UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (fee required)
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (no fee required)
For the transition period from ________________ to _________________
Commission file number: 0-17007
REPUBLIC FIRST BANCORP, INC.
(Name of Small Business Issuer In Its Charter)
Pennsylvania 23-2486815
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1608 Walnut Street, Suite 1000, Philadelphia, PA 19103
(Address of principal Executive offices) (Zip Code)
Issuer's telephone number, including area code: (215)735-4422
Securities registered pursuant to Section 12(b) of the Act:
None.
Title of each class Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
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 such filing
requirements for the past 90 days. YES X NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K [X]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average of the bid
and asked prices of such stock, as of a specified date within 60 days prior to
the date of filing. $42,447,510 based on the average of the bid and asked prices
on the National Association of Securities Dealers Automated Quotation System on
January 31, 1999.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
Common Stock $0.01 Par Value 5,889,500
Title of Class Number of Shares Outstanding
as of January 31, 1999.
Documents incorporated by reference:
Part IV incorporates Selected Financial Data by reference from the registrant's
Annual Report to Shareholders for the fiscal year ended December 31, 1998 (the
"Annual Report"). Part III incorporates certain information by reference from
the from the Registrant's Proxy Statement for the 1999 Annual Meeting of
Shareholders.
1
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REPUBLIC FIRST BANCORP, INC.
Form 10-K
INDEX
PART I Page
Item 1 Description of Business............................................. 3
Item 2 Description of Properties........................................... 7
Item 3 Legal Proceedings................................................... 8
Item 4 Submission of Matters to a Vote of Security Holders.................10
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters............................................................ 11
Item 6 Selected Financial Data............................................ 12
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 12
Item 8 Financial Statements and Supplementary Data........................ 34
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............................. 34
PART III
Item 10 Directors and Executive Officers of the Registrant................. 34
Item 11 Executive Compensation............................................. 34
Item 12 Security Ownership of Certain Beneficial Owners and Management..... 37
Item 13 Certain Relationships and Related Transactions..................... 37
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K... 37
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2 Republic First Bancorp, Inc.
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PART I
Item 1: Description of Business
Republic First Bancorp, Inc.
Republic First Bancorp, Inc. (the "Company") is a Pennsylvania
corporation headquartered in Philadelphia, Pennsylvania and is a registered bank
holding company for its wholly-owned subsidiary, First Republic Bank (the
"Bank"). The Bank offers a variety of banking services to individuals and
businesses throughout the Greater Philadelphia and South Jersey area through its
eight branches in Philadelphia and Montgomery Counties.
On June 7, 1996 Republic Bancorporation ("Republic"), parent company
of Republic Bank, merged with and into ExecuFirst Bancorp, Inc. ("ExecuFirst"),
parent company of First Executive Bank (the "Merger"). Republic exchanged all of
its common stock, for 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. In July 1997, the Company changed its name
to Republic First Bancorp, Inc. to avoid possible confusion with First Republic
Bancorp, Inc. of California. 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. 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 each Company.
The Company provides banking services through the Bank, and does not
presently engage in any activities other than these banking activities. The
principal executive offices of the Company and the Bank are located at 1608
Walnut Street, Suite 1000, Philadelphia, PA 19103. Its telephone number is (215)
735-4422.
The Company and the Bank have a total of 99 employees.
First Republic Bank
The Bank commenced operations on November 3, 1988 as First Executive
Bank. Concurrent with the merger on June 7, 1996, its name was changed to First
Republic Bank. The Bank is a commercial bank chartered pursuant to the laws of
the Commonwealth of Pennsylvania, is a member of the Federal Reserve System and
its primary federal regulator is the Federal Reserve Board of Governors. The
deposits held by the Bank are insured up to applicable limits, by the Bank
Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"). It
presently conducts its principal banking activities through its five
Philadelphia offices and three suburban offices in Ardmore, East Norriton and
Abington, all of which are located in Montgomery County, Pennsylvania.
As of December 31, 1998, the Bank had total assets of approximately
$516,361,000, total shareholders' equity of approximately $36,622,000, total
deposits of approximately $283,084,000 and net loans receivable outstanding of
approximately $306,768,000. The majority of such loans were made for commercial
purposes.
The Bank offers many consumer and commercial banking services, money
orders, travelers' checks and access to an automated teller network, with an
emphasis on serving the needs of individuals, small and medium-sized businesses,
executives, professionals and professional organizations in its service area.
The Bank attempts to offer a high level of personalized service to
both its commercial and consumer customers. The Bank offers both commercial and
consumer deposit accounts, including checking accounts, interest-bearing "NOW"
accounts, insured money market accounts, certificates of deposit, savings
accounts and individual retirement accounts. The Bank actively solicits
non-interest and interest-bearing deposits from its borrowers.
The Bank offers a broad range of loan and credit facilities to the
businesses and residents of its service area, including secured and unsecured
loans, home improvement loans, bridge loans, mortgages, home equity lines of
credit, overdraft lines of credit and loans for tuition and the purchase of
marketable securities.
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Republic First Bancorp, Inc. 3
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Management attempts to minimize the Bank's credit risk through loan
application evaluation, approval and monitoring procedures. Since its inception,
the Bank has had a senior officer monitor compliance with the Bank's lending
policies and procedures, by the Bank's loan officers.
The Bank also maintains an investment securities portfolio. Investment
securities are purchased by the Bank within strict standards of the Bank's
Investment Policy, which is approved annually by the Bank's board of directors.
The Investment Policy addresses such issues as permissible investment
categories, credit quality of the investment, maturities and concentrations of
investments. At December 31, 1998 and 1997, approximately 94% and 96%
respectively, of the aggregate dollar amount of the investment securities
consisted of either U.S. Government debt securities or U.S. Government agency
issued mortgage backed securities or collateralized mortgage obligations (CMOs).
Credit risk associated with these U.S. Government debt securities and the U.S.
Government Agency securities are minimal, with risk-based capital weighting
factors of 0% and 20%, respectively. Additionally, the Bank invests in
collateralized mortgage obligations (CMOs). These CMOs are fixed and variable
rate debt securities, with average lives between one and three years after
principal payments commence.
The Bank's regulatory authorities have required the Bank to maintain
certain liquidity ratios to insure that the Bank maintains available funds, or
can obtain available funds at reasonable rates, in order to satisfy commitments
to borrowers and the demands of depositors. In response to these requirements,
the Bank has formed an Asset/Liability Committee, comprised of certain members
of the Bank's board of directors and senior management, which determines such
ratios. The purpose of the committee is, in part, to monitor the Bank's
liquidity and adherence to the ratios in addition to assessing the relative
interest rate risk to the Bank. The Asset/Liability Committee meets at least
quarterly. The Bank is currently in compliance with all required liquidity
ratios.
The Bank's lending activities are focused on small businesses within
the professional community. Real estate mortgage and commercial loans are the
most significant categories of the Bank's lending activities, representing
approximately 86% and 14% respectively, of total loans outstanding at December
31, 1998. Repayment of these loans is, in part, dependent on general economic
conditions affecting the community, and the various businesses within the
community. Although the majority of the Bank's loan portfolio is collateralized
with real estate or other collateral, a portion of the commercial portfolio is
unsecured, representing loans made to borrowers considered to be of sufficient
strength to merit unsecured financing. The unsecured portion of the portfolio
represents the greatest risk of loss to the Bank, but is only 2% of the loan
portfolio. Although management continues to follow strict underwriting policies,
and monitors loans through the Bank's loan review officer, credit risk is still
inherent in the portfolio. Management has further mitigated credit risk within
the loan portfolio by focusing on the origination of collateralized loans, which
represent a lower credit risk to the Bank.
Republic First Bank of Delaware
Republic First Bank of Delaware (the "Delaware Bank") is a Delaware
State chartered Bank, located at Brandywine Commons II, Concord Pike and Rocky
Run Parkway in Brandywine, New Castle Delaware. The Delaware Bank is scheduled
to open for business on May 1, 1999. The Delaware Bank will offer many of the
same services and financial products as First Republic Bank, described above,
and will serve to expand the Company's market penetration into Delaware.
Service Area/Market Overview
The Bank's primary market service area consists of the Greater
Philadelphia region, including Center City Philadelphia and the northern and
western suburban communities located principally in Montgomery County. To a
lesser extent, the Bank also serves the surrounding counties of Bucks, Chester
and Delaware in Pennsylvania, southern New Jersey and northern Delaware.
In 1998, the Bank entered into an alliance with MBM/ATM Group Ltd., to
deploy offsite Automated Teller Machines (ATMs) to provide cash dispensers to
service the greater Philadelphia region and parts of Southern New Jersey.
The Bank is a leading provider of Tax Refund Products, discussed
below, (see "Products and Services"). Such services are provided to customers of
Jackson Hewitt on a national basis.
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4 Republic First Bancorp, Inc.
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Competition
There is substantial competition among financial institutions in the
Bank's service area. The Bank competes with new and established local commercial
banks, as well as numerous regionally-based and super-regional commercial banks.
In addition to competing with new and established commercial banking
institutions for both deposits and loan customers, the Bank competes directly
with savings banks, savings and loan associations, finance companies, credit
unions, factors, mortgage brokers, insurance companies, securities brokerage
firms, mutual funds, money market funds, private lenders and other institutions
for deposits, mortgages and consumer and commercial loans, as well as other
services. Competition among financial institutions is based upon a number of
factors, including, but not limited to, the quality of services rendered,
interest rates offered on deposit accounts, interest rates charged on loans and
other credit services, service charges, the convenience of banking facilities,
locations and hours of operation and, in the case of loans to larger commercial
borrowers, relative lending limits. It is the view of Management that a
combination of many factors, including, but not limited to, the level of market
interest rates, has increased competition for loans and deposits.
Many of the banks with which the Bank competes have more established
depositor and borrower relationships and greater financial resources than the
Bank, offer a wider range of deposit and lending instruments and possess greater
depth of management than the Bank. The Bank is subject to potential intensified
competition from new branches of established banks in the area as well as new
banks which could open in its market area. Several de novo banks with business
strategies similar to those of the Bank have opened since the Bank's inception.
There are banks and other financial institutions which serve surrounding areas
and additional out-of-state financial institutions which currently, or in the
future, may compete in the Bank's market. The Bank competes to attract deposits
and loan applications both from customers of existing institutions and from
customers new to the greater Philadelphia area. The Bank anticipates a continued
increase in competition in its market area.
Operating Strategy
The Company's objective is for the Bank to become the primary
alternative to the large banks that dominate the Greater Philadelphia market.
The Company's management team has developed a business strategy consisting of
the following key elements to achieve this objective:
Providing Attentive and Personalized Service. The Company believes
that a very attractive niche exists serving small-to medium-sized business
customers not adequately served by the Bank's larger competitors. The Company
believes this segment of the market responds very positively to the attentive
and highly personalized service provided by the Bank. The Bank offers
individuals and small to medium-sized businesses a wide array of banking
products, informed and friendly service, extended operating hours, consistently
applied credit policies, and local, timely decision making. The banking industry
is experiencing a period of rapid consolidation and many local branches have
been acquired by large out-of-market institutions. The ensuing changes in these
banking institutions have resulted in a change in their product offerings and
the degree of personal attention they provide to their customers. The Company is
positioned to respond to these dynamics by offering a community banking
alternative and tailoring its product offering to fill voids created as larger
competitors increase the price of products and services or de-emphasize such
products and services.
Maintaining Superior Operating Results. The Company's long-term goal
is to maintain a return on average equity in excess of 13% while maintaining a
15% asset growth rate. To accomplish these goals, the Company's strategy is for
the Bank to maintain sufficient margins on incremental growth through efficient
utilization and leveraging of capital.
Attracting and Retaining Highly Experienced Personnel. The Bank's
executive officers and other personnel have substantial employment experience
with larger banks in the region. When opening new branches, as in the case of
the Abington office, the Bank extensively screens and trains its employees to
ensure the staff has the necessary ability and contacts in the community to
foster rapid growth. The Company seeks to instill a sales and service oriented
culture in its personnel in order to build customer relationships and maximize
cross-selling opportunities. The Company offers meaningful sales-based
incentives to all its customer contact employees.
Capitalizing on Market Dynamics. In the past two years, banks
controlling nearly half of the deposits in the Bank's primary market areas have
been acquired by large and super-regional bank holding companies. The ensuing
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Republic First Bancorp, Inc. 5
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cultural changes in these banking institutions have resulted in a change in
their product offerings and the degree of personal attention they provide. The
Company has sought to capitalize on these changes by offering a community
banking alternative. As a result, the Company believes it has a tremendous
opportunity to increase its market share.
Products and Services
Traditional Banking Products and Services. The Bank offers a range of
commercial and retail banking services to its customers, including commercial
loans, commercial loans secured by real estate, personal and business checking
and savings accounts, certificates of deposit, residential mortgages and
consumer loans. The Bank's commercial loan customers typically borrow between
$250,000 and $1,000,000. The Bank attempts to offer a high level of personalized
service to both its commercial and consumer customers. In addition, the Bank
provides travelers' checks, money orders and other typical banking services. The
Bank is a member of the MAC(TM) and PLUS(TM) networks in order to provide
customers with access to automated teller machines worldwide. The Bank currently
has seven proprietary automated teller machines at its branch locations, and 103
offsite automated teller machines, throughout Pennsylvania and southern New
Jersey, through its affiliation with MBM/ATM Group Ltd.
Tax Refund Products. The Company has a contractual relationship with
Jackson Hewitt, Inc. ("Jackson Hewitt"), one of the Nation's largest tax
preparation services, to provide tax refund products to consumer taxpayers for
whom Jackson Hewitt prepares and electronically files federal income tax returns
(the "Tax Refund Program"). The Tax Refund Program enables the Bank to provide
accelerated check refunds ("ACRs") and refund anticipation loans ("RALs")
(collectively, "Tax Refund Products"). There are a limited number of banks that
provide this service nationwide. The Bank generates significant revenue from the
Tax Refund Program. In September 1997, the Company and Jackson Hewitt extended
the Tax Refund Program through October 31, 1999, subject to automatic renewal
provisions. Effective April 1998 Jackson Hewit had notified the Company that it
would not renew the agreement beyond October 31, 1999. As such, the Bank will
not participate in the program beyond the 1999 tax preparation season.
The Tax Refund Products, ACRs and RALs, enable taxpayers to receive
tax refunds faster than if they filed their tax returns by mail. An ACR enables
a taxpayer to have a refund directly deposited into a bank account, established
by the Bank solely for this purpose, within two to three weeks after filing a
tax return. A RAL is a recourse loan secured by the taxpayer's federal income
tax refund and is made within one or two days after filing a tax return. During
the 1998 tax season, the Bank provided approximately 266,000 ACRs and 97,000
RALs to Jackson Hewitt customers.
The Bank receives a processing fee for each ACR and RAL it provides.
When the Bank provides a RAL, it receives an additional fee that is equal to 4%
of the RAL. If the Internal Revenue Service (the "IRS") does not deposit the
expected refund into the bank account established for its receipt because, among
other reasons, the taxpayer owes back taxes, the amount due under a RAL will not
be paid without instituting individual collection actions against the taxpayer.
The risk of RAL default in excess of 4% is apportioned between the Bank and
Jackson Hewitt on a 35%/65% basis, respectively. The default rate was 5.02% in
1998, and did not exceed 4% in 1997 and 1996.
The Bank participated in the Tax Refund Program in 1998, 1997 and
1996. The Tax Refund Program generated $2.4 million, $2.2 million and $2.1
million in net revenue during 1998, 1997 and 1996, respectively. The Tax Refund
Program earnings are realized primarily in the first quarter of the year. These
pretax earnings constituted approximately 61%, 70% and 89% of the Company's
first quarter 1998, 1997 and 1996 pretax earnings, respectively, and 42.1%,
43.6% and 51.2% of the Company's pretax earnings for the year ended December 31,
1998, 1997 and 1996, respectively. Revenue generated by the Tax Refund Program
accounted for 6.2%, 8.6% and 10.7% of total revenues in the year ended December
31, 1998, 1997 and 1996, respectively. The Bank will not participate in the Tax
Refund Program beyond the 1999 tax season.
The Bank has adopted stringent underwriting standards, instituted
independent credit checks, set loan limits based on past history and increased
pricing to reflect the risk associated with RALs. In addition, the Bank
participates in cross-collection arrangements with other RAL lenders. Under
these arrangements, the banks share information regarding the identity of, and
amounts payable by, delinquent RAL borrowers. By sharing this information the
banks are able to identify these individuals in later tax seasons should they
obtain a RAL from a tax preparation company. RAL borrowers are advised in
advance that should they become identified as owing any portion of a RAL from a
prior tax season, any tax refunds attributable to such borrower will be offset
first against the prior debt.
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6 Republic First Bancorp, Inc.
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Branch Expansion Plans and Growth Strategy
The Company plans to achieve growth and market penetration by
expanding the Bank's branch network into markets with a significant number of
commercial businesses. The Bank has budgeted to open three branches in 1999
including the newly chartered Bank in the State of Delaware. Management's goal
when establishing a new branch is to achieve deposits of at least $35.0 million
in three years or less. The Bank opened its first suburban office in Ardmore,
Montgomery County in November 1995. This was followed by three additional
suburban branches on City Line Avenue, East Norriton and Abington in March 1997,
May 1997 and November 1997, respectively. As of December 31, 1998, these
branches had $14 million, $14 million and $22 million in deposits, respectively.
In 1998, the Bank opened an additional branch located at 1818 Market Street in
the heart of the Philadelphia business district.
Item 2: Description of Properties
The Company leases approximately 26,810 square feet on the second,
tenth and eleventh floors of 1608 Walnut Street, Philadelphia, Pennsylvania. The
space is occupied by both the Company and the Bank and is used as executive
offices, Bank operations and commercial lending. Management believes that its
present space is adequate, but that future staffing needs may require the Bank
to secure additional space. The current term of the lease on its headquarter
facilities expires on July 31, 2007 with annual rent expense of $316,980 payable
monthly.
In addition to the base rent and building operation expenses, the
Company is required to pay all real estate taxes, assessments, and sewer costs,
water charges, excess levies, license and permit fees under its lease and to
maintain insurance on the premises.
The Bank leases approximately 1,800 square feet on the ground floor at
1601 Market Street in Center City, Philadelphia. This space contains a banking
area and vault and represents the Bank's main office. The initial ten year term
of the lease expires March 2008, and contains two five year renewal options. The
annual rent for such location is $77,712, payable monthly.
The Bank leases approximately 1,743 square feet of space on the ground
floor at 1601 Walnut Street, Center City Philadelphia, PA. This space contains a
banking area and vault. The initial ten-year term of the lease expires July 2006
and contains one renewal option of five years. The annual rent for such location
is $42,600, payable monthly.
The Bank leases approximately 780 square feet in the lower level of
Pepper Pavilion at Graduate Hospital, 19th and Lombard Streets, Philadelphia,
Pennsylvania. The space contains a banking area, lobby, office, and vault. The
current lease has a five-year term, and one five year renewal option. The annual
rental at such location is $20,412, payable monthly.
The Bank leases approximately 798 square feet of space on the ground
floor and 903 square feet on the 2nd floor at 233 East Lancaster Avenue,
Ardmore, PA. The space contains a banking area and business development office.
The initial five-year term of the lease expires in September 2005, and contains
one renewal option for five years. The annual rental at such location is
$41,652, payable monthly.
The Bank leases an approximately 2,200 square foot building at 4190
City Line Avenue, Philadelphia, Pennsylvania. The space contains a retail
banking facility. The initial 10 year term of the lease expires January 2007,
and contains two five year renewal options. The annual rent for such location is
$63,996, payable monthly.
The Bank leases an approximately 4,500 square foot building at 75 East
Germantown Avenue, East Norriton, Pennsylvania. The space contains a banking
area and business development office. The initial 10 year term contains two five
year renewal options and the lease expires in December 2006. The annual rent for
such location is $66,732, payable monthly.
The Bank purchased an approximately 2,800 square foot facility for its
Abington, Montgomery County office at 1480 York Road, Abington, Pennsylvania.
This space contains a banking area and additional space for a possible loan
administration office.
The Bank leases approximately 1,850 square feet on the ground floor at
1818 Market St. Philadelphia, Pennsylvania. The space contains a banking area
and a vault. The initial 10 year term of the lease expires in December 2008, and
contains two five year renewal options. The annual rent for such location is
$63,768, payable monthly.
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Republic First Bancorp, Inc. 7
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Republic First Bank of Delaware, a wholly owned subsidiary bank of
Republic First Bancorp, has a land lease on approximately 2,000 sq. feet of
ground for its future site for branch operations and headquarters. The building
is currently under construction, and the office is scheduled to open for
business on May 1, 1999. The initial 20 year term of the lease expires June
2018. The annual rent for such location is $60,804, payable monthly.
Item 3: Legal Proceedings
The Bank, 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
Bank believes that it has a valid defense to this claim. In addition, one of
these loans was sold by the Bank to a mortgage banker who is now alleging that
the Bank 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, and as a result, has asserted a claim of $800,000 against the Bank.
The Bank believes that its actions were proper, that the lien is enforceable as
a first lien, and or it intends to vigorously defend these claims and, to the
extent necessary, seek recourse form other parties who may have participated in
this alleged 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.
Supervision and Regulation
Various requirements and restrictions under the laws of the United
States and the Commonwealth of Pennsylvania affect the Company and the Bank.
General
The Company is a bank holding company subject to supervision and
regulation by the Federal Reserve Bank of Philadelphia ("FRB") under the Bank
Holding Company Act of 1956, as amended. As a bank holding company, the
Company's activities and those of the Bank are limited to the business of
banking and activities closely related or incidental to banking, and the Company
may not directly or indirectly acquire the ownership or control of more than 5%
of any class of voting shares or substantially all of the assets of any company,
including a bank, without the prior approval of the FRB.
The Bank is subject to supervision and examination by applicable
federal and state banking agencies. The Bank is a member of the Federal Reserve
System and subject to the regulations of the FRB. The Bank is also a
Pennsylvania-chartered bank subject to supervision and regulation by the
Pennsylvania Department of Banking.
In addition, because the FDIC insures the deposits of the Bank, the
Bank is subject to regulation by the FDIC. The Bank is also subject to
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be made and the
types of services that may be offered. Various consumer laws and regulations
also affect the operations of the Bank. In addition to the impact of regulation,
commercial banks are affected significantly by the actions of the FRB in
attempting to control the money supply and credit availability in order to
influence the economy.
Holding Company Structure
The Bank is subject to restrictions under federal law which limit its
ability to transfer funds to the Company, whether in the form of loans, other
extensions of credit, investments or asset purchases. Such transfers by the Bank
to the Company are generally limited in amount to 10% of the Bank's capital and
surplus. Furthermore, such loans and extensions of credit are required to be
secured in specific amounts, and all transactions are required to be on an arm's
length basis. The Bank has never made any loan or extension of credit to the
Company nor has it purchased any assets from the Company.
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8 Republic First Bancorp, Inc.
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Under FRB policy, the Company is expected to act as a source of
financial strength to the Bank and to commit resources to support the Bank,
i.e., to downstream funds to the Bank. This support may be required at times
when, absent such policy, the Company might not otherwise provide such support.
Any capital loans by the Company to the Bank are subordinate in right of payment
to deposits and to certain other indebtedness of the Bank. In the event of the
Company's bankruptcy, any commitment by the Company to a federal bank regulatory
agency to maintain the capital of the Bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
Regulatory Restrictions on Dividends
Dividend payments by the Bank to the Company are subject to the
Pennsylvania Banking Code of 1965 (the "Banking Code"), the Federal Reserve Act,
and the Federal Deposit Insurance Act (the "FDIA"). Under the Banking Code, no
dividends may be paid except from "accumulated net earnings" (generally,
undivided profits). Under the FRB's regulations, the Bank cannot pay dividends
that exceed its net income from the current year and the preceding two years.
Under the FDIA, an insured bank may pay no dividends if the bank is in arrears
in the payment of any insurance assessment due to the FDIC. Under current
banking laws, the Bank would be limited to $7.0 million of dividends in 1998
plus an additional amount equal to the Bank's net profit for 1999, up to the
date of any such dividend declaration.
State and federal regulatory authorities have adopted standards for
the maintenance of adequate levels of capital by banks. Adherence to such
standards further limits the ability of the Bank to pay dividends to the
Company.
Other regulatory requirements and policies may also affect the payment
of dividends to the Company by the Bank. If, in the opinion of the FRB, the Bank
is engaged in, or is about to engage in, an unsafe or unsound practice (which,
depending on the financial condition of the Bank, could include the payment of
dividends), the FRB may require, after notice and hearing, that the Bank cease
and desist from such practice. The FRB has formal and informal policies
providing that insured banks and bank holding companies should generally pay
dividends only out of current operating earnings.
FDIC Insurance Assessments
The FDIC has implemented a risk-related premium schedule for all
insured depository institutions that results in the assessment of premiums based
on capital and supervisory measures.
Under the risk-related premium schedule, the FDIC, on a semiannual
basis, assigns each institution to one of three capital groups (well
capitalized, adequately capitalized or under capitalized) and further assigns
such institution to one of three subgroups within a capital group corresponding
to the FDIC's judgment of the institution's strength based on supervisory
evaluations, including examination reports, statistical analysis and other
information relevant to gauging the risk posed by the institution. Only
institutions with a total capital to risk-adjusted assets ratio of 10.00% or
greater, a Tier 1 capital to risk-adjusted assets ratio of 6.0% or greater and a
Tier 1 leverage ratio of 5.0% or greater, are assigned to the well capitalized
group.
