-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TkvPrbXn04N0Z19jx+K1e5o2tFNA5sq9UMl7PP3PO8P6GCqeXpYr6QC+Mtf47SV0 6h1sqK8w1W/R633ex1h+5w== 0000950159-03-000440.txt : 20030515 0000950159-03-000440.hdr.sgml : 20030515 20030515162915 ACCESSION NUMBER: 0000950159-03-000440 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REPUBLIC FIRST BANCORP INC CENTRAL INDEX KEY: 0000834285 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 232486815 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17007 FILM NUMBER: 03705096 BUSINESS ADDRESS: STREET 1: 1608 WALNUT ST STREET 2: STE 1000 CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2157354422 MAIL ADDRESS: STREET 1: 1608 WALNUT ST STREET 2: STE 1000 CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: FIRST REPUBLIC BANCORP INC /DE/ DATE OF NAME CHANGE: 19960617 FORMER COMPANY: FORMER CONFORMED NAME: EXECUFIRST BANCORP INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FIRST EXECUTIVE BANCORP INC DATE OF NAME CHANGE: 19881113 10-Q 1 rfb10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: March 31, 2003 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. 6,619,981 shares of Issuer's Common Stock, par value $0.01 per share, issued and outstanding as of April 30, 2003 Page 1 of 35 Exhibit index appears on page 32 1
TABLE OF CONTENTS ----------------- Page ---- Part I: Financial Information Item 1: Financial Statements (unaudited) 3 Item 2: Management's Discussion and Analysis of Financial Condition and 12 Results of Operations Item 3: Quantitative and Qualitative Information about Market Risk 30 Item 4: Controls and Procedures 30 Part II: Other Information Item 1: Legal Proceedings 31 Item 2: Changes in Securities and Use of Proceeds 31 Item 3: Defaults Upon Senior Securities 31 Item 4: Submission of Matters to a Vote of Security Holders 31 Item 5: Other Information 31 Item 6: Exhibits, Reports on Form 8-K and Certifications 32
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PART I - FINANCIAL INFORMATION ------------------------------ Item 1: Financial Statements -------------------- Page Number ----------- (1) Consolidated Balance Sheets as of March 31, 2003, (unaudited) and December 31, 2002... 4 (2) Consolidated Statements of Income for the three months ended March 31, 2003, and 2002(unaudited)................................................... 5 (3) Consolidated Statements of Cash Flows for the three months ended March 31, 2003, and 2002(unaudited)................................................... 6 (4) Notes to Consolidated Financial Statements............................................ 7
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Republic First Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002 dollars in thousands, except share data ASSETS: March 31, 2003 December 31, 2002 --------------------- ------------------------ (unaudited) Cash and due from banks $ 16,284 $ 18,114 Interest bearing deposits with banks 3,567 3,570 Federal funds sold and interest-bearing deposits with banks 117,196 51,126 --------------------- ------------------------ Total cash and cash equivalents 137,047 72,810 Other interest-earning restricted cash 4,265 4,228 Investment securities available for sale, at fair value 63,662 87,291 Investment securities held to maturity at amortized cost (Fair value of $11,277 and $9,297, respectively) 11,249 9,270 Loans receivable (net of allowance for loan losses of $7,538 and $6,642, respectively) 457,545 457,047 Premises and equipment, net 4,942 5,000 Other real estate owned 1,015 1,015 Accrued interest receivable 3,506 3,777 Other assets 10,103 7,254 --------------------- ------------------------ Total Assets $ 693,334 $ 647,692 ===================== ======================== LIABILITIES AND SHAREHOLDERS' EQUITY: Liabilities: Deposits: Demand - non-interest-bearing $ 70,304 $ 59,194 Demand - interest-bearing 61,638 54,653 Money market and savings 144,020 119,213 Time under $100,000 132,373 139,356 Time $100,000 or more 92,177 83,886 --------------------- ------------------------ Total Deposits 500,512 456,302 FHLB Advances 125,000 125,000 Accrued interest payable 3,798 3,596 Other liabilities 5,177 5,518 Corporation-obligated-mandatorily redeemable capital securities of subsidiary trust holding solely junior obligations of the corporation 6,000 6,000 --------------------- ------------------------ Total Liabilities 640,487 596,416 --------------------- ------------------------ Shareholders' Equity: Common stock par value $0.01 per share, 20,000,000 shares authorized; shares issued 6,619,981 as of March 31, 2003 and 6,405,592 as of December 31, 2002 66 64 Additional paid in capital 32,935 32,305 Retained earnings 20,053 18,760 Treasury stock at cost (175,172 shares) (1,541) (1,541) Accumulated other comprehensive income 1,334 1,688 --------------------- ------------------------ Total Shareholders' Equity 52,847 51,276 --------------------- ------------------------ Total Liabilities and Shareholders' Equity $ 693,334 $ 647,692 ===================== ========================
(See notes to consolidated financial statements) 4
Republic First Bancorp, Inc. and Subsidiaries Consolidated Statements of Income For the Three Months Ended March 31, dollars in thousands, except per share data (unaudited) Quarter to Date March 31 2003 2002 ---- ---- Interest income: Interest and fees on loans $12,333 $9,533 Interest and dividend income on federal funds sold and other interest-earning balances 228 169 Interest and dividends on investment securities 998 1,746 --------------------- ------------ Total interest income 13,559 11,448 --------------------- ------------ Interest expense: Demand interest-bearing 119 121 Money market and savings 432 346 Time under $100,000 1,216 1,745 Time $100,000 or more 652 1,017 Other borrowed funds 2,041 2,220 --------------------- ------------ Total interest expense 4,460 5,449 --------------------- ------------ Net interest income 9,099 5,999 Provision for loan losses 3,411 1,280 --------------------- ------------ Net interest income after provision for loan losses 5,688 4,719 --------------------- ------------ Non-interest income: Loan advisory and servicing fees 186 245 Service fees on deposit accounts 320 284 Tax refund products 372 384 Other income 17 21 --------------------- ------------ 895 934 --------------------- ------------ Non-interest expenses: Salaries and benefits 2,478 2,240 Occupancy 386 347 Depreciation 294 244 Legal 240 344 Advertising 73 161 Other expenses 1,135 968 --------------------- ------------ 4,606 4,304 --------------------- ------------ Income before income taxes 1,977 1,349 Provision for income taxes 684 461 --------------------- ------------ Net income $1,293 $888 ===================== ============ Net income per share: Basic $0.21 $0.14 ===================== ============ --------------------- ------------ Diluted $0.20 $0.14 ===================== ============
(See notes to consolidated financial statements) 5
Republic First Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Three Months Ended March 31, Dollars in thousands (unaudited) 2003 2002 ------------- ------------- Cash flows from operating activities: Net income $ 1,293 $ 888 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 3,411 1,280 Depreciation 294 244 Amortization of discounts on investment securities 108 200 Increase in other assets (2,361) (1,540) Decrease in accrued expenses and other liabilities (139) (17) ------------- ------------- Net cash provided by operating activities 2,606 1,055 ------------- ------------- Cash flows from investing activities: Purchase of securities: Held to maturity (2,254) (956) Available for sale (1,520) (900) Proceeds from principal receipts, calls and maturities of securities: Held to maturity 275 2,999 Available for sale 24,470 10,353 Net (increase) decrease in loans (3,909) 3,041 (Increase) decrease in other interest-earning restricted cash (37) 984 Premises and equipment expenditures (236) (70) ------------- ------------- Net cash provided by investing activities 16,789 15,451 ------------- ------------- Cash flows from financing activities: Net proceeds from exercise of stock options 632 - Net increase in demand, money market and savings deposits 42,902 19,692 Repayment of long-term borrowings - (12,500) Net increase in time deposits 1,308 20,967 ------------- ------------- Net cash provided by financing activities 44,842 28,159 ------------- ------------- Increase in cash and cash equivalents 64,237 44,665 Cash and cash equivalents, beginning of period 72,810 41,420 ------------- ------------- Cash and cash equivalents, end of period $ 137,047 $ 86,085 ============= ============= Supplemental disclosure: Interest paid $ 4,258 $ 5,542 ============= ============= Taxes paid $ 950 $ 1,950 ============= ============= (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. is a two-bank holding company organized and incorporated under the laws of the Commonwealth of Pennsylvania. Its wholly-owned subsidiary, Republic First Bank (the "Bank"), offers a variety of banking services to individuals and businesses throughout the Greater Philadelphia and South Jersey area through its offices and branches in Philadelphia and Montgomery Counties. During 1999, the Company opened First Bank of Delaware ("FBD"), a Delaware State chartered Bank, located at Brandywine Commons II, Concord Pike and Rocky Run Parkway in Brandywine, New Castle County Delaware. FBD opened for business on June 1, 1999 and offers many of the same services and financial products as Republic First Bank, but additionally offers short-term consumer loans and other loan products not offered by Republic First Bank. The Company and the Banks encounter vigorous competition for market share in the companies they serve from bank holding companies, other community banks, thrift institutions and other non-bank financial organizations, such as mutual fund companies, insurance companies and brokerage companies. The Company and the Banks are subject to regulations of certain state and federal agencies. These regulatory agencies periodically examine the Company and its subsidiaries for adherence to laws and regulations. As a consequence, the cost of doing business may be affected. Note 2: Summary of Significant Accounting Policies: Basis of Presentation: The consolidated financial statements of the Company include the accounts of Republic First Bancorp, Inc. and its wholly-owned subsidiaries, Republic First Bank and First Bank of Delaware, (together, the "Banks"). Such statements have been presented in accordance with accounting principles generally accepted in the United States of America or applicable to the