10-Q 1 frb6-01q.txt FIRST REPUBLIC BANCORP, INC. 6/30/01 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: June 30, 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 July 31, 2001 Page 1 of 37 Exhibit index appears on page 35 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 23 Part II: Other Information Item 1: Legal Proceedings 35 Item 2: Changes in Securities and Use of Proceeds 35 Item 3: Defaults Upon Senior Securities 35 Item 4: Submission of Matters to a Vote of Security Holders 35 Item 5: Other Information 35 Item 6: Exhibits and Reports on Form 8-K 35 2 PART I - FINANCIAL INFORMATION ------------------------------ Item 1: Financial Statements (unaudited) Page Number (1) Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000...................................................... 4 (2) Consolidated Statements of Operations for the three and six months ended June 30, 2001 and 2000................................................ 5 (3) Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000................................................ 6 (4) Notes to Consolidated Financial Statements............................ 7 3
Republic First Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 dollars in thousands, except share data (unaudited) ASSETS: June 30, 2001 December 31, 2000 ------------------------- ------------------------- Cash and due from banks $20,793 $20,990 Interest bearing deposits with banks 451 460 Federal funds sold 22,691 29,207 ------------------------- ------------------------- Total cash and cash equivalents 43,935 50,657 Other interest-earning restricted cash 5,883 - Securities available for sale, at fair value 129,496 152,134 Securities held to maturity at amortized cost (Fair value of $14,043 and $17,750, respectively) 14,020 17,707 Loans receivable (net of allowance for loan losses of $4,758 and $4,072, respectively) 438,027 418,313 Premises and equipment, net 5,185 5,153 Accrued income and other assets 13,479 11,673 ------------------------- ------------------------- Total Assets $650,025 $655,637 ========================= ========================= LIABILITIES AND SHAREHOLDERS' EQUITY: Liabilities: Deposits: Demand - non-interest-bearing $48,609 $44,281 Demand - interest-bearing 35,757 29,784 Money market and savings 114,169 76,510 Time under $100,000 170,542 175,834 Time $100,000 or more 80,179 99,142 ------------------------- ------------------------- Total Deposits 449,256 425,551 Other borrowed funds 142,500 176,442 Accrued expenses and other liabilities 13,264 10,614 ------------------------- ------------------------- Total Liabilities 605,020 612,607 ------------------------- ------------------------- Shareholders' Equity: Common stock par value $0.01 per share, 20,000,000 Shares authorized; shares issued 6,358,126 as of June 30, 2001 and December 31, 2000 63 63 Additional paid in capital 32,117 32,117 Retained earnings 15,846 14,446 Treasury stock at cost (175,172 shares at June 30, 2001 and December 31, 2000) (1,541) (1,541) Accumulated other comprehensive loss (1,480) (2,055) ------------------------- ------------------------- Total Shareholders' Equity 45,005 43,030 ------------------------- ------------------------- Total Liabilities and Shareholders' Equity $650,025 $655,637 ========================= ========================= (See notes to consolidated financial statements)
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Republic First Bancorp, Inc. and Subsidiaries Consolidated Statements of Operations For the Three and Six Months Ended June 30, dollars in thousands, except per share data (unaudited) Quarter to Date Year to Date June 30, June 30, -------- -------- 2001 2000 2001 2000 ---- ---- ---- ---- Interest income: Interest and fees on loans $9,472 $8,127 $18,622 $15,628 Interest and dividend income on federal funds sold and other interest-earning balances 404 59 1,057 67 Interest on investments 2,330 3,063 4,929 6,267 ------------------- ----------------- ------------- -------------- Total interest income 12,206 11,249 24,608 21,962 ------------------- ----------------- ------------- -------------- Interest expense: Demand interest-bearing 145 146 295 198 Money market and savings 809 614 1,714 1,141 Time $100,000 or more 1,537 1,149 3,133 2,047 Time under $100,000 2,718 2,430 5,554 4,438 Other borrowed funds 2,241 2,783 4,782 6,003 ------------------- ----------------- ------------- -------------- Total interest expense 7,450 7,122 15,478 13,827 ------------------- ----------------- ------------- -------------- Net interest income 4,756 4,127 9,130 8,135 ------------------- ----------------- ------------- -------------- Provision for loan losses 620 200 777 400 ------------------- ----------------- ------------- -------------- Net interest income after provision for loan losses 4,136 3,927 8,353 7,735 ------------------- ----------------- ------------- -------------- Non-interest income: Service fees 510 333 1,046 635 Gains on securities sold - - 13 - Tax Refund revenue 27 - 253 181 Other income 24 26 47 58 ------------------- ----------------- ------------- -------------- 561 359 1,359 874 Non-interest expenses: Salaries and benefits 2,023 1,636 4,039 3,179 Occupancy/equipment 565 459 1,131 918 Other expenses 1,156 873 2,452 1,696 ------------------- ----------------- ------------- -------------- 3,744 2,968 7,622 5,793 ------------------- ----------------- ------------- -------------- Income before income taxes 953 1,318 2,090 2,816 Provision for income taxes 314 435 690 929 ------------------- ----------------- ------------- -------------- ------------------- ----------------- ------------- -------------- Net income $639 $883 $1,400 $1,887 =================== ================= ============= ============== Net income per share: ------------------- ----------------- ------------- -------------- Basic $0.10 $0.14 $0.23 $0.31 =================== ================= ============= ============== ------------------- ---------------- ------------- Diluted $0.10 $0.14 $0.22 $0.30 =================== ================ ============= ===== (See notes to consolidated financial statements)
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Republic First Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Six Months Ended June 30, Dollars in thousands (unaudited) 2001 2000 ----------- ------------ Cash flows from operating activities: Net income $1,400 $1,887 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 777 400 Depreciation and amortization 624 281 Decrease in loans held for sale - 4,857 Increase in accrued income and other assets (2,103) (561) Increase in accrued expenses and other liabilities 2,651 549 Net increase (decrease) in deferred fees (36) 19 ----------- ------------ Net cash provided by operating activities 3,313 7,432 ----------- ------------ Cash flows from investing activities: Purchase of securities: Held to Maturity (2,829) - Proceeds from principal collected on securities 16,360 10,347 Proceeds from calls of held to maturity securities 5,647 - Proceeds from sale of available for sale securities 7,842 - Net increase in loans (20,455) (31,824) Increase in other interest-earning restricted cash (5,883) - Premises and equipment expenditures (480) (188) ----------- ------------ Net cash provided by (used in) investing activities 202 (21,665) ----------- ------------ Cash flows from financing activities: Net increase in demand, money Market and savings deposits 47,960 26,682 Net decrease in borrowed funds less than 90 days (16,442) (22,640) Repayment of borrowed funds greater than 90 days (17,500) (25,000) Net increase (decrease) in time deposits (24,255) 46,322 ----------- ------------ Net cash provided by (used in) financing activities (10,237) 25,364 ----------- ------------ Increase (decrease) in cash and cash equivalents (6,722) 11,131 Cash and cash equivalents, beginning of period 50,657 21,110 ----------- ------------ Cash and cash equivalents, end of period $43,935 $32,241 =========== ============ Supplemental disclosure: Interest paid $15,888 $13,921 =========== ============ Taxes paid $1,750 $ 500 =========== ============ Non-cash transactions: Change in unrealized gain/(loss) on securities available for sale, net of tax $ 575 $(432) Change in deferred taxes due to change in unrealized Loss (gain) on securities (297) 214 available for sale (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 in 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 June 30, 2001, the results of operations for the three and six month periods ended June 30, 2001 and 2000, and the cash flows for the six month periods ended June 30, 2001 and 2000. The interim results of operations may not be indicative of 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 Form 10-K for the year ended December 31, 2000, 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, (together 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 interest-earning assets, such as loans and investments, and the interest paid on interest-bearing liabilities, such as deposits and borrowings. Accordingly, the operations of the Banks are subject to the risks and uncertainties resulting from changes in interest rates. 