-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VS/Xvok+PcAEROtGauvBImyCjLgyuEvNBtdhxqorEkZldCme1dSBdYtKRXkOxrY1 PRt7/rKBM2Q11y0VUBnIHg== 0000950159-01-500098.txt : 20010516 0000950159-01-500098.hdr.sgml : 20010516 ACCESSION NUMBER: 0000950159-01-500098 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REPUBLIC FIRST BANCORP INC CENTRAL INDEX KEY: 0000834285 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 232486815 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17007 FILM NUMBER: 1636211 BUSINESS ADDRESS: STREET 1: 1608 WALNUT ST STREET 2: STE 1000 CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2157354422 MAIL ADDRESS: STREET 1: 1608 WALNUT ST STREET 2: STE 1000 CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: FIRST REPUBLIC BANCORP INC /DE/ DATE OF NAME CHANGE: 19960617 FORMER COMPANY: FORMER CONFORMED NAME: EXECUFIRST BANCORP INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FIRST EXECUTIVE BANCORP INC DATE OF NAME CHANGE: 19881113 10-Q 1 frb3-01q.txt REPUBLIC FIRST BANCORP FORM 10-Q 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, 2001 Commission File Number: 0-17007 Republic First Bancorp, Inc. ---------------------------- (Exact name of business issuer as specified in its charter) Pennsylvania 23-2486815 ------------ ---------- (State or other jurisdiction of IRS Employer Identification incorporation or organization) Number 1608 Walnut Street, Philadelphia, Pennsylvania 19103 ---------------------------------------------------- (Address of principal executive offices) (Zip code) 215-735-4422 ------------ (Registrant's telephone number, including area code) N/A ------------ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. YES X NO ------- ------- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the Issuer's classes of common stock, as of the latest practicable date. 6,358,126 shares of Issuer's Common Stock, par value $0.01 per share, issued and outstanding as of April 30, 2001 Page 1 of 32 Exhibit index appears on page 31 1 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 Results of Operations 11 Item 3: Quantitative and Qualitative Information about Market Risk 17 Part II: Other Information Item 1: Legal Proceedings 30 Item 2: Changes in Securities and Use of Proceeds 30 Item 3: Defaults Upon Senior Securities 30 Item 4: Submission of Matters to a Vote of Security Holders 30 Item 5: Other Information 30 Item 6: Exhibits and Reports on Form 8-K 30 2 PART I - FINANCIAL INFORMATION ------------------------------ Item 1: Financial Statements (unaudited) -------------------------------- Page Number ----------- (1) Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000................................................ 4 (2) Consolidated Statements of Operations for the three months ended March 31, 2001 and 2000.............................................. 5 (3) Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000.............................................. 6 (4) Notes to Consolidated Financial Statements........................... 7 3 Republic First Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 dollars in thousands, except share data (unaudited)
ASSETS: March 31, December 31, 2001 2000 --------- --------- Cash and due from banks $ 15,233 $ 20,990 Interest bearing deposits with banks 461 460 Federal funds sold 45,193 29,207 --------- --------- Total cash and cash equivalents 60,887 50,657 Other interest-earning restricted cash 4,105 -- Securities available for sale, at fair value 139,398 152,134 Securities held to maturity at amortized cost (Fair value of $13,725 and $17,750, respectively) 13,732 17,707 Loans receivable (net of allowance for loan losses of $4,195 and $4,072, respectively) 423,476 418,313 Premises and equipment, net 5,112 5,153 Accrued income and other assets 9,561 11,673 --------- --------- Total Assets $ 656,271 $ 655,637 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY: Liabilities: Deposits: Demand - non-interest-bearing $ 53,593 $ 44,281 Demand - interest-bearing 30,382 29,784 Money market and savings 90,777 76,510 Time under $100,000 177,510 175,834 Time over $100,000 101,567 99,142 --------- --------- Total Deposits 453,829 425,551 Other borrowed funds 147,500 176,442 Accrued expenses and other liabilities 9,687 10,614 --------- --------- Total Liabilities 611,016 612,607 --------- --------- Shareholders' Equity: Common stock par value $0.01 per share, 20,000,000 shares authorized; shares issued 6,358,126 as of March 31, 2001 and December 31, 2000 63 63 Additional paid in capital 32,117 32,117 Retained earnings 15,207 14,446 Treasury stock at cost (175,172 shares at March 31, 2001 and December 31, 2000) (1,541) (1,541) Accumulated other comprehensive loss (591) (2,055) --------- --------- Total Shareholders' Equity 45,255 43,030 --------- --------- Total Liabilities and Shareholders' Equity $ 656,271 $ 655,637 ========= =========
(See notes to consolidated financial statements) 4 Republic First Bancorp, Inc. and Subsidiaries Consolidated Statements of Operations For the Three Months Ended March 31, dollars in thousands, except per share data (unaudited)
2001 2000 ------- ------- Interest income: Interest and fees on loans $ 9,151 $ 7,501 Interest on federal funds sold and other interest-earning balances 652 8 Interest on investments 2,599 3,204 ------- ------- Total interest income 12,402 10,714 ------- ------- Interest expense: Demand interest-bearing 150 52 Money market and savings 905 528 Time over $100,000 1,596 897 Time under $100,000 2,836 2,009 Other borrowed funds 2,541 3,218 ------- ------- Total interest expense 8,028 6,704 ------- ------- Net interest income 4,374 4,009 ------- ------- Provision for loan losses 157 200 ------- ------- Net interest income after provision for loan losses 4,217 3,809 ------- ------- Non-interest income: Service fees 540 313 Gains on securities sold 13 -- Tax Refund Program revenue 186 181 Other income 19 20 ------- ------- 758 514 Non-interest expenses: Salaries and benefits 2,016 1,543 Occupancy/equipment 566 459 Other expenses 1,257 823 ------- ------- 3,839 2,825 ------- ------- Income before income taxes 1,136 1,498 Provision for income taxes 375 494 ------- ------- ------- ------- Net income $ 761 $ 1,004 ======= ======= Net income per share: ------- ------- Basic $ 0.12 $ 0.16 ======= ======= ------- ------- Diluted $ 0.12 $ 0.16 ======= =======
(See notes to consolidated financial statements) 5 Republic First Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Three Months Ended March 31, Dollars in thousands (unaudited)