banking industry. All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements. Risks and Uncertainties and Certain Significant Estimates: The earnings of the Company depend on the earnings of the Banks. The Banks are dependent primarily upon the level of net interest income, which is the difference between interest earned on its interest-earning assets, such as loans and investments, and the interest paid on its interest-bearing liabilities, such as deposits and borrowings. Accordingly, the operations of the Banks are subject to risks and uncertainties surrounding their exposure to change in the interest rate environment. Prepayments on residential real estate mortgage and other fixed rate loans and mortgage-backed securities vary significantly and may cause significant fluctuations in interest margins. Short-term consumer loans were first offered through FBD in 2001. At March 31, 2003, there were approximately $9.9 million of short-term consumer loans outstanding, which were originated in Texas, California, Georgia, Arizona, Ohio and North Carolina through a small number of marketers. These loans 7 generally have principal amounts of $1,000 or less and terms of approximately two weeks. Legislation eliminating, or limiting interest rates upon short-term consumer loans has from time to time been proposed, primarily as a result of fee levels which approximate 17% per $100 borrowed, for two week terms. If such proposals cease, a larger number of competitors may begin offering the product, and increased competition could result in lower fees. Further, FBD uses a small number of marketers under contracts which can be terminated upon short notice, under various circumstances. Additionally, there has been an increase in consumer activist complaints regarding this product citing the high fees. After a hiatus, FBD began offering two tax refund products in 2001 with Liberty Tax Service. Liberty Tax Service is a nationwide professional tax service provider which prepares and electronically files federal and state income tax returns ("Tax Refund Products"). Tax Refund Products consist of accelerated check refunds ("ACRs"), and refund anticipation loans ("RALs"). There can be no assurances that revenues will continue to grow or be maintained at current levels in future periods. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America require management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates are made by management in determining the allowance for loan losses, carrying values of other real estate owned and income taxes. Consideration is given to a variety of factors in establishing these estimates. In estimating the allowance for loan losses, management considers current economic conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews, borrowers' perceived financial and managerial strengths, the adequacy of underlying collateral, if collateral dependent, or present value of future cash flows and other relevant factors. Since the allowance for loan losses and carrying value of other real estate owned are dependent, to a great extent, on the general economy and other conditions that may be beyond the Banks' control, it is at least reasonably possible that the estimates of the allowance for loan losses and the carrying values of other real estate owned could differ materially in the near term. Stock Based Compensation: The company accounts for stock options under the provisions of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, which contains a fair valued-based method for valuing stock-based compensation that entities may use, which measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period, which is usually the vesting period. Alternatively, SFAS No. 123 permits entities to continue accounting for employee stock options and similar equity instruments under Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees. Entities that continue to account for stock options using APB Opinion 25 are required to make pro forma disclosures of net income and earnings per share, as if the fair value-based method of accounting defined in SFAS No. 123 had been applied. At March 31, 2003, the Company had a stock-based employee compensation plan. The Company accounts for that plan under the recognition and measurement principles of APB No. 25, Accounting for Stock Issued to Employees, and related interpretations. Stock-based employee compensation costs are not reflected in net income, as all options granted under the plan had an exercise price equal to the market vale of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the company had applied the fair value recognition provisions of SFAS No. 123, to stock-based employee compensation ( in thousands, except per share amounts). 8
Stock Based Compensation -------------------------------------- (Dollars in thousands) -------------------------------------- Three months ended March 31, 2003 2002 ------------------------------------- Net income as reported.............................. $1,293 $888 Less: Stock based compensation costs determined under fair value based method for all awards.......................... (102) (281) ------------------------------------- Net income, pro-forma............................... $1,191 $607 ------------------------------------- Earnings per common share- basic: As reported $0.21 $0.14 ===================================== Pro-forma $0.19 $0.10 ------------------------------------- Earnings per common share- diluted: As reported $0.20 $0.14 ------------------------------------- Pro-forma $0.18 $0.09 =====================================
The Company granted 56,667 and 93,167 options during the three months ended March 31, 2003 and 2002, respectively. The proforma compensation expense is based upon the fair value of the option at grant date. The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2003 and 2002, respectively; dividend yields of 0% for both periods, expected volatility of 31% for 2003 and 35% for 2002, risk-free interest rates of 4.0% and 4.7%, respectively and an expected life of 5.0 years for for both periods. Note 3: Legal Proceedings The Company and the Banks are from time to time parties (plaintiff or defendant) to lawsuits in the normal course of business. While any litigation involves an element of uncertainty, management, after reviewing pending actions with legal counsel, is of the opinion that the liabilities of the Company and the Banks, if any, resulting from such actions will not have a material effect on the financial condition or results of operations of the Company and the Banks. Note 4: Segment Reporting The Company's reportable segments represent strategic businesses that offer different products and services. The segments are managed separately because each segment has unique operating characteristics, management requirements and marketing strategies. Republic First Bancorp has four reportable segments: two community banking segments; tax refund products; and short-term consumer loans. The community banking segments are primarily comprised of the results of operations and financial condition of the Banks. Tax refund products are comprised of accelerated check refunds ("ACRs") and refund anticipation loans ("RALs") offered through FBD on a national basis to customers of Liberty Tax Services, an unaffiliated national tax preparation firm. Short-term consumer loans are loans made to customers offered through the FBD, with principal amounts of $1,000 or less and terms of approximately two weeks. These loans typically are made in states that are outside of the Company's normal market area through a small number of marketers and involve rates and fees significantly different from other loan products offered by either of the Banks. The Company evaluates the performance of the community banking segments based upon net income, return on equity and return on average assets. Tax refund products and short-term consumer loans are evaluated based 9 upon net income. Tax refund products and short-term consumer loans are provided to satisfy consumer demands while diversifying the Company's earnings stream. Segment information for the three months ended March 31, 2003 and 2002, is as follows:
As of and for the three months ended March 31, 2003 (dollars in thousands) Short-term Republic First First Bank of Tax Refund Consumer Bank Delaware Products loans Total ------------------ ------------- ----------------- ------------- --------------- Net interest income $ 4,033 $ 364 $ 1,154 $ 3,548 $ 9,099 Provision for loan losses 60 31 1,018 2,302 3,411 Non-interest income 432 91 372 - 895 Non-interest expenses 3,496 289 259 562 4,606 Net income $ 600 $ 89 $ 162 $ 442 $ 1,293 ================== ============= ================= ============= ================= Selected Balance Sheet Accounts: Total assets $ 633,583 $ 41,969 $ 5,000 $12,782 $ 693,334 Total loans 422,557 29,660 2,926 9,940 465,083 Total deposits 462,456 30,056 5,000 - 500,512 March 31, 2002 (dollars in thousands) Short-term Republic First First Bank of Tax Refund Consumer Bank Delaware Products loans Total ------------------ ------------- ----------------- ------------- --------------- Net interest income $ 4,449 $ 274 (38) $ 1,314 $ 5,999 Provision for loan losses 750 10 - 520 1,280 Non-interest income 429 121 384 - 934 Non-interest expenses 3,491 382 167 264 4,304 Net income (loss) $ 437 $ 3 $ 115 $ 333 $ 888 ================== ============= ================= ============= ================= Selected Balance Sheet Accounts: Total assets $ 608,414 $ 52,320 $ 8,671 $11,442 $ 680,847 Total loans 424,436 22,442 3,671 9,018 459,567 Total deposits 445,689 - 8,250 - 487,876
10 Note 5: Earnings Per Share: Earnings per share ("EPS") consists of two separate components; basic EPS and diluted EPS. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for each period presented. Diluted EPS is calculated by dividing net income by the weighted average number of common shares outstanding plus dilutive common stock equivalents ("CSEs"). CSEs consist of dilutive stock options granted through the Company's stock option plan. The following table is a reconciliation of the numerator and denominator used in calculating basic and diluted EPS. CSEs which are anti-dilutive are not included in the following calculation. At March 31, 2003, and 2002, respectively, there were 23,890 and 76,340 of stock options, that were not included in the calculation of EPS because the option price is greater than the average market price for the period. These CSEs, however, may become dilutive in the future. The following table is a comparison of EPS for the three months ended March 31, 2003, and 2002.
