Republic First 10-K
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K/A
(Amendment
No. 1)
(Mark
One)
[
X
] ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(fee
required)
For
the
fiscal year ended December 31, 2005
OR
[
] TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(no
fee required)
For
the
transition period from _________________________ to
___________________________
Commission
file number: 000-17007
REPUBLIC
FIRST BANCORP, INC.
(Exact
name of registrant as specified in charter)
Pennsylvania
|
|
23-2486815
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
1608
Walnut Street, Suite 1000, Philadelphia, PA
|
|
19103
|
(Address
of Principal Executive offices)
|
|
(Zip
Code)
|
Issuer’s
telephone number, including area code: (215) 735-4422
Securities
registered pursuant to Section 12(b) of the Act: None.
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, $0.01 par value
(Title
of
class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
YES
____ NO X
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15 (d) of the Act.
YES
____ NO X
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 such filing requirements
for
the past 90 days.
YES
X
NO ____
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K [ X ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ___ Accelerated
filer X Non-accelerated
filer ____
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES
____ NO X
State
the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was
last sold, or the average bid and asked price of such common equity, as of
June
30, 2005. The aggregate market value of $84,470,525 was based on the average
of
the bid and asked prices on the National Association of Securities Dealers
Automated Quotation System on June 30, 2005.
APPLICABLE
ONLY TO CORPORATE REGISTRANTS
Indicate
the number of shares outstanding of each of the Registrant’s classes of common
stock, as of the latest practicable date.
Common
Stock $0.01 Par Value
|
|
8,756,462
|
Title
of Class
|
|
Number
of Shares Outstanding as of March 1,
2006
|
Documents
incorporated by reference
Part
III
incorporates certain information by reference from the registrant’s Proxy
Statement for the 2006 Annual Meeting of Shareholders to be held on April 25,
2006.
EXPLANATION
This
Form
10K-A is being filed for Form 10K for the year ended December 31, 2005,
originally filed on March 16, 2006. It is being filed solely to correct
typographical errors in the signing dates of Grant Thornton’s Report of
Independent Registered Public Accounting Firm and of Exhibit 23.1 - Consent
of
Beard Miller Company LLP, as well as the wording of Exhibits 31.1 and 31.2
-
Certifications pursuant to Commission Rule 13a-14(a) and Section 302 of the
Sarbanes-Oxley Act of 2002.
PART
IV
Item
15: Exhibits
and Financial Statements
A. Financial
Statements
|
(1)
|
Management’s
Report on Internal Control Over Financial
Reporting
|
|
(2)
|
Reports
of Independent Registered Public Accounting
Firms
|
|
(3)
|
Consolidated
Balance Sheets as of December 31, 2005 and
2004
|
|
(4)
|
Consolidated
Statements of Income for the years ended December 31, 2005, 2004
and 2003
|
|
(5)
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2005, 2004
and
2003
|
|
(6)
|
Consolidated
Statements of Changes in Shareholders’ Equity for the years ended December
31, 2005, 2004 and 2003
|
|
(7)
|
Notes
to Consolidated Financial
Statements
|
B. Exhibits
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)
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
thereto.
Exhibit
Number
|
Description
|
Manner
of Filing
|
3.1
|
Amended
and Restated Articles of Incorporation of Republic First Bancorp,
Inc.
|
Incorporated
by reference to Form 10-K Filed March 30, 2005
|
3.2
|
Amended
and Restated By-Laws of Republic First Bancorp, Inc.
|
Incorporated
by reference to Form 10-K Filed March 30, 2005
|
10.1
|
Employment
Contract Between the Company and Harry D. Madonna*
|
Incorporated
by reference to Form 10-Q/A Filed February 7, 2005
|
10.2
|
Amended
and Restated Stock Option Plan and Restricted Stock Plan*
|
Incorporated
by reference to Form S-8 Filed March 26, 2001
|
10.3
|
Deferred
Compensation Plan*
|
Incorporated
by reference to Form 10-Q Filed November 15, 2004
|
10.4
|
Human
Resources and Payroll Services Agreement between Republic First Bank
and
BSC Services Corp. dated January 1, 2005
|
Incorporated
by reference to Form 10-K Filed March 30, 2005
|
10.5
|
Operation
and Data Processing Services Agreement between Republic First Bank
and BSC
Services Corp. dated January 1, 2005
|
Incorporated
by reference to Form 10-K Filed March 30, 2005
|
10.6
|
Compliance
Services Agreement between Republic First Bank and BSC Services Corp.
dated January 1, 2005
|
Incorporated
by reference to Form 10-K Filed March 30, 2005
|
10.7
|
Financial
Accounting and Reporting Services Agreement between Republic First
Bank
and BSC Services Corp. dated January 1, 2005
|
Incorporated
by reference to Form 10-K Filed March 30, 2005
|
21.1
|
Subsidiaries
of the Company
|
Filed
Herewith
|
23.1
|
Consent
of Beard Miller Company LLP
|
Filed
Herewith
|
23.2
|
Consent
of Grant Thornton LLP
|
Filed
Herewith
|
31.1
|
Certification
of Chairman and Chief Executive Officer of Republic First Bancorp,
Inc.
pursuant to Commission Rule 13a-14(a) and Section 302 of the
Sarbanes-Oxley Act of 2002
|
Filed
Herewith
|
31.2
|
Certification
of Executive Vice President and Chief Financial Officer of Republic
First
Bancorp, Inc. pursuant to Commission Rule 13a-14(a) and Section 302
of the
Sarbanes-Oxley Act of 2002
|
Filed
Herewith
|
32.1
|
Certification
under Section 906 of the Sarbanes Oxley Act of Harry D. Madonna.
|
Filed
Herewith
|
32.2
|
Certification
under Section 906 of the Sarbanes Oxley Act of Paul Frenkiel.
|
Filed
Herewith
|
|
|
|
* Constitutes
a compensation agreement or arrangement.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf
by
the undersigned, thereunto duly authorized, in the City of Philadelphia,
Commonwealth of Pennsylvania.
|
|
REPUBLIC
FIRST BANCORP, INC. [registrant]
|
|
|
|
Date: March
14, 2006
|
By:
|
/s/
Harry D. Madonna
|
|
|
Harry
D. Madonna
|
|
|
Chairman,
President and
|
|
|
Chief
Executive Officer
|
|
|
|
Date:
March 14, 2006
|
By:
|
/s/
Paul Frenkiel
|
|
|
Paul
Frenkiel,
|
|
|
Executive
Vice President and
|
|
|
Chief
Financial Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has
been
signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
Date: March
14, 2006
|
/s/
Harris Wildstein, Esq.
|
|
|
|
Harris
Wildstein, Esq., Director
|
|
|
|
|
|
|
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/s/
Neal I. Rodin
|
|
|
|
Neal
I. Rodin, Director
|
|
|
|
|
|
|
|
/s/
Steven J. Shotz
|
|
|
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Steven
J. Shotz, Director
|
|
|
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|
|
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/s/
Harry D. Madonna
|
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|
Harry
D. Madonna, Director and Chairman of the Board
|
|
|
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|
|
|
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/s/
Louis J. DeCesare, Jr.
|
|
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|
Louis
J. DeCesare, Jr., Director
|
|
|
|
|
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/s/
William Batoff
|
|
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William
Batoff, Director
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|
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|
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/s/
Robert Coleman
|
|
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Robert
Coleman, Director
|
|
|
|
|
|
|
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/s/
Barry L. Spevak
|
|
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|
Barry
L. Spevak, Director
|
|
|
|
|
|
|
|
/s/
Lyle W. Hall
|
|
|
|
Lyle
W. Hall, Director
|
|
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
OF
REPUBLIC
FIRST BANCORP, INC.
|
Page
|
Management’s
Report on Internal Control Over Financial Reporting
|
42
|
Reports
of Independent Registered Public Accounting Firms
|
43
|
Consolidated
Balance Sheets as of December 31, 2005 and 2004
|
46
|
Consolidated
Statements of Income for the years ended December 31, 2005, 2004
and
2003
|
47
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2005,
2004 and
2003
|
48
|
Consolidated
Statements of Changes in Shareholders’ Equity for the years ended December
31, 2005, 2004 and 2003
|
49
|
Notes
to Consolidated Financial Statements
|
50
|
Management's
Report on Internal Control Over Financial Reporting
Management
of Republic First Bancorp, Inc. (the “Company”) is responsible for establishing
and maintaining effective internal control over financial reporting. Internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with U.S. generally
accepted accounting principles.
Under
the
supervision and with the participation of management, including the principal
executive officer and principal financial officer, the Company conducted an
evaluation of the effectiveness of internal control over financial reporting
based on the framework in Internal Control - Integrated Framework issued by
the
Committee of Sponsoring Organizations of the Treadway Commission. Based on
this
evaluation under the framework in Internal Control - Integrated Framework,
management of the Company has concluded the Company maintained effective
internal control over financial reporting, as such term is defined in Securities
Exchange Act of 1934 Rules 13a-15(f), as of December 31, 2005.
Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent limitations. Internal
control over financial reporting is a process that involves human diligence
and
compliance and is subject to lapses in judgment and breakdowns resulting from
human failures. Internal control over financial reporting can also be
circumvented by collusion or improper management override. Because of such
limitations, there is a risk that material misstatements may not be prevented
or
detected on a timely basis by internal control over financial reporting.
However, these inherent limitations are known features of the financial
reporting process. Therefore, it is possible to design into the process
safeguards to reduce, though not eliminate, this risk.
Management
is also responsible for the preparation and fair presentation of the
consolidated financial statements and other financial information contained
in
this report. The accompanying consolidated financial statements were prepared
in
conformity with U.S. generally accepted accounting principles and include,
as
necessary, best estimates and judgments by management.
The
consolidated financial statements of the Company have been audited by Beard
Miller Company LLP, an independent registered public accounting firm, who was
engaged to express an opinion as to the fairness of presentation of such
financial statements. In connection therewith, Beard Miller Company LLP is
required to issue an attestation report on management's assessment of internal
control over financial reporting and, in addition, is required to form its
own
opinion as to the effectiveness of those controls. Their opinion on the fairness
of the financial statement presentation, and their attestation and opinion
on
internal controls over financial reporting are included herein.
|
|
|
Date: March
14, 2006
|
By:
|
/s/
Harry D. Madonna
|
|
|
Harry
D. Madonna
|
|
|
Chairman,
President and
|
|
|
Chief
Executive Officer
|
|
|
|
Date:
March 14, 2006
|
By:
|
/s/
Paul Frenkiel
|
|
|
Paul
Frenkiel,
|
|
|
Executive
Vice President and
|
|
|
Chief
Financial Officer
|
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Shareholders
Republic
First Bancorp, Inc.
We
have
audited management’s assessment, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting, that Republic First
Bancorp, Inc. maintained effective internal control over financial reporting
as
of December 31, 2005, based on criteria established in Internal
Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Republic First Bancorp, Inc.’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment
of
the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management’s assessment and an
opinion on the effectiveness of the Company’s internal control over financial
reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, management’s assessment that Republic First Bancorp, Inc. maintained
effective internal control over financial reporting as of December 31, 2005,
is
fairly stated, in all material respects, based on criteria established in
Internal
Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Also in our opinion, Republic First Bancorp, Inc. maintained, in all material
respects, effective internal control over financial reporting as of December
31,
2005, based on criteria established in Internal
Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of Republic
First Bancorp, Inc. and subsidiary as of December 31, 2005 and the related
consolidated statements of income, changes in shareholders’ equity and cash
flows for the year ended December 31, 2005 and our report dated March 14, 2006
expressed an unqualified opinion.
/s/
Beard
Miller Company LLP
Reading,
Pennsylvania
March
14,
2006
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Shareholders
Republic
First Bancorp, Inc.
We
have
audited the accompanying consolidated balance sheet of Republic First Bancorp,
Inc., and subsidiary as of December 31, 2005, and the related consolidated
statements of income, changes in shareholders’ equity, and cash flows for the
year ended December 31, 2005. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well
as evaluating the overall financial statement presentation. We believe that
our
audit provides a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Republic First
Bancorp, Inc., and subsidiary as of December 31, 2005, and the results of their
operations and their cash flows for the year ended December 31, 2005, in
conformity with accounting principles generally accepted in the United States
of
America.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Republic First Bancorp,
Inc.'s internal control over financial reporting as of December 31, 2005, based
on criteria established in Internal
Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated March 14, 2006, expressed an unqualified opinion on
management’s assessment of internal control over financial reporting and an
unqualified opinion on the effectiveness of internal control over financial
reporting.
/s/
Beard
Miller Company LLP
Reading,
Pennsylvania
March
14,
2006
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors and
Shareholders
of Republic First Bancorp, Inc.
We
have
audited the accompanying consolidated balance sheet of Republic First Bancorp,
Inc. and Subsidiaries (the Company) as of December 31, 2004, and the related
consolidated statements of income, changes in stockholders’ equity and cash
flows for each of the two years in the period ended December 31, 2004.
These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures
that
are appropriate in the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Republic First
Bancorp, Inc. and Subsidiaries as of December 31, 2004, and the consolidated
results of their operations and their consolidated cash flows for each of the
two years in the period ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America.