2001 2000 -------- -------- Cash flows from operating activities: Net income $ 761 $ 1,004 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 157 200 Depreciation and amortization 314 116 Decrease in loans held for sale -- 4,857 Increase in accrued income and other assets 1,351 79 Decrease in accrued expenses and other liabilities (927) (625) Net increase (decrease) in deferred fees (47) 26 -------- -------- Net cash provided by operating activities 1,609 5,657 -------- -------- Cash flows from investing activities: Purchase of securities: Held to Maturity (2,420) -- Proceeds from principal receipts, sales, and maturities of securities 21,259 5,088 Net increase in loans (5,273) (11,298) Increase in other interest-earning restricted cash (4,105) -- Premises and equipment expenditures (177) (133) -------- -------- Net cash provided by (used in) investing activities 9,284 (6,343) -------- -------- Cash flows from financing activities: Net increase in demand, money market and savings deposits 24,177 15,233 Net decrease in borrowed funds less than 90 days (16,442) (13,035) Repayment of borrowed funds greater than 90 days (12,500) (25,000) Net increase in time deposits 4,102 22,528 -------- -------- Net cash used in financing activities (663) (274) -------- -------- Increase (decrease) in cash and cash equivalents 10,230 (960) Cash and cash equivalents, beginning of period 50,657 21,110 -------- -------- Cash and cash equivalents, end of period $ 60,887 $ 20,150 ======== ======== Supplemental disclosure: Interest paid $ 8,258 $ 7,349 ======== ======== Taxes paid $ 1,350 $- ======== ======== Non-cash transactions: Change in unrealized gain/(loss) on securities available for sale, net of tax $ 1,464 $ (372) Change in deferred taxes due to change in unrealized Loss (Gain) on securities available for sale (761) 193 ======== ========
(See notes to consolidated financial statements) 6 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 subsidiaries, First Republic Bank (the "Bank"), and First Bank of Delaware (formerly Republic First Bank of Delaware) (the "Delaware Bank"), (together the "Banks") offer a variety of banking services to individuals and businesses throughout the Greater Philadelphia, Delaware and South Jersey area through their offices and branches in Philadelphia and Montgomery Counties in Pennsylvania and in New Castle County, Delaware. These interim financial statements have been prepared in accordance with instructions to Form 10-Q. Accordingly, these financial statements do not include information or footnotes necessary for a complete presentation of financial statements in accordance with accounting principles generally accepted in the United States of America. 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, 2001, the results of operations for the three months ended March 31, 2001 and 2000, and the cash flows for the three months ended March 31, 2001 and 2000. 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 2000 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 First Bank of Delaware, (the "Banks"). 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 primarily 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. The preparation of financial statements 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 (of which the Bank had none for any of the periods presented herein) 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 7 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. Other interest-earning restricted cash: Other interest-earning restricted cash represents cash to fund our offsite ATM network. The dispensed cash is returned to the Company through the Mac network on the next business day. 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: 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 operations and financial condition of the Company's wholly owned banking subsidiaries, First Republic Bank and 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 Liberty Tax Services, a national tax preparation firm. In 1999, a similar arrangement with Jackson Hewitt, a national tax participation firm was terminated. However, recoveries of previously delinquent loans were recorded in the first quarter of 2000. The accounting policies of the segments are the same as those described in the notes to consolidated financial statements from the Company's Form 10-K. 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. 8
As of and for the three months ended March 31, (dollars in thousands) 2001 2000 ---- ---- First Tax First Tax Republic Delaware Refund Republic Delaware Refund Bank Bank Program Total Bank Bank Program Total ------- -------- -------- -------- -------- -------- -------- -------- External customer revenues: Interest Income $11,803 $599 -- $12,402 $10,483 $231 $ -- $10,714 Other Income 429 143 186 758 315 18 181 514 ------- -------- -------- -------- -------- -------- -------- -------- Total external customer revenues 12,232 742 -- 13,160 10,798 249 181 11,228 ------- -------- -------- -------- -------- -------- -------- -------- Intersegment revenues: Interest Income -- -- -- -- 69 -- -- 69 Other Income 19 -- -- 19 18 -- -- 18 ------- -------- -------- -------- -------- -------- -------- -------- Total intersegement revenues 19 -- -- 19 87 -- -- 87 ------- -------- -------- -------- -------- -------- -------- -------- Total Revenue 12,251 742 186 13,179 10,885 249 181 11,315 ------- -------- -------- -------- -------- -------- -------- -------- Depreciation and amortization 187 30 -- 217 112 23 -- 135 Other operating expenses - external 11,044 763 -- 11,807 9,309 286 -- 9,595 Intersegment Expense: Other operating expense -- 19 -- 19 -- 18 -- 18 Interest Expense -- -- -- -- -- 69 -- 69 ------- -------- -------- -------- -------- -------- -------- -------- Segment expenses 11,231 812 -- 12,043 9,421 396 -- 9,817 ------- -------- -------- -------- -------- -------- -------- -------- Segment income before taxes and extraordinary items $1,020 ($70) 186 $1,136 $1,464 ($147) 181 $1,498 ======== ======== ======== ======== ======== ======== ======== ======== Segment assets $624,769 $31,502 -- $656,271 574,367 $12,138 -- $586,505 -------- -------- -------- -------- -------- -------- -------- -------- Capital expenditures $140 $37 -- $177 $109 $24 -- $133 -------- -------- -------- -------- -------- -------- -------- --------
9 Note 5: 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. At March 31, 2001 and 2000, there were 101,940 and 179,930 CSEs that were antidilutive, respectively. These options may be dilutive in the future. The following table is a comparison of EPS for the three months ended March 31, 2001 and 2000. 1st Quarter 2001 2000 Net Income $761,000 $1,004,000
Shares Per Share Share Per Share ------ --------- ----- --------- Weighted average shares For period 6,182,954 6,168,729 Basic EPS $0.12 $0.16 Add common stock equivalents Representing dilutive stock options 154,475 136,190 --------- --------- Effect on basic EPS of dilutive CSE - - Equals total weighted average Shares and CSE (diluted) 6,337,429 6,304,919 ========= ========= Diluted EPS $0.12 $0.16 ===== =====
Note 6: 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.
