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: March 31, 2000
Commission File Number: 0-17007
Republic First Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Pennsylvania 23-2486815
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(State or other jurisdiction of IRS Employer Identification
incorporation or organization) Number
1608 Walnut Street, Philadelphia, Pennsylvania 19103
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(Address of principal executive offices) (Zip code)
215-735-4422
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(Registrant's telephone number, including area code)
N/A
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(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.
6,343,838 shares of Issuer's Common Stock, par value
$0.01 per share, issued and outstanding as of April 30, 2000
Page 1 of 35
Exhibit index appears on page 34
1
<PAGE>
TABLE OF CONTENTS
-----------------
Page
Part I: Financial Information
Item 1: Financial Statements (unaudited) 3
Item 2: Management's Discussion and Analysis of Financial Condition and 13
Results of Operations
Item 3: Quantitative and Qualitative Information about Market Risk 16
Part II: Other Information
Item 1: Legal Proceedings 33
Item 2: Changes in Securities and Use of Proceeds 33
Item 3: Defaults Upon Senior Securities 33
Item 4: Submission of Matters to a Vote of Security Holders 33
Item 5: Other Information 33
Item 6: Exhibits and Reports on Form 8-K 34
2
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1: Financial Statements (unaudited)
<TABLE>
<CAPTION>
Page Number
<S> <C> <C>
(1) Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999................4
(2) Consolidated Statements of Operations for three months ended
March 31, 2000 and 1999..............................................................5
(3) Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and 1999..............................................................6
(4) Notes to Consolidated Financial Statements............................................7
</TABLE>
3
<PAGE>
Republic First Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
as of March 31, 2000 and December 31, 1999
(unaudited)
<TABLE>
<CAPTION>
ASSETS: March 31, 2000 December 31, 1999
------------- -------------
<S> <C> <C>
Cash and due from banks $18,641,000 $20,789,000
Interest bearing deposits with banks 309,000 321,000
Federal Funds Sold 1,200,000 0
------------- -------------
Total cash and cash equivalents 20,150,000 21,110,000
Securities available for sale, at fair value 164,009,000 169,285,000
Securities held to maturity at amortized cost 17,658,000 18,023,000
(fair value of $17,623,000 and $18,038,000
respectively)
Loans receivable (net of allowance for loan losses of
$3,397,000 and $3,208,000, respectively) 366,020,000 354,748,000
Loans held for sale 0 4,857,000
Premises and equipment, net 5,011,000 5,013,000
Real estate owned 643,000 643,000
Accrued income and other assets 12,572,000 12,651,000
------------- -------------
Total Assets $586,063,000 $586,330,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Deposits:
Demand - non-interest-bearing $35,275,000 $35,053,000
Demand - interest-bearing 28,000,000 19,174,000
Money market and savings 55,852,000 49,667,000
Time under $100,000 147,131,000 141,445,000
Time over $100,000 77,296,000 60,454,000
------------- -------------
Total Deposits 343,554,000 305,793,000
Other borrowed funds 198,605,000 236,640,000
Accrued expenses and other liabilities 8,232,000 8,857,000
------------- -------------
Total Liabilities 550,391,000 551,290,000
------------- -------------
Shareholders' Equity:
Common stock par value $0.01 per share, 20,000,000
shares authorized; shares issued and outstanding
6,343,838 and 6,343,901 as of March 31, 2000 and
December 31, 1999, respectively 63,000 63,000
Treasury stock at cost (175,172 shares
at March 31, 2000 and December 31, 1999) (1,541,000) (1,541,000)
Additional paid in capital 32,083,000 32,083,000
Retained earnings 12,086,000 11,082,000
Accumulated other comprehensive loss, net of tax (7,019,000) (6,647,000)
------------- -------------
Total Shareholders' Equity 35,672,000 35,040,000
------------- -------------
Total Liabilities and Shareholders' Equity $586,063,000 $586,330,000
============= =============
</TABLE>
(See notes to consolidated financial statements)
4
<PAGE>
Republic First Bancorp, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended March 31,
(unaudited)
2000 1999
----------- -----------
Interest income:
Interest and fees on loans $7,501,000 $6,275,000
Interest on federal funds sold 8,000 1,000
Interest on investments 3,204,000 2,858,000
----------- -----------
Total interest income 10,713,000 9,134,000
----------- -----------
Interest expense:
Demand interest-bearing 52,000 70,000
Money market and savings 528,000 371,000
Time over $100,000 897,000 344,000
Time under $100,000 2,009,000 2,464,000
Other borrowings 3,218,000 2,426,000
----------- -----------
Total interest expense 6,704,000 5,675,000
----------- -----------
Net interest income 4,009,000 3,459,000
----------- -----------
Provision for loan losses 200,000 250,000
----------- -----------
Net interest income after provision
for loan losses 3,809,000 3,209,000
----------- -----------
Non-interest income:
Service fees 313,000 155,000
Tax Refund Program revenue 181,000 2,715,000
Other income 20,000 26,000
----------- -----------
514,000 2,896,000
Non-interest expense:
Salaries and benefits 1,543,000 1,431,000
Occupancy/equipment 459,000 418,000
Other expenses 823,000 1,005,000
----------- -----------
2,825,000 2,854,000
----------- -----------
Income before income taxes 1,498,000 3,251,000
Provision for income taxes 494,000 1,071,000
----------- -----------
Income before cumulative effect of a
change in accounting principle 1,004,000 2,180,000
Cumulative effect of a change in
accounting principle (Note 4) 0.00 (63,000)
----------- -----------
Net income $1,004,000 $2,117,000
=========== ===========
Net income per share-basic:
Income before cumulative effect of a
change in accounting principle $0.16 $0.37
Cumulative effect of a change in
accounting principle (Note 4) -- (0.01)
----------- -----------
Net Income $0.16 $0.36
=========== ===========
Net income per share-diluted:
Income before cumulative effect of a
change in accounting principle $0.16 $0.35
Cumulative effect of a change in
accounting principle (Note 4) -- (0.01)
----------- -----------
Net Income $0.16 $0.34
=========== ===========
(See notes to consolidated financial statements)
5
<PAGE>
Republic First Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
(unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net income $1,004,000 $2,117,000
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses 200,000 250,000
Write down of other real estate owned 0 75,000
Depreciation and amortization 116,000 256,000
Decrease in loans held for sale 4,857,000 4,417,000
Increase/(decrease) in accrued income