Over the last two years, FDIC insurance assessments have seen several
changes for both Bank Insurance Fund ("BIF") and Savings Association Insurance
Fund ("SAIF") institutions. The most recent change occurred on March 31, 1997,
when the President signed into law a bill designed to remedy the disparity
between BIF and SAIF deposit premiums. The first part of the bill called for the
SAIF to be capitalized by a one-time assessment on all SAIF insured deposits
held as of December 31, 1996. This assessment, which was 65.7 cents per $100 in
deposits, raised $4.7 billion to bring the SAIF up to its required 1.25% reserve
ratio. This special assessment, paid on November 30, 1997, had no effect on the
Bank. The second part of the bill remedied the future anticipated shortfall with
respect to the payment of FDIC interest. For 1998 through 1999, the banking
industry will help pay the FDIC interest payments at an assessment rate that is
one-fifth the rate paid by thrifts. The FDIC assessment on BIF insured deposits
is 1.29 cents per $100 in deposits; for SAIF insured deposits it is 6.44 cents
per $100 in deposits. Beginning January 1, 2000, the FDIC interest payments will
be paid pro-rata by banks and thrifts based on deposits. At December 31, 1998,
the Company estimated the FDIC interest assessment to be $36,000 for 1999. For
the year ended December 31, 1998, the Company paid FDIC expenses of
approximately $33,000.
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 9
<PAGE>
Capital Adequacy
The FRB adopted risk-based capital guidelines for bank holding
companies, such as the Company. The required minimum ratio of total capital to
risk-weighted assets (including off-balance sheet activities, such as standby
letters of credit) is 8.0%. At least half of the total capital is required to be
Tier 1 capital, consisting principally of common shareholders' equity,
non-cumulative perpetual preferred stock and minority interests in the equity
accounts of consolidated subsidiaries, less goodwill. The remainder, Tier 2
capital, may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, perpetual preferred stock, and a limited amount of the general
loan loss allowance.
In addition to the risk-based capital guidelines, the FRB established
minimum leverage ratio (Tier 1 capital to average total assets) guidelines for
bank holding companies. These guidelines provide for a minimum leverage ratio of
3% for those bank holding companies that have the highest regulatory examination
ratings and are not contemplating or experiencing significant growth or
expansion. All other bank holding companies are required to maintain a leverage
ratio of at least 1% to 2% above the 3% stated minimum. The Company is in
compliance with these guidelines. The FRB subjects the Bank to similar capital
requirements.
The risk-based capital standards are required to take adequate account
of interest rate risk, concentration of credit risk and the risks of
non-traditional activities.
Interstate Banking
The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Banking Law"), amended various federal banking laws to
provide for nationwide interstate banking, interstate bank mergers and
interstate branching. The interstate banking provisions allow for the
acquisition by a bank holding company of a bank located in another state.
Interstate bank mergers and branch purchase and assumption
transactions were allowed effective September 1, 1998; however, states may
"opt-out" of the merger and purchase and assumption provisions by enacting a law
that specifically prohibits such interstate transactions. States could, in the
alternative, enact legislation to allow interstate merger and purchase and
assumption transactions prior to September 1, 1998. States could also enact
legislation to allow for de novo interstate branching by out of state banks. In
July 1996, Pennsylvania adopted "opt-in" legislation which allows such
transactions.
Profitability, Monetary Policy and Economic Conditions
The Bank's profitability is principally dependent on interest rate
differentials. In general, the difference between the interest paid by a bank on
its deposits and other borrowings and the interest received by a bank on loans
and securities held in its investment portfolio comprise the major portion of a
bank's earnings. Thus, the earnings and growth of First Republic Bank will be
subject to the influence of economic conditions, both domestic and foreign, on
the levels of and changes in interest rates. In addition to being affected by
general economic conditions, the earnings and growth of the Bank will be
affected by the policies of regulatory authorities, including the Pennsylvania
Department of Banking, the FRB and the FDIC. An important function of the FRB is
to regulate the supply of money and other credit conditions in order to manage
interest rates. The monetary policies and regulations of the FRB have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future. The effects of such policies
upon the future business, earnings and growth of the Bank cannot be determined.
See "Management's Discussion and Analysis of Financial Condition" and "Results
of Operations".
Item 4: Submission of Matters to a Vote of Security Holders
Not applicable.
- --------------------------------------------------------------------------------
10 Republic First Bancorp, Inc.
<PAGE>
PART II
Item 5: Market for Common Equity and Related Stockholder Matters
Market Information
Shares of the Common Stock are traded in the over-the-counter market
and are quoted on the Nasdaq/NMS under the symbol "FRBK." The Common Stock began
trading on Nasdaq/NMS on December 4, 1997. Prior to that date, the Common Stock
was quoted on the Nasdaq SmallCap Market. The table below presents the range of
high and low trade prices reported for the Common Stock on Nasdaq/NMS or on the
Nasdaq SmallCap Market, as the case may be, for the periods indicated. Market
quotations reflect inter-dealer prices, without retail mark-up, markdown, or
commission, and may not necessarily reflect actual transactions. All price
information in the following table has been adjusted retroactively to reflect
the recent 10% stock dividend for distribution on March 18, 1999, as well as two
20% stock dividends distributed on March 27, 1998 and April 15, 1997. As of
December 31, 1998, there were 300 holders of record of the Common Stock. On
February 28, 1999, the closing price of a share of Common Stock on the
Nasdaq/NMS was $11.50. For periods prior to the Merger, the prices disclosed in
the table are those of ExecuFirst.
Year Quarter High Low
---- ------- ---- ---
1998............... 4th $ 9.89 $7.85
3rd 10.28 7.62
2nd 12.05 9.55
1st 12.12 9.56
1997............... 4th $10.42 $8.34
3rd 8.90 8.05
2nd 9.09 6.44
1st 7.76 5.91
1996............... 4th $ 6.75 $4.73
3rd 5.29 3.53
2nd 4.66 3.55
1st 4.10 2.85
Stock Repurchase Program
Effective August 24, 1998, the Company implemented a stock repurchase
program, which will be in effect from time to time for varying periods after
August 25, 1998, through and including June 30, 1999. The aggregate amount of
stock to be repurchased will be determined by market conditions, but will not
exceed 4.9% of the Company's outstanding stock, or approximately 297,000 shares.
As of December 31, 1998, there was 54,916 shares repurchased pursuant to rule
10b-18 of the Securities and Exchange Commission. There was also an additional
164,688 shares purchased in block transaction purchases, that are not included
as part of the stock repurchase program specified under rule 10b-18.
Dividend Policy
The Company has not paid any cash dividends on its Common Stock. At
the present time, the Company does not foresee paying cash dividends to
shareholders and intends to retain all earnings to fund the growth of the
Company and the Bank. The Company paid a 10% Stock Dividend on March 18, 1999 as
well as 20% stock dividends on March 27, 1998 and April 15, 1997. The payment of
dividends in the future, if any, will depend upon earnings, capital levels, cash
requirements, the financial condition of the Company and the Bank, applicable
government regulations and policies and other factors deemed relevant by the
Company's Board of Directors, including the amount of cash dividends payable to
the Company by the Bank. The principal source of income and cash flow for the
Company, including cash flow to pay cash dividends on the Common Stock, is
dividends from the Bank. Various federal and state laws, regulations and
policies limit the ability of the Bank to pay cash dividends to the Company. For
certain limitations on the Bank's ability to pay cash dividends to the Company,
see item 3 "Supervision and Regulation".
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 11
<PAGE>
Item 6: Selected Financial Data
The information required by this Item is incorporated by reference
from the Company's 1998 Annual Report to Shareholders.
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following is management's discussion and analysis of the
significant changes in the Company's results of operations, financial condition
and capital resources presented in the accompanying consolidated financial
statements of Republic First Bancorp, Inc. This discussion should be read in
conjunction with the accompanying notes to the consolidated financial
statements.
Certain statements in this document may be considered to be
"forward-looking statements" as that term is defined in the U.S. Private
Securities Litigation Reform Act of 1995, such as statements that include the
words "may", "believes", "expect", "estimate", "project", "anticipate",
"should", "intend", "probability", "risk", "target", "objective" and similar
expressions or variations on such expressions. The forward-looking statements
contained herein are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected in the forward-looking
statements. For example, risks and uncertainties can arise with changes in:
general economic conditions, including their impact on capital expenditures;
business conditions in the financial services industry; the regulatory
environment, including evolving banking industry standards; rapidly changing
technology and competition with community, regional and national financial
institutions; new service and product offerings by competitors and price
pressures; the inability of the Company to accurately estimate the cost of
systems preparation for Year 2000 compliance; and similar items. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company undertakes
no obligation to publicly revise or update these forward-looking statements to
reflect events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the Securities and Exchange Commission, including the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997,
Quarterly Reports on Form 10-QSB filed by the Company in 1998, and any Current
Reports on Form 8-K filed by the Company, as well as similar filings in 1999.
1998 Compared to 1997
Results of Operations
Overview
The Company's net income increased $247,000, or 7.0%, to $3.8 million
for the year ended December 31, 1998, from $3.6 million for the year ended
December 31, 1997. The earnings increased primarily due to an increase in net
interest income and gains on the sale of investment securities, partially offset
by a non-recurring loss on the Company's mortgage banking affiliate as well as
an increase in other operating expenses. Diluted earnings per share for the year
ended December 31, 1998 was $0.59 compared to $0.69, for the year ended December
31, 1997, due to the effect of the Company's secondary stock offering, which
took place in the fourth quarter of 1997, which resulted in a materially larger
number of average shares outstanding for the year ended December 31, 1998. This
effect was partially offset by higher net income during 1998 compared to 1997.
Analysis of Net Interest Income
Historically, the Company's earnings have depended primarily upon the
Bank's net interest income, which is the difference between interest earned on
interest-earning assets and interest paid on interest-bearing liabilities. Net
interest income is affected by changes in the mix of the volume and rates of
interest-earning assets and interest-bearing liabilities. The following table
provides an analysis of net interest income on an annualized basis, setting
forth for the periods (i) average assets, liabilities, and shareholders' equity,
(ii) interest income earned on interest-earning assets and interest expense paid
on interest-bearing liabilities, (iii) average yields earned on interest-earning
assets and average rates paid on interest-bearing liabilities, and (iv) the
Bank's net interest margin (net interest income as a percentage of average total
interest-earning assets). All averages are computed based on daily balances.
Non-accrual loans are included in average loans receivable.
- --------------------------------------------------------------------------------
12 Republic First Bancorp, Inc.
<PAGE>
<TABLE>
<CAPTION>
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate (1) Balance Expense Rate (1) Balance Expense Rate (1)
------- ------- -------- ------- ------- -------- ------- ------- --------
For the Year For the Year For the Year
Ended Ended Ended
(Dollars in thousands) December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold........ $ 3,948 $ 216 5.47% $ 5,452 $ 304 5.58% $ 26,488 $ 1,346 5.08%
Securities................ 185,976 12,348 6.64% 94,047 6,360 6.76% 60,389 3,759 6.23%
Loans receivable (3)...... 248,479 21,840 8.79% 183,246 16,869 9.21% 132,294 12,007 9.08%
------- ------- ------- ------ -------- -------
Total-interest earning
assets.................. 438,403 34,404 7.85% 282,745 23,533 8.32% 219,171 17,112 7.81%
Other assets.............. 28,548 11,440 3,029
------- ------- --------
Total assets................ $466,951 $294,185 $222,200
======== ======== ========
Interest bearing liabilities:
Demand - non
interest bearing......... $ 31,260 $ -- $ 25,551 $ -- $ 23,909 $ --
Demand - interest bearing. 13,727 343 2.50% 8,428 211 2.50% 5,623 140 2.49%
Money market & savings.... 41,157 1,173 2.85% 34,141 982 2.88% 21,594 674 3.12%
Time deposits............. 191,829 11,687 6.09% 174,887 10,349 5.92% 148,834 8,663 5.82%
------- ------- ------- ------ -------- -------
Total deposits............ 277,973 13,203 4.75% 243,007 11,542 4.75% 199,960 9,477 4.74%
Total interest-bearing
deposits................. 246,713 13,203 5.35% 217,456 11,542 5.31% 176,051 9,477 5.38%
Other borrowings............ 143,094 7,642 5.34% 23,832 1,370 5.75% 2,920 238 8.15%
Total interest-bearing
liabilities.............. 389,807 20,845 5.35% 241,288 12,912 5.35% 178,971 9,715 5.43%
Total deposits and
other borrowings......... 421,067 20,845 4.95% 266,839 12,912 4.84% 202,880 9,715 4.79%
------- ------- ------- ------ -------- -------
Non-interest bearing
liabilities.............. 8,666 6,255 4,124
------- ------- --------
Shareholders' equity........ 37,218 21,091 15,196
------- ------- --------
Total liabilities and
Shareholders' equity..... $466,951 $294,185 $ 222,200
======== ======== =========
Net interest income......... $13,559 $10,621 $7,397
======= ======= ======
Net interest spread......... 2.90% 3.48% 3.02%
==== ==== ====
Net interest margin (2)..... 3.09% 3.76% 3.37%
==== ==== ====
<FN>
(1) Yields on investments are calculated based on amortized cost.
(2) Represents the difference between interest earned and interest paid,
divided by average total interest earning assets.
(3) Includes loans held for sale.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 13
<PAGE>
Rate/Volume Analysis of Changes in Net Interest Income
Net interest income may also be analyzed by segregating the volume and
rate components of interest income and interest expense. The following table
sets forth an analysis of volume and rate changes in net interest income for the
periods indicated. For purposes of this table, changes in interest income and
interest expense are allocated to volume and rate categories based upon the
respective percentage changes in average balances and average rates.
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1998 vs. 1997 1997 vs. 1996
Change due to Change due to
(Dollars in thousands) (Dollars in thousands)
---------------------------------- ---------------------------------
Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Federal funds sold.................. $ (82) $ (6) $ (88) $(1,162) $ 120 $(1,042)
Securities.......................... 8,604 (2,616) 5,988 2,252 349 2,601
Loans receivable (1)................ 20,652 (15,681) 4,971 4,688 174 4,862
------- -------- ------- ------- ----- -------
Total interest income.................. 29,174 (18,303) 10,871 5,778 643 6,421
------- -------- ------- ------- ----- -------
Interest paid on:
Demand deposits, money
market and savings deposit......... 700 (377) 323 433 (54) 379
Time deposits....................... 1,025 313 1,338 1,540 146 1,686
Other borrowed funds................ 8,485 (2,213) 6,272 1,222 (90) 1,132
------- -------- ------- ------- ----- -------
Total interest expense................. 10,210 (2,277) 7,933 3,195 2 3,197
------- -------- ------- ------- ----- -------
Net interest income................. $18,964 $(16,026) $ 2,938 $ 2,583 $ 641 $ 3,224
======= ======== ======= ======= ===== =======
<FN>
___________
(1) Includes loans held for sale.
</FN>
</TABLE>
The Company's net interest margin decreased 67 basis points to 3.09%
for the year ended December 31, 1998 from 3.76% for the year ended December 31,
1997. This decease was primarily due to a decrease in the yield on
interest-earning assets. The average yield on interest-earning assets decreased
47 basis points to 7.85% for the year ended December 31, 1998 from 8.32% for the
year ended December 31, 1997. The average rate on interest-bearing liabilities
remained unchanged at 5.35% from the year ended December 31, 1997 to December
31, 1998.
The Company's net interest income increased $2.9 million, or 27.7%, to
$13.6 million for the year ended December 31, 1998 from $10.6 million for the
year ended December 31, 1997. The increase in net interest income was primarily
due to an increase in average interest-earning assets due, in part, to a series
of structured leveraged investment securities transactions amounting to $100
million and also as a result of increased business development. These securities
transactions were made possible through borrowings at the Federal Home Loan Bank
of Pittsburgh. The Bank continues to be well capitalized, from the leveraged and
risk based capital guidelines. The Company's total interest income increased
$10.9 million, or 46.2%, to $34.4 million for the year ended December 31, 1998
from $23.5 million for the year ended December 31, 1997. Interest and fees on
loans increased $5.0 million, or 29.5%, to $21.8 million for the year ended
December 31, 1998 from $16.9 million for the year ended December 31, 1997,
largely as a result of an increase in average loan balances of $65.2 million, or
35.6%, to $248.5 million for the year ended December 31, 1998 from $183.2
million for the year ended December 31, 1997. The yield on the loan portfolio
decreased 42 basis points to 8.79% for the year ended December 31, 1998 from
9.21% for the year ended December 31, 1997. This decrease was due primarily to
the decrease in the prime rate of 75 basis points. Additionally, the Banks
residential mortgage portfolio increased approximately $68.0 million during
1998. These loans generally have a lower yield than the existing loan portfolio,
therefore, incremental growth in the residential mortgage portfolio has had a
negative impact on the yield on total loans. Also contributing to the increase
in total interest income was an increase in interest and dividend income on
securities of $6.0 million, or 94.1%, to $12.3 million for the year ended
December 31, 1998 from $6.4 million for the year ended December 31, 1997. This
increase in investment income was the result of a combination of an increase in
the average balance of securities owned of $91.9 million, or 97.8%, to $186.0
million for the year ended December 31, 1998 from $94.0 million for the year
ended December 31, 1997, partially offset by a decrease in yield
- --------------------------------------------------------------------------------
14 Republic First Bancorp, Inc.
<PAGE>
on securities held of 12 basis points to 6.64% for the year ended December 31,
1998 from 6.76% for the year ended December 31, 1997. This was due in part to
the sale of certain higher yielding investment securities during the third and
fourth quarters of 1998, as well as accelerated prepayments on higher yielding
mortgage backed securities throughout 1998, as a result of the decline in
mortgage interest rates. The sale of these investment securities will have a
negative impact on future security investment yields, if the securities sold are
not replaced with equal or higher yielding securities.
The increase in the average balance of securities is the result of
leveraged funding programs employed by the Company that uses 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 Company's total interest expense increased $7.9 million, or 61.4%,
to $20.8 million for the year ended December 31, 1998 from $12.9 million for the
year ended December 31, 1997. This increase was due to an increase in the volume
of average interest-bearing liabilities of $148.5 million, or 61.6%, to $389.8
million for the year ended December 31, 1998 from $241.3 million for the year
ended December 31, 1997. The average rate paid on interest-bearing liabilities
remained unchanged at 5.35% for the year ended December 31, 1998 and 1997. The
average rate paid on deposits and other borrowings increased slightly from 4.84%
for the year ended December 31, 1997, to 4.95% for the year ended December 31,
1998 as other borrowed funds, which have a higher cost than the Bank's deposit
base, became a greater percentage of interest bearing liabilities.
Interest expense on time deposits increased $1.3 million, or 12.8%, to
$11.7 million for the year ended December 31, 1998 from $10.3 million for the
year ended December 31, 1997. This increase was due to an increase in the
average volume of certificates of deposit in the amount of $16.9 million, or
9.7%, to $191.8 million for the year ended December 31, 1998 from $174.9 million
for the year ended December 31, 1997.
Interest expense on other borrowings, which include federal funds
purchased and FHLB advances increased $6.3 million to $7.6 million for the year
ended December 31, 1998, from $1.4 million for the year ended December 31, 1997.
In 1998, $94.6 million of FHLB advances funded purchases of securities and
origination of loans as part of an ongoing leveraged funding program designed to
increase earnings while also managing interest rate risk and liquidity.
Additionally, the Company utilized FHLB borrowings to fund the Tax Refund
Program in 1998 and 1997. The Company used brokered certificates of deposit to
fund the Tax Refund Program in 1996.
Provision for Loan Losses
The provision for loan losses is charged to operations to bring the
total allowance for loan losses to a level considered appropriate by management.
The level of the allowance for loan losses is determined by management based
upon its evaluation of the known as well as inherent risks within the Bank's
loan portfolio. 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 provision for loan losses increased $50,000, or
15.6%, to $370,000 for the year ended December 31, 1998 from $320,000 for the
year ended December 31, 1997 due to an increase in total loans outstanding of
$97.1 million as of December 31, 1998 compared to the prior year amount.
Non-performing assets were 0.36% of total assets or $1,841,000 at December 31,
1998, compared to 1.03% of total assets or $3,857,000 at December 31, 1997.
Delinquency loans past due 30 to 89 days were 0.59% of total loans or $1,832,000
at December 31, 1998, compared to 1.43% of total loans or $3,032,000 at December
31, 1997.
Non-Interest Income
Total other income increased $520,000, or 19.8%, to $3.1 million for
the year ended December 31, 1998 from $2.6 million for the year ended December
31, 1997. The increase was due primarily to a $148,000 increase in Tax Refund
Program income associated with an increase in Tax Refund Product sales in the
1998 tax return season compared to the 1997 tax return season and an increase in
service fees and other income of $184,000 from $388,000 for the year ended
December 31, 1997 to $572,000 for the year ended December 31, 1998 as a result
of higher service charges on deposit accounts and prepayment penalty fees on
loans. Additionally, the Company realized gains on the
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 15
<PAGE>
sale of investment securities of $188,000 for the year ended December 31, 1998,
not including gains of $628,000 realized during the third quarter of 1998, which
are presented as a cumulative effect of a change in accounting principle, upon
the adoption of Statement of Financial Accounting Standards No. 133. There were
no gains realized during 1997.
Non-Interest Expenses
Total other expenses increased $3.5 million, or 45.0%, to $11.3
million for the year ended December 31, 1998 from $7.8 million for the year
ended December 31, 1997. The Company recorded a loss on its mortgage banking
affiliate of $1,617,000. This loss was primarily due to the devaluation of the
affiliate mortgage banking company's mortgage servicing portfolio as a result of
significant prepayment of the underlying loans. Salaries and benefits increased
$898,000 or 22.0%, to $5.0 million for the year ended December 31, 1998 from
$4.1 million for the year ended December 31, 1997. The increase was due
primarily to an increase in staff associated with the expansion of the branches
and business development staff, as well as the accrual of severance for the
Company's former Chief Executive Officer. Occupancy expenses increased $322,000,
or 45.9%, to $1.0 million for the year ended December 31, 1998 from $702,000 for
the year ended December 31, 1997 as a result of opening an additional branch
office, and the relocation of the Bank's main office during 1998. Other
operating expenses encompass all expenses not otherwise categorized, and include
items such as data processing costs, advertising costs, printing and supplies,
insurance and other miscellaneous expenses. The increases in other operating
expenses of $433,000 was due to overall growth of the Bank and increased
expenses related to the operations of new branch offices. Professional fees
increased $273,000 from $503,000 for the year ended December 31, 1997 to
$776,000 for the year ended December 31, 1998. This was primarily due to legal
expenses associated with credit workouts and certain fraud and branch robbery
expenses.
Provision for Income Taxes
The provision for income taxes increased $72,000, or 4.5%, to $1.7
million for the year ended December 31, 1998 from $1.6 million for the year
ended December 31, 1997. This increase is mainly the result of the increase in
pre-tax income from 1997 to 1998. The Company also recorded $207,000 of tax
expense in connection with the cumulative effect of a change in accounting
principle upon the adoption of SFAS No. 133.
Results of Operations for the Years ended December 31, 1997 and 1996
Overview
For the year ended December 31, 1997, the Company reported net income
of $3.6 million, or $0.75 in basic earnings per share and $0.69 in diluted
earnings per share, compared to net income of $2.7 million, or $0.74 in basic
earnings per share and $0.70 in diluted earnings per share, for the year ended
December 31, 1996. The increase in the Company's results during 1997 was
primarily the result of an increase in the Bank's net interest income, partially
offset by higher operating expenses.
The Company's total interest income increased $6.4 million, or 37.5%,
to $23.5 million for the year ended December 31, 1997 from $17.1 million for the
year ended December 31, 1996. The average balance of interest-earning assets
increased $63.6 million, or 29.0%, to $282.7 million for the year ended December
31, 1997 from $219.2 million for the year ended December 31, 1996. The yield on
interest-earning assets increased 51 basis points to 8.32% for the year ended
December 31, 1997 from 7.81% for the year ended December 31, 1996. Total
interest expense increased $3.2 million, or 32.9%, to $12.9 million for the year
ended December 31, 1997 from $9.7 million for the year ended December 31, 1996.
The average balance of interest-bearing liabilities increased $62.3 million, or
34.8%, to $241.3 million for the year ended December 31, 1997 from $179.0
million for the year ended December 31, 1996. The average rate on
interest-bearing liabilities decreased 8 basis points to 5.35% for the year
ended December 31, 1997 from 5.43% for the year ended December 31, 1996. The
increases in interest income and interest expense were principally the result of
a higher volume of interest-earning assets and interest-bearing liabilities in
1997 as a result of the full year effect of the Merger. The ratio of interest
expense to interest income was 54.9% for the year ended December 31, 1997
compared to a ratio of 56.8% for the year ended December 31, 1996.
- --------------------------------------------------------------------------------
16 Republic First Bancorp, Inc.
<PAGE>
Provision for Loan Losses
The provision for loan losses is charged to operations to bring the
total allowance for loan losses to a level considered appropriate by management.
The level of the allowance for loan losses is determined by management based
upon its evaluation of the known as well as inherent risks within the Bank's
loan portfolio. 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 provision for loan losses increased $165,000, to
$320,000 for the year ended December 31, 1997 from $155,000 for the year ended
December 31, 1996. Non-performing assets were 1.03% of total assets at December
31, 1997, compared to 0.81% at December 31, 1996. Delinquencies were 1.43% of
total loans at December 31, 1997, compared to 1.78% at December 31, 1996.