(dollar amounts in thousands) Three months ended March 31, ----------------------- 2001 2000 ------- ------- Net income $761 $1,004 Other comprehensive income, net of tax: Unrealized gains/(losses) on securities: Unrealized holding gains/(losses) during the period 1,473 (372) Less: Reclassification adjustment for gains Included in net income (9) -- ------- ------- Comprehensive income $2,225 $632 ======= =======
10 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, 2000, Quarterly Reports on Form 10-Q, filed by the Company in 2000, and any Current Reports on Form 8-K filed by the Company, as well as other filings. Financial Condition: March 31, 2001 Compared to December 31, 2000 Total assets remained constant at $656.3 million at March 31, 2001 versus $655.6 million at December 31, 2000. Cash from net maturities and sales of securities and increased deposit generation were used to fund loan growth and to pay down other borrowed funds. Loans: The loan portfolio, which represents the Company's largest asset, is its most significant source of interest income. The Company's lending strategy is to focus on small and medium sized businesses and professionals that seek highly personalized banking services. Net loans increased $5.2 million, or 1.2%, to $423.5 million at March 31, 2001 from $418.3 million at December 31, 2000. The loan portfolio consists of commercial and industrial ("C&I") loans, commercial and residential construction loans, commercial real estate loans, residential mortgages, home equity loans, lines of credit and others. During 2000, the Company introduced two new products: commercial construction loans and residential construction loans. Commercial construction loans are loans to builders for commercial properties or residential construction. These loans generally have a loan to value no greater than 80% and are generally secured by the property and in some cases the guarantee of the owner. Residential construction loans are loans to individuals, generally to build their primary residence. Upon the completion of construction, residential construction loans are repaid by the borrower generally when they obtain a first mortgage from another institution. Consistent with the company's long-term strategy of increasing the ratio of variable rate loans, most of the new loan originations in first quarter 2001 were tied to 11 prime. New loans generally range from $250,000 to $1.0 million but may be as high as the Banks combined legal lending limit of $6.9 million. Securities: Securities available-for-sale may be sold in response to changing market and interest rate conditions or for other business purposes. Available-for-sale securities decreased $12.7 million, or 8.4%, to $139.4 million at March 31, 2001 from $152.1 million at December 31, 2000. This decrease reflected both the sale of an $8.0 million security for which a gain of $13,000 was recognized and principal repayments which were partially offset by a $2.2 million increase in market value on securities classified as Available-for-Sale. Securities held-to-maturity are investments for which there is positive intent and ability to hold to maturity. These investments are carried at amortized cost. Held-to maturity securities decreased $4.0 million, or 22.3% to $13.7 million at March 31, 2001 from $17.7 million at December 31, 2000. The decline is primarily due to the redemption of Federal Home Loan Bank stock. Cash and due from banks: 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 $10.2 million to $60.9 million at March 31, 2001 from $50.7 million at December 31, 2000 due to an increase in federal funds sold resulting primarily from the short-term reinvestment of proceeds from the sale of the available-for-sale security. Other interest earning restricted cash: Other interest-earning restricted cash represent funds provided to the MBM/ATM Group for usage in ATM machines, for which the Company is compensated. Deposits: Deposits, which include non-interest-bearing demand deposits, interest-bearing time and savings deposits, are the Banks' major source of funding. Deposits are generally solicited from the Company's market area through a variety of products to attract and retain customers, with the primary focus on building and expanding multi-product relationships. Deposits, increased $28.3 million, or 6.7% to $453.8 million at March 31, 2001 from $425.6 million at December 31, 2000. The aggregate of transaction accounts, which include demand, money market and savings accounts, increased $24.2 million, or 16.1%, to $174.8 million at March 31, 2001 from $150.6 million at December 31, 2000. Certificates of deposit increased by $4.1 million, or 1.5%, to $279.1 million at March 31, 2001 from $275.0 million at December 31, 2000. The increase in all deposit products resulted from the Company's deposit generation strategies instituted in 2000. The Company formed deposit generating teams and aggressively targeted customers in selected business categories. This is expected to be an ongoing part of the Company's long-term strategy in order to reduce reliance on borrowed funds. Other Borrowed Funds: Other borrowed funds are comprised of overnight federal funds purchased and term FHLB borrowings. These borrowings are used primarily to fund asset growth not supported by deposit generation. Other borrowed funds 12 were $147.5 million at March 31, 2001, a decrease of $28.9 million, or 16.4% when compared to the December 31, 2000 total of $176.4 million. The decrease in borrowed funds was funded with increases in deposit balances, consistent with the Banks' strategy to increase lower cost deposits through focused marketing efforts, and decrease higher cost borrowings. The Company's shareholders' equity as of March 31, 2001 and December 31, 2000 was $45.3 million and $43.0 million, respectively. Book value per share of the Company's common stock increased from $6.96 as of December 31, 2000 to $7.32 as of March 31, 2001. This increase was mainly attributable to retained earnings and the increase in market value of the available-for-sale securities portfolio. Three Months Ended March 31, 2001 Compared to March 31, 2000 - ------------------------------------------------------------ Results of Operations: Overview The Company's net income decreased $243,000 to $761,000 for the three months ended March 31, 2001, from $1.0 million for the three months ended March 31, 2000. The decrease reflected margin contractions resulting from the impact of a rapid 150 basis point drop in the prime rate, as a result of Federal Reserve Bank rate reductions. While the impact on variable rate loans tied to prime was immediate, management estimates that, all else constant, two quarters are required for offsetting amounts of deposits, primarily maturing certificates of deposit, to reprice. Accordingly, the net interest margin decreased to 2.74% from 2.89%. Non-interest expense also increased, partially offset by increases in non-interest income. Diluted earnings per share for the three months ended March 31, 2001 was $0.12 compared to $0.16, for the three months ended March 31, 2000, due to the decrease in net income. That decrease resulted in a return on average assets and average equity of 0.47% and 6.86% respectively, compared to 0.70% and 9.58% respectively for the same period in 2000. Analysis of Net Interest Income Historically, the Company's earnings have depended significantly 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 impacted by changes in the mix of the volume and rates of interest-earning assets and interest-bearing liabilities. Net interest margin (net interest income as a percentage of average interest-earning assets) was 2.74% for the three months ended March 31, 2001 versus 2.89% for the three months ended March 31, 2000. As previously noted, the decrease reflected margin contractions resulting from the impact of a rapid 150 basis point drop in the prime rate, as a result of Federal Reserve Bank rate reductions. While the impact on variable rate loans tied to prime was immediate, management estimates that, all else constant, two quarters are required for offsetting amounts of deposits, primarily maturing certificates of deposit, to reprice. Accordingly, the Company's net interest income increased only $365,000, or 9.1%, to $4.4 million for the three months ended March 31, 2001 from $4.0 million for the three months ended March 31, 2000. As shown in the following Rate Volume table, the resulting lesser increase in net interest income was due to the positive effect of volume changes totaling $1.0 million significantly offset by rate changes (primarily higher interest rates) of $643,000. The positive impact from volume changes was attributable to a significant increase in average interest-earning assets, which increased $85.6 million on average to $639.6 million during the quarter ended March 31, 2001, from $554.0 million for the quarter ended March 31, 2000. 13 The Company's total interest income increased $1.7 million, or 15.8%, to $12.4 million for the three months ended March 31, 2001 from $10.7 million for the three months ended March 31, 2000. Approximately $1.7 million of the increase was related to a $85.6 million increase in average interest-earning assets while the remaining $15,000 was the result of an increase in the yield earned on interest-earning assets. Interest and fees on loans increased $1.6 million, or 22%, to $9.1 million for the three months ended March 31, 2001 from $7.5 million for the three months ended March 31, 2000. Approximately $1.5 million of the increase was due to a $71.7 million, or 20%, increase in average loans outstanding while the remaining $107,000 of the increase was due to an increase in the average rate earned on these loans. Interest and dividend income on securities decreased $605,000, or 18.9%, to $2.6 million for the three months ended March 31, 2001 from $3.2 million for the three months ended March 31, 2000. This decrease in investment income was the result of a decrease in the gross average balance of securities owned of $31.9 million, or 16.4%, to $163.1 million for the three months ended March 31, 2001 from $195.1 million for the three months ended March 31, 2000. The decline in securities reflects the Company's continuing strategy to reduce securities and redeploy the proceeds into higher yielding assets. In addition to the declining average oustandings, the yield earned on these securities declined 20 basis points to 6.37% due to the amortization, maturity and sale of higher yielding securities. Federal funds sold and other interest earning balances income increased by $644,000 to $652,000 as cash from deposit generation and securities reductions that was not used to fund loan growth or pay down other borrowed funds, was sold as federal funds. Interest expense increased $1.3 million, or 19.8%, to $8.0 million for the three months ended March 31, 2001 from $6.7 million for the three months ended March 31, 2000. Interest-bearing liabilities averaged $561.6 million, an increase of $63.0 million, or 12.6%, from $498.6 million for the three months ended March 31, 2000. The net growth in interest-bearing liabilities contributed $667,000 to the increase in interest expense while the increase in rates paid on interest-bearing liabilities contributed the remaining $658,000 to the increase. The growth in interest-bearing liabilities reflected deposit growth which was used to fund the growth in interest-earning assets and to repay certain other borrowed funds. The average rate paid on interest-bearing liabilities increased to 5.80% for the three months ended March 31, 2001 from 5.39% for the three months ended March 31, 2000 reflecting the increase in average rates paid on certificate deposit accounts due to a higher rate environment when the certificates were issued. Certificates of deposit (time deposit) interest expense increased $1.5 million or 52.5%. This increase was primarily due to an increase in the average volume of certificates of deposit of $75.8 million, or 37.9%, to $275.8 million for the three months ended March 31, 2001 from $200.1 million for the three months ended March 31, 2000. This contributed $1.2 million of the increase. The average rate of interest paid on time deposits contributed the remaining $364,000 to the increase in interest expense. Interest expense on FHLB advances and overnight federal funds purchased was $2.5 million for the three months ended March 31, 2001 compared to $3.2 million for the three months ended March 31, 2000, a decline of $677,000, or 21.0%. This decrease was due to a decrease in the average volume of other borrowed funds of $57.8 million to $169.1 million for the three months ended March 31, 2001 from $226.9 million for the three months ended March 31, 2000 as borrowings were replaced with deposits. The decline in volume more than offset the increase in rate as the average rate paid for borrowed funds increased 40 basis points from 5.69% at March 31, 2000 to 6.09% at March 31, 2001. The maturity of lower cost long term borrowings contributed to the increase in the average rate paid on borrowed funds. 