/s/
Grant
Thornton LLP
Philadelphia,
Pennsylvania
March
24,
2005 (except for Note 20, as to which the date is March 14, 2006)*
*
Adjusted for typographical error
REPUBLIC
FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
December
31, 2005 and 2004
(Dollars
in thousands, except per share data)
|
|
2005
|
|
2004
|
|
ASSETS:
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
19,985
|
|
$
|
15,900
|
|
Interest
bearing deposits with banks
|
|
|
768
|
|
|
3,641
|
|
Federal
funds sold
|
|
|
86,221
|
|
|
17,162
|
|
Total
cash and cash equivalents
|
|
|
106,974
|
|
|
36,703
|
|
Other
interest-earning restricted cash
|
|
|
-
|
|
|
2,923
|
|
Investment
securities available for sale, at fair value
|
|
|
37,283
|
|
|
43,733
|
|
Investment
securities held to maturity, at amortized cost
|
|
|
|
|
|
|
|
(fair
value of $570 and $813 respectively)
|
|
|
559
|
|
|
792
|
|
Federal
Home Loan Bank stock, at cost
|
|
|
6,319
|
|
|
4,635
|
|
Loans
receivable, (net of allowance for loan losses of $7,617 and $6,684
|
|
|
|
|
|
|
|
respectively)
|
|
|
670,469
|
|
|
543,005
|
|
Premises
and equipment, net
|
|
|
3,598
|
|
|
3,625
|
|
Other
real estate owned, net
|
|
|
137
|
|
|
137
|
|
Accrued
interest receivable
|
|
|
3,784
|
|
|
3,390
|
|
Bank
owned life insurance
|
|
|
10,926
|
|
|
10,595
|
|
Other
assets
|
|
|
10,806
|
|
|
15,266
|
|
Assets
of First Bank of Delaware discontinued operations
|
|
|
-
|
|
|
55,608
|
|
Total
Assets
|
|
$
|
850,855
|
|
$
|
720,412
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
Demand
— non-interest-bearing
|
|
$
|
88,862
|
|
$
|
97,790
|
|
Demand
— interest-bearing
|
|
|
69,940
|
|
|
54,762
|
|
Money
market and savings
|
|
|
223,129
|
|
|
170,980
|
|
Time
less than $100,000
|
|
|
128,022
|
|
|
99,690
|
|
Time
over $100,000
|
|
|
137,890
|
|
|
87,462
|
|
Total
Deposits
|
|
|
647,843
|
|
|
510,684
|
|
Short-term
borrowings
|
|
|
123,867
|
|
|
61,090
|
|
FHLB
advances
|
|
|
-
|
|
|
25,000
|
|
Accrued
interest payable
|
|
|
1,813
|
|
|
2,126
|
|
Other
liabilities
|
|
|
7,469
|
|
|
5,890
|
|
Subordinated
debt
|
|
|
6,186
|
|
|
6,186
|
|
Liabilities
of First Bank of Delaware discontinued operations
|
|
|
-
|
|
|
44,212
|
|
Total
Liabilities
|
|
|
787,178
|
|
|
655,188
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
Shareholders’
Equity:
|
|
|
|
|
|
|
|
Preferred
stock, par value $0.01 per share; 10,000,000 shares
authorized;
|
|
|
|
|
|
|
|
no shares issued as of December 31, 2005 and 2004
|
|
|
-
|
|
|
-
|
|
Common
stock, par value $0.01 per share; 20,000,000 shares authorized;
|
|
|
|
|
|
|
|
shares
issued 8,753,998 as of December 31, 2005 and
|
|
|
|
|
|
|
|
7,429,078
as of December 31, 2004
|
|
|
88
|
|
|
74
|
|
Additional
paid in capital
|
|
|
50,203
|
|
|
42,494
|
|
Retained
earnings
|
|
|
15,566
|
|
|
23,867
|
|
Treasury
stock at cost (227,778 shares and 192,689 respectively)
|
|
|
(1,688
|
)
|
|
(1,541
|
)
|
Stock
held by deferred compensation plan
|
|
|
(573
|
)
|
|
-
|
|
Accumulated
other comprehensive income
|
|
|
81
|
|
|
330
|
|
Total
Shareholders’ Equity
|
|
|
63,677
|
|
|
65,224
|
|
Total
Liabilities and Shareholders’ Equity
|
|
$
|
850,855
|
|
$
|
720,412
|
|
(See
notes to consolidated financial statements)
REPUBLIC
FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF INCOME
For
the years ended December 31, 2005, 2004 and 2003
(Dollars
in thousands, except per share data)
|
|
2005
|
|
2004
|
|
2003
|
|
Interest
income:
|
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$
|
42,331
|
|
$
|
31,006
|
|
$
|
34,144
|
|
Interest
on federal funds sold and other interest-earning assets
|
|
|
1,078
|
|
|
563
|
|
|
863
|
|
Interest
and dividends on investment securities
|
|
|
1,972
|
|
|
2,030
|
|
|
2,735
|
|
|
|
|
45,381
|
|
|
33,599
|
|
|
37,742
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
Demand
- interest bearing
|
|
|
332
|
|
|
350
|
|
|
445
|
|
Money
market and savings
|
|
|
6,026
|
|
|
2,135
|
|
|
1,583
|
|
Time
less than $100,000
|
|
|
3,181
|
|
|
2,999
|
|
|
3,806
|
|
Time
over $100,000
|
|
|
3,608
|
|
|
2,003
|
|
|
2,114
|
|
Other
borrowings
|
|
|
3,076
|
|
|
7,261
|
|
|
8,248
|
|
|
|
|
16,223
|
|
|
14,748
|
|
|
16,196
|
|
Net
interest income
|
|
|
29,158
|
|
|
18,851
|
|
|
21,546
|
|
Provision
(recovery) for loan losses
|
|
|
1,186
|
|
|
(314
|
)
|
|
5,827
|
|
Net
interest income after provision (recovery) for loan losses
|
|
|
27,972
|
|
|
19,165
|
|
|
15,719
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
|
|
Loan
advisory and servicing fees
|
|
|
573
|
|
|
491
|
|
|
463
|
|
Service
fees on deposit accounts
|
|
|
2,000
|
|
|
1,662
|
|
|
1,335
|
|
Gains
on sales and calls of investment securities
|
|
|
97
|
|
|
5
|
|
|
-
|
|
Gain
on sale of other real estate owned
|
|
|
-
|
|
|
-
|
|
|
224
|
|
Lawsuit
damage award
|
|
|
-
|
|
|
1,337
|
|
|
-
|
|
Other
income
|
|
|
944
|
|
|
971
|
|
|
831
|
|
|
|
|
3,614
|
|
|
4,466
|
|
|
2,853
|
|
Non-interest
expenses:
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
9,569
|
|
|
7,647
|
|
|
7,481
|
|
Occupancy
|
|
|
1,566
|
|
|
1,400
|
|
|
1,347
|
|
Depreciation
|
|
|
991
|
|
|
947
|
|
|
1,101
|
|
Legal
|
|
|
673
|
|
|
812
|
|
|
773
|
|
Other
real estate
|
|
|
44
|
|
|
81
|
|
|
240
|
|
Advertising
|
|
|
192
|
|
|
139
|
|
|
161
|
|
Data
processing
|
|
|
504
|
|
|
88
|
|
|
114
|
|
Taxes,
other
|
|
|
688
|
|
|
567
|
|
|
500
|
|
Other
operating expenses
|
|
|
3,980
|
|
|
3,665
|
|
|
2,897
|
|
|
|
|
18,207
|
|
|
15,346
|
|
|
14,614
|
|
Income
from continuing operations before income taxes
|
|
|
13,379
|
|
|
8,285
|
|
|
3,958
|
|
Provision
for income taxes
|
|
|
4,486
|
|
|
2,694
|
|
|
1,267
|
|
Income
from continuing operations
|
|
|
8,893
|
|
|
5,591
|
|
|
2,691
|
|
Income
from discontinued operations
|
|
|
-
|
|
|
5,060
|
|
|
3,440
|
|
Income
tax on discontinued operations
|
|
|
-
|
|
|
1,711
|
|
|
1,217
|
|
Income
from discontinued operations, net of tax
|
|
|
-
|
|
|
3,349
|
|
|
2,223
|
|
Net
Income
|
|
$
|
8,893
|
|
$
|
8,940
|
|
$
|
4,914
|
|
Income
per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.06
|
|
$
|
0.69
|
|
$
|
0.34
|
|
Diluted
|
|
$
|
1.02
|
|
$
|
0.66
|
|
$
|
0.32
|
|
Income
per share from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
-
|
|
$
|
0.41
|
|
$
|
0.28
|
|
Diluted
|
|
$
|
-
|
|
$
|
0.39
|
|
$
|
0.27
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.06
|
|
$
|
1.10
|
|
$
|
0.62
|
|
Diluted
|
|
$
|
1.02
|
|
$
|
1.05
|
|
$
|
0.59
|
|
(See
notes to consolidated financial statements)
REPUBLIC
FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS of CASH FLOWS
For
the years ended December 31, 2005, 2004 and 2003
(Dollars
in thousands)
|
|
2005
|
|
2004
|
|
2003
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
8,893
|
|
$
|
8,940
|
|
$
|
4,914
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
1,186
|
|
|
1,149
|
|
|
6,764
|
|
Write
down or loss of other real estate owned
|
|
|
-
|
|
|
70
|
|
|
56
|
|
Gain
on sale of other real estate owned
|
|
|
-
|
|
|
-
|
|
|
(224
|
)
|
Depreciation
|
|
|
991
|
|
|
1,338
|
|
|
1,416
|
|
Tax
benefit of stock option exercises
|
|
|
624
|
|
|
-
|
|
|
-
|
|
Stock
purchases for deferred compensation plan
|
|
|
(573
|
)
|
|
-
|
|
|
-
|
|
Gains
on sales and call of securities
|
|
|
(97
|
)
|
|
(5
|
)
|
|
-
|
|
Amortization
of discounts on investment securities
|
|
|
189
|
|
|
252
|
|
|
192
|
|
Increase
in value of bank owned life insurance
|
|
|
(331
|
)
|
|
(422
|
)
|
|
(263
|
)
|
Decrease
(increase) in accrued interest receivable and other assets
|
|
|
4,066
|
|
|
(6,505
|
)
|
|
(3,190
|
)
|
Increase
in accrued expenses and other liabilities
|
|
|
1,266
|
|
|
6,764
|
|
|
1,845
|
|
Net
cash provided by operating activities
|
|
|
16,214
|
|
|
11,581
|
|
|
11,510
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchase
of investment securities:
|
|
|
|
|
|
|
|
|
|
|
Available
for sale
|
|
|
(18,665
|
)
|
|
(7,500
|
)
|
|
(31,894
|
)
|
Held
to maturity
|
|
|
-
|
|
|
-
|
|
|
(2,160
|
)
|
Proceeds
from maturities and calls of securities:
|
|
|
|
|
|
|
|
|
|
|
Available
for sale
|
|
|
20,671
|
|
|
11,500
|
|
|
6,500
|
|
Held
to maturity
|
|
|
183
|
|
|
-
|
|
|
35
|
|
Proceeds
from sale of investment securities:
|
|
|
|
|
|
|
|
|
|
|
Available
for sale
|
|
|
-
|
|
|
1,500
|
|
|
1,003
|
|
Principal
collected on investment securities:
|
|
|
|
|
|
|
|
|
|
|
Available
for sale
|
|
|
4,126
|
|
|
10,039
|
|
|
48,429
|
|
Held
to maturity
|
|
|
49
|
|
|
251
|
|
|
3,546
|
|
Purchase
of FHLB stock
|
|
|
(1,684
|
)
|
|
-
|
|
|
(411
|
)
|
Proceeds
from sale of FHLB stock
|
|
|
-
|
|
|
2,583
|
|
|
-
|
|
Net
increase in loans
|
|
|
(128,650
|
)
|
|
(104,545
|
)
|
|
(29,447
|
)
|
Net
proceeds from sale of other real estate owned
|
|
|
-
|
|
|
-
|
|
|
1,015
|
|
Purchase
of treasury shares
|
|
|
(143
|
)
|
|
-
|
|
|
|
|
Purchase
of bank owned life insurance
|
|
|
-
|
|
|
-
|
|
|
(11,500
|
)
|
Decrease
in other interest-earning restricted cash
|
|
|
2,923
|
|
|
560
|
|
|
745
|
|
Premises
and equipment expenditures
|
|
|
(964
|
)
|
|
(1,952
|
)
|
|
(828
|
)
|
Net
cash used in investing activities
|
|
|
(122,154
|
)
|
|
(87,564
|
)
|
|
(14,967
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Net
proceeds from exercise of stock options
|
|
|
1,275
|
|
|
358
|
|
|
1,094
|
|
Net
increase in demand, money market and savings
|
|
|
58,399
|
|
|
88,392
|
|
|
32,955
|
|
Net
increase (decrease) in time deposits
|
|
|
78,760
|
|
|
3,399
|
|
|
(35,652
|
)
|
Net
increase in short term borrowings
|
|
|
62,777
|
|
|
58,238
|
|
|
2,852
|
|
Repayment
of FHLB advances
|
|
|
(25,000
|
)
|
|
(100,000
|
)
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
176,211
|
|
|
50,387
|
|
|
1,249
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
Net
cash from discontinued operating activities
|
|
|
-
|
|
|
(10,531
|
)
|
|
(1,727
|
)
|
Net
cash from discontinued investing activities
|
|
|
-
|
|
|
14,188
|
|
|
291
|
|
Net
cash from discontinued financing activities
|
|
|
-
|
|
|
(11,494
|
)
|
|
9,360
|
|
Net
cash from discontinued activities
|
|
|
-
|
|
|
(7,837
|
)
|
|
7,924
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
70,271
|
|
|
(33,433
|
)
|
|
5,716
|
|
Cash
and cash equivalents, beginning of year
|
|
|
36,703
|
|
|
70,136
|
|
|
64,420
|
|
Cash
and cash equivalents, end of year
|
|
$
|
106,974
|
|
$
|
36,703
|
|
$
|
70,136
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
16,535
|
|
$
|
15,826
|
|
$
|
17,408
|
|
Income
taxes paid
|
|
|
3,885
|
|
|
3,300
|
|
|
2,650
|
|
Non-monetary
transfers from loans to other real estate owned
|
|
|
-
|
|
|
1,500
|
|
|
207
|
|
(See
notes to consolidated financial
statements)
REPUBLIC
FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For
the years ended December 31, 2005, 2004 and 2003
(Dollars
in thousands)
|
|
Comprehensive
Income
|
|
Common
Stock
|
|
Additional
Paid
in
Capital
|
|
Retained
Earnings
|
|
Treasury
Stock
|
|
Stock
Held by Deferred Compensation Plan
|
|
Accumulated
Other
Comprehensive
Income
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
January 1, 2003
|
|
|
|
|
$
|
64
|
|
$
|
32,305
|
|
$
|
18,760
|
|
$
|
(1,541
|
)
|
$
|
-
|
|
$
|
1,688
|
|
$
|
51,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other comprehensive loss, net of reclassification adjustments and
taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
|
(881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(881
|
)
|
|
(881
|
)
|
From
discontinued operations
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27
|
)
|
|
(27
|
)
|
Income
from continuing operations, net of taxes
|
|
|
2,691
|
|
|
|
|
|
|
|
|
2,691
|
|
|
|
|
|
|
|
|
|
|
|
2,691
|
|
Income
from discontinued operations, net of taxes
|
|
|
2,223
|
|
|
|
|
|
|
|
|
2,223
|
|
|
|
|
|
|
|
|
|
|
|
2,223
|
|
Net
income for the year
|
|
|
4,914
|
|
|
-
|
|
|
-
|
|
|
4,914
|
|
|
-
|
|
|
|
|
|
-
|
|
|
4,914
|
|
Total
comprehensive income
|
|
$
|
4,006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
Options
exercised (292,068 shares)
|
|
|
|
|
|
3
|
|
|
1,091
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
1,094
|
|
Balance
December 31, 2003
|
|
|
|
|
|
67
|
|
|
33,396
|
|
|
23,674
|
|
|
(1,541
|
)
|
|
-
|
|
|
780
|
|
|
56,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other comprehensive loss, net of reclassification adjustments and
taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
|
(436
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(436
|
)
|
|
(436
|
)
|
From
discontinued operations
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
(14
|
)
|
Income
from continuing operations, net of taxes
|
|
|
5,591
|
|
|
|
|
|
|
|
|
5,591
|
|
|
|
|
|
|
|
|
|
|
|
5,591
|
|
Income
from discontinued operations, net of taxes
|
|
|
3,349
|
|
|
|
|
|
|
|
|
3,349
|
|
|
|
|
|
|
|
|
|
|
|
3,349
|
|
Net
income for the year
|
|
|
8,940
|
|
|
-
|
|
|
-
|
|
|
8,940
|
|
|
-
|
|
|
|
|
|
-
|
|
|
8,940
|
|
Total
comprehensive income
|
|
$
|
8,490
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
Stock
dividend (659,225 shares)
|
|
|
|
|
|
7
|
|
|
8,740
|
|
|
(8,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercised (105,185 shares)
|
|
|
|
|
|
|
|
|
358
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
358
|
|
Balance
December 31, 2004
|
|
|
|
|
|
74
|
|
|
42,494
|
|
|
23,867
|
|
|
(1,541
|
)
|
|
-
|
|
|
330
|
|
|
65,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Bank of Delaware spin-off
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