Year to Date 2003 2002 Net Income $1,293,000 $888,000 Per Per Shares Share Shares Share ------ ----- ------ ----- Weighted average shares For period 6,240,331 6,182,954 Basic EPS $0.21 $0.14 Add common stock equivalents representing dilutive stock options 234,660 254,969 Effect on basic ------- ------- EPS of dilutive CSEs (0.01) - ------- ----- Equals total weighted average shares and CSEs (diluted) 6,474,991 6,424,923 ========= ========= Diluted EPS $0.20 $0.14 ------- =====
Note 6: Comprehensive Income The following table displays net income and the components of other comprehensive income to arrive at total comprehensive income. For the Company, the only components of other comprehensive income are those related to the unrealized gains (losses) on available for sale investment securities.
(dollar amounts in thousands) Three months ended March 31, ---------------------------------- 2003 2002 ------------- ------------- Net income $ 1,293 $ 888 Other comprehensive income, net of tax: Unrealized (losses) on investment securities: Unrealized holding losses during the period (354) (512) ------------- ------------- Comprehensive income $ 939 $ 376 ============= =============
11 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of the significant changes in the Company's results of operations, financial condition and capital resources presented in the accompanying consolidated financial statements of Republic First Bancorp, Inc. This discussion should be read in conjunction with the accompanying notes to the consolidated financial statements. Certain statements in this document may be considered to be "forward-looking statements" as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995, such as statements that include the words "may", "believes", "expect", "estimate", "project", anticipate", "should", "intend", "probability", "risk", "target", "objective" and similar expressions or variations on such expressions. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For example, risks and uncertainties can arise with changes in: general economic conditions, including their impact on capital expenditures; new service and product offerings by competitors and price pressures; and similar items. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 2002, Quarterly Reports on Form 10-Q, filed by the Company in 2002 and 2001, and any Current Reports on Form 8-K filed by the Company, as well as other filings. Financial Condition: March 31, 2003, Compared to December 31, 2002 Total assets increased $45.6 million to $693.3 million at March 31, 2003, versus $647.7 million at December 31, 2002. This net increase reflected higher federal funds and commercial loans, partially offset by historically high prepayments in residential mortgages and mortgage-backed securities. Loans: The loan portfolio, which represents the Company's largest asset, is its most significant source of interest income. The Company's lending strategy is to focus on small and medium sized businesses and professionals that seek highly personalized banking services. Total loans increased $1.4 million, to $465.1 million at March 31, 2003, versus $463.7 million at December 31, 2002. The slight increase reflected $9.5 million growth in commercial loans and a $7.8 million increase in consumer loans which partially offset a $15.8 million decline in residential mortgage loans resulting primarily from historically high prepayments. The loan portfolio consists of secured and unsecured commercial loans including commercial real estate, construction loans, residential mortgages, automobile loans, home improvement loans, short-term consumer loans beginning in 2001 and home equity loans and lines of credit and overdraft lines of credit and others. The Banks' commercial loans typically range between $250,000 and $3,000,000 but customers may borrow significantly larger amounts up to the Banks' combined legal lending limit of $9.0 million at March 31, 2003. Individual customers may have several loans often secured by different collateral. Such relationships in excess of $5.8 million at March 31, 2003, amounted to $13.0 million. The $5.8 million threshold approximates 10% of total capital and reserves and reflects an additional internal monitoring guideline. At March 31, 2003, the Company had $9.9 million in short-term consumer loans outstanding versus $5.0 million at December 31, 2002. The increase reflected additional 12 business in several new states. These loans were first offered in the second quarter of 2001. These loans have principal amounts of less than $1,000, and terms of approximately two weeks and were originated in North Carolina, Georgia, Texas, Arizona, Ohio and California through a small number of marketers. Investment Securities: Investment securities available-for-sale are investments which may be sold in response to changing market and interest rate conditions and for liquidity and other purposes. The Company's investment securities available-for-sale consist primarily of U.S Government debt securities, U.S. Government agency issued mortgage-backed securities, and debt securities which include corporate bonds and corporate trust preferred securities. Available-for-sale securities totaled $63.7 million at March 31, 2003, a decrease of $23.6 million or 27.1%, from year-end 2002. This decrease resulted primarily from historically high principal repayments on mortgage-backed securities, which were used to reduce borrowings and temporarily increase liquidity. At March 31, 2003, and December 31, 2002, the portfolio had net unrealized gains of $2.0 million and $2.6 million, respectively. Investment securities held-to-maturity are investments for which there is the intent and ability to hold the investment to maturity. These investments are carried at amortized cost. The held-to-maturity portfolio consists primarily of Federal Home Loan Bank ("FHLB") securities. At March 31, 2003, securities held to maturity totaled $11.2 million, an increase of $2.0 million, or 21.3% from $9.3 million at year-end 2002. The increase reflected additional purchases of FHLB securities. At both dates, respective carrying values approximated market values. Cash and Due From Banks: Cash and due from banks, interest bearing deposits and federal funds sold are all liquid funds. The aggregate amount in these three categories increased by $64.2 million, to $137.0 million at March 31, 2003, from $72.8 million at December 31, 2002, as prepayments in the residential mortgage portfolio and mortgage-backed securities and growth in deposits were temporarily invested in federal 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. At March 31, 2003, the balance was $4.3 million versus $4.2 million at December 31, 2002. Fixed Assets: Bank premises and equipment, net of accumulated depreciation, decreased $58,000 to $4.9 million at March 31, 2003, from $5.0 million at December 31, 2002. The decrease reflected depreciation of equipment. Other Real Estate Owned: The $1.0 million balance of other real estate owned represents two properties. The first is a hotel property acquired in the fourth quarter of 2001, which was originally recorded at a value of $1.9 million. That property was written down to $500,000 in the third quarter of 2002. The other property is a building, which was acquired in the fourth quarter of 2002 and is carried at an estimated realizable value of $515,000. Appraisals for both properties support their carrying values at March 31, 2003. 13 Deposits: Deposits, which include non-interest and interest-bearing demand deposits, money market, savings and time deposits, are the Banks' major source of funding. Deposits are generally solicited from the Company's market area through the offering of a variety of products to attract and retain customers, with a primary focus on multi-product relationships. Total deposits increased by $44.2 million, or 9.7% to $500.5 million at March 31, 2003, from $456.3 million at December 31, 2002. Average core non-public deposits increased 18%, or $37.7 million more than the prior year to $242.6 million in the first quarter of 2003. Deposit growth benefited from the Company's business development efforts and bank consolidations in the Philadelphia market which continue to leave some customers underserved. Time deposits increased $1.3 million to $224.6 million at March 31, 2003, versus $223.2 million at the prior year-end. FHLB Borrowings: FHLB borrowings are used to supplement deposit generation. FHLB borrowings totaled $125.0 million at both March 31, 2003 and December 31, 2002. The Company's borrowings primarily mature in the fourth quarter of 2004 and first quarter of 2005. Shareholders' Equity: Total shareholders' equity increased $1.5 million to $52.8 million at March 31, 2003, versus $51.3 million at December 31, 2002. This increase was primarily the result of year-to-date 2003 net income of $1.3 million. 