14 The rate volume table below presents an analysis of the impact on interest income and expense resulting from changes in average volumes and rates during the period. Changes that are not due to volume or rate variances have been allocated proportionally to both, based on their relative absolute values. Rate/Volume Table
Three months ended March 31, 2001 versus 2000 (dollars in thousands) Due to change in: Volume Rate Total ------ ---- ----- Interest earned on: Federal funds sold $642 $2 $644 Securities (511) (94) (605) Loans 1,544 107 1,651 - ----------------------------------------------------------------------------------------- Total interest-earning assets 1,675 15 1,690 Interest Expense of Deposits Interest-bearing demand deposits (48) (51) (99) Money market and savings (340) (36) (376) Time deposits (1,163) (364) (1,527) - ----------------------------------------------------------------------------------------- Total deposit interest expense (1,551) (451) (2,002) Other borrowed funds 884 (207) 677 - ----------------------------------------------------------------------------------------- Total interest expense (667) (658) (1,325) - ----------------------------------------------------------------------------------------- Net interest income $1,008 $(643) $365 - -----------------------------------------------------------------------------------------
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 $157,000 and $200,000 for the three months ended March 31, 2001 and 2000, respectively. The amounts recorded in the first quarters of 2001 and 2000 were the amounts management considered necessary to increase the allowance for loan losses to an amount that reflects the known and inherent losses in the portfolio. As of March 31, 2001 and 2000, the allowance for loan losses to total loans, net of deferred loan fees was 0.98% and 0.92%, respectively. 15 Non-Interest Income Total non-interest income increased $244,000 to $758,000 for the three months ended March 31, 2001 from $514,000 for the three months ended March 31, 2000. This increase is due to increased loan advisory fees and income related to short term loan programs. Non-Interest Expenses Total non-interest expenses increased $1.0 million or 35.9%, to $3.8 million for the three months ended March 31, 2001. Salaries and benefits increased $473,000 or 30.6%, to $2.0 million for the three months ended March 31, 2001 from $1.5 million for the three months ended March 31, 2000. The increase was due primarily to an increase in staff of both Banks as the Company expanded its commercial loan department by adding commercial and residential construction loan staff. In addition to continued loan production, the commercial construction loan department generates non-interest income by generating related fees. Also, higher health insurance costs and normal merit increases contributed to the increase. Occupancy and equipment expenses increased $107,000, or 23.4%, to $566,000 for the three months ended March 31, 2001 from $459,000 for the three months ended March 31, 2000. The increase resulted from increased depreciation expense due to costs associated with the Company's implementation of an internal e-mail system, the launching of the Company's website, www.frbkonline.com and other technology projects. Other non-interest expense increased $434,000, or 52.7%, to $1.3 million for the three months ended March 31, 2001 from $823,000 for the same period in 2000. This increase was primarily due to expenses incurred in the development of various business initiatives undertaken to diversify the earnings of the Company, including short term loan programs. In addition, advertising expense increased due to a continuation of the Company's branding campaign which began in the fall of 2000. Provision for Income Taxes The provision for income taxes decreased $119,000, or 24.1%, to $375,000 for the three months ended March 31, 2001 from $494,000 for the three months ended March 31, 2000. This decrease is mainly the result of the decrease in pre-tax income from first quarter 2000 to first quarter 2001. The effective tax rate for both periods was approximately 33.0%. 16 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, 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. However, management may choose not to reprice liabilities proportionately to change in market interest rates, for competitive or other reasons. Shortcomings are inherent in a simplified and static GAP analysis that may result in an institution with a negative GAP having interest rate behavior associated with an asset-sensitive balance sheet. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Furthermore, repricing characteristics of certain assets and liabilities may vary substantially within a given time period. In the event of a change in interest rates, prepayment and early withdrawal levels could also deviate significantly from those assumed in calculating GAP in the manner presented in the table below. The Company attempts to manage its assets and liabilities in a manner that optimizes net interest income. 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 optimal growth in net interest income. The following tables present a summary of the Company's interest rate sensitivity GAP at March 31, 2001. 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 17 prepayment assumptions were made with regard to investment securities based upon the expected prepayment of the underlying collateral of the mortgage backed securities.