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 may differ from those estimates. Significant estimates are made by management in determining the allowance for loan losses 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 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 may differ materially in the near term. Other interest-earning restricted cash: Other interest-earning restricted cash represents cash to fund an offsite ATM network. The dispensed cash is returned to the Company through the MAC network on the next business day, and the Bank may obtain access to the cash for liquidity, if necessary. Note 3: Legal Proceedings The Company and the Banks are from time to time a party (plaintiff or defendant) to lawsuits in the ordinary course of business. While any litigation involves uncertainty, management, after reviewing pending litigation with counsel, is of the opinion that the liability of the Company and the Banks, if any, resulting from such litigation will not have a material effect on the financial condition or results of operations of the Company and the Banks. Note 4: Recent Accounting Pronouncements Business Combinations In June 2001, the FASB issued Statement No. 141, "Business Combinations." The Statement addresses financial accounting and reporting for business combinations and supersedes APB Opinion No. 16, Business Combinations, and FASB Statement No. 38, Accounting for Preacquisition Contingencies of Purchased Enterprises. All business combinations in the scope of the Statement are to be accounted for using the purchase method. The provisions of the Statement apply to all business combinations initiated after June 30, 2001. The Statement also applies to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. There is no expected impact on earnings, financial condition, or equity upon adoption of Statement No. 141. Goodwill and Other Intangible Assets In June 2001, the FASB issued Statement No. 142, "Goodwill and Other Intangible Assets." The Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. The Statement also addresses how goodwill and 8 other intangible assets should be accounted for after they have been initially recognized in the financial statements. The provisions of the Statement are required to be applied starting with fiscal years beginning after December 15, 2001, except that goodwill and intangible assets acquired after June 30, 2001, will be subject immediately to the nonamortization and amortization provisions of the Statement. Early application is permitted for entities with fiscal years beginning after March 15, 2001, provided that the first interim financial statements have not previously been issued. The Statement is required to be applied at the beginning of an entity's fiscal year and to be applied to all goodwill and other intangible assets recognized in its financial statements at that date. There is no expected impact on earnings, financial condition, or equity upon adoption of Statement No. 142. 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 tax refunds. 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. Tax refunds include 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. Tax refund results are evaluated based upon income before provision for income taxes. Tax refunds were developed as a business segment to further expand the Company's products and services offered to consumers and businesses. 9
As of and for the six months ended June 30, (dollars in thousands) 2001 2000 ---- ---- First First Republic Delaware Tax Republic Delaware Tax Bank Bank Refunds Total Bank Bank Refunds Total ------------ ------------ ----------- ----------- ----------- ----------- ----------- ---------- External customer revenues: Interest income $23,188 $1,420 $ - $24,608 $21,461 $501 $ - $21,962 Other income 829 277 253 1,359 627 66 181 874 ------ ----- --- ------ ------ --- --- ------ Total external customer revenues 24,017 1,697 253 25,967 22,088 567 181 22,836 ------ ----- --- ------ ------ --- --- ------ Intersegment revenues: Interest income - - - - 69 - - 69 Other income 38 - - 38 38 - - 38 ------ ----- --- ------ ------ --- --- ------ Total intersegement revenues 38 - - 38 107 - - 107 ------ ----- --- ------ ------ --- --- ------ Total revenue 24,055 1,697 253 26,005 22,195 567 181 22,943 ------ ----- --- ------ ------ --- --- ------ Depreciation and amortization 386 62 - 448 235 46 - 281 Other operating expenses - external 21,843 1,546 40 23,429 19,011 728 - 19,739 Intersegment expense: Other operating expense - 38 - 38 - 38 - 38 Interest expense = = = = = 69 - 69 -- -- Segment expenses 22,229 1,646 40 23,915 19,246 881 - 20,127 ------ ----- --- ------ ------ --- --- ------ Segment income (loss) before taxes $1,826 $51 $213 $2,090 $2,949 $(314) $181 $2,816 ====== === ==== ====== ====== ====== ==== ====== Segment assets $611,534 $38,491 - $650,025 $595,697 $18,001 - $613,698 -------- ------- --- -------- -------- ------- --- -------- Capital expenditures $421 $59 - $480 $151 $37 - $188 ------ ----- --- ------ ------ --- --- ------
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As of and for the three months ended June 30, (dollars in thousands) 2001 2000 ---- ---- First First Republic Delaware Tax Republic Delaware Tax Bank Bank Refunds Total Bank Bank Refunds Total ----------- ------------ ----------- ----------- ----------- ----------- ------------ ----------- External customer revenues: Interest income $11,385 $821 - $12,206 $10,979 $270 $ - $11,249 Other income 400 134 27 561 311 48 - 359 --- --- -- --- --- -- - --- Total external customer revenues 11,785 955 27 12,767 11,290 318 - 11,608 ------ --- -- ------ ------ --- - ------ Intersegment revenues: Interest income - - - - - - - - Other income 19 - - 19 19 - - 19 -- -- -- Total intersegment revenues 19 - - 19 19 - - 19 -- -- -- -- Total revenue 11,804 955 27 12,786 11,309 318 - 11,627 ------ --- -- ------ ------ --- - ------ Depreciation and amortization 199 32 - 231 122 23 - 145 Other operating expenses - external 10,800 783 - 11,583 9,702 443 - 10,145 Intersegment expense: Other operating expense - 19 - 19 - 19 - 19 Interest expense - - - - - - - - - - - Segment expenses 10,999 834 - 11,833 9,824 485 - 10,309 ------ --- - ------ ----- --- ------ Segment income (loss) before taxes $805 $121 27 $953 $1,485 ($167) - $1,318 ==== ==== == ==== ====== ====== ====== Segment assets $611,534 $38,491 - $650,025 $595,697 $18,001 - $613,698 -------- ------- - -------- -------- ------- -------- Capital expenditures $282 $22 - $304 $42 $13 - $55 ---- --- - ---- --- --- ---
11 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 not dilutive are not included for purposes of this calculation. At June 30, 2001 and 2000, there were 104,940 and 179,930 CSEs that were not dilutive, respectively. These options may be dilutive in the future. The following table is a comparison of EPS for the three and six months ended June 30, 2001 and 2000.