Non-Interest Income
Total other income increased $220,000, or 9.1%, to $2.6 million for
the year ended December 31, 1997 from $2.4 million for the year ended December
31, 1996. The increase was due primarily to a $157,000 increase in Tax Refund
Program income associated with an increase in Tax Refund Product sales in the
1997 tax return season compared to the 1996 tax return season . Additionally,
there was an increase in service fees of $50,000 from $170,000 for the year
ended December 31, 1996 to $220,000 for the year ended December 31, 1997. This
was the result of the Merger, with a full year in 1997 compared to seven months
in 1996.
Non-Interest Expenses
Total other expenses increased $2.2 million, or 39.6%, to $7.8 million
for the year ended December 31, 1997 from $5.6 million for the year ended
December 31, 1996. Salaries and benefits increased $1.2 million, or 42.1%, to
$4.1 million for the year ended December 31, 1997 from $2.9 million for the year
ended December 31, 1996. The increase was due primarily to an increase in staff
as a result of the Merger as well as increases associated with the expansion of
the branches and business development staff.
Occupancy and equipment expenses increased $314,000, or 34.9%, to $1.2
million for the year ended December 31, 1997 from $901,000 for the year ended
December 31, 1996 as a result of opening additional branch offices.
Professional fees increased $221,000 from $282,000 for the year ended
December 31, 1996 to $503,000 for the year ended December 31, 1997. This was
primarily due to legal expenses associated with credit workouts. Other operating
expenses encompass all expenses not otherwise categorized, and include items
such as data processing costs, advertising costs, printing and supplies,
insurance and other miscellaneous expenses. Other operating expenses increased
$467,000, or 30.6%, to $2.0 million for the year ended December 31, 1997 from
$1.5 million for the year ended December 31, 1996. The increases in other
operating expenses was the growth of the Bank associated with the Merger and
increased expenses related to the opening of new branch offices.
Provision for Income Taxes
The provision for income taxes increased $230,000, or 17.0%, to $1.6
million for the year ended December 31, 1997 from $1.4 million for the year
ended December 31, 1996. This increase is mainly the result of the increase in
pre-tax income from 1996 to 1997. The effective tax rate in 1997 declined to
30.8% from 33.3% in 1996 primarily due to a reduction in state and local income
taxes as a result of a change in the tax structuring of the Tax Refund Program.
Financial Condition
December 31, 1998 Compared to December 31, 1997
Total assets increased $140.9 million, or 37.5%, to $516.4 million at
December 31, 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 net increases in borrowings and deposits in the year ended December
31, 1998. Net loans, including loans held for sale, increased $96.8 million, or
46.1%, to $306.8 million at December 31, 1998 from $210.0 million at December
31, 1997. Investment securities increased $29.6 million, or 20.0%, to $177.6
million at December 31, 1998 from $148.0 million at December 31, 1997. The
increase was due primarily to the purchase of $50 million in securities as part
of the Company's leveraged funding strategy which is intended to increase
earnings.
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 17
<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 $12.0
million, to $18.3 million at December 31, 1998 from $6.3 million at December 31,
1997.
Bank premises and equipment, net of accumulated depreciation,
increased $1.5 million to $4.0 million at December 31, 1998 from $2.5 million at
December 31, 1997. The increase was mainly attributable to the addition of a new
branch office, and the relocation of the Bank's main office.
Total liabilities increased $138.9 million, or 40.8%, to $479.7
million at December 31, 1998 from $340.8 million at December 31, 1997. During
the year ended December 31, 1998, deposits, the Company's primary source of
funds, increased $34.7 million, or 14.0%, to $283.1 million at December 31, 1998
from $248.4 million at December 31, 1997. The aggregate of transaction accounts,
which include demand, money market and savings accounts, increased $20.1
million, or 29.7%, to $87.9 million at December 31, 1998 from $67.8 million at
December 31, 1997. Certificates of deposit increased by $14.6 million, or 8.1%,
to $195.1 million at December 31, 1998 from $180.6 million at December 31, 1997.
Other borrowings increased $102.1 million, to $188.0 million at
December 31, 1998 from $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
Bank typically defines interest-sensitive assets and interest-sensitive
liabilities as those that reprice within one year or less. Maintaining an
appropriate match is a method of avoiding wide fluctuations in net interest
margin during periods of changing interest rates.
The difference between interest-sensitive assets and
interest-sensitive liabilities is known as the "interest-sensitivity gap"
("GAP"). A positive GAP occurs when interest-sensitive assets exceed
interest-sensitive liabilities repricing in the same time periods, and a
negative GAP occurs when interest-sensitive liabilities exceed
interest-sensitive assets repricing in the same time periods. A negative GAP
ratio suggests that a financial institution may be better positioned to take
advantage of declining interest rates rather than increasing interest rates, and
a positive GAP ratio suggests the converse.
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 either 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, a portion of the deposits are moved into
time brackets exceeding one year
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 Bank attempts to manage its assets and liabilities in a manner
that stabilizes net interest income under a broad range of interest rate
environments. Adjustments to the mix of assets and liabilities are made
periodically in an effort to provide dependable and steady growth in net
interest income regardless of the behavior of interest rates.
- --------------------------------------------------------------------------------
18 Republic First Bancorp, Inc.
<PAGE>
The following tables present a summary of the Bank's interest rate
sensitivity GAP at December 31, 1998. For purposes of these tables, the Bank has
used assumptions based on industry data and historical experience to calculate
the expected maturity of loans because, statistically, certain categories of
loans are prepaid before their maturity date, even without regard to interest
rate fluctuations. Additionally certain prepayment assumptions were made with
regard to investment securities based upon the expected prepayment of the
underlying collateral of the mortgage backed securities.
Interest Rate Sensitivity Analysis
<TABLE>
<CAPTION>
0-90 91-180 181-365 1-2 2-3 3-4 4-5 Over 5 Fair
At December 31, 1998 Days Days Days Years Years Years Years Years Total Value
- -------------------- ---- ---- ---- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest sensitive assets:
Securities and interest
bearing balances due
from banks .............. $ 32,862 $ 10,185 $ 18,202 $ 28,690 $ 20,906 $ 15,855 $ 12,038 $ 38,940 $177,678 $177,662
Average interest rate ... 6.50% 6.87% 6.88% 6.90% 6.91% 6.90% 6.89% 6.81%
Loans receivable (1) ...... 91,885 9,453 18,526 39,278 33,195 31,220 29,488 53,723 306,768 311,775
Average interest rate ... 8.59% 8.39% 8.39% 8.25% 8.26% 8.29% 8.33% 7.18%
Total ..................... 124,747 19,638 36,728 67,968 54,101 47,075 41,526 92,663 484,446 485,613
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Cumulative total .......... $124,747 $144,385 $181,113 $249,081 $303,182 $350,257 $391,783 $484,446
-------- -------- -------- -------- -------- -------- -------- --------
Interest sensitive liabilities:
Demand interest bearing ... $ 2,320 $ 457 $ 1,476 $ 1,829 $ 1,829 $ 1,829 $ 1,829 $ 8,586 $ 20,155 $ 20,155
Average interest rate ... 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50%
Savings accounts .......... 675 63 128 255 255 255 255 1,280 3,166 3,166
Average interest rate ... 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50%
Money market accounts ..... 19,687 652 1,305 2,610 2,610 2,610 2,610 0 32,084 32,084
Average interest rate ... 4.42% 2.75% 2.75% 2.75% 2.75% 2.75% 2.75% 0.00%
Time deposits ............. 35,549 26,134 86,620 39,424 2,885 2,262 2,262 6 195,142 197,007
Average interest rate ... 5.51% 5.70% 5.82% 6.43% 5.93% 5.92% 5.92% 5.30%
FHLB borrowings ........... 40,609 7,400 0 0 0 40,000 50,000 50,000 188,009 191,684
-------- --------
Average interest rate ... 5.00% 6.32% 0.00% 0.00% 0.00% 5.59% 4.99% 5.15%
-------- -------- -------- -------- -------- -------- -------- --------
Totals .................... $ 98,840 $ 34,706 $ 89,529 $ 44,118 $ 7,579 $ 46,956 $ 56,956 $ 59,872 $438,556
-------- -------- -------- -------- -------- -------- -------- --------
Cumulative total .......... $ 98,840 $133,546 $223,075 $267,193 $274,772 $321,728 $378,684 $438,556
-------- -------- -------- -------- -------- -------- -------- --------
Interest rate
sensitivity GAP ......... $ 25,907 $(15,068) $(52,801) $ 23,850 $ 46,522 $ 119 $(15,430) $ 32,791 $ 45,890
======== ======== ======== ======== ======== ======== ======== ========
Cumulative GAP ............ $ 25,907 $ 10,839 $(41,962) $(18,112)$ 28,410 $ 28,529 $ 13,099 $ 45,890
======== ======== ======== ======== ======== ======== ======== ========
Interest sensitive assets/
Interest sensitive
liabilities ............. 1.3x 1.1x 0.8x 0.9 1.1 1.1 1.0x 1.1x
Cumulative GAP ............ 5.3% 2.2% -8.7% -3.7% 5.9% 5.9% 2.7% 9.5%
- -----------------------------------------------------------------------------------------------------------------------------
Off balance sheet items
notional value:
Commitments to
extend credit ........... $ 430 $ 21,534 $ 21,964 $ 220
Average interest rate ..... 7.75% 8.25%
<FN>
_____________
(1) Includes loans held for sale
</FN>
</TABLE>
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 19
<PAGE>
Capital Resources
The Company is required to comply with certain "risk-based" capital
adequacy guidelines issued by the FRB and 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 12.54% and 16.33% at December 31,
1998 and 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 December 31, 1998 and 1997 was 11.76% and
15.42%, respectively. At December 31, 1998, and 1997, the Company exceeded the
requirements for risk-based capital adequacy under both federal and Pennsylvania
State 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 assets")
of at least 5%, a Tier l capital to weighted-risk assets ratio of at least 6%,
and a total capital to weighted-risk assets ratio of at least 10%. At December
31, 1998 and 1997, the leverage ratio was 7.50% and 10.53%, respectively.
Accordingly, at December 31, 1998 and 1997, the Company was considered "well
capitalized" under FRB and FDIC regulations.
The shareholders' equity of the Company as of December 31, 1998
totaled approximately $36,622,000 compared to approximately $34,622,000 as of
December 31, 1997. This increase was attributable to net income for the year of
approximately $3,798,000, partially offset by the stock repurchase program which
bought back approximately $1.9 million of the Company's stock.
Book value per share of the Company's common stock increased from
$5.71 as of December 31, 1997 to $6.22 as of December 31, 1998. The increase was
primarily attributable to earnings for the year ended December 31, 1998 of
$3,798,000.
Regulatory Capital Requirements
Federal banking agencies impose three minimum capital requirements on
the Company'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 or
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.
The following table presents the Company's capital regulatory ratios
at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
To be well
For capital capitalized under
Actual adequacy purposes FRB capital guidelines
------------------ ------------------- ----------------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total risk based capital............ $38,784 12.54% $24,746 8.00% $30,932 10.00%
Tier I capital...................... 36,389 11.76 12,373 4.00 18,559 6.00
Tier I (leveraged) capital.......... 36,389 7.50 24,263 5.00 24,263 5.00
As of December 31, 1997:
Total risk based capital............ $36,395 16.33% $17,830 8.00% $22,289 10.00%
Tier I capital...................... 34,367 15.42 8,915 4.00 13,372 6.00
Tier I (leveraged) capital.......... 34,367 10.53 16,312 5.00 16,312 5.00
</TABLE>
- --------------------------------------------------------------------------------
20 Republic First Bancorp, Inc.
<PAGE>
Management believes that the Bank meets as of December 31, 1998 and
1997, all capital adequacy requirements to which it is subject. As of December
31, 1998 and 1997, the most recent notification from the Federal Reserve Bank
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action provisions of section 3b of the Federal deposit
Insurance Act. There are no calculations or events since that notification, that
management believes would have changed the Bank's category.
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 Federal
Reserve Bank 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.
The Company's capital-to-assets ratio decreased from 9.22% as of
December 31, 1997 to 7.09% as of December 31, 1998. The Company's daily average
capital-to-assets ratio for calendar year 1998 was 7.97% compared to 7.17% for
the same period in 1997. Management anticipates that its capital-to-assets ratio
will be maintained at approximately the current level. The Company's average
return on equity for 1998, 1997 and 1996 was 10.2%, 16.8% and 17.9%,
respectively; and its average return on assets for 1998, 1997 and 1996 was
0.81%, 1.21% and 1.22%, respectively.
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 $18.3 million at December 31, 1998
compared to $6.3 million at December 31, 1997. Maturing and repaying loans are
another source of asset liquidity. At December 31, 1998, the Bank estimated that
an additional $13.5 million of loans will mature or repay in the next six-month
period ended June 30, 1999.
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. At December 31, 1998, the Bank had $55.5
million in unused lines of credit available to it under informal arrangements
with correspondent banks compared to $50.1 million at December 31, 1997. These
lines of credit enable the Bank to purchase funds for short-term needs at
current market rates.
At December 31, 1998, the Company had outstanding commitments
(including unused lines of credit and letters of credit) of $20.1 million.
Certificates of deposit which are scheduled to mature within one year totaled
$148.3 million at December 31, 1998, and borrowings that are scheduled to mature
within the same period amounted to $48.0 million. The Company anticipates that
it will have sufficient funds available to meet its current commitments.
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. 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
Bank's liquidity needs. The Bank has established collateralized lines of credit
from correspondents to assist in managing the Bank's liquidity position. Such
lines of credit total $7.5 million in the aggregate. Additionally, the Bank has
established a line of credit with the Federal Home Loan Bank of Pittsburgh with
a maximum borrowing capacity of approximately $236.0 million. As of December 31,
1998 and 1997, the Company had borrowed $180.5 and $85.9, respectively, under
its line of credit with the FHLB. The Company's Board of Directors has appointed
an Asset/Liability Committee to assist Management in establishing parameters for
investments.
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 21
<PAGE>
Cash flows from operations have consistently provided a source of
liquidity to the Bank for the last three years. Operating cash flows are
primarily derived from cash provided from net income during the year. Cash used
in investment activities for the years ended December 31, 1998, 1997, and 1996
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 Bank has grown its deposit base and increased its borrowings to fund
anticipated loan growth.
The Bank's Asset/Liability Committee is responsible for managing the
liquidity position and interest sensitivity of the Bank. Such committee's
primary objective is to maximize net interest margin in an ever changing rate
environment, while balancing the Bank's interest-sensitive assets and
liabilities and providing adequate liquidity for projected needs.
Management presently believes that the effect on the Bank of any
future rise in interest rates, reflected in higher cost of funds, would be
beneficial since the Bank has the ability to quickly increase yield on its
interest earning assets, primarily federal funds and floating rate commercial
loans. However, a decrease in interest rates generally could have a negative
effect on the Bank, due to the timing difference between repricing the Bank's
liabilities, primarily certificates of deposit, and the largely automatic
repricing of its existing interest-earning assets. As of December 31, 1998,
24.5% of the Bank's interest-bearing deposits were to mature, and be
repriceable, within three months, and an additional 16.0% were to mature, and be
repriceable, within three to six months. Therefore, management believes that
such an effect would be minimal.
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 Asset/Liability
Management Committee (ALCO) is responsible for managing interest rate risk and
for evaluating the impact of changing interest rate conditions on net interest
income.
Securities Portfolio The Company's securities portfolio is intended to
provide liquidity, reduce interest rate risk and contribute to earnings while
reducing the Company's exposure credit risk. The securities portfolio has grown
substantially through the use of leverage provided by FHLB advances.
A summary of securities available for sale and securities held to
maturity at December 31, 1998, 1997, and 1996 follows.
<TABLE>
<CAPTION>
Securities Available for Sale at December 31,
---------------------------------------------
(Dollars in thousands)
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
U.S. Treasury...................................... $ 0 $ 0 $ 998
U.S. Government Agencies........................... 3,000 2,943 4,128
CMOs and Mortgage Backed Securities (1)............ 157,579 0 770
-------- ------ ------
Total amortized cost of securities................. $160,579 $2,943 $5,896
-------- ------ ------
Total fair value of securities..................... $160,554 $2,950 $5,900
-------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
Securities Held to Maturity at December 31,
---------------------------------------------
(Dollars in thousands)
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
U.S. Government Agencies........................... $ 1,300 $ 56,331 $49,214
CMOs and Mortgage Backed Securities (1)............ 5,601 83,028 23,682
Other securities (2)............................... 10,097 5,671 2,158
-------- -------- -------
Total amortized cost of securities................. $16,998 $145,030 $75,054
-------- -------- -------
Total fair value of securities..................... $16,982 $145,908 $75,307
-------- -------- -------
<FN>
(1) All of these obligations consist of U.S. Government Agency issued
securities.
(2) Comprised mostly of FHLB stock and Federal Reserve Bank stock.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
22 Republic First Bancorp, Inc.
<PAGE>
The following table presents the contractual maturity distribution and
weighted average yield of the securities portfolio of the Company at December
31, 1998. Mortgage backed securities are presented without consideration of
amortization or prepayments.
<TABLE>
<CAPTION>
Securities Available for Sale at December 31, 1998
-------------------------------------------------------------------------------------------
After 1 Year But After 5 Years But After 10 Years or
Within 1 Year Within 5 Years Within 10 Years No Maturity Total
------------- -------------- --------------- -------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amortized cost: (Dollars in thousands)
U.S. Government Agencies......... $ 0 0.00% $ 0 0.00% $3,000 7.15% $ 0 0.00% $ 3,000 7.15%
Mortgage-backed securities....... 0 0.00 1,915 6.97 2,537 7.00 153,127 6.61 157,579 6.62
Other securities................. 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00
--- ---- ------ ---- ------ ---- -------- ---- -------- ----
Total securities
available for sale............ $ 0 0.00% $1,915 6.97% $5,537 7.10% $153,127 6.61% $160,579 6.63%
=== ==== ====== ==== ====== ==== ======== ==== ======== ====
</TABLE>
<TABLE>
<CAPTION>
Held to Maturity at December 31, 1998
-------------------------------------------------------------------------------------------
After 1 Year But After 5 Years But After 10 Years or
Within 1 Year Within 5 Years Within 10 Years No Maturity Total
------------- -------------- --------------- -------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amortized cost: (Dollars in thousands)
U.S. Government Agencies......... $ 0 0.00% $ 0 0.00% $ 0 0.00% $ 1,300 6.27% $ 1,300 6.27%
Mortgage-backed securities....... 0 0.00 0 0.00 0 0.00 5,601 6.89 5,601 6.89
Other securities................. 510 6.00 495 6.00 1,425 6.50 7,667 6.00 10,097 6.07
--- ---- ------ ---- ------ ---- -------- ---- -------- ----
Total securities
held to maturity.............. $510 6.00% $ 495 6.00% $1,425 6.50% $14,568 6.37% $16,998 6.36%
==== ==== ====== ==== ====== ==== ======== ==== ======== ====
</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 Bank's commercial loans average from
$250,000 to $1,000,000 in amount.
The Company's net loans increased $96.8 million, or 46.1%, to $306.8
million at December 31, 1998 from $210.0 million at December 31, 1997, which
were funded by an increase in borrowed funds and proceeds form the stock
offering.
The following table sets forth the Company's gross loans by major
categories for the periods indicated:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------
(Dollars in thousands)
1998 1997 1996 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Commercial:
Real estate secured (1) ......................... $132,185 $ 87,701 $ 62,016 $34,353 $22,979
Non-real estate secured/unsecured ............ 41,980 42,519 45,007 23,183 27,429
-------- -------- -------- ------- -------
Total commercial .......................... 174,165 130,220 107,023 57,536 50,408
Residential real estate ......................... 133,158 78,366 61,240 26,781 20,493
Consumer and other .............................. 1,840 3,441 3,831 1,546 1,182
-------- -------- -------- ------- -------
Total loans, net of unearned income ....... $309,163 $212,027 $172,094 $85,863 $72,083
======== ======== ======== ======= =======
<FN>
____________
(1) Includes loans held for sale
</FN>
</TABLE>
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 23
<PAGE>
Loan Maturity and Interest Rate Sensitivity
The amount of loans outstanding by category as of the dates indicated,
which are due in (i) one year or less, (ii) more than one year through five
years and (iii) over five years, is shown in the following table. Loan balances
are also categorized according to their sensitivity to changes in interest
rates.
<TABLE>
<CAPTION>
At December 31, 1998
------------------------------------------------------------------
(Dollars in thousands)
One Year More Than One Year Over Total
or Less Through Five Years Five Years Loans
------- ------------------ ---------- -----
<S> <C> <C> <C> <C>
Commercial (1) .................................. $45,214 $ 81,711 $ 47,240 $174,165
Residential real estate ......................... 12,758 45,845 74,555 133,158
720 1,120 0 1,840
------- -------- -------- --------
Total ........................................ $58,692 $128,676 $121,795 $309,163
======= ======== ======== ========
Loans with fixed rate ........................... $33,919 $ 79,719 $110,987 $224,625
Loans with floating rate ........................ 24,773 48,957 10,808 84,538
------- -------- -------- --------
Total ........................................ $58,692 $128,676 $121,795 $309,163
======= ======== ======== ========
Percent composition by maturity ................. 18.98% 41.62% 39.40% 100.00%
Fixed rate loans as a percentage of
total loans maturing .......................... 57.79% 61.95% 91.13% 72.66%
Floating rate loans as a percentage of
total loans maturing .......................... 42.21% 38.05% 8.87% 27.34%
<FN>
_________
(1) Includes loans held for sale
</FN>
</TABLE>
In the ordinary course of business, loans maturing within one year may
be renewed, in whole or in part, as to principal amount, at interest rates
prevailing at the date of renewal.
At December 31, 1998, 67.9% of total loans were fixed rate compared to
62.27% at December 31, 1997.
Credit Quality
The Bank's written lending policies require underwriting, loan
documentation and credit analysis standards to be met prior to funding. In
addition, a senior loan officer reviews all loan applications. The Board of
Directors reviews the status of loans monthly to ensure that proper standards
are maintained.
Loans, including impaired loans, are generally classified as
non-accrual if they are past due as to maturity or payment or principal of
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 non-accrual 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 non-accrual 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
non-accrual 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.
- --------------------------------------------------------------------------------
24 Republic First Bancorp, Inc.
<PAGE>
The following summary shows information concerning loan delinquency
and other non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accruing, but past due 90 days or more .......... $ 121 $ 113 $ 27 $ 11 $ 196
Non-accrual loans ..................................... 1,002 1,800 1,892 526 878
Total non-performing loans ............................ 1,123 1,913 1,919 537 1,074
Foreclosed real estate ................................ 718 1,944 295 295 0
------ ------ ------ ----- ------
Total non-performing assets(1) .................. $1,841 $3,857 $2,214 $ 832 $1,074
====== ====== ====== ===== ======
Non-performing loans as a percentage of
total loans, net of unearned income(1)(2) ........... 0.36% 0.90% 1.12% 0.63% 1.49%
------ ------ ------ ----- ------
Non-performing assets as a percentage of
total assets ........................................ 0.36% 1.03% 0.81% 0.63% 1.01%
------ ------ ------ ----- ------
___________
<FN>
(1) Non-performing loans are comprised of (i) loans that are on a non-accrual
basis, (ii) accruing loans that are 90 days or more past due and (iii)
restructured loans. Non-performing assets are composed of non-performing
loans and foreclosed real estate (assets acquired in foreclosure).
(2) Includes loans held for sale.
</FN>
</TABLE>
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 December 31, 1998, all
identified potential problem loans are included in the preceding table.
The following summary shows the impact on interest income of
non-performing loans for the periods indicated:
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income that would have been recorded
had the loans been in accordance with
their original terms ................................. $79,000 $279,000 $135,100 $48,000 $26,000
Interest income included in net income ................. 55,000 0 60,000 0 75,000
</TABLE>
At December 31, 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 $71.2 million, which
represented 23.1% of gross loans receivable. Loan concentrations are considered
to exist when there are amounts loaned to a multiple number of borrowers engaged
in similar activities that would cause them to be similarly impacted by economic
or other conditions.
Foreclosed real estate is initially recorded at fair value, net of
estimated selling costs at the date of foreclosure, thereby establishing a new
carrying basis. After foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of cost or fair value, less
estimated costs to sell. Revenues and expenses from operations and changes in
the valuation allowance are included in other expenses.
The Bank had no credit exposure to "highly leveraged transactions" at
December 31, 1998, as defined by the FRB.
