UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 1999
Commission File Number: 0-17007
Republic First Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2486815
- ------------------------------- ---------------------------
(State or other jurisdiction of IRS Employer Identification
incorporation or organization) Number
1608 Walnut Street, Philadelphia, Pennsylvania 19103
--------------------------------------------------------
(Address of principal executive offices) (Zip code)
215-735-4422
--------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
--------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
YES _X_ NO __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's classes
of common stock, as of the latest practicable date.
6,111,705 shares of Issuer's Common Stock, par value
$0.01 per share, issued and outstanding as of October 31, 1999
Page 1 of 42
Exhibit index appears on page 40
1
<PAGE>
TABLE OF CONTENTS
Page
Part I: Financial Information
Item 1: Financial Statements 3
Item 2: Management's Discussion and Analysis of Financial Condition and 18
Results of Operations
Item 3: Quantitative and Qualitative Information about Market Risk 23
Part II: Other Information
Item 1: Legal Proceedings 40
Item 2: Changes in Securities and Use of Proceeds 40
Item 3: Defaults Upon Senior Securities 40
Item 4: Submission of Matters to a Vote of Security Holders 40
Item 5: Other Information 40
Item 6: Exhibits and Reports on Form 8-K 40
2
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
Page Number
(1) Consolidated Balance Sheets as of September 30,1999 and
December 31, 1998.................................................... 4
(2) Consolidated Statements of Operations for three and
nine months ended September 30, 1999 and 1998........................ 5
(3) Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998............................. 7
(4) Notes to Consolidated Financial Statements........................... 9
3
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Republic First Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
as of September 30, 1999 and December 31, 1998
(unaudited)
<TABLE>
<CAPTION>
ASSETS: 1999 1998
------------- -------------
<S> <C> <C>
Cash and due from banks $ 15,302,000 $ 18,169,000
Interest bearing deposits with banks 6,024,000 126,000
------------- -------------
Total cash and cash equivalents 21,326,000 18,295,000
Securities available for sale, at fair value 177,179,000 160,554,000
Securities held to maturity at amortized cost 16,121,000 16,998,000
(fair value of $16,128,000 and $16,982,000,
respectively)
Loans receivable, (net of allowance for loan losses of
$3,051,000 and $2,395,000, respectively) 326,131,000 299,564,000
Loans held for sale 447,000 7,204,000
Premises and equipment, net 4,850,000 3,990,000
Real estate owned 643,000 718,000
Accrued income and other assets 12,040,000 9,038,000
------------- -------------
Total Assets $ 558,737,000 $ 516,361,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Deposits:
Demand - non-interest-bearing $ 27,793,000 $ 32,537,000
Demand - interest-bearing 12,598,000 20,155,000
Money market and savings 47,939,000 35,250,000
Time under $100,000 152,953,000 169,792,000
Time over $100,000 51,250,000 25,350,000
------------- -------------
Total Deposits 292,533,000 283,084,000
Other borrowed funds 222,363,000 188,009,000
Accrued expenses and other liabilities 8,184,000 8,646,000
------------- -------------
Total Liabilities 523,138,000 479,739,000
------------- -------------
Shareholders' Equity:
Common stock par value $.01 per share, 20,000,000 shares authorized;
shares issued and outstanding 6,111,705 as of September 30, 1999
and 5,883,188 as of December 31, 1998 63,000 59,000
Treasury stock at cost (175,172 and 219,604 shares
at September 30, 1999 and December 31, 1998,
respectively) (1,542,000) (1,927,000)
Additional paid in capital 31,893,000 26,510,000
Retained earnings 10,133,000 11,996,000
Accumulated other comprehensive income/(loss), net of tax (4,890,000) (16,000)
------------- -------------
Total Shareholders' Equity 35,657,000 36,622,000
------------- -------------
Total Liabilities and Shareholders' Equity $ 558,737,000 $ 516,361,000
============= =============
</TABLE>
(See notes to consolidated financial statements)
4
<PAGE>
Republic First Bancorp, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three and Nine Months Ended September 30,
(unaudited)
<TABLE>
<CAPTION>
Quarter to Date Year to Date
September 30, September 30,
------------- -------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 6,855,000 $ 5,737,000 $ 19,670,000 $ 15,841,000
Interest on federal funds sold 16,000 7,000 18,000 214,000
Interest on investments 3,243,000 3,070,000 9,311,000 9,530,000
------------ ------------ ------------ ------------
Total interest income 10,114,000 8,814,000 28,999,000 25,585,000
------------ ------------ ------------ ------------
Interest expense:
Demand interest-bearing 37,000 84,000 149,000 256,000
Money market and savings 433,000 322,000 1,234,000 861,000
Time over $100,000 698,000 373,000 1,351,000 1,155,000
Time under $100,000 2,202,000 2,609,000 7,035,000 7,496,000
Other borrowed funds 2,882,000 2,031,000 8,161,000 5,557,000
------------ ------------ ------------ ------------
Total interest expense 6,252,000 5,419,000 17,930,000 15,325,000
------------ ------------ ------------ ------------
Net interest income 3,862,000 3,395,000 11,069,000 10,260,000
------------ ------------ ------------ ------------
Provision for loan losses 210,000 80,000 670,000 290,000
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses 3,652,000 3,315,000 10,399,000 9,970,000
------------ ------------ ------------ ------------
Non-interest income:
Service fees 325,000 143,000 653,000 347,000
Tax Refund Program revenue 0 0 2,715,000 2,383,000
Other income 29,000 31,000 80,000 82,000
------------ ------------ ------------ ------------
354,000 174,000 3,448,000 2,812,000
Non-interest expense:
Salaries and benefits 1,430,000 1,390,000 4,112,000 3,788,000
Occupancy/Equipment 460,000 369,000 1,305,000 1,101,000
Loss from Mortgage Affiliate 0 1,032,000 0 1,145,000
Other expenses 898,000 1,057,000 2,846,000 2,347,000
------------ ------------ ------------ ------------
2,788,000 3,848,000 8,263,000 8,381,000
------------ ------------ ------------ ------------
Income/(loss) before income taxes 1,218,000 (359,000) 5,584,000 4,401,000
------------ ------------ ------------ ------------
Provision for income taxes/(benefit) 403,000 (118,000) 1,839,000 1,457,000
Income before cumulative effect of a
change in accounting principle 815,000 (241,000) 3,745,000 2,944,000
Cumulative effect of changes in
accounting principle (Note 5) 0 421,000 (63,000) 421,000
------------ ------------ ------------ ------------
Net income $ 815,000 $ 180,000 $ 3,682,000 $ 3,365,000
============ ============ ============ ============
Net income per share-basic:
Income before cumulative effect of a
change in accounting principle $ 0.13 ($ 0.04) $ 0.62 $ 0.49
Cumulative effect of changes in
accounting principle (Note 5) 0.00 0.07 (0.01) 0.07
------------ ------------ ------------ ------------
Net Income $ 0.13 $ 0.03 $ 0.61 $ 0.56
============ ============ ============ ============
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Quarter to Date Year to Date
September 30, September 30,
------------- -------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income per share-diluted:
Income before cumulative effect of a
change in accounting principle $ 0.13 ($ 0.04) $ 0.60 $ 0.45
Cumulative effect of changes in
Accounting principle (Note 5) 0.00 0.07 (0.01) 0.07
------------ ------------ ------------ ------------
Net Income $ 0.13 $ 0.03 $ 0.59 $ 0.52
============ ============ ============ ============
</TABLE>
(See notes to consolidated financial statements)
6
<PAGE>
Republic First Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,
(unaudited)
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,682,000 $ 3,365,000
Adjustments to reconcile net income
to net cash provided by operating activities
Provision for loan losses 670,000 290,000
Write down of other real estate owned 75,000 0
Depreciation and amortization 688,000 482,000
Proceeds from sale of trading securities 0 35,143,000
Loss from Mortgage affiliate 0 (1,145,000)
Decrease in loans held for sale 6,757,000 0
Increase in accrued income
and other assets (241,000) (3,860,000)
(Decrease)/increase in accrued expenses
and other liabilities (462,000) 2,107,000
------------- -------------
Net cash provided by/(used) in operating activities 11,169,000 (36,382,000)
------------- -------------
Cash flows from investing activities:
Purchase of securities:
Available for Sale (44,978,000) (116,664,000)
Held to Maturity (5,418,000) (4,083,000)
Proceeds from principal receipts, sales, and
maturities of securities 27,080,000 46,021,000
Net increase in loans (27,320,000) (55,258,000)
Net increase in deferred fees 77,000 466,000
Purchase of other real estate owned 0 0
Premises and equipment expenditures (1,326,000) (1,743,000)
------------- -------------
Net cash used in investing activities (51,885,000) (131,261,000)
------------- -------------
Cash flows from financing activities:
Net increase/(decrease) in demand, money
market, and savings deposits 388,000 1,414,000
Net increase/(decrease) in borrowed funds less than 90 days (18,246,000) (12,476,000)
Net increase in borrowed funds greater than 90 days 52,600,000 88,700,000
Net increase (decrease) in time deposits 9,061,000 21,451,000
Net proceeds from issued common stock 0 0
Purchase of Treasury Stock (1,028,000) (17,000)
Net proceeds from exercise of stock options 972,000 81,000
------------- -------------
Net cash provided by financing activities 43,747,000 99,153,000
------------- -------------
(Decrease)/increase in cash and cash equivalents 3,031,000 4,274,000
Cash and cash equivalents, beginning of period 18,295,000 6,326,000
------------- -------------
Cash and cash equivalents, end of period $ 21,326,000 $ 10,600,000
============= =============
Supplemental disclosure:
Interest paid $ 17,862,000 $ 8,901,000
============= =============
Taxes paid $ 2,075,000 $ 0
============= =============
Non-cash transactions:
Net transfers of loans to real estate owned 0 718,000
Change in unrealized gain/(loss) on securities available for sale,
net of tax (4,874,000) 1,059,000
Change in deferred tax liability due to change in unrealized gain
on securities available for sale 0 (348,000)
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C>
Transfer of securities from held to maturity to available for
sale and trading 0 $ 138,861,000
============= =============
</TABLE>
(See notes to consolidated financial statements)
8
<PAGE>
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Organization
Republic First Bancorp, Inc. (the "Company"), is a two-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 opened a second wholly-owned 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 County
Delaware. The Delaware Bank opened for business on June 1, 1999 and offers 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.