Quarter to Date Year to Date 2001 2000 2001 2000 Net income $639,000 $883,000 $1,400,000 $1,887,000 Shares Per Share Share Per Share Shares Per Share Share Per Share ------ --------- ----- --------- ------ --------- ----- --------- Weighted average shares For period 6,182,954 6,168,729 6,182,954 6,168,729 Basic EPS $0.10 $0.14 $0.23 $0.31 Add common stock equivalents Representing dilutive stock options 202,666 93,752 190,618 110,760 ------- ------ ------- ------- Effect on basic EPS of dilutive CSE - $ - $(0.01) $(0.01) --- ------- Equals total weighted average Shares and CSE (diluted) 6,385,620 6,262,481 6,373,572 6,279,489 ========= ========= ========= ========= Diluted EPS $0.10 $0.14 $0.22 $0.30 ----- ===== ----- =====
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 available for sale securities.
(dollar amounts in thousands) Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 -------- --------- -------- --------- Net income $639 $883 $1,400 $ 1,887 Other comprehensive income, net of tax: Unrealized gains/(losses) on securities: Unrealized holding gains/(losses) during the period (889) (59) 584 (432) Less: Reclassification adjustment for gains Included in net income - - (9) - -------- --------- -------- --------- Comprehensive (loss)/income $(250) $824 $1,975 $1,455 ========= ========= ======== =========
12 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" "strategy" and similar expressions or variations on such expressions. Any 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 2001, Current Reports on Form 8-K filed by the Company, as well as other filings. Financial Condition: June 30, 2001 Compared to December 31, 2000 ------------------------------------------- Total assets declined $5.6 million to $650.0 million at June 30, 2001 versus $655.6 million at December 31, 2000. Cash from net maturities and sales of securities and federal funds sold were used to pay down other borrowed funds. Loans: The loan portfolio, which represents the Company's largest consolidated 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 $19.7 million, or 4.7%, to $438.0 million at June 30, 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, short-term consumer loans, 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 developers for commercial 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 a primary residence. Upon the completion of construction, residential construction loans are repaid by the borrowers with proceeds of a permanent first mortgage. Consistent with the Company's long-term strategy of increasing the ratio of variable rate loans, most of the new loan originations in the year 2001 were tied to the 13 prime rate of interest. At June 30, 2001, the Bank had approximately $3.5 of short-term consumer loans outstanding. These loans have principal amounts of less than $1,000, and terms of approximately two weeks. Securities available for sale and held to maturity: 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 $22.6 million, or 14.9%, to $129.5 million at June 30, 2001 from $152.1 million at December 31, 2000. This decrease reflected both the sale of an $8.0 million security on which a gain of $13,000 was realized and principal repayments which were partially offset by a $872,000 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 $3.7 million, or 20.8% to $14.0 million at June 30, 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 decreased by $6.7 million to $43.9 million at June 30, 2001 from $50.7 million at December 31, 2000 due to a decrease in federal funds as funds were used to pay down other borrowed funds. Other interest-earning restricted cash: Other interest-earning restricted cash represents funds provided to fund an offsite ATM network for which the Company is compensated. The dispensed cash is returned to the Company through the MAC network on the next business day. At June 30, 2001, the balance was $5.9 million versus $0 at December 31, 2000. Deposits: Deposits, which include non-interest-bearing demand deposits and 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 a primary focus on building and expanding multi-product relationships. Deposits increased $23.7 million, or 5.6%, to $449.3 million at June 30, 2001 from $425.6 million at December 31, 2000. The aggregate of transaction accounts, which include demand, money market and savings accounts, increased $48.0 million, or 31.8%, to $198.5 million at June 30, 2001 from $150.6 million at December 31, 2000. Certificates of deposit decreased by $24.3 million, or 8.8%, to $250.7 million at June 30, 2001 from $275.0 million at December 31, 2000. The increase in transaction deposit products resulted from the Company's deposit generation strategies instituted in 2000. The Company is emphasizing deposit growth as part of a long-term strategy to reduce reliance on borrowed funds. The decline in time deposits resulted from the Company's decision to let higher costing time deposits mature and not be replaced. 14 Other Borrowed Funds: Other borrowed funds are comprised of overnight federal funds purchased and term FHLB borrowings. Other borrowed funds were $142.5 million at June 30, 2001, a decrease of $33.9 million, or 19.2%, when compared to the December 31, 2000 total of $176.4 million. The decrease in borrowed funds was funded primarily 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 June 30, 2001 and December 31, 2000 was $45.0 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 $7.28 as of June 30, 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 June 30, 2001 Compared to June 30, 2000 ---------------------------------------------------------- Results of Operations: Overview The Company's net income decreased $244,000 to $639,000 for the three months ended June 30, 2001, from $883,000 for the three months ended June 30, 2000. Notwithstanding a 20.8% increase in combined average commercial loans and residential construction loans, earnings were negatively impacted by margin contractions resulting from the impact of the 125 basis point drop in the prime rate during the quarter, as a result of Federal Reserve Bank rate reductions. This compounded the residual effect of comparable rate reductions in the first quarter. While the impact on variable rate loans tied to prime was immediate, management estimates that, all else constant, two fiscal quarters are normally required for offsetting amounts of deposits, primarily maturing certificates of deposit, to reprice. The decrease also reflected increased operating expenses and a higher provision for loan loss during the quarter resulting from the introduction of a new short-term consumer loan product line and the classification of loans to one borrower as substandard. Diluted earnings per share for the three months ended June 30, 2001 was $0.10 compared to $0.14, for the prior year period due to the decrease in net income. That decrease resulted in a return on average assets and average equity of 0.40% and 5.63% respectively, compared to 0.60% and 8.23%, respectively for the corresponding period in 2000. Analysis of Net Interest Income Net interest margin (net interest income as a percentage of average interest-earning assets) was 3.04% for the three months ended June 30, 2001 compared to 2.88% for the three months ended June 30, 2000. This increase reflected an increase in short-term consumer loan fees which contributed $520,000 in interest income and resulted in a 32 basis point increase in margin. These short-term loan fees are earned on loans with principal amounts less than $1,000 and with terms of approximately two weeks. The Company however, was negatively impacted by the 125 basis point decline in the prime rate of interest during the quarter and the continuing net effect of the 150 basis point decline in the first quarter. Net interest income increased $629,000, or 15.2%, to $4.8 million for the three months ended June 30, 2001 from $4.1 million for the three months ended June 30, 2000. This increase resulted from the growth in the commercial and residential construction loans and the addition of the short-term consumer loans as detailed above. As shown in the following Rate Volume table, the increase in net interest income was due to the positive effect of volume changes totaling $660,000 partially offset by the negative impact of rate changes of $31,000. 