-offs .............. 53,000 54,000
--------------------------------
Recoveries:
Commercial ........................ 32,000 47,000
Real estate ....................... 0 19,000
Consumer .......................... 18,000 3,000
--------------------------------
Total recoveries ............... 50,000 69,000
--------------------------------
Net charge-offs ...................... 3,000 (15,000)
--------------------------------
Provision for loan losses ............ 210,000 110,000
--------------------------------
Balance at end of period .......... $ 2,235,000 $ 2,217,000
Average loans outstanding(1) ...... $ 237,194,000 $ 174,603,000
As a percent of average loans(1):
Net charge-offs ................... 0.00% (0.01%)
Provision for loan losses ......... 0.09% 0.06%
Allowance for loan losses ......... 0.94% 1.27%
Allowance for possible loan losses to:
Total loans, net of unearned income 0.91% 1.20%
Total non-performing loans ........ 117.38% 113.01%
<FN>
(1) Includes nonaccruing loans.
</FN>
</TABLE>
Management makes a monthly determination as to an appropriate provision
from earnings necessary to maintain an allowance for loan losses that is
adequate based upon the loan portfolio composition, classified problem loans,
and general economic conditions. The Company's Board of Directors periodically
reviews the status of all nonaccrual and impaired loans and loans criticized by
the Company's regulators and internal loan review officer. The internal loan
review officer 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
25
<PAGE>
reserve balance. Any additions deemed necessary to the loan loss reserve balance
are charged to operating expenses.
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.
Determining the appropriate level of the allowance for loan losses at any
given date is difficult, particularly in a continually changing economy.
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 Company'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
June 30, 1998, approximately $341,000 or 15.3% of the allowance for loan losses
is allocated to protect the Company 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 June 30, 1998 and December 31, 1997
1998 1997
Amount Percent Amount Percent
Of Loans Of Loans
In Each In Each
Category Category
To Loans(1) to Loans(1)
<S> <C> <C> <C> <C>
Allocation of allowance
for loan losses:
Commercial................. $1,634,000 51.30% $1,595,000 61.42%
Residential real estate ... 193,000 47.84% 41,000 36.96%
Consumer and other......... 67,000 0.86% 58,000 1.62%
Unallocated................ 341,000 334,000
-------------- -----------------
Total................... $2,235,000 $2,028,000
============== =================
</TABLE>
The unallocated allowance increased $7,000 to $341,000 at June 30, 1998
from $334,000 at December 31, 1997.
(1) Gross loans net of unearned income and allowance for loan loss.
The Company had delinquent loans as of June 30, 1998 and December 31, 1997 as
follows; (i) 30 to 59 days past due, consisted of commercial and consumer loans
respectively in the aggregate principal amount of $297,000 and $2,694,000
respectively; and (ii) 60 to 89 days past due, consisted of commercial and
consumer loan in the aggregate principal amount of $932,000 and $340,000
respectively. In addition, the Company has classified certain loans as
substandard and doubtful (as those terms are defined in applicable Bank
regulations). At June 30, 1998 and December 31, 1997, substandard loans totaled
approximately $1,502,000 and $2,402,000 respectively; and doubtful loans totaled
approximately $16,000 and $16,000 respectively.
26
<PAGE>
Deposit Structure
Total deposits at June 30, 1998 consisted of approximately $26.0 million in
non-interest-bearing demand deposits, approximately $13.2 million in
interest-bearing demand deposits, approximately $40.2 million in savings
deposits and money market accounts, approximately $163.9 million in time
deposits under $100,000, and approximately $24.9 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 Company's deposit liabilities may fluctuate from period-to-period.
The following table is a distribution of the balances of the Company's
average deposit balances and the average rates paid therein for the six months
ended June 30, 1998 and the year ended December 31, 1997.
<TABLE>
<CAPTION>
Average Deposit Table
For the six months ended June 30, 1998
and the year ended December 31, 1997
Balance Rate Balance Rate
------- ---- ------- ----
1998 1997
<S> <C> <C> <C> <C>
Non-interest-bearing balances (1) .... $47,377,000 N/A $25,551,000 N/A
==================================================
Money market and savings deposits .... 38,093,000 3.03% 34,141,000 2.88%
Time deposits......................... 186,570,000 6.13% 174,887,000 5.92%
Demand deposits, interest-bearing .... 11,207,000 2.51% 8,428,000 2.50%
--------------------------------------------------
Total interest-bearing deposits ...... $235,870,000 5.49% $217,456,000 5.31%
==================================================
</TABLE>
(1) Note that approximately $8.2 million of these balances during the six months
ended June 30, 1998 are related to the Tax Refund Program.