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (including normal recurring accruals)
necessary to present fairly the financial position as of September 30, 1999, the
results of operations for the three and nine months ended September 30, 1999 and
1998, and the cash flows for the nine months ended September 30, 1999 and 1998.
These interim financial statements have been prepared in accordance with
instructions to Form 10-Q. The interim results of operations may not be
indicative of the results of operations for the full year. The accompanying
unaudited financial statements should be read in conjunction with the Company's
audited financial statements, and the notes thereto, included in the Company's
1998 Form 10-K filed with the Securities and Exchange Commission.
Note 2: Summary of Significant Accounting Policies:
Principles of Consolidation:
The consolidated financial statements of the Company include the
accounts of Republic First Bancorp, Inc. and its wholly-owned subsidiaries,
First Republic Bank and Republic First Bank of Delaware, (the "Banks"). 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 Banks. The
Banks are 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
Banks are subject to risks and uncertainties surrounding their exposure to
change in the interest rate environment.
Additionally, the Company has derived income from First Republic Bank's
participation in a program (the "Tax Refund Program") which indirectly funds
consumer loans collateralized by federal income tax refunds, and provides
accelerated check refunds. Approximately $2.7 million and $2.4 million in gross
revenues were collected on these loans during the nine months ended September
30, 1999 and 1998, respectively. The Bank will not participate in the program
beyond 1999.
9
<PAGE>
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 the
allowance for loan losses, 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 Banks'
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 September 30, 1999 and December 31, 1998 were
$989,000 and $872,000, respectively. These requirements were satisfied through
the restriction of vault cash and balances 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 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.
As described in Note 5, the Company transferred $106.4 million of securities
from held to maturity to available for sale and $32.5 million of securities from
held to maturity to the trading category during the third quarter of 1998. 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, as a cumulative effect of a change in accounting. The Company did
not realize any gains on trading securities prior to or after the third quarter
of 1998. Additionally, the Bank had no securities classified as trading
securities, as of the end of any period reported herein.
10
<PAGE>
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. 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. Gains and losses on loans held for sale are included in
non-interest income. The Company did not realize any gains or losses during the
first, second and third quarters of 1999 or 1998.
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 known and inherent loan losses on existing loans, 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 and current economic
conditions and trends that may affect the borrower's ability to pay.
The Company considers residential mortgage loans with balances less
than $250,000 and consumer loans, including home equity lines of credit, to be
small balance homogeneous loans. These loan categories are collectively
evaluated for impairment. Jumbo mortgage loans, those with balances greater than
$250,000, commercial business loans and commercial real estate loans are
individually measured for impairment based on the present value of expected
11
<PAGE>
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 ("CSE").
Common stock equivalents consist of dilutive stock options granted through the
Company's stock option plan. The following table is a reconciliation of the
numerator and denominator used in calculating basic and diluted EPS. Common
stock equivalents which are anti-dilutive are not included for purposes of this
calculation. At September 30, 1999 and 1998, there were 138,610 and 54,301 CSEs
which were antidilutive, respectively. These shares may be dilutive in the
future.
The Company paid a 10% stock dividend on March 18, 1999 as well as two
six for five stock splits effected in the form of a 20% stock dividend 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 herein.
12
<PAGE>
The following table is a comparison of EPS for the three and nine months
ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Quarter to Date Year to Date
1999 1998 1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income before cumulative effect of a
change in accounting principle
(numerator for both calculations) $815,000 ($241,000) $3,745,000 $2,943,000
---------------------------------------------------------------------------------------
Shares Per Share Shares Per Share Shares Per Share Shares Per Share
--------- --------- ------ --------- ------ --------- ------ ---------
Weighted average shares
For period 6,086,569 6,100,958 5,971,786 6,085,817
Basic EPS $ 0.13 ($ 0.04) $ 0.63 $ 0.49
Add common stock equivalents
Representing dilutive stock options 175,525 372,819 267,689 411,634
--------- --------- --------- ---------
Effect on basic EPS and CSE (0.00) 0.00 (0.03) (0.04)
------- ------- ------ ------
Equals total weighted average
Shares and CSE (diluted) 6,262,094 6,473,777 6,239,475 6,497,451
========= ========= ========= =========
Diluted EPS $ 0.13 ($ 0.04) $ 0.60 $ 0.45
======= ======= ====== ======
</TABLE>
The impact of the cumulative effect of a change in accounting principle
on the quarter-to-date and the year-to-date 1998 EPS was to increase the
numerator by $421,000 and the resulting basic and diluted EPS by $0.07. The
impact of the cumulative effect of a change in accounting principle on the
year-to-date 1999 EPS was to lower the numerator by $63,000 and the resulting
basic and diluted EPS by $0.01.
Treasury Stock
Effective June 21, 1999, the Company's stock repurchase program,
originally announced on August 24, 1998 and established for the period through
and including June 30, 1999 has been extended to December 31, 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 issued and outstanding
stock, or approximately 297,000 shares. As of September 30, 1999, there were
54,916 shares repurchased pursuant to rule 10b-18 of the Securities and Exchange
Commission. There were also an additional 279,088 shares purchased in block
transaction purchases, that are not included as part of the stock repurchase
program specified under rule 10b-18. The exercise of 158,832 options were funded
from such block transaction purchases.
Comprehensive Income
The following table displays net income and the components of other
comprehensive income to arrive at total comprehensive income. For the Company,
the only components of other comprehensive income are those related to SFAS
Statement No. 115 available for sale securities.
13
<PAGE>
<TABLE>
<CAPTION>
(dollar amounts in thousands) Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $ 815 $ 180 $ 3,682 $ 3,364
Other comprehensive income, net of tax:
Unrealized gains/(losses) on securities:
Unrealized holding losses during the period (1,545) 705 (4,874) 703
Less: Reclassification adjustment for gains
Included in net income 0 0 0 0
------- ------- ------- -------
Comprehensive (loss)/income ($ 730) $ 885 ($1,192) $ 4,067
======= ======= ======= =======
</TABLE>
Note 3: Legal Proceedings
The Company and the Banks 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 Banks, 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 Banks.
Note 4: Recent Accounting Pronouncements:
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, as amended
by Statement No. 137, is required for all fiscal years beginning after June 15,
2000, 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 Statement No. 133 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 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.
14
<PAGE>
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.
Note 5: Cumulative Effect of a Change in Accounting Principle
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 $106.4 million of securities from
held to maturity to available for sale and $32.5 million of securities from held
to maturity to the trading category. The Company sold the securities transferred
to the trading category during the third quarter 1998 and realized a gain on the
sale of these securities of $421,000, net of income taxes, 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 of 1998.