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 25
<PAGE>
Allowance for Loan Losses
A detailed analysis of the Company's allowance for loan losses for the
years ended December 31, 1998, 1997, 1996, 1995 , and 1994 is as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------------------------
(Dollars in thousands)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of period .................... $ 2,028 $ 2,092 $ 680 $ 650 $ 460
Charge-offs:
Commercial ..................................... 76 383 293 162 136
Real estate .................................... 0 67 0 50 0
Consumer ....................................... 34 31 98 0 8
------- ------- ----- ----- -----
Total charge-offs ........................... 110 481 391 212 144
------- ------- ----- ----- -----
Recoveries:
Commercial ..................................... 13 18 101 16 6
Real estate .................................... 0 67 0 2 0
Consumer ....................................... 94 12 19 1 5
------- ------- ----- ----- -----
Total recoveries ............................ 107 97 120 19 11
------- ------- ----- ----- -----
Net charge-offs ................................... 3 384 271 193 133
------- ------- ----- ----- -----
Acquisition of ExecuFirst ......................... 0 0 1,528 0 0
Provision for loan losses ......................... 370 320 155 223 323
------- ------- ----- ----- -----
Balance at end of period ....................... $ 2,395 $ 2,028 $ 2,092 $ 680 $ 650
======= ======= ======= ===== =====
Average loans outstanding(1) ................... $248,479 $183,246 $132,294 $ 78,489 $ 69,838
As a percent of average loans(1):
Net charge-offs ................................ 0.00% 0.21% 0.20% 0.25% 0.19%
Provision for loan losses ...................... 0.15 0.17 0.12 0.28 0.46
Allowance for loan losses ...................... 0.96 1.11 1.58 0.87 0.93
Allowance for possible loan losses to:
Total loans, net of unearned income(2) ......... 0.77% 0.96% 1.22% 0.79% 0.90%
Total non-performing loans ..................... 213.27% 106.01% 109.02% 126.63% 60.52%
<FN>
_______________
(1) Includes non-accruing loans.
(2) Includes loans held for sale.
</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 for known and inherent losses. The Company's Board of Directors
periodically reviews the status of all non-accrual and impaired loans and loans
criticized by the Bank's regulators or internal loan review officer, who reviews
both the loan portfolio and the overall adequacy of the allowance for loan loss.
During the review of the allowance for loan losses, the Board of Directors
considers specific loans, pools of similar loans, historical charge-off
activity, and a reserve allocation to provide for imperfections in the
methodology used by management in determining the loan loss reserve
requirements. The sum of these components is compared to the loan loss reserve
balance. Any additions deemed necessary to the loan loss reserve balance are
charged to operating expenses.
The 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 findings of the loan review program on a monthly basis.
Based on the recommendations of this program, past performance of the Bank's
loan portfolio and general economic conditions, management believes that the
reserve for loan losses is reasonable and would be adequate to absorb known and
inherent losses.
- --------------------------------------------------------------------------------
26 Republic First Bancorp, Inc.
<PAGE>
Determining the appropriate level of the allowance for loan losses at
any given date is difficult, particularly in a continually changing economy. In
management's opinion, the allowance for loan losses was adequate at December 31,
1998. However, there can be no assurance that, if asset quality deteriorates in
future periods, additions to the allowance for loan losses will not be required.
The Bank's management is unable to determine in what loan category
future charge-offs and recoveries may occur. The following schedule sets forth
the allocation of the allowance for loan losses among various categories. At
December 31, 1998, approximately 90.7% of the allowance for loan losses is
allocated to protect the Bank against known and inherent losses. The allocation
is based upon historical experience. The entire allowance for loan losses is
available to absorb loan losses in any loan category.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------------------------------
(Dollars in thousands)
1998 1997 1996 1995 1994
------------------- ------------------ ------------------- ------------------ ----------------
Percent Percent Percent Percent Percent
Of Loans Of Loans Of Loans Of Loans Of Loans
In Each In Each In Each In Each In Each
Category to Category to Category to Category to Category to
Amount Loans(1) Amount Loans(1) Amount Loans(1) Amount Loans(1) Amount Loans(1)
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allocation of allowance
for loan losses:
Commercial (2).......... $1,638 56.33% $1,595 61.42% $1,573 62.19% $161 67.01% $146 69.93%
Residential real
estate ................ 391 43.07 41 36.96 21 35.59 40 31.19 44 28.43
Consumer and other ..... 71 0.60 58 1.62 90 2.22 9 1.80 8 1.64
Unallocated ............ 295 334 408 470 452
------ ------ ------ ---- ----
Total ............... $2,395 $2,028 $2,092 $680 $650
====== ====== ====== ==== ====
<FN>
___________
(1) Gross loans net of unearned income and allowance for loan loss.
(2) Includes loans held for sale.
</FN>
</TABLE>
The unallocated allowance decreased $39,000, or 11.7%, to $295,000 at
December 31, 1998 from $334,000 at December 31, 1997. Management determined a
lower level of unallocated allowance at December 31, 1998 was required primarily
as the result of the decline in non-performing loans.
The recorded investment in loans for which impairment has been
recognized in accordance with SFAS 114 totaled $1,002,000 and $1,800,000 at
December 31, 1998 and 1997 respectively, of which $576,000, $764,000 and
$845,000, respectively, related to loans with no valuation allowance because the
loans have been partially written down through charge-offs. Loans with valuation
allowances at December 31, 1998, 1997 and 1996 were $426,000, $1,152,000 and
1,047,000, respectively, and the amount of such valuation allowance was
$143,000, $231,000 and $118,000, respectively. For the years ended December 31,
1998 1997 and 1996, the average recorded investment in impaired loans was
approximately $1,441,000, $1,809,000, and $1,573,000 respectively. During 1998
and 1996, the Bank recognized interest income of $55,000 on impaired loans. The
Bank did not recognize any interest on impaired loans in 1997 and 1996.
The Bank had delinquent loans as follows: (i) 30 to 59 days past due,
at December 31, 1998 and 1997, in the aggregate principal amount of $1,297,000
and $2,694,000 respectively; and (ii) 60 to 89 days past due, at December 31,
1998 and 1997 in the aggregate principal amount of $386,000 and $340,000
respectively.
In addition, the Bank has classified certain loans as substandard and
doubtful, in accordance with definitions used by banking regulatory agencies. At
December 31, 1998 and 1997, substandard loans totaled approximately $1,382,000
and $2,402,000 respectively; and doubtful loans totaled approximately $0 and
$16,000 respectively.
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 27
<PAGE>
The following table is an analysis of the change in Other Real Estate
Owned for the years ended December 31, 1998 and 1997.
1998 1997
----------- ----------
Balance at January 1, .......... $ 1,944,000 $ 295,000
Additions, net ................. 718,000 1,649,000
Sales .......................... (1,944,000) 0
----------- ----------
Balance at December 31, ........ $ 718,000 $1,944,000
=========== ==========
Deposit Structure
Of the total daily average deposits of approximately $278.0 million
held by the Bank during the year ended December 31, 1998, approximately $31.3
million, or 11.3%, represented non-interest bearing deposits, compared to
approximately $25.6 million, or 10.5%, of approximately $243.0 million total
daily average deposits during 1997. Total deposits at December 31, 1998
consisted of approximately $32.5 million in non-interest-bearing demand
deposits, approximately $20.2 million in interest-bearing demand deposits,
approximately $35.3 million in savings deposits and money market accounts,
approximately $169.8 million in time deposits under $100,000, and approximately
$25.4 million in time deposits greater than $100,000. In general, the Bank pays
higher interest rates on time deposits over $100,000 in principal amount. Due to
the nature of time deposits and changes in the interest rate market generally,
it should be expected that the Bank's deposit liabilities may fluctuate from
period-to-period.
The following table is a distribution of the average balances of the
Bank's deposits and the average rates paid thereon, for the twelve month periods
ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------------------
(Dollars in thousands)
1998 1997 1996
------------------- ------------------- -------------------
Average Average Average
Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Money market and savings deposits ....... $ 41,157 2.85% $ 34,141 2.88% $ 21,594 3.12%
Time deposits ........................... 191,829 6.09 174,886 5.92 148,834 5.82
Demand deposits, interest-bearing ....... 13,727 2.50 8,428 2.50 5,623 2.49
-------- ---- --------- ---- -------- ----
Total interest-bearing deposits ......... $246,713 5.35% $217,455 5.31% $176,051 5.38%
======== ==== ========= ==== ======== ====
</TABLE>
The following is a breakdown, by contractual maturities, of the
Company's time certificates of deposit issued in denominations of $100,000 or
more as of December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
At December 31,
Certificates of $100,000 or More
------------------------------------------
(Dollars in thousands)
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Maturing in:
Three months or less .................................. $14,229 $ 9,896 $10,654
Over three months through six months .................. 7,756 8,726 4,381
Over six months through twelve months ................. 3,365 7,233 6,120
Over twelve months .................................... 0 2,719 8,072
------- ------- -------
Total .............................................. $25,350 $28,574 $29,227
======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
28 Republic First Bancorp, Inc.
<PAGE>
The following is a breakdown, by contractual maturities of the
Company's time certificate of deposits for the years 1998 through 2002 and
beyond.
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Totals
---- ---- ---- ---- ---- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Time certificates of deposit ........... $148,303 $39,424 $2,885 $2,263 $2,267 $195,142
======== ======= ====== ====== ====== ========
</TABLE>
Commitments
In the normal course of its business, the Bank 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
requirements. 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 December 31, 1998 and 1997, firm loan commitments approximated
$20.1 million and $17.3 million respectively and commitments of standby letters
of credit approximated $1,912,000 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
The following section contains forward-looking statements which
involve risks and uncertainties. The actual impact on the Company of the year
2000 issue could materially differ from that which is anticipated in the forward
looking statements as a result of certain factors identified below.
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.
The Company is subject to various regulations and oversight by
regulatory authorities, including the Federal Reserve Bank, the Pennsylvania
Department of Banking and the Federal Deposit Insurance Corporation (FDIC).
These regulatory agencies have coordinated various regulatory examinations
focusing on the year 2000 issues, and report their findings to the Company's
management and the Board of Directors.
Company's State of Readiness
The Company's management is committed to ensuring that the Company's
daily operations suffer little impact as a result of the date change at the end
of the century. The Company is following the Federal Financial Institutions
Examination Council's (FFIEC), Interagency Guidelines. The guidelines identify a
process in which year 2000 issues are addressed, such as awareness, assessment,
remediation, testing and implementation.
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 29
<PAGE>
The Company has identified key areas for which management is focusing
its efforts. These areas include data center, desktop environment and networks,
branch environment and services, financial applications, facilities, legal,
insurance, and outside services. For each of these areas identified, the Company
is employing a process which will compile inventories of all identified areas
which could be affected by the year 2000, including information technology
("IT") systems and non-information technology systems such as phone systems, fax
machines and alarm systems. A testing schedule is defined and the identified
systems are tested, and results evaluated. A remedy process is then defined, and
implemented and testing is performed again. The process is repeated until
repairs are complete.
All identified critical applications have been tested. Non-critical
testing validation and repair is scheduled to be performed and completed during
the first quarter of 1999.
The Company has relationships with third parties including its
borrowers, which are also subject to the year 2000 uncertainties. Management has
identified relationships which are considered material, and would have an
adverse effect on the Bank and the Company if such third parties were not year
2000 compliant. Management has solicited year 2000 certifications from
significant vendors, and also completed its own year 2000 due diligence. No
borrower or third party vendor has given the Company a response that indicates
that they will not be year 2000 compliant. It is anticipated that all identified
third party vendors will be compliant, however, no assurance can be given with
regard to their compliance with year 2000. Also, no assurances can be given that
a third party vendor or borrower will not have a material effect on the Company
or Bank, due to their non-compliance with the year 2000 issue.
While no assurance can be given to actual system operations upon the
turn of the century, based upon information currently known to it, and upon
consideration of its testing efforts to date, management believes that in the
worse case scenario, the Company will suffer only a slight interruption of
business, as a result of minor application failures of its IT and non-IT systems
and software as a result of the year 2000. However, if the appropriate
modifications are not made, or are not completed on a timely basis, the year
2000 issue could have a material impact on the operations of the Bank and the
Company.
Costs of Year 2000
The Company has spent approximately $150,000 and estimates that the
future dollar cost to the Company to be in compliance with the year 2000 issue
will range from $50,000 to $75,000 by December 31, 1999. These costs include new
equipment and software purchases, in addition to testing applications prior to
the year 2000.
Risks of the Company's Year 2000 Issues
Management believes that it has addressed the major areas with respect
to Year 2000 compliance. Management also believes its progress of remedying year
2000 issues is being completed according to plan. However, there can be no
assurances that the Company will not be impacted by Year 2000 complications.
Contingency Plans
The Company has prepared or is in the process of preparing contingency
plans for each major area of business identified above. The plans will utilize
in part alternative procedures, other third party vendors and manual
intervention, to compensate for the loss of certain computer system. All such
plans will be completed by the second quarter 1999.
- --------------------------------------------------------------------------------
30 Republic First Bancorp, Inc.
<PAGE>
Recent Accounting Pronouncements:
Comprehensive Income
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income" ("Statement No. 130"). This Statement establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. Statement No.
130 requires that all items that are required to be recognized as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This Statement does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement. Statement No. 130 is effective for fiscal
years beginning after December 15, 1997. The Company adopted Statement No. 130
on January 1, 1998 and has presented the required disclosures in the Company's
financial statements.
Operating Segment Disclosure
In June 1997, the FASB issued Statement No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("Statement No. 131").
Statement No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Statement No. 131 is effective for periods
beginning after December 15, 1997. The Company adopted Statement No. 131 on
January 1, 1998 and has presented the required disclosures in the Company's
financial statements.
Employers' Disclosures about Pension and Other Postretirement Benefits
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 13 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 unless 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 has
adopted this statement effective January 1, 1998 and has presented the required
disclosures in their financial statements.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("Statement No. 133"). 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 certain foreign currency exposures. 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. Prospective application of Statement No. 133 is required
for all fiscal years beginning after June 15, 1999, however earlier application
is permitted. Currently, the Company does not use any derivative instruments,
nor does it engage in any hedging activities. The Company adopted this statement
effective July 1, 1998, which permitted the Company to transfer certain
securities originally designated as held-to-maturity, to available-for-sale and
trading. A portion of these securities were subsequently sold during the third
quarter of 1998. In accordance
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 31
<PAGE>
with Statement No. 133, the Company recorded the gross gain of $628,000 as a
cumulative change in accounting principle, net of a $207,000 provision for
income tax.
Reporting on the Costs of Start-Up Activities
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up Activities
("SOP 98-5"). This statement requires costs of startup activities, including
organization costs, to be expensed as incurred. SOP 98-5 is effective for the
Company's financial statements for fiscal years beginning after December 15,
1998. As of December 31, 1998 the Company had deferred costs relating to
start-up activities of $94,000, remaining in the balance of other assets in the
Consolidated Balance Sheets. The Company adopted SOP 98-5 effective January 1,
1999, and accordingly, expensed $94,000 of costs of start-up activities in the
first quarter of 1999.
Accounting for Mortgage-backed Securities Retained after the Securitization
of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise
In October 1998, the FASB issued Statement No. 134, "Accounting for
Mortgage-backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise". This statement requires that
after the securitization of a mortgage loan held for sale, and equity engaged in
mortgage banking activities classify any retained mortgage-backed securities
based on the ability and intent to sell or hold those investments, except that a
mortgage banking enterprise must classify as trading any retained
mortgage-backed securities that is commits to sell before or during the
securitization process. This Statement is effective for the first fiscal quarter
beginning after December 15, 1998 with earlier adoption permitted. This
Statement provides a one-time opportunity for an enterprise to reclassify, based
on the ability and intent on the date of adoption of this Statement,
mortgage-backed securities and other beneficial interests retained after
securitization of mortgage loans held for sale from the trading category, except
for those with sales commitments in place. The Company has not yet determined
the impact, if any, of this Statement, including, if applicable, its provision
for the potential reclassifications of certain investment securities, on
earnings, financial condition or equity.
The following tables are summary unaudited income statement
information for each of the quarters ended during 1998 and 1997.
- --------------------------------------------------------------------------------
32 Republic First Bancorp, Inc.
<PAGE>
<TABLE>
<CAPTION>
Summary Selected Consolidated Financial Data
For the Quarter Ended, 1998
-------------------------------------------------------------
Dollars in thousands, except per share data Fourth Third Second First
------ ----- ------ -----
<S> <C> <C> <C> <C>
Income Statement Data:
Total interest income .............................. $ 8,723 $ 8,814 $ 8,791 $ 8,076
Total interest expense ............................. 5,456 5,419 5,401 4,569
--------- --------- --------- ---------
Net interest income ................................ 3,267 3,395 3,390 3,507
Provision for loan losses .......................... 80 80 80 130
Net non-interest income/(expense) .................. (2,554) (3,675) (2,110) 182
Federal income tax expense/(benefit) ............... 199 (119) 396 1,179
Net income/(loss) before a cumulative change in
in accounting principle .......................... 434 (241) 804 2,380
--------- --------- --------- ---------
Cumulative effect of a change in accounting
principle (net of tax) ........................... 0 421 0 0
--------- --------- --------- ---------
Net income ......................................... $ 434 $ 180 $ 804 $ 2,380
======== ======== ======== =========
Per Share Data:
Basic:
Income/(loss) before cumulative change in
accounting principle ............................. $ 0.07 $ (0.04) $ 0.14 $ 0.39
Cumulative effect of change in accounting
principle ........................................ 0.00 0.07 0.00 0.00
--------- --------- --------- --------
Net income ......................................... $ 0.07 $ 0.03 $ 0.14 $ 0.39
========= ========= ========= ========
Diluted:
Income/(loss) before cumulative change in
accounting principle ............................. $ 0.07 $ (0.04) $ 0.13 $ 0.37
Cumulative effect of change in accounting
principle ........................................ 0.00 0.07 0.00 0.00
--------- --------- --------- --------
Net income ......................................... $ 0.07 $ 0.03 $ 0.13 $ 0.37
========= ========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
For the Quarter Ended, 1997
-------------------------------------------------------------
Fourth Third Second First
------ ----- ------ -----
<S> <C> <C> <C> <C>
Income Statement Data:
Total interest income .............................. $ 6,725 $ 5,939 $ 5,432 $ 5,437
Total interest expense ............................. 3,853 3,330 2,883 2,846
------- ------- ------- -------
Net interest income ................................ 2,872 2,609 2,549 2,591
Provision for loan losses .......................... 180 30 80 30
Net non-interest income/(expense) .................. (1,899) (1,780) (1,790) 302
Federal income taxes ............................... 246 274 204 859
------- ------- ------- -------
Net income ......................................... $ 547 $ 525 $ 475 $ 2,004
======= ======= ======= =======
Per Share Data:
Basic earnings per share ........................... $ 0.10 $ 0.12 $ 0.11 $ 0.45
------- ------- ------- -------
Diluted earnings per share ......................... $ 0.10 $ 0.11 $ 0.10 $ 0.41
------- ------- ------- -------
</TABLE>
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 33
<PAGE>
Item 8: Financial Statements
The financial statements of the Company begin on Page 40.
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
PART III
Item 10: Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The information required by this Item is incorporated by reference
from the definitive proxy materials of the Company to be filed with the
Commission in connection with the Company's 1999 annual meeting of shareholders
scheduled for April 27, 1999.
Item 11: Executive Compensation
The following table shows the annul compensation of the Chief
Executive Officer of the Company and the Bank and the Bank's most highly
compensated executive officers for the fiscal years 1998, 1997 and 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Restricted Securities
Other Stock Underlying LTIP All Other
Annual Awards Options Payouts Annual
Name & Principal Position Year Salary Bonus Comp Options ($) SARs (#) ($) Comp
- ------------------------- ---- ------ ----- ---- ------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rolf A. Stensrud 1998 $200,000 $75,000 $ 0 0 $ 0 0 $8,950
Former Chief Executive Officer 1997 175,000 50,000 0 0 0 0 8,950(1)
and President of the Company 1996 175,000 50,000 0 0 0 0 8,950(1)
and the Bank
Kevin J. Gallagher 1998 $125,000 $49,950 $ 0 6,600 $ 0 0
Executive Vice President and 1997 112,500 35,000 0 0 0 0
Chief Lending Officer of the 1996 105,000 31,069 0 7,920 0 0
Company and the Bank
Jerome D. McTiernan 1998 $110,000 $15,000 $ 0 2,640 $ 0 0
Executive Vice President of 1997 100,000 10,000 0 0 0 0
the Company and the Bank 1996 95,000 10,000 0 0 0 0
George S. Rapp 1998 $125,000 $30,000 $ 0 6,600 $ 0 0
Executive Vice President and 1997 112,500 25,000 0 0 0 0
Chief Financial Officer of the 1996 105,000 15,000 0 7,920 0 0
Company and the Bank
Jere A. Young 1998 $ 68,750 $ 0 $ 0 41,250 $ 0 0
Chief Executive Officer and 1997 N/A N/A 0 N/A N/A N/A
President of the Company 1996 N/A N/A 0 N/A N/A N/A
Robert Mazzei 1998 $126,800 $34,245 $ 0 0 $ 0 0
Vice Chairman of the Bank 1997 120,750 8,087 0 0 0 0
1996 115,000 0 0 0 0 0
<FN>
_____________
(1) Represents premiums paid by the Bank for life and disability insurance for
the benefit of the executive.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
34 Republic First Bancorp, Inc.
<PAGE>
Employment Agreements
Rolf A. Stensrud former President and Chief Executive Officer of the
Company and the Bank, under the terms and conditions of his severance agreement
with the Company and the Bank amended February 1998 (the "Stensrud Agreement"),
is eligible to receive severance of $250,000 over a 12 month period, paid out in
monthly installments during 1999. Effective February 25, 1998, the terms of his
contract were modified to include an increase in base salary, a more favorable
bonus criteria and a change of the expiration date to December 31, 1998. Under
the Agreement, Mr. Stensrud received an annual base salary of $200,000 per year.
In addition, Mr. Stensrud was entitled to: (i) reimbursement for entertainment
and travel expenses in connection with his duties, including expenses for one
lunch club and annual dues for one golf club; (ii) participate in any bonus,
stock purchase or grant, stock option, deferred compensation or other
compensation plans maintained by the Bank or the Company for its senior
executives; (iii) receive such basic medical, hospitalization and major medical
insurance coverage for himself and his dependents as the Bank or the Company
maintains for its executives; and (iv) use of an automobile provided by the
Bank. Under the Stensrud Agreement, if Mr. Stensrud's employment were terminated
for reasons other than for engaging in conduct detrimental to the Bank, Mr.
Stensrud was entitled to receive his salary and benefits for certain specified
periods of time. Mr. Stensrud's agreement was not renewed at the expiration date
of December 31, 1998. The Stensrud Agreement, as modified, provides for the
non-disclosure by Mr. Stensrud of confidential information acquired by him in
the context of his employment.
George S. Rapp currently serves as Executive Vice President and Chief
Financial and Administrative Officer of the Company and the Bank under the terms
of an employment agreement (the "Rapp Agreement"). The Rapp Agreement provides
that Mr. Rapp is employed as Executive Vice President and Chief Financial and
Administrative Officer of the Company and the Bank at an annual base salary of
$125,000, which may not be terminated by the Company and the Bank prior to March
31, 1998. Thereafter, the Company and the Bank may terminate the Rapp Agreement
on one year's notice, and Mr. Rapp may terminate this Agreement upon 30 days'
notice. Mr. Rapp is also eligible to receive an annual bonus at the discretion
of the Board of Directors and to participate in any executive or employee stock
option, bonus or other compensation plan and all other employee benefit plans.
The Company provides Mr. Rapp with an automobile allowance and the reimbursement
of certain expenses related to the use of such automobile in connection with his
employment.
Kevin J. Gallagher currently serves as Executive Vice President and
Chief Lending Officer of the Company and the Bank under the terms of an
employment agreement (the "Gallagher Agreement"). The Gallagher Agreement
provides that Mr. Gallagher is employed as Executive Vice President and Chief
Lending Officer of the Company and the Bank at an annual base salary of
$125,000, which may not be terminated by the Company and the Bank prior to March
31, 1998. Thereafter, the Company and the Bank may terminate the Gallagher
Agreement on one year's notice, and Mr. Gallagher may terminate this Agreement
upon 30 days' notice. Mr. Gallagher is also eligible to receive an annual bonus
at the discretion of the Board of Directors and to participate in any executive
or employee stock option, bonus or other compensation plan and all other
employee benefit plans. The Company provides Mr. Gallagher with an automobile
allowance and the reimbursement of certain expenses related to the use of such
automobile in connection with his employment.
Jerome D. McTiernan currently serves as Executive Vice President of
the Bank under the terms of an employment agreement (the "McTiernan Agreement").
The McTiernan Agreement provides that Mr. McTiernan is employed as Executive
Vice President at an annual base salary of $110,000, until terminated by the
Bank or Mr. McTiernan. The Agreement may be terminated by the Bank on twelve
months' written notice or by Mr. McTiernan on 30 days' notice. Mr. McTiernan is
also eligible to receive an annual bonus at the discretion of the Board of
Directors and to participate in the Company's Stock Option Plan and all other
employee benefit plans. The Company maintains a life insurance policy for the
benefit of Mr. McTiernan's designated beneficiaries and provides him with use of
an automobile and the reimbursement of certain expenses related to the use of
such automobile in connection with his employment.