14 Three Months Ended March 31, 2003 Compared to March 31, 2002 - ------------------------------------------------------------ Results of Operations: Overview The Company's net income increased $405,000, or 45.6% to $1.3 million or $0.20 per diluted share for the three months ended March 31, 2003, compared to $888,000, or $0.14 per diluted share for the prior year comparable period. The 45.6% improvement in earnings reflected a significant increase in net interest income. Net interest income increased $3.1 million or 52% compared to the prior year period. Interest margins were significantly impacted by prepayments of the residential real estate and mortgage-backed securities portfolios, but the Banks continued reductions in deposit rates and increase in short-term loan fees more than offset the impact of those prepayments. Of the approximately $3.4 million increase in net interest income from the short-term loan and tax refund products, approximately $2.8 million was offset by increased loan loss provisions. Average core non-public deposits increased 18% in the first quarter of 2003 compared to the prior year comparable period. The increases in net interest income resulted in an 185 basis point increase in net interest margin to 5.71% at March 31, 2003 versus 3.86% at March 31, 2002. The provision for loan losses increased $2.1 million between those periods reflecting higher charge-offs principally in the short-term loan and tax refund programs. Increased revenues from those two programs more than offset these provisions. In those periods, operating expenses increased 7.0%. The increased net income resulted in a return on average assets and average equity of .76% and 9.94% respectively, compared to .54% and 7.57% respectively for the same period in 2002. Current Developments The Company recently received a letter from the Federal Reserve Bank of Philadelphia (the "Reserve Bank") regarding the results of a safety and soundness review and ongoing compliance monitoring of the payday lending programs engaged in by our subsidiaries, First Bank of Delaware and Republic First Bank. First Bank of Delaware operates these loan programs and contracts with third parties to provide certain services for it as part of the program. Republic First Bank purchases loans from First Bank of Delaware. As a result of the preliminary findings, the Reserve Bank has requested that the Company and its subsidiaries voluntarily cease payday lending through third party companies and that First Bank of Delaware cease selling loans to Republic First Bank. We have had discussions with the staffs of the Reserve Bank and the Federal Reserve Board about whether and on what terms it would permit continued participation in the programs, about alternatives to permit First Bank of Delaware to continue to operate the programs and the guidelines to be utilized by the Reserve Bank for banks to operate such programs in a safe and sound manner. Any agreement of the Company and/or its subsidiaries to cease making such loans, or any agreement to curtail operation of these programs, or any enforcement action by the Reserve Bank to require the Company or its subsidiaries to cease making such loans, would have a material adverse effect on the earnings of the Company. Analysis of Net Interest Income Historically, the Company's earnings have depended significantly upon the Banks' net interest income, which is the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income is impacted by changes in the mix of the volume and rates of interest-earning assets and interest-bearing liabilities. 15
For the three months ended For the three months ended March 31, 2003 March 31, 2002 ------------------------------------------------- -------------------------------------------------- Interest-earning assets: Interest Interest (Dollars in thousands) Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate ------------------ ------------- ------------- ------------------- ------------ ------------- Federal funds sold and other interest- earning assets 74,879 228 1.24% 38,757 169 1.77% Securities 85,091 998 4.69% 120,356 1,746 5.80% Loans receivable 484,907 12,333 10.31% 466,892 9,533 8.27% ------------------ ------------- ------------- ------------------- ------------ ------------- Total interest-earning assets 644,877 13,559 8.51% 626,005 11,448 7.39% Other assets 33,829 35,815 ------------------ ------------------- Total assets $ 678,706 $ 661,820 ================== =================== Interest-bearing liabilities: Demand-non interest bearing $ 76,651 $ 61,124 Demand interest-bearing 58,024 119 0.81% 47,774 121 1.03% Money market & savings 122,887 432 1.39% 95,938 346 1.46% Time deposits 225,353 1,868 3.29% 252,926 2,762 4.43% ------------------ ------------- ------------- ------------------- ------------ ------------- Total deposits 482,915 2,419 1.99% 457,762 3,229 2.86% Total interest-bearing deposits 406,264 2,419 2.41% 396,638 3,229 3.30% ------------------ ------------- ------------- ------------------- ------------ ------------- Other borrowings 134,850 2,041 6.14% 146,326 2,220 6.15% ------------------ ------------- ------------- ------------------- ------------ ------------- Total interest-bearing liabilities $ 541,114 $ 4,460 3.34% 542,964 5,449 4.07% ================== ============= ============= =================== ------------ ------------- Total deposits and other borrowings 617,765 4,460 2.93% 604,088 5,449 3.66% ------------------ ------------- ------------- ------------------- ------------ ------------- Noninterest-bearing liabilites 8,895 10,295 Shareholders' equity 52,046 47,437 ------------------ ------------------- Total liabilities and shareholders' equity $ 678,706 $ 661,820 ================== =================== Net interest income $ 9,099 $ 5,999 ============= ============ Net interest spread 5.58% 3.73% ============= ============= Net interest margin 5.71% 3.86% ============= ============= Net interest margin not including short-term loan and tax refund products 2.76% 2.99% ============= =============
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 due to rate and volume variances have been allocated to rate. Rate/Volume Table
Three months ended March 31, 2003 versus 2002 (dollars in thousands) Due to change in: Volume Rate Total ------------------- ------------- ------------------- Federal funds sold $ 110 $ (51) $ 59 Securities (414) (334) (748) Loans 458 2,342 2,800 - ----------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 154 1,957 2,111 Interest expense of deposits Interest-bearing demand deposits (21) 23 2 Money market and savings (95) 9 (86) Time deposits 229 665 894 - ----------------------------------------------------------------------------------------------------------------------- Total deposit interest expense 113 697 810 Other borrowings 174 5 179 - ----------------------------------------------------------------------------------------------------------------------- Total interest expense 287 702 989 - ----------------------------------------------------------------------------------------------------------------------- Net interest income $ 441 $ 2,659 $ 3,100 - -----------------------------------------------------------------------------------------------------------------------
The Company's net interest margin increased 185 basis points to 5.71% for the three months ended March 31, 2003, versus the prior year comparable period. The improvement reflected increased revenue from the short-term loan and tax refund products, the 18% increase in average lower costing core non-public deposits (demand, money market and savings accounts), and the repricing of certificates of deposit and other deposits in the lower interest rate environment which more than offset the impact of prepayments in the mortgage-backed security and residential mortgage portfolios. Fees on short-term consumer loans and tax refund anticipation loans contributed $4.7 million to net interest income in 2003 and 295 basis points to the margin versus $1.3 million and 87 basis points for the prior year comparable period. Excluding the impact of those products, margins decreased to 2.76% in the first quarter of 2003 from 2.99% in the prior year comparable period. That decrease resulted from the impact of the historically high residential mortgage and mortgage-backed security prepayments. While management could replace significant amounts of such prepayments, it has deferred security purchases in light of the lower interest rate environment. A total of $125.0 million of Federal Home loan Bank ("FHLB") advances which carry an average interest rate of 6.20% mature beginning the third quarter of 2004 through the first quarter of 2005. These advances would be repriceable to a significantly lower rate in the current interest rate environment. The average yield on interest-earning assets improved 112 basis points to 8.51% for the three months ended March 31, 2003, from 7.39% for the prior year comparable period due primarily to increased fees from short-term loan and tax refund products. Overall, the average rate paid on interest-bearing liabilities decreased 73 basis points to 3.34% for the three months ended March 31, 2003, from 4.07% in the prior year comparable period, as the Company repriced its deposits to the lower rate environment. 17 The Company's net interest income increased $3.1 million, or 51.7%, to $9.1 million for the three months ended March 31, 2003, from $6.0 million for the prior year comparable period. As shown in the Rate Volume table above, the increase in net interest income was due to the positive effect of rate changes of approximately $2.7 million reflecting deposits repricing to lower rates and the positive impact of higher short-term loan and refund anticipation loan fees. The positive impact of volume changes reflected increases in average commercial and construction loans of 5.2% and a reduction in average other borrowings of 7.8%. Average interest-earning assets increased $18.9 million, to $644.9 million for the three months ended March 31, 2003, from $626.0 million for the prior year comparable period. The Company's total interest income increased $2.1 million, or 18.4%, to $13.6 million for the three months ended March 31, 2003, from $11.5 million for the prior year comparable period. Interest and fees on loans increased $2.8 million to $12.3 million for the three months ended March 31, 2003, from $9.5 million for the prior year comparable period. Notwithstanding prepayments in the residential mortgage portfolios, an increase in average commercial loans and the short-term loan and tax refund product increases quantified above, primarily comprised the increase in interest and loan income. The increases in fees for short-term loans was the principal factor in the increase in yield on loans 204 basis points to 10.31%. Interest and dividend income on investment securities decreased $748,000 to $1.0 million for the three