and other assets 79,000 (406,000)
Decrease in accrued expenses
and other (625,000) (3,000)
liabilities
Net increase in deferred fees 26,000 31,000
------------ ------------
Net cash provided by in operating activities 5,657,000 6,737,000
------------ ------------
Cash flows from investing activities:
Purchase of securities:
Available for Sale 0 (34,913,000)
Held to Maturity 0 (2,553,000)
Proceeds from principal receipts, sales, and
maturities of securities 5,088,000 14,039,000
Net increase in loans (11,298,000) (10,455,000)
Premises and equipment expenditures (133,000) (271,000)
------------ ------------
Net cash used in investing activities (6,343,000) (34,153,000)
------------ ------------
Cash flows from financing activities:
Net increase in demand, money
market, and savings deposits 15,233,000 595,000
Net increase/(decrease) in borrowed funds less than (13,035,000) 8,566,000
Repayments of borrowed funds greater than 90 days (25,000,000) 17,600,000
Net increase (decrease) in time deposits 22,528,000 (6,950,000)
Purchase of treasury stock 0 (1,028,000)
Net proceeds from exercise of stock options 0 315,000
------------ ------------
Net cash provided/(used in) by financing activities (274,000) 19,098,000
------------ ------------
(Decrease)/increase in cash and cash equivalents (960,000) 8,318,000
Cash and cash equivalents, beginning of period 21,110,000 18,295,000
------------ ------------
Cash and cash equivalents, end of period $20,150,000 $9,977,000
============ ============
Supplemental disclosure:
Interest paid $7,300,000 $5,541,000
============ ============
Taxes paid $500,000 $0
============ ============
Non-cash transactions:
Change in unrealized gain/(loss) on securities available
for sale, net of tax $(372,000) $(1,516,000)
Change in deferred tax liability due to change in
loss on securities available for sale $193,000 $58,000
============ ============
</TABLE>
(See notes to consolidated financial statements)
6
<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 1999 Form 10-K. The Delaware Bank also opened a
Loan Production Office in Wilmington, Delaware during 1999 which will serve as a
headquarters for the Delaware Bank's commercial bankers.
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 March 31, 2000, the
results of operations for the three months ended March 31, 2000 and 1999, and
the cash flows for the three months ended March 31, 2000 and 1999. 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 1999 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 as it applies to 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 heavily dependent 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.
7
<PAGE>
Additionally, the Company had derived income from First Republic Bank's
participation in a program (the "Tax Refund Program") which indirectly funded
consumer loans collateralized by federal income tax refunds, and provided
accelerated check refunds. Approximately $181,000 and $2.7 million in gross
revenues were earned on these loans during the three months ended March 31, 2000
and 1999, respectively. The Bank terminated its participation in the program
after 1999, and therefore did not participate in the tax refund program during
2000. However, the Bank was able to earn $181,000 in revenue represented by
recoveries of delinquent receivables from prior years.
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.
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: Cumulative Effect of a Change in Accounting Principle
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 statement requires costs of startup activities, including
organization costs, to be expensed as incurred. This resulted in a $63,000
charge, net of an income tax benefit of $31,000, which was recorded as a
cumulative effect of a change in accounting principle.
8
<PAGE>
Note 5: Segment Reporting
The Company's reportable segments represent strategic businesses that
offer different products and services. The segments are managed separately
because each segment has unique operating characteristics, management
requirements and marketing strategies.
Republic First Bancorp has three reportable segments; two community
banking segments 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 Tax Refund Program enabled 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
segments based upon income before the provision for income taxes, return on
equity and return on average assets. The Tax Refund Program is evaluated based
upon income before provision for income taxes.
The Tax Refund Program was developed as a business segment to further
expand the Company's products and services offered to consumers and businesses.
9
<PAGE>
The segment information presented below reflects that the Delaware Bank
originated in June 1999, and therefore is not presented as a segment during the
first quarter of 1999.
<TABLE>
<CAPTION>
As of and for the three months ended March 31
(dollars in thousands)
2000 1999
---- ----
First Tax First Tax
Republic Delaware Refund Republic Refund
Bank Bank Program Total Bank Program Total
-------- -------- -------- -------- -------- -------- --------
External customer revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income $10,536 $231 $0 $10,767 $9,134 $0 $9,134
Other Income 317 18 181 516 181 2,715 2,896
-------- -------- -------- -------- -------- -------- --------
Total external customer
revenues 10,853 249 181 11,283 9,315 2,715 12,030
-------- -------- -------- -------- -------- -------- --------
Intersegment revenues:
Interest Income 69 0 0 69 0 0 0
Other Income 18 0 0 18 0 0 0
-------- -------- -------- -------- -------- -------- --------
Total intersegement
revenues 87 0 0 87 0 0 0
-------- -------- -------- -------- -------- -------- --------
Total Revenue 10,940 249 181 11,370 9,315 2,715 12,030
-------- -------- -------- -------- -------- -------- --------
Depreciation and amortization 112 23 0 135 146 0 146
Other operating expenses-
external 9,364 286 0 9,650 8,483 150 8,633
Intersegment Expense:
Other operating expense 0 18 0 18 0 0 0
Interest Expense 0 69 0 69 0 0 0
-------- -------- -------- -------- -------- -------- --------
Segment expenses 9,476 396 0 9,872 8,629 150 8,779
-------- -------- -------- -------- -------- -------- --------
Segment income before
taxes and extraordinary
items $1,464 ($147) $181 $1,498 $686 $2,565 $3,251
======== ======== ======== ======== ======== ======== ========
Segment assets $574,367 $12,138 $0 $586,505 $536,570 $0 $536,570
-------- -------- -------- -------- -------- -------- --------
Capital expenditures $109 $24 $0 $133 $271 $0 $271
-------- -------- -------- -------- -------- -------- --------
</TABLE>
10
<PAGE>
Note 6: 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 or otherwise. 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. For the three month period ended March 31,
2000 and 1999, there were 179,930 and 41,250 CSEs that were antidilutive,
respectively. These options may be dilutive in the future.