During the first quarter of 1999, the Company expensed $94,000 which represented
all of its business start-up costs, upon the adoption of the Statement of
Position 98-5 "Reporting on the Costs of Startup Activities", on January 1,
1999. This resulted in a $63,000 charge, net of an income tax benefit of
$31,000, which was recorded as a cummulative effect of a change in accounting
principle.
Note 6: 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 four reportable segments; two community
banking segments, its mortgage banking affiliate and the Tax Refund Program. The
community banking segments are primarily comprised of the results of operation
and financial condition of the Company's wholly owned banking subsidiaries,
First Republic Bank and Republic First Bank of Delaware. 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.
The accounting policies of the segments are the same as those described
in Note 2. 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 income taxes.
15
<PAGE>
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 segment information presented below reflects that the Delaware Bank
originated in 1999, and that the Company's investment in their Mortgage Banking
Affiliate was reduced to $0 as of December 31, 1998. Accordingly, the Mortgage
Banking Affiliate no longer represents a segment in 1999.
<TABLE>
<CAPTION>
As of and for the nine months ended September 30,
(dollars in thousands)
1999 1998
First Tax First Mortgage Tax
Republic Delaware Refund Republic Banking Refund
Bank Bank Program Total Bank Affiliate Program Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
External customer revenues:
Interest Income $28,924 $75 $0 $28,999 $25,649 $0 $0 $25,649
Other Income 730 3 2,715 3,448 433 0 2,349 2,782
Total external customer revenues 29,654 78 2,715 32,447 26,082 0 2,349 28,431
Intersegment revenues:
Interest Income 0 0 0 0 0 0 0 0
Other Income 25 0 0 25 0 0 0 0
Total intersegement revenues 25 0 0 25 0 0 0 0
Total Revenue 29,679 78 2,715 32,472 26,082 0 2,349 28,431
Depreciation and amortization 672 16 0 688 482 0 0 482
Other operating expenses -
external 25,557 443 150 26,150 22,299 1,145 105 23,549
Other operating expenses -
intersegment 0 25 0 25 0 0 0 0
Segment expenses 26,229 484 150 26,863 22,781 1,145 105 24,031
Segment income before taxes
and extraordinary items $3,425 ($406) $2,565 $5,584 $3,301 (1,145) $2,244 $4,400
Segment assets $552,474 $6,263 $0 $558,737 $480,093 $662 $0 $480,755
Capital expenditures $341 $986 $0 $1,327 $1,745 $0 $0 $1,745
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
As of and for the three months ended September 30,
(dollars in thousands)
1999 1998
First Tax First Mortgage Tax
Republic Delaware Refund Republic Banking Refund
Bank Bank Program Total Bank Affiliate Program Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
External customer revenues:
Interest Income $10,071 $43 $0 $10,114 $8,814 $0 $0 $8,814
Other Income 332 3 0 335 174 0 0 174
Total external customer revenues 10,403 46 0 10,449 8,988 0 0 8,988
Intersegment revenues:
Interest Income 0 0 0 0 0 0 0 0
Other Income 19 0 0 19 0 0 0 0
Total intersegement revenues 19 0 0 19 0 0 0 0
Total Revenue 10,422 46 0 10,468 8,988 0 0 8,988
Depreciation and amortization 192 13 0 205 267 0 0 267
Other operating expenses -
external 8,766 260 0 9,026 8,048 1,032 0 9,080
Other operating expenses -
intersegment 0 19 0 19 0 0 0 0
Segment expenses 8,958 292 0 9,250 8,315 1,032 0 9,347
Segment income before taxes and
extraordinary items $1,464 ($246) $0 $1,218 $673 ($1,032) $0 ($359)
Segment assets $552,474 $6,263 $0 $558,737 $480,093 $662 $0 $480,755
Capital expenditures $238 $149 $0 $387 $495 $0 $0 $495
</TABLE>
17
<PAGE>
ITEM 2: 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 cas arise with changes in:
general economic conditions, including their impact on capital expenditures; new
service and product offerings by competitors and price pressures; and similar
items. Readers are cautioned no 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, 1998, Quarterly Reports on Form 10-Q, filed by the
Company in 1999, and any Current Reports on Form 8-K filed by the Company, as
well as similar filings.
Quarter Ended September 30, 1999 Compared to September 30, 1998
Results of Operations:
Overview
The Company's net income increased $635,000, to $815,000 for the
quarter ended September 30, 1999, from $180,000 for the quarter ended September
30, 1998. This increase was primarily the result of a write down of the
Company's equity investment in its mortgage banking affiliate of $1,032,000,
partially offset by gains recognized on trading securities of $628,000, during
the third quarter of 1998. Diluted earnings per share for the quarter ended
September 30, 1999 was $0.13 compared to $0.03, for the quarter ended September
30, 1998, primarily due to the increase in net income.
Analysis of Net Interest Income
Historically, the Company's earnings have depended primarily upon the
Bank's net interest income, which is the difference between interest earned on
interest-earning assets and interest paid on interest-bearing liabilities. Net
interest income is affected by changes in the mix of the volume and rates of
interest-earning assets and interest-bearing liabilities.
The Company's net interest income increased $467,000, or 13.8%, to $3.9
million for the quarter ended September 30, 1999 from $3.4 million for the
quarter ended September 30, 1998. The increase in net interest income was
18
<PAGE>
primarily due to an increase in average interest-earning assets of $87.7 million
due primarily to increased commercial and real estate loan production. This
increase was partially offset by a decrease in the average rate of interest
earning assets of 40 basis points, from 8.04% as of September 30, 1998 to 7.64%
as of September 30, 1999. This decrease was mainly due to the sale of higher
yielding investment securities during the third quarter of 1998.
The Company's total interest income increased $1.3 million, or 14.7%,
to $10.1 million for the quarter ended September 30, 1999 from $8.8 million for
the quarter ended September 30, 1998. Interest and fees on loans increased $1.1
million, or 19.5%, to $6.9 million for the quarter ended September 30, 1999 from
$5.7 million for the quarter ended September 30, 1998. This increase was due
primarily to an increase in average loans outstanding for the period of $72.6
million. Interest and dividend income on securities increased $173,000, or 5.6%,
to $3.2 million for the quarter ended September 30, 1999 from $3.1 million for
the quarter ended September 30, 1998. This increase in investment income was
primarily the result of an increase in the average balance of securities owned
by $14.3 million, or 7.8% to $197.7 million for the quarter ended September 30,
1999 from $183.4 million for the quarter ended September 30, 1998.
The Company's total interest expense increased $833,000, or 15.4%, to
$6.3 million for the quarter ended September 30, 1999 from $5.4 million for the
quarter ended September 30, 1998. This increase was due to an increase in the
volume of average interest-bearing liabilities of $82.9 million, or 21.0%, to
$477.0 million for the quarter ended September 30, 1999 from $394.2 million for
the quarter ended September 30, 1998. The average rate paid on interest-bearing
liabilities decreased 31 basis points to 5.20% for the quarter ended September
30, 1999 from 5.51% for the quarter ended September 30, 1998 due primarily to
the decrease in average rates paid on other borrowed funds and deposit accounts.
Interest expense on time deposits decreased $82,000 or 2.7%. This
decrease was primarily due to a decrease in the average rate paid on time
deposit of 38 basis points from 6.17% at September 30, 1998 to 5.79% at
September 30, 1999. The average volume of certificates of deposit increased by
$4.8 million, or 2.4%, to $198.6 million for the quarter ended September 30,
1999 from $193.8 million for the quarter ended September 30, 1998.
Interest expense on FHLB advances and overnight federal funds purchased
was $2.9 million for the quarter ended September 30, 1999 compared to $2.0
million for the quarter ended September 30, 1998. This increase was due to an
increase in the average volume of other borrowed funds of $70.3 million to
$219.0 million for the quarter ended September 30, 1999 from $148.7 million for
the quarter ended September 30, 1998. This increase was partially offset by a
decrease in the average rate of interest paid on other borrowed funds of 26
basis points from 5.48% at September 30, 1998 to 5.22% at September 30, 1999. At
September 30, 1999, FHLB advances funded purchases of securities and origination
of loans as part of an ongoing leveraged funding program designed to increase
earnings while also managing interest rate risk and liquidity.
Provision for Loan Losses
The provision for loan losses is charged to operations to bring the
total allowance for loan losses to a level considered appropriate by management.
The level of the allowance for loan losses is determined by management based
upon its evaluation of the known as well as inherent risks within the Company's
loan portfolio. Management's periodic evaluation is based upon an examination of
the portfolio, past loss experience, current economic conditions, the results of
the most recent regulatory examinations and other relevant factors. The
provision for loan losses was $210,000 and $80,000 for the quarters ended
September 30, 1999 and 1998, respectively. This increase is due primarily to an
increase in loans outstanding of $62.2 million from September 30, 1998 to
September 30, 1999.