15 The positive impact from volume changes was attributable to a significant increase in average interest-earning assets, which increased $53.3 million on average to $625.2 million during the quarter ended June 30, 2001, from $571.8 million for the quarter ended June 30, 2000. The negative effect of the rate changes was driven by the decline in prime rate resulting from Federal Reserve Bank rate cuts, as previously noted. The Company's total interest income increased $1.0 million, or 8.5%, to $12.2 million for the three months ended June 30, 2001 from $11.2 million for the three months ended June 30, 2000. Approximately $1.1 million of the increase reflected a $53.3 million increase in average interest-earning assets. This was partially offset by a $173,000 negative variance resulting from the lower interest rate environment. Interest and fees on loans increased $1.3 million, or 16.6%, to $9.5 million for the three months ended June 30, 2001 from $8.1 million for the three months ended June 30, 2000. This increase was driven by a $60.2 million increase in average loans outstanding. The yield earned on loans was increased by $520,000 in processing fees earned on short-term consumer loans. Interest and dividend income on securities decreased $733,000, or 23.9%, to $2.3 million for the three months ended June 30, 2001 from $3.1 million for the three months ended June 30, 2000 reflecting a decrease in the gross average balance of securities owned of $38.9 million, or 20.4%, to $151.7 million for the three months ended June 30, 2001 from $190.6 million for the three months ended June 30, 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 outstandings, the yield earned on these securities declined 29 basis points to 6.14% due to the amortization, maturity and sale of higher yielding securities. Federal funds sold and other interest earning balances income increased by $345,000 to $404,000 as cash from deposit generation and securities sales and reductions that was not used to fund loan growth or pay down other borrowed funds, was sold as federal funds. Interest expense increased $328,000 or 4.6%, to $7.4 million for the three months ended June 30, 2001 from $7.1 million for the three months ended June 30, 2000. Interest-bearing liabilities averaged $545.2 million, an increase of $33.5 million, or 6.6%, from $511.7 million for the three months ended June 30, 2000. The net growth in interest-bearing liabilities contributed $470,000 to the increase which partially offset the effect of the 10 basis point decline in rates paid on interest-bearing liabilities yielding a benefit of $142,000. 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 decreased to 5.48% for the three months ended June 30, 2001 from 5.58% for the three months ended June 30, 2000 reflecting the lower interest rate environment resulting from the Federal Reserve rate cuts. Certificates of deposit (time deposit) interest expense increased $676,000 or 18.9%. This increase was primarily due to an increase in the average volume of certificates of deposit of $32.7 million, or 13.7%, to $270.8 million for the three months ended June 30, 2001 from $238.1 million for the three months ended June 30, 2000. This contributed $511,000 of the increase. The increase in average rate of interest paid on time deposits of contributed the remaining $165,000 to the increase in interest expense. Although the company was able to reduce the rates paid on certain transaction accounts, certificates of deposit rates cannot be changed until the certificates reprice. Interest expense on FHLB advances and overnight federal funds purchased was $2.2 million for the three months ended June 30, 2001 compared to $2.8 million for the three months ended June 30, 2000, a decline of $542,000, or 19.5%. This decrease reflected a decrease in the average volume of other borrowed funds of $47.8 million to $145.5 million for the three months ended June 30, 2001 from $193.3 million for the three months ended June 30, 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 5.78% at June 30, 2000 to 6.18% at June 30, 2001. The rate increased in a decreasing rate environment as lower yielding shorter term advances were repaid while long-term advances at higher rates remained outstanding. 16 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 June 30, 2001 versus 2000 (dollars in thousands) Due to change in: Volume Rate Total ------------------- ------------- ------------------- Interest earned on: Federal funds sold $ 366 $ (21) $ 345 Securities (602) (131) (733) Loans 1,366 (21) 1,345 ----------------------------------------------------------------------------------------------------------------- Total interest-earning assets 1,130 (173) 957 Interest Expense of Deposits Interest-bearing demand deposits (104) 105 1 Money market and savings (581) 386 (195) Time deposits (511) (165) (676) ----------------------------------------------------------------------------------------------------------------- Total deposit interest expense (1,196) 326 (870) Other borrowed funds 726 (184) 542 ----------------------------------------------------------------------------------------------------------------- Total interest expense (470) 142 (328) ----------------------------------------------------------------------------------------------------------------- Net interest income $ 660 $ (31) $ 629 -----------------------------------------------------------------------------------------------------------------
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 $620,000 and $200,000 for the three months ended June 30, 2001 and 2000, respectively. The increase was due primarily to the classification of $5.4 million in loans to a single borrower as substandard. The amounts recorded in the second 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 estimated inherent losses in the portfolio. As of June 30, 2001 and 2000, the allowance for loan losses to total loans, net of deferred loan fees was 1.07% and 0.93%, respectively. 17 Non-Interest Income Total non-interest income increased $202,000 to $561,000 for the three months ended June 30, 2001 from $359,000 for the three months ended June 30, 2000. This increase is due to increased loan advisory fees and increased service charges on deposit accounts resulting from growth in deposit accounts. Non-Interest Expenses Total non-interest expenses increased $776,000 or 26.1% to $3.7 million for the three months ended June 30, 2001. Salaries and benefits increased $387,000 or 23.7% to $2.0 million for the three months ended June 30, 2001 from $1.6 million for prior year comparable period. The increase reflected an expansion of the commercial and residential construction loan departments. In addition to continued loan production, the commercial and residential construction loan department generates non-interest income by generating related fees. Also, higher health insurance costs of $74,000, a decline of $95,000 in loan cost deferrals and normal merit increases contributed to the increase. Occupancy and equipment expenses increased $106,000, or 23.1%, to $565,000 for the three months ended June 30, 2001 from $459,000 for the comparable prior year period. The increase resulted primarily 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 $283,000, or 32.4%, to $1.2 million for the three months ended June 30, 2001 from $873,000 for the comparable prior year 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 the short-term consumer loan program. Provision for Income Taxes The provision for income taxes decreased $121,000, or 27.8%, to $314,000 for the three months ended June 30, 2001 from $435,000 for the three months ended June 30, 2000. This decrease is mainly the result of the decrease in pre-tax income from the comparable prior year period. The effective tax rate for both periods was approximately 33.0%. 