The following is a breakdown, by contractual maturities, of the Company's
time deposits issued in denominations of $100,000 or more as of June 30, 1998
and December 31, 1997.
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------------------------
<S> <C> <C>
Maturing in:
Three months or less ................ $11,526,000 $ 9,896,000
Over three months through six months 6,334,000 8,726,000
Over six months through twelve months 2,423,000 7,233,000
Over twelve months .................. 4,606,000 2,719,000
---------------------------
Total ............................ $24,889,000 $28,574,000
===========================
</TABLE>
27
<PAGE>
Commitments
In the normal course of its business, the Company makes commitments to
extend credit and issues standby letters of credit. Generally, such commitments
are provided as a service to its customers. 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 may require 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
requirement. The Company evaluates each customer's creditworthiness on a
case-by-case basis. The type and amount of collateral obtained, if deemed
necessary upon extension of credit, are based on Management's credit evaluation
of the borrower. Standby letters of credit are conditional commitments issued to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing standby letters of credit is essentially the same as that
involved in extending loan facilities to customers and is based on Management's
evaluation of the creditworthiness of the borrower and the quality of the
collateral. At June 30, 1998 and December 31, 1997, firm loan commitments
approximated $17.1 million and $17.3 million respectively and commitments of
standby letters of credit approximated $417,000 and $453,000, respectively.
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 need and 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.
Year 2000 Issue
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the year
2000. The year 2000 issue affects virtually all companies and organizations.
In response to the year 2000 issue, the Company had adopted a comprehensive
plan implemented during 1997, and to be completed by year end 1998. This plan
identifies systems which could be affected by the year 2000 issue, and either
internally tests potentially affected systems, or requests certification from
the relevant software vendors to ascertain whether the system is in compliance.
The Company's plan is to resolve potential problems that are identified, by the
given target date. Although management believes that it has addressed the major
areas with respect to Year 2000 compliance, there can be no assurances that the
Company will not be impacted by Year 2000 complications. The Company estimates
that the dollar cost to the Company to be in compliance with the year 2000 Issue
will range from $175,000 to $250,000 over the next eighteen months. These costs
include new equipment and software purchases in addition to testing applications
prior to the year 2000.
28
<PAGE>
Recent Accounting Pronouncements:
Operating Segment Disclosure
In June 1997, the Financial Accounting Standard Borad ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information". Statement
of FASB 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 annual
periods beginning after December 15, 1997.
Employers' Disclosures about Pension and Other Postretirement Benefits
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" (Statement No. 132) which
amends the disclosure requirements of Statements No. 87, "Employers' Accounting
for Pensions" (Statement No. 87), No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pensions Plans and for Termination Benefits"
(Statement No. 88), and No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (Statement No. 106). Statement No. 132 is
applicable to all entities. This Statement standardizes the disclosure
requirements of Statements No. 87 and No. 106 to the extent practicable and
recommends a parallel format for presenting information about pensions and other
postretirement benefits. Statement No. 132 only addresses disclosure and does
not change any of the measurement or recognition provisions provided for in
Statements No. 87, No. 88, or No. 106. The Statement is effective for fiscal
years beginning after December 15, 1997. Restatement of comparative period
disclosures is required if the information is not readily available, in which
case the notes to the financial statements shall include all available
information and a description of the information not available. The Company will
present the required disclosures in its year end 1998 financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement standardizes the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts, and those used for hedging activities, by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. The statement categorized
derivatives used for hedging purposes as either fair value hedges, cash flow
hedges, foreign currency fair value hedges, foreign currency cash flow hedges,
or hedges of net investments in foreign operations. The statement generally
provides for matching of gain or loss recognition on the hedging instrument with
the recognition of the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk, so long as the hedge is
effective. The statement eliminates the accounting provisions outlined in SFAS
52, "Foreign Currency Translation" related to forward contracts, as accounting
for all foreign currency derivatives will be governed under SFAS 133.
Prospective application of Statement 133 is required for all fiscal years
beginning after June 15, 1999, however earlier application is permitted. The
Company has not yet determined the effect that Statement 133 will have on its
balance sheet upon adoption.
29
<PAGE>
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
The Company, along with a number of other financial institutions, has 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
Company believes that it has a valid defense to this claim. In addition, one of
these loans in the amount of $612,000, was sold by the Company to a mortgage
banker who is now alleging that the Company breached its warranty obligations
when it sold this loan to the mortgage banker because the lien of the loan is
possibly inferior to other mortgages. The Company believes its actions were
proper, that the lien is enforceable as a first lien, and it intends to
vigorously defend these claims and, to the extent necessary, seek recourse from
other parties who may have participated in this allegedly fraudulent scheme.