Total
other comprehensive loss, net of reclassification adjustments and
taxes
|
|
|
(227
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
(227
|
)
|
|
(227
|
)
|
Net
income for the year
|
|
|
8,893
|
|
|
-
|
|
|
-
|
|
|
8,893
|
|
|
-
|
|
|
|
|
|
-
|
|
|
8,893
|
|
Total
comprehensive income
|
|
$
|
8,666
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
Stock
dividend (924,022 shares)
|
|
|
|
|
|
10
|
|
|
10,968
|
|
|
(10,978
|
)
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
First
Bank of Delaware spin-off
|
|
|
|
|
|
-
|
|
|
(5,158
|
)
|
|
(6,216
|
)
|
|
-
|
|
|
|
|
|
(22
|
)
|
|
(11,396
|
)
|
Options
exercised (400,898 shares)
|
|
|
|
|
|
4
|
|
|
1,271
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
1,275
|
|
Purchase
of Treasury shares
(11,961
shares)
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
(143
|
)
|
Tax
benefit of stock option
exercises
|
|
|
|
|
|
|
|
|
624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
624
|
|
Stock
purchases for deferred
compensation
plan (44,893 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(573
|
)
|
|
|
|
|
(573
|
)
|
Balance
December 31, 2005
|
|
|
|
|
$
|
88
|
|
$
|
50,203
|
|
$
|
15,566
|
|
$
|
(1,688
|
)
|
$
|
(573
|
)
|
$
|
81
|
|
$
|
63,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(See
notes to consolidated financial statements)
REPUBLIC
FIRST BANCORP, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization:
Republic
First Bancorp, Inc. (“the Company”) spun off its former subsidiary, the First
Bank of Delaware, through a pro-rata distribution of one share of the common
stock of the First Bank of Delaware (“FBD”) for every share of the Company’s
common stock outstanding on January 31, 2005. The Company’s financial statements
are presented herein with an effective date of the spin off as of January 1,
2005. In accordance with Statement of Financial Accounting Standards (SFAS)
No.
144, Accounting
for the Impairment or Disposal of Long-lived Assets,
the
Company has presented the spin-off of the First Bank of Delaware as a
discontinued operation (Note 20). The Company is now a one-bank holding company
organized and incorporated under the laws of the Commonwealth of Pennsylvania.
It is comprised of one wholly owned subsidiary, Republic First Bank
(“Republic”), a Pennsylvania state chartered bank. Republic 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, Montgomery, and Delaware Counties.
Both
Republic and FBD share data processing, accounting, human resources and
compliance services through BSC Services Corp. (“BSC”), which is a subsidiary of
FBD. BSC allocates its costs, on the basis of usage, to Republic and FBD, which
classify such costs to the appropriate non-interest expense
categories.
At
December 31, 2004, the Company was a two-bank holding company organized and
incorporated under the laws of the Commonwealth of Pennsylvania. Its other
wholly-owned subsidiary, until the January 31, 2005 spin off, was First Bank
of
Delaware; a Delaware State chartered Bank, located at Brandywine Commons II,
Concord Pike and Rocky Run Parkway in Brandywine, New Castle County, Delaware.
First Bank of Delaware offered many of the same services and financial products
as Republic, and additionally offered nationally, short-term consumer loans
and
other loan products not offered by Republic.
The
Company and Republic encounter vigorous competition for market share in the
geographic areas 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 Republic are subject to regulations of certain state and federal
agencies. These regulatory agencies periodically examine the Company and its
subsidiary for adherence to laws and regulations. As a consequence, the cost
of
doing business may be affected.
2. Summary
of Significant Accounting Policies:
Basis
of Presentation:
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary, Republic. 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 Republic. 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 results of operations 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.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
significant estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at the
date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those
estimates.
Significant
estimates are made by management in determining the allowance for loan losses,
carrying values of 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
Republic’s 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.
The
Company and Republic 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.
Cash
and Cash Equivalents:
For
purposes of the statements of cash flows, the Company considers all cash and
due
from banks, interest-bearing deposits with an original maturity of ninety days
or less and federal funds sold to be cash and cash equivalents.
Restrictions
on Cash and Due From Banks:
Republic
is required to maintain certain average reserve balances as established by
the
Federal Reserve Board. The amounts of those balances for the reserve computation
periods that include December 31, 2005 and 2004 were $0.3 million and $11.4
million, respectively. These requirements were satisfied through the restriction
of vault cash and a balance at the Federal Reserve Bank of
Philadelphia.
Other
Interest-Earning Restricted Cash:
Other
interest-earning restricted cash represented funds provided to fund an offsite
ATM network for which the Company was compensated. These funds were not
considered cash equivalents because the Company was contractually obligated
to
provide these funds and were not immediately able to withdraw the funds. The
relationship with the ATM network ended in the fourth quarter of
2005.
Investment
Securities:
Debt
and
equity investment securities are classified in one of three categories, as
applicable, and accounted for as follows: debt securities which the Company
has
the positive intent and ability to hold to maturity are classified as
“securities held to maturity” and are reported at amortized cost; debt and
equity securities that are bought and sold in the near term are classified
as
“trading” and are reported at fair market value with unrealized gains and losses
included in earnings; and debt and equity securities not classified as either
held to maturity and/or trading securities are classified as “investment
securities available for sale” and are reported at fair market value with net
unrealized gains and losses, net of tax, reported as a separate component of
shareholders’ equity. Gains or losses on disposition are based on the net
proceeds and cost of securities sold, adjusted for amortization of premiums
and
accretion of discounts, using the specific identification method. The Company
does not have any investment securities designated as trading as of December
31,
2005 and 2004.
Declines
in the fair value of held-to-maturity and available-for-sale securities below
their cost that are deemed to be other than temporary are reflected in earnings
as realized losses. In estimating other-than-temporary impairment losses,
management considers (1) the length of time and the extent to which the fair
value has been less than cost, (2) the financial condition and near-term
prospects of the issuer, and (3) the intent and ability of the Company to retain
its investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value.
Loans
and Allowance for Loan Losses:
Loans
that management has the intent and ability to hold for the foreseeable future
or
until maturity or payoff are stated at the amount of unpaid principal, reduced
by unearned income and an allowance for loan losses. Interest on loans is
calculated based upon the principal amounts outstanding. The Company defers
and
amortizes certain origination and commitment fees, and certain direct loan
origination costs over the contractual life of the related loan. This results
in
an adjustment of the related loans yield.
The
Company accounts for amortization of premiums and accretion of discounts related
to loans purchased and investment securities based upon the effective interest
method. If a loan prepays in full before the contractual maturity date, any
unamortized premiums, discounts or fees are recognized immediately as an
adjustment to interest income.
Loans
are
generally classified as non-accrual if they are past due as to maturity or
payment of principal or interest for a period of more than 90 days, unless
such
loans are well-secured and in the process of collection. Loans that are on
a
current payment status or past due less than 90 days may also be classified
as
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 of interest and principal by the borrower, in accordance with the
contractual terms. Generally, in the case of non-accrual loans, cash received
is
applied to reduce the principal outstanding.
The
allowance for loan losses is established through a provision for loan losses
charged to operations. Loans are charged against the allowance when management
believes that the collectibility of the loan principal is unlikely. Recoveries
on loans previously charged off are credited to the allowance.
The
allowance is an amount that represents management’s best estimate of known and
inherent loan losses. Management’s evaluations of the allowance for loan losses
consider such factors as an examination of the portfolio, past loss experience,
the results of the most recent regulatory examination, current economic
conditions and other relevant factors.
The
allowance consists of specific, general and unallocated components. The specific
component relates to loans that are classified as either doubtful, substandard
or special mention. For such loans that are also classified as impaired, an
allowance is established when the discounted cash flows (or collateral value
or
observable market price) of the impaired loan is lower than the carrying value
of that loan. The general component covers non-classified loans and is based
on
historical loss experience adjusted for qualitative factors. An unallocated
component is maintained to cover uncertainties that could affect management’s
estimate of probable losses. The unallocated component of the allowance reflects
the margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating specific and general losses in the portfolio.
A
loan is
considered impaired when, based on current information and events, it is
probable that the Corporation will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the
loan
agreement. Factors considered by management in determining impairment, include
payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls
on a case-by-case basis, taking into consideration of all the circumstances
surrounding the loan and the borrower, including the length of the delay, the
reasons for the delay, the borrower’s prior payment record, and the amount of
the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis for commercial and construction loans by either
the present value of expected future cash flows discounted at the loan’s
effective interest rate, the loan’s obtainable market price, or the fair value
of the collateral if the loan is collateral dependent.
Large
groups of smaller balance homogeneous loans are collectively evaluated for
impairment. Accordingly, the Corporation does not separately identify individual
consumer and residential loans for impairment disclosures, unless such loans
are
the subject of a restructuring agreement.
The
Company accounts for the transfers and servicing financial assets in accordance
with SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of
Liabilities.
SFAS
No. 140 revises the standards for accounting for the securitizations and other
transfers of financial assets and collateral.
Transfers
of financial assets are accounted for as sales, when control over the assets
has
been surrendered. Control over transferred assets is deemed to be surrendered
when (1) the assets have been isolated from the Corporation, (2) the transferee
obtains the right (free of conditions that constrain it from taking advantage
of
that right) to pledge or exchange the transferred assets, and (3) the
Corporation does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.
The
Company accounts for guarantees in accordance with FIN 45 Guarantor’s
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others.
FIN 45
requires a guarantor entity, at the inception of a guarantee covered by the
measurement provisions of the interpretation, to record a liability for the
fair
value of the obligation undertaken in issuing the guarantee. The Company has
financial and performance letters of credit. Financial letters of credit require
the Company to make payment if the customer’s financial condition deteriorates,
as defined in the agreements. Performance letters of credit require the Company
to make payments if the customer fails to perform certain non-financial
contractual obligation. The maximum potential undiscounted amount of future
payments of these letters of credit as of December 31, 2005 is $5.8 million
and
they expire as follows $5.3 million in 2006 and $0.5 million in 2007. Amounts
due under these letters of credit would be reduced by any proceeds that the
Company would be able to obtain in liquidating the collateral for the loans,
which varies depending on the customer.