18 Six Months Ended June 30, 2001 Compared to June 30, 2000 -------------------------------------------------------- Results of Operations: Overview The Company's net income decreased $487,000 million to $1.4 million for the six months ended June 30, 2001, from $1.9 million for the six months ended June 30, 2000. Notwithstanding a 22.5% increase in combined average commercial loans and residential construction loans, earnings were negatively impacted by margin contractions resulting from the impact of the 275 basis point drop in the prime rate of interest during the first six months of the year, 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. The decrease also reflected increased operating expenses and a higher provision for loan loss during the second quarter resulting from the addition of the new short-term consumer loan product line and the classification of loans to one borrower as substandard. Diluted earnings per share for the six months ended June 30, 2001, was $0.22 compared to $0.30, for the six months ended June 30, 2000, due primarily to the decrease in net income. This resulted in a return on average assets and average equity of 0.43% and 6.25% respectively, compared to 0.65% and 8.89% respectively for the same period in 2000. The decline in these ratios is due to lower net income. Analysis of Net Interest Income Net interest margin (net interest income as a percentage of average interest-earning assets) was 2.90% for the six months ended June 30, 2001 versus 2.89% for the six months ended June 30, 2000. The modest increase in net interest margin reflected the impact of fees on short-term consumer loans in the second quarter of 2001. These fees totaled $520,000 and contributed approximately 16 basis points to the margin in 2001. The Company was negatively impacted by the 275 basis point decline in the prime rate in the year 2001 which immediately impacted the yield on interest-earning assets in advance of repricing certificates of deposit. The Company's net interest income increased $1.0 million, or 12.2%, to $9.1 million for the six months ended June 30, 2001 from $8.1 million for the six months ended June 30, 2000. As shown in the Rate Volume table below, the increase in net interest income was due to the positive effect of volume changes of approximately $1.9 million partially offset by the effect of lower interest rates which totaled $859,000. The positive impact of volume changes was attributable to a $66.0 million increase in average interest earning assets of 11.7%, to $629.7 million for the six months ended June 30, 2001, from $563.7 million for the six months ended June 30, 2000. The Company's total interest income increased $2.6 million, or 12.1%, to $24.6 million for the six months ended June 30, 2001 from $22.0 million for the six months ended June 30, 2000. Substantially all of the $2.6 million increase was the result of a $66.0 million increase in average volume of interest-earning assets. Interest and fees on loans increased $3.0 million, or 19.2%, to $18.6 million for the six months ended June 30, 2001 from $15.6 million for the six months ended June 30, 2000. Approximately $2.7 million of the increase in loans was due primarily to a $63.0 million, or 17.1%, increase in average loans outstanding while the remaining $250,000 of the increase was due to an increase in the average rate earned on these loans of 19 basis points to 8.70%. The improvement primarily reflected commercial and residential construction loan growth as well as the short-term consumer loan fees noted earlier. Interest and dividend income on securities decreased $1.3 million, or 21.3%, to $4.9 million for the six months ended June 30, 2001 from $6.3 million for the six months ended June 30, 2000. This decline was due to the $35.4 million, or 18.3% decrease in volume to an average of $157.9 19 million and a decline in rate of 25 basis points to 6.24%. The decline in securities reflects the Company's continuing strategy to reduce securities and redeploy the proceeds into higher yielding assets. Federal funds sold and other interest earning balances income increased by $990,000 to $1.1 million. Cash inflows from deposit generation and securities reductions which exceeded loan growth and pay downs of other borrowed funds, was invested as federal funds. The Company's total interest expense increased $1.7 million, or 12.0%, to $15.5 million for the six months ended June 30, 2001 from $13.8 million for the six months ended June 30, 2000. Interest-bearing liabilities averaged $553.6 million, an increase of $46.1 million, or 9.1%, from $507.5 million for the six months ended June 30, 2000. Total interest-bearing deposits on average increased $101.2 million or 34.3% to $396.4 million. A portion of these funds were used to pay down other borrowed funds which declined $55.1 million on average. The growth in interest-bearing liabilities contributed $777,000 to the increase in interest expense while the increase in rates on interest-bearing liabilities contributed the remaining $874,000 of the increase. The average rate paid on interest-bearing liabilities increased 18 basis points to 5.64% for the six months ended June 30, 2001 from 5.46% for the six months ended June 30, 2000 due primarily to the increase in average rates paid on other borrowings and time deposit accounts. Interest expense on time deposits increased $2.2 million or 34.0%. This increase was primarily due to an increase in average certificates of deposit of $54.1 million, or 24.7%, to $273.3 million for the six months ended June 30, 2001 from $219.2 million for the six months ended June 30, 2000. The average rate of interest on time deposits increased to 6.41% at June 30, 2001 versus 5.92% at June 30, 2000 due to the higher interest rate environment during periods in the year 2000 when most of these certificates were originated. Interest expense on other borrowed funds (FHLB advances and overnight federal funds purchased) declined $1.2 million, or 20.3% to $4.8 million for the six months ended June 30, 2001 compared to $6.0 million for the six months ended June 30, 2000. This decrease reflected a $55.1 million, or 26.0% decrease in the average volume of other borrowed funds to $157.2 million for the six months ended June 30, 2001 from $212.3 million for the six months ended June 30, 2000. This decline was partially offset by the increase in the average rate on other borrowed funds which increased 46 basis points from 5.67% at June 30, 2000 to 6.13% at June 30, 2001. The maturity of lower cost borrowings resulted in an increase in the average rate. 20 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 six month period ending June 30, 2001 versus the comparable period for 2000. 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 Six months ended June 30, 2001 versus 2000 (dollars in thousands) Due to change in: Volume Rate Total ------------------- ------------- -------------------- Interest Income Federal Funds $ 999 $ (9) $ 990 Securities (1,112) (226) (1,338) Loans 2,744 250 2,994 ------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 2,631 15 2,646 Interest Expense Deposits Interest-bearing demand deposits (83) (14) (97) Money market and savings (701) 128 (573) Time deposits (1,665) (537) (2,202) ------------------------------------------------------------------------------------------------------------------- Total deposit interest expense (2,449) (423) (2,872) Other borrowed funds 1,672 (451) 1,221 ------------------------------------------------------------------------------------------------------------------- Total interest expense (777) (874) (1,651) ------------------------------------------------------------------------------------------------------------------- Net interest income $ 1,854 $ (859) $ 995 ----------------------------------------------------------------------------------------------------------------------