Jere A. Young currently serves as President and Chief Executive
Officer of the Company under the terms of an employment agreement (the "Young
Agreement"). The Young Agreement provides that Mr. Young is employed as
President and Chief Executive Officer at an annual base salary of $125,000,
until terminated by the Company or Mr. Young. The Agreement may be terminated by
the Company or by Mr. Young on six months' written notice or by
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 35
<PAGE>
Mr. Young on 30 days' notice. In addition, Mr. Young is entitled to: (i)
reimbursement for entertainment and travel expenses in connection with his
duties, (ii) participate in any bonus, stock purchase or grant, stock option,
deferred compensation or other compensation plans maintained by the Company or
for its senior executives; (iii) receive such basic medical, hospitalization and
major medical insurance coverage for himself and his dependents as the Bank or
the Company maintains for its executives; and (iv) a monthly automobile
allowance. Mr. Young is also eligible to receive an annual bonus at the
discretion of the Board of Directors. The Company maintains a life insurance
policy for the benefit of Mr. Young's designated beneficiaries. If Mr. Young's
employment is terminated for reasons other than for engaging in conduct
detrimental to the Bank, Mr. Young will be entitled to receive his annual salary
for six months and benefits for certain specified periods of time. The Young
Agreement, as modified, provides for the non-disclosure by Mr. Young of
confidential information acquired by him in the context of his employment
Harry D. Madonna currently serves as Chairman of the Board and the
Executive Committee of both the Company and the Bank. Under the terms of an
Agreement, as amended December 22, 1998, (the "Madonna Agreement"). The Madonna
Agreement provides that Mr. Madonna will serve as the Chairman of the Board and
the Executive Committee of both the Company and the Bank, respectively, for a
term equal to the lesser of three (3) years or his current term as a director of
the Company, or until terminated by the Company or Mr. Madonna. In addition,
under the terms of the Madonna Agreement, Mr. Madonna is entitled to
reimbursement of certain fees and expenses relating to the discharge of his
responsibilities as Chairman of the Company and to participate in any bonus,
stock option, compensation or other benefit plans now or hereafter available for
any other member of the Board or previously granted to Mr. Madonna. Upon the
occurrence of certain fundamental changes in the Company, as set forth in the
Madonna Agreement, Mr. Madonna will have the right for a period of ninety (90)
days following the date the fundamental changes occur, to terminate the Madonna
Agreement. Such termination will be effective ten (10) days after such
notification, at which time Mr. Madonna will be entitled to receive a payment of
$250,000, to be paid within fifteen (15) days of such notification, together
with the transfer of the automobile then made available to Mr. Madonna, free of
all liabilities, liens and encumbrances. In addition, all stock options
previously granted to Mr. Madonna will become fully vested on the date of such
termination. The Madonna Agreement provides for the non-disclosure by Mr.
Madonna of confidential information acquired by him in the context of his
services to the Company and the Bank.
- --------------------------------------------------------------------------------
36 Republic First Bancorp, Inc.
<PAGE>
Item 12: Security Ownership of Certain Beneficial Owners and Management
AGGREGATED OPTION EXERCISES FOR THE YEAR ENDED DECEMBER 31, 1998
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
(d) # of Securities
Underlying Unexercised
(b) Shares Acquired (c) Value Options at FYI-End (#)
(a) Name on Exercise (#) Realized ($) Exercisable / Unexercisable
--- ---- --------------- ------------ ---------------------------
<S> <C> <C> <C> <C>
Daniel Berman 30,316 80,890 0 1,320
</TABLE>
The Company's director compensation plan throughout 1998 provided that
each director would receive $500 for each Board meeting and $250 for each
Committee meeting attended. Pursuant to such plan, a total of $ 101,238 in
director fees was accrued and a total of $90,738 was paid for services rendered
during 1998; no director received more than $14,850.
Other information required by this Item is incorporated by reference
from the definitive proxy materials of the Company to be filed with the
Securities and Exchange Commission in connection with the Company's 1999 annual
meeting of shareholders scheduled for April 27, 1999.
Item 13: Certain Relationships and Related Transactions
Certain of the directors of the Company and/or their affiliates have
loans outstanding from the Bank. All such loans were made in the ordinary course
of the Bank's business; were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons; and, in the opinion of management, do not
involve more than the normal risk of collectibility or present other unfavorable
features.
Item 14: Exhibits and Reports on Form 8-K
A. Financial Statements Page .......................................40
(1) Report of Independent Accountants.
(2) Consolidated Balance Sheets as of December 31, 1998 and
December 31, 1997.
(3) Consolidated Statements of Income for the years ended
December 31, 1998, December 31, 1997 and December 31, 1996.
(4) Consolidated Statements of Cash Flows for the years ended
December 31, 1998, December 31, 1997 and December 31, 1996.
(5) Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1998, December 31, 1997 and
December 31, 1996.
(6) Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 37
<PAGE>
B. Exhibits
The following Exhibits are filed as part of this report. (Exhibit
numbers correspond to the exhibits required by Item 601 of Regulation S-K for an
annual report on Form 10-K)
Exhibit No.
3(a) Amended and Restated Articles of Incorporation of the Company,
as amended.*
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.
10(a) Amended and Restated Employment Agreement between the Company
and Zvi H. Muscal.*
10(b) Agreement and Plan of Merger by and between the Company and
Republic Bancorporation, Inc. dated November 17, 1997.*
10(c) Employment agreement between the Company and Jere A. Young.
10(d) Employment agreement between the Company and Robert D. Davis.
10(e) Agreement between the Company and Harry D. Madonna.
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.
First Republic Bank (the "Bank"), a wholly-owned subsidiary,
commenced operations on November 3, 1988. The Bank is a
commercial bank chartered pursuant to the laws of the
Commonwealth of Pennsylvania. Republic First Bank of Delaware
(the "Delaware Bank") is also a wholly-owned subsidiary of the
Company, and is expected to commence operations in May 1999. The
Delaware Bank is a commercial bank chartered pursuant to the
laws of the State of Delaware. The Bank and the Delaware Bank
are both members of the Federal Reserve System and their primary
federal regulators are the Federal Reserve Board of Governors.
23.1 Consent of Independent Certified Public Accountants.
(a) Consent of KPMG LLP
(b) Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule.
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 thereto.
__________________
* Incorporated by reference from the Registration Statement on Form S-4 of
the Company, as amended, Registration No. 333-673 filed April 29, 1996.
Reports on Form 8-K
Form 8-K was filed on March 3, 1999 announcing a 10% stock dividend
for shareholders of record on March 2, 1999 for distribution on March 18, 1999.
Form 8-K was filed on March 3, 1999 announcing the hiring of Robert
Davis as the President and Chief Executive Officer of the Bank, effective
February 16, 1999.
- --------------------------------------------------------------------------------
38 Republic First Bancorp, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Philadelphia, Commonwealth of Pennsylvania.
REPUBLIC FIRST BANCORP, INC. [registrant]
Date: March 22, 1999 By: /s/ Jere A. Young
-------------------------------
Jere A. Young
President and
Chief Executive Officer
Date: March 22, 1999 By: /s/ George S. Rapp
--------------------------------
George S. Rapp,
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Date: March 22, 1999
/s/ Eustace W. Mita /s/ Harry D. Madonna, Esq.
-------------------------------- ------------------------------
Eustace W. Mita, Director Harry D. Madonna, Esq.,
Chairman of the Board
/s/ Harris Wildstein, Esq. /s/ Kenneth Adelberg
-------------------------------- ------------------------------
Harris Wildstein, Esq., Director Kenneth Adelberg, Director
/s/ Neal I. Rodin /s/ William Batoff
-------------------------------- ------------------------------
Neal I. Rodin, Director William Batoff, Director
/s/ James E. Schleif /s/ Daniel S. Berman
-------------------------------- ------------------------------
James E. Schleif, Director Daniel S. Berman, Director
/s/ Steven J. Shotz /s/ Michael J. Bradley
-------------------------------- ------------------------------
Steven J. Shotz, Director Michael J. Bradley, Director
and Vice Chairman of the Board
/s/ Sheldon E. Goldberg /s/ John F. D'Aprix
-------------------------------- ------------------------------
Sheldon E. Goldberg, Director John F. D'Aprix, Director
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 39
<PAGE>
Item 8: Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF
REPUBLIC FIRST BANCORP, INC.
Page
Report of Independent Accountants ......................................41 - 42
Consolidated Balance Sheets as of December 31, 1998,
and December 31, 1997 ..................................................43
Consolidated Statements of Income
for the years ended December 31, 1998, December 31, 1997
and December 31, 1996 ..................................................44
Consolidated Statements of Cash Flows
for the years ended December 31, 1998, December 31, 1997
and December 31, 1996 ..................................................45
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1998, December 31, 1997
and December 31, 1996 ..................................................47
Notes to Consolidated Financial Statements ..................................48
- --------------------------------------------------------------------------------
40 Republic First Bancorp, Inc.
<PAGE>
PRICEWATERHOUSECOOPERS
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, PA 19103-2962
Telephone (215) 963 8000
Facsimile (215) 963 8700
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of First Republic Bancorp, Inc.
We have audited the accompanying consolidated statements of income, changes in
shareholders' equity and comprehensive income and cash flows for the year ended
December 31, 1996 of First Republic Bancorp, Inc. and Subsidiary. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to the above
present fairly, in all materials respects, the consolidated results of First
Republic Bancorp, Inc. and Subsidiary's operations and their cash flows for the
year ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
January 30, 1997 (except for the information in Note 2
related to the 20% stock dividend paid on April 15, 1997,
dated March 4, 1997; the information in Note 2 related to
earnings per share, dated January 27, 1998; the information
in Note 2 related to the 20% stock dividend paid on March
27, 1998, dated February 19, 1998; the information in Note
17 related to comprehensive income, the information in Note
18 related to segment reporting and the information in Note
19 related to the 10% stock dividend, all of which is dated
March 8, 1999)
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 41
<PAGE>
KPMG
1600 Market Street
Philadelphia, PA 19103-7212
Independent Auditors' Report
The Board of Directors
Republic First Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of Republic First
Bancorp, Inc. and subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of income, changes in shareholders' equity and
comprehensive income, and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express on opinion on the 1998 and 1997 consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Republic First
Bancorp, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
As more fully described in Note 3 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, on July 1, 1998.
/s/ KPMG LLP
Philadelphia, Pennsylvania
January 26, 1999, except as to note 19,
which is as of February 18, 1999
- --------------------------------------------------------------------------------
42 Republic First Bancorp, Inc.
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(dollars in thousands)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS:
Cash and due from banks ............................................. $ 18,169 $ 5,850
Interest-- bearing deposits with banks .............................. 126 476
--------- ---------
Total cash and cash equivalents ................................. 18,295 6,326
Securities available for sale, at fair value ........................ 160,554 2,950
Securities held to maturity, at amortized cost
(fair value of $16,982 and $145,908, respectively) ................ 16,998 145,030
Loans receivable, (net of the allowance for loan losses of $2,395 and
$2,028, respectively) ............................................. 299,564 203,309
Premises and equipment, net ......................................... 3,990 2,534
Loans held for sale ................................................. 7,204 6,690
Real estate owned, net .............................................. 718 1,944
Accrued income and other assets ..................................... 9,038 6,679
--------- ---------
Total Assets .................................................... $ 516,361 $ 375,462
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Deposits:
Demand-- non-interest-bearing ....................................... $ 32,537 $ 32,885
Demand-- interest-bearing ........................................... 20,155 8,587
Money market and savings ............................................ 35,250 26,341
Time ................................................................ 169,792 152,014
Time over $100,000 .................................................. 25,350 28,574
--------- ---------
Total Deposits .................................................. 283,084 248,401
Other borrowings .................................................... 188,009 85,912
Accrued expenses and other liabilities .............................. 8,646 6,527
--------- ---------
Total Liabilities ............................................... 479,739 340,840
--------- ---------
Commitments and contingencies (Note 11)
Shareholders' Equity:
Common stock, par value $.01 per share; 20,000,000 shares authorized;
shares issued and outstanding 5,883,188 and 6,067,068 as of
December 31, 1998 and 1997, respectively ....................... 59 61
Additional paid in capital .......................................... 26,510 26,358
Retained earnings ................................................... 11,996 8,198
Treasury stock at cost (219,604 shares at December 31, 1998) ........ (1,927) 0
Accumulated other comprehensive income .............................. (16) 5
--------- ---------
Total Shareholders' Equity ...................................... 36,622 34,622
--------- ---------
Total Liabilities and Shareholders' Equity ...................... $ 516,361 $ 375,462
========= =========
</TABLE>
(See notes to consolidated financial statements)
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 43
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1998, 1997 and 1996
(dollars in thousands, except for per share data)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans ........................................... $21,840 $16,869 $12,007
Interest on federal funds sold ....................................... 216 304 1,346
Interest on deposits in banks ........................................ 3 0 20
Interest on investments .............................................. 12,345 6,360 3,739
------- ------- -------
34,404 23,533 17,112
------- ------- -------
Interest expense:
Demand-- interest-bearing ............................................ 343 211 140
Money market and savings ............................................. 1,173 982 674
Time ................................................................. 10,165 8,708 7,069
Time over $100,000 ................................................... 1,522 1,641 1,594
Other borrowings ..................................................... 7,642 1,370 238
------- ------- -------
20,845 12,912 9,715
------- ------- -------
Net interest income ....................................................... 13,559 10,621 7,397
Provision for loan losses ................................................. 370 320 155
------- ------- -------
Net interest income after provision for loan losses ....................... 13,189 10,301 7,242
------- ------- -------
Non-interest income:
Service fees ......................................................... 238 220 170
Gain on securities sold .............................................. 188 0 0
Tax Refund Program revenue ........................................... 2,385 2,237 2,080
Other income ......................................................... 334 168 155
------- ------- -------
3,145 2,625 2,405
------- ------- -------
Non-interest expenses:
Salaries and employee benefits ....................................... 4,979 4,081 2,872
Occupancy expenses ................................................... 1,024 702 696
Equipment ............................................................ 480 513 205
Professional fees .................................................... 776 503 282
Loss on mortgage banking affiliate ................................... 1,617 0 0
Other operating expenses ............................................. 2,426 1,993 1,526
------- ------- -------
11,302 7,792 5,581
------- ------- -------
Income before income taxes ................................................ 5,032 5,134 4,066
Provision for income taxes ................................................ 1,655 1,583 1,353
------- ------- -------
Income before cumulative effect of a change in accounting principle ....... $ 3,377 $ 3,551 $ 2,713
Cumulative effect of a change in accounting principle (Note 3) ............ 421 0 0
------- ------- -------
Net income ................................................................ $ 3,798 $ 3,551 $ 2,713
======= ======= =======
Net income per share:
Basic:
Income before cumulative effect of a change in accounting principle $ 0.56 $ 0.75 $ 0.74
Cumulative effect of a change in accounting principle (Note 3) .......... 0.07 0.00 0.00
------- ------- -------
Net income ................................................................ $ 0.63 $ 0.75 $ 0.74
======= ======= =======
Diluted:
Income before cumulative effect of a change in accounting principle $0.52 $ 0.69 $ 0.70
Cumulative effect of a change in accounting principle (Note 3) .......... 0.07 0.00 0.00
------- ------- -------
Net income ................................................................ $ 0.59 $ 0.69 $ 0.70
======= ======= =======
</TABLE>
(See notes to consolidated financial statements)
- --------------------------------------------------------------------------------
44 Republic First Bancorp, Inc.
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
For the years ended December 31, 1998, 1997 and 1996
(dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 3,798 $ 3,551 $ 2,713
Adjustments to reconcile net income to net cash
Provided by operating activities:
Provision for possible loan losses .......................... 370 320 155
Depreciation and amortization ............................... 432 285 62
Proceeds from sale of trading securities .................... 46,108 0 0
Gain on sale of securities sold ............................. (816) 0 0
Amortization of securities .................................. 192 140 131
Increase in loans held for sale ............................. (7,204) (6,690) 0
Sales of loans held for sale ................................ 6,690 0 0
Realized gain on sale of real estate owned .................. 0 0 (18)
Loss on mortgage affiliate .................................. 1,617 0 0
Decrease (increase) in accrued income and other assets ...... (2,359) (762) 824
Increase (decrease) in accrued expenses and other liabilities 2,601 1,160 693
--------- --------- ---------
Net cash provided by (used in) operating activities ......... 51,429 (1,996) 4,560
--------- --------- ---------
Cash flows from investing activities:
Acquisition of ExecuFirst Bancorp, Inc. ........................ 0 0 11,952
Purchase of securities:
Available for sale .......................................... (112,097) 0 (1,000)
Held to maturity ............................................ (74,386) (101,385) (24,650)
Proceeds from maturities and calls of securities:
Available for sale .......................................... 0 0 1,500
Held to maturity ............................................ 56,192 14,334 5,500
Proceeds from sale of securities:
Available for sale .......................................... 25,402 0 0
Held to maturity ............................................ 0 0 0
Principal collected on MBS's and CMO's:
Available for sale .......................................... 19,732 2,950 691
Held to maturity ............................................ 10,083 16,619 6,517
Net increase in loans .......................................... (97,738) (34,170) (11,927)
Net increase in deferred fees .................................. 333 307 (10)
Net proceeds (investment from acquisition of)
from sale (purchase) of real estate owned ................... 1,585 (1,093) 86
Investment in mortgage affiliate ............................... (1,617) 0 0
Premises and equipment expenditures ............................ (1,888) (2,108) (556)
--------- --------- ---------
Net cash used in investing activities .......................... (174,399) (104,546) (11,897)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from exercise of stock options .................... 87 105 0
Net Proceeds from stock offering ............................... 0 12,593 0
Purchases of treasury stock .................................... (1,929) 0 0
Net increase (decrease) in demand, money market and savings .... 20,129 (1,799) 7,628
Net increase in time deposits .................................. 14,554 561 14,749
Redemption of subordinated debt ................................ 0 0 (3,400)
Net increase (decrease) in borrowed funds less than 90 days .... 297 37,187 0
Increase in borrowed funds greater than 90 days ................ 103,125 48,725 0
Repayment of borrowed funds .................................... (1,325) 0 0
--------- --------- ---------
Net cash provided by financing activities ...................... 134,938 97,372 18,977
--------- --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 45
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS (Continued)
For the years ended December 31, 1998, 1997 and 1996
(dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents ................. $ 11,968 $ (9,170) $ 11,640
Cash and cash equivalents, beginning of period ................... 6,326 15,496 3,856
Cash and cash equivalents, end of period ......................... 18,294 $ 6,326 15,496
Supplemental disclosures:
Interest paid ............................................... 12,342 12,393 8,409
Income taxes paid ........................................... 1,500 1,183 1,105
Non-cash investing and financing activities:
Acquisition of ExecuFirst Bancorp, Inc.:
FMV of assets acquired .................................. 0 0 (108,415)
FMV of liabilities assumed .............................. 0 0 113,315
Stock issued ............................................ 0 0 7,052
--------- --------- ---------
Total cash received, net of merger related costs ........ $ 0 $ 0 $ 11,952
--------- --------- ---------
Change in income tax payable due to exercise of stock options (107) 0 0
Change in unrealized gain on securities available for sale .. (25) 3 (25)
Change in deferred taxes due to change in unrealized gain
on securities available for sale ........................ 10 (1) 9
Transfer of securities from held to maturity to
available for sale and trading .......................... 136,143 0 0
Non-monetary transfers from loans to real estate owned ...... $718 $839 $68
</TABLE>
(See notes to consolidated financial statements)
- --------------------------------------------------------------------------------
46 Republic First Bancorp, Inc.
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
For the years ended December 31, 1998, 1997 and 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Comprehensive Common Paid in Retained Treasury Comprehensive Shareholders'
Income Stock Capital Earnings Stock Income Equity
------------- ------ ------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995................ $ 32 $ 6,637 $ 1,934 $ 0 $ 19 $ 8,622
---- ------- ------- ------ ----- -------
Comprehensive income:
Other comprehensive income,
net of tax:
Unrealized losses on securities.... $ (16)
Less: Reclassification
adjustment for losses
included in net income............ 0
Total other comprehensive income......... (16) 0 0 0 0 (16) (16)
Net Income for the year.................. 2,713 0 0 2,713 0 0 2,713
------ ---- ------- ------- ------ ----- -------
Total comprehensive income............... 2,697
======
Acquisition of
ExecuFirst Bancorp, Inc............... 15 7,037 0 0 0 7,052
---- ------- ------- ------ ----- -------
Balance December 31, 1996................ 47 13,674 4,647 0 3 18,371
- -------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Other comprehensive income,
net of tax:
Unrealized losses on securities ... 2
Less: Reclassification
adjustment for losses
included in net income............ 0
Total other comprehensive income......... 2 0 0 0 0 2 2
Net Income for the year.................. 3,551 0 0 3,551 0 0 3,551
-----
Total comprehensive income............... 3,553
=====
Sale of common stock..................... 14 12,578 0 0 0 12,592
Options exercised........................ 0 106 0 0 0 106
---- ------- ------- ------ ----- -------
Balance December 31, 1997................ 61 26,358 8,198 0 5 34,622
- -------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Other comprehensive income,
net of tax:
Unrealized losses on
securities....................... (32)
Less: Reclassification
adjustment for losses
included in net income............ 11
Total other comprehensive income......... (21) 0 0 0 0 (21) (21)
Net Income for the year.................. 3,798 0 0 3,798 0 0 3,798
-------
Total comprehensive income............... $ 3,777
=======
Options exercised........................ 0 152 0 0 0 152
---- ------- ------- ------ ----- -------
Treasury stock purchases................. (2) 0 0 (1,927) 0 (1,929)
---- ------- ------- ------ ----- -------
Balance December 31, 1998................ $ 59 $26,510 $11,996 (1,927) $ (16) $36,622
==== ======= ======= ====== ===== =======
</TABLE>
(See notes to consolidated financial statements)
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 47
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization:
Republic First Bancorp, Inc. (formerly known as "Republic
Bancorporation") is a one-bank holding company organized and incorporated under
the laws of the Commonwealth of Pennsylvania. Its wholly-owned subsidiary, First
Republic Bank (the "Bank"), offers a variety of banking services to individuals
and businesses throughout the Greater Philadelphia and South Jersey area through
its offices and branches in Philadelphia and Montgomery Counties.
The Company is also in the process of opening another banking
subsidiary in the state of Delaware. The newly formed Bank, Republic First Bank
of Delaware (the "Delaware Bank") is a Delaware State chartered Bank, located at
Brandywine Commons II, Concord Pike and Rocky Run Parkway in Brandywine, New
Castle Delaware. The Delaware Bank is scheduled to open for business on May 1,
1999, and will offer many of the same services and financial products as First
Republic Bank, described in Part I Item I of the Company's 1998 Form 10-K.
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. Subsequently, in July 1997, the Company again changed its
name to Republic First Bancorp, Inc. (The "Company"), to avoid confusion with
First Republic Bancorp, Inc. of California. 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. 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 purchase price calculated for accounting purposes amounted to
$7,052,000, which is the result of multiplying the $5.75 per share market value
of ExecuFirst by the outstanding shares of ExecuFirst of approximately 1,226,000
at the announcement date of the merger, plus acquisition expenses incurred by
Republic, as a result of the merger, in the amount of $1,193,000. The purchase
price has been allocated to the respective assets acquired and the liabilities
based on their estimated fair market values, net of applicable income tax
effects. Negative goodwill in the amount of $1,045,000 was generated for
purchase accounting purposes and was applied against (i) bank premises and
equipment in the amount of $276,000, (ii) other real estate owned in the net
amount of $84,000, and (iii) the net deferred tax asset in the amount of
$685,000
The following unaudited pro forma information presents a summary of
the consolidated results if the merger had occurred at the beginning of 1996.
(Dollar amounts in thousands, except for per share data)
Year ended December 31, 1996
----------------------------
Net interest income .............. $9,337
Net income ....................... $2,954
Basic earnings per share ......... $0.81
Diluted earnings per share ....... $0.76
The pro forma results are for illustrative purposes only and do not
purport to be indicative of the actual results which would have occurred had the
transaction been consummated as of the earlier date, nor are they necessarily
indicative of future operating results.
- --------------------------------------------------------------------------------
48 Republic First Bancorp, Inc.
<PAGE>
As a result of the merger, supervisory agreements between ExecuFirst
and the Federal Reserve Bank and the PA Department of Banking were terminated.
The Bank is subject to examination and extensive regulation by the Pennsylvania
Banking Department and the Federal Reserve Board. Deposits are insured by the
FDIC to the individual deposit limits established by law.
2. Summary of Significant Accounting Policies:
Principles of Consolidation:
The consolidated financial statements of the Company include the
accounts of Republic First Bancorp, Inc. and its wholly-owned subsidiary, First
Republic Bank ("the Bank"). Such statements have been presented in accordance
with generally accepted accounting principles and general practice within the
banking industry. All significant intercompany accounts and transactions have
been eliminated in the consolidated financial statements.
Risks and Uncertainties and Certain Significant Estimates:
The earnings of the Company depend on the earnings of the Bank. The
Bank is dependent primarily upon the level of net interest income, which is the
difference between interest earned on its interest-earning assets, such as loans
and investments, and the interest paid on its interest-bearing liabilities, such
as deposits and borrowings. Accordingly, the operations of the Bank are subject
to risks and uncertainties surrounding its exposure to change in the interest
rate environment.
Additionally, the Company derives fee income from the Bank's
participation in a program (the "Refant" program) which indirectly funds
consumer loans collateralized by federal income tax refunds, and provides
accelerated check refunds. Approximately $2.4 million in gross revenues were
collected on these loans during 1998. The Company is participating in the
program again in 1999, but does not anticipate participating in the program
beyond 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.
Significant estimates are made by management in determining the
allowance for loan losses, carrying values of real estate owned and deferred tax
assets. 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 economy and
other conditions that may be beyond the Bank's control, it is at least
reasonably possible that the estimates of the allowance for 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 include December 31, 1998 and 1997 were $872,000 and
$850,000, respectively. These requirements were satisfied through the
restriction of vault cash and a balance at the Federal Reserve Bank of
Philadelphia.
