Republic First Bancorp, Inc.
Q3 2019 Earnings Call Transcript

Published: 28 Oct 2019

[Operator:]

Welcome to the Third Quarter 2019 Earnings Conference Call. My name is Daryl and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference call is being recorded.I will now turn the call over to Vernon Hill. Mr. Hill, you may begin.

[Vernon Hill:]

Thank you, Daryl, good morning and thank you for joining the Q3 call -- pardon, my [ph] call. With me today are Chief Executive of Republic, Harry Madonna; Andy Logue, Chief Operating officer -- excuse me; and Frank Cavallaro, the Chief Financial Officer. I assume you all have the quarter three press release and I'll hand it over to Frank now I guess. Go ahead, Frank.

[Frank Cavallaro:]

So we're pleased to report our results for the third quarter. We've had deposit growth of over $340 million year-over-year. We've grown this [ph] $2.7 billion or 14% during that period. The new stores that we've opened our prototype buildings are growing deposits at an average of $24 million a year, while our overall average from each store is $14 million a year. We've opened our first store in New York City during the third quarter, located at 14th Street and 5th, and we expect to open our next store in New York in the fourth quarter located at 51st and 3rd.Our loans grew $190 million year-over-year or 14% to $1.6 billion, and that growth has been despite a challenging environment where we see significant payoffs and refinancing. So we continue to see a strong pipeline at our fleets [ph] of loan growth.Total assets reached $3.1 billion as of September 30. That's growth of over $400 million since a year ago. We've got 28 total stores opened today. We recorded net loss in the quarter, year-to-date, our net loss is $1 million or $0.02 a share, compared to $6.5 million a year ago at this time. We continue to see compression in the margin as a result of a flat or inverted yield curve, and in addition, we're incurring the cost to build out the New York market. We anticipate that the margin will not continue to compress as a result of the decline in Fed funds rates and [indiscernible] from the cost of some of our higher cost deposits.

[Vernon Hill:]

And New York, business will be getting to -- go ahead, Frank.

[Frank Cavallaro:]

Yes, the New York is now -- during the first-half of the year, we were only occurring expenses, now that we're starting to open new stores we're seeing revenue production as a result of volume growth and deposit growth.

[Vernon Hill:]

Harry, you want to go ahead? Anybody else?

[Harry Madonna:]

Hi, let's open up the floor, please.

[Operator:]

[Operation instructions]

[Vernon Hill:]

Nobody wants to ask anything?

[Operator:]

Oh, well, we do have a question from Frank Schiraldi. Mr. Schiraldi. You may ask your question.

[Frank Schiraldi:]

Thank you. Good morning. Just wanted to ask about the growth in deposits, I am wondering if you guys could share the -- it doesn't have to be -- in terms of the Manhattan branch that opened, specifically what sort of growth you saw in deposits in that branch, or where those are currently, total deposits in that branch as of the end of the quarter?

[Vernon Hill:]

Yes, hi, Frank; Vernon. We are going to release deposits per branch shortly in between the year-end [indiscernible], but we've been very pleased with our growth in deposits in our first New York store. As you've heard me say years ago before, the more stores you have the better they all do. So we're definitely seeing more growth in New York, and we would see in our stores down here. So far I think we are off to a good start, but as I did when we expanded in New York in 2001, more stores means [indiscernible] markets means more growth in each store.

[Frank Schiraldi:]

Okay. And then, just wanted if you could just in terms of modeling, I mean, in terms of the percent of costs related to the second Manhattan store, what sort of costs are already embedded in this quarter's result?

[Vernon Hill:]

Well, I'm not sure we can give you that exact number, Frank, but remember the rules have changed. When you're building new stores, no matter which markets that you are in, you have to expense the rent before [indiscernible] before the store open. So we had a cost in all new stores, particularly where we went, we have to expense the rent months before we open and then you have the normal expenses of hiring people, recruiting people, training people, but also what's happened up with that market up there, we've hired a commercial loan team, I don't [ph] think we have four or five commercial loan people for support. So it's not just one branch, it's the support on the loan side that goes with it.

[Frank Schiraldi:]

Okay. And then just finally, if you guys could just talk a little bit about your thoughts on -- I realize you were investing a lot into the model, but your thoughts on timing for a return to profitability here?

[Vernon Hill:]

Go ahead, Frank.

[Frank Cavallaro:]

We don't predict, and we don't give guidance, but we would say at a different way, Frank, we were making money even on some of the new expenses in 2019, that the first time unusual start-up expenses for the New York market should begin to be offset by the income from lending.