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.
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 28th day of April, 1998 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
4,596,309 shares of common stock, of which 4,596,309 shares were entitled to
vote. A total of 3,638,477 shares were voted. No nominee received less than
99.3% of the voted shares. Therefore, pursuant to such approval, the following
Directors were elected to the Company:
Michael Bradley Re-elected
Harry Madonna Re-elected
Neal I. Rodin Re-elected
Steven J. Shotz Re-elected
30
<PAGE>
The following directors continue to serve on the board of the Company:
Kenneth Adelberg Eustace Mita
William Batoff James Schleif
Daniel S. Berman Rolf A. Stensrud
John D'Aprix Harris Wildstein
Sheldon Goldberg
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
The following Exhibits are filed as part of this report. (Exhibit numbers
correspond to the exhibits required by Item 601 of Regulation S-B for an annual
report on Form 10-KSB)
Exhibit No.
3(a) Amended and Restated Articles of Incorporation of the
Company, as amended.*
3(b) Amended and Restated Bylaws of the Company.*
4(b)(i) Amended and Restated Articles of Incorporation of the
Company, as amended.*
4(b)(ii) Amended and Restated Bylaws of the Company.*
10 Amended and Restated Material Contracts.- None
10(a) Agreement and Plan of Merger by and between the Company and
Republic Bancorporation, Inc. dated November 17, 1996.*
11 Computation of Per Share Earnings See footnote No. 2 to
Notes to Consolidated Financial Statements under Earnings
per Share.
21 Subsidiaries of the Company.
All other schedules and exhibits are omitted because they are not
applicable or because the required information is set out in the financial
statements or the notes hereto.
*Incorporated by reference from the Registration Statement on Form S-4 of
the Company, as amended, Registration No. 333-673 filed April 29, 1996.
31
<PAGE>
Reports on Form 8-K
The Company filed a form 8-K on May 22, 1998 announcing that
Jackson-Hewitt, Inc. has decided to review the structure of the Tax Refund
Program with the Company and others, and pending this review, it has advised the
Company that it is not renewing its agreement with the Company for the program
for the year 2000. Under the existing agreement with Jackson-Hewitt, the program
will remain in effect through October 1999 and will be effective for the 1999
tax season.
The Company filed a form 8-K on June 17, 1998 announcing that the Board of
Directors has elected Jere A. Young as President and Chief Executive Officer of
the Company and as a Director of the Bank. Rolf A. Stensrud will continue to be
President and Chief Executive Officer of the Bank and Executive Vice President
of the Company.
32
<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.
----------------------------------------------------
Jere A. Young
President and Chief Executive Officer
----------------------------------------------------
George S. Rapp
Executive Vice President and Chief Financial Officer
Dated: July 31, 1998
33
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000834285
<NAME> REPUBLIC FIRST BANCORP INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 10,239,000
<INT-BEARING-DEPOSITS> 138,000
<FED-FUNDS-SOLD> 4,149,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,725,000
<INVESTMENTS-CARRYING> 183,473,000
<INVESTMENTS-MARKET> 0
<LOANS> 244,710,000
<ALLOWANCE> 2,235,000
<TOTAL-ASSETS> 464,204,000
<DEPOSITS> 268,124,000
<SHORT-TERM> 150,080,000
<LIABILITIES-OTHER> 8,035,000
<LONG-TERM> 0
0
0
<COMMON> 55,000
<OTHER-SE> 37,910
<TOTAL-LIABILITIES-AND-EQUITY> 464,204,000
<INTEREST-LOAN> 5,308,000
<INTEREST-INVEST> 3,458,000
<INTEREST-OTHER> 25,000
<INTEREST-TOTAL> 8,791,000
<INTEREST-DEPOSIT> 3,383,000
<INTEREST-EXPENSE> 5,401,000
<INTEREST-INCOME-NET> 3,390,000
<LOAN-LOSSES> 80,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,469,000
<INCOME-PRETAX> 1,200,000
<INCOME-PRE-EXTRAORDINARY> 1,200,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 804,000
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.14
<YIELD-ACTUAL> 3.08
<LOANS-NON> 1,904,000
<LOANS-PAST> 386,000
<LOANS-TROUBLED> 1,904,000
<LOANS-PROBLEM> 1,904,000
<ALLOWANCE-OPEN> 2,028,000
<CHARGE-OFFS> 53,000
<RECOVERIES> 50,000
<ALLOWANCE-CLOSE> 2,238,000
<ALLOWANCE-DOMESTIC> 2,238,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 341,000
</TABLE>