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 $777,000 and $400,000 for the six months ended June 30, 2001 and 2000, respectively. The increase was due primarily to the classification of $5.4 million of loans to a single borrower as substandard. The amounts recorded in 2001 and 2000 were the amounts management considered necessary to increase the allowance for loan losses to an amount that reflects the known and estimated inherent losses in the portfolio. As of June 30, 2001 and 2000 the allowance for loan losses to total loans, net of deferred loan fees was 1.07% and 0.93% respectively. 21 Non-Interest Income Total non-interest income increased $485,000 to $1.4 million for the six months ended June 30, 2001 from $873,000 for the six months ended June 30, 2000. This was mainly attributable to an increase in non-interest income from loan advisory fees, fees earned on participated loans and an increase in Tax refunds revenue. The increase in service fees on deposits is the result of increases in transaction based accounts. Non-Interest Expenses Total non-interest expenses increased $1.8 million to $7.6 million for the six months ended June 30, 2001 from $5.8 million for the prior year comparable period. Salaries and benefits increased $860,000 or 27.1%, to $4.0 million for the six months ended June 30, 2001 from $3.2 million for the prior comparable period. The increase reflected an expansion of the commercial and residential construction loan departments. In addition to continued loan production, the commercial construction loan department generates non-interest income by generating related fees. Higher health insurance costs of $140,000, a decline of $118,000 in loan cost deferrals and normal merit increases also contributed to the rise in salary and benefits. Occupancy and equipment expenses increased $213,000, or 23.2%, to $1.1 million for the six months ended June 30, 2001 from $918,000 for the prior comparable period. 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 expenses increased $756,000 to $2.4 million for the six months ended June 30, 2001 from $1.7 million for the same period in 2000. This was attributable to increases in telephone, professional fees, correspondent service charges, printing and supplies due to the overall growth of the company. In addition, expenses increased due to expenses incurred in the development of various business initiatives undertaken to diversify the earnings of the Company, including the short-term consumer loan program. Finally, 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 $239,000, or 25.8%, to $690,000 for the six months ended June 30, 2001 from $929,000 for the prior comparable period. This decrease is mainly the result of the decrease in pre-tax income from 2000 to 2001. The effective tax rate for both years was approximately 33.0%. 22 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 behavior of its interest sensitive assets and liabilities. Adjustments to the mix of assets and liabilities are made periodically in an effort to optimize net interest income. The following tables present a summary of the Company's interest rate sensitivity GAP at June 30, 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 23 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 June 30, 2001 ---------------------------------------------------------------------------------------------------- 0 - 90 91 - 181 - More Financial 180 365 1 - 2 2 - 3 3 - 4 4 - 5 than 5 Statement Days Days Days Years Years Years Years Years Total Fair Value ---------------------------------------------------------------------------------------------------- Interest Sensitive Assets: Securities and interest Bearing balances due from banks $ 49,200 $ 5,974 $11,654 $20,934 $18,681 $14,622 $11,314 $40,164 $172,543 $172,821 Average interest rate 4.42% 6.24% 6.27% 6.31% 6.31% 6.31% 6.29% 6.34% Loans receivable 180,688 25,054 38,997 56,259 45,611 38,102 16,630 36,686 438,027 451,575 Average interest rate 7.37% 8.51% 8.36% 8.23% 8.12% 8.20% 7.86% 7.00% Total 229,888 31,028 50,651 77,193 64,292 52,724 27,944 76,850 610,570 624,396 ---------------------------------------------------------------------------------------------------- Cumulative Totals $229,888 $260,916 $311,567 $388,760 $453,052 $505,776 $533,720 $610,568 =========================================================================== Interest Sensitive Liabilities: Demand Interest Bearing $20,807 $ 847 $ 510 $ 1,021 $ 1,021 $ 1,021 $10,532 $ - $35,757 $35,757 Average interest rate 2.87% 0.86% 0.86% 0.86% 0.86% 0.86% 0.86% 0.00% Savings Accounts 5,631 229 138 276 276 276 2,850 $ - 9,677 9,677 Average interest rate 1.91% 1.91% 1.91% 1.91% 1.91% 1.91% 1.91% 0.00% Money Market Accounts 64,984 2,238 1,348 2,697 2,697 2,697 37,831 $ - 104,492 94,492 Average interest rate 3.12% 1.55% 1.55% 1.55% 1.55% 1.55% 1.55% -% Time Deposits 62,129 71,174 91,715 11,119 5,129 6,274 3,158 23 250,721 253,556 Average interest rate 6.15% 6.23% 5.99% 5.98% 6.12% 6.91% 6.63% 4.59% FHLB Borrowings - - 17,500 - - 125,000 - - 142,500 147,100 Average interest rate -% -% 5.58% -% 0.00% 6.19% 0.00% 0.00% Total 153,551 74,488 111,211 15,113 9,123 135,268 54,371 23 543,147 540,582 ---------------------------------------------------------------------------------------------------- Cumulative Totals $153,551 $228,038 $339,250 $354,363 $363,485 $498,753 $543,124 $543,147 =========================================================================== Interest Rate Sensitivity GAP $76,337 $(43,460) $(60,561) $62,082 $55,169 $(82,544) $(26,427) $76,825 Cumulative GAP $76,337 $32,878 $(27,683) $34,397 $89,567 $7,023 $(9,404) $67,421 Interest Sensitive Assets/ Interest Sensitive Liabilities 150% 114% 92% 110% 125% 101% 98% 112% Cumulative GAP/ Total Earning Assets 13% 5% -5% 6% 15% 1% -2% 11% Total Earning Assets $610,570 ======== Off balance sheet items Notional value: Commitments to extend credit $ 3,345 $49,636 ------------------ Average interest rate 8.00% 8.00%
24 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 estimated net interest income for the year ending June 30, 2002, based upon the assets, liabilities and off-balance sheet financial instruments in existence at June 30, 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 June 30, 2002 and December 31, 2001. Quarterly changes could be significantly more or less than annual estimates. In fact, certain quarters within a one-year period could show an increase while other quarters might reflect a decrease. Percentage Change Rate shocks to interest rates 6/30/02 12/31/01 ----------------------------- ------- -------- +2% 0.7% (0.3%) +1% 1.3 0.4 -1% (2.3) (2.9) -2% (5.4) (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 changes 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. 25 Regulatory Matters 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 June 30, 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 regulatory capital ratios at June 30, 2001 and December 31, 2000:
