UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30, 2002
Commission File Number: 0-17007
Republic First Bancorp, Inc.
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(Exact name of business issuer as specified in its charter)
Pennsylvania 23-2486815
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(State or other jurisdiction of IRS Employer Identification
incorporation or organization) Number
1608 Walnut Street, Philadelphia, Pennsylvania 19103
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(Address of principal executive offices) (Zip code)
215-735-4422
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
YES X NO ____
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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.
6,391,008 shares of Issuer's Common Stock, par value
$0.01 per share, issued and outstanding as of July 31, 2002
Page 1 of 36
Exhibit index appears on page 35
TABLE OF CONTENTS
Page
Part I: Financial Information
Item 1: Financial Statements (unaudited) 3
Item 2: Management's Discussion and Analysis of Financial Condition and 12
Results of Operations
Item 3: Quantitative and Qualitative Information about Market Risk 26
Part II: Other Information
Item 1: Legal Proceedings 34
Item 2: Changes in Securities and Use of Proceeds 34
Item 3: Defaults Upon Senior Securities 34
Item 4: Submission of Matters to a Vote of Security Holders 34
Item 5: Other Information 34
Item 6: Exhibits and Reports on Form 8-K 35
2
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Page Number
(1) Consolidated Balance Sheets as of June 30, 2002, (unaudited) and December 31, 2001...... 4
(2) Consolidated Statements of Income for the three and six months ended
(unaudited) June 30, 2002, and 2001..................................................... 5
(3) Consolidated Statements of Cash Flows for the six months ended
(unaudited) June 30, 2002, and 2001..................................................... 6
(4) Notes to Consolidated Financial Statements.............................................. 7
3
Republic First Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
as of June 30, 2002 and December 31, 2001
dollars in thousands, except share data
ASSETS: June 30, 2002 December 31, 2001
--------------------- ---------------------
(unaudited)
Cash and due from banks $ 18,673 $ 19,647
Federal funds sold and interest-bearing deposits with banks 30,669 21,773
--------------------- ---------------------
Total cash and cash equivalents 49,342 41,420
Other interest-earning restricted cash 4,908 4,913
Securities available for sale, at fair value 104,873 113,868
Securities held to maturity at amortized cost
(Fair value of $9,461 and $11,601, respectively) 9,430 11,574
Loans receivable (net of allowance for loan losses of
$6,807 and $5,431, respectively) 469,444 463,888
Premises and equipment, net 4,878 5,211
Other real estate owned 1,857 1,858
Other assets 11,676 9,597
--------------------- ---------------------
Total Assets $ 656,408 $ 652,329
===================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Deposits:
Demand - non-interest-bearing $ 59,738 $ 62,384
Demand - interest-bearing 44,620 39,789
Money market and savings 118,765 94,774
Time under $100,000 153,855 152,583
Time $100,000 or more 88,945 97,687
--------------------- ---------------------
Total Deposits 465,923 447,217
Other borrowings 125,000 142,500
Accrued expenses and other liabilities 9,426 9,769
Corporation-obligated-mandatorily redeemable capital
securities of subsidiary trust holding solely junior obligations of
the corporation 6,000 6,000
--------------------- ---------------------
Total Liabilities 606,349 605,486
--------------------- ---------------------
Shareholders' Equity:
Common stock par value $0.01 per share, 20,000,000 shares
authorized; shares issued and outstanding, 6,391,008 as of
June 30, 2002 and 6,358,126 as of December 31, 2001 64 63
Additional paid in capital 32,235 32,117
Retained earnings 18,369 16,560
Treasury stock at cost (175,172 shares) (1,541) (1,541)
Accumulated other comprehensive income (loss) 932 (356)
--------------------- ---------------------
Total Shareholders' Equity 50,059 46,843
--------------------- ---------------------
Total Liabilities and Shareholders' Equity $ 656,408 $ 652,329
===================== =====================
(See notes to consolidated financial statements)
4
Republic First Bancorp, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three and Six Months Ended June 30,
dollars in thousands, except per share data
(unaudited)
Quarter to Date Year to Date
June 30 June 30
------- -------
2002 2001 2002 2001
---- ---- ---- ----
Interest income:
Interest and fees on loans $9,387 $9,472 $18,920 $18,622
Interest and dividend income on federal
funds sold and other interest-earning balances 224 404 393 1,057
Interest on investments 1,625 2,330 3,371 4,929
------------ ------------ ------------ ------------
Total interest income 11,236 12,206 22,684 24,608
------------ ------------ ------------ ------------
Time $100,000 or more
Interest expense:
Demand interest-bearing 120 145 241 295
Money market and savings 450 809 795 1,714
Time under $100,000 1,509 2,718 3,254 5,554
Time $100,000 or more 918 1,537 1,935 3,133
Other borrowed funds 2,097 2,241 4,317 4,782
------------ ------------ ------------ ------------
Total interest expense 5,094 7,450 10,542 15,478
------------ ------------ ------------ ------------
Net interest income 6,142 4,756 12,142 9,130
------------ ------------ ------------ ------------
Provision for loan losses 1,248 620 2,529 777
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses 4,894 4,136 9,613 8,353
------------ ------------ ------------ ------------
Non-interest income:
Loan advisory and servicing fees 386 224 632 506
Service fees on deposit accounts 314 286 598 540
Gains on securities sold - - - 13
Tax refund products 350 27 734 253
Other income 19 24 40 47
------------ ------------ ------------ ------------
1,069 561 2,004 1,359
Non-interest expenses:
Salaries and benefits 2,242 2,023 4,482 4,039
Occupancy 363 334 711 683
Equipment 235 231 479 448
Legal 382 44 727 118
Advertising 98 156 259 304
Other expenses 1,176 956 2,096 2,030
------------ ------------ ------------ ------------
4,496 3,744 8,754 7,622
------------ ------------ ------------ ------------
Income before income taxes 1,467 953 2,863 2,090
Provision for income taxes 546 314 1,054 690
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income $921 $639 $1,809 $1,400
============ ============ ============ ============
Net income per share:
------------ ------------ ------------ ------------
Basic $0.15 $0.10 $0.29 $0.23
============ ============ ============ ============
------------ ------------ ------------ ------------
Diluted $0.14 $0.10 $0.28 $0.22
============ ============ ============ ============
(See notes to consolidated financial statements)
5
Republic First Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30,
Dollars in thousands
(unaudited)
2002 2001
------------- -------------
Cash flows from operating activities:
Net income $ 1,809 $ 1,400
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 2,529 777
Depreciation 479 448
Amortization of securities 212 176
Gain on sales of securities - 13
Increase in other assets (2,696) (2,116)
Increase (decrease) in accrued expenses
and other liabilities (343) 2,651
Net decrease in deferred fees (209) (36)
------------- -------------
Net cash provided by operating activities 1,781 3,313
------------- -------------
Cash flows from investing activities:
Purchase of securities:
Held to maturity (956) (2,829)
Available for sale (6,956) -
Proceeds from Sale of securities:
Available for sale - 7,842
Proceeds from principal receipts, calls and
maturities of securities:
Held to maturity 3,100 5,647
Available for sale 17,693 16,360
Net increase in loans (7,876) (20,455)
Decrease (increase) in other interest-earning restricted cash 5 (5,883)
Premises and equipment expenditures (146) (480)
------------- -------------
Net cash provided by investing activities 4,864 202
------------- -------------
Cash flows from financing activities:
Net proceeds from exercise of stock options 71 -
Net increase in demand, money market and savings deposits 26,176 47,960
Net decrease in borrowed funds less than 90 days - (16,442)
Repayment of borrowed funds greater than 90 days (17,500) (17,500)
Net decrease in time deposits (7,470) (24,255)
------------- -------------
Net cash provided by (used in) financing activities 1,277 (10,237)
------------- -------------
Increase in cash and cash equivalents 7,922 (6,722)
Cash and cash equivalents, beginning of period 41,420 50,657
------------- -------------
Cash and cash equivalents, end of period $ 49,342 $ 43,935
============= =============
Supplemental disclosure:
Interest paid $ 10,846 $ 15,888
============= =============
Taxes paid $ 2,950 $ 1,750
============= =============
(See notes to consolidated financial statements)
6
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Organization
Republic First Bancorp, Inc. (the "Company"), is a two-bank holding
company organized and incorporated under the laws of the Commonwealth of
Pennsylvania. Its wholly-owned subsidiaries, Republic First Bank (the "Bank")
and First Bank of Delaware (the "Delaware Bank") (together the "Banks"), offer a
variety of banking services primarily to individuals and businesses throughout
the Greater Philadelphia, Delaware and South Jersey area through offices and
branches in Philadelphia and Montgomery Counties in Pennsylvania and in New
Castle County, Delaware. The Delaware Bank also makes a number of short-term
consumer loans nationally, which outstandings amount to less than 5% of total
consolidated assets.