Republic First Bancorp Interest Sensitive Gap (dollars in thousands) As of March 31, 2001 ------------------------------------------------------------------------------------------------------- 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: Securities and interest Bearing balances due from banks $ 66,831 $ 9,539 $11,890 $ 22,562 $ 21,045 $ 15,905 $12,205 $ 42,912 $202,889 $202,882 Average interest rate 5.48% 5.76% 6.39% 6.42% 6.41% 6.42% 6.42% 6.43% Loans receivable 160,011 18,631 32,754 49,713 41,615 50,949 22,981 46,823 423,476 435,137 Average interest rate 8.59% 8.26% 8.42% 8.29% 8.17% 8.22% 8.37% 7.24% Total 226,842 28,170 44,644 72,275 62,660 66,854 35,186 89,735 626,365 638,019 ------------------------------------------------------------------------------------ -------- -------- Cumulative Totals $226,842 $255,012 $299,655 $371,930 $434,590 $501,444 $536,630 $626,365 =================================================================================== Interest Sensitive Liabilities: Demand Interest Bearing $ 16,825 $ 250 $ 957 $ 1,001 $ 1,001 $ 1,001 $ 9,349 $ - $30,382 $30,382 Average interest rate 1.86% 0.76% 0.76% 0.76% 0.76% 0.76% 0.76% 0.00% Savings Accounts 5,535 82 314 329 329 329 3,075 $ - 9,994 9,994 Average interest rate 1.68% 1.68% 1.68% 1.68% 1.68% 1.68% 1.68% 0.00% Money Market Accounts 44,745 665 2,541 2,660 2,660 2,660 24,852 $ - 80,783 80,783 Average interest rate 4.63% 1.75% 1.75% 1.75% 1.75% 1.75% 1.75% -% Time Deposits 64,864 60,467 101,465 36,532 5,811 4,851 5,056 32 279,077 282,281 Average interest rate 5.87% 6.22% 6.44% 6.49% 6.31% 6.83% 6.71% 4.63% FHLB Borrowings 5,000 - 12,500 5,000 - 125,000 - - 147,500 152,823 Average interest rate 5.86% -% 5.39% 6.05% 0.00% 6.19% 0.00% 0.00% Total 136,969 61,464 117,776 45,522 9,801 133,841 42,332 32 547,736 556,263 ------------------------------------------------------------------------------------ -------- -------- Cumulative Totals $136,969 $198,433 $316,209 $361,731 $371,532 $505,373 $547,705 $547,736 =================================================================================== Interest Rate Sensitivity GAP $ 89,873 $(33,294) $(73,132) $26,753 $52,589 $(66,987) $ (7,146) $89,704 Cumulative GAP $ 89,873 $56,578 $(16,554) $10,200 $63,059 $(3,928) $(11,074) $78,629 Interest Sensitive Assets/ Interest Sensitive Liabilities 166% 129% 95% 103% 117% 99% 98% 114% Cumulative GAP/ Total Earning Assets 14% 9% -3% 2% 10% -1% -2% 13% Total Earning Assets $626,365 ========= Off balance sheet items Notional value: Commitments to extend credit $ 3,290 $52,509 --------- ------- Average interest rate 8.00% 8.00%
18 In addition to the GAP analysis, the Company utilizes 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, 2002, based upon the assets, liabilities and off-balance sheet financial instruments in existence at March 31, 2001. 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 March 31, 2002 and December 31, 2001. Quarterly changes could be significantly more or less than annual estimates. In fact, certain quarters within a year period could show an increase while other quarters might reflect a decrease. Percentage Change ----------------- Rate shocks to interest rates 3/31/02 12/31/01 ----------------------------- ------- -------- +2% 3.2% (0.3%) +1% 1.9 0.4 -1% (4.0) (2.9) -2% (10.3) (9.8) 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. 19 Regulatory Matters 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 ("FDIA"). Under the Banking Code, no dividends may be paid except from the "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 preceding two years. Under the FDIA, an insured bank may pay no dividends if the bank is in arrears in the payment of insurance due to the FDIC. 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. 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, 2001 and December 31, 2000, First Republic Bank, First Bank of Delaware and Republic First Bancorp, Inc. exceeded all requirements to be considered well capitalized. The following table presents the Company's capital regulatory ratios at March 31, 2001 and December 31, 2000:
To be well Actual For Capital capitalized under FRB Adequacy purposes capital guidelines Amount Ratio Amount Ratio Amount Ratio -------- ------- -------- ------- -------- ------- Dollars in thousands At March 31, 2001 Total risk based capital First Republic Bank 43,209 12.28% 28,144 8.00% 35,180 10.00% First Bank of DE 3,706 19.21% 1,543 8.00% 1,929 10.00% Republic First Bancorp, Inc. 49,793 13.40% 29,735 8.00% 37,169 10.00% Tier one risk based capital First Republic Bank 39,281 11.17% 14,072 4.00% 21,108 6.00% First Bank of DE 3,465 17.96% 772 4.00% 1,157 6.00% Republic First Bancorp, Inc. 45,597 12.27% 14,867 4.00% 22,301 6.00% Tier one leveraged capital First Republic Bank 39,281 6.23% 31,535 5.00% 31,535 5.00% First Bank of DE 3,465 11.05% 1,568 5.00% 1,568 5.00% Republic First Bancorp, Inc. 45,597 6.89% 33,090 5.00% 33,090 5.00%
20
To be well Actual For Capital capitalized under FRB Adequacy purposes capital guidelines Amount Ratio Amount Ratio Amount Ratio -------- ------- -------- ------- -------- ------- At December 31, 2000 Total risk based capital First Republic Bank 42,281 11.92% 28,639 8.00% 35,461 10.00% First Bank of DE 3,648 19.34% 1,509 8.00% 1,886 10.00% Republic First Bancorp, Inc. 48,907 13.08% 29,917 8.00% 37,396 10.00% Tier one risk based capital First Republic Bank 38,471 10.85% 14,184 4.00% 21,277 6.00% First Bank of DE 3,387 17.96% 754 4.00% 1,132 6.00% Republic First Bancorp, Inc. 44,835 11.99% 14,958 4.00% 22,438 6.00% Tier one leveraged capital First Republic Bank 38,471 6.19% 31,060 5.00% 31,060 5.00% First Bank of DE 3,387 12.15% 1,394 5.00% 1,394 5.00% Republic First Bancorp, Inc. 44,835 6.91% 32,446 5.00% 32,446 5.00%
Dividend Policy The Company has not paid any cash dividends on its Common Stock. The Company does not plan to pay cash dividends to shareholders in the next year and intends to retain all earnings to fund the growth of the Company and the Banks. 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 $65.0 million at March 31, 2001 compared to $50.7 million at December 31, 2000 as the Company sold securities and had redemptions of certain securities during the first quarter. At March 31, 2001, the Company estimated that an additional $211.4 million of loans will mature or repay in the next one year period ending March 31, 2002. Liquidity needs can be met by attracting deposits with competitive rates, buying federal funds or utilizing the facilities of the Federal Home Loan Bank System. At March 31, 2001, the Bank had $178.5 million in unused lines of credit available to it under informal arrangements with correspondent banks compared to $149.6 million at December 31, 2000. These lines of credit enable the Bank to purchase funds for short-term needs at current market rates. At March 31, 2001, the Company had outstanding commitments (including unused lines of credit and letters of credit) of $55.8 million. Certificates of deposit which are scheduled to mature within one year totaled $226.8 million at March 31, 2001, and other borrowed funds that are scheduled to mature within the same 21 period amounted to $17.5 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 securities, 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 correspondents, in the amount of $10.0 million, as contingent sources of liquidity. Additionally, the Bank has established a line of credit with the Federal Home Loan Bank of Pittsburgh with a maximum borrowing capacity of approximately $316.0 million. As of March 31, 2001 and December 31, 2000, the Company had borrowed $147.5 million and $176.4 million, 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. 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 optimize the effect of interest rate changes on net interest margins and interest rate spreads, and to provide growth in 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, 2001, 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 $140.3 million and $139.4 million as of March 31, 2001, respectively. The net unrealized loss on securities available-for-sale, as of this date, was $889,000. 22 The following table represents the carrying and estimated fair values of Investment Securities at March 31, 2001.