months ended March 31, 2003, from $1.7 million for the prior year comparable period. This decline was due principally to the $35.3 million, or 29.3%, decrease in average investment securities outstanding to $85.1 million at March 31, 2003 from $120.4 million for the prior year period. In addition, the average rate earned on investment securities declined 111 basis points to 4.69% as higher coupon investments prepaid more rapidly than lower coupons and the rates earned on variable rate securities declined due to the lower interest rate environment. Interest income on federal funds sold and other interest-earning assets increased $59,000 as average fed funds sold outstanding increased $36.1 million to $74.9 million as proceeds from securities paydowns had to be invested in federal funds sold. This increase in average offset the lower yields earned on these balances due to the lower interest rate environment. The Company's total interest expense decreased $989,000, or 18.1%, to $4.5 million for the three months ended March 31, 2003, from $5.4 million for the prior year comparable period, due to the lower rate environment as the Company repriced deposits, particularly certificates of deposit and was able to lower rates on other non-public core deposits. Interest-bearing liabilities averaged $541.1 million for the three months ended March 31, 2003, versus $543.0 million for the prior year comparable period, however, the mix was more favorable in the first quarter of 2003. Average interest-bearing lower cost non-public core deposits increased $37.7 million, while higher cost time deposits and other borrowings declined $27.6 million and $11.5 million, respectively. Both factors contributed to the reduction in interest expense. The average rate paid on interest-bearing liabilities decreased 73 basis points to 3.34% for the three months ended March 31, 2003, due primarily to the decrease in average rates paid on deposit products resulting from the lower interest rate environment. Interest expense on time deposits (certificates of deposit) decreased $894,000, or 32.4%, to $1.9 million at March 31, 2003, from $2.8 million for the prior year comparable period. This decline reflected the lower interest rate environment as the average rate declined 114 basis points to 3.29%. In addition, average certificates of deposit outstanding decreased $27.6 million, or 10.9%, to $225.4 million, for the first quarter ended March 31, 2003, from $252.9 million in the prior year comparable period, as higher cost time deposits matured and were not replaced due to the growth in non-public core deposits. Interest expense on other borrowings, primarily FHLB advances, decreased $179,000 or 8.1% to $2.0 million for the for the three months ended March 31, 2003, compared to $2.2 million for the prior year comparable period. This decrease resulted from a $11.5 million, or 7.8% decline in average other borrowings to $134.8 million at March 31, 2003, versus $146.3 million for the prior year comparable period. The decline in average other borrowings reflected increased deposit generation and securities maturities and prepayments which were used to pay down term borrowings. The Company issued $6.0 million of trust preferred securities in 18 November 2001, the expense for which is included in other borrowings expense. Such expenses were $93,000 for the three months ended March 31, 2003. Provision for Loan Losses The provision for loan losses is charged to operations in an amount necessary to bring the total allowance for loan losses to a level that reflects the known and estimated inherent losses in the portfolio. The provision for loan losses increased $2.1 million to $3.4 million for the three months ended March 31, 2003, from $1.3 million for the prior year comparable period. This increase reflected approximately $2.8 million of additional provisions for the short-term loan and tax refund anticipation loans which were more than offset by related revenues. Non-Interest Income Total non-interest income decreased $39,000, or 4.2% to $895,000 for the three months ended March 31, 2003, versus $934,000 for the prior year comparable period due primarily to lower loan advisory fees. Non-Interest Expenses Total non-interest expenses increased $302,000, or 7.0% to $4.6 million for the three months ended March 31, 2003, from $4.3 million for the prior year comparable period. Salaries and employee benefits increased $238,000 or 10.6%, to $2.5 million for the three months ended March 31, 2003, from $2.2 million for the prior year comparable period. The increase reflected operational support for the tax refund and short-term consumer loan products, business development efforts and normal merit increases. Occupancy expense increased $39,000 to $386,000 for the three months ended March 31, 2003, versus $347,000 for the prior year comparable period due primarily to increased rent and repairs and maintenance expense. Depreciation expense increased $50,000, or 20.5% to $294,000 for the three months ended March 31, 2003, versus $244,000 for the prior year comparable period reflecting higher depreciation on computer equipment purchases required for various loan and deposit applications and for the tax refund anticipation loan product. Legal fees decreased $104,000 to $240,000 for the three months ended March 31, 2003, from $344,000 for the prior year comparable period. This decrease reflected lower legal expenses related to loan collections. Advertising expense declined $88,000 to $73,000 as the Company reduced the number of advertisements during the year. Other operating expenses increased $167,000, or 17.3% to $1.1 million for the for the three months ended March 31, 2003, from $968,000 for the prior year comparable period. The increase reflected higher data processing costs related to support for the short-term loan products and higher insurance costs. Provision for Income Taxes The provision for income taxes increased $223,000, or 48.4%, to $684,000 for the three months ended March 31, 2003, from $461,000 for the prior year comparable period. This increase was primarily the result of the increase in pre-tax income. The effective tax rate was 34.6% for the three months ended March 31, 2003, versus 34.2% for the prior year comparable period. 19 Risks and Uncertainties and Certain Significant Estimates The earnings of the Company depend on the earnings of the Banks. The Banks are dependent primarily upon the level of net interest income, which is the difference between interest earned on its interest-earning assets, such as loans and investments, and the interest paid on its interest-bearing liabilities, such as deposits and borrowings. Accordingly, the operations of the Banks are subject to risks and uncertainties surrounding their exposure to change in the interest rate environment. Prepayments on residential real estate mortgages and other fixed rate loans and mortgage-backed securities may cause significant fluctuations in interest margins. Short-term consumer loans were first offered through FBD in 2001. At March 31, 2003, there were approximately $9.9 million of short-term consumer loans outstanding, which were originated in Texas, California, Georgia, Arizona, Ohio and North Carolina through a small number of marketers. These loans generally have principal amounts of $1,000 or less and terms of approximately two weeks. Legislation eliminating, or limiting interest rates upon short-term consumer loans has from time to time been proposed, primarily as a result of fee levels which approximate 17% per $100 borrowed, for two week terms. If such proposals cease, a larger number of competitors may begin offering the product, and increased competition could result in lower fees. Further, FBD uses a small number of marketers under contracts which can be terminated upon short notice, under various circumstances. Additionally, there has been an increase in consumer activist complaints regarding this product, citing the high fees. After a hiatus, FBD began offering two tax refund products in 2001 with Liberty Tax Service. Liberty Tax Service is a nationwide professional tax service provider which prepares and electronically files federal and state income tax returns ("Tax Refund Products"). Tax Refund Products consist of accelerated check refunds ("ACRs"), and refund anticipation loans ("RALs"). There can be no assurances that revenues will continue to grow or be maintained at current levels in future periods. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America require management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates are made by management in determining the allowance for loan losses, carrying values of other real estate owned, and income taxes. Consideration is given to a variety of factors in establishing these estimates. In estimating the allowance for loan losses, management considers current economic conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews, borrowers' perceived financial and managerial strengths, the adequacy of underlying collateral, if collateral dependent, or present value of future cash flows and other relevant factors. Since the allowance for loan losses and carrying value of real estate owned are dependent, to a great extent, on the general economy and other conditions that may be beyond the Banks' control, it is at least reasonably possible that the estimates of the allowance for loan losses and the carrying values of the real estate owned could differ materially in the near term. The Company and its subsidiaries are subject to federal and state regulations governing virtually all aspects of their activities, including but not limited to, lines of business, liquidity, investments, the payment of dividends, and others. Such regulations and the cost of adherence to such regulations can have a significant impact on earnings and financial condition. 