These interim financial statements have been prepared in
accordance with the instructions to Form 10-Q. Accordingly, these financial
statements do not include information or footnotes necessary for a complete
presentation of financial statements in accordance with accounting principles
generally accepted in the United States of America. In the opinion of the
Company, the accompanying unaudited financial statements contain all adjustments
(including normal recurring accruals) necessary to present fairly the financial
position as of June 30, 2002, the results of operations for the three and six
months ended June 30, 2002, and 2001, and the cash flows for the six months
ended June 30, 2002, and 2001. The interim results of operations may not be
indicative of the results of operations for the full year. The accompanying
unaudited financial statements should be read in conjunction with the Company's
audited financial statements, and the notes thereto, included in the Company's
2001 Form 10-K filed with the Securities and Exchange Commission.
Note 2: Summary of Significant Accounting Policies:
Risks and Uncertainties and Certain Significant Estimates:
The earnings of the Company depend on the earnings of the Banks. The
Banks' earnings 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.
The Delaware Bank began to offer short-term consumer loans in 2001. At
June 30, 2002, the Company had approximately $2.8 million of net short-term
consumer loans outstanding, which were originated in Georgia and North Carolina
through a single marketer. These loans generally have principal amounts of $600
or less and terms of approximately two weeks. Federal and state 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, the Delaware Bank uses a single
marketer under a contract which can be terminated upon short notice, under
various circumstances. In the second quarter of 2002, as a result of legislation
in Indiana, the Delaware Bank ceased making these loans in that state, which
accounts for approximately 65% of the revenue for the program. Although, the
Delaware Bank is in negotiations to expand the program to other states, there
can be no assurance that the Delaware Bank will generate revenues comparable to
the Indiana loans.
7
Note 3: 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 its 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.
The Delaware Bank was sued alleging violations of the Truth In Lending
Act, Federal Reserve Board Regulation Z and Indiana state law governing maximum
interest rates relating to short-term consumer loans. Because Delaware state law
permits rates to be determined by the open market and has been previously upheld
to preempt laws of states which regulate interest rates, legal counsel has
opined that the Delaware Bank is acting in accordance with applicable law. The
Delaware Bank's marketer, also named in the suit, is required to pay and has
been paying, all legal costs of defense, and indemnify the Delaware Bank against
any resulting legal liability.
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 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 Delaware Bank, with principal amounts of
$600 or less and terms of approximately two weeks. These loans typically are
made in states outside of the Company's normal market area through a small
number of marketers and involve rates and fees significantly different than
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 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 six and three months ended June 30, 2002 and 2001,
is as follows:
8
As of and for the six months ended
June 30, 2002
(dollars in thousands) Short-term
Republic First First Bank of Tax Refund Consumer
Bank Delaware Products loans Total
------------------ -------------- ---------------- ------------- ---------------
Net interest income $ 8,933 $ 613 $ (21) $ 2,617 $ 12,142
Provision for loan losses 1,600 10 - 919 2,529
Non-interest income 1,034 236 734 - 2,004
Non-interest expenses 7,262 774 258 460 8,754
------------------ -------------- ---------------- ------------- ---------------
Net income $ 760 $ 49 $ 276 $ 724 $ 1,809
================== ============== ================ ============= ===============
Selected Balance Sheet Accounts:
Total assets 616,598 35,498 572 3,740 656,408
Total loans, net 444,626 22,023 - 2,795 469,444
Total deposits 437,890 27,461 572 - 465,923
June 30, 2001
(dollars in thousands) Short-term
Republic First First Bank of Tax Refund Consumer
Bank Delaware Products loans Total
------------------ -------------- ---------------- ------------- ---------------
Net interest income $ 8,190 $ 446 $ - $ 494 $ 9,130
Provision for loan losses 515 52 - 210 777
Non-interest income 829 277 253 - 1,359
Non-interest expenses 6,471 763 90 298 7,622
------------------ -------------- ---------------- ------------- ---------------
Net income $ 1,362 $ (57) $ 104 $ (9) $ 1,400
================== ============== ================ ============= ===============
Selected Balance Sheet Accounts:
Total assets $ 608,648 $ 35,425 $ - $ 5,952 $ 650,025
Total loans, net 411,615 23,017 - 3,395 438,027
Total deposits 421,389 27,867 - - 449,256
9
As of and for the three months ended
June 30, 2002
(dollars in thousands) Short-term
Republic First First Bank of Tax Refund Consumer
Bank Delaware Products loans Total
------------------ -------------- ---------------- ------------- ---------------
Net interest income $ 4,483 $ 339 $ 17 $ 1,303 $ 6,142
Provision for loan losses 850 - - 398 1,248
Non-interest income 604 115 350 - 1,069
Non-interest expenses 3,769 392 104 231 4,496
------------------ -------------- ---------------- ------------- ---------------
Net income $ 332 $ 37 $ 161 $ 391 $ 921
================== ============== ================ ============= ===============
Selected Balance Sheet Accounts:
Total assets 616,598 35,498 572 3,740 656,408
Total loans, net 444,626 22,023 - 2,795 469,444
Total deposits 437,890 27,461 572 - 465,923
June 30, 2001
(dollars in thousands) Short-term
Republic First First Bank of Tax Refund Consumer
Bank Delaware Products loans Total
------------------ -------------- ---------------- ------------- ---------------
Net interest income $ 4,047 $ 215 $ - $ 494 $ 4,756
Provision for loan losses 400 30 - 190 620
Non-interest income 448 86 27 - 561
Non-interest expenses 3,223 391 50 80 3,744
------------------ -------------- ---------------- ------------- ---------------
Net income $ 585 $ (76) $ (14) $ 144 $ 639
================== ============== ================ ============= ===============
Selected Balance Sheet Accounts:
Total assets $ 608,648 $ 35,425 $ - $ 5,952 $ 650,025
Total loans, net 411,615 23,017 - 3,395 438,027
Total deposits 421,389 27,867 - - 449,256
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 pursuant to 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 that are not
dilutive are not included in the following calculation. At June 30, 2002, and
2001, respectively, there were 106,340 and 104,940 of stock options, that were
not included in the calculation of EPS because the exercise price was higher
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 and six
months ended June 30, 2002, and 2001.