The Company paid a 10% stock dividend on March 18, 1999. All relevant
financial data contained herein has been retroactively restated as if the
dividend had occurred at the beginning of each period presented herein.
11
<PAGE>
The following table is a comparison of EPS for the three months ended
March 31, 2000 and 1999.
<TABLE>
<CAPTION>
1st Quarter
2000 1999
------------------------------- ------------------------------
Income before cumulative effect of
a change in accounting principle
(numberator for both calculations)
Shares Per Share Share Per Share
Weighted average shares
<S> <C> <C> <C> <C>
For period 6,168,729 5,889,500
Basic EPS $0.16 $0.37
Add common stock equivalents
representing dilutive stock options 136,190 395,821
------- -------
Effect on basic EPS of dilutive CSE $(0.00) $(0.02)
-------
Equals total weighted average
Shares and CSE (diluted) 6,304,919 6,285,321
========= =========
Diluted EPS $0.16 $0.35
----- =====
</TABLE>
The impact of the cumulative effect of a change in accounting principle
on the quarter-to-date 1999 EPS was to lower the numerator by $63,000 and the
resulting basic and diluted EPS by $0.01.
Note 7: 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.
<TABLE>
<CAPTION>
(dollar amounts in thousands) Three months ended
March 31
-----------------------------------
2000 1999
---------------- ---------------
<S> <C> <C>
Net income $1,004 $2,117
Other comprehensive income, net of tax:
Unrealized losses on securities:
Net unrealized holding losses during the period (372) (1,001)
Less: Reclassification adjustment for gains
Included in net income 0 0
---------------- ---------------
Comprehensive income $ 632 $1,116
================ ===============
</TABLE>
12
<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 can 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 not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly revise or update
these forward-looking statements to reflect events or circumstances that arise
after the date hereof. Readers should carefully review the risk factors
described in other documents the Company files from time to time with the
Securities and Exchange Commission, including the Company's Annual Report on
Form 10-K for the year ended December 31, 1999, 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 other filings.
Three Months Ended March 31, 2000 Compared to March 31, 1999
Results of Operations:
Overview
The Company's net income decreased $1,113,000 to $1.0 million for the
three months ended March 31, 2000, from $2.1 million for the three months ended
March 31, 1999. This decrease is primarily a result of the decrease in revenue
from the Tax Refund program. During the first quarter of 1999 the Company
participated in the program and earned revenues of $2.7 million. In the first
quarter of 2000 the Company did not participate in the Tax Refund program and
earned $181,000 in revenue during the quarter representing recoveries of
delinquent loans from prior years. Diluted earnings per share for the three
months ended March 31, 2000 was $0.16 compared to $0.34, for the three months
ended March 31, 1999, due to the decrease in net income.
Analysis of Net Interest Income
Historically, the Company's earnings have depended heavily 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
interest income is affected by changes in the mix of the volume and rates of
interest-earning assets and interest-bearing liabilities.
13
<PAGE>
The Company's net interest income increased $550,000, or 15.9%, to $4.0
million for the three months ended March 31, 2000 from $3.5 million for the
three months ended March 31, 1999. The increase in net interest income was
primarily due to an increase in average interest-earning assets of $63.2 million
due to increased commercial and real estate loan production. This increase was
also attributable to an increase in the average rate on interest earning assets
of 25 basis points, from 7.49% as of March 31, 1999 to 7.74% as of March 31,
2000. This increase was mainly due to the increases in prime rate.
The Company's total interest income increased $1.6 million, or 17.3%,
to $10.7 million for the three months ended March 31, 2000 from $9.1 million for
the three months ended March 31, 1999. Interest and fees on loans increased $1.2
million, or 19.5%, to $7.5 million for the three months ended March 31, 2000
from $6.3 million for the three months ended March 31, 1999. This increase was
due primarily to an increase in average loans outstanding for the period of
$49.2 million. Interest and dividend income on securities increased $346,000, or
12.1%, to $3.2 million for the three months ended March 31, 2000 from $2.9
million for the three months ended March 31, 1999. This increase in investment
income was the result of an increase in yield on the securities portfolio of 28
basis points and by an increase in the average balance of securities owned of
$13.4 million, to $195.1 million for the three months ended March 31, 2000 from
$181.7 million for the three months ended March 31, 1999.
The Company's total interest expense increased $1.0 million, or 18.1%,
to $6.7 million for the three months ended March 31, 2000 from $5.7 million for
the three months ended March 31, 1999. This increase was due to an increase in
the volume of average interest-bearing liabilities of $60.0 million, or 13.7%,
to $498.6 million for the three months ended March 31, 2000 from $438.6 million
for the three months ended March 31, 1999. The average rate paid on
interest-bearing liabilities increased 14 basis points to 5.39% for the three
months ended March 31, 2000 from 5.25% for the three months ended March 31, 1999
due primarily to the increase in average rates paid on other borrowings and
certain deposit accounts in response to generally higher interest rates.
Interest expense on time deposits increased $98,000 or 3.5%. This
increase was primarily due to a decrease in the average rate of interest paid on
time deposits 10 basis points from 5.93% at March 31, 1999 to 5.83% at March 31,
2000, which was more than offset by an increase in average volume of
certificates of deposit of $8.1 million, or 4.2%, to $200.1 million for the
three months ended March 31, 2000 from $191.9 million for the three months ended
March 31, 1999.
Interest expense on FHLB advances and overnight federal funds purchased
was $3.2 million for the three months ended March 31, 2000 compared to $2.4
million for the three months ended March 31, 1999. This increase was due to an
increase in the average volume of other borrowed funds of $36.4 million to
$226.9 million for the three months ended March 31, 2000 from $190.5 million for
the three months ended March 31, 1999. The average rate of interest paid on
other borrowed funds increased 53 basis points from 5.16% at March 31, 1999 to
5.69% at March 31, 2000, due to generally higher interest rates.
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 and 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 $200,000 and $250,000 for the three months ended March 31,
2000 and 1999, respectively. The amounts recorded in 2000 and 1999 were the
amounts management considered necessary to increase the allowance for loan
losses in an amount that reflects the known and inherent losses in the
portfolio. As of March 31, 2000 and 1999 the allowance for loan losses to total
loans, net of deferred loan fees was 0.92% and 0.84%, respectively.