20 Commitments, Contingencies and Concentrations The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit totaling $58.7 million at March 31, 2003. These instruments involve to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. Credit risk is defined as the possibility of sustaining a loss due to the failure of the other parties to a financial instrument to perform in accordance with the terms of the contract. The maximum exposure to credit loss under commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same underwriting standards and policies in making credit commitments as it does for on-balance-sheet instruments. Financial instruments whose contract amounts represent potential credit risk are commitments to extend credit of approximately $52.3 million and $52.3 million and standby letters of credit of approximately $6.4 million and $7.2 million at March 31, 2003, and December 31, 2002, respectively. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and many require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit is based on management's credit evaluation of the customer. Collateral held varies but may include real estate, marketable securities, pledged deposits, equipment and accounts receivable. Standby letters of credit are conditional commitments that guarantee the performance of a customer to a third party. The credit risk and collateral policy involved in issuing letters of credit is essentially the same as that involved in extending loan commitments. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral held varies but may include real estate, marketable securities, pledged deposits, equipment and accounts receivable. At March 31, 2003, the Company had no foreign loans and no loan concentrations exceeding 10% of total loans except for credits extended to real estate operators and lessors in the aggregate amount of $139.0 million, which represented 29.9% of gross loans receivable at March 31, 2003. Various types of real estate are included in this category, including industrial, retail shopping centers, office space, residential multi-family and others. Loan concentrations are considered to exist when there is 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. 21
Regulatory Matters The following table presents the Company's capital regulatory ratios at March 31, 2003, and December 31, 2002: Actual For Capital To be well Adequacy purposes capitalized under FRB capital guidelines Amount Ratio Amount Ratio Amount Ratio ------------- ------------ ------------- ----------- ----------- ----------- Dollars in thousands At March 31, 2003 Total risk based capital Republic First Bank $54,941 13.43% $32,731 8.00% $40,914 10.00% First Bank of Delaware 6,652 21.46% 2,480 8.00% 3,100 10.00% Republic First Bancorp, 62,710 14.46% 34,695 8.00% - N/A Inc. Tier one risk based capital Republic First Bank 49,805 12.17% 16,366 4.00% 24,548 6.00% First Bank of Delaware 6,262 20.20% 1,240 4.00% 1,860 6.00% Republic First Bancorp, 57,263 13.20% 17,348 4.00% - N/A Inc. Tier one leveraged capital Republic First Bank 49,805 8.06% 30,884 5.00% 30,884 5.00% First Bank of Delaware 6,262 10.11% 3,097 5.00% 3,097 5.00% Republic First Bancorp, 57,263 8.46% 33,844 5.00% - N/A Inc. Actual For Capital To be well Adequacy purposes capitalized under FRB capital guidelines Amount Ratio Amount Ratio Amount Ratio ------------- ----------- ----------- ---------- ----------- ---------- At December 31, 2002 Total risk based capital Republic First Bank $52,400 13.39% $31,308 8.00% $39,135 10.00% First Bank of Delaware 6,144 22.59% 2,176 8.00% 2,720 10.00% Republic First Bancorp, Inc. 60,581 14.49% 33,447 8.00% - N/A Tier one risk based capital Republic First Bank 47,493 12.14% 15,654 4.00% 23,481 6.00% First Bank of Delaware 5,801 21.33% 1,088 4.00% 1,632 6.00% Republic First Bancorp, Inc. 55,337 13.24% 16,724 4.00% - N/A Tier one leveraged capital Republic First Bank 47,493 7.82% 30,377 5.00% 30,377 5.00% First Bank of Delaware 5,801 13.94% 2,081 5.00% 2,081 5.00% Republic First Bancorp, Inc. 55,337 8.56% 32,231 5.00% - N/A
Dividend Policy The Company has not paid any cash dividends on its Common Stock and does not currently plan to pay cash dividends to shareholders in the next year. 22 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. The most liquid assets consist of cash, amounts due from banks and federal funds sold. Regulatory authorities require the Banks to maintain certain liquidity ratios such that the Banks maintain available funds, or can obtain available funds at reasonable rates, in order to satisfy commitments to borrowers and the demands of depositors. In response to these requirements, the Banks have each formed Asset/Liability Committees ("ALCOs"), comprised of selected members of the Banks' boards of directors and senior management, which monitor such ratios. The purpose of the Committees are in part, to monitor the Banks' liquidity and adherence to the ratios in addition to managing the relative interest rate risk to the Banks'. The ALCOs meet at least quarterly. The Company's most liquid assets totaled $137.0 million at March 31, 2003, compared to $72.8 million at December 31, 2002, due to an increase in federal funds sold. Loan maturities and repayments are a primary source of asset liquidity. At March 31, 2003, the Bank estimated that in excess of $50.0 million of loans would mature or be repaid in the six month period that will end September 30, 2003. Additionally, the majority of its securities are available to satisfy liquidity requirements through pledges to the Federal Home Loan Bank System ("FHLB") to access the Banks' line of credit. Funding requirements have historically been satisfied primarily by generating core deposits and certificates of deposit with competitive rates, buying federal funds and utilizing the facilities of FHLB. At March 31, 2003, the Bank had $121.3 million in unused lines of credit available under arrangements with FHLB and correspondent banks compared to $109.0 million at December 31, 2002. These lines of credit enable the Bank to purchase funds for short or long-term needs at rates often lower than other sources and require pledging of securities or loan collateral. At March 31, 2003, the Company had aggregate outstanding commitments (including unused lines of credit and letters of credit) of $58.7 million. Certificates of deposit scheduled to mature in one year totaled $150.9 million at March 31, 2003, and no borrowings were scheduled to mature within that period. The Company anticipates that it will have sufficient funds available to meet its current commitments. The Bank has $125.0 million in other borrowings that are callable by the FHLB, whereupon they would likely be replaced by borrowings at then current rates. In addition, the Company can use overnight borrowings or other term borrowings to replace these borrowed funds. The Banks target and actual liquidity levels are determined by comparisons of the estimated repayment and marketability of the Banks interest-earning assets with projected future outflows of deposits and other liabilities. The Bank has established a line of credit from a correspondent to assist in managing the Banks' liquidity position. That line of credit totaled $10.0 million at March 31, 2003. As noted previously, the Bank has established a line of credit with the Federal Home Loan Bank of Pittsburgh with a maximum borrowing capacity of approximately $236.0 million. As of March 31, 2003, and December 31, 2002, the Company had borrowed $125.0 million, respectively, under these lines of credit. Securities also represent a primary source of liquidity for the Banks. Accordingly, investment decisions generally reflect liquidity over other considerations. The Company's primary short-term funding sources are certificates of deposit and its securities portfolio. The circumstances that are reasonably likely to affect those sources are as follows. The Banks have historically been able to generate certificates of deposit by matching Philadelphia market rates or paying a premium rate of 25 to 50 basis points over those market rates. It is anticipated that this source of liquidity will continue to be available; however, its incremental cost may vary depending on market conditions. The Company's securities portfolio is also available for liquidity, usually as collateral for FHLB advances. Because of the FHLB's AAA 23 rating, it is unlikely those advances would not be available. But even if they are not, numerous investment companies would likely provide repurchase agreements up to the amount of the market value of the securities. The Banks' ALCOs are responsible for managing the liquidity position and interest sensitivity of the Banks. Those committees' primary objective is to maximize net interest income while configuring the Banks' interest-sensitive assets and liabilities to manage interest rate risk and provide adequate liquidity. Investment Securities Portfolio At March 31, 2003, the Company had identified certain investment securities that are being held for indefinite periods of time, including securities that will be used as part of the Company's asset/liability management strategy and that may be sold in response to changes in interest rates, prepayments and similar factors. These securities are classified as available for sale and are intended to increase the flexibility of the Company's asset/liability management. Available for sale securities consist of US Government Agency securities and other investments. The book and market values of securities available for sale were $61.6 million and $63.7 million as of March 31, 2003, respectively. The net unrealized gain on securities available for sale as of that date was $2.0 million. Loan Portfolio The Company's loan portfolio consists of secured and unsecured commercial loans including commercial real estate loans, loans secured by one-to-four family residential property, commercial construction and residential construction loans as well as residential mortgages, home equity loans, short-term consumer and other consumer loans. Commercial loans are primarily term loans made to small to medium-sized businesses and professionals for working capital, asset acquisition and other purposes. The Banks commercial loans typically range between $250,000 and $3,000,000 but customers may borrow significantly larger amounts up to the Banks combined legal lending limit of $9.0 million at March 31, 2003. Individual customers may have several loans often secured by different collateral. Such relationships in excess of $5.8 million (an internal monitoring guideline which approximates 10% of capital and reserves) at March 31, 2003, amounted to $13.0 million. Total loans increased $1.4 million, to $465.1 million at March 31, 2003, from $463.7 million at December 31, 2002. Commercial loans increased $9.4 million and consumer loans increased $7.8 million. This offset a decline in the residential real estate mortgage portfolio of $15.8 million which reflected historically high prepayments in the residential real estate mortgage portfolio resulting from the lower rate environment. The following table sets forth the Company's gross loans by major categories for the periods indicated: 24