Gross Gross (Dollars in thousands) Amortized Unrealized Unrealized Available-for-Sale Cost Gain Loss Fair Value ------------------------------------------------------------------------------ Mortgage-backed $ 139,130 $ 104 $ (1,006) $ 138,228 U.S. Government Agencies 1,157 13 - 1,170 ----------------------------------------------------------------------------- Total Available-for-Sale $ 140,287 $ 117 $ (1,006) $ 139,398 ----------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Held-to-Maturity Cost Gain Loss Fair Value ----------------------------------------------------------------------------- Mortgage-backed $ 1,663 $ - $ (13) $ 1,650 US Government Agencies 3,359 4 (4) 3,359 Other 8,710 6 - 8,716 ----------------------------------------------------------------------------- Total Held-to-Maturity $ 13,732 $ 10 $ (17) $ 13,725 -----------------------------------------------------------------------------
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, commercial construction loans, residential construction loans as well as residential, home equity loans, consumer loans, and others. Commercial loans are primarily term loans made to small-to-medium-sized businesses and professionals for working capital and other purposes. The majority of these commercial loans are collateralized by real estate and may be secured by other collateral and personal guarantees. The Company's commercial loans generally range from $250,000 to $1,000,000 in amount up to the Banks' combined legal lending limit of $6.9 million at March 31, 2001. The Company's loans increased $5.2 million, or 1.2%, to $423.5 million at March 31, 2001 from $418.3 million at December 31, 2000. 23 The following table sets forth the Company's gross loans by major categories for the periods indicated:
(dollars in thousands) As of March 31, 2001 As of December 31, 2000 ----------------------------------------------------------------------- Balance % of Total Balance % of Total ----------------------------------------------------------------------- Commercial: Real estate secured $ 175,009 40.9 $ 181,607 43.0 Non real estate secured 40,816 9.6 39,016 9.2 Unsecured 8,154 1.9 10,543 2.5 ------------------------------------------------------------------- 223,979 52.4 231,166 54.7 Residential Real Estate 200,697 46.9 188,432 44.6 Consumer & Other 2,995 0.7 2,787 0.7 ------------------------------------------------------------------- Total Loans 427,671 100.0% 422,385 100.0% Less allowance for loan losses (4,195) (4,072) ---------- ---------- Net loans $ 423,476 $ 418,313 ========== ==========
Credit Quality The Company's written lending policies require underwriting, loan documentation, and credit analysis standards to be met prior to funding. The Board of Directors reviews selected loans monthly to monitor 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. 24 The following summary shows information concerning loan delinquency and other non-performing assets at the dates indicated.
March 31, December 31, 2001 2000 ------------------------------ (dollars in thousands) Loans accruing, but past due 90 days or more $2,131 $91 Non-accrual loans 1,349 1,350 Restructured loans -- 1,982 ------------------------------ Total non-performing loans (1) 3,480 3,423 Foreclosed real estate -- -- ------------------------------ Total non-performing assets (2) $3,480 $3,423 ============================== Non-performing loans as a percentage of total loans net of unearned Income 0.81% 0.81% Non-performing assets as a percentage of total assets 0.53% 0.52% (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).