Investment Securities:
Debt and equity securities are classified in one of three categories,
as applicable, and 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 securities are classified as "securities
available for sale" and are reported at fair market value with net unrealized
gains and losses, net of
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 49
<PAGE>
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 realized gains
on the sale of securities in 1998 of $816,000, $628,000 of which was accounted
for as a cumulative effect of a change in accounting principle (see note 3). The
Company did not realize any gains or losses on the sale of securities during
1997 or 1996. The Bank had no securities classified as trading securities, as of
the end of any period reported herein.
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
non-accrual if they are past due as to maturity or payment of principal or
interest for a period of more than 90 days, unless such loans are well-secured
and in the process of collection. Loans that are on a current payment status or
past due less than 90 days may also be classified as non-accrual 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) of interest and principal by the
borrower, in accordance with the contractual terms.
While a loan is classified as non-accrual 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
non-accrual 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.
Loans Held for Sale:
Loans held for sale are carried at the lower of aggregate cost or
market value. Gains and losses on loans held for sale are included in
non-interest income. The Bank currently services all loans classified as held
for sale and servicing is released when such loans are sold. Market values were
estimated using the present value of the estimated cash flows, using interest
rates currently being offered for loans with similar terms to borrowers of
similar credit quality.
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.
- --------------------------------------------------------------------------------
50 Republic First Bancorp, Inc.
<PAGE>
The Company considers residential mortgage loans and consumer loans,
including home equity lines of credit, to be small balance homogeneous loans.
These loan categories are collectively evaluated for impairment. Commercial
business loans and commercial real estate loans are individually measured for
impairment based on the present value of expected future cash flows discounted
at the historical effective interest rate, except that all collateral dependent
loans are measured for impairment based on the fair market value of the
collateral.
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 in value
of the properties are recognized as period expenses. There is no valuation
allowance associated with the Company's other real estate portfolio for the
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.
Earnings Per Share:
Earnings per share ("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 dilutive common stock equivalents. Common
stock equivalents (CSE) 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. Common
stock equivalents which are anti-dilutive are not included for purposes of this
calculation. At December 31, 1998, there were $59,730 CSEs which were
antidilutive. These shares may be dilutive in the future. There were no
antidilutive shares as of December 31, 1997 or 1996.
The Company paid a 10% Stock Dividend on March 18, 1999 as well as a
20% stock dividends on March 27, 1998 and April 15, 1997. All relevant financial
data contained herein has been retroactively restated as if the dividend and
splits had occurred at the beginning of each period presented.
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 51
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income before cumulative effect of a change in
accounting principle (numerator for basic
and diluted Earnings per share) ............................. $3,377,000 $3,551,000 $2,713,000
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Per Per Per
Shares Share Shares Share Shares Share
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Weighted average shares outstanding
For the period (denominator for basic
Earnings per share) ........................ 6,059,572 4,722,884 3,650,710
Earnings per share-- basic .................... $0.56 $0.75 $0.74
Add common stock equivalents (CSE)
Representing diluted stock options ......... 402,192 390,774 242,780
--------- --------- ---------
Effect on basic earnings
per share and CSE .......................... (0.04) (0.06) (0.04)
----- ----- -----
Equals total weighted average shares and
CSE (denominator for diluted
earnings per share) ........................ 6,461,764 5,113,658 3,893,490
========= ========= =========
Earnings per share-- diluted .................. $0.52 $0.69 $0.70
===== ===== =====
</TABLE>
Reclassifications:
Certain items in the 1997 and 1996 financial statements and
accompanying notes have been reclassified to conform to the 1998 presentation
format. There was no effect on net income for the periods presented herein as a
result of reclassifications.
Accounting for Assets with Premiums and Discounts:
The Company accounts for amortization of premiums and accretion of
discounts related to loans purchased and investment securities based upon the
effective interest method. If a loan prepays in full before the contractual
maturity date, any unamortized premium, discount or fees are recognized
immediately as interest income.
Investments in Affiliate
Investment in affiliates not controlled, are recorded at cost,
adjusted for the Company's share in the earnings or losses of the affiliate, net
of any distributions received. At December 31, 1998, the Company had a 47%
equity investment in Fidelity Bond and Mortgage Company. The investment had an
original cost basis of $1,617,000. During 1998, the Company wrote the investment
down to $0, as the value of the mortgage affiliate's servicing rights was
reduced due to the accelerated prepayments of the underlying loans.
Recent Accounting Pronouncements:
Comprehensive Income
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income" ("Statement No. 130"). This Statement establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. Statement No.
130 requires that all items that are required to be recognized as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This Statement does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement. Statement No. 130 is effective for fiscal
years beginning after December 15, 1997. The Company adopted Statement No. 130
on January 1, 1998 and has presented the required disclosures in the Company's
financial statements.
- --------------------------------------------------------------------------------
52 Republic First Bancorp, Inc.
<PAGE>
Operating Segment Disclosure
In June 1997, the FASB issued Statement No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("Statement No. 131").
Statement No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Statement No. 131 is effective for periods
beginning after December 15, 1997. The Company adopted Statement No. 131 January
1, 1998 and has presented the required disclosures in the Company's financial
statements
Employers' Disclosures about Pension and Other Postretirement Benefits
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 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 unless 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. Management has
adopted this statement effective January 1, 1998 and has presented the required
disclosures in these 1998 annul financial statements.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("Statement No. 133"). 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 certain foreign currency exposures. 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. Prospective application of Statement No. 133 is required
for all fiscal years beginning after June 15, 1999, however earlier application
is permitted. Currently, the Company does not use any derivative instruments,
nor does it engage in any hedging activities. The Company has adopted this
statement effective July 1, 1998, which permitted the transfer of certain
securities originally designated as held-to-maturity, to available-for-sale and
trading. A portion of these securities was subsequently sold during the third
quarter of 1998. In accordance with Statement No. 133, the Company recorded the
gross gain of $628,000 as a cumulative change in accounting principle, net of a
$207,000 provision for income tax.
Reporting on the Costs of Start-Up Activities
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up Activities
("SOP 98-5"). This statement requires costs of startup activities, including
organization costs, to be expensed as incurred. SOP 98-5 is effective for the
Company's financial statements for fiscal years beginning after December 15,
1998. As of December 31, 1998 the Company had deferred costs relating to
start-up activities of $94,000, remaining in the balance of other assets in the
Consolidated Balance Sheets. The Company adopted SOP 98-5 effective January 1,
1999, and accordingly, expensed $94,000 of costs of start-up activities in the
first quarter of 1999.
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 53
<PAGE>
Accounting for Mortgage-backed Securities Retained after the Securitization
of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise
In October 1998, the FASB issued Statement No. 134, "Accounting for
Mortgage-backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise". This statement requires that
after the securitization of a mortgage loan held for sale, and equity engaged in
mortgage banking activities classify any retained mortgage-backed securities
based on the ability and intent to sell or hold those investments, except that a
mortgage banking enterprise must classify as trading any retained
mortgage-backed securities that is commits to sell before or during the
securitization process. This Statement is effective for the first fiscal quarter
beginning after December 15, 1998 with earlier adoption permitted. This
Statement provides a one-time opportunity for an enterprise to reclassify, based
on the ability and intent on the date of adoption of this Statement,
mortgage-backed securities and other beneficial interests retained after
securitization of mortgage loans held for sale from the trading category, except
for those with sales commitments in place. The Company has not yet determined
the impact, if any, of this Statement, including, if applicable, its provision
for the potential reclassifications of certain investment securities, on
earnings, financial condition or equity.
3. Investment Securities:
Investment securities available for sale as of December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Amortized Cost Gains Losses Value
-------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Government Agencies ........................... $ 3,000,000 $ 23,000 $ (0) $ 3,023,000
CMOs and Mortgage Backed Securities ................ 157,579,000 246,000 (294,000) 157,531,000
------------ -------- --------- ------------
Total ......................................... $160,579,000 $269,000 $(294,000) $160,554,000
============ ======== ========= ============
</TABLE>
Investment securities held to maturity as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Amortized Cost Gains Gains Value
-------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Government Agencies ........................... $ 1,300,000 $ 0 $ (3,000) $ 1,297,000
CMOs and Mortgage Backed Securities ................ 5,601,000 17,000 (30,000) 5,588,000
Other Investment Securities ........................ 10,097,000 0 0 10,097,000
----------- ------- -------- -----------
Total .......................................... $16,998,000 $17,000 $(33,000) $16,982,000
=========== ======= ======== ===========
</TABLE>
Investment securities available for sale as of December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Amortized Cost Gains Losses Value
-------------- ---------- --------- ------------
<S> <C> <C> <C> <C>
U.S. Government Agencies ........................... $2,943,000 $7,000 $ 0 $2,950,000
---------- ------ --- ----------
Total .......................................... $2,943,000 $7,000 $ 0 $2,950,000
========== ====== === ==========
</TABLE>
Investment securities held to maturity as of December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Amortized Cost Gains Losses Value
-------------- ---------- --------- ------------
<S> <C> <C> <C> <C>
CMOs and Mortgage Backed Securities ................ $ 83,028,000 $ 713,000 $(218,000) $ 83,523,000
U.S. Government Agencies ........................... 56,331,000 383,000 0 56,714,000
Other Investment Securities ........................ 5,671,000 0 0 5,671,000
------------ ---------- --------- ------------
Total .......................................... $145,030,000 $1,096,000 $(218,000) $145,908,000
============ ========== ========= ============
</TABLE>
- --------------------------------------------------------------------------------
54 Republic First Bancorp, Inc.
<PAGE>
The Company held an investment in stock of the Federal Reserve Bank in
accordance with regulatory requirements, with a carrying value of $541,000 and
$409,000 as of December 31, 1998 and 1997, respectively, which is included in
other investment securities. Also included in other investment securities are
investments in the stock of the Federal Home Loan Bank of Pittsburgh of $9.2
million and $4.1 million at December 31, 1998 and 1997, respectively. Both the
Federal Reserve Bank stock and the Federal Home Loan Bank Stock are recorded at
cost, which approximates liquidation value.
The maturity distribution of the amortized cost and estimated market
value of investment securities by contractual maturity at December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
-------------------------------- --------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Due in 1 year or less ........... $ 510,000 $ 509,000 $ 0 $ 0
After 1 year to 5 years ......... 495,000 495,000 1,915,000 1,927,000
After 5 years to 10 years ....... 1,425,000 1,421,000 5,537,000 5,548,000
After 10 years or no maturity.... 14,568,000 14,557,000 153,127,000 153,079,000
------------ ------------ ------------ ------------
Total ....................... $ 16,998,000 $ 16,982,000 $160,579,000 $160,554,000
============ ============ ============ ============
</TABLE>
The Company adopted SFAS Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities" on July 1, 1998. As permitted by SFAS
Statement No. 133, the Company transferred $90.6 million of securities from held
to maturity to available for sale and $45.5 million of securities from held to
maturity to the trading category. The amortized cost of securities transferred
from held to maturity to available for sale and trading was $136.1 million,
which had gross unrealized gains of $115,000 and $533,000 respectively on the
date transferred. The Company sold the securities transferred to the trading
category during the third quarter and realized a gain on the sale of these
securities of $421,000, net of income taxes of $207,000, as a cumulative effect
of a change in accounting principle. The Company sold these securities as part
of a portfolio-restructuring program, which reduced the Company's risk of
prepayment on its mortgage-backed securities portfolio due to the sharp decline
in interest rates during the third quarter.
Expected maturities will differ from contractual maturities because
borrowers have the right to call or prepay obligations with or without
prepayment penalties. Mortgage-backed securities and collateralized mortgage
obligations (CMOs) are shown separately due to the amortization and prepayment
of principal accruing throughout the life of these instruments.
At December 31, 1998, investment securities in the amount of
approximately $4.3 million were pledged as collateral for public deposits and
certain other deposits as required by law.
4. Loans Receivable:
Loans receivable at December 31, consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Commercial and industrial ........... $ 41,980,000 $ 42,519,000
Real Estate - commercial (1)......... 132,185,000 87,701,000
Real estate - residential ........... 133,158,000 78,366,000
Consumer and other .................. 1,840,000 3,441,000
------------- -------------
309,163,000 212,027,000
------------- -------------
Less allowance for loan losses ...... (2,395,000) (2,028,000)
------------- -------------
Total loans receivable, net (1)(2)... $ 306,768,000 $ 209,999,000
============= =============
<FN>
_____________
(1) Includes loans held for sale.
(2) Net of deferred loan fees of $631,000 and $297,000 at December 31, 1998 and
1997, respectively.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 55
<PAGE>
The recorded investment in loans for which impairment has been
recognized in accordance with SFAS 114 totaled $1,002,000 and $1,800,000 at
December 31, 1998 and 1997 respectively, of which $576,000, $764,000 and
$845,000 respectively, related to loans with no valuation allowance because the
loans have been partially written down through charge-offs. Loans with valuation
allowances at December 31, 1998, 1997 and 1996 were $426,000, $1,152,000 and
1,047,000, respectively and the amount of such valuation allowance was $143,000,
$231,000 and $118,000, respectively. For the years ended December 31, 1998, 1997
and 1996, the average recorded investment in impaired loans was approximately
$1,441,000, $1,809,000, and $1,573,000,respectively. During 1998 and 1996, the
Bank recognized interest income of $55,000 on impaired loans. The Bank did not
recognize any interest income on impaired loans during 1997 and 1996. There were
no commitments to extend credit to any borrowers with impaired loans as of the
end of the periods presented herein.
As of December 31, 1998, 1997 and 1996, there were loans of
approximately $1,002,000, $1,800,000 and $1,892,000 respectively, which were
classified as non-accrual. If these loans were performing under their original
contractual rate, interest income on such loans would have approximated $79,000,
$279,000 and $135,000 for 1998, 1997 and 1996, respectively.
The majority of loans are with borrowers in the Company's marketplace,
Philadelphia and surrounding suburbs, including southern New Jersey. In addition
the Company has loans to customers whose assets and businesses are concentrated
in real estate. Repayment of the Company's loans is in part dependent upon
general economic conditions affecting the Company's market place and specific
industries. The Company evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained is based on management's
credit evaluation of the customer. Collateral varies but primarily includes
residential and income-producing properties. The Company had loan concentrations
exceeding 10% of total loans extended to real estate agents and managers in the
aggregate amount of $71.2 million, which represented 23.1% of gross loans
receivable.
Included in loans are loans due from directors and other related
parties of $3,909,000 and $5,320,000 at December 31, 1998 and 1997,
respectively. All loans made to directors have substantially the same terms and
interest rates as other Bank borrowers The following presents the activity in
amounts due from directors and other related parties for the year ended December
31, 1998.
1998
-----------
Balance at beginning of year..... $ 5,320,000
Additions .................... 251,000
Repayments ................... (1,662,000)
-----------
Balance at end of year ....... $ 3,909,000
===========
5. Allowance for Loan Losses:
Changes in the allowance for loan losses for the years ended December
31, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year..... $ 2,028,000 $ 2,092,000 $ 680,000
Charge-offs .................. (110,000) (481,000) (391,000)
Recoveries ................... 107,000 97,000 120,000
Acquisition of ExecuFirst..... 0 0 1,528,000
Provision for loan losses..... 370,000 320,000 155,000
----------- ----------- -----------
Balance at end of year .......... $ 2,395,000 $ 2,028,000 $ 2,092,000
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
56 Republic First Bancorp, Inc.
<PAGE>
6. Premises and Equipment:
A summary of premises and equipment is as follows:
1998 1997
----------- -----------
Furniture and equipment ......... $ 2,984,000 $ 2,119,000
Bank building ................... 971,000 883,000
Leasehold improvements .......... 1,567,000 632,000
----------- -----------
5,522,000 3,634,000
Less accumulated depreciation ... (1,532,000) (1,100,000)
----------- -----------
Net premises and equipment ...... $ 3,990,000 $ 2,534,000
=========== ===========
Depreciation expense on premises, equipment and leasehold improvements
amounted to $432,000, $285,000 and $166,000 in 1998, 1997 and 1996,
respectively.
The range of depreciable lives for leasehold improvements is five to
ten years. The depreciable lives of the Bank's building, furniture/equipment is
forty years and, five to seven years, respectively.
During 1998, the Company has entered into non-cancelable lease
agreements for its operations center, seven First Republic Bank branch
facilities and one Republic First Bank of Delaware branch, expiring through June
30, 2018. The leases are accounted for as operating leases. The minimum annual
rental payments required under these leases are as follows:
Year Ended Amount
--------------- ----------
1999 .................................. $ 755,000
2000 .................................. 755,000
2001 .................................. 755,000
2002 .................................. 755,000
2003 and beyond ....................... 4,161,000
----------
Total ................................. $7,181,000
==========
The Company incurred rent expense of $747,000, $667,000 and $613,000
in 1998, 1997 and 1996, respectively.
The Company and MBM/ATM Group Ltd. have entered into non-cancelable
lease agreements for its offsite automated teller cash dispenser machines,
expiring through December 2003, whereas the Company is responsible for 50% of
the lease expenses and MBM/ATM Group Ltd. (an unrelated third party), is
responsible for the remaining 50% of the lease payments. The leases are
accounted for as operating leases. The total minimum annual rental payments
required under these leases for both the Company and MBM/ATM Group Ltd. are as
follows:
Year Ended Amount
--------------- ----------
1999 .................................. $ 324,000
2000 .................................. 324,000
2001 .................................. 324,000
2002 .................................. 324,000
2003 and beyond ....................... 188,000
----------
Total ................................. $1,484,000
==========
The Company incurred rent expense of $136,000 during 1998. There was
no rent incurred during 1997 and 1996.
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 57
<PAGE>
7. Other Borrowings:
The Company has a line of credit totaling $7.5 million available for
the purchase of federal funds from its corresponding bank relationships. In
addition, the Company has a collateralized line of credit with the Federal Home
Loan Bank of Pittsburgh with a maximum borrowing capacity of $236 million as of
December 31, 1998. This maximum borrowing capacity is subject to change on a
quarterly basis. As of December 31, 1998 and 1997, there were $180.5 million and
$85.9 million, respectively outstanding of fixed rate borrowings on these lines
of credit. The contractual maturity of the borrowings through the Federal Home
Loan Bank range from overnight to ten years. With a portion of these borrowings,
the Federal Home Loan Bank has the option to convert the borrowings from a fixed
rate to a variable rate. The following table represents the contractual maturity
of the Company's borrowings at December 31, 1998.
<TABLE>
<CAPTION>
Weighted
Amount Average Rate
------ ------------
<S> <C> <C>
Maturing in:
Three months or less ...................... $ 40,609,000 4.78%
Over three months through one year ........ 7,400,000 6.27
1 - 2 years ............................... 0 0.00
2 - 3 years ............................... 0 0.00
3 - 4 years ............................... 40,000,000 5.59
4 - 5 years ............................... 50,000,000 5.00
Over five years ........................... 50,000,000 5.15
------------ ----
Totals ....................................... $188,009,000 5.17%
============ ====
</TABLE>
8. Deposits
The following represents the contractual maturities, of the Company's
time certificates of deposit issued in denominations of $100,000 or more, as of
December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------
1998 1997 1996
---- ---- ----
Certificates of $100,000 or More
(Dollars in thousands)
<S> <C> <C> <C>
Maturing in:
Three months or less ......................... $14,229 $ 9,896 $10,654
Over three months through six months ......... 7,756 8,726 4,381
Over six months through twelve months ........ 3,365 7,233 6,120
Over twelve months ........................... 0 2,719 8,072
------- ------- -------
Total ..................................... $25,350 $28,574 $29,227
======= ======= =======
</TABLE>
The following is a breakdown, by contractual maturities of the
Company's time certificate of deposits for the years 1999 through 2003 and
beyond.
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Totals
---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Time Certificates of Deposit
(In thousands) ................... $148,303 $39,424 $2,885 $2,263 $2,267 $195,142
======== ======= ====== ====== ====== ========
</TABLE>
- --------------------------------------------------------------------------------
58 Republic First Bancorp, Inc.
<PAGE>
9. Income Taxes:
The following table accounts for the difference between the actual tax
provision and the amount obtained by applying the statutory federal income tax
rate of 34.0% to income before income taxes for the years ended December 31,
1998, 1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Tax provision computed at statutory rate ......... $ 1,711,000 $ 1,745,000 $ 1,383,000
State income taxes net of federal tax benefit .... 0 0 108,000
Amortization of negative goodwill ................ (103,000) (103,000) (170,000)
Other ............................................ 47,000 (59,000) 32,000
----------- ----------- -----------
Total provision for income taxes ........... $ 1,655,000 $ 1,583,000 $ 1,353,000
=========== =========== ===========
</TABLE>
The approximate tax effect of each type of temporary difference and
carryforward that gives rise to net deferred tax assets included in the accrued
income and other assets in the accompanying consolidated balance sheets at
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Allowance for loan losses ............................ $ 485,000 $ 380,000
Net operating loss carryforward ...................... 158,000 433,000
Deferred compensation ................................ 403,000 356,000
Depreciation ......................................... 31,000 151,000
Real estate owned .................................... 52,000 52,000
Other ................................................ 70,000 83,000
Unrealized loss on securities available for sale ..... 8,000 0
Investment mortgage banking affiliate ................ 493,000 0
Start-up expenditures ................................ 57,000 0
----------- -----------
Deferred tax asset ................................... 1,757,000 1,455,000
----------- -----------
Negative goodwill allocated to deferred tax asset,
net of amortization ............................... (309,000) (412,000)
----------- -----------
Adjusted deferred tax assets ......................... $ 1,448,000 $ 1,043,000
----------- -----------
Deferred tax liabilities:
Unrealized gain on securities available for sale .. 0 (2,000)
Deferred loan costs ............................... (260,000) (178,000)
Prepaid expenses .................................. (61,000) (95,000)
Tax refund program ................................ (205,000) (205,000)
----------- -----------
Deferred tax liabilities ............................. (526,000) (480,000)
----------- -----------
Net deferred tax asset ............................... $ 922,000 $ 563,000
=========== ===========
</TABLE>
In addition, the Company recorded $207,000 of tax expense in
connection with the cumulative effect of a change in accounting principle upon
the adoption of SFAS No. 133.
The realizability of the deferred tax asset is dependent upon a
variety of factors, including the generation of future taxable income, the
existence of taxes paid and recoverable, the reversal of deferred tax
liabilities and tax planning strategies. Based upon these and other factors,
management believes that it is more likely than not that the Company will
realize the benefits of these deferred tax assets.
As discussed in Note 1 of the consolidated financial statements, the
reverse acquisition of ExecuFirst by Republic on June 7, 1996 generated negative
goodwill of $1,045,000, of which $685,000 was applied against the deferred tax
assets. During 1998, 1997 and 1996, the negative goodwill allocated to the
deferred tax assets was amortized by an amount of $103,000, $103,000, and
$170,000 respectively, thereby resulting in a corresponding reduction to the
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 59
<PAGE>
provision for income taxes. The amortization of negative goodwill is being
recorded based upon the estimated reversal period of the underlying components
of the deferred tax assets.
At December 31, 1998, the Company has available approximately $465,000
of net operating loss carryforwards available for income tax reporting purposes
which expire from 2004 through 2009.
The following represents the components of income tax expense
(benefit) for the years ended December 31, 1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current provision
Federal ................................................. $2,004,000 $1,289,000 $ 950,000
State ................................................... 0 0 163,000
Deferred provision - Federal ............................... (349,000) 294,000 240,000
---------- ---------- ----------
Total provision for income taxes ..................... $1,655,000 $1,583,000 $1,353,000
========== ========== ==========
</TABLE>
10. Directors and Officers Annuity Plan:
The Bank has an agreement with an insurance company to provide for an
annuity payment upon the retirement or death of certain of the Bank's Directors
and officers, ranging from $15,000 to $25,000 per year for ten years. After five
years of service, certain Directors or officers shall be 50% vested in their
accrued benefit. For each additional year of service over five years, the
Director or officer will be vested an additional 10% per year until he is 100%
vested. The accrued benefits under the plan at December 31, 1998, 1997 and 1996
totaled $355,000, $287,000 and $224,000 respectively. The expense for the years
ended December 31, 1998, 1997 and 1996 was $68,000, $63,000 and $72,000
respectively. The Bank has elected to fund the plan through the purchase of
certain life insurance contracts. The cash surrender value of these contracts
(owned by the Bank) aggregated $1,391,000, $1,328,000 and $1,277,000 at December
31, 1998, 1997 and 1996, respectively, which is included in accrued income and
other assets.
11. Commitments and Contingencies:
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit. These instruments involve to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the financial statements.
Credit risk is defined as the possibility of sustaining a loss due to
the failure of the other parties to a financial instrument to perform in
accordance with the terms of the contract. The maximum exposure to credit loss
under commitments to extend credit and standby letters of credit is represented
by the contractual amount of these instruments. The Company uses the same
underwriting standards and policies in making credit commitments as it does for
on-balance-sheet instruments.
Financial instruments whose contract amounts represent potential
credit risk are commitments to extend credit of approximately $20.1 million and
$17.3 million and standby letters of credit of approximately $1,912,000 and
$453,000 at December 31, 1998 and 1997, respectively. Of the $20.1 million
commitments to extend credit at December 31, 1998, $19.7 million were variable
rate and 430,000 were fixed rate commitments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and many require the payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained upon extension of credit is based on management's credit evaluation of
the customer. Collateral held varies but may include real estate, marketable
securities, pledged deposits, equipment and accounts receivable.