Actual For Capital To be well Adequacy purposes capitalized under FRB capital guidelines Amount Ratio Amount Ratio Amount Ratio -------- ------- -------- ------- -------- ------- Dollars in thousands At June 30, 2001 Total risk based capital First Republic Bank 44,350 11.88% 29,870 8.00% 37,338 10.00% First Bank of DE 4,851 18.92% 2,051 8.00% 2,564 10.00% Republic First Bancorp, Inc. 50,994 12.80% 31,865 8.00% 39,831 10.00% Tier 1 risk based capital First Republic Bank 39,879 10.68% 14,935 4.00% 22,403 6.00% First Bank of DE 4,564 17.80% 1,026 4.00% 1,538 6.00% Republic First Bancorp, Inc. 46,235 11.61% 15,932 4.00% 23,898 6.00% Tier 1 leveraged capital First Republic Bank 39,879 6.46% 30,846 5.00% 30,846 5.00% First Bank of DE 4,564 14.30% 1,595 5.00% 1,595 5.00% Republic First Bancorp, Inc. 46,235 7.13% 32,422 5.00% 32,422 5.00% Actual For Capital To be well Adequacy purposes capitalized under FRB 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 1 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 1 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%
26 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 $43.9 million at June 30, 2001 compared to $50.7 million at December 31, 2000 as the Company used some of these funds to pay down other borrowed funds. Liquidity needs have historically been satisfied by generating core deposits and certificates of deposit with competitive rates, buying federal funds or utilizing the facilities of the Federal Home Loan Bank System. At June 30, 2001, the Bank had $173.5 million in unused lines of credit available to it, substantially all of which was with the Federal Home Loan Bank, 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 June 30, 2001, the Company had outstanding commitments (including unused lines of credit and letters of credit) of $53.0 million. Certificates of deposit which are scheduled to mature within one year totaled $225.0 million at June 30, 2001, and other borrowed funds are scheduled to mature within the same period amounted to $17.5 million. The Company anticipates that it will have sufficient funds available to meet its current commitments. The Banks' target liquidity levels are determined by comparisons of the estimated repayment and marketability of the Banks' interest-earning assets, with their projected future outflows of deposits and other liabilities. Management currently believes that federal funds sold and securities 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 June 30, 2001 and December 31, 2000, the Company had borrowed $142.5 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. The Committee's primary objective is to optimize net interest margins, while managing the Banks' interest sensitivity at prudent levels 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 27 margins and interest rate spreads, provide growth in net interest margins and interest rate spreads and provide growth in net interest income through periods of changing interest rates. Securities Portfolio At June 30, 2001, the Company had identified certain investment securities that are being held for indefinite periods of time, including securities that may 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 other factors. Available for sale securities consist of US Government Agency securities and other investments. The book and market values of securities available for sale were $131.7 million and $129.5 million as of June 30, 2001, respectively. The net unrealized loss on securities available for sale, as of that date, was $2.2 million. The following table represents the carrying and estimated fair values of Investment Securities at June 30, 2001. Gross Gross (Dollars in thousands) Amortized Unrealized Unrealized Available-for-Sale Cost Gain Loss Fair Value ------------------------------------------------- Mortgage-backed $ 130,678 $ 28 $ (2,282) $ 128,424 U.S. Government Agencies 1,060 12 - 1,072 ------------------------------------------------- Total Available-for-Sale $ 131,738 $ 40 $ (2,282) $ 129,496 ------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Held-to-Maturity Cost Gain Loss Fair Value ------------------------------------------------- Mortgage-backed $ 1,645 $ 13 $ - $ 1,658 US Government Agencies 3,349 5 (1) 3,353 Other 9,026 6 - 9,032 ------------------------------------------------- Total Held-to-Maturity $ 14,020 $ 24 $(1) $ 14,043 ------------------------------------------------- 28 Loan Portfolio The Company's loan portfolio includes commercial and industrial loans, commercial and residential construction real estate loans, commercial loans secured by one-to-four family residential property as well as residential property, home equity loans, consumer loans, short-term 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 Banks' had a combined legal lending limit of approximately $7.0 million at June 30, 2001. The Company's net loans increased $19.7 million, or 4.7%, to $438.0 million at June 30, 2001 from $418.3 million at December 31, 2000. The following table sets forth the Company's gross loans by major categories for the periods indicated: (dollars in thousands) As of June 30, As of December 31, 2001 2000 --------------------------------------------------- Balance % of Total Balance % of Total --------------------------------------------------- Commercial: Real estate secured $ 208,967 47.2 $ 181,607 43.0 Non real estate secured 44,440 10.0 39,016 9.2 Unsecured 8,289 1.9 10,543 2.5 --------------------------------------------------- 261,696 59.1 231,166 54.7 Residential Real Estate 175,158 39.6 188,432 44.6 Consumer & Other 5,931 1.3 2,787 0.7 --------------------------------------------------- Total Loans 442,785 100.0% 422,385 100.0% Less allowance for loan losses (4,758) (4,072) ------------ ---------- Net loans $ 438,027 $ 418,313 ============ ========== Credit Quality The Company's written lending policies require underwriting, documentation and credit analysis standards to be met prior to funding. The Board of Directors reviews selected loans monthly to monitor underwriting standards. 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 29 repayment performance (generally a minimum of six months) by the borrower, in accordance with the contractual terms of the loan. While a loan is classified as nonaccrual or as an impaired loan and the future collectability of the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to principal outstanding. When the future collectability of the recorded loan balance is expected, interest income may be recognized on a cash basis. In the case where a nonaccrual loan had been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on the remaining recorded loan balance at the contractual interest rate. Cash interest receipts in excess of that amount are recorded as recoveries to the allowance for loan losses until prior charge-offs have been fully recovered. The following summary shows information concerning loan delinquency and other non-performing assets at the dates indicated. June 30, December 31, 2001 2000 ------------------------------ (dollars in thousands) Loans accruing, but past due 90 days or more $5,571 $91 Non-accrual loans 2,896 1,350 Restructured loans - 1,982 ------------------------------ Total non-performing loans (1) 8,467 3,423 Foreclosed real estate - - ------------------------------ Total non-performing assets (2) $8,467 $3,423 ============================== Non-performing loans as a percentage of total loans net of unearned Income 1.91% 0.81% Non-performing assets as a percentage of total assets 1.30% 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 increased $5.0 million at June 30, 2001 when compared to December 31, 2000 due principally to an increase in loans past due 90 days or more. Substantially all of the increase resulted from loans to a single borrower totaling $5.4 million which became 90 days past due. The latest appraisals available on these loans indicate that the collateral value exceeds principal and accrued interest as of June 30, 2001. However, there can be no assurance that if the Bank is required to liquidate the collateral, recoveries will not be significantly below appraisal amounts, resulting in losses. Non-accrual loans increased $1.5 million due to the placement of loans to two borrowers on non-accrual status. The restructured loan of $2.0 million at December 31, 2000 has been repaid. 