14
<PAGE>
Non-Interest Income
Total non-interest income decreased $2.4 million to $514,000 million
for the three months ended March 31, 2000 from $2.9 million for the three months
ended March 31, 1999. This was mainly attributable to a $2.5 million decrease in
revenues related to the Tax Refund Program. This decrease results from the
termination of our participation in the Tax Refund Program after the 1999 tax
preparation season. Non-interest income from service fees on deposit accounts
and pre-payment penalty and forfeited commitment fees on loans increased
$158,000 or 101.9% from $155,000 for the three months ended March 31, 1999, as a
result of increased business development in transaction based accounts.
Non-Interest Expenses
Total non-interest expenses decreased $29,000 to $2.8 million for the
three months ended March 31, 2000. Salaries and benefits increased $112,000, or
7.8%, to $1.5 million for the three months ended March 31, 2000 from $1.4
million for the three months ended March 31, 1999. The increase was due
primarily to an increase in staff of First Republic Bank, as well as the opening
of the Delaware Bank and normal merit increases.
Occupancy and equipment expenses increased $41,000, or 9.8%, to
$459,000 for the three months ended March 31, 2000 from $418,000 for the three
months ended March 31, 1999 primarily as a result of the opening of the Delaware
Bank on June 1, 1999.
Other non-interest expense decreased $182,000, to $823,000 for the
three months ended March 31, 2000 from $1.0 million for the same period in 1999.
This was mainly due to the accrual of a legal settlement for $233,000 during the
first quarter of 1999. 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 absence of these expenses in 2000 were partially offset by the
growth of the Company and business development activities.
Provision for Income Taxes
The provision for income taxes decreased $577,000, or 53.9%, to
$494,000 for the three months ended March 31, 2000 from $1.1 million for the
three months ended March 31, 1999. This decrease is mainly the result of the
decrease in pre-tax income from 1999 to 2000. For the quarter ended March 31,
1999, the Company recorded an income tax benefit of $31,000 in connection with
the cumulative effect of a change in accounting principle, upon the adoption of
SOP 98-5.
Financial Condition:
March 31, 2000 Compared to December 31, 1999
Total assets remained virtually unchanged at $586.1 million at March
31, 2000 from $586.3 million at December 31, 1999. Net loans (including loans
held for sale) increased $6.4 million, or 1.8%, to $366.0 million at March 31,
2000 from $359.6 million at December 31, 1999. Investment securities decreased
$5.6 million, or 3.0%, to $181.7 million at March 31, 2000 from $187.3 million
at December 31, 1999.
15
<PAGE>
Cash and due from banks, interest-bearing deposits, and federal funds
sold are all liquid funds. The aggregate amount in these three categories
decreased by $960,000 or 4.5% to $20.2 million at March 31, 2000 from $21.1
million at December 31, 1999.
Total liabilities decreased $899,000 or 0.2%, to $550.4 million at
March 31, 2000 from $551.3 million at December 31, 1999. Deposits, the Company's
primary source of funds, increased $37.8 million, 12.3% to $343.6 million at
March 31, 2000 from $305.8 million at December 31, 1999. The aggregate of
transaction accounts, which include demand, money market and savings accounts,
increased $15.2 million to $119.1 million at March 31, 1999 from $103.9 million
at December 31, 1999. Certificates of deposit increased by $22.5 million, or
11.2%, to $224.4 million at March 31, 2000 from $201.9 million at December 31,
1999.
Other borrowed funds were $198.6 million at March 31, 2000 as compared
to $236.6 million at December 31, 1999. The decrease was primarily the result of
the Company's decision to put more emphasis on deposit gathering and less
reliance on other borrowed funds.
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
Company typically defines interest-sensitive assets and interest-sensitive
liabilities as those that reprice within one year or less. Maintaining an
appropriate match is a method of avoiding wide fluctuations in net interest
margin during periods of changing interest rates.
The difference between interest-sensitive assets and interest-sensitive
liabilities is known as the "interest-sensitivity gap" ("GAP"). A positive GAP
occurs when interest-sensitive assets exceed interest-sensitive liabilities
repricing in the same time periods, and a negative GAP occurs when
interest-sensitive liabilities exceed interest-sensitive assets repricing in the
same time periods. A negative GAP ratio suggests that a financial institution
may be better positioned to take advantage of declining interest rates rather
than increasing interest rates, and a positive GAP ratio suggests the converse.
Static gap analysis describes interest rate sensitivity at a point in
time. However, it alone does not accurately measure the magnitude of changes in
net interest income since changes in interest rates do not impact all categories
of assets and liabilities equally or simultaneously. Interest rate sensitivity
analysis also involves assumptions on certain categories of assets and deposits.
For purposes of interest rate sensitivity analysis, assets and liabilities are
stated at either their contractual maturity, estimated likely call date, or
earliest repricing opportunity. Mortgage-backed securities and amortizing loans
are scheduled based on their anticipated cash flow which also considers
prepayments based on historical data and current market trends. Savings
accounts, including passbook, statement savings, money market, and NOW accounts,
do not have a stated maturity or repricing term and can be withdrawn or repriced
at any time. This may impact the Company's margin if more expensive alternative
sources of deposits are required to fund loans or deposit runoff. Management
projects the repricing characteristics of these accounts based on historical
performance and assumptions that it believes reflect their rate sensitivity.
Therefore, for purposes of the gap analysis, these deposits are not considered
to reprice simultaneously. Accordingly, a portion of the deposits are moved into
time brackets exceeding one year.
Shortcomings are inherent in a simplified and static GAP analysis that
may result in an institution with a negative GAP having interest rate behavior
associated with an asset-sensitive balance sheet. For example, although certain
assets and liabilities may have similar maturities or periods to repricing, they
may react in different degrees to changes in market interest rates. Furthermore,
repricing characteristics of certain assets and
16
<PAGE>
liabilities may vary substantially within a given time period. In the event of a
change in interest rates, prepayment and early withdrawal levels could also
deviate significantly from those assumed in calculating GAP in the manner
presented in the table below.
