Republic First Bancorp, Inc.
Q3 2018 Earnings Call Transcript

Published:

  • Operator:
    Welcome to the third quarter earnings call. My name is James. I'll be your operator for today's call. [Operator Instructions]. Also note, this conference is being recorded. I'd now like to turn the call over to Vernon Hill. Mr. Hill, you may begin.
  • Vernon Hill:
    Thank you. Good morning to whoever is on the today, and welcome to the third quarter release for Republic First Bancorp. With me are -- is the Chief Executive, Harry Madonna; Chief Operating Officer, Andy Logue; and the Chief Financial Officer, Frank Cavallaro. We'll run through the highlights of the press release and then we'll open the floor. We ended the third quarter in great shape. We had a great -- another great quarter in growth in the top-up of deposits. It grew $500 million in the quarter 3 and deposits at the end of the third quarter was 27%, above the third quarter of last year. Is that right, Frank?
  • Frank Cavallaro:
    Correct.
  • Vernon Hill:
    Correct me if I'm wrong here. We continue to build new stores on our Power of Red campaign. I'll talk about it in New York. So we're building new stores. Our stores -- the newer stores are growing at the average rate of $29 million in deposit growth per year and when you average those with the older Republic stores, even then, our stores were growing at $22 million a year with a very low cost of money. The magic of this model is very high deposit growth with relatively low cost of money gathered by service and some with agents. Commercial deposits constitute, Frank, what percentage?
  • Frank Cavallaro:
    Commercial deposits of approximately 70%. I'm sorry, commercial deposits of approximately 45% of the overall deposit base.
  • Vernon Hill:
    So it's important that the growth is coming in commercial first. Loans also had a great quarter. We grew $283 million for the quarter and we're up 26% in outstanding loans over September of last year. And you could see deposit grew and loan growth are tacking together. Unlike some calls you hear, we're having great success in growing our loan book at loans that -- we have loans that meet our pricing and risk criteria. We'd like to point out that our top line for the 9-month period grew 24% and our cost only grew 15% as we could -- and we expect to see top line grow at a high percentage rate than cost. We're reporting before and after tax, but -- to compare the two because we didn't have any tax liability in the third quarter of last year. Income before tax, which is on an apples-to-apples basis, grew 30% for the 9 months of 2018 compared to 2017. With that, I'll turn -- Harry, do you want to say anything, Harry?
  • Harry Madonna:
    No.
  • Vernon Hill:
    Frank? I turn it over to Frank Cavallaro?
  • Frank Cavallaro:
    Well done. So the deposit and loan growth has driven overall asset growth. Assets have grown to $2.7 billion as of September 30. In addition, I'd like to mention that on the deposit side, the fastest growing segment of our deposit base is demand deposits, led by noninterest -- growth in noninterest-bearing demand deposits of 28%. Our asset quality continues to improve. Total assets -- nonperforming assets to total assets shrank to 0.76 basis points. And in addition, our capital continues to remain strong. Despite the growth, our land capital rate has given us sufficient capital. Total capital ratio of over 15% and a leverage ratio of 9.75%. That's all.
  • Vernon Hill:
    That's all, Frank? Andy, do you have anything to say?
  • Andrew Logue:
    No. I'm good.
  • Vernon Hill:
    I think that you've all seen the story. I think the press release spells out the rest of the information you would expect to get. We would be happy to open the floor for whatever you'd like to ask now.
  • Vernon Hill:
    Anybody home? While we're waiting for that to happen, I guess, I can start off by -- I'm off to take [Technical Difficulty]
  • Operator:
    I'm sorry, sir, are you waiting for your Q&A?
  • Vernon Hill:
    Yes.
  • Operator:
    My mic just acted funny for a moment. [Operator Instructions]. Our first question is from Frank Schiraldi.
  • Frank Schiraldi:
    Vernon, I just wanted to ask about how you envision growth from here in terms of -- you talk about the 2 to 4 branches in New York in, I think, in 2019, and you talk about the 4 branches under construction in New Jersey and Pennsylvania. If you could just talk a little bit about how you see growth over the next several years in both New York and the legacy footprint?
  • Vernon Hill:
    Right. We will continue to grow in both markets, Frank. We're further along in developing new stores in our home market. But once the New York market gets going, if they do as well as we expect them to be, you can expect a higher percentage of our new stores to be directed into that market.
  • Frank Schiraldi:
    Okay. And I was just trying to get a sense of what the stores in New York would look like in terms of square footage. I'm assuming these are both Manhattan, I think, you've said in the past.
  • Vernon Hill:
    Yes. We have 3 or 4 deals going right now. They're at various stages of development. The first group will be in Manhattan. They look pretty much like we built in New York a Commerce Bank. And the way the stores look in Metro Bank in London, they need 3,000 to 4,000 feet. The one thing that's a little different than when we expanded at Commerce in New York, you don't need as many stores to cover an area because people don't do the routine transactions in the branches much. They use online and mobile, But they will look very much what we built in New York before.