- --------------------------------------------------------------------------------
60 Republic First Bancorp, Inc.
<PAGE>
Standby letters of credit are conditional commitments issued that
guarantee the performance of a customer to a third party. The credit risk and
collateral policy involved in issuing letters of credit is essentially the same
as that involved in extending loan commitments. The amount of collateral
obtained is based on management's credit evaluation of the customer. Collateral
held varies but may include real estate, marketable securities, pledged
deposits, equipment and accounts receivable.
The Company has entered into employment agreements with the President
of the Company, and the Chief Operating Officer, the Chief Financial Officer and
the Chief Lending Officer of the subsidiary Bank, which provide for the payment
of base salary and certain benefits through the year 1999. The aggregate
commitment for future salaries and benefits under these employment agreements at
December 31, 1998 is approximately $485,000. The Bank has not renewed an
employment contract with the Bank's former president, which was amended in
February 1998. Consequently, the Bank has accrued the full severance for the
contract during 1998 for approximately $258,000, which is to be paid out during
1999.
The Bank participates in a partially self-insured health plan (the
"Plan"), for which employees of the Bank receive medical, dental, vision and
pharmaceutical insurance coverage and reimbursements. During 1998 and 1997, the
Bank paid claims under the plan of $464,000 and $158,000, respectively. There
were no payments made under the plan during 1996, as the plan commenced in
February 1997.
The Bank, 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
Bank believes that it has a valid defense to this claim. In addition, one of
these loans was sold by the Bank to a mortgage banker who is now alleging that
the Bank 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, and as a result, has asserted a claim of $800,000 against the Bank.
The Bank believes that its actions were proper, that the lien is enforceable as
a first lien, and or it intends to vigorously defend these claims and, to the
extent necessary, seek recourse form other parties who may have participated in
this alleged 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.
12. Shareholders' Equity/Regulatory Capital:
During the fourth quarter of 1997, the Company sold 1,150,000 shares
of common stock in a secondary offering. The price per share was $12.00, and the
net proceeds to the Company after commissions and costs were approximately $12.6
million.
Effective August 24, 1998, the Company implemented a stock repurchase
program, which will be in effect from time to time for varying periods after
August 25, 1998, through and including June 30, 1999. The aggregate amount of
stock to be repurchased will be determined by market conditions, but will not
exceed 4.9% of the Company's outstanding stock, or approximately 297,000 shares
as of June 30, 1999. As of December 31, 1998, there was 54,916 shares
repurchased pursuant to rule 10b-18 of the Securities and Exchange Commission.
There was also an additional 164,688 shares purchased in block transaction
purchases, that are not included as part of the stock repurchase program
specified under rule 10b-18.
In accordance with the Pennsylvania Banking Code, cash dividends by
the Bank may only be declared and paid out of accumulated net earnings, as
defined by the Code. At December 31, 1998, there were no cash dividends declared
or paid.
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 61
<PAGE>
Dividend payments by the Bank to the Company are subject to the
Pennsylvania Banking Code of 1965 (the "Banking Code"), the Federal Reserve Act,
and the Federal Deposit Insurance Act (the "FDIA"). Under the Banking code, no
dividends may be paid except from "accumulated net earnings" (generally,
undivided profits). Under FRB's regulations, the Bank cannot pay dividends that
exceed its net income from the current year and the preceding two years. Under
the FDIA, an insured Bank may pay no dividends if the Bank is in arrears in the
payment of any insurance assessment due to the FDIC. Under current banking law,
the Bank would be limited to 7.0 million of dividends in 1998, plus an
additional amount equal to the Bank's net profit for 1999, up to the date of any
such dividend declaration.
State and Federal regulatory authorities have adopted standards for
the maintenance of adequate levels of capital by banks. Federal banking agencies
impose three minimum capital requirements on the Company'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 or 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.
Management believes that the Bank meets, as of December 31, 1998 and
1997, all capital adequacy requirements to which it is subject. As of December
31, 1998 and 1997, the most recent notification from the Federal Reserve Bank
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action provisions of Section 3b of the Federal Deposit
Insurance Act. There are no calculations or events since that notification that
management believes have changed the Bank's category.
The Federal Reserve Board's risk-based capital leverage ratio
guidelines require all state-chartered member banks to maintain total capital
equal to at least 8% of risk-weighted total assets, Tier 1 capital (adjusted for
certain excludable regulatory items) equal to 4% of risk-weighted total assets,
and a Tier 1 leverage ratio of 4%. At December 31, 1998, the aforementioned
ratios are as follows:
The following table sets forth the capital ratios of the Company at
December 31, 1998.
<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 December 31, 1998:
Total risk based capital............ $38,784 12.54% $24,746 8.00% $30,932 10.00%
Tier I capital...................... 36,389 11.76 12,373 4.00 18,559 6.00
Tier I (leveraged) capital.......... 36,389 7.50 24,263 5.00 24,263 5.00
As of December 31, 1997:
Total risk based capital............ $36,395 16.33% $17,830 8.00% $22,289 10.00%
Tier I capital...................... 34,367 15.42 8,915 4.00 13,372 6.00
Tier I (leveraged) capital.......... 34,367 10.53 16,312 5.00 16,312 5.00
</TABLE>
- --------------------------------------------------------------------------------
62 Republic First Bancorp, Inc.
<PAGE>
13. Retirement Plan:
The Company maintains a Supplemental Retirement Plan for its former
Chief Executive Officer which provides for payments of approximately $100,000 a
year, commencing for a ten-year period upon retirement or death. A life
insurance contract has been purchased to insure against all or a portion of the
payments which may be required prior to the anticipated retirement date of the
officer.
The Bank has a defined contribution plan pursuant to the provision of
401(k) of the Internal Revenue Code. The Plan covers all full-time employees who
meet age and service requirements. The plan provides for elective employee
contributions with a matching contribution from the Bank, limited to 3%. The
total expense relating to the plan was $103,000, $74,000 and $47,000 in 1998,
1997 and 1996, respectively.
14. Fair Value of Financial Instruments:
The disclosure of the fair value of all financial instruments is
required, whether or not recognized on the balance sheet, for which it is
practical to estimate fair value. In cases where quoted market prices are not
available, fair values are based on assumptions including future cash flows and
discount rates. Accordingly, the fair value estimates cannot be substantiated,
may not be realized, and do not represent the underlying value of the Company.
The Company uses the following methods and assumptions to estimate the
fair value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents:
The carrying value is a reasonable estimate of fair value.
Securities Held to Maturity and Securities Available for Sale:
For investment securities with a quoted market price, fair value is
equal to quoted market prices. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
Loans:
For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair value is the carrying value. For other
categories of loans such as commercial and industrial loans, real estate
mortgage and consumer loans, fair value is estimated based on using the present
value of the estimated future cash flows using the current rates at which
similar loans would be made to borrowers with similar collateral and credit
ratings and for similar remaining maturities.
Loans Held for Sale:
Loans held for sale are carried at the lower of aggregate cost or
market value. Gains and losses on loans held for sale are included in
non-interest income. The Bank currently services all loans classified as held
for sale and servicing is released when such loans are sold. Market values were
estimated using the present value of the estimated cash flows, using interest
rates currently being offered for loans with similar terms to borrowers of
similar credit quality.
Deposit Liabilities:
For checking, savings and money market accounts, fair value is the
amount payable on demand at the reporting date. For time deposits, fair value is
estimated using the rates currently offered for deposits of similar remaining
maturities.
Borrowings:
Fair values on borrowings are based on using the present value of
estimated cash flows, using current rates, at which similar borrowings could be
obtained by the Bank with similar maturities.
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 63
<PAGE>
Commitments to Extend Credit and Standby Letters of Credit:
The fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present credit worthiness of the
counterparts. For fixed rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates. The
fair value of letters of credit is based on fees currently charged for similar
arrangements.
At December 31, 1998, the carrying amount and the estimated fair value
of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------------------- -------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Financial Assets:
Cash and cash equivalents ................ $ 18,295,000 $ 18,295,000 $ 6,326,000 $ 6,326,000
Securities available for sale ............ 160,554,000 160,554,000 2,950,000 2,950,000
Securities held to maturity .............. 16,998,000 16,982,000 145,030,000 145,908,000
Loans receivable, net .................... 299,564,000 304,571,000 203,309,000 204,834,000
Loans held for sale ...................... 7,204,000 7,204,000 6,690,000 6,690,000
Accrued interest receivable .............. 3,765,000 3,765,000 2,654,000 2,654,000
Financial Liabilities:
Deposits:
Demand, savings and
money market ......................... $ 87,942,000 $ 87,942,000 $ 67,813,000 $ 67,813,000
Time ................................... 195,142,000 197,007,000 180,588,000 182,140,000
Borrowings ............................. 188,009,000 191,684,000 85,912,000 86,140,000
Accrued interest payable ............... 5,661,000 5,661,000 4,402,000 4,402,000
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------------------- -------------------------------
Notional Fair Notional Fair
Amount Value Amount Value
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Off Balance Sheet Data:
Commitments to extend credit $20,100,000 $201,000 $17,300,000 $173,000
Letters of credit 1,912,000 19,000 453,000 4,000
</TABLE>
- --------------------------------------------------------------------------------
64 Republic First Bancorp, Inc.
<PAGE>
15. Parent Company Financial Information
The following financial statements for Republic First Bancorp, Inc.
should be read in conjunction with the consolidated financial statements and the
other notes related to the consolidated financial statements.
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31, 1998 and 1997
(dollar amounts in thousands)
1998 1997
-------- --------
<S> <C> <C>
ASSETS:
Cash .......................................................... $ 6,880 $ 8,434
Investment in subsidiary ...................................... 29,742 26,188
-------- --------
Total Assets .................................................. $ 36,622 $ 34,622
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Total Liabilities ............................................. $ 0 $ 0
Shareholders' Equity:
Common stock .................................................. 59 61
Additional paid in capital .................................... 26,510 26,358
Retained earnings ............................................. 11,996 8,198
Treasury Common at cost (219,604 shares at December 31, 1998) . (1,927) 0
Accumulated other comprehensive income ........................ (16) 5
-------- --------
Total Shareholders' Equity .................................... 36,622 34,622
-------- --------
Total Liabilities and Shareholders' Equity .................... $ 36,622 $ 34,622
======== ========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME AND CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1998 and 1997
(dollar amounts in thousands)
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income ........................................................ $ 265 $ 44 $ 0
Expenses ...................................................... 0 0 0
Equity in undistributed income of subsidiary .................. 3,533 3,507 2,713
-------- -------- --------
Net income .................................................... 3,798 3,551 2,713
Shareholders' equity, beginning of year ....................... 34,622 18,371 8,622
Exercise of stock options ..................................... 152 106 0
Proceeds from stock offering .................................. 0 12,592 0
Purchase of treasury stock .................................... (1,929) 0 0
Acquisition of ExecuFirst Bancorp, Inc. ....................... 0 0 7,052
Change in unrealized gain on securities available for sale .... (21) 2 (16)
-------- -------- --------
Shareholders' equity, end of year ............................. $ 36,622 $ 34,622 $ 18,371
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 65
<PAGE>
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998 and 1997
(dollar amounts in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,798 $ 3,551 $ 2,713
Adjustments to reconcile net income to net cash
Provided by operating activities:
Equity in undistributed income of subsidiary (3,533) (3,507) (2,713)
-------- -------- --------
Net cash provided by operating activities 265 44 0
-------- -------- --------
Cash flows from investing activities:
Purchase of subsidiary common stock 0 (4,392) 0
Acquisition of ExecuFirst 0 0 84
-------- -------- --------
Net cash provided by investing activities 0 (4,392) (84)
-------- -------- --------
Cash from Financing Activities:
Exercise of stock options 108 106 0
Proceeds from stock issuance 0 12,592 0
Purchase of treasury stock (1,927) 0 0
-------- -------- --------
Net cash provided by financing activities (1,819) 12,698 0
-------- -------- --------
Increase/(decrease) in cash (1,554) 8,350 84
Cash, beginning of period 8,434 84 0
-------- -------- --------
Cash, end of period $ 6,880 $ 8,434 $ 84
======== ======== ========
</TABLE>
16. Stock Options
The Company maintains a Stock Option Plan (the "Plan") under which the
Company grants options to its employees and directors. Under the terms of the
plan, 792,000 shares of common stock are reserved for such options. The Plan
provides that the exercise price of each option granted equals the market price
of the Company's stock on the date of grant. Any option granted vests within one
to five years and has a maximum term of ten years. All options are granted upon
approval of the Stock Option Committee of the Board of Directors, consisting of
three disinterested members (as defined under Rule 16b-3 of the Securities
Exchange Act of 1934, as amended). Stock Options are issued to promote the
interests of the Company by providing incentives to (i) designated officers and
other employees of the Company or a Subsidiary Corporation (as defined herein),
(ii) non-employee members of the Company's Board of Directors and (iii)
independent contractors and consultants who may perform services for the
Company. The Company believes that the Plan causes participants to contribute
materially to the growth of the Company, thereby benefiting the Company's
shareholders.
Prior to the merger of Republic Bancorporation and ExecuFirst Bancorp,
Inc., various grants of stock options were issued pursuant to the then existing
plans of each Corporation.
In addition to the shares reserved under the Plan, 134,669 options
were granted outside of the Plan to a director of the Company, as a result of
the merger between Republic Bancorporation and ExecuFirst Bancorp, Inc. These
options have a grant date of June 7, 1996. These options are fully vested, and
will expire on June 7, 2006.
- --------------------------------------------------------------------------------
66 Republic First Bancorp, Inc.
<PAGE>
Shares outstanding under option and option price per share 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 issuer's and acquirer's stock. These options and option prices have also
been restated as a result of the recent 10% stock dividend to be paid on March
18, 1999 as well as two separate six for five stock splits effected in the form
of 20% stock dividends. These dividends were paid on April 15, 1998 and March
27, 1997. Changes in total shares are as follows:
<TABLE>
<CAPTION>
December 31, 1998: Weighted
Average
Weighted Remaining
Range of Average Contractual
Shares Exercise Prices Exercise Price Life (Years)
------ --------------- -------------- ------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year............... 478,010 $1.95 to $2.65 $2.50 5.3
218,740 $3.00 to $4.50 $3.77 6.0
155,232 $4.85 $4.85 8.8
Granted during year............................ 63,030 $9.55 to $10.45 $10.26
Exercised during year.......................... 35,721 $1.95 to $4.85 $2.44
Forfeited during year.......................... 0 N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year..................... 425,649 $1.95 to $2.65 $ 2.31 4.3
236,958 $3.00 to $4.02 3.68 5.1
153,648 $4.85 4.85 7.8
63,030 $9.55 to $10.45 10.26 9.4
------- ------
879,285 $ 3.69
Options exercisable at end of year............. 425,649 $1.95 to $2.65 $2.31 4.3
236,958 $3.00 to $4.02 3.68 5.1
153,648 $4.85 4.85 7.8
------- ------ ----
816,255 $3.18 5.2
December 31, 1997: Weighted
Average
Weighted Remaining
Range of Average Contractual
Shares Exercise Prices Exercise Price Life (Years)
------ --------------- -------------- ------------
Outstanding at beginning of year............... 497,018 $1.95 to $2.65 $2.50 6.3
237,748 $3.00 to $4.50 $3.71 7.0
155,232 $4.85 $4.85 9.8
Granted during year............................ 0 N/A N/A
Exercised during year.......................... 38,016 $2.53 to $3.00 $2.76
Forfeited during year.......................... 0 N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year..................... 851,982 $1.95 to $4.85 $3.14
Options exercisable at end of year............. 478,010 $1.95 to $2.65 $2.50 5.3
218,740 $3.00 to $4.50 $3.77 6.0
155,232 $4.85 $4.85 8.8
------- ------ ----
851,982 $3.14 6.2
</TABLE>
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 67
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996: Weighted
Average
Weighted Remaining
Range of Average Contractual
Shares Exercise Prices Exercise Price Life (Years)
------ --------------- -------------- ------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year............... 451,084 $1.95 to $2.65 $2.50 6.3
46,055 $3.00 to $3.13 $3.13 2.4
Granted during year............................ 155,233 $4.85 $4.85 9.8
134,669 $4.02 $4.02 9.4
Acquisition of ExecuFirst 83,950 $2.53 to $3.15 $2.92 4.9
19,008 $3.87 $3.87 2.0
Exercised during year.......................... 0 N/A N/A N/A
Forfeited during year.......................... 0 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year..................... 497,018 $1.95 to $2.65 $2.50 6.3
237,748 $3.00 to $4.50 $3.71 7.0
155,233 $4.85 $4.85 9.8
Options exercisable at end of year............. 600,096 $1.95 to $3.87
</TABLE>
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, 1998 December 31, 1997 December 31, 1996
------------------------- ------------------------- ------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income...................... $3,798,000 $3,675,000 $3,551,000 $3,143,000 $2,713,000 $1,813,000
Basic earnings per share........ $0.63 $0.61 $0.75 $0.67 $0.74 $0.50
Diluted earnings per share...... $0.59 $0.57 $0.69 $0.61 $0.70 $0.47
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, ("SFAS No. 123"), "Accounting for Stock
Based Compensation", but applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees and related Interpretations in accounting for its Plan.
Accordingly, no compensation has been recognized for options granted under the
Plan. If the Company had elected to recognize compensation based on the fair
value at the grant dates for awards under its Plan, consistent with the method
prescribed by SFAS No. 123, net income and earnings per share would have been
changed to the pro forma amounts indicated above:
The proforma compensation expense is based upon the fair value of the
option at grant date. The weighted average fair value of the options granted in
1998 and 1996 were $4.63 and $2.14, respectively. The fair value of each option
granted (including the converted options under the Republic Bancorporation and
ExecuFirst Bancorp, Inc. plans) is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grant in 1998 and 1996, respectively; dividend yield of 0%
for both periods, expected volatility 35% for both periods, risk-free interest
rate of 5.3% and 6.6% and an expected life of 6.3 years for both periods. There
were no options granted in 1997.
- --------------------------------------------------------------------------------
68 Republic First Bancorp, Inc.
<PAGE>
17. Comprehensive Income
The tax effects allocated to each component of "Comprehensive Income"
are as follows:
<TABLE>
<CAPTION>
For the year ended December 31, 1998
(dollars in thousands)
Tax
Before (Expense) Net of
Tax Amount Benefit Tax Amount
---------- ------- ----------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during
the period..................................... $ (48) $ 16 $ (32)
Less: Reclassification adjustment for gains
included in net income......................... 16 (5) 11
----- ---- -----
Other comprehensive income........................... $ (32) $ 11 $ (21)
===== ==== =====
For the year ended December 31, 1997
Tax
Before (Expense) Net of
Tax Amount Benefit Tax Amount
---------- ------- ----------
Unrealized gains on securities:
Unrealized holding gains arising during
the period..................................... $ 3 $ (1) $ 2
Less: Reclassification adjustment for gains
included in net income......................... 0 0 0
------ ----- ------
Other comprehensive income........................... $ 3 $ (1) $ 2
====== ===== ======
For the year ended December 31, 1996
Tax
Before (Expense) Net of
Tax Amount Benefit Tax Amount
---------- ------- ----------
Unrealized gains on securities:
Unrealized holding gains arising during
the period..................................... $ (25) $ 9 $ (16)
Less: Reclassification adjustment for gains
included in net income......................... 0 0 0
------ ---- ------
Other comprehensive income........................... $ (25) $ 9 $ (16)
====== ==== ======
</TABLE>
18. Segment Reporting
The Company's reportable segments represent strategic businesses that
offer different products and services. The segments are managed separately
because each segment has unique operating characteristics, management
requirements and marketing strategies.
Republic First Bancorp has three reportable segments; community
banking, its mortgage banking affiliate and the Tax Refund Program. The
community banking segment is primarily comprised of the results of operation and
financial condition of the Company's wholly owned banking subsidiary, First
Republic Bank. The mortgage banking segment represents the Company's equity
investment in Fidelity Bond and Mortgage, a mortgage banking operation which
services and originates residential mortgage loans. Such investment is accounted
for as an equity investment as the Company does not have control over Fidelity
Bond and Mortgage. The Tax Refund Program enables the Bank to provide
accelerated check refunds ("ACRs") and refund anticipation loan ("RALs") on a
national basis to customers of Jackson Hewitt, a national tax preparation firm.
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 69
<PAGE>
The accounting policies of the segments are the same as those
described in Note 1. The Company evaluates the performance of the community
banking segment based upon income before the provision for income taxes, return
on equity and return on average assets. The mortgage banking segment is
evaluated based upon return on average equity and the Tax Refund Program is
evaluated based upon income before provision for taxes.
The Company has no intersegment revenues.
The Tax Refund Program and the mortgage banking affiliate were
developed as business segments to further expand the Company's products and
services offered to consumers and businesses. The Company made an investment in
a mortgage banking affiliate during 1998 and accordingly segment information is
not applicable for this segment as of and for the years ended December 31, 1997
and 1996.
Segment information for the years ended December 31, 1998, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
As of and for the years ended December 31,
(dollars in thousands)
1998 1997 1996
Tax Mortgage Tax Tax
Refund Banking Refund Refund
Bank Program Affiliate Total Bank Program Total Bank Program Total
---- ------- --------- ----- ---- ------- ----- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
External customer revenues:
Interest Income $ 34,404 $ 0 $ 0 $ 34,404 $ 23,533 $ 0 $ 23,533 $ 17,112 $ 0 $ 17,112
Other Income 760 2,490 0 3,250 388 2,312 2,700 325 2,130 2,455
-------- ------ ------ -------- -------- ------ -------- -------- ------ --------
Total external customer
revenues 35,164 2,490 0 37,654 23,921 2,312 26,233 17,437 2,130 19,567
Intersegment revenues:
Interest Income 0 0 0 0 0 0 0 0 0 0
Other Income 0 0 0 0 0 0 0 0 0 0
-------- ------ ------ -------- -------- ------ -------- -------- ------ --------
Total intersegment revenues 0 0 0 0 0 0 0 0 0 0
-------- ------ ------ -------- -------- ------ -------- -------- ------ --------
Total Revenue 35,164 2,490 0 37,654 23,921 2,312 26,233 17,437 2,130 19,567
-------- ------ ------ -------- -------- ------ -------- -------- ------ --------
Depreciation and amortization 432 0 0 432 285 0 285 166 0
166
Other operating expenses -
external 30,468 105 0 30,573 20,739 75 20,814 15,285 50 15,335
Equity interest in mortgage
banking affiliate 0 0 1,617 1,617
-------- ------ ------ -------- -------- ------ -------- -------- ------ --------
Other operating expenses -
intersegment 0 0 0 0 0 0 0 0 0 0
-------- ------ ------ -------- -------- ------ -------- -------- ------ --------
Segment expenses 30,900 105 1,617 32,622 21,024 75 21,099 15,451 50 15,501
Segment income before taxes
and extraordinary items $ 4,264 $2,385 $(1,617) $ 5,032 $ 2,897 $ 2,237 $ 5,134 $ 1,986 $ 2,080 $ 4,066
======= ====== ======= ======= ======= ======= ======= ======= ======= =======
Segment assets 516,361 0 0 516,361 375,462 0 375,462 273,795 0 273,795
Capital expenditures 1,888 0 1,617 3,505 2,108 0 2,108 556 0 556
</TABLE>
- --------------------------------------------------------------------------------
70 Republic First Bancorp, Inc.
<PAGE>
19. Subsequent Events
On February 18, 1999, the Company announced that its board of
directors approved a 10% stock dividend for shareholders of record as of March
2, 1999 to be distributed on March 18, 1999. The stock dividend will represent
an increase in outstanding shares of approximately 535,000, bringing the total
outstanding shares to approximately 5.9 million shares. All relevant financial
data included herein has been retroactively adjusted for the dividend.
- --------------------------------------------------------------------------------
Republic First Bancorp, Inc. 71
EMPLOYMENT AGREEMENT
THIS AGREEMENT, entered into as of June 17, 1998, by and
between REPUBLIC FIRST BANCORP, INC., a Pennsylvania corporation ("Company"),
and Jere A. Young ("Executive"),
WHEREAS, Company desires to employ Executive as President and
Chief Executive Officer of Company, subject to the terms and conditions of this
Agreement; and
WHEREAS, Executive desires to be employed in such capacity by
Company;
NOW THEREFORE, in consideration of the mutual promises
contained herein, and other good and valuable consideration, receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
1. Term. This Agreement shall commence as of June 17, 1998
(the "Effective Date") and shall continue for a term of one (1) year and
thirteen (13) days unless terminated as provided for in Paragraph 4 below.
2. Duties and Employment. The Company hereby employs Executive
as President and Chief Executive Officer of the Company pursuant to the terms
hereof. Executive shall faithfully perform such duties as are customarily
required of a President and Chief Executive Officer, and as may be directed or
authorized by the Board of Directors customary for such an executive position,
and Executive shall devote such time, energy and attention to those duties and
to such other duties as may be reasonably required to fulfill such duties;
provided that nothing contained herein shall prohibit Executive from being
involved in personal investments or engagements of any kind or otherwise
participating or engaging in community, charitable and educational affairs. Upon
the Effective Date of this Agreement, the
1
<PAGE>
Board shall elect Executive a member of the Board of Directors of First Republic
Bank (the "Bank"), the Company's wholly-owned subsidiary. The Executive will be
a member of the Executive Committee of the Bank. The Executive shall also be
invited to attend meetings of the Executive Committee and the Board of Directors
of the Company.
3. Compensation.
(a) Regular Compensation. For all services rendered
by Executive under this Agreement, the Company shall pay Executive in accordance
with the normal payment practices of Company an annual salary of One Hundred and
Twenty-Five Thousand Dollars ($125,000).