Quarter to Date | Year to Date
2002 2001 | 2002 2001
|
Net Income |
$921,000 $639,000 | $1,809,000 $1,400,000
Per Per | Per Per
Shares Share Shares Share | Shares Share Shares Share
-----------------------------------------------------------------------------------------------
Weighted average shares |
For period 6,199,395 6,182,954 | 6,191,175 6,182,954
Basic EPS $0.15 $0.10 | $0.29 $0.23
Add common stock equivalents 287,149 202,666 | 264,559 190,618
------- ------- | ------- -------
representing dilutive stock options |
Effect on basic EPS of dilutive CSE $(0.01) - | $(0.01)
------- ---- | --------
| $(0.01)
Equals total weighted average |
shares and CSE (diluted) 6,486,544 6,385,620 | 6,455,734 6,373,572
========= ========= | ========= =========
Diluted EPS $0.14 $0.10 | $0.28 $0.22
------- ===== | ===== =====
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 Six months ended
June 30, June 30,
--------------------------------- ---------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net income $ 921 $ 639 $1,809 $1,400
Other comprehensive income, net of tax:
Unrealized gains/(losses) on securities:
Unrealized holding gains/(losses) during the period 1,800 (889) 1,288 584
Less: Reclassification adjustment for gains
included in net income - - - (9)
------------ ------------ ------------ ------------
Comprehensive income $2,721 $ (250) $3,097 $1,975
============ ============ ============ ============
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, 2001, 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:
June 30, 2002, Compared to December 31, 2001
Total assets increased $4.1 million to $656.4 million June 30, 2002,
versus $652.3 million at December 31, 2001. This increase reflected increased
loans outstanding.
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 $6.9 million, to
$476.3 million at June 30, 2002, versus $469.3 million at December 31, 2001, due
to an increase in commercial loans which offset declines in residential
mortgages and short-term consumer loans. 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 the second quarter of 2001, home equity
loans and lines of credit and others. 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 $8.5 million at June 30, 2002.
Individual customers may have several loans that are often secured by different
collateral. The aggregate amount of loans in excess of $5,000,000 at June 30,
2002, was $33.6 million. The Company allowed the residential mortgage portfolio
to decline through prepayments by $6.2 million to $61.6 million as these loans
yield less than the growing commercial loan portfolio. At June 30, 2002, the
Company had $2.8 million in net short-term consumer loans, which were first
offered in the second quarter of 2001, versus $6.8 million of such loans at
December 31, 2001. These loans have principal amounts of less than $600, terms
12
of approximately two weeks and were originated in North Carolina and Georgia
through a single marketer. The decline in loans outstanding reflected the second
quarter termination of business in Indiana.
Securities:
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 securities available for sale consist primarily of
U.S. Government debt securities, U.S. Government agency issued mortgage-backed
securities and collateralized mortgage obligations. Collateralized mortgage
obligations consist primarily of securities issued by the Federal Home Loan
Mortgage Corporation. Securities available for sale totaled $104.9 million at
June 30, 2002, a decrease of $9.0 million or 7.9%, from year-end 2001. This
decrease primarily reflected principal repayments on mortgage-backed securities
which were used to reduce borrowings. Additionally, the Company experienced a
$1.9 million gain in the market value of available for sale securities which is
reflected on the balance sheet. At June 30, 2002, the portfolio had net
unrealized gains of $1.4 million, compared to unrealized losses of $540,000 at
the end of the prior year.
Securities held to maturity are investments for which there is the
positive 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. In addition,
the Bank holds agency securities, other debt securities and a small amount of
CMO securities. At June 30, 2002, securities held to maturity totaled $9.4
million, a decrease of $2.2 million from $11.6 million at year-end 2001. This
decline was due primarily to maturities of U.S. government agency securities.
The market value of the held to maturity portfolio was $9.5 million at June 30,
2002, versus $11.6 million at December 31, 2001.
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 $7.9 million, to $49.3 million at June 30, 2002, from $41.4 million
at December 31, 2001, reflecting increased deposits which 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 June 30,
2002, and December 31, 2001, the balance was $4.9 million.
Fixed Assets:
Bank premises and equipment, net of accumulated depreciation, decreased
$333,000 to $4.9 million at June 30, 2002, from $5.2 million at December 31,
2001, due to depreciation.
Other Real Estate Owned:
The $1.9 million balance of other real estate owned represents a hotel
property acquired in the fourth quarter of 2001. The appraisal for the property
(commercial real estate), indicates a market value that exceeds its carrying
value at June 30, 2002.
13
Deposits:
Deposits, which include non-interest and interest-bearing demand
deposits, money market, savings and time deposits, are the Banks' primary source
of funding. Deposits are generally solicited from the Company's primary market
area through a variety of products to attract and retain customers, with a
primary focus on multi-product relationships.
Total deposits increased by $18.7 million, or 4.2% to $465.9 million at
June 30, 2002, from $447.2 million at December 31, 2001. Core deposits, which
include demand, money market and savings accounts, increased by $26.2 million,
or 13.3% to $223.1 million at June 30, 2002, versus $196.9 million at the prior
year-end. Deposit growth has benefited from the Company's business development
efforts and bank consolidations in the Philadelphia market that left some
customers underserved. Time deposits decreased $7.5 million, or 3.0% to $242.8
million at June 30, 2002, versus $250.3 million at the prior year-end. The
decrease reflected the Company's strategy of allowing higher costing time
deposits to mature and not be replaced.
Other Borrowings:
Other borrowings are comprised primarily of FHLB borrowings. These
borrowings are used primarily to fund asset growth not supported by deposit
generation. Other borrowings declined by $17.5 million to $125.0 million at June
30, 2002, from $142.5 million at December 31, 2001, due to the maturity of two
FHLB advances.
Shareholders' Equity:
Total shareholders' equity increased $3.2 million to $50.1 million at
June 30, 2002, versus $46.8 million at December 31, 2001. This increase was the
result of year-to-date 2002 net income of $1.8 million and an increase in the
market value of available for sale securities of $1.3 million.
14
Three Months Ended June 30, 2002 Compared to June 30, 2001
- ----------------------------------------------------------
Results of Operations:
Overview
The Company's net income increased $282,000, or 44.1% to $921,000, or
$0.14 per diluted share for the three months ended June 30, 2002, compared to
$639,000, or $0.10 per diluted share for the prior year comparable period. The
increase reflected improvements in both net interest and non-interest income.