The Company attempts to manage its assets and liabilities in a manner
that stabilizes net interest income under a broad range of interest rate
environments. Management uses gap analysis and simulation models to attempt to
monitor effects of its interest sensitive assets and liabilities. 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 Company's interest rate
sensitivity GAP at March 31, 2000. For purposes of these tables, the Company has
used assumptions based on industry data and historical experience to calculate
the expected maturity of loans because, statistically, certain categories of
loans are prepaid before their maturity date, even without regard to interest
rate fluctuations. Additionally certain prepayment assumptions were made with
regard to investment securities based upon the expected prepayment of the
underlying collateral of the mortgage backed securities.
17
<PAGE>
<TABLE>
<CAPTION>
Republic First Bancorp
Interest Sensitive Gap
(dollars in thousands) as of March 31, 2000
More Financial
0-90 91-180 181-365 1-2 2-3 3-4 4-5 than 5 Statement Fair
Days Days Days Years Years Years Years Years Total Value
Interest Sensitive Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities and interest
bearing balances due
from banks $ 25,032 $ 7,795 $ 11,030 $12,384 $12,115 $12,352 $11,252 $90,907 $182,867 $182,832
Average interest rate 6.59% 6.32% 6.48% 6.49% 6.46% 6.44% 6.43% 6.44%
Loans receivable (1) 121,710 11,916 25,365 44,258 38,464 31,440 37,872 54,995 366,020 365,590
Average interest rate 9.29% 8.18% 8.22% 8.15% 8.26% 8.11% 8.13% 7.19%
Total 146,742 19,711 36,395 56,642 50,579 43,792 49,124 145,902 548,887 548,422
---------------------------------------------------------------------------------------
Cumulative Totals $ 146,742 $166,453 $ 202,848 $259,490 $310,069 $353,861 $402,985 $548,887
=======================================================================================
Interest Sensitive
Liabilities:
Demand Interest Bearing $ 11,586 $ 356 $ 711 $1,422 $1,422 $1,422 $1,422 $9,660 $28,000 $ 28,000
Average interest rate 1.08% 1.08% 1.08% 1.08% 1.08% 1.08% 1.08% 1.08%
Savings Accounts 2,195 67 133 266 266 266 266 $1,809 5,269 5,269
Average interest rate 1.97% 1.97% 1.97% 1.97% 1.97% 1.97% 1.97% 1.97%
Money Market Accounts 21,553 629 1,258 2,515 2,515 2,515 2,515 $17,084 50,583 50,583
Average interest rate 4.47% 4.47% 4.47% 4.47% 4.47% 4.47% 4.47% 4.47%
Time Deposits 32,828 32,697 76,918 72,527 2,003 3,450 4,002 2 224,427 223,334
Average interest rate 5.41% 5.59% 5.69% 6.14% 5.68% 5.86% 6.46% 5.83%
FHLB Borrowings 13,605 25,000 37,500 117,500 5,000 - - - 198,605 199,024
Average interest rate 5.00% 4.82% 5.99% 6.06% 6.05% 0.00% 0.00% 0.00%
Total 81,767 58,748 116,520 194,230 11,206 7,653 8,205 28,555 506,884 506,210
--------------------------------------------------------------------------------------- --------- --------
Cumulative Totals $ 81,767 $140,515 $257,035 $451,265 $462,471 $470,124 $478,329 $506,884
=======================================================================================
Interest Rate
sensitivity GAP $ 64,975 $(39,037) $(80,125 $(137,588) $39,373 $36,139 $40,919 $117,347
Cumulative GAP $ 64,975 $25,938 $(54,187 $(191,775) $(152,402) $(116,263) $(75,344) $42,003
Interest Sensitive
Assets/Interest
Sensitive Liabilities 179.46% 33.55% 31.23% 29.16% 451.36% 572.22% 598.71% 510.95%
Cumulative GAP/
Total Earning Assets 12% 5% -10% -35% -28% -21% -14% 8%
Total Earning Assets $ 548,887
==========
Off balance sheet items
notional value:
Commitments to
extend credit $ 2,929 $17,313 $20,242 $202
-------------------- ---------- --------
Average interest rate 8.75% 9.25%
<FN>
(1) Includes loans held for sale.
</FN>
</TABLE>
18
<PAGE>
In addition to the GAP analysis, the Company utilized income
simulation modeling in measuring its interest rate risk and managing its
interest rate sensitivity. Income simulation considers not only the impact of
changing market interest rates on forecasted net interest income, but also other
factors such as yield curve relationships, the volume and mix of assets and
liabilities and general market conditions.
Through the use of income simulation modeling, the Company has
calculated an estimate of net interest income for the year ending March 31,
2001, based upon the assets, liabilities and off-balance sheet financial
instruments in existence at March 31, 2000. The Company has also estimated
changes to that estimated net interest income based upon immediate and sustained
changes in the interest rates ("rate shocks"). Rate shocks assume that all of
the interest rate increases or decreases occur on the first day of the period
modeled and remain at that level for the entire period. The following table
reflects the estimated percentage change in estimated net interest income for
the years ending Mach 31, 2001 and December 31, 2000.
Percentage Change
Rate shocks to interest rates 3/31/01 12/31/00
----------------------------- ------- --------
+2% 4.6 (1.9%)
+1% 2.9 (1.2)
-1% (1.7) 0.1
-2% (5.6) 1.0
The Company's management believes that the assumptions utilized in
evaluating the Company's estimated net interest income are reasonable; however,
the interest rate sensitivity of the Company's assets, liabilities and
off-balance sheet financial instruments, as well as the estimated effect of a
change in interest rates on estimated net interest income could vary
substantially if different assumptions are used or actual experience differs
from the experience on which the assumptions were based.
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 13.05% and 14.17% at March 31, 2000
and December 31, 1999 , 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 March 31, 2000 and December 31,
1999 was 12.09% and 13.15%, respectively. At March 31, 2000 and December 31,
1999, 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 March 31,
2000 and December 31, 1999, the
19
<PAGE>
leverage ratio was 7.32% and 7.30%, respectively. Accordingly, at March 31, 2000
and December 31, 1999, the Company was considered "well capitalized" under FRB
and FDIC regulations.
The Company's shareholders' equity as of March 31, 2000 and December
31, 1999 was $35,672,000 and $35,040,000, respectively. Book value per share of
the Company's common stock increased from $5.68 as of December 31, 1999 to $5.78
as of March 31, 2000. This increase was mainly attributable to the earnings
during the first quarter of 2000.