[Frank Schiraldi:]

Okay. So there's no -- is there any change to your thoughts on how quickly you guys are growing, how fast you want to grow in terms of store openings, or I'm just wondering if the near-term contraction and profitability has -- you know, how did you guys change your thinking at all in terms of growth rate?

[Frank Cavallaro:]

Well, we haven't announced, but I guess we're ready to say it now that our current plans are to reduce our new store openings in 2020, and that will be two stores at our metropolitan markets here in Philadelphia, and those are already being built and will open early next year. Our plan is to have at least two stores in the New York market. We haven't begun to work on those sites yet.

[Frank Schiraldi:]

Okay, great. Thank you.

[Frank Cavallaro:]

Thank you, Frank.

[Operator:]

And our next question comes from Michael Perito, Mr. Perito, you may ask your question.

[Michael Perito:]

Thank you. Good morning. I was wondering if you could maybe just talk about kind of the deposit and lending pricing performance thus far in the New York City region, and if it's kind of performed as expected, or has it been more or less costly to kind of get customers both loans and deposits through the door in the New York region?

[Vernon Hill:]

All right. We've only been there for a couple of months with one store. As Frank is just telling me right now our cost of deposits are less in Manhattan, than they are in Metro Philly. I found that same thing when commerce expanded, and generally, we found on limited time yields on loans are somewhat better in that market. So, over time, I'm hopeful that the margin will be better in the Metro New York market.

[Michael Perito:]

Okay. So it's fair to say that the balance sheet growth, which was obviously driven by a couple months of -- partly driven by a couple months of the New York City expansion getting underway, you guys are optimistic that the margin on that growth, there's room for that to be pretty solid over time?

[Vernon Hill:]

Yes, and that's what I found we were building in New York, and we went through multiple years. So generally, I found that was true for us when we built beginning in 2001, and that's what we're seeing in the few months we have here.

[Michael Perito:]

Helpful, thanks. And then, obviously strong growth, and you guys levered capital a little bit, I know that the environment has toughened and the margin is a little bit of a tough story right now, hopefully at some point that kind of abates or flips, but just any updated thoughts given the environment we're in and kind of where profitability is and the growth pipelines, you're seeing about capital, as we move towards the end of this year and into 2020?

[Vernon Hill:]

We certainly don't need to raise any capital this year. We have to look at our rates of growth for next year. We have lots of ways to raise capital. We have no debt [ph] to speak up, Mike. So we're not saying, we're all going to raise capital, and we're not saying we're not going to raise capital, and we haven't determined if we have to raise capital in what form.

[Michael Perito:]

Got it, and is it fair to say that where the stock -- where it is today that your preference would be on the debt or preferred type instrument as opposed to comment, or is that not necessarily true, depending on kind of the market outlook and your growth outlook, et cetera?

[Vernon Hill:]

Yes, it depends on the timing at the time, but shareholder value is number one on our list. So we're going to explore lots of ways to do it, and when we need to do it, including the timing. You might remember, Mike, when I was running commerce, we did converts, twice I think, and that's another option we might put in the list of what we might do.

[Michael Perito:]

Helpful. And then just one last quick one for me, just on the mortgage banking side with -- I was a little surprised that you guys had the strong quarter last quarter and with the rate environment kind of moving down, I thought maybe you would see a step-up there, but it came down modestly. Just any general thoughts on the mortgage pipeline and outlook as rates potentially continue to move down here?

[Vernon Hill:]

Go ahead, Andy.

[Andy Logue:]

Mike, the pipeline in our residential portfolio was strong. Actually it's the highest -- it's been even [indiscernible] pipeline.

[Vernon Hill:]

Okay? Anything else?

[Michael Perito:]

Yes, got it. No, that's it. Thank you, guys. I appreciate it.

[Vernon Hill:]

Thank you, Michael. And Daryl?

[Operator:]

And we do have another question. It's Brian Misener [ph]. Go ahead, Brian.

[Unidentified Analyst:]

Hi, guys. Sorry, it was actually answered by Mike, it was about future capital means with the rate of expansion in the environment, but I think [indiscernible] talked about pretty well. Thank you.

[Vernon Hill:]

Sure, thank you.

[Operator:]

[Operator Instructions]

[Vernon Hill:]

Thank you all. Cheers. Hopefully I can hear anything probably in our next quarter.

[Operator:]

All right, and we do have no more questions. So, you want to end the call?

[Vernon Hill:]

Yes, that'd be fine. Thank you. Thanks for your time.

[Operator:]

And thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. You may all disconnect.