19
<PAGE>
Non-Interest Income
Total non-interest income increased $180,000 to $354,000 for the
quarter ended September 30, 1999 from $174,000 for the quarter ended September
30, 1998. This increase is due primarily to an increase in service fee income of
$182,000 related to deposit accounts as well as non-recurring pre-payment
penalties and expired commitment fees on loans.
Non-Interest Expenses
Total non-interest expenses decreased $1.1 million, to $2.8 million for
the quarter ended September 30, 1999 from $3.8 million for the quarter ended
September 30, 1998. This decrease was due primarily to the Company's write down
of its equity interest in its mortgage banking affiliate during the third
quarter of 1998 for $1,032,000.
Salaries and benefits increased $40,000, or 2.9%, to $1.4 million for
the quarter ended September 30, 1999 from $1.3 million for the quarter ended
September 30, 1998. Occupancy and equipment expenses increased $91,000, or
24.7%, to $460,000 for the quarter ended September 30, 1999 from $369,000 for
the quarter ended September 30, 1998. These increases were due primarily to an
increase in staff and costs related to the opening of the Delaware Bank on June
1, 1999.
Other non-interest expense decreased $159,000, to $898,000 for the
quarter ended September 30, 1999 from $1,057,000 for the same period in 1998.
This was mainly due to an decrease in legal expenses associated with loans in
workout, advertising costs and MAC expenses.
Provision for Income Taxes
The provision for income taxes increased to $403,000 for the quarter
ended September 30, 1999 from a benefit of $118,000 for the quarter ended
September 30, 1998. This increase is the result of the increase in pre-tax
income in 1999 from a pre-tax loss in 1998. In 1998 the Company recorded income
tax expense of $207,000 in connection with the Cumulative Effect of a Change in
Accounting Principle upon the adoption of SFAS Statement No. 133.
Nine Months Ended September 30, 1999 Compared to September 30, 1998
Results of Operations:
Overview
The Company's net income increased $318,000, or 9.5%, to $3.7 million
for the nine months ended September 30, 1999, from $3.4 million for the nine
months ended September 30, 1998. Diluted earnings per share for the nine months
ended September 30, 1999 was $0.59 compared to $0.52, for the nine months ended
September 30, 1998, due to the increase in net income.
Analysis of Net Interest Income
Historically, the Company's earnings have depended primarily upon the
Banks' net interest income, which is the difference between interest earned on
interest-earning assets and interest paid on interest-bearing liabilities. Net
20
<PAGE>
interest income is affected by changes in the mix of the volume and rates of
interest-earning assets and interest-bearing liabilities.
The Company's net interest income increased $809,000, or 7.9%, to $11.1
million for the nine months ended September 30, 1999 from $10.3 million for the
nine months ended September 30, 1998. The increase in net interest income was
primarily due to an increase in average interest-earning assets of $85.8 million
due to increased commercial and real estate loan production. This increase was
partially offset by a decrease in the average rate on interest earning assets of
45 basis points, from 7.96% as of September 30, 1998 to 7.51% as of September
30, 1999. This decrease was mainly due to the sale of higher yielding investment
securities during the third quarter of 1998.
The Company's total interest income increased $3.4 million, or 13.1%,
to $29.0 million for the nine months ended September 30, 1999 from $25.6 million
for the nine months ended September 30, 1998. Interest and fees on loans
increased $3.8 million, or 24.2%, to $19.7 million for the nine months ended
September 30, 1999 from $15.8 million for the nine months ended September 30,
1998. This increase was due primarily to an increase in average loans
outstanding for the period of $81.9 million. Interest and dividend income on
securities decreased $219,000, or 2.30%, to $9.3 million for the nine months
ended September 30, 1999 from $9.6 million for the nine months ended September
30, 1998. This decrease in investment income was the result of a decrease in
yield on the securities portfolio of 34 basis points due primarily to the sale
of higher yielding investment securities during the third and fourth quarters of
1998, partially offset by an increase in the average balance of securities owned
of $5.3 million, to $192.7 million for the nine months ended September 30, 1999
from $187.4 million for the nine months ended September 30, 1998.
The Company's total interest expense increased $2.6 million, or 17.0%,
to $17.9 million for the nine months ended September 30, 1999 from $15.3 million
for the nine months ended September 30, 1998. This increase was due to an
increase in the volume of average interest-bearing liabilities of $88.3 million,
or 23.7%, to $460.2 million for the nine months ended September 30, 1999 from
$372.0 million for the nine months ended September 30, 1998. The average rate
paid on interest-bearing liabilities decreased 30 basis points to 5.21% for the
nine months ended September 30, 1999 from 5.51% for the nine months ended
September 30, 1998 due primarily to the decrease in average rates paid on other
borrowings and certain deposit accounts.
Interest expense on time deposits decreased $266,000 or 3.1%. This
decrease was primarily due to a decrease in the average rate of interest paid on
time deposits 26 basis points from 6.12% at September 30, 1998 to 5.86% at
September 30, 1999. The average volume of certificates of deposit increased in
the amount of $2.2 million, or 1.2%, to $191.2 million for the nine months ended
September 30, 1999 from $189.0 million for the nine months ended September 30,
1998.
Interest expense on FHLB advances and overnight federal funds purchased
was $8.2 million for the nine months ended September 30, 1999 compared to $5.6
million for the nine months ended September 30, 1998. This increase was due to
an increase in the average volume of other borrowed funds of $74.4 million to
$210.3 million for the nine months ended September 30, 1999 from $135.9 million
for the nine months ended September 30, 1998. This increase was partially offset
by a decrease in the average rate of interest paid on other borrowed funds 28
basis points from 5.47% at September 30, 1998 to 5.19% at September 30, 1999. At
September 30, 1999, 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.
21
<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 Company's
loan portfolio. Management's periodic evaluation is based upon an examination of
the portfolio, past loss experience, current economic conditions, the results of
the most recent regulatory examinations and other relevant factors. The
provision for loan losses was $670,000 and $290,000 for the nine months ended
September 30, 1999 and 1998, respectively. This increase is due primarily to an
increase in loans outstanding of $62.9 million from September 30, 1998 to
September 30, 1999.
Non-Interest Income
Total non-interest income increased $666,000 or 23.9%, to $3.4 million
for the nine months ended September 30, 1999 from $2.8 million for the nine
months ended September 30, 1998. This was mainly attributable to a $366,000
increase in revenues related to the Tax Refund Program, as well as an increase
in service fee income related to deposit accounts and pre-payment penalty and
forfeited commitment fees on loans
Non-Interest Expenses
Total non-interest expenses decreased $119,000, or 1.42% to $8.3
million for the nine months ended September 30, 1999 from $8.4 million for the
nine months ended September 30, 1998. Salaries and benefits increased $323,000,
or 8.5%, to $4.1 million for the nine months ended September 30, 1999 from $3.8
million for the nine months ended September 30, 1998. The increase was due
primarily to an increase in staff as a result of the addition of a branch
banking office, as well as the opening of the Delaware Bank.
Occupancy and equipment expenses increased $204,000, or 18.5%, to $1.3
million for the nine months ended September 30, 1999 from $1.1 million for the
nine months ended September 30, 1998 as a result of the addition of a branch
banking office, as well as the opening of the Delaware Bank on June 1, 1999.
Other non-interest expense increased $499,000, to $2.8 million for the
nine months ended September 30, 1999 from $2.3 million for the same period in
1998. This was mainly due to the accrual of a legal settlement for $233,000. The
Company also recorded a write-down of its only property held in other real
estate owned, of $75,000, during the first quarter of 1999. The remaining
expenses were due to growth of the Company and business development costs.
Provision for Income Taxes
The provision for income taxes increased $382,000, or 26.2%, to $1.8
million for the nine months ended September 30, 1999 from $1.5 million for the
nine months ended September 30, 1998. This increase is mainly the result of the
increase in pre-tax income from 1998 to 1999. The Company also recorded a
$31,000 income tax benefit in 1999 in connection with the Cumulative Effect of a
Change in Accounting Principle, upon the adoption of SOP 98-5. In 1998 the
Company recorded income tax expense of $207,000 in connection with the
Cummulative Effect of a Change in Accounting Principle, upon the adoption of
FASB Statement No. 133.