(dollars in thousands) As of March 31, 2003 As of December 31, 2002 ------------------------------------------------------------------------------- Balance % of Total Balance % of Total ------------------------------------------------------------------------------- Commercial: Real estate secured $ 334,106 71.8 $ 329,570 71.1 Non real estate secured 57,328 12.3 54,163 11.7 Unsecured 10,257 2.2 8,513 1.8 ------------------------------------------------------------------------------- 401,691 86.3 392,246 84.6 Residential real estate 35,442 7.7 51,265 11.1 Consumer, short-term & other 27,950 6.0 20,178 4.3 ------------------------------------------------------------------------------- Total loans 465,083 100.0% 463,689 100.0% Less allowance for loan losses (7,538) (6,642) ---------------- ------------------ Net loans $ 457,545 $ 457,047 ================ ==================
Credit Quality The Banks' written lending policies require specified underwriting, loan documentation and credit analysis standards to be met prior to funding, with independent credit department approval for the majority of new loan balances. A committee of the Board of Directors oversees the loan approval process to monitor that proper standards are maintained, while approving the majority of commercial loans. Loans, including impaired loans, are generally classified as non-accrual if they are past due as to maturity or payment of interest or principal for a period of more than 90 days, unless such loans are well-secured and in the process of collection. Loans that are on a current payment status or past due less than 90 days may also be classified as non-accrual if repayment in full of principal and/or interest is in doubt. Loans may be returned to accrual status when all principal and interest amounts contractually due are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance by the borrower, in accordance with the contractual terms. While a loan is classified as non-accrual or as an impaired loan and the future collectibility of the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to principal outstanding. When the future collectibility of the recorded loan balance is expected, interest income may be recognized on a cash basis. In the case where a non-accrual loan had been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on the recorded loan balance at the contractual interest rate. Cash interest receipts in excess of that amount are recorded as recoveries to the allowance for loan losses until prior charge-offs have been fully recovered. 25
The following summary shows information concerning loan delinquency and other non-performing assets at the dates indicated. March 31, December 31, 2002 2003 --------------------------------------------- (dollars in thousands) Loans accruing, but past due 90 days or more $4,254 $4,051 Non-accrual loans 2,960 2,972 --------------------------------------------- Total non-performing loans (1) 7,214 7,023 Other real estate owned 1,015 1,015 --------------------------------------------- Total non-performing assets (2) $8,229 $8,038 ============================================= Non-performing loans as a percentage of total loans net of unearned Income 1.55% 1.51% Non-performing assets as a percentage of total assets 1.19% 1.24%
(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 other real estate owned (assets acquired in foreclosure). Problem loans consist of loans that are included in performing loans, but for which potential credit problems of the borrowers have caused management to have serious doubts as to the ability of such borrowers to continue to comply with present repayment terms. At March 31, 2003, all identified problem loans are included in the preceding table or are classified as substandard or doubtful, with a specific reserve allocation in the allowance for loan losses (see "Allowance For Loan Losses"). Management believes that the appraisals and other estimates of the value of the collateral pledged against the non-accrual loans generally exceed the amount of its outstanding balances. The recorded investment in loans which are impaired totaled $3.0 million at both March 31, 2003, and December 31, 2002, respectively, and the amount of such valuation allowances were $750,000 and $665,000, respectively. There were no commitments to extend credit to any borrowers with impaired loans as of the end of the periods presented herein. At March 31, 2003, and December 31, 2002, internally classified accruing substandard loans totaled approximately $13.6 million and $12.9 million respectively; and doubtful loans totaled approximately $520,000 and $493,000 respectively. There were no loans classified as loss at those dates. The Bank had delinquent loans as follows: (i) 30 to 59 days past due, at March 31, 2003 and December 31, 2002, in the aggregate principal amount of $2.5 million and $1.2 million respectively; and (ii) 60 to 89 days past due, at March 31, 2003 and December 31, 2002, in the aggregate principal amount of $1.5 million and $2.6 million, respectively. 26 At March 31, 2003, the Company had no foreign loans and no loan concentrations exceeding 10% of total loans except for credits extended to real estate operators and lessors in the aggregate amount of $139.0 million, which represented 29.9% of gross loans receivable at March 31, 2003. Various types of real estate are included in this category, including industrial, retail shopping centers, office space, residential multi-family and others. Loan concentrations are considered to exist when multiple number of borrowers are engaged in similar activities that management believes would cause them to be similarly impacted by economic or other conditions. Other Real Estate Owned: At the beginning of 2002, the company had one other real estate owned property with a carrying value of $1.9 million. That property was subsequently written down to a carrying value of $500,000 in the third quarter of 2002. In the fourth quarter of 2002, the Company charged off $2.2 million of a $2.7 million loan to one borrower, which had been placed on non-accrual status in the second quarter. In both cases the Banks is pursuing recoveries, but the amount and timing of any such recoveries can not be predicted. After the $2.2 million charge-off, the remainder of the balance totaling $515,000 was transferred to other real estate owned. The $500,000 and $515,000 comprise the balance of other real estate owned at March 31, 2003, and December 31, 2002. At March 31, 2003, the Company had no credit exposure to "highly leveraged transactions" as defined by the Federal Reserve Bank. 27
Allowance for Loan Losses An analysis of the Company's allowance for loan losses for the three months ended March 31, 2003, and 2002, and the twelve months ended December 31, 2002 is as follows: For the three For the twelve months For the three months months ended ended ended (dollars in thousands) March 31, 2003 December 31, 2002 March 31, 2002 ---------------------- ----------------------- ----------------------- Balance at beginning of period............ $ 6,642 $ 5,431 $ 5,431 Charge-offs: Commercial and construction............. 1 2,542 - Short-term and tax refund loans.......... 2,757 1,670 565 Consumer............... - 3 3 ---------------------- ----------------- --------------- Total charge-offs 2,758 4,215 568 ---------------------- ----------------- --------------- Recoveries: Commercial and construction............. 20 123 6 Short-term and tax refund loans.......... 223 - - Consumer................................. - - - ---------------------- ----------------- --------------- Total recoveries..................... 243 123 6 ---------------------- ----------------- --------------- Net charge-offs..................... 2,515 4,092 562 ---------------------- ----------------- --------------- Provision for loan losses.................. 3,411 5,303 1,280 ---------------------- ----------------- --------------- Balance at end of period................ $ 7,538 $ 6,642 $ 6,149 ====================== ================= =============== Average loans outstanding (1)....... $484,907 $468,239 $466,892 ====================== ================= =============== As a percent of average loans (1): Net charge-offs (annualized)............ 2.08% 0.87% 0.48% Provision for loan losses............... 0.70% 1.13% 0.27% Allowance for loan losses............... 1.55% 1.42% 1.32% Allowance for loan losses to: Total loans, net of unearned income at period end........................... 1.62% 1.43% 1.32% Total non-performing loans at period end.................................. 104.49% 94.57% 118.37% (1) Includes nonaccruing loans.