Total non-performing loans remained relatively flat at March 31, 2001 when compared to December 31, 2000, while the mix has changed. The restructured loan of $2.0 million at December 31, 2000 has been repaid. The large increase in over 90 day past due loans resulted from several loans, which management believes are well collateralized and at March 31, 2001, believed to be in the process of collection. Management believes that collateral pledged against the non-accrual and over 90 day loans is adequate to protect the Bank from potential losses associated with these credits. The Company had delinquent loans as of March 31, 2001 and December 31, 2000 as follows; (i) 30 to 59 days past due, consisted of commercial, and consumer and home equity loans in the aggregate principal amount of $5.1 million and $1.5 million respectively; and (ii) 60 to 89 days past due, consisted of commercial and consumer loan in the aggregate principal amount of $1.0 million and $435,000 respectively. These loans are believed to be well collateralized and in the process of collection. In addition, the Company has classified certain loans as substandard and doubtful (as those terms are defined in applicable Bank regulations). At March 31, 2001 and December 31, 2000, substandard loans totaled approximately $4.9 million and $4.0 million respectively; and doubtful loans totaled $113,000 at the end of both periods. This increase in substandard loans was primarily the result of the increase in delinquent loans. 25 The recorded investment in loans for which impairment has been recognized totaled $1.3 million and $3.3 million at March 31, 2001 and December 31, 2000 respectively, of which $1.1 million and $3.1 million respectively, related to loans with no valuation allowance because the loans have been partially written down through charge-offs. Loans with valuation allowances at March 31, 2001, and December 31, 2000 were $175,000 for both periods. There were no commitments to extend credit to any borrowers with impaired loans as of the end of the periods presented herein. At March 31, 2001, 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 $72.7 million, which represented 17.2% 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 management believes 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. The Company had no real estate owned for any periods presented herein. 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, 2001, all identified potential problem loans are included in the preceding table with the exception of loans classified as substandard but still accruing which totaled $2.3 million as of March 31, 2001. The Company had no credit exposure to "highly leveraged transactions" at March 31, 2001, as defined by the Federal Reserve Bank. 26 Allowance for Loan Losses An analysis of the Company's allowance for loan losses for the three months ended March 31, 2001, and 2000, and the twelve months ended December 31, 2000 is as follows:
For the three For the twelve months For the three months months ended ended ended (dollars in thousands) March 31, 2001 December 31, 2000 March 31, 2000 -------------- ----------------- -------------- Balance at beginning of period .............. $4,072 $3,208 $3,208 Charge-offs: Commercial ............................... -- 66 34 Real estate .............................. -- -- -- Consumer ................................. 47 90 -- --------- --------- --------- Total charge-offs ..................... 47 156 34 --------- --------- --------- Recoveries: Commercial ............................... 3 340 23 Real estate .............................. -- -- -- Consumer ................................. 10 14 -- --------- --------- --------- Total recoveries ...................... 13 354 23 --------- --------- --------- Net charge-offs/(recoveries) ................ 34 (198) 11 --------- --------- --------- Provision for loan losses ................... 157 666 200 --------- --------- --------- Balance at end of period ................. $4,195 $4,072 $3,397 ========= ========= ========= Average loans outstanding (1) ............ $429,967 $389,156 359,015 ========= ========= ========= As a percent of average loans (1): Net charge-offs/Recoveries ............... -% (0.05)% -% Provision for loan losses ................ 0.04% 0.17% 0.06% Allowance for loan losses ................ 0.98% 1.05% 0.95% Allowance for loan losses to: Total loans, net of unearned income at period end ............................ 0.98% 0.96% 0.92% Total non-performing loans at period end ................................... 120.54% 118.96% 92.63% (1) Includes nonaccruing loans.
Management makes a monthly determination as to an appropriate provision from earnings necessary to maintain an allowance for loan losses that is adequate based upon the loan portfolio composition, classified problem loans, and general economic conditions. The Company's Board of Directors periodically reviews the status of all nonaccrual and impaired loans and loans criticized by the Company's regulators and internal loan review officer. The internal loan review officer reviews both the loan portfolio and the overall adequacy of the loan loss reserve. During the review of the loan loss reserve, the Board of Directors considers specific loans, pools of similar loans, historical charge-off activity, and a reserve allocation to provide for imperfections in the methodology used by management in determining the loan loss reserve requirements. The sum of these components is compared to the loan loss reserve balance. Any additions deemed necessary to the loan loss reserve balance are charged to operations. 27 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. The Board of Directors reviews the findings of the loan review program on a monthly basis. Based on the recommendations of this program, past performance of the Banks' loan portfolio and general economic conditions, Management believes that the reserve for loan losses is reasonable and would be adequate to absorb known and inherent losses. 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.
At March 31, 2001 At December 31, 2000 ----------------- -------------------- Percent of Loans Percent of Loans Amount In Each Category Amount In Each Category (in 000's) To Loans (in 000's) to Loans ---------- -------- ---------- -------- Allocation of allowance for loan losses: Commercial $3,134 52.4% $3,055 54.7% Residential real estate 223 46.9% 224 44.6% Consumer and other... 220 0.7% 246 0.7% Unallocated 618 -% 547 -% ---------------------------------------------------------------- Total $4,195 100.00% $4,072 100.00% =========== ===========
The unallocated allowance increased $71,000 to $618,000 at March 31, 2001 from $547,000 at December 31, 2000. The Company's reserve methodology requires all credits to have a specific reserve, and all classified credits to have higher specific reserves, even though management believes the loan to be adequately collateralized. 28 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 March 31, 2001 and December 31, 2000, firm loan commitments approximated $52.5 million and $60.3 million respectively, and commitments of standby letters of credit approximated $3.3 million and $3.8 million, 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. 29 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 was held on the 24thday of April, 2001 at 4:00 p.m., at the Pyramid Club, 1735 Market Street 52nd Floor, Philadelphia, PA., after written notice of said meeting, according to law, was mailed to each shareholder of record entitled to receive notice of said meeting, 32 days prior thereto. As of the record date for said meeting of shareholders, the number of shares then issued and outstanding was 6,358,126 shares of common stock, of which 6,358,126 shares were entitled to vote. A total of 5,524,893 shares were voted. No nominee received less than 92.7% of the voted shares. Therefore, pursuant to such approval, the following directors were re-elected to the Company. Harry D. Madonna Neal I. Rodin Steven J. Shotz Michael J. Bradley 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) 30 Exhibit No. ----------- 10 Amended and Restated Material Contracts.- None 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. 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. 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, 2001. Reports on Form 8-K None 31 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/ Paul Frenkiel --------------------------------------- Paul Frenkiel Executive Vice President and Chief Financial Officer Dated: May 15, 2001 32 -----END PRIVACY-ENHANCED MESSAGE-----