The
Company accounts for loan commitments in accordance with SFAS No. 149,
Amendment
of Statement 133 on Derivative Instruments and Hedging
Activities.
SFAS
No. 149 clarifies and amends SFAS No. 133 for implementation issues raised
by
constituents or includes the conclusions reached by the FASB on certain FASB
Staff Implementation Issues. SFAS No. 149 also amends SFAS No. 133 to require
a
lender to account for loan commitments related to mortgage loans
that
will
be held for sale as derivatives. The Company periodically enters into
commitments with its customers, which it intends to sell in the
future.
Premises
and Equipment:
Premises
and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation of furniture and equipment is calculated over the estimated useful
life of the asset using the straight-line method. Leasehold improvements are
amortized over the shorter of their estimated useful lives or terms of their
respective leases, using the straight-line method. Repairs and maintenance
are
charged to current operations as incurred, and renewals and betterments are
capitalized.
Other
Real Estate Owned:
Other
real estate owned consists of assets acquired through, or in lieu of, loan
foreclosure. They are held for sale and are initially recorded at fair value
at
the date of foreclosure, establishing a new cost basis. Subsequent to
foreclosure, valuations are periodically performed by management and the assets
are carried at the lower of carrying amount or fair value, less the cost to
sell. Revenue and expenses from operations and changes in the valuation
allowance are included in net expenses from foreclosed assets. At December
31,
2005 and 2004, the Company had retail stores classified as other real estate
owned with a value of $137,000.
Bank
Owned Life Insurance:
The
Company invests in bank owned life insurance (“BOLI”) as a source of funding to
purchase life insurance on certain employees. The Company is the owner and
beneficiary of the policies. This life insurance investment is carried at the
cash surrender value of the underlying policies. Income from the increase in
cash surrender value of the policies is included in other income on the income
statement. At December 31, 2005 and 2004, the Company owned $10.9 million and
$10.6 million, respectively in BOLI. In 2005, 2004 and 2003 the Company
recognized $331,000, $367,000 and $230,000, respectively in related income.
Advertising
Costs:
It
is the
Company’s policy to expense advertising costs in the period in which they are
incurred.
Income
Taxes:
The
Company accounts for income taxes under the liability method of accounting.
Deferred tax assets and liabilities are established for the temporary
differences between the financial reporting basis and the tax basis of the
Company’s assets and liabilities at the tax rates expected to be in effect when
the temporary differences are realized or settled. In addition, a deferred
tax
asset is recorded to reflect the future benefit of net operating loss
carryforwards. The deferred tax assets may be reduced by a valuation allowance
if it is more likely than not that some portion or all of the deferred tax
assets will not be realized.
Earnings
Per Share:
Earnings
per share (“EPS”) consists of two separate components, basic EPS and diluted
EPS. Basic EPS is computed by dividing net income by the weighted average number
of common shares outstanding for each period presented. Diluted EPS is
calculated by dividing net income by the weighted average number of common
shares outstanding plus dilutive common stock equivalents (“CSE”). Common stock
equivalents consist of dilutive stock options granted through the Company’s
stock option plan. The following table is a reconciliation of the numerator
and
denominator used in calculating basic and diluted EPS. Common stock equivalents,
which are antidilutive are not included for purposes of this calculation. At
December 31, 2005, 2004 and 2003, there were no stock options excluded from
the
computation of earnings per share because the option price was greater than
the
average market price, respectively.
(In
thousands, except per share data)
|
|
2005
|
|
2004
|
|
2003
|
|
Income
from continuing operations (numerator for basic and
|
|
|
|
|
|
|
|
diluted
earnings per share)
|
|
$
|
8,893
|
|
$
|
5,591
|
|
$
|
2,691
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
Shares
|
|
Per
Share
|
|
Shares
|
|
Per
Share
|
|
Shares
|
|
Per
Share
|
|
Weighted
average shares outstanding for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(denominator
for basic earnings per share)
|
|
|
8,360,949
|
|
|
|
|
|
8,081,995
|
|
|
|
|
|
7,924,951
|
|
|
|
|
Earnings
per share — basic
|
|
|
|
|
$
|
1.06
|
|
|
|
|
$
|
0.69
|
|
|
|
|
$
|
0.34
|
|
Effect
of dilutive stock options
|
|
|
345,082
|
|
|
|
|
|
399,203
|
|
|
|
|
|
364,722
|
|
|
|
|
Effect
on basic earnings per share of CSE
|
|
|
|
|
|
(0.04
|
)
|
|
|
|
|
(0.03
|
)
|
|
|
|
|
(0.02
|
)
|
Weighted
average shares outstanding- diluted
|
|
|
8,706,031
|
|
|
|
|
|
8,481,198
|
|
|
|
|
|
8,289,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share — diluted
|
|
|
|
|
$
|
1.02
|
|
|
|
|
$
|
0.66
|
|
|
|
|
$
|
0.32
|
|
(In
thousands, except per share data)
|
|
2005
|
|
2004
|
|
2003
|
|
Income
from discontinued operations, net of taxes (numerator for basic
|
|
|
|
|
|
|
|
and
diluted earnings per share)
|
|
$
|
-
|
|
$
|
3,349
|
|
$
|
2,223
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
Shares
|
|
Per
Share
|
|
Shares
|
|
Per
Share
|
|
Shares
|
|
Per
Share
|
|
Weighted
average shares outstanding for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(denominator
for basic earnings per share)
|
|
-
|
|
|
|
8,081,995
|
|
|
|
7,924,951
|
|
|
|
Earnings
per share — basic
|
|
|
|
|
$
|
-
|
|
|
|
|
$
|
0.41
|
|
|
|
|
$
|
0.28
|
|
Effect
of dilutive stock options
|
|
|
-
|
|
|
|
|
|
399,203
|
|
|
|
|
|
364,722
|
|
|
|
|
Effect
on basic earnings per share of CSE
|
|
|
|
|
|
-
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
(0.01
|
)
|
Weighted
average shares outstanding- diluted
|
|
|
-
|
|
|
|
|
|
8,481,198
|
|
|
|
|
|
8,289,673
|
|
|
|
|
Earnings
per share — diluted
|
|
|
|
|
$
|
-
|
|
|
|
|
$
|
0.39
|
|
|
|
|
$
|
0.27
|
|
(In
thousands, except per share data)
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
Net
income (numerator for basic and diluted earnings per
share)
|
|
$
|
8,893
|
|
$
|
8,940
|
|
$
|
4,914
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
Shares
|
|
Per
Share
|
|
Shares
|
|
Per
Share
|
|
Shares
|
|
Per
Share
|
|
Weighted
average shares outstanding for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(denominator
for basic earnings per share)
|
|
|
8,360,949
|
|
|
|
|
|
8,081,995
|
|
|
|
|
|
7,924,951
|
|
|
|
|
Earnings
per share — basic
|
|
|
|
|
$
|
1.06
|
|
|
|
|
$
|
1.10
|
|
|
|
|
$
|
0.62
|
|
Effect
of dilutive stock options
|
|
|
345,082
|
|
|
|
|
|
399,203
|
|
|
|
|
|
364,722
|
|
|
|
|
Effect
on basic earnings per share of CSE
|
|
|
|
|
|
(0.04
|
)
|
|
|
|
|
(0.05
|
)
|
|
|
|
|
(0.03
|
)
|
Weighted
average shares outstanding- diluted
|
|
|
8,706,031
|
|
|
|
|
|
8,481,198
|
|
|
|
|
|
8,289,673
|
|
|
|
|
Earnings
per share — diluted
|
|
|
|
|
$
|
1.02
|
|
|
|
|
$
|
1.05
|
|
|
|
|
$
|
0.59
|
|
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
December 31, 2005, the Company had a stock-based employee compensation plan,
which is more fully described in Note 15. 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
In
accordance with FAS 123, the following table shows pro forma net income and
earnings per share assuming stock options had been expensed based on their
fair
value of the options granted along with the significant assumptions used in
the
Black-Scholes option valuation model (dollars in thousands, except per share
data):
|
|
Year
Ended December 31
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
Income
from continuing operations
|
|
$
|
8,893
|
|
$
|
5,591
|
|
$
|
2,691
|
|
Stock-based
employee compensation costs determined
|
|
|
|
|
|
|
|
|
|
|
if
the fair value method had been applied to all awards,
|
|
|
|
|
|
|
|
|
|
|
net
of tax
|
|
|
(603
|
)
|
|
(159
|
)
|
|
(277
|
)
|
|
|
|
8,290
|
|
|
5,432
|
|
|
2,414
|
|
Income
from discontinued operations
|
|
|
-
|
|
|
3,349
|
|
|
2,223
|
|
Stock-based
employee compensation costs determined
|
|
|
|
|
|
|
|
|
|
|
if
the fair value method had been applied to all awards,
|
|
|
|
|
|
|
|
|
|
|
net
of tax, for discounted operations
|
|
|
-
|
|
|
(51
|
)
|
|
(89
|
)
|
-
|
|
|
|
|
|
3,298
|
|
|
2,134
|
|
Pro
forma net income
|
|
$
|
8,290
|
|
$
|
8,730
|
|
$
|
4,548
|
|
Basic
Earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
As
reported:
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
1.06
|
|
$
|
0.69
|
|
$
|
0.34
|
|
From
discontinued operations
|
|
|
-
|
|
|
0.41
|
|
|
0.28
|
|
|
|
$
|
1.06
|
|
$
|
1.10
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma:
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
0.99
|
|
$
|
0.67
|
|
$
|
0.30
|
|
From
discontinued operations
|
|
|
-
|
|
|
0.41
|
|
|
0.27
|
|
|
|
$
|
0.99
|
|
$
|
1.08
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
As
reported:
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
1.02
|
|
$
|
0.66
|
|
$
|
0.32
|
|
From
discontinued operations
|
|
|
-
|
|
|
0.39
|
|
|
0.27
|
|
|
|
$
|
1.02
|
|
$
|
1.05
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma:
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
0.95
|
|
$
|
0.64
|
|
$
|
0.29
|
|
From
discontinued operations
|
|
|
-
|
|
|
0.39
|
|
|
0.26
|
|
|
|
$
|
0.95
|
|
$
|
1.03
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2005, 2004 and 2003, respectively; dividend
yields of 0% for all three periods; expected volatility of 21% for 2005, 35%
for
2004, and 34% for 2003; risk-free interest rates of 4.08%, 3.48% and 3.48%
respectively and an expected life of 9.0 years for 2005 and 5.0 years for 2004
and 2003. As a result of the spin-off of First Bank of Delaware, related stock
option expense for 2004 and 2003 was allocated between those two entities on
the
basis of stock prices as of the date of the spin-off.
Restatement
for Stock Dividends:
All
applicable amounts in these financial statements have been restated for a 12%
stock dividend paid on June 7, 2005.
Comprehensive
Income:
The
components of comprehensive income, net of related tax, are as follows (in
thousands):
|
|
Year
Ended December 31
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
Income
from continuing operations
|
|
$
|
8,893
|
|
$
|
5,591
|
|
$
|
2,691
|
|
Income
from discontinued operations
|
|
|
-
|
|
|
3,349
|
|
|
2,223
|
|
Other
comprehensive loss from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on securities:
|
|
|
|
|
|
|
|
|
|
|
Arising during the period, net of tax benefit of $86, $222
|
|
|
|
|
|
|
|
|
|
|
and $453
|
|
|
(163
|
)
|
|
(433
|
)
|
|
(881
|
)
|
Less: reclassification adjustment for gains included in net income,
|
|
|
|
|
|
|
|
|
|
|
net of tax expense of $33, $2, and $-
|
|
|
(64
|
)
|
|
(3
|
)
|
|
-
|
|
Other
comprehensive loss from continuing operations
|
|
|
(227
|
)
|
|
(436
|
)
|
|
(881
|
)
|
Other
comprehensive loss from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on securities:
|
|
|
|
|
|
|
|
|
|
|
Arising during the period, net of tax benefit of $-, $7 and
$13
|
|
|
-
|
|
|
(14
|
)
|
|
(27
|
)
|
Other
comprehensive loss from discontinued operations
|
|
|
-
|
|
|
(14
|
)
|
|
(27
|
)
|
Comprehensive
income
|
|
$
|
8,666
|
|
$
|
8,490
|
|
$
|
4,006
|
|
|
The
accumulated balances related to each component of other comprehensive
income (loss) are as follows (in thousands):
|
|
|
December
31
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on securities
|
|
$
|
81
|
|
$
|
308
|
|
$
|
744
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on securities
|
|
|
-
|
|
|
22
|
|
|
36
|
|
Accumulated
other comprehensive income
|
|
$
|
81
|
|
$
|
330
|
|
$
|
780
|
|
Variable
Interest Entity:
Management
previously determined that Republic First Capital Trust I (“RFCT”), utilized for
the Company’s $6,000,000 of pooled preferred securities issuance, qualified as a
variable interest entity under FIN 46, as revised. RFCT issued mandatorily
redeemable preferred stock to investors and loaned the proceeds to the Company.
RFCT is included in the Company's consolidated balance sheet and statements
of
income as of and for the year ended December 31, 2003. Subsequent to the
issuance of FIN 46 in January 2003, the FASB issued a revised interpretation,
FIN 46(R) Consolidation of Variable Interest Entities, the provisions of which
were required to be applied to certain variable interest entities by March
31,
2004.