22
<PAGE>
Financial Condition:
September 30, 1999 Compared to December 31, 1998
Total assets increased $42.4 million, or 8.2%, to $558.8 million at
September 30, 1999 from $516.4 million at December 31, 1998. The increase in
assets was the result of higher levels of loans and securities, which were
funded by a net increase in other borrowed funds. Net loans (including loans
held for sale) increased $19.8 million, or 6.1%, to $326.6 million at September
30, 1999 from $306.8 million at December 31, 1998. Investment securities
increased $15.7 million, or 8.9%, to $193.3 million at September 30, 1999 from
$177.6 million at December 31, 1998.
Cash and due from banks, interest-bearing deposits, and federal funds
sold are all liquid funds. The aggregate amount in these three categories
increased by $3.0 million, or 16.6%, to $21.3 million at September 30, 1999 from
$18.3 million at December 31, 1998.
Premises and equipment, net of accumulated depreciation, increased
$860,000 to $4.9 million at September 30, 1999 from $4.0 at December 31, 1998.
The increase was mainly attributable to the construction and furnishing of the
Delaware Bank.
Total liabilities increased $43.4 million, or 9.0%, to $523.1 million
at September 30, 1999 from $479.7 million at December 31, 1998. Deposits, the
Company's primary source of funds, increased $9.5 million, 3.4% to $292.6
million at September 30, 1999 from $283.1 million at December 31, 1998. The
aggregate of transaction accounts, which include demand, money market and
savings accounts, increased $446,000, to $88.4 million at September 30, 1999
from $87.9 million at December 31, 1998. Certificates of deposit increased by
$9.1 million, or 4.6%, to $204.2 million at September 30, 1999 from $195.1
million at December 31, 1998.
Other borrowed funds were $222.4 million at September 30, 1999 as
compared to $188.0 million at December 31, 1998. 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.
ITEM 3: QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
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
23
<PAGE>
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. Management uses gap analysis and simulation models to attempt to
monitor efforct of its interest sensitive assets and liablilitis. Adjustments to
the mix of assets and liabilities are made periodically in an effort to provide
dependable and steady growth in net interest income regardless of the behavior
of interest rates.
The following tables present a summary of the Bank's interest rate
sensitivity GAP at September 30, 1999. 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.
24
<PAGE>
<TABLE>
<CAPTION>
Republic First Bancorp
Interest Sensitive Gap
(dollars in thousands) as of December 31, 1998
0 - 90 91 - 180 181 - 365 1 - 2 2 - 3
Days Days Days Years Years
---- ---- ---- ----- -----
<S> <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
Average interest rate 6.53% 7.00% 7.01% 7.03% 7.04%
Loans receivable (1) 91,885 9,453 18,526 39,278 33,195
Average interest rate 8.53% 8.33% 8.33% 8.19% 8.20%
Total 124,747 19,638 36,728 67,968 54,101
--------- --------- --------- --------- ---------
Cumulative total $ 124,747 $ 144,385 $ 181,113 $ 249,081 $ 303,182
========= ========= ========= ========= =========
Interest sensitive liabilities:
Demand interest bearing $ 2,320 $ 457 $ 1,476 $ 1,829 $ 1,829
Average interest rate 2.50% 2.50% 2.50% 2.50% 2.50%
Savings accounts 675 63 128 255 255
Average interest rate 2.50% 2.50% 2.50% 2.50% 2.50%
Money market accounts 19,687 652 1,305 2,610 2,610
Average interest rate 4.42% 2.75% 2.75% 2.75% 2.75%
FHLB borrowings 40,609 7,400 -- -- --
Average interest rate 5.00% 6.32% 0.00% 0.00% 0.00%
Time deposits 35,549 26,134 86,620 39,424 2,885
Average interest rate 5.51% 5.70% 5.82% 6.43% 5.93%
Totals $ 98,840 $ 34,706 $ 89,529 $ 44,118 $ 7,579
--------- --------- --------- --------- ---------
Cumulative total $ 98,840 $ 133,546 $ 223,075 $ 267,193 $ 274,772
========= ========= ========= ========= =========
Interest Rate
sensitivity GAP $ 25,907 $ (15,068) $ (52,801) $ 23,850 $ 46,522
Cumulative GAP $ 25,907 $ 10,839 $ (41,962) $ (18,112) $ 28,410
Interest Sensitive Assets/
Interest Sensitive Liabilities 1.3x 1.1x 0.8x 0.9 1.1
Cumulative GAP/
Total Earning Assets 5.3% 2.2% -8.7% -3.7% 5.9%
Total earning assets $ 484,446
=========
Off balance sheet items
notional value:
Commitments to
extend credit $ 430 $ 21,534
--------- ---------
Average interest rate 7.75% 8.25%
</TABLE>
<TABLE>
<CAPTION>
3 - 4 4 - 5 More than 5
Years Years Years Total Fair Value
----- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
Interest sensitive assets:
Securities and interest
bearing balances due
from banks $ 15,855 $ 12,038 $ 38,940 $ 177,678 $ 177,662
Average interest rate 7.03% 7.02% 6.94%
Loans receivable (1) 31,220 29,488 53,723 306,768 311,775
Average interest rate 8.23% 8.27% 7.55%
Total 47,075 41,526 92,663 484,446 485,613
--------- --------- --------- --------- ---------
Cumulative total $ 350,257 $ 391,783 $ 484,446
========= ========= =========
Interest sensitive liabilities:
Demand interest bearing $ 1,829 $ 1,829 $ 8,586 $ 20,155 20,155
Average interest rate 2.50% 2.50% 2.50%
Savings accounts 255 255 1,280 3,166 3,166
Average interest rate 2.50% 2.50% 2.50%
Money market accounts 2,610 2,610 -- 32,084 32,084
Average interest rate 2.75% 2.75% 0.00%
FHLB borrowings 40,000 50,000 50,000 188,009 191,684
Average interest rate 5.59% 4.99% 5.15%
Time deposits 2,262 2,262 6 195,142 188,009
Average interest rate 5.92% 5.92% 5.30%
Totals $ 46,956 $ 56,956 $ 59,872 438,556 435,098
--------- --------- --------- --------- ---------
Cumulative total $ 321,728 $ 378,684 $ 438,556
========= ========= =========
Interest Rate
sensitivity GAP $ 119 $ (15,430) $ 32,791 $ 45,890
Cumulative GAP $ 28,529 $ 13,099 $ 45,890
Interest Sensitive Assets/
Interest Sensitive Liabilities 1.1 1.0x 1.1x
Cumulative GAP/
Total Earning Assets 5.9% 2.7% 9.5%
Total earning assets
Off balance sheet items
notional value:
Commitments to
extend credit $ 21,534 $ 220
--------- ---------
Average interest rate
<FN>
(1) Includes loans held for sale
</FN>
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Republic First Bancorp
Interest Sensitive Gap
(dollars in thousands) as of September 30, 1999
0 - 90 91 - 180 181 - 365 1 - 2 2 - 3
Days Days Days Years Years
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Interest Sensitive Assets:
Securities and interest
bearing balances due
from banks $ 33,152 $ 7,989 $ 15,469 $ 27,008 $ 25,337
Average interest rate 5.41% 6.37% 6.38% 6.47% 6.47%
Loans receivable (1) 108,321 11,931 22,022 42,851 36,915
Average interest rate 8.48% 8.07% 8.04% 8.03% 8.13%
Total 141,473 19,920 37,491 69,859 62,252
--------- --------- --------- --------- ---------
Cumulative Totals $ 141,473 $ 161,393 $ 198,884 $ 268,743 $ 330,995
========= ========= ========= ========= =========
Interest Sensitive Liabilities:
Demand Interest Bearing $ 4,810 $ 281 $ 568 $ 1,156 $ 1,183
Average interest rate 1.25% 1.25% 1.25% 1.25% 1.25%
Savings Accounts 1,316 102 206 419 428
Average interest rate 2.00% 2.00% 2.00% 2.00% 2.00%
Money Market Accounts 7,616 2,153 4,317 5,885 5,957
Average interest rate 3.73% 4.69% 4.69% 4.69% 4.69%
Time Deposits 58,704 35,367 38,784 64,969 1,944
Average interest rate 5.51% 5.80% 5.59% 5.60% 5.77%
FHLB Borrowings 87,363 25,000 25,000 42,500 17,500
Average interest rate 5.33% 5.29% 4.82% 5.68% 5.58%
Total 159,810 62,903 68,875 114,928 27,012
--------- --------- --------- --------- ---------
Cumulative Totals $ 159,810 $ 222,713 $ 291,588 $ 406,516 $ 433,528
========= ========= ========= ========= =========
Interest Rate
sensitivity GAP $ (18,337) $ (42,983) $ (31,384) $ (45,069) $ 35,240
Cumulative GAP $ (18,337) $ (61,320) $ (92,704) $(137,773) $(102,533)
Interest Sensitive Assets/
Interest Sensitive Liabilities 88.53% 31.67% 54.43% 60.79% 230.46%
Cumulative GAP/
Total Earning Assets -3.49% -11.66% -17.63% -26.20% -19.50%
Total Earning Assets $ 525,901
=========
Off balance sheet items
notional value:
Commitments to
extend credit $ 404 $ 23,160
--------- ---------
Average interest rate 7.75% 8.25%
</TABLE>
<TABLE>
<CAPTION>
3 - 4 4 - 5 More than 5
Years Years Years Total Fair Value
----- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
Interest Sensitive Assets:
Securities and interest
bearing balances due
from banks $ 12,273 $ 10,937 $ 67,158 $ 199,323 $ 199,623
Average interest rate 6.52% 6.52% 6.53%
Loans receivable (1) 31,140 28,476 44,922 326,578 328,676
Average interest rate 8.15% 8.01% 7.38%
Total 43,413 39,413 112,080 525,901 528,299
--------- --------- --------- --------- ---------
Cumulative Totals $ 374,408 $ 413,821 $ 525,901
========= ========= =========
Interest Sensitive Liabilities:
Demand Interest Bearing $ 1,210 $ 1,238 $ 2,151 $ 12,598 $ 12,598
Average interest rate 1.25% 1.25% 1.25%
Savings Accounts 438 449 $ 779 4,137 4,137
Average interest rate 2.00% 2.00% 2.00%
Money Market Accounts 6,030 6,105 $ 5,737 43,801 43,801
Average interest rate 4.69% 4.69% 4.69%
Time Deposits 1,486 2,941 7 204,202 204,669
Average interest rate 5.90% 5.69% 5.41%
FHLB Borrowings 25,000 -- -- 222,363 222,476
Average interest rate 5.72% 0.00% 0.00%
Total 34,165 10,733 8,675 487,101 487,681
--------- --------- --------- --------- ---------
Cumulative Totals $ 467,693 $ 478,426 $ 487,101
========= ========= =========
Interest Rate
sensitivity GAP $ 9,248 $ 28,680 $ 103,405
Cumulative GAP $ (93,285) $ (64,605) $ 38,800
Interest Sensitive Assets/
Interest Sensitive Liabilities 127.07% 367.21% 1291.99%
Cumulative GAP/
Total Earning Assets -17.74% -12.28% 7.38%
Total Earning Assets
Off balance sheet items
notional value:
Commitments to
extend credit $ 23,564 $ 236
--------- ---------
Average interest rate
<FN>
(1) Includes loans held for sale.