Between those periods, the Company increased its average commercial and
construction loans 9.4% and increased its average lower cost core deposits
15.6%. The Company also added the short-term consumer loan product in the second
quarter of 2001. These items had a favorable impact on net interest income.
Non-interest income was favorably impacted by the growth of the tax refund
products. However, the increase in net interest income implied by loan and core
deposit growth was partially offset by the effect of interest rate reductions of
475 basis points in 2001, which continued to impact the current year. Also
partially offsetting the impact of these increases were a larger provision for
loan losses and higher operating expenses. However, the ongoing repricing of
certificates of deposit in a lower interest rate environment continues to
contribute positively to the margin. The increased net income resulted in a
return on average assets and average equity of .56% and 7.65% respectively,
compared to .40% and 5.63% respectively for the same period in 2001.
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
June 30, 2002 June 30, 2001
------------------------------------------------- ------------------------------------------------
Interest-earning assets:
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate
--------------- ------------- ------------- ------------------- ------------ ------------
Federal funds sold
and other interest-
earning assets 50,909 224 1.76% 35,737 404 4.53%
Securities 111,265 1,625 5.84% 151,748 2,330 6.14%
Loans receivable 467,343 9,387 8.05% 437,673 9,472 8.68%
--------------- ------------- ------------- ------------------- ------------ ------------
Total interest-earning assets 629,517 11,236 7.15% 625,158 12,206 7.82%
Other assets 25,516 22,385
--------------- -------------------
Total assets $ 655,033 $ 647,543
=============== ===================
Interest-bearing liabilities:
Demand-non interest
bearing $ 55,253 $ 47,963
Demand interest-bearing 44,183 120 1.09% 31,650 145 1.84%
Money market & savings 105,516 450 1.71% 97,330 809 3.33%
Time deposits 260,318 2,427 3.74% 270,796 4,255 6.30%
--------------- ------------- ------------- ------------------- ------------ ------------
Total deposits 465,270 2,997 2.58% 447,739 5,209 4.67%
Total interest-bearing
deposits 410,017 2,997 2.93% 399,776 5,209 5.23%
--------------- ------------- ------------- ------------------- ------------ ------------
Other borrowings 134,212 2,097 6.27% 145,467 2,241 6.18%
--------------- ------------- ------------- ------------------- ------------ ------------
Total interest-bearing
liabilities $ 544,229 $5,094 3.75% 545,243 7,450 5.48%
=============== ============= ============= =================== ------------ ------------
Total deposits and
other borrowings 599,482 5,094 3.41% 593,206 7,450 5.04%
--------------- ------------- ------------- ------------------- ------------ ------------
Noninterest-bearing
liabilites 7,351 9,992
Shareholders' equity 48,200 44,345
--------------- -------------------
Total liabilities and
shareholders' equity $ 655,033 $ 647,543
=============== ===================
Net interest income $6,142 $4,756
============= ============
Net interest spread 3.75% 2.79%
============= ============
Net interest margin 3.91% 3.05%
============= ============
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 June 30,
2002 versus 2001
(dollars in thousands)
Due to change in:
Volume Rate Total
------------------- ------------- --------------------
Interest earned on:
Federal funds sold $ 67 $ (247) $ (180)
Securities (585) (120) (705)
Loans 1,378 (1,463) (85)
- -----------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 860 (1,830) (970)
Interest Expense of
Deposits
Interest-bearing demand deposits (34) 59 25
Money market and savings (35) 394 359
Time deposits 98 1,730 1,828
- -----------------------------------------------------------------------------------------------------------------------
Total deposit interest expense 29 2,183 2,212
Other borrowings 176 (32) 144
- -----------------------------------------------------------------------------------------------------------------------
Total interest expense 205 2,151 2,356
- -----------------------------------------------------------------------------------------------------------------------
Net interest income $ 1,065 $ 321 $ 1,386
- -----------------------------------------------------------------------------------------------------------------------
The Company's net interest margin increased 86 basis points to 3.91% for
the three months ended June 30, 2002, versus the prior year comparable period.
The improvement reflected the 9.4% average growth in commercial and construction
loans, the 15.6% increase in average lower costing core deposits (demand, money
market and savings accounts), the repricing of certificates of deposit in the
lower rate environment and the growth of the short-term consumer loan program
fees. Fees on short-term consumer loans, first offered in the second quarter of
2001, contributed $1.3 million to interest income and 87 basis points to the net
interest margin in 2002 and contributed $519,000 to interest income and 34 basis
points to the net interest margin in the second quarter of 2001. The Company was
negatively impacted by the 475 basis point decline in the prime interest rate
during the year 2001 which immediately impacted the yield on interest-earning
assets, especially loans tied to the prime rate of interest. The repricing of
loans generally took effect in advance of the repricing of certificates of
deposit. The average yield on interest-earning assets declined 67 basis points
to 7.15% for the three months ended June 30, 2002, from 7.82% for the prior year
comparable period due principally to the decline in the prime rate of interest.
This decline reflected the impact of the lower interest rate environment which
was partially offset by higher yields on short-term consumer loans. Overall, the
average rate paid on interest-bearing liabilities decreased 173 basis points to
3.75% for the for the three months ended June 30, 2002, from 5.48% in the prior
year comparable period reflecting the lower interest rate environment.
The Company's net interest income increased $1.4 million, or 29.1%, to
$6.1 million for the three months ended June 30, 2002, from $4.8 million for the
17
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 volume changes
of approximately $1.1 million with a $321,000 increase reflecting deposits
repricing to lower rates. The positive impact of volume changes reflected the
increases in average commercial and construction loans, lower cost core deposits
and the short-term consumer loans discussed previously. Average interest-earning
assets increased $4.4 million, to $629.5 million for the three months ended June
30, 2002, from $625.2 million for the prior year comparable period.
The Company's total interest income decreased $970,000, or 8.0%, to
$11.2 million for the three months ended June 30, 2002, from $12.2 million for
the prior year comparable period, reflecting the lower interest rate
environment. The lower interest rates earned on interest-earning assets resulted
in a $1.8 million decline in interest income. Partially offsetting that decline
was the positive effect of volume changes in commercial and consumer loans which
resulted in a $860,000 increase in interest income. Interest and fees on loans
decreased $85,000, to $9.4 million for the three months ended June 30, 2002,
from $9.5 million for the prior year comparable period. The decline reflected a
lower rate earned on average loans resulting from the lower rate environment.
This was partially offset by the short-term consumer loan product, which
contributed $1.3 million in interest income versus $519,000 in the second
quarter of 2001. The impact of the lower prime rate was the principal factor
reducing the yield on loans 63 basis points to 8.05%. Interest and dividend
income on securities decreased $705,000 to $1.6 million for the three months
ended June 30, 2002, from $2.3 million for the prior year comparable period.
This decline was due principally to the $40.5 million, or 26.7% decrease in
average securities outstanding to $111.3 million at June 30, 2001 from $151.7
million for the prior year period. In addition, the average rate earned on
securities declined 30 basis points to 5.84% 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. Proceeds from
these securities were utilized to reduce FHLB borrowings or were invested as
federal funds sold. Interest income on federal funds sold and other
interest-earning assets decreased $180,000, reflecting the lower interest rate
environment.