The
Company adopted the provisions under the revised interpretation in the first
quarter of 2004. Accordingly, the Company no longer consolidates RFCT as of
March 31, 2004. FIN 46(R) precludes consideration of the call option embedded
in
the preferred stock when determining if the Company has the right to a majority
of RFCT’s expected residual returns. The deconsolidation resulted in the
investment in the common stock of RFCT to be included in other assets and the
corresponding increase in outstanding debt of $186,000. In addition, the income
received on the Company’s common stock
investment
is included in other income. The adoption of FIN 46R did not have a material
impact on the financial position or results of operations. The Federal Reserve
has issued final guidance on the regulatory capital treatment for the
trust-preferred securities issued by RFCT as a result of the adoption of FIN
46(R). The final rule would retain the current maximum percentage of total
capital permitted for trust preferred securities at 25%, but would enact other
changes to the rules governing trust preferred securities that affect their
use
as part of the collection of entities known as “restricted core capital
elements.” The rule would take effect March 31, 2009; however, a five-year
transition period starting March 31, 2004 and leading up to that date would
allow bank holding companies to continue to count trust preferred securities
as
Tier 1 Capital after applying FIN-46(R). Management has evaluated the effects
of
the final rule and does not anticipate a material impact on its capital
ratios.
Recent
Accounting Pronouncements:
In
March
2004, the EITF reached a consensus on Issue No. 03-1, “The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments.”
EITF 03-1 provides guidance on other-than-temporary impairment models for
marketable debt and equity securities accounted for under SFAS 115 and
non-marketable equity securities accounted for under the cost method. The EITF
developed a basic three-step model to evaluate whether an investment is
other-than-temporarily impaired. In November 2005, the FASB approved the
issuance of FASB Staff Position FAS No. 115-1 and FAS 124-1, “The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments.” The
FSP addresses when an investment is considered impaired, whether the impairment
is other-than-temporary and the measurement of an impairment loss. The FSP
also
includes accounting considerations subsequent to the recognition of an
other-than-temporary impairment and requires certain disclosures about
unrealized losses that have not been recognized as other-than-temporary. The
FSP
is effective for reporting periods beginning after December 15, 2005 with
earlier application permitted. For the Company, the effective date will be
the
first quarter of fiscal 2006. The adoption of this accounting principle is
not
expected to have a significant impact on out consolidated financial position
or
results of operations.
In
June
2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB No. 107”),
Share-Based
Payment,
providing guidance on option valuation methods, the accounting for income tax
effects of share-based payment arrangements upon adoption of SFAS No. 123R,
and
the disclosures in MD&A subsequent to the adoption.
The
FASB
published SFAS No. 123 (Revised 2004), Share-Based Payment (“SFAS 123R”). SFAS
123R is effective January 1, 2006 and requires that compensation cost related
to
share-based payment transactions, including stock options, be recognized in
the
consolidated financial statements. In 2005, the Company vested all previously
issued, unvested options. The impact on operations in future periods will be
the
value imputed on future option grants using the methods prescribed in SFAS
No.
123 (R). There is no impact on cash flow.
Reclassifications:
Certain
reclassifications have been made to 2004 and 2003 information to conform to
the
current year’s presentation. The Consolidated Statements of Income, Consolidated
Statements of Cash Flows, and Consolidated Statements of Change in Shareholders’
Equity were revised to reflect the effects of discontinued operations. As well,
the Consolidated Balance Sheets were revised to separately show assets of the
FBD spin-off and the liabilities associated with those assets. Segment
information presented in Note 16 was also revised from prior year’s presentation
to reflect discontinued operations. See Note 20
for
more detail regarding the spin-off.
3. Investment
Securities:
Investment
securities available for sale as of December 31, 2005 are as
follows:
(Dollars
in thousands)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
U.S.
Government Agencies
|
|
$
|
18,717
|
|
$
|
-
|
|
$
|
(160
|
)
|
$
|
18,557
|
|
Mortgage
Backed Securities
|
|
|
8,691
|
|
|
247
|
|
|
(6
|
)
|
|
8,932
|
|
Other
Debt Securities
|
|
|
9,752
|
|
|
50
|
|
|
(8
|
)
|
|
9,794
|
|
Total
|
|
$
|
37,160
|
|
$
|
297
|
|
$
|
(174
|
)
|
$
|
37,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities held to maturity as of December 31, 2005 are as
follows:
|
(Dollars
in thousands)
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
U.S.
Government Agencies
|
|
$
|
3
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3
|
|
Mortgage
Backed Securities
|
|
|
59
|
|
|
3
|
|
|
-
|
|
|
62
|
|
Other
Securities
|
|
|
497
|
|
|
8
|
|
|
-
|
|
|
505
|
|
Total
|
|
$
|
559
|
|
$
|
11
|
|
$
|
-
|
|
$
|
570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities available for sale as of December 31, 2004 are as
follows:
|
(Dollars
in thousands)
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
U.S.
Government Agencies
|
|
$
|
20,258
|
|
$
|
-
|
|
$
|
(156
|
)
|
$
|
20,102
|
|
Mortgage
Backed Securities
|
|
|
12,500
|
|
|
567
|
|
|
(9
|
)
|
|
13,058
|
|
Other
Debt Securities
|
|
|
10,506
|
|
|
101
|
|
|
(34
|
)
|
|
10,573
|
|
Total
|
|
$
|
43,264
|
|
$
|
668
|
|
$
|
(199
|
)
|
$
|
43,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities held to maturity as of December 31, 2004 are as
follows:
|
(Dollars
in thousands)
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies
|
|
$
|
3
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3
|
|
Mortgage
Backed Securities
|
|
|
108
|
|
|
7
|
|
|
-
|
|
|
115
|
|
Other
Securities
|
|
|
681
|
|
|
14
|
|
|
-
|
|
|
695
|
|
Total
|
|
$
|
792
|
|
$
|
21
|
|
$
|
-
|
|
$
|
813
|
|
The
securities portfolio consists primarily of U.S government agency securities,
mortgage backed securities, corporate bonds and trust preferred securities.
The
Company’s Asset/Liability Committee reviews all security purchases to ensure
compliance with security policy guidelines.
The
maturity distribution of the amortized cost and estimated market value of
investment securities by contractual maturity at December 31, 2005, is as
follows:
|
|
Available
for Sale
|
|
Held
to Maturity
|
|
(Dollars
in thousands)
|
|
Amortized
Cost
|
|
Estimated
Fair
Value
|
|
Amortized
Cost
|
|
Estimated
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
Due
in 1 year or less
|
|
$
|
--
|
|
$
|
--
|
|
$
|
75
|
|
$
|
75
|
|
After
1 year to 5 years
|
|
|
18,867
|
|
|
18,705
|
|
|
80
|
|
|
80
|
|
After
5 years to 10 years
|
|
|
510
|
|
|
521
|
|
|
105
|
|
|
107
|
|
After
10 years
|
|
|
17,783
|
|
|
18,057
|
|
|
117
|
|
|
126
|
|
No
stated maturity
|
|
|
-
|
|
|
-
|
|
|
182
|
|
|
182
|
|
Total
|
|
$
|
37,160
|
|
$
|
37,283
|
|
$
|
559
|
|
$
|
570
|
|
Expected
maturities will differ from contractual maturities because borrowers have the
right to call or prepay obligations with or without prepayment
penalties.
The
Company realized gains on the sale of securities of $97,000 in 2005; $5,000
in
2004 and $0 in 2003. No securities were sold at a loss in 2005, 2004, or 2003.
At
December 31, 2005 and 2004, investment securities in the amount of approximately
$185,000 and $4.0 million respectively, were pledged as collateral for public
deposits and certain other deposits as required by law.
Temporarily
impaired securities as of December 31, 2005 are as follows:
|
|
(Dollars
in thousands)
|
|
Less
than 12 months
|
|
|
|
12
Months or more
|
|
|
|
Total
|
|
Description
of Securities
|
|
Fair
Value
|
|
|
|
Unrealized
Losses
|
|
|
|
Fair
Value
|
|
|
|
Unrealized
Losses
|
|
|
|
Fair
Value
|
|
|
|
Unrealized
Losses
|
|
US
Government Agencies
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
|
|
|
$
|
18,557
|
|
|
|
|
$
|
160
|
|
|
|
|
$
|
18,557
|
|
|
|
|
$
|
160
|
|
Mortgage
Backed Securities
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
261
|
|
|
|
|
|
6
|
|
|
|
|
|
261
|
|
|
|
|
|
6
|
|
Other
Debt Securities
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
1,147
|
|
|
|
|
|
8
|
|
|
|
|
|
1,147
|
|
|
|
|
|
8
|
|
Total
Temporarily Impaired Securities
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
|
|
|
$
|
19,965
|
|
|
|
|
$
|
174
|
|
|
|
|
$
|
19,965
|
|
|
|
|
$
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
impairment of the investment portfolio at December 31, 2005 totaled $174,000
in
9 securities with a total fair value of $20 million at December 31, 2005. The
unrealized loss is due to changes in market value resulting from changes in
market interest rates and is considered temporary.
Temporarily
impaired securities as of December 31, 2004 are as follows:
|
|
(Dollars
in thousands)
|
|
Less
than 12 months
|
|
|
|
12
Months or more
|
|
|
|
Total
|
|
Description
of Securities
|
|
Fair
Value
|
|
|
|
Unrealized
Losses
|
|
|
|
Fair
Value
|
|
|
|
Unrealized
Losses
|
|
|
|
Fair
Value
|
|
|
|
Unrealized
Losses
|
|
US
Government Agencies
Mortgage
Backed Securities
Other
Debt Securities
|
|
$
|
3,086
993
132
|
|
|
|
|
$
|
24
7
1
|
|
|
|
|
$
|
16,864
2,996
268
|
|
|
|
|
$
|
132
27
8
|
|
|
|
|
$
|
19,950
3,989
400
|
|
|
|
|
$
|
156
34
9
|
|
Total
Temporarily Impaired Securities
|
|
$
|
4,211
|
|
|
|
|
$
|
32
|
|
|
|
|
$
|
20,128
|
|
|
|
|
$
|
167
|
|
|
|
|
$
|
24,339
|
|
|
|
|
$
|
199
|
|
The
impairment of the investment portfolio at December 31, 2004 totaled $199,000
in
13 securities with a total fair value of $24.3 million at December 31, 2004.
The
unrealized loss is due to changes in market value resulting from changes in
market interest rates and is considered temporary.
4. Loans
Receivable:
Loans
receivable consist of the following at December 31,
(Dollars
in thousands)
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Commercial
and Industrial
|
|
|
|
|
$
|
60,135
|
|
$
|
66,278
|
|
Real
Estate - commercial
|
|
|
|
|
|
447,673
|
|
|
351,314
|
|
Construction
and land development
|
|
|
|
|
|
141,461
|
|
|
107,462
|
|
Real
Estate - residential (1)
|
|
|
|
|
|
7,057
|
|
|
8,219
|
|
Consumer
and other
|
|
|
|
|
|
23,050
|
|
|
17,048
|
|
Loans
receivable
|
|
|
|
|
|
679,376
|
|
|
550,321
|
|
Less
deferred loan fees
|
|
|
|
|
|
(1,290
|
)
|
|
(632
|
)
|
Less
allowance for loan losses
|
|
|
|
|
|
(7,617
|
)
|
|
(6,684
|
)
|
Total
loans receivable, net
|
|
|
|
|
$
|
670,469
|
|
$
|
543,005
|
|
(1) Real
estate - residential is comprised of jumbo residential first mortgage loans
for
both years presented.
The
recorded investment in loans which are impaired in accordance with SFAS No.
114,
totaled $3.4 million and $4.9 million at December 31, 2005 and 2004
respectively. The amounts of related valuation allowances were $1.6 million,
$1.2 million and $1.4 million respectively at those dates. For the years ended
December 31, 2005, 2004 and 2003, the average recorded investment in impaired
loans was approximately $3.5 million, $4.7 million and $3.4 million
respectively. Republic did not realize any interest on impaired loans during
2005, 2004 or 2003. There were no commitments to extend credit to any borrowers
with impaired loans as of the end of the periods presented herein.
As
of
December 31, 2005 and 2004, there were loans of approximately $3.4 million
and
$4.9 million respectively, which were classified as non-accrual. If these loans
were performing under their original contractual rate, interest income on such
loans would have increased approximately $165,000, $391,000 and $253,000 for
2005, 2004 and 2003 respectively. There were no loans past due 90 days and
accruing at December 31, 2005 and December 31, 2004.
The
majority of loans outstanding are with borrowers in the Company’s marketplace,
Philadelphia and surrounding suburbs, including southern New Jersey. In addition
the Company has loans to customers whose assets and businesses are concentrated
in real estate. Repayment of the Company’s loans is in part dependent upon
general economic conditions affecting the Company’s market place and specific
industries. The Company evaluates each customer’s credit worthiness on a
case-by-case basis. The amount of collateral obtained is based on management’s
credit evaluation of the customer. Collateral varies but primarily includes
residential, commercial and income-producing properties. At
December 31, 2005, 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 $187.7 million, which
represented 27.6% of gross loans receivable at December 31, 2005. 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 are amounts loaned to a
multiple number of borrowers engaged in similar activities that management
believes would cause them to be similarly impacted by economic or other
conditions.
Included
in loans are loans due from directors and other related parties of $25.1 million
and $20.8 million at December 31, 2005 and 2004, respectively. All loans made
to
directors have substantially the same terms and interest rates as other bank
borrowers. The Board of Directors approves loans to individual directors to
confirm that collateral requirements, terms and rates are comparable to other
borrowers and are in compliance with underwriting policies. The following
presents the activity in amounts due from directors and other related parties
for the years ended December 31, 2005 and 2004.