</FN>
</TABLE>
26
<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 13.08% and 12.54% at September 30,
1999 and December 31, 1998 , 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 September 30, 1999 and December
31, 1998 was 12.15% and 11.76%, 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 September
30, 1999 and December 31, 1998 , the leverage ratio was 7.33% and 7.50%,
respectively. Accordingly, at September 30, 1999 and December 31, 1998, the
Company was considered "well capitalized" under FRB and FDIC regulations.
The Company's shareholders' equity as of September 30, 1999 and
December 31, 1998 was $35,657,000 and $36,622,000, respectively. Book value per
share of the Company's common stock decreased from $6.22 as of December 31, 1998
to $5.83 as of September 30, 1999. These decreases were attributable to the
change in unrealized losses of $4.9 million on available for sale securities,
partially offset by net income of $3,682,000. 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 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 $10.9 million year to date of dividends in 1999.
State and federal regulatory authorities have adopted standards for the
maintenance of adequate levels of capital by banks. Adherence to such standards
futher limits the ability of the Bank to pay dividends to the Company.
Other regulatory requirments 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 practive (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
27
<PAGE>
providing that insured banks and bank holding companies should generally pay
dividends only out of current operating earnings.
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 of
earnings; concentrations of credit, quality of loans and investments; risks of
any nontraditional activities; effectiveness of bank policies; and management's
overall ability to monitor and control risks.
The following table presents the Company's capital regulatory ratios at
September 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
To be well
For capital Capitalized under FRB
Actual Adequacy purposes capital guidelines
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1999:
Total risk based capital $43,348 13.08% $26,523 8.00% $33,153 10.00%
Tier I capital 40,297 12.15 13,261 4.00 19,892 6.00
Tier I (leveraged) capital 40,297 7.33 27,492 5.00 27,492 5.00
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
</TABLE>
Management believes that the Company meets as of September 30, 1999 and
December 31, 1998, all capital adequacy requirements to which it is subject. As
of September 30, 1999 and December 31, 1998, the most recent notification from
the Federal Reserve Bank categorized the Company 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 Company's
category.
The Company's ability to maintain the required levels of capital is
substantially dependent upon the success of the Banks capital and business
plans, the impact of future economic events on the Banks' loan customers, the
28
<PAGE>
Banks' 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 Banks currently exceed the levels
required for a bank to be classified as "well capitalized". However, the Federal
Reserve Bank may consider other criteria when determining such classifications,
which consideration could result in a downgrading in such classifications.
Liquidity
Financial institutions must maintain liquidity to meet day-to-day
requirements of depositors and borrowers, take advantage of market
opportunities, and provide a cushion against unforeseen needs. Liquidity needs
can be met by either reducing assets or increasing liabilities. Sources of asset
liquidity are provided by cash and amounts due from banks, interest-bearing
deposits with banks, and federal funds sold.
The Company's liquid assets totaled $21.3 million at September 30, 1999
compared to $18.3 million at December 31, 1998. Maturing and repaying loans are
another source of asset liquidity. At September 30, 1999, the Company estimated
that an additional $63.8 million of loans will mature or repay in the next one
year period ending September 30, 2000.
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 September 30, 1999, the Banks had $43.4
million in unused lines of credit available to it under informal arrangements
with correspondent banks compared to $55.5 million at December 31, 1998. These
lines of credit enable the Banks to purchase funds for short-term needs at
current market rates.
At September 30, 1999, the Company had outstanding commitments
(including unused lines of credit and letters of credit) of $23.2 million.
Certificates of deposit which are scheduled to mature within one year totaled
$129.8 million at September 30, 1999, and borrowings that are scheduled to
mature within the same period amounted to $133.8 million. The Company
anticipates that it will have sufficient funds available to meet its current
commitments.
The Banks' 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 a line of credit from its
correspondent, in the amount of $7.5 million, to assist in managing the Bank's
liquidity position. Additionally, the Bank has established a line of credit with
the Federal Home Loan Bank of Pittsburgh with a maximum borrowing capacity of
approximately $258.2 million. As of Spetember 30, 1999 and December 31, 1998,
the Company had borrowed $222.4 and $180.5, respectively, under its lines of
credit.
The Company's Board of Directors has appointed an Asset/Liability
Committee (ALCO) to assist Management in establishing parameters for
investments. The Asset/Liability Committee is responsible for managing the
liquidity position and interest sensitivity of the Banks. Such committee's
primary objective is to maximize net interest margin in an ever changing rate
29
<PAGE>
environment, while balancing the Banks' interest-sensitive assets and
liabilities and providing adequate liquidity for projected needs.
Management presently believes that the effect on the Banks of any
future rise in interest rates, reflected in higher cost of funds, would be
detrimental since the amount of the Banks' interest bearing liabilities which
would reprice, are greater than the Banks' interest earning assets which would
reprice, over the next twelve months. However, a decrease in interest rates
generally could have a positive effect on the Banks, due again to the timing
difference between repricing the Banks' liabilities, primarily certificates of
deposit and other borrowed funds, and the largely automatic repricing of its
existing interest-earning assets. As of September 30, 1999, 27% of the Banks'
interest-bearing deposits were to mature, and be repriceable, within three
months, and an additional 14% were to mature, and be repriceable, within three
to six months.
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.
Securities Portfolio
At September 30, 1999, the Company had identified certain investment
securities that are being held for indefinite periods of time, including
securities that will be used as part of the Company's asset/liability management
strategy and that may be sold in response to changes in interest rates,
prepayments and similar factors. These securities are classified as
available-for-sale and are intended to increase the flexibility of the Company's
asset/liability management. Available-for-sale securities consist of US
Government Agency securities and other investments. The book and market values
of securities available-for-sale were $184.6 million and $177.2 million as of
September 30, 1999. The net unrealized loss on securities available-for-sale, as
of this date, was $7.4 million.
The following table represents the carrying and estimated fair values
of Investment Securities at September 30, 1999.