The Company's total interest expense decreased $2.4 million, or 31.6%, to
$5.1 million for the three months ended June 30, 2002, from $7.5 million for the
prior year comparable period, due principally to the lower rate environment.
Interest-bearing liabilities averaged $544.2 million for the three months ended
June 30, 2002, versus $545.2 million for the prior year comparable period.
Average interest-bearing lower cost core deposits increased $20.7 million, while
higher cost time deposits and other borrowings declined $10.5 million and $11.3
million, respectively. Both factors contributed to a reduction in interest
expense. The average rate paid on interest-bearing liabilities decreased 173
basis points to 3.75% for the three months ended June 30, 2002, due to the
decrease in average rates paid on deposit products as a result of the lower
interest rate environment.
Interest expense on time deposits (certificates of deposit) decreased
$1.8 million, or 43%, to $2.4 million at June 30, 2002, from $4.3 million for
the prior year comparable period. This increase reflected the lower interest
rate environment as the average rate declined 256 basis points to 3.74%. In
addition, average certificates of deposit outstanding decreased $10.5 million,
or 3.9%, to $260.3 million, for the three months ended June 30, 2002, from
$270.8 million as higher cost time deposits matured and were not replaced.
Interest expense on other borrowings, which consist of FHLB advances
and the trust preferred securities, decreased $144,000 or 6.5% to $2.1 million
for the for the three months ended June 30, 2002, compared to $2.2 million for
the prior year comparable period. This decrease resulted from a $11.3 million,
or 7.7% decline in average other borrowings to $134.2 million at June 30, 2002,
versus $145.5 million for the prior year comparable. 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 November 2001, the
expense for which is included in other borrowings expense. These expenses were
$98,000 for the three months ended June 30, 2002.
18
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 $628,000 to $1.2 million for the three months ended June 30,
2002, from $620,000 for the prior year comparable period. This increase
reflected additional provisions based on regulatory classifications as detailed
in the Company's Annual Report on Form 10K for 2001. In addition, the short-term
consumer loan program, first offered in the second quarter of 2001, had
provisions of $398,000 in the second quarter of 2002 versus $190,000 in the
second quarter of 2001. Finally, provisions reflected loan growth and other
elements of the Company's loan loss methodology. (See "Allowance for Loan
Losses")
Non-Interest Income
Total non-interest income increased $509,000, or 90.7% to $1.1 million
for the three months ended June 30, 2002, versus $561,000 for the prior year
comparable period due primarily to increased revenue reflecting a greater volume
of tax refund products.
Non-Interest Expenses
Total non-interest expenses increased $752,000, or 20.1% to $4.5 million
for the three months ended June 30, 2002, from $3.7 million for the prior year
comparable period. Salaries and employee benefits increased $219,000 or 10.8%,
to $2.2 million for the three months ended June 30, 2002, from $2.0 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 expenses increased $29,000 to $363,000 for the three months
ended June 30, 2002, versus $334,000 for the prior year comparable period due to
rent and repairs and maintenance increases.
Legal fees increased $338,000 to $382,000 for the for the three months
ended June 30, 2002, from $44,000 for the prior year comparable period. This
increase reflected legal expenses related to loan collections and legal expenses
associated with the short-term loan and tax refund programs.
Advertising expense declined $58,000, or 37.2% to $98,000 as the company
reduced the number of advertisements during the year.
Other operating expenses increased $220,000, or 23.0% to $1.2 million for
the for the three months ended June 30, 2002, from $1.0 million for the prior
year comparable period. This increase reflected the write off a receivable of
approximately $200,000.
Provision for Income Taxes
The provision for income taxes increased $232,000, or 73.9%, to $546,000
for the three months ended June 30, 2002, from $314,000 for the prior year
comparable period. This increase was primarily the result of the increase in
pre-tax income. The effective tax rate was 37.2% for the three months ended June
30, 2002, versus 33.0% for the prior year comparable period due to an increase
in state income tax expense.
19
Six Months Ended June 30, 2002 Compared to June 30, 2001
- --------------------------------------------------------
Results of Operations:
Overview
The Company's net income increased $409,000, or 29.2% to $1.8 million,
or $0.28 per diluted share for the six months ended June 30, 2002, compared to
$1.4 million, or $0.22 per diluted share for the prior year comparable period.
The increase reflected improvements in both net interest and non-interest
income. Between those periods, the Company increased its average commercial and
construction loans 10.8% and increased its average lower cost core deposits
20.4%. The Company also benefited from the full period effect of the short-term
consumer loan product, first offered in the second quarter of 2001. These items
had a favorable impact on net interest income. Non-interest income was favorably
impacted by the growth of the tax refund products. However, the increase in net
interest income implied by loan and core deposit growth was partially offset by
the effect of interest rate reductions of 475 basis points in 2001, which
continued to impact the current year. Also, partially offsetting the impact of
these increases were a larger provision for loan losses and higher legal and
operating expenses. However, the ongoing repricing of certificates of deposit in
a lower interest rate environment continues to contribute positively to the
margin. The increased net income resulted in a return on average assets and
average equity of .55% and 7.64% respectively, compared to .43% and 6.25%
respectively for the same period in 2001.
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.