Regulatory Restrictions on Dividends
Dividend payments by the Banks 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 Banks 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 any dividends declared by the Company would be limited to $9.4 million as of
March 31, 2000.
State and federal regulatory authorities have adopted standards for the
maintenance of adequate levels of capital by banks. Adherence to such standards
further limits the ability of the Banks to pay dividends to the Company.
Other regulatory requirements and policies may also affect the payment
of dividends to the Company by the Banks. If, in the opinion of the FRB, the
Banks are engaged in, or are about to engage in, an unsafe or unsound practice
(which, depending on the financial condition of the Banks, could include the
payment of dividends), the FRB may require, after notice and hearing, that the
Banks cease and desist from such practice. The FRB has formal and informal
policies providing that insured banks and bank holding companies should
generally pay dividends only out of current operating earnings.
20
<PAGE>
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 Banks and the Company are
subject to periodic examinations by regulatory agencies. The result of such
examinations could require the Banks and the Company to increase the level of
regulatory capital ratios.
The following table presents the Company's capital regulatory ratios at
March 31, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
Actual For Capital To be well
Adequacy purposes capitalized under FRB
capital guidelines
Amount Ratio Amount Ratio Amount Ratio
At March 31, 2000
Total risk based capital
<S> <C> <C> <C> <C> <C> <C>
First Republic Bank 38,887 11.38% 27,342 8.00% 34,178 10.00%
Republic First Bank of DE 3,261 34.85% 749 8.00% 936 10.00%
Republic First Bancorp, Inc. 45,838 13.05% 28,091 8.00% 35,113 10.00%
Tier one risk based capital
First Republic Bank 35,600 10.42% 13,671 4.00% 20,507 6.00%
Republic First Bank of DE 3,151 33.68% 374 4.00% 561 6.00%
Republic First Bancorp, Inc. 42,441 12.09% 14,045 4.00% 21,068 6.00%
Tier one leveraged capital
First Republic Bank 35,600 6.29% 28,319 5.00% 28,319 5.00%
Republic First Bank of DE 3,151 23.84% 661 5.00% 661 5.00%
Republic First Bancorp, Inc. 42,441 7.32% 28,980 5.00% 28,980 5.00%
Actual For Capital To be well
Adequacy purposes capitalized under FRB
capital guidelines
Amount Ratio Amount Ratio Amount Ratio
At December 31, 1999
Total risk based capital
First Republic Bank 37,591 11.75% 25,593 8.00% 31,992 10.00%
Republic First Bank of DE 3,086 34.52% 715 8.00% 894 10.00%
Republic First Bancorp, Inc. 44,646 14.17% 25,202 8.00% 31,503 10.00%
Tier one risk based capital
First Republic Bank 34,469 10.77% 12,797 4.00% 19,195 6.00%
Republic First Bank of DE 3,000 33.55% 358 4.00% 536 6.00%
Republic First Bancorp, Inc. 41,438 13.15% 12,601 4.00% 18,902 6.00%
Tier one leveraged capital
First Republic Bank 34,469 6.14% 28,049 5.00% 28,049 5.00%
Republic First Bank of DE 3,000 40.70% 369 5.00% 369 5.00%
Republic First Bancorp, Inc. 41,438 7.30% 28,369 5.00% 28,369 5.00%
</TABLE>
21
<PAGE>
Management believes that the Company meets as of March 31, 2000 and
December 31, 1999, all capital adequacy requirements to which it is subject. As
of March 31, 2000 and December 31, 1999, 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 38 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
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 $20.2 million at March 31, 2000
compared to $21.1 million at December 31, 1999. Maturing and repaying loans are
another source of asset liquidity. At March 31, 2000, the Company estimated that
an additional $160.0 million of loans will mature or repay in the next one year
period ending March 31, 2001.
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 March 31, 2000, the Banks had $72.5
million in unused lines of credit available to it under informal arrangements
with correspondent banks compared to $27.4 million at December 31, 1999. These
lines of credit enable the Banks to purchase funds for short-term needs at
current market rates.
At March 31, 2000, the Company had outstanding commitments (including
unused lines of credit and letters of credit) of $20.2 million. Certificates of
deposit which are scheduled to mature within one year totaled $142.4 million at
March 31, 2000, and borrowings that are scheduled to mature within the same
period amounted to $26.1 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 Banks' 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
Banks' liquidity needs. The Bank has established lines of credit from its
correspondent, in the amount of $10.0
22
<PAGE>
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 $261.2 million. As
of March 31, 2000 and December 31, 1999, the Company had borrowed $198.6 and
$236.6, 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
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 March 31, 2000, 16.1% of the Banks'
interest-bearing deposits and other borrowings were to mature, and be
repriceable, within three months, and an additional 6.7% 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 March 31, 2000, 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 $174.6 million and $164.0 million as of
March 31, 2000. The net unrealized loss on securities available-for-sale, as of
this date, was $7.0 million.
23
<PAGE>
The following table represents the carrying and estimated fair values
of Investment Securities at March 31, 2000.
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Available-for-Sale Cost Gain Loss Fair Value
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed $173,100,000 $720,000 ($11,356,000) $162,464,000
U.S. Government Agencies 1,544,000 6,000 (5,000) 1,545,000
--------------------------------------------------------------------------
Total Available-for-Sale $174,644,000 $726,000 ($11,361,000) $164,009,000
--------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Held-to-Maturity Cost Gain Loss Fair Value
--------------------------------------------------------------------------
Mortgage-backed $939,000 $0 ($1,000) $938,000
US Government Agencies 2,332,000 1,000 (31,000) 2,302,000
Other 14,387,000 5,000 (9,000) 14,383,000
--------------------------------------------------------------------------
Total Held-to-Maturity $17,658,000 $6,000 ($41,000) $17,623,000
--------------------------------------------------------------------------
</TABLE>
Loan Portfolio
The Company's loan portfolio consists of commercial loans, commercial
real estate loans, commercial loans secured by one-to-four family residential
property, as well as residential, home equity loans and consumer loans.
Commercial loans are primarily term loans made to small-to-medium-sized
businesses and professionals for working capital purposes. The majority of these
commercial loans are collateralized by real estate and further secured by other
collateral and personal guarantees. The Company's commercial loans generally
range from $250,000 to $1,000,000 in amount.