(Dollars
in thousands)
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$
|
20,817
|
|
$
|
8,013
|
|
Additions
|
|
|
12,312
|
|
|
13,760
|
|
Repayments
|
|
|
(8,075
|
)
|
|
(956
|
)
|
Balance
at end of year
|
|
$
|
25,054
|
|
$
|
20,817
|
|
|
|
|
|
|
|
|
|
The
Company’s CEO is of counsel to a law firm effective January 2, 2002 until June
30, 2005. In 2005, 2004 and 2003 the Company paid $272,000, $1,200,000 and
$1,044,000, respectively, in legal fees to that firm which were primarily for
loan workout and collection matters.
5. Allowance
for Loan Losses:
Changes
in the allowance for loan losses for the years ended December 31, are as
follows:
(Dollars
in thousands)
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$
|
6,684
|
|
$
|
7,333
|
|
$
|
6,076
|
|
Charge-offs
|
|
|
(1,163
|
)
|
|
(1,922
|
)
|
|
(5,965
|
)
|
Recoveries
|
|
|
910
|
|
|
1,587
|
|
|
1,395
|
|
Provision
(recovery) for loan losses
|
|
|
1,186
|
|
|
(314
|
)
|
|
5,827
|
|
Balance
at end of year
|
|
$
|
7,617
|
|
$
|
6,684
|
|
$
|
7,333
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Premises
and Equipment:
A
summary
of premises and equipment is as follows:
(Dollars
in thousands)
|
|
Useful
lives
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Furniture
and equipment
|
|
|
3
to 10 years
|
|
$
|
7,520
|
|
$
|
6,581
|
|
Bank
building
|
|
|
40
years
|
|
|
1,009
|
|
|
1,009
|
|
Leasehold
improvements
|
|
|
20
years
|
|
|
2,470
|
|
|
2,449
|
|
|
|
|
|
|
|
10,999
|
|
|
10,039
|
|
Less
accumulated depreciation
|
|
|
|
|
|
(7,401
|
)
|
|
(6,414
|
)
|
Net
premises and equipment
|
|
|
|
|
$
|
3,598
|
|
$
|
3,625
|
|
Depreciation
expense on premises, equipment and leasehold improvements amounted to $991,000,
$947,000 and $1.1 million in 2005, 2004 and 2003 respectively.
7. Borrowings:
Republic
has a line of credit for $15.0 million available for the purchase of federal
funds from a correspondent bank. At December 31, 2005 and 2004, Republic had
$0
outstanding on this line.
Republic
has a collateralized line of credit with the Federal Home Loan Bank of
Pittsburgh with a maximum borrowing capacity of $193.4 million as of December
31, 2005. This maximum borrowing capacity is subject to change on a monthly
basis. As of December 31, 2005 and 2004, there were $0 and $25.0 million
respectively of term advances, outstanding on these lines of credit. The term
advances matured in February 2005. The interest rate on the term advances at
December 31, 2004 was 6.71%. As of December 31, 2005 and 2004, there were $123.9
million and $61.1 million of overnight advances outstanding against these lines.
The interest rates on overnight advances at December 31, 2005 and 2004 were
4.23% and 2.21%, respectively. The maximum amount of term advances outstanding
at any month-end was $25.0 million in 2005 and $125.0 million in 2004. The
maximum amount of overnight borrowings outstanding at any month-end was $160.8
million in 2005 and $61.1 million in 2004. Average amounts outstanding of term
advances for 2005, 2004 and 2003 were $3.8 million, $107.7 million and $125.0
million, respectively; and the related weighted average interest rates for
2005,
2004 and 2003 were 6.80%, 6.34% and 6.27%, respectively. Average amounts
outstanding of overnight borrowings for 2005, 2004 and 2003 were $65.7 million,
$5.2 million and $2.3 million, respectively; and the related weighted average
interest rates for 2005, 2004 and 2003 were 3.61%, 2.06% and 1.38%,
respectively.
Subordinated
debt and corporation-obligated-mandatorily redeemable capital securities of
subsidiary trust holding solely junior obligations of the corporation:
In
2001,
the Company, through a pooled offering, issued $6.2 million of
corporation-obligated mandatorily redeemable capital securities of the
subsidiary trust holding solely junior subordinated debentures of the
corporation more commonly known as Trust Preferred Securities. The purpose
of
the issuance was to increase capital as a result of the Company's continued
loan and
core deposit growth. The trust preferred securities qualify as Tier 1 capital
for regulatory purposes in amounts up to 25% of total Tier 1 capital. The
Company may call the securities on any interest payment date after five years,
without a prepayment penalty, notwithstanding their final 30 year maturity.
The
interest rate is variable and adjustable semi-annually at 3.75% over the 6
month
London Interbank Offered Rate (“Libor”).
The
interest rates at December 31, 2005 and 2004 were 8.42% and 5.61%, respectively.
The interest rate cap
of
11% is effective
through the initial 5-year call date.
8. Deposits:
The
following is a breakdown, by contractual maturities of the Company’s time
certificate of deposits for the years 2006 through 2010 and beyond, which
includes brokered certificates of deposit of approximately $ 85.9 million with
original terms of three months.
(Dollars
in thousands)
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
Thereafter
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
Certificates of Deposit
|
|
$
|
180,995
|
|
$
|
52,776
|
|
$
|
16,231
|
|
$
|
10,521
|
|
$
|
5,385
|
|
$
|
4
|
|
$
|
265,912
|
|
9. Income
Taxes:
The
following represents the components of income tax expense (benefit) for the
years ended December 31, 2005, 2004 and 2003, respectively.
(Dollars
in thousands)
|
|
2005
|
|
2004
|
|
2003
|
|
Current
provision
|
|
|
|
|
|
|
|
Federal:
|
|
|
|
|
|
|
|
Current
|
|
$
|
4,808
|
|
$
|
2,459
|
|
$
|
2,099
|
|
Deferred
|
|
|
(322
|
)
|
|
235
|
|
|
(832
|
)
|
Total
provision for income taxes
to
continuing operations
|
|
$
|
4,486
|
|
$
|
2,694
|
|
$
|
1,267
|
|
The
following table accounts for the difference between the actual tax provision
and
the amount obtained by applying the statutory federal income tax rate of 34.0%
to income before income taxes for the years ended December 31, 2005, 2004
and 2003.
(Dollars
in thousands)
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
Tax
provision computed at statutory rate
|
|
$
|
4,549
|
|
$
|
2,817
|
|
$
|
1,346
|
|
Other
|
|
|
(63
|
)
|
|
(123
|
)
|
|
(79
|
)
|
Total
provision for income taxes relating to continuing
operations
|
|
$
|
4,486
|
|
$
|
2,694
|
|
$
|
1,267
|
|
The
approximate tax effect of each type of temporary difference that gives rise
to
net deferred tax assets included in the accrued income and other assets in
the
accompanying consolidated balance sheets at December 31, 2005 and 2004 are
as
follows:
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
$
|
2,563
|
|
$
|
2,246
|
|
Deferred
compensation
|
|
|
818
|
|
|
642
|
|
Unrealized
gain on securities available for sale
|
|
|
(42
|
)
|
|
(161
|
)
|
Deferred
loan costs
|
|
|
(561
|
)
|
|
(546
|
)
|
Other
|
|
|
(220
|
)
|
|
(64
|
)
|
Net
deferred tax asset
|
|
$
|
2,558
|
|
$
|
2,117
|
|
The
realizability of the deferred tax asset is dependent upon a variety of factors,
including the generation of future taxable income, the existence of taxes paid
and recoverable, the reversal of deferred tax liabilities and tax planning
strategies. Based upon these and other factors, management believes that it
is
more likely than not that the Company will realize the benefits of these
deferred tax assets.
10. Financial
Instruments with Off-Balance Sheet Risk:
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. 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 $203.0 million and $147.5 million
and standby letters of credit of approximately $5.8 million and $7.6 million
at
December 31, 2005 and 2004, respectively. The increase in commitments
reflects increases in commercial lending. However, commitments may often expire
without being drawn upon. Of the $203.0 million of commitments to extend credit
at December 31, 2005, substantially all were variable rate commitments.
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 issued 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. Management
believes that the proceeds obtained through a liquidation of such collateral
would be sufficient to cover the maximum potential amount of future payments
required under the corresponding guarantees. The current amount of liability
as
of December 31, 2005 and 2004 for guarantees under standby letters of credit
issued is not material.
11. Commitments:
Lease
Arrangements:
As
of
December 31, 2005, the Company had entered into non-cancelable leases expiring
through October 31, 2029, including renewal options. The leases are accounted
for as operating leases. The minimum annual rental payments required under
these
leases are as follows:
(Dollars
in thousands)
|
|
|
|
Year
Ended
|
|
Amount
|
|
|
|
|
|
2006
|
|
$
|
959
|
|
2007
|
|
|
967
|
|
2008
|
|
|
953
|
|
2009
|
|
|
853
|
|
2010
|
|
|
859
|
|
Thereafter
|
|
|
4,671
|
|
Total
|
|
$
|
9,262
|
|
The
Company incurred rent expense of $922,000, $855,000 and $815,000 for the years
ended December 31, 2005, 2004 and 2003, respectively.
Employment
Agreements:
The
Company has entered into an employment agreement with the CEO of the Company
which provides for the payment of base salary and certain benefits through
the
year 2007. The aggregate commitment for future salaries and benefits under
this
employment agreement at December 31, 2005, is approximately
$700,000.
Other:
The
Company and Republic are from time to time a party (plaintiff or defendant)
to
lawsuits that are in the normal course of business. While any litigation
involves an element of uncertainty, management, after reviewing pending actions
with its legal counsel, is of the opinion that the liability of the Company
and
Republic, if any, resulting from such actions will not have a material effect
on
the financial condition or results of operations of the Company and
Republic.
12. Regulatory
Capital:
Dividend
payments by Republic to the Company are subject to the Pennsylvania Banking
Code
of 1965 (the “Banking Code and the Federal Deposit Insurance Act (the “FDIA”).
Under the Banking Code, no dividends may be paid except from “accumulated net
earnings” (generally, undivided profits). Under the FDIA, an insured bank may
pay no dividends if the bank is in arrears in the payment of any insurance
assessment due to the FDIC. Under current banking laws, Republic would be
limited to $41.1 million of dividends plus an additional amount equal to its
net
profit for 2006, up to the date of any such dividend declaration. However,
dividends would be further limited in order to maintain capital ratios. The
Company may consider dividend payments in 2006.
State
and
Federal regulatory authorities have adopted standards for the maintenance of
adequate levels of capital by Republic. Federal banking agencies impose three
minimum capital requirements on the Company’s risk-based capital ratios based on
total capital, Tier 1 capital, and a leverage capital ratio. The risk-based
capital ratios measure the adequacy of a bank’s capital against the riskiness of
its assets and off-balance sheet activities. Failure to maintain adequate
capital is a basis for “prompt corrective action” or other regulatory
enforcement action. In assessing a bank’s capital adequacy, regulators also
consider other factors such as interest rate risk exposure; liquidity, funding
and market risks; quality and level or earnings; concentrations of credit;
quality of loans and investments; risks of any nontraditional activities;
effectiveness of bank policies; and management’s overall ability to monitor and
control risks.
Management
believes that Republic meets, as of December 31, 2005, all capital adequacy
requirements to which it is subject.
As of
December 31, 2005, the FDIC categorized Republic as well capitalized under
the
regulatory framework for prompt corrective action provisions of the Federal
Deposit Insurance Act. There
are
no calculations or events since that notification that management believes
have
changed Republic’s category.
The
following table presents the Company’s and Republic’s capital regulatory ratios
at December 31, 2005 and 2004(1):
|
|
Actual
|
|
For
Capital
Adequacy
Purposes
|
|
To
be well
capitalized
under
regulatory
capital guidelines
|
|
(Dollars
in thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
risk based capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
$
|
76,537
|
|
|
11.72
|
%
|
$
|
52,234
|
|
|
8.00
|
%
|
$
|
65,292
|
|
|
10.00
|
%
|
Company.
|
|
|
77,213
|
|
|
11.81
|
%
|
|
52,299
|
|
|
8.00
|
%
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
one risk based capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
|
68,920
|
|
|
10.56
|
%
|
|
26,117
|
|
|
4.00
|
%
|
|
39,175
|
|
|
6.00
|
%
|
Company.
|
|
|
69,596
|
|
|
10.65
|
%
|
|
26,149
|
|
|
4.00
|
%
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
one leverage capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
|
68,920
|
|
|
8.81
|
%
|
|
39,102
|
|
|
5.00
|
%
|
|
39,102
|
|
|
5.00
|
%
|
Company.
|
|
|
69,596
|
|
|
8.89
|
%
|
|
39,152
|
|
|
5.00
|
%
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
risk based capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
$
|
64,251
|
|
|
12.09
|
%
|
$
|
42,526
|
|
|
8.00
|
%
|
$
|
53,158
|
|
|
10.00
|
%
|
FBD
|
|
|
11,948
|
|
|
26.27
|
%
|
|
3,638
|
|
|
8.00
|
%
|
|
4,548
|
|
|
10.00
|
%
|
Company.
|
|
|
78,120
|
|
|
13.53
|
%
|
|
46,203
|
|
|
8.00
|
%
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
one risk based capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
|
57,606
|
|
|
10.84
|
%
|
|
21,263
|
|
|
4.00
|
%
|
|
31,895
|
|
|
6.00
|
%
|
FBD
|
|
|
11,374
|
|
|
25.01
|
%
|
|
1,819
|
|
|
4.00
|
%
|
|
2,729
|
|
|
6.00
|
%
|
Company.
|
|
|
70,894
|
|
|
12.28
|
%
|
|
23,102
|
|
|
4.00
|
%
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
one leverage capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
|
57,606
|
|
|
9.25
|
%
|
|
31,143
|
|
|
5.00
|
%
|
|
31,143
|
|
|
5.00
|
%
|
FBD
|
|
|
11,374
|
|
|
20.56
|
%
|
|
2,766
|
|
|
5.00
|
%
|
|
2,766
|
|
|
5.00
|
%
|
Company.
|
|
|
70,894
|
|
|
10.43
|
%
|
|
33,982
|
|
|
5.00
|
%
|
|
-
|
|
|
-
|
|
(1)
Spin-off of FBD effective January 1, 2005
13. Benefit
Plans:
Supplemental
Retirement Plan:
The
Company maintains a Supplemental Retirement Plan for its former Chief Executive
Officer which provides for payments of approximately $100,000 a year. At
December 31, 2005, approximately $300,000 remained to be paid. A life insurance
contract has been purchased to insure against all of the payments.