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Available-for-Sale Cost Gain Loss Fair Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed $181,688,000 $31,000 ($7,427,000) $174,292,000
U.S. Government Agencies 2,900,000 9,000 (22,000) 2,887,000
----------------------------------------------------------------
Total Available-for-Sale $184,588,000 $40,000 ($7,449,000) $177,179,000
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Held-to-Maturity Cost Gain Loss Fair Value
----------------------------------------------------------------
Mortgage-backed $939,000 $15,000 $0 $954,000
US Government Agencies 1,895,000 1,000 (9,000) 1,887,000
Other 13,287,000 0 0 13,287,000
----------------------------------------------------------------
Total Held-to-Maturity $16,121,000 $16,000 ($9,000) $16,128,000
----------------------------------------------------------------
</TABLE>
30
<PAGE>
Loan Portfolio
The Company's loan portfolio consists of commercial loans, commercial
real estate loans, commercial loans secured by one-to-four family residential
property, as well as residential, home equity loans and consumer loans.
Commercial loans are primarily term loans made to small-to-medium-sized
businesses and professionals for working capital purposes. The majority of these
commercial loans are collateralized by real estate and further secured by other
collateral and personal guarantees. The Company's commercial loans generally
range from $250,000 to $1,000,000 in amount.
The Company's net loans increased $19.8 million, or 6.5%, to $326.6
million at September 30, 1999 from $306.8 million at December 31, 1998, which
were primarily funded by an increase in other borrowed funds.
The following table sets forth the Company's gross loans by major categories for
the periods indicated:
<TABLE>
<CAPTION>
(dollars in thousands) As of September 30, 1999 As of December 31, 1998
------------------------------------------------------------
Balance % of Total Balance % of Total
------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate:
1-4 Family (1) $145,895 44.3% $133,158 43.1%
Multi-Family 23,502 7.1 21,800 7.0
Commercial Real Estate 120,784 36.6 110,385 35.7
------------------------------------------------------------
Total Real Estate 290,181 88.0 265,343 85.8
Commercial 37,566 11.4 42,644 13.8
Other 1,882 0.6 1,176 0.4
------------------------------------------------------------
Total Loans (1) 329,629 100.0% 309,163 100.0%
Less allowance for loan losses (3,051) (2,395)
-------- --------
Net loans $326,578 $306,768
======== ========
<FN>
(1) Includes loans held for sale
</FN>
</TABLE>
Credit Quality
The Company's written lending policies require underwriting, loan
documentation, and credit analysis standards to be met prior to funding. In
addition, a senior loan officer reviews all loan applications. The Board of
Directors reviews the status of loans monthly to ensure that proper standards
are maintained.
Loans, including impaired loans, are generally classified as nonaccrual
if they are past due as to maturity or payment of principal and/or interest for
a period of more than 90 days, unless such loans are well-secured and in the
process of collection. Loans that are on a current payment status or past due
less than 90 days may also be classified as nonaccrual if repayment in full of
principal and/or interest is in doubt.
31
<PAGE>
Loans may be returned to accrual status when all principal and interest
amounts contractually due are reasonably assured of repayment within an
acceptable period of time, and there is a sustained period of repayment
performance (generally a minimum of six months) by the borrower, in accordance
with the contractual terms of the loan.
While a loan is classified as nonaccrual or as an impaired loan and the
future collectability of the recorded loan balance is doubtful, collections of
interest and principal are generally applied as a reduction to principal
outstanding. When the future collectability of the recorded loan balance is
expected, interest income may be recognized on a cash basis. In the case where a
nonaccrual loan had been partially charged off, recognition of interest on a
cash basis is limited to that which would have been recognized on the remaining
recorded loan balance at the contractual interest rate. Cash interest receipts
in excess of that amount are recorded as recoveries to the allowance for loan
losses until prior charge-offs have been fully recovered.
The following summary shows information concerning loan delinquency and
other non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------------------
<S> <C> <C>
Loans accruing, but past due 90 days
or more $586,000 $121,000
Non-accrual loans 1,061,000 1,002,000
------------------------------
Total non-performing loans (1) 1,647,000 1,123,000
Foreclosed real estate 643,000 718,000
------------------------------
Total non-performing assets (2) $2,290,000 $1,841,000
==============================
Non-performing loans as a percentage
of total loans net of unearned
income (3) 0.50% 0.36%
Non-performing assets as a percentage
of total assets 0.41% 0.36%
<FN>
(1) Non-performing loans are comprised of (i) loans that are on a
nonaccrual basis; (ii) accruing loans that are 90 days or more past due
and (iii) restructured loans.
(2) Non-performing assets are composed of non-performing loans and
foreclosed real estate (assets acquired in foreclosure).
(3) Includes loans held for sale
</FN>
</TABLE>
Total non-performing loans increased by $524,000 to $1,647,000 at
September 30, 1999 from $1,123,000 at December 31, 1998. Total non performing
assets increased by $449,000 at September 30, 1999 to $2,290,000 from $1,841,000
at December 31, 1998.
At September 30, 1999, 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 $82.6 million, which
represented 25.3% of gross loans receivable. Loan concentrations are considered
to exist when there are amounts loaned to a multiple number of borrowers engaged
32
<PAGE>
in similar activities that would cause them to be similarly impacted by economic
or other conditions.
Real estate owned is initially recorded at the lower or cost or fair
value, net of estimated selling costs at the date of foreclosure. After
foreclosure, management periodically performs valuations and any subsequent
deteriations in fair value, and all other revenue and expenses are charged
against operating expenses in the period in which they occur.
Potential problem loans consist of loans that are included in
performing loans, but for which potential credit problems of the borrowers have
caused management to have serious doubts as to the ability of such borrowers to
continue to comply with present repayment terms. At September 30, 1999, all
identified potential problem loans are included in the preceding table.
The Company had no credit exposure to "highly leveraged transactions"
at September 30, 1999, as defined by the FRB.
Allowance for Loan Losses
A detailed analysis of the Company's allowance for loan losses for the
nine months ended September 30, 1999, and 1998 and the twelve months ended
December 31, 1998:
<TABLE>
<CAPTION>
For the nine months For the twelve months For the nine months
ended ended ended
September 30, 1999 December 31, 1998 September 30, 1998
------------------ ---------------------- -------------------
<S> <C> <C> <C>
Balance at beginning of period ............ $2,395,000 $2,028,000 $2,028,000
Charge-offs:
Commercial ........................... 27,000 76,000 55,000
Real estate .......................... 0 0 0
Consumer ............................. 97,000 34,000 0
------------ ------------ ------------
Total charge-offs ................ 124,000 110,000 55,000
------------ ------------ ------------
Recoveries:
Commercial ........................... 93,000 13,000 48,000
Real estate .......................... 0 0 0
Consumer ............................. 17,000 94,000 13,000
------------ ------------ ------------
Total recoveries ................. 110,000 107,000 61,000
------------ ------------ ------------
Net charge-offs/(recoveries) .............. 14,000 3,000 (6,000)
------------ ------------ ------------
Provision for loan losses ................. 670,000 370,000 290,000
------------ ------------ ------------
Balance at end of period ............. $3,051,000 $2,395,000 $2,324,000
============ ============ ============
Average loans outstanding (1)(2) ..... $318,770,000 $248,479,000 $236,874,000
============ ============ ============
As a percent of average loans (1)(2):
Net charge-offs ...................... 0.01% 0.00% 0.00%
Provision for loan losses ............ 0.21% 0.15% 0.12%
Allowance for loan losses ............ 0.96% 0.96% 0.98%
Allowance for loan losses to:
Total loans, net of unearned income .. 0.93% 0.77% 0.87%
Total non-performing loans ........... 185.25% 213.27% 141.79%
<FN>
(1) Includes nonaccruing loans.
(2) Includes loans held for sale.
</FN>
</TABLE>
33
<PAGE>
Management makes a monthly determination as to an appropriate provision
from earnings necessary to maintain an allowance for loan losses that is
adequate based upon the loan portfolio composition, classified problem loans,
and general economic conditions. The Company's Board of Directors periodically
reviews the status of all nonaccrual and impaired loans and loans criticized by
the Company's regulators and internal loan review officer. The internal loan
review officer reviews both the loan portfolio and the overall adequacy of the
loan loss reserve. During the review of the loan loss reserve, the Board of
Directors considers specific loans, pools of similar loans, and historical
charge-off activity. 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 operations.
The Company has an existing loan review program, which monitors the
loan portfolio on an ongoing basis. Loan review is conducted by a loan review
officer and is reported quarterly to the Board of Directors. The Board of
Directors reviews the finding of the loan review program on a monthly basis.
Determining the appropriate level of the allowance for loan losses at
any given date is difficult, particularly in a continually changing economy.