The Company's net loans increased $6.4 million, or 1.8%, to $366.0
million at March 31, 2000 from $359.6 million at December 31, 1999 (including
loans held for sale), which were primarily funded by an increase in other
borrowed funds.
24
<PAGE>
The following table sets forth the Company's gross loans by major categories for
the periods indicated:
<TABLE>
<CAPTION>
(dollars in thousands) As of March 31, 2000 As of December 31, 1999
----------------------------------------------------------------------------
Balance % of Total Balance % of Total
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial:
Real Estate Secured (1) $177,698 48.1 183,783 50.7
Non Real Estate Secured 43,965 11.9 41,067 11.3
----------------------------------------------------------------------------
221,663 60.0 224,850 62.0
Residential Real Estate 145,575 39.4 136,129 37.5
Consumer & Other 2,179 0.6 1,834 0.5
----------------------------------------------------------------------------
Total Loans (1) 369,417 100.0% 362,813 100.0%
Less allowance for loan losses (3,397) (3,208)
-------------------- --------------------
Net loans $366,020 $359,605
==================== ====================
<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.
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.
25
<PAGE>
The following summary shows information concerning loan delinquency and
other non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------------------------------------------
<S> <C> <C>
Loans accruing, but past due 90 days or
more $521,000 $333,000
Non-accrual loans 3,147,000 1,778,000
---------------------------------------------
Total non-performing loans (1) 3,668,000 2,111,000
Foreclosed real estate 643,000 643,000
---------------------------------------------
Total non-performing assets (2) $4,311,000 $2,754,000
=============================================
Non-performing loans as a percentage
of total loans net of unearned
income (3) 0.99% 0.58%
Non-performing assets as a percentage of total
assets 0.74% 0.47%
<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 $1.6 million to $3.7 million at
March 31, 2000 from $2.1 million at December 31, 1999. Total non performing
assets increased by $1.6 million at March 31, 2000 to $4.3 million from $2.8
million at December 31, 1999. The increase in non-performing loans and
non-performing assets are primarily due to loans to one borrower totaling $1.4
million that were placed on non-accrual status during the first quarter of 2000.
Management believes that collateral pledged against these loans is adequate to
protect the Bank from losses associated with these credits.
The Company had delinquent loans as of March 31, 2000 and December 31,
1999 as follows; (i) 30 to 59 days past due, consisted of commercial, and
consumer and home equity loans in the aggregate principal amount of $3,479,000
and $3,403,000 respectively; and (ii) 60 to 89 days past due, consisted of
commercial and consumer loan in the aggregate principal amount of $69,000 and
$169,000 respectively. In addition, the Company has classified certain loans as
substandard and doubtful (as those terms are defined in applicable Bank
regulations). At March 31, 2000 and December 31, 1999, substandard loans totaled
approximately $5,794,000 and $2,172,000 respectively; and doubtful loans totaled
approximately $129,000 and $0 respectively. This increase was primarily the
result of classifying loans made to two different borrowers for $2.0 million and
$1.4 million as substandard. The $1.4 million credit is included in the
non-performing loan and asset totals above. Management believes that there is
sufficient collateral securing both of these credits to protect the Bank from
potential losses associated with these credits.
26
<PAGE>
At March 31, 2000, 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 $78.5 million, which
represented 21.3% of gross loans receivable. Loan concentrations are considered
to exist when there are amounts loaned to a multiple number of borrowers engaged
in similar activities that would cause them to be similarly impacted by economic
or other conditions.
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 March 31, 2000, all
identified potential problem loans are included in the preceding table with the
exception of loans classified as substandard but still accruing which totaled
$2.8 million as of March 31, 2000.
The Company had no credit exposure to "highly leveraged transactions"
at March 31, 2000, as defined by the FRB.
27
<PAGE>
Allowance for Loan Losses
A detailed analysis of the Company's allowance for loan losses for the
three months ended March 31, 2000, and 1999 and the twelve months ended December
31, 1998:
<TABLE>
<CAPTION>
For the For the For the
three months twelve months three months
ended ended ended
March 31, 2000 December 31, 1999 March 31, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Balance at beginning of period ............. $3,208,000 $2,395,000 $2,395,000
Charge-offs:
Commercial .............................. 34,000 91,000 12,000
Real estate ............................. 0 0 1,000
Consumer ................................ 0 117,000 0
------------- ------------- -------------
Total charge-offs .................... 34,000 208,000 13,000
------------- ------------- -------------
Recoveries:
Commercial .............................. 23,000 124,000 20,000
Real estate ............................. 0 0 0
Consumer ................................ 0 17,000 1,000
------------- ------------- -------------
Total recoveries ..................... 23,000 141,000 21,000
------------- ------------- -------------
Net charge-offs/(recoveries) ............... 11,000 67,000 (8,000)
------------- ------------- -------------
Provision for loan losses .................. 200,000 880,000 250,000
------------- ------------- -------------
Balance at end of period ................ 3,397,000 $3,208,000 $2,653,000
============= ============= =============
Average loans outstanding (1)(2) ........ $359,015,000 $322,363,000 $309,771,000
============= ============= =============
Net charge-offs/Recoveries .............. 0.00% 0.02% (0.00%)
Provision for loan losses ............... 0.06% 0.27% 0.08%
Allowance for loan losses ............... 0.95% 1.00% 0.86%
Allowance for loan losses to:
Total loans, net of unearned income ..... 0.92% 0.90% 0.84%
Total non-performing loans .............. 0.93% 151.97% 144.66%
<FN>
(1) Includes nonaccruing loans.
(2) Includes loans held for sale.
</FN>
</TABLE>
Management makes a monthly determination as to an appropriate provision
from earnings necessary to maintain an allowance for loan losses that is
adequate 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 bi-monthly basis.