The increase in net charge-offs reflects the increased volume in short-term loan and tax refund loans and was more than offset with revenue increases. Excluding these loans, net charge-offs to average loans were 0% for the first quarter 2003, 0.52% for the year ended December 31, 2002 and 0% for the first quarter 2002. Management makes at least a quarterly determination as to an appropriate provision from earnings to maintain an allowance for loan losses that is management's best estimate of known and inherent losses. The Company's Board of Directors periodically reviews the status of all non-accrual and impaired loans and loans classified by the Banks' regulators or internal loan review officer, who reviews both the loan portfolio and overall adequacy of the allowance for loan losses. The Board of Directors also considers specific loans, pools of similar loans, historical charge-off activity, economic conditions and other relevant factors in reviewing the adequacy of the loan loss reserve. Any additions deemed necessary to the allowance for loan losses are charged to operating expenses. 28 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 who reports quarterly, directly to the Board of Directors. Estimating the appropriate level of the allowance for loan losses at any given date is difficult, particularly in a continually changing economy. In Management's opinion, the allowance for loan losses was appropriate at March 31, 2003. 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 Banks' management is unable to determine in what loan category future charge-offs and recoveries may occur. The following schedule sets forth the allocation of the allowance for loan losses among various categories. The allocation is based upon historical experience. The entire allowance for loan losses is available to absorb loan losses in any loan category:
At March 31, 2003 At December 31, 2002 ----------------- -------------------- Percent of Loans Percent of Loans Amount In Each Category Amount In Each Category (in 000's) To Loans (in 000's) to Loans ---------- -------- ---------- -------- Allocation of allowance for loan losses: Commercial $5,995 86.3% $5,695 84.6% Residential real estate 142 7.7% 205 11.1% Short-term and tax refund loans 524 2.8% 97 1.1% Consumer and other 106 3.2% 104 3.2% Unallocated 771 -% 541 -% ----------------------------------------------------------------------- Total $7,538 100.00% $6,642 100.00% ================== ===============
The majority of the Company's loan portfolio represents loans made for commercial purposes, while significant amounts of residential property may serve as collateral for such loans. The Company attempts to evaluate larger loans individually, on the basis of its loan review process, which scrutinizes loans on a selective basis and other available information. Even if all commercial purpose loans could be reviewed, there is no assurance that information on potential problems would be available. The Company's portfolios of loans made for purposes of financing residential mortgages and consumer loans are evaluated in groups. At March 31, 2003, loans made for commercial and construction, residential mortgage and consumer purposes, respectively, amounted to $401.7 million, $35.4 million and $28.0 million. 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 29 over a one year time horizon in order to protect net interest income from being affected by wide interest rate fluctuations. ITEM 3: QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK Interest Rate Risk Management There has been no material change in the Company's assessment of its sensitivity to market risk since its presentation in the 2002 Annual Report on Form 10-K filed with the SEC. Item 4. Controls and Procedures. (a) Evaluation of disclosure controls and procedures. The management of the Company, including the Chief Executive Officer and the Chief Financial Officer, have conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 as of a date (the "Evaluation Date") within 90 days prior to the filing date of this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures were effective in ensuring that all material information relating to the Company, including our consolidated subsidiaries, required to be filed in this quarterly report has been made known to them in a timely manner. (b) Changes in internal controls. There have been no significant changes made in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the Evaluation Date. 30 Part II Other Information Item 1: Legal Proceedings ----------------- The Company and the Banks are from time to time parties (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 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 adverse effect on the financial condition or results of operations of the Company and the Banks. Item 2: Changes in Securities and Use of Proceeds ----------------------------------------- None Item 3: Defaults upon Senior Securities ------------------------------- None Item 4: Submission of Matters to a Vote of Security Holders ---------------------------------------------------- The annual meeting of shareholders of Republic First Bancorp, Inc., to take action upon the re-election of one director and the election of one new director of the Company was held on the 22nd day of April, 2003 at 4:00 p.m., at the Union League of Philadelphia Broad and Sansom Streets, Philadelphia, PA. 19103, after written notice of said meeting, according to law, was mailed to each shareholder of record entitled to receive notice of said meeting, 32 days prior thereto. As of the record date for said meeting of shareholders, the number of shares then issued and outstanding was 6,412,091 shares of common stock, of which 6,412,091 shares were entitled to vote. A total of 5,783,135 shares were voted. No nominee received less than 94.0% of the voted shares. Therefore, pursuant to such approval, the following director was re-elected to the Company. Harris Wildstein The following new director was elected to the Company: Robert Coleman A proposal was also put forth to amend the Corporation's Amended and Restated Stock Option Plan and Restricted Stock Plan to increase the number of shares issued under the Plan by 10% to a total of 1,540,000. A majority of the votes (71.6%) approved the plan. Therefore, pursuant to such approval, the number of shares issuable under the plan is now 1,540,000. Item 5: Other Information ----------------- Our chief executive officer and chief financial officer have furnished to the SEC the certification with respect to this Report that is required by Section 906 of the Sarbanes-Oxley Act of 2002. 31 Item 6: Exhibits and Reports on Form 8-K -------------------------------- The following Exhibits are filed as part of this report. (Exhibit numbers correspond to the exhibits required by Item 601 of Regulation S-K for an annual report on Form 10-K) Exhibit No. 10 Material Contracts.- None 21 Subsidiaries of the Company Republic First 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 ("FBD"), which also is a wholly-owned subsidiary of the Company, commenced operations on September 1, 1999. FBD is a commercial bank chartered pursuant to the laws of the State of Delaware. The Bank and FBD are both members of the Federal Reserve System and their primary federal regulators are the Federal Reserve Board of Governors. 99 Certifications under Section 906 of the Sarbanes-Oxley Act 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 13, 2003. Reports on Form 8-K and 8-KA Press release dated April 17, 2003. 32 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Issuer has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Republic First Bancorp, Inc. Harry D. Madonna ---------------- President and Chief Executive Officer Paul Frenkiel ------------- Executive Vice President and Chief Financial Officer Dated: May 15, 2003 33 Certifications under Section 302 of the Sarbanes-Oxley Act: I, Harry D. Madonna, President and Chief Executive Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Republic First Bancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. DATE: May 15, 2003 /s/ Harry D. Madonna, President and Chief Executive Officer 34 I, Paul Frenkiel, Chief Financial Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Republic First Bancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. DATE: May 15, 2003 /s/ Paul Frenkiel, Executive Vice President and Chief Financial Officer 35 EX-99 3 exhibit99.txt CERTIFICATION CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of Republic First Bancorp, Inc. (the "Company") for the quarter ended March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned President and Chief Executive Officer and Executive and Chief Financial Officer of the Company, certifies, to the best knowledge and belief of the signatory, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Harry D. Madonna /s/ Paul Frenkiel - ------------------------------------ ----------------------------------- President and Chief Executive Officer Executive Vice President and Chief Financial Officer Date:May 15, 2003 Date: May 15, 2003 -----END PRIVACY-ENHANCED MESSAGE-----