However, there can be no assurance that, if asset quality deteriorates in future
periods, additions to the allowance for loan losses will not be required.
The Company's management considers the entire allowance for loan losses
to be adequate, however, to comply with regulatory reporting requirements,
management has allocated the allowance for loan losses as shown in the table
below into components by loan type at each period end. Through such allocations,
management does not intend to imply that actual future charge-offs will
necessarily follow the same pattern or that any portion of the allowance is
restricted.
<TABLE>
<CAPTION>
At September 30, 1999 At December 31, 1998
--------------------- --------------------
Percent of Loans Percent of Loans
In Each Category In Each Category
Amount To Loans (1) Amount to Loans (1)
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Allocation of allowance for loan losses:
Commercial $1,849,000 55.17% $1,638,000 56.33%
Residential real estate 419,000 44.26% 391,000 43.07%
Consumer and other 91,000 0.57% 71,000 0.60%
Unallocated 692,000 295,000
---------- ----------
Total 3,051,000 100.00% $2,395,000 100.00%
========== ==========
</TABLE>
The unallocated allowance increased $397,000 to $692,000 at September
30, 1999 from $295,000 at December 31, 1998. This increase is due primarily to a
recent increase in non-performing loans of $524,000 to $1.6 million at September
30, 1999 from $1.1 million at December 31, 1998, and to the growth of the loan
portfolio.
(1) Includes loans held for sale
34
<PAGE>
The Company had delinquent loans as of September 30, 1999 and December
31, 1998 as follows; (i) 30 to 59 days past due, consisted of commercial, and
consumer and home equity loans in the aggregate principal amount of $398,000 and
$1.2 million respectively; and (ii) 60 to 89 days past due, consisted of
commercial and consumer loan in the aggregate principal amount of $2.0 million
and $386,000 respectively. In addition, the Company has classified certain loans
as substandard and doubtful (as those terms are defined in applicable Bank
regulations). At September 30, 1999 and December 31, 1998, substandard loans
totaled approximately $899,000 and $1,382,000 respectively; and doubtful loans
totaled approximately $334,000 and $0 respectively.
Deposit Structure
Total deposits at September 30, 1999 consisted of approximately $27.8
million in non-interest-bearing demand deposits, approximately $12.6 million in
interest-bearing demand deposits, approximately $48.0 million in savings
deposits and money market accounts, approximately $153.0 million in time
deposits under $100,000, and approximately $51.2 million in time deposits
greater than $100,000. In general, the Bank pays higher interest rates on time
deposits over $100,000 in principal amount. Due to the nature of time deposits
and changes in the interest rate market generally, it should be expected that
the Company's deposit liabilities may fluctuate from period-to-period.
The following table is a distribution of the balances of the Company's
average deposit balances and the average rates paid therein for the nine months
ended September 30, 1999 and the year ended December 31, 1998.
<TABLE>
<CAPTION>
Deposit Table
For the nine months ended For the twelve months ended
September 30, 1999 December 31, 1998
------------------------------ ------------------------------
Average Average
Balance Rate Balance Rate
<S> <C> <C> <C> <C>
Non-interest-bearing balances $29,627,000 0.00% $31,260,000 0.00%
==============================================================
Money market and savings deposits $44,870,000 3.68% $41,157,000 2.85%
Time deposits 191,234,000 5.86 191,829,000 6.09
Demand deposits, interest-bearing 13,844,000 1.44 13,727,000 2.50
--------------------------------------------------------------
Total interest-bearing deposits $249,948,000 5.23% $246,713,000 5.35%
==============================================================
</TABLE>
35
<PAGE>
The following is a breakdown, by contractual maturities, of the Company's time
deposits issued in denominations of $100,000 or more as of September 30, 1999
and December 31, 1998.
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------------------------
<S> <C> <C>
Maturing in:
Three months or less $13,175,000 $14,229,000
Over three months through six months 10,127,000 7,756,000
Over six months through twelve months 8,796,000 3,365,000
Over twelve months 22,754,000 0
---------------------------------
Total $54,852,000 $25,350,000
=================================
</TABLE>
Commitments
In the normal course of its business, the Company makes commitments to
extend credit and issues standby letters of credit. Generally, such commitments
are provided as a service to its customers. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirement. The Company evaluates each customer's creditworthiness on a
case-by-case basis. The type and amount of collateral obtained, if deemed
necessary upon extension of credit, are based on Management's credit evaluation
of the borrower. Standby letters of credit are conditional commitments issued to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing standby letters of credit is essentially the same as that
involved in extending loan facilities to customers and is based on Management's
evaluation of the creditworthiness of the borrower and the quality of the
collateral. At September 30, 1999 and December 31, 1998, firm loan commitments
approximated $23.2 million and $20.1 million respectively and commitments of
standby letters of credit approximated $1,455,000 and $1,912,000, 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.
36
<PAGE>
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.
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 were 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. However, one borrower has yet to
receive a year 2000 certification from a major supplier of business, and the
bank is closely monitoring the situation. 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.
37
<PAGE>
Costs of Year 2000
The Company has spent approximately $175,000 and estimates that the
future dollar cost to the Company to be in compliance with the year 2000 issue
will range from $25,000 to $50,000 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 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 systems. As of September 30, 1999, all such plans
have been substantially completed.
Recent Accounting Pronouncements:
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, as amended
by statement No. 137, is required for all fiscal years beginning after June 15,
2000, 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 Statement No. 133 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 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.
38
<PAGE>
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. This amount, net of tax, is presented as a cumulative
effect of a change in account principle in the consolidated statement of
operations.
39
<PAGE>
Part II Other Information
Item 1: Legal Proceedings
The Company and the Banks 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 Banks, 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 Banks.
Item 2: Changes in Securities and use of proceeds
None
Item 3: Defaults upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
The following Exhibits are filed as part of this report. (Exhibit
numbers correspond to the exhibits required by Item 601 of Regulation S-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(b) Amended and Restated Bylaws of the Company. *
4(b)(i) Amended and Restated Articles of Incorporation of
the Company, as amended.*
4(b)(ii) Amended and Restated Bylaws of the Company.*
10 Amended and Restated Material Contracts.- None
10(a) 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, 1996.*
40
<PAGE>
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, commenced operations on June 1,
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.
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 hereto.
*Incorporated by reference from the Registration Statement on Form S-4
of the Company, as amended, Registration No. 333-673 filed April 29, 1996.
**Incorporated by reference in the Company's Form 10-K, filed March 25,
1999.
Reports on Form 8-K
None
41
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Issuer has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Republic First Bancorp, Inc.
/s/ Jere A. Young
-------------------------------------
Jere A. Young
President and Chief Executive Officer
/s/ George S. Rapp
-------------------------------------
George S. Rapp
Executive Vice President and
Chief Financial Officer
Dated: November 15, 1999
42
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000834285
<NAME> REPUBLIC FIRST BANCORP INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 15,302,000
<INT-BEARING-DEPOSITS> 6,024,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 177,179,000
<INVESTMENTS-CARRYING> 16,121,000
<INVESTMENTS-MARKET> 0
<LOANS> 326,131,000
<ALLOWANCE> 3,051,000
<TOTAL-ASSETS> 558,737,000
<DEPOSITS> 292,533,000
<SHORT-TERM> 22,363,000
<LIABILITIES-OTHER> 8,184,000
<LONG-TERM> 200,000,000
0
0
<COMMON> 63,000
<OTHER-SE> 35,594,000
<TOTAL-LIABILITIES-AND-EQUITY> 558,737,000
<INTEREST-LOAN> 19,670,000
<INTEREST-INVEST> 9,311,000
<INTEREST-OTHER> 18,000
<INTEREST-TOTAL> 28,999,000
<INTEREST-DEPOSIT> 9,769,000
<INTEREST-EXPENSE> 17,930,000
<INTEREST-INCOME-NET> 11,069,000
<LOAN-LOSSES> 670,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,263,000
<INCOME-PRETAX> 5,584,000
<INCOME-PRE-EXTRAORDINARY> 3,745,000
<EXTRAORDINARY> 0
<CHANGES> (63,000)
<NET-INCOME> 3,682,000
<EPS-BASIC> 0.62
<EPS-DILUTED> 0.61
<YIELD-ACTUAL> 7.51
<LOANS-NON> 1,647,000
<LOANS-PAST> 2,967,000
<LOANS-TROUBLED> 1,647,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,395,000
<CHARGE-OFFS> 124,000
<RECOVERIES> 110,000
<ALLOWANCE-CLOSE> 3,051,000
<ALLOWANCE-DOMESTIC> 3,051,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 692,000
</TABLE>