20
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate
------------------ ------------- ------------- ------------------- ------------ ------------
For the six months ended For the six months ended
Interest-earning assets: June 30, 2002 June 30, 2001
------------------------------------------------- -------------------------------------------------
Federal funds sold
and other interest-
earning assets 45,162 393 1.75% 40,580 1,057 5.25%
Securities 115,785 3,371 5.82% 157,862 4,929 6.24%
Loans receivable 467,253 18,920 8.16% 431,246 18,622 8.70%
------------------ ------------- ------------- ------------------- ------------ ------------
Total interest-earning assets 628,200 22,684 7.27% 629,688 24,608 7.86%
Other assets 31,128 25,092
------------------ -------------------
Total assets $ 659,328 $ 654,780
================== ===================
Interest-bearing liabilities:
Demand-non interest
bearing 58,172 - 47,179
Demand interest-bearing 45,968 241 1.06% 32,225 295 1.85%
Money market & savings 100,804 795 1.59% 90,871 1,714 3.80%
Time deposits 256,696 5,189 4.08% 273,307 8,687 6.41%
------------------ ------------- ------------- ------------------- ------------ ------------
Total deposits 461,640 6,225 2.72% 443,582 10,696 4.86%
Total interest-bearing
deposits 403,468 6,225 3.11% 396,403 10,696 5.44%
------------------ ------------- ------------- ------------------- ------------ ------------
Other borrowings 140,235 4,317 6.21% 157,212 4,782 6.13%
------------------ ------------- ------------- ------------------- ------------ ------------
Total interest-bearing
liabilities $ 543,703 $10,542 3.91% 553,615 15,478 5.64%
================== ============= ============= =================== ============ ============
Total deposits and
other borrowings 601,875 10,542 3.53% 600,794 15,478 5.20%
---------------------------------- ------------- ------------------- ------------ ------------
Noninterest-bearing
liabilites 9,797 9,977
Shareholders' equity 47,656 44,009
------------------ -------------------
Total liabilities and
shareholders' equity $ 659,328 $ 654,780
================== ===================
Net interest income $12,142 $ 9,130
============= ============
Net interest spread 3.74% 2.67%
============= ============
Net interest margin 3.88% 2.90%
============= ============
21
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
Six months ended June 30,
2002 versus 2001
(dollars in thousands)
Due to change in:
Volume Rate Total
------------------- ------------- --------------------
Interest earned on:
Federal funds sold $ 40 $ (704) $ (664)
Securities (1,225) (333) (1,558)
Loans 3,526 (3,228) 298
- -----------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 2,341 (4,265) (1,924)
Interest Expense of
Deposits
Interest-bearing demand deposits (72) 126 54
Money market and savings (78) 997 919
Time deposits 336 3,162 3,498
- -----------------------------------------------------------------------------------------------------------------------
Total deposit interest expense 186 4,285 4,471
Other borrowed funds 523 (58) 465
- -----------------------------------------------------------------------------------------------------------------------
Total interest expense 709 4,227 4,936
- -----------------------------------------------------------------------------------------------------------------------
Net interest income $ 3,050 $ (38) $ 3,012
- -----------------------------------------------------------------------------------------------------------------------
The Company's net interest margin increased 98 basis points to 3.88% for
the six months ended June 30, 2002, versus the prior year comparable period. The
improvement reflected the 10.8% average growth in commercial and construction
loans, the 20.4% increase in average lower cost core deposits (demand, money
market and savings accounts), the repricing of certificates of deposit in the
lower rate environment and the full year impact of the short-term consumer loan
fees. Fees on short-term consumer loans, first offered in the second quarter of
2001, contributed $2.8 million to interest income and contributed 88 basis
points to the margin in 2002 versus $519,000 and 16 basis points to the margin
in 2001. The Company continues to be negatively impacted by the 475 basis point
decline in the prime interest rate during the year 2001 which immediately
impacted the yield on interest-earning assets, especially loans tied to the
prime rate of interest. The repricing of loans generally took effect in advance
of the Banks repricing of certificates of deposit. The average yield on
interest-earning assets declined 59 basis points to 7.27% for the six months
ended June 30, 2002, from 7.86% for the prior year comparable period due
principally to the decline in prime rate partially offset by the higher yielding
short-term consumer loans. The average rate paid on interest-bearing liabilities
decreased 173 basis points to 3.91% for the for the six months ended June 30,
2002, from 5.64% in the prior year comparable period reflecting the lower
interest rate environment.
The Company's net interest income increased $3.0 million, or 33.0%, to
$12.1 million for the six months ended June 30, 2002, from $9.1 million for the
prior year comparable period. As shown in the Rate Volume table above, the
increase in net interest income was due primarily to the positive effect of
volume changes of approximately $3.1 million, partially offset by a $38,000
22
decline in net interest income resulting from the lower rate environment. The
positive impact of volume changes reflected the increases in average commercial
and construction loans and the short-term consumer loans discussed previously.
Average interest-earning assets decreased $1.5 million, to $628.2 million for
the for the six months ended June 30, 2002, from $629.7 million for the prior
year comparable period as the Company used cash from the maturities and
prepayments of securities to reduce other borrowings.
The Company's total interest income decreased $1.9 million, or 7.8%, to
$22.7 million for the six months ended June 30, 2002, from $24.6 million for the
prior year comparable period, reflecting the lower interest rate environment.
That decrease reflected a $4.3 million decline in interest income due to rate
which was partially offset by the positive effect of volume changes in
commercial and consumer loans of $2.3 million. Interest and fees on loans
increased $298,000, or 1.6%, to $18.9 million for the for the six months ended
June 30, 2002, from $18.6 million for the prior year comparable period. This
increase reflected an increase in average loans, primarily in commercial and
construction loans, of $36.0 million, or 8.4% to $467.3 million and the addition
of the short-term consumer loan product, which contributed $2.8 million in
interest income versus $519,000 in the first six months of 2001. The impact of
the lower prime rate was the principal factor reducing the yield on loans 54
basis points to 8.16%. Interest and dividend income on securities decreased $1.6
million to $3.4 million for the six months ended June 30, 2002, from $4.9
million for the prior year comparable period. This decline was due principally
to the $42.1 million, or 26.7% decrease in average securities outstanding to
$115.8 million at June 30, 2001 from $157.9 million for the prior year period.
In addition, the average rate earned on securities declined 42 basis points to
5.82% 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. Proceeds from these securities were utilized to reduce FHLB
borrowings. Interest income on federal funds sold and other interest-earning
assets decreased $664,000, reflecting the lower interest rate environment.
The Company's total interest expense decreased $4.9 million, or 31.9%, to
$10.5 million for the six months ended June 30, 2002, from $15.5 million for the
prior year comparable period, due principally to the lower rate environment.
Interest-bearing liabilities averaged $543.7 million for the for the six months
ended June 30, 2002, a decrease of $9.9 million, or 1.8%, from $553.6 million
for the prior year comparable period. The decline resulted from lower average
borrowings and certificates of deposit. The average rate paid on
interest-bearing liabilities decreased 173 basis points to 3.91% for the six
months ended June 30, 2002, due to the decrease in average rates paid on deposit
products as a result of the lower interest rate environment.
Interest expense on time deposits (certificates of deposit) decreased
$3.5 million, or 40.3%, to $5.2 million at June 30, 2002, from $8.7 million for
the prior year comparable period. This decrease reflected the lower interest
rate environment as the average rate declined 233 basis points to 4.08%. In
addition, average certificates of deposit outstanding decreased $16.6 million,
or 6.1%, to $256.7 million, for the six months ended June 30, 2002, from $273.3
million for the prior year comparable period as the Company was able to increase
its lower cost core deposits.
Interest expense on other borrowings, which consist of FHLB advances
and trust preferred securities, decreased $465,000 or 9.7% to $4.3 million for
the for the six months ended June 30, 2002, compared to $4.8 million for the
prior year comparable period. This decrease resulted from a $17.0 million, or
10.8% decline in average other borrowings to $140.2 million at June 30, 2002,
versus $157.2 million for the prior year comparable. The decline in average
other borrowings reflected increased deposit generation and securities
maturities and prepayments. The Company issued $6.0 million of trust preferred
securities in November 2001, the expense for which is included in other
borrowings expense. (See "Capital Resources"). These expenses were $194,000 for
the six months ended June 30, 2002.
23
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 $1.8 million to $2.5 million for the six months ended June 30,
2002, from $777,000 for the prior year comparable period. This increase
reflected additional provisions based on regulatory classifications as detailed
in the Company's Annual Report on Form 10K for 2001. In addition, the short-term
consumer loan program, first offered in the second quarter of 2001, had
provisions of $919,000 in the year 2002 versus $210,000 in 2001. Finally,
provisions also reflected loan growth and other elements of the Company's loan
loss methodology. (See "Allowance for Loan Losses")
Non-Interest Income
Total non-interest income increased $645,000, or 47.5% to $2.0 million
for the six months ended June 30, 2002, versus $1.4 million for the prior year
comparable period reflecting increased revenue resulting from a greater volume
of tax refund products.
Non-Interest Expenses
Total non-interest expenses increased $1.1 million, or 14.9% to $8.8
million for the for the six months ended June 30, 2002, from $7.6 million for
the prior year comparable period. Salaries and employee benefits increased
$443,000 or 11.0%, to $4.5 million for the for the six months ended June 30,
2002, from $4.0 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.