(b) Compensation Plans. Executive shall be eligible
to participate in any bonus stock purchase or grant, stock option, deferred
compensation or other compensation plans presently or hereafter maintained by
the Company for senior executives. Eligibility in no way guarantees Executive's
receipt of any bonus, stock grant, stock option or other compensation pursuant
to such plans, which, except as set forth in subparagraph (h) below, is in the
sole discretion of the Board of the Company or its designated Compensation
Committees or any committee performing a similar function. The Board or its
designated committees shall consider awarding any such bonus at least annually.
While not being legally required to pay any bonus, the Board agrees to take into
account, in determining the amount, if any, of a bonus, the performance of the
Company and Executive, any general economic conditions, Executive's
responsibilities, performance and other pertinent factors. Executive shall also
be eligible to participate in any retirement or savings plan presently or
hereafter maintained for the benefit of all employees of the Company or any
subsidiary of the Company.
2
<PAGE>
(c) Benefits. The Company shall maintain such
medical, life, and disability insurance coverage and such retirement plan for
Executive and his dependents as it now maintains for executives or such
substantially similar coverages and plans as may hereafter be adopted by the
Company or its subsidiary from time to time. Executive shall be entitled to
vacation in accordance with standard policies for all senior executives of the
Company.
(d) Automobile Allowance. During the term of this
Agreement, the Company shall provide to Executive a car allowance of $1,000.00
per month, to be used by Executive for the purchase or leasing of any automobile
and for payment of expenses associated with the operation, maintenance and
insurance of such automobile. The Company shall also provide, at its expense,
for Executive, a parking space convenient to the Company. The Company shall
provide, at its expense, a car and/or cellular telephone, as long as such
telephone is used primarily for business purposes.
(e) Travel Expense. During the term of this
Agreement, Executive shall be reimbursed for normal and reasonable travel
expenses incurred on behalf of the Company.
(f) Entertainment Expense. Executive will be
reimbursed for all reasonable expenses incurred by Executive in fulfillment of
his duties on behalf of the Company, including entertainment, business meals and
the like, in accordance with the Company's policies.
(g) Approvals. All expenses incurred by the Executive
under subparagraphs (e) and (f) hereof must be approved by the Chairman of the
Board of the
3
<PAGE>
Company.
(h) Stock Options. Executive shall receive qualified
stock options to acquire 37,500 shares of stock of Company which, provided
Executive is then employed by the Company, shall vest as follows:
(i) 12,500 shares on June 30, 1999;
(ii) 12,500 shares on June 30, 2000;
(iii) 12,500 shares on June 30, 2001
provided that Executive's rights to such options, unless vested, shall expire
upon the termination of the Executive's employment hereunder.
4. Term; Termination.
(a) This Agreement shall terminate on the first
anniversary of the Effective Date hereof, unless extended pursuant to the terms
hereof. This Agreement shall be renewed automatically for additional one year
terms from year to year from July 1 of each year, unless the Company gives
written notice to Executive or Executive gives written notice to Company of an
intention not to renew at least 180 days prior to such date.
(b) After June 30, 1999, either the Company or the
Executive may terminate this Agreement upon six (6) months written notice to the
other.
(c) This Agreement shall automatically terminate upon
the death of Executive without additional payments of salary or other benefits
to Executive except as may be required by law or provided herein.
(d) This Agreement shall automatically terminate upon
Executive's "total disability", defined as the inability of the Executive to
provide meaningful services to the
4
<PAGE>
Company in the judgment of the Board: (i) 180 days in any 12 month period or
(ii) any consecutive ninety (90) day period.
(e) The Company may terminate Executive immediately
for "good cause." For purposes of this Agreement, "good cause" shall mean (i)
breach of a fiduciary duty to the Company involving personal profit or which
causes harm to the Company or any subsidiary, (ii) conviction of a felony or
willful violation of any banking law or regulation or an indictment or return of
any information, or a conviction involving a crime of moral turpitude, (iii)
negligent performance of the duties under this Agreement which results in a
material impairment of the Company's financial condition, (iv) an order from any
regulatory authority to terminate the Executive for breach of any law or
regulations, or (v) a failure of the Executive to comply with a direct lawful
written order of the Board.
5. Payments to Executive Upon Termination.
(a) In the event of the termination of Executive's
employment pursuant to Paragraphs 4(c) or (d), as consideration for Executive's
services to Company prior to Executive's termination, the Company shall continue
to pay to Executive, or to his estate, as the case may be, for the duration of
the Severance Period, such compensation and benefits in such manner as had been
received by Executive immediately prior to termination. For purposes of
Paragraphs 4 (c), the "Severance Period" shall be a period of time commencing at
the termination and continuing for a period of six (6) months thereafter. For
purposes of Paragraph 4 (d), the "Severance Period" shall be a period of time
commencing at the termination and continuing for the time when benefits commence
under any disability insurance policy maintained by the Company for the benefit
of Executive.
5
<PAGE>
(b) Under no circumstances shall the Company be
obligated to pay any compensation to Executive following termination pursuant to
Paragraph 4(e) hereof.
(c) The Company shall have the option to accelerate
payment of the sum(s) due during the Severance Period and to pay such sum(s) in
such lump payment(s) as the Company shall deem appropriate provided that all
such payments shall be made during the Severance Period and such amount of such
payments shall not be greater than would have resulted from payment in
accordance with the Company's standard practices or as otherwise provided in
this Agreement.
6. Confidentiality. Executive acknowledges that, in the course
of his employment by the Company, he will have access to confidential
information, trade secrets, and unique business procedures which are the
valuable property of the Company and/or its subsidiaries. Executive agrees not
to disclose for any reason, directly or indirectly, any confidential, trade
secret or other proprietary information, as determined by the Company in its
reasonable discretion, at any time, during or after the period Executive is
employed by the Company, for any purpose other than to perform his assigned
duties on behalf of the Company.
7. Remedy. The Company and Executive acknowledge and agree
that any breach of Paragraph 6 of this Agreement would cause irreparable injury
to the Company, as the case may be, and that Company's remedy at law for any
breach of any of Executive's obligations under Paragraph 6 hereof would be
inadequate, and Executive agrees and consents that temporary and permanent
injunctive relief may be granted in any proceeding which may be brought to
enforce any provision of Paragraph 6 hereof without the necessity of proof that
6
<PAGE>
the Company's remedy at law is inadequate.
8. Indemnification. The Company shall indemnify Executive
against such matters and at least to such extent as is provided in the by-laws
or Certificate of Incorporation of the Company for the benefit of their
respective Officers or Directors as in effect on the date hereof.
9. Notices. Any and all notices, designations, consents,
offers, acceptances, or any other communications provided for herein shall be
given in writing by registered or certified mail, return receipt requested to
the addresses set forth below.
If to Parent: REPUBLIC FIRST Bancorp, Inc.
1608 Walnut Street
Philadelphia, PA 19103
Att: Harry D. Madonna, Chairman of the Board
If to Executive: Jere A. Young
646 Malin Road
Newtown Square, PA 19073
or to such other or additional Person or Persons or such other address as either
party may designate to the other party in writing or by like notice.
10. Invalid Provisions. The invalidity or unenforceability of
any particular provision of this Agreement shall not affect the other provisions
hereof, and the Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
11. Modification. No change or modification of this Agreement
shall be enforceable against any party unless the same be in writing and signed
by the party against whom enforcement is sought.
12. Entire Agreement. This Agreement represents the entire
agreement
7
<PAGE>
between the parties with respect to the subject matter hereof, and supersedes
all prior agreements and understandings with respect thereto.
13. Representation of The Company. The Company represents and
warrants that the execution of this Agreement by the Company has been duly
authorized by resolution of its respective Board of Directors.
14. Headings. Any headings preceding the text of the several
paragraphs hereof are inserted solely for the convenience of reference and shall
not constitute a part of this Agreement, nor shall they affect its meaning,
construction or effect.
15. Successors; Assigns. This Agreement shall inure to the
benefit of, and be binding upon, the parties hereto, and their respective heirs,
executors, administrators, successors and, to the extent permitted herein,
assigns. Notwithstanding the foregoing, Executive may not assign his rights, or
delegate his duties hereunder.
16. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the undersigned have hereunto set their
hands and seals the date and year above first written.
REPUBLIC FIRST BANCORP, INC.
By:________________________________
Chairman
_____________________ __________________________(SEAL)
Witness JERE A. YOUNG
8
February 12, 1999
Mr. Robert D. Davis
42 Rosewood Lane
Malvern, PA 19355
Dear Bob:
I am very pleased that you have agreed to join the Republic First Bancorp, Inc.
("RFB") team as President and Chief Executive Officer of our subsidiary, First
Republic Bank ("FRB") (together, "the Company"). The purpose of this letter is
to outline the key details of our agreement as to the basis for your employment
as President and Chief Executive Officer of First Republic Bank.
Your starting date will be no later than Tuesday, February 16, 1999. As of your
starting date, you will be elected a member of the Board of Directors of FRB as
well as appointed as a member of its Executive Committee. You will be invited to
attend meetings of the Executive Committee and the Board of Directors of RFB.
You will become employed by FRB as of your starting date.
You will report directly to me administratively in my role as President and
Chief Executive Officer of RFB. You also will have organizational reporting
responsibilities to the Board of Directors of FRB and to its Chairman, Harry
Madonna.
As President of FRB, your initial annual salary will be one hundred and
seventy-five thousand dollars ($175,000.00), payable bi-weekly in accordance
with the normal practices of FRB. For the year 1999 only, you will also be
eligible for a cash incentive bonus of up to fifty thousand dollars
($50,000.00). Of that amount, twenty-five thousand dollars ($25,000.00) will be
earned upon the completion of your first year of employment with FRB. The
balance of up to twenty-five thousand dollars ($25,000.00) will be payable in
whole or in part at the sole discretion of the Board of Directors of FRB based
upon both your individual performance and the financial results for FRB in 1999.
The cash bonus for 1999 will be payable on or before March 31, 2000. You may
also be eligible for additional equity incentive in the form of stock options,
based upon your performance and that of the company for the year, at the sole
discretion of the Company's Board of Directors.
We have discussed the need to review on a priority basis the Company's short
term and long term incentive compensation programs. You will be eligible to
participate in any such program which presently exists or which may be adopted
by the Company, including any incentive stock option program.
Within the first ninety (90) days of your starting date, we will mutually agree
on the benchmarks which will be the basis of your performance goals for 1999.
After the first year of your employment with FRB, we will evaluate your
accomplishments and mutually agree on the appropriate incentive compensation
parameters for the next evaluation period. You will also be reviewed for
performance and possible salary increase no later than thirty days after your
first anniversary with FRB.
You will be eligible to participate in all insurance, health, retirement and
such other benefit programs as are now maintained or as may hereinafter be
adopted by the Company and which are appropriate for your position. If you are
not eligible for immediate coverage under FRB's health insurance program, FRB
will reimburse you for the premium cost to you of continuing your current
coverage until you are covered by FRB's policy. You will be entitled to vacation
in accordance with the standard policy of FRB for Senior Executives, which at
the present time is four weeks for your position. I am forwarding to you with
this letter of copy of FRB's benefits and employment policies for your
information.
<PAGE>
Robert D. Davis
February 12, 1999
Page 2
As an additional part of your compensation package, your will receive a car
allowance of one thousand dollars ($1,000.00) per month, plus reimbursement for
a parking space convenient to your FRB office and a car or cellular telephone.
You will also be reimbursed for all reasonable expenses incurred by you in
fulfillment of your duties on behalf of FRB, including travel expenses other
than automobile expenses, entertainment, business meals and other reasonable
business expenses in accordance with FRB's policies. In addition, FRB will
reimburse you for your expenses of membership in a Center City luncheon club and
a country club, to be mutually agreed upon. All of the expenses described in
this paragraph shall be submitted for payment by FRB through a monthly expense
account, which shall be approved by me.
FRB agrees, to the extent possible, to continue the arrangements currently in
effect for you under the Mellon Bank Optional Life Insurance Plan (the "Life
Insurance Plan"). In order to continue such arrangement, FRB shall make such
payments to Mellon Bank to the extent payment by you to Mellon would otherwise
be required in order to continue Executive's coverage under the life insurance
policy or policies (the "Life Insurance") in effect under the Life Insurance
Plan upon your termination of employment with Mellon Bank. Following such
payment by FRB to Mellon Bank, FRB shall continue the arrangement with respect
to the Life Insurance, shall make such payments of premiums as would have been
made by Mellon Bank under the Life Insurance Plan, and shall have the same
rights to repayments of amounts paid in connection with the Life Insurance as
Mellon Bank would have had with respect to the Life Insurance under the terms of
the Life Insurance Plan if you had continued to participate in the Life
Insurance Plan and had not terminated employment with Mellon Bank and you agree
to execute such documents and/or agreements, which may include an agreement with
the insurance company or companies issuing the Life Insurance, as may be
necessary or appropriate in order to continue the Life Insurance in effect under
the arrangements and on the terms described above.
Consistent with the Company's existing hostile change of control policy, a copy
of which is attached, you will be eligible to receive a severance payment equal
to two times your annual base salary in the event of a change of control of FRB
or RFB, as defined in such policy. In the event of a change of control of the
Company as defined in such policy, but which is approved by a majority of The
Incumbent Board, you will be eligible to receive a severance payment equal to
your annual base salary, except that in the event of such change of control
during the first two years of your employment, you will be eligible for a
severance payment equal to two times your annual base salary. In the event that
your severance is initiated by FRB or RFB, other than for cause or through a
change of control, your salary will continue for an additional six (6) months
from the date of the discharge. If there is a change of control of the Company
within six (6) months following your severance under the preceding sentence,
then you will be eligible for the severance payment applicable under this
paragraph to such change of control as if you were still employed by the
Company, less any severance payment made to you prior to such change of control.
If you voluntarily terminate your employment with FRB, no severance payment will
be made.
You agree that following the termination of your employment with the Company,
other than due to a "hostile" change of control as defined in the preceding
paragraph of this letter, you shall not: (1) for a period of sic (6) months
provide services directly or indirectly (as a consultant, officer, director,
shareholder or otherwise) to any other person or entity engaged in the
commercial or consumer banking or finance or savings and loan industry in
competition with the Company in Philadelphia, Montgomery, Bucks, Chester or
Delaware counties in Pennsylvania or in New Castle County in Delaware; and (ii)
for a period of one (1) year, you will not solicit, entice or contact the
Company's executives or employees for the purpose of having such executives or
employees leave their employment with the Company or engage in direct
competition with the Company.
<PAGE>
Robert D. Davis
February 12, 1999
Page 3
In addition, you hereby acknowledge that, in the course of your employment by
FRB, you will have access to confidential information, trade secrets and unique
business procedures which are the valuable property of the Company. You agree
not to disclose for any reason, directly or indirectly, any confidential, trade
secret or other proprietary information, as determined by the Company in its
reasonable discretion, at any time, during or after the period of your
employment by the Company, for any purpose other than to perform your assigned
duties on behalf of the Company.
The provisions of the two immediately preceding paragraphs shall survive the
termination of this letter agreement. The signers of this letter recognize that
a violation of the preceding two paragraphs may cause irreparable harm to First
Republic Bank or Republic First Bancorp and, therefore, either FRB or RFB shall
be entitled to injunctive relief for your failure to comply with the terms
thereof, together with all other legal or equitable remedies available to FRB or
RFB.
Upon joining FRB, you will receive a grant of forty thousand (40,000) options to
purchase stock of RFB at the market price on the date of grant. Ten thousand
(10,000) options will vest immediately and an additional ten thousand (10,000)
options will vest on each of the next three anniversary dates of your employment
with FRB, on the condition that you are still employed by FRB on such vesting
dates. Upon any change of control, all options not yet vested will immediately
vest. Additional terms and conditions of such stock options are set forth in the
Incentive Stock Option Agreement which will be provided to you.
This letter is not intended to represent an employment contract. Your employment
by FRB is at will and is subject to termination at any time, by the Company or
by you, with or without cause.
Enclosed are two copies of this letter. As an indication of your understanding
and acceptance, please sign and return one copy of this letter to me on or
before and keep the other copy for your records.
If you have any additional questions about your employment by FRB, please do not
hesitate to call me or Harry Madonna. I am excited that you will be joining the
Company and look forward to working with you in your new role.
Sincerely,
Jere A. Young
President & CEO
Republic First Bancorp, Inc.
Agreed and Accepted By:
_________________________________ __________________
Robert D. Davis Date
Agreement
This Agreement, entered into as of this 22nd day of December, 1998, by and
among Republic First Bancorp, Inc. ("Company"), a Pennsylvania corporation, and
First Republic Bank (the "Bank"), a Pennsylvania banking corporation, and Harry
D. Madonna ("Chairman").
Whereas, Chairman has served as Chairman of the Board and Chairman of the
Executive Committee of the Company and the Bank; and
Whereas, Chairman has been involved in initiating, reviewing, analyzing,
negotiating and implementing various mergers and acquisitions on behalf of the
Company and the Bank; and
Whereas, the Company and the Bank believe that Chairman's service as
director and as Chairman of the Board of the Company, Chairman of the Executive
Committee of the Company and as a director and Chairman of the Board of
Directors and the Executive Committee of the Bank is essential for the
continuing and future success of the Company and the Bank; and
Whereas, Chairman desires to serve in such capacity for the benefit of the
Company and the Bank;
Now, Therefore, in consideration of the mutual promises contained herein,
and other good and valuable consideration, receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, the parties agree as
follows:
1. Titles and Duties
(a) Chairman shall serve as Chairman of the Board of Directors and the
Executive Committee of the Company and the Bank and as a director of the Company
and the Bank for a period equal to the lesser of three (3) years or the balance
of his present term as a director of the Company (the "Initial Term"), and shall
continue to engage in various activities on behalf of the
<PAGE>
Company and the Bank, including but not limited to the initiation, review,
analysis, negotiations, and implementations of possible mergers and/or
acquisitions for the Company and/or the Bank.
(b) At the end of the Initial Term, the Board of Directors of each of
the Company and the Bank shall, subject to the exercise of their respective
fiduciary duties, re-elect Chairman as Chairman of Board of Directors and the
Executive Committee of the Company and a director and Chairman of the Board of
Directors and the Executive Committee of the Bank for an additional term of
three (3) years (the "Second Term"; the Initial Term and the Second Term to be
referred to collectively as the "Term").
2. Continuing Benefits
(a) Chairman shall receive such benefits, remunerations and
reimbursement of expenses from the Company or the Bank as have been provided to
him as of December 31, 1998 as Chairman of the Company and the Bank, including,
without limitation:
(i) Initiation fees, dues and expenses for one (1) country club and
one (1) downtown club;
(ii) A luxury sedan automobile, plus reimbursement for all repairs,
insurance and parking costs, and car phone costs and expenses;
(iii) Payment of all customary, normal, and reasonable travel and
entertainment expenses necessary to fulfill his duties as Chairman,
such expenses to be reviewed and approved by the President of the
Company.
(b) In addition to the foregoing, Chairman shall be eligible for all
bonuses, stock options, compensation, and benefits now or hereafter available
for any member of the Board or previously granted to Chairman.
2
<PAGE>
3. Other Benefits
(a) In the event (i) the Chairman is removed as Chairman of the Board
of Directors of the Company prior to the end of the Term, or (ii) of a
Fundamental Change, as such term is defined below, the Chairman shall have the
right, for a period of ninety (90) days following the date the Fundamental
Change occurs, to terminate this Agreement by sending written notice to such
effect to the Company. A termination under this paragraph shall be effective ten
(10) days after the mailing of such notice to the Company. If Chairman
terminates this Agreement pursuant to this Paragraph 3(a), Chairman shall be
entitled to a payment of $250,000, to be paid within fifteen (15) days of such
notice, together with the transfer of the automobile then made available to
Chairman free of all liabilities, costs, liens, or encumbrances together with
such funds to reimburse Chairman for all federal, state, and local transfer
taxes, fees, and costs involved in the transfer of such automobile, and local
income taxes that may be assessed against Chairman (at the highest taxable rate)
by reason of the transfer of such automobile, and all Stock Options previously
granted to Chairman shall become fully vested on the date of such termination.
(b) A Fundamental Change shall mean:
(i) individuals who, as of the date hereof, constitute the Board
of the Company (the "Incumbent Board") cease for any reason to
constitute at least fifty percent (50%) of the Board; provided,
however, that any individual becoming a director subsequent to the date
hereof whose nomination for election by such Company's shareholders was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or
3
<PAGE>
removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a person other than one
nominated by the Board; and
(ii) the Company or the Bank shall enter into an agreement or
agreements providing for (a) the reorganization, merger, or
consolidation of the Company or the Bank with or into another entity,
(b) the exchange of all or substantially all of the stock of the
Company or the Bank for the stock of another entity, (c) the
liquidation or dissolution of the Company or the Bank, or (d) the sale
or the disposition of all or substantially all of the assets of the
Company or of the Bank; provided that the Chairman and a majority of
the members of the Incumbent Board then remaining as members of the
Board of Directors of the Company or the Bank, as the case may be,
shall have voted against the approval of any such agreement or
agreements described in this Paragraph 3(b)(ii).
4. Miscellaneous
(a) This Agreement shall inure to the benefit of and be binding upon
the Company and the Bank and their respective successors and assigns and the
Chairman and his heirs, personal representatives, successors, and
administrators.
(b) No modification of this Agreement shall be binding or enforceable
in any court unless in writing and signed by the parties. This Agreement
represents the entire agreement and understanding of the parties with respect to
the subject matters of this Agreement, and shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
contracts made and to be performed in Pennsylvania. Notwithstanding the
foregoing, nothing contained in this Agreement shall affect or limit any rights
accrued to Chairman under any previous contracts with the Company or the Bank.
4
<PAGE>
(c) If any provision of this Agreement shall be or shall become
illegal or unenforceable in whole or in part, for any reason whatsoever, the
remaining provisions shall nevertheless be deemed valid, binding, and
subsisting.
(d) The headings in the sections of this Agreement are for convenience
only and they shall not affect the interpretation of this Agreement.
(e) The waiver by either party of a breach or violation of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any subsequent breach or violation thereof.
(f) In the event any dispute shall arise between the Chairman and the
Company as to the terms or interpretation of this Agreement, whether instituted
by formal legal proceedings or otherwise, including any action taken by Employee
to enforce the terms of this Agreement or in defending against any action taken
by the Company, the Company shall reimburse Chairman for all costs and expenses,
including reasonable attorneys' fees and costs, arising from such dispute,
proceedings, or actions, notwithstanding the ultimate outcome thereof. Such
reimbursement shall be paid within ten (10) days of Chairman furnishing to the
Company written evidence, which may be in the form, among other things, of a
canceled check or receipt, of any costs or expenses incurred by Chairman. Any
such request for reimbursement by Chairman shall be made no more frequently than
at sixty (60) day intervals.
5. Notices
(a) All notices, requests, demands, and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
if delivered by hand or mailed, certified or registered mail, return receipt
requested, with postage prepaid to the following addresses or to such other
address as either party may designate from time to time.
5
<PAGE>
If to Chairman to:
Harry D. Madonna, Esquire
5 Clayton Place
Newtown Square, PA 19073
If to the Company to:
President
Republic First Bancorp, Inc.
1608 Walnut Street
Suite 1000
Philadelphia, PA 19103
If to the Bank to:
President
First Republic Bank
1608 Walnut Street
Suite 1000
Philadelphia, PA 19103
Any such notices, requests, demands, and other communications under this
Agreement, shall be given to such other or additional Person or Persons as
either party shall have designated to the other party in writing by like notice.
F:\40035\016\hdm SEVERANCE AGREE
6
<PAGE>
In Witness Whereof, the undersigned have hereunto set their hands and seals
as of the date and year above first written.
Republic First Bancorp, Inc.
By:______________________________
Jere A. Young, President
First Republic Bank
By:_______________________________
Jere A. Young, Vice President
----------------------------------
Harry D. Madonna
7
Consent of Independent Certified Public Accountants
The Board of Directors
Republic First Bancorp, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-8 of Republic First Bancorp, Inc. of our report dated January 26, 1999,
except as to note 19, which is as of February 18, 1999, relating to the
consolidated balance sheets of Republic First Bancorp, Inc. and subsidiaries as
of December 31, 1998 and 1997, and the related consolidated statements of
income, changes in stockholders' equity and comprehensive income, and cash flows
for the years then ended, which report appears in the December 31, 1998 Form
10-K of Republic First Bancorp, Inc.
KPMG LLP
Philadelphia, Pennsylvania
March 19, 1999
March 19, 1999
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, PA 19103
In connection with your audit of the consolidated financial statements of First
Republic Bancorp, Inc. for the year ended December 31, 1996 for the purpose of
expressing an opinion as to whether such financial statements present fairly, in
all material respects, the financial position, results of operations, and cash
flows of First Republic Bancorp, Inc. in conformity with generally accepted
accounting principles, you were previously provided with a representation letter
under date of February 26, 1997. No information has come to our attention that
would cause us to believe that any of those previous representations should be
modified.
To the best of our knowledge and belief, no events have occurred subsequent to
December 31, 1996 and through the date of this letter that would require
adjustment to or disclosure in the aforementioned consolidated financial
statements.
- ------------------------------------------------------
[Name and title of chief executive officer]
- ------------------------------------------------------
- ------------------------------------------------------
[Name and title of chief financial officer]
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<NAME> REPUBLIC FIRST BANCORP INC.
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<PERIOD-END> DEC-31-1998
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