28
<PAGE>
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 March 31, 2000 At December 31, 1999
----------------- --------------------
Percent of Loans Percent of Loans
In Each Category In Each Category
Amount To Loans (1) Amount to Loans (1)
------ ------------ ------ ------------
Allocation of allowance for loan losses:
<S> <C> <C> <C> <C>
Commercial $2,667 60.0% $2,119 61.98%
Residential real estate 230 39.4% 423 37.54%
Consumer and other... 86 0.6% 84 0.51%
Unallocated 414 0.0% 582 0%
------------------ ---------------
Total $3,397,000 100.00% $3,208 100.00%
================== ===============
</TABLE>
The unallocated allowance decreased $168,000 to $414,000 at March 31,
2000 from $582,000 at December 31, 1999. The Company's internal loan guidelines
require all classified credits to have a specific reserve allocated to the
credit, even though management believes the loan to be adequately
collateralized. The Company allocated a portion of the amount previously
unallocated to a specific loan that was downgraded during the first quearter
2000, which caused the unallocated poriton of the allowance for loan losses to
decrease. Management believes the collatoral pledged against this loan is
adequate to protect the bank form losses associated with this credit.
(1) Includes loans held for sale
Deposit Structure
Total deposits at March 31, 2000 consisted of approximately $35.3
million in non-interest-bearing demand deposits, approximately $28.0 million in
interest-bearing demand deposits, approximately $55.9 million in savings
deposits and money market accounts, approximately $147.1 million in time
deposits under $100,000, and approximately $77.3 million in time deposits
greater than $100,000. In general, the Banks pay 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.
29
<PAGE>
The following table is a distribution of the balances of the Company's
average deposit balances and the average rates paid therein for the three months
ended March 31, 2000 and the year ended December 31, 1999.
<TABLE>
<CAPTION>
Deposit Table
For the three months ended For the twelve months ended
March 31, 2000 December 31, 1999
------------------------------------------------------------------------
Average Average
Balance Rate Balance Rate
<S> <C> <C> <C> <C>
Non-interest-bearing balances $34,169,000 0.00% $45,547,000 0.00%
=====================================================================
Money market and savings deposits 52,151,000 4.06% 45,547,000 3.77%
Time deposits 200,055,000 5.83% 193,430,000 5.84%
Demand deposits, interest-bearing 19,496,000 1.07% 13,752,000 1.35%
---------------------------------------------------------------------
Total interest-bearing deposits $271,702,000 5.15% $252,729,000 5.22%
=====================================================================
</TABLE>
The following is a breakdown, by contractual maturities, of the Company's time
deposits issued in denominations of $100,000 or more as of March 31, 2000 and
December 31, 1999.
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------------------------------------
Maturing in:
<S> <C> <C>
Three months or less $12,524,000 $11,575,000
Over three months through six months 16,749,000 10,695,000
Over six months through twelve months 29,400,000 24,135,000
Over twelve months 16,623,000 14,049,000
-------------------------------------------
Total $77,296,000 $60,454,000
===========================================
</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
30
<PAGE>
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 March 31, 2000 and December 31, 1999, firm
loan commitments approximated $17.3 million and $17.5 million respectively and
commitments of standby letters of credit approximated $2,929,000 and $2,394,000,
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.
31
<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
---------------------------------------------------
The annual meeting of shareholders of Republic First Bancorp, Inc., to
take action upon the re-election of certain directors of the Company and to make
certain amendments to the Company's 1996 Stock Option and Restricted Stock Plan
to increase the number of shares reserved for issuance thereunder from 792,000
to 1,400,000 shares, was held on the 25th day of April, 2000 at 4:00 p.m., at
the Crown Plaza 1800 Market Street, Philadelphia, Pennsylvania, after written
notice of said meeting, according to law, was mailed to each shareholder of
record entitled to received notice of said meeting, 33 days prior thereto. As of
the record date for said meeting of shareholders, the number of shares then
issued and outstanding was 6,343,901 shares of common stock, of which 6,343,901
shares were entitled to vote. A total of 5,188,907 shares were voted. No nominee
received less than 85.7% of the voted shares. Therefore, pursuant to such
approval, the following Directors were re-elected to the Company:
Daniel S. Berman
Eustace Mita
James E. Schleif
Harris Wildstein
With respect to the amendment of the Company's 1996 Stock Option and Restricted
Stock Plan to increase the number of shares reserved for issuance thereunder
from 792,000 to 1,400,000 shares. Shares voted for the amendment were 2,158,040,
shares voted against the amendment were 865,684 and shares abstained were
42,302. The amendment was approved.
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)
32
<PAGE>
Exhibit No.
-----------
10 Amended and Restated Material Contracts.- None
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 in the Company's Form 10-K, filed March 23, 2000.
Reports on Form 8-K
None
33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Issuer has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Republic First Bancorp, Inc.
Jere A. Young
President and Chief Executive Officer
George S. Rapp
Executive Vice President and Chief Financial Officer
Dated: May 11, 2000
34
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000834285
<NAME> REPUBLIC FIRST BANCORP INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-30-2000
<CASH> 18,641,000
<INT-BEARING-DEPOSITS> 309,000
<FED-FUNDS-SOLD> 1,200,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 164,009,000
<INVESTMENTS-CARRYING> 17,658,000
<INVESTMENTS-MARKET> 0
<LOANS> 369,417,000
<ALLOWANCE> 3,397,000
<TOTAL-ASSETS> 586,063,000
<DEPOSITS> 343,554,000
<SHORT-TERM> 13,605,000
<LIABILITIES-OTHER> 8,232,000
<LONG-TERM> 185,000,000
0
0
<COMMON> 63,000
<OTHER-SE> 35,672,000
<TOTAL-LIABILITIES-AND-EQUITY> 586,063,000
<INTEREST-LOAN> 7,501,000
<INTEREST-INVEST> 3,204,000
<INTEREST-OTHER> 8,000
<INTEREST-TOTAL> 10,713,000
<INTEREST-DEPOSIT> 3,486,000
<INTEREST-EXPENSE> 6,704,000
<INTEREST-INCOME-NET> 4,009,000
<LOAN-LOSSES> 200,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,825,000
<INCOME-PRETAX> 1,498,000
<INCOME-PRE-EXTRAORDINARY> 1,498,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,004,000
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
<YIELD-ACTUAL> 7.74
<LOANS-NON> 3,668,000
<LOANS-PAST> 3,648,000
<LOANS-TROUBLED> 3,668,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,208,000
<CHARGE-OFFS> 34,000
<RECOVERIES> 23,000
<ALLOWANCE-CLOSE> 3,397,000
<ALLOWANCE-DOMESTIC> 3,397,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 414,000
</TABLE>