Legal fees increased $609,000 to $727,000 for the for the six months ended
June 30, 2002, from $118,000 for the prior year comparable period. This increase
reflected legal expenses related to loan collections and legal costs related to
the short-term loan and tax refund product programs.
Advertising expense declined $45,000, or 14.8% to $259,000 as the company
reduced the number of advertisements this year.
Other operating expenses increased $66,000, or 3.3% to $2.1 million for
the for the six months ended June 30, 2002, from $2.0 million for the prior year
comparable period.
Provision for Income Taxes
The provision for income taxes increased $364,000, or 52.7%, to $1.1
million for the six months ended June 30, 2002, from $690,000 for the prior year
comparable period. This increase was primarily the result of the increase in
pre-tax income. The effective tax rate was 36.8% for the six months ended June
30, 2002, versus 33.0% for the prior year comparable period due to an increase
in state income tax expense.
24
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 $75.6 million at June 30, 2002. 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 $67.5 million and $57.7
million and standby letters of credit of approximately $8.1 million and $5.3
million at June 30, 2002, and December 31, 2001, 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 June 30, 2002, 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 $151.9 million, which
represented 31.9% of gross loans receivable at June 30, 2002. 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.
25
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 2001 Annual Report on
Form 10-K filed with the SEC.
Regulatory Matters
The following table presents the Company's capital regulatory ratios at
June 30, 2002, and December 31, 2001:
Actual For Capital To be well
Adequacy purposes capitalized under FRB
capital guidelines
Amount Ratio Amount Ratio Amount Ratio
------------- ------------ ------------- ----------- ----------- -----------
Dollars in thousands
At June 30, 2002
Total risk based capital
Republic First Bank $52,245 13.03% $32,083 8.00% $40,103 10.00%
First Bank of Delaware 6,018 28.15% 1,710 8.00% 2,138 10.00%
Republic First Bancorp, 60,176 14.25% 33,791 8.00% 42,239 N/A
Inc.
Tier one risk based capital
Republic First Bank 47,215 11.77% 16,041 4.00% 24,062 6.00%
First Bank of Delaware 5,749 26.89% 855 4.00% 1,283 6.00%
Republic First Bancorp, 54,877 12.99% 16,896 4.00% 25,343 N/A
Inc.
Tier one leveraged capital
Republic First Bank 47,215 7.64% 30,882 5.00% 30,882 5.00%
First Bank of Delaware 5,749 13.82% 2,081 5.00% 2,081 5.00%
Republic First Bancorp, 54,877 8.38% 32,743 5.00% 32,743 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, 2001
Total risk based capital
Republic First Bank $51,000 12.96% $31,493 8.00% $39,366 10.00%
First Bank of Delaware 5,288 23.13% 1,829 8.00% 2,286 10.00%
Republic First Bancorp, Inc. 58,151 13.98% 33,275 8.00% 41,594 N/A
Tier one risk based capital
Republic First Bank 46,078 11.70% 15,747 4.00% 23,620 6.00%
First Bank of Delaware 5,001 21.87% 915 4.00% 1,372 6.00%
Republic First Bancorp, Inc. 52,949 12.73% 16,638 4.00% 24,957 N/A
Tier one leveraged capital
Republic First Bank 46,078 7.46% 30,884 5.00% 30,884 5.00%
First Bank of Delaware 5,001 12.74% 1,963 5.00% 1,963 5.00%
Republic First Bancorp, Inc. 52,949 8.07% 32,793 5.00% 32,793 N/A
26
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.
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 $49.3 million at June 30, 2002,
compared to $41.4 million at December 31, 2001, due to an increase in federal
funds sold. Loan maturities and repayments are a primary source of asset
liquidity. At June 30, 2002, 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
December 31, 2002. Additionally, the majority of its securities are available to
satisfy liquidity requirements through pledges to the 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 and
utilizing the facilities of the Federal Home Loan Bank System. At June 30, 2002,
the Bank had $161.0 million in unused lines of credit available under
arrangements with correspondent banks compared to $162.5 million at December 31,
2001. 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 June 30, 2002, the Company had aggregate outstanding commitments
(including unused lines of credit and letters of credit) of $75.6 million.
Certificates of deposit scheduled to mature in one year totaled $170.9 million
at June 30, 2002, 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 June
30, 2002. Additionally, the Bank has established a line of credit with the
Federal Home Loan Bank of Pittsburgh with a maximum borrowing capacity of
approximately $276.0 million. As of June 30, 2002, and December 31, 2001, the
Company had borrowed $125.0 million and $142.5 million, respectively, under its
lines of credit. Securities also represent a primary source of liquidity for the
Bank. Accordingly, investment decisions generally reflect liquidity over other
considerations.
27
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, most likely as
collateral for FHLB advances. Because of the FHLB's AAA 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.
Securities Portfolio
At June 30, 2002, 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 $103.5 million and $104.9 million as of
June 30, 2002, respectively. The net unrealized gain on securities available for
sale as of that date was $1.4 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, consumer
and other 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 $8.5 million at June 30, 2002. Individual
customers may have several loans often secured by different collateral. The
aggregate amount of such loans that were in excess of $5,000,000 at June 30,
2002, was $33.6 million.
The Company's net loans increased $5.6 million, to $469.4 million at
June 30, 2002 from $463.9 million at December 31, 2001.
The following table sets forth the Company's gross loans by major categories for
the periods indicated:
28
(dollars in thousands) As of June 30, 2002 As of December 31, 2001
------------------------------------------------------------------------------
Balance % of Total Balance % of Total
------------------------------------------------------------------------------
Commercial:
Real estate secured $ 334,307 70.2 $ 321,579 68.5
Non real estate secured 51,215 10.8 53,388 11.4
Unsecured 10,470 2.2 7,229 1.5
------------------------------------------------------------------------------
395,992 83.2 382,196 81.4
Residential real estate 61,623 12.9 67,821 14.5
Consumer, short-term & other 18,636 3.9 19,302 4.1
------------------------------------------------------------------------------
Total loans 476,251 100.0% 469,319 100.0%
Less allowance for loan losses (6,807) (5,431)
---------------- ------------------
Net loans $ 469,444 $ 463,888
================ ==================
Credit Quality
The Banks' written lending policies require underwriting, loan
documentation and credit analysis standards to be met prior to funding, with a
senior loan officer review of all loan applications. 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.
29
The following summary shows information concerning loan delinquency and other
non-performing assets at the dates indicated.
June 30, December 31,
2002 2001
---------------------------------------------
(dollars in thousands)
Loans accruing, but past due 90 days or more $3,967 $518
Non-accrual loans 5,768 3,830
---------------------------------------------
Total non-performing loans (1) 9,735 4,348
Other real estate owned 1,858 1,858
---------------------------------------------
Total non-performing assets (2) $11,593 $6,206
=============================================
Non-performing loans as a percentage of total
loans net of unearned
Income 2.04% 0.93%
Non-performing assets as a percentage of total
assets 1.77% 0.95%
<FN>
(1) Non-performing loans are comprised of (i) loans that are on a
nonaccrual basis; (ii) accruing loans that are 90 days or more past due
and (iii) restructured loans.