  • Frank Schiraldi:
    Okay. And just lastly, you guys mentioned the balance between commercial and consumer. I wonder if you could just -- how do you expect that balance to change or migrate over time as you open these new stores? Does it? Or -- and then if you could -- also how public funds money fits into that bucket as well?
  • Vernon Hill:
    Yes. New York Commerce had more commercial than they had consumer. And we would expect that to happen as we expand into the Metro New York market. This bank was always more of a commercial than it was a consumer bank and only had higher commercial loans and commercial deposits. And it's built for that way. And over time, I will expect the mix between commercial and consumer to even be roughly where it is or more commercial. As to local governmental deposits, we do have a good amount of local government deposits as we did at Commerce. Now these are not hot money accounts. These are the check-writing cash management accounts from the local town, schools and so forth. And Frank, you will remember we had a pretty good share of that at Commerce. We believe when you become the bank for the local town, the local schools, you are the de facto or the local bank for that town. So it's not only the funds we get, it's deepening our relationships in those towns. Frank, Frank, Frank. Just let me say one other thing. Commerce had no New York City local government deposits at all. The system works different up there. You'll remember we had a tremendous deposit growth without any local government.
  • Frank Schiraldi:
    Right. So it would be the same thing here, the same idea here in terms of local government?
  • Vernon Hill:
    Yes, yes.
  • Operator:
    Our next question from Michael Perito.
  • Michael Perito:
    A couple of questions from me. I want to start on a couple of your comments, Vernon. You mentioned in the press release that you are focused on the whole experience
  • Vernon Hill:
    Andy Logue on it.
  • Andrew Logue:
    Mike, it's Andy Logue. Listen, we have mobile. We have online. We offer today our customers every which way to get in to do their banking. Similar to -- with Commerce, we're going to stay on top of anything going forward. If things change, we're going to move with them. All our vendors are up to speed in keeping us moving forward with the latest and greatest things that come along.
  • Vernon Hill:
    And Mike, to be fair, we have a full array of products. But we don't have some of the cutesy FinTech stuff which you see in some of the markets now. So as we evolve, in New York particularly, we'll decide which one makes sense for us. But we're well positioned.
  • Michael Perito:
    Okay. And are you guys finding -- I mean, in terms of, like, the core system provider, are you guys using additional vendors on top of that given some of the limitations that those Big 3 kind offer?
  • Vernon Hill:
    Yes, we have a core system from Jack.
  • Frank Cavallaro:
    Jack Henry.
  • Vernon Hill:
    And you are right. That's the way it works. You find FinTech apps you want just like we did at Commerce, you adapt them and meld them into your core. And then core is more than capable of supporting these things.
  • Frank Cavallaro:
    Correct.
  • Michael Perito:
    Okay. And I have a question for Frank. Obviously, the deposit growth is very strong and that does generate some liquidity, which in this current rate environment I'm sure isn't terribly fun to have to deploy. I'm just curious what you guys are buying on the excess liquidity that you can't put into loans today and what kind of the outlook is and how you think you'll be able to deploy some of that as presumably the strong deposit growth continues?
  • Vernon Hill:
    But before Frank answers your question, Mike. Frank, isn't it true that our deposit growth this year funded our loan growth?
  • Frank Cavallaro:
    It has. The deposit growth is a little slower in the beginning of the year but at -- through September 30, it has funded the loan growth.
  • Vernon Hill:
    And so we've been able deploy all of our deposit growth into loans, right?
  • Frank Cavallaro:
    Correct. We've also just, beginning late in the third quarter, started to buy -- to answer your question Mike, we turned to the bond market
  • Michael Perito:
    And do you -- I mean, push up -- and point well taken, Vernon, about the -- I was looking at it on a year-to-date perspective. It's been almost dollar for dollar. But presumably with New York coming on my guess is the deposit growth will likely exceed loan growth next year. Do you -- I mean, is this strategy...
  • Vernon Hill:
    Mike, I don't take that. I don't agree with that assumption. What we found when we were developing in Manhattan for Commerce, the loan growth was so strong. Over time, it overfunds itself with deposits. But generally, you should see from us very strong commercial loan growth for our clients in Manhattan.
  • Michael Perito:
    Okay. So I mean, I guess then maybe the better question is, is do you guys anticipate even as you move into Manhattan, being able to maintain or perhaps even improve modestly the loan-to-deposit ratio? As you guys are starting to budget for next year, how are you guys thinking about that dynamic?
  • Frank Cavallaro:
    Well, you've seen our five year growth targets, Mike. And when we put those targets out about two years ago, we expected deposit growth to [indiscernible] loan growth. But in the last call, Vernon indicated that as we get further into New York, we'll reevaluate and adjust those growth ratios and put out new targets when we've got good data behind it.
  • Vernon Hill:
    But if we do have a set of facts where have more growth in deposits than loans, we'll continue to invest in the bond market, in mortgage-backed, primarily.
  • Frank Cavallaro:
    Correct.
  • Operator:
    [Operator Instructions]. And it looks like that's all the questions.
  • Vernon Hill:
    Thank you very much. Thank you. We hang up?
  • Operator:
    That's it, sir. Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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