Defined
Contribution Plan:
The
Company has a defined contribution plan pursuant to the provision of 401(k)
of
the Internal Revenue Code. The Plan covers all full-time employees who meet
age
and service requirements. The plan provides for elective employee contributions
with a matching contribution from BSC Services Corp. limited to 4%. The total
expense charged to Republic, and included in salaries and employee benefits
relating to the plan was $245,000 in 2005, $135,000 in 2004 and $142,000 in
2003.
Directors’
and Officers’ Plans:
The
Company has an agreement with an insurance company to provide for an annuity
payment upon the retirement or death of certain Directors and officers, ranging
from $15,000 to $25,000 per year for ten years. The plan was modified for most
participants in 2001, to establish a minimum age of 65 to qualify for the
payments. All participants are fully vested. The accrued benefits under the
plan
at December 31, 2005, 2004 and 2003 totaled $1.5 million, $942,000, and
$886,000, respectively. The expense for the years ended December 31, 2005,
2004
and 2003, was $172,000 in each of those years. The Company funded the plan
through the purchase of certain life insurance contracts. The cash surrender
value of these contracts (owned by the Company) aggregated $2.0 million, $1.9
million, and $1.8 million at December 31, 2005, 2004 and 2003,
respectively, which is included in other assets. The Company maintains a
deferred compensation plan for certain officers, wherein a percentage of base
salary is contributed to the plan, and utilized to buy stock of the Company.
To
promote officer retention, a three year vesting period applies for each
contribution. As of December 31, 2005 no amounts were vested. Expense for 2005,
2004, and 2003 was $187,000, $205,000 and $0, respectively.
14. Fair
Value of Financial Instruments:
The
disclosure of the fair value of all financial instruments is required, whether
or not recognized on the balance sheet, for which it is practical to estimate
fair value. In cases where quoted market prices are not available, fair values
are based on assumptions including future cash flows and discount rates.
Accordingly, the fair value estimates cannot be substantiated, may not be
realized, and do not represent the underlying value of the Company.
The
Company uses the following methods and assumptions to estimate the fair value
of
each class of financial instruments for which it is practicable to estimate
that
value:
Cash,
Cash Equivalents,
Other Interest-Earning Restricted Cash, Accrued Interest Receivable and
Payable:
The
carrying value is a reasonable estimate of fair value.
Investment
Securities Held to Maturity and Available for Sale:
For
investment securities with a quoted market price, fair value is equal to quoted
market prices. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans:
For
variable-rate loans that reprice frequently and with no significant change
in
credit risk, fair value is the carrying value. For other categories of loans
such as commercial and industrial loans, real estate mortgage and consumer
loans, fair value is estimated based on the present value of the estimated
future cash flows using the current rates at which similar loans would be made
to borrowers with similar collateral and credit ratings and for similar
remaining maturities.
Bank
Owned Life insurance:
The
fair
value of bank owned life insurance is based on the estimated realizable market
value of the underlying investments and insurance reserves.
Deposit
Liabilities:
For
checking, savings and money market accounts, fair value is the amount payable
on
demand at the reporting date. For time deposits, fair value is estimated using
the rates currently offered for deposits of similar remaining
maturities.
Borrowings:
Fair
values of borrowings are based on the present value of estimated cash flows,
using current rates, at which similar borrowings could be obtained by Republic
or the Company with similar maturities.
Commitments
to Extend Credit and Standby Letters of Credit:
The
fair
value of commitments to extend credit is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparts.
For fixed rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates. The fair
value
of letters of credit is based on fees currently charged for similar
arrangements.
At
December 31, 2005 and December 31, 2004, the carrying amount and the estimated
fair value of the Company’s financial instruments are as follows:
|
|
December
31, 2005
|
|
December
31, 2004
|
|
(Dollars
in Thousands)
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
106,974
|
|
$
|
106,974
|
|
$
|
36,703
|
|
$
|
36,703
|
|
Other
interest-earning restricted cash
|
|
|
-
|
|
|
-
|
|
|
2,923
|
|
|
2,923
|
|
Investment
securities available for sale
|
|
|
37,283
|
|
|
37,283
|
|
|
43,733
|
|
|
43,733
|
|
Investment
securities held to maturity
|
|
|
559
|
|
|
570
|
|
|
792
|
|
|
813
|
|
FHLB
stock
|
|
|
6,319
|
|
|
6,319
|
|
|
4,635
|
|
|
4,635
|
|
Loans
receivable, net
|
|
|
670,469
|
|
|
664,676
|
|
|
543,005
|
|
|
543,936
|
|
Bank
owned life insurance
|
|
|
10,926
|
|
|
10,926
|
|
|
10,595
|
|
|
10,595
|
|
Accrued
interest receivable
|
|
|
3,784
|
|
|
3,784
|
|
|
3,390
|
|
|
3,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand,
savings and money market
|
|
$
|
381,931
|
|
$
|
381,931
|
|
$
|
323,532
|
|
$
|
323,532
|
|
Time
|
|
|
265,912
|
|
|
262,173
|
|
|
187,152
|
|
|
183,921
|
|
Subordinated
debt
|
|
|
6,186
|
|
|
6,186
|
|
|
6,186
|
|
|
6,186
|
|
Short-term
borrowings
|
|
|
123,867
|
|
|
123,867
|
|
|
61,090
|
|
|
61,090
|
|
FHLB
advances
|
|
|
-
|
|
|
-
|
|
|
25,000
|
|
|
25,165
|
|
Accrued
interest payable
|
|
|
1,813
|
|
|
1,813
|
|
|
2,126
|
|
|
2,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005
|
December
31, 2004
|
(Dollars
in Thousands)
|
|
|
Notional
Amount
|
|
|
Fair
Value
|
|
|
Notional
Amount
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off
Balance Sheet financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
to extend credit
|
|
$
|
203,044
|
|
|
-
|
|
$
|
147,546
|
|
|
-
|
|
Standby
letters-of-credit
|
|
|
5,795
|
|
|
-
|
|
|
7,624
|
|
|
-
|
|
15. Stock
Based Compensation:
The
Company maintains a Stock Option Plan (the “Plan”) under which the Company
grants options to its employees and directors. Under the terms of the plan,
1.5
million shares of common stock, plus an annual increase equal to the number
of
shares needed to restore the maximum number of shares that may be available
for
grant under the plan to 1.5 million shares, are reserved for such options.
The
Plan provides that the exercise price of each option granted equals the market
price of the Company’s stock on the date of grant. Any option granted vests
within one to five years and has a maximum term of ten years.
|
|
For
the Years Ended December 31,
|
|
|
|
(Dollars
in thousands)
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding,
beginning of year
|
|
|
926,014
|
|
$
|
5.15
|
|
|
973,446
|
|
$
|
4.87
|
|
|
1,106,722
|
|
$
|
3.59
|
|
Granted
|
|
|
157,819
|
|
|
12.27
|
|
|
34,496
|
|
|
9.85
|
|
|
223,813
|
|
|
8.39
|
|
Exercised
|
|
|
(433,508
|
)
|
|
2.94
|
|
|
(66,220
|
)
|
|
4.78
|
|
|
(353,000
|
)
|
|
3.10
|
|
Forfeited
|
|
|
(5,441
|
)
|
|
7.78
|
|
|
(15,708
|
)
|
|
5.25
|
|
|
(4,089
|
)
|
|
4.88
|
|
Outstanding,
end of year
|
|
|
644,884
|
|
|
6.57
|
|
|
926,014
|
|
|
5.15
|
|
|
973,446
|
|
|
4.87
|
|
Options
exercisable at year-end
|
|
|
644,884
|
|
|
6.57
|
|
|
888,488
|
|
|
4.96
|
|
|
927,555
|
|
|
4.71
|
|
Weighted
average fair value of options granted during the year
|
|
|
|
|
$
|
4.94
|
|
|
|
|
$
|
3.59
|
|
|
|
|
$
|
3.02
|
|
The
following table summarizes information about options outstanding at December
31,
2005.
|
|
|
|
|
Options
outstanding
|
|
Options
exercisable
|
Range
of exercise Prices
|
Number
outstanding at December
31,
2005
|
|
Weighted
Average
remaining
contractual
life
(years)
|
|
Weighted
Average
exercise
price
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
$2.19
|
111,496
|
|
5.0
|
|
$
2.19
|
|
|
111,496
|
|
$
2.19
|
$3.29
to $4.30
|
175,560
|
|
6.3
|
|
3.55
|
|
|
175,560
|
|
3.55
|
$4.55
to $5.59
|
27,529
|
|
5.6
|
|
4.84
|
|
|
27,529
|
|
4.84
|
$7.29
to $8.15
|
172,480
|
|
8.1
|
|
7.53
|
|
|
172,480
|
|
7.53
|
$12.02
to $13.15
|
157,819
|
|
9.4
|
|
12.27
|
|
|
157,819
|
|
12.27
|
|
644,884
|
|
|
|
$
6.57
|
|
|
644,884
|
|
$6.57
|
16. Segment
Reporting:
As
a
result of the spin off of the FBD, the tax refund products and short-term
consumer loan segments were also spun off as they were divisions of that bank.
In the normal course of business, tax refund loans may continue to be purchased
from FBD. After the spin off, the Company has one reportable segment: community
banking. The community bank segments primarily encompasses the commercial loan
and deposit activities of Republic, as well as consumer loan products in the
area surrounding its branches.
Segment
information for the years ended December 31, 2004 and 2003 is as
follows:
December
31, 2004
(Dollars
in thousands)
|
|
Republic
First
Bank
|
|
Tax
Refund
Products
|
|
Short-term
Consumer
Loans
|
|
Discontinued
Operations
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$
|
17,933
|
|
$
|
918
|
|
$
|
-
|
|
$
|
-
|
|
$
|
18,851
|
|
Provision
for loan losses
|
|
|
(1,014
|
)
|
|
700
|
|
|
-
|
|
|
-
|
|
|
(314
|
)
|
Non-interest
income
|
|
|
4,466
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,466
|
|
Non-interest
expenses
|
|
|
15,346
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
15,346
|
|
Income
from continuing operations
|
|
|
5,405
|
|
|
186
|
|
|
-
|
|
|
-
|
|
|
5,591
|
|
Income
from discontinued operations, net of taxes…
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,349
|
|
|
3,349
|
|
Net
income
|
|
$
|
5,405
|
|
$
|
186
|
|
$
|
-
|
|
$
|
3,349
|
|
$
|
8,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Balance Sheet Amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
664,804
|
|
$
|
-
|
|
$
|
-
|
|
$
|
55,608
|
|
$
|
720,412
|
|
Total
loans, net
|
|
|
543,005
|
|
|
-
|
|
|
-
|
|
|
39,914
|
|
|
582,919
|
|
Total
deposits
|
|
|
510,684
|
|
|
-
|
|
|
-
|
|
|
34,712
|
|
|
545,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2003
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
First
Bank
|
|
Tax
Refund
Products
|
|
Short-term
Consumer
Loans
|
|
Discontinued
Operations
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$
|
14,852
|
|
$
|
1,150
|
|
$
|
5,544
|
|
$
|
-
|
|
$
|
21,546
|
|
Provision
for loan losses
|
|
|
360
|
|
|
1,042
|
|
|
4,425
|
|
|
-
|
|
|
5,827
|
|
Non-interest
income
|
|
|
2,853
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,853
|
|
Non-interest
expenses
|
|
|
14,614
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
14,614
|
|
Income
from continuing operations
|
|
|
1,931
|
|
|
67
|
|
|
693
|
|
|
-
|
|
|
2,691
|
|
Income
from discontinued operations, net of taxes…
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,223
|
|
|
2,223
|
|
Net
income
|
|
$
|
1,931
|
|
$
|
67
|
|
$
|
693
|
|
$
|
2,223
|
|
$
|
4,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Balance Sheet Amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
620,284
|
|
$
|
-
|
|
$
|
-
|
|
$
|
34,508
|
|
$
|
654,792
|
|
Total
loans, net
|
|
|
452,491
|
|
|
-
|
|
|
-
|
|
|
27,032
|
|
|
479,523
|
|
Total
deposits
|
|
|
425,497
|
|
|
-
|
|
|
-
|
|
|
28,108
|
|
|
453,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.