30 The Company had delinquent loans as of June 30, 2001 and December 31, 2000 as follows; (i) 30 to 59 days past due, consisting of commercial, and consumer and home equity loans in the aggregate principal amount of $1.4 million and $1.5 million respectively; and (ii) 60 to 89 days past due, consisting of commercial and consumer loans in the aggregate principal amount of $47,000 and $435,000 respectively. These loans are believed to be adequately 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 June 30, 2001 and December 31, 2000, substandard loans totaled approximately $9.9 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 classification of the above mentioned loans to one borrower totaling $5.4 million as substandard. The loans to this borrower are also included in the loans past due 90 days or more category. The recorded investment in loans for which impairment has been recognized totaled $2.9 million and $3.3 million at June 30, 2001 and December 31, 2000 respectively, of which $2.7 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 June 30, 2001, and December 31, 2000 were $151,000 and 175,000, respectively. There were no commitments to extend credit to any borrowers with impaired loans as of the end of the periods presented herein. At June 30, 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 $79.0 million, which represented 17.8% 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 of cost or estimated 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 June 30, 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 $1.7 million as of June 30, 2001. The Company had no credit exposure to "highly leveraged transactions" at June 30, 2001, as defined by the Federal Reserve Bank. 31 Allowance for Loan Losses
An analysis of the Company's allowance for loan losses for the six months ended June 30, 2001 and 2000, and the twelve months ended December 31, 2000 is as follows: For the six months For the twelve months For the six months ended ended ended (dollars in thousands) June 30, 2001 December 31, 2000 June 30, 2000 ---------------------- ----------------------- ----------------------- Balance at beginning of period........... $4,072 $3,208 $3,208 Charge-offs: Commercial............................ 7 66 34 Real estate........................... - - - Consumer and short-term............... 111 90 2 ---------------------- ----------------------- ----------------------- Total charge-offs 118 156 36 ---------------------- ----------------------- ----------------------- Recoveries: Commercial............................ 10 340 72 Real estate........................... - - - Consumer and short-term............... 17 14 - ---------------------- ----------------------- ----------------------- Total recoveries................... 27 354 36 ---------------------- ----------------------- ----------------------- Net charge-offs/(recoveries)............. 91 (198) (36) ---------------------- ----------------------- ----------------------- Provision for loan losses................ 777 666 400 ---------------------- ----------------------- ----------------------- Balance at end of period.............. $4,758 $4,072 $3,644 ====================== ======================= ======================= Average loans outstanding (1)......... $431,246 $389,156 368,204 ====================== ======================= ======================= As a percent of average loans (1): Net charge-offs/Recoveries............ -% (0.05)% (0.01)% Provision for loan losses............. 0.18% 0.17% 0.11% Allowance for loan losses............. 1.10% 1.05% 0.99% Allowance for loan losses to: Total loans, net of unearned income at period end......................... 1.07% 0.96% 0.93% Total non-performing loans at period end................................ 56.19% 118.96% 69.58% (1) Includes nonaccruing loans.
Management makes a quarterly 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, management considers specific loans, pools of similar loans, historical charge-off activity and other factors in determining the loan loss reserve requirements. 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 on quarterly to the Board of Directors. Management believes that the reserve for loan losses is adequate to absorb known and inherent losses. 32 Significant estimates are made by management in determining the allowance for loan losses. 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, the present value of future cash flows and other relevant factors. Since the allowance for loan losses is dependent to a great extent, on the general economy and other conditions that may be beyond the Banks' control, estimates of the allowance for loan losses may differ materially in the near term. 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 June 30, 2001 At December 31, 2000 ---------------- -------------------- Percent of Percent of Loans Loans In Each In Each Amount Category Amount Category (in 000's) To Loans (in 000's) To Loans ---------- --------- ---------- ---------- Allocation of allowance for loan losses: Commercial $4,054 47.2% $3,055 54.7% Residential real estate 217 51.5% 224 44.6% Consumer and other 311 1.3% 246 0.7% Unallocated 176 -% 547 -% ------------------------------------------------ Total $4,758 100.00% $4,072 100.00% ========== ========= The unallocated allowance decreased $371,000 to $176,000 at June 30, 2001 from $547,000 at December 31, 2000. This decline resulted from the classification of loans to one borrower as substandard which necessitated an increase in the amount allocated to these loans. 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 may believe the loan to be adequately collateralized. The unallocated loan loss reserves represent inherent losses in the portfolio based on several considerations including general economic conditions. 33 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 requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The type and amount of collateral obtained, if deemed necessary upon extension of credit, are based on management's credit evaluation of the borrower. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers and is based on Management's evaluation of the creditworthiness of the borrower and the quality of the collateral. At June 30, 2001 and December 31, 2000, firm loan commitments approximated $49.7 million and $60.3 million respectively, and commitments for 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. 34 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 Securities Holders None. Item 5: Other Information None Item 6: Exhibits and Reports on Form 8-K The following Exhibits are filed as part of this report. (Exhibit numbers correspond to the exhibits required by Item 601 of Regulation S-K for an annual report on Form 10-K) 35 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 Board of Governors of the Federal Reserve Board. 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 No reports on form 8-K have been filed during the quarter for which this Form 10-Q is filed. 36 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Republic First Bancorp, Inc., Registrant /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: August 14, 2001 37