(2) Non-performing assets are composed of non-performing loans and other
real estate owned (assets acquired in foreclosure).
</FN>
Total non-performing loans increased $5.4 million to $9.7 million at
June 30, 2002. The increase in loans over 90 days past due reflected loans to
two different borrowers. The increase in non-accrual loans, resulted from a loan
to one borrower classified as non-accrual in the second quarter of 2002.
The recorded investment in impaired loans totaled $5.3 million and
$4.3 million at June 30, 2002, and December 31, 2001, respectively, and the
amount of such valuation allowances were $734,000 and $288,000, respectively.
There were no commitments to extend credit to any borrowers with impaired loans
as of the end of the periods presented herein.
At June 30, 2002, and December 31, 2001, internally classified substandard
loans totaled approximately $13.5 million and $8.7 million respectively; and for
doubtful loans totaled approximately $2.7 million and $62,000, respectively.
There were no loans classified as loss at those dates. The increase in doubtful
loans represent loans to one borrower which were classified as doubtful and
placed in non-accrual status in the second quarter of 2002.
The Bank had delinquent loans as follows: (i) 30 to 59 days past due, at
June 30, 2002 and December 31, 2001, in the aggregate principal amount of $1.0
million and $6.1 million respectively; and (ii) 60 to 89 days past due, at June
30, 2002 and December 31, 2001, in the aggregate principal amount of $1.0
million and $853,000 respectively.
At June 30, 2002, 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 $151.9 million, which
30
represented 31.9% of gross loans receivable at December 31, 2001. 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. Potential problem loans
consist of loans that are included in performing loans, but for which potential
credit problems of the borrowers have caused management to have serious doubts
as to the ability of such borrowers to continue to comply with present repayment
terms. At June 30, 2002, all identified problem loans are included in the
preceding table with the exception of loans classified as substandard but still
accruing which totaled $6.9 million as of June 30, 2002.
Other Real Estate Owned:
Other real estate owned ("OREO") is initially recorded at the lower or
cost or estimated fair value, net of estimated selling costs at the date of
foreclosure. After foreclosure, management periodically performs valuations and
any subsequent deteriorations in fair value, and all other revenue and expenses
are charged against operating expenses in the period in which they occur.
Currently, the Company has one OREO property which consists of a hotel property
acquired in the fourth quarter of 2001.
The Company had no credit exposure to "highly leveraged transactions"
at June 30, 2002, as defined by the Federal Reserve Bank.
31
Allowance for Loan Losses
An analysis of the Company's allowance for loan losses for the six
months ended June 30, 2002, and 2001, and the twelve months ended December 31,
2001 is as follows:
For the six months For the twelve months For the six months
ended ended ended
(dollars in thousands) June 30, 2002 December 31, 2001 June 30, 2001
---------------------- ----------------------- -----------------------
Balance at beginning of period ............ $ 5,431 $ 4,072 $ 4,072
Charge-offs:
Commercial ............................. 91 2,074 7
Consumer and short-term ................ 1,071 805 111
-------- -------- --------
Total charge-offs ................... 1,162 2,879 118
-------- -------- --------
Recoveries:
Commercial ............................. 9 257 10
Consumer ............................... -- 17 17
-------- -------- --------
Total recoveries .................... 9 274 27
-------- -------- --------
Net charge-offs ........................... 1,153 2,605 91
-------- -------- --------
Provision for loan losses ................. 2,529 3,964 777
-------- -------- --------
Balance at end of period ............... $ 6,807 $ 5,431 $ 4,758
======== ======== ========
Average loans outstanding (1)........... $467,253 $448,397 $431,246
======== ======== ========
As a percent of average loans (1):
Net charge-offs/Recoveries............... 0.25% 0.58% -%
Provision for loan losses................. 0.54% 0.88% 0.18%
Allowance for loan losses................ 1.46% 1.21% 1.10%
Allowance for loan losses to:
Total loans, net of unearned income at
period end.............................. 1.43% 1.16% 1.07%
Total non-performing loans at period
end..................................... 69.93% 124.89% 56.19%
<FN>
(1) Includes nonaccruing loans.
</FN>
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, historic 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.
The Company has an existing loan review program, which monitors the loan
portfolio on an ongoing basis. Loan review is conducted by a loan review officer
and is reported quarterly to the Board of Directors.
Estimating the appropriate level of the allowance for loan losses at any
given date is difficult, particularly in a continually changing economy. In
32
management's opinion, the allowance for loan losses was appropriate at June 30,
2002. 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.
It is impractical to determine in which 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 June 30, 2002 At December 31, 2001
---------------- --------------------
Percent of Loans Percent of Loans
Amount In Each Category Amount (in In Each Category
(in 000's) To Loans 000's) to Loans
Allocation of allowance for loan losses:
Commercial $6,130 83.2% $4,814 81.4%
Residential real estate 184 12.9% 203 14.5%
Consumer, short-term and other 146 3.9% 182 4.1%
Unallocated 347 -% 232 -%
-----------------------------------------------------------------------
Total $6,807 100.00% $5,431 100.00%
================== ===============
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 June 30, 2002, loans made for commercial and construction,
residential mortgage and consumer purposes, respectively, amounted to $396.0
million, $61.6 million and $18.6 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 over a one year time horizon in order to protect net interest income
from being affected by wide interest rate fluctuations.
33
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 its legal counsel, is of the opinion that the liability of
the Company and the Banks, if any, resulting from such actions will not have a
material effect on the financial condition or results of operations of the
Company and the Banks.
The Delaware Bank was sued alleging violations of the Truth In Lending
Act, Federal Reserve Board Regulation Z and Indiana state law governing maximum
interest rates relating to short-term consumer loans. Because Delaware state law
permits rates to be determined by the open market and has been previously upheld
to preempt laws of states which regulate interest rates, legal counsel has
opined that the Delaware Bank is acting in accordance with applicable law. The
Delaware Bank's marketer, also named in the suit, is required to pay all defense
costs, and to indemnify the Bank against any resulting legal liability.
Item 2: Changes in Securities and Use of Proceeds
-----------------------------------------
None
Item 3: Defaults upon Senior Securities
-------------------------------
None
Item 4: Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5: Other Information
-----------------
Certification Under Sarbanes-Oxley Act
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.
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)
34
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 (the
"Delaware Bank"), which also is a wholly-owned subsidiary of the
Company, commenced operations on June 1, 1999. The Delaware Bank
is a commercial bank chartered pursuant to the laws of the State
of Delaware. The Bank and the Delaware Bank are both members of
the Federal Reserve System and their primary federal regulators
are the Federal Reserve Board of Governors.
All other schedules and exhibits are omitted because they are not
applicable or because the required information is set out in the financial
statements or the notes hereto.
**Incorporated by reference in the Company's Form 10-K, filed February
28, 2002.
Reports on Form 8-K and 8-KA
None.
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Issuer has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Republic First Bancorp, Inc.
/s/ Harry D. Madonna
Harry D. Madonna
President and Chief Executive Officer
/s/ Paul Frenkiel
Paul Frenkiel
Executive Vice President and Chief Financial Officer
Dated: August 14, 2002
36