Transactions with Affiliate:
Prior
to
January 1, 2005, FBD was a wholly owned subsidiary of the Company.
At
December 31, 2005 and 2004, Republic had outstanding balances of $41.1 million
and $25.4 million, respectively, of commercial loans, which had been
participated to FBD. FBD also sold its tax refund loans to Republic. Such loans
are repaid by U.S. Treasury-issued tax refunds paid directly to FBD in the
first
and second quarters of the year. Accordingly, there were no such loans
outstanding at December 31, 2005 and 2004. As of December 31, 2005 and 2004
Republic had outstanding balances of $67.8 and $54.5 million of commercial
loan
balances it had purchased from FBD. The above loan participations and sales
were
made at arms length. They are made as a result of lending limit and other
regulatory requirements. FBD also maintained a correspondent bank deposit
account with Republic. At December 31, 2005 and 2004, balances amounted to
$0
and $0 respectively.
18. Parent
Company Financial Information
The
following financial statements for Republic First Bancorp, Inc. should be read
in conjunction with the consolidated financial statements and the other notes
related to the consolidated financial statements.
BALANCE
SHEETS
December
31, 2005 and 2004
(Dollars
in thousands)
|
|
2005
|
|
2004
|
|
ASSETS:
|
|
|
|
|
|
Cash
|
|
$
|
438
|
|
$
|
962
|
|
Corporation-obligated
mandatorily redeemable
capital
securities of subsidiary trust holding junior
obligations
of the corporation
|
|
|
186
|
|
|
186
|
|
Investment
in subsidiaries
|
|
|
69,001
|
|
|
69,311
|
|
Other
assets
|
|
|
1,106
|
|
|
973
|
|
Total
Assets
|
|
$
|
70,731
|
|
$
|
71,432
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
$
|
868
|
|
$
|
22
|
|
Corporation-obligated
mandatorily redeemable
|
|
|
|
|
|
|
|
securities
of subsidiary trust holding solely junior
|
|
|
|
|
|
|
|
subordinated
debentures of the corporation
|
|
|
6,186
|
|
|
6,186
|
|
Total
Liabilities
|
|
|
7,054
|
|
|
6,208
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity:
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
-
|
|
|
-
|
|
Common
stock
|
|
|
88
|
|
|
74
|
|
Additional
paid in capital
|
|
|
50,203
|
|
|
42,494
|
|
Retained
earnings
|
|
|
15,566
|
|
|
23,867
|
|
Treasury
stock at cost (227,778 shares and 192,689 respectively)
|
|
|
(1,688
|
)
|
|
(1,541
|
)
|
Stock
held by deferred compensation plan
|
|
|
(573
|
)
|
|
-
|
|
Accumulated
other comprehensive income
|
|
|
81
|
|
|
330
|
|
Total
Shareholders’ Equity
|
|
|
63,677
|
|
|
65,224
|
|
Total
Liabilities and Shareholders’ Equity
|
|
$
|
70,731
|
|
$
|
71,432
|
|
STATEMENTS
OF INCOME AND CHANGES IN SHAREHOLDERS’ EQUITY
For
the years ended December 31, 2005, 2004 and 2003
(Dollars
in thousands)
|
|
2005
|
|
2004
|
|
2003
|
|
Interest
income
|
|
$
|
13
|
|
$
|
12
|
|
$
|
3
|
|
Dividend
income from subsidiaries
|
|
|
444
|
|
|
324
|
|
|
372
|
|
Total
income
|
|
|
457
|
|
|
336
|
|
|
375
|
|
Trust
preferred interest expense
|
|
|
444
|
|
|
324
|
|
|
372
|
|
Expenses
|
|
|
8
|
|
|
128
|
|
|
11
|
|
Total
expenses
|
|
|
452
|
|
|
452
|
|
|
383
|
|
Net
income (loss) before taxes
|
|
|
5
|
|
|
(116
|
)
|
|
(8
|
)
|
Federal
income tax (benefit)
|
|
|
2
|
|
|
(39
|
)
|
|
(3
|
)
|
Income
(loss) before undistributed income of subsidiaries
|
|
|
3
|
|
|
(77
|
)
|
|
(5
|
)
|
Total
equity in undistributed income of continuing operations
|
|
|
8,890
|
|
|
5,668
|
|
|
2,696
|
|
Total
equity in undistributed income of discontinued operations
|
|
|
-
|
|
|
3,349
|
|
|
2,223
|
|
Total
equity in undistributed income of subsidiaries
|
|
|
8,890
|
|
|
9,017
|
|
|
4,919
|
|
Net
income
|
|
$
|
8,893
|
|
$
|
8,940
|
|
$
|
4,914
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity, beginning of year
|
|
$
|
65,224
|
|
$
|
56,376
|
|
$
|
51,276
|
|
First
Bank of Delaware spin-off
|
|
|
(11,396
|
)
|
|
-
|
|
|
-
|
|
Exercise
of stock options
|
|
|
1,275
|
|
|
358
|
|
|
1,094
|
|
Purchase
of treasury shares
|
|
|
(143
|
)
|
|
-
|
|
|
-
|
|
Tax
benefits of stock options exercises
|
|
|
624
|
|
|
-
|
|
|
-
|
|
Stock
purchase for deferred compensation plan
|
|
|
(573
|
)
|
|
-
|
|
|
-
|
|
Income
from continuing operations
|
|
|
8,893
|
|
|
5,591
|
|
|
2,691
|
|
Income
from discontinued operations
|
|
|
-
|
|
|
3,349
|
|
|
2,223
|
|
Net
income
|
|
|
8,893
|
|
|
8,940
|
|
|
4,914
|
|
Change
in unrealized gain (loss) on securities available for sale
|
|
|
(227
|
)
|
|
(450
|
)
|
|
(908
|
)
|
Shareholders’
equity, end of year
|
|
$
|
63,677
|
|
$
|
65,224
|
|
$
|
56,376
|
|
STATEMENTS
OF CASH FLOWS
For
the years ended December 31, 2005, 2004 and 2003
(Dollars
in thousands)
|
|
2005
|
|
2004
|
|
2003
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
8,893
|
|
$
|
8,940
|
|
$
|
4,914
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
|
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
Tax
benefits of stock option exercises
|
|
|
624
|
|
|
-
|
|
|
-
|
|
Stock
purchases for deferred compensation place
|
|
|
(573
|
)
|
|
-
|
|
|
-
|
|
Decrease
(increase) in other assets
|
|
|
(757
|
)
|
|
(11
|
)
|
|
61
|
|
Increase
(decrease) in other liabilities
|
|
|
847
|
|
|
(145
|
)
|
|
106
|
|
Equity
in undistributed income of continuing operations
|
|
|
(8,890
|
)
|
|
(5,668
|
)
|
|
(2,696
|
)
|
Equity
in undistributed income of discontinued operations
|
|
|
-
|
|
|
(3,349
|
)
|
|
(2,223
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
144
|
|
|
(233
|
)
|
|
162
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Investment
in subsidiary - continuing operations
|
|
|
(1,800
|
)
|
|
-
|
|
|
(1,500
|
)
|
Purchase
of treasury shares
|
|
|
(143
|
)
|
|
-
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(1,943
|
)
|
|
-
|
|
|
(1,500
|
)
|
Cash
from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
1,275
|
|
|
358
|
|
|
1,094
|
|
Net
cash provided by financing activities
|
|
|
1,275
|
|
|
358
|
|
|
1,094
|
|
Increase/(decrease)
in cash
|
|
|
(524
|
)
|
|
125
|
|
|
(244
|
)
|
Cash,
beginning of period
|
|
|
962
|
|
|
837
|
|
|
1,081
|
|
Cash,
end of period
|
|
$
|
438
|
|
$
|
962
|
|
$
|
837
|
|
19. Quarterly
Financial Data (Unaudited):
The
following tables are summary unaudited income statement information for each
of
the quarters ended during 2005 and 2004.
Summary
of Selected Quarterly Consolidated Financial Data
|
|
For
the Quarter Ended, 2005
|
|
(Dollars
in thousands, except per share data)
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
Income
Statement Data:
|
|
|
|
|
|
|
|
|
|
Total
interest income
|
|
$
|
12,821
|
|
$
|
11,233
|
|
$
|
10,495
|
|
$
|
10,832
|
|
Total
interest expense
|
|
|
5,049
|
|
|
3,976
|
|
|
3,564
|
|
|
3,634
|
|
Net
interest income
|
|
|
7,772
|
|
|
7,257
|
|
|
6,931
|
|
|
7,198
|
|
Provision
for loan losses
|
|
|
49
|
|
|
315
|
|
|
119
|
|
|
703
|
|
Non-interest
income
|
|
|
808
|
|
|
904
|
|
|
759
|
|
|
1,143
|
|
Non-interest
expense
|
|
|
4,593
|
|
|
4,603
|
|
|
4,540
|
|
|
4,471
|
|
Provision
for income taxes
|
|
|
1,342
|
|
|
1,102
|
|
|
997
|
|
|
1,045
|
|
Net
income
|
|
$
|
2,596
|
|
$
|
2,141
|
|
$
|
2,034
|
|
$
|
2,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
0.31
|
|
$
|
0.25
|
|
$
|
0.24
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
0.30
|
|
$
|
0.24
|
|
$
|
0.23
|
|
$
|
0.25
|
|
|
|
For
the Quarter Ended, 2004
|
|
(Dollars
in thousands, except per share data)
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
|
|
|
|
|
|
|
|
|
|
Income
Statement Data:
|
|
|
|
|
|
|
|
|
|
Total
interest income
|
|
$
|
9,247
|
|
$
|
8,243
|
|
$
|
7,626
|
|
$
|
8,483
|
|
Total
interest expense
|
|
|
3,278
|
|
|
3,734
|
|
|
3,794
|
|
|
3,942
|
|
Net
interest income
|
|
|
5,969
|
|
|
4,509
|
|
|
3,832
|
|
|
4,541
|
|
Provision
(recovery) for loan losses
|
|
|
550
|
|
|
(1,363
|
)
|
|
(200
|
)
|
|
699
|
|
Non-interest
income
|
|
|
1,034
|
|
|
2,021
|
|
|
690
|
|
|
721
|
|
Non-interest
expense
|
|
|
4,099
|
|
|
4,048
|
|
|
3,472
|
|
|
3,727
|
|
Provision
for income taxes
|
|
|
774
|
|
|
1,265
|
|
|
401
|
|
|
254
|
|
Income
from continuing operations
|
|
|
1,580
|
|
|
2,580
|
|
|
849
|
|
|
582
|
|
Income
from discontinued operations
|
|
|
1,547
|
|
|
776
|
|
|
1,298
|
|
|
1,439
|
|
Income
tax on discontinued operations
|
|
|
464
|
|
|
273
|
|
|
464
|
|
|
510
|
|
Net
income
|
|
$
|
2,663
|
|
$
|
3,083
|
|
$
|
1,683
|
|
$
|
1,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
0.20
|
|
$
|
0.31
|
|
$
|
0.11
|
|
$
|
0.07
|
|
Income
from discontinued operations
|
|
|
0.13
|
|
|
0.06
|
|
|
0.10
|
|
|
0.12
|
|
Net
income
|
|
$
|
0.33
|
|
$
|
0.37
|
|
$
|
0.21
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
0.19
|
|
$
|
0.30
|
|
$
|
0.10
|
|
$
|
0.07
|
|
Income
from discontinued operations
|
|
|
0.12
|
|
|
0.06
|
|
|
0.10
|
|
|
0.11
|
|
Net
income
|
|
$
|
0.31
|
|
$
|
0.36
|
|
$
|
0.20
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20. Discontinued
Operations - First Bank of Delaware Spin-off:
The
Company spun off its former subsidiary, the First Bank of Delaware, on January
31, 2005. In accordance with SFAS No. 144, the spin-off is being presented
as a
discontinued operation (See Note 1).
The
major
classes of assets and liabilities at December 31, 2004 included in the Company’s
Consolidated Balance Sheet were as follows:
(Dollars
in thousands)
|
|
|
|
Assets
associated with spin-off:
|
|
|
|
Total
cash and cash equivalents
|
|
$
|
11,304
|
|
Investment
securities available for sale, at fair value
|
|
|
1,207
|
|
Loans
receivable (net of allowance for loan losses of $1,050)
|
|
|
39,914
|
|
Other,
net
|
|
|
3,183
|
|
Total
assets of First Bank of Delaware
|
|
$
|
55,608
|
|
|
|
|
|
|
Liabilities
associated with spin-off:
|
|
|
|
|
Total
deposits
|
|
$
|
37,713
|
|
Other,
net
|
|
|
6,499
|
|
Total
liabilities of First Bank of Delaware
|
|
$
|
44,212
|
|
The
major
classes of income and expense for the years ended December 31, 2004 and 2003
included in the Company’s Consolidated Statements of Income were as
follows:
(Dollars
in thousands)
|
|
|
|
|
|
|
|
2004
|
|
2003
|
|
Total
interest income
|
|
$
|
4,192
|
|
$
|
4,709
|
|
Total
interest expense
|
|
|
444
|
|
|
504
|
|
Net
interest income
|
|
|
3,748
|
|
|
4,205
|
|
Provision
for loan losses
|
|
|
1,463
|
|
|
937
|
|
Non-interest
income
|
|
|
7,986
|
|
|
4,781
|
|
Non-interest
expense
|
|
|
5,211
|
|
|
4,609
|
|
Provision
for income taxes
|
|
|
1,711
|
|
|
1,217
|
|
Income
from discontinued operations, net of tax
|
|
$
|
3,349
|
|
$
|
2,223
|
|
73